UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal quarter ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 33-27746
-----------------------
PLM EQUIPMENT GROWTH FUND IV
(Exact name of registrant as specified in its charter)
California 94-3090127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Indentification No.)
One Market, Steuart Street Tower,
Suite 800, San Francisco, CA 94105-1301
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
September 30, December 31,
1997 1996
-------------------------------------
Assets:
Equipment held for operating lease, at cost $ 89,495 $ 89,766
Less accumulated depreciation (55,557 ) (50,784 )
------------------------------------
33,938 38,982
Equipment held for sale - 5,524
------------------------------------
Net equipment 33,938 44,506
Cash and cash equivalents 751 2,142
Restricted cash 552 552
Due from affiliates - 357
Investments in unconsolidated special-purpose entities 8,733 9,616
Accounts and notes receivable, net of allowance for doubtful
accounts of $2,714 in 1997 and $2,329 in 1996 1,551 1,477
Deferred charges, net of accumulated amortization
of $466 in 1997 and $414 in 1996 138 219
Prepaid expenses and other assets 11 140
------------------------------------
Total assets $ 45,674 $ 59,009
====================================
Liabilities and partners' capital:
Liabilities:
Accounts payable and accrued expenses $ 1,024 $ 1,027
Due to affiliates 284 304
Lessee deposits and reserve for repairs 2,891 3,519
Notes payable 21,000 29,250
------------------------------------
Total liabilities 25,199 34,100
------------------------------------
Partners' capital:
Limited partners (8,628,420 limited partnership units
as of September 30, 1997 and December 31, 1996) 20,475 24,909
General Partner - -
------------------------------------
Total partners' capital 20,475 24,909
------------------------------------
Total liabilities and partners' capital $ 45,674 $ 59,009
====================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
-------------------------------------------------------------
Revenues:
Lease revenue $ 3,019 $ 4,619 $ 9,827 $ 14,417
Interest and other income 52 58 769 189
Net gain (loss) on disposition of equipment 16 (9 ) 2,370 2,626
------------------------------------------------------------
Total revenues 3,087 4,668 12,966 17,232
------------------------------------------------------------
Expenses:
Depreciation and amortization 1,869 2,513 5,437 7,363
Marine equipment operating expenses 210 557 560 1,597
Repairs and maintenance 554 739 1,234 4,399
Interest expense 512 751 1,938 2,252
Insurance expense to affiliates 4 47 53 142
Other insurance expense 85 133 281 397
Management fees to affiliate 149 239 517 659
General and administrative expenses
to affiliates 138 176 495 462
Other general and administrative expenses 422 162 1,307 618
Provision for (recovery of) bad debt expense 531 (70 ) 387 1,438
------------------------------------------------------------
Total expenses 4,474 5,247 12,209 19,327
------------------------------------------------------------
Equity in net loss of unconsolidated special-
purpose entities (133 ) (74 ) (257 ) (344 )
------------------------------------------------------------
Net income (loss) $ (1,520 ) $ (653 ) $ 500 $ (2,439 )
============================================================
Partners' share of net income (loss):
Limited partners $ (1,588 ) $ (744 ) $ 250 $ (2,712 )
General Partner 68 91 250 273
------------------------------------------------------------
Total $ (1,520 ) $ (653 ) $ 500 $ (2,439 )
============================================================
Net income (loss) per weighted-average limited
partnership unit (8,628,420 units and 8,634,967 units
as of September 30, 1997 and 1996,
respectively) $ (0.18 ) $ (0.09 ) $ 0.03 $ (0.31 )
============================================================
Cash distributions $ 1,300 $ 1,818 $ 4,934 $ 5,455
============================================================
Cash distributions per weighted-average limited
partnership unit $ 0.14 $ 0.20 $ 0.54 $ 0.60
============================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1995 to September
30, 1997
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------------
Partners' capital as of December 31, 1995 $ 36,475 $ - $ 36,475
Net income (loss) (4,482 ) 363 (4,119 )
Cash distributions (6,908 ) (363 ) (7,271 )
Repurchase of limited partnership units (176 ) - (176 )
--------------------------------------------------
Partners' capital as of December 31, 1996 24,909 - 24,909
Net income 250 250 500
Cash distributions (4,684 ) (250 ) (4,934 )
--------------------------------------------------
Partner's capital as of September 30, 1997 $ 20,475 $ - $ 20,475
==================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Nine Months
Ended September 30,
1997 1996
----------------------------------
Operating activities:
Net income (loss) $ 500 $ (2,439 )
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Net gain on disposition of equipment (2,370 ) (2,626 )
Depreciation and amortization 5,437 7,363
Equity in net loss of unconsolidated special-purpose entities 257 344
Changes in operating assets and liabilities:
Restricted cash - (100 )
Due from affiliates 357 --
Accounts and notes receivable, net (58 ) 1,464
Prepaid expenses and other assets 129 75
Accounts payable and accrued expenses (583 ) 826
Due to affiliates (20 ) (118 )
Lessee deposits and reserve for repairs 355 286
----------------------------------
Net cash provided by operating activities 4,004 5,075
----------------------------------
Investing activities:
Purchase of equipment and payments for capitalized improvements (3 ) (5,537 )
Payments of acquisition fees to affiliates - (247 )
Payments of lease negotiation fees to affiliates - (12 )
Distributions from unconsolidated special-purpose entities 626 779
Proceeds from disposition of equipment 7,166 8,602
----------------------------------
Net cash provided by investing activities 7,789 3,585
----------------------------------
Financing activities:
Principal payments of notes payable (8,250 ) -
Repurchase of limited partnership units - (176 )
Cash distributions paid to limited partners (4,684 ) (5,182 )
Cash distributions paid to General Partner (250 ) (273 )
----------------------------------
Net cash used in financing activities (13,184 ) (5,631 )
----------------------------------
Net (decrease) increase in cash and cash equivalents (1,391 ) 3,029
Cash and cash equivalents at beginning of period 2,142 1,236
----------------------------------
Cash and cash equivalents at end of period $ 751 $ 4,265
==================================
Supplemental information:
Interest paid $ 1,938 $ 2,252
==================================
Supplemental disclosure of noncash investing and financing activities:
Sale proceeds included in accounts receivable $ 16 $ -
==================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or
the General Partner), the accompanying unaudited financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the financial position of PLM Equipment Growth
Fund IV (the Partnership) as of September 30, 1997 and December 31, 1996,
the statements of operations for the three and nine months ended September
30, 1997 and 1996, the statements of changes in partners' capital for the
period from December 31, 1995 to September 30, 1997, and the statements of
cash flows for the nine months ended September 30, 1997 and 1996. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying financial
statements. For further information, reference should be made to the
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1996, on file at the
Securities and Exchange Commission.
2. Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $4.9 million and $5.5
million for the nine months ended September 30, 1997 and 1996,
respectively, and $1.3 million and $1.8 million for the three months ended
September 30, 1997 and 1996, respectively. Cash distributions to
unitholders in excess of net income are deemed to be a return of capital.
Cash distributions to limited partners of $4.4 million and $5.2 million,
respectively, for the nine months ended September 30, 1997 and 1996, were
deemed to be a return of capital. Cash distributions related to the results
from the third quarter of 1997, of $0.7 million, were paid or are payable
during October and November 1997, depending on whether the individual
elected to receive a monthly or quarterly distribution check.
4. Investments in Unconsolidated Special-Purpose Entities
The net investments in unconsolidated special-purpose entities (USPEs)
included the following jointly-owned equipment (and related assets and
liabilities) (in thousands):
September 30, December 31,
1997 1996
------------------------------------
35% interest in two commercial aircraft on direct
finance lease $ 4,071 $ 3,876
50% interest in an entity owning a bulk carrier 2,499 3,165
17% interest in a trust owning six 737-200A commercial
aircraft 2,163 2,575
------------------------------------
Net investments $ 8,733 $ 9,616
====================================
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
5. Equipment
Components of owned equipment are as follows (in thousands):
September 30, December 31,
1997 1996
----------------------------------------
Equipment held for operating leases:
Aircraft $ 43,314 $ 42,734
Rail equipment 14,850 14,867
Marine containers 14,740 15,498
Marine vessels 9,719 9,719
Trailers 6,872 6,948
---------------------------------------
89,495 89,766
Less accumulated depreciation (55,557 ) (50,784 )
---------------------------------------
33,938 38,982
Equipment held for sale - 5,524
---------------------------------------
Net equipment $ 33,938 $ 44,506
=======================================
Equipment held for sale is stated at the lower of the equipment's
depreciated cost or fair value less costs to sell and is subject to a
pending contract of sale. Equipment held for sale as of December 31, 1996
included a marine vessel, which was sold in the first quarter of 1997.
As of September 30, 1997, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 2 aircraft,
4 railcars, and 109 marine containers. The net book value of off-lease
equipment was $7.1 million as of September 30, 1997. As of December 31,
1996, 1 aircraft, 3 railcars, and 48 marine containers were off lease, with
a net book value of $3.9 million.
During the nine months ended September 30, 1996, the Partnership acquired a
Dash 8-300 aircraft for $5.5 million and paid acquisition and lease
negotiation fees of $0.3 million to FSI.
During the nine months ended September 30, 1997, the Partnership sold or
disposed of marine containers, railcars, trailers, and a marine vessel with
an aggregate net book value of $5.8 million and unused drydock reserves of
$1.0 million, for aggregate proceeds of $7.2 million. During the nine
months ended September 30, 1996, the Partnership disposed of a mobile
offshore drilling unit (rig), marine containers, railcars, and a trailer
with an aggregate net book value of $6.0 million, for aggregate proceeds of
$8.6 million.
Partnership management fees of $0.1 million and $0.3 million were payable as of
September 30, 1997 and December 31, 1996, respectively. The Partnership's
proportional share of USPE management fees of $15,000 and $8,000 were
payable as of September 30, 1997 and December 31, 1996, respectively. The
Partnership's proportional share of the affiliated expenses incurred by the
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
6. Transactions with General Partner and Affiliates
USPEs during 1997 and 1996 is listed in the following table (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
-------------------------------------------------------------
Management fees $ 24 $ (22 ) $ 66 $ 75
Insurance expense 15 19 64 50
Data processing and administrative
expenses 7 10 23 27
Transportation Equipment Indemnity Company, Ltd. (TEI) provides marine
insurance coverage for Partnership equipment and other insurance brokerage
services. TEI is an affiliate of the General Partner.
The balance due from affiliates as of December 31, 1996 included $0.4
million due from TEI for settlement of an insurance claim for one of the
Partnership's marine vessels that was sold in 1995. This settlement was
received by TEI in December 1996 and received by the Partnership in 1997.
7. Contingencies
As more fully described by the Partnership in its Form 10-K for the year
ended December 31,1996, PLM International, Inc., (PLMI) and various of its
affiliates are named as defendants in a lawsuit filed as a class action on
January 22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama,
Case No. CV-97-251 (the Koch action). On March 6, 1997, the defendants
removed the Koch action from the state court to the United States District
Court for the Southern District of Alabama, Southern Division (Civil Action
No. 97-0177-BH-C), following which plaintiffs' filed a motion to remand the
action to the state court. On September 24, 1997, the district court denied
plaintiffs' motion and dismissed without prejudice the individual claims of
the California class representative, reasoning that he had been
fraudulently joined as a plaintiff. On October 3, 1997, plaintiffs filed a
motion requesting that the district court reconsider its ruling, or in the
alternative, that the court modify its Order dismissing the California
plaintiff's claims so that it is a final appealable order, as well as
certify for an immediate appeal to the Eleventh Circuit Court of Appeals
that part of its Order denying plaintiffs' motion to remand. On October 7,
1997, the district court denied each of these motions. On October 10, 1997,
defendants filed a motion to compel arbitration of plaintiffs' claims and
to stay further proceedings pending the outcome of such arbitration. PLMI
believes that the allegations of the Koch action are completely without
merit and intends to defend this matter vigorously.
On June 5, 1997, the PLMI and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action
filed in the San Francisco Superior Court, San Francisco, California, Case
No. 987062 (the Romei action). The named plaintiff has alleged the same
facts and the same nine causes of action as is in the Koch action (as
described in the Partnership's Form 10-K for the year ended December 31,
1996), plus five additional causes of action against all of the defendants,
as follows: violations of California Business and Professions Code Sections
17200, et seq. for alleged unfair and deceptive practices, a claim for
constructive fraud, a claim for unjust enrichment, a claim for violations
of California Corporations Code Section 1507, and a claim for treble
damages under California Civil Code Section 3345. The plaintiff is an
investor in PLM Equipment Growth Fund V, and filed the complaint on her own
behalf and on behalf of all class members similarly situated who invested
in certain California limited partnerships sponsored by PLM Securities, for
which PLM Financial Services, Inc. acts as the general partner,
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
7. Contingencies (continued)
including the Partnership, PLM Equipment Growth Funds V, and VI, and PLM
Equipment Growth & Income Fund VII.
PLMI and the other defendants removed the Romei action to the United States
District Court for the Northern District of California (Case No. C-97-2450
SC) on June 30, 1997, based on the federal court's diversity jurisdiction.
The defendants then filed a motion to compel arbitration of the plaintiffs'
claims, based on an agreement to arbitrate contained in the PLM Equipment
Growth Fund V limited partnership agreement, to which plaintiff is a party.
Pursuant to an agreement with plaintiff, PLMI and the other defendants
withdrew their petition for removal of the Romei action and their motion to
compel arbitration, and on July 31, 1997, filed with the district court for
the Northern District of California (Case No. C-97-2847 WHO) a petition
under the Federal Arbitration Act seeking to compel arbitration of
plaintiff's claims and for an order staying the state court proceedings
pending the outcome of the arbitration. In connection with this agreement,
plaintiff agreed to a stay of the state court action pending the district
court's decision on the petition to compel arbitration. On October 7, 1997,
the district court denied the PLMI's petition to compel and indicated that
a memorandum decision would follow. On October 22, 1997, the district court
filed its memorandum decision and order, explaining the reason for its
denial of PLMI's petition to compel. The district court reasoned that the
plaintiff's claims are grounded in securities law, and therefore, excluded
from arbitration under the terms of the Partnership agreement. On August
22, 1997, the plaintiff filed an amended complaint with the state court
alleging two new causes of action for violations of the California
Securities Law of 1968 (California Corporations Code Sections 25400 and
25500) and for violation of California Civil Code Section 1709 and 1710.
PLMI will soon be required to respond to the amended complaint, and a
status conference has been set for December 5, 1997. PLMI believes that the
allegations of the amended complaint in the Romei action are completely
without merit and intends to defend this matter vigorously.
8. Debt
In the first nine months of 1997, the Partnership paid the first annual
principal payment of $8.3 million of the outstanding debt.
The General Partner entered into a short-term, joint $50.0 million credit
facility. As of September 30, 1997, the Partnership had no borrowings under
the short-term joint $50.0 million credit facility. Among the eligible
borrowers, PLM Equipment Growth Fund V had borrowings of $9.1 million and
PLM Equipment Growth Fund VI had borrowings of $10.0 million.
9. Subsequent Event
During October 1997, the short-term credit facility was amended and
restated to decrease the available borrowings for American Finance Group,
Inc. (AFG), a subsidiary of PLMI, to $35.0 million and to extend the
termination date of the credit facility to December 2, 1997. The General
Partner believes it will be able to extend the credit facility prior to its
expiration on similar terms and increase the amount of available borrowings
for AFG to $50.0 million.
After the extension has expired, it is anticipated that the Partnership
will no longer renew this credit facility. Since the Partnership ended its
reinvestment phase at the end of 1996 and can no longer purchase any
equipment, the Partnership can no longer use the credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
September 30, 1997 and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the third quarter of 1997 when compared to the same quarter of
1996. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
For the Three Months
Ended September 30,
1997 1996
----------------------------
Aircraft $ 907 $ 1,211
Rail equipment 694 620
Trailers 281 380
Marine containers 143 333
Marine vessels 99 606
Aircraft: Aircraft lease revenues and direct expenses were $1.0 million and $0.1
million, respectively, for the third quarter of 1997, compared to $1.3 million
and $0.1 million, respectively, during the same period in 1996. The decrease in
lease revenues in the third quarter of 1997 was due to the off-lease status of
an aircraft, compared to the same period in 1996 when the aircraft was on lease
for two months of the quarter. The decrease was also attributable to another
aircraft which was on lease for the entire third quarter of 1996, coming
off-lease in August of 1997.
Rail equipment: Railcar lease revenues and direct expenses were $0.9 million and
$0.2 million, respectively, for the third quarter of 1997, compared to $0.9
million and $0.3 million, respectively, during the same quarter of 1996. The
increase in railcar contribution resulted from running repairs required on
certain of the railcars in the fleet during 1996, which were not needed during
1997.
Trailers: Trailer revenues and direct expenses were $0.5 million and $0.2
million, respectively, for the third quarter of 1997, compared to $0.5 million
and $0.1 million, respectively, during the same quarter of 1996. Trailer
contributions decreased in the third quarter of 1997, compared to the same
period in 1996, due to a group of trailers which required refurbishment in 1997
prior to transitioning into the short-term rental facilities operated by an
affiliate of the General Partner. There were no similar expenses in 1996.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $4,000, respectively, for the third quarter of 1997, compared to
$0.3 million and $3,000, respectively, during the same quarter of 1996. Marine
container contributions decreased due to sales and dispositions over the past
twelve months and lower utilization in the third quarter of 1997, compared to
the same period in 1996.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.5
million and $0.4 million, respectively, for the third quarter of 1997, compared
to $1.6 million and $1.0 million, respectively, during the same quarter of 1996.
Marine vessel contribution decreased due to the sale of a marine vessel in
January 1997. In addition, lease revenues decreased in the third quarter of
1997, compared to the same period in 1996, for the remaining marine vessel due
to lower re-lease rates as a result of a softer bulk carrier vessel market.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.6 million for the quarter ended September 30, 1997
decreased from $3.8 million for the same period in 1996. The variances are
explained as follows:
(1) A $0.7 million decrease in depreciation and amortization expenses from
1996 levels reflects the sale of certain assets during 1997 and 1996 and the use
of the double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned.
(2) The $0.2 million decrease in interest is due to a decrease in the level
of outstanding debt during the third quarter of 1997 when compared to the same
period in 1996. In November 1996, the Partnership prepaid $1.5 million of its
outstanding debt. In addition, in July 1997 the Partnership paid the first
annual principal payment of $8.3 million of the outstanding debt.
(3) A $0.1 million decrease in management fee to affiliates reflects the
lower levels of lease revenues in the third quarter of 1997 as compared to the
same period in 1996.
(4) The $0.6 million increase in bad debt expenses reflects the General
Partner's evaluation of the collectibility of receivables due from certain
lessees.
(5) A $0.2 million increase in administrative expenses from 1996 levels
resulted from additional legal fees needed to collect outstanding receivables
due to the Partnership from aircraft lessees.
(C) Net Gain (Loss) on Disposition of Owned Equipment
Net gain (loss) on disposition of equipment for the third quarter of 1997
totaled $16,000, and resulted from the sale or disposal of marine containers, a
railcar, and a trailer with an aggregate net book value of $0.1 million, for
aggregate proceeds of $0.1 million. For the third quarter of 1996, the $9,000
net loss on disposition of equipment resulted from the sale or disposal of
marine containers and a trailer with an aggregate net book value of $0.2
million, for aggregate proceeds of $0.1 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method are presented as follows (in thousands).
For the Three Months
Ended September 30,
1997 1996
----------------------------
Aircraft $ 115 $ (76 )
Marine vessel (248 ) 2
Aircraft: As of September 30, 1997, the Partnership owned a 35% interest in a
trust that owns two commercial aircraft on direct finance lease and a 17%
interest in another trust that owns six commercial aircraft. As of September 30,
1996, the Partnership owned a 17% interest in a trust that owns six commercial
aircraft. Aircraft revenues and expenses were $0.4 million and $0.3 million,
respectively, for the third quarter of 1997, compared to $0.2 million and $0.3
million, respectively, during the same quarter in 1996. Lease revenues increased
in the third quarter of 1997 due to the investment in the trust owning an
aircraft on a direct finance lease, which was acquired at the end of 1996;
accordingly, there was no contribution in the third quarter of 1996.
Marine vessel: As of September 30, 1997, the Partnership had a 50% interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.3
million and $0.5 million, respectively, for the third quarter of 1997, compared
to $0.4 million and $0.4 million, respectively, during the same quarter in 1996.
Lease revenues decreased in the third quarter of 1997 due to lower re-lease
rates as a result of a softer bulk carrier vessel market. Direct expenses
increased in the third quarter of 1997 due to the increased survey and repairs
and maintenance expenses.
(E) Net Loss
As a result of the foregoing, the Partnership's net loss was $1.5 million for
the third quarter of 1997, compared to a net loss of $0.7 million during the
same period of 1996. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors, and the Partnership's performance in the third quarter of 1997 is not
necessarily indicative of future periods. In the third quarter of 1997, the
Partnership distributed $1.2 million to the limited partners, or $0.14 per
weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1997 and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the nine months ended September 30, 1997, compared to the same
period of 1996. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands):
For the Nine Months
Ended September 30,
1997 1996
----------------------------
Aircraft $ 3,327 $ 1,358
Rail equipment 1,944 1,769
Trailers 1,057 1,210
Marine containers 812 1,106
Marine vessels 528 2,104
Mobile offshore drilling unit - 163
Aircraft: Aircraft lease revenues and direct expenses were $3.3 million and $0.0
million, respectively, for the nine months ended September 30, 1997, compared to
$3.9 million and $2.5 million, respectively, during the same period of 1996. The
decrease in lease revenues in the nine months ended September 30, 1997 was due
to the off-lease status of an aircraft, when compared to the same period in 1996
when the aircraft was on lease for the first eight months. The decrease was also
attributable to another aircraft coming off-lease in August of 1997, which was
on lease for the nine months ended September 30, 1996. The decrease was offset,
in part, by the purchase of a Dash 8-300 aircraft at the end of the second
quarter of 1996, which was on lease for the nine months ended September 30,
1997. Direct expenses decreased due to costs incurred for repairs on an aircraft
and the overhaul of four engines on another aircraft in the nine months ended
September 30, 1996, which were not required in 1997.
Rail equipment: Railcar lease revenues and direct expenses were $2.7 million and
$0.8 million, respectively, for the nine months ended September 30, 1997,
compared to $2.7 million and $0.9 million, respectively, during the same period
of 1996. The increase in railcar contribution resulted from running repairs
required on certain of the railcars in the fleet during 1996, which were not
needed during 1997.
Trailers: Trailer lease revenues and direct expenses were $1.5 million and $0.4
million, respectively, for the nine months ended September 30, 1997, compared to
$1.5 million and $0.3 million, respectively, during the same period of 1996.
Trailer contributions decreased in the nine months ended September 30, 1997
compared to the same period in 1996 due to a group of trailers which required
refurbishment in 1997 prior to transitioning into the short-term rental
facilities operated by an affiliate of the General Partner. There were no
similar expenses in 1996.
Marine containers: Marine container lease revenues and direct expenses were $0.8
million and $12,000, respectively, for the nine months ended September 30, 1997,
compared to $1.1 million and $20,000, respectively, during the same period of
1996. Marine container contributions decreased due to sales and dispositions
over the past twelve months and lower utilization in the nine months ended
September 30, 1997, compared to the same period in 1996.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.5
million and $1.0 million, respectively, for the nine months ended September 30,
1997, compared to $5.0 million and $2.9 million, respectively, during the same
period of 1996. Marine vessel contributions decreased due to the sale of a
marine vessel in January 1997. In addition, lease revenues decreased in the nine
months ended September 30, 1997 for the remaining marine vessel, due to lower
re-lease rates as a result of a softer bulk carrier vessel market.
Mobile offshore drilling unit (rig): The rig was sold in the third quarter of
1996, resulting in the elimination of any contribution in the nine months ended
September 30, 1997. Revenues and expenses were $0.2 million and $1,000,
respectively, in the nine months ended September 30, 1996.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $10.1 million for the nine months ended September 30,
1997 decreased from $12.8 million for the same period in 1996. The variances are
explained as follows:
(1) A $1.9 million decrease in depreciation and amortization expenses from
1996 levels reflects the sale of certain assets during 1997 and 1996 and the use
of the double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned.
(2) The $1.1 million decrease in bad debt expenses was due to the
following: A decrease of $0.7 million in bad debt expenses reflecting the
General Partner's evaluation of the collectibility of receivables due from
certain lessees. Also, a $0.4 million decrease in the provision was due to the
receipt of payments for unpaid invoices that were previously reserved.
(3) A $0.3 million decrease in interest expense was due to a smaller
principal balance in the nine months ended September 30, 1997, compared to the
same period in 1996. In November 1996, the Partnership prepaid $1.5 million of
its outstanding debt. In addition, in July 1997 the Partnership paid the first
annual principal payment of $8.3 million of the outstanding debt.
(4) A $0.1 million decrease in management fee to affiliates, reflects the
lower levels of lease revenues in the nine months ended September 30, 1997.
(5) A $0.7 million increase in administrative expenses from 1996 levels
resulted from additional legal fees needed to collect outstanding receivables
due to the Partnership from aircraft lessees.
(C) Interest and Other Income
Interest and other income increased $0.6 million in the nine months ended
September 30, 1997, compared to the same period in 1996, due to the following:
(1) The recognition in 1997 of $0.5 million in loss-of-hire and general
claims insurance recovery relating to generator repairs on one marine vessel
sold in 1994.
(2) An increase of $0.1 million in interest income due to higher average
cash balances compared to the same period in 1996.
(D) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the nine months ended September 30,
1997 totaled $2.4 million, which resulted from the sale or disposal of marine
containers, trailers, railcars, and a marine vessel, with an aggregate net book
value of $5.8 million and unused drydock reserves of $1.0 million, for aggregate
proceeds of $7.2 million. For the nine months ended September 30, 1996, the $2.6
million net gain on disposition of equipment resulted from the sale or disposal
of marine containers, railcars, a trailer, and a mobile offshore drilling unit
with an aggregate net book value of $6.0 million, for aggregate proceeds of $8.6
million.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method are presented as follows (in thousands).
For the Nine Months
Ended September 30,
1997 1996
----------------------------
Aircraft $ 470 $ (215 )
Marine vessels (727 ) (129 )
Aircraft: As of September 30, 1997, the Partnership owned a 35% interest in a
trust that owns two commercial aircraft on direct finance lease and a 17%
interest in another trust that owns six commercial aircraft. As of September 30,
1996, the Partnership owned a 17% interest in a trust that owns six commercial
aircraft. Aircraft revenues and expenses were $1.3 million and $0.8 million,
respectively, for the nine months ended September 30, 1997, compared to $0.8
million and $1.0 million, respectively, during the same period of 1996. Lease
revenues increased in the nine months ended September 30, 1997 due to the
investment in the trust owning an aircraft on a direct finance lease which was
acquired in the latter part of 1996, and thus it had no contribution for the
nine months ended September 30, 1996. The contribution for the investment in a
trust owning commercial aircraft on an operating lease is significantly impacted
by depreciation charges, which are greatest in the early years due to the use of
the double-declining balance method of depreciation. The trust is depreciating
this aircraft investment over a period of six years.
Marine vessel: As of September 30, 1997, the Partnership had a 50% interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.8
million and $1.5 million, respectively, for the nine months ended September 30,
1997, compared to $1.2 million and $1.3 million, respectively, during the same
period in 1996. Lease revenue decreased in the nine months ended September 30,
1997 due to lower re-lease rates as a result of a softer bulk carrier vessel
market. Direct expenses increased in the nine months ended September 30, 1997
due to the increased survey and repairs and maintenance expenses.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $0.5 million for
the nine months ended September 30, 1997, compared to a net loss of $2.4 million
during the same period of 1996. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the nine months
ended September 30, 1997 is not necessarily indicative of future periods. In the
nine months ended September 30, 1997, the Partnership distributed $4.7 million
to the limited partners, or $0.54 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 1997, the Partnership generated $4.6
million in operating cash (net cash provided by operating activities plus
distributions from unconsolidated special-purpose entities) to meet its
operating obligations and maintain the current level of distributions (total for
the nine months ended September 30, 1997 of approximately $4.9 million) to the
partners, but also used undistributed available cash from prior periods of
approximately $0.3 million.
During the nine months ended September 30, 1997, the Partnership sold or
disposed of marine containers, railcars, trailers, and a marine vessel with an
aggregate net book value of $5.8 million and unused drydock reserves of $1.0
million, for aggregate proceeds of $7.2 million.
The cash distribution that relates to the results from the third quarter of 1997
will be reduced from an annual rate of 3% to an annual rate of 2% to more
closely reflect current and expected net cash flows from operations. Continued
weak market conditions in certain equipment sectors and equipment sales have
reduced overall lease revenues in the Partnership to the extent that reductions
in distribution levels are now necessary. In addition, with the Partnership
expected to enter the active liquidation phase in the near future, the size of
the Partnership's remaining equipment portfolio and, in turn, the amount of net
cash flows from operations will continue to become progressively smaller as
assets are sold. Although distribution levels will be reduced, significant asset
sales may result in special distributions to unitholders.
In July 1997, the Partnership paid the first annual principal payment of $8.3
million of the outstanding notes payable.
The General Partner has entered into a short-term joint $50.0 million credit
facility. As of November 10, 1997, the PLM Equipment Growth Fund V had $3.6
million in outstanding borrowings and PLM Equipment Growth Fund VI had $2.0
million in outstanding borrowings. Neither the Partnership, PLM Equipment Growth
& Income Fund VII, American Finance Group, Inc. (AFG), a wholly-owned subsidiary
of PLM International, Inc., TEC Aquisub, Inc., an indirect wholly-owned
subsidiary of FSI, nor Professional Lease Management Income Fund I, LLC had any
outstanding borrowings.
During October 1997, the short-term credit facility was amended and restated to
decrease the available borrowings for AFG to $35.0 million and to extend the
termination date of the credit facility to December 2, 1997. The General Partner
believes it will be able to extend the credit facility prior to its expiration
on similar terms and increase the amount of available borrowings for AFG to
$50.0 million.
After the extension has expired, it is anticipated that the Partnership will no
longer renew this credit facility. Since the Partnership ended its reinvestment
phase at the end of 1996 and can no longer purchase any equipment, the
Partnership can no longer use the credit facility.
(III) OUTLOOK FOR THE FUTURE
Since the Partnership is in its holding or passive liquidation phase, the
General Partner will be seeking to selectively re-lease or sell assets as the
existing leases expire. Sale decisions will cause the operating performance of
the Partnership to decline over the remainder of its life. The General Partner
anticipates that the liquidation of Partnership assets will be completed by the
planned termination of the Partnership at the end of the year 2000.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, maintain working capital reserves, pay loan principal on
debt, and pay cash distributions to the investors.
(IV) FORWARD-LOOKING INFORMATION:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND IV
By: PLM Financial Services, Inc.
General Partner
Date: November 10, 1997
By: /s/ Richard Brock
------------------------
Vice President and
Corporate Controller