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 June 30, 1998
[ ] 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)
June 30, December 31,
1998 1997
----------------------------------------
Assets
Equipment held for operating lease, at cost $ 84,735 $ 87,520
Less accumulated depreciation (57,587) (56,215)
----------------------------------------
27,148 31,305
Net equipment
Cash and cash equivalents 8,802 3,650
Restricted cash 247 247
Accounts receivable, less allowance for doubtful
accounts of $3,366 in 1998 and $3,332 in 1997 813 954
Investments in unconsolidated special-purpose entities 5,952 9,756
Deferred charges, less accumulated amortization
of $349 in 1998 and $486 in 1997 85 119
Prepaid expenses and other assets 27 58
----------------------------------------
Total assets $ 43,074 $ 46,089
========================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 898 $ 1,511
Due to affiliates 242 256
Lessee deposits and reserve for repairs 2,238 2,095
Notes payable 21,000 21,000
----------------------------------------
Total liabilities 24,378 24,862
----------------------------------------
Partners' capital:
Limited partners (8,628,420 limited partnership units
as of June 30, 1998 and December 31, 1997) 18,696 21,227
General Partner -- --
----------------------------------------
Total partners' capital 18,696 21,227
----------------------------------------
Total liabilities and partners' capital $ 43,074 $ 46,089
========================================
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 Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
----------------------------------------------------------
Revenues:
Lease revenue $ 2,644 $ 3,423 $ 5,718 $ 6,808
Interest and other income 113 617 187 717
Net gain (loss) on disposition of equipment (3) 14 (482 ) 2,354
---------------------------------------------------------------
Total revenues 2,754 4,054 5,423 9,879
---------------------------------------------------------------
Expenses:
Depreciation and amortization 1,454 1,786 2,966 3,568
Equipment operating expense 209 42 445 350
Repairs and maintenance (84) 432 849 680
Interest expense 512 713 1,024 1,426
Insurance expense to affiliates (49) (18 ) (55 ) 49
Other insurance expense 65 67 164 196
Management fees to affiliate 142 184 315 368
General and administrative expenses
to affiliates 153 122 303 357
Other general and administrative expenses 218 493 235 885
Provision for (recovery of) bad debt expense 86 122 184 (144 )
---------------------------------------------------------------
Total expenses 2,706 3,943 6,430 7,735
---------------------------------------------------------------
Equity in net income (loss) of unconsolidated special-
purpose entities 82 (13 ) 292 (124 )
---------------------------------------------------------------
Net income (loss) $ 130 $ 98 $ (715 ) $ 2,020
===============================================================
Partners' share of net income (loss):
Limited partners $ 84 $ 7 $ (806 ) $ 1,838
General Partner 46 91 91 182
---------------------------------------------------------------
Total $ 130 $ 98 $ (715 ) $ 2,020
===============================================================
Net income (loss) per weighted-average limited
partnership unit (8,628,420 units as of June 30,
1998 and 1997, respectively) $ 0.01 $ 0.00 $ (0.09 ) $ 0.21
===============================================================
Cash distributions $ 908 $ 1,817 $ 1,816 $ 3,634
===============================================================
Cash distributions per weighted-average limited
partnership unit $ 0.10 $ 0.20 $ 0.20 $ 0.40
===============================================================
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, 1996 to June 30,
1998
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------------------
Partners' capital as of December 31, 1996 $ 24,909 $ -- $ 24,909
Net income 1,803 295 2,098
Cash distribution (5,485 ) (295 ) (5,780 )
Partners' capital as of December 31, 1997 21,227 -- 21,227
Net income (loss) (806 ) 91 (715 )
Cash distribution (1,725 ) (91 ) (1,816 )
---------------------------------------------------------
Partners' capital as of June 30, 1998 $ 18,696 $ -- $ 18,696
=========================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(in thousands of dollars)
1998 1997
------------------------------------
Operating activities
Net income (loss) $ (715) $ 2,020
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,966 3,568
Net (gain) loss on disposition of equipment 482 (2,354)
Equity in net (income) loss of unconsolidated special- (292) 124
purpose entities
Changes in operating assets and liabilities:
Due from affiliates -- 357
Accounts and notes receivable, net 244 (357)
Prepaid expenses and other assets 31 110
Accounts payable and accrued expenses (613) (671)
Due to affiliates (14) 109
Lessee deposits and reserve for repairs 143 256
-------------------
-------------------
Net cash provided by operating activities 2,232 3,162
------------------------------------
Investing activities
Payments for capital repairs (6) (1)
Liquidation proceeds from unconsolidated
special-purpose entities 3,470 --
Proceeds from disposition of equipment 646 206
Distributions from unconsolidated special-purpose entities 626 7,063
------------------------------------
Net cash provided by investing activities 4,736 7,268
------------------------------------
Financing activities
Cash distribution paid to limited partners (1,725) (3,452)
Cash distribution paid to General Partner (91) (182)
------------------------------------
Net cash used in financing activities (1,816) (3,634)
------------------------------------
Net increase in cash and cash equivalents 5,152 6,796
Cash and cash equivalents at beginning of year 3,650 2,142
------------------------------------
Cash and cash equivalents at end of year $ 8,802 $ 8,938
====================================
Supplemental information
Interest paid $ 1,024 $ 1,426
====================================
Sale proceeds included in accounts receivable $ 103 $ --
====================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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 June 30, 1998 and December 31, 1997, the
statements of operations for the three and six months ended June 30, 1998
and 1997, the statements of changes in partners' capital for the period
from December 31, 1996 to June 30, 1998, and the statements of cash flows
for the six months ended June 30, 1998 and 1997. Certain information and
note 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, 1997, on file with the Securities and
Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $1.8 million and $3.6
million for the six months ended June 30, 1998 and 1997, respectively, and
$0.9 million and $1.8 million for the three months ended June 30, 1998 and
1997, respectively. Cash distributions to limited partners in excess of net
income are deemed to be a return of capital. Cash distributions to limited
partners of $1.7 million and $1.6 for the six months ended June 30, 1998
and 1997, respectively, were deemed to be a return of capital. Cash
distributions related to the results from the second quarter of 1998, of
$0.7 million, were paid during the third quarter of 1998.
3. Transactions with General Partner and Affiliates
The balance due to affiliates as of June 30, 1998 and December 31, 1997,
includes $0.1 million due to FSI and its affiliate for management fees and
$0.1 million due to affiliated unconsolidated special-purpose entities
(USPEs). The Partnership's proportional share of management fees with
USPE's of $11,000 were payable as of June 30, 1998 and December 31, 1997,
respectively.
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 1998 and 1997 is listed in the following table (in
thousands of dollars):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
----------------------------------------------------------------------
Management fees $ 24 $ 22 $ 44 $ 42
Data processing and administrative
expenses 6 7 11 16
Insurance expense 5 19 7 50
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provides marine insurance coverage for the Partnership's
investment in USPEs and other insurance brokerage services. TEI did not
provide the same insurance coverage during 1998 as had been provided during
1997. These services were provided by an unaffiliated third party.
During 1998, the Partnership received a $0.1 million loss-of-hire insurance
refund from TEI due to lower claims from the insured Partnership and other
insured affiliated partnerships.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
4. Equipment
The components of owned equipment held for operating lease are as follows
(in thousands of dollars):
June 30, December 31,
1998 1997
-------------------------------------------
Aircraft $ 42,734 $ 42,734
Rail equipment 14,780 14,828
Marine containers 12,214 13,384
Marine vessel 9,719 9,719
Trailers 5,288 6,855
-------------------------------------------
84,735 87,520
Less accumulated depreciation (57,587) (56,215)
-------------------------------------------
Net equipment $ 27,148 $ 31,305
===========================================
As of June 30, 1998, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for two
aircraft, a railcar, and 81 marine containers. The net book value of
off-lease equipment was $5.4 million as of June 30, 1998. As of December
31, 1997, an aircraft, 2 railcars, and 108 marine containers were off
lease, with a net book value of $3.2 million.
During the six months ended June 30, 1998, the Partnership sold or disposed
of marine containers, railcars, and trailers with an aggregate net book
value of $1.2 million, for aggregate proceeds of $0.7 million. During the
six months ended June 30, 1997, the Partnership sold or disposed of marine
containers, railcars, and a marine vessel with an aggregate net book value
of $5.7 million and unused drydock reserves of $1.0 million, for aggregate
proceeds of $7.1 million.
5. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
June 30, December 31,
1998 1997
---------------------------------------
35% interest in two commercial aircraft on a direct
finance lease $ 3,877 $ 4,008
50% interest in an entity owning a bulk-carrier 2,074 2,264
17% interest in a trust that owned a commercial aircraft 1 3,484
---------------------------------------
Net investments $ 5,952 $ 9,756
=======================================
During January 1998, the Partnership received liquidating proceeds of $3.5
million from the sale of its 17% interest in a trust that owned a
commercial aircraft.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
6. Contingencies
PLM International, Inc., (the Company) 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). The plaintiffs, who filed the complaint on
their own and on behalf of all class members similarly situated, are six
individuals who allegedly invested in certain California limited
partnerships (the Funds) for which the Company's wholly-owned subsidiary,
PLM Financial Services, Inc. (FSI), acts as the general partner, including
the Partnership, PLM Equipment Growth Funds V, and PLM Equipment Growth &
Income Fund VII. The complaint asserts eight causes of action against all
defendants, as follows: fraud and deceit, suppression, negligent
misrepresentation and suppression, intentional breach of fiduciary duty,
negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Additionally, plaintiffs allege a cause of action against PLM
Securities Corp. for breach of third party beneficiary contracts in
violation of the National Association of Securities Dealers rules of fair
practice. Plaintiffs allege that each defendant owed plaintiffs and the
class certain duties due to their status as fiduciaries, financial
advisors, agents, and control persons. Based on these duties, plaintiffs
assert liability against the defendants for improper sales and marketing
practices, mismanagement of the Funds, and concealing such mismanagement
from investors in the Funds. Plaintiffs seek unspecified compensatory and
recissory damages, as well as punitive damages, and have offered to tender
their limited partnership units back to the defendants.
In March 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) based on the district
court's diversity jurisdiction, following which plaintiffs filed a motion
to remand the action to the state court. In September 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. In October 1997, defendants
filed a motion to compel arbitration of plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of
each Fund, and to stay further proceedings pending the outcome of such
arbitration. Notwithstanding plaintiffs' opposition, the district court
granted the motion in December 1997.
Following various unsuccessful requests that the district court reverse or
otherwise amend its decisions, plaintiffs filed with the U.S. Court of
Appeals for the Eleventh Circuit a notice of appeal from the district
court's order granting defendants' motion to compel arbitration and to stay
the proceedings, and of the district court's order denying plaintiffs'
motion to remand and dismissing the claims of the California plaintiff.
This appeal was voluntarily dismissed by plaintiffs in June 1998 pending
settlement of the Koch action, as discussed below.
On June 5, 1997, the Company 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 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 for which FSI acts as the general partner,
including the Funds. The complaint alleges the same facts and the same nine
causes of action as in the Koch action, 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, constructive fraud, unjust enrichment, violations
of
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
6. Contingencies (continued)
California Corporations Code Section 1507, and a claim for treble damages
under California Civil Code Section 3345.
On July 31, 1997, the defendants filed with the district court for the
Northern District of California (Case No. C-97-2847 WHO) a petition (the
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 motion,
plaintiff agreed to a stay of the state court action pending the district
court's decision on the petition to compel arbitration. In October 1997,
the district court denied the Company's petition to compel arbitration and
in November 1997, agreed to hear the Company's motion for reconsideration
of this order. The hearing on this motion has been taken off calendar and
the district court has dismissed the petition pending settlement of the
Romei action, as discussed below. The state court action continues to be
stayed pending such resolution. In connection with her opposition to the
petition to compel arbitration, the plaintiff filed an amended complaint
with the state court in August 1997 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 Sections 1709 and 1710. Plaintiff also served certain discovery
requests on defendants. Because of the stay, no response to the amended
complaint or to the discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a
memorandum of understanding (MOU) related to the settlement of those
actions. The MOU contemplates a settlement and release of all claims in
exchange for payment of up to $6.0 million. The final settlement amount
will depend on the number of authorized claims filed by authorized
claimants, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the
Alabama district court. The Company will pay up to $0.3 million of the
settlement, with the remainder being funded by an insurance policy. The
defendants will continue to deny each of the claims and contentions and
admit no liability in connection with the proposed settlement. The
settlement remains subject to numerous conditions, including but not
limited to (a) agreement and execution by the parties of a settlement
agreement, (b) notice to and certification of the class for settlement
purposes and (c) preliminary and final approval of the settlement by the
Alabama district court. The General Partner continues to believe that the
allegations of the Koch and Romei actions are completely without merit and
intends to continue to defend this matter vigorously if the settlement is
not consummated.
Subsequent Event
In July 1998, the Partnership paid the second annual principal payment of
$8.3 million of the outstanding notes payable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund IV's (the Partnership's) Operating
Results for the Three Months Ended June 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment decreased during the second quarter of 1998 compared to the same
period of 1997. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands of dollars):
For the Three Months
Ended June 30,
1998 1997
-------------------------------
Aircraft $ 1,425 $ 1,305
Rail equipment 530 443
Trailers 256 389
Marine vessels 159 523
Marine containers 143 268
Aircraft: Aircraft lease revenues and direct expenses were $0.9 million and
$(0.6) million, respectively, for the second quarter of 1998, compared to $1.1
million and $(0.2), respectively, during the same period of 1997. The decrease
in lease revenues in the second quarter of 1998 was due to the off-lease status
of an aircraft, when compared to the same period in 1997 when the aircraft was
on lease for the entire quarter. Direct expenses decreased due to the reduction
in the estimated repair accrual in the second quarter of 1998 for an aircraft
expected to be sold in the third quarter of 1998.
Rail equipment: Railcar lease revenues and direct expenses were $0.9 million and
$0.4 million, respectively, for the second quarter of 1998, compared to $0.9
million and $0.5 million, respectively, during the same period in 1997. The
increase in railcar contribution in the second quarter of 1998 was due to a
decrease in repairs required during the second quarter of 1998 when compared to
the same period in 1997.
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.1
million, respectively, for the second quarter of 1998, compared to $0.5 million
and $0.1 million, respectively, during the same period of 1997. The number of
trailers owned by the Partnership has been declining over the past year due to
sales and dispositions. The result of the trailer sales and dispositions has
been a reduction in trailer contribution.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.4
million and $0.2 million, respectively, for the second quarter of 1998, compared
to $0.6 million and $0.1 million, respectively, during the same period of 1997.
Lease revenue decreased in the second quarter of 1998, compared to the same
period in 1997, due to the sale of a marine vessel in 1997. Direct expenses
increased due to the reduction in the estimated marine operating accrual for the
remaining marine vessel in 1997. A similar reduction in the accrual did not
occur in 1998. The increase in direct expenses was offset, in part, by a $0.1
million loss-of-hire insurance refund received during the second quarter of 1998
from Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, due to lower claims from the insured Partnership and other
insured affiliated partnerships.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the second quarter of 1998, compared to
$0.3 million and $3,000, respectively, during the same period of 1997. Marine
container contributions decreased due to the disposition of containers over the
past 12 months.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.6 million for the second quarter of 1998 decreased
from $3.4 million for the same period in 1997. Significant variances are
explained as follows:
(1) A $0.3 million decrease in depreciation and amortization expenses from
1997 levels reflects the sale of certain assets during 1998 and 1997 and the use
of the double-declining balance depreciation method which results in greater
depreciation in the first years an asset is owned.
(2) A $0.2 million decrease in administrative expenses from 1997 levels
resulted from reduced legal fees to collect outstanding receivables due from
aircraft lessees.
(3) A $0.2 million decrease in interest expense was due to lower average
borrowings outstanding during the quarter ended June 30, 1998, compared to the
same period in 1997.
(C) Interest and Other Income
Interest and other income decreased $0.5 million in the second quarter of 1998,
compared to the same period in 1997, due to the following:
(1) The recognition in 1997 of $0.4 million in loss-of-hire and general
claim insurance recovery relating to generator repairs on one marine vessel sold
in 1994. No similar recovery occurred in 1998.
(2) A decrease of $0.1 million in interest income due to lower cash
balances compared to the same period in 1997.
(D) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on disposition of equipment for the second quarter of 1998 totaled
$3,000, which resulted from the sale or disposal of trailers and marine
containers with an aggregate net book value of $0.2 million, for proceeds of
$0.2 million. Net gain on disposition of equipment for the second quarter of
1997 totaled $14,000, and resulted from the sale or disposal of marine
containers and trailers with an aggregate net book value of $0.1 million, for
aggregate proceeds of $0.1 million.
Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities (USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Three Months
Ended June 30,
1998 1997
-------------------------------
Aircraft $ 143 $ 175
Marine vessel (61) (188 )
Equity in Net Income (Loss) of USPEs $ 82 $ (13 )
==================================================================
Aircraft: As of June 30, 1998, the Partnership had an interest in a trust that
owns two commercial aircraft on direct finance lease. As of June 30, 1997, the
Partnership owned an interest in a trust that owns six commercial aircraft and
had an interest in a trust that owns two commercial aircraft on direct finance
lease. Aircraft revenues and expenses were $0.1 million and $0, respectively,
for the second quarter of 1998, compared to $0.4 million and $0.2 million,
respectively, during the same period in 1997. The decrease in lease revenues and
depreciation and administrative expenses during the second quarter of 1998 was
due to the sale of the Partnership's interest in a trust during the fourth
quarter of 1997.
Marine vessel: As of June 30, 1998 and 1997, the Partnership had an interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.3
million and $0.4 million, respectively, for the second quarter of 1998, compared
to $0.3 million and $0.5 million, respectively, during the same period in 1997.
Direct expenses decreased in the quarter ended June 30, 1998 due to decreased
repairs and maintenance expense.
(F) Net Income
As a result of the foregoing, the Partnership's net income was $0.1 million for
the second quarter of 1998, compared to net income of $0.1 million during the
same period of 1997. 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 quarter ended June 30, 1998 is
not necessarily indicative of future periods. In the second quarter of 1998, the
Partnership distributed $0.9 million to the limited partners, or $0.10 per
weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment decreased during six months ended June 30, 1998, compared to the same
period of 1997. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands of dollars):
For the Six Months
Ended June 30,
1998 1997
------------------------------
Aircraft $ 1,706 $ 2,419
Rail equipment 1,266 1,250
Trailers 593 776
Marine containers 473 669
Marine vessels 295 429
Aircraft: Aircraft lease revenues and direct expenses were $1.7 million and
$36,000, respectively, for the six months ended June 30, 1998, compared to $2.2
million and $(0.2) million, respectively, during the same period of 1997. The
decrease in lease revenues in the six months ended June 30, 1998 was due to the
off-lease status of an aircraft, when compared to the same period in 1997 when
the aircraft was on lease for the entire period. The decrease caused by the
off-lease status of this plane was offset, in part, by an increase in the
re-lease rate for another aircraft. Direct expenses increased due to the repair
costs for an aircraft that were accrued for in 1996 that were lower than
estimated. These accruals were reversed in 1997.
Rail equipment: Railcar lease revenues and direct expenses were $1.8 million and
$0.5 million, respectively, for the six months ended June 30, 1998, compared to
$1.8 million and $0.6 million, respectively, during the same period of 1997.
Railcar contribution remained approximately the same due to the relative
stability of railcar fleet.
Trailers: Trailer lease revenues and direct expenses were $0.8 million and $0.3
million, respectively, for the six months ended June 30, 1998, compared to $1.0
million and $0.2 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has been declining over the past
year due to sales and dispositions. The result of the trailer sales and
dispositions has been a reduction in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.5
million and $4,000, respectively, for the six months ended June 30, 1998,
compared to $0.7 million and $8,000, respectively, during the same period of
1997. Marine container contributions decreased due to sales and dispositions
over the past twelve months and lower utilization in the six months ended June
30, 1998, compared to the same period in 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.9
million and $0.6 million, respectively, for the six months ended June 30, 1998,
compared to $1.0 million and $0.6 million, respectively, during the same period
of 1997. Marine vessel contributions decreased due to the sale of a marine
vessel in 1997. The decrease in marine contribution was offset, in part, by a
$0.1 million loss-of-hire insurance refund received during the second quarter of
1998 from TEI due to lower claims from the insured Partnership and other insured
affiliated partnerships.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $5.0 million for the six months ended June 30, 1998
decreased from $6.5 million for the same period in 1997. Significant variances
are explained as follows:
(1) A $0.7 million decrease in administrative expenses from 1997 levels
resulted from reduced legal fees needed to collect outstanding receivables due
to the Partnership from aircraft lessees.
(2) A $0.6 million decrease in depreciation and amortization expenses from
1997 levels reflects the sale of certain assets during 1998 and 1997 and the use
of the double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned.
(3) A $0.4 million decrease in interest expense was due to lower average
borrowings outstanding during the six months ended June 30, 1998, compared to
the same period in 1997.
(4) A $0.1 million decrease in management fees to affiliates reflects the
lower levels of lease revenues in the six months ended June 30, 1998, compared
to the same period in 1997.
(5) The $0.3 million increase in bad debt expenses was due to the
following: During the six months ended June 30, 1997, a net of $0.5 million from
cash receipts and the application of security deposits were used against unpaid
invoices that were previously reserved for as bad debts, offset, in part, by a
decrease of $0.2 million in bad debt expense due to the General Partner's
evaluation of the collectibility of receivables due from certain lessees.
(C) Interest and Other Income
Interest and other income decreased $0.5 million in the six months ended June
30, 1998, compared to the same period in 1997, due to the following:
(1) The recognition in 1997 of $0.4 million in loss-of-hire and general
claim insurance recovery relating to generator repairs on one marine vessel sold
in 1994. No similar recovery occurred in 1998.
(2) A decrease of $0.1 million in interest income due to lower cash
balances compared to the same period in 1997.
(D) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on disposition of equipment for the six months ended June 30, 1998
totaled $0.5 million, which resulted from the sale of trailers with a net book
value of $0.9 million, for proceeds of $0.4 million. In addition, the
Partnership sold or disposed of marine containers, and railcars with an
aggregate net book value of $0.3 million, for aggregate proceeds of $0.3
million. For the six months ended June 30, 1997, the $2.4 million net gain on
disposition of equipment resulted from the sale or disposal of marine
containers, railcars, and a marine vessel, with an aggregate net book value of
$5.7 million and unused drydock reserves of $1.0 million, for aggregate proceeds
of $7.1 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 is shown in the following table by equipment type
(in thousands of dollars):
For the Six Months
Ended June 30,
1998 1997
------------------------------
Aircraft $ 372 $ 355
Marine vessels (80 ) (479)
Equity in Net Income (Loss) of USPEs $ 292 $ (124 )
==================================================================
Aircraft: As of June 30, 1998, the Partnership had an interest in a trust that
owns two commercial aircraft on direct finance lease. As of June 30, 1997, the
Partnership owned an interest in a trust that owns six commercial aircraft and
had an interest in a trust that owns two commercial aircraft on direct finance
lease. Aircraft revenues and expenses were $0.4 million and $0, respectively,
for the six months ended June 30, 1998, compared to $0.9 million and $0.5
million, respectively, during the same period of 1997. The decrease in lease
revenues and depreciation and administrative expenses during the six months
ended June 30, 1998 was due to the sale of the Partnership's interest in a trust
during the fourth quarter of 1997.
Marine vessel: As of June 30, 1998 and 1997, the Partnership had an interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.7
million and $0.8 million, respectively, for the six months ended June 30, 1998,
compared to $0.5 million and $1.0 million, respectively, during the same period
in 1997. Lease revenue increased in the six months ended June 30, 1998 primarily
due to the marine vessel being off-hire for 19 days in the six months ended June
30, 1997. Direct expenses decreased in the six months ended June 30, 1998
primarily due to the recognition in 1997 of a claim for unpaid bunkers to a
prior charterer.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss was $0.7 million for
the six months ended June 30, 1998, compared to a net income of $2.0 million
during the same period of 1997. 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 six months
ended June 30, 1998 is not necessarily indicative of future periods. In the six
months ended June 30, 1998, the Partnership distributed $1.7 million to the
limited partners, or $0.20 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the six months ended June 30, 1998, the Partnership generated $2.9 million
in operating cash (net cash provided by operating activities plus
non-liquidating distributions from USPEs) to meet its operating obligations and
maintain the current level of distributions (total for the six months ended June
30, 1998 of approximately $1.8 million) to the partners.
During the six months ended June 30, 1998, the Partnership sold or disposed of
marine containers, railcars, and trailers with an aggregate net book value of
$1.2 million, for proceeds of $0.7 million of which $0.6 million were received
during the six months ended June 30, 1998.
In July 1998, the Partnership paid the second annual principal payment of $8.3
million of the outstanding notes payable.
(III) YEAR 2000 COMPLIANCE
The General Partner is currently addressing the Year 2000 computer software
issue and is creating a timetable for carrying out any program modifications
that may be required, and does not anticipate that the cost of those
modifications allocable to the Partnership will be material.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of June 30, 1998, the
General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(V) 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
scheduled termination of the Partnership at the end of the year 2000.
Several factors may affect the Partnership's operating performance in 1998 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors, or of their occurrence, makes it difficult for the General Partner to
clearly define trends or influences that may impact the performance of the
Partnership's equipment. The General Partner continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may decide to reduce the Partnership's exposure to
those equipment markets in which it determines that it cannot operate equipment
and achieve acceptable rates of return.
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.
(VI) FORWARD-LOOKING INFORMATION
Except for the 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: August 11, 1998 By: /s/ Richard K Brock
---------------------
Richard K Brock
Vice President and
Corporate Controller