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 MARCH 31, 1999 [ ] 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) March 31, December 31, 1999 1998 ------------------------------------ ASSETS Equipment held for operating leases, at cost $ 80,388 $ 82,278 Less accumulated depreciation (58,858 ) (58,674 ) ------------------------------------ 21,530 23,604 Net equipment Cash and cash equivalents 813 778 Restricted cash 147 147 Accounts receivable, less allowance for doubtful accounts of $3,124 in 1999 and $3,126 in 1998 806 874 Investments in unconsolidated special-purpose entities 5,649 5,739 Deferred charges, less accumulated amortization of $330 in 1999 and $321 in 1998 48 58 Prepaid expenses and other assets 99 50 ------------------------------------ Total assets $ 29,092 $ 31,250 ==================================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 295 $ 563 Due to affiliates 237 244 Lessee deposits and reserve for repairs 1,142 1,126 Notes payable 12,750 12,750 ------------------------------------ Total liabilities 14,424 14,683 ------------------------------------ Partners' capital: Limited partners (8,628,420 limited partnership units as of March 31, 1999 and December 31, 1998) 14,668 16,567 General Partner -- -- ------------------------------------ Total partners' capital 14,668 16,567 ------------------------------------ Total liabilities and partners' capital $ 29,092 $ 31,250 ==================================== 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 ended March 31, 1999 1998 ---------------------------- REVENUES Lease revenue $ 2,462 $3,074 Interest and other income 21 74 Net loss on disposition of equipment (195 ) (480 ) ---------------------------- Total revenues 2,288 2,668 EXPENSES Depreciation and amortization 1,228 1,512 Repairs and maintenance 1,102 933 Equipment operating expenses 159 236 Insurance expense to affiliate -- (6 ) Other insurance expense 64 99 Management fees to affiliate 139 173 Interest expense 311 512 General and administrative expenses to affiliates 143 150 Other general and administrative expenses 155 16 Provision for (recovery of) bad debt expense (2 ) 98 ---------------------------- Total expenses 3,299 3,723 Equity in net income of unconsolidated special- purpose entities 20 210 ---------------------------- Net loss $ (991 ) $ (845 ) ============================ PARTNERS' SHARE OF NET INCOME (LOSS) Limited partners $ (1,036 ) $ (890 ) General Partner 45 45 ---------------------------- Total $ (991 ) $ (845 ) ============================ Net loss per weighted-average limited partnership unit $ (0.12 ) $(0.10 ) ============================ Cash distribution $ 908 $ 908 ============================ Cash distribution per weighted-average limited partnership unit $ 0.10 $ 0.10 ============================ 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, 1997 to March 31, 1999 (in thousands of dollars) Limited General Partners Partner Total --------------------------------------------------- Partners' capital as of December 31, 1997 $ 21,227 $ -- $ 21,227 Net income (loss) (1,309 ) 182 (1,127 ) Cash distribution (3,351 ) (182 ) (3,533 ) ------------------------------------------------------------------------------------------------------------------------- Partners' capital as of December 31, 1998 16,567 -- 16,567 Net income (loss) (1,036 ) 45 (991 ) Cash distribution (863 ) (45 ) (908 ) -------------------------------------------------- Partner's capital as of March 31, 1999 $ 14,668 $ - $ 14,668 ================================================== See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (in thousands of dollars) For the Three Months ended March 31, 1999 1998 ---------------------------- OPERATING ACTIVITIES Net loss $ (991 ) $ (845 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,228 1,512 Net loss on disposition of equipment 195 480 Equity in net income of unconsolidated special-purpose entities (20 ) (210 ) Changes in operating assets and liabilities: Restricted cash -- 100 Accounts receivable, net 92 130 Prepaid expenses and other assets (49 ) 16 Accounts payable and accrued expenses (268 ) (628 ) Due to affiliates (7 ) 19 Lessee deposits and reserve for repairs 16 (127 ) ---------------- ------------ Net cash provided by operating activities 196 447 ---------------------------- INVESTING ACTIVITIES Payments for capitalized improvements -- (7 ) Proceeds from disposition of equipment 637 284 Distribution from liquidation of unconsolidated special- purpose entities -- 3,470 Distribution from unconsolidated special-purpose entities 110 232 ---------------------------- Net cash provided by investing activities 747 3,979 ---------------------------- FINANCING ACTIVITIES Cash distribution paid to limited partners (863 ) (863 ) Cash distribution paid to General Partner (45 ) (45 ) ---------------------------- ---------------------------- Net cash used in financing activities (908 ) (908 ) ---------------------------- Net increase in cash and cash equivalents 35 3,518 Cash and cash equivalents at beginning of year 778 3,650 ---------------------------- Cash and cash equivalents at end of period $ 813 $ 7,168 ============================ SUPPLEMENTAL INFORMATION Interest paid $ 311 $ 512 ============================ See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 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 March 31, 1999 and December 31, 1998, the statements of operations for the three months ended March 31, 1999 and 1998, the statements of cash flows for the three months ended March 31, 1999 and 1998, and the statements of changes in partners' capital for the period from December 31, 1997 to March 31, 1999. 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, 1998, on file with the Securities and Exchange Commission. 2. Schedule of Partnership Phases In accordance with the limited partnership agreement, the Partnership entered its passive phase on January 1, 1997 and as a result, the Partnership is not permitted to reinvest in equipment. On January 1, 1999, the Partnership entered its liquidation phase and has commenced an orderly liquidation of the Partnership assets. The Partnership will terminate on December 31, 2009, unless terminated earlier upon sale of all equipment or by certain other events. During the liquidation phase, the Partnership's assets will continue to be recorded at the lower of carrying amount or fair value less costs to sell. 3. Cash Distributions Cash distributions are recorded when paid and may include amounts in excess of net income that are considered to represent a return of capital. For the three months ended March 31, 1999 and 1998, cash distributions totaled $0.9 million. Cash distributions to the limited partners of $0.9 million for the three months ended March 31, 1999 and 1998, were deemed to be a return of capital. Cash distributions related to the results from the first quarter of 1999, of $0.7 million, will be paid during the second quarter of 1999. 4. Transactions with General Partner and Affiliates The balance due to affiliates as of March 31, 1999 and December 31, 1998, 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 $14,000 and $9,000 were payable as of March 31, 1999 and December 31, 1998, respectively. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 4. Transactions with General Partner and Affiliates (continued) The Partnership's proportional share of the affiliated expenses incurred by the USPEs during 1999 and 1998 is listed in the following table (in thousands of dollars): For the Three Months Ended March 31, 1999 1998 ------------------------- Management fees $ 16 $ 20 Data processing and administrative expenses 3 5 Insurance expense 3 2 Transportation Equipment Indemnity Company, Ltd., an affiliate of the General Partner and currently in liquidation, will no longer provide certain marine insurance coverage as had been provided during 1998. These services will be provided by an unaffiliated third party. 5. Equipment The components of owned equipment were as follows (in thousands of dollars): March 31, December 31, 1999 1998 ---------------------------------------- Aircraft $ 42,734 $ 42,734 Railcars 13,560 14,752 Marine containers 10,588 11,012 Marine vessel 9,719 9,719 Trailers 3,787 4,061 ---------------------------------------- 80,388 82,278 Less accumulated depreciation (58,858 ) (58,674 ) ---------------------------------------- Net equipment $ 21,530 $ 23,604 ======================================== As of March 31, 1999, all equipment was either on lease or operating in PLM-affiliated short-term trailer rental facilities, except for two commercial aircraft, five railcars, and 33 marine containers, with an aggregate net book value of $4.3 million. As of December 31, 1998, all equipment was either on lease or operating in PLM-affiliated short-term trailer rental facilities, except for two commercial aircraft, five railcars, and 46 marine containers, with an aggregate net book value of $4.6 million. During the three months ended March 31, 1999, the Partnership sold or disposed of marine containers, railcars, and trailers with an aggregate net book value of $0.9 million, for aggregate proceeds of $0.7 million. During the three months ended March 31, 1998, the Partnership sold or disposed of marine containers, railcars, and trailers with an aggregate net book value of $1.0 million, for aggregate proceeds of $0.5 million. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 6. 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): March 31, December 31, 1999 1998 ------------------------------------ 35% interest in two Stage II commercial aircraft on a direct finance lease $ 3,801 $ 3,880 50% interest in an entity owning a bulk-carrier 1,848 1,859 -------------------------------------------------------------------------------------------------------- Net investments $ 5,649 $ 5,739 ==================================== 7. Operating Segments The Partnership operates in five different segments: aircraft leasing, railcar leasing, marine container leasing, marine vessel leasing, and trailer leasing. Each equipment leasing segment engages in short-term to mid-term operating leases to a variety of customers. The following tables present a summary of the operating segments (in thousands of dollars): Marine Marine Aircraft Railcar Container Vessel Trailer All For the quarter ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1> Total ------------------------------------ ------- ------- ------- ------- ------- ---- ----- REVENUES Lease revenue $ 871 $ 847 $ 105 $ 352 $ 287 $ -- $ 2,462 Interest income and other 2 -- -- -- -- 19 21 Gain (loss) on disposition of -- (163 ) 21 -- (53 ) -- (195 ) equipment ------------------------------------------------------------------------- Total revenues 873 684 126 352 234 19 2,288 COSTS AND EXPENSES Operations support 663 211 1 364 77 9 1,325 Depreciation and amortization 731 171 154 81 82 9 1,228 Interest expense -- -- -- -- -- 311 311 Management fees to affiliates 38 60 5 17 19 -- 139 General and administrative expenses 65 26 2 6 72 127 298 Provision for (recovery of) bad -- (6 ) -- -- 4 -- (2 ) debts ------------------------------------------------------------------------- Total costs and expenses 1,497 462 162 468 254 456 3,299 ------------------------------------------------------------------------- Equity in net income (loss) of USPEs 137 -- -- (117 ) -- -- 20 ------------------------------------------------------------------------- ========================================================================= Net income (loss) $ (487 ) $ 222 $ (36 )$ (233 ) $ (20 )$ (437 ) $ (991 ) ========================================================================= Total assets as of March 31, 1999 $ 14,705 $ 5,159 $ 2,104 $ 3,976 $ 1,849 $ 1,299 $ 29,092 ========================================================================= <FN> <F1> Includes interest income and costs not identifiable to a particular segment, such as interest expense, and amortization expense, and certain operations support and general and administrative expenses. </FN> PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 7. Operating Segments (continued) Marine Marine Aircraft Railcar Container Vessel Trailer For the quarter ended March 31, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1> Total ------------------------------------ ------- ------- ------- ------- ------- --------- ----- REVENUES Lease revenue $ 871 $ 904 $ 332 $ 500 $ 467 $ -- $ 3,074 Interest income and other 6 -- -- -- -- 68 74 Gain (loss) on disposition of (2 ) (9 ) 4 -- (473 ) -- (480 ) equipment ------------------------------------------------------------------------- Total revenues 875 895 336 500 (6 ) 68 2,668 COSTS AND EXPENSES Operations support 590 168 2 364 130 8 1,262 Depreciation and amortization 829 229 186 96 155 17 1,512 Interest expense -- -- -- -- -- 512 512 Management fees to affiliate 38 62 24 25 24 -- 173 General and administrative expenses 35 34 5 4 85 3 166 Provision for (recovery of) bad -- (13 ) -- -- 111 -- 98 debts ------------------------------------------------------------------------- Total costs and expenses 1,492 480 217 489 505 540 3,723 ------------------------------------------------------------------------- Equity in net income (loss) of USPEs 229 -- -- (19 ) -- -- 210 ------------------------------------------------------------------------- ========================================================================= Net income (loss) $ (388 )$ 415 $ 119 $ (8 )$ (511 )$ (472 )$ (845 ) ========================================================================= Total assets as of March 31, 1998 $ 18,157 $ 6,602 $ 3,442 $ 4,500 $ 3,051 $ 7,848 $ 43,600 ========================================================================= <FN> <F1> Includes interest income and costs not identifiable to a particular segment, such as interest expense, and amortization expense, and certain operations support and general and administrative exenses. </FN> 8. Net Loss Per Weighted-Average Partnership Unit Net loss per weighted-average Partnership unit was computed by dividing net loss attributable to limited partners by the weighted-average number of Partnership units deemed outstanding during the period. The weighted-average number of Partnership units deemed outstanding during the three months ended March 31, 1999 and 1998 was 8,628,420. 9. Contingencies PLM International, (the Company) and various of its affiliates are named as defendants in a lawsuit filed as a purported class action on January 22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch action). Plaintiffs, who filed the complaint on their own and on behalf of all class members similarly situated, are six individuals who invested in certain California limited partnerships (the Partnerships) 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 VI, and PLM Equipment Growth & Income Fund VII (the Growth Funds). The state court ex parte certified the action as a class action (i.e., solely upon plaintiffs' request and without the Company being given the opportunity to file an opposition). 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 PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 9. Contingencies (continued) 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 defendants for improper sales and marketing practices, mismanagement of the Growth Funds, and concealing such mismanagement from investors in the Growth Funds. Plaintiffs seek unspecified compensatory and recissory damages, as well as punitive damages, and have offered to tender their 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. Removal of the action to federal court automatically nullified the state court's ex parte certification of the class. In September 1997, the district court denied plaintiffs' motion to remand the action to state court and dismissed without prejudice the individual claims of the California plaintiff, 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 Growth Fund, and to stay further proceedings pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition, the district court granted defendants' motion in December 1997. Following various unsuccessful requests that the district court reverse, or otherwise certify for appeal, its order denying plaintiffs' motion to remand the case to state court and dismissing the California plaintiff's claims, plaintiffs filed with the U.S. Court of Appeals for the Eleventh Circuit a petition for a writ of mandamus seeking to reverse the district court's order. The Eleventh Circuit denied plaintiffs' petition in November of 1997, and further denied plaintiffs subsequent motion in the Eleventh Circuit for a rehearing on this issue. Plaintiffs also appealed the district court's order granting defendants' motion to compel arbitration, but in June of 1998 voluntarily dismissed their appeal 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 Growth 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 California Corporations Code Section 1507, and a claim for treble damages under California Civil Code Section 3345. On July 31, 1997, 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, but in November 1997, agreed to hear the Company's motion for reconsideration of this order. The hearing on this motion has been PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 9. Contingencies (continued) 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, 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 Monetary Settlement). The Monetary Settlement contemplated by the MOU provides for stipulating to a class for settlement purposes, and a settlement and release of all claims against defendants and third party brokers in exchange for payment for the benefit of the Class of up to $6.0 million. The final settlement amount will depend on the number of claims filed by authorized claimants who are members of the Class, 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 Monetary Settlement, with the remainder being funded by an insurance policy. The parties to the Monetary Settlement have also agreed in principal to an equitable settlement (the Equitable Settlement) which provides, among other things, (a) for the extension of the operating lives of PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund VII (the Funds) by judicial amendment to each of their partnership agreements, such that FSI, the general partner of each such Fund, will be permitted to reinvest cash flow, surplus partnership funds or retained proceeds in additional equipment into the year 2004, and will liquidate the partnerships' equipment in 2006; (b) that FSI be entitled to earn front end fees (including acquisition and lease negotiation fees) in excess of the compensatory limitations set forth in the NASAA Statement of Policy by judicial amendment to the Partnership Agreements for each Fund; (c) for a one time redemption of up to 10% of the outstanding units of each Fund at 80% of such partnership's net asset value; and (d) for the deferral of a portion of FSI's management fees. The Equitable Settlement also provides for payment of the Equitable Class attorneys' fees from Partnership funds in the event that distributions paid to investors in the Funds during the extension period reach a certain internal rate of return. Defendants will continue to deny each of the claims and contentions and admit no liability in connection with the proposed settlements. The parties completed the documentation of the monetary and equitable settlements in April 1999. The monetary settlement remains subject to numerous conditions, including but not limited to, notice to and certification of the monetary class for purposes of the monetary settlement, and preliminary and final approval of the monetary settlement by the Alabama district court. The equitable settlement remains subject to numerous conditions, including but not limited to: (a) notice to the current unitholders in Funds V, VI, and VII (the equitable class) and certification of the equitable class for purposes of the equitable settlement, (b) preparation, review by the Securities and Exchange Commission (SEC), and dissemination to the members of the equitable class of solicitation statements regarding the proposed extensions, (c) disapproval by less than 50% of the limited partners in Funds V, VI, and VII of the proposed amendments to the limited partnership agreements, (d) judicial approval of the proposed amendments to the limited partnership agreements, and (e) preliminary and final approval of the equitable settlement by the Alabama district court. If the PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 9. Contingencies (continued) district court grants preliminary approval, notices to the monetary class and equitable class will be sent following review by the SEC of the solicitation statements to be prepared in connection with the equitable settlement. The monetary settlement, if approved, will go forward regardless of whether the equitable settlement is approved or not. The Company 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 monetary settlement is not consummated. The Partnership, together with affiliates, has initiated litigation in various official forums in India against each of two defaulting Indian airline lessees to repossess Partnership property and to recover damages for failure to pay rent and failure to maintain such property in accordance with relevant lease contracts. The Partnership has repossessed all of its property previously leased to such airlines, and the airlines have ceased operations. In response to the Partnership's collection efforts, the two airlines each filed counter-claims against the Partnership in excess of the Partnership's claims against the airlines. The General Partner believes that the airlines' counterclaims are completely without merit, and the General Partner will vigorously defend against such counterclaims. The Partnership is involved as plaintiff or defendant in various other legal actions incident to its business. Management does not believe that any of these actions will be material to the financial condition of the Company. (This space intentionally left blank.) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) RESULTS OF OPERATIONS Comparison of the PLM Equipment Growth Fund IV's (the Partnership's) Operating Results for the Three Months Ended March 31, 1999 and 1998 (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance, equipment operating, and asset-specific insurance expenses) on owned equipment decreased during the first quarter of 1999 compared to the same period of 1998. Gains or losses from the sale of equipment, and interest and other income and certain expenses such as depreciation and amortization and general and administrative expenses relating to the operating segments (see Note 7 to the financial statements), are not included in the owned equipment operation discussion because they are indirect in nature and not a result of operations but the result of owning a portfolio of equipment. The following table presents lease revenues less direct expenses by segment (in thousands of dollars): For the Three Months Ended March 31, 1999 1998 ---------------------------- Railcars $ 636 $ 735 Trailers 210 337 Aircraft 208 281 Marine containers 104 330 Marine vessel (12 ) 136 Railcars: Railcar lease revenues and direct expenses were $0.8 million and $0.2 million, respectively, for the first quarter of 1999, compared to $0.9 million and $0.2 million, respectively, during the same period in 1998. The decrease in railcar contribution in the first quarter of 1999 was due to the sale or disposition of railcars in 1998 and 1999. Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1 million, respectively for the first quarter of 1999, compared to $0.5 million and $0.1 million, respectively, during the same period of 1998. The decrease in trailer contribution in the first quarter of 1999 was due to the sale or disposition of trailers in 1999 and 1998. Aircraft: Aircraft lease revenues and direct expenses were $0.9 million and $0.7 million, respectively, for the first quarter of 1999, compared to $0.9 million and $0.6 million, respectively, during the same period of 1998. Direct expenses increased due to higher costs incurred for repairs on an off-lease aircraft in the first quarter of 1999, when compared to the same period in 1998. Marine containers: Marine container lease revenues and direct expenses were $0.1 million and $1,000, respectively, for the first quarter of 1999, compared to $0.3 million and $2,000, respectively, during the same period of 1998. Marine container contributions decreased due to the disposition of containers in 1998 and 1999. Marine vessel: Marine vessel lease revenues and direct expenses were $0.4 million and $0.4 million, respectively, for the first quarter of 1999, compared to $0.5 million and $0.4 million, respectively, during the same period of 1998. Lease revenue decreased in the first quarter of 1999, compared to the same period in 1998, due to lower re-lease rates as a result of a weak bulk-carrier vessel market. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $2.0 million for the first quarter of 1999 decreased from $2.5 million for the same period in 1998. Significant variances are explained as follows: (1) A $0.3 million decrease in depreciation and amortization expenses from 1998 levels reflects the sale of certain assets during 1999 and 1998 and the use of the double-declining balance depreciation method which results in greater depreciation the first years an asset is owned. (2) A $0.2 million decrease in interest expense was due to lower average borrowings outstanding during the quarter ended March 31, 1999, compared to the same period in 1998. (3) The $0.1 million decrease in bad debt expenses was due to the General Partner's evaluation of the collectibility of receivables due from certain lessees. (4) A $0.1 million increase in administrative expenses from 1998 levels due to an increase in professional services. (C) Net Loss on Disposition of Owned Equipment The net loss on disposition of equipment for the first quarter of 1999 totaled $0.2 million, which resulted from the sale of railcars with a net book value of $0.7 million, for proceeds of $0.5 million. In addition, the Partnership sold or disposed of marine containers, and trailers in the first quarter of 1999 with an aggregate net book value of $0.2 million, for aggregate proceeds of $0.2 million. For the first quarter of 1998, net loss on disposition of equipment 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 in the first quarter of 1998 with an aggregate net book value of $0.1 million, for aggregate proceeds of $0.1 million. (D) 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 March 31, 1999 1998 ---------------------------- Aircraft $ 137 $ 229 Marine vessel (117 ) (19 ) =================================================================================================== Equity in net income of USPEs $ 20 $ 210 =================================================================================================== Aircraft: As of March 31, 1999 and 1998, the Partnership had an interest in a trust that owns two commercial aircraft on direct finance lease. Aircraft revenues and expenses were $0.2 million and $15,000, respectively, for the first quarter of 1999, compared to $0.2 million and $0, respectively, during the same period in 1998. Marine vessel: As of March 31, 1999 and 1998, the Partnership had an interest in an entity owning a marine vessel. Marine vessel revenues and expenses were $0.2 million and $0.3 million, respectively, for the first quarter of 1999, compared to $0.3 million and $0.3 million, respectively, during the same period in 1998. Lease revenue decreased in the quarter ended March 31, 1999 compared to the same period in 1998, due to lower re-lease rates as a result of a weak bulk-carrier vessel market. (E) Net Loss As a result of the foregoing, the Partnership's net loss was $1.0 million for the first quarter of 1999, compared to net loss of $0.8 million during the same period of 1998. 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 March 31, 1999 is not necessarily indicative of future periods. In the first quarter of 1999, the Partnership distributed $0.9 million to the limited partners, or $0.10 per weighted-average limited partnership unit. (II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY For the three months ended March 31, 1999, the Partnership generated $0.3 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 three months ended March 31, 1999 of approximately $0.9 million) to the partners, but also used undistributed available cash from prior periods of approximately $0.6 million. During the three months ended March 31, 1999, the Partnership sold or disposed of marine containers, railcars, and trailers with an aggregate net book value of $0.9 million, for aggregate proceeds of $0.7 million. The Partnership plans to sell equipment in the second quarter of 1999 to pay the third annual principal payment of $8.3 million of the outstanding note payable due on July 1, 1999. The Partnership is in its active liquidation phase. As a result, 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 may be reduced, significant asset sales may result in potential special distributions to the partners. (III) EFFECTS OF YEAR 2000 It is possible that the General Partner's currently installed computer systems, software products, and other business systems, or the Partnership's vendors, service providers, and customers, working either alone or in conjunction with other software or systems, may not accept input of, store, manipulate, and output dates on or after January 1, 2000 without error or interruption (a problem commonly known as the "Year 2000" problem). Since the Partnership relies substantially on the General Partner's software systems, applications, and control devices in operating and monitoring significant aspects of its business, any Year 2000 problem suffered by the General Partner could have a material adverse effect on the Partnership's business, financial condition, and results of operations. The General Partner has established a special Year 2000 oversight committee to review the impact of Year 2000 issues on its software products and other business systems in order to determine whether such systems will retain functionality after December 31, 1999. The General Partner (a) is currently integrating Year 2000-compliant programming code into its existing internally customized and internally developed transaction processing software systems and (b) the General Partner's accounting and asset management software systems have either already been made Year 2000-compliant or Year 2000-compliant upgrades of such systems are planned to be implemented by the General Partner before the end of fiscal 1999. Although the General Partner believes that its Year 2000 compliance program can be completed by the beginning of 1999, there can be no assurance that the compliance program will be completed by that date. To date, the costs incurred and allocated to the Partnership to become Year 2000 compliant have not been material. Also, the General Partner believes the future cost allocable to the Partnership to become Year 2000 compliant will not be material. It is possible that certain of the Partnership's equipment lease portfolio may not be Year 2000 compliant. The General Partner is currently contacting equipment manufacturers of the Partnership's leased equipment portfolio to assure Year 2000 compliance or to develop remediation strategies. The General Partner does not expect that non-Year 2000 compliance of the Partnership's leased equipment portfolio will have an adverse material impact on its financial statements. Some risks associated with the Year 2000 problem are beyond the ability of the General Partner or Partnership to control, including the extent to which third parties can address the Year 2000 problem. The General Partner is communicating with vendors, services providers, and customers in order to assess the Year 2000 compliance readiness of such parties and the extent to which the Partnership is vulnerable to any third-party Year 2000 issues. There can be no assurance that the software systems of such parties will be converted or made Year 2000 compliant in a timely manner. Any failure by the General Partner or such other parties to make their respective systems Year 2000 compliant could have a material adverse effect on the business, financial position, and results of operations from the Partnership. The General Partner will make an ongoing effort to recognize and evaluate potential exposure relating to third-party Year 2000 non-compliance, and will develop a contingency plan if the General Partner determines that third-party non-compliance will have a material adverse effect on the Partnership's business, financial position, or results of operation. The General Partner is currently developing a contingency plan to address the possible failure of any systems due to the Year 2000 problems. The General Partner anticipates these plans will be completed by September 30, 1999. (IV) ACCOUNTING PRONOUNCEMENTS 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 March 31, 1999, the General Partner is reviewing the effect this standard will have on the Partnership's consolidated financial statements. (V) OUTLOOK FOR THE FUTURE The Partnership is in its active liquidation phase. The General Partner is 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 1999 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 make an evaluation to reduce the Partnership's exposure to 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 and proceeds from disposition of equipment 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's primary market risk exposure is that of currency devaluation risk. During the first quarter of 1999, 63% of the Partnership's total lease revenues from wholly- and partially-owned equipment came from non-United States domiciled lessees. Most of the leases require payment in United States (U.S.) currency. If these lessees currency devalues against the U.S. dollar, the lessees could encounter difficulty in making the U.S. dollar denominated lease payments. (This space intentionally left blank.) 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: April 30, 1999 By: /s/ Richard K Brock ------------------------ Richard K Brock Vice President and Corporate Controller