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, 2002 [ ] 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 0-18789 _______________________ 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 Identification No.) 450 CARILLON PARKWAY, SUITE 200 ST. PETERSBURG, FL 33716 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (727) 803-8200 _______________________ 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) CONDENSED BALANCE SHEETS (in thousands of dollars, except unit amounts) (unaudited) June 30, December 31, 2002 2001 --------- ------------- ASSETS Equipment held for operating leases, at cost $11,806 $ 15,811 Less accumulated depreciation (8,570) (11,918) -------- --------- Net equipment 3,236 3,893 Cash and cash equivalents 6,534 8,879 Accounts receivable, less allowance for doubtful accounts of $79 in 2002 and $45 in 2001 11 82 Investment in an unconsolidated special-purpose entity 1,038 1,197 Prepaid expenses and other assets 43 21 -------- --------- Total assets $10,862 $ 14,072 LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 47 $ 293 Due to affiliates 159 168 -------- --------- Total liabilities 206 461 Partners' capital: Limited partners (8,628,420 limited partnership units as of June 30, 2002 and December 31, 2001) 10,656 13,611 General Partner -- -- -------- --------- Total partners' capital 10,656 13,611 Total liabilities and partners' capital $10,862 $ 14,072 ======== ========= See accompanying notes to unaudited condensed financial statements. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) CONDENSED STATEMENTS OF INCOME (in thousands of dollars, except weighted-average unit amounts) (unaudited) For the Three Months For the Six Months Ended June 30, Ended June 30, 2002 2001 2002 2001 ==================== ====================== REVENUES Lease revenue $ 440 $ 643 $ 1,058 $ 1,551 Interest and other income 25 112 57 178 Net gain on disposition of equipment 58 26 649 3,455 ------ ----- ------- ------- Total revenues 523 781 1,764 5,184 EXPENSES Depreciation 71 126 153 428 Repairs and maintenance 134 133 264 272 Equipment operating expenses 21 23 42 118 Management fees to affiliate 30 51 74 98 General and administrative expenses to affiliates 31 38 63 161 Other general and administrative expenses 110 112 157 336 Provision for (recovery of) bad debts 32 (16) 34 14 ------ ----- ------- ------- Total expenses 429 467 787 1,427 Equity in net income of unconsolidated special- purpose entities 29 104 64 174 ------ ----- ------- ------- Net income $ 123 $ 418 $ 1,041 $ 3,931 PARTNERS' SHARE OF NET INCOME Limited partners $ 123 $ 373 $ 841 $ 3,841 General Partner -- 45 200 90 ------ ----- ------- ------- Total $ 123 $ 418 $ 1,041 $ 3,931 Net income per weighted-average limited partnership unit $0.01 $0.04 $ 0.10 $ 0.45 Cash distribution $ -- $ 908 $ 3,996 $ 1,770 ------ ----- ------- ------- Cash distribution per weighted-average limited partnership unit $ -- $0.10 $ 0.44 $ 0.19 ====== ====== ======== ======= See accompanying notes to unaudited condensed financial statements. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIOD FROM DECEMBER 31, 2000 TO JUNE 30, 2002 (in thousands of dollars) (unaudited) Limited General Partners Partner Total Partners' capital as of December 31, 2000 $12,134 $ -- $12,134 Net income 3,157 90 3,247 Cash distribution (1,680) (90) (1,770) -------- ------ -------- Partners' capital as of December 31, 2001 13,611 -- 13,611 Net income 841 200 1,041 Cash distribution (3,796) (200) (3,996) -------- ------ -------- Partners' capital as of June 30, 2002 $10,656 $ -- $10,656 ======== ====== ======== See accompanying notes to unaudited condensed financial statements. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) CONDENSED STATEMENTS OF CASH FLOWS (in thousands of dollars) (unaudited) For the Six Months Ended June 30, 2002 2001 ================== OPERATING ACTIVITIES Net income $ 1,041 $ 3,931 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 153 428 Net gain on disposition of equipment (649) (3,455) Equity in net income of unconsolidated special-purpose entities (64) (174) Changes in operating assets and liabilities: Restricted cash -- 125 Accounts receivable, net 69 65 Prepaid expenses and other assets (22) (6) Accounts payable and accrued expenses (246) (50) Due to affiliates (9) (9) Lessee deposits and reserve for repairs -- (207) -------- ------- Net cash provided by operating activities 273 648 INVESTING ACTIVITIES Payments for capitalized improvements -- (2) Proceeds from disposition of equipment 1,155 5,361 Distribution from unconsolidated special-purpose entities 223 357 -------- ------- Net cash provided by investing activities 1,378 5,716 FINANCING ACTIVITIES Cash distribution paid to limited partners (3,796) (1,680) Cash distribution paid to General Partner (200) (90) -------- ------- Net cash used in financing activities (3,996) (1,770) Net (decrease) increase in cash and cash equivalents (2,345) 4,594 Cash and cash equivalents at beginning of period 8,879 2,742 -------- ------- Cash and cash equivalents at end of period $ 6,534 $ 7,336 ======= ======= See accompanying notes to unaudited condensed financial statements. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. Opinion of Management ----------------------- In the opinion of the management of PLM Financial Services, Inc. (FSI or the General Partner), the accompanying unaudited condensed financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the unaudited condensed financial position of PLM Equipment Growth Fund IV (the Partnership) as of June 30, 2002 and December 31, 2001, the unaudited condensed statements of income for the three and six months ended June 30, 2002 and 2001, the unaudited condensed statements of changes in partners' capital for the period from December 31, 2000 to June 30, 2002, and the unaudited condensed statements of cash flows for the six months ended June 30, 2002 and 2001. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the accompanying condensed 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, 2001, on file at the Securities and Exchange Commission. 2. Schedule of Partnership Phases --------------------------------- The Partnership, in accordance with its limited partnership agreement, entered its liquidation phase on January 1, 1999, and has commenced an orderly liquidation of the Partnership's 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 may not reinvest cash flows and proceeds from asset dispositions into additional equipment. All future cash flows and surplus funds after payment of operating expenses, if any, are to be used for cash distributions to the partners, except to the extent used to maintain reasonable working reserves. During the liquidation phase, the Partnership's assets will continue to be recorded at the lower of carrying amount or fair value less cost to sell. 3. Cash Distributions ------------------- Cash distributions are recorded when paid and may include amounts in excess of net income that are considered a return of capital. For the six months ended June 30, 2002 and 2001, cash distributions totaled $4.0 million and $1.8 million, respectively. Cash distributions of $3.0 million to the limited partners for the six months ended June 30, 2002 were deemed to be a return of capital. None of the cash distributions to the limited partners for the six months ended June 30, 2001 were deemed to be a return of capital. 4. Transactions with General Partner and Affiliates ----------------------------------------------------- The balance due to affiliates as of June 30, 2002 and December 31, 2001 includes $12,000 and $21,000, respectively, due to FSI and its affiliates for management fees and $0.1 million due to an affiliated unconsolidated special-purpose entity (USPE). PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 4. Transactions with General Partner and Affiliates (continued) ----------------------------------------------------- The Partnership's proportional share of the expenses incurred by the USPE during 2002 and 2001 is listed in the following table (in thousands of dollars): For the Three Months For the Six Months Ended June 30, Ended June 30, 2002 2001 2002 2001 ------ ------ ------ ----- Management fees $ 2 $ 4 $ 4 $ 9 Data processing and administrative expenses 1 2 2 4 These affiliate expenses reduced the Partnership's proportional share of the equity interest in income of the USPE. 5. Equipment --------- Owned equipment held for operating leases is stated at cost. The components of owned equipment were as follows (in thousands of dollars): June 30, December 31, 2002 2001 -------- --------- Railcars $11,022 $ 13,239 Marine containers 784 2,572 -------- --------- 11,806 15,811 Less accumulated depreciation (8,570) (11,918) -------- --------- Net equipment $ 3,236 $ 3,893 ======== ========= As of June 30, 2002, all equipment was on lease except for 88 railcars and 7 marine containers with an aggregate net book value of $0.7 million. As of December 31, 2001, all equipment was on lease except for 47 railcars with a net book value of $0.3 million. During the six months ended June 30, 2002, the Partnership disposed of marine containers and railcars with an aggregate net book value of $0.5 million, for proceeds of $1.2 million. During the six months ended June 30, 2001, the Partnership sold a commercial aircraft, a commuter aircraft, marine containers and railcars with an aggregate net book value of $1.9 million, for aggregate proceeds of $5.4 million. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 6. Investment in an Unconsolidated Special-Purpose Entity ----------------------------------------------------------- The Partnership's net investment in an USPE consisted of a 35% interest in a trust owning two stage III commercial aircraft on a direct finance lease and related assets and liabilities; such investment totaled $1.0 million and $1.2 million as of June 30, 2002 and December 31, 2001, respectively. This is a single purpose entity that does not have any debt or other financial encumbrances. As of June 30, 2002 and December 31, 2001, the jointly owned equipment in the Partnership's USPE portfolio was on lease. 7. Operating Segments ------------------- The Partnership operates or operated in four different segments: aircraft leasing, railcar leasing, marine container leasing, and marine vessel 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 For the three months ended Aircraft Railcar Container June 30, 2002 Leasing Leasing Leasing Other 1 Total REVENUES Lease revenue $ -- $ 433 $ 7 $ -- $ 440 Interest income and other -- -- -- 25 25 Gain (loss) on disposition of equipment -- (3) 61 -- 58 --------- -------- ---------- -------- ------- Total revenues -- 430 68 25 523 COSTS AND EXPENSES Operations support -- 139 -- 16 155 Depreciation -- 64 7 -- 71 Management fees to affiliates -- 29 1 -- 30 General and administrative expenses -- 27 -- 114 141 Provision for bad debts -- 30 -- 2 32 --------- -------- ---------- -------- ------- Total costs and expenses -- 289 8 132 429 --------- -------- ---------- -------- ------- Equity in net income of USPE 29 -- -- -- 29 --------- --------- ---------- --------- ------- Net income (loss) $ 29 $ 141 $ 60 $ (107) $ 123 ========= ========= ========== ========= ======= Total assets as of June 30, 2002 $ 1,038 $ 3,224 $ 17 $ 6,583 $10,862 ========= ========= ========== ========= ======= 1 Includes certain assets not identifiable to a specific segment such as cash, certain accounts receivable, and prepaid expenses. Also includes interest income and costs not identifiable to a particular segment, such as certain general and administrative and operations support expenses. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 7. Operating Segments (continued) ------------------- Marine For the three months ended Aircraft Railcar Container June 30, 2001 Leasing Leasing Leasing Other 1 Total REVENUES Lease revenue $ -- $ 625 $ 18 $ -- $ 643 Interest income and other 32 -- -- 80 112 Gain (loss) on disposition of equipment (1) (15) 42 -- 26 --------- -------- ---------- -------- ------- Total revenues 31 610 60 80 781 COSTS AND EXPENSES Operations support 8 131 -- 17 156 Depreciation -- 81 45 -- 126 Management fees to affiliates (3) 53 1 -- 51 General and administrative expenses 18 24 -- 108 150 Provision for (recovery of) bad debts -- (18) 3 (1) (16) --------- -------- ---------- -------- ------- Total costs and expenses 23 271 49 124 467 --------- -------- ---------- -------- ------- Equity in net income of USPEs 104 -- -- -- 104 ---------- --------- ---------- --------- ------- Net income (loss) $ 112 $ 339 $ 11 $ (44) $ 418 ========== ========= ========== ========= ======= Marine For the six months ended Aircraft Railcar Container June 30, 2002 Leasing Leasing Leasing Other 1 Total REVENUES Lease revenue $ -- $ 1,046 $ 12 $ -- $1,058 Interest income and other -- -- -- 57 57 Gain on disposition of equipment -- 506 143 -- 649 --------- -------- ---------- -------- ------ Total revenues -- 1,552 155 57 1,764 COSTS AND EXPENSES Operations support -- 274 -- 32 306 Depreciation -- 128 25 -- 153 Management fees to affiliates -- 73 1 -- 74 General and administrative expenses -- 62 -- 158 220 Provision for bad debts -- 33 -- 1 34 --------- -------- ---------- -------- ------ Total costs and expenses -- 570 26 191 787 --------- -------- ---------- -------- ------ Equity in net income of USPE 64 -- -- -- 64 --------- -------- ---------- --------- ------ Net income (loss) $ 64 $ 982 $ 129 $ (134) $1,041 ========= ======== ========== ========= ====== 1 Includes interest income and costs not identifiable to a particular segment, such as certain general and administrative and operations support expenses. PLM EQUIPMENT GROWTH FUND IV (A LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 7. Operating Segments (continued) ------------------- For the six months ended Aircraft Railcar Container Vessel June 30, 2001 Leasing Leasing Leasing Leasing Other 1 Total REVENUES Lease revenue $ 185 $ 1,336 $ 30 $ -- $ -- $1,551 Interest income and other 38 -- -- -- 140 178 Gain (loss) on disposition of equipment 3,359 (15) 108 -- 3 3,455 --------- -------- ---------- -------- -------- ------ Total revenues 3,582 1,321 138 -- 143 5,184 COSTS AND EXPENSES Operations support 21 266 -- 27 76 390 Depreciation 145 171 112 -- -- 428 Management fees to affiliates -- 97 1 -- -- 98 General and administrative expenses 125 44 -- -- 328 497 Provision for (recovery of) bad debts -- 11 4 -- (1) 14 --------- -------- ---------- -------- -------- ------ Total costs and expenses 291 589 117 27 403 1,427 --------- -------- ---------- -------- -------- ------ Equity in net income (loss) of USPEs 208 -- -- (34) -- 174 --------- --------- ---------- --------- --------- ------ Net income (loss) $ 3,499 $ 732 $ 21 $ (61) $ (260) $3,931 ========= ========= ========== ========= ========= ====== 8. Net Income Per Weighted-Average Limited Partnership Unit -------------------------------------------------------------- Net income per weighted-average limited partnership unit was computed by dividing net income attributable to limited partners by the weighted-average number of limited partnership units deemed outstanding during the period. The weighted-average number of limited partnership units deemed outstanding during the three and six months ended June 30, 2002 and 2001 was 8,628,420. 9. Liquidation and Special Distributions ---------------------------------------- On January 1, 1999, the General Partner began the liquidation phase of the Partnership and commenced an orderly liquidation of the Partnership assets. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. During the liquidation phase of the Partnership the equipment will continue to be leased under operating and finance leases until sold. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio continues to be carried at the lower of depreciated cost or fair value less cost to dispose. Although the General Partner estimates that there will be distributions after liquidation of assets and liabilities, the amounts cannot be accurately determined prior to actual liquidation of the equipment. Upon final liquidation, the Partnership will be dissolved. The Partnership is not permitted to reinvest proceeds from disposition of equipment. These proceeds, in excess of operational cash requirements, are periodically paid out to limited partners in the form of special distributions. No special distributions were paid during the six months ended June 30, 2002 or 2001. The sales and liquidations occur because equipment is damaged, the determination by the General Partner that it is the appropriate time to maximize the return on an asset through sale of that asset, and, in some leases, the ability of the lessee to exercise purchase options. 1 Includes certain interest income and costs not identifiable to a particular segment, such as certain general and administrative and operations support expenses. Also includes the gain from the sale of a trailer and the recovery of trailer bad debts. 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 June 30, 2002 and 2001 - ------------------------------------------------------------------- (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance and equipment operating expenses) on owned equipment decreased during the three months ended June 30, 2002 compared to the same period of 2001. Gains or losses from the sale of equipment, and interest and other income and certain expenses such as management fees to affiliate, depreciation and general and administrative expenses relating to the operating segments (see Note 7 to the unaudited condensed 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 June 30, 2002 2001 ================== Railcars $294 $494 Marine containers 7 18 Aircraft -- (8) Railcars: Railcar lease revenues and direct expenses were $0.4 million and $0.1 million, respectively, for the second quarter of 2002, compared to $0.6 million and $0.1 million, respectively, during the same period of 2001. Railcar lease revenue decreased in the second quarter of 2002 compared to the same quarter of 2001 due to the disposition of railcars during 2002 and 2001. Marine containers: Marine container lease revenues were $7,000 for the second quarter of 2002, compared to $18,000 during the same period of 2001. Lease revenues decreased $11,000 due to the disposition of marine containers during 2002 and 2001. Aircraft: Aircraft lease revenues and direct expenses were $-0- and $8,000, respectively, for the second quarter of 2001. The Partnership's wholly-owned aircraft was sold during 2001. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $0.3 million remained relatively the same for the second quarter of 2002 and 2001. Significant variances are explained as follows: (i) A $0.1 million decrease in depreciation expenses from 2001 levels resulted from to the disposition of certain assets during 2002 and 2001; and (ii) A $48,000 increase in the provision for bad debts was based on PLM Financial Services, Inc. (the General Partner's) evaluation of the collectability of receivables compared to 2001. (C) Interest and Other Income Interest and other income decreased $0.1 million due to a decrease in the interest rate earned on cash balances. (D) Net Gain on Disposition of Owned Equipment The net gain on the disposition of owned equipment for the second quarter in 2002 totaled $0.1 million, and resulted from the sale of marine containers and a railcar with an aggregate net book value of $11,000, for proceeds of $0.1 million. The net gain on disposition of equipment for the second quarter of 2001 totaled $26,000, which resulted from the sale of marine containers and railcars with an aggregate net book value of $0.1 million, for proceeds of $0.1 million. (E) Equity in Net Income of an Unconsolidated Special-Purpose Entity (USPE) Equity in net income of an USPE represents the Partnership's share of the net income generated from the operation of a jointly owned asset accounted for under the equity method of accounting. This entity is single purpose and has no debt or other financial encumbrances. As of June 30, 2002 and 2001, the Partnership had an interest in a trust that owns two commercial aircraft on direct finance lease. Aircraft revenues and expenses were $44,000 and $15,000, respectively, for the second quarter of 2002, compared to $0.1 million and $15,000, respectively, during the same period of 2001. Revenues decreased due to the leases for the aircraft in the trust being renegotiated at a lower rate. (F) Net Income As a result of the foregoing, the Partnership's net income was $0.1 million for the second quarter of 2002, compared to net income of $0.4 million during the same period of 2001. The Partnership's ability to operate and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Partnership's performance in the quarter ended June 30, 2002 is not necessarily indicative of future periods. Comparison of the Partnership's Operating Results for the Six Months Ended June - -------------------------------------------------------------------------------- 30, 2002 and 2001 - -------------------- (A) Owned Equipment Operations Lease revenues less direct expenses on owned equipment decreased during the six months ended June 30, 2002 compared to the same period of 2001. The following table presents lease revenues less direct expenses by segment (in thousands of dollars): For the Six Months Ended June 30, 2002 2001 =================== Railcars $772 $1,070 Marine containers 12 30 Aircraft -- 164 Marine vessel -- (27) Railcars: Railcar lease revenues and direct expenses were $1.0 million and $0.3 million, respectively, for the six months ended June 30, 2002, compared to $1.3 million and $0.3 million, respectively, during the same period of 2001. Lease revenues decreased $0.3 million during the six months ended June 30, 2002 compared to the same period of 2001 due to the disposition of railcars during 2002 and 2001. Marine containers: Marine container lease revenues were $12,000 for the six months ended June 30, 2002, compared to $30,000 during the same period of 2001. Lease revenues decreased $18,000 due to the disposition of marine containers during 2002 and 2001. Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and $21,000, respectively, for the six months ended June 30, 2001. Aircraft contribution decreased $0.2 million during the six months ended June 30, 2002 due to the sale of the Partnership's wholly-owned aircraft during 2001. Marine vessel: Marine vessel reported direct expenses of $27,000 during the six months ended June 30, 2001 due to actual operating expenses in 2000 being higher than previously reported. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $0.5 million for the six months ended June 30, 2002 decreased from $1.0 million for the same period in 2001. Significant variances are explained as follows: (i) A $0.3 million decrease in administrative expenses from 2001 levels resulted from a decrease of $0.1 million due to lower professional costs and a decrease of $0.1 million resulting from lower allocations by the General Partner for office services and data processing services; and (ii) A $0.3 million decrease in depreciation expense from 2001 levels resulted from the disposition of certain assets during 2002 and 2001. (C) Interest and Other Income Interest and other income decreased $0.1 million due to a decrease in the interest rate earned on cash balances. (D) Net Gain on Disposition of Owned Equipment The net gain on the disposition of owned equipment for the six months ended June 30, 2002 totaled $0.6 million, and resulted from the sale of marine containers and railcars with an aggregate net book value of $0.5 million, for proceeds of $1.2 million. The net gain on disposition of equipment for the six months ended June 30, 2001 totaled $3.5 million, which resulted from the sale of a commercial aircraft, a commuter aircraft, marine containers, and railcars with an aggregate net book value of $1.9 million, for aggregate proceeds of $5.4 million. (E) Equity in Net Income of Unconsolidated Special-Purpose Entities Equity in net income of USPEs represents the Partnership's share of the net income or loss generated from the operation of jointly owned assets accounted for under the equity method of accounting. These entities are single purpose and have no debt or other financial encumbrances. The following table presents equity in net income (loss) by equipment type (in thousands of dollars): For the Six Months Ended June 30, 2002 2001 ================== Aircraft $64 $208 Marine vessel -- (34) ----- ----- Equity in net income of USPEs $64 $174 ===== ===== Aircraft: As of June 30, 2002 and 2001, the Partnership had an interest in a trust that owns two commercial aircraft on direct finance lease. Aircraft revenues and expenses were $0.1 million and $29,000, respectively, for the six months ended June 30, 2002, compared to $0.2 million and $31,000, respectively, during the same period in 2001. Revenues decreased due to the leases for the aircraft in the trust being renegotiated at a lower rate. Marine vessel: As of June 30, 2002 and 2001, the Partnership had no remaining interest in an entity that owned a marine vessel. During the six months ended June 30, 2001, the entity that owned a marine vessel reported $34,000 in operating expenses due to actual operating expenses in 2000 being higher than previously reported. (F) Net Income As a result of the foregoing, the Partnership's net income was $1.0 million for the six months ended June 30, 2002, compared to net income of $3.9 million during the same period of 2001. The Partnership's ability to operate and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Partnership's performance during the six months ended June 30, 2002 is not necessarily indicative of future periods. During the six months ended June 30, 2002, the Partnership distributed $3.8 million to the limited partners, or $0.44 per weighted-average limited partnership unit. (II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, the General Partner reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on the General Partner's historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The General Partner believes, however, that the estimates, including those for the above-listed items, are reasonable and that actual results will not vary significantly from the estimated amounts. The General Partner believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Partnership's financial statements: Asset lives and depreciation methods: The Partnership's primary business involves the purchase and subsequent lease of long-lived transportation and related equipment. The General Partner has chosen asset lives that it believes correspond to the economic life of the related asset. The General Partner has chosen a deprecation method that it believes matches the benefit to the Partnership from the asset with the associated costs. These judgments have been made based on the General Partner's expertise in each equipment segment that the Partnership operates. If the asset life and depreciation method chosen does not reduce the book value of the asset to at least the potential future cash flows from the asset to the Partnership, the Partnership would be required to record a loss on revaluation. Likewise, if the net book value of the asset was reduced by an amount greater than the economic value has deteriorated, the Partnership may record a gain on sale upon final disposition of the asset. Impairment of long-lived assets: On a regular basis, the General Partner reviews the carrying value of its equipment and investment in an USPE to determine if the carrying value of the assets may not be recoverable in consideration of the current economic conditions. This requires the General Partner to make estimates related to future cash flows from each asset as well as the determination if the deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, the Partnership may be required to record additional impairment charges. Allowance for doubtful accounts: The Partnership maintains allowances for doubtful accounts for estimated losses resulting from the inability of the lessees to make the lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of the lessees to make the required payments. If the financial condition of the Partnership's lessees were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the lessees were to improve or if legal remedies to collect past due amounts were successful, the allowance for doubtful accounts may need to be reduced and income would be increased. Contingencies and litigation: The Partnership is subject to legal proceedings involving ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Partnership may be required to record additional litigation expense. (III) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY For the six months ended June 30, 2002, the Partnership generated $0.5 million in operating cash (net cash provided by operating activities plus non-liquidating cash distributions from an USPE) to meet its operating obligations, maintain working capital reserves and make distributions (total for the six months ended June 30, 2002 of $4.0 million) to the partners, and used undistributed available cash from prior periods and proceeds from equipment dispositions of approximately $3.5 million. During the six months ended June 30, 2002, the Partnership disposed of owned equipment for aggregate proceeds of $1.2 million. Accounts receivable decreased $0.1 million during the six months ended June 30, 2002 due to the timing of cash receipts. Investment in an USPE decreased $0.2 million due to cash distributions of $0.2 million to the Partnership from the USPE offset in part, by $0.1 million of income that was recorded by the Partnership from the USPE during the six months ended June 30, 2002. Accounts payable decreased $0.2 million during the six months ended June 30, 2002 due to the payment of an aircraft repair that had been accrued as of December 31, 2001. The General Partner has not planned any expenditures, nor is it aware of any contingencies that would cause the Partnership to require any additional capital. 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. Significant asset sales may result in distributions to the partners. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio that is actively being marketed for sale by the General Partner continues to be carried at the lower of depreciated cost or fair value less cost of disposal. Although the General Partner estimates that there will be distributions to the partners after final disposal of assets and settlement of liabilities, the amounts cannot be accurately determined prior to actual disposal of the equipment. (IV) OUTLOOK FOR THE FUTURE The Partnership is in its active liquidation phase. The General Partner is actively pursuing the sale of all of the Partnership's equipment with the intention of winding up the Partnership and distributing all available cash to the Partners. Sale decisions may cause the operating performance of the Partnership to decline over the remainder of its life. The liquidation phase will end on December 31, 2009, unless the Partnership is terminated earlier upon sale of all of the equipment or by certain other events. Several factors may affect the Partnership's operating performance during the remainder of 2002 and beyond, including changes in the markets for the Partnership's equipment and changes in the regulatory environment in which that equipment operates. Liquidation of the Partnership's equipment and its investment in an USPE will cause a reduction in the size of the equipment portfolio and may result in a reduction of contribution to the Partnership. Other factors affecting the Partnership's contribution during the remainder of 2002 and beyond include: (1) The cost of new marine containers have been at historic lows for the past several years which has caused downward pressure on per diem lease rates for this type of equipment. The Partnership's fleet of marine containers is in excess of twelve years of age and is generally no longer suitable for use in international commerce either due to its specific physical condition, or lessees' preferences for newer equipment; (2) Railcar loadings in North America for the six months ended June 30, 2002 were below those of 2001. This decrease has led to lower utilization and lower contribution to the Partnership as existing leases expire and renewal leases are negotiated; and (3) The airline industry began to see lower passenger travel during 2001. The tragic events on September 11, 2001 worsened the situation. As a result of this and the general turmoil in the airline industry, the Partnership has had to renegotiate the lease on its partially owned aircraft on a direct finance lease during 2001 that will result in a decrease in revenues during 2002. In addition, these events have had a negative impact on the fair market value of the Partnership's partially owned aircraft. Although no revaluations were required during 2002 to these aircraft, the General Partner does not expect these aircraft values to return to their previous value in the foreseeable future. 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 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, and pay cash distributions to the partners. (V) FORWARD-LOOKING INFORMATION Except for the historical information contained herein, 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 six months ended June 30, 2002, 74% 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 US 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: August 13, 2002 By: /s/ Stephen M. Bess ---------------------- Stephen M. Bess President and Current Chief Accounting Officer CERTIFICATION The undersigned hereby certifies, in their capacity as an officer of the General Partner of PLM Equipment Growth Fund IV (the Partnership), that the Quarterly Report of the Partnership on Form 10-Q for the period ended June 30, 2002, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Partnership at the end of such period and the results of operations of the Partnership for such period. PLM EQUIPMENT GROWTH FUND IV By: PLM Financial Services, Inc. General Partner Date: August 13, 2002 By: /s/ Stephen M. Bess ---------------------- Stephen M. Bess President and Current Chief Accounting Officer Date: August 13, 2002 By: /s/ James A. Coyne --------------------- James A. Coyne Chief Financial Officer