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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 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 0-18789
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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.)
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
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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 ______
Aggregate market value of voting stock: N/A
An index of exhibits filed with this Form 10-K is located on page 23.
Total number of pages in this report: 48.
PART I
ITEM 1. BUSINESS
(A) Background
In March 1989, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLM),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 8,750,000 limited partnership
units (including 1,250,000 option units) (the units) in PLM Equipment Growth
Fund IV, a California limited partnership (the Partnership, the Registrant, or
EGF IV). The Partnership's offering became effective on May 23, 1989. FSI, as
General Partner, owns a 5% interest in the Partnership. The Partnership engages
in the business of investing in a diversified equipment portfolio consisting
primarily of used, long-lived, low-obsolescence capital equipment that is easily
transportable by and among prospective users.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of long-lived, low-obsolescence,
high residual-value equipment with the net proceeds of the initial partnership
offering, supplemented by debt financing and reinvestment of cash generated by
operations. All transactions of over $1.0 million must be approved by the PLM
International Credit Review Committee (the Committee), which is made up of
members of PLM International Senior Management. In determining a lessee's
creditworthiness, the Committee will consider, among other factors, its
financial statements, internal and external credit ratings, and letters of
credit.
(2) to generate sufficient net operating cash flow from lease operations to
meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events.
(3) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or that expected future benefits from continued ownership of a particular
asset will have an adverse affect on the Partnership. As the Partnership is in
the liquidation phase, proceeds from these sales, together with excess net
operating cash flows from operations (net cash provided by operating activities
plus distributions from unconsolidated special-purpose entities (USPEs)), are
used to pay distributions to the partners.
(4) to preserve and protect the value of the portfolio through quality
management, maintaining the portfolio's diversity, and constantly monitoring
equipment markets.
The offering of the units of the Partnership closed on March 28, 1990. As of
December 31, 1999, there were 8,628,420 limited partnership units outstanding.
The General Partner contributed $100 for its 5% general partner interest in the
Partnership.
The Partnership has entered its liquidation phase and 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. 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. The General Partner anticipates that the liquidation of
Partnership assets will be completed by the end of the year 2000.
Table 1, below, lists the equipment and the cost of equipment in the
Partnership's portfolio, and the cost of an investment in an unconsolidated
special-purpose entity, as of December 31, 1999 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
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Owned equipment held for operating leases:
1 737-200 stage II commercial aircraft Boeing $ 14,692
1 Dash 8-300 commuter aircraft Dehavilland 5,748
283 Pressurized tank railcars Various 8,459
98 Woodchip gondola railcars General Electric 2,341
110 Bulkhead flat railcars Marine Industries Ltd. 2,153
24 Nonpressurized tank railcars Various 501
276 Refrigerated marine containers Various 7,316
222 Dry marine containers Various 757
91 Refrigerated trailers Various 2,065
106 Dry trailers Various 1,436
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Total owned equipment held for operating leases $ 45,4681
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Investment in an unconsolidated special-purpose entity:
0.35 Equipment on direct finance lease:
Two DC-9 stage III commercial aircraft McDonnell-Douglas $ 3,9012
===========
1 Includes equipment and investment purchased with the proceeds from capital
contributions, undistributed cashflow from operations, and Partnership borrow-
ings. Includes costs capitalized subsequent to the date of acquisition and
equipment acquisition fees paid to PLM Transportation Equipment Corporation, a
wholly-owned subsidiary of FSI. All Equipment was used equipment at the time of
purchase.
2 Jointly owned: EGF IV and two affiliated programs.
The equipment is generally leased under operating leases with terms of one to
six years. The Partnership's marine containers are leased to operators of
utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment. Rents for railcars are based on mileage traveled or a fixed rate;
rents for all other equipment are based on fixed rates.
As of December 31, 1999, approximately 98% of the Partnership's trailer
equipment operated in rental yards owned and maintained by PLM Rental, Inc., the
short-term trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing. Rents are reported as revenue in accordance with Financial
Accounting Standards Board Statement No. 13 "Accounting for Leases". Direct
expenses associated with the equipment are charged directly to the Partnership.
An allocation of other indirect expenses of the rental yard operations is
charged to the Partnership monthly.
The lessees of the equipment include, but are not limited to: Aero California,
Transamerica Leasing, and Canadian Pacific Railways.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally the equipment owned by or invested in the Partnership is leased out on
an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than the longer-term, full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e. leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corporation, General
Electric Railcar Services Corporation, General Electric Capital Aviation
Services Corporation, Xtra Corporation and other investments programs that lease
the same types of equipment.
(D) Demand
The Partnership currently operates in four primary operating segments: aircraft
leasing, marine container leasing, marine vessel leasing, trailer leasing, and
railcar leasing. Each equipment leasing segment engages in short-term to
mid-term operating leases to a variety of customers. Except for those aircraft
leased to passenger air carriers, the Partnership's equipment and investments
are used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Aircraft
(a) Commercial Aircraft
After experiencing relatively robust growth over the prior four years, demand
for commercial aircraft softened somewhat in 1999. Boeing and Airbus, the two
primary manufacturers of new commercial aircraft, saw a decrease in their volume
of orders, which totaled 368 and 417 during 1999, compared to 656 and 556 in
1998. The slowdown in aircraft orders can be partially attributed to the full
implementation of US Stage III environmental restrictions, which became fully
effective on December 31, 1999. Since these restrictions effectively prohibit
the operation of noncompliant aircraft in the United States after 1999, carriers
operating within or into the United States either replaced or modified all of
their noncompliant aircraft before the end of the year. The continued weakness
of the Asian economy has also served to slow the volume of new aircraft orders.
However, with the Asian economy now showing signs of recovery, air carriers in
this region are beginning to resume their fleet building efforts.
Demand for, and values of, used commercial aircraft have been adversely affected
by the Stage III environmental restrictions and an oversupply of older aircraft
as manufacturers delivered more new aircraft than the overall market required.
Boeing predicts that the worldwide fleet of jet-powered commercial aircraft will
increase from approximately 12,600 airplanes as of the end of 1998 to about
13,700 aircraft by the end of 2003, an average increase of 220 units per year.
However, actual deliveries for the first two years of this period, 1998 and
1999, already averaged 839 units annually. Although some of the resultant
surplus used aircraft have been retired, the net effect has been an overall
increase in the number of used aircraft available. This has resulted in a
decrease in both market prices and lease rates for used aircraft. Weakness in
the used commercial aircraft market may be mitigated in the future as
manufacturers bring their new production more in line with demand and given the
anticipated continued growth in air traffic. Worldwide, demand for air passenger
services is expected to increase at about 5% annually and freight services at
about 6% per year, for the foreseeable future.
The Partnership owns a 35% interest in an entity owning two Stage-III-compliant
aircraft, all of which were on lease throughout 1999 and were not affected by
changes in market conditions. The Partnership also owns 100% of a Stage II
aircraft, which remained off lease, and has been impacted by the soft market
conditions described above.
(b) Commuter Aircraft
The Partnership owns commuter turboprops with 36 to 50 seats. These aircraft fly
in North America, which continues to be the largest market in the world for this
type aircraft. However, the introduction of regional jet aircraft continues to
have adverse impact on the turboprop market. Regional jets have been well
received in the commuter market and their growing use has been at the expense of
turboprops. Due to this trend, the turboprop market has experienced a decrease
in aircraft values and lease rates.
The Partnership's turboprop remained on lease throughout 1999 and thus was not
impacted by the change in market conditions noted above.
(2) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport primarily liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). The major US markets for
natural gas are industrial applications (40% of estimated demand in 1998),
residential use (21%), electrical generation (15%), and commercial applications
(14%). Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, the status of government farm subsidy
programs, amount of farming acreage and mix of crops planted, weather patterns,
farming practices, and the value of the US dollar. Population growth and dietary
trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals increased 2.5% in 1999, compared to 1998.
Correspondingly, demand for pressurized tank cars remained solid during 1999,
with utilization of this type of railcar within the Partnership remaining above
98%. While renewals of existing leases continue at similar rates, some cars have
been renewed for "winter only" terms of approximately six months. As a result,
it is anticipated that there will be more pressurized tank cars than usual
coming up for renewal in the spring.
(b) Woodchip Gondolas Railcars
These railcars are used to transport woodchips from sawmills to pulp mills,
where the woodchips are converted into pulp. Thus, demand for woodchip cars is
directly related to demand for paper, paper products, particleboard, and
plywood. In Canada, where the Partnership's woodchip railcars operate, 1999
carloadings of forest products increased 4.3% over 1998 levels.
Future prospects for the wood products industry are somewhat mixed. This sector
is expected to have relatively good performance in 2000, although not at the
peaks seen during the second quarter of 1999. The greatest potential for the
wood products industry is the anticipated strength in housing demand, as the
homebuilding market is expected to continue to post health gains.
The Partnership's woodchip gondola cars continued to operate on long-term leases
during 1999.
(c) Bulkhead Flat Railcars
Bulkhead flatcars are used to transport pulpwood from sawmills to pulp mills.
High-grade pulpwood is used to make paper, while low-grade pulpwood is used to
make particleboard and plywood. In Canada, where the Partnership's bulkhead
flatcars operate, 1999 carloadings of forest products increased 4.3% over 1998
levels.
All of the bulkhead flatcars owned by the Partnership continued to operate on
lease throughout 1999.
(d) Nonpressurized, General Purpose Tank Railcars
These cars, which are used to transport bulk liquid commodities and chemicals
not requiring pressurization, such as certain petroleum products, liquefied
asphalt, lubricating and vegetable oils, molten sulfur, and corn syrup,
continued to be in high demand during 1999. The overall health of the market for
these types of commodities is closely tied to both the US and global economies,
as reflected in movements in the Gross Domestic Product, personal consumption
expenditures, retail sales, and currency exchange rates. The manufacturing,
automobile, and housing sectors are the largest consumers of chemicals. Within
North America, 1999 carloadings of the commodity group that includes chemicals
and petroleum products rose 2.5% over 1998 levels. Utilization of the
Partnership's nonpressurized tank cars was above 98% again during 1999.
(3) Marine Containers
The marine container leasing market started 1999 with industry-wide utilization
in the mid 70% range, down somewhat from the beginning of 1998. The market
strengthened throughout the year such that most container leasing companies
reported utilization of 80% by the end of 1999. Overall, industry-wide
utilization for marine containers decreased during 1999 compared to 1998. The
Partnership owns older marine containers, and the General Partner plans to
dispose of these older refrigerated marine containers which are currently off
lease.
In addition, a continuation of historically low acquisition prices for new
containers manufactured in the Far East, predominantly China. These low prices
put pressure on fleetwide per diem leasing rates.
Industry consolidation continued in 1999 as the parent of one of the world's top
ten container lessors finalized the outsourcing of the management of its
container fleet to a competitor. However, the General Partner believes that such
consolidation is a positive trend for the overall container leasing industry,
and ultimately will lead to higher industry-wide utilization and increased per
diem rates.
(4) Trailers
(a) Dry Trailers
The U.S. dry trailer market continued its recovery during 1999, as the strong
domestic economy resulted in heavy freight volumes. With unemployment low,
consumer confidence high, and industrial production sound, the outlook for
leasing this type of trailer remains positive, particularly as the equipment
surpluses of recent years are being absorbed by the buoyant market. In addition
to high freight volumes, improvements in inventory turnover and tighter
turnaround times have lead to a stronger overall trucking industry and increased
equipment demand.
During 1999, some of the Partnership's dry trailers were in the process of
transitioning to a new PLM-affiliated short-term rental facility specializing in
this type of trailer causing utilization for this group of trailers to decrease.
(b) Refrigerated Trailers
The temperature-controlled trailer market continued to expand during 1999,
although not as quickly as in 1998 when the market experienced very strong
growth. The leveling off in 1999 occurred as equipment users began to absorb the
increases in supply created over the prior two years. Refrigerated trailer users
have been actively retiring their older units and consolidating their fleets in
response to improved refrigerated trailer technology. Concurrently, there is a
backlog of six to nine months on orders for new equipment.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies and shippers will utilize short-term trailer
leases more frequently to supplement their existing fleets. Such a trend should
benefit the Partnership, whose trailers are typically leased on a short-term
basis.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations, at considerable cost to the Partnership. Such
regulations include but are not limited to:
(1) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that do not meet certain noise, aging, and corrosion
criteria. In addition, under U.S. Federal Aviation Regulations, after
December 31, 1999, no person shall operate an aircraft to or from any
airport in the contiguous United States unless that airplane has been shown
to comply with Stage III noise levels. The Partnership has Stage II
aircraft that do not meet Stage III requirements. As of December 31, 1999,
this aircraft is located overseas where it is expected to be sold. The cost
to install a hushkit to meet quieter Stage III requirements is
approximately $1.5 million, depending on the type of aircraft.
(2) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the United States Clean Air Act Amendments of 1990, which call for the
control and eventual replacement of substances that have been found to
cause or contribute significantly to harmful effects on the stratospheric
ozone layer and that are used extensively as refrigerants in refrigerated
marine cargo containers and refrigerated trailers.
(3) the Federal Railroad Administration has mandated that effective July 1,
2000, all jacketed and non-jacketed tank railcars must be re-qualified to
insure tank shell integrity. Tank shell thickness, weld seams, and weld
attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not
including any necessary repairs. This inspection is to be performed at the
next scheduled tank test.
As of December 31, 1999, the Partnership was in compliance with the above
government regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interests in entities that own equipment for leasing
purposes. As of December 31, 1999, the Partnership owned a portfolio of
transportation and related equipment and an investment in equipment owned by an
unconsolidated special-purpose entity (USPE) as described in Item I, Table 1.
The Partnership acquired equipment with the proceeds of the Partnership offering
of $174.8 million through the first half of 1990, proceeds from the debt
financing of $33.0 million and by reinvesting a portion of its operating cash
flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International (the Company) and various of its wholly-owned subsidiaries are
named as defendants in a lawsuit filed as a purported class action in January
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251
(the Koch action). The named plaintiffs are six individuals who invested in PLM
Equipment Growth Fund IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM
Equipment Growth Fund VI (Fund VI), and PLM Equipment Growth & Income Fund VII
(Fund VII) (the Funds), each a California limited partnership for which the
Company's wholly-owned subsidiary, FSI, acts as the general partner. The
complaint asserts causes of action against all defendants for fraud and deceit,
suppression, negligent misrepresentation, negligent and intentional breaches of
fiduciary duty, unjust enrichment, conversion, and conspiracy. 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 defendants for improper sales
and marketing practices, mismanagement of the Funds, and concealing such
mismanagement from investors in the Funds. Plaintiffs seek unspecified
compensatory 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) (the court) based on the court's
diversity jurisdiction. In December 1997, the court granted defendants motion to
compel arbitration of the named plaintiffs' claims, based on an agreement to
arbitrate contained in the limited partnership agreement of each Partnership.
Plaintiffs appealed this decision, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
In June 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 Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Partnerships. The complaint alleges the same facts and the same
causes of action as in the Koch action, plus additional causes of action against
all of the defendants, including alleged unfair and deceptive practices and
violations of state securities law. In July 1997, defendants filed a petition
(the petition) in federal district court under the Federal Arbitration Act
seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company's petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below. The state court action continues to be stayed
pending such resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Partnerships between May 23, 1989 and
June 29, 1999. The monetary settlement, if approved, will go forward regardless
of whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Partnerships' equipment, (b) the extension (until December 31, 2004) of the
period during which FSI can reinvest the Partnerships' funds in additional
equipment, (c) an increase of up to 20% in the amount of front-end fees
(including acquisition and lease negotiation fees) that FSI is entitled to earn
in excess of the compensatory limitations set forth in the North American
Securities Administrator's Association's Statement of Policy; (d) a one-time
repurchase by each of Funds V, VI and VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Partnerships. Subject to
final court approval, these proposed changes would be made as amendments to each
Partnership's limited partnership agreement if less than 50% of the limited
partners of each Partnership vote against such amendments. The limited partners
will be provided the opportunity to vote against the amendments by following the
instructions contained in solicitation statements that will be mailed to them
after being filed with the Securities and Exchange Commission. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Partnership funds in the event, if ever, that certain
performance thresholds have been met by the Partnerships. The equitable
settlement class consists of all investors, limited partners, assignees or unit
holders who on June 29, 1999 held any units in Funds V, VI, and VII, and their
assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. 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 General Partner believes an unfavorable outcome from the
counterclaims is remote.
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the partnership agreement, the General Partner is
generally entitled to a 5% interest in the profits, losses and distributions of
the Partnership. The General Partner is the sole holder of such interest.
Special allocations of income are made to the General Partner equal to the
deficit balance, if any, in the capital account of the General Partner. The
General Partner's annual allocation of net income will generally be equal to the
General Partner's cash distributions paid during the current year. The remaining
interests in the profits, losses and distributions of the Partnership are owned,
as of December 31, 1999, by the 9,266 holders of units in the Partnership.
There are several secondary markets that will facilitate sales and purchases of
units. Secondary markets are characterized as having few buyers for limited
partnership interests and, therefore, are generally viewed as inefficient
vehicles for the sale of units. Presently, there is no public market for the
units and none is likely to develop. To prevent the units from being considered
publicly traded and thereby to avoid taxation of the Partnership as an
association treated as a corporation under the Internal Revenue Code, the units
will not be transferable without the consent of the General Partner, which may
be withheld at its absolute discretion. The General Partner intends to monitor
transfers of units in an effort to ensure that they do not exceed the percentage
or number permitted by certain safe harbors promulgated by the Internal Revenue
Service. A transfer may be prohibited if the intended transferee is not an U.S.
citizen or if the transfer would cause any portion of the units of a "Qualified
Plan" as defined by the Employee Retirement Income Security Act of 1974 and
Independent Retirement Accounts to exceed the limit allowable. The Partnership
may redeem a certain number of units each year. As of December 31, 1999, the
Partnership had repurchased a cumulative total of 121,580 units at a cost of
$1.6 million. The General Partner does not intend to repurchase any additional
units on behalf of the Partnership during 2000.
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the Years Ended December 31,
(In thousands of dollars, except weighted-everage unit amounts)
1999 1998 1997 1996 1995
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Operating results:
Total revenues $ 14,651 $ 10,768 $ 16,378 $ 22,120 $ 21,410
Net gain (loss) on disposition of
equipment 6,357 (464) 2,830 3,179 530
Loss on revaluation of equipment -- -- -- -- (417 )
Equity in net income (loss) of uncon-
solidated special-purpose entities 2,224 348 2,952 (331) --
Net income (loss) 6,408 (1,127) 2,098 (4,119) (3,611 )
At year-end:
Total assets $ 20,185 $ 31,250 $ 46,089 $ 59,009 $ 71,924
Total liabilities 843 14,683 24,862 34,100 35,449
Notes payable -- 12,750 21,000 29,250 30,800
Cash distribution $ 3,633 $ 3,533 $ 5,780 $ 7,271 $ 6,443
Cash distribution representing a
return of capital to the limited
partners $ 0 $ 3,351 $ 3,682 $ 6,908 $ 6,124
Per weighted-average limited partnership unit:
Net income (loss) $ 0.721 $ (0.15)1$ 0.21 $ (0.52)1 $ (0.45)1
Cash distribution $ 0.40 $ 0.39 $ 0.64 $ 0.80 $ 0.71
Cash distribution representing a
return of capital to the limited
partners $ N/A $ 0.39 $ 0.43 $ 0.80 $ 0.71
1 After reduction of income of $138 ($0.02 per weighted-average depositary unit)
in 1999, $238 ($0.03 per weighted-average depositary unit) in 1998, $190 ($0.02
per weighted-average depositary unit) in 1997, $569 ($0.07 per weighted-average
depositary unit)in 1996, and $500 ($0.06 per weighted-average depositary unit)
in 1995, representing allocations to the General Partner (see Note 1 to the
financial statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund IV
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in the various segments in
which it operates and its effect on the Partnership's overall financial
condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Partnership's equipment include, but are not limited to, supply and
demand for similar or comparable types of transport capacity, desirability of
the equipment in the leasing market, market conditions for the particular
industry segment in which the equipment is to be leased, overall economic
conditions, and various regulations concerning the use of the equipment.
Equipment that is idle or out of service between the expiration of one lease and
the assumption of a subsequent lease can result in a reduction of contribution
to the Partnership. The Partnership experienced re-leasing or repricing activity
in 1999 primarily in its aircraft, trailer, marine container and railcars
portfolios.
(a) Aircraft: The Partnership owns a Boeing 737-200 Stage II aircraft that
has been off-lease throughout 1998 and 1999. This aircraft is currently being
marketed for sale.
(b) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities. The relatively short duration of most of the leases in these
operations exposes the trailers to considerable re-leasing and repricing
activity. During 1999, certain dry trailers were in the process of transitioning
to a new PLM-affiliated short-term rental facility specializing in this type of
trailer causing lease revenues for this group of trailers to decrease $0.1
million when compared to the same period of 1998. In addition, lease revenue
decreased $0.4 million due to sales and dispositions during 1999 and 1998.
(c) Marine containers: 221 Partnership marine containers came off lease
during 1999 and are currently being marketed for sale. The Partnership's
remaining marine container portfolio operates in utilization-based leasing pools
and, as such, is exposed to considerable repricing activity. The Partnership's
marine container contributions declined approximately $0.4 million from 1998 to
1999 due to the group of marine containers coming off lease during 1999, and
decreased approximately $0.2 million due to equipment sales during 1998 and
1999.
(d) Railcars: The Partnership's railcar contributions declined from 1998 to
1999, due to equipment sales during 1998 and 1999.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment and investments in unconsolidated
special-purpose entities (USPEs) represents a reduction in the size of the
equipment portfolio, and will result in reduction of contributions to the
Partnership. Lessees not performing under the terms of their leases, either by
not paying rent, not maintaining or operating the equipment in accordance with
the conditions of the leases, or other possible departures from the lease terms,
can result not only in reductions in net contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 1999:
(a) Liquidations: During 1999, the Partnership disposed of a marine vessel,
aircraft, marine containers, railcars, trailers, and an interest in a USPE trust
that owned a marine vessel for proceeds of $19.0 million. The Partnership used
these proceeds to fund a required principal payment of $8.3 million and prepay
the remaining $4.5 million of the notes payable.
(b) Nonperforming lessees: In 1997, the Partnership repossessed one
aircraft from a lessee that did not comply with the terms of the lease
agreement. The Partnership incurred legal fees, repossession costs, and repair
costs associated with this aircraft. In addition, the Partnership wrote off all
outstanding receivables from this lessee. This aircraft remained off lease
throughout 1998 and 1999 and is currently being marketed for sale.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly, and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions, for the purpose of assessing the
recoverability of the recorded amounts. If projected undiscounted future cash
flows and fair value are lower than the carrying value of the equipment, a loss
on revaluation is recorded. No reductions to the equipment carrying values were
required for the years ended December 31, 1999, 1998, or 1997.
As of December 31, 1999, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including the Partnership's
interest in equipment owned by a USPE, to be $25.0 million. This estimate is
based on recent market transactions for equipment similar to the Partnership's
equipment portfolio and the Partnership's interest in equipment owned by the
USPE. Ultimate realization of fair market value by the Partnership may differ
substantially from the estimate due to specific market conditions, technological
obsolescence, and government regulations, among other factors that the General
Partner cannot accurately predict.
(C) Financial Condition -- Capital Resources, Liquidity, and Unit Redemption
Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing. No
further capital contributions from the limited partners are permitted under the
terms of the Partnership's limited partnership agreement. As of December 31,
1999, the Partnership had no outstanding indebtedness. The Partnership relies on
operating cash flow and proceeds from sale of equipment to meet its operating
obligations and make cash distributions to the limited partners.
For the year ended December 31, 1999, the Partnership generated $2.2 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 of $3.6 million in 1999) to the partners,
but also used undistributed available cash from prior periods and proceeds from
the sale of equipment of approximately $1.4 million.
During the year ended December 31, 1999, the Partnership sold or disposed of a
marine vessel, aircraft, marine containers, railcars, and trailers for aggregate
proceeds of $15.2 million. The Partnership also received liquidating proceeds of
$3.8 million from the sale of its interest in an entity owning a marine vessel.
During the year ended December 31, 1999 the Partnership paid the third annual
principal payment of $8.3 million of the outstanding notes payable and prepaid
the remaining $4.5 million of notes payable.
Lessee deposits and reserve for repairs decreased $0.8 million during the year
ended December 31, 1999 compared to the same period in 1998. Lessee prepaid
deposits decreased $0.1 million due to fewer lessee's prepaying future lease
revenue and marine vessel drydocking reserves decreased $0.3 million due to the
drydocking of the Partnership's remaining marine vessel in 1999. This marine
vessel was sold in December of 1999. In addition, aircraft engine repair
reserves decreased $0.3 million due to the payment for repairs on an off-lease
aircraft during 1999 and container repair reserve decreased $0.1 million due to
the payment for repairs on certain marine containers.
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.
Pursuant to the terms of the limited partnership agreement, beginning January 1,
1993, if the number of units made available for purchase by limited partners in
any calendar year exceeds the number that can be purchased with reinvestment
plan proceeds during any calendar year, then the Partnership may redeem up to 2%
of the outstanding units each year, subject to certain terms and conditions. The
purchase price to be offered for such units is to be equal to 110% of the
unrecovered principal attributed to the units. Unrecovered principal is defined
as the excess of the capital contribution attributable to a unit over the
distributions from any source paid with respect to that unit. The Partnership
does not intend to repurchase any units in 2000.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of Partnership's Operating Results for the Years Ended December
31, 1999 and 1998
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1999, compared to the same period
of 1998. Gains or losses from the sale of equipment and certain expenses such as
depreciation and amortization and general and administrative expenses relating
to the operating segments (see Note 5 to the audited financial statements), are
not included in the owned equipment operation discussion because they are more
indirect in nature, not a result of operations but more 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 Years Ended
December 31,
1999 1998
----------------------------
Railcars $ 2,448 $ 2,607
Aircraft 1,061 3,038
Trailers 786 1,132
Marine containers 138 712
Marine vessel (81) 623
Railcars: Railcar lease revenues and direct expenses were $3.1 million and $0.7
million, respectively, in 1999, compared to $3.5 million and $0.9 million,
respectively, during 1998. The decrease in railcar contribution in 1999 was due
to the sale or disposition of railcars in 1998 and 1999.
Aircraft: Aircraft lease revenues and direct expenses were $2.6 million and $1.5
million, respectively, for the year ended December 31, 1999, compared to $3.5
million and $0.4 million, respectively, during the same period of 1998. Lease
revenue decreased in 1999, compared to the same period in 1998 due to the sale
of aircraft in 1999. Direct expenses increased due to higher costs incurred for
repairs on an off-lease aircraft in 1999, when compared to the same period in
1998.
Trailers: Trailer lease revenues and direct expenses were $1.1 million and $0.3
million, respectively, for the year ended December 31, 1999, compared to $1.6
million and $0.4 million, respectively, during the same period of 1998. During
the year ended December 31, 1999, certain dry trailers were in the process of
transitioning to a new PLM-affiliated short-term rental facility specializing in
this type of trailer causing lease revenues for this group of trailers to
decrease $0.1 million when compared to the same period of 1998. In addition,
lease revenue decreased $0.4 million due to sales and dispositions of trailers
during 1999 and 1998. Trailer repairs and maintenance decreased $0.1 million
primarily due to required repairs during 1998 that were not needed during the
same period of 1999.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $5,000, respectively, in 1999, compared to $0.7 million and $8,000,
respectively, during 1998. Marine container contributions decreased $0.2 million
due to the disposition of containers in 1998 and 1999. In addition, marine
container contributions decreased $0.4 million due to a group of containers
being off lease during 1999 which were on-lease for all of 1998.
Marine vessel: Marine vessel lease revenues and direct expenses were $1.1
million and $1.1 million, respectively, in 1999, compared to $1.7 million and
$1.0 million, respectively, in 1998. Marine vessel contribution decreased in
1999, compared to 1998, due to the sale of the remaining marine vessel in the
fourth quarter of 1999. Direct expenses increased in 1999 due to higher
operating expenses compared to the same period in 1998.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $6.7 million for the year ended December 31, 1999,
decreased from $9.3 million for the same period in 1998. The significant
variances are explained as follows:
(i) A $1.5 million decrease in depreciation and amortization expenses from
1998 levels resulted from an approximately $0.6 million decrease due to the sale
of certain assets during 1999 and 1998 and an approximately $0.9 million
decrease resulting from the use of the double-declining balance depreciation
method which results in greater depreciation the first years an asset is owned.
(ii)A $0.6 million decrease in interest expense was due to a decrease of
$0.7 million resulting from lower average borrowings outstanding during 1999,
compared to 1998. This decrease was offset by an increase in interest expense of
$0.1 million as a result of the prepayment penalty. In the third quarter of
1999, the Partnership paid the regularly scheduled annual principal payment of
$8.3 million of the outstanding debt. In addition, in December 1999 the
Partnership prepaid the remaining principal balance of $4.5 million.
(iii) A $0.3 million decrease in bad debt expenses in 1999 compared to 1998
was primarily due to the collection of $0.3 million from unpaid invoices in 1999
that had previously been reserved for as bad debts.
(iv)A $0.1 million decrease in management fees to an affiliate that
reflects the lower levels of lease revenues on owned equipment in 1999, when
compared to 1998.
(c) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on disposition of equipment in 1999 totaled $6.4 million, which
resulted from the sale of a marine vessel, aircraft, railcars, trailers and
marine containers with an aggregate net book value of $8.8 million, for
aggregate proceeds of $15.2 million. In 1998, the loss on disposition of
equipment totaled $0.5 million, which resulted from the sale of trailers with a
net book value of $1.4 million, for proceeds of $0.9 million. In addition, the
Partnership sold or disposed of marine containers and railcars with an aggregate
net book value of $0.6 million, for aggregate proceeds of $0.6 million.
(d) Equity in Net Income 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 Years Ended
December 31,
1999 1998
----------------------------
Marine vessels $ 1,754 (306)
Aircraft 470 654
----------------------------
Equity in Net Income of USPEs $ 2,224 348
============================
Marine vessel: As of December 31, 1998, the Partnership had an interest in an
entity owning a marine vessel. During the year ended December 31, 1999, lease
revenues of $1.1 million and the gain from the sale of the Partnership's
interest in an entity owning a marine vessel of $1.9 million sold in the fourth
quarter of 1999 were offset by depreciation, direct and administrative expenses
of $1.2 million. During the year ended December 31, 1998, revenues of $1.2
million were offset by depreciation, direct and administrative expenses of $1.5
million. Direct expenses decreased $0.1 million due to lower required scheduled
drydock expenses in 1999 compared to 1998. In addition, direct expenses
decreased $0.1 million due to certain repairs required in 1998 that were not
necessary in 1999. Also, expenses decreased $0.1 million for the year ended
December 31, 1999 compared to the same period in 1998, due to lower depreciation
expense as a result of the double declining-balance method of depreciation which
results in greater depreciation in the first years an asset is owned.
Aircraft: As of December 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 $0.6 million and $0.1, respectively, for the year
ended December 31, 1999, compared to $0.6 million and $0, respectively, during
the same period in 1998. The Partnership's share of expenses increased $0.1
million due to the increase in bad debt expense to reflect the General Partner's
evaluation of the collectibility of receivables due from the aircraft's lessee.
(e) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $6.4 million for
the year ended December 31, 1999, compared to a net loss of $1.1 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 year ended December
31, 1999 is not necessarily indicative of future periods. In the year ended
December 31, 1999, the Partnership distributed $3.5 million to the limited
partners, or $0.40 per weighted-average limited partnership unit.
(2) Comparison of Partnership's Operating Results for the Years Ended December
31, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1998, compared to the same period
of 1997. Gains or losses from the sale of equipment and certain expenses such as
depreciation and amortization and general and administrative expenses relating
to the operating segments (see Note 5 to the audited financial statements), are
not included in the owned equipment operation discussion because they are more
indirect in nature, not a result of operations but more 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 Years Ended
December 31,
1998 1997
----------------------------
Aircraft $ 3,038 $ 3,938
Trailers 1,132 1,244
Marine containers 712 935
Marine vessel 623 445
Aircraft: Aircraft lease revenues and direct expenses were $3.5 million and $0.4
million, respectively, for the year ended December 31, 1998, compared to $4.2
million and $0.2 million, respectively, during the same period of 1997. Lease
revenues decreased $0.9 million in 1998 due to an aircraft being off-lease for
the entire year, when compared to 1997 when the aircraft was on lease for eight
months. The decrease caused by this off-lease aircraft was offset, in part, by a
$0.2 million increase in lease revenue due to the higher re-lease rate for
another aircraft. Direct expenses increased due to repairs done in 1998, on two
off-lease aircraft to meet airworthiness conditions prior to being sold.
Railcars: Railcar lease revenues and direct expenses were $3.5 million and $0.9
million, respectively, in 1998, compared to $3.6 million and $1.1 million,
respectively, during 1997. The decrease was primarily due to lower re-lease
rates for certain railcars, when compared to 1997. Direct expenses decreased due
to running repairs required on certain railcars in the fleet during 1997, which
were not needed during 1998.
Trailers: Trailer lease revenues and direct expenses were $1.6 million and $0.4
million, respectively, for the year ended December 31, 1998, compared to $2.0
million and $0.7 million, respectively, during the same period of 1997. Trailer
contribution decreased due to sales and dispositions during 1998 and 1997.
Marine containers: Marine container lease revenues and direct expenses were $0.7
million and $8,000, respectively, in 1998, compared to $0.9 million and $13,000,
respectively, during 1997. Marine container contributions decreased due to sales
and dispositions over the past two years.
Marine vessel: Marine vessel lease revenues and direct expenses were $1.7
million and $1.1 million, respectively, in 1998, compared to $2.0 million and
$1.5 million, respectively, in 1997. Marine vessel contributions increased due
to a $0.1 million loss-of-hire insurance refund received during the second
quarter of 1998 from Transportation Equipment Indemnity Company Ltd. (TEI) due
to lower claims from the insured Partnership and other insured affiliated
partnerships. The decrease in marine vessel lease revenues of $0.2 million and
direct expenses of $0.4 million was due to the sale of one of the Partnership's
marine vessel in the first quarter of 1997. In addition, lease revenue decreased
$0.1 million in 1998 due to lower re-lease rates for the remaining marine vessel
as a result of a softer bulk carrier vessel market.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $9.3 million for the year ended December 31, 1998,
decreased from $13.6 million for the same period in 1997. The significant
variances are explained as follows:
(i) A $1.5 million decrease in depreciation and amortization expenses from
1997 levels resulted from an approximately $0.3 million decrease due to the sale
of certain assets during 1998 and 1997 and an approximately $1.2 million
decrease resulting from the use of the double-declining balance depreciation
method, which results in greater depreciation in the first years an asset is
owned.
(ii)A $1.0 million decrease in bad debt expenses due to the General
Partner's evaluation of the collectibility of receivables due from certain
lessees.
(iii) A $0.9 million decrease in administrative expenses from 1997 levels
resulted primarily from reduced legal fees to collect outstanding receivables
due from aircraft lessees.
(iv)A $0.8 million decrease in interest expense was due to lower average
borrowings outstanding during 1998, compared to 1997. In July 1998, the
Partnership paid the second annual principal payment of $8.3 million of the
outstanding debt.
(c) Interest and Other Income
Interest and other income decreased $0.6 million in 1998, compared to 1997, due
to the following:
(i) The recognition in 1997 of $0.5 million in loss of hire and general
claims insurance recovery relating to generator repairs on one marine vessel. A
similar recovery did not occur in 1998.
(ii)A decrease of $0.1 million in interest income due to lower average
cash balances in 1998 compared to 1997.
(d) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on disposition of equipment in 1998 totaled $0.5 million, which
resulted from the sale of trailers with a net book value of $1.4 million, for
proceeds of $0.9 million. In addition, the Partnership sold or disposed of
marine containers and railcars with an aggregate net book value of $0.6 million,
for aggregate proceeds of $0.6 million. In 1997, the gain on disposition of
equipment totaled $2.8 million, which resulted from the sale or disposal of
marine containers, trailers, railcars, an aircraft engine, and a marine vessel,
with an aggregate net book value of $6.7 million, and unused drydock reserves of
$1.0 million, for aggregate proceeds of $8.5 million.
(e) Equity in Net Income 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 Years Ended
December 31,
1998 1997
----------------------------
Aircraft $ 654 $ 3,924
Marine vessels (306) (972)
--------------------------
Equity in Net Income of USPEs $ 348 $ 2,952
==========================
Aircraft: As of December 31, 1998 and 1997, the Partnership had an interest in a
trust that owns two commercial aircraft on direct finance lease. During the year
ended December 31, 1998, revenues of $0.6 million were offset by administrative
expenses of $0 million. During the same period of 1997, lease revenues of $1.5
million and the gain from the sale of the Partnership's interest in a trust that
owned six commercial aircraft of $3.4 million sold during December were offset
by depreciation, direct and administrative expenses of $1.0 million. The
decrease in lease revenues and depreciation, direct and administrative expenses
during the year ended December 31, 1998 was due to the sale of the Partnership's
interest in the trust that owned six commercial aircraft during the fourth
quarter of 1997.
Marine vessel: As of December 31, 1998 and 1997, the Partnership had an interest
in an entity owning a marine vessel. Marine vessel revenues and expenses were
$1.2 million and $1.5 million, respectively, for the year ended December 31,
1998, compared to $1.1 million and $2.1 million, respectively, during the same
period in 1997. Lease revenue increased in the year ended December 31, 1998
primarily due to the marine vessel being off-hire for 19 days in the year ended
December 31, 1997 compared to 4 days in the same period of 1998. Depreciation
expense decreased $0.1 million during the year ended 1998 due to the
double-declining balance method of depreciation, which results in greater
depreciation in the first years an asset is owned. Direct expense decreased $0.5
million during the year ended 1998 due to lower required repairs and maintenance
when compared to the same period of 1997.
(f) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss was $1.1 million for
the year ended December 31, 1998, compared to net income of $2.1 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 year ended December
31, 1998 is not necessarily indicative of future periods. In the year ended
December 31, 1998, the Partnership distributed $3.4 million to the limited
partners, or $0.39 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
generally through the avoidance of operations in countries that do not have a
stable judicial system and established commercial business laws. Credit support
strategies for lessees range from letters of credit supported by U.S. banks to
cash deposits. Although these credit support mechanisms generally allow the
Partnership to maintain its lease yield, there are risks associated with
slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all international
markets, and the General Partner strives to minimize this risk with market
analysis prior to committing equipment to a particular geographic area. Refer to
Note 6 to the audited financial statements for information on the revenues, net
income (loss), and net book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to significantly change in the future as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location, or sell the assets. An explanation of the
current relationships is presented below.
The Partnership's owned equipment on lease to United States (U.S.)-domiciled
lessees consists of trailers, railcars, and aircraft. During 1999, U.S. lease
revenues accounted for 40% of the total lease revenues from wholly and partially
owned equipment, while net income accounted for $2.6 million of the
Partnership's net income of $6.4 million. The Partnership sold aircraft,
trailers and railcars in this region for an aggregate net gain of $1.6 million
in 1999.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consists of railcars and aircraft. During 1999, Canadian lease revenues
accounted for 25% of the total lease revenues from wholly and partially owned
equipment, while net income accounted for $1.1 million of the Partnership's net
income of $6.4 million.
The Partnership's owned equipment on lease to South Asia-domiciled lessees
accounted for none of the 1999 lease revenues from wholly and partially owned
equipment while equipment in this region resulted in a loss of $0.5 million. The
equipment was off-lease in 1999.
The Partnership's owned equipment on lease to South American-domiciled lessee
consisted of an aircraft. During 1999, South American lease revenues accounted
for 9% of the total lease revenues from wholly and partially owned equipment,
while net income accounted for $3.0 million of the Partnership's net income of
$6.4 million. The Partnership sold the aircraft operated in South America for a
net gain of $2.5 million in 1999.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consisted of marine containers and a
marine vessel. During 1999, lease revenues for these lessees accounted for 25%
of the total lease revenues from wholly and partially owned equipment, while the
net income in this region accounted for $1.1 million of the Partnership's net
income of $6.4 million. The Partnership sold its remaining marine vessel, its
interest in an entity owning a marine vessel in a USPE and marine containers in
this region for an aggregate net gain of $2.2 million in 1999.
(F) Effects of Year 2000
As of March 17, 2000, the Partnership has not experienced any material Year 2000
(Y2K) issues with either its internally developed software or purchased
software. In addition, to date the Partnership has not been impacted by any Y2K
problems that may have impacted our customers and suppliers. The General Partner
continues to monitor its systems for any potential Y2K issues.
(G) Inflation
Inflation had no significant impact on the Partnership's operations during 1999,
1998, or 1997.
(H) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(I) 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 end of the year 2000.
Several factors may affect the Partnership's operating performance in the year
2000, 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 a 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 in the year 2000 include:
1. One of the Partnership's aircraft has been off-lease for approximately three
years. This Stage II aircraft required extensive repairs and maintenance and the
Partnership has had difficulty selling the aircraft. This aircraft will remain
off-lease until it is sold.
2. Demand for the Partnership's refrigerated marine containers has been weak, as
they are older containers. Additionally, these containers have experienced a
roof delimination problem which has limited their re-lease opportunities. These
marine containers are currently off lease and the General Partner plans to
dispose of these containers.
3. Railcar loading in North America have continued to be high, however a
softening in the market is expected in 2000, which may lead to lower utilization
and lower contribution to the Partnership as existing leases expire and renewal
leases are negotiated.
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 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, and pay cash distributions to the investors.
(1) Repricing Risk
Certain of the Partnership's aircraft, marine containers, railcars and trailers
will be remarketed in 2000 as existing leases expire, exposing the Partnership
to some repricing risk/opportunity. Additionally, the Partnership entered its
liquidation phase on January 1, 1999 and has commenced an orderly liquidation of
the Partnership's assets. In either case, the General Partner intends to sell
equipment at prevailing market rates; however, the General Partner cannot
predict these future rates with any certainty at this time, and cannot
accurately assess the effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the United States and internationally, cannot be predicted
with any accuracy and preclude the General Partner from determining the impact
of such changes on Partnership operations, or sale of equipment. Under U.S.
Federal Aviation Regulations, after December 31, 1999, no person shall operate
an aircraft to or from any airport in the contiguous United States unless that
airplane has been shown to comply with Stage III noise levels. The Partnership
plans on selling the Stage II aircraft during 2000 in countries that do not
require this regulation. Furthermore, the Federal Railroad Administration has
mandated that effective July 1, 2000, all jacketed and non-jacketed tank
railcars must be re-qualified to insure tank shell integrity. Tank shell
thickness, weld seams, and weld attachments must be inspected and repaired if
necessary to re-qualify a tank railcar for service. The average cost of this
inspection is $1,800 for non-jacketed tank railcars and $3,600 for jacketed tank
railcars, not including any necessary repairs. This inspection is to be
performed at the next scheduled tank test.
(3) Distributions
During the active liquidation phase, the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating obligations,
and make distributions to the partners. Although the General Partner intends to
maintain a sustainable level of distributions prior to final liquidation of the
Partnership, actual Partnership performance and other considerations may require
adjustments to then-existing distribution levels. In the long term, changing
market conditions and used equipment values preclude the General Partner from
accurately determining the impact of future re-leasing activity and equipment
sales on Partnership performance and liquidity.
Since the Partnership has entered the active liquidation phase, 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 special distributions to unitholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 1999, 60% 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 potentially
encounter difficulty in making the U.S.
dollar denominated lease payment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND PLM
FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Robert N. Tidball 61 Chairman of the Board, Director, President, and Chief Executive
Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 52 Director, PLM International, Inc.
Douglas P. Goodrich 53 Director and Senior Vice President, PLM International, Inc.;
Director and President, PLM Financial Services, Inc.; President,
PLM Transportation Equipment Corporation; President, PLM Railcar
Management Services, Inc.
Warren G. Lichtenstein 34 Director, PLM International, Inc.
Howard M. Lorber 51 Director, PLM International, Inc.
Harold R. Somerset 64 Director, PLM International, Inc.
Robert L. Witt 59 Director, PLM International, Inc.
Robin L. Austin 53 Vice President, Human Resources, PLM International, Inc. and PLM
Financial Services, Inc.
Stephen M. Bess 53 President, PLM Investment Management, Inc.; Vice President and
Director, PLM Financial Services, Inc.
Richard K Brock 37 Vice President and Chief Financial Officer, PLM International,
Inc. and PLM Financial Services, Inc.
Susan C. Santo 37 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989. Mr. Tidball was appointed a Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar Management Services, Inc. since June 1987. Mr. Tidball was Executive
Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking
firm, from March 1984 to January 1986. Prior to Hunter Keith, he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in
various capacities with Alexander & Baldwin, Inc., a publicly held land and
agriculture company headquartered in Honolulu, Hawaii, including Executive Vice
President of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree in marine
engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in
August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Chief Financial Officer of PLM
International and PLM Financial Services, Inc. in January 2000, after having
served as Acting CFO since June 1999. Mr. Brock served as Corporate Controller
of PLM International and PLM Financial Services, Inc. beginning in June 1997, as
Director of Planning and General Accounting beginning in February 1994, and as
an accounting manager beginning in September 1991. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership has no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses and distributions of the Partnership subject to
certain allocations of income. As of December 31, 1999, no investor was
known by the General Partner to beneficially own more than 5% of the
limited partnership units.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive
officer or director of the General Partner and its affiliates own any
limited partnership units of the Partnership as of December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
During 1999, management fees to IMI were $0.5 million. The Partnership
reimbursed FSI and its affiliates $0.5 million for administrative and
data processing services performed on behalf of the Partnership in
1999.
During 1999, the USPEs paid or accrued the following fees to FSI or its
affiliates (based on the Partnership's proportional share of
ownership): management fees, $0.1 million, and administrative and data
processing services, $11,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
(B) Financial Statement Schedules
Schedule II Valuation Accounts
All other financial statement schedules have been omitted, as the
required information is not pertinent to the registrant or is not
material, or because the information required is included in the
financial statements and notes thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Registrant, incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-27746), which became effective with the Securities
and Exchange Commission on May 23, 1989.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc., incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-27746), which
became effective with the Securities and Exchange Commission on
May 23, 1989.
10.2 Note Agreement, dated as of July 1, 1990, regarding $33.0 million
in 9.75% senior notes due July 1, 2000, incorporated by reference
to the Partnership's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 1991.
24. Powers of Attorney.
(This space intentionally left blank.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Date: March 17, 2000 PLM EQUIPMENT GROWTH FUND IV
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
Douglas P. Goodrich
President and Director
By: /s/ Richard K Brock
Richard K Brock
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*
Robert N. Tidball Director, FSI March 17, 2000
*
Douglas P. Goodrich Director, FSI March 17, 2000
*
Stephen M. Bess Director, FSI March 17, 2000
*Susan Santo, by signing her name hereto, does sign this document on behalf of
the persons indicated above pursuant to powers of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 26
Balance sheets as of December 31, 1999 and 1998 27
Statements of operations for the years ended
December 31, 1999, 1998, and 1997 28
Statements of changes in partners' capital for the years
ended December 31, 1999, 1998, and 1997 29
Statements of cash flows for the years ended
December 31, 1999, 1998, and 1997 30
Notes to financial statements 31-42
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund IV:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund IV (the Partnership) as listed in the accompanying index to the financial
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, PLM Equipment Growth Fund
IV, in accordance with the limited partnership agreement, entered its
liquidation phase on January 1, 1999 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.
The General Partner anticipates that the liquidation of Partnership assets will
be completed by the end of the year 2000.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund IV as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 17, 2000
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
1999 1998
---------------------------------
ASSETS
Equipment held for operating leases, at cost $ 45,468 $ 82,278
Less accumulated depreciation (34,920) (58,674)
---------------------------------
Net equipment 10,548 23,604
Cash and Cash Equivalents 5,587 778
Restricted cash 147 147
Accounts receivable, less allowance for doubtful
accounts of $2,843 in 1999 and $3,126 in 1998 440 874
Investments in unconsolidated special-purpose entities 3,415 5,739
Debt placement fees to affiliate, less accumulated
amortization of $321 in 1998 -- 58
Prepaid expenses and other assets 48 50
---------------------------------
Total assets $ 20,185 $ 31,250
=================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 292 $ 563
Due to affiliates 211 244
Lessee deposits and reserve for repairs 340 1,126
Notes payable -- 12,750
---------------------------------
Total liabilities 843 14,683
Partners' capital
Limited partners (8,628,420 limited partnership units
as of December 31, 1999 and 1998) 19,342 16,567
General Partner -- --
---------------------------------
Total partners' capital 19,342 16,567
---------------------------------
Total liabilities and partners' capital $ 20,185 $ 31,250
=================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(In Thousands of Dollars Except Weighted-average Unit Amounts)
1999 1998 1997
-------------------------------------------
REVENUES
Lease revenue $ 8,054 $ 10,981 $ 12,684
Interest and other income 240 251 864
Net gain (loss) on disposition of equipment 6,357 (464) 2,830
-------------------------------------------
Total revenues 14,651 10,768 16,378
Expenses
Depreciation and amortization 4,291 5,802 7,268
Repairs and maintenance 2,838 1,905 2,219
Equipment operating expenses 797 805 795
Insurance expense to affiliate -- (88) 70
Other insurance expenses 102 285 566
Management fees to affiliate 475 622 649
Interest expense 1,016 1,652 2,450
General and administrative expenses to affiliates 530 584 519
Other general and administrative expenses 691 667 1,669
(Recovery of) provision for bad debts (273) 9 1,027
-------------------------------------------
Total expenses 10,467 12,243 17,232
Equity in net income of unconsolidated
special-purpose entities 2,224 348 2,952
-------------------------------------------
Net income (loss) $ 6,408 $ (1,127) $ 2,098
===========================================
Partners' share of net income (loss)
Limited partners $ 6,226 $ (1,309) $ 1,803
General Partner 182 182 295
-------------------------------------------
Total $ 6,408 $ (1,127) $ 2,098
===========================================
Net income (loss) per weighted-average limited partnership unit $ 0.72 $ (0.15) $ 0.21
===========================================
Cash distribution $ 3,633 $ 3,533 $ 5,780
===========================================
Cash distribution per weighted-average limited partnership unit $ 0.40 $ 0.39 $ 0.64
===========================================
See accompanying notes to financia statements.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(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) (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 6,226 182 6,408
Cash distribution (3,451) (182) (3,633)
------------------------------------------------
Partners' capital as of December 31, 1999 $ 19,342 $ -- $ 19,342
=================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
1999 1998 1997
--------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 6,408 $ (1,127 ) $ 2,098
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,291 5,802 7,268
Net (gain) loss on disposition of equipment (6,357) 464 (2,830)
Equity in net income of unconsolidated special-
purpose entities (2,224) (348) (2,952)
Changes in operating assets and liabilities:
Restricted cash -- 100 305
Accounts and notes receivable, net 458 127 523
Prepaid expenses and other assets 2 8 82
Due from affiliates -- -- 357
Accounts payable and accrued expenses (271) (534) 70
Due to affiliates (33) (12) (48)
Lessee deposits and reserve for repairs (786) (1,383) (19)
------------------------------------------
Net cash provided by operating activities 1,488 3,097 4,854
--------------------------------------------
Investing activities
Purchase of equipment and capital repairs (9) -- (621)
Proceeds from disposition of equipment 15,165 1,449 8,493
Distribution from liquidation of unconsolidated
special-purpose entities 3,807 3,470 1,736
Distribution from unconsolidated special-purpose entities 741 895 1,076
--------------------------------------------
Net cash provided by investing activities 19,704 5,814 10,684
---------------------------------------------
Financing activities
Repayment of notes payable (12,750) (8,250) (8,250)
Cash distribution paid to limited partners (3,451) (3,351) (5,485)
Cash distribution paid to General Partner (182 (182) (295)
-------------------------------------------
Net cash used in financing activities (16,383) (11,783) (14,030)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,809 (2,872) 1,508
Cash and cash equivalents at beginning of year 778 3,650 2,142
--------------------------------------------
Cash and cash equivalents at end of year $ 5,587 $ 778 $ 3,650
============================================
Supplemental information
Interest paid $ 1,016 $ 1,652 $ 2,450
============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund IV, a California limited partnership (the
Partnership), was formed on March 25, 1989. The Partnership engages
primarily in the business of owning, leasing or otherwise investing in
predominately used transportation and related equipment. The Partnership
commenced significant operations in September 1989. PLM Financial Services,
Inc. (FSI) is the General Partner of the Partnership. FSI is a wholly-owned
subsidiary of PLM International, Inc. (PLM International).
The Partnership will terminate on December 31, 2009, unless terminated
earlier upon sale of all equipment or by certain other events. On January
1, 1999, the General Partner began the liquidation phase of the Partnership
with the intent to commence an orderly liquidation of the Partnership
assets. 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. The General Partner anticipates that the liquidation of
Partnership assets will be completed by the end of the year 2000.
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to
the General Partner (see Net Income (Loss) and Distribution per Limited
Partnership Unit, below). Net income is allocated to the General Partner to
the extent necessary to cause the General Partner's capital account to
equal zero. The General Partner is also entitled to a subordinated
incentive fee equal to 7.5% of surplus distributions, as defined in the
limited partnership agreement, remaining after the limited partners have
received a certain minimum rate of return on, and a return of, their
invested capital.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
OPERATIONS
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned
subsidiary of FSI. IMI receives a monthly management fee from the
Partnership for managing the equipment (see Note 2). FSI, in conjunction
with its subsidiaries, sells equipment to investor programs and third
parties, manages pools of equipment under agreements with the investor
programs, and is a general partner of other programs.
ACCOUNTING FOR LEASES
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is
recorded at cost and depreciated over its estimated useful life. Rental
payments are recorded as revenue over the lease term. Lease origination
costs were capitalized and amortized over the term of the lease.
DEPRECIATION AND AMORTIZATION
Depreciation of transportation equipment held for operating leases is
computed on the double-declining balance method, taking a full month's
depreciation in the month of acquisition, based upon estimated useful lives
of 15 years for railcars and 12 years for most other types of equipment.
The depreciation method changes to straight-line when annual depreciation
expense using the straight-line method exceeds that calculated by the
double-declining balance method. Acquisition fees have been capitalized as
part of the cost of the equipment. Major expenditures that are expected to
extend the useful lives or reduce future operating expenses of equipment
are capitalized and amortized over the estimated remaining life of the
equipment. Lease negotiation fees were
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
DEPRECIATION AND AMORTIZATION (CONTINUED)
amortized over the initial equipment lease term. Debt placement fees and
issuance costs were amortized over the term of the related loan (see Note
7).
TRANSPORTATION EQUIPMENT
In accordance with the Financial Accounting Standards Board's Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the General Partner reviews the carrying value
of the Partnership's equipment at least quarterly, and whenever
circumstances indicate the carrying value of an asset may not be
recoverable in relation to expected future market conditions for the
purpose of assessing recoverability of the recorded amounts. If projected
undiscounted future cash flows and fair value are less than the carrying
value of the equipment, a loss on revaluation is recorded. No reductions to
the equipment carrying values were required for the years ended December
31, 1999, 1998, or 1997.
Equipment held for operating leases is stated at cost.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership has interests in unconsolidated special-purpose entities
(USPEs) that own transportation equipment. These interests are accounted
for using the equity method.
The Partnership's investment in USPEs includes acquisition and lease
negotiation fees paid by the Partnership to PLM Transportation Equipment
Corporation (TEC), a wholly-owned subsidiary of FSI, and PLM Worldwide
Management Services (WMS), a wholly-owned subsidiary of PLM International.
The Partnership's interests in USPEs are managed by IMI. The Partnership's
equity interest in the net income of USPEs is reflected net of management
fees paid or payable to IMI and the amortization of acquisition and lease
negotiation fees paid to TEC or WMS.
REPAIRS AND MAINTENANCE
Repair and maintenance costs related to marine vessels, railcars, and
trailers are usually the obligation of the Partnership. Maintenance costs
of most of the other equipment are the obligation of the lessee. If they
are not covered by the lessee, they are generally charged against
operations as incurred. Estimated costs associated with marine vessel
drydockings are accrued and charged to income ratably over the period prior
to such drydocking. The reserve accounts for these repairs are included in
the balance sheet as lessee deposits and reserve for repairs.
NET INCOME (LOSS) AND DISTRIBUTION PER LIMITED PARTNERSHIP UNIT
Cash Distributions are allocated 95% to the limited partners and 5% to the
General Partner. Special allocations of income are made to the General
Partner equal to the deficit balance, if any, in the capital account of the
General Partner. Cash distributions of the Partnership are generally
allocated 95% to the limited partners and 5% to the General Partner and may
include amounts in excess of net income. The limited partners' net income
(loss) is allocated among the limited partners based on the number of
limited partnership units owned by each limited partner and on the number
of days of the year each limited partner is in the Partnership.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business
and quarterly unitholders receive a distribution check 45 days after the
close of the quarter.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
NET INCOME (LOSS) AND DISTRIBUTION PER LIMITED PARTNERSHIP UNIT (CONTINUED)
Cash distributions to investors in excess of net income are considered a
return of capital. Cash distributions to the limited partners of $0, $3.4
million, and $3.7 million in 1999, 1998, and 1997, respectively, were
deemed to be a return of capital.
Cash distributions of $0.9 million, $0.9 million, and $0.8 million for
1999, 1998, and 1997, respectively, relating to the fourth quarter of that
year, were paid during the first quarter of 2000, 1999, or 1998,
respectively. In addition, the Partnership made a special distribution of
$4.5 million during February 2000.
NET INCOME (LOSS) PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income (loss) per weighted-average Partnership unit was computed by
dividing net income (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 years ended December 31, 1999, 1998 and 1997 was 8,628,420.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents. The carrying amount of cash and cash
equivalents approximates fair market value due to the short-term nature of
the investments.
COMPREHENSIVE INCOME
The Partnership's net income (loss) is equal to comprehensive income for
the years ended December 31, 1999, 1998, and 1997.
RESTRICTED CASH
As of December 31, 1999 and 1998, restricted cash represented lessee
security deposits held by the Partnership.
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES
An officer of PLM Securities Corp., a wholly-owned subsidiary of the
General Partner, contributed $100 of the Partnership's initial capital.
Under the equipment management agreement, IMI, subject to certain
reductions, receives a monthly management fee attributable to either owned
equipment or interests in equipment owned by the USPEs equal to the lesser
of (a) the fees that would be charged by an independent third party for
similar services for similar equipment or (b) the sum of (i) 5% of the
gross lease revenues attributable to equipment that is subject to operating
leases, (ii) 2% of the gross lease revenues attributable to equipment that
is subject to full payout net leases, and (iii) 7% of the gross lease
revenues attributable to equipment for which IMI provides both management
and additional services relating to the continued and active operation of
program equipment, such as on-going marketing and re-leasing of equipment,
hiring or arranging for the hiring of crew or operating personnel for
equipment, and similar services. Partnership management fees of $0.1
million was payable as of December 31, 1999 and 1998. The Partnership's
proportional share of the USPE management fees of $25,000 and $9,000 were
payable as of December 31, 1999 and 1998, respectively. The Partnership's
proportional share of USPE management fees was $0.1 million during 1999,
1998, and 1997. The Partnership reimbursed FSI and its affiliates $0.5
million, $0.6 million, and $0.5 million during 1999, 1998, and 1997,
respectively, for data processing expenses and administrative services
performed on behalf of the Partnership. The Partnership's proportional
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
share of USPE administrative and data processing expenses was $11,000,
$18,000 and $35,000 during 1999, 1998 and 1997, respectively.
The Partnership paid $2,000 and $0.1 million in 1998 and 1997,
respectively, to Transportation Equipment Indemnity Company Ltd. (TEI), an
affiliate of the General Partner, which provides marine insurance coverage
and other insurance brokerage services. The Partnership's proportional
share of USPE marine insurance coverage paid to TEI was $17,000 and $0.1
million during 1998 and 1997, respectively. A substantial portion of this
amount was paid to third-party reinsurance underwriters or placed in risk
pools managed by TEI on behalf of affiliated programs and PLM
International, which provide threshold coverages on marine vessel loss of
hire and hull and machinery damage. All pooling arrangement funds are
either paid out to cover applicable losses or refunded pro rata by TEI.
Also, during 1998, the Partnership and the USPEs received a $0.1 million
loss-of-hire insurance refund from TEI due to lower claims from the insured
Partnership and other insured affiliated programs. In 1999, TEI did not
provide insurance coverage to the Partnership. These services were provided
by an unaffiliated third party. PLM International liquidated TEI in the
first quarter of 2000.
As of December 31, 1999, approximately 98% of the of the Partnership's
trailer equipment was in rental facilities operated by PLM Rental, Inc., an
affiliate of the General Partner, doing business as PLM Trailer Leasing.
Rents are reported as revenue in accordance with Financial Accounting
Standards Board Statement No. 13 "Accounting for Leases". Direct expenses
associated with the equipment are charged directly to the Partnership.
Direct expenses associated with the equipment are charged directly to the
Partnership. An allocation of indirect expenses of the rental yard
operations is charged to the Partnership monthly.
The Partnership had an interest in certain equipment in conjunction with
affiliated programs during 1999, 1998 and 1997 (see Note 4).
The balance due to affiliates as of December 31, 1999 and 1998 includes
$0.1 million due to FSI and its affiliates for management fees and $0.1
million due to affiliated USPEs.
3. Equipment
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
Equipment held for operating leases 1999 1998
----------------------------------
Aircraft $ 20,440 $ 42,734
Railcars 13,454 14,752
Marine containers 8,073 11,012
Trailers 3,501 4,061
Marine vessels -- 9,719
----------------------------------
45,468 82,278
Less accumulated depreciation (34,920) (58,674)
--------------------------------
Net equipment $ 10,548 $ 23,604
==================================
Revenues are earned under operating leases. A portion of the Partnership's
marine containers are leased to operators of utilization-type leasing pools
that include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for
railcars are based on mileage traveled or a fixed rate; rents for all other
equipment are based on fixed rates.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. EQUIPMENT (CONTINUED)
As of December 31, 1999, all owned equipment in the Partnership portfolio
was either on lease or operating in PLM-affiliated short-term trailer
rental facilities, except for one commercial aircraft, 221 marine
containers, and seven railcars with a net book value of $2.1 million. As of
December 31, 1998, all owned equipment in the Partnership portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for two commercial aircraft, 46 marine containers, and
five railcars with a net book value of $4.6 million
During 1999, the Partnership sold or disposed of a marine vessel, marine
containers, railcars, aircraft and trailers, with an aggregate net book
value of $8.8 million, for proceeds of $15.2 million. During 1998, the
Partnership sold or disposed of marine containers, railcars, and trailers,
with an aggregate net book value of $2.0 million, for proceeds of $1.5
million.
All owned equipment on lease is being accounted for as operating leases.
Future minimum rentals receivable under noncancelable operating leases, as
of December 31, 1999, for owned equipment during each of the next five
years, are approximately $3.0 million in 2000, $1.9 million in 2001, $1.3
million in 2002, $1.0 million in 2003, $0.4 million in 2004, and $7,000
thereafter. Per diem and short-term rentals consisting of utilization rate
lease payments included in revenue amounted to approximately $1.2 million,
$2.2 million, and $2.3 million in 1999, 1998, and 1997, respectively.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The net investments in USPEs include the following jointly-owned equipment
(and related assets and liabilities) as of December 31, (in thousands of
dollars):
1999 1998
---------------------------
35% interest in two Stage II commercial aircraft on a direct
finance lease $ 3,548 $ 3,880
50% interest in an entity owning a bulk carrier (133) 1,859
-------------------------
Net investments $ 3,415 $ 5,739
==========================
As of December 31, 1999 and 1998, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease.
During 1999, the General Partner sold the Partnership's 50% interest in an
entity owning a marine vessel. The Partnership's interest in this entity
was sold for proceeds of $3.8 million for its net investment of $1.9
million.
The following summarizes the financial information for the special-purpose
entities and the Partnership's interests therein as of and for the years
ended December 31, (in thousands of dollars):
1999 1998 1997
--------- ---------- ----------
Net Net Net
Total Interest of Total Interest of Total Interest of
USPEs Partnership USPEs Partnership USPEs Partnership
------------------------- -------------------------------------------------------
Net investments $ 9,489 $ 3,415 $ 14,339 $ 5,739 $ 32,310 $ 9,756
Lease revenues 2,106 1,053 4,066 1,233 7,995 1,961
Net income 4,881 2,224 9,921 348 6,819 2,952
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. OPERATING SEGMENTS
The Partnership operates or operated in five primary operating segments:
aircraft leasing, marine container leasing, marine vessel leasing, trailer
leasing, and railcar leasing. Each equipment leasing segment engages in
short-term to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on
profit or loss from operations before allocation of general and
administrative expenses, interest expense and certain other expenses. The
segments are managed separately due to different business strategies for
each operation.
The following tables present a summary of the operating segments (in
thousands of dollars):
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 2,590 $ 143 $ 1,067 $ 1,122 $ 3,132 $ -- $ 8,054
Interest income and other 37 -- -- -- 26 177 240
Gain (loss) on disposition of 6,312 167 167 (159) (130) -- 6,357
equipment
-------------------------------------------------------------------------
Total revenues 8,939 310 1,234 963 3,028 177 14,651
COSTS AND EXPENSES
Operations support 1,529 5 1,148 336 684 35 3,737
Depreciation and amortization 2,409 565 296 326 636 59 4,291
Interest expense -- -- -- -- -- 1,016 1,016
Management fee 104 7 53 89 222 -- 475
General and administrative expenses 253 7 88 282 113 478 1,221
(Recovery of) provision for bad (278) -- -- 1 4 -- (273)
debts
-------------------------------------------------------------------------
Total costs and expenses 4,017 584 1,585 1,034 1,659 1,588 10,467
-------------------------------------------------------------------------
Equity in net income of USPEs 470 -- 1,754 -- -- -- 2,224
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ 5,392 $ (274) $ 1,403 $ (71) $ 1,369 $ (1,411) $ 6,408
=========================================================================
As of December 31, 1999
Total assets (liabilities) $ 6,873 $ 1,202 $ (133) $ 1,682 $ 4,781 $ 5,780 $ 20,185
=========================================================================
1 Includes costs not identifiable to a particular segment such as interest
expenses, and amortization expense, and certain interest income and other,
operations support expenses and general and administrative expenses. /
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. OPERATING SEGMENTS (CONTINUED)
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 3,484 $ 720 $ 1,666 $ 1,578 $ 3,533 $ -- $ 10,981
Interest income and other 15 -- -- -- 21 215 251
Gain (loss) on disposition of (2) 77 -- (530) (9) -- (464)
equipment
-------------------------------------------------------------------------
Total revenues 3,497 797 1,666 1,048 3,545 215 10,768
COSTS AND EXPENSES
Operations support 446 8 1,043 446 926 38 2,907
Depreciation and amortization 3,314 699 383 498 846 62 5,802
Interest expense 6 -- -- -- -- 1,646 1,652
Management fee 156 36 83 96 251 -- 622
General and administrative expenses 336 20 26 368 139 362 1,251
(Recovery of) provision for bad (95) -- -- 154 (50) -- 9
debts
-------------------------------------------------------------------------
Total costs and expenses 4,163 763 1,535 1,562 2,112 2,108 12,243
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs 654 -- (306) -- -- -- 348
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ (12) $ 34 $ (175) $ (514) $ 1,433 $ (1,893) $ (1,127)
=========================================================================
As of December 31, 1998
Total assets $ 15,434 $ 2,169 $ 3,727 $ 2,035 $ 5,978 $ 1,907 $ 31,250
=========================================================================
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
REVENUES
Lease Revenue $ 4,154 $ 948 $ 1,978 $ 1,980 $ 3,624 $ -- $ 12,684
Interest income and other 13 8 574 -- 4 265 864
Gain (loss) on disposition of 559 (86 ) 2,337 17 3 -- 2,830
equipment
-------------------------------------------------------------------------
Total revenues 4,726 870 4,889 1,997 3,631 265 16,378
COSTS AND EXPENSES
Operations support 216 13 1,533 736 1,097 55 3,650
Depreciation and amortization 3,993 850 455 812 1,057 101 7,268
Interest expense -- -- -- -- -- 2,450 2,450
Management fee 126 45 99 126 253 -- 649
General and administrative expenses 972 25 84 286 116 705 2,188
Provision for bad debts 855 55 -- 94 23 -- 1,027
-------------------------------------------------------------------------
Total costs and expenses 6,162 988 2,171 2,054 2,546 3,311 17,232
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs 3,924 -- (972) -- -- -- 2,952
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ 2,488 $ (118 ) $ 1,746 $ (57 ) $ 1,085 $ (3,046 ) $ 2,098
=========================================================================
As of December 31, 1997
Total assets $ 22,360 $ 3,362 $ 4,515 $ 3,968 $ 6,857 $ 5,027 $ 46,089
=========================================================================
1 Includes costs not identifiable to a particular segment such as interest
expenses, and amortization expense, and certain interest income and other,
operations support expenses and general and administrative expenses. /
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, mobile offshore drilling
unit, railcars, and trailers to lessees domiciled in five geographic
regions: the United States, Canada, South Asia, South America, and Mexico.
Marine vessels and marine containers are leased to multiple lessees in
different regions that operate the marine vessels and marine containers
worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs, grouped by domicile
of the lessee as of and for the years ended December 31 (in thousands of
dollars):
Region Owned Equipment Investments in USPEs
--------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
--------------------------------------- -------------------------------------
United States $ 3,683 $ 4,516 $ 5,369 $ -- $ -- $ --
Canada 2,298 2,698 2,339 -- -- 846
South Asia -- -- 850 -- -- --
South America 863 1,380 1,200 -- -- --
Rest of the world 1,210 2,387 2,926 1,053 1,233 1,115
======================================= =====================================
Lease revenues $ 8,054 $ 10,981 $ 12,684 $ 1,053 $ 1,233 $ 1,961
======================================= =====================================
The following table sets forth net income (loss) information by region for
the owned equipment and investments in USPEs for the years ended December
31 (in thousands of dollars):
Region Owned Equipment Investments in USPEs
-------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
-------------------------------------- -------------------------------------
United States $ 2,584 $ 847 $ 1,131 $ -- $ -- $ --
Canada 1,129 622 14 -- 84 3,305
South Asia (502) (2,021) (2,034) -- -- --
South America 3,009 805 532 -- -- --
Mexico -- -- -- 470 570 618
Rest of the world (625) 164 2,594 1,754 (306) (971)
------------------------------------ ------------------------------------
Regional net income 5,595 417 2,237 2,224 348 2,952
Administrative and other (1,411) (1,892) (3,091) -- -- --
====================================== =====================================
Net income (loss) $ 4,184 $ (1,475) $ (854) $ 2,224 $ 348 $ 2,952
====================================== =====================================
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
6. Geographic Information (continued)
The net book value of these assets as of December 31, are as follows (in
thousands of dollars):
Region Owned Equipment Investments in USP
--------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
--------------------------------- --------------------------------
United States $ 3,401 $ 6,550 $ 12,848 $ -- $ -- $ --
Canada 4,799 5,728 6,580 -- -- 3,484
South Asia 1,202 4,519 2,989 -- -- --
South America -- 2,770 3,275 -- -- --
Mexico -- -- - 3,548 3,880 4,008
Rest of the world 1,146 4,037 5,613 (133) 1,859 2,264
--------------------------------- --------------------------------
================================= =================================
Net book value $ 10,548 $ 23,604 $ 31,305 $ 3,415 $ 5,739 $ 9,756
================================= =================================
7. NOTES PAYABLE
On July 1, 1990, the Partnership entered into an agreement to issue notes
totaling $33.0 million to two institutional investors.
The Partnership had a scheduled loan payment of $8.3 million due on July 1,
1999. On this date, the Partnership paid $4.0 million of the $8.3 million
scheduled principal payment. The Partnership amended the Note Agreement to
delay the date of the remaining $4.3 million principal payment on its notes
payable from July 1, 1999 to August 1, 1999. The amendment increased the
interest rate on the deferred principal payment of $4.3 million from 9.75%
per annum to 11.75% per annum. On July 30, 1999, the Partnership further
amended the note agreement to delay the scheduled remaining principal
payment of $4.3 million from August 1, 1999 to September 1, 1999. The
Partnership paid $1.0 million of the remaining $4.3 million principal
payment in August of 1999, and paid the remaining balance of $3.3 million
in September of 1999. In December of 1999, the Partnership used sales
proceeds to prepay the remaining principal payment of $4.5 million. In
addition, the Partnership paid $0.1 million in prepayment penalty interest.
Under the Note Agreement, if the Partnership elects to make an optional
prepayment of the outstanding notes payable, the Partnership is required to
pay additional interest.
The notes were fully paid on December 30, 1999. The notes accrued interest
at a rate equal to 9.75% per annum. Interest on the notes was payable
monthly.
8. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% of the consolidated revenues
for the year ended December 31, 1999, 1998 and 1997. In 1999, however, the
Partnership sold three aircraft and a marine vessel that the Partnership
owned an interest in. The following is a list of the buyers and the
percentage of the gain from the sale of the total consolidated revenues:
Aircraft Lease Finance IV, Inc. (14%), Fuerza Aerea Del Peru (11%), Triton
Aviation Services (10%) and Lisa Navigation Company LLC (10%). In 1997,
Noblesse Maritime Limited purchased a marine vessel from the Partnership
and the gain from the sale accounted for 10% of total consolidated revenues
from wholly and partially owned equipment.
As of December 31, 1999 and 1998, the General Partner believes the
Partnership had no other significant concentrations of credit risk that
could have a material adverse effect on the Partnership.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
9. INCOME TAXES
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual Partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 1999, the federal income tax basis was higher than the
financial statement carrying values of certain assets and liabilities by
$20.0 million, primarily due to differences in depreciation methods and
equipment reserves and the tax treatment of underwriting commissions and
syndication costs.
10. CONTINGENCIES
PLM International (the Company) and various of its wholly-owned
subsidiaries are named as defendants in a lawsuit filed as a purported
class action in January 1997 in the Circuit Court of Mobile County, Mobile,
Alabama, Case No. CV-97-251 (the Koch action). The named plaintiffs are six
individuals who invested in PLM Equipment Growth Fund IV (Fund IV), PLM
Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI (Fund VI),
and PLM Equipment Growth & Income Fund VII (Fund VII) (the Funds), each a
California limited partnership for which the Company's wholly-owned
subsidiary, FSI, acts as the general partner. The complaint asserts causes
of action against all defendants for fraud and deceit, suppression,
negligent misrepresentation, negligent and intentional breaches of
fiduciary duty, unjust enrichment, conversion, and conspiracy. 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
defendants for improper sales and marketing practices, mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds.
Plaintiffs seek unspecified compensatory 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) (the court) based on the
court's diversity jurisdiction. In December 1997, the court granted
defendants motion to compel arbitration of the named plaintiffs' claims,
based on an agreement to arbitrate contained in the limited partnership
agreement of each Partnership. Plaintiffs appealed this decision, but in
June 1998 voluntarily dismissed their appeal pending settlement of the Koch
action, as discussed below.
In June 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 Fund V, and
filed the complaint on her own behalf and on behalf of all class members
similarly situated who invested in the Partnerships. The complaint alleges
the same facts and the same causes of action as in the Koch action, plus
additional causes of action against all of the defendants, including
alleged unfair and deceptive practices and violations of state securities
law. In July 1997, defendants filed a petition (the petition) in federal
district court under the Federal Arbitration Act seeking to compel
arbitration of plaintiff's claims. In October 1997, the district court
denied the Company's petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
district court dismissed the petition pending settlement of the Romei
action, as discussed below. The state court action continues to be stayed
pending such resolution.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
10. CONTINGENCIES (CONTINUED)
In February 1999 the parties to the Koch and Romei actions agreed to settle
the lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into
two parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to
$6.6 million. The final settlement amount will depend on the number of
claims filed by class members, the amount of the administrative costs
incurred in connection with the settlement, and the amount of attorneys'
fees awarded by the court to plaintiffs' attorneys. The Company will pay up
to $0.3 million of the monetary settlement, with the remainder being funded
by an insurance policy. For settlement purposes, the monetary settlement
class consists of all investors, limited partners, assignees, or unit
holders who purchased or received by way of transfer or assignment any
units in the Partnerships between May 23, 1989 and June 29, 1999. The
monetary settlement, if approved, will go forward regardless of whether the
equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the
extension (until January 1, 2007) of the date by which FSI must complete
liquidation of the Partnerships' equipment, (b) the extension (until
December 31, 2004) of the period during which FSI can reinvest the
Partnerships' funds in additional equipment, (c) an increase of up to 20%
in the amount of front-end fees (including acquisition and lease
negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time
repurchase by each of Funds V, VI and VII of up to 10% of that
partnership's outstanding units for 80% of net asset value per unit; and
(e) the deferral of a portion of the management fees paid to an affiliate
of FSI until, if ever, certain performance thresholds have been met by the
Partnerships. Subject to final court approval, these proposed changes would
be made as amendments to each Partnership's limited partnership agreement
if less than 50% of the limited partners of each Partnership vote against
such amendments. The limited partners will be provided the opportunity to
vote against the amendments by following the instructions contained in
solicitation statements that will be mailed to them after being filed with
the Securities and Exchange Commission. The equitable settlement also
provides for payment of additional attorneys' fees to the plaintiffs'
attorneys from Partnership funds in the event, if ever, that certain
performance thresholds have been met by the Partnerships. The equitable
settlement class consists of all investors, limited partners, assignees or
unit holders who on June 29, 1999 held any units in Funds V, VI, and VII,
and their assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
June 1999. The monetary settlement remains subject to certain conditions,
including notice to the monetary class and final approval by the court
following a final fairness hearing. The equitable settlement remains
subject to certain conditions, including: (a) notice to the equitable
class, (b) disapproval of the proposed amendments to the partnership
agreements by less than 50% of the limited partners in one or more of Funds
V, VI, and VII, and (c) judicial approval of the proposed amendments and
final approval of the equitable settlement by the court following a final
fairness hearing. No hearing date is currently scheduled for the final
fairness hearing. 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
General Partner believes an unfavorable outcome from the counterclaims is
remote.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
10. CONTINGENCIES (CONTINUED)
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.
11. LIQUIDATION AND SPECIAL DISTRIBUTIONS
On January 1, 1999, the General Partner began the liquidation phase of the
Partnership with the intent to commence an orderly liquidation of the
Partnership assets. The General Partner is actively marketing the remaining
equipment portfolio with the intent of maximizing sale proceeds. As sale
proceeds are received the General Partner intends to periodically declare
special distributions to distribute the sale proceeds to the partners.
During the liquidation phase of the Partnership the equipment will continue
to be leased under operating leases until sold. Operating cash flows, to
the extent they exceed Partnership expenses, will continue to be
distributed on a quarterly basis to partners. 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. Any excess
proceeds over expected Partnership obligations will be distributed to the
Partners throughout the liquidation period. Upon final liquidation, the
Partnership will be dissolved.
No special distibutions were paid in 1999, 1998 and 1997. The Partnership
is not permitted to reinvest proceeds from sales or liquidations of
equipment. These proceeds, in excess of operational cash requirements, are
periodically paid out to limited partners in the form of special
distributions. The sales and liquidations occur because of certain damaged
equipment, 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.
SCHEDULE II
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands of dollars)
Additions
Balance at Charged to Balance at
Beginning of Cost and Close of
Year Expense Deductions Year
---------------- ---------------- -------------- -------------
Year Ended December 31, 1999
Allowance for Doubtful Accounts $ 3,126 $ 5 $ (288 ) $ 2,843
======================================================================
Year Ended December 31, 1998
Allowance for Doubtful Accounts $ 3,332 $ 9 $ (215 ) $ 3,126
======================================================================
Year Ended December 31, 1997
Allowance for Doubtful Accounts $ 2,329 $ 1,027 $ (24 ) $ 3,332
======================================================================
PLM EQUIPMENT GROWTH FUND IV
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Registrant and *
PLM Investment Management, Inc.
10.2 Note Agreement, dated as of July 1, 1990,
regarding $33.0 million in 9.75% senior notes
due July 1, 2000 *
23.1 Independent Auditors' Report 45
24. Powers of Attorney 46 - 48
- ------------------------
* Incorporated by reference. See page 23 of this report.