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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, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 33-27746
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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 41.
Total number of pages in this report: 44
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 Class A 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 owning and leasing transportation-related
equipment to be operated by or leased to various shippers and transportation
companies.
The Partnership's primary objectives are:
(1) to acquire 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 as deemed appropriate by the General
Partner, until the conclusion of the reinvestment phase of the Partnership
operations on December 31, 1996;
(2) to generate sufficient net operating cash flow from lease operations to
meet existing 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 or purchase (until the conclusion of the
reinvestment phase, which ended on December 31, 1996) other equipment to add to
the Partnership's initial portfolio. The General Partner intends to sell
equipment when it 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 not equal or exceed other
equipment investment opportunities. Proceeds from these sales, together with
excess net operating cash flow from operations that remained after cash
distributions had been made to the limited partners, were used to acquire
additional equipment throughout the six-year reinvestment phase of the
Partnership, which concluded on December 31, 1996;
(4) to preserve and protect the value of the portfolio through quality
management and by maintaining the portfolio's diversity and constantly
monitoring equipment markets.
The offering of the Partnership units closed on March 28, 1990. As of December
31, 1997, there were 8,628,420 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
In the ninth year of operations of the Partnership, which commences on January
1, 1999, the General Partner will begin to liquidate the assets of the
Partnership in an orderly fashion, unless the Partnership is terminated earlier
upon sale of all of the Partnership's equipment or by certain other events. It
is anticipated that the liquidation will be completed by the end of the tenth
year of operations of the Partnership. Beginning in the Partnership's seventh
year of operations, all surplus cash flow will be distributed to the partners,
used to repay Partnership debt, or held as Partnership working capital. The
sixth year of operations ended December 31, 1996.
Table 1, below, lists the equipment and the cost of equipment in the
Partnership's portfolio, and the cost of investments in unconsolidated
special-purpose entities, as of December 31, 1997 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- ----------------------------------------------------------------------------------------------------------------------
Equipment held for operating leases:
1 Bulk carrier Namura Shipping $ 9,719
1 DC-9-32 stage II commercial aircraft McDonnell-Douglas 10,041
3 737-200 stage II commercial aircraft Boeing 26,945
1 Dash 8-300 commuter aircraft Dehavilland 5,748
463 Dry marine containers Various 1,780
493 Refrigerated marine containers Various 11,604
98 Woodchip gondola railcars General Electric 2,341
364 Pressurized and nonpressurized tank cars Various 10,334
110 Bulkhead flatcars Marine Industries Ltd. 2,153
103 Refrigerated trailers Various 2,359
145 Dry piggyback trailers Stoughton 1,106
273 Dry trailers Various 3,390
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Total equipment held for operating leases $ 87,520
==============
Investments in unconsolidated special-purpose entities:
0.50 Bulk carrier Nipponkai & Toyama $ 9,705
0.35 Equipment on direct finance lease:
Two DC-9-47 stage III commercial aircraft McDonnell-Douglas 3,901
---------------
Total investments $ 13,606
Includes proceeds from capital contributions, operations, and Partnership
borrowings invested in equipment. 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.
Jointly owned: EGF IV and an affiliated program.
Jointly owned: EGF IV and two affiliated programs.
===============
The equipment is generally leased under operating leases for a term of one to
six years. Some of 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.
As of December 31, 1997, approximately 72% 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. Revenues collected under short-term rental agreements with the
rental yards' customers are credited to the owners of the related equipment as
received. 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, Cargill
International S.A., Continental Airlines, Inc., 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 equipment. The Partnership's management agreement with IMI is
to co-terminate with the dissolution of the Partnership, unless the 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
transportation 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 the Partnership is leased out on an operating
lease basis wherein the rents owed 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 the operating lease need not be capitalized on the lessee's
balance sheet.
The Partnership encounters considerable competition from lessors utilizing full
payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. Full payout leases are written for
longer terms and for lower monthly rates than the Partnership offers. 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 of the Partnership may write full payout leases at considerably
lower rates, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, and as a result, the Partnership may be at a
competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership also 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 competes with many equipment lessors, including ACF Industries,
Inc. (Shippers Car Line Division), GATX, General Electric Railcar Services
Corporation, General Electric Capital Aviation Services Corporation, and other
limited partnerships that lease the same types of equipment.
(D) Demand
The Partnership has investments in transportation-related capital equipment and
relocatable environments. Types of transportation equipment owned by the
Partnership include aircraft, marine vessels, railcars, and trailers.
Relocatable environments are functionally self-contained transportable
equipment, such as marine containers. Except for those aircraft leased to
passenger air carriers, the Partnership's equipment is 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
The commercial aircraft market experienced another good year in 1997, with a
third consecutive year of profits by the world's airlines. Airline managements
have continued to emphasize cost reductions and a moderate increase in capacity.
However, even the limited volume of new aircraft deliveries has caused the
market to change from being in equilibrium at the end of 1996 to having excess
supply. This market imbalance is expected to continue, with the number of
surplus aircraft increasing from approximately 350 aircraft at the end of 1996
to an estimated 600 aircraft by the end of the decade.
The changes taking place in the commercial aircraft market also reflect the
impact of noise legislation enacted in the United States and Europe. Between
1997 and the end of 2002, approximately 1,400 Stage II aircraft (Stage II
aircraft are aircraft that have been shown to comply with Stage II noise levels
prescribed in Federal Aviation Regulation section C36.5) are forecast to be
retired, primarily due to noncompliance with Stage III aircraft (Stage III
aircraft are aircraft that have been shown to comply with Stage III noise levels
prescribed in Federal Aviation Regulation section C36.5) noise requirements).
This represents about 41% of the Stage II aircraft now in commercial service
worldwide. By 2002, about 2,000 (59%) of the current fleet of Stage II aircraft
will remain in operational service outside of Stage III-legislated regions or as
aircraft that have had hushkits installed so that engine noise levels meet the
quieter Stage III requirements. The cost to install a hushkit is approximately
$1.5 million, depending on the type of aircraft. All aircraft currently being
manufactured will meet Stage III requirements.
The Partnership's narrowbody fleet is positioned to provide a balance of Stage
III and Stage II aircraft in the portfolio. This strategy is intended to
optimize individual aircraft and the corresponding lease rentals with projected
demand. The Stage II aircraft are positioned with air carriers that are outside
Stage III-legislated areas or are anticipated to be sold or leased outside Stage
III areas before the year 2000.
(b) Commuter Aircraft
The commuter aircraft market is experiencing a revolution with the successful
entry of small regional jets into this market. Major turboprop manufacturers are
re-evaluating their programs, and several successful but larger models are now
being considered for phase-out. The original concept for regional jets was for
them to take over hub-and-spoke routes served by the larger turboprops in North
America, but they are also finding successful niches in point-to-point routes.
The introduction of this smaller aircraft has allowed major airlines to shift
the regional jets to marginal routes previously operated by narrowbody aircraft,
allowing the larger-capacity aircraft to be more efficiently employed in the
airline's route system.
The Partnership leases a commuter aircraft in the 36- to 50-seat turboprop
category. This aircraft is positioned in North America, the fastest-growing
market for commuter aircraft in the world. The Partnership's aircraft possess
unique performance capabilities, compared to other turboprops, which allows it
to readily operate at a maximum payload from unimproved surfaces and hot, high,
and short runways. The market for turboprops is undergoing rapid change due to
the introduction of regional jets. The manufacturer of the Partnership's
commuter aircraft has already announced production cutbacks for some types of
turboprops, which may adversely affect both demand and near-term values for the
Partnership's aircraft.
(2) Marine Vessels
The Partnership owns or has investments with other affiliated programs in small
to medium-sized dry bulk vessels, which are traded in worldwide markets and
carry commodity cargos. Demand for commodity shipping closely tracks worldwide
economic growth patterns; however, economic development alters trade patterns
from time to time, causing changes in volume on trade routes. The General
Partner operates the Partnership's marine vessels under spot charters and period
charters. It is believed that this operating approach provides the flexibility
to adapt to changing demand patterns.
Freight rates for dry bulk vessels in 1997 maintained the levels experienced in
the fourth quarter of 1996. Freight rates had declined significantly in 1996
until a moderate recovery occurred late in the year due to an increase in grain
trade. The size of the overall dry bulk carrier fleet increased by 3%, as
measured by the number of vessels, and by 5%, as measured by deadweight tonnage.
Scrapping of ships was not a significant factor in 1997: 126 dry bulk ships were
scrapped while 247 were delivered. Total dry trade (as measured in deadweight
tons) grew by 3% in 1997, versus 1% in 1996. This balance of supply and demand
made market conditions soft, providing little foundation for increasing freight
rates.
Growth in 1998 is expected to be approximately 2%, with most commodity trading
flat. The majority of growth is forecast to come from grain (2%) and thermal
coal (6%). The primary variable in forecasts is Asian growth; if there is some
recovery from the economic shake-up of the second half of 1997, then there will
be prospects for improvement in 1998. Delivery of ships in 1998 is expected to
be about the same as in 1997; however, an increase in scrapping is anticipated
to strengthen the market.
Current rates do not justify any new construction of dry bulk carriers and there
should be a significant drop in orders over the next two years. If growth in
demand matches historic averages of around 3%, then the current excess supply
should be absorbed by the end of 1999, leading to the possible strengthening of
freight rates.
(3) Marine Containers
The marine container market began 1997 with a continuation of the weakness in
industrywide container utilization and rate pressures that had been experienced
in 1996. A reversal of this trend began in early spring and continued throughout
the remainder of 1997, as utilization returned to the 80% range. Per diem rates
did not strengthen, however, as customers resisted attempts to raise daily
rental rates.
Industrywide consolidation continued in 1997. Late in the year, Genstar, one of
the world's largest container leasing companies, announced that it had reached
an agreement with SeaContainers, another large container leasing company,
whereby SeaContainers will take over the management of Genstar's fleet. Long
term, such industrywide consolidation should bring more rationalization to the
container leasing market and result in both higher fleetwide utilization and per
diem rates.
(4) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars are used primarily in the petrochemical and fertilizer
industries to transport liquefied petroleum gas and anhydrous ammonia. The
utilization rate on the Partnership's fleet of pressurized tank cars was over
98% during 1997. The demand for natural gas is anticipated to grow through 1999,
as the developing world, former Communist countries, and the industrialized
world all increase their energy consumption. World demand for fertilizer is
expected to increase, based on an awareness of the necessity of fertilizing
crops and improving diets, the shortage of farmland, and population growth in
developing nations.
Based on ongoing renewals with current lessees, demand for these cars continues
to be strong and is projected to remain so during 1998.
(b) General Purpose (Nonpressurized) Tank Cars
General purpose or nonpressurized tank cars are used to transport a wide variety
of bulk liquid commodities, such as petroleum fuels, lubricating oils, vegetable
oils, molten sulfur, corn syrup, asphalt, and specialty chemicals. Chemical
carloadings for the first 45 weeks of 1997 were up 4%, compared to the same
period in 1996. The demand for petroleum is anticipated to grow, as the
developing world, former Communist countries, and the industrialized world
increase energy consumption.
The demand for general purpose tank cars in the Partnership's fleet has remained
healthy over the last three years, with utilization remaining above 98%.
(c) Bulkhead Flatcars
Bulkhead flatcars are used to transport pulpwood from sawmills to pulp mills.
High-grade pulpwood is used to manufacture paper, while low-grade pulpwood is
used for particleboard and plywood. The demand for bulkhead flat cars depends
upon the demand for paper, paper products, particleboard, and plywood.
Nationally, the demand for cars carrying primary forest products decreased 5% in
1997.
(d) Woodchip Gondola Railcars
Woodchip cars are large-capacity (6,600 cubic foot) gondolas used to transport
woodchips from the sawmills to the pulp mills. High-grade woodchips are used to
manufacture paper, while low-grade woodchips are used for particleboard and
plywood. The demand for woodchip cars depends upon the demand for paper, paper
products, particleboard, and plywood. Nationally, the demand for cars carrying
primary forest products decreased 5% in 1997.
(5) Trailers
(a) Intermodal (Piggyback) Trailers
In all intermodal equipment areas, 1997 was a remarkably strong year. The U.S.
inventory of intermodal equipment totaled approximately 163,900 units in 1997,
divided between about 55% intermodal trailers and 45% domestic containers.
Trailer loadings increased approximately 4% in 1997 due to a robust economy and
a continuing shortage of drivers in over-the-road markets. The expectation is
for flat to slightly declining utilization of intermodal trailer fleets in the
near future.
Overall utilization in the Partnership's dry piggyback fleet was over 75% in
1997, an increase of 10% over 1996 levels. The expectation is for flat to
slightly lower utilization of the fleet in the near future.
(b) Over-the-Road Dry Trailers
The U.S. over-the-road dry trailer market began to recover in mid-1997, as an
oversupply of equipment from 1996 subsided. The strong domestic economy, a
continuing focus on integrated logistics planning by American companies, and
numerous service problems on class I railroads contributed to the recovery in
the dry van market. There continues to be much consolidation of the trailer
leasing industry in North America, as the two largest lessors of dry vans now
control over 60% of the market. The reduced level of competition, coupled with
anticipated continued strong utilization, may lead to an increase in rates.
Utilization of the Partnership's dry van fleet was up 8% over last year.
(c) Over-the-Road Refrigerated Trailers
The temperature-controlled over-the-road trailer market recovered in 1997;
freight levels improved and equipment oversupply was reduced as industry players
actively retired older trailers and consolidated fleets. Most refrigerated
carriers posted revenue growth of between 2% and 5% in 1997, and accordingly are
planning fleet upgrades. In addition, with refrigeration and trailer
technologies changing rapidly and industry regulations becoming tighter,
trucking companies are managing their refrigerated fleets more effectively.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies will utilize short-term trailer leases more
frequently to supplement their fleets. Such a trend should benefit the
Partnership, which generally leases its equipment on a short-term basis from
rental yards owned and operated by PLM subsidiaries. The Partnership's
utilization, especially in the second half of 1997, was significantly higher
than 1996 levels. ` (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 that may
require the 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 United States Oil Pollution Act of 1990, which established
liability for operators and owners of vessels and mobile offshore
drilling units that create environmental pollution. This regulation
has resulted in higher oil pollution liability insurance. The lessee
of the equipment typically reimburses the Partnership for these
additional costs;
(2) the United States 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;
(3)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
over-the-road refrigerated trailers;
(4) the United States Department of Transportation's Hazardous Materials
Regulations, which regulate the classification and packaging requirements of
hazardous materials and which apply particularly to the Partnership's tank cars.
As of December 31, 1997, the Partnership is 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 for leasing purposes. As of December 31, 1997, the Partnership
owned a portfolio of transportation and related equipment, as described in Part
I, Table 1(a).
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, along with FSI, TEC, IMI and PLM Securities (the PLM
Entities), are named as defendants in a lawsuit filed as a class action on
January 22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case
No. CV-97-251 (the Koch action). The plaintiffs, who filed the complaint on
their own and on behalf of all class members similarly situated, are six
individuals who allegedly invested in certain California limited partnerships
for which FSI acts as the general partner, including the Partnership, PLM
Equipment Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth
& Income Fund VII (the Growth Funds). The complaint asserts eight causes of
action against all defendants, as follows: fraud and deceit, suppression,
negligent misrepresentation and suppression, intentional breach of fiduciary
duty, negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Additionally, plaintiffs allege a cause of action against PLM
Securities for breach of third party beneficiary contracts in violation of the
National Association of Securities Dealers rules of fair practice. Plaintiffs
allege that each defendant owed plaintiffs and the class certain duties due to
their status as fiduciaries, financial advisors, agents, general partner, and
control persons. Based on these duties, plaintiffs assert liability against the
defendants for improper sales and marketing practices, mismanagement of the
Growth Funds, and concealing such mismanagement from investors in the Growth
Funds. Plaintiffs seek unspecified compensatory and recissory damages, as well
as punitive damages, and have offered to tender their limited partnership units
back to the defendants.
On March 6, 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity
jurisdiction, following which plaintiffs filed a motion to remand the action to
the state court. On September 24, 1997, the district court denied plaintiffs'
motion and dismissed without prejudice the individual claims of the California
class representative, reasoning that he had been fraudulently joined as a
plaintiff. On October 3, 1997, plaintiffs filed a motion requesting that the
district court reconsider its ruling or, in the alternative, that the court
modify its order dismissing the California plaintiff's claims so that it is a
final appealable order, as well as certify for an immediate appeal to the
Eleventh Circuit Court of Appeals that part of its order denying plaintiffs'
motion to remand. On October 7, 1997, the district court denied each of these
motions. In responses to such denial, plaintiffs filed a petition for writ of
mandamus with the Eleventh Circuit, which was denied on November 18, 1997. On
November 24, 1997, plaintiffs filed with the Eleventh Circuit a petition for
rehearing and consideration of the full court of the order denying the petition
for a writ of mandamus, which petition was supplemented by plaintiffs on January
27, 1998.
On October 10, 1997, defendants filed a motion to compel arbitration of
plaintiffs' claims, based on an agreement to arbitrate contained in the limited
partnership agreement of each Growth Fund, and to stay further proceedings
pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition,
the district court granted the motion on December 8, 1997. On December 15, 1997,
plaintiffs filed with the Eleventh Circuit a notice of appeal from the district
court's order granting defendants' motion to compel arbitration and to stay the
proceedings, and of the district court's September 24, 1997 order denying
plaintiffs' motion to remand and dismissing the claims of the California
plaintiff. Plaintiffs filed an amended notice of appeal on December 31, 1997.
The PLM Entities believe that the allegations of the Koch action are completely
without merit and intend to continue to defend this matter vigorously.
On June 5, 1997, the PLM Entities were named as defendants in another purported
class action filed in the San Francisco Superior Court, San Francisco,
California, Case No. 987062 (the Romei action). The plaintiff is an investor in
PLM Equipment Growth Fund V, and filed the complaint on her own behalf and on
behalf of all class members similarly situated who invested in certain
California limited partnerships for which FSI acts as the general partner,
including the Growth Funds. The complaint alleges the same facts and the same
nine causes of action as in the Koch action, plus five additional causes of
action against all of the defendants, as follows: violations of California
Business and Professions Code Sections 17200, et seq. for alleged unfair and
deceptive practices, constructive fraud, unjust enrichment, violations of
California Corporations Code Section 1507, and a claim for treble damages under
California Civil Code Section 3345.
On July 31, 1997, the PLM Entities filed with the district court for the
Northern District of California (Case No. C-97-2847 WHO) a petition under the
Federal Arbitration Act seeking to compel arbitration of plaintiff's claims and
for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. By memorandum and order dated October 23, 1997, the district
court denied the PLM Entities' petition to compel arbitration. On November 5,
1997, the PLM Entities filed an expedited motion for leave to file a motion for
reconsideration of this order, which motion was granted on November 14, 1997.
The parties have agreed to have oral argument on the reconsideration motion set
for April 23, 1998. The state court action has been stayed pending the district
court's decision on this motion.
In connection with her opposition to the Company's petition to compel
arbitration, on August 22, 1997, the plaintiff filed an amended complaint with
the state court alleging two new causes of action for violations of the
California Securities Law of 1968 (California Corporations Code Sections 25400
and 25500) and for violation of California Civil Code Section 1709 and 1710.
Plaintiff has also served certain discovery requests on defendants. Because of
the stay, no response to the amended complaint or to the discovery is currently
required. The PLM Entities believe that the allegations of the amended complaint
in the Romei action are completely without merit and intend to defend this
matter vigorously.
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, 1997.
(This space intentionally left blank)
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
entitled to a 5% interest in the profits and losses and distributions of the
Partnership. The General Partner is the sole holder of such interest. Gross
income in each year of the Partnership is specially allocated to the General
Partner to the extent necessary to cause the capital account balance of the
General Partner to be zero as of the close of such year. The remaining interests
in the profits and losses and distributions of the Partnership are owned, as of
December 31, 1997, by the 9,667 holders of units in the Partnership.
There are several secondary exchanges that will facilitate sales and purchases
of limited partnership units. Secondary markets are characterized as having few
buyers for limited partnership interests and, therefore, generally are viewed as
inefficient vehicles for the sale of partnership units. There is presently 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 can not be transferred 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 number permitted by certain safe harbors promulgated by the
Internal Revenue Service. A transfer may be prohibited if the intended
transferee is not a U.S. citizen or if the transfer would cause any portion of
the units to be treated as plan assets. The Partnership may redeem a certain
number of units each year. As of December 31, 1997, 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 1998.
(This space intentionally left blank)
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership (in
thousands):
TABLE 2
For the years ended
December 31, 1997, 1996, 1995, 1994, and 1993
(in thousands of dollars, except weighted-average unit amounts)
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
Operating results:
Total revenues $ 16,378 $ 22,120 $ 21,410 $ 24,367 $ 27,925
Net gain on disposition
of equipment 2,830 3,179 530 3,336 179
Loss on revaluation of
equipment -- -- (417) (820) --
Equity in net income (loss) of uncon-
solidated special-purpose entities 2,952 (331) -- -- --
Net income (loss) 2,098 (4,119) (3,611) (5,112) (6,380)
At year end:
Total assets $ 46,089 $ 59,009 $ 71,924 $ 82,773 $ 98,453
Total liabilities 24,862 34,100 35,449 35,997 38,880
Notes payable 21,000 29,250 30,800 30,800 33,000
Cash distribution $ 5,780 $ 7,271 $ 6,443 $ 7,523 $ 14,628
Cash distribution representing a
return of capital $ 3,682 $ 6,908 $ 6,124 $ 7,135 $ 13,891
Per weighted-average limited partnership unit:
Net income (loss) $ 0.21 $ (0.52) $ (0.45) $ (0.63) $ (0.82)
Cash distribution $ 0.64 $ 0.80 $ 0.71 $ 0.82 $ 1.60
Cash distribution representing a
return of capital $ 0.43 $ 0.80 $ 0.71 $ 0.82 $ 1.60
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 various sectors of the
transportation industry and its effect on the Partnership's overall financial
condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing and Repricing Activity
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 transportation equipment include supply and demand for similar or comparable
types or kinds of transport capacity, desirability of the equipment in the lease
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, various regulations
concerning the use of the equipment, and others. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent one can result in a reduction of contribution to the Partnership. The
Partnership experienced re-pricing exposure in 1997 primarily in its marine
vessel, trailer, and marine container portfolios.
(a) Marine Vessels: The Partnership's marine vessels operated in the time
charter market during 1997. During 1996, the Partnership's marine
vessel was locked into a time charter for eleven months and renewed
its time charter during December 1996 at a lower rate. Although time
charter rates remained constant from late 1996 through 1997, the
Partnership saw a decline in revenues due to the decline in time
charter rates from 1996.
(b) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities or with short-line railroad systems. The relatively
short duration of most leases in these operations exposes the trailers
to considerable re-leasing and repricing activity.
(c) Marine Containers: The majority of the Partnership's marine container
portfolio operates in utilization-based leasing pools and as such was
highly exposed to re-leasing and repricing activity. The Partnership's
marine container contributions declined from 1996 to 1997, due to
equipment sales and soft market conditions that caused a decline in
re-leasing activity.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment represents a reduction in the size of the
equipment portfolio, and will result in reduction of net 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 leases, 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 and legal fees. The Partnership experienced the
following in 1997:
(a) Liquidations: During 1997, the Partnership sold a marine vessel, an
aircraft engine, marine containers, railcars, and trailers for $8.5
million. The sale proceeds of this equipment represented approximately
42% of the original cost of these assets. The Partnership used the
majority of these proceeds to make a required principal payment of
$8.3 million.
(b) Nonperforming Lessees: During 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.
Currently the Partnership expects to sell this asset in 1998.
(3) Reinvestment Risk
During the first six years of operations, the Partnership increased its
equipment portfolio by investing surplus cash in additional equipment after
fulfilling operating requirements and paying distributions to the partners.
Subsequent to the end of the reinvestment period that concluded on December 31,
1996, the Partnership will continue to operate for an additional two years, then
begin an orderly liquidation over an anticipated two-year period.
(4) Equipment Valuation and Write-downs
In March 1995, the Financial Accounting Standards Board (FASB) issued statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995,
the effect of which was not material, as the method previously employed by the
Partnership was consistent with SFAS 121. In accordance with SFAS 121, the
Partnership reviews the carrying value of its equipment at least annually in
relation to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. If projected future lease revenue plus
residual values are less than the carrying value of the equipment, a loss on
revaluation is recorded. The carrying value of a commuter aircraft was reduced
by $0.4 million in 1995 and sold in the second quarter of 1995. No write-downs
were required in 1997 or 1996.
As of December 31, 1997, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including equipment owned by
unconsolidated special-purpose entities, to be approximately $63.5 million.
(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 original partners are permitted under the
terms of the Partnership's limited partnership agreement. In addition, the
Partnership, under its current loan agreement, does not have the capacity to
incur additional debt. The Partnership relies on operating cash flow to meet its
operating obligations and make cash distributions to limited partners.
For the year ended December 31, 1997, the Partnership generated $5.9 million in
operating cash (net cash provided by operating activities plus cash
distributions from unconsolidated special-purpose entities) to meet its
operating obligations and maintain the current level of distributions (total
1997 of $5.8 million) to the partners.
As of December 31, 1997, the Partnership had one loan outstanding totaling $21.0
million. The remaining balance of this loan is due in two yearly principal
payments of $8.2 million on July 1, 1998 and 1999, and $4.6 million in 2000. The
Partnership expects that the proceeds from equipment sales and operating cash
flows will be sufficient to make these payments. The interest on the loan is
fixed at 9.75%. The loan agreement requires the Partnership to maintain a net
worth ratio of at least 33.33% of the fair market value of equipment plus cash.
Pursuant to its prospectus, beginning January 1, 1993, if the number of units
made available for purchase by limited partners 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, where
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 1998.
During December 1997, the General Partner amended and restated its joint
short-term credit facility (the Committed Bridge Facility). The Partnership is
no longer included as a borrower.
(D) Results of Operations -- Year-to-Year Detailed Comparison
(1) Comparison of Partnership's Operating Results for the Years Ended December
31, 1997 and 1996
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1997, compared to the same period
of 1996. The following table presents lease revenues less direct expenses by
owned equipment type (in thousands of dollars):
For the Years
Ended December 31,
1997 1996
------------------------------
Aircraft $ 3,971 $ 2,487
Rail equipment 2,526 2,251
Trailers 1,244 1,595
Marine containers 935 1,191
Marine vessels 445 2,232
Mobile offshore drilling unit -- 163
Aircraft: Aircraft lease revenues and direct expenses were $4.2 million and $0.2
million, respectively, for the year ended December 31, 1997, compared to $5.1
million and $2.6 million, respectively, during the same period of 1996. The
decrease in lease revenues in the year ended December 31, 1997 was due to the
off-lease status of an aircraft, when compared to the same period in 1996 when
the aircraft was on lease for the first eight months. The decrease was also
attributable to another aircraft coming off lease in August 1997, which was on
lease for the year ended December 31, 1996. The decrease caused by these
off-lease aircraft, was offset, in part, by the purchase of a Dash 8-300
aircraft at the end of the second quarter of 1996, which was on lease for the
entire year of 1997. Direct expenses decreased due to costs incurred for repairs
on an aircraft and the overhaul of four engines on another aircraft in the year
ended December 31, 1996, which were not required in 1997.
Rail equipment: Railcar lease revenues and direct expenses were $3.6 million and
$1.1 million, respectively, for the year ended December 31, 1997, compared to
$3.6 million and $1.4 million, respectively, during the same period of 1996. The
increase in railcar contribution resulted from running repairs required on
certain of the railcars in the fleet during 1996, which were not needed during
1997.
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.7
million, respectively, for the year ended December 31, 1997, compared to $2.0
million and $0.4 million, respectively, during the same period of 1996. Trailer
contributions decreased in the year ended December 31, 1997, compared to the
same period in 1996, due to a group of trailers that required refurbishment in
1997 prior to making the transition into short-term rental facilities operated
by an affiliate of the General Partner. There were no similar expenses in 1996.
Marine containers: Marine container lease revenues and direct expenses were $0.9
million and $13,000, respectively, for the year ended December 31, 1997,
compared to $1.2 million and $23,000, respectively, during the same period of
1996. Marine container contributions decreased due to sales and dispositions
over the past 12 months.
Marine vessels: Marine vessel lease revenues and direct expenses were $2.0
million and $1.5 million, respectively, for the year ended December 31, 1997,
compared to $6.6 million and $4.4 million, respectively, during the same period
of 1996. Marine vessel contributions decreased due to the sale of a marine
vessel in January 1997. In addition, lease revenues declined during 1997 for the
remaining marine vessel, due to lower re-lease rates as a result of a softer
bulk-carrier vessel market.
Mobile offshore drilling unit (rig): The rig was sold in the second quarter of
1996, resulting in the elimination of any contribution in the year ended
December 31, 1997. Revenues and expenses were $0.2 million and $1,000,
respectively, in the year ended December 31, 1996.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $13.6 million for the year ended December 31, 1997
decreased from $17.0. million for the same period in 1996. The significant
variances are explained as follows:
(1) A $2.5 million decrease in depreciation and amortization expenses from
1996 levels reflects the sale of certain assets during 1997 and 1996 and the use
of the double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned.
(2) The $0.6 million decrease in bad debt expenses was due to the General
Partner's evaluation of the collectibility of receivables due from certain
lessees.
(3) A $0.7 million decrease in interest expense was due to lower average
borrowings outstanding during the year ended December 31, 1997, compared to the
same period in 1996. In November 1996, the Partnership prepaid $1.5 million of
its outstanding debt. In addition, in July 1997 the Partnership paid the first
annual principal payment of $8.3 million of the outstanding debt.
(4) A $0.2 million decrease in management fee to affiliates reflects the
lower levels of lease revenues in the year ended December 31, 1997.
(5) A $0.5 million increase in administrative expenses from 1996 levels
resulted from additional legal fees to collect outstanding receivables due from
aircraft lessees.
(c) Interest and Other Income
Interest and other income increased $0.6 million in the year ended December 31,
1997, compared to the same period in 1996, due to the following:
(1) The recognition in 1997 of $0.5 million in loss of hire and general
claims insurance recovery relating to generator repairs on one marine vessel.
(2) An increase of $0.1 million in interest income due to higher average
cash balances compared to the same period in 1996.
(d) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the year ended December 31, 1997
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. For the year ended December 31,
1996, the $3.2 million net gain on disposition of equipment resulted from the
sale or disposal of marine containers, railcars, a trailer, an aircraft, and a
mobile offshore drilling unit, with an aggregate net book value of $9.9 million,
for aggregate proceeds of $13.1 million.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
1997 1996
------------------------------
Aircraft $ 3,924 $ (315)
Marine vessels (972 ) (16)
Aircraft: As of December 31, 1997, the Partnership had an interest in a trust
that owns two commercial aircraft on direct finance lease. As of December 31,
1996, the Partnership owned an interest in a trust that owns six commercial
aircraft and had an interest in a trust that owns two commercial aircraft on
direct finance lease. During the year ended December 31, 1997, revenues of $1.5
million and the gain from the sale of the Partnership's interest in the trust
that owned six commercial aircraft of $3.4 million during December were offset
by depreciation and administrative expenses of $1.0 million. During the same
period of 1996, revenues of $1.1 million were offset by depreciation and
administrative expenses of $1.4 million. Lease revenues increased in the year
ended December 31, 1997 due to the investment in the trust owning two aircraft
on a direct finance lease, which was acquired in the latter part of 1996, and
thus it had no contribution for the year ended December 31, 1996. The
contribution for the investment in a trust owning commercial aircraft on an
operating lease was significantly impacted by depreciation charges, which are
greatest in the early years due to the use of the double-declining balance
method of depreciation. The trust depreciated this aircraft investment over a
period of six years.
Marine vessel: As of December 31, 1997 and 1996, the Partnership had an interest
in an entity owning a marine vessel. Marine vessel revenues and expenses were
$1.1 million and $2.1 million, respectively, for the year ended December 31,
1997, compared to $1.7 million and $1.7 million, respectively, during the same
period in 1996. Lease revenue decreased in the year ended December 31, 1997 due
to lower re-lease rates as a result of a softer bulk-carrier vessel market.
Direct expenses increased in the year ended December 31, 1997 due to increased
survey, repairs, and maintenance expenses.
(f) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $2.1 million for
the year ended December 31, 1997, compared to a net loss of $4.1 million during
the same period of 1996. The Partnership's ability to operate and liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors, and the Partnership's performance in the year ended December
31, 1997 is not necessarily indicative of future periods. In the year ended
December 31, 1997, the Partnership distributed $5.5 million to the limited
partners, or $0.64 per weighted-average limited partnership unit.
(2) Comparison of Partnership's Operating Results for the Years Ended December
31, 1996 and 1995
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1996 when compared to the same
period of 1995. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands of dollars):
For the Years
Ended December 31,
1996 1995
------------------------------
Aircraft $ 2,487 $ 5,540
Rail equipment 2,251 2,837
Marine vessels 2,232 2,496
Trailers 1,595 943
Marine containers 1,191 1,218
Mobile offshore drilling unit 163 224
Aircraft: Aircraft lease revenues and direct expenses were $5.1 million and $2.6
million, respectively, for the year ended December 31, 1996, compared to $5.9
million and $0.4 million, respectively, during the same period of 1995. The
decrease in revenue was attributable to the sale of two aircraft in 1995 and the
off-lease status of another aircraft that was repossessed from the lessee in the
third quarter of 1996. The repossessed aircraft earned revenue for the entire
year of 1995, compared to eight months of 1996. The decrease was offset, in
part, by the purchase of a Dash 8-300 aircraft at the end of the second quarter
of 1996. Direct expenses increased due to the overhaul of four engines on an
aircraft sold at the end of 1996. This aircraft had been off lease for
approximately two years. In addition, repairs on the repossessed aircraft were
required to meet airworthiness conditions before it could be re-leased.
Rail equipment: Railcar lease revenues and direct expenses were $3.6 million and
$1.4 million, respectively, for the year ended December 31, 1996, compared to
$3.6 million and $0.8 million, respectively, during the same period of 1995.
Although the railcar fleet remained relatively the same size for both periods,
the decrease in railcar contribution resulted from running repairs required on
certain of the railcars in the fleet during 1996 that were not needed during
1995.
Marine vessels: Marine vessel lease revenues and direct expenses were $6.6
million and $4.4 million, respectively, for the year ended December 31, 1996,
compared to $6.3 million and $3.8 million, respectively, during the same period
of 1995. Lease revenue increased due to higher charter rates earned for a marine
vessel that switched from a utilization-based pooling arrangement to a
fixed-rate time charter in the beginning of 1996. In addition, revenues
increased due to the higher profit-sharing revenue earned on another marine
vessel in the year ended December 31, 1996, compared to the same period in 1995.
Direct expenses increased due to higher estimated future drydock costs for both
marine vessels in the year ended December 31, 1996, when compared to the same
period in 1995.
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.4
million, respectively, for the year ended December 31, 1996, compared to $1.3
million and $0.4 million, respectively, during the same period of 1995. The
increase in lease revenues was primarily due to the addition of 333 trailers in
1995.
Marine containers: Marine container lease revenues and direct expenses were $1.2
million and $23,000, respectively, for the year ended December 31, 1996,
compared to $1.6 million and $0.4 million during the same period of 1995. Lease
revenues have decreased due to sales and dispositions of marine containers over
the last 12 months and lower utilization. Direct expenses have decreased
primarily due to repairs performed on 327 marine containers in 1995.
Mobile offshore drilling unit (rig): The Partnership's rig was sold in the
second quarter of 1996, resulting in the elimination of contribution in the
third quarter. Rig lease revenues and direct expenses were $0.2 million and
$1,000, respectively, for the year ended December 31, 1996, compared to $0.2
million and $45,000, respectively, during the same period of 1995.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses decreased to $17.0 million in 1996 from $17.3 million in
1995. The variances are explained as follows:
(1) A $1.5 million decrease in depreciation and amortization expenses from
1995 levels reflects the sale of certain assets during 1996 and 1995.
(2) A $0.1 million decrease in management fees to affiliates reflects the
lower levels of lease revenues in the year ended December 31, 1996, as compared
to the same period in 1995.
(3) A $1.0 million increase in bad debt expense reflects the General
Partner's evaluation of the collectibility of receivables due from two aircraft
lessees that encountered financial difficulties.
(4) A $0.3 million increase in general and administrative expenses from
1995 levels results from the increased administrative costs associated with the
short-term rental facilities due to additional trailers operating in the
facilities in the first months of 1996, compared to the same period in 1995.
(c) Loss on Revaluation of Equipment
Loss on revaluation of equipment of $0.4 million in 1995 resulted from the
reduction of the net book value of an aircraft to its estimated fair market
value less cost to sell. This aircraft was sold in the second quarter of 1995.
There was no loss on revaluation of equipment in the year ended December 31,
1996.
(d) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the year ended December 31, 1996
totaled $3.2 million, which resulted from the sale or disposal of marine
containers, railcars, trailers, an aircraft, and a mobile offshore drilling
unit, with an aggregate net book value of $9.9 million, for aggregate proceeds
of $13.1 million. For the year ended December 31, 1995, the $0.5 million net
gain on disposition of equipment resulted from the sale or disposal of marine
containers, aircraft, and trailers, with an aggregate net book value of $5.7
million, for aggregate proceeds of $6.2 million.
(e) Interest and Other Income
Interest and other income decreased $0.1 million during the year ended December
31, 1996, which was due primarily to lower interest rates earned on cash
balances available for investments when compared to the same period of 1995.
(f) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
1996 1995
------------------------------
Aircraft $ (315 ) $ (263)
Marine vessels (16 ) 203
Aircraft: Revenues and expenses were $1.1 million and $1.4 million,
respectively, for the year ended December 31, 1996, compared to $0.2 million and
$0.5 million, respectively, for the same period in 1995. The investment in a
trust owning 737-200A commercial aircraft was acquired at the end of the third
quarter of 1995. The net contribution is significantly impacted by the
depreciation charges that are greatest in the early years due to the use of the
double-declining balance method of depreciation. The trust depreciates this
investment over a six-year period.
Marine vessel: As of December 31, 1996 and 1995, the Partnership had an interest
in an entity that owns a marine vessel. Revenues and expenses were $1.7 million
and $1.7 million, respectively, for the year ended December 31, 1996, compared
to $1.2 million and $1.0 million, respectively, for the same period in 1995. At
the end of 1995, this marine vessel was transferred from a bare-boat charter to
a time charter. Time charters have higher revenues associated with them since
the owner pays for costs, such as operating costs, normally borne by the lessees
under bare-boat charters. In addition, lease revenue decreased slightly as a
result of this marine vessel being off lease for about 18 days in the first
quarter of 1996 due to scheduled drydocking repairs.
(g) Net Loss
As a result of the foregoing, the Partnership's net loss was $4.1 million for
the year ended December 31, 1996, compared to a net loss of $3.6 million in the
same period in 1995. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire during the life of
the Partnership is subject to many factors, and the Partnership's performance in
the year ended December 31, 1996 is not necessarily indicative of future
periods. For the year ended December 31, 1996, the Partnership distributed $6.9
million to the limited partners, or $0.80 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 3 to the financial statements for information on the revenues, income, and
net book value of equipment in various geographic regions.
Revenues and net 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 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 additional equipment is sold
or disposed of in various equipment markets and geographic areas. An explanation
of the current relationships is presented below.
The Partnership's owned equipment on lease to United States-domiciled lessees
consists of trailers, railcars, and aircraft. During 1997, lease revenues in the
United States accounted for 37% of the lease revenues of wholly and partially
owned equipment, while net income accounted for $1.1 million of the total
aggregate net income for the Partnership of $2.1 million.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to Canadian-domiciled lessees consists of railcars and aircraft. During
1997, lease revenues accounted for 22% of total lease revenues of wholly and
partially owned equipment, while net income accounted for $3.3 million of the
total aggregate net income for the Partnership of $2.1 million. The primary
reason for this revenue is that a large gain was realized from the sale of
assets in this geographic region.
The Partnership's owned equipment on lease to South Asia-domiciled lessees
accounted for 6% of the lease revenues of wholly and partially owned equipment
and generated a net loss of $2.0 million, when compared to the total aggregate
net income for the Partnership of $2.1 million. The primary reason for this loss
is that during 1997, the lessee of the Partnership's aircraft in South Asia
encountered financial difficulties, forcing the Partnership to establish
reserves against receivables, due to the General Partner's determination that
ultimate collection of these rents is uncertain.
South American operations consisted of an owned aircraft. Lease revenues
accounted for 8% of total lease revenues of wholly and partially owned
equipment, while net income accounted for $0.5 million in profit, compared to
total aggregate net income of $2.1 million for the entire Partnership.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine containers and
marine vessels and accounted for 27% of lease revenues of wholly and partially
owned equipment, while the net income accounted for $1.6 million. The primary
reason for this revenue is that the Partnership sold a marine vessel for a gain
of $2.3 million in this geographic region.
(F) Year 2000 Compliance
The General Partner is currently addressing the Year 2000 computer software
issue. The General Partner is creating a timetable for carrying out any program
modifications that may be required. The General Partner does not anticipate that
the cost of these modifications allocable to the Partnership will be material.
(G) Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 1997,
1996, or 1995.
(I) 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.
(J) Outlook for the Future
In 1998, the Partnership will be in its holding or passive liquidation phase.
The General Partner will be seeking to selectively re-lease or sell assets as
the existing leases expire. Sale decisions will cause the operating performance
of the Partnership to decline over the remainder of its life. The General
Partner anticipates that the liquidation of Partnership assets will be completed
by the scheduled termination of the Partnership at the end of the year 2000.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal on debt, and pay cash distributions
to the investors.
(1) 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, purchases, or sale of equipment.
(2) Distributions
Pursuant to the limited partnership agreement, the Partnership ceased to
reinvest in additional equipment beginning in its seventh year of operations,
which commenced on January 1, 1997. The General Partner intends to pursue a
strategy of selectively re-leasing equipment to achieve competitive returns, or
of selling equipment that is underperforming or whose operation becomes
prohibitively expensive, in the period prior to the final liquidation of the
Partnership. During this time, 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 may preclude the General Partner
from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity. Consequently, the
General Partner cannot establish future distribution levels with any certainty
at this time.
As of the fourth quarter of 1997, the cash distribution rate was reduced to more
closely reflect current and expected net cash flows from operations. Continued
weak market conditions in certain equipment sectors and equipment sales have
reduced overall lease revenues in the Partnership to the point where reductions
in distribution levels were necessary. In addition, with the Partnership
expected to enter the active liquidation phase in the near future, the size of
the Partnership's remaining equipment portfolio, and, in turn, the amount of net
cash flows from operations, will continue to become progressively smaller as
assets are sold. Although distribution levels will be reduced, significant asset
sales may result in potential special distributions to Unitholders.
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PLM INTERNATIONAL AND PLM
FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International (and key executive officers of its subsidiaries) and of PLM
Financial Services, Inc. are as follows:
Name Age Position
- -------------------------------------------------------------------------------------------------------------------------
Robert N. Tidball 59 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 50 Director, PLM International, Inc.
Douglas P. Goodrich 51 Director and Senior Vice President, PLM International;
Director and President, PLM Financial Services, Inc.;
President, PLM Transportation Equipment Corporation;
President, PLM Railcar Management Services, Inc.
Harold R. Somerset 63 Director, PLM International, Inc.
Robert L. Witt 57 Director, PLM International, Inc.
J. Michael Allgood 49 Vice President and Chief Financial Officer,
PLM International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 51 President, PLM Investment Management, Inc.
and PLM Securities Corp.; Vice President and Director,
PLM Financial Services, Inc.
Richard K Brock 35 Vice President and Corporate Controller,
PLM International, Inc. and PLM Financial Services, Inc.
Frank Diodati 43 President, PLM Railcar Management Services Canada Limited
Steven O. Layne 43 Vice President, PLM Transportation Equipment Corporation;
Vice President, PLM Worldwide Management Services Ltd.
Susan C. Santo 35 Vice President, Secretary, and General Counsel,
PLM International, Inc. and PLM Financial Services, Inc.
Thomas L. Wilmore 55 Vice President, PLM Transportation Equipment Corporation;
Vice President, PLM Railcar Management 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 to 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 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 in the United States
and abroad, as well as a senior advisor to the investment banking firm of
Prudential Securities, where he has been employed since 1987. Mr. Caudill also
serves as a director of VaxGen, Inc. and SBE, 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, a subsidiary of Guardian Industries Corporation of
Chicago, Illinois, from December 1980 to September 1985.
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 recently acquired 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, a position in which he
continues to serve. 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, General Counsel, and Secretary. In addition to a
law degree from Harvard Law School, Mr. Somerset also holds degrees in civil
engineering from the Rensselaer Polytechnic Institute and in marine engineering
from the US 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.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services, Inc. in December 1992. Between July 1991 and October
1992, Mr. Allgood was a consultant to various private and public-sector
companies and institutions specializing in financial operations systems
development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited
and its holding company, Aviation Holdings Plc of London, where he served as
Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr.
Allgood served as a first vice president with American Express Bank Ltd. In
February 1978, Mr. Allgood founded and until June 1981 served as a director of
Trade Projects International/Philadelphia Overseas Finance Company, a joint
venture with Philadelphia National Bank. From March 1975 to February 1978, Mr.
Allgood served in various capacities with Citibank, N.A.
Stephen M. Bess was appointed Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Securities Corporation in June
1996 and 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 Corporate Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Frank Diodati was appointed President of PLM Railcar Management Services Canada
Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and Sales for
G.E. Railcar Services Canada Limited.
Steven O. Layne was appointed Vice President of PLM Transportation Equipment
Corporation's Air Group in November 1992, and was appointed Vice President and
Director of PLM Worldwide Management Services Limited in September 1995. Mr.
Layne was its Vice President, Commuter and Corporate Aircraft beginning in July
1990. Prior to joining PLM, Mr. Layne was Director of Commercial Marketing for
Bromon Aircraft Corporation, a joint venture of General Electric Corporation and
the Government Development Bank of Puerto Rico. Mr. Layne is a major in the
United States Air Force Reserves and a senior pilot with 13 years of accumulated
service.
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.
Thomas L. Wilmore was appointed Vice President, Rail of PLM Transportation
Equipment Corporation in March 1994, and has served as Vice President of
Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to
joining PLM, Mr. Wilmore was Assistant Vice President and Regional Manager for
MNC Leasing Corporation in Towson, Maryland from February 1987 to April 1988.
From July 1985 to February 1987, he was President and co-owner of Guardian
Industries Corporation, Chicago, and between December 1980 and July 1985, Mr.
Wilmore was an executive vice president for its subsidiary, G.I.C. Financial
Services Corporation. Mr. Wilmore also served as Vice President of Sales for
Gould Financial Services, located in Rolling Meadows, Illinois, from June 1978
to December 1980.
The directors of PLM International 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 or PLM Financial
Services, 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, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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. At December
31, 1997, no investor was known by the General Partner to beneficially
own more than 5% of the Units of the Partnership.
(b) Security Ownership of Management
Neither the General Partner and its affiliates nor any officer or
director of the General Partner and its affiliates own any units of the
Partnership as of December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
During 1997, management fees to IMI were $0.6 million. The Partnership
reimbursed FSI and its affiliates $0.5 million for administrative and
data processing services performed on behalf of the Partnership in
1997. The Partnership paid Transportation Equipment Indemnity Company
Ltd. (TEI), a wholly-owned, Bermuda-based subsidiary of PLM
International, $0.1 million for insurance coverages during 1997, which
amounts were paid substantially to third-party reinsurance underwriters
or placed in risk pools managed by TEI on behalf of affiliated
partnerships 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.
During 1997, the unconsolidated special-purpose entities 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, $35,000. The
unconsolidated special-purpose entities also paid TEI $0.1 million for
insurance coverages during 1997.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions with Promoters
None.
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) Reports on Form 8-K
None.
(c) 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.)
-10-
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 24, 1998 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
Vice President and
Corporate Controller
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 24, 1998
*________________
Douglas P. Goodrich Director, FSI March 24, 1998
*________________
Stephen M. Bess Director, FSI March 24, 1998
*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 Santo
- -----------------------
Susan Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Report of independent auditors 27
Balance sheets as of December 31, 1997 and 1996 28
Statements of operations for the years ended December 31, 1997,
1996 and 1995 29
Statements of changes in partners' capital for the years
ended December 31, 1997, 1996 and 1995 30
Statements of cash flows for the years ended December 31, 1997,
1996 and 1995 31
Notes to financial statements 32-40
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.
REPORT OF INDEPENDENT AUDITORS
The Partners
PLM Equipment Growth Fund IV
We have audited the financial statements of PLM Equipment Growth Fund IV as
listed in the accompanying index. 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 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.
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, 1997 and 1996 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
- ------------------------------
SAN FRANCISCO, CALIFORNIA
March 12, 1998
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
1997 1996
-------------------------------------
Assets
Equipment held for operating leases, at cost $ 87,520 $ 89,766
Less accumulated depreciation (56,215) (50,784 )
-------------------------------------
31,305 38,982
Equipment held for sale -- 5,524
-------------------------------------
Net equipment 31,305 44,506
Cash and cash equivalents 3,650 2,142
Restricted cash 247 552
Accounts and note receivable, less allowance for doubtful
accounts of $3,332 in 1997 and $2,329 in 1996 954 1,477
Due from affiliate -- 357
Investments in unconsolidated special-purpose entities 9,756 9,616
Lease negotiation fees to affiliate, less accumulated
amortization of $203 in 1997 and $139 in 1996 23 86
Debt placement fees to affiliate, less accumulated
amortization of $283 in 1997 and $275 in 1996 96 133
Prepaid expenses and other assets 58 140
-------------------------------------
Total assets $ 46,089 $ 59,009
=====================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 1,511 $ 1,027
Due to affiliates 256 304
Lessee deposits and reserve for repairs 2,095 3,519
Notes payable 21,000 29,250
-------------------------------------
Total liabilities 24,862 34,100
Partners' capital:
Limited partners (8,628,420 limited partnership units
as of December 31, 1997 and 1996) 21,227 24,909
General Partner -- --
-------------------------------------
Total partners' capital 21,227 24,909
-------------------------------------
Total liabilities and partners' capital $ 46,089 $ 59,009
=====================================
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)
1997 1996 1995
-----------------------------------------------
Revenues
Lease revenue $ 12,684 $ 18,671 $ 20,475
Interest and other income 864 270 405
Net gain on disposition of equipment 2,830 3,179 530
------------------------------------------------
Total revenues 16,378 22,120 21,410
Expenses
Depreciation and amortization 7,268 9,791 12,561
Equipment operating expenses 795 2,445 2,282
Repairs and maintenance 2,219 5,639 2,822
Interest expense 2,450 3,109 3,126
Insurance expense to affiliate 70 180 256
Other insurance expense 566 622 552
Management fees to affiliate 649 895 1,064
General and administrative expenses
to affiliates 519 606 563
Other general and administrative expenses 1,669 993 717
Bad debt expense 1,027 1,628 661
Loss on revaluation of equipment -- -- 417
------------------------------------------------
Total expenses 17,232 25,908 25,021
Equity in net income (loss) of unconsolidated
special-purpose entities 2,952 (331) --
------------------------------------------------
Net income (loss) $ 2,098 $ (4,119) $ (3,611 )
================================================
Partners' share of net income (loss)
Limited partners $ 1,803 $ (4,482) $ (3,930 )
General Partner 295 363 319
------------------------------------------------
Total $ 2,098 $ (4,119) $ (3,611 )
================================================
Net income (loss) per weighted-average limited partnership
unit (8,628,420, 8,633,331, and 8,647,516 limited partnership
units in 1997, 1996, and 1995, respectively) $ 0.21 $ (0.52) $ (0.45 )
================================================
Cash distribution $ 5,780 $ 7,271 $ 6,443
================================================
Cash distribution per weighted-average limited partnership unit $ 0.64 $ 0.80 $ 0.71
================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years
ended December 31, 1997, 1996, and 1995 (in thousands of dollars)
Limited General
Partners Partner Total
-----------------------------------------------------
Partners' capital as of December 31, 1994 $ 46,776 $ -- $ 46,776
Net income (loss) (3,930 ) 319 (3,611)
Cash distribution (6,124 ) (319) (6,443)
Repurchase of limited partnership units (247 ) -- (247)
-----------------------------------------------------
Partners' capital as of December 31, 1995 36,475 -- 36,475
Net income (loss) (4,482 ) 363 (4,119)
Cash distribution (6,908 ) (363) (7,271)
Repurchase of limited partnership units (176 ) -- (176)
-----------------------------------------------------
Partners' capital as of December 31, 1996 24,909 -- 24,909
Net income 1,803 295 2,098
Cash distribution (5,485 ) (295) (5,780)
-----------------------------------------------------
Partners' capital as of December 31, 1997 $ 21,227 $ -- $ 21,227
=====================================================
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)
1997 1996 1995
-------------------------------------------------
Operating activities
Net income (loss) $ 2,098 $ (4,119 ) $ (3,611 )
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 7,268 9,791 12,561
Net gain on disposition of equipment (2,830 ) (3,179 ) (530 )
Loss on revaluation of equipment -- -- 417
Equity in net (income) loss of unconsolidated special-
purpose entities (2,952 ) 331 --
Changes in operating assets and liabilities:
Restricted cash 305 23 --
Accounts and notes receivable, net 523 2,204 (1,009 )
Due from affiliates 357 (25 ) (332 )
Prepaid expenses and other assets 82 (29 ) (21 )
Accounts payable and accrued expenses 484 624 203
Due to affiliates (48 ) (694 ) (103 )
Lessee deposits and reserve for repairs (433 ) 279 (114 )
-------------------
--------------------------------
Net cash provided by operating activities 4,854 5,206 7,461
-------------------------------------------------
Investing activities
Purchase of equipment and capital repairs (621 ) (5,542 ) (10,670 )
Equipment purchased for unconsolidated special-
purpose entity -- (4,247 ) --
Payments of acquisition fees to affiliate -- (247 ) (47 )
Payments of lease negotiation fees to affiliate -- (12 ) (11 )
Proceeds from disposition of equipment 8,493 13,065 6,239
Distribution from liquidation of unconsolidated
special-purpose entities 1,736 -- --
Distribution from unconsolidated special-purpose entities 1,076 1,680 --
-------------------------------------------------
Net cash provided by (used in) investing activities 10,684 4,697 (4,489 )
-------------------------------------------------
Financing activities
Repayment of notes payable (8,250 ) (1,550 ) --
Cash distribution paid to limited partners (5,485 ) (6,908 ) (6,124 )
Cash distribution paid to General Partner (295 ) (363 ) (319 )
Repurchase of limited partnership units -- (176 ) (247 )
-------------------------------------------------
Net cash used in financing activities (14,030 ) (8,997 ) (6,690 )
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,508 906 (3,718 )
Cash and cash equivalents at beginning of year (see Note 4) 2,142 1,236 5,629
-------------------------------------------------
Cash and cash equivalents at end of year $ 3,650 $ 2,142 $ 1,911
=================================================
Supplemental information
Interest paid $ 2,450 $ 3,159 $ 3,003
=================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 and leasing used transportation and
related equipment. The Partnership offering became effective May 23, 1989.
The Partnership commenced significant operations in September 1989. PLM
Financial Services, Inc. (FSI) is the General Partner. 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. At the
conclusion of the Partnership's sixth year of operations, on December 31,
1996, the General Partner stopped reinvesting excess cash and started
distributing any funds remaining after payment of normal operating expenses
and debt payments to the Partners. Beginning in the Partnership's ninth
year of operations, the General Partner intends to begin an orderly
liquidation of the Partnership's assets. The General Partner anticipates
that the liquidation of the assets will be completed by the end of the
Partnership's tenth year of operations.
FSI manages the affairs of the Partnership. The net income (loss) and
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 Unit, below). The General Partner is 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.
The General Partner has determined that it will not adopt a reinvestment
plan for the Partnership. 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, 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 by the Partnership
for these units will be equal to 110% of the unrecovered principal
attributable to the units. The unrecovered principal for any unit will be
equal to the excess of (a) the capital contribution attributable to the
units over (b) the distributions from any source paid with respect to the
units. As of December 31, 1997, 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 1998.
These 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 and 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, syndicates investor programs, sells equipment to
investor programs and third parties, manages pools of transportation
equipment under agreements with the investor programs, and is a General
Partner of other programs.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
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 are capitalized and amortized over the term of the lease.
Periodically, the Partnership leases equipment with lease terms that
qualify for direct finance lease classification, as required by Statement
of Financial Accounting Standards No. 13, "Accounting for Leases".
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 aircraft, trailers, marine
containers, and marine vessels. Certain aircraft are depreciated under the
double-declining balance method depreciation over the lease term.
Regardless of the depreciable life, 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. Lease negotiation fees are amortized over the initial equipment
lease term. Debt issuance costs and debt placement fees are amortized over
the term of the related loan. Organization costs were amortized over a
60-month period. Major expenditures are capitalized if they are expected to
extend the useful lives or reduce future operating expenses of equipment
and amortized over the remaining life of the equipment.
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued
statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121). This standard is
effective for years beginning after December 15, 1995. The Partnership
adopted SFAS 121 during 1995, the effect of which was not material, as the
method previously employed by the Partnership was consistent with SFAS 121.
In accordance with SFAS 121, the Partnership reviews the carrying value of
its equipment at least annually in relation to expected future market
conditions for the purpose of assessing the recoverability of the recorded
amounts. If projected future lease revenue plus residual values are less
than the carrying value of the equipment, a loss on revaluation is
recorded. The Partnership recorded a loss on revaluation of $0.4 million on
certain aircraft during 1995. No loss on revaluation was required in 1997
or 1996.
Equipment held for operating leases is stated at cost. Equipment held for
sale is stated at the lower of the equipment's depreciated cost or
estimated fair market value, less costs to sell, and is subject to a
pending contract for sale.
Investments in Unconsolidated Special-Purpose Entities (USPEs)
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 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.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are not
covered by the lessee, they are usually 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 are included in the balance sheet as
lessee deposits and reserve for repairs.
Net Income (Loss) and Distribution per Limited Partnership Unit
The net income (loss) and distributions of the Partnership are generally
allocated 95% to the limited partners and 5% to the General Partner. Gross
income in each year is specially allocated to the General Partner to the
extent, if any, necessary to cause the capital account balance of the
General Partner to be zero as of the close of such year. The limited
partners' net income (loss) and distributions are allocated 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 has participated in the
Partnership.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month and
quarterly unitholders receive a distribution check 45 days after the close
of the quarter
Cash distributions to investors in excess of net income are considered to
represent a return of capital. Cash distributions to the limited partners
of $3.7 million, $6.9 million, and $6.1 million in 1997, 1996, and 1995,
respectively, were deemed to be a return of capital.
Cash distributions of $0.8 million, $1.7 million and $1.7 million for 1997,
1996, and 1995, respectively, relating to the fourth quarter of that year,
were paid during January and February 1998, 1997, or 1996, respectively.
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 equivalents
approximates fair market value due to the short-term nature of the
investments. Lessee security deposits held by the Partnership are
considered restricted cash.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1997 and 1996 presentations.
2. General Partner and Transactions with Affiliates
FSI contributed $100 of the Partnership's initial capital. Under the
equipment management agreement, IMI 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
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. General Partner and Transactions with Affiliates (continued)
the gross lease revenues attributable to equipment, if any, that is subject
to per diem leasing arrangements and thus is operated by the Partnership.
Partnership management fees of $0.1 million and $0.3 million were payable
at December 31, 1997 and 1996, respectively. The Partnership's proportional
share of the USPE management fees of $11,000, and $8,000 were payable as of
December 31, 1997 and 1996, respectively. The Partnership's proportional
share of USPE management fees was $0.1 million and $0.2 million during 1997
and 1996, respectively. An affiliate of the General Partner is reimbursed
for administrative and data processing services directly attributable to
the Partnership, which were $0.5 million, $0.6 million, and $0.6 million
during 1997, 1996, and 1995, respectively. The Partnership's proportional
share of USPE administrative and data processing expenses was $35,000 and
$38,000 during 1997 and 1996, respectively. Debt placement fees were paid
to the General Partner in an amount equal to 1% of the Partnership's
long-term borrowings, less any costs paid to unaffiliated parties related
to obtaining the borrowing. TEC received a fee for arranging the
acquisition of equipment and negotiating the initial lease of the
equipment. The Partnership and USPEs paid or accrued lease negotiation and
equipment acquisition fees of $0.5 million and $0.2 million to TEC and WMS
in 1996 and 1995, respectively. The Partnership did not accrue lease
negotiation and equipment acquisition fees during 1997.
The Partnership paid $0.1 million, $0.2 million, and $0.3 million in 1997,
1996, and 1995, respectively, to Transportation Equipment Indemnity Company
Ltd. (TEI), which provides marine insurance coverage and other insurance
brokerage services. The Partnership's proportional share of USPE marine
insurance coverage paid to TEI was $0.1 million during 1997 and 1996. TEI
is an affiliate of the General Partner. 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 partnerships 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.
As of December 31, 1997, approximately 72% of the Partnership's trailer
equipment was in rental facilities operated by an affiliate of the General
Partner. Revenues collected under short-term rental agreements with the
rental yards' customers are credited to the owners of the related equipment
as received. 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 1997 and 1996 (see Note 4).
The balance due from affiliates as of December 31, 1996 included $0.4
million due from TEI for settlement of an insurance claim for one of the
Partnership's marine vessel that was sold in 1995. This settlement was
received by TEI in December 1996 and paid to the Partnership in 1997.
The balance due to affiliates as of December 31, 1997 includes $0.1 million
due to FSI and its affiliates for management fees and $0.1 million due to
affiliated USPEs. The balance due to affiliates as of December 31, 1996
includes $0.3 million due to FSI and its affiliates for management fees.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment
The components of equipment as of December 31, 1997 and 1996 are as follows
(in thousands of dollars):
Equipment Held for Operating Leases 1997 1996
-------------------------------------
Aircraft $ 42,734 $ 42,734
Rail equipment 14,828 14,867
Marine containers 13,384 15,498
Marine vessels 9,719 9,719
Trailers 6,855 6,948
-------------------------------------
87,520 89,766
Less accumulated depreciation (56,215) (50,784 )
----------------------------------
31,305 38,982
Equipment held for sale -- 5,524
-------------------------------------
Net equipment $ 31,305 $ 44,506
=====================================
Revenues are earned by placing the equipment under operating leases that
are billed monthly or quarterly. As of December 31, 1997, all of the
Partnership's marine containers that are on lease 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 other equipment are
based on fixed rates.
As of December 31, 1997, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for a
commercial aircraft, containers, and railcars with a net book value of $3.2
million. As of December 31, 1996, all equipment was either on lease or
operating in PLM-affiliated short-term trailer rental facilities, except
for a commuter aircraft, containers, and railcars with a net book value of
$3.9 million.
During 1997, the Partnership sold or disposed of an aircraft engine, marine
containers, railcars, and trailers, with an aggregate net book value of
$1.1 million, for proceeds of $1.6 million. The Partnership also sold a
marine vessel that was held for sale on December 31, 1996, with a net book
value of $5.5 million, for proceeds of $6.9 million. Included in the gain
of $2.3 million from the sale of the marine vessels was the unused portion
of accrued drydocking of $1.0 million.
During 1996, the Partnership sold or disposed of an aircraft, marine
containers, railcars, trailers, and a mobile offshore drilling unit, with
an aggregate net book value of $9.9 million, for proceeds of $13.1 million.
Periodically, PLM International Inc., (PLM) will purchase groups of assets
whose ownership may be allocated among affiliated programs and the
Partnership. Generally in these cases, only assets that are on lease will
be purchased by the affiliated programs. The Partnership will generally
assume the ownership and remarketing risks associated with off-lease
equipment. Allocation of the purchase price will be determined by a
combination of third-party industry sources and recent transactions or
published fair market value references. During 1996, the Partnership
realized $0.7 million of gains on the sale of 69 off-lease railcars
purchased by the Partnership as part of a group of assets in 1994 that had
been allocated to PLM Equipment Growth Fund VI (EGF VI), Equipment Growth &
Income Fund VII (EGF VII), Professional Lease Management Income Fund I,
L.L.C (Fund I), and the Partnership. These assets were included in assets
held for sale as of December 31, 1995. During 1995, the Partnership
realized $1.3 million in gains on sales of railcars and aircraft purchased
by the Partnership in 1994 and 1995 as part of a group of assets that had
been allocated to EGFs IV, V, VI, VII, Fund I, and the Partnership.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
All owned equipment on lease is being accounted for as operating leases.
Future minimum rentals receivable under noncancelable operating leases, as
of December 31, 1997, for owned and partially owned equipment during each
of the next five years, are approximately $7.1 million in 1998, $5.8
million in 1999, $3.7 million in 2000, $2.4 million in 2001, and $2.2
million in 2002 and thereafter. Contingent rentals based upon utilization
were approximately $0.9 million, $1.0 million, and $3.9 million in 1997,
1996, and 1995, respectively.
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 eight geographic
regions: Canada, the United States, the Gulf of Mexico, South Asia, South
America, Europe, Australia, and Mexico. Marine vessels and marine
containers are leased to multiple lessees in different regions who operate
the marine vessels and marine containers worldwide. For the year ended
December 31, 1997 and 1996, the Partnership accounts for proportional
interest in equipment using the equity method. The geographic information
is grouped by domicile of the lessee as of and for the years ended December
31, 1997, 1996, and 1995 (in thousands of dollars):
Region Investments in USPEs Owned Equipment
- ---------------------------- ---------------------------- ---------------------------------------------
Lease Revenues 1997 1996 1997 1996 1995
- ----------------------------------------------------------- -----------------------------------------------
United States $ -- $ -- $ 5,369 $ 5,307 $ 4,819
Canada 846 1,083 2,339 2,042 1,820
Gulf of Mexico -- -- -- 164 259
South Asia -- -- 850 2,221 2,769
South America -- -- 1,200 1,110 1,110
Europe -- -- -- -- 621
Rest of the world 1,115 1,699 2,926 7,827 9,077
-------------------------------- ---------------------------------------------
Total lease revenues $ 1,961 $ 2,782 $ 12,684 $ 18,671 $ 20,475
================================ =============================================
The following table sets forth identifiable net income (loss) information
by region for the owned equipment and investments in USPEs for the years ended
December 31, 1997, 1996, and 1995 (in thousands):
Region Investments in USPEs Owned Equipment
- ----------------------------------------------------------------- ---------------------------------------------
Net Income (Loss) 1997 1996 1997 1996 1995
- ------------------------------------------------------------------ -----------------------------------------------
United States $ -- $ -- $ 1,131 $ 832 $ 1,617
Canada 3,305 (313 ) 14 309 721
Gulf of Mexico -- -- -- 2,327 (967 )
South Asia -- -- (2,034) (2,938) 782
South America -- -- 532 328 218
Europe -- -- -- (1,676) (1,152 )
Australia -- -- -- 555 --
Mexico 618 (2 ) -- -- --
Rest of the world (971) (16 ) 2,594 356 (65 )
-------------------------------- -----------------------------------------------
Total identifiable net income 2,952 (331 ) 2,237 93 1,154
Administrative and other -- -- (3,091) (3,881) (4,765 )
-------------------------------- -----------------------------------------------
Total net income (loss) $ 2,952 $ (331 ) $ (854 ) $ (3,788 ) $ (3,611 )
================================ ===============================================
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Equipment (continued)
The net book value of these assets as of December 31, 1997, 1996, and 1995
are as follows (in thousands of dollars):
Region Investments in USPEs Owned Equipment
- -------------------------------------------------------------- ------------------------------------
Net Book Value 1997 1996 1995 1997 1996 1995
----------------------------------- -------------------------------------
United States $ -- $ -- $ -- $ 12,848 $ 12,168 $ 14,613
Canada 3,484 2,575 3,922 6,580 8,145 3,593
Gulf of Mexico -- -- -- -- -- 5,835
South Asia -- -- -- 2,989 7,273 8,826
South America -- -- -- 3,275 3,873 4,581
Europe -- -- -- -- -- 4,463
Mexico 4,008 3,876 -- -- -- --
Rest of the world 2,264 3,165 3,458 5,613 7,523 16,364
------------------------------------- -------------------------------------
9,756 9,616 7,380 31,305 38,982 58,275
Equipment held for sale -- -- -- -- 5,524 --
------------------------------------- -------------------------------------
Total net book value $ 9,756 $ 9,616 $ 7,380 $ 31,305 $ 44,506 $ 58,275
===================================== =====================================
There were no lessees that accounted for 10% or more of total revenues for
1997, 1996, and 1995.
4. Investments in Unconsolidated Special-Purpose Entities
Prior to 1996, the Partnership accounted for operating activities
associated with joint ownership of transportation equipment as undivided
interests, including its proportionate share of each asset with similar
wholly-owned assets in its financial statements. Under generally accepted
accounting principles, the effects of such activities, if material, should
be reported using the equity method of accounting. Therefore, effective
January 1, 1996, the Partnership adopted the equity method to account for
its investment in such jointly-held assets.
The principal differences between the previous accounting method and the
equity method concern the presentation of activities relating to these
assets in the statement of operations. Under the previous method, the
Partnership's income statement reflected its proportionate share of each
individual item of revenue and expense. Under the equity method of
accounting, the Partnership's proportionate share is presented as a single
net amount, equity in net income (loss) of unconsolidated special-purpose
entities. Accordingly, the effect of adopting the equity method of
accounting has no cumulative effect on previously reported partners'
capital or on the Partnership's net income (loss) for the period of
adoption. Because the effects on previously issued financial statements of
applying the equity method of accounting to investments in jointly-owned
assets are not considered to be material to such financial statements taken
as a whole, previously issued financial statements have not been restated.
However, during 1996, certain items had been reclassified in the previously
issued 1995 balance sheet to conform to the current-period presentation.
The beginning cash and cash equivalents for 1996 is different from the
ending cash and cash equivalents for 1995 on statements of cash flows due
to the reclassification.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
4. Investments in Unconsolidated Special-Purpose Entities (continued)
The net investments in USPEs include the following jointly-owned equipment
(and related assets and liabilities) as of December 31, 1997 and 1996 (in
thousands of dollars):
1997 1996
------------- --------------
35% interest in two commercial aircraft on a direct finance
lease $ 4,008 $ 3,876
17% interest in a trust from a sold commercial aircraft 3,484 --
50% interest in an entity owning a bulk carrier 2,264 3,165
17% interest in a trust owning six commercial aircraft (see note
below) -- 2,575
Net investments $ 9,756 $ 9,616
============== ==============
The Partnership had an interest in one USPE that owns multiple aircraft
(the Trust). This Trust contains provisions, under certain circumstances,
for allocating specific aircraft to the beneficial owners. During December
1997, the Partnership and an affiliated program each sold the aircraft
designated to it. The Partnership's 17% interest in the Trust owning the
commercial aircraft was sold for proceeds of $5.2 million after deducting
the net investment of $1.8 million. The Partnership received liquidating
proceeds of $1.7 million during 1997. The remaining liquidating proceeds of
$3.5 were received during January 1998.
During September 1996, PLM Equipment Growth Fund V, an affiliated program
that also has a beneficial interest in the Trust, renegotiated its senior
loan agreement and was required, for loan collateral purposes, to withdraw
the aircraft designated to it from the Trust. The result was to restate the
percentage ownership of the remaining beneficial owners of the Trust
beginning September 30, 1996, from 14% to 17%. This change had no effect on
the income or loss recognized in the period ended December 31, 1997 or
1996.
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, 1997 and 1996 (in thousands of dollars):
1997 1996
------------ ------------
Net Interest Net Interest
Total of Partnership Total of Partnership
USPEs USPEs
-------------------------------- ----------------------------------
Net Investments $ 32,310 $ 9,756 $ 33,250 $ 9,616
Lease revenues 7,995 1,961 10,623 2,782
Net income (loss) 6,819 2,952 (2,350) (331 )
5. Notes Payable
On July 1, 1990, the Partnership entered into an agreement to issue notes
totaling $33.0 million to two institutional investors. The notes accrue
interest at a rate equal to 9.75% per annum and mature July 1, 2000.
Interest on the notes is payable monthly. The outstanding principal balance
of $21.0 million is payable in annual installments of $8.2 million on July
1 of 1998 and 1999, with a final payment of $4.6 million on July 1, 2000.
The General Partner's estimates, based on recent transactions, that the
fair market value of the $21.0 million in notes is $20.9 million.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
5. Notes Payable (continued)
The agreement requires the Partnership to maintain certain financial
covenants related to fixed-charge coverage and limits additional
borrowings. The loan agreements require the Partnership to maintain certain
minimum net worth ratios based on 33 1/3% of the fair market value of
equipment plus cash and cash equivalents. Economic conditions, coupled with
the increasing age of the Partnership's equipment, resulted in decreased
market values for the Partnership's equipment which required an optional
prepayment to be made in 1996 in order to remain in compliance with the
loan covenants. As a result, the Partnership paid $1.6 million in principal
and $0.2 million in prepayment fees to remain in compliance with the net
worth ratio contained in the note agreement.
During December 1997, the General Partner amended and restated its joint
short-term credit facility (the Committed Bridge Facility). The Partnership
is no longer included as a borrower.
6. 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 accounts of the
Partnership.
As of December 31, 1997, there were temporary differences of $22.6 million
between the financial statement carrying values of certain assets and
liabilities and the federal income tax basis of such assets and
liabilities, primarily due to differences in depreciation methods and
equipment reserves and the tax treatment of underwriting commissions and
syndication costs.
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
24. Powers of Attorney 42 - 44
- --------
* Incorporated by reference. See page 24 of this report.
-27-