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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
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, 2002.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18789
_______________________
PLM EQUIPMENT GROWTH FUND IV
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3090127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
235 3RD STREET SOUTH, SUITE 200
ST. PETERSBURG, FL 33701
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (727) 803-1800
_______________________
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 21.
Total number of pages in this report: 57.
PART I
ITEM 1. BUSINESS
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(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 PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 8,750,000 limited partnership
units (including 1,250,000 option units) (the units) in PLM Equipment Growth
Fund IV, a California limited partnership (the Partnership or EGF IV). The
Partnership's offering became effective on May 23, 1989. FSI, as General
Partner, owns a 5% interest in the Partnership. The Partnership engages in the
business of investing in a diversified equipment portfolio consisting primarily
of used, long-lived, low-obsolescence capital equipment that is easily
transportable by and among prospective users.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of low-obsolescence equipment with
long lives and high residual values which were purchased with the net proceeds
of the initial partnership offering, supplemented by debt financing, and surplus
operating cash during the reinvestment phase of the Partnership;
(2) to generate sufficient net operating cash flow from lease
operations to meet liquidity requirements and to generate cash distributions to
the limited partners until such time as the General Partner commences the
orderly liquidation of the Partnership assets or unless the Partnership is
terminated earlier upon sale of all Partnership property or by certain other
events;
(3) to selectively sell equipment when the General Partner believes
that, due to market conditions, market prices for equipment exceed inherent
equipment values or that expected future benefits from continued ownership of a
particular asset will have an adverse affect on the Partnership. As the
Partnership is in the liquidation phase, proceeds from these sales, together
with excess net operating cash flows from operations, are used to pay
distributions to the partners; and
(4) to preserve and protect the value of the portfolio through quality
management, maintaining diversity, and constantly monitoring equipment markets.
The offering of the units of the Partnership closed on March 28, 1990. As of
December 31, 2002, there were 8,628,420 limited partnership units outstanding.
The General Partner contributed $100 for its 5% general partner interest in the
Partnership.
The Partnership has entered its liquidation phase and the General Partner is
actively pursuing the sale of all of the Partnership's equipment with the
intention of winding up the Partnership and distributing all available cash to
the Partners. The liquidation phase will end on December 31, 2009, unless the
Partnership is terminated earlier upon sale of all of the equipment or by
certain other events.
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio and the Partnership's proportional share of equipment
owned by an unconsolidated special-purpose entity (USPE) as of December 31, 2002
(in thousands of dollars):
TABLE 1
-------
Units. . Type Manufacturer Cost
- --------------------------------------------------------------------------------
Owned equipment held for operating leases:
267. . . Pressurized tank railcars Various $ 8,118
20 . . . Woodchip gondola railcars General Electric 478
24 . . . Nonpressurized tank railcars Various 501
4. . . . Refrigerated marine containers Various 91
81 . . Various marine containers Various 291
---------
Total owned equipment held for operating leases $ 9,479 1
=========
Equipment owned by an unconsolidated special-purpose entity:
0.35 .. Equipment on direct finance lease:
Two DC-9 stage III commercial aircraft McDonnell-Douglas $ 4,025 1,2
=========
Equipment is generally leased under operating leases for a term of one to six
years. The Partnership's marine containers are leased to operators of
utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment. Rents for all other equipment are based on fixed rates.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the financial statements).
1 Includes equipment and investments purchased with the proceeds from
capital contributions, undistributed cash flow from 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 (TEC), a wholly owned subsidiary of FSI. All equipment
was used equipment at the time of purchase.
2 Jointly owned: EGF IV and two affiliated partnerships.
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned by or invested in by the Partnership is leased
out on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than the longer-term, full payout
leases and offers lessees relative flexibility in their equipment commitment.
In addition, the rental obligation under an operating lease need not be
capitalized on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e. leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, General Electric Capital Aviation Services Corporation, and other
investments programs that lease the same types of equipment.
(D) Demand
The Partnership currently operates in the following operating segments: railcar
leasing, marine container leasing, and aircraft leasing. Each equipment leasing
segment engages in short-term to mid-term operating leases to a variety of
customers except for the Partnership's investment in two aircraft on a direct
finance lease. The Partnership's equipment and investments are primarily used
to transport materials and commodities, except for aircraft leased to passenger
air carriers.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Railcars
(a) Pressurized Tank Railcars
Pressurized tank railcars are used to transport liquefied petroleum gas (LPG)
and anhydrous ammonia (fertilizer). The North American markets for LPG include
industrial applications, residential use, electrical generation, commercial
applications, and transportation. LPG consumption is expected to grow over the
next few years as most new electricity generation capacity is expected to be gas
fired. Within any given year, consumption is particularly influenced by the
severity of winter temperatures.
Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, status of government farm subsidy programs,
amount of farming acreage and mix of crops planted, weather patterns, farming
practices, and the value of the United States (US) dollar. Population growth
and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals decreased over 2% in 2002 after a 5%
decline in 2001. Even with this further decrease in industry-wide demand, the
utilization of pressurized tank railcars across the Partnership was in the 85%
range during the year. The desirability of the railcars in the Partnership was
affected by the advancing age of this fleet and related corrosion issues on foam
insulated railcars.
(b) Woodchip Gondolas Railcars
These railcars are used to transport woodchips from sawmills to pulp mills,
where the woodchips are converted into pulp. Thus, demand for woodchip railcars
is directly related to demand for paper, paper products, particleboard, and
plywood.
(c) General Purpose (Nonpressurized) Tank Railcars
General purpose tank railcars are used to transport bulk liquid commodities and
chemicals not requiring pressurization, such as certain petroleum products,
liquefied asphalt, lubricating oils, molten sulfur, vegetable oils, and corn
syrup. The overall health of the market for these types of commodities is
closely tied to both the US and global economies, as reflected in movements in
the Gross Domestic Product, personal consumption expenditures, retail sales, and
currency exchange rates. The manufacturing, automobile, and housing sectors are
the largest consumers of chemicals. Within North America, 2002 carloadings of
the commodity group that includes chemicals and petroleum products reversed
previous declines and rose 4% after a fall of 5% during 2001. Utilization of
the Partnership's nonpressurized tank railcars has been increasing reflecting
this market condition and presently stands at about 75%.
(2) Marine Containers
Marine containers are used to transport a variety of types of cargo. They
typically travel on marine vessels but may also travel on railroads loaded on
certain types of railcars and highways loaded on a trailer.
The Partnership's fleet of dry, refrigerated and other specialized containers is
in excess of 13 years of age, and is generally no longer suitable for use in
international commerce, either due to its specific physical condition, or the
lessees' preferences for newer equipment. As individual containers are returned
from their specific lessees, they are being marketed for sale on an "as is,
where is" basis. The market for such sales is highly dependent upon the
specific location and type of container. The Partnership has continued to
experience reduced residual values on the sale of refrigerated containers
primarily due to technological obsolescence associated with this equipment's
refrigeration machinery.
(3) Commercial Aircraft
The Partnership owns 35% of two DC-9 commercial aircraft that are on a direct
finance lease. This lease has been renegotiated and the resulting incoming cash
flow has been severely reduced.
Since the terrorist events of September 11, 2001, the commercial aviation
industry has experienced significant losses that escalated with a weakened
economy. This in turn has led to the bankruptcy filing of two of the largest
airlines in the United States, and to an excess supply of commercial aircraft.
The current state of the aircraft industry, with significant excess capacity for
both new and used aircraft continues to be extremely weak, and is expected by
the General Partner to remain weak.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations, at considerable cost to the Partnership. Such
regulations include but are not limited to:
1) the US 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 US Federal Aviation Regulations, after December 31, 1999, no
person may operate an aircraft to or from any airport in the contiguous United
States unless that aircraft has been shown to comply with Stage III noise
levels. The cost to install a hushkit to meet quieter Stage III requirements is
approximately $1.5 million, depending on the type of aircraft. The Partnership
has an interest in two Stage II aircraft that do not meet Stage III
requirements. These Stage II aircraft are scheduled to be sold or re-leased in
countries that do not require this regulation;
(2) the Montreal Protocol on Substances that Deplete the Ozone Layer and the
U.S. 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 which are
used extensively as refrigerants in refrigerated marine cargo; and
(3) the US Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous materials
that apply particularly to Partnership's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test and every ten years thereafter. The Partnership currently owns 220
jacketed tank railcars and 24 non-jacketed tank railcars that will need
re-qualification. As of December 31, 2002, 27 jacketed tank railcars and 10
non-jacketed tank railcars of the fleet will need to be re-qualified in 2003 or
2004.
As of December 31, 2002, the Partnership was in compliance with the above
government regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
----------
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest in an entity that owns equipment for leasing
purposes. As of December 31, 2002, the Partnership owned a portfolio of
transportation and related equipment and an investment in equipment owned by an
USPE as described in Item 1, Table 1. The Partnership acquired equipment with
the proceeds of the Partnership offering of $174.8 million through the first
half of 1990, proceeds from the debt financing of $33.0 million, and by
reinvesting a portion of its operating cash flow in additional equipment.
The Partnership maintains its principal office at 235 3rd Street South, Suite
200, St. Petersburg, FL 33701.
ITEM 3. LEGAL PROCEEDINGS
------------------
The Partnership, together with affiliates, initiated litigation in 2000 and 2001
in various official forums in the United States and India against a defaulting
Indian airline lessee to repossess Partnership property and to recover damages
for failure to pay rent and failure to maintain such property in accordance with
relevant lease contracts. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations. In
response to the Partnership's collection efforts, the airline lessees filed
counterclaims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will defend
against such counterclaims. During 2001, the General Partner decided to
minimize its collection efforts from the Indian lessee in order to save the
Partnership from additional expenses of trying to collect from a lessee that has
no apparent ability to pay.
During 2001, an arbitration hearing was held between one Indian lessee and the
Partnership and the arbitration panel issued an award to the Partnership. The
Partnership initiated proceedings in India to collect on the arbitration award
and has recently been approached again by the lessee to discuss a negotiated
settlement of the Partnership's collection action. The General Partner did not
accrue the arbitration award in the December 31, 2002 financial statements
because the likelihood of collection of the award is remote. The General
Partner will continue to try to collect the full amount of the settlement.
During 2001, the General Partner decided to minimize its collection efforts from
the other Indian lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has no
apparent ability to pay.
The Partnership is involved as plaintiff or defendant in various legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition or results of operations of
the Partnership
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 2002.
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 5% of the profits, losses and distributions of the Partnership. The
General Partner is the sole holder of such interests. Net income is allocated
to the General Partner to the extent necessary to cause the General Partner's
capital account to equal zero. The remaining interests in the profits, losses,
and cash distributions of the Partnership are allocated to the limited partners.
As of December 31, 2002, there were 8,628 limited partners holding units in the
Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and, therefore are viewed as inefficient vehicles for the sale of
limited partnership units. Presently, there is no public market for the limited
partnership 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 limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld at its
absolute discretion. The General Partner intends to monitor transfers of
limited partnership units in an effort to ensure that they do not exceed the
percentage or number permitted by certain safe harbors promulgated by the
Internal Revenue Service. A transfer may be prohibited if the intended
transferee is not an United States citizen or if the transfer would cause any
portion of the units of a "Qualified Plan" as defined by the Employee Retirement
Income Security Act of 1974 and Independent Retirement Accounts to exceed the
limit allowable.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
-------
For the Years Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
2002 2001 2000 1999 1998
Operating results:
Total revenues . . . . . . . . . . . . $ 2,809 $ 6,816 $ 4,847 $ 14,651 $ 10,768
Gain on disposition of equipment . . . 778 3,560 316 6,646 77
Loss on disposition of equipment . . . -- (13) (13) (289) (541)
Impairment loss on equipment . . . . . 434 -- 106 -- --
Equity in net income (loss) of uncon-
solidated special-purpose entities . 120 (1,049) 673 2,224 348
Net income (loss). . . . . . . . . . . 899 3,247 897 6,408 (1,127)
At year-end:
Total assets . . . . . . . . . . . . . $ 10,772 $ 14,072 $ 12,863 $ 20,185 $ 31,250
Notes payable. . . . . . . . . . . . . -- -- -- -- 12,750
Total liabilities. . . . . . . . . . . 258 461 729 843 14,683
Cash distribution. . . . . . . . . . . . $ 3,996 $ 1,770 $ 3,564 $ 3,633 $ 3,533
Special cash distribution. . . . . . . . -- -- 4,541 -- --
-------- -------- -------- -------- ---------
Total cash distribution. . . . . . . . . $ 3,996 $ 1,770 $ 8,105 $ 3,633 $ 3,533
======== ======== ======== ======== =========
Total cash distribution representing a
return of capital to the limited
partners . . . . . . . . . . . . . . $ 3,097 $ -- $ 7,208 $ -- $ 3,351
Per weighted-average limited
partnership unit:
Net income (loss). . . . . . . . . . . . $ 0.08 1 $ 0.37 1 $ 0.06 1 $ 0.72 1 $ (0.15)1
Cash distribution. . . . . . . . . . . . $ 0.46 $ 0.19 $ 0.39 $ 0.40 $ 0.39
Special cash distribution. . . . . . . . -- -- 0.50 -- --
-------- -------- -------- -------- ---------
Total cash distribution. . . . . . . . . $ 0.46 $ 0.19 $ 0.89 $ 0.40 $ 0.39
======== ======== ======== ======== =========
Total cash distribution representing a
return of capital to the limited
partners . . . . . . . . . . . . . . $ 0.36 $ -- $ 0.84 $ -- $ 0.39
1 After the increase of income necessary to cause the General Partner's
capital account to equal zero of $0.2 million ($0.02 per weighted-average
limited partnership unit) in 2002, $0.1 million ($0.01 per weighted-average
limited partnership unit) in 2001, and after the reduction of income necessary
to cause the General Partner's capital account to equal zero of $0.4 million
($0.04 per weighted-average limited partnership unit) in 2000, $0.1 million
($0.02 per weighted-average limited partnership unit) in 1999, and $0.2 million
($0.03 per weighted-average limited partnership unit) in 1998 representing
allocations to the General Partner (see Note 1 to the financial statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund IV
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in the various segments in
which it operates and its effect on the Partnership's overall financial
condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic
Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Partnership's equipment include supply and demand for similar or
comparable types of transport capacity, desirability of the equipment in the
leasing market, market conditions for the particular industry segment in which
the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Partnership.
The Partnership experienced re-leasing or repricing activity in 2002 for its
marine container and railcar portfolios:
(a) Marine containers: All of the Partnership's marine containers are leased
to operators of utilization-type leasing pools and, as such, are highly
exposed to repricing activity. The Partnership's marine containers are in
excess of thirteen years of age and, as such, in limited demand.
(b) Railcars: This equipment experienced significant re-leasing
activity. Lease rates in this market are showing signs of weakness and this has
led to lower utilization and lower lease revenues to the Partnership as existing
leases expire and renewal leases are negotiated.
(2) Equipment Liquidations
Liquidation of Partnership equipment and of investments in unconsolidated
special-purpose entities (USPEs) represents a reduction in the size of the
equipment portfolio and may result in reduction of contribution to the
Partnership. During the year, the Partnership disposed railcars and marine
containers, for proceeds of $1.8 million.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board (FASB) Statements of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
the General Partner reviewed the carrying values of the Partnership's equipment
portfolio at least quarterly and whenever circumstances indicated that the
carrying value of an asset may not be recoverable due to expected future market
conditions. If the projected undiscounted cash flows and the fair value of the
equipment were less than the carrying value of the equipment, an impairment loss
was recorded.
During 2000, a $0.1 million impairment loss was recorded to reduce the carrying
value of owned trailer equipment to their fair value, and was included as
impairment loss in the Partnership's 2000 statement of income. The Partnership
leased owned trailer equipment to lessees domiciled in the United States
geographic region.
During 2001, a USPE owning two Stage III commercial aircraft on a direct finance
lease reduced its net investment in the finance lease receivable, due to a
series of lease amendments, to the value of the aircraft's projected
undiscounted cash flows. The Partnership's proportionate share of this
writedown, which is included in equity in net income (loss) of the USPE in the
Partnerhship's 2001 statement of income, was $1.4 million. The Partnership
leased the two aircraft to lessees domiciled in the Mexico geographic region.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144), which replaces SFAS No. 121. In
accordance with SFAS No. 144, the Partnership evaluates long-lived assets for
impairment whenever events or circumstances indicate that the carrying values of
such assets may not be recoverable. Losses for impairment are recognized when
the undiscounted cash flows estimated to be realized from a long-lived asset are
determined to be less than the carrying value of the asset and the carrying
amount of long-lived asset exceeds its fair value. The determination of fair
value for a given investment requires several considerations, including but not
limited to, income expected to be earned from the asset, estimated sales
proceeds, and holding costs excluding interest. The Partnership applied the new
rules on accounting for the impairment or disposal of long-lived assets
beginning January 1, 2002.
During the fourth quarter of 2002, the Partnership reduced the net book value of
50 tankcars in its railcar fleet to their fair value of $2000 per railcar, and
recorded a $0.4 million impairment loss. The impairment was caused by a general
recall due to a manufacturing defect allowing extensive corrosion of railcars'
internal lining. Repair of the railcars were determined to be cost prohibitive.
The fair value of railcars with this defect was determined using industry
expertise. The railcars were used to conduct trade in both the United States
and Canada. There were no reductions to the carrying values of owned equipment
in 2001. No revaluations to owned equipment were required in 2001 or to
partially owned equipment in 2002 and 2000.
(C) Financial Condition -- Capital Resources and Liquidity
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing.
No further capital contributions from the limited partners are permitted under
the terms of the Partnership's limited partnership agreement. At December 31,
2002, the Partnership had no outstanding indebtedness. The Partnership relies
on operating cash flow to meet its operating obligations and make cash
distributions to the limited partners.
For the year ended December 31, 2002, the Partnership generated $0.5 million in
operating cash to meet its operating obligations, maintain working capital
reserves and make distributions (total for the year ended December 31, 2002 of
$4.0 million) to the partners.
During the year ended December 31, 2002, the Partnership disposed of railcars
and marine containers, for aggregate proceeds of $1.8 million.
Investment in an USPE decreased $0.3 million during the year ended December 31,
2002. The decrease was due $0.4 million in distributions to the Partnership
from the USPE. This decrease was partially offset by net income of $0.1 million
from the USPE during 2002.
Accounts payable and accrued expenses decreased $0.2 million due to the decrease
in the size of the equipment portfolio.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, reserves
related to legally mandated equipment repairs and contingencies and litigation.
These estimates are based on the General Partner's historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The General Partner believes, however, that the estimates,
including those for the above-listed items, are reasonable and that actual
results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record
an impairment loss. Likewise, if the net book value of the asset was reduced by
an amount greater than the economic value has deteriorated, the Partnership may
record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: Whenever circumstances indicate an impairment
may exist, the General Partner reviews the carrying value of its equipment and
investment in an USPE to determine if the carrying value of the assets may not
be recoverable due to the current economic conditions. This requires the
General Partner to make estimates related to future cash flows from each asset
as well as the determination if the deterioration is temporary or permanent. If
these estimates or the related assumptions change in the future, the Partnership
may be required to record additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Reserves for repairs: The Partnership accrues for legally required repairs to
equipment such as engine overhauls to aircraft engines over the period prior to
the required repairs. The amount that is reserved for is based on the General
Partner's expertise in each equipment segment, the past history of such costs
for that specific piece of equipment and discussions with independent, third
party equipment brokers. If the amount reserved for is not adequate to cover
the cost of such repairs or if the repairs must be performed earlier than the
General Partner estimated, the Partnership would incur additional repair and
maintenance or equipment operating expenses.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are
disclosed if considered possible and accrued if considered probable after
consultation with outside counsel. If estimates of potential losses increase or
the related facts and circumstances change in the future, the Partnership may be
required to record additional litigation expense.
(E) Recent Accounting Pronouncements
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill and other intangible assets determined to have an indefinite useful
life from an amortization method to an impairment-only approach. Amortization
of applicable intangible assets ceased upon adoption of this statement. The
Partnership implemented SFAS No. 142 on January 1, 2002. SFAS No. 142 had no
impact on the Partnership's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" (SFAS No.
145). The provisions of SFAS No. 145 are effective for fiscal years beginning
after May 15, 2002.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146), which is based on the general
principle that a liability for a cost associated with an exit or disposal
activity should be recorded when it is incurred and initially measured at fair
value. SFAS No. 146 applies to costs associated with (1) an exit activity that
does not involve an entity newly acquired in a business combination, or (2) a
disposal activity within the scope of SFAS No. 146. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provisions of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). This interpretation requires the guarantor to
recognize a liability for the fair value of the obligation at the inception of
the guarantee. The provisions of FIN 45 will be applied on a prospective basis
to guarantees issued after December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). This interpretation clarifies existing
accounting principles related to the preparation of consolidated financial
statements when the owners of an USPE do not have the characteristics of a
controlling financial interest or when the equity at risk is not sufficient for
the entity to finance its activities without additional subordinated financial
support from others. FIN 46 requires the Partnership to evaluate all existing
arrangements to identify situations where the Partnership has a "variable
interest," commonly evidenced by a guarantee arrangement or other commitment to
provide financial support, in a "variable interest entity," commonly a thinly
capitalized entity, and further determine when such variable interest requires
the Partnership to consolidate the variable interest entitie's financial
statements with its own. The Partnership is required to perform this assessment
by September 30, 2003 and consolidate any variable interest entities for which
the Partnership will absorb a majority of the entities' expected losses or
receive a majority of the expected residual gains. The Partnership has
determined that it is not reasonably possible that it will be required to
consolidate or disclose information about a variable interest entity upon the
effective date of FIN 46.
(F) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of Partnership's Operating Results for the Years Ended
December 31, 2002 and 2001
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2002 compared to 2001. Gains or
losses from the sale of equipment, interest and other income and certain
expenses such as management fees to affiliate, depreciation, impairment loss on
equipment, general and administrative expenses, and provision for (recovery of)
bad debts relating to the operating segments (see Note 5 to the financial
statements), are not included in the owned equipment operations discussion
because they are indirect in nature and not a result of operations, but the
result of owning a portfolio of equipment. The following table presents lease
revenues less direct expenses by segment (in thousands of dollars):
For the Years
Ended December 31,
2002 2001
--------------------
Railcars. . . . . $ 1,254 $ 2,001
Marine containers 22 33
Marine vessel . . -- (27)
Aircraft. . . . . -- 23
Railcars: Railcar lease revenues and direct expenses were $1.9 million and $0.6
million, respectively, for the year ended December 31, 2002, compared to $2.6
million and $0.6 million, respectively, during the same period of 2001. Lease
revenues decreased $0.8 million during the year ended December 31, 2002 compared
to 2001 due to the disposition of railcars during 2002 and 2001.
Marine containers: Marine container lease revenues were $22,000 for the year
ended December 31, 2002, compared to $33,000 during 2001. Lease revenues
decreased $11,000 due to the disposition of marine containers during 2002 and
2001.
Marine vessel: The Marine vessel reported direct expenses of $27,000 during the
year ended December 31, 2001 related to actual expenses from a previous period
being lower than had been estimated. The Partnership's last marine vessel was
sold in 1999.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and
$0.2 million, respectively, for the year ended December 31, 2001. The
Partnership's wholly-owned aircraft was sold during 2001.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.4 million for the year ended December 31, 2002
decreased from $1.6 million for 2001. Significant variances are explained as
follows:
(i) A $0.4 million decrease in depreciation expense from 2001 levels
resulted from the disposition of equipment during 2002 and 2001;
(ii) A $0.2 million decrease in administrative expenses from 2001 levels
resulted from a decrease of $0.2 million resulting from lower allocations by PLM
Financial Services, Inc. (the General Partner) for office services and data
processing services;
(ii) A $0.4 million increase in 2002 in impairment loss resulted from the
reduction to fair value of railcars due to a general recall for a manufacturing
defect. There was no similar impairment in 2001.
(c) Interest and Other Income
Interest and other income decreased $0.3 million. A $0.2 million decrease was
due to lower cash balances on which interest income was earned. A decrease of
$0.1 million was due to the Partnership recognizing $0.1 of unused container
reserves as income in 2001. A similar event did not occur in 2002.
(d) Gain on Disposition of Owned Equipment
The gain on the disposition of owned equipment for the year ended December 31,
2002 totaled $0.8 million, and resulted from the sale of railcars and marine
containers with an aggregate net book value of $1.1 million, for proceeds of
$1.8 million. The gain on disposition of equipment for the year ended December
31, 2001 totaled $3.5 million, which resulted from the sale of aircraft, marine
containers, and railcars with an aggregate net book value of $1.9 million, for
proceeds of $5.5 million.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income or loss generated from the operation of jointly owned assets
accounted for under the equity method of accounting. These entities are single
purpose and have no debt or other financial encumbrances. The following table
presents equity in net income (loss) by equipment type (in thousands of
dollars):
For the Years
Ended December 31,
2002 2001
-------------------
Aircraft . . . . . . . . . . . . . . . . . $ 120 $ (1,014)
Marine vessel. . . . . . . . . . . . . . . -- (35)
------- -----------
Equity in net income (loss) of USPEs $ 120 $ (1,049)
======= ===========
The following USPE discussion by equipment type is based on the Partnership's
proportional share of revenues, depreciation expense, direct expenses, and
administrative expenses in the USPEs:
Aircraft: As of December 31, 2002 and 2001, the Partnership had an interest in a
trust that owns two commercial aircraft on direct finance lease. The
Partnership's share of aircraft revenues and expenses were $0.2 million and $0.1
million, respectively, for the year ended December 31, 2002, compared to $0.5
million and $1.5 million, respectively, during 2001. Revenues decreased $0.3
million due to the leases for the aircraft in the trust being renegotiated at a
lower rate. Expenses decreased $1.4 million due to a reduction to the carrying
value of the trust's two aircraft to their estimated net realizable value in
2001. A similar event did not occur during 2002.
Marine vessel: As of December 31, 2002 and 2001, the Partnership had no
remaining interest in entities that owned marine vessels. During the year ended
December 31, 2001, the Partnership's share of the entity that owned a marine
vessel reported $35,000 in operating expenses due to actual operating expenses
in 2000 being higher than previously reported.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 2002 was $0.9 million, compared to net income of $3.2 million
during 2001. The Partnership's ability to operate and liquidate assets, secure
leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the year ended December
31, 2002 is not necessarily indicative of future periods.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2001 and 2000
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2001, compared to 2000. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
2001 2000
--------------------
Railcars. . . . . $ 2,001 $ 2,202
Marine containers 33 72
Aircraft. . . . . 23 648
Trailers. . . . . -- 428
Other . . . . . . (27) --
Railcars: Railcar lease revenues and direct expenses were $2.6 million and $0.6
million, respectively, for 2001, compared to $2.9 million and $0.7 million,
respectively, during 2000. Lease revenues decreased $0.2 million due to lower
re-lease rates earned on railcars whose leases expired during 2001 and decreased
$0.1 million due to the increase in the number of railcars off-lease during 2001
compared to 2000. Direct expenses decreased $0.1 million due to fewer repairs
during the year of 2001 compared to 2000.
Marine containers: Marine container lease revenues and direct expenses were
$33,000 and $-0-, respectively, for the year ended December 31, 2001, compared
to $0.1 million and $6,000, respectively, during 2000. The decrease in marine
container contribution in the year ended December 31, 2001 compared to the same
period of 2000 was due to the sale of marine containers in 2001 and 2000.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and
$0.2 million, respectively, for 2001, compared to $0.8 million and $0.1 million,
respectively, during 2000. The decrease in aircraft contribution in 2001 was
due to the sale of the Partnership's aircraft in 2001 and 2000.
Trailers: Trailer lease revenues and direct expenses were $-0- for the year
ended December 31, 2001, compared to $0.6 million and $0.2 million,
respectively, during 2000. The decrease in trailer contribution in 2001 was due
to the sale of all of the Partnership's trailers in 2000.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.6 million for the year ended December 31, 2001
decreased from $3.5 million for the same period in 2000. Significant variances
are explained as follows:
(i) A $1.7 million decrease in depreciation expense from 2000 levels
resulted from a $1.5 million decrease due to the sale of certain assets during
2001 and 2000 and a $0.1 million decrease resulting from the use of the
double-declining balance depreciation method which results in greater
depreciation the first years an asset is owned.
(ii) A decrease of $0.3 million in general and administrative expenses
was due to lower costs of $0.2 million resulting from the sale of all the
Partnership's trailers during 2000 and lower administrative costs of $0.1
million due to the reduction of the size of the Partnership's equipment
portfolio.
(iii) Impairment loss on equipment decreased $0.1 million during 2001
compared to the same period in 2000. During 2000, the Partnership reduced the
carrying value of its trailers to their estimated net realizable value. No
impairment of owned equipment was required during 2001.
(iv) A $0.1 million decrease in management fees to affiliate resulted
from the lower levels of lease revenues on owned equipment during 2001, compared
to 2000.
(v) The $0.2 million increase in bad debt expense was due to the
collection of a $0.2 million receivable in 2000 that had previously been
reserved for as bad debts. A similar recovery did not occur in 2001.
(c) Gain on Disposition of Owned Equipment
The gain on disposition of equipment for the year ended December 31, 2001
totaled $3.5 million, which resulted from the sale of aircraft, marine
containers, and railcars with an aggregate net book value of $1.9 million, for
proceeds of $5.5 million. Included in the gain on sale are unused marine
container repair reserves of $0.1 million. The gain on disposition of equipment
in 2000 totaled $0.3 million, which resulted from the sale of railcars, trailers
and marine containers with an aggregate net book value of $1.6 million, for
proceeds of $1.9 million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income (loss) generated from the operation of jointly owned assets accounted
for under the equity method of accounting. These entities are single purpose
and have no debt or other financial encumbrances. The following table presents
equity in net income (loss) by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
-------------------
Aircraft . . . . . . . . . . . . . . . . . $ (1,014) $ 538
Marine vessel. . . . . . . . . . . . . . . (35) 135
---------- -------
Equity in net income (loss) of USPEs $ (1,049) $ 673
========== =======
The following USPE discussion by equipment type is based on the Partnership's
proportional share of revenues, depreciation expense, direct expenses, and
administrative expenses in the USPEs:
Aircraft: As of December 31, 2001 and 2000, the Partnership had an interest in a
trust that owns two commercial aircraft on direct finance lease. Aircraft
revenues and expenses were $0.5 million and $1.5 million, respectively, for the
year ended December 31, 2001, compared to $0.5 million and $(3,000),
respectively, during 2000. The increase in expenses of $1.4 million during 2001
was due to the reduction of the carrying value of the trust's two aircraft to
their estimated net realizable value. A similar event did not occur during
2000.
Marine vessel: As of December 31, 2001 and 2000, the Partnership had no
remaining interests in entities that owned marine vessels. Marine vessel
revenues and expenses were $-0- and $35,000, respectively, for the year ended
December 31, 2001 compared to $0.1 million and ($17,000), respectively, during
2000. Revenues decreased $0.1 million during the year ended December 31, 2001
due to the sale of the marine vessel entity in which the Partnership owned an
interest during 1999 from which the Partnership received $0.1 million for an
insurance claim during the year ended 2000. A similar event did not occur
during 2001. Expenses increased $52,000 in 2001 due to payment of additional
marine vessel operating expenses.
(e) Net Income
As a result of the foregoing, the Partnership's net income was $3.2 million for
the year ended December 31, 2001, compared to net income of $0.9 million during
2000. 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, 2001 is not
necessarily indicative of future periods. In the year ended December 31, 2001,
the Partnership distributed $1.7 million to the limited partners, or $0.19 per
weighted-average limited partnership unit.
(G) 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 United States 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 US
banks to cash deposits. Although these credit support mechanisms generally
allow the Partnership to maintain its lease yield, there are risks associated
with slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all
international markets and the General Partner strives to minimize this risk with
market analysis prior to committing equipment to a particular geographic area.
Refer to Note 6 to the financial statements for information on the revenues, net
income (loss), and net book value of equipment in various geographic regions.
Revenues and net operating income (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location, or sell the assets.
The Partnership's equipment on lease to US domiciled lessees consists of
railcars. During 2002, US lease revenues accounted for 29% of the lease
revenues while this region reported net income of $0.1 million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consists of railcars. During 2002, Canadian lease revenues accounted for 70% of
the total lease revenues while this region recorded net income of $0.9 million.
The Partnership's ownership share in a USPE consisted of two aircraft on a
direct finance lease to a Mexican-domiciled lessee. No lease revenues were
reported in this region while this region reported net income of $0.1 million.
The Partnership's owned equipment on lease to lessees in the rest of the world
consisted of marine containers. During 2002, lease revenues for these lessees
accounted for 1% of the total lease revenues. Net income from this region was
$0.2 million.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 2002,
2001, or 2000.
(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
The Partnership is in its liquidation phase. Given the current economic
environment and offers received for similar types of equipment owned by the
Partnership, the General Partner has determined it would not be advantageous to
sell the remaining Partnership equipment at the current time. The General
Partner will continue to monitor the equipment markets to determine an optimal
time to sell. In the meantime, equipment will continue to be leased, and
re-leased at market rates as existing leases expire. Although the General
Partner estimates that there will be distributions to the partners after final
disposal of assets and settlement of liabilities, the amounts cannot be
accurately determined prior to actual disposal of the equipment.
Sale decisions may cause the operating performance of the Partnership to decline
over the remainder of its life. The liquidation phase will end on December 31,
2009, unless the Partnership is terminated earlier upon sale of all of the
equipment or by certain other events.
Several factors may affect the Partnership's operating performance in 2003 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
Liquidation of the Partnership's equipment and its investment in a USPE will
cause a reduction in the size of the equipment portfolio and may result in a
reduction of contribution to the Partnership. Other factors affecting the
Partnership's contribution in the year 2003 include:
(1) The cost of new marine containers has been at historic lows for the past
several years, which has caused downward pressure on per diem lease rates for
this type of equipment. The Partnership's marine containers are in excess of
thirteen years of age and are no longer suitable for use in international
commerce either due to their specific physical condition or lessees, preferences
for newer equipment. Demand for these marine containers will continue to be
weak due to their age;
(2) Railcar freight loadings in the United States and Canada decreased 1%
and 3% respectively, through 2002. There has been, however, a recent increase
for some of the commodities that drive demand for those types of railcars owned
by the Partnership. It will be some time, however, before this translates into
new leasing demand by shippers since most shippers have idle railcars in their
fleets;
(3) The airline industry began to see lower passenger travel during 2001.
The events of September 11, 2001, along with a recession in the United States
have continued to adversely affect the market demand for both new and used
commercial aircraft and to significantly weaken the financial position of most
major domestic airlines. As a result of this, the Partnership has had to
renegotiate the lease on its partially owned aircraft on a direct finance lease
during 2001. The General Partner believes that there is a significant
oversupply of commercial aircraft available and that this oversupply will
continue for some time.
(4) The General Partner has seen an increase in its insurance premiums on
its equipment portfolio and is finding it more difficult to find an insurance
carrier with which to place the coverage. Premiums for aircraft have increased
over 50% and for other types of equipment the increases have been over 25%. The
increase in insurance premiums caused by the increased rate will be partially
mitigated by the reduction in the value of the Partnership's equipment portfolio
caused by the events of September 11, 2001 and other economic factors. The
General Partner has also experienced an increase in the deductible required to
obtain coverage. This may have a negative impact on the Partnership in the
event of an insurance claim.
Several other factors may affect the Partnership's operating performance in the
year 2003 and beyond, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates. The other factors affecting the Partnership's contribution in 2003
and beyond include:
(1) Repricing Risk
Certain portions of the Partnership's railcars and marine container portfolios
will be remarketed in 2003 as existing leases expire, exposing the Partnership
to considerable repricing risk/opportunity. Additionally, the Partnership
entered its liquidation phase on January 1, 1999 and has commenced an orderly
liquidation of the Partnership's assets. The General Partner intends to
re-lease or sell equipment at prevailing market rates; however, the General
Partner cannot predict these future rates with any certainty at this time and
cannot accurately assess the effect of such activity on future Partnership
performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the US and internationally, cannot be predicted with any
accuracy and preclude the General Partner from determining the impact of such
changes on Partnership operations or the sale of equipment.
The US Department of Transportation's Hazardous Materials Regulations regulates
the classification and packaging requirements of hazardous materials and apply
particularly to the Partnership's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test and every ten years thereafter. The Partnership currently owns 220
jacketed tank railcars and 24 non-jacketed tank railcars that will need
re-qualification. As of December 31, 2002, 27 jacketed tank railcars and 10
non-jacketed tank railcars of the fleet will need to be re-qualified during 2003
or 2004.
Ongoing changes in the regulatory environment, both in the United States and
internationally, cannot be predicted with accuracy, and preclude the General
Partner from determining the impact of such changes on Partnership operations or
the sale of equipment.
(3) Distributions
During the active liquidation phase, the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating obligations
and, to the extent available, make distributions to the partners. In the long
term, changing market conditions and used-equipment values preclude the General
Partner from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity. Consequently, the
General Partner cannot establish future distribution levels with any certainly
at this time.
(4) Liquidation
Liquidation of the Partnership's equipment represents a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership.
Since the Partnership has entered the active liquidation phase, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Significant asset sales may result in distributions to unitholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is that of currency risk.
During 2002, 71% of the Partnership's total lease revenues from wholly- and
jointly owned equipment came from non-United States-domiciled lessees. Most of
the Partnership's leases require payment in US currency. If these lessees'
currency devalues against the US dollar, the lessees could potentially encounter
difficulty in making the US dollar-denominated lease payment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-----------------------------------------------
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 15(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------
FINANCIAL DISCLOSURE
-----------------
(A) Disagreements with Accountants on Accounting and Financial Disclosures
None
(B) Changes in Accountants
In September 2001, the General Partner announced that the Partnership had
engaged Deloitte & Touche LLP as the Partnership's auditors and had dismissed
KPMG LLP. KPMG LLP issued an unqualified opinion on the 2000 financial
statements. During 2000 and the subsequent interim period preceding such
dismissal, there were no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
------------------------------------------------------------------
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- -------------------------------------------------------------------------------
Gary D. Engle . 53 Director, PLM Financial Services, Inc., PLM Investment
Management Inc., and PLM Transportation Equipment Corp.
James A. Coyne 42 Director, Secretary and President, PLM Financial
Services, Inc. and PLM Investment Management, Inc.,
Director and Secretary, PLM Transportation Equipment Corp.
Richard K Brock 40 Director and Chief Financial Officer, PLM Financial
Services Inc., PLM Investment Management, Inc. and PLM
Transportation Equipment Corp.
Gary D. Engle was appointed a Director of PLM Financial Services, Inc. in
January 2002. He was appointed a director of PLM International, Inc. in
February 2001. He is a director and President of MILPI Holdings, LLC ("MILPI").
Since November 1997, Mr. Engle has been Chairman and Chief Executive Officer of
Semele Group Inc. ("Semele"), a publicly traded company. Mr. Engle is President
and Chief Executive Officer of Equis Financial Group ("EFG"), which he joined in
1990 as Executive Vice President. Mr. Engle purchased a controlling interest in
EFG in December 1994. He is also President of AFG Realty, Inc.
James A. Coyne was appointed President of PLM Financial Services, Inc. in August
2002. He was appointed a Director and Secretary of PLM Financial Services, Inc.
in April 2001. He was appointed a director of PLM International, Inc. in
February 2001. He is a director, Vice President and Secretary of MILPI. Mr.
Coyne has been a director, President and Chief Operating Officer of Semele since
1997. Mr. Coyne is Executive Vice President of Equis Corporation, the general
partner of EFG. Mr. Coyne joined EFG in 1989, remained until 1993, and rejoined
in November 1994.
Richard K Brock was appointed a Director and Chief Financial Officer of PLM
Financial Services, Inc. in August 2002. From June 2001 through August 2002,
Mr. Brock was a consultant to various leasing companies including PLM Financial
Services, Inc. From October 2000 through June 2001, Mr. Brock was a Director of
PLM Financial Services, Inc. Mr. Brock was appointed Vice President and Chief
Financial Officer of PLM International, Inc. and PLM Financial Services, Inc. in
January 2000, having served as Acting Chief Financial Officer since June 1999
and as Vice President and Corporate Controller of PLM International, Inc. and
PLM Financial Services, Inc. since June 1997. Prior to June 1997, Mr. Brock
served as an accounting manager at PLM Financial Services, Inc. beginning in
September 1991 and as Director of Planning and General Accounting beginning in
February 1994.
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 Financial Services, Inc., PLM
Transportation Equipment Corp., or PLM Investment Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
-----------------------
The Partnership has no directors, officers, or employees. The Partnership has
no pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the profits and
losses (subject to certain allocations of income) and distributions of the
Partnership. As of December 31, 2002, no investor was known by the General
Partner to beneficially own more than 5% of the limited partnership units of the
Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive officer or
director of the General Partner and its affiliates own any limited partnership
units of the Partnership as of December 31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------
Transactions with Management and Others
During 2002, management fees to IMI were $0.1 million. During 2002, the
Partnership reimbursed FSI or its affiliates $0.1 million for administrative
services and data processing expenses performed on behalf of the Partnership.
During 2002, the USPE, partially owned by the Partnership, paid FSI or its
affiliates $2,000 for administrative and data processing services. Management
fees of $8,000 were paid by the USPE in 2002.
The balance due to affiliates as of December 31, 2002 and 2001 was $0.2 million.
The balance included $14,000 and $21,000 due to FSI and its affiliates for
management fees for 2002 and 2001, respectively, and $0.1 million due to UPSEs
for 2002 and 2001.
ITEM 14. CONTROLS AND PROCEDURES
-------------------------
Based on their evaluation as of a date within 90 days of the filing of this Form
10-K, the Partnership's principal Executive Officer and Chief Financial Officer
have concluded that the Partnership's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Partnership files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. There
have been no significant changes in the Partnership's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of their evaluation.
PART IV
ITEM 15. 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.
2. Financial Statements required under Regulation S-X Rule 3-09
The following financial statements are filed as exhibits of this Annual Report
on Form 10-K:
a. Aero California Trust (A Trust)
(B) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules have been omitted, as the required
information is not pertinent to the registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Registrant, incorporated by reference to
the Partnership's Registration Statement on Form S-1 (Reg. No. 33-27746), which
became effective with the Securities and Exchange Commission on May 23, 1989.
10.1 Management Agreement between Partnership and PLM Investment Management,
Inc., incorporated by reference to the Partnership's Registration Statement on
Form S-1 (Reg. No. 33-27746), which became effective with the Securities and
Exchange Commission on May 23, 1989.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Aero California Trust.
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund IV.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this annual report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
(Principal Executive Officer)
CONTROL CERTIFICATION
- ---------------------
I, Richard K Brock, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund IV.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this annual report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
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.
Dated: March 26, 2003 PLM EQUIPMENT GROWTH FUND IV
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ James A. Coyne
---------------------
James A. Coyne
President
By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
CERTIFICATION
The undersigned hereby certifies, in their capacity as an officer of the General
Partner of PLM Equipment Growth Fund IV (the Partnership), that the Annual
Report of the Partnership on Form 10-K for the year ended December 31, 2002,
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that the information contained in such report fairly presents,
in all material respects, the financial condition of the Partnership at the end
of such period and the results of operations of the Partnership for such period.
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
- ---- -------- ----
/s/ Gary D. Engle_________
- -----------------------------
Gary D. Engle Director, FSI March 26, 2003
/s/ James A. Coyne_______
- ----------------------------
James A. Coyne Director, FSI March 26, 2003
/s/ Richard K Brock______
- ----------------------
Richard K Brock Director, FSI March 26, 2003
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
(Item 15(a))
Page
----
Independent auditors' reports ----
Balance sheets as of December 31, 2002 and 2001 --
Statements of income for the years ended
December 31, 2002, 2001, and 2000 --
Statements of changes in partners' capital for the years
ended December 31, 2002, 2001, and 2000 --
Statements of cash flows for the years ended
December 31, 2002, 2001, and 2000 --
Notes to financial statements -----
Independent auditors' reports on financial statement schedule ----
Schedule II valuation and qualifying accounts --
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund IV:
We have audited the accompanying balance sheets of PLM Equipment Growth Fund IV
(the "Partnership"), as of December 31, 2002 and 2001, and the related
statements of income, changes in partners' capital, and cash flows for the years
then ended. 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 auditing standards generally accepted
in the United States of America. 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 provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 2002 and
2001, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
As described in Note 1 to the financial statements, the Partnership, in
accordance with the limited partnership agreement, entered its liquidation phase
on January 1, 1999 and has commenced an orderly liquidation of the Partnership
assets. The Partnership will terminate on December 31, 2009, unless terminated
earlier upon sale of all equipment or by certain other events. The General
Partner anticipates that the liquidation of Partnership assets will be completed
by the end of the year 2006.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund IV:
We have audited the accompanying statements of income, changes in partners'
capital and cash flows of PLM Equipment Growth Fund IV ("the Partnership") for
the year ended December 31, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of PLM Equipment
Growth Fund IV for the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 2, 2001
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
2002 2001
-------------------
ASSETS
Equipment held for operating leases, at cost . . . . . $ 9,479 $ 15,811
Less accumulated depreciation. . . . . . . . . . . . . (7,351) (11,918)
-------- ---------
Net equipment. . . . . . . . . . . . . . . . . . . 2,128 3,893
Cash and cash equivalents. . . . . . . . . . . . . . . 7,599 8,879
Accounts receivable, less allowance for doubtful
accounts of $20 in 2002 and $45 in 2001. . . . . . 94 82
Investment in unconsolidated special-purpose entity. . 896 1,197
Prepaid expenses and other assets. . . . . . . . . . . 55 21
-------- ---------
Total assets . . . . . . . . . . . . . . . . . . $10,772 $ 14,072
======== =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses. . . . . . . . . $ 84 $ 289
Due to affiliates. . . . . . . . . . . . . . . . . . . 161 168
Lessee deposits and reserve for repairs. . . . . . . . 13 4
-------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . 258 461
-------- ---------
Commitments and contingencies
Partners' capital
Limited partners (8,628,420 limited partnership units
as of December 31, 2002 and 2001). . . . . . . . . 10,514 13,611
General Partner. . . . . . . . . . . . . . . . . . . . -- --
-------- ---------
Total partners' capital. . . . . . . . . . . . . . . 10,514 13,611
-------- ---------
Total liabilities and partners' capital. . . . . $10,772 $ 14,072
======== =========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars except weighted-average unit amounts)
2002 2001 2000
--------------------------
REVENUES
Lease revenue . . . . . . . . . . . . . . . . . . $1,883 $ 2,837 $4,385
Interest and other income . . . . . . . . . . . . 148 432 159
Gain on disposition of equipment. . . . . . . . . 778 3,560 316
Loss on disposition of equipment. . . . . . . . . -- (13) (13)
------- -------- -------
Total revenues. . . . . . . . . . . . . . . . . 2,809 6,816 4,847
------- -------- -------
EXPENSES
Depreciation. . . . . . . . . . . . . . . . . . . 280 663 2,320
Repairs and maintenance . . . . . . . . . . . . . 589 753 982
Equipment operating expenses. . . . . . . . . . . -- 28 34
Insurance expenses. . . . . . . . . . . . . . . . 82 135 85
Management fees to affiliate. . . . . . . . . . . 136 187 274
General and administrative expenses to affiliates 93 241 395
Other general and administrative expenses . . . . 441 472 609
(Recovery of) provision for bad debts . . . . . . (25) 41 (182)
Impairment loss on equipment. . . . . . . . . . . 434 -- 106
------- -------- -------
Total expenses. . . . . . . . . . . . . . . 2,030 2,520 4,623
------- -------- -------
Equity in net income (loss) of unconsolidated
special-purpose entities. . . . . . . . . . . 120 (1,049) 673
------- -------- -------
Net income. . . . . . . . . . . . . . . . . $ 899 $ 3,247 $ 897
======= ======== =======
PARTNERS' SHARE OF NET INCOME
Limited partners. . . . . . . . . . . . . . . . . $ 699 $ 3,157 $ 492
General Partner . . . . . . . . . . . . . . . . . 200 90 405
------- -------- -------
Total . . . . . . . . . . . . . . . . . . . $ 899 $ 3,247 $ 897
======= ======== =======
Limited partners' net income per weighted-average
limited partnership unit. . . . . . . . . . . . $ 0.08 $ 0.37 $ 0.06
======= ======== =======
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, 2002, 2001, AND 2000
(in thousands of dollars)
Limited General
Partners Partner Total
-------------------------------
Partners' capital as of December 31, 1999 $ 19,342 $ -- $19,342
Net income. . . . . . . . . . . . . . . . . 492 405 897
Cash distribution . . . . . . . . . . . . . (3,386) (178) (3,564)
Special cash distribution . . . . . . . . . (4,314) (227) (4,541)
---------- --------- --------
Partners' capital as of December 31, 2000 12,134 -- 12,134
Net income. . . . . . . . . . . . . . . . . 3,157 90 3,247
Cash distribution . . . . . . . . . . . . . (1,680) (90) (1,770)
---------- --------- --------
Partners' capital as of December 31, 2001 13,611 -- 13,611
Net income. . . . . . . . . . . . . . . . . 699 200 899
Cash distribution . . . . . . . . . . . . . (3,796) (200) (3,996)
---------- --------- --------
Partners' capital as of December 31, 2002 $ 10,514 $ -- $10,514
========== ========= ========
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)
2002 2001 2000
----------------------------
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 899 $ 3,247 $ 897
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . 280 663 2,320
Net gain on disposition of equipment. . . . . . . . . . (778) (3,547) (303)
Impairment loss on equipment. . . . . . . . . . . . . . 434 -- 106
Equity in net (income) loss of unconsolidated special-
purpose entities. . . . . . . . . . . . . . . . . . . (120) 1,049 (673)
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . . . (12) 90 269
Prepaid expenses and other assets . . . . . . . . . . (34) 16 11
Accounts payable and accrued expenses . . . . . . . . (205) 103 (106)
Due to affiliates . . . . . . . . . . . . . . . . . . (7) (6) (37)
Lessee deposits and reserve for repairs . . . . . . . 9 (305) 29
-------- -------- --------
Net cash provided by operating activities . . . . . 466 1,310 2,513
-------- -------- --------
INVESTING ACTIVITIES
Restricted cash . . . . . . . . . . . . . . . . . . . . . -- 272 (125)
Purchase of capital repairs . . . . . . . . . . . . . . . (1) (1) (7)
Proceeds from disposition of equipment. . . . . . . . . . 1,830 5,429 1,934
Distribution from unconsolidated special-purpose entities 421 897 945
-------- -------- --------
Net cash provided by investing activities . . . . . 2,250 6,597 2,747
-------- -------- --------
FINANCING ACTIVITIES
Cash distribution paid to limited partners. . . . . . . . (3,796) (1,680) (7,700)
Cash distribution paid to General Partner . . . . . . . . (200) (90) (405)
-------- -------- --------
Net cash used in financing activities . . . . . . . (3,996) (1,770) (8,105)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents. . . (1,280) 6,137 (2,845)
Cash and cash equivalents at beginning of year. . . . . . 8,879 2,742 5,587
-------- -------- --------
Cash and cash equivalents at end of year. . . . . . . . . $ 7,599 $ 8,879 $ 2,742
======== ======== ========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
-----------------------
Organization
- ------------
PLM Equipment Growth Fund IV, a California limited partnership (the
Partnership), was formed on March 25, 1989. The Partnership engages primarily
in the business of owning, leasing, or otherwise investing in predominately used
transportation and related equipment. The Partnership commenced significant
operations in September 1989. PLM Financial Services, Inc. (FSI) is the General
Partner of the Partnership. FSI is a wholly owned subsidiary of PLM
International, Inc. (PLM International).
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 1999, and has commenced an orderly
liquidation of the Partnership's assets (see Note 9). The Partnership will
terminate on December 31, 2009, unless terminated earlier upon sale of all
equipment or by certain other events. The General Partner may no longer
reinvest cash flows and surplus funds in equipment. All future cash flows and
surplus funds after payment of operating expenses, if any, are to be used for
distributions to partners, except to the extent used to maintain reasonable
reserves. During the liquidation phase, the Partnership's assets will continue
to be recorded at the lower of the carrying amount or fair value less cost to
sell.
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner (see Net Income and Distributions per Limited Partnership Unit,
below). Net income is allocated to the General Partner to the extent necessary
to cause the General Partner's capital account to equal zero. The General
Partner is also entitled to a subordinated incentive fee equal to 7.5% of
surplus distributions, as defined in the limited partnership agreement,
remaining after the limited partners have received a certain minimum rate of
return. The General Partner does not anticipate that this fee will be earned.
Estimates
- ---------
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America. This requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Operations
- ----------
The equipment of the Partnership is managed, under a continuing management
agreement by PLM Investment Management, Inc. (IMI), a wholly owned subsidiary of
FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of equipment
under agreements with the investor programs, and is a general partner of other
programs.
Accounting for Leases
- -----------------------
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the lessor records the leased
asset at cost and depreciates the leased asset over its estimated useful life.
Rental payments are recorded as revenue over the lease term as earned in
accordance with Statement of Financial Accounting Standards (SFAS) No. 13,
"Accounting for Leases" (SFAS No. 13). 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 SFAS No. 13.
Depreciation
- ------------
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
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
Depreciation
- ------------
useful lives of 15 years for railcars and 12 years for other types of equipment.
The depreciation method changes to straight-line when the annual depreciation
expense using the straight-line method exceeds that calculated by the
double-declining balance method. Acquisition fees have been capitalized as part
of the cost of the equipment. Major expenditures that are expected to extend
the useful lives or reduce future operating expenses of equipment are
capitalized and amortized over the estimated remaining life of the equipment.
Equipment
- ---------
Equipment held for operating leases is stated at cost.
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of," (SFAS No. 121), the General
Partner reviewed the carrying value of the Partnership's equipment portfolio at
least quarterly and whenever circumstances indicated that the carrying value of
an asset may not be recoverable due to expected future market conditions. If
the projected undiscounted cash flows and the fair value of the equipment were
less than the carrying value of the equipment, an impairment loss was recorded.
During 2000, a $0.1 million impairment loss was recorded to reduce the carrying
value of owned trailer equipment to their fair value, and was included as
impairment loss in the 2000 statement of income. The Partnership leased owned
trailer equipment to lessees domiciled in the United States geographic region.
During 2001, a unconsolidated special-purpose entity (USPE) trust owning two
Stage III commercial aircraft on a direct finance lease reduced its net
investment in the finance lease receivable, due to a series of lease amendments,
to the value of the aircraft's projected undiscounted cash flows. The
Partnership's proportionate share of this writedown, which is included in equity
in net income (loss) of the USPE in the accompanying 2001 statement of income,
was $1.4 million. The Partnership leased the two aircraft to lessees domiciled
in the Mexico geographic region.
In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
144), which replaces SFAS No. 121. In accordance with SFAS No. 144, the Company
evaluates long-lived assets for impairment whenever events or circumstances
indicate that the carrying values of such assets may not be recoverable. Losses
for impairment are recognized when the undiscounted cash flows estimated to be
realized from a long-lived asset are determined to be less than the carrying
value of the asset and the carrying amount of long-lived asset exceeds its fair
value. The determination of fair value for a given investment requires several
considerations, including but not limited to, income expected to be earned from
the asset, estimated sales proceeds, and holding costs excluding interest. The
Partnership applied the new rules on accounting for the impairment or disposal
of long-lived assets beginning January 1, 2002.
During the fourth quarter of 2002, the Partnership reduced the net book value of
50 tankcars in its railcar fleet to their fair value of $2,000 per railcar, and
recorded a $0.4 million impairment loss. The impairment was caused by a general
recall due to a manufacturing defect allowing extensive corrosion of railcars'
internal lining. Repair of the railcars were determined to be cost prohibitive.
The fair value of railcars with this defect was determined using industry
expertise. The railcars were used to conduct trade in both the United States
and Canada.
Investment in an Unconsolidated Special-Purpose Entity
- -----------------------------------------------------------
The Partnership has an interest in an USPE that owns two aircraft. This is a
single purpose entity that does not have any debt. This interest is accounted
for using the equity method. The Partnership's investment in the USPE includes
acquisition and lease negotiation fees paid by the Partnership to PLM Worldwide
Management Services (WMS), a wholly owned subsidiary of PLM
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
International. The Partnership's interest in the USPE is managed by IMI. The
Partnership's equity interest in the net income (loss) of the USPE is reflected
net of management fees paid or payable to IMI and the amortization of
acquisition and lease negotiation fees paid to WMS.
Repairs and Maintenance
- -------------------------
Repairs and maintenance costs to railcars are usually the obligation of the
Partnership. Maintenance costs for the marine containers are the obligation of
the lessee. To meet the repair requirements of certain marine containers,
reserve accounts are prefunded by the lessee. If an asset is sold and there is
a balance in the reserve account for repairs to that asset, the balance in the
reserve account is reclassified as additional gain on disposition. During 2001,
the General Partner determined that there would be no future repairs made to
certain marine containers and reclassified the remaining balance of $0.1 million
in marine container repair reserves to interest and other income on the
accompanying statement of income.
Net Income and Distributions per Limited Partnership Unit
- ----------------------------------------------------------------
Cash distributions are allocated 95% to the limited partners and 5% to the
General Partner and may include amounts in excess of net income. The limited
partners' net income is allocated among the limited partners based on the number
of limited partnership units owned by each limited partner and on the number of
days of the year each limited partner is in the Partnership. During 2002, the
General Partner received a special income allocation of $0.1 million to bring
its capital account to zero. During 2001 the General Partner received a special
loss allocation of $0.2 million, and during 2000 the General Partner received a
special income allocation of $0.4 million to bring its capital account to zero.
Cash distributions are recorded when declared. Cash distributions are generally
paid in the same quarter they are declared. For the years ended December 31,
2002, 2001 and 2000, cash distributions totaled $4.0 million, $1.8 million and
$3.6 million, respectively, or $0.44, $0.19 and $0.39 per weight-average limited
partnership unit, respectively.
The Partnership declared and paid a special distribution of $4.3 million during
2000 to the Limited Partners, or $0.50 per weight-average limited partnership
unit. No special distributions were declared during 2002 or 2001.
Cash distributions related to the fourth quarter 2002 of $-0-, 2001 of $4.0
million and 2000 of $0.9 million, were declared and paid during the first
quarter of 2003, 2002, and 2001, respectively.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $7.2 million in 2000
were deemed to be a return of capital. None of the cash distributions during
2002 or 2001 were deemed a return of capital.
Net Income Per Weighted-Average Limited Partnership Unit
- --------------------------------------------------------------
Net income per weighted-average limited partnership unit was computed by
dividing net income attributable to limited partners by the weighted-average
number of limited partnership units deemed outstanding during the period. The
weighted-average number of limited partnership units deemed outstanding during
the years ended December 31, 2002, 2001, and 2000 was 8,628,420.
Cash and Cash Equivalents
- ----------------------------
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
value due to the short-term nature of the investments.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
------------------------------------
Comprehensive Income
- ---------------------
The Partnership's comprehensive income was equal to net income for the years
ended December 31, 2002, 2001, and 2000.
New Accounting Standards
- --------------------------
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146), which is based on the general
principle that a liability for a cost associated with an exit or disposal
activity should be recorded when it is incurred and initially measured at fair
value. SFAS No. 146 applies to costs associated with (1) an exit activity that
does not involve an entity newly acquired in a business combination, or (2) a
disposal activity within the scope of SFAS No. 146. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provision of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). This interpretation requires the guarantor to
recognize a liability for the fair value of the obligation at the inception of
the guarantee. The provisions of FIN 45 will be applied on a prospective basis
to guarantees issued after December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). This interpretation clarifies existing
accounting principles related to the preparation of consolidated financial
statements when the owners of an USPE do not have the characteristics of a
controlling financial interest or when the equity at risk is not sufficient for
the entity to finance its activities without additional subordinated financial
support from others. FIN 46 requires the Partnership to evaluate all existing
arrangements to identify situations where the Partnership has a "variable
interest," commonly evidenced by a guarantee arrangement or other commitment to
provide financial support, in a "variable interest entity," commonly a thinly
capitalized entity, and further determine when such variable interest requires
the Partnership to consolidate the variable interest entities' financial
statements with its own. The Partnership is required to perform this assessment
by September 30, 2003 and consolidate any variable interest entities for which
the Partnership will absorb a majority of the entities' expected losses or
receive a majority of the expected residual gains. The Partnership has
determined that it is not reasonably possible that it will be required to
consolidate or disclose information about a variable interest entity upon the
effective date of FIN 46.
2. Transactions with General Partner and Affiliates
-----------------------------------------------------
An officer of 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 a USPE
equal to the lesser of (i) 5% of the Gross Revenues (as defined in the
agreement) or (ii) 2% of the gross lease revenues attributable to equipment that
is subject to full payout net leases, and (iii) 7% of the gross lease revenues
attributable to equipment for which IMI provides both management and additional
services relating to the continued and active operation of program equipment,
such as on-going marketing and re-leasing of equipment, hiring or arranging for
the hiring of crew or operating personnel for equipment, and similar services.
The Partnership management fee in 2002, 2001 and 2000 was based on lease revenue
and was $0.1 million, $0.2 million and $0.3 million, respectively. The
Partnership reimbursed FSI and its affiliates $0.1 million, $0.2 million and
$0.4 million in 2002, 2001, and 2000, respectively, for data processing expenses
and administrative services performed on behalf of the Partnership. The
Partnership's proportional share of USPE's administrative and data processing
expenses reimbursed to FSI were $2,000, $15,000, and $17,000 during 2002, 2001,
and 2000,
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
2. Transactions with General Partner and Affiliates (continued)
------------------------------------------------------------------
respectively. These affiliated expenses reduced the Partnership's share of
equity in net income (loss) of the USPEs.
The balance due to affiliates as of December 31, 2002 and 2001 includes $14,000
and $21,000, respectively, due to FSI and its affiliates for management fees and
$0.1 million due to an affiliated USPE for 2002 and 2001.
3. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment as of December 31 are as follows (in thousands of dollars):
Equipment held for operating leases 2002 2001
- --------------------------------------------------------
Railcars. . . . . . . . . . . . . . $ 9,099 $ 13,239
Marine containers . . . . . . . . . 380 2,572
-------- ---------
9,479 15,811
Less accumulated depreciation . . . (7,351) (11,918)
-------- ---------
Net equipment . . . . . . . . . . $ 2,128 $ 3,893
======== =========
Revenues are earned by placing equipment under operating leases. The
Partnership's marine containers are leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues received by the Partnership consisted of a specified
percentage of revenues generated by leasing the equipment to sublessees, after
deducting certain direct operating expenses of the pooled equipment. Rents for
railcars are based on a fixed rate.
As of December 31, 2002, all owned equipment in the Partnership portfolio was on
lease, except for 75 railcars with an aggregate net book value of $0.3 million.
As of December 31, 2001, all equipment in the Partnership portfolio was on lease
except for 47 railcars with an aggregate net book value of $0.3 million.
During 2002, the General Partner disposed of railcars and marine containers
owned by the Partnership, with an aggregate net book value of $1.1 million, for
proceeds of $1.8 million. During 2001, the General Partner disposed of
aircraft, marine containers, and railcars with an aggregate net book value of
$1.9 million, for proceeds of $5.5 million. Included in the gain on sale are
unused marine container repair reserves of $0.1 million.
During the fourth quarter of 2002, the Partnership reduced the net book value of
50 tankcars in its railcar fleet to their estimated fair value of $2,000 per
railcar, and recorded a $0.4 million impairment loss. The impairment was caused
by a general recall due to a manufacturing defect allowing extensive corrosion
of railcars' internal lining. Repair of the railcars were determined to be cost
prohibitive. The fair value of railcars with this defect was determined using
industry expertise. The railcars were used to conduct trade in both the United
States and Canada.
There were no reductions to the carrying values of owned equipment in 2001. A
$0.1 million impairment loss on the carrying value of owned trailer equipment
was recorded during 2000.
All owned equipment on lease is being accounted for as operating leases. Future
minimum rents under noncancelable operating leases as of December 31, 2002
during each of the next five years are $1.7 million in 2003; $1.3 million in
2004; $0.4 million in 2005; $0.3 million in 2006; and $0.1 million in 2007. Per
diem and short-term rentals consisting of utilization rate lease payments
included in revenue amounted to approximately $22,000, $33,000, and $0.7 million
in 2002, 2001, and 2000, respectively.
4. Investment in Unconsolidated Special-Purpose Entities
---------------------------------------------------------
The Partnership owns equipment jointly with affiliated programs. These are
single purpose entities that do not have any debt or other financial
encumbrances.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
4. Investment in Unconsolidated Special-Purpose Entities
---------------------------------------------------------
Ownership interest is based on the Partnership's contribution towards the cost
of the equipment in the USPEs. The Partnership's proportional share of equity
in income (loss) in each entity is not necessarily the same as its ownership
interest. The primary reason for this difference has to do with certain fees
such as management, acquisition and lease negotiation fees which vary among the
owners of the USPEs.
The table below sets forth 100% of the assets, liabilities, and equity of the
Aero California Trust that owns two stage III commercial aircraft on a direct
finance lease in which the Partnership has a 35% interest and the Partnership's
proportional share of equity in the entity as of December 31, 2002 and 2001 (in
thousands of dollars):
2002 2001
--------------
Assets
Receivables . . . . . . . . . . . . . . $ 420 420
Finance lease receivable. . . . . . . . 2,425 3,234
Other assets. . . . . . . . . . . . . . 137 225
------ ------
Total assets. . . . . . . . . . . . . $2,982 $3,879
====== ======
Liabilities
Due to affiliates . . . . . . . . . . . $ 3 $ 39
Lessee deposits and reserve for repairs 420 420
------ ------
Total liabilities . . . . . . . . . . 423 459
------ ------
Equity. . . . . . . . . . . . . . . . . . 2,559 3,420
------ ------
Total liabilities and equity. . . . . $2,982 $3,879
====== ======
Partnership's share of equity . . . . . . $ 896 $1,197
====== ======
The tables below sets forth 100% of the revenues, direct and indirect expenses,
and net income (loss) of the Aero California Trust and the Montgomery
Partnership, an entity that owned a marine vessel, in which the Partnership had
a 50% interest, and the Partnership's proportional share of income (loss) in
each entity for the years ended December 31, 2002, 2001 and 2000 (in thousands
of dollars):
Aero Aero
California California Montgomery
Trust Trust Partnership
For the years ended December 31, 2002 2001 Total
- -------------------------------------------------------------------------------------------
Revenues . . . . . . . . . . . . . . . $ 496 $ 1,336 $ --
Less: Direct expenses. . . . . . . . . 24 16 68
Indirect expenses. . . . . . 129 149 --
Loss on revaluation. . . . . -- 4,069 --
----------- ------------ -------------
Net income (loss). . . . . . . . . . $ 343 $ (2,898) (68)
=========== ============ =============
Partnership's share of net income (loss) $ 120 $ (1,014) (35)1 $(1,049)
=========== ============ ============= ========
Aero
California Montgomery
For the year ended December 31, 2000 Trust Partnership Total
- --------------------------------------------------------------------------
Revenues . . . . . . . . . . . . . $ 1,528 $ 237
Less: Direct expenses . . . . . . 19 (61)
Indirect expenses . . . 158 27
----------- -------------
Net income . . . . . . . . . . . $ 1,351 271
=========== =============
Partnership's share of net income. . $ 538 135 1 $ 673
=========== ============= =======
As of December 31, 2002 and 2001, the jointly owned equipment in the
Partnership's USPE portfolio was on lease.
1 During 1999, the Partnership sold its 50% interest in the Montgomery
Partnership that owned a bulk carrier. During 2000 the Partnership received an
insurance settlement and during 2000 and 2001 additional expenses related to
2000 and 1999 were received.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments
-------------------
The Partnership operates or operated in five primary operating segments:
aircraft leasing, marine container leasing, marine vessel leasing, trailer
leasing, and railcar leasing. Each equipment leasing segment engages in
short-term to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of certain general and administrative
expenses and certain other expenses. The segments are managed separately due to
different business strategies for each operation. The accounting policies of
the Partnership's operating segments are the same as described in Note 1, Basis
of Presentation. There were no intersegment revenues for the years ended
December 31, 2002, 2001 and 2000.
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine
Aircraft Container Railcar
For the Year Ended December 31, 2002 Leasing Leasing Leasing Other 1 Total
- ----------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ -- $ 22 $ 1,861 $ -- $ 1,883
Interest and other income. . . . . . . -- -- 28 120 148
Gain on disposition of equipment . . . -- 172 606 -- 778
--------- ---------- --------- --------- --------
Total revenues. . . . . . . . . . . -- 194 2,495 120 2,809
--------- ---------- --------- --------- --------
EXPENSES
Operations support . . . . . . . . . . -- -- 607 64 671
Depreciation . . . . . . . . . . . . . -- 26 254 -- 280
Management fees to affiliate . . . . . -- 2 134 -- 136
General and administrative expenses. . -- -- 119 415 534
(Recovery of) provision for bad debts. -- -- (26) 1 (25)
Impairment loss on equipment . . . . . -- -- 434 -- 434
--------- ---------- --------- --------- --------
Total expenses. . . . . . . . . . . -- 28 1,522 480 2,030
--------- ---------- --------- --------- --------
Equity in net income of USPE . . . . . . 120 -- -- -- 120
--------- ---------- --------- --------- --------
Net income (loss). . . . . . . . . . . . $ 120 $ 166 $ 973 $ (360) $ 899
========= ========== ========= ========= ========
Total assets as of Dcember 31, 2002. . . $ 896 $ 12 $ 2,210 $ 7,654 $10,772
========= ========== ========= ========= ========
1 Includes certain assets not identifiable to a specific segment such as cash
and prepaid expenses. Also includes net gain from trailer sales and the
recovery of certain bad debts, certain interest income and costs not
identifiable to a particular segment such as certain operations support and
general and administrative expenses.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments (continued)
-------------------
Marine Marine
Aircraft Container Vessel Railcar
For the Year Ended December 31, 2001 Leasing Leasing Leasing Leasing Other 1 Total
- ------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 185 $ 33 $ -- $ 2,619 $ -- $ 2,837
Interest and other income. . . . . . . . 39 126 -- 4 263 432
Gain (loss) on disposition of equipment. 3,350 207 -- (13) 3 3,547
---------- ---------- --------- --------- --------- --------
Total revenues. . . . . . . . . . . . 3,574 366 -- 2,610 266 6,816
---------- ---------- --------- --------- --------- --------
EXPENSES
Operations support . . . . . . . . . . . 162 -- 27 618 109 916
Depreciation . . . . . . . . . . . . . . 145 198 -- 320 -- 663
Management fees to affiliate . . . . . . 2 2 -- 183 -- 187
General and administrative expenses. . . 130 -- -- 100 483 713
Provision for (recovery of) bad debts. . -- -- -- 42 (1) 41
---------- ---------- --------- --------- --------- --------
Total expenses. . . . . . . . . . . . 439 200 27 1,263 591 2,520
---------- ---------- --------- --------- --------- --------
Equity in net loss of USPE . . . . . . . . (1,014) -- (35) -- -- (1,049)
---------- ---------- --------- --------- --------- --------
Net income (loss). . . . . . . . . . . . . $ 2,121 $ 166 $ (62) $ 1,347 $ (325) $ 3,247
========== ========== ========= ========= ========= ========
Total assets as of Dcember 31, 2001. . . . $ 1,197 $ 84 $ -- $ 3,891 $ 8,900 $14,072
========== ========== ========= ========= ========= ========
1 Includes certain assets not identifiable to a specific segment such as cash
and prepaid expenses. Also includes net gain from trailer sales and the
recovery of certain bad debts, certain interest income and costs not
identifiable to a particular segment such as certain operations support and
general and administrative expenses.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments (continued)
-------------------
Marine
Aircraft Container Trailer Railcar All
For the Year Ended December 31, 2000 Leasing Leasing Leasing Leasing Other 2 Total
- ------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 784 $ 78 $ 635 $ 2,888 $ -- $4,385
Interest and other income. . . . . . . . 3 -- -- -- 156 159
Gain (loss) on disposition of equipment. -- 229 87 (13) -- 303
---------- ----------- --------- --------- --------- -------
Total revenues. . . . . . . . . . . . 787 307 722 2,875 156 4,847
---------- ----------- --------- --------- --------- -------
EXPENSES
Operations support . . . . . . . . . . . 136 6 207 686 66 1,101
Depreciation . . . . . . . . . . . . . . 1,343 364 186 427 -- 2,320
Management fees to affiliate . . . . . . 16 4 49 205 -- 274
General and administrative expenses. . . 138 1 165 133 567 1,004
Recovery of bad debts. . . . . . . . . . (9) -- (143) (30) -- (182)
Loss on revaluation of equipment . . . . -- -- 106 -- -- 106
---------- ----------- --------- --------- --------- -------
Total expenses. . . . . . . . . . . . 1,624 375 570 1,421 633 4,623
---------- ----------- --------- --------- --------- -------
Equity in net income of USPEs. . . . . . . 538 -- -- -- 135 673
---------- ----------- --------- --------- --------- -------
Net income (loss). . . . . . . . . . . . . $ (299) $ (68) $ 152 $ 1,454 $ (342) $ 897
========== =========== ========= ========= ========= =======
6. Geographic Information
-----------------------
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in four geographic regions: the United States, Canada, South Asia, and
Mexico. Marine containers are leased to multiple lessees worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment grouped by domicile of the lessee as of and for
the years ended December 31 (in thousands of dollars):
Owned Equipment
----------------
Region 2002 2001 2000
- -------------------------------------------
Canada. . . . . . $ 1,324 $ 2,002 $ 3,394
United States . . 537 802 913
Rest of the world 22 33 78
------- ------- -------
Lease revenues $ 1,883 $ 2,837 $ 4,385
======= ======= =======
2. Includes certain assets not identifiable to a specific segment such as
cash and prepaid expenses. Also includes certain interest income and costs not
identifiable to a particular segment such as certain operations support and
general and administrative expenses.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
6. Geographic Information (continued)
------------------------------------
The following table sets forth net income (loss) information by region for the
owned equipment and investment in USPE grouped by domicile of the lessee for the
years ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
---------------- ----------------------
Region 2002 2001 2000 2002 2001 2000
Canada. . . . . . . . . . $ 882 $ 2,533 $ 1,267 $ -- $ -- $ --
United States . . . . . . 91 339 (498) -- -- --
South Asia. . . . . . . . -- 1,614 -- -- -- --
Mexico. . . . . . . . . . -- -- -- 120 (1,014) 538
Rest of the world . . . . 166 139 (68) -- (35) 135
------- ------- ------- ------ -------- -----
Regional net income. . 1,139 4,625 701 120 (1,049) 673
------- ------- ------- ------ -------- -----
Administrative and other. (360) (329) (477) -- -- --
Net income (loss). . . $ 779 $ 4,296 $ 224 $ 120 $(1,049) $ 673
======= ======= ======= ====== ======== =====
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
Owned Equipment Investment in USPE
--------------- --------------------
Region 2002 2001 2002 2001
- -------------------------------------------------------------
Canada . . . . . . . $ 1,508 $ 2,868 $ -- $ --
United States. . . . 616 955 -- --
Mexico . . . . . . . -- -- 896 1,197
Rest of the world. . 4 70 -- --
-------- -------- ------- --------
Total net book value $ 2,128 $ 3,893 $ 896 $ 1,197
======== ======== ======= ========
7. Concentrations of Credit Risk
--------------------------------
No single lessee accounted for more than 10% of the revenues for the years ended
December 31, 2002 and 2001. During 2002, however, Canadian Pacific Railway
purchased railcars and the gain from the disposal accounted for 11% of total
revenues from wholly and jointly owned equipment.
In 2001 the Partnership sold two aircraft. The following is a list of the
buyers and the percentage of the gain from the sale of the total revenues:
Aergo Capital Limited (24%) and Cypress Equipment Fund III, LLC (22%). Time
Air, Inc. accounted for 14% of the revenues for the year ended December 31,
2000. No other lessee accounted for more than 10% of lease revenues in 2000.
As of December 31, 2002 and 2001, the General Partner believes the Partnership
had no other significant concentrations of credit risk that could have a
material adverse effect on the Partnership.
8. Income Taxes
-------------
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 2002, the federal income tax basis was higher than the
financial statement carrying values of certain assets and liabilities by $20.9
million, primarily due to differences in depreciation methods, and the tax
treatment of underwriting commissions and syndication costs.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
9. Liquidation and Special Distributions
----------------------------------------
On January 1, 1999, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership assets.
Given the current economic environment, and offers received for similar types of
equipment owned by the Partnership, the General Partner has determined it would
not be advantageous to sell the remaining Partnership equipment at the current
time. The General Partner will continue to monitor the equipment markets to
determine an optimal time to sell. In the meantime, equipment will continue to
be leased, and re-leased at market rates as existing leases expire. The amounts
reflected for assets and liabilities of the Partnership have not been adjusted
to reflect liquidation values. The equipment portfolio continues to be carried
at the lower of depreciated cost or fair value less cost to dispose. Although
the General Partner estimates that there will be distributions after liquidation
of assets and liabilities, the amounts cannot be accurately determined prior to
actual liquidation of the equipment. Upon final liquidation, the Partnership
will be dissolved.
A special distribution of $4.5 million ($0.50 per weighted-average limited
partnership unit) was paid in 2000. No special distributions were paid in 2002
or 2001. The Partnership is not permitted to reinvest proceeds from sales or
liquidations of equipment. These proceeds, in excess of operational cash
requirements, are periodically paid out to partners in the form of special
distributions. The sales and liquidations occur because of the determination by
the General Partner that it is the appropriate time to maximize the return on an
asset through sale of that asset, and, in some leases, the ability of the lessee
to exercise purchase options.
10. Quarterly Results of Operations (unaudited)
----------------------------------
The following is a summary of the quarterly results of operations for the year
ended December 31, 2002 (in thousands of dollars, except per share amounts):
March June September December
31, 30, 30, 31, Total
- ---------------------------------------------------------------------------------------------
Operating results:
Total revenues. . . . . . . . . . . . . . . . $1,241 $ 523 $ 507 $ 538 $2,809
Net income (loss) . . . . . . . . . . . . . . 919 123 108 (251) 899
Per weighted-average limited partnership unit:
Net income (loss) . . . . . . . . . . . . . . . $ 0.08 $0.01 $ 0.01 $ (0.02) $ 0.08
The following is a list of the major events that affected the Partnership's
performance during 2002:
(i) In the first quarter of 2002, the Partnership sold railcars and marine
containers for a gain of $0.6 million;
(ii) In the fourth quarter of 2002, a $0.4 million increase in 2002 in
impairment loss resulted from the reduction to fair value of railcars due to a
general recall for a manufacturing defect. There was no similar impairment in
2001.
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
10. Quarterly Results of Operations (unaudited) (continued)
----------------------------------
The following is a summary of the quarterly results of operations for the year
ended December 31, 2001 (in thousands of dollars, except per share amounts):
March June September December
31, 30, 30, 31, Total
- ---------------------------------------------------------------------------------------------
Operating results:
Total revenues. . . . . . . . . . . . . . . . $4,403 $ 781 $ 722 $ 910 $6,816
Net income (loss) . . . . . . . . . . . . . . 3,512 418 162 (845) 3,247
Per weighted-average limited partnership unit:
Net income (loss) . . . . . . . . . . . . . . . $ 0.40 $0.04 $ 0.02 $ (0.09) $ 0.37
The following is a list of the major events that affected the Partnership's
performance during 2001:
(i) In the first quarter of 2001, the Partnership sold aircraft
and marine containers for a total gain of $3.4 million;
(ii) In the second quarter of 2001, lease revenues decreased $0.3
million and expenses decreased $0.5 million due to equipment sales;
(iii) In the third quarter of 2001, the Partnership incurred $0.2
million in higher repair expenses; and
(iv) In the fourth quarter of 2001, the Partnership recorded a
$1.4 million impairment loss on the trust that owned two commercial aircraft on
a direct finance lease.
- ------
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund IV:
We have audited the financial statements of PLM Equipment Growth Fund IV (the
"Partnership") as of December 31, 2002 and 2001, and for each of the two years
in the period ended December 31, 2002, and have issued our report thereon dated
March 7, 2003, which report includes an explanatory paragragh emphasizing that
the Partnership has entered its liquidation phase; such report is included
elsewhere in this Form 10-K. Our audits also included the financial statement
schedules of PLM Equipment Growth Fund IV, listed in Item 15(B). These
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such 2002 and 2001 financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund IV:
Under date of March 2, 2001, we reported on the statements of income, changes in
partners' capital, and cash flows of PLM Equipment Growth Fund IV for the year
ended December 31, 2000, as contained in the 2002 annual report to the partners.
These financial statements and our report thereon are included in the annual
report on Form 10-K for the year ended December 31, 2002. In connection with
our audit of the aforementioned financial statements, we also audited the
related financial statement schedule for the year ended December 31, 2000. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 2000.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 2, 2001
SCHEDULE II
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands of dollars)
Balance at Additions Balance at
Beginning of Charged to End of
Year Expense Deductions Year
- ---------------------------------------------------------------------------------------
Year Ended December 31, 2002
Allowance for Doubtful Accounts $ 45 $ (25) $ -- $ 20
============= ============ =========== =====
Year Ended December 31, 2001
Allowance for Doubtful Accounts $ 5 $ 41 $ (1) $ 45
============= ============ =========== =====
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 2,843 $ -- $ (2,838) $ 5
============= ============ =========== =====
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.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Aero California Trust. 47-57
* Incorporated by reference. See page 21 of this report.