UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 2000
OR
[ ] 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 1-9670
-------------------------------
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MARKET, STEUART STREET TOWER,
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 974-1399
----------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: common stock - $.01
par value; outstanding as of August 1, 2000 - 7,408,510 shares.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------------------------------------------------------
REVENUES
Operating lease income $ 8,072 $ 5,424 $ 15,362 $ 9,301
Management fees 1,923 2,079 3,907 4,232
Partnership interests and other fees (93) 26 188 316
Acquisition and lease negotiation fees 134 618 153 1,079
Loss on the sale or disposition of assets, net (8) (3) (21) (12)
Other 222 313 568 677
--------------------------------------------------------------
Total revenues 10,250 8,457 20,157 15,593
--------------------------------------------------------------
COSTS AND EXPENSES
Operations support 3,674 3,123 7,947 5,822
Depreciation and amortization 2,768 1,902 5,290 3,479
General and administrative 1,714 2,045 3,300 3,529
--------------------------------------------------------------
Total costs and expenses 8,156 7,070 16,537 12,830
--------------------------------------------------------------
Operating income 2,094 1,387 3,620 2,763
Interest expense (1,493) (1,342) (3,013) (2,439)
Interest income 400 96 603 193
Other expenses, net (2) (124) (2) (124
---------------------------------------------------------------
Income before income taxes 999 17 1,208 393
Provision for income taxes 379 21 458 166
--------------------------------------------------------------
Income (loss) from continuing operations, net of income tax 620 (4) 750 227
Income (loss) from discontinued operations, net of income tax (58) 725 (107) 804
--------------------------------------------------------------
Net income before cumulative effect of accounting change 562 721 643 1,031
Cumulative effect of accounting change, net of income taxes -- -- -- (250)
--------------------------------------------------------------
Net income to common shares $ 562 $ 721 $ 643 $ 781
==============================================================
Basic earnings per weighted-average common share
outstanding
Income from continuing operations $ 0.08 $ -- $ 0.09 $ 0.03
Income (loss) from discontinued operations (0.01) 0.09 (0.01) 0.10
Cumulative effect of accounting change -- -- -- (0.03)
----------------------------------------------------------------
Net income $ 0.07 $ 0.09 $ 0.08 $ 0.10
================================================================
Diluted earnings per weighted-average common share
outstanding
Income from continuing operations $ 0.08 $ -- $ 0.09 $ 0.02
Income (loss) from discontinued operations (0.01) 0.09 (0.01) 0.10
Cumulative effect of accounting change -- -- -- (0.03)
----------------------------------------------------------------
$ 0.07 $ 0.09 $ 0.08 $ 0.09
================================================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share amounts)
ASSETS
June 30, December 31,
2000 1999
---------------------------------------
Cash and cash equivalents $ 2,985 $ 2,089
Receivables (net of allowance for doubtful accounts of $1.1 million and
$0.8 million as of June 30, 2000 and December 31, 1999, respectively) 9,442 8,437
Receivables from affiliates 8,937 2,962
Net assets of discontinued operations -- 30,990
Equity interest in affiliates 17,032 18,145
Assets held for sale 14,000 --
Trailers held for operating leases 115,586 103,000
Less accumulated depreciation (25,645) (21,093)
-------------------------------------
89,941 81,907
Restricted cash and cash equivalents 1,632 1,812
Other assets, net 6,975 5,855
=====================================
Total assets $ 150,944 $ 152,197
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Short-term warehouse facility $ 8,900 $ --
Senior secured notes 16,919 20,679
Senior secured loan 5,883 8,824
Other secured debt 49,220 50,697
Payables and other liabilities 6,785 8,445
Deferred income taxes 15,609 14,139
-------------------------------------
Total liabilities 103,316 102,784
SHAREHOLDERS' EQUITY
Preferred stock ($0.01 par value, 10.0 million shares
authorized, none outstanding as of June 30, 2000 and December 31, 1999) -- --
Common stock ($0.01 par value, 50.0 million shares
authorized, and 7,395,510 and 7,675,410 shares issued and outstanding
as of June 30, 2000 and December 31, 1999, respectively) 112 112
Paid-in capital, in excess of par 74,883 75,059
Treasury stock (4,640,245 and 4,360,345 shares as of June 30, 2000 and
December 31, 1999, respectively) (20,576) (18,324)
Accumulated deficit (6,791) (7,434)
-------------------------------------
Total shareholders' equity 47,628 49,413
=====================================
Total liabilities and shareholders' equity $ 150,944 $ 152,197
=====================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME For the Year Ended December 31,
1999 and the Six Months Ended June 30, 2000
(in thousands of dollars)
Accumulated
Common Stock Deficit &
-------------------------------------------
Paid-in Accumulated
Capital in Other Total
At Excess Treasury Comprehensive Shareholders'
Par of Par Stock Income Equity
-----------------------------------------------------------------------------------
Balances, December 31, 1998 $ 112 $ 74,947 $ (15,072) $ (9,790) $ 50,197
Comprehensive income:
Net income 2,356 2,356
Exercise of stock options 11 591 602
Common stock purchases (3,951) (3,951)
Reissuance of treasury stock 101 108 209
--------------------------------------------------------------------------
Balances, December 31, 1999 112 75,059 (18,324) (7,434) 49,413
Comprehensive income:
Net income 643 643
Exercise of stock options (176) 336 160
Common stock purchases (2,588) (2,588)
===========================================================================
Balances, June 30, 2000 $ 112 $ 74,883 $ (20,576) $ (6,791) $ 47,628
===========================================================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Six Months
Ended June 30,
2000 1999
--------------------------------
OPERATING ACTIVITIES
Net income from continuing operations $ 750 $ 228
Adjustments to reconcile net income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 5,290 3,479
Deferred income tax (6) 492
Loss on sale or disposition of assets, net 21 12
(Decrease) increase in payables and other liabilities (1,660) 5,059
Increase in receivables and receivables from affiliates (3,590) (6,621)
Amortization of goodwill related to the investment programs 448 1,424
Decrease (increase) in other assets 538 (144)
--------------------------------
Cash provided by operating activities of continuing operations 1,791 3,929
Cash (used in) provided by operating activities of discontinued operations (1,532) 3,881
Cumulative effect of accounting change -- 250
--------------------------------
Net cash provided by operating activities 259 8,060
--------------------------------
INVESTING ACTIVITIES
Cash received from affiliated entities in excess of equity income 665 562
Principal payments received on finance leases 279 142
Purchase of property, plant, and equipment (9) (459)
Purchase of equipment held for sale (14,000) --
Purchase of trailer equipment and capital improvements to trailers (13,073) (38,724)
Proceeds from sale of subsidiary, net of transaction costs 28,275 --
Proceeds from the sale of trailer equipment 156 234
Proceeds from the sale of assets held for sale -- 13,801
Decrease (increase) in restricted cash and restricted cash equivalents 180 (124)
Investing activities of discontinued operations -- 13,692
--------------------------------
Net cash provided by (used in) investing activities 2,473 (10,876)
--------------------------------
FINANCING ACTIVITIES
Borrowings of short-term warehouse credit facility 10,200 27,099
Repayment of short-term warehouse credit facility (1,300) (16,720)
Repayment of senior secured notes (3,760) (3,760)
Repayment of senior secured loan (2,941) (2,941)
Borrowings of other secured debt 273 9,827
Repayment of other secured debt (1,750) (720)
Reissuance of treasury stock, net -- 42
Proceeds from exercise of stock options 30 419
Purchase of stock (2,588) (1,604)
Net financing activities of discontinued operations -- (14,838)
--------------------------------
Net cash used in financing activities (1,836) (3,196)
--------------------------------
Net increase (decrease) in cash and cash equivalents 896 (6,012)
Cash and cash equivalents at beginning of period 2,089 8,786
--------------------------------
Cash and cash equivalents at end of period $ 2,985 $ 2,774
================================
SUPPLEMENTAL INFORMATION
Net cash paid for interest from continuing operations $ 2,860 $ 2,411
================================
Net cash paid for interest from discontinued operations $ 1,688 $ 5,020
================================
Net cash paid for income taxes $ 307 206
================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary, consisting primarily of normal
recurring accruals, to present fairly PLM International, Inc. and its wholly-
and majority-owned subsidiaries (the Company's) financial position as of June
30, 2000 and December 31, 1999, statements of income for the six months ended
June 30, 2000 and 1999, statements of changes in shareholders' equity and
comprehensive income for the year ended December 31, 1999 and the six months
ended June 30, 2000, and statements of cash flows for the six months ended June
30, 2000 and 1999. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying consolidated
financial statements. For further information, reference should be made to the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, on file with the Securities
and Exchange Commission.
2. RECLASSIFICATIONS
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
3. DISCONTINUED OPERATIONS
In October 1999, the Company agreed to sell American Finance Group, Inc. (AFG),
its commercial and industrial equipment leasing subsidiary for approximately
$28.3 million, net of transaction costs and income taxes. On February 25, 2000,
the shareholders of PLM International approved the transaction. The sale of AFG
was completed on March 1, 2000. On that date, the Company received $29.0 million
for AFG. In July 2000, the Company received additional sales proceeds of $2.3
million for the sale of AFG. The Company expects to receive additional proceeds
of $0.9 million in the third or fourth quarter of 2000 related to the sale of
AFG. This amount has been disputed by the purchaser of AFG and will be submitted
to arbitration. The Company expects to prevail in arbitration. Receivables
aggregating $3.2 million were included in receivables on the consolidated
balance sheet on June 30, 2000. Taxes and transaction costs related to the sale
are estimated to be $3.9 million resulting in estimated net proceeds to the
Company of $28.3 million. In addition, AFG distributed to PLMI certain assets
with a net book value of $2.7 million and cash of $0.4 million immediately prior
to the sale.
Accordingly, the Company's commercial and industrial leasing operations are
accounted for as a discontinued operation and prior periods have been restated.
For business segment reporting purposes, AFG is reported in the segment
"Commercial and industrial equipment leasing and financing". Costs and expenses
included in discontinued operations includes all direct expenses of AFG and
allocated costs from PLMI that will be eliminated as a result of the sale.
Net income (loss) from discontinued operations for the three and six months
ended June 30, 2000 and 1999 are as follows (in thousands of dollars):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------------------- ----------------------------
Revenue $ -- $ 6,948 $ 4,076 $ 13,419
Costs and expenses (46) (3,409) (2,917) (6,363)
-------------------------- -----------------------------
Operating income (loss) (46) 3,539 1,159 7,056
Interest expense (48) (2,480) (1,750) (5,068)
Interest income and other expenses -- 111 95 (691)
--------------------------- ----------------------------
Net income (loss) from discontinued operations
before income taxes (94) 1,170 (496) 1,297
Provision for (benefit from) income tax (36) 445 (189) 493
Net income previously accrued as a component
of loss on discontinued operations -- -- 200 --
---------------------------- ----------------------------
Net income (loss) from discontinued operations $ (58) $ 725 $ (107) $ 804
============================ ============================
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
3 DISCONTINUED OPERATIONS (CONTINUED)
During the first quarter of 2000, $0.6 million of after-tax loss on disposal of
discontinued operations was recorded against the provision established at
December 31, 1999 and is not included in the above table.
4. DISPOSITION OF TRAILER ASSETS
On May 24, 2000, PLM International, Inc. and Marubeni America Corporation signed
an asset purchase agreement to sell the refrigerated and dry trailer assets of
PLM International, Inc. to Marubeni America Corporation. Consummation of the
transaction is subject to various conditions, including the approval of PLM
shareholders, and closing of the transaction is expected to occur only after
such approval has been secured and all other conditions have been satisfied. If
the transaction is approved, the trailer assets will be treated for accounting
purposes as a discontinued operation of PLM International.
It is estimated that at the closing of the sale, Marubeni America Corporation
will pay approximately $65.8 million in cash to PLM International for its 4,000
trailers and assume $49.1 million in debt and other liabilities, including the
operation of PLM Trailer Leasing's 22 trailer yards located throughout the
United States. The transaction is expected to close in the third quarter of
2000.
5. EQUIPMENT
Trailer equipment held for operating lease is depreciated on the straight-line
method down to the equipment's estimated salvage value.
During the six months ended June 30, 2000, the Company purchased trailers for
$13.1 million and sold trailers with a net book value of $0.2 million for $0.2
million.
The Company classifies equipment as held for sale if the particular asset is
subject to a pending contract for sale or is held for sale to an affiliated
program. Equipment held for sale is valued at the lower of the depreciated cost
or the fair value less the costs to sell. As of June 30, 2000, $14.0 million of
marine containers are reported as assets held for sale. As of December 31, 1999,
the Company had no equipment held for sale.
6. DEBT
The Company has a warehouse facility, which is shared with PLM Equipment Growth
Fund VI (Fund VI), PLM Equipment Growth & Income Fund VII, and Professional
Lease Management Income Fund I, LLC, that allows the Company to purchase
equipment prior to its designation to a specific program or prior to obtaining
permanent financing. Borrowings under this facility by the other eligible
borrowers reduces the amount available to be borrowed by the Company. All
borrowings under this facility are guaranteed by the Company. On June 30, 2000,
this facility was extended to September 30, 2000 and the amount available to be
borrowed under the facility was reduced from $24.5 million to $9.5 million. The
Company has been notified by the lender that this facility will not be renewed
upon its expiration. The Company is currently negotiating with a lender for a
warehouse credit facility of $10.0-$15.0 million with similar terms. The Company
believes the facility will be in place by September 30, 2000.
As of June 30, 2000, the Company had $8.9 million outstanding under this
facility and Fund VI had outstanding borrowings of $0.6 million.
During the first six months of 2000, the Company borrowed $0.3 million under the
$15.0 million credit facility used to purchase trailers. This facility's
outstanding balance at June 30, 2000 was $15.0 million.
During the six months ended June 30, 2000, the Company repaid $2.9 million of
the senior secured loan, $3.8 million of the senior secured notes, and $1.7
million of the other secured debt, in accordance with the debt repayment
schedules.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
7. SHAREHOLDERS' EQUITY
During the six months ended June 30, 2000, the Company purchased 98,246 shares
of the Company's common stock for $0.7 million, which completed the $5.0 million
common stock repurchase program authorized by the Company's Board of Directors
in December 1998. The Company purchased 828,325 shares under this plan for a
total of $5.0 million.
In May 2000, the Company's Board of Directors' authorized the purchase of up to
$10.0 million of the Company's common stock. During the six months ended June
30, 2000, the Company purchased 261,654 shares of the Company's common stock for
$1.9 million, under the $10.0 million common stock repurchase program.
During the six months ended June 30, 2000, 80,000 shares were issued for the
exercise of stock options. Consequently, the total common shares outstanding
decreased to 7,395,510 as of June 30, 2000 from the 7,675,410 outstanding as of
December 31, 1999.
Net income per basic weighted-average common share outstanding was computed by
dividing net income to common shares by the weighted-average number of shares
deemed outstanding during the period. The weighted-average number of shares
deemed outstanding for the basic earnings per share calculation during the three
months ended June 30, 2000 and 1999 was 7,638,701 and 8,066,243, respectively.
The weighted-average number of shares deemed outstanding for the basic earnings
per share calculation during the six months ended June 30, 2000 and 1999 was
7,670,843 and 8,115,458, respectively. The weighted-average number of shares
deemed outstanding, including potentially dilutive common shares, for the
diluted earnings per weighted-average share calculation during the three months
ended June 30, 2000 and 1999 was 7,698,658 and 8,179,429, respectively. The
weighted-average number of shares deemed outstanding, including potentially
dilutive common shares, for the diluted earnings per weighted-average share
calculation during the six months ended June 30, 2000 and 1999 was 7,730,116 and
8,239,249, respectively.
8. LEGAL MATTERS
The Company and various of its wholly owned subsidiaries are named as defendants
in a lawsuit filed as a purported class action in January 1997 in the Circuit
Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch action).
The named plaintiffs are six individuals who invested in PLM Equipment Growth
Fund IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth
Fund VI (Fund VI), and PLM Equipment Growth & Income Fund VII (Fund VII) (the
Partnerships), each a California limited partnership for which the Company's
wholly owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the General
Partner. The complaint asserts causes of action against all defendants for fraud
and deceit, suppression, negligent misrepresentation, negligent and intentional
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Partnerships, and concealing such mismanagement from investors in the
Partnerships. Plaintiffs seek unspecified compensatory damages, as well as
punitive damages, and have offered to tender their limited partnership units
back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) (the court) based on the court's
diversity jurisdiction. In December 1997, the court granted defendants motion to
compel arbitration of the named plaintiffs' claims, based on an agreement to
arbitrate contained in the limited partnership agreement of each Partnership.
Plaintiffs appealed this decision, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
8. LEGAL MATTERS (CONTINUED)
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No. 987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Partnerships. The complaint alleges the same facts and the same
causes of action as in the Koch action, plus additional causes of action against
all of the defendants, including alleged unfair and deceptive practices and
violations of state securities law. In July 1997, defendants filed a petition
(the petition) in federal district court under the Federal Arbitration Act
seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company's petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below.
The state court action continues to be stayed pending such resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Partnerships between May 23, 1989 and
June 29, 1999. The monetary settlement, if approved, will go forward regardless
of whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Partnerships' equipment, (b) the extension (until December 31, 2004) of the
period during which FSI can reinvest the Partnerships' funds in additional
equipment, (c) an increase of up to 20% in the amount of front-end fees
(including acquisition and lease negotiation fees) that FSI is entitled to earn
in excess of the compensatory limitations set forth in the North American
Securities Administrator's Association's Statement of Policy; (d) a one-time
repurchase by each of Funds V, VI and VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Partnerships. Subject to
final court approval, these proposed changes would be made as amendments to each
Partnership's limited partnership agreement if less than 50% of the limited
partners of each Partnership vote against such amendments. The limited partners
will be provided the opportunity to vote against the amendments by following the
instructions contained in solicitation statements that will be mailed to them
after being filed with the Securities and Exchange Commission. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Partnership funds in the event, if ever, that certain
performance thresholds have been met by the Partnerships. The equitable
settlement class consists of all investors, limited partners, assignees or unit
holders who on June 29, 1999 held any units in Funds V, VI, and VII, and their
assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. The Company continues to
believe that the allegations of the Koch and Romei actions are completely
without merit and intends to continue to defend this matter vigorously if the
monetary settlement is not consummated.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
8. LEGAL MATTERS (CONTINUED)
The company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition of the Company.
9. PURCHASE COMMITMENTS
As of August 1, 2000, the Company had committed to purchase $14.5 million of
trailer equipment.
10. OPERATING SEGMENTS
The Company operates or operated in three operating segments: trailer leasing,
the management of investment programs and other equipment leasing, and
commercial and industrial equipment leasing and financing. The trailer leasing
segment includes 22 trailer rental facilities that engage in short to mid-term
operating leases of refrigerated and dry van trailers to a variety of customers
and management of trailers for the investment programs. The management of
investment programs and other equipment leasing segment involves managing the
Company's syndicated investment programs, from which it earns fees and equity
interests, and arranging short-term to mid-term operating leases of other
transportation equipment. The Company sold its commercial and industrial
equipment leasing subsidiary on March 1, 2000. Accordingly, this segment is
accounted for as a discontinued operation. The Company evaluates the performance
of each segment based on profit or loss from operations before allocating
general and administrative expenses and certain operation support expense and
before allocating income taxes. The following tables present a summary of the
operating segments (in thousands of dollars):
Commercial Management
and Of Investment
Industrial Programs
Equipment and Other
Leasing Transporatation
Trailer and Equipment
For the three months ended June 30, 2000 Leasing Financing Leasing Other<F1>1 Total
- -----------------------------------------
------------------------------------------------------------------------------
REVENUES
Lease income $ 7,808 $ -- $ 264 $ -- $ 8,072
Fees earned 185 -- 1,779 -- 1,964
Loss on sale or disposition of assets, net (8) -- -- -- (8)
Other 30 -- 192 -- 222
------------------------------------------------------------------------------
Total revenues 8,015 -- 2,235 -- 10,250
------------------------------------------------------------------------------
Costs and expenses
Operations support 3,136 -- 132 406 3,674
Depreciation and amortization 2,529 -- 239 -- 2,768
General and administrative expenses -- -- -- 1,714 1,714
------------------------------------------------------------------------------
Total costs and expenses 5,665 -- 371 2,120 8,156
------------------------------------------------------------------------------
Operating income (loss) 2,350 -- 1,864 (2,120) 2,094
Interest income (expense), net (1,054) -- (402) 363 (1,093)
Other expense, net -- -- (2) -- (2)
------------------------------------------------------------------------------
Income (loss) before income taxes $ 1,296 $ -- $ 1,460 $ (1,757) $ 999
==============================================================================
Loss from discontinued operations, net of $ -- $ (58) $ $ -- $ (58)
income tax --
==============================================================================
Total assets as of June 30, 2000 $ 96,164 $ -- $ 45,049 $ 9,731 $ 150,944
==============================================================================
<FN>
<F1>
- ------------------------
1 Includes interest income and costs not identifiable to a particular segment
such as general and administrative and certain operations support expenses.
</FN>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
10. OPERATING SEGMENTS (CONTINUED)
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the three months ended June 30, 1999 Leasing Financing Leasing Other<F1>1 Total
- -----------------------------------------
------------------------------------------------------------------------------
Revenues
Lease income $ 4,986 $ -- $ 438 $ -- $ 5,424
Fees earned 196 -- 2,527 -- 2,723
Loss on sale or disposition of assets, net (3) -- -- -- (3)
Other -- -- 313 -- 313
------------------------------------------------------------------------------
Total revenues 5,179 -- 3,278 -- 8,457
------------------------------------------------------------------------------
Costs and expenses
Operations support 2,490 -- 494 139 3,123
Depreciation and amortization 1,780 -- 122 -- 1,902
General and administrative expenses -- -- -- 2,045 2,045
------------------------------------------------------------------------------
Total costs and expenses 4,270 -- 616 2,184 7,070
------------------------------------------------------------------------------
Operating income (loss) 909 -- 2,662 (2,184) 1,387
Interest expense, net (634) -- (612) -- (1,246)
Other expenses, net -- -- -- (124) (124)
------------------------------------------------------------------------------
Income (loss) before income taxes $ 275 $ -- $ 2,050 $ (2,308) $ 17
==============================================================================
Income from discontinued operations, net of $ -- $ 725 $ -- $ -- $ 725
income tax
==============================================================================
Total assets as of June 30, 1999 $ 73,260 $ 30,498 $ 34,034 $ 7,728 $ 145,520
==============================================================================
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the six months ended June 30, 2000 Leasing Financing Leasing Other<F1>1 Total
- ---------------------------------------
------------------------------------------------------------------------------
Revenues
Lease income $ 15,053 $ -- $ 309 $ -- $ 15,362
Fees earned 358 -- 3,890 -- 4,248
Loss on sale or disposition of assets, net (21) -- -- -- (21)
Other 33 -- 535 -- 568
----------------------------------------------------------------------------
Total revenues 15,423 -- 4,734 -- 20,157
------------------------------------------------------------------------------
Costs and expenses
Operations support 6,776 -- 428 743 7,947
Depreciation and amortization 4,894 -- 396 -- 5,290
General and administrative expenses -- -- -- 3,300 3,300
------------------------------------------------------------------------------
Total costs and expenses 11,670 -- 824 4,043 16,537
------------------------------------------------------------------------------
Operating income (loss) 3,753 -- 3,910 (4,043) 3,620
Interest income (expense), net (2,143) -- (833) 566 (2,410)
Other expense, net -- -- (2) -- (2)
------------------------------------------------------------------------------
Income (loss) before income taxes $ 1,610 $ -- $ 3,075 $ (3,477) $ 1,208
==============================================================================
Loss from discontinued operations, net of $ -- $ (107) $ -- $ -- $ (107)
income tax
==============================================================================
Total assets as of June 30, 2000 $ 96,164 $ -- $ 45,049 $ 9,731 $ 150,944
==============================================================================
<FN>
<F1>
- --------------------------
1 Includes interest income and costs not identifiable to a particular segment
such as general and administrative and certain operations support expenses.
</FN>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
10. OPERATING SEGMENTS (CONTINUED)
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the six months ended June 30, 1999 Leasing Financing Leasing Other<F1>1 Total
- --------------------------------------- ------------------------------------------------------------------------------
Lease income $ 8,677 $ -- $ 624 $ -- $ 9,301
Fees earned 401 -- 5,226 -- 5,627
Loss on sale or disposition of assets, net (12) -- -- -- (12)
Other -- -- 677 -- 677
------------------------------------------------------------------------------
Total revenues 9,066 -- 6,527 -- 15,593
------------------------------------------------------------------------------
Costs and expenses
Operations support 4,389 -- 988 445 5,822
Depreciation and amortization 3,239 -- 240 -- 3,479
General and administrative expenses -- -- -- 3,529 3,529
------------------------------------------------------------------------------
Total costs and expenses 7,628 -- 1,228 3,974 12,830
------------------------------------------------------------------------------
Operating income (loss) 1,438 -- 5,299 (3,974) 2,763
Interest expense, net (1,188) -- (1,058) -- (2,246)
Other expenses, net -- -- -- (124) (124)
------------------------------------------------------------------------------
Income (loss) before income taxes $ 250 $ -- $ 4,241 $ (4,098) $ 393
==============================================================================
Income from discontinued operations, net of $ -- $ 804 $ -- $ -- $ 804
income tax
==============================================================================
Cumulative effect of accounting change,
Net of income taxes $ -- $ (250) $ -- $ -- $ (250)
==============================================================================
Total assets as of June 30, 1999 $ 73,260 $ 30,498 $ 34,034 $ 7,728 $ 145,520
==============================================================================
<FN>
<F1>
- --------------------------
1 Includes interest income and costs not identifiable to a particular segment
such as general and administrative and certain operations support expenses.
</FN>
11. CUMULATIVE EFFECT OF ACCOUNTING CHANGE FROM DISCONTINUED OPERATIONS, NET OF
TAX
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which required costs related to start-up activities to be expensed as incurred.
The statement required that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.3 million charge,
net of tax of $0.1 million, related to start-up costs of its commercial and
industrial equipment operations which is being accounted for as discontinued
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT OF INVESTMENT PROGRAMS
The Company has syndicated investment programs from which it earns various fees
and equity interests. Professional Lease Management Income Fund I, LLC (Fund I)
was structured as a limited liability company with a no front-end fee structure.
The previously syndicated limited partnership programs allow the Company to
receive fees for the acquisition and initial leasing of the equipment. The Fund
I program does not provide for acquisition and lease negotiation fees. The
Company invested the equity raised through syndication for these programs in
transportation equipment and related assets, which it then manages on behalf of
the investors. The equipment management activities for these types of programs
generate equipment management fees for the Company over the life of a program.
The limited partnership agreements entitle the Company to receive a 1% or 5%
interest in the cash distributions and earnings of a partnership, subject to
certain allocation provisions. The Fund I agreement entitles the Company to a
15% interest in the cash distributions and earnings of the program, subject to
certain allocation provisions. The Company's interest in the earnings and
distributions of Fund I will increase to 25% after the investors have received
distributions equal to their original invested capital.
In 1996, the Company announced the suspension of public syndication of
equipment leasing programs with the close of Fund I. As a result of this
decision, revenues earned from managed programs, which include management fees,
partnership interests and other fees, and acquisition and lease negotiation
fees, will be reduced in the future as the older programs liquidate and the
managed equipment portfolio for these programs becomes permanently reduced.
In accordance with certain limited partnership agreements, four limited
partnerships have entered their liquidation phases and the Company has commenced
an orderly liquidation of the partnerships' assets. Two of the limited
partnerships, PLM Equipment Growth Fund III and PLM Equipment Growth Fund IV are
expected to be liquidated by the end of 2000. Two of the limited partnerships,
PLM Equipment Growth Fund and PLM Equipment Growth Fund II will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events.
The Company will occasionally own transportation equipment prior to sale to
affiliated programs or third parties. During this period, the Company earns
lease revenue and incurs interest and operating expenses.
TRAILER LEASING
The Company operates 22 trailer rental facilities doing business as PLM Trailer
Leasing that engage in short-term and mid-term operating leases. Nineteen of
these facilities operate predominantly refrigerated trailers used to transport
temperature-sensitive commodities, consisting primarily of food products. Three
facilities operate only dry van (non-refrigerated) trailers. During the first
six months of 2000, the Company purchased $13.1 million of refrigerated trailer
equipment.
On May 24, 2000, PLM International, Inc. and Marubeni America Corporation signed
an asset purchase agreement to sell the refrigerated and dry trailer assets of
PLM International, Inc. to Marubeni America Corporation. Consummation of the
transaction is subject to various conditions, including the approval of PLM
shareholders, and closing of the transaction is expected to occur only after
such approval has been secured and all other conditions have been satisfied. If
the transaction is approved, the trailer assets will be treated for accounting
purposes as a discontinued operation of PLM International.
It is estimated that at the closing of the sale, Marubeni America Corporation
will pay approximately $65.8 million in cash to PLM International for its 4,000
trailers and assume $49.1 million in debt and other liabilities, including the
operation of PLM Trailer Leasing's 22 trailer yards located throughout the
United States. The transaction is expected to close in the third quarter of
2000.
COMMERCIAL AND INDUSTRIAL EQUIPMENT LEASING AND FINANCING
The Company had a subsidiary, Amercian Finance Group, Inc. (AFG) that
specialized in the leasing and management of commercial and industrial
equipment.
In October 1999, the Company agreed to sell American Finance Group, Inc. (AFG),
its commercial and industrial equipment leasing subsidiary for approximately
$28.3 million, net of transaction costs and income taxes. On February 25, 2000,
the shareholders of PLM International approved the transaction. The sale of AFG
was completed on March 1, 2000. On that date, the Company received $29.0 million
for AFG. In July 2000, the Company received additional sales proceeds of $2.3
million for the sale of AFG. The Company expects to receive additional proceeds
of $0.9 million in the third or fourth quarter of 2000 related to the sale of
AFG. This amount has been disputed by the purchaser of AFG and will be submitted
to arbitration. The Company expects to prevail in arbitration. Taxes and
transaction costs related to the sale are estimated to be $3.9 million resulting
in estimated net proceeds to the Company of $28.3 million. In addition, AFG
distributed to PLMI certain assets with a net book value of $2.7 million and
cash of $0.4 million immediately prior to the sale.
Accordingly, the Company's commercial and industrial leasing operations are
accounted for as a discontinued operation and prior periods have been restated.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 2000 AND 1999
The following analysis reviews the operating results of the Company:
REVENUES
For the Three Months
Ended June 30,
2000 1999
-----------------------------
(in thousands of dollars)
Operating lease income $ 8,072 $ 5,424
Management fees 1,923 2,079
Partnership interests and other fees (93) 26
Acquisition and lease negotiation fees 134 618
Loss on the sale or disposition of assets, net (8) (3)
Other 222 313
------------------------------
Total revenues $ 10,250 $ 8,457
The fluctuations in revenues for the three months ended June 30, 2000, compared
to the three month ended June 30, 1999, are summarized and explained below.
OPERATING LEASE INCOME BY EQUIPMENT TYPE:
For the Three Months
Ended June 30,
2000 1999
-----------------------------
(in thousands of dollars)
Trailers $ 7,808 $ 4,986
Lease income from assets held for sale 122 408
Other 142 30
-----------------------------
Total operating lease income $ 8,072 $ 5,424
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income increased $2.6 million during the second quarter of 2000, compared to the
same quarter of 1999. An increase of $2.8 million in operating lease income was
generated from trailer equipment. An increase of $2.6 million in trailer lease
income was due to an increase in the amount of this type of equipment owned and
on operating lease. For the quarter ended June 30, 2000, the average net book
value of trailer equipment was $87.5 million, compared to $61.5 million for the
second quarter of 1999. An increase of $0.2 million in trailer lease income was
due to higher lease rates in the second quarter of 2000 compared to the same
quarter of 1999.
The increase in operating lease income from trailer equipment was partially
offset by a $0.3 million decrease in operating lease income generated from
assets held for sale. For 17 days in the second quarter of 2000, the Company
owned $14.0 million in marine containers which the Company earned $0.1 million
in operating lease income. These marine containers are reported as assets held
for sale on the consolidated June 30, 2000 balance sheet. During the second
quarter of 1999, the Company owned $6.8 million in marine containers that were
sold during the three months ended June 30, 1999 to affiliated programs at cost,
which approximated their fair market value. The Company earned $0.4 million in
operating lease income on these marine containers during the second quarter of
1999.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $1.9 million and $2.1 million
for the quarters ended June 30, 2000 and 1999, respectively. The decrease in
management fees resulted from a net decrease in managed equipment from the PLM
Equipment Growth Fund (EGF) programs and Professional Lease Management Income
Fund I, LLC (Fund I). With the termination of syndication activities in 1996,
management fees from the older programs are decreasing and are expected to
continue to decrease as the programs liquidate their equipment portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings and losses
of the Company's affiliated programs. The net losses from the affiliated
programs was $0.1 million for the quarter ended June 30, 2000 compared to the
net earnings from the affiliated programs of $0.4 million for the quarter ended
June 30, 1999. The decrease in net earnings and losses, and distribution levels
compared to 1999, resulted from the reduction in the equipment portfolio of the
affiliated programs. In addition, a decrease of $0.4 million in the Company's
residual interests in the programs was recorded during the quarter ended June
30, 1999. A similar reduction was not required in the three months ended June
30, 2000.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the quarter ended June 30, 2000, the Company, on behalf of the EGF
programs, purchased transportation equipment for $2.8 million, compared to the
Company purchasing $29.9 million of transportation and other equipment during
the quarter ended June 30, 1999, resulting in a $0.5 million decrease in
acquisition and lease negotiation fees. During the quarter ended June 30, 1999,
the Company did not take acquisition and lease negotiation fees on $16.6 million
of this equipment, as the Company has reached certain fee limitations for one of
its limited partnership programs per the partnership agreement. Because of the
Company's decision to halt syndication of equipment leasing programs with the
close of Fund I in 1996, because Fund I has a no front-end fee structure, and
because the Company has reached the maximum allowable fees that may be taken in
some of the programs, acquisition and lease negotiation fees will continue at
the current levels or be reduced in the future.
LOSS ON THE SALE OR DISPOSITION OF ASSETS, NET:
During the quarter ended June 30, 2000, the Company recorded an $8,000 loss on
the sale or disposition of trailer equipment. During the quarter ended June 30,
1999, the Company recorded a $3,000 loss on the sale or disposition of trailer
equipment.
COSTS AND EXPENSES
For the Three Months
Ended June 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
Operations support $ 3,674 $ 3,123
Depreciation and amortization 2,768 1,902
General and administrative 1,714 2,045
-----------------------------------------
Total costs and expenses $ 8,156 $ 7,070
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, and provision for doubtful accounts, increased $0.6
million (18%) for the quarter ended June 30, 2000, compared to the quarter ended
June 30, 1999. Operations support expense related to the trailer leasing segment
increased $0.6 million due to the expansion of PLM Rental, with the addition of
rental yards in 1999 and additional trailer purchases in 1999 and 2000.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense increased $0.9 million (46%) for the
quarter ended June 30, 2000, compared to the quarter ended June 30, 1999. The
increase resulted primarily from an increase in refrigerated trailer equipment
on operating lease at PLM Trailer Leasing.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $0.3 million (16%) during the
quarter ended June 30, 2000, compared to the quarter ended June 30, 1999. The
decrease was a result of a decrease in net compensation and benefits expense
caused by a reduction in staffing.
OTHER INCOME AND EXPENSES
For the Three Months
Ended June 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
Interest expense $ (1,493) $ (1,342)
Interest income 400 96
Other expense (2) (124)
INTEREST EXPENSE:
Interest expense increased $0.2 million (11%) during the quarter ended June 30,
2000, compared to the quarter ended June 30, 1999, due to an increase in
borrowings of other secured debt to fund trailer purchases. The increase in
interest expense caused by these increased borrowings was partially offset by
lower interest expense resulting from reductions in the amounts outstanding
under the senior secured debt agreements.
INTEREST INCOME:
Interest income increased $0.3 million (317%) during the quarter ended June 30,
2000, compared to the same quarter of 1999, as a result of higher average cash
balances during the quarter ended June 30, 2000, compared to the same quarter of
1999. The increase in cash balances resulted from the proceeds received from the
sale of AFG.
OTHER EXPENSES, NET:
Other expenses decreased $0.1 million (98%) during the quarter ended June 30,
2000, compared to the same quarter of 1999. Other expenses of $0.1 million for
the quarter ended June 30, 1999 are mainly related to the settlement of a
lawsuit. No similar expenses were incurred during the quarter ended June 30,
2000.
PROVISION FOR INCOME TAXES:
For the three months ended June 30, 2000, the provision for income tax was $0.4
million, representing an effective rate of 38%. For the three months ended June
30, 1999, the provision for income taxes was $21,000, representing an effective
rate of 124%. The decrease in the effective rate of 86% was due to increased
pretax income, which diminished the effect of certain permanent differences
between tax and book income.
NET INCOME FROM DISCONTINUED OPERATIONS
In October 1999, the Company agreed to sell its commercial and industrial
equipment subsidiary American Finance Group, Inc. (AFG) for approximately $28.3
million, net of transaction costs and income taxes. On February 25, 2000, the
shareholders of PLM International approved the transaction. The sale was
completed on March 1, 2000. Accordingly, the Company's commercial and industrial
leasing operations are accounted for as a discontinued operation and prior
periods have been restated.
Net income (loss) from discontinued operations for the quarter ended June 30,
2000 and 1999 are as follows (in thousands of dollars):
2000 1999
------------------------------
REVENUES
Operating lease income $ -- $ 2,155
Finance lease income -- 2,730
Management fees -- 192
Gain on sale or disposition of assets, net -- 1,320
Other -- 551
------------------------------
Total revenues -- 6,948
------------------------------
COSTS AND EXPENSES
Operations support 46 1,648
Depreciation and amortization -- 1,761
------------------------------
Total costs and expenses 46 3,409
------------------------------
Operating income (loss) (46) 3,539
Interest expense, net (48) (2,343)
Other expenses -- (26)
-------------------------------
Income (loss) before income taxes (94) 1,170
Provision for (benefit from) income taxes (36) 445
-------------------------------
Net income (loss) from discontinued operations $ (58) $ 725
===============================
The decrease in all revenues and expenses for the second quarter of 2000 was due
to the sale of AFG on March 1, 2000. Included in discontinued operations for the
three months ended June 30, 2000 are $48,000 of costs related to the settlement
of swap agreements as well as $46,000 of legal fees. Both were incurred in
connection with the sale of AFG.
NET INCOMe
As a result of the foregoing, for the three months ended June 30, 2000, net
income was $0.6 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.07. For the same period of 1999,
net income was $0.7 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.09.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30,
2000 AND 1999
The following analysis reviews the operating results of the Company:
REVENUES
For the Six Months
Ended June 30,
2000 1999
------------------------------
(in thousands of dollars)
Operating lease income $ 15,362 $ 9,301
Management fees 3,907 4,232
Partnership interests and other fees 188 316
Acquisition and lease negotiation fees 153 1,079
Loss on the sale or disposition of assets, net (21) (12)
Other 568 677
-------------------------------
Total revenues $ 20,157 $ 15,593
The fluctuations in revenues for the six months ended June 30, 2000, compared to
the six months ended June 30, 1999, are summarized and explained below.
OPERATING LEASE INCOME BY EQUIPMENT TYPE:
For the Six Months
Ended June 30,
2000 1999
-------------------------------
(in thousands of dollars)
Trailers $ 15,053 $ 8,677
Lease income from assets held for sale 122 587
Other 187 37
--------------------------------
Total operating lease income $ 15,362 $ 9,301
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income increased $6.1 million during six months ended June 30, 2000, compared to
the six months ended June 30, 1999. An increase of $6.4 million in operating
lease income was generated from trailer equipment. An increase of $6.0 million
in trailer lease income was due to an increase in the amount of this type of
equipment owned and on operating lease. For the six months ended June 30, 2000,
the average net book value of trailer equipment was $75.9 million, compared to
$58.3 million for the six months ended June 30, 1999. An increase of $0.4
million in trailer lease income was due to higher lease rates in the six months
ended June 30, 2000 compared to the same period of 1999.
The increase in operating lease income from trailer equipment was partially
offset by a $0.5 million decrease in operating lease income generated from
assets held for sale. During the six months ended June 30, 2000, the Company
owned $14.0 million in marine containers for 17 days which the Company earned
$0.1 million in operating lease income. The marine containers are reported as
assets held for sale on the consolidated balance sheet on June 30, 2000. During
the six months ended June 30, 1999, the Company owned $13.8 million in marine
containers that were sold during the six months ended June 30, 1999 to
affiliated programs at cost, which approximated their fair market value. The
Company earned $0.6 million in operating lease income on these marine containers
during the six months ended June 30, 1999.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $3.9 million and $4.2 million
for the six months ended June 30, 2000 and 1999, respectively. The decrease in
management fees resulted from a net decrease in managed equipment from the PLM
Equipment Growth Fund programs and Professional Lease Management Income Fund I,
LLC. With the termination of syndication activities in 1996, management fees
from the older programs are decreasing and are expected to continue to decrease
as the programs liquidate their equipment portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings from the affiliated programs
were $0.2 million and $0.8 million for the six months ended June 30, 2000 and
1999, respectively. The decrease in net earnings and distribution levels and
residual interests in 2000, compared to 1999, resulted from the reduction in the
equipment portfolio of the affiliated programs. In addition, a decrease of $0.5
million in the Company's residual interests in the programs was recorded during
the six months ended June 30, 1999. A similar reduction was not required in the
six months ended June 30, 2000.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the six months ended June 30, 2000, the Company, on behalf of the EGF
programs, purchased transportation and other equipment for $5.0 million,
compared to the Company purchased $37.1 million of transportation and other
equipment during the six months ended June 30, 1999, resulting in a $0.9 million
decrease in acquisition and lease negotiation fees. The Company has reached
certain fee limitations for one of its limited partnership programs per the
partnership agreement. During the six months ended June 30, 2000 and 1999, the
Company did not take acquisition and lease negotiation fees on $2.2 million and
$16.6 million, respectively, of this equipment. Because of the Company's
decision to halt syndication of equipment leasing programs with the close of
Fund I in 1996, because Fund I has a no front-end fee structure, and because the
Company has reached the maximum allowable fees that may be taken in some of the
programs, acquisition and lease negotiation fees will continue at the current
levels or be reduced in the future.
LOSS ON THE SALE OR DISPOSITION OF ASSETS, NET:
During the six months ended June 30, 2000, the Company recorded a $21,000 loss
on the sale or disposition of trailer equipment. During the six months ended
June 30, 1999, the Company recorded a $12,000 loss on the sale or disposition of
trailer equipment.
COSTS AND EXPENSES
For the Six Months
Ended June 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
Operations support $ 7,947 $ 5,822
Depreciation and amortization 5,290 3,479
General and administrative 3,300 3,529
-----------------------------------------
Total costs and expenses $ 16,537 $ 12,830
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, and provision for doubtful accounts, increased $2.1
million (37%) for the six months ended June 30, 2000, compared to the six months
ended June 30, 1999. Operations support expense related to the trailer leasing
segment increased $2.4 million due to the expansion of PLM Rental, with the
addition of rental yards in 1999 and additional trailer purchases in 1999 and
2000. This increase was partially offset by a $0.3 million decrease in
operations support expenses related to the management of investment programs and
other transportation equipment-leasing segment and other activities due to a
reduction in the size of the managed equipment portfolio.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense increased $1.8 million (52%) for the six
months ended June 30, 2000, compared to the six months ended June 30, 1999. The
increase resulted from an increase in refrigerated trailer equipment on
operating lease at PLM Trailer Leasing.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $0.2 million (7%) during the six
months ended June 30, 2000, compared to the six months ended June 30, 1999. The
decrease was a result of a decrease in net compensation and benefits expense
caused by a reduction in staffing.
OTHER INCOME AND EXPENSES
For the Six Months
Ended June 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
Interest expense $ (3,013) $ (2,439)
Interest income 603 193
Other expense (2) (124)
INTEREST EXPENSE:
Interest expense increased $0.6 million (24%) during the six months ended June
30, 2000, compared to the six months ended June 30, 1999, due to an increase in
borrowings of other secured debt to fund trailer purchases. The increase in
interest expense caused by these increased borrowings was partially offset by
lower interest expense resulting from reductions in the amounts outstanding
under the senior secured debt agreements.
INTEREST INCOME:
Interest income increased $0.4 million (212%) during the six months ended June
30, 2000, compared to the same period of 1999, as a result of higher average
cash balances during the six months ended June 30, 2000, compared to the same
period of 1999. The increase in cash balances resulted from the proceeds
received from the sale of AFG.
OTHER EXPENSES, NET:
Other expenses decreased $0.1 million (98%) during the six months ended June 30,
2000, compared to the same period of 1999. Other expenses of $0.1 million for
the six months ended June 30, 1999 are mainly related to the settlement of a
lawsuit. No similar expenses were incurred during the six months ended June 30,
2000.
PROVISION FOR INCOME TAXES:
For the six months ended June 30, 2000, the provision for income tax was $0.5
million, representing an effective rate of 38%. For the six months ended June
30, 1999, the provision for income taxes was $0.2 million, representing an
effective rate of 42%. The decrease in the effective rate of 4% was due to
increased pretax income, which diminished the effect of certain permanent
differences between tax and book income.
NET INCOME FROM DISCONTINUED OPERATIONS
Net income (loss) from discontinued operations for the six months ended June 30,
2000 and 1999 are as follows (in thousands of dollars):
2000 1999
-------------------------------
REVENUES
Operating lease income $ 1,841 $ 4,380
Finance lease income 1,650 5,877
Management fees 100 407
Gain on sale or disposition of assets, net 40 1,642
Other 445 1,113
-----------------------------
Total revenues 4,076 13,419
-------------------------------
COSTS AND EXPENSES
Operations support 1,412 2,780
Depreciation and amortization 1,505 3,583
-------------------------------
Total costs and expenses 2,917 6,363
-------------------------------
Operating income 1,159 7,056
Interest expense, net (1,655) (4,785)
Other expenses -- (974)
-------------------------------
Income (loss) before income taxes (496) 1,297
Provision for (benefit from) income taxes (189) 493
Net income previously accrued as a component
of loss on discontinued operations 200 --
-------------------------------
Net income (loss) from discontinued
operations $ (107) $ 804
===============================
The decrease in all revenues and expense was due to the sale of AFG on March 1,
2000. Included in discontinued operations for the six months ended June 30, 2000
are $48,000 of costs related to the settlement of swap agreements as well as
$46,000 of legal fees. Both were incurred in connection with the sale of AFG.
In addition, other expenses decreased $1.0 million due to the write-off of
expenses related to the proposed initial public offering of AFG in 1999. A
similar expense was not recorded in 2000.
During the first quarter of 2000, $0.6 million of after-tax loss on disposal of
discontinued operations was recorded against the provision established at
December 31, 1999 and is not included in the above table.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the second quarter of 1999, at which time it took a $0.3 million charge,
net of tax of $0.1 million, related to start-up costs of its commercial and
industrial equipment leasing subsidiary which is being accounted for as
discontinued operations.
NET INCOME
As a result of the foregoing, for the six months ended June 30, 2000, net income
was $0.6 million, resulting in basic and diluted earnings per weighted-average
common share outstanding of $0.08. For the same period of 1999, net income was
$0.8 million, resulting in basic and diluted earnings per weighted-average
common share outstanding of $0.10, and $0.09, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, the sale of equipment, and the sale of business
segments.
Liquidity in the remainder of 2000 and beyond will depend, in part, on the
continued remarketing of the equipment portfolio at similar lease rates, the
management of existing sponsored programs, the effectiveness of cost control
programs, the purchase and sale of equipment, and additional borrowings.
Management believes the Company can accomplish the preceding and that it will
have sufficient liquidity and capital resources for the future.
Future liquidity is influenced by the factors summarized below.
DEBT FINANCING:
WAREHOUSE CREDIT FACILITY: Assets acquired and held on an interim basis by the
Company for sale to affiliated programs or third parties have, from time to
time, been partially funded by a warehouse credit facility. This facility is
also used to temporarily finance the purchase of trailers prior to permanent
financing being obtained. On June 30, 2000, this facility was extended to
September 30, 2000 and the amount available to be borrowed under the facility
was reduced from $24.5 million to $9.5 million. The Company has been notified by
the lender that this facility will not be renewed upon its expiration. The
Company is currently negotiating with a lender for a warehouse credit facility
of $10.0-$15.0 million with similar terms. The Company believes the facility
will be in place by September 30, 2000.
This facility is shared with PLM Equipment Growth Fund VI (EGF VI), PLM
Equipment Growth & Income Fund VII (EGF VII), and Professional Lease Management
Income Fund I, LLC (Fund I). Borrowings under this facility by the other
eligible borrowers reduce the amount available to be borrowed by the Company.
All borrowings under this facility are guaranteed by the Company. This facility
provides 80% financing for transportation assets. The Company can hold
transportation assets under this facility for up to 150 days. Interest accrues
at prime or LIBOR plus 162.5 basis points, at the option of the Company. As of
June 30 and August 1, 2000, the Company had $8.9 million in borrowings under
this facility and EGF VI had borrowings of $0.6 million.
SENIOR SECURED NOTES: The Company's senior secured notes agreement, which had an
outstanding balance of $16.9 million as of June 30, 2000 and August 1, 2000,
bears interest at LIBOR plus 240 basis points. The Company has pledged
substantially all of its future management fees, acquisition and lease
negotiation fees, data processing fees, and partnership distributions as
collateral to the facility. The facility required quarterly interest-only
payments through August 15, 1997, with principal plus interest payments
beginning November 15, 1997. Principal payments of $1.9 million are payable
quarterly through termination of the loan on August 15, 2002.
SENIOR SECURED LOAN: The Company's senior loan with a syndicate of insurance
companies, which had an outstanding balance of $5.9 million as of June 30, 2000
and August 1, 2000, provides that equipment sale proceeds from pledged equipment
or cash deposits be placed into a collateral account or used to purchase
additional equipment to the extent required to meet certain debt covenants.
Pledged equipment for this loan consists of virtually all trailer equipment
purchased prior to August 1998. As of June 30, 2000, the cash collateral balance
for this loan was zero. During the six months ended June 30, 2000, the Company
repaid $2.9 million on this facility. The facility bears interest at 9.78% and
required quarterly interest payments through June 30, 1997, with quarterly
principal payments of $1.5 million plus interest charges beginning June 30, 1997
and continuing until termination of the loan in June 2001. The Company
anticipates that this facility will be repaid concurrent with the sale of the
trailer assets of the Company. The Company estimates that it will incur a $0.1
million penalty to prepay this facility.
OTHER SECURED DEBT: As of June 30, 2000 and August 1, 2000, the Company had
$34.2 million and $33.9 million outstanding under eight debt agreements, bearing
interest from 5.35% to 7.05%, each with payments of $0.1 million due monthly in
advance. The debt is secured by certain trailer equipment and allows the Company
to buy the equipment at a fixed price at the end of the loan. The final payments
under these eight debt agreements total $9.1 million due between December 2005
and October 2006.
In the second quarter of 1999, the Company entered into a $15.0 million credit
facility loan agreement bearing interest at LIBOR plus 1.5%. This facility
allows the Company to borrow up to $15.0 million within a one-year period. As of
June 30, 2000 and August 1, 2000, the Company had borrowed $15.0 million under
this facility. Payments of $0.5 million are due quarterly beginning August 2000,
with a final payment of $3.3 million due August 2006.
The purchaser of the trailer assets will assume the other secured debt.
TRAILER LEASING:
The Company operates 22 trailer rental facilities that engage in short-term and
mid-term operating leases. Nineteen of these facilities operate predominantly
refrigerated trailers used to transport temperature-sensitive commodities,
consisting primarily of food products. Three facilities operate only dry van
(non-refrigerated) trailers. During the six months ended June 30, 2000, the
Company purchased $13.1 million of primarily refrigerated trailers and sold
refrigerated and dry van trailers with a net book value of $0.2 million for
proceeds of $0.2. The net proceeds from the sale of assets that were
collateralized as part of the senior loan facility were placed in a collateral
account.
On May 24, 2000, PLM International, Inc. and Marubeni America Corporation signed
an asset purchase agreement to sell the refrigerated and dry trailer assets of
PLM International, Inc. to Marubeni America Corporation. Consummation of the
transaction is subject to various conditions, including the approval of PLM
shareholders, and closing of the transaction is expected to occur only after
such approval has been secured and all other conditions have been satisfied. If
the transaction is approved, the trailer assets will be treated for accounting
purposes as a discontinued operation of PLM International.
It is estimated that at the closing of the sale, Marubeni America Corporation
will pay approximately $65.8 million in cash to PLM International for its 4,000
trailers and assume $49.1 million in debt and other liabilities, including the
operation of PLM Trailer Leasing's 22 trailer yards located throughout the
United States. The transaction is expected to close in the third quarter of
2000.
STOCK REPURCHASE PROGRAM:
In December 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
The Company completed this stock repurchase program in the second quarter of
2000. The Company repurchased 828,325 shares under this plan for $5.0 million.
In May 2000, the Company announced that its Board of Directors had authorized
the repurchase of up to $10.0 million of the Company's common stock. As of
August 1. 2000, 261,654 shares had been purchased under this plan for $1.9
million. Future purchases of stock will be contingent upon, among other factors,
the Company's cash position and compliance with certain debt covenants.
* * * * * * * * * *
Management believes that, through debt and equity financing, sales of equipment
and business segments, and cash flows from operations, the Company will have
sufficient liquidity and capital resources to meet its projected future
operating needs over the next twelve months.
FORWARD-LOOKING INFORMATION:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Company's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of interest rate risk. A
change in the U.S. prime interest rate, LIBOR rate, or lender's cost of funds
based on commercial paper market rates, would affect the rate at which the
Company could borrow funds under its various borrowing facilities. Increases in
interest rates to the Company, which may cause the Company to raise the rates
charged to its customers, could in turn, result in a reduction in demand for the
Company's lease financing. The Company's warehouse credit facility, senior
secured notes, and $15.0 million of its other secured debt are variable rate
debt. The Company estimates a one percent increase or decrease in the Company's
variable rate debt would result in an increase or decrease, respectively, in
interest expense of $0.1 million in the remainder of 2000, $0.2 million in 2001,
$0.1 million in 2002, and $0.1 million in 2003. The Company estimates a two
percent increase or decrease in the Company's variable rate debt would result in
an increase or decrease, respectively, in interest expense of $0.3 million in
the remainder of 2000, $0.4 million in 2001, $0.3 million in 2002, and $0.2
million in 2003.
This space intentionally left blank.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 8 to the consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10.1 Third Amendment to Stock Sales Agreement among PLM International, Inc.
and Guaranty Federal Bank dated July 5, 2000.
10.2 Asset Purchase Agreement among Marubeni America Corporation and PLM
International, Inc. dated May 24, 2000.
10.3 Termination of Severance Agreement dated July 7, 2000 between PLM
Financial Services, Inc. and Stephen M. Bess.
10.4 Severance Agreement dated July 7, 2000 between PLM International, Inc.
and Stephen M. Bess.
10.5 Fourth Amendment to Stock Sales Agreement among PLM International, Inc.
and Guaranty Federal Bank dated July 31, 2000.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
/s/ Richard K Brock
Richard K Brock
Chief Financial Officer
Date: August 1, 2000