SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993. 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 identification
incorporation or Organization No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number (415) 974-1399
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
Registered
Common Stock, Par Value $.01 per Share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of
the Registrant as of March 25, 1993 was $32,771,194.
Number of common shares, $.01 par value, outstanding at March 25,
1994:
10,486,782 shares of common stock
Documents incorporated by reference: N/A
An index of exhibits filed with this Form 10-K is located at pages
23-24. Total Number of Pages: 57; 134 including exhibits.
PAGE
PLM INTERNATIONAL, INC.
1993 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
Page
Item 1 Business 2
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
Part II
Item 5 Market for Company's Common Equity and Related
Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8 Financial Statements and Supplemental Data 22
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
Part III
Item 10 Directors and Executive Officers of the Company 22
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners
and Management 22
Item 13 Certain Relationships and Related Transactions 22
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 22
PAGE
PART I
ITEM 1. BUSINESS.
A. Introduction
(i) Background.
PLM International, Inc. ("PLM International" or the
"Company" or "PLMI"), a Delaware corporation, is a transportation
equipment leasing company specializing in the management of
equipment on operating leases domestically and internationally.
The Company is also the leading sponsor of syndicated investment
programs organized to invest primarily in transportation equipment.
The Company operates and manages approximately $1.4 billion of
transportation equipment and related assets for its account and
various investment partnerships and third party accounts. An
organization chart for PLM International indicating the
relationships of active legal entities is shown in Table I:
TABLE 1
ORGANIZATION CHART
PLM International, Inc., a Delaware corporation, the parent
corporation.
Subsidiaries of PLM International, Inc.:
PLM Financial Services, Inc., a Delaware corporation;
PLM Railcar Management Services, Inc., a Delaware corporation; and
Transportation Equipment Indemnity Company, Ltd., a Bermuda
corporation.
Subsidiaries of PLM Financial Services, Inc.:
PLM Investment Management, Inc., a California corporation;
PLM Transportation Equipment Corporation, a California corporation;
PLM Securities Corp., a California corporation.
A Subsidiary of PLM Transportation Equipment Corporation is PLM
Rental, Inc., a Delaware corporation.
A Subsidiary of PLM Railcar Management Services, Inc. is PLM
Railcar Management Services Canada, Ltd., an Alberta corporation.
Note: All entities are 100% owned
PAGE
(ii) Description of Business
PLM International owns and manages a portfolio of
transportation equipment consisting of approximately 50,000
individual items with an original cost of approximately $1.4
billion (shown in Table 2). The Company manages equipment and
related assets for approximately 71,000 investors in various
limited partnerships or investment programs.
TABLE 2
EQUIPMENT AND RELATED ASSETS
December 31, 1993
(Original Cost in Millions)
Other
Equipment Investor
PLMI Funds Programs Total
Aircraft $ 90 $ 304 $ 10 $ 404
Marine Vessels 18 322 - 340
Railcars/Locomotives 2 109 59 170
Trailers/Tractors 74 62 29 165
Marine Containers 13 118 14 145
Mobile Off-shore Drilling
Units (MODUs) - 113 - 113
Storage Vaults 1 - - 1
Other 23 40 5 68
TOTAL $ 221 $1,068 $ 117 $1,406
(iii) Equipment Owned.
The Company leases its own equipment to a wide variety of
lessees. In general, the equipment leasing industry is an
alternative to direct equipment ownership. It is a highly
competitive industry that offers varying lease terms that range
from day-to-day to a term equal to the economic life of the
equipment ("Full Payout"). Generally, leases that are for a term
less than the economic life of the equipment are known as operating
leases because the aggregate lease rentals accruing over the
initial lease period are less than the cost of the leased
equipment. PLM International's focus is on providing equipment
under operating leases. This type of lease generally commands a
higher lease rate for the equipment than Full Payout leases. This
emphasis on operating leases requires highly experienced management
and support staff, as the equipment must be periodically re-leased
to continue generating rental income, and thus, to maximize the
long-term return on investment in the equipment. In appropriate
circumstances, certain equipment, mainly marine containers, is
leased to utilization-type pools which pools include equipment
owned by unaffiliated parties. In such instances, revenues
received by the Company consist of a specified percentage of the
pro-rata share of lease revenues generated by the pool operator
from leasing the pooled equipment to its customers, after deducting
certain direct operating expenses of the pooled equipment.
With respect to trailer leasing activities, the Company has
refocused its direction by marketing over-the-road trailers through
its subsidiary PLM Rental, Inc. ("PLM Rental") on short-term leases
through rental yards located in ten major U.S. cities. In
addition, the Company markets its intermodal trailers on short-term
arrangements through a licensing agreement with a short line
railroad. In 1991, the Company expanded its short-term trailer
rental operations by purchasing seven existing rental yards,
transferring portions of its existing fleet to rental yard
operations and purchasing additional trailers at attractive prices.
In addition, the Company markets on-site storage units protected by
a patented security system through both existing facilities and PLM
Rental's facilities.
Over the past five years, approximately 95% of all equipment
(owned and managed) on average, was on lease. (See Table 3.) Set
forth below in Table 3 are details of the development of the
Company's managed equipment portfolio and off-lease performance
over the past five years.
TABLE 3
Equipment Portfolio Development and Off-Lease Performance<F1>
(Dollars in Thousands)
Assets Equipment
Under Equipment Disposi- Equipment On-Lease
Management Purchases tions<F2> Off-lease<F3> Factor
1993 $ 1,406,000 $ 217,000 $ 230,000 $ 50,000 96.4%
1992 1,356,000 109,000 110,000 129,000 90.8
1991 1,353,000 131,000 86,000 100,000 93.0
1990 1,323,000 223,000 20,000 77,000 94.3
1989 1,108,000 286,000 20,000 25,000 97.9
<FN>
<F1> At December 31, for each designated year, dollar values
reflect cost of equipment to the Company and its affiliated
investor programs.
<F2> Includes equipment sales and casualties.
<F3> Includes equipment owned and managed by the Company as of
December 31 for each given year.
<F4> Cost of on-lease equipment divided by cost of total equipment
at December 31 for each given year.
(iv) Subsidiary Business Segments:
(A) PLM Financial Services, Inc.
The Company's financial services activities, as conducted
by PLM Financial Services, Inc. ("FSI") along with its primary
subsidiaries: PLM Transportation Equipment Corporation ("TEC"); PLM
Securities Corp. ("PLM Securities"); and PLM Investment Management,
Inc. ("IMI"), center on the development, syndication and management
of investment programs, principally limited partnerships, which
acquire and lease transportation equipment. Depending on the
objectives of the particular program, the programs feature various
combinations of current cash flow and income tax benefits through
investments in long-lived, low obsolescence transportation and
related equipment. Programs sponsored by FSI are offered
nationwide through a network of unaffiliated national and regional
broker-dealers and financial planning firms.
FSI has completed the offering of fourteen public programs
which have invested in diversified portfolios of transportation and
related equipment. In 1986, FSI introduced the PLM Equipment
Growth Fund ("EGFs") investment series. The EGFs are limited
partnerships designed to invest primarily in used transportation
equipment for lease in order to generate current operating cash
flow for (i) distribution to investors and (ii) reinvestment into
additional used transportation equipment. An objective of the EGFs
is to maximize the value in the equipment portfolio and provide
cash distributions to investors by acquiring and selling items of
equipment at times when prices are most advantageous to the
investor. The cumulative equity raised by PLM International for
its affiliated investment limited partnerships now stands at $1.5
billion. The Company has raised more syndicated equity for
equipment leasing programs than any other syndicator in United
States history. Annually, since 1983, PLM International has been
one of the top three equipment leasing syndicators in the United
States. Annually, from 1990 through 1993, the Company has ranked
as the number one diversified transportation equipment leasing
syndicator in the United States. PLMI's market share for all
syndicated equipment leasing programs rose to 22% in 1993 from 18%
in 1992. In 1993 the Company was the number one overall equipment
leasing syndicator. Since 1983, the Company is the only syndicator
of equipment leasing programs to raise on average over $100,000,000
annually.<F1>
EGFI, EGFII and EGFIII are listed for trading on the
American Stock Exchange. Changes in the federal tax laws which
could cause a partnership such as an EGF to be taxed as a
corporation rather than treated as a nontaxable entity in the event
its partnership interests become publicly traded prompted
management of PLM International to structure EGF IV, EGF V, EGF VI
and EGF VII so that they will not be publicly traded. These tax
law changes do not currently apply to EGF I, EGF II or EGF III.
In general, investment programs that acquire assets on an
all-cash basis with the primary goal of maximizing cash flow for
distribution to investors are known as income funds. The EGFs, as
growth funds, may, if it is deemed advantageous to the overall
program, obtain limited leverage and typically reinvest a portion
of their current cash flow to acquire additional equipment to grow
the equipment
[FN]
<F1> The Stanger Review, Partnership Sales Summary
portfolio. Each of EGF I, EGF II, EGF III, EGF IV, EGF V and EGF
VI have entered into long-term debt agreements with independent
banks and financial institutions permitting each partnership to
borrow an amount equal to approximately 20% of the original cost of
equipment in the respective EGF's portfolio. The loans are non-
recourse except to the assets of the respective partnerships.
FSI's revenues are derived from services performed in
connection with the organization, marketing and management of its
investor programs. These services include acquiring and leasing
equipment and a variety of management services for which the
following fees are received: (1) placement fees earned from the
sale of equity in the investment programs; (2) acquisition and
lease negotiation fees earned for arranging delivery of equipment
and the negotiation of initial use of equipment; (3) debt placement
fees, as applicable, earned at the time loans (other than loans
associated with the refinancing of existing indebtedness) are
funded; (4) management fees earned on revenues or cash flows
generated from equipment portfolios; and (5) commissions and
subordinated incentive fees earned upon sale of the equipment
during the liquidation stage of the program.
FSI serves as the general partner for most of the
partnerships offered by PLM Securities Corp. As general partner,
FSI retains a 1% to 5% equity interest. FSI recognizes as other
income its equity interest in the earnings or cash distributions of
partnerships for which it serves as general partner.
(B) PLM Transportation Equipment Corporation
PLM Transportation Equipment Corporation ("TEC") is
responsible for selection of equipment; negotiation and purchase of
equipment; initial use and re-lease of equipment; and financing of
equipment. This process includes identification of prospective
lessees, analyses of lessees' credit worthiness, negotiation of
lease terms, negotiations with equipment owners, manufacturers or
dealers for the purchase, delivery and inspection of equipment,
preparation of debt offering materials and negotiation of loans.
TEC purchases transportation equipment for PLM International's own
portfolio and on an interim basis for resale to various affiliated
limited partnerships at cost, or to third parties.
(C) PLM Securities Corp.
PLM Securities Corp. ("PLM Securities") markets the
investment programs through unaffiliated broker/dealers and
financial planning firms throughout the United States. Sales of
investment programs are not made directly to the public by PLM
Securities. During 1993, approximately 200 selected broker/dealer
firms with over 20,000 agents sold investment units in EGFVI and
EGFVII. During 1993, Wheat First Butcher Singer and Equico
Securities, Inc. accounted for approximately 16% and 12%,
respectively, of the equity sales. In 1992, Equico Securities,
Inc. and J.C. Bradford and Co. sold approximately 18% and 13%,
respectively, of the limited partnership units offered by PLM
Securities. Approximately 17.0% of the investment program units
sold in 1991 were placed by Equico Securities, Inc. No other
selected agent has accounted for the sale of more than 10% of the
investment programs during these periods. The marketing of the
investment programs is supported by PLM Securities representatives
who deal directly with account executives of participating
broker/dealers.
PLM Securities earns a placement fee for the sale of the
aforementioned investment units of which a significant portion is
reallowed to the originating broker/dealer. Placement fees may
vary from program to program, but in the EGF VII program, PLM
Securities receives a fee of up to 9% of the capital contributions
to the partnership, of which commissions of up to 8% are reallowed
to the unaffiliated selling entity with the difference being
retained by PLM Securities.
For the year ended December 31, 1993, the Company raised
investor equity totalling approximately $92,500,000 for its EGF VI
and EGF VII programs. FSI continues to sponsor syndicated investor
offerings involving diversified equipment types.
(D) PLM Investment Management, Inc.
PLM Investment Management, Inc. ("IMI") manages equipment
owned by the Company and by investors in the various investment
programs. The equipment consists of the following: aircraft
(commercial, commuter, corporate and emergency medical services);
aircraft engines; railcars and locomotives; tractors (highway);
trailers (highway and intermodal, refrigerated and non-
refrigerated); marine containers (refrigerated and
non-refrigerated), marine vessels (dry bulk carriers and product
tankers) and mobile off-shore drilling units ("MODUs"). IMI is
obligated to invoice and collect rents, arrange for maintenance and
repair of the equipment, pay operating expenses, debt service and
certain taxes, determine that the equipment is used in accordance
with all operative contractual arrangements, arrange insurance,
correspond with program investors, provide or arrange clerical and
administrative services necessary to the operation of the
equipment, prepare financial statements and tax information
materials and make distributions to investors. IMI also monitors
equipment regulatory requirements and application of investor
program debt covenants.
(E) PLM Railcar Management Services, Inc.
PLM Railcar Management Services, Inc. ("RMSI") markets and
manages railcar fleets which are owned by the Company and the
various investment programs. RMSI is also involved in negotiating
the purchase and sale of railcars. Much of the historical
responsibilities of RMSI are now being conducted by TEC. PLM
Railcar Management Services Canada Limited, a wholly-owned
subsidiary of RMSI and headquartered in Calgary, Alberta, Canada,
provides fleet management services to the owned and managed
railcars operating in Canada.
(F) Transportation Equipment Indemnity Company Ltd.
Transportation Equipment Indemnity Company Ltd. ("TEI") is
a Bermuda-based insurance company licensed to underwrite a full
range of insurance products including property and casualty risk.
TEI's primary objective is to minimize the long term cost of
insurance coverages for all owned and managed equipment. A
substantial portion of the risks underwritten by TEI are reinsured
with unaffiliated underwriters.
(G) PLM Rental, Inc.
PLM Rental markets trailers and storage units owned by the
Company and its affiliated investor programs on short term leases
through a network of rental facilities. Presently, facilities are
located in Atlanta, Chicago, Dallas, Detroit, Indianapolis, Kansas
City, Miami, Newark, Orlando and Tampa.
All subsidiaries are 100% owned directly or indirectly by
PLM International.
(v) Equipment Leasing Markets
Within the equipment leasing industry, there are
essentially three leasing markets: the Full Payout lease,
short-term rentals and the mid-term operating lease. The Full
Payout lease, in which the combined rental payments are sufficient
to cover the lessor's investment and to provide a return on the
investment, is the most common form of leasing. This type of lease
is sometimes referred to as a finance lease. Under United States
generally accepted accounting principles a finance lease is
accounted for as a purchase of the underlying asset. From the
lessee's perspective, the election to enter into a Full Payout
lease is usually made on the basis of a lease versus purchase
analysis which will take into account the lessee's ability to
utilize the depreciation tax benefits of ownership, its liquidity
and cost of capital, and financial reporting considerations.
Short-term rental lessors direct their services to a user's
short-term equipment needs. This business requires a more
extensive overhead commitment in the form of marketing and
operating personnel by the lessor/owner. There is normally less
than full utilization in the lessor's equipment fleet as lessee
turnover is frequent. Lessors usually charge a premium for the
additional flexibility provided through short-term rentals. To
satisfy lessee short-term needs, certain equipment is leased
through pooling arrangements or utilization leases. For lessees
these arrangements can work effectively with respect to
interchangeable equipment such as marine containers, trailers and
marine vessels. From the lessor's perspective these arrangements
diversify risk.
Operating leases for transportation equipment generally run
for a period of one to six years. Operating lease rates are
usually higher than Full Payout lease rates, but lower than
short-term rental rates. From a lessee's perspective, the
advantages of a mid-term operating lease compared to a Full Payout
lease are flexibility in its equipment commitment and the fact that
the rental obligation under the lease need not be capitalized on
its balance sheet. The advantage from the lessee's perspective of
a mid-term operating lease compared to a short-term rental, apart
from the lower monthly cost, is greater control over future costs
and the ability to balance equipment requirements over a specific
period of time. Disadvantages of the mid-term operating lease from
the lessee's perspective are that the equipment may be subject to
significant changes in lease rates for future periods or may even
be required to be returned to the lessor at the expiration of the
initial lease. A disadvantage from the lessor's perspective of the
mid-term operating lease (as well as the short-term rental)
compared to the Full Payout lease is that the equipment generally
must be re-leased at the expiration of the initial lease term in
order for the lessor to recover its investment.
PLM International, its subsidiaries and affiliated
investment programs lease their equipment primarily on mid-term
operating leases and short-term rentals. Many of its leases are
"net" operating leases. In a net operating lease, expenses such as
insurance and maintenance are the responsibility of the lessee.
The effect of entering into net operating leases is to reduce the
lease rates as compared to non-net
lease rates for comparable lease terms. However, the overall
profitability of net operating leases is more predictable and less
risk is assumed over time as the lessees absorb maintenance costs
that generally increase as equipment ages. Per diem rental
agreements are used mainly on equipment in the Company's trailer,
marine container, and storage unit rental operations. Per diem
rentals for the most part require the Company to absorb maintenance
costs which again tend to increase as the equipment ages.
(vi) Management Programs
FSI also has sponsored programs in which the equipment is
individually owned by the program investors. Management
agreements, with initial terms ranging from 3 to 10 years, are
typically employed to provide for the management of this
equipment. These agreements require that the Company or one of its
subsidiaries use its best efforts to lease the equipment, and to
otherwise perform all managerial functions necessary for the
operation of the equipment, including arranging for maintenance and
repair, collection of lease revenues and disbursement of operating
expenses. Management agreements also require that the Company
correspond with program investors, prepare financial statements and
tax information materials and make distributions to investors.
Operating revenues and expense for equipment under management
agreements are generally pooled in each program and shared prorata
by the participants. Management fees are received by IMI for these
services based on a flat fee per unit of equipment per month.
(vii) Lessees
Lessees of equipment range from Fortune 500 companies to
small, privately-held corporations and entities. All (i) equipment
acquisitions, (ii) equipment sales, and (iii) lease renewals
relating to equipment having an original cost basis in excess of $1
million must be approved by a credit committee consisting of senior
executives of PLM International. PLM Rental, which leases
equipment primarily on short-term rentals, follows guidelines set
by the credit committee in determining the credit worthiness of its
respective lessees. Deposits, prepaid rents, corporate and
personal guarantees and letters of credit are utilized, when
necessary, to provide credit support for lessees which alone do not
have a financial condition satisfactory to the credit committee. No
single lessee of the Company's equipment accounted for more than
10% of revenues for the year ended December 31, 1993.
(viii) Competition
In the distribution of investment programs, FSI competes
with numerous organizations engaged in limited partnership
syndications. While management of the Company does not believe
that any sponsor dominates the offering of similar investment
programs, there are other sponsors of such programs which may have
greater assets and financial resources or may have the ability to
borrow on more favorable terms, or may have other significant
competitive advantages. The principal competitive factors in the
organization and distribution of investment programs are: the
ability to reach investors through an experienced marketing force,
the performance of prior investment programs, the particular terms
of the investment program, and the development of a client base
which is willing to consider periodic investments in such programs.
Competition for investors' funds also exists with other financial
instruments and intermediaries such as: certificates of deposits,
money market funds, stocks, bonds, mutual funds, investment
trusts, real estate, brokerage houses, banks and insurance
companies. FSI believes that the structure of its current
partnership programs permits it to compete with other equipment
leasing programs as well as with oil and gas and real estate
programs. FSI's investment programs compete directly with numerous
other entities for equipment acquisition and leasing opportunities
and for debt financing. The $93,100,000 invested in the Company's
public-sponsored partnerships in 1991 ranked it the number one
syndicator of transportation equipment leasing programs in 1991.
In 1992, the $111,100,000 invested in EGF VI ranked the Company as
the number two syndicator of transportation equipment leasing
programs. The $92,500,000 invested in the Company's public-
sponsored equity programs in 1993 ranked PLM Securities the number
one syndicator of equipment leasing programs for the year. Since
1983, the Company is the only syndicator of transportation
equipment programs to raise on average more than $100,000,000
annually.<F1>
In connection with operating leases, the Company encounters
considerable competition from lessors offering Full Payout leases
on new equipment. In comparing lease terms for the same equipment,
Full Payout leases provide longer lease periods and lower monthly
rent than the Company offers. However, lower lease rates can
generally be offered for used equipment under operating leases than
can be offered on similar new equipment under a Full Payout lease.
For the most part, long lived, low-obsolescence equipment such as
used transportation equipment can be utilized by a lessee to the
same extent as new equipment. The shorter length of operating
leases also provides lessees with flexibility in their equipment
commitments.
The Company also competes with equipment manufacturers who
offer operating leases and Full Payout leases. Manufacturers may
provide ancillary services which the Company cannot offer such as
specialized maintenance services (including possible substitution
of equipment), warranty services, spare parts, training and
trade-in privileges.
The Company competes with many equipment lessors, including
ACF Industries, Inc. (Shippers Car Line Division), American Finance
Group, Chancellor Corporation, General Electric Railcar Services
Corporation, Greenbrier Leasing Company, Polaris Aircraft Leasing
Corp., G.P.A. Group Plc., and certain limited partnerships, some of
which engage in syndications, and which lease the same type of
equipment.
(ix) Government Regulations
PLM Securities is registered with the Securities and
Exchange Commission ("SEC") as a broker-dealer. As such, it is
subject to supervision by the SEC and securities authorities in
each of the states. In addition, it is a member of the National
Association of Securities Dealers, Inc. and is subject to that
entity's rules and regulations. These rules and regulations govern
such matters as program structure, sales methods, net capital
requirements, record keeping requirements, trade practices among
broker-dealers and dealings with investors.
Sales of investment programs must be made in compliance
with various complex federal and state securities laws. Failure to
comply with provisions of these laws, even though inadvertent,
could result in investors having rights of rescission or claims for
damages.
[FN]
<F1> The Stanger Review, Partnership Sales Summary.
The transportation industry, in which a substantial
majority of the equipment owned and managed by the Company
operates, has been subject to substantial regulation by various
federal, state, local and foreign governmental authorities. For
example, the United States Oil Pollution Act of 1990 ("O.P.A.")
requires that all newly constructed oil tankers and oceangoing
barges operating in United States waters have double hulls.
Additionally, under O.P.A. owners are required to either retrofit
existing single hulled vessels with double hulls or remove them
from service in United States waters in accordance with a statutory
timetable before the year 2015. Also, the Airport Noise and
Capacity Act of 1990 generally prohibits the operation of
commercial jets which do not comply with Stage 3 noise level
restrictions at United States airports after December 1999. Both
of these enactments could affect the performance of marine vessels
and aircraft owned and managed by the Company. It is not possible
to predict the positive or negative effect of future regulatory
changes in the transportation industry.
(x) Employees
As of March 15, 1994, the Company and its subsidiaries had
215 employees. None of the Company's employees are subject to
collective bargaining arrangements. On August 21, 1989, PLM
International sold 4,923,077 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") to the PLM International
Employee Stock Ownership Plan Trust (the "ESOP Trust") for $13.00
per share. The Preferred Stock is a voting security, representing
approximately 32% of the voting shares of PLM International. The
Company believes employee relations are good.
ITEM 2. PROPERTIES
At December 31, 1993, the Company owned transportation
equipment and related assets originally costing approximately $221
million. The Company leases approximately 46,000 square feet as
its principal office at One Market, Steuart Street Tower, San
Francisco, California. The Company leases business offices in
Chicago, Illinois; Hurst, Texas; and Calgary, Alberta, Canada. In
addition, the Company leases trailer rental yard facilities in
Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Detroit,
Michigan; Indianapolis, Indiana; Kansas City, Kansas; Miami,
Florida; Newark, New Jersey; Orlando, Florida and Tampa, Florida.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved as plaintiff or defendant in
various legal actions incident to its business. Except as
described below, management does not believe that any of these
actions will be material to the financial condition of the Company.
Five current members of the Board of Directors of PLM
International (the "Individual Defendants") were named as
defendants in an amended complaint that was filed on October 4,
1993, in the Superior Court of the State of California in and for
the County of San Francisco, Case No. 953005, by purported PLMI
shareholder Robert D. Hass on behalf of himself and derivatively on
behalf of PLMI.
The action alleges intentional breaches of fiduciary
duties, abuse of control, waste of corporate assets, gross
mismanagement, and unjust enrichment, and seeks injunctive relief
and damages. Specifically, the plaintiff alleges that certain or
all of the individual defendants breached their duties by (i)
establishing and maintaining the Company's Employee Stock Ownership
Plan, (ii) amending on January 25, 1993 the Company's Shareholder
Rights Agreement and (iii) granting to each other excessive and
unjustified compensation. The Individual Defendants have denied
and continue to deny all of the claims and contentions of alleged
wrongdoing or liability.
On February 14, 1994, the Individual Defendants, Mr. Hass
and the Company entered into a Stipulation of Settlement (the
"Stipulation"), wherein they agreed to settle the lawsuit, subject
to court approval. The Stipulation provides, in part, that the
Company Board of Directors will take certain actions with respect
to the compensation and make-up of such Board of Directors. The
Stipulation also provides that the Company will pay up to $160,000
to plaintiffs' attorneys for fees and costs. On March 11, 1994,
the court approved the Stipulation and entered its Final Order and
Judgment. The settlement was reached after all of the parties
concluded that such settlement was desirable in order to avoid the
expense, inconvenience, uncertainty and distraction of further
legal proceedings. The Company believes that the settlement is
fair, reasonable and adequate and in the best interests of PLM and
its shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
At the Annual Meeting of Stockholders of PLM International
held on Thursday, May 12, 1993, one proposal was submitted to a
vote of the Company's security holders. Allen V. Hirsch was re-
elected as a Class III director of the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Common Stock:
The Company's Common Stock trades (under the ticker symbol
"PLM") on the American Stock Exchange ("AMEX"). As of the date of
this Annual Report, there are 10,486,782 common shares outstanding
and approximately 13,000 shareholders of record.
Table 4, below, sets forth the high and low prices of the
Company's common stock for 1992 and 1993 as reported by the AMEX:
TABLE 4
Calendar Period High Low
1992
1st Quarter $ 3.875 $ 2.375
2nd Quarter $ 2.625 $ 1.750
3rd Quarter $ 2.375 $ 1.625
4th Quarter $ 1.936 $ 1.562
1993
1st Quarter $ 3.125 $ 1.750
2nd Quarter $ 2.563 $ 2.000
3rd Quarter $ 2.500 $ 2.000
4th Quarter $ 2.750 $ 2.000
Four hundred thousand shares of the Company's common stock
were held in escrow on behalf of Transcisco Industries, Inc.
("Transcisco"), holder of approximately 32% of the common stock of
the Company, which were to be released to Transcisco only if the
Company met certain tests based on achievement of predetermined
target stock prices and target earnings per share levels at any
point prior to January 1, 1993. The Company did not meet any of
the applicable tests and the 400,000 shares were transferred to
treasury. Historically, these shares have been treated as
contingent recallable shares for all calculations of earnings
(loss) per share.
On March 2, 1989, Transcisco amended its Schedule 13D filed
in connection with its investment in the Company indicating an
intention to dispose of its entire holdings of the Company. In
July, 1991, Transcisco filed a petition for reorganization in the
United States Bankruptcy Court. On October 20, 1993, the
Bankruptcy Court issued an order confirming a joint plan of
reorganization (the "Plan") in Transcisco's Chapter 11 bankruptcy
case. Under the Plan, in consideration for a release by
Transcisco's bondholders of all claims against Transcisco,
Transcisco will transfer to Securities Holding, L.P., a California
limited partnership that will act as the bondholders'
representative, the 3,367,367 shares of the Company's Common Stock
and a $5 million subordinated note from the Company (the "PLMI
Note"). Transcisco will retain a 40% interest in the PLMI Note.
As of the date of this report, the foregoing transactions had not
been completed.
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF SELECTED FINANCIAL DATA
(In thousands except per share amounts)
Years Ended December 31,
Results of Operations:
1993 1992 1991 1990 1989
Revenue $ 69,652 $ 75,035 $ 72,767 $ 87,429 $ 96,084
Income (loss)
before taxes $ 7,737 $(33,918) $ 10,228 $ 12,640 $ 21,495
Net Income (loss) $ 6,282 $(18,231) $ 10,103 $ 10,871 $ 14,870
Net Income (loss)
to common
shares $ 1,432 $(25,271) $ 3,063 $ 3,831 $ 12,305
Per common share:
Net Income
(loss) $ 0.14 $ (2.41) $ 0.30 $ 0.38 $ 1.21
Financial Position:
Total assets $217,720 $255,404 $319,074 $314,773 $372,011
Long-term debt $129,119 $171,470 $194,390 $175,674 $193,615
Shareholders'
equity $ 51,133 $ 44,719 $ 65,964 $ 67,056 $ 66,335
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of the Company's Operating Results for the Years Ended
December 31, 1993 and 1992
The Company owns a diversified portfolio of transportation
equipment from which it earns operating lease revenue and incurs
operating expenses. The Company also raises investor equity through
syndicated partnerships and invests the equity raised in
transportation equipment which it manages on behalf of its
investors. The Company earns various fees and equity interest from
syndication and investor equipment management activities.
The Company's transportation equipment held for operating
leases is mainly equipment built prior to 1988. As trailer
equipment ages, the Company is generally replacing it with newer
equipment. However, aged equipment for other equipment types may
not be replaced. Rather, proceeds from the liquidation of other
equipment types may be invested in trailers or in other Company
investment opportunities. Failure to replace equipment may result
in shorter lease terms and higher costs of maintaining and
operating aged equipment and in certain instances, limited
remarketability.
During 1992 the Company embarked on a strategic restructuring
plan designed to identify underperforming assets in its own
transportation equipment portfolio for both valuation adjustments
and sale opportunities, to reduce senior indebtedness primarily
from the proceeds of such sales and associated interest costs, and
to reduce the operational cost structure. During 1993, the Company
continued to execute on this strategy and realized significant
progress in the restructuring plan. Below is an analysis of the
impact the restructuring plan had on operations for the year.
Following is an analysis of other operational factors that impacted
the financial results for 1993.
Restructuring Plan: Impact on Operating Results
Results from sales of equipment that were designated in 1992
as assets held for sale demonstrated the intended purpose of the
asset sale strategy. Assets with a net book value of approximately
$24.9 million were sold at a gain of $2.4 millon in 1993. During
1992 there were sales having a net book value of $14.6 million and
corresponding gains of $2.0 million. The Company had $9.3 million
in equipment held for sale at December 31, 1993 versus $29.9
million at December 31, 1992.
The proceeds generated by sales of equipment, combined with
excess operating cash flow, have been used to reduce senior
indebtedness from $100 million as of July 1992 to $45 million as of
December 31, 1993. Outstanding senior and other secured debt was
reduced by $37.2 million in 1993. This reduction in outstanding
debt resulted in a decrease in interest expense of $1.5 million in
1993.
Sales of equipment impacted operational results in several
other areas as well. Operating lease revenues decreased by $6.2
million versus 1992 due to the reduced asset base. This included
sale of most of the railcar fleet, an 18% reduction in the aircraft
fleet, and a 13% reduction in both trailers and marine containers.
The reduction in the lease fleet also accounted for a $1.7 million
decrease in depreciation expense versus 1992.
Review of the Company's equipment portfolio and identification
of underperforming assets led to valuation adjustments charged to
operations for reductions in carrying values of assets. These
adjustments amounted to $2.2 million in 1993 as compared to $36.2
million in 1992. Equipment types that were subject to valuation
adjustments in 1993 were primarily containers, trailers and
railcars. Equipment types that were subject to valuation
adjustments in 1992 were primarily commuter aircraft and trailers.
The Company continues to review the performance and carrying values
of its transportation equipment portfolio in relation to expected
net realizable values. Future adjustments to the carrying value of
the Company's equipment may occur if permanent impairments are
identified.
The strategic restructuring of operations led to a reduction
in operations support costs of approximately $4.0 million for 1993.
These decreases result from the reduction in the Company's
portfolio of assets, efficiencies gained in accounting functions as
well as the closing of the PLM Rental headquarters office and
subsequent consolidation of its functions in San Francisco. The
Company's sales office in London was closed in 1993 and other cost
savings measures were implemented. Employee count was reduced from
247 at December 31, 1992 to 209 at December 31, 1993.
During 1992 and 1993, the Company settled its long-standing
class action litigation and other material litigation resulting in
a reduction of litigation costs. The Company also charged to
expense in 1992 certain capitalized costs as a result of
restructuring of the Company's senior loan agreement. Litigation
and other charges amounted to $7.6 million in 1992.
Other Operational Factors: Impact on Operating Results
Revenue:
The Company's total revenue for the years ended December 31,
1993 and 1992 were $69.7 million and $75.0 million, respectively.
The above analysis of the restructuring plan explains a $6.2
million negative variance in lease revenue. Various other factors
impacting revenues in 1993 are explained below:
Operating lease revenue was unfavorably impacted by lower
utilization of interim bridge financing to acquire equipment for
resale to one or more of the Company's affiliated partnerships or
to independent parties. In 1993, the bridge financing was shared
with either EGF VI or EGF VII. During the period that equipment is
acquired by use of the bridge facility, the lease revenue generated
by this equipment is earned by the Company. This revenue is offset
by corresponding equipment operating costs as well as by the
interest accruing on the interim debt. There was a decrease of
$1.3 million in leasing revenue resulting from lower utilization of
the bridge facility in 1993 versus 1992.
Management fees remained relatively constant at $10.8 million
between 1993 and 1992. These fees are, for the most part, based on
the revenues generated by equipment under management. The managed
equipment portfolio grows correspondingly with new syndication
activity. Affiliated partnership and investment program surplus
operating cash flows and loan proceeds invested in additional
equipment favorably influence management fees. While equipment
under management increased from 1992 to 1993, lease rates for
affiliated partnerships and investment programs fell so that gross
revenues, which give rise to the management fees, remained
relatively constant. Equipment managed at year end 1993 and 1992
(measured at acquisition cost) amounted to $1,141,000,000 and
$1,082,000,000, respectively.
Commission revenue and other fees are derived from raising
syndicated equity and acquiring and leasing equipment for Company
sponsored investment programs. Commission revenue consists of
placement fees which are earned on the amount of equity raised.
Acquisition and lease negotiation fees are earned on the amount of
equipment purchased and leased on behalf of syndicated investment
programs. These fees are governed by applicable program agreements
and securities regulations. The Company also receives a residual
interest in additional equipment acquired by affiliated
partnerships. Income is recognized on residual interests based
upon the general partner's share of the present value of the
estimated disposition proceeds of the equipment portfolios of the
affiliated partnerships.
Placement fees in 1993 decreased $1.7 million (18%) from 1992
as a result of less syndicated equity being raised. Equity raised
in 1993 decreased to $92,462,000 from $111,123,000 in 1992.
Acquisition and lease negotiation fees and other fees increased
$5.0 million in 1993 from the 1992 levels. Equipment placed in
service, or remarketed, totalled $186,606,000 in 1993 and
$93,185,000 in 1992. At December 31, 1993 cash resources available
to certain investment programs would permit additional equipment
acquisitions of approximately $19 million. These cash resources
are expected to be used by the programs to acquire additional
equipment in 1994. In 1993, the Company ranked as the number one
equipment leasing syndicator in the United States, as reported by
Stanger, an industry trade publication.
Costs and Expenses:
Certain costs and expense reductions related to the effects
of the restructuring plan, as detailed above resulted in specific
expense reductions in 1993 versus 1992 totalling $39.7 million as
follows: equipment valuation adjustments of $34.0 million,
depreciation of $1.7 million and operation support costs of $4.0
million. Various other factors impacting 1993 expenses are
explained below:
Commission expenses are primarily incurred by the Company in
connection with the syndication of investment partnerships.
Commissions are also paid to certain of the Company's employees
directly involved in leasing activities. The 1993 commission
expenses decreased $2.3 million (21%) from 1992 levels reflecting
the decrease in syndicated equity raised in 1993 versus 1992.
General and administrative expenses increased $2.6 million
(32%) during 1993. A portion of the increase relates to
reclassification of certain activities previously classified as
operations support. While headcount has decreased as discussed
above, there have been certain severance related costs that reduce
the favorable cost comparison for the periods reported.
Additionally, professional service costs were $1.0 million higher
in 1993.
Interest income decreased $0.6 million (11%) in 1993 primarily
due to the decrease in the interest rates applicable to restricted
cash deposits and marketable securities.
Other income (expense) was an expense of a $0.3 million in
1993 versus income of $0.5 million in 1992. Included is a charge
of $0.7 million in 1993 resulting from accelerating certain
expenses related to the Company interest rate swap agreement
required by its senior loan agreement.
The Company's income taxes include foreign, state and federal
elements and reflect a provision of 19% in 1993 and a benefit of
46% in 1992. The effective tax rate varies from the statutory rate
in 1993 due to non-recurring tax credits and the change in the
effect of the ESOP dividend due to implementation of FASB 109. The
1992 benefit of 46% differs from the statutory rate due primarily
to the effect of the ESOP dividend as prescribed under FASB 96.
As a result of all the foregoing, net income to common shares
for the year ended December 31, 1993 was $1,432,000 compared to net
loss to common shares of $25,271,000 in 1992.
Comparison of Company's Operating Results for the Years ended
December 31, 1992 and 1991
Restructuring Plan: Impact of Operating Results
Revenues:
Sales of equipment, pursuant to the restructuring plan
announced in the third quarter of 1992, had a negative impact on
lease revenue during 1992. Rail and aircraft revenue declined by
$3.4 million in 1992 due to the Company's reduction in the aircraft
fleet from 50 aircraft on December 31, 1991 to 39 aircraft as of
December 31, 1992 and its railcar fleet from 614 railcars on
December 31, 1991 to 407 railcars on December 31, 1992.
As part of the restructuring plan the Company sold certain
underperforming assets having a net book value of $14.6 million for
a gain of $2.0 million. This compared to a gain on the sale of
transportation equipment in 1991 of $0.1 million.
Costs and Expenses
The restructuring plan had a negative impact on the expenses
of the Company. In 1992, the Company reduced the carrying value of
certain assets, primarily aircraft and trailers, by $36.2 million.
This resulted from the Company's decision to exit certain market
niches and from permanent declines in the net realizable value of
equipment. During 1991 the Company reduced the carrying value of
one aircraft by $0.4 million.
The Company also recorded a nonrecurring charge in 1992 of
$7.6 million for litigation and other costs. This related to
settlement of litigation as well as expenses incurred in the
course of addressing lawsuits arising in the normal course of
business operations. The Company also charged to expense certain
capitalized costs as a result of restructuring the Company's senior
loan agreement. The sale of equipment in 1992 caused a reduction
in depreciation expenses of $0.8 million.
Other Operational Factors: Impact on Operating Results
The Company's total revenue for the years ended December 31,
1992 and 1991 were $75.0 million and $72.8 million, respectively.
The results of the restructuring plan account for a negative impact
on revenues of $3.4 million. Various other factors affected
revenues in 1992 and are explained below:
Operating lease revenue increased $2.5 million in 1992
compared to 1991. Trailer revenues increased $4.4 million in 1992
due to the Company's decision to acquire more trailers for its per
diem rental operations, increased utilization of trailers, and
increased revenue from its new storage unit division. During 1992,
there was an increase of $0.8 million in leasing revenue resulting
from equipment being held on an interim basis for resale to its
sponsored programs.
Management fees and partnership interests. Management fees
decreased $0.4 million (3%) in 1992 over the fees earned in 1991.
While equipment under management increased from 1991 to 1992, lease
revenues of affiliated partnerships and investment programs fell
slightly. Equipment oversupply, weaker demand and lower interest
rates all contributed to lower lease rates in commercial aircraft
and marine vessels in 1992. Equipment managed at year end 1992 and
1991 (measured at acquisition cost) amounted to $1,082,000,000 and
$1,036,000,000, respectively. Income from partnership interests
decreased $1.1 million (22%) primarily due to a retroactive special
allocation of income in 1991.
Commission revenue and other fees. Placement fees in 1992
increased $1.6 million (20%) from 1991 as a result of more
syndicated equity being raised. Equity raised in 1992 increased to
$111,123,000 from $93,092,000 in 1991. In 1992, the Company ranked
as the number one diversified transportation equipment syndicator
and number two overall equipment syndicator in the United States.
Acquisition and lease negotiation fees and other fees
decreased 31% in 1992 from 1991 levels. Equipment placed in
service by the Company's affiliated partnerships totalled
$93,185,000 in 1992 and $120,699,000 in 1991. At December 31,
1992, cash resources available to certain investment programs would
permit additional equipment acquisitions of approximately $25
million. These cash resources were used by the investment programs
to acquire additional equipment in 1993.
Costs and Expenses:
Certain cost and expense variances relating to the
restructuring plan, as detailed above, resulted in specific
variations as follows: increase in equipment valuation adjustments
of $35.8 million and a decrease in depreciation expense of $0.8
million. Various other factors impacting 1992 expenses are
explained below:
Operations support expense increased $2.4 million (11%) in
1992 from 1991 levels. The change for 1992 is due principally to
(i) a one-time favorable bad debt settlement received in 1991; (ii)
expense incurred in the expansion of storage equipment operations;
(iii) increased utilization of trailer equipment and (iv) expansion
of PLM Rental operations (Company-owned trailers in daily rental
operations increased to 5,000 units in 1992 from approximately
4,700 in 1991).
Commission expenses increased in 1992 $2.0 million (22%) from
1991 levels reflecting the increased in syndicated equity raised in
1992 versus 1991.
General and administrative expenses decreased $0.6 million
(7%) during 1992. This expense reduction resulted primarily from
the loss incurred on the sublease of the Company's former principal
offices totaling $0.3 million in 1992 compared to $1.25 million in
1991. This was offset in 1992 by an increase in professional fees
of $0.4 million.
Other Items:
Interest expense decreased $1.6 million (10%) in 1992 from
that incurred in 1991. The decrease reflects the effect of reduced
interest rates in 1992 versus 1991 which more than offset the
increase in average borrowings during 1992.
Interest income decreased $1.9 million (24%) in 1992 primarily
due to the decrease in the interest rates for restricted cash
deposits and marketable securities.
Income taxes. The Company's income taxes include foreign,
state, and federal elements and reflect a benefit of 46% in 1992
and a provision of 1% in 1991. The effective tax rate varies from
the statutory rate principally due to the tax effect of the ESOP
dividend.
As a result of all the foregoing, net loss to common shares
for the year ended December 31, 1992 was $25,271,000 compared to
net income available to common shares of $3,063,000 in 1991. This
decline was primarily attributable to restructuring adjustments and
litigation and other costs.
Liquidity and Capital Resources
Cash requirements have been historically satisfied through
cash flow from operations, borrowings or sales of transportation
equipment. During 1993 cash flow from operations was significantly
impacted by the Company's restructuring plan, announced in August
1992, which plan includes the sale of equipment to pay down senior
indebtedness. Equipment sales generated $16.6 million in 1992 and
$27.3 million in 1993. At July 1, 1992, the outstanding principal
balance on the senior secured loan totalled $100 million. At
December 31, 1993, the principal balance of the senior
loan was $45 million. Reduced lease revenues resulting from a
smaller transportation equipment portfolio have been offset by the
lower interest expense exposure resulting from the reduction in
senior indebtedness, as well as operational cost reductions
implemented by the Company also as part of the restructuring plan.
As a result, cash and cash equivalents are at a historical high for
the Company.
Liquidity beyond 1993 will depend in part on continued
remarketing of the remaining equipment portfolio at similar lease
rates, continued success in raising syndicated equity for the
sponsored programs, effectiveness of cost control programs, ability
of the Company to secure new financings and possible additional
equipment sales. Specifically, future liquidity will be influenced
by the following:
(a) Debt Financing:
Senior and Subordinated Debt: On October 28, 1992, the
Company's senior secured term loan agreement was amended to provide
an accelerated principal amortization schedule. The amended
agreement provides for the net proceeds from the sale of
transportation equipment to be placed into collateral accounts to
be used for principal reductions. Cash proceeds received from
equipment sales totaling $43.9 million in 1992 and 1993 have
contributed substantially to the $55 million reduction of this loan
to $45.0 million. The Company will make an additional principal
payment in the amount of $8.2 million on March 31, 1994. Final
maturity of the senior secured indebtedness is June 30, 1994. The
Company is presently marketing replacement financing for the senior
secured indebtedness and a portion of its subordinated debt.
Management of the Company believes this replacement financing will
be completed prior to maturity of the senior secured debt facility.
The Company also negotiated an amendment to the Senior
Subordinated Notes agreement in October 1992 adjusting certain
covenants to accommodate the Company's restructuring plan.
Bridge Financing: Assets held on an interim basis for
placement with affiliated partnerships have, from time to time,
been partially funded by a $25.0 million short-term equipment
acquisition loan facility. This facility, made available to the
Company effective June 30, 1993, provides 80 percent financing, and
the Company uses working capital for the non-financed costs of
these transactions. The commitment for this facility expires on
July 13, 1994.
This facility, which is shared with a PLM Equipment Growth
Fund, allows the Company to purchase equipment prior to the
designated program or partnership being identified or prior to
having raised sufficient resources to purchase the equipment.
During 1993 the Company bought and sold, at its cost, $18.1 million
of these interim held assets to affiliated partnerships. The
Company usually enjoys a spread between the net lease revenue
earned and the interest expense during the interim holding period.
Decreased utilization of this facility versus use of a similar
facility available to the Company in 1992 resulted in lower lease
revenues of $1.3 million in 1993.
(b) Equity Financing:
On August 21, 1989 the Company established a leveraged
employee stock ownership plan ("ESOP"). PLM International issued
4,923,077 shares of Preferred Stock to the ESOP for $13.00 per
share, for an aggregate purchase price of $64,000,001. The sale
was originally financed, in part, with the proceeds of a loan (the
"Bank Loan") from a commercial bank (the "Bank") which proceeds
were lent on to the ESOP the ("ESOP
Debt") on terms substantially the same as those in the Bank Loan
agreement. The ESOP Debt is secured, in part, by the shares of
Preferred Stock while the Bank Loan is secured with cash
equivalents and marketable securities. Preferred dividends are
payable semi-annually on February 21 and August 21, which
corresponds to the ESOP Debt payment dates. Bank Loan debt service
is covered through release of the restricted cash security. While
the annual ESOP dividend is fixed at $1.43 per share the interest
rate on the ESOP debt varies resulting in uneven debt service
requirements. With declining interest rates, the ESOP dividends
for 1993 exceeded required ESOP Debt service and the excess was
used for additional principal payments totalling $2.4 million in
1993. If interest rates continue at current levels it is expected
that ESOP dividends during 1994 will again exceed the required ESOP
Debt service. Management, as part of its overall strategic
planning process, is evaluating the effectiveness of the ESOP and
the Company's other qualified benefit plan.
On January 20, 1992, the Company's Board of Directors voted to
suspend the $0.10 per share quarterly dividend on its common
shares. This reduced cash requirements for dividend payments in
1992 by approximately $4.0 million. The amended and restated
senior secured term loan agreement restricts dividend payments
until its principal balance is reduced below $30 million.
(c) Portfolio Activities:
During 1993, the Company continued to execute on the
restructuring plan announced effective for the second quarter of
1992. The restructuring plan was designed to identify under
performing assets in the Company's own transportation equipment
portfolio for both valuation and sale opportunities, reduce senior
indebtedness primarily from the proceeds of such sales and
associated interest costs, and reduce operational cost structures.
The overall effect of this Plan will be to reduce future lease
revenues and related interest, depreciation and operations support
expenses allocable to the sold equipment and position the Company
for future improved profitability.
The Company generated proceeds of $27.3 million from the sale
of equipment during 1993. The assets sold during the year
consisted primarily of aircraft, railcars, trailers and containers.
The Company believes the remaining fleet of leased assets has
higher earnings potential and more stable residual values than the
disposed equipment.
As stated last year, the Company did not expect to commit
substantial capital resources for acquisition of new transportation
equipment in 1993. Accordingly, $1.5 million of transportation
equipment was acquired in 1993, compared to $9.8 million in 1992.
These purchases are in market niches targeted by the Company as
profitable with long term growth potential.
As of the date of this report, there were commitments in place
totaling approximately $9.4 million to acquire transportation
equipment that is intended to be assigned to one or more of the
investment programs sponsored by the Company. The purchase of this
equipment will be funded by the assigned program.
(d) Syndication Activities:
The Company earns fees generated from syndication activities
which enhances cash flow. In May 1993, PLM Equipment Growth and
Income Fund VII ("EGF VII") became effective and selling
activities commenced. Through March 25, 1994 a total of $53
million syndicated equity had been raised for this investment
program of the maximum of $150 million which was registered. The
Company will likely continue to offer units in EGF VII through the
end of 1994.
Inflation did not have a material impact on the financial
performance of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted as a separate section
of this report. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIPS OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A definitive proxy statement of the Company will be filed
not later than 120 days after the end of the fiscal year with the
Securities and Exchange Commission. The information set forth under
"Identification of Directors and Officers," "Compensation of
Executive Officers," "Employee Stock Ownership Plan," and "Certain
Business Relationships" and "Security Ownership of Certain
Beneficial Owners and Management" in such proxy statement is
incorporated herein by reference for Items 10, 11, 12 and 13,
above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements and Schedules
(1) The consolidated financial statements listed in the
accompanying index to financial statements and financial
statement schedules are filed as part of this Annual
Report on Form 10-K.
(2) The consolidated financial statement schedules listed in
the accompanying index to financial statements and
financial statement schedules are filed as part of this
Annual Report on Form 10-K.
(3) Exhibits are listed at item (c), below.
(b) Reports on Form 8-K Filed in Last Quarter of 1993
None.
(c) Exhibits
3.1 Certificate of Incorporation, incorporated by
reference to the Company's Annual Report on
Form 10-K filed with the Securities and
Exchange Commission on April 2, 1990.
3.2 Bylaws, incorporated by reference to the
Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on
April 2, 1990.
10.1 Third Amended and Restated Loan Agreement,
dated as of October 28, 1992, incorporated by
reference to the Company's Annual Report on
Form 10-K filed with the Securities and
Exchange Commission on March 31, 1993.
10.2 $23,000,000 Note Agreement, dated as of
January 15, 1989, incorporated by reference to
the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on
April 2, 1990.
10.3 Second Amended and Restated Loan Agreement,
dated as of December 9, 1991, incorporated by
reference to the Company's Annual Report on
Form 10-K filed with the Securities and
Exchange Commission on March 30, 1992.
10.4 Warehousing Credit Agreement, dated as of June
30, 1993, as amended.
10.5 Form of Employment contracts for executive
officers, incorporated by reference to the
Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on
March 31, 1993.
10.6 Rights Agreement, as amended, filed with Forms
8-K, March 12, 1989, August 12, 1991 and
January 23, 1993 and incorporated herein by
reference
10.7 PLM International Employee Stock Ownership
Plan filed with Form 8-K, August 21, 1989 and
incorporated herein by reference.
10.8 PLM International Employee Stock Ownership
Plan Trust filed with Form 8-K, August 21,
1989 and incorporated herein by reference.
10.9 PLM International Employee Stock Ownership
Plan Certificate of Designation filed with
Form 8-K, August 21, 1989 and incorporated
herein by reference.
10.10 Directors' 1992 Non Qualified Stock Option
Plan, incorporated by reference to the
Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on
March 31, 1993.
10.11 Form of Company Non Qualified Stock Option
Agreement, incorporated by reference to the
Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on
March 31, 1993.
10.12 Form of Executive Deferred Compensation
Agreement, incorporated by reference to the
Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on
March 31, 1993.
10.13 Lease Agreement for premises at 655 Montgomery
Street, San Francisco, California,
incorporated by reference to the Company's
Annual Report on Form 10-K filed with the
Securities and Exchange Commission on April 2,
1990.
10.14 Office Lease for premises at One Market, San
Francisco, California, incorporated by
reference to the Company's Annual Report on
Form 10-K filed with the Securities and
Exchange Commission on April 1, 1991.
11.1 Statement regarding computation of per share
earnings.
22.1 Subsidiaries of the Company.
24.1 Consents of Independent Auditors
25.1 Powers of Attorney.
(d) Financial Statement Schedules
The consolidated financial statement schedules listed
in the accompanying index to financial statements and
financial statement schedules are filed as part of
this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
Report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: March 25, 1994 PLM International, Inc.
By: /s/ J. Michael Allgood
J. Michael Allgood
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates
indicated.
Signature Title Date
/s/J. Michael Allgood Vice President and March 25, 1994
J. Michael Allgood Chief Financial Officer
*
_____________________ Director, Executive March 25, 1994
Allen V. Hirsch Vice President
*
_____________________ Director March 25, 1994
Walter E. Hoadley
*
_____________________ Director March 25, 1994
J. Alec Merriam
*
_____________________ Director March 25, 1994
Robert L. Pagel
*
_____________________ Director, President March 25, 1994
Robert N. Tidball
* Stephen Peary, by signing his name hereto, does sign this
document on behalf of the persons indicated above pursuant to
powers of attorney duly executed by such persons and filed with
the Securities and Exchange Commission.
/s/ Stephen Peary
Stephen Peary
Attorney-in-Fact
PAGE
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
(Item 14(a)(1)(2))
Description Page
Independent Auditors' Report 27
Consolidated Statements of Operations for years ended
December 31, 1993, 1992, and 1993 28
Consolidated Balance Sheets at December 31, 1993 and 1992 29
Consolidated Statements of Changes in Shareholders' Equity
for years ended December 31, 1991, 1992, and 1993 30
Consolidated Statements of Cash Flows for years
ended December 31, 1993, 1992, and 1991 31
Notes to Consolidated Financial Statements 33
Schedule I - Schedule of Marketable Securities 50
Schedule II - Amounts Receivable From Related Parties
and Underwriters, Promoters and
Employees Other than Related Parties 51
Schedules V and VI - Schedule of Equipment and
Accumulated Depreciation 52
Schedule IX - Short Term Borrowings 55
Exhibit XI - Computation of Earnings (Loss) Per Common Share 56
All other schedules are omitted since the required information is
not pertinent or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements and notes
thereto.
PAGE
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
PLM International, Inc.
We have audited the consolidated financial statements of PLM
International, Inc. and subsidiaries as listed in the accompanying
index to financial statements (Item 14 (a)) for the years ended
December 31, 1993, 1992, and 1991. In connection with our audits
of the consolidated financial statements, we also have audited the
financial statement schedules for the years ended December 31,
1993, 1992, and 1991, as listed in the accompanying index. These
consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of PLM International, Inc. and subsidiaries as of December
31, 1993 and 1992, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1993, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/KPMG PEAT MARWICK
KPMG PEAT MARWICK
SAN FRANCISCO, CALIFORNIA
MARCH 25, 1994
PAGE
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(in thousands, except per share amounts)
1993 1992 1991
Revenues:
Operating leases $34,054 $41,648 $39,116
Management fees and partnership
interests 14,538 14,728 16,183
Commissions and other fees 17,997 15,268 16,025
Gain on the disposal of
transportation equipment,
net 2,350 1,968 159
Other 713 1,423 1,284
Total revenues 69,652 75,035 72,767
Costs and expenses:
Operations support 20,074 24,051 21,603
Depreciation and amortization 12,236 13,930 14,763
Commissions 8,849 11,186 9,182
General and administrative 10,867 8,238 8,869
Reduction in carrying value of
certain assets 2,221 36,238 400
Total costs and expenses 54,247 93,643 54,817
Operating income (loss) 15,405 (18,608) 17,950
Interest expense 12,573 14,103 15,711
Litigation and other costs -0- 7,591 121
Interest income 5,231 5,859 7,742
Other (expense) income, net (326) 525 368
Income (loss) before
income taxes 7,737 (33,918) 10,228
Provision for (benefit from)
income taxes 1,455 (15,687) 125
Net income (loss) 6,282 (18,231) 10,103
Preferred dividend (net of $2,182
income tax benefit for 1993) 4,850 7,040 7,040
Net income (loss) to common
shares $ 1,432 $(25,271) $ 3,063
Earnings (loss) per common share
outstanding $ 0.14 $ (2.41) $ 0.30
See accompanying notes to these financial statements
PAGE
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
ASSETS
1993 1992
(in thousands)
Cash and cash equivalents $ 19,685 $ 9,407
Receivables 6,037 13,464
Receivables from affiliates 10,981 7,237
Assets held for sale 9,056 29,942
Equity interest in affiliates 17,707 16,167
Transportation equipment held for
operating leases 179,887 184,571
Less accumulated depreciation (86,431) (78,354)
93,456 106,217
Restricted cash and cash equivalents 7,055 16,596
Restricted marketable securities 44,469 45,935
Other 9,274 10,439
Total assets $217,720 $255,404
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior secured debt $ 45,000 $ 80,750
Bank debt related to ESOP 50,280 55,393
Other secured debt 2,839 4,327
Subordinated debt 31,000 31,000
Payables and other liabilities 18,082 14,947
Deferred income taxes 19,386 24,268
Total liabilities 166,587 210,685
Shareholders' Equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
4,916,301 at December 31, 1993
and 4,922,132 at December 31,
1992 Series A Convertible shares
issued and outstanding, aggregate
$63,911,913 in 1993 and $63,987,716
in 1992 ($13 per share), liquidation
preference at paid-in amount 63,569 63,644
Loan to Employee Stock Ownership Plan (50,280) (55,393)
13,289 8,251
Common stock, $.01 par value,
50,000,000 shares authorized,
10,465,306 shares issued and
outstanding at December 31, 1993
(excluding 432,018 shares held
in treasury) and 10,897,324 at
December 31, 1992 109 109
Paid in capital, in excess of par 55,557 55,482
Treasury stock (131) -0-
55,535 55,591
Accumulated deficit (17,691) (19,123)
Total shareholders' equity 51,133 44,719
Total liabilities and shareholders'
equity $217,720 $255,404
See accompanying notes to these financial statements
PAGE
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1991, 1992, and 1993
(in thousands)
Preferred Loan to
Stock at Employee
Paid in Stock Owner
Amount -ship Plan
Balance, December 31, 1990 $63,655 $(61,602)
Net income
Contingent cash rights paid
Dividends declared on common
stock, $.40 per
Dividend paid on Employee
Stock Ownership Plan convertible
preferred shares
Conversion of preferred stock (4)
Issuance of common stock
as payment under an
acquisition agreement
Principal payments from
Employee Stock Ownership Plan 2,247
Balance, December 31, 1991 63,651 (59,355)
Net loss
Dividend paid on Employee Stock
Ownership Plan convertible
preferred shares
Conversion of preferred stock (7)
Net credit to paid in capital
from $2.0 million Consolidation
settlement offset by related
tax effect and adjustments of
deferred taxes for the tax effect
of the taxable premium paid from
the 1988 Consolidation transaction
Principal payments from
Employee Stock Ownership Plan 3,962
Balance, December 31, 1992 63,644 (55,393)
Net Income
Dividend paid on
Employee Stock Ownership Plan
convertible preferred shares
(net of tax effect)
Conversion of preferred stock (75)
Principal payments from
Employee Stock Ownership Plan 5,113
Purchase of treasury shares
Balance December 31, 1993 $63,569 $ (50,280)
Common Stock
Paid in
At Capital in Treasury
par Excess of par Stock
Balance, December 31, 1990 $ 106 $ 57,591 $ 0
Net income
Contingent cash rights paid (3,401)
Dividends declared on common
stock, $.40 per
Dividend paid on Employee
Stock Ownership Plan convertible
preferred shares
Conversion of preferred stock 4
Issuance of common stock
as payment under an
acquisition agreement 3 1,217
Principal payments from
Employee Stock Ownership Plan
Balance, December 31, 1991 109 55,411 0
Net loss
Dividend paid on Employee Stock
Ownership Plan convertible
preferred shares
Conversion of preferred stock (4)
Net credit to paid in capital
from $2.0 million Consolidation
settlement offset by related
tax effect and adjustments of
deferred taxes for the tax effect
of the taxable premium paid from
the 1988 Consolidation transaction 75
Principal payments from
Employee Stock Ownership Plan
Balance, December 31, 1992 109 55,482 0
Net Income
Dividend paid on
Employee Stock Ownership Plan
convertible preferred shares
(net of tax effect)
Conversion of preferred stock 75
Principal payments from
Employee Stock Ownership Plan
Purchase of treasury shares (131)
Balance December 31, 1993 $ 109 $ 55,557 $ (131)
Retained
Earnings Total
(Deficit) Equity
Balance, December 31, 1990 $ 7,306 $67,056
Net income 10,103 10,103
Contingent cash rights paid (3,401)
Dividends declared on common
stock, $.40 per share (4,221) (4,221)
Dividend paid on Employee
Stock Ownership Plan convertible
preferred shares (7,040) (7,040)
Conversion of preferred stock -0-
Issuance of common stock
as payment under an
acquisition agreement 1,220
Principal payments from
Employee Stock Ownership Plan 2,247
Balance, December 31, 1991 6,148 65,964
Net loss (18,231) (18,231)
Dividend paid on Employee Stock
Ownership Plan convertible
preferred shares (7,040) (7,040)
Conversion of preferred stock (11)
Net credit to paid in capital
from $2.0 million Consolidation
settlement offset by related
tax effect and adjustments of
deferred taxes for the tax effect
of the taxable premium paid from
the 1988 Consolidation transaction 75
Principal payments from
Employee Stock Ownership Plan 3,962
Balance, December 31, 1992 (19,123) 44,719
Net Income 6,282 6,282
Dividend paid on
Employee Stock Ownership Plan
convertible preferred shares
(net of tax effect) (4,850) (4,850)
Conversion of preferred stock -0-
Principal payments from
Employee Stock Ownership Plan 5,113
Purchase of treasury shares (131)
Balance December 31, 1993 $(917,691) $ 51,133
See accompanying notes to these financial statements
(/table>
PAGE
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
1993 1992 1991
Cash flows from operating activities:
Net income (loss) $ 6,282 $ (18,231) $ 10,103
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,236 13,930 14,763
Restructuring adjustments
and revaluation of assets 2,221 39,525 400
Tax benefit of preferred
dividend paid 2,182 -0- -0-
(Decrease) increase in deferred
income taxes (4,882) (16,173) 133
Gain on disposal of trans-
portation equipment (2,350) (1,968) (159)
Gain on disposal of other
assets (578) (780) (499)
Undistributed residual
value interests 286 (336) (420)
Increase (decrease) in
payables and other
liabilities 3,135 (2,905) (1,306)
Increase in receivables
and receivables from affiliates (2,177) (1,496) (2,944)
Cash distributions from
affiliates in excess of (less
than) income accrued 373 388 (1,212)
Decrease (increase) in other
assets 1,165 (1,044) 49
Purchase of equipment for lease (1,535) (9,779) (5,986)
Proceeds from the sale of
equipment for lease 26,912 16,564 2,296
Purchase of assets held
for sale (18,105) (29,682) (29,826)
Proceeds from assets held
for sale 18,105 38,243 35,464
Financing of assets held
for sale 14,404 25,531 29,614
Repayment of financing for
assets held for sale (14,404) (25,531) (33,764)
Net cash provided by
operating activities 43,270 26,256 16,706
Cash flows from investing activities:
Additional investment in
affiliates (541) (232) (1,729)
Investment in leveraged leases -0- (1,936) -0-
Purchase of investments -0- (950) -0-
Proceeds from sale of investments 365 1,197 -0-
Decrease (increase) in restricted
cash and cash equivalents 9,541 46,680 (7,791)
Purchase of restricted marketable
securities (84,299) (103,629) -0-
Proceeds from the sale of
restricted marketable securities 86,343 57,713 -0-
Acquisition of subsidiary -0- -0- (2,366)
Net cash provided by (used in)
investing activities 11,409 (1,157) (11,886)
See accompanying notes to these financial statements
PAGE
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
1993 1992 1991
Cash flows from financing activities:
Proceeds from long-term secured
equipment loans -0- 12,853 22,836
Principal payments under equipment
loans (42,351) (35,773) (12,115)
Principal payments under Employee
Stock Ownership Plan loan 5,113 3,962 2,247
Cash dividends paid (7,032) (7,040) (11,261)
Redemption of preferred stock -0- (7) (4)
Settlement of litigation related
to consolidation transaction -0- (2,000) -0-
Contingent cash rights payments -0- -0- (3,401)
Purchase of treasury stock (131) -0- -0-
Net cash used by financing
activities (44,401) (28,005) (1,698)
Net increase (decrease) in cash
and cash equivalents 10,278 (2,906) 3,122
Cash and cash equivalents at
beginning of year 9,407 12,313 9,191
Cash and cash equivalents at
end of year $19,685 $ 9,407 $12,313
Interest paid during year $10,852 $14,089 $14,811
Income taxes paid during year $ 626 $ 313 $ 1,075
Supplemental schedule of noncash financing activities:
In December 1991, the Company issued 343,291 shares of its common
stock as partial consideration for the purchase of all remaining
shares of the common stock of Rent-A-Vault, Inc. not previously
held.
In 1992, there was a net credit to Paid in Capital resulting from
a $2.0 million Consolidation (see Note 1) settlement offset by
related tax effect and adjustment of deferred taxes for the effect
of the taxable premium paid from the 1988 Consolidation
transaction.
In 1993, the Company recalled 400,000 contingently issued shares
from Transcisco due to certain earnings per share and market price
amounts not being met by the Company. Of the recalled shares, the
Company has issued 29,530 to former participants in the Company's
Employee Stock Ownership Plan and is holding the remaining 370,470
shares as treasury stock.
See accompanying notes to these financial statements
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements present the
financial position, changes in equity, results of operations and
cash flows of PLM International, Inc. and its wholly owned
subsidiaries ("PLM International" or the "Company"). PLM
International began operations on February 1, 1988 through an
exchange of 10,554,033 shares of its common stock and other
consideration for the assets, subject to related liabilities, of 21
limited partnerships (the "Partnerships") and for the common stock
of PLM Financial Services, Inc. and its wholly owned subsidiaries
and certain of its affiliates (collectively referred to as "FSI").
Transcisco Industries, Inc.("Transcisco"), the former parent of
FSI, received 3,766,667 shares of the Company's common stock, which
included 400,000 contingent shares which were recalled on January
1, 1993 as certain earnings per common share and market price
amounts were not met. The entire transaction is referred to as the
"Consolidation." All significant intercompany transactions among
the consolidated group were eliminated.
FSI was the general partner of the Partnerships and due to the
existing affiliation prior to the Consolidation, PLM International
accounted for the exchange as a reorganization of entities under
common control, with the historical account balances carried
forward from those of the predecessor exchanging entities to the
new organization.
Accounting for Leases
PLM International's leasing operations generally consist of
operating leases. Under the operating lease method of accounting,
the leased asset is recorded at cost and depreciated over its
estimated useful life. Rental payments are recorded as revenue
over the lease term. Lease origination costs are capitalized and
amortized over the terms of the lease.
Transportation Equipment
Transportation equipment held for operating leases is stated at the
lower of depreciated cost or estimated net realizable value.
Depreciation is computed on the straight line method down to its
estimated salvage value utilizing the following estimated useful
lives (in years): Aircraft 8-20; Trailers 8-18; Marine containers
10-15; Marine vessels 15; and Storage vaults 15. Salvage value is
15% of original equipment cost. If projected future lease revenue
plus residual values are less than the net book value of the
equipment a valuation allowance is recorded.
Transportation equipment held for sale is valued at the lower of
depreciated cost or estimated net realizable value. Lease rentals
earned prior to sale are recorded as operating lease revenues with
an offsetting charge to depreciation and amortization expense.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Except for trailers and storage units at the Company's per-diem
rental yards, maintenance costs are usually the obligation of the
lessee. If they are not covered by the lessee they are charged
against operations as incurred except for dry docking costs on
marine vessels which are estimated and reserved for prior to dry
docking. To meet the maintenance obligations of certain aircraft
engines, escrow accounts are prefunded by the lessees. The escrow
accounts are included in the consolidated balance sheet as
restricted cash and other liabilities. Certain railcars and
trailers are maintained under fixed price maintenance contracts
with third parties. Repairs and maintenance expense was
$4,380,858, $5,587,000, and $5,151,000 for 1993, 1992, and 1991,
respectively.
Commissions and Fees
PLM International engages in the organization, sale and management
of transportation equipment leasing investment programs, which are
mainly limited partnerships, and receives for its services an
equity interest in the partnership and equity placement, equipment
acquisition, lease negotiation, debt placement, and equipment
management fees from these affiliated investment programs and
limited partnerships.
Fees are recognized as revenue at the time the related services
have been performed. Placement fees, generally 9% of equity
raised, are earned upon the purchase by investors of partnership
units. Equipment acquisition, lease negotiation and debt placement
fees are earned through the purchase, initial lease and financing
of equipment, and are generally recognized as revenue when the
Company has completed substantially all of the services required to
earn the fee, generally when binding commitment agreements are
signed. Management fees are earned for managing the equipment
portfolio and administering investor programs as provided for in
various agreements and are recognized as revenue over time as they
are earned.
As compensation for organizing a partnership, FSI is generally
granted an interest (ranging between 1% and 5%) in the earnings and
cash distributions of the partnership for which FSI is the general
partner. The Company recognizes as management fees and partnership
interests its equity interest in the earnings of the partnership
after adjusting such earnings to reflect the use of straight-line
depreciation and the effect of special allocations of the
partnership's gross income allowed under the respective partnership
agreements.
The Company also recognizes as income its interest in the estimated
net residual interest in the assets of the partnership as they are
being purchased. The amounts recorded are based on management's
estimate of the net proceeds to be distributed upon disposition of
the partnership equipment at the end of the partnerships. These
residual value interests are recorded in commissions and other fees
at the present value of the Company's share of estimated
disposition proceeds as assets are purchased by the partnerships.
As required by FASB Technical Bulletin 1986-2, the discount on the
Company's residual value interests is not accreted over the holding
period. The Company reviews the carrying value of its residual
interests at least annually in relation to expected future market
values for the underlying equipment for the purpose of assessing
recoverability of recorded amounts. When a limited partnership is
in the liquidation phase, distributions received by the Company
will initially be treated as recoveries of its equity interest in
the partnership.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Commission expense includes placement commissions of approximately
8% of equity raised which is paid to outside brokers and up to 1.6%
paid to the Company's wholesalers. The expense is recognized on
the same basis as placement fees earned.
Marketable Securities
In May 1993, the Financial Accounting Standards Board issued
statement No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS 115 addresses the
accounting and reporting for investments in equity securities that
have readily determinable fair value and for all investments in
debt securities. SFAS 115 is effective for fiscal years beginning
after December 15, 1993. Initial adoption must be at the beginning
of the fiscal year, and retroactive adoption is not allowed. The
Company intends to adopt SFAS 115 when required, and does not
believe that such adoption will have a material impact on its
consolidated financial statements.
Earnings (Loss) Per Common Share
Primary earnings (loss) per common share is calculated using the
weighted average number of shares outstanding during each period
(less 400,000 contingent shares held in escrow for 1992 and 1991
considered common stock subject to recall). These recallable
shares and the outstanding stock options (see Note 11) are treated
as common stock equivalents.
Fully diluted earnings (loss) per common share is anti-dilutive or
substantially the same as primary earnings (loss) per common share
for each period reported on and, therefore, is not reported
separately.
Income Taxes
As of January 1, 1993, the Company has adopted Statement of
Financial Accounting Standards No. 109 ("Accounting for Income
Taxes")("SFAS No. 109"). SFAS No. 109 continues to require the
liability method of accounting for income taxes as under SFAS No.
96. No additional tax assets were recorded and no valuation
allowances or additional liability was required upon adoption of
SFAS No. 109. As permitted under adoption of SFAS 109, the Company
has elected not to restate prior years' financial statements. The
consolidated statement of operation for 1993 reflect the required
changes in the presentation of the tax benefit from the dividend
payable on the preferred shares held by the Company Employee Stock
Ownership Plan.
Under the liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.
Deferred income taxes arise primarily because of differences in the
timing of reporting transportation equipment depreciation,
partnership income, and certain reserves for financial statement
and income tax reporting purposes. Deferred income taxes were
established at the Consolidation to account for differences between
the net book value and tax bases of transportation equipment and
other items received from the Partnerships.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Intangibles
Intangibles are included in other assets on the balance sheet and
consist primarily of goodwill related to acquisitions. The
goodwill is being amortized over 15 years from the acquisition
date.
Cash, Cash Equivalents and Marketable Securities
The Company considers highly liquid investments that are readily
convertible into known amounts of cash with original maturities of
ninety days or less to be cash equivalents. Marketable securities
are valued at the lower of cost or market.
Financial Instruments
Financial instruments are used to hedge financial risk caused by
fluctuating interest rates. The amounts to be paid or received on
interest-rate swap agreements accrue and are recognized over the
lives of the related debt agreements.
Reclassification
Certain prior year amounts have been reclassified in order to
conform to the current year's presentation.
2. VALUATION ADJUSTMENTS
In 1993, as part of the Company's ongoing strategic planning
process, the Company reviewed its transportation equipment
portfolio resulting in the reduction of the carrying value of
certain equipment to its net realizable value by $2.2 million. The
valuation adjustments included containers ($0.9 million), trailers
($0.7 million), railcars ($0.4 million), and aircraft ($0.2
million).
In 1992, as part of this process, the Company took valuation
adjustments totalling $36.2 million, consisting of revaluations of
the carrying value of certain aircraft ($13.8 million), trailers
($18.6 million), and other related assets and equipment ($3.8
million). Of these adjustments, $19.6 million resulted from the
Company reassessing its investment in certain equipment for which
projected earnings potential had declined and decided to exit
certain equipment niches and to sell the related equipment. In
addition, certain other transportation equipment was put up for
sale because of marketing limitations resulting from its physical
condition or unique configurations. Of the $29.9 million in net
book value of these assets held for sale at the end of 1992, $18.3
million in net book value were sold during 1993 at a net gain of
$2.4 million. In addition, the valuation adjustments included a
$7.0 million adjustment on its refrigerated over-the-road trailers
as they were transitioned from fixed-term leases to per diem rental
yard operations as a result of increased maintenance and other
operating costs associated with operating refrigerated trailers in
per diem rental service. These revaluations also included
adjustments to the carrying value of aircraft of $4.1 million
resulting from reduced demand and increased availability of such
aircraft due to the weak performance in the airline industry.
Other valuation adjustments totaling $5.5 million were taken on
various equipment to reduce the carrying value to its estimated net
realizable value.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
During 1991, the Company took a $0.4 million charge to reduce the
carrying value of an aircraft to its estimated net realizable
value.
3. ASSETS HELD FOR SALE
Assets held for sale include assets acquired with the intent to
resell them to unrelated parties or to affiliated partnerships,
certain transportation equipment that the Company intends to sell
rather than re-lease, and participation interests in equipment
residual values.
At December 31, 1993 the components of assets held for sale were:
airplanes $4,801,000; trailers $2,341,000; residual option
contracts on equipment $1,824,000; and marine containers $90,000.
The components of assets held for sale at December 31, 1992 were:
airplanes $13,638,000; railcars $10,464,000; trailers $3,680,000;
residual option contracts on equipment $1,960,000; and marine
containers $200,000.
4. EQUITY INTEREST IN AFFILIATES
PLM International, through subsidiaries, is the general partner in
23 limited partnerships (not included in the Consolidation), and
generally holds an equity interest in each ranging from 1% to 5%.
Summarized combined financial data for these affiliated
partnerships, reflecting straight line depreciation, is as follows
(in thousands and unaudited):
Financial position at December 31,: 1993 1992
Cash and other assets $ 94,005 $109,413
Transportation equipment and other
assets, net of accumulated depreciation
of $289,488 and $259,789 in 1993 and 1992,
respectively 978,103 796,789
Total Assets 1,072,108 906,202
Less liabilities, primarily long term
financings 258,768 224,785
Partners' equity $ 813,340 $681,417
PLM International's share thereof, which
amounts are recorded as equity interest
in affiliates:
Equity interest $ 5,365 $ 3,539
Estimated residual value interests in
equipment 12,342 12,628
Equity interest in affiliates $ 17,707 $16,167
PAGE
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Operating results for the years ended December 31,:
1993 1992 1991
Revenue from equipment
leases and other $ 194,335 $195,151 $213,494
Equipment depreciation 71,378 76,485 70,788
Other costs and expenses 82,977 109,691 94,145
Reduction in carrying value
of certain assets 8,215 48,405 3,505
Net income (loss) (without
provision for (benefit from)
income taxes) $ 31,765 $(39,430) $ 45,056
PLM International's share
thereof, which amount is
included in management fees and
partnership interests $ 4,086 $ 4,151 $ 5,030
PLM International's share of
residual interests, which
amount is included in
commissions and other fees $ (160) $ 336 $ 421
Distributions received and
applied against PLM Inter-
national's equity interest in
affiliates $ 4,089 $ 4,302 $ 3,851
During 1991 certain limited partnership agreements were amended to
accelerate the timing of special allocations of gross income to the
general partner from the liquidation stage of the partnership to
the present. Current income allocated to the general partner
increased retroactively by an amount equal to the difference
between cumulative cash distributions paid to the general partner
and the general partner's equity in earnings of the partnership
before special allocations. Taxable income allocated to the
limited partners was reduced by a similar amount. Cash
distributions to the partners was not effected as a result of the
change. During the fourth quarter of 1991 the Company recognized
$1.2 million of additional equity in earnings of the managed
affiliated partnerships to record the special allocations of income
resulting from these amendments.
While none of the partners are directly liable for partnership
borrowings and while the general partner maintains insurance
against liability for bodily injury, death and property damage for
which a partnership may be liable, the general partner may be
contingently liable for claims against the partnership that exceed
asset values.
5. TRANSPORTATION EQUIPMENT HELD FOR OPERATING LEASE
Transportation equipment, at cost, held for operating lease at
December 31, 1993 is represented by the following types:
Aircraft 42%; Trailers 37%; Marine vessels and Marine cargo
containers 17%; other 4%.
Future minimum rentals receivables under non-cancelable leases at
December 31, 1993 are approximately $11,219,000 in 1994; $5,215,000
in 1995; $4,540,000 in 1995; $2,226,000 in 1997; $1,627,000 in
1998; and $1,279,000 thereafter. In addition, per diem and
contingent rentals consisting of utilization rate lease payments
included in revenue for 1993 amounted to approximately $15,957,000.
At December 31, 1993, the Company had committed approximately 83%
of its trailer equipment to rental yard and per diem operations.
6. RESTRICTED CASH AND RESTRICTED MARKETABLE SECURITIES
Restricted cash consists of bank accounts and short term
investments that are subject to withdrawal restrictions as per
lease agreements or loan agreements. Certain lease agreements,
primarily on aircraft, require prepayments to the Company for
periodic engine maintenance. Certain debt agreements require
proceeds from the sale of particular assets to be deposited into a
collateral bank account and the funds used to reduce the
outstanding balance. Restricted marketable securities are valued
at the lower of amortized cost or market and consist of investments
subject to withdrawal restrictions imposed by the Employee Stock
Ownership Plan loan agreement (See Note 7). At December 31, 1993
the fair value of these securities approximated the original
acquisition cost.
7. SECURED DEBT (in thousands):
Secured debt consists of the following at December 31:
1993 1992
Senior Secured Debt:
Institutional debt, $8,200 due in March 1994 with
the remaining balance due June 30, 1994,
interest is due monthly, computed at LIBOR
plus 3% per annum secured by substantially
all of the Company's leases and assets except those
assets used as collateral for the ESOP and other
secured debt. $ 45,000 $ 80,750
Employee Stock Ownership Plan (ESOP) Debt:
Bank ESOP note payable, bearing interest at 79.5% of
LIBOR plus .75%, interest is due monthly, annual
principal installments due August 21 of each year
and will increase from $2,761 in 1994 to $7,674 on
August 21, 2004, when the final payment is due,
secured by interest yielding marketable
securities and cash equivalent collateral equal to
the outstanding principal. 50,280 55,393
Other Secured Debt:
Notes payable, bearing interest from 10% to 13.5%,
due in varying monthly principal and interest
installments through 2001, secured by equipment,
lease agreements and related lease proceeds with
a net book value of approximately $2,824. 2,839 4,327
Total Secured Debt $ 98,119 $140,470
The institutional debt agreement contains financial covenants
related to tangible net worth, ratios for leverage, interest
coverage ratios and collateral coverage all of which were met at
December 31, 1993. The Company is also restricted from paying
dividends on its common stock until the senior secured debt is
reduced to approximately $30,000. In addition, there are the
restrictions based on computation of tangible net worth, financial
ratios and cash flows, as defined.
The Company is presently marketing replacement financing for the
senior secured debt and a portion of its subordinated debt.
Management of the Company believes this replacement financing will
be completed prior to maturity of the senior secured debt.
Principal payments on long term secured debt are approximately
$48,386 in 1994; $3,100 in 1995; $3,396 in 1996; $3,957 in 1997;
$4,076 in 1998, and $35,204 thereafter.
The book value of the senior secured debt and ESOP debt
approximates fair value due to the variable interest rates on the
debt. The Company estimates,based on recent transactions, that the
fair value of the other secured debt is approximately equal to its
book value.
In the fourth quarter of 1991 the Company entered into interest
rate swap agreements expiring in 1994 and 1996 that effectively
convert $20 million of its variable rate institutional debt into
fixed obligations at rates ranging from 5.538% to 7.23%. Under the
terms of these agreements, the Company makes payments at fixed
rates and receives payments on variable rates based on LIBOR. The
net interest paid or received is included in interest expense. The
Company estimates, based on quoted market prices for similar swaps,
that the fair value to release the Company of its obligation
thereunder would be approximately $882 at December 31, 1993, which
has been accrued.
8. SUBORDINATED DEBT (in thousands)
Subordinated debt consists of the following at December 31:
1993 1992
Senior subordinated notes payable, bearing
interest at 11.55% payable monthly, equal
annual principal payments of $5,750 are
due from 1996 through 1999,
unsecured $23,000 $23,000
Notes payable bearing interest at 14.75%
payable semi-annually, principal is due
May 1995, unsecured 8,000 8,000
$31,000 $31,000
The senior subordinated debt agreement contains certain financial
covenants and other provisions, including an acceleration provision
in the event that, under certain circumstances, a person or group
obtains certain percentages of the voting stock of the Company or
seeks to influence the voting on certain matters at a meeting of
shareholders. In addition, extensions to the senior secured debt
may cause payment of this debt to be delayed. Absent the
aforementioned, principal payments due on subordinated debt in the
next five years are $8,000 in 1995, $5,750 in 1996, $5,750 in 1997,
$5,750 in 1998 and $5,750 thereafter.
The subordinated $8,000 notes maturity dates may be extended under
certain circumstances. Therefore, the Company is not able to
estimate the fair market value of this debt. Based on the
borrowing rates estimated to be available to the Company, if the
Company's subordinated debt could be replaced in the current
market, the Company estimates the fair value of this debt to be
$1,000 higher than its face value as of December 31, 1993.
9. INCOME TAXES (in thousands)
As discussed in Note 1, the Company adopted SFAS 109 as of January
1, 1993. No additional tax assets were recorded and no valuation
allowances or additional liability was required upon the adoption
of SFAS 109. As permitted under the adoption of SFAS 109, the
Company has elected not to restate prior year's financial
statements.
Total income tax benefit of $976,000 for the year ended December
31, 1993 was allocated as follows:
Income from operations $ 1,455
Tax benefit of ESOP dividend charged to
shareholders equity (2,182)
Tax benefit of net operating losses from merged
subsidiary reducing goodwill (249)
Total tax benefit $ (976)
The provisions for (benefit from) income taxes attributable to
income from operations consist of the following:
1993 1992
Federal State Total Federal State Total
Current $ 5,766 $ 30 $ 5,796 $ 1,043 $ 20 $ 1,063
Deferred (4,023) (318) (4,341) (13,710) (3,040) (16,750)
$ 1,743 $ (288) $ 1,455 $(12,667) $(3,020) $(15,687)
1991
Federal State Total
Current $ 302 $ 20 $ 322
Deferred (335) 138 (197)
$ (33) $158 $ 125
Amounts for the current year are based upon estimates and
assumptions as of the date of this report and could vary
significantly from amounts shown on the tax returns ultimately
filed. Accordingly, the variances from the amounts previously
reported for prior years are primarily the result of adjustments to
conform to the tax returns as filed.
PAGE
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
The difference between the effective rate and the expected Federal
statutory rate is reconciled below:
1993 1992 1991
Federal statutory tax expense (benefit)
rate 34% (34)% 34%
State income tax expense (benefit) (2) (6) 1
Federal tax credits (9) - -
Benefit from preferred dividend
to ESOP (6) (7) (22)
Reduction of liability associated with
settlements with tax authorities - - (7)
Other 2 1 (5)
Effective tax expense (benefit) rate 19% (46)% 1%
During 1993 the Company recorded a tax benefit of $716,000 relating
to federal tax credits allocated from its prior affiliated group
and a net state tax benefit of $294,000 relating to California
solar energy credits with a reduction of the deferred income tax
liability.
During 1991 the Company resolved audit issues with federal and
state tax authorities related to deductibility of depreciation and
allowability of investment and energy tax credits associated with
FSI's investment in alternative energy programs prior to the
Consolidation. Approximately $220,000 paid to resolve the State
audit issues was charged against deferred income taxes. In
addition, the provision for income tax expense for 1991 has been
reduced by $680,000 with a corresponding reduction in the deferred
income tax liability retained at the end of 1990 to provide for
exposure related to this uncertainty.
Components of the deferred tax provision are as follows for the
years ending December 31, (in thousands):
1993 1992 1991
Depreciation (net of operating loss and
alternative minimum tax resulting from
depreciation) $ 3,875 $ 301 $(1,007)
Tax credits (1,162) - -
Settlement of tax audit issues - - 680
Partnerships' income and other interests 338 554 129
Capitalized loan fees - (35) 455
Asset revaluation - (14,315) (156)
State taxes (84) 1,034 (70)
Gain on sale of assets (7,588) (4,015) (549)
Other 206 (274) 321
Total $ (4,341) $(16,750) $ (197)
Net operating loss carryforwards for federal income tax purposes
amounted to $20,744 and $41,478 at December 31, 1993 and 1992,
respectively. These net operating losses have a 15 year
carryforward period. The net operating losses at December 31,
1993, will expire as follows: $9,358 in 2004; $3,475 in 2005;
$7,149 in 2006 and $762 in 2007. Alternative minimum tax credit
carryforwards at December 31, 1993 are $7,022. For financial
statement purposes, there are no operating loss or alternative
minimum tax credit carryforwards.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
The tax effects of temporary differences that give rise to
significant portions of the deferred tax liabilities at December
31, 1993 are presented below:
Deferred Tax Assets:
Tax credits carryforwards $ 7,782
Net operating loss carryforwards 7,921
Federal benefit of state taxes 1,090
Other 473
Total deferred tax assets 17,266
Deferred Tax Liabilities:
Transportation equipment, principally differences
in depreciation 28,376
Partnership Interests 8,276
Total deferred tax liabilities 36,652
Net deferred tax liabilities $ 19,386
10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company 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 of the Company.
Five current members of the Board of Directors of PLM
International, Inc. (the "Individual Defendants") were named as
defendants in an amended complaint that was filed on October 4,
1993, in the Superior Court of the State of California in and for
the County of San Francisco, Case No. 953005, by purported PLMI
shareholder Robert D. Hass on behalf of himself and derivatively on
behalf of PLMI.
The action alleges intentional breaches of fiduciary duties, abuse
of control, waste of corporate assets, gross mismanagement, and
unjust enrichment, and seeks injunctive relief and damages.
Specifically, the plaintiff alleges that certain or all of the
individual defendants breached their duties by (i) establishing and
maintaining the Company's ESOP, (ii) amending on January 25, 1993
the Company's Shareholder Rights Agreement and (iii) granting to
each other excessive and unjustified compensation. The Individual
Defendants have denied and continue to deny all of the claims and
contentions of alleged wrongdoing or liability. On February 14,
1994, the Individual Defendants, Mr. Hass and the Company entered
into a Stipulation of Settlement (the "Stipulation"), wherein they
agreed to settle the lawsuit, subject to court approval. The
Stipulation provides, in part, that the PLM International Board of
Directors will take certain actions with respect to the
compensation and make-up of such Board of Directors. The
Stipulation also provides that the Company will pay up to $160,000
to plaintiffs' attorneys for fees and costs. On March 11, 1994,
the court approved the Stipulation and entered its Final Order and
Judgment. The settlement was reached after all of the parties
concluded that such settlement was desirable in order to avoid the
expense, inconvenience, uncertainty and distraction of further
legal proceedings. The Company believes that the settlement is
fair, reasonable and adequate and in the best interests of PLM and
its shareholders.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Lease Agreements
The Company's net rent expense was $2,353,000, $2,351,000, and
$2,133,000 in 1993, 1992 and 1991, respectively.
In December 1990, the Company negotiated a lease for new office
space and moved into this space in June 1991. The new office space
is leased through May 2001 with annual rentals of $1,329,000
through May 1996 and annual rentals of $1,535,000 in 1997 and
$1,649,000 through May 2001. A rent abatement existed for the
first year. Rental expense averages $1,350,000 per year under this
lease. The Company is obligated under the lease for approximately
$400,000 of leasehold improvements which is being paid over the
term of the lease with interest at 10.5%. The lease agreement also
provided for a loan of $750,000 to fund the sub-leasing deficit on
the Company's former space, which is being repaid over the term of
the lease with interest at 10.5%.
The Company is obligated under a lease for its former office space
through April 1994. The rental payments on the former office space
are $167,000 for 1994. The Company's contracted rentals from
subleasing its former space are less than its obligations, and
consequently the Company recorded an expense of $149,000 in 1993,
$300,000 in 1992, and $1,250,000 in 1991.
The Company also has leases for other office space and for rental
yard operations. The applicable rent expense recorded in 1993 was
$1,003,000; $1,048,000 in 1992; and $848,000 in 1991. Annual lease
rental commitments for these locations total $826,000, $572,000,
$411,000, $181,000, and $39,000 for years 1994 through 1998,
respectively.
Letter of Credit
At December 31, 1993 the Company had a $500,000 open letter of
credit to cover its guarantee of the payment of the outstanding
debt of a Canadian railcar repair facility, in which the Company
has a 10% equity interest. This letter of credit must be extended
or replaced under the terms of the guarantee.
Other
The Company provides employment contracts to certain officers for
periods of up to three years which provide for certain payments in
the event of a change of control and termination of employment.
The Company has agreed to provide supplemental retirement benefits
to twelve current or former members of management. The benefits
accrue over a maximum of 15 years and will result in payments over
five years based on the average base rate of pay during the 60
month period prior to retirement as adjusted for length of
participation in the plan. Expense for the plan was $429,000 for
1993, $80,000 for 1992 and $38,000 for 1991. As of December 1993,
the total estimated future obligation relating to the current
participants is $9,031,000 including vested benefits of $1,123,000.
In connection with this plan, whole life insurance contracts were
purchased on the participants. Insurance premiums of $122,000 and
$238,000 were paid during 1993 and 1992, respectively, of which
$229,000 has been capitalized to reflect the cash surrender value
of these contracts as of December 31, 1993.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
11. SHAREHOLDERS' EQUITY
Common Stock
PLM International has authorized 50,000,000 shares of common stock
at $.01 par value; 10,554,033 shares were issued on February 1,
1988 in connection with the Consolidation which remain outstanding.
Common shares have been reserved for the conversion of preferred
stock and the exercise of stock options. On December 13, 1991,
343,291 shares of common stock were issued as payment under an
acquisition agreement. Of Transcisco's 3,766,667 shares issued in
the Consolidation (See Note 1) 400,000 shares were recallable if
certain earnings per common share and market price amounts were not
met by January 1, 1993. These conditions were not met and the
shares were recalled in January 1993. Of the shares recalled from
Transcisco, the Company has issued 29,530 of these shares to former
participants in the Company's Employee Stock Ownership Plan and is
holding the remaining 370,470 shares as treasury stock. In December
1993 as part of a lawsuit settled earlier, the Company reclassified
61,548 shares as treasury stock. Consequently, the total shares
outstanding at December 31, 1993, decreased to 10,465,306 from
10,897,324 outstanding at December 31, 1992. Transcisco has
emerged from Chapter 11 bankruptcy proceedings and as part of its
plan of reorginization will be transfering its shares of PLM
International to certain creditors of Trancisco.
Preferred Stock
PLM International has authorized 10,000,000 shares of preferred
stock at $.01 par value; 4,923,077 Series A Cumulative Convertible
preferred shares (the "Preferred Stock") were issued on August 21,
1989 to the ESOP for $13.00 per share; as of December 31, 1993,
4,916,301 were outstanding. Each share is entitled to receive a
fixed annual dividend of $1.43 and is convertible into and carries
voting rights equivalent to a common share (subject to adjustment).
The Preferred Stock is redeemable at the option of the Company at
anytime after August 21, 1992 at $14.43 per share, decreasing
ratably to $13.00 per share anytime after August 21, 1999. In
addition, the Preferred Stock is redeemable by the Company at the
liquidating value should the ESOP cease to be a "qualified plan" as
defined in the Internal Revenue Code or in the event of certain tax
law changes. In 1993, 5,831 shares and in 1992, 509 shares were
redeemed in accordance with the ESOP.
Dividend Restrictions
Pursuant to certain credit agreements (see Note 7), at December 31,
1993, the Company is restricted from paying dividends on its common
stock until current senior debt levels have been reduced by
approximately $15 million to an outstanding principal balance of
$30 million.
Stock Options
The granting of non-qualified stock options to key employees and
directors is provided for in plans that reserve up to 660,000
shares of the Company's common stock. The price of the shares
issued under option must be at least 85% of the fair market value
of the common stock at the date of grant. Vesting of options
granted generally occurs in three equal installments of 33 1/3% per
year, initiating from the date of grant. In 1992, the previously
issued and outstanding stock options were cancelled and replaced
with new stock options with a lower per share price which
approximated the current market price.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Stock option transactions during 1993 and 1992 are summarized as
follows:
Average
Number of option price
shares per shares
Balance, December 31, 1991 462,769 $8.55
Granted 605,200 2.00
Cancelled (462,769) 8.55
Balance, December 31, 1992 605,200 $2.00
Granted -0- -0-
Cancelled (23,900) 2.00
Balance, December 31, 1993 581,300 $2.00
At December 31, 1993, 193,767 of these options were exercisable.
Shareholder Rights
On March 12, 1989, the Company adopted a Shareholder Right's Plan
("Plan") under which one common stock purchase right (a "Right")
was distributed as a dividend on each outstanding share of common
stock. The Plan, which was amended on August 12, 1991 and on
January 18, 1993, is designed to protect against unsolicited and
coercive attempts to acquire control of PLM International and other
abusive tactics. The Plan is not intended to preclude an
acquisition of PLM International which is determined to be fair to,
and in the best interest of, its shareholders.
Upon the occurrence of certain events which may be characterized as
unsolicited or abusive attempts to acquire control of the Company,
each Right will entitle its holder (other than holders and their
affiliates participating in such attempts), to purchase, for the
exercise price, shares of the Company's common stock (or in certain
circumstances, other securities, cash, or properties) having a fair
market value equal to twice the exercise price. In addition, in
certain other events involving the sale of the Company or a
significant portion of its assets, each Right not owned by the
acquiring entity and its affiliates will entitle the holder to
purchase, at the Right's exercise price, equity securities of such
acquiring entity having a market value equal to twice the exercise
price.
Previously, the Plan did not provide for the issuance of rights to
the holder of preferred stock except upon conversion of the
preferred stock into common stock. On January 18, 1993 the Plan
was amended to distribute additional rights as a dividend on each
outstanding share of the Company's Series A Cumulative Preferred
Stock held at the close of business on February 1, 1993.
PLM International generally will be entitled to redeem the Rights
in whole at a price of one cent per Right at any time prior to the
Rights becoming exercisable. The Rights will expire on March 31,
1999 and carry no voting privileges.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Employee Stock Ownership Plan
On August 21, 1989 the Company established a leveraged Employee
Stock Ownership Plan ("ESOP"). PLM International issued 4,923,077
shares of Series A Cumulative Convertible Preferred Stock to the
ESOP for $13.00 per share, for an aggregate purchase price of
$64,000,001. The sale was financed, in part, with the proceeds of
a bank loan which proceeds were loaned to the ESOP on terms
substantially the same as those in the bank loan agreement (see
Note 7). The ESOP debt is secured, in part by preferred shares.
As the ESOP makes payments to the Company, it releases shares to be
allocated to employee accounts. Interest income earned on the loan
to the ESOP by the Company and interest expense due on the bank
note each amounted to approximately $1,726,000 for 1993 compared to
$2,153,000 for 1992. The ESOP covers substantially all U.S.
employees. Cash contributions and total costs are determined by
the amount of principal and interest payments required to service
the ESOP debt. The primary source for these payments is the
dividend on the preferred shares which may be supplemented by
Company cash contributions. In 1993 and 1992 there were no cash
contributions and no contribution expense. During 1993 and 1992,
the reductions in interest rates resulted in the preferred dividend
being greater than required to service the interest and principal
on the ESOP debt. ESOP cash not required to service the debt was
used to reimburse the Company for, or directly pay for, trustee
fees and other expenses applicable to the operation of the ESOP and
for prepayment of additional principal on the ESOP debt in 1993 and
1992. Preferred dividends are payable semi-annually on February 21
and August 21, which corresponds to the ESOP debt service dates.
As of December 31, 1993 and 1992, 1,312,487 and 956,547 preferred
shares were allocated to employee accounts, respectively.
The ESOP is administered by a trustee. In the event the trustee
were to convert Preferred Stock owned by the ESOP trust to Common
Stock, the Company would need to make additional contributions to
the ESOP trust in an amount equal to the difference between any
actual dividends paid on the Company's Common Stock and the
principal and interest amounts due in order for the ESOP trust to
be able to meet its obligations to the Company under the ESOP note
receivable. Conversion of a substantial portion of the Preferred
Stock could have a material impact on earnings (loss) per common
share for future periods and on the current calculation of fully-
diluted earnings (loss) per common share. Certain participants in
the Company's incentive compensation plans have agreed to forego
incentive compensation up to the amount of any additional
contributions to the ESOP trust necessitated by a conversion of all
of the ESOP's Preferred Stock in order to reduce the impact on
calculations of earnings per common share of such a conversion.
12. TRANSACTIONS WITH AFFILIATES
In addition to various fees payable to the Company or its
subsidiaries (see Notes 1 and 4), the affiliated partnerships
reimburse the Company for certain expenses as allowed in the
partnership agreements. Reimbursed expenses totaling approximately
$10,000,000 in 1993 and 1992 have been recorded as reductions of
expense. Outstanding amounts are paid within normal business terms
or treated as a capital contribution if excess organization and
offering costs exceed the partnership agreement limitations. The
Company amortizes such capital contributions over the estimated
life of the partnership.
PLM INTERNTIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
13. OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
Off-Balance-Sheet Risk: The Company has entered into interest rate
swap agreements to exchange fixed and variable rate interest
payment obligations without the exchange of the underlying
principal amounts in order to manage interest rate exposures. The
agreements have been used to adjust interest on the Company's
senior secured debt (see Note 7).
Concentrations of Credit Risk: Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of temporary cash investments, marketable
securities and trade receivables.
The Company places its temporary cash investments and marketable
securities with financial institutions and other credit worthy
issuers and limits the amount of credit exposure to any one party.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the
Company's customer base, and their dispersion across different
businesses and geographic areas.
As of December 31, 1993 and 1992, management believes the Company
had no significant concentrations of credit risk.
14. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations
for the years ended December 31, 1993 and 1992 (in thousands,
except per share amounts):
Net Income Earnings
Income (Loss) (Loss)
Total (Loss) to Common Per Common
Revenue Before Taxes Shares Shares
1993 Quarters
First $18,379 $ 2,462 $ 352 $ 0.03
Second 18,141 2,653 468 0.05
Third 15,387 1,736 500 0.05
Fourth 17,745 886 112 0.01
Total $69,652 $ 7,737 $ 1,432 $ 0.14
1992 Quarters
First $18,274 $ (1,504) $ (3,264) $(0.31)
Second 18,337 (34,824) (21,312) (2.03)
Third 18,579 3,621 1,167 0.11
Fourth 19,845 (1,211) (1,862) (0.18)
Total $75,035 $(33,918) $(25,271) $(2.41)
In the second quarter of 1992 the Company recorded a restructuring
adjustment of $36,000 of which $33,300 was related to revaluation
of equipment and related assets. The restructuring adjustment net
of its tax benefits decreased net income by $22,300 or $2.13 per
common share.
PLM INTERNTIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
In the fourth quarter of 1992, the Company added $2,900 to the
restructuring adjustment reflecting lower performance expectations
in the aircraft market ($2,300) and the anticipated sale of certain
railcars ($600). The Company also recorded $800 of bonus expense.
The effect of these adjustments was to reduce fourth quarter net
income to common shares by $2,300 or $0.22 per common share.
In the fourth quarter of 1993, the Company reduced the carrying
value of certain equipment by $1.3 million. This was partially
offset by tax credits of $0.2 million and by the revenue generated
by the purchase of $61 million for the managed programs.
15. THE COMPANY'S 401(k) SAVINGS PLAN
The Company adopted the PLM International Employers Profit Sharing
and Tax-Advantaged Savings Plan effective as of February 1, 1988.
The plan provides for a deferred compensation arrangement as
described in 401(k) of the Internal Revenue Code. The 401(k) Plan
is a non-contributing plan and is available to substantially all
full-time employees of the Company. In 1993, employees of the
Company who participated in the 401(k) Plan could elect to defer
and contribute to the trust established under the 401(k) Plan up to
$8,999 of pre-tax salary or wages. The Company makes no
contributions to the 401(k) Plan.
PAGE
SCHEDULE I
PLM INTERNATIONAL, INC.
December 31, 1993
Schedule of Marketable Securities
(in thousands)
Principal Market
Carrying
Issuer Amount Cost Value Value
Associates Corp. $ 1,000 $ 1,060 $ 1,041 $ 1,041
Australian Wheat 1,000 1,000 1,000 1,000
Bear Stearns 2,000 2,000 2,002 2,002
Beneficial Corp. 1,000 1,088 1,052 1,052
Capital Auto 2,294 2,298 2,295 2,295
Case Equipment 346 346 346 346
Discover Card 1,000 1,026 1,012 1,012
Euro Credit Card
Trust 2,170 2,262 2,231 2,231
Federal Home Loan 1,178 1,194 1,178 1,178
Federal National 4,480 4,418 4,420 4,420
Ford Motor Credit 2,510 2,622 2,576 2,576
General Motor
Acceptance Corp. 564 563 568 568
McDonald Finance 2,000 2,126 2,000 2,000
Morgan J.P.
Delaware 1,000 1,000 998 998
Premier Auto
Trust 244 244 244 244
Sears Credit 1,880 1,957 1,945 1,945
Shearson Lehman 2,000 2,000 2,000 2,000
SPNB Home
Equity 577 596 589 589
Standard Credit 1,500 1,557 1,529 1,529
U.S. Treasury
Notes 14,920 15,085 14,997 14,997
Western Financial 438 450 446 446
$44,101 $44,892 $44,469 $44,469
/TABLE
SCHEDULE II
PLM INTERNATIONAL, INC.
Years Ended December 31, 1993, 1992 and 1991
Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other than Related Parties
(in thousands)
Balance at
Beginning Deductions Balance at
of Amounts Amounts End of
Name of Debtor Period Additions Collected Written Off Period
Year Ended 12/31/93
Customized Equipment $779 $ -- $ -- $ -- $779<F1>
Leasing Programs
Year Ended 12/31/92
Customized Equipment
Leasing Programs $773 $ 6 $ -- $ -- $779<F1>
Year Ended 12/31/91
Customized Equipment
Leasing Programs $773 $ -- $ -- $ -- $773<F1>
Note: All other amounts receivable from related parties in excess of
$100,000 were generated in the ordinary course of business.
<FN>
<F1> Certain Customized Equipment Leasing Programs may not be able to pay
the amounts owed, reserves of $539,000 at December 31, 1993, 1992 and 1991,
have been established for this possible eventuality.
PAGE
SCHEDULES V AND VI
PLM INTERNATIONAL, INC.
Year Ended December 31, 1993
Schedule of Equipment and Accumulated Depreciation
(in thousands)
Balance at
Dec. 31,
1992 Additions Disposals Other
Aircraft $ 72,573 $ 508 $(1,607) $3,924
Trailers 73,179 195 (6,690) (22)
Marine Cargo
Containers 13,732 -- (1,407) --
Railcars
& Others 5,513 825 (413) --
Marine
Vessels 18,323 -- -- --
Storage
Vaults 1,251 7 (4) --
Totals 184,571 1,535 (10,121) 3,902
Less:
Accumu-
lated
Depre-
ciation (78,354) (14,457) 7,974 (1,594)
Totals $106,217 $(12,922) $(2,147) $ 2,308
Accumu-
lated
Deprec-
iation
Balance Net Book
Balances at Dec. Value at
at Dec. 31, 31, Dec. 31,
1993 1993 1993
Aircraft $75,398 $(32,547) $42,851
Trailers 66,662 (40,034) 26,628
Marine Cargo
Containers 12,325 (6,145) 6,180
Railcars
& Others 5,925 (2,983) 2,942
Marine
Vessels 18,323 (4,594) 13,729
Storage
Vaults 1,254 (128) 1,126
Totals 179,887 $(86,431) $93,456
Less:
Accumu-
lated
Depre-
ciation (86,431)
Totals $93,456
PLM INTERNATIONAL, INC.
Year Ended December 31, 1992
Schedule of Equipment and Accumulated Depreciation
(in thousands)
Balance at
Dec. 31,
1991 Additions Disposals Other<F2>
Aircraft $ 127,887 $ 8,710 $(13,935) $ (50,089)
Trailers 111,168 3,702 (6,465) (35,226)
Marine Cargo
Contain-
ers 16,053 251 (1,335) (1,237)
Railcars
& Others 26,791 250 (4,447) (17,081)
Marine
Vessels 18,273 50 -- --
Storage
Vaults 875 380 (4) --
Totals 301,047 13,343 (26,186) (103,633)
Less:
Accumu-
lated
Depreci-
ation<F1> (110,152) (27,873) 11,737 47,934
$ 190,895 $(14,530) $(14,449) $ (55,699)
Accumu-
lated
Deprec-
iation
Balance Net Book
Balances at Dec. Value at
at Dec. 31, 31, Dec. 31,
1992 1992 1992
Aircraft $ 72,573 $(27,106) $ 45,467
Trailers 73,179 (40,587) 32,592
Marine Cargo
Contain-
ers 13,732 (5,406) 8,326
Railcars
& Others 5,513 (1,823) 3,690
Marine
Vessels 18,323 (3,376) 14,947
Storage
Vaults 1,251 (56) 1,195
Totals 184,571 $(78,354) $106,217
Less:
Accumu-
lated
Depreci-
ation (78,354)
$106,217
<FN>
<F1> Includes a valuation adjustment of $13,943 recorded on
various types of equipment.
<F2> Principally reclassification to assets held for sale.
SCHEDULES V AND VI
PLM INTERNATIONAL, INC.
Year Ended December 31, 1991
Schedule of Equipment and Accumulated Depreciation
(in thousands)
Balance at Balance at
Dec. 31, Dec. 31,
1990 Additions Retirements 1991
Aircraft $128,482 $ 218 $ (813) $127,887
Trailers 109,857 3,588 (2,277) 111,168
Marine
Cargo
Contain-
ers 16,427 -- (374) 16,053
Railcars &
Other 26,384 1,276 (869) 26,791
Marine
Vessels 18,244 29 -- 18,273
Storage
Vaults -- 875 -- 875
Totals 299,394 5,986 (4,333) 301,047
Less:
Accumulated
Depre-
ciation (96,974) (15,171) 1,993 (110,152)
$202,420 $ (9,185) $(2,340) $ 190,895
Accumulated
Depreciation Net Book
Balance at Value at
Dec. 31, Dec. 31,
1991 1991
Aircraft $ (44,367) $ 83,520
Trailers (49,580) 61,588
Marine
Cargo
Contain-
ers (6,048) 10,005
Railcars &
Other (7,819) 18,972
Marine
Vessels (2,338) 15,935
Storage
Vaults -- 875
Totals $(110,152) $190,895
PAGE
SCHEDULE IX
PLM INTERNATIONAL, INC.
December 31, 1993, 1992 and 1991
SHORT-TERM BORROWINGS
(in thousands)
Category of
Aggregate Balance at Weighted Maximum
Short-Term End of Average Amount
Borrowings<F1><F2> Period Interest Rate Outstanding
1993
Amounts payable
to banks for
borrowings $ -0- 7.000% $13,600
1992
Amounts payable
to banks for
borrowings $ -0- 7.298% $19,293
1991
Amounts payable
to banks for
borrowings $ -0- 7.375% $35,876
Weighted
Average
Category of Interest
Aggregate Average Rate
Short-Term Amount During the
Borrowings<F1><F2> Outstanding Period
1993
Amounts payable
to banks for
borrowings $ 2,695 7.000%
1992
Amounts payable
to banks for
borrowings $ 4,541 7.125%
1991
Amounts payable
to banks for
borrowings $ 19,281 8.53%
<FN>
<F1> Reflects the bridge credit line. Interest on the bridge was
at the prime rate plus .5% to 1.00%. The bridge line was secured
by assets held for resale. This line does not require compensating
balances.
<F2> Calculated by multiplying the outstanding balance by the
number of days outstanding and dividing the product by the number
of days in the year.
PAGE
EXHIBIT XI
PLM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (a)
Years ended December 31,
1993 1992 1991
(in thousands, except per-share
data)
Primary
Earnings:
Net income (loss) $ 6,282 $(18,231) $10,103
Preferred dividend required (4,850) (7,040) (7,040)
Net income (loss) to common shares $ 1,432 $(25,271) $ 3,063
Shares:
Weighted average number of
common shares outstanding 10,589 10,497 10,171
Primary earnings (loss) per
common share $ 0.14 $ (2.41) $ 0.30
Assuming Full Dilution (b)
Earnings:
Net income (loss) $ 6,282 $(18,231) $10,103
Replacement contribution required
upon conversion of ESOP convertible
preferred shares (4,542) (4,643) (5,070)
Non discretionary adjustments to
incentive compensation plans based
on ESOP's replacement contribution
effect on pretax earnings 850 800 1,800
Change in income tax due to conversion
of ESOP convertible preferred
shares (191) (934) (687)
Net income (loss) to common as
adjusted $ 2,399 $(23,008) $ 6,146
Shares:
Weighted average number of
common shares outstanding 10,605 10,497 10,171
Assumed conversion of preferred
shares 4,917 4,922 4,923
Additional common shares issued to
cover $13 stated value of allo-
cated ESOP shares if converted -- 3,766 1,284
Weighted average number of common
shares outstanding as adjusted 15,522 19,185 16,378
Earnings (loss) per common share
assuming full dilution $ 0.16 $ (1.20) $ 0.38
(a) See accompanying notes to December 31, 1993, 1992, and 1991
Financial Statements
(b) This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because the results are anti-dilutive.
PAGE
EXHIBIT XI, Page 2
PLM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Years ended December 31,
1993 1992 1991
(in thousands, except per-share data)
Primary
Earnings:
Net income (loss) $ 6,282 $(18,231) $10,103
Preferred dividend required (4,850) (7,040) (7,040)
Net income (loss) to common
shares $ 1,432 $(25,271) $ 3,063
Shares:
Weighted average number of
common shares outstanding $ 10,589 10,497 10,171
Primary earnings (loss) per
common share $ 0.14 $ (2.41) $ 0.30
Adjusted for Contingent Issue Shares (a)
Earnings:
Net income (loss) $(18,231) $10,103
Additional net income required to meet
target primary earnings per common share 45,530 14,024
Preferred dividend required (7,040) (7,040)
Net income as adjusted $ 20,259 $17,087
Weighted average number of
common shares outstanding 10,497 10,171
Assume issuance of contingent shares 200 200
10,697 10,371
Earnings per share as adjusted $ 1.89 $ 1.65
a. The contingent shares were recalled on January 1, 1993 as the
conditions for their issuance were not met. (See Note 11.) For
1992 and 1991, the Company's outstanding stock options and
additional contingent shares not included above have strike prices
higher than the year end closing price of the Company's common and
therefore are anti-dilutive and no calculation is presented.
b. This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because the results are anti-dilutive.