SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
Commission File Number: 1-9670
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
94-3041257
(I.R.S. Employer Identification No.)
One Market
Steuart Street Tower, Suite 900
San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (415) 974-1399
Indicate by check mark whether the registrant has (1) 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
Number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class: Outstanding August 12, 1994:
Common Stock, $.01 par value 10,495,114 shares
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1994 1993
(in thousands)
ASSETS
Cash and cash equivalents $ 17,849 $ 19,685
Receivables 6,765 6,037
Receivables from affiliates 9,071 10,981
Assets held for sale 9,836 -0-
Equity interest in affiliates 17,287 17,707
Transportation equipment held for
operating leases 184,925 205,810
Less accumulated depreciation (98,550) (105,122)
86,375 100,688
Restricted cash and cash equivalents 12,673 7,055
Restricted marketable securities 41,586 44,469
Other 13,238 11,098
Total assets $214,680 $217,720
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities:
Senior secured debt $ 45,000 $ 45,000
Bank debt related to ESOP 50,280 50,280
Other secured debt 3,401 2,839
Subordinated debt 31,000 31,000
Payables and other liabilities 13,149 18,082
Deferred income taxes 19,285 19,386
Total liabilities 162,115 166,587
Minority Interest 362 -0-
Shareholders' Equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
4,901,474 at June 30, 1994, and
4,916,301 at December 31, 1993,
series A Convertible shares
issued and outstanding, aggregate
$63,719,162 at June 30, 1994, and
$63,911,913 at December 31, 1993,
($13 per share) liquidation
preference at paid-in amount 63,377 63,569
Loan to Employee Stock
Ownership Plan (50,280) (50,280)
13,097 13,289
Common stock, $.01 par value,
50,000,000 shares authorized,
10,495,114 shares issued
and outstanding at June 30, 1994,
(excluding 417,209 shares
held in treasury) and 10,465,306
at December 31, 1993, 109 109
(excluding 432,018 shares
held in treasury)
Paid in capital, in excess of par 55,737 55,557
Treasury stock (100) (131)
55,746 55,535
Accumulated deficit (16,640) (17,691)
Total shareholders' equity 52,203 51,133
Total liabilities,
minority interest, and
shareholders' equity $214,680 $217,720
See accompanying notes to these financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the three months
ended June 30,
1994 1993
Revenues:
Operating leases $ 7,975 $ 8,462
Management fees and
partnership interests 3,980 3,549
Commissions and other fees 1,264 5,525
(Loss) gain on the disposal of
transportation equipment, net (348) 391
Other 1,610 214
Total revenues 14,481 18,141
Costs and expenses:
Operations support 5,930 5,126
Depreciation and amortization 3,137 3,128
Commissions 1,317 2,440
General and administrative 2,374 2,914
Total costs and expenses 12,758 13,608
Operating income 1,723 4,533
Interest expense 2,417 3,152
Other income (expense), net 118 (140)
Interest income 1,358 1,412
Income before income taxes 782 2,653
Provision for income taxes 137 949
Net income 645 1,704
Preferred dividend (net of $466
and $522 income tax benefit
for the three months ended
June 30, 1994, and 1993,
respectively, and $932 and
$1,044 for the six months
ended June 30, 1994, and
1993, respectively) 1,271 1,236
Net (loss) income to common
shares $ (626) $ 468
(Loss) earnings per common
share outstanding $ (0.06) $ 0.04
For the six months
ended June 30,
1994 1993
Revenues:
Operating leases $ 15,247 $ 17,802
Management fees and
partnership interests 7,465 7,158
Commissions and other fees 4,466 9,438
(Loss) gain on the disposal of
transportation equipment,
net (465) 1,788
Other 2,735 334
Total revenues 29,448 36,520
Costs and expenses:
Operations support 11,486 10,289
Depreciation and amortization 6,305 6,506
Commissions 2,873 5,323
General and administrative 4,691 5,057
Total costs and expenses 25,355 27,175
Operating income 4,093 9,345
Interest expense 4,708 6,534
Other income (expense), net 270 (435)
Interest income 2,562 2,739
Income before income taxes 2,217 5,115
Provision for income taxes 528 1,823
Net income 1,689 3,292
Preferred dividend (net of $466
and $522 income tax benefit
for the three months ended
June 30, 1994, and 1993,
respectively, and $932 and
$1,044 for the six months
ended June 30, 1994, and
1993, respectively) 2,542 2,472
Net (loss) income to common
shares $ (853) $ 820
(Loss) earnings per common
share outstanding $ (0.08) $ 0.08
See accompanying notes to these financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For
the six months ended
June
30,
1994 1993
Cash flows from
operating activities:
Net income $ 1,689 $ 3,292
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation and amortization 6,305 6,506
Decrease in deferred income taxes (222) (1,869)
Tax benefit of preferred dividend paid 292 321
Loss (gain) on disposal of assets 465 (1,832)
Undistributed residual value interests 216 (336)
Minority interest in net income
of subsidiaries 26 -0-
(Decrease) increase in payables
and other liabilities (6,028) 1,781
Decrease (increase) in receivables and
receivables from affiliates 2,029 (4,554)
Cash distributions from affiliates
in excess of (less than) income accrued 255 (130)
(Increase) decrease in other assets (391) 998
Purchase of equipment for lease (842) (618)
Proceeds from sale of equipment
for lease 2,763 438
Purchase of assets held for
sale to affiliates (7,364) (5,007)
Proceeds from sale of assets
held for sale to affiliates 3,695 20,659
Net cash provided by operating activities 2,888 19,649
Cash flows from investing activities:
Additional investment in affiliates (51) (420)
Proceeds from the sale of investments 89 -0-
Proceeds from the maturity and
sale of restricted marketable securities 17,516 39,059
Purchase of restricted marketable securities (14,633) (42,736)
(Increase) decrease in restricted
cash and cash equivalents (5,618) 7,376
Acquisition of subsidiaries (1,013) -0-
Net cash (used in) provided by
investing activities (3,710) 3,279
Cash flows from financing activities:
Proceeds from long-term equipment loans 45,079 -0-
Principal payments under equipment loans (45,182) (23,292)
Cash dividends paid on Preferred Stock (930) (1,034)
Proceeds from exercise of stock options 19 -0-
Financing of assets held for sale
to affiliates 2,953 -0-
Repayment of financing for assets
held for sale to affiliates (2,953) -0-
Net cash used in financing activities (1,014) (24,326)
Net decrease in cash and cash equivalents (1,836) (1,398)
Cash and cash equivalents at
beginning of period 19,685 9,407
Cash and cash equivalents at
end of period $ 17,849 $ 8,009
Supplemental information:
Interest paid during the period $ 4,521 $ 5,719
Income taxes paid during the period $ 4,007 $ 610
See accompanying notes to financial statements.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the Company's financial
position as of June 30, 1994, and the statements of
operations for the three and six months ended June 30, 1994,
and 1993 and the statements of cash flows for the six months
ended June 30, 1994, and 1993. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from
the accompanying consolidated financial statements. For
further information, reference should be made to the
financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, on file at the Securities and Exchange
Commission.
2. In the first six months of 1994, 14,999 common shares were
issued for the exercise of stock options. In addition, in
exchange for an equal number of preferred shares 14,809
common shares were taken out of treasury stock and issued to
former participants in the Company's Employee Stock
Ownership Plan. Consequently, the total common shares
outstanding increased to 10,495,114 at June 30, 1994, from
the 10,465,306 outstanding at December 31, 1993. Net income
(loss) per common share was computed by dividing net income
(loss) to common shares by the weighted average number of
shares of common stock deemed outstanding during the period.
Dilution that could result from the issuance of stock
options is not material.
3. Certain amounts in the 1993 financial statements have been
reclassified to conform to the 1994 presentation.
4. The Company classifies assets as held for sale if the
particular asset is subject to a pending contract for sale
or is held for sale to an affiliated partnership.
Transportation equipment held for operating leases at
December 31, 1993, includes equipment classified as held for
sale in previous reports. At June 30, 1994, $3.7 million in
trailers was held for sale to one or more affiliated
Partnerships.
5. As of January 1, 1994, the Company has adopted Statement of
Financial Accounting Standards No. 115 ("Accounting For
Certain Investments in Debt and Equity Securities") ("SFAS
No. 115"). At January 1, 1994, the Company classified most
of its marketable securities as held-to-maturity securities
based on management intent and ability to hold. All
securities that were considered available-for-sale at
January 1, 1994, were sold during the first quarter, with
the corresponding gain or loss included in income. As of
June 30, 1994, the Company has classified all of its
marketable securities as held-to-maturity securities. Thus,
all marketable securities are reported on the balance sheet
at amortized cost, and any unrealized gains and losses have
not been recorded.
6. In February 1994, the Company completed the purchase of a
majority interest in Aeromil Australia Pty Ltd ("Aeromil").
Aeromil is an aircraft dealer specializing in local and
international marketing of business, commuter, and
commercial aircraft. The acquisition was accounted for by
the purchase method of accounting and accordingly, the
purchase price is allocated to assets and liabilities based
on the estimated fair value at the date of acquisition and
goodwill will be amortized over ten years. The portion of
Aeromil not owned by the Company is shown as minority
interest on the balance sheet. Minority interest in net
income of subsidiaries is included in other expense for the
three and six months ended June 30, 1994.
7. In June 1994, the Company closed a new $45.0 million senior
loan facility, with a syndicate of insurance companies, and
repaid the existing senior loan. The new facility has a
seven year term with quarterly interest-only payments
through March 31, 1997. Quarterly principal payments of
$2.6 million, plus interest charges begin on June 30, 1997,
through the termination of the loan in June 2001. Interest
on $35.0 million of the debt is fixed at 9.78% per annum and
the remaining $10.0 million floats based on LIBOR plus 2.75%
per annum and adjusts quarterly. The facility is secured by
all of the Company's transportation-related equipment assets
and associated leases.
8. The Company's Board of Directors has announced its intention
to terminate the Company's ESOP. The termination is
contingent on, among other things, the receipt of a
favorable IRS determination letter as to the qualified
status of the ESOP as of the date of termination under the
rules and regulations of the Internal Revenue Code (the
"Code"). Upon termination of the ESOP, each share of Series
A Preferred Stock held by the ESOP (the "Preferred Stock")
which has been allocated to ESOP participants will
automatically convert to one share of Common Stock. In
addition, it is presently expected that an amendment to the
Company's Certificate of Designation of Series A Preferred
Stock (the "Certificate of Designations") will be submitted
to the PLM shareholders for approval prior to termination of
the ESOP. Under the proposed amendment, the allocated
shares of Preferred Stock would also automatically convert
to common shares in the event those shares are transferred
to the trustee of the Company's profit sharing plan.
Termination of the ESOP will result in the distribution of
each ESOP participant (or to the participant's account in
the Company's profit sharing plan) of shares of PLM Common
Stock, and the Preferred Stock which has been allocated to
such participant's account as of the date of termination
will be canceled. Assuming termination on or about December
31, 1994, it is estimated that approximately 2,000,000
common shares will be distributed to (or to the accounts of)
a total of approximately 315 ESOP participants. All such
shares would be freely tradeable and listed on the AMEX.
Shares of Preferred Stock held by the ESOP which have not
been allocated to participants' accounts at the date of
termination (i.e. approximately 2,900,000 shares assuming
termination on or about December 31, 1994) will cease to be
outstanding upon termination, and concurrent with the
termination, all indebtedness of the ESOP then owing to the
Company will either be repaid or rendered uncollectible. In
addition, the corresponding bank indebtedness of the Company
related to the ESOP will be repaid using restricted cash and
marketable securities collateral. As of June 30, 1994, the
principal amount of this indebtedness was $50.3 million and
it was fully secured by restricted cash collateral.
Depending on prevailing interest rates at the time of
termination, gain or loss may be recognized on the
liquidation of the collateral to be used to repay this
indebtedness.
Termination of the ESOP and the related ESOP loan will
eliminate payment by the Company of the annual dividend on
the Preferred Stock now held by the ESOP. For the year ended
December 31, 1993, the aggregate pretax amount of this
dividend was $7.0 million. Termination of the ESOP will
also result in a 10% excise tax imposed by the Code on the
"amount realized" by the ESOP from the disposition of the
unallocated shares held by the ESOP on the date of
termination. Although the amount of this one-time tax is
not presently known, based on the Company's assessment of
the valuation of the unallocated shares, the amount is
currently estimated at $1.1 million. This excise tax is
payable seven months after the close of the calendar year of
termination and will be charged to earnings in the year of
termination. The Company also anticipates that
approximately $2.7 million of previously paid, unamortized
ESOP loan fees and other costs will be charged to earnings
in the year of termination, which together with the
currently estimated amount of the 10% excise tax and income
tax benefits, will result in a reduction in shareholders'
equity of approximately $2.8 million.
As a result of the termination, the cost recorded for
previously allocated ESOP shares will be adjusted as
required by current accounting principles. The impact of
this change in accounting for allocated shares will be
reflected as a reduction to income to common shareholders of
approximately $5.2 million and will result in a
corresponding increase to additional paid in capital. The
Company's total stockholders' equity will not be impacted by
this accounting charge for the allocated shares.
On November 22, 1993, the American Institute of Certified
Public Accountants issued Statement of Position 93-6
"Employers' Accounting for Employee Stock Ownership Plans"
(SOP 93-6) which changes the way companies report
transactions with leveraged employee stock ownership plans
("ESOPs") for financial statement purposes, including the
following: (i) compensation expense is to be recognized
based on the fair value of shares committed to be released
to employees; (ii) interest received on loans to ESOPs is
not recorded as income; and (iii) only dividends on
allocated shares are reflected as a reduction to income to
common shareholders. The Company is not required to adopt
SOP 93-6 because the shares held by its ESOP were purchased
prior to December 31, 1992; however, management is
considering voluntary adoption of SOP 93-6. If the Company
elects to adopt SOP 93-6, a non-cash charge to earnings for
the impact of the change in accounting principle will be
recorded as of the beginning of the year of adoption and all
previously issued financial statements for that year will be
restated.
9. In June 1994, the Company amended its Warehousing Line of
Credit facility. The amendment extended the facility until
June 30, 1995, and provides for a $5.0 million letter of
credit facility as part of the $25.0 million facility.
10. The Company is involved as plaintiff or defendant in various
legal actions incident to its business. Management does not
believe that any of these actions will be material to the
financial condition of the Company.
Subsequent Events:
11. In July 1994, the Company completed the sale of one of its
marine vessels, which was in assets held for sale, for $6.2
million which approximated its carrying value.
12. In July 1994, the Company repaid $3.0 million of its
subordinated debt.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 interests
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.
For the Three Months Ended June 30, 1994, vs. June 30, 1993
(A) Revenues
The Company's total revenues for the quarters ended June 30,
1994, and 1993 were $14.5 million and $18.1 million,
respectively. The decrease in 1994 revenues is principally
composed of a 6% decrease in operating lease revenue, a 77%
decrease in commission and other fees, and a loss on the
disposal of transportation equipment, partially offset by a 12%
increase in management fees and partnership interests, and a
$1.4 million increase in other revenue.
1. Operating Lease Revenues - $8.0 million vs. $8.5 million
For the three months ended June 30, 1994, the Company had
an average $198.9 million of equipment in its operating
lease portfolio, which is approximately $37.3 million less
than the original cost of equipment held during the second
quarter of 1993. The reduction in equipment is a
consequence of the Company's strategic decision to dispose
of certain assets resulting in a 17% reduction in its
aircraft fleet, and a net reduction of 25% and 12% in its
trailer and marine container portfolios, respectively,
compared to the second quarter of 1993.
The reduction in equipment available for lease is the
primary reason trailer and aircraft lease revenue
decreased by $0.3 million and $0.1 million, respectively.
2. Management Fees and Partnership Interests - $4.0 million
vs. $3.5 million
Management fees increased approximately $0.4 million for
the quarter ended June 30, 1994, as compared to the second
quarter of 1993. 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 increase
management fees. Equipment managed at June 30, 1994, and
1993 (measured at original cost) amounted to $1.13 billion
and $1.05 billion, respectively. The increase in
management fees generated by additional assets under
management was partially offset by reduced lease rates for
equipment which negatively impacted affiliated partnership
revenues. Agreements for these partnerships and
investment programs provide for higher management fees on
full service railcar leases than the Company has
previously recognized. The Company recognized additional
fees of $0.2 million in the second quarter of 1994, for
these past services. The Company also records as revenues
its equity interest in the earnings of the Company's
affiliated partnerships, which revenues were approximately
the same as the second quarter of 1993.
3. Commissions and Other Fees - $1.3 million vs. $5.5 million
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. Debt
placement fees are earned for debt placed in the
investment programs. These fees are governed by
applicable program agreements and securities regulations.
The Company also receives a residual interest in the net
equipment purchased by the 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 affiliated partnerships.
During the three months ended June 30, 1994, program
equity raised totaled $13.6 million, compared to $25.6
million in the same period of 1993, resulting in a
decrease in placement commissions of $1.0 million.
Syndication equity raising efforts are influenced by many
factors, including general economic conditions,
performance of comparable investments, and the number of
firms that undertake to sell Company-sponsored programs.
There can be no assurances that future syndication sales
will perform as well as or better than prior periods.
During the second quarter of 1994, there were no equipment
purchases on behalf of various investor programs and
partnerships compared to $58.8 million in the same period
of 1993, resulting in a $2.9 million decrease in
acquisition and lease negotiation fees.
Residual interest income decreased $0.4 million as a
result of no equipment acquisitions for the affiliated
partnerships in the second quarter of 1994.
4. (Loss) Gain on the Disposal of Transportation Equipment -
($0.3) million vs. $0.4 million
The loss on the disposal of transportation equipment in
1994 resulted primarily from the net loss on the
disposition of trailers and marine containers in the
normal course of business. The net gain in 1993 was
primarily the result of the Company's decision to sell
substantially al of its railcar fleet.
5. Other - $1.6 million vs $0.2 million
Other revenues are principally revenue earned by Aeromil
($1.3 million), the Company's aircraft leasing and spare
parts brokerage subsidiary acquired in February of 1994,
and insurance premiums earned by Transportation Equipment
Indemnity Company Ltd., a captive insurance company.
(B) Costs and Expenses
1. Operations support expense (including salary and office-
related expenses for operational activities, provision for
doubtful accounts, equipment insurance, repair and
maintenance costs, and equipment remarketing costs)
increased $0.8 million (16%) for the three months ended
June 30, 1994, from the same period in 1993. The increase
resulted from $1.2 million in costs associated with the
operation of Aeromil. This was partially offset by lower
equipment operation costs resulting from the reduction in
the equipment portfolio.
2. Depreciation and amortization expense was $3.1 million for
the quarters ended June 30, 1994, and 1993. The decrease
resulting from the reduction in depreciable equipment was
offset by accelerating depreciation on certain assets.
3. Commission expenses are primarily incurred by the Company
in connection with the syndication of investment
partnerships. Commissions are also paid for certain
leasing activities. Commission expenses for the three
months ended June 30, 1994, decreased $1.1 million (46%)
from a similar period in 1993. The reduction is the
result of lower equity syndication levels.
4. General and administrative expenses decreased $0.5 million
(19%) during the quarter ended June 30, 1994, compared to
a similar period in 1993. The decrease is a result of
lower compensation expense, due to staff reductions, and
lower professional service costs.
(C) Other Items
1. Interest expense decreased $0.7 million (23%) during the
quarter ended June 30, 1994, compared to the similar
period in 1993 as a result of reduced debt levels,
partially offset by increased interest rates.
2. Other income (expense) was income of $0.1 million in the
second quarter of 1994, compared to an expense of $0.1
million in the second quarter of 1993. The change is a
result of a reduction in the previously accrued cost of
terminating the Company's interest rate SWAP agreement,
which resulted from increased interest rates during the
second quarter.
3. Interest income decreased $0.1 million (4%) during the
quarter ended June 30, 1994, compared to the similar
period in 1993. The reduced interest income resulted from
reduced marketable securities and cash balances, and was
partially offset by an increase in interest rates.
4. The provision for income taxes for the three months ended
June 30, 1994, of $0.1 million represents an effective tax
rate of 18%. The provision reflects the tax benefit of
the preferred dividend on the ESOP shares allocated to
ESOP participants which has increased since the comparable
period in 1993. For the quarter ended June 30, 1993, the
Company's provision for income taxes was $0.9 million,
which represented an effective rate of 36%. As required
by Statement of Financial Accounting Standards No. 109
("Accounting For Income Taxes") ("SFAS No. 109") the ESOP
dividend is presented net of the tax benefit on ESOP
shares not allocated to participants.
(D) Net (Loss) Income
For the three months ended June 30, 1994, net income was $0.6
million. In addition, $1.3 million is required for payment of
preferred dividends (net of a tax benefit of $0.5 million),
resulting in a net loss to common shareholders of $0.6 million
and a loss per common share of $0.06. In comparison, for the
same period in 1993, net income was $1.7 million and the net
income available to common shareholders was $0.5 million, with
income per common share of $0.04.
For the Six Months Ended June 30, 1994, vs. June 30, 1993
(A) Revenues
The Company's total revenues for the six months ended June 30,
1994, and 1993 were $29.4 million and $36.5 million,
respectively. The decrease in 1994 revenues is principally
composed of a 14% decrease in operating lease revenue, a 53%
decrease in commission and other fees, and a loss on the
disposal of transportation equipment, partially offset by a 4%
increase in management fees and partnership interests, and a
$2.4 million increase in other revenue.
1. Operating Lease Revenues - $15.2 million vs. $17.8 million
For the six months ended June 30, 1994, the Company had
an average $201.2 million of equipment in its operating
lease portfolio, which is $40.3 million less than the
original cost of equipment held during the first six
months of 1993. The reduction in equipment is a
consequence of the Company's strategic decision to dispose
of certain assets resulting in the sale of almost its
entire railcar portfolio, a 17% reduction in its aircraft
fleet , and a net reduction of 25% and 12% in its trailer
and marine container portfolios, respectively, compared
to 1993.
The reduction in equipment available for lease is the
primary reason trailer, rail, aircraft, and marine
container revenue were reduced by $1.1 million, $0.6
million, $0.6 million, and $0.3 million, respectively.
2. Management Fees and Partnership Interests - $7.5 million
vs. $7.2 million
Management fees increased $0.3 million for the six months
ended June 30, 1994, as compared to the first six months
of 1993. Equipment managed at June 30, 1994, and 1993
(measured at original costs) amounted to $1.13 billion and
$1.05 billion, respectively. The increase in management
fees generated by additional assets under management was
partially offset by reduced lease rates for equipment
which negatively impacted affiliated partnership revenues.
The partnership agreements allow higher management fees
on full service railcar leases than the Company has
previously recognized. The Company recognized additional
fees of $0.2 million in the second quarter of 1994, for
these past services. The Company also records as revenues
its equity interest in the earnings of the Company's
affiliated partnerships which revenues were approximately
the same as in the first six months of 1993.
3. Commissions and Other Fees - $4.5 million vs. $9.4 million
During the six months ended June 30, 1994, program equity
raised totaled $30.6 million, compared to $56.7 million
in the same period of 1993, resulting in a decrease in
placement commissions of $2.2 million. On behalf of
various investor programs and partnerships, a total of
$31.4 million of equipment was purchased during the six
months ended June 30, 1994, compared to $76.8 million in
the same period of 1993, resulting in a $2.1 million
decrease in acquisition and lease negotiation fees.
Residual interest income decreased $0.5 million as a
result of decreased equipment acquisitions for the
affiliated partnerships.
4. (Loss) Gain on the Disposal of Transportation Equipment -
($0.5) million vs. $1.8 million
The loss on the disposal of transportation equipment in
1994 resulted primarily from the net loss on the
disposition of trailers and marine containers in the
normal course of business. The net gain in 1993 was
primarily the result of the Company's decision to sell
substantially all of its railcar fleet.
5. Other - $2.7 million vs $0.3 million
Other revenues are principally revenue earned by Aeromil
($2.1 million), the Company's aircraft leasing and spare
parts brokerage subsidiary acquired in February of 1994,
and insurance premiums earned by Transportation Equipment
Indemnity Company Ltd., a captive insurance company.
(B) Costs and Expenses
1. Operations support expense (including salary and office-
related expenses for operational activities, provision for
doubtful accounts, equipment insurance, repair and
maintenance costs, and equipment remarketing costs)
increased $1.2 million (12%) for the six months ended June
30, 1994, from the same period in 1993. The increase
resulted from $1.9 million in costs associated with the
operation of Aeromil. This was partially offset by lower
equipment operation costs resulting from the reduction in
the equipment portfolio.
2. Depreciation and amortization expense decreased $0.2
million (3%) for the six months ended June 30, 1994, as
compared to the similar period in 1993. The decrease
resulted from the reduction in depreciable equipment,
which was partially offset by accelerating depreciation
on certain assets.
3. Commission expenses are primarily incurred by the Company
in connection with the syndication of investment
partnerships. Commissions are also paid for certain
leasing activities. Commission expenses for the six
months ended June 30, 1994, decreased $2.5 million (46%)
from the similar period in 1993. The reduction is the
result of lower equity syndication levels.
4. General and administrative expenses decreased $0.4 million
(7%) during the six months ended June 30, 1994, compared
to the similar period in 1993. The decrease is a result
of lower compensation expense, due to of staff reductions,
and lower professional service costs.
(C) Other Items
1. Interest expense decreased $1.8 million (28%) during the
six months ended June 30, 1994, compared with the same
period in 1993 as a result of reduced debt levels,
partially offset by increased interest rates.
2. Other income (expense) was income of $0.3 million in the
first six months of 1994, compared to an expense of $0.4
million in the first six months of 1993. The change is
a result of a reduction in the previously accrued cost of
terminating the Company's interest rate SWAP agreement,
which resulted from increased interest rates during 1994.
3. Interest income decreased $0.2 million (6%) in the six
months ended June 30, 1994, compared the same period in
1993. The reduced interest income resulted from reduced
marketable securities and cash balances, and was partially
offset by an increase in interest rates.
4. The provision for income taxes for the six months ended
June 30, 1994, of $0.5 million represents an effective tax
rate of 24%. The provision reflects the tax benefit of
the preferred dividend on the ESOP shares allocated to
ESOP participants. For the six months ended June 30,
1993, the Company's provision for income taxes was $1.8
million, which represented an effective rate of 36%. As
required by Statement of Financial Accounting Standards
No. 109 ("Accounting For Income Taxes") ("SFAS No. 109"),
the ESOP dividend is presented net of the tax benefit on
ESOP shares not allocated to participants.
(D) Net (Loss) Income
For the six months ended June 30, 1994, net income was $1.7
million. In addition, $2.5 million is required for payment of
preferred dividends (net of a tax benefit of $0.9 million),
resulting in a net loss to common shareholders of $0.9 million
and a loss per common share of $0.08. In comparison, for the
same period in 1993, net income was $3.3 million and the net
income available to common shareholders was $0.8 million, with
income per common share of $0.08.
Liquidity and Capital Resources
Cash requirements have been historically satisfied through cash
flow from operations, borrowings, or sales of transportation
equipment.
Liquidity throughout 1994 and beyond will depend, in part, on
continued remarketing of the equipment portfolio at similar lease
rates, continued success in raising syndicated equity for the
sponsored programs, effectiveness of cost control programs, and
possible additional equipment sales. Management believes the
Company can accomplish the preceding and will have sufficient
liquidity and capital resources for the future. Specifically,
future liquidity is influenced by the following:
(A) Debt Financing:
Senior Debt: On June 30, 1994, the Company closed a new $45.0
million senior loan facility with a syndicate of insurance
companies and repaid the prior facility. The facility provides
that equipment sale proceeds be placed into collateral accounts
or used to purchase additional equipment to the extent required
to meet certain debt covenants. The facility requires
quarterly interest only payments through March 31, 1997 with
quarterly principal payments of $2.6 million plus interest
charges beginning June 30, 1997, through the termination of the
loan in June 2001.
Subordinated Debt: In July 1994, the Company repaid $3.0
million of its subordinated debt.
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. The Company amended this facility
on June 28, 1994. The amendment extended the facility until
June 30, 1995, and provides for a $5.0 million letter of credit
facility as part of the $25.0 million facility.
This facility, which is shared with PLM Equipment Growth and
Income Fund VII ("EGF VII"), allows the Company to purchase
equipment prior to the designated program or partnership being
identified, or prior to having raised sufficient capital to
purchase the equipment. This facility provides 80 percent
financing, and the Company or EGF VII uses working capital for
the non-financed costs of these transactions. The Company
usually enjoys a spread between the net lease revenue earned
and the interest expense during the interim holding period.
As of August 12, 1994, the Company had no outstanding
borrowings and EGF VII had borrowed $8.5 million under this
facility.
(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 to the ESOP ("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 and
marketable securities. 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. If interest
rates continue at current levels, it is expected that ESOP
dividends during 1994 will exceed the required ESOP Debt
service, with the excess being used for additional principal
payments. As part of its overall strategic planning process,
management has announced its conditional intention to terminate
the ESOP. (See Note 8 to the Financial Statements)
A preferred stock dividend of $0.19 per share was paid on
February 21, 1994. This dividend was approximately equivalent
to the interest due from the ESOP on the ESOP Debt for the six
months ended February 21, 1994. The ESOP dividend was charged
to retained earnings net of the appropriate tax benefit, in
accordance with the provisions of SFAS No. 109.
(C) Portfolio Activities:
In the first six months of 1994, the Company generated proceeds
of $2.8 million from the sale of equipment. The net proceeds
from these and other equipment sales were placed in collateral
accounts as required by the senior secured term loan agreement
and used for debt payments. The new senior loan agreement
requires that sales proceeds be put into a cash collateral
account or reinvested into additional equipment to the extent
required to meet certain financial convenents.
Over the last two years, the Company has downsized the
equipment portfolio, through the sale or disposal of under-
performing and non-performing assets, in an effort to
strengthen the future performance of the portfolio. This
downsizing exercise is now complete. The Company will continue
to identify under-performing and non-performing assets for sale
or disposal as necessary, but the Company intends to maintain
approximately the same size portfolio for the near future.
The Company has committed to purchase $11.5 million in marine
containers. The Company intends to place them in affiliated
partnerships. As of June 30, 1994, $0.5 million of the
containers had been purchased by an affiliated partnership.
(D) Syndication Activities:
The Company earns fees generated from syndication activities.
In May 1993, EGF VII became effective and selling activities
commenced. As of the date of this report, $72.6 million had
been raised for this partnership. Based on current syndication
levels the Company intends to offer units in EGF VII through
June 30, 1995.
The Company is in the process of seeking approval of a
registration statement for a no-load program. The Company
intends to begin syndication activity for this program in the
fourth quarter of 1994 or the first quarter of 1995.
Although the Company has increased its market share over the
last year, the overall limited partnership syndications market
has been contracting. The Company's management is concerned
with the continued contraction of the syndications market and
its effect on the volume of partnership equity that can be
raised. Management does not expect the Company to syndicate
the same volume of partnership equity as it did last year.
Management believes through debt and equity financing, possible
sales of transportation equipment and cash flows from
operations, the Company will have sufficient liquidity and
capital resources to meet its projected future operating needs.
Item 1. Legal Proceedings
See Note 10 of Notes to Consolidated Financial Statements.
(A) Exhibits
10.1 $45,000,000 Note Agreement dated as of June 30, 1994.
10.2 Amendment No. 2 to Warehousing Credit Agreement dated as
of June 28, 1994, as amended.
10.3 Amendment No. 7 to Note Agreement dated as of July 22,
1994, by and between PLM International, Inc. and Principal
Mutual Life Insurance Company, as amended.
10.4 Amendment dated as of April 20, 1994, to PLM
International, Inc. Employee Stock Option Plan.
(B) Reports on Form 8-K
June 17, 1994 - Announcement regarding the Company's
conditional intent to terminate the ESOP.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
/s/ David J. Davis
David J. Davis
Vice President and Corporate
Controller
Date: August 12, 1994