SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q/A
(Amendment No.1)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal quarter ended June 30, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-22212
_______________________
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1682038
(State or other jurisiction of (I.R.S. Employer
incorporation or organization Identification No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
_______________________
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (ro
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the last practicable date:
Common Stock - $.01 Par Value; Outstanding as of August 12, 1994 -
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
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 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-
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
$7,030,000. 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 tax
is currently estimated at less than $1,000,000. 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
$2,700,000 of previously paid, unamortized ESOP loan fees and
other costs will be charged to earnings in the year of
termination, which together with the estimated amount of the 10%
excise tax and income tax benefits, will result in a reduction
in shareholders' equity of approximately $2,800,000.
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 $5.5 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. The
estimated impact on earnings per share as a result of the
accounting change is a reduction of $0.35 per share in the first
quarter of 1994 (including $0.43 per share attributable to the
cumulative effect of the change in the accounting of $5.5
million) and an increase of $0.08 per share in the second
quarter of 1994.
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.
The Company's Board of Directors has announced its intention
to terminate the ESOP. (See Note 8 to the Financial
Statements.) The Board's decision was based on several
factors. First, the Company anticipated that the cash
collateral of the ESOP financing could ultimately be fully
accessed for use in the Company's business. Instead, however,
the banks required that all such amounts be held in a
collateral account which could only be invested in certificates
of deposit and similar low yielding investments. The ESOP
financing arrangement has for that reason continuously reduced
corporate earnings and growth. Second, employees have
generally been dissatisfied with the ESOP as a vehicle for
retirement planning. An employee stock ownership plan like the
ESOP generally provides an undiversified investment, and the
annual allocation of an increased number of shares to
participants has unfortunately been matched by a decline in the
value of the Company's outstanding Common Stock. The Company's
Board of Directors determined to terminate the ESOP because it
was satisfying neither the Company's nor the participants'
expectations and could not be expected to do so in the
foreseeable future.
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, date
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 Ownership Plan.
10.5 Amendment to the PLM International, Inc. Employee Stock
Ownership Plan dated as of June 17, 1994.
(B) Reports on Form 8-K
June 17, 1994 - Announcement regarding the Company's
conditional intent to terminate the ESOP.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 26, 1994 one
proposal was submitted to a vote of the Company's security holders.
Robert N. Tidball and Walter E. Hoadley were re-elected to the
Board of Directors of the Company. The votes cast in the election
were as follows<F1>:
Votes
Nominee For Withheld
Robert N. Tidball 8,842,440 4,592,087
Walter E. Hoadley 9,028,748 4,405,779
Norman J. Wechsler 3,383,307 10,047,160
Directors whose terms continued after the Annual Meeting of
Stockholders held on May 26, 1994 are as follows:
CLASS II (TERMS EXPIRE IN 1995)
J. Alec Merriam
Robert L. Pagel
CLASS III (TERM EXPIRES IN 1996)
Allen V. Hirsch
CLASS I (TERMS EXPIRE IN 1997)
Walter E. Hoadley
Robert N. Tidball
<F1> Harold J. Somerset joined the Board of Directors on July 19,
1994 as a Class III director
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