SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required] For the fiscal
year ended December 31, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 1-9670
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PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
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Securities registered pursuant to Section 12(b) of
the Act:
Securities registered pursuant to Section 12(g) of
the Act:
Title of each class Name on each exchange on which registered
Common Stock, $.01 Par Value American Stock Exchange
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. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 15, 1995 was $39,409,784.
The number of shares outstanding of the issuer's classes of common
stock as of March 15, 1995: Common Stock, $.01 Par Value -- 11,676,973 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
PLM INTERNATIONAL, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
Page
Item 1 Business 2
Item 2 Properties 10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Part II
Item 5 Market for the Company's Common Equity and Related
Stockholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 8 Financial Statements and Supplemental Data 23
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
Part III
Item 10 Directors and Executive Officers of the Company 23
Item 11 Executive Compensation 23
Item 12 Security Ownership of Certain Beneficial Owners
and Management 23
Item 13 Certain Relationships and Related Transactions 23
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 23
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.
Equipment management revenues represent 91.5% and syndication placement fees
represent 8.5% of the overall revenues of the Company in 1994. The Company
operates and manages approximately $1.3 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 1:
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; Transportation Equipment Indemnity Company, Ltd., a Bermuda
corporation; and Aeromil Holdings, Inc., a California 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 except Aeromil Holdings, Inc., which is
80% owned.
-2-
(ii) Description of Business
PLM International owns and manages a portfolio of transportation equipment
consisting of approximately 53,000 individual items with an original cost of
approximately $1.3 billion (refer to Table 2). The Company syndicates investment
programs and manages equipment and related assets for approximately 70,000
investors in various limited partnerships or investment programs.
TABLE 2
EQUIPMENT AND RELATED ASSETS
December 31, 1994
(original cost in millions)
Other
Equipment Investor
PLMI Growth Funds Programs Total
Aircraft $ 75 $ 282 $ 10 $ 367
Marine vessels 9 272 -- 281
Railcars/locomotives 3 130 57 190
Trailers/tractors 60 77 25 162
Marine containers 10 111 9 130
Mobile offshore drilling units -- 85 -- 85
(MODUs)
Storage vaults 2 -- -- 2
Other 15 62 9 86
---- ------ ---- ------
TOTAL $174 $1,019 $110 $1,303
==== ====== ==== ======
(iii) Equipment Owned
The Company leases its own equipment to a wide variety of lessees. Certain
equipment is leased and operated internationally. In general, the equipment
leasing industry is an alternative to direct equipment ownership. It is a highly
competitive industry offering lease terms that range from day-to-day to a term
equal to the economic life of the equipment ("full payout"). Generally, leases
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 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.
-3-
With respect to trailer leasing activities, the Company markets
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. These
rental facilities provide the Company with a base of operations in selected
markets to facilitate its operating lease strategy. The Company also markets
intermodal trailers on short-term arrangements through a licensing agreement
with a short line railroad. 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 94.0% of all equipment (owned
and managed) on average, was under lease agreement or operating in PLM trailer
rental yards.
(iv) Subsidiary Business Activities
(a) PLM Financial Services, Inc.
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"), focus 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 fifteen 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 $1.6 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 1994, the Company has ranked as the
number one or two diversified transportation equipment leasing syndicator in the
United States. PLMI's market share for all syndicated equipment leasing programs
decreased to 17% in 1994 from 22% in 1993. In 1994, the Company was the number
two overall equipment leasing syndicator.
EGF I, EGF II, and EGF III 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.
-4-
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, during the reinvestment phase of the Partnership, a portion of their
current cash flow to acquire additional equipment to grow the equipment
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 1994 and 1993, approximately 200 selected broker/dealer firms
with over 20,000 agents sold investment units in EGF VII and EGF VI. Royal
Alliance Associates and Wheat First Butcher Singer accounted for approximately
13% and 11.5%, respectively, of 1994 equity sales. Wheat First Butcher Singer
and Equico Securities, Inc. accounted for approximately 16% and 12%,
respectively, of 1993 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. No other selected agent has
accounted for the sale of more than 10% of the investment programs during these
periods.
-5-
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, 1994, the Company raised investor equity
totaling approximately $55.2 million for its EGF VII program. 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 internodal, refrigerated, and non-refrigerated); marine
containers (refrigerated and non-refrigerated), marine vessels (dry bulk
carriers and product tankers); and mobile offshore drilling units ("rigs"). 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 for 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 compliance with 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
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.
-6-
Presently, facilities are located in Atlanta, Chicago, Dallas, Detroit,
Indianapolis, Kansas City, Miami, Newark, Orlando, and Tampa.
All of the above subsidiaries are 100% owned directly or indirectly by
PLM International.
(h) Aeromil Holdings, Inc.
Aeromil Holdings, Inc. ("Aeromil") is 80% owned by the Company (see Note 2 to
the Financial Statements). Aeromil owns several operating companies engaged in
brokerage of corporate, commuter, and commercial aircraft and spare parts in
local and international markets.
(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 and qualifies as a finance lease under United States generally
accepted accounting principles and is accounted for by the lessor 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 and the re-lease rates are subject to changes in the
current market conditions.
-7-
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 which 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
three to ten 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, and make distributions to investors. Operating revenues and
expenses for equipment under management agreements are generally pooled in each
program and shared pro rata by the participants. Management fees are received by
IMI for these services based on a flat fee per month per unit of equipment.
(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 $1.0 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, 1994.
(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, the ability to borrow on more favorable
terms, or 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
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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. In 1994, the $55.2 million invested in EGF VII ranked the Company as
the number two syndicator of transportation equipment leasing programs. The
$92.5 million invested in the Company's publicly-sponsored equity programs in
1993 ranked the Company as the number one syndicator of equipment leasing
programs for the year.
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. 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.,
GATX Corporation, and certain limited partnerships, some of which engage in
syndications and 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.
The transportation industry, in which the 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 Three noise level restrictions at United States airports after December
-9-
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, 1995, the Company and its subsidiaries had 211 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. In December 1994,
the Company's Board resolved to terminate the ESOP (refer to Note 13 to the
Financial Statements). The Company believes employee relations are good.
ITEM 2. PROPERTIES
At December 31, 1994, the Company owned transportation equipment and related
assets originally costing approximately $177.7 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. Management does not believe that any of these existing
actions will be material to the financial condition or, based on historical
trends, to the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NONE.
-10-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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 11,676,973 common shares outstanding and approximately 10,078 shareholders
of record.
Table 4, below, sets forth the high and low prices of the Company's
common stock for 1994 and 1993 as reported by the AMEX:
TABLE 4
Calendar Period High Low
1994
1st Quarter $ 3.875 $ 2.125
2nd Quarter $ 3.688 $ 2.500
3rd Quarter $ 3.563 $ 2.875
4th Quarter $ 3.813 $ 2.375
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
In 1989, Transcisco Industries, Inc., the Company's largest
shareholder at that time, indicated its 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 was to transfer to Securities Holding, L.P., a California
limited partnership that was to act as the bondholders' representative, the
3,367,367 shares of the Company's common stock and a $5.0 million subordinated
note from the Company (the "PLMI Note"). Transcisco was to retain a 40% interest
in the PLMI Note. In October 1994, Transcisco transferred, to its Official
Bondholders' Committee (OBC), its beneficial ownership in the 3,367,367 shares
of the Company's common stock. On October 13, 1994, the Company announced the
purchase of the 3,367,367 shares held by the OBC. Under the terms of the
purchase, a total of 2,445,000 common shares were sold to independent investors
and the remaining 922,367 shares were repurchased by the Company, all for cash
at $3.25 per share. The Company also retired the $5.0 million 14.75%
subordinated note which was jointly owned by Transcisco and the OBC, at a $0.5
million discount.
-11-
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF SELECTED FINANCIAL DATA
Years Ended December 31,
(in thousands except per share amounts)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Results of Operations:
Revenue $ 57,962 $ 69,652 $ 75,035 $ 72,767 $ 87,429
(Loss) income before taxes $ (5,579) $ 7,737 $(33,918) $ 10,228 $ 12,640
Net (loss) income before
cumulative effect of
accounting change $ (1,511) $ 6,282 $(18,231) $ 10,103 $ 10,871
Cumulative effect of
accounting change $ (5,130) $ -- $ -- $ -- $ --
Net (loss) income
to common shares $ (9,071) $ 1,432 $(25,271) $ 3,063 $ 3,831
Per common share:
Net (loss) income $ (0.73) $ 0.14 $ (2.41) $ 0.30 $ 0.38
Financial Position:
Total assets $140,372 $217,720 $255,404 $319,074 $314,773
Long-term debt $ 60,119 $129,119 $171,470 $194,390 $175,674
Shareholders' equity $ 45,695 $ 51,133 $ 44,719 $ 65,964 $ 67,056
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, 1994 and 1993
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.
-12-
The following analysis reviews the operating results of the Company:
Revenue:
% Change
Increase 1994 vs.
1994 1993 (Decrease) 1993
(in thousands)
Operating leases $28,748 $34,054 $ (5,306) (15.6%)
Management fees 11,189 10,822 367 3.4%
Partnership interests 3,101 3,838 (737) (19.2%)
Acquisition and lease
negotiation fees 4,223 9,697 (5,474) (56.5%)
Commissions 4,939 8,178 (3,239) (39.6%)
Aircraft brokerage and services 4,624 -- 4,624 --
(Loss) gain on the sale or
disposition of
transportation equipment, net (164) 2,350 (2,514) (107.0%)
Other 1,302 713 589 82.6%
------- ------- -------- -------
Total revenues $57,962 $69,652 $(11,690) (16.8%)
PLM experienced across-the-board decreases in revenues in 1994. Each component
is explained below.
Operating lease revenue:
Increase
1994 1993 (Decrease)
(in thousands)
By equipment type:
Trailers $14,268 $15,778 $(1,510)
Aircraft 9,319 10,155 (836)
Marine vessels 3,211 5,028 (1,817)
Marine containers 941 1,375 (434)
Storage vaults 749 726 23
Railcars 260 992 (732)
------- ------- -------
$28,748 $34,054 $(5,306)
As of December 31, 1994, the Company owned $177.7 million of transportation
equipment, which was $28.1 million less than the original cost of equipment
owned at December 31, 1993. The reduction in equipment is a consequence of the
Company's strategic decision to dispose of certain assets resulting in a 51%
reduction in its marine vessel fleet, a 21% reduction in its marine container
portfolio, an 11% net reduction in its aircraft portfolio, and a 5% net
reduction in its trailer portfolio, compared to 1993.
The reduction in equipment available for lease and lower utilization rates
are the primary reasons marine vessel, trailer, marine container, aircraft, and
rail revenue were all reduced as compared to the prior year.
-13-
Management fees:
Year
Liquidation
1994 1993 Phase Begins
(in thousands)
Management fees by fund were:
EGF I $ 1,482 $ 1,670 1998
EGF II 1,153 1,503 1999
EGF III 1,788 2,013 2000
EGF IV 1,183 1,380 1999
EGF V 2,097 1,953 2000
EGF VI 1,760 967 2002
EGF VII 500 34 2003
Other programs 1,226 1,302 --
------- -------
$11,189 $10,822
Management fees are, for the most part, based on the gross 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. Equipment under
management (measured at original cost) amounted to $1.07 billion and $1.14
billion at December 31, 1994 and 1993, respectively. The increase in management
fees of $0.4 million resulted from an increase in utilization rates for
equipment. In addition, the partnership agreements allow higher management fees
on full service railcar leases than the Company has previously recognized.
Partnership interests:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated partnerships. These revenues decreased $0.1 million during
1994 as compared to 1993 as a result of reduced net earnings and distribution
levels in the affiliated partnerships. Residual interest income decreased $0.6
million from 1993 to 1994 as a result of decreased equipment acquisitions for
the affiliated partnerships.
Acquisition and lease negotiation fees:
On behalf of the various investor programs and partnerships, a total of $78.2
million of equipment was purchased during the year ended 1994, compared to
$186.6 million purchased during 1993, resulting in a $5.5 million decrease in
acquisition and lease negotiation fees.
Commissions:
Commission revenue represents syndication placement fees, generally 9% of equity
raised, earned upon the sale of partnership units to investors. During 1994,
program equity raised totaled $55.2 million compared to $92.5 million in 1993,
resulting in a decrease in placement commissions of $3.2 million.
-14-
Aircraft brokerage and services:
Aircraft brokerage and services revenue represents revenue earned by Aeromil,
the Company's aircraft leasing, spare parts brokerage, and related services
subsidiary, acquired in February 1994.
(Loss) gain on the sale or disposition of transportation equipment, net:
The $0.2 million loss on the disposal of transportation equipment in 1994
resulted primarily from net losses on the sale or disposition of trailers and
marine containers, partially offset by net gains on the sale of 11 aircraft and
1 marine vessel. The $2.4 million net gain in 1993 was primarily the result of
the Company's decision to sell substantially all of its railcar fleet, at a
gain, and from the sale or disposition of trailers.
Other:
Other revenues increased $0.6 million to $1.3 million in 1994 from $0.7 million
in 1993, due to an increase in data processing revenues earned from services
provided to the Company's affiliated partnerships.
Costs, Expenses and Other:
Increase
1994 1993 (Decrease)
(in thousands)
Operations support ..................... $23,510 $20,074 $ 3,436
Depreciation and amortization .......... 12,135 12,236 (101)
Commissions ............................ 5,192 8,849 (3,657)
General and administrative ............. 10,366 10,867 (501)
Reduction in carrying value of
certain assets ........................ 4,247 2,221 2,026
Interest expense ....................... 9,777 12,573 (2,796)
Interest income ........................ 3,744 5,231 (1,487)
Other expense, net ..................... 2,058 326 1,732
Operations support:
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 $3.4
million (17%) for the year ended December 31, 1994 from 1993. The increase
resulted from $4.2 million in costs associated with the operation of Aeromil,
and a $0.5 million increase in the provision for bad debts. This was offset by
lower equipment operation costs resulting from the reduction in the equipment
portfolio and lower professional service costs.
Depreciation and amortization:
Depreciation and amortization expense decreased $0.1 million (1%) for the year
ended December 31, 1994, as compared to the year ended December 31, 1993. The
decrease resulted from the reduction in depreciable equipment offset partially
by the increase
-15-
in the depreciation expense on one marine vessel and certain aircraft to reflect
estimated net realizable values.
Commissions:
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. Commission
expenses for 1994 decreased $3.7 million (41%) from 1993. The reduction is the
result of a decrease in syndicated equity raised in 1994 versus 1993.
General and administrative:
General and administrative expenses decreased $0.5 million (5%) during 1994,
compared to 1993. The decrease resulted principally from a decrease in
professional service costs.
Reduction in carrying value of certain assets:
In 1994, as part of the Company's annual analysis of asset performance, the
Company recorded valuation adjustments to the estimated net realizable values of
certain equipment totaling $4.2 million, consisting of adjustments to certain
aircraft ($2.1 million), trailers ($1.1 million), storage vaults ($0.2 million),
marine containers ($0.1 million), and one marine vessel ($0.7 million). In 1993,
the Company adjusted the value of certain equipment to its estimated net
realizable value by $2.2 million, including adjustments to marine containers
($0.9 million), trailers ($0.7 million), railcars ($0.4 million), and aircraft
($0.2 million).
Interest expense:
Interest expense decreased $2.8 million (22%) during the year ended December 31,
1994 compared with 1993, as a result of reduced debt levels, partially offset by
increased interest rates.
Interest income:
During 1994, the Company elected to adopt Statement of Position 93-6 "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP 93-6") which had a
significant impact on the Company's presentation of interest income, income
taxes, and preferred dividends. SOP 93-6 requires the change in accounting
principle to be reflected as of January 1, 1994 (refer to Note 13 to the
Financial Statements).
Interest income decreased $1.5 million (28%) in 1994, compared to 1993. The
reduced interest income resulted from the adoption of SOP 93-6 which eliminates
the recognition of interest income on the Company's internal loan to the ESOP.
Other expense:
The increased expense in 1994 resulted from the 1994 write-off of unamortized
loan fees related to the termination of the Company's ESOP ($2.3 million).
Included in the 1993 expense was a $0.7 million charge which resulted from
accelerating certain expenses related to the Company's interest rate swap
agreement required by the decision to repay the existing senior loan agreement.
-16-
Income taxes:
The benefit for income taxes for 1994 of $4.1 million reflects the impact of the
Company's loss before income taxes and the entire tax benefit of the ESOP
dividend. Under Statement of Financial Accounting Standards No. 109 ("Accounting
for Income Taxes") ("SFAS No. 109"), and the Company's previous method of
accounting for the ESOP, the ESOP tax benefit was allocated between the tax
provision (benefit for dividend on allocated shares) and the ESOP dividend
(benefit for dividend on unallocated shares). With the Company's adoption of SOP
93-6, the tax benefit for the dividend on all ESOP shares is reflected as a
benefit in the provision for income tax. The corresponding effective rate for
the 1994 income tax benefit is 73%. For 1993, the Company's provision for income
taxes was $1.5 million, which represented an effective rate of 19%, and included
only the tax benefit of the preferred dividend imputed on unallocated ESOP
shares.
Cumulative effect of accounting change:
The adoption of SOP 93-6 also resulted in a noncash charge to earnings of $5.1
million for the impact of the change in accounting principle and is reflected as
the "Cumulative effect of accounting change" in the Consolidated Statement of
Operations.
Net (loss) income:
As a result of the foregoing, the 1994 net loss was $6.6 million. In addition,
$2.4 million is required for the imputed preferred dividend on allocated ESOP
shares, resulting in a net loss to common shares of $9.1 million, with a per
share net loss to common shareholders of $0.73. In comparison, for 1993, net
income was $6.3 million and the net income available to common shareholders was
$1.4 million, with income per common share of $0.14.
Comparison of the Company's Operating Results for the Years Ended December
31, 1993 and 1992
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 and associated interest costs primarily from the proceeds of such
sales, and reduce operational cost structure. During 1993, the Company continued
to execute this strategy and realized significant progress in the restructuring
plan. Below is an analysis of the impact the restructuring plan and other
operational factors had on operations for the year. Following is an analysis of
the financial results for 1993.
Revenue:
The Company's total revenues for the years ended December 31, 1993 and 1992,
were $69.7 million and $75.0 million, respectively.
Operating lease revenue was unfavorably impacted by lower utilization of
interim bridge financing available 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 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
-17-
of $1.3 million in leasing revenue resulting from lower utilization of the
bridge facility in 1993 versus 1992.
Management fees, partnership interests, and other fees increased $4.3
million to $24.4 million in 1993, from $20.1 million in 1992. Management fees
remained relatively constant at $10.8 million between 1993 and 1992. Management
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. Equipment under management (measured at
original cost) amounted to $1.14 billion and $1.08 billion at December 31, 1993
and 1992, respectively. 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 management fees, remained relatively
constant.
The Company records as revenues its equity interest in the earnings of the
Company's affiliated partnerships which revenues decreased $0.2 million during
1993 as compared to 1992.
On behalf of the various investor programs and partnerships, a total of
$186.6 million of equipment was placed in service or remarketed during the year
ended 1993, compared to $93.2 million placed in service or remarketed during
1992, resulting in a $4.8 million increase in acquisition and lease negotiation
fees.
The Company receives residual interests in 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. Residual interest
income decreased $0.5 million from 1993 to 1992 as a result of lower estimated
disposition proceeds expected from equipment portfolios of the affiliated
partnerships.
Commission revenue represents syndication placement fees, generally 9% of
equity raised, earned upon the sale of partnership units to investors. During
1993, program equity raised totaled $92.5 million compared to $111.1 million in
1992, resulting in a $1.7 million decrease in placement commissions. At December
31, 1993, cash resources available to certain investment programs would permit
additional equipment acquisitions of approximately $19 million. These cash
resources were 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 resulted in specific expense reductions in 1993 versus 1992 which totaled
$39.7 million detailed 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
-18-
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, 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 nonrecurring 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 $1.4 million compared to net loss to common shares
of $25.3 million in 1992.
Liquidity and Capital Resources
Cash requirements historically have been satisfied through cash flow from
operations, borrowings, or sales of transportation equipment.
Liquidity beyond 1994 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 Company has pledged substantially all of its equipment as
collateral to the loan facility. The facility provides that equipment sale
proceeds, from pledged equipment, or cash deposits will be placed into
collateral accounts or used to purchase additional equipment. The facility
requires quarterly interest only payments through March 31, 1997, with quarterly
principal payments of $2.1 million plus interest charges beginning June 30,
1997, through the termination of the loan in June 2001.
-19-
In December 1994, the Company repaid $10.0 million of its senior debt
through the use of cash collateral from the sale of pledged equipment.
Subordinated Debt: In July and October 1994, the Company repaid $3.0 million and
$5.0 million of its subordinated debt, respectively, at a discount of $0.7
million in the aggregate.
Bridge Financing: Assets acquired and 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 September 30, 1995, and provides for a $5.0 million letter of credit 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% financing, and the
Company or EGF VII uses working capital for the non-financed costs of these
acquisitions. The Company retains the difference between the net lease revenue
earned and the interest expense during the interim holding period since its
capital is at risk. As of March 15, 1995, the Company had $16.2 million of
outstanding borrowings and EGF VII had no borrowings under this facility.
ESOP Bank Debt: The Company terminated its ESOP effective December 31, 1994, and
the ESOP debt was repaid in full by the offsetting of the debt with the
restricted cash equivalents and restricted marketable securities that served as
collateral for the loan ($43.3 million). The Company will eliminate interest
expense of approximately $2.0 million per year going forward.
(b) 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 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 was secured, in part, by the shares of preferred stock,
while the Bank Loan was secured with cash equivalents and marketable securities.
Preferred dividends were payable semi-annually on February 21 and August 21,
which corresponded to the ESOP Debt payment dates. Bank Loan debt service was
covered through release of the restricted cash and marketable securities. While
the annual ESOP dividend was fixed at $1.43 per share, the interest rate on the
ESOP debt varied, resulting in uneven debt service requirements.
The Company's Board of Directors resolved to terminate the Company's ESOP in
December 1994 (refer to Note 13 to the Financial Statements). The Board's
decision was based on several factors. First, at the inception of the ESOP the
Company anticipated that the cash collateral for 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, for that reason,
continuously reduced corporate earnings and growth.
-20-
Second, employees were generally 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 was unfortunately 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 was not expected to do so in
the foreseeable future. The Company's bank loan related to the ESOP has been
paid in its entirety utilizing the restricted cash equivalents and marketable
securities securing the loan. The ESOP debt owed the Company has been canceled.
The unallocated shares of Company preferred stock held by the ESOP have been
returned to the Company. Upon termination of the ESOP, all allocated shares
became vested. Current ESOP participants received 1,650,075 shares of Company
common stock upon distribution of all allocated balances.
As mentioned in the comparison of operating results, the Company elected in
the third quarter of 1994 to adopt SOP 93-6 which requires the previously issued
financial statements to be restated to reflect the change in accounting as of
January 1, 1994. SOP 93-6 requires different accounting treatment for certain
items relating to the ESOP than those previously used by the Company (refer to
Note 13 to the Financial Statements).
(c) Portfolio Activities:
During 1994, the Company generated proceeds of $15.1 million from the sale of
equipment. Approximately $10.0 million of this amount was realized after the new
senior loan was funded. These net proceeds were placed in a collateral account
as required by the new senior secured term loan agreement. These proceeds were
subsequently used to repay $10.0 million of the new senior secured term loan in
December 1994.
Over the last two years, the Company has downsized the equipment portfolio,
through the sale or disposal of underperforming and nonperforming assets, in an
effort to strengthen the future performance of the portfolio. The Company will
continue to identify underperforming and nonperforming assets for sale or
disposal as necessary.
(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, $101.5 million had been raised for this partnership. Based on current
syndication levels, the Company intends to offer units in EGF VII through April
30, 1995.
The overall limited partnership syndication market has been contracting over
the last several years. The Company's management is concerned with the continued
contraction of the syndication market and its effect on the volume of
partnership equity that can be raised. The Company's newly registered no-load
syndication product was developed to capture a larger share of the syndication
market.
Management believes that 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.
-21-
(e) Subsequent Events
In January 1995, the Company entered into an agreement to form a new equipment
leasing and management company to acquire certain assets and management
operations of Boston- based, privately-held American Finance Group ("AFG"). The
new entity, as a wholly-owned subsidiary of PLM Financial Services, Inc., will
acquire AFG's proprietary software and assume the management of future investor
programs as well as provide equipment management services to AFG's existing
investor programs. Affiliates of AFG, which will change its name, will continue
to be the general partners of the existing programs. AFG currently manages a
portfolio of approximately $833 million of capital equipment (at original cost),
subject to primarily full payout leases, for its own account and approximately
50,000 investors.
In January 1995, the registration statement for a new syndicated product
became effective. The Company's wholly-owned subsidiary, PLM Financial Services
("FSI") will serve as the Manager for the new program. This product, a Limited
Liability Company ("LLC") with a no-load structure, will start being syndicated
in the first quarter of 1995. There will be no compensation paid to FSI for the
organization of the LLC, the acquisition of equipment, and the negotiation of
the initial leases. FSI will fund the cost of organization, syndication, and
offering through use of operating cash and will treat this as its investment in
the LLC. The Company will amortize its investment in the LLC over the life of
the program. In return for its investment, FSI will be entitled to a 15%
interest in the cash distributions and earnings of the LLC subject to certain
allocation provisions. The Company will also be entitled to monthly fees for
equipment management services and reimbursement for certain accounting and
administrative services provided by the Company.
In January 1995, the Company, through its wholly-owned subsidiary TEC
Acquisub, Inc., entered into a binding purchase agreement to acquire a marine
vessel for $12.3 million which is to be sold to the LLC. On March 14, 1995, TEC
Acquisub borrowed $9.8 million through its warehousing line of credit facility
in preparation for the purchase of the marine vessel.
In January 1995, the Company sold one commercial aircraft with a net book
value of $1.8 million for $2.2 million. In February 1995, the Company sold one
commercial aircraft with a net book value of $0.5 million for $0.7 million, and
sold one helicopter for its net book value of $1.0 million. In March 1995, the
Company sold its marine vessel with a net book value of $5.2 million for
approximately $4.5 million, net of selling costs. Accrued drydock reserves at
the time of sale were $0.7 million. In March 1995, the Company sold 11 railcars
with a net book value of $0.7 million for $1.1 million. The two commercial
aircraft, the helicopter, the marine vessel, and the 11 railcars were all
included in assets held for sale at December 31, 1994.
Effective February 1995, the Company adopted the Directors' 1995
Non-qualified Stock Option Plan which reserves 120,000 shares of the Company's
common stock for issuance to directors who are non-employees of the Company. All
options outstanding are exercisable at prices equal to the closing price as of
the date of grant. Vesting of options granted occurs in three equal installments
of 33 1/3% per year, initiating from the date of the grant.
In February 1995, the Company announced that its Board of Directors
authorized the repurchase of up to $0.5 million of the Company's common stock.
The shares may be purchased in the open market or through private transactions.
The timing and amount
-22-
of repurchases, which will be funded through working capital and existing cash
reserves, will depend on market conditions and corporate requirements. Shares
repurchased may be used for corporate purposes, including option plans, or they
may be retired. The Company had repurchased 49,700 of these shares as of March
15, 1995.
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," "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 1994
None.
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(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 $45,000,000 Senior Secured Note Agreement, dated as of June 30,
1995, as amended.
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 Warehousing Credit Agreement, dated as of June 30, 1993, as
amended, incorporated by reference to the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on
March 31, 1994.
10.4 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.
10.5 Rights Agreement, as amended, filed with Forms 8-K, March 12,
1989, August 12, 1991, and January 23, 1993, and incorporated
herein by reference.
10.6 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.
10.7 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.
10.8 Directors' 1995 Non-qualified Stock Option Plan, dated as of
February 1, 1995.
10.9 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.
10.14 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.
-24-
(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.
-25-
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 15, 1995 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, in the
capacities and on the dates indicated.
Signature Title Date
/s/ J. Michael Allgood Vice President and March 15, 1995
J. Michael Allgood Chief Financial Officer
**************
_______________________________ Director, Executive March 15, 1995
Allen V. Hirsch Vice President
**************
_______________________________ Director March 15, 1995
Walter E. Hoadley
**************
_______________________________ Director March 15, 1995
J. Alec Merriam
**************
_______________________________ Director March 15, 1995
Robert L. Pagel
**************
_______________________________ Director March 15, 1995
Harold R. Somerset
**************
_______________________________ Director, President and March 15, 1995
Robert N. Tidball Chief Executive Officer
* 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
-27-
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a)(1)(2))
Description Page
Independent Auditors' Report 29
Consolidated Statements of Operations for Years Ended
December 31, 1994, 1993, and 1992 30
Consolidated Balance Sheets as of December 31, 1994 and 1993 31
Consolidated Statements of Changes in Shareholders' Equity
for Years Ended December 31, 1994, 1993, and 1992 32
Consolidated Statements of Cash Flows for Years
Ended December 31, 1994, 1993, and 1992 33-34
Notes to Consolidated Financial Statements 35-50
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and
Employees Other Than Related Parties 51
Schedule IX - Short-term Borrowings 52
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.
-28-
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, 1994, 1993, and 1992. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules II and IX for the years ended
December 31, 1994, 1993, and 1992, 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, 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.
As discussed in Note 13 to the financial statements, the Company changed its
method of accounting for its Employee Stock Ownership Plan in 1994.
KPMG PEAT MARWICK LLP
SAN FRANCISCO, CALIFORNIA
MARCH 15, 1995
-29-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(in thousands, except per share amounts)
1994 1993 1992
---- ---- ----
Revenues:
Operating leases (Notes 1 and 6) $28,748 $34,054 $ 41,648
Management fees, partnership interests,
and other fees (Notes 1 and 5) 18,513 24,357 20,077
Commissions (Notes 1 and 5) 4,939 8,178 9,919
Aircraft brokerage and services 4,624 -- --
(Loss) gain on the sale or disposition of
transportation equipment, net (164) 2,350 1,968
Other 1,302 713 1,423
------- ------- --------
Total revenues 57,962 69,652 75,035
Costs and expenses:
Operations support (Note 14) 23,510 20,074 24,051
Depreciation and amortization (Note 1) 12,135 12,236 13,930
Commissions 5,192 8,849 11,186
General and administrative (Note 12) 10,366 10,867 8,238
Litigation settlements and other costs -- -- 7,591
Reduction in carrying value of
certain assets (Note 3) 4,247 2,221 36,238
------- ------- --------
Total costs and expenses 55,450 54,247 101,234
Operating income (loss) 2,512 15,405 (26,199)
Interest expense 9,777 12,573 14,103
Interest income 3,744 5,231 5,859
Other (expense) income, net (2,058) (326) 525
------- ------- --------
(Loss) income before income taxes (5,579) 7,737 (33,918)
(Benefit from) provision for income taxes
(Notes 1 and 11) (4,068) 1,455 (15,687)
------- ------- --------
Net (loss) income before cumulative
effect of accounting change (1,511) 6,282 (18,231)
Cumulative effect of accounting change
(Note 13) (5,130) -- --
------- ------- --------
Net (loss) income (6,641) 6,282 (18,231)
Preferred dividend imputed on allocated shares 2,430 1,364 --
Preferred dividend imputed on unallocated shares
(net of $2,182 income tax benefit for 1993) -- 3,486 7,040
------- ------- --------
Net (loss) income to common shares $(9,071) $ 1,432 $(25,271)
======= ======= ========
(Loss) earnings per common share outstanding
(Note 1) $ (0.73) $ 0.14 $ (2.41)
======= ======= ========
See accompanying notes to these consolidated
financial statements.
-30-
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
ASSETS 1994 1993
---- ----
(in thousands)
Cash and cash equivalents (Note 1) $ 16,131 $ 19,685
Receivables 5,747 6,037
Receivables from affiliates (Notes 1 and 5) 7,001 10,981
Assets held for sale (Note 4) 17,644 --
Equity interest in affiliates (Notes 1 and 5) 18,374 17,707
Transportation equipment held for
operating lease (Notes 1 and 6) 141,836 205,810
Less accumulated depreciation (Notes 1 and 3) (77,744) (105,122)
-------- --------
64,092 100,688
Restricted cash and cash equivalents (Notes 1 and 7) 1,409 7,055
Restricted marketable securities (Notes 1 and 7) -- 44,469
Other 9,974 11,098
-------- --------
Total assets $140,372 $217,720
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term secured debt (Note 8) $ 6,404 $ --
Senior secured debt (Note 9) 35,000 45,000
Bank debt related to ESOP (Notes 9 and 18) -- 50,280
Other secured debt (Note 9) 2,119 2,839
Subordinated debt (Note 10) 23,000 31,000
Payables and other liabilities 11,589 18,082
Deferred income taxes (Note 11) 16,165 19,386
-------- --------
Total liabilities 94,277 166,587
Minority Interest (Note 2) 400 --
Shareholders' Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 4,916,301
Series A Convertible shares issued and outstanding, aggregate $63,911,913 at
December 31, 1993 ($13 per share) liquidation preference
at paid-in amount (Note 13) -- 63,569
Loan to Employee Stock Ownership Plan
(Note 13) -- (50,280)
-------- --------
-- 13,289
Common stock, $0.01 par value, 50,000,000 shares authorized, 11,699,673 shares
issued and outstanding at December 31, 1994 and 10,465,306 at December 31,
1993 (excluding 871,057 and 432,018 shares held in treasury at December 31,
1994 and 1993, respectively)
(Note 13) 117 109
Paid-in capital, in excess of par (Note 13) 77,699 55,557
Treasury stock (Note 13) (2,831) (131)
-------- --------
74,985 55,535
Accumulated deficit (29,290) (17,691)
-------- --------
Total shareholders' equity 45,695 51,133
-------- --------
Total liabilities and shareholders' equity $140,372 $217,720
======== ========
See accompanying notes to these consolidated financial
statements.
-31-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993, and 1992
(in thousands)
Common Stock
Preferred Loan
Stock at Employee Stock Paid-in
Paid-in Ownership At Capital in
Amount Plan (ESOP) par Excess
of Par
Balances, December 31, 1991 $ 63,651 $ (59,355) $ 109 $ 55,411
Net loss
Dividend paid on ESOP convertible
preferred shares
Conversion of preferred stock (7) (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 ESOP 3,962
--------- --------- --------- ---------
Balances, December 31, 1992 63,644 (55,393) 109 55,482
Net income
Dividend paid on
ESOP convertible preferred shares
(net of tax effect)
Conversion of preferred stock (75) 75
Principal payments from ESOP 5,113
Purchase of treasury shares
--------- --------- --------- ---------
Balances, December 31, 1993 63,569 (50,280) 109 55,557
Net loss
Cumulative effect of change in
accounting on unearned compensation 7,130
Common stock repurchase
Conversion of preferred stock (192) 161
Allocation of shares (4,091) 6,044
Current year imputed dividend on
allocated ESOP shares
Prior year preferred dividend not charged
to equity until paid
Cancellation of preferred stock and
issuance of common stock upon
termination of the ESOP (59,286) 37,106 8 21,906
Exercise of stock options 75
Translation gain/loss
--------- --------- --------- ---------
Balances, December 31, 1994 -- -- $ 117 $ 77,699
========= ========= ========= =========
Common Stock
------------ Retained
Earnings Total
Treasury Accumulated Shareholders'
Stock (Deficit) Equity
----- --------- ------
Balances, December 31, 1991 -- $ 6,148 $ 65,964
Net loss (18,231) (18,231)
Dividend paid on ESOP 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 ESOP 3,962
---------- ---------- ----------
Balances, December 31, 1992 -- (19,123) 44,719
Net income 6,282 6,282
Dividend paid on
ESOP convertible preferred shares
(net of tax effect) (4,850) (4,850)
Conversion of preferred stock --
Principal payments from ESOP 5,113
Purchase of treasury shares (131) (131)
---------- ---------- ----------
Balances, December 31, 1993 (131) (17,691) 51,133
Net loss (6,641) (6,641)
Cumulative effect of change in
accounting on unearned compensation 7,130
Common stock repurchase (2,997) (2,997)
Conversion of preferred stock 31 --
Allocation of shares 1,953
Current year imputed dividend on
allocated ESOP shares (2,430) (2,430)
Prior year preferred dividend not charged
to equity until paid (2,565) (2,565)
Cancellation of preferred stock and
issuance of common stock upon
termination of the ESOP 266 --
Exercise of stock options 75
Translation gain/loss 37 37
---------- ---------- ----------
Balances, December 31, 1994 $ (2,831) $ (29,290) $ 45,695
========== ========== ==========
See accompanying notes to these consolidated
financial statements.
-32-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands)
1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net (loss) income $ (6,641) $ 6,282 $ (18,231)
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 12,135 12,236 13,930
Cumulative effect of accounting change 5,130 -- --
Restructuring adjustments
and revaluation of assets 4,247 2,221 39,525
Foreign currency translations 37 -- --
Decrease in deferred income taxes (3,342) (2,700) (16,173)
Compensation expense for ESOP, net (477) -- --
Loss (gain) on the sale or disposition
of transportation equipment, net 164 (2,350) (1,968)
Gain on disposal of other assets -- (578) (780)
Reduction in residual value interests 728 286 (336)
Minority interest in net income of
subsidiaries 64 -- --
(Decrease) increase in payables and other
liabilities (6,760) 3,135 (2,905)
Decrease (increase) in receivables and
receivables from affiliates 4,132 (2,177) (1,496)
Cash distributions from affiliates in excess
of income accrued 675 373 388
Decrease (increase) in other assets 1,844 1,165 (1,044)
Purchase of equipment for lease (3,083) (1,535) (9,779)
Proceeds from the sale of equipment for lease 14,609 26,912 16,564
Purchase of assets held for sale (28,261) (18,105) (29,682)
Proceeds from sale of assets held for sale 19,886 18,105 38,243
Financing of assets held for sale to affiliates 9,357 14,404 25,531
Repayment of financing for assets held
for sale to affiliates (2,953) (14,404) (25,531)
-------- -------- ---------
Net cash provided by operating activities 21,491 43,270 26,256
Cash flows from investing activities:
Additional investment in affiliates (311) (541) (232)
Proceeds from the sale of residual options
and other investments 90 365 1,197
Investment in leveraged leases -- -- (1,936)
Purchase of investments -- -- (950)
Decrease (increase) in restricted cash and
cash equivalents (17,106) 9,541 46,680
Purchase of restricted marketable securities (19,552) (84,299) (103,629)
Proceeds from the maturity and sale of restricted
marketable securities 43,485 86,343 57,713
Acquisition of subsidiary net of cash acquired (1,013) -- --
-------- ------- -------
Net cash provided by (used in) investing 5,593 11,409 (1,157)
activities
(continued)
See accompanying notes to these consolidated
financial statements.
-33-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands)
1994 1993 1992
---- ---- ----
Cash flows from financing activities:
Proceeds from long-term equipment
loans 45,138 -- 12,853
Principal payments under loans (71,515) (42,351) (35,773)
Principal payments under leveraged ESOP loan -- 5,113 3,962
Cash dividends paid on preferred stock (9,436) (7,032) (7,040)
Payments received from ESOP trustee 8,097 -- --
Redemption of preferred stock -- -- (7)
Settlement of litigation related to
consolidation transaction -- -- (2,000)
Purchase of treasury stock (2,997) (131) --
Proceeds from exercise of stock options 75 -- --
-------- -------- --------
Net cash used in financing activities (30,638) (44,401) (28,005)
Net (decrease) increase in cash and
cash equivalents (3,554) 10,278 (2,906)
Cash and cash equivalents at beginning
of year 19,685 9,407 12,313
-------- -------- --------
Cash and cash equivalents at end of year $ 16,131 $ 19,685 $ 9,407
======== ======== ========
Interest paid during year $ 10,231 $ 10,852 $ 14,089
======== ======== ========
Income taxes paid during year $ 4,009 $ 626 $ 313
======== ======== ========
See accompanying notes to these consolidated
financial statements.
-34-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements present the financial
position, changes in shareholders' equity, results of operations, and cash flows
of PLM International, Inc. and its wholly and majority owned subsidiaries ("PLM
International" or the "Company"). PLM International and its consolidated group
began operations on February 1, 1988. All significant intercompany transactions
among the consolidated group have been eliminated.
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 term 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.
The Company reviews the carrying value of its equipment at least annually
in relation to expected future market conditions for the purpose of assessing
recoverability of the recorded amounts.
Transportation equipment held for sale is valued at the lower of
depreciated cost or estimated net realizable value. If projected future lease
revenue plus residual values are lower than the carrying value of the equipment,
a loss on revaluation is recorded. Lease rentals earned prior to sale are
recorded as operating lease revenues with an offsetting charge to depreciation
and amortization expense.
Except for trailers and storage vaults 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 drydocking costs on marine vessels which are estimated and reserved
for prior to drydocking. 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
$4.2 million, $4.4 million, and $5.6 million for 1994, 1993, and 1992,
respectively.
Commissions
PLM International engages in the sale of transportation equipment leasing
investment programs, which are mainly limited partnerships. Commissions
represent syndication
-35-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
placement fees, generally 9% of equity raised, earned upon the sale of
partnership units to investors. Commissions are recognized as revenue at the
time the sale is performed.
Commission expense includes placement commissions of approximately 8% of
equity raised which is paid to outside brokers and wholesaler commissions of
approximately 1% of equity raised. The expense is recognized on the same basis
as placement fees earned.
Management Fees, Partnership Interests, and Other Fees
PLM International also engages in the organization and management of
transportation equipment leasing investment programs, and receives for its
services an equity interest in the partnership, as well as equipment
acquisition, lease negotiation, debt placement, and equipment management fees
from these affiliated investment programs and limited partnerships.
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, PLM Financial Services, Inc.
("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 value of the assets of the partnership as the equipment is 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
management fees, partnership interests, and other fees at the present value of
the Company's share of estimated disposition proceeds. 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.
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, considered common stock subject to recall).
These recallable
-36-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
shares and the outstanding stock options (refer to Note 13) 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 same 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 operations for
1993 reflects the changes required in the presentation of the tax benefit from
the preferred dividend imputed on unallocated shares for the adoption of
Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership
Plans ("SOP 93-6") (refer to Note 13).
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.
Intangibles
Intangibles are included in other assets on the balance sheet and consist
primarily of goodwill related to acquisitions. Goodwill is being amortized over
10 to 15 years from the acquisition date. The Company reviews annually the
valuation of goodwill based on future projected cash flows.
Cash, Cash Equivalents, and Marketable Securities
The Company considers highly liquid investments readily convertible into known
amounts of cash with original maturities of ninety days or less to be cash
equivalents. 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").
Reclassification
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
2. ACQUISITION
In February 1994, the Company created a new subsidiary, Aeromil Holdings, Inc.,
that completed the purchase of Aeromil Australia Pty. Ltd., Yoder Holdings Pty.
Ltd., Austin
-37-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
Aero FBO Ltd., TNPL, Inc. and a 50% interest in Aeromech Pty. Ltd. ("Aeromil").
Aeromil Holdings, Inc. purchased an 80% interest in Aeromil for $1,237,000 in
cash . Aeromil is one of Australia's largest aircraft dealers specializing in
local and international marketing and brokerage of corporate, commuter, and
commercial aircraft. The acquisition was accounted for by the purchase method of
accounting and accordingly, the purchase price was allocated to assets and
liabilities based on the estimated fair value at the date of acquisition. The
excess of the consideration paid over the estimated fair value of the net assets
acquired in the Aeromil transaction, in the amount of $0.6 million, has been
recorded as goodwill to be amortized on a straight- line basis over ten years.
The portion of Aeromil not owned by PLM International is shown as minority
interest on the balance sheet.
3. VALUATION ADJUSTMENTS
In 1994, as part of the Company's annual analysis of asset performance, the
Company recorded a $4.2 million reduction in the carrying value of certain
equipment to its estimated net realizable value, consisting of adjustments to
certain aircraft ($2.1 million), trailers ($1.1 million), storage vaults ($0.2
million), containers ($0.1 million), and one marine vessel ($0.7 million).
In 1993, the Company's analysis of its transportation equipment portfolio,
resulting in a $2.2 million reduction in the carrying value of certain equipment
to its net realizable value. The valuation adjustments included containers ($0.9
million), trailers ($0.7 million), railcars ($0.4 million), and aircraft ($0.2
million).
In 1992, the Company recorded valuation adjustments totaling $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).
4. ASSETS HELD FOR SALE
The Company classifies assets as held for sale if the particular asset is
subject to a pending contract for sale, is held for sale to an affiliated
partnership, or is being marketed for sale by the Company's aircraft leasing and
spare parts brokerage subsidiary. At December 31, 1994, assets held for sale
included two commercial aircraft, one helicopter, 11 railcars, and one marine
vessel, subject to pending contracts for sale, with an aggregate net book value
of $9.2 million, $8.0 million in railcars held for sale to one or more
affiliated partnerships, and $0.4 million in aircraft inventory held for sale to
third parties by the Company's aircraft brokerage and services subsidiary.
5. EQUITY INTEREST IN AFFILIATES
PLM International, through subsidiaries, is the general partner in 23 limited
partnerships and generally holds an equity interest in each ranging from 1% to
5%.
-38-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
Summarized combined financial data for these affiliated partnerships, reflecting
straight-line depreciation, is as follows (in thousands and unaudited):
Financial position at December 31,: 1994 1993
---- ----
Cash and other assets $ 85,686 $ 94,005
Transportation equipment and other
assets, net of accumulated depreciation
of $271,666 in 1994 and $289,488
in 1993 822,798 978,103
----------- -----------
Total Assets 908,484 1,072,108
Less liabilities, primarily long term
financings 244,547 258,768
----------- -----------
Partners' equity $ 663,937 $ 813,340
=========== ===========
PLM International's share thereof, which amounts are recorded as equity interest
in affiliates:
Equity interest $ 6,760 $ 5,365
Estimated residual value interests in
equipment 11,614 12,342
------- -------
Equity interest in affiliates $18,374 $17,707
======= =======
Operating results for the years ended December 31,:
1994 1993 1992
---- ---- ----
Revenue from equipment leases and other $200,415 $194,335 $195,151
Equipment depreciation (87,959) (71,378) (76,485)
Other costs and expenses (83,460) (82,977) (109,691)
Reduction in carrying value of certain
assets (3,213) (8,215) (48,405)
-------- -------- --------
Net income (loss) (before provision
for (benefit from) income taxes) $ 25,783 $ 31,765 $(39,430)
======== ======== ========
PLM International's share of partnership
income and residual interests, which
amount is included in management fees,
partnership interests, and other fees $ 3,548 $ 3,926 $ 4,487
======== ======== ========
Distributions received and applied against
PLM International's equity interest in
affiliates $ 4,110 $ 4,089 $ 4,302
======== ======== ========
While none of the partners, including the general partner, are 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 non-debt
claims against the partnership which exceed asset values.
-39-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
6. TRANSPORTATION EQUIPMENT HELD FOR OPERATING LEASE
Transportation equipment, at cost, held for operating lease at December 31,
1994, is represented by the following types (in thousands):
Aircraft $58,475 41%
Trailers 63,318 45%
Marine vessels and marine containers 9,766 7%
Railcars 2,667 2%
Other 7,610 5%
Future minimum rentals receivable under noncancelable leases at December 31,
1994 are approximately $5,729,000 in 1995; $4,462,000 in 1996; $2,120,000 in
1997; $1,467,000 in 1998; and $1,066,000 in 1999. In addition, per diem and
contingent rentals consisting of utilization rate lease payments included in
revenue amounted to approximately $17.0 million in 1994, $16.0 million in 1993,
and $16.4 million in 1992. At December 31, 1994, the Company had committed
approximately 71.4% of its trailer equipment to rental yard and per diem
operations. Certain equipment owned by the Company is leased and operated
internationally.
7. 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 or loan agreements. Certain
lease agreements, primarily for aircraft, require prepayments to the Company for
periodic engine maintenance. The Company's senior debt agreement requires
proceeds from the sale of pledged assets be deposited into a collateral bank
account and the funds used to purchase additional equipment to the extent
required to meet certain debt requirements or to reduce the outstanding loan
balance (refer to Note 9).
8. SHORT-TERM SECURED DEBT
The Company maintains a warehousing line of credit to be used to acquire assets
on an interim basis for placement with affiliated partnerships.
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. As of
December 31, 1994, the Company had $6.4 million outstanding on this line. There
were no borrowings on the line as of December 31, 1993. The Company shares this
facility with PLM Equipment Growth and Income Fund VII which had no borrowings
at December 31, 1994. The Partnership has agreed, at the maturity of each
advance, to purchase any equipment then financed by the Company under the credit
facility.
-40-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
9. LONG-TERM SECURED DEBT:
Long-term secured debt consisted of the following at December 31 (in thousands):
1994 1993
---- ----
Senior Secured Debt:
Institutional debt, $25.0 million bearing interest at 9.78% and $10.0 million
bearing interest at LIBOR plus 2.75% per annum (8.3% at December 31, 1994),
interest is due quarterly, principal installments of $2.1 million due quarterly
beginning June 30, 1997 through June 2001, secured by substantially all of the
Company's transportation-related equipment assets and associated leases except
those assets used as collateral
for other secured debt. $35,000 $ --
Institutional debt, $8,200 paid in March 1994 with the remaining balance paid
June 30, 1994, interest was due monthly, computed at LIBOR plus 3.0% per annum
(6.3% at December 31, 1993) secured by substantially all of the Company's
leases and assets except those assets used as collateral for the ESOP (Note 13)
and other secured debt. -- 45,000
------- -------
Employee Stock Ownership Plan (ESOP) Debt:
Bank ESOP note payable, bearing interest at 79.5% of LIBOR plus 0.75% (5.42% and
3.15% at December 31, 1994 and 1993, respectively), interest adjusts
semiannually and was due monthly secured and repaid by restricted marketable
securities and cash equivalents
that collateralize the debt. -- 50,280
------- -------
Other Secured Debt:
Notes payable, bearing interest from 6.0% to 10.0%, due in varying monthly
principal and interest installments through 2000, secured by equipment, with a
net book value of approximately $1,745
at December 31, 1994. 2,119 2,839
------- -------
Total Secured Debt $37,119 $98,119
======= =======
In June 1994, the Company closed a new $45.0 million senior loan facility with
a syndicate of insurance companies, and repaid its then existing senior
indebtedness. The facility provides that equipment sales proceeds or cash
deposits be placed into cash collateral accounts or used to purchase additional
equipment to the extent required to meet certain debt covenants. In December
1994, the Company utilized the balance in the cash collateral account to prepay
$10.0 million of the fixed rate loan.
-41-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
The current 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, 1994. In addition,
there are restrictions on payment of dividends, purchase of stock, and certain
investments based on computations of tangible net worth, financial ratios, and
cash flows, as defined.
Scheduled principal payments on long-term secured debt are approximately (in
thousands):
1995 - $ 142
1996 - $ 101
1997 - $ 6,691
1998 - $ 8,635
1999 - $ 8,670
thereafter - $12,880
The book value of the variable rate portion of the senior secured debt
approximates fair value due to its variable interest rate. The Company
estimates, based on recent transactions, that the fair value of the fixed
portion of the senior secured debt and other secured debt is approximately equal
to its book value.
10. SUBORDINATED DEBT
Subordinated debt consisted of the following at December 31 (in thousands):
1994 1993
---- ----
Senior subordinated notes payable, bearing interest at 11.55% payable monthly,
equal annual principal payments of $5,750 due from 1996 through 1999,
unsecured $23,000 $23,000
Notes payable bearing interest at 14.75% payable semi-annually, principal of
$3.0 million and $5.0 million were paid in July and October 1994, respectively,
at a
discount of $0.7 million -0- 8,000
------- -------
$23,000 $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 $0 in 1995, $5,750 in 1996, $5,750 in 1997, $5,750 in 1998, and $5,750
in 1999.
In July and October 1994, the Company repaid $3.0 million and $5.0 million of
its 14.75% notes payable, respectively, at a total $0.7 million discount.
-42-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
11. INCOME TAXES
The provisions for (benefit from) income taxes attributable to income from
operations consist of the following (in thousands):
1994 1993
-------------------------------- ------------------
Federal State Total Federal State Total
Current $ (734) $ 42 $ (692) $ 5,766 $ 30 $ 5,796
Deferred (2,664) (712) (3,376) (4,023) (318) (4,341)
-------- -------- -------- -------- -------- --------
$ (3,398) $ (670) $ (4,068) $ 1,743 $ (288) $ 1,455
======== ======== ======== ======== ======== ========
1992
------------------------------
Federal State Total
Current $ 1,043 $ 20 $ 1,063
Deferred (13,710) (3,040) (16,750)
--------- --------- ---------
$ (12,667) $ (3,020) $ (15,687)
========= ========= =========
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.
The difference between the effective rate and the expected Federal statutory
rate is reconciled below:
1994 1993 1992
---- ---- ----
Federal statutory tax (benefit) expense rate (34)% 34% (34)%
State income tax (benefit) (8) (2) (6)
Federal tax credits -- (9) --
Benefit from preferred dividend to ESOP (32) (6) (7)
Other 1 2 1
--- --- ---
Effective tax (benefit) expense rate (73)% 19% (46)%
=== === ===
Net operating loss carryforwards for federal income tax purposes amounted to
$18,334 and $20,744 at December 31, 1994 and 1993, respectively. These net
operating losses have a 15 year carryforward period. The net operating losses at
December 31, 1994, will expire as follows: $7,523 in 2004; $2,872 in 2005;
$7,169 in 2006; and $770 in 2007. Alternative minimum tax credit carryforwards
at December 31, 1994 are $6,152. For financial statement purposes, there are no
operating loss or alternative minimum tax credit carryforwards.
-43-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, are presented below:
1994 1993
Deferred Tax Assets:
Tax credits carryforwards $ 6,583 $ 7,782
Net operating loss carryforwards 7,048 7,921
Federal benefit of state taxes 1,082 1,090
Other -- 473
------- -------
Total deferred tax assets 14,713 17,266
------- -------
Deferred Tax Liabilities:
Transportation equipment, principally
differences in depreciation 22,415 28,376
Partnership interests 8,085 8,276
Other 378 --
------- -------
Total deferred tax liabilities 30,878 36,652
------- -------
Net deferred tax liabilities $16,165 $19,386
======= =======
12. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved as plaintiff or defendant in various legal actions
incidental to its business. Management does not believe any of these existing
actions will be material to the financial condition or, based on historical
trends, to the results of operations of the Company.
Lease Agreements
The Company's net rent expense was $2.1 million, $2.4 million, and $2.4 million
in 1994, 1993, and 1992, respectively.
The Company was obligated under a lease for its former office space through
April 1994. The Company's contracted rentals from subleasing its former space
were less than its obligations, and consequently the Company recorded an expense
of $167,000 in 1994, $149,000 in 1993, and $300,000 in 1992.
The Company also has leases for other office space and for rental yard
operations. The applicable rent expense recorded was $729,000 in 1994;
$1,003,000 in 1993; and $1,048,000 in 1992. Annual lease rental commitments for
these locations total $633,000, $423,000, $181,000, and $39,000 for years 1995
through 1998, respectively.
-44-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
Letter of Credit
At December 31, 1994, the Company had a $317,000 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 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 eleven
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 $249,000 for 1994,
$429,000 for 1993, and $80,000 for 1992. As of December 1994, the total
estimated future obligation relating to the current participants is $9,739,000
including vested benefits of $1,024,000. In connection with this plan, whole
life insurance contracts were purchased on the participants. Insurance premiums
of $203,000 and $122,000 were paid during 1994 and 1993, respectively.
Additionally, the Company has capitalized $337,000 to reflect the cash surrender
value of these contracts as of December 31, 1994.
13. SHAREHOLDERS' EQUITY
Common Stock
PLM International has authorized 50,000,000 shares of common stock at $0.01 par
value of which 660,000 shares have been reserved for stock options. In 1994,
Transcisco emerged from Chapter 11 bankruptcy proceedings and as part of its
plan of reorganization transferred its shares of PLM International common stock
to its Official Bondholders' Committee ("OBC") during 1994. In October 1994,
2,445,000 of these shares were sold to independent investors and the remaining
922,367 shares were repurchased by the Company as treasury stock. The following
table summarizes changes in common stock during 1994:
Issued Outstanding
Common Treasury Common
Shares Shares Shares
Shares at December 31, 1993 10,897,324 432,018 10,465,306
Conversion of preferred stock -- (14,809) 14,809
Stock options exercised 23,331 -- 23,331
Stock repurchase -- 922,367 (922,367)
ESOP termination 1,650,075 (468,519) 2,118,594
----------- ----------- -----------
Shares at December 31, 1994 12,570,730 871,057 11,699,673
=========== =========== ===========
Preferred Stock
PLM International authorized 10,000,000 shares of preferred stock at $0.01 par
value, of which 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. Each share was entitled to receive a fixed annual dividend of $1.43 and
was convertible into and
-45-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
carried voting rights equivalent to a common share (subject to adjustment). In
1994, 468,519 shares were issued in accordance with the ESOP termination to
former participants. As of December 31, 1994, the Company's ESOP terminated and
all 1,650,075 preferred shares allocated to the accounts of participants were
distributed and thereupon converted into an equal number of common shares.
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 an option must be at least 85% of
the fair market value of the common stock at the date of grant. All options
currently outstanding are exercisable at prices equal to the market value of the
shares 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.
Stock option transactions during 1994 and 1993 are summarized as follows:
Average
Number of Option Price
Shares Per Shares
Balance, December 31, 1992 605,200 $ 2.00
Granted -- --
Canceled (24,900) 2.00
-------- -----
Balance, December 31, 1993 580,300 $ 2.00
Granted 102,500 3.06
Canceled (77,069) 2.00
Exercised (23,331) 2.00
-------- -----
Balance, December 31, 1994 582,400 $ 2.19
======== =====
At December 31, 1994, 297,170 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 interests 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.
-46-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
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. As of December 31, 1994, there were 11,699,673 Rights outstanding
which will expire on March 31, 1999, and carry no voting privileges.
Employee Stock Ownership Plan ("ESOP")
Termination
On August 21, 1989, the Company established a leveraged 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 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 was secured, in part, by the shares of preferred stock, while the Bank
Loan was secured with cash equivalents and marketable securities. Preferred
dividends were payable semiannually on February 21 and August 21, which
corresponded to the ESOP Debt payment dates. Bank loan debt service was covered
through release of the restricted cash and marketable securities. While the
annual ESOP dividend was fixed at $1.43 per share, the interest rate on the ESOP
debt varied, resulting in uneven debt service requirements.
Termination of the ESOP resulted in the distribution to each ESOP participant
shares of preferred stock allocated to such participant's account which shares
immediately converted into common stock. During the life of the ESOP, 2,118,594
common shares were distributed to approximately 315 ESOP participants, including
1,650,075 shares distributed to then ESOP participants upon termination of the
ESOP. In addition, 468,519 shares were distributed on or about November 18,
1994, to participants who, at that time, were no longer employees of the
Company. All such distributed shares are freely tradeable common shares and
listed on the AMEX.
Shares of preferred stock held by the ESOP which were not allocated to
participants' accounts at the date of termination (2,804,483 shares) were
returned to the Company. In addition, the bank indebtedness of the Company
($43.3 million) related to the ESOP was repaid using restricted cash and
marketable securities collateral. The Company charged to earnings in 1994
approximately $0.5 million to reflect an adjustment to current market value for
this collateral.
Termination of the ESOP and the related ESOP loan has eliminated payment by
the Company of the annual dividend on the preferred stock held by the ESOP. For
the years ended December 31, 1994 and 1993, the aggregate pretax amount of this
dividend was $7.3 million and $7.0 million, respectively. The Company also
charged to earnings approximately $2.7 million of previously paid, unamortized
ESOP loan fees and other costs to earnings in 1994.
-47-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
Change in Accounting
On November 22, 1993, the American Institute of Certified Public Accountants
issued SOP 93-6 which changes the way companies report transactions with
leveraged employee stock ownership plans 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 net of the
imputed dividend on allocated shares; (ii) interest received on the loan to the
ESOP is not recorded as income; (iii) only dividends on allocated shares are
reflected as a reduction to income to common shareholders; and (iv) the
previously reported ESOP loan is not recognized under SOP 93-6, instead an
amount representing the unearned compensation related to the unallocated shares
is reported as a reduction of preferred stock. The Company elected to adopt SOP
93-6 in the third quarter of 1994, which required the previously issued
financial statements to be restated for the change in accounting as of January
1, 1994. The adoption of SOP 93-6 resulted in a non-cash charge to earnings as
of the beginning of the year of adoption, of $5.1 million for the impact of the
change in accounting principle which was primarily the result of an increase in
unearned compensation of $7.1 million and the recording of a previously
unaccrued dividend of $2.5 million. Additionally, SOP 93-6 eliminates the
recognition of interest income on the Company's loan to the ESOP and records the
entire tax benefit of the ESOP as a reduction in income tax expense.
14. TRANSACTIONS WITH AFFILIATES
In addition to various fees payable to the Company or its subsidiaries (refer to
Notes 1 and 5), the affiliated partnerships reimburse the Company for certain
expenses as allowed in the partnership agreements. Reimbursed expenses totaling
approximately $7.0 million in 1994, and $10.0 million in 1993, have been
recorded as reductions of operations support 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 reimbursement
limitations. The Company amortizes such capital contributions over the estimated
life of the partnership.
15. OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
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, 1994 and 1993, management believes the Company had no
significant concentrations of credit risk.
-48-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
16. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1994 and 1993 (in thousands, except per share amounts):
Earnings
Net Income (Loss)
Income (Loss) Per Common
(Loss) to Common Shares
Revenue Before Taxes Shares Outstanding
------- ------------ ----------- ------------
1994 Quarters
- -------------
First $14,967 $ 949 $(4,631) $(0.37)
Second 14,481 216 20 0.00
Third 13,323 (8,727) (5,804) (0.46)
Fourth 15,191 1,983 1,344 0.10
------- ------- ------- ------
Total $57,962 $(5,579) $(9,071) $(0.73)
======= ======= ======= ======
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
======= ======= ======= ======
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 from the purchase of $61.0 million of
equipment for the managed programs.
The adoption of SOP 93-6 resulted in a noncash charge to earnings of $5.1
million for the impact of the change in accounting principle which was recorded
in the first quarter of 1994.
In the third quarter of 1994, the Company reduced the carrying value of
certain equipment by $4.2 million and recognized other expense of $2.5 million
related to the planned termination of the Company's ESOP.
17. 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 provided
for a deferred compensation arrangement as described in Section 401(k) of the
Internal Revenue Code. The 401(k) Plan was a noncontributory plan available to
essentially all full-time employees of the Company. In 1994, 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 16% or $9,240 of pre-tax
salary or wages. The Company made no contributions to the 401(k) Plan. As of
December 31, 1994, in conjunction with the termination of the Company's ESOP,
the Company terminated the 401(k) Plan.
18. SUBSEQUENT EVENTS
In January 1995, the Company entered into an agreement to form a new equipment
leasing and management company to acquire certain assets and management
operations of Boston-
-49-
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
based, privately-held American Finance Group ("AFG"). The new entity, as a
wholly-owned subsidiary of FSI, will acquire AFG's proprietary software and
assume the management of future investor programs as well as provide equipment
management services to AFG's existing investor programs. Affiliates of AFG,
which will change its name, will continue to be the general partners of the
existing programs. AFG currently manages a portfolio of approximately $833
million of capital equipment (at original cost), subject to primarily full
payout leases, for its own account and approximately 50,000 investors.
In January 1995, the registration statement for a new syndicated product
became effective. The Company's wholly-owned subsidiary, FSI will serve as the
Manager for the new program. This product, a Limited Liability Company ("LLC")
with a no-load structure, will start being syndicated in the first quarter of
1995. There will be no compensation paid to FSI for the organization of the LLC,
the acquisition of equipment, and the negotiation of the initial leases. FSI
will fund the cost of organization, syndication, and offering through use of
operating cash and will treat this as its investment in the LLC. The Company
will amortize its investment in the LLC over the life of the program. In return
for its investment, FSI will be entitled to a 15% interest in the cash
distributions and earnings of the LLC subject to certain allocation provisions.
The Company will also be entitled to monthly fees for equipment management
services and reimbursement for certain accounting and administrative services
provided by the Company.
In January 1995, the Company, through its wholly-owned subsidiary TEC
Acquisub, Inc., entered into a binding purchase agreement to acquire a marine
vessel for $12.3 million which will be sold to the LLC. On March 14, 1995, TEC
Acquisub borrowed $9.8 million through its warehousing line of credit facility
in preparation for the purchase of the marine vessel.
In January 1995, the Company sold one commercial aircraft with a net book
value of $1.8 million for $2.2 million. In February 1995, the Company sold one
commercial aircraft with a net book value of $0.5 million for $0.7 million, and
sold one helicopter for its net book value of $1.0 million. In March 1995, the
Company sold its marine vessel with a net book value of $5.2 million for
approximately $4.5 million, net of selling costs. Accrued drydock reserves at
the time of sale were $0.7 million. In March 1995, the Company sold 11 railcars
with a net book value of $0.7 million for $1.1 million. The two commercial
aircraft, the helicopter, the marine vessel, and the 11 railcars were all
included in assets held for sale at December 31, 1994.
Effective February 1995, the Company adopted the Directors' 1995 Non-qualified
Stock Option Plan which reserves 120,000 shares of the Company's common stock
for issuance to directors who are non-employees of the Company. All options
outstanding are exercisable at prices equal to the closing price as of the date
of grant. Vesting of options granted occurs in three equal installments of 33
1/3% per year, initiating from the date of the grant.
In February 1995, the Company announced that its Board of Directors authorized
the repurchase of up to $0.5 million of the Company's common stock. The shares
may be purchased in the open market or through private transactions. The timing
and amount of repurchases, which will be funded through working capital and
existing cash reserves, will depend on market conditions and corporate
requirements. Shares repurchased may be used for corporate purposes, including
option plans, or they may be retired. The Company had repurchased 49,700 of
these shares as of March 15, 1995.
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SCHEDULE II
PLM INTERNATIONAL, INC.
Years Ended December 31, 1994, 1993, and 1992
Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties
(in thousands)
Balance at Deductions
Beginning Amounts Balance at
of Amounts Expensed As End of
Name of Debtor Period Additions Collected Uncollectible(2) Period
Year Ended 12/31/94
Customized Equipment
Leasing Programs $779 $ -- $462 $306 $ 11(1)
Year Ended 12/31/93
Customized Equipment $779 $ -- $ -- $ -- $779 (1)
Leasing Programs
Year Ended 12/31/92
Customized Equipment
Leasing Programs $773 $ 6 $ -- $ -- $779(1)
Note: All other amounts receivable from related parties in excess of $100,000
were generated in the ordinary course of business.
(1) Certain Customized Equipment Leasing Programs may not be able to pay the
amounts owed; reserves of $9,000 at December 31, 1994 and $539,000 at
December 31, 1993 and 1992, have been established for this possible
eventuality.
(2) The $306,000 expensed as uncollectible in 1994 had previously been fully
reserved for. Consequently, the Company recorded no income statement
impact for this expense in 1994.
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SCHEDULE IX
PLM INTERNATIONAL, INC.
December 31, 1994, 1993 and 1992
SHORT-TERM BORROWINGS
(in thousands)
Weighted
Category of Average
Aggregate Balance at Weighted Maximum Average Interest Rate
Short-term End of Average Amount Amount During the
Borrowings1 Period Interest Rate Outstanding Outstanding2 Period
1994
Amounts payable
to banks for
borrowings $6,404 7.068% $ 6,404 $ 567 7.833%
1993
Amounts payable
to banks for
borrowings $ -- 7.000% $13,600 $2,695 7.000%
1992
Amounts payable
to banks for
borrowings $ -- 7.298% $19,293 $4,541 7.125%
(1) Reflects the bridge credit line. Interest on the bridge was at the
prime rate plus 0.50% to 1.00%. The bridge line was secured by assets
held for resale. This line does not require compensating balances.
(2) Calculated by multiplying the outstanding balance by the number of days
outstanding and dividing the product by the number of days in the year.
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EXHIBIT XI
PLM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (a)
Years Ended December 31,
1994 1993 1992
---- ---- ----
(in thousands, except per share data)
Primary
Earnings:
Net (loss) income $ (6,641) $ 6,282 $(18,231)
Preferred dividend required (2,430) (4,850) (7,040)
--------- --------- --------
Net (loss) income to common shares $ (9,071) $ 1,432 $(25,271)
========= ========= ========
Shares:
Weighted average number of
common shares outstanding 12,374 10,589 10,497
========= ========= ========
Primary (loss) earnings per common share $ (0.73) $ 0.14 $ (2.41)
========= ========= ========
Assuming Full Dilution (b)
Earnings:
Net (loss) income $ (6,641) $ 6,282 $(18,231)
Replacement contribution required upon
conversion of ESOP convertible preferred
shares -- (4,542) (4,643)
Non-discretionary adjustments to incentive
compensation plans based on ESOP's replace-
ment contribution effect on pretax earnings -- 850 800
Change in income tax due to conversion of
ESOP convertible preferred shares -- (191) (934)
--------- --------- --------
Net (loss) income to common as adjusted $ (6,641) $ 2,399 $(23,008)
========= ========= ========
Shares:
Weighted average number of
common shares outstanding 12,374 10,605 10,497
Assumed conversion of preferred shares(c) 3,082 4,917 4,922
Additional common shares issued to cover
$13 stated value of allocated ESOP shares
if converted -- -- 3,766
--------- --------- --------
Weighted average number of common shares
outstanding as adjusted 15,456 15,522 19,185
========= ========= ========
(Loss) earnings per common share assuming full
dilution $ (0.43) $ 0.16 $ (1.20)
========= ========= ========
(a) See accompanying notes to December 31, 1994, 1993, and 1992 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 antidilutive.
(c) Refer to accompanying Note 13 to the December 31, 1994, Financial
Statements for the explanation related to the ESOP termination.
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EXHIBIT XI, Page 2
PLM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Years Ended December 31,
1994 1993 1992
---- ---- ----
(in thousands, except per share data)
Primary
Earnings:
Net (loss) income $ (6,641) $ 6,282 $(18,231)
Preferred dividend required (2,430) (4,850) (7,040)
-------- -------- --------
Net (loss) income to common shares $ (9,071) $ 1,432 $(25,271)
======== ======== ========
Shares:
Weighted average number of
common shares outstanding 12,374 10,589 10,497
======== ======== ========
Primary (loss) earnings per common share $ (0.73) $ 0.14 $ (2.41)
======== ======== ========
Adjusted for Contingent Issue Shares (a)(b)
Earnings:
Net loss $(18,231)
Additional net income required to meet
target primary earnings per common share 45,530
Preferred dividend required (7,040)
--------
Net income as adjusted $ 20,259
========
Weighted average number of
common shares outstanding 10,497
Assume issuance of contingent shares 200
10,697
Earnings per share as adjusted $ 1.89
========
(a) The contingent shares were recalled on January 1, 1993 as the conditions
for their issuance were not met (refer to Note 13). For 1992, 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 shares; and therefore, are antidilutive 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 antidilutive.
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