UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal quarter ended September 30, 1995.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 For the transition period from to
Commission file number 1-9670
-------------------------------
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower,
Suite 900, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 974-1399
----------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock - $.01
Par Value; Outstanding as of November 1, 1995 - 11,568,357 shares
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
----------------------------------------
(in thousands)
ASSETS
Cash and cash equivalents $ 15,077 $ 16,131
Receivables 5,965 5,747
Receivables from affiliates 7,893 7,001
Assets held for sale 12,900 17,644
Equity interest in affiliates 25,713 18,374
Transportation equipment held for operating leases 121,871 141,469
Less accumulated depreciation (66,758) (77,744)
----------------------------------------
55,113 63,725
Restricted cash and cash equivalents 10,727 1,409
Other 7,183 10,341
----------------------------------------
Total assets $ 140,571 $ 140,372
========================================
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term secured debt $ -- $ 6,404
Senior secured debt 35,000 35,000
Other secured debt 1,267 2,119
Subordinated debt 23,000 23,000
Payables and other liabilities 10,623 11,589
Deferred income taxes 19,824 16,165
----------------------------------------
Total liabilities 89,714 94,277
Minority interest 431 400
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized, 11,568,357
issued and outstanding at September 30, 1995 and 11,699,673 at December
31, 1994 (excluding 1,018,034 and 871,057 shares held
in treasury at September 30, 1995 and
December 31, 1994, respectively) 117 117
Paid in capital, in excess of par 77,743 77,699
Treasury stock (3,325) (2,831)
----------------------------------------
74,535 74,985
Accumulated deficit (24,109) (29,290)
----------------------------------------
Total shareholders' equity 50,426 45,695
----------------------------------------
Total liabilities, minority interest,
and shareholders' equity $ 140,571 $ 140,372
========================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the three months For the nine months
ended September 30, ended September 30,
1995 1994 1995 1994
----------------------------------------------------------------
Revenues:
Operating leases $ 5,311 $ 6,855 $ 17,942 $ 22,102
Management fees 2,909 2,757 8,231 8,342
Partnership interests and other fees 1,410 743 3,739 2,584
Acquisition and lease negotiation fees 2,467 493 4,797 2,219
Commissions -- 1,140 1,322 3,881
Aircraft brokerage and services 1,383 1,214 3,700 3,361
Gain (loss) on the sale or disposition
of assets, net 730 (109) 5,911 (574)
Other 540 230 1,062 856
----------------------------------------------------------------
Total revenues 14,750 13,323 46,704 42,771
Costs and expenses:
Operations support 6,050 6,149 18,602 17,731
Depreciation and amortization 2,104 3,106 6,491 9,411
Commissions (51) 1,194 1,417 4,067
General and administrative 2,579 3,096 7,646 7,861
Reduction in carrying value of certain assets -- 4,247 -- 4,247
----------------------------------------------------------------
Total costs and expenses 10,682 17,792 34,156 43,317
----------------------------------------------------------------
Operating income (loss) 4,068 (4,469) 12,548 (546)
Interest expense 1,609 2,602 5,540 7,310
Other income (expense), net 591 (2,619) 537 (2,349)
Interest income 566 963 1,491 2,643
----------------------------------------------------------------
Income (loss) before income taxes 3,616 (8,727) 9,036 (7,562)
Provision for (benefit from) income taxes 1,559 (3,485) 3,884 (3,963)
----------------------------------------------------------------
Net income (loss) before cumulative effect
of accounting change 2,057 (5,242) 5,152 (3,599)
Cumulative effect of accounting change -- -- -- 5,130
----------------------------------------------------------------
Net income (loss) 2,057 (5,242) 5,152 (8,729)
Preferred dividend imputed on allocated shares -- 562 -- 1,686
----------------------------------------------------------------
Net income (loss) to common shares $ 2,057 $ (5,804) $ 5,152 $ (10,415)
================================================================
Earnings (loss) per common share outstanding $ 0.18 $ (0.46) $ 0.44 $ (0.83)
================================================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY For
the Year Ended December
31, 1994 and the Nine
Months Ended September 30,
1995
(in thousands)
Loan to
Employee Common Stock
--------------------------------------------
Preferred Stock Paid-in Retained
Stock at Ownership Capital in Earnings Total
Paid-in Plan At Excess Treasury Accumulated Shareholders'
Amount (ESOP) Par of Par Stock (Deficit) Equity
-----------------------------------------------------------------------------------------------------------
Balances, December 31,
1993 $ 63,569 $ (50,280) $ 109 $ 55,557 $ (131) $ (17,691) $ 51,133
Net loss (6,641) (6,641)
Cumulative effect of
change in
accounting on unearned
compensation 7,130 7,130
Common stock repurchases (2,997) (2,997)
Conversion of preferred
stock (192) 161 31 --
Allocation of shares (4,091) 6,044 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 (59,286) 37,106 8 21,906 266 --
Exercise of stock options 75 75
Translation gain 37 37
-----------------------------------------------------------------------------------------------------------
Balances, December 31,
1994 -- -- 117 77,699 (2,831) (29,290) 45,695
Net income 5,152 5,152
Common stock repurchases (494) (494)
Exercise of stock options 44 44
Translation gain 29 29
===========================================================================================================
Balances, September 30,
1995 $ -- $ -- $ 117 $ 77,743 $ (3,325) $ (24,109) $ 50,426
===========================================================================================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the nine months
ended September 30,
1995 1994
---------------------------------
Operating activities:
Net income (loss) $ 5,152 $ (8,729)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,491 9,411
Foreign currency translations 29 --
Cumulative effect of accounting change -- 5,130
Increase (decrease) in deferred income taxes 3,659 (4,573)
Compensation expense for ESOP -- 255
(Gain) loss on sale or disposition of assets, net (5,911) 574
Reduction in carrying value of certain assets -- 4,247
Undistributed residual value interests (201) 405
Minority interest in net income of subsidiaries 31 56
Decrease in payables and other liabilities (472) (5,872)
(Increase) decrease in receivables and receivables from affiliates (2,063) 4,374
Cash distributions from affiliates in excess of income accrued 580 488
(Increase) decrease in other assets (906) 950
Purchase of equipment for lease (7,420) (821)
Proceeds from sale of equipment for lease 11,498 10,056
Purchase of assets held for sale (34,034) (11,455)
Proceeds from sale of assets held for sale 38,462 5,190
Financing of assets held for sale to affiliates 9,800 2,953
Repayment of financing of assets held for sale to affiliates (16,204) (2,953)
---------------------------------
Net cash provided by operating activities 8,491 9,686
---------------------------------
Investing activities:
Additional investment in affiliates (7,718) (210)
Purchase of residual option (200) --
Proceeds from the disposition of residual options 2,059 89
Proceeds from the sale of leveraged leased assets 4,530 --
Proceeds from the maturity and sale of restricted
marketable securities -- 30,872
Purchase of restricted marketable securities -- (15,436)
Increase in restricted cash and restricted cash equivalents (9,318) (15,716)
Acquisition of subsidiaries net of cash acquired -- (1,013)
---------------------------------
Net cash used in investing activities (10,647) (1,414)
---------------------------------
Financing activities:
Proceeds from long-term equipment loans 657 45,366
Principal payments under loans (33) (51,237)
Cash dividends paid on Preferred Stock -- (7,007)
Payments received from ESOP Trustee 928 4,739
Repurchase of treasury stock (494) --
Proceeds from exercise of stock options 44 68
---------------------------------
Net cash provided by (used in) financing activities 1,102 (8,071)
---------------------------------
Net (decrease) increase in cash and cash equivalents (1,054) 201
Cash and cash equivalents at beginning of period 16,131 19,685
=================================
Cash and cash equivalents at end of period $ 15,077 $ 19,886
=================================
Supplemental information:
Interest paid during the period $ 4,878 $ 7,674
=================================
Income taxes paid during the period $ 595 $ 4,007
=================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
1. General
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly the Company's
financial position as of September 30, 1995, the statements of operations for
the three and nine months ended September 30, 1995 and 1994, the statements of
cash flows for the nine months ended September 30, 1995 and 1994, and the
statements of changes in shareholders' equity for the year ended December 31,
1994 and the nine months ended September 30, 1995. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the accompanying consolidated financial statements. For further
information, reference should be made to the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, on file at the Securities and Exchange Commission.
Certain amounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
The Company is involved as plaintiff or defendant in various legal actions
incident to its business. Management does not believe that any of these actions
will be material to the financial condition of the Company.
2. Equipment
The Company classifies assets as held for sale if the particular asset is
subject to a pending contract for sale, or is held for sale to one or more
affiliated parties or third parties. At September 30, 1995, $12.9 million in
transportation equipment was held for sale to one or more affiliated parties or
third parties.
During the last three years, the Company has significantly downsized the
equipment portfolio through the sale or disposal of underperforming and
nonperforming assets. The Company will continue to identify underperforming and
nonperforming assets for sale or disposal as necessary.
Periodically, the Company will purchase groups of assets whose ownership may be
allocated among affiliated partnerships and the Company. Generally in these
cases, only assets that are on-lease will be purchased by the affiliated
partnerships. The Company will generally assume the ownership and remarketing
risks associated with off-lease equipment. Allocation of the purchase price will
be determined by a combination of the Company's knowledge and assessment of the
relevant equipment market, third party industry sources, and recent transactions
or published fair market value references. During the nine months ended
September 30, 1995, the Company realized $1.2 million of gains on sales of
railcars and aircraft purchased by the Company as part of a group of assets.
3. Debt
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 September 27, 1995. The amendment extended the facility until
September 30, 1996. The Company had no borrowings on this facility at September
30, 1995.
This facility, which is shared with Equipment Growth Funds (EGFs) II, III, IV,
V, VI, VII and the LLC, allows the Company to purchase equipment prior to a
designated program or partnership being identified, or prior to having raised
sufficient capital to purchase the equipment. This facility provides 80%
financing if the Company is the borrower and working capital is used for the
nonfinanced costs of these acquisitions. The Company can
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
3. Debt (continued)
hold purchased assets under this bridge facility for up to 150 days. Interest
accrues at prime or LIBOR plus 2.5% at the option of the borrower at the time of
the advance under the facility. As provided for in the program offering
documents, the Company retains the difference between the net lease revenue
earned and the carrying costs incurred during the interim holding period as the
Company's capital is at risk.
The Company has entered into a securitization facility to borrow up to $80
million on a nonrecourse basis for a one year period that will be secured
primarily by finance type leases which generally have terms of four to five
years. The securitized debt is expected to bear interest at treasury rate plus
1%. As of September 30, 1995, there were no borrowings under this facility.
4. Shareholders' Equity
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 nonemployees of the Company. All options
outstanding are exercisable at prices equal to the closing price as of the date
of grant. Vesting of options occurs in three equal installments of 33 1/3% per
year, initiating from the date of the grant. During the nine months ended
September 30, 1995, 40,000 options were granted under this plan at $2.63 per
share.
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
could be purchased in the open market or through private transactions with
working capital and existing cash reserves. Shares repurchased could be used for
corporate purposes, including option plans, or they could be retired. The
Company had purchased 146,977 shares under this program for $0.5 million as of
September 30, 1995.
The total common shares outstanding at September 30, 1995, were 11,568,357, a
decrease from the 11,699,673 outstanding at December 31, 1994. Net income (loss)
per common share was computed by dividing net income (loss) to common shares by
common stock equivalents which included the weighted average number of shares
and stock options deemed outstanding during the period. The weighted average
number of shares and stock options deemed outstanding during the three months
ended September 30, 1995 and 1994, were 11,755,658 and 12,682,432, respectively.
The weighted average number of shares and stock options deemed outstanding
during the nine months ended September 30, 1995 and 1994, were 11,799,894 and
12,521,313, respectively.
5. Limited Liability Company Interests
In January 1995, the registration statement for the Professional Lease
Management Income Fund I, L.L.C. (LLC) became effective. PLM Financial Services,
Inc. (FSI) serves as the manager for the new program. This program, organized as
a limited liability company with a no front-end fee structure, began syndication
in the first quarter of 1995. There is no compensation paid to FSI, or any of
its subsidiaries, for the organization and syndication of interests in the LLC,
the acquisition of equipment, nor the negotiation of the leases by the LLC. FSI
is funding the cost of organization, syndication and offering through use of
operating cash and is capitalizing these costs 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 is entitled to a 15% interest in the cash
distributions and earnings of the LLC subject to certain allocation provisions.
FSI's interest in the cash distributions and earnings of the LLC will increase
to 25% after the investors have received distributions equal to their invested
capital. The Company is also entitled to monthly fees for equipment management
services and reimbursement for certain accounting and administrative services
provided by the Company.
As of the date of this report, the LLC had raised $43 million in equity and had
met the legal requirements for breaking impound and entering the equipment
investment phase of the program.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
6. Management Agreement
In January 1995, the Company entered into an agreement, through a new equipment
leasing and management subsidiary, to manage the operations of Boston-based,
privately-held American Finance Group, L.P. (AFG). The new entity, as a
wholly-owned subsidiary of FSI, will acquire AFG's proprietary software and
provide equipment management and investor relations services to AFG's existing
investor programs. The Company has the right to terminate the contract subject
to certain terms and conditions. Affiliates of AFG will continue to be the
general partners of the existing AFG programs. AFG currently manages a portfolio
of approximately $864 million of capital equipment (at original cost), subject
to primarily full payout leases, for its own account and approximately 50,000
investors.
7. Recent Developments
The Company is in negotiations with its subordinated debt lender to prepay a
portion of the notes in 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company owns a diversified portfolio of transportation equipment from which
it earns operating lease revenue and incurs operating expenses. The Company's
transportation equipment held for operating leases, which consists of aircraft,
marine containers, trailers, railcars and storage vaults at September 30, 1995,
is mainly equipment built prior to 1988. As equipment ages, the Company
continues to monitor the performance of its assets on lease and market
conditions for leasing equipment in general in order to seek the best
opportunities for investment. 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.
The Company also syndicates investment programs from which it earns various fees
and equity interests. The Company is currently marketing an investment program
structured as a limited liability company (LLC) with a no front-end fee
structure. The previously syndicated limited partnership programs have allowed
the Company to receive fees for the acquisition and initial lease of the
equipment. The LLC program does not provide for acquisition and lease
negotiation fees. The Company invests the equity raised through syndication in
transportation equipment which is then managed on behalf of the investors. The
equipment management activities for this type of program generate equipment
management fees for the Company over the life of the program, typically 10 to 12
years. The limited partnership agreements generally entitle the Company to
receive a 1% or 5% interest in the cash distributions and earnings of the
partnership subject to certain allocation provisions. The LLC agreement entitles
the Company to a 15% interest in the cash distributions and earnings of the
program subject to certain allocation provisions which will increase to 25%
after the investors have received distributions equal to their original invested
capital.
For the Three Months Ended September 30, 1995 versus September 30, 1994
The following analysis reviews the operating results of the Company:
Revenue:
For the three months
ended September 30,
1995 1994
---- ----
(in thousands)
Operating leases $ 5,311 $ 6,855
Management fees 2,909 2,757
Partnership interests and other fees 1,410 743
Acquisition and lease negotiation fees 2,467 493
Commissions -- 1,140
Aircraft brokerage and services 1,383 1,214
Gain (loss) on the sale or disposition of assets, net 730 (109)
Other 540 230
-------- --------
Total revenues $ 14,750 $ 13,323
The fluctuations in revenues for the three months ended September 30, 1995 from
the same period in 1994 are summarized and explained below.
Operating lease revenue:
For the three months
ended September 30,
1995 1994
---- ----
(in thousands)
By equipment type or subsidiary:
Trailers $ 2,508 $ 3,606
Aircraft 1,514 2,381
Marine vessels (13) 393
Marine containers 156 226
Storage vaults 263 193
Railcars 190 56
AFG 693 --
------- -------
$ 5,311 $ 6,855
As of September 30, 1995, the Company owned transportation equipment held for
operating leases with an original cost of $121.9 million, which was $58.2
million less than the original cost of equipment owned and held for operating
leases at September 30, 1994. The reduction in equipment, on an original cost
basis, is a consequence of the Company's strategic decision to dispose of
certain underperforming and nonperforming assets resulting in a 100% reduction
in its marine vessel fleet, a 54% net reduction in its marine container
portfolio, a 39% net reduction in its aircraft portfolio, a 13% net reduction in
its trailer portfolio, and a 48% net reduction in its railcar portfolio compared
to September 30, 1994. Operating lease revenue is also impacted by the level of
assets held for sale and the AFG lease originations which can earn lease revenue
for the Company.
The reduction in equipment available for lease is the primary reason marine
vessel, trailer, marine container, and aircraft revenue were all reduced as
compared to the prior year. The decrease in operating lease revenues as a result
of the reduction in equipment available for lease was partially offset by a $0.7
million increase in operating lease revenues generated by AFG-related leases
prior to being sold to third parties, a $0.1 million increase in railcar lease
revenues, and a $0.1 million increase in storage vault revenues. The increase in
railcar revenue of $0.1 million for the quarter is comprised primarily of
revenues on railcars acquired by the Company of which the majority have been
sold to both affiliated programs and third parties as of September 30, 1995.
Storage vault revenue increased $0.1 million for the quarter ended September 30,
1995, compared to the same quarter of the prior year, due to additions of $0.6
million in new storage vaults made during the fourth quarter of 1994.
Management fees:
For the three months Year
ended September 30, Liquidation
1995 1994 Phase Begins
------------------------------------------------------
(in thousands)
Management fees by fund were:
EGF I $ 331 $ 396 1998
EGF II 204 301 1999
EGF III 274 427 2000
EGF IV 287 291 1999
EGF V 468 449 2000
EGF VI 445 433 2002
EGF VII 259 137 2003
AFG programs 240 -- --
Other programs 401 323 --
--------------------------
$ 2,909 $ 2,757
Management fees are, for the most part, based on the gross revenues
generated by equipment under management. The managed equipment portfolio for new
programs 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.
The original cost of the equipment under management, excluding equipment managed
under the AFG programs, (measured at original cost) amounted to $1.10 billion
and $1.11 billion at September 30, 1995 and 1994, respectively. The increase in
management fees of $0.2 million resulted from an increase of $0.2 million in
management fees from the January 1995 agreement with AFG to provide management
services to their existing programs, and from an increase of $0.2 million in
management fees generated from the new LLC program, partially offset by a net
decrease in management fees generated by gross revenues from the other programs
which fell due to a net decrease in managed equipment and a decrease in lease
rates for certain types of equipment.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated partnerships. The net earnings and distribution levels from
the affiliated partnerships were $1.4 million and $0.7 million for the quarters
ended September 30, 1995 and 1994, respectively. In 1995, the equity interest
recorded was impacted by net increases of $0.6 million in the Company's recorded
residual values which included $0.4 million in residual income for the equipment
purchased for the LLC, and $0.2 million in residual income for the AFG programs.
A net decrease in the recorded residual values related to other existing
programs of $0.2 million was recorded for the same period in 1994. Residual
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 portfolio of the affiliated partnership. Net decreases in the recorded
residual values result when partnership assets are sold and the reinvestment
proceeds are less than the original investment in the sold equipment.
Acquisition and lease negotiation fees:
During the quarter ended September 30, 1995, a total of $41.2 million of
equipment was purchased on behalf of the equipment growth funds compared to $9.0
million during the same quarter of the prior year, resulting in an increase in
acquisition and lease negotiation fees of $1.8 million. In addition, $0.2
million in acquisition and lease negotiation fees were generated by AFG-related
purchases during the quarter ended September 30, 1995. There were no AFG-related
transactions during the same quarter of 1994. As a result of the Company's
decision to market a new investment program with a no front-end fee structure,
acquisition and lease negotiation fees will be significantly reduced in the
future unless a new program with a front-end fee structure is brought to market.
Commissions:
Commission revenue represents syndication placement fees, generally 9%
of equity raised for the equipment growth funds, earned upon the sale of
partnership units to investors. During the quarter ended September 30, 1995,
there was no program equity raised for the equipment growth funds compared to
$12.9 million of equity raised during the quarter ended September 30, 1994,
resulting in a decrease in placement commissions of $1.1 million. The Company
closed PLM Equipment Growth & Income Fund VII (EGF VII) syndication activities
on April 30, 1995. As a result of the Company's decision to market a new
investment program with a no front-end fee structure, which raised $25.9 million
in equity during the quarter, commission revenue will be eliminated unless a new
program with a front-end fee is brought to market.
Aircraft brokerage and services:
Aircraft brokerage and services revenue increased $0.2 million during
the quarter ended September 30, 1995 compared to the comparable prior year
quarter, and represents revenue earned by Aeromil Australia, the Company's
aircraft leasing, spare parts brokerage, and related services subsidiary,
acquired in February 1994.
Gain (loss) on the sale or disposition of assets, net:
During the quarter ended September 30, 1995, the Company purchased a
commuter aircraft for $0.7 million and sold the aircraft for a gain of $0.1
million, net of selling costs. Additional net gains on the sale or disposition
of assets for the quarter ended September 30, 1995 of $0.6 million resulted
mainly from the
sale or disposition of 68 marine containers, one commuter aircraft, three
helicopters, 91 railcars, 12 storage vaults, and 101 trailers. The $0.1 million
net loss for the same period in 1994 resulted from the sale or disposition of
trailers and marine containers.
Other:
Other revenues increased $0.3 million during the quarter ended
September 30, 1995, compared to the comparable prior year quarter, due to
increased revenue earned for data processing services provided to the Company's
affiliated programs and due to an increase in brokerage fees.
Costs, Expenses and Other:
For the three months
ended September 30,
1995 1994
-----------------------------
(in thousands)
Operations support $ 6,050 $ 6,149
Depreciation and amortization 2,104 3,106
Commissions (51) 1,194
General and administrative 2,579 3,096
Reduction in carrying value of certain assets -- 4,247
Interest expense 1,609 2,602
Other income (expense), net 591 (2,619)
Interest income 566 963
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)
decreased $0.1 million (2%) for the quarter ended September 30, 1995, from the
same quarter in 1994. The decrease resulted from $0.8 million in lower operating
and repair and maintenance costs due to the sale of the Company's entire owned
vessel portfolio and the sale of other equipment, a $0.4 million decrease in the
provision for bad debts, a $0.3 million decrease in compensation expense booked
in 1994 related to the adoption of Statement of Position 93-6 ("SOP 93-6")
"Employers' Accounting for Employee Stock Ownership Plans", and a $0.2 million
decrease in bonus expense, offset partially by increased costs of $1.3 million
and $0.3 million associated with the operation of AFG and Aeromil, respectively.
Depreciation and amortization:
Depreciation and amortization expense decreased $1.0 million (32%) for
the quarter ended September 30, 1995, as compared to the quarter ended September
30, 1994. The decrease resulted from the reduction in depreciable equipment
discussed in the operating lease revenue section.
Commissions:
Commission expenses are primarily incurred by the Company in connection
with the syndication of investment partnerships and represent payments to
brokers and financial planners for sales of investment program units.
Commissions are also paid to certain of the Company's employees directly
involved in syndication and leasing activities. Historically, commission costs
related to the equipment growth funds have been expensed as incurred. Since
syndication efforts related to EGF VII have ended, commission expense for the
quarter decreased $1.2 million (104%) from the same period in 1994. Commission
costs related to the LLC will be capitalized as part of the Company's investment
in the LLC program as equity is raised for the LLC and commissions paid.
General and administrative:
General and administrative expense decreased $0.5 million (17%) during
the quarter ended September 30, 1995, compared to the same quarter in 1994, due
to a decrease in the management bonus recorded in the third quarter, and a
decrease in professional services and fees.
Reduction in carrying value of certain assets:
As a result of the Company's regular analysis of its transportation equipment
portfolio, no adjustments to the carrying value of equipment were made during
the quarter ended September 30, 1995. Valuation adjustments to the estimated net
realizable value of certain equipment totaling $4.2 million were made during the
quarter ended September 30, 1994, 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).
Interest expense:
Interest expense decreased $1.0 million (38%) during the quarter ended
September 30, 1995, compared to the same quarter in 1994, due to the reduction
in senior and subordinated debt levels in 1995 from the third quarter of 1994,
partially offset by increased interest rates.
Other income (expense), net:
Other income (expense), net was income of $0.6 million for the three months
ended September 30, 1995, which represented a receipt of an account receivable
from a previously bankrupt debtor. For the same quarter of 1994, other expense
of $2.6 million was due to the write-off of unamortized loan fees related to the
termination of the Company's ESOP and reductions in the carrying value of
certain marketable securities.
Interest income:
Interest income decreased $0.4 million (41%) in the quarter ended
September 30, 1995, compared to the same quarter in 1994 from a reduction in
interest income earned on the ESOP cash collateral account which existed prior
to the termination of the Company's ESOP at the end of 1994.
Income taxes:
For the three months ended September 30, 1995, the provision for income
taxes was $1.6 million, which represented an effective rate of 43%. For the same
quarter in 1994, the $3.5 million tax benefit reflected the benefit for the
Company's losses and the tax benefit on the ESOP dividend.
Net income (loss):
As a result of the foregoing, for the three months ended September 30,
1995 net income was $2.1 million resulting in net income per common share of
$0.18. For the same quarter in 1994, net loss was $5.2 million. In addition,
$0.6 million was required in 1994 for the imputed preferred dividend allocated
on ESOP shares resulting in a $5.8 million net loss to common shareholders, or
$0.46 loss per common share outstanding.
For the Nine Months Ended September 30, 1995 versus September 30, 1994
The following analysis reviews the operating results of the Company:
Revenue:
For the nine months
ended September 30,
1995 1994
-------------------------------
(in thousands)
Operating leases $ 17,942 $ 22,102
Management fees 8,231 8,342
Partnership interests and other fees 3,739 2,584
Acquisition and lease negotiation fees 4,797 2,219
Commissions 1,322 3,881
Aircraft brokerage and services 3,700 3,361
Gain (loss) on the sale or disposition of assets, net 5,911 (574)
Other 1,062 856
-------------------------------
Total revenues $ 46,704 $ 42,771
The fluctuations in revenues for the nine months ended September 30, 1995 from
the same period in 1994 are summarized and explained below.
Operating lease revenue:
For the nine months
ended September 30,
1995 1994
-------------------------------
(in thousands)
By equipment type or subsidiary:
Trailers $ 7,888 $ 10,700
Aircraft 4,587 7,115
Marine vessels 1,079 2,782
Marine containers 456 722
Storage vaults 763 557
Railcars 1,453 226
AFG 1,716 --
-------------------------------
$ 17,942 $ 22,102
As of September 30, 1995, the Company owned transportation equipment held for
operating leases with an original cost of $121.9 million, which was $58.2
million less than the original cost of equipment owned and held for operating
leases at September 30, 1994. The reduction in equipment, on an original cost
basis, is a consequence of the Company's strategic decision to dispose of
certain underperforming and nonperforming assets resulting in a 100% reduction
in its marine vessel fleet, a 54% net reduction in its marine container
portfolio, a 39% net reduction in its aircraft portfolio, a 13% net reduction in
its trailer portfolio, and a 48% net reduction in its railcar portfolio compared
to 1994. Operating lease revenue is also impacted by the level of assets held
for sale and the AFG lease originations which can earn lease revenue for the
Company.
The reduction in equipment available for lease is the primary reason marine
vessel, trailer, marine container, and aircraft revenue were all reduced as
compared to the prior year. The decrease in operating lease revenues as a result
of the reduction in equipment available for lease was partially offset by a $1.7
million increase in operating lease revenues generated by AFG-related leases, a
$1.2 million increase in railcar lease revenues, and a $0.2 million increase in
storage vault revenues. The increase in railcar revenue of $1.2 million for the
nine months is comprised primarily of revenues on railcars acquired by the
Company of which the majority have been sold to both affiliated programs and
third parties as of September 30, 1995. Storage vault revenue increased $0.2
million for the nine months ended September 30, 1995, compared to the same
period in the prior year, due to additions of $0.6 million in new storage vaults
made during the fourth quarter of 1994.
Management fees:
For the nine months Year
ended September 30, Liquidation
1995 1994 Phase Begins
------------------------------------------------------
(in thousands)
Management fees by fund were:
EGF I $ 1,014 $ 1,052 1998
EGF II 638 912 1999
EGF III 838 1,363 2000
EGF IV 806 963 1999
EGF V 1,354 1,505 2000
EGF VI 1,307 1,306 2002
EGF VII 663 311 2003
AFG programs 599 -- --
Other programs 1,012 930 --
--------------------------
$ 8,231 $ 8,342
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. The original cost of
the equipment under management, excluding equipment managed under the AFG
programs, (measured at original cost) amounted to $1.10 billion and $1.11
billion at September 30, 1995 and 1994, respectively. The decrease in management
fees of $0.1 million resulted from a decrease in management fees generated by
gross revenues of the equipment growth funds, which fell due to a net decrease
in managed equipment and a decrease in lease rates for certain types of
equipment, partially offset by $0.6 million increase from the January 1995
agreement with AFG to provide management services to their existing investor
programs and from a $0.2 million increase in management fees generated by the
new LLC program.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of
the Company's affiliated partnerships. The net earnings and distribution levels
from the affiliated partnerships were $3.7 million and $2.6 million for the
periods ended September 30, 1995 and 1994, respectively, which were impacted by
net increases/decreases in the Company's recorded residual values. In 1995, the
equity interest recorded was impacted by net increases of $1.2 million in the
Company's recorded residual values which included $1.5 million in residual
income recorded for the equipment purchased for the LLC, and $0.7 million in
residual income for the AFG programs, offset partially by a decrease in residual
income related to other existing programs. A net decrease in the recorded
residual values of $0.4 million was recorded for the same period in 1994.
Residual income is recognized on residual interests based upon the general
partners' share of the present value of the estimated disposition proceeds of
the equipment portfolios of the affiliated partnerships. Net decreases in the
recorded residual values result when partnership assets are sold and the
reinvestment proceeds are less than the original investment in the sold
equipment. During the nine months ended September 30, 1994, the Company also
recorded $0.2 million in debt financing fees earned for debt placed in
affiliated partnerships.
Acquisition and lease negotiation fees:
During the nine months ended September 30, 1995, a total of $69.8 million of
equipment was purchased on behalf of the equipment growth funds compared to
$40.9 million during the same period in 1994, resulting in an increase in
acquisition and lease negotiation fees of $1.6 million. In addition, $1.0
million in acquisition and lease negotiation fees were generated by AFG-related
purchases during the nine months ended September 30, 1995. There were no
AFG-related transactions during the same period in 1994. As a result of the
Company's decision to market a new investment program with a no front-end fee
structure, acquisition and lease negotiation fees will be significantly reduced
in the future unless a new program with a front-end fee structure is brought to
market.
Commissions:
Commission revenue represents syndication placement fees, generally 9%
of equity raised for the equipment growth funds, earned upon the sale of
partnership units to investors. During the nine months ended September 30, 1995,
program equity raised for the equipment growth funds totaled $14.6 million
compared to $43.5 million during the same period during 1994, resulting in a
decrease in placement commissions of $2.6 million. The Company closed EGF VII
syndication activities on April 30, 1995. As a result of the Company's decision
to market a new investment program with a no front-end fee structure, which
raised $43.1 million in equity during the nine months ended September 30, 1995,
commission revenue will be eliminated unless a new program with a front-end fee
is brought to market.
Aircraft brokerage and services:
Aircraft brokerage and services revenue increased $0.3 million during
the nine months ended September 30, 1995, compared to the same period of 1994.
The increase represents revenue earned by Aeromil Australia, the Company's
aircraft leasing, spare parts brokerage, and related services subsidiary,
acquired in February 1994.
Gain (loss) on the sale or disposition of assets, net:
The $5.9 million net gain recorded during the nine months ended
September 30, 1995 included gains from the sale of three option contracts for
railcar equipment, and the disposition of one marine vessel, 578 marine
containers, two commercial aircraft, two commuter aircraft, four helicopters,
307 railcars, 22 storage vaults and 326 trailers. Additionally, during the nine
months ended September 30, 1995, the Company purchased three commuter aircraft
and sold them for an aggregate gain of $0.5 million, net of selling costs. The
$0.6 million net loss for the same period in 1994 resulted from the sale or
disposition of trailers and marine containers.
Other:
Other revenues increased $0.2 million in the nine months ended
September 30, 1995, from the same period in 1994, due to an increase in revenue
earned for data processing services provided to the Company's affiliated
programs.
Costs, Expenses and Other:
For the nine months
ended September 30,
1995 1994
-------------------------------
(in thousands)
Operations support $ 18,602 $ 17,731
Depreciation and amortization 6,491 9,411
Commissions 1,417 4,067
General and administrative 7,646 7,861
Reduction in carrying value of certain assets -- 4,247
Interest expense 5,540 7,310
Other income (expense), net 537 (2,349)
Interest income 1,491 2,643
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 $0.9 million (5%) for the nine months ended September 30, 1995, from
the same period in 1994. The increase resulted from $3.5 million in costs
associated with the operation of AFG, a $0.6 million increase in accrued
compensation expense primarily to compensate employees for lost benefits
resulting from the termination of the Company's 401(k) plan, and a $0.6 million
increase in Aeromil expenses due to higher operational expenses and revenues in
the current year, offset partially by a $2.1 million decrease in operating costs
and repair and maintenance expenses due to the sale of the entire owned marine
vessel portfolio and other equipment, a $0.8 million decrease in the provision
for bad debts, and a $0.9 million decrease in compensation expenses booked in
1994 related to the adoption of SOP 93-6.
Depreciation and amortization:
Depreciation and amortization expense decreased $2.9 million (31%) for
the nine months ended September 30, 1995, as compared to the nine months ended
September 30, 1994. The decrease resulted from the reduction in depreciable
equipment discussed in the operating lease revenue section.
Commissions:
Commission expenses are primarily incurred by the Company in connection
with the syndication of investment partnerships and represent payments to
brokers and financial planners for sales of investment program units.
Commissions are also paid to certain of the Company's employees directly
involved in syndication and leasing activities. Historically, commission costs
related to the equipment growth funds have been expensed as incurred. Since
syndication efforts related to EGF VII have ended, commission expense for the
nine months ended September 30, 1995 decreased $2.7 million (65%) from the same
period in 1994. Commission costs related to the LLC will be capitalized as part
of the Company's investment in the LLC program as equity is raised for the LLC
and commissions paid.
General and administrative:
General and administrative expenses decreased $0.2 million (3%) during
the nine months ended September 30, 1995, compared to the same period in 1994.
The decrease resulted from a decrease in professional services and fees, offset
partially by an increase in accrued compensation expense primarily to compensate
employees for lost benefits resulting from the termination of the Company's
401(k) plan.
Reduction in carrying value of certain assets:
As a result of the Company's regular analysis of its transportation equipment
portfolio, no adjustments in the carrying value of equipment were made in 1995.
Valuation adjustments to the estimated net realizable value of certain equipment
totaling $4.2 million were made in 1994, 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).
Interest expense:
Interest expense decreased $1.8 million (24%) during the nine months
ended September 30, 1995, compared to the same period in 1994 due to the
reduction in senior and subordinated debt levels in 1995 from the same period in
1994, partially offset by increased interest rates.
Other income (expense), net:
Other income (expense), net was income of $0.5 million in the nine
months ended September 30, 1995 mainly due to receipt of an account receivable
from a previously bankrupt debtor. For the same period in 1994, other expense of
$2.3 million was due to the write-off of unamortized loan fees related to the
termination of the Company's ESOP and a reduction in the carrying value of
certain marketable securities.
Interest income:
Interest income decreased $1.2 million (44%) in the nine months ended
September 30, 1995, compared to the same period in 1994 from a reduction in
interest income earned on the ESOP cash collateral account which existed prior
to the termination of the Company's ESOP at the end of 1994.
Income taxes:
For the nine months ended September 30, 1995, the provision for income
taxes was $3.9 million, which represented an effective rate of 43%. For the same
period in 1994, the $4.0 million tax benefit reflected the benefit for the
Company's losses and the tax benefit on the ESOP dividend.
Cumulative effect of accounting change:
The adoption of SOP 93-6 in the nine months ended September 30, 1994,
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 Statements of Operations.
Net income (loss):
As a result of the foregoing, for the nine months ended September 30,
1995 net income was $5.2 million resulting in net income per common share of
$0.44. For the same period in 1994, net loss was $8.7 million. In addition, $1.7
million was required in 1994 for the imputed preferred dividend allocated on
ESOP shares resulting in a $10.4 million net loss to common shareholders, or
$0.83 loss per common share outstanding.
Liquidity and Capital Resources:
Cash requirements historically have been satisfied through cash flow
from operations, borrowings, or sales of transportation equipment.
Liquidity in 1995 will depend, in part, on continued remarketing of the
equipment portfolio at similar lease rates, management of existing and newly
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 $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 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.
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.
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 September 27, 1995. The amendment extended the
facility until September 30, 1996, and provides for a $5.0 million letter of
credit facility as part of the $25.0 million facility.
This facility, which is shared with EGFs II, III, IV, V, VI, VII and
the LLC, 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 if the
Company is the borrower and working capital is used for the nonfinanced costs of
these acquisitions. The Company can hold assets under this bridge facility for
up to 150 days. Interest accrues at prime or LIBOR plus 2.5% at the option of
the borrower at the time of the advance under the facility. As provided for in
the program offering documents, the Company retains the net lease revenue earned
and pays the carrying costs incurred during the interim holding period since its
capital is at risk. As of November 1, 1995, the Company had no borrowings and
EGFs VI and VII had $1.7 million and $9.6 million in borrowings, respectively.
Subordinated Debt: The Company is in negotiations with its subordinated
debt lender to prepay a portion of the notes in 1995. If successful, the
Company's liquidity will be negatively impacted in the short term with a
subsequent cash flow increase due to reduced interest costs.
Securitized Debt: The Company has entered into a securitization
facility to borrow up to $80 million on a non-recourse basis for a one year
period that will be secured primarily by finance type leases which generally
have terms of four to five years. The securitized debt is expected to bear
interest at treasury rate plus 1%. As of November 1,1995, there were no
borrowings on this facility.
(b) Portfolio Activities:
During the nine months ended September 30, 1995, the Company generated
proceeds of $7.4 million from the sale of equipment for lease. These net
proceeds were placed in a collateral account as required by the senior secured
term loan agreement. In March 1995, the lender consented to the Company's
request to release $10.8 million in funds from the cash collateral account
primarily relating to asset sales in 1994. The request to release funds and the
subsequent approval were based on the appraised fair market value of the
equipment portfolio and the related collateral coverage ratio.
Over the last three years, the Company has downsized the equipment
portfolio through the sale or disposal of underperforming and nonperforming
assets. The Company will continue to identify underperforming and nonperforming
assets for sale or disposal as necessary.
(c) Syndication Activities:
The Company earned fees from syndication activities related to EGF VII
during the first four months of 1995. Total equity raised since inception for
this partnership was $107.4 million through April 30, 1995 when the program
closed. There will be no more equity raised for this partnership.
The overall limited partnership syndication market has been
contracting. The Company's management is concerned with the continued
contraction of the equipment leasing syndication market and its effect on the
volume of partnership equity that can be raised. The Company's newly registered
and currently marketed no front-end fee syndication product (LLC) was developed
to capture a larger share of the syndication market. The no front-end fee
structure of the LLC requires the Company to pay offering and organizational
costs, including payment of broker-dealer commissions, as syndicated equity is
raised. In previous investor programs sponsored by the Company, most offering
and organizational expenses were reimbursed to the Company. Since May 1995
through October 31, 1995, the LLC has raised 43 million in equity investment
from the public. This is 89% higher than the equity raised for EGF VII during
the same period of 1994. Though the Company receives a higher share of LLC
distributions versus its share of Equipment Growth Fund program distributions,
the no front-end fee investments required by the Company in the form of expense
payments on behalf of the LLC will negatively impact the Company's liquidity
during the investment phase of the program.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 1 of Notes to Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 Amended and restated Warehousing Credit Agreement,
dated as of September 27, 1995.
10.2 Asset Purchase Agreement, dated as of July 1, 1995.
10.3 Pooling and Servicing Agreement and Indenture of Trust,
dated as of July 1, 1995.
(B) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
/s/ David J. Davis
------------------
David J. Davis
Vice President and Corporate
Controller
Date: November 1, 1995