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, 1997
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 800, 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 October 24, 1997 - 9,046,200 shares.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
------------------------------------------------------------
Revenues:
Operating leases $ 4,429 $ 4,351 $ 12,087 $ 13,508
Finance lease income 2,638 1,532 6,436 2,578
Management fees 2,792 2,752 8,450 8,198
Partnership interests and other fees 162 1,430 1,155 2,722
Acquisition and lease negotiation fees 986 2,596 1,749 5,260
Aircraft brokerage and services 479 621 1,814 2,037
Gain on the sale or disposition of assets, net 649 257 3,250 2,050
Other 794 521 2,329 1,664
------------------------------------------------------------
Total revenues 12,929 14,060 37,270 38,017
------------------------------------------------------------
Costs and expenses:
Operations support 3,901 4,938 12,123 16,159
Depreciation and amortization 2,315 2,887 6,661 8,503
General and administrative 2,709 2,250 7,435 6,009
------------------------------------------------------------
Total costs and expenses 8,925 10,075 26,219 30,671
------------------------------------------------------------
Operating income 4,004 3,985 11,051 7,346
Interest expense (2,466 ) (2,117 ) (7,460 ) (5,100 )
Interest income 390 368 1,228 891
Other income (expense), net 15 (738 ) (9 ) (348 )
------------------------------------------------------------
Income before income taxes 1,943 1,498 4,810 2,789
Provision for income taxes 624 133 1,562 371
------------------------------------------------------------
Net income to common shares $ 1,319 $ 1,365 $ 3,248 $ 2,418
============================================================
Earnings per weighted-average common share
outstanding $ 0.14 $ 0.14 $ 0.34 $ 0.23
============================================================
See accompanying notes to these consolidated financial
statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
September 30, December 31,
1997 1996
------------------------------------------
ASSETS
Cash and cash equivalents $ 6,145 $ 7,638
Receivables 5,976 5,286
Receivables from affiliates 4,938 6,019
Investment in direct finance leases, net 80,417 69,994
Loans receivable 5,002 5,718
Equity interest in affiliates 27,716 30,407
Assets held for sale 520 6,222
Transportation equipment held for operating leases 58,556 66,546
Less accumulated depreciation (34,124 ) (41,750 )
----------------------------------------
24,432 24,796
Commercial and industrial equipment held for
operating leases 15,770 15,930
Less accumulated depreciation (4,113 ) (2,302 )
----------------------------------------
11,657 13,628
Restricted cash and cash equivalents 18,164 17,828
Other, net 10,056 11,213
----------------------------------------
Total assets $ 195,023 $ 198,749
========================================
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term secured debt $ - $ 30,966
Senior secured loan 22,059 25,000
Senior secured notes 25,098 18,000
Other secured debt 474 618
Nonrecourse securitization facility 68,507 45,392
Payables and other liabilities 12,922 16,757
Deferred income taxes 16,735 15,334
----------------------------------------
Total liabilities 145,795 152,067
Minority interest 349 362
Shareholders' equity:
Common stock ($0.01 par value, 50,000,000 shares
authorized, 9,047,566 issued and outstanding at
September 30, 1997 and 9,142,761 at December 31, 1996) 117 117
Paid-in capital, in excess of par 77,778 77,778
Treasury stock (3,548,825 and 3,453,630 shares at
respective dates) (12,918 ) (12,382 )
----------------------------------------
64,977 65,513
Accumulated deficit (16,098 ) (19,193 )
----------------------------------------
Total shareholders' equity 48,879 46,320
----------------------------------------
Total liabilities, minority interest, and shareholders' equity $ 195,023 $ 198,749
========================================
See accompanying notes to these consolidated financial
statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY For the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997
(in thousands)
Common Stock
-----------------------------------------
Paid-in
Capital in Total
At Excess Treasury Accumulated Shareholders'
Par of Par Stock Deficit Equity
-------------------------------------------------------------------------------
Balances, December 31, 1995 $ 117 $ 77,743 $ (5,931 ) $ (23,309 ) $48,620
Net income 4,095 4,095
Common stock repurchases (6,451 ) (6,451 )
Exercise of stock options 35 35
Translation gain 21 21
-------------------------------------------------------------------------------
Balances, December 31, 1996 117 77,778 (12,382 ) (19,193 ) 46,320
Net income 3,248 3,248
Common stock repurchases (775 ) (775 )
Reissuance of treasury stock 239 (38 ) 201
Redemption of shareholder rights (92 ) (92 )
Translation loss (23 ) (23 )
===============================================================================
Balances, September 30, 1997 $ 117 $ 77,778 $ (12,918 ) $ (16,098 ) $48,879
===============================================================================
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,
1997 1996
-------------------------------
Operating activities:
Net income $ 3,248 $ 2,418
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,661 8,503
Foreign currency translation (23 ) 68
Increase in deferred income taxes 1,401 348
Gain on sale or disposition of assets, net (3,250 ) (2,050 )
Undistributed residual value interests 508 (405 )
Minority interest in net (loss) income of subsidiaries (13 ) 9
Decrease in payables and other liabilities (662 ) (1,966 )
Decrease in receivables and receivables from affiliates 391 3,260
Cash distributions from affiliates in excess of income accrued 2,183 2,086
Decrease (increase) in other assets 757 (368 )
-------------------------------
Net cash provided by operating activities 11,201 11,903
-------------------------------
Investing activities:
Additional investment in affiliates - (4,972 )
Principal payments received on finance leases 12,627 2,603
Principal payments received on loans 1,493 -
Investment in direct finance leases (60,996 ) (57,295 )
Investment in loans receivable (777 ) (3,006 )
Purchase of equipment (40,459 ) (40,759 )
Proceeds from the sale of transportation equipment for lease 10,761 7,288
Proceeds from the sale of assets held for sale 24,710 2,052
Proceeds from the sale of commercial and industrial equipment 44,988 35,902
Sale of investment in subsidiary - 372
Increase in restricted cash and restricted cash equivalents (336 ) (11,066 )
-------------------------------
Net cash used in investing activities (7,989 ) (68,881 )
-------------------------------
(continued)
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,
1997 1996
--------------------------------
Financing activities:
Borrowings of short-term secured debt $ 76,427 59,390
Repayment of short-term secured debt (107,393 ) (31,599 )
Repayment of senior secured loan (2,941 ) -
Proceeds from other secured debt - 90
Repayment of other secured debt (144 ) (39 )
Borrowings under senior secured notes 9,000 18,000
Repayment of senior secured notes (1,902 ) -
Borrowings under securitization facility 36,055 29,989
Repayment of securitization facility (12,940 ) (7,681 )
Repayment of subordinated debt - (11,500 )
Purchase of treasury stock (775 ) (6,451 )
Redemption of shareholder rights (92 ) -
Proceeds from exercise of stock options - 35
----------------------------------
Net cash (used in) provided by financing activities (4,705 ) 50,234
----------------------------------
Net decrease in cash and cash equivalents (1,493 ) (6,744 )
Cash and cash equivalents at beginning of period 7,638 13,764
==================================
Cash and cash equivalents at end of period $ 6,145 $ 7,020
==================================
Supplemental information - net cash paid for:
Interest $ 7,088 $ 4,188
==================================
Income taxes $ 759 $ 1,285
==================================
See accompanying notes to these consolidated financial
statements.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
1. General
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary, consisting primarily of normal
recurring accruals, to present fairly PLM International, Inc.'s (the Company's)
financial position as of September 30, 1997 and December 31, 1996; statements of
income for the three and nine months ended September 30, 1997 and 1996;
statements of changes in shareholders' equity for the year ended December 31,
1996 and the nine months ended September 30, 1997; and statements of cash flows
for the nine months ended September 30, 1997 and 1996. 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, 1996, on file with the Securities and Exchange Commission.
2. Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which requires the Company to replace its presentation of
primary earnings per share with a presentation of basic earnings per share, and
requires dual presentation of basic and diluted earnings per share on the face
of the income statement. The principal difference between primary earnings per
share under current accounting standards and basic earnings per share under the
new statement is that basic earnings per share does not consider common stock
equivalents such as stock options and warrants. Diluted earnings per share under
the new statement will include potential dilution of convertible securities,
stock options, and warrants. The statement is effective for the Company's first
quarter of fiscal 1998 and requires restatement of all prior periods presented.
Under the new statement, basic earnings per share would have been $0.14 and
$0.15 for the three months ended September 30, 1997 and 1996, respectively, and
$0.35 and $0.23 for the nine months ended September 30, 1997 and 1996,
respectively. Under the new statement, diluted earnings per share for those
periods would have been the same as net income per common and common equivalent
share presented on the income statement.
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Company's fiscal year 1999 with earlier
application permitted. The effect of adoption of these statements will be
limited to the form and content of the Company's disclosures and will not impact
the Company's results of operations, cash flow, or financial position.
3. Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
4. Financing Transaction Activities
The Company's wholly-owned subsidiary, American Finance Group, Inc. (AFG),
originates and manages lease and loan transactions on primarily new commercial
and industrial equipment. While the majority of these leases are accounted for
as finance leases, some are accounted for as loans or operating leases. During
the nine months ended September 30, 1997, the Company funded $61.0 million in
equipment that was placed on finance lease. Also during the nine months ended
September 30, 1997, the Company sold equipment on finance lease with an original
equipment cost of $37.3 million, resulting in a net gain of $1.7 million. During
the nine months ended September 30, 1997, the Company funded loans of $0.8
million that were secured by commercial and industrial equipment.
5. Equipment
Equipment held for operating lease includes transportation equipment, which is
depreciated over its estimated useful lives, and commercial and industrial
equipment, which is depreciated over the lease term to an estimated residual.
During the nine months ended September 30, 1997, the Company funded $8.9 million
in commercial and industrial equipment, which was placed on operating lease.
During the nine months ended September 30, 1997, the Company sold commercial and
industrial equipment that was on operating lease with an original cost of $7.5
million for a net gain of $0.2 million.
The Company classifies assets as held for sale if the particular asset is
subject to a pending contract for sale or is held for sale to an affiliated
partnership. Equipment held for sale is valued at the lower of the depreciated
cost or the fair value less costs to sell. As of December 31, 1996, the Company
had a 25.5% interest in a mobile offshore drilling unit (rig) with a net book
value of $5.1 million that was held for sale to an affiliated program. Also as
of December 31, 1996, two commuter aircraft with a combined net book value of
$1.1 million were held for sale. The rig was sold to an affiliated program at
its original cost in March 1997. The two commuter aircraft were sold in February
1997 for their approximate net book value to an unaffiliated third party.
During the first nine months of 1997, the Company purchased a mobile offshore
drilling unit for $10.5 million and a marine vessel for $19.0 million, which
were resold to affiliated programs at cost. Also during the nine months ended
September 30, 1997, the Company purchased two commercial aircraft for $5.0
million and trailers for $6.1 million. The aircraft were subsequently sold to an
unaffiliated third party for a gain of $0.8 million. Other transportation
equipment was sold for net gains of $0.6 million during the nine months ended
September 30, 1997. As of September 30, 1997, the Company had one commuter
aircraft with a net book value of $0.5 million held for sale to a third party.
Periodically, the Company purchases groups of assets whose ownership may be
allocated among affiliated programs and the Company. Generally in these cases,
only assets that are on lease are purchased by affiliated programs. The Company
generally assumes the ownership and remarketing risks associated with off-lease
equipment. Allocation of the purchase price is determined by a combination of
third-party industry sources, recent transactions, and published fair market
value references. During the nine months ended September 30, 1996, the Company
realized $0.7 million of gains from the sale of 69 railcars to an unaffiliated
third party. These railcars were originally purchased as part of a group of
assets by the Company in 1994 that had been allocated to PLM Equipment Growth
Funds (EGFs) IV and IV, PLM Equipment Growth & Income Fund VII (EGF VII),
Professional Lease Management Income Fund I, LLC (Fund I), and the Company.
6. Debt
Assets acquired and held on an interim basis for placement with affiliated
partnerships or purchased for placement in the Company's securitization facility
have, from time to time, been partially funded by a $50.0 million short-term
secured debt facility. The Company amended this facility on October 3, 1997 to
extend its availability until November 3, 1997. The facility, which is shared
with EGFs IV, V, VI, and VII, and Fund I, allows the Company to purchase
equipment prior to its designation to a specific program or partnership. As of
September 30, 1997, the Company had no borrowings under this facility and EGFs V
and VI had $9.1 million and $10.0 million in borrowings, respectively. All
borrowings under this facility are guaranteed by the Company. The Company
believes it will be able to extend the facility prior to its expiration on
similar terms.
The Company has available a securitization facility to be used to acquire assets
on a nonrecourse basis, secured by direct finance leases, operating leases, and
loans on commercial and industrial equipment that generally have terms from two
to seven years. The Company amended this facility on October 14, 1997,
increasing the facility from $80.0 million to $125.0 million and extending the
availability of the facility until October 13, 1998. As of September 30, 1997,
outstanding borrowings totaled $68.5 million under this facility, payable
through 2004.
7. Shareholders' Equity
On March 3, 1997, the Company announced that the Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
As of September 30, 1997, 155,198 shares had been repurchased under this plan,
for a total of $0.8 million.
During the nine months ended September 30, 1997, 60,003 shares (net of forfeited
shares) were issued from treasury stock as part of the senior management bonus
program. During the nine months ended September 30, 1997, 155,198 shares were
repurchased. Consequently, the total common shares outstanding decreased to
9,047,566 as of September 30, 1997 from the 9,142,761 outstanding as of December
31, 1996. Net income per weighted-average common share outstanding was computed
by dividing net income to common shares by the weighted-average number of shares
deemed outstanding during the period. The weighted-average number of shares
deemed outstanding for the earnings-per-share calculation during the three
months ended September 30, 1997 and 1996 was 9,405,003 and 9,505,195,
respectively. The weighted-average number of shares deemed outstanding for the
earnings-per-share calculation during the nine months ended September 30, 1997
and 1996 was 9,419,206 and 10,499,605, respectively.
On March 12, 1989, the Company distributed rights as a dividend on each
outstanding share of common stock. Upon the occurrence of certain events,
characterized as unsolicited or abusive attempts to acquire control of the
Company, the rights would have become exercisable. On June 10, 1997, the Company
announced the redemption of these rights for $0.01 per right. Shareholders of
record as of June 24, 1997 were paid a total of $0.1 million for the redemption
of these rights on July 24, 1997.
8. Legal Matters
As more fully described by the Company in its Form 10-K for the year ended
December 31, 1996, in November 1995, a former employee of PLM International
filed and served a first amended complaint (the Complaint) in the United States
District Court for the Northern District of California (Case No. C-95-2957 MMC)
against the Company, the PLM International, Inc. Employee Stock Ownership Plan
(ESOP), the ESOP's trustee, and certain individual employees, officers, and
directors of the Company. In January 1996, PLMI and other defendants filed a
motion to dismiss the Complaint for lack of subject matter jurisdiction, arguing
the plaintiff lacked standing. The motion was granted and on May 30, 1996, the
Court entered a judgment dismissing the Complaint for lack of subject matter
jurisdiction. Plaintiff appealed to the U.S. Court of Appeals for the Ninth
Circuit, seeking a reversal of the District Court's judgment, and oral argument
was heard on September 17, 1997. The Company is currently waiting for the 9th
Circuit court's decision in this matter.
As more fully described by the Company in its Form 10-K for the year ended
December 31,1996, the Company and various of its affiliates are named as
defendants in a lawsuit filed as a class action on January 22, 1997 in the
Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch
action). On March 6, 1997, the defendants removed the Koch action from the state
court to the United States District Court for the Southern District of Alabama,
Southern Division (Civil Action No. 97-0177-BH-C), following which plaintiffs
filed a motion to remand the action to the state court. On September 24, 1997,
the district court denied plaintiffs' motion and dismissed without prejudice the
individual claims of the California class representative, reasoning that he had
been fraudulently joined as a plaintiff. On October 3, 1997, plaintiffs filed a
motion requesting that the district court reconsider its ruling, or in the
alternative, that the court modify its order dismissing the California
plaintiff's claims so that it is a final appealable order, as well as certify
for an immediate appeal to the Eleventh Circuit Court of Appeals that part of
its order denying plaintiffs' motion to remand. On October 7, 1997, the district
court denied each of these motions. On October 10, 1997, defendants filed a
motion to compel arbitration of plaintiffs' claims and to stay further
proceedings pending the outcome of such arbitration. The Company believes that
the allegations of the Koch action are completely without merit and intends to
defend this matter vigorously.
8. Legal Matters (continued)
On June 5, 1997, the Company and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action filed in
the San Francisco Superior Court, San Francisco, California, Case No. 987062
(the Romei action). The named plaintiff has alleged the same facts and the same
nine causes of action as is in the Koch action (as described in the Company's
Form 10-K for the year ended December 31, 1996), plus five additional causes of
action against all of the defendants, as follows: violations of California
Business and Professions Code Sections 17200, et seq. for alleged unfair and
deceptive practices, a claim for constructive fraud, a claim for unjust
enrichment, a claim for violations of California Corporations Code Section 1507,
and a claim for treble damages under California Civil Code Section 3345. The
plaintiff is an investor in PLM Equipment Growth Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in certain California limited partnerships sponsored by PLM Securities,
for which PLM Financial Services, Inc. acts as the general partner, including
PLM Equipment Growth Funds IV, V, and VI, and PLM Equipment Growth & Income Fund
VII.
The Company and the other defendants removed the Romei action to the United
States District Court for the Northern District of California (Case No.
C-97-2450 SC) on June 30, 1997, based on the federal court's diversity
jurisdiction. The defendants then filed a motion to compel arbitration of the
plaintiffs' claims, based on an agreement to arbitrate contained in the PLM
Equipment Growth Fund V limited partnership agreement, to which plaintiff is a
party. Pursuant to an agreement with plaintiff, the Company and the other
defendants withdrew their petition for removal of the Romei action and their
motion to compel arbitration, and on July 31, 1997, filed with the district
court for the Northern District of California (Case No. C-97-2847 WHO) a
petition under the Federal Arbitration Act seeking to compel arbitration of
plaintiff's claims and for an order staying the state court proceedings pending
the outcome of the arbitration. In connection with this agreement, plaintiff
agreed to a stay of the state court action pending the district court's decision
on the petition to compel arbitration. On October 7, 1997, the district court
denied the Company's petition to compel and indicated that a memorandum decision
would follow. To date such memorandum setting forth the court's reason(s) for
denying the petition has not been filed by the district court. On August 22,
1997, the plaintiff filed an amended complaint with the state court alleging two
new causes of action for violations of the California Securities Law of 1968
(California Corporations Code Sections 25400 and 25500), and for violation of
California Civil Code Section 1709 and 1710. The Company will soon be required
to respond to the amended complaint, and a status conference has been set for
December 5, 1997. The Company believes that the allegations of the amended
complaint in the Romei action are completely without merit and intends to defend
this matter vigorously.
The Company is involved as plaintiff or defendant in various other 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.
9. Purchase Commitments
As of September 30, 1997, the Company, through its AFG subsidiary, had committed
to purchase $102.5 million of equipment for its commercial and industrial
equipment lease portfolio, to be held by the Company or sold to the Company's
institutional leasing investment program or to third parties.
From October 1, 1997 to October 24, 1997, the Company, through its AFG
subsidiary, funded $5.4 million of the commitments outstanding as of September
30, 1997 for its commercial and industrial equipment lease portfolio.
As of October 24, 1997, the Company had committed to purchase $145.3 million of
equipment for its commercial and industrial equipment lease portfolio.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
A major activity of the Company is the funding and management of longer-term
direct finance leases, operating leases, and loans through its American Finance
Group, Inc. (AFG) subsidiary. Master lease agreements are entered into with
predominately investment-grade lessees and serve as the basis for marketing
efforts. The underlying assets represent a broad range of commercial and
industrial equipment, such as data processing, communications, materials
handling, and construction equipment. Through AFG, the Company is also engaged
in the management of an institutional leasing investment program for which it
originates leases and receives acquisition and management fees.
The Company operates 10 trailer rental facilities that engage in short-term and
mid-term operating leases. Equipment operated in these facilities consists of
dry van trailers leased to a variety of customers and refrigerated trailers used
primarily in the food distribution industry. The Company is selling certain of
its older trailers and is replacing them with new or late-model used trailers.
The Company has syndicated investment programs from which it earns various fees
and equity interests. The Professional Lease Management Income Fund I, LLC (Fund
I) was structured as a limited liability company with a no front-end fee
structure. The previously syndicated limited partnership programs allowed the
Company to receive fees for the acquisition and initial lease of the equipment.
The Fund I program does not provide for acquisition and lease negotiation fees.
The Company invests the equity raised through syndication in transportation
equipment, which it then manages on behalf of the investors. The equipment
management activities for these types of programs generate equipment management
fees for the Company over the life of a 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 a partnership, subject to
certain allocation provisions. The Fund I agreement entitles the Company to a
15% interest in the cash distributions and earnings of a program, subject to
certain allocation provisions, which will increase to 25% after the investors
have received distributions equal to their original invested capital.
On May 14, 1996, the Company announced the suspension of public
syndication of equipment leasing programs with the May 13, 1996 close of Fund I.
As a result of this decision, revenues earned from managed programs, which
include management fees, partnership interests and other fees, and acquisition
and lease negotiation fees, will be reduced in the future as the older programs
begin liquidation and the managed equipment portfolio becomes permanently
reduced.
The Company also owns a portfolio of transportation equipment, in addition to
the dry van and refrigerated over-the-road trailers mentioned above, from which
it earns operating lease revenue and incurs operating expenses. The Company's
transportation equipment held for operating lease, which consists of aircraft,
marine containers, intermodal trailers, and storage equipment as of September
30, 1997, is equipment mainly built prior to 1988. As equipment ages, the
Company continues to monitor the performance of its assets on lease and the
current market conditions for leasing equipment in order to seek the best
opportunities for investment. Failure to replace equipment may result in shorter
lease terms, higher costs of maintaining and operating aged equipment, and, in
certain instances, limited remarketability.
For the Three Months Ended September 30, 1997 versus September 30, 1996
The following analysis reviews the operating results of the Company:
Revenues
For the Three Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Operating leases $ 4,429 $ 4,351
Finance lease income 2,638 1,532
Management fees 2,792 2,752
Partnership interests and other fees 162 1,430
Acquisition and lease negotiation fees 986 2,596
Aircraft brokerage and services 479 621
Gain on the sale or disposition of assets, net 649 257
Other 794 521
-----------------------------------------
Total revenues $12,929 $14,060
The fluctuations in revenues for the three months ended September 30, 1997,
compared to the same period in 1996, are summarized and explained below.
Operating lease revenues by equipment type:
For the Three Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Trailers $2,187 $1,807
Commercial and industrial equipment 1,510 1,071
Marine vessel 501 -
Storage equipment 95 276
Aircraft 69 1,111
Marine containers 61 70
Railcars 6 16
-----------------------------------------
Total operating lease revenues $4,429 $4,351
Operating lease revenues include revenues generated from assets held for
operating leases and assets held for sale that are on lease. As of September 30,
1997, the Company owned transportation equipment held for operating lease or
held for sale with an original cost of $60.9 million, which was $31.9 million
less than the original cost of transportation equipment owned and held for
operating lease or held for sale as of September 30, 1996. The reduction in
equipment, on an original cost basis, is a consequence of the Company's
strategic decision to dispose of certain underperforming transportation assets,
and resulted in an 81% net reduction in its aircraft portfolio and a 25% net
reduction in its marine container portfolio, compared to these portfolios as of
September 30, 1996. The reduction in transportation equipment available for
lease is the primary reason aircraft and marine container revenues were reduced,
compared to the prior year. The $0.2 million decrease in storage equipment lease
revenue is due to an agreement the Company entered into in January 1997 to lease
all of its storage equipment assets to a third party on a triple-net operating
lease, as opposed to short-term operating leases, resulting in both lower
storage equipment operating lease revenues and operating expenses.
The decrease in operating lease revenues as a result of the reduction in
transportation equipment available for lease and the storage equipment agreement
was partially offset by a $0.4 million increase in operating lease revenues as a
result of an increase in commercial and industrial equipment owned and
on operating lease and by a $0.4 million increase in trailer lease revenues as a
result of higher lease rates received on new trailer additions. In addition,
during the third quarter of 1997, the Company owned a 47.5% interest in an
entity that owns a marine vessel, which generated $0.5 million in lease revenue.
Finance lease income:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary that are either retained for long-term investment or sold to third
parties or to an institutional leasing investment program. Finance lease income
increased $1.1 million in the third quarter of 1997, compared to the same period
in 1996, reflecting an increase in commercial and industrial assets owned and on
finance lease. For the quarter ended September 30, 1997, the average investment
in direct finance leases was $73.5 million, compared to $38.9 million for the
third quarter of 1996.
Management fees:
Management fees are, for the most part, based on the gross revenues
generated by equipment under management. Management fees were $2.8 million for
both the quarters ended September 30, 1997 and 1996. Although management fees
related to Fund I and the institutional leasing investment program managed by
the Company's AFG subsidiary increased, this increase was offset by a decline in
management fees from the remaining older programs due to a decrease in managed
equipment and due to lower lease rates. With the termination of syndication
activities in 1996, management fees are expected to decrease in the future as
the older programs begin liquidation and the managed equipment portfolio becomes
permanently reduced. This decrease has been and is expected to continue to be
offset, in part, by management fees earned from the institutional leasing
investment program managed by the Company's AFG subsidiary.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $0.5 million and $0.6 million for the quarters ended
September 30, 1997 and 1996, respectively. In addition, a decrease of $0.3
million in the Company's residual interests in the programs was recorded during
the quarter ended September 30, 1997. A net increase of $0.8 million in the
Company's residual interests in the programs was recorded during the quarter
ended September 30, 1996. Residual income is based on the general partner's
share of the present value of the estimated disposition proceeds of the
equipment portfolio of affiliated partnerships when the equipment is purchased.
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, 1997, the Company, on behalf of the
equipment growth funds, purchased trailer equipment and a 47.5% interest in an
entity that owns a marine vessel for $12.7 million, compared to $45.1 million of
equipment purchased on behalf of the equipment growth funds during the same
quarter of the prior year, resulting in a $1.8 million decrease in acquisition
and lease negotiation fees. Also during the quarter ended September 30, 1997,
equipment purchased for the institutional leasing investment program managed by
AFG was $10.2 million, compared to $4.3 million for the same period in 1996,
resulting in an increase in acquisition and lease negotiation fees of $0.2
million. Because of the Company's decision to suspend syndication of equipment
leasing programs with the close of Fund I on May 13, 1996, and because Fund I
has a no front-end fee structure, acquisition and lease negotiation fees will be
substantially reduced in the future.
Aircraft brokerage and services:
Aircraft brokerage and services revenue, which represents revenue
earned by Aeromil Holdings, Inc., the Company's aircraft leasing and spare parts
brokerage subsidiary, decreased $0.1 million during the quarter ended September
30, 1997, compared to the same period of the prior year, due to a decrease in
spare parts sales.
Gain on the sale or disposition of assets, net:
During the quarter ended September 30, 1997, the Company recorded a
$0.6 million net gain on the sale of commercial and industrial equipment. During
the quarter ended September 30, 1996, the Company recorded a $0.3 million net
gain on the sale or disposition of assets. Of this gain, $0.4 million resulted
from the sale or disposition of trailers, marine containers, a commuter
aircraft, railcars, and storage units, and $0.3 million related to the sale of
commercial and industrial equipment. These gains were partially offset by a $0.4
million adjustment to decrease the estimated net realizable value of certain
aircraft.
Other:
Other revenue increased $0.3 million during the quarter ended September
30, 1997, compared to the same period of the prior year, due to increased
revenue earned from financing income and brokerage fees.
Costs and Expenses
For the Three Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Operations support $ 3,901 $ 4,938
Depreciation and amortization 2,315 2,887
General and administrative 2,709 2,250
-----------------------------------------
Total costs and expenses $ 8,925 $10,075
Operations support:
Operations support expense (including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, costs of goods sold, and provision for doubtful
accounts) decreased $1.0 million (21%) for the quarter ended September 30, 1997,
compared to the same quarter in 1996. The decrease resulted from a $0.3 million
decrease in compensation and benefits expense due to staff reductions, a $0.3
million decrease in equipment operating costs due to sales of the Company's
transportation equipment, a $0.2 million increase in allocable expenses due to
system improvements that now enable program expenses to be allocated in the
month incurred rather than one month in arrears, and a $0.2 million decrease in
other fees.
Depreciation and amortization:
Depreciation and amortization expenses decreased $0.6 million (20%) for
the quarter ended September 30, 1997, compared to the quarter ended September
30, 1996. The decrease resulted from the reduction in depreciable transportation
equipment (discussed in the operating lease revenue section), and was partially
offset by increased depreciation of commercial and industrial equipment on
operating lease.
General and administrative:
General and administrative expenses increased $0.5 million (20%) during the
quarter ended September 30, 1997, compared to the same quarter in 1996,
primarily due to a $0.6 million increase in expense related to the redemption of
stock options and to a $0.3 million increase in legal fees related to the Koch
and Romei actions (refer to Note 8 to the consolidated financial statements).
These expenses were partially offset by a $0.4 million decrease in compensation
and benefits expenses.
Other Income and Expenses
For the Three Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Interest expense $(2,466 ) $(2,117 )
Interest income 390 368
Other income (expense), net 15 (738 )
Provision for income taxes 624 133
Interest expense:
Interest expense increased $0.3 million (16%) during the quarter ended
September 30, 1997, compared to the same period in 1996, due to an increase in
borrowings on the nonrecourse securitization facility and the senior secured
notes facility. The increase in interest expense caused by these increased
borrowings was partially offset by lower interest expense resulting from the
reduction in the amount outstanding on the senior secured loan and the
short-term secured debt facility.
Other income (expense), net:
During the third quarter of 1996, the Company prepaid the $8.6 million balance
of its subordinated debt and incurred prepayment penalties of $0.7 million. No
similar amounts were recorded during the quarter ended September 30, 1997.
Provision for income taxes:
For the three months ended September 30, 1997, the provision for income taxes
was $0.6 million, representing an effective rate of 32%. For the three months
ended September 30,1996, the provision for income taxes was $0.1 million,
representing an effective rate of 9%. Tax-planning strategies, an adjustment for
state tax apportionment factors, and an adjustment related to the Employee Stock
Option Plan (ESOP) resulted in a reduction in the Company's effective tax rate
for the third quarter of 1996.
Net Income
As a result of the foregoing, for the three months ended September 30, 1997, net
income was $1.3 million, resulting in net income per weighted-average common
share outstanding of $0.14. For the same period in 1996, net income was $1.4
million, resulting in net income per weighted-average common share outstanding
of $0.14.
For the Nine Months Ended September 30, 1997 versus September 30, 1996
The following analysis reviews the operating results of the Company:
Revenues
For the Nine Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Operating leases $12,087 $13,508
Finance lease income 6,436 2,578
Management fees 8,450 8,198
Partnership interests and other fees 1,155 2,722
Acquisition and lease negotiation fees 1,749 5,260
Aircraft brokerage and services 1,814 2,037
Gain on the sale or disposition of assets, net 3,250 2,050
Other 2,329 1,664
-----------------------------------------
Total revenues $37,270 $38,017
The fluctuations in revenues for the nine months ended September 30, 1997,
compared to the same period in 1996, are summarized and explained below.
Operating lease revenues by equipment type:
For the Nine Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Trailers $ 6,047 $ 5,765
Commercial and industrial equipment 3,933 2,869
Mobile offshore drilling units 603 -
Aircraft 521 3,676
Marine vessel 501 -
Storage equipment 294 820
Marine containers 165 289
Railcars 23 89
-----------------------------------------
Total operating lease revenues $12,087 $13,508
Operating lease revenues include revenues generated from assets held for
operating leases and assets held for sale that are on lease. As of September 30,
1997, the Company owned transportation equipment held for operating leases or
held for sale with an original cost of $60.9 million, which was $31.9 million
less than the original cost of transportation equipment owned and held for
operating leases or held for sale as of September 30, 1996. The reduction in
equipment, on an original cost basis, is a consequence of the Company's
strategic decision to dispose of certain underperforming transportation assets,
and resulted in an 81% net reduction in its aircraft portfolio and a 25% net
reduction in its marine container portfolio, compared to these portfolios as of
September 30, 1996. The reduction in transportation equipment available for
lease is the primary reason aircraft and marine container revenue were reduced,
compared to the prior year's comparable period. The $0.5 million decrease in
storage equipment lease revenue is due to an agreement the Company entered into
in January 1997 to lease all of its storage equipment assets to a third party on
a triple-net operating lease, as opposed to short-term operating leases,
resulting in both lower storage equipment operating lease revenues and operating
expenses.
The decrease in operating lease revenues as a result of the reduction in
transportation equipment available for lease and the storage equipment agreement
was partially offset by a $1.1 million increase in operating lease revenues as a
result of an increase in commercial and industrial equipment owned and on
operating lease and by a $0.3 million increase in trailer lease revenues as a
result of higher lease rates received on new trailer additions. In addition,
during the nine months ended September 30, 1997, the Company owned one mobile
offshore drilling unit as well as a 25.5% interest in another mobile offshore
drilling unit, which together generated $0.6 million in lease revenue, and owned
a 47.5% interest in a marine vessel, which generated $0.5 million in lease
revenue. Both of the drilling units and the marine vessel were sold at the
Company's cost to affiliated programs during the nine months ended September 30,
1997.
Finance lease income:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary that are either retained for long-term investment or sold to third
parties or to an institutional leasing investment program. Finance lease income
increased $3.9 million during the nine months ended September 30, 1997, compared
to the same period in 1996, due to an increase in commercial and industrial
assets owned and on finance lease. For the nine months ended September 30, 1997,
the average investment in direct finance leases was $70.4 million, compared to
$28.1 million for the same period of 1996.
Management fees:
Management fees are, for the most part, based on the gross revenues
generated by equipment under management. Management fees increased $0.3 million
during the nine months ended September 30, 1997, compared to the same period of
the prior year. Although management fees related to Fund I and the institutional
leasing investment program managed by the Company's AFG subsidiary increased,
management fees from the remaining older programs declined due to a net decrease
in managed equipment and due to lower lease rates. With the termination of
syndication activities in 1996, management fees are expected to decrease in the
future as older programs begin liquidation and the managed equipment portfolio
becomes permanently reduced. This decrease has been and is expected to continue
to be offset, in part, by management fees earned from the institutional leasing
investment program managed by the Company's AFG subsidiary.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $1.7 million and $2.1 million for the nine months ended
September 30, 1997 and 1996, respectively. In addition, a decrease of $0.5
million in the Company's residual interests in the programs was recorded during
the nine months ended September 30, 1997, and a $0.6 million increase in the
Company's residual interests in the programs was recorded during the same period
of 1996. Residual income is based on the general partner's share of the present
value of the estimated disposition proceeds of the equipment portfolio of the
affiliated partnership when the equipment is purchased. 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 nine months ended September 30, 1997, the Company, on behalf of the
equipment growth funds, purchased trailer equipment and an entity that owns a
marine vessel for $22.7 million, compared to $86.3 million of equipment
purchased on behalf of the equipment growth funds during the same period of the
prior year, resulting in a $3.5 million decrease in acquisition and lease
negotiation fees. Acquisition fees related to equipment purchased for the
institutional leasing investment program managed by AFG were $0.5 million for
both the nine months ended September 30, 1997 and 1996. Because of the Company's
decision to halt syndication of equipment leasing programs with the close of
Fund I on May 13, 1996, and because Fund I has a no front-end fee structure,
acquisition and lease negotiation fees will be substantially reduced in the
future.
Aircraft brokerage and services:
Aircraft brokerage and services revenue, which represents revenue
earned by Aeromil Holdings, Inc., the Company's aircraft leasing and spare parts
brokerage subsidiary, decreased $0.2 million during the nine months ended
September 30, 1997, compared to the same period of the prior year, due to a
decrease in spare parts sales and due to the sale of the subsidiary's ownership
interest in Austin Aero FBO Ltd. to third parties in January 1996.
Gain on the sale or disposition of assets, net:
During the nine months ended September 30, 1997, the Company recorded
$3.3 million in net gains on the sale or disposition of assets. Of this gain,
$0.6 million resulted from the sale or disposition of trailers, storage units,
marine containers, commuter aircraft, and railcars. Also during the nine months
ended September 30, 1997, the Company purchased and subsequently resold two
commercial aircraft to an unaffiliated third party for a net gain of $0.8
million and earned $1.9 million from the sale of commercial and industrial
equipment. During the nine months ended September 30, 1996, the Company recorded
a $2.1 million net gain on the sale or disposition of assets. Of this gain, $1.9
million resulted from the sale or disposition of trailers, marine containers,
railcars, storage units, and commuter aircraft, and $0.6 million related to the
sale of commercial and industrial equipment. These gains were partially offset
by a $0.4 million adjustment to decrease the estimated net realizable value of
certain aircraft.
Other:
Other revenues increased $0.7 million during the nine months ended
September 30, 1997, compared to the comparable prior year's period, due to
increased revenue earned from financing income and brokerage fees.
Costs and Expenses
For the Nine Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Operations support $12,123 $16,159
Depreciation and amortization 6,661 8,503
General and administrative 7,435 6,009
-----------------------------------------
Total costs and expenses $26,219 $30,671
Operations support:
Operations support expense (including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, costs of goods sold, and provision for doubtful
accounts) decreased $4.0 million (25%) for the nine months ended September 30,
1997, compared to the same period in 1996. The decrease resulted from a $1.4
million charge related to the termination of syndication activities recorded
during the nine months ended September 30, 1996, a $1.1 million decrease in
compensation and benefits expense due to staff reductions, a $0.8 million
decrease in equipment operating costs due to sales of the Company's
transportation equipment, a $0.5 million decrease in other office expenses, and
a $0.2 million increase in allocable expenses due to system improvements that
now enable program expenses to be allocated in the month incurred rather than
one month in arrears.
Depreciation and amortization:
Depreciation and amortization expenses decreased $1.8 million (22%) for
the nine months ended September 30, 1997, compared to the nine months ended
September 30, 1996. The decrease resulted from the reduction in depreciable
transportation equipment (discussed in the operating lease revenue section), and
was partially offset by increased depreciation of commercial and industrial
equipment on operating lease.
General and administrative:
General and administrative expenses increased $1.4 million (24%) during the nine
months ended September 30, 1997, compared to the same period in 1996, due to a
$0.6 million increase in expense related to the redemption of stock options, a
$0.5 million increase in legal fees related to the Koch and Romei actions (refer
to Note 8 to the consolidated financial statements), a $0.5 million increase in
costs related to a submission of matters to a vote of security holders, a $0.3
million credit recorded in the second quarter of 1996 related to the ESOP, and a
$0.2 million increase in compensation and benefits expenses. These expenses were
partially offset by a $0.5 million decrease in office-related expenses and a
$0.2 million decrease in consulting expense.
Other Income and Expenses
For the Nine Months
Ended September 30,
1997 1996
-----------------------------------------
(in thousands)
Interest expense $(7,460 ) $(5,100 )
Interest income 1,228 891
Other income (expense), net (9 ) (348 )
Provision for income taxes 1,562 371
Interest expense:
Interest expense increased $2.4 million (46%) during the nine months
ended September 30, 1997, compared to the same period in 1996, due to an
increase in borrowings on the nonrecourse securitization facility, the senior
secured notes facility, and the short-term secured debt facility. The increase
in interest expense caused by these increased borrowings was partially offset by
lower interest expense resulting from the retirement of the subordinated debt
and the reduction in the amount outstanding on the senior secured loan.
Interest income:
Interest income increased $0.3 million (38%) in the nine months ended
September 30, 1997, compared to the same period in 1996, as a result of higher
average cash balances for the nine months ended September 30, 1997, compared to
the same period in 1996.
Other income (expense), net:
During the nine months ended September 30, 1996, the Company prepaid the $8.6
million balance of its subordinated debt and incurred prepayment penalties of
$0.7 million, which was partially offset by other income of $0.4 million due to
the sale of 32 wind turbines during the second quarter of 1996 that had
previously been written off. No similar amounts were recorded during the nine
months ended September 30, 1997.
Provision for income taxes:
For the nine months ended September 30, 1997, the provision for income taxes was
$1.6 million, representing an effective rate of 32%. For the same period in
1996, the provision for income taxes was $0.4 million, representing an effective
rate of 13%. Tax-planning strategies, an adjustment for state tax apportionment
factors, and an adjustment related to the ESOP resulted in a reduction in the
Company's effective tax rate for 1996.
Net Income
As a result of the foregoing, for the nine months ended September 30,
1997, net income was $3.2 million, resulting in net income per weighted-average
common share outstanding of $0.34. For the same period in 1996, net income was
$2.4 million, resulting in net income per weighted-average common share
outstanding of $0.23.
Liquidity and Capital Resources
Cash requirements historically have been satisfied through cash flow
from operations, borrowings, or sales of equipment.
Liquidity in 1997 and beyond will depend, in part, on the continued
remarketing of the equipment portfolio at similar lease rates, the management of
existing sponsored programs, the effectiveness of cost control programs, the
purchase and sale of equipment, and the volume of commercial and industrial
equipment leasing transactions for which the Company earns fees and a spread.
Management believes the Company can accomplish the preceding and that it will
have sufficient liquidity and capital resources for the future. Future liquidity
is influenced by the factors summarized below.
Debt financing:
Senior Debt: The Company's $22.1 million senior loan with a syndicate of
insurance companies provides that equipment sale proceeds from pledged equipment
or cash deposits be placed into collateral accounts or used to purchase
additional equipment to the extent required to meet certain debt covenants. As
of September 30, 1997, the cash collateral balance was $13.3 million. The
facility required quarterly interest payments through March 31, 1997, with
quarterly principal payments of $1.47 million plus interest charges beginning
June 30, 1997 through termination of the loan in June 2001.
Senior Notes: On June 28, 1996, the Company closed a floating-rate senior
secured note agreement that allowed the Company to borrow up to $27.0 million
within a one-year period. During the nine months ended September 30, 1997, the
Company drew down $9.0 million and prepaid $1.9 million on this facility. The
outstanding balance as of October 24, 1997 was $25.1 million. Beginning in
November 1997, the Company will be required to make quarterly principal payments
of $1.25 million.
Bridge Financing: Assets acquired and held on an interim basis for
placement with affiliated partnerships or purchased for placement in the
Company's securitization facility have, from time to time, been partially funded
by a $50.0 million short-term secured debt facility. The Company amended this
facility on October 3, 1997 to extend its availability until November 3, 1997.
The facility, which is shared with PLM Equipment Growth Funds (EGFs) IV, V, and
VI, PLM Equipment Growth & Income Fund VII, and Professional Lease Management
Fund I, LLC, allows the Company to purchase equipment prior to its designation
to a specific program or partnership. As of October 24, 1997, the Company had
$1.5 million in borrowings, and EGF V and EGF VI had $9.1 million and $10.0
million in outstanding borrowings, respectively, under this facility. The
Company believes it will be able to extend this facility prior to its expiration
on similar terms.
Securitized Debt: The Company has available a securitization facility to
be used to acquire assets on a nonrecourse basis, secured by direct finance
leases, operating leases, and loans on commercial and industrial equipment that
generally have terms from two to seven years. The Company amended this facility
on October 14, 1997, increasing the facility from $80.0 million to $125.0
million and extending the availability of the facility until October 13, 1998.
As of October 24, 1997, there were $72.1 million in borrowings outstanding under
this facility.
Interest-Rate Swap Contracts: The Company has entered into interest-rate swap
agreements in order to manage the interest-rate exposure associated with its
securitized debt. As of September 30, 1997, the swap agreements had remaining
terms averaging 2.76 years, corresponding to the terms of the related debt. At
September 30, 1997, a notional amount of $68.5 million of interest-rate swap
agreements effectively fixed interest rates at an average of 7.16% on such
obligations. For the nine months ended September 30, 1997, interest expense
increased by $0.2 million due to these arrangements.
Commercial and industrial equipment activities:
The Company earns finance lease or operating lease income for leases originated
and retained by its AFG subsidiary. The funding of leases requires the Company
to retain an equity interest in all leases financed through the securitization
facility. AFG also originated loans in which it takes a security interest in the
assets. From January 1, 1997 through October 24, 1997, the Company purchased
commercial and industrial equipment with an original equipment cost of $75.3
million. A portion of these transactions was financed, on an interim basis,
through the Company's bridge-financing facility. Some equipment subject to
leases is sold to an institutional leasing investment program for which the
Company serves as the manager. Acquisition and management fees are received for
the sale and subsequent management of these leases. The Company believes that
this lease origination operation is a growth area for the future.
As of September 30, 1997, the Company, through its AFG subsidiary, had
committed to purchase $102.5 million of equipment for its commercial and
industrial equipment lease portfolio, to be held by the Company or sold to the
Company's institutional leasing investment program or to third parties.
From October 1, 1997 through October 24, 1997, the Company, through its AFG
subsidiary, funded $5.4 million of commitments outstanding as of September 30,
1997 for its commercial and industrial equipment lease portfolio.
As of October 24, 1997, the Company had committed to purchase $145.3 million of
equipment for its commercial and industrial equipment lease portfolio.
Transportation equipment activities:
During the nine months ended September 30, 1997, the Company generated proceeds
of $10.8 million from the sale of owned transportation equipment. The net
proceeds on the sale of assets that were collateralized as part of the senior
loan facility were placed in a collateral account.
The Company operates 10 trailer rental facilities that engage in short-term and
mid-term operating leases. Equipment operated in these facilities consists of
dry van trailers leased to a variety of customers and refrigerated trailers used
primarily in the food distribution industry. The Company is selling certain of
its older trailers and is replacing them with new or late-model used trailers.
The new trailers will be placed in existing rental facilities or in new yards.
Over the last four years, the Company has downsized its transportation
equipment portfolio through the sale or disposal of underperforming assets. The
Company will continue to analyze its transportation equipment portfolio for
underperforming assets to sell or dispose of as necessary.
Management believes that through debt and equity financing, possible sales of
equipment, and cash flows from operations, the Company will have sufficient
liquidity and capital resources to meet its projected future operating needs.
Forward-looking information:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Company's actual results could differ materially from
those discussed here.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 to the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 Second Amendment to Warehousing Credit Agreement among American Finance
Group Inc., First Union National Bank of North Carolina, and Fleet Bank, N.A.,
dated as of October 3, 1997.
10.2 Third Amendment to Amended and Restated Warehousing Credit Agreement among
TEC AcquiSub, Inc., First Union National Bank of North Carolina, and Fleet Bank,
N.A., dated as of October 3, 1997.
10.3 Third Amendment to Pooling and Servicing Agreement and Indenture of Trust
among AFG Credit Corporation, American Finance Group, Inc. and Bankers Trust
Company, dated as of October 14, 1997.
10.4 Series 1997-1 Supplemental Indenture to Pooling and Servicing Agreement and
Indenture of Trust among AFG Credit Corporation, American Finance Group, Inc.,
First Union Capital Markets Corp., and Bankers Trust Company, dated as of
October 14, 1997.
10.5 Note Purchase Agreement among AFG Credit Corporation, Variable Funding
Capital Corporation, and First Union Capital Markets Corp., dated as of October
14, 1997.
(B) Reports on Form 8-K
July 28, 1997 - Announcement regarding the retirement of two members of PLM
International's Board of Directors, J. Alec Merriam and Robert L. Pagel.
September 3, 1997 - Announcement regarding the election of Robert N.
Tidball as Chairman of the Board of Directors of the Company and the election of
Randall L.W. Caudill as a Class II director of the Board of Directors of the
Company.
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/Richard Brock
--------------------
Richard Brock
Vice President and
Corporate Controller
Date: October 24, 1997