UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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
incorporation or (I.R.S. Employer Identification No.)
organization)
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
--------------------
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, $0.01 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 23, 1998 was $42,790,781.
The number of shares outstanding of the issuer's classes of common
stock as of February 23, 1998: Common Stock, $0.01 Par Value -- 8,373,583
shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III. -PAGE 32-
PLM INTERNATIONAL, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
Part I
Item 1 Business 2
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 11
Part II
Item 5 Market for the Company's Common Equity and Related
Stockholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8 Financial Statements and Supplemental Data 24
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 24
Part III
Item 10 Directors and Executive Officers of the Company 25
Item 11 Executive Compensation 25
Item 12 Security Ownership of Certain Beneficial Owners
and Management 25
Item 13 Certain Relationships and Related Transactions 25
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 25
PART I
ITEM 1. BUSINESS
Introduction
(A) Background
PLM International, Inc. (PLM International or the Company or PLMI), a Delaware
corporation, is a diversified equipment leasing company providing services to
transportation, industrial, and commercial companies, both domestically and
internationally. Through May 1996, the Company also syndicated investment
programs organized to invest primarily in transportation and related equipment.
The Company operates and manages transportation, industrial, and commercial
equipment and related assets with an approximate cost of $1.2 billion for its
own account and various investment programs and third-party investors. An
organizational chart for PLM International indicating the relationships of
significant active legal entities is shown in Table 1:
TABLE 1
ORGANIZATIONAL CHART
PLM International, Inc., a Delaware corporation
Subsidiaries of PLM International, Inc.: PLM Financial Services Inc. (a
Delaware corporation); PLM Railcar Management Services, Inc. (a Delaware
corporation); PLM Rental, Inc. (a Delaware corporation); Aeromil Holdings, Inc.
(a California corporation); PLM Worldwide Management Services Limited (a Bermuda
corporation); American Finance Group, Inc. (a Delaware corporation)
Subsidiaries of PLM Financial Services, Inc.: PLM Investment Management, Inc. (a
California corporation); PLM Transportation Equipment Corporation (a California
corporation
Subsidiary of PLM Transportation Equipment Corporation: TEC Acquisub, Inc. (a
California corporation)
Subsidiary of Aeromil Holdings, Inc.: Aeromil Australia Pty. Ltd. (an Australia
corporation)
Subsidiary of PLM Worldwide Management Services Limited: Transportation
Equipment Indemnity Company, Ltd. (a Bermuda corporation)
Subsidiary of Transportation Equipment Indemnity Company, Ltd.: PLM Railcar
Management Services Canada, Limited (an Alberta, Canada corporation)
Subsidiary of American Finance Group, Inc.: AFG Credit Corp. (a Delaware
corporation)
(B) Description of Business
PLM International, a Delaware corporation formed on May 20, 1987, owns or
manages a portfolio of commercial and industrial equipment, transportation
equipment, and related assets with a combined original cost of approximately
$1.2 billion (refer to Table 2). The Company manages equipment and related
assets for approximately 75,000 investors in various limited partnerships or
investment programs.
TABLE 2
EQUIPMENT AND RELATED ASSETS
December 31, 1997
(original cost in millions of dollars)
Professional
Lease Equipment Other
Management Growth Investor
PLMI Income Fund I Funds Programs Total
------------------------------------------------------------------------
Aircraft, aircraft engines, and rotables $ 1 $ 45 $ 299 $ 1 $ 346
Marine vessels -- 24 155 -- 179
Railcars -- 19 127 52 198
Trailers 49 15 81 5 150
Marine containers -- -- 62 -- 62
Mobile offshore drilling units -- 12 18 -- 30
Commercial and industrial equipment 161 -- -- -- 161
Other 18 19 47 5 89
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Total $ 229 $ 134 $ 789 $ 63 $ 1,215
===============================================================================
(C) Owned Equipment
(1) Transportation Equipment:
The Company leases its owned transportation equipment to a wide variety of
lessees. In general, the equipment leasing industry is an alternative to direct
equipment ownership. It is a highly competitive industry offering lease terms
ranging from daily rates to a term equal to the economic life of the equipment
(full payout leases). Generally, leases for a term less than the economic life
of the equipment are known as operating leases because the aggregate lease
rentals accruing over the initial lease period are less than the cost of the
leased equipment. PLM International typically provides operating leases for its
transportation equipment. This type of lease usually commands a higher lease
rate than full payout leases because of the flexibility it affords the lessee.
This emphasis on operating leases requires highly experienced management and
support staff, as the equipment must be periodically re-leased to continue
generating rental income and thus maximize the long-term return on the
investment in the equipment. In the past, certain equipment, such as marine
containers and marine vessels, has been leased to utilization-type pools that
include equipment owned by unaffiliated parties. Revenues received by the
Company consisted of a specified percentage of the pro-rata share of lease
revenues generated by the pool operator from leasing the pooled equipment to its
customers, after deducting certain direct operating expenses of the pooled
equipment.
During the last few years, the Company has reduced the size of its owned
transportation equipment portfolio and has exited certain equipment markets by
selling or disposing of underperforming assets. With the exception of the
Company's aircraft and intermodal trailer fleet, the Company does not anticipate
continued substantial reductions in its owned equipment portfolio in 1998 and
beyond. Rather, the Company intends to expand its current trailer leasing and
management operations by purchasing trailers and opening new rental yards for
its subsidiary, PLM Rental, Inc. (PLM Rental).
The Company markets over-the-road trailers on short-term leases through PLM
Rental's yards located in 10 major U.S. cities. These rental facilities provide
the Company with a base of operations in selected markets to facilitate its
operating lease strategy. The Company also markets intermodal trailers to
railroads and shippers on short-term arrangements through a licensing agreement
with a short-line railroad. In addition, the Company owns on-site storage units
protected by a patented security system. In January 1997, the Company entered
into an agreement to lease all of its storage equipment assets to a lessee for a
five-year period with a purchase option when the lease terminates.
Over the past five years, on average, approximately 95% of all owned and managed
transportation equipment was operating under lease agreements or in PLM trailer
rental yards.
(2) Commercial and Industrial Equipment:
The Company, through its American Finance Group, Inc. (AFG) subsidiary, serves
the capital equipment financing needs of predominantly investment-grade, Fortune
2000 companies. AFG originates and manages leases and loans for commercial and
industrial equipment, utilizing its transaction-structuring capabilities to
tailor financing solutions to meet the needs of its customers. The leases are
generally mid- to long term and range from one to seven years, with AFG holding
the residual position. AFG takes a security interest in the assets on which it
provides loans.
(D) Subsidiary Business Activities
(1) PLM Financial Services, Inc.:
Management of Investment Programs: PLM Financial Services, Inc. (FSI), along
with its primary subsidiaries, PLM Transportation Equipment Corporation (TEC)
and PLM Investment Management, Inc. (IMI), focus on the management of investment
programs, including a limited liability company, limited partnerships, and
private placement programs, which acquire and lease primarily used
transportation and related equipment. The objectives of each program differ
slightly. The programs feature various combinations of current cash flow and
income tax benefits through investments in long-lived, low-obsolescence
transportation and related equipment.
FSI has completed the offering of 17 public programs that have invested in
diversified portfolios of transportation and related equipment. From 1986
through April 1995, FSI offered the PLM Equipment Growth Fund (EGF) investment
series. From 1995 through May 1996, FSI offered Professional Lease Management
Income Fund I, a limited liability company (Fund I) with a no front-end fee
structure. In May 1996, the Company announced that it no longer planned to offer
publicly syndicated programs that invest in transportation equipment. The
Company plans to continue to manage the existing programs. Each of the EGF and
Fund I programs is designed to invest primarily in used transportation equipment
for lease in order to generate current operating cash flow for (a) distribution
to investors and (b) reinvestment into additional used transportation equipment.
An objective of the programs is to maximize the value of the equipment portfolio
and provide cash distributions to investors by acquiring and managing equipment
for the benefit of the investors. Cumulative equity raised by PLM International
for its affiliated investment programs is $1.7 billion.
Investment in and Management of the EGFs, Other Limited Partnerships, and
Private Placements: FSI earns revenues in connection with its management of the
limited partnerships and private placement programs. During the syndication of
each of the EGFs, placement fees and commissions representing approximately 9%
of the equity raised were generally earned upon the purchase by investors of
partnership units. A significant portion of these placement fees was reallowed
to the originating broker-dealer. Equipment acquisition, lease negotiation, and
debt placement fees are generally earned through the purchase, initial lease,
and financing of equipment, and are recognized as revenue when FSI has completed
substantially all of the services required to earn the fees, generally when
binding commitment agreements are signed.
Management fees are earned for managing the equipment portfolios and
administering investor programs as provided for in the various agreements, and
are recognized as revenue as they are earned.
As compensation for organizing a partnership investment program, FSI, as general
partner, is generally granted an interest (between 1% and 5%) in the earnings
and cash distributions of the program. FSI recognizes as partnership interests
its equity interest in the earnings of the partnerships, after adjusting such
earnings to reflect the use of straight-line depreciation and the effect of
special allocations of the program's gross income allowed under the respective
partnership agreements.
FSI also recognizes as income its interest in the estimated net residual value
of the assets of the partnerships as they are purchased. The amounts recorded
are based on management's estimate of the net proceeds to be distributed upon
disposition of the partnership's equipment at the end of the respective
partnerships. As assets are purchased by the partnerships, these residual value
interests are recorded in partnership interests and other fees at the present
value of FSI's share of estimated disposition proceeds. As required by FASB
Technical Bulletin 1986-2, the discount on FSI's residual value interests is not
accreted over the holding period. FSI reviews the carrying value of its residual
interests at least annually in relation to expected future market values for the
underlying equipment in which it holds residual interests for the purpose of
assessing recoverability of recorded amounts. When a limited partnership is in
the liquidation phase, distributions received by FSI are treated as recoveries
of its equity interest in the partnership until the recorded residual is
eliminated. Any additional distributions received are treated as residual
interest income.
In accordance with certain investment program and partnership agreements, FSI
received reimbursement for organization and offering costs incurred during the
offering period, which was generally between 1.5% and 3% of the equity raised.
The investment programs reimbursed FSI ratably over the offering period of the
investment programs based on the equity raised. In the event organizational and
offering costs incurred by FSI, as defined by the partnership agreement,
exceeded the amounts allowed, the excess costs were capitalized as an additional
investment in the related partnership and are being amortized until the
projected start of the liquidation phase of the partnership. These additional
investments are reflected as equity interest in affiliates in the accompanying
consolidated balance sheets.
Investment in and Management of Limited Liability Company: From 1995 through May
1996, Fund I, a limited liability company with a no front-end fee structure, was
offered as an investor program. FSI serves as the manager for the program. No
compensation was paid to FSI or any of its subsidiaries for the organization and
syndication of interests, the acquisition of equipment, the negotiation of
leases, or the placement of debt in Fund I. FSI funded the cost of organization,
syndication, and offering through the use of operating cash and has capitalized
these costs as its investment in Fund I. FSI is amortizing its investment in
Fund I until the projected start of the liquidation phase of the program. In
return for its investment, FSI is generally entitled to a 15% interest in the
cash distributions and earnings of Fund I, subject to certain allocation
provisions. FSI's interest in the cash distributions and earnings of Fund I will
increase to 25% after the investors have received distributions equal to their
invested capital. FSI is also entitled to monthly fees for equipment management
services and reimbursement for providing certain accounting and administrative
services.
FSI also recognizes as income its interest in the estimated net residual value
of the assets of Fund I as they are purchased. The amounts recorded are based on
management's estimate of the net proceeds to be distributed upon disposition of
the program's equipment at the end of the program. As assets are purchased by
Fund I, these residual value interests are recorded in partnership interests and
other fees at the present value of FSI's share of estimated disposition
proceeds. When Fund I is in the liquidation phase, distributions received by FSI
will be treated as recoveries of its equity interest in the program until the
recorded residual is eliminated. Any additional distributions received will be
treated as residual interest income.
(2) PLM Transportation Equipment Corporation:
PLM Transportation Equipment Corporation (TEC) is responsible for the selection,
negotiation and purchase, initial lease and re-lease, and sale of equipment.
This process includes identifying prospective lessees; analyzing lessees'
creditworthiness; negotiating lease terms; negotiating with equipment owners,
manufacturers, or dealers for the purchase, delivery, and inspection of
equipment; preparing debt offering materials; and negotiating loans. TEC or its
wholly-owned subsidiary, TEC AcquiSub, Inc., also purchases transportation
equipment for PLM International's own portfolio and on an interim basis for
resale to third parties or various affiliated limited partnerships at the lower
of fair market value or cost.
(3) PLM Investment Management, Inc.:
PLM Investment Management, Inc. (IMI) manages equipment owned by the Company and
by investors in the various investment programs. The equipment consists of:
aircraft (commercial and commuter), aircraft engines and rotables, railcars,
trailers (highway and intermodal, refrigerated and nonrefrigerated), marine
containers (refrigerated and nonrefrigerated), marine vessels (dry bulk
carriers, marine feeder vessels, and product tankers), and mobile offshore
drilling units and drilling ships. IMI is obligated to invoice and collect
rents; arrange for the maintenance and repair of equipment; arrange for the
payment of operating expenses, debt service, and certain taxes; determine that
the equipment is used in accordance with all operative contractual arrangements;
arrange insurance as appropriate; provide or arrange for clerical and
administrative services necessary to the operation of the equipment; correspond
with program investors; prepare quarterly and annual financial statements and
tax information materials; and make distributions to investors. IMI also
monitors equipment regulatory requirements and compliance with investor program
debt covenants and terms of the limited partnership agreements.
(4) American Finance Group, Inc.:
In 1995, the Company established a wholly-owned equipment leasing and management
subsidiary, American Finance Group, Inc. (AFG), and entered into an agreement to
manage certain operations of Boston-based, privately held Equis Financial Group
(Equis). During 1995, the Company provided management services for Equis's
investor programs, for which the Company earned management fees and other
revenues. In January 1996, the agreement was modified to exclude management of
Equis's investor programs. Under the modified agreement the Company obtained
Equis's lease origination and servicing operations and the rights to manage an
institutional leasing investment program. Additionally, the agreement provided
for AFG to receive software, computers, and furniture that supported its
marketing and operations activities. AFG originates and manages lease and loan
transactions for commercial and industrial equipment, such as data processing,
communications, materials-handling, and construction equipment, for the Company
s own account or for sale to institutional investment programs or other
investors. The leases may be financed by nonrecourse debt. Periodically, AFG
will use its short-term secured debt facility to finance the acquisition of
assets prior to sale or permanent financing by nonrecourse debt. The leases are
accounted for as operating or direct finance leases. AFG also originates loans
in which it takes a security interest in the assets.
(5) PLM Railcar Management Services, Inc.:
PLM Railcar Management Services, Inc. (RMSI) markets and manages railcar fleets.
RMSI is also involved in negotiating the purchase and sale of railcars on behalf
of IMI.
(6) PLM Worldwide Management Services Limited:
PLM Worldwide Management Services Limited (WMS), a wholly-owned subsidiary of
PLM, is a Bermuda-based company that serves as the parent of several PLM-owned
foreign-operating entities and generates revenue from certain equipment leasing
and brokerage activities.
(7) Transportation Equipment Indemnity Company, Ltd.:
Transportation Equipment Indemnity Company, Ltd. (TEI), a wholly-owned
subsidiary of WMS, is a Bermuda-based insurance company licensed to underwrite a
full range of insurance products, including property and casualty risk. TEI's
primary objective is to minimize both the long-term and short-term cost of
insurance coverages for certain owned and managed equipment. A substantial
portion of the risks underwritten by TEI are reinsured with unaffiliated
underwriters.
(8) PLM Railcar Management Services Canada, Limited:
PLM Railcar Management Services Canada, Limited, a wholly-owned subsidiary of
TEI headquartered in Calgary, Alberta, Canada, provides fleet management
services to the managed railcars operating in Canada on behalf of IMI.
(9) PLM Rental, Inc.:
PLM Rental markets trailers owned by the Company and its affiliated investor
programs on short-term and mid-term operating leases through a network of rental
facilities. Presently, facilities are located in Conley, Georgia; Romeoville,
Illinois; Irving, Texas; Dearborn Heights, Michigan; Indianapolis, Indiana;
Kansas City, Kansas; Miami, Florida; Orlando, Florida; Tampa, Florida; and
Newark, New Jersey. The Company is planning to open additional rental yard
facilities in 1998.
All of the subsidiaries described above are 100% owned directly or indirectly by
PLM International.
(10) Aeromil Holdings, Inc.:
Aeromil Holdings, Inc. (Aeromil) is 80% owned by the Company. Aeromil owns an
operating company located in Australia that is engaged in the brokerage of
corporate, commuter, and commercial aircraft and the sale of spare parts in
international markets.
(E) Equipment Leasing Markets
Within the equipment leasing industry, there are markets for essentially three
types of leases: the full payout lease, the short-term rental, and the mid-term
operating lease. The full payout lease, in which the combined rental payments
are sufficient to cover a lessor's investment and provide a return on the
investment, is a common form of leasing. This type of lease is sometimes
referred to, and qualifies as, a direct finance lease under United States
generally accepted accounting principles, and is accounted for by the lessee as
a purchase of the underlying asset. From the lessee's perspective, the election
to enter into a full payout lease is usually made on the basis of a
lease-versus-purchase analysis, which takes into account the lessee's ability to
utilize the depreciation tax benefits of ownership, its liquidity and cost of
capital, and financial reporting considerations.
Short-term rental lessors direct their services to users' short-term equipment
needs. This business requires a more extensive overhead commitment in the form
of marketing and operating personnel by a lessor/owner. There is normally less
than full utilization in a lessor's equipment fleet, as lessee turnover is
frequent. Lessors usually charge a premium for the additional flexibility
provided through short-term rentals. To satisfy lessees' short-term needs,
certain equipment may be leased through pooling arrangements or utilization
leases. For lessees, these arrangements can work effectively with respect to
interchangeable equipment, such as marine containers, trailers, and marine
vessels. From the lessors' perspective, these arrangements diversify risk.
Operating leases for transportation equipment generally run for a period of one
to six years. Operating lease rates are usually higher than full payout lease
rates but lower than short-term rental rates. From a lessee's perspective, the
advantages of a mid-term operating lease compared to a full payout lease are
flexibility in its equipment commitment and the fact that the rental obligation
under the lease need not be capitalized on its balance sheet. From a lessee's
perspective, the advantages of a mid-term operating lease compared to a
short-term rental, apart from the lower monthly cost, are greater control over
future costs and the ability to balance equipment requirements over a specific
period of time. The disadvantages of a mid-term operating lease from a lessee's
perspective are that the equipment may be subject to significant changes in
lease rates for future periods or will generally be required to be returned to
the lessor at the expiration of the initial lease. From the lessor's
perspective, the disadvantages of a mid-term operating lease (as well as a
short-term rental) compared to a full payout lease are that (a) the equipment
generally must be re-leased at the expiration of the initial lease term in order
for the lessor to recover its investment and (b) re-lease rates are subject to
changes in current market conditions.
PLM International, its subsidiaries, and affiliated investment programs lease
their transportation equipment primarily on mid-term operating leases and
short-term rentals. Many of its leases are net operating leases. In net
operating leases, expenses such as insurance, taxes, and maintenance are the
responsibility of the lessees. The effect of entering into net operating leases
is to reduce lease rates, compared to full-service lease rates for comparable
lease terms. However, the overall profitability of net operating leases is more
predictable and less risk is assumed over time, since the lessees absorb
maintenance costs that generally increase as equipment ages. Per diem rental
agreements are used mainly on equipment in the Company's trailer and marine
container rental operations. Per diem rentals for the most part require the
Company to absorb maintenance costs, which tend to increase as the equipment
ages.
AFG leases commercial and industrial equipment primarily on full payout and
mid-term triple net leases to investment-grade companies. AFG also originates
loans in which it takes a security interest in the assets. Expenses such as
insurance, taxes, and maintenance are the responsibility of the lessees. The
full payout leases AFG originates are classified as finance leases and the
mid-term triple net leases are classified as operating leases. The terms of
these leases and loans are generally one to seven years, depending on the
equipment type and the needs of the lessee. Lessees enter into full payout
leases or mid-term triple net leases after a lease-versus-buy analysis is
performed, which evaluates the utilization of the depreciation tax benefits of
ownership, liquidity and cost of capital, financial reporting considerations,
and capital budgeting constraints. AFG leases have an average term of 48 months.
These longer-term leases and loans, which are made to investment-grade, Fortune
2000 companies, provide a predictable cash stream with lower risk. Although AFG
leases a wide range of commercial and industrial equipment, as of December 31,
1997, the lease portfolio was concentrated primarily in materials-handling,
computer, and point-of-sale equipment; general plant and warehouse equipment;
mining and construction equipment; and communications equipment.
(F) Management Programs
FSI has also sponsored programs in which the equipment is individually owned by
the program investors. Management agreements, with initial terms ranging from 3
to 10 years, are typically employed to provide for the management of this
equipment. These agreements require that the Company or one of its subsidiaries
use its best efforts to lease the equipment and to otherwise perform all
managerial functions necessary for the operation of the equipment, including
arranging for maintenance and repair, collection of lease revenues, and
disbursement of operating expenses. Management agreements also require that the
Company correspond with program investors, prepare financial statements and tax
information, and make distributions to investors from available cash. Operating
revenues and expenses for equipment under management agreements are generally
pooled in each program and shared pro rata by the participants. IMI typically
receives management fees for these services based on a flat fee per month per
unit of equipment.
(G) Lessees
Lessees of equipment range from Fortune 2000 companies to small, privately held
corporations and entities. All equipment acquisitions, equipment sales, and
lease renewals relating to equipment having an original cost basis in excess of
$1.0 million must be approved by a credit committee. PLM Rental, which leases
equipment primarily on short-term rentals, follows guidelines set by the credit
committee in determining the creditworthiness of its respective lessees.
Deposits, prepaid rents, corporate and personal guarantees, and letters of
credit are utilized, when necessary, to provide credit support for lessees who
alone do not have a financial condition satisfactory to the credit committee. No
single lessee of the Company's equipment accounted for more than 10% of revenues
for the years ended December 31, 1997, 1996, or 1995.
(H) Competition
When marketing operating leases for transportation assets, the Company
encounters considerable competition from lessors offering full payout leases on
new equipment. In comparing lease terms for the same equipment, full payout
leases provide longer lease periods and lower monthly rent than the Company
offers. However, lower lease rates can generally be offered for used equipment
under operating leases than can be offered on similar new equipment under full
payout leases. The shorter length of operating leases also provides lessees with
flexibility in their equipment and capital commitments.
The Company competes with transportation equipment manufacturers who offer
operating leases and full payout leases. Manufacturers may provide ancillary
services that the Company cannot offer, such as specialized maintenance services
(including possible substitution of equipment), warranty services, spare parts,
training, and trade-in privileges.
The Company competes with many transportation equipment lessors, including
General Electric Capital Corporation, GATX Corporation, Associates Commercial
Corporation, Ryder Transportation Services, Inc., XTRA Corporation,
International Lease Finance Corporation, and certain limited partnerships, some
of which lease the same type of equipment.
AFG, which leases commercial and industrial equipment, competes with industrial
finance companies, regional banks, and money center banks, in addition to such
captive and independent leasing companies as General Electric Capital,
Caterpillar Financial, IBM Credit, AT&T Capital, Fleet Credit Corp., Pitney
Bowes, Comdisco, Charter One Bank, First Union National Bank, Bank of Boston,
ATEL, and Capital Associates. These companies all offer a wide array of
financial products to lessees, ranging from off- balance sheet loans and
synthetic leases to operating leases and vendor financing.
(I) Government Regulations
The transportation industry, in which the majority of the equipment owned and
managed by the Company operates, is subject to substantial regulation by various
federal, state, local, and foreign government authorities. For example, federal
regulations by the National Highway Transportation Safety Association will be
implemented in March 1998, requiring all new trailers to have antilock brake
systems installed, which will add 2% to 3% to the price of new trailers but
increase safety while also reducing tire and brake wear. In addition, the U.S.
Department of Transportation Aircraft Capacity Act of 1990 limits the operation
of commercial aircraft in the United States that do not meet certain noise,
aging, and corrosion criteria. Enactments like these could affect the
performance of equipment owned and managed by the Company. It is not possible to
predict the positive or negative effects of future regulatory changes in the
transportation industry.
(J) Employees
As of February 23, 1998, the Company and its subsidiaries had 149 employees.
None of the Company's employees are subject to collective bargaining
arrangements. The Company believes that employee relations are good.
ITEM 2. PROPERTIES
As of December 31, 1997, the Company owned transportation equipment and related
assets and commercial and industrial equipment with an original cost of
approximately $229.0 million. The Company's principal offices are located in
leased office space at One Market, Steuart Street Tower, San Francisco,
California. The Company or its subsidiaries also lease business offices in
Boston, Massachusetts; Chicago, Illinois; and Calgary, Alberta, Canada. In
addition, the Company or its subsidiaries lease trailer equipment rental yard
facilities in Conley, Georgia; Romeoville, Illinois; Irving, Texas; Dearborn
Heights, Michigan; Indianapolis, Indiana; Kansas City, Kansas; Miami, Florida;
Tampa, Florida; Orlando, Florida; and Newark, New Jersey. The Company's Aeromil
subsidiary owns office space in Maroochydore, Queensland, Australia.
ITEM 3. LEGAL PROCEEDINGS
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. The complaint contains claims for relief alleging breaches of fiduciary
duties and various violations of the Employee Retirement Income Security Act of
1974 (ERISA) arising principally from purported defects in the structure,
financing, and termination of the ESOP, and for defendants' allegedly engaging
in prohibited transactions and interfering with plaintiff's rights under ERISA.
Plaintiff seeks monetary damages, rescission of the preferred stock transactions
with the ESOP and/or restitution of ESOP assets, and attorneys' fees and costs
under ERISA. 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 under ERISA. The motion was granted and on May 30,
1996, the district 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 dismissal of his
ERISA claims, and in an opinion filed on October 23, 1997, the Ninth Circuit
reversed the decision of the district court and remanded the case to the
district court for further proceedings. PLMI filed a petition for rehearing on
November 6, 1997, which was denied on November 20, 1997. The Ninth Circuit
mandate was filed in the district court on December 1, 1997.
On January 12, 1998, plaintiff filed with the district court an expedited motion
for leave to file a second amended complaint in order to bring the fourth,
fifth, and sixth claims for relief as a class action on behalf of himself and
all similarly situated people. These claims allege that PLMI and the other
defendants breached their fiduciary duties and entered into prohibited
transactions in connection with the termination of the ESOP and by causing the
ESOP to sell or exchange the preferred shares held for the benefit of the ESOP
participants for less than their fair market value. The district court granted
the motion on February 9, 1998 and set a trial date of March 20, 1999. The
defendants are required to respond to the second amended complaint on or before
February 26, 1998. The Company does not believe the claims have any merit and
plans to continue to defend this matter vigorously.
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). The plaintiffs,
who filed the complaint on their own and on behalf of all class members
similarly situated, are six individuals who allegedly invested in certain
California limited partnerships (the Partnerships) for which FSI acts as the
general partner, including PLM Equipment Growth Fund IV, PLM Equipment Growth
Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund
VII. The complaint asserts eight causes of action against all defendants, as
follows: fraud and deceit, suppression, negligent misrepresentation and
suppression, intentional breach of fiduciary duty, negligent breach of fiduciary
duty, unjust enrichment, conversion, and conspiracy. Additionally, plaintiffs
allege a cause of action against PLM Securities for breach of third party
beneficiary contracts in violation of the NASD rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, general
partner, and control persons. Based on these duties, plaintiffs assert liability
against the defendants for improper sales and marketing practices, mismanagement
of the Partnerships, and concealing such mismanagement from investors in the
Partnerships. Plaintiffs seek unspecified compensatory and recissory damages, as
well as punitive damages, and have offered to tender their limited partnership
units back to the defendants.
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) based on the district court's diversity
jurisdiction, 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. In response to such denial, plaintiffs filed a petition for writ of
mandamus with the Eleventh Circuit, which was denied on November 18, 1997. On
November 24, 1997, plaintiffs filed with the Eleventh Circuit a petition for
rehearing and consideration by the full court of the order denying the petition
for a writ of mandamus, which petition was supplemented by plaintiffs on January
27, 1998.
On October 10, 1997, defendants filed a motion to compel arbitration of
plaintiffs' claims, based on an agreement to arbitrate contained in the limited
partnership agreement of each Partnership, and to stay further proceedings
pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition,
the district court granted the motion on December 8, 1997. On December 15, 1997,
plaintiffs filed with the Eleventh Circuit a notice of appeal from the district
court's order granting defendants' motion to compel arbitration and to stay the
proceedings, and of the district court's September 24, 1997 order denying
plaintiffs' motion to remand and dismissing the claims of the California
plaintiff. Plaintiffs filed an amended notice of appeal on December 31, 1997.
The Company believes that the allegations of the Koch action are completely
without merit and intends to continue to defend this matter vigorously.
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 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 for
which FSI acts as the general partner, including the Partnerships. The complaint
alleges the same facts and the same nine causes of action as in the Koch action,
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, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, the defendants 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 motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. By memorandum and order dated October 23, 1997, the district
court denied the Company's petition to compel arbitration. On November 5, 1997,
the Company filed an expedited motion for leave to file a motion for
reconsideration of this order, which motion was granted on November 14, 1997.
The parties have agreed to have oral argument on the reconsideration motion set
for April 23, 1998. The state court action has been stayed pending the district
court's decision on this motion.
In connection with her opposition to the Company's petition to compel
arbitration, 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 Sections 1709 and 1710.
Plaintiff has also served certain discovery requests on defendants. Because of
the stay, no response to the amended complaint or to the discovery is currently
required. 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 legal actions
incident to its business. Management does not believe that any of these existing
actions will be material to the financial condition or, based on historical
trends, to the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Special Meeting of Stockholders held November 26, 1997, one proposal was
submitted to a vote of the Company's security holders. The proposal to amend
Article Fourth of the Company's Certificate of Incorporation to effect a
1-for-200 reverse stock split followed by a 200-for-1 forward stock split of the
Company's common stock was approved. As a result of the stock splits, the number
of shares outstanding was reduced by 561,544 shares. The Company is repurchasing
these shares at $5.58 per share when the stock certificates are tendered to the
Company's transfer agent. The votes cast in the election were as follows:
Votes
- ------------------------------------------------------------
For Against Abstentions
7,060,732 307,390 72,357
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades (under the ticker symbol "PLM") on the
American Stock Exchange (AMEX). As of the date of this annual report, there are
8,373,583 common shares outstanding and approximately 3,677 shareholders of
record.
Table 3, below, sets forth the quarterly high and low prices of the Company's
common stock for 1997 and 1996 as reported by the AMEX:
TABLE 3
Calendar Period High Low
- ------------------- --------- ---------
1997
1st Quarter $ 3.813 $ 3.000
2nd Quarter 6.375 3.500
3rd Quarter 6.000 5.500
4th Quarter 5.875 5.250
1996
1st Quarter $ 3.875 $ 3.250
2nd Quarter 3.813 3.250
3rd Quarter 3.563 3.188
4th Quarter 3.500 2.875
In November 1997, the Company's stockholders approved a proposal to amend
Article Fourth of the Company's Certificate of Incorporation to effect a
1-for-200 reverse stock split followed by a 200-for-1 forward stock split. As a
result of the stock splits, the number of shares outstanding was reduced by
561,544 shares. The Company is repurchasing these shares at $5.58 per share when
the stock certificates are tendered to the Company's transfer agent.
In March 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. During 1997,
766,200 shares were purchased under this plan, at a total cost of $4.4 million.
During 1996, the Company purchased 1.7 million shares of its common stock for
$6.5 million. These purchases completed the $5.0 million common stock repurchase
program announced in November 1995, as well as an additional purchase of $3.7
million authorized by the Company's Board of Directors in July 1996.
Additional future repurchases may be made in the open market or through private
transactions.
ITEM 6. SELECTED FINANCIAL DATA
Summary of Selected Financial Data
Years Ended December 31,
(in thousands of dollars, except per share amounts)
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------
Results of operations:
Revenue $ 49,665 $ 51,545 $ 60,073 $ 53,715 $ 67,431
Income (loss) before income taxes 6,515 3,893 7,868 (5,579) 7,737
Net income (loss) before cumulative
effect of accounting change 4,667 4,095 6,048 (1,511) 6,282
Cumulative effect of accounting change -- -- -- (5,130) --
Net income (loss) to common shares 4,667 4,095 6,048 (9,071) 1,432
Basic earnings per weighted-
average common share 0.51 0.41 0.52 (0.74) 0.14
Financial position:
Total assets 236,283 198,749 126,213 140,372 217,720
Short-term secured debt 23,040 30,966 -- 6,404 --
Long-term recourse debt 44,844 43,618 47,853 60,119 129,119
Long-term nonrecourse debt 81,302 45,392 -- -- --
Shareholders' equity 46,548 46,320 48,620 45,695 51,133
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Commercial and Industrial Equipment Leasing
A major activity of the Company is the funding and management of long-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 materials-handling, computer, point-of-sale,
general plant and warehouse, mining and construction, and communications
equipment. Through AFG, the Company is also engaged in the management of
institutional leasing investment programs for which it originates leases and
receives acquisition and management fees.
Trailer Leasing
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 (nonrefrigerated) trailers leased to a variety of customers and
refrigerated trailers used primarily in the foodservice distribution industry.
The Company is currently expanding the number of its rental yard facilities and
is selling certain of its older trailers and replacing them with new or
late-model used trailers.
Other Transportation Equipment Leasing, Management of Investment Programs, and
Other
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 a commuter
aircraft, a 20% interest in a commercial aircraft, an aircraft engine,
intermodal trailers, and storage equipment as of December 31, 1997, was mainly
built prior to 1988. As the equipment ages, the Company continues to monitor the
performance of its leased assets and 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.
The Company also has an 80% interest in a company located in Australia involved
in aircraft brokerage and aircraft spare parts sales.
The Company has syndicated investment programs from which it earns various fees
and equity interests. 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 allow the Company to
receive fees for the acquisition and initial leasing 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 and related assets, 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, which is
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 the program, subject to certain allocation provisions, which will
increase to 25% after the investors have received distributions equal to their
original invested capital.
In 1996, the Company announced the suspension of public syndication of equipment
leasing programs with the 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.
Comparison of the Company's Operating Results for the Years Ended December 31,
1997 and 1996
The following analysis reviews the operating results of the Company:
Revenues
1997 1996
--------------------------------------------
(in thousands of dollars)
Operating leases $ 15,777 $ 18,180
Finance lease income 8,685 4,186
Management fees 11,275 10,971
Partnership interests and other fees 1,306 3,811
Acquisition and lease negotiation fees 3,184 6,610
Aircraft brokerage and services 2,466 2,903
Gain on the sale or disposition of assets, net 3,720 2,282
Other 3,252 2,602
------------------------------------------------
Total revenues $ 49,665 $ 51,545
The fluctuations in revenues between 1997 and 1996 are summarized and explained
below.
Operating lease revenues by equipment type:
1997 1996
--------------------------------------------
(in thousands of dollars)
Trailers $ 8,622 $ 8,004
Commercial and industrial equipment 5,175 4,042
Aircraft and aircraft engine 655 4,444
Mobile offshore drilling units 603 123
Marine vessel 501 -
Storage equipment 4 1,076
Marine containers 188 392
Railcars 29 99
------------------------------------------------
Total operating lease revenues $ 15,777 $ 18,180
Operating lease revenues include revenues generated from assets held for
operating leases and assets held for sale that are on lease. As of December 31,
1997, the Company owned transportation equipment held for operating leases with
an original cost of $50.3 million, which was $24.3 million less than the
original cost of transportation equipment owned and held for operating leases or
held for sale as of December 31, 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 exit certain
equipment markets, which has resulted in a 91% net reduction in its aircraft
portfolio and a 100% net reduction in its marine container portfolio, compared
to 1996. The reduction in transportation equipment available for lease is the
primary reason aircraft and marine container revenue was reduced, compared to
the prior year. The $1.1 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 finance lease, as opposed to
short-term operating leases.
Although operating lease revenues decreased as a result of the reduction in
transportation equipment available for lease and the storage equipment
agreement, this decrease was partially offset by a $1.1 million increase in
commercial and industrial operating lease revenues. Commercial and industrial
operating lease revenues increased as a result of an increase in commercial and
industrial equipment owned and on operating lease. Trailer lease revenues
increased $0.6 million as a result of higher utilization in the Company's
intermodal trailer fleet. In addition, during 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 in 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 institutional leasing investment programs. Finance lease income
increased $4.5 million during 1997, compared to 1996, due to an increase in
commercial and industrial assets that were on finance lease. During 1997, the
average investment in direct finance leases was $76.2 million, compared to $30.5
million for 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 1997, compared to 1996, due to an increase in management fees earned from
the institutional leasing investment programs managed by the Company's AFG
subsidiary. Although management fees related to Fund I increased due to
additional asset purchases, net management fees from the remaining older
programs declined due to a net decrease in managed equipment and lower lease
rates. With the termination of syndication activities in 1996, management fees
from the older programs are expected to decrease in the future as they begin
liquidation and the associated 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 programs
managed by AFG.
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 $2.3 million and $2.7 million for 1997 and 1996,
respectively. In addition, a decrease of $1.0 million in the Company's residual
interests in the programs was recorded during 1997, compared to an $0.8 million
increase in the Company's residual interests in the programs during 1996. The
decrease in net earnings and distribution levels and residual interests in 1997,
compared to 1996, resulted mainly from the disposition of equipment in certain
of the PLM Equipment Growth Fund (EGF) programs. In addition, during 1996,
residual income of $1.8 million was recorded for Fund I purchases. As Fund I has
fully invested the proceeds raised from syndication, the Company will not record
additional residual interest income from this program until it reaches the
liquidation phase. 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. In 1996, the Company also earned $0.3 million in liquidation
sales fees for the sales of managed equipment. There were no similar fees in
1997.
Acquisition and lease negotiation fees:
During 1997, the Company, on behalf of the EGF programs, purchased trailer
equipment and a beneficial interest in a marine vessel and aircraft for $42.8
million, compared to $105.7 million of equipment purchased on behalf of the EGF
programs during 1996, resulting in a $3.4 million decrease in acquisition and
lease negotiation fees. Acquisition fees related to equipment purchased for the
institutional leasing investment programs managed by AFG were $0.8 million for
both 1997 and 1996. Because of the Company's decision to halt syndication of
equipment leasing programs with the close of Fund I in 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. (Aeromil), the Company's aircraft leasing,
spare part sales, and brokerage subsidiary, decreased $0.4 million in 1997,
compared to 1996, due to a decrease in spare parts sales, the sale of the
subsidiary's ownership interest in Austin Aero FBO Ltd. to third parties in
January 1996, and unfavorable exchange rate fluctuations during 1997.
Gain on the sale or disposition of assets, net:
During 1997, the Company recorded $3.7 million in net gains on the sale
or disposition of assets. Of this gain, $1.1 million resulted from the sale or
disposition of trailers, storage equipment, marine containers, and commuter
aircraft. Also during 1997, the Company purchased and subsequently sold two
commercial aircraft to an unaffiliated third party for a net gain of $0.8
million and earned $2.0 million from the sale of commercial and industrial
equipment. These gains were partially offset by a $0.2 million adjustment to
reduce the estimated net realizable value of certain trailers. During 1996, the
Company recorded a $2.3 million net gain on the sale or disposition of assets.
Of this gain, $2.1 million resulted from the sale or disposition of trailers,
marine containers, railcars, storage equipment, and commuter and commercial
aircraft, and $0.9 million related to the sale of commercial and industrial
equipment. These gains were partially offset by a $0.7 million adjustment to
reduce the estimated net realizable value of certain commuter aircraft ($0.4
million) and certain trailers ($0.3 million).
Other:
Other revenues increased $0.7 million during 1997, compared to 1996,
due to increased revenue earned from financing income and brokerage fees.
Costs and Expenses
1997 1996
--------------------------------------------
(in thousands of dollars)
Operations support $ 16,633 $ 21,595
Depreciation and amortization 8,447 11,318
General and administrative 9,472 7,956
------------------------------------------------
Total costs and expenses $ 34,552 $ 40,869
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 $5.0 million (23%) for 1997, compared to 1996. The decrease
resulted from a $1.4 million charge recorded during 1996 related to the
termination of syndication activities, a $1.3 million decrease in compensation
and benefits expense due to staff reductions, a $0.7 million decrease in other
office-related expenses, a $0.6 million decrease in equipment operating costs
due to the sale of certain of the Company's transportation equipment, a $0.5
million decrease in administrative expenses, and a $0.5 million decrease in
professional services expenses.
Depreciation and amortization:
Depreciation and amortization expenses decreased $2.9 million (25%) for 1997,
compared to 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 $1.5 million (19%) for 1997,
compared to 1996, due to a $0.6 million increase in expenses 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 12 to the consolidated financial
statements), a $0.5 million increase in costs related to the Company's response
to shareholder-sponsored initiatives, and a $0.3 million credit recorded in the
second quarter of 1996 related to the Employee Stock Ownership Plan (ESOP).
These expenses were partially offset by a $0.4 million decrease in
office-related expenses due to a decrease in staffing and office space
requirements.
Other Income and Expenses
1997 1996
------------------------------------------
(in thousands of dollars)
Interest expense $ (9,891) $ (7,341)
Interest income 1,635 1,228
Other expenses, net (342) (670)
Interest expense:
Interest expense increased $2.6 million (35%) for 1997, compared to 1996, due to
an increase in borrowings of nonrecourse debt to fund new lease originations 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 retirement of the subordinated debt in 1996, a decrease in
borrowings on the short-term secured debt facility, and the reduction in the
amount outstanding on the senior secured loan.
Interest income:
Interest income increased $0.4 million (33%) for 1997, compared to 1996, as a
result of higher average cash balances in 1997, compared to 1996.
Other expenses, net:
Other expenses of $0.3 million in 1997 represents an accrual for a litigation
settlement that was paid in 1998. During 1996, the Company prepaid the $8.6
million balance of its subordinated debt and $10.0 million of its senior secured
loan, and wrote off the associated loan fees and incurred prepayment penalties
of $1.0 million. These expenses were partially offset by other income of $0.4
million resulting from the 1996 sale of 32 wind turbines that had previously
been written off.
Provision for (Benefit from) Income Taxes
For 1997, the provision for income taxes was $1.8 million, representing an
effective rate of 28%. For 1996, the Company recognized a benefit for income
taxes of $0.2 million as a result of several items of a nonrecurring nature.
These included adjustments that reduced income tax expense arising from (a)
differences between the amount recognized in the 1995 financial statements and
the 1995 tax return as filed and (b) changes in state tax apportionment factors
used to record deferred taxes. In both 1997 and 1996, the Company's income tax
rate included the benefit of certain income earned from foreign activities that
has been permanently invested outside of the United States (refer to Note 11 to
the consolidated financial statements).
Net Income
As a result of the foregoing, 1997 net income was $4.7 million, resulting in
basic and fully diluted earnings per weighted-average common share outstanding
of $0.51 and $0.50, respectively. For 1996, net income was $4.1 million,
resulting in basic and fully diluted earnings per weighted-average common share
outstanding of $0.41 and $0.40, respectively.
Comparison of the Company's Operating Results for the Years Ended December 31,
1996 and 1995
The following analysis summarizes the operating results of the Company:
Revenues
1996 1995
--------------------------------------------
(in thousands of dollars)
Operating leases $ 18,180 $ 23,919
Finance lease income 4,186 -
Management fees 10,971 11,197
Partnership interests and other fees 3,811 4,978
Acquisition and lease negotiation fees 6,610 6,659
Aircraft brokerage and services 2,903 5,022
Gain on the sale or disposition of assets, net 2,282 4,912
Commissions - 1,322
Other 2,602 2,064
------------------------------------------------
Total revenues $ 51,545 $ 60,073
The fluctuations in revenues between 1996 and 1995 are summarized and explained
below.
Operating lease revenues by equipment type:
1996 1995
--------------------------------------------
(in thousands of dollars)
Trailers $ 8,004 $ 10,582
Aircraft and aircraft engine 4,444 6,465
Commercial and industrial equipment 4,042 2,293
Storage equipment 1,076 1,056
Marine containers 392 635
Mobile offshore drilling units 123 -
Railcars 99 1,584
Marine vessel - 1,304
-------------------------------------------------
Total operating lease revenues $ 18,180 $ 23,919
As of December 31, 1996, the Company owned transportation equipment held for
operating leases or held for sale with an original cost of $74.6 million, which
was $39.1 million less than the original cost of equipment owned and held for
operating leases or held for sale as of December 31, 1995. The reduction in
equipment, on an original cost basis, was a consequence of the Company's
strategic decision to dispose of certain underperforming transportation assets
and exit certain equipment markets, resulting in a 100% reduction in its marine
vessel fleet and railcar portfolio, a 34% reduction in its marine container
portfolio, a 67% net reduction in its aircraft portfolio, and a 12% net
reduction in its trailer portfolio, compared to 1995. The reduction in equipment
available for lease was the primary reason marine vessel, railcar, trailer,
marine container, and aircraft revenues were all reduced, as compared to the
prior year. In addition, trailer lease revenue decreased due to lower
utilization.
The decrease in operating lease revenues as a result of the reduction in
transportation equipment available for lease was partially offset by (a) a $0.1
million increase in mobile offshore drilling unit (rig) revenue in 1996 due to
the purchase of a rig held for sale to an affiliated program during the fourth
quarter of 1996 and (b) a $1.7 million increase in operating lease revenues
generated by commercial and industrial equipment leases on $15.9 million of
purchased equipment that was retained by the Company and revenues generated on
leased equipment purchased for $30.7 million prior to being sold to third
parties.
Finance lease income:
The Company earns finance lease income from 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. During 1996, the
Company earned direct finance lease income on average commercial and industrial
assets that were on finance lease of $30.5 million, which are financed by both
short-term secured debt and nonrecourse debt. These direct finance leases
resulted in $4.2 million in earned income for 1996, which represent income
earned on the lease payment stream. There were no similar transactions in 1995.
Management fees:
Management fees are, for the most part, based on the gross revenues
generated by equipment under management. Management fees were $11.0 million for
1996, compared to $11.2 million in 1995. Although management fees related both
to Fund I and the institutional leasing investment program managed by the
Company's AFG subsidiary increased, management fees from the remaining older
programs decreased due to a net decrease in managed equipment, a decrease in
lease rates for certain types of equipment in those programs, and the
elimination of management of the Equis programs. With the termination of
syndication activities in 1996, management fees from the older programs are
expected to decrease in the future, as they begin liquidation and the associated
equipment portfolio becomes permanently reduced. This decrease is expected to
continue to be offset in part by management fees earned from the institutional
leasing investment programs managed by AFG.
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 $2.7 million and $3.3 million for 1996 and 1995,
respectively. In addition, net increases of $0.8 million and $1.7 million in the
Company's recorded residual values were recorded during 1996 and 1995,
respectively. In 1996, the equity interest recorded was impacted by $1.8 million
in residual income recorded for Fund I equipment purchases, offset partially by
decreases in residual values related to dispositions of equipment in certain of
the equipment growth funds. In 1995, the equity interest recorded was impacted
by $2.2 million in residual income recorded for Fund I equipment purchases and
$0.9 million in residual income from the Equis programs, which was offset
partially by a decrease in residual income related to other existing programs.
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 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. In 1996, the Company also earned $0.3 million in liquidation sales
fees for the sale of managed equipment. There were no similar fees in 1995.
Acquisition and lease negotiation fees:
During 1996, a total of $105.7 million of equipment was purchased on behalf of
the EGF programs, compared to $100.0 million during 1995, resulting in a $0.3
million increase in acquisition and lease negotiation fees. This increase was
offset by a $0.3 million decrease in acquisition and lease negotiation fees
related to AFG purchases for managed programs. Due to the Company's decision to
halt syndication of equipment leasing programs with the close of Fund I in 1996,
and because Fund I has a no front-en 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, spare parts sales, and
brokerage subsidiary, decreased $2.1 million in 1996, from 1995. The decrease
was attributable to the sale of the subsidiary's ownership interest in Aeromech
Pty. Ltd. and Austin Aero FBO Ltd. to third parties in December 1995 and January
1996, respectively.
Gain on the sale or disposition of assets, net:
During 1996, the Company recorded $2.3 million in net gains on the sale
or disposition of assets. Of these gains, $2.1 million resulted from the sale or
disposition of commuter aircraft, commercial aircraft, marine containers,
railcars, storage equipment, and trailers, and $0.9 million related to the sale
of commercial and industrial equipment. These gains were partially offset by
adjustments totaling $0.7 million to write down the net book value of certain
commuter aircraft ($0.4 million) and certain trailers ($0.3 million) to their
estimated market value. A $4.9 million net gain was recorded during the year
ended December 31, 1995. Of this gain, $5.6 million related to the sale of three
option contracts for railcar equipment and the disposition of a marine vessel,
marine containers, commercial aircraft, commuter aircraft, helicopters,
railcars, storage equipment, and trailers. Also during 1995, the Company
purchased and sold to an unaffiliated third party three off-lease commuter
aircraft for an aggregate gain of $0.5 million, net of selling costs. In
addition, adjustments totaling $1.2 million were recorded to write down the net
book value of certain aircraft to their estimated net realizable value.
Commissions:
Commission revenue represents syndication placement fees, generally 9% of equity
raised for EGF programs, earned upon the sale of partnership units to investors.
During 1996, no program equity was raised for the EGF programs, compared to
$14.6 million of equity raised during 1995, resulting in a $1.3 million decrease
in placement commissions. The Company closed PLM Equipment Growth & Income Fund
VII (EGF VII) syndication activities in April 1995. As a result of the Company's
decision to suspend syndication of equipment leasing programs in May 1996, and
because Fund I had a no front-end fee structure, commission revenue has been
eliminated since the close of EGF VII.
Other:
Other revenues increased $0.5 million in 1996, from 1995, due to
increased underwriting income, brokerage fees, and financing income.
Costs and Expenses
1996 1995
-----------------------------------------
(in thousands of dollars)
Operations support $ 21,595 $ 26,001
Depreciation and amortization 11,318 8,616
General and administrative 7,956 10,539
Commissions - 1,416
------------------------------------------------
Total costs and expenses $ 40,869 $ 46,572
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 $4.4 million (17%) for 1996, from 1995. The
decrease resulted from a $1.7 million decrease in operating costs, cost of
sales, and repair and maintenance costs due to (a) the sale of some of the
Company's transportation equipment, and the sale of the Company's ownership
interests in Aeromech Pty. Ltd. and Austin Aero FBO Ltd. to third parties in
December 1995 and January 1996, respectively, (b) a $5.2 million decrease in
compensation and benefits expenses due to staffing reductions, and (c) higher
compensation expense in 1995 (primarily to compensate employees for lost
benefits resulting from the termination of the 401(k) plan during 1995.) The
decrease was partially offset by a $1.4 million charge in 1996 related to the
termination of syndication activities, a $0.3 million increase in bad debt
expense, and a $0.8 million decrease in allocated expenses to the Equis programs
(as the Company was no longer managing these programs) in 1996.
Depreciation and amortization:
Depreciation and amortization expenses increased $2.7 million (31%) for the year
ended 1996, as compared to 1995. The increase resulted from the amortization of
costs associated with AFG and the depreciation of AFG assets held for operating
leases and administrative assets, which was partially offset by the reduction in
depreciable equipment (discussed in the operating lease revenue section).
General and administrative:
General and administrative expenses decreased $2.6 million (25%) during the year
ended 1996, compared to 1995. The decrease resulted from a $0.8 million decrease
in compensation expenses primarily related to staffing reductions and lower 1996
bonus expense (primarily related to the compensation of employees during 1995
for lost benefits resulting from the termination of the 401(k) plan), a $0.3
million decrease in estimated accruals, a $0.7 million decrease in professional
services expenses, and a $0.8 million decrease in administrative expenses.
Commissions:
Commission expenses were incurred by the Company primarily in connection with
the syndication of investment partnerships, and represented payments to brokers
and financial planners for sales of investment program units. Commission
expenses for 1996 decreased $1.4 million (100%) from 1995. The reduction is the
result of no syndicated equity raised for the EGFs during 1996, versus $14.6
million in syndicated equity raised for the EGFs during 1995. Commission costs
related to Fund I were capitalized as part of the Company's investment in the
program. With the termination of syndication activities, no more commission
costs will be incurred in the future.
Other Income and Expenses
1996 1995
-------------------------------------------
(in thousands of dollars)
Interest expense $ (7,341) $ (7,110)
Interest income 1,228 1,973
Other expense, net (670) (496)
Interest expense:
Interest expense increased $0.2 million (3%) during 1996, compared to
1995, mainly due to an increase in borrowings of nonrecourse debt, the senior
secured notes facility, and the short-term secured debt facility, which was
partially offset by the retirement of the subordinated debt and the $10.0
million reduction of the senior secured loan.
Interest income:
Interest income decreased $0.7 million (38%) in 1996, compared to 1995,
from a reduction in interest income earned on the PLM International, Inc.
Employee Stock Option Plan (ESOP) cash collateral account, due to the
termination of the ESOP and a decrease in interest income as a result of lower
average cash balances in 1996 compared to 1995.
Other expenses, net:
Other expenses, net were $0.7 million during 1996, compared to $0.5 million in
1995. During 1996, the Company prepaid the remaining $8.6 million balance of its
subordinated debt and $10.0 million of its senior secured loan, and wrote off
the associated loan fees and incurred prepayment penalties totaling $1.0
million. These expenses were partially offset by other income of $0.4 million
due to the 1996 sale of 32 wind turbines that had previously been written off.
Other expenses, net were $0.5 million in 1995, due mainly to loan fees of $1.1
million related to the early retirement of $11.5 million of the Company's
subordinated debt, which was partially offset by the collection of an account
receivable that had previously been written off.
Provision for (Benefit from) Income Taxes
The Company recognized a benefit for income taxes in 1996 of $0.2 million as a
result of several items of a nonrecurring nature. These included adjustments
that reduced income tax expense relating to (a) differences between the amount
recognized in the 1995 financial statements and the 1995 tax return as filed and
(b) changes in state tax apportionment factors used to record deferred taxes.
For both 1996 and 1995, the Company's income tax rate included the benefit of
certain income earned from foreign activities that has been permanently invested
outside the United States (refer to Note 11 to the consolidated financial
statements). For 1995, the provision for income taxes was $1.8 million, which
represented an effective rate of 23%.
Net Income
As a result of the foregoing, 1996 net income was $4.1 million, resulting in
basic and fully diluted earnings per weighted-average common share of $0.41 and
$0.40, respectively. For 1995, net income was $6.0 million, resulting in basic
and fully diluted earnings per weighted-average common share of $0.52 and $0.51,
respectively.
Liquidity and Capital Resources
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, and the sale of equipment.
Liquidity beyond 1997 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 Secured Loan: The Company's senior loan with a syndicate of insurance
companies, which had an outstanding balance of $20.6 million as of December 31,
1997 and February 23, 1998, 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 December 31, 1997, the cash collateral balance was $12.7
million and is included in restricted cash and cash equivalents on the Company's
balance sheet. 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 Secured 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 1997, the Company drew down $9.0
million and repaid $3.2 million on this facility. The facility bears interest at
LIBOR plus 240 basis points. As of December 31, 1997, the Company had $23.8
million outstanding under this agreement. As of February 23, 1998, the Company
had $22.6 million outstanding under this agreement. The Company has pledged
substantially all of its management fees, acquisition and lease negotiation
fees, data processing fees, and certain partnership distributions as collateral
to the facility. The facility required quarterly interest only payments through
August 15, 1997, with principal plus interest payments beginning November 15,
1997. Principal payments are payable quarterly in 20 equal amounts through
termination of the loan on August 15, 2002.
Bridge Financing: Assets acquired and held on an interim basis for placement
with affiliated programs or sale to third parties or purchased for placement in
the Company's nonrecourse debt facility have, from time to time, been partially
funded by a $50.0 million short-term secured debt facility. During 1997, the
availability of this facility was extended until November 2, 1998. The Company
believes it will be able to renew this facility on substantially the same terms
upon its expiration.
This facility, which is shared with EGFs V, VI, and VII, and Fund I,
allows the Company to purchase equipment prior to its designation to a specific
program. This facility provides 80% financing of original equipment costs for
transportation assets of the Company and up to 100% financing for transportation
assets of the EGFs. The facility provides 100% of the discounted present value
of the lease stream, plus 100% of the allocated residual amount of all eligible
equipment up to 90% of the original equipment cost of the assets, and 100% of
the allocated residual amount of all master trust pooled equipment for
nonrecourse assets, if the Company is the borrower and working capital is used
for the nonfinanced costs of these acquisitions. The Company can hold
transportation assets in this facility for up to 150 days. Assets to be
transferred to the nonrecourse debt facility can be held under this facility
until the facility's expiration. Interest accrues at Prime or LIBOR plus 162.5
basis points at the option of the borrower at the time of the advance under the
facility. The Company retains the difference between the net lease revenue
earned and the interest expense during the interim holding period, since its
capital is at risk. As of December 31, 1997, the Company had $23.0 million
outstanding under this facility. As of February 23, 1998, the Company had $20.4
million in borrowings outstanding under this facility. There were no other
borrowings outstanding under this facility as of December 31, 1997 or February
23, 1998.
Nonrecourse Debt: The Company has available a nonrecourse debt facility for up
to $125.0 million, secured by direct finance leases, operating leases, and loans
on commercial and industrial equipment that generally have terms of one to seven
years. The facility is available for a one-year period expiring October 13,
1998. Repayment of the facility matches the terms of the underlying leases. The
nonrecourse debt facility bears interest equivalent to the lender's cost of
funds. As of December 31, 1997, $71.3 million in borrowings was outstanding
under this facility. As of February 23, 1998, $75.6 million in borrowings was
outstanding under this facility. The Company believes that it will be able to
renew this facility on substantially the same terms upon its expiration.
In addition to the $125.0 million nonrecourse debt facility discussed above,
the Company also has $10.0 million in nonrecourse notes payable secured by
direct finance leases on commercial and industrial equipment that have terms
corresponding to the note repayment schedule beginning November 1997 through
October 2001. The notes bear interest at 9.16% per annum.
Interest-Rate Swap Contracts: The Company has entered into interest-rate swap
agreements in order to manage the interest-rate exposure associated with its
nonrecourse debt. As of December 31, 1997, the swap agreements had remaining
terms averaging 2.5 years, corresponding to the terms of the related debt. As of
December 31, 1997, a notional amount of $72.5 million of interest-rate swap
agreements effectively fixed interest rates at an average of 7.27% on such
obligations. Interest expense increased by $0.3 million due to these
arrangements in 1997.
Commercial and industrial equipment leasing:
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 nonrecourse debt
facility. AFG also originates loans in which it takes a security interest in the
assets. During 1997, the Company purchased commercial and industrial equipment
with an original equipment cost of $122.5 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 institutional
leasing investment programs 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 also
purchases equipment with the intent to sell to unaffiliated third parties. The
Company believes this lease origination operation is a growth area for the
future.
As of December 31, 1997, the Company had committed to purchase $153.8 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 January 1, 1998 through February 23, 1998, the Company funded $9.8 million
of commitments outstanding as of December 31, 1997 for its commercial and
industrial equipment lease portfolio.
As of February 23, 1998, the Company had committed to purchase $173.6 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.
Trailer leasing:
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 foodservice distribution industry. The Company intends to open
additional rental yard facilities in 1998. 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.
Other transportation equipment leasing, management of investment programs,
and other:
During 1997, the Company generated proceeds of $13.5 million from the sale of
owned transportation equipment. The net proceeds from the sale of assets that
were collateralized as part of the senior loan facility were placed in a
collateral account. During 1997, $8.5 million in funds were released to the
Company from the cash collateral account. The funds were released based on the
appraised fair market value of the equipment portfolio and the related
collateral coverage ratio. As of December 31, 1997, $12.7 million was on deposit
in the cash collateral account and is included in restricted cash and cash
equivalents on the Company's balance sheet.
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.
The Company also has an 80% interest in a company located in Australia involved
in aircraft brokerage and aircraft spare part sales.
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.
Year 2000 Compliance
The Company is currently addressing the Year 2000 computer software issue. The
Company is creating a timetable for carrying out any program modifications that
may be required.
Inflation
There was no significant impact on the Company's operations as a result of
inflation during 1997, 1996, or 1995.
Geographic Information
For a discussion of the geographic information, refer to Note 17 to the
consolidated financial statements.
New Accounting Pronouncements
For a discussion of the impact of new accounting pronouncements, refer to Note 1
to the consolidated financial statements.
Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Company's actual results could differ materially from
those discussed here.
Trends
The Company continues to seek opportunities for new businesses, markets, and
acquisitions. During 1995, the Company established its AFG subsidiary. AFG is
engaged in the funding and management of long-term direct finance-type leases,
operating leases, and loans. Master lease agreements are entered into with
predominantly 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. AFG is also engaged in the
management of institutional leasing investment programs for which it originates
leases and receives acquisition and management fees. During 1997, AFG funded
lease and loan transactions for commercial and industrial equipment with an
original cost of $124.7 million. Of this, the Company sold $58.3 million to the
institutional leasing investment programs or to third parties. During 1997, the
Company brokered commercial and industrial equipment with an original equipment
cost of $32.0 million. In the future, the Company intends to continue to develop
the portfolio of its AFG subsidiary.
The Company intends to expand its current trailer leasing and management
operations by purchasing trailers and opening new rental yards for its PLM
Rental, Inc. subsidiary. PLM Rental is one of the largest short-term, on-demand
refrigerated trailer rental operations in North America, and the Company
believes there are new opportunities in the refrigerated trailer leasing market.
During 1996, the Company announced the suspension of public syndication of
equipment leasing programs with the 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 programs begin liquidation and the
managed equipment portfolio becomes permanently reduced.
The Company has selectively reduced the size of its owned transportation
equipment portfolio over the past few years. In 1997, the Company sold $24.3
million of its owned transportation equipment (of which $8.0 million was
included in assets held for sale as of December 31, 1996), based on original
cost. As a result of the reduction in owned equipment over the past few years,
the Company's operating lease revenues have decreased, as well as the associated
depreciation, operating, and repair and maintenance costs. Over the last three
years, the Company used the proceeds from equipment sales and cash from
operations to reduce subordinated indebtedness by $23.0 million, resulting in
reduced interest costs. These reductions have helped offset the increased
borrowing activity and interest costs associated with the expansion of the AFG
lease portfolio. In addition, the reduction in transportation equipment lease
revenues will continue to be increasingly offset by lease revenues generated
from commercial and industrial equipment leases associated with AFG. With the
exception of the Company's aircraft and intermodal trailer fleet, the Company
does not anticipate continued substantial reductions in its owned equipment
portfolio in 1998 and beyond.
The Company continues to benefit from cost reduction measures, principally
reflecting reductions in total Company staffing since 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted as a separate section of this report. See
Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A definitive Company proxy statement will be filed not later than 120 days after
the end of the fiscal year with the Securities and Exchange Commission. The
information set forth under "Identification of Directors and Officers,"
"Compensation of Executive Officers," and "Security Ownership of Certain
Beneficial Owners and Management" in such proxy statement is incorporated herein
by reference for Items 10, 11, and 12, above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The consolidated financial statements listed in the accompanying
index to financial statements are filed as part of this Annual
Report on Form 10-K.
(2) Exhibits are listed at Item (c), below.
(b) Reports on Form 8-K Filed in Last Quarter of 1997
December 1, 1997: Announcement of approval on November 26, 1997 by vote of a
majority of the outstanding shares of the Company's common stock of an amendment
to Article Fourth of the Company's Certificate of Incorporation to effect a
1-for-200 reverse stock split followed by a 200-for-1 forward stock split of the
common stock.
(c) Exhibits
3.1 Certificate of Incorporation, incorporated by reference to the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on April 2, 1990.
3.2 Bylaws, incorporated by reference to the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
April 2, 1990.
10.1 $45,000,000 Senior Secured Note Agreement, dated as of June 30,
1994, as amended, incorporated by reference to the Company's Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on March 15, 1995.
10.2 $27,000,000 Floating Rate Senior Secured Notes Agreement, dated as
of June 28, 1996, incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 5, 1996.
10.3 Amended and Restated Warehousing Credit Agreement among American
Finance Group, Inc. and First Union National Bank of North
Carolina, Bank of Montreal, dated as of December 2, 1997.
10.4 Second Amended and Restated Warehousing Credit Agreement among TEC
AcquiSub, Inc. and First Union National Bank of North Carolina,
Bank of Montreal, dated as of December 2, 1997.
10.5 Form of Employment contracts for executive officers, incorporated
by reference to the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1993.
10.6 Rights Agreement, as amended, filed with Forms 8-K on March 12,
1989, August 12, 1991, and January 23, 1993, and incorporated
herein by reference.
10.7 Directors' 1992 Nonqualified Stock Option Plan, incorporated by
reference to the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1993.
10.8 Form of Company Nonqualified Stock Option Agreement, incorporated
by reference to the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1993.
10.9 Directors' 1995 Nonqualified Stock Option Plan, incorporated by
reference to the Company's Annual Report on Form 10-K filed with
the Securities Exchange Commission on March 15, 1995.
10.10 PLM International, Inc. Mandatory Management Stock Bonus Plan,
incorporated by reference to the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission on February
24, 1997.
10.11 Form of Executive Deferred Compensation Agreement, incorporated by
reference to the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1993.
10.12 Asset Purchase Agreement, dated as of July 1, 1995, incorporated by
reference to the Company's Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on November 1, 1995.
10.13 Pooling and Servicing Agreement and Indenture of Trust, dated as of
July 1, 1995, incorporated by reference to the Company's Quarterly
Report on Form 10-Q filed with the Securities and Exchange
Commission on November 1, 1995.
10.14 Office Lease for premises at One Market, San Francisco, California,
incorporated by reference to the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission on April 1,
1991.
10.15 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, incorporated by
reference to the Company's Form 10-Q filed with the Securities and
Exchange Commission on October 24, 1997.
10.16 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,
incorporated by reference to the Company's Form 10-Q filed with the
Securities and Exchange Commission on October 24, 1997.
10.17 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,
incorporated by reference to the Company's Form 10-Q filed with the
Securities and Exchange Commission on October 24, 1997.
10.18 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,
incorporated by reference to the Company's Form 10-Q filed with the
Securities and Exchange Commission on October 24, 1997.
10.19 Note Purchase Agreement among AFG Credit Corporation, Variable
Funding Capital Corporation, and First Union Capital Markets Corp.,
dated as of October 14, 1997, incorporated by reference to the
Company's Form 10-Q filed with the Securities and Exchange
Commission on October 24, 1997.
10.20 Third Amendment to Warehousing Credit Agreement among American
Finance Group Inc. and First Union National Bank of North Carolina,
dated as of November 3, 1997.
10.21 Fourth Amendment to Amended and Restated Warehousing Credit
Agreement among TEC AcquiSub, Inc. and First Union National Bank of
North Carolina, dated as of November 3, 1997.
10.22 Assignment and assumption of $10,360,388 Notes Payable Agreement
among American Finance Group, Inc. and Varilease Corporation, dated
as of December 30, 1997.
11.1 Statement regarding computation of per share earnings.
21.1 Subsidiaries of the Company.
23.1 Consents of Independent Auditors.
24.1 Powers of Attorney.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: February 23, 1998 PLM International, Inc.
By: /s/ Robert N. Tidball
---------------------------
Robert N. Tidball
Chairman, President, and
Chief Executive Officer
By: /s/ J. Michael Allgood
--------------------------
J. Michael Allgood
Vice President and
Chief Financial Officer
By: /s/ Richard K Brock
-------------------------
Richard K Brock
Vice President and
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company, in the
capacities and on the dates indicated.
* February 23, 1998
- -------------------------------------------- Director,
Douglas P. Goodrich Vice President
* Director February 23, 1998
- --------------------------------------------
Robert L. Witt
* Director February 23, 1998
- --------------------------------------------
Randall L.-W. Caudill
* Director February 23, 1998
- --------------------------------------------
Harold R. Somerset
* Susan C. Santo, by signing her name hereto, does sign this document on
behalf of the persons indicated above, pursuant to powers of attorney
duly executed by such persons and filed with the Securities and
Exchange Commission.
/s/ Susan C. Santo
----------------------
Susan C. Santo
Attorney-in-Fact
INDEX TO FINANCIAL STATEMENTS
(Item 14(a)(1)(2))
Description Page
Independent Auditors' Report 30
Consolidated Statements of Income for Years Ended
December 31, 1997, 1996, and 1995 31
Consolidated Balance Sheets as of December 31, 1997 and 1996 32
Consolidated Statements of Changes in Shareholders' Equity
for Years Ended December 31, 1997, 1996, and 1995 33
Consolidated Statements of Cash Flows for Years
Ended December 31, 1997, 1996, and 1995 34-35
Notes to Consolidated Financial Statements 36-54
All schedules are omitted, since the required information is not pertinent or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
PLM International, Inc.
We have audited the consolidated financial statements of PLM International, Inc.
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PLM International,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
- --------------------------------
KPMG PEAT MARWICK LLP
SAN FRANCISCO, CALIFORNIA
FEBRUARY 23, 1998
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(in thousands of dollars, except per share amounts)
1997 1996 1995
---------------------------------------------------
Revenues:
Operating leases (Note 6) $ 15,777 $ 18,180 $ 23,919
Finance lease income (Note 2) 8,685 4,186 --
Management fees (Note 1) 11,275 10,971 11,197
Partnership interests and other fees (Note 1) 1,306 3,811 4,978
Acquisition and lease negotiation fees (Note 1) 3,184 6,610 6,659
Aircraft brokerage and services 2,466 2,903 5,022
Gain on the sale or disposition of assets, net 3,720 2,282 4,912
Commissions (Note 1) -- -- 1,322
Other 3,252 2,602 2,064
---------------------------------------------------
Total revenues 49,665 51,545 60,073
Costs and expenses:
Operations support (Notes 12 and 15) 16,633 21,595 26,001
Depreciation and amortization (Note 1) 8,447 11,318 8,616
General and administrative (Notes 12 and 15) 9,472 7,956 10,539
Commissions (Note 1) -- -- 1,416
---------------------------------------------------
Total costs and expenses 34,552 40,869 46,572
---------------------------------------------------
Operating income 15,113 10,676 13,501
Interest expense (9,891) (7,341) (7,110 )
Interest income 1,635 1,228 1,973
Other expenses, net (342) (670) (496 )
---------------------------------------------------
Income before income taxes 6,515 3,893 7,868
Provision for (benefit from) income taxes (Note 11) 1,848 (202) 1,820
---------------------------------------------------
Net income to common shares $ 4,667 $ 4,095 $ 6,048
===================================================
Basic earnings per weighted-average common share
outstanding $ 0.51 $ 0.41 $ 0.52
===================================================
Fully diluted earnings per weighted-average common
share outstanding $ 0.50 $ 0.40 $ 0.51
===================================================
See accompanying notes to these consolidated
financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(in thousands of dollars, except share amounts)
ASSETS
1997 1996
-------------------------------
Cash and cash equivalents $ 5,224 $ 7,638
Receivables 4,969 5,286
Receivables from affiliates (Note 4) 5,007 6,019
Investment in direct finance leases, net (Note 2) 119,613 69,994
Loans receivable (Note 3) 5,861 5,718
Equity interest in affiliates (Note 4) 26,442 30,407
Assets held for sale (Note 5) -- 6,222
Transportation equipment held for operating leases (Note 6) 50,252 66,546
Less accumulated depreciation (26,981) (41,750 )
----------------------------------
23,271 24,796
Commercial and industrial equipment held for operating leases 23,268 15,930
Less accumulated depreciation (4,816) (2,302 )
----------------------------------
18,452 13,628
Restricted cash and cash equivalents (Note 7) 18,278 17,828
Other, net 9,166 11,213
----------------------------------
Total assets $ 236,283 $ 198,749
==================================
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term secured debt (Note 8) $ 23,040 $ 30,966
Senior secured loan (Note 9) 20,588 25,000
Senior secured notes (Note 9) 23,843 18,000
Other secured debt (Note 9) 413 618
Nonrecourse debt (Note 10) 81,302 45,392
Payables and other liabilities 25,366 16,757
Deferred income taxes (Note 11) 14,860 15,334
----------------------------------
Total liabilities 189,412 152,067
Commitments and contingencies (Note 12)
Minority interest 323 362
Shareholders' equity (Note 13):
Common stock ($0.01 par value, 50,000,000
shares authorized, 8,436,564 and 9,142,761 shares
issued and outstanding as of December 31, 1997
and 1996, respectively) 112 117
Paid-in capital in excess of par 74,650 77,778
Treasury stock (3,598,283 and 3,453,630 shares at
respective dates) (13,435) (12,382 )
----------------------------------
61,327 65,513
Accumulated deficit (14,779) (19,193 )
----------------------------------
Total shareholders' equity 46,548 46,320
----------------------------------
Total liabilities, minority interest, and shareholders' equity $ 236,283 $ 198,749
==================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1997, 1996, and 1995
(in thousands of dollars)
Common Stock
-------------------------------------------
Paid-in
Capital in Total
At Excess Treasury Accumulated Shareholders'
Par of Par Stock Deficit Equity
--------------------------------------------------------------------------------
Balances, December 31, 1994 $ 117 $ 77,699 $ (2,831) $ (29,290) $45,695
Net income 6,048 6,048
Common stock repurchases (3,100) (3,100)
Exercise of stock options 44 44
Translation loss (67) (67)
-----------------------------------------------------------------------------
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 4,667 4,667
Common stock repurchases (5) (3,128) (1,268) (4,401)
Reissuance of treasury stock, net 215 (38) 177
Redemption of shareholder rights (92) (92)
Translation loss (123) (123)
-----------------------------------------------------------------------------
Balances, December 31, 1997 $ 112 $ 74,650 $ (13,435) $ (14,779) $46,548
=============================================================================
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands of dollars)
1997 1996 1995
-------------------------------------------
Operating activities:
Net income $ 4,667 $ 4,095 $ 6,048
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,447 11,318 8,616
Foreign currency translations (123) 21 (67)
Deferred income tax benefit (474) (141) (672)
Gain on the sale or disposition of assets, net (3,720) (2,282) (4,912)
Undistributed residual value interests 1,052 (846) (445)
Minority interest in net loss of subsidiaries (39) (1) (37)
Increase in payables and other liabilities 3,459 2,881 2,839
Decrease (increase) in receivables and receivables
from affiliates 1,516 4,001 (1,825)
Amortization of organization and offering costs 2,913 2,977 1,087
Decrease (increase) in other assets 474 151 (1,807)
----------------------------------------------
Net cash provided by operating activities 18,172 22,174 8,825
----------------------------------------------
Investing activities:
Additional investments in affiliates -- (4,972) (10,477)
Purchase of residual option -- -- (200)
Principal payments received on finance leases 17,705 5,746 --
Principal payments received on loans 2,020 -- --
Investment in direct finance leases (103,592) (99,113) --
Investment in loans receivable (2,163) (5,718) --
Purchase of transportation equipment (34,564) (8,037) (45,930)
Purchase of commercial and industrial equipment held
for operating lease (18,915) (46,660) --
Proceeds from the sale of transportation equipment for lease 12,318 17,409 11,998
Proceeds from the sale of assets held for sale 25,857 2,052 55,362
Proceeds from the sale of commercial and industrial
equipment on finance lease 44,709 21,621 --
Proceeds from the sale of commercial and industrial
equipment on operating lease 11,772 30,270 --
Proceeds from the sale of leveraged leased assets -- -- 4,530
Proceeds from the disposition of residual options and
other investments -- -- 2,059
Sale of investment in subsidiary -- 372 --
Increase in restricted cash and cash equivalents (450) (7,207) (9,212)
----------------------------------------------
Net cash (used in) provided by investing activities (45,303) (94,237) 8,130
----------------------------------------------
(continued)
See accompanying notes to these consolidated
financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands of dollars)
(continued)
1997 1996 1995
-----------------------------------------------
Financing activities:
Borrowings of short-term secured debt $ 106,547 $ 109,254 $ 18,620
Repayment of short-term secured debt (114,473) (78,288 ) (25,024)
Repayment of senior secured loan (4,412) -- --
Proceeds from other secured debt -- 90 779
Repayment of other secured debt (205) (595 ) (69)
Borrowings under senior secured notes 9,000 18,000 --
Repayment of senior secured notes (3,157) (10,000 ) --
Borrowings of nonrecourse debt 121,716 56,024 --
Repayment of nonrecourse debt (85,806) (10,632 ) --
Repayment of subordinated debt -- (11,500 ) (11,500)
Payments received from ESOP trustee -- -- 928
Purchase of stock (4,401) (6,451 ) (3,100)
Redemption of shareholder rights (92) -- --
Proceeds from exercise of stock options -- 35 44
-----------------------------------------------------
Net cash provided by (used in) financing activities 24,717 65,937 (19,322)
-----------------------------------------------------
Net decrease in cash and cash equivalents (2,414) (6,126 ) (2,367)
Cash and cash equivalents at beginning of year 7,638 13,764 16,131
-----------------------------------------------------
Cash and cash equivalents at end of year $ 5,224 $ 7,638 $ 13,764
=====================================================
Supplementary schedule - net cash paid for:
Interest $ 9,395 $ 6,516 $ 6,371
=====================================================
Income taxes $ 1,119 $ 1,292 $ 603
=====================================================
See accompanying notes to these consolidated
financial statements.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements contain all necessary
adjustments, consisting primarily of normal recurring accruals, to present
fairly the results of operations, financial position, changes in shareholders'
equity, and cash flows of PLM International, Inc. and its wholly- and
majority-owned subsidiaries (PLM International or the Company or PLMI). PLM
International and its consolidated group began operations on February 1, 1988.
All intercompany transactions among the consolidated group have been eliminated.
PLM International is a diversified equipment leasing and management company
providing services to transportation, industrial, and commercial companies. The
Company specializes in creating equipment leasing solutions for domestic and
international customers. PLM Financial Services, Inc., a wholly-owned
subsidiary, is the general partner or manager of the Company's diversified
equipment leasing programs for its investors.
These financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles. This requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Leasing Operations
PLM International's leasing operations generally consist of operating and direct
finance leases on a variety of equipment types, primarily trailers and computer,
communications, and materials-handling equipment. Under the operating lease
method of accounting, the leased asset is recorded at cost and depreciated over
its estimated useful life. Rental payments are recorded as revenue over the
lease term.
Under the direct finance lease method of accounting, the leased asset is
recorded as an investment in direct finance leases and represents the minimum
net lease payments receivable plus the unguaranteed residual value of the
equipment, less unearned income. Rental payments, including principal and
interest on the lease, reduce the investment each month and the interest is
recorded as revenue over the lease term.
Equipment
Transportation equipment held for operating leases is stated at the lower of
depreciated cost or estimated fair value less cost to sell. Depreciation is
computed on the straight-line method down to its estimated salvage value,
utilizing the following estimated useful lives (in years): trailers, 8 to 18;
aircraft, 8 to 20; marine containers, 10 to 15; railcars, 15 to 18; and storage
equipment, 15. Commercial and industrial equipment are depreciated over the
lease term, generally ranging from 1 to 7 years. Salvage values for
transportation equipment are generally 15% of original equipment cost. Salvage
values for commercial and industrial equipment vary according to the type of
equipment.
In accordance with Financial Accounting Standards Board (FASB) Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121), the Company reviews the carrying value of
its equipment at least annually in relation to expected future market conditions
for the purpose of assessing recoverability of the recorded amounts. If
projected undiscounted future lease revenues plus residual values are lower than
the carrying value of the equipment, the loss on revaluation is recorded as a
reduction in the gain on the sale or disposition of assets, net ($0.2 million in
1997, $0.7 million in 1996, and $1.2 million in 1995). 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 program. Equipment held for sale
is valued at the lower of depreciated cost or estimated fair value less cost to
sell.
Except for trailers operating out of the Company's short-term rental yards,
maintenance costs are usually the obligation of the lessee. If not covered by
the lessee, they are charged against operations as incurred. To meet the
maintenance obligations of certain aircraft engines and frames, escrow accounts
are generally prefunded by the lessees. The escrow accounts are included in the
consolidated balance sheet as cash and cash equivalents or restricted cash and
other liabilities. Repair and maintenance expenses were $2.7 million, $3.0
million, and $3.5 million for 1997, 1996, and 1995, respectively.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in and Management of Equipment Growth Funds, Other Limited
Partnerships, and Private Placements
The Company earns revenues in connection with the management of the limited
partnerships and private placement programs. During the syndication of each of
the PLM Equipment Growth Funds (EGFs), placement fees and commissions,
representing approximately 9% of equity raised, were generally earned upon the
purchase by investors of the partnership units. A significant portion of these
placement fees was reallowed to the originating broker-dealer.
Equipment acquisition, lease negotiation, and debt placement fees are generally
earned through the purchase, initial lease, and financing of equipment, and are
generally recognized as revenue when the Company completes substantially all of
the services required to earn the fees, generally when binding commitment
agreements are signed.
Management fees are earned for managing the equipment portfolios and
administering investor programs as provided for in various agreements, and are
recognized as revenue over time as they are earned.
As compensation for organizing a partnership investment program, the Company was
generally granted an interest (between 1% and 5%) in the earnings and cash
distributions of the program for which PLM Financial Services, Inc. (FSI) is the
general partner. The Company recognizes as partnership interests its equity
interest in the earnings of the partnerships, after adjusting such earnings to
reflect the use of straight-line depreciation and the effect of special
allocations of the program's gross income allowed under the respective
partnership agreements.
The Company also recognizes as income its interest in the estimated net residual
value of the assets of the partnerships as they are purchased. The amounts
recorded are based on management's estimate of the net proceeds to be
distributed upon disposition of the partnership's equipment at the end of the
respective partnerships. As assets are purchased by the partnerships, these
residual value interests are recorded in other fees at the present value of the
Company's share of estimated disposition proceeds. When a limited partnership is
in the liquidation phase, distributions received by the Company will be treated
as recoveries of its equity interest in the partnership until the recorded
residual is eliminated. Any additional distributions received will be treated as
residual interest income.
In accordance with certain investment program and partnership agreements, the
Company received reimbursement for organization and offering costs incurred
during the offering period. The reimbursement was generally between 1.5% and 3%
of the equity raised. The investment program reimbursed the Company ratably over
the offering period of the investment program based on the equity raised. In the
event organizational and offering costs incurred by the Company, as defined by
the partnership agreement, exceeded amounts allowed, the excess costs were
capitalized as an additional investment in the related partnership and are being
amortized until the projected start of the liquidation phase of the partnership.
These additional investments are reflected as equity interest in affiliates in
the accompanying consolidated balance sheets.
Investment in and Management of Limited Liability Company
From May 1995 through May 1996, Professional Lease Management Income Fund I, LLC
(Fund I), a limited liability company with a no front-end fee structure, was
offered as an investor program. FSI serves as the manager for the program. No
compensation was paid to the Company for the organization and syndication of
interests, the acquisition of equipment, the placement of debt, or the
negotiation of leases in Fund I. The Company funded the costs of organization,
syndication, and offering through the use of operating cash and has capitalized
these costs as its investment in Fund I.
The Company is amortizing its investment in Fund I over eight years. In return
for its investment, the Company is generally entitled to a 15% interest in the
cash distributions and earnings of Fund I, subject to certain allocation
provisions. The Company's interest in the cash distributions and earnings of
Fund I will increase to 25% after the investors have received distributions
equal to their invested capital. The Company is entitled to monthly fees for
equipment management services and reimbursement for providing certain accounting
and administrative services.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in and Management of Limited Liability Company (continued)
FSI also recognizes as income its interest in the estimated net residual value
of the assets of Fund I as they are purchased. The amounts recorded are based on
management's estimate of the net proceeds to be distributed upon disposition of
the program's equipment at the end of the program. As assets are purchased by
Fund I, these residual value interests are recorded in partnership interests and
other fees at the present value of FSI's share of estimated disposition
proceeds. When Fund I is in the liquidation phase, distributions received by FSI
will be treated as recoveries of its equity interest in the program until the
recorded residual is eliminated. Any additional distributions received will be
treated as residual interest income.
Residual Interests
The Company has residual interests in equipment owned by the managed programs,
which are recorded as equity interest in affiliates. Residual interests in
equipment on finance leases are recorded as investment in direct finance leases,
net. As required by FASB Technical Bulletin 1986SYMBOL 45 \f "Symbol" \s 102,
the discount on the Company's residual value interests in the equipment owned by
the managed programs is not accreted over the holding period. The Company
reviews the carrying value of its residual interests at least annually in
relation to expected future market values for the underlying equipment in which
it holds residual interests for the purpose of assessing recoverability of
recorded amounts.
Earnings Per Weighted-Average Common Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which
required the Company to replace its presentation of primary earnings per share
with a presentation of basic and fully diluted earnings per share on the face of
the income statement, effective December 15, 1997. The principal difference
between primary earnings per share 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. Basic earnings per common share
is computed by dividing net income to common shares by the weighted-average
number of shares outstanding during the period. The computation of fully diluted
earnings per share is similar to the computation of basic earnings per share,
except for the inclusion of all potentially dilutive common shares. The
statement required restatement of all prior periods presented. Basic and fully
diluted earnings per share are presented below for the years ended December 31:
1997 1996 1995
------------------------------------------------
(in thousands of dollars, except per share data)
Basic:
Net income $ 4,667 $ 4,095 $ 6,048
Weighted-average number of common shares outstanding 9,081 10,032 11,576
Basic earnings per common share $ 0.51 $ 0.41 $ 0.52
Fully diluted:
Net income $ 4,667 $ 4,095 $ 6,048
Shares:
Weighted-average number of common shares outstanding 9,081 10,032 11,576
Potentially dilutive common shares 227 166 186
Total shares 9,308 10,198 11,762
Fully diluted earnings per weighted-average common share $ 0.50 $ 0.40 $ 0.51
Income Taxes
The Company recognizes income tax expense using the liability method. Deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities.
Deferred income taxes arise primarily because of differences in the timing of
reporting equipment depreciation, partnership income, and certain reserves for
financial statement and income tax reporting purposes.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangibles
Intangibles are included in other assets on the balance sheet and consist
primarily of goodwill related to acquisitions and loan fees. Goodwill is being
amortized over 8 to 15 years from the acquisition date. The Company annually
reviews the valuation of goodwill based on projected future cash flows. Loan
fees are amortized over the life of the related loan.
Cash and Cash Equivalents
The Company considers highly liquid investments readily convertible into known
amounts of cash with original maturities of 90 days or less as cash equivalents.
Reclassifications
Certain prior-year amounts have been reclassified in order to conform to the
current year's presentation.
Accounting Pronouncements
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 ended December 31,
1998, 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.
Interest-Rate Swap Agreements
The Company has entered into interest-rate swap agreements to hedge its
interest-rate exposure on its nonrecourse debt facility obligation. The terms of
the swap agreements correspond to the hedged debt. The differential to be paid
or received under the swap agreement is charged or credited to interest expense.
2. FINANCING TRANSACTION ACTIVITIES
American Finance Group, Inc. (AFG), a wholly-owned subsidiary, originates and
manages lease and loan transactions on new commercial and industrial equipment
that are financed by nonrecourse debt, for the Company's own account, or sold to
institutional leasing investment programs or other investors. Periodically, the
Company uses its short-term loan facility to finance the acquisition of the
assets, subject to these leases, prior to sale or permanent financing by
nonrecourse debt. The majority of these leases is accounted for as direct
finance leases, while some transactions qualify as operating leases and loans.
During 1997, the Company funded $103.6 million in equipment that was placed on
finance lease. Also during 1997, the Company sold equipment on finance lease
with an original cost of $46.5 million, resulting in net gains of $1.8 million.
During 1996, the Company funded $99.1 million in equipment that was placed on
finance lease. Also during 1996, the Company sold equipment on finance lease
with an original cost of $22.5 million, resulting in net gains of $0.5 million.
The following lists the components of the investment in direct finance leases,
net, as of December 31 (in thousands of dollars):
1997 1996
--------------- ----------------
Total minimum lease payments receivable $ 122,508 $ 73,434
Estimated unguaranteed residual values
of leased properties 20,328 11,541
--------------- ----------------
142,836 84,975
Less unearned income (23,223) (14,981)
--------------- ----------------
Investment in direct finance leases, net $ 119,613 $ 69,994
=============== ================
2. FINANCING TRANSACTION ACTIVITIES (continued)
Schedule of Minimum Lease
Payments (in thousands of
dollars):
1998 $ 37,772
1999 33,614
2000 26,632
2001 16,633
2002 7,736
Thereafter 121
---------------
Total minimum lease payments receivable $ 122,508
===============
3. LOANS RECEIVABLE
As of December 31, 1997, the Company had loans receivable outstanding with three
customers, totaling $5.9 million and with interest rates ranging from 8.70% to
10.81%, secured by commercial and industrial equipment. Future payments
receivable on the notes as of December 31, 1997 are as follows (in thousands of
dollars):
1998 $ 2,824
1999 2,816
2000 221
------------
Total loans receivable $ 5,861
============
As of December 31, 1997, the Company estimates, based on recent transactions,
that the fair market value of the $5.9 million loans receivable is $5.9 million.
4. EQUITY INTEREST IN AFFILIATES
FSI, a wholly-owned subsidiary of the Company, is the general partner in 23
limited partnerships and generally holds an equity interest in each ranging from
1% to 5%. Net earnings and distributions of the partnerships are generally
allocated 99% to the limited partners and 1% to the general partner, except for
EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII (EGF VII),
which are allocated 95% to the limited partners and 5% to the general partner.
As the manager of Fund I, FSI is entitled to a 15% interest in its cash
distributions and earnings, subject to certain allocation provisions. The
Company's interest in the cash distributions and earnings of Fund I will
increase to 25% after the investors have received distributions equal to their
invested capital.
Summarized combined financial data for these affiliates, reflecting
straight-line depreciation, is as follows (in thousands of dollars and
unaudited):
1997 1996
-----------------------------
Financial position as of December 31:
Cash and other assets $ 87,205 $ 55,681
Transportation equipment and other assets,
net of accumulated depreciation of $186,295
in 1997 and $248,668 in 1996 585,762 700,304
---------------------------------
Total assets 672,967 755,985
Less liabilities, primarily long-term financings 196,464 215,974
---------------------------------
Partners' equity $ 476,503 $ 540,011
=================================
PLM International's share thereof, which amounts are recorded as equity interest
in affiliates:
Equity interest $ 14,578 $ 17,426
Estimated residual value interests in equipment 11,864 12,981
---------------------------------
Equity interest in affiliates $ 26,442 $ 30,407
=================================
4. EQUITY INTEREST IN AFFILIATES (continued)
1997 1996 1995
--------------------------------------------
Operating results for the years ended December 31:
Revenue from equipment leases and other $ 184,940 $ 198,226 $ 201,401
Equipment depreciation (54,634) (52,653) (100,652)
Other costs and expenses (69,795) (60,768) (88,944)
Reduction in carrying value of certain assets -- -- (1,084)
-----------------------------------------------------
Net income before provision for income taxes $ 60,511 $ 84,805 $ 10,721
=====================================================
PLM International's share of partnership interests
and other fees (net of related expenses) $ 1,306 $ 3,811 $ 4,978
=====================================================
Distributions received $ 5,818 $ 5,565 $ 4,590
=====================================================
Most of the limited partnership agreements contain provisions for special
allocations of the partnerships' gross income.
While none of the partners, including the general partner, are liable for
partnership borrowings, and while the general partner maintains insurance
against liability for bodily injury, death, and property damage for which a
partnership may be liable, the general partner may be contingently liable for
nondebt claims against the partnership that exceed asset values.
5. ASSETS HELD FOR SALE
As of December 31, 1997, the Company had no assets held for sale. As of December
31, 1996, assets held for sale included a 25.5% interest in a mobile offshore
drilling unit (rig), with a net book value of $5.1 million, that was sold to an
affiliated program at its original cost in March 1997. Also as of December 31,
1996, two commuter aircraft with a combined net book value of $1.1 million were
held for sale. The two commuter aircraft were sold in February 1997 for their
approximate net book value to an unaffiliated third party.
During 1997, the Company purchased a mobile offshore drilling unit for $10.5
million and a 47.5% interest in an entity that owns a marine vessel for $9.1
million. This equipment was sold to affiliated programs at cost.
6. EQUIPMENT HELD FOR OPERATING LEASES
Equipment, at cost, held for operating lease as of December 31, 1997, is
represented by the following types (in thousands of dollars):
Trailers $ 48,716 66 %
Commercial and industrial equipment 23,268 32 %
Aircraft and aircraft engine 1,536 2 %
During 1997, the Company funded $18.9 million in commercial and industrial
equipment, which was placed on operating lease. During 1997, the Company sold
commercial and industrial equipment that was on operating lease with an original
cost of $11.8 million, for a net gain of $0.2 million. During 1996, the Company
funded $46.0 million in commercial and industrial equipment, which was placed on
operating lease. During 1996, the Company sold commercial and industrial
equipment that was on operating lease with an original cost of $30.7 million,
for a net gain of $0.4 million.
During 1997, the Company purchased two commercial aircraft for $5.0 million and
trailers for $9.1 million. The aircraft were subsequently sold to an
unaffiliated third party for a net gain of $0.8 million. Other transportation
equipment was sold for net gains of $1.1 million during 1997.
6. EQUIPMENT HELD FOR OPERATING LEASES (continued)
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 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 by the Company in 1994 as part of a group of assets that
had been allocated to EGFs IV, VI, and VII, Fund I, and the Company. During
1995, the Company realized $1.3 million in gains on sales of railcars and
aircraft to unaffiliated third parties. This equipment was purchased by the
Company in 1994 and 1995 as part of a group of assets that had been allocated to
EGFs IV, V, VI, and VII, Fund I, and the Company.
Future minimum rentals receivable under noncancelable leases as of December 31,
1997 are approximately $5.8 million in 1998, $3.9 million in 1999, $2.5 million
in 2000, $1.3 million in 2001, and $1.0 million in 2002. In addition, per diem
and contingent rentals consisting of utilization rate lease payments included in
revenue amounted to approximately $8.5 million in 1997, $9.3 million in 1996,
and $13.0 million in 1995. As of December 31, 1997, the Company had committed
all of its trailer equipment to rental yard and per diem operations. Certain
equipment owned by the Company is leased and operated internationally.
7. RESTRICTED CASH
Restricted cash consists of bank accounts and short-term investments that are
subject to withdrawal restrictions as per lease or loan agreements. The
Company's senior loan agreement requires proceeds from the sale of pledged
assets to be deposited into a collateral bank account and the funds used to
purchase additional equipment to the extent required to meet certain debt
requirements or to reduce the outstanding loan balance (refer to Note 9). The
Company's senior notes require all management fees, acquisition and lease
negotiation fees, data processing fees, and certain partnership distributions to
be deposited into a collateral bank account, to the extent required to meet
certain debt requirements or to reduce the outstanding note balance (refer to
Note 9). Management fees can be withdrawn from the account monthly if the
collateral account amount is at certain defined levels. All of the cash is
released quarterly when the principal and interest payment is made. The
Company's nonrecourse debt facility requires all payments on pledged lease
receivables to be deposited into a restricted cash account. Principal, interest,
and related fees are paid monthly in arrears from this account. Cash remaining
after these payments may be released subject to certain debt covenant
limitations (refer to Note 10).
8. SHORT-TERM SECURED DEBT
The Company maintains a warehousing line of credit to be used to acquire assets
on an interim basis for placement with affiliated programs, for placement in the
Company's nonrecourse debt facility, or for sale to unaffiliated third parties.
The Company amended this facility during 1997 to extend the availability of the
facility until November 2, 1998. This facility, which is shared by EGFs V, VI,
and VII, and Fund I, allows the Company to purchase equipment prior to its
designation to a specific program or partnership or prior to having raised
sufficient capital to purchase the equipment. This facility provides 80%
financing for transportation assets of the Company and up to 100% financing for
transportation assets of the EGFs. The facility provides for 100% of the present
value of the lease stream plus 100% of the allocated residual amount of
commercial and industrial equipment, up to 90% of original equipment cost of the
assets, and 100% of the allocated residual amount of all master trust pooled
equipment for nonrecourse assets, if the Company is the borrower and working
capital is used for the nonfinanced costs of these acquisitions. The Company can
hold transportation assets under this facility for up to 150 days.
Assets to be transferred to the nonrecourse debt facility can be held under this
facility until the facility's expiration. Interest accrues at Prime or LIBOR
plus 162.5 basis points, at the option of the borrower at the time of the
advance under the facility. The weighted-average interest rates on the Company's
short-term secured debt were 7.61% and 7.78% for 1997 and 1996, respectively.
The Company retains the difference between the net lease revenue earned and the
interest expense during the interim holding period, since its capital is at
risk. As of December 31, 1997, the Company had $23.0 million in borrowings on
this facility. There were no other borrowings on this facility as of December
31, 1997. As of December 31, 1996, the Company had $31.0 million in borrowings
on this facility, and EGFs V, VI, and VII had $2.5 million, $1.3 million, and
$2.0 million in borrowings, respectively.
SHORT-TERM SECURED DEBT (continued)
As of December 31, 1997, the Company believes that the fair market value of the
$23.0 million short-term secured debt approximates the outstanding balance due
to the floating rate of interest.
9. LONG-TERM SECURED DEBT
Long-term secured debt consisted of the following as of December 31 (in
thousands of dollars):
1997 1996
-----------------------------------
Senior secured loan:
Institutional debt, bearing interest at 9.78%, interest due quarterly,
principal payments due quarterly beginning June 30, 1997 through June 30,
2001, secured by substantially all of the Company's transportation-related
equipment assets and associated leases, except the assets used as collateral
for other secured debt and cash in a cash collateral account $ 20,588 $ 25,000
Senior secured notes:
Institutional notes, bearing interest at LIBOR plus 2.40% per annum (8.34% and
7.90% as of December 31, 1997 and 1996, respectively), interest due
quarterly, principal payments due quarterly beginning November 15, 1997
through August 15, 2002, secured by management fees, acquisition and lease
negotiation fees, data processing fees, and certain partnership
distributions,
and cash in a cash collateral account 23,843 18,000
Other secured debt:
Notes payable, bearing interest from 10.75% to 12.37%, due in varying monthly
principal and interest installments through 2001, secured by equipment with
a net book value
of approximately $438,000 as of December 31, 1997 413 618
-----------------------------------
Total secured debt $ 44,844 $ 43,618
===================================
During 1997, the Company prepaid $1.9 million of the senior secured notes.
The senior secured loan facility provides that equipment sale proceeds from
collateralized equipment or cash deposits be placed into cash collateral
accounts or used to purchase additional equipment to the extent required to meet
certain debt covenants. As of December 31, 1997, the cash collateral balance was
$12.7 million.
The institutional debt agreements contain financial covenants related to net
worth, ratios for leverage, interest coverage ratios, and collateral coverage,
all of which were met as of December 31, 1997. In addition, there are
restrictions on payment of dividends, purchase of stock, and certain investments
based on computations of tangible net worth, financial ratios, and cash flows,
as defined.
9. LONG-TERM SECURED DEBT (continued)
Scheduled principal payments on long-term secured debt are (in thousands of
dollars):
1998 $ 11,025
1999 11,187
2000 10,906
2001 7,961
2002 3,765
-------------
Total $ 44,844
=============
As of December 31, 1997, the Company estimates, based on recent transactions,
that the fair market value of the $20.6 million fixed-rate 9.78% long-term
senior debt is $20.9 million. As of December 31, 1997, the Company believes that
the fair market value of the $23.8 million senior secured notes approximates the
outstanding balance due to the floating rate of interest.
10. NONRECOURSE DEBT
The Company has available a nonrecourse debt 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 one 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. Repayment of the
facility matches the terms of the underlying leases. The nonrecourse debt bears
interest equivalent to the lender's cost of funds based on commercial paper
market rates for the determined period of borrowing (7.27% and 7.23% as of
December 31, 1997 and 1996, respectively). As of December 31, 1997 and 1996,
there were $71.3 million and $45.4 million in borrowings under this facility,
respectively.
The Company also has $10.0 million in nonrecourse notes payable bearing interest
at 9.16% per annum. Principal and interest on the notes are due monthly
beginning November 1, 1997 through October 1, 2001. The notes are secured by
direct finance leases for commercial and industrial equipment that have terms
corresponding to the repayment of the notes.
Scheduled principal payments on long-term nonrecourse debt are (in thousands of
dollars):
1998 $ 28,944
1999 25,606
2000 16,301
2001 8,904
2002 1,481
Thereafter 66
-------------
Total $ 81,302
=============
As of December 31, 1997, the Company believes that the fair market value of the
$71.3 million debt on the nonrecourse debt facility approximates the outstanding
balance due to the floating rate of interest. As of December 31, 1997, the
Company believes that the fair market value of the $10.0 million fixed-rate
9.16% nonrecourse notes payable is $10.4 million.
11. INCOME TAXES
The provision for (benefit from) income taxes attributable to income from
operations consists of the following (in thousands of dollars):
1997 1996
----------------------------------------------------- ----------------------------------------------------
Federal State Foreign Total Federal State Foreign Total
Current $ 2,255 $ 64 $ 3 $ 2,322 $ (262) $ 64 $ 155 $ (43)
Deferred (349) (125) -- (474) 470 (629) -- (159)
----------------------------------------------------- --------------------------------------------------------
$ 1,906 $ (61) $ 3 $ 1,848 $ 208 $ (565) $ 155 $ (202)
===================================================== ========================================================
1995
------------------------------------------------------------
Federal State Foreign Total
------------------------------------------------------------
Current $ 2,406 $ 60 $ 26 $ 2,492
Deferred (941) 269 -- (672)
------------------------------------------------------------
$ 1,465 $ 329 $ 26 $ 1,820
============================================================
Amounts for the current year are based upon estimates and assumptions as of the
date of this report and could vary significantly from amounts shown on the tax
returns ultimately filed. Accordingly, the variances in classification, if any,
from the amounts previously reported for prior years are primarily the result of
adjustments to conform to the tax returns as filed.
The difference between the effective rate and the expected federal statutory
rate is reconciled below:
1997 1996 1995
----------------------------------------
Federal statutory tax expense rate 34% 34 % 34%
State income tax -- 1 3
Effect of foreign operations at lower rate (2) (20) (4)
Reversal of excess accrual -- (19) --
Tax adjustment related to ESOP termination -- (6) (10)
Abandonment of identifiable intangibles (5) -- --
Other 1 5 --
------------------------------------------------
Effective tax expense (benefit) rate 28% (5 )% 23%
================================================
Net operating loss carryforwards for federal income tax purposes amounted to
$1.0 million and $0 as of December 31, 1997 and 1996, respectively. Alternative
minimum tax credit carryforwards as of December 31, 1997 are $9.2 million.
INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liabilities as of December 31 are presented below (in
thousands of dollars):
1997 1996
------------------------------
Deferred tax assets:
Tax credit carryforwards $ 9,224 $ 6,946
Net operating loss carryforwards 949 236
Federal benefit of state taxes 1,087 620
Total deferred tax assets 11,260 7,802
---------------------------------
Deferred tax liabilities:
Equipment, principally differences in depreciation 17,433 12,420
Partnership interests 5,343 7,495
Other 3,344 3,221
---------------------------------
Total deferred tax liabilities 26,120 23,136
---------------------------------
Net deferred tax liabilities $ 14,860 $ 15,334
=================================
Management has reviewed all established tax interpretations of items reflected
in its consolidated tax returns and believes that these interpretations do not
require valuation allowances as described in SFAS No. 109. As of December 31,
1997, the deferred taxes not provided on cumulative earnings of consolidated
foreign subsidiaries that are designated as permanently invested were
approximately $2.0 million.
12. COMMITMENTS AND CONTINGENCIES
Litigation
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. The complaint contains claims for relief alleging breaches of fiduciary
duties and various violations of the Employee Retirement Income Security Act of
1974 (ERISA) arising principally from purported defects in the structure,
financing, and termination of the ESOP, and for defendants' allegedly engaging
in prohibited transactions and interfering with plaintiff's rights under ERISA.
Plaintiff seeks monetary damages, rescission of the preferred stock transactions
with the ESOP and/or restitution of ESOP assets, and attorneys' fees and costs
under ERISA. 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 under ERISA. The motion was granted and on May 30,
1996, the district 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 dismissal of his
ERISA claims, and in an opinion filed on October 23, 1997, the Ninth Circuit
reversed the decision of the district court and remanded the case to the
district court for further proceedings. PLMI filed a petition for rehearing on
November 6, 1997, which was denied on November 20, 1997. The Ninth Circuit
mandate was filed in the district court on December 1, 1997.
On January 12, 1998, plaintiff filed with the district court an expedited motion
for leave to file a second amended complaint in order to bring the fourth,
fifth, and sixth claims for relief as a class action on behalf of himself and
all similarly situated people. These claims allege that PLMI and the other
defendants breached their fiduciary duties and entered into prohibited
transactions in connection with the termination of the ESOP and by causing the
ESOP to sell or exchange the preferred shares held for the benefit of the ESOP
participants for less than their fair market value. The district court granted
the motion on February 9, 1998 and set a trial date of March 20, 1999. The
defendants are required to respond to the second amended complaint on or before
February 26, 1998. The Company does not believe the claims have any merit and
plans to continue to defend this matter vigorously.
12. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
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). The plaintiffs,
who filed the complaint on their own and on behalf of all class members
similarly situated, are six individuals who allegedly invested in certain
California limited partnerships (the Partnerships) for which FSI acts as the
general partner, including PLM Equipment Growth Fund IV, PLM Equipment Growth
Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund
VII. The complaint asserts eight causes of action against all defendants, as
follows: fraud and deceit, suppression, negligent misrepresentation and
suppression, intentional breach of fiduciary duty, negligent breach of fiduciary
duty, unjust enrichment, conversion, and conspiracy. Additionally, plaintiffs
allege a cause of action against PLM Securities for breach of third party
beneficiary contracts in violation of the NASD rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, general
partner, and control persons. Based on these duties, plaintiffs assert liability
against the defendants for improper sales and marketing practices, mismanagement
of the Partnerships, and concealing such mismanagement from investors in the
Partnerships. Plaintiffs seek unspecified compensatory and recissory damages, as
well as punitive damages, and have offered to tender their limited partnership
units back to the defendants.
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) based on the district court's diversity
jurisdiction, 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. In responses to such denial, plaintiffs filed a petition for writ of
mandamus with the Eleventh Circuit, which was denied on November 18, 1997. On
November 24, 1997, plaintiffs filed with the Eleventh Circuit a petition for
rehearing and consideration by the full court of the order denying the petition
for a writ of mandamus, which petition was supplemented by plaintiffs on January
27, 1998.
On October 10, 1997, defendants filed a motion to compel arbitration of
plaintiffs' claims, based on an agreement to arbitrate contained in the limited
partnership agreement of each Partnership, and to stay further proceedings
pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition,
the district court granted the motion on December 8, 1997. On December 15, 1997,
plaintiffs filed with the Eleventh Circuit a notice of appeal from the district
court's order granting defendants' motion to compel arbitration and to stay the
proceedings, and of the district court's September 24, 1997 order denying
plaintiffs' motion to remand and dismissing the claims of the California
plaintiff. Plaintiffs filed an amended notice of appeal on December 31, 1997.
The Company believes that the allegations of the Koch action are completely
without merit and intends to continue to defend this matter vigorously.
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 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 for
which FSI acts as the general partner, including the Partnerships. The complaint
alleges the same facts and the same nine causes of action as in the Koch action,
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, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
12. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
On July 31, 1997, the defendants 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 motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. By memorandum and order dated October 23, 1997, the district
court denied the Company's petition to compel arbitration. On November 5, 1997,
the Company filed an expedited motion for leave to file a motion for
reconsideration of this order, which motion was granted on November 14, 1997.
The parties have agreed to have oral argument on the reconsideration motion set
for April 23, 1998. The state court action has been stayed pending the district
court's decision on this motion.
In connection with her opposition to the Company's petition to compel
arbitration, 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 Sections 1709 and 1710.
Plaintiff has also served certain discovery requests on defendants. Because of
the stay, no response to the amended complaint or to the discovery is currently
required. 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 legal actions
incident to its business. Management does not believe that any of these existing
actions will be material to the financial condition or, based on historical
trends, to the results of operations of the Company.
Lease Agreements
The Company and its subsidiaries have entered into operating leases for office
space and rental yard operations. The Company's total net rent expense was $2.1
million, $2.4 million, and $2.5 million in 1997, 1996, and 1995, respectively.
The portion of rent expense related to its principal office, net of sublease
income of $431,000 and $38,000 in 1997 and 1996, respectively, was $0.9 million,
$1.3 million, and $1.3 million in 1997, 1996, and 1995, respectively. The
remaining rent expense was related to other office space and rental yard
operations.
Annual lease commitments for all of the Company's locations total $2.6 million
in 1998, $2.3 million in 1999, $2.1 million in 2000, $0.9 million in 2001, and
$0.1 million in 2002.
Purchase Commitments
As of December 31, 1997, the Company had committed to purchase $153.8 million of
equipment for its commercial and industrial equipment lease portfolio. This
includes equipment that will be held by the Company and equipment that will be
sold to the institutional investment programs or third parties.
From January 1, 1998 through February 23, 1998, the Company funded $9.8 million
of commitments outstanding for its commercial and industrial lease portfolio as
of December 31, 1997 and entered into new commitments for $29.6 million.
Letter of Credit
As of December 31, 1997, the Company had a $327,000 open letter of credit to
cover its guarantee of the payment of the outstanding debt of a Canadian railcar
repair facility, in which the Company has a 10% equity interest. The Company
intends to renew this letter of credit in the first quarter of 1998.
12. COMMITMENTS AND CONTINGENCIES (continued)
Other
The Company provides employment contracts to certain officers that provide for
certain payments in the event of a change of control and termination of
employment.
The Company has agreed to provide supplemental retirement benefits to 10 current
or former members of management. The benefits accrue over a maximum of 15 years
and will result in payments over 5 years based on the average base rate of pay
during the 60-month period prior to retirement, as adjusted for length of
participation. Expenses for these arrangements were $359,000 for 1997, $218,000
for 1996, and $316,000 for 1995. As of December 1997, the total estimated future
obligation relating to the current participants is $3.1 million, including
vested benefits of $1.7 million. In connection with these arrangements,
whole-life insurance contracts were purchased on the participants. Insurance
premiums of $250,000, $250,000, and $247,000 were paid during 1997, 1996, and
1995, respectively. Additionally, the Company has recorded $1.1 million in cash
surrender values relating to these contracts as of December 31, 1997 that are
included in other assets.
13. SHAREHOLDERS' EQUITY
Common Stock
In February 1995, the Company announced that its Board of Directors had
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
using working capital and existing cash reserves. Shares repurchased could be
used for corporate purposes, including option plans, or they could be retired.
The Company purchased 146,977 shares under this program for $0.5 million,
completing the repurchase in 1995.
In November 1995, the Company authorized the repurchase of up to $5.0 million of
the Company's common stock and, pursuant to such authorization, in 1995 the
Company repurchased 630,700 shares in private transactions for $2.2 million.
During 1996, the Company repurchased 1.7 million shares of its common stock for
$6.5 million. The repurchases completed the $5.0 million common stock repurchase
program announced in November 1995, as well as an additional repurchase of $3.7
million authorized by the Company's Board of Directors in July 1996.
In March 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. During 1997,
766,200 shares had been repurchased under this plan, for a total of $4.4
million.
In November 1997, the Company's stockholders approved a proposal to amend
Article Fourth of the Company's Certificate of Incorporation to effect a
1-for-200 reverse stock split followed by a 200-for-1 forward stock split. As a
result of the stock splits, the number of shares outstanding was reduced by
561,544 shares. The Company is repurchasing these shares at $5.58 per share when
the stock certificates are tendered to the Company's transfer agent.
The following table summarizes changes in common stock during 1996 and 1997:
Issued Outstanding
Common Treasury Common
Shares Shares Shares
-------------------------------------------------------
Shares as of December 31, 1995 12,586,391 1,753,230 10,833,161
Stock options exercised 10,000 -- 10,000
Stock repurchased -- 1,700,400 (1,700,400)
-----------------------------------------------------------
Shares as of December 31, 1996 12,596,391 3,453,630 9,142,761
Reissuance of treasury stock, net -- (60,003 ) 60,003
Stock repurchased (561,544) 204,656 (766,200)
-----------------------------------------------------------
Shares as of December 31, 1997 12,034,847 3,598,283 8,436,564
===========================================================
13. SHAREHOLDERS' EQUITY (continued)
Preferred Stock
PLM International has authorized 10,000,000 shares of preferred stock at $0.01
par value, none of which were outstanding as of December 31, 1997 or December
31, 1996.
Stock Option Plans
As of December 31, 1997, the Company had the stock option plans described below.
The granting of nonqualified stock options to key employees and directors is
provided for in plans that reserve up to 780,000 shares of the Company's common
stock. The price of the shares issued under an option must be at least 85% of
the fair market value of the common stock at the date of granting. All options
currently outstanding are exercisable at prices equal to the fair market value
of the shares at the date of granting. Vesting of options granted generally
occurs in three equal installments of 33.3% per year, initiating from the date
of the grant.
Stock option transactions during 1997, 1996, and 1995 are summarized as follows:
Number of Average
Options/ Option Price
Shares Per Share
------------------------------------
Balance, December 31, 1994 607,295 $ 2.18
Granted 50,000 2.78
Canceled (37,834 ) 2.00
Exercised (15,661 ) 2.00
----------------------------------------
Balance, December 31, 1995 603,800 $ 2.24
Granted 246,000 3.16
Canceled (153,000 ) 2.07
Exercised (10,000 ) 2.00
----------------------------------------
Balance, December 31, 1996 686,800 $ 2.61
Granted 40,000 3.31
Canceled (252,244 ) 2.72
----------------------------------------
Balance, December 31, 1997 474,556 $ 2.62
========================================
As of December 31, 1997, 1996, and 1995, respectively, 343,037, 381,633, and
484,547 of these options were exercisable.
The following table summarizes information about fixed stock options outstanding
as of December 31, 1997:
Options outstanding:
Range of exercise prices $2.00-3.50
Number outstanding, December 31, 1997 474,556
Weighted-average exercise price $2.62
Options exercisable:
Number exercisable, December 31, 1997 343,037
Weighted-average exercise price $2.45
13. SHAREHOLDERS' EQUITY (continued)
Stock Option Plans (continued)
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans. The fair value of each option grant is estimated on
the date of grant using an option-pricing model that computes the value of
employee stock options consistent with FASB Statement No.123. The following
weighted-average assumptions were used for grants in 1997, 1996, and 1995,
respectively: no dividend yield, expected lives of 3 years for the management
plan and 8 years for the director plan options, shorter-term adjustment of 6
years, and expected volatility of 30% for all years; and risk-free interest
rates of 5.575%, 5.53% and 5.53%. The weighted-average fair market value per
share of options granted during 1997, 1996, and 1995 was $1.38, $1.10, and
$0.93, respectively. Had compensation expense for the Company's stock-based
compensation plans been recorded consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below for the years ended December 31 (in thousands of
dollars):
1997 1996 1995
-----------------------------------------------
Net income As reported $ 4,667 $ 4,095 $ 6,048
Pro forma 4,562 3,997 6,027
Basic earnings per share As reported 0.51 0.41 0.52
Pro forma 0.50 0.40 0.52
Fully diluted earnings per share As reported 0.50 0.40 0.51
Pro forma 0.49 0.39 0.51
Shareholder Rights
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.
14. PROFIT SHARING AND 401(k) PLAN
The Company adopted the PLM International, Inc. Profit Sharing and 401(k) Plan
(the Plan) effective as of February 1996. The Plan provides for deferred
compensation as described in Section 401(k) of the Internal Revenue Code. The
401(k) Plan is a contributory plan available to essentially all full-time
employees of the Company in the United States. In 1997, employees who
participated in the 401(k) Plan could elect to defer and contribute to the trust
established under the 401(k) Plan up to 9% of pretax salary or wages up to
$9,600. The Company matched up to a maximum of $4,000 of employees' 401(k)
contributions in 1997 and 1996 to vest in four equal installments over a
four-year period. The Company's total 401(k) contributions were $313,000 and
$348,000 for 1997 and 1996, respectively.
During 1996 and 1997, the Company accrued discretionary profit-sharing
contributions equal to $100,000 plus approximately 2% of pretax profit.
Profit-sharing contributions are allocated equally among the number of eligible
Plan participants. The Company's total profit-sharing contributions were
$244,000 and $162,000 for 1997 and 1996, respectively.
15. TRANSACTIONS WITH AFFILIATES
In addition to various fees payable to the Company or its subsidiaries (refer to
Note 1), the affiliated programs reimburse the Company for certain expenses, as
allowed in the program agreements. Reimbursed expenses totaling $6.4 million,
$6.2 million, and $6.9 million in 1997, 1996, and 1995, respectively, have been
recorded as reductions of operations support or general and administrative
expenses. Outstanding amounts are paid under normal business terms.
16. RISK MANAGEMENT
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and receivables
from loans, leases, and affiliated entities.
The Company places its temporary cash investments with financial institutions
and other creditworthy issuers and limits the amount of credit exposure to any
one party. Concentrations of credit risk with respect to lease and loan
receivables are limited due to the large number of customers comprising the
Company's customer base and their dispersion across different businesses and
geographic areas. The Company's involvement with management of the receivables
from affiliated entities limits the amount of credit exposure from affiliated
entities.
As of December 31, 1997 and 1996, management believes the Company had no
significant concentrations of credit risk.
Interest-Rate Risk Management
The Company has entered into interest-rate swap agreements in order to manage
the interest-rate exposure associated with its nonrecourse debt. As of December
31, 1997, the swap agreements had remaining terms averaging 2.5 years,
corresponding to the terms of the related debt. As of December 31, 1997, a
notional amount of $72.5 million of interest-rate swap agreements effectively
fixed interest rates at an average of 7.27% on such obligations. Interest
expense was increased by $0.3 million and $0.1 million due to these arrangements
in 1997 and 1996, respectively. The fair value to the Company of interest-rate
swap agreements as of December 31, 1997 was approximately $0.1 million, taking
into account interest rates in effect at the time.
17. GEOGRAPHIC INFORMATION
Financial information about the Company's foreign and domestic operations are as
follows for the years ended December 31 (in thousands of dollars):
Revenues
1997 1996 1995
----------------------------------------------
Domestic (including corporate) $ 45,802 $ 42,493 $ 54,482
International 3,863 9,052 5,591
---------------------------------------------------
Total revenues $ 49,665 $ 51,545 $ 60,073
===================================================
Long-lived assets as of December 31, 1997, 1996, and 1995 are as follows (in
thousands of dollars):
1997 1996 1995
----------------------------------------------
Domestic (including corporate) $ 192,057 $ 150,461 $ 82,855
International 1,938 3,085 2,356
---------------------------------------------------
Total long-lived assets $ 193,995 $ 153,546 $ 85,211
===================================================
International operations are comprised primarily of international leasing,
brokerage, and other activities conducted primarily through the Company's
subsidiaries in Bermuda, Canada, and Australia.
18. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1997 and 1996 (in thousands of dollars, except per share
amounts):
Fully Diluted
Basic Earnings Earnings
per Weighted-Average per Weighted-Average
Income Common Share Common Share
Revenue Before Taxes Net Income Outstanding Outstanding
-----------------------------------------------------------------------------------------------
1997 quarters:
First $ 12,451 $ 1,889 $ 1,281 $ 0.14 $ 0.14
Second 11,890 978 648 0.07 0.07
Third 12,929 1,943 1,319 0.14 0.14
Fourth 12,395 1,705 1,419 0.16 0.16
-----------------------------------------------------------------------------------------------
Total $ 49,665 $ 6,515 $ 4,667 $ 0.51 $ 0.50
===============================================================================================
1996 quarters:
First $ 12,401 $ 1,253 $ 792 $ 0.07 $ 0.07
Second 11,556 38 261 0.02 0.02
Third 14,060 1,498 1,365 0.15 0.14
Fourth 13,528 1,104 1,677 0.18 0.18
-----------------------------------------------------------------------------------------------
Total $ 51,545 $ 3,893 $ 4,095 $ 0.41 $ 0.40
===============================================================================================
In the first quarter of 1997, the Company purchased and subsequently sold a
commercial aircraft to an unaffiliated third party for a net gain of $0.4
million, and recorded $0.1 million in legal fees related to the Koch action
(refer to Note 12).
In the second quarter of 1997, the Company purchased and subsequently sold a
commercial aircraft to an unaffiliated third party for a net gain of $0.4
million. In addition, the Company recorded a $0.1 million increase in legal fees
related to the Koch action (refer to Note 12) and a $0.5 million increase in
costs related to the Company's response to shareholder-sponsored initiatives.
In the third quarter of 1997, the Company recorded $0.3 million in legal fees
related to the Koch action (refer to Note 12).
In the fourth quarter of 1997, the Company accrued $0.3 million in expenses for
a litigation settlement that was paid in 1998.
In the second quarter of 1996, the Company recorded a $1.4 million charge
related to severance pay and other costs associated with suspension of the
syndication of equipment leasing programs.
In the third quarter of 1996, the Company's provision for income taxes was $0.1
million, which represents an effective rate of 9%. Tax-planning strategies, an
adjustment for state tax apportionment factors, and an adjustment related to the
ESOP resulted in the reduction in the Company's effective tax rate during the
third quarter of 1996.
In the fourth quarter of 1996, the Company's benefit for income taxes was $0.6
million, which reflects differences between the amount recognized in the 1995
financial statements and the 1995 tax return as filed, changes in state tax
apportionment factors used to record deferred taxes, and the benefit of certain
income being earned from foreign activities that has been permanently invested.
19. SUBSEQUENT EVENT
In January 1998, the Company received a favorable decision in a lawsuit for
breach of contract that it filed in 1994 against a lessee and guarantor. The
decision includes an award of damages of approximately $790,000 plus interest
from August 1997, plus costs and attorneys' fees. A judgment on the decision
must be filed and entered before any award is enforceable. The Company expects
the defendant guarantor to appeal.
EXHIBIT XI
PLM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE<F1>
Years Ended December 31,
1997 1996 1995
------------------------------------------------
(in thousands of dollars, except per share data)
Basic<F2>
Earnings:
Net income $ 4,667 $ 4,095 $ 6,048
==================================================
Shares:
Weighted-average number of common shares outstanding 9,081 10,032 11,576
==================================================
Basic earnings per common share $ 0.51 $ 0.41 $ 0.52
==================================================
Fully Diluted<F2>
Earnings:
Net income $ 4,667 $ 4,095 $ 6,048
==================================================
Shares:
Weighted-average number of common shares outstanding 9,081 10,032 11,576
Potentially dilutive common shares 227 166 186
Total shares 9,308 10,198 11,762
==================================================
Fully diluted earnings per weighted-average common share $ 0.50 $ 0.40 $ 0.51
==================================================
<FN>
<F1> See accompanying notes to December 31, 1997, 1996, and 1995 consolidated
financial statements.
<F2> This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
</FN>