`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[x] Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Quarterly the fiscal quarter ended September 30, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 1-9670
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PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
120 Montgomery Street
Suite 1350, San Francisco, CA 94104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 445-3201
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No --
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: common stock - $.01
par value; outstanding as of November 8, 2001 - 7,554,510 shares.
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
-------------------------------------------------------------
REVENUES
Operating lease income $ 65 $ 792 $ 695 $ 1,101
Management fees 1,375 1,656 4,362 5,205
Partnership interests and other fees (57) 1,500 847 1,688
Acquisition and lease negotiation fees 1,847 385 2,032 538
Other 204 130 834 665
------------------------------------------------------------
Total revenues 3,434 4,463 8,770 9,197
------------------------------------------------------------
Costs and expenses
Operations support 453 679 1,092 1,850
Depreciation and amortization 105 247 519 643
General and administrative 658 1,967 4,054 4,391
------------------------------------------------------------
Total costs and expenses 1,216 2,893 5,665 6,884
------------------------------------------------------------
OPERATING INCOME 2,218 1,570 3,105 2,313
Interest expense (1) (554 ) (4) (1,424 )
Interest income 101 266 336 869
Other expense, net (1) (175 ) (62) (177)
-----------------------------------------------------------
Income from continuing operations before income taxes 2,317 1,107 3,375 1,581
Provision for income taxes 882 419 1,304 595
-----------------------------------------------------------
Income from continuing operations 1,435 688 2,071 986
Loss from discontinued operations, net of income tax -- (509) -- (164)
Gain on disposition of discontinued operations, net of income tax -- 4,785 -- 4,785
-----------------------------------------------------------
Net income to common shares $ 1,435 $ 4,964 $ 2,071 $ 5,607
===========================================================
Basic earnings per weighted-average common share
outstanding
Income from continuing operations $ 0.19 $ 0.09 $ 0.27 $ 0.13
Loss from discontinued operations -- (0.06) -- (0.02)
Gain on disposition of discontinued operations -- 0.64 -- 0.63
-----------------------------------------------------------
$ $0.19 $ 0.67 $ 0.27 $ 0.74
===========================================================
Diluted earnings per weighted-average common share
outstanding
Income from continuing operations $ 0.19 $ 0.09 $ 0.27 $ 0.13
Loss from discontinued operations -- (0.07) -- (0.02)
Gain on disposition of discontinued operations -- 0.64 -- 0.63
-----------------------------------------------------------
$ 0.19 $ 0.66 $ 0.27 $ 0.74
===========================================================
See accompanying notes to these unaudited condensed
consolidated financial statements.
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share amounts)
(unaudited)
ASSETS
September 30, December 31,
2001 2000
---------------------------------------
Cash and cash equivalents $ 12,949 $ 5,874
Receivables (net of allowance for doubtful accounts of $0.1 million as of
September 30, 2001 and December 31, 2000) 129 1,045
Receivables from affiliates 914 1,207
Equity interest in affiliates 15,169 15,753
Assets held for sale -- 10,250
Restricted cash and cash equivalents -- 2,530
Other assets, net 2,764 3,748
-------------------------------------
Total assets $ 31,925 $ 40,407
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Payables and other liabilities $ 6,112 $ 15,909
Deferred income taxes 8,733 8,885
-------------------------------------
Total liabilities 14,845 24,794
SHAREHOLDERS' EQUITY
Preferred stock ($0.01 par value, 10.0 million shares
authorized, none outstanding as of September 30, 2001 and December 31, 2000) -- --
Common stock ($0.01 par value, 50.0 million shares authorized,
12,035,755 issued and 7,554,510 outstanding as of September
30, 2001 and December 31, 2000) 112 112
Paid-in capital, in excess of par 36,943 37,547
Treasury stock (4,481,245 shares as of September 30, 2001 and
December 31, 2000) (19,875) (19,875)
Accumulated deficit (100) (2,171)
-------------------------------------
Total shareholders' equity 17,080 15,613
-------------------------------------
Total liabilities and shareholders' equity $ 31,925 $ 40,407
=====================================
See accompanying notes to these unaudited condensed
consolidated financial statements.
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME For
the Year Ended December 31, 2000 and the Nine
Months Ended September 30, 2001
(in thousands of dollars)
(unaudited)
Accumulated
Common Stock Deficit And
--------------------------------------------
Paid-in Accumulated
Capital, in Other Total
At Excess Treasury Comprehensive Shareholders'
Par of Par Stock Income Equity
------------------------------------------------------------------------------------
Balances, December 31, 1999 $ 112 $ 75,059 $ (18,324) $ (7,434) $ 49,413
Comprehensive income:
Net income 5,263 5,263
Exercise of stock options (289) 1,037 748
Common stock purchases (2,588) (2,588)
Liquidating distribution (37,223) (37,223)
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Balances, December 31, 2000 112 37,547 (19,875) (2,171 ) 15,613
Comprehensive income:
Net income 2,071 2,071
Compensation expense related to 315 315
variable stock option plans
Redemption of stock options (919) (919)
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Balances, September 30, 2001 $ 112 $ 36,943 $ (19,875) $ (100) $ 17,080
==============================================================================
See accompanying notes to these unaudited condensed consolidated
financial statements.
PLM INTERNATIONAL, INC. AND SUBSIDIAIRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Nine Months
Ended September 30,
2001 2000
--------------------------------
OPERATING ACTIVITIES
Income from continuing operations $ 2,071 $ 986
Adjustments to reconcile income from continuing operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 519 643
Compensation expense related to variable stock options 315
Deferred income tax (152) (3,441)
Gain on disposition of discontinued operations, net of income tax -- (4,785)
Loss on disposition of assets, net 104 --
Equity income from managed programs (1,304) (2,166)
(Decrease) increase in payables and other liabilities (9,797) 16,679
Decrease in receivables and receivables from affiliates 1,209 2,619
Amortization of goodwill related to the managed programs 456 672
Decrease in other assets 174 2,230
-----------------------------------
Cash (used in) provided by operating activities of continuing operations (6,405) 13,437
Cash provided by operating activities of discontinued operations -- 14,427
-----------------------------------
-----------------------------------
Net cash (used in) provided by operating activities (6,405) 27,864
-----------------------------------
INVESTING ACTIVITIES
Cash distribution from managed programs 1,432 2,104
Loans made to affiliates (5,500) --
Repayment of loans made to affiliates 5,500 --
Principal payments received on finance leases -- 279
Purchase of property, plant, and equipment (71) --
Purchase of equipment held for sale -- (14,000)
Proceeds from sale of subsidiary, net of transaction costs -- 98,117
Proceeds from sale of equipment for lease 258 --
Proceeds from assets held for sale 10,250 14,000
Decrease (increase) in restricted cash and restricted cash equivalents 2,530 (1,191)
Cash provided by investing activities of discontinued operations -- 6,813
---------------------------------------
Net cash provided by investing activities 14,399 106,122
---------------------------------------
FINANCING ACTIVITIES
Borrowings of short-term warehouse credit facility -- 10,200
Repayment of short-term warehouse credit facility -- (10,200)
Repayment of senior secured notes -- (5,640)
Proceeds from exercise of stock options -- 30
Redemption of stock options (919) --
Purchase of stock -- (2,588)
Cash used in financing activities of discontinued operations -- (59,521)
-----------------------------------
Net cash used in financing activities (919) (67,719)
-----------------------------------
Net increase in cash and cash equivalents 7,075 66,267
Cash and cash equivalents at beginning of period 5,874 2,089
-----------------------------------
Cash and cash equivalents at end of period $ 12,949 $ 68,356
===================================
SUPPLEMENTAL INFORMATION
Net cash paid for interest from continuing operations $ 4 $ 1,456
===================================
Net cash paid for interest from discontinued operations $ -- $ 4,879
===================================
===================================
Net cash paid for income taxes $ 6,245 $ 351
===================================
See accompanying notes to these unaudited condensed
consolidated financial statements.
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary, consisting primarily of
normal recurring accruals, to present fairly PLM International, Inc. and its
wholly-owned subsidiaries (the Company's or PLMI) financial position as of
September 30, 2001 and December 31, 2000, statements of income for the three and
nine months ended September 30, 2001 and 2000, statements of changes in
shareholders' equity and comprehensive income for the year ended December 31,
2000 and the nine months ended September 30, 2001, and statements of cash flows
for the nine months ended September 30, 2001 and 2000. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been condensed or omitted from the accompanying unaudited condensed
consolidated financial statements. For further information, reference should be
made to the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 2000, on file with
the Securities and Exchange Commission.
On December 22, 2000, the Company announced that it had signed an agreement and
plan of merger with MILPI Acquisition Corporation (MILPI). In December 2000,
MILPI tendered for all the outstanding common stock of the Company for $3.46 per
share. In February 2001, PLMI announced that MILPI had completed its cash tender
offer for the outstanding common stock of PLMI. MILPI acquired 83% of the common
shares outstanding of PLMI through the tender. MILPI intends to complete its
acquisition of PLMI by effecting a merger of PLMI into MILPI. In order to
effectuate the merger, PLMI must hold a special meeting of its shareholders to
approve the merger proposal. MILPI owns sufficient shares to assure approval of
the merger proposal at the special meeting and has agreed to vote all of its
shares in favor of the merger proposal. In February 2001, the Company filed a
preliminary proxy statement for the special meeting. In connection with its
review of the preliminary proxy materials, the Securities and Exchange
Commission (SEC) has informed the four trusts that own MILPI that it believes
the trusts may be unregistered investment companies within the meaning of the
Investment Company Act of 1940. The managing trustee of the trusts is engaged in
discussions with the staff at the SEC regarding this matter. If necessary, each
of the trusts intends to avoid being deemed an investment company by disposing
of or acquiring certain assets that it might not otherwise dispose or acquire.
PLMI does not intend to schedule the special meeting of stockholders until the
issues with the SEC are resolved. Upon completion of the merger, PLMI will no
longer be publicly traded.
2. Reclassifications
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
3. Discontinued Operations
In October 1999, the Company agreed to sell AFG, its commercial and industrial
equipment leasing subsidiary. On February 25, 2000, the shareholders of PLMI
approved the transaction. The sale of AFG was completed on March 1, 2000 for
total proceeds of $32.2 million. Taxes and transaction costs related to the sale
were $3.9 million. Net proceeds to the Company from the sale of AFG were $28.3
million. In addition, AFG distributed to PLMI certain assets with a net book
value of $2.7 million and cash of $0.4 million immediately prior to the sale.
On May 24, 2000, the Company signed an asset purchase agreement to sell the
refrigerated and dry trailer assets and related liabilities. PLMI shareholders
approved the transaction on August 25, 2000. For the sale of the Company's
trailer assets, the Company received $69.2 million for its 4,250 trailers and
the purchaser assumed $49.2 million in debt and other liabilities, including the
operation of most of the PLM
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Discontinued Operations (continued)
Trailer Leasing's trailer yards located throughout the United States. The
Company paid $5.0 million of income tax related to the trailer sale in the first
quarter of 2001.
Accordingly, both the Company's AFG and trailer leasing operations are accounted
for as discontinued operations. The loss from discontinued operations and the
gain on disposition of discontinued operations for the three and nine months
ended September 30, 2000 are as follows (in thousands of dollars):
For the three months ended For the nine months ended
September 30, 2000 September 30, 2000
------------------------------------ ------------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
---------------------------------- ------------------------------------
REVENUES $ 9,446 $ -- $ 9,446 $ 24,869 $ 4,076 $ 28,945
COSTS AND EXPENSES (9,265) -- (9,265) (21,811) (2,271) (24,082)
------------------------------------ ------------------------------------
Operating income 181 -- 181 3,058 1,805 4,863
Interest expense, net (1,005) -- (1,005) (3,148) (1,655) (4,803)
Other expense (4) -- (4) (4) -- (4)
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Income (loss) from discontinued
operations
before income taxes (828) -- (828) (94) 150 56
Provision for (benefit from) income tax (319) -- (319) (37) 57 20
Income previously accrued as a component
of loss of a discontinued operation -- -- -- -- (200) (200)
------------------------------------ ------------------------------------
Loss from discontinued operations $ (509) $ -- $ (509) $ (57) $ (107)$ (164)
Gain on disposition of discontinued
operations,
net of income tax $ 4,785 $ -- $ 4,785 $ 4,785 $ -- $ 4,785
==================================== ====================================
4. Assets Held For Sale
As of September 30, 2001, the Company had no assets held for sale. As of
December 31, 2000, the Company had $10.3 million in marine containers that were
reported as assets held for sale. During the first nine months of 2001, the
Company sold these marine containers to affiliated programs at cost, which
approximated their fair market value.
5. Debt
In April 2001, the Company entered into a joint $15.0 million credit facility on
behalf of Acquisub LLC (ACQ), a wholly-owned subsidiary of the Company, PLM
Equipment Growth Fund VI (EGF VI), PLM Equipment Growth and Income Fund VII (EGF
VII), and Professional Lease Management Income Fund I (Fund I), each affiliated
investment programs of the Company. The facility provides interim financing of
up to 100% of the aggregate book value of eligible equipment as defined in the
credit facility. The Company, EGF VI, EGF VII, and Fund I, collectively, may
borrow up to $15.0 million under this facility. Outstanding borrowings by one
borrower reduce the amount available to each of the other borrowers under the
facility. Individual borrowings may be outstanding for no more than 270 days,
with all advances due no later than April 12, 2002. Interest accrues at either
the prime rate or adjusted LIBOR plus 2.00 %, at the borrower's option, and is
set at the time of an advance of funds. The Company guarantees all borrowings.
As of September 30, 2001, there were no loans outstanding under this facility to
any of the borrowers.
6. Shareholders' Equity
The total common shares outstanding were 7,554,510 as of September 30, 2001 and
December 31, 2000.
PLM INTERNATIONAL, INC. AND SUBSIDIAIRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Shareholders' Equity (continued)
Net income per basic weighted-average common share outstanding was computed by
dividing net income to common shares by the weighted-average number of shares
deemed outstanding during the period. The weighted-average number of shares
deemed outstanding for the basic earnings per share calculation during the three
months ended September 30, 2001 and 2000 was 7,554,510 and 7,429,271
respectively. The weighted-average number of shares deemed outstanding for the
basic earnings per share calculation during the nine months ended September 30,
2001 and 2000 was 7,554,510 and 7,592,002, respectively. The weighted-average
number of shares deemed outstanding, including potentially dilutive common
shares, for the diluted earnings per weighted-average share calculation during
the three months ended September 30, 2001 and 2000 was 7,554,510 and 7,473,131,
respectively. The weighted-average number of shares deemed outstanding,
including potentially dilutive common shares, for the diluted earnings per
weighted-average share calculation during the nine months ended September 30,
2001 and 2000 was 7,576,343 and 7,647,567 respectively.
Concurrent with the completion of the tender offer by MILPI (see Note 1 to the
unaudited condensed consolidated financial statements) all stock options became
100% vested. The Company redeemed all of the 495,000 outstanding stock options
in the first quarter of 2001 for $919,000. As of September 30, 2001 there were
no stock options outstanding.
7. Legal Matters
PLM International, Inc. and various of its wholly owned subsidiaries are
defendants in a class action lawsuit filed in January 1997 and which is pending
in the United States District Court for the Southern District of Alabama,
Southern Division (Civil Action No. 97-0177-BH-C) (the court). The named
plaintiffs are six individuals who invested in PLM Equipment Growth Fund IV, PLM
Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI, and PLM
Equipment Growth & Income Fund VII (the Partnerships), each a California limited
partnership for which the Company's wholly owned subsidiary, PLM Financial
Services, Inc. (FSI) acts as the General Partner.
The complaint asserts causes of action against all defendants for fraud and
deceit, suppression, negligent misrepresentation, negligent and intentional
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Partnerships, and concealing such mismanagement from investors in the
Partnerships. Plaintiffs seek unspecified compensatory damages, as well as
punitive damages.
In June 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 Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Partnerships. The complaint alleges the same facts and the same
causes of action as in the Koch action, plus additional causes of action against
all of the defendants, including alleged unfair and deceptive practices and
violations of state securities law. In July 1997, defendants filed a petition
(the petition) in federal district court under the Federal Arbitration Act
seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company's petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below. The state court action continues to be stayed
pending such resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. Legal Matters (continued)
provides for a settlement and release of all claims against defendants in
exchange for payment for the benefit of the class of up to $6.6 million. The
final settlement amount will depend on the number of claims filed by class
members, the amount of the administrative costs incurred in connection with the
settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Partnerships between May 23, 1989 and
August 30, 2000. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Partnerships' equipment, (b) the extension (until December 31, 2004) of the
period during which FSI can reinvest the Partnerships' funds in additional
equipment, (c) an increase of up to 20% in the amount of front-end fees
(including acquisition and lease negotiation fees) that FSI is entitled to earn
in excess of the compensatory limitations set forth in the North American
Securities Administrator's Association's Statement of Policy; (d) a one-time
repurchase by each of Funds V, VI and VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Partnerships. Subject to
final court approval, these proposed changes would be made as amendments to each
Partnership's limited partnership agreement if less than 50% of the limited
partners of each Partnership vote against such amendments. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Partnership funds in the event, if ever, that certain
performance thresholds have been met by the Partnerships. The equitable
settlement class consists of all investors, limited partners, assignees or unit
holders who on August 30, 2000 held any units in Funds V, VI, and VII, and their
assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. A final fairness hearing was held on November 29,
2000, and on April 25, 2001, the federal magistrate judge assigned to the case
entered a Report and Recommendation recommending final approval of the monetary
and equitable settlements to the federal district court judge. On July 24, 2001,
the federal district court judge adopted the Report and Recommendation, and
entered a final judgment approving both settlements. No appeal has been filed
and the time for filing an appeal has run. Therefore, monetary class members who
submitted claims will be paid their settlement amount out of the monetary fund
by the third-party claims administrator once the final settlement amounts are
calculated pursuant to the formula set forth in the settlement agreement and
court order. Similarly the equitable settlement will be implemented promptly.
For those equitable class members who submitted timely requests for the
repurchase of their limited partnership units, the respective partnerships will
repurchase such units by December 31, 2001.
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition or results of operations of
the Company.
8. Operating Segments
In the first nine months of 2000, the Company operated in three operating
segments: the management of investment programs and other equipment leasing,
trailer leasing, and commercial and industrial equipment leasing and financing.
The management of investment programs and other equipment leasing segment
involves managing the Company's syndicated investment programs, from which it
earns fees and equity interests, and arranging short-term to mid-term operating
leases of other equipment. The Company sold its commercial and industrial
equipment leasing subsidiary, AFG on March 1, 2000 and its trailer leasing
operations on September 30, 2000. Accordingly, these segments are accounted for
as discontinued operations. With the sale of AFG and the trailer leasing
operations,
PLM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8. Operating Segments (continued)
the Company operated in only one segment in the first nine months of 2001, which
is the management of investment programs and other transportation equipment
leasing. The Company evaluates the performance of each segment based on profit
or loss from operations before allocating general and administrative expenses,
certain operation support costs and income taxes.
(this space intentionally left blank)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT OF INVESTMENT PROGRAMS
The Company 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
invested the equity raised through syndication for these programs in
transportation equipment and related assets, which it 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.
The limited partnership agreements 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 1% of earnings of the program,
subject to certain allocation provisions per the operating agreement. The
Company's interest in the earnings and distributions of Fund I 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 liquidate and the managed
equipment portfolio for these programs becomes permanently reduced.
In accordance with certain limited partnerships' agreements, four limited
partnerships have entered their liquidation phases and the Company has commenced
an orderly liquidation of the partnerships' assets. Two of the limited
partnerships, PLM Equipment Growth Fund III and PLM Equipment Growth Fund IV are
expected to be liquidated by the end of 2002. Two of the limited partnerships,
PLM Equipment Growth Fund and PLM Equipment Growth Fund II will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events.
The Company will occasionally own transportation equipment prior to sale to
affiliated programs. During this period, the Company earns lease revenue and may
incur interest expense.
TRAILER LEASING
Prior to 2001, the Company operated 22 trailer rental facilities doing business
as PLM Trailer Leasing that engaged in short-term and mid-term operating leases.
On May 24, 2000, the Company signed an asset purchase agreement to sell its
refrigerated and dry trailer assets and related liabilities. PLMI shareholders
approved the transaction on August 25, 2000. The sale was completed on September
30, 2000. The Company received $69.2 million, net of transaction costs, for its
4,250 trailers and the purchaser assumed $49.2 million in debt and other
liabilities, including the operation of most of PLM Trailer Leasing's trailer
yards located throughout the United States. The Company paid $5.0 million of
income tax related to the trailer sale in the first quarter of 2001.
Accordingly, the Company's trailer leasing is accounted for as a discontinued
operation.
COMMERCIAL AND INDUSTRIAL EQUIPMENT LEASING AND FINANCING
Prior to 2001, the Company funded and managed long-term direct finance leases,
operating leases, and loans through its American Finance Group, Inc. (AFG)
subsidiary. Master lease agreements were entered into with predominately
investment-grade lessees and served as the basis for marketing efforts. The
underlying assets represented a broad range of commercial and industrial
equipment, such as: point-of-sale, materials handling, computer and peripheral,
manufacturing, general-purpose plant and warehouse, communications, medical, and
construction and mining equipment. Through AFG, the Company was also engaged in
the management of institutional programs for which it originated leases and
received acquisition and management fees. The Company also earned syndication
fees for arranging purchases and sales of equipment to other unaffiliated third
parties.
In October 1999, the Company agreed to sell AFG. On February 25, 2000, the
shareholders of PLMI approved the transaction. The sale of AFG was completed on
March 1, 2000 for total proceeds of $32.2 million. Taxes and transaction costs
related to the sale were $3.9 million. Net proceeds to the Company from the sale
of AFG were $28.3 million. In addition, AFG distributed to PLMII certain assets
with a net book value of $2.7 million and cash of $0.4 million immediately prior
to the sale.
Accordingly, the Company's commercial and industrial leasing operations are
accounted for as a discontinued operation.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
The following analysis reviews the operating results of the Company:
REVENUES
For the Three Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Operating lease income $ 65 $ 792
Management fees 1,375 1,656
Partnership interests and other fees (57) 1,500
Acquisition and lease negotiation fees 1,847 385
Other 204 130
-----------------------------------------
Total revenues $ 3,434 $ 4,463
The fluctuations in revenues for the three months ended September 30, 2001,
compared to the three months ended September 30, 2000, are summarized and
explained below.
OPERATING LEASE INCOME BY TYPE:
For the Three Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Lease income from assets held for sale $ -- $ 623
Other 65 169
-----------------------------------------
Total operating lease income $ 65 $ 792
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income decreased $0.7 million during the third quarter of 2001 compared to the
same quarter of 2000.
A $0.6 million decrease in operating lease income in the three months ended
September 30, 2001 related to assets held for sale. The Company held no assets
for sale in the three months ended September 30, 2001. During the third quarter
of 2000, the Company owned $14.0 million in marine containers that were sold
during the quarter to affiliated programs at cost, which approximated their fair
market value.
A $0.1 million decrease in operating lease income from other assets resulted
from a reduction in other assets held for lease in the three months ended
September 30, 2001 compared to the similar period in 2000.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $1.4 million and $1.7 million
for the quarters ended September 30, 2001 and 2000, respectively. The decrease
in management fees resulted from a net decrease in managed equipment in the PLM
Equipment Growth Fund programs and Professional Lease Management Income Fund I,
LLC. With the termination of syndication activities in 1996, management fees
from the older programs are decreasing and are expected to continue to decrease
as the programs liquidate their equipment portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The Company's net loss from the affiliated
programs was $0.1 million for the quarter ended September 30, 2001 compared to
income of $1.3 million for the three months ended September 30, 2000. The
decrease of $1.4 million in net earnings from the affiliated entities in the
third quarter of 2001 compared to the same quarter of 2000 is a result of lower
gains from the disposition of equipment in certain of the EGF programs in the
third quarter of 2001 compared to 2000. A decrease of $0.2 million in other fees
was due to decreased sales commissions in the three months ended September 30,
2001, compared to the same period of 2000.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the quarter ended September 30, 2001, the Company did not purchase any
transportation and other equipment for the EGF programs. Concurrent with the
final settlement of the Koch and Romei matters in the third quarter of 2001 (see
Note 7 to the unaudited condensed consolidated financial statements), the
Company recognized income of $1.8 million of acquisition and lease negotiation
fees. These fees were earned on equipment purchased in prior periods for
investment programs that had reached the maximum allowable fees that could be
taken. With the settlement of these lawsuits, the amount of fees that could be
earned from these investment programs was increased and the previously deferred
fees were taken into income. During the quarter ended September 30, 2000, the
Company, on behalf of the EGF programs, purchased transportation equipment for
$7.0 million, and $0.4 million in acquisition and lease negotiation fees were
earned on these purchases
COSTS AND EXPENSES
For the Three Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Operations support $ 453 $ 679
Depreciation and amortization 105 247
General and administrative 658 1,967
-----------------------------------------
Total costs and expenses $ 1,216 $ 2,893
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities, decreased $0.2 million (33%) during the quarter ended
September 30, 2001, compared to the quarter ended September 30, 2000. The
decrease in operations support expense was primarily due to a decrease in
compensation and benefits expense resulting from staff reductions.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense decreased $0.1 million (57%) for the
quarter ended September 30, 2001, compared to the quarter ended September 30,
2000. The decrease resulted primarily from a decrease in the volume of other
assets held for operating lease.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $1.3 million (67%) during the
quarter ended September 30, 2001, compared to the quarter ended September 30,
2000. The reduction resulted from lower compensation and benefits costs due to
staffing reductions.
OTHER INCOME AND EXPENSES
For the Three Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Interest expense $ (1) $ (554)
Interest income 101 266
Other expenses, net (1) (175)
INTEREST EXPENSE:
Interest expense decreased $0.6 million (100%) during the quarter ended
September 30, 2001, compared to the quarter ended September 30, 2000 due to the
repayment of the Company's senior secured notes in 2000.
INTEREST INCOME:
Interest income decreased $0.2 million (62%) during the quarter ended September
30, 2001, compared to the same quarter of 2000 due to lower average cash
balances and lower interest rates on cash investments during the quarter ended
September 30, 2001 compared to the same quarter of 2000.
OTHER EXPENSES, NET:
Other expenses of $0.2 million in the third quarter of 2000 primarily related to
litigation costs. A similar event did not occur in the third quarter of 2001.
PROVISION FOR INCOME TAXES:
For the three months ended September 30, 2001, the provision for income tax was
$0.9 million, representing an effective rate of 38%. For the three months ended
September 30, 2000, the provision for income tax was $0.4 million, representing
an effective rate of 38%.
LOSS FROM DISCONTINUED OPERATIONS
On May 24, 2000, the Company signed an asset purchase agreement to sell its
refrigerated and dry trailer assets and related liabilities. PLMI shareholders
approved the transaction on August 25, 2000. The sale was completed on September
30, 2000.
Accordingly, the Company's trailer leasing operations are accounted for as a
discontinued operation. The loss from discontinued operations and the gain on
disposition of discontinued operations for the quarter ended September 30, 2000
is as follows (in thousands of dollars):
Trailer
Leasing
--------------
REVENUES
Operating lease income $ 9,259
Management fees 192
Loss on disposition of assets, net (18)
Other 13
--------------
Total revenues 9,446
--------------
COSTS AND EXPENSES
Operations support 5,220
Depreciation and amortization 2,728
General and administrative expenses 1,317
--------------
Total costs and expenses 9,265
--------------
Operating income 181
Interest expense, net (1,005)
Other expense (4)
--------------
Loss before income taxes (828)
Benefit from income taxes (319)
--------------
Loss from discontinued operations $ (509)
==============
Gain on disposition of discontinued operations, net of income tax $ 4,785
==============
NET INCOME
As a result of the foregoing, for the three months ended September 30, 2001, net
income was $1.4 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.19. For the same period of 2000,
net income was $5.0 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.67 and $0.66, respectively.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
The following analysis reviews the operating results of the Company:
REVENUES
For the Nine Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Operating lease income $ 695 $ 1,101
Management fees 4,362 5,205
Partnership interests and other fees 847 1,688
Acquisition and lease negotiation fees 2,032 538
Other 834 665
-----------------------------------------
Total revenues $ 8,770 $ 9,197
The fluctuations in revenues for the nine months ended September 30, 2001,
compared to the nine months ended September 30, 2000, are summarized and
explained below.
OPERATING LEASE INCOME BY TYPE:
For the Nine Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Lease income from assets held for sale $ 347 $ 744
Other 348 357
-----------------------------------------
Total operating lease income $ 695 $ 1,101
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income decreased $0.4 million during nine months ended September 30, 2001,
compared to the nine months ended September 30, 2000 due to the following:
1) Lease income from assets held for sale decreased $0.4 million
during the nine months ended September 30, 2001 compared to the same
period of 2000. During the nine months ended September 30, 2001, the
Company owned $10.3 million in marine containers on which the Company
earned $0.3 million in operating lease income. During the nine months
ended September 30, 2000, the Company owned $14.0 million in marine
containers on which the Company earned $0.7 million in operating lease
income.
2) Lease income from other assets decreased $9,000 during the nine
months ended September 30, 2001 compared to the same period of 2000
due to a decrease in the amount of other assets held for lease.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $4.4 million and $5.2 million
for the nine months ended September 30, 2001 and 2000, respectively. The
decrease in management fees resulted from a net decrease in managed equipment in
the PLM Equipment Growth Fund programs and Professional Lease Management Income
Fund I, LLC. With the termination of syndication activities in 1996, management
fees from the older programs are decreasing and are expected to continue to
decrease as the programs liquidate their equipment portfolios.
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 from the affiliated programs
were $0.8 million and $1.5 million for the nine months ended September 30, 2001
and 2000, respectively. The decrease in net earnings from affiliated programs in
2001, compared to 2000, resulted from reduced gains on disposition of equipment
in the Growth Fund programs. A decrease of $0.2 million in other fees was due to
decreased sales commissions in the nine months ended September 30, 2001,
compared to the same period of 2000.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the nine months ended September 30, 2001, the Company, on behalf of the
EGF programs, purchased transportation and other equipment for $8.0 million,
compared to first nine months of 2000 during which the Company purchased $5.0
million of transportation and other equipment for these programs. Concurrent
with the final settlement of the Koch and Romei matters in the third quarter of
2001 (see Note 7 to the unaudited condensed consolidated financial statements),
the Company recognized income of $1.8 million of acquisition and lease
negotiation fees. These fees were earned on equipment purchased in prior periods
for investment programs that had reached the maximum allowable fees that may be
taken. With the settlement of these lawsuits, the amount of fees that could be
earned from these investment programs was increased and the previously deferred
fees were taken into income.
OTHER REVENUE:
Other revenue increased $0.2 million in the nine months ended September 30, 2001
compared to the similar period in 2000 primarily due in to an increase in data
processing fees earned from the investment programs.
COSTS AND EXPENSES
For the Nine Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Operations support $ 1,092 $ 1,850
Depreciation and amortization 519 643
General and administrative 4,054 4,391
-----------------------------------------
Total costs and expenses $ 5,665 $ 6,884
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities, decreased $0.8 million (41%) for the nine months ended
September 30, 2001, compared to the nine months ended September 30, 2000. The
decrease in operations support expense was primarily due to a decrease in
compensation and benefits expense resulting from staff reductions.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense decreased $0.1 million (19%) for the nine
months ended September 30, 2001, compared to the nine months ended September 30,
2000. The decrease resulted from a decrease in the volume of other assets held
for operating lease.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $0.3 million (8%) during the nine
months ended September 30, 2001, compared to the nine months ended September 30,
2000. The reduction resulted from lower compensation costs due to staffing
reductions. This decreases were offset by a $0.3 million expense related to the
exercise of stock options in the nine months ended September 30, 2001 and $0.3
million in expenses related to the sale of the Company (as discussed in Note 1
to the unaudited condensed consolidated financial statements). There were no
similar expenses in 2000.
OTHER INCOME AND EXPENSES
For the Nine Months
Ended September 30,
2001 2000
-----------------------------------------
(in thousands of dollars)
Interest expense $ (4) $ (1,424)
Interest income 336 869
Other expenses, net (62) (177)
INTEREST EXPENSE:
Interest expense decreased $1.4 million (100%) during the nine months ended
September 30, 2001, compared to the nine months ended September 30, 2000, due to
the Company's repayment of the senior secured notes in 2000.
INTEREST INCOME:
Interest income decreased $0.5 million (61%) during the nine months ended
September 30, 2001, compared to the same period of 2000 due to lower average
cash balances and lower interest rates earned on cash investments during the
nine months ended September 30, 2001 compared to the same period of 2000.
OTHER EXPENSES, NET:
Other expenses in the nine months ended September 30, 2001 and 2000 primarily
related to litigation costs.
PROVISION FOR INCOME TAXES:
For the nine months ended September 30, 2001, the provision for income taxes was
$1.3 million, representing an effective rate of 39%. For the nine months ended
September 30, 2000, the provision for income taxes was $0.6 million,
representing an effective rate of 38%.
LOSS FROM DISCONTINUED OPERATIONS
On May 24, 2000, the Company signed an asset purchase agreement to sell its
refrigerated and dry trailer assets and related liabilities. PLMI shareholders
approved the transaction on August 25, 2000. The sale was completed on September
30, 2000.
In October 1999, the Company agreed to sell its commercial and industrial
equipment subsidiary, American Finance Group, Inc. On February 25, 2000, the
shareholders of the Company approved the transaction. The sale was completed on
March 1, 2000.
Accordingly, the Company's trailer leasing and commercial and industrial leasing
operations are accounted for as discontinued operations. The loss from
discontinued operations and the gain on disposition of discontinued operations
for the nine months ended September 30, 2000 are as follows (in thousands of
dollars):
2000
----------------------------------------
Trailer
Leasing AFG Total
---------------------------------------
REVENUES
Operating lease income $ 24,312 $ 1,841 $ 26,153
Finance lease income -- 1,650 1,650
Management fees 550 100 650
Gain (loss) on disposition of assets, net (39) 40 1
Other 46 445 491
---------------------------------------
Total revenues 24,869 4,076 28,945
---------------------------------------
COSTS AND EXPENSES
Operations support 11,996 766 12,762
Depreciation and amortization 7,622 1,505 9,127
General and administrative expenses 2,193 -- 2,193
---------------------------------------
Total costs and expenses 21,811 2,271 24,082
---------------------------------------
Operating income 3,058 1,805 4,863
Interest expense, net (3,148) (1,655) (4,803)
Other expense (4) -- (4)
---------------------------------------
Income (loss) from discontinued operations
Before income taxes (94) 150 56
Provision for (benefit from) income tax (37) 57 20
Income previously accrued as a component
Of loss on a discontinued operation -- (200) (200)
---------------------------------------
Loss from discontinued operations $ (57) $ (107) $ (164)
=======================================
Gain on disposition of discontinued operations, net of income tax $ 4,785 $ -- $ 4,785
=======================================
NET INCOME
As a result of the foregoing, for the nine months ended September 30, 2001, net
income was $2.1 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.27. For the same period of 2000,
net income was $5.6 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.74.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, and proceeds from the sale of equipment and business
segments.
During the nine months ended September 30, 2001, accounts receivable decreased
$0.9 million. This decrease was primarily caused by the collection of lease
receivables from assets held for sale outstanding at December 31, 2000.
During the nine months ended September 30, 2001, receivables from affiliates
decreased $0.3 million resulting from lower management fees earned from the
affiliated programs.
During the nine months ended September 30, 2001, equity interest in affiliates
decreased $0.6 million due to the Company receiving $1.4 million in
distributions from the affiliated programs during the period. The decrease
caused by these distributions was partially offset by income earned from these
programs of $0.8 million.
As of December 31, 2000, the Company had $10.3 million in marine containers that
were reported as assets held for sale. During the first nine months of 2001, the
Company sold these marine containers to affiliated programs at cost, which
approximated their fair market value. As of September 30, 2001, the Company had
no assets held for sale.
During the nine months ended September 30, 2001, restricted cash decreased $2.5
million. The Company's agreement to be purchased by MILPI Acquisition Corp.
required the Company to place $1.7 million into an escrow account as of December
31, 2000. Concurrent with the conclusion of the tender offer in February 2001,
the $1.7 million in restricted cash held in an escrow account was released to
the Company. Restricted cash as of December 31, 2000 also included $0.8 million
related to the Company's obligations under the deferred compensation agreements.
These deferred compensation obligations were paid during the first nine months
of 2001 and the cash held as restricted related to these agreements was
released.
During the nine months ended September 30, 2001, other assets decreased $1.0
million. A $0.7 million decrease was due to the decrease in net book value of
other assets held for lease due to asset sales and depreciation being recorded
on these assets. A decrease of $0.4 million was due to a reduction in prepaid
insurance and prepaid rent. A decrease of $0.1 million was due to a decrease in
the net book value of furniture and other equipment due to depreciation on these
assets and asset disposals. These decreases were partially offset by an increase
of $0.2 million in the book value of the cash surrender value of officer's life
insurance policies primarily resulting from dividends on these policies.
During the nine months ended September 30, 2001, accounts payable and accrued
expenses decreased $9.8 million. $4.7 million of this decrease was the result of
a reduction in the current federal and state income tax payable due to tax
payments made in 2001. A $3.6 million decrease in accrued compensation was due
to the payment of deferred compensation, profit sharing, and bonuses in 2001
that were accrued at December 31, 2000. Accounts payable and other accrued
liabilities decreased $1.4 million due to the payment of a litigation settlement
that had been accrued at December 31, 2000 and the timing of payments.
DEBT FINANCING:
Warehouse Credit Facility: In April 2001, the Company entered into a joint $15.0
million credit facility on behalf of Acquisub LLC (ACQ), a wholly-owned
subsidiary of the Company, PLM Equipment Growth Fund VI (EGF VI), PLM Equipment
Growth and Income Fund VII (EGF VII), and Professional Lease Management Income
Fund I (Fund I), each affiliated investment programs of the Company. The
facility provides interim financing of up to 100% of the aggregate book value of
eligible equipment as defined in the credit agreement. The Company, EGF VI, EGF
VII, and Fund I, collectively may borrow up to $15.0 million under this
facility. Outstanding borrowings by one borrower reduce the amount available to
each of the other borrowers under the facility. Individual borrowings may be
outstanding for no more than 270 days, with all advances due no later than April
12, 2002. Interest accrues at either the prime rate or adjusted LIBOR plus 2.00
%, at the borrower's option, and is set at the time of an advance of funds. The
Company guarantees all borrowings. As of September 30, 2001 and November 8, 2001
there were no borrowings outstanding under this facility by any of the
borrowers.
The Company is currently in discussions with the lenders of the warehouse credit
facility to lower the amount available to be borrowed under the facility from
$15.0 million to $10.0 million.
Management believes that, through debt financing and cash flows from operations,
the Company will have sufficient liquidity and capital resources to meet its
projected future operating needs over the next twelve months.
FORWARD-LOOKING INFORMATION:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Company's actual results could differ materially from
those discussed here.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
This space intentionally left blank.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the unaudited condensed consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
Report dated September 5, 2001 announcing the engagement of Deloitte & Touche
LLP as the Company's auditors and the dismissal of KPMG LLP.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
/s/ Stephen M. Bess
---------------------------------------------------
Stephen M. Bess
Chief Executive Officer and Current Chief
Accounting Officer
Date: November 8, 2001