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, 2000
[ ] 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 (I.R.S. Employer Identification No.)
incorporation or 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 March 28, 2001 was $26,440,785.
The number of shares outstanding of the issuer's classes of common
stock as of March 28, 2001: Common Stock, $0.01 Par Value -- 7,554,510 shares
PLM INTERNATIONAL, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
Part I
Item 1 Business 2
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 7
Part II
Item 5 Market for the Company's Common Equity and Related
Stockholder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A Quantitative and Qualitative Disclosures about
Market Risk 21
Item 8 Financial Statements and Supplemental Data 21
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
Part III
Item 10 Directors and Executive Officers of the Company 22
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners
and Management 22
Item 13 Certain Relationships and Related Transactions 22
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 23
-1-
PART I
ITEM 1. BUSINESS
(A) Background
PLM International, Inc. (PLM International, the Company, or PLMI), a Delaware
corporation, is a management company that specializes in transportation
equipment leasing. Through May 1996, the Company syndicated investment programs
organized to invest primarily in transportation and related equipment. The
Company continues to manage these syndicated investment programs. As of December
31, 2000, the Company operated and managed transportation equipment and related
assets for various investment programs and third-party investors with an
approximate original cost of $0.7 billion. An organizational chart for PLM
International indicating the relationships of significant active legal entities
as of December 31, 2000 is shown in Table 1:
TABLE 1
ORGANIZATIONAL CHART
[chart omitted]
-2-
(B) Description of Business
PLM International, a Delaware corporation formed on May 20, 1987, manages a
portfolio of transportation equipment and related assets with a combined
original cost of approximately $0.7 billion (refer to Table 2). In 2000, the
Company operated in three operating segments: refrigerated and dry van
(non-refrigerated) trailer leasing, commercial and industrial equipment leasing
and financing, and the management of investment programs and other
transportation equipment leasing.
TABLE 2
EQUIPMENT AND RELATED ASSETS
December 31, 2000
(original cost in millions of dollars)
Professional Other
Lease Management Equipment Investor
Income Fund I Growth Funds Programs Total
---------------------------------------------------------------
Marine containers $ 29 $ 74 $ -- $ 103
Aircraft, aircraft engines, and rotables 35 174 -- 209
Railcars 20 119 44 183
Marine vessels 29 105 -- 134
Intermodal trailers 7 24 -- 31
Other 12 25 2 39
--------------------------------------------------------------
Total $ 132 $ 521 $ 46 $ 699
==============================================================
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 at $3.46 per
share. In February 2001, PLM International announced that MILPI had completed
its cash tender offer for the outstanding common stock of PLM International.
MILPI acquired 83% of the common shares outstanding of PLM International MILPI
through the tender. MILPI will complete its acquisition of PLM International by
effecting a merger of PLM International into MILPI under Delaware law. The
merger is expected to be completed after MILPI obtains approval of the merger by
PLM International's shareholders pursuant to a special shareholders' meeting
which is expected to be held during the first half of 2001. Upon completion of
the merger, PLMI will no longer be publicly traded.
On May 24, 2000, the Company signed an asset purchase agreement to sell its
refrigerated and dry trailer assets and related liabilities. PLM 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 the 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.
In October 1999, the Company agreed to sell American Finance Group, Inc. (AFG),
its commercial and industrial equipment leasing subsidiary. On February 25,
2000, the shareholders of PLM International approved the transaction. The sale
of AFG was completed on March 1, 2000. The Company received $32.2 million for
AFG. Taxes and transaction costs related to the sale were $3.9 million resulting
in net proceeds to the Company of $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.
Accordingly, the Company's trailer leasing and commercial and industrial leasing
operations are accounted for as discontinued operations and prior periods have
been restated. For business segment reporting purposes, trailer leasing is
reported in the segment "Trailer Leasing" and AFG is reported in the segment
"Commercial and Industrial Equipment Leasing and Financing". Costs and expenses
included in discontinued operations are comprised of all direct expenses of
trailer leasing and AFG, and allocated costs from PLMI that will be eliminated
as a result of the sale.
-3-
(C) Management of Investment Programs and Other Transportation Equipment Leasing
Management of Investment Programs
PLM Financial Services, Inc. (FSI), a wholly owned subsidiary of PLMI, along
with its primary subsidiary, 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 Company has entered
into management agreements with these programs.
FSI 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 and
related equipment for lease in order to generate current operating cash flow for
distribution to investors and for reinvestment into additional used
transportation and related 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 it's affiliated investment
programs is $1.7 billion.
IMI manages equipment owned by investors in the various investment programs. The
equipment consists of: aircraft (commercial and commuter), aircraft engines and
rotables, railcars, intermodal trailers, marine containers (refrigerated and
nonrefrigerated), marine vessels (dry bulk carriers, marine feeder vessels, and
product tankers). 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, compliance with investor program debt covenants and terms of the
various investment program agreements. PLM Railcar Management Services, Inc.
(RMSI) markets and manages the investment programs' railcar fleets. RMSI is also
involved in negotiating the purchase and sale of railcars on behalf of IMI and
PLM Transportation Equipment Corporation (TEC).
PLM Worldwide Management Services Limited (WMS), a wholly owned subsidiary of
PLMI, is a Bermuda-based company that serves as the parent of PLMI's foreign
operating entity and generates revenue from certain equipment brokerage
activities.
PLM Railcar Management Services Canada, Limited, a wholly owned subsidiary of
WMS headquartered in Calgary, Alberta, Canada, provides fleet management
services on behalf of IMI to the managed railcars operating in Canada.
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. Equipment acquisition,
lease negotiation, and debt placement fees are earned through the purchase,
initial lease, and financing of equipment. These fees are recognized as revenue
when FSI has completed all of the services required to earn them, typically 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. FSI is also entitled to
reimbursement for providing certain administrative services.
With the termination of syndication activities in 1996, management fees,
acquisition fees, lease negotiation fees, and debt placement fees from the older
programs have decreased and are expected to continue to decrease as the programs
liquidate their equipment portfolios.
-4-
As compensation for organizing a partnership investment program, the Company was
granted an interest (between 1% and 5%) in the earnings and cash distributions
of the program, in 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
effect of special allocations of the programs' gross income allowed under the
respective partnership agreements. Capital contributions in excess of the equity
interest are considered goodwill and are amortized through the life of the
program.
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, which is reflected as equity interest
in affiliates in the accompanying consolidated balance sheets. Capital
contributions in excess of the Company's equity interest are considered
goodwill. FSI is amortizing its goodwill in Fund I through the projected end of
the Program. In return for its investment, FSI is 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. Management fees are earned for managing the equipment
portfolios in Fund I, and are recognized as revenue as they are earned. FSI is
also entitled to reimbursement for providing certain administrative services.
Leasing Markets: FSI, on behalf of its affiliated investment programs, leases
its transportation equipment primarily on mid-term operating leases and
short-term rentals. Leases of aircraft 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. Railcar leases are full-services leases. Marine vessel leases may
be either net operating leases or full-service leases. In a full-service lease
and a per diem rental, the lessor absorbs the maintenance costs. This allows the
Company to insure proper maintenance of the equipment.
Lessees: Lessees of the investment programs' equipment range from Fortune 1000
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. The credit committee performs an in-depth review of each transaction
and considers many factors, including anticipated residual values from the
eventual sale of the equipment. These residuals may be affected by several
factors during the time the equipment is held, including changes in regulatory
environments in which the equipment is operated, the onset of technological
obsolescence, changes in equipment markets, and perceived values for equipment
at the time of sale. Because the impact of any of these factors is difficult to
forecast with accuracy over extended time horizons, the Company cannot predict
with certainty that the anticipated residual values for equipment selected for
acquisition will actually be realized when the equipment is sold. Deposits,
prepaid rents, corporate and personal guarantees, and letters of credit are
utilized, when necessary, to provide credit support for lessees who do not
satisfy the credit committee's financial requirements.
Competition: When marketing operating leases for transportation assets owned by
the managed investment programs, 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 rents than the Company offers. In comparison, the shorter
length of operating leases 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 GE
Capital Railcar Services, Inc., GATX, GE Capital Aviation Services, Inc.,
International Lease Finance Corporation, Union Tank Car Company, international
banks, and certain limited partnerships.
-5-
Government Regulations: The transportation industry, in which the majority of
the equipment managed by the Company operates, is subject to substantial
regulation by various federal, state, local, and foreign government authorities.
For example, in July 2000, the Federal Railroad Administration implemented
Regulation HM-201 for all rail tank cars. This regulation is the requalification
of the tank vessel which consists of checking metal thickness & critical welds
in certain high stress areas the tank shell. This regulation takes the place of
a hydrostatic tank test & will result in more costly inspections of tank cars in
the future. Enactments like these could affect the performance of equipment
managed by the Company. It is not possible to predict the positive or negative
effects of future regulatory changes in the transportation industry.
Transportation Equipment Leasing and Other
The Company owns forklifts that are on operating leases with a net book value of
$1.0 million as of December 31, 2000.
The Company owned portable on-site storage units. 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 terminated.
During 2000, the Company sold all the portable on-site storage units.
The Company had an 80% interest in a company owning 100% of a company located in
Australia that was involved in aircraft brokerage and aircraft spare parts
sales. This company was sold during August 1998.
(D) Employees
As of March 28, 2001, the Company and its subsidiaries had 43 employees. None of
the Company's employees are subject to collective bargaining arrangements. The
Company believes that employee relations are good.
ITEM 2. PROPERTIES
The Company's principal offices are located in leased office space at One
Market, Steuart Street Tower, Suite 800, San Francisco, California. The Company
also has office spaces at Chicago, and Calgary.
ITEM 3. LEGAL PROCEEDINGS
The Company 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.
-6-
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 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 unitholders 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. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including judicial approval of the proposed amendments and final approval of the
equitable settlement by the court following a final fairness hearing.
A final fairness hearing was held on November 29, 2000 and the parties await the
court's decision. The Company continues to believe that the allegations of the
Koch and Romei actions are completely without merit and intends to continue to
defend this matter vigorously if the monetary settlement is not consummated.
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 of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-7-
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, the Company had
7,554,510 common shares outstanding and approximately 2,003 shareholders of
record.
Table 3, below, sets forth the quarterly high and low prices of the Company's
common stock for 2000 and 1999, as reported by the AMEX:
TABLE 3
Calendar Period High Low
------------------- ---------- ----------
2000
1st Quarter $ 7.13 $ 5.75
2nd Quarter 7.44 6.25
3rd Quarter 6.88 6.38
4th Quarter 6.88 2.06
1999
1st Quarter $ 6.250 $ 5.310
2nd Quarter 6.750 5.500
3rd Quarter 5.940 4.500
4th Quarter 6.130 4.440
In December 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
During 1998, 1999, and 2000, the Company purchased a total of 828,325 shares
under this plan for a total of $5.0 million.
In May 2000, the Company's Board of Directors' authorized the purchase of up to
$10.0 million of the Company's common stock. During 2000, the Company purchased
261,654 shares of the Company's common stock for $1.9 million, under the $10.0
million common stock repurchase program. The Company does not anticipate any
future repurchases under this program.
On September 29, 2000, the Company announced that its Board of Director's had
approved a plan of partial liquidation and authorized a $5.00 per share
distribution to shareholders from the proceeds of the trailer sale. This payment
was made on November 3, 2000 to shareholders of record as of October 22, 2000.
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 at $3.46 per
share. In February 2001, PLM International announced that MILPI had completed
its cash tender offer for the outstanding common stock of PLM International.
MILPI acquired 83% of the common shares outstanding of PLM International through
the tender. MILPI will complete its acquisition of PLM International by
effecting a merger of PLM International into MILPI under Delaware law. The
merger is expected to be completed after MILPI obtains approval of the merger by
PLM International's shareholders pursuant to a special shareholders' meeting
which is expected to be held during the first half of 2001. Upon completion of
the merger, PLMI will no longer be publicly traded.
-8-
ITEM 6. SELECTED FINANCIAL DATA
Years ended December 31,
(in thousands of dollars, except per share amounts)
2000 1999 1998 1997 1996
----------------------------------------------------------------------------
Results of operations:
Revenue $ 11,551 $ 11,584 $ 18,799 $ 23,535 $ 32,578
Income from continuing operations
before income taxes 102 2,304 3,989 492 2,918
Net income from continuing operations 63 1,413 2,384 869 3,430
Net income from discontinued
operations 210 1,743 2,473 3,798 665
Gain (loss) on disposition of discontinued
operations 4,990 (550) -- -- --
Net income before cumulative
effect of accounting change 5,263 2,606 4,857 4,667 4,095
Cumulative effect of accounting change -- (250) -- -- --
Net income to common shares 5,263 2,356 4,857 4,667 4,095
Basic earnings per weighted-
average common share outstanding:
Income (loss) from continuing
operations 0.01 0.17 0.29 0.10 0.34
Income from discontinued operations 0.03 0.22 0.29 0.41 0.07
Gain (loss) from disposition of
Discontinued operations 0.66 (0.07) -- -- --
Cumulative effect of accounting change -- (0.03) -- -- --
Net income to common shares 0.70 0.29 0.58 0.51 0.41
Financial position:
Total assets $ 40,407 $ 84,725 $ 95,559 $ 93,969 $ 92,967
Senior secured notes 0 20,679 28,824 24,881 22,698
Shareholders' equity 15,613 49,413 50,197 46,548 46,320
-9-
ITEM 7. 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 earnings of the program, subject to
certain allocation provisions. 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 (EGF III) and PLM Equipment Growth
Fund IV (EGF IV) are expected to be liquidated by the end of 2001. Two of the
limited partnerships, PLM Equipment Growth Fund (EGF I) and PLM Equipment Growth
Fund II (EGF 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
The Company operated 22 trailer rental facilities doing business as PLM Trailer
Leasing that engaged in short-term and mid-term operating leases. Nineteen of
these facilities leased predominantly refrigerated trailers used to transport
temperature-sensitive commodities, consisting primarily of food products. Three
facilities leased only dry van (non-refrigerated) trailers.
On May 24, 2000, the Company signed an asset purchase agreement to sell its
refrigerated and dry trailer assets and related liabilities. PLM 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 the 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 and prior periods have been restated.
-10-
Commercial and Industrial Equipment Leasing and Financing
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 PLM International approved the transaction. The sale of AFG was
completed on March 1, 2000. The Company received $32.2 million for AFG. Taxes
and transaction costs related to the sale were $3.9 million resulting in net
proceeds to the Company of $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.
Accordingly, the Company's commercial and industrial leasing operations are
accounted for as a discontinued operation and prior periods financial statements
have been restated.
Comparison of the Company's Operating Results for the Years Ended December 31,
2000 and 1999
The following analysis reviews the operating results of the Company:
Revenues
2000 1999
-------------------------------------
(in thousands of dollars)
Operating lease income $ 1,810 $ 1,194
Management fees 7,043 7,332
Partnership interests and other fees 1,037 346
Acquisition and lease negotiation fees 624 1,354
Loss on disposition of assets, net (416) --
Other 1,453 1,358
-------------------------------------
Total revenues $ 11,551 $ 11,584
The fluctuations in revenues between 2000 and 1999 are summarized and explained
below.
Operating lease income:
2000 1999
------------------------------------
(in thousands of dollars)
Lease income from assets held for sale $ 1,247 $ 1,155
Other 563 39
------------------------------------
Total operating lease income $ 1,810 $ 1,194
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. A $0.6 million
increase in operating lease income during 2000 compared to 1999 was due to the
following:
Lease income from assets held for sale was $1.2 million for 2000 and 1999.
During 2000, the Company purchased $24.3 million and sold $14.0 million in
marine containers to affiliated programs at cost, which approximated their fair
market value. The Company earned $1.2 million in operating lease income on these
marine containers during 2000. During 1999, the Company purchased and sold $21.8
million in marine containers to affiliated programs at cost, which approximated
their fair market value. The Company earned $1.2 million in operating lease
income on these marine containers during 1999 prior to their sale to the
affiliated programs.
-11-
Other operating lease income was $0.6 million and $39,000 for 2000 and 1999,
respectively. The increase in other operating lease income was due to the
increase in volume of other assets on operating lease.
Management fees:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees decreased $0.3 million during 2000,
compared to 1999. The decrease in management fees resulted from a net decrease
in managed equipment from the PLM Equipment Growth Fund (EGF) programs and other
managed programs. 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 partnership interests and other fees of 2000
included the net earnings from the affiliated programs of $0.8 million and $0.2
million in other fees. The partnership interests and other fees in 1999 included
the net earnings from the affiliated programs of $1.1 million, partially offset
by a $0.8 million reduction in the Company's residual interests in the programs.
The decrease of $0.3 million in net earnings from the affiliated entities in
2000 compared to 1999, resulted from the disposition of equipment in certain of
the EGF programs. A decrease of $0.8 million in the Company's residual interests
in the programs was recorded during 1999. A similar reduction was not required
in 2000. An increase of $0.2 million in other fees in 2000 compared to 1999 was
due to increased sales commissions.
Acquisition and lease negotiation fees:
During 2000, the Company, on behalf of the EGF programs, purchased
transportation and other equipment for $12.0 million compared to $51.7 million
of transportation and other equipment during 1999, resulting in a $0.8 million
decrease in acquisition and lease negotiation fees. The decrease was partially
offset by an increase of $0.1 million in lease negotiation fees due to -$0.1
million of lease negotiation fees were recorded in 2000 for an aircraft that was
purchased in 1999. The lease of this aircraft started in June 2000. During 2000,
the Company did not take acquisition and lease negotiation fees for a $2.2
million hushkit purchased for an affiliated program as the investment phase of
this affiliated program is closed. In addition, the Company has reached certain
fee limitations for another affiliated program per the partnership agreement.
During 2000, the Company did not take lease negotiation fees for $14.0 million
of the aircraft that was purchased in 1999. During 1999, the Company did not
take acquisition and negotiation fees for $26.1 million of the equipment
purchased for this program. Because of the Company's decision to halt
syndication of equipment leasing programs with the close of Fund I in 1996,
because Fund I has a no front-end fee structure, and because the Company has
reached the maximum allowable fees that may be taken in some of the programs,
acquisition and lease negotiation fees will continue at the current levels or be
reduced in the future.
Loss on disposition of assets, net:
During 2000, the Company had a loss of $0.4 million from disposal of other
assets held for operating lease. No similar loss occurred during 1999.
Other:
Other revenues increased $0.1 million during 2000 compared to 1999. A $0.2
million increase in other income was offset by a $0.1 million decrease in other
revenue resulting from lower data processing fees earned from the affiliated
programs.
Costs and Expenses
2000 1999
-------------------------------------
(in thousands of dollars)
Operations support $ 2,136 $ 2,474
Depreciation and amortization 885 385
General and administrative 6,851 5,224
-------------------------------------
Total costs and expenses $ 9,872 $ 8,083
-12-
Operations support:
Operations support expense, including salary and office-related expenses for
operational activities and provision for doubtful accounts, decreased $0.3
million (14%) for 2000 compared to 1999. A $0.7 million decrease in operations
support expenses related to the management of investment programs due to a
reduction in the size of the managed equipment portfolio. This decrease in
operations support expenses was partially offset by a $0.4 million increase in
operations support expenses related to other activities due to an increase in
compensation and benefits expense.
Depreciation and amortization:
Depreciation and amortization expenses increased $0.5 million (130%) for 2000
compared to 1999. The increase resulted from an increase in the volume of other
assets held for operating lease.
General and administrative:
General and administrative expenses increased $1.6 million (31%) during 2000
compared to 1999. The increase was primarily due to severance costs incurred in
2000 related to staffing reductions. A similar event did not occur in 1999.
Other Income and Expenses
2000 1999
---------------------------
(in thousands of dollars)
Interest expense $ (1,756) $ (2,261)
Interest income 1,512 343
Other income (expense), net (1,333) 721
Interest expense:
Interest expense decreased $0.5 million (22%) during 2000 compared to 1999. The
decrease was primarily due to a lower average outstanding balance on the senior
secured notes in 2000 compared to 1999.
Interest income:
Interest income increased $1.2 million (341%) during 2000, compared to 1999. An
increase in interest income of $1.0 million resulted from higher cash balances
that resulted from the proceeds received from the sale of AFG and the trailer
operations. In addition, an increase of $0.2 million resulted from increased
loans made to the affiliated programs in 2000 compared to the same period of
1999.
Other income (expense), net:
Other income (expense), net of $1.3 million for the year ended December 31,
2000, increased from $0.7 million in 1999. The significant variances are
explained as follows:
(i) $0.6 million of legal fees related to litigation in 2000 compared to $0.1
million of litigation settlement in 1999.
(ii) Other expenses of $0.4 million in 2000 related to the Company paying the
obligations of railcar repair facility in which the Company has a 10% ownership
interest. No similar payments were required in 1999.
(iii) A $0.3 million reduction in the carrying value of the repair facility in
which the Company has a 10% ownership interest. No similar reduction was
required in 1999.
(iv) A $0.2 million loss on revaluation on other assets in 2000. No similar loss
was incurred in 1999.
(v) A $0.2 million of prepayment penalty and write off loan fee related to
prepayment of the senior secured notes in 2000. The Company prepaid the senior
secured notes in December of 2000.
(vi) A $0.3 million of mileage credit income received from the railroads in 2000
compared to $0.8 million in credit income received from the railroads in 1999.
-13-
Provision for Income Taxes
For 2000, the provision for income taxes was $39,000, representing an effective
rate from continuing operations of 38%. For 1999, the provision for income taxes
was $0.9 million, representing an effective rate from continuing operations of
39%. The decrease in the effective rate of 1% was due to the net effect of a
decrease in the effect of permanent differences between tax and book income, a
decrease in the effect of foreign operations, a change in the state
apportionment factors, and an increase in the federal tax rate.
Net Income 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. PLM 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 PLM International 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 and prior periods have
been restated. Net income (loss) from discontinued operations for 2000 and 1999
are as follows (in thousands of dollars):
2000 1999
--------------------------------- -----------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
--------------------------------- -----------------------------------
Revenues
Operating lease income $ 24,312 $ 1,841 $ 26,153 $ 24,561 $ 10,714 $ 35,275
Finance lease income -- 1,650 1,650 -- 10,500 10,500
Management fees 550 100 650 835 743 1,578
Partnership interests 601 -- 601 311 -- 311
Gain (loss) on sale or disposition of (35) 40 5 (49) 2,159 2,110
assets, net
Other 42 445 487 23 2,177 2,200
-------- -------- -------- -------- -------- --------
Total revenues 25,470 4,076 29,546 25,681 26,293 51,974
Costs and expenses
Operations support 12,200 707 12,907 11,674 5,178 16,852
Depreciation and amortization 7,653 1,505 9,158 7,712 9,527 17,239
General and administrative expenses 2,013 -- 2,013 1,604 -- 1,604
-------- -------- -------- -------- -------- --------
Total costs and expenses 21,866 2,212 24,078 20,990 14,705 35,695
======== ======== ======== ======== ======== ========
Operating income 3,604 1,864 5,468 4,691 11,588 16,279
Interest expense, net (3,148) (1,655) (4,803) (3,163) (9,313) (12,476)
Other expense (4) -- (4) -- (975) (975)
-------- -------- -------- -------- -------- --------
Net income from discontinued
operations
before income taxes 452 209 661 1,528 1,300 2,828
Provision for income tax 171 80 251 596 489 1,085
Net income previously accrued as a
component
of loss on a discontinued operation -- (200) (200) -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) from discontinued $ 281 $ (71) $ 210 $ 932 $ 811 $ 1,743
operations ======== ======== ========= ========== ========= ===========
Gain (loss) on disposition of
discontinued operations,
net of income tax $ 4,990 $ -- $ 4,990 $ -- $ (550) $ (550)
======== ======== ======== ======== ======== ========
Trailer Leasing:
Operating lease income decreased to $24.3 million for 2000 compared to $24.6
million for 1999. Operating lease income decreased $8.9 million due to the sale
of all the trailers on September 30, 2000. This decrease was partially offset by
the increase of operating lease income of $8.6 million resulting from an
increase in the trailers owned and on operating lease in 2000 compared to 1999
prior to the sale.
Partnership interests increased to $0.6 million for 2000 compared to $0.3
million for 1999. The increase of $0.3 million due to the gain from the sale of
all the trailers on September 30, 2000.
-14-
Operations support increased to $12.2 million for 2000 compared to $11.7 million
for 1999. Operations support increased $4.2 million due to the expansion of PLM
Trailer Leasing, with the opening of additional rental yards in 1999 and trailer
purchases in 1999 and 2000. This increase was partially offset by the decrease
in operations support of $3.7 million due to the sale of all the trailers on
September 30, 2000.
General and administrative expenses increased to $2.0 million for 2000 compared
to $1.6 million for the same period of 1999. General and administrative expenses
increased $0.6 million due to the growth of the trailer business. The increase
was partially offset by the decrease in general and administrative expenses of
$0.2 million due to the sale of all the trailers on September 30, 2000.
Interest expenses decreased to $3.1 million for 2000 compared to $3.2 million
for 1999 due to sale of the trailer operations.
AFG:
The decrease in all revenues and expenses of AFG for 2000 compared to 1999 was
due to the sale of AFG on March 1, 2000.
Gain (Loss) on Disposition of Discontinued Operations
The Company recorded a $5.0 million gain after tax of $3.0 million on
disposition of discontinued operations in 2000 related to sale of the trailer
assets of the Company.
The Company recorded a $0.6 million after-tax loss on disposition of
discontinued operations during 1999 related to the sale of AFG.
Cumulative Effect of Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.3 million charge,
net of tax of $0.1 million, related to start-up costs of its commercial and
industrial equipment leasing subsidiary which is being accounted for as
discontinued operations.
Net Income
As a result of the foregoing, 2000 net income was $5.3 million, resulting in
basic and diluted earnings per weighted-average common share outstanding of
$0.70 and $0.69, respectively. For 1999, net income was $2.4 million, resulting
in basic and diluted earnings per weighted-average common share outstanding of
$0.29.
Comparison of the Company's Operating Results for the Years Ended December 31,
1999 and 1998
The following analysis reviews the operating results of the Company:
Revenues
1999 1998
--------------------------------
(in thousands of dollars)
Operating lease income $ 1,194 $ 2,269
Management fees 7,332 8,363
Partnership interests and other fees 346 459
Acquisition and lease negotiation fees 1,354 3,253
Gain on disposition of assets, net -- 1,432
Other 1,358 3,023
--------------------------------
Total revenues $ 11,584 $ 18,799
-15-
The fluctuations in revenues between 1999 and 1998 are summarized and explained
below.
Operating lease income:
1999 1998
--------------------------------
(in thousands of dollars)
Lease income from assets held for sale $ 1,155 $ 412
Intermodal trailers -- 1,706
Other 39 151
--------------------------------
Total operating lease income $ 1,194 $ 2,269
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 $1.1 million during 1999 compared to 1998. A $1.7 million
decrease in intermodal trailer and other operating lease income was due to the
Company's strategic decision to dispose of certain transportation assets and
exit certain equipment markets. This decrease in operating lease income was
partially offset by a $0.7 million increase in operating lease income generated
from assets held for sale. During 1999, the Company purchased and sold $21.8
million in marine containers to affiliated programs at cost, which approximated
their fair market value. The Company earned $1.2 million in operating lease
income on these marine containers during 1999 prior to their sale to the
affiliated programs. During 1998, the Company owned an interest in an entity
owning a marine vessel that generated $0.4 million in operating lease income.
The Company sold its interest in the entity that owned the marine vessel at
cost, which approximated fair market value, to an affiliated program during
1998.
Management fees:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees decreased $1.0 million during 1999
compared to 1998. The decrease in management fees resulted from a net decrease
in managed equipment from the PLM Equipment Growth Fund (EGF) programs and other
managed programs. 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 and distribution levels from the
affiliated programs were $1.1 million and $1.3 million for 1999 and 1998,
respectively. In addition, a decrease of $0.8 million in the Company's residual
interests in the programs was recorded during 1999 and 1998.
Acquisition and lease negotiation fees:
During 1999, the Company, on behalf of the EGF programs, purchased
transportation and other equipment, along with beneficial interests in entities
that own marine containers and a commercial aircraft, for $51.7 million. In
1998, $60.4 million in transportation and other equipment and a beneficial
interest in entities that own marine containers and a commercial aircraft were
purchased on behalf of the EGFs. In 1999, the Company did not take acquisition
and lease negotiation fees on $26.1 million of transportation and other
equipment, as the Company has reached certain fee limitations for one of its
limited partnership programs per the partnership agreement. This resulted in a
$1.9 million decrease in acquisition and lease negotiation fees in 1999 compared
to 1998. 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.
Gain on disposition of assets, net:
No gain or loss on sale of assets was recorded during 1999. During 1998, the
Company recorded $1.4 million in net gains on the disposition of assets. Of this
gain, $1.0 million resulted from disposition of an aircraft engine, a 20%
interest in a commuter aircraft, and intermodal trailers, which the company had
previously leased. Also during 1998, the Company purchased and subsequently sold
railcars to an unaffiliated third party for a net gain of $0.5 million.
-16-
Other:
Other revenues decreased $1.7 million during 1999, compared to 1998. A $1.1
million decrease in aircraft brokerage and services revenue during 1999 compared
to 1998 was due to the sale of this subsidiary in August 1998. A $0.3 million
decrease in other revenue was due to lower data processing fees earned from the
affiliated programs. A $0.2 million decrease in underwriting income from
Transportation Equipment Indemnity Company, Ltd. (TEI), a wholly-owned
subsidiary of PLMI, was due to TEI providing less insurance coverage to the
investment programs than in previous years. TEI was liquidated during the first
quarter of 2000. A $0.1 million decrease in miscellaneous income from Aeromil
Holdings, Inc. was due to the sale of this subsidiary in 1998.
Costs and Expenses
1999 1998
-------------------------------------
(in thousands of dollars)
Operations support $ 2,474 $ 7,014
Depreciation and amortization 385 1,056
General and administrative 5,224 6,082
-------------------------------------
Total costs and expenses $ 8,083 $ 14,152
Operations support:
Operations support expense, including salary and office-related expenses for
operational activities and provision for doubtful accounts, decreased $4.5
million (65%) in 1999 compared to 1998. A $3.0 million decrease in operations
support expenses related to the management of investment programs was due to a
reduction in the size of the managed equipment portfolio. A $1.5 million
decrease in other transportation equipment leasing segment was mainly due to the
sale of the Company's aircraft leasing and spare parts brokerage subsidiary in
August 1998 and the sale of other transportation equipment including intermodal
trailers.
Depreciation and amortization:
Depreciation and amortization expenses decreased $0.7 million (64%) in 1999,
compared to 1998. The decrease in depreciation expense was caused by the
disposition of intermodal trailers and other equipment.
General and administrative:
General and administrative expenses decreased $0.9 million (14%) during 1999,
compared to 1998 due to a $0.5 million decrease in rent and office related
expenses, a $0.3 million decrease in compensation and benefits expense, and a
$0.1 million decrease in insurance expense. These decreases were due to a
decrease in staffing and office space requirements.
Other Income and Expenses
1999 1998
-------------------------------------
(in thousands of dollars)
Interest expense $ (2,261) $ (2,072)
Interest income 343 941
Other income, net 721 473
Interest expense:
Interest expense increased $0.2 million (9%) during 1999 compared to 1998.
Interest expense increased $0.3 million due to an increase in borrowings to
finance equipment held for sale. The increase caused by these borrowings was
partially offset by lower interest expense of $0.1 million resulting from lower
average borrowings outstanding under the Company's senior secured notes and loan
in 1999 compared to 1998.
-17-
Interest income:
Interest income decreased $0.6 million (64%) during 1999, compared to 1998. A
decrease of $0.3 million was due to lower cash balances in 1999 compared to
1998. In addition, in 1998 interest income of $0.3 million was recorded for a
tax refund receivable that had not previously been recognized. No similar
interest income was recorded in 1999.
Other income, net:
Other income in 1999 was $0.7 million, compared to $0.5 million in 1998. Other
income of $0.7 million in 1999 represents $0.8 million of mileage credit income
received from the railroads partially offset by a litigation settlement of $0.1
million. During 1998, the Company recorded income of $0.7 million related to the
settlement of a lawsuit and recorded an expense of $0.3 million related to a
legal settlement for the Koch and Romei actions.
Provision for Income Taxes
For 1999, the provision for income taxes was $0.9 million, representing an
effective rate of 39%. For 1998, the provision for income taxes was $1.6
million, representing an effective rate of 40%. The decrease in the effective
rate of 1% was due the change in the effect of permanent differences between tax
and book income.
Net Income (Loss) from Discontinued Operations
Net income (loss) from discontinued operations for 1999 and 1998 are as follows
(in thousands of dollars):
1999 1998
----------------------------------- ---------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
----------------------------------- ---------------------------------
Revenues
Operating lease income $ 24,561 $ 10,714 $ 35,275 $ 9,743 $ 7,935 $ 17,678
Finance lease income -- 10,500 10,500 -- 12,506 12,506
Management fees 835 743 1,578 1,022 818 1,840
Partnership interests 311 -- 311 458 -- 458
Acquisition and lease negotiation fees -- -- -- -- 721 721
Gain (loss) on disposition of assets, (49) 2,159 2,110 94 3,167 3,261
net
Other 23 2,177 2,200 4 1,811 1,815
-------- -------- -------- -------- -------- --------
Total revenues 25,681 26,293 51,974 11,321 26,958 38,279
======== ======== ======== ======== ======== ========
Costs and expenses
Operations support 11,674 5,178 16,852 5,369 4,650 10,019
Depreciation and amortization 7,712 9,527 17,239 3,812 6,965 10,777
General and administrative expenses 1,604 -- 1,604 1,542 -- 1,542
-------- -------- -------- -------- -------- --------
Total costs and expenses 20,990 14,705 35,695 10,723 11,615 22,338
======== ======== ======== ======== ======== ========
Operating income 4,691 11,588 16,279 598 15,343 15,941
Interest expense, net (3,163) (9,313) (12,476) (1,754) (10,277) (12,031)
Other expense -- (975) (975) -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) from discontinued
operations before income taxes 1,528 1,300 2,828 (1,156) 5,066 3,910
Provision for (benefit from) income tax 596 489 1,085 (451) 1,888 1,437
-------- -------- -------- -------- -------- --------
Net income (loss) from discontinued $ 932 $ 811 $ 1,743 $ (705) $ 3,178 $ 2,473
operations ======== ========= ========== ========== ========= ========
Loss on disposition of discontinued
operations, net of income tax $ -- $ (550) $ (550) $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Trailer Leasing:
Operating lease income increased to $24.6 million in 1999 compared to $9.7
million in 1998 as a result of an increase in the trailers owned and on
operating lease.
Partnership interests decreased to $0.3 million for 1999 from $0.5 million in
1998 due to the affiliated programs' dry van trailers transitioning to the three
dry van trailer rental facilities during which period they were off-lease.
Management fees decreased to $0.8 million in 1999 compared to $1.0 million in
1998. Management fees decreased due to a reduction in lease revenue earned by
dry and refrigerated trailers owned by the investment programs.
A $49,000 net loss on the sale of trailers during 1999 compared to a gain of
$0.1 million from the sale of trailers during 1998.
-18-
Operations support increased to $11.7 million for 1999 compared to $5.4 million
for 1998 due to the expansion of PLM Trailer Leasing, with the opening of
additional rental yards and trailer purchases in 1999 and 1998.
Depreciation and amortization increased to $7.7 million for 1999 compared to
$3.8 million for the same period of 1998 due to an increase in the amount of
refrigerated trailer equipment on operating lease at PLM Trailer Leasing.
General and administrative expenses increased to $1.6 million for 1999 compared
to $1.5 million for the same period of 1998 due to the growth of the trailer
business.
Interest expense, net increased to $3.2 million for 1999 compared to $1.8
million for 1998 due to increased borrowings to fund trailer purchases.
AFG:
Operating lease income increased to $10.7 million in 1999, compared to $7.9
million in 1998 due to an increase in the amount of commercial and industrial
equipment owned and on operating leases. Finance lease income decreased to $10.5
million for 1999 compared to $12.5 million for 1998 due to a decrease in
commercial and industrial assets that were on finance leases.
Acquisition and lease negotiation fees decreased $0.7 million in 1999 compared
to 1998 because no equipment was purchased by AFG for the institutional
investment programs during 1999, compared to $26.0 million in 1998, for which
the Company earned $0.7 million of acquisition and lease negotiation fees.
During 1999 and 1998, AFG recorded $2.2 million and $3.2 million in gains on the
disposition of commercial and industrial equipment, respectively. The decrease
in the gain on the sale was due to less equipment being disposed of in 1999
compared to 1998. The original cost of equipment disposed of during 1999 was
$59.3 million compared to $98.6 million during 1998.
Operations support increased to $5.2 million for 1999 compared to $4.7 million
for 1998 primarily due to an increase in compensation expense resulting from a
new bonus program initiated in 1999 to retain AFG employees during AFG's sale.
Depreciation and amortization expenses increased to $9.5 million for 1999,
compared to $7.0 million for 1998 due to an increase in commercial and
industrial equipment on operating leases.
Interest expense decreased to $9.3 million for 1999 compared to $10.3 million
for 1998 due to lower average debt outstanding during 1999, compared to 1998.
Other expenses of $1.0 million in 1999 represent the expense related to the
proposed initial public offering of AFG. During the first quarter of 1999, the
Company's Board of Directors determined that it was in the Company's best
interest to sell AFG rather than proceed with a stock offering, and therefore
wrote off all associated offering costs.
Loss on Disposition of Discontinued Operations
The Company recorded a $0.6 million loss on disposition of discontinued
operations during 1999 related to the sale of AFG. No similar loss was recorded
during 1998.
Net Income
As a result of the foregoing, 1999 net income was $2.4 million, resulting in
basic and diluted earnings per weighted-average common share outstanding of
$0.29. For 1998, net income was $4.9 million, resulting in basic and diluted
earnings per weighted-average common share outstanding of $0.58 and $0.57,
respectively.
-19-
Liquidity and Capital Resources
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, and the sale of equipment and business segments.
Liquidity in 2001 and beyond will depend, in part, on the management of existing
sponsored programs and the effectiveness of cost control programs. 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
Warehouse Credit Facility: The Company had a $9.5 million warehouse facility,
which was shared with PLM Equipment Growth Fund VI, PLM Equipment Growth &
Income Fund VII, and Professional Lease Management Income Fund I, LLC, that
allowed the Company to purchase equipment prior to its designation to a specific
program. Borrowings under this facility by the other eligible borrowers reduced
the amount available to be borrowed by the Company. All borrowings under this
facility were guaranteed by the Company. This facility expired on September 30,
2000. The Company is currently negotiating with a new lender for a $15.0 million
warehouse facility with similar terms. The Company believes this facility will
be completed in the first half of 2001.
Stock Repurchase Programs
In December 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
During 2000, the Company purchased 98,246 shares of the Company's common stock
for $0.7 million, which completed the $5.0 million common stock repurchase
program. In May 2000, the Company announced that its Board of Directors had
authorized the repurchase of up to $10.0 million of the Company's common stock.
As of March 28 2001, 261,654 shares had been purchased under this plan for $1.9
million. The Company does not anticipate any future repurchases under this
program.
Liquidating Distribution
In November 2000, the Company paid a $5.00 per share partial-liquidating
distribution to shareholders of record as of October 22, 2000.
Cost Control Program
The Company is currently reviewing all expenses. As part of this review, the
Company is in the process of determining if certain functions can be completed
more economically by third-party service providers. Total Company headcount is
expected to be reduced significantly by the end of the second quarter of 2001.
Internal Revenue Service Audit
In March 2001, the Internal Revenue Service notified the Company that it would
conduct an audit regarding the Company's tax withholding of -payments to foreign
entities. The audit is scheduled to begin in June 2001 and relates to two
partnerships in which the Company formerly held interests as the 100% direct and
indirect owner. One audit relates to the years between 1997 and 1999, while the
other audit relates to the years 1998 and 1999. Management believes that the
positions taken on the withholding tax returns will be upheld by the Internal
Revenue Service upon audit. If the Company's position is not upheld by the
Internal Revenue Service, the foreign entities are legally obligated to
indemnify the Company for any losses. If the Internal Revenue Service does not
uphold the Company's position and the foreign entities do not honor the
indemnification, the Company's financial condition, results of operations, and
liquidity would be materially impacted.
Inflation
There was no material impact on the Company's operations as a result of
inflation during 2000, 1999, or 1998.
Geographic Information
For geographic information, refer to Note 16 to the consolidated financial
statements.
-20-
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
After evaluation of SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138,
which is effective for all quarters of fiscal years beginning after June 15,
2000, the Company has concluded that there is no impact material to the
financial statements as of December 31, 2000.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
In June 2000, the SEC issued SAB 101B which deferred the effective date of SAB
101 until the last quarter of fiscal years beginning after December 15, 1999.
The Company has adopted SAB 101 and determined that there is no material effect
on its consolidated financial position or results of operations.
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
In 1996, the Company announced that it would no longer syndicate equipment
leasing programs. 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 liquidate and the managed equipment portfolio becomes permanently
reduced.
In 2000, the Company sold its commercial and industrial and trailer leasing
segments.
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 at $3.46 per
share. In February 2001, PLM International announced that MILPI had completed
its cash tender offer for the outstanding common stock of PLM International.
MILPI acquired 83% of the common shares outstanding of PLM International
- -through the tender. MILPI will complete its acquisition of PLM International by
effecting a merger of PLM International into MILPI under Delaware law. The
merger is expected to be completed after MILPI obtains approval of the merger by
PLM International's shareholders pursuant to a special shareholders' meeting
which is expected to be held during the first half of 2001. Upon completion of
the merger, PLMI will no longer be publicly traded.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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.
-21-
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
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A definitive Company proxy statement or an amended 10-K 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 of Management," and "Certain Relationships and Related
Transaction" in such amended 10-K or proxy statement is incorporated herein by
reference for Items 10, 11, 12, and 13 above.
None.
(this space intentionally left blank)
-22-
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.
(3) Financial Statement Schedules
- Schedule II Valuation and qualifying accounts All other schedules
are omitted, since the required information is not pertinent or
is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements and notes thereto.
(b) Reports on Form 8-K Filed in the Last Quarter of 2000
Form 8-K filed with the Securities and Exchange Commission on October 11,
2000 - Announcement of the completion of the sale of PLM International
Inc.'s trailer leasing operations, the resignation of Mr. Robert N.
Tidball, President and Chief Executive Officer, the appointment of Mr.
Stephen M. Bess as President and as Chief Executive Officer, and his
election to the Board of Directors of PLM International, Inc., and the
authorization of a partial liquidating distribution of $5.00 per share to
shareholders of PLM International, Inc.
Form 8-K filed with the Securities and Exchange Commission on December 28,
2000 - Announcement that on December 22, 2000 the Company and MILPI
Acquisition Corp. had entered into an Agreement and Plan of Merger
providing for the commencement of a tender offer to acquire all
outstanding shares of the Company's common stock for $3.46 per share in
cash by MILPI, and further providing for MILPI to be merged with and into
the Company after the satisfaction or waiver of certain conditions. The
Company also reported that it had entered into two other agreements: an
Amended and Restated Voting and Tender Agreement, also dated December 22,
2000, with MILPI and certain of the Company's shareholders, pursuant to
which the shareholders would tender their shares after commencement of the
tender offer and vote their PLM shares in favor of the Merger; and an
Escrow Agreement with MILPI and the Bank of San Francisco, as escrow
agent, in connection with the Merger Agreement and tender offer.
(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 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.
10.2 Directors' 1995 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 15, 1995.
10.3 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.
-23-
10.4 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.
10.5 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.
10.6 1998 Management Stock Compensation Plan, dated May 12, 1998,
incorporated by reference to the Company's Form 10-Q filed with the
Securities and Exchange Commission on July 22, 1998.
10.7 Severance Agreement dated December 2, 1996 between PLM Financial
Services, Inc. and Stephen M. Bess, incorporated by reference to the
Company's Form 10-K/A filed with the Securities and Exchange Commission
on January 19, 2000.
10.8 Employment Agreement dated May 12, 1998 between PLM International, Inc.
and Richard K Brock, incorporated by reference to the Company's Form
10-K/A filed with the Securities and Exchange Commission on January 19,
2000.
10.9 Amendment to Employment Agreement dated November 18, 1998 between PLM
International, Inc. and Richard K Brock, incorporated by reference to
the Company's Form 10-K/A filed with the Securities and Exchange
Commission on January 19, 2000.
10.10 Employment Agreement dated November 19, 1997 between PLM International,
Inc. and Susan C. Santo, incorporated by reference to the Company's
Form 10-K/A filed with the Securities and Exchange Commission on
January 19, 2000.
10.11 Amendment to Employment Agreement dated November 17, 1998 between PLM
International, Inc. and Susan C. Santo, incorporated by reference to
the Company's Form 10-K/A filed with the Securities and Exchange
Commission on January 19, 2000.
10.12 Executive Deferred Compensation Agreement dated December 18, 1992
between PLM International, Inc. and Robert N. Tidball, incorporated by
reference to the Company's Form 10-K/A filed with the Securities and
Exchange Commission on January 19, 2000.
10.13 Executive Deferred Compensation Agreement dated December 18, 1992
between PLM International, Inc. and Stephen M. Bess, incorporated by
reference to the Company's Form 10-K/A filed with the Securities and
Exchange Commission on January 19, 2000.
10.14 Executive Deferred Compensation Agreement dated January 18, 1999
between PLM International, Inc. and Richard K Brock, incorporated by
reference to the Company's Form 10-K/A filed with the Securities and
Exchange Commission on January 19, 2000.
10.15 Executive Deferred Compensation Agreement dated January 18, 1999
between PLM International, Inc. and Susan C. Santo, incorporated by
reference to the Company's Form 10-K/A filed with the Securities and
Exchange Commission on January 19, 2000.
10.16 Amendment to PLM International, Inc. Directors' 1995 Nonqualified Stock
Option Plan, dated April 28, 1999, incorporated by reference to the
Company's Form 10-Q filed with the Securities and Exchange Commission
on May 4, 1999.
10.17 Amendment to PLM International, Inc. 1998 Management Stock Compensation
Plan, dated April 28, 1999, incorporated by reference to the Company's
Form 10-Q filed with the Securities and Exchange Commission on May 4,
1999.
10.18 Amended Form of Nonqualified Stock Option Agreement, incorporated by
reference to the Company's Form 10-Q filed with the Securities and
Exchange Commission on May 4, 1999.
-24-
10.19 Second Amendment to PLM International, Inc. 1998 Management Stock
Compensation Plan, dated May 29, 1999, incorporated by reference to the
Company's Form 10-Q filed with the Securities and Exchange Commission
on July 26, 1999.
10.20 Form of severance Agreement among PLM International, Inc. and certain
employees dated August 1999, incorporated by reference to the Company's
Form 10-Q filed with the Securities and Exchange Commission on October
28, 1999.
10.21 Stock Sales Agreement among PLM International, Inc. and Guaranty
Federal Bank dated October 26, 1999, incorporated by reference to the
Company's Form 10-Q filed with the Securities and Exchange Commission
on October 28, 1999.
10.22 Amendment #2 dated March 1, 2000 to Stock Sales Agreement among PLM
International, Inc. and Guaranty Federal Bank, incorporated by
reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on March 9, 2000.
10.23 Amendment #1 dated January 24, 2000 to Stock Sales Agreement among PLM
International, Inc. and Guaranty Federal Bank, incorporated by
reference to the Company's Form 10-K filed with the Securities and
Exchange Commission on March 17, 2000.
10.24 Severance Agreement dated December 17, 1999 between PLM International,
Inc. and Richard K Brock, incorporated by reference to the Company's
Form 10-K filed with the Securities and Exchange Commission on March
17, 2000.
10.25 Severance Agreement dated December 17, 1999 between PLM International,
Inc. and Susan C. Santo, incorporated by reference to the Company's
Form 10-K filed with the Securities and Exchange Commission on March
17, 2000.
10.26 Directors 2000 Nonqualified Stock Option Plan, incorporated by
reference to the Company's Form 10-K filed with the Securities and
Exchange Commission on March 17, 2000.
10.27 Third Amendment to Stock Sales Agreement among PLM International, Inc.
and Guaranty Federal Bank dated July 5, 2000, incorporated by reference
to the Company's Form 10-Q filed with the Securities and Exchange
Commission on August 1, 2000.
10.28 Asset Purchase Agreement among Marubeni America Corporation and PLM
International, Inc. dated May 24, 2000 incorporated by reference to the
Company's Form 10-Q filed with the Securities and Exchange Commission
on August 1, 2000.
10.29 Termination of Severance Agreement dated July 7, 2000 between PLM
Financial Services, Inc. and Stephen M. Bess incorporated by reference
to the Company's Form 10-Q filed with the Securities and Exchange
Commission on August 1, 2000.
10.30 Severance Agreement dated July 7, 2000 between PLM International, Inc.
and Stephen M. Bess incorporated by reference to the Company's Form
10-Q filed with the Securities and Exchange Commission on August 1,
2000.
10.31 Fourth Amendment to Stock Sales Agreement among PLM International, Inc.
and Guaranty Federal Bank dated July 31, 2000. Amendment No.1 to Asset
Purchase Agreement among Marubeni America Corporation and PLM
International, Inc. dated September 29, 2000 incorporated by reference
to the Form 8-K filed with the Securities and Exchange Commission on
October 11, 2000.
10.32 License Agreement between PLM International, Inc. and Marubeni America
Corporation Trailer Leasing, L.L.C. dated September 30, 2000,
incorporated by reference to Form 10-Q filed with the Securities and
Exchange Commission on November 8, 2000.
-25-
10.33 Non-competition Agreement among PLM International, Inc., PLM Rental,
Inc., PLM Transportation Equipment Corporation, TEC AcquiSub, Inc., PLM
Financial Services, Inc., Professional Lease Management Income Fund I,
L.L.C., PLM Equipment Growth Fund I through VI, PLM Equipment Growth
and Income Fund VII, and Marubeni America Corporation dated September
30, 2000, incorporated by reference to Form 10-Q filed with the
Securities and Exchange Commission on November 8, 2000.
10.34 Transition Services and Employment Agreement dated January 5, 2001
between PLM International, Inc. and Stephen M. Bess, incorporated by
reference to Schedule 14D-9/A filed with the Securities and Exchange
Commission on February 6, 2001.
10.35 Transition Services and Employment Agreement dated January 5, 2001
between PLM International, Inc. and Richard K Brock, incorporated by
reference to Schedule 14D-9/A filed with the Securities and Exchange
Commission on February 6, 2001.
10.36 Transition Services, Employment and Consulting Agreement dated January
5, 2001 between PLM International, Inc. and Susan C. Santo,
incorporated by reference to Schedule 14D-9/A filed with the Securities
and Exchange Commission on February 6, 2001.
23.2 Independent Auditors' Report on Financial Statement Schedule and
Consent
24.1 Powers of Attorney.
-26-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: March 29, 2001 PLM International, Inc.
By: /s/ Stephen M. Bess
-------------------------------------
Stephen M. Bess
President, and
Chief Executive Officer
By: /s/ Richard K Brock
-------------------------------------
Richard K Brock
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company, in the
capacities and on the dates indicated.
* Director March 29, 2001
- ---------------------------
Robert N. Tidball
* Director March 29, 2001
- ---------------------------
Gary D. Engle
* Director March 29, 2001
- ---------------------------
James A. Coyne
*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
-27-
INDEX TO FINANCIAL STATEMENTS
(Item 14(a)(1)(2))
Description Page
Independent Auditors' Report 29
Consolidated Statements of Income for Years Ended
December 31, 2000, 1999, and 1998 30
Consolidated Balance Sheets as of December 31, 2000 and 1999 31
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for Years Ended December 31,
2000, 1999, and 1998 32
Consolidated Statements of Cash Flows for Years
Ended December 31, 2000, 1999, and 1998 33-34
Notes to Consolidated Financial Statements 35-53
Schedule II Valuation and Qualifying Accounts 54
Independent Auditors' Report on Financial Statement Schedule and Consent 55
-28-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
PLM International, Inc.
We have audited the consolidated financial statements of PLM International, Inc.
and subsidiaries (the Company), 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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.
As described in Note 20 to the financial statements, MILPI Acquisition Corp.
completed its cash tender offer for the outstanding common stock of the Company
on February 7, 2001.
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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
MARCH 12, 2001
-29-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(in thousands of dollars, except per share amounts)
2000 1999 1998
-------- -------- --------
Revenues
Operating lease income $ 1,810 $ 1,194 $ 2,269
Management fees (Note 1) 7,043 7,332 8,363
Partnership interests and other fees (Note 1) 1,037 346 459
Acquisition and lease negotiation fees (Note 1) 624 1,354 3,253
Gain (loss) on disposition of assets, net (416) -- 1,432
Other 1,453 1,358 3,023
-------- -------- --------
Total revenues 11,551 11,584 18,799
-------- -------- --------
Costs and expenses
Operations support (Notes 10 and 13) 2,136 2,474 7,014
Depreciation and amortization (Note 1) 885 385 1,056
General and administrative (Notes 10 and 13) 6,851 5,224 6,082
-------- -------- --------
Total costs and expenses 9,872 8,083 14,152
-------- -------- --------
Operating income 1,679 3,501 4,647
Interest expense (Notes 7 and 8) (1,756) (2,261) (2,072)
Interest income 1,512 343 941
Other income (expenses), net (1,333) 721 473
-------- -------- --------
Income before income taxes 102 2,304 3,989
Provision for income taxes (Note 9) 39 891 1,605
-------- -------- --------
Net income from continuing operations 63 1,413 2,384
Income from operations of discontinued operations, net of tax
(Note 2) 210 1,743 2,473
Gain (loss) on disposition of discontinued operations,
net of tax (Note 2) 4,990 (550) --
-------- -------- --------
Net income before cumulative effect of accounting change 5,263 2,606 4,857
Cumulative effect of accounting change, net of tax (Note 19) -- (250) --
-------- -------- --------
Net income to common shares $ 5,263 $ 2,356 $ 4,857
======== ======== ========
Basic earnings per weighted-average common share outstanding:
Income from continuing operations $ 0.01 $ 0.17 $ 0.29
Income from discontinued operations 0.03 0.22 0.29
Gain (loss) on disposition of discontinued operations 0.66 (0.07) --
Cumulative effect of accounting change -- (0.03) --
-------- -------- --------
$ 0.70 $ 0.29 $ 0.58
======== ======== ========
Diluted earnings per weighted-average common share outstanding:
Income from continuing operations $ 0.01 $ 0.17 $ 0.28
Income from discontinued operations 0.03 0.22 0.29
Gain (loss) on disposition of discontinued operations 0.65 (0.07) --
Cumulative effect of accounting change -- (0.03) --
-------- -------- --------
$ 0.69 $ 0.29 $ 0.57
======== ======== ========
<FN>
See accompanying notes to these consolidated financial statements.
</FN>
-30-
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(in thousands of dollars, except share amounts)
ASSETS
2000 1999
-------- --------
Cash and cash equivalents $ 5,874 $ 2,089
Receivables (net of allowance for doubtful accounts of $0.1 million and
$0.2 million as of December 31, 2000 and 1999, respectively) 1,045 2,504
Receivables from affiliates (Note 3) 1,207 2,962
Net assets of discontinued operations (Note 2) -- 52,201
Equity interest in affiliates (Note 3) 15,753 18,145
Assets held for sale (Note 4) 10,250 --
Restricted cash and cash equivalents (Note 5) 2,530 1,766
Other assets, net (Note 6) 3,748 5,058
-------- --------
Total assets $ 40,407 $ 84,725
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Senior secured notes (Note 8) $ -- $ 20,679
Payables and other liabilities 15,909 6,007
Deferred income taxes (Note 9) 8,885 8,626
-------- --------
Total liabilities 24,794 35,312
Commitments and contingencies (Note 10) -- --
Shareholders' equity (Note 11)
Preferred stock ($0.01 par value, 10.0 million shares
authorized, none outstanding as of December 31, 2000 and 1999) -- --
Common stock ($0.01 par value, 50.0 million shares
authorized, and 7,554,510 and 7,675,410 shares
issued and outstanding as of December 31, 2000
and 1999, respectively) 112 112
Paid-in capital, in excess of par 37,547 75,059
Treasury stock (4,481,245 and 4,360,345 shares as of December
31, 2000 and 1999, respectively) (19,875) (18,324)
Accumulated deficit (2,171) (7,434)
-------- --------
Total shareholders' equity 15,613 49,413
-------- --------
Total liabilities and shareholders' equity $ 40,407 $ 84,725
======== ========
<FN>
See accompanying notes to these consolidated financial statements.
</FN>
-31-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years Ended December 31, 2000, 1999, and 1998
(in thousands of dollars)
Common Stock Accumulated
----------------------------------- Deficit &
Paid-in Accumulated
Capital in Other Total
At Excess Treasury Comprehensive Comprehensive Shareholders'
Par of Par Stock Income Income Equity
--------------------------------------------------------------------------------------------
Balances, December 31, 1997 $ 112 $ 74,650 $ (13,435) $ (14,779) $ 46,548
Comprehensive income:
Net income 4,857 $ 4,857 4,857
Other comprehensive loss:
Foreign currency translation
income 132 132 132
--------
Total comprehensive income 4,989
========
Exercise of stock options 218 211 429
Common stock purchases (2,059) (2,059)
Reissuance of treasury stock, net 79 211 290
------------------------------------------------------- --------
Balances, December 31, 1998 112 74,947 (15,072) (9,790) 50,197
Comprehensive income:
Net income 2,356 2,356 2,356
========
Exercise of stock options 11 591 602
Common stock purchases (3,951) (3,951)
Reissuance of treasury stock, net 101 108 209
Balances, December 31, 1999 112 75,059 (18,324) (7,434) 49,413
------------------------------------------------------- --------
Comprehensive income:
Net income 5,263 $ 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)
------------------------------------------------------- --------
Balances, December 31, 2000 $ 112 $ 37,547 $ (19,875) $ (2,171) $ 15,613
======================================================= ========
<FN>
See accompanying notes to these consolidated financial statements.
</FN>
-32-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands of dollars)
2000 1999 1998
-------- -------- --------
Operating activities
Net income from continuing operations $ 63 $ 1,413 $ 2,384
Adjustments to reconcile net income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 885 385 1,056
Foreign currency translation -- -- (80)
Loss (gain) on the sale or disposition of assets, net 416 -- (1,432)
Loss on revaluation of equipment 201 -- --
Gain on disposition of discontinued operations, net of tax (4,990) -- --
Loss on sale of investment in subsidiary -- -- 245
Equity income of managed programs (1,742) -- --
Deferred income tax (1,217) 617 (3,022)
Undistributed residual value interests -- 958 1,057
Minority interest in net loss of subsidiaries -- -- (100)
Increase (decrease) in payables and other liabilities 10,330 (2,313) (2,092)
Decrease (increase) in receivables and receivables from
Affiliates 4,068 (292) 1,851
Amortization of organization and offering costs 896 3,485 2,839
Decrease (increase) in other assets 1,894 (434) 469
-------- -------- --------
Cash provided by operating activities of
continuing operations 10,804 3,819 3,175
Cash provided by operating activities of discontinued
operations 14,643 17,104 14,695
Cumulative effect of accounting change -- 250 --
-------- -------- --------
Net cash provided by operating activities 25,447 21,173 17,870
Investing activities
Cash distribution from managed programs 3,839 -- --
Principal payments received on finance leases 279 281 225
Purchase of property, plant, and equipment (9) (249) (141)
Purchase of transportation equipment and capital improvements (24,250) (21,762) (33,177)
Proceeds from the sale of transportation equipment held for lease -- -- 4,071
Proceeds from the sale of assets held for sale 14,000 21,805 25,328
Proceeds from sale of subsidiaries, net of transaction costs 99,847 -- --
Sale of investment in subsidiary -- -- 176
(Increase) decrease in restricted cash and cash equivalents (764) 380 (392)
Cash provided by (used in) investing activities of
discontinued operations 5,087 (48,212) (61,743)
-------- -------- --------
Net cash provided by (used in) investing activities 98,029 (47,757) (65,653)
-------- -------- --------
(continued)
<FN>
See accompanying notes to these consolidated financial statements.
</FN>
-33-
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands of dollars)
(continued)
2000 1999 1998
--------- --------- ---------
Financing activities
Borrowings under warehouse credit facility $ 10,200 $ 46,608 $ 22,990
Repayment of warehouse credit facility (10,200) (46,608) (22,990)
Borrowings of senior secured notes -- -- 10,000
Repayment of senior secured notes (20,679) (7,520) (5,644)
Repayment of senior secured loan -- (625) --
Borrowings of other secured debt -- -- 329
Repayment of other secured debt -- -- (270)
Purchase of stock (2,588) (3,951) (2,059)
Proceeds from exercise of stock options 320 602 429
Liquidating distribution (37,223) -- --
Cash used in (provided by) financing activities of
discontinued operations (59,521) 31,381 48,560
--------- --------- ---------
Net cash (used in) provided by financing activities (119,691) 19,887 51,345
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,785 (6,697) 3,562
Cash and cash equivalents at beginning of year 2,089 8,786 5,224
--------- --------- ---------
Cash and cash equivalents at end of year $ 5,874 $ 2,089 $ 8,786
========= ========= =========
Supplemental information
Net cash paid for interest from continuing operations $ 1,904 $ 2,542 $ 2,085
========= ========= =========
Net cash paid for interest from discontinued operations $ 4,939 $ 11,962 $ 11,969
========= ========= =========
Net cash paid for income taxes $ 1,205 $ 331 $ 1,656
========= ========= =========
<FN>
See accompanying notes to these consolidated financial statements.
</FN>
-34-
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 comprehensive income, and cash flows of PLM International, Inc. and
its wholly and majority owned subsidiaries (PLM International, the Company, or
PLMI). All significant intercompany transactions among the consolidated group
have been eliminated.
PLM International is an equipment management company specializing in the leasing
of transportation equipment. The Company specializes in creating equipment
leasing solutions for domestic and international customers.
On December 22, 2000, the Company announced that it had signed an agreement and
plan of merger with MILPI Acquisition Corporation for MILPI Acquisition
Corporation to commence an offer to purchase all outstanding common stock for a
price of $3.46 per share. On February 7, 2001, the Company announced that MILPI
Acquisition Corp. completed its cash tender offer for the outstanding common
stock of the Company at $3.46 per share. MILPI acquired 83% of the common shares
outstanding of PLM International through the tender. MILPI will complete its
acquisition of PLM International by effecting a merger of MILPI into PLM
International under Delaware law. The merger is expected to be completed when
MILPI obtains approval of the merger by PLM International's shareholders
pursuant to a special shareholders' meeting which is expected to occur in the
first half of 2001.
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.
Investment in and Management of Equipment Growth Funds, Other Limited
Partnerships, and Private Placement Programs
The Company earns revenues in connection with the management of limited
partnerships and private placement programs. Equipment acquisition and lease
negotiation fees are earned through the purchase and initial lease of equipment,
and are recognized as revenue when the Company completes all of the services
required to earn the fees, typically 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
granted an interest (between 1% and 5%) in the earnings and cash distributions
of the program, in 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
effect of special allocations of the programs' gross income allowed under the
respective partnership agreements. Capital contributions in excess of the equity
interest are considered goodwill and are amortized through the life of the
program.
The Company is entitled to reimbursement from the investment programs for
providing certain administrative services.
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 negotiation of leases for
equipment, or the placement of debt. 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 has equity
interest of 15% for its contribution to the fund. Costs funded in excess of 15%
interest are considered goodwill and are amortized through the end of the
program.
-35-
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in and Management of Limited Liability Company (continued)
In return for its investment, the Company is 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
administrative services.
Leasing Operations
PLM International's owned transportation leasing assets consisted primarily of
trailers on operating leases. The Company's commercial and industrial subsidiary
leasing operations consisted of operating and direct finance leases on a variety
of equipment including point-of-sale, computer, communications, manufacturing,
and materials-handling equipment. Equipment held for operating lease was
depreciated over its estimated useful life. Rental payments were recorded as
revenue over the lease term as earned.
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, includes third-party guaranteed residuals, plus
the unguaranteed residual value of the equipment, less unearned income. Rental
payments consist of principal and interest on the lease, principal payments
reduce the investment in the finance lease, and the interest is recorded as
revenue over the lease term.
Equipment
Trailer and commercial and industrial equipment held for operating lease were
stated at cost. Depreciation was computed on the straight-line method down to
the equipment's estimated salvage value, utilizing the following estimated
useful lives in years: trailers, 10 to 12; and commercial and industrial
equipment, 1 to 7. Salvage values for trailer equipment were 20% of original
equipment cost. Salvage values for commercial and industrial equipment varied
according to the type of equipment.
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews the carrying value of its equipment at least quarterly and whenever
circumstances indicate that the carrying value of an asset may not be
recoverable. If projected undiscounted future cash flows are lower than the
carrying value of the equipment, a loss on revaluation is recorded for operating
leases or as a reduction to finance lease income if the assets were on finance
lease. Total reductions to the carrying value of equipment were $0.2 million in
2000. No reductions to the carrying value of equipment were required during 1999
and 1998.
The Company classifies assets as held for sale when management has committed to
a plan to dispose of the asset, whether by sale or abandonment. Equipment held
for sale is valued at the lower of depreciated cost or estimated fair value less
cost to sell.
Repairs and maintenance costs are usually the obligation of the Company. Repair
and maintenance expenses were $44,000, $0, and $1.0 million for 2000, 1999, and
1998, respectively.
Institutional Programs
The Company earned revenues in connection with lease originations and servicing
equipment leases for institutional programs, which were managed by American
Finance Group, Inc. (AFG), the Company's commercial and industrial equipment
leasing subsidiary. Acquisition fees were earned through the purchase and
initial lease of equipment, and were recognized as revenue when the Company
completed substantially all of the services required in earning the fees,
typically when binding commitment agreements were signed. Management fees were
earned for servicing the equipment portfolios and leases as provided for in
various agreements, and were recognized as revenue over time as they were
earned. AFG was sold on March 1, 2000.
-36-
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Weighted-Average Common Share
Basic earnings per common share was computed by dividing net income to common
shares by the weighted-average number of shares outstanding during the period.
The computation of diluted earnings per share was similar to the computation of
basic earnings per share, except for the inclusion of all potentially dilutive
common shares. Basic and diluted earnings per share are presented below for the
years ended December 31:
2000 1999 1998
------- ------- -------
(in thousands of dollars, except per share data)
Basic:
Net income from continuing operations $ 63 $ 1,413 $ 2,384
Net income (loss) from discontinued operations 210 1,743 2,473
Gain (loss) on disposition of discontinued operations 4,990 (550) --
Cumulative effect of accounting change -- (250) --
------- ------- -------
Net income to common shares $ 5,263 $ 2,356 $ 4,857
======= ======= =======
Shares:
Weighted-average number of common shares outstanding 7,568 8,025 8,325
basic earnings per common share:
Income from continuing operations 0.01 0.17 0.29
Net income from discontinued operations 0.03 0.22 0.29
Gain (loss) on disposition of discontinued operations 0.66 (0.07) --
Cumulative effect of accounting change -- (0.03) --
------- ------- -------
Net income to common shares $ 0.70 $ 0.29 $ 0.58
======= ======= =======
Diluted:
Net income from continuing operations $ 63 $ 1,413 $ 2,384
Net income from discontinued operations 210 1,743 2,473
Gain (loss) on disposition of discontinued operations 4,990 (550) --
Cumulative effect of accounting change -- (250) --
------- ------- -------
Net income to common shares $ 5,263 $ 2,356 $ 4,857
======= ======= =======
Shares:
Weighted-average number of common shares outstanding 7,568 8,025 8,325
potentially dilutive common shares 87 99 155
------- ------- -------
Total shares 7,655 8,124 8,480
Diluted earnings per weighted-average common share:
Income (loss) from continuing operations 0.01 0.17 0.28
Net income from discontinued operations 0.03 0.22 0.29
Gain (loss) on disposition of discontinued operations 0.65 (0.07) --
Cumulative effect of accounting change -- (0.03) --
------- ------- -------
Net income to common shares $ 0.69 $ 0.29 $ 0.57
======= ======= =======
Income Taxes
The Company recognizes income tax expense using the asset and 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 accruals for
financial statement and income tax reporting purposes.
Intangibles
Intangibles consist primarily of goodwill related to the investment programs,
loan fees, and lease origination costs. They are reported at the lower of net
amortized cost or fair value and are generally included on the balance sheet in
other assets, net. Lease origination costs related to finance leases are
reported as investment in finance leases. Goodwill related to the investment
programs is amortized over the life of the related program. The Company annually
reviews the valuation of goodwill based on projected undiscounted future cash
-37-
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangibles (continued)
flows. Loan fees are amortized over the life of the related loan. Software is
amortized over three to five years from the acquisition date. Lease origination
costs are amortized over the life of the related lease.
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.
Comprehensive Income
The Company discloses its foreign currency translation gain as a component of
comprehensive income on a gross basis, because it relates to a foreign
investment permanently invested outside of the United States.
Reclassifications
Certain prior-year amounts have been reclassified in order to conform to the
current year's presentation.
Discontinued Operations
The Company's commercial and industrial equipment subsidiary (AFG) and trailer
leasing operations are accounted for as a discontinued operations and prior
periods have been restated. AFG was sold on March 1, 2000 and trailer leasing
was sold on September 30, 2000.
2. 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 PLM
International approved the transaction. The sale of AFG was completed on March
1, 2000. The Company received $32.2 million for AFG. Taxes and transaction costs
related to the sale were $3.9 million resulting in net proceeds to the Company
of $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. PLM 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 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.
-38-
2. DISCONTINUED OPERATIONS (continued)
Net income (loss) from discontinued operations for the year ended December 31,
2000, 1999 and 1998 are as follows (in thousands of dollars):
2000 1999 1998
--------------------------------- ---------------- --------------- -----------------------------------
Trailer Trailer Trailer
Leasing AFG Total Leasing AFG Total Leasing AFG Total
--------------------------------- --------------------------------- -----------------------------------
Revenues $ 25,470 $ 4,076 $ 29,546 $ 25,681 $ 26,293 $ 51,974 $ 11,321 $ 26,958 $ 38,279
Costs and expenses (21,866) (2,212) (24,078) (20,990) (14,705) (35,695) (10,723) (11,615) (22,338)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income 3,604 1,864 5,468 4,691 11,588 16,279 598 15,343 15,941
Interest expense, net (3,148) (1,655) (4,803) (3,163) (9,313) (12,476) (1,754) (10,277) (12,031)
Other expense (4) -- (4) -- (975) (975) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) from
discontinued operations
before income taxes 452 209 661 1,528 1,300 2,828 (1,156) 5,066 3,910
Provision for (benefit
from) income tax 171 80 251 596 489 1,085 (451) 1,888 1,437
Net income previously accrued
as a component of loss on a
discontinued operation -- (200) (200) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) from
discontinued operations $ 281 $ (71) $ 210 $ 932 $ 811 $ 1,743 $ (705) $ 3,178 $ 2,473
======== ======== ======== ======== ======== ======== ======== ======== ========
Gain (loss) on disposition
of discontinued operations $ 4,990 $ -- $ 4,990 $ -- $ (550) $ (550) $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ======== ======== ========
Net assets of discontinued operations on the balance sheet as of December 31,
1999 are as follow (in thousands of dollars) :
1999
---------------------------------------
Trailer
Leasing AFG Total
---------------------------------------
Cash and cash equivalents $ -- $ 382 $ 382
Restricted cash 46 7,380 7,426
Receivables 5,933 2,330 8,263
Investment in direct finance leases -- 123,632 123,632
Loan receivables -- 28,115 28,115
Equipment held for leases, net 81,907 23,464 105,371
Other assets, net 797 1,895 2,692
Warehouse credit facility -- (38,240) (38,240)
Senior debt (8,824) -- (8,824)
Other secured debt (50,697) -- (50,697)
Nonrecourse securitized debt -- (106,485) (106,485)
Payables and other liabilities (2,438) (5,382) (7,820)
Deferred income taxes (5,513) (6,101) (11,614)
----------------------------------------
Net assets of discontinued operations $ 21,211 $ 30,990 $ 52,201
========================================
3. EQUITY INTEREST IN AFFILIATES
FSI, a wholly owned subsidiary of the Company, is the General Partner or manager
in 11 investment programs. Distributions of the programs are allocated as
follows: 99% to the limited partners and 1% to the General Partner in PLM
Equipment Growth Fund (EGF I), PLM Passive Income Investors 1988, and PLM
Passive Income Investors 1988-II; 95% to the limited partners and 5% to the
General Partner in EGFs II, III, IV, V, VI, PLM Equipment Growth & Income Fund
VII (EGF VII); 85% to the members and 15% to the manager in Professional Lease
Management Income Fund I (Fund I). Net income is allocated to the General
Partner subject to certain allocation provisions. FSI also receives a management
fee on a per car basis at a fixed rate each month, plus an incentive management
fee equal to 15% of "Net Earnings" over $750 per car per quarter from Covered
Hopper Program 1979-1. The Company's interest in the cash distributions of Fund
I will increase to 25% after the investors have received distributions equal to
their invested capital.
-39-
3. EQUITY INTEREST IN AFFILIATES (continued)
The summarized combined financial data for FSI's affiliates as of and for the
years ended December 31, are as follows (in thousands of dollars):
2000 1999
-------- --------
Financial position:
Cash and receivables $ 46,126 $ 40,129
Transportation equipment and other assets,
net of accumulated depreciation of $265,473
in 2000 and $350,501 in 1999 212,669 327,527
-------- --------
Total assets 258,795 367,656
Less liabilities, primarily long-term financings 91,365 118,409
-------- --------
Partners' equity $167,430 $249,247
======== ========
Equity interest in affiliates:
PLM International's share $ 12,512 $ 14,008
Goodwill, net of accumulated amortization 3,241 4,137
-------- --------
Equity interest in affiliates $ 15,753 $ 18,145
======== ========
2000 1999 1998
--------- --------- ---------
Operating results:
Revenue from equipment leases and other $ 135,250 $ 165,682 $ 163,100
Depreciation (47,031) (55,827) (78,572)
Equipment operating expenses (11,566) (14,605) (13,852)
Repairs and maintenance expenses (16,153) (20,863) (22,553)
Interest expense (6,635) (8,938) (10,917)
Minority interests 2,206 (8,403) (714)
Other costs and expenses (17,578) (16,387) (7,530)
Reduction in carrying value of certain assets (682) (10,397) (4,276)
Cumulative effect of accounting change -- (132) --
--------- --------- ---------
Net income $ 37,811 $ 30,130 $ 24,686
========= ========= =========
PLM International's share of partnership interests
and other fees (net of related expenses) $ 1,037 $ 346 $ 459
========= ========= =========
Distributions received $ 3,839 $ 4,448 $ 4,883
========= ========= =========
Most of the investment program agreements contain provisions for special
allocations of the programs gross income.
While none of the partners or members, including the General Partner and
manager, are liable for programs borrowings, and while the General Partner or
manager maintains insurance against liability for bodily injury, death, and
property damage for which an investment program may be liable, the General
Partner or manager may be contingently liable for nondebt claims against the
program that exceed asset values.
4. ASSETS HELD FOR SALE
As of December 31, 2000, the Company had $10.3 million in marine containers that
were assets held for sale. As of December 31, 1999, the Company had no assets
held for sale.
During 2000, the Company purchased $24.3 million of marine containers and
subsequently sold $14.0 million of these marine containers to affiliated
programs at cost, which approximated their fair market value. During 1999, the
Company purchased and sold $21.8 million in marine containers to affiliated
programs at cost, which approximated their fair market value.
-40-
5. RESTRICTED CASH
Restricted cash consists of bank accounts and short-term investments that are
primarily subject to withdrawal restrictions per loan and other legally binding
agreements. The Company's senior notes required virtually all management fees,
acquisition and lease negotiation fees, data processing fees, and 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 8). All of the cash was released quarterly when the
principal and interest payments were made. 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. Restricted cash as of December
31, 2000 includes $0.8 million provided for the Company's obligations under the
deferred compensation agreements (see Note 10).
6. OTHER ASSETS, NET
Other assets, net consists of the following as of December 31 (in thousands of
dollars):
2000 1999
------------- -------------
Cash surrender value of officers' life insurance policies $ 1,997 $ 1,671
Commercial and industrial equipment, net 950 --
Prepaid expenses, deposits, and other 559 417
Furniture, fixtures, and equipment, net of accumulated
depreciation of $1,898 and $1,563 in 2000 and 1999, respectively 242 577
Investments -- 495
Finance lease receivable -- 1,801
Loan fees, net of accumulated amortization of -$135 in 1999 -- 97
------------- -------------
Total other assets, net $ 3,748 $ 5,058
============= =============
7. WAREHOUSE CREDIT FACILITY
The Company had a $9.5 million warehouse facility, which was shared with PLM
Equipment Growth Fund VI (Fund VI), PLM Equipment Growth & Income Fund VII, and
Professional Lease Management Income Fund I, LLC, that allowed the Company to
purchase equipment prior to its designation to a specific program. Borrowings
under this facility by the other eligible borrowers reduced the amount available
to be borrowed by the Company. All borrowings under this facility were
guaranteed by the Company. This facility expired on September 30, 2000. The
Company is currently negotiating with a new lender for a $15.0 million warehouse
facility with similar terms. The Company believes this facility will be
completed in the first half of 2001.
8. LONG-TERM SECURED DEBT
Long-term secured debt consisted of the following as of December 31 (in
thousands of dollars):
2000 1999
----------------- -----------------
Senior secured notes:
Institutional notes, bearing interest at LIBOR plus 2.40% per annum (9.16%
and 8.47% as of December 31, 2000 and 1999, respectively), interest and
principal payments due quarterly, secured by management fees, acquisition and
lease negotiation fees, data processing fees, partnership distributions, and
cash in a cash collateral account.
$ -- $ 20,679
During 2000, the Company made four regular principal payments totaling $7.5
million. In the fourth quarter of 2000, the Company made a repayment of $13.2
million to prepay the senior secured notes and the Company incurred a prepayment
penalty of $0.1 million related to this prepayment.
-41-
9. INCOME TAXES
The provision for (benefit from) income taxes attributable to income from
operations consists of the following (in thousands of dollars):
2000
-------------------------------------------
Federal State Total
-------------------------------------------
Current $ 11,296 $ 3,267 $ 14,563
Deferred (10,787) (568) (11,355)
-------------------------------------------
Total 509 2,699 3,208
Allocated to discontinued operations 478 2,691 3,169
-------------------------------------------
Continuing Operations $ 31 $ 8 $ 39
===========================================
1999
-------------------------------------------
Federal State Total
-------------------------------------------
Current $ -- $ -- $ --
Deferred 1,625 200 1,825
-------------------------------------------
Total 1,625 200 1,825
-------------------------------------------
Allocated to discontinued operations 967 118 1,085
Allocated to accounting change (135) (16) (151)
-------------------------------------------
Continuing Operations $ 793 $ 98 $ 891
===========================================
1998
-------------------------------------------
Federal State Total
-------------------------------------------
Current $ (575) $ 62 $ (513)
Deferred 3,296 259 3,555
-------------------------------------------
Total 2,721 321 3,042
Allocated to discontinued operations 1,285 152 1,437
-------------------------------------------
Continuing Operations $ 1,436 $ 169 $ 1,605
===========================================
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.
The difference between the effective rate and the expected federal statutory
rate is reconciled below:
2000 1999 1998
---------- ----------- ----------
Federal statutory tax expense rate 35% 34% 34%
State income tax rate 4 3 3
Effect of foreign operations -- 1 1
Reversal of excess accrual -- -- --
Abandonment of identifiable intangibles -- -- --
Other (1) 1 2
---------- ----------- ----------
Effective tax expense (benefit) rate 38% 39% 40%
========== =========== ==========
There are no net operating loss carryforwards for federal income tax purposes as
of December 31, 2000. Net operating loss carryforwards for federal income tax
purposes amounted to $22.6 million as of December 31, 1999 for both continuing
an discontinued operations. Alternative minimum tax credit carryforwards are
$0.7 million for continuing operations and $5.5 million for both continuing and
discontinued operations as of December 31, 2000 and 1999, respectively.
-42-
9. 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):
2000 1999
-------- --------
Deferred tax assets from continuing operations:
Tax credit carryforwards $ 685 $ 1,579
State net operating loss carryforwards -- 628
Federal net operating loss carryforwards -- 1,439
Federal benefit of state taxes 683 508
Other 603 604
-------- --------
Total gross deferred tax assets 1,971 4,758
Less valuation allowance (978) --
-------- --------
Net deferred tax assets 993 4,758
Deferred tax liabilities from continuing operations:
Equipment, principally differences in depreciation (363) 7,513
Partnership interests 10,240 2,664
Other 1 3,207
-------- --------
Total deferred tax liabilities 9,878 13,384
-------- --------
Net deferred tax liabilities from continuing operations $ 8,885 $ 8,626
Net deferred tax liabilities from discontinued operations -- 11,614
-------- --------
Total net deferred tax liabilities 8,885 20,240
======== ========
Management has reviewed all established interpretations of items reflected in
its consolidated tax returns and believes that these interpretations require
valuation allowances as described in SFAS No. 109, "Accounting for Income
Taxes". The valuation allowance contained in the 2000 deferred tax asset account
includes $0.7 million for tax credit carryforwards and $0.3 million for other
deferred tax assets. There was no valuation allowance in 1999. As of December
31, 2000, the deferred taxes not provided on cumulative earnings of consolidated
foreign subsidiaries that are designated as permanently invested were
approximately $2.1 million. (See discussion in note 20 to the financial
statements relative to future Internal Revenue Service examination.)
10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company 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
-43-
10. COMMITMENTS AND CONTINGENCIES (continued)
Litigation (continued)
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 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 unitholders 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. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including judicial approval of the proposed amendments and final approval of the
equitable settlement by the court following a final fairness hearing.
A final fairness hearing was held on November 29, 2000 and the parties await the
court's decision. The Company continues to believe that the allegations of the
Koch and Romei actions are completely without merit and intends to continue to
defend this matter vigorously if the monetary settlement is not consummated.
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 of the Company.
Lease Agreements
The Company and its subsidiaries have entered into operating leases for office
space. The Company's total net rent expense was $0.4 million, $0.4 million, and
$0.6 million in 2000, 1999, and 1998, respectively. The portion of rent expense
related to its principal office, net of sublease income of $1.0 million, $1.0
million, and $0.8 million, in 2000, 1999, and 1998, respectively, was $0.3
million, $0.3 million, and $0.5 million, in 2000, 1999, and 1998, respectively.
The remaining rent expense was related to other office space and rental yard
operations. The future rent expense related to discontinued operations is not
material.
Annual lease commitments for all of the Company's locations total $0.8 million
in 2001 and $0.1 million in 2002, 2003, 2004, and 2005.
-44-
10. COMMITMENTS AND CONTINGENCIES (continued)
Corporate Guarantee
As of December 31, 2000, the Company had guaranteed certain obligations up to
$0.4 million of a Canadian railcar repair facility, in which the Company has a
10% ownership interest.
Employment Agreements
As of December 31, 2000, the Company has entered into employment agreements with
10 individuals that require the Company to pay a severance to these individuals
ranging from six months to two years of their base salaries if their employment
is terminated after a change in control as defined in the employee agreement.
The Company's sale of its trailer assets was considered a change in control in
these agreements. In addition, the Company would be required to pay for certain
benefits of the employee for a similar period. As of December 31, 2000, the
total future contingent liability for these payments was $2.2 million.
Other
The Company agreed to provide supplemental retirement benefits to seven current
or former members of management. The benefits accrue over a maximum of 15 years
and 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
in the program. All benefits under this program vested concurrent with the sale
of the Company's trailer assets. After a change in control as defined in various
agreements, this benefit becomes payable immediately at the request of the
employee. Expenses for these arrangements were $0.3 million for 2000, 1999, and
1998. As of December 2000, the total estimated gross future obligation relating
to the current participants is $2.7 million. The present value of such benefits
is $2.4 million and is included in accrued liabilities.
The Company has life insurance policies on certain employees which had a $2.0
million cash surrender value as of December 31, 2000 and are included in other
assets. These policies were held in a trust collateralizing the obligations
under the supplemental retirement benefits.
11. SHAREHOLDERS' EQUITY
Common Stock
In December 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
During 1998, 63,360 shares were repurchased under this plan for a total of $0.4
million. During 1999, the Company purchased 666,779 shares under this program
for a total of $4.0 million. During 2000, the Company purchased 98,246 shares of
the Company's common stock for $0.7 million, which completed the $5.0 million
common stock repurchase program. The Company purchased 828,325 shares under this
plan for a total of $5.0 million.
In May 2000, the Company's Board of Directors' authorized the purchase of up to
$10.0 million of the Company's common stock. During 2000, the Company purchased
261,654 shares of the Company's common stock for $1.9 million, under the $10.0
million common stock repurchase program. The Company does not anticipate any
future repurchases under this program in the future.
The following table summarizes changes in common stock during 1999 and 2000:
Issued Outstanding
Common Treasury Common
Shares Shares Shares
---------- --------- ---------
Shares as of December 31, 1998 12,035,755 3,875,836 8,159,919
Reissuance of treasury stock, net -- (197,869) 197,869
Stock canceled -- 15,599 (15,599)
Stock repurchased -- 666,779 (666,779)
---------- --------- ---------
Shares as of December 31, 1999 12,035,755 4,360,345 7,675,410
Reissuance of treasury stock, net -- (239,000) 239,000
Stock repurchased -- 359,900 (359,900)
---------- --------- ---------
Shares as of December 31, 2000 12,035,755 4,481,245 7,554,510
========== ========= =========
-45-
11. SHAREHOLDERS' EQUITY (continued)
Preferred Stock
PLM International has authorized 10.0 million shares of preferred stock at $0.01
par value, none of which were outstanding as of December 31, 2000 or December
31, 1999.
Liquidating Distribution
In November of 2000, the Company paid a $5.00 partial-liquidating distribution
to the shareholders of record on October 22, 2000 from the proceeds of the sale
of the trailer assets.
Stock Option Plans
Prior to 1998, the Company had two nonqualified stock options plans that
reserved up to 780,000 shares of the Company's common stock for key employees
and directors. Under these plans, 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 under these plans are exercisable at
prices equal to the fair market value of the shares at the date of granting.
Vesting of options granted occurs in three equal installments of 33.3% per year,
initiating from the date of the grant. As of December 31, 2000, grants could no
longer be made under either the employee or director's plan.
In May 1998, the Company's Board of Directors adopted the 1998 Management Stock
Compensation Plan, which reserved 800,000 shares (in addition to the 780,000
shares above) of the Company's common stock for issuance to certain management
and key employees of the Company upon the exercise of stock options. During
1998, 500,000 nonqualified options were granted under this plan at $6.81 per
share, which equaled 110% of the average daily closing price of such shares on
the American Stock Exchange for the 10 trading days immediately preceding the
grant (as required by the plan). In 2000, 50,000 shares were issued under this
plan at $7.26 a share which equaled 110% of the average daily closing price of
such shares on the American Stock Exchange for the 10 trading days immediately
preceding the grant (as required by the plan). Vesting of options granted occurs
in three equal installments of 33.3% per year, initiating from the date of the
grant. The sale of the trailer assets of the Company was deemed a change in
control in accordance with the terms of the 1998 Management Stock Compensation
Plan and various employment agreements. Concurrent with this change in control,
the shares granted in 1998 immediately vested.
In February 2000, the Company's Board of Directors adopted the 2000 Management
Stock Compensation Plan, which reserved 70,000 shares with respect to which
options may be granted under the 2000 Directors' Plan. In February 2000, each
non-employee director of the Company was granted an option to purchase 8,000
shares of common stock under this Plan.
Concurrent with the $5.00 per share liquidating distribution, the exercise price
of all outstanding stock options was reduced by $5.00 and compensation expense
of $0.8 million was recognized. All remaining outstanding options will be
accounted for under variable accounting method. Stock option transactions during
1998, 1999, and 2000 are summarized as follows:
Number of Average
Options/ Option Price
Shares Per Share
------- --------
Balance, December 31, 1997 475,556 $ 2.62
Granted 530,000 6.72
Canceled (19,556) 3.25
Exercised (56,500) 3.06
------- --------
Balance, December 31, 1998 929,500 $ 4.92
Granted 50,000 5.88
Canceled (69,166) 5.98
Exercised (143,000) 2.31
------- --------
Balance, December 31, 1999 767,334 $ 5.37
Granted 100,000 6.72
Canceled (239,000) 2.77
Exercised (133,334) 6.63
------- --------
Balance, December 31, 2000 495,000 $ 1.28
======= ========
-46-
11. SHAREHOLDERS' EQUITY (continued)
Stock Option Plans (continued)
As of December 31, 2000, 1999, and 1998, respectively, 351,666, 398,445, and
337,500, of these options were exercisable.
The following table summarizes information about fixed stock options outstanding
as of December 31, 2000:
Options outstanding:
Range of exercise prices $0.25-$2.26
Number outstanding, December 31, 2000 495,000
Weighted-average exercise price $1.28
Options exercisable:
Range of exercise prices $0.25-$1.81
Number exercisable, December 31, 2000 351,666
Weighted-average exercise price $0.98
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans. The fair value of each option grant is estimated on the date of
the grant using an option-pricing model that computes the value of employee
stock options consistent with FASB SFAS No.123. The following weighted-average
assumptions were used for grants in 2000, 1999, and 1998, no dividend yield;
expected lives of three years for the management plan and eight years for the
director plan options; shorter-term adjustment of six years; expected volatility
of 47% for all years; and risk-free interest rates of 5.46%, 6.48%, and 5.16%,
respectively. The weighted-average fair market value per share of options
granted during 2000, 1999, and 1998 was $0.74, $2.54, and $1.86, respectively.
Had compensation expense for the Company's stock-based compensation plans been
recorded consistent with FASB SFAS 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, except per share
amounts):
2000 1999 1998
-----------------------------------------------
Net income As reported $ 5,263 $ 2,356 $ 4,857
Pro forma 5,109 2,060 4,578
Basic earnings per share As reported 0.70 0.29 0.58
Pro forma 0.68 0.26 0.55
Diluted earnings per share As reported 0.69 0.29 0.57
Pro forma 0.67 0.25 0.54
12. 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
Plan is a contributory plan available to essentially all full-time employees of
the Company in the United States. In 2000, employees who participated in the
Plan could elect to defer and contribute to the trust established under the Plan
up to 9% of pretax salary or wages up to $10,500. The Company matched up to a
maximum of $4,000 of employees' 401(k) contributions in 2000, 1999, and 1998 to
vest in four equal installments over a four-year period. The Company's total
401(k) contributions, net of forfeitures, were $0.3 million for 2000, 1999, and
1998, respectively.
During 2000, 1999, and 1998, the Company accrued discretionary profit-sharing
contributions. Profit-sharing contributions are allocated equally among the
number of eligible Plan participants. The Company's total profit-sharing expense
was $0.1 million for 2000, 1999, and 1998.
-47-
13. 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 $2.6 million,
$2.3 million, and $3.1 million in 2000, 1999, and 1998, respectively, have been
recorded as reductions of operations support or general and administrative
expenses. Outstanding amounts are paid under normal business terms.
14. 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 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. The Company's involvement with the management of the receivables from
affiliated entities limits the credit exposure from affiliated entities.
No single customer of the Company accounted for more than 10% of revenues for
the years ended December 31, 2000, 1999, or 1998. As of December 31, 2000 and
1999, management believes the Company had no significant concentrations of
credit risk that could have a material adverse effect on the Company's business,
financial condition, or results of operations.
15. OPERATING SEGMENTS
The Company operates or 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 on March
1, 2000 and its trailer leasing operations on September 30, 2000. Accordingly,
these segments are accounted for as discontinued operations. 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. The following tables present a summary
of the operating segments (in thousands of dollars):
Commercial
and Management
Industrial of Investment
Equipment Programs
Leasing and Other
Trailer and Equipment
For the year ended December 31, 2000 Leasing Financing Leasing Other(1) Total
------------------------------------------------------------
Revenues
Lease revenue $ -- $ -- $ 1,810 $ -- $ 1,810
Fees earned -- -- 8,704 -- 8,704
Loss on disposition of equipment -- -- (416) -- (416)
Other -- -- 1,453 -- 1,453
-------- --------- -------- -------- --------
Total revenues -- -- 11,551 -- 11,551
-------- --------- -------- -------- --------
Costs and expenses
Operations support -- -- 1,085 1,051 2,136
Depreciation and amortization -- -- 885 -- 885
General and administrative expenses -- -- -- 6,851 6,851
-------- --------- -------- -------- --------
Total costs and expenses -- -- 1,970 7,902 9,872
-------- --------- -------- -------- --------
Operating income (loss) -- -- 9,581 (7,902) 1,679
Interest (expense) income, net -- -- (1,528) 1,284 (244)
Other expenses, net -- -- (790) (543) (1,333)
-------- --------- -------- -------- --------
Income (loss) before income taxes $ -- $ -- $ 7,263 $ (7,161) $ 102
======== ========= ======== ======== ========
Income (loss) from discontinued operations, net of
income taxes $ 281 $ (71) $ -- $ -- $ 210
======== ========= ======== ======== ========
Gain on disposition of discontinued operations,
net of income taxes $ 4,990 $ $ -- $ -- $ 4,990
======== ========= ======== ======== ========
Total assets as of December 31, 2000 $ -- $ -- $ 28,575 $ 11,832 $ 40,407
======== ========= ======== ======== ========
<FN>
- --------------
1 Includes costs not identifiable to a particular segment such as general and
administrative, certain operations support expenses, and interest income and
certain other expenses.
</FN>
-48-
15. OPERATING SEGMENTS (continued)
Commercial
and Management
Industrial of Investment
Equipment Programs
Leasing and Other
Trailer and Equipment
For the year ended December 31, 1999 Leasing Financing Leasing Other(1) Total
------------------------------------------------------------
Revenues
Lease revenue $ -- $ -- $ 1,194 $ -- $ 1,194
Fees earned -- -- 9,032 -- 9,032
Other -- -- 1,358 -- 1,358
-------- --------- -------- -------- --------
Total revenues -- -- 11,584 -- 11,584
-------- --------- -------- -------- --------
Costs and expenses
Operations support -- -- 1,735 739 2,474
Depreciation and amortization -- -- 385 -- 385
General and administrative expenses -- -- -- 5,224 5,224
-------- --------- -------- -------- --------
Total costs and expenses -- -- 2,120 5,963 8,083
-------- --------- -------- -------- --------
Operating income (loss) -- -- 9,464 (5,963) 3,501
Interest (expense) income, net -- -- (2,261) 343 (1,918)
Other income (expenses), net -- -- 833 (112) 721
-------- --------- -------- -------- --------
Income (loss) before income taxes $ -- $ -- $ 8,036 $ (5,732) $ 2,304
======== ========= ======== ======== ========
Income from discontinued operations, net of
income taxes $ 932 $ 811 $ -- $ -- $ 1,743
======== ========= ======== ======== ========
Loss on disposition of discontinued operations, net of
income taxes $ -- $ (550) $ -- $ -- $ (550)
======== ========= ======== ======== ========
Cumulative effect of accounting change, net of
income taxes $ -- $ (250) $ -- $ -- $ (250)
======== ========= ======== ======== ========
Total assets as of December 31, 1999 $ 21,211 $ 30,990 $ 25,796 $ 6,728 $ 84,725
======== ========= ======== ======== ========
Commercial
and Management
Industrial of Investment
Equipment Programs
Leasing and Other
Trailer and Equipment
For the year ended December 31, 1998 Leasing Financing Leasing Other(1) Total
------------------------------------------------------------
Revenues
Lease revenue $ -- $ -- $ 2,269 $ -- $ 2,269
Fees earned -- -- 12,075 -- 12,075
Gain on disposition of assets, net -- -- 1,432 -- 1,432
Other -- -- 3,023 -- 3,023
-------- --------- -------- -------- --------
Total revenues -- -- 18,799 -- 18,799
-------- --------- -------- -------- --------
Costs and expenses
Operations support -- -- 4,731 2,283 7,014
Depreciation and amortization -- -- 1,056 -- 1,056
General and administrative expenses -- -- -- 6,082 6,082
-------- --------- -------- -------- --------
Total costs and expenses -- -- 5,787 8,365 14,152
-------- --------- -------- -------- --------
Operating income (loss) -- -- 13,012 (8,365) 4,647
Interest (expense) income, net -- -- (1,343) 212 (1,131)
Other income, net -- -- 473 -- 473
-------- --------- -------- -------- --------
Income (loss) before income taxes $ -- $ -- $ 12,142 $ (8,153) $ 3,989
======== ========= ======== ======== ========
Income (loss) from discontinued operations,
net of income taxes $ (705) $ 3,178 $ -- $ -- $ 2,473
======== ========= ======== ======== ========
Total assets as of December 31, 1998 $ 18,894 $ 32,930 $ 31,499 $ 12,236 $ 95,559
======== ========= ======== ======== ========
<FN>
- --------------
1 Includes costs not identifiable to a particular segment such as general and
administrative, certain operations support expenses, and interest income and
certain other expenses.
</FN>
-49-
16. GEOGRAPHIC INFORMATION
Financial information about the Company's foreign and domestic operations
follow:
Revenues from continuing operations for the years ended December 31, 2000, 1999,
and 1998 are as follows (in thousands of dollars):
2000 1999 1998
------- ------- -------
Domestic $11,551 $11,584 $16,846
International -- -- 1,953
------- ------- -------
Total revenues $11,551 $11,584 $18,799
======= ======= =======
Long-lived assets from continuing operations as of December 31, 2000, 1999, and
1998 are as follows (in thousands of dollars):
2000 1999 1998
------- ------- -------
Domestic $18,897 $22,483 $26,515
International 73 535 814
------- ------- -------
Total long-lived assets $18,970 $23,018 $27,329
======= ======= =======
International operations are comprised primarily of international leasing,
brokerage, and other activities conducted primarily through the Company's
subsidiaries operated in Bermuda, Canada, and Australia (Australian operations
were sold in August 1998).
17. ESTIMATED FAIR VALUE OF THE COMPANY'S FINANCIAL INSTRUMENTS
The Company estimates the fair value of it's financial instruments based on
recent similar transactions the Company has entered into. The estimated fair
values of the Company's financial instruments are as follows as of December 31
(in thousands of dollars):
2000 1999
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------- ------- -------
Financial assets:
Restricted cash (Note 5) $ 2,530 $ 2,530 $ 1,766 $ 1,766
Financial liabilities:
Senior secured notes (Note 8) -- -- 20,679 20,679
-50-
18. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999 (in thousands of dollars, except per share
amounts):
2000
------------------------------------------------------------------
March June September December
31, 30, 30, 31, Total
------------------------------------------------------------------
Revenue from continuing operations $ 2,499 $ 2,235 $ 4,463 $ 2,354 $11,551
Net income (loss) from continuing
operations $ 390 $ (88) $ 688 $ (927) $ 63
Income (loss) from discontinued
operations (309) 650 (509) 378 210
Gain from disposition of discontinued
operations -- -- 4,785 205 4,990
------------------------------------------------------------------
Net income (loss) to common shares $ 81 $ 562 $ 4,964 $ (344) $ 5,263
==================================================================
Basic income per common share:
Net income (loss) from continuing
operations 0.05 (0.01) 0.09 (0.12) 0.01
Income (loss) from discontinued
operations (0.04) 0.08 (0.06) 0.05 0.03
Gain from disposition of discontinued
operations -- -- 0.64 0.02 0.66
------------------------------------------------------------------
Net income (loss) to common shares $ 0.01 $ 0.07 $ 0.67 $ (0.05) $ 0.70
==================================================================
Diluted income per common share:
Net income (loss) from continuing
operations 0.05 (0.01) 0.09 (0.12) 0.01
Income (loss) from discontinued
operations (0.04) 0.08 (0.07) 0.06 0.03
Gain from disposition of discontinued
operations -- -- 0.64 0.01 0.65
------------------------------------------------------------------
Net income (loss) to common shares $ 0.01 $ 0.07 $ 0.66 $ (0.05) $ 0.69
==================================================================
-51-
18. QUARTERLY RESULTS OF OPERATIONS (unaudited) (continued)
1999
--------------------------------------------------------------------
March June September December
31, 30, 30, 31, Total
--------------------------------------------------------------------
Revenue from continuing operations $ 3,249 $ 3,278 $ 2,614 $ 2,443 $ 11,584
Net income (loss) from continuing
operations $ 538 $ 199 $ 730 $ (54) $ 1,413
Income (loss) from discontinued operations (228) 522 647 802 1,743
Loss on disposition of discontinued
operations -- -- -- (550) (550)
Cumulative effect of accounting
change (250) -- -- -- (250)
---------------------------------------------------------------------
Net income to common shares $ 60 $ 721 $ 1,377 $ 198 $ 2,356
=====================================================================
Basic income per common share:
Net income (loss) from continuing
operations $ 0.07 $ 0.02 $ 0.09 $ (0.01) $ 0.17
Income (loss) from discontinued
operations (0.03) 0.07 0.08 0.10 0.22
Loss on disposition of discontinued
operations -- -- -- (0.07) (0.07)
Cumulative effect of accounting
change (0.03) -- -- -- (0.03)
---------------------------------------------------------------------
Net income to common shares $ 0.01 $ 0.09 $ 0.17 $ 0.02 $ 0.29
=====================================================================
Diluted income per common share:
Net income (loss) from continuing
operations $ 0.07 $ 0.02 $ 0.09 $ (0.01) $ 0.17
Income (loss) from discontinued
operations (0.03) 0.07 0.08 0.10 0.22
Loss on disposition of discontinued
operations -- -- -- (0.07) (0.07)
Cumulative effect of accounting
change (0.03) -- -- -- (0.03)
---------------------------------------------------------------------
Net income to common shares $ 0.01 $ 0.09 $ 0.17 $ 0.02 $ 0.29
=====================================================================
During 2000, the Company recorded a gain of $5.0 million from disposition of
discontinued operations.
19. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.3 million charge,
net of tax of $0.1 million, related to start-up costs of its commercial and
industrial equipment operations which is being accounted for as discontinued
operations.
20. SUBSEQUENT EVENTS
On February 7, 2001, PLM International, announced that MILPI Acquisition Corp.
(MILPI) completed its cash tender offer for the outstanding common stock of PLM
International. MILPI acquired 83% of the common shares outstanding of PLM
International through the tender. MILPI will complete its acquisition of PLM
International by effecting a merger of MILPI into PLM International under
Delaware law. The merger is expected to be completed after MILPI obtains
approval of the merger by PLM International's shareholders pursuant to a special
shareholders' meeting which is expected to be held during the first half of
2001. Concurrent with the conclusion of the tender offer, the $1.7 million in
restricted cash held in an escrow account was released to the Company.
-52-
20. SUBSEQUENT EVENTS (continued)
During the first quarter of 2001, the Company sold marine containers of $10.3
million that were classified as assets held for sale as of December 31, 2000 to
affiliated programs at cost, which approximated their fair market value.
In March 2001, the Internal Revenue Service notified the Company that it would
conduct an audit regarding the Company's tax withholding of payments to foreign
entities. The audit is scheduled to begin in June 2001 and relates to two
partnerships in which the Company formerly held interests as the 100% direct and
indirect owner. One audit relates to the years between 1997 and 1999, while the
other audit relates to the years 1998 and 1999. Management believes that the
positions taken on the withholding tax returns will be upheld by the Internal
Revenue Service upon audit. If the Company's position is not upheld by the
Internal Revenue Service, the foreign entities are legally obligated to
indemnify the Company for any losses. If the Internal Revenue Service does not
uphold the Company's position and the foreign entities do not honor the
indemnification, the Company's financial condition, results of operations, and
liquidity would be materially impacted.
-53-
SCHEDULE II
PLM International, Inc.
Valuation and Qualifying Accounts
Year Ended December 31, 2000, 1999 and 1998
(in thousands of dollars)
Additions
Balance at Charged to Balance at
Beginning of Cost and Close of
Year Expense Deductions Year
---------------- ---------------- -------------- -------------
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 243 $ -- $ (122) $ 121
=======================================================================
Year Ended December 31, 1999
Allowance for Doubtful Accounts $ 240 $ 3 $ -- $ 243
=======================================================================
Year Ended December 31, 1998
Allowance for Doubtful Accounts $ 204 $ 110 $ (74) $ 240
=======================================================================
-54-
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors and Shareholders
PLM International, Inc.
Under date of March 12, 2001, we reported on the consolidated balance sheets of
PLM International, Inc. and subsidiaries (the "Company") as of December 31, 2000
and 1999, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 2000, which are included in
Form 10-K. Such report notes that on February 7, 2001 MILPI Acquisition Corp.
completed its cash tender offer for the outstanding common stock of the Company.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule, Valuation and Qualifying Accounts, in Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We consent to incorporation by reference in the registration statement (No.
33-379145) on Form S-8 of PLM International, Inc. of our reports dated March 12,
2001 and March 28, 2001, relating to the consolidated balance sheets of PLM
International, Inc. as of December 31, 2000, and 1999, and the related
consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2000, and related schedule, which report appears in
the December 31, 2000, annual report on Form 10-K of PLM International, Inc.
San Francisco, California
March 28, 2001
/s/ KPMG LLP
-55-
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Stephen M.
Bess, Richard K Brock and Susan Santo, jointly and severally, his true and
lawful attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to do any and all acts and things and to execute any and all
instruments which said attorneys, or any of them, may deem necessary or
advisable to enable PLM International, Inc. to comply with the Securities
Exchange Act of 1934, as amended (the "Act"), and any rules and regulations
thereunder, in connection with the preparation and filing with the Securities
and Exchange Commission of annual reports on Form 10-K on behalf of PLM
International, Inc., including specifically, but without limiting the generality
of the foregoing, the power and authority to sign the name of the undersigned,
in any and all capacities, to such annual reports, to any and all amendments
thereto, and to any and all documents or instruments filed as a part of or in
connection therewith; and the undersigned hereby ratifies and confirms all that
each of the said attorneys, or his substitute or substitutes, shall do or cause
to be done by virtue hereof. This Power of Attorney is limited in duration until
May 1, 2001 and shall apply only to the annual reports and any amendments
thereto filed with respect to the fiscal year ended December 31, 2000.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of March, 2001.
/s/ Robert N. Tidball
---------------------------
Robert N. Tidball
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Stephen M.
Bess, Richard K Brock and Susan Santo, jointly and severally, his true and
lawful attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to do any and all acts and things and to execute any and all
instruments which said attorneys, or any of them, may deem necessary or
advisable to enable PLM International, Inc. to comply with the Securities
Exchange Act of 1934, as amended (the "Act"), and any rules and regulations
thereunder, in connection with the preparation and filing with the Securities
and Exchange Commission of annual reports on Form 10-K on behalf of PLM
International, Inc., including specifically, but without limiting the generality
of the foregoing, the power and authority to sign the name of the undersigned,
in any and all capacities, to such annual reports, to any and all amendments
thereto, and to any and all documents or instruments filed as a part of or in
connection therewith; and the undersigned hereby ratifies and confirms all that
each of the said attorneys, or his substitute or substitutes, shall do or cause
to be done by virtue hereof. This Power of Attorney is limited in duration until
May 1, 2001 and shall apply only to the annual reports and any amendments
thereto filed with respect to the fiscal year ended December 31, 2000.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of March, 2001.
/s/ James A. Coyne
---------------------------
James A. Coyne
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Stephen M.
Bess, Richard K Brock and Susan Santo, jointly and severally, his true and
lawful attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to do any and all acts and things and to execute any and all
instruments which said attorneys, or any of them, may deem necessary or
advisable to enable PLM International, Inc. to comply with the Securities
Exchange Act of 1934, as amended (the "Act"), and any rules and regulations
thereunder, in connection with the preparation and filing with the Securities
and Exchange Commission of annual reports on Form 10-K on behalf of PLM
International, Inc., including specifically, but without limiting the generality
of the foregoing, the power and authority to sign the name of the undersigned,
in any and all capacities, to such annual reports, to any and all amendments
thereto, and to any and all documents or instruments filed as a part of or in
connection therewith; and the undersigned hereby ratifies and confirms all that
each of the said attorneys, or his substitute or substitutes, shall do or cause
to be done by virtue hereof. This Power of Attorney is limited in duration until
May 1, 2001 and shall apply only to the annual reports and any amendments
thereto filed with respect to the fiscal year ended December 31, 2000.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
5th day of March, 2001.
/s/ Gary Engle
---------------------------
Gary Engle