SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal quarter ended September 30, 1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-9670
_______________________
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisiction of (I.R.S. Employer
incorporation or organization Identification No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
_______________________
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (ro
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the last practicable date:
Common Stock - $.01 Par Value; Outstanding as of November 11, 1994
- - - - 9,579,413 shares
<PAGE>
<TABLE>
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1994 1993
(in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 19,886 $ 19,685
Receivables 6,183 6,037
Receivables from affiliates 9,008 10,981
Assets held for sale 6,265 -0-
Equity interest in affiliates 17,024 17,707
Transportation equipment held for
operating leases 180,128 205,810
Less accumulated depreciation (103,116) (105,122)
77,012 100,688
Restricted cash and cash equivalents 22,771 7,055
Restricted marketable securities 29,033 44,469
Other 11,856 11,098
Total assets $199,038 $217,720
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities:
Senior secured debt $ 45,000 $ 45,000
Bank debt related to ESOP 47,329 50,280
Other secured debt 3,584 2,839
Subordinated debt 28,000 31,000
Payables and other liabilities 12,510 18,082
Deferred income taxes 14,934 19,386
Total liabilities 151,357 166,587
Minority Interest 392 -0-
Shareholders' Equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, 4,901,474 at September 30,
1994, and 4,916,301 at December 31, 1993,
series A Convertible shares issued and
outstanding, aggregate $63,719,162 at
September 30, 1994, and $63,911,913 at
December 31, 1993, ($13 per share)
liquidation preference at paid-in amount 59,306 63,569
Unearned compensation/Loan to ESOP on
ESOP shares (37,228) (50,280)
22,078 13,289
Common stock, $.01 par value, 50,000,000
shares authorized, 10,501,780 shares issued
and outstanding at September 30, 1994,
(excluding 417,209 shares held in treasury)
and 10,465,306 at December 31, 1993,
(excluding 432,018 shares held in treasury) 109 109
Paid in capital, in excess of par 55,786 55,557
Treasury stock (100) (131)
55,795 55,535
Accumulated deficit (30,584) (17,691)
Total shareholders' equity 47,289 51,133
Total liabilities, minority interest,
and shareholders' equity $199,038 $217,720
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Operating leases $ 6,855 $ 8,222 $ 22,102 $ 26,024
Management fees, partnership interests,
and other fees 3,954 5,453 13,145 17,068
Commissions 1,141 1,540 3,881 6,521
Sales and brokerage 1,214 -0- 3,361 -0-
(Loss) gain on the disposal of trans-
portation equipment, net (109) (143) (574) 1,645
Other 268 315 856 649
Total revenues 13,323 15,387 42,771 51,907
Costs and expenses:
Operations support 6,149 4,104 17,731 14,393
Depreciation and amortization 3,106 2,722 9,411 9,228
Commissions 1,194 1,720 4,067 7,043
General and administrative 3,096 2,886 7,861 7,943
Reduction in carrying value of certain
assets 4,247 930 4,247 930
Total costs and expenses 17,792 12,362 43,317 39,537
Operating (loss) income (4,469) 3,025 (546) 12,370
Interest expense 2,602 2,962 7,310 9,496
Other (expense) income, net (2,619) 347 (2,349) (88)
Interest income 963 1,326 2,643 4,065
(Loss) income before income taxes (8,727) 1,736 (7,562) 6,851
(Benefit) provision for income taxes (3,485) -0- (3,963) 1,823
Net (loss) income before cumulative effect
of accounting change (5,242) 1,736 (3,599) 5,028
Cumulative effect of accounting change -- -- 5,130 --
Net (loss) income (5,242) 1,736 (8,729) 5,028
Preferred dividend imputed on allocated shares 562 341 1,686 1,023
Preferred dividend imputed on unallocated shares
(net of $522 and $1,566 income tax benefit
for the three and nine months ended
September 30, 1993) -- 895 -- 2,685
Net (loss) income to common shares $(5,804) $ 500 $(10,415) $ 1,320
(Loss) earnings per common share outstanding $ (0.46) $ 0.05 $ (0.83) $ 0.13
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the nine months ended
September 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (8,729) $ 5,028
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 9,411 9,228
Cumulative accounting change 5,130 --
Restructuring adjustments -0- 930
Decrease in deferred income taxes (4,573) (1,552)
Compensation expense for ESOP 255 --
Loss (gain) on disposal of assets 574 (2,287)
Reduction in carrying value of certain assets 4,247 -0-
Undistributed residual value interests 405 (335)
Minority interest in net income
of subsidiaries 56 -0-
(Decrease) increase in payables
and other liabilities (5,872) 2,020
Increase in receivables and receivables from
affiliates 4,374 (1,151)
Cash distributions from affiliates in excess of
income accrued 488 266
Decrease in other assets 950 335
Purchase of equipment for lease (821) (1,211)
Proceeds from sale of equipment for lease 10,056 25,518
Purchase of assets held for sale to affiliates (11,455) (18,105)
Proceeds from sale of assets held for sale to
affiliates 5,190 18,105
Financing of assets held for sale to affiliates 2,953 14,404
Repayment of financing assets held for
sale to affiliates (2,953) (14,404)
Net cash provided by operating activities
to affiliates 9,686 36,789
Cash flows from investing activities:
Additional investment in affiliates (210) (497)
Proceeds from the sale of residual options
and other investments 89 365
Proceeds from the maturity and sale of restricted
marketable securities 30,872 65,459
Purchase of restricted marketable securities (15,436) (70,323)
(Increase) decrease in restricted cash and cash
equivalents (15,716) 12,087
Acquisition of subsidiaries (1,013) -0-
Net cash (used in) provided by
investing activities (1,414) 7,091
Cash flows from financing activities:
Proceeds from long-term equipment loans 45,366 -0-
Principal payments under loans (51,237) (31,139)
Principal payments under leveraged employee
stock ownership plan -- 2,695
Cash dividends paid on Preferred Stock (7,007) (7,032)
Payments received from ESOP Trustee 4,739 -0-
Proceeds from exercise of stock options 68 -0-
Net cash used in financing activities (8,071) (35,476)
Net increase in cash and cash equivalents 201 8,404
Cash and cash equivalents at beginning of period 19,685 9,407
Cash and cash equivalents at end of period $ 19,886 $ 17,811
Supplemental information:
Interest paid during the period $ 7,674 $ 8,548
Income taxes paid during the period $ 4,007 $ 664
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
1. In the opinion of management, the accompanying
unaudited consolidated financial statements contain
all adjustments necessary to present fairly the
Company's financial position as of September 30,
1994, and the statements of operations for the three
and nine months ended September 30, 1994, and 1993
and the statements of cash flows for the nine months
ended September 30, 1994, and 1993. Certain
information and footnote disclosures normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been condensed or omitted from the
accompanying consolidated financial statements. For
further information, reference should be made to the
financial statements and notes thereto included in
the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1993, on file at the
Securities and Exchange Commission.
2. In the first nine months of 1994, 21,665 common
shares were issued for the exercise of stock options.
In addition, in exchange for an equal number of
preferred shares, 14,809 common shares were taken out
of treasury stock and issued to former participants
in the Company's Employee Stock Ownership Plan.
Consequently, the total common shares outstanding
increased to 10,501,780 at September 30, 1994, from
the 10,465,306 outstanding at December 31, 1993 (see,
Subsequent Events, Note 13). Net (loss) income per
common share was computed by dividing net (loss)
income to common shares by the weighted average
number of shares of common stock deemed outstanding
during the period which includes the Employee Stock
Ownership Plan ("ESOP") convertible preferred shares
committed to be released as prescribed under the
American Institute of Certified Public Accountants
Statement of Position 93-6 ("SOP 93-6"), which the
Company has adopted (Refer to Footnote 4). Dilution
that could result from the issuance of stock options
is not material.
3. Certain amounts in the 1993 financial statements have
been reclassified to conform to the 1994
presentation.
4. The Company's Board of Directors has announced its
intention to terminate the Company's ESOP. The
termination is contingent on, among other things, the
receipt of a favorable IRS determination letter as to
the qualified status of the ESOP as of the date of
termination under the rules and regulations of the
Internal Revenue Code (the "Code"). Upon termination
of the ESOP, each share of Series A Preferred Stock
held by the ESOP (the "Preferred Stock") which has
been allocated to ESOP participants will
automatically convert to one share of Common Stock.
In addition, an amendment to the Company's
Certificate of Designation of Series A Preferred
Stock (the "Certificate of Designations") has been
submitted to the PLM shareholders for approval prior
to termination of the ESOP. Under the proposed
amendment, the allocated shares of Preferred Stock
would also automatically convert to common shares in
the event those shares are transferred to the trustee
of the Company's profit sharing plan.
Termination of the ESOP will result in the
distribution to each ESOP participant (or transfer to
the participant's account in the Company's profit
sharing plan) shares of PLM Common Stock, and the
Preferred Stock which has been allocated to such
participant's account as of the date of termination
will be canceled. Assuming termination on or about
December 31, 1994, it is estimated that approximately
2,200,000 common shares will be distributed to (or
transfered to the accounts of) a total of
approximately 315 ESOP participants, including up to
410,000 or more shares distributed on or about
November 18, 1994 to participants who are no longer
employees of the Company. All such shares would be
freely tradeable and listed on the AMEX.
Shares of Preferred Stock held by the ESOP which have
not been allocated to participants' accounts at the
date of termination (i.e. approximately 2,700,000
shares assuming termination on or about December 31,
1994) will cease to be outstanding upon termination,
and concurrent with the termination, all indebtedness
of the ESOP then owing to the Company will either be
repaid or rendered uncollectible. In addition, the
corresponding bank indebtedness of the Company
related to the ESOP will be repaid using restricted
cash and marketable securities collateral. As of
September 30, 1994, the principal amount of this
indebtedness was $47.3 million and it was fully
secured by restricted cash collateral and marketable
securities. The Company has charged to earnings
approximately $0.5 million to reflect the adjustment
to current market value for this collateral.
Depending on prevailing interest rates at the time of
termination, gain or loss may be recognized on the
liquidation of the collateral to be used to repay
this indebtedness.
Termination of the ESOP and the related ESOP loan
will eliminate payment by the Company of the annual
dividend on the Preferred Stock now held by the ESOP.
For the year ended December 31, 1993, the aggregate
pretax amount of this dividend was $7.0 million.
Termination of the ESOP will also result in a 10%
excise tax imposed by the Code on the "amount
realized" by the ESOP from the disposition of the
unallocated shares held by the ESOP on the date of
termination. Although the amount of this one-time
tax is not presently known, based on the Company's
assessment of the valuation of the unallocated
shares, the amount is currently estimated at less
than $1.0 million. This excise tax, if any, is
payable seven months after the close of the calendar
year of termination and will be charged to earnings
in the year of termination. The Company also
anticipates that approximately $2.7 million of
previously paid, unamortized ESOP loan fees and other
costs will be charged to earnings in the year of
termination, which together with the currently
estimated amount of the 10% excise tax and income tax
benefits, will result in a reduction in shareholders'
equity of approximately $2.8 million. Of this amount
the Company has expensed $2.2 million in the third
quarter ($1.4 net of tax).
As a result of the termination, the cost recorded for
previously allocated ESOP shares will be adjusted as
required by current accounting principles which were
recently impacted by SOP 93-6.
On November 22, 1993, the American Institute of
Certified Public Accountants issued Statement of
Position 93-6 "Employers' Accounting for Employee
Stock Ownership Plans" (SOP 93-6) which changes the
way companies report transactions with leveraged
employee stock ownership plans ("ESOPs") for
financial statement purposes, including the
following: (i) compensation expense is to be
recognized based on the fair value of shares
committed to be released to employees net of the
imputed dividend on allocated shares; (ii) interest
received on the loan to the ESOP is not recorded as
income; (iii) only dividends on allocated shares are
reflected as a reduction to income to common
shareholders, and (iv) the previously reported loan
to Employee Stock Ownership Plan is not recognized
under SOP 93-6, instead an amount representing the
unearned compensation related to the unallocated
shares is reported as a reduction of Preferred Stock.
The Company elected to adopt SOP 93-6 in the third
quarter, which required the previously issued
financial statements to be restated for the change in
accounting as of January 1, 1994. The adoption of
SOP 93-6 resulted in a non-cash charge to earnings of
$5.1 million for the impact of the change in
accounting principle and was recorded as of the
beginning of the year of adoption. Additionally, SOP
93-6 eliminates the recognition of interest income on
the Company's loan to the ESOP and records the entire
tax benefit of the ESOP as a reduction in income tax
expense.
5. The Company classifies assets as held for sale if the
particular asset is subject to a pending contract for
sale, is held for sale to an affiliated partnership,
or is being marketed for sale by the Company's
aircraft leasing and spare parts brokerage
subsidiary. Transportation equipment held for
operating leases at December 31, 1993, includes
equipment classified as held for sale in previous
reports. At September 30, 1994, $5.9 million in
trailers was held for sale to one or more affiliated
Partnerships and $0.4 million in aircraft inventory
was held for sale to third parties by the Company's
aircraft leasing and spare parts brokerage
subsidiary.
6. As of January 1, 1994, the Company has adopted
Statement of Financial Accounting Standards No. 115
("Accounting For Certain Investments in Debt and
Equity Securities") ("SFAS No. 115"). Due to the
decision by the Company to terminate its ESOP (refer
to Note 4), certain marketable securities that
collateralize the outside ESOP loan have been
reclassified. All marketable securities with a
maturity date prior to December 31, 1994, continue to
be classified as held to maturity securities. These
marketable securities are reported on the balance
sheet at amortized cost and any unrealized gains and
losses have not been recorded. Marketable securities
with a maturity date after December 31, 1994, have
been classified as trading securities and are
reported on the balance sheet at their estimated fair
market value and the corresponding unrealized gains
and losses have been included in the calculation of
earnings.
7. In February 1994, the Company completed the purchase
of a majority interest in Aeromil Australia Pty Ltd
("Aeromil"). Aeromil is an aircraft dealer
specializing in local and international marketing and
brokerage of business, commuter, and commercial
aircraft. The acquisition was accounted for by the
purchase method of accounting and accordingly, the
purchase price is allocated to assets and liabilities
based on the estimated fair value at the date of
acquisition. Goodwill will be amortized over ten
years. The portion of Aeromil not owned by the
Company is shown as minority interest on the balance
sheet. Minority interest in net income of
subsidiaries is included in other expense for the
three and nine months ended September 30, 1994.
8. In June 1994, the Company closed a new $45.0 million
senior loan facility, with a syndicate of insurance
companies, and repaid the existing senior loan. The
new facility has a seven year term with quarterly
interest-only payments through March 31, 1997.
Quarterly principal payments of $2.1 million, plus
interest charges begin on June 30, 1997, through the
termination of the loan in June 2001. Interest on
$35.0 million of the debt is fixed at 9.78% per annum
and the remaining $10.0 million floats based on LIBOR
plus 2.75% per annum and adjusts quarterly. The
facility is secured by all of the Company's
transportation-related equipment assets and
associated leases. The facility provides that
equipment sale proceeds or cash deposits be placed
into collateral accounts or used to purchase
additional equipment to the extent required to meet
certain debt covenants.
9. In June 1994, the Company amended its Warehousing
Line of Credit facility. The amendment extended the
facility until September 30, 1995, and provides for
a $5.0 million letter of credit facility as part of
the $25.0 million facility.
10. The Company is involved as plaintiff or defendant in
various legal actions incident to its business.
Management does not believe that any of these actions
will be material to the financial condition of the
Company.
11. In July 1994, the Company repaid $3.0 million of its
subordinated debt.
Subsequent Events:
12. In October 1994, the Company repaid $5.0 million of
its subordinated debt at discount of $0.5 million.
13. In October 1994, the Company repurchased 922,367
shares of its common stock at $3.25 per share.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company owns a diversified portfolio of transportation
equipment from which it earns operating lease revenue and incurs
operating expenses. The Company also raises investor equity
through syndicated partnerships and invests the equity raised in
transportation equipment which it manages on behalf of its
investors. The Company earns various fees and equity interests
from syndication and investor equipment management activities.
The Company's transportation equipment held for operating leases
is mainly equipment built prior to 1988. As trailer equipment
ages, the Company is generally replacing it with newer
equipment. However, aged equipment for other equipment types
may not be replaced. Rather, proceeds from the liquidation of
other equipment types may be invested in trailers or in other
Company investment opportunities. Failure to replace equipment
may result in shorter lease terms and higher costs of
maintaining and operating aged equipment and, in certain
instances, limited remarketability.
For the Three Months Ended September 30, 1994, vs. September 30,
1993
(A) Revenues
The Company's total revenues for the quarters ended
September 30, 1994, and 1993 were $13.3 million and
$15.4 million, respectively. The decrease in 1994
revenues is principally composed of a 17% decrease
in operating lease revenue, a 30% decrease in
management fees, partnership interests, and other
fees, a 26% decrease in commissions, partially
offset by a $1.2 million increase in sales and
brokerage revenue.
1. Operating Lease Revenues - $6.9 million vs.
$8.2 million
For the three months ended September 30, 1994, the
Company had a cost average of $190.6 million of
equipment in its operating lease portfolio, which
is approximately $5.9 million less than the
original cost of equipment held during the third
quarter of 1993. The reduction in equipment is a
consequence of the Company's strategic decision to
dispose of certain assets including one of its two
marine vessels, and a net reduction of 18% in its
marine container portfolio compared to the third
quarter of 1993.
The reduction in equipment available for lease is
the primary reason marine vessel and marine
container lease revenue decreased by $1.0 million
and $0.1 million, respectively.
2. Management Fees, Partnership Interests, and
Other Fees - $4.0 million vs. $5.5 million
Management fees decreased approximately $0.2
million for the quarter ended September 30, 1994,
as compared to the third quarter of 1993. These
fees are, for the most part, based on the revenues
generated by equipment under management. The
managed equipment portfolio grows correspondingly
with new syndication activity. Affiliated
partnership and investment program surplus
operating cash flows and loan proceeds invested in
additional equipment increase management fees.
Equipment managed at September 30, 1994, and 1993
(measured at original cost) amounted to $1.11
billion and $1.12 billion, respectively. The
decrease in management fees resulted from a
reduction in assets under management and from
lower lease rates for equipment. The Company also
records as revenues its equity interest in the
earnings of the Company's affiliated partnerships,
which revenues were approximately the same as the
third quarter of 1993.
Acquisition and lease negotiation fees are earned
on the amount of equipment purchased and leased on
behalf of syndicated investment programs. Debt
placement fees are earned for debt placed in the
investment programs. These fees are governed by
applicable program agreements and securities
regulations. During the third quarter of 1994,
there was $9.0 million of equipment purchases on
behalf of various investor programs and
partnerships compared to $33.7 million in the same
period of 1993, resulting in a $1.5 million
decrease in acquisition and lease negotiation
fees. In addition, there as a $0.2 million
increase in debt placement fees during the third
quarter of 1994.
The Company also receives a residual interest in
the net equipment purchased by the affiliated
partnerships. Income is recognized on residual
interests based upon the general partner's share
of the present value of the estimated disposition
proceeds of the equipment portfolios of
affiliated partnerships. Residual interest income
decreased $0.2 million as a result the reduction
in equipment acquisitions for the affiliated
partnerships in the third quarter of 1994.
3. Commissions - $1.1 million vs. $1.5 million
Commission revenue is derived from raising
syndicated equity for Company-sponsored investment
programs. Commission revenue consists of
placement fees which are earned on the amount of
equity raised.
During the three months ended September 30, 1994,
program equity raised totaled $12.9 million,
compared to $17.3 million in the same period of
1993, resulting in a decrease in placement
commissions of $0.4 million. Syndication equity
raising efforts are influenced by many factors,
including general economic conditions, performance
of comparable investments, and the number of firms
that undertake to sell Company-sponsored programs.
There can be no assurances that future syndication
sales will perform as well as or better than prior
periods.
4. Sales and Brokerage - $1.2 million vs. $-0-
million
Sales and brokerage revenue is revenue earned by
Aeromil, the Company's aircraft leasing and spare
parts brokerage subsidiary acquired in February
1994.
5. (Loss) Gain on the Disposal of Transportation
Equipment - ($0.1) million in 1994 and 1993
The loss on the disposal of transportation
equipment in 1994 resulted primarily from the net
loss on the disposition of trailers and marine
containers partially offset by net gains on the
dispositions of one marine vessel and one aircraft
in the normal course of business. The net loss in
1993 resulted from the sale of two aircraft.
6. Other - $0.3 million in 1994 and 1993
Other revenues are principally insurance premiums
earned by Transportation Equipment Indemnity
Company Ltd., a captive insurance company, and
revenue earned for data processing services
provided to the Company's affiliated partnerships.
<PAGE>
(B) Costs and Expenses
1. Operations support expense (including salary
and office-related expenses for operational
activities, provision for doubtful accounts,
equipment insurance, repair and maintenance
costs, and equipment remarketing costs)
increased $2.0 million (50%) for the three
months ended September 30, 1994, from the same
period in 1993. The increase resulted
principally from $1.1 million in costs
associated with the operation of Aeromil, a
$0.4 million management bonus recorded in the
third quarter of 1994, which was recorded in
the fourth quarter of 1993 and a $0.3 million
increase in the provision for bad debts.
2. Depreciation and amortization increased $0.4
million (14%) for the three months ended
September 30, 1994, from the same period in
1993. A major component of the increase
resulted from an increase in the depreciation
rates on one marine vessel and certain
aircraft.
3. Commission expenses are primarily incurred by
the Company in connection with the syndication
of investment partnerships. Commissions are
also paid for certain leasing activities.
Commission expenses for the three months ended
September 30, 1994, decreased $0.5 million
(31%) from a similar period in 1993. The
reduction is the result of lower equity
syndication levels.
4. General and administrative expenses increased
$0.2 million (7%) during the quarter ended
September 30, 1994, compared to a similar
period in 1993. The increase is principally
the result of a management bonus recorded in
the third quarter of 1994. In 1993, the
management bonus was recorded in the fourth
quarter. This increase was partially offset by
lower professional service costs.
5. In the third quarter of 1994, as part of the
Company's ongoing analysis of asset
performance, the Company completed an extensive
analysis of its transportation equipment
portfolio resulting in valuation adjustments to
the estimated net realizable values of certain
equipment totalling $4.2 million, consisting of
adjustments to certain aircraft ($2.1 million),
trailers ($1.1 million), storage vaults ($0.2
million), containers ($0.1 million), and one
marine vessel ($0.7 million).
In the third quarter of 1993, the Company adjusted
the value of certain equipment to its estimated
net realizable value by $0.9 million, including
adjustments to railcars ($0.4 million), aircraft
($0.2 million), marine containers ($0.2 million),
and trailers ($0.1 million).
(C) Other Items
1. Interest expense decreased $0.4 million (12%)
during the quarter ended September 30, 1994,
compared to the similar period in 1993 as a
result of reduced debt levels, partially offset
by increased interest rates.
2. Other (expense) income was expense of $2.6
million in the third quarter of 1994, compared
to income of $0.3 million in the third quarter
of 1993. The change is a result of
accelerating the amortization of the ESOP loan
fees as a result of the planned termination of
the Company's ESOP in 1994 ($2.0 million), a
reduction in the carrying value of certain
marketable securities ($0.5 million) and
investments ($0.1 million) in 1994, and the
gain on the sale of an option contract in 1993
($0.2 million).
3. Interest income decreased $0.4 million (27%)
during the quarter ended September 30, 1994,
compared to the similar period in 1993. The
decreased interest income resulted from the
adoption of SOP 93-6 which eliminates the
recognition of interest income on the Company's
internal loan to the ESOP. This was offset in
part by an increase in interest rates on
investments.
4. The benefit for income taxes for the three
months ended September 30, 1994, of $3.5
million reflects the entire tax benefit of the
ESOP. For the quarter ended September 30,
1993, the provision for income taxes was offset
by the tax benefit on the allocated ESOP
shares. Under Statement of Financial
Accounting Standards No. 109 ("Accounting For
Income Taxes") ("SFAS No. 109"), and the
Company's previous method of accounting for the
ESOP, the ESOP dividend is presented net of the
tax benefit on ESOP shares not allocated to
participants. With the adoption of SOP 93-6,
the entire tax benefit for the ESOP is
reflected as a benefit in the provision for
income taxes.
(D) Net (Loss) Income
For the three months ended September 30, 1994, net
loss was $5.2 million. In addition, $0.6 million is
required for the imputed preferred dividend on
allocated ESOP shares, resulting in a net loss to
common shareholders of $5.8 million and a loss per
common share of $0.46. In comparison, for the same
period in 1993, net income was $1.7 million and the
net income available to common shareholders was $0.5
million, with income per common share of $0.05.
For the Nine Months Ended September 30, 1994, vs. September 30,
1993
(A) Revenues
The Company's total revenues for the nine months
ended September 30, 1994, and 1993 were $42.8
million and $51.9 million, respectively. The
decrease in 1994 revenues is principally composed of
a 15% decrease in operating lease revenue, a 23%
decrease in management fees, partnership interests
and other fees, a 40% decrease in commissions, and
a loss on the disposal of transportation equipment,
partially offset by a $3.4 million increase in sales
and brokerage revenue.
1. Operating Lease Revenues - $22.1 million vs.
$26.0 million
For the nine months ended September 30, 1994, the
Company had an average $187.7 million of equipment
in its operating lease portfolio, which is $15.4
million less than the original cost of equipment
held during the first nine months of 1993. The
reduction in equipment is a consequence of the
Company's strategic decision to dispose of certain
assets resulting in the sale of almost its entire
railcar portfolio, a 50% reduction in its marine
vessel fleet , and a net reduction of 18% in its
marine container portfolios compared to 1993.
The reduction in equipment available for lease and
lower utilization rates are the primary reasons
trailer, marine vessel, rail, aircraft, and marine
container revenue were reduced by $1.2 million,
$1.1 million, $0.7 million, $0.6 million, and
$0.3 million, respectively.
2. Management Fees, Partnership Interests and
Other Fees - $13.1 million vs. $17.1 million
Management fees increased $0.5 million for the
nine months ended September 30, 1994, as compared
to the first nine months of 1993. Equipment
managed at September 30, 1994, and 1993 (measured
at original costs) amounted to $1.11 billion and
$1.12 billion, respectively. The increase in
management fees resulted from an increase in
utilization rates for equipment. The partnership
agreements allow higher management fees on full
service railcar leases than the Company has
previously recognized. The Company recognized
additional fees of $0.2 million in the second
quarter of 1994, for these past services. The
Company also records as revenues its equity
interest in the earnings of the Company's
affiliated partnerships which revenues increased
$0.1 million in the nine months ended September
30, 1994, compared to similar period in 1993.
On behalf of various investor programs and
partnerships, a total of $40.9 million of
equipment was purchased during the nine months
ended September 30, 1994, compared to $111.1
million in the same period of 1993, resulting in
a $3.6 million decrease in acquisition and lease
negotiation fees.
Residual interest income decreased $0.7 million as
a result of decreased equipment acquisitions for
the affiliated partnerships.
3. Commissions - $3.9 million vs. $6.5 million
During the nine months ended September 30, 1994,
program equity raised totaled $43.5 million,
compared to $74.0 million in the same period of
1993, resulting in a decrease in placement
commissions of $2.6 million.
4. Sales and Brokerage - $3.4 million vs. $-0-
million
Sales and brokerage revenue is revenue earned by
Aeromil, the Company's aircraft leasing and spare
parts brokerage subsidiary acquired in February
1994.
5. (Loss) Gain on the Disposal of Transportation
Equipment - ($0.6) million vs. $1.6 million
The loss on the disposal of transportation
equipment in 1994 resulted primarily from the net
loss on the disposition of trailers and marine
containers partially offset by net gains on the
sale of three aircraft and one marine vessel in
the normal course of business. The net gain in
1993 was primarily the result of the Company's
decision to sell substantially all of its railcar
fleet.
6. Other - $0.9 million vs. $0.6 million
Other revenues are principally insurance premiums
earned by Transportation Equipment Indemnity
Company Ltd., a captive insurance company, and
revenue earned for data processing services
provided to the Company's affiliated Partnerships.
(B) Costs and Expenses
1. Operations support expense (including salary
and office-related expenses for operational
activities, provision for doubtful accounts,
equipment insurance, repair and maintenance
costs, and equipment remarketing costs)
increased $3.3 million (23%) for the nine
months ended September 30, 1994, from the same
period in 1993. The increase resulted from
$3.0 million in costs associated with the
operation of Aeromil, a $0.5 million increase
in the provision for bad debts and from a
management bonus recorded in the third quarter
of 1994. In 1993, the management bonus was
recorded in the fourth quarter. This was
offset by lower equipment operation costs
resulting from the reduction in the equipment
portfolio and lower professional service costs.
2. Depreciation and amortization expense increased
$0.2 million (2%) for the nine months ended
September 30, 1994, as compared to the similar
period in 1993. A major component of the
increase resulted from an increase in the
depreciation rates on one marine vessel and
certain aircraft, which was partially offset by
the reduction in depreciable equipment.
3. Commission expenses are primarily incurred by
the Company in connection with the syndication
of investment partnerships. Commissions are
also paid for certain leasing activities.
Commission expenses for the nine months ended
September 30, 1994, decreased $3.0 million
(42%) from the similar period in 1993. The
reduction is the result of lower equity
syndication levels.
4. General and administrative expenses decreased
$0.1 million (1%) during the nine months ended
September 30, 1994, compared to the similar
period in 1993. The decrease resulted
principally from a decrease in professional
service costs.
5. In 1994, as part of the Company's ongoing
analysis of asset performance, the Company
completed an extensive analysis of its
transportation equipment portfolio resulting in
valuation adjustments to the estimated net
realizable values of certain equipment
totalling $4.2 million, consisting of
adjustments to certain aircraft ($2.1 million),
trailers ($1.1 million), storage vaults ($0.2
million), containers ($0.1 million), and one
marine vessel ($0.7 million).
For the nine months ended September 30, 1993, the
Company adjusted the value of certain equipment to
its estimated net realizable value by $0.9
million, including adjustments to railcars ($0.4
million), aircraft ($0.2 million), marine
containers ($0.2 million), and trailers ($0.1
million).
(C) Other Items
1. Interest expense decreased $2.2 million (23%)
during the nine months ended September 30,
1994, compared with the same period in 1993 as
a result of reduced debt levels, partially
offset by increased interest rates.
2. Other (expense) income was an expense of $2.3
million in the first nine months of 1994,
compared to an expense of $0.1 million in the
first nine months of 1993. The change is a
result of the write-off of unamortized loan
fees related to the termination of the
Company's ESOP ($2.0 million), as well as a
reduction in the carrying value of certain
marketable securities ($0.4 million).
3. Interest income decrease $1.4 million (35%) in
the nine months ended September 30, 1994,
compared to the same period in 1993. The
reduced interest income resulted from the
adoption of SOP 93-6 which eliminates the
recognition of interest income on the Company's
internal loan to the ESOP.
4. The benefit for income taxes for the nine
months ended September 30, 1994, of $4.0
million reflects the entire tax benefit of the
ESOP. For the nine months ended September 30,
1993, the Company's provision for income taxes
was $1.8 million, which represented an
effective rate of 27% and included the tax
benefit of the preferred dividend on only the
ESOP shares allocated to ESOP participants.
Under Statement of Financial Accounting
Standards No. 109 ("Accounting For Income
Taxes") ("SFAS No. 109"), and the Company's
previous method of accounting for the ESOP, the
ESOP dividend is presented net of the tax
benefit on ESOP shares not allocated to
participants. With the adoption of SOP 93-6,
the tax benefit for all ESOP shares is
reflected as a benefit in the provision for
income tax.
(D) Net (Loss) Income
For the nine months ended September 30, 1994, net
loss was $8.7 million. In addition, $1.7 million is
required for the imputed preferred dividend on
allocated ESOP shares, resulting in a net loss to
common shareholders of $10.4 million and a loss per
common share of $0.83. In comparison, for the same
period in 1993, net income was $5.0 million and the
net income available to common shareholders was $1.3
million, with income per common share of $0.13.
<PAGE>
Liquidity and Capital Resources
Cash requirements have been historically satisfied through cash
flow from operations, borrowings, or sales of transportation
equipment.
Liquidity throughout 1994 and beyond will depend, in part, on
continued remarketing of the equipment portfolio at similar
lease rates, continued success in raising syndicated equity for
the sponsored programs, effectiveness of cost control programs,
and possible additional equipment sales. Management believes
the Company can accomplish the preceding and will have
sufficient liquidity and capital resources for the future.
Specifically, future liquidity is influenced by the following:
(A) Debt Financing:
Senior Debt: On June 30, 1994, the Company closed
a new $45.0 million senior loan facility with a
syndicate of insurance companies and repaid the
prior facility. The facility provides that
equipment sale proceeds or cash deposits be placed
into collateral accounts or used to purchase
additional equipment to the extent required to meet
certain debt covenants. The facility requires
quarterly interest only payments through March 31,
1997 with quarterly principal payments of $2.1
million plus interest charges beginning June 30,
1997, through the termination of the loan in June
2001.
Subordinated Debt: In July and October 1994, the
Company repaid $3.0 and $5.0 million of its
subordinated debt, respectively.
Bridge Financing: Assets held on an interim basis
for placement with affiliated partnerships have,
from time to time, been partially funded by a $25.0
million short-term equipment acquisition loan
facility. The Company amended this facility on June
28, 1994. The amendment extended the facility until
September 30, 1995, and provides for a $5.0 million
letter of credit facility as part of the $25.0
million facility.
This facility, which is shared with PLM Equipment
Growth and Income Fund VII ("EGF VII"), allows the
Company to purchase equipment prior to the
designated program or partnership being identified,
or prior to having raised sufficient capital to
purchase the equipment. This facility provides 80
percent financing, and the Company or EGF VII uses
working capital for the non-financed costs of these
transactions. The Company retains the difference
between the net lease revenue earned and the
interest expense during the interim holding period
since its capital is at risk. As of November 11,
1994, the Company had no outstanding borrowings and
EGF VII had borrowed $8.5 million under this
facility.
(B) Equity Financing:
On August 21, 1989, the Company established a
leveraged employee stock ownership plan ("ESOP").
PLM International issued 4,923,077 shares of
Preferred Stock to the ESOP for $13.00 per share,
for an aggregate purchase price of $64,000,001. The
sale was originally financed, in part, with the
proceeds of a loan (the "Bank Loan") from a
commercial bank (the "Bank") which proceeds were
lent to the ESOP ("ESOP Debt") on terms
substantially the same as those in the Bank Loan
agreement. The ESOP Debt is secured, in part, by
the shares of Preferred Stock, while the Bank Loan
is secured with cash equivalents and marketable
securities. Preferred dividends are payable semi-
annually on February 21 and August 21, which
corresponds to the ESOP Debt payment dates. Bank
Loan debt service is covered through release of the
restricted cash and marketable securities. While
the annual ESOP dividend is fixed at $1.43 per
share, the interest rate on the ESOP debt varies,
resulting in uneven debt service requirements.
The Company's Board of Directors has announced its
intention to terminate the ESOP. (See Note 8 to the
Financial Statements) The Board's decision was
based on several factors. First, the Company
anticipated that the cash collateral of the ESOP
financing could ultimately be fully accessed for use
in the Company's business. Instead, however, the
banks required that all such amounts be held in a
collateral account which could only be invested in
certificates of deposit and similar low yielding
investments. The ESOP financing arrangement has for
that reason continuously reduced corporate earnings
and growth. Second, employees have generally been
dissatisfied with the ESOP as a vehicle for
retirement planning. An employee stock ownership
plan like the ESOP generally provides an
undiversified investment, and the annual allocation
of an increased number of share to participants has
unfortunately been matched by a decline in the value
of the Company's outstanding Common Stock. The
Company's Board of Directors determined to terminate
the ESOP because it was satisfying neither the
Company's nor the participants' expectations and
could not be expected to do so in the foreseeable
future.
The Company elected in the third quarter to adopt
SOP 93-6 which requires the previously issued
financial statements to be restated to reflect the
change in accounting as of January 1, 1994. SOP 93-6
requires different accounting treatment for certain
items relating to the ESOP than those previously
used by the Company. (Refer to Footnote 4)
(C) Portfolio Activities:
In the first nine months of 1994, the Company
generated proceeds of $10.1 million from the sale of
equipment. The net proceeds from these and other
equipment sales were placed in collateral accounts
as required by the senior secured term loan
agreement and used for debt payments. The new
senior loan agreement requires that sales proceeds
be put into a cash collateral account or reinvested
into additional equipment to the extent required to
meet certain financial convenents.
Over the last two years, the Company has downsized
the equipment portfolio, through the sale or
disposal of under-performing and non-performing
assets, in an effort to strengthen the future
performance of the portfolio. The Company will
continue to identify under-performing and non-
performing assets for sale or disposal as necessary,
but the Company intends to maintain approximately
the same size portfolio for the near future.
The Company has committed to purchase $11.5 million
in marine containers. The Company intends to place
them in affiliated partnerships. As of September
30, 1994, $1.8 million of the containers had been
purchased by an affiliated partnership.
(D) Syndication Activities:
The Company earns fees generated from syndication
activities. In May 1993, EGF VII became effective
and selling activities commenced. As of the date of
this report, $84.4 million had been raised for this
partnership. Based on current syndication levels
the Company intends to offer units in EGF VII
through March 31, 1995.
The Company is in the process of seeking approval of
a registration statement for a no-load program. The
Company intends to begin syndication activity for
this program in the first quarter of 1995.
Although the Company has increased its market share
over the last year, the overall limited partnership
syndications market has been contracting. The
Company's management is concerned with the continued
contraction of the syndications market and its
effect on the volume of partnership equity that can
be raised. In early 1995, the Company intends to
introduce a new syndicated product which management
believes will reverse the negative trend on Company
syndication levels.
Management believes through debt and equity
financing, possible sales of transportation
equipment and cash flows from operations, the
Company will have sufficient liquidity and capital
resources to meet its projected future operating
needs.
<PAGE>
Item 1. Legal Proceedings
See Note 10 of Notes to Consolidated Financial Statements.
(A) Exhibits
None.
(B) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
David J. Davis
Vice President and Corporate
Controller
Date: November 11, 1994
<PAGE>
Item 1. Legal Proceedings
See Note 10 of Notes to Consolidated Financial Statements.
(A) Exhibits
None.
(B) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
/s/ David J. Davis
David J. Davis
Vice President and Corporate
Controller
Date: November 11, 1994
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This schedule contains summary financial information extracted from the third
quarter 10-Q and is qualified in its entirety by reference to such 10-Q.
</LEGEND>
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