UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q/A
(Amendment No. 1)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal quarter ended September 30, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the transition period from to
Commission file number 1-9670
-------------------------------
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower,
Suite 800, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 974-1399
----------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock - $.01
Par Value; Outstanding as of November 4, 1996 - 9,142,761 shares
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,020 $ 13,764
Receivables 5,817 4,931
Receivables from affiliates 5,816 8,690
Investment in direct finance leases, net 43,243 --
Loan receivable 3,006 --
Assets held for sale 748 719
Equity interest in affiliates 30,857 28,208
Equipment held for operating leases 103,651 112,732
Less accumulated depreciation (56,136 ) (64,892 )
47,515 47,840
Restricted cash and cash equivalents 21,687 10,621
Other, net 11,359 11,440
Total assets $ 177,068 $ 126,213
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term secured debt $ 27,791 $ --
Senior secured loan 35,000 35,000
Senior secured notes 18,000 --
Other secured debt 1,174 1,353
Subordinated debt -- 11,500
Nonrecourse securitization facility 22,308 --
Payables and other liabilities 11,910 13,884
Deferred income taxes 15,823 15,493
Total liabilities 132,006 77,230
Minority interest 372 363
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized, 9,142,761
issued and outstanding at September 30, 1996 and 10,833,161 at
December 31, 1995 117 117
Paid-in capital, in excess of par 77,778 77,743
Treasury stock (3,453,630 and 1,753,230 shares at
respective dates) (12,382 ) (5,931 )
65,513 71,929
Accumulated deficit (20,823 ) (23,309 )
Total shareholders' equity 44,690 48,620
Total liabilities, minority interest,
and shareholders' equity $ 177,068 $ 126,213
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Operating leases $ 4,351 $ 5,311 $ 13,508 $ 17,942
Management fees 2,752 2,909 8,198 8,231
Partnership interests and other fees 1,430 1,410 2,722 3,739
Acquisition and lease negotiation fees 2,596 2,467 5,260 4,797
Finance lease income 1,532 -- 2,578 --
Commissions -- -- -- 1,322
Aircraft brokerage and services 621 1,383 2,037 3,700
Gain on the sale or disposition of assets, net 257 730 2,050 5,911
Other 521 540 1,664 1,062
Total revenues 14,060 14,750 38,017 46,704
Costs and expenses:
Operations support 4,938 6,050 16,359 18,602
Depreciation and amortization 2,887 2,104 8,503 6,491
Commissions -- (51 ) -- 1,417
General and administrative 2,250 2,579 5,809 7,646
Total costs and expenses 10,075 10,682 30,671 34,156
Operating income 3,985 4,068 7,346 12,548
Interest expense 2,117 1,609 5,100 5,540
Other (expense) income, net (738 ) 591 (348 ) 537
Interest income 368 566 891 1,491
Income before income taxes 1,498 3,616 2,789 9,036
Provision for income taxes 133 1,559 371 3,884
Net income to common shares $ 1,365 $ 2,057 $ 2,418 $ 5,152
Earnings per common share outstanding $ 0.14 $ 0.18 $ 0.23 $ 0.44
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended December 31,
1995 and the Nine Months
Ended September 30, 1996 (in
thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Paid-in
Capital in Earnings Total
At Excess Treasury Accumulated Shareholders'
Par of Par Stock (Deficit) Equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 $ 117 $ 77,699 $ (2,831 ) $ (29,290 ) $ 45,695
Net income 6,048 6,048
Common stock repurchases (3,100 ) (3,100 )
Exercise of stock options 44 44
Translation loss (67 ) (67 )
----------------------------------------------------------------------------
Balances, December 31, 1995 117 77,743 (5,931 ) (23,309 ) 48,620
Net income 2,418 2,418
Common stock repurchases (6,451 ) (6,451 )
Exercise of stock options 35 35
Translation gain 68 68
=============================================================================
Balances, September 30, 1996 $ 117 $ 77,778 $ (12,382 ) $ (20,823 ) $ 44,690
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 2,418 $ 5,152
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,503 6,491
Foreign currency translation 68 29
Increase in deferred income taxes 348 3,659
Gain on sale or disposition of assets, net (2,050 ) (5,911 )
Undistributed residual value interests (405 ) (201 )
Minority interest in net income of subsidiaries 9 31
Decrease in payables and other liabilities (1,966 ) (472 )
Decrease (increase) in receivables and receivables from affiliates 3,260 (2,063 )
Increase in loan receivable (3,006 ) --
Cash distributions from affiliates in excess of income accrued 2,086 580
Increase in other assets (368) (906 )
Net cash provided by operating activities 8,897 6,389
Investing activities:
Additional investment in affiliates (4,972 ) (7,718 )
Purchase of residual option -- (200 )
Principal payments received on finance leases 2,603 --
Investment in direct finance leases (57,295 ) --
Purchase of equipment (40,759 ) (41,454 )
Proceeds from the sale of transportation equipment for lease 7,288 11,498
Proceeds from the sale of assets held for sale 2,052 38,462
Proceeds from the sale of commercial and industrial equipment to
institutional investment program 20,941 --
Proceeds from the sale of commercial and industrial equipment to
third parties 14,961 --
Proceeds from the sale of leveraged leased assets -- 4,530
Proceeds from the disposition of residual options -- 2,059
Sale of investment in subsidiary 372 --
Increase in restricted cash and restricted cash equivalents (11,066 ) (9,318 )
Net cash used in investing activities (65,875 ) (2,141 )
</TABLE>
(Continued)
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
<S> <C> <C>
Financing activities:
Borrowings of short-term secured debt $ 59,390 $ 9,800
Repayment of short-term secured debt (31,599 ) (16,204 )
Proceeds from other secured debt 90 657
Repayment of other secured debt (39 ) (33 )
Borrowings under senior notes facility 18,000 --
Borrowings under securitization facility 29,989 --
Repayment of securitization facility (7,681 ) --
Repayment of subordinated debt (11,500 ) --
Payments received from ESOP Trustee -- 928
Repurchase of treasury stock (6,451 ) (494 )
Proceeds from exercise of stock options 35 44
Net cash provided by (used in) financing activities 50,234 (5,302 )
Net decrease in cash and cash equivalents (6,744 ) (1,054 )
Cash and cash equivalents at beginning of period 13,764 16,131
Cash and cash equivalents at end of period 7,020
Supplemental information:
Interest paid during the period $ 4,188 $ 4,878
Income taxes paid during the period $ 1,285 $ 595
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. General
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
PLM International, Inc.'s (the Company's) financial position as of September 30,
1996, the statements of income for the three and nine months ended September 30,
1996 and 1995, the statements of cash flows for the nine months ended September
30, 1996 and 1995, and the statements of changes in shareholders' equity for the
year ended December 31, 1995 and the nine months ended September 30, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the accompanying consolidated financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1995, on file with the Securities and
Exchange Commission.
2. Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
3. Finance Lease Activities
In 1995, the Company established a new wholly-owned equipment leasing and
management subsidiary, American Finance Group, Inc. (AFG), and entered into an
agreement to manage certain operations of Boston-based, privately-held Equis
Financial Group (Equis). During 1995, the Company provided management services
for investor programs of Equis for which the Company earned management fees and
other revenues. In January 1996, the agreement was modified to exclude
management of Equis' investor programs. Under the modified agreement, the
Company obtained the lease origination and servicing operations, and the rights
to manage an institutional leasing investment program. Additionally, the
agreement provided for AFG to acquire software, computers, and furniture that
support the marketing and operations activities. AFG is originating and managing
lease transactions on new commercial and industrial equipment such as data
processing, communications, materials handling, and construction equipment,
which are financed by a securitization facility, for the Company's own account,
or sold to the institutional investment program or other investors. The majority
of these leases are accounted for as direct finance leases. Periodically, the
Company will use its short-term loan facility to finance the acquisition of the
assets subject to these leases prior to sale or permanent financing by the
securitization facility.
4. Equipment
Equipment held for operating leases includes transportation equipment and
commercial and industrial equipment purchased by AFG which are depreciated over
their estimated useful lives, subject to an impairment analysis.
The Company classifies assets as held for sale if the particular asset is
subject to a pending contract for sale or is held for sale to an affiliated
partnership. Transportation equipment held for sale is valued at the lower of
depreciated cost or fair value less costs to sell. As of September 30, 1996, the
Company had one commuter aircraft subject to a pending contract for sale for
$0.7 million, with an aggregate net book value of $0.7 million. As of December
31, 1995, the Company had 1 marine container and 69 railcars subject to pending
contracts for sale for a total of $0.7 million, with an aggregate net book value
of $0.7 million.
Periodically, the Company will purchase groups of assets whose ownership may be
allocated among affiliated partnerships and the Company. Generally in these
cases, only assets that are on lease will be purchased by the affiliated
partnerships. The Company will generally assume the ownership and remarketing
risks associated with off-lease equipment. Allocation of the purchase price will
be determined by a combination third party industry sources, and recent
transactions or published fair market value references. During the nine months
ended September 30, 1996, the Company realized
<PAGE>
4. Equipment (continued)
$0.7 million of gains on the sale of 69 railcars purchased by the Company as
part of a group of assets in 1994 which had been allocated to Equipment Growth
Funds (EGFs) IV, VI, VII, Professional Lease Management Income Fund I, L.L.C.
(Fund I) and the Company. These assets were included in assets held for sale at
December 31, 1995.
5. Debt
Assets acquired and held on an interim basis for placement with affiliated
partnerships or purchased with the intent of permanent financing through the
Company's securitization facility have, from time to time, been partially funded
by a $35.0 million short-term equipment acquisition loan facility. The Company
amended this facility on May 31, 1996. The amendment extended the availability
of the facility until May 23, 1997 and added the Company's AFG subsidiary as a
borrower.
This facility, which is shared with EGFs III, IV, V, VI, VII and Fund I, allows
the Company to purchase equipment prior to the designated program or partnership
being identified, or prior to its having raised sufficient capital to purchase
the equipment. This facility provides 80% financing for transportation assets
and the lesser of 100% of the present value of the lease stream or 85% of the
original equipment cost on commercial and industrial equipment purchased for
placement in the securitization facility, if the Company is the borrower and
working capital is used for the nonfinanced costs of these acquisitions. The
Company can hold purchased assets under this bridge facility for up to 150 days.
Interest accrues at prime or LIBOR plus 2.0% at the option of the borrower at
the time of the advance under the facility. The Company retains the net lease
revenue earned and is liable for the interest expense during the interim holding
period since its capital is at risk. As of September 30, 1996, the Company's AFG
subsidiary had borrowed $27.8 million and the EGFs and Fund I had no borrowings
on this facility. All borrowings under this line are guaranteed by a subsidiary
of the Company.
On October 31, 1996, the Company amended this agreement (for details refer to
"Liquidity and Capital Resources").
The Company has available a securitization facility for up to $80 million on a
nonrecourse basis that is secured primarily by direct finance leases which
generally have terms of three to five years. The facility is available for a one
year period expiring July 1997. Repayment of the facility matches the terms of
the underlying leases. The securitized debt bears interest equivalent to average
U.S. treasury rates plus 1%. As of September 30, 1996, there were $22.3 million
in borrowings outstanding under this facility.
6. Note Agreement
On June 28, 1996, the Company completed a floating rate senior secured note
agreement which allows the Company to borrow up to $27.0 million within a one
year period. At September 30, 1996, $18.0 million in borrowings were outstanding
under this facility. The facility bears interest at three-month LIBOR plus 240
basis points. The Company has pledged substantially all of its management,
acquisition and lease negotiation fees, and certain partnership distributions as
collateral to the facility. The facility requires quarterly interest only
payments through August 15, 1997, with principal plus interest payments
beginning November 15, 1997. Principal payments are payable quarterly in 20
equal amounts through termination of the loan on August 15, 2002.
7. Shareholders' Equity
The Company repurchased 1.7 million shares of its common stock for $6.5 million
during the nine months ended September 30, 1996. The repurchases completed a
$5.0 million common stock repurchase program announced in November 1995, as well
as an additional repurchase of $3.7 million authorized by the Company's Board of
Directors in July 1996.
Additionally, during the nine months ended September 30, 1996, options for
10,000 shares were exercised. Consequently, the total common shares outstanding
decreased to 9,142,761 at September
<PAGE>
7. Shareholders' Equity (continued)
30, 1996, from the 10,833,161 outstanding at December 31, 1995. Net income per
common share was computed by dividing net income to common shares by the
weighted average number of shares and stock options deemed outstanding during
the period. The weighted average number of shares and stock options deemed
outstanding during the three months ended September 30, 1996 and 1995, were
9,505,195 and 11,755,658, respectively. The weighted average number of shares
and stock options deemed outstanding during the nine months ended September 30,
1996 and 1995, were 10,499,605 and 11,799,894, respectively.
8. Syndication Activities
On May 14, 1996, the Company announced the halt of syndication of equipment
leasing programs with the May 13, 1996 close of Fund I after concluding that
future syndication sales would not reach the levels required to make syndication
activities financially attractive to the Company. The Company recognized a
one-time $1.4 million charge during the nine months ended September 30, 1996,
mainly related to severance pay associated with this decision.
Through May 13, 1996, Fund I had raised $100 million in equity and is now in the
equipment investment phase.
9. Sale of Subsidiary
In January 1996, the Company sold its 100% ownership interest in Austin Aero FBO
Ltd. to a third party for $923,000. The Company recorded a $2,000 loss on the
sale, net of the tax benefit. During the year ended 1995, revenues and expenses
related to Austin Aero FBO Ltd. were $2.3 million and $2.1 million,
respectively, representing net income of $0.2 million or net income per common
share of $0.01.
10. Legal Matters
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.
In November 1995, James F. Schultz (Plaintiff), a former employee of PLM
International, filed and served a first amended complaint (the Complaint) in the
United States District Court for the Northern District of California (Case No.
C-95-2957 MMC) against the Company, the PLM International, Inc. Employee Stock
Ownership Plan (the ESOP), the ESOP's trustee, and certain individual employees,
officers, and/or directors of PLM International. The Complaint contains claims
for relief alleging breaches of fiduciary duties and various violations of the
Employee Retirement Income Security Act of 1974 (ERISA) arising principally from
purported defects in the structure, financing, and termination of the ESOP and
for interference with Plaintiff's rights under ERISA. Plaintiff seeks monetary
damages, rescission of the preferred stock transactions with the ESOP and/or
restitution of ESOP assets, and attorneys' fees, and costs under ERISA. In
January 1996, PLMI and other defendants filed a motion to dismiss the Complaint
for lack of subject matter jurisdiction, arguing the plaintiff lacked standing.
The motion was granted and on May 30, 1996, the Court entered a judgment
dismissing the Complaint for lack of subject matter jurisdiction. Plaintiff has
appealed to the U.S. Court of Appeals for the Ninth Circuit, seeking a reversal
of District Court's judgment. The parties are required to complete briefing on
the appeal by January 2, 1997.
<PAGE>
11. Purchase Commitments
As of September 30, 1996, the Company, through its AFG subsidiary, had committed
to purchase $208.8 million of equipment for its commercial and industrial
equipment lease portfolio.
During October 1996, the Company, through its AFG subsidiary, funded $12.8
million of commitments outstanding for its commercial and industrial equipment
lease portfolio at September 30, 1996, and entered into new commitments for
$24.2 million.
12. Subsequent Event
On October 1, 1996, the Company repaid $10.0 million of the entire floating rate
portion of its senior loan through the use of restricted cash from the sale of
pledged equipment and incurred prepayment penalties of $0.1 million.
<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's
transportation equipment held for operating leases, which consists of aircraft,
marine containers, trailers, and storage equipment at September 30, 1996, is
mainly equipment built prior to 1988. As equipment ages, the Company continues
to monitor the performance of its assets on lease and current market conditions
for leasing equipment in order to seek the best opportunities for investment.
Failure to replace equipment may result in shorter lease terms and higher costs
of maintaining and operating aged equipment and, in certain instances, limited
remarketability.
The Company has syndicated investment programs from which it earns various fees
and equity interests. The Professional Lease Management Income Fund I (Fund I)
was structured as a limited liability company with a no front-end fee structure.
The previously syndicated limited partnership programs allowed the Company to
receive fees for the acquisition and initial lease of the equipment. The Fund I
program does not provide for acquisition and lease negotiation fees. The Company
invests the equity raised through syndication in transportation equipment which
is then managed 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 the program, typically 10 to 12 years. The limited partnership
agreements generally entitle the Company to receive a 1% or 5% interest in the
cash distributions and earnings of the partnership subject to certain allocation
provisions. The Fund I agreement entitles the Company to a 15% interest in the
cash distributions and earnings of the program subject to certain allocation
provisions which will increase to 25% after the investors have received
distributions equal to their original invested capital.
On May 14, 1996, the Company announced the halt of public syndication
of equipment leasing programs with the May 13, 1996 close of Fund I after
concluding that future syndication sales would not reach the levels required to
make syndication activities financially attractive to the Company. As a result
of this decision, revenues earned from managed programs which include management
fees, partnership interests and other fees, and acquisition and lease
negotiation fees will be reduced in the future as the older programs begin
liquidation and the managed equipment portfolio becomes permanently reduced.
The Company is engaged in the funding and management of longer-term direct
finance leases and operating leases through its American Finance Group (AFG)
subsidiary. Master lease agreements are entered into with predominately
investment-grade lessees and serve as the basis for marketing efforts. The
underlying assets represent a broad range of commercial and industrial
equipment, such as data processing, communications, materials handling, and
construction equipment. This is an important new growth area for the Company.
The investment in AFG permits the Company to apply much of the same accounting,
finance and management experience gained from its many years in the
transportation sector. Through AFG, the Company is also engaged in the
management of an institutional leasing investment program for which it
originates leases and receives acquisition and management fees.
<PAGE>
For the Three Months Ended September 30, 1996 versus September 30, 1995
The following analysis reviews the operating results of the Company:
<TABLE>
<CAPTION>
Revenue: For the three months
ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
Operating leases $ 4,351 $ 5,311
Management fees 2,752 2,909
Partnership interests and other fees 1,430 1,410
Acquisition and lease negotiation fees 2,596 2,467
Finance lease income 1,532 --
Aircraft brokerage and services 621 1,383
Gain on the sale or disposition of assets, net 257 730
Other 521 540
Total revenues $ 14,060 $ 14,750
</TABLE>
The fluctuations in revenues for the three months ended September 30, 1996 from
the same period in 1995 are summarized and explained below.
Operating lease revenue:
<TABLE>
<CAPTION>
For the three months
ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
By equipment type:
Trailers $ 1,807 $ 2,508
Aircraft 1,111 1,514
Marine vessels -- (13 )
Marine containers 70 156
Storage equipment 276 263
Railcars 16 190
Commercial and industrial equipment 1,071 693
$ 4,351 $ 5,311
</TABLE>
As of September 30, 1996, the Company owned transportation equipment held for
operating leases or held for sale with an original cost of $92.8 million, which
was $41.9 million less than the original cost of transportation equipment owned
and held for operating leases or held for sale at September 30, 1995. The
reduction in equipment, on an original cost basis, is a consequence of the
Company's strategic decision to dispose of certain underperforming and
nonperforming transportation assets resulting in a 100% reduction in its railcar
portfolio, a 35% net reduction in its marine container portfolio, a 43% net
reduction in its aircraft portfolio, and an 8% net reduction in its trailer
portfolio, compared to September 30, 1995. Operating lease revenue includes
revenues generated from assets held for operating leases, assets held for sale
that are on lease, and rents received during short-term holding periods on
operating leased assets. The reduction in transportation equipment available for
lease is the primary reason trailer, railcar, marine container, and aircraft
revenue were all reduced as compared to the prior year. In addition, trailer
lease revenue decreased due to lower utilization.
The decrease in operating lease revenues as a result of the reduction in
equipment available for lease was partially offset by a $0.4 million increase in
operating lease revenues generated by commercial and industrial equipment leases
on $13.2 million of purchased equipment and revenues generated on leased
equipment purchased for $5.5 million prior to being sold to third parties.
<PAGE>
Management fees:
Management fees are, for the most part, based on the gross revenues
generated by equipment under management. The $0.2 million decrease in management
fees during the quarter ended September 30, 1996, compared to the comparable
prior year quarter, resulted from a decrease in management fees generated by
gross revenues of the managed programs which fell due to a net decrease in
managed equipment and a decrease in lease rates for certain types of equipment
in those programs and the elimination of management of the Equis Financial Group
(Equis) programs. With the termination of syndication activities, management
fees are expected to decrease in the future as the older programs begin
liquidation and the managed equipment portfolio becomes permanently reduced.
This future decrease will be offset, in part, by management fees earned from the
institutional leasing investment program managed by the Company's AFG
subsidiary.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $0.6 million and $0.8 million for the quarters ended
September 30, 1996 and 1995, respectively. In addition, net increases of $0.8
million and $0.6 million in the Company's residual values were recorded during
the quarters ended September 30, 1996 and 1995, respectively. These net
increases in residual values were related to equipment purchased by Fund I,
offset partially by decreases in residual values related to certain of the
equipment growth funds and Equis programs. Residual income is recognized on
residual interests based upon the general partner's share of the present value
of the estimated disposition proceeds of the equipment portfolio of the
affiliated partnership. Net decreases in the recorded residual values result
when partnership assets are sold and the reinvestment proceeds are less than the
original investment in the sold equipment.
Acquisition and lease negotiation fees:
During the quarter ended September 30, 1996, a total of $45.1 million of
equipment was purchased on behalf of the equipment growth funds compared to
$41.2 million during the same quarter of the prior year, resulting in a $0.2
million increase in acquisition and lease negotiation fees. In addition,
acquisition and lease negotiation fees related to AFG purchases for managed
programs decreased $0.1 million in the quarter ended September 30, 1996, as
compared to the quarter ended September 30, 1995. As a result of the Company's
decision to halt syndication of equipment leasing programs with the close of
Fund I on May 13, 1996, and because Fund I had a no front-end fee structure,
acquisition and lease negotiation fees will be reduced in the future.
Finance lease income:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary and retained for long-term investment. During the quarter ended
September 30, 1996, the Company earned direct finance lease income on average
equipment purchases of $38.5 million, financed by both short-term secured debt
and a nonrecourse securitization facility. These direct finance leases resulted
in $1.5 million in earned income for the third quarter of 1996, which
represented income earned on the lease payment stream. There were no similar
transactions in the comparable prior year period.
Aircraft brokerage and services:
Aircraft brokerage and services revenue, which represents revenue
earned by Aeromil Holdings, Inc. (Aeromil), the Company's aircraft leasing and
spare parts brokerage subsidiary, decreased $0.8 million during the quarter
ended September 30, 1996, compared to the comparable prior year quarter. The
decrease was attributable to the sale of the subsidiary's ownership interests in
Aeromech Pty. Ltd. and Austin Aero FBO Ltd. to third parties in December 1995
and January 1996, respectively.
<PAGE>
Gain on the sale or disposition of assets, net:
During the quarter ended September 30, 1996, the Company recorded $0.4
million in gains which resulted mainly from the sale or disposition of 1
commuter aircraft, 104 marine containers, 16 railcars, 4 storage units, and 40
trailers, and recorded $0.3 million in gains related to AFG equipment sales.
Gains for the third quarter of 1996 were offset partially by a $0.4 million
adjustment to decrease the estimated net realizable value of certain commuter
aircraft. During the quarter ended September 30, 1995, the Company purchased a
commuter aircraft for $0.7 million and sold the aircraft for a gain of $0.1
million, net of selling costs. Additional net gains of $0.6 million on the sale
or disposition of assets for the quarter ended September 30, 1995 resulted from
the sale or disposition of 68 marine containers, 1 commuter aircraft, 3
helicopters, 91 railcars, 12 storage units, and 101 trailers.
Costs, Expenses, and Other:
<TABLE>
<CAPTION>
For the three months
ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
Operations support $ 4,938 $ 6,050
Depreciation and amortization 2,887 2,104
Commissions -- (51 )
General and administrative 2,250 2,579
Interest expense 2,117 1,609
Other (expense) income, net (738 ) 591
Interest income 368 566
</TABLE>
Operations support:
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) decreased $1.1
million (18%) for the quarter ended September 30, 1996, from the same quarter in
1995. The decrease resulted from a $0.3 million decrease in operating and repair
and maintenance costs due to sales of the Company's transportation equipment and
due to the sale of the Company's ownership interests in Aeromech Pty. Ltd. and
Austin Aero FBO Ltd. to third parties in December 1995 and January 1996,
respectively, a $1.3 million decrease in compensation and bonus expense due to
headcount reductions and higher compensation expense in 1995 (primarily to
compensate employees for lost benefits resulting from the termination of the
401(k) plan during 1995), offset partially by a $0.2 million increase in bad
debt expense, a $0.1 million increase in professional and administrative
expenses, and a $0.2 million decrease in allocated expenses to Equis programs
(the Company is no longer managing these programs) during the third quarter of
1996.
Depreciation and amortization:
Depreciation and amortization expense increased $0.8 million (37%) for
the quarter ended September 30, 1996, as compared to the quarter ended September
30, 1995. The increase resulted from amortization of costs associated with AFG
and depreciation of AFG assets held for operating leases and administrative
assets, offset partially by the reduction in depreciable transportation
equipment discussed in the operating lease revenue section.
General and administrative:
General and administrative expense decreased $0.3 million (13%) during the
quarter ended September 30, 1996, compared to the same quarter in 1995, due
primarily to a $0.1 million decrease in compensation related to the reductions
in headcount and commission expenses, and a $0.2 million decrease in other
administrative expenses.
<PAGE>
Interest expense:
Interest expense increased $0.5 million (32%) during the quarter ended
September 30, 1996, compared to the same period in 1995, due to an increase in
borrowings on the nonrecourse securitization facility, the senior secured notes
facility, and the short-term equipment acquisition loan facility, offset
partially by the retirement of the subordinated debt.
Other (expense) income, net:
Other expense, net was $0.7 million during the quarter ended September 30, 1996,
compared to other income, net, of $0.6 million for same quarter in 1995. During
the quarter ended September 30, 1996, the Company prepaid the $8.6 million
balance of its subordinated debt and incurred prepayment penalties of $0.7
million. Other income, net of $0.6 million for the quarter ended September 30,
1995, represented the receipt of an account receivable from a previously
bankrupt debtor.
Interest income:
Interest income decreased $0.2 million (35%) in the quarter ended September 30,
1996, compared to the same quarter of 1995, as a result of lower average cash
balances in 1996.
Income taxes:
For the three months ended September 30, 1996, the provision for income taxes
was $0.1 million, which represented an effective rate of 9%. Tax planning
strategies, an adjustment for state tax apportionment factors, and an adjustment
related to the Employee Stock Ownership Plan resulted in the reduction in the
Company's effective tax rate for the third quarter of 1996. For the same period
in 1995, the provision for income taxes was $1.6 million, which represented an
effective rate of 43% and higher income before tax.
Net income:
As a result of the foregoing, for the three months ended September 30,
1996, net income was $1.4 million resulting in net income per common share of
$0.14. For the same period in 1995, net income was $2.1 million resulting in net
income per common share of $0.18.
<PAGE>
For the Nine Months Ended September 30, 1996 versus September 30, 1995
The following analysis reviews the operating results of the Company:
Revenue:
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
Operating leases $13,508 $17,942
Management fees 8,198 8,231
Partnership interests and other fees 2,722 3,739
Acquisition and lease negotiation fees 5,260 4,797
Finance lease income 2,578 --
Commissions -- 1,322
Aircraft brokerage and services 2,037 3,700
Gain on the sale or disposition of assets, net 2,050 5,911
Other 1,664 1,062
Total revenues $38,017 $46,704
</TABLE>
The fluctuations in revenues for the nine months ended September 30, 1996 from
the same period in 1995 are summarized and explained below.
Operating lease revenue:
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
By equipment type:
Trailers $ 5,765 $ 7,888
Aircraft 3,676 4,587
Marine vessels -- 1,079
Marine containers 289 456
Storage equipment 820 763
Railcars 89 1,453
Commercial and industrial equipment 2,869 1,716
$ 13,508 $ 17,942
</TABLE>
As of September 30, 1996, the Company owned transportation equipment held for
operating leases or held for sale with an original cost of $92.8 million, which
was $41.9 million less than the original cost of transportation equipment owned
and held for operating leases or held for sale at September 30, 1995. The
reduction in equipment, on an original cost basis, is a consequence of the
Company's strategic decision to dispose of certain underperforming and
nonperforming transportation assets resulting in a 100% reduction in its marine
vessel fleet and railcar portfolio, a 35% net reduction in its marine container
portfolio, a 43% net reduction in its aircraft portfolio, and an 8% net
reduction in its trailer portfolio, compared to September 30, 1995. Operating
lease revenue includes revenues generated from assets held for operating leases,
assets held for sale that are on lease, and rents received during short-term
holding periods on operating leased assets. The reduction in transportation
equipment available for lease is the primary reason marine vessel, trailer,
railcar, marine container, and aircraft revenue were all reduced as compared to
the prior year comparable period. In addition, trailer lease revenue decreased
due to lower utilization.
The decrease in operating lease revenues as a result of the reduction in
equipment available for lease was partially offset by a $0.1 million increase in
operating lease revenues generated by higher storage equipment utilization and
by a $1.2 million increase in operating lease revenues generated by commercial
and industrial leases on $13.2 million of purchased equipment and revenues
generated on leased equipment purchased for $26.3 million prior to being sold to
third parties.
<PAGE>
Management fees:
Management fees are, for the most part, based on the gross revenues
generated by equipment under management. Management fees were $8.2 million
during the nine months ended September 30, 1996 and 1995. Although management
fees related to Fund I increased, management fees from the remaining older
programs decreased due to a net decrease in managed equipment and a decrease in
lease rates for certain types of equipment in those programs and the elimination
of management of the Equis programs. With the termination of syndication
activities, management fees are expected to decrease in the future as older
programs begin liquidation and the managed equipment portfolio becomes
permanently reduced. This future decrease will be offset, in part, by management
fees earned from the institutional leasing investment program managed by the
Company's AFG subsidiary.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $2.1 million and $2.5 million for the nine months ended
September 30, 1996 and 1995, respectively. In addition, net increases of $0.6
million and $1.2 million in the Company's residual values were recorded for the
nine months ended September 30, 1996 and 1995, respectively. These net increases
in residual values were related to equipment purchased by Fund I, offset
partially by decreases in residual values related to certain of the equipment
growth funds and Equis programs. Residual income is recognized on residual
interests based upon the general partner's share of the present value of the
estimated disposition proceeds of the equipment portfolio of the affiliated
partnership. Net decreases in the recorded residual values result when
partnership assets are sold and the reinvestment proceeds are less than the
original investment in the sold equipment.
Acquisition and lease negotiation fees:
During the nine months ended September 30, 1996, a total of $86.3 million of
equipment was purchased on behalf of the equipment growth funds compared to
$69.8 million during the same period of the prior year, resulting in a $0.9
million increase in acquisition and lease negotiation fees. This increase was
partially offset by a $0.4 million decrease in acquisition and lease negotiation
fees related to AFG purchases for managed programs. As a result of the Company's
decision to halt syndication of equipment leasing programs with the close of
Fund I on May 13, 1996, and because Fund I had a no front-end fee structure,
acquisition and lease negotiation fees will be reduced in the future.
Finance lease income:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary and retained for long-term investment. During the nine months ended
September 30, 1996, the Company originated and earned direct finance lease
income on average equipment purchases of $22.8 million, financed by both
short-term secured debt and a nonrecourse securitization facility. These direct
finance leases resulted in $2.6 million in earned income for the nine months
ended September 30, 1996, which represented income earned on the lease stream.
There were no similar transactions in the comparable prior year period.
Commissions:
Commission revenue represents syndication placement fees, generally 9%
of equity raised for the equipment growth funds, earned upon the sale of
partnership units to investors. During the nine months ended September 30, 1996,
there was no program equity raised for the equipment growth funds compared to
$14.6 million of equity raised during the nine months ended September 30, 1995,
resulting in a $1.3 million decrease in placement commissions. The Company
closed PLM Equipment Growth & Income Fund VII (EGF VII) syndication activities
on April 30, 1995. As a result of the Company's decision to halt syndication of
equipment leasing programs on May 14, 1996, and because Fund I had a no
front-end fee structure, commission revenue has been eliminated since the close
of EGF VII.
<PAGE>
Aircraft brokerage and services:
Aircraft brokerage and services revenue, which represents revenue earned by
Aeromil Holdings, Inc. (Aeromil), the Company's aircraft leasing and spare parts
brokerage subsidiary, decreased $1.7 million during the nine months ended
September 30, 1996, compared to the comparable prior year period. The decrease
was attributable to the sale of the subsidiary's ownership interests in Aeromech
Pty. Ltd. and Austin Aero FBO Ltd. to third parties in December 1995 and January
1996, respectively.
Gain on the sale or disposition of assets, net:
During the nine months ended September 30, 1996, the Company recorded
$1.9 million in gains which resulted mainly from the sale or disposition of 6
commuter aircraft, 228 marine containers, 85 railcars, 10 storage units, and 245
trailers and recorded $0.6 million in gains related to AFG equipment sales.
Gains for the nine months ended September 30, 1996, were partially offset by a
$0.4 million adjustment to decrease the estimated net realizable value of
certain aircraft. The $5.4 million net gain recorded during the same period in
1995 included gains from the sale of three option contracts for railcar
equipment and the disposition of 1 marine vessel, 578 marine containers, 2
commercial aircraft, 2 commuter aircraft, 4 helicopters, 307 railcars, 22
storage units, and 326 trailers. Additionally, during the nine months ended
September 30, 1995, the Company purchased three commuter aircraft and sold them
for an aggregate gain of $0.5 million, net of selling costs.
Other:
Other revenues increased $0.6 million during the nine months ended
September 30, 1996, compared to the comparable prior year period, due to
increased revenue earned for data processing services provided to the Company's
affiliated programs, and due to increased underwriting income and brokerage
fees.
Costs, Expenses, and Other:
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
Operations support $ 16,359 $ 18,602
Depreciation and amortization 8,503 6,491
Commissions -- 1,417
General and administrative 5,809 7,646
Interest expense 5,100 5,540
Other (expense) income, net (348 ) 537
Interest income 891 1,491
</TABLE>
Operations support:
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) decreased $2.2
million (12%) for the nine months ended September 30, 1996, from the same period
in 1995. The decrease resulted from a $1.2 million decrease in operating and
repair and maintenance costs due to the sale of the Company's transportation
equipment and due to the sale of the Company's ownership interests in Aeromech
Pty. Ltd. and Austin Aero FBO Ltd. to third parties in December 1995 and January
1996, respectively, a $3.4 million decrease in compensation and bonus expense
due to headcount reductions, and higher compensation expense in 1995 (primarily
to compensate employees for lost benefits resulting from the termination of the
401(k) plan during 1995), offset partially by a one-time $1.4 million charge
related to the termination of syndication activities, a $0.3 million increase in
bad debt expense, a $0.2 million increase in professional services expense, and
a $0.5 million decrease in allocated expenses to Equis programs (the Company is
no longer managing these programs) in 1996.
<PAGE>
Depreciation and amortization:
Depreciation and amortization expense increased $2.0 million (31%) for
the nine months ended September 30, 1996, as compared to the nine months ended
September 30, 1995. The increase resulted from amortization of costs associated
with AFG and depreciation of AFG assets held for operating leases and
administrative assets, offset partially by the reduction in depreciable
transportation equipment discussed in the operating lease revenue section.
Commissions:
Commission expenses were incurred by the Company primarily in
connection with the syndication of investment partnerships and represented
payments to brokers and financial planners for sales of investment program
units. Commissions were also paid to certain of the Company's employees directly
involved in syndication and leasing activities. Commission expenses for the nine
months ended September 30, 1996, decreased $1.4 million (100%) from the same
period in 1995. The reduction is the result of no syndicated equity raised for
the equipment growth funds during the nine months ended September 30, 1996,
versus $14.6 million in syndicated equity raised for the equipment growth funds
during the same period in 1995. Commission costs related to Fund I were
capitalized as part of the Company's investment in the program. With the
termination of syndication activities, there will be no more commission costs
incurred in the future.
General and administrative:
General and administrative expense decreased $1.8 million (24%) during the nine
months ended September 30, 1996, compared to the same period in 1995, due to a
$1.0 million decrease in compensation expenses primarily related to terminated
employees and lower 1996 bonus expense (primarily related to the compensation of
employees during 1995 for lost benefits resulting from the termination of the
401(k) plan), a $0.3 million decrease in estimated accruals, and a $0.5 million
decrease in administrative expenses.
Interest expense:
Interest expense decreased $0.4 million (8%) during the nine months
ended September 30, 1996, compared to the same period in 1995 mainly due to the
retirement of subordinated debt, offset partially by an increase in borrowings
on the nonrecourse securitization facility, the senior secured notes facility,
and the short-term equipment acquisition loan facility.
Other (expense) income, net:
Other expense, net was $0.3 million during the nine months ended September 30,
1996, compared to other income, net of $0.5 million for the same period of 1995.
During the nine months ended September 30, 1995, the Company prepaid the $8.6
million balance of its subordinated debt and incurred prepayment penalties of
$0.7 million, which was partially offset by other income of $0.4 million due to
the sale of 32 wind turbines during the second quarter of 1996 which had
previously been written off. Other income, net of $0.5 million in the nine
months ended September 30, 1995, resulted from the receipt of an account
receivable from a previously bankrupt debtor.
Interest income:
Interest income decreased $0.6 million (40%) in the nine months ended
September 30, 1996, compared to the same period in 1995 from a reduction in
interest income earned on the ESOP cash collateral account which related to the
termination of the Company's ESOP and due to a decrease in interest income as a
result of lower average cash balances in 1996 compared to 1995.
<PAGE>
Income taxes:
For the nine months ended September 30, 1996, the provision for income taxes was
$0.4 million, which represented an effective rate of 13%. Tax planning
strategies, an adjustment for state tax apportionment factors, and an adjustment
related to the Employee Stock Ownership Plan resulted in the reduction in the
Company's effective tax rate for 1996. For the same period in 1995, the
provision for income taxes was $3.9 million, which represented an effective rate
of 43% and higher income before taxes.
Net income:
As a result of the foregoing, for the nine months ended September 30,
1996, net income was $2.4 million resulting in net income per common share of
$0.23. For the same period in 1995, net income was $5.2 million resulting in net
income per common share of $0.44.
<PAGE>
Liquidity and Capital Resources:
Cash requirements historically have been satisfied through cash flow
from operations, borrowings, or sales of transportation equipment.
Liquidity in 1996 and beyond will depend, in part, on continued
remarketing of the equipment portfolio at similar lease rates, management of
existing sponsored programs, effectiveness of cost control programs, possible
additional equipment sales, and the volume of commercial and industrial
equipment leasing transactions for which the Company earns fees and a spread.
Management believes the Company can accomplish the preceding and will have
sufficient liquidity and capital resources for the future. Specifically, future
liquidity is influenced by the following:
Debt Financing:
Senior Debt: The Company's $35.0 million senior loan with a syndicate of
insurance companies provides that equipment sale proceeds, from pledged
equipment, or cash deposits be placed into collateral accounts or used to
purchase additional equipment. The facility requires quarterly interest only
payments through June 30, 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.
On October 1, 1996, the Company prepaid $10.0 million of the entire floating
rate portion of the senior loan through the use of cash collateral from the sale
of pledged equipment and incurred prepayment penalties of $0.1 million.
On June 28, 1996, the Company closed a floating rate senior secured note
agreement which allows the Company to borrow up to $27.0 million within a one
year period. The facility bears interest at LIBOR plus 240 basis points. As of
November 4, 1996, the Company had borrowed $18.0 million under this agreement.
The Company has pledged substantially all of its management, acquisition and
lease negotiation fees, and certain partnership distributions as collateral to
the facility. The facility requires quarterly interest only payments through
August 15, 1997, with principal plus interest payments beginning November 15,
1997. Principal payments are payable quarterly in 20 equal amounts through
termination of the loan on August 15, 2002.
Bridge Financing: Assets acquired and held on an interim basis for
placement with affiliated partnerships or purchased for placement in the
Company's securitization facility have, from time to time, been partially funded
by a short-term equipment acquisition loan facility. The Company amended this
facility on May 31, 1996 to add the Company's AFG subsidiary as a borrower. A
second amendment on October 31, 1996 increased the facility from $35.0 million
to $50.0 million and extended the availability of the facility until October 31,
1997.
This bridge facility, which is shared with Equipment Growth Funds
(EGFs) IV, V, VI, VII, and Fund I, 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% financing for transportation assets and the lesser of 100% of the
present value of the lease stream or 85% of the original equipment cost on
assets purchased for placement in a securitization facility, if the Company is
the borrower and working capital is used for the nonfinanced costs of these
acquisitions. The Company can hold assets under this bridge facility for up to
150 days. Interest accrues at prime or LIBOR plus 2.0% at the option of the
borrower at the time of the advance under the facility. The Company retains the
difference between the net lease revenue earned and the interest expense during
the interim holding period since its capital is at risk. As of November 4, 1996,
the Company had $33.2 million in outstanding borrowings and the EGFs and Fund I
had no outstanding borrowings under this facility.
Subordinated Debt: In July 1996, the Company prepaid in its entirety the $8.6
million balance of its subordinated debt and incurred prepayment penalties of
approximately $0.7 million.
Securitized Debt: The Company has available a securitization facility for up to
$80 million on a nonrecourse basis secured by direct finance and operating
leases which generally have terms of three to five years. The facility is
available for a one year period expiring July 1997. Repayment of the facility
matches the terms of the underlying leases. The securitized debt bears interest
equivalent to average U.S. treasury rates plus 1%. As of November 4, 1996, there
were $25.6 million in borrowings outstanding under this facility.
Interest Rate Swap Contracts: The Company attempts to minimize its interest rate
exposure through the purchase of fixed rate interest rate swap contracts.
Portfolio Activities:
During the nine months ended September 30, 1996, the Company generated proceeds
of $9.3 million from the sale of owned transportation equipment. These net
proceeds were placed in a collateral account as required by the senior loan
facility agreement. In March 1996, $1.9 million in funds were released to the
Company for general corporate use from the cash collateral account relating to
asset sales in 1996 and 1995. On October 1, 1996, $10.0 million in funds from
the cash collateral account, related to 1996 and 1995 asset sales, was used to
pay down $10.0 million of the floating rate portion of its senior loan. The
funds were released based on the appraised fair market value of the equipment
portfolio and the related collateral coverage ratio.
Over the last four years, the Company has downsized its transportation
equipment portfolio through the sale or disposal of underperforming and
nonperforming assets. The Company will continue to identify underperforming and
nonperforming assets for sale or disposal as necessary.
Syndication Activities:
On May 14, 1996, the Company's Board of Directors approved a decision
to halt the syndication of transportation equipment leasing programs effective
with the May 13, 1996 close of its then current offering, Professional Lease
Management Income Fund I. The Company will no longer be required to fund the
front-end investment requirement of this no front-end fee structured program.
From May 1995 through May 14, 1996, Fund I raised $100 million in equity
investment from the public. The Company recognized a one-time $1.4 million
charge in the second quarter of 1996 mainly related to employee severance pay
associated with this decision to halt syndication activities.
The Company earned fees from syndication activities related to EGF VII
during the first four months of 1995. Total equity raised since inception for
this partnership was $107.4 million through April 30, 1995, when the program
closed. There will be no more equity raised for this partnership.
Commercial Equipment Leasing Activities:
The Company earns finance lease or operating lease income for leases originated
and retained by its AFG subsidiary. The funding of leases requires the Company
to retain an equity interest in all leases financed through the securitization
facility. Lease originations funded through November 4, 1996, equal $110.8
million, on an original equipment cost basis. A portion of these leases has been
financed, on an interim basis, through the Company's bridge financing facility.
Some equipment subject to leases ($39.0 million) is sold to an institutional
leasing investment program for which the Company serves as the manager.
Placement fees and management fees are received for the sale and subsequent
management of these leases. The Company believes this lease origination
operation is a growth area for the future.
<PAGE>
Trends:
The Company continues to seek opportunities for new businesses, markets, and
acquisitions. During 1995, the Company established its AFG subsidiary, and in
1996 entered into an agreement with Equis Financial Group (Equis) to obtain its
lease origination and servicing operations, and the rights to manage a
significant offshore investment program. Additionally, the agreement provided
for AFG to acquire software, computers and furniture that support the marketing
and operations activities. AFG is engaged in the funding and management of
longer-term direct finance-type leases, operating leases and loans for
investment-grade, Fortune 2000 companies. Key to its success is AFG's ability to
differentiate itself from much larger competitors by offering greater
flexibility in lease structures and terms and a consistently high level of
customer service, backed by sophisticated reporting systems. The longer-term AFG
leases provide a predictable cash stream that PLM International is able to
leverage using nonrecourse, securitized debt. The underlying assets represent a
broad range of commercial and industrial equipment, such as data processing,
communications, materials handling, and construction equipment. AFG also is
engaged in the management of an institutional leasing investment program for
which it originates leases and receives acquisition and management fees. We
intend to substantially expand AFG's equipment portfolio in the future and
expect AFG's revenue and income to grow in 1997.
Going forward, the Company will also concentrate on expanding its
current trailer leasing and management operations through its PLM Rental, Inc.
subsidiary. PLM Rental is currently the largest short-term, on-demand
refrigerated trailer rental operation in North America, and the Company believes
there are new opportunities in the refrigerated and other trailer leasing
markets.
During 1996, the Company announced the suspension of public syndication
of equipment leasing programs with the May 13, 1996 close of Fund I after
concluding that future syndication sales would not reach the levels required to
make syndication activities financially attractive to the Company, due to
lower-fee investment alternatives becoming more attractive to investors. As a
result of this decision, revenues earned from managed programs which include
management fees, partnership interests and other fees, and acquisition and lease
negotiation fees will be reduced in the future as the older programs begin
liquidation and the managed equipment portfolio becomes permanently reduced.
The Company has continued to selectively reduce the size of its owned
transportation equipment portfolio over the past year. As a result of the
reduction in owned equipment, the Company's operating lease revenues are
expected to continue to decrease as well as the associated depreciation,
operating, and repair and maintenance costs. However, the Company has used the
proceeds from equipment sales and cash from operations to reduce senior and
subordinated outstanding indebtedness over the last three years, resulting in
reduced interest costs. These reductions will help offset the increased
borrowing activity associated with the expansion of the AFG lease portfolio. In
addition, the reduction in transportation equipment lease revenue will be offset
by increases in commercial and industrial equipment lease revenue generated by
AFG.
The Company continues to benefit from cost reduction measures,
principally reflecting reductions in total Company staffing implemented during
1995 and 1996, which are resulting in lower operations support and general and
administrative expenses.
Management believes that 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.
Forward-looking information:
Except for historical information contained herein, the discussion in this Form
10-QA contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-QA should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-QA. The Company's actual results could differ materially from
those discussed here.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 10 of Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held July 16, 1996, two proposals were
submitted to a vote of the Company's security holders.
1. Harold R. Somerset was re-elected to the Board of Directors of the Company.
Douglas P. Goodrich, Senior Vice President of the Company, was elected to the
Board of Directors of the Company. The votes cast in the election were as
follows: Votes Withheld Nominee For
Harold R. Somerset 7,195,935 2,110,393
Douglas P. Goodrich 7,184,188 2,122,140
Directors whose terms continued after the Annual Meeting of Stockholders held on
July 16, 1996 are as follows:
Class I (Terms expire in 1997)
Walter E. Hoadley
Robert N. Tidball
Class II (Terms expire in 1998)
J. Alec Merriam
Robert L. Pagel
2. The proposal to amend employment contracts entered into by and among PLM
International, Inc. and certain management employees was not approved.
Votes
Broker
For Against Abstentions Non Votes
3,478,284 3,766,816 207,284 1,853,944
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
July 17, 1996 - Announcement regarding PLM International's repurchase of 1.6
million shares of the Company's common stock for $6.1 million.
<PAGE>
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/ J. Michael Allgood
----------------------------
J. Michael Allgood
Vice President and Chief Financial Officer
Date: November 7, 1996
