UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9670
-------------------------------
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 December 22, 1999 - 7,803,995 shares.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Operating lease income $ 9,783 $ 5,390 $ 23,453 $ 14,734
Finance lease income 2,700 3,535 8,588 9,229
Management fees 2,137 2,550 6,776 7,649
Partnership interests and other fees 263 61 579 742
Acquisition and lease negotiation fees -- 872 1,079 3,083
Gain on the sale or disposition of assets, net 429 1,308 2,059 3,603
Aircraft brokerage and services -- 204 -- 1,090
Other 832 1,003 2,622 2,645
--------------------------------------------------------------
Total revenues 16,144 14,923 45,156 42,775
--------------------------------------------------------------
COSTS AND EXPENSES
Operations support 5,416 4,451 14,018 12,917
Depreciation and amortization 4,321 2,844 11,383 8,891
General and administrative 1,322 2,003 4,851 6,174
--------------------------------------------------------------
Total costs and expenses 11,059 9,298 30,252 27,982
--------------------------------------------------------------
Operating income 5,085 5,625 14,904 14,793
Interest expense (3,742) (3,989) (11,249) (10,663)
Interest income 204 518 680 1,212
Other income (expenses), net 700 15 (398) 478
-------------------------------------------------------------
Income before income taxes 2,247 2,169 3,937 5,820
Provision for income taxes 870 807 1,543 2,274
-------------------------------------------------------------
Net income before cumulative effect of accounting change 1,377 1,362 2,394 3,546
Cumulative effect of accounting change -- -- (236) --
-------------------------------------------------------------
Net income to common shares $ 1,377 $ 1,362 $ 2,158 $ 3,546
==============================================================
Basic earnings per weighted-average common share
outstanding $ 0.17 $ 0.16 $ 0.27 $ 0.42
==============================================================
Diluted earnings per weighted-average common share
outstanding $ 0.17 $ 0.16 $ 0.26 $ 0.41
==============================================================
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share amounts)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 2,675 $ 8,786
Receivables (net of allowance for doubtful accounts of $0.7
million as of September 30, 1999 and $0.4 million
as of December 31, 1998) 8,499 7,282
Receivables from affiliates 3,213 2,944
Investment in direct finance leases, net 120,548 145,088
Loan receivable 23,445 23,493
Equity interest in affiliates 19,743 22,588
Assets held for sale 8,004 --
Trailers held for operating leases 97,344 63,044
Less accumulated depreciation (19,304) (15,516)
-------------------------------------------
78,040 47,528
Commercial and industrial equipment held for operating leases 30,411 24,520
Less accumulated depreciation (10,773) (7,831)
-------------------------------------------
19,638 16,689
Restricted cash and cash equivalents 10,018 10,349
Other, net 5,773 7,322
-------------------------------------------
Total assets $ 299,596 $ 292,069
===========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Short term warehouse facilities $ 27,700 $ 34,420
Senior secured notes 22,559 28,199
Senior secured loan 10,294 14,706
Other secured debt 40,420 13,142
Nonrecourse securitized debt 110,679 111,222
Payables and other liabilities 13,907 21,768
Deferred income taxes 23,042 18,415
-------------------------------------------
Total liabilities 248,601 241,872
Shareholders' equity:
Common stock ($.01 par value, 50,000,000 shares
authorized, 7,977,974 issued and outstanding as of
September 30, 1999 and 8,159,919 as of December 31, 1998) 112 112
Paid-in capital, in excess of par 75,057 74,947
Treasury stock (4,057,781 shares as of September 30, 1999
and 3,875,836 shares as of December 31, 1998) (16,542) (15,072)
Accumulated deficit (7,632) (9,790)
--------------------------------------------
Total shareholders' equity 50,995 50,197
-------------------------------------------
Total liabilities and shareholders' equity $ 299,596 $ 292,069
===========================================
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
For the Year Ended December 31,
1998 and the Nine Months Ended September 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit &
-------------------------------------------
Paid-in Accumulated
At Capital in Other Total
Par Excess Treasury Comprehensive Comprehensive Shareholders'
of Par Stock Income Income Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $ 112 $ 74,650 $ (13,435) $ (14,779) $ 46,548
Comprehensive income
Net income 4,857 $ 4,857 4,857
Other comprehensive income:
Foreign currency translation
income 132 132 132
=================
Comprehensive income $ 4,989
=================
Exercise of stock options 218 211 429
Common stock repurchases (2,059) (2,059)
Reissuance of treasury stock 79 211 290
------------------------------------------------------ ------------
Balances, December 31, 1998 112 74,947 (15,072) (9,790) 50,197
Comprehensive income
Net income 2,158 $ 2,158 2,158
=================
Exercise of stock options 9 570 579
Common stock repurchases (2,149) (2,149)
Reissuance of treasury stock, net 101 109 210
---------------------------------------------------------- --------------
Balances, September 30, 1999 $ 112 $ 75,057 $ (16,542) $ (7,632) $ 50,995
=========================================================== ==============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
--------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,158 $ 3,546
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,383 8,891
Cumulative effect of accounting change, net of tax of $165 236 --
Write off of costs associated with initial public offering of AFG 975 --
Foreign currency translation -- (80)
Deferred income tax expense (benefit) 4,627 2,576
Gain on sale or disposition of assets, net (2,059) (3,603)
Loss on sale of investment in subsidiary -- 245
Undistributed residual value interests 716 1,032
Minority interest in net loss of subsidiaries -- (100)
Increase (decrease) in payables and other liabilities (1,643) (3,351)
(Increase) decrease in receivables and receivables from affiliates (1,486) 1,555
Amortization of organization and offering costs 2,129 2,129
(Increase) decrease in other assets (124) 438
---------------------------------
Net cash provided by operating activities 16,912 13,278
---------------------------------
INVESTING ACTIVITIES
Principal payments received on finance leases 25,813 23,115
Principal payments received on loans 6,185 3,511
Investment in direct finance leases (34,791) (108,522)
Investment in loans receivable (6,137) (19,659)
Purchase of property, plant, and equipment (512) (199)
Purchase of transportation equipment and capital improvements (57,985) (41,849)
Purchase of commercial and industrial equipment held for operating lease (20,283) (22,543)
Proceeds from the sale of transportation equipment for lease 394 6,150
Proceeds from the sale of assets held for sale 13,801 22,366
Proceeds from the sale of commercial and industrial equipment on finance lease 24,973 30,756
Proceeds from the sale of commercial and industrial equipment on operating lease 16,753 25,859
Sale of investment in subsidiary -- 176
Decrease in restricted cash and restricted cash equivalents 331 8,183
--------------------------------
Net cash used in investing activities (31,458) (72,656)
(continued)
</TABLE>
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
--------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Borrowings of short-term warehouse credit facilities $ 77,128 $ 122,945
Repayment of short-term warehouse credit facilities (83,848) (101,485)
Borrowings of senior secured notes -- 5,000
Repayment of senior secured notes (5,640) (3,765)
Repayment of senior secured loan (4,412) (4,412)
Borrowings of other secured debt 28,570 173
Repayment of other secured debt (1,292) (114)
Borrowings of nonrecourse securitized debt 41,705 64,578
Repayment of nonrecourse securitized debt (42,248) (21,783)
Proceeds from exercise of stock options 579 411
Reissuance of treasury stock, net 42 --
Purchase of stock (2,149) (1,017)
--------------------------------
Net cash provided by financing activities 8,435 60,531
--------------------------------
Net (decrease) increase in cash and cash equivalents (6,111) 1,153
Cash and cash equivalents at beginning of period 8,786 5,224
================================
Cash and cash equivalents at end of period $ 2,675 $ 6,377
================================
SUPPLEMENTAL INFORMATION
Net cash paid for interest $ 11,777 $ 10,171
===============================
Net cash paid for income taxes $ 212 $ 1,529
===============================
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary, consisting primarily of normal
recurring accruals, to present fairly PLM International, Inc. and its wholly-
and majority-owned subsidiaries (the Company's) financial position as of
September 30, 1999 and December 31, 1998, statements of income for the three and
nine months ended September 30, 1999 and 1998, statements of changes in
shareholders' equity and comprehensive income for the year ended December 31,
1998 and the nine months ended September 30, 1999 and statements of cash flows
for the nine months ended September 30, 1999 and 1998. Certain information and
note 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 for the year ended
December 31, 1998, on file with the Securities and Exchange Commission.
2. RECLASSIFICATIONS
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
3. FINANCING TRANSACTION ACTIVITIES
American Finance Group, Inc., originates and manages lease and loan transactions
on primarily new commercial and industrial equipment that is financed by
nonrecourse securitized debt for the Company's own account or sold to
unaffiliated investors. The Company uses one of its warehouse credit facilities
to finance the acquisition of these assets prior to permanent financing by
nonrecourse securitized debt or sale. The majority of these transactions are
accounted for as direct finance leases, while some transactions qualify as
operating leases or loans.
During the nine months ended September 30, 1999, the Company funded $34.8
million in equipment that was placed on finance lease. Also during the nine
months ended September 30, 1999, the Company sold equipment on finance lease
with an original equipment cost of $40.5 million, resulting in a net gain of
$0.4 million.
During the nine months ended September 30, 1999, the Company funded $6.1 million
in loans to customers.
4. EQUIPMENT
Equipment held for operating lease includes trailers and commercial and
industrial equipment that is depreciated on the straight-line method down to the
equipment's estimated salvage value.
During the nine months ended September 30, 1999, the Company funded $20.3
million in commercial and industrial equipment that was placed on operating
lease. During the nine months ended September 30, 1999, the Company sold
commercial and industrial equipment that was on operating lease for a net gain
of $1.7 million.
During the first nine months of 1999, the Company purchased trailers for $36.2
million and sold trailers with a net book value of $0.4 million for $0.4
million.
The Company classifies equipment as held for sale if the particular asset is
subject to a pending contract for sale or is held for sale to an affiliated
program. Equipment held for sale is valued at the lower of the depreciated cost
or the fair value less costs to sell. During the first nine months of 1999, the
Company
<PAGE>
4. EQUIPMENT (continued)
purchased marine containers for $21.8 million, and sold marine containers for
$13.8 million to affiliated programs at cost, which approximated their fair
market value. As of September 30, 1999, the Company held marine containers with
a net book value of $8.0 million for sale to affiliated programs. As of December
31, 1998, the Company had no equipment held for sale.
5. DEBT
The Company has warehouse credit facilities for PLM Financial Services, Inc.
(FSI) and AFG. FSI has a $24.5 million warehouse credit facility to be used to
acquire assets on an interim basis prior to sale to affiliated programs or
unaffiliated third parties, and to purchase trailers prior to obtaining
permanent financing. FSI's facility is shared with PLM Equipment Growth Fund VI,
PLM Equipment Growth & Income Fund VII, and Professional Lease Management Income
Fund I, LLC. Borrowings under this facility by the other eligible borrowers
reduce the amount available to be borrowed by the Company. All borrowings under
this facility are guaranteed by the Company. AFG has a $60.0 million warehouse
credit facility to be used to acquire assets on an interim basis prior to
placement in the Company's nonrecourse securitization facility or sale to
unaffiliated third parties. These facilities expire on December 14, 1999. The
Company believes it will be able to renew these facilities on substantially the
same terms upon expiration. As of September 30, 1999, FSI and PLM Equipment
Growth Fund VI had $7.6 million and $1.0 million in borrowings outstanding on
the $24.5 million facility and there were no other borrowings outstanding on the
facility by any of the other eligible borrowers. As of September 30, 1999, AFG
had $20.1 million in borrowings outstanding on its $60.0 million facility.
The Company has available a nonrecourse securitization facility to be used to
acquire assets by AFG, secured by direct finance leases, operating leases, and
loans on commercial and industrial equipment that generally have terms from one
to seven years. The facility allowed the Company to borrow up to $150.0 million
through October 12, 1999. In October 1999, this facility was amended to extend
the facility through October 10, 2000 and reduce the amount available to be
borrowed to $125.0 million. Repayment of the facility matches the terms of the
underlying leases. As of September 30, 1999, there were $105.5 million in
borrowings under this facility. The Company is required to hedge the interest
rate exposure to the Company on at least 90% of the aggregate discounted lease
balance (ADLB) of those leases and loans used as collateral in its nonrecourse
securitization facility. As of September 30, 1999, 90% of the ADLB had been
hedged.
During the first nine months of 1999, the Company made principal payments of
$2.4 million on its nonrecourse notes payable remaining. As of September 30,
1999, the Company had $5.2 million in nonrecourse notes payable. Principal and
interest on the notes are due monthly beginning April 1998 through March 2001.
The notes bear interest ranging from 8.32% to 9.5% per annum and are secured by
direct finance leases for commercial and industrial equipment that have terms
corresponding to the repayment of the notes.
In the second quarter of 1999, the Company entered into a $15.0 million credit
facility loan agreement bearing interest at LIBOR plus 1.5%. This facility
allows the Company to borrow up to $15.0 million within a one-year period. As of
September 30, 1999, the Company had borrowed $8.6 million under this facility.
Principal payments of $0.1 million are due quarterly beginning August 2000, with
a final payment of $1.4 million due August 2006.
During the first nine months of 1999, the Company entered into four $5.0 million
debt agreements bearing interest at 6.20%, 6.81%, 6.90%, and 7.05%,
respectively, each with payments of $0.1 million due monthly through 2006, with
a final payment of $1.3 million, $1.3 million, $1.3 million, and $1.2 million,
respectively, due in 2006, secured by certain trailer equipment. In return for
favorable financing terms, these agreements give beneficial tax treatment in
these secured trailers to the lenders.
During the first nine months of 1999, the Company repaid $4.4 million of the
senior secured loan, $5.6 million of the senior secured notes, and $1.3 million
of the other secured debt, in accordance with the debt repayment schedules.
<PAGE>
6. SHAREHOLDERS' EQUITY
During the first nine months of 1999, the Company repurchased 359,215 shares of
the Company's common stock for $2.1 million, under the $5.0 million common stock
repurchase program authorized by the Company's Board of Directors in December
1998. As of September 30, 1999, 422,515 shares had been repurchased under this
plan, for a total of $2.5 million.
During the nine months ended September 30, 1999, 27,486 shares were issued from
treasury stock as part of the senior management bonus program (net of forfeited
shares), 6,784 shares were issued from treasury stock as a stock grant, and
143,000 shares were issued for the exercise of stock options. Consequently, the
total common shares outstanding decreased to 7,977,974 as of September 30, 1999
from the 8,159,919 outstanding as of December 31, 1998.
Net income per basic weighted-average common share outstanding was computed by
dividing net income to common shares by the weighted-average number of shares
deemed outstanding during the period. The weighted-average number of shares
deemed outstanding for the basic earnings per share calculation during the three
months ended September 30, 1999 was 8,061,551 and during the three months ended
September 30, 1998 was 8,356,102. The weighted-average number of shares deemed
outstanding for the basic earnings per share calculation during the nine months
ended September 30, 1999 was 8,097,489, and during the nine months ended
September 30, 1998 was 8,358,214. The weighted-average number of shares deemed
outstanding, including potentially dilutive common shares, for the diluted
earnings per weighted-average share calculation during the three months ended
September 30, 1999 was 8,137,547, and during the three months ended September
30, 1998 was 8,503,075. The weighted-average number of shares deemed
outstanding, including potentially dilutive common shares, for the diluted
earnings per weighted-average share calculation during the nine months ended
September 30, 1999 was 8,204,268, and during the nine months ended September 30,
1998 was 8,518,381.
7. LEGAL MATTERS
The Company and various of its wholly-owned subsidiaries are named as defendants
in a lawsuit filed as a purported class action in January 1997 in the Circuit
Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch action).
Plaintiffs, who filed the complaint on their own and on behalf of all class
members similarly situated, are six individuals who invested in certain
California limited partnerships for which the Company's wholly-owned subsidiary,
PLM Financial Services, Inc. (FSI), acts as the general partner, including PLM
Equipment Growth Fund IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM
Equipment Growth Fund VI (Fund VI), and PLM Equipment Growth & Income Fund VII
(Fund VII) (the Partnerships). The complaint asserts eight causes of action
against all defendants, as follows: fraud and deceit, suppression, negligent
misrepresentation and suppression, intentional breach of fiduciary duty,
negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Plaintiffs allege that each defendant owed plaintiffs and the class
certain duties due to their status as fiduciaries, financial advisors, agents,
and control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Partnerships, and concealing such mismanagement from investors in the
Partnerships. Plaintiffs seek unspecified compensatory and recissory damages, as
well as punitive damages, and have offered to tender their limited partnership
units back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) (the court) based on the court's
diversity jurisdiction, and the court denied plaintiffs' motion to remand, which
denial was upheld on appeal. In December 1997, the court granted defendants
motion to compel arbitration of the named plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of each
Partnership. Plaintiffs appealed this decision, but in June 1998 voluntarily
dismissed their appeal pending settlement of the Koch action, as discussed
below.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco,
<PAGE>
7. LEGAL MATTERS (Continued)
California, Case No. 987062 (the Romei action). The plaintiff is an investor in
Fund V, and filed the complaint on her own behalf and on behalf of all class
members similarly situated who invested in certain California limited
partnerships for which FSI acts as the general partner, including the
Partnerships. The complaint (as amended in August 1997) alleges the same facts
and the same nine causes of action as in the Koch action, plus additional causes
of action against all of the defendants, including alleged unfair and deceptive
practices, constructive fraud, unjust enrichment, a claim for treble damages and
violations of the California Securities Law of 1968.
In July 1997, defendants filed with the district court for the Northern District
of California (Case No. C-97-2847 WHO) a petition (the petition) under the
Federal Arbitration Act seeking to compel arbitration of plaintiff's claims and
for an order staying the state court proceedings pending the outcome of the
arbitration. In October 1997, the district court denied the Company's petition
to compel arbitration, but in November 1997, agreed to hear the Company's motion
for reconsideration of this order. The hearing on this motion has been taken off
calendar and the district court has dismissed the petition pending settlement of
the Romei action, as discussed below. The state court action continues to be
stayed pending such resolution.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding related to the settlement of those actions (the monetary
settlement), following which the parties agreed to an additional equitable
settlement (the equitable settlement). The terms of the monetary settlement and
the equitable settlement are contained in a Stipulation of Settlement that was
filed with the court. The monetary settlement provides for a settlement and
release of all claims against defendants in exchange for payment for the benefit
of the class of up to $6.0 million. The final settlement amount will depend on
the number of claims filed by authorized claimants who are members of the class,
the amount of the administrative costs incurred in connection with the
settlement, and the amount of attorneys' fees awarded by the court. The Company
will pay up to $0.3 million of the monetary settlement, with the remainder being
funded by an insurance policy. The equitable settlement provides, among other
things: (a) for the extension of the operating lives of Funds V, VI, and VII by
judicial amendment to each of their partnership agreements, such that FSI, the
general partner of each such partnership, be permitted to reinvest partnership
funds in additional equipment into the year 2004, and will liquidate the
partnerships' equipment in 2006; (b) that FSI is entitled to earn front-end fees
(including acquisition and lease negotiation fees) up to 20% in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (c) for a one-time repurchase
of up to 10% of the outstanding units of Funds V, VI, and VII by the respective
partnership at 80% of such partnership's net asset value; and (d) for the
deferral of a portion of FSI's management fees until such time as certain
performance thresholds have, if ever, been met by the partnerships. The
equitable settlement also provides for payment of the equitable class attorneys'
fees from partnership funds in the event, if ever, that distributions paid to
investors in Funds V, VI, and VII during the extension period reach a certain
internal rate of return. Defendants will continue to deny each of the claims and
contentions and admit no liability in connection with the monetary and equitable
settlements.
The court, among other things, preliminarily approved the monetary and equitable
settlements in June 1999, and set a final fairness hearing for November 16,
1999. For settlement purposes, the monetary settlement class (the monetary
class) consists of all investors, limited partners, assignees, or unit holders
who purchased or received by way of transfer or assignment any units in the
Partnerships between May 23, 1989 and June 29, 1999. The equitable settlement
class (the equitable class) consists of all investors, limited partners,
assignees or unit holders who on June 29, 1999 held any units in Funds V, VI,
and VII, and their assigns and successors in interest.
The monetary settlement remains subject to certain conditions, including but not
limited to notice to the monetary class for purposes of the monetary settlement
and final approval of the monetary settlement by the court following a final
fairness hearing. The equitable settlement remains subject to numerous
conditions, including but not limited to: (a) notice to the equitable class, (b)
review and clearance by the SEC, and dissemination to the members of the
equitable class, of solicitation statements regarding the proposed extensions,
(c) disapproval by less than 50% of the limited partners in Funds V, VI, and VII
of
<PAGE>
7. LEGAL MATTERS (Continued)
the proposed amendments to the limited partnership agreements, (d) judicial
approval of the proposed amendments to the limited partnership agreements, and
(e) final approval of the equitable settlement by the court following a final
fairness hearing. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not. The Company
continues to believe that the allegations of the Koch and Romei actions are
completely without merit and intends to continue to defend this matter
vigorously if the monetary settlement is not consummated.
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition of the Company.
8. PURCHASE COMMITMENTS
As of September 30, 1999, the Company had committed to purchase $16.3 million of
equipment for its commercial and industrial lease and finance receivable
portfolio.
From October 1, 1999 to October 28, 1999, the Company funded $4.4 million of the
commitments outstanding as of September 30, 1999 for its commercial and
industrial lease and finance receivable portfolio.
As of October 28, 1999, the Company had committed to purchase $14.5 million of
equipment for its commercial and industrial lease and finance receivable
portfolio.
As of September 30, 1999, the Company had committed to purchase $10.0 million of
marine containers. As of September 30, 1999, the Company had accrued $3.4
million for marine containers, which the Company has taken delivery of and the
Company had classified these containers as assets held for sale.
9. OPERATING SEGMENTS
The Company operates in three operating segments: trailer leasing, commercial
and industrial equipment leasing and financing, and the management of investment
programs and other transportation equipment leasing. The trailer leasing segment
includes 22 trailer rental facilities that engage in short to mid-term operating
leases of refrigerated and dry van trailers to a variety of customers and
management of trailers for the investment programs. The management of investment
programs and other transportation equipment leasing segment involves managing
its syndicated investment programs, from which it earns fees and equity
interests, and arranging short to mid-term operating leases of other
transportation equipment. The commercial and industrial equipment leasing and
financing segment originates finance and operating leases and loans on
commercial and industrial equipment that is financed through a securitization
facility, brokers equipment, and manages institutional programs owning
commercial and industrial equipment. The Company evaluates the performance of
each segment based on profit or loss from operations before allocating general
and administrative expenses and before allocating income taxes. The segments are
managed separately because each operation requires different business
strategies.
<PAGE>
9. OPERATING SEGMENTS (continued)
The following tables present a summary of the operating segments (in thousands
of dollars):
<TABLE>
<CAPTION>
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the three months ended September 30, 1999 Leasing Financing Leasing Other<F1>1 Total
- ---------------------------------------------- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Lease income $7,069 $ 5,139 $ 275 $ -- $ 12,483
Fees earned 227 171 2,002 -- 2,400
(Loss) gain on sale or disposition of assets, (29) 458 -- -- 429
net
Other 10 489 333 -- 832
-----------------------------------------------------------------------------
Total revenues 7,277 6,257 2,610 -- 16,144
-----------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 3,365 1,295 691 65 5,416
Depreciation and amortization 2,053 2,149 119 -- 4,321
General and administrative expenses -- -- -- 1,322 1,322
-----------------------------------------------------------------------------
Total costs and expenses 5,418 3,444 810 1,387 11,059
-----------------------------------------------------------------------------
Operating income (loss) 1,859 2,813 1,800 (1,387) 5,085
Interest expense, net (902) (2,173) (463) -- (3,538)
Other income, net -- -- 700 -- 700
-----------------------------------------------------------------------------
Income (loss) before income taxes $ 957 $ 640 $ 2,037 $(1,387) $ 2,247
=============================================================================
Total assets as of September 30, 1999 $83,781 $173,919 $35,084 $ 6,812 $299,596
=============================================================================
<FN>
<F1>
1 Includes costs not identifiable to a particular segment such as general and
administrative and certain operations support expenses.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the three months ended September 30, 1999 Leasing Financing Leasing Other<F1> Total
- -------------------------------------------
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Lease income $ 2,721 $ 5,630 $ 574 $ -- $ 8,925
Fees earned 306 530 2,647 -- 3,483
Gain on sale or disposition of assets, net 40 1,025 243 -- 1,308
Other -- 658 549 -- 1,207
-----------------------------------------------------------------------------
Total revenues 3,067 7,843 4,013 -- 14,923
-----------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 1,205 1,291 1,311 644 4,451
Depreciation and amortization 1,014 1,623 207 -- 2,844
General and administrative expenses -- -- -- 2,003 2,003
-----------------------------------------------------------------------------
Total costs and expenses 2,219 2,914 1,518 2,647 9,298
-----------------------------------------------------------------------------
Operating income (loss) 848 4,929 2,495 (2,647) 5,625
Interest expense, net (414) (2,935) (122) -- (3,471)
Other income, net -- -- 15 -- 15
-----------------------------------------------------------------------------
Income (loss) before income taxes $ 434 $ 1,994 $ 2,388 $(2,647) $ 2,169
=============================================================================
Total assets as of September 30, 1998 $38,692 $219,095 $32,179 $9,147 $299,113
=============================================================================
<FN>
<F1>
1 Includes costs not identifiable to a particular segment such as general and
administrative and certain operations support expenses.
</FN>
</TABLE>
<PAGE>
9. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the nine months ended September 30, 1999 Leasing Financing Leasing Other<F2>2 Total
- --------------------------------------------
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Lease income $ 15,746 $ 15,407 $ 888 $ -- $ 32,041
Fees earned 628 578 7,228 -- 8,434
Loss on sale or disposition of assets, net (41) 2,100 -- -- 2,059
Other 10 1,591 1,021 -- 2,622
-----------------------------------------------------------------------------
Total revenues 16,343 19,676 9,137 -- 45,156
-----------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 7,754 4,075 1,579 610 14,018
Depreciation and amortization 5,292 5,732 359 -- 11,383
General and administrative expenses -- -- -- 4,851 4,851
-----------------------------------------------------------------------------
Total costs and expenses 13,046 9,807 1,938 5,461 30,252
-----------------------------------------------------------------------------
Operating income (loss) 3,297 9,869 7,199 (5,461) 14,904
Interest expense, net (2,090) (6,836) (1,520) (123) (10,569)
Other income (expenses), net -- (1,098) 700 -- (398)
-----------------------------------------------------------------------------
Income (loss) before income taxes $ 1,207 $ 1,935 $ 6,379 $(5,584) $ 3,937
=============================================================================
Cumulative effect of accounting change,
net of tax $ -- $ (236) $ -- $ -- $ (236)
=============================================================================
Total assets as of September 30, 1999 $ 83,781 $173,919 $35,084 $ 6,812 $299,596
=============================================================================
<FN>
<F2>
2 Includes costs not identifiable to a particular segment such as general and
administrative and certain operations support expenses.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the nine months ended September 30, 1998 Leasing Financing Leasing Other<F2>2 Total
- ---------------------------------------------
-------------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C> <C>
Lease income $ 6,154 $ 15,622 $ 2,187 $ -- $ 23,963
Fees earned 822 1,333 9,319 -- 11,474
Gain on sale or disposition of assets, net 113 2,111 1,379 -- 3,603
Other 3 1,276 2,456 -- 3,735
-------------------------------------------------------------------------------
Total revenues 7,092 20,342 15,341 -- 42,775
-------------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 3,148 3,412 5,044 1,313 12,917
Depreciation and amortization 2,541 5,430 920 -- 8,891
General and administrative expenses -- -- -- 6,174 6,174
-------------------------------------------------------------------------------
Total costs and expenses 5,689 8,842 5,964 7,487 27,982
-------------------------------------------------------------------------------
Operating income (loss) 1,403 11,500 9,377 (7,487) 14,793
Interest expense, net (1,096) (7,483) (872) -- (9,451)
Other income (expenses), net (1) 479 -- 478
-------------------------------------------------------------------------------
Income (loss) before income taxes $ 306 $ 4,017 $ 8,984 $(7,487) $ 5,820
===============================================================================
Total assets as of September 30, 1998 $38,692 $219,095 $32,179 $ 9,147 $299,113
==============================================================================
<FN>
<F2>
2 Includes costs not identifiable to a particular segment such as general and
administrative and certain operations support expenses.
</FN>
</TABLE>
<PAGE>
10. CUMULATIVE EFFECT OF ACCOUNTING CHANGE FROM DISCONTINUED OPERATIONS, NET
OF TAX
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.2 million charge,
net of tax of $0.2 million, related to start-up costs of its commercial and
industrial equipment operations which is being accounted for as discontinued
operations. This charge had an effect of reducing basic earnings per
weighted-average common share and diluted earnings per weighted-average common
share by $0.03 for the nine months ended September 30, 1999.
11. STOCK OFFERING
During 1998, AFG filed a registration statement with the U.S. Securities and
Exchange Commission for the purpose of undertaking an initial public offering of
common stock. During the first quarter of 1999, the Company's Board of Directors
determined that it was in the Company's best interest to sell AFG rather than
proceed with a stock offering. As a result of this decision, the Company wrote
off $1.0 million of costs related to the proposed initial public offering during
1999, which is included in other expenses, net, on the consolidated statements
of income.
12. SUBSEQUENT EVENTS
In October 1999, the Company sold $4.6 million of containers held for sale to an
affiliated program at its cost, which approximated their fair market value.
In October 1999, the Company amended its nonrecourse securitization facility to
extend the facility through October 10, 2000 and reduce the amount available to
be borrowed under this facility to $125.0 million.
In October 1999, the Company entered into two debt agreements totaling $5.0
million bearing interest at 6.71%, with payments of $0.1 million due monthly
beginning November of 1999 and a final payment of $0.8 million due November
2006, secured by certain trailer equipment. In return for favorable financing
terms, these agreements give beneficial tax treatment in these secured trailers
to the lenders.
On October 26, 1999, the Company agreed to sell its wholly -owned subsidiary,
American Finance Group, Inc., for approximately $33 million in cash to Guaranty
Federal Bank, subject to closing adjustments which are not expected to be
material. Consummation of the transaction is subject to various conditions,
including the approval of PLM shareholders, and closing of the transaction is
expected to occur only after such approval has been secured and all other
conditions have been satisfied. If the transaction is approved, AFG will be
treated for accounting purposes as a discontinued operation of PLM
International, Inc.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TRAILER LEASING
The Company operates 22 trailer rental facilities that engage in short-term and
mid-term operating leases. Nineteen of these facilities operate predominantly
refrigerated trailers used to transport temperature-sensitive commodities,
consisting primarily of food products. Three facilities operate only dry van
(non-refrigerated) trailers. The Company intends to move virtually all of its
dry van trailers to these facilities. In 1999, the Company has opened three new
refrigerated trailer yards.
MANAGEMENT OF INVESTMENT PROGRAMS AND OTHER TRANSPORTATION EQUIPMENT LEASING
The Company has syndicated investment programs from which it earns various fees
and equity interests. Professional Lease Management Income Fund I, LLC (Fund I)
was structured as a limited liability company with a no front-end fee structure.
The previously syndicated limited partnership programs allow the Company to
receive fees for the acquisition and initial leasing of the equipment. The Fund
I program does not provide for acquisition and lease negotiation fees. The
Company invested the equity raised through syndication for these programs in
transportation equipment and related assets, which it then manages on behalf of
the investors. The equipment management activities for these types of programs
generate equipment management fees for the Company over the life of a program.
The limited partnership agreements generally entitle the Company to receive a 1%
or 5% interest in the cash distributions and earnings of a partnership, subject
to certain allocation provisions. The Fund I agreement entitles the Company to a
15% interest in the cash distributions and earnings of the program, subject to
certain allocation provisions. The Company's interest in the earnings and
distributions of Fund I will increase to 25% after the investors have received
distributions equal to their original invested capital.
In 1996, the Company announced the suspension of public syndication of equipment
leasing programs with the close of Fund I. As a result of this decision,
revenues earned from managed programs, which include management fees,
partnership interests and other fees, and acquisition and lease negotiation
fees, will be reduced in the future as the older programs liquidate and the
managed equipment portfolio for these programs becomes permanently reduced.
The Company will occasionally own transportation equipment prior to sale to
affiliated programs. During this period, the Company earns lease revenue and
incurs interest expense.
COMMERCIAL AND INDUSTRIAL EQUIPMENT LEASING AND FINANCING
The Company funds and manages long-term direct finance leases, operating leases,
and loans through its American Finance Group, Inc. (AFG) subsidiary. Master
lease agreements are entered into with predominantly investment-grade lessees
and serve as the basis for marketing efforts. The underlying assets represent a
broad range of commercial and industrial equipment, such as point-of-sale,
materials handling, computer and peripheral, manufacturing, general-purpose
plant and warehouse, communications, medical, and construction and mining
equipment. Through AFG, the Company is also engaged in the management of
institutional programs for which it receives management fees. In previous years,
the Company acquired equipment for the institutional programs for which it
earned acquisition fees, but the Company does not anticipate acquiring equipment
for the institutional programs in the future. The Company also earns syndication
fees for arranging purchases and sales of equipment between other unaffiliated
third parties.
In the third quarter of 1999, the Company entered into a non-binding letter of
intent to sell its wholly-owned commercial and industrial leasing subsidiary
American Finance Group, Inc. (AFG).
<PAGE>
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
The following analysis reviews the operating results of the Company:
REVENUES
For the Three Months
Ended September 30,
1999 1998
---------------------------------
(in thousands of dollars)
Operating lease income $ 9,783 $ 5,390
Finance lease income 2,700 3,535
Management fees 2,137 2,550
Partnership interests and other fees 263 61
Acquisition and lease negotiation fees -- 872
Gain on the sale or disposition of assets, net 429 1,308
Aircraft brokerage and services -- 204
Other 832 1,003
--------------------------------
Total revenues $ 16,144 $ 14,923
The fluctuations in revenues for the three months ended September 30, 1999,
compared to the same quarter in 1998, are summarized and explained below.
OPERATING LEASE INCOME BY TYPE:
For the Three Months
Ended September 30
1999 1998
-----------------------------
(in thousands of dollars)
Refrigerated and dry van over-the-road trailers $ 7,069 $ 2,721
Commercial and industrial equipment 2,439 2,094
Lease income from assets held for sale 263 128
Intermodal trailers -- 451
Other 12 (4)
------------------------------
Total operating lease income $ 9,783 $ 5,390
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income increased $4.4 million during the third quarter of 1999, compared to the
same quarter of 1998, due to the following:
(a) A $4.3 million increase in operating lease income was generated from
refrigerated and dry van trailer equipment, of which $3.9 million was due
to an increase in the amount of these types of equipment owned and on
operating lease, and $0.4 million was due to higher utilization. For the
quarter ended September 30, 1999, the average investment in refrigerated
and dry van trailer equipment was $92.1 million, compared to $44.7 million
for the third quarter of 1998.
(b) A $0.3 million increase in operating lease income from commercial and
industrial equipment was due to an increase in the amount of these types of
equipment owned and on operating lease.
(c) A $0.1 million increase in operating lease income generated from assets
held for sale. During the third quarter of 1999, the Company owned marine
containers, which generated $0.3 million in operating lease income. As of
September 30, 1999, these marine containers are held for sale. During the
third quarter of 1998, the Company owned a 14.7% interest in an entity
owning a marine vessel that generated $0.1 million in operating lease
income. The Company sold its interest in the entity that owned the marine
vessel, at cost, which approximated the fair market value, to an affiliated
program during the third quarter of 1998.
<PAGE>
These increases in operating lease income were partially offset by a $0.5
million decrease in operating lease income from intermodal trailers due to the
sale of all of the Company's intermodal trailers during August 1998.
FINANCE LEASE INCOME:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary that are either retained for long-term investment or sold to third
parties. Finance lease income decreased $0.8 million in the third quarter of
1999, compared to the same quarter in 1998, due to a decrease in commercial and
industrial assets that were on finance lease. For the quarter ended September
30, 1999, the average investment in direct finance leases was $122.6 million,
compared to $165.2 million for the third quarter of 1998.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $2.1 million and $2.6 million
for the quarters ended September 30, 1999 and 1998, respectively. The decrease
in management fees resulted from a net decrease in managed equipment from the
PLM Equipment Growth Fund (EGF) programs. With the termination of syndication
activities in 1996, management fees from the older programs are decreasing and
are expected to continue to decrease as the programs liquidate their equipment
portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $0.3 million and $0.5 million for the quarters ended
September 30, 1999 and 1998, respectively. In addition, a decrease of $0.1
million and $0.4 million in the Company's residual interests in the programs was
recorded during the quarters ended September 30, 1999 and 1998, respectively.
The decrease in net earnings and distribution levels and residual interests in
1999, compared to 1998, resulted mainly from the disposition of equipment in
certain of the EGF programs. Residual income is based on the general partner's
share of the present value of the estimated disposition proceeds of the
equipment portfolios of the affiliated partnerships when the equipment is
purchased. Net decreases in the recorded residual values result when partnership
assets are sold and the proceeds are less than the original investment in the
sold equipment.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the quarter ended September 30, 1999, the Company did not purchase any
equipment on behalf of the EGF programs and no acquisition and lease negotiation
fees were recorded. This is compared to the Company's purchase of $10.0 million
in transportation and other equipment during the quarter ended September 30,
1998, resulting in a $0.5 million decrease in acquisition and lease negotiation
fees.
During the quarter ended September 30, 1999, no equipment was purchased by AFG
for the institutional investment programs, compared to $11.9 million for the
same quarter in 1998, resulting in a $0.4 million comparative decrease in
acquisition and lease negotiation fees. The Company does not expect to sell
assets in the future to the institutional programs. It will, however, continue
to manage the existing portfolios for these programs.
Because of the Company's decision to halt syndication of equipment leasing
programs with the close of Fund I in 1996 and because Fund I has a no front-end
fee structure, acquisition and lease negotiation fees will be substantially
reduced in the future.
<PAGE>
GAIN ON THE SALE OR DISPOSITION OF ASSETS, NET:
During the quarter ended September 30, 1999, the Company recorded $0.4 million
gain on sale or disposition of assets. Of this gain, $0.5 million resulted from
the sale or disposition of commercial and industrial equipment. The gain on sale
was partially offset by a loss of $29,000 which resulted from the sale or
disposition of transportation equipment. During the quarter ended September 30,
1998, the Company recorded $1.3 million in gain on the sale or disposition of
assets. Of this gain, $0.3 million resulted from the sale or disposition of
trailers, and $1.0 million related to the sale of commercial and industrial
equipment.
AIRCRAFT BROKERAGE AND SERVICES:
Aircraft brokerage and services revenue decreased $0.2 million during the
quarter ended September 30, 1999, compared to the same quarter of 1998, due to
the sale of the Company's aircraft leasing and spare parts brokerage subsidiary
in August 1998.
COSTS AND EXPENSES
For the Three Months
Ended September 30,
1999 1998
-----------------------------------------
(in thousands of dollars)
Operations support $ 5,416 $ 4,451
Depreciation and amortization 4,321 2,844
General and administrative 1,322 2,003
-----------------------------------------
Total costs and expenses $ 11,059 $ 9,298
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, costs of goods sold, and provision for doubtful
accounts, increased $1.0 million (22%) for the quarter ended September 30, 1999,
compared to the quarter ended September 30, 1998. Operations support expenses
related to the trailer leasing segment increased $2.2 million due to the
expansion of its trailer rental operations. This increase was offset by a $1.2
million decrease in operations support expenses related to the management of
investment programs and other transportation equipment leasing segment, and
other expenses mainly related to the sale of the Company's aircraft leasing and
spare parts brokerage subsidiary in August 1998, and the sale of other
transportation equipment including intermodal trailers (discussed in the
operating lease income section).
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $1.5 million (52%) for
the quarter ended September 30, 1999, compared to the quarter ended September
30, 1998. The increase in depreciation and amortization expenses resulted from
increase in depreciation of $1.0 million for refrigerated trailer equipment on
operating lease and an increase in depreciation of $0.5 million for commercial
and industrial equipment.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $0.7 million (34%) during the
quarter ended September 30, 1999, compared to the same quarter in 1998,
primarily due to a $0.4 million decrease in compensation and benefits expenses
due to a decrease in staffing, $0.2 million decrease in professional services,
and $0.1 million decrease in rent and office related expenses due to a decrease
in staffing and office space requirements.
<PAGE>
OTHER INCOME AND EXPENSES
For the Three Months
Ended September 30,
1999 1998
-----------------------------------------
(in thousands of dollars)
Interest expense $ (3,742) $ (3,989)
Interest income 204 518
Other income, net 700 15
INTEREST EXPENSE:
Interest expense decreased $0.2 million (6%) during the quarter ended September
30, 1999, compared to the same quarter in 1998. The decrease in interest expense
resulted from the reductions in the amounts outstanding on the senior secured
loan and AFG warehouse facility. This decrease was partially offset by an
increase in interest expense due to an increase in borrowings to fund trailer
purchases.
INTEREST INCOME:
Interest income decreased $0.3 million (61%) during the quarter ended September
30, 1999, compared to the same quarter of 1998, as a result of lower average
cash balances during the quarter ended September 30, 1999, compared to the same
quarter of 1998.
OTHER INCOME, NET:
Other income of $0.7 million for the quarter ended September 30, 1999 represents
mileage income received from the railroads.
PROVISION FOR INCOME TAXES:
For the three months ended September 30, 1999, the provision for income taxes
was $0.9 million, representing an effective rate of 39%. For the three months
ended September 30, 1998, the provision for income taxes was $0.8 million,
representing an effective rate of 37%. The increase in the effective tax rate
was due to disallowed losses from a foreign subsidiary.
NET INCOME
As a result of the foregoing, for the three months ended September 30, 1999, net
income was $1.4 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.17. For the same quarter in
1998, net income was $1.4 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.16.
<PAGE>
Comparison of the Company's Operating Results for the Nine Months Ended
September 30, 1999 and 1998
The following analysis reviews the operating results of the Company:
REVENUES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operating lease income $ 23,453 $ 14,734
Finance lease income 8,588 9,229
Management fees 6,776 7,649
Partnership interests and other fees 579 742
Acquisition and lease negotiation fees 1,079 3,083
Gain on the sale or disposition of assets, net 2,059 3,603
Aircraft brokerage and services -- 1,090
Other 2,622 2,645
-----------------------------------------
Total revenues $ 45,156 $ 42,775
</TABLE>
The fluctuations in revenues for the nine months ended September 30, 1999,
compared to the nine months ended September 30, 1998, are summarized and
explained below.
OPERATING LEASE INCOME BY TYPE:
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Refrigerated and dry van over-the-road trailers $ 15,746 $ 6,153
Commercial and industrial equipment 6,819 6,393
Lease income from assets held for sale 850 412
Intermodal trailers -- 1,630
Other 38 146
-----------------------------------------
Total operating lease income $ 23,453 $ 14,734
</TABLE>
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income increased $8.7 million during the nine months ended September 30, 1999,
compared to the same period of 1998, due to the following:
(a) A $9.6 million increase in operating lease income was generated from
refrigerated and dry van trailer equipment of which $7.0 million was due to
an increase in the amount of these types of equipment owned and on
operating lease, and $2.6 million was due to higher utilization. For the
nine months ended September 30, 1999, the average investment in
refrigerated and dry van trailer equipment was $80.1 million, compared to
$42.1 million for the same period of 1998.
(b) A $0.4 million increase in operating lease income was generated from assets
held for sale. During the nine months ended September 30, 1999, the Company
purchased $21.8 million in marine containers and sold $13.8 million to
affiliated programs at cost, which approximated their fair market value. The
Company earned $0.9 million in operating lease income on these marine
containers during the nine months ended September 30, 1999. During the nine
months ended September 30, 1998, the Company owned an entity owning a marine
vessel that generated $0.4 million in operating lease income. The Company
sold its interest in the entity that owned the marine vessel at cost, which
approximated fair market value, to an affiliated program during 1998.
<PAGE>
(c) A $0.4 million increase in operating lease income was generated from
commercial and industrial equipment, due to an increase in the amount of
these types of equipment owned and on operating lease.
These increases in operating lease income were partially offset by the
following:
(a) A $1.6 million decrease in operating lease income from intermodal trailers
due to the sale of all of the Company's intermodal trailers in 1998.
(b) A $0.1 million decrease in other operating lease income was due to the
Company's strategic decision to dispose of certain transportation assets
and exit certain equipment markets.
FINANCE LEASE INCOME:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary that are either retained for long-term investment or sold to third
parties. Finance lease income decreased $0.6 million in the nine months ended
September 30, 1999, compared to the same period in 1998, due to a decrease in
commercial and industrial assets that were on finance lease. For the nine months
ended September 30, 1999, the average investment in direct finance leases was
$132.8 million, compared to $144.1 million for the nine months ended September
30, 1998.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $6.8 million and $7.6 million
for the nine months ended September 30, 1999 and 1998, respectively. The
decrease in management fees resulted from a net decrease in managed equipment
from the PLM Equipment Growth Fund (EGF) programs. With the termination of
syndication activities in 1996, management fees from the older programs are
decreasing and are expected to continue to decrease as the programs liquidate
their equipment portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $1.1 million and $1.5 million for the nine months ended
September 30, 1999 and 1998, respectively. In addition, a decrease of $0.6
million and $0.8 million in the Company's residual interests in the programs was
recorded during the nine months ended September 30, 1999 and 1998, respectively.
The decrease in net earnings, distribution levels and residual interests in
1999, compared to 1998, resulted mainly from the disposition of equipment in
certain of the EGF programs. Residual income is based on the general partner's
share of the present value of the estimated disposition proceeds of the
equipment portfolios of the affiliated partnerships when the equipment is
purchased. Net decreases in the recorded residual values result when partnership
assets are sold and the proceeds are less than the original investment in the
sold equipment.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the nine months ended September 30, 1999, the Company, on behalf of the
EGF programs, purchased transportation and other equipment for $37.1 million.
The Company did not take acquisition and lease negotiation fees on $16.6 million
of this equipment, as the Company has reached certain fee limitations for one of
its limited partnership programs per the partnership agreement. This is compared
to the Company's purchase of $42.9 million in transportation and other equipment
during the nine months ended September 30, 1998, resulting in a $1.3 million
decrease in acquisition and lease negotiation fees.
During the nine months ended September 30, 1999, no equipment was purchased by
AFG for the institutional investment programs, compared to $26.0 million for the
same period in 1998, resulting in a $0.7 million decrease in acquisition and
lease negotiation fees. The Company does not expect to sell assets in the future
to the institutional programs. It will, however, continue to manage the existing
portfolios for these programs.
Because of the Company's decision to halt syndication of equipment leasing
programs with the close of Fund I in 1996 and because Fund I has a no front-end
fee structure, acquisition and lease negotiation fees will be substantially
reduced in the future.
GAIN (LOSS) ON THE SALE OR DISPOSITION OF ASSETS, NET:
During the nine months ended September 30, 1999, the Company recorded $2.1
million gain on sale or disposition of assets. Of this gain, $2.1 million
resulted from the sale or disposition of commercial and industrial equipment.
The gain on sale was partially offset by the loss of $41,000 resulted from the
sale or disposition of transportation equipment. During the nine months ended
September 30, 1998, the Company recorded $3.6 million in gain on the sale or
disposition of assets. Of this gain, $1.0 million resulted from the sale or
disposition of an aircraft engine, a 20% interest in a commuter aircraft, and
trailers, and $2.1 million related to the sale of commercial and industrial
equipment. Also during the nine months ended September 30, 1998, the Company
purchased and subsequently sold railcars to an unaffiliated third party for a
net gain of $0.5 million.
AIRCRAFT BROKERAGE AND SERVICES:
Aircraft brokerage and services revenue decreased $1.1 million during the nine
months ended September 30, 1999, compared to the same period of 1998, due to the
sale of the Company's aircraft leasing and spare parts brokerage subsidiary in
August 1998.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operations support $ 14,018 $ 12,917
Depreciation and amortization 11,383 8,891
General and administrative 4,851 6,174
-----------------------------------------
Total costs and expenses $ 30,252 $ 27,982
</TABLE>
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, costs of goods sold, and provision for doubtful
accounts, increased $1.1 million (9%) for the nine months ended September 30,
1999, compared to the same period of 1998. Operations support expense related to
the trailer leasing segment increased $4.6 million due to the expansion of PLM
Rental, with the addition of a total of twelve rental yards in 1998 and 1999 and
new trailers to existing yards. Operations support expense related to the
commercial and industrial equipment leasing and financing segment increased $0.7
million due to an increase in compensation and benefits expenses resulting from
the expansion of the commercial and industrial equipment lease portfolio, and a
new bonus program initiated in 1999 to retain AFG employees during AFG's
potential sale. These increases were offset by a $4.2 million decrease in
operations support expenses related to the management of investment programs and
other transportation equipment leasing segment, and other expenses mainly
related to the sale of the Company's aircraft leasing and spare parts brokerage
subsidiary in August 1998, and the sale of other transportation equipment
including intermodal trailers (discussed in the operating lease income section).
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $2.5 million (28%) for the nine
months ended September 30, 1999, compared to the nine months ended September 30,
1998. The increase resulted from an increase in depreciation of $2.8 million
from refrigerated trailer equipment on operating lease, and an increase in
depreciation of $0.3 million from commercial and industrial equipment, which was
partially offset by the reduction of $0.6 million in depreciation expense from
intermodal trailers and other equipment.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $1.3 million (21%) during the nine
months ended September 30, 1999, compared to the same period in 1998, primarily
due to a $0.7 million decrease in rent and office related expenses, a $0.5
million decrease in compensation and benefits expenses, and a $0.1 million
decrease in insurance expenses. These decreases were due to a decrease in
staffing and office space requirements.
OTHER INCOME AND EXPENSES
For the Nine Months
Ended September 30,
1999 1998
-----------------------------------------
(in thousands of dollars)
Interest expense $ (11,249) $ (10,663)
Interest income 680 1,212
Other (expenses) income, net (398) 478
INTEREST EXPENSE:
Interest expense increased $0.6 million (5%) during the nine months ended
September 30, 1999, compared to the same period in 1998. Interest expense
related to the trailer leasing segment increased $1.0 million due to an increase
in borrowings to fund trailer purchases. The increase in interest expense was
partially offset by a decrease in interest expense due to the reductions in the
amounts outstanding on the senior secured loan and AFG warehouse facility.
INTEREST INCOME:
Interest income decreased $0.5 million (44%) during the nine months ended
September 30, 1999, compared to the same period of 1998, as a result of lower
average cash balances during the nine months ended September 30, 1999, compared
to the same period of 1998.
OTHER (EXPENSES) INCOME, NET:
Other expense of $0.4 million for the nine months ended September 30, 1999
represents $1.0 million in expense related to the proposed initial public
offering of AFG (during the first quarter of 1999, the Company's Board of
Directors determined that it was in the Company's best interest to sell AFG
rather than proceed with a stock offering, and therefore wrote off all
associated offering costs) and $0.1 million in expenses related to the
settlement of a lawsuit, partially offset by $0.7 million of mileage income
received from the railroads. During the nine months ended September 30, 1998,
the Company recorded other income of $0.7 million related to the settlement of a
lawsuit against Tera Power Corporation and others, and recorded expense of $0.3
million related to a legal settlement for the Koch and Romei actions (refer to
Note 7).
PROVISION FOR INCOME TAXES:
For the nine months ended September 30, 1999, the provision for income taxes was
$1.5 million, representing an effective rate of 39%. For the nine months ended
September 30, 1998, the provision for income taxes was $2.3 million,
representing an effective rate of 39%.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.2 million charge,
net of tax of $0.2 million, related to start-up costs of its commercial and
industrial equipment operations which is being accounted for as discontinued
operations.
NET INCOME
As a result of the foregoing, for the nine months ended September 30, 1999, net
income was $2.2 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.27 and $0.26, respectively. For
the same period in 1998, net income was $3.5 million, resulting in basic and
diluted earnings per weighted-average common share outstanding of $0.42 and
$0.41, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, and the sale of equipment.
Liquidity in the remainder of 1999 and beyond will depend, in part, on the
continued remarketing of the equipment portfolio at similar lease rates, the
management of existing sponsored programs, the effectiveness of cost control
programs, the purchase and sale of equipment, the volume of trailer equipment
leasing transactions, additional borrowings, and the potential proceeds from the
sale of AFG. Management believes the Company can accomplish the preceding and
that it will have sufficient liquidity and capital resources for the next twelve
months. Future liquidity is influenced by the factors summarized below.
DEBT FINANCING:
NONRECOURSE SECURITIZED DEBT: The Company has available a nonrecourse debt
facility for up to $125.0 million, secured by direct finance leases, operating
leases, and loans on commercial and industrial equipment at AFG that generally
have terms of one to seven years. The facility is available for a one-year
period expiring October 10, 2000. Repayment of the facility matches the terms of
the underlying leases. As of September 30, 1999, $105.5 million in borrowings
was outstanding under this facility. As of October 28, 1999, $104.4 million in
borrowings was outstanding under this facility.
In addition to the $125.0 million nonrecourse debt facility discussed above, as
of September 30, 1999 and October 28, 1999, the Company also had $5.2 million
and $5.0 million, respectively, in nonrecourse notes payable secured by direct
finance leases on commercial and industrial equipment at AFG that have terms
corresponding to the note repayment schedule that began April 1998 and ends
March 2001. The notes bear interest from 8.32% to 9.5% per annum.
FSI WAREHOUSE CREDIT FACILITY: Assets acquired and held on an interim basis by
FSI for sale to affiliated programs or third parties have, from time to time,
been partially funded by this warehouse credit facility. This facility is also
used to temporarily finance the purchase of trailers prior to permanent
financing being obtained. This facility expires on December 14, 1999. The
Company believes it will be able to renew this facility on substantially the
same terms upon its expiration.
This facility is shared with EGF VI, PLM Equipment Growth & Income Fund VII (EGF
VII), and Fund I. Borrowings under this facility by the other eligible borrowers
reduce the amount available to be borrowed by the Company. All borrowings under
this facility are guaranteed by the Company. This facility provides 80%
financing for transportation assets purchased by the Company. The Company can
hold assets under this facility for up to 150 days. Interest accrues at prime or
LIBOR plus 162.5 basis points, at the option of the Company. As of September 30,
1999, the Company and EGF VI had $7.6 million and $1.0 million outstanding
borrowings under this facility, respectively. As of October 28, 1999, the
Company had $0.9 million in borrowings outstanding under this facility, and
there were no borrowings outstanding under this facility by any other eligible
borrowers.
AFG WAREHOUSE CREDIT FACILITY: Assets acquired and held on an interim basis by
AFG for placement in the Company's securitization facility or for sale to
unaffiliated third parties have, from time to time, been partially funded by a
$60.0 million warehouse credit facility. The facility expires December 14, 1999;
however, the Company believes it will be able to renew this facility on
substantially the same terms upon its expiration.
This facility provides for financing of 100% of the present value of the lease
stream of commercial and industrial equipment for up to 90% of original
equipment cost of the assets held on this facility.
Borrowings secured by investment-grade lessees can be held under this facility
until the facility's expiration. Borrowings secured by noninvestment-grade
lessees may be outstanding for 120 days. Interest accrues at prime or LIBOR plus
137.5 basis points, at the option of the Company. As of September 30, 1999, the
Company had $20.1 million outstanding under this facility. As of October 28,
1999, the Company had $21.1 million outstanding under this facility.
SENIOR SECURED NOTES: The Company's senior secured notes agreement, which had an
outstanding balance of $22.6 million as of September 30, 1999 and October 28,
1999, bears interest at LIBOR plus 240 basis points. The Company has pledged
substantially all of its future management fees, acquisition and lease
negotiation fees, data processing fees, and partnership distributions as
collateral to the facility. The facility required quarterly interest-only
payments through August 15, 1997, with principal plus interest payments
beginning November 15, 1997. Principal payments of $1.9 million are payable
quarterly through termination of the loan on August 15, 2002.
SENIOR SECURED LOAN: The Company's senior loan with a syndicate of insurance
companies, which had an outstanding balance of $10.3 million as of September 30,
1999 and October 28, 1999, provides that equipment sale proceeds from pledged
equipment or cash deposits be placed into a collateral account or used to
purchase additional equipment to the extent required to meet certain debt
covenants. Pledged equipment for this loan consists of the storage equipment and
virtually all trailer equipment purchased prior to August 1998. As of September
30, 1999, the cash collateral balance for this loan was $2,000 and is included
in restricted cash and cash equivalents on the Company's balance sheet. The
facility bears interest at 9.78% and required quarterly interest payments
through June 30, 1997, with quarterly principal payments of $1.5 million plus
interest charges beginning June 30, 1997 and continuing until termination of the
loan in June 2001.
OTHER SECURED DEBT: As of September 30, 1999, the Company had $31.8 million in
six debt agreements, bearing interest from 5.35% to 7.05%, each with payments of
$0.1 million due monthly in advance. The debt is secured by certain trailer
equipment.
In the second quarter of 1999, the Company entered into a $15.0 million credit
facility loan agreement bearing interest at LIBOR plus 1.5%. This facility
allows the Company to borrow up to $15.0 million within a one-year period. As of
September 30, 1999, the Company had borrowed $8.6 million under this facility.
Payments of $0.1 million are due quarterly beginning August 2000, with a final
payment of $1.4 million due August 2006.
INTEREST-RATE SWAP CONTRACTS: The Company has entered into interest-rate swap
agreements in order to manage the interest-rate exposure associated with its
nonrecourse securitized debt. As of September 30, 1999, the swap agreements had
a weighted-average duration of 1.40 years, corresponding to the terms of the
related debt. As of September 30, 1999, a notional amount of $94.8 million of
interest-rate swap agreements effectively fixed interest rates at an average of
6.52% on such obligations. For the nine months ended September 30, 1999,
interest expense increased by $0.5 million due to these arrangements.
TRAILER LEASING:
The Company operates 22 trailer rental facilities that engage in short-term and
mid-term operating leases. Nineteen of these facilities operate predominantly
refrigerated trailers used to transport temperature-sensitive commodities,
consisting primarily of food products. Three facilities operate only dry van
(non-refrigerated) trailers. The Company intends to move virtually all of its
dry van trailers to these facilities. In 1999, the Company has opened three new
refrigerated trailer yards. During the nine months ended September 30, 1999, the
Company purchased $36.2 million of primarily refrigerated trailers and sold
refrigerated and dry van trailers with a net book value of $0.4 million for
proceeds of $0.4 million. The net proceeds from the sale of assets that were
collateralized as part of the senior loan facility were placed in a collateral
account.
OTHER TRANSPORTATION EQUIPMENT LEASING AND OTHER:
During the first nine months of 1999, the Company purchased marine containers
for $21.8 million, and the Company sold $13.8 million to affiliated programs, at
cost, which approximated their fair market value. In October 1999, the Company
sold an additional $4.6 million of these marine containers to an affiliated
program, at cost which approximated their fair value.
STOCK REPURCHASE PROGRAM:
In December 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
As of October 28, 1999, 422,515 shares had been repurchased under this plan for
a total of $2.5 million.
Management believes that, through debt and equity financing, possible sales of
equipment, proceeds from the potential sale of AFG, and cash flows from
operations, the Company will have sufficient liquidity and capital resources to
meet its projected future operating needs over the next twelve months.
EFFECTS OF THE YEAR 2000:
It is possible that the Company's currently installed computer systems, software
products, and other business systems, or those of the Company's vendors, service
providers, and customers, working either alone or in conjunction with other
software or systems, may not accept input of, store, manipulate, and output
dates on or after January 1, 2000 without error or interruption, a possibility
commonly known as the "Year 2000" or "Y2K" problem.
The Company has established a special Year 2000 oversight committee to review
the impact of Year 2000 issues on its business systems in order to determine
whether such systems will retain functionality after December 31, 1999. As of
September 30, 1999, the Company has completed inventory, assessment,
remediation, and testing stages of its Year 2000 review of its core business
information systems. Specifically, the Company (a) has integrated Year
2000-compliant programming code into its existing internally customized and
internally developed transaction processing software systems and (b) the
Company's accounting and asset management software systems have been made Year
2000 compliant. In addition, numerous other software systems provided by vendors
and service providers have been replaced with systems represented by the vendor
or service provider to be Year 2000 functional. These systems have been fully
tested as of September 30, 1999 and are compliant.
As of September 30, 1999, the Company has spent $0.1 million to become Year 2000
compliant and does not anticipate any additional Year 2000-compliant
expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Company to control, including the extent to which third parties can address the
Year 2000 problem. The Company is communicating with vendors, services
providers, and customers in order to assess the Year 2000 compliance readiness
of such parties and the extent to which the Company is vulnerable to any
third-party Year 2000 issues. As part of this process, vendors and service
providers were ranked in terms of the relative importance of the service or
product provided. All service providers and vendors who were identified as of
medium to high relative importance were surveyed to determine Year 2000 status.
The Company has received satisfactory responses to Year 2000 readiness inquiries
from surveyed service providers and vendors.
It is possible that certain of the Company's equipment lease portfolio may not
be Year 2000 compliant. The Company has contacted equipment manufacturers of the
portion of the Company's leased equipment portfolio identified as date sensitive
to assure Year 2000 compliance or to develop remediation strategies. The Company
does not expect that non-Year 2000 compliance of its leased equipment portfolio
will have an adverse material impact on its financial statements. The Company
has surveyed the majority of its lessees and the majority of those surveyed have
responded satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. Any failure by such
other parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position, and results of
operations of the Company. The Company has made and will continue an ongoing
effort to recognize and evaluate potential exposure relating to third-party Year
2000 noncompliance. The Company will implement a contingency plan if the Company
determines that third-party noncompliance would have a material adverse effect
on the Company's business, financial position, or results of operation.
The Company is currently developing a contingency plan to address the possible
failure of any systems, vendors or service providers due to Year 2000 problems.
For the purpose of such contingency planning, a reasonably likely worst case
scenario primarily anticipates an inability to access systems and data on a
temporary basis resulting in possible delay in reconciliation of funds received
or payment of monies owed. The Company is evaluating whether there are
additional scenarios which have not been identified. Contingency planning will
encompass strategies up to and including manual processes. The Company
anticipates that these plans will be completed by December 31, 1999.
ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair market value.
FASB Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
September 30, 1999, the Company is reviewing the effect SFAS No. 133 will have
on the Company's consolidated financial statements.
FORWARD-LOOKING INFORMATION:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Company's actual results could differ materially from
those discussed here.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of interest rate risk. A
change in the U.S. prime interest rate, LIBOR rate, or lender's cost of funds
based on commercial paper market rates, would affect the rate at which the
Company could borrow funds under its various borrowing facilities. Increases in
interest rates to the Company, which may cause the Company to raise the implicit
rates charged to its customers, could in turn, result in a reduction in demand
for the Company's lease financing. The Company's warehouse credit facilities,
$8.6 million of other secured debt, and the senior secured notes are variable
rate debt. The Company estimates a 1 percent increase or decrease in the
Company's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $0.2 million in 1999, $0.1 million in 2000,
$0.2 million in 2001, $0.1 million in 2002, $0.1 million in 2003, and $0.1
million thereafter. The Company estimates a 2 percent increase or decrease in
the Company's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $0.4 million in 1999, $0.3 million in 2000,
$0.3 million in 2001, $0.2 million in 2002, $0.1 million in 2003, and $0.3
million thereafter.
All of the Company's other financial assets and liabilities are at fixed rates.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 8 to the consolidated financial statements.
Item 5. OTHER INFORMATION
The Company has agreed to sell its wholly -owned subsidiary, American Finance
Group, Inc., for approximately $29 million in cash to Guaranty Federal Bank,
subject to closing adjustments which are not expected to be material.
Consummation of the transaction is subject to various conditions, including the
approval of PLM shareholders, and closing of the transaction is expected to
occur only after such approval has been secured and all other conditions have
been satisfied. A copy of the agreement relating to such sale is attached as
Exhibit 10.7.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10.1 Severance Agreement among PLM International, Inc. and certain
employees dated August 1999.
10.2 Amendment #1 dated April 2, 1999 to Master Lease Agreement among PLM
International, Inc. and Wells Fargo Equipment Finance, Inc. dated
April 2, 1999.
10.3 Master Lease Agreement among PLM International, Inc. and Associates
Leasing, Inc. dated August 25, 1999.
10.4 Master Lease Agreement among PLM Rental Inc. and Fleet Capital, Inc.
dated September 23, 1999.
10.5 Amendment #2 dated October 12, 1999 to Master Lease Agreement among
PLM International, Inc. and Wells Fargo Equipment Finance, Inc. dated
April 2, 1999.
10.6 Master Lease Agreement among PLM Rental Inc. and US Bancorp dated
September 22, 1999.
10.7 Stock Sales Agreement among PLM International, Inc. and Guaranty
Federal Bank dated October 26, 1999.
(B) Reports on Form 8-K
<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/ Richard K Brock
--------------------------------------
Richard K Brock
Vice President and
Corporate Controller
Date: October 28, 1999
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0
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