UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal quarter ended September 30, 2000
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 November 9, 2000 - 7,448,510 shares.
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,
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Operating lease income $ 792 $ 275 $ 1,101 $ 888
Management fees 1,656 1,739 5,205 5,570
Partnership interests and other fees 1,500 263 1,688 579
Acquisition and lease negotiation fees 385 -- 538 1,079
Other 130 337 665 1,025
------------------------------------------------------------
Total revenues 4,463 2,614 9,197 9,141
------------------------------------------------------------
COSTS AND EXPENSES
Operations support 679 756 1,850 2,189
Depreciation and amortization 247 119 643 359
General and administrative 1,967 780 4,391 3,224
------------------------------------------------------------
Total costs and expenses 2,893 1,655 6,884 5,772
------------------------------------------------------------
Operating income 1,570 959 2,313 3,369
Interest expense (554) (521) (1,424) (1,772)
Interest income 266 59 869 252
Other income (expenses), net (175) 701 (177) 577
------------------------------------------------------------
Income before income taxes 1,107 1,198 1,581 2,426
Provision for income taxes 419 468 595 959
------------------------------------------------------------
Income from continuing operations, net of income tax 688 730 986 1,467
Income (loss) from discontinued operations, net of income tax (509) 647 (164) 941
Gain on disposition of discontinued operations, net of income tax 4,785 -- 4,785 --
------------------------------------------------------------
Net income before cumulative effect of accounting change 4,964 1,377 5,607 2,408
Cumulative effect of accounting change, net of income taxes -- -- -- (250)
------------------------------------------------------------
Net income to common shares $ 4,964 $ 1,377 $ 5,607 $ 2,158
============================================================
Basic earnings per weighted-average common share
outstanding
Income from continuing operations $ 0.09 $ 0.09 $ 0.13 $ 0.18
Income (loss) from discontinued operations (0.06) 0.08 (0.02) 0.12
Gain on disposition of discontinued operations 0.64 -- 0.63 --
Cumulative effect of accounting change -- -- -- (0.03)
------------------------------------------------------------
Net income to common shares $ 0.67 $ 0.17 $ 0.74 $ 0.27
============================================================
Diluted earnings per weighted-average common share
outstanding
Income from continuing operations $ 0.09 $ 0.09 $ 0.13 $ 0.18
Income (loss) from discontinued operations (0.07) 0.08 (0.02) 0.11
Gain on disposition of discontinued operations 0.64 -- 0.63 --
Cumulative effect of accounting change -- -- -- (0.03)
------------------------------------------------------------
Net income to common shares $ 0.66 $ 0.17 $ 0.74 $ 0.26
============================================================
</TABLE>
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
--------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 68,356 $ 2,089
Receivables (net of allowance for doubtful accounts of $0.3 million as of
September 30, 2000 and December 31, 1999) 2,228 2,504
Receivables from affiliates 1,603 2,962
Net assets of discontinued operations -- 51,984
Equity interest in affiliates 17,355 18,145
Restricted cash and cash equivalents 2,957 1,766
Other assets, net 4,479 5,275
-------------------------------------
Total assets $ 96,978 $ 84,725
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Senior secured notes $ 15,039 $ 20,679
Payables and other liabilities 22,527 6,007
Deferred income taxes 6,661 8,626
-------------------------------------
Total liabilities 44,227 35,312
Shareholders' equity
Preferred stock ($0.01 par value, 10.0 million shares
authorized, none outstanding as of September 30, 2000 and December 31, 1999) -- --
Common stock ($0.01 par value, 50.0 million shares
authorized, and 7,448,510 and 7,675,410 shares issued and outstanding
as of September 30, 2000 and December 31, 1999, respectively) 112 112
Paid-in capital, in excess of par 74,812 75,059
Treasury stock (4,587,245 and 4,360,345 shares as of September 30, 2000 and
December 31, 1999, respectively) (20,346) (18,324)
Accumulated deficit (1,827) (7,434)
-------------------------------------
Total shareholders' equity 52,751 49,413
-------------------------------------
Total liabilities and shareholders' equity $ 96,978 $ 84,725
=====================================
</TABLE>
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME
For the Year Ended December 31, 1999 and
the Nine Months Ended September 30, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit &
-------------------------------------------
Paid-in Accumulated
Capital in Other Total
At Excess Treasury Comprehensive Shareholders'
Par of Par Stock Income Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1998 $ 112 $ 74,947 $ (15,072) $ (9,790) $ 50,197
Comprehensive income:
Net income 2,356 2,356
Exercise of stock options 11 591 602
Common stock purchases (3,951) (3,951)
Reissuance of treasury stock 101 108 209
---------------------------------------------------------------------------
Balances, December 31, 1999 112 75,059 (18,324) (7,434) 49,413
Comprehensive income:
Net income 5,607 5,607
Exercise of stock options (247 ) 566 319
Common stock purchases (2,588) (2,588)
---------------------------------------------------------------------------
Balances, September 30, 2000 $ 112 $ 74,812 $ (20,346) $ (1,827) $ 52,751
===========================================================================
</TABLE>
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income from continuing operations $ 986 $ 2,849
Adjustments to reconcile net income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 643 359
Deferred income tax (3,441) (5,470)
Gain on disposition of discontinued operations, net of income tax (4,785) --
Increase (decrease) in payables and other liabilities 16,679 (1,046)
Decrease (increase) in receivables and receivables from affiliates 2,619 (59)
Amortization of goodwill related to the investment programs 672 2,119
Decrease (increase) in other assets 2,230 (524)
-----------------------------------
Cash provided by (used in) operating activities of continuing operations 15,603 (1,772)
Cash provided by operating activities of discontinued operations 14,247 17,349
Cumulative effect of accounting change -- 250
-----------------------------------
Net cash provided by operating activities 29,850 15,827
-----------------------------------
INVESTING ACTIVITIES
Cash received from affiliated entities in excess of equity income 118 726
Principal payments received on finance leases 279 211
Purchase of equipment held for sale (14,000) (21,805)
Proceeds from sale of subsidiary, net of transaction costs 98,117 --
Proceeds from the sale of assets held for sale 14,000 13,801
Increase (decrease) in restricted cash and restricted cash equivalents (1,191) 602
Investing activities of discontinued operations 6,813 (23,883)
-----------------------------------
Net cash provided by (used in) investing activities 104,136 (30,348)
-----------------------------------
FINANCING ACTIVITIES
Borrowings of short-term warehouse credit facility 10,200 --
Repayment of short-term warehouse credit facility (10,200) --
Repayment of senior secured notes (5,640) (5,640)
Repayment of senior secured loan -- (625)
Reissuance of treasury stock, net -- 42
Proceeds from exercise of stock options 30 579
Purchase of stock (2,588) (2,149)
Net financing activities of discontinued operations (59,521) 15,843
-----------------------------------
Net cash used in financing activities (67,719) 8,050
-----------------------------------
Net increase (decrease) in cash and cash equivalents 66,267 (6,471)
Cash and cash equivalents at beginning of period 2,089 8,786
-----------------------------------
Cash and cash equivalents at end of period $ 68,356 $ 2,315
===================================
Supplemental information
Net cash paid for interest from continuing operations $ 1,456 $ 3,840
===================================
Net cash paid for interest from discontinued operations $ 4,879 $ 7,937
===================================
===================================
Net cash paid for income taxes $ 351 $ 212
===================================
</TABLE>
See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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-owned subsidiaries (the Company's) financial position as of September 30,
2000 and December 31, 1999, statements of income for the three and nine months
ended September 30, 2000 and 1999, statements of changes in shareholders' equity
and comprehensive income for the year ended December 31, 1999 and the nine
months ended September 30, 2000, and statements of cash flows for the nine
months ended September 30, 2000 and 1999. 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, 1999, on file with the Securities and Exchange Commission.
The Company has retained an investment banking firm to find a buyer for the
Company and is actively pursuing this goal.
2. RECLASSIFICATIONS
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
3. DISCONTINUED OPERATIONS
Net income (loss) from discontinued operations of trailer leasing and American
Finance Group (AFG) for the three and nine months ended September 30, 2000 and
1999 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the three months ended For the three months ended
September 30, 2000 September 30, 1999
------------------------------------ ------------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 9,446 $ -- $ 9,446 $ 7,277 $ 6,253 $ 13,530
Costs and expenses (9,265) -- (9,265) (5,960) (3,444) (9,404)
------------------------------------ ------------------------------------
Operating income 181 -- 181 1,317 2,809 4,126
Interest expense (1,005) -- (1,005) (902) (2,319) (3,221)
Interest and other income (expense) (4) -- (4) -- 144 144
------------------------------------ ------------------------------------
Net income (loss) from discontinued
operations
before income taxes (828) -- (828) 415 634 1,049
(Benefit from) provision for income tax (319) -- (319) 162 240 402
------------------------------------ ------------------------------------
Net income (loss) from discontinued $ (509) $ -- $ (509) $ 253 $ 394 $ 647
operations
==================================== ====================================
Gain on disposition of discontinued
operations,
net of income tax $ 4,785 $ -- $ 4,785 $ -- $ -- $ --
==================================== ====================================
For the nine months ended For the nine months ended
September 30, 2000 September 30, 1999
------------------------------------ ------------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
---------------------------------- ------------------------------------
Revenues $ 24,869 $ 4,076 $ 28,945 $ 16,343 $ 19,672 $ 36,015
Costs and expenses (21,811) (2,917) (24,728) (14,673) (9,807) (24,480)
------------------------------------ ------------------------------------
Operating income 3,058 1,159 4,217 1,670 9,865 11,535
Interest expense (3,148) (1,750) (4,898) (2,090) (7,387) (9,477)
Interest and other income (expense) (4) 95 91 -- (547) (547)
------------------------------------ ------------------------------------
Net income (loss) from discontinued
operations
before income taxes (94) (496) (590) (420) 1,931 1,511
(Benefit from) provision for income tax (37) (189) (226) (163) 733 570
Net income previously accrued as a
component
of loss on a discontinued operation -- 200 200 -- -- --
------------------------------------ ------------------------------------
Net income (loss) from discontinued $ (57) $ (107) $ (164) $ (257) $ 1,198 $ 941
operations
==================================== ====================================
Gain on disposition of discontinued
operations,
net of income tax $ 4,785 $ -- $ 4,785 $ -- $ -- $ --
==================================== ====================================
</TABLE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
3. DISCONTINUED OPERATIONS (CONTINUED)
During the first quarter of 2000, $0.6 million of after-tax loss on disposal of
a discontinued operation was recorded against the provision established at
December 31, 1999 and is not included in the above table.
TRAILER LEASING:
On May 24, 2000, PLM International, Inc. and Marubeni America Corporation signed
an asset purchase agreement to sell the refrigerated and dry trailer assets and
related liabilities of PLM International, Inc. to Marubeni America Corporation.
PLM shareholders approved the transaction on August 25, 2000.
At the closing of the sale on September 30, 2000, Marubeni America Corporation
paid $67.5 million in cash to PLM International for its 4,250 trailers and
assumed $49.2 million in debt and other liabilities, including the operation of
most of the PLM Trailer Leasing's trailer yards located throughout the United
States. In addition, $1.5 million was placed into an escrow account. This cash
will be released to the Company after it receives certain tax clearance
certificates. This is expected to occur in the fourth quarter of 2000. This $1.5
million is included in restricted cash on the September 30, 2000 consolidated
balance sheet. The Company expects to receive an additional $0.2 million from
Marubeni America Corporation in the fourth quarter of 2000 related to the sale
of the trailer assets. This amount is included in receivables on the September
30, 2000 consolidated balance sheet. The Company will pay $4.8 million of income
tax related to the trailer sale in the fourth quarter of 2000 and the first
quarter of 2001.
EQUIPMENT:
Trailer equipment held for operating lease prior to the sale was depreciated on
the straight-line method down to the equipment's estimated salvage value.
During the nine months ended September 30, 2000, prior to the sale, the Company
purchased trailers for $25.6 million and sold trailers with a net book value of
$0.4 million for $0.4 million. The Company sold all the trailer assets owned as
of September 30, 2000 to Marubeni America Corporation.
DEBT:
SENIOR SECURED LOAN: The Company had a senior loan with a syndicate of insurance
companies that had an outstanding balance of $5.9 million prior to the trailer
sale. This facility was repaid by the Company on September 30, 2000 concurrent
with the sale of the trailer assets of the Company. The Company incurred a $0.1
million penalty to have this facility repaid which has been expensed.
OTHER SECURED DEBT: The Company had eight debt agreements and a $15.0 million
credit loan agreement that had outstanding balances of $33.3 million and $14.5
million, respectively, prior to the trailer sale. These agreements were assumed
by Marubeni America Corporation on September 30, 2000 concurrent with the sale
of the trailer assets of the Company.
AMERICAN FINANCE GROUP, INC.:
In October 1999, the Company agreed to sell AFG, its commercial and industrial
equipment leasing subsidiary for approximately $28.3 million, net of transaction
costs and income taxes. On February 25, 2000, the shareholders of PLM
International approved the transaction. The sale of AFG was completed on March
1, 2000. On that date, the Company received $29.0 million for AFG. In July 2000,
the Company received additional sales proceeds of $2.3 million for the sale of
AFG. The Company received additional proceeds of $0.9 million in the fourth
quarter of 2000 which was included in receivables on the consolidated balance
sheet on September 30, 2000 related to the sale of AFG. The amount was disputed
by the purchaser of AFG and was submitted to arbitration. The Company prevailed
in arbitration. Taxes and transaction costs related to the sale are estimated to
be $3.9 million resulting in
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
3. DISCONTINUED OPERATIONS (CONTINUED)
estimated net proceeds to the Company of $28.3 million. In addition, AFG
distributed to PLMI certain assets with a net book value of $2.7 million and
cash of $0.4 million immediately prior to the sale.
Accordingly, the Company's trailer leasing and commercial and industrial leasing
operations are accounted for as discontinued operations and prior periods have
been restated. For business segment reporting purposes, trailer leasing is
reported in the segment "Trailer Leasing" and AFG is reported in the segment
"Commercial and industrial equipment leasing and financing". Costs and expenses
included in discontinued operations includes all direct expenses of trailer
leasing and AFG, and allocated costs from PLMI that will be eliminated as a
result of the sale.
4. DEBT
The Company had a $9.5 million warehouse facility, which was shared with PLM
Equipment Growth Fund VI (Fund VI), PLM Equipment Growth & Income Fund VII, and
Professional Lease Management Income Fund I, LLC, that allowed the Company to
purchase equipment prior to its designation to a specific program or prior to
obtaining permanent financing. Borrowings under this facility by the other
eligible borrowers reduced the amount available to be borrowed by the Company.
All borrowings under this facility were guaranteed by the Company. This facility
expired on September 30, 2000. The Company is currently negotiating with a new
lender for a $15.0 million warehouse facility with similar terms. The Company
believes this facility will be completed in the fourth quarter of 2000.
During the first nine months of 2000, the Company repaid $5.6 million of the
senior secured notes in accordance with the debt repayment schedules.
5. SHAREHOLDERS' EQUITY
During the nine months ended September 30, 2000, the Company purchased 98,246
shares of the Company's common stock for $0.7 million, which completed the $5.0
million common stock repurchase program authorized by the Company's Board of
Directors in December 1998. The Company purchased 828,325 shares under this plan
for a total of $5.0 million.
In May 2000, the Company's Board of Directors' authorized the purchase of up to
$10.0 million of the Company's common stock. During the nine months ended
September 30, 2000, the Company purchased 261,654 shares of the Company's common
stock for $1.9 million, under the $10.0 million common stock repurchase program.
During the nine months ended September 30, 2000, 133,000 shares were issued for
the exercise of stock options. As a result of the stock repurchases and exercise
of stock options, the total common shares outstanding decreased to 7,448,510 as
of September 30, 2000 from the 7,675,410 outstanding as of December 31, 1999.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
5. SHAREHOLDERS' EQUITY (CONTINUED)
Net income per basic weighted-average common share outstanding was computed by
dividing net income to common shares by the weighted-average number of shares
deemed outstanding during the period. The weighted-average number of shares
deemed outstanding for the basic earnings per share calculation during the three
months ended September 30, 2000 and 1999 was 7,429,271 and 8,061,551,
respectively. The weighted-average number of shares deemed outstanding for the
basic earnings per share calculation during the nine months ended September 30,
2000 and 1999 was 7,592,002 and 8,097,489, respectively. The weighted-average
number of shares deemed outstanding, including potentially dilutive common
shares, for the diluted earnings per weighted-average share calculation during
the three months ended September 30, 2000 and 1999 was 7,473,131 and 8,137,547,
respectively. The weighted-average number of shares deemed outstanding,
including potentially dilutive common shares, for the diluted earnings per
weighted-average share calculation during the nine months ended September 30,
2000 and 1999 was 7,647,567 and 8,204,268, respectively.
On September 29, 2000, the Company announced that its Board of Director's had
approved a plan of partial liquidation and authorized a $5.00 per share
distribution to shareholders from the proceeds of the trailer sale. This payment
was made on November 3, 2000 to shareholders of record as of October 22, 2000.
6. LEGAL MATTERS
The Company and various of its wholly owned subsidiaries are defendants in a
class action lawsuit filed in January 1997 and which is pending in the United
States District Court for the Southern District of Alabama, Southern Division
(Civil Action No. 97-0177-BH-C) (the court). The named plaintiffs are six
individuals who invested in PLM Equipment Growth Fund IV, PLM Equipment Growth
Fund V (Fund V), PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income
Fund VII (the Partnerships), each a California limited partnership for which the
Company's wholly owned subsidiary, PLM Financial Services, Inc. (FSI).
FSI, acts as the General Partner. The complaint asserts causes of action against
all defendants for fraud and deceit, suppression, negligent misrepresentation,
negligent and intentional breaches of fiduciary duty, unjust enrichment,
conversion, and conspiracy. Plaintiffs allege that each defendant owed
plaintiffs and the class certain duties due to their status as fiduciaries,
financial advisors, agents, and control persons. Based on these duties,
plaintiffs assert liability against defendants for improper sales and marketing
practices, mismanagement of the Partnerships, and concealing such mismanagement
from investors in the Partnerships. Plaintiffs seek unspecified compensatory
damages, as well as punitive damages.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No.987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Partnerships. The complaint alleges the same facts and the same
causes of action as in the Koch action, plus additional causes of action against
all of the defendants, including alleged unfair and deceptive practices and
violations of state securities law. In July 1997, defendants filed a petition
(the petition) in federal district court under the Federal Arbitration Act
seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company's petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below. The state court action continues to be stayed
pending such resolution.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
6. LEGAL MATTERS (CONTINUED)
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Partnerships between May 23, 1989 and
August 30, 2000. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Partnerships' equipment, (b) the extension (until December 31, 2004) of the
period during which FSI can reinvest the Partnerships' funds in additional
equipment, (c) an increase of up to 20% in the amount of front-end fees
(including acquisition and lease negotiation fees) that FSI is entitled to earn
in excess of the compensatory limitations set forth in the North American
Securities Administrator's Association's Statement of Policy; (d) a one-time
repurchase by each of Funds V, VI and VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Partnerships. Subject to
final court approval, these proposed changes would be made as amendments to each
Partnership's limited partnership agreement if less than 50% of the limited
partners of each Partnership vote against such amendments. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Partnership funds in the event, if ever, that certain
performance thresholds have been met by the Partnerships. The equitable
settlement class consists of all investors, limited partners, assignees or unit
holders who on August 30, 2000 held any units in Funds V, VI, and VII, and their
assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including disapproval of the proposed amendments to the partnership agreements
by less than 50% of the limited partners in one or more of Funds V, VI, and VII,
judicial approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing.
A final fairness hearing has been scheduled for November 29, 2000. 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.
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
7. OPERATING SEGMENTS
The Company operates or operated in three operating segments: the management of
investment programs and other equipment leasing, trailer leasing, and commercial
and industrial equipment leasing and financing. The management of investment
programs and other equipment leasing segment involves managing the Company's
syndicated investment programs, from which it earns fees and equity interests,
and arranging short-term to mid-term operating leases of other transportation
equipment. The Company sold its trailer assets on September 30, 2000, and sold
its commercial and industrial equipment leasing subsidiary on March 1, 2000.
Accordingly, these segments are accounted for as discontinued operations. The
Company evaluates the performance of each segment based on profit or loss from
operations before allocating income taxes. The following tables present a
summary of the operating segments (in thousands of dollars):
<TABLE>
<CAPTION>
Management
of Investment
Programs
and Other
Transporatation
Trailer Equipment
For the three months ended September 30, 2000 Leasing Leasing Other(1) Total
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Lease income $ -- $ 792 $ -- $ 792
Fees earned -- 3,541 -- 3,541
Other -- 130 -- 130
-------------------------------------------------------------
Total revenues -- 4,463 -- 4,463
-------------------------------------------------------------
COSTS AND EXPENSES
Operations support -- 378 301 679
Depreciation and amortization -- 247 -- 247
General and administrative expenses -- -- 1,967 1,967
-------------------------------------------------------------
Total costs and expenses -- 625 2,268 2,893
-------------------------------------------------------------
Operating income (loss) -- 3,838 (2,268) 1,570
Interest income (expense), net -- (591) 303 (288)
Other income (expense), net -- (27) (148) (175)
-------------------------------------------------------------
Income (loss) before income taxes $ -- $ 3,220 $ (2,113) $ 1,107
=============================================================
Loss from discontinued operations, net of $ (509) $ $ -- $ (509)
income tax --
=============================================================
Gain on disposition of discontinued operations,
net of
income tax $ 4,785 $ -- $ -- $ --
=============================================================
Total assets as of September 30, 2000 $ -- $ 22,422 $ 74,556 $ 96,978
=============================================================
________________________
(1) Includes certain other revenue, interest income, and costs not identifiable
to a particular segment such as general and administrative, certain operations
support expenses, and certain other income.
</TABLE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
7. OPERATING SEGMENTS (CONTINUED)
<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(1) Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Lease income $ -- $ -- $ 275 $ -- $ 275
Fees earned -- -- 2,002 -- 2,002
Other -- -- 333 4 337
------------------------------------------------------------------------------
Total revenues -- -- 2,610 4 2,614
------------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support -- -- 691 65 756
Depreciation and amortization -- -- 119 -- 119
General and administrative expenses -- -- -- 780 780
------------------------------------------------------------------------------
Total costs and expenses -- -- 810 845 1,655
------------------------------------------------------------------------------
Operating income (loss) -- -- 1,800 (841) 959
Interest expense, net -- -- (463) 1 (462)
Other income (expenses), net -- -- 700 1 701
------------------------------------------------------------------------------
Income (loss) before income taxes $ -- $ -- $ 2,037 $ (839) $ 1,198
==============================================================================
Income from discontinued operations, net of $ 253 $ 394 $ -- $ -- $ 647
income tax
==============================================================================
Total assets as of September 30, 1999 $ 16,372 $ 25,140 $ 35,084 $ 6,812 $ 83,408
==============================================================================
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the nine months ended September 30, 2000 Leasing Financing Leasing Other(1) Total
------------------------------------------------------------------------------
REVENUES
Lease income $ -- $ -- $ 1,101 $ -- $ 1,101
Fees earned -- -- 7,431 -- 7,431
Other -- -- 665 -- 665
------------------------------------------------------------------------------
Total revenues -- -- 9,197 -- 9,197
------------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support -- -- 806 1,044 1,850
Depreciation and amortization -- -- 643 -- 643
General and administrative expenses -- -- -- 4,391 4,391
------------------------------------------------------------------------------
Total costs and expenses -- -- 1,449 5,435 6,884
------------------------------------------------------------------------------
Operating income (loss) -- -- 7,748 (5,435) 2,313
Interest income (expense), net -- -- (1,424) 869 (555)
Other income (expense), net -- -- (29) (148) (177)
------------------------------------------------------------------------------
Income (loss) before income taxes $ -- $ -- $ 6,295 $ (4,714) $ 1,581
==============================================================================
Income (loss) from discontinued operations, net
of income tax $ (57) $ (107) $ $ -- $ (164)
--
==============================================================================
Gain on disposition of discontinued operations,
net of Income tax $ 4,785 $ -- $ -- $ -- $ --
==============================================================================
Total assets as of September 30, 2000 $ -- $ -- $ 22,422 $ 74,556 $ 96,978
==============================================================================
____________________________
(1) Includes certain other revenue, interest income, and costs not identifiable
to a particular segment such as general and administrative, certain operations
support expenses, and certain other income.
</TABLE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
7. 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(1) Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Lease income $ -- $ -- $ 888 $ -- $ 888
Fees earned -- -- 7,228 -- 7,228
Other -- -- 1,021 4 1,025
------------------------------------------------------------------------------
Total revenues -- -- 9,137 4 9,141
------------------------------------------------------------------------------
Costs and expenses
Operations support -- -- 1,579 610 2,189
Depreciation and amortization -- -- 359 -- 359
General and administrative expenses -- -- -- 3,224 3,224
------------------------------------------------------------------------------
Total costs and expenses -- -- 1,938 3,834 5,772
------------------------------------------------------------------------------
Operating income (loss) -- -- 7,199 (3,830) 3,369
Interest expense, net -- -- (1,520) -- (1,520)
Other income (expenses), net -- -- 700 (123) 577
------------------------------------------------------------------------------
Income (loss) before income taxes $ -- $ -- $ 6,379 $ (3,953) $ 2,426
==============================================================================
Income (loss) from discontinued operations, net
of income taxes $ (257) $ 1,198 $ -- $ -- $ 941
==============================================================================
Cumulative effect of accounting change,
net of income taxes $ -- $ (250) $ -- $ -- $ (250)
==============================================================================
Total assets as of September 30, 1999 $ 16,372 $ 25,140 $ 35,084 $ 6,812 $ 83,408
==============================================================================
(1) Includes certain other revenue, interest income, and costs not identifiable
to a particular segment such as general and administrative, certain operations
support expenses, and certain other income.
</TABLE>
8. 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 required costs related to start-up activities to be expensed as incurred.
The statement required that initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.3 million charge,
net of tax of $0.1 million, related to start-up costs of its commercial and
industrial equipment operations which is being accounted for as discontinued
operations.
9. SUBSEQUENT EVENTS
The Company's senior lender agreed to waive certain debt covenants if the
Company placed securities with maturity values equal to 66% of future principal
payments under the senior secured notes in an escrow account. Accordingly, in
October 2000, the Company purchased U.S. Government Securities with a face value
of $9.5 million.
During October 2000, the Company purchased $10.0 million in marine containers
which are held for sale to the affiliated programs. The Company had paid for
$8.6 million of these containers as of November 9, 2000.
On October 31, 2000, the Company received $1.0 million from the buyer of AFG.
This amount represented the $0.9 million receivables on the consolidated balance
sheet on September 30, 2000 plus interest on this amount.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT OF INVESTMENT PROGRAMS
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 entitle the Company to receive a 1% or 5%
interest in the cash distributions and earnings of a partnership, subject to
certain allocation provisions. The Fund I agreement entitles the Company to a
15% interest in the cash distributions and earnings of the program, subject to
certain allocation provisions. The Company's interest in the earnings and
distributions of Fund I will increase to 25% after the investors have received
distributions equal to their original invested capital.
In 1996, the Company announced the suspension of public syndication of equipment
leasing programs with the close of Fund I. As a result of this decision,
revenues earned from managed programs, which include management fees,
partnership interests and other fees, and acquisition and lease negotiation
fees, will be reduced in the future as the older programs liquidate and the
managed equipment portfolio for these programs becomes permanently reduced.
In accordance with certain limited partnership agreements, four limited
partnerships have entered their liquidation phases and the Company has commenced
an orderly liquidation of the partnerships' assets. Two of the limited
partnerships, PLM Equipment Growth Fund III and PLM Equipment Growth Fund IV are
expected to be liquidated by the end of 2001. Two of the limited partnerships,
PLM Equipment Growth Fund and PLM Equipment Growth Fund II will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events.
The Company will occasionally own transportation equipment prior to sale to
affiliated programs or third parties. During this period, the Company earns
lease revenue and incurs interest and operating expenses.
TRAILER LEASING
The Company operated 22 trailer rental facilities doing business as PLM Trailer
Leasing that engaged in short-term and mid-term operating leases. Nineteen of
these facilities leased predominantly refrigerated trailers used to transport
temperature-sensitive commodities, consisting primarily of food products. Three
facilities leased only dry van (non-refrigerated) trailers.
On May 24, 2000, PLM International, Inc. and Marubeni America Corporation signed
an asset purchase agreement to sell the refrigerated and dry trailer assets and
related liabilities of PLM International, Inc. to Marubeni America Corporation.
PLM shareholders approved the transaction on August 25, 2000.
At the closing of the sale on September 30, 2000, Marubeni America Corporation
paid $67.5 million in cash to PLM International for its 4,250 trailers and
assumed $49.2 million in debt and other liabilities, including the operation of
most of the PLM Trailer Leasing's trailer yards located throughout the United
States. In addition, $1.5 million was placed into an escrow account. This cash
will be released to the Company after it receives certain tax clearance
certificates. This is expected to occur in the fourth quarter of 2000. This $1.5
million is included in restricted cash on the September 30, 2000 consolidated
balance sheet. The Company expects to receive an additional $0.2 million from
Marubeni America Corporation in the fourth quarter of 2000 related to the sale
of the trailer assets. This amount is included in receivables on the September
30, 2000 consolidated balance sheet. The Company will pay $4.8 million of income
tax related to the trailer sale in the fourth quarter of 2000 and the first
quarter of 2001.
Accordingly, the Company's trailer leasing is accounted for as a discontinued
operation and prior periods have been restated.
Commercial and Industrial Equipment Leasing and Financing
The Company had a subsidiary, Amercian Finance Group, Inc. (AFG) that
specialized in the leasing and management of commercial and industrial
equipment.
In October 1999, the Company agreed to sell American Finance Group, Inc. (AFG),
its commercial and industrial equipment leasing subsidiary for approximately
$28.3 million, net of transaction costs and income taxes. On February 25, 2000,
the shareholders of PLM International approved the transaction. The sale of AFG
was completed on March 1, 2000. On that date, the Company received $29.0 million
for AFG. In July 2000, the Company received additional sales proceeds of $2.3
million for the sale of AFG. The Company received additional proceeds of $0.9
million in the fourth quarter of 2000 which was included in the receivables on
the consolidated balance sheet on September 30, 2000 related to the sale of AFG.
The amount was disputed by the purchaser of AFG and was submitted to
arbitration. The Company prevailed in arbitration. Taxes and transaction costs
related to the sale are estimated to be $3.9 million resulting in estimated net
proceeds to the Company of $28.3 million. In addition, AFG distributed to PLMI
certain assets with a net book value of $2.7 million and cash of $0.4 million
immediately prior to the sale.
Accordingly, the Company's commercial and industrial leasing operations are
accounted for as a discontinued operation and prior periods have been restated.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
The following analysis reviews the operating results of the Company:
REVENUES
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operating lease income $ 792 $ 275
Management fees 1,656 1,739
Partnership interests and other fees 1,500 263
Acquisition and lease negotiation fees 385 --
Other 130 337
-----------------------------------------
Total revenues $ 4,463 $ 2,614
</TABLE>
The fluctuations in revenues for the three months ended September 30, 2000,
compared to the three month ended September 30, 1999, are summarized and
explained below.
OPERATING LEASE INCOME:
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 $0.5 million during the third quarter of 2000, compared to the
same quarter of 1999.
Lease income from assets held for sale were $0.6 million and $0.3 million for
the quarters ended September 30, 2000 and 1999, respectively. During the third
quarter of 2000, the Company owned $14.0 million in marine containers that were
sold on September 30, 2000 to affiliated programs at cost, which approximated
their fair market value. The Company earned $0.6 million in operating lease
income on these marine containers during the third quarter of 2000. During the
third quarter of 1999, the Company owned $6.8 million in marine containers that
were sold during the three months ended September 30, 1999 to affiliated
programs at cost, which approximated their fair market value. The Company earned
$0.3 million in operating lease income on these marine containers during the
third quarter of 1999.
Other operating lease income was $0.2 million and $12,000 for the quarters ended
September 30, 2000 and 1999, respectively. The increase in other operating lease
income was due to the increase in volume of other assets on operating lease.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $1.7 million for the quarters
ended September 30, 2000 and 1999. The decrease in management fees of $0.1
million resulted from a net decrease in managed equipment from the PLM Equipment
Growth Fund (EGF) programs and Professional Lease Management Income Fund I, LLC
(Fund I). With the termination of syndication activities in 1996, management
fees from the older programs are decreasing and are expected to continue to
decrease as the programs liquidate their equipment portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings from the affiliated programs
were $1.3 million and $0.3 million for the quarter ended September 30, 2000 and
1999, respectively. The increase of $1.0 million in net earnings from the
affiliated entities compared to 1999, resulted from increased gains from
disposal of equipment in the affiliated programs. In addition, a decrease of
$0.1 million in the Company's residual interests in the programs was recorded
during the quarter ended September 30, 1999. A similar reduction was not
required in the three months ended September 30, 2000. An increase of $0.2
million in other fees was due to increased sales commissions in the three months
ended September 30, 2000, compared to the same period of 1999.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the quarter ended September 30, 2000, the Company, on behalf of the EGF
programs, purchased transportation equipment for $7.0 million and $0.4 million
in acquisition and lease negotiation fees were earned on these purchases. The
Company did not purchase any equipment for the EGF programs during the quarter
ended September 30, 1999. Because of the Company's decision to halt syndication
of equipment leasing programs with the close of Fund I in 1996, because Fund I
has a no front-end fee structure, and because the Company has reached the
maximum allowable fees that may be taken in some of the programs, acquisition
and lease negotiation fees will continue at the current levels or be reduced in
the future.
OTHER:
Other revenues were $0.1 million and $0.3 million for the quarters ended
September 30, 2000 and 1999, respectively. A decrease in other revenues of $0.1
million was due to loss from disposal of other assets during the quarter ended
September 30, 2000. No similar loss occurred during the same period of 1999. A
decrease of $0.1 million in other revenues was due to lower data processing fees
earned from the affiliated programs in the three months ended September 30, 2000
compared to the same period of 1999.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operations support $ 679 $ 756
Depreciation and amortization 247 119
General and administrative 1,967 780
-----------------------------------------
Total costs and expenses $ 2,893 $ 1,655
</TABLE>
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities and provision for doubtful accounts, decreased $0.1
million (10%) for the quarter ended September 30, 2000, compared to the quarter
ended September 30, 1999. A $0.3 million decrease in operations support expenses
related to the management of investment programs was due to a reduction in the
size of the managed equipment portfolio. This decrease in operations support
expenses was partially offset by a $0.2 million increase in operations support
expenses related to other activities due to the increase in compensation and
benefits expense.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense increased $0.1 million (108%) for the
quarter ended September 30, 2000, compared to the quarter ended September 30,
1999. The increase resulted from an increase in the volume of other assets held
for operating lease.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased $1.2 million (152%) during the
quarter ended September 30, 2000, compared to the quarter ended September 30,
1999. An increase of $1.6 million was due to severance costs incurred in 2000
related to staffing reductions. A similar event did not occur in 1999. The
increase was partially offset by a $0.4 million decrease of in compensation and
benefits expense as a result of a decrease in staffing requirements.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Interest expense $ (554) $ (521)
Interest income 266 59
Other income (expense), net (175) 701
</TABLE>
INTEREST INCOME:
Interest income increased $0.2 million (351%) during the quarter ended September
30, 2000, compared to the same quarter of 1999. The increase was primarily due
to increased loans outstanding to the affiliated programs in the three months
ended September 30, 2000, compared to the same period of 1999.
OTHER INCOME (EXPENSES), NET:
Other expenses of $0.2 million during the quarter ended September 30, 2000,
compared to $0.7 million of other income during the same quarter of 1999. Other
expenses of $0.2 million for the quarter of 2000 primarily related to the
litigation cost. No similar expenses were incurred during the same quarter of
1999. Other income of $0.7 million for the quarter ended September 30, 1999
represented mileage income received from the railroads. No similar income was
received during the same quarter of 2000.
PROVISION FOR INCOME TAXES:
For the three months ended September 30, 2000, the provision for income tax was
$0.4 million, representing an effective rate of 38%. For the three months ended
September 30, 1999, the provision for income taxes was $0.5 million,
representing an effective rate of 39%. The decrease in the effective rate of 1%
was due to the change in the effect of permanent difference between tax and book
income.
NET INCOME FROM DISCONTINUED OPERATIONS
On May 24, 2000, PLM International, Inc. and Marubeni America Corporation signed
an asset purchase agreement to sell the refrigerated and dry trailer assets and
related liabilities of PLM International, Inc. to Marubeni America Corporation.
PLM shareholders approved the transaction on August 25, 2000. The sale was
completed on September 30, 2000.
In October 1999, the Company agreed to sell its commercial and industrial
equipment subsidiary American Finance Group, Inc. (AFG). On February 25, 2000,
the shareholders of PLM International approved the transaction. The sale was
completed on March 1, 2000.
Accordingly, the Company's trailer leasing and commercial and industrial leasing
operations are accounted for as discontinued operations and prior periods have
been restated. Net income (loss) from discontinued operations for the quarter
ended September 30, 2000 and 1999 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30, 2000 September 30, 1999
-------------------------------------- ----------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
-------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Operating lease income $ 9,259 $ -- $ 9,259 $ 7,069 $ 2,439 $ 9,508
Finance lease income -- -- -- -- 2,696 2,696
Management fees 192 -- 192 227 171 398
Gain (loss) on sale or disposition of (18) -- (18) (29) 458 429
assets, net
Other 13 -- 13 10 489 499
-------------------------------------- ------------------------------------
Total revenues 9,446 -- 9,446 7,277 6,253 13,530
-------------------------------------- ------------------------------------
COSTS AND EXPENSES
Operations support 5,220 -- 5,220 3,365 1,295 4,660
Depreciation and amortization 2,728 -- 2,728 2,053 2,149 4,202
General and administrative expenses 1,317 -- 1,317 542 -- 542
-------------------------------------- ------------------------------------
Total costs and expenses 9,265 -- 9,265 5,960 3,444 9,404
-------------------------------------- ------------------------------------
Operating income (loss) 181 -- 181 1,317 2,809 4,126
Interest expense, net (1,005) -- (1,005) (902) (2,174) (3,076)
Other expense (4) -- (4) -- (1) (1)
-------------------------------------- ------------------------------------
Net income (loss) from discontinued
operations
before income taxes (828) -- (828) 415 634 1,049
(Benefit from) provision for income tax (319) -- (319) 162 240 402
-------------------------------------- ------------------------------------
Net income (loss) from discontinued $ (509) $ -- $ (509) $ 253 $ 394 $ 647
operations
====================================== ====================================
Gain on disposition of discontinued
opertions, net
of income tax $ 4,785 $ -- $ 4,785 $ -- $ -- $ --
====================================== ====================================
</TABLE>
TRAILER LEASING:
Operating lease income increased to $9.3 million for the three months ended
September 30, 2000, compared to $7.1 million for the same period of 1999 which
resulted from an increase in the trailers owned and on operating lease.
Operation support increased to $5.2 million for the three months ended September
30, 2000, compared to $3.4 million for the same period of 1999 was due to the
expansion of PLM Trailer Leasing, with the opening of additional rental yards in
1999 and trailer purchases in 1999 and 2000.
Depreciation and amortization increased to $2.7 million for the three months
September 30, 2000, compared to $2.1 million for the same period of 1999 due to
an increase in the amount of refrigerated trailer equipment on operating lease
at PLM Trailer Leasing.
General and administrative expenses increased to $1.3 million for the three
months ended September 30, 2000, compared to $0.5 million for the same period of
1999. The increase of $0.8 million was due to the growth of the trailer
business.
Interest expenses increased to $1.0 million for the three months ended September
30, 2000, compared to $0.9 million for the same period of 1999 due to increased
borrowings to fund trailer purchases.
A $4.8 million after-tax gain on disposition of discontinued operations was
recorded for the three months ended September 30, 2000 related to the trailer
assets of the Company.
AFG:
The decrease in all revenues and expenses of AFG for the three months ended
September 30, 2000 compared to the same period of 1999 was due to the sale of
AFG on March 1, 2000.
NET INCOME
As a result of the foregoing, for the three months ended September 30, 2000, net
income was $5.0 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.67 and $0.66, respectively. For
the same period of 1999, net income was $1.4 million, resulting in basic and
diluted earnings per weighted-average common share outstanding of $0.17.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
The following analysis reviews the operating results of the Company:
REVENUES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operating lease income $ 1,101 $ 888
Management fees 5,205 5,570
Partnership interests and other fees 1,688 579
Acquisition and lease negotiation fees 538 1,079
Other 665 1,025
-----------------------------------------
Total revenues $ 9,197 $ 9,141
</TABLE>
The fluctuations in revenues for the nine months ended September 30, 2000,
compared to the nine months ended September 30, 1999, are summarized and
explained below.
OPERATING LEASE INCOME:
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 $0.2 million during nine months ended September 30, 2000,
compared to the nine months ended September 30, 1999.
Lease income from assets held for sale were $0.7 million and $0.9 million for
the nine months ended September 30, 2000 and 1999, respectively. During the nine
months ended September 30, 2000, the Company owned $14.0 million in marine
containers which were sold to affiliated programs at cost, which approximated
their fair market value. The Company earned $0.7 million in operating lease
income from these marine containers during the nine months ended September 30,
2000. During the nine months ended September 30, 1999, the Company purchased
$21.8 million in marine containers that were sold during the nine months ended
September 30, 1999 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.
Other operating lease income was $0.4 million and $38,000 for the nine months
ended September 30, 2000 and 1999, respectively. The increase in other operating
lease income was due to the increase in the volume of other assets on operating
lease.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $5.2 million and $5.6 million
for the nine months ended September 30, 2000 and 1999, respectively. The
decrease in management fees resulted from a net decrease in managed equipment
from the PLM Equipment Growth Fund programs and Professional Lease Management
Income Fund I, LLC. With the termination of syndication activities in 1996,
management fees from the older programs are decreasing and are expected to
continue to decrease as the programs liquidate their equipment portfolios.
PARTNERSHIP INTERESTS AND OTHER FEES:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings from the affiliated programs
were $1.5 million and $1.1 million for the nine months ended September 30, 2000
and 1999, respectively. The increase in net earnings of $0.4 million from the
affiliated entities resulted from increased gains from disposal of equipment in
the affiliated programs in the nine months ended September 30, 2000, compared to
the same period of 1999. In addition, a decrease of $0.6 million in the
Company's residual interests in the programs was recorded during the nine months
ended September 30, 1999. A similar reduction was not required in the nine
months ended September 30, 2000. An increase of $0.2 million in other fees was
due to increased sales commissions in the nine months ended September 30, 2000,
compared to the same period of 1999.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the nine months ended September 30, 2000, the Company, on behalf of the
EGF programs, purchased transportation and other equipment for $12.0 million,
compared to $37.1 million of transportation and other equipment during the nine
months ended September 30, 1999, resulting in a $0.5 million decrease in
acquisition and lease negotiation fees. During the nine months ended September
30, 2000, the Company did not take acquisition and lease negotiation fees on
$2.2 million of the hushkit purchased for the equipment of an affiliated program
due to the investment phase of this affiliated program was closed. In addition,
the Company has reached certain fee limitations for another affiliated program
per the partnership agreement. During the nine months ended September 30, 1999,
the Company did not take acquisition and lease negotiation fees on $16.6 million
of this equipment purchased for this program. Because of the Company's decision
to halt syndication of equipment leasing programs with the close of Fund I in
1996, because Fund I has a no front-end fee structure, and because the Company
has reached the maximum allowable fees that may be taken in some of the
programs, acquisition and lease negotiation fees will continue at the current
levels or be reduced in the future.
OTHER:
Other revenues were $0.7 million and $1.0 million for the nine months ended
September 30, 2000 and 1999, respectively. The decrease in other revenues was
due to loss from disposal of other assets during the nine months ended September
30, 2000. A similar loss did not occur in 1999.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operations support $ 1,850 $ 2,189
Depreciation and amortization 643 359
General and administrative 4,391 3,224
-----------------------------------------
Total costs and expenses $ 6,884 $ 5,772
</TABLE>
OPERATIONS SUPPORT:
Operations support expense, including salary and office-related expenses for
operational activities and provision for doubtful accounts, decreased $0.3
million (15%) for the nine months ended September 30, 2000, compared to the nine
months ended September 30, 1999. A $0.7 million decrease in operations support
expenses related to the management of investment programs due to a reduction in
the size of the managed equipment portfolio. This decrease in operations support
was partially offset by a $0.4 increase in operations support expense related to
other activities due to the increase in compensation and benefits expense.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense increased $0.3 million (79%) for the nine
months ended September 30, 2000, compared to the nine months ended September 30,
1999. The increase resulted from an increase in the volume of other assets held
for operating lease.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased $1.2 million (36%) during the nine
months ended September 30, 2000, compared to the nine months ended September 30,
1999. The increase was due to severance costs incurred in 2000 related to staff
reductions. A similar event did not occur in 1999.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
-----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Interest expense $ (1,424) $ (1,772)
Interest income 869 252
Other income (expense), net (177) 577
</TABLE>
INTEREST EXPENSE:
Interest expense decreased $0.3 million (20%) during the nine months ended
September 30, 2000, compared to the nine months ended September 30, 1999, due to
reductions in the amounts outstanding under the senior secured notes in the nine
months ended September 30, 2000, compared to the same period of 1999.
INTEREST INCOME:
Interest income increased $0.6 million (245%) during the nine months ended
September 30, 2000, compared to the same period of 1999. An increase in interest
income of $0.4 million resulted from higher cash balances that resulted from the
proceeds received from the sale of AFG. An increase of $0.2 million resulted
from increased loans made to the affiliated programs in the nine months ended
September 30, 2000, compared to the same period of 1999.
OTHER INCOME (EXPENSES), NET:
Other expenses of $0.2 million during the nine months ended September 30, 2000,
compared to $0.6 million of other income during the same period of 1999. Other
expenses of $0.2 million for the nine months ended September 30, 2000 primarily
related to the litigation cost. No similar expenses were incurred during the
same period of 1999. Other income of $0.6 million for the nine months ended
September 30, 1999 represents $0.7 million of mileage income received from the
railroads, partially offset by $0.1 million in expenses related to the
settlement of a lawsuit. No similar income was received during the nine months
ended September 30, 2000.
PROVISION FOR INCOME TAXES:
For the nine months ended September 30, 2000, the provision for income tax was
$0.6 million, representing an effective rate of 38%. For the nine months ended
September 30, 1999, the provision for income taxes was $1.0 million,
representing an effective rate of 40%. The decrease in the effective rate of 2%
was due to the change in the effect of permanent difference between tax and book
income.
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Net income (loss) from discontinued operations for the nine months ended
September 30, 2000 and 1999 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
September 30, 2000 September 30, 1999
-------------------------------------- ----------------------------------
Trailer Trailer
Leasing AFG Total Leasing AFG Total
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Operating lease income $ 24,312 $ 1,841 $ 26,153 $ 15,746 $ 6,819 $ 22,565
Finance lease income -- 1,650 1,650 -- 8,573 8,573
Management fees 550 100 650 628 578 1,206
Gain (loss) on sale or disposition of (39) 40 1 (41) 2,100 2,059
assets, net
Other 46 445 491 10 1,602 1,612
------------------------------------ ------------------------------------
Total revenues 24,869 4,076 28,945 16,343 19,672 36,015
------------------------------------ ------------------------------------
COSTS AND EXPENSES
Operations support 11,996 1,412 13,408 7,754 4,075 11,829
Depreciation and amortization 7,622 1,505 9,127 5,292 5,732 11,024
General and administrative expenses 2,193 -- 2,193 1,627 -- 1,627
------------------------------------ ------------------------------------
Total costs and expenses 21,811 2,917 24,728 14,673 9,807 24,480
------------------------------------ ------------------------------------
Operating income 3,058 1,159 4,217 1,670 9,865 11,535
Interest expense, net (3,148) (1,655) (4,803) (2,090) (6,959) (9,049)
Other expense (4) -- (4) -- (975) (975)
------------------------------------ ------------------------------------
Net income (loss) from discontinued
operations
before income taxes (94) (496) (590) (420) 1,931 1,511
(Benefit from) provision for income tax (37) (189) (226) (163) 733 570
------------------------------------ ------------------------------------
Net income previously accrued as a
component
of loss on a discontinued operation -- 200 200 -- -- --
------------------------------------ ------------------------------------
Net income (loss) from discontinued $ (57) $ (107) $ (164) $ (257) $ 1,198 $ 941
operations
==================================== ====================================
Gain on disposition of discontinued
operations, net
of income tax $ 4,785 $ -- $ 4,785 $ -- $ -- $ --
==================================== ====================================
</TABLE>
TRAILER LEASING:
Operating lease income increased to $24.3 million for the nine months ended
September 30, 2000, compared to $15.7 million for the same period of 1999 which
resulted from an increase in the trailers owned and on operating lease.
Operation support increased to $12.0 million for the nine months ended September
30, 2000, compared to $7.8 million for the same period of 1999 due to the
expansion of PLM Trailer Leasing, with the opening of additional rental yards in
1999 and trailer purchases in 1999 and 2000.
Depreciation and amortization increased to $7.6 million for the nine months
September 30, 2000, compared to $5.3 million for the same period of 1999 was due
to an increase in the amount of refrigerated trailer equipment on operating
lease at PLM Trailer Leasing.
General and administrative expenses increased to $2.2 million for the nine
months ended September 30, 2000, compared to $1.6 million for the same period of
1999. The increase of $0.6 million was due to the growth of the trailer
business.
Interest expenses increased to $3.1 million for the nine months ended September
30, 2000, compared to $2.1 million for the same period of 1999 due to increased
borrowings to fund trailer purchases.
A $4.8 million after-tax gain on disposition of discontinued operations was
recorded for the nine months ended September 30, 2000 related to the trailer
assets of the Company.
AFG:
The decrease in all revenues and expenses of AFG for the nine months ended
September 30, 2000 was due to the sale of AFG on March 1, 2000.
In addition, other expenses decreased $1.0 million due to the write-off of
expenses related to the proposed initial public offering of AFG in 1999. A
similar expense was not recorded in 2000.
During the first quarter of 2000, $0.6 million of after-tax loss on disposal of
discontinued operations was recorded against the provision established at
December 31, 1999 and is not included in the above table.
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 second quarter of 1999, at which time it took a $0.3 million charge,
net of tax of $0.1 million, related to start-up costs of its commercial and
industrial equipment leasing subsidiary which is being accounted for as
discontinued operations.
NET INCOME
As a result of the foregoing, for the nine months ended September 30, 2000, net
income was $5.6 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.74 and 0.73, respectively. For
the same period of 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, the sale of equipment, and the sale of business
segments.
Liquidity in the remainder of 2000 and beyond will depend, in part, the
management of existing sponsored programs and the effectiveness of cost control
programs. Management believes the Company can accomplish the preceding and that
it will have sufficient liquidity and capital resources for the future. Future
liquidity is influenced by the factors summarized below.
DEBT FINANCING:
WAREHOUSE CREDIT FACILITY: Assets acquired and held on an interim basis by the
Company for sale to affiliated programs or third parties have, from time to
time, been partially funded by a warehouse credit facility. This facility was
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 reduced the amount available to be
borrowed by the Company. All borrowings under this facility were guaranteed by
the Company. This facility provided 80% financing for transportation assets. The
Company could hold transportation assets under this facility for up to 150 days.
Interest accrued at prime or LIBOR plus 162.5 basis points, at the option of the
Company. The warehouse facility expired on September 30, 2000. The Company is
currently negotiating with a new lender on a $15.0 million warehouse facility
with similar terms. The Company expects this facility to be completed in the
fourth quarter of 2000.
Senior Secured Notes: The Company's senior secured notes agreement, which had an
outstanding balance of $15.0 million as of September 30, 2000 and November 9,
2000, 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.
The Company's senior lender agreed to waive certain debt covenants if the
Company placed securities with maturity values equal to 66% of future principal
payments under the senior secured notes in an escrow account. Accordingly, in
October 2000, the Company purchased U.S. Government Securities with a face value
of $9.5 million.
STOCK REPURCHASE PROGRAM:
In May 2000, the Company announced that its Board of Directors had authorized
the repurchase of up to $10.0 million of the Company's common stock. As of
November 9. 2000, 261,654 shares had been purchased under this plan for $1.9
million. Future purchases of stock will be contingent upon, among other factors,
the Company's cash position and compliance with certain debt covenants.
LIQUIDATING DISTRIBUTIONS:
On November 3, 2000, the Company paid a $5.00 per share liquidating distribution
to shareholders of record as of October 22, 2000. Future liquidating
distributions from the proceeds of the sale of trailer leasing will be
contingent upon, among other factors; the Company's cash position and compliance
of certain debt covenants.
* * * * * * * * * *
Management believes that, through debt financing and cash flows from operations,
the Company will have sufficient liquidity and capital resources to meet its
projected future operating needs over the next twelve months.
FORWARD-LOOKING INFORMATION:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Company's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 senior notes. The Company estimates a one
percent increase or decrease in the Company's variable rate debt would result in
an increase or decrease, respectively, in interest expense of $33,000 in the
remainder of 2000, $75,000 in 2001, and $12,000 in 2002. The Company estimates a
two percent increase or decrease in the Company's variable rate debt would
result in an increase or decrease, respectively, in interest expense of $66,000
in the remainder of 2000, $0.2 million in 2001, and $23,000 in 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 Amendment No.1 to Asset Purchase Agreement among Marubeni America
Corporation and PLM International, Inc. dated September 29, 2000
incorporated by reference to the Form 8-K filed with the Securities
and Exchange Commission on October 11, 2000.
10.2 License Agreement between PLM International, Inc. and Marubeni America
Corporation Trailer Leasing, L.L.C. dated September 30, 2000.
10.3 Non-competition Agreement among PLM International, Inc., PLM Rental,
Inc., PLM Transportation Equipment Corporation, TEC AcquiSub, Inc.,
PLM Financial Services, Inc., Professional Lease Management Income
Fund I, L.L.C., PLM Equipment Growth Fund I thru VI, PLM Equipment
Growth and Income Fund VII, and Marubeni America Corporation dated
September 30, 2000.
(B) Reports on Form 8-K
Report dated October 9, 2000 (filed on October 11, 2000) incorporated by
reference to exhibit 2.2 to registrant's Form 8-K filed with the Securities and
Exchange Commission on October 11, 2000 - Announcement of the completion of the
sale of PLM International Inc.'s trailer leasing operations, the resignation of
Mr. Robert N. Tidball, President and Chief Executive Officer, the appointment of
Mr. Stephen M. Bess as President, and as Chief Executive Officer, and his
election to Board of Directors of PLM International, Inc., and the authorization
of a partial liquidating distribution of $5 per share to shareholders of PLM
International, Inc.
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
Chief Financial Officer
Date: November 9, 2000
