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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 2001.
[ ] 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 0-28376
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PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 94-3209289
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Montgomery Street
Suite 1350, San Francisco, CA 94104
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 445-3201
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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
Aggregate market value of voting stock: N/A
---
An index of exhibits filed with this Form 10-K is located at page 23.
Total number of pages in this report: 63.
PART I
ITEM 1. BUSINESS
(A) Background
In August 1994, PLM Financial Services, Inc. (FSI or the Manager), a
wholly-owned subsidiary of PLM International, Inc. (PLMI International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 5,000,000 Class A units (the
units) in Professional Lease Management Income Fund I, L.L.C., a Delaware
Limited Liability Company (the Fund). The Fund's offering became effective on
January 23, 1995. The Fund engages in the business of investing in a diversified
equipment portfolio consisting primarily of used, long-lived, low-obsolescence
capital equipment that is easily transportable by and among prospective users.
The Fund's primary objectives are:
(1) to invest in a diversified portfolio of low-obsolescence equipment
having long lives and high residual values, at prices that the Manager believes
to be below inherent values, and to place the equipment on lease or under other
contractual arrangements with creditworthy lessees and operators of equipment.
All transactions over $1.0 million must be approved by the PLMI Credit Review
Committee (the Committee), which is made up of Members of PLMI's senior
management. In determining a lessee's creditworthiness, the Committee will
consider, among other factors, the lessee's financial statements, internal and
external credit ratings, and letters of credit.
(2) to generate cash distributions, which may be substantially tax-deferred
(i.e., distributions that are not subject to current taxation) during the early
years of the Fund.
(3) to create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions.
(4) to increase the Fund's revenue base by reinvesting a portion of its
operating cash flow in additional equipment during the first six years of the
Fund's operation, which ends on December 31, 2002, in order to grow the size of
its portfolio. Since net income and distributions are affected by a variety of
factors, including purchase prices, lease rates, and costs and expenses, growth
in the size of the Fund's portfolio does not necessarily mean that the Fund's
aggregate net income and distributions will increase upon the reinvestment of
operating cash flow.
The offering of units of the Fund closed on May 13, 1996. As of December 31,
2001, there were 4,971,311 units outstanding. The Manager contributed $100 for
its Class B Member interest in the Fund. The Manager paid out of its own
corporate funds (as a capital contribution to the Fund) all organization and
syndication expenses incurred in connection with the offering; therefore, 100%
of the net cash proceeds received by the Fund from the sale of Class A Units
were used to purchase equipment and establish any required cash reserves.
Beginning in the Fund's seventh year of operation, which commences January 1,
2003, the Manager will stop reinvesting cash flow and surplus funds, if any,
less reasonable reserves, which will be distributed to the partners. Between the
eighth and tenth years of operations, the Manager intends to begin its
dissolution and liquidation of the Fund in an orderly fashion, unless the Fund
is terminated earlier upon sale of all of the equipment or by certain other
events. However, under certain circumstances, the term of the Fund may be
extended, although in no event will the Fund extend beyond December 31, 2010.
Table 1, below, lists the equipment and the original cost of equipment in the
Fund's portfolio and the Fund's proportional share of equipment owned by
unconsolidated special-purpose entities, as of December 31, 2001 (in thousands
of dollars):
TABLE 1
Units Type Manufacturer Cost
- -----------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
14,691 Marine containers Various $ 30,061
84 Refrigerated marine containers Various 1,344
3 737-200A stage II commercial
aircraft Boeing 15,358
347 Pressurized tank railcars Various 9,262
97 Covered hopper railcars Various 5,281
245 Box railcars Various 4,952
1 Oil tanker marine vessel Hyundai 17,000
437 Piggyback trailers Various 6,575
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Total owned equipment held for operating leases $ 89,833 (1)
===================
Equipment owned by unconsolidated special-purpose entities:
0.50 Trust owning an MD-82
stage III commercial aircraft McDonnell Douglas $ 7,775 (2)
0.50 Trust owning an MD-82
stage III commercial aircraft McDonnell Douglas 6,825 (2)
-------------------
Total investments in unconsolidated special-purpose entities $ 14,600 (1)
===================
(1) Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and Fund
borrowings. Includes costs capitalized subsequent to the date of purchase.
(2) Jointly owned by the Fund and an affiliated program.
Equipment is generally leased under operating leases for a term of one to six
years except for the marine vessel which is usually leased for less than one
year. Some of the Fund's marine containers are leased to operators of
utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Fund consist of a specified
percentage of revenues generated by leasing the pooled equipment to sublessees,
after deducting certain direct operating expenses of the pooled equipment. The
remaining Fund marine containers are leased based on a fixed rate. Lease
revenues for intermodal trailers are based on a per-diem lease in the free
running interchange with the railroads. Rents for all other equipment are based
on fixed rates.
The lessees of the equipment include but are not limited to: American Airlines,
Capital Lease, Ltd., Cronos Containers, Norfolk Southern Railway Corp., Terra
Nitrogen Company, and Varig South America.
(B) Management of Fund Equipment
The Fund has entered into an equipment management agreement with PLM Investment
Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the management of
the Fund's equipment. The Fund's management agreement with IMI is to
co-terminate with the dissolution of the Fund unless the Class A Members vote to
terminate the agreement prior to that date, or at the discretion of the Manager.
IMI has agreed to perform all services necessary to manage the equipment on
behalf of the Fund and to perform or contract for the performance of all
obligations of the lessor under the Fund's leases. In consideration for its
services and pursuant to the Operating Agreement, IMI is entitled to a monthly
management fee. (See Notes 1 and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases Versus Full Payout Leases
Generally, the equipment owned by or invested in the Fund is leased out on an
operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Fund's purchase
price of the equipment. The short to mid-term nature of operating leases
generally command a higher rental rate than longer-term, full payout leases and
offers lessees relative flexibility in their equipment commitment. In addition,
the rental obligation under an operating lease need not be capitalized on the
lessee's balance sheet.
The Fund encounters considerable competition from lessors that utilize full
payout leases on new equipment, i.e. leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the Fund
offers, or larger competitors with a lower cost of capital may offer operating
leases at lower rates, which may put the Fund at a competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Fund competes with equipment manufacturers who offer operating leases and
full payout leases. Manufacturers may provide ancillary services that the Fund
cannot offer, such as specialized maintenance services (including possible
substitution of equipment), training, warranty services, and trade-in
privileges.
The Fund also competes with many equipment lessors, including ACF Industries,
Inc. (Shippers Car Line Division), GATX Corporation, General Electric Railcar
Services Corporation, General Electric Capital Aviation Services Corporation,
Xtra Corporation, and other investment programs that lease the same types of
equipment.
(D) Demand
The Fund currently operates in the following operating segments: marine
containers leasing, commercial aircraft leasing, railcar leasing, marine vessel
leasing, and intermodal trailer leasing. Each equipment leasing segment engages
in short-term to mid-term operating leases to a variety of customers. The Fund's
equipment and investments are primarily used to transport materials and
commodities, except for those aircraft leased to passenger air carriers.
The following section describes the international and national markets in which
the Fund's capital equipment operates:
(1) Marine Containers
The Fund has acquired new standard dry cargo containers and placed this
equipment either on mid-term leases or into revenue-sharing agreements. These
investments were at the time opportunistically driven by the historically low
acquisition prices then available in the market. The Fund was able to acquire
these containers in the $1,500 to $1,600 range for a standard 20-foot container;
historically, similar equipment had been sold in the $2,000 range. During 2001
new container prices and market lease rates have continued to decline.
During 2001 new container prices and market lease rates have continued to
decline. The primary reason for this decline is the worldwide recession and
attendant slowdown in exports to the United States (US), mostly from the Far
East. This trend was further exacerbated by the events of September 11, 2001.
Those containers placed on mid-term leases are protected from these market
trends, whereas those containers in revenue-sharing agreements have seen reduced
earnings.
(2) Commercial Aircraft
Prior to September 11, 2001, Boeing and Airbus Industries predicted that the
rate of growth in the demand for air transportation services would be relatively
robust for the next 20 years. Boeing's prediction was that the demand for
passenger services would grow at an average rate of about 5% per year and the
demand for cargo traffic would grow at about 6% per year during such period.
Airbus' numbers were largely the same at 5% and 6%, respectively. Neither
manufacturer has released new long-term predictions; however, both have
confirmed lower production rates as well as substantial reductions in their work
forces. Both manufacturers experienced significant reductions in the numbers of
new orders for the year 2001 (through the end of November), with Boeing
reporting 294 (as compared to 611 the previous year) and Airbus reporting 352
(as compared to 520 for the previous year).
Current Market: It is to be noted that even prior to the events on September 11,
2001, the worldwide airline industry experienced negative traffic growth, which
in itself is unprecedented in peace time (it also happened during and after the
Gulf War). The tragic events of September 11, 2001 have resulted in an
unprecedented market situation for used commercial aircraft. The major carriers
in the Unites States have grounded (or are in the process of grounding)
approximately 20% of their fleets, causing the imbalance between supply and
demand for aircraft seats to be exacerbated. In short the market for used
commercial aircraft is more negatively impacted than ever and in un-chartered
territory. The Fund's portfolio of aircraft has been severely impacted.
The Fund owns three Boeing 737-200 aircraft. The lease for these aircraft
expires on October 30, 2002. The lessee of these aircraft is four months in
arrears with its lease payments and has notified the Manager that it wants to
return the aircraft. The market for Boeing 737-200 aircraft is very soft and the
credit quality of the airlines interested in this type of aircraft is, generally
speaking, poor. The Fund also owns 50% of two MD-82 aircraft, which are on
long-term lease to a major US carrier at market rates.
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The US markets for natural gas are
industrial applications, residential use, electrical generation, commercial
applications, and transportation. Natural gas consumption is expected to grow
over the next few years as most new electricity generation capacity planned for
is expected to be natural gas fired. Within the fertilizer industry, demand is a
function of several factors, including the level of grain prices, status of
government farm subsidy programs, amount of farming acreage and mix of crops
planted, weather patterns, farming practices, and the value of the US dollar.
Population growth and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals decreased over 5% compared to 2000. Even
with this decrease in industry-wide demand, the utilization of this type of
railcar within the Fund continued to be in the 98% range through 2001.
(b) Covered Hopper (Grain) Railcars
Demand for covered hopper railcars, which are specifically designed to service
the grain industry, continued to experience weakness during 2001; carloadings
were down 2% compared to 2000 volumes. The US agribusiness industry serves a
domestic market that is relatively mature, the future growth of which is
expected to be consistent but modest. Most domestic grain rail traffic moves to
food processors, poultry breeders, and feedlots. The more volatile export
business, which accounts for approximately 30% of total grain shipments, serves
emerging and developing nations. In these countries, demand for protein-rich
foods is growing more rapidly than in the US, due to higher population growth, a
rapid pace of industrialization, and rising disposable income. Other factors
contributing to the softness in demand for covered hopper railcars are the large
number of new railcars built during the last few years and the improved
utilization of covered hoppers by the railroads. As in 2000, covered hopper
railcars whose leases expired in 2001 were renewed at lower rental rates.
Utilization of the Fund's covered hopper railcars remained 100% during 2001.
(c) Box Railcars
Box railcars are primarily used to transport paper and paper products.
Carloadings of forest products in North America decreased over 2% in 2001, when
compared to 2000 volumes. Fifty of the Fund's box railcars were off lease
throughout 2001. These railcars have a smaller load capacity than those
currently in demand for paper service. Depending upon the market for these
railcars over the coming months, they will either be offered for sale or
re-lease.
(4) Marine Vessel
The Fund owns a product tanker that operates in international markets carrying a
variety of commodity-type cargoes. Demand for commodity-based shipping is
closely tied to worldwide economic growth patterns, which can affect demand by
causing changes in volume on trade routes. The Manager operates the Fund's
product tanker in the spot chartering markets, carrying mostly fuel oil and
similar petroleum distillates, an approach that provides the flexibility to
adapt to changes in market conditions.
The market for product tankers improved throughout most of 2001, with dramatic
improvements experienced in the first and second quarters; the market has
recently softened. The Fund's product tanker has continued to operate with very
little idle time between charters but at lower rates than experienced earlier in
the year.
(5) Intermodal (Piggyback) Trailers
Intermodal trailers are used to transport a variety of dry goods by rail on
flatcars, usually for distances of over 400 miles. Over the past five years,
intermodal trailers have continued to be rapidly displaced by domestic
containers as the preferred method of transport for such goods. This
displacement occurs because railroads offer approximately 20% lower freight
rates on domestic containers compared to trailer rates. During 2001, demand for
intermodal trailers was much more volatile than historic norms. Unusually low
demand occurred over the second half of the year due to a rapidly slowing
economy and low rail freight rates for competing 53-foot domestic containers.
Due to the decline in demand, which occurred over the latter half of 2001,
shipments for the year, within the intermodal trailer market, declined
approximately 10%, compared to the prior year. Average utilization of the entire
US intermodal fleet rose from 73% in 1998 to 77% in 1999, and then declined to
75% in 2000 and further declined to a record low of 63% in 2001.
The Manager continued its aggressive marketing program in a bid to attract new
customers for the Fund's intermodal trailers during 2001. Even with these
efforts, average utilization of the Fund's intermodal trailers for the year 2001
dropped 8% to approximately 73%, still 10% above the national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to accelerate in the future. Overall, intermodal trailer shipments are
forecast to decline by 10% to 15% in 2002, compared to 2001, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to have approximately 25,000 units in
surplus for 2002. For the Fund's intermodal fleet, the Manager will continue to
seek to expand its customer base while minimizing trailer downtime at repair
shops and terminals. Significant efforts will continue to be undertaken to
reduce maintenance costs and cartage costs.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local and/or foreign governmental authorities. Such regulations may
impose restrictions and financial burdens on the Fund's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Fund's equipment portfolio are either
registered or operated internationally. Such equipment may be subject to adverse
political, governmental, or legal actions, including the risk of expropriation
or loss arising from hostilities. Certain of the Fund's equipment is subject to
extensive safety and operating regulations, which may require its removal from
service or extensive modification of such equipment to meet these regulations,
at considerable cost to the Fund. Such regulations include:
(1) the US Oil Pollution Act of 1990, which established liability for
operators and owners of vessels that create environmental pollution. This
regulation has resulted in higher oil pollution liability insurance. The
lessee of the equipment typically reimburses the Fund for these additional
costs;
(2) the US Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that do not meet certain noise, aging, and corrosion
criteria. In addition, under US Federal Aviation Regulations, after
December 31, 1999, no person may operate an aircraft to or from any airport
in the contiguous United States unless that aircraft has been shown to
comply with Stage III noise levels. The Fund has three Stage II aircraft
that do not meet Stage III requirements. The cost to install a hush kit to
meet quieter Stage III requirements is approximately $2.5 million,
depending on the type of aircraft. The Fund's aircraft are in a country
that does not have this regulation. Upon lease expiration, these aircraft
will either be leased in a country that does not have these regulations or
sold;
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the US Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects on the stratospheric ozone
layer and that are used extensively as refrigerants in refrigerated marine
containers; and
(4) the US Department of Transportation's Hazardous Materials Regulations
which regulates the classification and packaging requirements of hazardous
materials which apply particularly to the Fund's tank railcars. The Federal
Railroad Administration has mandated that effective July 1, 2000, all tank
railcars must be re-qualified every ten years from the last test date
stenciled on each railcar to insure tank shell integrity. Tank shell
thickness, weld seams, and weld attachments must be inspected and repaired
if necessary to re-qualify a tank railcar for service. The average cost of
this inspection is $1,800 for non-jacketed tank railcars and $3,600 for
jacketed tank railcars, not including any necessary repairs. This
inspection is to be performed at the next scheduled tank test and every ten
years thereafter. The Fund currently owns 54 non-jacketed tank railcars and
292 jacketed tank railcars of which a total of 292 tank railcars have been
inspected to date and no defects have been discovered.
As of December 31, 2001, the Fund was in compliance with the above governmental
regulations. Typically, costs related to extensive equipment modifications to
meet government regulations are passed on to the lessee of that equipment.
ITEM 2. PROPERTIES
The Fund neither owns nor leases any properties other than the equipment it has
purchased or interests in entities which own equipment for leasing purposes. As
of December 31, 2001, the Fund owned a portfolio of transportation and related
equipment and investments in equipment owned by unconsolidated special-purpose
entities (USPEs), as described in Item I, Table 1. The Fund acquired equipment
with the proceeds of the Fund offering of $100.0 million, proceeds of debt
financing of $25.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Fund maintains its principal office at 120 Montgomery Street, Suite 1350,
San Francisco, California 94104. All office facilities are provided by FSI
without reimbursement by the Fund.
ITEM 3. LEGAL PROCEEDINGS
The Fund 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 or results of operations of
the Fund.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Fund's Members during the fourth
quarter of its fiscal year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR THE FUND'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the operating agreement, the Manager is generally
entitled to a 1% interest in the profits and losses and 15% of cash
distributions. The Manager will be specially allocated (i) 100% of the Fund's
organizational and offering cost amortization expenses and (ii) income equal to
the excess of cash distribution over the Manager's 1% share of net profits. The
effect on the Class A Members of this special income allocation will be to
increase the net loss or decrease the net profits allocable to the Class A
Members by an equal amount. After the investors receive cash distributions equal
to their original capital contributions the Manager's interest in the cash
distributions of the Fund will increase to 25%. The Manager is the sole holder
of such interests. The remaining interests in the profits and losses and
distributions of the Fund are owned as of December 31, 2001, by the 5,063
holders of Units in the Fund.
There are several secondary markets in which Class A units trade. Secondary
markets are characterized as having few buyers for Class A units and, therefore,
are generally viewed as inefficient vehicles for the sale of units. Presently,
there is no public market for the units and none is likely to develop. To
prevent the units from being considered publicly traded and thereby to avoid
taxation of the Fund as an association treated as a corporation under the
Internal Revenue Code, the units will not be transferable without the consent of
the Manager, which may be withheld in its absolute discretion. The Manager
intends to monitor transfers of units in an effort to ensure that they do not
exceed the percentage or number permitted by certain safe harbors promulgated by
the Internal Revenue Service. A transfer may be prohibited if the intended
transferee is not an US citizen or if the transfer would cause any portion of
the units of a "Qualified Plan" as defined by the Employee Retirement Income
Security Act of 1974 and Individual Retirement Accounts to exceed the allowable
limit.
The Fund may redeem a certain number of units each year under the terms of the
Fund's operating agreement. The purchase price paid by the Fund for outstanding
Class A Units upon redemption will be equal to 105% of the amount Class A
Members paid for the Class A Units, less the amount of cash distributions Class
A Members have received relating to such Class A Units. The price may not bear
any relationship to the fair market value of a Class A Unit. As of December 31,
2001, the Fund has purchased a cumulative total of 28,270 Class A units for a
cost of $0.4 million. No Class A units were purchased during 2001. The Manager
has decided that it will not purchase any Class A units under the terms of the
Fund's operating agreement in 2002. The Manager may purchase additional Class A
units on behalf of the Fund in the future.
(This space intentionally left blank)
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Fund:
TABLE 2
For the Years Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
2001 2000 1999 1998 1997
------------------------------------------------------------------------
Operating results:
Total revenues $ 27,818 $ 27,988 $ 26,483 $ 28,301 $ 22,920
Net gain on disposition of
equipment 7,812 3,956 23 2,759 1,682
Equity in net income (loss) of
unconsolidated special-purpose
entities 601 (176) 1,761 2,390 1,453
Net income (loss) 8,585 4,821 (2,401) 4,316 (2,052)
At year-end:
Total assets $ 69,243 $ 71,683 $ 80,533 $ 99,635 $ 108,524
Total liabilities 23,615 28,013 29,935 28,905 29,337
Note payable 19,000 22,000 25,000 25,000 25,000
Cash distribution $ 6,627 $ 11,701 $ 11,690 $ 11,765 $ 11,763
Cash distribution representing
a return of capital to Class A
members $ -- $ 6,880 $ 9,930 $ 7,405 $ 9,998
Per weighted-average Class A unit:
Net income (loss) $ 1.51(1)$ 0.62 (1)$ (0.81)(1)$ 0.52 (1) $ (0.75) (1)
Cash distribution $ 1.11 $ 2.00 $ 1.99 $ 2.00 $ 2.00
Cash distribution representing a return
of capital to Class A members $ -- $ 1.38 $ 1.99 $ 1.48 $ 2.00
(1) After reduction of income of $1.0 million ($0.20 per weighted-average Class
A unit) in 2001, $1.7 million ($0.34 per weighted-average Class A unit) in
2000, $1.7 million ($0.33 per weighted-average Class A unit) in 1999, $1.6
million ($0.33 per weighted-average Class A unit) in 1998, and $1.8 million
($0.35 per weighted-average Class A unit) in 1997, representing special
allocations to the Manager (see Note 1 to the audited financial
statements).
(This space intentionally left blank)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the Financial Statements of Professional Lease Management
Income Fund I, L.L.C. (the Fund). The following discussion and analysis of
operations focuses on the performance of the Fund's equipment in various
segments in which it operates and its effect on the Fund's overall financial
condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Fund's equipment portfolio to repricing risk occurs whenever
the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Fund's equipment include, but are not limited to, supply and demand for
similar or comparable types of transport capacity, desirability of the equipment
in the leasing market, market conditions for the particular industry segment in
which the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Fund. The Fund
experienced re-leasing or repricing activity in 2001 for its trailer, marine
container, marine vessel, and railcar portfolios.
(a) Trailers: The Fund's trailer portfolio operate on per diem leases with
short-line railroad systems. The relatively short duration of these leases in
these operations exposes the trailers to considerable re-leasing and repricing
activity.
(b) Marine containers: Some of the Fund's marine containers are leased to
operators of utilization-type leasing pools and, as such, are highly exposed to
re-leasing and repricing activity.
(c) Marine vessel: The Fund's owned marine vessel operated in the short-term
leasing market throughout 2001. As a result of this, the Fund's owned marine
vessel was remarketed several times during 2001 exposing it to re-leasing and
repricing activity.
(d) Railcars: This equipment experienced significant re-leasing activity. Lease
rates in this market are showing signs of weakness and this has led to lower
utilization and lower contribution to the Fund as existing leases expire and
renewal leases are negotiated.
(2) Equipment Liquidations
Liquidation of Fund owned equipment and of investments in unconsolidated
special-purpose entities (USPEs), unless accompanied by an immediate replacement
of additional equipment earning similar rates (see Reinvestment Risk, below),
represents a reduction in the size of the equipment portfolio and may result in
a reduction of contribution to the Fund.
During 2001, the Fund disposed of owned equipment that included an aircraft, a
marine vessel, trailers, railcars, and marine containers for total proceeds of
$10.2 million. The Fund also disposed of its interest in a USPE that owned a
marine vessel for proceeds of $0.9 million.
(3) Nonperforming Lessees
Lessees not performing under the terms of their leases, either by not paying
rent, not maintaining or operating the equipment in accordance with the
conditions of the leases, or other possible departures from the leases, can
result not only in reductions in contribution, but also may require the Fund to
assume additional costs to protect its interests under the leases, such as
repossession or legal fees.
During 2001, a lessee of three Stage II Boeing 737-200 commercial aircraft
notified the Manager of its intention to return these aircraft. The lessee has
not remitted four lease payments due to the Fund as of December 31, 2001. The
Fund has a security deposit from this lessee that could be used to pay a portion
of the amount due. During October 2001, the Manager sent a notification of
default to the lessee. The lease, with an expiration date of October 2002, has
certain return condition requirements for each of the remaining aircraft. The
Manager has recorded an allowance for bad debts for the amount due less the
security deposit.
(4) Reinvestment Risk
Reinvestment risk occurs when the Fund cannot generate sufficient surplus cash
after fulfillment of operating obligations and distributions to reinvest in
additional equipment during the reinvestment phase of the Fund; equipment is
disposed of for less than threshold amounts; proceeds from disposition or
surplus cash available for reinvestment cannot be reinvested at the threshold
lease rates; or proceeds from the dispositions or surplus cash available for
reinvestment cannot be deployed in a timely manner.
During the first six years of operations, which ends December 31, 2002, the Fund
intends to increase its equipment portfolio by investing surplus cash in
additional equipment after fulfilling operating requirements. Subsequent to the
end of the reinvestment period, the Fund will continue to operate for an
additional two years but will stop reinvesting cash flow and surplus funds, then
begin an orderly liquidation over an anticipated two-year period.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Fund's planned liquidation phase, the receipt of funds
realized from the payment of stipulated loss values on equipment lost or
disposed of during the time it is subject to lease agreements, or from the
exercise of purchase options in certain lease agreements. Equipment sales
generally result from evaluations by the Manager that continued ownership of
certain equipment is either inadequate to meet Fund performance goals, or that
market conditions, market values, and other considerations indicate it is the
appropriate time to sell certain equipment.
(5) Equipment Valuation
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
the Manager reviews the carrying values of the Fund's equipment portfolio at
least quarterly and whenever circumstances indicate that the carrying value of
an asset may not be recoverable due to expected future market conditions. If the
projected undiscounted cash flows and the fair market value of the equipment are
less than the carrying value of the equipment, a loss on revaluation is
recorded. Reductions of $3.9 million to the carrying value of two owned marine
vessels were required during 1999. No reductions were required to the carrying
value of owned equipment during 2001 and 2000 or partially owned USPE equipment
during 2001, 2000, and 1999.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144), which replaces SFAS No. 121. SFAS
No. 144 provides updated guidance concerning the recognition and measurement of
an impairment loss for certain types of long-lived assets, expands the scope of
a discontinued operation to include a component of an entity and eliminates the
current exemption to consolidation when control over a subsidiary is likely to
be temporary. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001.
The Fund will apply the new rules on accounting for the impairment or disposal
of long-lived assets beginning in the first quarter of 2002, and they are not
anticipated to have an impact on the Fund's earnings or financial position.
(C) Financial Condition -- Capital Resources, Liquidity, and Unit Redemption
Plan
The Manager purchased the Fund's equipment portfolio with capital raised from
its initial equity offering of $100.0 million and permanent debt financing of
$25.0 million. No further capital contributions from Class A Members are
permitted under the terms of the Fund's operating agreement. The Fund relies on
operating cash flow to meet its operating obligations, make cash distributions
to Members, and increase the Fund's equipment portfolio. The total outstanding
debt, currently $19.0 million, can be increased with short-term borrowings not
to exceed the lesser of $10.0 million or 50% of the aggregate principal amount
of the Notes outstanding at the time and the total aggregate debt can not exceed
$25.0 million.
For the year ended December 31, 2001, the Fund generated $11.3 million in
operating cash (net cash provided by operating activities and non-liquidating
cash distributions from USPEs) to meet its operating obligations and make
distributions of $6.6 million to the Members.
During the year ended December 31, 2001, the Fund purchased marine containers
for $2.3 million.
Restricted cash decrease of $0.3 million during 2001 reflects a decrease in the
balance of bank accounts and short-term investments that are subject to
withdrawal restrictions per the loan and other legally binding agreements.
Accounts receivable increased $0.2 million during 2001 due to the timing of
customer payments.
Allowance for doubtful accounts increased $1.0 million due to the Manager's
determination that amounts due from certain lessees may not be collectable.
Investments in USPEs decreased $2.4 million due to cash distributions of $2.1
million to the Fund from the USPEs and liquidation proceeds of $0.9 million to
the Fund offset, in part, by income of $0.6 million that was recorded from the
Fund's equity interests in USPEs for the year 2001.
Due to affiliates decreased $0.7 million during 2001 due to the payment of
amounts due to an affiliated USPE.
Lessee deposits and reserve for repairs decreased $0.8 million during the year
2001 due to the following:
(i) Lessees' deposits decreased $0.3 million due to deposits that were
reclassified to lease revenues during 2001.
(ii)Reserves for engine repairs decreased $0.3 million due to the transfer
of unused engine reserves of $0.8 million to sale proceeds, offset in part by
the increase of $0.5 million resulting from additional deposits.
(iii) Marine vessel dry-docking reserves decreased $0.2 million due to the
dry-docking cost of $0.4 million being partially offset by $0.2 million in
additional accrual for dry-docking during 2001.
Cash distributions of $0.9 million, related to the results from the fourth
quarter of 2001, will be paid during the first quarter of 2002.
The Fund made the required annual debt payment of $3.0 million to the lender of
the note payable during 2001.
The Fund has a remaining outstanding balance of $19.0 million on the note
payable. The note bears interest at a fixed rate of 7.33% per annum and has a
final maturity in 2006. Interest on the note is payable semi-annually. The
remainder of the note payable will be repaid in three principal payments of $3.0
million on December 31, 2002, 2003, and 2004 and two principal payments of $5.0
million on December 31, 2005, and 2006. The agreement requires the Fund to
maintain certain financial covenants.
In April 2001, PLM International, Inc. (PLMI) entered into a $15.0 million
warehouse facility, which is shared with the Fund, PLM Equipment Growth Fund VI,
and PLM Equipment Growth & Income Fund VII. During December 2001, this facility
was amended to lower the amount available to be borrowed to $10.0 million. The
facility provides for financing up to 100% of the cost of the equipment.
Outstanding borrowings by one borrower reduce the amount available to each of
the other borrowers under the facility. Individual borrowings may be outstanding
for no more than 270 days, with all advances due no later than April 12, 2002.
Interest accrues either at the prime rate or LIBOR plus 2.0% at the borrower's
option and is set at the time of an advance of funds. Borrowings by the Fund are
guaranteed by PLMI. This facility expires in April 2002. The Manager believes it
will be able to renew the warehouse facility upon its expiration with terms
similar to those in the current facility.
As of March 27, 2002, the Fund had no borrowings outstanding under this facility
and there were no other borrowings outstanding under this facility by any other
eligible borrower.
Pursuant to the terms of the operating agreement, beginning in the fourth
quarter of 1998, the Fund may, at the sole discretion of the Manager, redeem up
to 2% of the outstanding Class A units each year. The purchase price paid by the
Fund for outstanding Class A Units upon redemption will be equal to 105% of the
amount Class A Members paid for the Class A Units, less the amount of cash
distributions Class A Members have received relating to such Class A Units. The
price may not bear any relationship to the fair market value of a Class A Unit.
The Manager has decided that it will not purchase any Class A units under the
terms of the Fund's operating agreement in 2002. The Manager may purchase
additional Class A units on behalf of the Fund in the future.
The Manager has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Results of Operations -- Year to Year Detail Comparison
(1) Comparison of the Fund's Operating Results for the Years Ended December 31,
2001 and 2000
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2001, compared to 2000. Gains or
losses from the sale of equipment, interest and other income and certain
expenses such as depreciation and amortization and general and administrative
expenses relating to the operating segments (see Note 5 to the audited financial
statements), are not included in the owned equipment operation discussion
because they are indirect in nature and not a result of operations but the
result of owning a portfolio of equipment. The following table presents lease
revenues less direct expenses by segment (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
---------------------------
Marine containers $ 5,124 $ 4,095
Aircraft 3,946 4,022
Railcars 2,686 3,043
Marine vessels 1,835 3,914
Trailers 614 2,587
Marine containers: Marine container lease revenues were $5.2 million and $0.1
million, respectively, for the year ended December 31, 2001, compared to $4.1
million and $18,000, respectively, during 2000. Marine container contribution
increased in 2001, compared to 2000 due to the purchase of additional marine
containers in 2000 and 2001.
Aircraft: Aircraft lease revenues and direct expenses were $4.0 million and
$25,000, respectively, for 2001, compared to $4.1 million and $35,000,
respectively, during 2000. Aircraft lease revenues decreased $0.1 million during
2001 due to the disposition of one of the Fund's aircraft during 2001.
Railcars: Railcar lease revenues and direct expenses were $3.4 million and $0.7
million, respectively, for 2001, compared to $3.7 million and $0.6 million,
respectively, during 2000. Lease revenues decreased $0.3 million during 2001
compared to 2000 primarily due to lower lease revenues on railcars whose lease
expired during 2001 that were re-leased at a lower lease rate.
Marine vessels: Marine vessel lease revenues and direct expenses were $5.5
million and $3.7 million, respectively, for 2001, compared to $7.6 million and
$3.7 million, respectively, during 2000.
Lease revenues decreased $2.1 million in 2001 compared to 2000. Lease revenues
decreased $3.7 million during 2001 compared to 2000 due to the sale of three
marine vessels during 2001 and 2000. The decrease caused by the sales was
offset, in part, by an increase of $1.6 million in lease revenues on the
remaining marine vessel due to a higher lease rate earned on this marine vessel
in 2001 compared to 2000. During 2001, the remaining marine vessel changed from
time charter to voyage charter. While on voyage charter, the owner earns a
higher lease rate; however, certain operating costs are now the responsibility
of the owner.
Direct expenses decreased $18,000 in 2001 compared to 2000. A decrease of $1.2
million in direct expenses was caused by the sale of three marine vessels during
2001 and 2000. This decrease in direct expenses was offset by an increase of
$47,000 in direct expenses due to higher repairs and maintenance and an increase
of $1.2 million due to higher operating expenses caused by the voyage charter
for the remaining marine vessel when compared to 2000.
Trailers: Trailer lease revenues and direct expenses were $1.1 million and $0.5
million, respectively, for 2001, compared to $3.5 million and $0.9 million,
respectively, during 2000. Lease revenue decreased $2.2 million in 2001 compared
to 2000 due to the sale of 39% of the Fund's trailers during 2000. The trailers
that were sold were newer and earned a higher lease rate than the trailers that
were retained. In addition, lease revenue decreased $0.2 million due to lower
utilization on the remaining trailer fleet. Expenses decreased in 2001 compared
to 2000 due to the sale of the Fund's trailers during 2000.
(b) Interest and Other Income
Interest and other income decreased $0.3 million during 2001 compared to 2000. A
decrease of $0.7 million was due to an insurance claim for one of the Fund's
owned marine vessels that was recorded as other income during 2000. There were
no similar claims in 2001. This decrease was partially offset by an increase in
interest income of $0.3 million caused by higher average cash balances in 2001
compared to 2000.
(c) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $14.7 million for 2001 decreased from $17.7 million
for 2000. Significant variances are explained as follows:
(i) A $3.3 million decrease in depreciation and amortization expenses from
2000 levels resulted from a $3.5 million decrease due to the use of the
double-declining balance depreciation method which results in greater
depreciation the first years an asset is owned and a decrease of $3.0 million
resulting from the sale of equipment. These decreases were partially offset by
an increase of $3.2 million in depreciation expense from the purchase of
equipment during 2000 and 2001;
(ii) A $0.5 million decrease in general and administrative expenses during
2001 compared to 2000 was due to lower costs of $0.5 million resulting from the
sale of certain of the Fund's trailers and a $0.1 million decrease resulting
from the sale of owned marine vessels during 2001 and 2000. These decreases were
partially offset by an increase of $0.1 million resulting from an increase in
professional services during 2001 compared to 2000;
(iii) A $0.2 million decrease in interest expense was due to lower average
borrowings outstanding during 2001 compared to 2000; and
(iv) A $1.0 million increase in the provision for bad debts was due to the
Manager's evaluation of the collectability of receivables due from certain
lessees.
(d) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for 2001 totaled $7.8 million which
resulted from the sale or disposition of an aircraft, a marine vessel, marine
containers, trailers, and railcars with an aggregate net book value of $3.2
million, for proceeds of $10.2 million. Included in the 2001 net gain on
disposition of assets is the unused portion of aircraft engine reserves of $0.8
million. The net gain on disposition of equipment for the year ended December
31, 2000 totaled $4.0 million which resulted from the sale of marine vessels,
trailers, and railcars with an aggregate net book value of $13.3 million, for
proceeds of $16.7 million. Included in the 2000 net gain on disposition of
assets is the unused portion of marine vessel dry-docking reserves of $0.5
million.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represents the Fund's share of the net
income (loss) generated from the operation of jointly-owned assets accounted for
under the equity method of accounting. These entities are single purpose and
have no debt or financial encumbrances. The following table presents equity in
net income (loss) by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
---------------------------
Aircraft $ 370 $ (95)
Marine vessel 231 (255)
Mobile offshore drilling unit -- 174
---------------------------
Equity in Net Income (Loss) of USPEs $ 601 $ (176)
===========================
Aircraft: As of December 31, 2001 and 2000, the Fund owned interests in two
trusts that each own a commercial aircraft. During 2001, aircraft lease revenues
of $1.5 million and other income of $0.8 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.9 million. During
2000, aircraft lease revenues were $2.1 million offset by depreciation expense,
direct expenses, and administrative expenses of $2.2 million.
Lease revenues decreased $0.6 million due to the reduction in the lease rate of
both MD-82's in the trusts as part of a new lease agreement for these commercial
aircraft. Other income increased $0.8 million during 2001 due to the recognition
of an engine reserve liability as income upon termination of the previous lease
agreement. A similar event did not occur during 2000.
The decrease in depreciation expense, direct expenses, and administrative
expenses of $0.3 million was due to lower depreciation expense as the result of
the double declining-balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
Marine vessel: As of December 31, 2001, the Fund had no interest in any entities
that owned marine vessels. As of December 31, 2000, the Fund had an interest in
an entity that owned a marine vessel. During 2001, lease revenues of $0.4
million and the gain of $0.3 million from the sale this entity in which the Fund
owned an interest were offset by depreciation expense, direct expenses, and
administrative expenses of $0.4 million. During 2000, lease revenues of $0.6
million were offset by depreciation expense, direct expenses, and administrative
expenses of $0.9 million.
Lease revenues, depreciation expense, direct expenses, and administrative
expenses deceased during 2001 compared to 2000 due to the sale of the Fund's
interest in an entity owning a marine vessel.
Mobile offshore drilling unit: The Fund's interest in an entity owning a mobile
offshore drilling unit was sold during the fourth quarter of 1999. During 2000,
additional sale proceeds of $0.2 million were offset by administrative expenses
of $8,000.
(f) Net Income
As a result of the foregoing, the Fund had net income of $8.6 million for the
year ended December 31, 2001, compared to net income of $4.8 million during
2000. The Fund's ability to acquire, operate and liquidate assets, secure
leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Fund's performance in the year ended December 31, 2001
is not necessarily indicative of future periods. In the year ended December 31,
2001, the Fund distributed $5.5 million to Class A members, or $1.11 per
weighted-average Class A unit.
(2) Comparison of the Fund's Operating Results for the Years Ended December 31,
2000 and 1999
In September 1999, PLM Financial Services, Inc. (FSI or the Manager), amended
the corporate-by-laws of USPEs in which the Fund, or any affiliated program,
owned an interest greater than 50%. The amendment to the corporate-by-laws
provided that all decisions regarding the acquisition and disposition of the
investment as well as other significant business decisions of that investment
would be permitted only upon unanimous consent of the Fund and all the
affiliated programs that have an ownership in the investment (the Amendment). As
such, although the Fund may own a majority interest in a USPE, the Fund does not
control its management and thus the equity method of accounting will be used
after adoption of the Amendment. As a result of the Amendment, as of September
30, 1999, all jointly owned equipment in which the Fund owned a majority
interest, which had been consolidated, were reclassified to investments in
USPEs. Lease revenues and direct expenses for jointly owned equipment in which
the Fund held a majority interest were reported under the consolidation method
of accounting during the year ended December 31, 1999 and were included with the
owned equipment operations. For the three months ended December 31, 1999 and
twelve months ended December 31, 2001, lease revenues and direct expenses for
these entities are reported under the equity method of accounting and are
included with the operations of the USPEs.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2000, when compared to 1999. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
2000 1999
--------------------------
Marine containers $ 4,095 $ 1,326
Aircraft 4,022 4,028
Marine vessels 3,914 4,990
Railcars 3,043 3,179
Trailers 2,587 2,976
Mobile offshore drilling unit -- 3,494
Marine containers: Marine container lease revenues and direct expenses were $4.1
million and $18,000, respectively, for 2000, compared to lease revenues of $1.3
million during 1999. Marine container contribution increased in the year ended
December 31, 2000, compared to 1999 due to the purchase and lease of additional
marine containers in 1999 and 2000.
Aircraft: Aircraft lease revenues and direct expenses were $4.1 million and
$35,000, respectively, for 2000, compared to $4.1 million and $29,000,
respectively, during 1999. Aircraft contribution remained approximately the same
due to the stability of the aircraft fleet.
Marine vessels: Marine vessel lease revenues and direct expenses were $7.6
million and $3.7 million, respectively, for 2000, compared to $9.5 million and
$4.5 million, respectively, during 1999. Lease revenue decreased $0.8 million in
2000 compared to 1999 due to lower re-lease rates for one of the Fund's anchor
handling supply marine vessels. In addition, lease revenue decreased $1.9
million due to another anchor handling supply marine vessel being off-lease nine
months of 2000 compared to 1999 when the marine vessel was on lease for the
entire year. The decreases in lease revenue from these marine vessels were
offset, in part, by an increase in lease revenue of $0.7 million during 2000
compared to 1999 due to higher re-lease rates for the Fund's bulk carrier, which
was sold during 2000, and oil tanker marine vessels. Direct expenses decreased
$0.8 million primarily due to lower operating expenses for one of the Fund's
marine vessels in 2000 compared to 1999.
Railcars: Railcar lease revenues and direct expenses were $3.7 million and $0.6
million, respectively, for 2000, compared to $3.8 million and $0.6 million,
respectively, during 1999. The decrease in railcar lease revenues of $0.2
million was primarily due to lower re-lease rates earned on railcars whose
leases expired during 2000.
Trailers: Trailer lease revenues and direct expenses were $3.5 million and $0.9
million, respectively, for 2000, compared to $3.9 million and $0.9 million,
respectively, during 1999. The decrease in trailer contribution was due to the
sale of 39% of the Fund's trailers during 2000.
Mobile offshore drilling unit: Mobile offshore drilling unit revenues and
expenses were $3.6 million and $0.1 million, respectively, for 1999. The
September 30, 1999 Amendment that changed the accounting method of majority held
equipment from the consolidation method of accounting to the equity method of
accounting impacted the reporting of lease revenues and direct expenses of the
mobile offshore drilling unit.
(b) Interest and Other Income
Interest and other income increased $0.7 million during 2000 due to an insurance
claim of $0.7 million for one of the Fund's owned marine vessels. A similar
insurance claim was not required during 1999.
(c) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $17.7 million for 2000 decreased from $23.7 million
for 1999. Significant variances are explained as follows:
(i) A loss on revaluation of $3.9 million was required during 1999 to
reduce the carrying value of two marine vessels to their estimated fair market
value. No revaluation of equipment was required during 2000.
(ii)A $2.0 million decrease in depreciation and amortization expenses from
1999 levels resulted from a $1.2 million decrease due to the use of the
double-declining balance depreciation method which results in greater
depreciation the first years an asset is owned, a decrease of $1.2 million
resulting from the sale of equipment, and a $1.7 million decrease as a result of
the Amendment which changed the accounting method used for majority held
equipment from the consolidation method of accounting to the equity method of
accounting. These decreases were partially offset by an increase of $2.1 million
in depreciation expense from the purchase of equipment during 1999 and 2000.
(iii) A $0.2 million decrease in management fees to affiliate was due to
lower lease revenues on owned equipment in 2000 compared to 1999.
(iv) A $0.1 million increase in general and administrative expenses was due
to a $0.1 million increase in costs associated with the transition of trailers
into and the operation of three new PLM short-term trailer rental facilities
during 2000 compared to 1999.
(d) Minority Interest
Minority interest expense decreased $0.6 million due to the September 30, 1999
Amendment that changed the accounting method of majority held equipment from the
consolidation method of accounting to the equity method of accounting.
(e) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the year ended December 31, 2000
totaled $4.0 million which resulted from the sale of marine vessels, trailers,
and railcars with an aggregate net book value of $13.3 million, for proceeds of
$16.7 million. Included in the 2000 net gain on disposition of assets is the
unused portion of marine vessel dry-docking reserves of $0.5 million. Net gain
on disposition of equipment for the year ended December 31, 1999 totaled $23,000
which resulted from the sale of railcars and trailers with an aggregate net book
value of $0.1 million, for proceeds of $0.2 million.
(f) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of USPEs represent the Fund's share of the net
income (loss) generated from the operation of jointly-owned assets accounted for
under the equity method of accounting. These entities are single purpose and
have no debt or financial encumbrances. The following table presents equity in
net income (loss) by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2000 1999
---------------------------
Mobile offshore drilling unit $ 174 $ 206
Aircraft (95) 1,836
Marine vessel (255) (281)
---------------------------
Equity in Net Income (Loss) of USPEs $ (176) $ 1,761
===========================
Mobile offshore drilling unit: The Fund's interest in an entity owning a mobile
offshore drilling unit was sold during the fourth quarter of 1999. During 2000,
additional sale proceeds of $0.2 million were offset by administrative expenses
of $8,000. During 1999, lease revenues of $0.2 million were offset by
depreciation expense, direct expenses, and administrative expenses of $32,000
and the loss from the sale of the Fund's interest in an entity that owned the
mobile offshore drilling unit of $15,000.
Aircraft: As of December 31, 2000 and 1999, the Fund owned interests in two
trusts that each own a commercial aircraft. During 2000, aircraft lease revenues
were $2.1 million offset by depreciation expense, direct expenses, and
administrative expenses of $2.2 million. During 1999, aircraft lease revenues
were $2.1 million and the gain from the sale of the Fund's interest in two
trusts that owned a total of three commercial aircraft, two aircraft engines,
and a portfolio of aircraft rotables of $3.3 million was offset by depreciation
expense, direct expenses, and administrative expenses of $3.6 million. The
decrease in expenses of $1.4 million was primarily due to lower depreciation
expense resulting from a $1.2 million decrease due to the use of double
declining-balance method of depreciation which results in greater depreciation
in the first years an asset is owned and a $0.1 million decrease due to the sale
of the Fund's interest in the two trusts.
Marine vessel: As of December 31, 2000 and 1999, the Fund had an interest in an
entity that owns a marine vessel. During 2000, lease revenues of $0.6 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $0.9 million. During 1999, lease revenues of $0.8 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$1.1 million. Lease revenue decreased $0.1 million as a result of the marine
vessel being off lease for 30 days in the year ended December 31, 2000 compared
to 1999 where the marine vessel was on lease for the entire year. Depreciation
expense, direct expenses, and administrative expenses decreased $0.1 million
primarily due to lower depreciation expense resulting from a $39,000 decrease
due to the use of double declining-balance method of depreciation which results
in greater depreciation in the first years an asset is owned and a $0.1 million
decrease in repairs and maintenance.
(g) Cumulative Effect of Accounting Change
In April 1999, 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 Fund adopted this statement
during the year ended December 31, 1999, at which time it took a $0.1 million
charge, related to start-up costs of the Fund. This charge had the effect of
reducing net income per weighted-average Class A unit by $0.03 for the year
ended December 31, 1999.
(h) Net Income (Loss)
As a result of the foregoing, the Fund had net income of $4.8 million for the
year ended December 31, 2000, compared to net loss of $2.4 million during 1999.
The Fund's ability to acquire, operate and liquidate assets, secure leases, and
re-lease those assets whose leases expire is subject to many factors. Therefore,
the Fund's performance in the year ended December 31, 2000 is not necessarily
indicative of future periods. In the year ended December 31, 2000, the Fund
distributed $9.9 million to Class A members, or $2.00 per weighted-average Class
A unit.
(E) Geographic Information
Certain of the Fund's equipment operates in international markets. Although
these operations expose the Fund to certain currency, political, credit and
economic risks, the Manager believes these risks are minimal or has implemented
strategies to control the risks. Currency risks are at a minimum because all
invoicing, with the exception of a small number of railcars operating in Canada,
is conducted in US dollars. Political risks are minimized by avoiding countries
that do not have a stable judicial system and established commercial business
laws. Credit support strategies for lessees range from letters of credit
supported by US banks to cash deposits. Although these credit support mechanisms
generally allow the Fund to maintain its lease yield, there are risks associated
with slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all international
markets and the Manager strives to minimize this risk with market analysis prior
to committing equipment to a particular geographic area. Refer to Note 6 to the
audited financial statements for information on the lease revenues, net income
(loss), and net book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the assets are owned and the useful life ascribed to the assets for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years due to
the use of the double-declining balance method of depreciation. The
relationships of geographic revenues, net income (loss), and net book value of
equipment are expected to change significantly in the future, as assets come off
lease and decisions are made to either redeploy the assets in the most
advantageous geographic location or sell the assets.
The Fund's owned equipment on lease to US-domiciled lessees consists of
trailers, railcars, and interests in entities that own aircraft. During 2001, US
lease revenues accounted for 22% of the total lease revenues from wholly and
jointly owned equipment. This region reported a net income of $1.1 million.
The Fund's owned equipment on lease to South American-domiciled lessees consists
of three aircraft. During 2001, South American lease revenues accounted for 19%
of the total lease revenues from wholly and jointly owned equipment, while this
region reported a net income of $7.9 million. Net income of $6.8 million from
this region resulted from the disposition of an aircraft.
The Fund's equipment on lease to Canadian-domiciled lessees consists of
railcars. Lease revenues in Canada accounted for 6% of total lease revenues from
wholly and jointly-owned equipment while this region reported a net income of
$0.4 million.
The Fund's owned equipment and investments in equipment owned by USPEs on lease
to lessees in the rest of the world consists of marine vessels and marine
containers. During 2001, lease revenues for these operations accounted for 53%
of the total lease revenues of wholly and jointly owned equipment. This region
reported a net income of $1.2 million. Net income of $1.3 million from this
region resulted from the sale of an owned marine vessel and the sale of the
Fund's interest in an entity that owned another marine vessel.
(F) Inflation
Inflation had no significant impact on the Fund's operations during 2001, 2000,
or 1999.
(G) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Fund's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Fund's actual results could differ materially from those
discussed here.
(H) Outlook for the Future
The Fund's operation of a diversified equipment portfolio in a broad base of
markets is intended to reduce its exposure to volatility in individual equipment
sectors.
The ability of the Fund to realize acceptable lease rates on its equipment in
the different equipment markets is contingent on many factors, such as specific
market conditions and economic activity, technological obsolescence, and
government or other regulations. The unpredictability of these factors makes it
difficult for the Manager to clearly define trends or influences that may impact
the performance of the Fund's equipment. The Manager continually monitors both
the equipment markets and the performance of the Fund's equipment in these
markets. The Manager may make an evaluation to reduce the Fund's exposure to
those equipment markets in which it determines that it cannot operate equipment
and achieve acceptable rates of return. Alternatively, the Manager may make a
determination to enter those equipment markets in which it perceives
opportunities to profit from supply-demand instabilities or other market
imperfections.
The Fund intends to use excess cash flow, if any, after payment of expenses and
loan principal and interest on debt to acquire additional equipment during the
first six years of the Fund's operations which concludes December 31, 2002. The
Manager believes that these acquisitions may cause the Fund to generate
additional earnings and cash flow for the Fund.
Factors that may affect the Fund's contribution in 2002 and beyond include:
(i) Marine vessel freight rates are dependent upon the overall condition of the
international economy. Freight rates earned by the Fund's marine vessel began to
decrease during the later half of 2001. This trend is expected to continue
during the first half of 2002.
(ii) The cost of new marine containers has been at historic lows for the past
several years which has caused downward pressure on per diem lease rates.
(iii) Railcar loadings in North America have weakened over the past year. During
2001, utilization and lease rates decreased. Railcar contribution may decrease
in 2002 as existing leases expire and renewal leases are negotiated.
(iv) The airline industry began to see lower passenger travel during 2001. The
tragic events on September 11, 2001 worsened the situation. No direct damage
occurred to any of the Fund's aircraft as a result of these events and the
Manager is currently unable to determine the long-term effects, if any, these
events may have on the Fund's aircraft. Three of the Fund's owned commercial
aircraft leases expire during 2002; however, the lessee has stopped paying on
the aircraft leases in September 2001 and notified the Manager that they would
like to return these aircraft before the lease expiration date.
Several other factors may affect the Fund's operating performance in 2002 and
beyond, including changes in the markets for the Fund's equipment and changes in
the regulatory environment in which that equipment operates.
(1) Repricing and Reinvestment Risk
Certain of the Fund's aircraft, marine vessels, railcars, marine containers, and
trailers will be remarketed in 2002 as existing leases expire, exposing the Fund
to repricing risk/opportunity. Additionally, the Manager may elect to sell
certain under-performing equipment or equipment whose continued operation may
become prohibitively expensive. In either case, the Manager intends to re-lease
or sell equipment at prevailing market rates; however, the Manager cannot
predict these future rates with any certainty at this time, and cannot
accurately assess the effect of such activity on future Fund performance. The
proceeds from the sold or liquidated equipment will be redeployed to purchase
additional equipment, as the Fund is in its reinvestment phase.
(2) Impact of Government Regulations on Future Operations
The Manager operates the Fund's equipment in accordance with current applicable
regulations (see Item 1, Section E, Government Regulations). However, the
continuing implementation of new or modified regulations by some of the
authorities mentioned previously, or others, may adversely affect the Fund's
ability to continue to own or operate equipment in its portfolio. Additionally,
regulatory systems vary from country to country, which may increase the burden
to the Fund of meeting regulatory compliance for the same equipment operated
between countries.
Under US Federal Aviation Regulations, after December 31, 1999, no person may
operate an aircraft to or from any airport in the contiguous United States
unless that aircraft has been shown to comply with Stage III noise levels. The
Fund has three Stage II aircraft that do not meet Stage III requirements. These
Stage II aircraft are in a country that does not have these noise restrictions.
Furthermore, the Federal Railroad Administration has mandated that effective
July 1, 2000, all tank railcars must be re-qualified every ten years from the
last test date stenciled on each railcar to insure tank shell integrity. Tank
shell thickness, weld seams, and weld attachments must be inspected and repaired
if necessary to re-qualify a tank railcar for service. The average cost of this
inspection is $1,800 for non-jacketed tank railcars and $3,600 for jacketed tank
railcars, not including any necessary repairs. This inspection is to be
performed at the next scheduled tank test and every ten years thereafter. The
Fund currently owns 54 non-jacketed tank railcars and 292 jacketed tank railcars
of which a total of 292 tank railcars have been inspected to date and no defects
have been discovered.
Ongoing changes in the regulatory environment, both in the US and
internationally, cannot be predicted with accuracy, and preclude the Manager
from determining the impact of such changes on Fund operations, purchases, or
sale of equipment.
(3) Distribution Levels and Additional Capital Resources
The Fund's initial contributed capital was composed of the proceeds from its
initial offering of $100.0 million, supplemented by permanent debt in the amount
of $25.0 million. The Manager has not planned any expenditures, nor is it aware
of any contingencies that would cause it to require any additional capital to
that mentioned above. The Fund intends to rely on operating cash flow to meet
its operating obligations, make cash distributions to limited partners, make
debt payments, and increase the Fund's equipment portfolio with any remaining
surplus cash available.
Pursuant to the Fifth Amended and Restated Operating Agreement of Professional
Lease Management Income Fund I, L.L.C. (the operating agreement), the Fund will
cease to reinvest surplus cash in additional equipment beginning in its seventh
year of operations which commences on January 1, 2003. Prior to that date, the
Manager intends to continue its strategy of selectively redeploying equipment to
achieve competitive returns. By the end of the reinvestment period, the Manager
intends to have assembled an equipment portfolio capable of achieving a level of
operating cash flow for the remaining life of the Fund sufficient to meet its
obligations.
The Manager will evaluate the level of distributions the Fund can sustain over
extended periods of time and, together with other considerations, may adjust the
level of distributions accordingly. In the long term, the difficulty in
predicting market conditions precludes the Manager from accurately determining
the impact of changing market conditions on liquidity or distribution levels.
The Fund's permanent debt obligation began to mature in December 2000. The
Manager believes that sufficient cash flow will be available in the future for
repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Fund's primary market risk exposure is that of currency risk. During 2001,
78% of the Fund's total lease revenues from wholly-and jointly-owned equipment
came from non-United States domiciled lessees. Most of the leases require
payment in US currency. If these lessees' currency devalues against the US
dollar, the lessees could potentially encounter difficulty in making the US
dollar denominated lease payment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Fund are listed on the Index to Financial
Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(A) Disagreements with Accountants on Accounting and Financial Disclosures
None
(B) Changes in Accountants
In September 2001, the Manager announced that the Fund had engaged
Deloitte & Touche LLP as the Fund's auditors and had dismissed KPMG
LLP. KPMG LLP issued unqualified opinions on the 1999 and 2000
financial statements. During 1999, 2000 and the subsequent interim
period preceding such dismissal, there were no disagreements with KPMG
LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Gary D. Engle 52 Director, PLM Financial Services, Inc., PLM Investment
Management Inc., and PLM Transportation Equipment Corp.
James A. Coyne 41 Director and Secretary, PLM Financial Services Inc., PLM
Investment Management, Inc., and PLM Transportation Equipment
Corp.
Stephen M. Bess 55 President and Director, PLM Financial Services, Inc., PLM
Investment Management Inc., and PLM Transportation Equipment
Corp.
Gary D. Engle was appointed a Director of PLM Financial Services, Inc. in
January 2002. He was appointed a director of PLM International, Inc. in February
2001. He is a director and President of MILPI. Since November 1997, Mr. Engle
has been Chairman and Chief Executive Officer of Semele Group Inc. ("Semele"), a
publicly traded company. Mr. Engle is President and Chief Executive Officer of
Equis Financial Group ("EFG"), which he joined in 1990 as Executive Vice
President. Mr. Engle purchased a controlling interest in EFG in December 1994.
He is also President of AFG Realty, Inc.
James A. Coyne was appointed a Director and Secretary of PLM Financial Services
Inc. in April 2001. He was appointed a director of PLM International, Inc in
February 2001. He is a director, Vice President and Secretary of MILPI. Mr.
Coyne has been a director, President and Chief Operating Officer of Semele since
1997. Mr. Coyne is Executive Vice President of Equis Corporation, the general
partner of EFG. Mr. Coyne joined EFG in 1989, remained until 1993, and rejoined
in November 1994.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Financial Services, Inc. in
October 2000. He was appointed President and Chief Executive Officer of PLM
International, Inc. in October 2000. Mr. Bess was appointed President of PLM
Investment Management, Inc. in August 1989, having served as Senior Vice
President of PLM Investment Management, Inc. beginning in February 1984 and as
Corporate Controller of PLM Financial Services, Inc. beginning in October 1983.
He served as Corporate Controller of PLM, Inc. beginning in December 1982. Mr.
Bess was Vice President-Controller of Trans Ocean Leasing Corporation, a
container leasing company, from November 1978 to November 1982, and Group
Finance Manager with the Field Operations Group of Memorex Corporation, a
manufacturer of computer peripheral equipment, from October 1975 to November
1978.
The directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM Financial Services, Inc., PLM
Transportation Equipment Corp., or PLM Investment Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Fund has no directors, officers, or employees. The Fund has no pension,
profit sharing, retirement, or similar benefit plan in effect as of December 31,
2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The Manager is generally entitled to a 1% interest in profits and
losses and a 15% interest in the Fund's cash distributions, subject to
certain allocation of income provisions. After the investors receive
cash equal to their original capital contribution, the Manager's
interest in the distributions of the Fund will increase to 25%. As of
December 31, 2001, no investor was known by the Manager to
beneficially own more than 5% of the units of the Fund.
(B) Security Ownership of Management
Neither the Manager and its affiliates nor any executive officer or
director of the Manager and its affiliates owned any units of the Fund
as of December 31, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
During 2001, the Fund paid or accrued the following fees to FSI or its
affiliates: management fees, $1.3 million; and administrative and data
processing services performed on behalf of the Fund, $0.5 million.
During 2001, the USPEs paid or accrued the following fees to FSI or
its affiliates (based on the Fund's proportional share of ownership):
management fees - $0.1 million; and administrative and data processing
services - $0.1 million.
(This space intentionally left blank)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statements required under Regulation S-X Rule 3-09
The following financial statements are filed as an Exhibit of this
Annual Report on Form 10K:
a. TAP Trust
(B) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules have been omitted, as the
required information is not pertinent to the Registrant or is not
material, or because the information required is included in the
financial statements and notes thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Operating Agreement of Fund, incorporated by reference to the Fund's
Registration Statement on Form S-1 (Reg. No. 33-55796) which became
effective with the Securities and Exchange Commission on May 25, 1993.
10.1 Management Agreement between Fund and PLM Investment Management, Inc.,
incorporated by reference to the Fund's Registration Statement on Form
S-1 (Reg. No. 33-55796) which became effective with the Securities and
Exchange Commission on May 25, 1993.
10.2 $25.0 Million Note Agreement, dated as of December 30, 1996,
incorporated by reference to the Fund's 1996 Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 14,
1997.
10.3 Warehousing Credit Agreement, dated as of April 13, 2001, incorporated
by reference to the Partnership's Form 10-Q dated March 31, 2001 filed
with the Securities and Exchange Commission on May 9, 2001.
10.4 First Amendment to Warehousing Credit Agreement, dated as of December
21, 2001.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 TAP Trust.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Fund has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
The Fund has no directors or officers. The Manager has signed on behalf of the
Fund by duly authorized officers.
PROFESSIONAL LEASE MANAGEMENT INCOME
Date: March 27, 2002 FUND I
By: PLM Financial Services, Inc.
Manager
By: /s/ Stephen M. Bess
-----------------------------------
Stephen M. Bess
President and Current Chief Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following directors of the Fund's Manager on the
dates indicated.
Name Capacity Date
/s/ Gary D. Engle
- ------------------------------------
Gary D. Engle Director - FSI March 27, 2002
/s/ James A. Coyne
- ------------------------------------
James A. Coyne Director - FSI March 27, 2002
/s/ Stephen M. Bess
- ------------------------------------
Stephen M. Bess Director - FSI March 27, 2002
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' reports 26-27
Balance sheets as of December 31, 2001 and 2000 28
Statements of operations for the years ended
December 31, 2001, 2000, and 1999 29
Statement of changes in members' equity for the years ended
December 31, 2001, 2000, and 1999 30
Statements of cash flows for the years ended
December 31, 2001, 2000, and 1999 31
Notes to financial statements 32-43
Independent auditors' report on financial statement schedule 44
Schedule II Valuation and Qualifying Accounts 45
INDEPENDENT AUDITORS' REPORT
The Members
Professional Lease Management Income Fund I, L.L.C.:
We have audited the accompanying balance sheet of Professional Lease Management
Income Fund I, L.L.C. (the "Fund"), as of December 31, 2001, and the related
statements of operations, changes in members' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Fund as of December 31, 2001, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Members
Professional Lease Management Income Fund I, L.L.C.:
We have audited the accompanying balance sheet of Professional Lease Management
Income Fund I, L.L.C. ("the Fund") as of December 31, 2000 and the related
statements of operations, changes in members' equity and cash flows for each of
the years in the two-year period ended December 31, 2000. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Professional Lease Management
Income Fund I, L.L.C. as of December 31, 2000 and the results of its operations
and its cash flows for each of the years in the two-year period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
2001 2000
-------------------------------------
ASSETS
Equipment held for operating leases $ 89,833 $ 92,921
Less accumulated depreciation (48,425) (44,197)
-------------------------------------
41,408 48,724
Equipment held for sale -- 3,200
-------------------------------------
Net equipment 41,408 51,924
Cash and cash equivalents 21,837 11,291
Restricted cash 553 813
Accounts receivable, less of allowance for doubtful accounts
of $1,048 in 2001 and $48 in 2000 2,513 2,283
Investments in unconsolidated special-purpose entities 2,741 5,155
Debt placement fees, less accumulated amortization
of $87 in 2001 and $70 in 2000 89 107
Prepaid expenses and other assets 102 110
-------------------------------------
Total assets $ 69,243 $ 71,683
=====================================
LIABILITIES AND MEMBER'S EQUITY
Liabilities
Accounts payable and accrued expenses $ 625 $ 555
Due to affiliates 251 917
Lessee deposits and reserves for repairs 3,739 4,541
Note payable 19,000 22,000
-------------------------------------
Total liabilities 23,615 28,013
-------------------------------------
Commitments and contingencies
Members' equity
Class A members (4,971,311 units at December 31, 2001 and 2000) 45,628 43,670
Class B member -- --
-------------------------------------
Total members' equity 45,628 43,670
-------------------------------------
Total liabilities and members' equity $ 69,243 $ 71,683
=====================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
(in thousands of dollars, except weighted-average unit amounts)
2001 2000 1999
--------------------------------------------------------
REVENUES
Lease revenue $ 19,198 $ 22,949 $ 26,113
Interest and other income 808 1,083 347
Net gain on disposition of equipment 7,812 3,956 23
--------------------------------------------------------
Total revenues 27,818 27,988 26,483
--------------------------------------------------------
EXPENSES
Depreciation and amortization 9,554 12,833 14,849
Repairs and maintenance 1,779 2,517 2,633
Equipment operating expenses 2,855 2,515 3,142
Insurance expense 468 294 428
Management fees to affiliate 1,277 1,232 1,396
Interest expense 1,613 1,833 1,833
General and administrative expenses to affiliates 546 853 952
Other general and administrative expenses 741 919 721
Provision for (recovery of) bad debt expense 1,001 (5) 38
Loss on revaluation of equipment -- -- 3,931
--------------------------------------------------------
Total expenses 19,834 22,991 29,923
--------------------------------------------------------
Minority interest -- -- (590)
--------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities 601 (176 ) 1,761
--------------------------------------------------------
Income (loss) before cumulative effect of
accounting change 8,585 4,821 (2,269)
Cumulative effect of accounting change -- -- (132)
--------------------------------------------------------
Net income (loss) $ 8,585 $ 4,821 $ (2,401)
========================================================
MEMBERS' SHARE OF NET INCOME (LOSS)
Class A members $ 7,488 $ 3,066 $ (4,029)
Class B member 1,097 1,755 1,628
--------------------------------------------------------
Total $ 8,585 $ 4,821 $ (2,401)
========================================================
Net income (loss) per weighted-average
Class A unit $ 1.51 $ 0.62 $ (0.81)
========================================================
Cash distribution $ 6,627 $ 11,701 $ 11,690
========================================================
Cash distribution per weighted-average
Class A unit $ 1.11 $ 2.00 $ 1.99
========================================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF CHANGES IN MEMBERS' EQUITY
For the Years Ended December 31, 2001, 2000, and 1999
(in thousands of dollars)
Class A Class B Total
---------------------------------------------------------
Members' equity as of December 31, 1998 $ 64,893 $ 132 $ 65,025
Net income (loss) (4,029) 1,628 (2,401)
Purchase of Class A units (336) -- (336)
Cash distributions (9,930) (1,760) (11,690)
---------------------------------------------------------
Members' equity as of December 31, 1999 50,598 -- 50,598
Net income 3,066 1,755 4,821
Purchase of Class A units (48) -- (48)
Cash distributions (9,946) (1,755) (11,701)
---------------------------------------------------------
Members' equity as of December 31, 2000 43,670 -- 43,670
Net income 7,488 1,097 8,585
Cash distributions (5,530) (1,097) (6,627)
---------------------------------------------------------
Members' equity as of December 31, 2001 $ 45,628 $ -- $ 45,628
=========================================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
OPERATING ACTIVITIES 2001 2000 1999
-------------------------------------------
Net income (loss) $ 8,585 $ 4,821 $ (2,401)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,554 12,833 14,849
Provision for (recovery of) bad debt expense 1,001 (5) 38
Loss on revaluation of equipment -- -- 3,931
Net gain on disposition of equipment (7,812) (3,956) (23)
Cumulative effect of accounting change -- -- 132
Equity in net (income) loss of unconsolidated special
purpose entities (601) 176 (1,761)
Changes in operating assets and liabilities:
Restricted cash 260 (360) (491)
Accounts receivable, net (1,230) (273) (131)
Prepaid expenses and other assets 8 (2) 156
Accounts payable and accrued expenses 45 (25) (3)
Due to affiliates (666) 261 276
Lessee deposits and reserves for repairs 25 1,207 781
Minority interest -- -- (676)
-------------------------------------------
Net cash provided by operating activities 9,169 14,677 14,677
-------------------------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment (2,263) (19,484) (11,397)
Liquidation distributions from unconsolidated special-
purpose entities 931 182 14,282
Distributions from unconsolidated special-purpose entities 2,084 2,204 2,173
Proceeds from disposition of equipment 10,106 16,864 168
-------------------------------------------
Net cash provided by (used in) investing activities 10,858 (234) 5,226
-------------------------------------------
FINANCING ACTIVITIES
Payments on note payable (3,000) (3,000) --
Cash distributions to Class A members (5,384) (9,946) (9,930)
Cash distributions to Class B member (1,097) (1,755) (1,760)
Purchase of Class A units -- (48) (336)
-------------------------------------------
Net cash used in financing activities (9,481) (14,749) (12,026)
-------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,546 (306) 7,877
Cash and cash equivalents at beginning of year 11,291 11,597 3,720
-------------------------------------------
Cash and cash equivalents at end of year $ 21,837 $ 11,291 $ 11,597
===========================================
Supplemental information
Interest paid $ 1,617 $ 1,833 $ 1,833
===========================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ORGANIZATION
Professional Lease Management Income Fund I, L.L.C., a Delaware Limited
Liability Company (the "Fund") was formed on August 22, 1994, to engage in the
business of owning, leas