PROFESSIONAL LEASE MANAGEMENT INCOME FUND I LLC - 10-K Annual Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003.

[ ] 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.)

235 3 ^rd Street South, Suite 200
St. Petersburg, FL		33701
(Address of principal executive offices)		(Zip code)

Registrant's telephone number, including area code (727) 803-1800

_______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Aggregate market value of voting stock: N/A

An index of exhibits filed with this Form 10-K is located at page 26-27.

Total number of pages in this report:89.

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 offering of units of the Fund closed on May 13, 1996. As of December 31, 2003, 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 expense s 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. 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 maintain a diversified portfolio of low-obsolescence equipment with long lives and high residual values which were purchased with the net proceeds of the initial Fund offering, supplemented by debt financing, and surplus operating cash during the investment phase of the Fund;

(2) to generate sufficient net operating cash flow from lease operations to meet liquidity requirements and to generate cash distributions to the members until such time as the Manager commences the orderly liquidation of the Fund's assets or unless the Fund is terminated earlier upon sale of all Fund property or by certain other events;

(3) to selectively sell equipment when the Manager believes that, due to market conditions, market prices for equipment exceed inherent equipment values or expected future benefits from continued ownership of a particular asset. Proceeds from these sales, together with excess net operating cash flows from operations (net cash provided by operating activities plus distributions from equity investments are used to repay the Fund’s outstanding indebtedness and for distributions to the members; and

(4) to preserve and protect the value of the portfolio through quality management, maintaining diversity, and constantly monitoring equipment markets.

The Fund may not reinvest cash flow generated from operations after January 1, 2003 into additional equipment. The Fund will terminate on December 31, 2010 unless terminated earlier upon sale of all of the equipment or by certain other events.

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 in entities in which the Fund has an equity investment as of December 31, 2003 (in thousands of dollars):


Units	Type	Manufacturer	Cost


Owned equipment held for operating leases:

518	Pressurized tank railcars	Various	$ 22,527
107	Non-pressurized tank railcars	Various	6,291
95	Covered hopper railcars	Various	5,172
245	Box railcars	Various	4,952
14,397	Marine containers	Various	29,513
84	Refrigerated marine containers	Various	1,312
1	Oil tanker marine vessel	Hyundai	17,000
3	737-200A stage II commercial aircraft	Boeing	15,358
432	Intermodal trailers	Various	6,500

	Total owned equipment held for operating leases		$108,625 1


Equipment owned by entities in which the Fund has an equity investment:

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 equity investments				$14,600 1

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 container leases are 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.

(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 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 financial statements).

1 Includes equipment and investments purchased with 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 affililiated program

(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 offer 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.

The Fund currently operates in the following operating segments: marine container 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:

(a) Pressurized Tank Railcars

Pressurized tank railcars are used to transport liquefied petroleum gas (LPG) and anhydrous ammonia (fertilizer). The North American markets for LPG include industrial applications, residential use, electrical generation, commercial applications, and transportation. Growth prospects over the long run are good, however, within any given year, consumption is particularly influenced by the severity of winter temperatures.

Another major commodity usage area for pressure railcars is anhydrous ammonia. 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 United States (US) dollar. Currently, given the domestic price for natural gas, an increasing amount of anhydrous ammonia is imported rather than produced locally. These changing distribution patterns offer an opportunity for increased use of pressure railcars in new transportation corridors.

On an industry-wide basis, North American carloadings of the commodity group that includes petroleum and chemicals was flat when contrasting 2003 to 2002. Growth for 2004 carloadings is expected to be in the 2 to 3% year over year range.

Nationwide, the age of the US and Canadian pressure railcar fleet is advancing. The Fund owns pressure tank railcars that are among this fleet. Approximately 10% of the industry fleet is expected to reach the maximum age allowed by regulation (40 years) in the next three years. The desirability of the railcars in the Fund is negatively affected by the relatively high age of the fleet and related corrosion issues on foam insulated railcars. However, those railcars which do not need to be scrapped should see high levels of utilization as commodity growth driven demand is being served by a declining industry fleet size. With the high level of retirements over the next few years, the Manager believes now is an appropriate time to purchase new railcars of this type.

Of the total fleet of 518 pressurized tank railcars, 113 of the railcars were built many years ago by a manufacturer no longer in business, of which 92 have suffered severe corrosion and are not rentable in their present condition and are uneconomic to repair. At December 31, 2003, utilization of the Fund’s pressurized tank railcars was 64%.

(b) General-Purpose (Nonpressurized) Tank Railcars

General purpose tank railcars are used to transport bulk liquid commodities and chemicals not requiring pressurization, such as certain petroleum products, liquefied asphalt, lubricating oils, molten sulfur, vegetable oils, and corn syrup. The overall health of the market for non-food types of commodities is closely tied to overall manufacturing activity and thus both the US and global economies. The manufacturing, automobile, and housing sectors are the largest consumers of chemicals. Also, the increased use of ethanol as a fuel additive has increased demand for this subset of general purpose railcars.

Chemicals continue to rebound along with the general economy. Also bolstering the demand for full service leased railcars is a trend by shippers to lease rather than own their equipment. At December 31, 2003, utilization of the Fund’s nonpressurized tank railcars was 100%.

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 year 2003 saw dramatic increases in wheat and corn harvests and some increased demand for rail shipments. On the other hand, the more volatile export business, which accounts for approximately 30% of total grain shipments, and which serves emerging and developing nations, was flat.

Demand for covered hopper railcars, which are specifically designed to service the grain industry, has started to pick up after a consistent pattern of decline in the number of carloadings over the last several years. Railcar utilization will recover more slowly as there is a significant supply of idle railcars to be absorbed. A large number of new railcars were built in the late 1990s and the fleet has become more efficiently utilized by the railroads. As in prior years, any covered hopper railcars that were leased were done so at considerably lower rental rates.

Many of the Fund’s rail cars are smaller and thus less desirable than those currently being built. Because of this factor and the large number of idle railcars throughout the industry, utilization of the Fund’s covered hopper railcars at December 31, 2003 was 47%.

(d) Box Railcars 

Box railcars are primarily used to transport paper and paper products, auto parts, and manufactured goods. Recently a railroad owned pool or railcars managed by TTX expanded into the box car market significantly increasing competition to traditional lessors. Extremely attractive prices on new equipment have negatively affected demand for older railcars. 

After sluggish demand for boxcars in 2003, slow growth is expected in the future; with perhaps somewhat higher growth in the very short term as the economy recovers. The Fund’s boxcars are used for paper and have a smaller load capacity than those currently in demand for paper service. The utilization of the Fund’s box railcars was 80% at year-end. 

(2) Marine Containers 

Marine containers are used to transport a variety of types of cargo. They typically travel on marine vessels but may also travel on railroads loaded on certain types of railcars and highways loaded on a trailer. 

The Fund purchased new standard dry cargo containers from 1998 to 2000. Utilization is expected to continue in the 85 to 90% range through at least the first half of 2004. Per diem lease rates for marine containers, however, which are primarily influenced by cost of new marine containers, were flat in 2003 and well below historical levels. Per diem lease rates in 2004 are expected to remain at 2003 levels or improve slightly. 

The Fund’s marine containers that were originally placed on fixed-rate leases from 1998-2000 converted to a utilization based lease in 2003. In 2004, approximately 4,200 or approximately 29% of the Fund’s marine containers will come off their fixed rate lease and in 2005 approximately 6,000 or approximately 41% of the Fund’s marine containers will come off their fixed lease and will convert to a utilization based lease at which time lease revenue is expected to decrease significantly. As the market for marine containers is considerably softer than the period during which they were placed on fixed-rate leases, lease revenue on these containers has decreased up to 20% when the original leases expire. 

(3) Marine Vessel 

The Fund owns a double-hull product tanker constructed in 1986, which operates in international markets carrying a variety of clean commodity-type cargos. Demand for clean commodity-based shipping is closely tied to worldwide economic growth patterns, which can affect demand by causing changes in specific grade volumes on trade routes. The Manager operates the Fund’s product tanker in the spot chartering markets, carrying mostly gasoline, jet fuel, gas oils and similar petroleum distillates or simple chemicals or vegetable oils similar petroleum distillates, an approach that provides the flexibility to adapt to changes in market conditions. 

The Fund’s product tanker has continued to operate with very little idle time between charters, with exception of downtime for regular dry-docking. Rates however, have continued to increase throughout the year when compared to rates in 2002. In the fourth quarter of 2003 and into 2004, freight rates for the Fund’s marine vessel started to improve due to an increase on the demand side for sea transportation resulting from improving economies world wide. The demand is expected to continue until new tonnage starts coming on line mid year. The cold weather and demand for refined home heating oil on US east coast has given a added boost to charter rates in the New Year 

(4)  Commercial Aircraft 

The commercial aviation industry has been suffering from an unprecedented array of negative events during the last few years (September 11, recession, Iraq war, SARS, changes in fuel prices). As a result, many airlines have reduced their fleets creating excess supply of aircraft. The Manager believes that demand for commercial aircraft is slowly recovering, however, it expects demand to increase first for newer more fuel efficient aircraft. Most of the Fund’s aircraft are of older vintage and considered ‘old technology’ (including but not limited to not meeting current noise regulations in US/Europe and several other countries) for which reason the Manager has actively sought to liquidate its positions in old technology aircraft. 

The Fund owns 100% of three Boeing 737-200 Stage II commercial 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 above market rates. 

The decrease in value of the Fund’s aircraft since September 11, 2001 have had and will have a negative impact on the ability of the Fund to achieve its original objectives as lower values will also result in significantly lower revenues than the Fund has been able to achieve for these assets in the past. 

(5) Intermodal 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 eight 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 wholesale freight rates on domestic containers compared to intermodal trailers. During 2003, demand for intermodal trailers was much more depressed than historic norms. Unusually low demand occurred over the first half of the year (similar to 2002) due to a slow economy and low rail freight rates for 53-foot domestic containers. Due to the decline in demand, shipments for the year within the intermodal pool trailer market declined approximately 
2% compared to 2002. Average utilization of the entire US intermodal trailer pool fleet declined from 77% in 1999 to a record low of 49% in 2003. 

The trend towards using domestic containers instead of intermodal trailers is expected to accelerate in the future. Intermodal pool trailer shipments are forecast to decline by 10% in 2004, compared to 2003. As such, the nationwide supply of intermodal trailers is expected to have approximately 28,000 units in surplus for 2004. 

The Manager will continue to seek to expand its customer base and undertake significant efforts to reduce cartage and maintenance costs, such as minimizing trailer downtime at repair shops and terminals. 

(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 suc
h equipment to meet these regulations, at considerable cost to the Fund. Such regulations include: 

(1)  In 2004, new maritime and port security laws that have already been passed by US Congress and International Maritime Organizations are scheduled to be implemented. The United States Coast Guard is currently holding hearings with international shipping industry representatives to discuss the implementation of the new code and regulations, which are to apply to all shipping, ports and terminals both in the US and abroad. The new regulations are aimed at improving security aboard marine vessels. These regulations may require additional security equipment being added to marine vessels as well as additional training being provided to the crew. Th
e final code, which is expected to have a significant impact on the industry, will apply to all ships over 500 dead weight tons that include the one owned by the Fund. The requirements of these new regulations have to be met by July 2004. As the methodology of how these regulations will be applied is still being determined, the Manager is unable to determine the impact on the Fund at this time; 

(2)  The US Department of Transportation Hazardous Material Regulations regulates the classification and packaging requirements of hazardous materials, which apply, particularly to the Fund's tank railcars. Per those regulations several mandated inspections and or repairs are required to be performed annually. Re-qualification inspection and repairs will be required on approximately 102 railcars during 2004. The average cost of re-qualification for jacketed tank railcars is $3,600 and $1,800 on non-jacketed railcars. The Fund is required to re-qualify approximately 93 jacketed railcars and 9 non-jacketed railcars in 2004. 

(3)  In August 2003 the American Association of Railroads in conjunction with the Federal Railroad Administration issued Circular Letter No. CPC-1156 requiring the inspection and modification of pressure tank railcars built by North American Car Corporation with an under frame design of "AMF-ABC" by December 1, 2003. The Fund owns 161 of these railcars. The cost of inspection and retrofit is approximately $7,500. Approximately 107 railcars were deemed as uneconomical to repair and have or will be scrapped. The average disposal value is $4,500. There are approximately 28 railcars in the process of being evaluated for repair or repaired already. Th
e Manager estimates that 16 of these railcars will be repaired and the rest will be scrapped. 

The tank railcar industry faces several possible regulatory events in the near future. We expect rule making for some of the issues during 2004 and 2005 including but not limited to: the Minot North Dakota accident and non-normalized steel, constant contact side bearing retrofit and the addition of a reflector strip to railcars. At this point we cannot estimate cost or outcome of any of these proposed programs. 

As of December 31, 2003, 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, 2003, the Fund owned a portfolio of transportation and related equipment and equipment owned by entities in which the Fund has an equity investment, 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 235 3 rd Street South, Suite 200, St. Petersburg, FL. 33701. 

ITEM 3.   LEGAL PROCEEDINGS 

The Fund is involved as plaintiff or defendant in various 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, 2003. 

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, 2003, by the 5,069 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 tra
nsfer 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 value of a Class A Unit. As of December 31, 2003, 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 2003. The Manager does not anticipate additional units being purchased under this plan in the future. 

ITEM 6.  SELECTED FINANCIAL DATA 

The following selected financial data for the Fund is based on audit historical financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Managements Discussion and Analysis of Financial Condition and Results of Operations" included herein or in previous filings with the Securities and Exchange Commission. 

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 Class A unit amounts) 

Gain on disposition of equipment

Loss on disposition of equipment

Impairment loss on equipment

Equity in net income (loss) of

	2003	2002	2001	2000	1999


Operating results:
Total revenues	$18,868	$18,746	$27,818	$27,988	$26,483
Gain on disposition of equipment	198	171	7,812	3,956	23
Loss on disposition of equipment	--	12	--	--	--
Impairment loss on equipment	731	719	--	--	--
Equity in net income (loss) of