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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, 2000.
[ ] 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.)
One Market, Steuart Street Tower
Suite 800, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 974-1399
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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 24.
Total number of pages in this report: 93.
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. (Fund), 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,
2000, 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, equipment held for sale, and the original cost of investments
in unconsolidated special-purpose entities, as of December 31, 2000 (in
thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- -----------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
13,835 Marine containers Various $ 27,816
84 Refrigerated marine containers Various 1,344
4 737-200A stage II commercial
aircraft Boeing 20,605
348 Pressurized tank railcars Various 9,267
97 Covered hopper railcars Various 5,281
246 Box railcars Various 4,972
1 Oil tanker marine vessel Hyundai 17,000
441 Piggyback trailers Various 6,636
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Total owned equipment held for operating leases 92,921
Owned equipment held for sale:
1 Anchor-handling supply vessel Moss Point Marine 8,500
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Total owned equipment $ 101,421 (1)
===================
Investments in 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)
0.50 Container cargo feeder vessel O. C. Staalskibsvaerft A/F 3,836 (2)
-------------------
Total investments in unconsolidated special-purpose entities $ 18,436 (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 marine vessels operating on voyage charter or time charter
which are 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 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. Lease
revenues for trailers that operated in rental yards owned by PLM Rental, Inc.,
were based on a fixed rate for a specific period of time, usually short in
duration. Rents for all other equipment are based on fixed rates.
The lessees of the equipment include: Amoco Canada Petroleum Co., Ltd., Norfolk
Southern, Varig South America, Trans World Airlines, Capital Lease, Ltd., and
Tosco Refining Company.
(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 service (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. Except for
those aircraft leased to passenger air carriers, the Fund's equipment and
investments are used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Fund's capital equipment operates:
(1) Marine Containers
In 2000, the Fund continued to take advantage of competitively priced new marine
container prices by adding to its fleet. The Fund has been able to acquire
standard dry 20-foot containers in the $1,500 to $1,600 range per marine
container; several years ago, similar equipment was being sold in the $2,000+
range. The primary reason for this reduction in price relates to excess capacity
with Chinese manufacturers, whose factories represent, in the aggregate, in
excess of 90% of the worldwide container building capacity, and competitive
pricing decisions being made on their part, with the apparent support of the
Chinese government, in a desire to keep their factories operating.
Demand for marine containers is closely associated with the overall level of
world trade and in particular, exports of manufactured goods from the Far East.
(2) Commercial Aircraft
Both Boeing and Airbus Industries have predicted that the rate of growth in the
demand for air transportation services will be relatively robust for the next 20
years. Boeing has predicted that the demand for passenger services will grow at
an average rate of about 5% per year and the demand for cargo traffic will grow
at about 6% per year during that period. Such growth will require a substantial
increase in the numbers of commercial aircraft. According to Boeing, as of the
end of 1999, the world fleet of jet powered commercial aircraft included a total
of approximately 13,670 airplanes. That total included 11,994 passenger aircraft
with 50 seats or more and 1,676 freighter aircraft. Boeing predicts that by the
end of 2019 that fleet will grow to approximately 31,755 aircraft including
28,558 passenger aircraft with 50 seats or more and 3,197 freighter aircraft. To
support this growth, Boeing received 502 new aircraft orders in the first ten
months of 2000 and Airbus received 427.
Airline economics will also require aircraft to be retained in active commercial
service for longer periods than previously expected. Consequently, the market
for environmentally acceptable and economically viable aircraft will continue to
be robust and such aircraft will command relatively high residual values. In
general, aircraft values have tended to grow at about 3% per year. Lease rates
should also grow at similar rates. However, such rates are subject to variation
depending on the state of the world economy and the resultant demand for air
transportation services. The Fund owns 50% of two Stage III-compliant aircraft
and four Stage II aircraft, the latter of which are operating outside of the
United States and thus are not subject to Stage III environmental restrictions.
All of these aircraft remained on lease during 2000 and were not impacted by the
changes in market conditions described above.
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The United States (U.S.) markets for
natural gas are industrial applications (46% of estimated demand in 2000),
residential use (21%), electrical generation (15%), commercial applications
(15%), and transportation (3%). 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, the status of
government farm subsidy programs, amount of farming acreage and mix of crops
planted, weather patterns, farming practices, and the value of the U.S. dollar.
Population growth and dietary trends also play an indirect role.
On an industry wide basis, North American carloadings of petroleum products
increased 3% and chemicals increased 1% in 2000, compared to 1999. Consequently,
demand for pressurized tank cars remained relatively constant during 2000, with
utilization of this type of railcar within the Fund remaining above 98%. While
renewals of existing leases continue at similar rates, some cars continue to be
renewed for "winter only" terms of approximately six months. As a result, there
are many pressurized tank cars up for renewal in the spring of 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 2000. The U.S.
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 feed lots.
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 United States,
due to higher population growth, a rapid pace of industrialization, and rising
disposable income.
Within the United States, 2000 carloadings of grain products decreased 2%
compared to 1999. Other factors contributing to the softness in demand for
covered hopper cars is the large number of new cars built during the last few
years and the improved utilization of covered hoppers by the railroads. As in
1999, covered hopper railcars whose leases expired in 2000, were renewed at
considerably lower rental rates.
(c) Box Railcars
Boxcars are primarily used to transport paper and paper products. Carloadings of
paper products in North America increased 1% in 2000 compared to 1999. Over the
2001-04 period the U.S. paper and paperboard mills sector should see shipments
increase about 2% annually. These increases are expected to come from both
domestic and international sources.
Approximately 50 of the Fund's boxcars are off-lease. These cars have a smaller
load capacity than those currently in demand for paper service. Depending upon
the market for these cars over the coming months, they will either be leased to
another lessee or sold.
(4) Marine Vessels
The Fund owns or has investments in oil tankers and container vessels, all of
which operate 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 vessels through spot and period
charters, an approach that provides the flexibility to adapt to changes in
market conditions.
(a) Oil Tanker Vessel
The Fund owns a small to medium-size oil tanker that operates in international
markets carrying crude oil cargoes. Demand for crude oil shipping closely
follows worldwide economic growth patterns, which can alter demand by causing
changes in volumes on trade routes. The Manager operates the Fund's marine
vessel through spot and period charters, an approach that provides the
flexibility to adapt to changes in market conditions.
The market for oil tankers improved throughout 2000, with dramatic improvements
experienced in the fourth quarter that is expected to continue strong throughout
2001. The strength in the charter market for tankers is generally tied to
overall economic activity and the demand for petroleum products.
(b) Container Feeder Vessels
Container vessels are used to transport cargo that is shipped in containers.
When these marine vessels move containers from small outlying ports to main
transportation hubs serviced by regularly scheduled ocean liners, they are
called container feeder vessels.
During 2000, the Fund's 400 equivalent unit container ship performed poorly. The
market for marine vessels of this size continued to be very difficult as it had
been in 1999. The market for significantly larger container ships did improve
during 2000, but there was no corresponding improvement in the smaller-sized
ship such as the Fund owns. In an attempt to improve Fund returns, both from a
revenue perspective and ultimate sale of these assets, during the year charters
were signed with a Far East lessee, and the vessels were repositioned from the
Atlantic, where they had been operating primarily on the spot market, to the Far
East. This move has been successful in that the Fund has seen reliable earnings
from this charter.
(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 decade,
intermodal trailers have continued to be gradually displaced by domestic
containers as the preferred method of transport for such goods. This is caused
by railroads offering approximately 15% lower freight rates on containers
compared to trailers. During 2000, demand for intermodal trailers was more
volatile than historic norms. Slow demand occurred over the second half of the
year due to a slowing economy and continued customer concerns over rail service
problems associated with mergers in the rail industry. Due to the decline in
demand, which occurred over the latter half of 2000, overall, shipments within
the intermodal trailer market declined more than expected for the year, or
approximately 10% compared to the prior year. Average utilization of the entire
U.S. intermodal fleet rose from 73% in 1998 to 77% in 1999 and then declined to
75% in 2000.
The Manager further expanded its marketing program to attract new customers for
the Fund's intermodal trailers during 2000. Even with these efforts, average
utilization for the Fund's intermodal trailers for the year 2000 dropped 1% to
approximately 82%, still above the national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to continue in the future. Overall, intermodal trailer shipments are
forecast to decline by 6% -10% in 2001, compared to the prior year, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to have approximately 10,000 units in
surplus compared with demand for 2001. Maintenance costs have increased
approximately 20% due to improper repair methods performed by the railroads and
billed to owners. 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 also 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 U.S. 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 U.S. 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 U.S. 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 four 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 $2.0 million,
depending on the type of aircraft. The Fund's aircraft will remain with the
current lessee, which operates in a country that does not require this
regulation.
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the United States 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.
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
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 203 non-jacketed tank railcars
and 145 jacketed tank railcars of which a total of 3 tank railcars have
been inspected to date and no defects have been discovered.
As of December 31, 2000, 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, 2000, 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 One Market, Steuart Street Tower,
Suite 800, San Francisco, California 94105-1301. All office facilities are
provided by FSI without reimbursement by the Fund.
ITEM 3. LEGAL PROCEEDINGS
None.
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, 2000.
(This space intentionally left blank)
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, 2000, by the 5,004
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 U.S. 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, 2000, the Fund has purchased a cumulative total of 28,270
Class A units for a cost of $0.4 million. The Manager has decided that it will
not purchase any Class A units under the terms of the Fund's operating agreement
in 2001. The Manager may purchase additional Class A units on behalf of the Fund
in the future.
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)
2000 1999 1998 1997 1996
------------------------------------------------------------------------
Operating results:
Total revenues $ 27,988 $ 26,483 $ 28,301 $ 22,920 $ 11,295
Net gain on disposition of
equipment 3,956 23 2,759 1,682 --
Equity in net income (loss) of
unconsolidated special-purpose
entities (176) 1,761 2,390 1,453 (256)
Net income (loss) 4,821 (2,401) 4,316 (2,052) (2,392)
At year-end:
Total assets $ 71,683 $ 80,533 $ 99,635 $ 108,524 $ 87,755
Total liabilities 28,013 29,935 28,905 29,337 1,466
Note payable 22,000 25,000 25,000 25,000 --
Cash distribution $ 11,701 $ 11,690 $ 11,765 $ 11,763 $ 9,832
Cash distribution representing
a return of capital to Class A members $ 6,880 $ 9,930 $ 7,405 $ 9,998 $ 8,471
Per weighted-average Class A unit:
Net income (loss) $ 0.62 (1) (0.81)(1)$ 0.52(1)$ (0.75)(1) $ *
Cash distribution $ 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 $ *
* Various, according to interim closings
(1)After reduction of income of $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 2000, primarily in its trailer,
marine container, marine vessel and railcar portfolios.
(a) Trailers: The Fund's trailer portfolio operates or operated with short-line
railroad systems and in short-term rental facilities. The relatively short
duration of most leases in these operations exposes the trailers to considerable
re-leasing activity. Contributions from the Fund's trailers were lower in 2000
when compared to 1999 due to the sale of 39% of the Fund's trailers during 2000.
(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
repricing activity. The increase in marine container contribution in 2000
compared to 1999 was due to equipment purchases. Market conditions were
relatively constant during 2000.
(c) Marine vessels: Certain of the Fund's marine vessels (wholly and partially
owned) operated in the time charter markets throughout 2000. Time charters are
of a short duration (such as a single voyage of 10 - 45 days), or may be of
extended duration (as much as three years) in weaker markets. Short duration
charters are the dominant forms of contract.
(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 equipment and 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 2000, the Fund received proceeds of $16.8 million from the sale of
trailers, railcars and marine vessels. The Fund also received additional sale
proceeds of $0.2 million from the sale of its interest in an entity that owned a
mobile offshore drilling unit during 1999.
(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.
Trans World Airlines (TWA), a current lessee, filed for bankruptcy protection
under Chapter 11 in January 2001. As of December 31, 2000, TWA had unpaid lease
payments to the Fund outstanding totaling $0.1 million. American Airlines (AA)
has proposed an acquisition of TWA that is being reviewed by the United States
Justice Department. The Manager has accepted an offer from AA to extend the
existing leases up to 84 months contingent upon the AA's acquisition of TWA at a
significantly reduced monthly rate.
(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 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 and paying
distributions to the Members. 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.
During 2000, the Fund acquired marine containers for $19.2 million and trailers
for $0.2 million.
(5) Equipment Valuation
In accordance with Financial Accounting Standards Board statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Manager reviews the carrying value of the Fund's equipment
portfolio at least quarterly and whenever circumstances indicate that the
carrying value of an asset may not be recoverable in relation to expected future
market conditions for the purpose of assessing the recoverability of the
recorded amounts. If the undiscounted projected future cash flows and fair value
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 marine vessels
were required during 1999. Reductions of $1.0 million to the carrying value of
partially owned equipment were required during 1998. No reductions were required
to the carrying value of equipment during 2000.
(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 $22.0 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, 2000, the Fund generated $16.9 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 $11.7 million to the Members.
During the year ended December 31, 2000, the Fund purchased marine containers
and trailers for a total cost of $19.5 million.
Restricted cash increased $0.4 million during 2000 due to security deposits
received from a marine container lessee totaling $0.2 million and $0.1 million
increase in an existing security deposit from an existing current lessee.
Accounts receivable increased $0.3 million during 2000 due to an accrual of $0.7
million for an insurance claim offset, in part, by $0.4 million in the timing of
cash receipts and the reduction in lease revenues. A similar accrual was not
required on December 31, 1999.
Investments in USPEs decreased $2.6 million due to cash distributions of $2.2
million to the Fund from USPEs, liquidation proceeds of $0.2 million to the
Fund, and a $0.2 million loss that was recorded from the programs equity
interests in USPEs for the year 2000.
Accounts payable increased $0.1 million during 2000 due to the accrual of
commission due from the sale of two marine vessels. A similar accrual was not
required on December 31, 1999.
Due to affiliates increased $0.3 million during 2000 due to an increase of $0.3
million due to an affiliated USPE for engine reserves.
Lessee deposits and reserve for repairs increased $0.7 million during the year
2000 due to the following:
(i) Lessee security deposits increased $0.4 million due to additional
deposits.
(ii)Reserves for engine repairs increased $0.6 million due to additional
deposits.
(iii)Marine vessel dry-docking reserves decreased $0.4 million due to the
transfer of $0.5 million unused dry-docking reserves to gain on sale and by the
payment of $0.3 million for dry-docking. The decreases in marine vessel
dry-docking was partially offset by an increase in the accrual for dry-docking
reserves of $0.6 million.
The Fund made the required annual debt payment of $3.0 million to the lender of
the note payable during 2000.
The Fund has a remaining outstanding balance of $22.0 million in note payable.
The loan was funded in March 1997. 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 four
principal payments of $3.0 million on December 31, 2001, 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.
The Fund's warehouse facility, which was shared with PLM Equipment Growth Fund
VI, PLM Equipment Growth & Income Fund VII, and TEC Acquisub, Inc., an indirect
wholly-owned subsidiary of the Manager, expired on September 30, 2000. The
Manager is currently negotiating with a new lender for a $15.0 million warehouse
credit facility with similar terms as the facility that expired. The Manager
believes the facility will be completed during the first half of 2001.
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 2001. 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
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 nine months ended September 30, 1999 and were included
with the owned equipment operations. For the three months ended December 31,
1999 and twelve months ended December 31, 2000, 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.
(1) Comparison of the Fund's Operating Results for the Years Ended December 31,
2000 and 1999
(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 the same
period of 1999. 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 more indirect in nature, not a result of
operations but more 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,
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 the year ended December 31, 2000,
compared to lease revenues of $1.3 million during the same period of 1999.
Marine container contribution increased in the year ended December 31, 2000,
compared to the same period of 1999 due to the purchase of additional marine
containers in 1999 and 2000.
Aircraft: Aircraft lease revenues and direct expenses were $4.1 million and
$35,000, respectively, for the year ended December 31, 2000, compared to $4.1
million and $29,000, respectively, during the same period of 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 the year ended December 31, 2000,
compared to $9.5 million and $4.5 million, respectively, during the same period
of 1999. Lease revenue decreased $0.8 million in the year ended December 31,
2000 compared to the same period in 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 the year ended December 31, 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 the year ended December 31, 2000 compared to the
same period in 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 the year ended December 31, 2000 compared to the same
period in 1999.
Railcars: Railcar lease revenues and direct expenses were $3.7 million and $0.6
million, respectively, for the year ended December 31, 2000, compared to $3.8
million and $0.6 million, respectively, during the same period of 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 the year ended December 31, 2000, compared to $3.9
million and $0.9 million, respectively, during the same period of 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 the year ended
December 31, 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 the year ended December
31, 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 the year ended December 31, 2000
decreased from $23.7 million for the same period in 1999. Significant variances
are explained as follows:
(i) A loss on revaluation of $3.9 million was required during the year
ended December 31, 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 the year ended December 31, 2000 when compared to the same period in
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 aggregate
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
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table 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 the
year ended December 31, 2000, additional sale proceeds of $0.2 million were
offset by administrative expenses of $8,000. During the year ended December 31,
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 the year ended December 31,
2000, aircraft lease revenues were $2.1 million offset by depreciation expense,
direct expenses, and administrative expenses of $2.2 million. During the year
ended December 31, 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 the year ended December 31, 2000, lease
revenues of $0.6 million were offset by depreciation expense, direct expenses,
and administrative expenses of depreciation expense, direct expenses, and
administrative expenses of $0.9 million. During the same period of 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 the same period in 1999 where the marine
vessel was on lease for the entire period. 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 the
same period of 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.
(2) Comparison of the Fund's Operating Results for the Years Ended December 31,
1999 and 1998
(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, 1999, when compared to the same
period of 1998.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
1999 1998
-----------------------------
Marine vessels $ 4,990 $ 5,794
Aircraft 4,028 4,525
Mobile offshore drilling unit 3,494 3,936
Railcars 3,179 3,323
Trailers 2,976 3,263
Marine containers 1,326 --
Marine vessels: Marine vessel lease revenues and direct expenses were $9.5
million and $4.5 million, respectively, for the year ended December 31, 1999,
compared to $8.7 million and $2.9 million, respectively, during the same period
of 1998. The purchase of two marine vessels during 1998 generated $2.0 million
in additional lease revenues in 1999. Lease revenue decreased $1.0 million for
two other marine vessels due to lower re-lease rates earned during the year
ended December 31, 1999 compared to the same period in 1998. In addition, lease
revenues decreased $0.2 million during 1999 due to the dry-docking of a marine
vessel for approximately three weeks, during which it was off lease. Direct
expenses increased $2.2 million in the year ended December 31, 1999 compared to
the same period in 1998 due to the purchase of a marine vessel at the end of the
second quarter of 1998. The increase in direct expenses for a marine vessel was
offset, in part, by a decrease of $0.2 million for another marine vessel that
was in dry-docking and thus not incurring operating expenses for approximately
three weeks during 1999. In addition, direct expenses decreased $0.4 million for
this marine vessel due to lower marine operating expenses during the year ended
December 31, 1999, compared to the same period in 1998.
Aircraft: Aircraft lease revenues and direct expenses were $4.1 million and
$29,000, respectively, for the year ended December 31, 1999, compared to $4.6
million and $42,000, respectively, during the same period of 1998. Aircraft
contribution decreased due to the sale of an aircraft in the second quarter of
1998.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $3.6 million and $0.1 million, respectively, for the year
ended December 31, 1999, compared to $4.0 million and $0.1 million,
respectively, during the same period of 1998. Lease revenues for the Fund's
mobile offshore drilling unit decreased $0.4 million for the year ended December
31, 1999 when compared to the same period of 1998 due to the change in
accounting treatment of majority held equipment from the consolidation method of
accounting to the equity method of accounting.
Railcars: Railcar lease revenues and direct expenses were $3.8 million and $0.6
million, respectively, for the year ended December 31, 1999, compared to $4.0
million and $0.6 million, respectively, during the same period of 1998. Lease
revenue decreased $0.1 million due to lower re-lease rates for a group of
railcars in the year ended December 31, 1999 compared to the same period in
1998. In addition, lease revenue decreased $0.1 million resulting from the sale
or disposition of railcars in 1998 and 1999.
Trailers: Trailer lease revenues and direct expenses were $3.9 million and $0.9
million, respectively, for the year ended December 31, 1999, compared to $3.9
million and $0.6 million, respectively, during the same period of 1998. Direct
expenses increased due to repairs required on certain trailers during the year
ended December 31, 1999, which were not needed in the same period in 1998.
Marine containers: Marine container lease revenues were $1.3 million for the
year ended December 31, 1999. Marine container contribution increased due to the
purchase of marine containers in the second quarter of 1999.
(b) Interest and Other Income
Interest and other income decreased $0.1 million due to lower average cash
balances in the year ended December 31, 1999, compared to the same period in
1998.
(c) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $23.7 million for the year ended December 31, 1999
increased from $21.6 million for the same period in 1998. Significant variances
are explained as follows:
(i) Loss on revaluation of equipment increased $3.9 million during the year
ended December 31, 1999 compared to the same period in 1998. In 1999, the Fund
reduced the carrying value of two marine vessels to their estimated net
realizable value. No revaluation of equipment was required on wholly owned
equipment in 1998.
(ii)A $0.1 million increase in bad debt expenses was due to the Manager's
evaluation of the collectibility of receivables due from certain lessees.
(iii) A $1.9 million decrease in depreciation and amortization expenses
from 1998 levels resulted from an approximately $3.6 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, an approximately $0.7 million
decrease as a result of the change in accounting treatment of majority held
equipment from the consolidation method of accounting to the equity method of
accounting, and approximately $0.2 million decrease due to the sale of certain
assets during 1999 and 1998. These decreases were partially offset by an
approximately $2.6 million increase in depreciation expense from the purchase of
equipment during 1999 and 1998.
(d) Net Gain on Disposition of Owned Equipment
The 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. Net gain
on disposition of equipment for the year ended December 31, 1998 totaled $2.8
million, and resulted from the sale of an aircraft, a railcar and trailers with
an aggregate net book value of $2.6 million, for proceeds of $5.4 million.
(e) Minority Interest
Minority interest expense increased $0.2 million in 1999 when compared to 1998
due to a increase in net income of the entity in which the Fund owned a majority
interest.
(f) Equity in Net Income of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars).
For the Years Ended
December 31,
1999 1998
----------------------------
Aircraft $ 1,836 $ 3,834
Mobile offshore drilling unit 206 --
Marine vessel (281) (1,444)
-----------------------------
Equity in Net Income of USPEs $ 1,761 $ 2,390
=============================
Aircraft: As of December 31, 1999, the Fund owned interests in two trusts that
each owns a commercial aircraft. As of December 31, 1998, the Fund owned
interests in two trusts that owned a commercial aircraft, and an interest in two
trusts that own a total of three commercial aircraft, two aircraft engines, and
a portfolio of aircraft rotables. During the year ended December 31, 1999,
aircraft lease revenues were $2.1 million and 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 expenses of $3.6 million. During the year ended December 31, 1998,
aircraft lease revenues were $4.3 million and gain from the sale of the Fund's
interest in two trusts that owned commercial aircraft of $6.3 million was offset
by expenses of $6.8 million. Lease revenues decreased $2.5 million due to the
sale of the Fund's investment in two trusts containing ten commercial aircraft
in 1998, and the sale of the Fund's investment in two trusts that owned a total
of three commercial aircraft, two stage II aircraft engines, and a portfolio of
aircraft rotables in 1999. The decrease in lease revenues caused by these sales
was offset, in part, by $0.3 million in additional lease revenue from the
purchase of two additional trusts each owning an MD-82 commercial aircraft
during 1998. The decrease in expenses of $3.2 million was primarily due to lower
depreciation expense resulting from an approximately $1.6 million decrease due
to the sale of the Fund's interest in four trusts and an approximately $2.1
million decrease due to the double declining-balance method of depreciation
which results in greater depreciation in the first years an asset is owned.
These decreases were offset, in part, by an approximately $0.5 million increase
in depreciation expense due to the Fund's investment in two additional trusts
during 1998.
Mobile offshore drilling unit: During 1999 the Fund owned an interest in a
mobile offshore drilling unit. During the year ended December 31, 1999, revenues
of $0.2 million were offset by the loss of $15,000 from the sale of this entity
and administrative expenses of $32,000. The increase in lease revenues and
expenses in 1999 as compared to the same period in 1998 were primarily due to
the change in accounting treatment for majority held equipment from the
consolidation method to the equity method.
Marine vessel: As of December 31, 1999 and 1998, the Fund had an interest in an
entity that owns a marine vessel. During the year ended December 31, 1999,
revenues of $0.8 million were offset by depreciation and administrative expenses
of $1.1 million. During the year ended December 31, 1998, marine vessel revenues
of $0.9 million were offset by depreciation and administrative expenses of $1.3
million, and a loss on the revaluation of a marine vessel of $1.0 million. Lease
revenue decreased $0.2 million in the year ended December 31, 1999 compared to
the same period in 1998, due to lower re-lease rates as a result of softer
market conditions. The decrease was offset, in part, by an increase of $0.1
million in lease revenues due to a marine vessel that the Fund owns an interest
in being off-hire for 20 days in the year ended December 31, 1998 compared to 2
days in the same period in 1999. Expenses decreased due to the decrease of $0.2
million in depreciation expense as a result of the double-declining balance
method of depreciation which results in greater depreciation in the first years
an asset is owned. Loss on revaluation of equipment of $1.0 million for the year
ended December 31, 1998, resulted from the Fund reducing the carrying value of
its interest in an entity owning a marine vessel to its estimated net realizable
value. No loss on revaluation of its interest in the marine vessel was required
during the same period of 1999.
(g) Cumulative Effect of Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The 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.
(h) Net Income (Loss)
As a result of the foregoing, the Fund had net loss of $2.4 million for the year
ended December 31, 1999, compared to net income of $4.3 million during the same
period of 1998. 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, 1999
is not necessarily indicative of future periods. In the year ended December 31,
1999, the Fund distributed $9.9 million to Class A Members, or $1.99 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 United States (U.S.) 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 U.S. 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 U.S.-domiciled lessees consists of
trailers, railcars, and interests in entities that own aircraft. During 2000,
U.S. lease revenues accounted for 28% of the total lease revenues from wholly
and partially owned equipment, while this region reported a net income of $2.8
million including a gain of $2.1 million from the sale of trailers.
The Fund's owned equipment on lease to South American-domiciled lessees consists
of four aircraft. During 2000, South American lease revenues accounted for 16%
of the total lease revenues from wholly and partially owned equipment, while
this region reported a net income of $1.5 million.
The Fund's equipment on lease to Canadian-domiciled lessees consists of
railcars. Lease revenues in Canada accounted for 8% of total lease revenues from
wholly and partially-owned equipment while this region reported a net income of
$0.9 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 2000, lease revenues for these operations accounted for 48%
of the total lease revenues of wholly and partially owned equipment while this
region reported a net income of $1.9 million.
(F) Inflation
Inflation had no significant impact on the Fund's operations during 2000, 1999,
or 1998.
(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
Several factors may affect the Fund's operating performance in 2001 and beyond,
including changes in the markets for the Fund's equipment and changes in the
regulatory environment in which that equipment operates.
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 some 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,
loan principal and interest on debt, and cash distributions, 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.
Other factors affecting the Fund's contribution in 2001 and beyond include:
1. Marine vessel freight rates are dependent upon the overall condition of the
international economy. Freight rates earned by the Fund's marine vessels began
to increase during the later half of 2000 and would be expected to continue to
show improvement, in the absence of any new marine vessel constructions.
2. 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.
Recently, the cost of marine containers has started to increase which, if this
trend continues, should translate into rising per diem lease rates.
3. Railcar loadings in North America have continued to be high, however a
softening in the market has lead to lower utilization and lower contribution to
the Fund as existing leases expire and renewal leases are negotiated.
Several other factors may affect the Fund's operating performance in 2001 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 2001 as existing leases expire, exposing the Fund
to some repricing risk/opportunity. Additionally, the Manager may elect to sell
certain underperforming 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. Currently, the Manager has observed rising insurance costs to
operate certain vessels in U.S. ports, resulting from implementation of the U.S.
Oil Pollution Act of 1990. Ongoing changes in the regulatory environment, both
in the United States 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. Under U.S. 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 four Stage II aircraft
that do not meet Stage III requirements. These Stage II aircraft will remain
with the current lessee, which operates 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 203 non-jacketed tank railcars and 145
jacketed tank railcars of which a total of 3 tank railcars have been inspected
to date and no defects have been discovered.
(3) Additional Capital Resources and Distribution Levels
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 and sustain a predictable level of distributions to the Class A
Unitholders.
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 2000,
72% of the Fund's total lease revenues from wholly-and partially-owned equipment
came from non-United States domiciled lessees. Most of the leases require
payment in United States (U.S.) currency. If these lessees' currency devalues
against the U.S. dollar, the lessees could potentially encounter difficulty in
making the U.S. 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
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
As of the filing date of this report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- --------------------- ------ ---------------------------------------------------
Stephen M. Bess 55 President, PLM Financial Services, Inc., PLM
Investment Management, Inc. and PLM Transportation
Equipment Corporation, Director of PLM Financial
Services, Inc.
Richard K Brock 38 Vice President and Chief Financial Officer, PLM
Financial Services, Inc., PLM Investment Management
Inc. and PLM Transportation Equipment Corporation,
Director of PLM Financial Services, Inc.
Susan C. Santo 38 Vice President, Secretary, and General Counsel,
PLM Financial Services, Inc., Director of PLM
Financial Services, Inc.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess has served as President of PLM Investment Management, Inc., an
indirect wholly-owned subsidiary of PLM International, since August 1989, and as
an executive officer of certain other of PLM International's subsidiaries or
affiliates since 1982.
Richard K Brock was appointed a Director of PLM Financial Services, Inc. in
October 1, 2000. Mr. Brock was appointed as Vice President and Chief Financial
Officer of PLM International and PLM Financial Services, Inc. in January 2000,
having served as Acting Chief Financial Officer since June 1999 and as Vice
President and Corporate Controller of PLM International and PLM Financial
Services, Inc. since June 1997. Prior to June 1997, Mr. Brock served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994.
Susan C. Santo was appointed a Director of PLM Financial Services, Inc., a
subsidiary of PLM International, in October 1, 2000. Ms. Santo was appointed as
Vice President, Secretary, and General Counsel of PLM International and PLM
Financial Services, Inc. in November 1997. She has worked as an attorney for PLM
International and PLM Financial Services, Inc. since 1990 and served as its
Senior Attorney from 1994 until her appointment as General Counsel.
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,
2000.
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, 2000, 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, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
During 2000, management fees to IMI were $1.2 million. The Fund
reimbursed FSI and/or its affiliates $0.9 million for administrative
and data processing services performed on behalf of the Fund during
2000.
During 2000, 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 - $34,000.
(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 Exhibits of this
Annual Report on Form 10K/A:
a. Spear Partnership
b. TAP Trust
c. TWA Trust S/N 49183
d. Canadian Air Trust #2
e. Canadian Air Trust #3
(B) Reports on Form 8-K
None.
(C) 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.
24. Powers of Attorney.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Spear Partnership.
99.2 TAP Trust.
99.3 TWA Trust S/N 49183.
99.4 Canadian Air Trust #2.
99.5 Canadian Air Trust #3.
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 22, 2001 FUND I
By: PLM Financial Services, Inc.
Manager
By: /s/ Stephen M. Bess
----------------------------
Stephen M. Bess
President and Director
By: /s/ Richard K Brock
----------------------------
Richard K Brock
Chief Financial 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
*_________________________
Stephen M. Bess Director - FSI March 22, 2001
*_________________________
Richard K Brock Director - FSI March 22, 2001
*_________________________
Susan C. Santo Director - FSI March 22, 2001
* Susan C. Santo, by signing her name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/Susan C. Santo
- ----------------------
Susan C. Santo
Attorney-in-Fact
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 27
Balance sheets as of December 31, 2000 and 1999 28
Statements of operations for the years ended
December 31, 2000, 1999, and 1998 29
Statement of changes in Members' equity for the years ended
December 31, 2000, 1999, and 1998 30
Statements of cash flows for the years ended
December 31, 2000, 1999, and 1998 31
Notes to financial statements 32-43
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.
INDEPENDENT AUDITORS' REPORT
The Members
Professional Lease Management Income Fund I, L.L.C.:
We have audited the accompanying financial statements of Professional Lease
Management Income Fund I, L.L.C. (the Fund) as listed in the accompanying index
to financial statements. 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 have 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 audits 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 1999, and the results of its
operations and its cash flows for each of the years in the three-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)
2000 1999
-------------------------------------
ASSETS
Equipment held for operating leases $ 92,921 $ 103,709
Less accumulated depreciation (44,197) (45,183)
-------------------------------------
48,724 58,526
Equipment held for sale 3,200 --
-------------------------------------
Net equipment 51,924 58,526
Cash and cash equivalents 11,291 11,597
Restricted cash 813 453
Accounts receivable, less of allowance for doubtful accounts
of $48 in 2000 and $65 in 1999 2,283 2,007
Investments in unconsolidated special-purpose entities 5,155 7,717
Debt placement fees, less accumulated amortization
of $70 in 2000 and $52 in 1999 107 125
Prepaid expenses and other assets 110 108
-------------------------------------
Total assets $ 71,683 $ 80,533
=====================================
LIABILITIES AND MEMBER'S EQUITY
Liabilities
Accounts payable and accrued expenses $ 555 $ 458
Due to affiliates 917 656
Lessee deposits and reserves for repairs 4,541 3,821
Note payable 22,000 25,000
-------------------------------------
Total liabilities 28,013 29,935
-------------------------------------
Members' equity
Class A members (4,971,311 and 4,975,321 Units at December 31,
2000 and 1999, respectively) 43,670 50,598
Class B member -- --
-------------------------------------
Total members' equity 43,670 50,598
-------------------------------------
Total liabilities and members' equity $ 71,683 $ 80,533
=====================================
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)
2000 1999 1998
-------------------------------------------------------
REVENUES
Lease revenue $ 22,949 $ 26,113 $ 25,149
Interest and other income 1,083 347 393
Net gain on disposition of equipment 3,956 23 2,759
-------------------------------------------------------
Total revenues 27,988 26,483 28,301
-------------------------------------------------------
EXPENSES
Depreciation and amortization 12,833 14,849 16,774
Repairs and maintenance 2,517 2,633 2,024
Equipment operating expenses 2,515 3,142 2,069
Insurance expense to affiliate -- -- (14 )
Other insurance expense 294 428 312
Management fees to affiliate 1,232 1,396 1,368
Interest expense 1,833 1,833 1,833
General and administrative expenses to affiliates 853 952 966
Other general and administrative expenses 919 721 715
(Recovery of) provision for bad debt expense (5) 38 (23)
Loss on revaluation of equipment -- 3,931 --
-------------------------------------------------------
Total expenses 22,991 29,923 26,024
-------------------------------------------------------
Minority interest -- (590) (351)
Equity in net income (loss) of unconsolidated
special-purpose entities (176 ) 1,761 2,390
-------------------------------------------------------
Net income (loss) before cumulative effect of
accounting change 4,821 (2,269) 4,316
Cumulative effect of accounting change -- (132) --
-------------------------------------------------------
Net income (loss) $ 4,821 $ (2,401) $ 4,316
=======================================================
Members' share of net income (loss)
Class A members $ 3,066 $ (4,029) $ 2,595
Class B member 1,755 1,628 1,721
-------------------------------------------------------
Total $ 4,821 $ (2,401) $ 4,316
=======================================================
Net income (loss) per weighted-average
Class A unit $ 0.62 $ (0.81) $ 0.52
=======================================================
Cash distribution $ 11,701 $ 11,690 $ 11,765
=======================================================
Cash distribution per weighted-average
Class A unit $ 2.00 $ 1.99 $ 2.00
=======================================================
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, 2000, 1999, AND 1998
(IN THOUSANDS OF DOLLARS)
Class A Class B Total
---------------------------------------------------------
Members' equity as of December 31, 1997 $ 72,298 $ 176 $ 72,474
Net income 2,595 1,721 4,316
Cash distributions (10,000) (1,765) (11,765)
---------------------------------------------------------
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
=========================================================
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 2000 1999 1998
-------------------------------------------
Net income (loss) $ 4,821 $ (2,401) $ 4,316
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,833 14,849 16,774
Loss on revaluation of equipment -- 3,931 --
Net gain on dispositions of equipment (3,956) (23) (2,759)
Cumulative effect of accounting change -- 132 --
Equity in net (income) loss of unconsolidated special
purpose entities 176 (1,761) (2,390)
Changes in operating assets and liabilities:
Restricted cash (360) (453) --
Accounts receivable, net (278) (131) 173
Prepaid expenses and other assets (2) 156 77
Accounts payable and accrued expenses (25) (3) (132)
Due to affiliates 261 276 115
Lessee deposits and reserves for repairs 1,207 781 1,321
Minority interest -- (676) (1,008)
-------------------------------------------
Net cash provided by operating activities 14,677 14,677 16,487
-------------------------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment (19,484) (11,397) (27,477)
Investment in and equipment purchased and placed
in unconsolidated special-purpose entities -- -- (13,917)
Liquidation distributions from unconsolidated special-
purpose entities 182 14,282 10,385
Distributions from unconsolidated special-purpose entities 2,204 2,173 7,184
Proceeds from disposition of equipment 16,864 168 5,380
-------------------------------------------
Net cash (used in) provided by investing activities (234) 5,226 (18,445)
-------------------------------------------
FINANCING ACTIVITIES
Payments on note payable (3,000) -- --
Decrease due to affiliates -- -- (1,736)
Cash distributions to Class A members (9,946) (9,930) (10,000)
Cash distributions to Class B member (1,755) (1,760) (1,765)
Purchase of Class A units (48) (336) --
-------------------------------------------
Net cash used in financing activities (14,749) (12,026) (13,501)
-------------------------------------------
Net (decrease) increase in cash and cash equivalents (306) 7,877 (15,459)
Cash and cash equivalents at beginning of year 11,597 3,720 19,179
-------------------------------------------
Cash and cash equivalents at end of year $ 11,291 $ 11,597 $ 3,720
===========================================
SUPPLEMENTAL INFORMATION
Interest paid $ 1,833 $ 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
DECEMBER 31, 2000
1. Basis of Presentation
ORGANIZATION
Professional Lease Management Income Fund I, L.L.C., a Delaware Limited
Liability Company (Fund) was formed on August 22, 1994, to engage in the
business of owning, leasing, or otherwise investing in predominately used
transportation and related equipment. PLM Financial Services, Inc. (FSI) is the
Manager of the Fund. FSI is a wholly-owned subsidiary of PLM International, Inc.
(PLM International).
On May 13, 1996, the Fund ceased its offering for Class A Units. As of December
31, 2000, there were 4,971,311 Units outstanding.
The Fund will terminate on December 31, 2010, unless terminated earlier upon
sale of all equipment or by certain other events. Beginning in the Fund's
seventh year of operations, which commences on January 1, 2003, the Manager will
stop purchasing additional equipment. Excess cash, if any, less reasonable
reserves, will be distributed to the Members. Between the eighth and tenth years
of operations, the Manager intends to liquidate of the Fund's assets.
The Manager (Class B Member) controls and manages the affairs of 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 established any
required cash reserves. For its contribution, the Manager is generally entitled
to a 1% interest in profits and losses and 15% interest in the Fund's cash
distributions subject to certain special allocation provisions (see Net Income
(Loss) and Distributions Per Class A Unit, below). 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 operating agreement includes a redemption provision. Upon the conclusion of
the 30-month period immediately following the termination of the offering, which
was in November 1998, the Fund may, at the Manager's sole discretion, redeem up
to 2% of the outstanding 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.
For the years ended December 31, 2000 and 1999, the Fund repurchased 4,010 and
24,260 units for $48,000 and $0.3 million, respectively.
The Manager has decided that it will not purchase any units under the redemption
plan in 2001. The Manager may purchase additional units on behalf of the Fund in
the future.
These financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles. This requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
OPERATIONS
The equipment of the Fund is managed, under a continuing management agreement,
by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of the FSI.
IMI receives a monthly management fee from the Fund for managing the equipment
(see Note 2). FSI, in conjunction with its subsidiaries, sells equipment to
investor programs and third parties, manages pools of equipment under agreements
with investor programs, and is a general partner of other programs.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION (continued)
ACCOUNTING FOR LEASES
The Fund's leasing operations generally consist of operating leases. Under the
operating lease method of accounting, the leased asset is recorded at cost and
depreciated over its estimated useful life. Rental payments are recorded as
revenue over the lease term as earned in accordance with Statement of Financial
Accounting Standards No. 13, "Accounting for Leases". Lease origination costs
are capitalized and amortized over the term of the lease.
DEPRECIATION AND AMORTIZATION
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method taking a full month's depreciation in the
month of acquisition, based upon estimated useful lives of 15 years for
railcars, and 12 years for most other types of equipment. Certain aircraft are
depreciated under the double-declining balance method over the lease term which
approximate their economic life. The depreciation method is changed to
straight-line when annual depreciation expense using the straight-line method
exceeds that calculated by the double-declining balance method. Debt placement
fees are amortized over the term of the related loan (see Note 7). Major
expenditures that are expected to extend the useful lives or reduce future
operating expenses of equipment are capitalized and amortized over the estimated
remaining life of the equipment.
TRANSPORTATION EQUIPMENT
In accordance with the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Manager reviews the carrying value of the Fund's
equipment at least quarterly and whenever circumstances indicate that the
carrying value of an asset may not be recoverable in relation to expected future
market conditions for the purpose of assessing recoverability of the recorded
amount. If projected undiscounted future cash flows and fair value are less than
the carrying value of the equipment, a loss on revaluation is recorded based
upon the estimated fair value of the asset. No reductions were required to the
carrying value of wholly and partially-owned equipment during 2000. Reductions
of $3.9 million to the carrying value of two marine vessels were required during
1999. Reductions of $1.0 million to the carrying value of the Fund's interest in
an entity owning a marine vessel was required during 1998.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121. Equipment held for sale is stated at the
lower of the equipment's depreciated cost or fair value, less cost to sell, and
is subject to a pending contract for sale.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Fund has interests in unconsolidated special-purpose entities (USPEs) that
own transportation equipment. The Fund owned a majority interest in an entity
that owned a mobile offshore drilling unit. In September 1999, the Manager
amended the corporate-by-laws of USPEs in which the Fund, or any affiliated
program, owns 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. 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 is 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.
Accordingly, as of December 31, 2000 and 1999, the balance sheet reflects all
investments in USPEs on an equity basis.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION (continued)
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (continued)
The Fund's interests in USPEs are managed by IMI. The Fund's equity interest in
the net income (loss) of USPEs is reflected net of management fees paid or
payable to IMI.
REPAIRS AND MAINTENANCE
Repair and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Fund and are accrued as incurred. Costs
associated with marine vessel dry-docking are estimated and accrued ratably over
the period prior to such dry-docking. If a marine vessel is sold and there is a
balance in the dry-docking reserve account for that marine vessel, the balance
in the reserve account is included as additional sales proceeds. Maintenance
costs of aircraft and marine containers are the obligation of the lessee. To
meet the maintenance requirements of certain aircraft airframes and engines,
reserve accounts are prefunded by the lessee over the period of the lease based
on the number of hours this equipment is used, times the estimated rate to
repair this equipment. If repairs exceed the amount prefunded by the lessee, the
Fund has the obligation to fund and accrue the difference. If the aircraft is
sold and there is a balance in the reserve account for repairs to that aircraft,
the balance in the reserve account is reclassified as additional sales proceeds.
The aircraft reserve accounts and marine vessel dry-docking reserve accounts are
included in the balance sheet as lessee deposits and reserves for repairs.
NET INCOME (LOSS) AND DISTRIBUTIONS PER UNIT
The net profits and losses of the Fund are generally allocated 1% to the Class B
Members and 99% to the Class A Members. The Class B Member or 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. During 2000,
the Manager received a special allocation of income of $1.7 million ($1.7
million in 1999 and $1.6 million in 1998). Cash distributions of the Fund are
generally allocated 85% to the Class A Members and 15% to the Manager and may
include amounts in excess of net income. 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 Class A
Members' net income (loss) is allocated among the Class A Members based on the
number of Class A units owned by each member and on the number of days of the
year each member is in the Fund.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business and
quarterly unitholders receive a distribution check 45 days after the close of
the quarter.
Cash distributions to Class A Unitholders in excess of net income are considered
a return of capital. Cash distributions to Class A Unitholders of $6.9 million,
$9.9 million, and $7.4 million in 2000, 1999, and 1998, respectively, were
deemed to be a return of capital.
Cash distributions related to the fourth quarter of 2000 of $1.2 million, and
1999 and 1998 of $1.7 million, were paid during the first quarter of 2001, 2000,
and 1999, respectively.
NET INCOME (LOSS) PER WEIGHTED-AVERAGE CLASS A UNIT
Net income (loss) per weighted-average Class A unit was computed by dividing net
income (loss) attributable to Class A Members by the weighted-average number of
Class A units deemed outstanding during the period. The weighted-average number
of Class A units deemed outstanding during the years ended December 31, 2000,
1999, and 1998 were 4,971,968, 4,982,336, and 4,999,581 respectively.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION (continued)
CASH AND CASH EQUIVALENTS
The Fund considers highly liquid investments that are readily convertible to
known amounts of cash with original maturities of three months or less as cash
equivalents. The carrying amount of cash equivalents approximates fair market
value due to the short-term nature of the investments.
RESTRICTED CASH
As of December 31, 2000 and 1999, restricted cash represented lessee security
deposits held by the Fund.
COMPREHENSIVE INCOME (LOSS)
The Fund's net income (loss) is equal to comprehensive income (loss) for the
years ended December 31, 2000, 1999, and 1998.
2. MANAGER AND TRANSACTIONS WITH AFFILIATES
An officer of PLM Securities Corp., a wholly-owned subsidiary of the Manager,
contributed the $100 of the Fund's initial capital. Under the equipment
management agreement, IMI, subject to certain reductions, receives a monthly
management fee attributable to either owned equipment or interests in equipment
owned by the USPEs equal to the lesser of (i) the fees that would be charged by
an independent third party for similar services for similar equipment or (ii)
the sum of (A) for that equipment for which IMI provides only basic equipment
management services, (a) 2% of the gross lease revenues attributable to
equipment which is subject to full payout net leases, (b) 5% of the gross lease
revenues attributable to equipment that is subject to operating leases, and (B)
for that equipment for which IMI provides supplemental equipment management
services, 7% of the gross lease revenues attributable to equipment for which IMI
provides both management and additional services. Fund management fees of $0.2
million were payable at December 31, 2000 and 1999, respectively. The Fund's
proportional share of the USPE's management fee payable were $20,000, and
$31,000 as of December 31, 2000 and 1999, respectively. The Fund's proportional
share of USPE management fees was $0.1 million, $0.2 million, and $0.2 million
during 2000, 1999, and 1998, respectively. The Fund reimbursed FSI $0.9 million,
$1.0 million, and $1.0 million for data processing expenses and other
administrative services performed on behalf of the Fund during 2000, 1999, and
1998. The Fund's proportional share of the USPE's administrative and data
processing expenses reimbursable to FSI was $34,000, $46,000 and $0.1 million
during 2000, 1999, and 1998, respectively.
Transportation Equipment Indemnity Company Ltd. (TEI), an affiliate of the
Manager, which provided marine insurance coverage and other insurance brokerage
services to the Fund during 1998, was liquidated during the first quarter of
2000. The Fund's marine insurance coverage for owned equipment paid to TEI was
$2,000 during 1998. No premiums for owned equipment were paid to TEI during
2000, or 1999. A substantial portion of any amount paid to TEI was then paid to
third-party reinsurance underwriters or placed in risk pools managed by TEI on
behalf of affiliated programs and PLM International, which provide threshold
coverages on marine vessel loss of hire and hull and machinery damage. All
pooling arrangement funds are either paid out to cover applicable losses or
refunded pro rata by TEI. Also, during 1998, the Fund received a $16,000
loss-of-hire insurance refund and the proportional share of USPEs received a
$5,000 loss-of-hire insurance refund from TEI due to lower claims from the Fund
and other insured affiliated programs.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
2. MANAGER AND TRANSACTIONS WITH AFFILIATES (continued)
Transportation Equipment Corporation (TEC) will be entitled to receive an
equipment liquidation fee equal to the lesser of (i) 3% of the sales price of
equipment sold on behalf of the Fund, or (ii) 50% of the "Competitive Equipment
Sale Commission," as defined in the agreement, if certain conditions are met.
TEC is a wholly-owned subsidiary of the Manager. In certain circumstances, the
Manager will be entitled to a monthly re-lease fee for re-leasing services
following the expiration of the initial lease, charter or other contract for
certain equipment equal to the lesser of (a) the fees which would be charged by
an independent third party for comparable services for comparable equipment or
(b) 2% of gross lease revenues derived from such re-lease, provided, however,
that no re-lease fee shall be payable if such fee would cause the combination of
the equipment management fee paid to IMI and the re-lease fees with respect to
such transactions to exceed 7% of gross lease revenues.
The Fund had an interest in certain equipment in conjunction with affiliated
programs during 2000, 1999, and 1998 (see Note 4).
The balance due to affiliates as of December 31, 2000, included $0.2 million due
to FSI and its affiliates for management fees and $0.7 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 1999, included $0.2
million due to FSI and its affiliates for management fees and $0.5 million due
to affiliated USPEs.
3. EQUIPMENT
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
Equipment Held for Operating Leases 2000 1999
----------------------------------- ------------------------------------
Marine containers $ 29,160 $ 9,942
Aircraft 20,605 20,605
Railcars 19,520 19,710
Marine vessels 17,000 37,256
Trailers 6,636 16,196
------------------------------------
92,921 103,709
Less accumulated depreciation (44,197) (45,183)
------------------------------------
48,724 58,526
Equipment held for sale 3,200 --
------------------------------------
Net equipment $ 51,924 $ 58,526
====================================
Revenues are earned under operating leases. A portion of the Fund's marine
containers are leased to operators of utilization-type leasing pools that
include equipment owned by unaffiliated parties. In such instances, revenues
earned by the Fund consist of a specified percentage of the total revenues
generated by leasing the pooled equipment to sublessees after deducting certain
direct operating expenses of the pooled equipment. The Fund's marine vessels are
operating either on a voyage charter or a time charter which usually have a
duration of less than one year. Lease revenues for trailers operating with
short-line railroad systems are based on a per-diem lease in the free running
railroad interchange. Lease revenues for trailers that operated in rental yards
owned by PLM Rental, Inc., were based on a fixed rate for a specific period of
time, usually short in duration. Rents for the remaining equipment are based on
fixed rates.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
3. EQUIPMENT (continued)
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121. During 1999, reductions to the carrying
value of marine vessels of $3.9 million were required. No reductions were
required to the carrying value of wholly owned equipment during 2000 or 1998.
As of December 31, 2000, all owned equipment in the Fund portfolio was on lease
except for 66 railcars with a net book value of $0.7 million. As of December 31,
1999, all owned equipment in the Fund portfolio was either on lease or operating
in PLM-affiliated short-term trailer rental yards except for six railcars with a
net book value of $0.1 million.
During the year ended December 31, 2000, the Fund purchased marine containers
and trailers for a total cost of $19.5 million. During the year ended December
31, 1999, the Fund purchased marine containers and trailers for a total cost of
$11.4 million.
During the year ended December 31, 2000, the Fund sold marine vessels, trailers
and railcars with an aggregate net book value of $13.3 million, for aggregate
proceeds of $16.8 million. Included in the 2000 net gain on disposition of
assets is the unused portion of marine vessel dry-docking of $0.5 million.
During the year ended December 31, 1999, the Fund sold trailers and railcars
with an aggregate net book value of $0.1 million, for proceeds of $0.2 million.
As of December 31, 2000, a marine vessel was held for sale at the lower of the
equipment's depreciated cost or fair value, less cost to sell, and is subject to
a pending contract for sale. No equipment was held for sale at December 31,
1999.
All owned equipment on lease is being accounted for as operating leases. Future
minimum rent under noncancelable operating leases as of December 31, 2000 for
the owned equipment during each of the next five years are approximately $12.2
million in 2001; $8.6 million in 2002; $4.2 million in 2003, $2.7 million in
2004, and $0.5 million in 2005 and thereafter. Per diem and short-term rentals
consisting of utilization rate lease payments included in revenues amounted to
approximately $6.2 million, $3.3 million and $3.5 million in 2000, 1999, and
1998, respectively.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL PURPOSE ENTITIES
The Fund owns equipment jointly with affiliated programs.
In September 1999, 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. 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 is 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. Accordingly, as of December 31, 2000 and 1999, the
balance sheet reflects all investments in USPEs on an equity basis.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL PURPOSE ENTITIES (continued)
The net investments in USPEs include the following jointly-owned equipment as of
December 31, (and related assets and liabilities) (in thousands of dollars):
2000 1999
-------------------------
50% interest in a trust owning an MD-82 stage III commercial
aircraft $ 3,534 $ 4,784
50% interest in a trust owning an MD-82 stage III commercial
aircraft 921 1,773
50% interest in a trust owning a cargo marine vessel 700 1,024
25% interest in a trust that owned four 737-200A stage II
commercial aircraft -- 76
25% interest in a trust that owned four 737-200A stage II
commercial aircraft -- 60
-------------------------
Net investments $ 5,155 $ 7,717
=========================
As of December 31, 2000 and 1999, all jointly-owned equipment in the Fund's USPE
portfolio was on lease.
During 2000, the Fund received additional sales proceeds of $0.2 million from
the 1999 sale of a mobile offshore drilling unit.
During 1999, the Manager sold the Fund's 61% interest in an entity that owned a
mobile offshore drilling unit. The Fund's interest in this entity was sold for
proceeds of $7.2 million for its net investment of $7.2 million. Also, during
1999, the Manager sold the Fund's 33% interest in two trusts that owned a total
of three Boeing 737-200A stage II commercial aircraft, two stage II aircraft
engines, and a portfolio of aircraft rotables. The trusts were sold for proceeds
of $7.1 million for its net investment of $3.8 million.
The following summarizes the financial information for the special-purpose
entities and the Fund's interests therein as of and for the years ended December
31, 2000, 1999, and 1998 (in thousands of dollars):
2000 1999 1998
Total Net Total Net Total Net
USPEs Interest USPEs Interest USPEs Interest
of Fund of Fund of Fund
--------------------------- --------------------------- ---------------------------
Net Investments $ 10,659 $ 5,155 $ 16,183 $ 7,717 $ 35,630 $ 15,224
Lease revenues 5,498 2,749 4,314 3,124 13,601 5,200
Net income (loss) (499) (176) 7,282 1,761 14,377 2,390
All partially owned equipment on lease is being accounted for as operating
leases. Future minimum rent under noncancelable operating leases as of December
31, 2000 for the partially owned equipment during each of the next five years
are approximately $2.8 million in 2001; $1.1 million in 2002; $0.9 million in
2003; $0.9 million in 2004, $0.9 million in 2005, and $0.8 million in 2006 and
thereafter.
5. OPERATING SEGMENTS
The Fund operates or operated in six primary operating segments: marine
container leasing, aircraft leasing, railcar leasing, marine vessel leasing,
trailer leasing, and mobile offshore drilling unit (MODU) leasing. Each
equipment leasing segment engages in short-term to mid-term operating leases to
a variety of customers.
The Manager evaluates the performance of each segment based on profit or loss
from operations before interest expense and certain general and administrative
and operations support expenses. The segments are managed separately due to
different business strategies for each operation.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
5. OPERATING SEGMENTS (continued)
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
Container Aircraft Railcar Vessel Trailer
For the year ended December 31, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------------------------ ------- ------- ------- ------- ------- ------ -----
REVENUES
Lease revenue $ 4,113 $ 4,057 $ 3,652 $ 7,645 $ 3,482 $ -- $ 22,949
Interest income and other -- 2 6 657 -- 418 1,083
Net gain on disposition of -- -- 84 1,798 2,074 -- 3,956
equipment
-------------------------------------------------------------------------
Total revenues 4,113 4,059 3,742 10,100 5,556 418 27,988
COSTS AND EXPENSES
Operations support 18 35 609 3,731 895 38 5,326
Depreciation and amortization 3,428 2,314 1,499 4,347 1,227 18 12,833
Interest expense -- -- -- -- -- 1,833 1,833
Management fees to affiliate 206 203 241 384 198 -- 1,232
General and administrative expenses -- 12 97 81 718 864 1,772
Provision for (recovery of) bad -- -- 1 -- (6) -- (5)
debts
-------------------------------------------------------------------------
Total costs and expenses 3,652 2,564 2,447 8,543 3,032 2,753 22,991
Equity in net income (loss) of -- (95) -- (255) -- 174 (176)
USPEs
-------------------------------------------------------------------------
Net income (loss) $ 461 $ 1,400 $ 1,295 $ 1,302 $ 2,524 $ (2,161) $ 4,821
=========================================================================
Total assets as of December 31, 2000 $ 25,866 $ 6,388 $ 9,767 $15,362 $ 2,793 $ 11,507 $ 71,683
=========================================================================
Marine
Aircraft Railcar Vessel Trailer MODU
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other(2) Total
------------------------------------ ------- ------- ------- ------- ------- ------ -----
REVENUES
Lease revenue $ 4,057 $ 3,804 $ 9,501 $ 3,864 $ 3,560 $ 1,327 $ 26,113
Interest income and other 38 9 5 -- -- 295 347
Net gain on disposition
of equipment -- 15 -- 8 -- -- 23
-------------------------------------------------------------------------
Total revenues 4,095 3,828 9,506 3,872 3,560 1,622 26,483
COSTS AND EXPENSES
Operations support 29 625 4,511 888 66 84 6,203
Depreciation and amortization 2,571 1,739 6,012 1,481 1,748 1,298 14,849
Interest expense -- -- -- -- -- 1,833 1,833
Management fees to affiliate 203 250 475 224 178 66 1,396
General and administrative expenses 34 71 59 758 75 676 1,673
Provision for bad debt expense -- 13 -- 25 -- -- 38
Loss on revaluation of equipment -- -- 3,931 -- -- -- 3,931
-------------------------------------------------------------------------
Total costs and expenses 2,837 2,698 14,988 3,376 2,067 3,957 29,923
-------------------------------------------------------------------------
Minority interest -- -- -- -- (590) -- (590)
Equity in net income (loss) of USPEs 1,836 -- (281) -- 206 -- 1,761
-------------------------------------------------------------------------
Net income (loss) before cumulative
effect
of accounting change 3,094 1,130 (5,763) 496 1,109 (2,335) (2,269)
Cumulative effect of accounting -- -- -- -- -- (132) (132)
change
-------------------------------------------------------------------------
Net income (loss) $ 3,094 $ 1,130 $ (5,763) $ 496 $ 1,109 $ (2,467) $ (2,401)
=========================================================================
Total assets as of December 31, 1999 $ 10,952 $ 11,339 $ 27,407 $ 9,513 $ -- $ 21,322 $ 80,533
=========================================================================
(1) Includes interest income and costs not identifiable to a particular
segment, such as, interest expense, and certain amortization, general and
administrative, and operations support expenses. Also includes gain from
the sale from an investment in an entity that owned a mobile offshore
drilling unit.
(2) Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and certain amortization, general and
administrative expenses, and operations support expenses. Also includes the
lease revenue of $1.3 million, depreciation expense of $1.3 million, and
management fee of $0.1 million for marine containers.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
5. OPERATING SEGMENTS (continued)
Marine
Aircraft Railcar Vessel Trailer MODU
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other(3) Total
------------------------------------ ------- ------- ------- ------- ------- ------ -----
REVENUES
Lease revenue $ 4,567 $ 3,958 $ 8,684 $ 3,894 $ 4,046 $ -- $ 25,149
Interest income and other 13 19 13 -- -- 348 393
Net gain on disposition
of equipment 2,710 40 -- 9 -- -- 2,759
-------------------------------------------------------------------------
Total revenues 7,290 4,017 8,697 3,903 4,046 348 28,301
EXPENSES
Operations support 42 634 2,890 631 110 84 4,391
Depreciation and amortization 4,624 2,018 5,490 1,738 2,798 106 16,774
Interest expense -- -- -- -- -- 1,833 1,833
Management fee 213 263 434 256 202 -- 1,368
General and administrative expenses 67 63 121 805 47 578 1,681
Provision for (recovery of) bad 2 (36) -- 11 -- -- (23)
debt
-------------------------------------------------------------------------
Total costs and expenses 4,948 2,942 8,935 3,441 3,157 2,601 26,024
-------------------------------------------------------------------------
Minority interest -- -- -- -- (351) -- (351)
Equity in net income (loss) of USPEs 3,834 -- (1,444) -- -- -- 2,390
-------------------------------------------------------------------------
Net income (loss) $ 6,176 $ 1,075 $ (1,682) $ 462 $ 538 $ (2,253) $ 4,316
=========================================================================
Total assets as of December 31, 1998 $ 20,387 $ 13,109 $ 37,916 $ 8,682 $ 14,392 $ 5,149 $ 99,635
=========================================================================
(3)Includes interest income and costs not identifiable to a particular segment,
such as, interest expense, and certain amortization, general and
administrative, and operations support expenses.
6. GEOGRAPHIC INFORMATION
The Fund owns certain equipment, which is leased and operated internationally. A
limited number of the Fund's transactions are denominated in a foreign currency.
Gains or losses resulting from foreign currency transactions are included in the
results of operations and are not material.
The Fund leases aircraft, railcars and trailers to lessees domiciled in four
geographic regions: United States, South America, Canada, and Europe. The marine
vessels, mobile offshore drilling unit and marine containers were leased to
multiple lessees in different regions who operated the equipment worldwide.
The following table sets forth lease revenue information by region for the owned
equipment and investments in USPEs for the years ended December 31, are as
follows (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- ------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- ------------------------------------
United States $ 5,081 $ 6,187 $ 6,172 $ 2,124 $ 2,123 $ 1,783
South America 4,057 4,057 4,567 -- -- --
Canada 2,053 1,480 1,680 -- -- 945
Europe -- -- -- -- -- 1,560
Rest of the world 11,758 14,389 12,730 625 1,001 912
------------------------------------- ------------------------------------
Lease revenues $ 22,949 $ 26,113 $ 25,149 $ 2,749 $ 3,124 $ 5,200
===================================== ====================================
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
6. GEOGRAPHIC INFORMATION (continued)
The following table sets forth income (loss) information by region for owned
equipment and investments in USPEs for the years ended December 31, are as
follows (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- -------------------------------------
United States $ 2,949 $ 1,150 $ 1,070 $ (101) $ (1,317) $ (3,037)
South America 1,496 1,258 2,342 -- -- --
Canada 867 476 466 6 22 6,718
Europe -- -- -- -- 3,131 153
Rest of the world 2,018 (4,598) 300 (81) (75) (1,444)
------------------------------------- -------------------------------------
Regional income 7,330 (1,714) 4,178 (176) 1,761 2,390
Administrative and other (2,333) (2,448) (2,252) -- -- --
------------------------------------- -------------------------------------
Net income (loss) $ 4,997 $ (4,162) $ 1,926 $ (176) $ 1,761 $ 2,390
===================================== =====================================
The net book value of owned assets and the net investment in the unconsolidated
special-purpose entities at December 31, are as follows (in thousands of
dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- -------------------------------------
United States $ 7,290 $ 14,432 $ 15,751 $ 4,455 $ 6,559 $ 9,782
South America 1,543 3,857 6,429 -- -- --
Canada 4,782 5,450 6,040 -- 136 248
Europe -- -- -- -- -- 3,929
Rest of the world 38,309 34,787 50,056 659 1,022 1,265
------------------------------------- -------------------------------------
Net book value $ 51,924 $ 58,526 $ 78,276 $ 5,114 $ 7,717 $ 15,224
===================================== =====================================
7. NOTE PAYABLE
In December 1996, the Fund entered into an agreement to issue a $25.0 million
long-term note to an institutional investor. The loan was funded in March 1997.
The note bears interest at a fixed rate of 7.33% per annum and has a maturity in
2006. Interest on the note is payable semi-annually. The note will be repaid in
five principal payments of $3.0 million on December 31, 2000, 2001, 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.
The Fund made the regularly scheduled principal payment and semiannual interest
payments to the lender of the note during 2000.
The Manager estimates, based on recent transactions, that the fair value of the
$22.0 million fixed-rate note is $21.2 million.
The Fund's warehouse facility, which was shared with PLM Equipment Growth Fund
VI. PLM Equipment Growth & Income Fund VII, and TEC Acquisub, Inc., an indirect
wholly-owned subsidiary of the Manager, expired on September 30, 2000. The
Manager is currently negotiating with a new lender for a $15.0 million warehouse
credit facility with similar terms as the facility that expired. The Manager
believes the facility will be completed during the first half of 2001.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
8. CONCENTRATIONS OF CREDIT RISK
The Fund's only customer that accounted for 10% or more of the total
consolidated revenues for the owned equipment and partially owned equipment
during 2000 was Varig South America (13%). No single lessee accounted for more
than 10% of the consolidated revenues for the years ended December 31, 1999 or
1998. In 1999, however, Casino Express Air purchased the Fund's 33% interest in
two trusts that owned a total of three Boeing 737-200A stage II commercial
aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables
and the gain from the sale accounted for 10% of total consolidated revenues from
wholly and partially owned equipment. In 1998, Triton Aviation Services, Ltd.
purchased three commercial aircraft from the Fund and the gain from the sale
accounted for 23% of total consolidated revenues from wholly and partially owned
equipment.
As of December 31, 2000 and 1999, the Manager believes the Fund had no
significant concentrations of credit risk that could have a material adverse
effect on the Fund.
9. INCOME TAXES
The Fund is not subject to income taxes, as any income or loss is included in
the tax returns of the individual partners. Accordingly, no provision for income
taxes has been made in the financial statements of the Fund.
As of December 31, 2000, the federal income tax basis were higher than the
financial statement carrying values of certain assets and liabilities by
approximately $26.4 million, primarily due to differences in depreciation
methods, equipment reserves, provisions for bad debts, lessee's prepaid
deposits, and the tax treatment of syndication costs.
10. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Fund adopted this statement
during the first quarter of 1999, at which time it took a $0.1 million charge,
related to start-up costs of 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.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the year
ended December 31, 2000 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
-----------------------------------------------------------------------------------------
Operating results:
Total revenues $ 5,936 $ 5,906 $ 7,976 $ 8,170 $ 27,988
Net income 223 304 1,716 2,578 4,821
Per weighted-average Class A unit:
Net income (loss) $ (0.04) $ (0.03) $ 0.31 $ 0.38 $ 0.62
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
11. QUARTERLY RESULTS OF OPERATIONS (unaudited) (continued)
The following is a summary of the quarterly results of operations for the year
ended December 31, 1999 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
-----------------------------------------------------------------------------------------
Operating results:
Total revenues $ 6,722 $ 6,658 $ 6,987 $ 6,116 $ 26,483
Net income (loss) 2,670 (268) (614) (4,189) (2,401)
Per weighted-average Class A unit:
Net income (loss) $ 0.47 $ (0.14) $ (0.21) $ (0.93) $ (0.81)
12. SUBSEQUENT EVENTS
Trans World Airlines (TWA), a current lessee, filed for bankruptcy protection
under Chapter 11 in January 2001. As of February 28, 2001, TWA had unpaid lease
payments to the Fund outstanding totaling $0.5 million. American Airlines (AA)
has proposed an acquisition of TWA that is being reviewed by the United States
Justice Department. The Manager has not accepted an offer from AA to extend the
leases 84 months at a significantly reduced monthly rental rate. The Manager has
accepted an offer from AA to extend the existing leases up to 84 months
contingent upon the AA's acquisition of TWA at a significantly reduced monthly
rate.
During February 2001, the Fund sold a marine vessel with a net book value of
$3.2 million for $4.3 million which was held for sale at December 31, 2000.
In February 2001, PLM International, the parent of the Manager, announced that
MILPI Acquisition Corp. (MILPI) completed its cash tender offer for the
outstanding common stock of PLM International. To date, MILPI has acquired 83%
of the common shares outstanding. MILPI will complete its acquisition of PLM
International by effecting a merger of PLM International into MILPI under
Delaware law. The merger is expected to be completed after MILPI obtains
approval of the merger by PLM International's shareholders pursuant to a special
shareholders' meeting which is expected to be held during the first half of
2001.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
INDEX OF EXHIBITS
Exhibit Page
4. Operating Agreement of Fund. *
10.1 Management Agreement between Fund and PLM Investment *
Management, Inc.
10.2 $25.0 Million Note Agreement, dated as of December 30, 1996. *
24. Powers of Attorney. 45-47
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Spear Partnership. 48-57
99.2 TAP Trust. 58-66
99.3 TWA Trust S/N 49183. 67-75
99.4 Canadian Air Trust #2. 76-84
99.5 Canadian Air Trust #3. 85-93
* Incorporated by reference. See page 24 of this report.