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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 2002
[ ] 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
_______________________
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.)
450 CARILLON PARKWAY, SUITE 200
ST. PETERSBURG, FL 33716
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (727) 803-8200
_______________________
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
---
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
June 30, December 31,
2002 2001
------- -------
ASSETS
Equipment held for operating leases $ 89,816 $ 89,833
Less accumulated depreciation (51,835) (48,425)
--------- ---------
Net equipment 37,981 41,408
Cash and cash equivalents 22,913 21,837
Restricted cash 626 553
Accounts receivable, less allowance for doubtful accounts
of $2,596 in 2002 and $1,048 in 2001 2,429 2,513
Investment in unconsolidated special-purpose entities 2,425 2,741
Debt placement fees, less accumulated amortization
of $96 in 2002 and $87 in 2001 80 89
Prepaid expenses and other assets 77 102
--------- ---------
Total assets $ 66,531 $ 69,243
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 793 $ 625
Due to affiliates 199 251
Lessee deposits and reserves for repairs 3,883 3,739
Note payable 19,000 19,000
--------- ---------
Total liabilities 23,875 23,615
Members' equity:
Class A members (4,971,311 units as of June 30, 2002
and December 31, 2001) 42,656 45,628
Class B member -- --
--------- ---------
Total members' equity 42,656 45,628
--------- ---------
Total liabilities and members' equity $ 66,531 $ 69,243
========= =========
See accompanying notes to unaudited condensed financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
------ ------- -------- ------
REVENUES
Lease revenue $4,781 $4,505 $ 9,531 $ 9,031
Interest and other income 91 210 189 415
Net gain on disposition of equipment 4 3 8 980
------ ------ ------- -------
Total revenues 4,876 4,718 9,728 10,426
EXPENSES
Depreciation and amortization 1,672 2,563 3,424 5,315
Repairs and maintenance 418 504 870 1,090
Equipment operating expenses 1,110 443 2,094 957
Insurance expense 94 57 209 254
Management fees to affiliate 215 239 428 480
Interest expense 352 403 696 806
General and administrative expenses
to affiliates 121 121 211 343
Other general and administrative expenses 374 159 544 387
Provision for (recovery of) bad debts 767 (12) 1,548 (2)
------ ------ ------- -------
Total expenses 5,123 4,477 10,024 9,630
Equity in net income of unconsolidated
special-purpose entities 119 1,005 248 1,003
------ ------ ------- -------
Net income (loss) $ (128) $1,246 $ (48) $ 1,799
MEMBERS' SHARE OF NET INCOME (LOSS)
Class A members $ (347) $1,027 $ (487) $ 1,141
Class B member 219 219 439 658
------ ------ ------- -------
Total $ (128) $1,246 $ (48) $ 1,799
Net income (loss) per
weighted-average Class A unit $(0.07) $ 0.21 $ (0.10) $ 0.23
------ ------ ------- -------
Cash distribution $1,462 $1,462 $ 2,924 $ 3,768
------ ------ ------- -------
Cash distribution per weighted-average
Class A unit $ 0.25 $ 0.25 $ 0.50 $ 0.63
====== ====== ======= ========
See accompanying notes to unaudited condensed financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 2000 TO JUNE 30, 2002
(in thousands of dollars)
(unaudited)
Class A Class B Total
-------- ------- -------
Members' equity as of December 31, 2000 $43,670 $ -- $43,670
Net income 7,488 1,097 8,585
Cash distribution (5,530) (1,097) (6,627)
-------- -------- --------
Members' equity as of December 31, 2001 45,628 -- 45,628
Net income (loss) (487) 439 (48)
Cash distribution (2,485) (439) (2,924)
-------- -------- --------
Members' equity as of June 30, 2002 $42,656 $ -- $42,656
======== ======== ========
See accompanying notes to unaudited condensed financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Six Months
Ended June 30,
2002 2001
----------------
OPERATING ACTIVITIES
Net income (loss) $ (48) $ 1,799
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,424 5,315
Provision for (recovery of) bad debts 1,548 (2)
Net gain on disposition of equipment (8) (980)
Equity in net income of unconsolidated
special-purpose entities (248) (1,003)
Changes in operating assets and liabilities:
Restricted cash (73) (66)
Accounts receivable (1,464) 190
Prepaid expenses and other assets 25 38
Accounts payable and accrued expenses 158 265
Due to affiliates (52) (719)
Lessee deposits and reserves for repairs 144 69
-------- --------
Net cash provided by operating activities 3,406 4,906
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized
repairs (2) (2,261)
Distributions from unconsolidated special-purpose
entities 564 1,602
Liquidation distributions from unconsolidated
special-purpose entities -- 931
Proceeds from disposition of equipment 22 4,084
-------- --------
Net cash provided by investing activities 584 4,356
FINANCING ACTIVITIES
Accounts payable and accrued expenses 10 --
Cash distributions to Class A members (2,485) (3,110)
Cash distributions to Class B member (439) (658)
-------- --------
Net cash used in financing activities (2,914) (3,768)
Net increase in cash and cash equivalents 1,076 5,494
Cash and cash equivalents at beginning of period 21,837 11,291
-------- --------
Cash and cash equivalents at end of period $22,913 $16,785
======== ========
See accompanying notes to unaudited condensed financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Opinion of Management
-----------------------
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
Manager), the accompanying unaudited condensed financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the unaudited condensed financial position of Professional Lease
Management Income Fund I, L.L.C. (the Fund) as of June 30, 2002 and December 31,
2001, the unaudited condensed statements of operations for the three and six
months ended June 30, 2002 and 2001, the unaudited condensed statements of
changes in members' equity for the period from December 31, 2000 to June 30,
2002, and the unaudited condensed statements of cash flows for the six months
ended June 30, 2002 and 2001. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted from the accompanying condensed financial statements. For
further information, reference should be made to the financial statements and
notes thereto included in the Fund's Annual Report on Form 10-K for the year
ended December 31, 2001, on file at the Securities and Exchange Commission.
2. Schedule of Fund Phases
--------------------------
The Fund is currently in its investment phase during which the Fund uses a
portion of the cash generated from operations and proceeds from asset sales to
purchase additional equipment. The Manager believes these acquisitions may
cause the Fund to generate additional earnings and cash flow for the Fund.
Beginning in the Fund's seventh year of operations, which commences on
January 1, 2003, the Manager will stop purchasing additional equipment from cash
generated from operations or disposition proceeds. Surplus cash, if any, less
reasonable reserves, will be distributed to the members. The Fund will
terminate on December 31, 2010, unless terminated earlier upon sale of all
equipment and certain other events.
3. Reclassification
----------------
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentations.
4. Cash Distributions
-------------------
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered a return of capital. For the three months ended
June 30, 2002 and 2001, cash distributions totaled $1.5 million. For the six
months ended June 30, 2002 and 2001, cash distributions totaled $2.9 million and
$3.8 million, respectively. Cash distributions to the Class A unitholders of
$2.5 million and $2.0 million for the six months ended June 30, 2002 and 2001,
respectively, were deemed to be a return of capital.
Cash distributions of $0.8 million related to the results from the second
quarter 2002 will be paid during the third quarter of 2002.
5. Transactions with Manager and Affiliates
--------------------------------------------
The balance due to affiliates as of June 30, 2002 included $0.2 million due to
FSI and its affiliates for management fees. The balance due to affiliates as of
December 31, 2001, included $0.3 million due to FSI and its affiliates for
management fees.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Transactions with Manager and Affiliates(continued)
--------------------------------------------
The Fund's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 2002 and 2001 is listed
in the following table (in thousands of dollars):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
----- ----- ------ ------
Management fees $ 15 $ 25 $ 32 $ 62
Data processing and administrative
expenses 7 13 12 36
These affiliate expenses reduced the Fund's proportional share of the equity
interest in the income of USPEs.
6. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment were as follows (in thousands of dollars):
June 30, December 31,
2002 2001
-------- ---------
Marine containers $ 31,386 $ 31,405
Railcars 19,497 19,495
Marine vessel 17,000 17,000
Aircraft 15,358 15,358
Trailers 6,575 6,575
--------- ---------
89,816 89,833
Less accumulated depreciation (51,835) (48,425)
--------- ---------
Net equipment $ 37,981 $ 41,408
========= =========
As of June 30, 2002, all owned equipment in the Fund's portfolio was on lease
except for 82 railcars with a net book value of $0.7 million. As of December
31, 2001, all owned equipment in the Fund portfolio was on lease except for 62
railcars with a net book value of $0.5 million.
During the six months ended June 30, 2001, the Fund purchased marine containers
for $2.3 million. No equipment was purchased during the six months ended June
30, 2002.
During the six months ended June 30, 2002, the Fund disposed of marine
containers with a net book value of $14,000 for proceeds of $22,000. During the
six months ended June 30, 2001, the Fund disposed of a marine vessel, a marine
container and railcars with an aggregate net book value of $3.2 million for
aggregate proceeds of $4.2 million.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Investments in Unconsolidated Special-Purpose Entities
----------------------------------------------------------
The Fund owns equipment jointly with affiliated programs. These are single
purpose entities that do not have any debt or other financial encumbrances. The
net investments in USPEs include the following jointly-owned equipment and
related assets and liabilities (in thousands of dollars):
June 30, December 31,
2002 2001
========== ==============
50% interest in a trust owning a stage III commercial
aircraft $ 2,391 $ 2,722
50% interest in a trust owning a stage III commercial
aircraft 36 32
Other (2) (13)
---------- --------------
Net investments $ 2,425 $ 2,741
========== ==============
As of June 30, 2002 and December 31, 2001, all jointly-owned equipment in the
Fund's USPE portfolio was on lease.
8. Operating Segments
-------------------
The Fund operates in five different segments: marine vessel leasing, aircraft
leasing, railcar leasing, trailer leasing and marine container leasing. Each
equipment leasing segment engages in short-term to mid-term operating leases to
a variety of customers.
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
For the three months ended Vessel Aircraft Railcar Trailer Container
June 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 1,690 $ 758 $ 793 $ 336 $ 1,204 $ -- $ 4,781
Interest income and other -- -- -- -- -- 91 91
Net gain on disposition of equipment -- -- 1 -- 3 -- 4
--------- --------- -------- -------- ---------- --------- --------
Total revenues 1,690 758 794 336 1,207 91 4,876
COSTS AND EXPENSES
Operations support 1,273 6 168 145 14 16 1,622
Depreciation and amortization 370 -- 279 91 927 5 1,672
Interest expense -- -- -- -- -- 352 352
Management fees to affiliate 85 -- 52 18 60 -- 215
General and administrative expenses 11 27 43 54 -- 360 495
Provision for bad debts -- 758 9 -- -- -- 767
--------- --------- -------- -------- ---------- --------- --------
Total costs and expenses 1,739 791 551 308 1,001 733 5,123
--------- --------- -------- -------- ---------- --------- --------
Equity in net income of USPEs -- 119 -- -- -- -- 119
--------- --------- -------- -------- ---------- --------- --------
Net income (loss) $ (49) $ 86 $ 243 $ 28 $ 206 $ (642) $ (128)
========= ========= ======== ======== ========== ========= ========
Total assets as of June 30, 2002 $ 8,592 $ 3,033 $ 7,883 $ 2,066 $ 21,282 $ 23,675 $66,531
========= ========= ======== ======== ========== ========= ========
1 Includes certain assets not identifiable to a specific segment such as
cash, certain restricted cash, deferred charges and prepaid expenses. Also
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.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
8. Operating Segments (continued)
-------------------
Marine Marine
For the three months ended Vessel Aircraft Railcar Trailer Container
June 30, 2001 Leasing Leasing Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ 977 $ 1,014 $ 840 $ 268 $ 1,406 $ -- $4,505
Interest income and other -- 33 -- -- -- 177 210
Gain (loss) on disposition of equipment (2) -- (3) 8 -- -- 3
--------- --------- --------- --------- ---------- --------- -------
Total revenues 975 1,047 837 276 1,406 177 4,718
COSTS AND EXPENSES
Operations support 631 3 160 174 19 17 1,004
Depreciation and amortization 444 579 323 100 1,113 4 2,563
Interest expense -- -- -- -- -- 403 403
Management fees to affiliate 49 51 56 13 70 -- 239
General and administrative expenses 9 12 13 56 -- 190 280
Provision for bad debts -- -- (12) -- -- -- (12)
--------- --------- --------- --------- ---------- --------- -------
Total costs and expenses 1,133 645 540 343 1,202 614 4,477
--------- --------- --------- --------- ---------- --------- -------
Equity in net income of USPEs 336 669 -- -- -- -- 1,005
--------- --------- --------- --------- ---------- --------- -------
Net income (loss) $ 178 $ 1,071 $ 297 $ (67) $ 204 $ (437) $1,246
========= ========= ========= ========= ========== ========= =======
Marine Marine
For the six months ended Vessel Aircraft Railcar Trailer Container
June 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ 3,253 $ 1,516 $ 1,671 $ 658 $ 2,433 $ -- $ 9,531
Interest income and other -- -- -- -- -- 189 189
Net gain on disposition of equipment -- -- 1 -- 7 -- 8
--------- --------- -------- -------- ---------- --------- --------
Total revenues 3,253 1,516 1,672 658 2,440 189 9,728
COSTS AND EXPENSES
Operations support 2,468 13 321 310 29 32 3,173
Depreciation and amortization 740 -- 559 183 1,933 9 3,424
Interest expense -- -- -- -- -- 696 696
Management fees to affiliate 163 -- 110 33 122 -- 428
General and administrative expenses 20 39 84 103 -- 509 755
Provision for bad debts -- 1,516 10 22 -- -- 1,548
--------- --------- -------- -------- ---------- --------- --------
Total costs and expenses 3,391 1,568 1,084 651 2,084 1,246 10,024
--------- --------- -------- -------- ---------- --------- --------
Equity in net income of USPEs -- 248 -- -- -- -- 248
--------- --------- -------- -------- ---------- --------- --------
Net income (loss) $ (138) $ 196 $ 588 $ 7 $ 356 $ (1,057) $ (48)
========= ========= ======== ======== ========== ========= ========
2 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.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
8. Operating Segments (continued)
-------------------
Marine Marine
For the six months ended Vessel Aircraft Railcar Trailer Container
June 30, 2001 Leasing Leasing Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ 1,999 $ 2,028 $ 1,674 $ 530 $ 2,800 $ -- $ 9,031
Interest income and other -- 34 -- -- -- 381 415
Net gain on disposition of equipment 963 -- 8 8 1 -- 980
-------- --------- --------- --------- ---------- --------- --------
Total revenues 2,962 2,062 1,682 538 2,801 381 10,426
COSTS AND EXPENSES
Operations support 1,579 11 320 276 38 77 2,301
Depreciation and amortization 888 1,157 645 201 2,415 9 5,315
Interest expense -- -- -- -- -- 806 806
Management fees to affiliate 100 101 112 27 140 -- 480
General and administrative expenses 35 18 30 83 -- 564 730
Provision for (recovery of) bad debts -- -- (14) 3 9 -- (2)
-------- --------- --------- --------- ---------- --------- --------
Total costs and expenses 2,602 1,287 1,093 590 2,602 1,456 9,630
-------- --------- --------- --------- ---------- --------- --------
Equity in net income of USPEs 291 712 -- -- -- -- 1,003
-------- --------- --------- --------- ---------- --------- --------
Net income (loss) $ 651 $ 1,487 $ 589 $ (52) $ 199 $ (1,075) $ 1,799
======== ========= ========= ========= ========== ========= ========
9. 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 three and six months ended June
30, 2002 and 2001 was 4,971,311 units.
10. Subsequent Event
-----------------
In July 2002, PLM International, Inc. (PLMI), the parent company of FSI, reached
an agreement with the lenders of the $10.0 million warehouse facility to extend
the expiration date of the facility to June 30, 2003. The warehouse facility is
shared by the Fund, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI,
PLM Equipment Growth & Income Fund VII and Acquisub LLC, a wholly owned
subsidiary of PLMI. The facility provides for financing up to 100% of the cost
of the equipment. Outstanding borrowings by one borrower reduce the amount
available to each of the other borrowers under the facility. Individual
borrowings may be outstanding for no more than 270 days, with all advances due
no later than June 30, 2003. Interest accrues either at the prime rate or LIBOR
plus 2.0% at the borrower's option and is set at the time of an advance of
funds. Borrowings by the Fund are guaranteed by PLMI. The Fund is not liable
for the advances made to other borrowers.
2 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(I) RESULTS OF OPERATIONS
Comparison of the Professional Lease Management Income Fund I, L.L.C.'s (the
- --------------------------------------------------------------------------------
Fund's) Operating Results for the Three Months Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the second quarter of 2002, compared to the same quarter of
2001. Gains or losses from the sale of equipment, interest and other income and
certain expenses such as management fees to affiliate, depreciation and
amortization and general and administrative expenses relating to the operating
segments (see Note 8 to the unaudited condensed financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations but the result of owning a portfolio of
equipment. The following table presents lease revenues less direct expenses by
segment (in thousands of dollars):
For the Three Months
Ended June 30,
2002 2001
===================
Marine containers $1,190 $1,387
Aircraft 752 1,011
Railcars 625 680
Marine vessels 417 346
Trailers 191 94
Marine containers: Marine container lease revenues and direct expenses were
$1.2 million and $14,000, respectively, for the second quarter of 2002, compared
to $1.4 million and $19,000, respectively, during the same quarter of 2001. The
decrease in lease revenues of $0.2 million during the second quarter of 2002
compared to 2001 was due to lower lease rates earned on the Fund's marine
containers.
Aircraft: Aircraft lease revenues and direct expenses were $0.8 million and
$6,000, respectively, for the second quarter of 2002, compared to $1.0 million
and $3,000, respectively, during the same quarter of 2001. The decrease in
lease revenues of $0.2 million during the second quarter of 2002 compared to
2001 was due to disposition of an owned aircraft during 2001.
Railcars: Railcar lease revenues and direct expenses were $0.8 million and
$0.2 million, respectively, for the second quarter of 2002 and 2001. The
decrease in railcar contribution was due to lower re-lease rates earned on
leases that expired during 2001 and 2002.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.7
million and $1.3 million, respectively, for the second quarter of 2002, compared
to $1.0 million and $0.6 million, respectively, during the same quarter of 2001.
Lease revenue increased $0.7 million in the second quarter of 2002 due to a
higher lease rate earned on this marine vessel resulting from the change in
lease type from a time charter under which it operated in the second quarter of
2001 to a voyage charter under which it operated in the second quarter of 2002.
Under a voyage charter, the marine vessel earns a higher lease rate but is
responsible for additional operating costs. The increase in lease revenues was
offset, in part, by a $0.6 million increase in operating expenses also resulting
from the change in lease type.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and
$0.1 million, respectively, for the second quarter of 2002, compared to $0.3
million and $0.2 million, respectively, during the same quarter of 2001. Lease
revenue increased $0.1 million in the second quarter of 2002 compared to the
same period in 2001 due to higher lease rates on the Fund's trailer fleet.
Direct expenses decreased $29,000 in the second quarter of 2002 compared to 2001
due to lower repair costs.
(B) Interest and Other Income
Interest and other income decreased $0.1 million due to a decrease in the
interest rate earned on cash balances in the second quarter of 2002 compared to
the same period in 2001.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.5 million remained relatively the same for the
quarters ended June 30, 2002 and 2001. Significant variances are explained as
follows:
(i) A $0.9 million decrease in depreciation expense from 2001 levels
reflects a decrease of $0.6 million resulting from certain assets becoming fully
depreciated during 2001 and a decrease of approximately $0.3 million caused by
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned;
(ii) A $0.1 million decrease in interest expense was due to lower
average borrowings outstanding during the quarter ended June 30, 2002 compared
to the same period in 2001;
(iii) A $0.2 million increase in general and administrative expenses
during the three months ended June 30, 2002 was due to an increase of $0.1
million resulting from higher professional costs and $0.1 million resulting from
higher administrative costs; and
(iv) A $0.8 million increase in the provision for bad debts was based
on the Manager's evaluation of the collectability of receivables compared to
2001. The provision for bad debts recorded in the second quarter of 2002 was
primarily related to one aircraft lessee.
(D) Net Gain on Disposition of Owned Equipment
Net gain on disposition of owned equipment for the second quarter of 2002
totaled $4,000 which resulted from the sale of marine containers with a net book
value of $2,000 for proceeds of $6,000. The net gain on disposition of owned
equipment for the second quarter of 2001 totaled $3,000 which resulted from the
sale of a railcar and trailers with a net book value of $15,000, for proceeds of
$18,000.
(E) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs)
Equity in net income of USPEs represents the Fund's share of the net income
generated from the operation of jointly owned assets accounted for under the
equity method of accounting. These entities are single purpose and have no debt
or other financial encumbrances. The following table presents equity in net
income by equipment type (in thousands of dollars):
For the Three Months
Ended June 30,
2002 2001
==================
Aircraft $119 $ 669
Marine vessel - 336
------ ------
Equity in net income of USPEs $119 $1,005
====== ======
Aircraft: As of June 30, 2002 and 2001, the Fund owned interests in two trusts
that each owns a commercial aircraft. During the three months ended June 30,
2002, lease revenues of $0.3 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.2 million. During the same period
of 2001, lease revenues of $0.3 million and other income of $0.8 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.5 million.
The decrease in expenses of $0.3 million was due to lower depreciation expense
of $0.2 million resulting from a commercial aircraft in one trust becoming fully
depreciated during 2001 and $0.1 million decrease resulting from the double
declining-balance method of depreciation which results in greater depreciation
in the first years an asset is owned.
Marine vessel: As of June 30, 2002 and 2001, the Fund no longer owned an
interest in an entity that owned a marine vessel. During the second quarter of
2001, marine vessel lease revenues of $0.2 million and the gain of $0.3 million
from the sale of a marine vessel entity in which the Fund owned an interest were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.1 million.
(F) Net Income (Loss)
As a result of the foregoing, the Fund had net loss of $0.1 million for the
three months ended June 30, 2002, compared to net income of $1.2 million during
the same period of 2001. 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 second quarter of
2002 is not necessarily indicative of future periods. In the second quarter of
2002, the Fund distributed $1.2 million to Class A members, or $0.25 per
weighted-average Class A unit.
Comparison of the Fund's Operating Results for the Six Months Ended June 30,
- --------------------------------------------------------------------------------
2002 and 2001
- ---------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the six
months ended June 30, 2002, compared to the same period of 2001. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Six Months
Ended June 30,
2002 2001
===================
Marine containers $2,404 $2,762
Aircraft 1,503 2,017
Railcars 1,350 1,354
Marine vessels 785 420
Trailers 348 254
Marine containers: Marine container lease revenues and direct expenses were
$2.4 million and $29,000, respectively, for the six months ended June 30, 2002,
compared to $2.8 million and $38,000, respectively, during the same period of
2001. The decrease in lease revenues of $0.4 million during the six months
ended June 30, 2002 compared to the same period of 2001 was due to lower lease
rates earned on the Fund's marine containers.
Aircraft: Aircraft lease revenues and direct expenses were $1.5 million and
$13,000, respectively, for the six months ended June 30, 2002, compared to $2.0
million and $11,000, respectively, during the same period of 2001. The decrease
in lease revenues of $0.5 million during the six months ended June 30, 2002
compared to 2001 was due to the disposition of an owned aircraft during 2001.
Railcars: Railcar lease revenues and direct expenses were $1.7 million and
$0.3 million, respectively, for the six months ended June 30, 2002 and 2001.
Marine vessels: Marine vessel lease revenues and direct expenses were $3.3
million and $2.5 million, respectively, for the six months ended June 30, 2002,
compared to $2.0 million and $1.6 million, respectively, during the same period
of 2001. Lease revenue increased $1.3 million during the six months ended June
30, 2002 due a to higher lease rate earned on the marine vessel resulting from a
change in lease type from a time charter under which it operated during the six
months ended June 30, 2001 to a voyage charter under which it operated during
the six months ended June 30, 2002. Under a voyage charter, the marine vessel
earns a higher lease rate but is responsible for additional operating costs.
The increase in lease revenues was offset, in part, by a $0.9 million increase
in operating expenses also resulting from the change in lease type.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and
$0.3 million, respectively, for the six months ended June 30, 2002, compared to
$0.5 million and $0.3 million, respectively, during the same period of 2001.
Lease revenue increased $0.1 million in the six months ended June 30, 2002
compared to the same period in 2001 due to higher lease rates on the Fund's
trailer fleet. Direct expenses increased $34,000 in the six months ended June
30, 2002 compared to 2001 due to higher repair costs.
(B) Interest and Other Income
Interest and other income decreased $0.2 million due to a decrease in the
interest rate earned on cash balances in the six months ended June 30, 2002
compared to the same period in 2001.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $6.9 million for the period ended June 30, 2002
decreased from $7.3 million for the same period in 2001.
(i) A $1.9 million decrease in depreciation expense from 2001 levels
reflects the decrease of $1.2 million resulting from certain assets becoming
fully depreciated during 2001 and a decrease of approximately $0.7 million
caused by the double-declining balance method of depreciation which results in
greater depreciation in the first years an asset is owned;
(ii) A $0.1 million decrease in interest expense was due to lower
average borrowings outstanding during the period ended June 30, 2002 compared to
the same period in 2001; and
(iii) A $1.6 million increase in the provision for bad debts was based
on the Manager's evaluation of the collectability of receivables compared to
2001. The provision for bad debt expense recorded in the six months ended June
30, 2002 was primarily related to one aircraft lessee.
(D) Net Gain on Disposition of Owned Equipment
Net gain on disposition of owned equipment for the six months ended June 30,
2002 totaled $8,000 which resulted from the sale or disposition of marine
containers with a net book value of $14,000 for $22,000. The net gain on
disposition of owned equipment for the six months ended June 30, 2001 totaled
$1.0 million which resulted from the sale of a marine vessel, a marine
container, trailers, and railcars with a net book value of $3.2 million, for
proceeds of $4.2 million.
(E) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs)
Equity in net income of USPEs represents the Fund's share of the net income
generated from the operation of jointly owned assets accounted for under the
equity method of accounting. These entities are single purpose and have no debt
or other financial encumbrances. The following table presents equity in net
income by equipment type (in thousands of dollars):
For the Six Months
Ended June 30,
2002 2001
==================
Aircraft $248 $ 712
Marine vessel -- 291
----- ------
Equity in net income of USPEs $248 $1,003
===== ======
Aircraft: As of June 30, 2002 and 2001, the Fund owned interests in two trusts
that each owns a commercial aircraft. During the six months ended June 30,
2002, lease revenues of $0.6 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.4 million. During the same period
of 2001, lease revenues of $0.9 million and other income of $0.8 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$1.0 million.
Lease revenues decreased $0.2 million due to the leases for two commercial
aircraft in the trusts being renegotiated at a lower rate.
The decrease in expenses of $0.6 million was due to lower depreciation expense
of $0.4 million resulting from the remaining commercial aircraft in the trust
becoming fully depreciated during 2001 and $0.1 million resulting from the
double declining-balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
Marine vessel: As of June 30, 2002 and 2001, the Fund no longer owned an
interest in an entity that owned a marine vessel. During the six months ended
June 30, 2001, lease revenues of $0.4 million and the gain of $0.3 million from
the sale of a marine vessel entity in which the Fund owned an interest were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.4 million.
(F) Net Income (Loss)
As a result of the foregoing, the Fund had a net loss of $48,000 for the six
months ended June 30, 2002, compared to net income of $1.8 million during the
same period of 2001. 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 six months ended June
30, 2002 is not necessarily indicative of future periods. In the six months
ended June 30, 2002, the Fund distributed $2.5 million to Class A members, or
$0.50 per weighted-average Class A unit.
(II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Manager to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the Manager reviews these
estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, reserves
related to legally mandated equipment repairs and contingencies and litigation.
These estimates are based on the Manager's historical experience and on various
other assumptions believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. The Manager believes, however, that the estimates, including those
for the above-listed items, are reasonable and that actual results will not vary
significantly from the estimated amounts.
The Manager believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of the Fund's
financial statements:
Asset lives and depreciation methods: The Fund's primary business involves the
purchase and subsequent lease of long-lived transportation and related
equipment. The Manager has chosen asset lives that it believes correspond to
the economic life of the related asset. The Manager has chosen a deprecation
method that it believes matches the benefit to the Fund from the asset with the
associated costs. These judgments have been made based on the Manager's
expertise in each equipment segment that the Fund operates. If the asset life
and depreciation method chosen does not reduce the book value of the asset to at
least the potential future cash flows from the asset to the Fund, the Fund would
be required to record a loss on revaluation. Likewise, if the net book value of
the asset was reduced by an amount greater than the economic value has
deteriorated, the Fund may record a gain on sale upon final disposition of the
asset.
Impairment of long-lived assets: On a regular basis, the Manager reviews the
carrying value of its equipment and investments in USPEs to determine if the
carrying value of the assets may not be recoverable in consideration of the
current economic conditions. This requires the Manager to make estimates
related to future cash flows from each asset as well as the determination if the
deterioration is temporary or permanent. If these estimates or the related
assumptions change in the future, the Fund may be required to record additional
impairment charges.
Allowance for doubtful accounts: The Fund maintains allowances for doubtful
accounts for estimated losses resulting from the inability of the lessees to
make the lease payments. These estimates are primarily based on the amount of
time that has lapsed since the related payments were due as well as specific
knowledge related to the ability of the lessees to make the required payments.
If the financial condition of the Fund's lessees were to deteriorate, additional
allowances could be required that would reduce income. Conversely, if the
financial condition of the lessees were to improve or if legal remedies to
collect past due amounts were successful, the allowance for doubtful accounts
may need to be reduced and income would be increased.
Reserves for repairs: The Fund accrues for legally required repairs to
equipment such as dry docking for marine vessels and engine overhauls to
aircraft engines over the period prior to the required repairs. The amount that
is reserved is based on the Manager's expertise in each equipment segment, the
past history of such costs for that specific piece of equipment and discussions
with independent, third party equipment brokers. If the amount reserved is not
adequate to cover the cost of such repairs or if the repairs must be performed
earlier than the Manager estimated, the Fund would incur additional repair and
maintenance or equipment operating expenses.
Contingencies and litigation: The Fund is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the Fund
may be required to record additional litigation expense.
(III) FINANCIAL CONDITION - CAPITAL RESOURCES AND LIQUIDITY
For the six months ended June 30, 2002, the Fund generated operating cash of
$4.0 million (net cash provided by operating activities plus non-liquidating
distributions from USPEs) to meet its operating obligations, pay debt and
interest payments and make distributions (total of $2.9 million for six months
ended June 30, 2002) to the members.
During the six months ended June 30, 2002, the Fund disposed of marine
containers with a net book value of $14,000 for proceeds of $22,000.
Restricted cash increased during the six months ended June 30, 2002 due to the
deposit of $0.1 million into an escrow account related to collection efforts
from an aircraft lessee.
Accounts receivable decreased $0.1 million in the six months ended June 30,
2002. This decrease was due to increase in the allowance for bad debts of $1.5
million due to the General Partner's evaluation of the collectibility of
accounts receivable. This decrease was partially offset by an increase of $1.5
million during the six months ended June 30, 2002 due to the timing of cash
receipts.
Investments in USPEs decreased $0.3 million during the six months ended June 30,
2002 due to cash distributions of $0.6 million from the USPEs to the Fund being
partially offset by income of $0.2 million that was recorded by the Fund for its
equity interests in the USPEs.
Accounts payable increased $0.2 million during the six months ended June 30,
2002 due to the timing of cash payments to vendors.
Lessee deposits and reserve for repairs increased $0.1 million during the six
months ended June 30, 2002 due to the accrual of marine vessel dry-docking
reserves of $0.1 million.
Cash distributions of $0.8 million related to the results from the second
quarter 2002 will be paid during the third quarter of 2002.
In July 2002, PLM International, Inc. (PLMI), the parent company of FSI, reached
an agreement with the lenders of the $10.0 million warehouse facility to extend
the expiration date of the facility to June 30, 2003. The warehouse facility is
shared by the Fund, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI,
PLM Equipment Growth & Income Fund VII and Acquisub LLC, a wholly owned
subsidiary of PLMI. The facility provides for financing up to 100% of the cost
of the equipment. Outstanding borrowings by one borrower reduce the amount
available to each of the other borrowers under the facility. Individual
borrowings may be outstanding for no more than 270 days, with all advances due
no later than June 30, 2003. Interest accrues either at the prime rate or LIBOR
plus 2.0% at the borrower's option and is set at the time of an advance of
funds. Borrowings by the Fund are guaranteed by PLMI. The Fund is not liable
for the advances made to other borrowers.
As of August 13, 2002, the Fund had no borrowings outstanding under this
facility and there were no other borrowings outstanding under this facility by
any other eligible borrower.
(IV) OUTLOOK FOR THE FUTURE
Several factors may affect the Fund's operating performance in the remainder of
2002 and beyond, including changes in the markets for the Fund's equipment and
changes in the regulatory environment in which the 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.
Other factors affecting the Fund's contribution in the remainder of 2002 and
beyond include:
(1) The cost of new marine containers have been at historic lows for the
past several years which has caused downward pressure on per diem lease rates
for this type of equipment;
(2) Railcar loadings in North America for the six months ended June 30, 2002
were below those of 2001. This decrease may lead to lower utilization and lower
contribution to the Fund as existing leases expire and renewal leases are
negotiated;
(3) Marine vessel freight rates are dependent upon the overall condition of
the international economy. Freight rates earned by the Fund's marine vessel
began to decrease during the latter half of 2001 and continued through the first
six months of 2002. This trend is expected to continue during the latter half
of 2002 or until international economies stabilize and begin to improve;
(4) Industry wide utilization of inter-modal trailers decreased 12% in the
six months ended June 30, 2002 compared to the six months ended June 30, 2001.
This may lead to lower utilization of the Fund's trailers as existing leases
expire; and
(5) The airline industry began to see lower passenger travel during 2001.
The tragic events on September 11, 2001 worsened the situation. As a result of
this and the general turmoil in the airline industry, the Fund has had to
renegotiate leases on its owned aircraft and partially owned aircraft during
2001 that will result in a decrease in revenues during 2002.
In addition, these events have had a negative impact on the fair market value of
the Fund's owned and partially owned aircraft. Although no revaluations were
required during 2002 to these aircraft, the Manager does not expect these
aircraft values to return to their previous value in the foreseeable future.
During 2001, the lessee of three Stage II Boeing 737-200 commercial aircraft
notified the Manager of its intention to return these aircraft. The lessee is
located in Brazil, a country currently experiencing economic difficulty. As of
June 30, 2002, the lessee has not remitted ten lease payments due to the Fund.
The Fund has a security deposit from this lessee that could be used to pay a
portion of the amount due. During October 2001, the Manager sent a notification
of default to the lessee. The lease, with an expiration date of October 2002,
has certain return condition requirements for each aircraft. The Manager has
recorded an allowance for bad debts for the amount due less the security deposit
and is uncertain of the collectibility of this receivable.
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,
or of their occurrence, 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 decide to reduce the
Fund's exposure to equipment markets if it determines that it cannot operate
equipment to achieve acceptable rates of return. Alternatively, the Manager may
make a determination to enter equipment markets in which it perceives
opportunities to profit from supply/demand instabilities or other market
imperfections.
The Fund may invest excess cash flow and equipment sales proceeds, if any, after
payment of operating expenses, loan principal and interest on debt, the
maintenance of working capital reserves, and cash distributions to the members,
to acquire additional equipment during the first six years of the Fund's
operations which ends on December 31, 2002. The Manager believes these
acquisitions may cause the Fund to generate additional earnings and cash flow
for the Fund.
Beginning in the Fund's seventh year of operation, which commences January 1,
2003, the Manager will stop reinvesting cash flow and disposition proceeds.
Surplus funds, if any, less reasonable reserves, may be distributed the members.
The Fund will terminate on December 31, 2010, unless terminated earlier upon
sale of all equipment and by certain other events.
(V) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q 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-Q should be read as being applicable
to all related forward-looking statements wherever they appear in this Form
10-Q. The Fund's actual results could differ materially from those discussed
here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Fund's primary market risk exposure is that of currency devaluation risk.
During the six months ended June 30, 2002, 77% 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 encounter difficulty in making the U.S. dollar denominated lease
payment.
(This space intentionally left blank)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
10.1 Third amendment to the Warehouse Credit Agreement, dated July 11, 2002.
(b) Reports on Form 8-K
----------------------
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROFESSIONAL LEASE MANAGEMENT
INCOME FUND I, L.L.C.
By:PLM Financial Services, Inc.
Manager
Date: August 13, 2002 By: /s/ Stephen M. Bess
----------------------
Stephen M. Bess
President and
Current Chief Accounting Officer
CERTIFICATION
The undersigned hereby certifies, in their capacity as an officer of the Manager
of Professional Lease Management Income Fund I, L.L.C. (the Fund), that the
Quarterly Report of the Fund on Form 10-Q for the period ended June 30, 2002,
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that the information contained in such report fairly presents,
in all material respects, the financial condition of the Fund at the end of such
period and the results of operations of the Fund for such period.
PROFESSIONAL LEASE MANAGEMENT
INCOME FUND I, L.L.C.
By:PLM Financial Services, Inc.
Manager
Date: August 13, 2002 By:/s/ Stephen M. Bess
----------------------
Stephen M. Bess
President and
Current Chief Accounting Officer
Date: August 13, 2002 By:/s/ James A. Coyne
---------------------
James A. Coyne
Chief Financial Officer