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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 SEPTEMBER 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)
September 30, December 31,
2002 2001
===============================
ASSETS
Equipment held for operating leases. . . . . . . . . . . . $ 89,583 $ 89,833
Less accumulated depreciation. . . . . . . . . . . . . . . (53,374) (48,425)
--------------- --------------
Net equipment. . . . . . . . . . . . . . . . . . . . . 36,209 41,408
Cash and cash equivalents. . . . . . . . . . . . . . . . . 22,825 21,837
Restricted cash. . . . . . . . . . . . . . . . . . . . . . 1,206 553
Accounts receivable, less allowance for doubtful accounts
of $3,231 in 2002 and $1,048 in 2001 . . . . . . . . 2,376 2,513
Investment in unconsolidated special-purpose entities. . . 2,219 2,754
Debt placement fees, less accumulated amortization
of $101 in 2002 and $87 in 2001. . . . . . . . . . . 76 89
Prepaid expenses and other assets. . . . . . . . . . . . . 191 102
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . $ 65,102 $ 69,256
=============== ==============
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . $ 1,370 $ 625
Due to affiliates. . . . . . . . . . . . . . . . . . . . . 174 264
Lessee deposits and reserves for repairs . . . . . . . . . 3,966 3,739
Note payable . . . . . . . . . . . . . . . . . . . . . . . 19,000 19,000
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . 24,510 23,628
--------------- --------------
Commitments and contingencies
Members' equity:
Class A members (4,971,311 units in 2002 and 2001) . . . . 40,592 45,628
Class B member . . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Total members' equity. . . . . . . . . . . . . . . . . 40,592 45,628
--------------- --------------
Total liabilities and members' equity . . . . . . . $ 65,102 $ 69,256
=============== ==============
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 Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
========================================
REVENUES
Lease revenue. . . . . . . . . . . . . . . . . $ 4,243 $ 5,141 $13,774 $14,173
Interest and other income. . . . . . . . . . . 105 207 294 622
Gain on disposition of equipment . . . . . . . 149 4 157 983
--------- --------- -------- --------
Total revenues . . . . . . . . . . . . . . 4,497 5,352 14,225 15,778
--------- --------- -------- --------
EXPENSES
Depreciation and amortization. . . . . . . . . 1,643 2,338 5,067 7,653
Repairs and maintenance. . . . . . . . . . . . 576 243 1,446 1,333
Equipment operating expenses . . . . . . . . . 1,095 841 3,189 1,798
Insurance expense. . . . . . . . . . . . . . . 98 152 307 405
Management fees to affiliate . . . . . . . . . 188 271 616 751
Interest expense . . . . . . . . . . . . . . . 348 416 1,044 1,223
General and administrative expenses
to affiliates. . . . . . . . . . . . . . 26 75 237 419
Other general and administrative expenses. . . 550 182 1,094 570
Provision for (recovery of) bad debts. . . . . 658 (1) 2,206 (4)
--------- --------- -------- --------
Total expenses . . . . . . . . . . . . . . 5,182 4,517 15,206 14,148
--------- --------- -------- --------
Equity in net income (loss) of unconsolidated
special-purpose entities . . . . . . . . 92 (231) 340 772
--------- --------- -------- --------
Net income (loss). . . . . . . . . . . . $ (593) $ 604 $ (641) $ 2,402
========= ========= ======== ========
MEMBERS' SHARE OF NET INCOME (LOSS)
Class A members. . . . . . . . . . . . . . . . $ (812) $ 384 $(1,299) $ 1,525
Class B member . . . . . . . . . . . . . . . . 219 220 658 877
--------- --------- -------- --------
Total . . . . . . . . . . . . . . . . . $ (593) $ 604 $ (641) $ 2,402
========= ========= ======== ========
Net income (loss) per
weighted-average Class A unit. . . . . . $ (0.16) $ 0.08 $ (0.26) $ 0.31
========= ========= ======== ========
Cash distribution. . . . . . . . . . . . . . . $ 1,471 $ 1,462 $ 4,395 $ 5,230
========= ========= ======== ========
Cash distribution per weighted-average
Class A unit . . . . . . . . . . . . . . $ 0.25 $ 0.25 $ 0.75 $ 0.88
========= ========= ======== ========
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 SEPTEMBER 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) . . . . . . . . . . . . . (1,299) 658 (641)
Cash distribution . . . . . . . . . . . . . (3,737) (658) (4,395)
--------- --------- --------
Members' equity as of September 30, 2002. $ 40,592 $ -- $40,592
========= ========= ========
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 Nine Months
Ended September 30,
2002 2001
====================
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (641) $ 2,402
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . 5,067 7,653
Provision for (recovery of) bad debts . . . . . . . . 2,206 (4)
Gain on disposition of equipment. . . . . . . . . . . (157) (983)
Equity in net income of unconsolidated
special-purpose entities. . . . . . . . . . . . (340) (772)
Changes in operating assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . . . . (653) (87)
Accounts receivable . . . . . . . . . . . . . . . . (2,069) (1,018)
Prepaid expenses and other assets . . . . . . . . . (89) 78
Accounts payable and accrued expenses . . . . . . . 745 541
Due to affiliates . . . . . . . . . . . . . . . . . (77) (698)
Lessee deposits and reserves for repairs. . . . . . 227 28
---------- --------
Net cash provided by operating activities . . . 4,219 7,140
---------- --------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized
improvements. . . . . . . . . . . . . . . . . . . (9) (2,261)
Distributions from unconsolidated special-purpose
entities. . . . . . . . . . . . . . . . . . . . . 862 931
Liquidation distributions from unconsolidated
special-purpose entities. . . . . . . . . . . . . -- 1,805
Proceeds from disposition of equipment. . . . . . . . . 311 4,092
---------- --------
Net cash provided by investing activities . . . . 1,164 4,567
---------- --------
FINANCING ACTIVITIES
Cash distributions to Class A members . . . . . . . . . (3,737) (4,353)
Cash distributions to Class B member. . . . . . . . . . (658) (877)
---------- --------
Net cash used in financing activities . . . . . . (4,395) (5,230)
---------- --------
Net increase in cash and cash equivalents . . . . . . . 988 6,477
Cash and cash equivalents at beginning of period. . . . 21,837 11,291
---------- --------
Cash and cash equivalents at end of period. . . . . . . $ 22,825 $17,768
========== ========
SUPPLEMENTAL INFORMATION
Interest paid . . . . . . . . . . . . . . . . . . . . . $ 692 $ 811
========== ========
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 September 30, 2002 and
December 31, 2001, the unaudited condensed statements of operations for the
three and nine months ended September 30, 2002 and 2001, the unaudited condensed
statements of changes in members' equity for the period from December 31, 2000
to September 30, 2002, and the unaudited condensed statements of cash flows for
the nine months ended September 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
dispositions to purchase additional equipment. The Manager believes these
acquisitions may cause the Fund to generate additional earnings and cash flow
for the Fund.
Cash generated from operations or disposition proceeds after January 1,
2003 cannot be used to purchase additional equipment. 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
September 30, 2002 and 2001, cash distributions totaled $1.5 million. For the
nine months ended September 30, 2002 and 2001, cash distributions totaled $4.4
million and $5.2 million, respectively. Cash distributions to the Class A
unitholders of $3.7 million and $2.8 million for the nine months ended September
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 third quarter
of 2002 will be paid during the fourth quarter of 2002.
5. Transactions with Manager and Affiliates
--------------------------------------------
The balance due to affiliates as of September 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 Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
======================================
Management fees. . . . . . . . . . $ 16 $ 16 $ 47 $ 77
Data processing and administrative
expenses. . . . . . . . . . . . 2 13 12 54
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):
September 30, December 31,
2002 2001
===============================
Marine containers . . . . . . $ 31,164 $ 31,405
Railcars. . . . . . . . . . . 19,486 19,495
Marine vessel . . . . . . . . 17,000 17,000
Aircraft. . . . . . . . . . . 15,358 15,358
Trailers. . . . . . . . . . . 6,575 6,575
--------------- --------------
89,583 89,833
Less accumulated depreciation (53,374) (48,425)
--------------- --------------
Net equipment . . . . . $ 36,209 $ 41,408
=============== ==============
As of September 30, 2002, all owned equipment in the Fund's portfolio was on
lease except for 135 railcars with a net book value of $1.3 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.
No equipment was purchased during the nine months ended September 30, 2002;
however, the Fund made capital improvements for $9,000. During the nine months
ended September 30, 2001, the Fund purchased marine containers for $2.3 million.
During the nine months ended September 30, 2002, the Fund disposed of marine
containers and a railcar with a net book value of $0.2 million for proceeds of
$0.3 million. During the nine months ended September 30, 2001, the Fund
disposed of a marine vessel, marine containers, trailers, 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.
Ownership interest is based on the Fund's contribution towards the cost of the
equipment in the USPEs. The Fund's proportional share of equity and income
(loss) in each entity is not necessarily the same as its ownership interest.
The primary reason for this difference has to do with certain fees such as
management and acquisition and lease negotiation fees varying among the owners
of the USPEs.
The tables below set forth 100% of the assets, liabilities, and equity of the
entities in which the Fund has an interest and the Fund's proportional share of
equity in each entity as of September 30, 2002 and December 31, 2001 (in
thousands of dollars):
TWA TWA
S/N 49183 MD-82
As of September 30, 2002. . . . . . . . . Trust1 Trust2 Total
- -----------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $ -- $ 4,542
----------- -------
Total assets. . . . . . . . . . . . . $ -- $ 4,542
=========== =======
Liabilities
Due to affiliates . . . . . . . . . . . $ 6 $ 6
----------- -------
Total liabilities . . . . . . . . . . 6 6
----------- -------
Equity. . . . . . . . . . . . . . . . . . (6) 4,536
----------- -------
Total liabilities and equity. . . . . $ -- $ 4,542
=========== =======
Fund's share of equity. . . . . . . . . . $ -- $ 2,219 $2,219
=========== ======= ======
TWA TWA
S/N 49183 MD-82
As of December 31, 2001 . . . . . . . . . Trust1 Trust2 Total
- -----------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $ -- $ 5,590
----------- -------
Total assets. . . . . . . . . . . . . $ -- $ 5,590
=========== =======
Liabilities
Accounts payable. . . . . . . . . . . . $ 7 $ 7
Due to affiliates . . . . . . . . . . . 5 16
----------- -------
Total liabilities . . . . . . . . . . 12 23
----------- -------
Equity. . . . . . . . . . . . . . . . . . (12) 5,567
----------- -------
Total liabilities and equity. . . . . $ -- $ 5,590
=========== =======
Fund's share of equity. . . . . . . . . . $ -- $ 2,754 $2,754
=========== ======= ======
1 The Fund owns a 50% interest of the TWA S/N 49183 Trust that owns an MD-82
stage III commercial aircraft.
2 The Fund owns a 50% interest in the TWA MD-82 Trust that owns an MD-82
stage III commercial aircraft.
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 (continued)
----------------------------------------------------------
The tables below set forth 100% of the revenues, gain on disposition of
equipment, direct and indirect expenses, and net income (loss) of the entities
in which the Fund has an interest, and the Fund's proportional share of income
(loss) in each entity for the three and nine months ended September 30, 2002 and
2001 (in thousands of dollars):
TWA TWA
For the three months ended. . . . S/N 49183 MD-82
September 30, 2002. . . . Trust1 Trust2 Other Total
- ------------------------------------------------------------------------
Revenues. . . . . . . . . . . . $ 315 $ 315 $ --
Less: Direct expenses . . . . . -- -- (7)
Indirect expenses . . 18 368 --
---------- -------- -------
Net income (loss) . . . . . . $ 297 $ (53) $ 7
========== ======== =======
Fund's share of net income (loss) $ 110 $ (21) $ 3 $ 92
========== ======== ======= ======
TWA TWA
For the three months ended. . S/N 49183 MD-82 Spear
September 30, 2001. . Trust1 Trust2 Partnership3 Total
- ----------------------------------------------------------------------------
Revenues. . . . . . . . . . $ 315 $ 315 $ (10)
Less: Direct expenses . . . 7 8 32
Indirect expenses 476 516 71
----------- -------- --------------
Net loss. . . . . . . . . $ (168) $ (209) $ (113)
=========== ======== ==============
Fund's share of net loss. . . $ (76) $ (98) $ (57) $ (231)
=========== ======== ============== =======
TWA TWA
For the nine months ended . . . . S/N 49183 MD-82 Spear
September 30, 2002. . . . Trust1 Trust2 Partnership3 Total
- --------------------------------------------------------------------------------
Revenues. . . . . . . . . . . . $ 945 $ 945 $ --
Less: Direct expenses . . . . . (1) -- (7)
Indirect expenses . . 60 1,111 1
----------- -------- --------------
Net income (loss) . . . . . . $ 886 $ (166) $ 6
=========== ======== ==============
Fund's share of net income (loss) $ 405 $ (68) $ 3 $ 340
=========== ======== ============== ======
TWA TWA
For the nine months ended . . . . . S/N 49183 MD-82 Spear
September 30, 2001. . . . . Trust1 Trust2 Partnership3 Total
- --------------------------------------------------------------------------------
Revenues. . . . . . . . . . . . . $ 1,162 $ 2,810 $ 710
Gain on disposition of equipment. -- -- 458
Less: Direct expenses . . . . . . 17 19 578
Indirect expenses . . . 1,418 1,522 280
----------- ------- -------------
Net income (loss) . . . . . . . $ (273) $ 1,269 $ 310
=========== ======= =============
Fund's share of net income (loss) . $ (115) $ 653 $ 234 $ 772
=========== ======= ============= ======
As of September 30, 2002 and December 31, 2001, all jointly-owned equipment in
the Fund's USPE portfolio was on lease.
1 The Fund owns a 50% interest of the TWA S/N 49183 Trust that owns an MD-82
stage III commercial aircraft.
2 The Fund owns a 50% interest in the TWA MD-82 Trust that owns an MD-82
stage III commercial aircraft.
3 The Fund owned a 50% interest in the Spear Partnership that owned a
container feeder vessel.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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
September 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
- ----------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 1,251 $ 757 $ 733 $ 239 $ 1,263 $ -- $ 4,243
Interest income and other. . . . . . . . 7 -- -- -- -- 98 105
Gain (loss) on disposition of equipment. -- -- (5) 13 141 -- 149
--------- ---------- --------- --------- ---------- --------- --------
Total revenues. . . . . . . . . . . . 1,258 757 728 252 1,404 98 4,497
--------- ---------- --------- --------- ---------- --------- --------
COSTS AND EXPENSES
Operations support . . . . . . . . . . . 1,324 7 190 219 14 15 1,769
Depreciation and amortization. . . . . . 370 -- 280 92 896 5 1,643
Interest expense . . . . . . . . . . . . -- -- -- -- -- 348 348
Management fees to affiliate . . . . . . 62 -- 49 13 64 -- 188
General and administrative expenses. . . 15 (37) 51 50 -- 497 576
Provision for (recovery of) bad debts. . -- 663 (5) -- -- -- 658
--------- ---------- --------- --------- ---------- --------- --------
Total costs and expenses . . . . . . 1,771 633 565 374 974 865 5,182
--------- ---------- --------- --------- ---------- --------- --------
Equity in net income of USPEs. . . . . . . 3 89 -- -- -- -- 92
--------- ---------- --------- --------- ---------- --------- --------
Net income (loss). . . . . . . . . . . . . $ (510) $ 213 $ 163 $ (122) $ 430 $ (767) $ (593)
========= ========== ========= ========= ========== ========= ========
Total assets as of September 30, 2002. . . $ 8,058 $ 3,543 $ 7,743 $ 1,950 $ 20,641 $ 23,167 $65,102
========= ========== ========= ========= ========== ========= ========
Marine Marine
For the three months ended Vessel Aircraft Railcar Trailer Container
September 30, 2001 Leasing Leasing Leasing Leasing Leasing Other 2 Total
- ----------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 1,741 $ 1,014 $ 849 $ 298 $ 1,239 $ -- $5,141
Interest income and other. . . . . . . . 41 -- -- -- -- 166 207
Gain (loss) on disposition of equipment. -- -- -- -- 4 -- 4
--------- ---------- -------- --------- ----------- --------- -------
Total revenues. . . . . . . . . . . . 1,782 1,014 849 298 1,243 166 5,352
--------- ---------- -------- --------- ----------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . . 910 10 153 128 19 16 1,236
Depreciation and amortization. . . . . . 444 386 323 100 1,081 4 2,338
Interest expense . . . . . . . . . . . . -- -- -- -- -- 416 416
Management fees to affiliate . . . . . . 87 51 56 15 62 -- 271
General and administrative expenses. . . 10 1 20 57 -- 169 257
Provision for (recovery of) bad debts. . -- -- 7 -- (8) -- (1)
--------- ---------- -------- --------- ----------- --------- -------
Total costs and expenses . . . . . . 1,451 448 559 300 1,154 605 4,517
--------- ---------- -------- --------- ----------- --------- -------
Equity in net loss of USPEs. . . . . . . . (57) (174) -- -- -- -- (231)
--------- ---------- -------- --------- ----------- --------- -------
Net income (loss). . . . . . . . . . . . . $ 274 $ 392 $ 290 $ (2) $ 89 $ (439) $ 604
========= ========== ======== ========= =========== ========= =======
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.
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 nine months ended Vessel Aircraft Railcar Trailer Container
September 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 2 Total
- ------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue . . . . . . . . . . . . $ 4,504 $ 2,273 $ 2,404 $ 897 $ 3,696 $ -- $13,774
Interest income and other . . . . . . 7 -- -- -- -- 287 294
Net gain on disposition of equipment. -- -- (4) 13 148 -- 157
--------- --------- --------- --------- ---------- --------- --------
Total revenues . . . . . . . . . . 4,511 2,273 2,400 910 3,844 287 14,225
--------- --------- --------- --------- ---------- --------- --------
COSTS AND EXPENSES
Operations support. . . . . . . . . . 3,792 20 511 529 43 47 4,942
Depreciation and amortization . . . . 1,110 -- 839 275 2,830 13 5,067
Interest expense. . . . . . . . . . . -- -- -- -- -- 1,044 1,044
Management fees to affiliate. . . . . 225 -- 159 46 186 -- 616
General and administrative expenses . 35 2 135 153 -- 1,006 1,331
Provision for bad debts . . . . . . . -- 2,178 5 23 -- -- 2,206
--------- --------- --------- --------- ---------- --------- --------
Total costs and expenses. . . . . 5,162 2,200 1,649 1,026 3,059 2,110 15,206
--------- --------- --------- --------- ---------- --------- --------
Equity in net income of USPEs . . . . . 3 337 -- -- -- -- 340
--------- --------- --------- --------- ---------- --------- --------
Net income (loss) . . . . . . . . . . . $ (648) $ 410 $ 751 $ (116) $ 785 $ (1,823) $ (641)
========= ========= ========= ========= ========== ========= ========
Marine Marine
For the nine months ended Vessel Aircraft Railcar Trailer Container
September 30, 2001 Leasing Leasing Leasing Leasing Leasing Other 2 Total
- ------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 3,740 $ 3,043 $ 2,524 $ 828 $ 4,038 $ -- $14,173
Interest income and other. . . . . . . 41 34 -- -- -- 547 622
Net gain on disposition of equipment . 963 -- 8 8 4 -- 983
-------- --------- --------- --------- ---------- --------- --------
Total revenues. . . . . . . . . . . 4,744 3,077 2,532 836 4,042 547 15,778
-------- --------- --------- --------- ---------- --------- --------
COSTS AND EXPENSES
Operations support . . . . . . . . . . 2,489 21 473 404 56 93 3,536
Depreciation and amortization. . . . . 1,332 1,543 968 301 3,496 13 7,653
Interest expense . . . . . . . . . . . -- -- -- -- -- 1,223 1,223
Management fees to affiliate . . . . . 187 152 168 42 202 -- 751
General and administrative expenses. . 45 19 51 141 -- 733 989
Provision for (recovery of) bad debts. -- -- (7) 3 -- -- (4)
-------- --------- --------- --------- ---------- --------- --------
Total costs and expenses . . . . . 4,053 1,735 1,653 891 3,754 2,062 14,148
-------- --------- --------- --------- ---------- --------- --------
Equity in net income of USPEs. . . . . . 234 538 -- -- -- -- 772
-------- --------- --------- --------- ---------- --------- --------
Net income (loss). . . . . . . . . . . . $ 925 $ 1,880 $ 879 $ (55) $ 288 $ (1,515) $ 2,402
======== ========= ========= ========= ========== ========= ========
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 nine months ended
September 30, 2002 and 2001 was 4,971,311 units.
10. Debt
----
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
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)
10. Debt (continued)
----
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 September 30, 2002, there were no outstanding borrowings on this facility
by any of the eligible borrowers.
12. Commitments and Contingencies
-------------------------------
In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned
subsidiary of FSI, arranged for the lease or purchase of a total of 1,050
pressurized tank railcars by (i) partnerships and managed programs in which FSI
serves as the general partner or manager and holds an ownership interest
(Program Affiliates) or (ii) partnerships or managed programs in which FSI
provides management services but does not hold an ownership interest or third
parties (Non-Program Affiliates). These railcars will be delivered over the
next three years. A leasing company affiliated with the manufacturer will
acquire approximately 70% of the railcars and lease them to a Non-Program
Affiliate. The remaining approximately 30% will either be purchased by other
third parties to be managed by PLMI, or by the Program Affiliates. An affiliate
of TEC will manage the leased and purchased railcars. Neither TEC nor its
affiliate will be liable for these railcars. TEC estimates that the total value
of purchased railcars will not exceed $26.0 million with one third of the
railcars being purchased in each of 2002, 2003, and 2004. Although the Manager
has neither determined which Program Affiliates will purchase the railcars nor
the timing of any purchases, it is possible the Fund may purchase some of the
railcars.
13. Accounting Pronouncements
--------------------------
In April 2002, the Financial Accounting Standards Board (FASB) adopted Statement
of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS
No. 145"). The provisions of SFAS No. 145 are effective for fiscal years
beginning after May 15, 2002. As permitted by the pronouncement, the Fund has
elected early adoption of SFAS No. 145 and, accordingly, if the Fund has a loss
on extinguishment of long-term debt, it will be reported as a loss in "Other
general and administrative expenses".
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled "Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment". The Fund has historically
accrued legally mandated maintenance such as marine vessel dry-docking and
aircraft engine maintenance over the periods prior to the required maintenance
date. If the SOP is adopted as proposed, the Fund would reverse all previously
accrued maintenance reserves. If this proposed change were in effect at
September 30, 2002, the Fund would have been required to reverse maintenance
reserves of approximately $2.7 million. Maintenance reserves will change during
the remainder of 2002 as maintenance is performed and past maintenance reserves
are depleted and additional reserves are recorded. If adopted in its present
form, charges related to this proposed change would be taken in the first
quarter of 2003 and would be reported as a cumulative effect of an accounting
change, in the statements of operations.
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 September 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 third 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, general and administrative expenses and provision for (recovery
of) bad debts 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 September 30,
2002 2001
===================
Marine containers $ 1,249 $ 1,220
Aircraft. . . . . 750 1,004
Railcars. . . . . 543 696
Trailers. . . . . 20 170
Marine vessel . . (73) 831
Marine containers: Marine container lease revenues and direct expenses were
$1.3 million and $14,000, respectively, for the third quarter of 2002, compared
to $1.2 million and $19,000, respectively, during the same quarter of 2001. The
increase in lease revenues of $24,000 during the third quarter of 2002 compared
to 2001 was due to higher utilization earned on the Fund's marine containers.
Aircraft: Aircraft lease revenues and direct expenses were $0.8 million and
$7,000, respectively, for the third quarter of 2002, compared to $1.0 million
and $10,000, respectively, during the same quarter of 2001. The decrease in
lease revenues of $0.3 million during the third quarter of 2002 compared to 2001
was due to disposition of an owned aircraft during 2001.
Railcars: Railcar lease revenues and direct expenses were $0.7 million and
$0.2 million, respectively, for the third quarter of 2002, compared to $0.8
million and $0.2 million, respectively, during the same quarter of 2001. The
decrease in railcar lease revenues of $0.1 million was due to the increase in
the number of railcars off-lease.
Trailers: Trailer lease revenues and direct expenses were $0.2 million and
$0.2 million, respectively, for the third quarter of 2002, compared to $0.3
million and $0.1 million, respectively, during the same quarter of 2001. Lease
revenues decreased $0.1 million in the third quarter of 2002 compared to the
same period in 2001 due to lower lease rates on the Fund's trailer fleet.
Direct expenses increased $0.1 million in the third quarter of 2002 compared to
2001 due to higher repair costs.
Marine vessel: Marine vessel lease revenues and direct expenses were $1.3
million and $1.3 million, respectively, for the third quarter of 2002, compared
to $1.7 million and $0.9 million, respectively, during the same quarter of 2001.
Lease revenue decreased $0.5 million in the third quarter of 2002 due to a lower
lease rate earned on this marine vessel. Direct operating expenses increased
$0.4 million during the third quarter of 2002 due to higher voyage expenses of
$0.2 million and higher fuel expense of $0.1 million.
(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 third quarter of 2002 compared to
the same period in 2001.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.4 million for the three months ended September 30,
2002 increased from $3.3 million for the same period in 2001. Significant
variances are explained as follows:
(i) A $0.7 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 third quarter of 2002 was primarily
related to one aircraft lessee;
(ii) A $0.3 million increase in general and administrative expenses
during the three months ended September 30, 2002 was due to an increase of $0.1
million resulting from higher professional costs and $0.2 million resulting from
higher administrative costs;
(iii) A $0.1 million decrease in interest expense was due to lower
average borrowings outstanding during the quarter ended September 30, 2002
compared to the same period in 2001; and
(iv) A $0.7 million decrease in depreciation expense from 2001 levels
reflects a decrease of $0.4 million resulting from certain assets becoming fully
depreciated during 2001 and a decrease of $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.
(D) Gain on Disposition of Owned Equipment
Gain on disposition of owned equipment for the third quarter of 2002 totaled
$0.1 million which resulted from the sale of marine containers and a railcar
with a net book value of $0.1 million for proceeds of $0.3 million. The gain on
disposition of owned equipment for the third quarter of 2001 totaled $4,000
which resulted from the sale of marine containers with a net book value of
$4,000, for proceeds of $8,000.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represents the Fund's share of the net
income or loss generated from the operation of jointly owned assets accounted
for under the equity method of accounting. These entities are single purpose
and have no debt or other financial encumbrances. The following table presents
equity in net income by equipment type (in thousands of dollars):
For the Three Months
Ended September 30,
2002 2001
=================
Aircraft. . . . . . . . . . . . . . . . . . $ 89 $ (174)
Marine vessel . . . . . . . . . . . . . . . 3 (57)
------- --------
Equity in net income (loss) of USPEs $ 92 $ (231)
======= ========
Aircraft: As of September 30, 2002 and 2001, the Fund owned interests in two
trusts that each owns a commercial aircraft. During the three months ended
September 30, 2002, the Fund's share of lease revenues of $0.3 million were
offset by the Fund's share of depreciation expense, direct expenses, and
administrative expenses of $0.2 million. During the same period of 2001, the
Fund's share of lease revenues of $0.3 million were offset by the Fund's share
of 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 one commercial aircraft in a trust becoming fully
depreciated during 2001 and $0.1 million decrease in depreciation expense on
another commercial aircraft 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 September 30, 2002 and 2001, the Fund no longer owned an
interest in an entity that owned a marine vessel. During the third quarter of
2001, no lease revenues were earned; however, this entity did incur direct
expenses and administrative expenses of which the Fund's share was $0.1 million.
(F) Net Income (Loss)
As a result of the foregoing, the Fund had a net loss of $0.6 million for the
three months ended September 30, 2002, compared to net income of $0.6 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 third
quarter of 2002 is not necessarily indicative of future periods. In the third
quarter of 2002, the Fund distributed $1.3 million to Class A members, or $0.25
per weighted-average Class A unit.
Comparison of the Fund's Operating Results for the Nine Months Ended September
- --------------------------------------------------------------------------------
30, 2002 and 2001
- --------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the nine
months ended September 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 Nine Months
Ended September 30,
2002 2001
=====================
Marine containers $ 3,653 $ 3,982
Aircraft. . . . . 2,253 3,022
Railcars. . . . . 1,893 2,051
Marine vessels. . 712 1,251
Trailers. . . . . 368 424
Marine containers: Marine container lease revenues and direct expenses were
$3.7 million and $43,000, respectively, for the nine months ended September 30,
2002, compared to $4.0 million and $0.1 million, respectively, during the same
period of 2001. The decrease in lease revenues of $0.3 million during the nine
months ended September 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 $2.3 million and
$20,000, respectively, for the nine months ended September 30, 2002, compared to
$3.0 million and $21,000, respectively, during the same period of 2001. The
decrease in lease revenues of $0.8 million during the nine months ended
September 30, 2002 compared to 2001 was due to the disposition of an owned
aircraft during 2001.
Railcars: Railcar lease revenues and direct expenses were $2.4 million and
$0.5 million, respectively, for the nine months ended September 30, 2002,
compared to $2.5 million and $0.5 million, respectively, during the same period
of 2001. The decrease in lease revenues of $0.1 million during the nine months
ended September 30, 2002 compared to the same period of 2001 was due to the
increase in the number of railcars off-lease.
Marine vessels: Marine vessel lease revenues and direct expenses were $4.5
million and $3.8 million, respectively, for the nine months ended September 30,
2002, compared to $3.7 million and $2.5 million, respectively, during the same
period of 2001. Lease revenue increased $0.8 million during the nine months
ended September 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 six of the nine months ended September 30, 2001, to a voyage
charter under which it operated during the nine months ended September 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 by a $1.3 million increase in operating expenses resulting from higher
costs for fuel of $0.7 million and higher port charges of $0.5 million.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and
$0.5 million, respectively, for the nine months ended September 30, 2002,
compared to $0.8 million and $0.4 million, respectively, during the same period
of 2001. Lease revenue increased $0.1 million in the nine months ended
September 30, 2002 compared to the same period in 2001 due to higher utilization
on the Fund's trailer fleet. Direct expenses increased $0.1 million in the nine
months ended September 30, 2002 compared to 2001 due to higher repair costs.
(B) Interest and Other Income
Interest and other income decreased $0.3 million due to a decrease in the
interest rate earned on cash balances in the nine months ended September 30,
2002 compared to the same period in 2001.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $10.3 million for the period ended September 30, 2002
decreased from $10.6 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $2.6 million decrease in depreciation expense from 2001 levels
reflects the decrease of $1.5 million resulting from certain assets becoming
fully depreciated during 2001 and a decrease of $1.1 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 $0.2 million decrease in interest expense was due to lower
average borrowings outstanding during the period ended September 30, 2002
compared to the same period in 2001; and
(iii) A $2.2 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 nine months ended
September 30, 2002 was primarily related to one aircraft lessee.
(iv) A $0.3 million increase in administrative expenses was due to
higher professional services.
(D) Gain on Disposition of Owned Equipment
Gain on disposition of owned equipment for the nine months ended September 30,
2002 totaled $0.2 million which resulted from the sale or disposition of marine
containers and a railcar with a net book value of $0.2 million for proceeds of
$0.3 million. The gain on disposition of owned equipment for the nine months
ended September 30, 2001 totaled $1.0 million which resulted from the sale of a
marine vessel, marine containers, 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 Nine Months
Ended September 30,
2002 2001
=================
Aircraft . . . . . . . . . . . . . . $ 337 $ 538
Marine vessel. . . . . . . . . . . . 3 234
------- -------
Equity in net income of USPEs $ 340 $ 772
======= =======
Aircraft: As of September 30, 2002 and 2001, the Fund owned interests in two
trusts that each owns a commercial aircraft. During the nine months ended
September 30, 2002, the Fund's share of lease revenues of $0.9 million were
offset by the Fund's share of depreciation expense, direct expenses, and
administrative expenses of $0.6 million. During the same period of 2001, the
Fund's share of lease revenues of $1.2 million and the Fund's share of other
income of $0.8 million were offset by the Fund's share of depreciation expense,
direct expenses, and administrative expenses of $1.4 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 $0.8 million was due to lower depreciation expense
of $0.6 million resulting from one commercial aircraft in a trust becoming fully
depreciated during 2001, and a $0.2 million decrease on another commercial
aircraft 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 September 30, 2002 and 2001, the Fund no longer owned an
interest in an entity that owned a marine vessel. During the nine months ended
September 30, 2001, the Fund's share of lease revenues of $0.4 million and the
Fund's share of the gain of $0.3 million from the sale of a marine vessel entity
in which the Fund owned an interest were offset by the Fund's share of
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 $0.6 million for the
nine months ended September 30, 2002, compared to net income of $2.4 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 nine
months ended September 30, 2002 is not necessarily indicative of future periods.
In the nine months ended September 30, 2002, the Fund distributed $3.7 million
to Class A members, or $0.75 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 nine months ended September 30, 2002, the Fund generated operating cash
of $5.1 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 $4.4 million for nine months
ended September 30, 2002) to the members.
During the nine months ended September 30, 2002, the Fund disposed of marine
containers and a railcar for proceeds of $0.3 million.
Restricted cash increased during the nine months ended September 30, 2002 due to
the deposit of $0.7 million into an escrow account related to collection efforts
from an aircraft lessee.
Accounts receivable decreased $0.1 million in the nine months ended September
30, 2002. This decrease was due to increase in the allowance for bad debts of
$2.2 million due to the Manager's evaluation of the collectibility of accounts
receivable. This decrease was partially offset by an increase of $2.1 million
during the nine months ended September 30, 2002 due to the timing of cash
receipts.
Investments in USPEs decreased $0.5 million during the nine months ended
September 30, 2002 due to cash distributions of $0.9 million from the USPEs to
the Fund being partially offset by income of $0.3 million that was recorded by
the Fund for its equity interests in the USPEs.
Accounts payable increased $0.7 million during the nine months ended September
30, 2002 due to the timing of cash payments to vendors and lenders.
Lessee deposits and reserve for repairs increased $0.2 million during the nine
months ended September 30, 2002 due to the accrual of marine vessel dry-docking
reserves.
Cash distributions of $0.8 million related to the results from the third quarter
of 2002 will be paid during the fourth quarter of 2002.
The Fund is scheduled to make an annual debt payment of $3.0 million to the
lenders of the notes payable on December 31, 2002. The cash for this payment
will come from operations and proceeds from equipment dispositions.
In July 2002, PLM International Inc. (PLMI) 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 November 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.
In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned
subsidiary of FSI, arranged for the lease or purchase of a total of 1,050
pressurized tank railcars by (i) partnerships and managed programs in which FSI
serves as the general partner or manager and holds an ownership interest
(Program Affiliates) or (ii) partnerships or managed programs in which FSI
provides management services but does not hold an ownership interest or third
parties (Non-Program Affiliates). These railcars will be delivered over the
next three years. A leasing company affiliated with the manufacturer will
acquire approximately 70% of the railcars and lease them to a Non-Program
Affiliate. The remaining approximately 30% will either be purchased by other
third parties to be managed by PLMI, or by the Program Affiliates. An affiliate
of TEC will manage the leased and purchased railcars. Neither TEC nor its
affiliate will be liable for these railcars. TEC estimates that the total value
of purchased railcars will not exceed $26.0 million with one third of the
railcars being purchased in each of 2002, 2003, and 2004. Although the Manager
has neither determined which Program Affiliates will purchase the railcars nor
the timing of any purchases, it is possible the Fund may purchase some of the
railcars.
(IV) ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (FASB) adopted Statement
of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS
No. 145"). The provisions of SFAS No. 145 are effective for fiscal years
beginning after May 15, 2002. As permitted by the pronouncement, the Fund has
elected early adoption of SFAS No. 145 and, accordingly, if the Fund had a loss
on extinguishment of long-term debt, it would have been reported the loss in
"Other general and administrative expenses" as an extraordinary item in its
statements of operations.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled "Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment". The Fund has historically
accrued legally mandated maintenance such as marine vessel dry-docking and
aircraft engine maintenance over the periods prior to the required maintenance
date. If the SOP is adopted as proposed, the Fund would reverse all previously
accrued maintenance reserves. If this proposed change were in effect at
September 30, 2002, the Fund would have been required to reverse maintenance
reserves of approximately $2.7 million. Maintenance reserves will change during
the remainder of 2002 as maintenance is performed and past maintenance reserves
are depleted and additional reserves are recorded. If adopted in its present
form, charges related to this proposed change would be taken in the first
quarter of 2003 and would be reported as a cumulative effect of an accounting
change, in the statements of operations.
(V) 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 has been at historic lows for the past
several years, which has caused downward pressure on per diem lease rates for
this type of equipment. Starting in 2003 and continuing through 2005, a
significant number of the Fund's marine containers currently on a fixed rate
lease will be switching to a lease based on utilization. The Manager
anticipates that this will result in a significant decrease in lease revenues;
(2) Railcar freight loadings in the United States and Canada decreased 1%
and 3%, respectively, through the first nine months of 2002. There has been,
however, a recent increase for some of the commodities that drive demand for
those types of railcars owned by the Fund. It will be some time, however,
before this translates into new leasing demand by shippers since most shippers
have idle railcars in their fleets;
(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
nine months of 2002. This trend is expected to continue during the remainder of
2002 or until international economies stabilize and begin to improve;
(4) Utilization of intermodal trailers owned by the Fund decreased 15% in
the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001. This decline was similar to the decline in industry wide
utilization. As the Fund's trailers are smaller than many shippers prefer, the
Manager expects continued declines in utilization over the next few years.
Additionally, one of the major shippers that leased the Fund's trailers has
entered bankruptcy. While the Fund did not have any outstanding receivables
from the company, its bankruptcy may cause a further decline in performance of
the trailer fleet in the future; and
(5) The airline industry began to see lower passenger travel during 2001.
The events of September 11, 2001, along with a recession in the United States
have continued to adversely affect the market demand for both new and used
commercial aircraft and to significantly weaken the financial position of most
major domestic airlines. As a result of this, 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. The Manager believes that there
is a significant oversupply of commercial aircraft available and that this
oversupply will continue for some time.
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 to
return to their September 11, 2001 values.
During 2001, the lessee of three Stage II Boeing 737-200 commercial aircraft
notified the Manager of its intention to return this aircraft. The lessee is
located in Brazil, a country experiencing severe economic difficultly. As of
September 30, 2002, the lessee was thirteen lease payments in arrears 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 the aircraft. The
Manager recorded an allowance for bad debts for the amount due less the security
deposit. During October 2002, the Manager reached an agreement with the lessee
of this aircraft for the past due lease payments and agreed to re-lease two of
these aircraft to this lessee until March 2003 at a lower lease rate. In order
to give the lessee an incentive to make timely payments in accordance with the
agreement, the Manager gave the lessee a discount on the total amount due. If
the lessee fails to comply with the payment schedule in the agreement, the
discount provision will be waived and the full amount again becomes payable.
The lessee made an initial payment during October 2002, to be followed by 23
equal monthly installments beginning in November 2002. Unpaid outstanding
amounts will accrue interest at a rate of 5%. Due to the uncertainty of
ultimate collection, the Manager will continue to fully reserve the unpaid
outstanding balance from this lessee.
(6) The Manager has seen an increase in its insurance premiums on its
equipment portfolio and is finding it more difficult to find an insurance
carrier with which to place the coverage. Premiums for aircraft have increased
over 50% and for other types of equipment the increases have been over 25%. The
increase in insurance premiums caused by the increased rate will be partially
mitigated by the reduction in the value of the Fund's equipment portfolio caused
by the events of September 11, 2001 and other economic factors. The Manager has
also experienced an increase in the deductible required to obtain coverage.
This may have a negative impact on the Fund in the event of an insurance claim.
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 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,
generated prior to January 1, 2003 into additional equipment. The Manager
believes these acquisitions may cause the Fund to generate additional earnings
and cash flow for the Fund.
Cash flow and disposition proceeds generated from operations after January 1,
2003 cannot be used to purchase additional equipment. The Fund will terminate
on December 31, 2010, unless terminated earlier upon sale of all equipment and
by certain other events.
(VI) 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 nine months ended September 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.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
Within the 90-day period prior to the filing of this report, evaluations were
carried out under the supervision and with the participation of the Manager's
management, including its President and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon those evaluations, the President and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes have been made in the Fund's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluations.
(This space intentionally left blank)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
1. October 2002 purchase agreement between PLM Transportation Equipment
Corp., Inc. and Trinity Tank Car, Inc.
2. Settlement Agreement between PLM Worldwide Leasing Corp. and Varig S.A.
dated October 11, 2002.
(b) Reports on Form 8-K
----------------------
None.
(This space intentionally left blank)
- ------
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Professional Lease
Management Income Fund I, L.L.C.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
- ------
CONTROL CERTIFICATION
- ----------------------
I, Richard K Brock, certify that:
5. I have reviewed this quarterly report on Form 10-Q of Professional Lease
Management Income Fund I, L.L.C.
6. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
7. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
8. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
e) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
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: November 13, 2002 By: /s/ Richard K Brock ___________
----------------------
Richard K Brock
Chief Financial 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 September 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: November 13, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
Date: November 13, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer