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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28376
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PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3209289
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MARKET, STEUART STREET TOWER
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 974-1399
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Aggregate market value of voting stock: N/A
An index of exhibits filed with this Form 10-K is located at page 26.
Total number of pages in this report: 54.
PART I
ITEM 1. BUSINESS
(A) Background
In August 1994, PLM Financial Services, Inc. (FSI or the Manager), a
wholly-owned subsidiary of PLM International, Inc. (PLMI International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 5,000,000 Class A units (the
units) in Professional Lease Management Income Fund I, L.L.C. (Fund), a Delaware
Limited Liability Company (the Fund). The Fund's offering became effective on
January 23, 1995. The Fund engages in the business of investing in a diversified
equipment portfolio consisting primarily of used, long-lived, low-obsolescence
capital equipment that is easily transportable by and among prospective users.
The Fund's primary objectives are:
(1) to invest in a diversified portfolio of low-obsolescence equipment
having long lives and high residual values, at prices that the Manager believes
to be below inherent values, and to place the equipment on lease or under other
contractual arrangements with creditworthy lessees and operators of equipment.
All transactions over $1.0 million must be approved by the PLMI Credit Review
Committee (the Committee), which is made up of members of PLMI's senior
management. In determining a lessee's creditworthiness, the Committee will
consider, among other factors, the lessee's financial statements, internal and
external credit ratings, and letters of credit.
(2) to generate cash distributions, which may be substantially tax-deferred
(i.e., distributions that are not subject to current taxation) during the early
years of the Fund.
(3) to create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions.
(4) to increase the Fund's revenue base by reinvesting a portion of its
operating cash flow in additional equipment during the first six years of the
Fund's operation in order to grow the size of its portfolio. Since net income
and distributions are affected by a variety of factors, including purchase
prices, lease rates, and costs and expenses, growth in the size of the Fund's
portfolio does not necessarily mean that the Fund's aggregate net income and
distributions will increase upon the reinvestment of operating cash flow.
The offering of units of the Fund closed on May 13, 1996. As of December 31,
1999, there were 4,975,321 units outstanding. The Manager contributed $100 for
its Class B Member interest in the Fund. The Manager paid out of its own
corporate funds (as a capital contribution to the Fund) all organization and
syndication expenses incurred in connection with the offering; therefore, 100%
of the net cash proceeds received by the Fund from the sale of Class A Units
were used to purchase equipment and establish any required cash reserves.
Beginning in the Fund's seventh year of operation, which commences January 1,
2003, the Manager will stop reinvesting cash flow and surplus funds, if any,
less reasonable reserves, which will be distributed to the partners. Between the
eighth and tenth years of operations, the Manager intends to begin its
dissolution and liquidation of the Fund in an orderly fashion, unless the Fund
is terminated earlier upon sale of all of the equipment or by certain other
events. However, under certain circumstances, the term of the Fund may be
extended, although in no event will the Fund extend beyond December 31, 2010.
Table 1, below, lists the equipment and the original cost of equipment in the
Fund's portfolio, and the original cost of investments in unconsolidated
special-purpose entities, as of December 31, 1999 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- ------------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
2 Anchor handling supply marine
vessels Moss Point $ 17,700
1 Oil tanker marine vessel Hyundai 17,000
1 Bulk carrier marine vessel Hitachi Shipbuilding & Engineering Co. 12,256
4 737-200A stage II commercial
aircraft Boeing 20,605
350 Pressurized tank railcars Various 9,294
100 Covered hopper railcars Various 5,444
246 Box railcars Various 4,972
152 Foodservice refrigerated trailers Various 7,020
443 Piggyback trailers Various 6,666
99 Dry trailers Various 1,676
29 Refrigerated trailers Various 834
4,430 Marine containers Various 9,942
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Total owned equipment held for operating leases $ 113,4091
===================
Investments in unconsolidated special-purpose entities:
0.50 Trust owning an MD-82
stage III commercial aircraft McDonnell Douglas $ 7,7752
0.50 Trust owning an MD-82
stage III commercial aircraft McDonnell Douglas 6,8252
0.50 Container cargo feeder marine
vessel O. C. Staalskibsvaerft A/F 3,8362
-------------------
Total investments in unconsolidated special-purpose entities $ 18,4361
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1 Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and fund borrowings.
Includes costs capitalized subsequent to the date of purchase.
2 Jointly owned by the Fund and an affiliated program.
The equipment is generally leased under operating leases for a term of one to
six years.
As of December 31, 1999, approximately 39% of the Fund's trailer equipment was
in rental facilities operated by PLM Rental, Inc., an affiliate of the Manager,
doing business as PLM Trailer Leasing. Rents are reported as revenue in
accordance with Financial Accounting Standards Board Statement No. 13
"Accounting for Leases". Direct expenses associated with the equipment are
charged directly to the Fund. An allocation of other indirect expenses of the
rental yard operations is charged to the Fund monthly.
The lessees of the equipment include, but are not limited to: Norfolk Southern,
Varig South America, Trans World Airlines, Capital Lease, LTD., and Burlington
Northern Rail.
(B) Management of Fund Equipment
The Fund has entered into an equipment management agreement with PLM Investment
Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the management of
the Fund's equipment. The Fund's management agreement with IMI is to
co-terminate with the dissolution of the Fund unless the Class A members vote to
terminate the agreement prior to that date, or at the discretion of the Manager.
IMI has agreed to perform all services necessary to manage the equipment on
behalf of the Fund and to perform or contract for the performance of all
obligations of the lessor under the Fund's leases. In consideration for its
services and pursuant to the Operating Agreement, IMI is entitled to a monthly
management fee. (See Notes 1 and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned by or invested in the Fund is leased out on an
operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Fund's purchase
price of the equipment. The short to mid-term nature of operating leases
generally command a higher rental rate than longer-term, full payout leases and
offers lessees relative flexibility in their equipment commitment. In addition,
the rental obligation under an operating lease need not be capitalized on the
lessee's balance sheet.
The Fund encounters considerable competition from lessors that utilize full
payout leases on new equipment, i.e. leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the Fund
offers, or larger competitors with a lower cost of capital may offer operating
leases at lower rates, which may put the Fund at a competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Fund competes with equipment manufacturers who offer operating leases and
full payout leases. Manufacturers may provide ancillary services that the Fund
cannot offer, such as specialized maintenance service (including possible
substitution of equipment), training, warranty services, and trade-in
privileges.
The Fund also competes with many equipment lessors, including ACF Industries,
Inc. (Shippers Car Line Division), GATX Corporation, General Electric Railcar
Services Corporation, General Electric Capital Aviation Services Corporation,
Xtra Corporation, and other investment programs that lease the same types of
equipment.
(D) Demand
The Fund currently operates in the following operating segments: marine vessel
leasing, commercial aircraft leasing, railcar leasing, trailer leasing, and
marine containers leasing. Each equipment leasing segment engages in short-term
to mid-term operating leases to a variety of customers. Except for those
aircraft leased to passenger air carriers, the Fund's equipment and investments
are used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Fund's capital equipment operates:
(1) Marine Vessels
The Fund owns or has investments in small to medium-sized dry bulk vessels, oil
tankers, and container vessels, all of which operate in international markets
carrying a variety of commodity-type cargoes. Demand for commodity-based
shipping is closely tied to worldwide economic growth patterns, which can affect
demand by causing changes in volume on trade routes. The Manager operates
several of the Fund's vessels through spot and period charters, an approach that
provides the flexibility to adapt to changes in market conditions. The Fund also
owns anchor-handling supply vessels that operate through bareboat charters.
(a) Anchor Handling Supply Vessels
The Fund owns two United States (US)-flagged anchor-handling supply vessels used
to support rig drilling operations in the US Gulf of Mexico. Although this type
of vessel can be used in other regions, the US Gulf of Mexico is the more
desirable market due to US maritime law which stipulates that only US-flagged
vessels be used in this region.
Demand for anchor-handling vessels depends primarily on the demand for floating
drilling services by oil companies. During 1999, demand for such services
remained at 1997-1998 levels, however several higher-capacity vessels were
delivered during 1998-1999, resulting in lower utilization and lease rates for
marine vessels the size owned by the Fund.
The 1999 recovery in oil prices has led forecasters to expect an increase in
drilling activity for 2000, as rising oil prices improve the economics of
offshore oil and gas development. Oil companies are expected to increase their
drilling programs during 2000, although it is uncertain by how much. Increases
in capacity brought about by new building may delay a return to the higher
utilization and lease rate levels experienced during prior to 1997.
(b) Oil Tanker Vessel
The Fund owns a small to medium-size oil tanker that operates in international
markets carrying crude oil cargoes. Demand for crude oil shipping closely
follows worldwide economic growth patterns, which can alter demand by causing
changes in volumes on trade routes. The Manager operates the Fund's vessel
through spot and period charters, an approach that provides the flexibility to
adapt to changes in market conditions.
During 1999, oil tanker markets experienced declines in charter rates and vessel
values brought about by volatile oil and oil product prices, relatively low
growth in trade volumes, and high rates of new product tanker deliveries. Daily
charter rates for standard-size oil tankers were 21% lower than in 1998 and 39%
lower than in 1997. This decline was primarily due to a deterioration in oil
products trade in European markets.
Since crude oil is the source feedstock for oil products, the products trade is
closely tied to crude oil prices. Although 1999 was a year of rising oil prices,
volatility in trading appeared to depress actual shipping volumes, particularly
in Europe. Although product imports to the United States and Japan increased
such that the entire worldwide market grew by 2.7% during 1999, due to the
lingering effects of the Asian recession, shipping volumes ended the year below
the levels of 1996-1997.
Measured by deadweight tons, the oil tanker fleet grew by only 3.2% during 1999,
as overall supply was significantly moderated by a 150% increase in scrapping
levels as compared to 1998. For 2000, the oil tanker fleet is expected to expand
by a 6.5% rise in new deliveries. This increase is due to the continuing effects
of high order levels from the mid-1990s, which was driven by growth in Asian
trade and the anticipated effects of the US Oil Pollution Act of 1990. Under
this Act, tankers over 25 years old are restricted from trading to the United
States if they do not have double bottoms and/or double hulls (similar, though
somewhat less stringent restrictions are in place within developing nations).
These regulations have the effect of inducing the retirement of older vessels
that would otherwise continue trading.
The combined effects of regulatory restrictions and low charter rates are
expected to keep scrappings at relatively high levels throughout 2000. However,
an anticipated high rate of new tanker deliveries will prevent much improvement
in rates and ship values during 2000. Should high scrapping levels continue
beyond then, this could offset increases in new deliveries and prevent further
significant declines in freight rates and ship values.
(c) Bulk Carrier Vessels
Dry bulk shipping is a cyclical business that induces capital investment during
periods of high freight rates and leads to a contraction in investment during
periods of low rates. Currently, the industry environment is one of slow growth.
Fleet size is relatively stable, the overall bulk carrier fleet grew by less
than 1%, as measured by deadweight tons, and the total number of ships shrank
slightly in 1999.
Freight rates, after declining in 1998 due, in part, to the Asian recession,
improved for dry bulk vessels of all sizes during 1999. Freight rates increased
during the year such that by the end of 1999, they had reverted back to 1997
levels, although these levels are still moderate by historical comparison. The
1999 improvement was driven by increases in US grain exports as well as stronger
trade in iron ore and steel products.
Total dry bulk trade, as measured in deadweight tons, is estimated to have grown
by approximately 2% during 1999, compared to a flat year in 1998. Forecasts for
2000 indicate that bulk trade should continue to grow, albeit at slow rates.
During 1999, ship values reversed the declines of the prior year, ending as much
as 30% above the levels seen at the beginning of the year for certain vessel
types. This upturn in ship values was due to a general improvement in dry bulk
trade as well as increases in the cost of new building as compared to 1998. A
slow but steady rise in trade volumes, combined with low fleet expansion, both
of which are anticipated to continue in 2000, may provide some basis for
increases in freight rates and ship values in the future. For example, it is
believed that should growth in demand return to historic levels of 3% annually,
this could stimulate increases in freight rates and ship values, and ultimately,
induce further investment in new building.
(d) Container Feeder Vessels
Container vessels are used to transport cargo that is shipped in containers.
When these vessels move containers from small outlying ports to main
transportation hubs serviced by regularly scheduled ocean liners, they are
called container feeder vessels.
Container vessels typically carry up to approximately 1,000 20-foot equivalent
unit (TEU) containers. For the past several years, this trade has been
characterized by growth in both supply and demand, however in 1998, these
patterns changed as worldwide container shipments dropped by about 1%. In 1999,
this sector resumed growth due to some stabilization of the Asian economies. In
the future, containerized shipping is expected to continue to grow somewhat
faster than world trade, as more types of cargo are introduced to
containerization and larger-sized vessels reduce the cost of main-line container
shipments.
After beginning 1999 at low levels, container vessel freight rates staged a
recovery late in the first quarter due to increased shipment volumes. Throughout
1999, vessels carrying over 1,000 TEU containers experienced significant rate
improvement, however, such improvement was limited for smaller feeder vessels
such as those owned by the Fund. New building of feeder vessels is not expected
to undermine any potential for rate improvement, as only 6.1% of the existing
fleet was on order as of the end of 1999.
(2) Commercial Aircraft
After experiencing relatively robust growth over the prior four years, demand
for commercial aircraft softened somewhat in 1999. Boeing and Airbus, the two
primary manufacturers of new commercial aircraft, saw a decrease in their volume
of orders, which totaled 368 and 417 during 1999, compared to 656 and 556 in
1998. The slowdown in aircraft orders can be partially attributed to the full
implementation of US Stage III environmental restrictions, which became fully
effective on December 31, 1999. Since these restrictions effectively prohibit
the operation of noncompliant aircraft in the United States after 1999, carriers
operating within or into the United States either replaced or modified all of
their noncompliant aircraft before the end of the year. The continued weakness
of the Asian economy has also served to slow the volume of new aircraft orders.
However, with the Asian economy now showing signs of recovery, air carriers in
this region are beginning to resume their fleet building efforts.
Demand for, and values of, used commercial aircraft have been adversely affected
by the Stage III environmental restrictions and an oversupply of older aircraft
as manufacturers delivered more new aircraft than the overall market required.
Boeing predicts that the worldwide fleet of jet-powered commercial aircraft will
increase from approximately 12,600 airplanes as of the end of 1998 to about
13,700 aircraft by the end of 2003, an average increase of 220 units per year.
However, actual deliveries for the first two years of this period, 1998 and
1999, already averaged 839 units annually. Although some of the resultant
surplus used aircraft have been retired, the net effect has been an overall
increase in the number of used aircraft available. This has resulted in a
decrease in both market prices and lease rates for used aircraft. Weakness in
the used commercial aircraft market may be mitigated in the future as
manufacturers bring their new production more in line with demand and given the
anticipated continued growth in air traffic. Worldwide, demand for air passenger
services is expected to increase at about 5% annually and freight services at
about 6% per year, for the foreseeable future.
This fund owns 50% of two Stage III-compliant aircraft and 100% of four Stage II
aircraft, the latter of which are operating outside of the United States and
thus are not subject to Stage III environmental restrictions. All of these
aircraft remained on lease during 1999 and were not impacted by the changes in
market conditions described above.
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport primarily liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). The major US markets for
natural gas are industrial applications (40% of estimated demand in 1998),
residential use (21%), electrical generation (15%), and commercial applications
(14%). Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, the status of government farm subsidy
programs, amount of farming acreage and mix of crops planted, weather patterns,
farming practices, and the value of the US dollar. Population growth and dietary
trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals increased 2.5% in 1999, compared to 1998.
Correspondingly, demand for pressurized tank cars remained solid during 1999,
with utilization of this type of railcar within the Fund remaining above 98%.
While renewals of existing leases continue at similar rates, some cars have been
renewed for "winter only" terms of approximately six months. As a result, it is
anticipated that there will be more pressurized tank cars than usual coming up
for renewal in the spring.
(b) Covered Hopper (Grain) Railcars
Demand for covered hopper cars, which are specifically designed to service the
agricultural industry, continued to experience weakness during 1999. The US
agribusiness industry serves a domestic market that is relatively mature, the
future growth of which is expected to be consistent but modest. Most domestic
grain rail traffic moves to food processors, poultry breeders, and feed lots.
The more volatile export business, which accounts for approximately 30% of total
grain shipments, serves emerging and developing nations. In these countries,
demand for protein-rich foods is growing more rapidly than in the United States,
due to higher population growth, a rapid pace of industrialization, and rising
disposable income.
Within the United States, 1999 carloadings of agricultural products increased
4.3%, while Canadian carloadings of these products fell 3.4%, resulting in an
overall increase within North America of only 2.8% compared to 1998. Since the
combined North American shipments for 1998 had decreased 7.7% over the previous
year, the 1999 volume, while representing a slight increase, is still below 1997
levels. Another factor contributing to softness in the covered hopper car market
has been the large number of new cars built in the last few years. Production of
new railcars of all types is estimated to have reached 57,685 cars during 1999,
with covered hopper cars representing 19,845, or one-third, of this total. For
those covered hopper cars whose leases expired in 1999, both industry-wide and
within the Fund, the combination of a lack of strong demand and an excess supply
of cars resulted in many of these expiring leases being renewed at considerably
lower rates.
(c) Box Railcars
Boxcars are used primarily to transport paper and paper products. Carloadings of
forest products decreased 2.0% in the United States and rose 4.3% in Canada
during 1999, compared to 1998. However, during 1999, prospects for the forest
products industry showed signs of improvement, largely due to macroeconomic
factors, such as the beginning of an economic recovery in Asia, some weakening
of the US dollar, and a continued strong domestic economy. The outlook has also
improved due to industry-specific factors, most notably a major slowdown in
capacity additions.
The Fund's boxcars continued to operate on long-term leases during 1999.
(4) Trailers
(a) Foodservice Refrigerated Trailers
Sales within the foodservice distribution industry, which represents the
wholesale supply of food and related products to restaurants, grocers,
hospitals, schools, and other purveyors of prepared food, have grown at a 4.1%
annual rate over the past five years. Foodservice distribution sales within the
United States are estimated to have reached over $150 billion during 1999 and
are expected to surpass $180 billion by 2005.
This growth is being driven by changes in consumer demographics and lifestyles,
as more and more consumers demand fresher, more convenient food products.
Increased service demands by consumers coupled with heightened fears over food
safety have accelerated the development of new technology for refrigerated
trailers and have caused foodservice distributors to seek to upgrade their
fleets by either purchasing or leasing newer, more technologically advanced
trailers. More foodservice distributors are considering leasing trailers due to
the lower capital outlays and quicker access to better equipment that this
option offers, particularly in view of the current six- to twelve-month backlog
on new trailer orders.
(b) Intermodal (Piggyback) Trailers
Intermodal trailers are used to transport a variety of goods either by truck or
by rail. Over the past decade, intermodal trailers have been gradually displaced
by domestic containers as the preferred method of transport for such goods.
During 1999, demand for intermodal trailers was more volatile than usual . Slow
demand occurred over the first half of the year due to customer concerns over
rail service problems associated with mergers in the rail industry, however,
demand picked up significantly over the second half of the year due to both a
resolution of these service problems and the continued strength of the US
economy. Due to rise in demand which occurred over the latter half of 1999,
overall, activity within the intermodal trailer market declined less than
expected for the year, as total intermodal trailer shipments decreased by only
approximately 1.8% compared to the prior year. Average utilization of the entire
intermodal fleet rose from 73% in 1998 to 77% in 1999, primarily due to demand
exceeding available supply of intermodal trailers during the second part of the
year.
The Manager stepped up its marketing and asset management program for the Fund's
intermodal trailers during 1999.
Although the trend towards using domestic containers instead of intermodal
trailers is expected to continue in the future, overall intermodal trailer
shipments are forecast to decline by only 2% to 3% in 2000, compared to the
prior year, due to the anticipated continued strength of the overall economy. As
such, the nationwide supply of intermodal trailers is expected to remain
essentially in balance with demand for 2000. For the Fund's intermodal fleet,
the Manager will continue to seek to expand its customer base while minimizing
trailer downtime at repair shops and terminals.
(c) Refrigerated Trailers
The temperature-controlled over-the-road trailer market continued to expand
during 1999, although not as quickly as in 1998 when the market experienced very
strong growth. The leveling off in 1999 occurred as equipment users began to
absorb the increases in supply created over the prior two years. Refrigerated
trailer users have been actively retiring their older units and consolidating
their fleets in response to improved refrigerated trailer technology.
Concurrently, there is a backlog of six to nine months on orders for new
equipment.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies and shippers will utilize short-term trailer
leases more frequently to supplement their existing fleets. Such a trend should
benefit the Fund, whose trailers are typically leased on a short-term basis.
(d) Dry Trailers
The U.S. dry trailer market remained strong during 1999, as the strong domestic
economy resulted in heavy freight volumes. With unemployment low, consumer
confidence high, and industrial production sound, the outlook for leasing this
type of trailer remains positive, particularly as the equipment surpluses of
recent years are being absorbed by the buoyant market. In addition to high
freight volumes, improvements in inventory turnover and tighter turnaround times
have lead to a stronger overall trucking industry and increased equipment
demand.
(5) Marine Containers
The marine container leasing market started 1999 with industry-wide utilization
rates in the mid 70% range, down somewhat from the beginning of 1998. The market
strengthened throughout the year such that most container leasing companies
reported utilization of 80% by the end of 1999. Offsetting this favorable trend
was a continuation of historically low acquisition prices for new containers
acquired in the Far East, predominantly China. These low prices put pressure on
fleetwide per diem leasing rates.
The Fund took advantage of attractive purchase prices by acquiring several
groups of containers during the year. It is the Manager's belief that acquiring
containers at these historically low prices will yield strong long-terms results
for the Fund.
Industry consolidation continued in 1999 as the parent of one of the world's top
ten container lessors finalized the outsourcing of the management of its
container fleet to a competitor. However, the Manager believes that such
consolidation is a positive trend for the overall container leasing industry,
and ultimately will lead to higher industry-wide utilization and increased per
diem rates.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local and/or foreign governmental authorities. Such regulations may
impose restrictions and financial burdens on the Fund's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Fund's equipment portfolio are either
registered or operated internationally. Such equipment may be subject to adverse
political, governmental, or legal actions, including the risk of expropriation
or loss arising from hostilities. Certain of the Fund's equipment is subject to
extensive safety and operating regulations, which may require its removal from
service or extensive modification of such equipment to meet these regulations,
at considerable cost to the Fund.
Such regulations include but are not limited to:
(1) the U.S. Oil Pollution Act of 1990, which established liability for
operators and owners of vessels that create environmental pollution. This
regulation has resulted in higher oil pollution liability insurance. The
lessee of the equipment typically reimburses the Fund for these additional
costs.
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that do not meet certain noise, aging, and corrosion
criteria. In addition, under U.S. Federal Aviation Regulations, after
December 31, 1999, no person may operate an aircraft to or from any airport
in the contiguous United States unless that aircraft has been shown to
comply with Stage III noise levels. The Fund has Stage II aircraft that do
not meet Stage III requirements. The cost to install a hush kit to meet
quieter Stage III requirements is approximately $2.0 million, depending on
the type of aircraft. The Fund's aircraft will remain with the current
lessee, which operates in a country that does not require this regulation.
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the United States Clean Air Act Amendments of 1990, which call for the
control and eventual replacement of substances that have been found to
cause or contribute significantly to harmful effects on the stratospheric
ozone layer and that are used extensively as refrigerants in refrigerated
trailers.
(4) the Federal Railroad Administration has mandated that effective July 1,
2000, all jacketed and non-jacketed tank railcars must be re-qualified to
insure tank shell integrity. Tank shell thickness, weld seams, and weld
attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not
including any necessary repairs. This inspection is to be performed at the
next scheduled tank test.
As of December 31, 1999, the Fund was in compliance with the above governmental
regulations. Typically, costs related to extensive equipment modifications to
meet government regulations are passed on to the lessee of that equipment.
ITEM 2. PROPERTIES
The Fund neither owns nor leases any properties other than the equipment it has
purchased or interests in entities which own equipment for leasing purposes. As
of December 31, 1999, the Fund owned a portfolio of transportation and related
equipment and investments in equipment owned by unconsolidated special-purpose
entities (USPEs), as described in Item I, Table 1. The Fund acquired equipment
with the proceeds of the Fund offering of $100.0 million, proceeds of debt
financing of $25.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Fund maintains its principal office at One Market, Steuart Street Tower,
Suite 800, San Francisco, California 94105-1301. All office facilities are
provided by FSI without reimbursement by the Fund.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Fund's members during the fourth
quarter of its fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE FUND'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the operating agreement, the Manager is generally
entitled to a 1% interest in the profits and losses and 15% of cash
distributions. The Manager will be specially allocated (i) 100% of the Fund's
organizational and offering cost amortization expenses and (ii) income equal to
the excess of cash distribution over the Manager`s 1% share of net profits. The
effect on the Class A members of this special income allocation will be to
increase the net loss or decrease the net profits allocable to the Class A
members by an equal amount. After the investors receive cash distributions equal
to their original capital contributions the Manager's interest in the cash
distributions of the Fund will increase to 25%. The Manager is the sole holder
of such interests. The remaining interests in the profits and losses and
distributions of the Fund are owned as of December 31, 1999, by the 4,986
holders of Units in the Fund.
There are several secondary markets in which Class A units trade. Secondary
markets are characterized as having few buyers for limited partnership interests
and, therefore, are generally viewed as inefficient vehicles for the sale of
units. Presently, there is no public market for the units and none is likely to
develop. To prevent the units from being considered publicly traded and thereby
to avoid taxation of the Fund as an association treated as a corporation under
the Internal Revenue Code, the units will not be transferable without the
consent of the Manager, which may be withheld in its absolute discretion. The
Manager intends to monitor transfers of units in an effort to ensure that they
do not exceed the percentage or number permitted by certain safe harbors
promulgated by the Internal Revenue Service. A transfer may be prohibited if the
intended transferee is not an U.S. citizen or if the transfer would cause any
portion of the units of a "Qualified Plan" as defined by the Employee Retirement
Income Security Act of 1974 and Individual Retirement Accounts to exceed the
allowable limit. The Fund may redeem a certain number of units each year under
the terms of the Fund's operating agreement. The purchase price paid by the Fund
for outstanding Class A Units upon redemption will be equal to 105% of the
amount Class A Members paid for the Class A Units, less the amount of cash
distributions Class A Members have received relating to such Class A Units. The
price may not bear any relationship to the fair market value of a Class A Unit.
As of December 31, 1999, the Fund had agreed to purchase approximately 4,000
units for an aggregate price of approximately $49,000. The Manager anticipates
that these units will be purchased in the first and second quarters of 2000. As
of December 31, 1999, the Fund has purchased a cumulative total of 24,260 Class
A units for a cost of $0.3 million. In addition to these units, the Manager may
purchase additional units on behalf of the Fund in the future.
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Fund:
TABLE 2
For the Years Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
1999 1998 1997 1996 1995
-------------------------------------------------------------------
Operating results:
Total revenues $ 26,483 $ 28,301 $ 22,920 $ 11,295 $ 4,150
Net gain on disposition of
equipment 23 2,759 1,682 -- 25
Equity in net income (loss) of
unconsolidated special-purpose
entities 1,761 2,390 1,453 (256) 69
Net income (loss) (2,401) 4,316 (2,052) (2,392) (618)
At year-end:
Total assets $ 80,533 $ 99,635 $ 108,524 $ 87,755 $ 62,589
Total liabilities 29,935 28,905 29,337 1,466 1,187
Note payable 25,000 25,000 25,000 -- --
Cash distribution $ 11,690 $ 11,765 $ 11,763 $ 9,832 $ 1,303
Cash distribution representing
a return of capital to Class A members $ 9,930 $ 7,405 $ 9,998 $ 8,471 $ 1,180
Per weighted-average Class A unit:
Net income (loss) $ (0.81)1 $ 0.521 $ (0.75) 1
Cash distribution $ 1.99 $ 2.00 $ 2.00 Various, according to
interim closings
Cash distribution representing a return
of capital to Class A members $ 1.99 $ 1.48 $ 2.00
- -------------------------------
1 After reduction of $1.7 million ($0.33 per weighted-average Class A unit)
in 1999, $1.6 million ($0.33 per weighted-average Class A unit) in 1998, and
$1.8 million ($0.35 per weighted-average Class A unit) in 1997, representing
special allocations to the Manage (see Note 1 to the financial statements).
(This space intentionally left blank)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the Financial Statements of Professional Lease Management
Income Fund I, L.L.C. (the Fund). The following discussion and analysis of
operations focuses on the performance of the Fund's equipment in various
segments in which it operates and its effect on the Fund's overall financial
condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Fund's equipment portfolio to repricing risk occurs whenever
the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Fund's equipment include, but are not limited to, supply and demand for
similar or comparable types of transport capacity, desirability of the equipment
in the leasing market, market conditions for the particular industry segment in
which the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Fund. The Fund
experienced re-leasing or repricing activity in 1999, primarily in its trailer,
marine vessel and railcars portfolios.
(a) Trailers: The Fund's trailer portfolio operates in short-term rental
facilities or with short-line railroad systems. The relatively short duration of
most leases in these operations exposes the trailers to considerable re-leasing
and repricing activity.
(b) Marine vessels: Certain of the Fund's marine vessels (wholly and partially
owned) operated in the time charter markets throughout 1999. Time charters are
of a short duration (such as a single voyage of 10 - 45 days), or may be of
extended duration (as much as three years) in weaker markets. Short duration
charters are the dominant forms of contract.
In addition, in 1999, one of the Fund's anchor handling supply marine vessels
was re-leased at a significantly lower rate, due to soft market conditions. If
the economic conditions remain the same, a similar trend of lower re-lease rates
will occur for the Fund's remaining anchor handling marine vessel when the
current lease expires in the year 2000.
(c) Railcars: The relatively short duration of most leases in these operations
exposes the railcars to considerable re-leasing and repricing activity. Lease
revenue decreased $0.1 million due to lower re-lease rates for a group of
railcars in the year ended December 31, 1999 compared to the same period in
1998.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Fund equipment and investments in unconsolidated special-purpose
entities (USPEs), unless accompanied by an immediate replacement of additional
equipment earning similar rates (see Reinvestment Risk, below), represents a
reduction in the size of the equipment portfolio and may result in a reduction
of contribution to the Fund. Lessees not performing under the terms of their
leases, either by not paying rent, not maintaining or operating the equipment in
accordance with the conditions of the leases, or other possible departures from
the leases, can result not only in reductions in contribution, but also may
require the Fund to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Fund experienced the following
in 1999:
Liquidations: During 1999, the Fund received proceeds of $14.5 million from the
sale and disposal of trailers, railcars and its interest in two trusts that own
a total of three commercial aircraft, two aircraft engines, and a portfolio of
aircraft rotables, and its interest in an entity that owned a mobile offshore
drilling unit.
(3) Reinvestment Risk
Reinvestment risk occurs when; the Fund cannot generate sufficient surplus cash
after fulfillment of operating obligations and distributions to reinvest in
additional equipment during the reinvestment phase of Fund; equipment is sold or
liquidated for less than threshold amounts; proceeds from disposition or surplus
cash available for reinvestment cannot be reinvested at the threshold lease
rates; or proceeds from dispositions or surplus cash available for reinvestment
cannot be deployed in a timely manner.
During the first six years of operations which ends December 31, 2002, the Fund
intends to increase its equipment portfolio by investing surplus cash in
additional equipment after fulfilling operating requirements and paying
distributions to the Members. Subsequent to the end of the reinvestment period,
the Fund will continue to operate for an additional two years, then begin an
orderly liquidation over an anticipated two-year period.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Fund's planned liquidation phase, the receipt of funds
realized from the payment of stipulated loss values on equipment lost or
disposed of during the time it is subject to lease agreements, or from the
exercise of purchase options in certain lease agreements. Equipment sales
generally result from evaluations by the Manager that continued ownership of
certain equipment is either inadequate to meet Fund performance goals, or that
market conditions, market values, and other considerations indicate it is the
appropriate time to sell certain equipment.
During 1999, the Fund acquired a group of marine containers for $9.9
million and a group of trailers for $1.4 million.
(4) Equipment Valuation
In accordance with Financial Accounting Standards Board statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Manager reviews the carrying value of the Fund's equipment
portfolio at least quarterly and whenever circumstances indicate that the
carrying value of an asset may not be recoverable in relation to expected future
market conditions for the purpose of assessing the recoverability of the
recorded amounts. If the undiscounted projected future cash flows and fair value
are less than the carrying value of the equipment, a loss on revaluation is
recorded. Reductions of $3.9 million to the carrying value of two marine vessels
were required during 1999. Reductions of $1.0 million to the carrying value of
partially owned equipment were required during 1998. No reductions were required
to the carrying value of equipment during 1997.
As of December 31, 1999, the Manager estimated the current fair market value of
the Fund's equipment portfolio, including the Fund's interest in equipment owned
by USPEs, to be $95.6 million. This estimate is based on recent market
transactions for equipment similar to the Fund's equipment portfolio and the
Fund's interest in equipment owned by USPEs. Ultimate realization of fair market
value by the Fund may differ substantially from the estimate due to specific
market conditions, technological obsolescence, and government regulations, among
other factors that the Manager cannot accurately predict.
(C) Financial Condition--Capital Resources, Liquidity, and Unit Redemption Plan
The Manager purchased the Fund's equipment portfolio with capital raised from
its initial equity offering of $100.0 million and permanent debt financing of
$25.0 million. No further capital contributions from Class A Members are
permitted under the terms of the Fund's operating agreement. The Fund relies on
operating cash flow to meet its operating obligations, make cash distributions
to Members, and increase the Fund's equipment portfolio with any remaining
available surplus cash. The total outstanding debt, currently $25.0 million, can
be increased with borrowings from the short-term Committed Bridge Facility in an
aggregate principal amount not to exceed the lesser of $10.0 million or 50% of
the aggregate principal amount of the Notes outstanding at the time of issuance
and not to remain outstanding for more than 179 days.
The Fund intends to rely on operating cash flow to meet its operating
obligations, make cash distributions to Class A Members, and increase the Fund's
equipment portfolio through reinvestment of any remaining surplus cash available
in additional equipment.
For the year ended December 31, 1999, the Fund generated $17.5 million in
operating cash (net cash provided by operating activities plus minority
interests and non-liquidating cash distributions from USPEs) to meet its
operating obligations and make distributions of $11.7 million to the members.
Lessee deposits and reserve for repairs increased $0.8 million during the year
ended December 31, 1999 compared to the same period in 1998. Reserves for
aircraft engine repairs increased $0.6 million due to additional lessee
deposits, and security deposits increased $0.4 million due to a security deposit
from a container lessee. Lessee prepaid deposits decreased $0.2 million due to
fewer lessee's prepaying future lease revenue.
During the year ended December 31, 1999, the Fund purchased 4,430 marine
containers and 65 dry trailers for a total cost of $11.4 million.
During the year ended December 31, 1999, the Fund sold trailers and railcars
with an aggregate net book value of $0.1 million, for proceeds of $0.2 million.
During 1999, the Manager sold the Fund's 61% interest in an entity owning a
mobile offshore drilling unit with a net investment of $7.2 million for proceeds
of $7.2 million. Also, during 1999, the Manager sold the Fund's 33% interest in
two trusts that owned a total of three Boeing 737-200A stage II commercial
aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables.
The trusts were sold for proceeds of $7.1 million for its net investment of $3.8
million.
Pursuant to the terms of the operating agreement, beginning in the fourth
quarter of 1998, the Fund may, at the sole discretion of the Manager, redeem up
to 2% of the outstanding Class A units each year. The purchase price paid by the
Fund for outstanding Class A Units upon redemption will be equal to 105% of the
amount Class A Members paid for the Class A Units, less the amount of cash
distributions Class A Members have received relating to such Class A Units. The
price may not bear any relationship to the fair market value of a Class A Unit.
As of December 31, 1999, the Fund had agreed to purchase approximately 4,000
units for an aggregate price of approximately $49,000. The Manager anticipates
that these Class A units will be purchased in the first and second quarters of
2000. In addition to these units, the Manager may purchase additional units on
behalf of the Fund in the future.
The Fund has a $25.0 million note payable. The loan was funded in March 1997.
The note bears interest at a fixed rate of 7.33% per annum and has a final
maturity in 2006. Interest on the note is payable semi-annually. The note will
be repaid in five principal payments of $3.0 million on December 31, 2000, 2001,
2002, 2003, and 2004 and two principal payments of $5.0 million on December 31,
2005, and 2006. The agreement requires the Fund to maintain certain financial
covenants related to fixed-charge coverage.
The Manager has entered into a joint $24.5 million credit facility (the
Committed Bridge Facility) on behalf of the Fund, PLM Equipment Growth Fund VI
(EGF VI) and PLM Equipment Growth & Income Fund VII (EGF VII), both affiliated
investment programs; and TEC Acquisub, Inc. (TECAI), an indirect wholly-owned
subsidiary of the Manager, which may be used to provide interim financing of up
to (i) 70% of the aggregate book value or 50% of the aggregate net fair market
value of eligible equipment owned by the Fund, plus (ii) 50% of unrestricted
cash held by the borrower. The Fund, EGF VI, EGF VII, and TECAI collectively may
borrow up to $24.5 million of the Committed Bridge Facility. Outstanding
borrowings by one borrower reduce the amount available to each of the other
borrowers under the Committed Bridge Facility. The Committed Bridge Facility
also provides for a $5.0 million Letter of Credit Facility for the eligible
borrowers. Individual borrowings may be outstanding for no more than 179 days,
with all advances due no later than June 30, 2000. Interest accrues at either
the prime rate or adjusted LIBOR plus 1.625% at the borrower's option and is set
at the time of an advance of funds. Borrowings by the Fund are guaranteed by the
Manager. As of December 31, 1999 and March 27, 2000, no eligible borrower had
any outstanding borrowings. The Manager believes it will be able to renew the
Committed Bridge Facility upon its expiration with similar terms as those in the
current Committed Bridge Facility.
The Manager has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Results of Operations -- Year to Year Detail Comparison
(1) Comparison of the Fund's Operating Results for the Years Ended December 31,
1999 and 1998
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1999, when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 5 to
the audited financial statements), are not included in the owned equipment
operation discussion because they are more indirect in nature, not a result of
operations but more the result of owning a portfolio of equipment.
In September 1999, the Manager amended the corporate-by-laws of certain USPEs in
which the Fund, or any affiliated program, owns an interest greater than 50%.
The amendment to the corporate-by-laws provided that all decisions regarding the
acquisition and disposition of the investment as well as other significant
business decisions of that investment would be permitted only upon unanimous
consent of the Fund and all the affiliated programs that have an ownership in
the investment. As such, although the Fund may own a majority interest in a
USPE, the Fund does not control its management and thus it is appropriate that
the equity method of accounting be used after adoption of the amendment. As a
result of the amendment, as of September 30, 1999, all jointly owned equipment
in which the Fund owned a majority interest, which had been consolidated, were
reclassified to investments in USPEs. Lease revenues and direct expenses for
jointly owned equipment in which the Fund held a majority interest were reported
under the consolidation method of accounting during the nine months ended
September 30, 1999 and were included with the owned equipment operations. For
the three months ended December 31, 1999, lease revenues and direct expenses for
this entity is reported under the equity method of accounting and is included
with the operations of the unconsolidated special-purpose entities (USPEs).
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
1999 1998
-----------------------------
Marine vessels $ 4,990 $ 5,794
Aircraft 4,028 4,525
Mobile offshore drilling unit 3,494 3,936
Railcars 3,179 3,323
Trailers 2,976 3,263
Marine containers 1,326 --
Marine vessels: Marine vessel lease revenues and direct expenses were $9.5
million and $4.5 million, respectively, for the year ended December 31, 1999,
compared to $8.7 million and $2.9 million, respectively, during the same period
of 1998. The purchase of two marine vessels during 1998 generated $2.0 million
in additional lease revenues in 1999. Lease revenue decreased $1.0 million for
two other marine vessels due to lower re-lease rates earned during the year
ended December 31, 1999 compared to the same period in 1998. In addition, lease
revenues decreased $0.2 million during 1999 due to the drydocking of a marine
vessel for approximately three weeks, during which it was off lease. Direct
expenses increased $2.2 million in the year ended December 31, 1999 compared to
the same period in 1998 due to the purchase of a marine vessel at the end of the
second quarter of 1998. The increase in direct expenses for a marine vessel was
offset, in part, by a decrease of $0.2 million for another marine vessel that
was in dry-docking and thus not incurring operating expenses for approximately
three weeks during 1999. In addition, direct expenses decreased $0.4 million for
this marine vessel due to lower marine operating expenses during the year ended
December 31, 1999, compared to the same period in 1998.
Aircraft: Aircraft lease revenues and direct expenses were $4.1 million and
$29,000, respectively, for the year ended December 31, 1999, compared to $4.6
million and $42,000, respectively, during the same period of 1998. Aircraft
contribution decreased due to the sale of an aircraft in the second quarter of
1998.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $3.6 million and $0.1 million, respectively, for the year
ended December 31, 1999, compared to $4.0 million and $0.1 million,
respectively, during the same period of 1998. Lease revenues for the Fund's
mobile offshore drilling unit decreased $0.4 million for the year ended December
31, 1999 when compared to the same period of 1998 due to the change in
accounting treatment of majority held equipment from the consolidation method of
accounting to the equity method of accounting.
Railcars: Railcar lease revenues and direct expenses were $3.8 million and $0.6
million, respectively, for the year ended December 31, 1999, compared to $4.0
million and $0.6 million, respectively, during the same period of 1998. Lease
revenue decreased $0.1 million due to lower re-lease rates for a group of
railcars in the year ended December 31, 1999 compared to the same period in
1998. In addition, lease revenue decreased $0.1 million resulting from the sale
or disposition of railcars in 1998 and 1999.
Trailers: Trailer lease revenues and direct expenses were $3.9 million and $0.9
million, respectively, for the year ended December 31, 1999, compared to $3.9
million and $0.6 million, respectively, during the same period of 1998. Direct
expenses increased due to repairs required on certain trailers during the year
ended December 31, 1999, which were not needed in the same period in 1998.
Marine containers: Marine container lease revenues were $1.3 million for the
year ended December 31, 1999. Marine container contribution increased due to the
purchase of marine containers in the second quarter of 1999.
(b) Interest and Other Income
Interest and other income decreased $0.1 million due to lower average cash
balances in the year ended December 31, 1999, compared to the same period in
1998.
(c) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $23.7 million for the year ended December 31, 1999
increased from $21.6 million for the same period in 1998. Significant variances
are explained as follows:
(i) Loss on revaluation of equipment increased $3.9 million during the year
ended December 31, 1999 compared to the same period in 1998. In 1999, the Fund
reduced the carrying value of two marine vessels to their estimated net
realizable value. No revaluation of equipment was required on wholly owned
equipment in 1998.
(ii) A $0.1 million increase in bad debt expenses was due to the Manager's
evaluation of the collectibility of receivables due from certain lessees.
(iii) A $1.9 million decrease in depreciation and amortization expenses from
1998 levels resulted from an approximately $3.6 million decrease due to the use
of the double-declining balance depreciation method which results in greater
depreciation the first years an asset is owned, an approximately $0.7 million
decrease as a result of the change in accounting treatment of majority held
equipment from the consolidation method of accounting to the equity method of
accounting, and approximately $0.2 million decrease due to the sale of certain
assets during 1999 and 1998. These decreases were partially offset by an
approximately $2.6 million increase in depreciation expense from the purchase of
equipment during 1999 and 1998.
(d) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the year ended December 31, 1999
totaled $23,000 which resulted from the sale of railcars and trailers with an
aggregate net book value of $0.1 million, for proceeds of $0.2 million. Net gain
on disposition of equipment for the year ended December 31, 1998 totaled $2.8
million, and resulted from the sale of an aircraft, a railcar and trailers with
an aggregate net book value of $2.6 million, for proceeds of $5.4 million.
(e) Minority Interest
Minority interest expense increased $0.2 million in 1999 when compared to 1998
due to a increase in net income of the entity in which the Fund owned a majority
interest.
(f) Equity in Net Income of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars).
For the Years Ended
December 31,
1999 1998
----------------------------
Aircraft $ 1,836 $ 3,834
Mobile offshore drilling unit 206 --
Marine vessel (281) (1,444)
-----------------------------
Equity in Net Income of USPEs $ 1,761 $ 2,390
=============================
Aircraft: As of December 31, 1999, the Fund owned interests in two trusts that
each owns a commercial aircraft. As of December 31, 1998, the Fund owned
interests in two trusts that owned a commercial aircraft, and an interest in two
trusts that own a total of three commercial aircraft, two aircraft engines, and
a portfolio of aircraft rotables. During the year ended December 31, 1999,
aircraft lease revenues were $2.1 million and gain from the sale of the Fund's
interest in two trusts that owned a total of three commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables of $3.3 million was
offset by expenses of $3.6 million. During the year ended December 31, 1998,
aircraft lease revenues were $4.3 million and gain from the sale of the Fund's
interest in two trusts that owned commercial aircraft of $6.3 million was offset
by expenses of $6.8 million. Lease revenues decreased $2.5 million due to the
sale of the Fund's investment in two trusts containing ten commercial aircraft
in 1998, and the sale of the Fund's investment in two trusts that owned a total
of three commercial aircraft, two stage II aircraft engines, and a portfolio of
aircraft rotables in 1999. The decrease in lease revenues caused by these sales
was offset, in part, by $0.3 million in additional lease revenue from the
purchase of two additional trusts each owning an MD-82 commercial aircraft
during 1998. The decrease in expenses of $3.2 million was primarily due to lower
depreciation expense resulting from an approximately $1.6 million decrease due
to the sale of the Fund's interest in four trusts and an approximately $2.1
million decrease due to the double declining-balance method of depreciation
which results in greater depreciation in the first years an asset is owned.
These increases were offset, in part, by an approximately $0.5 million increase
in depreciation expense due to the Fund's investment in two additional trusts
during 1998.
Mobile offshore drilling unit: During 1999 the Fund owned an interest in a
mobile offshore drilling unit. During the year ended December 31, 1999, revenues
of $0.2 million were offset by the loss of $15,000 from the sale of this entity
and administrative expenses of $32,000. The increase in lease revenues and
expenses in 1999 as compared to the same period in 1998 were primarily due to
the change in accounting treatment for majority held equipment from the
consolidation method to the equity method.
Marine vessel: As of December 31, 1999 and 1998, the Fund had an interest in an
entity that owns a marine vessel. During the year ended December 31, 1999,
revenues of $0.8 million were offset by depreciation and administrative expenses
of $1.1 million. During the year ended December 31, 1998, marine vessel revenues
of $0.9 million were offset by depreciation and administrative expenses of $1.3
million, and a loss on the revaluation of a marine vessel of $1.0 million. Lease
revenue decreased $0.2 million in the year ended December 31, 1999 compared to
the same period in 1998, due to lower re-lease rates as a result of softer
market conditions. The decrease was offset, in part, by an increase of $0.1
million in lease revenues due to a marine vessel that the Fund owns an interest
in being off-hire for 20 days in the year ended December 31, 1998 compared to 2
days in the same period in 1999. Expenses decreased due to the decrease of $0.2
million in depreciation expense as a result of the double-declining balance
method of depreciation which results in greater depreciation in the first years
an asset is owned. Loss on revaluation of equipment of $1.0 million for the year
ended December 31, 1998, resulted from the Fund reducing the carrying value of
its interest in an entity owning a marine vessel to its estimated net realizable
value. No loss on revaluation of its interest in the marine vessel was required
during the same period of 1999.
(g) Cumulative Effect of Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Fund adopted this statement
during the year ended December 31, 1999, at which time it took a $0.1 million
charge, related to start-up costs of the Fund.
(h) Net Income (Loss)
As a result of the foregoing, the Fund had net loss of $2.4 million for the year
ended December 31, 1999, compared to net income of $4.3 million during the same
period of 1998. The Fund's ability to acquire, operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Fund's performance in the year ended December 31, 1999
is not necessarily indicative of future periods. In the year ended December 31,
1999, the Fund distributed $9.9 million to Class A members, or $1.99 per
weighted-average Class A unit.
(2) Comparison of the Fund's Operating Results for the Years Ended December 31,
1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the year ended December 31, 1998, when compared to the same
period of 1997. Gains or losses from the sale of equipment and certain expenses
such as depreciation and amortization and general and administrative expenses
relating to the operating segments (see Note 5 to the audited financial
statements), are not included in the owned equipment operation discussion
because they are more indirect in nature, not a result of operations but more
the result of owning a portfolio of equipment. The following table presents
lease revenues less direct expenses by segment (in thousands of dollars):
For the Years Ended
December 31,
1998 1997
----------------------------
Marine vessels $ 5,794 $ 2,085
Aircraft 4,525 4,994
Mobile offshore drilling unit 3,936 4,989
Railcars 3,323 2,712
Trailers 3,263 3,250
Marine vessels: Marine vessel lease revenues and direct expenses were $8.7
million and $2.9 million, respectively, for the year ended December 31, 1998,
compared to $3.7 million and $1.6 million, respectively, during the same period
of 1997. Marine vessel lease revenues and direct expenses increased due to the
purchase of a marine vessel at the end of the second quarter of 1997 and a
marine vessel in each of the first and second quarters of 1998.
Aircraft: Aircraft lease revenues and direct expenses were $4.6 million and
$42,000, respectively, during the year ended December 31, 1998, compared to $5.0
million and $43,000, respectively, during the same period of 1997. Aircraft
contribution decreased due to the sale of an aircraft at the end of the second
quarter of 1998.
Mobile offshore drilling unit (MODU): MODU lease revenues and direct expenses
were $4.0 million and $0.1 million, respectively, for the year ended December
31, 1998, compared to $5.1 million and $0.1 million, respectively, for the year
ended December 31, 1997. Lease revenue increased $0.6 million and direct
expenses increased $0.1 million during 1998, compared to the same period in 1997
due to the increase of the Fund's investment in an entity that owns a MODU late
in the first quarter of 1997. This increase in net contribution was offset, in
part, by a decrease in lease revenue of $1.6 million and a decrease in direct
expenses of $22,000 during 1998 as a result of the sale of one of the Fund's
MODU in the fourth quarter of 1997 as part of the original purchase agreement
that gave the charterer the option to purchase the MODU.
Railcars: Railcar lease revenues and direct expenses were $4.0 million and $0.6
million, respectively, for the year ended December 31, 1998, compared to $3.4
million and $0.7 million, respectively, during the same period of 1997. Lease
revenues increased in the year ended December 31, 1998, compared to the same
period of 1997 due to the purchase of railcars in the first quarter of 1998.
Railcar expenses decreased due to lower running repairs required on certain
railcars during 1997, that were not needed during 1998.
Trailers: Trailer revenues and direct expenses were $3.9 million and $0.6
million, respectively, for the year ended December 31, 1998, compared to $3.7
million and $0.4 million, respectively, during the same period in 1997. Lease
revenues increased during 1998, due to higher utilization earned on trailers
operating in the short-term rental facilities when compared to 1997. Expenses
increased due to repairs required on certain trailers during 1998, which were
not needed in 1997 and due to the purchase of additional trailers.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $21.6 million for the year ended December 31, 1998
decreased from $23.6 million for the same period in 1997. Significant variances
are explained as follows:
(i) A $2.6 million decrease in depreciation and amortization expenses from 1997
levels resulted from an approximately $5.6 million decrease in depreciation
expense due to the Fund's double-declining balance depreciation method, which
results in greater depreciation in the first years an asset is owned, an
approximately $1.9 million decrease in depreciation expense due to the sale of
the aircraft in the second quarter of 1998, and the sale of the MODU at the end
of 1997. The decline was partially offset by an approximately $4.9 million
increase in depreciation expense from the purchase of equipment during 1998 and
1997.
(ii) A $0.2 million increase in management fees to affiliate reflects the higher
levels of lease revenues in 1998, when compared to 1997.
(iii) A $0.4 million increase in interest expense was due to a higher average
debt balance outstanding during 1998 compared to 1997.
(c) Net Gain on Disposition of Owned Equipment
Net gain on the disposition of equipment for the year ended December 31, 1998,
totaled $2.8 million, and resulted from the sale of an aircraft, railcars, and
trailers with an aggregate net book value of $2.6 million, for proceeds of $5.4
million. Net gain on the disposition of equipment for the year ended December
31, 1997 totaled $1.7 million, and resulted from the sale of trailers and a MODU
with an aggregate net book value of $9.2 million, for net sale proceeds of $10.9
million.
(d) Minority Interest
Minority interest expense for the entity in which the Fund owned a majority
interest increased $0.3 million due to an increase in revenue of $0.1 million
offset by a decrease in direct and indirect expenses of $0.2 million during 1998
when compared to 1997.
(e) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method are presented as follows (in thousands of dollars):
For the Years Ended
December 31,
1998 1997
----------------------------
Aircraft, aircraft engines and rotable components $ 3,834 $ 1,795
Marine vessel (1,444 ) (342)
----------------------------
Equity in net income of USPEs $ 2,390 $ 1,453
============================
Aircraft, aircraft engines and rotable components: As of December 31, 1998, the
Fund owned interests in two trusts that each own a commercial aircraft, and an
interest in two trusts that own a total of three commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables. As of December 31, 1997,
the Fund owned an interest in two trusts that each own four commercial aircraft,
and an interest in two trusts that own a total of three commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables. During the year ended
December 31, 1998, lease revenues of $4.3 million and the gain from the sale of
the Fund's interest in two trusts that owned commercial aircraft of $6.3 million
were offset by depreciation, direct and administrative expenses of $6.8 million.
During the year ended December 31, 1997, lease revenues and expenses were $5.9
million and $4.2 million, respectively. Lease revenues decreased $1.4 million
due to the sale of the Fund's investment in two trusts containing eight
commercial aircraft and a decrease of $2.0 million due to a lower lease rate
earned on certain equipment. The decrease in lease revenues was offset in part
by an increase in lease revenue of $1.8 million due to the Fund's investment in
two additional trusts owning a total of two aircraft during 1998. The increase
in expenses was due primarily to depreciation on the investment in two
additional trusts during 1998, which was partially offset in part by the sale of
the Fund's interest in the two trusts.
Marine vessel: As of December 31, 1998 and 1997, the Fund had an interest in an
entity that owns a marine vessel. Marine vessel revenues and expenses were $0.9
million and $2.3 million, respectively, for the year ended December 31, 1998,
compared to $1.2 million and $1.6 million, respectively, during the same period
in 1997. Lease revenues decreased primarily due to the marine vessel that the
Fund owns an interest in being off-hire for 58 days in 1998 compared to 2 days
in the same period in 1997. Expenses increased due to the loss on revaluation of
equipment of $1.0 million for the year ended December 31, 1998, which resulted
from the Fund reducing the carrying value of its interest in an entity owning a
marine vessel to its estimated net realizable value. There was no revaluation of
the carrying value in the interest owning a marine vessel required during 1997.
The increase in expenses were offset in part by the decreases in depreciation
expense of $0.1 million due to the use of the double-declining balance
depreciation method, which results in greater depreciation in the first years an
asset is owned and reduced repairs and maintenance expenses of $0.1 million in
the year ended December 31, 1998, compared to the same period in 1997.
(f) Net Income (Loss)
As a result of the foregoing, the Fund's net income for the year ended December
31, 1998 was $4.3 million, compared to a net loss of $2.1 million during the
same period of 1997. 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, and the Fund's performance in the year ended December 31, 1998
is not necessarily indicative of future periods. In the year ended December 31,
1998, the Fund distributed $10.0 million to the Class A members, or $2.00 per
weighted-average Class A unit.
(E) Geographic Information
Certain of the Fund's equipment operates in international markets. Although
these operations expose the Fund to certain currency, political, credit and
economic risks, the Manager believes these risks are minimal or has implemented
strategies to control the risks. Currency risks are at a minimum because all
invoicing, with the exception of a small number of railcars operating in Canada,
is conducted in United States (U.S.) dollars. Political risks are minimized by
avoiding countries that do not have a stable judicial system and established
commercial business laws. Credit support strategies for lessees range from
letters of credit supported by U.S. banks to cash deposits. Although these
credit support mechanisms generally allow the Fund to maintain its lease yield,
there are risks associated with slow-to-respond judicial systems when legal
remedies are required to secure payment or repossess equipment. Economic risks
are inherent in all international markets and the Manager strives to minimize
this risk with market analysis prior to committing equipment to a particular
geographic area. Refer to Note 6 to the audited financial statements for
information on the lease revenues, net income (loss), and net book value of
equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the assets are owned and the useful life ascribed to the assets for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years due to
the use of the double-declining balance method of depreciation. The
relationships of geographic revenues, net income (loss), and net book value of
equipment are expected to change significantly in the future, as assets come off
lease and decisions are made to either redeploy the assets in the most
advantageous geographic location or sell the assets.
The Fund's owned equipment on lease to U.S.-domiciled lessees consists of
trailers, railcars, and interests in entities that own aircraft. During 1999,
U.S. lease revenues accounted for 28% of the total lease revenues from wholly
and partially owned equipment, while net loss accounted for $0.2 million of the
Fund's net loss of $2.4 million. The loss for equipment operated in the U.S. was
due primarily to the double-declining balance method of depreciation on the two
aircraft that the Fund owns interests, which results in greater depreciation in
the first years an asset is owned.
The Fund's owned equipment on lease to South American-domiciled lessees consists
of four aircraft. During 1999, South American lease revenues accounted for 14%
of the total lease revenues from wholly and partially owned equipment, while
equipment operated in South America generated net income of $1.3 million
compared to the Fund's net loss of $2.4 million.
The Fund's equipment on lease to Canadian-domiciled lessees consists of
railcars. Lease revenues in Canada accounted for 5% of total lease revenues from
wholly and partially-owned equipment while equipment operated in Canada
generated net income of $0.5 million compared to the Fund's net loss of $2.4
million.
The Fund's interest in a USPE on lease to European-domiciled lessees consisted
of aircraft, aircraft engines, and aircraft rotables. All of the equipment on
lease to the European lessee was sold during 1999 and European domiciled
operations generated net income of $3.1 million compared to the Fund's net loss
of $2.4 million. The Fund sold its interest in this USPE for a net gain of $3.3
million in 1999.
Two wholly-owned marine vessels, marine containers, an investment in an entity
that owns a marine vessel and an investment in an entity that owned a mobile
offshore drilling unit, which were leased in the rest of the world accounted for
53% of the lease revenues from wholly and partially-owned equipment while the
net loss from equipment operated in this region accounted for a $4.7 million net
loss compared to Fund's net loss of $2.4 million. The primary reason for this
relationship is that the Fund reduced the carrying value of two marine vessels
by $3.9 million to reflect their estimated net realizable value.
(F) Effects of Year 2000
As of March 27, 2000, the Fund has not experienced any material Year 2000 (Y2K)
issues with either its internally developed software or purchased software. In
addition, to date the Fund has not been impacted by any Y2K problems that may
have impacted our customers and suppliers. The amount allocated to the Fund by
the Manager related to Y2K issues has not been material. The Manager continues
to monitor its systems for any potential Y2K issues.
(G) Inflation
Inflation had no significant impact on the Fund's operations during 1999, 1998,
or 1997.
(H) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Fund's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Fund's actual results could differ materially from those
discussed here.
(I) Outlook for the Future
Several factors may affect the Fund's operating performance in 2000 and beyond,
including changes in the markets for the Fund's equipment and changes in the
regulatory environment in which that equipment operates.
The Fund's operation of a diversified equipment portfolio in a broad base of
markets is intended to reduce its exposure to volatility in individual equipment
sectors.
The ability of the Fund to realize acceptable lease rates on its equipment in
the different equipment markets is contingent on many factors, such as specific
market conditions and economic activity, technological obsolescence, and
government or other regulations. The unpredictability of some of these factors
makes it difficult for the Manager to clearly define trends or influences that
may impact the performance of the Fund's equipment. The Manager continually
monitors both the equipment markets and the performance of the Fund's equipment
in these markets. The Manager may make an evaluation to reduce the Fund's
exposure to those equipment markets in which it determines that it cannot
operate equipment and achieve acceptable rates of return. Alternatively, the
Manager may make a determination to enter those equipment markets in which it
perceives opportunities to profit from supply-demand instabilities or other
market imperfections.
The Fund intends to use excess cash flow, if any, after payment of expenses,
loan principal and interest on debt, and cash distributions, to acquire
additional equipment during the first six years of the Fund's operations which
conclude December 31, 2002. The Manager believes that these acquisitions may
cause the Fund to generate additional earnings and cash flow for the Fund.
Other factors affecting the Fund's contribution in 2000 and beyond include:
1. Freight rates, after declining in 1998 due, in part, to the Asian recession,
improved for dry bulk vessels of all sizes during 1999. Total dry bulk trade, as
measured in deadweight tons, is estimated to have grown by approximately 2%
during 1999, compared to a flat year in 1998. Forecasts for 2000 indicate that
bulk trade should continue to grow, albeit at slow rates.
2. In 1999, one of the Fund's anchor handling supply marine vessels was
re-leased at a significantly lower rate, due to soft market conditions. If
economic conditions remain the same, lower re-lease rates are expected to occur
for the Fund's remaining anchor handling marine vessel when the current lease
expires in the year 2000.
3. Rates and utilization dropped for oil tanker vessels due to the economic
crisis in Asia. The demand in 1999 has shown some signs of recovery, however,
rate recovery may take two to three years.
4. The demand for covered hopper cars has softened in the market since 1998, and
is expected to continue through 2000. The demand for the other types of railcars
has continued to be high, however a softening in the market is expected, which
may lead to lower utilization and lower contribution to the Fund.
Several other factors may affect the Fund's operating performance in 2000 and
beyond, including changes in the markets for the Fund's equipment and changes in
the regulatory environment in which that equipment operates.
(1) Repricing and Reinvestment Risk
Certain of the Fund's aircraft, marine vessels, railcars, marine containers, and
trailers will be remarketed in 2000 as existing leases expire, exposing the Fund
to some repricing risk/opportunity. Additionally, the Manager may elect to sell
certain underperforming equipment or equipment whose continued operation may
become prohibitively expensive. In either case, the Manager intends to re-lease
or sell equipment at prevailing market rates; however, the Manager cannot
predict these future rates with any certainty at this time, and cannot
accurately assess the effect of such activity on future Fund performance. The
proceeds from the sold or liquidated equipment will be redeployed to purchase
additional equipment, as the Fund is in its reinvestment phase.
(2) Impact of Government Regulations on Future Operations
The Manager operates the Fund's equipment in accordance with current applicable
regulations (see Item 1, Section E, Government Regulations). However, the
continuing implementation of new or modified regulations by some of the
authorities mentioned previously, or others, may adversely affect the Fund's
ability to continue to own or operate equipment in its portfolio. Additionally,
regulatory systems vary from country to country, which may increase the burden
to the Fund of meeting regulatory compliance for the same equipment operated
between countries. Currently, the Manager has observed rising insurance costs to
operate certain vessels in U.S. ports, resulting from implementation of the U.S.
Oil Pollution Act of 1990. Ongoing changes in the regulatory environment, both
in the United States and internationally, cannot be predicted with accuracy, and
preclude the Manager from determining the impact of such changes on Fund
operations, purchases, or sale of equipment. Under U.S. Federal Aviation
Regulations, after December 31, 1999, no person may operate an aircraft to or
from any airport in the contiguous United States unless that aircraft has been
shown to comply with Stage III noise levels. The Fund has Stage II aircraft that
do not meet Stage III requirements. These Stage II aircraft will remain with the
current lessee, which operate in a country that does not have these noise
restrictions. Furthermore, the Federal Railroad Administration has mandated that
effective July 1, 2000, all jacketed and non-jacketed tank railcars must be
re-qualified to insure tank shell integrity. Tank shell thickness, weld seams,
and weld attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test.
(3) Additional Capital Resources and Distribution Levels
The Fund's initial contributed capital was composed of the proceeds from its
initial offering of $100.0 million, supplemented by permanent debt in the amount
of $25.0 million. The Manager has not planned any expenditures, nor is it aware
of any contingencies that would cause it to require any additional capital to
that mentioned above. The Fund intends to rely on operating cash flow to meet
its operating obligations, make cash distributions to limited partners, make
debt payments, and increase the Fund's equipment portfolio with any remaining
surplus cash available.
Pursuant to the Fifth Amended and Restated Operating Agreement of Professional
Lease Management Income Fund I, L.L.C. (the operating agreement), the Fund will
cease to reinvest surplus cash in additional equipment beginning in its seventh
year of operations which commences on January 1, 2003. Prior to that date, the
Manager intends to continue its strategy of selectively redeploying equipment to
achieve competitive returns. By the end of the reinvestment period, the Manager
intends to have assembled an equipment portfolio capable of achieving a level of
operating cash flow for the remaining life of the Fund sufficient to meet its
obligations and sustain a predictable level of distributions to the Class A
Unitholders.
The Manager will evaluate the level of distributions the Fund can sustain over
extended periods of time and, together with other considerations, may adjust the
level of distributions accordingly. In the long term, the difficulty in
predicting market conditions precludes the Manager from accurately determining
the impact of changing market conditions on liquidity or distribution levels.
The Fund's permanent debt obligation begins to mature in December 2000. The
Manager believes that sufficient cash flow will be available in the future for
repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Fund's primary market risk exposure is that of currency risk. 72% of the
Fund's total lease revenues from wholly-and partially-owned equipment in 1999
came from non-United States domiciled lessees. Most of the leases require
payment in United States (U.S.) currency. If these lessees' currency devalues
against the U.S. dollar, the lessees could potentially encounter difficulty in
making the U.S. dollar denominated lease payment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Fund are listed on the Index to Financial
Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND PLM
FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Robert N. Tidball 61 Chairman of the Board, Director, President, and Chief Executive
Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 52 Director, PLM International, Inc.
Douglas P. Goodrich 53 Director and Senior Vice President, PLM International, Inc.;
Director and President, PLM Financial Services, Inc.; President,
PLM Transportation Equipment Corporation; President, PLM Railcar
Management Services, Inc.
Warren G. Lichtenstein 34 Director, PLM International, Inc.
Howard M. Lorber 51 Director, PLM International, Inc.
Harold R. Somerset 64 Director, PLM International, Inc.
Robert L. Witt 59 Director, PLM International, Inc.
Robin L. Austin 53 Vice President, Human Resources, PLM International, Inc. and PLM
Financial Services, Inc.
Stephen M. Bess 53 President, PLM Investment Management, Inc.; Vice President and
Director, PLM Financial Services, Inc.
Richard K Brock 37 Vice President and Chief Financial Officer, PLM International,
Inc. and PLM Financial Services, Inc.
Susan C. Santo 37 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989.
Mr. Tidball was appointed a Director of PLM Financial Services, Inc. in July
1997 and was elected President of PLM Worldwide Management Services Limited in
February 1998. He has served as an officer of PLM Railcar Management Services,
Inc. since June 1987. Mr. Tidball was Executive Vice President of Hunter Keith,
Inc., a Minneapolis-based investment banking firm, from March 1984 to January
1986. Prior to Hunter Keith, he was Vice President, General Manager, and
Director of North American Car Corporation and a director of the American
Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in
various capacities with Alexander & Baldwin, Inc., a publicly held land and
agriculture company headquartered in Honolulu, Hawaii, including Executive Vice
President of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree in marine
engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in
August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Chief Financial Officer of PLM
International and PLM Financial Services, Inc. in January 2000, after having
served as Acting CFO since June 1999. Mr. Brock served as Corporate Controller
of PLM International and PLM Financial Services, Inc. beginning in June 1997, as
Director of Planning and General Accounting beginning in February 1994, and as
an accounting manager beginning in September 1991. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Fund has no directors, officers, or employees. The Fund has no pension,
profit sharing, retirement, or similar benefit plan in effect as of December 31,
1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The Manager is generally entitled to a 1% interest in profits and
losses and a 15% interest in the Fund's cash distributions, subject to
certain allocation of income provisions. After the investors receive
cash equal to their original capital contribution, the Manager's
interest in the distributions of the Fund will increase to 25%. As of
December 31, 1999, no investor was known by the Manager to beneficially
own more than 5% of the units of the Fund.
(B) Security Ownership of Management
Neither the Manager and its affiliates nor any executive officer or
director of the Manager and its affiliates owned any units of the Fund
as of December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
During 1999, management fees to IMI were $1.4 million. The Fund
reimbursed FSI and/or its affiliates $1.0 million for administrative
and data processing services performed on behalf of the Fund during
1999.
During 1999, the USPEs paid or accrued the following fees to FSI or its
affiliates (based on the Fund's proportional share of ownership):
management fees - $0.2 million; and administrative and data processing
services - $46,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Operating Agreement of Fund, incorporated by reference to the
Fund's Registration Statement on Form S-1 (Reg. No. 33-55796) which
became effective with the Securities and Exchange Commission on May
25, 1993.
10.1 Management Agreement between Fund and PLM Investment Management,
Inc., incorporated by reference to the Fund's Registration
Statement on Form S-1 (Reg. No. 33-55796) which became effective
with the Securities and Exchange Commission on May 25, 1993.
10.2 $25.0 Million Note Agreement, dated as of December 30, 1996,
incorporated by reference to the Fund's 1996 Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 14,
1997.
10.3 Fourth Amended and Restated Warehousing Credit Agreement, dated as
of December 15, 1998, with First Union National Bank, incorporated
by reference to the Fund's 1998 Annual Report on Form 10-K/A filed
with the Securities and Exchange Commission on January 5, 2000.
10.4 First amendment to the Fourth Amended and Restated Warehouse
Credit Agreement dated December 10, 1999.
24. Powers of Attorney.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Fund has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
The Fund has no directors or officers. The Manager has signed on behalf of the
Fund by duly authorized officers.
PROFESSIONAL LEASE MANAGEMENT INCOME
Date: March 27, 2000 FUND I
By: PLM Financial Services, Inc.
Manager
By: /s/ Douglas P. Goodrich
Douglas P. Goodrich
President and Director
By: /s/ Richard K Brock
Richard K Brock
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following directors of the Fund's Manager on the
dates indicated.
Name Capacity Date
*_________________________
Robert N. Tidball Director - FSI March 27, 2000
*_________________________
Douglas P. Goodrich Director - FSI March 27, 2000
*_________________________
Steven M. Bess Director - FSI March 27, 2000
* Susan C. Santo, by signing her name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/Susan C. Santo
Susan C. Santo
Attorney-in-Fact
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 29
Balance sheets as of December 31, 1999 and 1998 30
Statements of operations for the years ended
December 31, 1999, 1998 and 1997 31
Statement of changes in members' equity for the years ended
December 31, 1999, 1998, and 1997 32
Statements of cash flows for the years ended
December 31, 1999, 1998, and 1997 33
Notes to financial statements 34-45
All other financial statement schedules have been omitted as the required
information is not pertinent to the Registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
INDEPENDENT AUDITORS' REPORT
The Members
Professional Lease Management Income Fund I, L.L.C.:
We have audited the accompanying financial statements of Professional Lease
Management Income Fund I, L.L.C. (the Fund) as listed in the accompanying index
to financial statements. These financial statements are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Professional Lease Management
Income Fund I, L.L.C. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 17, 2000
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
1999 1998
-------------------------------------
Assets
Equipment held for operating leases $ 103,709 $ 122,626
Less accumulated depreciation (45,183) (44,350)
-------------------------------------
Net equipment 58,526 78,276
Cash and cash equivalents 11,597 3,720
Restricted cash 453 --
Accounts receivable, less of allowance for doubtful accounts
of $65 in 1999 and $43 in 1998 2,007 1,876
Investments in unconsolidated special-purpose entities 7,717 15,224
Debt placement fees, less accumulated amortization
of $52 in 1999 and $34 in 1998 125 143
Organization and offering costs, less accumulated amortization
of $310 in 1998 -- 132
Prepaid expenses and other assets 108 264
-------------------------------------
Total assets $ 80,533 $ 99,635
=====================================
Liabilities, minority interest, and member's equity
Liabilities
Accounts payable and accrued expenses $ 458 $ 465
Due to affiliates 656 400
Lessee deposits and reserves for repairs 3,821 3,040
Note payable 25,000 25,000
-------------------------------------
Total liabilities 29,935 28,905
-------------------------------------
Minority interest -- 5,705
Members' equity
Class A members (4,975,321 and 4,999,581 Units at December 31,
1999 and 1998, respectively) 50,598 64,893
Class B member -- 132
-------------------------------------
Total members' equity 50,598 65,025
-------------------------------------
Total liabilities, minority interest, and members' equity $ 80,533 $ 99,635
=====================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
(in thousands of dollars, except weighted-average unit amounts)
1999 1998 1997
-------------------------------------------------------
Revenues
Lease revenue $ 26,113 $ 25,149 $ 20,833
Interest and other income 347 393 405
Net gain on disposition of equipment 23 2,759 1,682
-------------------------------------------------------
Total revenues 26,483 28,301 22,920
-------------------------------------------------------
Expenses
Depreciation and amortization 14,849 16,774 19,347
Repairs and maintenance 2,633 2,024 1,414
Equipment operating expenses 3,142 2,069 995
Insurance expense to affiliate -- (14) 24
Other insurance expense 428 312 419
Management fees to affiliate 1,396 1,368 1,125
Interest expense 1,833 1,833 1,418
General and administrative expenses to affiliates 952 966 925
Other general and administrative expenses 721 715 729
Provision for (recovery of) bad debt expense 38 (23) --
Loss on revaluation of equipment 3,931 -- --
-------------------------------------------------------
Total expenses 29,923 26,024 26,396
-------------------------------------------------------
Minority interest (590) (351) (29)
Equity in net income of unconsolidated special-
purpose entities 1,761 2,390 1,453
-------------------------------------------------------
Net income (loss) before cumulative effect of
accounting change (2,269) 4,316 (2,052)
Cumulative effect of accounting change (132) -- --
-------------------------------------------------------
Net income (loss) $ (2,401) $ 4,316 $ (2,052)
=======================================================
Members' share of net income (loss)
Class A members $ (4,029) $ 2,595 $ (3,728)
Class B member 1,628 1,721 1,676
------------------------------------------------------
Total $ (2,401) $ 4,316 $ (2,052)
=======================================================
Net income (loss) per weighted-average
Class A unit $ (0.81) $ 0.52 $ (0.75)
=======================================================
Cash distribution $ 11,690 $ 11,765 $ 11,763
=======================================================
Cash distribution per weighted-average
Class A unit $ 1.99 $ 2.00 $ 2.00
=======================================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENT OF CHANGES IN MEMBERS' EQUITY
For the Years Ended December 31, 1999, 1998, and 1997
(in thousands of dollars)
Class A Class B Total
---------------------------------------------------------
Members' equity as of December 31, 1996 $ 86,024 $ 265 $ 86,289
Net income (loss) (3,728) 1,676 (2,052)
Cash distributions (9,998) (1,765) (11,763)
---------------------------------------------------------
Members' equity as of December 31, 1997 72,298 176 72,474
Net income 2,595 1,721 4,316
Cash distributions (10,000) (1,765) (11,765)
--------------------------------------------------------
Members' equity as of December 31, 1998 64,893 132 65,025
Net income (loss) (4,029) 1,628 (2,401)
Purchase of Class A units (336) -- (336)
Cash distributions (9,930) (1,760) (11,690)
---------------------------------------------------------
Members' equity as of December 31, 1999 $ 50,598 $ -- $ 50,598
=========================================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
Operating activities 1999 1998 1997
-------------------------------------------
Net income (loss) $ (2,401) $ 4,316 $ (2,052)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 14,849 16,774 19,347
Loss on revaluation of equipment 3,931 -- --
Net gain on dispositions of equipment (23) (2,759) (1,682)
Cumulative effect of accounting change 132 -- --
Equity in net income of unconsolidated special
purpose entities (1,761) (2,390) (1,453)
Changes in operating assets and liabilities:
Restricted cash (453) -- 223
Accounts receivable, net (131) 173 (513)
Prepaid expenses and other assets 156 77 164
Accounts payable and accrued expenses (3) (132) 167
Due to affiliates 276 115 122
Lessee deposits and reserve for repairs 781 1,321 846
Minority interest (676) (1,008) (1,425)
-------------------------------------------
Net cash provided by operating activities 14,677 16,487 13,744
-------------------------------------------
Investing activities
Payments for purchase of equipment (11,397) (27,477) (24,444)
Equipment acquisition deposits -- -- (920)
Investment in and equipment purchased and placed
in unconsolidated special-purpose entities -- (13,917) (683)
Liquidation distributions from unconsolidated special-
purpose entities 14,282 10,385 --
Distributions from unconsolidated special-purpose entities 2,173 7,184 4,092
Proceeds from disposition of equipment 168 5,380 10,901
-------------------------------------------
Net cash provided by (used in) investing activities 5,226 (18,445) (11,054)
-------------------------------------------
Financing activities
Proceeds from note payable -- -- 25,000
(Decrease) increase due to affiliates -- (1,736) 1,736
Cash distributions to Class A members (9,930) (10,000) (9,998)
Cash distributions to Class B member (1,760) (1,765) (1,765)
Purchase of Class A units (336) -- --
Debt placement fees -- -- (176)
-------------------------------------------
Net cash (used in) provided by financing activities (12,026) (13,501) 14,797
-------------------------------------------
Net increase (decrease) in cash and cash equivalents 7,877 (15,459) 17,487
Cash and cash equivalents at beginning of year 3,720 19,179 1,692
-------------------------------------------
===========================================
Cash and cash equivalents at end of year $ 11,597 $ 3,720 $ 19,179
===========================================
Supplemental information
Interest paid $ 1,833 $ 1,833 $ 1,418
===========================================
See accompanying notes to financial statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation
Organization
Professional Lease Management Income Fund I, L.L.C., a Delaware Limited
Liability Company (Fund) was formed on August 22, 1994, to engage in the
business of owning, leasing, or otherwise investing in predominately used
transportation and related equipment. PLM Financial Services, Inc. (FSI) is
the Manager of the Fund. FSI is a wholly-owned subsidiary of PLM
International, Inc. (PLM International).
On May 13, 1996, the Fund ceased its offering for Class A Units. As of
December 31, 1999, there were 4,975,321 Units outstanding.
The Fund will terminate on December 31, 2010, unless terminated earlier
upon sale of all equipment or by certain other events. Beginning in the
Fund's seventh year of operations, which commences on January 1, 2003, the
Manager will stop purchasing additional equipment. Excess cash, if any,
less reasonable reserves, will be distributed to the members. Between the
eighth and tenth years of operations, the Manager intends to begin an
orderly liquidation of the Fund's assets.
The Manager (Class B Member) controls and manages the affairs of the Fund.
The Manager paid out of its own corporate funds (as a capital contribution
to the Fund) all organization and syndication expenses incurred in
connection with the offering; therefore, 100% of the net cash proceeds
received by the Fund from the sale of Class A Units were initially used to
purchase equipment and established any required cash reserves. For its
contribution, the Manager is generally entitled to a 1% interest in profits
and losses and 15% interest in the Fund's cash distributions subject to
certain special allocation provisions (see Net Income (Loss) and
Distributions Per Class A Unit, below). After the investors receive cash
distributions equal to their original capital contributions the Manager's
interest in the cash distributions of the Fund will increase to 25%.
The operating agreement includes a redemption provision. Upon the
conclusion of the 30-month period immediately following the termination of
the offering, which was in November 1998, the Fund may, at the Manager's
sole discretion, redeem up to 2% of the outstanding units each year. The
purchase price paid by the Fund for outstanding Class A Units upon
redemption will be equal to 105% of the amount Class A Members paid for the
Class A Units, less the amount of cash distributions Class A Members have
received relating to such Class A Units. The price may not bear any
relationship to the fair market value of a Class A Unit. As of December 31,
1999, the Fund agreed to purchase approximately 4,000 units for an
aggregate price of approximately $49,000. The Manager anticipates that
these units will be purchased in the first and second quarters of 2000. The
Manager may purchase additional units on behalf of the Fund in the future.
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Operations
The equipment of the Fund is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned
subsidiary of the FSI. IMI receives a monthly management fee from the Fund
for managing the equipment (see Note 2). FSI, in conjunction with its
subsidiaries, sells equipment to investor programs and third parties,
manages pools of equipment under agreements with investor programs, and is
a general partner of other programs.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation (continued)
Accounting for Leases
The Fund's leasing operations generally consist of operating leases. Under
the operating lease method of accounting, the leased asset is recorded at
cost and depreciated over its estimated useful life. Rental payments are
recorded as revenue over the lease term as earned in accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
(SFAS 13). Lease origination costs are capitalized and amortized over the
term of the lease.
Depreciation and Amortization
Depreciation of transportation equipment held for operating leases is
computed on the double-declining balance method taking a full month's
depreciation in the month of acquisition, based upon estimated useful lives
of 15 years for railcars, and 12 years for most other types of equipment.
Certain aircraft are depreciated under the double-declining balance method
over the lease term which approximate their economic life. The depreciation
method is changed to straight-line when annual depreciation expense using
the straight-line method exceeds that calculated by the double-declining
balance method. Debt placement fees are amortized over the term of the
related loan (see Note 7). Major expenditures that are expected to extend
the useful lives or reduce future operating expenses of equipment are
capitalized and amortized over the estimated remaining life of the
equipment.
Transportation Equipment
In accordance with the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", the Manager reviews the carrying
value of the Fund's equipment at least quarterly and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in
relation to expected future market conditions for the purpose of assessing
recoverability of the recorded amount. If projected undiscounted future
cash flows and fair value are less than the carrying value of the
equipment, a loss on revaluation is recorded based upon the estimated fair
value of the asset. Reductions of $3.9 million to the carrying value of two
marine vessels were required during 1999. Reductions of $1.0 million to the
carrying value of the Fund's interest in an entity owning a marine vessel
was required during 1998. No reductions were required to the carrying value
of wholly and partially-owned equipment during 1997.
Equipment held for operating leases is stated at cost less any reductions
to the carrying value as required by SFAS 121.
Investments in Unconsolidated Special-Purpose Entities
The Fund has interests in unconsolidated special-purpose entities (USPEs)
that own transportation equipment. The Fund owned a majority interest in an
entity that owned a mobile offshore drilling unit. In September 1999, the
Manager amended the corporate-by-laws of certain USPEs in which the Fund,
or any affiliated program, owns an interest greater than 50%. The amendment
to the corporate-by-laws provided that all decisions regarding the
acquisition and disposition of the investment as well as other significant
business decisions of that investment would be permitted only upon
unanimous consent of the Fund and all the affiliated programs that have an
ownership in the investment. As such, although the Fund may own a majority
interest in a USPE, the Fund does not control its management and thus it is
appropriate that the equity method of accounting be used after adoption of
the amendment. As a result of the amendment, as of September 30, 1999, all
jointly owned equipment in which the Fund owned a majority interest, which
had been consolidated, were reclassified to investments in USPEs.
Accordingly, as of December 31, 1999, the balance sheet reflects all
investments in USPEs on an equity basis.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation (continued)
Investments in Unconsolidated Special-Purpose Entities (continued)
The Fund's interests in USPEs are managed by IMI. The Fund's equity
interest in the net income (loss) of USPEs is reflected net of management
fees paid or payable to IMI.
Repairs and Maintenance
Repair and maintenance costs related to marine vessels, railcars, and
trailers are usually the obligation of the Fund and are accrued as
incurred. Costs associated with marine vessel dry-docking are estimated and
accrued ratably over the period prior to such dry-docking. Maintenance
costs of aircraft and marine containers are the obligation of the lessee.
To meet the maintenance requirements of certain aircraft airframes and
engines, reserve accounts are prefunded by the lessee over the period of
the lease based on the number of hours this equipment is used, times the
estimated rate to repair this equipment. If repairs exceed the amount
prefunded by the lessee, the Fund has the obligation to fund and accrue the
difference. In certain instances, if the aircraft is sold and there is a
balance in the reserve account for repairs to that aircraft, the balance in
the reserve account is reclassified as additional sales proceeds. The
aircraft reserve accounts and marine vessel dry-docking reserve accounts
are included in the balance sheet as lessee deposits and reserve for
repairs.
Net Income (Loss) and Distributions per Unit
The net profits and losses of the Fund are generally allocated 1% to the
Class B Members and 99% to the Class A Members. The Class B Member or
Manager will be specially allocated (i) 100% of the Fund's organizational
and offering cost amortization expenses and (ii) income equal to the excess
of cash distribution over the Manager`s 1% share of net profits. The effect
on the Class A members of this special income allocation will be to
increase the net loss or decrease the net profits allocable to the Class A
members by an equal amount. During 1999, the Manager received a special
allocation of income of $1.7 million ($1.6 million in 1998 and $1.8 million
in 1997). Cash distributions of the Fund are generally allocated 85% to the
Class A members and 15% to the Manager and may include amounts in excess of
net income. After the investors receive cash distributions equal to their
original capital contributions the Manager's interest in the cash
distributions of the Fund will increase to 25%. The Class A members' net
income (loss) is allocated among the Class A members based on the number of
Class A units owned by each member and on the number of days of the year
each member is in the Fund.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business
and quarterly unitholders receive a distribution check 45 days after the
close of the quarter.
Cash distributions to Class A Unitholders in excess of net income are
considered a return of capital. Cash distributions to Class A Unitholders
of $9.9 million, $7.4 million, and $10.0 million in 1999, 1998, and 1997,
respectively, were deemed to be a return of capital.
Cash distributions relating to the fourth quarters of 1999, 1998, and 1997,
of $1.7 million for each year, were paid during the first quarter of 2000,
1999, and 1998, respectively.
Net Income (Loss) Per Weighted-Average Class A Unit
Net income (loss) per weighted-average Class A unit was computed by
dividing net income (loss) attributable to Class A members by the
weighted-average number of Class A units deemed outstanding during the
period. The weighted-average number of Class A units deemed outstanding
during the years ended December 31, 1999 and 1998 were 4,982,336 and
4,999,581, respectively.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation (continued)
Cash and Cash Equivalents
The Fund considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less
as cash equivalents. The carrying amount of cash equivalents approximates
fair market value due to the short-term nature of the investments.
Restricted Cash
As of December 31, 1999, restricted cash represented lessee security
deposits held by the Fund.
Comprehensive Income
The Fund's net income (loss) is equal to comprehensive income for the years
ended December 31, 1999, 1998, and 1997.
Reclassification
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
2. Manager and Transactions with Affiliates
An officer of PLM Securities Corp., a wholly-owned subsidiary of the
Manager, contributed the $100 of the Fund's initial capital. Under the
equipment management agreement, IMI, subject to certain reductions,
receives a monthly management fee attributable to either owned equipment or
interests in equipment owned by the USPEs equal to the lesser of (i) the
fees that would be charged by an independent third party for similar
services for similar equipment or (ii) the sum of (A) for that equipment
for which IMI provides only basic equipment management services, (a) 2% of
the gross lease revenues attributable to equipment which is subject to full
payout net leases, (b) 5% of the gross lease revenues attributable to
equipment that is subject to operating leases, and (B) for that equipment
for which IMI provides supplemental equipment management services, 7% of
the gross lease revenues attributable to equipment for which IMI provides
both management and additional services. Fund management fees of $0.2
million were payable at December 31, 1999 and 1998, respectively. The
Fund's proportional share of the USPE's management fee payable were
$31,000, and $40,000 as of December 31, 1999 and 1998, respectively. The
Fund's proportional share of USPE management fees was $0.2 million, $0.2
million, and $0.3 million during 1999, 1998, and 1997, respectively. The
Fund reimbursed FSI $1.0 million, $1.0 million, and $0.9 million for data
processing expenses and other administrative services performed on behalf
of the Fund during 1999, 1998, and 1997. The Fund's proportional share of
the USPE's administrative and data processing expenses reimbursable to FSI
was 46,000, $0.1 million and $0.1 million during 1999, 1998, and 1997,
respectively.
The Fund paid $2,000 and $24,000 in 1998 and 1997, respectively, to
Transportation Equipment Indemnity Company, Ltd. (TEI), which provided
marine insurance coverage for Fund equipment and other insurance brokerage
services. TEI was an affiliate of the Manager. No fees for owned equipment
were paid to TEI in 1999. During 1998, the Fund received a $16,000
loss-of-hire insurance refund from TEI due to lower claims from the insured
Fund and other insured affiliated programs. The Fund's proportional share
of USPE's marine insurance coverage paid to TEI was $10,000 during 1997. A
substantial portion of this amount was paid to third-party reinsurance
underwriters or was placed in risk pools managed by TEI on behalf of
affiliated programs and PLM International which provide threshold coverages
on marine vessel loss of hire and hull and machinery damage. All pooling
arrangement funds are either paid out to cover applicable losses or
refunded pro rata by TEI. The Fund's proportional share of a refund of
$5,000 was received during 1998, from lower loss-of-hire insurance claims
from the insured USPEs and other insured affiliated programs. During 1999
and 1998, TEI did not provide the same level of insurance coverage as had
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
2. Manager and Transactions with Affiliates (continued)
been provided during 1997. These services were provided by an unaffiliated
third party. PLMI liquidated TEI during the first quarter of 2000.
Transportation Equipment Corporation (TEC) will also be entitled to receive
an equipment liquidation fee equal to the lesser of (i) 3% of the sales
price of equipment sold on behalf of the Fund, or (ii) 50% of the
"Competitive Equipment Sale Commission," as defined in the agreement, if
certainconditions are met. TEC is a wholly-owned subsidiary of the Manager.
In certain circumstances, the Manager will be entitled to a monthly
re-lease fee for re-leasing services following the expiration of the
initial lease, charter or other contract for certain equipment equal to the
lesser of (a) the fees which would be charged by an independent third party
for comparable services for comparable equipment or (b) 2% of gross lease
revenues derived from such re-lease, provided, however, that no re-lease
fee shall be payable if such fee would cause the combination of the
equipment management fee paid to IMI and the re-lease fees with respect to
such transactions to exceed 7% of gross lease revenues.
As of December 31, 1999, approximately 39% of the Fund's trailer equipment
was in rental facilities operated by PLM Rental, Inc., an affiliate of the
Manager, doing business as PLM Trailer Leasing. Rents are reported as
revenue in accordance with SFAS No. 13. Direct expenses associated with the
equipment are charged directly to the Fund. An allocation of indirect
expenses of the rental yard operations is charged to the Fund monthly.
The Fund had an interest in certain equipment in conjunction with
affiliated programs during 1999, 1998, and 1997 (see Note 4).
The balance due to affiliates as of December 31, 1999, included $0.2
million due to FSI and its affiliates for management fees and $0.5 million
due to affiliated USPEs. The balance due to affiliates as of December 31,
1998, included $0.2 million due to FSI and its affiliates for management
fees.
3. Equipment
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
Equipment Held for Operating Leases 1999 1998
----------------------------------- ---------------------------------
Marine vessels $ 37,256 $ 46,957
Aircraft 20,605 20,605
Railcars 19,710 19,920
Trailers 16,196 14,788
Marine containers 9,942 --
Mobile offshore drilling unit -- 20,356
---------------------------------
103,709 122,626
Less accumulated depreciation (45,183) (44,350)
---------------------------------
Net equipment $ 58,526 $ 78,276
=================================
Revenues are earned under operating leases. The majority of rents for
railcars are based on a fixed rate; in some cases they are based on mileage
traveled, rents for all other equipment are based on fixed rates.
During September 1999, certain equipment in which the Fund held a majority
ownership was reclassified to investments in USPEs (see Note 4).
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
3. Equipment (continued)
Equipment held for operating leases is stated at cost less any reductions
to the carrying value as required by SFAS 121. During 1999, reductions to
the carrying value of marine vessels of $3.9 million were required.
As of December 31, 1999, all owned equipment in the Fund portfolio was
either on lease or operating in PLM-affiliate short-term trailer rental
yards except for six railcars with a carrying value of $0.1 million. As of
December 31, 1998, all owned equipment in the Fund portfolio was either on
lease or operating in PLM-affiliated short-term trailer rental yards except
for 3 railcars with a carrying value of $37,000.
During the year ended December 31, 1999, the Fund purchased 4,430 marine
containers and 65 dry trailers for a total cost of $11.4 million. During
the year ended December 31, 1998, the Fund purchased 39 railcars, two
marine vessels (a deposit of $0.9 million was paid in December 1997 for the
purchase of one of these marine vessels) and a hush kit for an aircraft for
a total of $28.4 million.
During the year ended December 31, 1999, the Fund sold trailers and
railcars with an aggregate net book value of $0.1 million, for proceeds of
$0.2 million. During the year ended December 31, 1998, the Fund sold an
aircraft, trailers and railcars with a net book value of $2.6 million, for
proceeds of $5.4 million.
All owned equipment on lease is being accounted for as operating leases.
Future minimum rent under noncancelable operating leases as of December 31,
2000 for the owned equipment during each of the next five years are
approximately $8.7 million, 2000; $7.0 million, 2001; $5.6 million, 2002;
$1.9 million, 2003, $1.6 million, 2004 and $1.5 million, 2005 and
thereafter. Per diem and short-term rentals consisting of utilization rate
lease payments included in revenues amounted to approximately $3.3 million,
$3.5 million and $4.0 million in 1999, 1998 and 1997, respectively.
4. Investments in Unconsolidated Special Purpose Entities
The Fund owns equipment jointly with affiliated programs.
In September 1999, the Manager amended the corporate-by-laws of certain
USPEs in which the Fund, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided that all
decisions regarding the acquisition and disposition of the investment as
well as other significant business decisions of that investment would be
permitted only upon unanimous consent of the Fund and all the affiliated
programs that have an ownership in the investment. As such, although the
Fund may own a majority interest in a USPE, the Fund does not control its
management and thus it is appropriate that the equity method of accounting
be used after adoption of the amendment. As a result of the amendment, as
of September 30, 1999, all jointly owned equipment in which the Fund owned
a majority interest, which had been consolidated, were reclassified to
investments in USPEs. Accordingly, as of December 31, 1999, the balance
sheet reflects all investments in USPEs on an equity basis.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
4. Investments in Unconsolidated Special Purpose Entities (continued)
The net investments in USPEs include the following jointly-owned equipment
as of December 31, (and related assets and liabilities) (in thousands of
dollars):
1999 1998
---------------------------------------------
50% interest in a trust owning an MD-82 commercial aircraft $ 4,784 $ 6,441
50% interest in a trust owning an MD9-82 stage III commercial
aircraft 1,773 3,342
50% interest in a trust owning a cargo marine vessel 1,024 1,265
25% interest in a trust that owned four 737-200A stage II
commercial aircraft 76 137
25% interest in a trust that owned four 737-200A stage II
commercial aircraft 60 110
33% interest in two trusts that owned a total of three
737-200A stage II commercial aircraft, two stage II
aircraft engines, and a portfolio of aircraft rotables -- 3,929
---------------------------------------------
Net investments $ 7,717 $ 15,224
=============================================
As of December 31, 1999 and 1998, all jointly-owned equipment in the Fund's
USPE portfolio was on lease.
During 1999, the Manager sold the Fund's 61% interest in an entity that
owned a mobile offshore drilling unit. The Fund's interest in this entity
was sold for proceeds of $7.2 million for its net investment of $7.2
million. Also, during 1999, the Manager sold the Fund's 33% interest in two
trusts that owned a total of three Boeing 737-200A stage II commercial
aircraft, two stage II aircraft engines, and a portfolio of aircraft
rotables. The trusts were sold for proceeds of $7.1 million for its net
investment of $3.8 million.
The Fund had interests in two USPEs that own multiple aircraft (the
Trusts). These Trusts contain provisions under certain circumstances for
allocating specific aircraft to the beneficial owners. During 1998, in one
of these Trusts, the Fund sold the commercial aircraft assigned to it, with
a net book value of $2.3 million, for proceeds of $5.9 million. Also during
the same period, in another trust, the Fund sold the commercial aircraft
assigned to it, with a net book value of $1.8 million, for proceeds of $4.5
million.
During 1998, the Fund purchased a 50% interest in a MD-82 stage III
commercial aircraft for $6.8 million (a deposit of $0.7 million was paid in
December of 1997) and a 50% interest in a MD-82 stage III commercial
aircraft for $7.8 million.
The following summarizes the financial information for the special-purpose
entities and the Fund's interests therein as of and for the years ended
December 31, 1999, 1998, and 1997 (in thousands of dollars):
1999 1998 1997
--------- ---------- ----------
Net Net Net
Total Interest of Total Interest of Total Interest
USPEs Fund USPEs Fund USPEs of Fund
------------------------- -------------------------------------------------------
Net investments $ 26,320 $ 7,717 $ 35,630 $ 15,224 $ 59,369 $ 16,486
Lease revenues 4,314 3,124 13,601 5,200 24,283 7,125
Net income 7,282 1,761 14,377 2,390 10,831 1,453
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
4. Investments in Unconsolidated Special Purpose Entities (continued)
All partially owned equipment on lease is being accounted for as operating
leases. Future minimum rent under noncancelable operating leases as of
December 31, 1999 for the partially owned equipment during each of the next
five years are approximately $2.1 million, 2000; $2.1 million, 2001; $2.1
million, 2002; $0.9 million, 2003, $0.9 million, 2004, and $0.9 million,
2005 and thereafter.
5. Operating Segments
The Fund operates or operated in five primary operating segments: aircraft
leasing, mobile offshore drilling unit (MODU) leasing, marine vessel
leasing, trailer leasing, and railcar leasing. Each equipment leasing
segment engages in short-term to mid-term operating leases to a variety of
customers.
The Manager evaluates the performance of each segment based on profit or
loss from operations before interest expense and certain general and
administrative and operations support expenses. The segments are managed
separately due to different business strategies for each operation.
The following tables present a summary of the operating segments (in
thousands of dollars):
Marine
Aircraft MODU Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ------ -----
Revenues
Lease revenue $ 4,057 $ 3,560 $ 9,501 $ 3,864 $ 3,804 $ 1,327 $ 26,113
Interest income and other 38 -- 5 -- 9 295 347
Net gain on disposition
of equipment -- -- -- 8 15 -- 23
-------------------------------------------------------------------------
Total revenues 4,095 3,560 9,506 3,872 3,828 1,622 26,483
Costs and expenses
Operations support 29 66 4,511 888 625 84 6,203
Depreciation and amortization 2,571 1,748 6,012 1,481 1,739 1,298 14,849
Interest expense -- -- -- -- -- 1,833 1,833
Management fees to affiliate 203 178 475 224 250 66 1,396
General and administrative expenses 34 75 59 758 71 676 1,673
Provision for bad debt expense -- -- -- 25 13 -- 38
Loss on revaluation of equipment -- -- 3,931 -- -- -- 3,931
-------------------------------------------------------------------------
Total costs and expenses 2,837 2,067 14,988 3,376 2,698 3,957 29,923
-------------------------------------------------------------------------
Minority interest -- (590) -- -- -- -- (590)
Equity in net income (loss) of USPEs 1,836 206 (281) -- -- -- 1,761
-------------------------------------------------------------------------
Net income (loss) before cumulative
effect
of accounting change 3,094 1,109 (5,763) 496 1,130 (2,335) (2,269)
Cumulative effect of accounting -- -- -- -- -- (132) (132)
change
=========================================================================
Net income (loss) $ 3,094 $ 1,109 $ (5,763) $ 496 $ 1,130 $ (2,467 ) $ (2,401)
=========================================================================
Total assets as of December 31, 1999 $ 10,952 $ -- $ 27,407 $ 9,513 $ 11,339 $ 21,322 $ 80,533
=========================================================================
- ---------------------------
1 Includes interest income and costs not identifiable to a particular segment
such as amortization expense, interest expense, certain operations support, and
general and administrative expenses. Also includes the lease revenue of $1.3
million, depreciation expense of $1.3 million, and management fee of $0.2
million for marine containers.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
5. Operating Segments (continued)
Marine
Aircraft MODU Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other2 Total
------------------------------------ ------- ------- ------- ------- ------- ------ -----
Revenues
Lease revenue $ 4,567 $ 4,046 $ 8,684 $ 3,894 $ 3,958 $ -- $ 25,149
Interest income and other 13 -- 13 -- 19 348 393
Net gain on disposition
of equipment 2,710 -- -- 9 40 -- 2,759
-------------------------------------------------------------------------
Total revenues 7,290 4,046 8,697 3,903 4,017 348 28,301
Expenses
Operations support 42 110 2,890 631 634 84 4,391
Depreciation and amortization 4,624 2,798 5,490 1,738 2,018 106 16,774
Interest expense -- -- -- -- -- 1,833 1,833
Management fee 213 202 434 256 263 -- 1,368
General and administrative expenses 67 47 121 805 63 578 1,681
Provision for (recovery of) bad 2 -- -- 11 (36) -- (23)
debt
-------------------------------------------------------------------------
Total costs and expenses 4,948 3,157 8,935 3,441 2,942 2,601 26,024
-------------------------------------------------------------------------
Minority interest -- (351) -- -- -- -- (35)
Equity in net income (loss) of USPEs 3,834 -- (1,444) -- -- -- 2,390
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ 6,176 $ 538 $ (1,682) $ 462 $ 1,075 $ (2,253) $ 4,316
=========================================================================
Total assets as of December 31, 1998 $20,387 $ 14,392 $ 37,916 $ 8,682 $ 13,109 $ 5,149 $ 99,635
=========================================================================
Marine
Aircraft MODU Vessel Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Otherz2 Total
------------------------------------ ------- ------- ------- ------- ------- ------ -----
Revenues
Lease revenue $ 5,037 $ 5,059 $ 3,690 $ 3,670 $ 3,377 $ -- $ 20,833
Interest income and other 14 -- -- -- 1 390 405
Net gain on disposition
of equipment -- 1,675 -- 7 -- -- 1,682
-------------------------------------------------------------------------
Total revenues 5,051 6,734 3,690 3,677 3,378 390 22,920
Expenses
Operations support 43 70 1,606 420 666 47 2,852
Depreciation and amortization 8,007 4,670 2,363 2,059 2,143 105 19,347
Interest expense -- -- -- -- -- 1,418 1,418
Management fee 203 253 185 248 216 20 1,125
General and administrative expenses 21 85 72 861 129 486 1,654
-------------------------------------------------------------------------
Total costs and expenses 8,274 5,078 4,226 3,588 3,154 2,076 26,396
-------------------------------------------------------------------------
Minority interest -- (29) -- -- -- -- (29)
Equity in net income (loss) of USPEs 1,795 -- (342) -- -- -- 1,453
-------------------------------------------------------------------------
Net income (loss) $ (1,428) $ 1,627 $ (878) $ 89 $ 224 $ (1,686) $ (2,052)
=========================================================================
Total assets as of December 31, 1997 $ 26,291 $ 16,808 $ 19,657 $ 10,432 $ 14,150 $ 21,186 $ 108,524
=========================================================================
- ------------------
2 Includes interest income and costs not identifiable to a particular segment
such as amortization expense, interest expense, certain operations support, and
general and administrative epxenses.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
6. Geographic Information
The Fund owns certain equipment, which is leased and operated
internationally. A limited number of the Fund's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Fund leases its aircraft, railcars and trailers to lessees domiciled in
four geographic regions: United States, South America, Canada, and Europe.
The marine vessels, mobile offshore drilling unit and marine containers are
leased to multiple lessees in different regions who operate the equipment
worldwide.
The following table sets forth lease revenue information by region for the
owned equipment and investments in USPEs for the years ended December 31,
are as follows (in thousands of dollars):
Owned Equipment Investments in USPEs
---------------------------------------------------------------------------------------
Region 1999 1998 1997 1999 1998 1997
-------------------------------------------------------------------------------------------------------------
United States $ 6,187 $ 6,172 $ 6,296 $ 2,123 $ 1,783 $ --
South America 4,057 4,567 4,057 -- -- --
Canada 1,480 1,680 1,731 -- 945 2,405
Europe -- -- -- -- 1,560 3,530
Rest of the world 14,389 12,730 8,749 1,001 912 1,190
=======================================================================================
Lease revenues $ 26,113 $ 25,149 $ 20,833 $ 3,124 $ 5,200 $ 7,125
=======================================================================================
The following table sets forth income (loss) information by region for
owned equipment and investments in USPEs for the years ended December 31,
are as follows (in thousands of dollars):
Owned Equipment Investments in USPEs
-------------------------------------------------------------------------------------
Region 1999 1998 1997 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
nited States $ 1,150 $ 1,070 $ 214 $ (1,317) $ (3,037) $ --
South America 1,258 2,342 (2,446) -- -- --
Canada 476 466 (28) 22 6,718 142
Europe -- -- -- 3,131 153 1,653
Rest of the world (4,598) 300 1,204 (75) (1,444) (342)
-------------------------------------------------------------------------------------
Regional
Income (loss) (1,714) 4,178 (1,056) 1,761 2,390 1,453
Administrative
and other (2,448) (2,252) (2,449) -- -- --
-------------------------------------------------------------------------------------
=====================================================================================
Net income (loss) $ (4,162) $ 1,926 $ (3,505) $ 1,761 $ 2,390 $ 1,453
=====================================================================================
The net book value of owned assets and the net investment in the
unconsolidated special-purpose entities at December 31, are as follows (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------------ ------------------------------------------
Region 1999 1998 1997 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
United States $ 14,432 $ 15,751 $ 24,901 $ 6,559 $ 9,782 $ --
South America 3,857 6,429 10,022 -- -- 4,006
Canada 5,450 6,040 2,102 136 248 4,614
Europe -- -- -- -- 3,929 5,180
Rest of the world 34,787 50,056 32,145 1,022 1,265 2,686
========================================================================================
Net book value $ 58,526 $ 78,276 $ 69,170 $ 7,717 $ 15,224 $ 16,486
========================================================================================
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
7. Notes Payable
In December 1996, the Fund entered into an agreement to issue a $25.0
million long-term note to an institutional investor. The note bears
interest at a fixed rate of 7.33% per annum and has a final maturity in
2006. Interest on the note is payable semi-annually. The note will be
repaid in five principal payments of $3.0 million on December 31, 2000,
2001, 2002, 2003, and 2004 and two principal payments of $5.0 million on
December 31, 2005, and 2006. The agreement requires the Fund to maintain
certain financial covenants related to fixed-charge coverage The loan was
funded in March 1997. The Manager estimates, based on recent transactions,
that the fair value of the $25.0 million fixed-rate note is $25.7 million.
The Manager has entered into a joint $24.5 million credit facility (the
Committed Bridge Facility) on behalf of the Fund, PLM Equipment Growth Fund
VI (EGF VI) and PLM Equipment Growth & Income Fund VII (EGF VII), both
affiliated investment programs; and TEC Acquisub, Inc. (TECAI), an indirect
wholly-owned subsidiary of the Manager, which may be used to provide
interim financing of up to (i) 70% of the aggregate book value or 50% of
the aggregate net fair market value of eligible equipment owned by the
Fund, plus (ii) 50% of unrestricted cash held by the borrower. The Fund,
EGF VI, EGF VII, and TECAI collectively may borrow up to $24.5 million of
the Committed Bridge Facility. Outstanding borrowings by one borrower
reduce the amount available to each of the other borrowers under the
Committed Bridge Facility. The Committed Bridge Facility also provides for
a $5.0 million Letter of Credit Facility for the eligible borrowers.
Individual borrowings may be outstanding for no more than 179 days, with
all advances due no later than June 30, 2000. Interest accrues at either
the prime rate or adjusted LIBOR plus 1.625% at the borrower's option and
is set at the time of an advance of funds. Borrowings by the Fund are
guaranteed by the Manager. As of December 31, 1999, no eligible borrower
had any outstanding borrowings under this facility. The Manager believes it
will be able to renew the Committed Bridge Facility upon its expiration
with similar terms as those in the current Committed Bridge Facility.
8. Concentrations of Credit Risk
The Fund's customers that accounted for 10% or more of the total
consolidated revenues for the owned equipment and partially owned equipment
during 1999, 1998, and 1997 were TAP Air Portugal (12% in 1997) and
Canadian Airlines International (11% in 1997). No single lessee accounted
for more than 10% of the consolidated revenues for the year ended December
31, 1999 or 1998. In 1999, however, Casino Express Air purchased the Fund's
33% interest in two trusts that owned a total of three Boeing 737-200A
stage II commercial aircraft, two stage II aircraft engines, and a
portfolio of aircraft rotables and the gain from the sale accounted for 10%
of total consolidated revenues from wholly and partially owned equipment.
In 1998, Triton Aviation Services, Ltd. purchased three commercial aircraft
from the Fund and the gain from the sale accounted for 23% of total
consolidated revenues from wholly and partially owned equipment. In 1997,
Hercules Rig Corporation, also a lessee, purchased the mobile offshore
drilling unit that they were leasing from the Fund. The lease revenues and
the gain from the sale accounted for 11% of total consolidated revenues
during 1997.
As of December 31, 1999 and 1998, the Manager believes the Fund had no
significant concentrations of credit risk that could have a material
adverse effect on the Fund.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
9. Income Taxes
The Fund is not subject to income taxes, as any income or loss is included
in the tax returns of the individual partners. Accordingly, no provision
for income taxes has been made in the financial statements of the Fund.
As of December 31, 1999, the federal income tax basis were higher than the
financial statement carrying values of certain assets and liabilities by
approximately $31.3 million, primarily due to differences in depreciation
methods, equipment reserves, provisions for bad debts, lessee's prepaid
deposits, and the tax treatment of syndication costs.
10. Cumulative Effect of Accounting Change
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs related to start-up activities to be
expensed as incurred. The statement requires that initial application be
reported as a cumulative effect of a change in accounting principle. The
Fund adopted this statement during the first quarter of 1999, at which time
it took a $0.1 million charge, related to start-up costs of Fund. This
charge had the effect of reducing net income per weighted-average Class A
unit by $0.02 for the year ended December 31, 1999.
11. Subsequent Event
During January 2000, the Fund purchased a group of trailers for $0.2
million. In addition, the Fund purchased a group of marine containers for
$4.8 million during February 2000. Also, the Fund purchased a group of
marine containers for $5.0 during March 2000.
(This space intentionally left blank.)
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
INDEX OF EXHIBITS
Exhibit Page
4. Operating Agreement of Fund. *
10.1 Management Agreement between Fund and PLM Investment *
Management, Inc.
10.2 $25.0 Million Note Agreement, dated as of December 30, 1996. *
10.3 Fourth Amended and restated Warehousing Credit Agreement,
dated as of December 15, 1998, with First Union National Bank *
10. 4 First amendment to the Fourth Amended and Restated Warehouse
Credit Agreement dated December 10, 1999. 47-51
24. Powers of Attorney. 52-54
- --------------------
* Incorporated by reference. See page 26 of this report.