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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, 1997.
[ ] 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 33-83216-01
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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 40
Total number of pages in this report: 123
PART I
ITEM 1. BUSINESS
(A) Background
Professional Lease Management Income Fund I, L.L.C. (the Fund), a Delaware
Limited Liability Company, was formed on August 22, 1994, to purchase, lease,
charter, or otherwise invest in, a diversified portfolio of long-lived, low
obsolescence capital equipment that is transportable by and among prospective
users (the Equipment). The securities represent limited liability company
interests (the Class A Units) that were offered to the public. The Fund's
offering became effective on January 23, 1995. PLM Financial Services, Inc.
(FSI) is the Manager of the Fund and is the initial Class B member. The purchase
price of the Class A Units was $20.00 per Class A Unit. On May 13, 1996, the
Fund ceased its offering of Class A Units ($100,000,000). As of December 31,
1997, there were 4,999,581 Units outstanding.
The primary objectives of the Fund are:
(1) Investment in and leasing of capital equipment: to invest in a diversified
leasing 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;
(2) Safety through diversification: to create a significant degree of safety
relative to other equipment leasing investments through the purchase of a
diversified Equipment portfolio. This diversification may reduce the exposure to
market fluctuations in any one sector. The purchase of used long-lived, low
obsolescence Equipment typically at prices which are substantially below the
cost of new equipment should also reduce the impact of economic depreciation and
may create the opportunity for appreciation in certain market situations, where
supply and demand return to balance from oversupply conditions; while providing:
(3) Cash distributions: to generate cash distributions, which may be
substantially tax-deferred (i.e., distributions which are not subject to current
taxation) during the early years of the Fund, to investors beginning in the
month after the minimum number of Class A Units were sold a portion of which may
represent a return of an investor's investment; and
(4) Growth potential through reinvestment: to increase the Fund's revenue base
by reinvesting a portion of its operating cash flow in additional Equipment 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 mean
that in all cases the Fund's aggregate net income and distributions will
increase upon the reinvestment of operating cash flow.
Beginning in the Fund's eighth year of operations, the Manager plans to begin
liquidating 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. In no event
will the Fund extend beyond December 31, 2010.
Table 1, below, lists the cost of equipment in the Fund's portfolio, and the
cost of investments in unconsolidated special-purpose entities, at December 31,
1997 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- --------------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
1 Anchor handling supply vessel Moss Point $ 8,500
1 Bulk carrier marine vessel Hitachi Shipbuilding & Engineering Co. 12,257
5 737-200A stage II commercial
aircraft Boeing 24,605
246 Box cars Various 4,972
325 Pressurized tank cars Various 8,541
100 Covered hopper railcars Various 5,445
152 Foodservice refrigerated trailers Various 6,994
54 Over the road refrigerated trailers Various 1,092
447 Piggyback trailers Various 6,726
---------------------
Total equipment $ 79,132
=====================
Investments in unconsolidated special-purpose entities:
33% Two trusts consisting of:
Three 737-200A stage II
commercial aircraft Boeing
Two stage II JT8D aircraft engines Pratt Whitney
Portfolio of rotable components Various $ 9,999
25% Trust consisting of four 737-200A
stage II commercial aircraft Boeing 5,610
25% Trust consisting of four 737-200A
stage II commercial aircraft Boeing 4,300
50% Cargo marine vessel O. C. Staalskibsvaerft A/F 3,836
50% Trust committed to purchase one
MD DC9-82 stage III commercial
aircraft 682
61% Mobile offshore drilling unit AT & CH de France 12,100)
---------------------
Total investments $ 36,527
=====================
Includes proceeds from capital contributions, debt, and operations invested
in equipment. Includes costs capitalized, subsequent to the date of purchase.
Jointly owned by Fund I and three affiliated programs.
Jointly owned by Fund I and two affiliated programs.
Jointly owned by Fund I and an affiliated program.
=====================
At December 31, 1997, approximately 33% of the Fund's trailer equipment operated
in rental yards owned and maintained by PLM Rental, Inc., the short-term trailer
rental subsidiary of PLM International doing business as PLM Trailer Leasing.
Revenues collected under short-term rental agreements with the rental yards'
customers are credited to the owners of the related equipment as received.
Direct expenses associated with the equipment are charged directly to the Fund.
An allocation of indirect expenses of the rental yard operations are charged to
the Fund monthly.
The lessees of the equipment include, but are not limited to: Canadian Airlines,
Transportation Airline Portugal, and Norfolk Southern. As of December 31, 1997,
all of the equipment was on lease except for one railcar.
(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
equipment. The Funds' 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 will be entitled to a monthly management fee. (See
Notes 1 and 2 to the Financial Statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned by the Fund is leased out on an operating lease
basis wherein rents owed during the initial noncancelable term of the lease are
insufficient to recover the 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 utilizing full payout
leases on new equipment, i.e., leases which have terms equal to the expected
economic life of the equipment. Full payout leases are written for longer terms
and for lower monthly rates than the Fund offers. 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 of the Fund may
write full payout leases at considerably lower rates, or larger competitors with
a lower cost of capital may offer operating leases at lower rates, and as a
result, the Fund may be at a competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Fund also competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services which the
Fund cannot offer, such as specialized maintenance service (including possible
substitution of equipment), training, warranty services, and trade-in
privileges.
The Fund competes with many equipment lessors, including ACF Industries, Inc.
(Shippers Car Line Division), General Electric Railcar Services Corporation,
General Electric Capital Aviation Services Corporation, and other companies that
lease the same types of equipment.
(D) Demand
The Fund has investments in transportation-related capital equipment and
relocatable environments. Types of transportation equipment owned by the Fund
include aircraft, marine vessels, railcars, and trailers. Relocatable
environments are functionally self-contained transportable equipment, such as
mobile offshore drilling units. Except for those aircraft leased to passenger
air carriers, the Fund's equipment is 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) Aircraft
(a) Commercial Aircraft
The commercial aircraft market experienced another good year in 1997, with a
third consecutive year of profits by the world's airlines. Airline managements
have continued to emphasize cost reductions and a moderate increase in capacity.
However, even the limited volume of new aircraft deliveries has caused the
market to change from being in equilibrium at the end of 1996 to having excess
supply. This market imbalance is expected to continue, with the number of
surplus aircraft increasing from approximately 350 aircraft at the end of 1996
to an estimated 600 aircraft by the end of the decade.
The changes taking place in the commercial aircraft market also reflect the
impact of noise legislation enacted in the United States and Europe. Between
1997 and the end of 2002, approximately 1,400 Stage II aircraft (Stage II
aircraft are aircraft that have been shown to comply with Stage II noise levels
prescribed in Federal Aviation Regulation section C36.5) are forecast to be
retired, primarily due to noncompliance with Stage III noise requirements (Stage
III aicraft are aircraft that have been shown to comply with Stage III noise
levels prescribed in Federal Aviation Regulation section C36.5) noise
requirements. This represents about 41% of the Stage II aircraft now in
commercial service worldwide. By 2002, about 2,000 (59%) of the current fleet of
Stage II aircraft will remain in operational service outside of Stage
III-legislated regions or as aircraft that have had hushkits installed so that
engine noise levels meet the quieter Stage III requirements. The cost to install
a hushkit is approximately $1.5 million, depending on the type of aircraft. All
aircraft currently being manufactured meet Stage III requirements.
The Fund's fleet of aircraft is positioned to provide a balance of Stage II and
Stage III aircraft in the portfolio. This strategy is intended to optimize
individual aircraft and the corresponding lease rentals with projected demand.
The Stage II aircraft either are positioned with air carriers that are outside
Stage III-legislated areas, are scheduled for Stage III hushkit installation in
1998-99, or are anticipated to be sold or leased outside Stage III areas before
the year 2000.
Specifically, the Fund has entered into agreements to install hushkits on
selected late-model Boeing 737-200 advanced aircraft over the next two years.
These modifications are expected to enhance the current and residual value of
the aircraft, while allowing them to continue operating in the Stage
III-legislated areas of North America and Europe.
(b) Aircraft Engines and Rotable Components
The demand for spare engines has increased, particularly for the Pratt & Whitney
State II JT8D engine, which powers many of the Fund's Stage II commercial
aircraft.
Aircraft rotables are replacement spare parts held in inventory by an airline.
These parts are components that are removed from an aircraft or engine, undergo
overhaul, and are recertified and refit to the aircraft in an "as new"
condition. Components, or rotables, carry specific identification numbers,
allowing each part to be individually tracked during it's life. The types of
rotables owned and leased by the Fund include landing gear, certain engine
components, avionics, auxiliary power units, replacement doors, control
surfaces, pumps, valves, and other comparable equipment. The Fund plans to sell
its aircraft rotables in 1998.
(2) Marine Vessels
Dry Bulk Vessels
The Fund owns or has investments with other affiliated programs in small to
medium-sized dry bulk vessels that are traded in worldwide markets and carry
commodity cargos. Dry bulk markets experienced flat freight rates, with supply
increases outrunning demand growth. Demand for commodity shipping closely tracks
worldwide economic growth patterns; however, economic development alters trade
patterns from time to time, causing changes in volume on trade routes. The
Manager operates the Fund's marine vessels under spot charters and period
charters. It is believed that this operating approach provides the flexibility
to adapt to changing demand patterns.
Freight rates for dry bulk vessels in 1997 maintained the levels experienced in
the fourth quarter of 1996. Freight rates had declined significantly in 1996
until a moderate recovery occurred late in the year due to an increase in grain
trade. The size of the overall dry bulk carrier fleet increased by 3%, as
measured by the number of vessels, and by 5%, as measured by deadweight tonnage.
Scrapping of ships was not a significant factor in 1997: 126 dry bulk ships were
scrapped while 247 were delivered. Total dry trade (as measured in deadweight
tons) grew by 3% in 1997, versus 1% in 1996. This balance of supply and demand
made market conditions soft, providing little foundation for increasing freight
rates.
Growth in 1998 is expected to be approximately 2%, with most commodity trading
flat. The majority of growth is forecast to come from grain (2%) and thermal
coal (6%). The primary variable in forecasts is Asian growth; if there is some
recovery from the economic shakeup of the second half of 1997, then there will
be prospects for improvement in 1998. Delivery of ships in 1998 is expected to
be about the same as in 1997; however, an increase in scrapping is anticipated
to strengthen the market.
Current rates do not justify any new construction of dry bulk carriers and there
should be a significant drop in orders over the next two years. If growth in
demand matches historic averages of around 3%, then the current excess supply
should be absorbed by the end of 1999, leading to the possible strengthening of
freight rates.
(b) Anchor Handling Supply Vessels
The Fund owns one U.S. flag anchor handling/tug/supply boat utilized for
supporting drilling operations of rigs in the U.S. Gulf of Mexico. Although the
boat can be utilized in other geographic regions, the preferred market for the
vessel is the U.S. Gulf of Mexico due to the requirement for U.S. flag vessels
in this region. Demand for anchor handling boats is dependent primarily upon
demand for floating drilling services by oil companies. Demand in this area
during 1997 was very strong and kept utilization to 20 to 26 boats in the area
near 100 percent. During 1997, no more than two boats were idle at any one time.
Prospects for 1998 indicate that the robust market in the Gulf of Mexico should
continue throughout the year. Oil company capital spending programs for 1998 are
predicted to be higher or at the same level as 1997, indicating that drilling
requirements will continue at high levels. With strong floating drilling rig
utilization as has been forecast, demand for anchor handling boats should
continue at levels which utilize th entire U.S. Gulf of Mexico fleet of anchor
handling/tug/supply vessels.
(c) Container Feeder Vessels
Container feeder vessels are utilized to transport containerized cargo from
smaller outlying ports to main transport hub ports from which such cargo is
moved by regularly scheduled liner service. Container feeder vessels are
typically classified as those capable of carrying up to approximately 1,000
twenty foot equivalent unit containers (TEUs). This trade has been characterized
by growth in both supply and demand for the past several years. Over the second
half of 1997, the supply of container ships (including both main liner vessels
and feeder vessels) grew by over 500,000 TEUs to approximately 3,750,000 TEUs
total capacity. In 1998, that fleet should grow another 500,000 TEUs from new
deliveries; growth in 1999 should drop to 200,000 TEUs. For vessels less than
500 TEUs, the fleet growth has been less and future growth will be less than for
the higher capacity vessels, which are subject to a much higher orderbook.
The effect of the large increase in supply of container slots in ships has been
to decrease charter rates for container feeder vessels despite the fact that
trade growth in container traffic has been robust (i.e., between 5% and 10% for
the past several years). Container trade growth should continue at near-historic
levels due to expansion of containerization to more and more cargoes. Primarily,
the introduction of significantly larger main liner ships has lowered the unit
cost of transport of a container, inducing greater traffic on main liner routes.
Expectations for 1998 are for a flat year in charter rates while 1999 should
show some improvement as deliveries of new ships decreases and trade growth
catches up to fleet growth. The uncertain factor at this time is the economic
picture for Asia, which is the main source of containerized cargoes. Exports
from Asian countries may increase with the devaluation of national currencies.
If this did occur, some charter rate improvement should be expected; however,
the current outlook is quite uncertain.
Railcars
Pressurized Tank Cars
Pressurized tank cars are used primarily in the petrochemical and fertilizer
industries to transport liquefied petroleum gas and anhydrous ammonia. The
utilization rate on the Fund's fleet of pressurized tank cars was over 98%
during 1997. The demand for natural gas is anticipated to grow through 1999, as
the developing world, former Communist countries, and the industrialized world
all increase their energy consumption. World demand for fertilizer is expected
to increase, based on an awareness of the necessity of fertilizing crops and
improving diets, the shortage of farm land, and population growth in developing
nations.
Based on ongoing renewals with current lessees, demand for these cars continues
to be strong and is projected to remain so during 1998.
(b) Covered Hopper (Grain) Cars
Industrywide, the size of the covered hopper car fleet has increased only 9%
over the last 10 years, from a total of 299,172 cars in 1985 to 325,882 cars in
1995. Covered hopper cars accounted for 30% of all new railcar deliveries in
1995 and 50% of new deliveries in 1996. During 1997, there was some downward
pressure on rental rates, as demand for covered hopper cars softened somewhat.
Grain car loadings decreased 2% compared to the same period in 1996.
Box Cars
Car loadings for paper and paper products were relatively unchanged during the
first 45 weeks of 1997, compared to loadings for the same period in 1996.
All 246 of the Fund's box cars transport paper and paper goods, and are
currently on lease until 2000 or 2001.
(4) Trailers
(a) Intermodal Trailers
In all intermodal equipment areas, 1997 was a remarkably strong year. The U.S.
inventory of intermodal equipment totaled approximately 164,000 units in 1997,
divided between about 55% intermodal trailers and 45% domestic containers.
Trailer loadings increased approximately 4% in 1997 due to a robust economy and
a continuing shortage of drivers in over-the-road markets. The expectation is
for flat to slightly declining utilization of intermodal trailer fleets in the
near future.
Over-the-Road Refrigerated Trailers
The temperature-controlled over-the-road trailer market recovered in 1997;
freight levels improved and equipment oversupply was reduced as industry players
actively retired older trailers and consolidated fleets. Most refrigerated
carriers posted revenue growth of between 2% and 5% in 1997, and accordingly are
planning fleet upgrades. In addition, with refrigeration and trailer
technologies changing rapidly and industry regulations becoming tighter,
trucking companies are managing their refrigerated fleets more effectively.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies will utilize short-term trailer leases more
frequently to supplement their fleets. Such a trend should benefit the Fund,
which generally leases its equipment on a short-term basis from rental yards
owned and operated by PLM subsidiaries.
Foodservice Distribution Trailers
Consumer demand is fueling double-digit growth in the foodservice industry,
reflecting the consumer trend toward eating fresher, more convenient foods. The
frequency of purchasing prepared meals and eating out continues to grow in
proportion to overall consumer spending. The Fund will continue to expand its
marketing to the foodservice industry, based on the growth potential of this
market and the initial strong utilization of its specialized refrigerated
trailer fleet.
Mobile Offshore Drilling Units
Worldwide demand in all sectors of the mobile offshore drilling unit (rig)
industry in 1997 was a continuation of the increases experienced in 1996. This
increase in demand was spread over all the geographic regions of offshore
drilling and affected both jackup and floating rigs. Potential demand during
1997 was difficult to estimate because of the shortage of rigs.
The tightness in the market caused significant increases in contract day rates
throughout the year. Day rates at the end of 1997 approached levels justifying
new rig construction. While continuing market improvement can be attributed to a
number of factors, the primary reason is worldwide growth in the use of oil and
natural gas for energy. Stable prices at moderate levels have encouraged such
growth, while providing adequate margins for oil and natural gas exploration and
production development.
The trend of contractor consolidation continued in 1997; three major mergers or
acquisitions initiated late in 1997 are expected to be consummated by the end of
1998. For 1998, utilization and demand are expected to remain at the levels
reached in 1997. Industry participants project that demand for both floating and
jackup rigs will continue at current high levels through 1998, with additional
rig supply absorbed by demand increases. Day rates are expected to continue to
increase; however, the rate of increase will slow, since the current high levels
have induced long-term contracting with few opportunities for increases. .
The floating rig sector has experienced a strengthening in market conditions.
Technological advances and more efficient operations have improved the economics
of drilling and production in the deep-water operations for which floating rigs
are utilized. Overall, demand for floating rigs increased from 128 rig-years in
1996 to 131 rig-years in 1997, growth being constrained by a limited supply of
rigs. The increase in demand and utilization prompted significant increases in
contract day rates and floating rig market values. Twenty-five floating rigs
were ordered in 1996 and several conversion and upgrade projects were
contracted, none of which will be delivered until late 1998.
(E) Government Regulations
The use, maintenance, and ownership of equipment is 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, government, 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 the 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 United States Oil Pollution Act of 1990 (which established
liability for operators and owners of vessels and mobile offshore drilling units
that create environmental pollution). This regulation has resulted in higher oil
pollution liability insurance to the Fund. The lessee typically reimburses the
Fund for these additional costs;
(2) the United States 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 shall operate an aircraft to or from any airport in the contiguous United
States unless that airplane has been shown to comply with Stage III noise
levels. The cost to hushkit a Stage II aircraft is approximately $1.5 million,
depending on the type of aircraft.
-5-
(3) the Montreal Protocol on Substances that Deplete the Ozone layer and
the U.S. 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 which are
used extensively as refrigerants in refrigerated marine cargo containers,
over-the-road trailers, etc.);
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
(which regulate the classification of and packaging requirements for hazardous
materials and which could apply particularly to the Fund's tank cars).
As of December 31, 1997, the Fund is 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 for leasing purposes. At December 31, 1997, the Fund owned a portfolio
of transportation equipment and investments in equipment owned by
special-purpose entities as described in Part I, Table 1. The Fund acquired
equipment with the proceeds of the Fund offering through the end of 1996. In
December of 1996, the Fund closed a $25.0 million long-term note with an
institutional investor. The Fund acquired additional equipment in 1997 with the
proceeds of the long-term note and any surplus cash flow, and intends to acquire
additional equipment in 1998.
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, 1997.
(This space intentionally left blank)
PART II
ITEM 5. MARKET FOR THE FUND'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the operating agreement, the Manager is generally
entitled to a 1% interest in the profits and losses and 15% of cash
distributions. 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. Gross income in each year of the Fund will be specially allocated to
the Manager in the amount equal to the lesser of (i) the deficit balance, if
any, in the Manager's capital account calculated under generally accepted
accounting principles using the straight-line method of depreciation, and (ii)
the deficit balance, if any, in the Manager's capital account calculated under
federal income tax regulations. The remaining interests in the profits and
losses and distributions of the Fund are owned as of December 31, 1997, by the
approximately 5,000 holders of Units in the Fund.
(This space intentionally left blank)
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Fund:
TABLE 2
For the Years Ended December 31, 1997, 1996
and 1995, and for the period from
inception (August 22, 1994)
to December 31, 1994
(in thousands of dollars, except weighted-average unit amounts)
1997 1996 1995 1994
--------------------------------------------------------------
Operating results:
Total revenues $ 19,445 $ 11,295 $ 4,150 $ --
Net gain on disposition of
equipment 1,682 -- 25 --
Equity in net income (loss) of
unconsolidated special-purpose
entities 1,270 (256) 69 --
Net loss (2,052) (2,392) (618) --
At year-end:
Total assets $ 101,482 $ 87,755 $ 62,589 $ --
Total liabilities 29,008 1,466 1,187 --
Cash distributions $ 11,763 $ 9,832 $ 1,303 $ --
Cash distribution representing
a return of capital to Class A members $ 9,998 $ 8,471 $ 1,180 $ --
Per weighted average Class A unit:
Net loss $ (0.75) N/A
Various, according to interim closings
Cash distributions $ 2.00 N/A
Cash distributions representing a return of capital $ 2.00 N/A
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 sectors
of the transportation industry, and its effect on the Fund's overall financial
condition.
Results of Operations - Factors Affecting Performance
(A) Re-leasing and Repricing Activity
The exposure of the Fund's equipment portfolio to re-pricing 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 transportation equipment include supply and demand for similar or comparable
types or kinds of transport capacity, desirability of the equipment in the lease
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions both domestically and
worldwide, various regulations concerning the use of the equipment, and others.
The Fund experienced re-pricing exposure for the year ended December 31, 1997,
primarily due to its air, trailer, and marine vessel portfolios.
(B) Reinvestment Risk
Reinvestment risk occurs when 1) 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 operations; 2)
equipment is sold or liquidated for less than threshold amounts; 3) proceeds
from sales, losses, or surplus cash available for reinvestment cannot be
reinvested at threshold lease rates; or 4) proceeds from dispositions or surplus
cash available for reinvestment cannot be deployed in a timely manner.
During the first six years of operations, the Fund intends to increase its
equipment portfolio by investing surplus cash in additional equipment after
fulfilling operating requirements and payments of distributions to the Members
in additional equipment. Subsequent to the end of the reinvestment period as of
January 1, 2002, 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, 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 the exercise of purchase options written into 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 1997, the Fund acquired a marine vessel for $8.5 million, a mobile
offshore drilling unit for $10.5 million and 25 trailers for $0.3 million. In
addition, the Fund purchased an additional 26% interest in a mobile offshore
drilling unit for $5.1 million, bringing its initial investment from 35% up to
61%. In addition, in 1997 the Fund committed to purchase a 50% interest in an
entity that will own a DC-9 stage III aircraft. The Fund placed a $0.7 million
deposit on this aircraft in 1997 which was included in investment in
unconsolidated special purpose entities on the balance sheet This purchase was
completed in January 1998. The Fund also reached an agreement to buy an
anchor-handling vessel for $9.2 million in the first quarter of 1998. The Fund
placed a $0.9 million deposit on this vessel in 1997 which is included in
deposit on equipment on the balance sheet. The remaining interests are owned by
affiliated partnerships.
During 1997, the Fund sold a mobile offshore drilling unit and three trailers
with a net book value of $9.2 million for proceeds of $11.0 million, less sales
commissions of $0.1 million.
(C) Equipment Valuation and Write-downs
In March 1995, the Financial Accounting Standards Board (FASB) issued statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1995. The Fund adopted SFAS 121 in 1995. In
accordance with SFAS 121, the Fund reviews the carrying value of its equipment
at least annually in relation to expected future market conditions for the
purpose of assessing the recoverability of the recorded amounts. If projected
undiscounted cash flows (future lease revenue plus residual values) are less
than the carrying value of the equipment, a loss on revaluation is recorded. No
adjustments to reflect impairment of individual equipment carrying values were
required for the years ended December 31, 1997 or 1996.
As of December 31, 1997, the Manager estimates the current fair market value of
the Fund's equipment portfolio, including equipment owned by unconsolidated
special-purpose entities, to be approximately $108.6 million.
Financial Condition - Capital Resources and Liquidity
The Fund's initial contributed capital was composed of the proceeds from its
initial offering, which were supplemented in March 1997 by permanent debt of
$25.0 million. The Fund intends to rely on operating cash flow to meet its
operating obligations, make cash distributions to Class A Unitholders, and grow
the Fund's equipment portfolio through reinvestment of any remaining surplus
cash available in additional equipment.
Starting in 1998, the Fund may, at the Manager's sole discretion, redeem up to
2% of the outstanding Class A Units that may be tendered 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.
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. Proceeds from the note were used to
fund additional equipment acquisitions in 1997 and interests in unconsolidated
special purpose entities in 1998.
The Manager has entered into a joint $50.0 million credit facility (the
Committed Bridge Facility) on behalf of the Fund, PLM Equipment Growth Fund V,
PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund VII (all
affiliated investment programs), TEC Acquisub, Inc. (TECAI), an indirect
wholly-owned subsidiary of the General Partner, and American Finance Group, Inc.
(AFG), a subsidiary of PLM International, Inc., 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 Committed Bridge
Facility became available to the Fund on May 8, 1995, and was amended and
restated on December 2, 1997, to expire on November 2, 1998. The Fund, the
affiliated partnerships, and TECAI, may collectively borrow up to $35.0 of the
Committed Bridge Facility. AFG may borrow up to $50.0 million of the Committed
Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million
Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by
the Fund, TECAI, AFG, or PLM Equipment Growth Funds V through VII reduce the
amount available to each other under the Committed Bridge Facility. Individual
borrowings for the Fund may be outstanding for no more than 179 days, with all
advances due no later than November 2, 1998. The Committed Bridge Facility
prohibits the Fund from incurring any additional indebtedness. 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 PLM. As of December 31, 1997, AFG had $23.0 million in
outstanding borrowings. No other eligible borrower had any outstanding
borrowings. The Manager believes it will 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.
For the year ended December 31, 1997, the Fund generated sufficient operating
income to meet its operating obligations and pay distributions to those Class A
and B Unitholders.
Results of Operations - Year over Year Detail Comparison
Comparison of the Fund's Operating Results for the Year Ended December 31, 1997
and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the year ended December 31, 1997, compared to the same period
of 1996. The following table presents lease revenues less direct expenses by
owned equipment type (in thousands of dollars):
For the Year
Ended December 31,
1997 1996
-------------------------------
Aircraft $ 4,994 $ 1,994
Trailers 3,250 1,880
Rail equipment 2,712 2,371
Marine vessels 2,085 1,242
Mobile offshore drilling unit 1,562 --
Aircraft: Aircraft lease revenues and direct expenses were $5.0 million and
$43,000, respectively, during the year ended December 31, 1997, compared to $2.0
million and $21,000, respectively, during the same period of 1996. Aircraft
contribution increased due to the purchase of four 737-200A Stage II commercial
aircraft in the third quarter of 1996. These aircraft were on lease for the
entire year of 1997.
Trailers: Trailer revenues and direct expenses were $3.7 million and $0.4
million, respectively, for the year of 1997, compared to $2.1 million and $0.2
million, respectively, during the same period in 1996. Trailer contribution
increased due to the purchase of additional trailers throughout 1996 and 1997.
These trailers were operating in the short-term rental facilities for the entire
year of 1997.
Rail equipment: Railcar lease revenues and direct expenses were $3.4 million and
$0.7 million, respectively, for the year ended December 31, 1997, compared to
$3.1 million and $0.8 million, respectively, during the same period of 1996.
Lease revenues rose 10% in the year of 1997, compared to the same period of
1996. The increase was due to railcars owned and on lease for all of 1997
compared to being owned and on lease for part of the year ended 1996. Expenses
decreased due to lower running repairs in the year ended December 31, 1997,
compared to the same period of 1996. Although the Fund purchased additional
railcars in the last two months of 1996, these railcars were off lease in the
first eight months of 1997 and did not make a significant net contribution to
the Fund in 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $3.7
million and $1.6 million, respectively, for the year ended December 31, 1997,
compared to $2.7 million and $1.4 million, respectively, during the same period
of 1996. Marine vessel contribution increased due to the purchase of a marine
vessel at the end of the second quarter of 1997. This increase in contribution
due to this additional vessel, was offset slightly by a decrease in lease
revenue due to lower re-lease rates for another marine vessel as a result of a
softer bulk carrier vessel market and higher insurance expense on the dry bulk
vessel.
Mobile offshore drilling unit (rig): Rig lease revenues and direct expenses were
$1.6 million and $22,000, respectively, for the year ended December 31, 1997.
This rig was purchased in the first quarter of 1997. The rig was sold in
December 1997 as part of the original purchase agreement that gave the charterer
the option to purchase the rig. The Fund did not own any rigs in the year ended
December 31, 1996.
(B) Interest and Other Income
Interest and other income decreased $1.0 million due to lower cash balances
available for investment in the year ended December 31, 1997, compared to the
same period of 1996.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $20.0 million for the year ended December 31, 1997
increased from $11.0 million for the same period of 1996. Significant variances
are explained as follows:
(1) A $6.6 million increase in depreciation and amortization expenses from 1996
levels reflects the purchase of equipment during 1997 and 1996.
(2) A $1.4 million increase in interest expense was due to the Fund's borrowings
under the long-term senior note agreement in 1997.
(3) A $0.8 million increase in administrative expenses from 1996 levels resulted
primarily from increased administrative costs associated with the short-term
trailer rental facilities due to additional trailers operating in the facilities
in the first year of 1997, compared to the same period of 1996.
(4) A $0.4 million increase in management fees to affiliate reflects the higher
levels of lease revenues in 1997, compared to 1996, due to the purchase of
equipment throughout 1996 and 1997.
(D) Net Gain on Disposition of Owned Equipment
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 the sale of the
rig with a net book value of $9.2 million, for proceeds of $11.0 million net of
sales commissions of $0.1 million. There was no disposition of equipment in
1996.
Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of unconsolidated special-purpose entities represents net
loss generated from the operation of jointly-owned assets accounted for under
the equity method (see Note 4 to the financial statements).
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 Year
Ended December 31,
1997 1996
-------------------------------
Aircraft, aircraft engines and rotable components $ 1,795 $ 260
Mobile offshore drilling unit (183) (94 )
Marine vessel (342) (422 )
Aircraft, aircraft engines and rotable components: As of December 31, 1997 and
1996, the Fund owned an interest in a trust that owns four commercial aircraft,
an interest in another trust that owns four commercial aircraft, and an interest
in two trusts that own three commercial aircraft, two aircraft engines, and a
portfolio of rotable components. Aircraft revenues and expenses were $5.9
million and $4.2 million, respectively, for the year ended December 31, 1997,
compared to $5.6 million and $5.4 million, respectively, during the same period
in 1996. The increase in revenues was because of the purchase of an interest in
a trust that owns commercial aircraft at the end of the first quarter of 1996.
These aircraft were on lease for the entire year of 1997, compared to only six
months in the same period in 1996. The increase in revenues caused by this
additional equipment was partially offset by a decrease in lease revenues due to
lower lease rates for a trust for the year ended December 31, 1997 compared to
the same period in 1996. Expenses decreased due to the use of the
double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned.
Mobile offshore drilling unit: As of December 31, 1997 and 1996, the Fund had an
interest in an entity that owns a mobile offshore drilling unit (rig) purchased
during the fourth quarter of 1996. The Fund's interest in this investment
increased in the first quarter of 1997 from 35% to 61%. During the year ended
December 31, 1997, revenues of $2.0 million were offset by depreciation and
administrative expenses of $2.2 million.
Marine vessel: As of December 31, 1997 and 1996, the Fund had an interest in an
entity that owns a marine vessel. Marine vessel revenues and expenses were $1.2
million and $1.6 million, respectively, for the year ended December 31, 1997,
compared to $0.9 million and $1.3 million, respectively, during the same period
in 1996. Revenues and expenses during 1997 represent a full year, when compared
to 1996, in which revenues and expenses were for only seven months, as the
vessel was purchased in the second quarter of 1996. In addition, expenses
increased due to required repairs needed on this marine vessel in the year ended
December 31, 1997. Similar repairs were not required on the vessel in 1996.
(F) Net Loss
As a result of the foregoing, the Fund had a net loss of $2.1 million for the
year of 1997, compared to a net loss of $2.4 million during the same period of
1996. 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, 1997 is not
necessarily indicative of future periods. In the year ended December 31, 1997,
the Fund distributed $10.0 million to the Class A members, or $2.00 per
weighted-average Class A unit.
Comparison of the Fund's Operating Results for the Year Ended December 31, 1996
and 1995
(A) Owned Equipment Operations
The Fund commenced significant operations in May 1995. As of May 13, 1996, the
Fund completed its equity-raising stage. As of December 31, 1996, the Fund had
purchased and placed into service $70.3 million of equipment, compared to $36.1
million at December 31, 1995. All of these purchases were completed with a
combination of proceeds from equity raised, interim financing, and an advance
from an affiliate of the Manager. The nine day advance from the Manager was
repaid (including interest at commercial loan rates) in July of 1995. Revenues
of $11.3 million were generated during the year ended December 31, 1996,
compared to $4.2 million in the same period in 1995. The variance is due to the
Fund's equipment purchasing activities throughout 1995 and 1996. Expenses of
$13.4 million for the year ended December 31, 1996 consisted primarily of
depreciation expense, using the double-declining balance method, and normal
operating costs incurred as equipment is being purchased and placed in service.
Expenses for the same period in 1995 totaled $4.8 million, and also primarily
consisted of depreciation expense and normal operating costs incurred when
equipment is purchased and placed in service.
Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of unconsolidated special-purpose entities represents net
loss generated from the operation of jointly-owned assets accounted for under
the equity method (see Note 4 to the financial statements).
As of December 31, 1996, the Fund had interests in entities which purchased and
placed into service $30.7 million of assets. The Fund's investment consisted of
a 35% interest in an entity that owned a mobile offshore drilling unit, a 50%
interest in an entity which owned a marine vessel, a 17% interest in a trust
that owned six Boeing 737-200A aircraft, a 25% interest in a trust that owned
four Boeing 737-200A aircraft, and a 33% interest in two trusts (the Trusts)
that owned three Boeing 737-200A aircraft, two spare Pratt & Whitney JT8D-17A
engines and a package of rotable components. Revenues of $6.6 million were
generated during the year ended December 31, 1996, compared to $1.3 million in
the same period in 1995. The variance is due to the Fund's equipment purchasing
activities throughout 1996. Expenses of $6.8 million for the year ended December
31, 1996, compared to $1.2 million in the same period in 1995, consisted
primarily of depreciation expense for both periods. As of December 31, 1996, the
Fund had made a deposit for a 50% interest in a trust. The assets in this trust
were purchased on January 6, 1997.
During September of 1996, an affiliated program converted its partial beneficial
interests in the trust holding five commercial aircraft and the trust holding
seven commercial aircraft into the sole ownership of two of the commercial
aircraft, resulting in a change in the beneficial interests for the Fund. This
change has no effect on the income or loss recognized in the year ended December
31, 1996.
The Fund's performance during 1996 is not necessarily indicative of future
periods.
Geographic Information
The Fund operates its equipment in national and 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 as follows: Currency risks are at a minimum
because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
generally through the avoidance of operations in 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 3 of the Financial
Statements for information on the revenues, income, and net book value 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 significantly change in the future as additional
equipment is purchased in various equipment markets and geographic areas. An
explanation of the current relationships is presented below:
The Fund's equipment on lease to U.S. domiciled lessees accounted for 24% of the
lease revenues generated by wholly-owned and partially owned equipment while a
net operating income of $0.2 million was generated compared to $2.1 million in
loss for the entire Fund. The primary reason for this relationship is the fact
that the Fund depreciates its rail equipment over a 15 year period versus 5 to
12 years for other equipment types owned and leased in other geographic regions.
The Fund's equipment leased to Canadian domiciled lessees consists of railcars,
an aircraft and an interest in an entity which owns four aircraft. Lease
revenues in Canada accounted for 16% of total lease evenues while these
operations accounted for $0.1 million in net income compared to a $2.1 million
total net operating loss for the entire Fund.
Two wholly-owned marine vessels, a 50% investment in an entity which owns a
marine vessel and a 61% investment in an entity which owns a mobile offshore
drilling unit, which was leased in various regions throughout the period, and
accounted for 32% of the revenues and $0.9 million in net income compared to the
$2.1 million net operating loss for the entire Fund. These marine assets,
representing 47% of the net book value of the Fund's assets and investments in
unconsolidated special-purpose entities, generated a significant depreciation
charge for the period that exceeded the revenues less direct operating costs of
the vessels. As depreciation charges in the future decline, the vessels are
expected to generate net income for the Fund.
European operations consist of interests in entities that own aircraft and
aircraft rotables that generated revenues that accounted for 13% of combined,
wholly-owned and partially owned equipment revenues. The net income generated by
this equipment accounted for $1.7 million in income for the period as lease
revenues exceeded depreciation charges. While this equipment is expected to
remain profitable during the lease term expiring in January 1998 the Fund may
not be able to remarket this equipment at comparable rates in the future.
South American operations consist of four aircraft that are generating revenues
that accounted for 15% of the total revenues and $2.4 million of the net
operating loss for the period. The net operating loss was generated as a result
of the shorter depreciable life on the aircraft leased in South America. As the
depreciation recorded by the Fund declines in future periods, the aircraft are
expected to generate net operating income for the Fund.
Year 2000 Compliance
The Manager is currently addressing the Year 2000 computer software issue. The
Manager is creating a timetable for carrying out any program modifications that
may be required.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Company's fiscal year ended December 31,
1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Fund's disclosures and
will not impact the Fund's results of operations, cash flow, or financial
position.
Inflation
Inflation had no significant impact on the Fund's operations during 1997, 1996,
or 1995.
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.
Outlook for the Future
Several factors may affect the Fund's operating performance in 1998 and beyond,
including changes in the markets for the Fund's equipment and changes in the
regulatory environment in which the equipment operates.
The Fund intends to use excess cash flow, after payment of expenses and cash
distributions to acquire additional equipment during the first six years of the
Fund's operations. The Manager believes these acquisitions may cause the Fund to
generate additional earnings and cash flow for the Fund.
The Fund relies on operating cash flow to meet its operating obligations, make
cash distributions to Class A and B Unitholders, and grow the Fund's equipment
portfolio through reinvestment of any remaining surplus cash available in
additional equipment.
(1) Repricing and Reinvestment Risk
Certain portions of the Fund's marine vessel, aircraft engines and rotable
components, and trailer portfolios will be remarketed in 1998 as existing leases
expire, exposing the Fund to considerable repricing risk/opportunity.
Additionally, the Manager may select to sell certain underperforming equipment,
or equipment whose continued operation may become prohibitively expensive, and
thus faces reinvestment risk. 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.
(2) Residual Risk
A portion of the total return on the Class A and B Unitholders' investment in
the Fund is expected to be realized on the sale or liquidation of the Fund's
equipment portfolio, the majority of which is anticipated during the liquidation
phase of the Fund's operations. The Manager's Credit Review Committee selects
equipment for acquisition based on many factors, including anticipated residual
values from the eventual sale of that equipment. These residuals may be affected
by several factors during the time the equipment is held, including changes in
regulatory environments in which the equipment is operated, the onset of
technological obsolescence, changes in the equipment markets, perceived values
for equipment at the time of sale, and others. As the impact of any of these
factors becomes difficult to forecast with accuracy over extended time horizons,
the Manager cannot predict with certainty that the anticipated residual values
for equipment selected for acquisition will actually be realized when the
equipment is sold.
Prior to the liquidation phase of the Fund's operations, the Manager may decide
to selectively sell equipment either when it has determined that opportunities
exist to realize significant gains on the sales; when continuing ownership of
the equipment becomes prohibitively expensive; or when the Manager determines
that continuing ownership of the equipment may result in the realization of
unsatisfactory residual values. At this time, the Manager cannot predict when
such occasions may occur, and thus cannot predict with any certainty the impact
of such events on Fund operations.
(B) 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. Under U.S. Federal Aviation Regulations, after December 31,
1999, no person shall operate an aircraft to or from any airport in the
contiguous United States unless that airplane has been shown to comply with
stage III noise levels. Currently, the Manager has observed rising insurance
costs to operate certain vessels into U.S. ports resulting from implementation
of the U.S. Oil Pollution Act of 1990. Ongoing changes in the regulatory
environment, both in the U.S. and internationally, cannot be predicted with any
accuracy and preclude the Manager from determining the impact of such changes on
Fund operations, purchases, or sale of equipment.
(C) Distributions
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. The Manager intends to pursue a 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.
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.
(This space intentionally left blank)
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 key executive officers of its subsidiaries) and of PLM
Financial Services, Inc. are as follows:
Name Age Position
- -------------------------------------------------------------------------------------------------------------------------
Robert N. Tidball 59 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 50 Director, PLM International, Inc.
Douglas P. Goodrich 51 Director and Senior Vice President, PLM International;
Director and President, PLM Financial Services, Inc.;
President, PLM Transportation Equipment Corporation;
President, PLM Railcar Management Services, Inc.
Harold R. Somerset 63 Director, PLM International, Inc.
Robert L. Witt 57 Director, PLM International, Inc.
J. Michael Allgood 49 Vice President and Chief Financial Officer,
PLM International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 51 President, PLM Investment Management, Inc.
and PLM Securities Corp.; Vice President and Director,
PLM Financial Services, Inc.
Richard K Brock 35 Vice President and Corporate Controller,
PLM International, Inc. and PLM Financial Services, Inc.
Frank Diodati 43 President, PLM Railcar Management Services Canada Limited
Steven O. Layne 43 Vice President, PLM Transportation Equipment Corporation;
Vice President, PLM Worldwide Management Services Ltd.
Susan C. Santo 35 Vice President, Secretary, and General Counsel,
PLM International, Inc. and PLM Financial Services, Inc.
Thomas L. Wilmore 55 Vice President, PLM Transportation Equipment Corporation;
Vice President, PLM Railcar Management 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, he was Executive Vice President of PLM International.
Mr. Tidball became a director of PLM International in April 1989. Mr. Tidball
was appointed 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 in the United States
and abroad, as well as a senior advisor to the investment banking firm of
Prudential Securities, where he has been employed since 1987. Mr. Caudill also
serves as a director of VaxGen, Inc. and SBE, 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, a subsidiary of Guardian Industries Corporation of
Chicago, Illinois, from December 1980 to September 1985.
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 recently acquired 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, a position in which he
continues to serve. 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, General Counsel, and Secretary. In addition to a
law degree from Harvard Law School, Mr. Somerset also holds degrees in civil
engineering from the Rensselaer Polytechnic Institute and 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.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services, Inc. in December 1992. Between July 1991 and October
1992, Mr. Allgood was a consultant to various private and public-sector
companies and institutions specializing in financial operations systems
development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited
and its holding company, Aviation Holdings Plc of London, where he served as
Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr.
Allgood served as a first vice president with American Express Bank Ltd. In
February 1978, Mr. Allgood founded and until June 1981 served as a director of
Trade Projects International/Philadelphia Overseas Finance Company, a joint
venture with Philadelphia National Bank. From March 1975 to February 1978, Mr.
Allgood served in various capacities with Citibank, N.A.
Stephen M. Bess was appointed Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Securities Corporation in June
1996 and 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 Corporate Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Frank Diodati was appointed President of PLM Railcar Management Services Canada
Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and Sales for
G.E. Railcar Services Canada Limited.
Steven O. Layne was appointed Vice President of PLM Transportation Equipment
Corporation's Air Group in November 1992, and was appointed Vice President and
Director of PLM Worldwide Management Services Limited in September 1995. Mr.
Layne was its Vice President, Commuter and Corporate Aircraft beginning in July
1990. Prior to joining PLM, Mr. Layne was Director of Commercial Marketing for
Bromon Aircraft Corporation, a joint venture of General Electric Corporation and
the Government Development Bank of Puerto Rico. Mr. Layne is a major in the
United States Air Force Reserves and a senior pilot with 13 years of accumulated
service.
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.
Thomas L. Wilmore was appointed Vice President, Rail of PLM Transportation
Equipment Corporation in March 1994, and has served as Vice President of
Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to
joining PLM, Mr. Wilmore was Assistant Vice President and Regional Manager for
MNC Leasing Corporation in Towson, Maryland from February 1987 to April 1988.
From July 1985 to February 1987, he was President and co-owner of Guardian
Industries Corporation, Chicago, and between December 1980 and July 1985, Mr.
Wilmore was an executive vice president for its subsidiary, G.I.C. Financial
Services Corporation. Mr. Wilmore also served as Vice President of Sales for
Gould Financial Services, located in Rolling Meadows, Illinois, from June 1978
to December 1980.
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 Financial Services, 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,
1997.
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 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, 1997, 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 own any Units of the Fund as of
December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1997, the Fund paid or accrued the following fees to FSI or its
affiliates: management fees - $1.0 million. The Fund reimbursed FSI
and/or its affiliates $0.9 million for administrative and data
processing services performed on behalf of the Fund during 1997. The
Fund paid Transportation Equipment Indemnity Fund Ltd. (TEI), a wholly
owned, Bermuda-based subsidiary of PLM International, $24,000 for
insurance coverages during 1997 substantially all of which was paid to
third party reinsurance underwriters or placed in risk pools managed by
TEI on behalf of affiliated programs and PLM International which
provide threshold coverages on marine vessel loss of hire and hull and
machinery damage. All pooling arrangement funds are either paid out to
cover applicable losses or refunded pro rata by TEI.
During 1997, the unconsolidated special-purpose entities paid or
accrued the following fees to FSI or its affiliates (based on the
Fund's proportional share of ownership): management fees - $0.4
million; and administrative and data processing services - $0.1million.
The USPE's also paid TEI $10,000 for insurance coverages during 1997.
(B) Certain Business Relationships
None.
(C) Indebtedness of Management
None.
(D) Transactions With Promoters
None.
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. Limited Partnership Agreement of Partnership, incorporated by
reference to the Partnership'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.
10.3 Third Amended and Restated Warehousing Credit Agreement, dated as of
December 2, 1997, with First Union National Bank of North Carolina and
others
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 24, 1998 FUND I
By: PLM Financial Services, Inc.
Manager
By: /s/ Douglas P. Goodrich
-------------------------
Douglas P. Goodrich
President
By: /s/ Richard K Brock
--------------------------
Richard K Brock
Vice President and
Controller
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 24, 1998
*_________________________
Douglas P. Goodrich Director - FSI March 24, 1998
*_________________________
Steven M. Bess Director - FSI March 24, 1998
* 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
Report of Independent Auditors 26
Balance sheets as of December 31, 1997 and 1996 27
Statements of operations for the years ended
December 31, 1997, 1996 and 1995 28
Statement of changes in members' equity for the years ended
December 31, 1997, 1996, and 1995 29
Statements of cash flows for the years ended December 31, 1997, 1996,
and 1995 30
Notes to financial statements 31 - 39
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.
REPORT OF INDEPENDENT AUDITORS
The Members
Professional Lease Management Income Fund I, L.L.C.:
We have audited the financial statements of Professional Lease Management Income
Fund I, L.L.C. as listed in the accompanying index. 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 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, 1997 and 1996, and the results of its
operations and its cash flows for the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
- -------------------------------------
SAN FRANCISCO, CALIFORNIA
March 12, 1998
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
BALANCE SHEETS
December 31,
(in thousands of dollars, except per unit amounts)
1997 1996
-----------------------------------------
Assets:
Equipment held for operating lease, at cost $ 79,132 $ 70,333
Less accumulated depreciation (26,749) (12,189 )
-----------------------------------------
Net equipment 52,383 58,144
Cash and cash equivalents 19,179 1,692
Restricted cash -- 223
Investment in unconsolidated special-purpose entities 26,252 25,349
Accounts receivable, less of allowance for doubtful accounts
of $70 in 1997 and $36 in 1996 2,026 1,534
Deposit on equipment 920 --
Prepaid expenses 341 505
Debt placement fees, less accumulated amortization 160 --
Organization and offering costs, less of accumulated amortization 221 308
-----------------------------------------
Total assets $ 101,482 $ 87,755
=========================================
Liabilities and member's equity:
Liabilities:
Accounts payable and accrued expenses $ 594 $ 430
Due to affiliates 2,005 163
Lessee deposits and reserves for repairs 1,409 873
Note payable 25,000 --
-----------------------------------------
Total liabilities 29,008 1,466
-----------------------------------------
Members' equity:
Class A members (4,999,581 Units at December 31, 1997 and
1996) 72,298 86,024
Class B member 176 265
-----------------------------------------
Total members' equity 72,474 86,289
-----------------------------------------
Total liabilities and members' equity $ 101,482 $ 87,755
=========================================
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 Year Ended December 31,
(in thousands of dollars, except weighted-average unit amounts
1997 1996 1995
------------------------------------------------------------
Revenues:
Lease revenue $ 17,358 $ 9,939 $ 3,992
Interest and other income 405 1,356 133
Net gain on disposition of equipment 1,682 -- 25
------------------------------------------------------------
Total revenues 19,445 11,295 4,150
------------------------------------------------------------
Expenses:
Depreciation and amortization 15,990 9,408 2,917
Repairs and maintenance 1,414 1,363 571
Equipment operating expenses 813 926 479
Interest expense 1,418 9 230
Insurance expense to affiliate 24 7 4
Other insurance expense 419 180 46
Management fees to affiliate 951 585 284
General and administrative expenses to affiliates 893 313 118
Other general and administrative expenses 845 640 188
------------------------------------------------------------
Total expenses 22,767 13,431 4,837
------------------------------------------------------------
Equity in net income (loss) of
unconsolidated special-purpose entities 1,270 (256 ) 69
------------------------------------------------------------
Net loss $ (2,052) $ (2,392 ) $ (618)
============================================================
Members' share of net income (loss):
Class A members $ (3,728) $ (3,705 ) $ (612)
Class B member 1,676 1,313 (6)
--------------------------------------------------------------
Total $ (2,052) $ (2,392 ) $ (618)
============================================================
Net income (loss) per weighted-average
Class A unit: (4,999,581 in 1997 and 1996,
2,831,388 in 1995) $ (0.75) $ N/A $ N/A
============================================================
Cash distributions $ 11,763 $ 9,832 $ 1,303
============================================================
Cash distribution per weighted-average
Class A units $ 2.00 $ N/A $ N/A
============================================================
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 Year Ended December 31, 1997, 1996, and 1995
(in thousands of dollars)
Class A Class B Total
-------------------------------------------------------------
Member's equity as of December 31, 1994 $ -- $ -- $ --
Members' capital contributions 56,628 9,536 66,164
Syndication costs -- (9,101) (9,101 )
Net loss (612) (6) (618 )
Cash distributions (1,180) (123) (1,303 )
-------------------------------------------------------------
Members' equity as of December 31, 1995 54,836 306 55,142
Members' capital contributions 43,364 5,069 48,433
Syndication costs -- (5,062) (5,062 )
Net income (loss) (3,705) 1,313 (2,392 )
Cash distributions (8,471) (1,361) (9,832 )
-------------------------------------------------------------
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
=============================================================
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: 1997 1996 1995
--------------------------------------------------
Net loss $ (2,052) $ (2,392) $ (618)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,990 9,408 2,917
Net gain on sale of equipment (1,682) -- (25)
Equity in net (income) loss unconsolidated special
purpose entities (1,270) 256 (69)
Changes in operating assets and liabilities:
Restricted cash 223 (223)
Accounts receivable, net (492) (737) (869)
Prepaid expenses 164 (89) (417)
Accounts payable and accrued expenses 164 (235) 664
Due to affiliates 106 (225) 387
Lessee deposits and reserves for repairs 536 738 207
--------------------------------------------------
Net cash provided by operating activities 11,687 6,501 2,177
--------------------------------------------------
Investing activities:
Payments to affiliates for purchase of equipment -- -- (29,707)
Payments for purchase of equipment (19,344) (34,193) (6,464)
Deposit on equipment (920) -- --
Investment in and equipment purchased and placed
in unconsolidated special-purpose entities (5,783) (16,067) (14,677)
Distributions from unconsolidated special-purpose entities 6,149 5,059 150
Proceeds from disposition of equipment 10,901 -- 54
--------------------------------------------------
Net cash used in investing activities (8,997) (45,201) (50,644)
--------------------------------------------------
Financing activities:
Proceeds from note payable 25,000 -- 1,057
Proceeds from note payable - affiliates -- -- 3,956
Principal payments on notes payable -- -- (1,057)
Principal payments on notes payable - affiliates -- -- (3,956)
Increase due to affiliates 1,736 -- --
Cash distributions to Class A members (9,998) (8,471) (1,179)
Cash distributions to Class B member (1,765) (1,361) (123)
Class A members capital contribution -- 43,364 56,628
Debt placement fees (176) -- --
(Decrease) increase in subscriptions in escrow -- (6,260) 6,260
Decrease (increase) in restricted cash from --
subscriptions in escrow, net -- 6,316 (6,315)
--------------------------------------------------
Net cash provided by financing activities 14,797 33,588 55,271
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 17,487 (5,112) 6,804
Cash and cash equivalents at beginning of period 1,692 6,804 --
Cash and cash equivalents at end of period $ 19,179 $ 1,692 $ 6,804
==================================================
Supplemental information:
Cash items:
Interest paid $ 1,418 $ 9 $ 230
==================================================
Non cash items:
Syndication and offering costs paid by Class B member $ -- $ 5,069 $ 9,536
==================================================
See accompanying notes to financial
statements.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation
Organization
Professional Lease Management Income Fund I, L.L.C., a Delaware Limited
Liability Company (Fund I or the Fund) was formed on August 22, 1994, to
purchase, lease, charter, or otherwise invest in, a diversified portfolio
of long-lived, low obsolescence capital equipment that is transportable by
and among prospective users (the Equipment). The securities represent
limited liability company interests (the Class A Units) which were offered
to the public. The Fund's offering became effective on January 23, 1995.
FSI is a wholly-owned subsidiary of PLM International, Inc (PLM). PLM
Financial Services, Inc. (FSI). FSI is the Manager of the Fund and is the
initial Class B member.
On May 13, 1996, the Fund ceased its offering for Class A Units ($100.0
million). As of December 31, 1997, there were 4,999,581 Units outstanding.
As of December 31, 1997, the Class B Member had capital contributions of
$14.6 million representing the cash payments for organization and
syndication costs. Syndication costs of $14.2 million are recorded as a
reduction to Class B member's equity.
The Manager 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 are initially being used to purchase
Equipment and establish 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 and earnings subject to
certain allocation provisions. 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%.
Between the eighth and tenth years of operations of the Fund, the Manager
intends to begin the 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. In no event will the Fund extend beyond December 31,
2010.
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 and 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 being managed, under a management agreement,
by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of the
Manager. IMI receives a monthly management fee from the Fund for managing
the equipment (See Note 2). The Manager is also the General Partner in a
series of programs that own and lease transportation and related equipment.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
Operations (continued)
The Manager, in conjunction with its subsidiaries, also sells
transportation equipment to these programs and manages transportation
equipment under management agreements with the programs.
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. Lease origination costs are
capitalized and amortized over the term of the lease.
Depreciation and Amortization
Depreciation of 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 12 years for
trailers, mobile offshore drilling units, and marine vessels, 15 years for
railcars, and 8 years, 6 years or 5 years for aircraft. Certain aircraft
are depreciated under the double-declining balance depreciation method over
the lease term. Regardless of depreciable 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. Organization costs will be amortized over a 60 month
period. Major expenditures which are expected to extend the useful lives or
reduce future operating expenses of equipment are capitalized and amortized
over the remaining estimated life of the equipment.
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued
statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121).. In accordance with
SFAS 121, the Fund reviews the carrying value of its equipment at least
annually in relation to expected future market conditions for the purpose
of assessing the recoverability of the recorded amounts. If projected
undiscounted cash flows (future lease revenue plus residual values) are
less than the carrying value of the equipment, a loss on revaluation is
recorded. There were no write-downs required during 1997 or 1996.
Investments in Unconsolidated Special-Purpose Entities (USPEs)
The Fund has interests in unconsolidated special-purpose entities (USPEs)
which own transportation equipment. These interests are accounted for using
the equity method.
The Fund's equity interest in the net income of USPEs is reflected net of
management fees paid or payable to IMI.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are not
covered by the lessee, they are charged against operations as incurred. To
meet the maintenance obligations of certain aircraft airframes and engines,
reserve accounts are prefunded by the lessee. Marine vessel drydocking is a
periodic required maintenance process that generally occurs every five
years. The drydock maintenance process generally lasts from 10 to 21 days.
Estimated costs associated with marine vessel drydockings are accrued and
charged to repair and maintenance expense ratably over the period prior to
such drydocking because wear and tear occurs over that period. The reserve
accounts are included in the balance sheet as lessee deposits and reserve
for repairs.
Net Income (Loss) and Distributions per Depositary Unit
After giving effect to the special allocations set forth in Sections
3.08(b) and 3.17 of the Fund's operating agreement, net profits and net
loss shall be allocated 1% to the Class B Members and 99% to the Class A
Members. During 1997, the Manager received a special allocation of income
of $1.8 million ($1.4 million in 1996).
Cash distributions are recorded when paid and totaled $11.8 million, $9.8
million and $1.3 million for 1997, 1996, and 1995, respectively. Cash
distributions to Class A Unitholders in excess of net income are considered
to represent a return of capital. Cash distributions to Class A Unitholders
of $10.0 million, $8.5 million and $1.2 million in 1997, 1996 and 1995,
respectively, were deemed to be a return of capital.
Cash distributions related to the fourth quarter results of $0.6 million
were paid or are payable during January 1998 to the Class A Unitholders of
record as of December 31, 1997, for unitholders who elected for monthly
distributions. Quarterly cash distributions of approximately $1.7 million
were declared on January 22, 1998 and were paid on February 15, 1998 to
Class A unitholders who elected quarterly distributions.
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.
Restricted Cash
There was no restricted cash at December 31, 1997. At December 31, 1996,
restricted cash includes lessee security deposits.
2. Manager and Transactions with Affiliates
An officer of PLM Securities Corp. (PLMS), a wholly-owned subsidiary of the
Manager, contributed the Fund's initial $100 of capital. Under the
equipment management agreement, IMI, subject to certain reductions, is
entitled to a monthly management fee attributable to either owned equipment
or interests in equipment owned by the Unconsolidated Special Purpose
Entities (USPE) equal to the lesser of (i) the fees which would be charged
by an independent 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 which 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 such Equipment. Fund management fees of $0.2 million were
payable at December 31, 1997 and 1996, respectively.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. Manager Transactions with Affiliates (continued)
The Fund's proportional share of the USPE's management fees of $0.2
million, $24,000, and $0.1 million were payable as of December 31, 1997,
1996 and 1995, respectively. The Fund reimbursed FSI $0.9 million and $0.3
million for data processing expenses and administrative services performed
on behalf of the Fund during 1997 and 1996, respectively. The Fund's
proportional share of the USPE's administrative and data processing
expenses was $0.1 million during 1997 and 1996. 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, if certain conditions are met. TEC is a
wholly-owned subsidiary of the Manager. In certain circumstances, the
Manager will be entitled to a monthly re-lease fee for re-leasing services
following 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. No re-lease fee, however, shall be payable if such fee would
cause the combination of the equipment management fee paid to IMI (see Note
1) or the re-lease fees to exceed 7% Gross Lease Revenues. The Fund paid
$24,000 in 1997 to Transportation Equipment Indemnity Company Ltd. (TEI)
which provides marine insurance coverage and other insurance brokerage
services to the Fund. The Fund's proportional share of USPE's marine
insurance coverage paid to TEI was $10,000 during 1997. TEI is an affiliate
of the Manager. A substantial portion of these amounts was paid to third
party reinsurance underwriters or placed in risk pools managed by TEI on
behalf of affiliated partnerships 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.
As of December 31, 1997, 33% of the Fund's trailer equipment was operated
in rental yards owned and maintained by PLM Rental, Inc., the short-term
trailer rental subsidiary of PLM International. Revenues collected under
short-term rental agreements with the rental yards' customers are credited
to the owners of the related equipment as received. Direct expenses
assoicated 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 has interests in certain equipment for lease in conjunction with
affiliated funds that are included in unconsolidated special-purpose
entities. In 1997, this equipment included a 50% ownership in an entity
that owns a marine vessel, a 61% ownership in a mobile offshore drilling
unit, a 33% ownership in two trusts that own three commercial aircraft, two
aircraft engines, a portfolio of aircraft rotables, a 25% ownership in a
trust that owns four commercial aircraft, and a 17% interest in a trust
that owns six commercial aircraft. As of December 31, 1997, the Fund
committed to purchase a 50% interest in a trust that would own one MD
DC9-82 stage III aircraft. This transaction was completed in January 1998.
The balance due to affiliates as of December 31, 1997, included $0.2
million due to FSI and its affiliates for management fees and $1.8 million
due to affiliated USPEs. In January 1998, $1.7 million was paid to the
affiliates. The balance due to affiliates as of December 31, 1996, included
$0.2 million due to FSI and its affiliates for management fees. There was
no balance due to affiliated USPEs as of December 31, 1996.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment
The components of equipment are as follows (in thousands of dollars):
1997 1996
----------------------------------------
Aircraft $ 24,605 $ 24,605
Marine vessels 20,756 12,257
Rail equipment 18,958 18,876
Trailers 14,813 14,595
------------------------------------------
79,132 70,333
Less accumulated depreciation (26,749 ) (12,189)
----------------------------------------
Net equipment $ 52,383 $ 58,144
========================================
Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly. One of the Fund's marine vessels
is leased to an operator of utilization-type leasing pools which include
equipment owned by unaffiliated parties. In such instances, revenues
received by the Fund consist of a specified percentage of revenues
generated by leasing the equipment in the pool to sublessees, after
deducting certain direct operating expenses of the pooled equipment. Rents
for railcars are based on mileage traveled or a fixed rate; rents for all
other equipment are based on fixed rates.
During the year ended December 31, 1997, the Fund purchased a marine
vessel, a mobile offshore drilling unit and 25 trailers for $19.3 million.
During the year ended December 31, 1996, the Fund purchased four 737-200A
Stage II commercial aircraft, 181 refrigerated trailers and 113 railcars
for $34.2 million.
In 1997, the Fund signed a memorandum of agreement to purchase a marine
vessel for $9.2 million. The purchase of this vessel is expected to be
completed in March of 1998.
As of December 31, 1997, all equipment in the Fund portfolio was either on
lease or operating in PLM-affiliate short-term trailer rental facilities
except for one railcar with a carrying value of $22,000. As of December 31,
1996, all equipment in the Fund portfolio was either on lease or operating
in PLM-affiliated short-term trailer rental facilities except for 14
railcars with a carrying value of $0.3 million.
All leases are being accounted for as operating leases. Future minimum
rents under noncancelable leases at December 31, 1997 during each of the
next five years are approximately $16.7 million - 1998; $13.8 million -
1999; $8.5 million - 2000; $6.6 million - 2001; and $0.6 million - 2002 and
$0.2 million thereafter.
Periodically, PLM will purchase groups of assets whose ownership may be
allocated among affiliated programs and PLM. Generally in these cases, only
assets that are on lease will be purchased by the affiliated programs. PLM
will generally assume the ownership and remarketing risks associated with
off-lease equipment. Allocation of the purchase price will be determined by
a combination of third party industry sources, and recent transactions or
published fair market value references. During 1996, PLM realized $0.7
million of gains on the sale of 69 off-lease railcars purchased by PLM as
part of a group of assets in 1994 which had been allocated to PLM Equipment
Growth Funds IV, VI, VII, Professional Lease Management Income Fund I,
L.L.C. and PLM. These assets were included in assets held for sale at
December 31, 1995. During 1995, PLM realized $1.3 million in gains on sales
of railcars and aircraft purchased by PLM in 1994 and 1995 as part of a
group of assets which had been allocated to EGFs IV, V, VI, VII, Fund I,
and PLM.
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.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
The Fund leases its aircraft, railcars and trailers to lessees domiciled in four
geographic regions: United States, Canada, Europe, and South America. The
vessels are leased to multiple lessees in different regions who operate the
vessels worldwide. The tables below set forth geographic information about the
Fund's equipment and the Fund's proportional interest in equipment owned by
special-purpose entities. The Fund accounts for proportional interest in
equipment using the equity method. The geographic information is grouped by
domicile of the lessee as of and for the year ended December 31, 1997, 1996, and
1995 (in thousands of dollars):
Owned Equipment Investments in USPEs
Region 1997 1996 1995 1997 1996 1995
---------------------------------------------------------------------------------------------
- -------------------
Lease revenue:
Various $ 5,274 $ 2,669 $ 1,493 $ 3,215 $ 926 $ --
United States 6,296 4,573 2,082 -- -- --
Canada 1,731 1,731 417 2,439 2,110 78
Europe -- -- -- 3,530 3,530 1,177
South America 4,057 966 -- -- -- --
--------------------------------------------------------------------------------------------
Total revenues $ 17,358 $ 9,939 $ 3,992 $ 9,184 $ 6,566 $ 1,255
=============================================================================================
The following table sets forth Identifiable income (loss) information by
region (in thousands of dollars) :
Owned Equipment Investments in USPEs
Region 1997 1996 1995 1997 1996 1995
---------------------------------------------------------------------------------------------
- -----------------------
Income (loss):
Various $ 1,387 $ (774 ) $ (443 ) $ (525 ) $ (516) $ --
United States 214 (201 ) 197 -- -- --
Canada (28) 128 (3 ) 142 (896) (41)
Europe -- -- -- 1,653 1,156 110
South America (2,446) (1,918 ) -- -- -- --
Total identifiable
income (loss) (873) (2,765 ) (249 ) 1,270 (256) 69
Administrative
and other (2,449) 629 (439 ) -- -- --
Total net income
(loss) $ (3,322) $ (2,136 ) $ (688 ) $ 1,270 $ (256) $ 69
=============================================================================================
The net book value of owned assets and the net investment in the
unconsolidated special-purpose entities at December 31, 1997, 1996 and 1995 are
as follows (in thousands of dollars):
Owned Equipment Investments in USPEs
Region 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Net book value:
Various $ 15,358 $ 9,221 $ 11,065 $ 12,452 $ 9,917 $ 378
United States 24,901 26,401 16,365 -- -- --
Canada 2,102 4,664 5,840 4,614 6,665 4,109
Europe -- -- -- 5,180 8,767 10,109
South America 10,022 17,858 -- 4,006 -- --
Total net book
value $ 52,383 $ 58,144 $ 33,270 $ 26,252 $ 25,349 $ 14,596
=================================================================================================
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
For 1997, 1996 and 1995, one lessee, Air Portugal, accounted for more than
10% of the Fund's revenues. The total amount of revenue accounted for by
this lessee was $3.5 million or 13% of total revenues in 1997, $3.5 million
or 21% of total revenues in 1996, and $1.2 million or 22% of total revenues
in 1995.
4. Investments in Unconsolidated Special Purpose Entities
During 1997, the Fund purchased an additional 26% interest in a drilling
marine vessel for $5.1 million bringing its ownership interest in this
entity to 61%. In addition in December 1997 the Fund made a deposit of $0.7
million for a 50% interest in a trust that will own one MD DC9-82 stage III
aircraft. This aircraft was acquired in January 1998. During 1996, the Fund
purchased a 25% interest in a trust which owns four Boeing 737-200 aircraft
for $5.6 million, and a 50% interest in an entity which owns a marine
vessel for $3.4 million (a deposit of $0.4 million was lodged in December
of 1995) and a 35% interest in an entity which owns a drilling marine
vessel for $7.0 million. The remaining interests are owned by affiliated
partnerships.
The Fund accounts for investments in USPEs using the equity method.
The net investments in USPEs include the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
December 31,
1997 1996
-------------------------------
61% Drilling marine vessel $ 9,766 $ 6,906
33% Two trusts consisting of:
Three 737-200A Stage II
commercial aircraft
Two stage II JT8D aircraft engines
Portfolio of rotable components 7,788 8,767
25% Trust consisting of four 737-200A
stage II commercial aircraft 3,163 3,982
50% Cargo marine vessel 2,638 3,010
17% Trust consisting of six 737-200A
stage II commercial aircraft (see
note below) 2,215 2,684
50% Trust committed to purchase one
MD DC9-82 Stage III commercial aircraft 682 --
14% Trust consisting of seven 737-200A
Stage II commercial aircraft (see
note below) -- --
-------------------------------
Total investments $ 26,252 $ 25,349
===============================
The Fund has beneficial interest 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 September
1996, PLM Equipment Growth Fund V, an affiliated partnership which also has
a beneficial interest in one of the Trusts, renegotiated its senior loan
agreement and was required, for loan collateral purposes, to withdraw the
aircraft designated to it from the Trust. The result was to restate the
percentage ownership of the remaining beneficial
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Investments in Unconsolidated Special Purpose Entities (continued)
owners of the Trusts beginning September 30, 1996. This change had no
effect on the income or loss recognized in the year ended December 31, 1996
or 1997.
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, 1997, 1996 and 1995 (in thousands of dollars):
Total USPE Net Interest of Fund
1997 1996 1995 1997 1996 1995
-----------------------------------------------------------------------------------------------
Net assets $ 77,397 $ 80,846 $ 59,389 $ 26,252 $ 25,349 $ 14,596
Revenues 27,758 24,676 4,777 9,184 6,566 1,255
Net Income (loss) 10,649 (3,071) (1,021 ) 1,270 (256) 69
5. Notes Payable
In December 1996, the Fund entered into an agreement to issue a $25.0
million long-term note to one 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. Proceeds from the sale of the note were used to fund
additional equipment acquisitions and interests in unconsolidated special
purpose entities in 1997. The Manager estimates, based on recent
transactions, that the fair value of the $25.0 million fixed-rate note is
$24.8 million.
The Manager has entered into a joint $50.0 million credit facility (the
"Committed Bridge Facility") on behalf of the Manager, PLM Equipment Growth
Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income
Fund VII (all affiliated investment programs), TEC Acquisub, Inc. (TECAI),
an indirect wholly-owned subsidiary of the General Partner, and American
Finance Group, Inc. (AFG), a subsidiary of PLM, 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 Partnership , plus (ii) 50% of unrestricted cash held by the borrower.
The Committed Bridge Facility became available to the Fund on May 8, 1995,
and was amended and restated on December 2, 1997, to expire on November 2,
1998. The Partnership, TECAI, Fund I, and the other partnerships
collectively may borrow up to $35.0 million of the Committed Bridge
Facility. AFG may borrow up to to $50.0 million of the Committed Bridge
Facility. The Committed Bridge Facility also provides for a $5.0 million
Letter of Credit Facility for the eligible borrowers. Outstanding
borrowings by Fund I, TECAI, AFG, or PLM Equipment Growth Funds V through
VII reduce the amount available to each other under the Committed Bridge
Facility. Individual borrowings for the Partnership may be outstanding for
no more than 179 days, with all advances due no later than November 2,
1998. The Committed Bridge Facility prohibits the Partnership from
incurring any additional indebtedness. Interest accrues at either the prime
rate or adjusted LIBOR plus 1.625% at the borrowers option, and is set at
the time of an advance of funds. Borrowings by the Partnership are
guaranteed by the General Partner. As of December 31, 1997, AFG had $23.0
million in outstanding borrowings. No other eligible borrower had any
outstanding borrowings. The Manager believes it will renew the Committed
Bridge Facility upon its expiration with similar terms as those in the
current Committed Bridge Facility.
6. Income Taxes
The Fund is not subject to income taxes as any income or loss is included
in the tax returns of the individual members. Accordingly, no provision for
income taxes has been made in the financial statements of the Fund.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
(A Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
6. Income Taxes (continued)
As of December 31, 1997, there were temporary differences of approximately
$13.2 million between the financial statement carrying values of certain
assets and liabilities and the income tax basis of such assets and
liabilities, primarily due to differences in depreciation methods and
equipment reserves.
7. Subsequent Events
In January 1998, the Fund paid $6.8 million to complete its purchase of a
50% interest in an entity which owns a MD DC9-82 stage III aircraft. The
Fund made a deposit of $0.7 million in 1997 on this investment.
(This space intentionally left blank)
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I
INDEX OF EXHIBITS
Exhibit Page
4. Operating Agreement of Partnership. *
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 Third Amended and restated Warehousing Credit Agreement,
dated as of December 2, 1997, with First Union National
Bank of North Carolina and others 41-120
24. Powers of Attorney. 121-123
- --------
* Incorporated by reference. See page 23 of this report.
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