-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JgKIWAdx92wFLwCNTCzqMO+9Fw2ZfoMQ30E+HF0/1JYCsIk2KgVUkfJYKOHuxBTy HrBhoX6SJAR7papeZG8Yew== 0000928956-00-000012.txt : 20000329 0000928956-00-000012.hdr.sgml : 20000329 ACCESSION NUMBER: 0000928956-00-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFESSIONAL LEASE MANAGEMENT INCOME FUND I LLC CENTRAL INDEX KEY: 0000928956 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943209289 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-28376 FILM NUMBER: 580803 BUSINESS ADDRESS: STREET 1: ONE MARKET STREET 2: STEWART ST TOWER STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159741399 MAIL ADDRESS: STREET 1: ONE MARKET STREET 2: STEUART STREET TOWER STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1301 FORMER COMPANY: FORMER CONFORMED NAME: PROFESSIONAL LEASE MANAGEMENT INCOME FUND I LLC DATE OF NAME CHANGE: 19941223 FORMER COMPANY: FORMER CONFORMED NAME: PROFESSIONAL LEASE MANAGEMENT NOLOAD INCOME FUND I LLC DATE OF NAME CHANGE: 19940825 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-28376 ----------------------- 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 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Aggregate market value of voting stock: N/A An index of exhibits filed with this Form 10-K is located at page 26. Total number of pages in this report: 54. PART I ITEM 1. BUSINESS (A) Background In August 1994, PLM Financial Services, Inc. (FSI or the Manager), a wholly-owned subsidiary of PLM International, Inc. (PLMI International or PLMI), filed a Registration Statement on Form S-1 with the Securities and Exchange Commission with respect to a proposed offering of 5,000,000 Class A units (the units) in Professional Lease Management Income Fund I, L.L.C. (Fund), a Delaware Limited Liability Company (the Fund). The Fund's offering became effective on January 23, 1995. The Fund engages in the business of investing in a diversified equipment portfolio consisting primarily of used, long-lived, low-obsolescence capital equipment that is easily transportable by and among prospective users. The Fund's primary objectives are: (1) to invest in a diversified portfolio of low-obsolescence equipment having long lives and high residual values, at prices that the Manager believes to be below inherent values, and to place the equipment on lease or under other contractual arrangements with creditworthy lessees and operators of equipment. All transactions over $1.0 million must be approved by the PLMI Credit Review Committee (the Committee), which is made up of members of PLMI's senior management. In determining a lessee's creditworthiness, the Committee will consider, among other factors, the lessee's financial statements, internal and external credit ratings, and letters of credit. (2) to generate cash distributions, which may be substantially tax-deferred (i.e., distributions that are not subject to current taxation) during the early years of the Fund. (3) to create a significant degree of safety relative to other equipment leasing investments through the purchase of a diversified equipment portfolio. This diversification reduces the exposure to market fluctuations in any one sector. The purchase of used, long-lived, low-obsolescence equipment, typically at prices that are substantially below the cost of new equipment, also reduces the impact of economic depreciation and can create the opportunity for appreciation in certain market situations, where supply and demand return to balance from oversupply conditions. (4) to increase the Fund's revenue base by reinvesting a portion of its operating cash flow in additional equipment during the first six years of the Fund's operation in order to grow the size of its portfolio. Since net income and distributions are affected by a variety of factors, including purchase prices, lease rates, and costs and expenses, growth in the size of the Fund's portfolio does not necessarily mean that the Fund's aggregate net income and distributions will increase upon the reinvestment of operating cash flow. The offering of units of the Fund closed on May 13, 1996. As of December 31, 1999, there were 4,975,321 units outstanding. The Manager contributed $100 for its Class B Member interest in the Fund. The Manager paid out of its own corporate funds (as a capital contribution to the Fund) all organization and syndication expenses incurred in connection with the offering; therefore, 100% of the net cash proceeds received by the Fund from the sale of Class A Units were used to purchase equipment and establish any required cash reserves. Beginning in the Fund's seventh year of operation, which commences January 1, 2003, the Manager will stop reinvesting cash flow and surplus funds, if any, less reasonable reserves, which will be distributed to the partners. Between the eighth and tenth years of operations, the Manager intends to begin its dissolution and liquidation of the Fund in an orderly fashion, unless the Fund is terminated earlier upon sale of all of the equipment or by certain other events. However, under certain circumstances, the term of the Fund may be extended, although in no event will the Fund extend beyond December 31, 2010. Table 1, below, lists the equipment and the original cost of equipment in the Fund's portfolio, and the original cost of investments in unconsolidated special-purpose entities, as of December 31, 1999 (in thousands of dollars): TABLE 1
Units Type Manufacturer Cost - ------------------------------------------------------------------------------------------------------------------------ Owned equipment held for operating leases: 2 Anchor handling supply marine vessels Moss Point $ 17,700 1 Oil tanker marine vessel Hyundai 17,000 1 Bulk carrier marine vessel Hitachi Shipbuilding & Engineering Co. 12,256 4 737-200A stage II commercial aircraft Boeing 20,605 350 Pressurized tank railcars Various 9,294 100 Covered hopper railcars Various 5,444 246 Box railcars Various 4,972 152 Foodservice refrigerated trailers Various 7,020 443 Piggyback trailers Various 6,666 99 Dry trailers Various 1,676 29 Refrigerated trailers Various 834 4,430 Marine containers Various 9,942 ------------------- Total owned equipment held for operating leases $ 113,4091 =================== Investments in unconsolidated special-purpose entities: 0.50 Trust owning an MD-82 stage III commercial aircraft McDonnell Douglas $ 7,7752 0.50 Trust owning an MD-82 stage III commercial aircraft McDonnell Douglas 6,8252 0.50 Container cargo feeder marine vessel O. C. Staalskibsvaerft A/F 3,8362 ------------------- Total investments in unconsolidated special-purpose entities $ 18,4361 - ------------------ 1 Includes equipment and investments purchased with the proceeds from capital contributions, undistributed cash flow from operations, and fund borrowings. Includes costs capitalized subsequent to the date of purchase. 2 Jointly owned by the Fund and an affiliated program.
The equipment is generally leased under operating leases for a term of one to six years. As of December 31, 1999, approximately 39% of the Fund's trailer equipment was in rental facilities operated by PLM Rental, Inc., an affiliate of the Manager, doing business as PLM Trailer Leasing. Rents are reported as revenue in accordance with Financial Accounting Standards Board Statement No. 13 "Accounting for Leases". Direct expenses associated with the equipment are charged directly to the Fund. An allocation of other indirect expenses of the rental yard operations is charged to the Fund monthly. The lessees of the equipment include, but are not limited to: Norfolk Southern, Varig South America, Trans World Airlines, Capital Lease, LTD., and Burlington Northern Rail. (B) Management of Fund Equipment The Fund has entered into an equipment management agreement with PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the management of the Fund's equipment. The Fund's management agreement with IMI is to co-terminate with the dissolution of the Fund unless the Class A members vote to terminate the agreement prior to that date, or at the discretion of the Manager. IMI has agreed to perform all services necessary to manage the equipment on behalf of the Fund and to perform or contract for the performance of all obligations of the lessor under the Fund's leases. In consideration for its services and pursuant to the Operating Agreement, IMI is entitled to a monthly management fee. (See Notes 1 and 2 to the audited financial statements). (C) Competition (1) Operating Leases versus Full Payout Leases Generally, the equipment owned by or invested in the Fund is leased out on an operating lease basis wherein the rents received during the initial noncancelable term of the lease are insufficient to recover the Fund's purchase price of the equipment. The short to mid-term nature of operating leases generally command a higher rental rate than longer-term, full payout leases and offers lessees relative flexibility in their equipment commitment. In addition, the rental obligation under an operating lease need not be capitalized on the lessee's balance sheet. The Fund encounters considerable competition from lessors that utilize full payout leases on new equipment, i.e. leases that have terms equal to the expected economic life of the equipment. While some lessees prefer the flexibility offered by a shorter-term operating lease, other lessees prefer the rate advantages possible with a full payout lease. Competitors may write full payout leases at considerably lower rates and for longer terms than the Fund offers, or larger competitors with a lower cost of capital may offer operating leases at lower rates, which may put the Fund at a competitive disadvantage. (2) Manufacturers and Equipment Lessors The Fund competes with equipment manufacturers who offer operating leases and full payout leases. Manufacturers may provide ancillary services that the Fund cannot offer, such as specialized maintenance service (including possible substitution of equipment), training, warranty services, and trade-in privileges. The Fund also competes with many equipment lessors, including ACF Industries, Inc. (Shippers Car Line Division), GATX Corporation, General Electric Railcar Services Corporation, General Electric Capital Aviation Services Corporation, Xtra Corporation, and other investment programs that lease the same types of equipment. (D) Demand The Fund currently operates in the following operating segments: marine vessel leasing, commercial aircraft leasing, railcar leasing, trailer leasing, and marine containers leasing. Each equipment leasing segment engages in short-term to mid-term operating leases to a variety of customers. Except for those aircraft leased to passenger air carriers, the Fund's equipment and investments are used to transport materials and commodities, rather than people. The following section describes the international and national markets in which the Fund's capital equipment operates: (1) Marine Vessels The Fund owns or has investments in small to medium-sized dry bulk vessels, oil tankers, and container vessels, all of which operate in international markets carrying a variety of commodity-type cargoes. Demand for commodity-based shipping is closely tied to worldwide economic growth patterns, which can affect demand by causing changes in volume on trade routes. The Manager operates several of the Fund's vessels through spot and period charters, an approach that provides the flexibility to adapt to changes in market conditions. The Fund also owns anchor-handling supply vessels that operate through bareboat charters. (a) Anchor Handling Supply Vessels The Fund owns two United States (US)-flagged anchor-handling supply vessels used to support rig drilling operations in the US Gulf of Mexico. Although this type of vessel can be used in other regions, the US Gulf of Mexico is the more desirable market due to US maritime law which stipulates that only US-flagged vessels be used in this region. Demand for anchor-handling vessels depends primarily on the demand for floating drilling services by oil companies. During 1999, demand for such services remained at 1997-1998 levels, however several higher-capacity vessels were delivered during 1998-1999, resulting in lower utilization and lease rates for marine vessels the size owned by the Fund. The 1999 recovery in oil prices has led forecasters to expect an increase in drilling activity for 2000, as rising oil prices improve the economics of offshore oil and gas development. Oil companies are expected to increase their drilling programs during 2000, although it is uncertain by how much. Increases in capacity brought about by new building may delay a return to the higher utilization and lease rate levels experienced during prior to 1997. (b) Oil Tanker Vessel The Fund owns a small to medium-size oil tanker that operates in international markets carrying crude oil cargoes. Demand for crude oil shipping closely follows worldwide economic growth patterns, which can alter demand by causing changes in volumes on trade routes. The Manager operates the Fund's vessel through spot and period charters, an approach that provides the flexibility to adapt to changes in market conditions. During 1999, oil tanker markets experienced declines in charter rates and vessel values brought about by volatile oil and oil product prices, relatively low growth in trade volumes, and high rates of new product tanker deliveries. Daily charter rates for standard-size oil tankers were 21% lower than in 1998 and 39% lower than in 1997. This decline was primarily due to a deterioration in oil products trade in European markets. Since crude oil is the source feedstock for oil products, the products trade is closely tied to crude oil prices. Although 1999 was a year of rising oil prices, volatility in trading appeared to depress actual shipping volumes, particularly in Europe. Although product imports to the United States and Japan increased such that the entire worldwide market grew by 2.7% during 1999, due to the lingering effects of the Asian recession, shipping volumes ended the year below the levels of 1996-1997. Measured by deadweight tons, the oil tanker fleet grew by only 3.2% during 1999, as overall supply was significantly moderated by a 150% increase in scrapping levels as compared to 1998. For 2000, the oil tanker fleet is expected to expand by a 6.5% rise in new deliveries. This increase is due to the continuing effects of high order levels from the mid-1990s, which was driven by growth in Asian trade and the anticipated effects of the US Oil Pollution Act of 1990. Under this Act, tankers over 25 years old are restricted from trading to the United States if they do not have double bottoms and/or double hulls (similar, though somewhat less stringent restrictions are in place within developing nations). These regulations have the effect of inducing the retirement of older vessels that would otherwise continue trading. The combined effects of regulatory restrictions and low charter rates are expected to keep scrappings at relatively high levels throughout 2000. However, an anticipated high rate of new tanker deliveries will prevent much improvement in rates and ship values during 2000. Should high scrapping levels continue beyond then, this could offset increases in new deliveries and prevent further significant declines in freight rates and ship values. (c) Bulk Carrier Vessels Dry bulk shipping is a cyclical business that induces capital investment during periods of high freight rates and leads to a contraction in investment during periods of low rates. Currently, the industry environment is one of slow growth. Fleet size is relatively stable, the overall bulk carrier fleet grew by less than 1%, as measured by deadweight tons, and the total number of ships shrank slightly in 1999. Freight rates, after declining in 1998 due, in part, to the Asian recession, improved for dry bulk vessels of all sizes during 1999. Freight rates increased during the year such that by the end of 1999, they had reverted back to 1997 levels, although these levels are still moderate by historical comparison. The 1999 improvement was driven by increases in US grain exports as well as stronger trade in iron ore and steel products. Total dry bulk trade, as measured in deadweight tons, is estimated to have grown by approximately 2% during 1999, compared to a flat year in 1998. Forecasts for 2000 indicate that bulk trade should continue to grow, albeit at slow rates. During 1999, ship values reversed the declines of the prior year, ending as much as 30% above the levels seen at the beginning of the year for certain vessel types. This upturn in ship values was due to a general improvement in dry bulk trade as well as increases in the cost of new building as compared to 1998. A slow but steady rise in trade volumes, combined with low fleet expansion, both of which are anticipated to continue in 2000, may provide some basis for increases in freight rates and ship values in the future. For example, it is believed that should growth in demand return to historic levels of 3% annually, this could stimulate increases in freight rates and ship values, and ultimately, induce further investment in new building. (d) Container Feeder Vessels Container vessels are used to transport cargo that is shipped in containers. When these vessels move containers from small outlying ports to main transportation hubs serviced by regularly scheduled ocean liners, they are called container feeder vessels. Container vessels typically carry up to approximately 1,000 20-foot equivalent unit (TEU) containers. For the past several years, this trade has been characterized by growth in both supply and demand, however in 1998, these patterns changed as worldwide container shipments dropped by about 1%. In 1999, this sector resumed growth due to some stabilization of the Asian economies. In the future, containerized shipping is expected to continue to grow somewhat faster than world trade, as more types of cargo are introduced to containerization and larger-sized vessels reduce the cost of main-line container shipments. After beginning 1999 at low levels, container vessel freight rates staged a recovery late in the first quarter due to increased shipment volumes. Throughout 1999, vessels carrying over 1,000 TEU containers experienced significant rate improvement, however, such improvement was limited for smaller feeder vessels such as those owned by the Fund. New building of feeder vessels is not expected to undermine any potential for rate improvement, as only 6.1% of the existing fleet was on order as of the end of 1999. (2) Commercial Aircraft After experiencing relatively robust growth over the prior four years, demand for commercial aircraft softened somewhat in 1999. Boeing and Airbus, the two primary manufacturers of new commercial aircraft, saw a decrease in their volume of orders, which totaled 368 and 417 during 1999, compared to 656 and 556 in 1998. The slowdown in aircraft orders can be partially attributed to the full implementation of US Stage III environmental restrictions, which became fully effective on December 31, 1999. Since these restrictions effectively prohibit the operation of noncompliant aircraft in the United States after 1999, carriers operating within or into the United States either replaced or modified all of their noncompliant aircraft before the end of the year. The continued weakness of the Asian economy has also served to slow the volume of new aircraft orders. However, with the Asian economy now showing signs of recovery, air carriers in this region are beginning to resume their fleet building efforts. Demand for, and values of, used commercial aircraft have been adversely affected by the Stage III environmental restrictions and an oversupply of older aircraft as manufacturers delivered more new aircraft than the overall market required. Boeing predicts that the worldwide fleet of jet-powered commercial aircraft will increase from approximately 12,600 airplanes as of the end of 1998 to about 13,700 aircraft by the end of 2003, an average increase of 220 units per year. However, actual deliveries for the first two years of this period, 1998 and 1999, already averaged 839 units annually. Although some of the resultant surplus used aircraft have been retired, the net effect has been an overall increase in the number of used aircraft available. This has resulted in a decrease in both market prices and lease rates for used aircraft. Weakness in the used commercial aircraft market may be mitigated in the future as manufacturers bring their new production more in line with demand and given the anticipated continued growth in air traffic. Worldwide, demand for air passenger services is expected to increase at about 5% annually and freight services at about 6% per year, for the foreseeable future. This fund owns 50% of two Stage III-compliant aircraft and 100% of four Stage II aircraft, the latter of which are operating outside of the United States and thus are not subject to Stage III environmental restrictions. All of these aircraft remained on lease during 1999 and were not impacted by the changes in market conditions described above. (3) Railcars (a) Pressurized Tank Railcars Pressurized tank cars are used to transport primarily liquefied petroleum gas (natural gas) and anhydrous ammonia (fertilizer). The major US markets for natural gas are industrial applications (40% of estimated demand in 1998), residential use (21%), electrical generation (15%), and commercial applications (14%). Within the fertilizer industry, demand is a function of several factors, including the level of grain prices, the status of government farm subsidy programs, amount of farming acreage and mix of crops planted, weather patterns, farming practices, and the value of the US dollar. Population growth and dietary trends also play an indirect role. On an industry-wide basis, North American carloadings of the commodity group that includes petroleum and chemicals increased 2.5% in 1999, compared to 1998. Correspondingly, demand for pressurized tank cars remained solid during 1999, with utilization of this type of railcar within the Fund remaining above 98%. While renewals of existing leases continue at similar rates, some cars have been renewed for "winter only" terms of approximately six months. As a result, it is anticipated that there will be more pressurized tank cars than usual coming up for renewal in the spring. (b) Covered Hopper (Grain) Railcars Demand for covered hopper cars, which are specifically designed to service the agricultural industry, continued to experience weakness during 1999. The US agribusiness industry serves a domestic market that is relatively mature, the future growth of which is expected to be consistent but modest. Most domestic grain rail traffic moves to food processors, poultry breeders, and feed lots. The more volatile export business, which accounts for approximately 30% of total grain shipments, serves emerging and developing nations. In these countries, demand for protein-rich foods is growing more rapidly than in the United States, due to higher population growth, a rapid pace of industrialization, and rising disposable income. Within the United States, 1999 carloadings of agricultural products increased 4.3%, while Canadian carloadings of these products fell 3.4%, resulting in an overall increase within North America of only 2.8% compared to 1998. Since the combined North American shipments for 1998 had decreased 7.7% over the previous year, the 1999 volume, while representing a slight increase, is still below 1997 levels. Another factor contributing to softness in the covered hopper car market has been the large number of new cars built in the last few years. Production of new railcars of all types is estimated to have reached 57,685 cars during 1999, with covered hopper cars representing 19,845, or one-third, of this total. For those covered hopper cars whose leases expired in 1999, both industry-wide and within the Fund, the combination of a lack of strong demand and an excess supply of cars resulted in many of these expiring leases being renewed at considerably lower rates. (c) Box Railcars Boxcars are used primarily to transport paper and paper products. Carloadings of forest products decreased 2.0% in the United States and rose 4.3% in Canada during 1999, compared to 1998. However, during 1999, prospects for the forest products industry showed signs of improvement, largely due to macroeconomic factors, such as the beginning of an economic recovery in Asia, some weakening of the US dollar, and a continued strong domestic economy. The outlook has also improved due to industry-specific factors, most notably a major slowdown in capacity additions. The Fund's boxcars continued to operate on long-term leases during 1999. (4) Trailers (a) Foodservice Refrigerated Trailers Sales within the foodservice distribution industry, which represents the wholesale supply of food and related products to restaurants, grocers, hospitals, schools, and other purveyors of prepared food, have grown at a 4.1% annual rate over the past five years. Foodservice distribution sales within the United States are estimated to have reached over $150 billion during 1999 and are expected to surpass $180 billion by 2005. This growth is being driven by changes in consumer demographics and lifestyles, as more and more consumers demand fresher, more convenient food products. Increased service demands by consumers coupled with heightened fears over food safety have accelerated the development of new technology for refrigerated trailers and have caused foodservice distributors to seek to upgrade their fleets by either purchasing or leasing newer, more technologically advanced trailers. More foodservice distributors are considering leasing trailers due to the lower capital outlays and quicker access to better equipment that this option offers, particularly in view of the current six- to twelve-month backlog on new trailer orders. (b) Intermodal (Piggyback) Trailers Intermodal trailers are used to transport a variety of goods either by truck or by rail. Over the past decade, intermodal trailers have been gradually displaced by domestic containers as the preferred method of transport for such goods. During 1999, demand for intermodal trailers was more volatile than usual . Slow demand occurred over the first half of the year due to customer concerns over rail service problems associated with mergers in the rail industry, however, demand picked up significantly over the second half of the year due to both a resolution of these service problems and the continued strength of the US economy. Due to rise in demand which occurred over the latter half of 1999, overall, activity within the intermodal trailer market declined less than expected for the year, as total intermodal trailer shipments decreased by only approximately 1.8% compared to the prior year. Average utilization of the entire intermodal fleet rose from 73% in 1998 to 77% in 1999, primarily due to demand exceeding available supply of intermodal trailers during the second part of the year. The Manager stepped up its marketing and asset management program for the Fund's intermodal trailers during 1999. Although the trend towards using domestic containers instead of intermodal trailers is expected to continue in the future, overall intermodal trailer shipments are forecast to decline by only 2% to 3% in 2000, compared to the prior year, due to the anticipated continued strength of the overall economy. As such, the nationwide supply of intermodal trailers is expected to remain essentially in balance with demand for 2000. For the Fund's intermodal fleet, the Manager will continue to seek to expand its customer base while minimizing trailer downtime at repair shops and terminals. (c) Refrigerated Trailers The temperature-controlled over-the-road trailer market continued to expand during 1999, although not as quickly as in 1998 when the market experienced very strong growth. The leveling off in 1999 occurred as equipment users began to absorb the increases in supply created over the prior two years. Refrigerated trailer users have been actively retiring their older units and consolidating their fleets in response to improved refrigerated trailer technology. Concurrently, there is a backlog of six to nine months on orders for new equipment. As a result of these changes in the refrigerated trailer market, it is anticipated that trucking companies and shippers will utilize short-term trailer leases more frequently to supplement their existing fleets. Such a trend should benefit the Fund, whose trailers are typically leased on a short-term basis. (d) Dry Trailers The U.S. dry trailer market remained strong during 1999, as the strong domestic economy resulted in heavy freight volumes. With unemployment low, consumer confidence high, and industrial production sound, the outlook for leasing this type of trailer remains positive, particularly as the equipment surpluses of recent years are being absorbed by the buoyant market. In addition to high freight volumes, improvements in inventory turnover and tighter turnaround times have lead to a stronger overall trucking industry and increased equipment demand. (5) Marine Containers The marine container leasing market started 1999 with industry-wide utilization rates in the mid 70% range, down somewhat from the beginning of 1998. The market strengthened throughout the year such that most container leasing companies reported utilization of 80% by the end of 1999. Offsetting this favorable trend was a continuation of historically low acquisition prices for new containers acquired in the Far East, predominantly China. These low prices put pressure on fleetwide per diem leasing rates. The Fund took advantage of attractive purchase prices by acquiring several groups of containers during the year. It is the Manager's belief that acquiring containers at these historically low prices will yield strong long-terms results for the Fund. Industry consolidation continued in 1999 as the parent of one of the world's top ten container lessors finalized the outsourcing of the management of its container fleet to a competitor. However, the Manager believes that such consolidation is a positive trend for the overall container leasing industry, and ultimately will lead to higher industry-wide utilization and increased per diem rates. (E) Government Regulations The use, maintenance, and ownership of equipment are regulated by federal, state, local and/or foreign governmental authorities. Such regulations may impose restrictions and financial burdens on the Fund's ownership and operation of equipment. Changes in government regulations, industry standards, or deregulation may also affect the ownership, operation, and resale of the equipment. Substantial portions of the Fund's equipment portfolio are either registered or operated internationally. Such equipment may be subject to adverse political, governmental, or legal actions, including the risk of expropriation or loss arising from hostilities. Certain of the Fund's equipment is subject to extensive safety and operating regulations, which may require its removal from service or extensive modification of such equipment to meet these regulations, at considerable cost to the Fund. Such regulations include but are not limited to: (1) the U.S. Oil Pollution Act of 1990, which established liability for operators and owners of vessels that create environmental pollution. This regulation has resulted in higher oil pollution liability insurance. The lessee of the equipment typically reimburses the Fund for these additional costs. (2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990, which limits or eliminates the operation of commercial aircraft in the United States that do not meet certain noise, aging, and corrosion criteria. In addition, under U.S. Federal Aviation Regulations, after December 31, 1999, no person may operate an aircraft to or from any airport in the contiguous United States unless that aircraft has been shown to comply with Stage III noise levels. The Fund has Stage II aircraft that do not meet Stage III requirements. The cost to install a hush kit to meet quieter Stage III requirements is approximately $2.0 million, depending on the type of aircraft. The Fund's aircraft will remain with the current lessee, which operates in a country that does not require this regulation. (3) the Montreal Protocol on Substances that Deplete the Ozone Layer and the United States Clean Air Act Amendments of 1990, which call for the control and eventual replacement of substances that have been found to cause or contribute significantly to harmful effects on the stratospheric ozone layer and that are used extensively as refrigerants in refrigerated trailers. (4) the Federal Railroad Administration has mandated that effective July 1, 2000, all jacketed and non-jacketed tank railcars must be re-qualified to insure tank shell integrity. Tank shell thickness, weld seams, and weld attachments must be inspected and repaired if necessary to re-qualify a tank railcar for service. The average cost of this inspection is $1,800 for non-jacketed tank railcars and $3,600 for jacketed tank railcars, not including any necessary repairs. This inspection is to be performed at the next scheduled tank test. As of December 31, 1999, the Fund was in compliance with the above governmental regulations. Typically, costs related to extensive equipment modifications to meet government regulations are passed on to the lessee of that equipment. ITEM 2. PROPERTIES The Fund neither owns nor leases any properties other than the equipment it has purchased or interests in entities which own equipment for leasing purposes. As of December 31, 1999, the Fund owned a portfolio of transportation and related equipment and investments in equipment owned by unconsolidated special-purpose entities (USPEs), as described in Item I, Table 1. The Fund acquired equipment with the proceeds of the Fund offering of $100.0 million, proceeds of debt financing of $25.0 million, and by reinvesting a portion of its operating cash flow in additional equipment. The Fund maintains its principal office at One Market, Steuart Street Tower, Suite 800, San Francisco, California 94105-1301. All office facilities are provided by FSI without reimbursement by the Fund. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Fund's members during the fourth quarter of its fiscal year ended December 31, 1999. PART II ITEM 5. MARKET FOR THE FUND'S EQUITY AND RELATED UNITHOLDER MATTERS Pursuant to the terms of the operating agreement, the Manager is generally entitled to a 1% interest in the profits and losses and 15% of cash distributions. The Manager will be specially allocated (i) 100% of the Fund's organizational and offering cost amortization expenses and (ii) income equal to the excess of cash distribution over the Manager`s 1% share of net profits. The effect on the Class A members of this special income allocation will be to increase the net loss or decrease the net profits allocable to the Class A members by an equal amount. After the investors receive cash distributions equal to their original capital contributions the Manager's interest in the cash distributions of the Fund will increase to 25%. The Manager is the sole holder of such interests. The remaining interests in the profits and losses and distributions of the Fund are owned as of December 31, 1999, by the 4,986 holders of Units in the Fund. There are several secondary markets in which Class A units trade. Secondary markets are characterized as having few buyers for limited partnership interests and, therefore, are generally viewed as inefficient vehicles for the sale of units. Presently, there is no public market for the units and none is likely to develop. To prevent the units from being considered publicly traded and thereby to avoid taxation of the Fund as an association treated as a corporation under the Internal Revenue Code, the units will not be transferable without the consent of the Manager, which may be withheld in its absolute discretion. The Manager intends to monitor transfers of units in an effort to ensure that they do not exceed the percentage or number permitted by certain safe harbors promulgated by the Internal Revenue Service. A transfer may be prohibited if the intended transferee is not an U.S. citizen or if the transfer would cause any portion of the units of a "Qualified Plan" as defined by the Employee Retirement Income Security Act of 1974 and Individual Retirement Accounts to exceed the allowable limit. The Fund may redeem a certain number of units each year under the terms of the Fund's operating agreement. The purchase price paid by the Fund for outstanding Class A Units upon redemption will be equal to 105% of the amount Class A Members paid for the Class A Units, less the amount of cash distributions Class A Members have received relating to such Class A Units. The price may not bear any relationship to the fair market value of a Class A Unit. As of December 31, 1999, the Fund had agreed to purchase approximately 4,000 units for an aggregate price of approximately $49,000. The Manager anticipates that these units will be purchased in the first and second quarters of 2000. As of December 31, 1999, the Fund has purchased a cumulative total of 24,260 Class A units for a cost of $0.3 million. In addition to these units, the Manager may purchase additional units on behalf of the Fund in the future. ITEM 6. SELECTED FINANCIAL DATA Table 2, below, lists selected financial data for the Fund: TABLE 2 For the Years Ended December 31, (In thousands of dollars, except weighted-average unit amounts)
1999 1998 1997 1996 1995 ------------------------------------------------------------------- Operating results: Total revenues $ 26,483 $ 28,301 $ 22,920 $ 11,295 $ 4,150 Net gain on disposition of equipment 23 2,759 1,682 -- 25 Equity in net income (loss) of unconsolidated special-purpose entities 1,761 2,390 1,453 (256) 69 Net income (loss) (2,401) 4,316 (2,052) (2,392) (618) At year-end: Total assets $ 80,533 $ 99,635 $ 108,524 $ 87,755 $ 62,589 Total liabilities 29,935 28,905 29,337 1,466 1,187 Note payable 25,000 25,000 25,000 -- -- Cash distribution $ 11,690 $ 11,765 $ 11,763 $ 9,832 $ 1,303 Cash distribution representing a return of capital to Class A members $ 9,930 $ 7,405 $ 9,998 $ 8,471 $ 1,180 Per weighted-average Class A unit: Net income (loss) $ (0.81)1 $ 0.521 $ (0.75) 1 Cash distribution $ 1.99 $ 2.00 $ 2.00 Various, according to interim closings Cash distribution representing a return of capital to Class A members $ 1.99 $ 1.48 $ 2.00 - ------------------------------- 1 After reduction of $1.7 million ($0.33 per weighted-average Class A unit) in 1999, $1.6 million ($0.33 per weighted-average Class A unit) in 1998, and $1.8 million ($0.35 per weighted-average Class A unit) in 1997, representing special allocations to the Manage (see Note 1 to the financial statements).
(This space intentionally left blank) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (A) Introduction Management's discussion and analysis of financial condition and results of operations relates to the Financial Statements of Professional Lease Management Income Fund I, L.L.C. (the Fund). The following discussion and analysis of operations focuses on the performance of the Fund's equipment in various segments in which it operates and its effect on the Fund's overall financial condition. (B) Results of Operations -- Factors Affecting Performance (1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions The exposure of the Fund's equipment portfolio to repricing risk occurs whenever the leases for the equipment expire or are otherwise terminated and the equipment must be remarketed. Major factors influencing the current market rate for the Fund's equipment include, but are not limited to, supply and demand for similar or comparable types of transport capacity, desirability of the equipment in the leasing market, market conditions for the particular industry segment in which the equipment is to be leased, overall economic conditions, and various regulations concerning the use of the equipment. Equipment that is idle or out of service between the expiration of one lease and the assumption of a subsequent lease can result in a reduction of contribution to the Fund. The Fund experienced re-leasing or repricing activity in 1999, primarily in its trailer, marine vessel and railcars portfolios. (a) Trailers: The Fund's trailer portfolio operates in short-term rental facilities or with short-line railroad systems. The relatively short duration of most leases in these operations exposes the trailers to considerable re-leasing and repricing activity. (b) Marine vessels: Certain of the Fund's marine vessels (wholly and partially owned) operated in the time charter markets throughout 1999. Time charters are of a short duration (such as a single voyage of 10 - 45 days), or may be of extended duration (as much as three years) in weaker markets. Short duration charters are the dominant forms of contract. In addition, in 1999, one of the Fund's anchor handling supply marine vessels was re-leased at a significantly lower rate, due to soft market conditions. If the economic conditions remain the same, a similar trend of lower re-lease rates will occur for the Fund's remaining anchor handling marine vessel when the current lease expires in the year 2000. (c) Railcars: The relatively short duration of most leases in these operations exposes the railcars to considerable re-leasing and repricing activity. Lease revenue decreased $0.1 million due to lower re-lease rates for a group of railcars in the year ended December 31, 1999 compared to the same period in 1998. (2) Equipment Liquidations and Nonperforming Lessees Liquidation of Fund equipment and investments in unconsolidated special-purpose entities (USPEs), unless accompanied by an immediate replacement of additional equipment earning similar rates (see Reinvestment Risk, below), represents a reduction in the size of the equipment portfolio and may result in a reduction of contribution to the Fund. Lessees not performing under the terms of their leases, either by not paying rent, not maintaining or operating the equipment in accordance with the conditions of the leases, or other possible departures from the leases, can result not only in reductions in contribution, but also may require the Fund to assume additional costs to protect its interests under the leases, such as repossession or legal fees. The Fund experienced the following in 1999: Liquidations: During 1999, the Fund received proceeds of $14.5 million from the sale and disposal of trailers, railcars and its interest in two trusts that own a total of three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables, and its interest in an entity that owned a mobile offshore drilling unit. (3) Reinvestment Risk Reinvestment risk occurs when; the Fund cannot generate sufficient surplus cash after fulfillment of operating obligations and distributions to reinvest in additional equipment during the reinvestment phase of Fund; equipment is sold or liquidated for less than threshold amounts; proceeds from disposition or surplus cash available for reinvestment cannot be reinvested at the threshold lease rates; or proceeds from dispositions or surplus cash available for reinvestment cannot be deployed in a timely manner. During the first six years of operations which ends December 31, 2002, the Fund intends to increase its equipment portfolio by investing surplus cash in additional equipment after fulfilling operating requirements and paying distributions to the Members. Subsequent to the end of the reinvestment period, the Fund will continue to operate for an additional two years, then begin an orderly liquidation over an anticipated two-year period. Other nonoperating funds for reinvestment are generated from the sale of equipment prior to the Fund's planned liquidation phase, the receipt of funds realized from the payment of stipulated loss values on equipment lost or disposed of during the time it is subject to lease agreements, or from the exercise of purchase options in certain lease agreements. Equipment sales generally result from evaluations by the Manager that continued ownership of certain equipment is either inadequate to meet Fund performance goals, or that market conditions, market values, and other considerations indicate it is the appropriate time to sell certain equipment. During 1999, the Fund acquired a group of marine containers for $9.9 million and a group of trailers for $1.4 million. (4) Equipment Valuation In accordance with Financial Accounting Standards Board statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Manager reviews the carrying value of the Fund's equipment portfolio at least quarterly and whenever circumstances indicate that the carrying value of an asset may not be recoverable in relation to expected future market conditions for the purpose of assessing the recoverability of the recorded amounts. If the undiscounted projected future cash flows and fair value are less than the carrying value of the equipment, a loss on revaluation is recorded. Reductions of $3.9 million to the carrying value of two marine vessels were required during 1999. Reductions of $1.0 million to the carrying value of partially owned equipment were required during 1998. No reductions were required to the carrying value of equipment during 1997. As of December 31, 1999, the Manager estimated the current fair market value of the Fund's equipment portfolio, including the Fund's interest in equipment owned by USPEs, to be $95.6 million. This estimate is based on recent market transactions for equipment similar to the Fund's equipment portfolio and the Fund's interest in equipment owned by USPEs. Ultimate realization of fair market value by the Fund may differ substantially from the estimate due to specific market conditions, technological obsolescence, and government regulations, among other factors that the Manager cannot accurately predict. (C) Financial Condition--Capital Resources, Liquidity, and Unit Redemption Plan The Manager purchased the Fund's equipment portfolio with capital raised from its initial equity offering of $100.0 million and permanent debt financing of $25.0 million. No further capital contributions from Class A Members are permitted under the terms of the Fund's operating agreement. The Fund relies on operating cash flow to meet its operating obligations, make cash distributions to Members, and increase the Fund's equipment portfolio with any remaining available surplus cash. The total outstanding debt, currently $25.0 million, can be increased with borrowings from the short-term Committed Bridge Facility in an aggregate principal amount not to exceed the lesser of $10.0 million or 50% of the aggregate principal amount of the Notes outstanding at the time of issuance and not to remain outstanding for more than 179 days. The Fund intends to rely on operating cash flow to meet its operating obligations, make cash distributions to Class A Members, and increase the Fund's equipment portfolio through reinvestment of any remaining surplus cash available in additional equipment. For the year ended December 31, 1999, the Fund generated $17.5 million in operating cash (net cash provided by operating activities plus minority interests and non-liquidating cash distributions from USPEs) to meet its operating obligations and make distributions of $11.7 million to the members. Lessee deposits and reserve for repairs increased $0.8 million during the year ended December 31, 1999 compared to the same period in 1998. Reserves for aircraft engine repairs increased $0.6 million due to additional lessee deposits, and security deposits increased $0.4 million due to a security deposit from a container lessee. Lessee prepaid deposits decreased $0.2 million due to fewer lessee's prepaying future lease revenue. During the year ended December 31, 1999, the Fund purchased 4,430 marine containers and 65 dry trailers for a total cost of $11.4 million. During the year ended December 31, 1999, the Fund sold trailers and railcars with an aggregate net book value of $0.1 million, for proceeds of $0.2 million. During 1999, the Manager sold the Fund's 61% interest in an entity owning a mobile offshore drilling unit with a net investment of $7.2 million for proceeds of $7.2 million. Also, during 1999, the Manager sold the Fund's 33% interest in two trusts that owned a total of three Boeing 737-200A stage II commercial aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables. The trusts were sold for proceeds of $7.1 million for its net investment of $3.8 million. Pursuant to the terms of the operating agreement, beginning in the fourth quarter of 1998, the Fund may, at the sole discretion of the Manager, redeem up to 2% of the outstanding Class A units each year. The purchase price paid by the Fund for outstanding Class A Units upon redemption will be equal to 105% of the amount Class A Members paid for the Class A Units, less the amount of cash distributions Class A Members have received relating to such Class A Units. The price may not bear any relationship to the fair market value of a Class A Unit. As of December 31, 1999, the Fund had agreed to purchase approximately 4,000 units for an aggregate price of approximately $49,000. The Manager anticipates that these Class A units will be purchased in the first and second quarters of 2000. In addition to these units, the Manager may purchase additional units on behalf of the Fund in the future. The Fund has a $25.0 million note payable. The loan was funded in March 1997. The note bears interest at a fixed rate of 7.33% per annum and has a final maturity in 2006. Interest on the note is payable semi-annually. The note will be repaid in five principal payments of $3.0 million on December 31, 2000, 2001, 2002, 2003, and 2004 and two principal payments of $5.0 million on December 31, 2005, and 2006. The agreement requires the Fund to maintain certain financial covenants related to fixed-charge coverage. The Manager has entered into a joint $24.5 million credit facility (the Committed Bridge Facility) on behalf of the Fund, PLM Equipment Growth Fund VI (EGF VI) and PLM Equipment Growth & Income Fund VII (EGF VII), both affiliated investment programs; and TEC Acquisub, Inc. (TECAI), an indirect wholly-owned subsidiary of the Manager, which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by the Fund, plus (ii) 50% of unrestricted cash held by the borrower. The Fund, EGF VI, EGF VII, and TECAI collectively may borrow up to $24.5 million of the Committed Bridge Facility. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million Letter of Credit Facility for the eligible borrowers. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than June 30, 2000. Interest accrues at either the prime rate or adjusted LIBOR plus 1.625% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Fund are guaranteed by the Manager. As of December 31, 1999 and March 27, 2000, no eligible borrower had any outstanding borrowings. The Manager believes it will be able to renew the Committed Bridge Facility upon its expiration with similar terms as those in the current Committed Bridge Facility. The Manager has not planned any expenditures, nor is it aware of any contingencies that would cause it to require any additional capital to that mentioned above. (D) Results of Operations -- Year to Year Detail Comparison (1) Comparison of the Fund's Operating Results for the Years Ended December 31, 1999 and 1998 (a) Owned Equipment Operations Lease revenues less direct expenses (defined as repair and maintenance, equipment operating, and asset-specific insurance expenses) on owned equipment decreased during the year ended December 31, 1999, when compared to the same period of 1998. Gains or losses from the sale of equipment, interest and other income and certain expenses such as depreciation and amortization and general and administrative expenses relating to the operating segments (see Note 5 to the audited financial statements), are not included in the owned equipment operation discussion because they are more indirect in nature, not a result of operations but more the result of owning a portfolio of equipment. In September 1999, the Manager amended the corporate-by-laws of certain USPEs in which the Fund, or any affiliated program, owns an interest greater than 50%. The amendment to the corporate-by-laws provided that all decisions regarding the acquisition and disposition of the investment as well as other significant business decisions of that investment would be permitted only upon unanimous consent of the Fund and all the affiliated programs that have an ownership in the investment. As such, although the Fund may own a majority interest in a USPE, the Fund does not control its management and thus it is appropriate that the equity method of accounting be used after adoption of the amendment. As a result of the amendment, as of September 30, 1999, all jointly owned equipment in which the Fund owned a majority interest, which had been consolidated, were reclassified to investments in USPEs. Lease revenues and direct expenses for jointly owned equipment in which the Fund held a majority interest were reported under the consolidation method of accounting during the nine months ended September 30, 1999 and were included with the owned equipment operations. For the three months ended December 31, 1999, lease revenues and direct expenses for this entity is reported under the equity method of accounting and is included with the operations of the unconsolidated special-purpose entities (USPEs). The following table presents lease revenues less direct expenses by segment (in thousands of dollars):
For the Years Ended December 31, 1999 1998 ----------------------------- Marine vessels $ 4,990 $ 5,794 Aircraft 4,028 4,525 Mobile offshore drilling unit 3,494 3,936 Railcars 3,179 3,323 Trailers 2,976 3,263 Marine containers 1,326 --
Marine vessels: Marine vessel lease revenues and direct expenses were $9.5 million and $4.5 million, respectively, for the year ended December 31, 1999, compared to $8.7 million and $2.9 million, respectively, during the same period of 1998. The purchase of two marine vessels during 1998 generated $2.0 million in additional lease revenues in 1999. Lease revenue decreased $1.0 million for two other marine vessels due to lower re-lease rates earned during the year ended December 31, 1999 compared to the same period in 1998. In addition, lease revenues decreased $0.2 million during 1999 due to the drydocking of a marine vessel for approximately three weeks, during which it was off lease. Direct expenses increased $2.2 million in the year ended December 31, 1999 compared to the same period in 1998 due to the purchase of a marine vessel at the end of the second quarter of 1998. The increase in direct expenses for a marine vessel was offset, in part, by a decrease of $0.2 million for another marine vessel that was in dry-docking and thus not incurring operating expenses for approximately three weeks during 1999. In addition, direct expenses decreased $0.4 million for this marine vessel due to lower marine operating expenses during the year ended December 31, 1999, compared to the same period in 1998. Aircraft: Aircraft lease revenues and direct expenses were $4.1 million and $29,000, respectively, for the year ended December 31, 1999, compared to $4.6 million and $42,000, respectively, during the same period of 1998. Aircraft contribution decreased due to the sale of an aircraft in the second quarter of 1998. Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and direct expenses were $3.6 million and $0.1 million, respectively, for the year ended December 31, 1999, compared to $4.0 million and $0.1 million, respectively, during the same period of 1998. Lease revenues for the Fund's mobile offshore drilling unit decreased $0.4 million for the year ended December 31, 1999 when compared to the same period of 1998 due to the change in accounting treatment of majority held equipment from the consolidation method of accounting to the equity method of accounting. Railcars: Railcar lease revenues and direct expenses were $3.8 million and $0.6 million, respectively, for the year ended December 31, 1999, compared to $4.0 million and $0.6 million, respectively, during the same period of 1998. Lease revenue decreased $0.1 million due to lower re-lease rates for a group of railcars in the year ended December 31, 1999 compared to the same period in 1998. In addition, lease revenue decreased $0.1 million resulting from the sale or disposition of railcars in 1998 and 1999. Trailers: Trailer lease revenues and direct expenses were $3.9 million and $0.9 million, respectively, for the year ended December 31, 1999, compared to $3.9 million and $0.6 million, respectively, during the same period of 1998. Direct expenses increased due to repairs required on certain trailers during the year ended December 31, 1999, which were not needed in the same period in 1998. Marine containers: Marine container lease revenues were $1.3 million for the year ended December 31, 1999. Marine container contribution increased due to the purchase of marine containers in the second quarter of 1999. (b) Interest and Other Income Interest and other income decreased $0.1 million due to lower average cash balances in the year ended December 31, 1999, compared to the same period in 1998. (c) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $23.7 million for the year ended December 31, 1999 increased from $21.6 million for the same period in 1998. Significant variances are explained as follows: (i) Loss on revaluation of equipment increased $3.9 million during the year ended December 31, 1999 compared to the same period in 1998. In 1999, the Fund reduced the carrying value of two marine vessels to their estimated net realizable value. No revaluation of equipment was required on wholly owned equipment in 1998. (ii) A $0.1 million increase in bad debt expenses was due to the Manager's evaluation of the collectibility of receivables due from certain lessees. (iii) A $1.9 million decrease in depreciation and amortization expenses from 1998 levels resulted from an approximately $3.6 million decrease due to the use of the double-declining balance depreciation method which results in greater depreciation the first years an asset is owned, an approximately $0.7 million decrease as a result of the change in accounting treatment of majority held equipment from the consolidation method of accounting to the equity method of accounting, and approximately $0.2 million decrease due to the sale of certain assets during 1999 and 1998. These decreases were partially offset by an approximately $2.6 million increase in depreciation expense from the purchase of equipment during 1999 and 1998. (d) Net Gain on Disposition of Owned Equipment The net gain on disposition of equipment for the year ended December 31, 1999 totaled $23,000 which resulted from the sale of railcars and trailers with an aggregate net book value of $0.1 million, for proceeds of $0.2 million. Net gain on disposition of equipment for the year ended December 31, 1998 totaled $2.8 million, and resulted from the sale of an aircraft, a railcar and trailers with an aggregate net book value of $2.6 million, for proceeds of $5.4 million. (e) Minority Interest Minority interest expense increased $0.2 million in 1999 when compared to 1998 due to a increase in net income of the entity in which the Fund owned a majority interest. (f) Equity in Net Income of Unconsolidated Special-Purpose Entities Net income (loss) generated from the operation of jointly-owned assets accounted for under the equity method is shown in the following table by equipment type (in thousands of dollars). For the Years Ended December 31, 1999 1998 ---------------------------- Aircraft $ 1,836 $ 3,834 Mobile offshore drilling unit 206 -- Marine vessel (281) (1,444) ----------------------------- Equity in Net Income of USPEs $ 1,761 $ 2,390 ============================= Aircraft: As of December 31, 1999, the Fund owned interests in two trusts that each owns a commercial aircraft. As of December 31, 1998, the Fund owned interests in two trusts that owned a commercial aircraft, and an interest in two trusts that own a total of three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables. During the year ended December 31, 1999, aircraft lease revenues were $2.1 million and gain from the sale of the Fund's interest in two trusts that owned a total of three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables of $3.3 million was offset by expenses of $3.6 million. During the year ended December 31, 1998, aircraft lease revenues were $4.3 million and gain from the sale of the Fund's interest in two trusts that owned commercial aircraft of $6.3 million was offset by expenses of $6.8 million. Lease revenues decreased $2.5 million due to the sale of the Fund's investment in two trusts containing ten commercial aircraft in 1998, and the sale of the Fund's investment in two trusts that owned a total of three commercial aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables in 1999. The decrease in lease revenues caused by these sales was offset, in part, by $0.3 million in additional lease revenue from the purchase of two additional trusts each owning an MD-82 commercial aircraft during 1998. The decrease in expenses of $3.2 million was primarily due to lower depreciation expense resulting from an approximately $1.6 million decrease due to the sale of the Fund's interest in four trusts and an approximately $2.1 million decrease due to the double declining-balance method of depreciation which results in greater depreciation in the first years an asset is owned. These increases were offset, in part, by an approximately $0.5 million increase in depreciation expense due to the Fund's investment in two additional trusts during 1998. Mobile offshore drilling unit: During 1999 the Fund owned an interest in a mobile offshore drilling unit. During the year ended December 31, 1999, revenues of $0.2 million were offset by the loss of $15,000 from the sale of this entity and administrative expenses of $32,000. The increase in lease revenues and expenses in 1999 as compared to the same period in 1998 were primarily due to the change in accounting treatment for majority held equipment from the consolidation method to the equity method. Marine vessel: As of December 31, 1999 and 1998, the Fund had an interest in an entity that owns a marine vessel. During the year ended December 31, 1999, revenues of $0.8 million were offset by depreciation and administrative expenses of $1.1 million. During the year ended December 31, 1998, marine vessel revenues of $0.9 million were offset by depreciation and administrative expenses of $1.3 million, and a loss on the revaluation of a marine vessel of $1.0 million. Lease revenue decreased $0.2 million in the year ended December 31, 1999 compared to the same period in 1998, due to lower re-lease rates as a result of softer market conditions. The decrease was offset, in part, by an increase of $0.1 million in lease revenues due to a marine vessel that the Fund owns an interest in being off-hire for 20 days in the year ended December 31, 1998 compared to 2 days in the same period in 1999. Expenses decreased due to the decrease of $0.2 million in depreciation expense as a result of the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned. Loss on revaluation of equipment of $1.0 million for the year ended December 31, 1998, resulted from the Fund reducing the carrying value of its interest in an entity owning a marine vessel to its estimated net realizable value. No loss on revaluation of its interest in the marine vessel was required during the same period of 1999. (g) Cumulative Effect of Accounting Change In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs related to start-up activities to be expensed as incurred. The statement requires that initial application be reported as a cumulative effect of a change in accounting principle. The Fund adopted this statement during the year ended December 31, 1999, at which time it took a $0.1 million charge, related to start-up costs of the Fund. (h) Net Income (Loss) As a result of the foregoing, the Fund had net loss of $2.4 million for the year ended December 31, 1999, compared to net income of $4.3 million during the same period of 1998. The Fund's ability to acquire, operate and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Fund's performance in the year ended December 31, 1999 is not necessarily indicative of future periods. In the year ended December 31, 1999, the Fund distributed $9.9 million to Class A members, or $1.99 per weighted-average Class A unit. (2) Comparison of the Fund's Operating Results for the Years Ended December 31, 1998 and 1997 (a) Owned Equipment Operations Lease revenues less direct expenses (defined as repair and maintenance, equipment operating, and asset-specific insurance expenses) on owned equipment increased during the year ended December 31, 1998, when compared to the same period of 1997. Gains or losses from the sale of equipment and certain expenses such as depreciation and amortization and general and administrative expenses relating to the operating segments (see Note 5 to the audited financial statements), are not included in the owned equipment operation discussion because they are more indirect in nature, not a result of operations but more the result of owning a portfolio of equipment. The following table presents lease revenues less direct expenses by segment (in thousands of dollars): For the Years Ended December 31, 1998 1997 ---------------------------- Marine vessels $ 5,794 $ 2,085 Aircraft 4,525 4,994 Mobile offshore drilling unit 3,936 4,989 Railcars 3,323 2,712 Trailers 3,263 3,250 Marine vessels: Marine vessel lease revenues and direct expenses were $8.7 million and $2.9 million, respectively, for the year ended December 31, 1998, compared to $3.7 million and $1.6 million, respectively, during the same period of 1997. Marine vessel lease revenues and direct expenses increased due to the purchase of a marine vessel at the end of the second quarter of 1997 and a marine vessel in each of the first and second quarters of 1998. Aircraft: Aircraft lease revenues and direct expenses were $4.6 million and $42,000, respectively, during the year ended December 31, 1998, compared to $5.0 million and $43,000, respectively, during the same period of 1997. Aircraft contribution decreased due to the sale of an aircraft at the end of the second quarter of 1998. Mobile offshore drilling unit (MODU): MODU lease revenues and direct expenses were $4.0 million and $0.1 million, respectively, for the year ended December 31, 1998, compared to $5.1 million and $0.1 million, respectively, for the year ended December 31, 1997. Lease revenue increased $0.6 million and direct expenses increased $0.1 million during 1998, compared to the same period in 1997 due to the increase of the Fund's investment in an entity that owns a MODU late in the first quarter of 1997. This increase in net contribution was offset, in part, by a decrease in lease revenue of $1.6 million and a decrease in direct expenses of $22,000 during 1998 as a result of the sale of one of the Fund's MODU in the fourth quarter of 1997 as part of the original purchase agreement that gave the charterer the option to purchase the MODU. Railcars: Railcar lease revenues and direct expenses were $4.0 million and $0.6 million, respectively, for the year ended December 31, 1998, compared to $3.4 million and $0.7 million, respectively, during the same period of 1997. Lease revenues increased in the year ended December 31, 1998, compared to the same period of 1997 due to the purchase of railcars in the first quarter of 1998. Railcar expenses decreased due to lower running repairs required on certain railcars during 1997, that were not needed during 1998. Trailers: Trailer revenues and direct expenses were $3.9 million and $0.6 million, respectively, for the year ended December 31, 1998, compared to $3.7 million and $0.4 million, respectively, during the same period in 1997. Lease revenues increased during 1998, due to higher utilization earned on trailers operating in the short-term rental facilities when compared to 1997. Expenses increased due to repairs required on certain trailers during 1998, which were not needed in 1997 and due to the purchase of additional trailers. (b) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $21.6 million for the year ended December 31, 1998 decreased from $23.6 million for the same period in 1997. Significant variances are explained as follows: (i) A $2.6 million decrease in depreciation and amortization expenses from 1997 levels resulted from an approximately $5.6 million decrease in depreciation expense due to the Fund's double-declining balance depreciation method, which results in greater depreciation in the first years an asset is owned, an approximately $1.9 million decrease in depreciation expense due to the sale of the aircraft in the second quarter of 1998, and the sale of the MODU at the end of 1997. The decline was partially offset by an approximately $4.9 million increase in depreciation expense from the purchase of equipment during 1998 and 1997. (ii) A $0.2 million increase in management fees to affiliate reflects the higher levels of lease revenues in 1998, when compared to 1997. (iii) A $0.4 million increase in interest expense was due to a higher average debt balance outstanding during 1998 compared to 1997. (c) Net Gain on Disposition of Owned Equipment Net gain on the disposition of equipment for the year ended December 31, 1998, totaled $2.8 million, and resulted from the sale of an aircraft, railcars, and trailers with an aggregate net book value of $2.6 million, for proceeds of $5.4 million. Net gain on the disposition of equipment for the year ended December 31, 1997 totaled $1.7 million, and resulted from the sale of trailers and a MODU with an aggregate net book value of $9.2 million, for net sale proceeds of $10.9 million. (d) Minority Interest Minority interest expense for the entity in which the Fund owned a majority interest increased $0.3 million due to an increase in revenue of $0.1 million offset by a decrease in direct and indirect expenses of $0.2 million during 1998 when compared to 1997. (e) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs) Net income (loss) generated from the operation of jointly-owned assets accounted for under the equity method are presented as follows (in thousands of dollars): For the Years Ended December 31, 1998 1997 ---------------------------- Aircraft, aircraft engines and rotable components $ 3,834 $ 1,795 Marine vessel (1,444 ) (342) ---------------------------- Equity in net income of USPEs $ 2,390 $ 1,453 ============================ Aircraft, aircraft engines and rotable components: As of December 31, 1998, the Fund owned interests in two trusts that each own a commercial aircraft, and an interest in two trusts that own a total of three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables. As of December 31, 1997, the Fund owned an interest in two trusts that each own four commercial aircraft, and an interest in two trusts that own a total of three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables. During the year ended December 31, 1998, lease revenues of $4.3 million and the gain from the sale of the Fund's interest in two trusts that owned commercial aircraft of $6.3 million were offset by depreciation, direct and administrative expenses of $6.8 million. During the year ended December 31, 1997, lease revenues and expenses were $5.9 million and $4.2 million, respectively. Lease revenues decreased $1.4 million due to the sale of the Fund's investment in two trusts containing eight commercial aircraft and a decrease of $2.0 million due to a lower lease rate earned on certain equipment. The decrease in lease revenues was offset in part by an increase in lease revenue of $1.8 million due to the Fund's investment in two additional trusts owning a total of two aircraft during 1998. The increase in expenses was due primarily to depreciation on the investment in two additional trusts during 1998, which was partially offset in part by the sale of the Fund's interest in the two trusts. Marine vessel: As of December 31, 1998 and 1997, the Fund had an interest in an entity that owns a marine vessel. Marine vessel revenues and expenses were $0.9 million and $2.3 million, respectively, for the year ended December 31, 1998, compared to $1.2 million and $1.6 million, respectively, during the same period in 1997. Lease revenues decreased primarily due to the marine vessel that the Fund owns an interest in being off-hire for 58 days in 1998 compared to 2 days in the same period in 1997. Expenses increased due to the loss on revaluation of equipment of $1.0 million for the year ended December 31, 1998, which resulted from the Fund reducing the carrying value of its interest in an entity owning a marine vessel to its estimated net realizable value. There was no revaluation of the carrying value in the interest owning a marine vessel required during 1997. The increase in expenses were offset in part by the decreases in depreciation expense of $0.1 million due to the use of the double-declining balance depreciation method, which results in greater depreciation in the first years an asset is owned and reduced repairs and maintenance expenses of $0.1 million in the year ended December 31, 1998, compared to the same period in 1997. (f) Net Income (Loss) As a result of the foregoing, the Fund's net income for the year ended December 31, 1998 was $4.3 million, compared to a net loss of $2.1 million during the same period of 1997. The Fund's ability to acquire, operate, and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors, and the Fund's performance in the year ended December 31, 1998 is not necessarily indicative of future periods. In the year ended December 31, 1998, the Fund distributed $10.0 million to the Class A members, or $2.00 per weighted-average Class A unit. (E) Geographic Information Certain of the Fund's equipment operates in international markets. Although these operations expose the Fund to certain currency, political, credit and economic risks, the Manager believes these risks are minimal or has implemented strategies to control the risks. Currency risks are at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, is conducted in United States (U.S.) dollars. Political risks are minimized by avoiding countries that do not have a stable judicial system and established commercial business laws. Credit support strategies for lessees range from letters of credit supported by U.S. banks to cash deposits. Although these credit support mechanisms generally allow the Fund to maintain its lease yield, there are risks associated with slow-to-respond judicial systems when legal remedies are required to secure payment or repossess equipment. Economic risks are inherent in all international markets and the Manager strives to minimize this risk with market analysis prior to committing equipment to a particular geographic area. Refer to Note 6 to the audited financial statements for information on the lease revenues, net income (loss), and net book value of equipment in various geographic regions. Revenues and net operating income by geographic region are impacted by the time period the assets are owned and the useful life ascribed to the assets for depreciation purposes. Net income (loss) from equipment is significantly impacted by depreciation charges, which are greatest in the early years due to the use of the double-declining balance method of depreciation. The relationships of geographic revenues, net income (loss), and net book value of equipment are expected to change significantly in the future, as assets come off lease and decisions are made to either redeploy the assets in the most advantageous geographic location or sell the assets. The Fund's owned equipment on lease to U.S.-domiciled lessees consists of trailers, railcars, and interests in entities that own aircraft. During 1999, U.S. lease revenues accounted for 28% of the total lease revenues from wholly and partially owned equipment, while net loss accounted for $0.2 million of the Fund's net loss of $2.4 million. The loss for equipment operated in the U.S. was due primarily to the double-declining balance method of depreciation on the two aircraft that the Fund owns interests, which results in greater depreciation in the first years an asset is owned. The Fund's owned equipment on lease to South American-domiciled lessees consists of four aircraft. During 1999, South American lease revenues accounted for 14% of the total lease revenues from wholly and partially owned equipment, while equipment operated in South America generated net income of $1.3 million compared to the Fund's net loss of $2.4 million. The Fund's equipment on lease to Canadian-domiciled lessees consists of railcars. Lease revenues in Canada accounted for 5% of total lease revenues from wholly and partially-owned equipment while equipment operated in Canada generated net income of $0.5 million compared to the Fund's net loss of $2.4 million. The Fund's interest in a USPE on lease to European-domiciled lessees consisted of aircraft, aircraft engines, and aircraft rotables. All of the equipment on lease to the European lessee was sold during 1999 and European domiciled operations generated net income of $3.1 million compared to the Fund's net loss of $2.4 million. The Fund sold its interest in this USPE for a net gain of $3.3 million in 1999. Two wholly-owned marine vessels, marine containers, an investment in an entity that owns a marine vessel and an investment in an entity that owned a mobile offshore drilling unit, which were leased in the rest of the world accounted for 53% of the lease revenues from wholly and partially-owned equipment while the net loss from equipment operated in this region accounted for a $4.7 million net loss compared to Fund's net loss of $2.4 million. The primary reason for this relationship is that the Fund reduced the carrying value of two marine vessels by $3.9 million to reflect their estimated net realizable value. (F) Effects of Year 2000 As of March 27, 2000, the Fund has not experienced any material Year 2000 (Y2K) issues with either its internally developed software or purchased software. In addition, to date the Fund has not been impacted by any Y2K problems that may have impacted our customers and suppliers. The amount allocated to the Fund by the Manager related to Y2K issues has not been material. The Manager continues to monitor its systems for any potential Y2K issues. (G) Inflation Inflation had no significant impact on the Fund's operations during 1999, 1998, or 1997. (H) Forward-Looking Information Except for historical information contained herein, the discussion in this Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of the Fund's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-K should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-K. The Fund's actual results could differ materially from those discussed here. (I) Outlook for the Future Several factors may affect the Fund's operating performance in 2000 and beyond, including changes in the markets for the Fund's equipment and changes in the regulatory environment in which that equipment operates. The Fund's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors. The ability of the Fund to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, and government or other regulations. The unpredictability of some of these factors makes it difficult for the Manager to clearly define trends or influences that may impact the performance of the Fund's equipment. The Manager continually monitors both the equipment markets and the performance of the Fund's equipment in these markets. The Manager may make an evaluation to reduce the Fund's exposure to those equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. Alternatively, the Manager may make a determination to enter those equipment markets in which it perceives opportunities to profit from supply-demand instabilities or other market imperfections. The Fund intends to use excess cash flow, if any, after payment of expenses, loan principal and interest on debt, and cash distributions, to acquire additional equipment during the first six years of the Fund's operations which conclude December 31, 2002. The Manager believes that these acquisitions may cause the Fund to generate additional earnings and cash flow for the Fund. Other factors affecting the Fund's contribution in 2000 and beyond include: 1. Freight rates, after declining in 1998 due, in part, to the Asian recession, improved for dry bulk vessels of all sizes during 1999. Total dry bulk trade, as measured in deadweight tons, is estimated to have grown by approximately 2% during 1999, compared to a flat year in 1998. Forecasts for 2000 indicate that bulk trade should continue to grow, albeit at slow rates. 2. In 1999, one of the Fund's anchor handling supply marine vessels was re-leased at a significantly lower rate, due to soft market conditions. If economic conditions remain the same, lower re-lease rates are expected to occur for the Fund's remaining anchor handling marine vessel when the current lease expires in the year 2000. 3. Rates and utilization dropped for oil tanker vessels due to the economic crisis in Asia. The demand in 1999 has shown some signs of recovery, however, rate recovery may take two to three years. 4. The demand for covered hopper cars has softened in the market since 1998, and is expected to continue through 2000. The demand for the other types of railcars has continued to be high, however a softening in the market is expected, which may lead to lower utilization and lower contribution to the Fund. Several other factors may affect the Fund's operating performance in 2000 and beyond, including changes in the markets for the Fund's equipment and changes in the regulatory environment in which that equipment operates. (1) Repricing and Reinvestment Risk Certain of the Fund's aircraft, marine vessels, railcars, marine containers, and trailers will be remarketed in 2000 as existing leases expire, exposing the Fund to some repricing risk/opportunity. Additionally, the Manager may elect to sell certain underperforming equipment or equipment whose continued operation may become prohibitively expensive. In either case, the Manager intends to re-lease or sell equipment at prevailing market rates; however, the Manager cannot predict these future rates with any certainty at this time, and cannot accurately assess the effect of such activity on future Fund performance. The proceeds from the sold or liquidated equipment will be redeployed to purchase additional equipment, as the Fund is in its reinvestment phase. (2) Impact of Government Regulations on Future Operations The Manager operates the Fund's equipment in accordance with current applicable regulations (see Item 1, Section E, Government Regulations). However, the continuing implementation of new or modified regulations by some of the authorities mentioned previously, or others, may adversely affect the Fund's ability to continue to own or operate equipment in its portfolio. Additionally, regulatory systems vary from country to country, which may increase the burden to the Fund of meeting regulatory compliance for the same equipment operated between countries. Currently, the Manager has observed rising insurance costs to operate certain vessels in U.S. ports, resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing changes in the regulatory environment, both in the United States and internationally, cannot be predicted with accuracy, and preclude the Manager from determining the impact of such changes on Fund operations, purchases, or sale of equipment. Under U.S. Federal Aviation Regulations, after December 31, 1999, no person may operate an aircraft to or from any airport in the contiguous United States unless that aircraft has been shown to comply with Stage III noise levels. The Fund has Stage II aircraft that do not meet Stage III requirements. These Stage II aircraft will remain with the current lessee, which operate in a country that does not have these noise restrictions. Furthermore, the Federal Railroad Administration has mandated that effective July 1, 2000, all jacketed and non-jacketed tank railcars must be re-qualified to insure tank shell integrity. Tank shell thickness, weld seams, and weld attachments must be inspected and repaired if necessary to re-qualify a tank railcar for service. The average cost of this inspection is $1,800 for non-jacketed tank railcars and $3,600 for jacketed tank railcars, not including any necessary repairs. This inspection is to be performed at the next scheduled tank test. (3) Additional Capital Resources and Distribution Levels The Fund's initial contributed capital was composed of the proceeds from its initial offering of $100.0 million, supplemented by permanent debt in the amount of $25.0 million. The Manager has not planned any expenditures, nor is it aware of any contingencies that would cause it to require any additional capital to that mentioned above. The Fund intends to rely on operating cash flow to meet its operating obligations, make cash distributions to limited partners, make debt payments, and increase the Fund's equipment portfolio with any remaining surplus cash available. Pursuant to the Fifth Amended and Restated Operating Agreement of Professional Lease Management Income Fund I, L.L.C. (the operating agreement), the Fund will cease to reinvest surplus cash in additional equipment beginning in its seventh year of operations which commences on January 1, 2003. Prior to that date, the Manager intends to continue its strategy of selectively redeploying equipment to achieve competitive returns. By the end of the reinvestment period, the Manager intends to have assembled an equipment portfolio capable of achieving a level of operating cash flow for the remaining life of the Fund sufficient to meet its obligations and sustain a predictable level of distributions to the Class A Unitholders. The Manager will evaluate the level of distributions the Fund can sustain over extended periods of time and, together with other considerations, may adjust the level of distributions accordingly. In the long term, the difficulty in predicting market conditions precludes the Manager from accurately determining the impact of changing market conditions on liquidity or distribution levels. The Fund's permanent debt obligation begins to mature in December 2000. The Manager believes that sufficient cash flow will be available in the future for repayment of debt. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Fund's primary market risk exposure is that of currency risk. 72% of the Fund's total lease revenues from wholly-and partially-owned equipment in 1999 came from non-United States domiciled lessees. Most of the leases require payment in United States (U.S.) currency. If these lessees' currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making the U.S. dollar denominated lease payment. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements for the Fund are listed on the Index to Financial Statements included in Item 14(a) of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND PLM FINANCIAL SERVICES, INC. As of the date of this annual report, the directors and executive officers of PLM International and of PLM Financial Services, Inc. (and key executive officers of its subsidiaries) are as follows:
Name Age Position - ---------------------------------------- ------- ------------------------------------------------------------------ Robert N. Tidball 61 Chairman of the Board, Director, President, and Chief Executive Officer, PLM International, Inc.; Director, PLM Financial Services, Inc.; Vice President, PLM Railcar Management Services, Inc.; President, PLM Worldwide Management Services Ltd. Randall L.-W. Caudill 52 Director, PLM International, Inc. Douglas P. Goodrich 53 Director and Senior Vice President, PLM International, Inc.; Director and President, PLM Financial Services, Inc.; President, PLM Transportation Equipment Corporation; President, PLM Railcar Management Services, Inc. Warren G. Lichtenstein 34 Director, PLM International, Inc. Howard M. Lorber 51 Director, PLM International, Inc. Harold R. Somerset 64 Director, PLM International, Inc. Robert L. Witt 59 Director, PLM International, Inc. Robin L. Austin 53 Vice President, Human Resources, PLM International, Inc. and PLM Financial Services, Inc. Stephen M. Bess 53 President, PLM Investment Management, Inc.; Vice President and Director, PLM Financial Services, Inc. Richard K Brock 37 Vice President and Chief Financial Officer, PLM International, Inc. and PLM Financial Services, Inc. Susan C. Santo 37 Vice President, Secretary, and General Counsel, PLM International, Inc. and PLM Financial Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and President and Chief Executive Officer of PLM International in March 1989. At the time of his appointment as President and Chief Executive Officer, he was Executive Vice President of PLM International. Mr. Tidball became a director of PLM International in April 1989. Mr. Tidball was appointed a Director of PLM Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide Management Services Limited in February 1998. He has served as an officer of PLM Railcar Management Services, Inc. since June 1987. Mr. Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith, he was Vice President, General Manager, and Director of North American Car Corporation and a director of the American Railcar Institute and the Railway Supply Association. Randall L.-W. Caudill was elected to the Board of Directors in September 1997. He is President of Dunsford Hill Capital Partners, a San Francisco-based financial consulting firm serving emerging growth companies. Prior to founding Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics, Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc. Douglas P. Goodrich was elected to the Board of Directors in July 1996, appointed Senior Vice President of PLM International in March 1994, and appointed Director and President of PLM Financial Services, Inc. in June 1996. Mr. Goodrich has also served as Senior Vice President of PLM Transportation Equipment Corporation since July 1989 and as President of PLM Railcar Management Services, Inc. since September 1992, having been a Senior Vice President since June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries Corporation, from December 1980 to September 1985. Warren G. Lichtenstein was elected to the Board of Directors in December 1998. Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P., which is PLM International's largest shareholder, currently owning 16% of the Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania, where he received a Bachelor of Arts degree in economics. Howard M. Lorber was elected to the Board of Directors in January 1999. Mr. Lorber is President and Chief Operating Officer of New Valley Corporation, an investment banking and real estate concern. He is also Chairman of the Board and Chief Executive Officer of Nathan's Famous, Inc., a fast food company. Additionally, Mr. Lorber is a director of United Capital Corporation and Prime Hospitality Corporation and serves on the boards of several community service organizations. He is a graduate of Long Island University, where he received a Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also received charter life underwriter and chartered financial consultant degrees from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long Island University and a member of the Corporation of Babson College. Harold R. Somerset was elected to the Board of Directors of PLM International in July 1994. From February 1988 to December 1993, Mr. Somerset was President and Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar), a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984 as Executive Vice President and Chief Operating Officer, having served on its Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in various capacities with Alexander & Baldwin, Inc., a publicly held land and agriculture company headquartered in Honolulu, Hawaii, including Executive Vice President of Agriculture and Vice President and General Counsel. Mr. Somerset holds a law degree from Harvard Law School as well as a degree in civil engineering from the Rensselaer Polytechnic Institute and a degree in marine engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards of directors for various other companies and organizations, including Longs Drug Stores, Inc., a publicly held company. Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993, Mr. Witt has been a principal with WWS Associates, a consulting and investment group specializing in start-up situations and private organizations about to go public. Prior to that, he was Chief Executive Officer and Chairman of the Board of Hexcel Corporation, an international advanced materials company with sales primarily in the aerospace, transportation, and general industrial markets. Mr. Witt also serves on the boards of directors for various other companies and organizations. Robin L. Austin became Vice President, Human Resources of PLM Financial Services, Inc. in 1984, having served in various capacities with PLM Investment Management, Inc., including Director of Operations, from February 1980 to March 1984. From June 1970 to September 1978, Ms. Austin served on active duty in the United States Marine Corps and served in the United States Marine Corp Reserves from 1978 to 1998. She retired as a Colonel of the United States Marine Corps Reserves in 1998. Ms. Austin has served on the Board of Directors of the Marines' Memorial Club and is currently on the Board of Directors of the International Diplomacy Council. Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July 1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in August 1989, having served as Senior Vice President of PLM Investment Management, Inc. beginning in February 1984 and as Corporate Controller of PLM Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice President-Controller of Trans Ocean Leasing Corporation, a container leasing company, from November 1978 to November 1982, and Group Finance Manager with the Field Operations Group of Memorex Corporation, a manufacturer of computer peripheral equipment, from October 1975 to November 1978. Richard K Brock was appointed Vice President and Chief Financial Officer of PLM International and PLM Financial Services, Inc. in January 2000, after having served as Acting CFO since June 1999. Mr. Brock served as Corporate Controller of PLM International and PLM Financial Services, Inc. beginning in June 1997, as Director of Planning and General Accounting beginning in February 1994, and as an accounting manager beginning in September 1991. Mr. Brock was a division controller of Learning Tree International, a technical education company, from February 1988 through July 1991. Susan C. Santo became Vice President, Secretary, and General Counsel of PLM International and PLM Financial Services, Inc. in November 1997. She has worked as an attorney for PLM International since 1990 and served as its Senior Attorney since 1994. Previously, Ms. Santo was engaged in the private practice of law in San Francisco. Ms. Santo received her J.D. from the University of California, Hastings College of the Law. The directors of PLM International, Inc. are elected for a three-year term and the directors of PLM Financial Services, Inc. are elected for a one-year term or until their successors are elected and qualified. No family relationships exist between any director or executive officer of PLM International Inc. or PLM Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment Management, Inc. ITEM 11. EXECUTIVE COMPENSATION The Fund has no directors, officers, or employees. The Fund has no pension, profit sharing, retirement, or similar benefit plan in effect as of December 31, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) Security Ownership of Certain Beneficial Owners The Manager is generally entitled to a 1% interest in profits and losses and a 15% interest in the Fund's cash distributions, subject to certain allocation of income provisions. After the investors receive cash equal to their original capital contribution, the Manager's interest in the distributions of the Fund will increase to 25%. As of December 31, 1999, no investor was known by the Manager to beneficially own more than 5% of the units of the Fund. (B) Security Ownership of Management Neither the Manager and its affiliates nor any executive officer or director of the Manager and its affiliates owned any units of the Fund as of December 31, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management and Others During 1999, management fees to IMI were $1.4 million. The Fund reimbursed FSI and/or its affiliates $1.0 million for administrative and data processing services performed on behalf of the Fund during 1999. During 1999, the USPEs paid or accrued the following fees to FSI or its affiliates (based on the Fund's proportional share of ownership): management fees - $0.2 million; and administrative and data processing services - $46,000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. Financial Statements The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Form 10-K. (B) Reports on Form 8-K None. (C) Exhibits 4. Operating Agreement of Fund, incorporated by reference to the Fund's Registration Statement on Form S-1 (Reg. No. 33-55796) which became effective with the Securities and Exchange Commission on May 25, 1993. 10.1 Management Agreement between Fund and PLM Investment Management, Inc., incorporated by reference to the Fund's Registration Statement on Form S-1 (Reg. No. 33-55796) which became effective with the Securities and Exchange Commission on May 25, 1993. 10.2 $25.0 Million Note Agreement, dated as of December 30, 1996, incorporated by reference to the Fund's 1996 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 1997. 10.3 Fourth Amended and Restated Warehousing Credit Agreement, dated as of December 15, 1998, with First Union National Bank, incorporated by reference to the Fund's 1998 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on January 5, 2000. 10.4 First amendment to the Fourth Amended and Restated Warehouse Credit Agreement dated December 10, 1999. 24. Powers of Attorney. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Fund has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Fund has no directors or officers. The Manager has signed on behalf of the Fund by duly authorized officers. PROFESSIONAL LEASE MANAGEMENT INCOME Date: March 27, 2000 FUND I By: PLM Financial Services, Inc. Manager By: /s/ Douglas P. Goodrich Douglas P. Goodrich President and Director By: /s/ Richard K Brock Richard K Brock Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Fund's Manager on the dates indicated. Name Capacity Date *_________________________ Robert N. Tidball Director - FSI March 27, 2000 *_________________________ Douglas P. Goodrich Director - FSI March 27, 2000 *_________________________ Steven M. Bess Director - FSI March 27, 2000 * Susan C. Santo, by signing her name hereto, does sign this document on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. /s/Susan C. Santo Susan C. Santo Attorney-in-Fact PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) INDEX TO FINANCIAL STATEMENTS (Item 14(a)) Page Independent auditors' report 29 Balance sheets as of December 31, 1999 and 1998 30 Statements of operations for the years ended December 31, 1999, 1998 and 1997 31 Statement of changes in members' equity for the years ended December 31, 1999, 1998, and 1997 32 Statements of cash flows for the years ended December 31, 1999, 1998, and 1997 33 Notes to financial statements 34-45 All other financial statement schedules have been omitted as the required information is not pertinent to the Registrant or is not material, or because the information required is included in the financial statements and notes thereto. INDEPENDENT AUDITORS' REPORT The Members Professional Lease Management Income Fund I, L.L.C.: We have audited the accompanying financial statements of Professional Lease Management Income Fund I, L.L.C. (the Fund) as listed in the accompanying index to financial statements. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We have conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Professional Lease Management Income Fund I, L.L.C. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ KPMG LLP SAN FRANCISCO, CALIFORNIA March 17, 2000 PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) BALANCE SHEETS December 31, (in thousands of dollars, except unit amounts)
1999 1998 ------------------------------------- Assets Equipment held for operating leases $ 103,709 $ 122,626 Less accumulated depreciation (45,183) (44,350) ------------------------------------- Net equipment 58,526 78,276 Cash and cash equivalents 11,597 3,720 Restricted cash 453 -- Accounts receivable, less of allowance for doubtful accounts of $65 in 1999 and $43 in 1998 2,007 1,876 Investments in unconsolidated special-purpose entities 7,717 15,224 Debt placement fees, less accumulated amortization of $52 in 1999 and $34 in 1998 125 143 Organization and offering costs, less accumulated amortization of $310 in 1998 -- 132 Prepaid expenses and other assets 108 264 ------------------------------------- Total assets $ 80,533 $ 99,635 ===================================== Liabilities, minority interest, and member's equity Liabilities Accounts payable and accrued expenses $ 458 $ 465 Due to affiliates 656 400 Lessee deposits and reserves for repairs 3,821 3,040 Note payable 25,000 25,000 ------------------------------------- Total liabilities 29,935 28,905 ------------------------------------- Minority interest -- 5,705 Members' equity Class A members (4,975,321 and 4,999,581 Units at December 31, 1999 and 1998, respectively) 50,598 64,893 Class B member -- 132 ------------------------------------- Total members' equity 50,598 65,025 ------------------------------------- Total liabilities, minority interest, and members' equity $ 80,533 $ 99,635 =====================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF OPERATIONS For the Years Ended December 31, (in thousands of dollars, except weighted-average unit amounts)
1999 1998 1997 ------------------------------------------------------- Revenues Lease revenue $ 26,113 $ 25,149 $ 20,833 Interest and other income 347 393 405 Net gain on disposition of equipment 23 2,759 1,682 ------------------------------------------------------- Total revenues 26,483 28,301 22,920 ------------------------------------------------------- Expenses Depreciation and amortization 14,849 16,774 19,347 Repairs and maintenance 2,633 2,024 1,414 Equipment operating expenses 3,142 2,069 995 Insurance expense to affiliate -- (14) 24 Other insurance expense 428 312 419 Management fees to affiliate 1,396 1,368 1,125 Interest expense 1,833 1,833 1,418 General and administrative expenses to affiliates 952 966 925 Other general and administrative expenses 721 715 729 Provision for (recovery of) bad debt expense 38 (23) -- Loss on revaluation of equipment 3,931 -- -- ------------------------------------------------------- Total expenses 29,923 26,024 26,396 ------------------------------------------------------- Minority interest (590) (351) (29) Equity in net income of unconsolidated special- purpose entities 1,761 2,390 1,453 ------------------------------------------------------- Net income (loss) before cumulative effect of accounting change (2,269) 4,316 (2,052) Cumulative effect of accounting change (132) -- -- ------------------------------------------------------- Net income (loss) $ (2,401) $ 4,316 $ (2,052) ======================================================= Members' share of net income (loss) Class A members $ (4,029) $ 2,595 $ (3,728) Class B member 1,628 1,721 1,676 ------------------------------------------------------ Total $ (2,401) $ 4,316 $ (2,052) ======================================================= Net income (loss) per weighted-average Class A unit $ (0.81) $ 0.52 $ (0.75) ======================================================= Cash distribution $ 11,690 $ 11,765 $ 11,763 ======================================================= Cash distribution per weighted-average Class A unit $ 1.99 $ 2.00 $ 2.00 =======================================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) STATEMENT OF CHANGES IN MEMBERS' EQUITY For the Years Ended December 31, 1999, 1998, and 1997 (in thousands of dollars)
Class A Class B Total --------------------------------------------------------- Members' equity as of December 31, 1996 $ 86,024 $ 265 $ 86,289 Net income (loss) (3,728) 1,676 (2,052) Cash distributions (9,998) (1,765) (11,763) --------------------------------------------------------- Members' equity as of December 31, 1997 72,298 176 72,474 Net income 2,595 1,721 4,316 Cash distributions (10,000) (1,765) (11,765) -------------------------------------------------------- Members' equity as of December 31, 1998 64,893 132 65,025 Net income (loss) (4,029) 1,628 (2,401) Purchase of Class A units (336) -- (336) Cash distributions (9,930) (1,760) (11,690) --------------------------------------------------------- Members' equity as of December 31, 1999 $ 50,598 $ -- $ 50,598 =========================================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF CASH FLOWS For the Years Ended December 31, (in thousands of dollars) Operating activities 1999 1998 1997 ------------------------------------------- Net income (loss) $ (2,401) $ 4,316 $ (2,052) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 14,849 16,774 19,347 Loss on revaluation of equipment 3,931 -- -- Net gain on dispositions of equipment (23) (2,759) (1,682) Cumulative effect of accounting change 132 -- -- Equity in net income of unconsolidated special purpose entities (1,761) (2,390) (1,453) Changes in operating assets and liabilities: Restricted cash (453) -- 223 Accounts receivable, net (131) 173 (513) Prepaid expenses and other assets 156 77 164 Accounts payable and accrued expenses (3) (132) 167 Due to affiliates 276 115 122 Lessee deposits and reserve for repairs 781 1,321 846 Minority interest (676) (1,008) (1,425) ------------------------------------------- Net cash provided by operating activities 14,677 16,487 13,744 ------------------------------------------- Investing activities Payments for purchase of equipment (11,397) (27,477) (24,444) Equipment acquisition deposits -- -- (920) Investment in and equipment purchased and placed in unconsolidated special-purpose entities -- (13,917) (683) Liquidation distributions from unconsolidated special- purpose entities 14,282 10,385 -- Distributions from unconsolidated special-purpose entities 2,173 7,184 4,092 Proceeds from disposition of equipment 168 5,380 10,901 ------------------------------------------- Net cash provided by (used in) investing activities 5,226 (18,445) (11,054) ------------------------------------------- Financing activities Proceeds from note payable -- -- 25,000 (Decrease) increase due to affiliates -- (1,736) 1,736 Cash distributions to Class A members (9,930) (10,000) (9,998) Cash distributions to Class B member (1,760) (1,765) (1,765) Purchase of Class A units (336) -- -- Debt placement fees -- -- (176) ------------------------------------------- Net cash (used in) provided by financing activities (12,026) (13,501) 14,797 ------------------------------------------- Net increase (decrease) in cash and cash equivalents 7,877 (15,459) 17,487 Cash and cash equivalents at beginning of year 3,720 19,179 1,692 ------------------------------------------- =========================================== Cash and cash equivalents at end of year $ 11,597 $ 3,720 $ 19,179 =========================================== Supplemental information Interest paid $ 1,833 $ 1,833 $ 1,418 ===========================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 1. Basis of Presentation Organization Professional Lease Management Income Fund I, L.L.C., a Delaware Limited Liability Company (Fund) was formed on August 22, 1994, to engage in the business of owning, leasing, or otherwise investing in predominately used transportation and related equipment. PLM Financial Services, Inc. (FSI) is the Manager of the Fund. FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM International). On May 13, 1996, the Fund ceased its offering for Class A Units. As of December 31, 1999, there were 4,975,321 Units outstanding. The Fund will terminate on December 31, 2010, unless terminated earlier upon sale of all equipment or by certain other events. Beginning in the Fund's seventh year of operations, which commences on January 1, 2003, the Manager will stop purchasing additional equipment. Excess cash, if any, less reasonable reserves, will be distributed to the members. Between the eighth and tenth years of operations, the Manager intends to begin an orderly liquidation of the Fund's assets. The Manager (Class B Member) controls and manages the affairs of the Fund. The Manager paid out of its own corporate funds (as a capital contribution to the Fund) all organization and syndication expenses incurred in connection with the offering; therefore, 100% of the net cash proceeds received by the Fund from the sale of Class A Units were initially used to purchase equipment and established any required cash reserves. For its contribution, the Manager is generally entitled to a 1% interest in profits and losses and 15% interest in the Fund's cash distributions subject to certain special allocation provisions (see Net Income (Loss) and Distributions Per Class A Unit, below). After the investors receive cash distributions equal to their original capital contributions the Manager's interest in the cash distributions of the Fund will increase to 25%. The operating agreement includes a redemption provision. Upon the conclusion of the 30-month period immediately following the termination of the offering, which was in November 1998, the Fund may, at the Manager's sole discretion, redeem up to 2% of the outstanding units each year. The purchase price paid by the Fund for outstanding Class A Units upon redemption will be equal to 105% of the amount Class A Members paid for the Class A Units, less the amount of cash distributions Class A Members have received relating to such Class A Units. The price may not bear any relationship to the fair market value of a Class A Unit. As of December 31, 1999, the Fund agreed to purchase approximately 4,000 units for an aggregate price of approximately $49,000. The Manager anticipates that these units will be purchased in the first and second quarters of 2000. The Manager may purchase additional units on behalf of the Fund in the future. These financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operations The equipment of the Fund is managed, under a continuing management agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of the FSI. IMI receives a monthly management fee from the Fund for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells equipment to investor programs and third parties, manages pools of equipment under agreements with investor programs, and is a general partner of other programs. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 1. Basis of Presentation (continued) Accounting for Leases The Fund's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term as earned in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases" (SFAS 13). Lease origination costs are capitalized and amortized over the term of the lease. Depreciation and Amortization Depreciation of transportation equipment held for operating leases is computed on the double-declining balance method taking a full month's depreciation in the month of acquisition, based upon estimated useful lives of 15 years for railcars, and 12 years for most other types of equipment. Certain aircraft are depreciated under the double-declining balance method over the lease term which approximate their economic life. The depreciation method is changed to straight-line when annual depreciation expense using the straight-line method exceeds that calculated by the double-declining balance method. Debt placement fees are amortized over the term of the related loan (see Note 7). Major expenditures that are expected to extend the useful lives or reduce future operating expenses of equipment are capitalized and amortized over the estimated remaining life of the equipment. Transportation Equipment In accordance with the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Manager reviews the carrying value of the Fund's equipment at least quarterly and whenever circumstances indicate that the carrying value of an asset may not be recoverable in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amount. If projected undiscounted future cash flows and fair value are less than the carrying value of the equipment, a loss on revaluation is recorded based upon the estimated fair value of the asset. Reductions of $3.9 million to the carrying value of two marine vessels were required during 1999. Reductions of $1.0 million to the carrying value of the Fund's interest in an entity owning a marine vessel was required during 1998. No reductions were required to the carrying value of wholly and partially-owned equipment during 1997. Equipment held for operating leases is stated at cost less any reductions to the carrying value as required by SFAS 121. Investments in Unconsolidated Special-Purpose Entities The Fund has interests in unconsolidated special-purpose entities (USPEs) that own transportation equipment. The Fund owned a majority interest in an entity that owned a mobile offshore drilling unit. In September 1999, the Manager amended the corporate-by-laws of certain USPEs in which the Fund, or any affiliated program, owns an interest greater than 50%. The amendment to the corporate-by-laws provided that all decisions regarding the acquisition and disposition of the investment as well as other significant business decisions of that investment would be permitted only upon unanimous consent of the Fund and all the affiliated programs that have an ownership in the investment. As such, although the Fund may own a majority interest in a USPE, the Fund does not control its management and thus it is appropriate that the equity method of accounting be used after adoption of the amendment. As a result of the amendment, as of September 30, 1999, all jointly owned equipment in which the Fund owned a majority interest, which had been consolidated, were reclassified to investments in USPEs. Accordingly, as of December 31, 1999, the balance sheet reflects all investments in USPEs on an equity basis. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 1. Basis of Presentation (continued) Investments in Unconsolidated Special-Purpose Entities (continued) The Fund's interests in USPEs are managed by IMI. The Fund's equity interest in the net income (loss) of USPEs is reflected net of management fees paid or payable to IMI. Repairs and Maintenance Repair and maintenance costs related to marine vessels, railcars, and trailers are usually the obligation of the Fund and are accrued as incurred. Costs associated with marine vessel dry-docking are estimated and accrued ratably over the period prior to such dry-docking. Maintenance costs of aircraft and marine containers are the obligation of the lessee. To meet the maintenance requirements of certain aircraft airframes and engines, reserve accounts are prefunded by the lessee over the period of the lease based on the number of hours this equipment is used, times the estimated rate to repair this equipment. If repairs exceed the amount prefunded by the lessee, the Fund has the obligation to fund and accrue the difference. In certain instances, if the aircraft is sold and there is a balance in the reserve account for repairs to that aircraft, the balance in the reserve account is reclassified as additional sales proceeds. The aircraft reserve accounts and marine vessel dry-docking reserve accounts are included in the balance sheet as lessee deposits and reserve for repairs. Net Income (Loss) and Distributions per Unit The net profits and losses of the Fund are generally allocated 1% to the Class B Members and 99% to the Class A Members. The Class B Member or Manager will be specially allocated (i) 100% of the Fund's organizational and offering cost amortization expenses and (ii) income equal to the excess of cash distribution over the Manager`s 1% share of net profits. The effect on the Class A members of this special income allocation will be to increase the net loss or decrease the net profits allocable to the Class A members by an equal amount. During 1999, the Manager received a special allocation of income of $1.7 million ($1.6 million in 1998 and $1.8 million in 1997). Cash distributions of the Fund are generally allocated 85% to the Class A members and 15% to the Manager and may include amounts in excess of net income. After the investors receive cash distributions equal to their original capital contributions the Manager's interest in the cash distributions of the Fund will increase to 25%. The Class A members' net income (loss) is allocated among the Class A members based on the number of Class A units owned by each member and on the number of days of the year each member is in the Fund. Cash distributions are recorded when paid. Monthly unitholders receive a distribution check 15 days after the close of the previous month's business and quarterly unitholders receive a distribution check 45 days after the close of the quarter. Cash distributions to Class A Unitholders in excess of net income are considered a return of capital. Cash distributions to Class A Unitholders of $9.9 million, $7.4 million, and $10.0 million in 1999, 1998, and 1997, respectively, were deemed to be a return of capital. Cash distributions relating to the fourth quarters of 1999, 1998, and 1997, of $1.7 million for each year, were paid during the first quarter of 2000, 1999, and 1998, respectively. Net Income (Loss) Per Weighted-Average Class A Unit Net income (loss) per weighted-average Class A unit was computed by dividing net income (loss) attributable to Class A members by the weighted-average number of Class A units deemed outstanding during the period. The weighted-average number of Class A units deemed outstanding during the years ended December 31, 1999 and 1998 were 4,982,336 and 4,999,581, respectively. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 1. Basis of Presentation (continued) Cash and Cash Equivalents The Fund considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents. The carrying amount of cash equivalents approximates fair market value due to the short-term nature of the investments. Restricted Cash As of December 31, 1999, restricted cash represented lessee security deposits held by the Fund. Comprehensive Income The Fund's net income (loss) is equal to comprehensive income for the years ended December 31, 1999, 1998, and 1997. Reclassification Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 presentation. 2. Manager and Transactions with Affiliates An officer of PLM Securities Corp., a wholly-owned subsidiary of the Manager, contributed the $100 of the Fund's initial capital. Under the equipment management agreement, IMI, subject to certain reductions, receives a monthly management fee attributable to either owned equipment or interests in equipment owned by the USPEs equal to the lesser of (i) the fees that would be charged by an independent third party for similar services for similar equipment or (ii) the sum of (A) for that equipment for which IMI provides only basic equipment management services, (a) 2% of the gross lease revenues attributable to equipment which is subject to full payout net leases, (b) 5% of the gross lease revenues attributable to equipment that is subject to operating leases, and (B) for that equipment for which IMI provides supplemental equipment management services, 7% of the gross lease revenues attributable to equipment for which IMI provides both management and additional services. Fund management fees of $0.2 million were payable at December 31, 1999 and 1998, respectively. The Fund's proportional share of the USPE's management fee payable were $31,000, and $40,000 as of December 31, 1999 and 1998, respectively. The Fund's proportional share of USPE management fees was $0.2 million, $0.2 million, and $0.3 million during 1999, 1998, and 1997, respectively. The Fund reimbursed FSI $1.0 million, $1.0 million, and $0.9 million for data processing expenses and other administrative services performed on behalf of the Fund during 1999, 1998, and 1997. The Fund's proportional share of the USPE's administrative and data processing expenses reimbursable to FSI was 46,000, $0.1 million and $0.1 million during 1999, 1998, and 1997, respectively. The Fund paid $2,000 and $24,000 in 1998 and 1997, respectively, to Transportation Equipment Indemnity Company, Ltd. (TEI), which provided marine insurance coverage for Fund equipment and other insurance brokerage services. TEI was an affiliate of the Manager. No fees for owned equipment were paid to TEI in 1999. During 1998, the Fund received a $16,000 loss-of-hire insurance refund from TEI due to lower claims from the insured Fund and other insured affiliated programs. The Fund's proportional share of USPE's marine insurance coverage paid to TEI was $10,000 during 1997. A substantial portion of this amount was paid to third-party reinsurance underwriters or was placed in risk pools managed by TEI on behalf of affiliated programs and PLM International which provide threshold coverages on marine vessel loss of hire and hull and machinery damage. All pooling arrangement funds are either paid out to cover applicable losses or refunded pro rata by TEI. The Fund's proportional share of a refund of $5,000 was received during 1998, from lower loss-of-hire insurance claims from the insured USPEs and other insured affiliated programs. During 1999 and 1998, TEI did not provide the same level of insurance coverage as had PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 2. Manager and Transactions with Affiliates (continued) been provided during 1997. These services were provided by an unaffiliated third party. PLMI liquidated TEI during the first quarter of 2000. Transportation Equipment Corporation (TEC) will also be entitled to receive an equipment liquidation fee equal to the lesser of (i) 3% of the sales price of equipment sold on behalf of the Fund, or (ii) 50% of the "Competitive Equipment Sale Commission," as defined in the agreement, if certainconditions are met. TEC is a wholly-owned subsidiary of the Manager. In certain circumstances, the Manager will be entitled to a monthly re-lease fee for re-leasing services following the expiration of the initial lease, charter or other contract for certain equipment equal to the lesser of (a) the fees which would be charged by an independent third party for comparable services for comparable equipment or (b) 2% of gross lease revenues derived from such re-lease, provided, however, that no re-lease fee shall be payable if such fee would cause the combination of the equipment management fee paid to IMI and the re-lease fees with respect to such transactions to exceed 7% of gross lease revenues. As of December 31, 1999, approximately 39% of the Fund's trailer equipment was in rental facilities operated by PLM Rental, Inc., an affiliate of the Manager, doing business as PLM Trailer Leasing. Rents are reported as revenue in accordance with SFAS No. 13. Direct expenses associated with the equipment are charged directly to the Fund. An allocation of indirect expenses of the rental yard operations is charged to the Fund monthly. The Fund had an interest in certain equipment in conjunction with affiliated programs during 1999, 1998, and 1997 (see Note 4). The balance due to affiliates as of December 31, 1999, included $0.2 million due to FSI and its affiliates for management fees and $0.5 million due to affiliated USPEs. The balance due to affiliates as of December 31, 1998, included $0.2 million due to FSI and its affiliates for management fees. 3. Equipment The components of owned equipment as of December 31, are as follows (in thousands of dollars): Equipment Held for Operating Leases 1999 1998 ----------------------------------- --------------------------------- Marine vessels $ 37,256 $ 46,957 Aircraft 20,605 20,605 Railcars 19,710 19,920 Trailers 16,196 14,788 Marine containers 9,942 -- Mobile offshore drilling unit -- 20,356 --------------------------------- 103,709 122,626 Less accumulated depreciation (45,183) (44,350) --------------------------------- Net equipment $ 58,526 $ 78,276 ================================= Revenues are earned under operating leases. The majority of rents for railcars are based on a fixed rate; in some cases they are based on mileage traveled, rents for all other equipment are based on fixed rates. During September 1999, certain equipment in which the Fund held a majority ownership was reclassified to investments in USPEs (see Note 4). PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 3. Equipment (continued) Equipment held for operating leases is stated at cost less any reductions to the carrying value as required by SFAS 121. During 1999, reductions to the carrying value of marine vessels of $3.9 million were required. As of December 31, 1999, all owned equipment in the Fund portfolio was either on lease or operating in PLM-affiliate short-term trailer rental yards except for six railcars with a carrying value of $0.1 million. As of December 31, 1998, all owned equipment in the Fund portfolio was either on lease or operating in PLM-affiliated short-term trailer rental yards except for 3 railcars with a carrying value of $37,000. During the year ended December 31, 1999, the Fund purchased 4,430 marine containers and 65 dry trailers for a total cost of $11.4 million. During the year ended December 31, 1998, the Fund purchased 39 railcars, two marine vessels (a deposit of $0.9 million was paid in December 1997 for the purchase of one of these marine vessels) and a hush kit for an aircraft for a total of $28.4 million. During the year ended December 31, 1999, the Fund sold trailers and railcars with an aggregate net book value of $0.1 million, for proceeds of $0.2 million. During the year ended December 31, 1998, the Fund sold an aircraft, trailers and railcars with a net book value of $2.6 million, for proceeds of $5.4 million. All owned equipment on lease is being accounted for as operating leases. Future minimum rent under noncancelable operating leases as of December 31, 2000 for the owned equipment during each of the next five years are approximately $8.7 million, 2000; $7.0 million, 2001; $5.6 million, 2002; $1.9 million, 2003, $1.6 million, 2004 and $1.5 million, 2005 and thereafter. Per diem and short-term rentals consisting of utilization rate lease payments included in revenues amounted to approximately $3.3 million, $3.5 million and $4.0 million in 1999, 1998 and 1997, respectively. 4. Investments in Unconsolidated Special Purpose Entities The Fund owns equipment jointly with affiliated programs. In September 1999, the Manager amended the corporate-by-laws of certain USPEs in which the Fund, or any affiliated program, owns an interest greater than 50%. The amendment to the corporate-by-laws provided that all decisions regarding the acquisition and disposition of the investment as well as other significant business decisions of that investment would be permitted only upon unanimous consent of the Fund and all the affiliated programs that have an ownership in the investment. As such, although the Fund may own a majority interest in a USPE, the Fund does not control its management and thus it is appropriate that the equity method of accounting be used after adoption of the amendment. As a result of the amendment, as of September 30, 1999, all jointly owned equipment in which the Fund owned a majority interest, which had been consolidated, were reclassified to investments in USPEs. Accordingly, as of December 31, 1999, the balance sheet reflects all investments in USPEs on an equity basis. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 4. Investments in Unconsolidated Special Purpose Entities (continued) The net investments in USPEs include the following jointly-owned equipment as of December 31, (and related assets and liabilities) (in thousands of dollars):
1999 1998 --------------------------------------------- 50% interest in a trust owning an MD-82 commercial aircraft $ 4,784 $ 6,441 50% interest in a trust owning an MD9-82 stage III commercial aircraft 1,773 3,342 50% interest in a trust owning a cargo marine vessel 1,024 1,265 25% interest in a trust that owned four 737-200A stage II commercial aircraft 76 137 25% interest in a trust that owned four 737-200A stage II commercial aircraft 60 110 33% interest in two trusts that owned a total of three 737-200A stage II commercial aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables -- 3,929 --------------------------------------------- Net investments $ 7,717 $ 15,224 =============================================
As of December 31, 1999 and 1998, all jointly-owned equipment in the Fund's USPE portfolio was on lease. During 1999, the Manager sold the Fund's 61% interest in an entity that owned a mobile offshore drilling unit. The Fund's interest in this entity was sold for proceeds of $7.2 million for its net investment of $7.2 million. Also, during 1999, the Manager sold the Fund's 33% interest in two trusts that owned a total of three Boeing 737-200A stage II commercial aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables. The trusts were sold for proceeds of $7.1 million for its net investment of $3.8 million. The Fund had interests in two USPEs that own multiple aircraft (the Trusts). These Trusts contain provisions under certain circumstances for allocating specific aircraft to the beneficial owners. During 1998, in one of these Trusts, the Fund sold the commercial aircraft assigned to it, with a net book value of $2.3 million, for proceeds of $5.9 million. Also during the same period, in another trust, the Fund sold the commercial aircraft assigned to it, with a net book value of $1.8 million, for proceeds of $4.5 million. During 1998, the Fund purchased a 50% interest in a MD-82 stage III commercial aircraft for $6.8 million (a deposit of $0.7 million was paid in December of 1997) and a 50% interest in a MD-82 stage III commercial aircraft for $7.8 million. The following summarizes the financial information for the special-purpose entities and the Fund's interests therein as of and for the years ended December 31, 1999, 1998, and 1997 (in thousands of dollars):
1999 1998 1997 --------- ---------- ---------- Net Net Net Total Interest of Total Interest of Total Interest USPEs Fund USPEs Fund USPEs of Fund ------------------------- ------------------------------------------------------- Net investments $ 26,320 $ 7,717 $ 35,630 $ 15,224 $ 59,369 $ 16,486 Lease revenues 4,314 3,124 13,601 5,200 24,283 7,125 Net income 7,282 1,761 14,377 2,390 10,831 1,453
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 4. Investments in Unconsolidated Special Purpose Entities (continued) All partially owned equipment on lease is being accounted for as operating leases. Future minimum rent under noncancelable operating leases as of December 31, 1999 for the partially owned equipment during each of the next five years are approximately $2.1 million, 2000; $2.1 million, 2001; $2.1 million, 2002; $0.9 million, 2003, $0.9 million, 2004, and $0.9 million, 2005 and thereafter. 5. Operating Segments The Fund operates or operated in five primary operating segments: aircraft leasing, mobile offshore drilling unit (MODU) leasing, marine vessel leasing, trailer leasing, and railcar leasing. Each equipment leasing segment engages in short-term to mid-term operating leases to a variety of customers. The Manager evaluates the performance of each segment based on profit or loss from operations before interest expense and certain general and administrative and operations support expenses. The segments are managed separately due to different business strategies for each operation. The following tables present a summary of the operating segments (in thousands of dollars):
Marine Aircraft MODU Vessel Trailer Railcar All For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other1 Total ------------------------------------ ------- ------- ------- ------- ------- ------ ----- Revenues Lease revenue $ 4,057 $ 3,560 $ 9,501 $ 3,864 $ 3,804 $ 1,327 $ 26,113 Interest income and other 38 -- 5 -- 9 295 347 Net gain on disposition of equipment -- -- -- 8 15 -- 23 ------------------------------------------------------------------------- Total revenues 4,095 3,560 9,506 3,872 3,828 1,622 26,483 Costs and expenses Operations support 29 66 4,511 888 625 84 6,203 Depreciation and amortization 2,571 1,748 6,012 1,481 1,739 1,298 14,849 Interest expense -- -- -- -- -- 1,833 1,833 Management fees to affiliate 203 178 475 224 250 66 1,396 General and administrative expenses 34 75 59 758 71 676 1,673 Provision for bad debt expense -- -- -- 25 13 -- 38 Loss on revaluation of equipment -- -- 3,931 -- -- -- 3,931 ------------------------------------------------------------------------- Total costs and expenses 2,837 2,067 14,988 3,376 2,698 3,957 29,923 ------------------------------------------------------------------------- Minority interest -- (590) -- -- -- -- (590) Equity in net income (loss) of USPEs 1,836 206 (281) -- -- -- 1,761 ------------------------------------------------------------------------- Net income (loss) before cumulative effect of accounting change 3,094 1,109 (5,763) 496 1,130 (2,335) (2,269) Cumulative effect of accounting -- -- -- -- -- (132) (132) change ========================================================================= Net income (loss) $ 3,094 $ 1,109 $ (5,763) $ 496 $ 1,130 $ (2,467 ) $ (2,401) ========================================================================= Total assets as of December 31, 1999 $ 10,952 $ -- $ 27,407 $ 9,513 $ 11,339 $ 21,322 $ 80,533 ========================================================================= - --------------------------- 1 Includes interest income and costs not identifiable to a particular segment such as amortization expense, interest expense, certain operations support, and general and administrative expenses. Also includes the lease revenue of $1.3 million, depreciation expense of $1.3 million, and management fee of $0.2 million for marine containers.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 5. Operating Segments (continued)
Marine Aircraft MODU Vessel Trailer Railcar All For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other2 Total ------------------------------------ ------- ------- ------- ------- ------- ------ ----- Revenues Lease revenue $ 4,567 $ 4,046 $ 8,684 $ 3,894 $ 3,958 $ -- $ 25,149 Interest income and other 13 -- 13 -- 19 348 393 Net gain on disposition of equipment 2,710 -- -- 9 40 -- 2,759 ------------------------------------------------------------------------- Total revenues 7,290 4,046 8,697 3,903 4,017 348 28,301 Expenses Operations support 42 110 2,890 631 634 84 4,391 Depreciation and amortization 4,624 2,798 5,490 1,738 2,018 106 16,774 Interest expense -- -- -- -- -- 1,833 1,833 Management fee 213 202 434 256 263 -- 1,368 General and administrative expenses 67 47 121 805 63 578 1,681 Provision for (recovery of) bad 2 -- -- 11 (36) -- (23) debt ------------------------------------------------------------------------- Total costs and expenses 4,948 3,157 8,935 3,441 2,942 2,601 26,024 ------------------------------------------------------------------------- Minority interest -- (351) -- -- -- -- (35) Equity in net income (loss) of USPEs 3,834 -- (1,444) -- -- -- 2,390 ------------------------------------------------------------------------- ========================================================================= Net income (loss) $ 6,176 $ 538 $ (1,682) $ 462 $ 1,075 $ (2,253) $ 4,316 ========================================================================= Total assets as of December 31, 1998 $20,387 $ 14,392 $ 37,916 $ 8,682 $ 13,109 $ 5,149 $ 99,635 ========================================================================= Marine Aircraft MODU Vessel Trailer Railcar All For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Otherz2 Total ------------------------------------ ------- ------- ------- ------- ------- ------ ----- Revenues Lease revenue $ 5,037 $ 5,059 $ 3,690 $ 3,670 $ 3,377 $ -- $ 20,833 Interest income and other 14 -- -- -- 1 390 405 Net gain on disposition of equipment -- 1,675 -- 7 -- -- 1,682 ------------------------------------------------------------------------- Total revenues 5,051 6,734 3,690 3,677 3,378 390 22,920 Expenses Operations support 43 70 1,606 420 666 47 2,852 Depreciation and amortization 8,007 4,670 2,363 2,059 2,143 105 19,347 Interest expense -- -- -- -- -- 1,418 1,418 Management fee 203 253 185 248 216 20 1,125 General and administrative expenses 21 85 72 861 129 486 1,654 ------------------------------------------------------------------------- Total costs and expenses 8,274 5,078 4,226 3,588 3,154 2,076 26,396 ------------------------------------------------------------------------- Minority interest -- (29) -- -- -- -- (29) Equity in net income (loss) of USPEs 1,795 -- (342) -- -- -- 1,453 ------------------------------------------------------------------------- Net income (loss) $ (1,428) $ 1,627 $ (878) $ 89 $ 224 $ (1,686) $ (2,052) ========================================================================= Total assets as of December 31, 1997 $ 26,291 $ 16,808 $ 19,657 $ 10,432 $ 14,150 $ 21,186 $ 108,524 ========================================================================= - ------------------ 2 Includes interest income and costs not identifiable to a particular segment such as amortization expense, interest expense, certain operations support, and general and administrative epxenses.
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 6. Geographic Information The Fund owns certain equipment, which is leased and operated internationally. A limited number of the Fund's transactions are denominated in a foreign currency. Gains or losses resulting from foreign currency transactions are included in the results of operations and are not material. The Fund leases its aircraft, railcars and trailers to lessees domiciled in four geographic regions: United States, South America, Canada, and Europe. The marine vessels, mobile offshore drilling unit and marine containers are leased to multiple lessees in different regions who operate the equipment worldwide. The following table sets forth lease revenue information by region for the owned equipment and investments in USPEs for the years ended December 31, are as follows (in thousands of dollars):
Owned Equipment Investments in USPEs --------------------------------------------------------------------------------------- Region 1999 1998 1997 1999 1998 1997 ------------------------------------------------------------------------------------------------------------- United States $ 6,187 $ 6,172 $ 6,296 $ 2,123 $ 1,783 $ -- South America 4,057 4,567 4,057 -- -- -- Canada 1,480 1,680 1,731 -- 945 2,405 Europe -- -- -- -- 1,560 3,530 Rest of the world 14,389 12,730 8,749 1,001 912 1,190 ======================================================================================= Lease revenues $ 26,113 $ 25,149 $ 20,833 $ 3,124 $ 5,200 $ 7,125 =======================================================================================
The following table sets forth income (loss) information by region for owned equipment and investments in USPEs for the years ended December 31, are as follows (in thousands of dollars):
Owned Equipment Investments in USPEs ------------------------------------------------------------------------------------- Region 1999 1998 1997 1999 1998 1997 ----------------------------------------------------------------------------------------------------------- nited States $ 1,150 $ 1,070 $ 214 $ (1,317) $ (3,037) $ -- South America 1,258 2,342 (2,446) -- -- -- Canada 476 466 (28) 22 6,718 142 Europe -- -- -- 3,131 153 1,653 Rest of the world (4,598) 300 1,204 (75) (1,444) (342) ------------------------------------------------------------------------------------- Regional Income (loss) (1,714) 4,178 (1,056) 1,761 2,390 1,453 Administrative and other (2,448) (2,252) (2,449) -- -- -- ------------------------------------------------------------------------------------- ===================================================================================== Net income (loss) $ (4,162) $ 1,926 $ (3,505) $ 1,761 $ 2,390 $ 1,453 =====================================================================================
The net book value of owned assets and the net investment in the unconsolidated special-purpose entities at December 31, are as follows (in thousands of dollars):
Owned Equipment Investments in USPEs ------------------------------------------ ------------------------------------------ Region 1999 1998 1997 1999 1998 1997 --------------------------------------------------------------------------------------------------------------- United States $ 14,432 $ 15,751 $ 24,901 $ 6,559 $ 9,782 $ -- South America 3,857 6,429 10,022 -- -- 4,006 Canada 5,450 6,040 2,102 136 248 4,614 Europe -- -- -- -- 3,929 5,180 Rest of the world 34,787 50,056 32,145 1,022 1,265 2,686 ======================================================================================== Net book value $ 58,526 $ 78,276 $ 69,170 $ 7,717 $ 15,224 $ 16,486 ========================================================================================
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 7. Notes Payable In December 1996, the Fund entered into an agreement to issue a $25.0 million long-term note to an institutional investor. The note bears interest at a fixed rate of 7.33% per annum and has a final maturity in 2006. Interest on the note is payable semi-annually. The note will be repaid in five principal payments of $3.0 million on December 31, 2000, 2001, 2002, 2003, and 2004 and two principal payments of $5.0 million on December 31, 2005, and 2006. The agreement requires the Fund to maintain certain financial covenants related to fixed-charge coverage The loan was funded in March 1997. The Manager estimates, based on recent transactions, that the fair value of the $25.0 million fixed-rate note is $25.7 million. The Manager has entered into a joint $24.5 million credit facility (the Committed Bridge Facility) on behalf of the Fund, PLM Equipment Growth Fund VI (EGF VI) and PLM Equipment Growth & Income Fund VII (EGF VII), both affiliated investment programs; and TEC Acquisub, Inc. (TECAI), an indirect wholly-owned subsidiary of the Manager, which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by the Fund, plus (ii) 50% of unrestricted cash held by the borrower. The Fund, EGF VI, EGF VII, and TECAI collectively may borrow up to $24.5 million of the Committed Bridge Facility. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million Letter of Credit Facility for the eligible borrowers. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than June 30, 2000. Interest accrues at either the prime rate or adjusted LIBOR plus 1.625% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Fund are guaranteed by the Manager. As of December 31, 1999, no eligible borrower had any outstanding borrowings under this facility. The Manager believes it will be able to renew the Committed Bridge Facility upon its expiration with similar terms as those in the current Committed Bridge Facility. 8. Concentrations of Credit Risk The Fund's customers that accounted for 10% or more of the total consolidated revenues for the owned equipment and partially owned equipment during 1999, 1998, and 1997 were TAP Air Portugal (12% in 1997) and Canadian Airlines International (11% in 1997). No single lessee accounted for more than 10% of the consolidated revenues for the year ended December 31, 1999 or 1998. In 1999, however, Casino Express Air purchased the Fund's 33% interest in two trusts that owned a total of three Boeing 737-200A stage II commercial aircraft, two stage II aircraft engines, and a portfolio of aircraft rotables and the gain from the sale accounted for 10% of total consolidated revenues from wholly and partially owned equipment. In 1998, Triton Aviation Services, Ltd. purchased three commercial aircraft from the Fund and the gain from the sale accounted for 23% of total consolidated revenues from wholly and partially owned equipment. In 1997, Hercules Rig Corporation, also a lessee, purchased the mobile offshore drilling unit that they were leasing from the Fund. The lease revenues and the gain from the sale accounted for 11% of total consolidated revenues during 1997. As of December 31, 1999 and 1998, the Manager believes the Fund had no significant concentrations of credit risk that could have a material adverse effect on the Fund. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1999 9. Income Taxes The Fund is not subject to income taxes, as any income or loss is included in the tax returns of the individual partners. Accordingly, no provision for income taxes has been made in the financial statements of the Fund. As of December 31, 1999, the federal income tax basis were higher than the financial statement carrying values of certain assets and liabilities by approximately $31.3 million, primarily due to differences in depreciation methods, equipment reserves, provisions for bad debts, lessee's prepaid deposits, and the tax treatment of syndication costs. 10. Cumulative Effect of Accounting Change In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs related to start-up activities to be expensed as incurred. The statement requires that initial application be reported as a cumulative effect of a change in accounting principle. The Fund adopted this statement during the first quarter of 1999, at which time it took a $0.1 million charge, related to start-up costs of Fund. This charge had the effect of reducing net income per weighted-average Class A unit by $0.02 for the year ended December 31, 1999. 11. Subsequent Event During January 2000, the Fund purchased a group of trailers for $0.2 million. In addition, the Fund purchased a group of marine containers for $4.8 million during February 2000. Also, the Fund purchased a group of marine containers for $5.0 during March 2000. (This space intentionally left blank.) PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. INDEX OF EXHIBITS Exhibit Page 4. Operating Agreement of Fund. * 10.1 Management Agreement between Fund and PLM Investment * Management, Inc. 10.2 $25.0 Million Note Agreement, dated as of December 30, 1996. * 10.3 Fourth Amended and restated Warehousing Credit Agreement, dated as of December 15, 1998, with First Union National Bank * 10. 4 First amendment to the Fourth Amended and Restated Warehouse Credit Agreement dated December 10, 1999. 47-51 24. Powers of Attorney. 52-54 - -------------------- * Incorporated by reference. See page 26 of this report. EX-24 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Susan Santo, and Richard Brock, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as Manager of Professional Lease Management Income Fund I, L.L.C., to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of Professional Lease Management Income Fund I, L.L.C., including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 2000 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31,1999. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 3rd day of March, 2000. /s/ Douglas P. Goodrich ------------------------------------- Douglas P. Goodrich POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Susan Santo, and Richard Brock, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as Manager of Professional Lease Management Income Fund I, L.L.C., to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of Professional Lease Management Income Fund I, L.L.C., including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 2000 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1999. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 3rd day of March, 2000. /s/ Robert N. Tidball ---------------------------------- Robert N. Tidball POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Susan Santo, and Richard Brock, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as Manager of Professional Lease Management Income Fund I, L.L.C., to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of Professional Lease Management Income Fund I, L.L.C., including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1999 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1999. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 3rd day of March, 2000. /s/ Stephen M. Bess ----------------------------------- Stephen M. Bess EX-27 3
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 12,050 0 2,072 (65) 0 0 103,709 (45,183) 80,533 0 25,000 0 0 0 50,598 80,533 0 26,483 0 0 28,052 38 1,833 (2,269) 0 (2,269) 0 0 132 (2,401) (0.81) (0.81)
EX-10 4 AMENDMENT NO. 1 TO FOURTH AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT (Growth Funds) THIS AMENDMENT NO. 1 TO FOURTH AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT dated as of December 10, 1999 (the "Amendment"), is entered into by and among PLM EQUIPMENT GROWTH FUND VI, a California limited partnership ("EGF VI"), PLM EQUIPMENT GROWTH & INCOME FUND VII, a California limited partnership ("EGF VII"), and PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company ("Income Fund I") (EGF V, EGF VI, EGF VII and Income Fund I each individually being a "Borrower" and, collectively, the "Borrowers"), and PLM FINANCIAL SERVICES, INC., a Delaware corporation and the sole general partner, in the case of EGF V, EGF VI and EGF VII, and the sole manager, in the case of Income Fund I ("FSI"), the banks, financial institutions and institutional lenders from time to time party hereto and defined as Lenders herein and FIRST UNION NATIONAL BANK as agent on behalf of Lenders (not in its individual capacity, but solely as agent, "Agent"). Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Credit Agreement. RECITALS A. Borrowers, Lenders and Agent entered into that Fourth Amended and Restated Warehousing Credit Agreement dated as of December 15, 1998 (the "Credit Agreement"), pursuant to which Lenders have agreed to extend and make available to Borrowers certain advances of money. B. Borrowers desire to amend the Credit Agreement to extend the Commitment Termination Date to June 30, 2000. C. Subject to the representations and warranties of Borrowers and upon the terms and conditions set forth in this Amendment, Lenders and Agent are willing to so amend the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows: Section 1. Amendments to Credit Agreement. 1.1 Commitment Termination Date. The definition of "Commitment Termination Date" set forth in Section 1.1 of the Credit Agreement is deleted in its entirety and is replaced with the following: "Commitment Termination Date" means June 30, 2000. 1.2 Cash Balances. Section 7.3 of the Credit Agreement is deleted in its entirety and is replaced with the following: 7.3 CASH BALANCES. The Equipment Growth Funds of which FSI is the sole general partner shall maintain aggregate unrestricted cash balances of $8,500,000. SECTION 2. LIMITATIONS ON AMENDMENTS (a) The amendments set forth in Section 1, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document or (ii) otherwise prejudice any right or remedy which Lenders or Agent may now have or may have in the future under or in connection with any Loan Document. (b) This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect. SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders and Agent to enter into this Amendment, each Borrower severally as to itself, but not jointly as to the other Borrowers and FSI, and FSI jointly and severally with each Borrower and as to itself represents and warrants to each Lender and Agent as follows: (a) Immediately after giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents (other than those which expressly speak as of a different date which shall be true as of such different date) are true, accurate and complete in all material respects as of the date hereof and (ii) no Event of Default, or event which constitutes a Potential Event of Default, has occurred and is continuing; (b) each Borrower and FSI has the power and authority to execute and deliver this Amendment and to perform its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party; (c) The respective LP-1s, certificates of formation and certificates of incorporation and the respective agreements of limited partnership, operating agreements and bylaws delivered by Borrowers and FSI to each Lender in connection with the closing of the Credit Agreement or, if earlier, the Third Amended and Restated Warehousing Credit Agreement dated as of December 2, 1997 are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect; (d) The execution and delivery by Borrowers and FSI of this Amendment and the performance by Borrowers and FSI of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action on the part of Borrowers and FSI; (e) The execution and delivery by each Borrower and FSI of this Amendment and the performance by each Borrower and FSI of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not and will not contravene (i) any law or regulation binding on or affecting such Borrower or FSI, (ii) the organizational documents of such Borrower or FSI, (iii) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on such Borrower or FSI or (iv) any contractual restriction binding on or affecting such Borrower or FSI; (f) The execution and delivery by each Borrower and FSI of this Amendment and the performance by each Borrower and FSI of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on each Borrower and FSI, except as already has been obtained or made; and (g) This Amendment has been duly executed and delivered by each Borrower and FSI and is the binding Obligation of each Borrower and FSI, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. SECTION 4. REAFFIRMATION. Each Borrower and FSI hereby reaffirms its Obligations under each Loan Document to which it is a party. SECTION 5. EFFECTIVENESS. This Amendment shall become effective upon the last to occur of : (a) The execution and delivery of this Amendment, whether the same or different copies, by each Borrower, FSI and each Lender to Agent; (b) The execution and delivery by PLMI to Agent of the Acknowledgment of Amendment and Reaffirmation of Guaranty attached to this Amendment; and (c) The receipt by Agent of a certificate of the secretary of FSI for itself and as the sole general partner or manager, as applicable of each Borrower, with incumbency signatures, attaching copies, certified to be true and correct, of (i) the current organizational documents of each Borrower and FSI (which certificate may instead refer to and incorporate by reference to such documents as previously delivered to Agent under an identified prior certificate of the secretary of Borrower) and certifying that such organizational documents have not been further amended and remain in full force and effect, and (ii) resolutions of the board of directors of FSI approving this Amendment. SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. SECTION 7. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. EACH BORROWER AND FSI HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF. SECTION 8. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. BORROWER PLM EQUIPMENT GROWTH FUND VI BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By: /s/Richard K Brock Title: Acting CFO, Vice President and CORPORATE CONTROLLER PLM EQUIPMENT GROWTH & INCOME FUND VII BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By: /s/Richard K Brock Title: Acting CFO, Vice President and Corporate Controller PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. BY PLM FINANCIAL SERVICES, INC., ITS MANAGER By: /s/Richard K Brock Title: Acting CFO, Vice President and Corporate Controller FSI PLM FINANCIAL SERVICES, INC. By: /s/Richard K Brock Title: Acting CFO, Vice President and Corporate Controller LENDERS FIRST UNION NATIONAL BANK By: /s/Bill A. Shirley Title: Senior Vice President AGENT FIRST UNION NATIONAL BANK By: /s/Bill A. Shirley Title: Senior Vice President -----END PRIVACY-ENHANCED MESSAGE-----