UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal quarter ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 33-83216-01
-----------------------
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
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 102,262 $ 79,132
Less accumulated depreciation (34,243) (26,749)
----------------------------------------
Net equipment 68,019 52,383
Cash and cash equivalents 1,878 19,179
Investment in unconsolidated special-purpose entities 25,510 26,252
Accounts receivable, less allowance for doubtful accounts
of $45 in 1998 and $70 in 1997 1,814 2,026
Deposit on equipment -- 920
Prepaid expenses 324 341
Deferred charges, less accumulated amortization
of $317 in 1998 and $238 in 1997 301 381
----------------------------------------
Total assets $ 97,846 $ 101,482
========================================
Liabilities and members' equity
Liabilities:
Accounts payable and accrued expenses $ 937 $ 594
Due to affiliates 199 2,005
Lessee deposits and reserves for repairs 2,206 1,409
Note payable 25,000 25,000
----------------------------------------
Total liabilities 28,342 29,008
----------------------------------------
Members' equity:
Class A members (4,999,581 units as of September 30, 1998
and December 31, 1997) 69,406 72,298
Class B member 98 176
----------------------------------------
Total members' equity 69,504 72,474
----------------------------------------
Total liabilities and members' equity $ 97,846 $ 101,482
========================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, September 30,
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 5,818 $ 4,687 $ 15,118 $ 12,312
Interest and other income 31 88 320 303
Net gain on disposition of equipment 16 1 2,757 5
-------------------------------------------------------------------
Total revenues 5,865 4,776 18,195 12,620
-------------------------------------------------------------------
Expenses
Depreciation and amortization 3,804 4,268 10,210 11,870
Repairs and maintenance 573 362 1,346 921
Equipment operating expenses 400 242 989 717
Interest expense 469 458 1,385 963
Insurance expense to affiliate 19 1 38 10
Other insurance expense 59 61 146 205
Management fees to affiliate 328 259 840 691
General and administrative expenses
to affiliates 221 235 646 743
Other general and administrative expenses 70 158 534 486
-------------------------------------------------------------------
Total expenses 5,943 6,044 16,134 16,606
-------------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (1,679 ) 275 3,792 490
-------------------------------------------------------------------
Net income (loss) $ (1,757 ) $ (993 ) $ 5,853 $ (3,496 )
===================================================================
Members' share of net income (loss)
Class A members $ (2,172 ) $ (1,398 ) $ 4,608 $ (4,706 )
Class B member 415 405 1,245 1,210
-------------------------------------------------------------------
Total $ (1,757 ) $ (993 ) $ 5,853 $ (3,496 )
===================================================================
Net income (loss) per weighted-average
Class A unit $ (0.43 ) $ (0.28 ) $ 0.92 $ (0.94 )
===================================================================
Cash distributions $ 2,941 $ 2,940 $ 8,823 $ 8,822
===================================================================
Cash distributions per weighted-average
Class A units $ 0.50 $ 0.50 $ 1.50 $ 1.50
===================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS' EQUITY For
the period from December 31, 1996 to September 30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Class A Class B Total
-------------------------------------------------------------
<S> <C> <C> <C>
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 4,608 1,245 5,853
Cash distributions (7,500) (1,323) (8,823 )
-------------------------------------------------------------
Members' equity as of September 30, 1998 $ 69,406 $ 98 $ 69,504
=============================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
(in thousands of dollars)
<TABLE>
<CAPTION>
1998 1997
------------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 5,853 $ (3,496)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,210 11,870
Net gain on disposition of equipment (2,757) (5)
Equity in net income of unconsolidated
special-purpose entities (3,792) (490)
Changes in operating assets and liabilities:
Restricted cash -- 223
Accounts receivable, net 86 (537)
Prepaid expenses 17 194
Accounts payable and accrued expenses 343 538
Due to affiliates (13) 35
Lessee deposits and reserves for repairs 797 382
------------------------------------------
Net cash provided by operating activities 10,744 8,714
------------------------------------------
Investing activities
Payments for purchase of equipment and capital
improvements (27,470) (19,320)
Investment in and equipment purchased and placed
in unconsolidated special-purpose entities (13,917) (5,100)
Liquidation distributions from unconsolidated
special-purpose entities 10,990 --
Proceeds from disposition of equipment 5,507 27
Distributions from unconsolidated special-purpose
entities 7,461 5,100
------------------------------------------
Net cash used in investing activities (17,429) (19,293)
------------------------------------------
Financing activities
Proceeds from note payable -- 25,000
Payment due to affiliates (1,793) --
Cash distributions to Class A members (7,500) (7,499)
Cash distributions to Class B member (1,323) (1,323)
Payment of debt placement fees -- (177)
------------------------------------------
Net cash (used in) provided by financing activities (10,616) 16,001
------------------------------------------
Net (decrease) increase in cash and cash equivalents (17,301) 5,422
Cash and cash equivalents at beginning of period 19,179 1,692
------------------------------------------
Cash and cash equivalents at end of period $ 1,878 $ 7,114
==========================================
Supplemental information
Interest paid $ 916 $ 505
==========================================
Sale proceeds included in accounts receivable $ 50 $ <0- 45>
==========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (the
Manager or FSI or sole Class B member), the accompanying unaudited
financial statements contain all adjustments necessary, consisting
primarily of normal recurring accruals, to present fairly the financial
position of Professional Lease Management Income Fund I, L.L.C. (Fund I or
the Company) as of September 30, 1998 and December 31, 1997, the statements
of operations for the three and nine months ended September 30, 1998 and
1997, the statements of changes in members' equity for the period from
December 31, 1996 to September 30, 1998, and the statements of cash flows
for the nine months ended September 30, 1998 and 1997. Certain information
and note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying financial statements. For
further information, reference should be made to the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, on file with the Securities and Exchange
Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $2.9 million for each
of the three months ended September 30, 1998 and 1997, and $8.8 million for
each of the nine months ended September 30, 1998 and 1997. Cash
distributions to Class A unitholders in excess of net income are considered
to represent a return of capital. Cash distributions to Class A unitholders
of $2.9 and $7.5 million for the nine months ended September 30, 1998 and
1997, respectively, were deemed to be a return of capital. Cash
distributions related to the results from the third quarter of 1998, of
$1.7 million, are to be paid during the fourth quarter of 1998.
3. Transactions with Manager and Affiliates
The balance due to affiliates as of September 30, 1998 included $0.2
million due to FSI and its affiliates for management fees. The balance due
to affiliates as of December 31, 1997 included $0.2 million due to FSI and
its affiliates for management fees and $1.8 million due to affiliated
unconsolidated special-purpose entities (USPEs). The Company's proportional
share of management fees affiliated with USPEs of $40,000 and $24,000 were
payable as of September 30, 1998 and December 31, 1997, respectively.
The Company's proportional share of the affiliated expenses incurred by the
USPEs during 1998 and 1997 is listed in the following table (in thousands
of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 85 $ 97 $ 267 $ 281
Data processing and administrative
expenses 22 25 79 69
Insurance expense -- 1 (3) 6
</TABLE>
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
3. Transactions with Manager and Affiliates (continued)
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
Manager, provides marine insurance coverage for the Company's investment in
USPEs and other insurance brokerage services. In the future, TEI will not
be providing the same level of insurance coverage as it has in the past.
This insurance will be provided by an unaffilated third party.
4. Equipment
Owned equipment held for operating lease is stated at cost. The components
of equipment held for operating lease are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------------------
<S> <C> <C>
Marine vessels $ 46,957 $ 20,756
Aircraft 20,605 24,605
Rail equipment 19,913 18,958
Trailers 14,787 14,813
--------------------------------------------
102,262 79,132
Less accumulated depreciation (34,243) (26,749)
--------------------------------------------
Net equipment $ 68,019 $ 52,383
============================================
</TABLE>
During the nine months ended September 30, 1998, the Company purchased 39
rail equipment, 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 nine months
ended September 30, 1997, the Company purchased 24 trailers, a mobile
offshore drilling unit, and a marine vessel for a total of $19.3 million.
During the nine months ended September 30, 1998, the Company sold an
aircraft, trailers and rail equipment with a net book value of $2.8
million, net of outstanding receivables, for proceeds of $5.6 million.
During the nine months ended September 30, 1997, the Company sold trailers
with a net book value of $22,000, for proceeds of $27,000.
As of September 30, 1998, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 5 rail
equipment with a carrying value of $73,000. As of December 31, 1997, all
equipment was either on lease or operating in PLM-affiliated short-term
trailer rental facilities, except for one rail equipment with a carrying
value of $22,000.
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
5. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------------------
<S> <C> <C>
61% interest in an entity owning a mobile offshore drilling unit $ 8,667 $ 9,766
50% interest in a trust owning an MD-82 commercial aircraft 6,825 --
33% interest in two trusts owning three 737-200A commercial
aircraft,two aircraft engines, and a portfolio of aircraft
rotables 4,243 7,788
50% interest in a trust owning an MD-82 commercial aircraft 4,194 682
50% interest in a trust owning a cargo marine vessel 1,307 2,638
25% interest in a trust that owned four 737-200A commercial
aircraft 152 3,163
25% interest in a trust that owned four 737-200A commercial
aircraft 122 2,215
Net investments $ 25,510 $ 26,252
============================================
</TABLE>
The Company 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 the nine
months ended September 30, 1998, the Company and affiliated programs each
sold the commercial aircraft designated to it in one of these Trusts. The
Company sold the commercial aircraft assigned to it with a net book value
of $2.7 million, net of outstanding receivables, for proceeds of $6.3
million.
In the second Trust, the Company and affiliated programs each sold the
aircraft designated to it during the nine months ended September 30, 1998.
The Company sold the commercial aircraft assigned to it with a net book
value of $2.0 million, net of outstanding receivables, for proceeds of $4.7
million.
During the nine months ended September 30, 1998, the Company purchased a
50% interest in an 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
an MD-82 stage III commercial aircraft for $7.8 million.
6. Debt
The Manager entered into a short-term, joint $50.0 million credit facility
which is due to expire on November 2, 1998. This facility was amended on
June 1, 1998 to temporarily increase the borrowing capacity of American
Finance Group, Inc. (AFG), a subsidiary of PLM International, Inc., from
$50.0 million to $55.0 million until September 1, 1998. On June 8, 1998,
this facility was amended again to temporarily increase AFG's borrowing
capacity from $55.0 million to $60.0 million until July 8, 1998. As of
September 30, 1998, the Company had no borrowing under the short-term joint
$50.0 million credit facility. Among the other eligible borrowers, AFG had
borrowings of $44.2 million, and TEC Acquisub, Inc., an indirect
wholly-owned subsidiary of PLM International, Inc., had borrowings of $0.3
million under the short-term joint, $50.0 million credit facility as of
September 30, 1998. No other eligible borrower had any outstanding
borrowings.
<PAGE>
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
6. Debt (continued)
The Manager believes it will renew the credit facility upon its expiration
with similar terms as those in the current credit facility.
7. Net Income (Loss) Per Weighted-Average Class A Unit
Net income (loss) per weighted-average Class A unit was computed by
dividing net income (loss) attributable to Class A members by the
weighted-average number of Class A units deemed outstanding during the
period. The weighted-average number of Class A units deemed outstanding
during the three and nine months ended September 30, 1998 and 1997 was
4,999,581.
8. Subsequent Event
On October 29, 1998, the Manager received a commitment letter from the
lender of the short-term credit facility extending the credit facility to
November 1, 1999. The terms of the credit facility remained substantially
the same as the previous credit facility.
(This space intentionally left blank.)
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Professional Lease Management Income Fund I, L.L.C.'s (Fund
I's or the Company's) Operating Results for the Three Months Ended September 30,
1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment increased during the third quarter of 1998, compared to the same
quarter of 1997. The following table presents lease revenues less direct
expenses by owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Marine vessels $ 2,026 $ 806
Aircraft 1,003 1,249
Trailers 927 842
Rail equipment 823 628
Mobile offshore drilling unit -- 502
</TABLE>
Marine vessels: Marine vessel lease revenues and direct expenses were $2.7
million and $0.7 million, respectively, for the third quarter of 1998, compared
to $1.2 million and $0.4 million, respectively, during the same quarter of 1997.
Marine vessel contribution increased due to the purchase of two marine vessels
in 1998.
Aircraft: Aircraft lease revenues and direct expenses were $1.0 million and
$11,000, respectively, for the third quarter of 1998, compared to $1.2 million
and $11,000, respectively, during the same quarter of 1997. Aircraft
contribution decreased due to the sale of an aircraft at the end of the second
quarter of 1998.
Trailers: Trailer revenues and direct expenses were $1.1 million and $0.2
million, respectively, for the third quarter of 1998, compared to $0.9 million
and $0.1 million, respectively, for the same period of 1997. Lease revenues
increased in the third quarter of 1998 compared to the same period in 1997 due
to the purchase of additional trailers in the third quarter of 1997 and higher
utilization earned on trailers operating in the short-term rental facilities.
Expenses increased due to repairs required on certain trailers in the third
quarter of 1998, which were not needed in the same period in 1997.
Rail equipment: Rail equipment lease revenues and direct expenses were $1.0
million and $0.2 million, respectively, for the third quarter of 1998, compared
to $0.8 million and $0.2 million, respectively, during the same quarter of 1997.
Rail equipment contribution increased due to the purchase of rail equipment in
the first quarter of 1998.
Mobile offshore drilling unit (rig): Revenues and direct expenses were $0.5
million and $4,000, respectively, during the third quarter of 1997. This rig was
sold in the fourth quarter of 1997 as part of the original purchase agreement
that gave the charterers the option to purchase the rig. The Company did not own
any rigs in the third quarter of 1998.
(B) Interest and Other Income
Interest and other income decreased $0.1 million due to lower average cash
balances in the third quarter of 1998, compared to the same period in 1997.
<PAGE>
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.9 million for the quarter ended September 30, 1998
decreased from $5.4 million for the same period in 1997. Significant variances
are explained as follows:
(1) A $0.5 million decrease in depreciation and amortization expenses from
1997 levels reflects the Company's double-declining balance depreciation method
which results in greater depreciation in the first years an asset is owned and
the effects of the sale of the aircraft in the second quarter of 1998 and the
sale of the mobile offshore drilling unit at the end of 1997, which was
partially offset by the purchase of equipment during 1997 and 1998.
(2) A $0.1 million decrease in administrative expenses from 1997 levels
resulted from decreased administrative costs associated with the short-term
trailer rental facilities in the third quarter of 1998, compared to the same
period in 1997.
(3) A $0.1 million increase in management fees to affiliate reflects the
higher levels of lease revenues in 1998, compared to 1997, due to the purchase
of additional equipment in 1997 and 1998.
(D) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the third quarter of 1998 totaled
$16,000, and resulted from the sale of a railcar with a net book value of
$21,000, for proceeds of $37,000. There was no sales or dispositions of owned
equipment in the third quarter of 1997.
Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities (USPEs)
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):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
--------------------------------
<S> <C> <C>
Mobile offshore drilling unit $ 140 $ 6
Aircraft (796) 405
Marine vessel (1,023) (136)
---------------------------------
Equity in Net Income (Loss) of USPEs $ (1,679) $ 275
=================================
</TABLE>
Mobile offshore drilling unit: As of September 30, 1998 and 1997, the Company
had an interest in an entity that owns a mobile offshore drilling unit. Mobile
offshore drilling unit revenues and expenses were $0.6 million and $0.5 million,
respectively, for the third quarter of 1998, compared to $0.6 million and $0.6
million, respectively, during the same quarter of 1997. Expenses decreased in
the third quarter of 1998, due to the use of the double-declining balance
depreciation method, which results in greater depreciation in the early years an
asset is owned.
Aircraft: As of September 30, 1998, the Company 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 September 30, 1997, the Company owned an interest in a
trust that owned six commercial aircraft, an interest in another trust that owns
four commercial aircraft, and an interest in two trusts that owned a total of
three commercial aircraft, two aircraft engines, and a portfolio of aircraft
rotables. Aircraft lease revenues and expenses were $0.9 million and $1.7
million, respectively, for the third quarter of 1998, compared to $1.4 million
and $1.0 million, respectively, for the same quarter of 1997. Lease revenues
decreased due to the sale of the Company's investment in two trusts containing
ten commercial aircraft and a lower lease rate earned on certain equipment in
the third quarter of 1998 compared to the same period in 1997. The decrease in
lease revenues was offset in part by the Company's investment in two additional
trusts owning a total of two aircraft during 1998. The increase in the expenses
was due primarily to the depreciation on the investment in two additional trusts
during 1998, which was offset, in part, by the sale of the Company's interest in
the two trusts.
Marine vessel: As of September 30, 1998 and 1997, the Company had an interest in
an entity that owns a marine vessel. During the third quarter of 1998, marine
vessel revenues of $0.2 million were offset by depreciation and administrative
expenses of $0.2 million, and a loss on the revaluation of the marine vessel of
$1.0 million. During the same period of 1997, revenues of $0.3 million were
offset by depreciation and administrative expenses of $0.4 million. Revenues
decreased primarily due to a marine vessel that the Company owns an interest in
being off-hire for 20 days in the third quarter of 1998 compared to 2 days in
the same period in 1997. Expenses decreased due to the use of the
double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned and reduced repairs and
maintenance expenses in the third quarter of 1998 compared to the same period in
1997. Loss on revaluation of equipment of $1.0 million during the third quarter
of 1998, resulted from the Company 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 interest required during the same period of 1997.
(F) Net Loss
As a result of the foregoing, the Company had a net loss of $1.8 million for the
third quarter of 1998, compared to $1.0 million during the same period of 1997.
The Company'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 Company's performance in the third quarter of 1998 is not necessarily
indicative of future periods. In the third quarter of 1998, the Company
distributed $2.5 million to Class A members, or $0.50 per weighted-average Class
A unit.
Comparison of the Company's Operating Results for the Nine Months Ended
September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment increased during the nine months ended September 30, 1998, compared to
the same period of 1997. The following table presents lease revenues less direct
expenses by owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
------------------------------
<S> <C> <C>
Marine vessels $ 4,198 $ 1,323
Aircraft 3,490 3,748
Rail equipment 2,578 2,025
Trailers 2,368 2,334
Mobile offshore drilling unit -- 1,056
</TABLE>
Marine vessels: Marine vessel lease revenues and direct expenses were $5.8
million and $1.6 million, respectively, for the nine months ended September 30,
1998, compared to $2.4 million and $1.1 million, respectively, during the same
period of 1997. Marine vessel contribution increased due to the purchase of a
marine vessel at the end of the second quarter of 1997 and two marine vessels in
the nine months ended September 30, 1998.
Aircraft: Aircraft lease revenues and direct expenses were $3.5 million and
$34,000, respectively, during the nine months ended September 30, 1998, compared
to $3.8 million and $29,000, 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.
Rail equipment: Rail equipment lease revenues and direct expenses were $3.0
million and $0.4 million, respectively, for the nine months ended September 30,
1998, compared to $2.4 million and $0.4 million, respectively, during the same
period of 1997. Lease revenues increased in the nine months of 1998, compared to
the same period of 1997 due to the purchase of rail equipment in the first
quarter of 1998.
Trailers: Trailer revenues and direct expenses were $2.8 million and $0.4
million, respectively, for the nine months ended September 30, 1998, compared to
$2.6 million and $0.3 million, respectively, during the same period in 1997.
Lease revenues increased in the nine months ended September 30, 1998, compared
to the same period in 1997 due to the purchase of additional trailers in the
third quarter of 1997 and higher utilization earned on trailers operating in the
short-term rental facilities. Expenses increased due to repairs required on
certain trailers in the nine months ended September 30, 1998, which were not
needed in the same period in 1997.
Mobile offshore drilling unit: Revenues and direct expenses were $1.1 million
and $22,000, respectively, during the nine months ended September 30, 1997. This
rig was sold in the fourth quarter of 1997 as part of the original purchase
agreement that gave the charterers the option to purchase the rig. The Company
did not own any rigs during the nine months ended September 30, 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $13.6 million for the nine months ended September 30,
1998 decreased from $14.8 million for the same period of 1997. Significant
variances are explained as follows:
(1) A $1.7 million decrease in depreciation and amortization expenses from
1997 levels reflects the Company's double-declining balance depreciation method
which results in greater depreciation in the first years an asset is owned and
the effects of the sale of the aircraft in the second quarter of 1998 and the
mobile offshore drilling unit at the end of 1997, which was partially offset by
the purchase of equipment during 1998 and 1997.
(2) A $0.1 million increase in management fees to affiliate reflects the
higher levels of lease revenues in 1998, compared to 1997, due to the additional
purchase of equipment in 1997 and 1998.
(3) A $0.4 million increase in interest expense was due to higher average
outstanding borrowings in the nine months ended September 30, 1998 compared to
the same period in 1997.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the nine months ended September 30,
1998 totaled $2.8 million, and resulted from the sale of an aircraft, rail
equipment and trailers with an aggregate net book value of $2.8 million, net of
outstanding receivables, for proceeds of $5.6 million. Net gain on the
disposition of equipment for the nine months ended September 30, 1997 totaled
$5,000, and resulted from the sale of trailers with a net book value of $22,000,
for proceeds of $27,000.
(D) Equity in Net Income (Loss) 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):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
--------------------------------
<S> <C> <C>
Aircraft $ 4,651 $ 1,297
Mobile offshore drilling unit 382 (467)
Marine vessel (1,241) (340)
---------------------------------
Equity in Net Income of USPEs $ 3,792 $ 490
=================================
</TABLE>
Aircraft: As of September 30, 1998, the Company 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 September 30, 1997, the Company owned an interest in a
trust that owned six commercial aircraft, an interest in another trust that owns
four commercial aircraft, and an interest in two trusts that owned three
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables.
During the nine months ended September 30, 1998, aircraft lease revenues were
$3.4 million and the gain from the sale of the Company's interest in two trusts
that owned commercial aircraft of $6.3 million was offset by expenses of $5.0
million. During the same period in 1997, lease revenues and expenses were $4.4
million and $3.1 million, respectively. Lease revenues decreased due to the sale
of the Company's investment in two trusts containing ten commercial aircraft and
a lower lease rate earned on certain equipment. The decrease in lease revenues
was offset in part by the Company'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
offset in part by the sale of the Company's interest in the two trusts.
Mobile offshore drilling unit: As of September 30, 1998 and 1997, the Company
had an interest in an entity that owns a mobile offshore drilling unit. Mobile
offshore drilling unit revenues and expenses were $1.8 million and $1.4 million,
respectively, for the nine months ended September 30, 1998, compared to $1.4
million and $1.9 million, respectively, during the same period in 1997. Lease
revenue increased in the nine months ended September 30, 1998, compared to the
same period in 1997 due to the increase of the Company's interest in this
investment from 35% to 61% late in the first quarter of 1997. Depreciation
expense decreased in the nine months ended September 30, 1998, compared to the
same period in 1997 due to the Company's double-declining balance depreciation
method which results in greater depreciation in the first years an asset is
owned.
Marine vessel: As of September 30, 1998 and 1997, the Company had an interest in
an entity that owns a marine vessel. During the nine months ended September 30,
1998, marine vessel revenues were $0.8 million offset by depreciation and
administrative expenses of $1.0 million, and a loss on the revaluation of a
marine vessel of $1.0 million. During the same period of 1997, revenues of $0.9
million were offset by depreciation and administrative expenses of $1.2 million.
Revenues decreased primarily due to a marine vessel that the Company owns an
interest in being off-hire for 20 days in the third quarter of 1998 compared to
2 days in the same period in 1997. Expenses decreased due to the use of the
double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned and reduced repairs and
maintenance expenses in the nine months ended September 30, 1998, compared to
the same period in 1997. Loss on revaluation of equipment of $1.0 million for
the nine months ended September 30, 1998, resulted from the Company 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 interest required
during the same period of 1997.
(E) Net Income (Loss)
As a result of the foregoing, the Company had a net income of $5.9 million for
the nine months ended September 30, 1998, compared to net loss of $3.5 million
during the same period of 1997. The Company'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 Company's performance in the nine months
ended September 30, 1998 is not necessarily indicative of future periods. In the
nine months ended September 30, 1998, the Company distributed $7.5 million to
the Class A members, or $1.50 per weighted-average Class A unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 1998, the Company generated $18.2
million in operating cash (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations,
maintain working capital reserves, and maintain the current level of
distributions (total for the nine months ended September 30, 1998 of $8.8
million) to the members.
During the nine months ended September 30, 1998, the Company purchased 39 rail
equipment, 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.
The Manager has entered into a short-term joint $50.0 million credit facility.
As of November 6, 1998, TEC Acquisub, Inc., an indirect wholly-owned subsidiary
of PLM International, Inc., had borrowings of $0.3 million and American Finance
Group, Inc., a subsidiary of PLM International, Inc., had borrowings of $39.1
million under the short-term joint $50.0 million credit facility. No other
eligible borrower had any outstanding borrowings.
(III) EFFECTS OF YEAR 2000
It is possible that the Manager's currently installed computer systems, software
products and other business systems, or the Company's vendors, service providers
and customers, working either alone or in conjunction with other software or
systems, may not accept input of, store, manipulate and output dates on or after
January 1, 2000 without error or interruption (a problem commonly known as the
"Year 2000" problem). As the Company relies substantially on the Manager's
software systems, applications and control devices in operating and monitoring
significant aspects of its business, any Year 2000 problem suffered by the
Manager could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Manager has established a special Year 2000 oversight committee to review
the impact of Year 2000 issues on its software products and other business
systems in order to determine whether such systems will retain functionality
after December 31, 1999. The Manager (a) is currently integrating Year 2000
compliant programming code into its existing internally customized and
internally developed transaction processing software systems and (b) the
Manager's accounting and asset management software systems have either already
been made Year 2000 compliant or Year 2000 compliant upgrades of such systems
are planned to be implemented by the Manager before the end of fiscal 1999.
Although the Manager believes that its Year 2000 compliance program can be
completed by the beginning of 1999, there can be no assurance that the
compliance program will be completed by that date. To date, the costs incurred
and allocated to the Company to become Year 2000 compliant have not been
material. In addition, the Manager believes the future costs allocable to the
Company to become Year 2000 compliant will not be material.
Some risks associated with the Year 2000 problem are beyond the ability of the
Company to control, including the extent to which third parties can address the
Year 2000 problem. The Manager has begun to communicate with vendors, services
providers and customers in order to assess the Year 2000 compliance readiness of
such parties and the extent to which the Company is vulnerable to any
third-party Year 2000 issues. There can be no assurance that the software
systems of such parties will be converted or made Year 2000 compliant in a
timely manner. Any failure by the Manager or such other parties to make their
respective systems Year 2000 compliant could have a material adverse effect on
the business, financial position and results of operations of the Company. The
Manager will make an ongoing effort to recognize and evaluate potential exposure
relating to third-party Year 2000 non-compliance and will develop a contingency
plan if the Manager determines, or is unable to determine, that third-party
non-compliance would have a material adverse effect on the Company's business,
financial position or results of operation.
(IV) ACCOUNTING PRONOUNCEMENTS
In September 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
In September 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after September 15, 1999. As of September 30,
1998, the Manager is reviewing the effect this standard will have on the
Company's consolidated financial statements.
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 start-up activities and organization costs to be expensed as
incurred. The statement requires that initial application be reported as a
cumulative effect of a change in accounting principle. This statement is
effective for the Company's fiscal year ended December 31, 1999, with earlier
application permitted. The Manager is continuing to review this statement for
any other impact it may have on the Company's financial statements.
(V) OUTLOOK FOR THE FUTURE
Several factors may affect the Company's operating performance in 1998 and
beyond, including changes in the markets for the Company's equipment and changes
in the regulatory environment in which the equipment operates.
The Company'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 Company to realize acceptable lease rates on its equipment in
the different equipment markets is contingent on many factors, such as specific
market conditions and economic activity, technological obsolescence, and
government or other regulations. The unpredictability of some of these factors,
or of their occurrence, makes it difficult for the Manager to clearly define
trends or influences that may impact the performance of the Company's equipment.
The Manager continually monitors both the equipment markets and the performance
of the Company's equipment in these markets. The Manager may decide to reduce
the Company's exposure to equipment markets if it determines that it cannot
operate equipment to achieve acceptable rates of return. Alternatively, the
Manager may make a determination to enter equipment markets in which it
perceives opportunities to profit from supply/demand instabilities or other
market imperfections.
The Company intends to use excess cash flow, after payment of expenses, the
maintenance of working capital reserves, and cash distributions, to acquire
additional equipment during the first nine years of the Company's operations
which concludes December 31, 2002. The Manager believes that these acquisitions
may cause the Company to generate additional earnings and cash flow for the
Company.
The Company relies on operating cash flow to meet its operating obligations,
maintain working capital reserves, make cash distributions to Class A and B
unitholders, and increase the Company's equipment portfolio through reinvestment
of any remaining surplus cash available in additional equipment.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, the discussion in this
Form 10-Q contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations, and intentions. The cautionary statements made in this Form 10-Q
should be read as being applicable to all related forward-looking statements
wherever they appear in this Form 10-Q. The Company's actual results could
differ materially from those discussed here.
-9-
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Commitment Letter from First Union National Bank dated October
29, 1998 extending the $50.0 million Warehousing Credit
Agreement until November 2, 1998.
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROFESSIONAL LEASE MANAGEMENT
INCOME FUND I, L.L.C.
By: PLM Financial Services, Inc.
Manager
Date: November 6, 1998 By: /s/ Richard K Brock
---------------------
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
[First Union Logo and Letterhead:
First Union Capital Markets
One First Union Center
Charlotte, North Carolina 28288-0601]
Via Facsimile and Federal Express
Mr. J. Michael Allgood
PLM International, Inc.
One Market, Steuart Street Tower, Suite 800
San Francisco, CA 94105-1301
October 29, 1998
RE: $50,000,000 Warehouse Facility
Dear Mr. Allgood,
We are pleased to confirm that First Union National Bank has approved of the
$50,000,000 Warehouse Commitment for American Finance Group Inc., TEC Acquisub
and PLM Growth Funds VI, VII and PLM Income Fund I, L.L.C. ("Funds").
The Effective date of the facility is 11/02/98, and Expiry date is 11/01/99.
Please call me at (704) 383 9687 if you have any questions.
Sincerely,
/s/ Russell D. Morrison
- ---------------------------------
Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,878
<SECURITIES> 0
<RECEIVABLES> 1,859
<ALLOWANCES> 45
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 102,262
<DEPRECIATION> 34,243
<TOTAL-ASSETS> 97,846
<CURRENT-LIABILITIES> 0
<BONDS> 25,000
0
0
<COMMON> 0
<OTHER-SE> 69,504
<TOTAL-LIABILITY-AND-EQUITY> 97,846
<SALES> 0
<TOTAL-REVENUES> 18,195
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,385
<INCOME-PRETAX> 5,853
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,853
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
