10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-28376 _______________________ PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (Exact name of registrant as specified in its charter) DELAWARE 94-3209289 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 CARILLON PARKWAY, SUITE 200 ST. PETERSBURG, FL 33716 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (727) 803-8200 _______________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) CONDENSED BALANCE SHEETS (in thousands of dollars, except unit amounts) (unaudited)

See accompanying notes to unaudited condensed financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) CONDENSED STATEMENTS OF OPERATIONS (in thousands of dollars, except weighted-average unit amounts) (unaudited)

See accompanying notes to unaudited condensed financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) CONDENSED STATEMENTS OF CHANGES IN MEMBERS' EQUITY FOR THE PERIOD FROM DECEMBER 31, 2000 TO SEPTEMBER 30, 2002 (in thousands of dollars) (unaudited)

See accompanying notes to unaudited condensed financial statements.

See accompanying notes to unaudited condensed financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. Opinion of Management ----------------------- In the opinion of the management of PLM Financial Services, Inc. (FSI or the Manager), the accompanying unaudited condensed financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the unaudited condensed financial position of Professional Lease Management Income Fund I, L.L.C. (the Fund) as of September 30, 2002 and December 31, 2001, the unaudited condensed statements of operations for the three and nine months ended September 30, 2002 and 2001, the unaudited condensed statements of changes in members' equity for the period from December 31, 2000 to September 30, 2002, and the unaudited condensed statements of cash flows for the nine months ended September 30, 2002 and 2001. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the accompanying condensed financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Fund's Annual Report on Form 10-K for the year ended December 31, 2001, on file at the Securities and Exchange Commission. 2. Schedule of Fund Phases -------------------------- The Fund is currently in its investment phase during which the Fund uses a portion of the cash generated from operations and proceeds from asset dispositions to purchase additional equipment. The Manager believes these acquisitions may cause the Fund to generate additional earnings and cash flow for the Fund. Cash generated from operations or disposition proceeds after January 1, 2003 cannot be used to purchase additional equipment. The Fund will terminate on December 31, 2010, unless terminated earlier upon sale of all equipment and certain other events. 3. Reclassification ---------------- Certain amounts in the 2001 financial statements have been reclassified to conform to the 2002 presentations. 4. Cash Distributions ------------------- Cash distributions are recorded when paid and may include amounts in excess of net income that are considered a return of capital. For the three months ended September 30, 2002 and 2001, cash distributions totaled $1.5 million. For the nine months ended September 30, 2002 and 2001, cash distributions totaled $4.4 million and $5.2 million, respectively. Cash distributions to the Class A unitholders of $3.7 million and $2.8 million for the nine months ended September 30, 2002 and 2001, respectively, were deemed to be a return of capital. Cash distributions of $0.8 million related to the results from the third quarter of 2002 will be paid during the fourth quarter of 2002. 5. Transactions with Manager and Affiliates -------------------------------------------- The balance due to affiliates as of September 30, 2002 included $0.2 million due to FSI and its affiliates for management fees. The balance due to affiliates as of December 31, 2001, included $0.3 million due to FSI and its affiliates for management fees. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 5. Transactions with Manager and Affiliates(continued) -------------------------------------------- The Fund's proportional share of the affiliated expenses incurred by the unconsolidated special-purpose entities (USPEs) during 2002 and 2001 is listed in the following table (in thousands of dollars):

These affiliate expenses reduced the Fund's proportional share of the equity interest in the income of USPEs. 6. Equipment --------- Owned equipment held for operating leases is stated at cost. The components of owned equipment were as follows (in thousands of dollars):

As of September 30, 2002, all owned equipment in the Fund's portfolio was on lease except for 135 railcars with a net book value of $1.3 million. As of December 31, 2001, all owned equipment in the Fund portfolio was on lease except for 62 railcars with a net book value of $0.5 million. No equipment was purchased during the nine months ended September 30, 2002; however, the Fund made capital improvements for $9,000. During the nine months ended September 30, 2001, the Fund purchased marine containers for $2.3 million. During the nine months ended September 30, 2002, the Fund disposed of marine containers and a railcar with a net book value of $0.2 million for proceeds of $0.3 million. During the nine months ended September 30, 2001, the Fund disposed of a marine vessel, marine containers, trailers, and railcars with an aggregate net book value of $3.2 million for aggregate proceeds of $4.2 million. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 7. Investments in Unconsolidated Special-Purpose Entities ---------------------------------------------------------- The Fund owns equipment jointly with affiliated programs. These are single purpose entities that do not have any debt or other financial encumbrances. Ownership interest is based on the Fund's contribution towards the cost of the equipment in the USPEs. The Fund's proportional share of equity and income (loss) in each entity is not necessarily the same as its ownership interest. The primary reason for this difference has to do with certain fees such as management and acquisition and lease negotiation fees varying among the owners of the USPEs. The tables below set forth 100% of the assets, liabilities, and equity of the entities in which the Fund has an interest and the Fund's proportional share of equity in each entity as of September 30, 2002 and December 31, 2001 (in thousands of dollars):

1 The Fund owns a 50% interest of the TWA S/N 49183 Trust that owns an MD-82 stage III commercial aircraft. 2 The Fund owns a 50% interest in the TWA MD-82 Trust that owns an MD-82 stage III commercial aircraft. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 7. Investments in Unconsolidated Special-Purpose Entities (continued) ---------------------------------------------------------- The tables below set forth 100% of the revenues, gain on disposition of equipment, direct and indirect expenses, and net income (loss) of the entities in which the Fund has an interest, and the Fund's proportional share of income (loss) in each entity for the three and nine months ended September 30, 2002 and 2001 (in thousands of dollars):

As of September 30, 2002 and December 31, 2001, all jointly-owned equipment in the Fund's USPE portfolio was on lease. 1 The Fund owns a 50% interest of the TWA S/N 49183 Trust that owns an MD-82 stage III commercial aircraft. 2 The Fund owns a 50% interest in the TWA MD-82 Trust that owns an MD-82 stage III commercial aircraft. 3 The Fund owned a 50% interest in the Spear Partnership that owned a container feeder vessel. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 8. Operating Segments ------------------- The Fund operates in five different segments: marine vessel leasing, aircraft leasing, railcar leasing, trailer leasing and marine container leasing. Each equipment leasing segment engages in short-term to mid-term operating leases to a variety of customers. The following tables present a summary of the operating segments (in thousands of dollars):

1 Includes certain assets not identifiable to a specific segment such as cash, certain restricted cash, deferred charges and prepaid expenses. Also includes interest income and costs not identifiable to a particular segment, such as interest expense, and certain amortization, general and administrative and operations support expenses. 2 Includes interest income and costs not identifiable to a particular segment, such as interest expense, and certain amortization, general and administrative and operations support expenses. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 8. Operating Segments (continued) -------------------

9. Net Income (Loss) Per Weighted-Average Class A Unit ---------------------------------------------------------- Net income (loss) per weighted-average Class A unit was computed by dividing net income (loss) attributable to Class A members by the weighted-average number of Class A units deemed outstanding during the period. The weighted-average number of Class A units deemed outstanding during the three and nine months ended September 30, 2002 and 2001 was 4,971,311 units. 10. Debt ---- In July 2002, PLM International, Inc. (PLMI), the parent company of FSI, reached an agreement with the lenders of the $10.0 million warehouse facility to extend the expiration date of the facility to June 30, 2003. The warehouse facility is shared by the Fund, PLM Equipment Growth Fund V, PLM Equipment Growth 2 Includes interest income and costs not identifiable to a particular segment, such as interest expense, and certain amortization, general and administrative and operations support expenses. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 10. Debt (continued) ---- Fund VI, PLM Equipment Growth & Income Fund VII and Acquisub LLC, a wholly owned subsidiary of PLMI. The facility provides for financing up to 100% of the cost of the equipment. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the facility. Individual borrowings may be outstanding for no more than 270 days, with all advances due no later than June 30, 2003. Interest accrues either at the prime rate or LIBOR plus 2.0% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Fund are guaranteed by PLMI. The Fund is not liable for the advances made to other borrowers. As of September 30, 2002, there were no outstanding borrowings on this facility by any of the eligible borrowers. 12. Commitments and Contingencies ------------------------------- In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned subsidiary of FSI, arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by (i) partnerships and managed programs in which FSI serves as the general partner or manager and holds an ownership interest (Program Affiliates) or (ii) partnerships or managed programs in which FSI provides management services but does not hold an ownership interest or third parties (Non-Program Affiliates). These railcars will be delivered over the next three years. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease them to a Non-Program Affiliate. The remaining approximately 30% will either be purchased by other third parties to be managed by PLMI, or by the Program Affiliates. An affiliate of TEC will manage the leased and purchased railcars. Neither TEC nor its affiliate will be liable for these railcars. TEC estimates that the total value of purchased railcars will not exceed $26.0 million with one third of the railcars being purchased in each of 2002, 2003, and 2004. Although the Manager has neither determined which Program Affiliates will purchase the railcars nor the timing of any purchases, it is possible the Fund may purchase some of the railcars. 13. Accounting Pronouncements -------------------------- In April 2002, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS No. 145"). The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. As permitted by the pronouncement, the Fund has elected early adoption of SFAS No. 145 and, accordingly, if the Fund has a loss on extinguishment of long-term debt, it will be reported as a loss in "Other general and administrative expenses". The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants has issued an exposure draft of a proposed statement of position ("SOP") entitled "Accounting for Certain Costs and Activities Related to Property, Plant and Equipment". The Fund has historically accrued legally mandated maintenance such as marine vessel dry-docking and aircraft engine maintenance over the periods prior to the required maintenance date. If the SOP is adopted as proposed, the Fund would reverse all previously accrued maintenance reserves. If this proposed change were in effect at September 30, 2002, the Fund would have been required to reverse maintenance reserves of approximately $2.7 million. Maintenance reserves will change during the remainder of 2002 as maintenance is performed and past maintenance reserves are depleted and additional reserves are recorded. If adopted in its present form, charges related to this proposed change would be taken in the first quarter of 2003 and would be reported as a cumulative effect of an accounting change, in the statements of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ------------------------------------------------------------------- RESULTS OF OPERATIONS ------------------- (I) RESULTS OF OPERATIONS Comparison of the Professional Lease Management Income Fund I, L.L.C.'s (the -------------------------------------------------------------------------------- Fund's) Operating Results for the Three Months Ended September 30, 2002 and 2001 -------------------------------------------------------------------------------- (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance, equipment operating, and asset-specific insurance expenses) on owned equipment decreased during the third quarter of 2002, compared to the same quarter of 2001. Gains or losses from the sale of equipment, interest and other income and certain expenses such as management fees to affiliate, depreciation and amortization, general and administrative expenses and provision for (recovery of) bad debts relating to the operating segments (see Note 8 to the unaudited condensed financial statements), are not included in the owned equipment operation discussion because they are indirect in nature and not a result of operations but the result of owning a portfolio of equipment. The following table presents lease revenues less direct expenses by segment (in thousands of dollars):

Marine containers: Marine container lease revenues and direct expenses were $1.3 million and $14,000, respectively, for the third quarter of 2002, compared to $1.2 million and $19,000, respectively, during the same quarter of 2001. The increase in lease revenues of $24,000 during the third quarter of 2002 compared to 2001 was due to higher utilization earned on the Fund's marine containers. Aircraft: Aircraft lease revenues and direct expenses were $0.8 million and $7,000, respectively, for the third quarter of 2002, compared to $1.0 million and $10,000, respectively, during the same quarter of 2001. The decrease in lease revenues of $0.3 million during the third quarter of 2002 compared to 2001 was due to disposition of an owned aircraft during 2001. Railcars: Railcar lease revenues and direct expenses were $0.7 million and $0.2 million, respectively, for the third quarter of 2002, compared to $0.8 million and $0.2 million, respectively, during the same quarter of 2001. The decrease in railcar lease revenues of $0.1 million was due to the increase in the number of railcars off-lease. Trailers: Trailer lease revenues and direct expenses were $0.2 million and $0.2 million, respectively, for the third quarter of 2002, compared to $0.3 million and $0.1 million, respectively, during the same quarter of 2001. Lease revenues decreased $0.1 million in the third quarter of 2002 compared to the same period in 2001 due to lower lease rates on the Fund's trailer fleet. Direct expenses increased $0.1 million in the third quarter of 2002 compared to 2001 due to higher repair costs. Marine vessel: Marine vessel lease revenues and direct expenses were $1.3 million and $1.3 million, respectively, for the third quarter of 2002, compared to $1.7 million and $0.9 million, respectively, during the same quarter of 2001. Lease revenue decreased $0.5 million in the third quarter of 2002 due to a lower lease rate earned on this marine vessel. Direct operating expenses increased $0.4 million during the third quarter of 2002 due to higher voyage expenses of $0.2 million and higher fuel expense of $0.1 million. (B) Interest and Other Income Interest and other income decreased $0.1 million due to a decrease in the interest rate earned on cash balances in the third quarter of 2002 compared to the same period in 2001. (C) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $3.4 million for the three months ended September 30, 2002 increased from $3.3 million for the same period in 2001. Significant variances are explained as follows: (i) A $0.7 million increase in the provision for bad debts was based on the Manager's evaluation of the collectability of receivables compared to 2001. The provision for bad debts recorded in the third quarter of 2002 was primarily related to one aircraft lessee; (ii) A $0.3 million increase in general and administrative expenses during the three months ended September 30, 2002 was due to an increase of $0.1 million resulting from higher professional costs and $0.2 million resulting from higher administrative costs; (iii) A $0.1 million decrease in interest expense was due to lower average borrowings outstanding during the quarter ended September 30, 2002 compared to the same period in 2001; and (iv) A $0.7 million decrease in depreciation expense from 2001 levels reflects a decrease of $0.4 million resulting from certain assets becoming fully depreciated during 2001 and a decrease of $0.3 million caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned. (D) Gain on Disposition of Owned Equipment Gain on disposition of owned equipment for the third quarter of 2002 totaled $0.1 million which resulted from the sale of marine containers and a railcar with a net book value of $0.1 million for proceeds of $0.3 million. The gain on disposition of owned equipment for the third quarter of 2001 totaled $4,000 which resulted from the sale of marine containers with a net book value of $4,000, for proceeds of $8,000. (E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities (USPEs) Equity in net income (loss) of USPEs represents the Fund's share of the net income or loss generated from the operation of jointly owned assets accounted for under the equity method of accounting. These entities are single purpose and have no debt or other financial encumbrances. The following table presents equity in net income by equipment type (in thousands of dollars):

Aircraft: As of September 30, 2002 and 2001, the Fund owned interests in two trusts that each owns a commercial aircraft. During the three months ended September 30, 2002, the Fund's share of lease revenues of $0.3 million were offset by the Fund's share of depreciation expense, direct expenses, and administrative expenses of $0.2 million. During the same period of 2001, the Fund's share of lease revenues of $0.3 million were offset by the Fund's share of depreciation expense, direct expenses, and administrative expenses of $0.5 million. The decrease in expenses of $0.3 million was due to lower depreciation expense of $0.2 million resulting from one commercial aircraft in a trust becoming fully depreciated during 2001 and $0.1 million decrease in depreciation expense on another commercial aircraft resulting from the double declining-balance method of depreciation which results in greater depreciation in the first years an asset is owned. Marine vessel: As of September 30, 2002 and 2001, the Fund no longer owned an interest in an entity that owned a marine vessel. During the third quarter of 2001, no lease revenues were earned; however, this entity did incur direct expenses and administrative expenses of which the Fund's share was $0.1 million. (F) Net Income (Loss) As a result of the foregoing, the Fund had a net loss of $0.6 million for the three months ended September 30, 2002, compared to net income of $0.6 million during the same period of 2001. The Fund's ability to acquire, operate and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Fund's performance in the third quarter of 2002 is not necessarily indicative of future periods. In the third quarter of 2002, the Fund distributed $1.3 million to Class A members, or $0.25 per weighted-average Class A unit. Comparison of the Fund's Operating Results for the Nine Months Ended September -------------------------------------------------------------------------------- 30, 2002 and 2001 -------------------- (A) Owned Equipment Operations Lease revenues less direct expenses on owned equipment decreased during the nine months ended September 30, 2002, compared to the same period of 2001. The following table presents lease revenues less direct expenses by segment (in thousands of dollars):

Marine containers: Marine container lease revenues and direct expenses were $3.7 million and $43,000, respectively, for the nine months ended September 30, 2002, compared to $4.0 million and $0.1 million, respectively, during the same period of 2001. The decrease in lease revenues of $0.3 million during the nine months ended September 30, 2002 compared to the same period of 2001 was due to lower lease rates earned on the Fund's marine containers. Aircraft: Aircraft lease revenues and direct expenses were $2.3 million and $20,000, respectively, for the nine months ended September 30, 2002, compared to $3.0 million and $21,000, respectively, during the same period of 2001. The decrease in lease revenues of $0.8 million during the nine months ended September 30, 2002 compared to 2001 was due to the disposition of an owned aircraft during 2001. Railcars: Railcar lease revenues and direct expenses were $2.4 million and $0.5 million, respectively, for the nine months ended September 30, 2002, compared to $2.5 million and $0.5 million, respectively, during the same period of 2001. The decrease in lease revenues of $0.1 million during the nine months ended September 30, 2002 compared to the same period of 2001 was due to the increase in the number of railcars off-lease. Marine vessels: Marine vessel lease revenues and direct expenses were $4.5 million and $3.8 million, respectively, for the nine months ended September 30, 2002, compared to $3.7 million and $2.5 million, respectively, during the same period of 2001. Lease revenue increased $0.8 million during the nine months ended September 30, 2002 due a to higher lease rate earned on the marine vessel resulting from a change in lease type from a time charter under which it operated during six of the nine months ended September 30, 2001, to a voyage charter under which it operated during the nine months ended September 30, 2002. Under a voyage charter, the marine vessel earns a higher lease rate but is responsible for additional operating costs. The increase in lease revenues was offset by a $1.3 million increase in operating expenses resulting from higher costs for fuel of $0.7 million and higher port charges of $0.5 million. Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.5 million, respectively, for the nine months ended September 30, 2002, compared to $0.8 million and $0.4 million, respectively, during the same period of 2001. Lease revenue increased $0.1 million in the nine months ended September 30, 2002 compared to the same period in 2001 due to higher utilization on the Fund's trailer fleet. Direct expenses increased $0.1 million in the nine months ended September 30, 2002 compared to 2001 due to higher repair costs. (B) Interest and Other Income Interest and other income decreased $0.3 million due to a decrease in the interest rate earned on cash balances in the nine months ended September 30, 2002 compared to the same period in 2001. (C) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $10.3 million for the period ended September 30, 2002 decreased from $10.6 million for the same period in 2001. Significant variances are explained as follows: (i) A $2.6 million decrease in depreciation expense from 2001 levels reflects the decrease of $1.5 million resulting from certain assets becoming fully depreciated during 2001 and a decrease of $1.1 million caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned; (ii) A $0.2 million decrease in interest expense was due to lower average borrowings outstanding during the period ended September 30, 2002 compared to the same period in 2001; and (iii) A $2.2 million increase in the provision for bad debts was based on the Manager's evaluation of the collectability of receivables compared to 2001. The provision for bad debt expense recorded in the nine months ended September 30, 2002 was primarily related to one aircraft lessee. (iv) A $0.3 million increase in administrative expenses was due to higher professional services. (D) Gain on Disposition of Owned Equipment Gain on disposition of owned equipment for the nine months ended September 30, 2002 totaled $0.2 million which resulted from the sale or disposition of marine containers and a railcar with a net book value of $0.2 million for proceeds of $0.3 million. The gain on disposition of owned equipment for the nine months ended September 30, 2001 totaled $1.0 million which resulted from the sale of a marine vessel, marine containers, trailers, and railcars with a net book value of $3.2 million, for proceeds of $4.2 million. (E) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs) Equity in net income of USPEs represents the Fund's share of the net income generated from the operation of jointly owned assets accounted for under the equity method of accounting. These entities are single purpose and have no debt or other financial encumbrances. The following table presents equity in net income by equipment type (in thousands of dollars):

Aircraft: As of September 30, 2002 and 2001, the Fund owned interests in two trusts that each owns a commercial aircraft. During the nine months ended September 30, 2002, the Fund's share of lease revenues of $0.9 million were offset by the Fund's share of depreciation expense, direct expenses, and administrative expenses of $0.6 million. During the same period of 2001, the Fund's share of lease revenues of $1.2 million and the Fund's share of other income of $0.8 million were offset by the Fund's share of depreciation expense, direct expenses, and administrative expenses of $1.4 million. Lease revenues decreased $0.2 million due to the leases for two commercial aircraft in the trusts being renegotiated at a lower rate. The decrease in expenses of $0.8 million was due to lower depreciation expense of $0.6 million resulting from one commercial aircraft in a trust becoming fully depreciated during 2001, and a $0.2 million decrease on another commercial aircraft resulting from the double declining-balance method of depreciation which results in greater depreciation in the first years an asset is owned. Marine vessel: As of September 30, 2002 and 2001, the Fund no longer owned an interest in an entity that owned a marine vessel. During the nine months ended September 30, 2001, the Fund's share of lease revenues of $0.4 million and the Fund's share of the gain of $0.3 million from the sale of a marine vessel entity in which the Fund owned an interest were offset by the Fund's share of depreciation expense, direct expenses, and administrative expenses of $0.4 million. (F) Net Income (Loss) As a result of the foregoing, the Fund had a net loss of $0.6 million for the nine months ended September 30, 2002, compared to net income of $2.4 million during the same period of 2001. The Fund's ability to acquire, operate and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors. Therefore, the Fund's performance in the nine months ended September 30, 2002 is not necessarily indicative of future periods. In the nine months ended September 30, 2002, the Fund distributed $3.7 million to Class A members, or $0.75 per weighted-average Class A unit. (II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, the Manager reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets, allowance for doubtful accounts, reserves related to legally mandated equipment repairs and contingencies and litigation. These estimates are based on the Manager's historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Manager believes, however, that the estimates, including those for the above-listed items, are reasonable and that actual results will not vary significantly from the estimated amounts. The Manager believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Fund's financial statements: Asset lives and depreciation methods: The Fund's primary business involves the purchase and subsequent lease of long-lived transportation and related equipment. The Manager has chosen asset lives that it believes correspond to the economic life of the related asset. The Manager has chosen a deprecation method that it believes matches the benefit to the Fund from the asset with the associated costs. These judgments have been made based on the Manager's expertise in each equipment segment that the Fund operates. If the asset life and depreciation method chosen does not reduce the book value of the asset to at least the potential future cash flows from the asset to the Fund, the Fund would be required to record a loss on revaluation. Likewise, if the net book value of the asset was reduced by an amount greater than the economic value has deteriorated, the Fund may record a gain on sale upon final disposition of the asset. Impairment of long-lived assets: On a regular basis, the Manager reviews the carrying value of its equipment and investments in USPEs to determine if the carrying value of the assets may not be recoverable in consideration of the current economic conditions. This requires the Manager to make estimates related to future cash flows from each asset as well as the determination if the deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, the Fund may be required to record additional impairment charges. Allowance for doubtful accounts: The Fund maintains allowances for doubtful accounts for estimated losses resulting from the inability of the lessees to make the lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of the lessees to make the required payments. If the financial condition of the Fund's lessees were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the lessees were to improve or if legal remedies to collect past due amounts were successful, the allowance for doubtful accounts may need to be reduced and income would be increased. Reserves for repairs: The Fund accrues for legally required repairs to equipment such as dry docking for marine vessels and engine overhauls to aircraft engines over the period prior to the required repairs. The amount that is reserved is based on the Manager's expertise in each equipment segment, the past history of such costs for that specific piece of equipment and discussions with independent, third party equipment brokers. If the amount reserved is not adequate to cover the cost of such repairs or if the repairs must be performed earlier than the Manager estimated, the Fund would incur additional repair and maintenance or equipment operating expenses. Contingencies and litigation: The Fund is subject to legal proceedings involving ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Fund may be required to record additional litigation expense. (III) FINANCIAL CONDITION - CAPITAL RESOURCES AND LIQUIDITY For the nine months ended September 30, 2002, the Fund generated operating cash of $5.1 million (net cash provided by operating activities plus non-liquidating distributions from USPEs) to meet its operating obligations, pay debt and interest payments and make distributions (total of $4.4 million for nine months ended September 30, 2002) to the members. During the nine months ended September 30, 2002, the Fund disposed of marine containers and a railcar for proceeds of $0.3 million. Restricted cash increased during the nine months ended September 30, 2002 due to the deposit of $0.7 million into an escrow account related to collection efforts from an aircraft lessee. Accounts receivable decreased $0.1 million in the nine months ended September 30, 2002. This decrease was due to increase in the allowance for bad debts of $2.2 million due to the Manager's evaluation of the collectibility of accounts receivable. This decrease was partially offset by an increase of $2.1 million during the nine months ended September 30, 2002 due to the timing of cash receipts. Investments in USPEs decreased $0.5 million during the nine months ended September 30, 2002 due to cash distributions of $0.9 million from the USPEs to the Fund being partially offset by income of $0.3 million that was recorded by the Fund for its equity interests in the USPEs. Accounts payable increased $0.7 million during the nine months ended September 30, 2002 due to the timing of cash payments to vendors and lenders. Lessee deposits and reserve for repairs increased $0.2 million during the nine months ended September 30, 2002 due to the accrual of marine vessel dry-docking reserves. Cash distributions of $0.8 million related to the results from the third quarter of 2002 will be paid during the fourth quarter of 2002. The Fund is scheduled to make an annual debt payment of $3.0 million to the lenders of the notes payable on December 31, 2002. The cash for this payment will come from operations and proceeds from equipment dispositions. In July 2002, PLM International Inc. (PLMI) reached an agreement with the lenders of the $10.0 million warehouse facility to extend the expiration date of the facility to June 30, 2003. The warehouse facility is shared by the Fund, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, and Acquisub LLC, a wholly owned subsidiary of PLMI. The facility provides for financing up to 100% of the cost of the equipment. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the facility. Individual borrowings may be outstanding for no more than 270 days, with all advances due no later than June 30, 2003. Interest accrues either at the prime rate or LIBOR plus 2.0% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Fund are guaranteed by PLMI. The Fund is not liable for the advances made to other borrowers. As of November 13, 2002, the Fund had no borrowings outstanding under this facility and there were no other borrowings outstanding under this facility by any other eligible borrower. In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned subsidiary of FSI, arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by (i) partnerships and managed programs in which FSI serves as the general partner or manager and holds an ownership interest (Program Affiliates) or (ii) partnerships or managed programs in which FSI provides management services but does not hold an ownership interest or third parties (Non-Program Affiliates). These railcars will be delivered over the next three years. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease them to a Non-Program Affiliate. The remaining approximately 30% will either be purchased by other third parties to be managed by PLMI, or by the Program Affiliates. An affiliate of TEC will manage the leased and purchased railcars. Neither TEC nor its affiliate will be liable for these railcars. TEC estimates that the total value of purchased railcars will not exceed $26.0 million with one third of the railcars being purchased in each of 2002, 2003, and 2004. Although the Manager has neither determined which Program Affiliates will purchase the railcars nor the timing of any purchases, it is possible the Fund may purchase some of the railcars. (IV) ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS No. 145"). The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. As permitted by the pronouncement, the Fund has elected early adoption of SFAS No. 145 and, accordingly, if the Fund had a loss on extinguishment of long-term debt, it would have been reported the loss in "Other general and administrative expenses" as an extraordinary item in its statements of operations. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants has issued an exposure draft of a proposed statement of position ("SOP") entitled "Accounting for Certain Costs and Activities Related to Property, Plant and Equipment". The Fund has historically accrued legally mandated maintenance such as marine vessel dry-docking and aircraft engine maintenance over the periods prior to the required maintenance date. If the SOP is adopted as proposed, the Fund would reverse all previously accrued maintenance reserves. If this proposed change were in effect at September 30, 2002, the Fund would have been required to reverse maintenance reserves of approximately $2.7 million. Maintenance reserves will change during the remainder of 2002 as maintenance is performed and past maintenance reserves are depleted and additional reserves are recorded. If adopted in its present form, charges related to this proposed change would be taken in the first quarter of 2003 and would be reported as a cumulative effect of an accounting change, in the statements of operations. (V) OUTLOOK FOR THE FUTURE Several factors may affect the Fund's operating performance in the remainder of 2002 and beyond, including changes in the markets for the Fund's equipment and changes in the regulatory environment in which the equipment operates. The Fund's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors. Other factors affecting the Fund's contribution in the remainder of 2002 and beyond include: (1) The cost of new marine containers has been at historic lows for the past several years, which has caused downward pressure on per diem lease rates for this type of equipment. Starting in 2003 and continuing through 2005, a significant number of the Fund's marine containers currently on a fixed rate lease will be switching to a lease based on utilization. The Manager anticipates that this will result in a significant decrease in lease revenues; (2) Railcar freight loadings in the United States and Canada decreased 1% and 3%, respectively, through the first nine months of 2002. There has been, however, a recent increase for some of the commodities that drive demand for those types of railcars owned by the Fund. It will be some time, however, before this translates into new leasing demand by shippers since most shippers have idle railcars in their fleets; (3) Marine vessel freight rates are dependent upon the overall condition of the international economy. Freight rates earned by the Fund's marine vessel began to decrease during the latter half of 2001 and continued through the first nine months of 2002. This trend is expected to continue during the remainder of 2002 or until international economies stabilize and begin to improve; (4) Utilization of intermodal trailers owned by the Fund decreased 15% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. This decline was similar to the decline in industry wide utilization. As the Fund's trailers are smaller than many shippers prefer, the Manager expects continued declines in utilization over the next few years. Additionally, one of the major shippers that leased the Fund's trailers has entered bankruptcy. While the Fund did not have any outstanding receivables from the company, its bankruptcy may cause a further decline in performance of the trailer fleet in the future; and (5) The airline industry began to see lower passenger travel during 2001. The events of September 11, 2001, along with a recession in the United States have continued to adversely affect the market demand for both new and used commercial aircraft and to significantly weaken the financial position of most major domestic airlines. As a result of this, the Fund has had to renegotiate leases on its owned aircraft and partially owned aircraft during 2001 that will result in a decrease in revenues during 2002. The Manager believes that there is a significant oversupply of commercial aircraft available and that this oversupply will continue for some time. These events have had a negative impact on the fair market value of the Fund's owned and partially owned aircraft. Although no revaluations were required during 2002 to these aircraft, the Manager does not expect these aircraft to return to their September 11, 2001 values. During 2001, the lessee of three Stage II Boeing 737-200 commercial aircraft notified the Manager of its intention to return this aircraft. The lessee is located in Brazil, a country experiencing severe economic difficultly. As of September 30, 2002, the lessee was thirteen lease payments in arrears to the Fund. The Fund has a security deposit from this lessee that could be used to pay a portion of the amount due. During October 2001, the Manager sent a notification of default to the lessee. The lease, with an expiration date of October 2002, has certain return condition requirements for the aircraft. The Manager recorded an allowance for bad debts for the amount due less the security deposit. During October 2002, the Manager reached an agreement with the lessee of this aircraft for the past due lease payments and agreed to re-lease two of these aircraft to this lessee until March 2003 at a lower lease rate. In order to give the lessee an incentive to make timely payments in accordance with the agreement, the Manager gave the lessee a discount on the total amount due. If the lessee fails to comply with the payment schedule in the agreement, the discount provision will be waived and the full amount again becomes payable. The lessee made an initial payment during October 2002, to be followed by 23 equal monthly installments beginning in November 2002. Unpaid outstanding amounts will accrue interest at a rate of 5%. Due to the uncertainty of ultimate collection, the Manager will continue to fully reserve the unpaid outstanding balance from this lessee. (6) The Manager has seen an increase in its insurance premiums on its equipment portfolio and is finding it more difficult to find an insurance carrier with which to place the coverage. Premiums for aircraft have increased over 50% and for other types of equipment the increases have been over 25%. The increase in insurance premiums caused by the increased rate will be partially mitigated by the reduction in the value of the Fund's equipment portfolio caused by the events of September 11, 2001 and other economic factors. The Manager has also experienced an increase in the deductible required to obtain coverage. This may have a negative impact on the Fund in the event of an insurance claim. The ability of the Fund to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, and government or other regulations. The unpredictability of some of these factors, or of their occurrence, makes it difficult for the Manager to clearly define trends or influences that may impact the performance of the Fund's equipment. The Manager continually monitors both the equipment markets and the performance of the Fund's equipment in these markets. The Manager may decide to reduce the Fund's exposure to equipment markets if it determines that it cannot operate equipment to achieve acceptable rates of return. Alternatively, the Manager may make a determination to enter equipment markets in which it perceives opportunities to profit from supply/demand instabilities or other market imperfections. The Fund may invest cash flow and equipment sales proceeds, if any, after payment of operating expenses, loan principal and interest on debt, the maintenance of working capital reserves, and cash distributions to the members, generated prior to January 1, 2003 into additional equipment. The Manager believes these acquisitions may cause the Fund to generate additional earnings and cash flow for the Fund. Cash flow and disposition proceeds generated from operations after January 1, 2003 cannot be used to purchase additional equipment. The Fund will terminate on December 31, 2010, unless terminated earlier upon sale of all equipment and by certain other events. (VI) FORWARD-LOOKING INFORMATION Except for the historical information contained herein, this Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements of the Fund's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Fund's actual results could differ materially from those discussed here. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------------- The Fund's primary market risk exposure is that of currency devaluation risk. During the nine months ended September 30, 2002, 77% of the Fund's total lease revenues from wholly-and partially-owned equipment came from non-United States domiciled lessees. Most of the leases require payment in United States (U.S.) currency. If these lessees' currency devalues against the U.S. dollar, the lessees could encounter difficulty in making the U.S. dollar denominated lease payment. ITEM 4. CONTROLS AND PROCEDURES ------------------------- Within the 90-day period prior to the filing of this report, evaluations were carried out under the supervision and with the participation of the Manager's management, including its President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon those evaluations, the President and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes have been made in the Fund's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluations. (This space intentionally left blank) PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ------------------------------------- (a) Exhibits -------- 1. October 2002 purchase agreement between PLM Transportation Equipment Corp., Inc. and Trinity Tank Car, Inc. 2. Settlement Agreement between PLM Worldwide Leasing Corp. and Varig S.A. dated October 11, 2002. (b) Reports on Form 8-K ---------------------- None. (This space intentionally left blank) ------ CONTROL CERTIFICATION ---------------------- I, James A. Coyne, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Professional Lease Management Income Fund I, L.L.C. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this quarterly report is prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and board of Managers: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 By: /s/ James A. Coyne --------------------- James A. Coyne President ------ CONTROL CERTIFICATION ---------------------- I, Richard K Brock, certify that: 5. I have reviewed this quarterly report on Form 10-Q of Professional Lease Management Income Fund I, L.L.C. 6. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 7. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 8. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: d) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this quarterly report is prepared; e) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and f) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and board of Managers: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 By: /s/ Richard K Brock ---------------------- Richard K Brock Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. By: PLM Financial Services, Inc. Manager Date: November 13, 2002 By: /s/ Richard K Brock ___________ ---------------------- Richard K Brock Chief Financial Officer CERTIFICATION The undersigned hereby certifies, in their capacity as an officer of the Manager of Professional Lease Management Income Fund I, L.L.C. (the Fund), that the Quarterly Report of the Fund on Form 10-Q for the period ended September 30, 2002, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Fund at the end of such period and the results of operations of the Fund for such period. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. By: PLM Financial Services, Inc. Manager Date: November 13, 2002 By: /s/ James A. Coyne --------------------- James A. Coyne President Date: November 13, 2002 By: /s/ Richard K Brock ---------------------- Richard K Brock Chief Financial Officer

PROFESSIONAL LEASE MANAGEMENT INCOME FUND I LLC 10-Q