.
TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 25, 1997
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of TCC Equipment Income Fund (the
"Partnership") the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
The financial statements included in the enclosed Annual Report on Form 10K do
not reflect a change from the preceding year in any accounting principles or
practices, or in the method of applying any such principles or practices.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-17688
TCC EQUIPMENT INCOME FUND (a California limited
partnership) (Exact name of Registrant as
specified in its charter)
California 94-3045888
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
650 California Street, 16th Floor,
San Francisco, CA 94108
(Address of Principal Executive Offices) (ZIP Code)
(415) 434-0551
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY UNITS (THE "UNITS")
(TITLE OF CLASS)
LIMITED PARTNERSHIP INTERESTS (UNDERLYING THE UNITS)
(TITLE OF CLASS)
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. [ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and ask prices of such
stock, as of a specified date within 60 days prior to the date of the filing.
Not Applicable.
Documents Incorporated by Reference
The Registrant's Prospectus as contained in Post-effective Amendment No. 2 to
the Registrant's Registration Statement, as filed with the Commission on
November 30, 1988 as supplemented by Supplement No. 6 filed with the Commission
under Rule 424(b)(3) of the Securities Act of 1933 on October 16, 1989.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
For more detailed information about the Registrant's business, see "Business of
the Partnership" in the Registrant's Prospectus as supplemented.
(a) General Development of Business
The Registrant is a California limited partnership formed as of August
3, 1987 to purchase, own, operate, lease, and sell equipment (the
Equipment) used in the containerized cargo shipping industry. The
Registrant commenced offering units representing limited partnership
interests (Units) to the public on October 26, 1987 in accordance with
its Registration Statement and ceased to offer such Units as of October
26, 1989. The Registrant raised a total of $29,491,000 from the
offering.
See Item 10 herein for a description of the Registrant's General
Partners.
(b) Financial Information About Industry Segments
Inapplicable.
(c) Narrative Description of Business
(c)(1)(i) A container leasing company generally, and the Registrant
specifically, is an operating business comparable to a rental car
business. A customer can lease a car from a bank leasing
department for a monthly charge which represents the cost of
the car, plus interest, amortized over the term of the lease; or
the customer can rent the same car from a rental car company at
a much higher daily lease rate. The customer is willing to
pay the higher daily rate for the convenience and value-added
features provided by the rental car company, the most important of
which is the ability to pick up the car where it is most
convenient, use it for the desired period of time, and then
drop it off at a location convenient to the customer. Rental car
companies compete with one another on the basis of lease rates,
availability of cars, and the provision of additional services.
They generate revenues by maintaining the highest lease rates and
the highest utilization factors that market conditions will allow,
and by augmenting this income with proceeds from sales of
insurance, drop-off fees, and other special charges. A large
percentage of lease revenues earned by car rental companies are
generated under corporate rate agreements wherein, for a stated
period of time, employees of a participating corporation can
rent cars at specific terms, conditions and rental rates. Buying
the cars at fleet prices and selling them in the secondary market
are also key elements to the successful operation of a rental car
business.
Container leasing companies and the Registrant operate in a
similar manner by owning and leasing a worldwide fleet of new and
used transportation containers to international shipping companies
hauling various types of goods among numerous trade routes. In
addition to paying a daily rental rate, all lessees must either
provide physical damage and liability insurance or purchase a
damage waiver from the Registrant, in which case the Registrant
agrees to pay the cost of repairing any physical damage to
containers caused by lessees, special handling fees and/or
drop-off charges may also be charged in certain markets. Container
leasing companies compete with one another on the basis of lease
rates, availability of equipment and services provided. Revenues
and profits are generated by maintaining the highest lease rates
and the highest equipment utilization factors allowed by market
conditions. Rental revenues from containers result primarily under
master leases which are comparable to the corporate rate
agreements used by rental car companies. The master leases provide
that container leasing customers, for a specified period of time,
may rent containers at specific terms, conditions and rental
rates. Although the terms of the master lease governing each
container do not vary, the number of containers in use can vary
from time to time within the term of the master lease. The terms
and conditions of the master lease provide that the lessee pays a
daily rental rate for the entire time the container is in his
possession (whether or not he is actively using it), is
responsible for any damage, and must insure the container against
liabilities. For a more detailed discussion of the leases for the
Partnership's Equipment see "Leasing Policy" under "Business of
the Partnership" in the Registrant's Prospectus as supplemented.
Rental car companies usually purchase only new cars, but since
containers are completely standardized, a used container in
serviceable condition usually rents for the same rate as a new one
although the purchase price is lower. The Registrant also sells
containers in the course of its business if opportunities arise or
at the end of the container's useful life. See "Business of the
Partnership" in Registrant's Prospectus, as supplemented.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) Inapplicable.
(c)(1)(vi) Inapplicable.
(c)(1)(vii) No single lessee had rental billing for the year ended December
31, 1996 which was 10% or more of the total rental billing of the
Registrant.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) There are approximately 80 container leasing companies of which
the top ten control approximately 93% of the total equipment held
by all container leasing companies. The top two container leasing
companies control approximately 28% each of the total equipment
held by all container leasing companies. Textainer Equipment
Management Limited, an Associate General Partner of the Registrant
and the manager of its marine container equipment, is the third
largest container leasing company and controls approximately 9%
of the equipment held by all container leasing companies. The
Registrant alone is not a material participant in the worldwide
container leasing market. The principal methods of competition
are price and the provision of worldwide service to the
international shipping community. Additionally, shipping alliances
and other operational consolidations among shipping lines have
recently allowed shipping lines to operate with fewer containers,
thereby decreasing the demand for leased containers. Competition
among lessors such as the Registrant has, therefore, increased.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant has no employees. Textainer Financial Services
Corporation (TFS), the Managing General Partner of the Registrant,
is responsible for the overall management of the business of the
Registrant and has 26 employees. Textainer Equipment Management
Limited (TEM), an Associate General Partner, is responsible for
the management of the leasing operations of the Registrant and has
a total of 138 employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The Registrant is involved in the leasing of shipping containers to
international shipping companies for use in world trade and
approximately 15.62%,14.18% and 16.63%, of the Registrant's rental
revenue during years ended December 31, 1996, 1995, and 1994,
respectively, was derived from operations sourced or terminated
domestically. These percentages do not reflect the proportion of the
Partnership's income from operations generated in domestic waterways.
Substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations. See "Business of
the Partnership" and for discussion of the risks of leasing containers
for use in world trade, see "Risk Factors" in the Registrant's
Prospectus, as supplemented.
ITEM 2. PROPERTIES.
As of December 31, 1996, the Registrant owned the following types and quantities
of equipment:
<TABLE>
<CAPTION>
<S> <C> <C>
20-foot standard dry freight containers..................... 3,259
20-foot refrigerated containers............................. 121
40-foot standard dry freight containers..................... 3,274
40-foot high cube dry freight containers.................... 1,195
-----
7,849
</TABLE>
During December 1996, approximately 80% of these shipping containers were on
lease to international shipping companies, and the balance were being stored at
shipping container manufacturers' locations and at a large number of storage
depots located worldwide.
For information about the Registrant's property, see "Business of the
Partnership" in the Registrant's Prospectus, as supplemented.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not subject to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Inapplicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
(a)(1)(i) The units of limited partnership interest in the Registrant
are not publicly traded and there is no established trading
market for such Units. The Registrant has a program whereby
Limited Partners may redeem Units for a specified redemption
price.
(a)(1)(ii) Inapplicable.
(a)(1)(iii) Inapplicable.
(a)(1)(iv) Inapplicable.
(a)(1)(v) Inapplicable.
(a)(2) Inapplicable.
(b) Holders.
(b)(1) As of January 1, 1997, there were 2,010 holders of record
of limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
For details of the distributions which are made quarterly by the Registrant to
its limited partners, see Item 6, "Selected Financial Data."
ITEM 6. SELECTED FINANCIAL DATA.
(Amounts in thousands except for per unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental Income....................... $ 5,383 6,479 6,158 5,994 6,785
Net Earnings........................ $ 2,382 2,668 1,792 1,570 2,372
Net Earnings Per Unit
of Limited Partnership
Interest.......................... $ 1.60 1.79 1.20 1.04 1.58
Distributions Per Unit of
Limited Partnership
Interest.......................... $ 2.00 1.95 1.68 2.20 2.40
Distributions Per Unit of
Limited Partnership
Interest representing
a return of capital............... $ 0.40 0.16 0.48 1.16 0.82
Total Assets........................ $ 20,049 20,914 20,613 21,661 23,137
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(Dollar amounts in thousands except for unit and per unit amounts)
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the years ended December 31, 1996,
1995 and 1994. Please refer to the Financial Statements and Notes thereto in
connection with the following discussion.
Liquidity and Capital Resources
From October 1987 until October 1989 the Partnership was involved in the
offering of limited partnership interests to the public. On October 26, 1989,
the Partnership's offering of limited partnership interests was closed at
$29,491.
The Partnership has set up a program whereby limited partners may redeem units
for a specified redemption value. The redemption price is set by formula and
varies depending on length of time the units are outstanding. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. The Partnership did not redeem any units for the
year ended December 31, 1996.
Prior to its distribution or reinvestment in additional Equipment, the
Partnership invests working capital and cash flow from operations in short-term,
highly liquid investments. It is the policy of the Partnership to maintain a
minimum working capital reserve in an amount which is the lesser of (i) 1% of
capital contributions or (ii) $100. At December 31, 1996, the Partnership's cash
of $1,253 was primarily invested in a market-rate account.
During the year ended December 31, 1996, the Partnership declared cash
distributions to limited partners pertaining to the fourth quarter of 1995 and
the first three quarters of 1996, in the amount of $2,944. These distributions
represent a return of 10% of original capital (measured on an annualized basis)
on each unit. On a cash basis, all of these distributions were from operations.
On a GAAP basis, $592 of these distributions were a return of capital and the
balance was from net earnings.
At December 31, 1996, the Partnership had committed to purchase Equipment at an
approximate total purchase price of $221, which includes acquisition fees of
$11. The Partnership expects to fund the purchase of Equipment with its cash on
hand. In the event the Partnership decides not to purchase the Equipment, one of
the General Partners or its affiliates will retain the Equipment for its own
account.
For the year ended December 31, 1996, the Partnership had net cash provided by
operating activities of $3,907 compared with $4,528 for the equivalent period in
1995. This decrease was primarily attributable to a decrease in net earnings of
$286. Net earnings decreased 11% in 1996 from 1995 due to a 17% decrease in
rental revenue and a 5% increase in direct container expenses. The decrease in
rental revenues between periods was due to a decline in utilization, rental
rates and fleet size. The increase in direct container expenses between periods
was primarily due to a decline in utilization.
Certain factors have adversely affected and may continue to adversely affect the
Partnership's operations. Shipping lines, which are the Partnership's principal
lessees, continue to experience over-capacity which is directly related to: (i)
the delivery of new and much larger ships and, (ii) a general slow-down in the
growth of world containerized cargo trade. This over-capacity has led to lower
shipping rates, resulting in shipping lines' need to reduce operating costs. The
drive to reduce costs, coupled with the availability of inexpensive financing
and lower container prices, encouraged shipping lines to purchase, rather than
lease, a greater number of new containers in 1996 than in previous years. All of
these factors have led to: (i) a downward pressure on container lease rates;
(ii) an increase in leasing incentives and other discounts being granted to
shipping lines by container lessors; and (iii) a decline in utilization of
leased containers. Declining container utilization is discussed more fully below
under "Results of Operations".
Net cash provided by investing activities (the purchase and sale of rental
Equipment) for the year ended December 31, 1996 was $276 compared to net cash
used in investing activities of $1,755 for the same period in 1995. The
difference reflects that, on a cash basis, the Partnership sold more Equipment
than it bought in 1996, whereas its purchases of Equipment exceeded sales by
$1,755 in 1995. The Partnership has a significant amount of used Equipment in
its portfolio and expects to sell the Equipment periodically when it reaches the
end of its useful marine life. Consistent with its investment objectives, and
the General Partners' determination that Equipment can be profitably sold or
bought at any time, the Partnership intends to reinvest all or a significant
amount of proceeds from Equipment sales in additional Equipment.
Results of Operations
The Partnership's income from operations, which consists of rental income,
container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses were directly related to the size of
the container fleet ("inventory") during the years ended December 31, 1996, 1995
and 1994. The following is a summary of the container fleet (in units) available
for lease during those periods:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Opening inventory....................... 8,471 8,245 8,140
Closing inventory....................... 7,849 8,471 8,245
Average................................. 8,160 8,358 8,193
</TABLE>
The decline in the average container fleet of 2% from 1995 to 1996 was primarily
due to the Partnership selling more Equipment than it purchased during 1996. The
decline in the container fleet contributed to an overall decline in rental
income from 1995 to 1996.
Rental income and direct container expenses are also affected by lease
utilization percentages for the equipment which were 81%, 90% and 88% on average
during the years ended December 31, 1996, 1995 and 1994, respectively.
The following is a comparative analysis of the results of operations for the
years ended December 31, 1996, 1995 and 1994.
The Partnership's income from operations for the years ended December 31, 1996
and 1995 was $1,945 and $2,447, respectively, on rental income of $5,383 and
$6,479, respectively. The decrease in rental income of $1,096, a decrease of 17%
from the year ended December 31, 1995 to 1996, was primarily attributable to
income from container rentals, the major component of total revenue, which
decreased by $887, or 16%, from 1995 to 1996. Income from container rentals is
largely dependent upon three factors: equipment available for lease (average
inventory), average on-hire (utilization) percentage, and average daily rental
rates. Average inventory decreased 2%, average on-hire utilization decreased by
10% and average daily rental rates decreased 4% from the year ended December 31,
1995 to the year ended December 31, 1996.
The Partnership's income from operations for the years ended December 31, 1995
and 1994 was $2,447 and $1,618, respectively, on rental income of $6,479 and
$6,158, respectively. The increase in rental income of $321, or 5% from the year
ended December 31, 1994 to December 31, 1995 was primarily attributable to
rental income from container rentals, the major component of total revenue,
which increased by $305, or 6% from 1994 to 1995. Average inventory increased
2%, average daily rental rates were fairly stable and average on-hire
utilization increased 2%, from the year ended December 31, 1994 to the year
ended December 31, 1995.
Container utilization began to decline in late 1995 and that decline has
persisted throughout 1996 and into 1997. The General Partners believe that this
decrease in demand for leased containers is the result of recent adverse changes
in the business of its shipping line customers. These changes consist
principally of: (i) a general slowdown in the growth of world containerized
cargo trade, particularly in the Asia-North America and Asia-Europe trade
routes; (ii) over-capacity resulting from the 1996 and 1997 additions of new,
larger ships to the existing container ship fleet at a rate in excess of the
growth rate in containerized cargo trade; (iii) shipping line alliances and
other operational consolidations that have allowed shipping lines to operate
with fewer containers thereby decreasing the demand for leased containers; and
(iv) as noted above, shipping lines' purchased, rather than leased a greater
number of containers. All of these factors have led to lower utilization of
leased containers, which in turn has led to downward pressure on container
rental rates and higher leasing incentives and other discounts for leased
containers, further eroding Partnership profitability. For the near term, the
General Partners do not foresee any changes in this outlook and caution that
both utilization and lease rates could continue to decline, adversely affecting
the Partnership's operating results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases. There
were five direct financing leases at December 31, 1996 and seven direct
financing leases at December 31, 1995 and 1994.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for handling and returning containers less
credits granted to the lessees for leasing containers from less desirable
locations (location income), income from handling and returning marine
containers and income from charges to lessees for a damage protection plan
(DPP). For the year ended December 31, 1996, the total of these other rental
income items decreased by $209 or 26% over the equivalent period in 1995. The
primary cause of the decrease in other revenue was location income, which
decreased by $179. The decrease in location income is largely due to lower
demand, which drove drop-off charges to lessees down and increased credits to
lessees for picking up units at less desirable locations.
For the year ended December 31, 1995, the total of these other rental income
items increased by $16 or 2% over the equivalent period in 1994, primarily due
to an increase in location income which increased by $108, offset by decreases
in handling and DPP income of $49 and $40, respectively. Location income
increased due to higher demand, handling income decreased primarily due to
increased utilization and a decrease in per unit charges for handling and
returning containers. DPP decreased due to cancellation of this coverage by a
large lessee.
Direct container expenses (excluding bad debt expense) increased by $45, or 5%,
from the year ended December 31, 1995, to the same period in 1996. The primary
components of this increase were increases in storage and DPP expense of $127
and $15, respectively, offset slightly by decreases in maintenance and repair
costs of $21. Storage costs increased due to lower utilization rates in the year
ended December 31, 1996, compared to the same period in 1995. Maintenance and
repair costs decreased due to the return of fewer units that required repairs
and a lower average cost to repair units in the year ended December 31, 1996,
compared to the equivalent period in 1995.
Direct container expenses (excluding bad debt expense) decreased by $243, a 22%
decrease, from the year ended December 31, 1994, to the same period in 1995. The
primary components of this decrease were decreased storage costs of $70, lower
maintenance and repair costs of $60 and a decrease of $55 in accrued expenses
under the damage protection plan. Storage costs decreased due to higher
utilization rates which result in fewer units being stored. Maintenance and
repair costs decreased due to the return of fewer units that required repairs
and a lower average cost to repair those units in the year ended December 31,
1995 compared to the year ended December 31, 1994.
Bad debt expense decreased by $154 from the year ended December 31, 1995 to the
equivalent period in 1996, due to lower specific reserve requirements in the
year ended December 31, 1996, than in the same period in 1995, primarily for two
specific lessees. Similarly, bad debt expense decreased by $201 from the year
ended December 31, 1994, to the same period in 1995, due to lower specific
reserve requirements in the year ended December 31, 1995.
Depreciation expense decreased by $310, or 17%, from the year ended December 31,
1995, to the same period in 1996. Depreciation expense decreased by $105, or 5%,
from the year ended December 31, 1994, to the same period in 1995. These
decreases were primarily attributable to certain equipment, acquired used, which
has now been fully depreciated.
In the fourth quarter of 1996, a pretax charge of $114 was recorded to write
down the value of the refrigerated containers owned by the Partnership. The
carrying value of these refrigerated containers was written down to an amount
equal to the estimated future discounted cash flows from these containers and
the charge was included in depreciation expense.
Management fees were 9.4% and 8.6% of rental income for the years ended December
31, 1996 and 1995, respectively. Incentive management fees, which are based on
the Partnership's distributions to the limited and general partners, were 2.3%
and 1.9% of gross revenue for the years ended December 31, 1996 and 1995,
respectively. Equipment management fees were 7% of gross revenue for both
periods.
Management fees were 8.6% and 8.8% of rental income for the years ended December
31, 1995 and 1994. Incentive management fees, were 1.9% and 1.7% of gross
revenue in the years ended December 31, 1995 and 1994. Equipment management fees
were 7% of gross revenue for both periods.
General and administrative costs to affiliates decreased by 28%, or $117, in the
year ended December 31, 1996, compared to the same period in 1995. The decrease
was primarily the result of a decrease in total overhead costs allocated from
TEM to the Partnership.
General and administrative costs to affiliates increased by 4%, or $14, in the
year ended December 31, 1995, compared to the same period in 1994, primarily the
result of an increase in overhead costs allocated to the Partnership due to its
larger fleet size.
Other income includes a gain on sales of equipment of $415 for the year ended
December 31, 1996, compared to a gain of $213 for the equivalent period ended
1995. Net interest income increased by $14 from the year ended December 31,
1995, to the comparable period in 1996, due to higher average cash balances.
For the year ended December 31, 1995, other income includes a gain on sales of
equipment of $213 compared to a gain of $170 for the equivalent period ended
1994. Interest income decreased by $3 from the twelve-month period ended
December 31, 1994, to the comparable period in 1995. Interest expense decreased
by $7 due to termination of the credit facility.
Net earnings per limited partnership unit decreased from $1.79 to $1.60 per unit
from the year ended December 31, 1995, to the same period in 1996, reflecting
the decrease in net earnings from $2,668 to $2,382 for the respective periods.
Net earnings per limited partnership unit increased from $1.20 to $1.79 per unit
from the year ended December 31, 1994, to the year ended December 31, 1995,
reflecting the increase in net earnings from $1,792 in 1994 to $2,668 in 1995.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep the Equipment under lease, rather than the geographic location
of the Equipment or the domicile of the lessees. The Equipment is generally
operated on the international high seas rather than on the domestic waterways.
The Equipment is subject to the risk of war or other political, economic or
social occurrence where the Equipment is used, which may result in the loss of
Equipment, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of December 31, 1996 which would result in such risk
materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning Equipment after it comes off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the Equipment, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Attached pages 11 to 23.
<PAGE>
Independent Auditors' Report
The Partners
TCC Equipment Income Fund:
We have audited the accompanying balance sheets of TCC Equipment Income Fund (a
California limited partnership) as of December 31, 1996 and 1995, and the
related statements of earnings, partners' capital and cash flows for the years
ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TCC Equipment Income Fund as of
December 31, 1996 and 1995, and the results of its operations, its partners'
capital, and its cash flows for the years ended December 31, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 17, 1997
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Balance Sheets
December 31, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
---------------- ---------------
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $ 10,343 (1995: $ 10,681) $ 15,601 17,317
Cash 1,253 492
Net investment in direct financing leases (note 4) 461 760
Accounts receivable, net of allowance
for doubtful accounts of $ 687 (1995: $ 661) 1,554 1,705
Due from affiliates, net (note 2) 1,170 630
Prepaid expenses 10 10
---------------- ---------------
$ 20,049 20,914
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 133 150
Accrued liabilities - 50
Accrued damage protection plan costs (note 1) 130 129
Accrued maintenance and repair costs (note 1) 45 27
Warranty claims (note 1) 260 324
Equipment purchases payable 269 430
---------------- ---------------
Total liabilities 837 1,110
---------------- ---------------
Partners' capital:
General partners (36) (36)
Limited partners 19,248 19,840
---------------- ---------------
Total partners' capital 19,212 19,804
---------------- ---------------
Commitments (note 8) $ 20,049 20,914
================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Earnings
Years ended December 31, 1996, 1995 and 1994 (Dollar
amounts in thousands except for unit and per unit amounts)
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
<S> <C> <C> <C>
Rental Income $ 5,383 6,479 6,158
----------------- ---------------- -----------------
Costs and expenses:
Direct container expenses 927 882 1,125
Bad debt expense 59 213 414
Depreciation (note 7) 1,547 1,857 1,962
Professional fees 31 35 27
Management fees to affiliates (note 2) 506 559 541
General and administrative costs to
affiliates (note 2) 301 418 404
Other general and administrative costs 67 68 67
----------------- ---------------- -----------------
3,438 4,032 4,540
----------------- ---------------- -----------------
Income from operations 1,945 2,447 1,618
----------------- ---------------- -----------------
Other income:
Interest income, net 22 8 4
Gain on sale of equipment (note 6) 415 213 170
----------------- ---------------- -----------------
437 221 174
----------------- ---------------- -----------------
Net earnings $ 2,382 2,668 1,792
================= ================ =================
Allocation of net earnings (note 1):
General partners $ 30 37 25
Limited partners 2,352 2,631 1,767
----------------- ---------------- -----------------
$ 2,382 2,668 1,792
================= ================ =================
Limited partners' per unit share
of net earnings $ 1.60 1.79 1.20
================= ================ =================
Limited partners' per unit share
of distributions $ 2.00 1.95 1.68
================= ================ =================
Weighted average number of limited
partnership units outstanding 1,471,779 1,472,471 1,474,143
================= ================ =================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------------
General Limited Total
------------- --------------- ---------------
<S> <C> <C> <C>
Balances at December 31, 1993 $ (36) 20,806 20,770
Distributions (25) (2,469) (2,494)
Redemptions (note 1) - (14) (14)
Net earnings 25 1,767 1,792
------------- --------------- ---------------
Balances at December 31, 1994 (36) 20,090 20,054
------------- --------------- ---------------
Distributions (37) (2,872) (2,909)
Redemptions (note 1) - (9) (9)
Net earnings 37 2,631 2,668
------------- --------------- ---------------
Balances at December 31, 1995 (36) 19,840 19,804
------------- --------------- ---------------
Distributions (30) (2,944) (2,974)
Net earnings 30 2,352 2,382
------------- --------------- ---------------
Balances at December 31, 1996 $ (36) 19,248 19,212
============= =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,382 2,668 1,792
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,547 1,857 1,962
Increase in allowance for doubtful accounts 26 40 391
Gain on sale of equipment (415) (213) (170)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 124 (59) (422)
Decrease (increase) in due from affiliates, net 49 (152) (181)
Proceeds from principal payments
on direct financing leases 306 261 237
Decrease (increase) in prepaid expenses - 1 (2)
Decrease in accounts payable and
accrued liabilities (67) (2) (52)
Increase (decrease) in accrued maintenance and
repair costs 18 (9) (6)
(Decrease) increase in warranty claim (64) 152 (37)
Increase (decrease) in accrued
damage protection plan costs 1 (16) (16)
------------- ------------ -------------
Net cash provided by operating activities 3,907 4,528 3,496
------------- ------------ -------------
Cash flows from investing activities:
Proceeds from sale of equipment 1,348 768 798
Container purchases (1,072) (2,523) (2,543)
------------- ------------ -------------
Net cash provided by (used in) investing activities 276 (1,755) (1,745)
------------- ------------ -------------
Cash flows from financing activities:
(Repayment to) borrowings from affiliates (435) 435 -
Redemptions of limited partnership units - (9) (14)
Distributions to partners (2,987) (2,899) (2,512)
------------- ------------ -------------
Net cash used in financing activities (3,422) (2,473) (2,526)
------------- ------------ -------------
Net increase (decrease) in cash 761 300 (775)
Cash at beginning of period 492 192 967
------------- ------------ -------------
Cash at end of period $ 1,253 492 192
============= ============ =============
Interest paid during the period $ 14 4 27
============= ============ =============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Cash Flows--Continued
Years ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of container rental equipment which had not
been paid or received by the Partnership as of December 31, 1996, 1995, 1994 and
1993, resulting in differences in amounts recorded and amounts of cash disbursed
or received by the Partnership, as shown in the Statements of Cash Flows.
<TABLE>
<CAPTION>
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates........................................ $ 1 44 12 4
Equipment purchases payable.............................. 269 430 4 225
Distributions to partners included in:
Due to affiliates........................................ 2 15 5 23
Proceeds from sale of container rental equipment included in:
Accounts receivable...................................... - 1 1 2
Due from affiliates...................................... 327 229 167 146
</TABLE>
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of container rental equipment recorded by
the Partnership and the amounts paid or received as shown in the Statements of
Cash Flows for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Equipment purchases recorded................................ $ 868 2,981 2,330
Equipment purchases paid.................................... 1,072 2,523 2,543
Distributions to partners declared.......................... 2,974 2,909 2,494
Distributions to partners paid.............................. 2,987 2,899 2,512
Proceeds from sale of container
rental equipment recorded................................. 1,445 830 818
Proceeds from sale of container
rental equipment received................................. 1,348 768 798
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Notes to Financial Statements
Years ended December 31, 1996, 1995 and 1994
(Dollar amounts in thousands except for unit and per unit amounts)
Note 1. Summary of Significant Accounting Policies
(a) Nature of Operations
TCC Equipment Income Fund (TEIF or the Partnership), a California
limited partnership, was formed on August 3, 1987 to engage in the
business of owning, leasing and selling both new and used equipment
related to the international containerized cargo shipping industry,
including, but not limited to, containers, trailers, and other
container-related equipment (the Equipment). TEIF offered units
representing limited partnership interests (Units) to the public until
October 26, 1989, the close of the offering period, when a total of
1,474,559 Units had been purchased for a total of $29,491.
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership (prior to its name change on April 4, 1994,
TFS was known as Textainer Capital Corporation). TFS is a wholly-owned
subsidiary of Textainer Capital Corporation (TCC) (prior to its name
change on April 4, 1994, TCC was known as Textainer (Delaware), Inc.).
Textainer Equipment Management Limited (TEM) (prior to being
redomiciled on December 20, 1994, TEM was known as Textainer Equipment
Management N.V.) and Textainer Limited (TL) are associate general
partners of the Partnership. The managing general partner and the
associate general partners are collectively referred to as the General
Partners and are commonly owned by Textainer Group Holdings Limited
(TGH). The General Partners also act in this capacity for other
limited partnerships. Textainer Acquisition Services Limited (TAS) is
an affiliate of the General Partners which performs services related
to the acquisition of Equipment outside the United States on behalf of
the Partnership. TCC Securities Corporation (TSC), a licensed broker
and dealer in securities and an affiliate of the General Partners, was
the managing sales agent for the offering of Units for sale. The
General Partners manage and control the affairs of the Partnership.
(b) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recorded when earned according to the terms of the Equipment rental
contracts. These contracts are typically for a one-year term and are
classified as operating leases, or direct financing leases if they so
qualify under Statement on Financial Accounting Standards No. 13:
"Accounting for Leases". Certain estimates and assumptions were made
by the Partnership's management that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Equipment
The Equipment is carried at the lower of cost of the assets purchased,
which includes acquisition fees, or the estimated recoverable value of
such assets. Depreciation of new equipment is computed using the
straight-line method over its estimated useful life of 12 years to a
28% salvage value. Used equipment is depreciated based upon its
estimated remaining useful life at the date of acquisition (from 2 to
11 years). When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in income for the period.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of" (SFAS 121). The Partnership
adopted SFAS 121 during 1995. In accordance with SFAS 121, the
Partnership periodically reviews the carrying value of the Equipment
to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. There were no reductions to
the carrying value of the equipment during 1996 and 1995 except as
noted in Note 7.
(d) Nature of Income from Operations
Although substantially all of the Partnership's income from operations
is derived from assets employed in foreign operations, virtually all
of this income is denominated in United States dollars. The
Partnership's customers are international shipping lines that
transport goods on international trade routes. Once the Equipment is
on-hire with a lessee, the Partnership has no way of knowing its
location. The domicile of the lessee is not indicative of where the
lessee is transporting the Equipment. The Partnership's business risk
in its foreign operations lies with the creditworthiness of the
lessees rather than the geographic location of the Equipment or the
domicile of the lessees. No single lessee accounted for more than 10%
of the Partnership's revenues for the year ended December 31, 1996,
1995 and 1994.
(e) Allocation of Net Earnings and Partnership Distributions
In accordance with the Partnership Agreement, net earnings or losses
and partnership distributions are allocated 1% to the General Partners
and 99% to the limited partners, with the exception of gains on sales
of containers. Such gains are allocated to the General Partners to the
extent that their capital accounts' deficits exceed the portion of
syndication and offering costs allocated to them. On termination of
the Partnership, the General Partners shall be allocated gross income
equal to their allocations of syndication and offering costs.
Actual cash distributions to the limited partners differ from the
allocated net earnings as presented in these financial statements
because cash distributions are based on cash available for
distribution. Cash distributions are paid to the general and limited
partners on a quarterly basis in accordance with the provisions of the
Partnership Agreement.
(f) Income Taxes
The Partnership is not subject to income taxes. Accordingly, no
provision for income taxes has been made. The Partnership files
federal and state information returns only. Taxable income or loss is
reportable by the individual partners.
(g) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees are
paid to the General Partners or TAS equal to 5% of the Equipment
purchase price (see note 2). These fees are capitalized as part of the
cost of the Equipment.
(h) Maintenance and Repair
The Partnership accrues maintenance and repair costs on damaged units
in depots. At December 31, 1996 and 1995, the amount accrued was $45
and $27, respectively.
(i) Damage Protection Plan
The Partnership offers a Damage Protection Plan (the Plan) to lessees
of its Equipment. Under the terms of the Plan, the Partnership earns
additional revenues on a daily basis and, as a result, has agreed to
bear certain repair costs. It is the Partnership's policy to recognize
revenue when earned and to provide a reserve sufficient to cover the
Partnership's obligation for estimated future repair costs. At
December 31, 1996 and 1995, this reserve was equal to $130 and $129,
respectively.
(j) Warranty Claims
During 1992 and 1995, the Partnership settled warranty claims against
an equipment manufacturer. The Partnership is amortizing the
settlement amounts over the remaining estimated useful life of the
applicable equipment (seven years), reducing maintenance and repair
costs over that time. At December 31, 1996 and 1995, the unamortized
portion of the settlement amounts was equal to $260 and $324,
respectively.
(k) Limited Partners' Per Unit Share of Net Earnings and Distributions
Limited partners' per unit share of both net earnings and
distributions were computed using the weighted average number of units
outstanding during each year of the Partnership's operations which was
1,471,779, 1,472,471 and 1,474,143 during the years ended December 31,
1996, 1995 and 1994, respectively.
(l) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Average
Units Redemption Price
Redeemed Amount Paid
<S> <C> <C> <C>
Year ended December 31, 1994:
3rd quarter...................... 1,525 $ 8.86 $ 14
===== ==
Year ended December 31, 1995:
1st Quarter..................... 500 $ 7.96 $ 4
4th Quarter..................... 750 $ 7.43 5
--- -
1,250 $ 7.64 9
===== ==
Partnership to date............. 2,775 $ 8.31 $ 23
===== ==
</TABLE>
There were no units redeemed during 1996. The redemption price is
fixed by formula and varies depending on the length of time the units
have been outstanding.
(m) Fair Value of Financial Instruments
To meet the reporting requirements of Financial Accounting Standards
Board Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," the Partnership calculates the fair value of financial
instruments and includes this additional information in the notes to
the financial statements when the fair value is different than the
book value of those financial instruments. At December 31, 1996 and
1995, the fair value of the Partnership's financial instruments
approximates the related book value of such instruments.
(n) Reclassifications
Certain reclassifications, not affecting net earnings, have been made
to prior years' amounts in order to conform with the 1996 financial
statement presentation.
Note 2. Transactions with Affiliates
As part of the operation of the Partnership, the Partnership is to pay
to the General Partners (or TAS) an incentive management fee, an
acquisition fee, an equipment management fee and an equipment
liquidation fee. These fees are for various services provided in
connection with the administration and management of the Partnership.
The Partnership capitalized $49, $122 and $111 of equipment
acquisition fees as part of Equipment costs during the years ended
December 31, 1996, 1995 and 1994, respectively, and incurred $124,
$124, and $107 of incentive management fees during the same periods.
No equipment liquidation fees were paid in 1996, 1995 or 1994.
The Equipment of the Partnership is managed by TEM. Prior to the
Partnership selling its storage fleet in 1995 (note 6), TEM had
entered into an agreement with its 100%-owned subsidiary, Textainer
Storage Services (TSS) to manage these storage containers. In its role
as manager, TEM has authority to acquire, hold, manage, lease, sell
and dispose of the Partnership's Equipment. TEM holds, for the payment
of direct operating expenses, a reserve of cash that has been
collected from leasing operations; such cash is included in the amount
due from affiliates at December 31, 1996 and 1995.
Subject to certain reductions, TEM receives a monthly equipment
management fee equal to 7% of gross lease revenues attributable to
operating leases and 2% of gross lease revenues attributable to full
payout net leases. Such fee is either retained by TEM or, prior to the
sale of its storage fleet, such fees allocable to TSS were passed
through by TEM for services rendered. In 1996, 1995 and 1994,
equipment management fees totaled $382, $435, and $434, respectively.
The Partnership's Equipment is or was leased by TEM and TSS to third
party lessees on operating master leases, spot leases, full payout net
leases and term leases. The majority of the Partnership's leases are
operating leases with limited terms and no purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are borne by TFS, TEM, and, prior to the sale of the
Partnership's storage fleet in 1995, TSS. During 1996, 1995 and 1994
costs allocated to the Partnership for salaries were $158, $213 and
$214, respectively and other general and administrative costs were
$143, $205 and $190, respectively.
TEM and TSS allocate these costs based on the ratio of the
Partnership's interest in the managed Equipment to the total Equipment
managed by TEM and TSS during the period. Indirect general and
administrative costs allocated to the Partnership by TEM and TSS were
$260, $352 and $339 for the years ended December 31, 1996, 1995 and
1994, respectively.
TFS allocates indirect general and administrative costs to the
Partnership based on the ratio of the Partnership's Equipment to the
total Equipment of all limited partnerships managed by TFS. TFS
allocated $41, $66 and $65 of these indirect costs to the Partnership
during 1996, 1995 and 1994, respectively.
The General Partners, or TAS, may acquire Equipment in their own name
and hold title on a temporary basis for the purpose of facilitating
the acquisition of such Equipment for the Partnership. The Equipment
may then be resold to the Partnership on an all-cash basis at a price
equal to the actual cost, as defined in the Partnership Agreement. In
addition, the General Partners, or TAS, are entitled to an acquisition
fee for any Equipment resold to the Partnership.
At December 31, due from and to affiliates are comprised of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM and TSS.................. $ 1,190 1,139
----- ------
Due to affiliates:
Due to TL............................. - 2
Due to TCC............................ 6 5
Due to TAS............................ - 37
Due to TFS............................ 14 464
Due to TGH............................ - 1
--------- ---------
$ 20 509
-------- -------
Net due from affiliates $ 1,170 630
====== =======
</TABLE>
Included in the amounts due to TFS at December 31, 1995 is $435 in
loans used to facilitate equipment purchases. All other amounts
receivable from and payable to affiliates were incurred in the
ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and payment of
expenses and fees described above or in the accrual and remittance of
net rental revenues from TEM and TSS.
Prior to July 1994, it was the policy of the Partnership and the
General Partners to charge interest on intercompany balances
outstanding for more than one month. Interest was charged at the prime
rate plus 2%. As of July 1994, this policy was changed so that the
Partnership is not charged interest on intercompany balances except
for loans on equipment purchases. Interest is charged at a rate not
greater than the General Partners' or affiliates' own cost of funds.
The Partnership incurred interest expense of $10, $4 and $4,
respectively, on intercompany balances payable to TFS and TEM for the
years ended December 31, 1996, 1995 and 1994.
Note 3. Rentals Under Operating Leases
The following is a schedule by year of minimum future rentals
receivable on noncancelable operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1997................................................ $ 327
1998................................................ 25
---
Total minimum future rentals receivable............. $ 352
====
</TABLE>
Note 4. Direct Financing Leases
During the period from 1990 through 1996, the Partnership leased 100
refrigerated and 83 standard containers on direct finance leases. The
total receivable over the two to eight-year terms of these leases from
their inception is $3,125.
The components of the net investment in direct financing leases as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future minimum lease payments receivable................. $ 515 890
Residual value........................................... 2 5
Less: unearned income.................................... (56) (135)
----- ------
Net investment in direct financing leases................ $ 461 760
==== =====
</TABLE>
The following is a schedule by year of minimum lease payments
receivable under the direct financing leases as of December 31, 1996
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C> <C>
1997............................................................... 384
1998............................................................... 130
1999............................................................... 1
-----
Total minimum lease payments receivable............................ $ 515
====
</TABLE>
Rental income for the years ended December 31, 1996, 1995, and 1994
includes $98, $135 and $170, respectively, of income from direct
financing leases.
Note 5. Income Taxes
At December 31, 1996, 1995 and 1994, there were temporary differences
of $9,580, $9,157 and $10,529, respectively between the financial
statement carrying value of certain assets and liabilities and the
federal income tax basis of such assets and liabilities. The
reconciliation of net income for financial statement purposes to net
income for federal income tax purposes for the years ended December
31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements.................... $ 2,382 2,668 1,792
Increase in provision for bad debt..................... 26 40 391
Depreciation for income tax purposes in excess of
depreciation for financial statement purposes........ (92) (1,144) (2,258)
Gain on sale of fixed assets in excess of gain
recognized for financial statement purposes.......... 973 509 338
Increase (decrease) in damage protection
plan reserve......................................... 1 (16) (16)
Increase (decrease) in warranty claim.................. 125 (37) (37)
Other.................................................. - - (3)
-------- -------- --------
Net income for federal income tax purposes $ 3,415 2,020 207
===== ====== ======
</TABLE>
Note 6. Sale of Storage Fleet
In August 1995, the Partnership sold its container storage fleet,
managed by TSS, to an unrelated purchaser. The proceeds from the sale
were $20 compared to the Partnership's cost basis in the equipment of
$15. The resulting gain from the sale was $5. The Partnership has
invested the proceeds from the sale into marine container rental
equipment.
Note 7. Write-down of Certain Equipment
In the fourth quarter of 1996, a pretax charge of $114 was recorded to
write down the value of certain equipment. The write-down is the
result of an evaluation of the Partnership's ability to recover the
net book value of this equipment given the changes in market
conditions for this specific container type. The estimated
undiscounted cash flows anticipated from these refrigerated containers
indicated that a write-down to fair market value was required under
SFAS 121. The carrying value of these refrigerated containers was
written down to an amount equal to the estimated future discounted
cash flows from these refrigerated containers, and the charge was
recorded as additional depreciation expense.
Note 8. Commitments
At December 31, 1996, the Partnership has committed to purchase
Equipment at an approximate total purchase price of $221 which includes
acquisition fees of $11. These commitments were made to TAS which, as
the contracting party, has in turn committed to purchase this equipment
on behalf of the Partnership.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been none.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no officers or directors.
As described in the Prospectus, the Registrant's three original general partners
were TCC, TEM and TI which have comprised the Textainer Group. Effective October
1, 1993, the Textainer Group streamlined its organization by forming a new
holding company, Textainer Group Holdings Limited (TGH), and the shareholders of
the underlying companies which include the General Partners have accepted shares
in TGH in exchange for their shares in the individual companies. Textainer
Financial Services Corporation (TFS) is the managing general partner of the
Partnership (prior to its name change on April 4, 1994, TFS was known as
Textainer Capital Corporation). TFS is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC) (prior to its name change on April 4,1994, TCC was
known as Textainer (Delaware) Inc.). Textainer Equipment Management Limited
(TEM) is an associate general partner of the Partnership. Textainer Inc. (TI)
was an associate general partner of the Partnership through September 30, 1993
when it was replaced in that capacity by Textainer Limited (TL), pursuant to a
corporate reorganization effective October 1, 1993, which caused TFS, TEM and TL
to fall under the common ownership of Textainer Group Holdings Limited. (The
managing general partner and associate general partners are collectively
referred to as the General Partners). Pursuant to this restructuring, TI has
transferred substantially all of its assets including all of its rights and
duties as associate general partner to TL. This transfer was effective from
October 1, 1993. The end result was that TFS, TEM and TL now serve as General
Partners for the Registrant and are wholly-owned or substantially-owned
subsidiaries of TGH. The General Partners also act in this capacity for other
limited partnerships. Textainer Acquisition Services Limited (TAS) is an
affiliate of the General Partners, which performs services relative to the
acquisition of Equipment outside the United States on behalf of the Partnership.
TCC Securities Corporation (TSC), a licensed broker and dealer in securities and
an affiliate of the General Partners, was the managing sales agent for the
offering of Units for sale.
TFS, as the Managing General Partner, is responsible for managing the
administration and operation of the Registrant, and for the formulation and
administration of investment policies.
TEM, an Associate General Partner, manages all aspects of the operation of the
Registrant's Equipment.
TL, an Associate General Partner, owns a fleet of container rental equipment
which is managed by TEM. TL provides advice to the Partnership regarding
negotiations with financial institutions, manufacturers and equipment owners,
and regarding the terms upon which particular items of Equipment are acquired.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Partnership's General Partners, policy-making officials and persons who
beneficially own more than ten percent of the Units to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Copies of these reports must also be furnished to the
Partnership.
Based solely on a review of the copies of such forms furnished to the
Partnership or on written representations that no forms were required to
be filed, the Partnership believes that with respect to its most recent
fiscal year ended December 31, 1996, all Section 16(a) filing requirements
were complied with, except that Philip K. Brewer filed his initial
statement of beneficial interest on Form 3 late. No director, officer, or
beneficial owner owned more than 10 percent of any interest in the
Partnership. None of the foregoing failed to file or filed late any
reports of transactions in the Units.
The directors and executive officers of the General Partners are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Neil I. Jowell 63 Director and Chairman of TGH, TEM, TL, TFS and TCC
James E. Hoelter 57 President and CEO of TGH, TL, TFS and TCC, Director of TGH, TEM, TL, TFS,
TCC and TSC
John A. Maccarone 52 President and CEO of TEM, Vice President of TGH, Director of TGH, TEM, TL,
TFS, TCC and TSC
Cara D. Smith 34 President and CEO of TSC and Director of TCC and TFS
John R. Rhodes 47 Executive Vice President, CFO, and Secretary of TGH, TEM, TL, TFS and TCC
and Director of TEM, TFS and TCC
Alex M. Brown 58 Director of TGH, TEM, TL, TCC and TSC
Harold J. Samson 75 Director of TGH, TL and TSC
Philip K. Brewer 40 Senior Vice President - Capital Markets for TGH and TL
Robert D. Pedersen 38 Senior Vice President - Marketing for TEM
Anthony C. Sowry 44 Vice President - Operations and Acquisitions for TEM
Jens W. Palludan 46 Vice President - Americas/Africa/Australia for TEM
Robert S.A. Goodall 39 Vice President - Europe/Middle East/India for TEM
Wing Sing Mak 39 Vice President - South Asia for TEM
Masanori Sagara 41 Vice President - North Asia for TEM
Stefan Mackula 44 Vice President - Equipment Resale for TEM
Ernest J. Furtado 41 Vice President, Finance and Assistant Secretary of TGH, TEM and TL
Richard G. Murphy 44 Vice President - Risk Management for TEM
Janet S. Ruggero 48 Vice President - Administration and Marketing Services for TEM
Adnan Z. Abou Ayyash 52 Director of TGH and TL
Isam K. Kabbani 62 Director of TGH and TL
S. Arthur Morris 63 Director of TGH, TEM and TL
Dudley R. Cottingham 45 Assistant Secretary, Vice President and Director of TGH, TEM and TL
James S. McCaffrey 41 Executive Vice President, Chief Operating Officer, Assistant Secretary and
Director for TFS and TCC
Jeanene K. Gomes 43 Assistant Secretary of TFS and TCC, Secretary and Compliance Officer of TSC
</TABLE>
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TFS and TCC
and a member of the Investment Advisory Committee and Equipment Investment
Committee (see "Committees" below). He has served on the Board of Trencor Ltd.
since 1966 and as Chairman since 1973. He is also a director of Mobile
Industries, Ltd. (1969 to present), an Affiliate of Trencor, and a non-executive
director of Forward Corporation Ltd. (1993 to present). Trencor is a publicly
traded diversified industrial group listed on the Johannesburg Stock Exchange.
Its business is the leasing, owning, managing and financing of marine cargo
containers worldwide and the manufacture and export of containers for
international markets. In South Africa, it is engaged in manufacturing,
transport, trading and exports of general commodities. Trencor also has an
interest in Forward Corporation Ltd., a publicly traded holding company listed
on the Johannesburg Stock Exchange. It has interests in industrial and consumer
businesses operating in South Africa and abroad. Mr. Jowell became affiliated
with the General Partners and its affiliates when Trencor became, through its
beneficial ownership in two controlled companies, a major shareholder of the
Textainer Group in 1992. Mr. Jowell has over 36 years' experience in the
transportation industry. He holds an M.B.A. degree from Columbia University and
a B.Com.L.L.B. from the University of Cape Town.
James E. Hoelter is President and Chief Executive Officer of TGH, TL,
TFS and TCC and a director of TGH, TEM, TL, TFS, TCC and TSC. As President and
Chief Executive Officer of TGH, Mr. Hoelter is responsible for overseeing the
management of, and coordinating the activities of, TEM, TL, TFS and TCC. He is
also responsible for overseeing TEM's equipment management operations. In
addition, Mr. Hoelter is Chairman of the Credit Committee, the Investment
Advisory Committee and the Equipment Investment Committee (see "Committees",
below). Prior to joining the Textainer Group in 1987, Mr. Hoelter was president
of Intermodal Equipment Associates ("IEA") in San Francisco, California, from
the company's inception in 1979 until 1987. Mr. Hoelter co-founded IEA and
directed its sponsorship of ten public and private investment programs, which
provided more than $100 million of equity from 10,000 investors. From 1976 to
1978, Mr. Hoelter was Vice President - North America for Trans Ocean Ltd., San
Francisco, a marine container leasing company, where he was responsible for all
leasing operations in that area. From 1971 to 1976, he was associated with Itel
Corporation, San Francisco, where he held a number of positions, the most recent
of which was director of financial leasing for Itel's Container Division. Mr.
Hoelter received his B.B.A. in business administration from the University of
Wisconsin, where he currently serves as a member of its Business School's Dean's
Advisory Board, and his M.B.A. from the Harvard Graduate School of Business
Administration.
John A. Maccarone is President and CEO of TEM, Vice President of TGH
and a director of TGH, TEM, TL, TFS, TCC and TSC. In this capacity he is
responsible for the performance of TEM's worldwide fleet of marine cargo
containers. Additionally, he is a member of the Equipment Investment Committee,
the Credit Committee and the Investment Advisory Committee (see "Committees",
below). Mr. Maccarone was instrumental in co-founding IEA with Mr. Hoelter and
held a variety of executive positions with IEA from 1979 until 1987, when he
joined the Textainer Group. Mr. Maccarone was previously a Director of Marketing
for Trans Ocean Leasing Corporation in Hong Kong with responsibility for all
leasing activities in Southeast Asia. From 1969 to 1977, Mr. Maccarone was a
marketing representative for IBM Corporation. He holds a B.S. degree in
Engineering Management from Boston University and an M.B.A. from Loyola
University of Chicago.
Cara D. Smith is President and Chief Executive Officer of TSC, a
director of TFS and TCC and a member of the Investment Advisory Committee (see
"Committees", below). In this capacity Ms. Smith is responsible for the
organization, marketing and after-market support of TSC's investment programs.
Ms. Smith joined Textainer in 1992, and prior to 1996, was Vice President of
Marketing. Ms. Smith has worked in the securities industry for the past 13
years. Ms. Smith's extensive experience ranges from compliance and investor
relations to administration and marketing of equipment leasing, multi-family
housing and tax credit investment programs. She holds five securities
licenses and is a registered principal. Ms. Smith is also a member of the
International Association of Financial Planners.
John R. Rhodes is Executive Vice President, Chief Financial Officer
and Secretary of TGH, TEM, TL, TFS and TCC and a director of TEM, TFS and TCC.
In this capacity he is responsible for all accounting, financial management, and
reporting functions for the Textainer Group. He is also a member of the Credit
Committee, the Equipment Investment Committee and Investment Advisory Committee
(see "Committees", below). Prior to joining Textainer in November 1987, Mr.
Rhodes was Vice President of Finance for Greenbrier Capital Corporation in San
Francisco, a trailer leasing and management company, from 1986 to 1987; from
1981 to 1985, he was employed by Gelco Rail Services, an intermodal refrigerated
trailer company in San Francisco, first in the capacity of Vice President and
Controller and then as Senior Vice President and General Manager. Mr. Rhodes'
earlier business affiliations include serving as Vice President and General
Manager of Itel Capital Corporation and as senior accountant with Arthur
Andersen & Co., both in San Francisco. He is a Certified Public Accountant and
holds a B.A. in economics from Stanford University and an M.B.A. in accounting
from Golden Gate University.
Alex M. Brown is a director of TGH, TEM, TL, TCC and TSC.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Mr. Brown became
affiliated with the Textainer Group in April 1986. From August 4, 1987 until
October 1993, he was President and Chief Executive Officer of Textainer, Inc.
and the Chairman of the Textainer Group. From June 1993 to present, Mr. Brown
has been Chief Executive Officer of AAF, a company affiliated with Trencor Ltd.
AAF is a publicly listed company on the London Stock Exchange and is involved in
manufacturing and leasing modular buildings and construction scaffolding. Mr.
Brown is Chairman of WACO International Corporation, which is based in
Cleveland, Ohio. WACO manufactures, rents and erects scaffolding and other
associated construction products throughout the USA. Mr. Brown was the managing
director of Cross County Leasing in England from 1984 until it was acquired by
Textainer in 1986.
Harold J. Samson is a director of TGH, TL and TSC and is a member of
the Investment Advisory Committee (see "Committees", below). Mr. Samson
served as a consultant to various securities firms since 1981 to 1989. From
1974 to 1981 he was Executive Vice President of Foster & Marshall, Inc., a New
York Stock Exchange member firm based in Seattle. Mr. Samson was a director
of IEA from 1979 to 1981. From 1957 to 1984 he served as Chief Financial Officer
in several New York Stock Exchange member firms. Mr. Samson holds a B.S.
in Business Administration from the University of California, Berkeley and
is a California Certified Public Accountant.
Philip K. Brewer is Senior Vice President - Capital Markets for TGH
and TL. Mr. Brewer is responsible for optimizing the capital structure of and
identifying new sources of finance for Textainer. Prior to joining Textainer in
1996, Mr. Brewer worked at Bankers Trust from 1990 to 1996, starting as a Vice
President in Corporate Finance and ending as Managing Director and Country
Manager for Indonesia; from 1989 to 1990, he was Vice President in Corporate
Finance at Jarding Fleming; from 1987 to 1989, he was Capital Markets Advisor
to the United States Agency for International Development; and from 1984 to
1987 he was an Associate with Drexel Burnham Lambert in New York. Mr. Brewer
holds an M.B.A. in Finance from the Graduate School of Business at Columbia
University, and a B.A. in Economics and Political Science from Colgate
University.
Robert D. Pedersen is based in San Francisco and is Senior Vice
President - Marketing for TEM, responsible for worldwide sales and marketing
related activities. Mr. Pedersen is a member of the Credit Committee (see
"Committees" below). He joined TEM in 1991 as Regional Vice President for the
Americas Region. Mr. Pedersen has extensive experience in the industry having
held a variety of positions with Maersk Line, a container shipping line (from
1978 to 1984), XTRA, a container lessor (1985 to 1988) and Klinge Cool, a
manufacturer of refrigerated container cooling units (1989 to 1991), where he
was worldwide sales and marketing director. Mr. Pedersen is a graduate of the
A.P. Moller shipping and transportation program and Merkonom Business School in
Copenhagen, majoring in Company Organization.
Anthony C. Sowry is Vice President - Operations and Acquisitions for
TEM. Mr. Sowry supervises all international container operations and maintenance
and technical functions for the fleets under management. In addition, he is
responsible for the acquisition of all new and used containers for the Textainer
Group. He began his affiliation with TEM in 1988 and previously served as Fleet
Quality Control Manager for Textainer Inc. from 1982 through March 1988. He is
also a member of the Credit Committee and the Equipment Investment Committee
(see "Committees", below). From 1980 to 1982, he was operations manager for
Trans Container Services in London; and from 1978 to 1982, he was a technical
representative for Trans Ocean Leasing, also in London. He received his B.A.
degree in business management from the London School of Business. Mr. Sowry is a
member of the Technical Committee of the International Institute of Container
Lessors and a certified container inspector.
Jens W. Palludan is based in New York and is Vice President - Americas
/Africa/Australia for TEM, responsible for coordinating all leasing activities
in North and South America, Africa and Australia/New Zealand. Mr. Palludan
spent his career from 1969 through 1992 with Maersk Line of Copenhagen,
Denmark in a variety of key management positions in both Denmark and overseas.
Prior to joining TEM in 1993 Mr. Palludan was General Manager, Equipment and
Terminals, where he was responsible for a fleet of over 200,000 TEUs. Mr.
Palludan holds an M.B.A. from the Centre European D'Education Permanente,
Fontainebleau, France.
Robert S.A. Goodall is based in London and is Vice President - Europe
/Middle East/India for TEM, in which capacity he is responsible for coordinating
all leasing activities in these three areas of operation. Mr. Goodall joined
TEM in September 1994. Previously, Mr. Goodall spent his career from July
1990 until August 1994 with Tiphook Container Rental, during which time he held
numerous senior marketing positions within the company. He was responsible for
setting up their green field operation in North America, which he successfully
ran from inception for three years. Mr. Goodall also spearheaded a quality
program within the company which received ISO accreditation for the Tank
Container operation and associated business areas. Mr. Goodall has spent
nearly sixteen years in the container leasing and transport industry. Mr.
Goodall graduated from Bloxham College, Oxfordshire and Business Studies at West
London College.
Wing Sing Mak is based in Singapore and is the Regional Vice President
- South Asia. Mr. Mak is responsible for container leasing activities
in North/Central People's Republic of China (PRC), Hong Kong and South China
(PRC), and Southeast Asia. Mr. Mak most recently was the Regional Manager,
Southeast Asia, for Trans Ocean Leasing, working there from 1994 to 1996. From
1987 to 1994, Mr. Mak worked with Tiphook as their Regional General Manager, and
with OOCL from 1976 to 1987 in a variety of positions, most recently as their
Logistics Operations Manager.
Masanori Sagara is the Regional Vice President - North Asia of TEM.
Mr. Sagara is responsible for Textainer's marketing activities in Japan, Korea,
and Taiwan. Mr. Sagara joined Textainer in 1990 and was the company's Marketing
Director in Japan through 1996. From 1987 to 1990, he was the Marketing Manager
with IEA. Mr. Sagara's other experience in the container leasing business
includes marketing management at Genstar from 1984 to 1987 and various container
operations positions with Thoresen & Company from 1979 to 1984. Mr. Sagara
holds a Bachelor of Science degree in Economics from Aoyama Bakuin University.
Stefan Mackula is Vice President - Equipment Resale for TEM, in which
capacity he coordinates the worldwide sale of equipment into secondary markets.
Mr. Mackula also served as Vice President - Marketing for TEM, in which capacity
he was responsible for coordinating all leasing activities in Europe, Africa,
and the Middle East. He joined TEM in 1983 as Leasing Manager for the United
Kingdom. Prior to joining TEM, Mr. Mackula held, beginning in 1972, a variety of
positions in the international container shipping industry.
Ernest J. Furtado is Vice President, Finance and Assistant Secretary
of TGH, TEM and TL, in which capacity he is responsible for all accounting,
financial management, and reporting functions for TGH, TEM and TL. Prior to
joining Textainer in May 1991, Mr. Furtado was Controller for Itel Instant Space
and manager of accounting for Itel Containers International Corporation, both in
San Francisco, from 1984 to 1991. Mr. Furtado's earlier business affiliations
include serving as audit manager for Wells Fargo Bank and as senior accountant
with John F. Forbes & Co., both in San Francisco. He is a Certified Public
Accountant and holds a B.S. in business administration from the University of
California at Berkeley and an M.B.A. in information systems from Golden Gate
University.
Richard G. Murphy is Vice President, Risk Management for TEM. Mr.
Murphy is responsible for all credit and risk management functions for TEM and
supervises the administrative aspects of equipment acquisitions. He is a member
of and acts as secretary to the Credit and Equipment Investment Committees (see
"Committees", below). He previously served as Director of Credit and Risk
Management from 1989 to 1991 and as Controller from 1988 to 1989. Prior to the
takeover of the management of the Interocean Leasing Ltd. fleet by TEM in 1988,
Mr. Murphy held various positions in the accounting and financial areas with
that company from 1980, acting as Chief Financial Officer from 1984 to 1988.
Prior to 1980, he held various positions with firms of public accountants in the
U.K. Mr. Murphy is an Associate of the Institute of Chartered Accountants in
England and Wales and holds a Bachelor of Commerce degree from the National
University of Ireland.
Janet S. Ruggero is Vice President, Administration and Marketing
Services for TEM. Ms. Ruggero is responsible for the tracking and billing of
fleets under TEM management, including direct responsibility for ensuring that
all data is input in an accurate and timely fashion. She assists the marketing
and operations departments by providing statistical reports and analyses and
serves on the Credit Committee (see "Committees", below). Prior to joining
Textainer in 1986, Ms. Ruggero held various positions with Gelco CTI over the
course of 15 years, the last one as Director of Marketing and Administration for
the North American Regional office in New York City. She has a B.A. in education
from Cumberland College.
Dr. Adnan Z. Abou Ayyash is a director of TGH and TL. Since 1974
he has been General Manager and Chief Executive Officer of one of the largest
firms of consulting engineers in Saudi Arabia, Rashid Engineering. Dr. Adnan
Abou Ayyash holds a B.S. degree in Civil Engineering from the American
University of Beirut, as well as M.S. and Ph.D.degrees in Civil Engineering from
the University of Texas.
Sheikh Isam K. Kabbani is a director of TGH and TL. He is Chairman and
principal stockholder of the IKK Group, Jeddah, Saudi Arabia, a manufacturing
and trading group which is active both in Saudi Arabia and internationally. In
1959 Sheikh Isam Kabbani joined the Saudi Arabian Ministry of Foreign Affairs,
and in 1960 moved to the Ministry of Petroleum for a period of ten years. During
this time he was seconded to the Organization of Petroleum Exporting Countries
(OPEC). After a period as Chief Economist of OPEC, in 1967 he became the Saudi
Arabian member of OPEC's Board of Governors. In 1970 he left the ministry of
Petroleum to establish his own business, the National Marketing Group, which has
been his principal business activity for the past 17 years. Sheikh Kabbani holds
a B.A. degree from Swarthmore College, Pennsylvania, and an M.A. degree in
Economics and International Relations from Columbia University.
S. Arthur Morris is a director of TGH, TEM and TL. He is a founding
partner in the firm of Morris and Kempe, Chartered Accountants (1962-1977) and
currently functions as a correspondent member of a number of international
accounting firms through his firm Arthur Morris and Company (1978 to date). He
is also President and director of Continental Management Limited (1977 to date).
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Morris has over 30 years
experience in public accounting and serves on numerous business and charitable
organizations in the Cayman Islands and Turks and Caicos Islands. Mr. Morris
became a director of TL and TGH in 1993, and TEM in 1994.
Dudley R. Cottingham is Assistant Secretary, Vice President and a
director of TGH, TEM and TL. He is a partner with Arthur Morris and Company
(1977 to date) and a Vice President and director of Continental Management
Limited (1978 to date), both in the Cayman Islands and Turks and Caicos Islands.
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Cottingham has over 20 years
experience in public accounting with responsibility for a variety of
international and local clients. Mr. Cottingham became a director of TL and TGH
in 1993, and TEM in 1994.
James S. McCaffrey is Executive Vice President, Chief Operating
Officer, Assistant Secretary and a director of TFS and TCC. In this capacity he
is responsible for all accounting, financial management, and reporting functions
for TFS and TCC. He is a member of and acts as secretary to the Investment
Advisory Committee and serves as a member of the Equipment Investment Committee
(see "Committees" below). Prior to joining Textainer in July 1993, Mr. McCaffrey
was Vice President of Finance for Meridian Point Properties, a real estate
syndication and management company, from 1985 to 1993; from 1983 to 1985 he was
employed by Trans-west Capital as Controller and Chief Financial Officer. Mr.
McCaffrey's earlier business affiliations include serving as manager of
financial reporting for Fox and Carskadon Financial Corporation and as a senior
accountant with Arthur Andersen & Co. Mr. McCaffrey is a Certified Public
Accountant and holds a B.S. in business administration and mathematics from
Southern Oregon State College, and two securities licenses.
Jeanene K. Gomes is Assistant Secretary of TFS and TCC and Secretary
and Compliance Officer of TSC. Ms. Gomes is responsible for administering the
public partnerships sponsored by the Textainer Group. She is responsible for
ensuring that all data relating to investor accounts is input, monitored, and
stored in a timely manner and in accordance with the limited partnership
agreement for each of the partnerships as well as state and federal securities
regulations. Ms. Gomes oversees all communications with the limited partners and
as such directly supervises all personnel in performing this function. As
compliance officer for TSC, Ms. Gomes is responsible for ensuring compliance
with all securities regulations. Ms. Gomes also serves on the Investment
Advisory Committee (see "Committees" below). Ms. Gomes holds five securities
licenses and was, prior to joining Textainer in 1989, the compliance officer for
CIS Investment Corporation, a broker-dealer.
Committees
The Managing General Partner has established the following three
committees to facilitate decisions involving credit and organizational matters,
negotiations, documentation, management and final disposition of Equipment for
the Partnership and for other programs organized by the Textainer Group:
Equipment Investment Committee. The Equipment Investment Committee
will review the equipment leasing programs of the Partnership on a regular basis
with emphasis on matters involving equipment purchases, the equipment mix in
the Partnership's portfolio, equipment remarketing issues, and decisions
regarding ultimate disposition of equipment. The members of the committee are
James E. Hoelter (Chairman), John A. Maccarone, John R. Rhodes, Anthony C.
Sowry, James McCaffrey, Richard G. Murphy (Secretary), Alex M. Brown and Neil I.
Jowell.
Credit Committee. The Credit Committee will establish credit limits
for every lessee and potential lessee of Equipment and periodically review these
limits. In setting such limits, the Credit Committee will consider such factors
as customer trade routes, country, political risk, operational history, credit
references, credit agency analyses, financial statements, and other information.
The members of the Credit Committee are James E. Hoelter (Chairman), John
A. Maccarone, Richard G. Murphy (Secretary), Janet S. Ruggero, John R. Rhodes,
Anthony C. Sowry and Robert D. Pedersen.
Investment Advisory Committee. The Investment Advisory Committee will
review investor program operations on at least a quarterly basis, emphasizing
matters related to cash distributions to investors, cash flow management,
portfolio management, and liquidation. The Investment Advisory Committee is
organized with a view to applying an interdisciplinary approach, involving
management, financial, legal and marketing expertise, to the analysis of
investor program operations. The members of the Investment Advisory Committee
are James E. Hoelter (Chairman), John A. Maccarone, Cara D. Smith, James S.
McCaffrey (Secretary), John R. Rhodes, Jeanene K. Gomes, Harold J. Samson,
Alex M. Brown and Neil I. Jowell.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant has no executive officers and does not reimburse TFS, TEM or TL
for the remuneration payable to their executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners.
There is no person or "Group" who is known to the Registrant to be the
beneficial owner of more than five percent of the outstanding units of
limited partnership investment of the Registrant.
(b) Security Ownership of Management.
<TABLE>
<CAPTION>
As of January 1, 1997:
Number
<S> <C> <C>
Name of Beneficial Owner Of Units % All Units
James E. Hoelter 2,500 .170%
John A. Maccarone 1,915 .130%
------ -----
Officers and Management as a Group 4,415 .300%
====== =====
</TABLE>
(c) Changes in Control.
Inapplicable
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(Dollar amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 1996 and 1995, net due from affiliates is comprised
of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM and TSS.................. $ 1,190 1,139
----- ------
Due to affiliates:
Due to TL............................. - 2
Due to TCC............................ 6 5
Due to TAS............................ - 37
Due to TFS............................ 14 464
Due to TGH............................ - 1
--------- ---------
$ 20 509
-------- -------
Net due from affiliates $ 1,170 630
====== =======
</TABLE>
Included in the amounts due to TFS at December 31, 1995 is $435 in
loans used to facilitate equipment purchases. All other amounts
receivable from and payable to affiliates were incurred in the
ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and payment of
expenses and fees described above or in the accrual and remittance of
net rental revenues from TEM and Textainer Storage Services (TSS)
which is a 100% owned subsidiary of TEM.
In addition, the Registrant paid or will pay the following amounts to
the General Partners:
Acquisition Fees in connection with the purchase of equipment on behalf
of the Registrant:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
TAS.......................................... $ 49 122 111
=== ==== ====
Management fees in connection with the operations of the Registrant:
1996 1995 1994
---- ---- ----
TFS........................................... $ 99 99 85
TEM........................................... 407 460 456
--- --- ---
Total......................................... $ 506 559 541
=== === ===
Reimbursement for administrative costs in respect of the operations of
the Registrant:
1996 1995 1994
---- ---- ----
TFS........................................... $ 41 66 65
TEM........................................... 260 352 339
--- --- ---
Total......................................... $ 301 418 404
=== === ===
</TABLE>
(b) Certain Business Relationships.
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Compensation of Affiliates" section of the Registrant's Prospectus, as
supplemented, and the Notes to Financial Statements in Item 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Audited financial statements of the Registrant for the year ended
December 31, 1996 are contained in Item 8 of this Report.
2. Financial Statement Schedules.
(i) Independent Auditors' Report on Supplementary Schedule.
(ii) Schedule II - Valuation and Qualifying Accounts.
3. Exhibits Incorporated by reference
(i) The Registrant's Prospectus as contained in Post-effective
Amendment No. 2 to the Registrant's Registration Statement (No.
33-16447), as filed with the Commission on November 30, 1988, as
supplemented by Supplement No. 6 as filed with the Commission
under Rule 424(b)(3) of the Securities Act of 1933 on October 16,
1989.
(ii) The Registrant's limited partnership agreement, Exhibit A to the
Prospectus.
(b) During the year ended 1996, no reports on Form 8-K have been filed by the
Registrant.
<PAGE>
Independent Auditors' Report on Supplementary Schedule
The Partners
TCC Equipment Income Fund:
Under the date of February 17, 1997, we reported on the balance sheets of TCC
Equipment Income Fund (the Partnership) as of December 31, 1996 and 1995, and
the related statements of earnings, partners' capital and cash flows for the
years ended December 31, 1996, 1995 and 1994, which are included in the 1996
annual report on Form 10-K. In connection with our audits of the aforementioned
financial statements, we also audited the related financial statement schedule
as listed in Item 14. This financial statement schedule is the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
February 17, 1997
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Schedule II - Valuation and Qualifying Accounts
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Charged Balance
Balance at to Costs Charged at End
Beginning and to Other of
of Period Expenses Accounts Deduction Period
For the year ended December 31, 1996:
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts $ 661 59 - (33) 687
--- ---- ------ ----- ---
Damage protection
plan reserve $ 129 140 - (139) 130
--- --- ------ ----- ---
Warranty settlement $ 324 (64) - - 260
--- ---- ------ ----- ---
For the year ended December 31, 1995:
Allowance for
doubtful accounts $ 621 213 - (173) 661
--- --- ------ ----- ---
Damage protection
plan reserve $ 145 126 - (142) 129
--- --- ------ ----- ---
Warranty settlement $ 172 (37) 189 - 324
--- ----- ------ ----- ---
For the year ended December 31, 1994:
Allowance for
doubtful accounts $ 230 414 - (23) 621
--- --- ------- ------ ---
Damage protection
plan reserve $ 161 181 - (197) 145
--- --- ------- ----- ---
Warranty settlement $ 209 (37) - - 172
--- ----- ------- ------ ---
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TCC EQUIPMENT INCOME FUND
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By
John R. Rhodes
Executive Vice President
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
Executive Vice President
(Principal Financial and March 25, 1997
John R. Rhodes Accounting Officer) and
Secretary
President (Principal Executive March 25, 1997
James E. Hoelter Officer) and Director
Executive Vice President, Chief March 25, 1997
James S. McCaffrey Operating Officer and Director
Director March 25, 1997
John A. Maccarone
Director March 25, 1997
Cara D. Smith
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TCC EQUIPMENT INCOME FUND
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By /s/John R. Rhodes
John R. Rhodes
Executive Vice President
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/John R. Rhodes Executive Vice President March 25, 1997
- -----------------------------------------------
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
/s/James E. Hoelter President (Principal Executive March 25, 1997
- -----------------------------------------------
James E. Hoelter Officer) and Director
/s/James S. McCaffrey Executive Vice President, Chief March 25, 1997
- ----------------------------------------------
James S. McCaffrey Operating Officer and Director
/s/John A. Maccarone Director March 25, 1997
- ----------------------------------------------
John A. Maccarone
/s/Cara D. Smith Director March 25, 1997
- ----------------------------------------------
Cara D. Smith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1996 Form 10K
</LEGEND>
<CIK> 0000820083
<NAME> Textainer Equipment Income Fund, L.P.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,253
<SECURITIES> 0
<RECEIVABLES> 3,872
<ALLOWANCES> 687
<INVENTORY> 0
<CURRENT-ASSETS> 10
<PP&E> 25,944
<DEPRECIATION> 10,343
<TOTAL-ASSETS> 20,049
<CURRENT-LIABILITIES> 837
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,212
<TOTAL-LIABILITY-AND-EQUITY> 20,049
<SALES> 0
<TOTAL-REVENUES> 5,383
<CGS> 0
<TOTAL-COSTS> 3,438
<OTHER-EXPENSES> (437)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,382
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,382
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
