TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 26, 1998
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, 1997.
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, 1997
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. See Item 7 herein for a description of current market
conditions affecting the Registrant's business.
(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 the Registrant's 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
Registrant'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. For this reason, the
Registrant occasionally buys used containers. 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 revenue for the year ended December
31, 1997 which was 10% or more of the total rental revenue 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 92% of the total Equipment held
by all container leasing companies. The top two container leasing
companies combined control approximately 47% 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 manages
approximately 8% 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, availability 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. This decrease in demand along
with the entry of new leasing company competitors offering low
container rental rates to shipping lines has increased competition
among lessors such as the Registrant.
(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 7 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 149 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 13.77%, 15.62% and 14.18%, of the Registrant's rental
revenue during years ended December 31, 1997, 1996, and 1995,
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 a discussion of the risks of leasing
containers for use in world trade, "Risk Factors" in the Registrant's
Prospectus, as supplemented.
ITEM 2. PROPERTIES.
As of December 31, 1997, the Registrant owned the following types and quantities
of Equipment:
20-foot standard dry freight containers 3,369
20-foot refrigerated containers 101
40-foot standard dry freight containers 3,013
40-foot high cube dry freight containers 1,404
-----
7,887
During December 1997, approximately 81% 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.
ITEM 201:
(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. The program operates only when the Managing General
Partner determines, among other matters, that the payment for
redeemed units will not impair the capital or operations of
the Registrant.
(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, 1998, there were 2,022 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 701 - Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
(Amounts in thousands except for per unit amounts)
Year Ended December 31,
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Rental income....................... $ 4,784 $ 5,383 $ 6,479 $ 6,158 $ 5,994
Net earnings........................ $ 1,814 $ 2,382 $ 2,668 $ 1,792 $ 1,570
Net earnings per unit
of limited partnership
interest.......................... $ 1.21 $ 1.60 $ 1.79 $ 1.20 $ 1.04
Distributions per unit of
limited partnership
interest.......................... $ 2.00 $ 2.00 $ 1.95 $ 1.68 $ 2.20
Distributions per unit of
limited partnership
interest representing
a return of capital............... $ 0.79 $ 0.40 $ 0.16 $ 0.48 $ 1.16
Total assets........................ $ 18,560 $ 20,049 $ 20,914 $ 20,613 $ 21,661
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(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, 1997,
1996 and 1995. 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 offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,000 on April 8, 1988, and on October 26, 1989, the
Partnership's offering of limited partnership interests was closed at $29,491.
From time to time, the Partnership redeems units from limited partners 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. Primarily because excess cash was used to purchase
new Equipment, the Partnership did not redeem any units for the year ended
December 31, 1997.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the year ended December 31, 1997, the Partnership declared cash
distributions to limited partners pertaining to the fourth quarter of 1996 and
the first three quarters of 1997, in the amount of $2,944. These distributions
represent a return of 10% on 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, $1,161 of these distributions were a return of capital and the
balance was from net earnings.
For the year ended December 31, 1997, the Partnership had net cash provided by
operating activities of $4,640 compared with $3,907 for the equivalent period in
1996. The increase of $733 or 19% is primarily attributable to the decrease in
due from affiliates, net of $1,120, offset by a decrease in net earnings of
$568. The decrease in due from affiliates, net, was due to timing differences in
the accrual and payment of expenses and fees or in the accrual and remittance of
net rental revenues. Net earnings decreased 24% in 1997 from 1996 primarily due
to a 13% decrease in rental revenue. The decrease in rental revenue between
periods was due to a decline in utilization, rental rates and average fleet
size. These decreases are discussed more fully in "Results of Operations".
Net cash used in investing activities (the purchase and sale of Equipment) for
the year ended December 31, 1997 was $1,752 compared to net cash provided by
investing activities of $276 for the same period in 1996. The difference is due
to the fact that, on a cash basis, the Partnership bought significantly more
Equipment in 1997 than in 1996. The General Partners believe that this
difference reflects normal fluctuations in Equipment purchases. Primarily
because the Partnership is now in its ninth full year of operations, the General
Partners have determined that it is in the best interest of the Partnership to
no longer purchase additional Equipment. The Partnership intends to use the
anticipated excess cash to either redeem limited partnership units or make
special cash distributions.
At December 31, 1997, the Partnership had no commitments to purchase Equipment.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income, container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet ("inventory") during the years ended December 31, 1997, 1996 and
1995. The following is a summary of the container fleet (in units) available for
lease during those periods:
1997 1996 1995
---- ---- ----
Opening inventory....................... 7,849 8,471 8,245
Closing inventory....................... 7,887 7,849 8,471
Average................................. 7,868 8,160 8,358
The decline in the average container fleet of 4% from 1996 to 1997, and 2% from
1995 to 1996, was due to the Partnership having sold more Equipment than it
purchased. Although sales proceeds were used to purchase new Equipment, fewer
containers were bought than sold, resulting in a net decrease in the size of the
Equipment fleet. Average fleet size will continue to decline as the Partnership
sells containers that have reached the end of their useful lives since, as noted
above, the Partnership does not plan to invest sales proceeds in additional
Equipment. The decline in the container fleet has contributed to an overall
decline in rental income from 1996 to 1997 and 1995 to 1996 and will likely
continue to do so in future years.
Rental income and direct container expenses are also affected by lease
utilization percentages for the Equipment, which were 80%, 81% and 90% on
average during the years ended December 31, 1997, 1996 and 1995, respectively.
In addition, rental income is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
years ended December 31, 1997, 1996 and 1995.
The Partnership's income from operations for the years ended December 31, 1997
and 1996 was $1,536 and $1,945, respectively, on rental income of $4,784 and
$5,383, respectively. The decrease in rental income of $599, or 11%, from the
year ended December 31, 1996 to 1997, was primarily attributable to income from
container rentals, the major component of total revenue, which decreased by
$616, or 13%, from 1996 to 1997. As noted above, 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 4%, average on-hire utilization decreased 1%
and average daily rental rates decreased 9% from the year ended December 31,
1996 to the year ended December 31, 1997.
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 was primarily attributable
to rental income from container rentals, which decreased by $924, or 16%, from
1995 to 1996, due to decreases in the size of the average container fleet,
rental rates and utilization. Average inventory decreased 2%, average daily
rental rates decreased 4% and average on-hire utilization decreased 10%.
The declines in container utilization during 1996 and part of 1997 and in rental
rates during 1996 and 1997 were primarily due to decreased demand for leased
containers and increased competition. The decrease in demand for leased
containers resulted from changes in the business of shipping line customers
consisting primarily of (i) over-capacity resulting from the 1995 and 1996
additions of new, larger ships to the existing container ship fleet at a rate in
excess of the growth rate in containerized cargo trade; (ii) shipping line
alliances and other operational consolidations that have allowed shipping lines
to operate with fewer containers; and (iii) shipping lines reducing their ratio
of leased versus owned containers by purchasing containers. This decreased
demand, along with the entry of new leasing company competitors offering low
container rental rates to shipping lines, resulted in downward pressure on
rental rates, and also caused leasing companies to offer higher leasing
incentives and other discounts to shipping lines.
Utilization increased during the second and third quarters of 1997 and began
declining again during the fourth quarter of 1997 and into the beginning of
1998. Rental rates continued to decline into the beginning of 1998. For the near
term, the General Partners do not foresee any changes in existing market
conditions 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. At
December 31, 1997, 1996 and 1995 there were 112, 111 and 134 containers under
direct financing leases, respectively.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for handling and returning containers,
charges to lessees for pick-up of containers from prime locations less credits
granted to the lessees for leasing containers from less desirable locations
(location income), and income from charges to lessees for a Damage Protection
Plan (DPP). For the year ended December 31, 1997, the total of these other
rental income items increased $17, or 3%, over the equivalent period in 1996.
The primary cause of the increase in other revenue was due to an increase in
handling income of $45, or 28%, offset by a decrease in location income of $23,
or 19%. Handling income increased due to an increase in container movement,
partially offset by lower average handling charges to lessees from 1996 to 1997.
The decline in location income is due to lower average drop-off charges per
container which reduced drop-off charges to lessees during 1997 compared to
1996.
For the year ended December 31, 1996, the total of these other rental income
items decreased $172, or 26%, over the same period in 1995. The primary cause of
the decrease in other revenue was location income, which decreased $179. The
decrease in location income was due to lower demand, which increased credits to
lessees for picking up containers from less desirable locations, and to lower
average drop-off charges per container which reduced drop-off charges to
lessees.
Direct container expenses decreased $51, or 6%, from the year ended December 31,
1996, to the same period in 1997. The primary components of this decrease were
decreases in DPP and maintenance and repair expenses of $53 and $29,
respectively, offset by an increase in handling expense of $31. DPP and
maintenance and repair expenses decreased due to a lower average repair cost per
container in the year ended December 31, 1997, compared to the equivalent period
in 1996. Handling expenses increased due to the increased container movement in
1997 compared to 1996.
Direct container expenses increased $45, or 5%, from the year ended December 31,
1995, to the same period in 1996. The primary component of this increase was an
increase in storage expense of $127, which increased due to lower utilization
rates in the year ended December 31, 1996, compared to the same period in 1995.
Bad debt expense remained fairly constant between the years ending December 31,
1997 and 1996. Bad debt expense decreased $154 from the year ended December 31,
1996, compared to the same period in 1995, due to lower specific reserve
requirements for two specific lessees.
Depreciation expense decreased $75, or 5% and $310, or 17%, between the years
ended December 31, 1997 and 1996 and December 31, 1996 and 1995 due to the
decreases in the average fleet size and due to certain containers, acquired
used, which have now been fully depreciated.
In the fourth quarter of 1996 and the second quarter of 1997, pretax charges of
$114 and $33, respectively, were recorded to write down the value of the
refrigerated containers owned by the Partnership. During 1996 the carrying value
of these refrigerated containers was written down to an amount equal to the
estimated future discounted cash flows from these containers as there had been
no recent sales of this Equipment type. The Equipment was further written down
during 1997 based on the sales prices received in recent sales of this
Equipment. These charges were included in depreciation expense.
Management fees to affiliates decreased $45, or 9%, and $53, or 9%, between the
years ended December 31, 1997 and 1996 and the years ended December 31, 1996 and
1995, respectively, due to declines in Equipment management fees. Equipment
management fees, which are based primarily on gross revenue, declined as a
result of the decreases in rental income and were approximately 7% of gross
revenue for the periods. Incentive management fees, which are based on the
Partnership's limited and general partner distribution percentage and partners'
capital, remained constant at $124 for the years ending December 31, 1997, 1996
and 1995.
General and administrative costs to affiliates decreased 4%, or $13, for the
year ended December 31, 1997, compared to the same period in 1996. The decrease
was primarily the result of decreases in total overhead costs allocated from TEM
and TFS to the Partnership and due to the decrease in fleet size.
General and administrative costs to affiliates decreased 28%, or $117, for 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.
Other income includes a gain on sale of Equipment of $415 for the year ended
December 31, 1996, compared to a gain of $223 for the equivalent period in 1997.
Net interest income increased by $33 from the year ended December 31, 1997, to
the comparable period in 1996, due to higher average cash balances.
Other income includes a gain on sale of Equipment of $415 for the year ended
December 31, 1996, compared to a gain of $213 for the equivalent period in 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.
Net earnings per limited partnership unit decreased from $1.60 to $1.21 from the
year ended December 31, 1996, to the same period in 1997, reflecting the
decrease in limited partner net earnings from $2,352 to $1,783 for the
respective periods. Net earnings per limited partnership unit decreased from
$1.79 to $1.60 from the year ended December 31, 1995, to the same period in
1996, reflecting the decrease in limited partner net earnings from $2,631 to
$2,352 for the respective periods.
Many computer systems may experience difficulty processing dates beyond the year
1999 and, as such, some computer hardware and software will need to be modified
prior to the year 2000 to remain functional. The Partnership's and General
Partner's certain core internal systems that have recently been implemented are
year 2000 compliant. The remaining core internal systems are scheduled to be
revised to be year 2000 compliant by the end of 1998. Based on its initial
evaluation, the Partnership and the General Partners do not believe that the
cost of remedial actions relating to these systems will have a material adverse
effect on the Partnership's results of operations and financial condition.
Additionally, the Partnership and the General Partners are also completing a
preliminary assessment of year 2000 issues not related to its core systems,
including issues surrounding systems that interface with external third parties.
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 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, 1997 which would result in such a
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 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Inapplicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Attached pages 11 to 22.
<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, 1997 and 1996, and the
related statements of earnings, partners' capital and cash flows for each of the
years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations, its partners'
capital, and its cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 18, 1998
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Balance Sheets
December 31, 1997 and 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---------------- -----------------
Assets
Container rental equipment, net of accumulated
depreciation of $9,854 (1996: $10,343) $ 15,874 $ 15,601
Cash 1,166 1,253
Net investment in direct financing leases (note 4) 129 461
Accounts receivable, net of allowance
for doubtful accounts of $635 (1996: $687) 1,342 1,554
Due from affiliates, net (note 2) 8 1,170
Prepaid expenses 41 10
---------------- -----------------
$ 18,560 $ 20,049
================ =================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 130 $ 116
Accrued liabilities 7 -
Accrued recovery costs (note 1(j)) 28 17
Accrued damage protection plan costs (note 1(k)) 101 130
Accrued maintenance and repair costs (note 1(l)) 47 45
Warranty claims (note 1(m)) 196 260
Equipment purchases payable - 269
---------------- -----------------
Total liabilities 509 837
---------------- -----------------
Partners' capital:
General partners (36) (36)
Limited partners 18,087 19,248
---------------- -----------------
Total partners' capital 18,051 19,212
---------------- -----------------
$ 18,560 $ 20,049
================ =================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Earnings
Years ended December 31, 1997, 1996 and 1995
(Amounts in thousands except for unit and per unit
amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
------------------- ------------------- --------------------
Rental Income $ 4,784 $ 5,383 $ 6,479
------------------- ------------------- --------------------
Costs and expenses:
Direct container expenses 876 927 882
Bad debt expense 57 59 213
Depreciation (note 7) 1,472 1,547 1,857
Professional fees 39 31 35
Management fees to affiliates (note 2) 461 506 559
General and administrative costs
to affiliates (note 2) 288 301 418
Other general and administrative costs 55 67 68
------------------- ------------------- --------------------
3,248 3,438 4,032
------------------- ------------------- --------------------
Income from operations 1,536 1,945 2,447
------------------- ------------------- --------------------
Other income:
Interest income, net 55 22 8
Gain on sale of equipment (note 6) 223 415 213
------------------- ------------------- --------------------
278 437 221
------------------- ------------------- --------------------
Net earnings $ 1,814 $ 2,382 $ 2,668
=================== =================== ====================
Allocation of net earnings (note 1(g)):
General partners $ 31 $ 30 $ 37
Limited partners 1,783 2,352 2,631
------------------- ------------------- --------------------
$ 1,814 $ 2,382 $ 2,668
=================== =================== ====================
Limited partners' per unit share
of net earnings $ 1.21 $ 1.60 $ 1.79
=================== =================== ====================
Limited partners' per unit share
of distributions $ 2.00 $ 2.00 $ 1.95
=================== =================== ====================
Weighted average number of limited
partnership units outstanding (note 1(n)) 1,471,779 1,471,779 1,472,471
=================== =================== ====================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1997, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
Partners' Capital
---------------------------------------------------------
General Limited Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Balances at December 31, 1994 $ (36) $ 20,090 $ 20,054
Distributions (37) (2,872) (2,909)
Redemptions (note 1(o)) - (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
--------------- --------------- ---------------
Distributions (31) (2,944) (2,975)
Net earnings 31 1,783 1,814
--------------- --------------- ---------------
Balances at December 31, 1997 $ (36) $ 18,087 $ 18,051
=============== =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
--------------- --------------- ---------------
Cash flows from operating activities:
Net earnings $ 1,814 $ 2,382 $ 2,668
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,472 1,547 1,857
(Decrease) increase in allowance for doubtful accounts (52) 26 40
Gain on sale of equipment (223) (415) (213)
Changes in assets and liabilities:
Decrease in net investment in direct financing leases 335 306 261
Decrease (increase) in accounts receivable 264 124 (59)
Decrease (increase) in due from affiliates, net 1,120 49 (152)
(Increase) decrease in prepaid expenses (31) - 1
Increase (decrease) in accounts payable and
accrued liabilities 21 (82) (2)
Increase in accrued recovery costs 11 15 -
(Decrease) increase in accrued
damage protection plan costs (29) 1 (16)
Increase (decrease) in accrued maintenance and 2 18 (9)
repair costs
(Decrease) increase in warranty claim (64) (64) 152
--------------- --------------- ---------------
Net cash provided by operating activities 4,640 3,907 4,528
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from sale of equipment 1,590 1,348 768
Equipment purchases (3,342) (1,072) (2,523)
--------------- --------------- ---------------
Net cash (used in) provided by investing activities (1,752) 276 (1,755)
--------------- --------------- ---------------
Cash flows from financing activities:
(Repayment to) borrowings from affiliates - (435) 435
Redemptions of limited partnership units - - (9)
Distributions to partners (2,975) (2,987) (2,899)
--------------- --------------- ---------------
Net cash used in financing activities (2,975) (3,422) (2,473)
--------------- --------------- ---------------
Net (decrease) increase in cash (87) 761 300
Cash at beginning of period 1,253 492 192
--------------- --------------- ---------------
Cash at end of period $ 1,166 $ 1,253 $ 492
=============== =============== ===============
Interest paid during the period $ - $ 14 $ 4
=============== =============== ===============
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, 1997, 1996 and 1995
(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, 1997, 1996, 1995 and
1994, 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>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
---- ---- ---- ----
Equipment purchases included in:
Due to affiliates........................................ $ 12 $ 1 $ 44 $ 12
Equipment purchases payable.............................. - 269 430 4
Distributions to partners included in:
Due to affiliates........................................ 2 2 15 5
Proceeds from sale of container rental Equipment included in:
Accounts receivable...................................... - - 1 1
Due from affiliates...................................... 296 327 229 167
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, 1997, 1996 and 1995.
1997 1996 1995
---- ---- ----
Equipment purchases recorded.............................................. $3,084 $ 868 $2,981
Equipment purchases paid.................................................. 3,342 1,072 2,523
Distributions to partners declared........................................ 2,975 2,974 2,909
Distributions to partners paid............................................ 2,975 2,987 2,899
Proceeds from sale of container
rental Equipment recorded............................................... 1,559 1,445 830
Proceeds from sale of container
rental Equipment received............................................... 1,590 1,348 768
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 1997, 1996 and 1995
(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 with a maximum life of 20 years, was formed on
August 3, 1987. The Partnership was formed 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 and is a wholly-owned subsidiary of
Textainer Capital Corporation (TCC). Textainer Equipment Management
Limited (TEM) 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 classified as operating leases, or
direct financing leases if they so qualify under Statement of
Financial Accounting Standards No. 13: "Accounting for Leases".
Substantially all of the Partnership's rental income was generated
from the leasing of the Partnership's containers under short-term
operating leases.
(c) Use of Estimates
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.
(d) Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards 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, 1997 and 1996, the fair
value of the Partnership's financial instruments approximates the
related book value of such instruments.
(e) Equipment
The Equipment is recorded at the cost of the assets purchased, which
includes acquisition fees, less depreciation charged. 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 accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121), the Partnership
periodically compares the carrying value of the Equipment to expected
future cash flows for the purpose of assessing the recoverability of
the recorded amounts. If the carrying value exceeds expected future
cash flows, the assets are written down to fair value. Reductions to
the carrying value of the Equipment are described in Note 7.
(f) 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. 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 years ended December 31, 1997, 1996 and 1995.
(g) 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.
(h) 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.
(i) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees equal
to 5% of the Equipment purchase price are paid to TAS (see note 2).
These fees are capitalized as part of the cost of the Equipment.
(j) Recovery Costs
The Partnership accrues an estimate for recovery costs as a result of
defaults under its leases that it expects to incur, which are in
excess of estimated insurance proceeds. At December 31, 1997 and 1996,
the amounts accrued were $28 and $17, respectively.
(k) Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of
its Equipment. Under the terms of DPP, the Partnership earns
additional revenues on a daily basis and, in return, 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. DPP
expenses are included in direct container expenses in the Statements
of Earnings and the related reserve at December 31, 1997 and 1996, was
$101 and $130, respectively.
(l) Maintenance and Repair
The Partnership accrues maintenance and repair costs on damaged units
in depots. At December 31, 1997 and 1996, the amount accrued was $47
and $45, respectively.
(m) 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, 1997 and 1996, the unamortized
portion of the settlement amounts was equal to $196 and $260,
respectively.
(n) 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, 1,471,779, and 1,472,471 during the years ended December
31, 1997, 1996 and 1995, respectively.
(o) Redemptions
The following redemption offerings were consummated by the Partnership
during the year ended 1995:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
<S> <C> <C> <C> <C>
Balance forward at Dec. 31, 1994....... 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 and 1997. The redemption
price is fixed by formula, and varies depending on the length of time
the units have been outstanding.
(p) Reclassifications
Certain reclassifications, not affecting net earnings, have been made
to prior years' amounts in order to conform with the 1997 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 incurred $124 of incentive management fees during each
of the years ended December 31, 1997, 1996 and 1995 and incurred and
capitalized $159, $49, and $122 of equipment acquisition fees as part
of Equipment costs during the same periods. No equipment liquidation
fees were incurred in 1997, 1996 or 1995.
The Equipment of the Partnership is managed by TEM. 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 due from affiliates,
net at December 31, 1997 and 1996. 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.
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 1997, 1996 and 1995,
equipment management fees totaled $337, $382, and $435, respectively.
The Partnership's Equipment is leased by TEM and was leased by 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 incurred and paid by TFS, TEM, and, prior to the sale
of the Partnership's storage fleet in 1995, TSS. Total general and
administrative costs allocated to the Partnership were $288, $301 and
$418 for the years ended December 31, 1997, 1996 and 1995,
respectively, of which $157, $158, and $213 were for salaries.
TEM and TSS allocate these general and administrative 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. TFS
allocates these costs based on the ratio of the Partnership's
Equipment to the total Equipment of all limited partnerships managed
by TFS. General and administrative costs allocated to the Partnership
by TEM and TSS were $253, $260, and $352 for the years ended December
31, 1997, 1996 and 1995, respectively. TFS allocated $35, $41, and $66
of general and administrative costs to the Partnership during the same
periods.
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 affiliates, net is comprised of:
1997 1996
---- ----
Due from affiliates:
Due from TEM.......................... $ 38 $ 1,190
-------- ---------
Due to affiliates:
Due to TCC............................ 4 6
Due to TFS............................ 13 14
Due to TAS............................ 13 -
-------- ---------
30 20
-------- ---------
Due from affiliates, net $ 8 $ 1,170
======== =========
These 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.
It is the policy of the Partnership and the General Partners to charge
interest on intercompany balances outstanding for more than one month,
to the extent such balances relate to loans for 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, and $4, respectively, on intercompany balances payable
to TFS and TEM for the years ended December 31, 1996 and 1995. No such
interest was incurred during the year ended December 31,1997.
Note 3. Rentals Under Operating Leases
The following are the future minimum rent receivables under
cancelable long-term operating leases at December 31, 1997.
Although the leases are generally cancelable at the end of each
twelve-month period with a penalty, the following schedule assumes
that the leases will not be terminated.
Year ending December 31,
1998................................................ $ 297
1999................................................ 35
2000................................................ 16
-----
Total minimum future rentals receivable............. $ 348
====
Note 4. Direct Financing Leases
The Partnership has leased containers under direct finance leases with
terms ranging from two to eight years. The components of the net
investment in direct financing leases as of December 31, 1997 and 1996
are as follows:
1997 1996
---- ----
Future minimum lease payments receivable............ $ 135 $ 515
Residual value...................................... 2 2
Less: unearned income............................... (8) (56)
----- -----
Net investment in direct financing leases........... $ 129 $ 461
===== =====
The following is a schedule by year of minimum lease payments
receivable under the direct financing leases at December 31, 1997
Year ending December 31:
1998................................................ $131
1999................................................ 3
2000................................................ 1
-----
Total minimum lease payments receivable............. $ 135
====
Rental income for the years ended December 31, 1997, 1996, and 1995
includes $45, $98, and $135, respectively, of income from direct
financing leases.
Note 5. Income Taxes
At December 31, 1997, 1996 and 1995, there were temporary differences
of $8,603, $9,569, and $10,602, 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, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Net income per financial statements.................... $ 1,814 $ 2,382 $ 2,668
(Decrease) increase in provision for bad debt.......... (52) 26 40
Depreciation for income tax purposes in excess of
depreciation for financial statement purposes........ (246) (92) (1,144)
Gain on sale of fixed assets for federal income
tax purposes in excess of gain recognized for
financial statement purposes......................... 1,357 973 509
(Decrease) increase in damage protection
plan reserve......................................... (29) 1 (16)
Warranty reserve income for tax purposes in
excess of financial statement purposes............... (64) 125 (37)
------- ------ -------
Net income for
federal income tax purposes $ 2,780 $ 3,415 $ 2,020
===== ===== =====
</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, resulting in a gain of $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, as there had been no
recent sales of this Equipment type to indicate fair value.
During 1997, it was determined that an additional write-down of $33
was required based on 1997 sales of this Equipment. The write-downs
were recorded as additional depreciation expense during 1997 and 1996.
<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 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 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 TGH. (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, 1997, all Section 16(a) filing requirements
were complied with (except that Robert D. Pedersen, a newly appointed
director of TEM, filed his statement of beneficial interest on Form 3
late, which Form was filed on Form 5). No member of management, or
beneficial owner owned more than 10 percent of any interest in the
Partnership. None of the individuals subject to section 16(a), including
Mr. Pedersen, 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 64 Director and Chairman of TGH, TEM, TL, TCC and TFS
James E. Hoelter 58 President and CEO of TGH and TL, Director of TGH, TEM, TL, TCC, TFS and TSC
John A. Maccarone 53 President and CEO of TEM and TSC, Vice President of TGH, Director of TGH,
TEM, TL, TCC, TFS and TSC
John R. Rhodes 48 Executive Vice President, CFO, and Secretary of TGH, TEM, TL, TCC and TFS
and Director of TEM, TCC and TFS
Alex M. Brown 59 Director of TGH, TEM, TL, TCC, TFS and TSC
Harold J. Samson 76 Director of TGH, TL and TSC
Philip K. Brewer 41 President of TCC and TFS, Senior Vice President - Capital Markets
for TGH and TL
Robert D. Pedersen 39 Senior Vice President - Marketing for TEM, Director of TEM
Anthony C. Sowry 45 Vice President - Operations and Acquisitions for TEM
Jens W. Palludan 47 Regional Vice President - Americas/Africa/Australia for TEM
Wolfgang Geyer 44 Regional Vice President - Europe/Middle East/Persian Gulf for TEM
Mak Wing Sing 40 Regional Vice President - South Asia for TEM
Masanori Sagara 42 Regional Vice President - North Asia for TEM
Stefan Mackula 45 Vice President - Equipment Resale for TEM
Ernest J. Furtado 42 Vice President, Finance and Assistant Secretary of TGH, TL, TEM, TCC and
TFS, Director of TCC and TFS
Richard G. Murphy 45 Vice President - Risk Management for TEM
Janet S. Ruggero 49 Vice President - Administration and Marketing Services for TEM
Adnan Z. Abou Ayyash 53 Director of TGH and TL
Isam K. Kabbani 63 Director of TGH and TL
S. Arthur Morris 64 Director of TGH, TEM and TL
Dudley R. Cottingham 46 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Cara D. Smith 35 Member of Investment Advisory Committee
Nadine Forsman 30 Controller of TCC, TFS and TSC
</TABLE>
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TCC and TFS
and a member of the Investment Advisory 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 and
TL, and a director of TGH, TEM, TL, TCC, TFS 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, TCC and TFS. 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"), a marine container leasing company
based in San Francisco. Mr. Hoelter co-founded IEA in 1978 and was president
from inception until 1987. From 1976 to 1978, Mr. Hoelter was vice president for
Trans Ocean Ltd., San Francisco, a marine container leasing company, where he
was responsible for North America. From 1971 to 1976, he worked for Itel
Corporation, San Francisco, where he was director of financial leasing for the
container division. Mr. Hoelter received his B.B.A. in finance 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 and TSC, Vice President
of TGH and a director of TGH, TEM, TL, TCC, TFS 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.
John R. Rhodes is Executive Vice President, Chief Financial Officer
and Secretary of TGH, TEM, TL, TCC and TFS and a director of TEM, TCC and TFS.
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, TFS and TSC.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Mr. Brown is also a
director of Trencor Ltd. (1996 to present) and Forward Corporation (1997 to
present). Both companies are publicly traded and are listed on the Johannesburg
Stock Exchange. Mr. Brown became affiliated with the Textainer Group in April
1986. From 1987 until 1993, he was President and Chief Executive Officer of
Textainer, Inc. and the Chairman of the Textainer Group. Mr. Brown was the
managing director of Cross County Leasing in England from 1984 until it was
acquired by Textainer in 1986. From 1993 to 1997, Mr. Brown was Chief Executive
Officer of AAF, a company affiliated with Trencor Ltd. Mr. Brown was also
Chairman of WACO International Corporation, based in Cleveland, Ohio until 1997.
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 President of TCC and TFS and is Senior Vice
President - Capital Markets for TGH and TL. As President of TCC, Mr. Brewer is
responsible for overseeing the management of, and coordinating the activities of
TCC and TFS. As Senior Vice President, he is responsible for optimizing the
capital structure of and identifying new sources of finance for Textainer. Mr.
Brewer is a member of the Credit Committee, the Investment Advisory Committee,
and the Equipment Investment Committee (see "Committees" below). 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 Senior Vice President - Marketing for TEM and a
Director of TEM, responsible for worldwide sales and marketing related
activities. Mr. Pedersen is a member of the Equipment Investment Committee and
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. He is also a member of the Credit Committee and the Equipment Investment
Committee (see "Committees", below). 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. 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 Hackensack, New Jersey and is Regional
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.
Wolfgang Geyer is based in Hamburg, Germany and is Regional Vice
President - Europe/ Middle East/ Persian Gulf for TEM, responsible for
coordinating all leasing activities in these areas of operation. Mr. Geyer
joined Textainer in 1993 and was the Marketing Director in Hamburg through July
1997. Mr. Geyer most recently was the Senior Vice President, for Clou Container
Leasing, responsible for Clou's leasing activities on a worldwide basis. Mr.
Geyer work for Clou from 1991 to 1993. Mr. Geyer spent the remainder of his
leasing career, 1975 through 1991, with Itel Container, during which time he
held numerous positions in both operations and marketing within the company.
Mak Wing Sing is based in Singapore and is the Regional Vice President
- - South Asia for TEM, responsible for container leasing activities in
North/Central People's Republic of China, 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 based in Yokohama, Japan and is the Regional Vice
President - North Asia for TEM, 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, TL, TEM, TCC and TFS and a Director of TCC and TFS, in which capacity he
is responsible for all accounting, financial management, and reporting functions
for TGH, TL, TEM, TCC and TFS. Additionally, he is a member of the Equipment
Investment Committee and the Investment Advisory Committee (see "Committees",
below). 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 TEM's 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 18 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.
Cara D. Smith is a member of the Investment Advisory Committee (see
"Committees", below). Ms. Smith was the President and Chief Executive Officer of
TSC through June 1997 and a director of TCC and TFS through August 1997. 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.
Nadine Forsman is the Controller of TCC, TFS and TSC. In this capacity
she is responsible for accounting, financial management and reporting functions
for TCC, TFS and TSC as well as overseeing all communications with the Limited
Partners and as such, supervises personnel in performing this function. She is a
member of the Equipment Investment Committee and the Investment Advisory
Committee (See "Committees" below). Prior to joining Textainer in August 1996,
Ms. Forsman was employed by KPMG Peat Marwick LLP, holding various positions,
the most recent of which was manager, from 1990 to 1996. Ms Forsman holds a B.S.
in Accounting and Finance from San Francisco State University and holds a
financial and operations principal securities license.
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, Richard
G. Murphy (Secretary), Alex M. Brown, Philip K. Brewer, Robert D. Pedersen,
Ernest J. Furtado and Nadine Forsman.
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, Phillip K. Brewer 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, Ernest J.
Furtado (Secretary), Phillip K. Brewer, John R. Rhodes, Nadine Forsman, 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. For information
regarding reimbursements made by the Registrant to the General Partners, see
Note 2 of the Financial Statements.
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.
As of January 1, 1998:
Number
Name of Beneficial Owner Of Units % All Units
James E. Hoelter 2,500 0.17%
John A. Maccarone 1,665 0.11%
------ -----
Officers and Management as a Group 4,165 0.28%
====== =====
(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, 1997 and 1996, net due from affiliates is comprised
of:
1997 1996
---- ----
Due from affiliates:
Due from TEM.......................... $ 38 $ 1,190
----- -----
Due to affiliates:
Due to TCC............................ 4 6
Due to TFS............................ 13 14
Due to TAS............................ 13 -
----- -----
30 20
------ -----
Due from affiliates, net $ 8 $ 1,170
====== =====
All 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 or in the accrual and remittance of net rental
revenues from TEM.
In addition, the Registrant paid or will pay the following amounts to
the General Partners or TAS:
Acquisition fees in connection with the purchase of Equipment on
behalf of the Registrant:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
TAS.......................................... $ 159 $ 49 $ 122
===== === =====
Management fees in connection with the operations of the Registrant:
1997 1996 1995
---- ---- ----
TFS........................................... $ 99 $ 99 $ 99
TEM and TSS................................... 362 407 460
---- --- ---
Total......................................... $ 461 $ 506 $ 559
==== ===== ===
Reimbursement for administrative costs in connection with the
operations of the Registrant:
1997 1996 1995
---- ---- ----
TFS........................................... $ 35 $ 41 $ 66
TEM and TSS................................... 253 260 352
---- --- ---
Total......................................... $ 288 $ 301 $ 418
==== ===== ===
</TABLE>
(b) Certain Business Relationships.
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Management" and "Compensation of Affiliates" sections 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, 1997 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 1997, 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 18, 1998, we reported on the balance sheets of TCC
Equipment Income Fund (the Partnership) as of December 31, 1997 and 1996, and
the related statements of earnings, partners' capital and cash flows for each of
the years in the three-year period ended December 31, 1997, which are included
in the 1997 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 18, 1998
<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
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Allowance for
doubtful accounts $ 687 $ 57 $ - $ (109) $ 635
----- ------ -------- ------- -----
Recovery cost reserve $ 17 $ 60 $ - $ (49) $ 28
------ ------ -------- -------- ------
Damage protection
plan reserve $ 130 $ 87 $ - $ (116) $ 101
----- ------ -------- ------- -----
Maintenance and repair reserve $ 45 $ 104 $ - $ (102) $ 47
------ ----- -------- ------- ------
For the year ended December 31, 1996:
Allowance for
doubtful accounts $ 661 $ 59 $ - $ (33) $ 687
----- ------ -------- -------- -----
Recovery cost reserve $ 2 $ 57 $ - $ (42) $ 17
------- ------ -------- -------- ------
Damage protection
plan reserve $ 129 $ 140 $ - $ (139) $ 130
----- ----- -------- ------- -----
Maintenance and repair reserve $ 27 $ 133 $ - $ (115) $ 45
------ ----- -------- ------- -----
For the year ended December 31, 1995:
Allowance for
doubtful accounts $ 621 $ 213 $ - $ (173) $ 661
----- ----- -------- ------- -----
Recovery cost reserve $ 2 $ 53 $ - $ (53) $ 2
------- ------ -------- -------- -------
Damage protection
plan reserve $ 145 $ 126 $ - $ (142) $ 129
----- ----- -------- ------- -----
Maintenance and repair reserve $ 36 $ 127 $ - $ (136) $ 27
------ ----- -------- ------- ------
</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 26, 1998
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 March 26, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
_________________________ President (Principal Executive March 26, 1998
Phillip K. Brewer Officer)
_________________________ Vice President Finance, March 26, 1998
Ernest J. Furtado Assistant Secretary and Director
_________________________ Director March 26, 1998
James E. Hoelter
_________________________ Director March 26, 1998
John A. Maccarone
</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 26, 1998
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>
Signature Title Date
<S> <C> <C>
/s/ John R. Rhodes Executive Vice President March 26, 1998
_________________________ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/ Phillip K. Brewer President (Principal Executive March 26, 1998
_________________________ Officer)
Phillip K. Brewer
/s/ Ernest J. Furtado Vice President Finance, March 26, 1998
_________________________ Assistant Secretary and Director
Ernest J. Furtado
/s/ James E. Hoelter Director March 26, 1998
_________________________
James E. Hoelter
/s/ John A. Maccarone Director March 26, 1998
_________________________
John A. Maccarone
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TCC EQUIPMENT INCOME FUND 1997 10K
</LEGEND>
<CIK> 0000820083
<NAME> TCC EQUIPMENT INCOME FUND
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,166
<SECURITIES> 0
<RECEIVABLES> 2,114
<ALLOWANCES> 635
<INVENTORY> 0
<CURRENT-ASSETS> 41
<PP&E> 25,728
<DEPRECIATION> 9,854
<TOTAL-ASSETS> 18,560
<CURRENT-LIABILITIES> 509
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,051
<TOTAL-LIABILITY-AND-EQUITY> 18,560
<SALES> 0
<TOTAL-REVENUES> 4,784
<CGS> 0
<TOTAL-COSTS> 3,248
<OTHER-EXPENSES> (278)
<LOSS-PROVISION> 0
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<CHANGES> 0
<NET-INCOME> 1,814
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
