TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 26, 2003
Securities and Exchange Commission
Washington, DC 20549
Ladies & 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, 2002.
The financial statements included in the enclosed Annual Report on Form 10-K 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
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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
(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. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [ ]
State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the common equity was sold, or the average
bid and ask prices of such common equity, as of the last business day of the
registrant's most recently completed second fiscal quarter. 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.
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 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 $29,491,080 from the offering and invested a substantial
portion of the money raised in equipment. The Registrant has
since engaged in leasing this and other equipment in the
international shipping industry.
In October 1998, the Registrant entered into its liquidation
phase. During this phase, the Registrant will no longer add to
its container fleet but will instead sell its containers (i) in
one or more large transactions or (ii) gradually, either as they
reach the end of their useful marine lives or when an analysis
indicates that their sale is warranted based on existing market
conditions and the container's age, location and condition. To
date, the Partnership has sold containers only gradually rather
than in large transactions. Sales proceeds, after reserves for
working capital, will generally be distributed to the Partners.
The Registrant will be terminated and dissolved on the earlier of
December 31, 2007 or the sale of all or substantially all of its
equipment.
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 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.
Container leasing companies and the Registrant operate in a
similar manner by owning a worldwide fleet of new and used
transportation containers and leasing these containers to
international shipping companies hauling various types of goods
among numerous trade routes. All lessees pay a daily rental rate
and in certain markets may pay special handling fees and/or
drop-off charges. In addition to these fees and charges, a lessee
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 certain physical
damage to containers. Container leasing companies compete with
one another on the basis of lease rates, fees charged, services
provided and availability of equipment. To ensure the
availability of equipment to its customers, container leasing
companies and the Registrant may pay to reposition containers
from low demand locations to higher demand locations. By
maintaining the highest lease rates and the highest equipment
utilization allowed by market conditions, the Registrant attempts
to generate revenue and profit.
The majority of the Registrant's equipment is leased under master
operating leases, which are comparable to the corporate rate
agreements used by rental car companies. The master leases
provide that the lessee, 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
under lease 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.
A substantial portion of the Partnership's equipment is leased
under long-term lease agreements, rather than master leases.
Unlike master lease agreements, long-term lease agreements
provide for containers to be leased for periods of between three
to five years. Such leases are generally cancelable with a
penalty at the end of each twelve-month period. Direct finance
leases currently cover a minority of the Partnership's equipment.
Under direct finance leases, the containers are usually leased
from the Partnership for the remainder of the container's useful
life with a purchase option at the end of the lease term. 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.
(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 generated lease revenue for the years ended
December 31, 2002, 2001 and 2000 which was 10% or more of the
total 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 85% of the total equipment held
by all container leasing companies. The top two container leasing
companies combined control approximately 26% 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 largest standard dry freight container leasing company and
manages approximately 14% of the equipment held by all container
leasing companies. The customers for leased containers are
primarily international shipping lines. 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. Competition in the container
leasing market has increased over the past few years. Since 1996,
shipping alliances and other operational consolidations among
shipping lines have allowed shipping lines to begin operating
with fewer containers, thereby decreasing the demand for leased
containers and allowing lessees to gain concessions from lessors
about price, special charges or credits and, in certain markets,
the age specification of the containers leased. Furthermore,
primarily as a result of lower new container prices and low
interest rates, shipping lines now own, rather than lease, a
higher percentage of containers. The decrease in demand from
shipping lines, along with the entry of new leasing company
competitors offering low container rental rates, has increased
competition among container lessors such as the Registrant.
Furthermore, changes in worldwide demand for shipping have placed
additional strains on competition. Utilization of containers can
be maximized if containers that come off-lease can be re-leased
in the same location. If demand for containers is strong in some
parts of the world and weak in others, containers that come
off-lease may have to be repositioned, usually at the
Registrant's expense, before they can be re-leased. Over the last
several years, demand for goods brought into Asia has been lower
than demand for goods brought out of Asia. This imbalance has
created low demand locations in certain areas of international
shipping routes, where containers coming off-lease after the
delivery of goods cannot quickly be re-leased. The Registrant has
frequently been required to reposition containers from these low
demand locations, or to sell containers, if an analysis indicates
that the sale may yield greater economic benefits than continued
ownership, given the costs of repositioning and estimates of
future rental rates and opportunities. Containers sold in these
low demand locations have frequently been older containers.
Shipping lines have an advantage over container leasing companies
with respect to these low demand locations, because the shipping
companies can frequently reposition their own containers while
leasing companies have to find alternative ways of repositioning
their containers including offering incentives to shipping lines
or paying directly for the repositioning.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant has no employees. Textainer Financial Services
Corporation (TFS), a wholly owned subsidiary of Textainer Capital
Corporation (TCC), the Managing General Partner of the
Registrant, is responsible for the overall management of the
business of the Registrant and at December 31, 2002 had 3
employees. Textainer Equipment Management Limited (TEM), an
Associate General Partner, is responsible for the management of
the leasing operations of the Registrant and at December 31, 2002
had a total of 147 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 10%, 13% and 15% of the Registrant's rental revenue
during the years ended December 31, 2002, 2001 and 2000,
respectively, was derived from operations sourced or terminated
domestically. These percentages do not reflect the proportion of
the Partnership's income from operations generated domestically
or 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", in the
Registrant's Prospectus, as supplemented and for a discussion of
the risks of leasing containers for use in world trade see "Risk
Factors and Forward-Looking Statements" in Item 7 herein.
ITEM 2. PROPERTIES
As of December 31, 2002, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 1,804
40-foot standard dry freight containers 1,058
40-foot high cube dry freight containers 960
-----
3,822
=====
During December 2002, approximately 81% of these containers were on lease to
international shipping companies, and the balance were being stored primarily at
a large number of storage depots located worldwide. At December 31, 2002
approximately 11% of the Partnership's off-lease equipment had been specifically
identified as for sale. Generally, the Partnership sells containers (i) that
have reached the end of their useful lives or (ii) that an analysis indicates
that their sale is otherwise warranted. The Partnership expects more containers
to be identified as for sale for these reasons and as the Partnership continues
its liquidation plans. Some containers identified for sale have been written
down, as described below in Item 7, "Results of Operations."
For information about the Registrant's property, see "Business of the
Partnership" in the Registrant's Prospectus, as supplemented. See also Item 7,
"Results of Operations" for more information about container sales and
write-downs, as well as the location of the Registrant's off-lease containers.
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
PART 201:
(a) Market Information.
(a)(1)(i) The Registrant's limited partnership Units 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, 2003, there were 1,902 holders of record of
limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
The Registrant makes quarterly distributions to its limited partners in an
amount equal to the Registrant's excess cash, after redemptions and working
capital reserves. During the year ended December 31, 2002, the Registrant paid
distributions at an annualized rate equal to 4.6% of a Unit's initial cost, or
$0.93 per Unit. For the year ended December 31, 2001, the Registrant was paying
monthly distributions at an annualized rate of 7.4% of a Unit's initial cost or
$1.48 per Unit. For information about the amount of distributions paid during
the five most recent fiscal years, see Item 6, "Selected Financial Data."
PART 701: Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands except for per unit amounts)
Years Ended December 31,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Rental income....................... $ 1,665 $ 2,137 $ 2,885 $ 3,204 $ 4,358
(Loss) income from operations....... $ (76) $ 325 $ 915 $ 411 $ 1,475
Net (loss) earnings................. $ (70) $ 343 $ 954 $ 458 $ 1,569
Net (loss) earnings per unit
of limited partner
interest.......................... $ (0.06) $ 0.22 $ 0.63 $ 0.27 $ 1.02
Distributions per unit of
limited partner
interest........................... $ 0.93 $ 1.48 $ 2.00 $ 2.85 $ 2.50
Distributions per unit of
limited partner
interest representing
a return of capital................ $ 0.93 $ 1.26 $ 1.37 $ 2.58 $ 1.48
Total assets........................ $ 6,801 $ 8,283 $10,294 $12,465 $16,271
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, 2002,
2001 and 2000. Please refer to the Financial Statements and Notes thereto in
connection with the following discussion.
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 General
Partners manage and control the affairs of the Partnership.
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.
In October 1998, the Partnership entered its liquidation phase, which may last
up to six or more years depending on whether the containers are sold (i) in one
or more large transactions or (ii) gradually, either as they reach the end of
their useful marine lives or when an analysis indicates that their sale is
warranted based on existing market conditions and the container's age, location
and condition. To date, the Partnership has sold containers only gradually,
rather than in large transactions. The Partnership anticipates that all excess
cash, after redemptions and working capital reserves, will be distributed to the
general and limited partners on a quarterly basis. These distributions will
consist of cash from operations and/or cash from sales proceeds. As the
Partnership's container fleet decreases, cash from operations is expected to
decrease, while cash from sales proceeds is expected to fluctuate based on the
number of containers sold and the actual sales price per container received.
Consequently, the Partnership anticipates that a large portion of all future
distributions will be a return of capital.
The final termination and winding up of the Partnership, as well as payment of
liquidating and/or final distributions, will occur at the end of the liquidation
phase when all or substantially all of the Partnership's containers have been
sold and the Partnership begins its dissolution.
The Partnership invests working capital and cash flow from operations and
investing activities prior to its distribution to the partners in short-term,
liquid investments. Rental income and proceeds from container sales are the
Partnership's principal sources of liquidity and the source of funds for
distributions. Rental income and container sales prices are affected by market
conditions for leased and used containers. Market conditions are discussed more
fully in "Results of Operations." 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, 2002, the Partnership declared cash
distributions to limited partners pertaining to the fourth quarter of 2001
through the third quarter of 2002 in the amount of $1,322, which represented
$0.93 per unit. On a cash basis, after paying redemptions and general partner
distributions, $728 of these distributions was from operating activities and the
balance of $594 was a return of capital. On a financial statement basis, all of
these distributions were a return of capital.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value, which is set by formula. 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. During the year ended December 31, 2002, the
Partnership redeemed 17,149 units for a total dollar amount of $70. The
Partnership used cash flow from operations to pay for the redeemed units.
Net cash provided by operating activities for the years ended December 31, 2002
and 2001, was $816 and $1,442, respectively. The decrease of $626, or 43% was
primarily attributable to the decrease in net earnings, adjusted for non-cash
transactions, and fluctuations in gross accounts receivable and due from
affiliates, net. Net earnings, adjusted for non-cash transactions, decreased
primarily due to the decrease in rental income, and was partially offset by the
decrease in direct container expenses. These items are discussed more fully
under "Results of Operations." The decrease of $65 in gross accounts receivable
for the year ended December 31, 2002 was primarily due to the decrease in rental
income, partially offset by an increase in the average collection period of
accounts receivable. The decrease of $178 in gross accounts receivable during
the same period in 2001 was primarily due to the decrease in rental income.
Fluctuations in due from affiliates, net resulted from timing differences in the
payment of expenses, fees, and distributions and the remittance of net rental
revenues and container sales proceeds, as well as in fluctuations in these
amounts.
For the years ended December 31, 2002 and 2001, net cash provided by investing
activities (the sale of containers) was $575 and $670, respectively. The
decrease of $95 was due to the decrease in the number of containers sold and a
decrease in the average sales price received on container sales, offset by the
receipt of sales proceeds related to containers sold during 2001. The sales
price received on container sales continued to decrease as a result of current
market conditions, which have adversely affected the value of used containers,
particularly in certain low demand locations. Some of the containers sold were
located in low demand locations, and these sales were driven by the liquidation
plans discussed above, and by adverse market conditions in these locations.
Until demand for containers improves in certain low demand locations, the
Partnership plans to continue selling some of its containers that are off-lease
in these locations. The sale of containers in these locations, the decline in
the value of used containers and the related market conditions are discussed
more fully under "Results of Operations."
Due, in part, to current market conditions and their effect on demand for used
containers, the Partnership has been primarily selling containers only if the
containers are at the end of their useful lives or if they are located in these
low demand locations. Therefore, and as noted above, the Partnership has
implemented its liquidation phase to date by selling containers gradually. The
Partnership will continue to evaluate its options for selling containers in the
context of both these market conditions and the Partnership's liquidation plans.
The number of containers sold both in low demand locations and elsewhere, as
well as the amount of sales proceeds, will affect how much the Partnership will
pay in future distributions to Partners.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income less costs and expenses (including container depreciation, direct
container expenses, management fees, and reimbursement of administrative
expenses) was directly related to the size of the container fleet during the
years ended December 31, 2002, 2001 and 2000, as well as certain other factors
as discussed below. The following is a summary of the container fleet (in units)
available for lease during those periods:
2002 2001 2000
---- ---- ----
Beginning container fleet............... 4,416 5,119 5,771
Ending container fleet.................. 3,822 4,416 5,119
Average container fleet................. 4,119 4,768 5,445
The average container fleet decreased 14% and 12% from the years ended December
31, 2001 to 2002 and from December 31, 2000 to 2001, respectively, primarily due
to the continuing sale of containers (i) that had reached the end of their
useful lives or (ii) that an analysis had indicated that their sale was
otherwise warranted. Included in this second group were containers located in
low demand locations. The Partnership expects that the size of its container
fleet will further decline as additional containers are sold for these reasons
and as the Partnership continues its liquidation plans. The decline in the
container fleet has contributed to an overall decline in rental income from the
years ended December 31, 2001 to 2002 and December 31, 2000 to 2001. These
declines are expected to continue in future years, as the size of the
Partnership's container fleet continues to decrease.
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 70%, 68% and 80% on average during
the years ended December 31, 2002, 2001 and 2000, respectively. The remaining
container fleet is off-lease and is being stored primarily at a large number of
storage depots. At December 31, 2002 and 2001, utilization was 81% and 62%,
respectively, and the Partnership's off-lease containers (in units) were located
in the following locations:
2002 2001
---- ----
Americas 382 462
Europe 220 298
Asia 80 849
Other 17 28
--- -----
Total off-lease containers 699 1,637
=== =====
At December 31, 2002 approximately 11% of the Partnership's off-lease containers
had been specifically identified as for sale.
In addition to utilization, rental income is affected by daily rental rates. The
average daily rental rate decreased 10% between the periods. The decrease in the
average rental rate was due to declines in both master and long term lease
rates, which are the two principal types of leases for the Partnership's
containers. The majority of the Partnership's rental income was generated from
leasing of the Partnership's containers under master operating leases, but in
the past several years the percentage of the Partnership's containers on lease
under long term leases has increased. At both December 31, 2002 and 2001
approximately 30% of the Partnerships containers were on lease under long term
leases. Long term leases generally have lower rental rates than master leases
because the lessees have contracted to lease the containers for several years
and cannot return the containers prior to the termination date without a
penalty. Fluctuations in rental rates under either type of lease generally will
affect the Partnership's operating results.
The following is a comparative analysis of the results of operations for the
years ended December 31, 2002, 2001 and 2000:
The Partnership's (loss) income from operations for the years ended December 31,
2002 and 2001 was ($76) and $325, respectively, on rental income of $1,665 and
$2,137, respectively. The decrease in rental income of $472, or 22%, from the
year ended December 31, 2001 to the comparable period in 2002 was attributable
to decreases in income from container rentals and other rental income, which is
discussed below. Income from container rentals, the major component of total
revenue, decreased $419, or 23%, primarily due to decreases in the average
container fleet of 14% and average rental rates of 10%, offset by the increase
in average on-hire utilization of 3% between the periods.
The Partnership's income from operations for the years ended December 31, 2001
and 2000 was $325 and $915, respectively, on rental income of $2,137 and $2,885,
respectively. The decrease in rental income of $748 or 26%, from the year ended
December 31, 2000 to the comparable period in 2001 was attributable to a
decrease in income from container rentals, offset by an increase in other rental
income. Income from container rentals decreased $762, or 29%, primarily due to
decreases in the average on-hire utilization of 15% and the average container
fleet of 12% between the periods.
In the fourth quarter of 2000, utilization began to decline and continued to
decline during 2001 and the beginning of 2002. This decline was due to lower
overall demand by shipping lines for leased containers, which was primarily a
result of the worldwide economic slowdown. Two other factors reduced the demand
for leased containers. Shipping lines added larger vessels to their fleets,
which combined with lower cargo volume growth, made it easier for them to use
otherwise empty vessel space to reposition their own containers back to high
demand locations. Additionally, in anticipation of the delivery of these new,
larger vessels, many shipping lines placed large orders for new containers in
2000 and 2001, thus temporarily reducing their need to lease containers. These
orders for additional containers are part of a general increase in vessel
capacity for the shipping lines. This increase in vessel capacity amounted to
12% in 2001 and 10% in 2002.
Utilization has improved steadily since March 2002 through the end of 2002 due
to:
o An increase in export cargo out of Asia
o Prior repositioning of containers to Asia which placed large quantities of
containers in areas of high demand
o Disposal of older containers and fewer purchases of new containers by both
container lessors and shipping lines in 2001 and 2002, resulting in an
overall better-balanced supply of containers
o The labor disagreement that affected U.S. West Coast ports in the third and
part of the fourth quarter had short-term positive effects on demand for
containers as shipping lines were not able to reposition enough containers
to Asia and had to lease more containers to meet their customers' demands
Although utilization appears to have stabilized in the beginning of 2003, the
General Partners caution that market conditions could deteriorate again due to
global economic conditions. Demand for leased containers could therefore weaken
again and result in a decrease in utilization and further declines in lease
rates and container sale prices, adversely affecting the Partnership's operating
results.
Despite the improvement in utilization, the Partnership continues to sell
(rather than reposition) some older containers located in low demand locations.
For the number of off-lease containers located in the lower demand locations in
the Americas and Europe, see chart above. The decision to sell containers is
based on the current expectation that the economic benefit of selling these
containers is greater than the estimated economic benefit of continuing to own
these containers. The majority of the containers sold are older containers. The
expected economic benefit of continuing to own these older containers is
significantly less than that of newer containers. This is due to their shorter
remaining marine life, the cost to reposition them, and the shipping lines'
preference for leasing newer containers when they have a choice.
Once the decision was made to sell containers, the Partnership wrote down the
value of these specifically identified containers when the carrying value was
greater than the container's estimated fair value, which was based on recent
sales prices less cost of sales. Due to declines in container sales prices, the
actual sales prices received on some containers were lower than the estimates
used for the write-down, resulting in the Partnership incurring losses upon the
sale of some of these containers. Until market conditions improve, the
Partnership may incur further write-downs and/or losses on the sale of such
containers before they reach the end of their useful life. The Partnership will
continue to evaluate whether additional write-downs are necessary for its
container rental equipment.
Other rental income consists of other lease-related items, primarily income from
charges to lessees for dropping off containers in surplus locations less credits
granted to lessees for leasing containers from surplus locations (location
income), income from charges to lessees for handling related to leasing and
returning containers (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP). For the year ended December 31, 2002, other rental
income was $238, a decrease of $53 from the equivalent period in 2001. The
decrease in other rental income was primarily due to decreases in DPP and
location income of $37 and $23, respectively. DPP income declined primarily due
to the decrease in the number of containers covered under DPP and a decrease in
the average DPP price charged per container. Location income declined primarily
due to a decrease in charges to lessees for dropping off containers in surplus
locations.
For the year ended December 31, 2001, other rental income was $291, an increase
of $14 from the equivalent period in 2000 despite the decline in average fleet
size. The increase in other rental income was primarily due to an increase in
location income of $22, offset by a decrease in handling income of $11. Location
income increased primarily due to the decline in credits granted to lessees for
picking up containers from surplus locations as there were fewer lease-out
opportunities for which credits could be offered. Handling income declined due
to the decline in average fleet size and a decrease in container movement,
partially offset by an increase in the average handling price charged per
container during the year ended December 31, 2001 compared to the equivalent
period in 2000.
Direct container expenses decreased $162, or 25%, from the year ended December
31, 2001 to the equivalent period in 2002, primarily due to the decline in the
average fleet size. The declines in storage, repositioning, and DPP expenses
were $69, $49, and $32, respectively. Storage expense decreased due to the
decrease in average fleet size, the increase in utilization noted above and a
lower average storage cost per container. Although the Partnership repositioned
more containers during 2002 compared to 2001, repositioning expense decreased
due to the decrease in the average repositioning cost per container due to
shorter average repositioning moves. DPP expense declined due to the decrease in
the number of containers covered under DPP and the decrease in the average DPP
repair cost per container.
Direct container expenses increased $166, or 35%, from the year ended December
31, 2000 to the equivalent period in 2001, despite the decline in average fleet
size. The increase was primarily due to increases in storage, maintenance, and
repositioning expenses of $106, $48 and $31, respectively. Storage expense
increased due to the decrease in average utilization noted above and an increase
in the average storage cost per container. Maintenance expense increased
primarily as the amortization of the reserves for warranty claims, which reduced
maintenance expense, were fully amortized during 2001. Repositioning expense
increased primarily due to the increase in the average cost to reposition
containers during the year ended December 31, 2001 compared to the same period
in 2000.
Bad debt benefit was $4, $8 and $22 for the years ended December 31, 2002, 2001
and 2000, respectively. Fluctuations in bad debt benefit reflect the adjustment
to the bad debt allowance and are based on management's then current estimates
of the portion of accounts receivable that may not be collected, and which will
not be covered by insurance. These estimates are based primarily on management's
current assessment of the financial condition of the Partnership's lessees and
their ability to make their required payments. The benefits recorded during the
years ended December 31, 2002, 2001 and 2000 reflect slightly lower reserve
estimates at December 31, 2002, 2001 and 2000 than at December 31, 2001, 2000
and 1999 respectively.
Depreciation expense increased $57, or 7%, from the year ended December 31, 2001
to 2002 despite the decline in average fleet size. The increase was primarily
due an increase in the depreciation rate as a result of a change in estimated
salvage values as discussed below. Depreciation expense decreased $177, or 18%,
from the year ended December 31, 2000 to 2001. The decrease was primarily due to
the declines in the average fleet size noted above.
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated residual
dollar value. The effect of this change for the year ended December 31, 2002 was
an increase to depreciation expense of $240. The Partnership will evaluate the
estimated residual values and remaining estimated useful lives on an on-going
basis and will revise its estimates as needed. As a result, depreciation expense
may fluctuate in future periods based on fluctuations in these estimates. If the
estimates regarding residual value and remaining useful life of the containers
were to decline, depreciation expense would increase, adversely affecting the
Partnership's operating results.
The Partnership stopped purchasing containers in 1998, but its leasing
activities are affected by fluctuations in new container prices. New container
prices steadily declined from 1995 through 1999. Although container prices
increased in 2000, these prices declined again in 2001 and remained low during
2002. As a result, the cost of new containers purchased in recent years is
significantly less than the average cost of containers purchased in prior years.
The Partnership evaluated the recoverability of the recorded amount of container
rental equipment at December 31, 2002 and 2001 for containers to be held for
continued use and determined that a reduction to the carrying value of these
containers was not required. The Partnership also evaluated the recoverability
of the recorded amount of containers identified for sale in the ordinary course
of business and determined that a reduction to the carrying value of these
containers was required. The Partnership wrote down the value of these
containers to their estimated fair value, which was based on recent sales prices
less cost to sell. During the years ended December 31, 2002, 2001 and 2000, the
Partnership recorded write-down expenses of $107, $115 and $72, respectively, on
201, 320 and 179 containers identified as for sale and requiring a reserve.
During the year ended December 31, 2002, the Partnership also transferred 41
containers from containers identified for sale to containers held for continued
use due to the improvement in demand for leased containers in Asia. There were
no transfers during the years ended December 31, 2001 and 2000. At December 31,
2002 and 2001, the net book value of the 75 and 167 containers identified for
sale was $79 and $144, respectively.
The Partnership sold 257 previously written down containers for a gain of $8
during the year ended December 31, 2002 and sold 243 previously written down
containers for a loss of $16 during the same period in 2001. During the year
ended December 31, 2000 the Partnership sold 205 previously written down
containers for a loss of $4. The Partnership incurred losses on the sale of some
containers previously written down as the actual sales prices received on these
containers were lower than the estimates used for the write-downs.
The Partnership also sold containers that had not been written down and recorded
gains of $44, $5 and $91 during the years ended December 31, 2002, 2001 and
2000, respectively.
As more containers are subsequently identified as for sale or if container sales
prices continue to decline, the Partnership may incur additional write-downs on
containers and/or may incur losses on the sale of containers. The Partnership
will continue to evaluate the recoverability of the recorded amounts of
container rental equipment.
Management fees to affiliates increased $64, or 78%, from the year ended
December 31, 2001 to the same period in 2002 due to an increase in incentive
management fees, offset by a decrease in equipment management fees. Incentive
management fees, which are based on the Partnership's limited and general
partner distributions made from cash from operations and partners' capital,
increased $97. This fluctuation was due to an adjustment of $121 recorded in the
year ended December 31, 2001 to reduce incentive management fees for
overpayments made during 1999 and 2000, offset by the decrease in the amount of
distributions paid from cash from operations. Equipment management fees
decreased $33 due to the decrease in rental income, upon which equipment
management fees are primarily based. These fees were approximately 7% of rental
income for both periods.
Management fees to affiliates decreased $236, or 74%, from the year ended
December 31, 2000 to the same period in 2001 due to decreases in incentive and
equipment management fees. Incentive management fees decreased $186 due to the
adjustment of $121 discussed above and due to a decrease in the amount of
distributions paid from cash from operations between the two periods. Equipment
management fees decreased $49 due to the decrease in rental income. These fees
were approximately 7% of rental income for both periods.
General and administrative costs to affiliates decreased $17, or 17%, and $36,
or 26%, from the years ended December 31, 2001 to 2002 and December 31, 2000 to
2001, respectively. These decreases were primarily due to decreases in overhead
costs allocated from TEM, as the Partnership represented a smaller portion of
the total fleet managed by TEM.
The Partnership Agreement provides for the ongoing payment to the General
Partners of the management fees and the reimbursement of the expenses discussed
above. Since these fees and expenses are established by the Agreement, they
cannot be considered the result of arms' length negotiations with third parties.
The Partnership Agreement was formulated at the Partnership's inception and was
part of the terms upon which the Partnership solicited investments from its
limited partners. The business purpose of paying the General Partners these fees
is to compensate the General Partners for the services they render to the
Partnership. Reimbursement for expenses is made to offset some of the costs
incurred by the General Partners in managing the Partnership and its container
fleet. More details about these fees and expenses are included in footnote 2 to
the Financial Statements.
Other general and administrative costs increased $35, or 88%, from the year
ended December 31, 2001 to 2002. The increase was primarily due to increases in
other service fees between the periods. For the years ended December 31, 2001
and 2000, other general and administrative costs were comparable at $40 and $47,
respectively.
Gain on sale of containers increased $63 to a gain of $52 from the year ended
December 31, 2001 to 2002 and decreased $98 to a loss of $11 from the year ended
December 31, 2000 to 2001. These fluctuations were primarily due to the
Partnership selling containers for average gains during 2002 and 2000 and
average losses during 2001.
Net earnings/loss per limited partnership unit fluctuated from earnings of $0.22
during the year ended December 31, 2001 to a loss of $0.06 during the equivalent
period in 2002, reflecting the fluctuation in net earnings/loss allocated to
limited partners from earnings of $314 to a loss of $88, respectively. Net
earnings per limited partnership unit decreased from $0.63 to $0.22 from the
year ended December 31, 2000 to the equivalent period in 2001, reflecting the
decrease in net earnings allocated to limited partners from $915 to $314. The
allocation of net earnings for the years ended December 31, 2002, 2001 and 2000
included a special allocation of gross income to the General Partners of $19,
$26, and $29, respectively, in accordance with the Partnership Agreement.
Critical Accounting Policies and Estimates
The Partnership's discussion and analysis of its financial condition and results
of operations are based upon the Partnership's financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. 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. The Partnership's management evaluates its estimates on an
on-going basis, including those related to the container rental equipment,
accounts receivable, and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its lessees to make required payments. These
allowances are based on management's current assessment of the financial
condition of the Partnership's lessees and their ability to make their required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required, which would adversely affect the
Partnership's operating results.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased containers
and the estimated sales price at the end of the container's useful life.
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated dollar
residual value, reflecting current expectations of ultimate residual values. The
Partnership will evaluate the estimated residual values and remaining estimated
useful lives on an on-going basis and will revise its estimates as needed. As a
result, depreciation expense may fluctuate in future periods based on
fluctuations in these estimates. If the estimates regarding residual value and
remaining useful life of the containers were to decline, depreciation expense
would increase, adversely affecting the Partnership's operating results.
Additionally, the recoverability of the recorded amounts of containers to be
held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are not
impaired and that containers identified for sale are recorded at amounts that do
not exceed the estimated fair value of the containers. Containers to be held for
continued use are considered impaired and are written down to estimated fair
value when the estimated future undiscounted cash flows are less than the
recorded values. Containers identified for sale are written down to estimated
fair value when the recorded value exceeds the estimated fair value. In
determining the estimated future undiscounted cash flows and fair value of
containers, assumptions are made regarding future demand and market conditions
for leased containers and the sales prices for used containers. If actual market
conditions are less favorable than those projected or if actual sales prices are
lower than those estimated by the Partnership, additional write-downs may be
required and/or losses may be realized. Any additional write-down or losses
would adversely affect the Partnership's operating results.
Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses of Debt
Extinguishments" and an amendment of that Statement, FASB Statement No. 64. SFAS
No. 145 also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers." FASB 145 also amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
These rescissions and amendment are not anticipated to have a material impact on
the financial statements of the Partnership.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated With
Exit or Disposal Activities". SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Partnership anticipates that the
adoption of SFAS No. 146 will not have a material impact on its financial
statements.
Risk Factors and Forward Looking Statements
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 containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, including bad debts, increases in maintenance expenses or other
costs of operating the containers, 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. See "Critical
Accounting Policies and Estimates" above for information on the Partnership's
critical accounting policies and how changes in those estimates could adversely
affect the Partnership's results of operations.
The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing therefore,
alterations in the costs of maintaining and repairing used containers, increases
in competition, changes in the Partnership's ability to maintain insurance for
its containers and its operations, the effects of political conditions on
worldwide shipping and demand for global trade or of other general business and
economic cycles on the Partnership, as well as other risks detailed herein and
from time to time in the Partnership's filings with the Securities and Exchange
Commission. The Partnership does not undertake any obligation to update
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Attached pages 16 to 29.
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, 2002 and 2001, and the
related statements of operations, partners' capital and cash flows for each of
the years in the three-year period ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TCC Equipment Income Fund as of
December 31, 2002 and 2001, 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, 2002 in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
San Francisco, California
February 14, 2003
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Balance Sheets
December 31, 2002 and 2001
(Amounts in thousands)
- ---------------------------------------------------------------------------------------------------
2002 2001
------------- -------------
Assets
Container rental equipment, net of accumulated
depreciation of $6,154 (2001: $6,773) (note 1(e)) $ 5,832 $ 7,274
Cash 513 533
Accounts receivable, net of allowance
for doubtful accounts of $24 (2001: $56) 410 431
Due from affiliates, net (note 2) 29 41
Prepaid expenses 17 4
------------- -------------
$ 6,801 $ 8,283
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 128 $ 122
Accrued liabilities 27 21
Accrued recovery costs (note 1(i)) 18 36
Accrued damage protection plan costs (note 1(j)) 43 40
Deferred damage protection plan revenue (note 1(k)) 22 21
------------- -------------
Total liabilities 238 240
------------- -------------
Partners' capital:
General partners - -
Limited partners 6,563 8,043
------------- -------------
Total partners' capital 6,563 8,043
------------- -------------
$ 6,801 $ 8,283
============= =============
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Operations
Years ended December 31, 2002, 2001 and 2000
(Amounts in thousands except for unit and per unit amounts)
- -----------------------------------------------------------------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Rental income $ 1,665 $ 2,137 $ 2,885
-------------- -------------- --------------
Costs and expenses:
Direct container expenses 482 644 478
Bad debt benefit (4) (8) (22)
Depreciation (note 1(e)) 851 794 971
Write-down of containers (note 1(e)) 107 115 72
Professional fees 51 32 55
Management fees to affiliates (note 2) 146 82 318
General and administrative costs
to affiliates (note 2) 85 102 138
Other general and administrative costs 75 40 47
(Gain) loss on sale of containers (note 1(e)) (52) 11 (87)
-------------- -------------- --------------
1,741 1,812 1,970
-------------- -------------- --------------
(Loss) income from operations (76) 325 915
-------------- -------------- --------------
Interest income 6 18 39
-------------- -------------- --------------
Net (loss) earnings $ (70) $ 343 $ 954
============== ============== ==============
Allocation of net (loss) earnings (note 1(g)):
General partners $ 18 $ 29 $ 39
Limited partners (88) 314 915
-------------- -------------- --------------
$ (70) $ 343 $ 954
============== ============== ==============
Limited partners' per unit share
of net (loss) earnings $ (0.06) $ 0.22 $ 0.63
============== ============== ==============
Limited partners' per unit share
of distributions $ 0.93 $ 1.48 $ 2.00
============== ============== ==============
Weighted average number of limited
partnership units outstanding (note 1(m)) 1,424,020 1,446,542 1,462,098
============== ============== ==============
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 2002, 2001 and 2000
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------
Partners' Capital
--------------------------------------------------------
General Limited Total
--------------- -------------- --------------
Balances at December 31, 1999 $ - $ 12,077 $ 12,077
Distributions (39) (2,930) (2,969)
Redemptions (note 1(n)) - (71) (71)
Net earnings 39 915 954
--------------- -------------- --------------
Balances at December 31, 2000 - 9,991 9,991
--------------- -------------- --------------
Distributions (29) (2,142) (2,171)
Redemptions (note 1(n)) - (120) (120)
Net earnings 29 314 343
--------------- -------------- --------------
Balances at December 31, 2001 - 8,043 8,043
--------------- -------------- --------------
Distributions (18) (1,322) (1,340)
Redemptions (note 1(n)) - (70) (70)
Net earnings (loss) 18 (88) (70)
--------------- -------------- --------------
Balances at December 31, 2002 $ - $ 6,563 $ 6,563
=============== ============== ==============
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
(Amounts in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Cash flows from operating activities:
Net (loss) earnings $ (70) $ 343 $ 954
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation (note 1(e)) 851 794 971
Write-down of containers (note 1(e)) 107 115 72
Decrease in allowance for doubtful
accounts (32) (47) (75)
(Gain) loss on sale of containers (52) 11 (87)
(Increase) decrease in assets:
Accounts receivable 65 178 326
Due from affiliates, net (38) 112 (62)
Prepaid expenses (13) (1) 2
Increase (decrease) in liabilities:
Accounts payable and accrued liablilties 12 (53) 14
Accrued recovery costs (18) (2) 5
Accrued damage protection plan costs 3 (24) (41)
Deferred damage protection plan revenue 1 21 -
Warranty claims - (5) (63)
-------------- -------------- --------------
Net cash provided by operating activities 816 1,442 2,016
-------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of containers 575 670 875
-------------- -------------- --------------
Net cash provided by investing activities 575 670 875
-------------- -------------- --------------
Cash flows from financing activities:
Redemptions of limited partnership units (70) (120) (71)
Distributions to partners (1,341) (2,172) (2,969)
-------------- -------------- --------------
Net cash used in financing activities (1,411) (2,292) (3,040)
-------------- -------------- --------------
Net decrease in cash (20) (180) (149)
Cash at beginning of period 533 713 862
-------------- -------------- --------------
Cash at end of period $ 513 $ 533 $ 713
============== ============== ==============
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows--Continued
Years ended December 31, 2002, 2001 and 2000
(Amounts in thousands)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of distributions to partners, and
proceeds from sale of containers which had not been paid or received by the
Partnership as of December 31, 2002, 2001, 2000 and 1999, resulting in
differences in amounts recorded and amounts of cash disbursed or received by the
Partnership, as shown in the Statements of Cash Flows for the years ended
December 31, 2002 and 2001.
2002 2001 2000 1999
---- ---- ---- ----
Distributions to partners included in:
Due to affiliates........................................ $ 1 $ 2 $ 3 $ 3
Proceeds from sale of containers included in:
Due from affiliates...................................... 59 110 84 150
The following table summarizes the amounts of distributions to partners, and
proceeds from sale of containers recorded by the Partnership and the amounts
paid or received as shown in the Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000.
2002 2001 2000
---- ---- ----
Distributions to partners declared........................................ $1,340 $2,171 $2,969
Distributions to partners paid............................................ 1,341 2,172 2,969
Proceeds from sale of containers recorded................................. 524 696 809
Proceeds from sale of containers received................................. 575 670 875
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying values of containers transferred during the years ended December
31, 2002, 2001 and 2000 were $12, $7 and $13, respectively.
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 2002, 2001 and 2000
(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 containers related to
the international containerized cargo shipping industry, including,
but not limited to, containers, trailers, and other container-related
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 1,474,554 Units had been
purchased for a total of $29,491.
In January 1998, the Partnership ceased purchasing containers and in
October 1998, the Partnership began its liquidation phase. This phase
may last up to six or more years depending on whether the containers
are sold (i) in one or more large transactions or (ii) gradually,
either as they reach the end of their marine useful lives or when an
analysis indicates that their sale is warranted based on existing
market conditions and the container's age, location and condition. The
Partnership anticipates that all excess cash, after redemptions and
working capital reserves, will be distributed to the limited and
general partners on a quarterly basis.
The final termination and winding up of the Partnership, as well as
payment of liquidating and/or final distributions, will occur at the
end of the liquidation phase when all or substantially all of the
Partnership's containers have been sold and the Partnership begins its
dissolution.
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. 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 finance leases based on the criteria of Statement of Financial
Accounting Standards No. 13: "Accounting for Leases".
(c) Critical Accounting Policies and 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. The Partnership's management
evaluates its estimates on an on-going basis, including those related
to the container rental equipment, accounts receivable, and accruals.
These estimates are based on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments regarding the carrying values of assets and liabilities.
Actual results could differ from those estimates under different
assumptions or conditions.
The Partnership's management believes the following critical
accounting policies affect its more significant judgments and
estimates used in the preparation of its financial statements.
The Partnership maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its lessees to make
required payments. These allowances are based on management's current
assessment of the financial condition of the Partnership's lessees and
their ability to make their required payments. If the financial
condition of the Partnership's lessees were to deteriorate, resulting
in an impairment of their ability to make payments, additional
allowances may be required.
The Partnership depreciates its container rental equipment based on
certain estimates related to the container's useful life and salvage
value. These estimates are based upon assumptions about future demand
for leased containers and the estimated sales price at the end of the
container's useful life. The Partnership will evaluate the estimated
residual values and remaining estimated useful lives on an on-going
basis and will revise its estimates as needed. As a result,
depreciation expense may fluctuate in future periods based on
fluctuations in these estimates.
Additionally, the recoverability of the recorded amounts of containers
to be held for continued use and identified for sale in the ordinary
course of business are evaluated to ensure that containers held for
continued use are not impaired and that containers identified for sale
are recorded at amounts that do not exceed the estimated fair value of
the containers. Containers to be held for continued use are considered
impaired and are written down to estimated fair value when the
estimated future undiscounted cash flows are less than the recorded
values. Containers identified for sale are written down to estimated
fair value when the recorded value exceeds the estimated fair value.
In determining the estimated future undiscounted cash flows and fair
value of containers, assumptions are made regarding future demand and
market conditions for leased containers and the sales prices for used
containers. If actual market conditions are less favorable than those
projected or if actual sales prices are lower than those estimated by
the Partnership, additional write-downs may be required and/or losses
may be realized.
(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, 2002 and 2001, the fair
value of the Partnership's financial instruments (cash, accounts
receivable and current liabilities) approximates the related book
value of such instruments.
(e) Container Rental Equipment
Container rental equipment is recorded at the cost of the assets
purchased, which includes acquisition fees, less accumulated
depreciation charged. Through June 30, 2002, depreciation of new
containers was computed using the straight-line method over an
estimated useful life of 12 years to a 28% salvage value. Used
containers were depreciated based upon their estimated remaining
useful life at the date of acquisition (from 2 to 11 years). Effective
July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated
dollar residual value, reflecting current expectations of ultimate
residual values. The effect of this change for the year ended December
31, 2002 was an increase to depreciation expense of $240. The
Partnership will evaluate the estimated residual values and remaining
estimated useful lives on an on-going basis and will revise its
estimates as needed. As a result, depreciation expense may fluctuate
in future periods based on fluctuations in these estimates. When
assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the equipment accounts and
any resulting gain or loss is recognized in income for the period.
In accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS 144), the Partnership periodically compares the carrying value
of the containers 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 estimated fair value. In addition, containers identified for
disposal are recorded at the lower of carrying amount or fair value
less cost to sell.
The Partnership stopped purchasing containers in 1998, but its leasing
activities are affected by fluctuations in new container prices. New
container prices steadily declined from 1995 through 1999. Although
container prices increased in 2000, these prices declined again in
2001 and remained low during 2002. As a result, the cost of new
containers purchased in recent years is significantly less than the
average cost of containers purchased in prior years. The Partnership
evaluated the recoverability of the recorded amount of container
rental equipment at December 31, 2002 and 2001 for containers to be
held for continued use and determined that a reduction to the carrying
value of these containers was not required. The Partnership also
evaluated the recoverability of the recorded amount of containers
identified for sale in the ordinary course of business and determined
that a reduction to the carrying value of these containers was
required. The Partnership wrote down the value of these containers to
their estimated fair value, which was based on recent sales prices
less cost of sales. During the years ended December 31, 2002, 2001 and
2000, the Partnership recorded write-down expenses of $107, $115 and
$72, respectively, on 201, 320 and 179 containers identified as for
sale and requiring a reserve. During year ended December 31, 2002, the
Partnership also transferred 41 containers from containers identified
for sale to containers held for continued use due to the improvement
in demand for leased containers in Asia. There were no transfers
during the years ended December 31, 2001 and 2000. At December 31,
2002 and 2001, the net book value of the 75 and 167 containers
identified for sale was $79 and $144, respectively.
The Partnership sold 257 of these previously written down containers
for a gain of $8 during the year ended December 31, 2002 and sold 243
previously written down containers for a loss of $16 during the same
period in 2001. During the year ended December 31, 2000 the
Partnership sold 205 previously written down containers for a loss of
$4. The Partnership incurred losses on the sale of some containers
previously written down as the actual sales prices received on these
containers were lower than the estimates used for the write-downs.
The Partnership also sold containers that had not been written down
and recorded gains of $44, $5 and $91 during the years ended December
31, 2002, 2001 and 2000, respectively.
As more containers are subsequently identified as for sale or if
container sales prices continue to decline, the Partnership may incur
additional write-downs on containers and/or may incur losses on the
sale of containers. The Partnership will continue to evaluate the
recoverability of the recorded amounts of container rental equipment.
(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, which
transport goods on international trade routes. The domicile of the
lessee is not indicative of where the lessee is transporting the
containers. The Partnership's business risk in its foreign operations
lies with the creditworthiness of the lessees rather than the
geographic location of the containers or the domicile of the lessees.
No single lessee generated lease revenue for the years ended December
31, 2002, 2001 and 2000 which was 10% or more of the total revenue of
the Partnership.
(g) Allocation of Net Earnings (Loss) and Partnership Distributions
In accordance with the Partnership Agreement, Sections 3.08 through
3.11, net earnings or losses and distributions are generally allocated
1% to the General Partners and 99% to the Limited Partners. Effective
October 1998, the allocation of distributions to the General Partners
was increased to 1.3% in accordance with Section 2.05 of the
Partnership Agreement. In addition, if the allocation of distributions
exceeds the allocation of net earnings (loss) and creates a deficit in
the General Partners' aggregate capital account, the Partnership
Agreement provides for a special allocation of gross income equal to
the amount of the deficit to be made to the General Partners.
Actual cash distributions to the Limited Partners differ from the
allocated net earnings (loss) 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) 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, 2002 and 2001,
the amounts accrued were $18 and $36, respectively.
(j) Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of
its containers. 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
estimated future repair costs. DPP expenses are included in direct
container expenses in the Statements of Operations and the related
reserve at December 31, 2002 and 2001 was $43 and $40, respectively.
(k) Deferred Damage Protection Plan Revenue
Under certain DPP coverage, the Partnership receives a prepayment of
the DPP revenue. The Partnership records these prepayments as Deferred
Damage Protection Plan Revenue. At December 31, 2002 and 2001 these
amounts were $22 and $21, respectively.
(l) Warranty Claims
During 1995, the Partnership settled warranty claims against a
container manufacturer. The Partnership amortized the settlement
amount over the remaining estimated useful life of the applicable
containers (seven years), reducing maintenance and repair costs over
that time. During the year ended December 31, 2001, this amount was
fully amortized.
(m) Limited Partners' Per Unit Share of Net Earnings (Loss) and
Distributions
Limited partners' per unit share of both net earnings (loss) and
distributions were computed using the weighted average number of units
outstanding during each year of the Partnership's operations which was
1,424,020, 1,446,542, and 1,462,098 during the years ended December
31, 2002, 2001 and 2000, respectively.
(n) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 2002, 2001 and 2000:
Average
Units Redemption
Redeemed Price Amount Paid
-------- ----------- -----------
Total Partnership redemptions as of
December 31, 1999..................... 7,525 $9.17 $ 69
------ ---
Year ended:
December 31, 2000................ 11,050 $6.43 71
December 31, 2001................ 22,391 $5.35 120
December 31, 2002................ 17,149 $4.08 70
------ ---
Total Partnership redemptions as of
December 31, 2002..................... 58,115 $5.68 $330
====== ===
The redemption price is fixed by formula in accordance with the Partnership Agreement.
(o) Reclassifications
Certain reclassifications, not affecting net earnings (loss), have
been made to prior year amounts in order to conform to the 2002
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 an equipment management fee, an incentive
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 $32, $56 and
$121 of incentive management fees during the years ended December 31,
2002, 2001 and 2000, respectively. Additionally during the year ended
December 31, 2001, the Partnership recorded an adjustment of $121 to
reduce incentive management fees for overpayments made during 1999 and
2000. There were no liquidation fees incurred during these periods.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the containers. 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, 2002 and 2001.
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. These fees totaled $114, $147, and $197 for the
years ended December 31, 2002, 2001 and 2000, respectively.
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 TEM and TFS. Total general and
administrative costs allocated to the Partnership were as follows:
2002 2001 2000
---- ---- ----
Salaries $ 54 $ 61 $ 68
Other 31 41 70
-- --- ---
Total general and
administrative costs $ 85 $ 102 $ 138
== === ===
TEM allocates these general and administrative costs based on the
ratio of the Partnership's interest in the managed containers to the
total container fleet managed by TEM during the period. TFS allocates
these costs based on the ratio of the Partnership's containers to the
total container fleet of all limited partnerships managed by TFS. The
General Partners allocated the following general and administrative
costs to the Partnership.
2002 2001 2000
---- ---- ----
TEM $ 74 $ 89 $ 121
TFS 11 13 17
-- --- ---
Total general and
administrative costs $ 85 $102 $ 138
== === ===
At December 31, 2002 and 2001, due from affiliates, net, is comprised
of:
2002 2001
---- ----
Due from affiliates:
Due from TEM.......................... $ 39 $ 55
-- --
Due to affiliates:
Due to TCC............................ 3 6
Due to TFS............................ 7 8
-- --
10 14
-- --
Due from affiliates, net $ 29 $ 41
== ==
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
remittance of expenses, fees and distributions described above and in
the accrual and remittance of net rental revenues and container sales
proceeds from TEM.
Note 3. Lease Rental Income (unaudited)
Leasing income arises principally from the renting of containers to
various international shipping lines. Revenue is recorded when earned
according to the terms of the container rental contracts. These
contracts are typically for terms of five years or less. The following
is the lease mix of the on-lease containers (in units) at December 31,
2002 and 2001:
2002 2001
---- ----
On-lease under master leases 2,171 1,956
On-lease under long-term leases 952 823
----- -----
Total on-lease containers 3,123 2,779
===== =====
Under master lease agreements, the lessee is not committed to lease a
minimum number of containers from the Partnership during the lease
term and may generally return any portion or all the containers to the
Partnership at any time, subject to certain restrictions in the lease
agreement. Under long-term lease agreements, containers are usually
leased from the Partnership for periods of between three to five
years. Such leases are generally cancelable with a penalty at the end
of each twelve-month period. Under direct finance leases, the
containers are usually leased from the Partnership for the remainder
of the container's useful life with a purchase option at the end of
the lease term.
The remaining containers are off-lease and are being stored primarily
at a large number of storage depots in the following locations:
2002 2001
---- ----
Americas 382 462
Europe 220 298
Asia 80 849
Other 17 28
--- -----
Total off-lease containers 699 1,637
=== =====
At December 31, 2002 approximately 11% of the Partnership's off-lease
containers had been specifically identified as for sale.
Note 4. Income Taxes
At December 31, 2002, 2001 and 2000, there were temporary differences
of $5,519, $6,365, and $7,033, 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 (loss) for financial statement purposes
to net income for federal income tax purposes for the years ended
December 31, 2002, 2001 and 2000 is as follows:
2002 2001 2000
---- ---- ----
Net (loss) income per financial statements.......... $(70) $ 343 $ 954
Decrease in provision for bad debt.................. (32) (47) (75)
Depreciation for federal income tax purposes less than
(in excess) of depreciation for financial
statement purposes................................. 397 37 (264)
Gain on sale of fixed assets for federal income
tax purposes in excess of gain/loss recognized
for financial statement purposes................... 478 707 717
Increase (decrease) in damage protection
plan reserve....................................... 3 (24) (41)
Warranty reserve income for tax purposes in
excess of financial statement purposes............. - (5) (63)
---- ------ ------
Net income for
federal income tax purposes........................ $776 $1,011 $1,228
==== ====== ======
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Selected Quarterly Financial Data
- -------------------------------------------------------------------------------------------------------------
The following is a summary of selected quarterly financial data for the years ended
December 31, 2002, 2001 and 2000:
(Amounts in thousands)
2002 Quarters Ended
--------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------
Rental income $ 404 $ 396 $ 428 $ 437
(Loss) income from operations $ (58) $ (1) $(188) $ 171
Net (loss) earnings $ (56) $ 1 $(187) $ 172
Limited partners' share of net (loss) earnings $ (62) $ (4) $(190) $ 168
Limited partners' share of distributions $ 430 $ 357 $ 250 $ 285
2001 Quarters Ended
--------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------
Rental income $ 608 $ 537 $ 528 $ 464
Income from operations $ 212 $ 19 $ 40 $ 54
Net earnings $ 219 $ 24 $ 44 $ 56
Limited partners' share of net earnings $ 210 $ 17 $ 38 $ 49
Limited partners' share of distributions $ 692 $ 472 $ 510 $ 468
2000 Quarters Ended
--------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------
Rental income $ 772 $ 738 $ 697 $ 678
Income from operations $ 204 $ 287 $ 222 $ 202
Net earnings $ 213 $ 298 $ 231 $ 212
Limited partners' share of net earnings $ 203 $ 288 $ 222 $ 202
Limited partners' share of distributions $ 734 $ 733 $ 734 $ 729
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 Textainer Inc. (TI), which comprised the original Textainer
Group. Effective October 1, 1993, the Textainer Group restructured 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. 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 the
corporate restructuring effective October 1, 1993, which caused TFS, TEM and TL
to fall under the common ownership of TGH. Pursuant to this restructuring, TI
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 now serves as Managing General
Partner and TEM and TL now serve as Associate General Partners. The Managing
General Partner and Associate General Partners are collectively referred to as
the General Partners and are wholly-owned subsidiaries of TGH. The General
Partners also act in this capacity for other limited partnerships.
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 were 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, 2002, all Section 16(a) filing requirements were complied
with. 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) 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:
Name Age Position
- ---- --- --------
Neil I. Jowell 69 Director and Chairman of TGH, TEM, TL, TCC and TFS
John A. Maccarone 58 President, CEO and Director of TGH, TEM, TL, TCC and TFS
James E. Hoelter 63 Director of TGH, TCC and TFS
Philip K. Brewer 46 Senior Vice President - Asset Management Group and Director of TL
Robert D. Pedersen 43 Senior Vice President - Leasing Group, Director of TEM
Ernest J. Furtado 47 Senior Vice President, CFO and Secretary of TGH, TEM, TL, TCC and TFS,
Director of TL, TCC and TFS
Gregory W. Coan 39 Vice President and Chief Information Officer of TEM
Wolfgang Geyer 49 Regional Vice President - Europe
Mak Wing Sing 45 Regional Vice President - South Asia
Masanori Sagara 47 Regional Vice President - North Asia
Stefan Mackula 50 Vice President - Equipment Resale
Anthony C. Sowry 50 Vice President - Corporate Operations and Acquisitions
Richard G. Murphy 50 Vice President - Risk Management
Janet S. Ruggero 54 Vice President - Administration and Marketing Services
Jens W. Palludan 52 Regional Vice President - Americas and Logistics
Isam K. Kabbani 68 Director of TGH
James A. C. Owens 63 Director of TGH, TEM and TL
S. Arthur Morris 69 Director of TGH, TEM and TL
Dudley R. Cottingham 51 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Cecil Jowell 67 Director of TGH, TEM and TL
Henrick van der Merwe 55 Director of TGH, TEM and TL
James E. McQueen 58 Director of TGH, TEM and TL
Harold J. Samson 81 Director of TCC and TFS
Nadine Forsman 35 Controller of TCC and TFS
Unless otherwise noted, all directors have served as directors of the General
Partners as detailed above at least since 1993 when the reorganization of the
General Partners occurred, as described on the previous page.
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TCC and TFS and a
member of the Investment Advisory Committee and Audit Committee (see
"Committees" below). Mr. Jowell became Director and Chairman of TEM in 1994. He
has served on the Board of Trencor Ltd. (Trencor) since 1966 and as Chairman
since 1973. He is also a Director of Mobile Industries Ltd. (Mobile) (1969 to
present), which is the major shareholder in Trencor, a publicly traded company
listed on the JSE Securities Exchange South Africa. Trencor's core business is
the owning, financing, leasing and managing of marine cargo containers and
returnable packaging units worldwide, finance related activities and supply
chain management services. Other interests are the manufacture and export of
tank containers for international markets and road trailer manufacturing. He is
also a Director of a number of Mobile and Trencor's subsidiaries. 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 TGH in 1992. Mr. Jowell has over 40 years' experience in the
transportation industry. He holds an M.B.A. degree from Columbia University and
Bachelor of Commerce and Ll.B. degrees from the University of Cape Town. Mr.
Neil I. Jowell and Mr. Cecil Jowell are brothers.
John A. Maccarone is President, CEO and Director of TGH, TEM, TL, TCC and
TFS. Mr. Maccarone became President, CEO of TGH, TL, TCC and TFS in 1998 and a
director of TEM in 1994. In this capacity, he is responsible for overseeing the
management of and coordinating the activities of Textainer's worldwide fleet of
marine cargo containers and the activities of TGH, TL, TCC and TFS.
Additionally, he is Chairman of the Equipment Investment Committee, the Credit
Committee and the Investment Advisory Committee (see "Committees", below). Mr.
Maccarone was instrumental in co-founding Intermodal Equipment Associates (IEA),
a marine container leasing company based in San Francisco, 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 Bachelor of Science degree in
Engineering Management from Boston University and an M.B.A. from Loyola
University of Chicago.
James E. Hoelter is a director of TGH, TCC and TFS. Mr. Hoelter became a
director of TEM in 1994. In addition, Mr. Hoelter is a member of the Equipment
Investment Committee, the Investment Advisory Committee and the Audit Committee
(see "Committees", below). Mr. Hoelter was the President and Chief Executive
Officer of TGH and TL from 1993 to 1998 and was a director of TEM and TL until
March 2003. Mr. Hoelter serves as a consultant to Trencor (1999 to present). Mr.
Hoelter became a director of Trencor in December 2002 and he serves as a
director of Trenstar Ltd., a Trencor affiliate. Prior to joining the Textainer
Group in 1987, Mr. Hoelter was president of IEA. Mr. Hoelter co-founded IEA in
1978 with Mr. Maccarone 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 is an emeritus
member of its Business School's Dean's Advisory Board, and his M.B.A. from the
Harvard Graduate School of Business Administration.
Philip K. Brewer is Senior Vice President - Asset Management Group and has
been such since 1999. Mr. Brewer has been a director of TL since 2000 and was a
director of TEM from August 2002 through March 2003. He was President of TCC and
TFS from January 1, 1998 to December 31, 1998 until his appointment as Senior
Vice President - Asset Management Group. As President of TCC, Mr. Brewer was
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, as
well as overseeing the management of and coordinating the activities of
Textainer's risk management, logistics and the resale divisions. Mr. Brewer is a
member of the Equipment Investment Committee, the Credit Committee and was a
member of the Investment Advisory Committee through December 31, 1998 (see
"Committees" below). Prior to joining Textainer in 1996, as Senior Vice
President - Capital Markets for TGH and TL, 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 - Leasing Group responsible for
worldwide sales and marketing related activities and operations since 1999. Mr.
Pederson has also served as a Director of TEM, since 1997. Mr. Pedersen is a
member of the Equipment Investment Committee and the Credit Committee (see
"Committees" below). He joined Textainer 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 Klinge Cool, a manufacturer of
refrigerated container cooling units (from 1989 to 1991), where he was worldwide
sales and marketing director, XTRA, a container lessor (from 1985 to 1988) and
Maersk Line, a container shipping line (from 1978 to 1984). Mr. Pedersen is a
graduate of the A.P. Moller shipping and transportation program and the Merkonom
Business School in Copenhagen, majoring in Company Organization.
Ernest J. Furtado is Senior Vice President, CFO and Secretary of TGH, TEM,
TL, TCC and TFS and has been such since 1999. Mr. Furtado is a Director of TCC
and TFS, and has served as such since 1997. He was a director of TEM from 2002
through March 2003 and became a director of TL in March 2003. As Senior Vice
President, CFO and Secretary, he is responsible for all accounting, financial
management, and reporting functions for TGH, TEM, TL, TCC and TFS. Additionally,
he is a member of the Investment Advisory Committee for which he serves as
Secretary, the Equipment Investment Committee and the Credit Committee (see
"Committees", below). Prior to these positions, he held a number of accounting
and financial management positions at Textainer, of increasing responsibility.
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.
Gregory W. Coan is Vice President and Chief Information Officer of TEM and
has served as such since 2001. In this capacity, Mr. Coan is responsible for the
worldwide information systems of Textainer. He also serves on the Credit
Committee (see "Committees", below). Prior to these positions, Mr. Coan was the
Director of Communications and Network Services from 1995 to 1999, where he was
responsible for Textainer's network and hardware infrastructure. Mr. Coan holds
a Bachelor of Arts degree in political science from the University of California
at Berkeley and an M.B.A. with an emphasis in telecommunications from Golden
Gate University.
Wolfgang Geyer is based in Hamburg, Germany and is Regional Vice President
- - Europe, responsible for coordinating all leasing activities in Europe, Africa
and the Middle East/Persian Gulf and has served as such since 1997. Mr. Geyer
joined Textainer in 1993 and was the Marketing Director in Hamburg through July
1997. From 1991 to 1993, Mr. Geyer most recently was the Senior Vice President
for Clou Container Leasing, responsible for its worldwide leasing activities.
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, responsible for container leasing activities in North/Central
People's Republic of China, Hong Kong, South China (PRC), Southeast Asia and
Australia/New Zealand and has served as such since 1996. Mr. Mak most recently
was the Regional Manager, Southeast Asia, for Trans Ocean Leasing, 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, responsible for container leasing activities in Japan,
Korea, and Taiwan and has served as such since 1996. 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 at 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, responsible for
coordinating the worldwide sale of equipment into secondary markets and has
served as such since 1993. Mr. Mackula also served as Vice President - Marketing
from 1989 to 1991 where he was responsible for coordinating all leasing
activities in Europe, Africa, and the Middle East. Mr. Mackula joined Textainer
in 1983 as Leasing Manager for the United Kingdom. Prior to joining Textainer,
Mr. Mackula held, beginning in 1972, a variety of positions in the international
container shipping industry.
Anthony C. Sowry is Vice President - Corporate Operations and Acquisitions
and has served as such since 1996. He is also a member of the Equipment
Investment Committee and the Credit Committee (see "Committees", below). Mr.
Sowry supervises all international container operations, maintenance and
technical functions for the fleets under Textainer's management. In addition, he
is responsible for the acquisition of all new and used containers for the
Textainer Group. He began his affiliation with Textainer in 1982, when he served
as Fleet Quality Control Manager for Textainer Inc. until 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.
Richard G. Murphy is Vice President - Risk Management, responsible for all
credit and risk management functions and has served as such since 1996. He also
supervises the administrative aspects of equipment acquisitions. He is a member
of and acts as secretary to the Equipment Investment and Credit Committees (see
"Committees", below). He has held a number of positions at Textainer, including
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
and has served as such since 1993. 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.
Jens W. Palludan is based in Hackensack, New Jersey and is the Regional
Vice President - Americas and Logistics, responsible for container leasing
activities in North/South America and for coordinating container logistics and
has served as such since 2001. He joined Textainer in 1993 as Regional Vice
President - Americas/Africa/Australia, 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.
Mr. Palludan's most recent position at Maersk was that of General Manager,
Equipment and Terminals, where he was responsible for the entire managed fleet.
Mr. Palludan holds an M.B.A. from the Centre European D'Education Permanente,
Fontainebleau, France.
Sheikh Isam K. Kabbani is a director of TGH and was a director of TL
through March 2003. 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 since been his principal
business activity. Sheikh Kabbani holds a B.A. degree from Swarthmore College,
Pennsylvania, and an M.A. degree in Economics and International Relations from
Columbia University.
James A. C. Owens is a director of TGH and TL, and beginning in March 2003,
a director of TEM. Mr. Owens has been associated with the Textainer Group since
1980. In 1983 he was appointed to the Board of Textainer Inc., and served as
President of Textainer Inc. from 1984 to 1987. From 1987 to 1998, Mr. Owens
served as an alternate director on the Boards of TI, TGH and TL and has served
as director of TGH and TL since 1998. Apart from his association with the
Textainer Group, Mr. Owens has been involved in insurance and financial
brokerage companies and captive insurance companies. He is a member of a number
of Boards of Directors. Mr. Owens holds a Bachelor of Commerce degree from the
University of South Africa.
S. Arthur Morris is a director of TGH, TEM and TL. Mr. Morris became a
director of TEM in 1994. 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 (1977 to date). He is also President and director
of Continental Management Limited (1977 to date) and Continental Trust
Corporation Limited (1994 to date). Continental Management Limited is a Bermuda
corporation that provides corporate representation, administration and
management services and Continental Trust Corporation Limited is a Bermuda
Corporation that provides corporate and individual trust administration
services. He has also served as a director of Turks & Caicos First Insurance
Company Limited since 1993. 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.
Dudley R. Cottingham is Assistant Secretary, Vice President and a director
of TGH, TEM and TL. Mr. Cottingham became a director of TEM in 1994. 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) and Continental Trust
Corporation Limited, which are all 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 Continental
Trust Corporation Limited is a Bermuda corporation that provides corporate and
individual trust administration services. He has also served as a director of
Turks & Caicos First Insurance Company Limited since 1993. Mr. Cottingham has
over 20 years experience in public accounting with responsibility for a variety
of international and local clients.
Cecil Jowell is a director of TGH, TEM and TL and has been such since March
2003. Mr. Jowell is also a Director and Chairman of Mobile Industries Ltd.
(Mobile), which is a public company, quoted on the JSE Securities Exchange South
Africa. Mr. Jowell has been a Director of Mobile since 1969 and was appointed
Chairman in 1973. It is the major shareholder in Trencor Ltd. (Trencor), a
publicly traded company listed on the JSE Securities Exchange South Africa.
Trencor's core business is the owning, financing, leasing and managing of marine
cargo containers and returnable packaging units worldwide, finance related
activities and supply chain management services. Other interests are the
manufacture and export of tank containers for international markets and road
trailer manufacturing. He is an Executive Director of Trencor and has been an
executive in that group for over 40 years. Mr. Jowell is also a Director of a
number of Mobile and Trencor's subsidiaries as well as a Director of Scientific
Development and Integration (Pty) Ltd, a scientific research company. Mr. Jowell
was a Director and Chairman of WACO International Ltd., an international
industrial group listed on the JSE Securities Exchange South Africa, and with
subsidiaries listed on the Sydney and London Stock Exchanges from 1997 through
2000. Mr. Jowell holds a Bachelor of Commerce and Ll.B. degrees from the
University of Cape Town and is a graduate of the Institute of Transport. Mr.
Cecil Jowell and Mr. Neil I. Jowell are brothers.
Hendrik R. van der Merwe is a Director of TGH, TEM and TL and has served as
such since March 2003. Mr. van der Merwe is also an Executive Director of
Trencor Ltd. (Trencor) and has served as such since 1998. In this capacity, he
is responsible for certain operating entities and strategic and corporate
functions within the Trencor group of companies. Trencor is a publicly traded
company listed on the JSE Securities Exchange South Africa. Its core business is
the owning, financing, leasing and managing of marine cargo containers and
returnable packaging units worldwide, finance related activities and supply
chain management services. Other interests are the manufacture and export of
tank containers for international markets and road trailer manufacturing. Mr.
van der Merwe is currently also Chairman of TrenStar, Inc., based in Denver,
Colorado and a Director of various companies in the TrenStar group and other
companies in the wider Trencor group and has been such since 2000. Mr. van der
Merwe served as Deputy Chairman for Waco International Ltd., an international
industrial group listed on the JSE Securities Exchange South Africa and with
subsidiaries listed on the Sydney and London Stock Exchanges from 1991 to 1998,
where he served on the Boards of those companies. From 1990 to 1991, he held
various senior executive positions in the banking sector in South Africa, lastly
as Chief Executive Officer of Sendbank, the corporate/merchant banking arm of
Bankorp Group Ltd. Prior to entering the business world, Mr. van der Merwe
practiced as an attorney at law in Johannesburg, South Africa. Mr. van der Merwe
holds a Bachelor of Arts and Ll.B. degrees from the University of Stellenbosch
and an Ll.M (Taxation) degree from the University of the Witwatersrand.
James E. McQueen is a Director of TGH, TEM and TL and has served as such since
March 2003. Mr. McQueen joined Trencor Ltd. (Trencor) in June 1976 and has
served on the Board of the company as Financial Director (CFO) since 1996.
Trencor is a publicly traded company listed on the JSE Securities Exchange South
Africa. Its core business is the owning, financing, leasing and managing of
marine cargo containers and returnable packaging units worldwide, finance
related activities and supply chain management services. Other interests are the
manufacture and export of road tank containers for international markets and
trailer manufacturing. Mr. McQueen is also a Director of a number of Trencor's
subsidiaries. Prior to joining Trencor, Mr. McQueen was an accountant in public
practice. He holds a Bachelor of Commerce degree from the University of Cape
Town and is a Chartered Accountant (South Africa).
Harold J. Samson is a director of TCC and TFS since 2003 and is a member of
the Investment Advisory Committee and the Audit Committee (see Committees",
below). Through December 31, 2002, he was a director of TGH and TL. Mr. Samson
served as a consultant to various securities firms from 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.
Nadine Forsman is the Controller of TCC and TFS and has served as such
since 1996. Additionally, she is a member of the Investment Advisory Committee
and Equipment Investment Committee (See "Committees" below). As controller of
TCC and TFS, she is responsible for accounting, financial management and
reporting functions for TCC and TFS as well as overseeing all communications
with the Limited Partners and as such, supervises personnel in performing these
functions. Prior to joining Textainer in August 1996, Ms. Forsman was employed
by KPMG LLP, holding various positions, the most recent of which was manager,
from 1990 to 1996. Ms. Forsman is a Certified Public Accountant and holds a B.S.
in Accounting and Finance from San Francisco State University.
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 reviews
the equipment leasing operations of the Partnership on a regular basis with
emphasis on matters involving equipment purchases, equipment remarketing issues,
and decisions regarding ultimate disposition of equipment. The members of the
committee are John A. Maccarone (Chairman), James E. Hoelter, Anthony C. Sowry,
Richard G. Murphy (Secretary), Philip K. Brewer, Robert D. Pedersen, Ernest J.
Furtado and Nadine Forsman.
Credit Committee. The Credit Committee establishes credit limits for every
lessee and potential lessee of equipment and periodically reviews these limits.
In setting such limits, the Credit Committee considers 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 John A. Maccarone (Chairman), Richard G. Murphy
(Secretary), Janet S. Ruggero, Anthony C. Sowry, Philip K. Brewer, Ernest J.
Furtado, Robert D. Pedersen and Gregory W. Coan.
Investment Advisory Committee. The Investment Advisory Committee reviews
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 John A.
Maccarone (Chairman), James E. Hoelter, Ernest J. Furtado (Secretary), Nadine
Forsman, Harold J. Samson and Neil I. Jowell.
Additionally, the Managing General Partner has established an audit
committee to oversee the accounting and financial reporting processes and audits
of the financial statements of the Partnership as well as other partnerships
managed by the General Partner. The members of the audit committee are James E.
Hoelter, Neil I. Jowell and Harold J. Samson.
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 in Item 8. See also Item 13(a) below.
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, 2003:
Number
Name of Beneficial Owner Of Units % All Units
------------------------ -------- -----------
James E. Hoelter 2,500 0.18%
John A. Maccarone 1,915 0.14%
----- -----
Directors, Officers and
Management as a Group 4,415 0.32%
===== -----
(c) Changes in Control.
Inapplicable.
PART 201 (d) Securities under Equity Compensation Plans.
Inapplicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 2002 and 2001, due from affiliates, net, is comprised
of:
2002 2001
---- ----
Due from affiliates:
Due from TEM.......................... $39 $55
-- --
Due to affiliates:
Due to TCC............................ 3 6
Due to TFS............................ 7 8
-- --
10 14
-- --
Due from affiliates, net $29 $41
== ==
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
remittance of expenses, fees, and distributions and in the accrual and
remittance of net rental revenues and container sales proceeds from
TEM.
In addition, the Registrant paid or will pay the following amounts to
the General Partners:
Management fees in connection with the operations of the Registrant:
2002 2001 2000
---- ---- ----
TEM....................... $121 $134 $221
TFS....................... 25 (52) 97
--- --- ---
Total..................... $146 $ 82 $318
=== === ===
Reimbursement for administrative costs in connection with the operations
of the Registrant:
2002 2001 2000
---- ---- ----
TEM....................... $74 $ 89 $121
TFS....................... 11 13 17
-- --- ---
Total..................... $85 $102 $138
== === ===
(b) Certain Business Relationships.
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Management" and "Compensation of General Partners and Affiliates"
sections of the Registrant's Prospectus, as supplemented, and the Notes to
Financial Statements in Item 8.
ITEM 14. CONTROLS AND PROCEDURES
Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934)
conducted within ninety days of the filing date of this report, the managing
general partner's principal executive officer and principal financial officer
have found those controls and procedures to be effective. There have been no
significant changes in the Partnership's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Audited financial statements of the Registrant for the year ended
December 31, 2002 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
Exhibits 99.1 and 99.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.
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 2002, no reports on Form 8-K have been filed by the
Registrant.
Independent Auditors' Report on Supplementary Schedule
------------------------------------------------------
The Partners
TCC Equipment Income Fund:
Under the date of February 14, 2003, we reported on the balance sheets of TCC
Equipment Income Fund (the Partnership) as of December 31, 2002 and 2001, and
the related statements of operations, partners' capital and cash flows for each
of the years in the three-year period ended December 31, 2002, which are
included in the 2002 annual report on Form 10-K. In connection with our audit of
the aforementioned financial statements, we also audited the related financial
statement schedule as listed in Item 15. 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.
/s/ KPMG LLP
San Francisco, California
February 14, 2003
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Charged Balance
Balance at to Costs Charged at End
Beginning And to Other of
of Period Expenses Accounts Deduction Period
---------- -------- -------- --------- -------
For the year ended December 31, 2002:
Allowance for
doubtful accounts $ 56 $ (4) $ - $ (28) $ 24
--- --- --- --- ---
Accrued recovery costs $ 36 $ 15 $ - $ (33) $ 18
--- --- --- --- ---
Accrued damage protection
plan costs $ 40 $ 30 $ - $ (27) $ 43
--- --- --- --- ---
For the year ended December 31, 2001:
Allowance for
doubtful accounts $103 $ (8) $ - $ (39) $ 56
--- --- --- --- ---
Accrued recovery costs $ 38 $ 15 $ - $ (17) $ 36
--- --- --- --- ---
Accrued damage protection
plan costs $ 64 $ 62 $ - $ (86) $ 40
--- --- --- --- ---
For the year ended December 31, 2000:
Allowance for
doubtful accounts $178 $(22) $ - $ (53) $103
--- --- --- --- ---
Accrued recovery costs $ 33 $ 23 $ - $ (18) $ 38
--- --- --- --- ---
Accrued damage protection
plan costs $105 $ 62 $ - $(103) $ 64
--- --- --- --- ---
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TCC EQUIPMENT INCOME FUND
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By
_____________________________
Ernest J. Furtado
Chief Financial Officer
Date: March 26, 2003
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:
Signature Title Date
________________________ Chief Financial Officer, Senior March 26, 2003
Ernest J. Furtado Vice President, Secretary and
Director (Chief Financial and
Principal Accounting Officer)
________________________ President and Director March 26, 2003
John A. Maccarone
________________________ Chairman of the Board and Director March 26, 2003
Neil I. Jowell
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TCC EQUIPMENT INCOME FUND
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By /s/Ernest J. Furtado
_________________________________
Ernest J. Furtado
Chief Financial Officer
Date: March 26, 2003
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:
Signature Title Date
/s/Ernest J. Furtado
___________________________________ Chief Financial Officer, Senior March 26, 2003
Ernest J. Furtado Vice President, Secretary and
Director (Chief Financial and
Principal Accounting Officer)
/s/John A. Maccarone
___________________________________ President and Director March 26, 2003
John A. Maccarone
/s/ Neil I. Jowell
___________________________________ Chairman of the Board and Director March 26, 2003
Neil I. Jowell
CERTIFICATIONS
I, John A. Maccarone, certify that:
1. I have reviewed this annual report on Form 10-K of TCC Equipment Income
Fund;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report ( the "Evaluation Date"); and
c.) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a.) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls ; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
March 26, 2003
/s/ John A. Maccarone
_______________________________________
John A. Maccarone
President and Director of TFS
CERTIFICATIONS
I, Ernest J. Furtado, certify that:
1. I have reviewed this annual report on Form 10-K of TCC Equipment Income
Fund;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report ( the "Evaluation Date"); and
c.) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a.) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls ; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
March 26, 2003
/s/ Ernest J. Furtado
________________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of TCC Equipment Income Fund, (the
"Registrant") on Form 10-K for the year ended December 31, 2002, as filed on
March 26, 2003 with the Securities and Exchange Commission (the "Report"), I,
John A. Maccarone, the President and Director of Textainer Financial Services
Corporation ("TFS") and Principal Executive Officer of TFS, the Managing General
Partner of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted,
regarding Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows
of the Registrant.
March 26, 2003
By /s/ John A. Maccarone
_________________________________________
John A. Maccarone
President and Director of TFS
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of TCC Equipment Income Fund. (the
"Registrant") on Form 10-K for the year ended December 31, 2002, as filed on
March 26, 2003 with the Securities and Exchange Commission (the "Report"), I,
Ernest J. Furtado, Chief Financial Officer, Senior Vice President, Secretary and
Director of Textainer Financial Services Corporation ("TFS") and Principal
Financial and Accounting Officer of TFS, the Managing General Partner of the
Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted, regarding
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows
of the Registrant.
March 26, 2003
By /s/ Ernest J. Furtado
____________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS