TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 30, 2005
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, 2004.
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, 2004
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). Yes __ No X
---
State the aggregate market value of the voting and non-voting common equity held
by nonaffiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked 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
Incorporated into Part I of this report, the information in Item 8.01 in the
Registrant's Report on Form 8-K, filed with the Commission on March 22, 2005;
Incorporated into Part IV of this report, the Asset Sale Agreement between the
Registrant and RFH, Ltd., Appendix A to the Proxy Statement for Special Meeting
of Limited Partners, as filed with the Commission under Section 14 of the
Securities Exchange Act of 1934 on January 20, 2005; and the Registrant's
limited partnership agreement, Exhibit A to the 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
(a) General Development of Business
The Registrant is a California Limited Partnership ( the
"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.
Through December 31, 2004, 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 Partnership, along with five other limited partnerships
managed by the general partners and their affiliates, has
negotiated a sale of substantially all of its assets in one
transaction (the "Asset Sale" or the "Proposed Asset Sale") to
RFH, Ltd. ("RFH" or the "Buyer"). The Asset Sale was subject to
the approval of limited partners holding a majority of the
Partnership's limited partnership units at a Special Meeting of
the limited partners. On March 21, 2005, the Special Meeting of
limited partners was held and the limited partners approved the
sale and the Partnership's termination and dissolution. For more
information on the meeting and its results, see Item 4 below. On
that same date, an Asset Sale Agreement between the Partnership
and RFH became binding on the Partnership. As part of this sale
transaction, RFH will engage Textainer Equipment Management
Limited, one of the general partners, to manage the equipment RFH
is buying, pursuant to a management agreement which is more fully
disclosed under Item 13 below.
Although the limited partners have approved the Asset Sale, it is
not known whether or not the Asset Sale will close because of two
lawsuits filed in March of 2005 and described in Item 3. The
Asset Sale Agreement, provides, among other things, that the
Buyer is not obligated to close unless specified conditions
precedent are satisfied. At least two of those conditions are
affected by the lawsuits discussed in Item 3. One of those
conditions precedent is that no preliminary or permanent
injunction or other order issued by any federal or state court of
competent jurisdiction in the United States or by any United
States federal or state governmental or regulatory body which
restrains, enjoins or otherwise prohibits the transactions
contemplated by the Asset Sale Agreement shall be in effect, nor
shall any request for any such injunction be pending. The
lawsuits do seek such an injunction. Another condition is that
the following representation by the Partnership be true in all
material respects as of the closing:
"There are no actions, suits or proceedings pending, or to
Seller's knowledge, threatened, against Seller or the Sale
Containers and the other Sold Assets before any court,
arbitrator, administrative or governmental body that, if
adversely determined, would hinder or prevent Seller's
ability to carry out the transactions contemplated by this
Agreement or affect the right, title or interest of Seller
in the Sale Containers or the other Sold Assets, and, to
Seller's knowledge, there is no basis for any such suits or
proceedings."
The pendency of the lawsuits means that this representation,
though true when the Asset Sale Agreement was executed, is not
now correct. The Asset Sale Agreement provides that unless the
Buyer expressly waives these conditions (and any other conditions
that are not satisfied) in writing, the Buyer is not obligated to
consummate the purchase and sale of assets under the Asset Sale
Agreement. The Buyer has not notified the Partnership of what it
intends to do.
If the sale is completed in accordance with the terms of the
Asset Sale Agreement as executed on November 30, 2004, it will be
effective as of January 1, 2005. In that case, the Partnership
had originally planned to distribute to the partners the net
proceeds of this sale, plus any previously undistributed cash
from operations and proceeds from the normal sale of containers,
less estimated expenses expected to be incurred through the final
winding up and termination of the Partnership. The plans to make
these distributions appear to be contested by at least one of the
lawsuits. The Partnership plans to terminate its existence after
payment of the liquidating distributions, but these plans may
alter depending on the course of the lawsuits. In the event the
Asset Sale is not completed, the Partnership will proceed as
provided under its partnership agreement as amended.
See Item 3 herein for a discussion of legal proceedings related
to the above sale. 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 Partnership
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 Partnership operate in a
similar manner by owning a worldwide fleet of transportation
containers and leasing these containers to international shipping
lines 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 Partnership, in which case the Partnership agrees to pay the
cost of repairing certain physical damage to containers. (This
later arrangement is called the "Damage Protection Plan.") The
Partnership, and not the lessee, is responsible for maintaining
the containers and repairing damage caused by normal
deterioration of the containers. This maintenance and repair, as
well as any repairs required under the Damage Protection Plan,
are performed in depots in major port areas by independent agents
retained for the Partnership by the general partners. These same
agents handle and inspect containers that are picked up or
redelivered by lessees, and these agents store containers not
immediately subject to re-lease.
Container leasing companies compete with one another on the basis
of lease rates, fees charged, services provided and availability
of equipment. By maintaining the highest lease rates and the
highest equipment utilization allowed by market conditions, the
Partnership attempts to generate revenue and profit.
The majority of the Partnership'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 the
lessee's possession (whether or not it is used), is responsible
for certain types of damage, and must insure the container
against liabilities.
Equipment not subject to master leases may instead be leased
under long-term lease agreements. 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. Another type of lease, a direct finance
lease, currently covers 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.
Leases specify an array of port locations where the lessee may
pick up or return the containers. The Partnership incurs expenses
in repositioning containers to a better location when containers
are returned to a location that has an over-supply. Sales of
containers in these low demand locations can occur, if a sale is
judged a better alternative to repositioning and re-leasing the
container.
The Registrant is currently in its "liquidation phase" under its
original business plan. Regular leasing operations continue
during this phase, but the Registrant is allowing its fleet to
permanently diminish through sales of containers. Through
December 31, 2004, sales of containers to date have been made
only gradually, rather than in large transactions. See Item 1(a)
above and Item 7 herein.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) Inapplicable.
(c)(1)(vi) Inapplicable.
(c)(1)(vii) One lessee accounted for 11% of total revenue of the Registrant
for the year ended December 31, 2004. No other single lessee
accounted for 10% or more of the total revenue of the Registrant.
The Partnership has insurance that would cover loss of revenue as
a result of default under all its leases, as well as the recovery
cost or replacement value of all its containers, including those
of this lessee. The insurance covers loss of lease revenues for a
specified period of time, not necessarily for the term of the
lease. The insurance is renewable annually, and the General
Partners believe that it is probable that the Partnership would
be able to recover insurance proceeds in the event of a default
or loss by this lessee. Because of this insurance and because the
Partnership would likely be able, over a period of time, to
re-lease or sell any containers that were returned to the
Partnership by this lessee, the General Partners believe that the
loss of this lessee would not have a material adverse impact on
the Partnership's operating results. Because these are forward
looking statements, there can be no assurance that events will
occur as the General Partners have predicted. These statements
could be affected by material adverse events in the future, such
as the Partnership's loss of insurance or the Partnership's
inability to re-lease or sell containers that are returned to the
Partnership.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) Among the various leasing companies, the top ten control
approximately 87% 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 Partnership and the
manager of its marine container equipment, is one of the largest
standard dry freight container leasing company and manages
approximately 13% of the equipment held by all container leasing
companies. The customers for leased containers are primarily
international shipping lines. The Partnership 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 in the past
several years, 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 Partnership.
Furthermore, changes in worldwide demand for shipping can create
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
Partnership'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. Shipping
lines have an advantage over container leasing companies with
respect to these low demand locations, because the shipping lines
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. The number and size of
these low demand locations has recently been decreasing, due to
improved global demand for shipping, but no assurance can be
given that this trend will continue.
Beginning in 2004, a worldwide steel shortage caused significant
increases in new container prices and limited the number of new
containers being built. As a result, demand for leased containers
increased in the first quarter of 2004 and has remained strong
through 2004.
(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), and the Managing General Partner of the
Registrant, is responsible for the overall management of the
business of the Registrant and at December 31, 2004 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, 2004
had a total of 148 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 lines for use in world trade and
approximately 18%, 15% and 10% of the Registrant's rental revenue
during the years ended December 31, 2004, 2003 and 2002,
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. 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, 2004, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 1,562
40-foot standard dry freight containers 804
40-foot high cube dry freight containers 794
-----
3,160
=====
During December 2004, approximately 95% of these containers were on lease to
international shipping lines, and the balance were being stored primarily at a
large number of storage depots located worldwide.
See Item 7, "Results of Operations" for more information about changes in the
size of the Registrant's container fleet, container sales and write-downs, as
well as the location of the Registrant's off-lease containers.
ITEM 3. LEGAL PROCEEDINGS
On March 8, 2005, a lawsuit was filed in the United States District Court for
the Northern District of California, captioned: Robert Lewis and City
Partnerships Co., Plaintiffs v. Textainer Equipment Income Fund II, L.P.;
Textainer Equipment Income Fund III, L.P.; Textainer Equipment Income Fund IV,
L.P.; Textainer Equipment Income Fund V, L.P.; Textainer Equipment Income Fund
VI, L.P.; Textainer Equipment Management Limited; Textainer Financial Services
Corporation; Textainer Capital Corporation; Textainer Group Holdings Limited;
John A. Maccarone; and RFH, LTD., Defendants, Case No. C 05 0969 MMC (the
"complaint"). The complaint seeks certification as a class action on behalf of
holders of limited partnership units of the Registrant and the other
partnerships named in the complaint.
The complaint refers to the proxy statement sent on or about January 20, 2005 in
connection with the Special Meeting of Limited Partners held on March 21, 2005
for the Partnership. The complaint alleges securities law violations, by
material misstatements and omissions in the proxy statement, and also breaches
of fiduciary duties by the General Partners. Plaintiffs claim that the proxy
statement fails to disclose facts that suggest that the purchase price the
Partnership is receiving from the Asset Sale is inadequate. The alleged omitted
fact is that the prices of shipping containers have risen since the time that
the terms of sale were initially agreed to in July 2004. The General Partners
are also alleged to have had conflicts of interest and self dealing unfair to
the Limited Partners in that they required that any purchaser retain one of the
general partner entities as managing agent for the containers purchased in the
Asset Sale, thereby continuing to profit from the increased prices of shipping
containers. The complaint further alleges that the Buyer aided and abetted the
General Partners in the breach of fiduciary duties.
The complaint seeks an injunction against proceeding with the Special Meeting,
an injunction against engaging in the Asset Sale or in the alternative if the
injunction is not granted, a rescission of the Asset Sale or damages in an
unspecified amount.
On March 18, 2005, the request for a temporary restraining order was denied.
On March 21, 2005, a second lawsuit was filed in the United States District
Court for the Northern District of California, captioned "Alan P. Gordon, as
Trustee for the Gordon Family Trust, individually and on behalf of all others
similarly situated, Plaintiffs, v. Textainer Financial Services Corporation;
Textainer Equipment Management Limited; Textainer Limited; Textainer Capital
Corporation; Textainer Group Holdings Limited; John A. Maccarone; and RFH, LTD.,
Defendants, and TCC Equipment Income Fund, a California Limited Partnership;
Textainer Equipment Income Fund II, L.P.; Textainer Equipment Income Fund III,
L.P.; Textainer Equipment Income Fund IV, L.P.; Textainer Equipment Income Fund
V, L.P.; and Textainer Equipment Income Fund VI, L.P., Nominal Defendants," Case
No. C 05 1146 CRB (the "second complaint").
The second complaint seeks certification as a class action on behalf of holders
of limited partnership units of the Registrant and the other partnerships named
in the complaint. This second complaint also alleges material misstatements and
omissions in the proxy statement, resulting in securities law violations, which
in turn are alleged to have deprived the plaintiffs of a legitimate voting
process with respect to the Asset Sale. One of the material misstatements and/or
omissions alleged in the proxy statement is that the price at which the assets
are to be sold is materially lower than current market values for the assets.
The plaintiffs are alleged to suffer substantial damages upon consummation of
the Asset Sale. This second complaint further alleges breaches of fiduciary duty
by the general partners, Textainer Group Holdings Limited, and Mr. Maccarone,
due to the facts that (i) solicitation of bids with respect to the Asset Sale
was conditioned on the buyer's acceptance of a management agreement with one of
the general partners covering the assets sold, which condition is alleged to
have deterred competing container leasing companies from bidding for the assets
and (ii) the Asset Sale Agreement allowed for the purchase price paid to be
adjusted downward during a time when the prices for used containers are alleged
to have been increasing. A further breach of fiduciary duty is alleged on
account of the failure to disclose all material facts concerning transactions in
which the defendants named in the preceding sentence had a financial interest.
The Buyer, RFH, is also alleged to have aided and abetted these breaches of
fiduciary duty.
The second complaint seeks an injunction against the Asset Sale, or if the Asset
Sale is consummated, the imposition of a constructive trust on the assets sold
and the sales proceeds received, a constructive trust on the receipt of fees
paid under the management agreement between one of the general partners and RFH
and disgorgement of those fees to the plaintiffs, damages in an unspecified
amount, interest, reasonable attorneys' and experts' fees and costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Proxies were solicited beginning in January of 2005 and a Special Meeting of
Limited Partners was held on March 21, 2005. Matters for which proxies were
solicited and votes taken at the Special Meeting were (i) the approval of the
sale of substantially all of the assets of the Registrant for cash and the
authorization of the dissolution, winding up and termination of the Registrant;
(ii) the approval of certain amendments to the Registrant's limited partnership
agreement giving the managing general partner the power and authority to sell
the Registrant's assets if the Asset Sale is not completed; and (iii) the
adjournment of the special meeting to solicit additional proxies, if necessary.
The number of votes cast for and against, as well as the number of abstentions
is detailed under Item 8.01 in the Form 8-K filed with the Securities and
Exchange Commission on March 22, 2005, which information is incorporated by
reference.
For additional information concerning the Asset Sale referred to in subparagraph
(i) and the associated plan for liquidation, see Item 1(a) above, "General
Development of Business."
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, 2005, there were 1,872 holders of record of
limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
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, 2004, the Registrant paid
distributions at an annualized rate equal to 4.3% of a Unit's initial cost, or
$0.85 per Unit. For the year ended December 31, 2003, the Registrant paid
quarterly distributions at an annualized rate of 4.4% of a Unit's initial cost
or $0.88 per Unit.
For information about the amount of distributions paid during the five most
recent fiscal years, see Item 6, "Selected Financial Data."
The Partnership made a January 2005 distribution related to 2004 operations.
Since the Proposed Asset Sale would be effective January 1, 2005, if completed
in accordance with the terms of the Asset Sale Agreement as executed on November
30, 2004, the Partnership has temporarily suspended distributions. While there
is no guarantee that the Asset Sale will be completed, if it is completed, the
Partnership had originally planned to make liquidating distributions as
described in Item 1(a) above. If the Asset Sale is not completed, the
Partnership will resume paying quarterly distributions.
Part 701: Inapplicable.
Part 703: Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands except for per unit amounts)
Years Ended December 31,
------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Rental income (1)................... $1,574 $1,634 $1,665 $2,137 $ 2,885
(Loss) income from operations(2).... $ (150) $ 155 $ (76) $ 325 $ 915
Net (loss) earnings................. $ (146) $ 158 $ (70) $ 343 $ 954
Net (loss) earnings per unit
of limited partner interest (3) .. $(0.12) $ 0.10 $(0.06) $ 0.22 $ 0.63
Distributions per unit of
limited partner interest.......... $ 0.85 $ 0.88 $ 0.93 $ 1.48 $ 2.00
Distributions per unit of limited
partner interest representing
a return of capital............... $ 0.85 $ 0.78 $ 0.93 $ 1.26 $ 1.37
Total assets........................ $4,233 $5,624 $6,783 $8,283 $10,294
(1) The Registrant entered its liquidation phase in October 1998, from which
time the Registrant has no longer been replenishing its container fleet by
purchasing containers. Sales of containers now permanently diminish the
Registrant's fleet. For information about changes in the size of the
Registrant's fleet, see Item 7.
(2) The loss from operations reported for the year ended December 31, 2004 was
primarily due to the write down of the Partnership's containers. For
information regarding the write down, see Item 7.
(3) As noted above, the Registrant entered its liquidation phase in October,
1998, from which time forward it began distributing its excess cash, after
redemptions and working capital reserves. This cash includes some proceeds
from container sales, as well as cash from operations. See Item 7.
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, 2004,
2003 and 2002. 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.
Introduction
The Partnership is a finite-life entity whose principal business is to own a
fleet of containers for lease to the international shipping industry.
The Partnership's revenues come primarily from the rental income generated by
leased containers and, to a smaller extent, from services related to rental
income, such as handling charges paid by lessees. The Partnership's revenues
are, therefore, dependent on demand for leased containers. Demand for leased
containers drives not only the percentage of the Partnership's containers that
are on lease (utilization), but also, to a certain extent, the rental rates the
Partnership can charge under its leases. When demand declines, utilization
falls, and the Partnership has fewer containers on lease, often earning less
revenue, and more containers off-lease incurring storage expense. In times of
reduced demand, then, the Partnership has higher expenses and may have to reduce
revenues further by offering lessees incentives such as free rental periods or
credits. Conversely, in times of increased demand, rental revenues increase
because the Partnership has more containers on lease, rental rates sometimes
rise, and expenses will drop because the Partnership no longer incurs as many
charges to store or reposition off-lease containers. The General Partners try at
all times to take advantage of the opportunities created by different levels of
demand for leased containers, either by changing services, lease terms or lease
rates offered to customers or by concentrating on different geographic markets.
Demand for containers is driven by many factors, including the overall volume of
worldwide shipping, the number of containers manufactured, the number of
containers available for lease in specific locations and the capacity of the
worldwide shipping industry to transport containers on its existing ships. Since
many of the Partnership's customers are shipping lines that also own their own
containers, the price and availability of new containers directly affects demand
for leased containers. If shipping lines have the cash or financing to buy
containers and find that alternative attractive, demand for leased containers
will fall. Competition for shipping lines' business has increased in recent
years due to operational consolidations among shipping lines and the entry of
new leasing companies that compete with entities like the Partnership. This
competition has generally driven down rental rates and allowed shipping lines to
obtain other favorable lease terms. Due to the recent rise in price for new
containers, though demand for leased containers by shipping lines has increased.
Current demand and related market conditions for containers are discussed below
under "Results of Operations; Current Market Conditions for Leased Containers."
In addition to leasing containers, the Partnership also sells containers from
time to time. Containers are generally sold either at the end of their useful
life, or when an economic analysis indicates that it would be more profitable to
sell a container rather than to continue to own it. An example of the latter
would be when re-leasing a container might be relatively expensive, either
because of expenses required to repair the container or to reposition the
container to a location where the container could be readily leased.
Through December 31, 2004, the Partnership has generally sold containers
individually. As discussed below under "Possible Sale of Partnership Assets,"
the Partnership has entered into an Asset Sale Agreement to sell all of its
remaining container fleet.
When the Partnership has sold its containers individually, sales have primarily
been made to wholesalers who subsequently sell to buyers such as mini-storage
operators, construction companies, farmers and other non-marine users.
Additionally, if a container is lost or completely damaged by a lessee, the
Partnership has received proceeds from the lessee for the value of the
container. The Partnership counts these transactions as sales, as well as the
more traditional sales to wholesalers. Generally, from 1998 through 2002, used
container prices declined, causing the Partnership to realize less from the sale
of its used containers. Used container sales prices stabilized in 2002 and 2003
and increased in 2004.
The Partnership's operations and financial results are also affected by the
price of new containers. The price for new containers fell from 1995 through
2003. This decrease significantly depressed rental rates. This decrease has also
caused the Partnership to evaluate the carrying cost of its container fleet, and
has resulted in write-downs of some containers the Partnership has decided to
sell. These matters are discussed in detail below under the caption "Other
Income and Expenses: Write Down of Containers: Specific Containers Identified
for Sale." Prior to the start of the Partnership's liquidation period, which is
discussed below, the Partnership purchased new containers, which allowed the
Partnership to receive some benefit from the decrease in price for new
containers.
During 2004, new container prices increased significantly due to a worldwide
shortage of steel, which resulted in limited availability of new containers.
Although the Partnership is no longer purchasing containers, the increase in new
container prices and the limited availability of new containers improved demand
for the Partnership's containers. See "Results of Operations: Current Market
Conditions for Leased Containers" for a further discussion.
The Partnership is in its liquidation phase, which means that the Partnership no
longer seeks to replenish its container fleet by buying new containers. During
this phase, the Partnership will either (i) sell its remaining container fleet
to an institutional investor, who may continue to lease the containers or (ii)
sell containers gradually to wholesalers when the containers are at or near the
end of their useful life, or when they come off-lease and a sale seems to offer
a better overall yield than continued operation. As described below, the
Partnership has entered into an Asset Sale Agreement to sell all of its
remaining container fleet.
In June and December 2004, the Partnership compared the carrying value of its
containers to the anticipated estimated price to be realized in the proposed
sale. Despite the improvement in the market for used containers, the Partnership
still found that the carrying value of some of its older, more expensive
containers was higher than the anticipated estimated price to be realized in the
sale. The Partnership determined that these containers were impaired and
recorded a write down expense to reduce the carrying value of these containers
to their anticipated sales price. See "Other Income and Expenses: Write Down of
Containers" below.
Possible Sale of Partnerships Assets
In November 2004, the Partnership and five other limited partnerships managed by
the General Partners and their affiliates entered into Asset Sale Agreements
with RFH, Ltd. to sell substantially all of their assets. At a Special Meeting
of Limited Partners, held on March 21, 2005, the limited partners of the
Partnership approved the Proposed Asset Sale.
It is not currently known whether the Asset Sale will be completed because of
two lawsuits regarding the Asset Sale, which were filed in March of 2005. As a
result of these lawsuits, the Partnership is unable to represent that it is not
subject to certain kinds of litigation, as required by the Asset Sale Agreement.
The Buyer may proceed with the Asset Sale if it chooses, but the Buyer is not
now obligated to consummate the Asset Sale. The Buyer has not notified the
Partnership of what it intends to do. The lawsuits are further described in Item
3 above. If the Asset Sale is completed, the Partnership had originally planned
to distribute to the partners the net proceeds of this sale, plus any previously
undistributed cash from operations and proceeds from the normal sale of
containers, less estimated expenses expected to be incurred through the final
winding up and termination of the Partnership. The plans to make these
distributions appear to be contested by at least one of the lawsuits. The
Partnership plans to terminate its existence after payment of the liquidating
distributions, but these plans may alter depending on the course of the
lawsuits. In the event the Asset Sale is not completed, the Partnership will
continue operations under its liquidation phase.
Liquidity and Capital Resources
Historical
From October 1987 until October 1989, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1 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. During this
phase, regular leasing operations continue, but the Partnership no longer adds
to its fleet by purchasing additional containers, and the General Partners
evaluate opportunities to sell containers.
General
During the liquidation phase, 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.
Sources of Cash
If the Asset Sale is completed in accordance with the terms of the Asset Sale
Agreement as executed on November 30, 2004, it will be effective as of January
1, 2005, which will mean that almost all of the Partnership's sources of cash in
2005, will be the proceeds from the Asset Sale. If the Asset Sale is not
completed, expected sources of cash are described below.
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. Cash provided from these sources will fluctuate based on demand for
leased and used containers. Demand for leased and used containers is discussed
more fully in "Results of Operations." Cash provided by operating activities is
affected by rental income, operating expenses and the timing of both payments
received from lessees and payments made by the Partnership for operating
expenses. Additionally, a continued stream of rental income is dependent partly
on the Partnership's ability to re-lease containers as they come off lease. See
the discussion of "Utilization" below under "Results of Operations." Cash
provided by investing activities is affected by the number of containers sold,
the sale price received on these containers and the timing of payments received
for these sales. Previously reported cash from operations and sales proceeds is
not indicative of future cash flows as these amounts can fluctuate significantly
based on demand for new and used containers, fleet size and timing of the
payments made and received. Fluctuations in rental income, operating expenses,
and sale prices for used containers are discussed more fully in "Results of
Operations."
Operating and investing activities are discussed in detail below.
Cash from Operations
Net cash provided by operating activities for the years ended December 31, 2004
and 2003, was $981 and $957, respectively. The increase of $24, or 3%, was
primarily due to the increase in net (loss) earnings, adjusted for non-cash
items, offset by fluctuations in accounts payable and accrued liabilities. The
increase in net (loss) earnings, adjusted for non-cash items was primarily due
to a decrease in direct container expenses, offset by a decrease in rental
income. These items are discussed more fully under "Results of Operations." The
fluctuation in accounts payable and accrued liabilities resulted from timing
differences in the payment of expenses and fees and the remittance of net rental
revenues, as well as in fluctuations in these amounts.
Cash from Sale of Containers
Current Sources: For the years ended December 31, 2004 and 2003, net cash
provided from the sale of containers was $309 and $320, respectively. The
decrease of $11, or 3%, was primarily due to the Partnership selling fewer
containers during the year ended December 31, 2004, compared to the equivalent
period in 2003, offset by an increase in the average container sales price. The
Partnership primarily sells containers when they come off-lease, and an analysis
indicates that the container should be sold. Fluctuations between periods in the
number of containers sold reflect the age and condition of containers coming
off-lease, the geographic market in which they come off-lease, and other related
market conditions. Fluctuations can also be affected by the number of containers
sold to lessees, who pay for any containers that are lost or damaged beyond
repair.
Effect of Market Conditions: Market conditions can affect the Partnership's
decision to sell an off-lease container. If demand for leased containers is low,
the Partnership is more likely to sell a container rather than incur the cost to
reposition the container to a location where it can be re-leased. If demand is
strong, the Partnership is less likely to identify the container as for sale, as
it is anticipated that the container can be released in its current location or
repositioned to another location where demand is high. The strong utilization
during the first quarter of 2004 and increases in demand during the remainder of
2004 resulted in fewer containers being identified for sale. Some of the market
conditions affecting the sale of containers are discussed below under
"Comparative Results of Operations." Primarily as a result of an industry-wide
decline in the number of containers being offered for sale, the average sales
price of used containers increased in 2004 with respect to the sale of off-lease
containers in certain geographic markets.
Effect of Liquidation on Future Cash Flows: The number of containers sold and
the price received for them, will affect how much the Partnership will pay in
future distributions to Partners. Once all of the Partnership's containers are
sold, and the sale proceeds distributed to partners, distributions will stop and
the Partnership will terminate.
Uses of Cash
Distributions to partners are the Partnership's primary use of cash. The amount
of distributions paid to partners is dependent on cash received from operations
and the sale of containers, less amounts used to pay redemptions or held as
working 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.
These activities are discussed in detail below.
Distributions: During the year ended December 31, 2004, the Partnership declared
cash distributions to limited partners pertaining to the fourth quarter of 2003
through the third quarter of 2004 in the amount of $1,183, which represented
$0.85 per unit. On a cash basis, as reflected in the Statements of Cash Flows,
after paying redemptions and general partner distributions, $952 of these
distributions was from operating activities and the balance of $231 was a return
of capital. On an accrual basis, as reflected on the Statements of Partners'
Capital, all of these distributions were a return of capital.
The Partnership made a quarterly distribution payment of $382 in January 2005
related to 2004 operations. Since the Proposed Asset Sale would be effective
January 1, 2005 if completed as contemplated by the Asset Sale Agreement as
executed on November 30, 2004, the Partnership has temporarily suspended
distributions. If the Asset Sale is completed, the Partnership had originally
planned to make making two final liquidating distribution payments. These
distributions would consist of the net proceeds from the Asset Sale and any
previously undistributed cash received from operations and proceeds from normal
sales of containers, less estimated expenses expected to be incurred through the
final winding up and termination of the Partnership. As noted under "Possible
Sale of Partnership Assets," it is not currently known whether the Asset Sale
will be completed. If the sale is completed, the Partnership's plans to pay
these liquidating distributions, and the amount and timing of these
distributions may be affected by events in the lawsuits discussed above.
If the Asset Sale is not completed, quarterly distributions will resume and the
partners will continue to receive distributions in accordance with the
Partnership's previous distribution policy.
Capital Commitments: Redemptions: During the twelve-month period ended December
31, 2004, the Partnership redeemed 4,250 units for a total dollar amount of $13.
The Partnership used cash from operations to pay for the redeemed units.
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.
Results of Operations
The Partnership's income (loss) from operations, which consists primarily of
rental income less costs and expenses (including container depreciation and
write downs, direct container expenses, management fees, and reimbursement of
administrative expenses) is primarily affected by the size of its container
fleet, the number of containers it has on lease (utilization) and the rental
rates received under its leases. The current status of each of these factors is
discussed below.
Size of Container Fleet
The following is a summary of the container fleet (in units) available for lease
during the years ended December 31, 2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
Beginning container fleet.......... 3,452 3,822 4,416
Ending container fleet............. 3,160 3,452 3,822
Average container fleet............ 3,306 3,637 4,119
The average container fleet decreased 9% and 12% from the years ended December
31, 2003 to 2004 and from December 31, 2002 to 2003, respectively, primarily due
to the continuing sale of containers. The decline in the container fleet has
contributed to an overall decline in rental income from the years ended December
31, 2003 to 2004 and December 31, 2002 to 2003. The Partnership expects rental
income to continue to decline as the container fleet continues to decrease.
Utilization
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 91%, 82% and 70% on average during
the years ended December 31, 2004, 2003 and 2002, respectively. The remaining
container fleet is off-lease and is being stored primarily at a large number of
storage depots. At December 31, 2004, 2003 and 2002, utilization was 95%, 83%
and 81%, respectively, and the Partnership's off-lease containers (in units)
were located in the following locations:
2004 2003 2002
---- ---- ----
Americas 49 194 382
Europe 25 103 220
Asia 69 230 80
Other 4 22 17
--- --- ---
Total off-lease containers 147 549 699
=== === ===
Rental Rates
In addition to utilization, rental income is affected by daily rental rates.
Daily rental rates are different under different lease types. The two primary
lease types for the Partnership's containers are long term leases and master
leases. The average daily rental rate for the Partnership's containers decreased
5% and 8%, from the years ended December 31, 2003 to 2004 and December 31, 2002
to 2003, respectively. The declines were due to the declines in both master
lease and long term lease rates. The majority of the Partnership's rental income
was generated from master leases, but in the past several years an increasing
percentage of the Partnership's containers have been on lease under long term
leases. At December 31, 2004, 2003 and 2002, 37%, 37% and 30%, respectively, of
the Partnership's on-lease 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.
Comparative Results of Operations
The following is a comparative analysis of the results of operations for the
years ended December 31, 2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
Rental income $1,574 $1,634 $1,665
(Loss) income from operations $ (150) $ 155 ($ 76)
Percent change from previous
year in:
Utilization 11% 17% 3%
Average container fleet (9%) (12%) (14%)
Average rental rates (5%) ( 8%) (10%)
The Partnership's rental income decreased $60, or 4%, from the year ended
December 31, 2003 to the comparable period in 2004 and $31, or 2%, from the year
ended December 31, 2002 to the comparable period in 2003. The declines were
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 $51, or 4%, from the year ended December
31, 2003 to 2004 and $14, or 1%, from the year ended December 31, 2002 to 2003.
The declines were primarily due to decreases in the average container fleet size
and rental rates, offset by the increase in utilization as detailed in the above
table.
The loss from operations for the year ended December 31, 2004 resulted primarily
from the write down of the Partnership's containers. See "Other Income and
Expenses: Write Down of Containers," and "Critical Accounting Policies and
Estimates: Container Impairment Estimates."
Current Market Conditions for Leased Containers: Utilization was stable for most
of 2003 and demand remained strong during the first quarter of 2004 and
increased through the end of 2004. Beginning in 2004, a worldwide steel shortage
caused significant increases in new container prices and limited the number of
new containers being built. As a result, demand for leased containers increased
further beginning in March of 2004 and has remained strong through the beginning
of 2005.
Sale of Containers in Lower Demand Locations: Despite the increase in demand,
areas of lower demand for containers still exist due to a continuing trade
imbalance between Asia and the Americas and Europe. However, the number of
off-lease containers in these lower demand locations has decreased, as lessees
have returned fewer containers to these lower demand locations and have also
leased containers from some of these locations. The continuing sale of off-lease
containers in these areas has also reduced the number of containers in some of
these locations. Some off-lease containers are still being sold in these areas
because of their age and the high cost of repositioning containers from these
areas. The number of the Partnership's off-lease containers in the Americas and
Europe, where most of these lower demand locations occur, is detailed above in
"Utilization."
Other Income and Expenses
The following is a discussion of other income earned and expenses incurred by
the Partnership:
Other Rental Income
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, 2004, other rental income was $212, a decrease
of $9 from the equivalent period in 2003. The decrease in other rental income
was primarily due to decreases in handling and DPP income of $8 and $3,
respectively, offset by an increase in location income of $2.
For the year ended December 31, 2003, other rental income was $221, a decrease
of $17 from the equivalent period in 2002. The decrease in other rental income
was primarily due to decreases in handling and location income of $29 and $14,
respectively, offset by an increase in DPP income of $25.
Direct Container Expenses
Direct container expenses decreased $150, or 34%, from the year ended December
31, 2003 to the equivalent period in 2004, primarily due to decreases in
repositioning and storage expenses of $69 and $57, respectively. The decrease in
repositioning expense was primarily due to a decrease in the number of
containers repositioned between the periods, offset by a higher average
repositioning cost. Storage expense decreased not only due to the decrease in
average fleet size, but also due to the increase in utilization noted above,
offset by a slight increase in the average storage cost per container.
Direct container expenses decreased $47, or 10%, from the year ended December
31, 2002 to the equivalent period in 2003, primarily due to the decline in the
average fleet size. The decrease in expenses was primarily attributable to
declines in storage and handling expenses of $112 and $18, respectively, offset
by increases in repositioning and DPP expenses of $65 and $22, respectively.
These changes are discussed in detail below.
Storage expense decreased not only due to the decrease in average fleet size,
but also due to the increase in utilization noted above and a slight decrease in
the average storage cost per container. The decrease in handling expense was due
to the decline in container movement, partially offset by an increase in average
handling costs. Repositioning expense increased due to an increase in the
average repositioning costs due to (i) expensive repositioning moves related to
one lessee who required containers to be delivered to certain locations and (ii)
longer average repositioning moves. This increase was partially offset by the
decline in the number of containers repositioned between the periods. The
increase in DPP expense was primarily due to the increase in the number of
containers covered under DPP.
Bad Debt Expense or Benefit
Bad debt expense (benefit) was $14, $5 and ($4) for the years ended December 31,
2004, 2003 and 2002, respectively. Fluctuations in bad debt expense (benefit)
reflect the adjustments to the bad debt reserve, after deductions have been
taken against the reserve, 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. See "Critical Accounting Policies
and Estimates" below. The expense recorded during the years ended December 31,
2004 and 2003 reflect a higher reserve estimate, after deductions had been taken
against the reserve, from December 31, 2003 and 2002. The benefit recorded
during the year ended December 31, 2002 reflects a lower reserve estimate, after
deductions had been taken against the reserve, from December 31, 2001.
Depreciation Expense
Depreciation expense decreased $153, or 23%, from the year ended December 31,
2003 to the comparable period in 2004 primarily due to (i) the write-down
recorded in June, 2004, which reduced the carrying value of certain containers
and resulted in a lower depreciation expense during the second half of 2004 and
(ii) the declines in the average fleet size between the periods.
The decrease in depreciation expense of $187, or 22%, from the year ended
December 31, 2002 to the comparable period in 2003 was primarily due to the
Partnership revising its estimate for container salvage value in 2002. 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. The
effect of this change resulted in an increased rate of depreciation for the last
half of 2002 and all of 2003. During the year ended December 31, 2002, the
Partnership recorded an additional depreciation expense of $53 for units that
had not been fully depreciated prior to July 1, 2002 and an additional
depreciation expense of $187 to adjust the net book value of fully depreciated
containers to the new estimated salvage values. For a discussion of the
Partnership's depreciation policy, see "Critical Accounting Policies and
Estimates: Container Depreciation Estimates."
Write Down of Containers
Write Down of Containers Held for Continued Use: The Partnership evaluated the
recorded value of its container fleet at June 30, 2004, taking into
consideration the container sales prices in the letter of intent relating to the
sale of the Partnership's container fleet. The Partnership recorded a write down
of $586 to reduce the June 30, 2004 carrying value of some of the containers to
their anticipated per unit sales price. The Partnership also evaluated the
recoverability of these containers at December 31, 2004 based on January 1, 2005
sales prices in the Asset Sale Agreement and recorded an additional write-down
of $15. See "Critical Accounting Policies and Estimates: Container Impairment
Estimates."
Specific Containers Identified for Sale: The Partnership also identifies certain
individual containers for sale from time to time in the ordinary course of its
business. When the Partnership evaluated the recoverability of the recorded
amount of these containers identified for sale, the evaluation sometimes
resulted in write downs. The write downs for these individual containers have
generally been made on a monthly basis. Most of these write downs related to
containers that were off lease in areas of low demand, which are discussed above
under "Comparative Results of Operations: Sale of Containers in Lower Demand
Locations."
Write down expense decreased $12, or 86%, and $93, or 87%, from the years ended
December 31, 2003 to 2004 and December 31, 2002 to 2003, respectively. The
declines were primarily due to (i) a significant decrease in the number of
containers identified for sale, as there were fewer off lease containers as
detailed above under "Utilization" and; (ii) reduced write-downs for containers
that were identified for sale due to lower net book values and higher
anticipated container sales prices.
Gain (Loss) on Sale of Containers
The following details the gain (loss) on the sale of containers for the years
ended December 31, 2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
Gain (loss) on written-down containers
identified for sale $ - $ 2 $ 8
Gain (loss) on other containers 13 (74) 44
-- --- --
Total gain (loss) on container sales $13 $(72) $52
== === ==
Gain (loss) on the sale of written down containers was minimal for the years
ended December 31, 2003 and 2002, as the overall estimated sales proceeds used
to determine the write-down amount was fairly accurate for the sold containers.
For the year ended December 31, 2004, there was no gain or loss recognized on
the sale of written-down containers identified for sale, primarily as there were
few units that had been identified for sale, due to the improved demand, and as
there were even fewer units of those identified for sale that required a write
down. See "Critical Accounting Policies and Estimates" below.
Since it has been the Partnership's practice to determine write-down amounts on
containers identified for sale once a month, some containers that had been
identified for sale were sold before they were written down. These containers
are listed in the above table as "other containers." The amount of gain or loss
recorded on the sale of these containers has fluctuated due to the specific
conditions of the containers sold, the type of containers sold, the location
where the containers were sold and their net book value.
Management and Professional Fees and General and Administrative Costs
Management fees to affiliates consist of equipment management fees, which are
primarily based on rental income, and incentive management fees, which are based
on the Partnership's limited and general partner distributions made from cash
from operations and partners' capital. The following details these fees for the
years ended December 31, 2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
Equipment management fees $111 $115 $114
Incentive management fees 40 36 32
--- --- ---
Management fees to affiliates $151 $151 $146
=== === ===
Equipment management fees fluctuated based on the fluctuations in rental income
and were approximately 7% of rental income for the years ended December 31,
2004, 2003 and 2002. Fluctuations in incentive management fees between the
periods were primarily due to fluctuations in the amount of distributions paid
from cash from operations.
Professional fees increased $32 from the year ended December 31, 2003 to 2004,
primarily due to the increase in legal fees. The decrease in professional fees
of $9, from the year ended December 31, 2002 to 2003, was primarily due to a
decline in tax expense.
General and administrative costs to affiliates decreased $2, or 3%, and $8, or
9%, from the years ended December 31, 2003 to 2004 and December 31, 2002 to
2003, 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.
Other general and administrative costs increased $5 and decreased $56, from the
years ended December 31, 2003 to 2004 and December 31, 2002 to 2003,
respectively. The fluctuations were primarily due to fluctuations in other
service fees between the periods.
Contractual Obligations
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.
Since the Partnership Agreement requires the Partnership to continue to pay
these fees and expenses to the General Partners and reimburse the General
Partners for expenses incurred by them or other service providers selected by
the General Partners, these payments are contractual obligations.
The following details the amounts payable at December 31, 2004 for these
obligations:
------------------------------------------------------------------------------------------------
Payments due by period
------------------------------------------------------------
Less
than 1 1-3 3-5 More than
Contractual Obligations Total year years years 5 years
------------------------------------------------------------------------------------------------
Equipment management fees $18 $18 * * *
Incentive management fees 11 11 * * *
Equipment liquidation fee (1) - -
Reimbursement of general and
administrative costs to:
Affiliates 25 25 * * *
Other service providers 24 24 * * *
------------------------------------------------------------------------------------------------
Total $78 $78
------------------------------------------------------------------------------------------------
* The Partnership has not recorded liabilities for these fees and reimbursements
related to periods subsequent to December 31, 2004, as these fees and
reimbursements cannot be estimated as they are dependent on variable factors as
detailed below:
Equipment management fee 7% of gross operating lease revenues
2% of gross full payout lease revenues
Incentive management fee 4% of distributable cash from operations
Reimbursements to affiliates Dependent on the amount of expenses incurred
and other service providers that are allocable to the Partnership
Service fee to other service Monthly fee dependent on the number of limited partners
provider
(1) The Partnership is required to pay the General Partners an equipment
liquidation fee, but this fee is payable only after limited partners receive a
certain amount of distributions from the Partnership. The Partnership does not
currently expect to pay this liquidation fee.
For the amount of fees and reimbursements made to the General Partners for the
years ended December 31, 2004, 2003 and 2002, see Note 2 to the Financial
Statements in Item 8. For the amount of fees and reimbursements made to other
service providers, see Other general and administrative costs in the Statements
of Operations in Item 8.
Net Loss or Earnings per Limited Partnership Unit
2004 2003 2002
---- ---- ----
Net (loss) earnings per limited
partnership unit ($0.12) $0.10 ($0.06)
Net (loss) earnings allocated
to limited partners ($ 162) $ 142 ($ 88)
Net loss /earnings per limited partnership unit fluctuates based on fluctuations
in net earnings/loss allocated to limited partners as detailed above. The
allocation of net loss /earnings for the years ended December 31, 2004, 2003 and
2002 included a special allocation of gross income to the General Partners of
$18, $14 and $19, respectively, in accordance with the Partnership Agreement. As
discussed above, the write down of some of the Partnership's containers was the
primary reason for the net loss incurred by the Partnership during the year
ended December 31, 2004.
Critical Accounting Policies and Estimates
Certain estimates and assumptions were made by the Partnership's management that
affect its financial statements. These estimates are based on historical
experience and on assumptions believed to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the
carrying value of assets and liabilities. Actual results could differ.
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.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is 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 General Partners have established a Credit Committee, which actively manages
and monitors the collection of receivables on at least a monthly basis. This
committee establishes credit limits for every lessee and potential lessee of
equipment, monitors compliance with these limits, monitors collection
activities, follows up on the collection of outstanding accounts, determines
which accounts should be written-off and estimates allowances for doubtful
accounts. As a result of actively managing these areas, the Partnership's
allowance for bad debt as a percentage of accounts receivable has ranged from 6%
to 17% and has averaged approximately 10% over the last 5 years. These
allowances have historically covered all of the Partnership's bad debts.
Container Depreciation Estimates: The Partnership depreciates its container
rental equipment based on certain estimates related to the container's useful
life and salvage value. The Partnership estimates a container's useful life to
be 12 years, an estimate which it has used since the Partnership's inception.
Prior to July 1, 2002, the Partnership estimated salvage value as a percentage
of equipment cost. Effective July 1, 2002, the Partnership revised its estimate
for container salvage value 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. The Partnership will revise its estimate of residual values if it is
determined that these estimates are no longer reasonable based on recent sales
prices and revised assumptions regarding future sales prices. The Partnership
will revise its estimate of container useful life if it is determined that the
current estimates are no longer reasonable based on the average age of
containers sold and revised assumptions regarding future demand for leasing
older containers.
As a result, depreciation expense could fluctuate significantly in future
periods as a result of any revisions made to these estimates. A decrease in
estimated residual values or useful lives of containers would increase
depreciation expense, adversely affecting the Partnership's operating results.
Conversely, any increase in these estimates would result in a lower depreciation
expense, resulting in an improvement in operating results. These changes would
not affect cash generated from operations, as depreciation is a non-cash item.
Container Impairment Estimates: Write-downs of containers are made when it is
determined that the recorded value of the containers exceeds their estimated
fair value. Containers held for continued use and containers identified for sale
in the ordinary course of business are considered to have different estimated
fair values.
In determining estimated fair value for a container held for continued use,
management estimates the future undiscounted cash flows for the container and
considers other relevant information. Estimates of future undiscounted cash
flows require estimates about future rental revenues to be generated by the
container, future demand for leased containers, and the length of time for which
the container will continue to generate revenue.
At June 30, and December 31, 2004, management used a different estimated fair
value for containers held for continued use, which took into account the
possible sale of the Partnership's entire container fleet to determine whether
the containers were impaired. The estimated fair value used at June 30 was the
anticipated sales price from the letter of intent regarding this sale. The
estimated fair value used at December 31 was the sales prices at January 1,
2005, detailed in the Asset Sale Agreement between the Partnership and RFH, Ltd.
When these estimated fair values were compared to the recorded values of the
Partnership's containers at June 30 and December 31, some of the recorded values
at June 30 and December 31 were found to be higher. The Partnership wrote down
the containers with the higher recorded values at June 30 and December 31, to
the estimated sales price from the letter of intent and Asset Sale Agreement,
respectively, even though they continued to be held for continued use.
As noted above, the Partnership also evaluates the recorded value of those
containers identified for sale in the ordinary course of its business,
separately from containers held for continued use. Containers identified for
sale in the ordinary course of business include those containers that have been
sold prior to the proposed arrangement for the sale of the Partnership's entire
container fleet, as well as those containers that are being sold individually
(usually when they come off-lease) without regard to that proposed sale. For
these routine sales made in the ordinary course of business, the Partnership has
used an estimated fair value of the estimated sales price for the container,
less estimated cost to sell. When this estimate was compared to the recorded
value of the container identified for sale, and the recorded value was higher,
the container identified for sale was written down. See "Write Down of
Containers: Specific Containers Identified for Sale" and "Loss on Sale of
Containers" above.
The Partnership will continue to monitor the recoverability of its containers.
Any additional write-downs or losses would adversely affect the Partnership's
operating results.
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, the risk of technological obsolescence,
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 "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 Partnership has discussed the Asset Sale Agreement pertaining to the sale of
its container fleet above under "Possible Sale of Partnership Assets." This sale
is subject to the Buyer's willingness to waive certain conditions contained in
the Asset Sale Agreement and other conditions. There is no assurance that the
sale under the Asset Sale Agreement will be completed.
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, 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. The
Partnership does not undertake any obligation to update forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Risk
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 does pay a small amount
of its expenses in various foreign currencies. For the year ended December 31,
2004, approximately 7% of the Partnership's expenses were paid in 15 different
foreign currencies. As there are no significant payments made in any one foreign
currency, the Partnership does not hedge these expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Attached pages 25 to 37.
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
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, 2004 and 2003, and the
related statements of operations, partners' capital, and cash flows for each of
the years in the three-year period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of its operations, and its cash
flows for each of the years in the three-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
March 22, 2005
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Balance Sheets
December 31, 2004 and 2003
(Amounts in thousands)
- ---------------------------------------------------------------------------------------------------------
2004 2003
----------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $764 (2003: $5,875) (note 1(e)) $ 3,327 $ 4,754
Cash 545 467
Accounts receivable, net of allowance
for doubtful accounts of $40 (2003: $26) 314 366
Due from affiliates, net (note 2) 42 30
Prepaid expenses 5 7
----------------- ----------------
$ 4,233 $ 5,624
================= ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 17 $ 38
Accrued liabilities 81 95
Accrued damage protection plan costs (note 1(i)) 71 61
Deferred damage protection plan revenue (note 1(j)) 22 21
Deferred repair costs 2 11
----------------- ----------------
Total liabilities 193 226
----------------- ----------------
Partners' capital:
General partners - -
Limited partners 4,040 5,398
----------------- ----------------
Total partners' capital 4,040 5,398
----------------- ----------------
$ 4,233 $ 5,624
================= ================
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Operations
Years ended December 31, 2004, 2003 and 2002
(Amounts in thousands except for unit and per unit amounts)
- ------------------------------------------------------------------------------------------------------------
2004 2003 2002
----------------- ---------------- ----------------
Rental income $ 1,574 $ 1,634 $ 1,665
----------------- ---------------- ----------------
Costs and expenses:
Direct container expenses 285 435 482
Bad debt expense (benefit) 14 5 (4)
Depreciation (note 1(e)) 511 664 851
Write-down of containers (note 1(e)) 603 14 107
Professional fees 74 42 51
Management fees to affiliates (note 2) 151 151 146
General and administrative costs
to affiliates (note 2) 75 77 85
Other general and administrative costs 24 19 75
(Gain) loss on sale of containers (note 1(e)) (13) 72 (52)
----------------- ---------------- ----------------
1,724 1,479 1,741
----------------- ---------------- ----------------
(Loss) income from operations (150) 155 (76)
----------------- ---------------- ----------------
Interest income 4 3 6
----------------- ---------------- ----------------
Net (loss) earnings $ (146) $ 158 $ (70)
================= ================ ================
Allocation of net (loss) earnings (note 1(g)):
General partners $ 16 $ 16 $ 18
Limited partners (162) 142 (88)
----------------- ---------------- ------------------
$ (146) $ 158 $ (70)
================= ================ ================
Limited partners' per unit share
of net (loss) earnings $ (0.12) $ 0.10 $ (0.06)
================= ================ ================
Limited partners' per unit share
of distributions $ 0.85 $ 0.88 $ 0.93
================= ================ ================
Weighted average number of limited
partnership units outstanding (note 1(l)) 1,390,649 1,405,862 1,424,020
================= ================ ================
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 2004, 2003 and 2002
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------
Partners' Capital
---------------------------------------------------------
General Limited Total
--------------- -------------- ---------------
Balances at December 31, 2001 $ - $ 8,043 $ 8,043
Distributions (18) (1,322) (1,340)
Redemptions (note 1(l)) - (70) (70)
Net earnings (loss) 18 (88) (70)
--------------- -------------- ---------------
Balances at December 31, 2002 - 6,563 6,563
--------------- -------------- ---------------
Distributions (16) (1,235) (1,251)
Redemptions (note 1(l)) - (72) (72)
Net earnings 16 142 158
--------------- -------------- ---------------
Balances at December 31, 2003 - 5,398 5,398
--------------- -------------- ---------------
Distributions (16) (1,183) (1,199)
Redemptions (note 1(l)) - (13) (13)
Net earnings (loss) 16 (162) (146)
--------------- -------------- ---------------
Balances at December 31, 2004 $ - $ 4,040 $ 4,040
=============== ============== ===============
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 2004, 2003 and 2002
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
2004 2003 2002
-------------- -------------- --------------
Cash flows from operating activities:
Net (loss) earnings $ (146) $ 158 $ (70)
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation (note 1(e)) 511 664 851
Write-down of containers (note 1(e)) 603 14 107
Increase (decrease) in allowance for doubtful
accounts 14 2 (32)
(Gain) loss on sale of containers (13) 72 (52)
Decrease (increase) decrease in assets:
Accounts receivable 57 43 65
Due from affiliates, net (14) (12) (38)
Prepaid expenses 2 10 (13)
(Decrease) increase in liabilities:
Accounts payable and accrued liablilties (35) (11) (6)
Accrued damage protection plan costs 10 18 3
Deferred damage protection plan revenue 1 (1) 1
Deferred repair cost (9) - -
-------------- -------------- --------------
Net cash provided by operating activities 981 957 816
-------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of containers 309 320 575
-------------- -------------- --------------
Net cash provided by investing activities 309 320 575
-------------- -------------- --------------
Cash flows from financing activities:
Redemptions of limited partnership units (13) (72) (70)
Distributions to partners (1,199) (1,251) (1,341)
-------------- -------------- --------------
Net cash used in financing activities (1,212) (1,323) (1,411)
-------------- -------------- --------------
Net increase (decrease) in cash 78 (46) (20)
Cash at beginning of period 467 513 533
-------------- -------------- --------------
Cash at end of period $ 545 $ 467 $ 513
============== ============== ==============
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows-Continued
Years ended December 31, 2004, 2003 and 2002
(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, 2004, 2003 and 2002, 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, 2004,
2003 and 2002.
2004 2003 2002
---- ---- ----
Distributions to partners included in:
Due to affiliates...................................................... $ 1 $ 1 $ 1
Proceeds from sale of containers included in:
Due from affiliates.................................................... 46 48 59
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, 2004, 2003 and 2002.
2004 2003 2002
---- ---- ----
Distributions to partners declared........................................ $1,199 $1,251 $1,340
Distributions to partners paid............................................ 1,199 1,251 1,341
Proceeds from sale of containers recorded................................. 307 309 524
Proceeds from sale of containers received................................. 309 320 575
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, 2004, 2003 and 2002 were $19, $1 and $12, respectively.
See accompanying notes to financial statements
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 2004, 2003 and 2002
(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 nine years. 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 following critical accounting policies are 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.
The Partnership depreciates its container rental equipment based on
certain estimates related to the container's useful life and salvage
value. Additionally, the Partnership writes down the value of its
containers if an evaluation indicates that the recorded amounts of
containers are not recoverable based on estimated future undiscounted
cash flows and sales prices. These estimates are based upon historical
useful lives of containers and container sales prices as well as
assumptions about future demand for leased containers and estimated
sales prices.
(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, 2004 and 2003, 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. 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 or other relevant
information 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 sale are recorded at the lower of
carrying amount or fair value less cost to sell. When assets are
determined to be impaired and are written down, the Partnership writes
off the accumulated depreciation and reduces the cost basis of these
asset to arrive at a new cost basis.
The Partnership evaluated the recoverability of the recorded amount of
container rental equipment for containers to be held for continued use
and determined that a reduction to the carrying value of these
containers was not required at December 31, 2003 and 2002. Based on an
impairment analysis performed as of June 30, 2004, which considered
the possible sale of the Partnership's remaining container fleet (see
Note 5), the Partnership determined that certain containers were
impaired and that a reduction to the carrying value of these
containers was required. The Partnership recorded a write down of $586
during the year ended December 31, 2004 to write down the value of
certain containers that had carrying values at June 30, 2004, which
were greater than the anticipated per unit sales price in the buyer's
letter of intent. The Partnership evaluated the recoverability of
these containers again at December 31, 2004 and determined that an
adjustment to reduce the carrying value of certain containers was
required. The Partnership recorded an additional write-down of $15 to
reduce the December 31, 2004 carrying value of some of the containers
to the January 1, 2005 sales prices in the Asset Sale Agreement
between the Partnership and RFH, Ltd.
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 some
of these containers was required. The Partnership wrote down the value
of these containers to their estimated net realizable value, which was
based on recent sales prices less cost to sell. During the years ended
December 31, 2004, 2003 and 2002 the Partnership recorded write down
expenses of $2, $14 and $107, respectively, on 16, 63 and 201
containers identified as for sale and requiring a reserve. At December
31, 2004 and 2003, the net book value of the 10 and 22 containers
identified as for sale was $9 and $17, respectively. These containers
are included in container rental equipment in the balance sheets.
During the years ended December 31, 2004, 2003 and 2002 the
Partnership sold 18, 68 and 27 of these previously written down
containers for gains of $0, $2 and $8, respectively.
The Partnership also sold containers that had not been written down
and recorded gains (losses) of $13, ($74) and $44 during the years
ended December 31, 2004, 2003 and 2002, respectively.
(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.
For the year ended December 31, 2004, revenue from one lessee
accounted for 10% of the Partnership's revenues. No other single
lessee accounted for more than 10% of the Partnership's revenues
during the years ended December 31, 2004, 2003 and 2002.
(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) 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, 2004 and 2003 was $71 and $61, respectively.
(j) 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 and recognizes these amounts as revenue
when the containers are returned by the lessee. At December 31, 2004
and 2003 these amounts were $22 and $21, respectively.
(k) 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
1,390,649, 1,405,862, and 1,424,020 during the years ended December
31, 2004, 2003 and 2002, respectively.
(l) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 2004, 2003 and 2002:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2001..................... 40,966 $6.35 $260
------ ---
Year ended:
December 31, 2002................ 17,149 $4.08 70
December 31, 2003................ 21,540 $3.34 72
December 31, 2004................ 4,250 $3.06 13
------ ---
Total Partnership redemptions as of
December 31, 2004..................... 83,905 $4.95 $415
====== ===
The redemption price is fixed by formula in accordance with the
Partnership Agreement.
(m) Reclassifications
Certain reclassifications, not affecting net earnings (loss), have
been made to prior year amounts in order to conform to the 2004
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 $40, $36 and
$32 of incentive management fees during the years ended December 31,
2004, 2003 and 2002, respectively. 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, 2004 and 2003.
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 $111, $115, and $114 for the
years ended December 31, 2004, 2003 and 2002, 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:
2004 2003 2002
---- ---- ----
Salaries $43 $45 $54
Other 32 32 31
-- -- --
Total general and
administrative costs $75 $77 $85
== == ==
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 interest in the
managed containers to the total container fleet managed by TFS during
the period, or the Partnership's investors to the total number of
investors of all limited partnerships managed by TFS or equally among
all the limited partnerships managed by TFS. The General Partners
allocated the following general and administrative costs to the
Partnership during the years ended December 31, 2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
TEM $63 $66 $74
TFS 12 11 11
-- -- --
Total general and
administrative costs $75 $77 $85
== == ==
At December 31, 2004 and 2003, due from affiliates, net, is comprised
of:
2004 2003
---- ----
Due from affiliates:
Due from TEM................ $62 $42
-- --
Due to affiliates:
Due to TCC.................. 8 2
Due to TFS.................. 12 10
-- --
20 12
-- --
Due from affiliates, net $42 $30
== ==
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,
2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
On-lease under master leases 1,901 1,831 2,171
On-lease under long-term leases 1,112 1,072 952
----- ----- -----
Total on-lease containers 3,013 2,903 3,123
===== ===== =====
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 of 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.
Note 4. Income Taxes
At December 31, 2004, 2003 and 2002, there were temporary differences
of $3,203, $4,672, and $5,519, 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 (loss) income for financial statement purposes
to net income for federal income tax purposes for the years ended
December 31, 2004, 2003 and 2002 is as follows:
2004 2003 2002
---- ---- ----
Net (loss) income per financial statements............. $ (146) $ 158 $(70)
Increase (decrease) in provision for bad debt.......... 14 2 (32)
Depreciation for federal income tax purposes less than
depreciation and impairment for financial statement
purposes.............................................. 1,113 443 397
Gain on sale of fixed assets for federal income
tax purposes in excess of gain/loss recognized
for financial statement purposes...................... 325 384 478
Increase in damage protection plan reserve ........... 10 18 3
Increase in repositioning accrual ..................... 7 - -
----- ----- ---
Net income for
federal income tax purposes........................... $1,323 $1,005 $776
===== ===== ===
Note 5. Subsequent Events
On March 8, 2005 a complaint was filed against the Partnership, four
other partnerships managed by the General Partners and their
affiliates, TCC, TFS, TEM, TGH, John A. Maccarone and RFH. The
complaint refers to the proxy statement sent on or about January 20,
2005 in connection with the Special Meeting of Limited Partners
scheduled for March 21, 2005 for the Partnership.
On March 18, 2005, the request for a temporary restraining order was
denied.
On March 21, 2005 a similar complaint was filed against the
Partnership, the other partnerships managed by the General Partners
and their affiliates, TCC, TFS, TEM, TGH, TL, John A. Maccarone and
RFH.
At a Special Meeting of Limited Partners, held on March 21, 2005, the
proposal to sell substantially all the Partnership's assets to RFH and
terminate and dissolve the Partnership was approved. Although the
limited partners have approved the Asset Sale, certain conditions to
the Asset Sale are not satisfied because of the two lawsuits filed in
March of 2005 and described in Item 3. It is not currently known
whether the Asset Sale will be completed. If the Asset Sale is
completed in accordance with the Asset Sale Agreement as executed on
November 30, 2004, it would be effective as of January 1, 2005.
If the Asset Sale is completed, the Partnership had originally planned
to distribute to the partners the net proceeds of this sale, plus any
previously undistributed cash from operations and proceeds from the
normal sale of containers, less estimated expenses expected to be
incurred through the final winding up and termination of the
Partnership. The plans to make these distributions appear to be
contested by at least one of the lawsuits. The Partnership plans to
terminate its existence after payment of the liquidating
distributions, but these plans may alter depending on the course of
the lawsuits. In the event the Asset Sale is not completed, the
Partnership will proceed as provided under its partnership agreement
as amended.
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Selected Quarterly Financial Data (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
The following is a summary of selected quarterly financial data for the years ended
December 31, 2004 and 2003:
(Amounts in thousands)
2004 Quarters Ended
-----------------------------------------------------------------
Mar. 31 June 30 (2) Sept. 30 Dec. 31
-----------------------------------------------------------------
Rental income $ 386 $ 387 $ 408 $ 393
Income (loss) from operations (1) $ 28 $ (576) $ 188 $ 210
Net earnings (loss) $ 29 $ (575) $ 189 $ 211
Limited partners' share of net earnings (loss) $ 25 $ (578) $ 185 $ 206
Limited partners' share of distributions $ 279 $ 278 $ 243 $ 383
2003 Quarters Ended
-----------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-----------------------------------------------------------------
Rental income $ 429 $ 417 $ 400 $ 388
Income (loss) from operations $ 66 $ 10 $ 24 $ 55
Net earnings (loss) $ 67 $ 11 $ 25 $ 55
Limited partners' share of net earnings (loss) $ 62 $ 7 $ 21 $ 52
Limited partners' share of distributions $ 390 $ 282 $ 282 $ 281
(1) In the second quarter, the Partnership recorded a write-down of $773 to
write down the value of certain containers that had carrying values which
were greater than the anticipated per unit sales price included in a letter
of intent entered into in July 2004. The Partnership's results of
operations for the fourth quarter of 2004 include an adjustment of $187 to
reduce the above write down of containers to correct an error made in
calculating the write down of containers amount at June 30, 2004.
(2) The amounts reported for second quarter have been restated to corect for
the error discussed above.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been none.
ITEM 9A. CONTROLS AND PROCEDURES
Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934),
the managing general partner's principal executive officer and principal
financial officer have found those controls and procedures to be effective as of
the end of the period covered by the report. There has been no change in the
Partnership's internal control over financial reporting that occurred during the
Partnership's last fiscal quarter (the Partnership's fourth fiscal quarter in
the case of an annual report), and which has materially affected, or is
reasonably likely materially to affect, the Partnership's internal control over
financial reporting.
The error in the impairment analysis identified in the Selected Quarterly
Financial Data in the financial statements was due to a difference in the
accumulated depreciation allowance used to calculate the write-down and the
amount recorded in the financial statements. The discovery of this error did not
lead to a change in internal control that materially affected the Partnership's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no officers or directors.
The Registrant's three general partners are TFS, TEM and TL. TFS is the Managing
General Partner of the Partnership and is a wholly-owned subsidiary of TCC. TEM
and TL are Associate General Partners of the Partnership. The Managing General
Partner and Associate General Partners are collectively referred to as the
General Partners. TCC, TEM and TL are wholly-owned subsidiaries of Textainer
Group Holdings Limited (TGH). The General Partners 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, 2004, all Section 16(a) filing requirements were complied
with. No member of management, or beneficial owner, owned more than 10 percent
of limited partnership 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.
Code of Ethics
______________
The Registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Registrant has posted
this code of ethics on its Internet website at the following address:
www.textainer.com/sharehld/codeofethics.pdf.
____________________________________________
Directors and Executive Officers of the General Partners
The directors and executive officers of the General Partners are as follows:
Name Age Position
- ---- --- --------
Neil I. Jowell 71 Director and Chairman of TGH, TEM, TL, TCC and TFS
John A. Maccarone 60 President, CEO and Director of TGH, TL, TCC and TFS; Director of TEM
Dudley R. Cottingham 53 President, CEO and Director of TEM; Assistant Secretary, Vice President and
Director of TGH and TL
James E. Hoelter 65 Director of TGH, TCC and TFS
Philip K. Brewer 47 Senior Vice President - Asset Management Group and Director of TL
Robert D. Pedersen 45 Senior Vice President - Leasing Group, Director of TEM
Ernest J. Furtado 49 Senior Vice President, CFO and Secretary of TGH, TL, TCC and TFS, Director
of TL, TCC and TFS
S. Arthur Morris 71 Vice President, CFO and Director of TEM; Director of TGH and TL
Gregory W. Coan 41 Vice President and Chief Information Officer
Wolfgang Geyer 51 Regional Vice President - Europe
Mak Wing Sing 47 Regional Vice President - South Asia
Masanori Sagara 48 Regional Vice President - North Asia
Stefan Mackula 52 Vice President - Equipment Resale
Anthony C. Sowry 52 Vice President - Corporate Operations and Acquisitions
Richard G. Murphy 52 Vice President - Risk Management
Janet S. Ruggero 56 Vice President - Administration and Marketing Services
Jens W. Palludan 54 Regional Vice President - Americas and Logistics
Isam K. Kabbani 70 Director of TGH
James A. C. Owens 65 Director of TGH, TEM and TL
Cecil Jowell 69 Director of TGH, TEM and TL
Hendrik van der Merwe 57 Director of TGH, TEM and TL
James E. McQueen 60 Director of TGH, TEM and TL
Christopher C. Morris 39 Secretary of TEM
Harold J. Samson 83 Director of TCC and TFS
Nadine Forsman 37 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 General Partners
reorganized and reconstituted their board of directors.
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 businesses
are the owning, financing, leasing and managing of marine cargo containers and
returnable packaging units worldwide, finance related activities and supply
chain management services. He is also a Director of a number of Mobile's 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 and CEO of TGH, TL, TCC and TFS. He is also
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 and was President and
CEO of TEM from 1988 through May, 2004. In this capacity, he is responsible for
the activities of TGH, TL, TCC and TFS. As President and CEO of TEM, he was
responsible for overseeing the management of and coordinating the activities of
Textainer's worldwide fleet of marine cargo containers. 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.
Dudley R. Cottingham is President, CEO and Director of TEM and Assistant
Secretary, Vice President and a director of TGH and TL. Mr. Cottingham became
the President and CEO of TEM in May, 2004, a director of TEM in 1994 and has
served in these other positions since 1993. As President and CEO of TEM he is
responsible for overseeing the management of and coordinating the activities of
Textainer's worldwide fleet of marine cargo containers. 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. 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 and is a director of
Morris Cottingham Corporate Services, located in the Turks and Caicos Islands.
Mr. Cottingham has over 30 years experience in public accounting with
responsibility for a variety of international and local clients.
James E. Hoelter is a director of TGH, TCC and TFS. In addition, Mr.
Hoelter is a member of 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 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, TL,
TCC and TFS and has been such since 1999. He was also the Senior Vice President,
CFO and Secretary of TEM from 1999 through 2004. 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, TL, TCC and TFS. As
Senior Vice President, CFO and Secretary of TEM, he was responsible for all
accounting, financial management, and reporting functions for TEM. 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.
S. Arthur Morris is Vice President and CFO of TEM and a director of TGH,
TEM and TL. Mr. Morris became Vice President and CFO of TEM in 2004, a director
of TL and TGH in 1993 and a director of TEM in 1994. As Senior Vice President,
CFO and Secretary of TEM, he is responsible for all accounting, financial
management, and reporting functions for TEM. 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. Mr. S. Arthur
Morris is the father of Mr. Christopher C. Morris.
Gregory W. Coan is Vice President and Chief Information Officer 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 of non-U.S. companies. Mr. Owens holds a Bachelor of
Commerce degree from the University of South Africa.
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 businesses are the owning, financing, leasing and managing of
marine cargo containers and returnable packaging units worldwide, finance
related activities and supply chain management services. 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's 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 businesses
are the owning, financing, leasing and managing of marine cargo containers and
returnable packaging units worldwide, finance related activities and supply
chain management services. Mr. van der Merwe is currently also a Director 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 businesses are the owning, financing, leasing and managing of
marine cargo containers and returnable packaging units worldwide, finance
related activities and supply chain management services. 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).
Christopher C. Morris is the Secretary of TEM. Mr. Morris became the
Secretary of TEM in May, 2004. He has been a partner with Arthur Morris and
Company beginning in 2005, a director of Continental Management Limited and
Continental Trust Corporation Limited since 2004. Prior to joining TEM, Mr.
Morris was a senior manager at Continental Management Limited from 2000 through
2004. 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. Mr. Morris has ten years experience in
Public Accounting with responsibility for a variety of international and local
clients. Mr. Christopher C. Morris is the son of Mr. S. Arthur Morris.
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). He was a director of TGH and TL from 1993 and from 1994, respectively,
and through December 31, 2002. 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 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. Further, the Managing
General Partner has established an audit committee, as described below.
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), 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.
Audit Committee. 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 Partners. The members of the audit committee are James E.
Hoelter, Neil I. Jowell and Harold J. Samson. The Managing General Partner's
board of directors has determined that the audit committee has a financial
expert serving on it. That member is Harold J. Samson and he is independent, as
that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934.
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 interest of the Registrant.
(b) Security Ownership of Management.
As of January 1, 2005:
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, 2004, due from affiliates, net, is comprised of:
Due from affiliates:
Due from TEM..................... $ 62
--
Due to affiliates:
Due to TCC....................... 8
Due to TFS....................... 12
--
20
--
Due from affiliates, net $ 42
==
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.
In addition, for the year ended December 31, 2004, the Registrant paid
or will pay the following amounts to the General Partners :
Management fees in connection with the operations of the Registrant:
TEM................................. $111
TFS................................. 40
---
Total............................... $151
===
Reimbursement for administrative costs in connection with the
operations of the Registrant:
TEM................................. $63
TFS................................. 12
--
Total............................... $75
==
For more information on these transactions, see Note 2 to the
Financial Statements in Item 8. The Registrant contemplates that
payments and reimbursements will be made to the General Partners under
these same arrangements in the current fiscal year.
Equipment Management Agreement Between RFH and TEM Upon Completion of
Proposed Asset Sale
As a condition of the completion of the Proposed Asset Sale, RFH, the
buyer, will enter into an Equipment Management Services Agreement (the
"Management Agreement") with TEM. The Management Agreement will place
all of the containers sold by the Partnership to RFH under the
management of TEM.
The Management Agreement will go into effect if and when the Proposed
Asset Sale is completed and will continue in effect until the sale or
disposition by TEM, or loss or destruction of all containers owned by
RFH and managed by TEM (including the containers sold to RFH by the
Partnership.) TEM will act as agent for RFH to manage and administer
the containers, arrange their leasing and enter into leases, in the
same manner that TEM has been managing and administering the
containers for the Partnership prior to the Proposed Asset Sale.
The Management Agreement provides that RFH will pay the following fees
to TEM for its services:
o a monthly fee of the 13% of the net operating income ("NOI")
from containers subject to master leases; plus
o a monthly fee of 9% of NOI of containers under long-term
leases; plus
o a monthly fee of 2% of the proceeds from finance leases;
plus
o 10% of the sale proceeds from the sale of any container,
except for a sale to TEM or any affiliate of TEM, a sale
pursuant to a purchase option in a lease, or a sale
resulting from a casualty loss/ plus
o a fee of 2% of the cost of any additional containers where
TEM has acted as the agent of RFH in the purchase of
containers.
The Management Agreement additionally provides, among other things,
that either RFH or TEM may terminate the Management Agreement in the
event of certain material breaches. TEM is permitted to subcontract
its management duties to affiliates of TEM.
(b) Certain Business Relationships.
Inapplicable.
(c) Indebtedness of Management.
Inapplicable.
(d) Transactions with Promoters.
Inapplicable.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Registrant incurred the following accounting fees from KPMG LLP during the years
ended December 31, 2004 and 2003:
2004 2003
---- ----
Audit fees.......................... $37 $28
All other fees...................... - 3
-- --
Total............................... $37 $31
== ==
Other fees are for a special report on the allocation of general and
administrative costs to the Registrant by the General Partners. This report is
required by the Partnership Agreement.
The Registrant first established its audit committee in 2002. The Registrant's
audit committee has approved the audit services for the preparation of the
Registrant's current year's financial statements and any related, underlying
business transactions, as well as tax consultation services up to a specified
dollar amount, all subject to ongoing reports made to the audit committee. The
committee has not otherwise authorized pre-approvals, or delegated its authority
to grant pre-approvals, of audit or non-audit services.
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, 2004 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 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.
Exhibits 32.1 and 32.2 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
The Registrant's limited partnership agreement, Exhibit A to the
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.
Exhibit 10 the Asset Sale Agreement between the Registrant and
RFH, Ltd., Appendix A to the Registrant's Proxy Statement for
Special Meeting of Limited Partners, as filed with the Commission
on January 20, 2005.
Report of Independent Registered Public Accounting Firm on Supplementary
------------------------------------------------------------------------
Schedule
--------
The Partners
TCC Equipment Income Fund:
Under the date of March 22, 2005, we reported on the balance sheets of TCC
Equipment Income Fund (the Partnership) as of December 31, 2004 and 2003, and
the related statements of operations, partners' capital, and cash flows for each
of the years in the three-year period ended December 31, 2004, which are
included in the 2004 annual report on Form 10-K. In connection with our audits
of the aforementioned financial statements, we also audited the related
financial statement schedule as listed in Item 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 financial statement 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
March 22, 2005
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------------
Charged Balance
Balance at to Costs at End
Beginning And of
of Period Expenses Deduction Period
--------- -------- --------- ------
For the year ended December 31, 2004:
Allowance for
doubtful accounts $ 26 $ 14 $ - $ 40
--- --- --- ---
Accrued damage protection
plan costs $ 61 $ 42 $(32) $ 71
--- --- --- ---
Accrued repositioning costs $ - $ 7 $ - $ 7
--- --- --- ---
For the year ended December 31, 2003:
Allowance for
doubtful accounts $ 24 $ 5 $ (3) $ 26
--- --- --- ---
Accrued damage protection
plan costs $ 43 $ 52 $(34) $ 61
--- --- --- ---
For the year ended December 31, 2002:
Allowance for
doubtful accounts $ 56 $ (4) $(28) $ 24
--- --- --- ---
Accrued damage protection
plan costs $ 40 $ 30 $(27) $ 43
--- --- --- ---
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 30, 2005
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 30, 2005
Ernest J. Furtado Vice President, Secretary and
Director (Chief Financial and
Principal Accounting Officer)
________________________ Chief Executive Officer, President March 30, 2005
John A. Maccarone and Director
________________________ Chairman of the Board and Director March 30, 2005
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 30, 2005
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 30, 2005
Ernest J. Furtado Vice President, Secretary and
Director (Chief Financial and
Principal Accounting Officer)
/s/John A. Maccarone
________________________ Chief Executive Officer, President March 30, 2005
John A. Maccarone and Director
/s/ Neil I. Jowell
________________________ Chairman of the Board and Director March 30, 2005
Neil I. Jowell
EXHIBIT 31.1
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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
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-15(e) and 15d-15(e)) for the
registrant and we have:
a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
March 30, 2005
/s/ John A. Maccarone
________________________________________
John A. Maccarone
Chief Executive Officer, President
and Director of TFS
EXHIBIT 31.2
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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
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-15(e) and 15d-15(e)) for the
registrant and we have:
a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
March 30, 2005
/s/ Ernest J. Furtado
_______________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
EXHIBIT 32.1
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, 2004, as filed on
March 30, 2005 with the Securities and Exchange Commission (the "Report"), I,
John A. Maccarone, the Chief Executive Officer, 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 30, 2005
By /s/ John A. Maccarone
______________________________________
John A. Maccarone
Chief Executive Officer, President
and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
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, 2004, as filed on
March 30, 2005 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 30, 2005
By /s/ Ernest J. Furtado
_______________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.