<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 0-17688
TCC EQUIPMENT INCOME FUND
(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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
<PAGE 2>
TCC Equipment Income Fund
(A CALIFORNIA LIMITED PARTNERSHIP)
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PAGE
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - September 30, 1995 (unaudited)
and December 31, 1994 ............................................3
Statements of Earnings for the nine and three months
ended September 30, 1995 and 1994 (unaudited) ....................4
Statements of Partners' Capital for the nine months
ended September 30, 1995 and 1994 (unaudited) ....................5
Statements of Cash Flows for the nine months
ended September 30, 1995 and 1994 (unaudited) ....................6
Notes to Financial Statements (unaudited) .................... ...8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................13
<PAGE 3>
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
September 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Container rental equipment, net of accumulated
depreciation of $ 10,489,794 (1994: $ 9,656,249) $ 17,258,412 16,810,863
Net investment in direct financing leases (note 7) 828,651 1,018,419
Cash and cash equivalents (note 1) 387,511 192,155
Accounts receivable, net of allowance
for doubtful accounts of $ 692,555 (1994: $ 620,537) 1,607,250 1,686,100
Due from affiliates (note 5) 951,272 920,047
Prepaid expenses - 10,743
------------ ----------
$ 21,033,096 20,638,327
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 148,413 135,417
Accrued liabilities 272,526 273,846
Accrued damage protection plan costs (note 2) 119,072 145,061
Due to affiliates (note 5) 59,312 25,060
Equipment purchases payable 567,163 4,663
--------- ----------
Total liabilities 1,166,486 584,047
--------- ----------
Partners' capital:
General partners (36,061) (36,061)
Limited partners 19,902,671 20,090,341
------------ ----------
Total partners' capital 19,866,610 20,054,280
----------- ----------
Commitments (note 8)
$ 21,033,096 20,638,327
========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE 4>
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF EARNINGS
For the nine and three months ended September 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPT 30,1995 SEPT 30,1995 SEPT 30,1994 SEPT 30,1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Rental Income $ 4,865,985 1,582,026 4,501,572 1,545,750
--------- --------- ---------- -----------
Costs and expenses:
Direct container expenses 651,657 200,490 858,588 272,031
Bad debt expense 177,266 105,440 193,856 124,495
Depreciation 1,422,968 477,482 1,478,212 477,886
Professional fees 27,592 5,752 21,289 5,094
Management fees to affiliates (note 5) 437,723 143,284 409,526 140,807
General and administrative costs
to affiliates (note 5) 317,512 105,532 299,960 100,632
Other general and administrative costs 59,348 16,964 54,322 30,312
--------- ---------- -------- --------
3,094,066 1,054,944 3,315,753 1,151,257
---------- ---------- --------- ---------
Income from operations 1,771,919 527,082 1,185,819 394,493
---------- ---------- --------- ---------
Other income (expense):
Interest income 10,779 4,864 13,184 3,788
Interest expense - - (11,315) -
Gain on sales of containers 190,575 108,876 127,157 45,649
--------- --------- --------- --------
201,354 113,740 129,026 49,437
--------- ---------- ------- ---------
Net earnings $ 1,973,273 640,822 1,314,845 443,930
========== ========== ========= =========
Allocation of net earnings:
General partners $ 21,570 7,438 18,432 6,330
Limited partners 1,951,703 633,384 1,296,413 437,600
---------- ---------- --------- ---------
$ 1,973,273 640,822 1,314,845 443,930
========== ========== ========= =========
Limited partners' per unit share
of net earnings $ 1.33 0.43 0.88 0.29
========== ========== ========= =========
Limited partners' per unit share
of distributions $ 1.45 0.50 1.24 0.43
========== ========== ========= =========
Weighted average number of limited
partnership units outstanding 1,472,529 1,472,529 1,474,046 1,473,029
========== ========== ========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE 5>
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
GENERAL LIMITED TOTAL
-------------- -------------- -------------
<S> <C> <C> <C>
Balances at January 1, 1994 $ (36,061) 20,806,036 20,769,975
Distributions (18,432) (1,824,761) (1,843,193)
Redemptions (note 9) - (13,511) (13,511)
Net earnings 18,432 1,296,413 1,314,845
------------ ---------------- ----------
Balances at September 30, 1994 $ (36,061) 20,264,177 20,228,116
============ =============== ===========
Balances at January 1, 1995 $ (36,061) 20,090,341 20,054,280
Distributions (21,570) (2,135,391) (2,156,961)
Redemptions (note 9) - (3,982) (3,982)
Net earnings 21,570 1,951,703 1,973,273
----------- ------------ ---------
Balances at September 30, 1995 $ (36,061) 19,902,671 19,866,610
=========== ============ ==========
</TABLE>
See accompanying notes to financial statements
<PAGE 6>
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION> 1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,973,273 1,314,845
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,422,968 1,478,212
Increase in allowance for doubtful accounts 72,018 173,504
Gain on sale of rental equipment (190,575) (127,157)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 54,057 (236,033)
Decrease (increase) in due from affiliates, net 757 (197,450)
Proceeds from principal payments
on direct financing leases 191,596 176,591
Decrease in prepaid expenses 10,743 9,122
Increase (decrease) in accounts payable and
accrued liabilities 11,676 (49,638)
Decrease in accrued damage protection plan costs (25,989) (32,273)
--------- ---------
1,547,251 1,194,878
--------- ---------
Net cash provided by operating activities 3,520,524 2,509,723
--------- ---------
Cash flows from investing activities:
Proceeds from sale of container rental equipment 574,627 626,036
Container purchases (1,738,556) (2,159,626)
---------- ----------
Net cash used in investing activities (1,163,929) (1,533,590)
---------- ----------
Cash flows from financing activities:
Redemptions of limited partnership units (3,982) (13,511)
Distributions to partners (2,157,257) (1,862,677)
---------- ----------
Net cash used in financing activities (2,161,239) (1,876,188)
---------- ----------
Net increase (decrease) in cash 195,356 (900,055)
Cash and cash equivalents at beginning of period 192,155 967,431
---------- ----------
Cash and cash equivalents at end of period $ 387,511 67,376
========== ==========
Interest paid during the period $ - 26,852
========== ==========
</TABLE>
<PAGE 7>
STATEMENTS OF CASH FLOWS-CONTINUED
For the nine months ended September 30, 1995 and 1994
(unaudited)
SUPPLEMENTAL DISCLOSURES:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of container rental equipment which had not
been paid or received as of September 30, 1995 and 1994, and December 31, 1994
and 1993, resulting in differences in amounts recorded and amounts of cash
disbursed or received by the Partnership, as shown in the Statements of Cash
Flows for the nine-month periods ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30 Dec. 31
1995 1994 1994 1993
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates ......... $ 42,763 $11,591 $ 62,944 $ 3,788
Equipment purchases payable 567,163 4,663 214,163 225,190
Distributions to partners included in:
Due to affiliates ......... 3,966 4,262 2,911 22,395
Proceeds from sale of equipment included in:
Accounts receivable ....... 47,999 775 775 1,725
Due from affiliates ....... 196,885 168,279 136,063 146,863
</TABLE>
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of container rental equipment recorded by
the Partnership and the amounts paid or received as shown in the Statements of
Cash Flows for the nine-month periods ended September 30, 1995 and 1994.
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Equipment purchases recorded.................. 2,332,228 $2,207,755
Equipment purchases paid...................... 1,738,556 2,159,626
Distributions to partners declared............ 2,156,961 1,843,193
Distributions to partners paid................ 2,157,257 1,862,677
Proceeds from sale of container rental equipment recorded 650,457 614,286
Proceeds from sale of container rental equipment received 574,627 626,036
</TABLE>
<PAGE 8>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
NOTE 1.GENERAL
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments (which
were only normal and recurring adjustments) which are, in the opinion of
management, necessary to fairly present the financial position of the
Partnership as of September 30, 1995 and December 31, 1994, and the results
of its operations, changes in partners' capital and cash flows for the nine-
month periods ended September 30, 1995 and 1994, have been made.
The financial information presented herein should be read in conjunction with
the audited financial statements and other accompanying Notes included in the
Partnership's annual audited financial statements as of December 31, 1994.
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Certain reclassifications of prior year amounts have been made in order to
conform with the 1995 financial statement presentation.
NOTE 2.DAMAGE PROTECTION PLAN
The Partnership offers a Damage Protection Plan (the Plan) to lessees of its
container rental equipment. Under the terms of the Plan, the Partnership
earns additional revenues on a daily basis and, as a result, has agreed to
bear certain repair costs. It is the Partnership's policy to recognize
revenue when earned and to provide a reserve sufficient to cover the
Partnership's obligation for estimated repair costs.
NOTE 3.WARRANTY CLAIM
During 1992, the Partnership settled a warranty claim against an equipment
manufacturer. The Partnership will amortize the settlement amount over the
remaining estimated useful life of the equipment (seven years), reducing
maintenance and repair costs over that time. At September 30, 1995 and
December 31, 1994, the unamortized portion of the settlement amount was equal
to $144,689 and $172,400 respectively, and is included in accrued
liabilities.
NOTE 4.ACQUISITION OF EQUIPMENT
During the nine-month periods ended September 30, 1995 and 1994, the
Partnership purchased container rental equipment (the "Equipment") with a
cost of $2,332,228 and $2,207,755, respectively.
NOTE 5.TRANSACTIONS WITH AFFILIATES
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership (prior to its name change on April 4, 1994, TFS
was known as Textainer Capital Corporation). TFS is a wholly-owned
subsidiary of Textainer Capital Corporation (TCC) (prior to its name change
on April 4, 1994, TCC was known as Textainer (Delaware), Inc.). Textainer
Equipment Management Limited (TEM) (prior to being redomiciled on December
20, 1994, TEM was known as Textainer Equipment Management N.V.) and Textainer
Limited (TL) are associate general partners of the Partnership. The managing
general partner and the associate general partners are collectively referred
to as the General Partners and are commonly owned by Textainer Group Holdings
Limited (TGH). The General Partners also act in this capacity for other
limited partnerships. Textainer Acquisition Services Limited (TAS) is an
affiliate of the General Partners which performs services relative to the
acquisition of Equipment outside the United States on behalf of the
Partnership. TCC Securities Corporation (TSC), a licensed broker and dealer
in securities and an affiliate of the General Partners, was the managing
sales agent for the offering of Units for sale.
In accordance with the Partnership Agreement, net earnings or losses,
syndication and offering costs and partnership distributions are allocated 1%
to the general partners and 99% to the limited partners, with the exception
of gains on sales of containers. Such gains are allocated to the General
Partners to the extent that their partners' capital accounts' deficits exceed
the portion of syndication and offering costs allocated to them. On
termination of the Partnership, the General Partners shall be allocated gross
income equal to their allocations of syndication and offering costs.
As part of the operation of the Partnership, the Partnership is to pay to the
General Partners or an affiliate an incentive management fee, an acquisition
fee, an equipment management fee and an equipment liquidation fee. These
fees are for various services provided in connection with the administration
and management of the Partnership. The Partnership capitalized $84,273 and
$95,155 of equipment acquisition fees as part of container costs during the
nine-month periods ended September 30, 1995 and 1994, respectively. The
Partnership incurred $92,963 and $79,099, respectively, of incentive
management fees during the nine-month periods ended September 30, 1995 and
1994 and $30,988 and $27,123, respectively, of incentive management fees
during the three-month periods ended September 30, 1995 and 1994. No
equipment liquidation fees were incurred during the first nine-month periods
of 1995 or 1994.
The Partnership's Equipment is managed by TEM. In its role as manager, TEM
has authority to acquire, hold, manage, lease, sell and dispose of the
Partnership's Equipment. Additionally, 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 September
30, 1995 and December 31,1994. Prior to the sale of its storage fleet during
1995, TEM had entered into an agreement with its 100%-owned subsidiary
Textainer Storage Services (TSS) to manage storage containers (note 10).
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to operating leases and 2% of
gross revenues attributable to full payout net leases. These fees totaled
$344,760 and $112,296 for the nine and three months ended September 30, 1995,
respectively, and $330,427 and $113,684 for the comparable periods ended
September 30, 1994. Such fees are either retained by TEM or the fees
allocable to TSS, if any, are passed through to TSS by TEM for services
rendered. The Partnership's Equipment is leased by TEM to third party
lessees on operating master leases, spot leases and term leases. The
majority of the Equipment is leased under operating leases with limited terms
and no purchase option. There are eight direct financing leases at September
30, 1995 (note 7).
Certain indirect general and administrative costs incurred in performing
administrative services necessary to the operation of the Partnership are
borne by TEM and TSS and are allocated to the Partnership based on the ratio
of the Partnership's interest in managed Equipment to the total equipment
managed by TEM and TSS for the period. Indirect general and administrative
costs allocated to the Partnership were $267,982 and $89,043 for the nine-
and three-month periods ended September 30, 1995, respectively, and $252,576
and $85,675 for the equivalent periods ended September 30, 1994.
TFS, in its capacity as managing general partner, also incurred general and
administrative costs of $49,530 and $16,489 for the nine- and three-month
periods ended September 30, 1995, respectively, and $47,384 and $14,957 for
the comparable periods ended September 30, 1994.
The General Partners and TAS may acquire Equipment in their own name and hold
title on a temporary basis for the purpose of facilitating the acquisition of
such Equipment for the Partnership. The Equipment may then be resold to the
Partnership on an all-cash basis at a price equal to the actual cost, as
defined in the Partnership Agreement. In addition, the General Partners or
TAS are entitled to an acquisition fee for any Equipment resold to the
Partnership.
At September 30, 1995 and December 31, 1994, due from and to affiliates are
comprised of:
1995 1994
---- ----
Due from affiliates:
Due from TEM and TSS ...... $ 951,272 920,047
========= =======
Due to affiliates:
Due to TL ................. $ 992 1,038
Due to TCC ................ 2,495 6,928
Due to TAS ................ 40,164 -
Due to TFS ................ 15,661 17,094
--------- -------
$ 59,312 25,060
========= =======
These amounts receivable from and payable to affiliates were incurred in the
ordinary course of business between the Partnership and its affiliates and
represent timing differences in the accrual and payment of expenses and fees
described above or in the accrual and collection of net rental revenues from
TEM and TSS. Previously, it was the policy of the Partnership and the General
Partners to charge interest on intercompany balances which are outstanding
for more than one month. Interest was charged at the prime rate plus 0.25%.
As of July 1994, this policy was changed so that the Partnership is not
charged interest on intercompany balances except for loans for equipment
purchases. The Partnership incurred interest expense of $11,315 and $0,
respectively, on intercompany balances payable to TFS and TAS during the
nine- and three-month periods ended September 30, 1994. There was no interest
expense incurred for the nine- and three-month periods ended September 30,
1995.
NOTE 6. RENTALS UNDER OPERATING LEASES
The following is a schedule by year of minimum future rentals receivable on
noncancelable operating leases as of September 30, 1995:
Year ending September 30:
1996 ....................... $ 485,357
1997 ....................... 113,209
-------
Total minimum future rentals receivable $ 598,566
=========
NOTE 7. DIRECT FINANCING LEASES
The components of the net investment in direct financing leases as of
September 30, 1995 are as follows:
Future minimum lease payments receivable $ 988,740
Residual value .............. 5,033
Less: unearned income ...... (165,122)
---------
Net investment in direct financing leases $ 828,651
=========
The following is a schedule by year of minimum lease payments receivable
under the eight direct financing leases as of September 30, 1995:
Year ending September 30:
1996 ........................ $ 392,430
1997 ........................ 378,874
1998 ........................ 217,436
-------
Total minimum lease payments receivable $ 988,740
=========
Rental income includes $104,130 and $32,322 for the nine- and three-month
periods ended September 30, 1995, respectively, and $131,351 and $41,888 for
the comparable periods ended September 30, 1994, of income from direct
financing leases.
NOTE 8. COMMITMENTS
At September 30, 1995, the Partnership has committed to purchase four
containers at an approximate total purchase price of $16,879 which includes
acquisition fees of $804. These commitments were made to TAS which, as the
contracting party, has in turn committed to purchase these containers on
behalf of the Partnership. The Partnership has sufficient capital at
September 30, 1995 to satisfy these commitments.
NOTE 9. REDEMPTIONS
An initial redemption offering was consummated on June 24, 1994, wherein the
Partnership paid $13,511 for the redemption of 1,525 units. The redemption
price is fixed by formula and varies depending on the length of time the
units have been outstanding. The approximate redemption prices ranged
between $6.35 and $9.50 per unit. A second redemption offering was
consummated on October 31, 1994 with no units redeemed. A third redemption
offering was consummated on February 3, 1995 wherein the Partnership paid
$3,982 for the redemption of 500 units at an average cost of $8 per unit.
The total number of units redeemed since the inception of the redemption
program is 2,025, at a total cost of $17,493.
NOTE 10. SALE OF STORAGE FLEET
In August 1995, the Partnership sold its container storage fleet (TSS) to a
third party investor. The proceeds from the sale were $19,780 compared to
the Partnership's cost basis in the equipment of $15,293. The resulting gain
from the sale was $4,487. The Partnership has invested the proceeds from the
sale into marine container rental equipment.
<PAGE 13>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On October 26, 1989, the Partnership's offering of limited partnership interests
was closed at $29,491,080.
The Partnership has set up a program whereby limited partners may redeem units
for a specified redemption value. The redemption price is set by formula and
varies depending on the length of time units have been outstanding. Up to 2% of
the Partnership's outstanding units may be redeemed each year, although the 2%
limit may be exceeded at the Managing General Partner's discretion. All
redemptions are subject to the Managing General Partner's good faith
determination that payment for the redeemed units will not (i) cause the
Partnership to be taxed as a corporation, (ii) impair the capital or operations
of the Partnership, or (iii) impair the ability of the Partnership to pay
distributions in accordance with its distribution policy. During 1994, the
Partnership paid $13,511 for the redemption of 1,525 units. During 1995, the
Partnership has paid $3,982 for the redemption of 500 units.
Prior to its distribution or reinvestment in additional equipment, the
Partnership invests working capital and cash flow from operations in short-term,
highly liquid investments. It is the policy of the Partnership to maintain a
minimum working capital reserve in an amount which is the lesser of (i) 1% of
capital contributions or (ii) $100,000. At September 30, 1995, the
Partnership's cash of $387,511 was primarily invested in a market-rate account.
During the nine-month period ended September 30, 1995, the Partnership declared
cash distributions to limited partners pertaining to the fourth quarter of 1994
and the first two quarters of 1995 in the amount of $2,135,391. The
distributions pertaining to the fourth quarter of 1994 and the first and second
quarters of 1995 represent a 9%, 10% and 10% annualized return on each unit,
respectively. On a cash basis, all of those distributions were from operations.
On a GAAP basis, $183,688 of these distributions were a return of capital and
the balance was from net earnings.
At September 30, 1995, the Partnership had committed to purchase four containers
at an approximate total price of $16,879 which includes acquisition fees of
$804. At September 30, 1995, the Partnership had sufficient cash on hand of
$387,511 to meet these commitments. In the event the Partnership decides not to
purchase the equipment, one of the General Partners will retain the equipment
for its own account.
For the nine months ended September 30, 1995, the Partnership had net cash
provided by operating activities of $3,520,524 compared with net cash provided
by operating activities of $2,509,723 for the nine months ended September 30,
1994. This increase was primarily attributable to an increase in rental revenue
of 8% and a decrease in direct container expenses of 24%. Rental revenue
increased due to higher utilization rates and average fleet size. Direct
container expenses decreased mainly due to decreases in storage and maintenance
and repair costs as a result of higher utilization.
While net cash from operating activities has improved, the Partnership's
principal lessees, shipping lines, are currently anticipating over-capacity, due
to the delivery of new ships. This over-capacity may cause shipping lines to
reduce freight rates, which could affect the profitability of their business,
resulting in the possibility of delays in the remittance of rental payments,
pressure on container rental rates, and bankruptcy.
Net cash used in investing activities (the purchase and sale of rental
equipment) for the nine months ended September 30, 1995 was $1,163,928 compared
with net cash used in investing activities of $1,533,590 for nine months ended
September 30, 1994. This difference is due to the fact that the Partnership
bought more equipment than it sold in the nine-month period ended September 30,
1995 than it did in the same period of 1994.
RESULTS OF OPERATIONS
The Partnership's income from operations, which consists of rental revenue,
container depreciation, direct container expenses, management fees and
reimbursement of administrative expenses, was directly related to the size of
the container fleet during the nine-month periods ended September 30, 1995 and
1994. The following is a summary of the size of the container fleet (in units)
available for lease during those periods:
1995 1994
---- ----
Opening inventory ........ 8,245 8,140
Closing inventory ........ 8,623 8,097
Average .................. 8,434 8,119
Rental revenue and direct container expenses are also affected by lease
utilization percentages for the Equipment, which were 90% and 87% on average
during the nine-month periods ended September 30, 1995 and 1994, respectively.
The following is a comparative analysis of the results of operations for the
nine-month periods ended September 30, 1995 and 1994.
The Partnership's income from operations for the nine-month periods ended
September 30, 1995 and 1994 was $1,771,919 and $1,185,819, respectively, on
gross rental revenues of $4,865,985 and $4,501,572, respectively. The increase
in total revenue of $364,413 or 8% from the nine-month period ended September
30, 1994 to the equivalent period in 1995 was primarily attributable to rental
income, the major component of total rental revenue, which increased by $309,449
or 7.9%, from 1994 to 1995. Rental income is largely dependent upon three
factors: equipment available for lease (average inventory), average on-hire
(utilization) percentage and average daily rental rates. Average inventory
increased by 3.9%, average utilization increased by three percentage points, and
average daily rental rates decreased 0.8% from the nine-month period ended
September 30, 1994 to the nine-month period ended September 30, 1995. The
General Partners do not expect the increase in utilization to continue over the
short-term, because utilization has begun to decrease in the last quarter of
1995, and because the General Partners believe that demand for twenty-foot and
forty-foot containers may be starting to decrease from this year's earlier
levels. Demand for forty-foot high cube containers appears unchanged, however.
Utilization and/or rental rates may also be affected by economic factors
relating to the Partnership's lessees. As noted above, the Partnership's
principal lessees, shipping lines, are currently anticipating over-capacity,
which may adversely affect rental payments and/or rates. Any growth in
rental rates has also been restrained by quantity rate discounts granted
to the Partnership's larger container lessees.
Substantially all of the Partnership's rental revenue was generated from the
leasing of the Partnership's Equipment under short-term operating leases. There
were eight direct financing leases at September 30, 1995.
The balance of total revenue consisted of other lease-related items, primarily
income from charges to the lessees for handling and returning containers less
credits granted to the lessees for leasing containers from less desirable
locations (location income). For the nine-month period ended September 30,
1995, the total of these other revenue items increased by $54,964 or 9.7% over
the equivalent period in 1994. The primary cause of the increase in other
revenue was location income which increased by $109,899 from the nine-month
period ended September 30, 1994 to the nine-month period ended September 30,
1995. The increase in location income is largely due to higher demand, which
drives drop-off charges on recovery accounts and pickup charges on new units.
Direct container expenses, excluding bad debt expense, decreased by $206,931, or
24%, from the nine-month period ended September 30, 1994 to the equivalent
period in 1995. The primary components of this decrease were costs incurred for
storage (which decreased by $80,472 between the two periods), maintenance and
repair costs (which decreased by $81,020 between periods), costs incurred for
the repositioning of containers (which decreased by $30,570 between periods),
and expenses accrued under a damage protection plan (which decreased by $37,234
between periods). Storage costs declined due to higher utilization rates in the
first nine months of 1995 compared to the same period in 1994. Maintenance and
repair costs decreased due to fewer units being returned which required repairs
during the nine-month period ending September 30, 1995 compared to the
equivalent period in 1994 and a lower average cost to repair units in the first
nine months of 1995 compared to the same period in 1994. Repositioning costs
decreased due to the decline in the number of units requiring repositioning.
Bad debt expense decreased by $16,590 from the nine-month period ending
September 30, 1994 to the same period in 1995.
Depreciation expense decreased by $55,244, or 4%, from the nine-month period
ended September 30, 1994 to the same period in 1995. This decrease is primarily
attributable to certain equipment, acquired used, which has now been fully
depreciated.
Management fees to affiliates were $28,197 higher in the first nine-month period
of 1995 than in the first nine-month period of 1994 due to an increase in
incentive management fees resulting from a higher distribution rate to limited
partners. Management fees as a percent of gross revenue were 9% for the nine-
month period ended September 30, 1995 compared to 9.1% of gross revenue for
the same period in 1994. Equipment management fees were 7.1% of gross revenue
for the nine-month period ended September 30, 1995 and 7.3% of gross revenue
for the equivalent period in 1994. Incentive management fees were 1.9% of
gross revenue for the nine-month period ended September 30, 1995 and 1.8%
of gross revenue for the nine-month period ended September 30, 1994.
General and administrative costs to affiliates increased by $17,552 from the
nine-month period ended September 30, 1995 to the same period in 1994. This
increase was primarily the result of an increase in overhead costs allocable to
the Partnership due to its larger fleet size.
Other income (expense) includes a gain on sales of equipment of $190,575 for the
nine-month period ended September 30, 1995 compared to a gain of $127,156 for
the nine-month period ended September 30, 1994. Interest income decreased by
$2,405 from the nine-month period ended September 30, 1994 to the comparable
period in 1995. Interest expense decreased by $11,315 from the nine-month
period ended September 30, 1994 to the nine-month period ended September 30,
1995, due to termination of the credit facility.
Net earnings increased from $1,314,845 for the nine-month period ended September
30, 1994 to $1,973,273 for the nine-month period ended September 30, 1995 for
the reasons noted above.
The following is a comparative analysis of the results of operations for the
three-month periods ended September 30, 1995 and 1994.
The Partnership's income from operations for the three-month period ended
September 30, 1995 increased by $132,589 or 34% compared to the same period in
1994, on gross rental revenues of $1,582,026 and $1,545,750, respectively. The
increase in total revenue of $36,276 or 2.3% from the three-month period ended
September 30, 1994 to the equivalent period in 1995 was primarily attributable
to rental income, the major component of total rental revenue, which increased
by $96,066 or 7.2%, from 1994 to 1995.
Rental income, which excludes other rental-related revenue such as location,
handling, and damage protection plan income, is largely dependent upon three
factors: equipment available for lease (average inventory), average on-hire
(utilization) percentage and average daily rental rates. Average inventory
increased by 5.2%, average utilization increased by three percentage points, and
average daily rental rates increased by 1% from the three-month period ended
September 30, 1994 to the comparable period ended September 30, 1995.
The balance of total revenue for the three months ended September 30, 1995 was
$152,114 compared to $211,906 for the same period in 1994, a decrease of $59,793
or 28%. The primary component of this net decrease was a decrease in income
from charges to the lessees under the damage protection plan. The decrease in
revenue from lessees under the damage protection plan was due to the
cancellation of this coverage by a large lessee.
Direct container expenses, excluding bad debt expense, decreased by $71,541, or
26%, from the three-month period ended September 30, 1994 to the equivalent
period in 1995. The primary components of this decrease were costs incurred for
storage (which decreased by $8,152 due to an increase in utilization of three
percentage points between the periods), maintenance and repair costs (which
decreased by $39,390 between periods mainly due to a lower provision for
containers held for repair), and expenses accrued under the damage protection
plan (which decreased by $21,388 between periods).
Bad debt expense decreased by $19,055 from the three-month period ended
September 30, 1994 to the same period in 1995.
Depreciation expense decreased by $404 from the three-month period ended
September 30, 1995 to the equivalent period in 1994. Management fees to
affiliates were $2,477 higher in the three months ended September 30, 1995 than
in the same period in 1994. General and administrative costs to affiliates
increased by $4,900 or 4.9% from the three-month period ended September 30, 1994
when compared with the same period in 1995.
Other income (expense) includes a gain on sales of equipment of $108,876 for the
three-month period ended September 30, 1995 compared to a gain of $45,649 for
the three-month period ended September 30, 1994. Interest income increased by
$1,076 from the three-month period ended September 30, 1994 to the comparable
period in 1995. There was no interest expense incurred for the three months
ended September 30, 1994 and 1995.
Net earnings increased from $443,930 for the three-month period ended September
30, 1994 to $640,822 for the three-month period ended September 30, 1995 for the
reasons noted above.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines that transport goods on international trade routes.
The domicile of the lessee is not indicative of where the lessee is
transporting the Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees rather than the
geographic location of the Equipment or the domicile of the lessees. The
Partnership's containers are generally operated on the international high seas
rather than on the domestic waterways. The Partnership's Equipment is subject
to the risk of war or other political, economic or social occurrence where the
Equipment is used, which may result in the loss of Equipment, which, in turn,
may have a material impact on the Partnership's results of operations and
financial condition. The General Partners are not aware of any conditions as of
September 30, 1995 which would result in such risk materializing.
<PAGE>
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/John R. Rhodes
-----------------------------
John R. Rhodes
Executive Vice President
Date: November 13, 1995
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/Susan L. Fiddaman President (Principal Executive November 13, 1995
- --------------------
Susan L. Fiddaman Officer) and Director
/s/John R. Rhodes Executive Vice President, November 13, 1995
- --------------------
John R. Rhodes (Principal Financial and
Accounting Officer),
Secretary and Treasurer
<PAGE>
Exhibit Index
Ex. 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 387,511
<SECURITIES> 0
<RECEIVABLES> 4,079,728
<ALLOWANCES> (692,555)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 27,748,206
<DEPRECIATION> (10,489,794)
<TOTAL-ASSETS> 21,033,096
<CURRENT-LIABILITIES> 1,166,486
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 19,866,610
<TOTAL-LIABILITY-AND-EQUITY> 21,033,096
<SALES> 0
<TOTAL-REVENUES> 4,865,985
<CGS> 0
<TOTAL-COSTS> (3,094,066)
<OTHER-EXPENSES> 201,354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,973,273
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
