<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 MARCH 31, 1996
COMMISSION FILE NUMBER 0-17688
TCC EQUIPMENT INCOME FUND
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3045888
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
650 CALIFORNIA STREET, 16TH FLOOR
SAN FRANCISCO, CA 94108
(Address of Principal Executive Offices) (ZIP Code)
(415) 434-0551
(Registrant's telephone number, including area code)
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 10Q FOR THE
QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Balance Sheets - March 31, 1996 (unaudited) and December 31, 1995....... 3
Statements of Earnings for the three months
ended March 31, 1996 and 1995 (unaudited)............................... 4
Statements of Partners' Capital for the three months
ended March 31, 1996 and 1995 (unaudited)............................... 5
Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (unaudited)............................... 6
Notes to Financial Statements (unaudited)............................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 13
</TABLE>
2
<PAGE> 3
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Container rental equipment, net of accumulated
depreciation of $ 10,505 (1995: $ 10,681) $ 16,888 17,317
Net investment in direct financing leases (note 7) 719 760
Cash and cash equivalents (note 1) 630 492
Accounts receivable, net of allowance
for doubtful accounts of $ 634 (1995: $661) 1,608 1,705
Due from affiliates (note 5) 1,248 1,139
Prepaid expenses 7 10
-------- --------
$ 21,100 21,423
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 171 150
Accrued liabilities 405 401
Accrued damage protection plan costs (note 2) 135 129
Due to affiliates (note 5) 367 509
Equipment purchases payable 218 430
-------- --------
Total liabilities 1,296 1,619
-------- --------
Partners' capital:
General partners (36) (36)
Limited partners 19,840 19,840
-------- --------
Total partners' capital 19,804 19,804
-------- --------
$ 21,100 21,423
======== ========
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF EARNINGS
For the three months ended March 31, 1996 and 1995
(Dollar amounts in thousands except for per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Rental income $ 1,520 1,689
----------- -----------
Costs and expenses:
Direct container expenses 273 224
Bad debt (benefit) provision (17) 51
Depreciation 374 468
Professional fees 9 10
Management fees to affiliates (note 5) 138 150
General and administrative costs
to affiliates (note 5) 94 99
Other general and administrative costs 15 19
----------- -----------
886 1,021
----------- -----------
Income from operations 634 668
----------- -----------
Other income (expense):
Interest (expense) income, net (1) 3
Gain on sales of containers 110 50
----------- -----------
109 53
----------- -----------
Net earnings $ 743 721
=========== ===========
Allocation of net earnings (note 5):
General partners $ 7 7
Limited partners 736 714
----------- -----------
$ 743 721
=========== ===========
Limited partners' per unit share of net earnings $ 0.50 $ 0.49
=========== ===========
Limited partners' per unit share of distributions $ 0.50 $ 0.45
=========== ===========
Weighted average number of limited
partnership units outstanding 1,471,779 1,472,529
=========== ===========
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
For the three months ended March 31, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
------------------------------------
GENERAL LIMITED TOTAL
------- ------- ------
<S> <C> <C> <C>
Balances at January 1, 1995 $ (36) 20,090 20,054
Distributions (7) (663) (670)
Redemptions (note 8) - (4) (4)
Net earnings 7 714 721
------- ------- -------
Balances at March 31, 1995 $ (36) 20,137 20,101
======= ======= =======
Balances at January 1, 1996 $ (36) 19,840 19,804
Distributions (7) (736) (743)
Net earnings 7 736 743
------- ------- -------
Balances at March 31, 1996 $ (36) 19,840 19,804
======= ======= =======
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 743 721
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 374 468
(Decrease) increase in allowance for doubtful accounts (27) 47
Gain on sales of rental equipment (110) (50)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 123 (135)
Increase in due from affiliates, net (8) (9)
Proceeds from principal payments
on direct financing leases 76 60
Decrease in prepaid expenses 3 4
Increase (decrease) in accounts payable and
accrued liabilities 25 (35)
Increase (decrease) in accrued damage
protection plan costs 6 (7)
------- -----
Net cash provided by operating activities 1,205 1,064
------- -----
Cash flows from investing activities:
Proceeds from sale of container rental equipment 308 184
Container purchases (465) (278)
------- -----
Net cash used in investing activities (157) (94)
------- -----
Cash flows from financing activities:
Repayment of borrowings from affiliates (170) -
Redemptions of limited partnership units - (4)
Distributions to partners (740) (668)
------- -----
Net cash used in financing activities (910) (672)
------- -----
Net increase in cash 138 298
Cash and cash equivalents at beginning of period 492 192
------- -----
Cash and cash equivalents at end of period $ 630 490
======= =====
Interest paid during the period $ 4 -
======= =====
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS -- CONTINUED
For the three months ended March 31, 1996 and 1995
(Amounts in thousands)
(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 March 31, 1996 and 1995, and December 31, 1995 and
1994, resulting in differences in amounts recorded and amounts of cash disbursed
or received by the Partnership, as shown in the Statements of Cash Flows for the
three-month periods ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Mar. 31, Dec. 31, Mar. 31, Dec. 31,
1996 1995 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates.............................. $ 28 44 28 12
Equipment purchases payable.................... 218 430 592 5
Distributions to partners included in:
Due to affiliates.............................. 18 15 6 4
Proceeds from sale of equipment included in:
Accounts receivable............................ - 1 1 1
Due from affiliates............................ 289 229 181 168
</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 three-month periods ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Equipment purchases recorded................................. $237 882
Equipment purchases paid..................................... 465 278
Distributions to partners declared........................... 743 670
Distributions to partners paid............................... 740 668
Proceeds from sale of container rental equipment recorded.... 367 197
Proceeds from sale of container rental equipment received.... 308 184
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Dollar amounts in thousands except for per unit amounts)
(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 March 31, 1996 and December 31, 1995, and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 1996 and 1995, 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, 1995.
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 1996 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 and 1995, the Partnership settled warranty claims against an
equipment manufacturer. The Partnership will amortize the settlement
amounts over the remaining estimated useful life of the equipment (seven
years), reducing maintenance and repair costs over that time. At March 31,
1996 and December 31, 1995, the unamortized portion of the settlement
amount was equal to $308 and $324, respectively, and is included in
accrued liabilities.
NOTE 4. ACQUISITION OF EQUIPMENT
During the three-month periods ended March 31, 1996 and 1995, the
Partnership purchased container rental equipment (the Equipment) with a
cost of $237 and $882, respectively.
8
<PAGE> 9
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 5. TRANSACTIONS WITH AFFILIATES
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership. TFS is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM)
and Textainer Limited (TL) are associate general partners of the
Partnership. The managing general partner and the associate general
partners are collectively referred to as the General Partners and are
commonly owned by Textainer Group Holdings Limited (TGH). The General
Partners also act in this capacity for other limited partnerships.
Textainer Acquisition Services Limited (TAS) is an affiliate of the
General Partners which performs services 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 TAS, an incentive management fee, an acquisition
fee, an equipment management fee and an equipment liquidation fee. These
fees are for various services provided in connection with the
administration and management of the Partnership. The Partnership
capitalized $21 and $14 of equipment acquisition fees as part of container
costs during the three-month periods ended March 31, 1996 and 1995,
respectively. The Partnership incurred $31 of incentive management fees
during both of the three-month periods ended March 31, 1996 and 1995. No
equipment liquidation fees were incurred during either period.
The Partnership's Equipment is managed by TEM. Prior to the sale of the
Partnership's storage fleet during 1995, TEM had entered into an agreement
with its wholly-owned subsidiary Textainer Storage Services (TSS) to
manage storage containers owned by the Partnership and other owners (note
9). 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 at March 31, 1996 and December 31,1995.
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. For the
three-month periods ended March 31, 1996 and 1995, these fees totaled $107
and $119, respectively. Such fees are either retained by TEM or, prior to
the sale of the storage fleet, the fees allocable to TSS, if any, were
passed through to TSS by TEM for services rendered. The Partnership's
Equipment is or was leased by TEM and TSS 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.
Certain indirect general and administrative costs incurred in performing
administrative services necessary to the operation of the Partnership are
borne by TEM and, prior to the sale of the storage fleet, TSS. Such costs
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. Indirect general and administrative costs allocated to the
Partnership were $76 and $84 for the three-month periods ended March 31,
1996 and 1995, respectively.
9
<PAGE> 10
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
TFS, in its capacity as managing general partner, also incurred general
and administrative costs of $18 and $16 for the three-month periods ended
March 31, 1996 and 1995, respectively, which were reimbursed by the
Partnership.
The General Partners or TAS may acquire Equipment in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such Equipment for the Partnership. The Equipment may then
be resold to the Partnership on an all-cash basis at a price equal to the
actual cost, as defined in the Partnership Agreement. In addition, the
General Partners or TAS are entitled to an acquisition fee for any
Equipment resold to the Partnership.
At March 31, 1996 and December 31, 1995, due from and to affiliates are
comprised of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM and TSS...................... $1,248 1,139
====== =====
Due to affiliates:
Due to TL................................. $ 3 2
Due to TCC................................ 4 5
Due to TAS................................ 21 37
Due to TFS................................ 338 464
Due to TGH................................ 1 1
====== =====
$ 367 509
====== =====
</TABLE>
Included in the amounts due to TFS is $265 in loans used to facilitate
equipment purchases. All other amounts receivable from and payable to
affiliates were incurred in the ordinary course of business between the
Partnership and its affiliates and represent timing differences in the
accrual and payment of expenses and fees described above or in the accrual
and payment of net rental revenues from TEM and TSS.
It is the policy of the Partnership and the General Partners to charge
interest on intercompany balances which are outstanding for more than one
month to the extent that such balances relate to loans for equipment
purchases. Interest is charged at the Prime Rate plus certain margins
based on TGH's leverage ratio. The Partnership incurred interest expense
of $8 on such intercompany balances payable to TFS during the three-month
period ended March 31, 1996. No such interest was incurred during the same
period in 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 March 31, 1996:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C>
1997............................................. $ 427
1998............................................. 28
1999............................................. 12
2000............................................. 9
2001............................................. 1
-----
Total minimum future rentals receivable.......... $ 477
=====
</TABLE>
10
<PAGE> 11
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 7. DIRECT FINANCING LEASES
The components of the net investment in direct financing leases as of
March 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future minimum lease payments receivable ... $ 902 $ 890
Residual value ............................. 2 5
Less: unearned income ..................... (185) (135)
----- -----
Net investment in direct financing leases .. $ 719 $ 760
===== =====
</TABLE>
The following is a schedule by year of minimum lease payments receivable
under the seven direct financing leases as of March 31, 1996:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C> <C>
1996 ........................................ $426
1997 ........................................ 413
1998 ........................................ 63
----
Total minimum lease payments receivable...... $902
====
</TABLE>
Rental income includes $32 and $37 for the three-month periods ended March
31, 1996 and 1995, respectively, of income from direct financing leases.
Note 8. Redemptions
The following redemption offerings were consummated by the Partnership
during the year ended December 31,1995. No redemption offerings were
consummated during the three-month period ended March 31, 1996.
<TABLE>
<CAPTION>
AVERAGE
UNITS REDEMPTION
REDEEMED PRICE AMOUNT PAID
-------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994 1,525 $ 8.86 $13
Quarter ended:
March 31, 1995 500 $ 7.96 4
December 31, 1995 750 $ 7.43 6
----- ----
Balance at December 31,1995
and March 31, 1996 2,775 $ 8.31 $ 23
===== ====
</TABLE>
The redemption price is fixed by formula and varies depending on the
length of time the units are outstanding.
11
<PAGE> 12
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 9. SALE OF STORAGE FLEET
In August 1995, the Partnership sold its container storage fleet, managed
by TSS, to an unrelated purchaser. The proceeds from the sale were $20
compared to the Partnership's cost basis in the equipment of $15. The
resulting gain from the sale was $5. The Partnership invested the proceeds
from the sale into marine container rental equipment.
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in thousands of dollars except for per unit amounts)
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the three-month periods ended March
31, 1996 and 1995. Please refer to the Financial Statements and Notes thereto in
connection with the following discussion.
LIQUIDITY AND CAPITAL RESOURCES
From October 1987 until October 1989 the Partnership was involved in the
offering of limited partnership interests to the public. On October 26, 1989,
the Partnership's offering of limited partnership interests was closed at
$29,491.
The Partnership has set up a program whereby limited partners may redeem units
for a specified redemption value. The redemption price is set by formula and
varies depending on length of time the units are outstanding. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. The Partnership did not redeem any units during
the quarter ended March 31, 1996. Through March 31, 1996 and December 31, 1995,
the Partnership redeemed a total of 2,775 units for $23, representing an average
redemption price of $8.31 per unit. The partnership has used cash flow from
operations to pay for the redeemed 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. At March 31, 1996, the Partnership's cash of
$630 was primarily invested in a market-rate account.
During the three-month period ended March 31, 1996, the Partnership declared
cash distributions to limited partners pertaining to the fourth quarter of 1995
in the amount of $736. These distributions represent 10% of original capital
(measured on an annualized basis) on each unit. These distributions were made
solely from net earnings and do not represent a return of capital.
For the three-month period ended March 31, 1996, the Partnership had net cash
provided by operating activities of $1,205 compared with $1,064 for the
equivalent period in 1995. The increase is primarily attributable to a decrease
in accounts receivable from operations. Notwithstanding the above, the average
collection period for accounts receivable from operations increased from 120
days for the quarter ended March 31, 1995 to 134 days for the comparable period
in 1996, primarily due to the fact that rental income, which declined by 10%
between periods, decreased at a greater relative rate than accounts receivable.
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 in extreme cases, bankruptcy of some
shipping lines. As discussed more fully below under "Results of Operations",
utilization rates have reflected a lower demand for containers, and this
over-capacity could also further affect these rates.
Net cash used in investing activities (the purchase and sale of rental
equipment) for the three-month period ended March 31, 1996 was $157, slightly
greater than net cash used of $94 for equivalent period
13
<PAGE> 14
in 1995. The Partnership believes that these differences reflect normal
fluctuations in equipment sales and purchases.
RESULTS OF OPERATIONS
The Partnership's operations, which consist of rental income, container
depreciation, direct container expenses, management fees, and reimbursement of
administrative expenses were directly related to the size of the container fleet
(inventory) during the three-month periods ended March 31, 1996 and 1995, as
well as certain other factors as discussed below. The following is a summary of
the equipment (in units) available for lease during those periods:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Opening inventory....................... 8,471 8,245
Closing inventory....................... 8,415 8,400
Average................................. 8,443 8,323
</TABLE>
Rental income and direct container expenses are affected by lease utilization
percentages for the equipment which were 83% and 91% on average during the
three-month periods ended March 31, 1996 and 1995, respectively. In addition,
rental income is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 1996 and 1995.
The Partnership's income from operations for the three-month periods ended March
31, 1996 and 1995 was $634 and $668, respectively, on rental income of $1,520
and $1,689, respectively. The decrease in rental income of $169, or 10% from the
three-month period ended March 31, 1995 to the same period in 1996 was primarily
attributable to income from container rentals, the major component of total
revenue, which decreased by $120, or 9%, between two periods. Income from
container rentals is largely dependent upon three factors: equipment available
for lease (average inventory), average on-hire (utilization) percentage, and
average daily rental rates. Average inventory increased by 1.5%, average on-hire
utilization decreased by eight percentage points and average daily rental rates
decreased by 3% from the three-month periods ended March 31, 1996 to the
comparable period in 1995.
Utilization began to decrease in the last quarter of 1995 and continued to
decline for all Equipment types owned by the Partnership in the first quarter of
1996. The General Partners believe that this softening in demand has been due,
in part, to a slow-down in activity in the Asia-North America trade route as
well as to seasonal factors. Additionally, as noted above, the Partnership's
principal lessees, shipping lines, are currently anticipating further
over-capacity, which may adversely affect rental payments and/or rates and
utilization. Rental rates have also been restrained by quantity rate discounts
granted to the Partnership's larger container lessees.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases. There
were seven direct financing leases at March 31, 1996.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for handling and returning containers less
credits granted to the lessees for leasing containers from less desirable
locations (location income), income from handling and returning marine
containers and income from charges to lessees for a damage protection plan. For
the three-month period ended March 31, 1996, the total of these other revenue
items decreased by $49 or 17% over the equivalent period in 1995. The primary
cause of the decrease in other revenue was location income, which decreased by
$42. The decline in location income is mainly due to a decrease in drop-off
charges to lessees for Equipment at less desirable locations, which primarily
resulted from drop-off charges to a
14
<PAGE> 15
specific lessee in the first quarter of 1995 that did not re-occur in the same
period in 1996, as well as an increase in credits given to lessees for pick-up
of Equipment from less desirable locations, which was largely driven by
decreased demand.
Direct container expenses, excluding bad debt expense, increased by $49, or 22%
from the three-month periods ended March 31, 1996 to the same period in 1995.
The primary components of this increase were costs incurred for storage (which
increased by $27) and maintenance and repair costs (which increased by $23).
Storage costs increased due to lower utilization rates in the three-month period
ended March 31, 1996 compared to the same period in 1995. Maintenance and repair
costs increased due to more units being returned which required repairs and a
higher average cost to repair units in the three-month period ended March 31,
1996 compared to the equivalent period in 1995.
Bad debt expense decreased from $51 in the first quarter of 1995 to a benefit of
$17 in the same period of 1996. The benefit recorded in 1996 was primarily due
to a reduction in reserve requirements for two specific lessees.
Depreciation expense decreased by $94 or 20% from the three-month period ended
March 31, 1995 to the same period in 1996. This decrease is primarily
attributable to certain equipment, acquired used, which has now been fully
depreciated.
Management fees to affiliates decreased by $12 from the three-month period ended
March 31, 1996 to the same period of 1995 primarily due to a decline in
equipment management fees. Equipment management fees decreased by $12 between
periods due to a decrease in rental income.
General and administrative costs to affiliates decreased by $5, or 6%, in the
three-month period ended March 31, 1996 compared to the same period in 1995. The
decrease was primarily the result of a decline in overhead costs allocable from
TEM.
Other income (expense) includes a gain on sales of equipment of $110 for the
three-month period ended March 31, 1996 compared to a gain of $50 for the
equivalent period ended in 1995.
Net earnings per limited partnership unit increased from $.49 to $.50 from the
three-month period ended March 31, 1995 to the same period in 1996, reflecting
the increase in net earnings from $721 to $743 for the respective periods.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep the Equipment under lease, rather than the geographic location
of the Equipment or the domicile of the lessees. The 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 March 31, 1996 which
would result in such risk materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning equipment after it comes off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the Partnership's equipment, and the effect of demand for world trade and/or
general business and economic cycles on the Partnership's operations.
15
<PAGE> 16
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: May 10, 1996
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/James E. Hoelter President (Principal Executive May 10, 1996
- ----------------------
James E. Hoelter Officer) and Director
/s/John R. Rhodes Executive Vice President, May 10, 1996
- ----------------------
John R. Rhodes (Principal Financial and
Accounting Officer),
Secretary and Treasurer
16
<PAGE> 17
EXHIBIT INDEX
Exhibit No.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 630
<SECURITIES> 0
<RECEIVABLES> 4,209
<ALLOWANCES> 634
<INVENTORY> 0
<CURRENT-ASSETS> 7
<PP&E> 27,393
<DEPRECIATION> 10,505
<TOTAL-ASSETS> 21,100
<CURRENT-LIABILITIES> 1,296
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,804
<TOTAL-LIABILITY-AND-EQUITY> 21,100
<SALES> 0
<TOTAL-REVENUES> 1,520
<CGS> 0
<TOTAL-COSTS> 886
<OTHER-EXPENSES> (109)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 743
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 743
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
