<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 JUNE 30, 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 JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - June 30, 1996 (unaudited) and December 31, 1995 . . . . . . . . . . . . . . . 3
Statements of Earnings for the six and three months ended June 30, 1996 and 1995 (unaudited) . 4
Statements of Partners' Capital for the six months
ended June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the six months
ended June 30, 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
June 30, 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 $ 10,436 (1995: $ 10,681) $ 16,272 17,317
Net investment in direct financing leases (note 7) 644 760
Cash and cash equivalents (note 1) 485 492
Accounts receivable, net of allowance
for doubtful accounts of $ 670 (1995: $ 661) 1,571 1,705
Due from affiliates (note 5) 1,325 1,139
Prepaid expenses 3 10
-------- ------
$ 20,300 21,423
======== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 136 150
Accrued liabilities 61 77
Accrued damage protection plan costs (note 2) 143 129
Warranty claim payable (note 3) 292 324
Due to affiliates (note 5) 31 509
Equipment purchases payable 5 430
-------- ------
Total liabilities 668 1,619
-------- ------
Partners' capital:
General partners (36) (36)
Limited partners 19,668 19,840
-------- ------
Total partners' capital 19,632 19,804
-------- ------
$ 20,300 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 six and three months ended June 30, 1996 and 1995
(Dollar amounts in thousands except for per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Rental Income $ 2,849 $ 1,329 $ 3,284 $ 1,595
---------- ---------- ---------- ----------
Costs and expenses:
Direct Container expenses 513 240 451 227
Bad debt expense 23 40 72 21
Depreciation 737 364 946 478
Professional fees 17 8 22 12
Management fees to affiliates (note 5) 264 125 294 144
General and administrative costs to
affiliates (note 5) 169 75 212 113
Other general and administrative costs 31 16 43 24
---------- ---------- ---------- ----------
1,754 868 2,040 1,019
---------- ---------- ---------- ----------
Income from operations 1,095 461 1,244 576
---------- ---------- ---------- ----------
Other income:
Interest income, net 4 5 6 3
Gain on sales of containers 216 106 82 32
---------- ---------- ---------- ----------
$ 220 $ 111 $ 88 $ 35
---------- ---------- ---------- ----------
Net earnings $ 1,315 $ 572 $ 1,332 $ 611
========== ========== ========== ==========
Allocation of net earnings (note 5):
General partners $ 15 $ 8 $ 14 $ 7
Limited partners 1,300 564 1,318 604
---------- ---------- ---------- ----------
$ 1,315 $ 572 $ 1,332 $ 611
========== ========== ========== ==========
Limited partners' per unit share
of net earnings $0.88 $0.38 $0.90 $0.41
===== ===== ===== =====
Limited partners' per unit share
of distributions $1.00 $0.50 $0.95 $0.50
===== ===== ===== =====
Weighted average number of limited
partnership units outstanding 1,471,779 1,471,779 1,472,529 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 six months ended June 30, 1995 and 1996
(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 (14) (1,399) (1,413)
Redemptions (note 8) - (4) (4)
Net earnings 14 1,318 1,332
---- ----- ------
Balances at June 30, 1995 $(36) 20,005 19,969
==== ====== ======
Balances at January 1, 1996 $(36) 19,840 19,804
Distributions (15) (1,472) (1,487)
Net earnings 15 1,300 1,315
---- ------ ------
Balances at June 30, 1996 $(36) 19,668 19,632
==== ====== ======
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,315 1,332
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 737 946
Increase (decrease) in allowance for doubtful accounts 9 (31)
Gain on sale of rental equipment (216) (81)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 124 (31)
Increase in due from affiliates, net (140) (4)
Proceeds from principal payments
on direct financing leases 153 124
Decrease in prepaid expenses 7 7
Decrease in accounts payable and
accrued liabilities (30) (16)
Decrease in warranty payable (32) (18)
Increase (decrease) in accrued
damage protection plan costs 14 (6)
------ -----
Net cash provided by operating activities 1,941 2,222
------ -----
Cash flows from investing activities:
Proceeds from sale of container rental equipment 674 351
Container purchases (695) (938)
------ -----
Net cash used in investing activities (21) (587)
------ -----
Cash flows from financing activities:
Repayment of borrowings from affiliates (435) -
Redemptions of limited partnership units - (4)
Distributions to partners (1,492) (1,415)
------ -----
Net cash used in financing activities (1,927) (1,419)
------ -----
Net (decrease) increase in cash (7) 216
Cash and cash equivalents at beginning of period 492 192
------ -----
Cash and cash equivalents at end of period $ 485 408
====== =====
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 six months ended June 30, 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 Equipment which had not
been paid or received as of June 30, 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 six-month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30, Dec. 31,
1996 1995 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates . . . . . . . . . . . . $ 18 44 1 12
Equipment purchases payable . . . . . . . 5 430 192 5
Distributions to partners included in:
Due to affiliates . . . . . . . . . . . . 10 15 2 4
Proceeds from sale of Equipment included in:
Accounts receivable . . . . . . . . . . . - 1 1 1
Due from affiliates . . . . . . . . . . . 287 229 198 168
</TABLE>
The following table summarizes the amounts of Equipment purchases,
distributions to partners, and proceeds from sale of Equipment recorded by the
Partnership and the amounts paid or received as shown in the Statements of Cash
Flows for the six-month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Equipment purchases recorded . . . . . . . . . . . . . . . . . . . . . . . . $ 244 1,114
Equipment purchases paid . . . . . . . . . . . . . . . . . . . . . . . . . . 695 938
Distributions to partners declared . . . . . . . . . . . . . . . . . . . . . 1,487 1,413
Distributions to partners paid . . . . . . . . . . . . . . . . . . . . . . . 1,492 1,415
Proceeds from sale of Equipment recorded . . . . . . . . . . . . . . . . . . 731 381
Proceeds from sale of Equipment received . . . . . . . . . . . . . . . . . . 674 351
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(Dollar amounts in thousands except for per unit amounts)
(Unaudited)
NOTE 1. GENERAL
TCC Equipment Income Fund (the Partnership) is a California Limited
Partnership formed in 1987. The Partnership owns and leases a fleet of
intermodal marine cargo container equipment (the Equipment) to
international shipping lines.
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 June 30, 1996 and December 31, 1995, and the
results of its operations, changes in partners' capital and cash flows for
the six- and three-month periods ended June 30, 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 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. At June 30, 1996 and December 31,
1995, this reserve was equal to $143 and $129, respectively.
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 June 30,
1996 and December 31, 1995, the unamortized portion of the settlement
amount was equal to $292 and $324, respectively.
NOTE 4. ACQUISITION OF EQUIPMENT
During the six-month periods ended June 30, 1996 and 1995, the Partnership
purchased Equipment with a cost of $244 and $1,114, 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 $32 and $44 of equipment acquisition fees as part of container
costs during the six-month periods ended June 30, 1996 and 1995,
respectively. The Partnership incurred $62 and $31 of incentive management
fees during the six- and three-month periods ended June 30, 1996,
respectively, and $62 and $31 for the comparable periods ended June 30,
1995. No equipment liquidation fees were incurred during either period.
The 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 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 June
30, 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 six-
and three-month periods ended June 30, 1996, these fees totaled $202 and
$94, respectively, and $232 and $113 for the comparable periods ended June
30, 1995. 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 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.
9
<PAGE> 10
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 $148 and $72 for the six- and three-month periods ended
June 30, 1996, respectively, and $179 and $95 for the comparable periods
ended June 30, 1995.
TFS, in its capacity as managing general partner, also incurred general
and administrative costs of $21 and $3 for the six- and three- month
periods ended June 30, 1996, respectively, and $33 and $18 for the
comparable periods ended June 30, 1995, 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 June 30, 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 . . . . . . . . . . . . $1,325 1,139
===== =====
Due to affiliates:
Due to TL . . . . . . . . . . . . . . . . . $ 3 2
Due to TCC . . . . . . . . . . . . . . . . . 3 5
Due to TAS . . . . . . . . . . . . . . . . . 10 37
Due to TFS . . . . . . . . . . . . . . . . . 14 464
Due to TGH . . . . . . . . . . . . . . . . . 1 1
----- -----
$ 31 509
===== =====
</TABLE>
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 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 $9 and $1 on such intercompany balances payable to TFS during the six-
and three-month periods ended June 30, 1996. No such interest was
incurred during the comparable period in 1995.
10
<PAGE> 11
TCC EQUIPMENT INCOME FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 6. RENTALS UNDER OPERATING LEASES
The following is a schedule by year of minimum future rentals receivable
on noncancelable operating leases as of June 30, 1996:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . $ 454
1998 . . . . . . . . . . . . . . . . . . . . 38
1999 . . . . . . . . . . . . . . . . . . . . 28
2000 . . . . . . . . . . . . . . . . . . . . 17
-----
Total minimum future rentals receivable . . . $ 537
=====
</TABLE>
NOTE 7. DIRECT FINANCING LEASES
The components of the net investment in direct financing leases as of June
30, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Future minimum lease payments receivable . . . $ 796 $ 890
Residual value . . . . . . . . . . . . . . . . 2 5
Less: unearned income . . . . . . . . . . . . (154) (135)
----- -----
Net investment in direct financing leases . . . $ 644 $ 760
===== =====
</TABLE>
The following is a schedule by year of minimum lease payments receivable
under the eight direct financing leases as of June 30, 1996:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . $ 422
1998 . . . . . . . . . . . . . . . . . . . . . 350
1999 . . . . . . . . . . . . . . . . . . . . . 24
-----
Total minimum lease payments receivable . . . . $ 796
=====
</TABLE>
Rental income includes $66, $33 and $72, $35 for the six- and three-month
periods ended June 30, 1996 and 1995, respectively, of income from direct
financing leases.
NOTE 8. REDEMPTIONS
No redemption offerings were consummated during the six-month period ended
June 30, 1996. The total number of units redeemed since the inception of
the redemption program is 2,775, at a total cost of $23, representing an
average redemption price of $8.31 per unit. The redemption price is fixed
by formula and varies depending on the length of time the units have been
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 of $15. The resulting gain from
the sale was $5. The Partnership invested the proceeds from the sale into
addtitional Equipment.
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts in thousands except for per unit amounts)
The Financial Statements contain information which will assist in evaluating
the financial condition of the Partnership for the six- and three- month
periods ended June 30, 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 six-month period ended June 30, 1996. From the
inception of the Partnership through June 30, 1996, the Partnership has
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 June 30, 1996, the
Partnership's cash of $485 was primarily invested in a market-rate account.
During the six-month period ended June 30, 1996, the Partnership declared cash
distributions to limited partners pertaining to the fourth quarter of 1995 and
first quarter of 1996 in the amount of $1,472. These distributions represent a
return of 10% of original capital (measured on an annualized basis) on each
unit. Of these distributions, on a GAAP basis $172 was a return of capital and
the balance was from net earnings. On a cash basis all of these distributions
were from operations.
For the six-month period ended June 30, 1996, the Partnership had net cash
provided by operating activities of $1,941 compared with $2,222 for the
equivalent period in 1995. Rental income declined by $435 or 13% and direct
expenses increased by $62 or 14% from the six-month period ended June 30, 1995
to the equivalent period in 1996. The average collection period for accounts
receivable from operations increased from 118 days for the quarter ended June
30, 1995 to 143 days for the comparable period in 1996, primarily due to the
fact that rental income, which declined by 13% between periods, decreased at a
greater relative rate than accounts receivable.
The Partnership's principal lessees, shipping lines, are currently experiencing
over-capacity, in part due to the delivery of new, large capacity ships. This
over-capacity has, in some instances, caused 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.
13
<PAGE> 14
Net cash used in investing activities (the purchase and sale of Equipment) for
the six-month period ended June 30, 1996 was $21 compared to $587 for the
equivalent period in 1995. The difference is due to the fact that the
Partnership had greater proceeds from the sale of Equipment in the six-month
period ended June 30, 1996 than in the same period in 1995 and had greater cash
outflow for Equipment purchases in the six-month period ended June 30, 1995
than in the equivalent period in 1996. The General Partners believe that these
differences reflect normal fluctuations in equipment sales and purchases. The
Partnership has a significant amount of used Equipment in its portfolio and
expects to sell this Equipment periodically when it reaches the end of its
useful marine life. Consistent with its investment objectives, the Partnership
intends to reinvest all or a significant amount of proceeds from Equipment
sales in additional Equipment.
RESULTS OF OPERATIONS
The Partnership's operations, which consist of rental income, Equipment
depreciation, direct operating expenses, management fees, and reimbursement of
administrative expenses were directly related to the size of the Equipment
fleet (inventory) during the six-month periods ended June 30, 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>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Opening inventory . . . . . . . . . . . . . . . . . 8,471 8,245
Closing inventory . . . . . . . . . . . . . . . . . 8,165 8,334
Average . . . . . . . . . . . . . . . . . . . . . . 8,318 8,290
</TABLE>
Rental income and direct operating expenses are affected by lease utilization
percentages for the Equipment which were 82% and 91% on average during the
six-month periods ended June 30, 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
six-month periods ended June 30, 1996 and 1995.
The Partnership's income from operations for the six-month periods ended June
30, 1996 and 1995 was $1,095 and $1,244, respectively, on rental income of
$2,849 and $3,284, respectively. The decrease in rental income of $435, or 13%,
from the six-month period ended June 30, 1995 to the same period in 1996 was
primarily attributable to income from Equipment rentals, the major component of
total revenue, which decreased by $331, or 12%, between the two periods.
Income from Equipment 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
remained stable; however, average utilization decreased by 10% and average
daily rental rates decreased by 4% from the six-month periods ended June 30,
1995 to the comparable period in 1996.
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 and
second quarters 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. The General Partners have
seen recent evidence of some stabilization of utilization rates in certain
Equipment types; however, there can be no assurance regarding the trend for
utilization in the future. Additionally, as noted above, the Partnership's
principal lessees, shipping lines, are currently experiencing 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 Equipment lessees.
14
<PAGE> 15
Substantially all of the Partnership's rental income was generated from the
leasing of the Equipment under short-term operating leases. There were eight
direct financing leases at June 30, 1996.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for handling and returning Equipment less
credits granted to the lessees for leasing Equipment from less desirable
locations (location income), income from handling and returning Equipment and
income from charges to lessees for a damage protection plan. For the six-month
period ended June 30, 1996, the total of these other revenue items decreased by
$104, or 22%, over the equivalent period in 1995. The primary cause of the
decrease in other revenue was location income, which decreased by $82. 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 specific lessee in the first quarter of 1995 that
did not re-occur in the same period in 1996. Location income also declined due
to an increase in credits given to lessees for pick-up of Equipment from less
desirable locations in the six-month period ended June 30, 1996, which was
largely driven by decreased demand for Equipment.
Direct operating expenses, excluding bad debt expense, increased by $62, or
14%, from the six-month period ended June 30, 1995 to the same period in 1996.
The primary component of this increase was costs incurred for storage (which
increased by $59). Storage costs increased due to lower utilization rates in
the six-month period ended June 30, 1996 compared to the same period in 1995.
Bad debt expense decreased from $72 in the first six-month period of 1995 to
$23 in the same period of 1996. The decrease in 1996 was primarily due to a
reduction in reserve requirements for two specific lessees, moderated by an
increase in reserve requirements for one specific lessee in the six-month
period ended June 30, 1996.
Depreciation expense decreased by $209, or 22%, from the six-month period ended
June 30, 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, at 7% of gross revenue, decreased by $30 from
the six-month period ended June 30, 1996 to the same period of 1995 due to a
decline in rental income. Incentive management fees were 2% of gross revenue
for both periods.
General and administrative costs to affiliates decreased by $43, or 20%, in the
six-month period ended June 30, 1996 compared to the same period in 1995. The
decrease was primarily the result of a decline in overhead costs allocated from
TEM.
Other income (expense) includes a gain on sales of Equipment of $216 for the
six-month period ended June 30, 1996 compared to a gain of $82 for the
equivalent period ended in 1995.
Net earnings per limited partnership unit decreased from $.90 to $.88 from the
six-month period ended June 30, 1995 to the same period in 1996, reflecting the
decrease in net earnings from $1,332 to $1,315 for the respective periods.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 1996 and 1995.
The Partnership's income from operations for the three-month period ended June
30, 1996 was $461, compared to $576 in the same period in 1995, a decrease of
$115, or 20%, compared to the same period in 1995, on gross rental revenues of
$1,329 and $1,595, respectively. The decrease in total revenue of $266, or
17%, from the three-month period ended June 30, 1995 to the equivalent period
in 1996 was primarily
15
<PAGE> 16
attributable to rental income, the major component of total rental revenue,
which decreased by $210, or 15%, from 1995 to 1996. This decline in rental
income primarily resulted from a decrease in average inventory of 1%, a
decrease in utilization of 10%, and a decrease in average daily rental rates of
4% from period to period.
The balance of total revenue for the three-month period ended June 30, 1996 was
$134 compared to $190 for the same period in 1995, a decrease of $56 or 29%.
The primary component of this net decrease was a decrease in location income of
$40 from the three-month period ended June 30,1996 compared to the same period
in 1995. The decrease in location income was due to an increase in pick-up
credits given to lessees for leasing from less desirable locations spurred by
the decline in utilization and the lower demand for Equipment.
Direct operating expenses, excluding bad debt expense, increased by $13, or 6%,
from the three-month period ended June 30, 1995 to the equivalent period in
1996. The primary component of this increase was costs incurred for storage
which increased by $32 due to a decrease in utilization of 10%.
Bad debt expense increased by $19 from the three-month period ended June 30,
1995 to the same period in 1996. The increase was due primarily to an increase
in reserve requirements for one specific lessee recorded during the three-month
period ended June 30, 1996.
Depreciation expense decreased by $114 from the three-month period ended June
30, 1996 to the equivalent period in 1995. This decrease is primarily
attributable to certain Equipment, acquired used, which has now been fully
depreciated.
Management fees to affiliates were lower by $19 in the three-month period ended
June 30, 1996 than in the same period in 1995 due to a decline in rental
income.
General and administrative costs to affiliates decreased by $38 or 34% from the
three-month period ended June 30, 1996 when compared with the same period in
1995. The decrease was primarily the result of a decline in overhead costs
allocated from TEM.
Other income includes a gain on sales of Equipment of $106 for the three-month
period ended June 30, 1996 compared to a gain of $32 for the three-month period
ended June 30, 1995.
Net earnings per limited partnership unit decreased from $0.41 for the
three-month period ended June 30, 1995 to $0.38 for the equivalent period in
1996, reflecting the decrease in net earnings from $611 for the three-month
period ended June 30, 1995 to $572 for the same period in 1996.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this
income is denominated in United States dollars. The Partnership's customers
are international shipping lines which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep the Equipment under lease, rather than the geographic location
of the Equipment or the domicile of the lessees. The Equipment is generally
operated on the international high seas rather than on the domestic waterways.
The Equipment is subject to the risk of war or other political, economic or
social occurrence where the Equipment is used, which may result in the loss of
Equipment, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of June 30, 1996 which would result in such risk
materializing.
16
<PAGE> 17
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning equipment after it comes off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the Equipment, and the effect of world trade and/or general business and
economic cycles on the Partnership's operations.
17
<PAGE> 18
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
-------------------------------------
John R. Rhodes
Executive Vice President
Date: August 12, 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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
________________________ President (Principal Executive August 12, 1996
James E. Hoelter Officer) and Director
________________________ Executive Vice President, August 12, 1996
John R. Rhodes (Principal Financial and
Accounting Officer)
Secretary and Treasurer
</TABLE>
18
<PAGE> 19
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: August 12, 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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/James E. Hoelter President (Principal Executive August 12, 1996
- -----------------------
James E. Hoelter Officer) and Director
/s/John R. Rhodes Executive Vice President, August 12, 1996
- -------------------------
John R. Rhodes (Principal Financial and
Accounting Officer),
Secretary and Treasurer
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 485
<SECURITIES> 0
<RECEIVABLES> 4,210
<ALLOWANCES> 670
<INVENTORY> 0
<CURRENT-ASSETS> 3
<PP&E> 26,708
<DEPRECIATION> 10,436
<TOTAL-ASSETS> 20,300
<CURRENT-LIABILITIES> 668
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,632
<TOTAL-LIABILITY-AND-EQUITY> 20,300
<SALES> 0
<TOTAL-REVENUES> 2,849
<CGS> 0
<TOTAL-COSTS> 1,754
<OTHER-EXPENSES> (220)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,315
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,315
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
