.
TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 13, 1997
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of TCC Equipment Income Fund (the
"Company") the Company's Annual Report on Form 10-Q for the First Quarter ended
March 31, 1997.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
<PAGE>
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, 1997
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>
.
TCC Equipment Income Fund
(a California limited partnership)
Quarterly Report on Form 10Q for the
Quarter Ended March 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C> <C> <C>
Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996................................. 3
Statements of Earnings for the three months
ended March 31, 1997 and 1996 (unaudited)......................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 1997 and 1996 (unaudited)......................................................... 5
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited)......................................................... 6
Notes to Financial Statements (unaudited)......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
and Results of Operations......................................................................... 12
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Balance Sheets
March 31, 1997 and December 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $10,354 (1996: $10,343) $ 16,042 15,601
Cash 1,720 1,253
Net investment in direct financing leases (note 8) 378 461
Accounts receivable, net of allowance
for doubtful accounts of $683 (1996: $687) 1,562 1,554
Due from affiliates, net (note 6) 180 1,170
Prepaid expenses 6 10
---------------- ---------------
$ 19,888 20,049
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 106 133
Accrued liabilities 14 -
Accrued damage protection plan costs (note 2) 120 130
Accrued maintenance and repair costs (note 3) 34 45
Warranty claims (note 4) 244 260
Equipment purchases payable 377 269
---------------- ---------------
Total liabilities 895 837
---------------- ---------------
Partners' capital:
General partners (36) (36)
Limited partners 19,029 19,248
---------------- ---------------
Total partners' capital 18,993 19,212
---------------- ---------------
Commitments (note 10)
$ 19,888 20,049
================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Earnings
For the three months ended March 31, 1997 and 1996
(Dollar amounts in thousands except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Rental Income $ 1,207 1,520
----------------- -----------------
Costs and expenses:
Direct container expenses 184 273
Bad debt provision (benefit) 11 (17)
Depreciation 363 374
Professional fees 7 9
Management fees to affiliates (note 6) 116 138
General and administrative costs to affiliates (note 6) 79 94
Other general and administrative costs 14 15
----------------- -----------------
774 886
----------------- -----------------
Income from operations 433 634
----------------- -----------------
Other income:
Interest income (expense), net 14 (1)
Gain on sale of equipment 78 110
----------------- -----------------
92 109
----------------- -----------------
Net earnings $ 525 743
================= =================
Allocation of net earnings (note 6):
General partners $ 8 7
Limited partners 517 736
----------------- -----------------
$ 525 743
================= =================
Limited partners' per unit share
of net earnings $ 0.35 0.50
================= =================
Limited partners' per unit share
of distributions $ 0.50 0.50
================= =================
Weighted average number of limited
partnership units outstanding 1,471,779 1,471,779
================= =================
</TABLE>
See accompanying notes to financial statements
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Partners' Capital
For the three months ended March 31, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------------
General Limited Total
------------- --------------- ---------------
<S> <C> <C> <C>
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
============= =============== ===============
Balances at January 1, 1997 $ (36) 19,248 19,212
Distributions (8) (736) (744)
Net earnings 8 517 525
------------- --------------- ---------------
Balances at March 31, 1997 $ (36) 19,029 18,993
============= =============== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements of Cash Flows
For the three months ended March 31, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 525 743
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 363 374
Decrease in allowance for doubtful accounts (4) (27)
Gain on sale of equipment (78) (110)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (4) 123
Proceeds from principal payments of
direct financing leases 65 76
Decrease (increase) in due from affiliates, net 967 (8)
(Decrease) increase in accounts payable and
accrued liabilities (13) 26
(Decrease) increase in maintenance and
repair costs (11) 15
(Decrease) increase in accrued
damage protection plan costs (10) 6
Decrease in warranty claim (16) (16)
Decrease in prepaid expenses 4 3
------------- ------------
Net cash provided by operating activities 1,788 1,205
------------- ------------
Cash flows from investing activities:
Proceeds from sale of equipment 377 308
Equipment purchases (954) (465)
------------- ------------
Net cash used in investing activities (577) (157)
------------- ------------
Cash flows from financing activities:
Repayment to affiliates - (170)
Distributions to partners (744) (740)
------------- ------------
Net cash used in financing activities (744) (910)
------------- ------------
Net increase in cash 467 138
Cash at beginning of period 1,253 492
------------- ------------
Cash at end of period $ 1,720 630
============= ============
Interest paid during the period $ - 4
============= ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Statements Of Cash Flows--Continued
For the three months ended March 31, 1997 and 1996
(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 March 31, 1997 and 1996, and December 31, 1996 and 1995,
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, 1997 and 1996.
<TABLE>
<CAPTION>
Mar. 31 Dec. 31 Mar. 31 Dec. 31
1997 1996 1996 1995
----------- ----------- ------------ -----------
Equipment purchases included in:
<S> <C> <C> <C> <C>
Due to affiliates.............................. $ 10 1 28 44
Equipment purchases payable.................... 377 269 218 430
Distributions to partners included in:
Due to affiliates.............................. 2 2 18 15
Proceeds from sale of Equipment included in:
Accounts receivable............................ - - - 1
Due from affiliates............................ 313 327 289 229
</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
three-month periods ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment purchases recorded...................................................... $ 1,071 237
Equipment purchases paid.......................................................... 954 465
Distributions to partners declared................................................ 744 743
Distributions to partners paid.................................................... 744 740
Proceeds from sale of Equipment recorded.......................................... 363 367
Proceeds from sale of Equipment received.......................................... 377 308
</TABLE>
See accompanying notes to financial statements
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California limited partnership)
Notes To Financial Statements
March 31, 1997
(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 March 31, 1997 and December 31, 1996, and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 1997 and 1996, 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, 1996.
Certain estimates and assumptions were made by the Partnership's
management that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
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 future repair costs. At March 31, 1997 and
December 31, 1996, this reserve was equal to $120 and $130, respectively.
Note 3. Maintenance and Repair
The Partnership accrues maintenance and repair costs on damaged units in
depots. At March 31, 1997 and December 31, 1996, the amount accrued was
$34 and $45, respectively.
Note 4. Warranty Claims
During 1992 and 1995, the Partnership settled warranty claims against an
equipment manufacturer. The Partnership is amortizing 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,
1997 and December 31, 1996, the unamortized portion of the settlement
amount was equal to $244 and $260, respectively.
Note 5. Acquisition of Equipment
During the three-month periods ended March 31, 1997 and 1996, the
Partnership purchased Equipment with a cost of $1,071 and $237,
respectively.
Note 6. 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, and subject to special
allocations described therein, net earnings or losses and partnership
distributions are generally 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 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 $46 and $21 of equipment acquisition fees as part of container
costs during the three-month periods ended March 31, 1997 and 1996,
respectively. The Partnership incurred $31 of incentive management fees
during both of the three-month periods ended March 31, 1997 and 1996. No
equipment liquidation fees were incurred during either period.
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
March 31, 1997 and December 31,1996.
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, 1997 and 1996, these fees totaled $85
and $107, respectively. 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 master
leases with limited terms and no purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are borne by TFS and TEM. During the three-month periods ended
March 31, 1997 and 1996 costs allocated to the Partnership for salaries
were $41 and $46, respectively, and other general and administrative costs
were $38 and $48, respectively. TEM allocates these costs based on the
ratio of the Partnership's interest in the managed Equipment to the total
Equipment managed by TEM during the period. Indirect general and
administrative costs allocated to the Partnership by TEM were $69, and $76
for the three-month periods ended March 31, 1997 and 1996, respectively.
TFS allocates indirect general and administrative costs to the Partnership
based on the ratio of the Partnership's Equipment to the total Equipment
of all limited partnerships managed by TFS. TFS allocated $10 and $18 of
these indirect costs to the Partnership during the three-month periods
ended March 31, 1997 and 1996, respectively.
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, 1997 and December 31, 1996, due from affiliates, net is
comprised of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM................................... $ 215 1,190
===== =====
Due to affiliates:
Due to TCC..................................... $ 11 6
Due to TAS..................................... 10 -
Due to TFS..................................... 14 14
------ -------
$ 35 20
====== =======
</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 remittance of expenses
and fees described above or in the accrual and remittance of net rental
revenues from TEM.
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 such balances relate to loans for Equipment
purchases. Interest is charged at a rate not greater than the General
Partners' or affiliates' own cost of funds. There was no interest expense
incurred on intercompany balances for the three-month period ended March
31, 1997. The Partnership incurred interest expense of $8 on intercompany
balances payable to TFS for the three-month period ended March 31, 1996.
Note 7. Rentals Under Operating Leases
The following is a schedule by year of minimum future rentals receivable
on noncancelable operating leases as of March 31, 1997:
Year ending March 31:
1998............................................. $ 263
1999............................................. 11
-----
Total minimum future rentals receivable.......... $ 274
====
Note 8. Direct Financing Leases
The components of the net investment in direct financing leases as of
March 31, 1997 and December 31, 1996 are as follows:
1997 1996
---- ----
Future minimum lease payments receivable............ $ 413 515
Residual value...................................... 2 2
Less: unearned income............................... (37) (56)
--- ---
Net investment in direct financing leases........... $ 378 461
=== ===
The following is a schedule by year of minimum lease payments receivable
under the three direct financing leases as of March 31, 1997:
Year ending March 31:
1998............................................... $ 380
1999............................................... 33
--
Total minimum lease payments receivable............ $ 413
===
Rental income for the three-month periods ended March 31, 1997 and 1996
includes $28 and $32, respectively, of income from direct financing
leases.
Note 9. Redemptions
No redemption offerings were consummated during the three-month period
ended March 31, 1997 or 1996. The total number of units redeemed since
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 are outstanding.
Note 10. Commitments
At March 31, 1997, the Partnership has committed to purchase 250 new
containers at an approximate total purchase price of $675 which includes
acquisition fees of $32. These commitments were made to TAS which, as the
contracting party, has in turn committed to purchase this Equipment on
behalf of the Partnership.
<PAGE>
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, 1997 and 1996. 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.
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, 1997, the Partnership's cash of
$1,720 was primarily invested in a market-rate account.
During the three-month period ended March 31, 1997, the Partnership declared
cash distributions to limited partners pertaining to the fourth quarter of 1996
in the amount of $736. These distributions represent 10% of original capital
(measured on an annualized basis) on each unit. Of these distributions, on a
GAAP basis, $219 was a return of capital and the balance was from net earnings.
On a cash basis all of these distributions were from operations.
At March 31, 1997, the Partnership had committed to purchase 250 new containers
at an approximate total purchase price of $675, which includes acquisition fees
of $32. At March 31, 1997, the Partnership had sufficient cash on hand to meet
these commitments. In the event the Partnership decides not to purchase the
Equipment, one of the General Partners or an affiliate of the General Partners
will retain the Equipment for its own account.
For the three-month period ended March 31, 1997, the Partnership had net cash
provided by operating activities of $1,788 compared with $1,205 for the
equivalent period in 1996. The increase is primarily attributable to a decrease
in due from affiliates, net of $967, offset by a decrease in net earnings of
$218 and an increase in accounts receivable from operations of $4. The decrease
in due from affiliates, net, was due to timing differences in the accrual and
payment of expenses and fees or in the accrual and remittance of net rental
revenues. The decrease in net earnings of 29% in the first quarter of 1997
compared to the first quarter of 1996 was primarily due to a 21% decrease in
rental revenues. The decrease in rental revenues between periods was due to a
decline in utilization, rental rates and fleet size. These decreases are
discussed more fully below under "Results of Operations". Accounts receivable
from operations increased despite the decrease in rental revenues primarily due
to an increase in the average collection period from 134 days for the three
months ended March 31, 1996 to 167 days for the comparable period in 1997.
As explained below under "Results of Operations", demand for leased containers
has declined, and this decline has affected the Partnership's financial
condition.
Net cash used in investing activities (the purchase and sale of rental
equipment) for the three-month period ended March 31, 1997 was $577 compared to
$157 for the same period in 1996. This difference reflects that, on a cash
basis, the Partnership purchased more Equipment in the first quarter of 1997
than in the same period in 1996. The General Partners believe that these
differences reflect normal fluctuations in equipment sales and purchases.
Moreover, 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 the investment objectives and the
General Partners' determination that the Equipment can be profitably sold or
bought at any time, the Partnership intends to reinvest all or a significant
amount of proceeds from future Equipment sales in additional Equipment. Such
additional Equipment purchases may not, however, equal the number of units sold.
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, 1997 and 1996, as
well as certain other factors as discussed below. The following is a summary of
the container fleet (in units) available for lease during those periods:
1997 1996
---- ----
Opening inventory....................... 7,849 8,471
Closing inventory....................... 7,983 8,415
Average................................. 7,916 8,443
The decline in the average container fleet of 6% from the three months ended
March 31, 1996 to the equivalent period in 1997 was primarily due to the sale of
certain Equipment. Although sales proceeds were used to purchase new Equipment,
fewer units were bought than sold, resulting in a net decrease in the size of
the Equipment fleet. The decline in the container fleet contributed to an
overall decline in rental income from the three months ended March 31, 1996 to
the equivalent period in 1997.
Since the Fund is now in its eighth year of operations, an increasing portion of
its fleet may be sold in future years, and the sales proceeds are not likely to
be sufficient to replace all of the Equipment sold. Therefore, the decline in
the size of the fleet may continue.
Rental income and direct container expenses are also affected by lease
utilization percentages for the equipment which were 79% and 83% on average
during the three-month periods ended March 31, 1997 and 1996, respectively. In
addition, rental income is affected by daily rental rates, which declined.
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 1997 and 1996.
The Partnership's income from operations for the three-month periods ended March
31, 1997 and 1996 was $433 and $634, respectively, on rental income of $1,207
and $1,520, respectively. The decrease in rental income of $313, or 21% from the
three-month period ended March 31, 1996 to the same period in 1997 was primarily
attributable to income from container rentals, the major component of total
revenue, which decreased by $226, or 18%. 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 decreased 6%, average on-hire utilization decreased 5%
and average daily rental rates decreased 7% from the three-month period ended
March 31, 1996 to the comparable period in 1997.
Container utilization began to decline in late 1995 and that decline persisted
throughout 1996 and into 1997. The General Partners believe that this decrease
in demand for leased containers is the result of adverse changes in the business
of its shipping line customers. These changes consist principally of: (i) a
general slowdown in the growth of world containerized cargo trade, particularly
in the Asia-North America and Asia-Europe trade routes; (ii) over-capacity
resulting from the 1996 and 1997 additions of new, larger ships to the existing
container ship fleet at a rate in excess of the growth rate in containerized
cargo trade; and (iii) shipping line alliances and other operational
consolidations that have allowed shipping lines to operate with fewer
containers, thereby decreasing the demand for leased containers. The container
ship over-capacity in particular led to lower shipping rates, resulting in
shipping lines' need to reduce operating costs. The drive to reduce costs,
coupled with the availability of inexpensive financing and lower container
prices, encouraged shipping lines to purchase, rather than lease, a greater
number of new containers in 1996 than in previous years. All of these factors
have led to downward pressure on container lease rates, a decline in utilization
of leased containers, and an increase in leasing incentives and other discounts
being granted to shipping lines by container lessors, further eroding
Partnership profitability. The decline in demand for leased containers has been
accompanied by a drop in the purchase price of new containers. For the near
term, the General Partners do not foresee any changes in current market
conditions and caution that both utilization and lease rates could continue to
decline, adversely affecting the Partnership's operating results.
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 three direct financing leases at March 31, 1997.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for pick-up of containers from prime
locations less credits granted to lessees for leasing containers from less
desirable locations (location income), income for handling and returning
containers and income from charges to lessees for a damage protection plan
(DPP). For the three-month period ended March 31, 1997, the total of these other
revenue items was $145, a decrease of $87 compared to the equivalent period in
1996. The primary components of this net decrease were decreases in location
income and DPP of $68 and $14, respectively. This decline in location income is
mainly due to lower demand, which drove drop-off charges to lessees down and
increased credits given to lessees for picking up units from less desirable
locations. DPP revenue declined due to the decrease in return fees as a result
of fewer units being turned in during the period ended March 31, 1997 as
compared to the equivalent period in 1996.
Direct container expenses, excluding bad debt expense, decreased by $88, or 32%
from the three-month periods ended March 31, 1997 to the same period in 1996.
The primary components of this decrease were decreases in maintenance and repair
costs of $71 offset by an increase in storage expenses of $14. Maintenance and
repair costs decreased due to a decrease in the average number of units
requiring repairs from March 31, 1996 to the same period in 1997. Additionally,
there was a slight decrease in the average repair costs per unit between the two
periods. Storage costs increased due to lower utilization rates in the
three-month period ended March 31, 1997 compared to the same period in 1996.
Bad debt expense increased from a benefit of $17 in the first quarter of 1996 to
an expense of $11 in the same period of 1997. The increase is mainly due to a
benefit recorded in the first quarter of 1996, which was primarily due to a
reduction in reserve requirements for two specific lessees.
Depreciation expense decreased by $11 or 3% from the three-month period ended
March 31, 1996 to the same period in 1997. The decrease is primarily
attributable to the 6% decrease in the average fleet size and to certain
equipment, acquired used, which has now been fully depreciated.
Management fees decreased by $22 or 16%, from the three months ended March 31,
1996 to the equivalent period in 1997 due to a decrease in equipment management
fees. Equipment management fees which are based primarily of gross revenue
decreased $22 or 21% due to the decrease in rental income and were 7% of gross
revenue for both periods. Incentive management fees, which are based on the
Partnership's limited and general partner distribution percentage and partners'
capital, were $31 for both periods.
General and administrative costs to affiliates decreased by $15, or 16%, in the
three-month period ended March 31, 1997 compared to the same period in 1996. The
decrease was primarily the result of a decline in overhead costs allocable from
TEM and TFS.
Other income (expense) includes a gain on sale of equipment of $78 for the
three-month period ended March 31, 1997 compared to a gain of $110 for the
equivalent period ended in 1996.
Net earnings per limited partnership unit decreased from $0.50 to $0.35 from the
three-month period ended March 31, 1996 to the same period in 1997, reflecting
the decrease in net earnings from $743 to $525 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 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 March 31, 1997 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 Equipment, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
<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
-------------------------
John R. Rhodes
Executive Vice President
Date: May 13, 1997
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>
- ------------------------- Executive Vice President, May 13, 1997
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
- ------------------------- President (Principal Executive May 13, 1997
James E. Hoelter Officer) and Director
</TABLE>
<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: May 13, 1997
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/John R. Rhodes Executive Vice President, May 13, 1997
- ------------------------- (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/James E. Hoelter President (Principal Executive May 13, 1997
- ----------------------- Officer) and Director
James E. Hoelter
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TCC Equipment Income Fund
</LEGEND>
<CIK> 0000820083
<NAME> TCC Equipment Income Fund
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,720
<SECURITIES> 0
<RECEIVABLES> 2,803
<ALLOWANCES> 683
<INVENTORY> 0
<CURRENT-ASSETS> 6
<PP&E> 26,396
<DEPRECIATION> 10,354
<TOTAL-ASSETS> 19,888
<CURRENT-LIABILITIES> 895
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,993
<TOTAL-LIABILITY-AND-EQUITY> 19,888
<SALES> 0
<TOTAL-REVENUES> 1,207
<CGS> 0
<TOTAL-COSTS> 774
<OTHER-EXPENSES> (92)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 525
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
