TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 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 Quarterly Report on Form 10-Q for the Second Quarter
ended June 30, 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 June 30, 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 June 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets - June 30, 1997 (unaudited) and December 31, 1996.....................................3
Statements of Earnings for the six and three months ended
June 30, 1997 and 1996 (unaudited)...................................................................4
Statements of Partners' Capital for the six months
ended June 30, 1997 and 1996 (unaudited).............................................................5
Statements of Cash Flows for the six months
ended June 30, 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............................................................................13
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Balance Sheets
June 30, 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 $10,203 (1996: $10,343) $ 16,571 15,601
Cash 899 1,253
Net investment in direct financing leases (note 8) 297 461
Accounts receivable, net of allowance
for doubtful accounts of $681 (1996: $687) 1,597 1,554
Due from affiliates, net (note 6) 169 1,170
Prepaid expenses 3 10
---------------- ---------------
$ 19,536 20,049
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 157 133
Accrued liabilities 49 -
Accrued damage protection plan costs (note 2) 105 130
Accrued maintenance and repair costs (note 3) 47 45
Warranty claims (note 4) 228 260
Equipment purchases payable 335 269
---------------- ---------------
Total liabilities 921 837
---------------- ---------------
Partners' capital:
General partners (36) (36)
Limited partners 18,651 19,248
---------------- ---------------
Total partners' capital 18,615 19,212
---------------- ---------------
Commitments (note 10)
$ 19,536 20,049
================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Earnings
For the six and three months ended June 30, 1997 and 1996
(Dollar amounts in thousands except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
Ended Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Rental income $ 2,388 1,181 2,849 1,329
---------------- ---------------- ----------------- ----------------
Costs and expenses:
Direct container expenses 407 223 513 240
Bad debt expense 28 17 23 40
Depreciation 752 389 737 364
Professional fees 21 14 17 8
Management fees to affiliates (note 6) 231 115 264 125
General and administrative costs 157 78 169 75
to affiliates (note 6)
Other general and administrative costs 28 14 31 16
---------------- ---------------- ----------------- ----------------
1,624 850 1,754 868
---------------- ---------------- ----------------- ----------------
Income from operations 764 331 1,095 461
---------------- ---------------- ----------------- ----------------
Other income:
Interest income, net 29 15 4 5
Gain on sale of equipment 97 19 216 106
---------------- ---------------- ----------------- ----------------
126 34 220 111
---------------- ---------------- ----------------- ----------------
Net earnings $ 890 365 1,315 572
================ ================ ================= ================
Allocation of net earnings (note 6):
General partners $ 15 7 15 8
Limited partners 875 358 1,300 564
---------------- ---------------- ----------------- ----------------
$ 890 365 1,315 572
================ ================ ================= ================
Limited partners' per unit share
of net earnings $ 0.59 0.24 0.88 0.38
================ ================ ================= ================
Limited partners' per unit share
of distributions $ 1.00 0.50 1.00 0.50
================ ================ ================= ================
Weighted average number of limited
partnership units outstanding 1,471,779 1,471,779 1,471,779 1,471,779
================ ================ ================= ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 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 (15) (1,472) (1,487)
Net earnings 15 1,300 1,315
------------- --------------- ---------------
Balances at June 30, 1996 $ (36) 19,668 19,632
============= =============== ===============
Balances at January 1, 1997 $ (36) 19,248 19,212
Distributions (15) (1,472) (1,487)
Net earnings 15 875 890
------------- --------------- ---------------
Balances at June 30, 1997 $ (36) 18,651 18,615
============= =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 890 1,315
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 752 737
(Decrease) increase in allowance for doubtful accounts (6) 9
Gain on sale of equipment (97) (216)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (37) 124
Proceeds from principal payments of
direct financing leases 163 153
Decrease (increase) in due from affiliates, net 1,056 (140)
Increase (decrease) in accounts payable and
accrued liabilities 73 (34)
Increase in accrued maintenance and
repair costs 2 4
(Decrease) increase in accrued
damage protection plan costs (25) 14
Decrease in warranty claim (32) (32)
Decrease in prepaid expenses 7 7
------------- ------------
Net cash provided by operating activities 2,746 1,941
------------- ------------
Cash flows from investing activities:
Proceeds from sale of equipment 698 674
Equipment purchases (2,311) (695)
------------- ------------
Net cash used in investing activities (1,613) (21)
------------- ------------
Cash flows from financing activities:
Repayment of borrowings from affiliates - (435)
Distributions to partners (1,487) (1,492)
------------- ------------
Net cash used in financing activities (1,487) (1,927)
------------- ------------
Net decrease in cash (354) (7)
Cash at beginning of period 1,253 492
------------- ------------
Cash at end of period $ 899 485
============= ============
Interest paid during the period $ - 4
============= ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the six months ended June 30, 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 June 30, 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 six-month
periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30 Dec. 31
1997 1996 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates.............................. $ 12 1 18 44
Equipment purchases payable.................... 335 269 5 430
Distributions to partners included in:
Due to affiliates.............................. 2 2 10 15
Proceeds from sale of Equipment included in:
Accounts receivable............................ - - - 1
Due from affiliates............................ 393 327 287 229
</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
six-month periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment purchases recorded...................................................... $ 2,388 244
Equipment purchases paid.......................................................... 2,311 695
Distributions to partners declared................................................ 1,487 1,487
Distributions to partners paid.................................................... 1,487 1,492
Proceeds from sale of Equipment recorded.......................................... 764 731
Proceeds from sale of Equipment received.......................................... 698 674
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Notes To Financial Statements
June 30, 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 June 30, 1997 and December 31, 1996, and the
results of its operations, changes in partners' capital and cash flows for
the six- and three-month periods ended June 30, 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.
Certain reclassifications of prior year amounts have been made in order to
conform with the 1997 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 future repair costs. At June 30, 1997 and
December 31, 1996, this reserve was equal to $105 and $130, respectively.
Note 3. Maintenance and Repair
The Partnership accrues maintenance and repair costs on damaged units in
depots. At June 30, 1997 and December 31, 1996, the amount accrued was $47
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 June 30,
1997 and December 31, 1996, the unamortized portion of the settlement
amount was equal to $228 and $260, respectively.
Note 5. Acquisition of Equipment
During the six-month periods ended June 30, 1997 and 1996, the Partnership
purchased Equipment with a cost of $2,388 and $244, 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. 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,
TEM, TL and TAS are subsidiaries of Textainer Group Holdings Limited
(TGH). 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 $110 and $32 of equipment acquisition fees as part of
container costs during the six-month periods ended June 30, 1997 and 1996,
respectively. The Partnership incurred $62 and $31 of incentive management
fees during the six- and three-month periods ended June 30, 1997 and $62
and $31 for the comparable periods in 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
June 30, 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. These fees
totaled $169 and $84 for the six- and three-month periods ended June 30,
1997 and $202 and $94 for the comparable periods in 1996. 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. Costs allocated to the Partnership
for salaries were $84 and $43 for the six- and three-month periods ended
June 30, 1997 and $83 and $38 for the comparable periods in 1996. Other
general and administrative costs were $73 and $35 for the six- and
three-month periods ended June 30, 1997 and $86 and $37 for the comparable
periods in 1996. 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 $135 and $66 for the six-
and three-month periods ended June 30, 1997 and $148 and $72 for the
comparable periods in 1996.
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 $22 and $12 of
these indirect costs to the Partnership during the six- and three-month
periods ended June 30, 1997 and $21 and $3 during the comparable periods
in 1996.
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, 1997 and December 31, 1996, due from affiliates, net is
comprised of:
1997 1996
---- ----
Due from affiliates:
Due from TEM................................... $ 199 1,190
===== =====
Due to affiliates:
Due to TCC..................................... $ 4 6
Due to TAS..................................... 11 -
Due to TFS..................................... 15 14
------ -------
$ 30 20
====== =======
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 six- and three-month periods
ended June 30, 1997. The Partnership incurred interest expense of $9 and
$1 on intercompany balances payable to TFS for the six- and three-month
periods ended June 30, 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 June 30, 1997:
Year ending June 30:
1998............................................. $ 253
Note 8. Direct Financing Leases
The components of the net investment in direct financing leases as of
June 30, 1997 and December 31, 1996 are as follows:
1997 1996
---- ----
Future minimum lease payments receivable............ $319 515
Residual value...................................... 2 2
Less: unearned income.............................. (24) (56)
--- ---
Net investment in direct financing leases........... $297 461
The following is a schedule by year of minimum lease payments receivable
under the three direct financing leases as of June 30, 1997:
Year ending March 31:
1998............................................... $ 316
1999............................................... 3
----
Total minimum lease payments receivable............ $ 319
Rental income for the six- and three-month periods ended June 30, 1997 and
1996 includes $26, $12 and $66, $33, respectively, of income from direct
financing leases.
Note 9. Redemptions
No redemption offerings were consummated during the six-month period ended
June 30, 1997. 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 June 30, 1997, the Partnership has committed to purchase 9 new
containers at an approximate total purchase price of $28 which includes
acquisition fees of $2. 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 six- and three-month periods
ended June 30, 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. During the quarter ended June 30, 1997, the
Partnership did not redeem any Partnership 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, 1997, the Partnership's cash of
$899 was invested in a market-rate account.
During the six-month period ended June 30, 1997, the Partnership declared cash
distributions to limited partners pertaining to the first quarter of 1997 and to
the fourth quarter of 1996 in the amount of $1,472. These distributions
represent 10% of original capital (measured on an annualized basis) on each
unit. Of these distributions, on a GAAP basis, $597 was a return of capital and
the balance was from net earnings. On a cash basis all of these distributions
were from operations.
At June 30, 1997, the Partnership has committed to purchase 9 new containers at
an approximate total purchase price of $28 which includes acquisition fees of
$2. At June 30, 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 acquire
the Equipment for its own account.
For the six-month period ended June 30, 1997, the Partnership had net cash
provided by operating activities of $2,746 compared with $1,941 for the
equivalent period in 1996. The increase of $805 or 41% is primarily attributable
to a decrease in due from affiliates, net of $1,056, offset by a decrease in net
earnings of $425. 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 32% in
the six-month period ended June 30, 1997 compared to the comparable period in
1996 was primarily due to a 16% 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". As explained below under "Results of Operations",
demand for leased containers has declined compared to the prior year, 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 six-month period ended June 30, 1997 was $1,613 compared to
$21 for the comparable period in 1996. This difference reflects that, on a cash
basis, the Partnership purchased more Equipment during the six months ended June
30, 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,
and such purchases may cease sometime after 1999, when the Partnership enters
its liquidation phase.
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 six-month periods ended June 30, 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....................... 8,177 8,165
Average................................. 8,013 8,318
The decline in the size of the average container fleet of 4% from the six-month
period ended June 30, 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 six- and three-month periods ended
June 30, 1996 to the equivalent period in 1997.
Since the Fund is now in its ninth 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.
In addition to fleet size, rental income and direct container expenses are
affected by lease utilization percentages for the equipment which were 78% and
82% on average during the six-month periods ended June 30, 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
six-month periods ended June 30, 1997 and 1996.
The Partnership's income from operations for the six-month periods ended June
30, 1997 and 1996 was $764 and $1,095, respectively, on rental income of $2,388
and $2,849, respectively. The decrease in rental income of $461, or 16% from the
six-month period ended June 30, 1996 to the same period in 1997 was primarily
attributable to income from container rentals, the major component of total
revenue, which decreased by $412, or 16%. As noted above, 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 4%, average on-hire utilization
decreased 5% and average daily rental rates decreased 7% from the six-month
period ended June 30, 1996 to the comparable period in 1997.
Container utilization began to decline in late 1995 and that decline persisted
throughout 1996 and into the first quarter of 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.
During the second quarter of 1997, there was a slight improvement in market
conditions as utilization for the fleet managed by TEM for affiliates and other
unrelated third parties improved and continues to improve into the third quarter
of 1997. Despite the improving utilization, for the near term, the General
Partners do not foresee material changes in current market conditions and
caution that both utilization and lease rates could 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 June 30, 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 surplus
locations (location income), income for handling and returning containers and
income from charges to lessees for a damage protection plan (DPP). For the
six-month period ended June 30, 1997, the total of these other revenue items was
$252, a decrease of $49 or 16% compared to the equivalent period in 1996. The
primary component of this net decrease was a decrease in location income $59.
This decline in location income is mainly due to lower demand, which increased
credits given to lessees for picking up units from surplus locations.
Direct container expenses decreased by $106, or 21% from the six-month periods
ended June 30, 1997 to the same period in 1996. The primary components of this
decrease were decreases in the damage protection plan (DPP) of $59 and
maintenance and repair costs of $40 offset by an increase in storage expenses of
$33. DPP and maintenance and repair expenses decreased due to a lower per unit
repair cost, a lower number of units participating in DPP, and fewer units
needing repair. Storage costs increased due to lower utilization rates in the
six-month period ended June 30, 1997 compared to the same period in 1996.
Bad debt expense remained constant from the six-month period ended June 30, 1997
to the same period in 1996.
Depreciation expense remained fairly constant from the six-month period ended
June 30, 1997 to the same period in 1996.
Management fees decreased by $33 or 13%, from the six-month period ended June
30, 1996 to the equivalent period in 1997 due to a decline in equipment
management fees. Equipment management fees, which are based primarily on gross
revenue, decreased as a result of 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 $62 for both periods.
General and administrative costs to affiliates decreased by $12, or 7%, in the
six-month period ended June 30, 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 provided $126 of additional income for the six months ended June
30, 1997, representing a decrease of $94, or 43%, over the equivalent period in
1996. The decrease was attributable to a $119 decrease in gain on sale of
Equipment offset by a $25 increase in interest income.
Net earnings per limited partnership unit decreased from $0.88 to $0.59 from the
six-month period ended June 30, 1996 to the same period in 1997, reflecting the
decrease in net earnings from $1,300 to $875 for the respective periods.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 1997 and 1996.
The Partnership's income from operations for the three-month periods ended June
30, 1997 and 1996 was $331 and $461, respectively, on rental income of $1,181
and $1,329, respectively. The decrease in rental income of $148, or 11% from the
three-month period ended June 30, 1996 to the same period in 1997 was primarily
attributable to a decrease in income from container rentals which decreased by
$182, or 15%. This decline was due to decreases in average inventory of 3%,
average on-hire utilization of 5% and average daily rental rates of 8% from the
three-month period ended June 30, 1996 to the comparable period in 1997.
The balance of other revenue items comprising total revenue for the three-month
peroid ending June 30, 1997 was $134, an increase of $33 compared to the
equivalent period in 1996. Other rental revenue increased primarily due to
increased handling income of $21. Increased container movement resulted in
increased handling income for the three-months ending June 30, 1997 as compared
to the same period ending in 1996.
Direct container expenses decreased by $17, or 7% for the three-month period
ended June 30, 1997 compared to the same period in 1996. The primary component
of this decrease was a decrease in DPP expense which was offset by an increase
in storage expense. DPP expense decreased due to a decrease in the average per
unit repair costs, fewer units requiring repairs and fewer units participating
in DPP from June 30, 1996 to the same period in 1997.
Bad debt expense decreased by $23 for the three-month period ended June 30,
1997 from the same period in 1996 primarily due to lower reserve requirements.
Depreciation expense increased by $25 or 7% from the three-month period ended
June 30, 1996 to the same period in 1997. The increase was primarily due to a a
charge to depreciation expense for the write down of refrigerated containers.
The increase was partially offset by the 6% decrease in the average fleet size,
and by certain equipment, acquired used, which has now been fully depreciated.
Management fees decreased by $10 or 8%, from the three-month period ended June
30, 1996 to the equivalent period in 1997, due to a decline in equipment
management fees due. These fees were 7% of gross revenue for both periods, but
lower revenue caused the total amount of the equipment management fee to decline
for the period ended June 30, 1997. 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 remained fairly constant between
the three-month period ending June 30, 1997 and the equivalent period in 1996.
Other income includes a gain on sale of equipment of $19 for the three month
period ended June 30, 1997 compared to a gain of $106 for the equivalent period
in 1996.
Net earnings per limited partnership unit decreased from $0.38 to $0.24 from the
three-month period ended June 30, 1996 to the same period in 1997, reflecting
the decrease in net earnings from $564 to $358 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 at profitable rates, 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, 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: August 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, August 13, 1997
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive August 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: August 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, August 13, 1997
- ------------------------- (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/James E. Hoelter President (Principal Executive August 13, 1997
- ----------------------- Officer) and Director
James E. Hoelter
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund, LP
</LEGEND>
<CIK> 0000820083
<NAME> Textainer Equipment Inocme Fund, LP
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 899
<SECURITIES> 0
<RECEIVABLES> 2,745
<ALLOWANCES> 682
<INVENTORY> 0
<CURRENT-ASSETS> 3
<PP&E> 26,774
<DEPRECIATION> 10,203
<TOTAL-ASSETS> 19,536
<CURRENT-LIABILITIES> 921
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,615
<TOTAL-LIABILITY-AND-EQUITY> 19,536
<SALES> 0
<TOTAL-REVENUES> 2,388
<CGS> 0
<TOTAL-COSTS> 1,624
<OTHER-EXPENSES> (126)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 890
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 890
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
