.
TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 14, 1998
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 First Quarter
ended March 31, 1998.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
<PAGE>
UNITED STATES
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, 1998
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, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets - March 31, 1998 (unaudited) and December 31, 1997................................. 3
Statements of Earnings for the three months
ended March 31, 1998 and 1997 (unaudited)......................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 1998 and 1997 (unaudited)......................................................... 5
Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited)......................................................... 6
Notes to Financial Statements (unaudited)......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 12
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Balance Sheets
March 31, 1998 and December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $9,737 (1997: $9,854) $ 15,241 $ 15,874
Cash 1,776 1,166
Net investment in direct financing leases (note 9) 49 129
Accounts receivable, net of allowance for doubtful
accounts of $189 (1997: $635) (note 10) 1,351 1,342
Due from affiliates, net (note 7) - 8
Prepaid expenses 41 41
------------- -------------
$ 18,458 $ 18,560
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 133 $ 130
Accrued liabilities 10 7
Accrued recovery costs (note 2) 9 28
Accrued damage protection plan costs (note 3) 98 101
Accrued maintenance and repair costs (note 4) 16 47
Warranty claims (note 5) 180 196
Due to affiliates, net (note 7) 146 -
------------- -------------
Total liabilities 592 509
------------- -------------
Partners' capital:
General partners (36) (36)
Limited partners 17,902 18,087
------------- -------------
Total partners' capital 17,866 18,051
------------- -------------
$ 18,458 $ 18,560
============= =============
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, 1998 and
1997 (Amounts in thousands except for unit and per
unit amounts)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Rental income $ 1,173 $ 1,207
------------------- -------------------
Costs and expenses:
Direct container expenses 246 184
Bad debt (benefit) provision (14) 11
Depreciation 336 363
Professional fees 6 7
Management fees to affiliates (note 7) 86 116
General and administrative costs to affiliates (note 7) 74 79
Other general and administrative costs 14 14
------------------- -------------------
748 774
------------------- -------------------
Income from operations 425 433
------------------- -------------------
Other income:
Interest income 18 14
Gain on sale of containers (note 11) 116 78
------------------- -------------------
134 92
------------------- -------------------
Net earnings $ 559 $ 525
=================== ===================
Allocation of net earnings (note 7):
General partners $ 8 $ 8
Limited partners 551 517
------------------- -------------------
$ 559 $ 525
=================== ===================
Limited partners' per unit share
of net earnings $ 0.37 $ 0.35
=================== ===================
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
=================== ===================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Partners' Capital
For the three months ended March 31, 1998 and 1997
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------------
General Limited Total
------------- --------------- ---------------
<S> <C> <C> <C>
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
============= =============== ===============
Balances at January 1, 1998 $ (36) $ 18,087 $ 18,051
Distributions (8) (736) (744)
Net earnings 8 551 559
------------- --------------- ---------------
Balances at March 31, 1998 $ (36) $ 17,902 $ 17,866
============= =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 559 $ 525
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 336 363
Decrease in allowance for doubtful accounts, excluding
write-off (note 10) (55) (4)
Gain on sale of containers (note 11) (116) (78)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, excluding
write-off (note 10) 46 (4)
Proceeds from principal payments of
direct financing leases 91 65
Increase in due to affiliates, net 98 967
Decrease in prepaid expenses - 4
Increase (decrease) in accounts payable and
accrued liabilities 6 (15)
(Decrease) increase in accrued recovery costs (19) 2
Decrease in accrued damage protection plan costs (3) (10)
Decrease in maintenance and repair costs (31) (11)
Decrease in warranty claim (16) (16)
-------------- --------------
Net cash provided by operating activities 896 1,788
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of containers 470 377
Container purchases (12) (954)
-------------- --------------
Net cash provided by (used in) investing activities 458 (577)
-------------- --------------
Cash flows from financing activities:
Distributions to partners (744) (744)
-------------- --------------
Net cash used in financing activities (744) (744)
-------------- --------------
Net increase in cash 610 467
Cash at beginning of period 1,166 1,253
-------------- --------------
Cash at end of period $ 1,776 $ 1,720
============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the three months ended March 31, 1998 and 1997
(Amounts in thousands)
(unaudited)
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of March 31, 1998 and 1997, and December 31, 1997 and 1996,
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, 1998 and 1997.
<TABLE>
<CAPTION>
Mar. 31 Dec. 31 Mar. 31 Dec. 31
1998 1997 1997 1996
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates.............................. $ - $ 12 $ 10 $ 1
Container purchases payable.................... - - 377 269
Distributions to partners included in:
Due to affiliates.............................. 2 2 2 2
Proceeds from sale of containers included in:
Due from affiliates............................ 228 296 313 327
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers 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, 1998 and 1997.
1998 1997
---- ----
Container purchases recorded...................................................... $ - $ 1,071
Container purchases paid.......................................................... 12 954
Distributions to partners declared................................................ 744 744
Distributions to partners paid.................................................... 744 744
Proceeds from sale of containers recorded......................................... 402 363
Proceeds from sale of containers received......................................... 470 377
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Notes To Financial Statements
For the three months ended March 31, 1998 and 1997
(Amounts in thousands except for per unit amounts)
(unaudited)
Note 1. General
TCC Equipment Income Fund (the Partnership), a California limited
partnership with a maximum life of 20 years, was formed in 1987. The
Partnership owns and leases a fleet of intermodal marine cargo containers
which are leased 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, 1998 and December 31, 1997, and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 1998 and 1997, 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, 1997 in the Annual Report filed on Form 10K.
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. Recovery Costs
The Partnership accrues an estimate for recovery costs as a result of
defaults under its leases that it expects to incur, which are in excess of
estimated insurance proceeds. At March 31, 1998 and December 31, 1997, the
amounts accrued were $9 and $28, respectively.
Note 3. Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of its
containers. Under the terms of DPP, the Partnership earns additional
revenues on a daily basis and, in return, 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. DPP expenses are included in
direct container expenses in the Statements of Earnings, and at March 31,
1998 and December 31, 1997, the related reserve was $98 and $101,
respectively.
Note 4. Maintenance and Repair
The Partnership accrues maintenance and repair costs on damaged containers
in depots. At March 31, 1998 and December 31, 1997, the amount accrued was
$16 and $47, respectively.
Note 5. Warranty Claims
During 1992 and 1995, the Partnership settled warranty claims against an
equipment manufacturer relating to certain containers. The Partnership is
amortizing the settlement amounts over the remaining estimated useful life
of these containers (seven years), reducing maintenance and repair costs
over that time. At March 31, 1998 and December 31, 1997, the unamortized
portion of the settlement amount was equal to $180 and $196, respectively.
Note 6. Acquisition of Containers
Primarily because the Partnership is now in its tenth full year of
operations, the Partnership will no longer purchase additional containers
effective January 1, 1998. During the three-month period ended March 31,
1997, the Partnership purchased containers with a cost of $1,071.
Note 7. 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
containers outside the United States on behalf of the Partnership. TCC,
TEM, TL and TAS are subsidiaries of Textainer Group Holdings Limited
(TGH). The General Partners manage and control the affairs of the
Partnership.
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 incurred
$31 of incentive management fees during both the three-month periods
ended March 31, 1998 and 1997. There were no equipment acquisition fees
incurred during the three-month period ended March 31, 1998. The
Partnership capitalized $46 of equipment acquisition fees as part of
container costs during the three-month period ended March 31, 1997. No
equipment liquidation fees were incurred during either period.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the Partnership's containers. 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 to affiliates, net at
March 31, 1998 and due from affiliates, net at December 31,1997.
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, 1998 and 1997, these fees totaled $55
and $85, respectively. The Partnership's container fleet is leased by TEM
to third party lessees on operating master leases, spot leases, term
leases and direct finance leases. The majority of the container fleet
is are 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 incurred and paid by TFS and TEM. Total general and
administrative costs allocated to the Partnership were $74 and $79 for the
three-month periods ended March 31, 1998 and 1997, respectively, of which
$35 and $41 were for salaries.
TEM allocates these general and administrative costs based on the ratio of
the Partnership's interest in the managed containers to the total
container fleet managed by TEM during the period. TFS allocates these
costs based on the ratio of the Partnership's containers to the total
container fleet of all limited partnerships managed by TFS. General and
administrative costs allocated to the Partnership by TEM were $67 and $69
for the three-month periods ended March 31, 1998 and 1997, respectively.
TFS allocated $7 and $10 of general and administrative costs to the
Partnership during the same periods.
The General Partners or TAS may acquire containers in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such containers for the Partnership. The containers 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
containers resold to the Partnership.
At March 31, 1998 and December 31, 1997, due (to) from affiliates, net is
comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM................................... $ - $ 38
------ ------
Due to affiliates:
Due to TEM..................................... 122 -
Due to TCC..................................... 12 4
Due to TAS..................................... - 13
Due to TFS..................................... 12 13
------ ------
146 30
------ ------
Due (to) from affiliates, net $ (146) $ 8
===== ======
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 amounts due to the General Partners which are outstanding for
more than one month, to the extent such balances relate to loans for
container 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 amounts due to the General Partners for the
three-month periods ended March 31, 1998 and 1997.
Note 8. Rentals Under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at March 31, 1998. Although the leases are
generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending March 31:
1999............................................. $ 207
2000............................................. 14
2001............................................. 5
----
Total minimum future rentals receivable.......... $ 226
====
Note 9. Direct Financing Leases
The components of the net investment in direct financing leases at March
31, 1998 and December 31, 1997 are as follows:
1998 1997
---- ----
Future minimum lease payments receivable............ $ 56 $ 135
Residual value...................................... 2 2
Less: unearned income.............................. (9) (8)
---- -----
Net investment in direct financing leases........... $ 49 $ 129
==== =====
The following is a schedule by year of minimum lease payments receivable
under the three direct financing leases as of March 31, 1998:
Year ending March 31:
1999............................................... $ 47
2000............................................... 6
2001............................................... 3
----
Total minimum lease payments receivable............ $ 56
====
Rental income for the three-month periods ended March 31, 1998 and 1997
includes $5 and $28, respectively, of income from direct financing leases.
Note 10. Accounts Receivable Write-Off
During the three-month period ending March 31, 1998, the Partnership
wrote-off $391 of delinquent receivables from two lessees against which
reserves were recorded in 1994 and 1995.
Note 11. Insurance Proceeds
In February 1998, the Partnership wrote-off 15 containers held by a lessee
that were deemed unrecoverable. These containers had a net book value of
$117 for which the Partnership received insurance proceeds of $145
resulting in a gain of $28.
Note 12. Redemptions
The Partnership did not redeem any units during the three-month periods
ended March 31, 1998 or 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.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and 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, 1998 and 1997. 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 offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,000 on April 8, 1988, and on October 26, 1989, the
Partnership's offering of limited partnership interests was closed at $29,491.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value which is set by formula. 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 three-month period ended March 31,
1998, the Partnership did not redeem any units.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the three-month period ended March 31, 1998, the Partnership declared
cash distributions to limited partners pertaining to the fourth quarter of 1997,
in the amount of $736. These distributions represent a return of 10% on original
capital (measured on an annualized basis) on each unit. On a cash basis, all of
these distributions were from operations. On a GAAP basis, $185 of these
distributions were a return of capital and the balance was from net income.
Net cash provided by operating activities for the three-month periods ending
March 31, 1998 and 1997, was $896 and $1,788, respectively. The decrease of
$892, or 50%, is primarily attributable to an increase in due to affiliates, net
resulting from timing differences in payment of expenses and fees and or in
remittance of net rental revenues.
For the three-month period ending March 31, 1998, net cash provided by investing
activities (the purchase and sale of containers) was $458 compared to net cash
used in investing activities of $577 for the comparable period in 1997. Net cash
provided by investing activities increased $1,035 primarily due to the fact that
the Partnership is no longer purchasing containers. The General Partners have
determined that it is in the best interest of the Partnership to no longer
purchase additional containers, as the Partnership is now in its ninth full year
of operations. The Partnership intends to use the anticipated cash from sales
proceeds to redeem limited partnership units and or make special cash
distributions.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income, container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet during the three-month periods ended March 31, 1998 and 1997, 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:
1998 1997
Opening container fleet................. 7,887 7,849
Closing container fleet................. 7,626 7,983
Average container fleet................. 7,757 7,916
The decline in the average container fleet of 2% from the three months ended
March 31, 1997 to the equivalent period in 1998 resulted from the Partnership
having sold more containers than it purchased since March 31, 1997. Average
fleet size will continue to decline as the Partnership sells containers that
have reached the end of their useful lives since, as noted above, the
Partnership does not plan to invest sales proceeds in additional containers. The
decline in the container fleet has contributed to an overall decline in rental
income from the three-month period ending March 31, 1997 to the equivalent
period in 1998 and will likely continue to do so in future years.
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 81% and 78% on average during the three-month
periods ended March 31, 1998 and 1997, respectively. In addition, rental income
is affected by daily rental rates and leasing incentives.
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 1998 and 1997.
The Partnership's income from operations for the three-month periods ending
March 31, 1998 and 1997 was $425 and $433, respectively, on rental income of
$1,173 and $1,207, respectively. The decrease in rental income of $34, or 3%,
from the three-month period ended March 31, 1997 to the comparable period in
1998 was primarily attributable to a decrease in income from container rentals,
the major component of total revenue, which decreased $94, or 9%. This decrease
was primarily due to the decrease in average rental rates of 6% and the decrease
in the average container fleet of 2%, and was offset by the increase in average
on-hire (utilization) percentage of 4% and the decrease in leasing incentives of
14%.
Container utilization and rental rates declined during 1996 and 1997 primarily
due to decreased demand for leased containers and increased competition. The
decrease in demand for leased containers resulted from changes in the business
of shipping line customers consisting primarily of (i) over-capacity resulting
from the 1995 and 1996 additions of new, larger ships to the existing container
ship fleet at a rate in excess of the growth rate in containerized cargo trade;
(ii) shipping line alliances and other operational consolidations that have
allowed shipping lines to operate with fewer containers; and (iii) shipping
lines reducing their ratio of leased versus owned containers by purchasing
containers. This decreased demand, along with the entry of new leasing company
competitors offering low container rental rates to shipping lines, resulted in
downward pressure on rental rates, and caused leasing companies to offer higher
leasing incentives and other discounts to shipping lines. Rental rates were also
adversely affected by a drop in the purchase price of new containers which
resulted in additional downward pressure on rental rates.
Utilization increased during the second and third quarters of 1997 and began
declining again during the fourth quarter of 1997 and into the first quarter of
1998. Despite these declines, utilization for the first quarter of 1998 was
greater than the average first quarter 1997 utilization and greater than the
average utilization for the year ended December 31, 1997. Rental rates
stabilized during the later half of the first quarter of 1998 and, overall, were
comparable to fourth quarter 1997 rental rates. Leasing incentives reached a
high during mid-1997, began declining during the second half of 1997, and have
stabilized during the first quarter of 1998. The improvement in utilization and
the stabilization in rental rates and leasing incentives are primarily due to
increased demand in Asia. The weakening of many Asian currencies resulted in a
significant increase in exports which has created a strong demand for containers
in Asia. The General Partners believe that market conditions have stabilized and
may be slowly improving; however, for the near term, the General Partners do not
foresee any material changes in existing market conditions and caution that both
utilization and lease rates could decline again, 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. At
March 31, 1998 and 1997, there were 121 and 108 containers under direct
financing leases, respectively.
The balance of other rental income consists of other lease-related items,
primarily income from charges to lessees for picking up containers from surplus
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 months ended March 31, 1998, the total of these other
rental income items was $178, an increase of $60 from the equivalent period in
1997. The primary component of this increase was an increase in location income
of $69. Location income increased due to the inclusion of certain credits
received during 1997 and 1998 which had been previously applied against
repositioning expense and also due to an increase in the average drop-off charge
per container and a decrease in credits given to lessees to pick up containers
from certain locations.
Direct container expenses increased $62, or 34%, for the three-month period
ending March 31, 1998 compared to the equivalent period in 1997. The increase
was primarily due to an increase in repositioning expense of $71, which
increased due to the removal of certain credits from repositioning costs to
other rental income as discussed above and due to a greater number of containers
being transported from surplus locations to demand locations.
Bad debt expense decreased from an expense of $11 for the three months ended
March 31, 1997 to a benefit of $14 for the comparable period ending March 31,
1998. The benefit recorded in 1998 was primarily due to the Partnership writing
off certain receivables that had reserves in excess of the receivable.
Depreciation expense decreased $27, or 7%, between the three-month period ended
March 31, 1998 and 1997 primarily due to the smaller average fleet size and due
to certain containers acquired used, which have now been fully depreciated.
Management fees to affiliates decreased $30, or 26%, from the three-month period
ended March 31, 1997 to the comparable period ending in 1998, due to an
adjustment made to reduce fees resulting from the write-off of receivables for
two lessees and due to the decrease in rental income upon which equipment fees
are based.
General and administrative costs to affiliates decreased $5, or 6%, from the
three-month period ended March 31, 1997 to the comparable period ending in 1998
due to a decrease in overhead costs allocated by TFS and TEM.
Other income increased $42, or 46%, primarily due to an increase in gain on sale
of containers of $38 between the three-month periods ending March 31, 1998 and
1997. Gain on sale of containers increased primarily due the write-off of
certain containers held by a lessee that were deemed unrecoverable for which the
Partnership received insurance proceeds for these containers in excess of net
book value.
Net earnings per limited partnership unit increased from $0.35 to $0.37 from the
three-month period ending March 31, 1997 compared to the same period in 1998,
reflecting the increase in limited partner net earnings from $517 to $551,
respectively.
Many computer systems may experience difficulty processing dates beyond the year
1999 and, as such, some computer hardware and software will need to be modified
prior to the year 2000 to remain functional. Certain of the Partnership's and
General Partner's core internal systems that have recently been implemented are
year 2000 compliant. The remaining core internal systems are scheduled to be
revised to be year 2000 compliant by the end of 1998. Based on its initial
evaluation, the Partnership and the General Partners do not believe that the
cost of remedial actions relating to these systems will have a material adverse
effect on the Partnership's results of operations and financial condition.
Additionally, the Partnership and the General Partners are also completing a
preliminary assessment of year 2000 issues not related to its core systems,
including issues surrounding systems that interface with external third parties.
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 containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, 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, 1998 which would result in such a risk
materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the containers, 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 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 14, 1998
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 14, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive May 14, 1998
Philip K. Brewer Officer)
</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 14, 1998
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 14, 1998
________________________ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/Philip K. Brewer President (Principal Executive May 14, 1998
________________________ Officer)
Philip K. Brewer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TCC Equipment Income Fund 10Q
</LEGEND>
<CIK> 0000820083
<NAME> TCC Equipment Income Fund
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,776
<SECURITIES> 0
<RECEIVABLES> 1,589
<ALLOWANCES> 189
<INVENTORY> 0
<CURRENT-ASSETS> 41
<PP&E> 24,978
<DEPRECIATION> 9,737
<TOTAL-ASSETS> 18,458
<CURRENT-LIABILITIES> 592
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,866
<TOTAL-LIABILITY-AND-EQUITY> 18,458
<SALES> 0
<TOTAL-REVENUES> 1,173
<CGS> 0
<TOTAL-COSTS> 748
<OTHER-EXPENSES> (134)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 559
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 599
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
