TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 11, 2000
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
"Partnership") the Partnership's Quarterly Report on Form 10-Q for the Second
Quarter ended June 30, 2000.
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 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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>
<TABLE>
<CAPTION>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000
Table of Contents
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Page
<S> <C>
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (unaudited)
and December 31, 1999.................................................................. 3
Statements of Earnings for the three and six months
ended June 30, 2000 and 1999 (unaudited)............................................... 4
Statements of Partners' Capital for the six months
ended June 30, 2000 and 1999 (unaudited)............................................... 5
Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 (unaudited)............................................... 6
Notes to Financial Statements (unaudited).............................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Balance Sheets
June 30, 2000 and December 31, 1999
(Amounts in thousands)
---------------------------------------------------------------------------------------------------------
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $8,036 (1999: $8,217) (note 5) $ 9,763 $ 10,675
Cash 882 862
Net investment in direct finance leases (note 4) 44 42
Accounts receivable, net of allowance for doubtful
accounts of $165 (1999: $178) 672 751
Due from affiliates, net (note 2) 85 130
Prepaid expenses 1 5
------------- -------------
$ 11,447 $ 12,465
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 122 $ 136
Accrued liabilities 49 46
Accrued recovery costs 36 33
Accrued damage protection plan costs 102 105
Warranty claims 36 68
------------- -------------
Total liabilities 345 388
------------- -------------
Partners' capital:
General partners - -
Limited partners 11,102 12,077
------------- -------------
Total partners' capital 11,102 12,077
------------- -------------
$ 11,447 $ 12,465
============= =============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Earnings
For the three and six months ended June 30, 2000 and 1999
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Rental income $ 738 $ 796 $ 1,510 $ 1,650
--------------- --------------- --------------- ---------------
Costs and expenses:
Direct container expenses 118 259 250 443
Bad debt (benefit) expense (20) 9 (13) 38
Depreciation (note 5) 276 343 546 653
Professional fees 21 15 37 24
Management fees to affiliates (note 2) 83 86 166 208
General and administrative costs to
affiliates (note 2) 36 44 72 99
Other general and administrative costs 13 15 24 26
--------------- --------------- --------------- ---------------
527 771 1,082 1,491
--------------- --------------- --------------- ---------------
Income from operations 211 25 428 159
--------------- --------------- --------------- ---------------
Other income:
Interest income 11 14 20 28
Gain (loss) on sale of containers (note 5) 76 (9) 64 (9)
--------------- --------------- --------------- ---------------
87 5 84 19
--------------- --------------- --------------- ---------------
Net earnings $ 298 $ 30 $ 512 $ 178
=============== =============== =============== ===============
Allocation of net earnings (note 2):
General partners $ 10 $ 29 $ 20 $ 30
Limited partners 288 1 492 148
--------------- --------------- --------------- ---------------
$ 298 $ 30 $ 512 $ 178
=============== =============== =============== ===============
Limited partners' per unit share
of net earnings $ 0.20 $ - $ 0.34 $ 0.10
=============== =============== =============== ===============
Limited partners' per unit share
of distributions $ 0.50 $ 0.50 $ 1.00 $ 1.50
=============== =============== =============== ===============
Weighted average number of limited
partnership units outstanding 1,467,029 1,467,029 1,467,029 1,467,029
=============== =============== =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 2000 and 1999
(Amounts in thousands)
(unaudited)
------------------------------------------------------------------------------------------------------
Partners' Capital
---------------------------------------------------------
General Limited Total
-------------- --------------- ---------------
<S> <C> <C> <C>
Balances at January 1, 1999 $ - $ 15,873 $ 15,873
Distributions (30) (2,202) (2,232)
Redemptions (note 6) - (15) (15)
Net earnings 30 148 178
-------------- --------------- ---------------
Balances at June 30, 1999 $ - $ 13,804 $ 13,804
============== =============== ===============
Balances at January 1, 2000 $ - $ 12,077 $ 12,077
Distributions (20) (1,467) (1,487)
Net earnings 20 492 512
-------------- --------------- ---------------
Balances at June 30, 2000 $ - $ 11,102 $ 11,102
============== =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 2000 and 1999
(Amounts in thousands)
(unaudited)
---------------------------------------------------------------------------------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 512 $ 178
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation (note 5) 546 653
(Decrease) increase in allowance for doubtful accounts,
excluding write-off (13) 36
(Gain) loss on sale of containers (note 5) (64) 9
(Increase) decrease in assets:
Net investment in direct finance leases 10 8
Accounts receivable 92 63
Due from affiliates, net 16 43
Prepaid expenses 4 4
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (11) 6
Accrued recovery costs 3 7
Damage protection plan costs (3) 26
Warranty claims (32) (32)
-------------- --------------
Net cash provided by operating activities 1,060 1,001
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of containers 447 539
-------------- --------------
Net cash provided by investing activities 447 539
-------------- --------------
Cash flows from financing activities:
Redemptions of limited partnership units - (15)
Distributions to partners (1,487) (2,230)
-------------- --------------
Net cash used in financing activities (1,487) (2,245)
-------------- --------------
Net increase (decrease) in cash 20 (705)
Cash at beginning of period 862 1,959
-------------- --------------
Cash at end of period $ 882 $ 1,254
============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the six months ended June 30, 2000 and 1999
(Amounts in thousands)
(unaudited)
----------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of distributions to partners and
proceeds from sale of containers which had not been paid or received as of June
30, 2000 and 1999, and December 31, 1999 and 1998, 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, 2000 and 1999.
June 30 Dec. 31 June 30 Dec. 31
2000 1999 1999 1998
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Distributions to partners included in:
Due to affiliates.............................. $ 3 $ 3 $ 4 $ 2
Proceeds from sale of containers included in:
Due from affiliates............................ 121 150 198 204
The following table summarizes the amounts of 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 six-month
periods ended June 30, 2000 and 1999.
2000 1999
----- -----
Distributions to partners declared................................................ $1,487 $2,232
Distributions to partners paid.................................................... 1,487 2,230
Proceeds from sale of containers recorded......................................... 418 533
Proceeds from sale of containers received......................................... 447 539
See accompanying notes to financial statements
</TABLE>
<PAGE>
TCC EQUIPMENT INCOME FUND
(a California Limited Partnership)
Notes To Financial Statements
For the three and six months ended June 30, 2000 and 1999
(Amounts in thousands except for unit and 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 a fleet of intermodal marine cargo containers, which are
leased to international shipping lines.
In January 1998, the Partnership ceased purchasing containers and in
October 1998, the Partnership began its liquidation phase. This phase may
last between two to six or more years depending on whether the containers
are sold (i) in one or more large transactions, or (ii) gradually as they
reach the end of their useful marine lives or when an analysis indicates
that their sale is warranted based on the container's age, location and
condition. The Partnership anticipates that all excess cash, after
redemptions and working capital reserves, will be distributed to the
limited and general partners on a quarterly basis.
The final termination and winding up of the Partnership, as well as
payment of liquidating and/or final distributions, will occur at the end
of the liquidation phase when all or substantially all of the
Partnership's containers have been sold and the Partnership begins its
dissolution.
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, 2000 and December 31, 1999 and the
results of its operations, changes in partners' capital and cash flows for
the six-month periods ended June 30, 2000 and 1999, 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, 1999, in the Annual Report filed on Form 10-K.
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. Transactions with Affiliates
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership and 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. The
General Partners manage and control the affairs of the Partnership.
In accordance with the Partnership Agreement, sections 3.08 through 3.11,
net earnings or losses and distributions are generally allocated 1% to the
General Partners and 99% to the Limited Partners. Effective October 1998,
the allocation of distributions to the General Partners was increased to
1.3% in accordance with section 2.05 of the Partnership Agreement. In
addition, if the allocation of distributions exceeds the allocation of net
earnings and creates a deficit in the General Partners' aggregate capital
account, the Partnership Agreement provides for a special allocation of
gross income equal to the amount of the deficit to be made to the General
Partners.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners an acquisition fee, an equipment management fee, an
incentive 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 and $62 of
incentive management fees during the three and six-month periods ended
June 30, 2000, respectively, and $31 and $93 during the comparable periods
in 1999, respectively. There were no acquisition fees or equipment
liquidation fees incurred during the six-month periods ended June 30, 2000
and 1999.
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 from affiliates, net at
June 30, 2000 and December 31, 1999.
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 $52 and $104 for the three and six-month periods ended June 30,
2000, respectively, and $55 and $115, respectively, for the comparable
periods in 1999, respectively. The Partnership's containers are leased by
TEM to third party lessees on operating master leases, spot leases, term
leases and direct finance leases. The majority of the leases are 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 TEM and TFS. Total general and
administrative costs allocated to the Partnership during the three and
six-month periods ended June 30, 2000 and 1999 were as follows:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Salaries $19 $24 $38 $53
Other 17 20 34 46
-- -- -- --
Total general and
administrative costs $36 $44 $72 $99
== == == ==
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. The General
Partners allocated the following general and administrative costs to the
Partnership during the three and six-month periods ended June 30, 2000 and
1999:
Three months Six months
ended June 30, ended June 30,
--------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
TEM $31 $40 $62 $89
TFS 5 4 10 10
-- -- -- --
Total general and
administrative costs $36 $44 $72 $99
== == == ==
At June 30, 2000 and December 31, 1999, due from affiliates, net is
comprised of:
2000 1999
Due from affiliates: ---- ----
Due from TEM......................... $141 $161
--- ---
Due to affiliates:
Due to TCC................................ 27 3
Due to TFS................................ 29 28
--- ---
56 31
--- ---
Due from affiliates, net $ 85 $130
=== ===
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 and in the accrual and remittance of net rental
revenues and sales proceeds from TEM.
Note 3. Rentals Under Long-Term Operating Leases
The following are the future rent receivables under cancelable long-term
operating leases at June 30, 2000. Although the leases are generally
cancelable with a penalty at the end of each twelve-month period, the
following schedule assumes that the leases will not be terminated.
Year ending June 30:
2001............................................... $177
2002............................................... 38
2003............................................... 24
2004............................................... 6
---
Total future rentals receivable.................... $245
===
Note 4. Direct Finance Leases
The Partnership has leased containers under direct finance leases with
terms ranging from two to five years. The components of the net investment
in direct finance leases at June 30, 2000 and December 31, 1999 are as
follows:
2000 1999
---- ----
Future minimum lease payments receivable............ $53 $49
Residual value...................................... - 3
Less: unearned income.............................. (9) (10)
-- --
Net investment in direct finance leases............. $44 $42
== ==
The following is a schedule by year of minimum lease payments receivable
under direct finance leases as of June 30, 2000:
Year ending June 30:
2001............................................... $23
2002............................................... 16
2003............................................... 9
2004............................................... 5
---
Total minimum lease payments receivable............ $53
==
Rental income for the three and six-month periods ended June 30, 2000
includes $1 and $2 of income from direct finance leases, respectively, and
income of $2 and $3 for the comparable period in 1999, respectively.
Note 5. Container Rental Equipment Write-Down
New container prices steadily declined from 1995 through 1999. Although
container prices began increasing in 2000, the cost of new containers at
year-end 1998, during 1999 and the first half of 2000 was significantly
less than the average cost of containers purchased in prior years. The
Partnership evaluated the recoverability of the recorded amount of
container rental equipment at June 30, 2000 and 1999 for containers to be
held for continued use and determined that a reduction to the carrying
value of these containers was not required. The Partnership also evaluated
the recoverability of the recorded amount of containers identified for
sale in the ordinary course of business and determined that a reduction to
the carrying value of these containers was required. The Partnership wrote
down the value of these containers to their estimated fair value, which
was based on recent sales prices less cost to sell.
During the six-month period ended June 30, 2000, the Partnership recorded
an additional depreciation expense of $42 on 101 containers identified for
sale and sold 99 previously written down containers for a gain of $1.
During the six-month period ended June 30, 1999, the Partnership recorded
an additional depreciation expense of $68 on 186 containers identified for
sale and sold 195 previously written down containers for a gain of $3.
Additionally, during the six- month periods ended June 30, 2000 and 1999,
the Partnership sold containers that had not been written-down and
recorded a gain of $63 and a loss of $12, respectively.
As more containers are subsequently identified as for sale or if container
sales prices decline, the Partnership may incur additional write-downs on
containers and/or may incur losses on the sale of containers. The
Partnership cautions that a write-down of container rental equipment
and/or an increase in its depreciation rate may be required in future
periods for some or all of its container rental equipment.
<PAGE>
Note 6. Redemptions
The following redemption offering was consummated by the Partnership
during the six-month period ended June 30, 1999:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
--------- ----------------- -------------
<S> <C> <C> <C>
Total Partnership redemptions as of
December 31, 1998.................. 5,775 $9.35 $54
Quarter ended:
March 31, 1999................... 1,750 $8.57 $15
----- --
Partnership through June 30, 1999.. 7,525 $9.17 $69
===== ==
The Partnership did not redeem any units during the six-month period ended
June 30, 2000. The redemption price is fixed by formula.
</TABLE>
<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 as of and for the three and six-month
periods ended June 30, 2000 and 1999. 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.
In October 1998, the Partnership entered its liquidation phase, which may last
between two to six or more years depending on whether the containers are sold
(i) in one or more large transactions or (ii) gradually, either as they reach
the end of their useful marine lives or when an analysis indicates that their
sale is warranted based on existing market conditions and the container's age,
location and condition. The Partnership anticipates that all excess cash, after
redemptions and working capital reserves, will be distributed to the general and
limited partners on a quarterly basis. These distributions will consist of cash
from operations and/or cash from sales proceeds. As the Partnership's container
fleet decreases, cash from operations is expected to decrease, while cash from
investing activities is expected to fluctuate based on the number of containers
sold and the actual sales price per container received. Consequently, the
Partnership anticipates that a large portion of all future distributions will be
a return of capital.
The final termination and winding up of the Partnership, as well as payment of
liquidating and/or final distributions, will occur at the end of the liquidation
phase when all or substantially all of the Partnership's containers have been
sold and the Partnership begins its dissolution.
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 six month period ended June 30, 2000,
the Partnership did not redeem any units.
The Partnership invests working capital and cash flow from operations and
investing activities 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 six-month period ended June 30, 2000, the Partnership declared cash
distributions to limited partners pertaining to the fourth quarter of 1999 and
the first quarter of 2000 in the amount of $1,467. This amount represents $1 per
unit, or 5% of the Limited Partner's original investment. On a cash basis,
$1,060 of total distributions was from operations and the balance was a return
of capital. On a GAAP basis, $975 of total distributions was a return of capital
and the balance was from net income.
Net cash provided by operating activities for the six-month periods ended June
30, 2000 and 1999, was $1,060 and $1,001, respectively. The increase of $59, or
6%, was primarily attributable to the increase in net earnings, adjusted for
non-cash transactions, offset by fluctuations in due from affiliates, net. Net
earnings adjusted for non-cash transactions increased primarily due to the
decrease in direct container expenses, and was partially offset by the decrease
in rental income. These items are discussed more fully under "Results of
Operations". The fluctuations in due from affiliates, net, resulted from timing
differences in payment of expenses and fees and the remittance of net rental
revenues, as well as in fluctuations in these amounts.
For the six-month periods ended June 30, 2000 and 1999, net cash provided by
investing activities (the sale of containers) was $447 compared to $539 for the
comparable period in 1999. The decrease of $92 was primarily due to the
Partnership selling fewer containers during the six-month period ended June 30,
2000 compared to the equivalent period in 1999. The Partnership has recently
sold and plans to continue to sell certain containers in low demand locations
(discussed below under "Results of Operations"). However, there were fewer low
demand locations and fewer containers in these locations, primarily as a result
of previous sales efforts, resulting in the decline in the number of containers
sold. These sales have been driven not only by the liquidation plans discussed
above, but also by certain adverse market conditions. Despite a slight
improvement in the sales price recently realized on container sales, market
conditions have generally had an adverse effect on these average sales prices.
The sale of containers and these market conditions are discussed more fully
under "Results of Operations".
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 six-month periods ended June 30, 2000 and 1999, 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:
2000 1999
----- -----
Beginning container fleet............... 5,771 6,769
Ending container fleet.................. 5,453 6,340
Average container fleet................. 5,612 6,555
The average container fleet decreased 14% from the six-month period ended June
30, 1999 to the equivalent period in 2000 due to the continuing sale of
containers (i) that had reached the end of their useful lives or (ii) that an
analysis had indicated that their sale was warranted based on market conditions
and the container's age, location and condition. Included in this second group
were containers located in low demand locations. The Partnership expects that
the size of its container fleet will further decline as additional containers
are sold for these reasons and as the Partnership continues its liquidation
plans. The decline in the container fleet has contributed to an overall decline
in rental income from the three and six-month periods ended June 30, 1999 to the
equivalent periods in 2000. This decline is expected to continue in future
years, as the size of the Partnership's container fleet continues to decrease.
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 79% and 72% on average during the six-month
periods ended June 30, 2000 and 1999, respectively. In addition, rental income
is affected by daily rental rates, which have decreased between the periods, as
described below.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 2000 and 1999.
The Partnership's income from operations for the six-month periods ending June
30, 2000 and 1999 was $428 and $159, respectively, on rental income of $1,510
and $1,650, respectively. The decrease in rental income of $140, or 8%, from the
six-month period ended June 30, 1999 to the comparable period in 2000 was
attributable to a decrease in income from container rentals and other rental
income. Income from container rentals, the major component of total revenue,
decreased $101, or 7%, primarily due to decreases in the average container fleet
of 14% and average rental rates of 5%, offset by the increase in average on-hire
utilization of 10%.
The improvement in utilization was due to improvements in demand for leased
containers and in the trade balance, primarily as a result of the improvement in
certain Asian economies and a related increase in exports out of Europe. This
improvement in demand, coupled with container lessors' efforts to sell older
containers in low demand locations, has also reduced the container surplus.
However, the trade imbalance between Asia and North America still exists, and as
a consequence, the build-up of containers, primarily on the East Coast of the
United States, persists. The Partnership has been unable to reposition a large
number of newer containers to higher demand locations in Asia, due to lack of
available vessel capacity from the United States East Coast ports.
As a result, the Partnership continues to sell some containers located in low
demand locations. The decision to sell containers is based on the current
expectation that the economic benefit of selling these containers is greater
than the estimated economic benefit of continuing to own these containers. The
majority of the containers sold during 1999 and 2000 were older containers. The
expected economic benefit of continuing to own these older containers was
significantly less than that of newer containers primarily due to their shorter
remaining marine life, the cost to reposition containers and the shipping lines'
preference for leasing newer containers when they are available.
Once the decision had been made to sell containers, if the book value of these
containers was greater than the estimated fair value, the Partnership wrote down
the value of these specifically identified containers to their estimated fair
value, which was based on recent sales prices. Due to unanticipated declines in
container sales prices during 1999, the actual sales prices received on some
containers were lower than the estimates used for the write-down, resulting in
the Partnership incurring losses upon the sale of some of these containers.
Until the trade balance between Asia and North America improves, the Partnership
may incur further write-downs and/or losses on the sale of such containers.
Should the decline in economic value of continuing to own such containers turn
out to be permanent, the Partnership may be required to increase its
depreciation rate or write-down the value on some or all of its container rental
equipment.
The decline in the purchase price of new containers and the container surplus
mentioned above have resulted in the decline in rental rates in recent years.
However, as a result of the improvement in demand and increases in the purchase
price of new containers, rental rates have stabilized during the first half of
2000.
The General Partners are cautiously optimistic that rental rates will remain
stable and the current level of utilization will be maintained during 2000 and
may improve if demand for leased containers and the trade balance continue to
improve. However, the General Partners caution that utilization, lease rates and
container sale prices could also decline, adversely affecting the Partnership's
operating results.
The balance of other rental income consists of other lease-related items,
primarily income from charges to lessees for dropping off containers in surplus
locations less credits granted to lessees for leasing containers from surplus
locations (location income), income from charges to lessees for handling and
returning containers (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP). For the six-month period ended June 30, 2000,
other rental income was $162, a decrease of $39 from the equivalent period in
1999. The decrease in other rental income was primarily due to the decrease in
fleet size and an additional decrease in location income. The further decline in
location income was due to a decrease in charges to lessees for dropping off
containers in certain locations, offset by a decrease in credits granted for
picking up containers in surplus locations.
Direct container expenses decreased $193, or 44%, from the six-month period
ending June 30, 1999 to the equivalent period in 2000. The decrease was
primarily due to decreases in storage, repositioning and DPP expenses of $89,
$37 and $31, respectively. The decrease in these expenses, as well as other
direct container expenses, was partially due to the overall decrease in the
average container fleet. Storage expense further declined due to the improvement
in utilization noted above and a lower average storage cost per container.
Repositioning expense further declined as there were fewer containers
repositioned, offset by a higher average repositioning cost due to the high
demand for limited vessel capacity noted above. DPP expense further declined
primarily due to a decrease in the average DPP cost per container.
Bad debt expense decreased from an expense of $38 during the six-month period
ended June 30, 1999 to a benefit of $13 for the same period in 2000. The benefit
recorded for the six-month period ended June 30, 2000 was due to overall lower
required reserves at June 30, 2000 than at December 31, 1999.
Depreciation expense decreased $107, or 16%, from the six-month period ended
June 30, 1999 to the comparable period in 2000 primarily due to the decline in
average fleet size.
New container prices steadily declined from 1995 through 1999. Although
container prices began increasing in 2000, the cost of new containers at
year-end 1998, during 1999 and the first half of 2000 was significantly less
than the average cost of containers purchased in prior years. The Partnership
evaluated the recoverability of the recorded amount of container rental
equipment at June 30, 2000 and 1999 for containers to be held for continued use
and determined that a reduction to the carrying value of these containers was
not required. The Partnership also evaluated the recoverability of the recorded
amount of containers identified for sale in the ordinary course of business and
determined that a reduction to the carrying value of these containers was
required. The Partnership wrote down the value of these containers to their
estimated fair value, which was based on recent sales prices less cost to sell.
During the six-month period ended June 30, 2000, the Partnership recorded an
additional depreciation expense of $42 on 101 containers identified for sale and
sold 99 previously written down containers for a gain of $1. During the
six-month period ended June 30, 1999, the Partnership recorded an additional
depreciation expense of $68 on 186 containers identified for sale and sold 195
previously written down containers for a gain of $3. Additionally, during the
six months ended June 30, 2000 and 1999, the Partnership sold containers that
had not been written-down and recorded a gain of $63 and a loss of $12,
respectively.
As more containers are subsequently identified for sale or if container sales
prices decline, the Partnership may incur additional write-downs on containers
and/or may incur losses on the sale of containers.
Management fees to affiliates decreased $42 or 20% from the six-month period
ended June 30, 1999 to the same period in 2000 due to decreases in incentive and
equipment management fees. Incentive management fees, which are based on the
Partnership's limited and general partner distribution percentage and initial
partners' capital, decreased $31, or 33%, primarily due to lower distributions
paid during the six-month period ended June 30, 2000 than in the equivalent
period in 1999. Equipment management fees decreased primarily due to the
decrease in rental income upon which equipment management fees are primarily
based. These fees were approximately 7% of rental income for both periods.
General and administrative costs to affiliates decreased $27, or 27%, from the
six-month period ended June 30, 1999 to the comparable period in 2000 due to the
decrease in overhead costs allocated by TEM, as the Partnership represented a
smaller portion of the total fleet managed by TEM.
Other income increased $65 from the six-month period ended June 30, 1999 to the
comparable period in 2000 primarily due to the change in gain on sale of
containers of $73.
Net earnings per limited partnership unit increased from $0.10 to $0.34 from the
six-month period ended June 30, 1999 to the same period in 2000, reflecting the
increase in net earnings allocated to limited partners from $148 to $492,
respectively. The allocation of net earnings included a special allocation of
gross income to the General Partners made in accordance with the Partnership
Agreement.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 2000 and 1999.
The Partnership's income from operations for the three-month periods ending June
30, 2000 and 1999 was $211 and $25, respectively, on rental income of $738 and
$796, respectively. The decrease in rental income of $58, or 7%, from the
three-month period ended June 30, 1999 to the comparable period in 2000 was
attributable to a decrease in income from container rentals and other rental
income. Income from container rentals decreased $44, or 6%, primarily due to
decreases in the average container fleet of 14% and average rental rates of 5%,
offset by the increase in average on-hire utilization of 13%.
For the three-month period ended June 30, 2000, other rental income was $79, a
decrease of $14 from the equivalent period in 1999. The decrease in other rental
income was primarily due to the decrease in fleet size .
Direct container expenses decreased $141, or 54%, from the three-month period
ending June 30, 1999 to the equivalent period in 2000. The decrease was
primarily due to the decrease in storage, repositioning and DPP expenses of $48,
$34 and $29, respectively. The decrease in these expenses, as well as other
direct container expenses, was partially due to the overall decrease in the
average container fleet. Storage expense further declined due to the improvement
in utilization noted above and a lower average storage cost per container.
Repositioning expense further declined as there were fewer containers
repositioned at a higher average repositioning cost as noted above. DPP expense
further declined primarily due to a decrease in the average DPP cost per
container.
Bad debt expense decreased from an expense of $9 during the three-month period
ended June 30, 1999 to a benefit of $20 for the comparable period in 2000. The
benefit recorded during the three-month period ended June 30, 2000 was primarily
due to a lower required reserve at June 30, 2000 than at March 31, 2000.
Depreciation expense decreased $67, or 20%, from the three-month period ended
June 30, 1999 to the comparable period in 2000 primarily due to due to the
decline in average fleet size and a smaller write-down of containers identified
as for sale.
Management fees to affiliates decreased $3 or 3% from the three-month period
ended June 30, 1999 to the same period in 2000 due to the decrease in equipment
management fees. Equipment management fees, which are primarily based on gross
revenue, decreased primarily due to the decrease in rental income and were
approximately 7% of rental income for both periods. Incentive management fees
were comparable at $31 for both the three-month periods ended June 30, 2000 and
1999.
General and administrative costs to affiliates decreased $8, or 18%, from the
three-month period ended June 30, 1999 to the comparable period in 2000
primarily due to the decrease in overhead costs allocated by TEM, as the
Partnership represented a smaller portion of the total fleet managed by TEM.
Other income increased $82 from the three-month period ended June 30, 1999 to
the comparable period in 2000, primarily due to the change in gain on sale of
containers from a loss of $9 to a gain of $76.
Net earnings per limited partnership unit increased from $0.00 to $0.20 from the
three-month period ended June 30, 1999 to the same period in 2000, reflecting
the increase in net earnings allocated to limited partners from $1 to $288,
respectively. The allocation of net earnings included a special allocation of
gross income to the General Partners made in accordance with the Partnership
Agreement.
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 June 30, 2000, 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 the Partnership's business.
Forward Looking Statements
The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing therefor,
alterations in the costs of maintaining and repairing used containers, increases
in competition, changes in the Partnership's ability to maintain insurance for
its containers and its operations, the effects of political conditions on
worldwide shipping and demand for global trade or of other general business and
economic cycles on the Partnership, as well as other risks detailed herein and
from time to time in the Partnership's filings with the Securities and Exchange
Commission. The Partnership does not undertake any obligation to update
forward-looking statements.
<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 _______________________________
Ernest J. Furtado
Senior Vice President
Date: August 11, 2000
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>
________________________ Senior Vice President, August 11, 2000
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive August 11, 2000
John A. Maccarone 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/Ernest J. Furtado
____________________________
Ernest J. Furtado
Senior Vice President
Date: August 11, 2000
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/Ernest J. Furtado Senior Vice President, August 11, 2000
____________________________ (Principal Financial and
Ernest J. Furtado Accounting Officer) and
Secretary
/s/John A. Maccarone August 11, 2000
____________________________ President (Principal Executive
John A. Maccarone Officer)
</TABLE>
