10-Q 1 f1_2q03.txt TEXTAINER FINANCIAL SERVICES CORPORATION 650 California Street, 16th Floor San Francisco, CA 94108 August 12, 2003 Securities and Exchange Commission Washington, DC 20549 Ladies and 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, 2003. This filing is being effected by direct transmission to the Commission's EDGAR System. Sincerely, Nadine Forsman Controller 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, 2003 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Quarterly Report on Form 10-Q for the Quarter Ended ~~September~~June 30, ~~2002~~2003 Table of Contents ----------------------------------------------------------------------------------------------------------------- Page Part I Financial Information Item 1. Financial Statements (unaudited) Balance Sheets - ~~September~~June 30, ~~2002~~2003 and December 31, ~~2001~~2002............................................................................. 3 Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002...................................................................... 4 Statements of Partners' Capital for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002...................................................................... 5 Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002...................................................................... 6 Notes to Financial Statements..................................................................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 1514 Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 2422 Item 4. Controls and Procedures....................................................................... 2422 Part II Other Information Item 6. Exhibits and Reports on Form 8-K.............................................................. 23

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Balance Sheets ~~September~~June 30, ~~2002~~2003 and December 31, ~~2001~~2002 (Amounts in thousands) (unaudited) -------------------------------------------------------------------------------------------------------- 2003 2002 ~~2001~~ ------------- ------------ Assets Container rental equipment, net of accumulated depreciation of $6,~~297~~042, (~~2001~~2002: $6,~~773~~154) (note 4) $ 65,~~048~~287 $ 75,~~274~~832 Cash ~~471~~442 ~~533~~513 Accounts receivable, net of allowance for doubtful accounts of $4528, (~~2001~~2002: $5624) 378 ~~431~~410 Due from affiliates, net (note 2) 4758 4129 Prepaid expenses -2 417 ------------- ------------ $ 6,~~944~~167 $ 86,~~283~~801 ============= ============ Liabilities and Partners' Capital Liabilities: Accounts payable $ ~~135~~117 $ ~~122~~128 Accrued liabilities 2520 2127 Accrued recovery costs 1918 3618 Accrued damage protection plan costs 4246 4043 Deferred damage protection plan revenue 22 21 22 ------------- ------------ Total liabilities ~~243~~222 ~~240~~238 ------------- ------------ Partners' capital: General partners - - Limited partners 65,~~701~~945 86,~~043~~563 ------------- ------------ Total partners' capital 65,~~701~~945 86,~~043~~563 ------------- ------------ $ 6,~~944~~167 $ 86,~~283~~801 ============= ============ See accompanying notes to financial statements

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Statements of Operations For the three and ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002 (Amounts in thousands except for unit and per unit amounts) (unaudited) ------------------------------------------------------------------------------------------------------------------------------------ Three months Three months ~~Nine~~Six months ~~Nine~~Six months Ended Ended Ended Ended ~~Sept.~~June 30, ~~2002~~2003 ~~Sept.~~June 30, ~~2001~~2002 ~~Sept.~~June 30, ~~2002~~2003 ~~Sept.~~June 30, ~~2001~~2002 ---------------- ---------------- ---------------- ---------------- Rental income $ ~~428~~417 $ ~~528~~396 $ ~~1,227~~847 $ ~~1,672~~800 ---------------- ---------------- ---------------- ---------------- Costs and expenses: Direct container expenses ~~119~~122 ~~162~~152 ~~397~~224 ~~523~~279 Bad debt ~~(benefit)~~ expense (3benefit) 810 (25) (8) 1 Depreciation (note 4) ~~363~~169 ~~193~~154 ~~673~~345 ~~632~~310 Write-down of containers (note 4) 364 3522 ~~113~~10 6577 Professional fees 1211 717 3820 2526 Management fees to affiliates (note 2) 3837 5133 ~~110~~76 4372 General and administrative costs to affiliates (note 2) 19 2422 6540 8145 Other general and administrative costs 185 919 5510 3137 Loss (gain) on sale of containers, ~~net~~ (note 4) 1430 (117) 2438 911 ---------------- ---------------- ---------------- ---------------- ~~616~~407 ~~488~~397 ~~1,473~~771 ~~1,401~~858 ---------------- ---------------- ---------------- ---------------- Income (~~Loss~~loss) ~~income~~ from operations 10 (~~188~~1) 4076 (~~246~~58) ~~271~~ ---------------- ---------------- ---------------- ---------------- Interest income 1 42 52 163 ---------------- ---------------- ---------------- ---------------- Net earnings (loss) ~~earnings~~$ 11 $ ~~(187)~~1 $ 4478 $ (~~241~~55) ~~$ 287~~ ================ ================ ================ ================ Allocation of net earnings (loss) ~~earnings~~ (note 2): General partners $ 34 $ 65 $ 149 $ 2211 Limited partners 7 (~~190~~4) 3869 (~~255~~66) ~~265~~ ---------------- ---------------- ---------------- ---------------- $ ~~(187)~~11 $ 441 $ ~~(241)~~78 $ ~~287~~(55) ================ ================ ================ ================ Limited partners' per unit share of net earnings (loss) ~~earnings~~ $ (0.~~13)~~00 $ 0.0300 $ (0.~~18)~~05 $ (0.1805) ================ ================ ================ ================ Limited partners' per unit share of distributions $ 0.1820 $ 0.3525 $ 0.7348 $ 10.1555 ================ ================ ================ ================ Weighted average number of limited partnership units outstanding 1,~~421~~412,~~714~~199 1,~~442~~428,~~955~~963 1,~~426~~412,~~547~~199 1,~~450~~428,~~860~~963 ================ ================ ================ ================ See accompanying notes to financial statements

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Statements of Partners' Capital For the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002 (Amounts in thousands) (unaudited) -----------------------------------------------------------------------------------------------------------~~--------~~ Partners' Capital --------------------------------------------------~~---------~~ General Limited Total -------------- -------------~~---~~ -------------~~---~~ Balances at January 1, ~~2001~~2002 $ - $ 98,~~991~~043 $ 98,~~991~~043 Distributions (2211) (~~1,674~~787) (~~1,696~~798) Redemptions (note 5) - (7321) (7321) Net earnings 22(loss) ~~265~~11 ~~287~~(66) (55) -------------- -------------~~---~~ -------------~~---~~ Balances at ~~September~~June 30, ~~2001~~2002 $ - $ 87,~~509~~169 $ 87,~~509~~169 ============== =============~~===~~ =============~~===~~ Balances at January 1, ~~2002~~2003 $ - $ 86,~~043~~563 $ 86,~~043~~563 Distributions (149) (~~1,037~~672) (~~1,051~~681) Redemptions (note 5) - (5015) (5015) Net earnings ~~(loss)~~9 1469 ~~(255)~~78 ~~(241)~~ -------------- -------------~~---~~ -------------~~---~~ Balances at ~~September~~June 30, ~~2002~~2003 $ - $ 65,~~701~~945 $ 65,~~701~~945 ============== =============~~===~~ =============~~===~~ See accompanying notes to financial statements

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Statements of Cash Flows For the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002 (Amounts in thousands) (unaudited) ----------------------------------------------------------------------------------------------------------------- 2003 2002 ~~2001~~ ------------ ------------ Cash flows from operating activities: Net earnings (loss) ~~earnings~~$ 78 $ (~~241~~55) ~~$ 287~~ Adjustments to reconcile net earnings (loss) ~~earnings~~ to net cash provided by operating activities: Depreciation ~~673~~(note ~~632~~4) 345 310 Write-down of containers (note 4) ~~113~~10 6577 ~~Decrease~~Increase (decrease) in allowance for doubtful accounts ~~(11)~~4 ~~(43)~~1 Loss on sale of containers, ~~net~~38 2411 9 (Increase) decrease in assets: Accounts receivable 6829 ~~166~~74 Due from affiliates, net (4256) 75(28) Prepaid expenses 415 3 Increase (decrease) in liabilities: Accounts payable and accrued liabilities 17 (1018) 5 Accrued recovery costs - (17) 5 Damage protection plan costs 23 (391) Deferred damage protection plan revenue (1) ~~22 Warranty claims -~~ (51) ------------ ------------ Net cash provided by operating activities ~~591~~447 ~~1,167~~379 ------------ ------------ Cash flows from investing activities: Proceeds from sale of containers ~~449~~178 ~~497~~321 ------------ ------------ Net cash provided by investing activities ~~449~~178 ~~497~~321 ------------ ------------ Cash flows from financing activities: Redemptions of limited partnership units (5015) (7321) Distributions to partners (~~1,052~~681) (~~1,697~~799) ------------ ------------ Net cash used in financing activities (~~1,102~~696) (~~1,770~~820) ------------ ------------ Net decrease in cash (6271) (~~106~~120) Cash at beginning of period 513 533 ~~713~~ ------------ ------------ Cash at end of period $ ~~471~~442 $ ~~607~~413 ============ ============ See accompanying notes to financial statements

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Statements Of Cash Flows--Continued For the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002 (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 ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002, and December 31, ~~2001~~2002 and ~~2000~~2001, 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 ~~nine~~six-month periods ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002. ~~Sept.~~June 30 Dec. 31 ~~Sept.~~June 30 Dec. 31 2003 2002 ~~2001~~2002 2001 ~~2000~~ ----------- ----------- ----------- ----------- Distributions to partners included in: Due to affiliates.............................. $ 1 $ 21 $ 21 $ 32 Proceeds from sale of containers included in: Due from affiliates............................ 7332 ~~110~~59 9288 84110 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 ~~nine~~six-month periods ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002. 2003 2002 ~~2001~~ ---- ---- Distributions to partners declared.................................. $~~1,051~~681 $~~1,696~~798 Distributions to partners paid...................................... ~~1,052~~681 ~~1,697~~799 Proceeds from sale of containers recorded........................... ~~412~~151 ~~505~~299 Proceeds from sale of containers received........................... ~~449~~178 ~~497~~321 The Partnership has entered into direct finance leases, resulting in the transfer of containers from container rental equipment to accounts receivable. The carrying value of containers transferred during the ~~nine~~six-month periods ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002 was $41 and $62, respectively. See accompanying notes to financial statements

TCC EQUIPMENT INCOME FUND (a California Limited Partnership) Notes To Financial Statements For the three and six months ended June 30, 2003 and 2002 (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 up 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 marine useful 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 limited and general partners on a quarterly basis. The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and payments of liabilities in the ordinary course of business. 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, 2003 and December 31, 2002 and the results of its operations for the three and six-month periods ended June 30, 2003 and 2002 and changes in partners' capital and cash flows for the six-month periods ended June 30, 2003 and 2002, 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 and for the year ended December 31, 2002, 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. The Partnership's management evaluates its estimates on an on-going basis, including those related to the container rental equipment, accounts receivable and accruals. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments regarding the carrying values of assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions. The Partnership's management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements. The Partnership maintains allowances for doubtful accounts for estimated losses resulting from the inability of its lessees to make required payments. These allowances are based on management's current assessment of the financial condition of the Partnership's lessees and their ability to make their required payments. If the financial condition of the Partnership's lessees were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Partnership depreciates its container rental equipment based on certain estimates related to the container's useful life and salvage value. These estimates are based upon assumptions about future demand for leased containers and the estimated sales price at the end of the container's useful life. The Partnership will evaluate the estimated residual values and remaining estimated useful lives on an on-going basis and will revise its estimates as needed. As a result, depreciation expense may fluctuate in future periods based on fluctuations in these estimates. Additionally, the recoverability of the recorded amounts of containers to be held for continued use and identified for sale in the ordinary course of business are evaluated to ensure that containers held for continued use are not impaired and that containers identified for sale are recorded at amounts that do not exceed the estimated fair value of the containers. Containers to be held for continued use are considered impaired and are written down to estimated fair value when the estimated future undiscounted cash flows are less than the recorded values. Containers identified for sale are written down to estimated fair value when the recorded value exceeds the estimated fair value. In determining the estimated future undiscounted cash flows and fair value of containers, assumptions are made regarding future demand and market conditions for leased containers and the sales prices for used containers. If actual market conditions are less favorable than those projected or if actual sales prices are lower than those estimated by the Partnership, additional write-downs may be required and/or losses may be realized. In June 2002, the FASB issued SFAS No. 146 "Accounting for costs Associated With Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Partnership adopted SFAS No. 146 on January 1, 2003 and there was no material impact on the Partnership's financial condition, operating results or cash flow. Certain reclassifications, not affecting net earnings (loss), have been made to prior year amounts in order to conform to the 2003 financial statement presentation. 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 (loss) 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 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 $8 and $17 of incentive management fees during the three and six-month periods ended June 30, 2003, respectively, and $6 and $16 during the comparable periods in 2002, respectively. There were no equipment liquidation fees incurred during the six-month periods ended June 30, 2003 and 2002. The Partnership's containers are 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, 2003 and December 31, 2002. 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 $29 and $59 for the three and six-month periods ended June 30, 2003, respectively, and $27 and $56, respectively, for the comparable periods in 2002. 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, 2003 and 2002 were as follows: Three months Six months ended June 30, ended June 30, -------------- -------------- 2003 2002 2003 2002 ---- ---- ---- ---- Salaries $11 $14 $22 $29 Other 8 8 18 16 -- -- -- -- Total general and administrative costs $19 $22 $40 $45 == == == == 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 investors to the total number of investors of all limited partnerships managed by TFS or equally among all the 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, 2003 and 2002: Three months Six months ended June 30, ended June 30, -------------- -------------- 2003 2002 2003 2002 ---- ---- ---- ---- TEM $17 $19 $35 $38 TFS 2 3 5 7 -- -- -- -- Total general and administrative costs $19 $22 $40 $45 == == == == At June 30, 2003 and December 31, 2002, due from affiliates, net is comprised of: 2003 2002 ---- ---- Due from affiliates: Due from TEM....................... $70 $39 -- -- Due to affiliates: Due to TCC......................... 4 3 Due to TFS......................... 8 7 -- -- 12 10 -- -- Due from affiliates, net $58 $29 == == 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, fees and distributions described above and in the accrual and remittance of net rental revenues and container sales proceeds from TEM. Note 3. Lease Rental Income Leasing income arises principally from the renting of containers to various international shipping lines. Revenue is recorded when earned according to the terms of the container rental contracts. These contracts are typically for terms of five years or less. The following is the lease mix of the on-lease containers (in units) at June 30, 2003 and 2002: 2003 2002 ---- ---- On-lease under master leases 1,935 2,012 On-lease under long-term leases 1,139 898 ----- ----- Total on-lease containers 3,074 2,910 ===== ===== Under master lease agreements, the lessee is not committed to lease a minimum number of containers from the Partnership during the lease term and may generally return any portion or all the containers to the Partnership at any time, subject to certain restrictions in the lease agreement. Under long-term lease agreements, containers are usually leased from the Partnership for periods of between three to five years. Such leases are generally cancelable with a penalty at the end of each twelve-month period. Under direct finance leases, the containers are usually leased from the Partnership for the remainder of the container's useful life with a purchase option at the end of the lease term. The remaining containers are off-lease and are located primarily at a large number of storage depots. At June 30, 2003 and 2002, the Partnership's off-lease containers were in the following locations: 2003 2002 ---- ---- Americas 298 446 Europe 129 235 Asia 109 453 Other 25 26 --- ----- Total off-lease containers 561 1,160 === ===== At June 30, 2003 approximately 12% of the Partnership's off-lease containers had been specifically identified as for sale. Note 4. Container Rental Equipment Effective July 1, 2002, the Partnership revised its estimate for container salvage value from a percentage of equipment cost to an estimated dollar residual value. The effect of this change for the three and six-month periods ended June 30, 2003 was an increase to depreciation expense of $22 and $51, respectively. The Partnership will evaluate the estimated residual values and remaining estimated useful lives on an on-going basis and will revise its estimates as needed. As a result, depreciation expense may fluctuate in future periods based on fluctuations in these estimates. The Partnership stopped purchasing containers in 1998, but its leasing activities are affected by fluctuations in new container prices. New container prices steadily declined from 1995 through 1999 and have remained low through the first half of 2003. As a result, the cost of new containers purchased in recent years is 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, 2003 and 2002 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 net realizable value, which was based on recent sales prices less cost to sell. During the six-month periods ended June 30, 2003 and 2002, the Partnership recorded write-down expenses of $10 and $77, respectively, on 32 and 162 containers identified as for sale and requiring a reserve. During the three-month periods ended June 30, 2003 and 2002, the Partnership recorded write-down expenses of $4 and $24, respectively, on 19 and 55 containers identified for sale and requiring a reserve. At June 30, 2003 and 2002, the net book value of the 41 and 168 containers identified for sale was $31 and $146, respectively. The Partnership sold 35 previously written down containers for no gain during the six-month period ended June 30, 2003 and sold 160 previously written down containers for a loss of $16 during the same period in 2002. During the three-month period ended June 30, 2003 the Partnership sold 21 previously written down containers for a loss of $1 and sold 87 previously written down containers for a loss of $11 during the same period in 2002. The Partnership incurred losses on the sale of some containers previously written down as the actual sales prices received on these containers were lower than the estimates used for the write-downs. The Partnership also sold containers that had not been written down and recorded a loss of $38 and a gain of $5 during the six-month periods ended June 30, 2003, and 2002, respectively. During the three-month periods ended June 30, 2003 and 2002, the Partnership recorded a loss of $29 and a gain of $28, respectively, on the sale of containers that had not been written down. As more containers are subsequently identified as for sale or if container sales prices continue to decline, the Partnership may incur additional write-downs on containers and/or may incur losses on the sale of containers. The Partnership will continue to evaluate the recoverability of the recorded amounts of container rental equipment.

Note 5. Redemptions The following redemptions were consummated by the Partnership during the ~~nine~~six-month periods ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002: Units Average Redeemed Redemption Price Amount Paid --------- ----------------- ------------ Total Partnership redemptions as of December 31, ~~2000~~2001....................... 1840,~~575~~966 $76.5636 $~~140~~260 ~~Nine~~Six-month period ended ~~September~~June 30, ~~2001~~2002........................... 134,~~024~~625 $54.6264 7321 ------ --- Total Partnership redemptions as of ~~September~~June 30, ~~2001~~2002........................... 3145,~~599~~591 $6.7516 $~~213~~281 ====== === Total Partnership redemptions as of December 31, ~~2001~~2002....................~~...~~ 4058,~~966~~115 $65.3668 $~~260~~330 ~~Nine~~Six-month period ended ~~September~~June 30, ~~2002~~2003........................... 114,~~874~~240 $43.2054 5015 ------ --- Total Partnership redemptions as of ~~September~~June 30, ~~2002~~2003........................... 5262,~~840~~355 $5.8753 $~~310~~345 ====== === ~~The redemption price is fixed by formula.~~

The redemption price is fixed by formula in accordance with the Partnership Agreement. 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 and six-month periods ended June 30, 2003, and 2002. Please refer to the Financial Statements and Notes thereto in connection with the following discussion. 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 General Partners manage and control the affairs of the Partnership. 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 up 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. To date, the Partnership has sold containers only gradually, rather than in large transactions. 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 sales proceeds 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. The Partnership invests working capital and cash flow from operating and investing activities prior to its distribution to the partners in short-term, liquid investments. Rental income and proceeds from container sales are the Partnership's principal sources of liquidity and the source of funds for distributions. Rental income and container sales prices are affected by market conditions for leased and used containers. Market conditions are discussed more fully in "Results of Operations." 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, 2003, the Partnership declared cash distributions to limited partners pertaining to the fourth quarter of 2002 through the first quarter of 2003 in the amount of $672, which represented $0.48 per unit. On a cash basis, as reflected on the Statements of Cash Flows, after paying redemptions and general partner distributions, $423 of these distributions was from operating activities and the balance of $249 was a return of capital. On an accrual basis, as reflected on the Statements of Partners' Capital, after paying redemptions, $54 of these distributions were from current year earnings and $618 was a return of capital. 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, 2003, the Partnership redeemed 4,240 units for a total dollar amount of $15. The Partnership used cash from operating activities to pay for the redeemed units. Net cash provided by operating activities for the six-month periods ended June 30, 2003 and 2002, was $447 and $379, respectively. The increase of $68, or 18%, was primarily due to fluctuations in net earnings (loss), adjusted for non-cash transactions, offset by the fluctuations in gross accounts receivable. Net earnings (loss), adjusted for non-cash transactions, fluctuated primarily due to the increase in rental income and the decrease in direct container expenses. These items are discussed more fully under "Results of Operations." The decrease of $29 in gross accounts receivable for the six-month period ended June 30, 2003 was primarily due to a decline in the average collection period of accounts receivable, partially offset by the increase in rental income. The decrease of $66 in gross accounts receivable during the same period in 2002 was primarily due to the decrease in rental income, partially offset by an increase in the average collection period of accounts receivable. For the six-month periods ended June 30, 2003 and 2002, net cash provided by investing activities (the sale of containers) was $178 and $321, respectively. The decrease of $143 was due to the Partnership selling fewer containers at lower average sales prices during the six-month period ended June 30, 2003, compared to the equivalent period in 2002. The sales price received on container sales continued to decrease as a result of current market conditions, which have adversely affected the value of used containers. Some of the containers sold were located in low demand locations, and these sales were driven by the liquidation plans discussed above, and by adverse market conditions in these locations. Until demand for containers improves in certain low demand locations, the Partnership plans to continue selling some of its containers that are off-lease in these locations rather than incurring the expense of repositioning them. The sale of containers in these locations, the decline in the value of used containers and the related market conditions are discussed more fully under "Results of Operations." Due, in part, to these market conditions and their effect on demand for used containers, the Partnership has been primarily selling containers only if the containers are at the end of their useful lives or if they are located in these low demand locations. Therefore, and as noted above, the Partnership has implemented its liquidation phase to date by selling containers gradually. The Partnership will continue to evaluate its options for selling containers in the context of both these market conditions and the Partnership's liquidation plans. The number of containers sold both in low demand locations and elsewhere, as well as the amount of sales proceeds, will affect how much the Partnership will pay in future distributions to Partners. Results of Operations The Partnership's income from operations, which consists primarily of rental income less costs and expenses (including 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, 2003 and 2002, 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: 2003 2002 ---- ---- Beginning container fleet............... 3,822 4,416 Ending container fleet.................. 3,635 4,070 Average container fleet................. 3,729 4,243 The average container fleet decreased 12% from the six-month period ended June 30, 2002 to the comparable period in 2003, primarily 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 otherwise warranted. 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 Partnership expects rental income to decline as the container fleet declines. While the decline in the container fleet resulted in lower rental income, this decrease was more than offset by the improvement in utilization, resulting in the increase in rental income from the six-month period ended June 30, 2002 to the same period in 2003. An overall decline in rental income is expected 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 average utilization of the container fleet, which was 81% and 63% on average during the six-month periods ended June 30, 2003 and 2002, respectively. The remaining container fleet is off-lease and is located primarily at a large number of storage depots. At June 30, 2003 and 2002, utilization was 85% and 71%, respectively, and the Partnership's off-lease containers (in units) were in the following locations: 2003 2002 ---- ---- Americas 298 446 Europe 129 235 Asia 109 453 Other 25 26 --- ----- Total off-lease containers 561 1,160 === ===== At June 30, 2003 approximately 12% of the Partnership's off-lease containers had been specifically identified as for sale. In addition to utilization, rental income is affected by daily rental rates. The average daily rental rate for the Partnership's containers decreased 9% between the periods. Average rental rates declined under both master and long term leases, which are the two principal types of leases for the Partnership's containers. The majority of the Partnership's rental income was generated from leasing of the Partnership's containers under master operating leases, but in the past several years an increasing percentage of the Partnership's containers have been on lease under long term leases. At June 30, 2003 and 2002, 37% and 31%, respectively, of the Partnership's on-lease containers were on lease under long term leases. Long term leases generally have lower rental rates than master leases because the lessees have contracted to lease the containers for several years and cannot return the containers prior to the termination date without a penalty. Fluctuations in rental rates under either type of lease generally will affect the Partnership's operating results. The following is a comparative analysis of the results of operations for the six-month periods ended June 30, 2003 and 2002. The Partnership's income (loss) from operations for the six-month periods ending June 30, 2003 and 2002 was $76 and ($58), respectively, on rental income of $847 and $800, respectively. The increase in rental income of $47, or 6%, from the six-month period ended June 30, 2002 to the comparable period in 2003 was attributable to increases in income from container rentals and other rental income, which is discussed below. Income from container rentals, the major component of total revenue, increased $43 or 6%, primarily due to the increase in average on-hire utilization of 29%, offset by the decreases in average fleet size of 12% and average rental rates of 9% between the periods. Beginning in March 2002, utilization began to improve and improved steadily through the end of 2002 due to: o An increase in export cargo out of Asia o Prior repositioning of containers to Asia which placed large quantities of containers in areas of high demand o Disposal of older containers and fewer purchases of new containers by both container lessors and shipping lines in 2001 and 2002, resulting in an overall better-balanced supply of containers o The labor disagreement that affected U.S. West Coast ports in the third and part of the fourth quarter had short-term positive effects on demand for containers as shipping lines were not able to reposition enough containers to Asia and had to lease more containers to meet their customers' demands Utilization declined slightly in the first quarter of 2003, which is traditionally a slow period for container demand, and then improved slightly during the second quarter of 2003. Rental rates also declined slightly in 2003 primarily due to low new container prices, low interest rates and low rates offered by competitors. The General Partners are cautiously optimistic that current utilization levels can be maintained or improved during the next several months as the peak-shipping season begins. However, the General Partners caution that market conditions could deteriorate again due to global economic and political conditions. Demand for leased containers could therefore weaken again and result in a decrease in utilization and further declines in lease rates and container sale prices, adversely affecting the Partnership's operating results. Although demand for leased containers improved, the trade imbalance between Asia and the Americas continues. As a result, a large portion of the Partnership's off-lease containers are located in low demand locations in the Americas as detailed in the above chart. For these and other off-lease containers, the Partnership determines whether these containers should be sold or held for continued use. 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 are older containers. The expected economic benefit of continuing to own these older containers is significantly less than that of newer containers. This is due to their shorter remaining marine life, the cost to reposition them, and the shipping lines' preference for leasing newer containers when they have a choice. Once the decision is made to sell containers, the Partnership writes down the value of these specifically identified containers when the carrying value was greater than the container's estimated net realizable value, which is based on recent sales prices less cost of sales. The average sales prices for containers sold by the Partnership as well as other Partnerships managed by the General Partners have decreased. The decrease is primarily due to a surplus of used containers available for sale. 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 related to leasing 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, 2003, other rental income was $121, an increase of $4 from the equivalent period in 2002. The increase in other rental income was primarily due to increases in DPP and location income of $9 and $7, respectively, offset by a decrease in handling income of $12. DPP income increased primarily due to the increase in the number of containers covered under DPP. Location income increased primarily due to the increase in charges to one lessee who required containers to be delivered to specific locations. The decrease in handling income was primarily due to a decrease in container movement. Direct container expenses decreased $55, or 20%, from the six-month period ended June 30, 2002 to the equivalent period in 2003. The decrease was primarily due to the decrease in storage expense of $84, offset by the increase in repositioning expense of $33. Storage expense decreased primarily due to the increase in utilization noted above and the decrease in the average storage cost per container. Repositioning expense increased due to an increase in the average repositioning costs due to (i) expensive repositioning moves related to one lessee who required containers to be delivered to certain locations as discussed above and (ii) longer average repositioning moves. This increase was partially offset by the decline in the number of containers repositioned between the periods. Bad debt expense was $8 and $1 for the six-month periods ended June 30, 2003 and 2002, respectively. Fluctuations in bad debt expense reflect the required adjustment to the bad debt reserve, after deductions had been taken against the reserve, and are based on management's then current estimates of the portion of accounts receivable that may not be collected, and which will not be covered by insurance. These estimates are based primarily on management's current assessment of the financial condition of the Partnership's lessees and their ability to make their required payments. The expenses recorded during the six-month periods ended June 30, 2003 and 2002 reflect higher reserve requirements from December 31, 2002 and 2001, respectively. Depreciation expense increased $35, or 11%, from the six-month period ended June 30, 2002 to the comparable period in 2003, primarily due to an increase in the depreciation rate as a result of changes in estimated salvage values as discussed below, offset by the decrease in average fleet size noted above. Effective July 1, 2002, the Partnership revised its estimate for container salvage value from a percentage of equipment cost to an estimated dollar residual value. The effect of this change for the six-month period ended June 30, 2003 was an increase to depreciation expense of $51. The Partnership will evaluate the estimated residual values and remaining estimated useful lives on an on-going basis and will revise its estimates as needed. As a result, depreciation expense may fluctuate in future periods based on fluctuations in these estimates. The Partnership stopped purchasing containers in 1998, but its leasing activities are affected by fluctuations in new container prices. New container prices steadily declined from 1995 through 1999 and have remained low through the first half of 2003. As a result, the cost of new containers purchased in recent years is 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, 2003 and 2002 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 some of these containers was required. The Partnership wrote down the value of these containers to their estimated net realizable value, which was based on recent sales prices less cost to sell. During the six-month periods ended June 30, 2003 and 2002, the Partnership recorded write-down expenses of $10 and $77, respectively, on 32 and 162 containers identified as for sale and requiring a reserve. At June 30, 2003 and 2002, the net book value of the 41 and 168 containers identified for sale was $31 and $146, respectively. The Partnership sold 35 previously written down containers for no gain during the six-month period ended June 30, 2003 and sold 160 previously written down containers for a loss of $16 during the same period in 2002. The Partnership incurred losses on the sale of some containers previously written down as the actual sales prices received on these containers were lower than the estimates used for the write-downs. The Partnership also sold containers that had not been written down and recorded a loss of $38 and a gain of $5 during the six-month periods ended June 30, 2003, and 2002, respectively. As more containers are subsequently identified as for sale or if container sales prices continue to decline, the Partnership may incur additional write-downs on containers and/or may incur losses on the sale of containers. The Partnership will continue to evaluate the recoverability of the recorded amounts of container rental equipment. Management fees to affiliates increased $4, or 6%, from the six-month period ended June 30, 2002 to the same period in 2003, due to increases in both equipment and incentive management fees. Equipment management fees increased due to the increase in rental income, upon which these fees are primarily based. These fees were approximately 7% of rental income for both periods. Incentive management fees increased primarily due to the increase in the amount of distributions paid from cash from operations. General and administrative costs to affiliates decreased $5, or 11%, from the six-month period ended June 30, 2002 to the comparable period in 2003. The decrease was due to the decreases in overhead costs allocated from TEM and TFS. The allocation from TEM decreased as the Partnership represented a smaller portion of the fleet managed by TEM. The allocation from TFS decreased due to the decrease in overhead costs incurred and allocated by TFS. The Partnership Agreement provides for the ongoing payment to the General Partners of the management fees and the reimbursement of the expenses discussed above. Since these fees and expenses are established by the Agreement, they cannot be considered the result of arms' length negotiations with third parties. The Partnership Agreement was formulated at the Partnership's inception and was part of the terms upon which the Partnership solicited investments from its limited partners. The business purpose of paying the General Partners these fees is to compensate the General Partners for the services they render to the Partnership. Reimbursement for expenses is made to offset some of the costs incurred by the General Partners in managing the Partnership and its container fleet. More details about these fees and expenses are included in footnote 2 to the Financial Statements. Other general and administrative costs decreased $27 from the six-month period ended June 30, 2002 to the same period in 2003. The decrease was primarily due to decreases in other service fees between the periods. Loss on sale of containers increased $27 from the six-month period ended June 30, 2002 to the comparable period in 2003. Although the Partnership sold fewer containers, loss on sale of containers increased primarily due to the Partnership incurring greater losses on the sale of containers due to the decline in sales proceeds. Net earnings/(loss) per limited partnership unit fluctuated from a loss of $0.05 during the six-month period ended June 30, 2002 to earnings of $0.05 during the equivalent period in 2003, reflecting the fluctuation in net earnings/(loss) allocated to limited partners from a loss of $66 to earnings of $69. The allocation of net earnings/(loss) for the six-month periods ended June 30, 2003 and 2002 included a special allocation of gross income to the General Partners of $8 and $12, respectively, 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, 2003 and 2002. The Partnership's income (loss) from operations for the three-month periods ending June 30, 2003 and 2002 was $10 and ($1), respectively, on rental income of $417 and $396, respectively. The increase in rental income of $21, or 5%, from the three-month period ended June 30, 2002 to the comparable period in 2003 was attributable to the increase in income from container rentals, partially offset by the decrease in other rental income. Income from container rentals increased $24 or 7%, primarily due to the increase in average on-hire utilization of 28%, offset by the decreases in average fleet size of 11% and average rental rates of 7% between the periods. For the three-month period ended June 30, 2003, other rental income was $54, a decrease of $3 from the equivalent period in 2002. The decrease was primarily due to the decrease in handling income, offset by an increase in DPP income. Handling income decreased primarily due to a decrease in container movement, offset by an increase in the average handling charge per container. DPP income increased primarily due to the increase in the number of containers covered under DPP. Direct container expenses decreased $30, or 20%, from the three-month period ending June 30, 2002 to the equivalent period in 2003. The decrease was primarily due to the decrease in storage expense of $37 offset by the increase in repositioning expense of $7. Storage expense decreased due to the increase in utilization noted above and a slight decrease in the average storage cost per container. Repositioning expense increased due to an increase in the average repositioning cost primarily due to longer average repositioning moves. This increase was partially offset by the decline in the number of containers repositioned between the periods. Bad debt expense (benefit) was $10 and ($5) for the three-month periods ended June 30, 2003 and 2002, respectively. The expense recorded during the three-month period ended June 30, 2003 reflects a higher reserve requirement from March 31, 2003. The benefit recorded during the comparable period in 2002 reflects a lower reserve requirement from March 31, 2002. Depreciation expense increased $15, or 10% from the three-month period ended June 30, 2002 to the comparable period in 2003, primarily due to the change in estimated salvage values used to calculate depreciation noted above, offset by a decrease in average fleet size noted above. The effect of this change for the three-month period ended June 30, 2003 was an increase to depreciation expense of $22. During the three-month periods ended June 30, 2003 and 2002, the Partnership recorded write-down expenses of $4 and $24, respectively, on 19 and 55 containers identified as for sale and requiring a reserve. The Partnership sold 21 of these previously written down containers for a loss of $1 during the three-month period ended June 30, 2003 and sold 87 previously written down containers for a loss of $11 during the same period in 2002. The Partnership also sold containers that had not been written down and recorded a loss of $29 and a gain of $28 during the three-month periods ended June 30, 2003 and 2002, respectively. Management fees to affiliates increased $4, or 12%, from the three-month period ended June 30, 2002 to the same period in 2003 due to increases in both incentive and equipment management fees. Incentive management fees increased primarily due to an increase in the amount of distributions made from cash from operations. Equipment management fees increased due to the increase in rental income and were 7% of rental income for both periods. General and administrative costs to affiliates decreased $3, or 12%, from the three-month period ended June 30, 2002 to the comparable period in 2003 primarily due to the decrease in overhead costs allocated from TEM, as the Partnership represented a smaller portion of the total fleet managed by TEM. Other general and administrative costs decreased $14 from the three-month period ended June 30, 2002 to the same period in 2003. The decrease was primarily due to decreases in other service fees between the periods. Gain/loss on sale of containers fluctuated from a gain of $17 for the three-month period ended June 30, 2002 to a loss of $30 for the same period in 2003. The fluctuation in gain/loss was primarily due to the Partnership incurring losses on the sale of containers during the three-month period ended June 30, 2003 compared to incurring gains in the same period in 2002. Net earnings per limited partnership unit were $0.00 for both the three-month periods ended June 30, 2003 and 2002, reflecting the net earnings (loss) allocated to limited partners of $7 and ($4), respectively. The allocation of net earnings (loss) included a special allocation of gross income to the General Partners made in accordance with the Partnership Agreement. Critical Accounting Policies and Estimates The Partnership's discussion and analysis of its financial condition and results of operations are based upon the Partnership's financial statements, which have been prepared on a going concern basis, in accordance with accounting principles generally accepted in the United States of America. 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. The Partnership's management evaluates its estimates on an on-going basis, including those related to the container rental equipment, accounts receivable and accruals. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments regarding the carrying values of assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions. The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and payments of liabilities in the ordinary course of business. The Partnership's management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements. The Partnership maintains allowances for doubtful accounts for estimated losses resulting from the inability of its lessees to make required payments. These allowances are based on management's current assessment of the financial condition of the Partnership's lessees and their ability to make their required payments. If the financial condition of the Partnership's lessees were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which would adversely affect the Partnership's operating results. The Partnership depreciates its container rental equipment based on certain estimates related to the container's useful life and salvage value. These estimates are based upon assumptions about future demand for leased containers and the estimated sales price at the end of the container's useful life. Effective July 1, 2002, the Partnership revised its estimate for container salvage value from a percentage of equipment cost to an estimated dollar residual value. The Partnership will evaluate the estimated residual values and remaining estimated useful lives on an on-going basis and will revise its estimates as needed. As a result, depreciation expense may fluctuate in future periods based on fluctuations in these estimates. If the estimates regarding residual value and remaining useful life of the containers were to decline, depreciation expense would increase, adversely affecting the Partnership's operating results. Additionally, the recoverability of the recorded amounts of containers to be held for continued use and identified for sale in the ordinary course of business are evaluated to ensure that containers held for continued use are not impaired and that containers identified for sale are recorded at amounts that do not exceed the estimated fair value of the containers. Containers to be held for continued use are considered impaired and are written down to estimated fair value when the estimated future undiscounted cash flows are less than the recorded values. Containers identified for sale are written down to estimated fair value when the recorded value exceeds the estimated fair value. In determining the estimated future undiscounted cash flows and fair value of containers, assumptions are made regarding future demand and market conditions for leased containers and the sales prices for used containers. If actual market conditions are less favorable than those projected or if actual sales prices are lower than those estimated by the Partnership, additional write-downs may be required and/or losses may be realized. Any additional write-downs or losses would adversely affect the Partnership's operating results. Risk Factors and Forward Looking Statements 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. 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, including bad debts, 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. See "Critical Accounting Policies and Estimates" above for information on the Partnership's critical accounting policies and how changes in those estimates could adversely affect the Partnership's results of operations. 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 therefore, 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Inapplicable. Item 4. Controls and Procedures. Based on an evaluation of the Partnership's disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934), the managing general partner's principal executive officer and principal financial officer have found those controls and procedures to be effective as of the end of the period covered by the report. There has been no change in the Partnership's internal control over financial reporting that occurred during the Partnership's most recent fiscal quarter, and which has materially affected, or is reasonably likely materially to affect, the Partnership's internal control over financial reporting.

Part II Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or 15d-14 of the Securities and Exchange Act of 1934. Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section 1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act of 2002. (b) Not applicable. 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 Chief Financial Officer Date: ~~November~~August 1912, ~~2002~~2003 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: Signature Title Date ________________________ Chief Financial Officer, Senior ~~November~~August 1912, ~~2002~~2003 Ernest J. Furtado Vice President and Secretary ________________________ President ~~November~~August 1912, ~~2002~~2003 John A. Maccarone

Part II Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or 15d-14 of the Securities and Exchange Act of 1934. Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section 1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act of 2002. (b) Not applicable. 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 Chief Financial Officer Date: August 12, 2003 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: Signature Title Date /s/Ernest J. Furtado ~~________________________________~~_________________________________ Chief Financial Officer, Senior ~~November~~August 1912, ~~2002~~2003 Ernest J. Furtado Vice President and Secretary /s/John A. Maccarone _________________________________ President ~~November~~August 1912, ~~2002~~2003 ~~________________________________~~ John A. Maccarone

EXHIBIT 31.1 CERTIFICATIONS I, John A. Maccarone, certify that: 1. I have reviewed this quarterly report on form 10-Q of TCC Equipment Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a.) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b.) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c.) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a.) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 12, 2003 /s/ John A. Maccarone _____________________________________ John A. Maccarone President and Director of TFS EXHIBIT 31.2 CERTIFICATIONS I, Ernest J. Furtado, certify that: 1. I have reviewed this quarterly report on form 10-Q of TCC Equipment Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a.) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b.) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c.) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a.) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 12, 2003 /s/ Ernest J. Furtado ________________________________________________ Ernest J. Furtado Chief Financial Officer, Senior Vice President, Secretary and Director of TFS EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED, REGARDING SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TCC Equipment Income Fund, (the "Registrant") on Form 10-Q for the quarterly period ended June 30, 2003, as filed on August 12, 2003 with the Securities and Exchange Commission (the "Report"), I, John A. Maccarone, the President and Director of Textainer Financial Services Corporation ("TFS") and Principal Executive Officer of TFS, the Managing General Partner of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002, that: (i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations and cash flows of the Registrant. August 12, 2003 By /s/ John A. Maccarone ____________________________ John A. Maccarone President and Director of TFS A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED, REGARDING SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TCC Equipment Income Fund, (the "Registrant") on Form 10-Q for the quarterly period ended June 30, 2003, as filed on August 12, 2003 with the Securities and Exchange Commission (the "Report"), I, Ernest J. Furtado, Chief Financial Officer, Senior Vice President, Secretary and Director of Textainer Financial Services Corporation ("TFS") and Principal Financial and Accounting Officer of TFS, the Managing General Partner of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002, that: (i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations and cash flows of the Registrant. August 12, 2003 By /s/ Ernest J. Furtado _________________________________ Ernest J. Furtado Chief Financial Officer, Senior Vice President, Secretary and Director of TFS A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

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