TEXTAINER CAPITAL CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
November 11, 1998
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund VI,
L.P. (the "Company") the Company's Quarterly Report on Form 10-Q for the Third
Quarter ended September 30, 1998.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
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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 September 30, 1998
Commission file number 0-22337
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
A California Limited Partnership
(Exact name of Registrant as specified in its charter)
California 94-3220152
(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 [ ]
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<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1998
Table of Contents
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<S><C> <C> <C>
Page
Item 1. Financial Statements
Balance Sheets - September 30, 1998 (unaudited) and December 31, 1997............................. 3
Statements of Earnings for the three and nine months
ended September 30, 1998 and 1997 (unaudited)..................................................... 4
Statements of Partners' Capital for the nine months
ended September 30, 1998 and 1997 (unaudited)..................................................... 5
Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 (unaudited)..................................................... 6
Notes to Financial Statements (unaudited)......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 12
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<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Balance Sheets
September 30, 1998 and December 31, 1997
(Amounts in thousands)
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<S><C> <C> <C>
1998 1997
------------- -------------
(unaudited)
Assets
Container rental equipment, net of accumulated
depreciation of $5,379 (1997: $3,898) $ 27,982 $ 29,451
Cash 413 111
Accounts receivable, net of allowance
for doubtful accounts of $69 (1997: $97) 1,261 1,399
Due from affiliates, net (note 5) 159 -
Prepaid expenses 6 56
------------- -------------
$ 29,821 $ 31,017
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 146 $ 116
Accrued liabilities 105 95
Accrued recovery costs (note 2) 55 34
Accrued damage protection plan costs (note 3) 119 79
Due to affiliates, net (note 5) - 223
Container purchases payable 133 -
Deferred quarterly distributions 42 58
------------- -------------
Total liabilities 600 605
------------- -------------
Partners' capital:
General partners (806) (682)
Limited partners 30,027 31,094
------------- -------------
Total partners' capital 29,221 30,412
------------- -------------
$ 29,821 $ 31,017
============= =============
See accompanying notes to financial statements
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three and nine months ended September 30, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
----------------- ---------------- ---------------- -----------------
Rental income $ 1,579 $ 1,581 $ 4,744 $ 4,189
----------------- ---------------- ---------------- ----------------
Costs and expenses:
Direct container expenses 366 310 987 849
Bad debt (benefit) expense (21) (3) (28) 41
Depreciation 498 510 1,497 1,421
Professional fees 10 12 31 32
Management fees to affiliates (note 5) 145 149 443 402
General administrative costs to affiliates (note 5) 83 86 276 271
Other general and administrative costs 13 20 49 49
----------------- ---------------- ---------------- -----------------
1,094 1,084 3,255 3,065
----------------- ---------------- ---------------- -----------------
Income from operations 485 497 1,489 1,124
----------------- ---------------- ---------------- -----------------
Other income (expense):
Interest income (expense), net 5 17 13 (93)
(Loss) gain on sale of containers (3) 7 9 57
----------------- ---------------- ---------------- -----------------
2 24 22 (36)
----------------- ---------------- ---------------- -----------------
Net earnings $ 487 $ 521 $ 1,511 $ 1,088
================= ================ ================ =================
Allocation of net earnings (note 5):
General partners $ 46 $ 49 $ 144 $ 103
Limited partners 441 472 1,367 985
----------------- ---------------- ---------------- -----------------
$ 487 $ 521 $ 1,511 $ 1,088
================= ================ ================ =================
Limited partners' per unit share of
net earnings $ 0.24 $ 0.26 $ 0.74 $ 0.58
================= ================ ================ =================
Limited partners' per unit share
of distributions $ 0.42 $ 0.45 $ 1.32 $ 1.33
================= ================ ================ =================
Weighted average number of limited
partnership units outstanding 1,848,397 1,848,397 1,848,397 1,706,519
================= ================ ================ =================
See accompanying notes to financial statements
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<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the nine months ended September 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
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Partners' Capital
---------------------------------------------------------
General Limited Total
------------- -------------- -------------
Balances at January 1, 1997 $ (499) $ 21,930 $ 21,431
Proceeds from sale of limited partnership units - 11,834 11,834
Syndication and offering costs - (1,065) (1,065)
Distributions (249) (2,266) (2,515)
Net earnings 103 985 1,088
------------- -------------- -------------
Balances at September 30, 1997 $ (645) $ 31,418 $ 30,773
============= ============== =============
Balances at January 1, 1998 $ (682) $ 31,094 $ 30,412
Distributions (268) (2,434) (2,702)
Net earnings 144 1,367 1,511
------------- -------------- -------------
Balances at September 30, 1998 $ (806) $ 30,027 $ 29,221
============= ============== =============
See accompanying notes to financial statements
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<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
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<S><C> <C> <C>
1998 1997
------------- -------------
Cash flows from operating activities:
Net earnings $ 1,511 $ 1,088
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,497 1,421
(Decrease) increase in allowance for doubtful accounts (28) 41
Gain on sale of containers (9) (57)
(Increase) decrease in:
Accounts receivable 166 (532)
Due from affiliates, net (279) 120
Prepaid expenses 50 26
Increase (decrease) in:
Accounts payable and accrued liabilities 40 97
Accrued recovery costs 21 13
Damage protection plan costs 40 3
------------- -------------
Net cash provided by operating activities 3,009 2,220
------------- -------------
Cash flows from investing activities:
Proceeds from sale of containers 111 176
Container purchases (6) (4,090)
Cash collateral deposit - 991
------------- -------------
Net cash provided by (used in) investing activities 105 (2,923)
------------- -------------
Cash flows from financing activities:
Proceeds from sale of limited partnership units - 11,971
Distributions to partners (2,783) (2,464)
Syndication and offering costs - (1,065)
Repayments under revolving credit line - (8,780)
Repayments of borrowings from affiliates (29) -
------------- -------------
Net cash used in financing activities (2,812) (338)
------------- -------------
Net increase (decrease) in cash 302 (1,041)
Cash at beginning of period 111 1,051
------------- -------------
Cash at end of period $ 413 $ 10
============= =============
Interest paid during the period $ 1 $ -
============= =============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the nine months ended September 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, proceeds from
sale of limited partnership units, proceeds from sale of containers and
distributions to partners which had not been paid or received by the Partnership
as of September 30, 1998 and 1997, and December 31, 1997 and 1996, resulting in
differences in amounts recorded and amounts of cash disbursed or received by the
Partnership, as shown in the Statements of Cash Flows for the nine-month periods
ended September 30, 1998 and 1997.
<S><C> <C> <C> <C> <C>
Sept. 30 Dec. 31 Sept. 30 Dec. 31
1998 1997 1997 1996
-------- ------- -------- -------
Container purchases included in:
Due to affiliates................................................. $ - $ 1 $ - $ 2
Container purchases payable....................................... 133 - 26 24
Proceeds from sale of limited partnership units included in:
Accounts receivable............................................... - - - 137
Proceeds from sale of containers included in:
Due from affiliates............................................... 21 13 (2) 1
Distributions to partners included in:
Due to affiliates................................................. 26 91 30 16
Deferred quarterly distributions.................................. 42 58 59 22
The following table summarizes the amounts of container purchases, proceeds from
the sale of limited partnership units, proceeds from sale of containers and
distributions to partners recorded by the Partnership and the amounts paid or
received as shown in the Statements of Cash Flows for the nine-month periods
ended September 30, 1998 and 1997.
1998 1997
---- ----
Container purchases recorded................................................ $ 138 $ 4,090
Container purchases paid.................................................... 6 4,090
Proceeds from sale of limited partnership units recorded.................... - 11,834
Proceeds from sale of limited partnership units received.................... - 11,971
Proceeds from sale of containers recorded................................... 119 173
Proceeds from sale of containers received................................... 111 176
Distributions to partners declared.......................................... 2,702 2,515
Distributions to partners paid.............................................. 2,783 2,464
See accompanying notes to financial statements
</TABLE>
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TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and nine months ended September 30, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------
Note 1. General
Textainer Equipment Income Fund VI, L.P. (the Partnership), a California
limited partnership with a maximum life of 21 years, was formed in 1995.
The Partnership owns a fleet of intermodal marine cargo containers which
are leased to international shipping lines.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of September 30, 1998 and December 31, 1997, and the
results of its operations, changes in partners' capital and cash flows for
the three- and nine-month periods ended September 30, 1998 and 1997, have
been made.
The financial information presented herein should be read in conjunction
with the audited financial statements and other accompanying notes
included in the Partnership's annual audited financial statements as of
December 31, 1997, in the Annual Report filed on Form 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. Recovery Costs
The Partnership accrues an estimate for recovery costs as a result of
defaults under its leases that it expects to incur, which are in excess of
estimated insurance proceeds. At September 30, 1998 and December 31, 1997,
the amounts accrued were $55 and $34, respectively.
Note 3. Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of its
containers. Under the terms of DPP, the Partnership earns additional
revenues on a daily basis and, in return, has agreed to bear certain
repair costs. It is the Partnership's policy to recognize revenue when
earned and to provide a reserve sufficient to cover the Partnership's
obligation for estimated future repair costs. DPP expenses are included in
direct container expenses in the Statements of Earnings, and at September
30, 1998 and December 31, 1997, the related reserves were $119 and $79,
respectively.
Note 4. Acquisition of Containers
During the nine-month periods ended September 30, 1998 and 1997, the
Partnership purchased containers with a cost of $138 and $4,090,
respectively.
Note 5. Transactions with Affiliates
Textainer Capital Corporation (TCC) is the managing general partner, and
Textainer Equipment Management Limited (TEM) and Textainer Limited (TL)
are the associate general partners of the Partnership. The managing
general partner and associate general partners are collectively referred
to as the General Partners. The General Partners also act in this capacity
for other limited partnerships. Textainer Acquisition Services Limited
(TAS) is an affiliate of the General Partners which performs services
relative to the acquisition of containers outside the United States on
behalf of the Partnership. TCC, TEM, TL and TAS are subsidiaries of
Textainer Group Holdings Limited (TGH). The General Partners manage and
control the affairs of the Partnership.
In accordance with the Partnership Agreement, net earnings or losses and
partnership distributions are allocated 9.5% to the General Partners and
90.5% to the Limited Partners. Items of income and gain are specially
allocated to the General Partners to the extent their capital accounts'
show a deficit.
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 $34 and $111 of incentive management
fees during the three- and nine-month periods ended September 30, 1998 and
$38 and $109 of incentive management fees for the comparable periods in
1997. No equipment liquidation fees were incurred in these periods.
The container fleet of the Partnership 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
container leasing operations; such cash is included in the amount due from
affiliates, net at September 30, 1998 and due to affiliates, net at
December 31, 1997.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross lease revenues attributable to full payout net leases. For
the three- and nine-month periods ended September 30, 1998, these fees
totaled $111 and $332, respectively, and were $111 and $293 during the
comparable period in 1997. The container fleet is leased by TEM to
third-party lessees on operating master leases, spot leases and term
leases. The majority of the container fleet is leased under operating
master leases with limited terms and no purchase options.
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 TCC and TEM. General and
administrative costs allocated to the Partnership were as follows:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Salaries $ 38 $ 50 $119 $149
Other 45 36 157 122
---- ---- ---- ----
Total general and
administrative costs $ 83 $ 86 $276 $271
==== ==== ==== ====
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. TCC allocates these
costs based on the ratio of the Partnership's containers to the total
container fleet of all limited partnerships managed by TCC. The General
Partners allocated the following general and administrative costs to the
Partnership:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
TEM $ 75 $ 78 $250 $238
TCC 8 8 26 33
---- ---- ---- ----
Total general and
administrative costs $ 83 $ 86 $276 $271
==== ==== ==== ====
The General Partners or TAS may acquire containers in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such containers for the Partnership. The containers may
then be resold to the Partnership on an all-cash basis at a price equal to
the actual cost, as defined in the Partnership Agreement.
At September 30, 1998 and December 31, 1997, due from (to) affiliates net,
is comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM................................... $ 192 $ -
---- ----
Due to affiliates:
Due to TEM..................................... - 82
Due to TCC..................................... 7 22
Due to TL...................................... 26 119
---- ----
33 223
---- ----
Due from (to) affiliates, net $ 159 $ (223)
==== ====
Included in the amount due to TL at December 31, 1997 is $29 in loans used
to facilitate container purchases. The loan was repaid on March 31, 1998.
All other 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 from TEM.
It is the policy of the Partnership and the General Partners to charge
interest on amounts due to the General Partners which are outstanding for
more than one month, to the extent such balances relate to loans for
container purchases. Interest is charged at a rate not greater than the
General Partners' or affiliates' own cost of funds. The Partnership
incurred $1 of interest expense on amounts due to the General Partners for
the nine-month period ended September 30, 1998. There was no interest
expense incurred on amounts due to the General Partners for the
three-month period ended September 30, 1998 and for the three- and
nine-month periods ended September 30, 1997.
Note 6. Rentals Under Long-Term Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at September 30, 1998. Although the leases are
generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending September 30:
1999............................................. $ 805
2000............................................. 82
2001............................................. 14
2002............................................. 13
2003............................................. 12
----
Total minimum future rentals receivable.......... $ 926
====
Note 7. Revolving Credit Line
The Partnership had a short-term revolving credit facility (the Facility)
with an available limit of $25,000, which was paid in full on March 30,
1997 and expired June 30, 1997, which was used for container purchases.
Balances borrowed under the Facility bore interest at either the Prime
Rate plus .25%, or LIBOR plus 1.75%, and were secured by all assets of the
Partnership. The Partnership paid a commitment fee of 1/2% per annum on
the unused portion of the Facility. This fee, as well as the interest on
any amounts borrowed, was payable quarterly in arrears.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
The Financial Statements contain information, which will assist in evaluating
the financial condition of the Partnership for the three- and nine-month periods
ended September 30, 1998 and 1997. Please refer to the Financial Statements and
Notes thereto in connection with the following discussion.
Liquidity and Capital Resources
From May 10, 1996 until April 30, 1997, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,100 on June 17, 1996, and raised a total of $36,968
from the offering.
From time to time, the Partnership will redeem 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. Since inception, the Partnership has not redeemed
any units.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the nine-month period ended September 30, 1998, the Partnership declared
cash distributions to limited partners pertaining to the period from December
1997 through May 1998, in the amount of $2,434. These distributions represent a
return of 9% on original capital (measured on an annualized basis) on each unit
from December 1997 through June 1998 and 8% on original capital (measured on an
annualized basis) on each unit for July and August 1998. On a cash basis, all of
these distributions were from operations. On a GAAP basis, $1,067 of these
distributions was a return of capital and the balance was from net earnings.
At September 30, 1998, the Partnership had no commitments to purchase
containers.
Net cash provided by operating activities for the nine-month periods ending
September 30, 1998 and 1997, was $3,009 and $2,220, respectively. The increase
of $789, or 36%, is primarily attributable to fluctuations in net earnings and
accounts receivable, offset by the fluctuation in due from affiliates, net. The
increase in net earnings of $423, or 39%, resulted primarily from an increase in
rental income, which is discussed more fully in "Results of Operations".
Accounts receivable decreased $166 in the nine-month period ended September 30,
1998 primarily due to a decrease in the average collection period of accounts
receivable and to the resolution of payment issues with one lessee. The increase
in accounts receivable of $532 in the equivalent period in 1997 was primarily
due to the increase in fleet size. Due from affiliates, net increased $279 in
the nine-month period ended September 30, 1998 compared to an increase of $120
in due to affiliates, net in the equivalent period in 1997. Fluctuations in due
from (to) affiliates, net resulted from the increase in fleet size as well as
timing differences in payment of expenses and fees and in the remittance of net
rental revenues from TEM.
For the nine-month period ending September 30, 1998, net cash provided by
investing activities (the purchase and sale of containers) was $105 compared to
net cash used in investing activities of $2,923 for the equivalent period in
1997. The difference of $3,028 is primarily due to the Partnership having
purchased more containers during the nine-month period ended September 30, 1997
than in the comparable period in 1998 and due to the return of restricted funds
of $991, previously held as collateral for the Partnership's credit facility in
1997. The purchase of more containers in the period ended September 30, 1997
reflects that the Partnership was still purchasing containers with proceeds
raised in the offering. Recent container purchases (reinvestment) are currently
lower than anticipated due to the adverse effect of market conditions on cash
available for reinvestment. Market conditions are discussed more fully under
"Results of Operations". Consistent with its investment objectives, the
Partnership intends to reinvest all or a significant amount of proceeds from
future container sales in additional containers. However, due to the difference
between sales proceeds and new container prices, and to the Partnership
purchasing larger more expensive containers, the number of additional containers
purchased may not equal the number of containers sold.
During 1997 the Partnership borrowed $29 from a general partner to purchase
containers. It is the policy of the Partnership and the General Partners to
charge interest on borrowings from affiliates arising from the Partnership's
acquisition of containers, which are outstanding for more than one month.
Interest is charged to the Partnership at a rate not greater than the General
Partners' own cost of funds. The Partnership paid $1 of interest during the
nine-month period ended September 30, 1998. The interest rate in effect at March
31, 1998 was 8.5%. The Partnership repaid the loan on March 31, 1998 with cash
provided by operations and proceeds from the sale of containers.
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 nine-month periods ended September 30, 1998 and 1997,
as well as certain other factors as discussed below. The following is a summary
of the container fleet (in units) available for lease during those periods:
1998 1997
---- ----
Beginning container fleet............... 10,728 9,099
Ending container fleet.................. 10,740 10,741
Average container fleet................. 10,734 9,920
The growth in the average container fleet of 8% from the nine-month period ended
September 30, 1997 to the same period in 1998, was primarily due to the buildup
of the Partnership's portfolio as the initial gross proceeds from the offering
were invested.
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 84% on average during both of the nine-month
periods ended September 30, 1998 and 1997. In addition, rental income is
affected by daily rental rates and leasing incentives.
The following is a comparative analysis of the results of operations for the
nine-month periods ended September 30, 1998 and 1997.
The Partnership's income from operations for the nine-month periods ending
September 30, 1998 and 1997 was $1,489 and $1,124, respectively, on rental
income of $4,744 and $4,189, respectively. The increase in rental income of
$555, or 13%, from the nine-month period ended September 30, 1997 to the
comparable period in 1998 was attributable to increases in income from container
rentals and other rental income. Income from container rentals, the major
component of total revenue, increased $293, or 8%. This increase was primarily
due to an increase in the average container fleet of 8% and a decrease in
leasing incentives of 56%, offset by a decrease in average rental rates of 4%.
Container utilization and rental rates declined during 1996 and 1997 primarily
due to decreased demand for leased containers and increased competition. The
decrease in demand for leased containers resulted from changes in the business
of shipping line customers consisting primarily of (i) over-capacity resulting
from the 1995 and 1996 additions of new, larger ships to the existing container
ship fleet at a rate in excess of the growth rate in containerized cargo trade;
(ii) shipping line alliances and other operational consolidations that have
allowed shipping lines to operate with fewer containers; and (iii) shipping
lines reducing their ratio of leased versus owned containers by purchasing
containers. This decreased demand, along with the entry of new leasing company
competitors offering low container rental rates to shipping lines, resulted in
downward pressure on rental rates, and caused leasing companies to offer higher
leasing incentives and other discounts to shipping lines. The decline in the
purchase price of new containers during this period, which continued into 1998,
has also caused additional downward pressure on rental rates.
Additionally, the weakening of many Asian currencies in 1998 has resulted in a
significant increase in exports from Asia to North America and Europe and a
corresponding decrease in imports into Asia from North America and Europe. This
trade imbalance has created a strong demand for containers in Asia and a weak
demand for containers in North America and Europe. This imbalance has resulted
in the stabilization of average utilization and the decline in leasing
incentives, but also resulted in an unusually high build-up of containers in
lower demand locations during the nine-month period ended September 30, 1998
compared to the equivalent period in 1997. Although average utilization rates
have stabilized, utilization rates have been slowly declining since late 1997.
In order to improve utilization and alleviate the container build-up, TEM has
begun an aggressive effort to reposition newer containers to demand locations.
The Partnership anticipates incurring increased direct container expenses, which
may have a material negative effect on the Partnership's results of operations.
For the near term, the General Partners do not foresee material changes in
existing market conditions and caution that both utilization and lease rates
could decline, adversely affecting the Partnership's operating results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases.
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 nine-month period ended September 30,
1998, the total of these other rental income items was $550, an increase of $262
from the equivalent period in 1997. This increase was primarily due to an
increase in location income of $296, offset by a decrease in handling income of
$62. Location income increased due to a decrease in credits given to lessees for
picking up containers from certain locations and due to the inclusion of certain
credits received during 1997 and 1998 which had been previously applied against
repositioning expense. Handling income decreased primarily due to decreases in
container movement and the average handling price charged per container during
the nine-month period ending September 30, 1998 compared to the equivalent
period in 1997.
Direct container expenses increased $138, or 16%, from the nine-month period
ended September 30, 1997 to the equivalent period in 1998, primarily due to
increases in repositioning and DPP expenses of $113 and $48, respectively,
offset by a decrease in handling expense of $36. Repositioning expense increased
primarily due to an increase in the number of containers repositioned at a
higher average cost per container and due to the removal of certain credits from
repositioning costs to other rental income as discussed above. DPP expense
increased primarily due to an increase in the number of units requiring repair,
offset by a decrease in the average repair cost per container. Handling expense
decreased primarily due to decreases in container movement and the average
handling cost per container during the nine-month period ending September 30,
1998 compared to the equivalent period in 1997.
Bad debt expense decreased from an expense of $41 in the nine-month period ended
September 30, 1997 to a benefit of $28 in the comparable period in 1998. The
benefit recorded in 1998 was primarily due to the resolution of payment issues
with one lessee and due to lower reserve requirements.
Depreciation expense increased $76, or 5%, from the nine-month period ended
September 30, 1997 to the same period in 1998 primarily due to the increase in
average fleet size.
Management fees to affiliates increased $41, or 10%, from the nine-month period
ended September 30, 1997 to the equivalent period in 1998, due to increases in
equipment and incentive management fees. Equipment management fees, which are
based on gross revenue, increased due to the increase in rental income and were
7% of gross revenue for both periods. Incentive management fees, which are based
on the Partnership's limited and general partner distributions and partners'
capital, increased due to the increase in total partners' capital, offset by the
decreases in the limited partner distribution rate from 10% to 9% in April 1997
and from 9% to 8% in July 1998.
General and administrative costs to affiliates increased $5, or 2%, from the
nine-month period ended September 30, 1997 to the comparable period ending in
1998 due to an increase in overhead costs allocated by TEM, offset by a decrease
in overhead costs allocated by TCC.
Other income provided $22 of additional income in the nine-month period ending
September 30, 1998, an increase of $58, compared to the equivalent period in
1997. The increase was due to a decrease in interest expense, net of $106,
offset by a decrease in gain on sale of equipment of $48. The decrease in
interest expense, net was primarily due to the Partnership paying the credit
facility in full on March 30, 1997.
Net earnings per limited partnership unit increased from $0.58 to $0.74 from the
nine-month period ending September 30, 1997 to the equivalent period in 1998,
reflecting the increase in net earnings allocated to limited partners from $985
to $1,367, for the same periods.
The following is a comparative analysis of the results of operations for the
three-month periods ended September 30, 1998 and 1997.
The Partnership's income from operations for the three-month periods ending
September 30, 1998 and 1997 was $485 and $497, respectively, on rental income of
$1,579 and $1,581, respectively. Income from container rentals, the major
component of rental income, decreased $68, or 5%, primarily due to the decreases
in utilization and average rental rates of 6% and 3%, respectively, offset by an
increase in average fleet size of 2% and a decrease in leasing incentives of
67%.
Other rental income for the three-month period ended September 30, 1998 was
$180, an increase of $66 from the comparable period in 1997. This increase was
primarily due to an increase in location income of $94, offset by a decrease in
handling income of $45. Location income increased due to a decrease in credits
given to lessees for picking up containers from certain locations. Handling
income decreased due to a decrease in container movement.
Direct container expenses increased $56, or 18%, from the three-month period
ending September 30, 1997 to the equivalent period in 1998, primarily due to
increases in repositioning and DPP expenses of $40 and $27, respectively.
Repositioning expense increased primarily due to an increase in the number of
containers repositioned at a higher average cost per container. DPP expense
increased primarily due to an increase in the number of units requiring repair,
offset by a decrease in the average repair cost per container.
Bad debt benefit increased from a benefit of $3 in the three-month period ended
September 30, 1997, to a benefit of $21 in the three-month period ended
September 30, 1998. The benefits recorded in 1997 and 1998 were primarily due to
a lowering of reserve requirements.
Depreciation expense decreased $12, or 2%, from the three-month period ended
September 30, 1997 to the same period in 1998 despite the 2% increase in average
fleet size, primarily due to retroactive depreciation recorded in 1997 relating
to new container purchases made during the second and third quarters of 1997.
Management fees to affiliates decreased $4, or 3%, from the three-month period
ended September 30, 1997 to the comparable period in 1998, due to the decrease
in incentive management fees, which decreased as a result of the July 1998
decrease in the limited partner distribution percentage.
General and administrative costs to affiliates decreased $3 or 3%, from the
three-month period ended September 30, 1997 to the comparable period in 1998 due
to a decrease in overhead costs allocated by TEM.
Other income decreased $22 from the three-month period ending September 30, 1997
to the equivalent period in 1998. This decrease was due to the decrease in
interest income and the fluctuation of loss/gain on sale of containers from a
gain of $7 in the nine-month period ending September 30, 1997 to a loss of $3 in
the comparable period in 1998.
Net earnings per limited partnership unit decreased from $0.26 to $0.24 from the
three-month period ending September 30, 1997 to the same period in 1998,
reflecting the decrease in net earnings allocated to limited partners from $472
to $441, respectively.
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 September 30, 1998 which would result in such a
risk materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the containers, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
Readiness for Year 2000
Many computer systems may experience difficulty processing dates beyond the year
1999; as a consequence, some computer hardware and software at most companies
will need to be modified or replaced prior to the year 2000 in order to remain
functional. The Partnership relies on the financial and operating systems
provided by the General Partners; these systems include both information
technology (IT) systems as well as non-information technology (non-IT) systems.
For IT and non-IT systems developed by independent third parties
(externally-developed) the General Partners have obtained representations from
their vendors and suppliers that these systems are Year 2000 compliant and have
internally tested significant systems as operational. The General Partners have
reviewed all internally-developed IT and non-IT systems for Year 2000 issues and
identified certain of these systems which required revision. The General
Partners have completed the revision and testing of these identified systems,
and these revised systems are now operational.
The cost of the revisions and testing relating to these systems was incurred by
TEM and a portion of the cost was allocated to the Partnership as part of
general and administrative costs allocated from TEM. While Year 2000 remediation
costs were not specifically identified, it is estimated that total Year 2000
related expenses included in allocated overhead from TEM were less than $10. The
Partnership and the General Partners do not anticipate incurring significant
additional remediation costs related to the Year 2000 issue. There has been no
material effect on the Partnership's financial condition and results of
operations as a result of TEM's delay in routine maintenance and repair projects
as a result of Year 2000 remediation.
Year 2000 compliance testing was undertaken by the General Partners on both
externally- and internally-developed systems. Standard transactions were
processed under simulated operating conditions for dates crossing over January
1, 2000 as well as for other critical dates such as February 29, 2000. In the
standard business scenarios tested, the identified systems appeared to function
correctly. Under nonstandard conditions or unforeseen scenarios, the results may
be different. Therefore, these tests, regardless of how carefully they were
conducted, cannot guarantee that the General Partners' systems will function
without error in the Year 2000 and beyond. If these systems are not operational
in the Year 2000, the General Partners have determined that they can operate
manually for approximately two to three months while correcting the system
problems before experiencing material adverse effects on the Partnership's and
the General Partners' business and results of operations. However, shifting
portions of the daily operations to manual processes may result in time delays
and increased processing costs. Additionally, the Partnership and General
Partners may not be able to provide lessees with timely and pertinent
information, which may negatively affect customer relations and lead to the
potential loss of lessees, even though the immediate monetary consequences of
this would be limited by the standard Partnership lease agreements between the
lessees and the Partnership.
The Partnership and the General Partners are also continuing their assessment of
Year 2000 issues with third parties, comprised of lessees, manufacturers,
depots, and other vendors and suppliers, with whom the Partnership and the
General Partners have a material business relationship (Third Parties).
Currently, the Partnership and the General Partners believe that if a
significant portion of its lessees is non-compliant for a substantial length of
time, the Partnership's operations and financial condition would be materially
adversely affected. Non-compliance by other Third Parties is not expected to
have a material effect on the Partnership's results of operations and financial
condition. The General Partners have sent letters to lessees and other Third
Parties requesting representations on their Year 2000 readiness. The General
Partners have received responses to fewer than 50% of the letters sent. The
General Partners will follow up with non-respondents and will continue to
identify additional Third Parties whose Year 2000 readiness should be assessed.
As this assessment has not been completed, the General Partners have not yet
assumed that a lack of response means that the Third Party will not be Year 2000
compliant.
Nevertheless, the Partnership and the General Partners believe that they are
likely to encounter Year 2000 problems with Third Parties, particularly those
with significant operations within countries that are not actively promoting
correction of Year 2000 issues. In the event that the systems of these Third
Parties are not Year 2000 compliant by January 1, 2000, the Partnership's
business may be disrupted and results of operations may be adversely affected.
Possible consequences of Year 2000 non-compliance among Third Parties include,
but are not limited to, (i) TEM's inability to provide service to certain areas
of the world, (ii) delays in container movement, (iii) payment and collection
difficulties, and (iv) invoicing errors due to late reporting of transactions.
These types of problems could result in additional operating costs and loss of
lessee business. As discussed above, the General Partners are prepared to shift
portions of their daily operations to manual processes in the event of Third
Party non-compliance. With respect to manufacturers, vendors and other
suppliers, the General Partners would also attempt to find alternate sources for
goods and services. With respect to depots and agents who handle, inspect or
repair containers, if the majority of the computer systems and networks of TEM
are operational, the General Partners believe that they will be able to
compensate manually for these Third Parties' failures (e.g., one field office
performing data entry for another, communication with depots conducted without
computers), using temporary personnel at additional cost. Although costs will be
incurred to pay for the temporary personnel, the Partnership and the General
Partners do not expect these costs to be material to the Partnership. With
respect to lessees' non-compliance, the General Partners would compensate for
communications failures manually. If a lessee's noncompliance is broad enough to
disrupt significantly the operations of its shipping business, the resulting
loss of revenue could result in the lessee renting fewer containers, adversely
affecting the Partnership's business. The Partnership and the General Partners
are unable to estimate the financial impact of these problems, but to the extent
that lessees problems result in weakening demand for containers, the
Partnership's results of operations would likely be adversely affected. If Year
2000 problems result in delays in collections, either because of the additional
time required to communicate with lessees or because of lessees' loss of
revenues, the Partnership's cash flow could be affected and distributions to
general and limited partners could be reduced. The Partnership and the General
Partners believe that these risks are inherent in the industry and are not
specific to the Partnership or General Partners.
Forward-Looking Statements and Other Risk Factors
The foregoing analysis of Year 2000 issues includes forward-looking statements
and predictions about possible or future events, results of operations and
financial condition. As such, this analysis may prove to be inaccurate, because
of the assumptions made by the Partnership and the General Partners or the
actual development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct. Some of the risks relating to Year 2000
compliance are described above. In addition, in analyzing Year 2000 issues, the
Partnership and the General Partners have assumed that the infrastructure of the
United States and most other countries, including ports and customs, remains
intact. If the infrastructure of one or more countries were to fail, the
resulting business disruption would likely have an adverse effect on the
Partnership and the General Partners.
Various other risks and uncertainties could also affect the Partnership and
could affect the Year 2000 analysis causing the effect on the Partnership to be
more severe than discussed above. These risks and uncertainties include, but are
not limited to, the following. As noted above, the Partnerships' and the General
Partners' Year 2000 compliance testing cannot guarantee that all computer
systems will function without error beyond the Year 2000. Tests were only
conducted of normal business scenarios, and no independent verification or
testing was used. Risks also exist with respect to Year 2000 compliance by Third
Parties, such as the risk that an external party, who may have no relationship
to the Partnership or General Partners, but who has a significant relationship
with one or more Third Parties, may have a system failure that adversely affects
the Partnership's ability to conduct its business. While the Partnership and the
General Partners are attempting to identify such external parties, no assurance
can be given that they will be able to do so. Furthermore, Third Parties with
direct relationships with the Partnership, whose systems have been identified as
likely to be Year 2000 compliant, may suffer a breakdown due to unforeseen
circumstances. It is also possible that the information collected by the General
Partners from these Third Parties regarding their compliance with Year 2000
issues may be incorrect. Finally, it should be noted that the foregoing
discussion of Year 2000 issues assumes that to the extent the General Partners'
systems fail, either because of unforeseen complications or because of Third
Parties failure, switching to manual operations will allow the Partnership to
continue to conduct its business. While the Partnership and the General Partners
believe this assumption to be reasonable, if it is incorrect, the Partnership's
results of operations would likely be adversely affected.
<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.
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
A California Limited Partnership
By Textainer Capital Corporation
The Managing General Partner
By _______________________________
John R. Rhodes
Executive Vice President
Date: November 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Capital
Corporation, the Managing General Partner of the Registrant, in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S><C> <C> <C>
________________________ Executive Vice President, November 11, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive November 11, 1998
Philip K. Brewer Officer)
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
A California Limited Partnership
By Textainer Capital Corporation
The Managing General Partner
By /s/John R. Rhodes
_______________________________
John R. Rhodes
Executive Vice President
Date: November 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Capital
Corporation, the Managing General Partner of the Registrant, in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S><C> <C> <C>
/s/John R. Rhodes Executive Vice President, November 11, 1998
________________________ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/Philip K. Brewer President (Principal Executive November 11, 1998
________________________ Officer)
Philip K. Brewer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund VI, L.P.
</LEGEND>
<CIK> 0001003638
<NAME> Textainer Equipment Income Fund VI, L.P.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 413
<SECURITIES> 0
<RECEIVABLES> 1,489
<ALLOWANCES> 69
<INVENTORY> 0
<CURRENT-ASSETS> 6
<PP&E> 33,361
<DEPRECIATION> 5,379
<TOTAL-ASSETS> 29,821
<CURRENT-LIABILITIES> 600
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,221
<TOTAL-LIABILITY-AND-EQUITY> 29,821
<SALES> 0
<TOTAL-REVENUES> 4,744
<CGS> 0
<TOTAL-COSTS> 3,255
<OTHER-EXPENSES> (22)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,511
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,511
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
