TEXTAINER CAPITAL CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 13, 1999
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 Second
Quarter ended June 30, 1999.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 June 30, 1999
Table of Contents
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Page
<S> <C>
Item 1. Financial Statements
Balance Sheets - June 30, 1999 (unaudited)
and December 31, 1998............................................................................. 3
Statements of Earnings for the three and six months
ended June 30, 1999 and 1998 (unaudited).......................................................... 4
Statements of Partners' Capital for the six months
ended June 30, 1999 and 1998 (unaudited).......................................................... 5
Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 (unaudited).......................................................... 6
Notes to Financial Statements (unaudited)......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 12
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 1999 and December 31, 1998
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------
1999 1998
---------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $6,834 (1998: $5,872) (note 4) $ 26,287 $ 27,435
Cash 309 274
Accounts receivable, net of allowance
for doubtful accounts of $99 (1998: $70) 1,229 1,188
Due from affiliates, net (note 2) 88 221
Prepaid expenses 3 8
---------------- ---------------
$ 27,916 $ 29,126
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 193 $ 176
Accrued liabilities 106 117
Accrued recovery costs 70 60
Accrued damage protection plan costs 138 124
Deferred quarterly distributions 30 42
---------------- ---------------
Total liabilities 537 519
---------------- ---------------
Partners' capital:
General partners - -
Limited partners 27,379 28,607
---------------- ---------------
Total partners' capital 27,379 28,607
---------------- ---------------
$ 27,916 $ 29,126
================ ===============
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 Earnings
For the three and six months ended June 30, 1999 and 1998
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Rental income $ 1,304 $ 1,540 $ 2,601 $ 3,115
--------------- --------------- --------------- ---------------
Costs and expenses:
Direct container expenses 499 273 924 571
Bad debt expense (benefit) 4 (60) 32 (7)
Depreciation 498 499 997 999
Professional fees 22 12 32 21
Management fees to affiliates (note 2) 117 146 239 298
General and administrative costs to affiliates (note 2) 75 91 165 193
Other general and administrative costs 13 23 25 36
--------------- --------------- --------------- ---------------
1,228 984 2,414 2,111
--------------- --------------- --------------- ---------------
Income from operations 76 556 187 1,004
--------------- --------------- --------------- ---------------
Other income:
Interest income, net 6 5 11 8
Gain (loss) on sale of containers 6 (2) 10 12
--------------- --------------- --------------- ---------------
12 3 21 20
--------------- --------------- --------------- ---------------
Net earnings $ 88 $ 559 $ 208 $ 1,024
=============== =============== =============== ===============
Allocation of net earnings (note 2):
General partners $ 61 $ 53 $ 142 $ 97
Limited partners 27 506 66 927
--------------- --------------- --------------- ---------------
$ 88 $ 559 $ 208 $ 1,024
=============== =============== =============== ===============
Limited partners' per unit share of
net earnings $ 0.01 $ 0.27 $ 0.04 $ 0.50
=============== =============== =============== ===============
Limited partners' per unit share
of distributions $ 0.30 $ 0.45 $ 0.70 $ 0.90
=============== =============== =============== ===============
Weighted average number of limited
partnership units outstanding 1,848,397 1,848,397 1,848,397 1,848,397
=============== =============== =============== ===============
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 Partners' Capital
For the six months ended June 30, 1999 and 1998
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Partners' Capital
----------------------------------------------------------
General Limited Total
------------ --------------- ---------------
<S> <C> <C> <C>
Balances at January 1, 1998 $ (682) $ 31,094 $ 30,412
Distributions (183) (1,664) (1,847)
Net earnings 97 927 1,024
------------ --------------- ---------------
Balances at June 30, 1998 $ (768) $ 30,357 $ 29,589
============ =============== ===============
Balances at January 1, 1999 $ - $ 28,607 $ 28,607
Distributions (142) (1,294) (1,436)
Net earnings 142 66 208
------------ --------------- ---------------
Balances at June 30, 1999 $ - $ 27,379 $ 27,379
============ =============== ===============
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
For the six months ended June 30, 1999 and 1998
(Amounts in thousands)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 208 $ 1,024
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 997 999
Increase (decrease) in allowance for doubtful accounts 29 (7)
Gain on sale of containers (10) (12)
(Increase) decrease in assets:
Accounts receivable (22) 3
Due from affiliates, net 142 (102)
Prepaid expenses 5 16
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 6 (27)
Accrued recovery costs 10 12
Accrued damage protection plan costs 14 3
---------------- ----------------
Net cash provided by operating activities 1,379 1,909
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of containers 110 66
Container purchases - (6)
---------------- ----------------
Net cash provided by investing activities 110 60
---------------- ----------------
Cash flows from financing activities:
Distributions to partners (1,454) (1,911)
Repayments of borrowings from affiliates - (29)
---------------- ----------------
Net cash used in financing activities (1,454) (1,940)
---------------- ----------------
Net increase in cash 35 29
Cash at beginning of period 274 111
---------------- ----------------
Cash at end of period $ 309 $ 140
================ ================
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 six months ended June 30, 1999 and 1998
(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 containers and distributions to partners which had not been paid or
received by the Partnership as of June 30, 1999 and 1998, and December 31, 1998
and 1997, resulting in differences in amounts recorded and amounts of cash
disbursed or received by the Partnership, as shown in the Statements of Cash
Flows for the six-month periods ended June 30, 1999 and 1998.
June 30 Dec. 31 June 30 Dec. 31
1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates................................................... $ - $ - $ - $ 1
Proceeds from sale of containers included in:
Due from affiliates................................................. 44 41 29 13
Distributions to partners included in:
Due to affiliates................................................... 20 26 30 91
Deferred quarterly distributions.................................... 30 42 55 58
The following table summarizes the amounts of container purchases, 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
six-month periods ended June 30, 1999 and 1998.
1999 1998
---- ----
Container purchases recorded................................................ $ - $ 5
Container purchases paid.................................................... - 6
Proceeds from sale of containers recorded................................... 113 82
Proceeds from sale of containers received................................... 110 66
Distributions to partners declared.......................................... 1,436 1,847
Distributions to partners paid.............................................. 1,454 1,911
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and six months ended June 30, 1999 and 1998
(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.
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, 1999 and December 31,
1998, and the results of its operations, changes in partners' capital and
cash flows for the six-month periods ended June 30, 1999 and 1998, 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, 1998, 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.
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform to the 1999 financial statement
presentation.
Note 2. Transactions with Affiliates
Textainer Capital Corporation (TCC) is the managing general partner of the
Partnership. 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. Prior to its liquidation in
October 1998, Textainer Acquisition Services Limited (TAS), a former
affiliate of the General Partners, performed services related to the
acquisition of containers outside the United States on behalf of the
Partnership. Effective November 1998, these services are being performed
by TEM. The General Partners manage and control the affairs of the
Partnership.
In accordance with the Partnership Agreement, sections 3.10 through 3.12,
net earnings or losses and distributions are generally allocated 9.5% to
the General Partners and 90.5% to the Limited Partners. If the allocation
of distributions exceeds the allocation of net earnings and creates a
deficit in a General Partner's capital account, the Partnership Agreement
provides for a special allocation of gross income equal to the amount of
the 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 $26 and $57 of incentive management
fees during the three and six-month periods ended June 30, 1999 and $38
and $77 for the comparable periods in 1998. No equipment liquidation fees
were incurred during these periods.
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
container leasing operations; such cash is included in the amount due
from affiliates, net at June 30, 1999 and December 31, 1998.
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 $91 and $182 for the three and six-month periods ended June 30,
1999 and $108 and $221 for the comparable periods in 1998. The
Partnership's container fleet is leased by TEM to third party lessees on
operating master leases, spot leases, term leases and direct finance
leases. The majority of the container fleet is leased under operating
master leases with limited terms and no purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are incurred and paid by TCC and TEM. General and
administrative costs allocated to the Partnership in the three and
six-month periods ended June 30, 1999 and 1998 were as follows:
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<CAPTION>
Three months Six months
ended June 30, ended June 30,
--------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries $40 $47 $ 88 $ 96
Other 35 44 77 97
--- --- --- ---
Total general and
administrative costs $75 $91 $165 $193
=== === === ===
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 in the three and six-month periods ended June 30, 1999 and
1998:
Three months Six months
ended June 30, ended June 30,
--------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
TEM $67 $82 $148 $175
TCC 8 9 17 18
--- --- --- ---
Total general and
administrative costs $75 $91 $165 $193
=== === === ===
</TABLE>
The General Partners 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 June 30, 1999 and December 31, 1998, due from affiliates net, is
comprised of:
1999 1998
---- ----
Due from affiliates:
Due from TEM................................... $116 $251
--- ---
Due to affiliates:
Due to TCC..................................... 8 4
Due to TL...................................... 20 26
--- ---
28 30
--- ---
Due from affiliates, net $ 88 $221
=== ===
These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and remittance of expenses
and fees described above and in the accrual and remittance of net rental
revenues and sales proceeds from TEM.
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. On March 31, 1998, the
Partnership repaid its loan of $29 from TL, which was used to facilitate
container purchases. The Partnership incurred $1 of interest expense on
amounts due to the General Partners for the six-month period ended June
30, 1998. There was no interest expense incurred on amounts due to the
General Partners for the three-month period ended June 30, 1998 or for the
three and six-month periods ended June 30, 1999.
Note 3. Rentals Under Long-Term Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at June 30, 1999. Although the leases are
generally cancelable with a penalty at the end of each twelve-month
period, the following schedule assumes that the leases will not be
terminated.
Year ending June 30:
2000............................................. $ 49
2001............................................. 29
2002............................................. 28
2003............................................. 9
---
Total minimum future rentals receivable.......... $115
===
Note 4. Container Rental Equipment
The prices for new containers have been declining since 1995, and the cost
of new containers at year-end 1998 and during the first half of 1999 was
significantly less than the cost of containers purchased in prior years.
The Partnership has evaluated the recoverability of the recorded amount of
container rental equipment and determined that a reduction to the carrying
value of the containers was not required during the year ended December
31, 1998 or the six-month period ended June 30, 1999.
Note 5. 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
many 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 systems as well as non-information technology
systems. There can be no assurance that issues related to the Year 2000
will not have a material impact on the financial condition, results of
operations or cash flows of the Partnership.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership as of and for the three and six-month
periods ended June 30, 1999 and 1998. 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.
Limited Partners are currently receiving monthly cash distributions in an
annualized amount equal to 6% of their original investment. During the six-month
period ended June 30, 1999, the Partnership declared cash distributions to
limited partners pertaining to the period from December 1998 through May 1999,
in the amount of $1,294. On a cash basis, all of these distributions were from
operating activities. On a GAAP basis, $1,228 of these distributions was a
return of capital and the balance was from net income.
At June 30, 1999, the Partnership had no commitments to purchase containers.
Net cash provided by operating activities for the six-month periods ending June
30, 1999 and 1998, was $1,379 and $1,909, respectively. The decrease of $530, or
28%, is primarily attributable to the decrease in net earnings adjusted for
non-cash transactions, offset by fluctuations in due from affiliates, net. Net
earnings, adjusted for non-cash transactions decreased primarily due to the
decline in rental income and the increase in direct container expenses. These
fluctuations are discussed more fully in "Results of Operations". Fluctuations
in due from affiliates, net resulted from timing differences in the payment of
expenses and fees and the remittance of net rental revenues.
For the six-month periods ending June 30, 1999 and 1998, net cash provided by
investing activities (the purchase and sale of containers) was $110 and $60,
respectively. The increase of $50 was primarily due to an increase in the
average sales price per container received during the six month period ended
June 30, 1999 compared to the equivalent period in 1998. Consistent with its
investment objectives, the Partnership intends to continue to reinvest available
cash from operations and all or a significant amount of the proceeds from
container sales in additional containers. However, the number of additional
containers purchased may not equal the number of containers sold, as new
container prices are likely to be greater than proceeds from container sales.
Additionally, current market conditions are expected to continue to have an
adverse effect on the amount of cash provided by operations that is available
for additional container purchases, which has resulted in lower than anticipated
reinvestment in 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 six-month periods ended June 30, 1999 and 1998, 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:
1999 1998
---- ----
Beginning container fleet............... 10,718 10,728
Ending container fleet.................. 10,688 10,703
Average container fleet................. 10,703 10,716
As noted above, when containers are sold in the future, sales proceeds are not
likely to be sufficient to replace all of the containers sold, which is likely
to result in a trend towards a smaller average container fleet.
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 76% and 85% during the six-month periods ended
June 30, 1999 and 1998, respectively. This decline in utilization, caused by
lower demand, had a significant adverse effect on rental income as discussed
below. 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
six-month periods ended June 30, 1999 and 1998.
The Partnership's income from operations for the six-month periods ending June
30, 1999 and 1998 was $187 and $1,004, respectively, on rental income of $2,601
and $3,115, respectively. The decrease in rental income of $514, or 17%, from
the six-month period ended June 30, 1998 to the comparable period in 1999 was
primarily attributable to a decrease in income from container rentals, the major
component of total revenue, which decreased $465, or 17%, primarily due to
decreases in the average on-hire utilization and average rental rates of 11% and
5%, respectively. Rental income was also adversely affected by the increase in
leasing incentives; however, the decline in utilization, which is discussed
below, had the most significant adverse effect on rental income.
The decline in average utilization from the six-month period ended June 30, 1998
to the equivalent period in 1999 was primarily due to lower demand for leased
containers. Demand decreased primarily due to (i) shipping lines continuing to
purchase rather than lease containers as a result of historically low new
container prices and low interest rates and (ii) the growth of the trade
imbalance in Asia. Rental rates have also declined as shipping lines continued
to negotiate lower rates as a result of this lower demand and the historically
low container prices.
The trade imbalance has resulted in the continuing build-up of containers in
lower demand locations. The General Partners have continued their efforts to
reposition newer containers to higher demand locations in an effort to improve
utilization and alleviate container build-up. The Partnership continued to incur
increased direct container expenses in 1999 as a result of this repositioning.
For the near-term, the General Partners plan to monitor market conditions to
determine whether additional repositioning efforts are required. However,
currently there are no significant repositioning efforts planned.
Current market conditions have also caused the decline in the economic value of
certain containers, which has resulted in write-downs and losses being recorded
on certain older containers managed by TEM. These containers were identified as
being for sale and were located in lower demand locations. These containers were
sold as the expected economic benefit of continuing to own these containers was
significantly less than that of newer containers primarily due to their shorter
remaining marine life and shipping lines' preference for leasing newer
containers. There have been no such losses or write downs recorded by the
Partnership primarily due to the young age of the container fleet. However, as
the container fleet ages, the Partnership may incur losses and/or write downs on
the sale of its older containers located in low demand locations if market
conditions do not improve. Additionally, should the decline in economic value of
continuing to own such containers turn out to be permanent, the Partnership may
be required to increase its depreciation rate or write-down the value of
container rental equipment.
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 further 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 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, 1999, the total of these other rental income items was $270, a decrease of
$49 from the equivalent period in 1998. Other income decreased primarily due to
decreases in location and handling income of $ 39 and $33, respectively, offset
by an increase in DPP income of $21. Location income decreased due to an
increase in credits given to lessees for picking up containers from certain
locations and a decrease in charges to lessees for dropping off containers in
certain locations. Handling income decreased due to decreases in the average
handling price charged per container and container movement. DPP income
increased due to an increase in the number of containers covered by DPP offset
by a lower average DPP price per container for the six-month period ended June
30, 1999 compared to the equivalent period in 1998.
Direct container expenses increased $353, or 62%, from the six-month period
ended June 30, 1998 to the equivalent period in 1999. The increase was primarily
due to increases in repositioning and storage expenses of $241 and $117,
respectively. The repositioning expense increase resulted from more containers
being repositioned at a higher average repositioning cost per container. The
increase in repositioning is partly a result of the current trade imbalance
which has created areas with lower demand for leased containers. Storage expense
increased due to the decrease in average utilization and due to an increase in
the average storage cost per container during the six-month period ended June
30, 1999 compared to the equivalent period in 1998.
Bad debt expense increased from a benefit of $7 for the six-month period ended
June 30, 1998 to an expense of $32 in the comparable period in 1999. The benefit
recorded in 1998 was due to the resolution of payment issues with one lessee and
lower reserve requirements in 1998.
Depreciation expense was comparable between the six-month periods ended June 30,
1998 and 1999 at $999 and $997, respectively.
Management fees to affiliates decreased $59, or 20%, from the six-month period
ended June 30, 1998 to the equivalent period in 1999 due to decreases in
equipment and incentive management fees. Equipment management fees, which are
based on rental income, decreased due to the decline in rental income, and were
approximately 7% of rental income for both periods. Incentive management fees,
which are based on the Partnership's limited and general partner distributions
and partners' capital, decreased due to the decrease in the limited partner
distribution percentage from 9% to 8% in July 1998 and from 8% to 6% in March
1999.
General and administrative costs to affiliates decreased $28, or 15%, from the
six-month period ended June 30, 1998 to the comparable period in 1999 primarily
due to a decrease in the allocation of overhead costs from TEM as the
Partnership represents a smaller portion of the total fleet managed by TEM.
Other income remained comparable at $21 and $20 for the six-month periods ended
June 30, 1999 and 1998.
Net earnings per limited partnership unit decreased from $0.50 to $0.04 from the
six-month period ending June 30, 1998 to the equivalent period in 1999,
respectively, reflecting the decrease in net earnings allocated to limited
partners from $927 to $66, for the same periods. The allocation of net earnings
included a special allocation of gross income during 1999 to the General
Partners 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, 1999 and 1998.
The Partnership's income from operations for the three-month periods ending June
30, 1999 and 1998 was $76 and $556, respectively, on rental income of $1,304 and
$1,540, respectively. The decrease in rental income of $236, or 15%, from the
three-month period ended June 30, 1998 to the comparable period in 1999 was
primarily attributable to the decrease in container rental income. Income from
container rentals decreased $238, or 17%, due to the decreases in average
on-hire utilization and average rental rates of 8% and 5%, respectively. Leasing
incentives also increased; however, the decline in utilization had the most
significant adverse effect on rental income. Other rental income was comparable
at $134 and $132 for the three-month periods ended June 30, 1999 and 1998,
respectively.
Direct container expenses increased $226, or 83% from the three-month period
ending June 30, 1998 to the equivalent period in 1999, primarily due to the
increases in repositioning and storage expenses of $146 and $49, respectively.
The repositioning expense increase resulted from more containers being
repositioned at a higher average repositioning cost per container. Storage
expense increased due to the decrease in average utilization and due to an
increase in the average storage cost per container.
Bad debt expense increased from a benefit of $60 for the three-month period
ended June 30, 1998 to an expense of $4 for the comparable period in 1999. The
benefit recorded in 1998 was primarily due to the resolution of a payment issue
with one lessee and due to lower reserve requirements during 1998.
Depreciation expense remained comparable from the three-month period ended June
30, 1998 to the same period in 1999 at $499 and $498, respectively.
Management fees to affiliates decreased $29, or 20%, from the three-month period
ended June 30, 1998 to the comparable period in 1999, due to decreases in
equipment and incentive management fees. Equipment management fees were 7% of
rental income and decreased due to the decrease in rental income. Incentive
management fees decreased due to the decreases in the limited partner
distribution percentages discussed above.
General and administrative costs to affiliates decreased $16, or 18%, from the
three-month period ended June 30, 1998 to the comparable period in 1999
primarily due to a decrease in the allocation of overhead costs from TEM.
Other income increased $9 from the three-month period ended June 30, 1998 to the
comparable period in 1999 primarily due to the fluctuations in gain/loss on sale
of containers from a loss of $2 to a gain of $6, respectively.
Net earnings per limited partnership unit decreased from $0.27 for the
three-month period ending June 30, 1998 to $0.01 for the same period in 1999,
reflecting the decrease in net earnings allocated to limited partners from $506
to $27, respectively. The allocation of net earnings included a special
allocation of gross income to the General Partners during 1999 in accordance
with the Partnership Agreement.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of June 30, 1999, 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 many 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 mission critical 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 in 1998. 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 during
1999. 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 systems projects
as a result of Year 2000 remediation.
As noted above, 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).
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 the Partnership's lessees and other Third Parties
requesting representations on their Year 2000 readiness. The General Partners
have received responses to 90% of these letters with all but seven respondents
representing that they are or will be Year 2000 compliant. The General Partners
are continuing to follow up with non-respondents and will continue to identify
additional Third Parties whose Year 2000 readiness should be assessed.
Non-compliance by these seven respondents and by the remaining non-respondents
is not expected to have a material adverse effect on the Partnership's
operations or financial condition.
Nevertheless, the Partnership and the General Partners believe that they are
likely to encounter Year 2000 problems with certain Third Parties, particularly
those with significant operations within countries that are not actively
promoting correction of Year 2000 issues. 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), by 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. The Partnership and
the General Partners are unable to estimate the financial impact of these
problems, but to the extent that lessee's 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 Relating to the Year 2000
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. The Partnership and General Partners are
unable to determine a reasonably likely worst case scenario in the event of an
infrastructure failure or failures.
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. 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 representations and warranties collected in good faith by
the General Partners from these Third Parties regarding their compliance with
Year 2000 issues may be incorrect, as the information collected was not
independently verified by the General Partners. 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: August 13, 1999
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>
________________________ Executive Vice President, August 13, 1999
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive August 13, 1999
John A. Maccarone Officer)
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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: August 13, 1999
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>
/s/John R. Rhodes Executive Vice President, August 13, 1999
________________________ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/John A. Maccarone President (Principal Executive August 13, 1999
________________________ Officer)
John A. Maccarone
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
2nd Quarter 1999 10Q
</LEGEND>
<CIK> 0001003638
<NAME> Textainer Equipment Income Fund VI
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 1,416
<ALLOWANCES> 99
<INVENTORY> 0
<CURRENT-ASSETS> 3
<PP&E> 33,121
<DEPRECIATION> 6,834
<TOTAL-ASSETS> 27,916
<CURRENT-LIABILITIES> 537
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,379
<TOTAL-LIABILITY-AND-EQUITY> 27,916
<SALES> 0
<TOTAL-REVENUES> 2,601
<CGS> 0
<TOTAL-COSTS> 2,414
<OTHER-EXPENSES> (21)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 208
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
