TEXTAINER CAPITAL CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
November 12, 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 Third
Quarter ended September 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 September 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 [ ]
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1999
Table of Contents
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Page
<S> <C>
Item 1. Financial Statements
Balance Sheets - September 30, 1999 (unaudited)
and December 31, 1998.............................................................. 3
Statements of Earnings for the three and nine months
ended September 30, 1999 and 1998 (unaudited)...................................... 4
Statements of Partners' Capital for the nine months
ended September 30, 1999 and 1998 (unaudited)...................................... 5
Statements of Cash Flows for the nine months
ended September 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>
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Balance Sheets
September 30, 1999 and December 31, 1998
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------
1999 1998
---------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $7,315 (1998: $5,872) (note 4) $ 25,732 $ 27,435
Cash 349 274
Accounts receivable, net of allowance
for doubtful accounts of $118 (1998: $70) 1,282 1,188
Due from affiliates, net (note 2) 264 221
Prepaid expenses - 8
---------------- ---------------
$ 27,627 $ 29,126
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 156 $ 176
Accrued liabilities 175 117
Accrued recovery costs 74 60
Accrued damage protection plan costs 149 124
Deferred quarterly distributions 30 42
---------------- ---------------
Total liabilities 584 519
---------------- ---------------
Partners' capital:
General partners - -
Limited partners 27,043 28,607
---------------- ---------------
Total partners' capital 27,043 28,607
---------------- ---------------
$ 27,627 $ 29,126
================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<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, 1999 and 1998
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months Three months Nine months Nine months
Ended Ended Ended Ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Rental income $ 1,374 $ 1,579 $ 3,975 $ 4,794
---------------- -------------- --------------- ---------------
Costs and expenses:
Direct container expenses 365 366 1,289 1,037
Bad debt expense (benefit) 20 (21) 52 (28)
Depreciation 495 498 1,492 1,497
Professional fees 38 10 70 31
Management fees to affiliates (note 2) 122 145 361 443
General and administrative costs to affiliates (note 2) 57 83 222 276
Other general and administrative costs 13 13 38 49
---------------- -------------- --------------- ---------------
1,110 1,094 3,524 3,305
---------------- -------------- --------------- ---------------
Income from operations 264 485 451 1,489
---------------- -------------- --------------- ---------------
Other income:
Interest income, net 5 5 16 13
Gain (loss) on sale of containers 10 (3) 20 9
---------------- -------------- --------------- ---------------
15 2 36 22
---------------- -------------- --------------- ---------------
Net earnings $ 279 $ 487 $ 487 $ 1,511
================ ============== =============== ===============
Allocation of net earnings (note 2):
General partners $ 61 $ 46 $ 203 $ 144
Limited partners 218 441 284 1,367
---------------- -------------- --------------- ---------------
$ 279 $ 487 $ 487 $ 1,511
================ ============== =============== ===============
Limited partners' per unit share of
net earnings $ 0.12 $ 0.24 $ 0.15 $ 0.74
================ ============== =============== ===============
Limited partners' per unit share
of distributions $ 0.30 $ 0.42 $ 1.00 $ 1.32
================ ============== =============== ===============
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 nine months ended September 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 (268) (2,434) (2,702)
Net earnings 144 1,367 1,511
------------ --------------- ---------------
Balances at September 30, 1998 $ (806) $ 30,027 $ 29,221
============ =============== ===============
Balances at January 1, 1999 $ - $ 28,607 $ 28,607
Distributions (203) (1,848) (2,051)
Net earnings 203 284 487
------------ --------------- ---------------
Balances at September 30, 1999 $ - $ 27,043 $ 27,043
============ =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 487 $ 1,511
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,492 1,497
Increase (decrease) in allowance for doubtful accounts 48 (28)
Gain on sale of containers (20) (9)
(Increase) decrease in assets:
Accounts receivable (69) 166
Due from affiliates, net (57) (279)
Prepaid expenses 8 50
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 38 40
Accrued recovery costs 14 21
Accrued damage protection plan costs 25 40
---------------- ---------------
Net cash provided by operating activities 1,966 3,009
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of containers 178 111
Container purchases - (6)
---------------- ---------------
Net cash provided by investing activities 178 105
---------------- ---------------
Cash flows from financing activities:
Distributions to partners (2,069) (2,783)
Repayments of borrowings from affiliates - (29)
---------------- ---------------
Net cash used in financing activities (2,069) (2,812)
---------------- ---------------
Net increase in cash 75 302
Cash at beginning of period 274 111
---------------- ---------------
Cash at end of period $ 349 $ 413
================ ===============
Interest paid during the period $ - $ 1
================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<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, 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 September 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 nine-month periods ended September 30, 1999 and 1998.
Sept. 30 Dec. 31 Sept. 30 Dec. 31
1999 1998 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates................................................. $ - $ - $ - $ 1
Container purchases payable....................................... - - 133 -
Proceeds from sale of containers included in:
Due from affiliates............................................... 21 41 21 13
Distributions to partners included in:
Due to affiliates................................................. 20 26 26 91
Deferred quarterly distributions.................................. 30 42 42 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
nine-month periods ended September 30, 1999 and 1998.
1999 1998
---- ----
Container purchases recorded................................................ $ - $ 138
Container purchases paid.................................................... - 6
Proceeds from sale of containers recorded................................... 158 119
Proceeds from sale of containers received................................... 178 111
Distributions to partners declared.......................................... 2,051 2,702
Distributions to partners paid.............................................. 2,069 2,783
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 nine months ended September 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 September 30, 1999, and the
results of its operations, changes in partners' capital and cash flows for
the nine-month periods ended September 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 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 $83 of incentive management
fees during the three and nine-month periods ended September 30, 1999 and
$34 and $111 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 September 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 $96 and $278 for the three and nine-month periods ended September
30, 1999 and $111 and $332 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 for the three and
nine-month periods ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries $33 $44 $121 $141
Other 24 39 101 135
-- -- --- ---
Total general and
administrative costs $57 $83 $222 $276
== == === ===
</TABLE>
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 for the three and nine-month periods ended September 30, 1999
and 1998:
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
TEM $50 $75 $198 $250
TCC 7 8 24 26
-- -- --- ---
Total general and
administrative costs $57 $83 $222 $276
== == === ===
</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 September 30, 1999 and December 31, 1998, due from affiliates net, is
comprised of:
1999 1998
---- ----
Due from affiliates:
Due from TEM......................... $291 $251
--- ---
Due to affiliates:
Due to TCC........................... 7 4
Due to TL............................ 20 26
--- ---
27 30
--- ---
Due from affiliates, net $264 $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.
Note 3. Rentals Under Long-Term Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at September 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.
<PAGE>
Year ending September 30:
2000............................................. $479
2001............................................. 84
2002............................................. 82
2003............................................. 31
2004............................................. 2
---
Total minimum future rentals receivable.......... $678
===
Note 4. Container Rental Equipment
New container prices have been declining since 1995, and the cost of new
containers at year-end 1998 and during 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
nine-month period ended September 30, 1999. The Partnership will continue
to evaluate the recoverability of recorded amounts of container rental
equipment and cautions that a write down of container rental equipment
and/or an increase in its depreciation rate may be required in future
periods.
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 nine-month
periods ended September 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 September 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
nine-month period ended September 30, 1999, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1998
through August 1999, in the amount of $1,848. On a cash basis, all of these
distributions were from operating activities. On a GAAP basis, $1,564 of these
distributions was a return of capital and the balance was from net income.
At September 30, 1999, the Partnership had no commitments to purchase
containers.
Net cash provided by operating activities for the nine-month periods ending
September 30, 1999 and 1998, was $1,966 and $3,009, respectively. The decrease
of $1,043, or 35%, is primarily attributable to the decrease in net earnings
adjusted for non-cash transactions and the fluctuations in accounts receivable,
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". Accounts receivable increased $69 in the
nine-month period ended September 30, 1999 primarily due to an increase in the
average collection period of accounts receivable. Accounts receivable decreased
$166 in the comparable period primarily due to a decrease in the average
collection period of accounts receivable and to the resolution of payment issues
with one lessee. 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 nine-month periods ending September 30, 1999 and 1998, net cash provided
by investing activities (the purchase and sale of containers) was $178 and $105,
respectively. The increase of $73 was primarily due to an increase in proceeds
from container sales which increased due to an increase in the average sales
price received during the nine month period ended September 30, 1999 compared to
the equivalent period in 1998. Consistent with its investment objectives, the
Partnership intends 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 is not likely
to equal the number of containers sold, as new container prices are likely to be
greater than proceeds from container sales. During the nine-month period ended
September 30, 1999, the Partnership did not reinvest any cash from operations in
new containers, after making distributions, due to the effect of market
conditions on the Partnership's financial results. Market conditions are
expected to continue to have an adverse effect on the amount of cash provided by
operations that is available for the purchase of additional containers, which
has resulted in lower than anticipated reinvestment in containers. Market
conditions have also had an adverse effect on the average sales proceeds
recently realized by TEM from container sales. These market conditions may
adversely affect the amount of sales proceeds the Partnership realizes from
container sales, which may also contribute to a lower than anticipated rate of
reinvestment in containers. A slower rate of reinvestment will, over time,
affect the size of the Partnership's container fleet.
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, 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.................. 10,667 10,740
Average container fleet................. 10,693 10,734
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. Other factors
related to the Partnership's ability to reinvest funds in new containers are
discussed above under "Liquidity and Capital Resources".
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 77% and 84% during the nine-month periods
ended September 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
nine-month periods ended September 30, 1999 and 1998.
The Partnership's income from operations for the nine-month periods ending
September 30, 1999 and 1998 was $451 and $1,489, respectively, on rental income
of $3,975 and $4,794, respectively. The decrease in rental income of $819, or
17%, from the nine-month period ended September 30, 1998 to the comparable
period in 1999 was attributable to decreases in income from container rentals
and other rental income. Income from container rentals, the major component of
total revenue, decreased $660, or 16%, primarily due to decreases in the average
on-hire utilization and average rental rates of 8% and 6%, respectively. Rental
income was also adversely affected by an 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 three and nine-month periods ended
September 30, 1998 to the equivalent periods 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 with Asia. Rental rates have also declined as shipping
lines continue to negotiate lower rates as a result of this lower demand and the
historically low container prices.
The trade imbalance has been the primary cause of the continuing build-up of
containers in lower demand locations. The General Partners have continued to
reposition newer containers to higher demand locations in an effort to improve
utilization and alleviate container build-up. Partially as a result of this
effort, utilization has remained comparable during the first three quarters of
1999 and has been steadily increasing since August 1999. However, as a result of
the repositioning effort, the Partnership continued to incur increased direct
container expenses in 1999. For the near-term, the General Partners plan to
continue this repositioning effort.
Current market conditions have also caused a 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 for other container owners. These
containers, located in lower demand locations, were identified as being for sale
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 Partnership's 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 existing market conditions continue. 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 nine-month period ended
September 30, 1999, the total of these other rental income items was $440, a
decrease of $159 from the equivalent period in 1998. This decrease was primarily
due to a decrease in location income of $106, which decreased primarily due to a
decrease in charges to lessees for dropping off containers in certain locations.
Direct container expenses increased $252, or 24%, from the nine-month period
ended September 30, 1998 to the equivalent period in 1999. The increase was
primarily due to increases in storage and repositioning expenses of $153 and
$111, respectively. Storage expense increased due to the decrease in average
utilization and due to an increase in the average storage cost per container
during the nine-month period ended September 30, 1999 compared to the equivalent
period in 1998. Repositioning expense increased due to the increase in the
number of containers being repositioned and 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.
Bad debt expense increased from a benefit of $28 for the nine-month period ended
September 30, 1998 to an expense of $52 in the comparable period in 1999. The
benefit recorded in 1998 was due to the resolution of payment issues with one
lessee and lower 1998 reserve requirements.
Depreciation expense was comparable between the nine-month periods ended
September 30, 1998 and 1999 at $1,497 and $1,492, respectively.
Management fees to affiliates decreased $82, or 19%, from the nine-month period
ended September 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 $54, or 20%, from the
nine-month period ended September 30, 1998 to the comparable period in 1999
primarily due to a decrease in the allocation of overhead costs from TEM as the
Partnership represented a smaller portion of the total fleet managed by TEM.
Other income increased $14, or 64%, from the nine-month period ended September
30, 1998 to the comparable period in 1999 primarily due to an increase in the
gain on sale of containers.
Net earnings per limited partnership unit decreased from $0.74 to $0.15 from the
nine-month period ending September 30, 1998 to the equivalent period in 1999,
respectively, reflecting the decrease in net earnings allocated to limited
partners from $1,367 to $284, 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 September 30, 1999 and 1998.
The Partnership's income from operations for the three-month periods ending
September 30, 1999 and 1998 was $264 and $485 on rental income of $1,374 and
$1,579. The decrease in rental income of $205, or 13%, from the three-month
period ended September 30, 1998 to the comparable period in 1999 was primarily
attributable to the decrease in container rental income. Income from container
rentals decreased $195, or 14%, primarily due to the decreases in the average
on-hire utilization of 5% and average rental rates of 7%. Leasing incentives
also increased; however, the declines in utilization and lease rates had the
most significant adverse effect on rental income.
Other rental income was $170 for the three-month period ended September 30,
1999, a decrease of $10 from the equivalent period in 1998. The decrease was
primarily due to a decrease in location income of $17, offset by an increase in
handling income of $5. Location income decreased primarily due to a decrease in
charges to lessees for dropping off containers in certain locations. Handling
income increased due to the increase in container movement, offset by a decrease
in the average price charged per container.
Direct container expenses were comparable for the three-month periods ended
September 30, 1998 and 1999 at $366 and $365, respectively.
Bad debt expense increased from a benefit of $21 for the three-month period
ended September 30, 1998 to an expense of $20 for the comparable period in 1999.
The benefit recorded in 1998 was primarily due to lower reserve requirements
during 1998.
Depreciation expense was comparable for the three-month periods ended September
30, 1998 and 1999 at $498 and $495, respectively.
Management fees to affiliates decreased $23, or 16%, from the three-month period
ended September 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 percentage discussed above.
General and administrative costs to affiliates decreased $26, or 31%, from the
three-month period ended September 30, 1998 to the comparable period in 1999
primarily due to a decrease in the allocation of overhead costs from TEM.
Other income increased $13 from the three-month period ended September 30, 1998
to the comparable period in 1999 due to the fluctuations in gain/(loss) on sale
of containers from a loss of $3 to a gain of $10, respectively.
Net earnings per limited partnership unit decreased from $0.24 for the
three-month period ending September 30, 1998 to $0.12 for the same period in
1999, reflecting the decrease in net earnings allocated to limited partners from
$441 to $218, 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 September 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). 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. Non-compliance by other third
parties is not expected to have a material effect on the Partnership's results
of operations and 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 _______________________________
Ernest J. Furtado
Senior Vice President
Date: November 12, 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>
________________________ Senior Vice President, November 12, 1999
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive November 12, 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/Ernest J. Furtado
________________________________
Ernest J. Furtado
Senior Vice President
Date: November 12, 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/Ernest J. Furtado Senior Vice President, November 12, 1999
- ---------------------------- (Principal Financial and
Ernest J. Furtado Accounting Officer) and
Secretary
/s/John A. Maccarone President (Principal Executive November 12, 1999
- ---------------------- Officer)
John A. Maccarone
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
3rd Quarter 1999 10Q
</LEGEND>
<CIK> 0001003638
<NAME> Textainer Equipment Income Fund VI
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 349
<SECURITIES> 0
<RECEIVABLES> 1,664
<ALLOWANCES> 118
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,047
<DEPRECIATION> 7,315
<TOTAL-ASSETS> 27,627
<CURRENT-LIABILITIES> 584
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,043
<TOTAL-LIABILITY-AND-EQUITY> 27,627
<SALES> 0
<TOTAL-REVENUES> 3,975
<CGS> 0
<TOTAL-COSTS> 3,524
<OTHER-EXPENSES> (36)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 487
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 487
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
