<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-19145
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3097644
(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> 2
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
QUARTERLY REPORT ON FORM 10Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - September 30, 1996 (unaudited) and December 31, 1995 .... 3
Statements of Earnings for the nine and three months
ended September 30, 1996 and 1995 (unaudited) ............................ 4
Statements of Partners' Capital for the nine months
ended September 30, 1996 and 1995 (unaudited) ............................ 5
Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995 (unaudited) ............................ 6
Notes to Financial Statements (unaudited) ................................ 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
AND RESULTS OF OPERATIONS ................................................ 12
</TABLE>
2
<PAGE> 3
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- -------
(Unaudited)
<S> <C> <C>
ASSETS
Container rental equipment, net of accumulated
depreciation of $27,403 (1995: $22,117) $ 97,351 102,147
Cash 1,097 1,293
Accounts receivable, net of allowance for
doubtful accounts of $1,436 (1995: $1,349) 5,284 6,191
Due from affiliates (note 4) 382 --
Organization costs, net of accumulated
amortization of $208 (1995: $173) 28 63
Prepaid expenses -- 46
-------- -------
$104,142 109,740
======== =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 613 457
Accrued liabilities 248 277
Deferred quarterly distribution 223 234
Accrued damage protection plan costs (note 2) 543 556
Due to affiliates (note 4) 85 941
Equipment purchases payable -- 349
-------- -------
Total liabilities 1,712 2,814
-------- -------
Partners' capital:
General partners -- --
Limited partners 102,430 106,926
-------- -------
Total partners' capital 102,430 106,926
-------- -------
$104,142 109,740
======== =======
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF EARNINGS
For the nine and three months ended September 30, 1996 and 1995
(Dollar amounts in thousands except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1996 SEPT. 30, 1996 SEPT. 30, 1995 SEPT. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Rental income $ 18,026 5,810 20,087 6,709
---------- ---------- ---------- ----------
Costs and expenses:
Direct container expenses 2,985 985 2,163 562
Bad debt provision 196 81 510 212
Depreciation and amortization 5,698 1,892 5,595 1,908
Professional fees 24 7 45 7
Management fees to affiliates (note 4) 1,707 556 1,846 621
General and administrative costs
to affiliates (note 4) 1,059 315 1,349 446
Other general and administrative costs 228 64 234 67
---------- ---------- ---------- ----------
11,897 3,900 11,742 3,823
---------- ---------- ---------- ----------
Income from operations 6,129 1,910 8,345 2,886
---------- ---------- ---------- ----------
Other income:
Interest income 61 14 47 14
Gain on sales of equipment 267 106 362 222
---------- ---------- ---------- ----------
328 120 409 236
---------- ---------- ---------- ----------
Net earnings $ 6,457 2,030 8,754 3,122
========== ========== ========== ==========
Allocation of net earnings (note 4):
General partners $ 113 37 104 36
Limited partners 6,344 1,993 8,650 3,086
---------- ---------- ---------- ----------
$ 6,457 2,030 8,754 3,122
========== ========== ========== ==========
Limited partners' per unit share
of net earnings $ 0.93 $ 0.29 $ 1.26 $ 0.45
Limited partners' per unit share
of distributions $ 1.58 $ 0.53 $ 1.50 $ 0.52
Weighted average number of limited
partnership units outstanding 6,837,460 6,835,188 6,845,903 6,845,903
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
-----------------------------------
GENERAL LIMITED TOTAL
-----------------------------------
<S> <C> <C> <C>
Balances at January 1, 1995 $ -- 109,574 109,574
Distributions $(104) (10,269) (10,373)
Net earnings 104 8,650 8,754
----- ------- -------
Balances at September 30, 1995 $ -- 107,955 107,955
===== ======= =======
Balances at January 1, 1996 $ -- 106,926 106,926
Distributions (113) (10,769) (10,882)
Redemptions (note 6) -- (71) (71)
Net earnings 113 6,344 6,457
----- ------- -------
Balances at September 30, 1996 $ -- 102,430 102,430
===== ======= =======
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,457 8,754
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 5,663 5,560
Increase in allowance for doubtful accounts 87 184
Amortization of organization costs 35 35
Gain on sales of container rental equipment (267) (362)
Changes in assets and liabilities:
Decrease in accounts receivable 837 424
(Increase) decrease in due from affiliates, net (1,218) 1,143
Increase in accounts payable and accrued liabilities 127 224
Decrease in damage protection plan costs (13) (194)
Decrease in prepaid expenses 46 50
-------- -------
Net cash provided by operating activities 11,754 15,818
-------- -------
Cash flows from investing activities:
Proceeds from sales of container rental equipment 1,188 1,491
Equipment purchases (2,083) (7,675)
-------- -------
Net cash used in investing activities (895) (6,184)
-------- -------
Cash flows from financing activities:
Redemptions (71) --
Distributions to partners (10,984) (10,362)
-------- -------
Net cash used in financing activities (11,055) (10,362)
-------- -------
Net decrease in cash (196) (728)
Cash at beginning of period 1,293 1,547
-------- -------
Cash at end of period $ 1,097 819
======== =======
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS--CONTINUED
For the nine months ended September 30, 1996 and 1995
(Amounts in thousands)
(unaudited)
SUPPLEMENTAL DISCLOSURES:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of Equipment which had not been paid or
received as of September 30, 1996 and 1995, and December 31, 1995 and 1994,
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, 1996 and 1995.
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Sept. 30, Dec. 31,
1996 1995 1995 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates.............................. $ 9 53 185 170
Accounts Payable............................... -- -- 3 --
Equipment purchases payable.................... -- 349 925 1,191
Distributions to partners included in:
Due to affiliates.............................. 24 115 64 75
Accounts payable and accrued liabilities....... 223 234 238 216
Proceeds from sale of Equipment included in:
Due from affiliates............................ 245 360 344 272
Accounts receivable............................ -- 2 2 212
</TABLE>
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of Equipment 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, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Equipment purchases recorded..................... $ 1,690 7,427
Equipment purchases paid......................... 2,083 7,675
Distributions to partners declared............... 10,882 10,373
Distributions to partners paid................... 10,984 10,362
Proceeds from sale of Equipment recorded......... 1,071 1,353
Proceeds from sale of Equipment received......... 1,188 1,491
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Dollar amounts in thousands except for unit and per unit amounts)
(Unaudited)
NOTE 1. GENERAL
Textainer Equipment Income Fund IV, L.P. (the Partnership) is a California
Limited Partnership formed in 1991. The Partnership owns and leases a
fleet of intermodal marine cargo container equipment (the Equipment) to
international shipping lines.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of September 30, 1996 and December 31, 1995, and the
results of its operations, changes in partners' capital and cash flows for
the nine- and three-month periods ended September 30, 1996 and 1995, 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, 1995.
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 of prior year amounts have been made in order to
conform with the 1996 financial statement presentation.
NOTE 2. DAMAGE PROTECTION PLAN
The Partnership offers a Damage Protection Plan (the Plan) to lessees of
its Equipment. Under the terms of the Plan, the Partnership earns
additional revenues on a daily basis and, as a result, has agreed to bear
certain repair costs. It is the Partnership's policy to recognize revenue
when earned and to provide a reserve sufficient to cover the Partnership's
obligation for estimated repair costs. At September 30, 1996 and December
31, 1995, this reserve was equal to $543 and $556, respectively.
NOTE 3. ACQUISITION OF EQUIPMENT
During the nine-month periods ended September 30, 1996 and 1995, the
Partnership purchased Equipment with a cost of $1,690 and $7,427,
respectively.
8
<PAGE> 9
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 4. TRANSACTIONS WITH AFFILIATES
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership. TFS is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM)
and Textainer Limited (TL) are associate general partners of the
Partnership. The managing general partner and the associate general
partners are collectively referred to as the General Partners and are
commonly owned by Textainer Group Holdings Limited (TGH). The General
Partners also act in this capacity for other limited partnerships.
Textainer Acquisition Services Limited (TAS) is an affiliate of the
General Partners which performs services relative to the acquisition of
Equipment outside the United States on behalf of the Partnership. TCC
Securities Corporation (TSC), a licensed broker and dealer in securities
and an affiliate of the General Partners, was the managing sales agent for
the offering of Units for sale.
In accordance with the Partnership Agreement, net earnings or losses,
syndication and offering costs and partnership distributions are allocated
1% to the general partners and 99% to the limited partners, with the
exception of gross income, as defined in the Partnership agreement. Gross
income is allocated to the General Partners to the extent that their
partners' capital accounts' show a deficit.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners or TAS an incentive management fee, an acquisition
fee, an equipment 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
capitalized equipment acquisition fees totaling $99 and $366 as a
component of Equipment costs during the nine-month periods ended September
30, 1996 and 1995, respectively. The Partnership incurred $453 and $151 of
incentive management fees during the nine- and three-month periods ended
September 30, 1996, respectively, and $440 and $151 for the comparable
periods ended September 30, 1995. No equipment liquidation fees were
incurred during either period.
The Equipment is managed by TEM. In its role as manager, TEM has authority
to acquire, hold, manage, lease, sell and dispose of the Equipment.
Additionally, TEM holds, for payment of direct operating expenses, a
reserve of cash that has been collected from Equipment leasing operations;
such cash is included in the amount due from affiliates at September 30,
1996.
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. For the nine-
and three-month periods ended September 30, 1996, these fees totaled
$1,254 and $405, respectively, and $1,406 and $470 for the comparable
periods ended September 30, 1995. The Equipment is leased by TEM to third
party lessees on operating master leases, spot leases and term leases. The
majority of the Equipment is leased under operating leases with limited
terms and no purchase option.
Certain indirect general and administrative costs incurred in performing
administrative services necessary to the operation of the Partnership are
borne by TEM and are allocated to the Partnership based on the ratio of
the Partnership's interest in managed Equipment to the total equipment
managed by TEM. Indirect general and administrative costs allocated to the
Partnership were $932 and $277 for the nine- and three-month periods ended
September 30, 1996, respectively, and $1,138 and $380 for the comparable
periods ended September 30, 1995.
TFS, in its capacity as managing general partner, also incurred general
and administrative costs of $127 and $38 for the nine- and three-month
periods ended September 30, 1996, respectively, and $211 and $66 for the
comparable periods ended September 30, 1995, which were reimbursed by the
Partnership.
9
<PAGE> 10
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The General Partners or TAS may acquire Equipment in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such Equipment for the Partnership. The Equipment 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. In addition, the
General Partners or TAS are entitled to an acquisition fee for any
Equipment resold to the Partnership.
At September 30, 1996 and December 31, 1995, due from and to affiliates
are comprised of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM ........... $382 --
==== ===
Due to affiliates:
Due to TFS ............. $ 61 87
Due to TGH ............. -- 1
Due to TAS ............. 1 31
Due to TCC ............. 21 16
Due to TEM ............. -- 795
Due to TL .............. 2 11
---- ---
$ 85 941
==== ===
</TABLE>
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 payment of expenses
and fees described above or in the accrual and collection of net rental
revenues from TEM.
NOTE 5. RENTALS UNDER OPERATING LEASES
The following is a schedule by year of minimum future rentals receivable
on noncancelable operating leases as of September 30, 1996:
<TABLE>
<CAPTION>
Year ending September 30:
<S> <C>
1997 ........................................ $1,772
1998 ........................................ 211
1999 ........................................ 9
2000 ........................................ 3
------
Total minimum future rentals receivable ..... $1,995
======
</TABLE>
10
<PAGE> 11
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 6. REDEMPTIONS
The following redemption offerings were consummated by the Partnership
during the nine-month period ended September 30, 1996:
<TABLE>
<CAPTION>
AVERAGE
UNITS REDEEMED REDEMPTION PRICE AMOUNT PAID
-------------- ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1995 6,025 $15.70 $ 95
Quarter ended :
March 31, 1996............. 2,068 $15.60 32
September 30,1996.......... 2,622 $14.87 39
------ ----
Balance at September 30, 1996 ... 10,715 $15.48 $166
====== ====
</TABLE>
The redemption price is fixed by formula and varies depending on the
length of time the units have been outstanding.
11
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in thousands except for unit and per unit amounts)
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the nine- and three-month periods
ended September 30, 1996 and 1995. Please refer to the Financial Statements and
Notes thereto in connection with the following discussion.
LIQUIDITY AND CAPITAL RESOURCES
From April 30, 1992 until April 30, 1994 the Partnership was involved in the
offering of limited partnership interests to the public. On April 30, 1994, the
Partnership had received a total subscription amount of $136,918.
The Partnership has set up a program whereby limited partners may redeem units
for a specified redemption value. The redemption price is set by formula and
varies depending on length of time the units are outstanding. 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. The Partnership redeemed 4,690 units for a total
dollar amount of $71, representing an average redemption price of $15.19 during
the nine-month period ended September 30, 1996. From the inception of the
Partnership through September 30, 1996, the Partnership has redeemed a total of
10,715 units for $166, representing an average redemption price of $15.48 per
unit. The Partnership has used cash flow from operations to pay for the redeemed
units. Based on these factors, the Managing General Partner determined not to
redeem units for the redemption offer that would otherwise have been made in
October, 1996.
The Partnership invests working capital and cash flows from operations in
short-term, highly liquid investments prior to distribution or reinvestment in
additional Equipment. It is the policy of the Partnership to maintain a minimum
working capital reserve in an amount which is the lesser of (i) 1% of capital
contributions, or (ii) $100. At September 30, 1996, the Partnership's cash of
$1,097 was invested in a market-rate account.
During the nine-month period ended September 30, 1996, the Partnership declared
cash distributions to limited partners pertaining to the period from December
1995 through August 1996, in the amount of $10,769. These distributions
represent a return of 10.5% of original capital (measured on an annualized
basis) on each unit. On a GAAP basis $4,425 of these distributions was a return
of capital and the balance was from net earnings. On a cash basis all of these
distributions were from operations. Beginning with the cash distribution to
limited partners for the month of October 1996, payable November 1996, the
Partnership has made distributions at an annualized rate of 9.5% on each unit.
This reduction in the Partnership's distribution rate is a result of the decline
in market conditions for the leasing of the Partnership's container rental fleet
during the fourth quarter of 1995 and the first three quarters of 1996, which is
discussed in detail below.
For the nine-month period ended September 30, 1996, the Partnership had net cash
provided by operating activities of $11,754, compared with $15,818 for the same
period in 1995. This decrease was attributable to a decrease in net earnings and
an increase in net due from affiliates, tempered by a decrease in accounts
receivable from operations. The decrease in net earnings resulted from a decline
in rental income of $2,061, or 10%, and an increase in direct operating expenses
of $822, or 38%, which resulted primarily from a lower utilitzation rate and
drop in rental rates for the Partnership Equipment. The increase in net due from
affiliates reflects timing differences in the accrual and payment of net rental
revenues, fees and other expenses to or from TEM and affiliates. The decrease in
accounts receivable from operations was due to the decline in rental revenue
and an improvement of two days in
12
<PAGE> 13
the average collection period from 104 days for the nine-month period ended
September 30, 1995 to 102 days for the comparable period in 1996.
The Partnership's principal lessees, shipping lines, are currently experiencing
over-capacity, in part due to the delivery of new, large capacity ships. This
over-capacity has caused shipping lines to reduce freight rates and has affected
the profitability of their business, resulting in the need to reduce costs. This
is producing downward pressure on lease rates. Delays in the remittance of
rental payments, and in extreme cases, bankruptcy of some shipping lines may
occur if profitability continues to erode. As noted above and discussed more
fully below under "Results of Operations", utilization rates have reflected a
lower demand for containers, and this over-capacity could also further affect
utilization.
Net cash used in investing activities for the nine-month period ended September
30, 1996 was $895 compared to $6,184 for the same period in 1995. This
difference is primarily due to the fact that, on a cash basis, the Partnership
purchased less Equipment in 1996 than in the same period in 1995. The General
Partners believe that these differences reflect normal fluctuations in equipment
sales and purchases. In addition, the Partnership has used Equipment in its
portfolio and expects to sell this Equipment periodically when it reaches the
end of its useful marine life. Consistent with its investment objectives and the
General Partners' determination that Equipment can be profitably sold or bought
at any time, the Partnership intends to reinvest all or a significant amount of
proceeds from future Equipment sales in additional Equipment.
RESULTS OF OPERATIONS
The Partnership's operations, which consist of rental income, Equipment
depreciation, direct operating expenses, management fees, and reimbursement of
administrative expenses, were directly related to the size of the Equipment
fleet (inventory) during the nine-month periods ended September 30, 1996 and
1995, as well as certain other factors as discussed below. The following is a
summary of the Equipment (in units) available for lease during those periods:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Opening inventory .......... 36,297 35,132
Closing inventory .......... 35,998 36,398
Average .................... 36,148 35,765
</TABLE>
The average container fleet increased by 1.1% from the nine-month period ended
September 30, 1995 to the same period in 1996 primarily due to reinvestment of
proceeds from the sale of used Equipment.
Rental income and direct container expenses are affected by lease utilization
percentages for the Equipment, which were 84% and 93% on average during the
nine-month period ended September 30, 1996 and 1995, respectively. In addition,
rental income is affected by daily rental rates which have also decreased as
discussed below.
The following is a comparative analysis of the results of operations for the
nine-month periods ended September 30, 1996 and 1995.
The Partnership's income from operations for the nine-month period ended
September 30, 1996 was $6,129 on gross rental income of $18,026, compared to
$8,345 on gross rental income for $20,087 for the same period in 1995. The
decrease in rental income of $2,061 between periods was primarily attributable
to income from Equipment rentals, the major component of total rental income,
which decreased by $1,758, or 10%. Income from Equipment rentals is largely
dependent upon three factors: average on-hire (utilization) percentage,
Equipment available for lease (average inventory), and average daily rental
rates. Average utilization decreased by 10%, and average daily rental rates
decreased by 2.2%; these decreases were tempered by an increase in average
inventory of 1.1%.
13
<PAGE> 14
Utilization began to decrease in the last quarter of 1995 and has continued to
decline in the first three quarters of 1996. The General Partners believe that
this softening in demand has been due, in part, to a slow-down in activity in
the Asia-North America trade route. Additionally, as noted above, the
Partnership's principal lessees, shipping lines, are currently experiencing
over-capacity, which may adversely affect rental payments and/or rates and
utilization which is likely affecting rental rates. Rental rates have also been
restrained by quantity rate discounts granted to the Partnership's larger
Equipment lessees.
Substantially all of the Partnership's rental income was generated from the
leasing of the Equipment under short-term operating leases.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for pick-up of Equipment from prime locations
as adjusted by credits granted to lessees for leasing Equipment from less
desirable locations (location income), income for handling and returning
Equipment and income from charges to lessees for a damage protection plan. For
the nine-month period ended September 30, 1996, the total of these other revenue
items was $1,506, a decrease of $303 compared to the equivalent period in 1995.
The primary component of this net decrease was a decline in location income of
$338. This decline is mainly due to an increase in credits given to lessees for
pick-up of Equipment from less desirable locations, which was largely driven by
decreased demand. Location income also declined due to a decrease in drop-off
charges to lessees for Equipment at less desirable locations, which primarily
resulted from drop-off charges to a specific lessee in the first quarter of
1995, which did not re-occur in the same period in 1996.
Direct operating expenses, excluding bad debt expense, increased by $822, or
38%, from the nine-month period ended September 30, 1995, to the same period in
1996. The primary components of this increase were costs incurred for storage
which increased by $572 between periods mainly due to the decline in
utilization. Additionally, expenses under the damage protection plan increased
by $348 due to an increase in the number of units requiring repair under the
plan.
Bad debt expense decreased from $510 in the nine-month period ended September
30, 1995 to $196 in the same period of 1996. The decrease was primarily due to a
reduction in reserve requirements for a specific lessee during the first three
quarters in 1996.
Depreciation and amortization expense increased by $103, or 1.8%, from the
nine-month period ended September 30, 1995 to the same period in 1996,
reflecting the increase in the Partnership's average fleet size of 1.1% between
periods.
Management fees were 9.5% and 9.2% of gross revenue for the nine-month periods
ended September 30, 1996 and 1995, respectively. Incentive management fees,
which are based on the Partnership's limited and general partner distribution
percentage and capital raised, were 2.5% of gross revenue in the nine-months
ended September 30, 1996 and 2.2% of gross revenue in the comparative period in
1995. Equipment management fees were 7% of gross revenue for both periods.
General and administrative costs to affiliates decreased by 22%, or $290, from
the nine-month period ended September 30, 1995 to the same period in 1996. This
decrease was primarily the result of a decline in overhead costs allocated from
TEM.
Other income provided $328 of additional income for the nine-month period ended
September 30, 1996, representing a decrease of $81, or 20%, over the equivalent
period in 1995. The decrease was attributable to a $95 decline in gains from
sales of Equipment and a $14 increase in interest income.
Net earnings per limited partnership unit decreased from $1.26 for the
nine-month period ended September 30, 1995 to $0.93 for the nine-month period
ended September 30, 1996, reflecting the decrease in net earnings from $8,754
for the nine-month period ended September 30, 1995 to $6,457 for the same period
in 1996.
14
<PAGE> 15
The following is a comparative analysis of the results of operations for the
three-month periods ended September 30, 1996 and 1995.
The Partnership's income from operations for the three-month period ended
September 30, 1996 decreased by $976, or 34%, compared to the same period in
1995, on rental income of $5,810 and $6,709, respectively. The decrease in total
rental income of $899, or 13%, between periods was primarily attributable to
income from Equipment rentals, the major component of total rental income, which
decreased by $953, or 15%, from 1995 to 1996. The decrease resulted from a 12%
decrease in utilization and a 3.3% decrease in average daily rental rates from
the three-month period ended September 30, 1995, to the comparable period ended
September 30, 1996; these decreases were tempered slightly by an increase in
average inventory of 1.1%.
The balance of rental income for the three months ended September 30, 1996 was
$481 compared to $427 for the same period in 1995, an increase of $54, or 13%.
The primary component of this net increase was an increase in damage protection
plan income of $103, partially offset by a decrease in location income of $78
from the three-month period ended September 30,1995 to the same period in 1996.
Damage protection plan income in 1995 included an adjustment for a retroactive
refund to a lessee who canceled this coverage. The decrease in location income
was due to an increase in credits given to lessees for pick-up of Equipment from
less desirable locations in the three-month period ended September 30, 1996,
which was largely driven by decreased demand for Equipment.
Direct operating expenses, excluding bad debt expense, increased by $423, or
75%, from the three-month period ended September 30, 1995, to the same period in
1996. The primary components of this increase were costs incurred for storage
which increased by $231 between periods mainly due to the decline in
utilization. Additionally, expenses under the damage protection plan increased
by $237 due to an increase in the number of units requiring repair under the
plan.
Bad debt expense decreased by $131 from the three-month period ended September
30, 1995 to the same period in 1996 due to lower overall reserve requirements
for the three-month period ended September 30, 1995.
Depreciation expense decreased by $16 from the three-month period ended
September 30, 1995 to the equivalent period in 1996.
Management fees to affiliates were lower by $65 in the three months ended
September 30, 1996 than in the same period in 1995. This decrease was due to the
decline in rental income between periods.
General and administrative costs to affiliates decreased by $131, or 29%, from
the three-month period ended September 30, 1995 to the same period in 1996. The
decrease was primarily the result of a decline in overhead costs allocated from
TEM.
Other income provided for $120 in additional income for the three-month period
ended September 30, 1996, representing a decrease of $116 or 49%. The decrease
was attributable to a decline in gains from sales of Equipment.
Net earnings per limited partnership unit decreased from $0.45 for the
three-month period ended September 30, 1995 to $0.29 for the three-month period
ended September 30, 1996 for the reasons noted above.
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 Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the
15
<PAGE> 16
Partnership's ability to keep the Equipment under lease, rather than the
geographic location of the Equipment or the domicile of the lessees. The
Equipment is generally operated on the international high seas rather than on
the domestic waterways. The Equipment is subject to the risk of war or other
political, economic or social occurrence where the Equipment is used, which may
result in the loss of Equipment, 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, 1996 which would
result in such risk materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning Equipment after it comes off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the Equipment, and the effect of world trade and/or general business and
economic cycles on the Partnership's operations.
16
<PAGE> 17
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 IV, L.P.
(A California Limited Partnership)
By Textainer Financial Services Corporation
The Managing General Partner
By /s/John R. Rhodes
------------------------
John R. Rhodes
Executive Vice President
Date: November 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/James E. Hoelter President (Principal Executive November 14, 1996
- -------------------- Officer) and Director
James E. Hoelter
/s/John R. Rhodes Executive Vice President, November 14, 1996
- -------------------- (Principal Financial and
John R. Rhodes Accounting Officer),
Secretary and Treasurer
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,097
<SECURITIES> 0
<RECEIVABLES> 7,102
<ALLOWANCES> 1,436
<INVENTORY> 0
<CURRENT-ASSETS> 28
<PP&E> 124,754
<DEPRECIATION> 27,403
<TOTAL-ASSETS> 104,142
<CURRENT-LIABILITIES> 1,712
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 102,430
<TOTAL-LIABILITY-AND-EQUITY> 104,142
<SALES> 0
<TOTAL-REVENUES> 18,026
<CGS> 0
<TOTAL-COSTS> 11,897
<OTHER-EXPENSES> (328)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,457
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,457
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
