TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
November 13, 1997
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 IV,
L.P. (the "Company") the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997.
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 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-21228
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(Exact name of Registrant as specified in its charter)
California 94-3147432
(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>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10Q for the
Quarter Ended September 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C>
Balance Sheets - September 30, 1997 (unaudited) and December 31, 1996................................ 3
Statements of Earnings for the nine and three months
ended September 30, 1997 and 1996 (unaudited)........................................................ 4
Statements of Partners' Capital for the nine months
ended September 30, 1997 and 1996 (unaudited)........................................................ 5
Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited)........................................................ 6
Notes to Financial Statements (unaudited)............................................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................................ 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Balance Sheets
September 30, 1997 and December 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $34,300 (1996: $29,128) $91,481 $95,626
Cash 862 2,694
Accounts receivable, net of allowance
for doubtful accounts of $1,426 (1996: $1,391) 5,113 5,647
Organization costs, net of accumulated
amortization of $236 (1996: $220) - 16
Prepaid expenses 9 46
----------------- -----------------
$97,465 $104,029
================= =================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $719 $544
Accrued liabilities 64 -
Accrued recovery costs (note 2) 128 85
Accrued damage protection plan costs (note 3) 391 520
Warranty claims (note 4) 552 599
Due to affiliates (note 6) 248 815
Deferred quarterly distribution 200 199
Equipment purchases payable 205 361
----------------- -----------------
Total liabilities 2,507 3,123
----------------- -----------------
Partners' capital:
General partners - -
Limited partners 94,958 100,906
----------------- -----------------
Total partners' capital 94,958 100,906
----------------- -----------------
$97,465 $104,029
================= =================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Earnings
For the nine and three months ended September
30, 1997 and 1996 (Dollar amounts in thousands
except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Rental income $5,340 $5,810 $15,679 $18,026
-------------------- ------------------- ------------------- -------------------
Costs and expenses:
Direct container expenses 1,231 985 3,442 2,985
Bad debt (benefit) expense (14) 81 153 196
Depreciation and amortization 1,888 1,892 5,626 5,698
Professional fees 9 7 26 24
Management fees to affiliates (note 6) 510 556 1,499 1,707
General and administrative costs to affiliates (note 6) 296 315 1,003 1,059
Other general and administrative costs 55 64 165 228
-------------------- ------------------- ------------------- -------------------
3,975 3,900 11,914 11,897
-------------------- ------------------- ------------------- -------------------
Income from operations 1,365 1,910 3,765 6,129
-------------------- ------------------- ------------------- -------------------
Other income:
Interest income 16 14 55 61
Gain on sale of equipment 11 106 167 267
-------------------- ------------------- ------------------- -------------------
27 120 222 328
-------------------- ------------------- ------------------- -------------------
Net earnings $1,392 $2,030 $3,987 $6,457
==================== =================== =================== ===================
Allocation of net earnings (note 6):
General partners $34 $37 $102 $113
Limited partners 1,358 1,993 3,885 6,344
-------------------- ------------------- ------------------- -------------------
$1,392 $2,030 $3,987 $6,457
==================== =================== =================== ===================
Limited partners' per unit share
of net earnings $0.20 $0.29 $0.57 $0.93
==================== =================== =================== ===================
Limited partners' per unit share
of distributions $0.48 $0.53 $1.43 $1.58
==================== =================== =================== ===================
Weighted average number of limited
partnership units outstanding 6,827,168 6,835,188 6,827,168 6,837,460
==================== =================== =================== ===================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the nine months ended September 30, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Partners' Capital
---------------------------------------------------------------
General Limited Total
-------------- -------------------- --------------------
<S> <C> <C> <C>
Balances at January 1, 1996 $0 $106,926 $106,926
Distributions (113) (10,769) (10,882)
Redemptions (note 8) - (71) (71)
Net earnings 113 6,344 6,457
-------------- -------------------- --------------------
Balances at September 30, 1996 $0 $102,430 $102,430
============== ==================== ====================
Balances at January 1, 1997 $0 $100,906 $100,906
Distributions (102) (9,729) (9,831)
Redemptions (note 8) - (104) (104)
Net earnings 102 3,885 3,987
-------------- -------------------- --------------------
Balances at September 30, 1997 $0 $94,958 $94,958
============== ==================== ====================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $3,987 $6,457
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 5,610 5,663
Increase in allowance for doubtful accounts 35 87
Amortization of organization costs 16 35
Gain on sale of equipment (167) (267)
Changes in assets and liabilities:
Decrease in accounts receivable 502 837
Decrease in due to affiliates (659) (1,218)
Increase in accounts payable and accrued liabilities 239 72
Increase in accrued recovery costs 43 62
Decrease in accrued damage protection plan costs (129) (13)
Decrease in warranty claims (47) (7)
Decrease in prepaid expenses 37 46
---------------- ----------------
Net cash provided by operating activities 9,467 11,754
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of equipment 1,091 1,188
Equipment purchases (2,449) (2,083)
---------------- ----------------
Net cash used in investing activities (1,358) (895)
---------------- ----------------
Cash flows from financing activities:
Redemptions of limited partnership units (104) (71)
Distributions to partners (9,837) (10,984)
---------------- ----------------
Net cash used in financing activities (9,941) (11,055)
---------------- ----------------
Net decrease in cash (1,832) (196)
Cash at beginning of period 2,694 1,293
---------------- ----------------
Cash at end of period $862 $1,097
================ ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the nine months ended September 30, 1997 and 1996
(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, 1997 and 1996, and December 31, 1996 and 1995,
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, 1997 and 1996.
<TABLE>
<CAPTION>
Sept. 30 Dec. 31 Sept. 30 Dec. 31
1997 1996 1996 1995
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates.............................. $ 3 $ 5 $ 9 $ 53
Equipment purchases payable.................... 205 361 - 349
Distributions to partners included in:
Due to affiliates.............................. 11 18 24 115
Deferred quarterly distribution................ 200 199 223 234
Proceeds from sale of Equipment included in:
Accounts receivable............................ - - - 2
Due from affiliates............................ 260 361 245 360
</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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment purchases recorded...................................................... $ 2,291 $ 1,690
Equipment purchases paid.......................................................... 2,449 2,083
Distributions to partners declared................................................ 9,831 10,882
Distributions to partners paid.................................................... 9,837 10,984
Proceeds from sale of Equipment recorded.......................................... 990 1,071
Proceeds from sale of Equipment received.......................................... 1,091 1,188
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Notes To Financial Statements
September 30, 1997
(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 containers (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, 1997 and December 31, 1996, and the
results of its operations, changes in partners' capital and cash flows for
the nine- and three-month periods ended September 30, 1997 and 1996, 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, 1996.
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 1997 financial statement presentation.
Note 2. Recovery Costs
The Partnership accrues an estimate for recovery costs as a result of
defaults under its leases that it expects to incur, which are in excess of
estimated insurance proceeds. At September 30, 1997 and December 31, 1996,
the amounts accrued were $128 and $85, respectively.
Note 3. Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of its
Equipment. Under the terms of DPP, 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, 1997 and December
31, 1996, this reserve was equal to $391 and $520, respectively.
Note 4. Warranty Claims
During 1996 and 1995, the Partnership settled warranty claims against two
equipment manufacturers. The Partnership is amortizing the settlement
amount over the remaining estimated useful life of the Equipment (ten
years), reducing maintenance and repair costs over that time. At September
30, 1997 and December 31, 1996, the unamortized portion of the settlement
amount was $552 and $599, respectively.
Note 5. Acquisition of Equipment
During the nine-month periods ended September 30, 1997 and 1996, the
Partnership purchased Equipment with a cost of $2,291 and $1,690,
respectively.
Note 6. 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. The General
Partners manage and control the affairs of the Partnership. 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,
TEM, TL and TAS are subsidiaries of Textainer Group Holdings Limited
(TGH). 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, and subject to the special
allocations described therein, net earnings or losses, and partnership
distributions are generally 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 deficits
exceed the portion of syndication and offering costs allocated to them. On
termination of the Partnership, the General Partners shall be allocated
gross income equal to their allocations of syndication and offering costs.
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 as well
as reimburse the General Partners for certain administrative costs. These
fees are for various services provided in connection with the
administration and management of the Partnership. The Partnership
capitalized equipment acquisition fees totaling $117 and $99 as a
component of Equipment costs during the nine-month periods ended September
30, 1997 and 1996, respectively. The Partnership incurred $410 and $137 of
incentive management fees during the nine- and three-month periods ended
September 30, 1997 and $453 and $151 of incentive management fees for the
comparable periods in 1996. No equipment liquidation fees were incurred
during either period.
The Partnership's Equipment is managed by TEM. In its role as manager, TEM
has authority to acquire, hold, manage, lease, sell and dispose of the
Partnership's 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 to
affiliates at September 30, 1997 and December 31, 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. These fees
totaled $1,089 and $373 for the nine- and three-month periods ended
September 30, 1997 and $1,254 and $405 for the comparable periods in 1996.
The Partnership's 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 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 borne by TFS and TEM. Total general and administrative
costs allocated to the Partnership were $1,003 and $296 for the nine- and
three-month periods ended September 30, 1997 of which $552 and $172,
respectively, were for salaries. For the nine- and three-month periods
ended September 30, 1996, total general and administrative costs allocated
to the Partnership were $1,059 and $315, of which $546 and $184,
respectively were for salaries.
TEM allocates the general and administrative costs based on the ratio of
the Partnership's interest in the managed Equipment to the total Equipment
managed by TEM during the period. TFS allocates these costs based on the
ratio of the Partnership's Equipment to the total Equipment of all limited
partnerships managed by TFS. General and administrative costs allocated to
the Partnership by TEM were $881, $267, $932 and $277 for the nine- and
three-month periods ended September 30, 1997 and 1996, respectively. TFS
allocated $122, $29, $127 and $38 of general and administrative costs to
the Partnership during the nine- and three-month periods ended September
30, 1997 and 1996, respectively.
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, 1997 and December 31, 1996, due to affiliates are
comprised of:
1997 1996
---- ----
Due to affiliates:
Due to TFS..................................... $ 52 $ 50
Due to TAS..................................... 1 5
Due to TCC..................................... 8 36
Due to TEM..................................... 186 723
Due to TL...................................... 1 1
---- ----
$ 248 $ 815
==== ====
These amounts 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 remittance of net rental revenues
from TEM.
It is the policy of the Partnership and the General Partners to charge
interest on intercompany balances which are outstanding for more than one
month, to the extent such balances relate to loans for Equipment
purchases. Interest is charged at a rate not greater than the General
Partners' or affiliates' own cost of funds. There was no interest charged
on intercompany balances for the nine- and three-month periods ended
September 30, 1997 and 1996.
Note 7. Rentals Under Operating Leases
The following is a schedule by year of minimum future rentals receivable
on noncancelable operating leases at September 30, 1997:
Year ending September 30:
1998............................................. $ 1,461
1999............................................. 123
2000............................................. 3
---------
Total minimum future rentals receivable.......... $ 1,587
=========
Note 8. Redemptions
The following redemption offerings were consummated by the Partnership
during the nine-month period ended September 30, 1997:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
<S> <C> <C> <C>
Balance at December 31, 1996 10,715 $15.49 $ 166
Quarter ended:
March 31, 1997.................... 8,020 $13.03 104
June 30, 1997..................... - - -
September 30, 1997................ - - -
----------- ------
Partnership to date....................... 18,735 $14.43 $ 270
====== ====
</TABLE>
The redemption price is fixed by formula and varies depending on the
length of time the units have been outstanding.
<PAGE>
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, 1997 and 1996. 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.
From time to time, the Partnership redeems units from limited partners 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 8,020 units for a total
dollar amount of $104 during the three-month period ended March 31, 1997. During
the three-month periods ended June 30, and September 30, 1997, the Partnership
did not redeem Partnership units.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the nine-month period ended September 30, 1997, the Partnership declared
cash distributions to limited partners pertaining to the period from December
1996 through August 1997, in the amount of $9,729. These distributions represent
a return of 9.5% of original capital (measured on an annualized basis) on each
unit. On a GAAP basis, $5,844 of these distributions was a return of capital and
the balance was from net earnings. On a cash basis, $9,467 of these
distributions was from operations and the balance was from reserves.
For the nine-month periods ended September 30, 1997 and 1996, the Partnership
had net cash provided by operating activities of $9,467 and $11,754,
respectively. This decrease in net cash provided by operating activities was
primarily attributable to decreases in net earnings and accounts receivable of
$2,470 and $502, respectively, offset by the decrease in due to affiliates of
$659. Accounts receivable from operations decreased primarily due to the
decrease in rental income. Due to affiliates decreased due to timing differences
in the accrual and payment of expenses and fees or in the accrual and remittance
of net rental revenues. The 38% decrease in net earnings from the nine-month
period ended September 30, 1996 compared to the equivalent period in 1997, was
primarily due to a decrease in rental revenues of $2,347, or 13%. The decrease
in rental revenues between periods was due to a decline in utilization and
rental rates. These decreases are discussed more fully below under "Results of
Operations". As explained below under "Results of Operations", demand for leased
containers has declined compared to the prior period, and this decline has
affected the Partnership's financial condition.
Net cash used in investing activities (the purchase and sale of rental
equipment) for the nine-month periods ended September 30, 1997 and 1996 was
$1,358 and $895, respectively. The increase in net cash used in investing
activities is primarily due to the fact that, on a cash basis, the Partnership
purchased more Equipment in 1997 than in the same period in 1996. The General
Partners believe that these differences reflect normal fluctuations in equipment
sales and purchases. Moreover, the Partnership has Equipment that was purchased
used 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. Such additional units of Equipment purchased may not, however, equal
the number of units sold.
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, 1997 and
1996, 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:
1997 1996
---- ----
Opening inventory....................... 35,931 36,297
Closing inventory....................... 36,321 35,998
Average................................. 36,126 36,148
Rental income and direct container expenses are also affected by lease
utilization percentages for the Equipment, which averaged 79% and 84% during the
nine-month periods ended September 30, 1997 and 1996, respectively. In addition,
rental income is affected by daily rental rates, which have declined.
The following is a comparative analysis of the results of operations for the
nine-month periods ended September 30, 1997 and 1996.
The Partnership's income from operations for the nine-month period ended
September 30, 1997 was $3,765 on gross rental income of $15,679, compared to
$6,129 on gross rental income for $18,026 for the equivalent period in 1996. The
largest component of total rental income is income from container rentals, which
decreased $2,132, or 13%, from the nine-month period ended September 30, 1996 to
the comparable period in 1997. As noted above, income from container rentals is
largely dependent upon three factors: equipment available for lease (average
inventory), average on-hire (utilization) percentage and average daily rental
rates. Average utilization decreased 6% and average daily rental rates decreased
6%, while average inventory remained fairly constant.
Container utilization began to decline in late 1995 and that decline persisted
throughout 1996 and into the first quarter of 1997. The General Partners believe
that this decrease in demand for leased containers is the result of adverse
changes in the business of its shipping line customers. These changes consist
principally of: (i) a general slowdown in the growth of world containerized
cargo trade, particularly in the Asia-North America and Asia-Europe trade
routes; (ii) over-capacity resulting from the 1996 and 1997 additions of new,
larger ships to the existing container ship fleet at a rate in excess of the
growth rate in containerized cargo trade; and (iii) shipping line alliances and
other operational consolidations that have allowed shipping lines to operate
with fewer containers, thereby decreasing the demand for leased containers. The
container ship over-capacity in particular led to lower shipping rates,
resulting in shipping lines' need to reduce operating costs. The drive to reduce
costs, coupled with the availability of inexpensive financing and lower
container prices, encouraged shipping lines to purchase, rather than lease, a
greater number of new containers in 1996 than in previous years. All of these
factors have led to downward pressure on container lease rates, a decline in
utilization of leased containers, and an increase in leasing incentives and
other discounts being granted to shipping lines by container lessors, further
eroding Partnership profitability. The decline in demand for leased containers
has been accompanied by a drop in the purchase price of new containers.
During the second and third quarters there was an improvement in utilization,
however lease rates declined and leasing incentives remained high due to high
levels of off-lease inventory in low demand locations. The General Partners do
not foresee material changes in current market conditions and caution that both
utilization and lease rates could decline further, and leasing incentives could
remain high, adversely affecting the Partnership's results.
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 for handling and returning containers, income from charges to lessees for
a damage protection plan (DPP) and income from charges to the lessees for
pick-up of containers from prime locations less credits granted to lessees for
leasing containers from surplus locations (location income). For the nine-month
period ended September 30, 1997, the total of these other income items was
$1,275, a decrease of $215 compared to the equivalent period in 1996. The
primary components of this net decrease were a decrease in location income of
$346, offset by an increase in handling income of $188. The decline in location
income is primarily due to lower demand, which required an increase in credits
given to lessees for picking up units from surplus locations. An increase in
container movement offset by lower average handling charges to lessees resulted
in increased handling income for the nine-months ending September 30, 1997
compared to the equivalent period in 1996.
Direct container expenses, excluding bad debt expense, increased by $457, or
15%, from the nine-month period ended September 30, 1996, to the same period in
1997. The primary components of this increase were increases in storage and
repositioning expenses of $332 and $361, respectively, offset by a decrease in
DPP expense of $264. The increase in storage expense was primarily due to the
decline in utilization. Repositioning expense increased due a greater number of
units being transported from surplus locations to higher demand locations during
the nine-month period ending September 30, 1997 than in the comparable period in
1996. The decrease in DPP expense was primarily due to a decrease in the average
per container repair cost from September 30, 1996 to the equivalent period in
1997.
Bad debt expense decreased from $196 in the nine-month period ended September
30, 1996 to $153 in the same period of 1997, due to lower reserve requirements.
Depreciation expense was comparable between periods.
Management fees to affiliates decreased by $208, or 12%, for the nine-month
period ended September 30, 1997 compared to the equivalent period in 1996, due
to a decrease in Equipment and incentive management fees. Equipment management
fees, which are based primarily of gross revenue, decreased as a result of the
decrease in rental income and were 7% of gross revenue for both periods.
Incentive management fees, which are based on the Partnership's limited and
general partner distribution percentage and partners' capital, decreased $43, or
9%, primarily due to a decrease in the limited partners distribution percentage
from 10.5% in the nine-month period ended September 30, 1996 to 9.5% for the
equivalent period in 1997.
General and administrative costs to affiliates decreased by 5%, or $56, from the
nine-month period ended September 30, 1996 to the equivalent period in 1997, due
to a decline in overhead costs allocable from TEM and TFS during these periods.
Other income was $222 for the nine-month period ended September 30, 1997,
representing a decrease of $106, or 32%, from the equivalent period in 1996.
This decrease was primarily due to a decrease in gain on sale of Equipment.
Net earnings per limited partnership unit decreased to $0.57 for the nine-month
period ended September 30, 1997 from $0.93 for the nine-month period ended
September 30, 1996, reflecting the decrease in net earnings from $6,344 for the
nine-month period ended September 30, 1996 to $3,885 for the same period in
1997.
The following is a comparative analysis of the results of operations for the
three-month periods ended September 30, 1997 and 1996.
The Partnership's income from operations for the three-month period ended
September 30, 1997 was $1,365 on gross rental income of $5,340, compared to
$1,910 on gross rental income for $5,810 for the same period in 1996. The
largest component of total rental income is income from container rentals, which
decreased by $375 or 7%, from the three-month period ended September 30, 1996 to
the equivalent period in 1997. This decline was due to a decrease in average
daily rental rates of 9%.
The balance of rental income for the three-month period ended September 30, 1997
was $382, a decrease of $95, or 20%, compared to the equivalent period in 1996.
The primary component of this decrease was a decrease in location income of
$210, offset by an increase in handling income of $108. The decline in location
income is primarily due to lower demand, which required an increase in credits
given to lessees for picking up units from surplus locations. An increase in
container movement offset by lower average handling charges to lessees resulted
in increased handling income for the three-months ending September 30, 1997
compared to the equivalent period in 1996.
Direct container expenses, excluding bad debt expense, increased by $246, or
25%, from the three-month period ended September 30, 1996 to the comparable
period in 1997. The primary components of this increase were increases in
repositioning and handling expenses. Repositioning expenses increased primarily
due to an increase in the number of units transported to higher demand
locations. Handling expense increased due to an increase in the movement of
containers at a higher average cost.
Bad debt expense decreased from an expense of $81 in the three-month period
ended September 30, 1996 to a benefit of $14 in the equivalent period of 1997.
This decrease is due to lower reserve requirements.
Depreciation expense remained fairly constant from the three-month period ended
September 30, 1996 to the comparable period in 1997.
Management fees to affiliates decreased by $46, or 8%, for the three-month
periods ended September 30, 1997 from the equivalent period in 1996 due to a
decrease in Equipment and incentive management fees. Equipment management fees
decreased by $32, or 8%, due to the decrease in rental income and incentive
management fees decreased by $14, or 9%, due to a decrease in the limited
partners' distribution percentage.
General and administrative costs to affiliates decreased by 6%, or $19, from the
three-month period ended September 30, 1996 to the comparable period in 1997,
due to a decrease in overhead costs allocable from TFS and TEM during these
periods.
Other income was $27 for the three-month period ended September 30, 1997,
representing a decrease of $93, or 78% over the equivalent period in 1996 and
was primarily due to a $95 decrease in gain from sales of Equipment.
Net earnings per limited partnership unit decreased from $0.29 for the
three-month period ended September 30, 1996 to $0.20 for the three-month period
ended September 30, 1997, reflecting the decrease in net earnings from $1,993
for the three-month period ended September 30, 1996 to $1,358 for the same
period in 1997.
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 Partnership's
ability to keep the Equipment under lease at profitable rates, 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
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, 1997 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, 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.
<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 IV, L.P.
(A California Limited Partnership)
By Textainer Financial Services Corporation
The Managing General Partner
By _______________________________
John R. Rhodes
Executive Vice President
Date: November 13, 1997
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>
- ----------------------------------------- Executive Vice President, November 13, 1997
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
- ----------------------------------------- President (Principal Executive November 13, 1997
James E. Hoelter Officer) and Director
</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 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 13, 1997
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/John R. Rhodes Executive Vice President, November 13, 1997
- ----------------------------------------- (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/James E. Hoelter President (Principal Executive November 13, 1997
- ----------------------------------------- Officer) and Director
James E. Hoelter
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund IV, LP
</LEGEND>
<CIK> 0000882288
<NAME> Textainer Equipment Income Fund IV, LP
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 862
<SECURITIES> 0
<RECEIVABLES> 6,539
<ALLOWANCES> 1,426
<INVENTORY> 0
<CURRENT-ASSETS> 9
<PP&E> 125,781
<DEPRECIATION> 34,300
<TOTAL-ASSETS> 97,465
<CURRENT-LIABILITIES> 2,507
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 94,958
<TOTAL-LIABILITY-AND-EQUITY> 97,465
<SALES> 0
<TOTAL-REVENUES> 15,679
<CGS> 0
<TOTAL-COSTS> 11,914
<OTHER-EXPENSES> (222)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,987
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,987
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
