TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 13, 1998
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund IV,
L.P. (the "Company") the Company's Quarterly Report on Form 10Q for the Second
Quarter ended June 30, 1998.
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 June 30, 1998
Commission file number 0-21228
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
A California Limited Partnership
(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 [ ]
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<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10Q for the
Quarter Ended June 30, 1998
Table of Contents
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Page
<S><C> <C>
Item 1. Financial Statements
Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997.................................. 3
Statements of Earnings for the three and six months
ended June 30, 1998 and 1997 (unaudited).......................................................... 4
Statements of Partners' Capital for the six months
ended June 30, 1998 and 1997 (unaudited).......................................................... 5
Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 (unaudited).......................................................... 6
Notes to Financial Statements (unaudited)......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 13
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 1998 and December 31, 1997
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------
1998 1997
------------- --------------
(unaudited)
<S><C> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $39,356 (1997: $36,080) $ 85,678 $ 90,205
Cash 1,598 664
Accounts receivable, net of allowance for doubtful
accounts of $656 (1997: $1,433) (note 8) 4,677 5,020
Due from affiliates, net (note 6) 383 -
Prepaid expenses 137 195
------------- --------------
$ 92,473 $ 96,084
============= ==============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 531 $ 478
Accrued liabilities 96 88
Accrued recovery costs (note 2) 82 139
Accrued damage protection plan costs (note 3) 396 405
Warranty claims (note 4) 507 537
Due to affiliates, net (note 6) - 791
Deferred quarterly distribution 195 202
------------- --------------
Total liabilities 1,807 2,640
------------- --------------
Partners' capital:
General partners - -
Limited partners 90,666 93,444
------------- --------------
Total partners' capital 90,666 93,444
------------- --------------
Commitments (note 10)
$ 92,473 $ 96,084
============= ==============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three and six months ended June 30, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Rental income $ 5,369 $ 5,166 $ 11,112 $ 10,339
----------------- ---------------- ----------------- ----------------
Costs and expenses:
Direct container expenses 1,136 1,219 2,516 2,211
Bad debt (benefit) expense (145) 162 (131) 167
Depreciation and amortization 1,870 1,864 3,744 3,738
Professional fees 12 9 19 17
Management fees to affiliates (note 6) 505 494 992 989
General and administrative costs to affiliates (note 6) 307 348 658 707
Other general and administrative costs 38 54 95 110
----------------- ---------------- ----------------- ---------------
3,723 4,150 7,893 7,939
----------------- ---------------- ----------------- ---------------
Income from operations 1,646 1,016 3,219 2,400
----------------- ---------------- ----------------- ---------------
Other income:
Interest income, net 22 15 27 39
Gain on sale of containers 9 95 242 156
----------------- ---------------- ----------------- ---------------
31 110 269 195
----------------- ---------------- ----------------- ---------------
Net earnings $ 1,677 $ 1,126 $ 3,488 $ 2,595
================= ================ ================= ===============
Allocation of net earnings (note 6):
General partners $ 32 $ 34 $ 65 $ 68
Limited partners 1,645 1,092 3,423 2,527
----------------- ---------------- ----------------- ---------------
$ 1,677 $ 1,126 $ 3,488 $ 2,595
================= ================ ================= ===============
Limited partners' per unit share
of net earnings $ 0.24 $ 0.16 $ 0.50 $ 0.37
================= ================ ================= ===============
Limited partners' per unit share
of distributions $ 0.45 $ 0.47 $ 0.91 $ 0.95
================= ================ ================= ===============
Weighted average number of limited
partnership units outstanding 6,827,168 6,827,168 6,827,168 6,827,168
================= ================ ================= ===============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Partners' Capital
--------------------------------------------------------
General Limited Total
------------- -------------- -------------
<S><C> <C> <C> <C>
Balances at January 1, 1997 $ - $ 100,906 $ 100,906
Distributions (68) (6,486) (6,554)
Redemptions (note 9) - (104) (104)
Net earnings 68 2,527 2,595
------------- -------------- -------------
Balances at June 30, 1997 $ - $ 96,843 $ 96,843
============= ============== =============
Balances at January 1, 1998 $ - $ 93,444 $ 93,444
Distributions (65) (6,201) (6,266)
Net earnings 65 3,423 3,488
------------- -------------- -------------
Balances at June 30, 1998 $ - $ 90,666 $ 90,666
============= ============== =============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997
------------- -------------
<S><C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,488 $ 2,595
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 3,744 3,722
(Decrease) increase in allowance for doubtful accounts, excluding
write-off (note 8) (216) 63
Amortization of organization costs - 16
Gain on sale of containers (242) (156)
Changes in assets and liabilities:
Decrease in accounts receivable, excluding write-off (note 8) 563 169
Increase in due from affiliates, net (333) (878)
Decrease in prepaid expenses 58 25
Increase in accounts payable and accrued liabilities 61 282
(Decrease) increase in accrued recovery costs (57) 25
Decrease in accrued damage protection plan costs (9) (128)
Decrease in warranty claims (30) (31)
------------- -------------
Net cash provided by operating activities 7,027 5,704
------------- -------------
Cash flows from investing activities:
Proceeds from sale of containers 1,188 764
Container purchases (181) (2,134)
------------- -------------
Net cash provided by (used in) investing activities 1,007 (1,370)
------------- -------------
Cash flows from financing activities:
Repayment of borrowings from affiliates (826) (104)
Distributions to partners (6,274) (6,562)
------------- -------------
Net cash used in financing activities (7,100) (6,666)
------------- -------------
Net increase (decrease) in cash 934 (2,332)
Cash at beginning of period 664 2,694
------------- -------------
Cash at end of period $ 1,598 $ 362
============= =============
Interest paid during the period $ 16 $ -
============= =============
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 six months ended June 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of June 30, 1998 and 1997, and December 31, 1997 and 1996, resulting
in differences in amounts recorded and amounts of cash disbursed or received by
the Partnership, as shown in the Statements of Cash Flows for the six-month
periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Jun. 30 Dec. 31 Jun. 30 Dec. 31
1998 1997 1997 1996
----------- ----------- ------------ ----------
<S><C> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates.............................. $ 8 $ 2 $ 17 $ 5
Container purchases payable.................... - - 274 361
Distributions to partners included in:
Due to affiliates.............................. 10 11 11 18
Deferred quarterly distributions............... 195 202 198 199
Proceeds from sale of containers included in:
Due from affiliates............................ 306 286 325 361
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
six-month periods ended June 30, 1998 and 1997.
1998 1997
---- ----
Container purchases recorded...................................................... $ 187 $ 2,059
Container purchases paid.......................................................... 181 2,134
Distributions to partners declared................................................ 6,266 6,554
Distributions to partners paid.................................................... 6,274 6,562
Proceeds from sale of containers recorded......................................... 1,208 728
Proceeds from sale of containers received......................................... 1,188 764
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the six months ended June 30, 1998 and 1997
(Amounts in thousands except for per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------
Note 1. General
Textainer Equipment Income Fund IV, L.P. (the Partnership), a California
limited partnership with a maximum life of 20 years, was formed in 1991.
The Partnership owns and leases a fleet of intermodal marine cargo
containers which are leased to international shipping lines.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of June 30, 1998 and December 31, 1997, and the
results of its operations, changes in partners' capital and cash flows for
the three- and six-month periods ended June 30, 1998 and 1997, have been
made.
The financial information presented herein should be read in conjunction
with the audited financial statements and other accompanying notes
included in the Partnership's annual audited financial statements as of
December 31, 1997, in the Annual Report filed on Form 10K.
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 1998 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 June 30, 1998 and December 31, 1997, the
amounts accrued were $82 and $139, respectively.
Note 3. Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of its
containers. Under the terms of DPP, the Partnership earns additional
revenues on a daily basis and, in return, has agreed to bear certain
repair costs. It is the Partnership's policy to recognize revenue when
earned and to provide a reserve sufficient to cover the Partnership's
obligation for estimated future repair costs. DPP expenses are included in
direct container expenses in the Statements of Earnings, and at June 30,
1998 and December 31, 1997, the related reserve was $396 and $405,
respectively.
Note 4. Warranty Claims
During 1996 and 1995, the Partnership settled warranty claims against an
equipment manufacturer relating to certain containers. The Partnership is
amortizing the settlement amounts over the remaining estimated useful life
of these containers (ten years), reducing maintenance and repair costs
over that time. At June 30, 1998 and December 31, 1997, the unamortized
portion of the settlement amount was equal to $507 and $537, respectively.
Note 5. Acquisition of Containers
During the six-month periods ended June 30, 1998 and 1997, the Partnership
purchased containers with a cost of $187 and $2,059, 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 also act in this capacity for other limited partnerships.
Textainer Acquisition Services Limited (TAS) is an affiliate of the
General Partners which performs services relative to the acquisition of
containers outside the United States on behalf of the Partnership. TCC,
TEM, TL and TAS are subsidiaries of Textainer Group Holdings Limited
(TGH). The General Partners manage and control the affairs of the
Partnership.
In accordance with the Partnership Agreement, net earnings or losses and
partnership distributions are allocated 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 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. These
fees are for various services provided in connection with the
administration and management of the Partnership. The Partnership incurred
$129 and $259 of incentive management fees during the three- and six-month
periods ended June 30, 1998 and $136 and $273 of incentive management fees
for the comparable periods in 1997. The Partnership capitalized $9 and
$102 of container acquisition fees as a component of container costs
during the six-month periods ended June 30, 1998 and 1997, respectively.
No equipment liquidation fees were incurred during either period.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the Partnership's containers. TEM holds, for the payment of
direct operating expenses, a reserve of cash that has been collected from
leasing operations; such cash is included in due from affiliates, net at
June 30, 1998 and due to affiliates, net at December 31, 1997.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to operating leases and 2%
of gross revenues attributable to full payout net leases. For the three-
and six-month periods ended June 30, 1998, these fees totaled $376 and
$733, and $358 and $716 for the comparable periods in 1997. 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 TFS and TEM. For the three- and
six-month periods ended June 30, 1998, total general and administrative
costs allocated to the Partnership were $307 and $658, of which $132 and
$275 were for salaries. Total general and administrative costs allocated
to the Partnership for the three- and six-month periods ended June 30,
1997 were $348 and $707 of which $191 and $376 were for salaries.
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. TFS allocates these
costs based on the ratio of the Partnership's containers to the total
container fleet of all limited partnerships managed by TFS. General and
administrative costs allocated to the Partnership by TEM were $277 and
$596 for the three- and six-month periods ended June 30, 1998 and were
$298 and $614 for the comparable periods in 1997. TFS allocated $30 and
$62 of general and administrative costs to the Partnership for the three-
and six-month periods ended June 30, 1998 and $50 and $93 for the
comparable periods in 1997.
The General Partners or TAS may acquire containers in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such containers for the Partnership. The containers may
then be resold to the Partnership on an all-cash basis at a price equal to
the actual cost, as defined in the Partnership Agreement. In addition, the
General Partners or TAS are entitled to an acquisition fee for any
containers resold to the Partnership.
At June 30, 1998 and December 31, 1997, due from (to) affiliates, net is
comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM...................................$ 467 $ 120
----- -----
Due to affiliates:
Due to TFS..................................... 54 55
Due to TAS..................................... 8 2
Due to TCC..................................... 21 20
Due to TL...................................... 1 834
----- ------
84 911
----- ------
Due from (to) affiliates, net $ 383 $ (791)
===== ======
Included in the amounts due to TL at December 31, 1997 is $826 in loans
used to facilitate container purchases. This loan was repaid on March 31,
1998. All other amounts receivable from and payable to affiliates were
incurred in the ordinary course of business between the Partnership and
its affiliates and represent timing differences in the accrual and
remittance of expenses and fees described above 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 amounts due to the General Partners which are outstanding for
more than one month, to the extent such balances relate to loans for
container purchases. Interest is charged at a rate not greater than the
General Partners' or affiliates' own cost of funds. The Partnership
incurred $13 of interest expense on amounts due to the General Partners
for the three- and six-month periods ended June 30, 1998. There was no
interest expense incurred on amounts due to the General Partners during
the three- and six-month periods ended June 30, 1997.
Note 7. Rentals Under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at June 30, 1998. Although the leases are
generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending June 30:
1999............................................. $ 622
2000............................................. 30
2001............................................. 14
2002............................................. 8
2003............................................. 2
-----
Total minimum future rentals receivable.......... $ 676
====
Note 8. Accounts Receivable Write-Off
During the six-month period ending June 30, 1998, the Partnership
wrote-off $561 of delinquent receivables from two lessees against which
reserves were recorded in 1994 and 1995.
Note 9. Redemptions
The following redemption offerings were consummated by the Partnership
during the six-month period ended June 30, 1997:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
<S> <C> <C> <C> <C>
Balance at December 31, 1996........ 10,715 $15.49 $ 166
Quarter ended:
March 31, 1997................ 8,020 $13.03 104
------- ----
Partnership to date................. 18,735 $14.43 $ 270
====== ====
</TABLE>
There were no redemptions during the six-month period ended June 30, 1998.
The redemption price is fixed by formula.
Note 10. Commitments
At June 30, 1998, the Partnership has committed to purchase 50 new
containers at an approximate total purchase price of $160 which includes
acquisition fees of $7. These commitments were made to TAS which, as the
contracting party, has in turn committed to purchase these containers on
behalf 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 for the three- and six-month periods
ended June 30, 1998 and 1997. 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 offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $5,000 on June 11, 1992 and 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 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. During the six-month period ended June 30, 1998,
the Partnership did not redeem any units.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the six-month period ended June 30, 1998, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1997
through May 1998, in the amount of $6,201. These distributions represent a
return of 9.5% on original capital (measured on an annualized basis) on each
unit for the month of December 1997 and 9% on original capital (measured on an
annualized basis) on each unit from January 1998 through May 1998. On a cash
basis, all of these distributions were from operations. On a GAAP basis, $2,778
of these distributions was a return of capital and the balance was from net
earnings.
At June 30, 1998, the Partnership has committed to purchase 50 new containers at
an approximate total purchase price of $160 which includes acquisition fees of
$7. At June 30, 1998, the Partnership had sufficient cash on hand to meet these
commitments. In the event the Partnership decides not to purchase the
containers, one of the General Partners or an affiliate of the General Partners
will acquire the containers for its own account.
Net cash provided by operating activities for the six-month periods ending June
30, 1998 and 1997, was $7,027 and $5,704, respectively. The increase is
primarily attributable to increases in net earnings and due to affiliates, net
and a decrease in accounts receivable, excluding write-off, during the six-month
period ended June 30, 1998 compared to the equivalent period in 1997. The
increase in net earnings of $893, or 34%, resulted primarily from an increase in
other rental revenue which is discussed more fully in "Results of Operations".
Due from affiliates, net increased $333 in the six-month period ended June 30,
1998 as compared to $878 in the equivalent period in 1997. Fluctuations in due
from affiliates, net result from timing differences in payment of expenses and
fees and or in the remittance of net rental revenues. The decrease in accounts
receivable, excluding write-off, of $563 in the six-month period ended June 30,
1998 compared to $169 in the equivalent period in 1997 was due to a decrease in
the average collection period of accounts receivable and to the resolution of
payment issues with one lessee.
For the six-month period ending June 30, 1998, net cash provided by investing
activities (the purchase and sale of containers) was $1,007 compared to net cash
used in investing activities of $1,370 for the comparable period in 1997. The
difference of $2,377 is primarily due to the Partnership having purchased more
containers during the six-month period ended June 30, 1997 than in the
comparable period in 1998. The General Partners believe that these differences
reflect normal fluctuations in container sales and purchases. However, recent
container purchases (reinvestment) are currently lower than anticipated due to
the adverse effect of market conditions on cash available for reinvestment.
Market conditions are discussed more fully under "Results of Operations".
Consistent with its investment objectives, the Partnership intends to reinvest
all or a significant amount of proceeds from future container sales in
additional containers. However, due to the difference between sales proceeds and
new container prices, the number of additional containers purchased may not
equal the number of containers sold.
During 1997 the Partnership borrowed $826 from a General Partner to purchase
containers. It is the policy of the Partnership and the General Partners to
charge interest on borrowings from affiliates arising from the Partnership's
acquisition of containers which are outstanding for more than one month.
Interest is charged to the Partnership at a rate not greater than the General
Partners' own cost of funds. The Partnership paid $16 of interest during the
six-month period ended June 30, 1998. The interest rate in effect at March 31,
1998 was 8.5%. The Partnership repaid the loan on March 31, 1998 with cash
provided by operations and proceeds from the sale of containers.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income, container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet during the six-month periods ended June 30, 1998 and 1997, as
well as certain other factors as discussed below. The following is a summary of
the container fleet (in units) available for lease during those periods:
1998 1997
Opening container fleet................. 36,409 35,931
Closing container fleet................. 35,803 36,345
Average container fleet................. 36,106 36,138
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 81% and 77% on average during the six-month
periods ended June 30, 1998 and 1997, respectively. In addition, rental income
is affected by daily rental rates and leasing incentives.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 1998 and 1997.
The Partnership's income from operations for the six-month periods ending June
30, 1998 and 1997 was $3,219 and $2,400, respectively, on rental income of
$11,112 and $10,339, respectively. The increase in rental income of $773, or 7%,
from the six-month period ended June 30, 1997 to the comparable period in 1998
was primarily attributable to an increase in other rental income which is
discussed below. Income from container rentals, the major component of total
revenue, increased $146, or 2%. This increase was primarily due to the increase
in average on-hire (utilization) percentage of 5% and a decrease in leasing
incentives of 38%, and was offset by the decrease in average rental rates of 5%.
Container utilization and rental rates declined during 1996 and 1997 primarily
due to decreased demand for leased containers and increased competition. The
decrease in demand for leased containers resulted from changes in the business
of shipping line customers consisting primarily of (i) over-capacity resulting
from the 1995 and 1996 additions of new, larger ships to the existing container
ship fleet at a rate in excess of the growth rate in containerized cargo trade;
(ii) shipping line alliances and other operational consolidations that have
allowed shipping lines to operate with fewer containers; and (iii) shipping
lines reducing their ratio of leased versus owned containers by purchasing
containers. This decreased demand, along with the entry of new leasing company
competitors offering low container rental rates to shipping lines, resulted in
downward pressure on rental rates, and caused leasing companies to offer higher
leasing incentives and other discounts to shipping lines. Rental rates were also
adversely affected by a drop in the purchase price of new containers which
resulted in additional downward pressure on rental rates.
Average utilization for the three- and six month-periods ended June 30, 1998 was
greater than the average utilization for the comparable periods in 1997. Despite
the improvement in average utilization from the prior year, utilization has been
slowly declining over the last six months. Rental rates have also been declining
and average rental rates for the six-month period ended June 30, 1998 are lower
than average rental rates for the same period in 1997. These decreases were
offset by decreased leasing incentives during the six-month period ended June
30, 1998 as compared to the same period in 1997. The improvement in utilization
over the prior year and the overall improvement in leasing incentives is
primarily due to increased demand in Asia. The weakening of many Asian
currencies resulted in a significant increase in exports from Asia which has
created a strong demand for containers in certain locations. However, the
weakening of these currencies has also lowered demand in Asia for imports from
North America and Europe resulting in a lower demand for containers in these
areas. For the near term, the General Partners do not foresee material changes
in existing market conditions and caution that both utilization and rental rates
could continue declining, adversely affecting the Partnership's operating
results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases.
The balance of other rental income consists of other lease-related items,
primarily income from charges to lessees for dropping off containers in surplus
locations less credits granted to lessees for leasing containers from surplus
locations (location income), income from charges to lessees for handling and
returning containers and income from charges to lessees for a Damage Protection
Plan (DPP). For the six-month period ended June 30, 1998, the total of these
other rental income items was $1,520, an increase of $627 from the equivalent
period in 1997. The primary component of this increase was an increase in
location income of $590. Location income increased due to a decrease in credits
given to lessees for picking up containers from certain locations and due to the
inclusion of certain credits received during 1997 and 1998 which had been
previously applied against repositioning expense.
Direct container expenses increased $305, or 14%, from the six-month period
ending June 30, 1997 to the equivalent period in 1998. The increase was
primarily due to increases in repositioning and DPP expense of $392 and $156,
respectively, offset by a decrease in storage expense of $277. Repositioning
expense increased due to the removal of certain credits from repositioning costs
to other rental income as discussed above and due to an increase in the average
repositioning cost per container. DPP expense increased due to a higher number
of containers requiring repair offset by a lower repair cost per container. The
increase in average on-hire utilization from 77% during the six-month period
ended June 30, 1997 to 81% for the comparable period in 1998, resulted in a
decrease in storage expense.
Bad debt expense decreased from an expense of $167 for the six-month period
ended June 30, 1997 to a benefit of $131 for the comparable period ending June
30, 1998. The write-off of certain receivables that had reserves in excess of
the receivable, due to insurance proceeds received, as well as the resolution of
payment issues with one lessee, resulted in the benefit recorded in 1998.
Depreciation expense remained comparable from the six-month period ended June
30, 1997 to the equivalent period in 1998.
Management fees to affiliates were comparable for the six-month periods ended
June 30, 1998 and 1997, due to an increase in equipment management fees offset
by a decrease in incentive management fees. The increase in equipment management
fees resulted from the increase in gross revenue upon which the equipment
management fees are primarily based and was offset by an adjustment made to
reduce fees resulting from the write-off of receivables for two lessees.
Incentive management fees which are based on the Partnership's limited and
general partner distributions decreased due to the decrease in the limited
partner distribution percentage from 9.5% to 9% in January 1998.
General and administrative costs to affiliates decreased $49, or 7%, from the
six-month period ended June 30, 1997 to the comparable period ending in 1998 due
to a decrease in overhead costs allocated by TFS and TEM.
Other income increased $74, or 38%, primarily due to an increase in gain on sale
of containers of $86 from the six-month period ending June 30, 1997 to the
comparable period in 1998.
Net earnings per limited partnership unit increased from $0.37 to $0.50 from the
six-month period ending June 30, 1997 to the same period in 1998, respectively,
reflecting the increase in net earnings allocated to limited partners from
$2,527 to $3,423, for the same periods.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 1998 and 1997.
The Partnership's income from operations for the three-month periods ending June
30, 1998 and 1997 was $1,646 and $1,016, respectively, on rental income of
$5,369 and $5,166, respectively. The increase in rental income of $203, or 4%,
from the three-month period ended June 30, 1997 to the comparable period in 1998
was primarily attributable to an increase in income from container rentals, the
major component of total revenue. Income from container rentals increased $108,
or 2%. This increase was primarily due to the increase in average utilization
percentage of 4% and the decrease in leasing incentives of 54%, and was offset
by the decrease in average rental rates of 5%.
The balance of other rental income for the three-month period ended June 30,
1998 was $570, an increase of $95 from the comparable period in 1997. The
primary component of this increase was an increase in location income of $131,
offset by a decrease in handling income of $49. Location income increased due to
a decrease in credits given to lessees for picking up containers from certain
locations. Handling income decreased due to a decrease in the average handling
price charged per container and a decrease in container movement during the
three-month period ending June 30, 1998 compared to the same period in 1997.
Direct container expenses decreased $83, or 7%, from the three-month period
ending June 30, 1997 to the equivalent period in 1998. The decrease was
primarily due to a decrease in storage expense offset by an increase in
repositioning expense. Storage expense decreased primarily due to the increase
in average utilization. Repositioning expense increased primarily due to an
increase in the average repositioning cost per container, offset by a decrease
in the number of containers repositioned.
Bad debt expense decreased from an expense of $162 for the three-month period
ended June 30, 1997 to a benefit of $145 for the comparable period in 1998. The
benefit recorded in 1998 was primarily due to the resolution of payment issues
with one lessee.
Depreciation expense remained comparable from the three-month period ended June
30, 1997 to the equivalent period in 1998.
Management fees to affiliates increased $11, or 2%, from the three-month period
ended June 30, 1997 to the comparable period in 1998, due to an increase in
equipment management fees offset by a decrease in incentive management fees. The
increase in equipment management fees resulted from the increase in gross
revenue. Incentive management fees decreased due to the decrease in the limited
partner distribution percentage.
General and administrative costs to affiliates decreased $41, or 12%, from the
three-month period ended June 30, 1997 to the comparable period ending in 1998
due to a decrease in overhead costs allocated by TFS and TEM.
Other income decreased $79, or 72%, primarily due to a decrease in gain on sale
of containers of $86 from the three-month period ending June 30, 1997 to the
equivalent period in 1998.
Net earnings per limited partnership unit increased from $0.16 to $0.24 from the
three-month period ending June 30, 1997 to the same period in 1998, reflecting
the increase in net earnings allocated limited partners from $1,092 to $1,645,
respectively.
Many computer systems may experience difficulty processing dates beyond the year
1999 and, as such, some computer hardware and software will need to be modified
prior to the year 2000 to remain functional. Certain of the General Partners and
Partnership's core internal systems where Year 2000 issues have been identified
are currently being revised. Based on its initial evaluation, the Partnership
and the General Partners do not believe that the cost of remedial actions
relating to these systems will have a material adverse effect on the
Partnership's results of operations and financial condition. Additionally, the
Partnership and the General Partners are also continuing their assessment of
Year 2000 issues not related to their core systems, including issues surrounding
systems that interface with external third parties. If external third party
systems are not Year 2000 compliant, those external third parties may have
difficulty conducting ordinary operations, which could have an adverse affect on
the General Partners and the Partnership.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of June 30, 1998 which would result in such a risk
materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the containers, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
<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: August 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer 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> <C>
________________________ Executive Vice President, August 13, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive August 13, 1998
Philip K. Brewer Officer)
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND 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: August 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer 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> <C>
/s/John R. Rhodes Executive Vice President, August 13, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
/s/Philip K. Brewer President (Principal Executive August 13, 1998
Philip K. Brewer Officer)
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,598
<SECURITIES> 0
<RECEIVABLES> 5,716
<ALLOWANCES> 656
<INVENTORY> 0
<CURRENT-ASSETS> 137
<PP&E> 125,034
<DEPRECIATION> 39,356
<TOTAL-ASSETS> 92,473
<CURRENT-LIABILITIES> 1,807
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 90,666
<TOTAL-LIABILITY-AND-EQUITY> 92,473
<SALES> 0
<TOTAL-REVENUES> 11,112
<CGS> 0
<TOTAL-COSTS> 7,893
<OTHER-EXPENSES> (269)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,488
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,488
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
