.
TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 14, 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 10-Q for the
quarterly period ended March 31, 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 March 31, 1998
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 March 31, 1998
Table Of Contents
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets - March 31, 1998 (unaudited) and December 31, 1997................................. 3
Statements of Earnings for the three months
ended March 31, 1998 and 1997 (unaudited)......................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 1998 and 1997 (unaudited)......................................................... 5
Statements of Cash Flows for the three months
ended March 31, 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......................................................................... 12
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Balance Sheets
March 31, 1998 and December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $37,689 (1997: $36,080) $ 87,766 $ 90,205
Cash 880 664
Accounts receivable, net of allowance for doubtful
accounts of $804 (1997: $1,433) (note 8) 4,560 5,020
Due from affiliates, net (note 6) 550 -
Prepaid expenses 200 195
----------------- -----------------
$ 93,956 $ 96,084
================= =================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 588 $ 478
Accrued liabilities 94 88
Accrued recovery costs (note 2) 57 139
Accrued damage protection plan costs (note 3) 408 405
Warranty claims (note 4) 522 537
Due to affiliates, net (note 6) - 791
Deferred quarterly distribution 194 202
----------------- -----------------
Total liabilities 1,863 2,640
----------------- -----------------
Partners' capital:
General partners - -
Limited partners 92,093 93,444
----------------- -----------------
Total partners' capital 92,093 93,444
----------------- -----------------
$ 93,956 $ 96,084
================= =================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three months ended March 31, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Rental income $ 5,743 $ 5,173
-------------- ---------------
Costs and expenses:
Direct container expenses 1,380 992
Bad debt expense 14 5
Depreciation and amortization 1,874 1,874
Professional fees 7 8
Management fees to affiliates (note 6) 487 495
General and administrative costs to affiliates (note 6) 351 359
Other general and administrative costs 57 56
-------------- ---------------
4,170 3,789
-------------- ---------------
Income from operations 1,573 1,384
-------------- ---------------
Other income:
Interest income, net 5 24
Gain on sale of containers (note 9) 233 61
-------------- ---------------
238 85
-------------- ---------------
Net earnings $ 1,811 $ 1,469
============== ===============
Allocation of net earnings (note 6):
General partners $ 33 $ 34
Limited partners 1,778 1,435
-------------- ---------------
$ 1,811 $ 1,469
============== ===============
Limited partners' per unit share
of net earnings $ 0.26 $ 0.21
============== ===============
Limited partners' per unit share
of distributions $ 0.46 $ 0.48
============== ===============
Weighted average number of limited
partnership units outstanding 6,827,168 6,827,168
============== ===============
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 three months ended March 31, 1998 and 1997
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------------
General Limited Total
--------------- --------------- ----------------
<S> <C> <C> <C>
Balances at January 1, 1997 $ - $ 100,906 $ 100,906
Distributions (34) (3,243) (3,277)
Redemptions (note 10) - (104) (104)
Net earnings 34 1,435 1,469
--------------- --------------- ----------------
Balances at March 31, 1997 $ - $ 98,994 $ 98,994
=============== =============== ================
Balances at January 1, 1998 $ - $ 93,444 $ 93,444
Distributions (33) (3,129) (3,162)
Net earnings 33 1,778 1,811
--------------- --------------- ----------------
Balances at March 31, 1998 $ - $ 92,093 $ 92,093
=============== =============== ================
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 three months ended March 31, 1998 and 1997
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,811 $ 1,469
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,874 1,862
Decrease in allowance for doubtful accounts, excluding
write off (note 8) (68) (47)
Amortization of organization costs - 12
Gain on sale of containers (note 9) (233) (61)
Changes in assets and liabilities:
Decrease in accounts receivable, excluding write off (note 8) 531 176
Increase in due from affiliates, net (474) (1,155)
(Increase) decrease in prepaid expenses (5) 12
Increase (decrease) in accounts payable and accrued liabilities 116 (13)
(Decrease) increase in accrued recovery costs (82) 11
Increase (decrease) in accrued damage protection plan costs 3 (94)
Decrease in warranty claims (15) (16)
---------------- ----------------
Net cash provided by operating activities 3,458 2,156
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of containers 773 326
Container purchases (18) (1,099)
---------------- ----------------
Net cash provided by (used in) investing activities 755 (773)
---------------- ----------------
Cash flows from financing activities:
Repayment of borrowings from affiliates (826) -
Redemptions of limited partnership units - (104)
Distributions to partners (3,171) (3,285)
---------------- ----------------
Net cash used in financing activities (3,997) (3,389)
---------------- ----------------
Net increase (decrease) in cash 216 (2,006)
Cash at beginning of period 664 2,694
---------------- ----------------
Cash at end of period $ 880 $ 688
================ ================
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 three months ended March 31, 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 March 31, 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
three-month periods ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Mar. 31 Dec. 31 Mar. 31 Dec. 31
1998 1997 1997 1996
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates.............................. $ 1 $ 2 $ 31 $ 5
Container purchases payable.................... - - 195 361
Distributions to partners included in:
Due to affiliates.............................. 10 11 11 18
Deferred quarterly distribution................ 194 202 198 199
Proceeds from sale of containers included in:
Due from affiliates............................ 325 286 406 361
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
three-month periods ended March 31, 1998 and 1997.
1998 1997
---- ----
Container purchases recorded...................................................... $ 17 $ 959
Container purchases paid.......................................................... 18 1,099
Distributions to partners declared................................................ 3,162 3,277
Distributions to partners paid.................................................... 3,171 3,285
Proceeds from sale of containers recorded......................................... 812 371
Proceeds from sale of containers received......................................... 773 326
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Notes To Financial Statements
March 31, 1998
(Amounts in thousands except for unit and 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 March 31, 1998 and December 31, 1997, and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 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, not affecting net earnings, have been made to
prior year amounts in order to conform with 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 March 31, 1998 and December 31, 1997, the
amounts accrued were $57 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 repair costs. DPP expenses are included in direct
container expenses on the Statements of Earnings and the related reserve
at March 31, 1998 and December 31, 1997, was $408 and $405, respectively.
Note 4. Warranty Claims
During 1997 and 1995, the Partnership settled warranty claims against two
equipment manufacturers relating to certain containers. The Partnership is
amortizing the settlement amount over the remaining estimated useful life
of these containers (ten years), reducing maintenance and repair costs
over that time. At March 31, 1998 and December 31, 1997, the unamortized
portion of the settlement amount was $522 and $537, respectively.
Note 5. Acquisition of Containers
During the three-month periods ended March 31, 1998 and 1997, the
Partnership purchased containers with a cost of $17 and $959,
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, 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. These
fees are for various services provided in connection with the
administration and management of the Partnership. The Partnership incurred
$129 and $137 of incentive management fees during the three-month periods
ended March 31, 1998 and 1997, respectively. The Partnership capitalized
equipment acquisition fees totaling $1 and $54 as a component of container
rental equipment costs during the three-month periods ended March 31, 1998
and 1997, respectively. No equipment liquidation fees were incurred during
either period.
The container fleet of the Partnership 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 payment of direct
operating expenses, a reserve of cash that has been collected from
container leasing operations; such cash is included in the amount due from
affiliates, net at March 31, 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 both
three-month periods ended March 31, 1998 and 1997, these fees totaled
$358. The Partnership's container fleet is leased by TEM to third party
lessees on operating master leases, spot leases and term 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. Total general and
administrative costs allocated to the Partnership were $351 and $359 for
the three-month periods ended March 31, 1998 and 1997, respectively, of
which $168 and $184 were for salaries.
TEM allocates these general and administrative costs based on the ratio of
the Partnership's interest in 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 $319 and $316 for the three-month
periods ended March 31, 1998 and 1997, respectively. TFS allocated $32 and
$43 of general and administrative costs to the Partnership during the same
periods.
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. These 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 March 31, 1998 and December 31, 1997, due from (to) affiliates, net is
comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM.................................. $ 626 $ 120
---- ----
Due to affiliates:
Due to TFS.................................... 51 55
Due to TAS.................................... 1 2
Due to TCC.................................... 20 20
Due to TL..................................... 4 834
---- ----
76 911
---- ----
Due from (to) affiliates, net $ 550 $(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. There were no borrowings from affiliates at 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 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 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-month period ended March 31, 1998. There was no interest
expense incurred on intercompany balances for the three-month period ended
March 31, 1997.
Note 7. Rentals Under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at March 31, 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 March 31:
1999............................................. $ 727
2000............................................. 79
2001............................................. 16
2002............................................. 7
2003............................................. 2
---------
Total minimum future rentals receivable.......... $ 831
=======
Note 8. Accounts Receivable Write-Off
During the three-month period ending March 31, 1998, the Partnership
wrote-off $561 of delinquent receivables from two lessees against which
reserves were recorded in 1994 and 1995.
Note 9. Insurance Proceeds
In February 1998, the Partnership wrote-off 24 containers held by a lessee
that were deemed unrecoverable. These containers had a net book value of
$175 for which the Partnership received insurance proceeds of $197
resulting in a gain of $22.
Note 10. Redemptions
The following redemption offerings were consummated by the Partnership
during the three-month period ended March 31, 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
------- ----
Partnership to date............. 18,735 $14.43 $ 270
====== ====
There were no redemptions during the three-month period ended March 31,
1998. The redemption price is fixed by formula.
</TABLE>
<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-month periods ended March
31, 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 three-month period ended March 31,
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 three-month period ended March 31, 1998, the Partnership declared
cash distributions to limited partners pertaining to the period from December
1997 through February 1998, in the amount of $3,129. 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 for January 1998 and February 1998. On a
cash basis, all of these distributions were from operations. On a GAAP basis,
$1,351 of these distributions was a return of capital and the balance was from
net earnings.
Net cash provided by operating activities for the three-month periods ending
March 31, 1998 and 1997, was $3,458 and $2,156, respectively. The increase of
$1,302, or 60%, is primarily attributable to an increase in due from affiliates,
net and a decrease in accounts receivable, excluding write-off, of $474 and
$531, respectively. The fluctuation in due from affiliates, net resulted from
timing differences in the payment of expenses and fees and or in the remittance
of net rental revenues. Accounts receivable decreased primarily due to a
decrease in the average collection period of accounts receivable.
For the three-month period ending March 31, 1998, net cash provided by investing
activities (the purchase and sale of containers) was $755, compared with net
cash used in investing activities of $773 for the same period in 1997. The
difference of $1,528 is primarily due to the Partnership having purchased more
containers during the three-month period ended March 31, 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 below under "Results of Operations".
Consistent with its investment objectives and the General Partners'
determination that containers can be profitably sold or bought at any time, the
Partnership intends to reinvest all or a significant amount of proceeds from
future container sales in additional containers. The Partnership sells
containers at the end of their estimated useful life however, additional
containers purchased may not equal the number containers sold.
At March 31, 1998, the Partnership had no commitments to purchase containers.
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
three month period ended March 31, 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 primarily consists 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 three-month periods ended March 31, 1998 and 1997, as
well as certain other factors discussed below. The following is a summary of the
size of the container fleet (in units) available for lease during those periods:
1998 1997
---- ----
Opening container fleet........ 36,409 35,931
Closing container fleet........ 35,972 36,079
Average container fleet........ 36,191 36,005
Rental income and direct container expenses are also affected by utilization of
the container fleet which was 81% and 77% on average during the three-month
periods ended March 31, 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
three-month periods ended March 31, 1998 and 1997.
The Partnership's income from operations for the three-month periods ending
March 31, 1998 and 1997 was $1,573 and $1,384, respectively, on rental income of
$5,743 and $5,173, respectively. The increase in rental income of $570, or 11%,
from the three-month period ended March 31, 1997 to the comparable period in
1998 was primarily attributable to the increase in other rental income which is
discussed below. Income from container rentals, the major component of total
revenue, increased $40, or 1%, from the three-month period ending March 31, 1997
to the same period in 1998. This increase was primarily due to the increase in
the average container fleet available for lease of 1%, the increase in average
utilization of 5%, and the decrease in average lease incentives of 17%, offset
by the decrease in average rental rates of 6%.
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 also 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.
Utilization increased during the second and third quarters of 1997 and began
declining again during the fourth quarter of 1997 and into the first quarter of
1998. Despite these declines, utilization for the first quarter of 1998 was
greater than the average first quarter 1997 utilization and greater than the
average utilization for the year ended December 31, 1997. Rental rates
stabilized during the later half of the first quarter of 1998 and, overall, were
comparable to fourth quarter 1997 rental rates. Leasing incentives reached a
high during mid-1997, began declining during the second half of 1997 and have
stabilized during the first quarter of 1998. The improvement in utilization and
the stabilization in rental rates and leasing incentives are primarily due to
increased demand in Asia. The weakening of many Asian currencies resulted in a
significant increase in exports which has created a strong demand for containers
in Asia. The General Partners believe that market conditions have stabilized and
may be slowly improving; however, for the near term, the General Partners do not
foresee any material changes in existing market conditions and caution that both
utilization and lease rates could decline again, 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 picking up containers from surplus
locations less credits granted to lessees for leasing containers from less
desirable locations (location income), income for handling and returning
containers and income from charges to lessees for a Damage Protection Plan
(DPP). For the three-months ended March 31, 1998, the total of these other
rental income items was $949, an increase of $530 from the equivalent period in
1997. The primary component of this increase was an increase in location income
of $458. Location income increased primarily due to the inclusion of certain
credits received during 1997 and 1998 which had previously been applied against
repositioning expense and also due to an increase in the average drop-off charge
per container and a decrease in credits given to lessees to pick up containers
from certain locations.
Direct container expenses increased $388, or 39%, for the three-month period
ending March 31, 1998 compared to the equivalent period in 1997. The increase in
direct container expenses was primarily due to increases in costs incurred for
repositioning and DPP expenses of $340 and $134, offset by a decrease in storage
expense of $153. Repositioning expense increased due to the removal of certain
credits from repositioning costs to other rental income as discussed above, and
due to a greater number of containers being transported from surplus locations
to demand locations. DPP expense increased due to a greater number of containers
requiring repair, offset by a lower average repair cost per container. Storage
expense decreased as a result of the increase in utilization from 77% to 81%
from the three-month period ended March 31, 1997 to the same period in 1998.
Bad debt expense for the three-month periods ending March 31, 1997 and 1998
increased from $5 to $14, respectively, primarily due to the increase in rental
income.
The increase in depreciation expense of $12 or 1% between the three-month
periods ending March 31, 1997 and 1998 was directly related to the 1% increase
in average fleet size.
Management fees to affiliates decreased $8, or 2%, from the three-month period
ended March 31, 1997 to the comparable period in 1998. This decrease resulted
from a decrease in incentive management fees. Incentive management fees, which
are based primarily on the Partnership's limited and general partner
distributions, decreased $8, or 6%, due to the decrease in the limited partner
distribution rate from 9.5% to 9% in January 1998.
General and administrative costs to affiliates decreased $8, or 2%, from the
three-month period ending March 31, 1997 to the comparable period in 1998,
primarily due to a decrease in overhead costs allocated by TFS.
Other income increased $153, or 180%, primarily due to an increase in gain on
sale of containers of $172 between the three-month periods ending March 31, 1997
and 1998. Gain on sale of containers increased primarily due to the write-off of
containers held by a lessee that were deemed unrecoverable for which the
Partnership received insurance proceeds for these containers in excess of their
net book value.
For the three months ending March 31, 1998 and 1997, net earnings per limited
partnership unit increased from $0.21 to $0.26, respectively, reflecting the
increase in net earnings allocated to limited partners from $1,435 to $1,778 for
the same periods.
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 Partnership's and
General Partner's core internal systems that have recently been implemented are
year 2000 compliant. The remaining core internal systems are scheduled to be
revised to be year 2000 compliant by the end of 1998. 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 completing a
preliminary assessment of year 2000 issues not related to its core systems,
including issues surrounding systems that interface with external third parties.
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 the 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 March 31, 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 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: May 14, 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>
________________________ Executive Vice President, May 14, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive May 14, 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: May 14, 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>
/s/John R. Rhodes Executive Vice President, May 14, 1998
_______________________________ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/Philip K. Brewer President (Principal Executive May 14, 1998
_______________________________ Officer)
Philip K. Brewer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund IV, L.P. 10Q
</LEGEND>
<CIK> 0000882288
<NAME> Textainer Equipment Income Fund IV, L.P.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 880
<SECURITIES> 0
<RECEIVABLES> 5,914
<ALLOWANCES> 804
<INVENTORY> 0
<CURRENT-ASSETS> 200
<PP&E> 125,455
<DEPRECIATION> 37,689
<TOTAL-ASSETS> 93,956
<CURRENT-LIABILITIES> 1,863
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 92,093
<TOTAL-LIABILITY-AND-EQUITY> 93,956
<SALES> 0
<TOTAL-REVENUES> 5,743
<CGS> 0
<TOTAL-COSTS> 4,170
<OTHER-EXPENSES> (238)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,811
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,811
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
