TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
November 11, 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 Third
Quarter ended September 30, 1998.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 10-Q for the
Quarter Ended September 30, 1998
Table of Contents
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<S><C> <C> <C>
Page
Item 1. Financial Statements
Balance Sheets - September 30, 1998 (unaudited) and December 31, 1997............................. 3
Statements of Earnings for the three and nine months
ended September 30, 1998 and 1997 (unaudited)..................................................... 4
Statements of Partners' Capital for the nine months
ended September 30, 1998 and 1997 (unaudited)..................................................... 5
Statements of Cash Flows for the nine months
ended September 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......................................................................... 12
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Balance Sheets
September 30, 1998 and December 31, 1997
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------
<S><C> <C> <C>
1998 1997
------------- -------------
(unaudited)
Assets
Container rental equipment, net of accumulated
depreciation of $40,863 (1997: $36,080) $ 83,628 $ 90,205
Cash 2,612 664
Accounts receivable, net of allowance for doubtful
accounts of $574 (1997: $1,433) (note 8) 4,503 5,020
Due from affiliates, net (note 6) 484 -
Prepaid expenses 21 195
------------- -------------
$ 91,248 $ 96,084
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 618 $ 478
Accrued liabilities 130 88
Accrued recovery costs (note 2) 112 139
Accrued damage protection plan costs (note 3) 415 405
Warranty claims (note 4) 491 537
Container purchases payable 289 -
Due to affiliates, net (note 6) - 791
Deferred quarterly distribution 179 202
------------- -------------
Total liabilities 2,234 2,640
------------- -------------
Partners' capital:
General partners - -
Limited partners 89,014 93,444
------------- -------------
Total partners' capital 89,014 93,444
------------- -------------
Commitments (note 10)
$ 91,248 $ 96,084
============= =============
See accompanying notes to financial statements
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three and nine months ended September 30, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
---------------- ----------------- ---------------- -----------------
Rental income $ 5,378 $ 5,340 $ 16,490 $ 15,679
---------------- ----------------- ---------------- -----------------
Costs and expenses:
Direct container expenses 1,219 1,231 3,735 3,442
Bad debt (benefit) expense (49) (14) (180) 153
Depreciation and amortization 1,861 1,888 5,605 5,626
Professional fees 10 9 29 26
Management fees to affiliates (note 6) 503 510 1,495 1,499
General and administrative costs to affiliates (note 6) 281 296 939 1,003
Other general and administrative costs 46 55 141 165
---------------- ----------------- ---------------- -----------------
3,871 3,975 11,764 11,914
---------------- ----------------- ---------------- -----------------
Income from operations 1,507 1,365 4,726 3,765
---------------- ----------------- ---------------- -----------------
Other income:
Interest income, net 34 16 61 55
(Loss) gain on sale of containers (88) 11 154 167
---------------- ----------------- ---------------- -----------------
(54) 27 215 222
---------------- ----------------- ---------------- -----------------
Net earnings $ 1,453 $ 1,392 $ 4,941 $ 3,987
================ ================= ================ =================
Allocation of net earnings (note 6):
General partners $ 33 $ 34 $ 98 $ 102
Limited partners 1,420 1,358 4,843 3,885
---------------- ----------------- ---------------- -----------------
$ 1,453 $ 1,392 $ 4,941 $ 3,987
================ ================= ================ =================
Limited partners' per unit share
of net earnings $ 0.21 $ 0.20 $ 0.71 $ 0.57
================ ================= ================ =================
Limited partners' per unit share
of distributions $ 0.45 $ 0.48 $ 1.36 $ 1.43
================ ================= ================ =================
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
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the nine months ended September 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C>
Partners' Capital
--------------------------------------------------------
General Limited Total
------------- -------------- -------------
Balances at January 1, 1997 $ - $ 100,906 $ 100,906
Distributions (102) (9,729) (9,831)
Redemptions (note 9) - (104) (104)
Net earnings 102 3,885 3,987
------------- -------------- -------------
Balances at September 30, 1997 $ - $ 94,958 $ 94,958
============= ============== =============
Balances at January 1, 1998 $ - $ 93,444 $ 93,444
Distributions (98) (9,273) (9,371)
Net earnings 98 4,843 4,941
------------- -------------- -------------
Balances at September 30, 1998 $ - $ 89,014 $ 89,014
============= ============== =============
See accompanying notes to financial statements
</TABLE>
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<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C>
1998 1997
------------- -------------
Cash flows from operating activities:
Net earnings $ 4,941 $ 3,987
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 5,605 5,610
(Decrease) increase in allowance for doubtful accounts, excluding
write-off (note 8) (298) 35
Amortization of organization costs - 16
Gain on sale of containers (154) (167)
(Increase) decrease in:
Accounts receivable, excluding write-off (note 8) 823 502
Due from affiliates, net (362) (659)
Prepaid expenses 174 37
Increase (decrease) in:
Accounts payable and accrued liabilities 182 239
Accrued recovery costs (27) 43
Accrued damage protection plan costs 10 (129)
Warranty claims (46) (47)
------------- -------------
Net cash provided by operating activities 10,848 9,467
------------- -------------
Cash flows from investing activities:
Proceeds from sale of containers 1,681 1,091
Container purchases (360) (2,449)
------------- -------------
Net cash provided by (used in) investing activities 1,321 (1,358)
------------- -------------
Cash flows from financing activities:
Redemptions of limited partnership units - (104)
Repayment of borrowings from affiliates (826) -
Distributions to partners (9,395) (9,837)
------------- -------------
Net cash used in financing activities (10,221) (9,941)
------------- -------------
Net increase (decrease) in cash 1,948 (1,832)
Cash at beginning of period 664 2,694
------------- -------------
Cash at end of period $ 2,612 $ 862
============= =============
Interest paid during the period $ 16 $ -
============= =============
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--Continued
For the nine months ended September 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 September 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
nine-month periods ended September 30, 1998 and 1997.
<S><C> <C> <C> <C> <C>
Sept. 30 Dec. 31 Sept. 30 Dec. 31
1998 1997 1997 1996
----------- ----------- ------------- ----------
Container purchases included in:
Due to affiliates.............................. $ - $ 2 $ 3 $ 5
Container purchases payable.................... 289 - 205 361
Distributions to partners included in:
Due to affiliates.............................. 10 11 11 18
Deferred quarterly distributions............... 179 202 200 199
Proceeds from sale of containers included in:
Due from affiliates............................ 370 286 260 361
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
nine-month periods ended September 30, 1998 and 1997.
1998 1997
---- ----
Container purchases recorded...................................................... $ 647 $ 2,291
Container purchases paid.......................................................... 360 2,449
Distributions to partners declared................................................ 9,371 9,831
Distributions to partners paid.................................................... 9,395 9,837
Proceeds from sale of containers recorded......................................... 1,765 990
Proceeds from sale of containers received......................................... 1,681 1,091
See accompanying notes to financial statements
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<PAGE>
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and nine months ended September 30, 1998 and 1997
(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 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 September 30, 1998 and December 31, 1997, and the
results of its operations, changes in partners' capital and cash flows for
the three- and nine-month periods ended September 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 10-K.
Certain estimates and assumptions were made by the Partnership's
management that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
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, 1998 and December 31, 1997,
the amounts accrued were $112 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 September
30, 1998 and December 31, 1997, the related reserves were $415 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 September 30, 1998 and December 31, 1997, the
unamortized portion of the settlement amount was $491 and $537,
respectively.
Note 5. Acquisition of Containers
During the nine-month periods ended September 30, 1998 and 1997, the
Partnership purchased containers with a cost of $647 and $2,291,
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 acquisition fee, an equipment management
fee, an incentive management fee, and an equipment liquidation fee. These
fees are for various services provided in connection with the
administration and management of the Partnership. The Partnership
capitalized $31 and $117 of container acquisition fees as a component of
container costs during the nine-month periods ended September 30, 1998 and
1997, respectively. The Partnership incurred $129 and $388 of incentive
management fees during the three- and nine-month periods ended September
30, 1998 and $137 and $410 of incentive management fees for the comparable
periods in 1997. 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
September 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 nine-month periods ended September 30, 1998, these fees totaled $374
and $1,107, respectively, and $373 and $1,089, respectively, 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. General and
administrative costs allocated to the Partnership were as follows:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Salaries $128 $172 $404 $ 552
Other 153 124 535 451
--- --- --- -----
Total general and
administrative costs $281 $296 $939 $1,003
=== === === =====
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. The General
Partners allocated the following general and administrative costs to the
Partnership:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
TEM $254 $267 $850 $ 881
TFS 27 29 89 122
--- --- --- -----
Total general and
administrative costs $281 $296 $939 $1,003
=== === === =====
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 September 30, 1998 and December 31, 1997, due from (to) affiliates, net
is comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM................................... $ 550 $ 120
---- ----
Due to affiliates:
Due to TFS..................................... 52 55
Due to TAS..................................... - 2
Due to TCC..................................... 13 20
Due to TL...................................... 1 834
---- ----
66 911
---- ----
Due from (to) affiliates, net $ 484 $ (791)
==== ====
Included in the amount 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 and 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 in
the nine-month period ended September 30, 1998. There was no interest
expense incurred on amounts due to the General Partners during the
three-month period ended September 30, 1998 or the three- and nine-month
periods ended September 30, 1997.
Note 7. Rentals Under Long-Term Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at September 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 September 30:
1999............................................. $ 666
2000............................................. 41
2001............................................. 25
2002............................................. 5
----
Total minimum future rentals receivable.......... $ 737
====
Note 8. Accounts Receivable Write-Off
During March 1998, the Partnership wrote-off $561 of uncollectible
receivables from two lessees against which reserves were recorded in 1994
and 1995.
Note 9. Redemptions
The Partnership did not redeem any units during the nine-month period
ended September 30, 1998. The total number of units redeemed since
inception of the redemption program is 18,735, at a total cost of $270,
representing an average redemption price of $14.43 per unit. The
redemption price is fixed by formula.
Note 10. Commitments
At September 30, 1998, the Partnership had committed to purchase 100 new
containers at an approximate total purchase price of $332, which includes
acquisition fees of $16. 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 nine-month periods
ended September 30, 1998 and 1997. Please refer to the Financial Statements and
Notes thereto in connection with the following discussion.
Liquidity and Capital Resources
From May 1, 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 nine-month period ended September 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 nine-month period ended September 30, 1998, the Partnership declared
cash distributions to limited partners pertaining to the period from December
1997 through August 1998, in the amount of $9,273. 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 August 1998. On a cash
basis, all of these distributions were from operations. On a GAAP basis, $4,430
of these distributions was a return of capital and the balance was from net
earnings.
At September 30, 1998, the Partnership had committed to purchase 100 new
containers at an approximate total purchase price of $332, which includes
acquisition fees of $16. At September 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 nine-month periods ending
September 30, 1998 and 1997, was $10,848 and $9,467, respectively. The increase
of $1,381 was primarily attributable to fluctuations in net earnings and due
from affiliates, net during the nine-month period ended September 30, 1998
compared to the equivalent period in 1997. Net earnings increased by $954, or
24%, primarily due to an increase in other rental income, which is discussed
more fully in "Results of Operations". Due from affiliates, net increased $362
in the nine-month period ended September 30, 1998 compared to an increase of
$659 in the equivalent period in 1997. Fluctuations in due from affiliates, net
result from timing differences in payment of expenses and fees and in the
remittance of net rental revenues.
For the nine-month period ending September 30, 1998, net cash provided by
investing activities (the purchase and sale of containers) was $1,321 compared
to net cash used in investing activities of $1,358 for the comparable period in
1997. The difference of $2,679 is due to the Partnership having purchased more
containers during the nine-month period ended September 30, 1997 than in the
comparable period in 1998 and having sold more containers at a higher average
sales price in the nine-month period ended September 30, 1998 than in the
comparable period in 1997. The General Partners believe that these differences
reflect normal fluctuations in container sales and purchases. Consistent with
its investment objectives, the Partnership intends to reinvest all or a
significant amount of the proceeds from future container sales in additional
containers. 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". Additionally, TEM anticipates selling certain older
containers in surplus locations where demand is weak, rather than incurring
additional storage charges while waiting for market conditions to improve or
incurring expensive repositioning costs transporting the containers to demand
locations. Due to the difference between sales proceeds and new container
prices, and to the Partnership purchasing larger more expensive types of
containers, 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
nine-month period ended September 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 nine-month periods ended September 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
---- ----
Beginning container fleet............... 36,409 35,931
Ending container fleet.................. 35,608 36,321
Average container fleet................. 36,009 36,126
The Partnership currently expects that the size of its container fleet will
decline, due to the Partnership's sale of certain containers in low demand
locations, as discussed above under "Liquidity and Capital Resources". This
decline is expected to be limited by the fact that only 3% of the Partnership's
container fleet was in these lower demand locations as of October 15, 1998.
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 80% and 79% on average during the nine-month
periods ended September 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
nine-month periods ended September 30, 1998 and 1997.
The Partnership's income from operations for the nine-month periods ending
September 30, 1998 and 1997 was $4,726 and $3,765, respectively, on rental
income of $16,490 and $15,679, respectively. The increase in rental income of
$811, or 5%, from the nine-month period ended September 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, decreased $139, or 1%. This decrease was
primarily due to the decrease in average rental rates of 4%, offset by the
increase in average on-hire (utilization) percentage of 1% and the decrease in
leasing incentives of 50%.
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. The decline in the
purchase price of new containers during this period, which continued into 1998,
has also caused additional downward pressure on rental rates.
Additionally, the weakening of many Asian currencies in 1998 has resulted in a
significant increase in exports from Asia to North America and Europe and a
corresponding decrease in imports into Asia from North America and Europe. This
trade imbalance has created a strong demand for containers in Asia and a weak
demand for containers in North America and Europe. This imbalance has resulted
in the stabilization of average utilization and the decline in leasing
incentives, but also resulted in an unusually high build-up of containers in
lower demand locations during the nine-month period ended September 30, 1998
compared to the equivalent period in 1997. Although average utilization rates
have stabilized, utilization rates have been slowly declining since late 1997.
In order to improve utilization and alleviate the container build-up, TEM has
begun an aggressive effort to reposition newer containers to demand locations
and anticipates selling certain older containers in these lower demand
locations, where repositioning costs are high. The Partnership anticipates
incurring increased direct container expenses and some losses on the sale of
containers as a result of repositioning and selling containers in these lower
demand locations. These losses are anticipated to be limited by the fact that
only 3% of the Partnership's container fleet was in these lower demand locations
as of October 15, 1998. However, the expected increase in repositioning costs
may have a material negative effect on the Partnership's results of operations.
For the near term, the General Partners do not foresee material changes in
existing market conditions and caution that both utilization and lease rates
could decline, adversely affecting the Partnership's operating results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases.
The balance of other rental income consists of other lease-related items,
primarily income from charges to lessees for dropping off containers in surplus
locations less credits granted to lessees for leasing containers from surplus
locations (location income), income from charges to lessees for handling and
returning containers (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP). For the nine-month period ended September 30,
1998, the total of these other rental income items was $2,226, an increase of
$950 from the equivalent period in 1997. This increase was primarily due to an
increase in location income of $1,005, offset by a decrease in handling income
of $112. Location income increased primarily 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. Handling income decreased
primarily due to a decrease in container movement during the nine-month period
ending September 30, 1998 compared to the equivalent period in 1997.
Direct container expenses increased $293, or 9%, from the nine-month period
ending September 30, 1997 to the equivalent period in 1998. The increase was
primarily due to increases in repositioning and DPP expense of $429 and $159,
respectively, offset by a decrease in storage expense of $210. Repositioning
expense increased primarily due to an increase in the number of containers
repositioned at a higher average cost per container and due to the removal of
certain credits from repositioning costs to other rental income as discussed
above. DPP expense increased primarily due to an increase in the number of units
requiring repair, offset by a decrease in the average repair cost per container.
Storage expense decreased due to the increase in average utilization noted
above.
Bad debt expense decreased from an expense of $153 in the nine-month period
ended September 30, 1997 to a benefit of $180 in the comparable period in 1998.
The benefit recorded for the period ending September 30, 1998 resulted from the
receipt of insurance proceeds for certain receivables against which reserves had
been recorded in 1994 and 1995 as well as to the resolution of payment issues
with one lessee.
Depreciation expense remained comparable during the nine-month period ended
September 30, 1997 and 1998.
Management fees to affiliates were comparable for the nine-month periods ended
September 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 rental income upon which the
management fee is primarily based and was offset by an adjustment 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 and
partners' capital, 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 $64, or 6%, from the
nine-month period ended September 30, 1997 to the comparable period in 1998 due
to a decrease in overhead costs allocated by TFS and TEM.
Other income decreased $7, or 3%, primarily due to an decrease in gain on sale
of containers from the nine-month period ending September 30, 1997 to the
comparable period in 1998.
Net earnings per limited partnership unit increased from $0.57 to $0.71 from the
nine-month period ending September 30, 1997 to the same period in 1998,
reflecting the increase in net earnings allocated to limited partners from
$3,885 to $4,843, respectively.
The following is a comparative analysis of the results of operations for the
three-month periods ended September 30, 1998 and 1997.
The Partnership's income from operations for the three-month periods ending
September 30, 1998 and 1997 was $1,507 and $1,365, respectively, on rental
income of $5,378 and $5,340, respectively. The increase in rental income of $38,
or 1%, from the three-month period ended September 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
rental income, decreased $286, or 6%. This decrease was primarily due to
decreases in utilization and average rental rates of 6% and 2%, respectively,
offset by a decrease in leasing incentives of 63%.
Other rental income for the three-month period ended September 30, 1998 was
$706, an increase of $324 from the comparable period in 1997. The increase was
primarily due to an increase in location income of $415, offset by a decrease in
handling income of $99. Location income increased primarily due to a decrease in
credits given to lessees for picking up containers from certain locations.
Handling income decreased primarily due to a decrease in container movement,
offset by an increase in the average handling price charged per container.
Direct container expenses decreased $12, or 1%, from the three-month period
ending September 30, 1997 to the equivalent period in 1998. The decrease was
primarily due to a decrease in handling expense of $97, offset by an increase in
storage expense of $67. Handling expense decreased primarily due to the decrease
in container movement, offset by an increase in the average handling cost
charged per container. Storage expense increased primarily due to the decrease
in utilization noted above.
Bad debt benefit increased from a benefit of $14 in the three-month period ended
September 30, 1997 to a benefit of $49 in the comparable period in 1998. The
benefits recorded in 1998 and 1997 were primarily due to a lowering of reserve
requirements.
Depreciation expense decreased $27, or 1%, from the three-month period ended
September 30, 1997 to the comparable period in 1998 primarily due to the
decrease in average fleet size.
Management fees to affiliates decreased $7, or 1%, from the three-month period
ended September 30, 1997 to the comparable period in 1998, primarily due to a
decrease in incentive management fees. Incentive management fees decreased due
to the decrease in the limited partner distribution percentage.
General and administrative costs to affiliates decreased $15, or 5%, from the
three-month period ended September 30, 1997 to the comparable period ending in
1998 primarily due to a decrease in overhead costs allocated by TEM and TFS.
Other income decreased from income of $27 in the three-month period ended
September 30, 1997 to an expense of $54 in the comparable period in 1998. The
decrease was primarily due to the decrease in gain on sale of containers, which
decreased from a gain of $11 in the three-month period ended September 30, 1997
to a loss of $88 in the comparable period in 1998. The loss on sale of
containers was primarily due to the Partnership having sold newer containers in
certain low demand locations.
Net earnings per limited partnership unit increased from $0.20 to $0.21 from the
three-month period ending September 30, 1997 to the same period in 1998,
reflecting the increase in net earnings allocated to limited partners from
$1,358 to $1,420, respectively.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of September 30, 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.
Readiness for Year 2000
Many computer systems may experience difficulty processing dates beyond the year
1999; as a consequence, some computer hardware and software at most companies
will need to be modified or replaced prior to the year 2000 in order to remain
functional. The Partnership relies on the financial and operating systems
provided by the General Partners; these systems include both information
technology (IT) systems as well as non-information technology (non-IT) systems.
For IT and non-IT systems developed by independent third parties
(externally-developed) the General Partners have obtained representations from
their vendors and suppliers that these systems are Year 2000 compliant and have
internally tested significant systems as operational. The General Partners have
reviewed all internally-developed IT and non-IT systems for Year 2000 issues and
identified certain of these systems which required revision. The General
Partners have completed the revision and testing of these identified systems,
and these revised systems are now operational.
The cost of the revisions and testing relating to these systems was incurred by
TEM and a portion of the cost was allocated to the Partnership as part of
general and administrative costs allocated from TEM. While Year 2000 remediation
costs were not specifically identified, it is estimated that total Year 2000
related expenses included in allocated overhead from TEM were less than $30. The
Partnership and the General Partners do not anticipate incurring significant
additional remediation costs related to the Year 2000 issue. There has been no
material effect on the Partnership's financial condition and results of
operations as a result of TEM's delay in routine maintenance and repair projects
as a result of Year 2000 remediation.
Year 2000 compliance testing was undertaken by the General Partners on both
externally- and internally-developed systems. Standard transactions were
processed under simulated operating conditions for dates crossing over January
1, 2000 as well as for other critical dates such as February 29, 2000. In the
standard business scenarios tested, the identified systems appeared to function
correctly. Under nonstandard conditions or unforeseen scenarios, the results may
be different. Therefore, these tests, regardless of how carefully they were
conducted, cannot guarantee that the General Partners' systems will function
without error in the Year 2000 and beyond. If these systems are not operational
in the Year 2000, the General Partners have determined that they can operate
manually for approximately two to three months while correcting the system
problems before experiencing material adverse effects on the Partnership's and
the General Partners' business and results of operations. However, shifting
portions of the daily operations to manual processes may result in time delays
and increased processing costs. Additionally, the Partnership and General
Partners may not be able to provide lessees with timely and pertinent
information, which may negatively affect customer relations and lead to the
potential loss of lessees, even though the immediate monetary consequences of
this would be limited by the standard Partnership lease agreements between the
lessees and the Partnership.
The Partnership and the General Partners are also continuing their assessment of
Year 2000 issues with third parties, comprised of lessees, manufacturers,
depots, and other vendors and suppliers, with whom the Partnership and the
General Partners have a material business relationship (Third Parties).
Currently, the Partnership and the General Partners believe that if a
significant portion of its lessees is non-compliant for a substantial length of
time, the Partnership's operations and financial condition would be materially
adversely affected. Non-compliance by other Third Parties is not expected to
have a material effect on the Partnership's results of operations and financial
condition. The General Partners have sent letters to lessees and other Third
Parties requesting representations on their Year 2000 readiness. The General
Partners have received responses to fewer than 50% of the letters sent. The
General Partners will follow up with non-respondents and will continue to
identify additional Third Parties whose Year 2000 readiness should be assessed.
As this assessment has not been completed, the General Partners have not yet
assumed that a lack of response means that the Third Party will not be Year 2000
compliant.
Nevertheless, the Partnership and the General Partners believe that they are
likely to encounter Year 2000 problems with Third Parties, particularly those
with significant operations within countries that are not actively promoting
correction of Year 2000 issues. In the event that the systems of these Third
Parties are not Year 2000 compliant by January 1, 2000, the Partnership's
business may be disrupted and results of operations may be adversely affected.
Possible consequences of Year 2000 non-compliance among Third Parties include,
but are not limited to, (i) TEM's inability to provide service to certain areas
of the world, (ii) delays in container movement, (iii) payment and collection
difficulties, and (iv) invoicing errors due to late reporting of transactions.
These types of problems could result in additional operating costs and loss of
lessee business. As discussed above, the General Partners are prepared to shift
portions of their daily operations to manual processes in the event of Third
Party non-compliance. With respect to manufacturers, vendors and other
suppliers, the General Partners would also attempt to find alternate sources for
goods and services. With respect to depots and agents who handle, inspect or
repair containers, if the majority of the computer systems and networks of TEM
are operational, the General Partners believe that they will be able to
compensate manually for these Third Parties' failures (e.g., one field office
performing data entry for another, communication with depots conducted without
computers), using temporary personnel at additional cost. Although costs will be
incurred to pay for the temporary personnel, the Partnership and the General
Partners do not expect these costs to be material to the Partnership. With
respect to lessees' non-compliance, the General Partners would compensate for
communications failures manually. If a lessee's noncompliance is broad enough to
disrupt significantly the operations of its shipping business, the resulting
loss of revenue could result in the lessee renting fewer containers, adversely
affecting the Partnership's business. The Partnership and the General Partners
are unable to estimate the financial impact of these problems, but to the extent
that lessees problems result in weakening demand for containers, the
Partnership's results of operations would likely be adversely affected. If Year
2000 problems result in delays in collections, either because of the additional
time required to communicate with lessees or because of lessees' loss of
revenues, the Partnership's cash flow could be affected and distributions to
general and limited partners could be reduced. The Partnership and the General
Partners believe that these risks are inherent in the industry and are not
specific to the Partnership or General Partners.
Forward-Looking Statements and Other Risk Factors
The foregoing analysis of Year 2000 issues includes forward-looking statements
and predictions about possible or future events, results of operations and
financial condition. As such, this analysis may prove to be inaccurate, because
of the assumptions made by the Partnership and the General Partners or the
actual development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct. Some of the risks relating to Year 2000
compliance are described above. In addition, in analyzing Year 2000 issues, the
Partnership and the General Partners have assumed that the infrastructure of the
United States and most other countries, including ports and customs, remains
intact. If the infrastructure of one or more countries were to fail, the
resulting business disruption would likely have an adverse effect on the
Partnership and the General Partners.
Various other risks and uncertainties could also affect the Partnership and
could affect the Year 2000 analysis causing the effect on the Partnership to be
more severe than discussed above. These risks and uncertainties include, but are
not limited to, the following. As noted above, the Partnerships' and the General
Partners' Year 2000 compliance testing cannot guarantee that all computer
systems will function without error beyond the Year 2000. Tests were only
conducted of normal business scenarios, and no independent verification or
testing was used. Risks also exist with respect to Year 2000 compliance by Third
Parties, such as the risk that an external party, who may have no relationship
to the Partnership or General Partners, but who has a significant relationship
with one or more Third Parties, may have a system failure that adversely affects
the Partnership's ability to conduct its business. While the Partnership and the
General Partners are attempting to identify such external parties, no assurance
can be given that they will be able to do so. Furthermore, Third Parties with
direct relationships with the Partnership, whose systems have been identified as
likely to be Year 2000 compliant, may suffer a breakdown due to unforeseen
circumstances. It is also possible that the information collected by the General
Partners from these Third Parties regarding their compliance with Year 2000
issues may be incorrect. Finally, it should be noted that the foregoing
discussion of Year 2000 issues assumes that to the extent the General Partners'
systems fail, either because of unforeseen complications or because of Third
Parties failure, switching to manual operations will allow the Partnership to
continue to conduct its business. While the Partnership and the General Partners
believe this assumption to be reasonable, if it is incorrect, the Partnership's
results of operations would likely be adversely affected.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND 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 11, 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, November 11, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive November 11, 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: November 11, 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, November 11, 1998
________________________ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/Philip K. Brewer President (Principal Executive November 11, 1998
________________________ Officer)
Philip K. Brewer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund IV, L.P.
</LEGEND>
<CIK> 0000882288
<NAME> Textainer Equipment Income Fund IV, L.P.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,612
<SECURITIES> 0
<RECEIVABLES> 5,561
<ALLOWANCES> 574
<INVENTORY> 0
<CURRENT-ASSETS> 21
<PP&E> 124,491
<DEPRECIATION> 40,863
<TOTAL-ASSETS> 91,248
<CURRENT-LIABILITIES> 2,234
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 89,014
<TOTAL-LIABILITY-AND-EQUITY> 91,248
<SALES> 0
<TOTAL-REVENUES> 16,490
<CGS> 0
<TOTAL-COSTS> 11,764
<OTHER-EXPENSES> (215)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,941
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,941
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
