TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 12, 2003
Securities and Exchange Commission
Washington, DC 20549
Ladies and 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 "Partnership") the Partnership's Quarterly Report on Form 10-Q for the
Second Quarter ended June 30, 2003.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
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 June 30, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2003
Table of Contents
- -----------------------------------------------------------------------------------------------------------------
Page
Part I Financial Information
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 2003
and December 31, 2002............................................................................. 3
Statements of Operations for the three and six months
ended June 30, 2003 and 2002...................................................................... 4
Statements of Partners' Capital for the six months
ended June 30, 2003 and 2002...................................................................... 5
Statements of Cash Flows for the six months
ended June 30, 2003 and 2002...................................................................... 6
Notes to Financial Statements..................................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 22
Item 4. Controls and Procedures....................................................................... 22
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.............................................................. 23
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 2003 and December 31, 2002
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2003 2002
---------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $53,061, (2002: $51,768) (note 4) $ 38,044 $ 41,630
Cash 2,294 2,339
Accounts receivable, net of allowance for doubtful
accounts of $190, (2002: $164) 2,947 3,107
Due from affiliates, net (note 2) 445 84
Prepaid expenses 7 40
---------------- ----------------
$ 43,737 $ 47,200
================ ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 340 $ 296
Accrued liabilities 369 430
Accrued damage protection plan costs 301 246
Warranty claims 201 232
Accrued recovery costs 181 184
Deferred quarterly distributions 85 83
---------------- ----------------
Total liabilities 1,477 1,471
---------------- ----------------
Partners' capital:
General partners - -
Limited partners 42,260 45,729
---------------- ----------------
Total partners' capital 42,260 45,729
---------------- ----------------
Commitments (note 6)
$ 43,737 $ 47,200
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Operations
For the three and six months ended June 30, 2003 and 2002
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
Rental income $ 3,305 $ 2,632 $ 6,710 $ 5,274
------------- ------------- ------------- -------------
Costs and expenses:
Direct container expenses 833 1,155 1,561 2,201
Bad debt expense (benefit) 56 (13) 66 (6)
Depreciation (note 4) 1,828 1,495 3,764 3,045
Write-down of containers (note 4) 83 367 219 1,302
Professional fees 10 16 19 28
Management fees to affiliates (note 2) 302 256 603 512
General and administrative costs to affiliates (note 2) 152 165 317 341
Other general and administrative costs 36 78 69 153
Loss on sale of containers (note 4) 137 116 83 800
------------- ------------- ------------- -------------
3,437 3,635 6,701 8,376
------------- ------------- ------------- -------------
(Loss) income from operations (132) (1,003) 9 (3,102)
------------- ------------- ------------- -------------
Interest income 5 10 12 20
------------- ------------- ------------- -------------
Net (loss) income $ (127) $ (993) $ 21 $ (3,082)
============= ============= ============= =============
Allocation of net (loss) income (note 2):
General partners $ 17 $ 17 $ 34 $ 35
Limited partners (144) (1,010) (13) (3,117)
------------- ------------- ------------- -------------
$ (127) $ (993) $ 21 $ (3,082)
============= ============= ============= =============
Limited partners' per unit share
of net (loss) income $ (0.02) $ (0.15) $ (0.00) $ (0.46)
============= ============= ============= =============
Limited partners' per unit share
of distributions $ 0.25 $ 0.25 $ 0.50 $ 0.50
============= ============= ============= =============
Weighted average number of limited
partnership units outstanding 6,513,955 6,708,666 6,513,955 6,708,666
============= ============= ============= =============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 2003 and 2002
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Partners' Capital
-----------------------------------------------------------
General Limited Total
-------------- --------------- ----------------
Balances at January 1, 2002 $ - $ 57,145 $ 57,145
Distributions (35) (3,355) (3,390)
Redemptions (note 5) - (36) (36)
Net earnings (loss) 35 (3,117) (3,082)
-------------- --------------- ----------------
Balances at June 30, 2002 $ - $ 50,637 $ 50,637
============== =============== ================
Balances at January 1, 2003 $ - $ 45,729 $ 45,729
Distributions (34) (3,260) (3,294)
Redemptions (note 5) - (196) (196)
Net earnings (loss) 34 (13) 21
-------------- --------------- ----------------
Balances at June 30, 2003 $ - $ 42,260 $ 42,260
============== =============== ================
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 2003 and 2002
(Amounts in thousands)
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------
2003 2002
---------------- ---------------
Cash flows from operating activities:
Net income (loss) $ 21 $ (3,082)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 3,764 3,045
Write-down of containers (note 4) 219 1,302
Increase in allowance for doubtful accounts 26 3
Loss on sale of containers 83 800
Decrease (increase) in assets:
Accounts receivable 164 496
Due from affiliates, net (418) (58)
Prepaid expenses 33 12
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (17) (89)
Accrued recovery costs (3) (34)
Accrued damage protection plan costs 55 8
Warranty claims (31) (31)
---------------- ---------------
Net cash provided by operating activities 3,896 2,372
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of containers 978 2,311
Container purchases (1,432) (1,136)
---------------- ---------------
Net cash (used in) provided by investing activities (454) 1,175
---------------- ---------------
Cash flows from financing activities:
Redemptions of limited partnership units (196) (36)
Distributions to partners (3,291) (3,389)
---------------- ---------------
Net cash used in financing activities (3,487) (3,425)
---------------- ---------------
Net (decrease) increase in cash (45) 122
Cash at beginning of period 2,339 1,841
---------------- ---------------
Cash at end of period $ 2,294 $ 1,963
================ ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the six months ended June 30, 2003 and 2002
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of June 30, 2003 and 2002, and December 31, 2002 and 2001, resulting
in differences in amounts recorded and amounts of cash disbursed or received by
the Partnership, as shown in the Statements of Cash Flows for the six-month
periods ended June 30, 2003 and 2002.
June 30 Dec. 31 June 30 Dec. 31
2003 2002 2002 2001
----------- ----------- ------------ -----------
Container purchases included in:
Due to affiliates.............................. $ 1 $ - $ 12 $ 27
Container purchases payable.................... - - 524 -
Distributions to partners included in:
Due to affiliates.............................. 6 5 7 7
Deferred quarterly distributions............... 85 83 82 81
Proceeds from sale of containers included in:
Due from affiliates............................ 263 318 558 767
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
six-month periods ended June 30, 2003 and 2002.
2003 2002
---- ----
Container purchases recorded................................. $1,433 $1,645
Container purchases paid..................................... 1,432 1,136
Distributions to partners declared........................... 3,294 3,390
Distributions to partners paid............................... 3,291 3,389
Proceeds from sale of containers recorded.................... 923 2,102
Proceeds from sale of containers received.................... 978 2,311
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying value of containers transferred during the six-month periods ended
June 30, 2003 and 2002 was $30 and $112, respectively.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and six months ended June 30, 2003 and 2002
(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 June 30, 2003 and December 31, 2002 and the
results of its operations for the three and six-month periods ended June
30, 2003 and 2002 and changes in partners' capital and cash flows for the
six-month periods ended June 30, 2003 and 2002, 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 and for the
year ended December 31, 2002, 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. The Partnership's management evaluates its estimates on
an on-going basis, including those related to the container rental
equipment, accounts receivable and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its lessees to make required
payments. These allowances are based on management's current assessment of
the financial condition of the Partnership's lessees and their ability to
make their required payments. If the financial condition of the
Partnership's lessees were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased
containers and the estimated sales price at the end of the container's
useful life. The Partnership will evaluate the estimated residual values
and remaining estimated useful lives on an on-going basis and will revise
its estimates as needed. As a result, depreciation expense may fluctuate in
future periods based on fluctuations in these estimates.
Additionally, the recoverability of the recorded amounts of containers to
be held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are
not impaired and that containers identified for sale are recorded at
amounts that do not exceed the estimated fair value of the containers.
Containers to be held for continued use are considered impaired and are
written down to estimated fair value when the estimated future undiscounted
cash flows are less than the recorded values. Containers identified for
sale are written down to estimated fair value when the recorded value
exceeds the estimated fair value. In determining the estimated future
undiscounted cash flows and fair value of containers, assumptions are made
regarding future demand and market conditions for leased containers and the
sales prices for used containers. If actual market conditions are less
favorable than those projected or if actual sales prices are lower than
those estimated by the Partnership, additional write-downs may be required
and/or losses may be realized.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
With Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. The Partnership adopted SFAS No. 146 on January 1,
2003 and there was no material impact on the Partnership's financial
condition, operating results or cash flow.
Note 2. Transactions with Affiliates
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership. TFS is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM) and
Textainer Limited (TL) are associate general partners of the Partnership.
The managing general partner and the associate general partners are
collectively referred to as the General Partners and are commonly owned by
Textainer Group Holdings Limited (TGH). The General Partners also act in
this capacity for other limited partnerships. The General Partners manage
and control the affairs of the Partnership.
In accordance with the Partnership Agreement, sections 3.08 through 3.12,
net earnings or losses and distributions are generally allocated 1% to the
General Partners and 99% to the Limited Partners. If the allocation of
distributions exceeds the allocation of net earnings and creates a deficit
in a General Partner's capital account, the Partnership Agreement provides
for a special allocation of gross income equal to the amount of the deficit
to be made to the General Partners.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners 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 $68 and $78 of
container acquisition fees as a component of container costs during the
six-month periods ended June 30, 2003 and 2002, respectively. The
Partnership incurred $70 and $134 of incentive management fees during the
three and six-month periods ended June 30, 2003, respectively, and $71 and
$141, respectively, for the comparable periods in 2002. There were no
equipment liquidation fees incurred during these periods.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the Partnership's containers. TEM holds, for the payment of
direct operating expenses, a reserve of cash that has been collected from
leasing operations; such cash is included in due from affiliates, net at
June 30, 2003 and December 31, 2002.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to operating leases and 2%
of gross revenues attributable to full payout net leases. These fees
totaled $232 and $469 for the three and six-month periods ended June 30,
2003, respectively, and $185 and $371, respectively, for the comparable
periods in 2002.
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 during the three and
six-month periods ended June 30, 2003 and 2002 were as follows:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2003 2002 2003 2002
---- ---- ---- ----
Salaries $ 87 $107 $175 $218
Other 65 58 142 123
--- --- --- ---
Total general and
administrative costs $152 $165 $317 $341
=== === === ===
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 either
based on the ratio of the Partnership's investors to the total number of
investors of all limited partnerships managed by TFS or equally among all
the limited partnerships managed by TFS. The General Partners allocated the
following general and administrative costs to the Partnership during the
three and six-month periods ended June 30, 2003 and 2002:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2003 2002 2003 2002
---- ---- ---- ----
TEM $132 $141 $276 $290
TFS 20 24 41 51
--- --- --- ---
Total general and
administrative costs $152 $165 $317 $341
=== === === ===
The General Partners 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. One or more General Partners
may also arrange for the purchase of containers in its or their names, and
the Partnership may then take title to the containers by paying the seller
directly. In addition, the General Partners are entitled to an acquisition
fee for containers acquired by the Partnership under any of these
arrangements.
At June 30, 2003 and December 31, 2002, due from affiliates, net was
comprised of:
2003 2002
---- ----
Due from affiliates:
Due from TEM................ $520 $174
--- ---
Due to affiliates:
Due to TFS.................. 61 71
Due to TCC.................. 13 18
Due to TL................... 1 1
--- ---
75 90
--- ---
Due from affiliates, net $445 $ 84
=== ===
These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and remittance of expenses,
fees and distributions described above and in the accrual and remittance of
net rental revenues and container sales proceeds from TEM.
Note 3. Lease Rental Income
Leasing income arises principally from the renting of containers to various
international shipping lines. Revenue is recorded when earned according to
the terms of the container rental contracts. These contracts are typically
for terms of five years or less. The following is the lease mix of the
on-lease containers (in units) at June 30, 2003 and 2002:
2003 2002
---- ----
On-lease under master leases 15,218 12,908
On-lease under long-term leases 7,972 6,392
------ ------
Total on-lease containers 23,190 19,300
====== ======
Under master lease agreements, the lessee is not committed to lease a
minimum number of containers from the Partnership during the lease term and
may generally return any portion or all the containers to the Partnership
at any time, subject to certain restrictions in the lease agreement. Under
long-term lease agreements, containers are usually leased from the
Partnership for periods of between three to five years. Such leases are
generally cancelable with a penalty at the end of each twelve-month period.
Under direct finance leases, the containers are usually leased from the
Partnership for the remainder of the container's useful life with a
purchase option at the end of the lease term.
The remaining containers are off-lease and are being stored primarily at a
large number of storage depots. At June 30, 2003 and 2002, the
Partnership's off lease containers were in the following locations:
2003 2002
---- ----
Americas 2,491 2,963
Europe 846 1,578
Asia 1,081 5,788
Other 124 150
----- ------
Total off-lease containers 4,542 10,479
===== ======
At June 30, 2003 approximately 5% of the Partnership's off-lease containers
had been specifically identified as for sale.
Note 4. Container Rental Equipment
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated dollar
residual value. The effect of this change for the three and six-month
periods ended June 30, 2003 was an increase to depreciation expense of $573
and $1,145, respectively. The Partnership will evaluate the estimated
residual values and remaining estimated useful lives on an on-going basis
and will revise its estimates as needed. As a result, depreciation expense
may fluctuate in future periods based on fluctuations in these estimates.
New container prices steadily declined from 1995 through 1999 and have
remained low through the first half of 2003. As a result, the cost of new
containers purchased in recent years is significantly less than the average
cost of containers purchased in prior years. The Partnership evaluated the
recoverability of the recorded amount of container rental equipment at June
30, 2003 and 2002 for containers to be held for continued use and
determined that a reduction to the carrying value of these containers was
not required. The Partnership also evaluated the recoverability of the
recorded amount of containers identified for sale in the ordinary course of
business and determined that a reduction to the carrying value of some of
these containers was required. The Partnership wrote down the value of
these containers to their estimated net realizable value, which was based
on recent sales prices less cost to sell. During the six-month periods
ended June 30, 2003 and 2002, the Partnership recorded write-down expenses
of $219 and $1,302, respectively, on 340 and 1,619 containers identified
for sale and requiring a reserve. Additionally, during the three and
six-month periods ended June 30, 2003, the Partnership reclassified 23
containers from containers identified for sale to containers held for
continued use due to the improvement in demand for leased containers in
Asia. There were no reclassifications during the three and six-month
periods ended June 30, 2002. During the three-month periods ended June 30,
2003 and 2002, the Partnership recorded write-down expenses of $83 and
$367, respectively, on 158 and 550 containers identified for sale and
requiring a reserve. At June 30, 2003 and 2002, the net book value of the
195 and 1,039 containers identified for sale was $175 and $914,
respectively.
The Partnership sold 368 previously written down containers for a loss of
$40 during the six-month period ended June 30, 2003 and sold 1,435
previously written down containers for a loss of $150 during the same
period in 2002. During the three-month period ended June 30, 2003, the
Partnership sold 229 previously written down containers for a loss of $31
and sold 805 previously written down containers for a loss of $93 during
the same period in 2002. The Partnership incurred losses on the sale of
some containers previously written down as the actual sales prices received
on these containers were lower than the estimates used for the write-downs.
The Partnership also sold containers that had not been written down and
recorded losses of $43 and $650 during the six-month periods ended June 30,
2003 and 2002, respectively. During the three-month periods ended June 30,
2003 and 2002 the Partnership recorded losses of $106 and $23,
respectively, on the sale of containers that had not been written down.
As more containers are subsequently identified for sale or if container
sales prices continue to decline, the Partnership may incur additional
write-downs on containers and/or may incur losses on the sale of
containers. The Partnership will continue to evaluate the recoverability of
the recorded amounts of container rental equipment.
Note 5. Redemptions
The following redemptions were consummated by the Partnership during the
six-month periods ended June 30, 2003 and 2002:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2001.......................... 131,937 $9.89 $1,305
Six-month period ended
June 30, 2002.............................. 5,300 $6.79 36
------- -----
Total Partnership redemptions as of
June 30, 2002.............................. 137,237 $9.77 $1,341
======= =====
Total Partnership redemptions as of
December 31, 2002.......................... 295,555 $7.33 $2,165
Six-month period ended
June 30, 2003.............................. 36,393 $5.39 196
------- -----
Total Partnership redemptions as of
June 30, 2003.............................. 331,948 $7.11 $2,361
======= =====
The redemption price is fixed by formula in accordance with the Partnership
Agreement.
Note 6. Commitments
At June 30, 2003, the Partnership has committed to purchase 75 new
containers at an approximate total purchase price of $157, which includes
acquisition fees of $7. This commitment was made to TEM, which as the
contracting party, has in turn committed to purchase these containers on
behalf of the Partnership.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the three and six-month periods ended
June 30, 2003 and 2002. Please refer to the Financial Statements and Notes
thereto in connection with the following discussion.
Textainer Financial Services Corporation (TFS) is the Managing General Partner
of the Partnership and 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 General
Partners manage and control the affairs of the Partnership.
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.
The Partnership invests working capital, cash flow from operating activities
prior to its distribution to the partners and proceeds from container sales that
have not been used to purchase containers in short-term, liquid investments.
Rental income is the Partnership's principal source of liquidity and provides a
major source of funds for distributions. Rental income is affected by market
conditions for leased containers. Market conditions are discussed more fully in
"Results of Operations." 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.
Limited partners are currently receiving monthly distributions in an annualized
amount equal to 5% of their original investment. During the six-month period
ended June 30, 2003, the Partnership declared cash distributions to limited
partners pertaining to the period from December 2002 through May 2003 in the
amount of $3,260. On a cash basis, as reflected on the Statements of Cash Flows,
after paying redemptions and general partner distributions, all of these
distributions were from current year operating activities. On an accrual basis,
as reflected on the Statements of Partners' Capital, all of these distributions
were a return of capital.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value, which is set by formula. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. During the six-month period ended June 30, 2003,
the Partnership redeemed 36,393 units for a total dollar amount of $196. The
Partnership used cash flow from operating activities to pay for the redeemed
units.
Net cash provided by operating activities for the six-month periods ended June
30, 2003 and 2002 was $3,896 and $2,372, respectively. The increase of $1,524,
or 64%, was primarily attributable to the fluctuations in net earnings (loss),
adjusted for non-cash transactions, offset by the fluctuations in due from
affiliates, net and accounts receivable. Net earnings, adjusted for non-cash
transactions, increased primarily due to the increase in rental income and
decrease in direct container expenses. These items are discussed more fully in
"Results of Operations." The fluctuations in due from affiliates, net, resulted
from timing differences in the payment of expenses, fees and distributions and
the remittance of net rental revenues and container sales proceeds, as well as
fluctuations in these amounts. Gross accounts receivable decreased $164 during
the six-month period ended June 30, 2003 primarily due to the decrease in the
average collection period of accounts receivable. The decrease in gross accounts
receivable of $496 during the six-month period ended June 30, 2002 was primarily
due to the decrease in rental income, offset by the increase in the average
collection period of accounts receivable.
At June 30, 2003, the Partnership has committed to purchase 75 new containers at
an approximate total purchase price of $157, which includes acquisition fees of
$7. At June 30, 2003, 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.
For the six-month period ended June 30, 2003, net cash used in investing
activities (the purchase and sale of containers) was $454 compared to net cash
provided by investing activities of $1,175 for the comparable period in 2002.
The decrease of $1,629 was due to the decrease in proceeds from container sales
and the increase in cash used for container purchases. Although the Partnership
purchased fewer containers, cash used for container purchases increased. The
increase was primarily due to timing differences in the accrual and payment of
these purchases. Proceeds from container sales decreased primarily due to the
Partnership selling fewer containers during the six-month period ended June 30,
2003 than in the same period in 2002. Although average container sales prices
increased slightly between the periods for the Partnership, in general, average
sales prices received on container sales for other Partnerships managed by TFS
continued to decrease as a result of current market conditions, which have
adversely affected the value of used containers. Some containers were sold in
low demand locations. Until demand for containers improves in certain low demand
locations, the Partnership plans to continue selling some of its containers that
are off-lease in these locations rather than incurring the expense of
repositioning them. The number of containers sold, both in low demand locations
and elsewhere, as well as the average sales price, will affect how much the
Partnership can reinvest in new containers.
Consistent with its investment objectives and subject to its distribution
policy, the Partnership intends to continue to reinvest both cash from
operations available for reinvestment and all, or a significant amount of, the
proceeds from container sales in additional containers. Reinvestment is expected
to continue until the Partnership begins its liquidation phase, which is
estimated to begin in 2004. Cash from operations available for reinvestment is
generally equal to cash provided by operating activities, less distributions and
redemptions paid, which are subject to the General Partners' authority to set
these amounts (and modify reserves and working capital), as provided in the
Partnership Agreement. Although the Partnership had cash from operations
available to reinvest in additional containers during the six-month period ended
June 30, 2003, there was no cash from operations available to reinvest in
additional containers during the years ended December 31, 2002 and 2001. The
amount of sales proceeds will fluctuate based on the number of containers sold
and the sales price received. The Partnership sells containers when (i) a
container reaches the end of its useful life or (ii) an analysis indicates that
the sale is warranted based on existing market conditions and the container's
age, location and condition.
Both cash from operations available for reinvestment and sales proceeds have
been adversely affected by market conditions. These market conditions have
resulted in a slower than anticipated rate of reinvestment. Market conditions
are discussed more fully under "Results of Operations." A slower rate of
reinvestment has affected the size of the Partnership's container fleet.
Furthermore, even with reinvestment, the Partnership is not likely to be able to
replace all the containers it sells, since new container prices are usually
higher than the average sales price for a used container, and the majority of
cash available for reinvestment is from sales proceeds.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income less costs and expenses (including container depreciation, direct
container expenses, management fees, and reimbursement of administrative
expenses) was directly related to the size of the container fleet during the
six-month periods ended June 30, 2003 and 2002, 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:
2003 2002
---- ----
Beginning container fleet............... 28,024 31,411
Ending container fleet.................. 27,732 29,779
Average container fleet................. 27,878 30,595
The average container fleet decreased 9% from the six-month period ended June
30, 2002 to the comparable period in 2002, primarily due to sales of containers.
Although sales proceeds were used to purchase additional containers, fewer
containers were bought than sold as used container sales prices were lower than
new container prices. The Partnership's primary source of funds for container
purchases is these sales proceeds. The rate of decline in average fleet size may
fluctuate due to timing differences in the purchase and sale of containers and
fluctuations in container sale and purchase prices during each period.
As noted, above, when containers are sold, sales proceeds are not likely to be
sufficient to replace all of the containers sold, resulting in the continuing
decline in the average container fleet. This trend is expected to continue.
Other factors related to this trend are discussed above in "Liquidity and
Capital Resources."
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 81% and 54% on average during the six-month
periods ended June 30, 2003 and 2002, respectively. The remaining container
fleet is off-lease and is being stored primarily at a large number of storage
depots. At June 30, 2003 and 2002, utilization was 84% and 65%, respectively,
and the Partnership's off-lease containers (in units) were located in the
following locations:
2003 2002
---- ----
Americas 2,491 2,963
Europe 846 1,578
Asia 1,081 5,788
Other 124 150
----- ------
Total off-lease containers 4,542 10,479
===== ======
At June 30, 2003 approximately 5% of the Partnership's off-lease containers had
been specifically identified as for sale.
In addition to utilization, rental income is affected by daily rental rates. The
average daily rental rate for the Partnership's containers decreased 10% between
the periods. Average rental rates declined under both master and long term
leases, which are the two principal types of leases for the Partnership's
containers. The majority of the Partnership's rental income was generated from
leasing of the Partnership's containers under master operating leases, but in
the past several years an increasing percentage of the Partnership's containers
are on lease under long term leases. At June 30, 2003 and 2002, 34% and 33%,
respectively, of the Partnership's on-lease containers were on lease under long
term leases. Long term leases generally have lower rental rates than master
leases because the lessees have contracted to lease the containers for several
years and cannot return the containers prior to the termination date without a
penalty. Fluctuations in rental rates under either type of lease generally will
affect the Partnership's operating results.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 2003 and 2002.
The Partnership's income (loss) from operations for the six-month periods ended
June 30, 2003 and 2002 was $9 and ($3,102), respectively, on rental income of
$6,710 and $5,274, respectively. The increase in rental income of $1,436, or
27%, from the six-month period ended June 30, 2002 to the comparable period in
2003 was attributable to increases in container rental income and other rental
income, which is discussed below. Income from container rentals, the major
component of total revenue, increased $1,268, or 29%, primarily due to an
increase in the average on-hire utilization of 50%, offset by the decreases in
average rental rates of 10% and average fleet size of 9%.
Beginning in March 2002, utilization began to improve and improved steadily
through the end of 2002 due to:
o An increase in export cargo out of Asia
o Prior repositioning of containers to Asia which placed large quantities of
containers in areas of high demand
o Disposal of older containers and fewer purchases of new containers by both
container lessors and shipping lines in 2001 and 2002, resulting in an
overall better-balanced supply of containers
o The labor disagreement that affected U.S. West Coast ports in the third and
part of the fourth quarter had short-term positive effects on demand for
containers as shipping lines were not able to reposition enough containers
to Asia and had to lease more containers to meet their customers' demands
Utilization declined slightly in the first quarter of 2003, which is
traditionally a slow period for container demand, and then improved slightly
during the second quarter of 2003. Rental rates also declined slightly in 2003
primarily due to low new container prices, low interest rates and low rates
offered by competitors. The General Partners are cautiously optimistic that
current utilization levels can be maintained or improved during the next several
months as the peak-shipping season begins. However, the General Partners caution
that market conditions could deteriorate again due to global economic and
political conditions. Demand for leased containers could therefore weaken again
and result in a decrease in utilization and further declines in lease rates and
container sale prices, adversely affecting the Partnership's operating results.
Although demand for leased containers improved, the trade imbalance between Asia
and the Americas continues. As a result, a large portion of the Partnership's
off-lease containers are located in low demand locations in the Americas as
detailed in the above chart. For these and other off-lease containers, the
Partnership determines whether these containers should be sold or held for
continued use. The decision to sell containers is based on the current
expectation that the economic benefit of selling these containers is greater
than the estimated economic benefit of continuing to own these containers. The
majority of the containers sold are older containers. The expected economic
benefit of continuing to own these older containers is significantly less than
that of newer containers. This is due to their shorter remaining marine life,
the cost to reposition them, and the shipping lines' preference for leasing
newer containers when they have a choice.
Once the decision is made to sell containers, the Partnership writes down the
value of these specifically identified containers when the carrying value was
greater than the container's estimated net realizable value, which is based on
recent sales prices less cost of sales. Although the average sales price for
containers sold by the Partnership increased between the periods, the average
sales prices for containers sold by other Partnerships managed by the General
Partners have decreased. The decrease is primarily due to a surplus of used
containers available for sale.
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 related to leasing and
returning containers (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP). For the six-month period ended June 30, 2003,
other rental income was $1,002, an increase of $168 from the equivalent period
in 2002. The increase was primarily due to increases in DPP and location income
of $119 and $77, offset by the decrease in handling income of $52. DPP income
increased primarily due to an increase in the number of containers covered under
DPP. Location income increased primarily due to the increase in charges to one
lessee who required containers to be delivered to specific locations, offset by
the decrease in charges to lessees for dropping off containers in certain
locations. Handling income decreased primarily due to the decline in container
movement.
Direct container expenses decreased $640, or 29% from the six-month period ended
June 30, 2002, to the same period in 2003. The decrease was primarily due to a
decrease in storage expense of $941, offset by an increase in repositioning
expense of $233. Storage expense decreased primarily due to the increase in
utilization noted above and the decrease in the average storage cost per
container. Repositioning expense increased due to an increase in the average
repositioning cost due to (i) expensive repositioning moves related to one
lessee who required containers to be delivered to certain locations as discussed
above and (ii) longer average repositioning moves.
Bad debt expense (benefit) was $66 and ($6) for the six-month periods ended June
30, 2003 and 2002, respectively. Fluctuations in bad debt expense (benefit)
reflect the required adjustment to the bad debt reserve and are based on
management's then current estimates of the portion of accounts receivable that
may not be collected, and which will not be covered by insurance. These
estimates are based primarily on management's current assessment of the
financial condition of the Partnership's lessees and their ability to make their
required payments. The expense recorded during the six-month period ended June
30, 2003 reflects a higher reserve requirement from December 31, 2002. The
benefit recorded during the six-month period ended June 30, 2002 reflects a
lower reserve requirement from December 31, 2001.
Depreciation expense increased $719, or 24% from the six-month period ended June
30, 2002 to the comparable period in 2003, primarily due to an increase in the
depreciation rate as a result of changes in estimated salvage values as
discussed below, offset by the decrease in average fleet size noted above.
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated dollar
residual value. The effect of this change for the six-month period ended June
30, 2003 was an increase to depreciation expense of $1,145. The Partnership will
evaluate the estimated residual values and remaining estimated useful lives on
an on-going basis and will revise its estimates as needed. As a result,
depreciation expense may fluctuate in future periods based on fluctuations in
these estimates.
New container prices steadily declined from 1995 through 1999 and have remained
low through the first half of 2003. As a result, the cost of new containers
purchased in recent years is significantly less than the average cost of
containers purchased in prior years. The Partnership evaluated the
recoverability of the recorded amount of container rental equipment at June 30,
2003 and 2002 for containers to be held for continued use and determined that a
reduction to the carrying value of these containers was not required. The
Partnership also evaluated the recoverability of the recorded amount of
containers identified for sale in the ordinary course of business and determined
that a reduction to the carrying value of some of these containers was required.
The Partnership wrote down the value of these containers to their estimated net
realizable value, which was based on recent sales prices less cost to sell.
During the six-month periods ended June 30, 2003 and 2002, the Partnership
recorded write-down expenses of $219 and $1,302, respectively, on 340 and 1,619
containers identified for sale and requiring a reserve. Additionally, during the
six month period ended June 30, 2003, the Partnership reclassified 23 containers
from containers identified for sale to containers held for continued use due to
the improvement in demand for leased containers in Asia. There were no
reclassifications during the six-month period ended June 30, 2002. At June 30,
2003 and 2002, the net book value of the 195 and 1,039 containers identified for
sale was $175 and $914, respectively.
The Partnership sold 368 previously written down containers for a loss of $40
during the six-month period ended June 30, 2003 and sold 1,435 previously
written down containers for a loss of $150 during the same period in 2002. The
Partnership incurred losses on the sale of some containers previously written
down as the actual sales prices received on these containers were lower than the
estimates used for the write-downs.
The Partnership also sold containers that had not been written down and recorded
losses of $43 and $650 during the six-month periods ended June 30, 2003 and
2002, respectively.
As more containers are subsequently identified for sale or if container sales
prices continue to decline, the Partnership may incur additional write-downs on
containers and/or may incur losses on the sale of containers. The Partnership
will continue to evaluate the recoverability of the recorded amounts of
container rental equipment.
Management fees to affiliates increased $91, or 18%, from the six-month period
ended June 30, 2002 to the comparable period in 2003 due to an increase in
equipment management fees, offset by a decrease in incentive management fees.
Equipment management fees increased due to the increase in rental income, upon
which these fees are primarily based. These fees were approximately 7% of rental
income for both periods. Incentive management fees decreased primarily due to
decreases in partners' capital due to redemptions of limited partners units.
General and administrative costs to affiliates decreased $24, or 7%, from the
six-month period ended June 30, 2002 to the same period in 2003 due to decreases
in the allocation of overhead costs from TEM and TFS. The allocation of overhead
costs from TEM decreased as the Partnership represented a smaller portion of the
total fleet managed by TEM. The allocation of overhead from TFS decreased
primarily due to the decrease in total overhead costs incurred and allocated by
TFS.
The Partnership Agreement provides for the ongoing payment to the General
Partners of the management fees and the reimbursement of the expenses discussed
above. Since these fees and expenses are established by the Agreement, they
cannot be considered the result of arms' length negotiations with third parties.
The Partnership Agreement was formulated at the Partnership's inception and was
part of the terms upon which the Partnership solicited investments from its
limited partners. The business purpose of paying the General Partners these fees
is to compensate the General Partners for the services they render to the
Partnership. Reimbursement for expenses is made to offset some of the costs
incurred by the General Partners in managing the Partnership and its container
fleet. More details about these fees and expenses are included in footnote 2 to
the Financial Statements.
Other general and administrative costs decreased $84 from the six-month period
ended June 30, 2002 to the same period in 2003. The decrease was primarily due
to decreases in other service fees between the periods.
Loss on sale of containers decreased $717 from the six-month period ended June
30, 2002 to the same period in 2003. The decrease was primarily due to the
decrease in the number of containers sold and a decrease in the average loss per
container.
Net loss per limited partnership unit decreased from $0.46 to $0.00 from the
six-month period ended June 30, 2002 to the equivalent period in 2003,
respectively, reflecting the decrease in net loss allocated to limited partners
from $3,117 to $13, respectively. The allocation of net earnings (loss) for the
six-month periods ended June 30, 2003 and 2002, included a special allocation of
gross income to the General Partners of $34 and $66, respectively, in accordance
with the Partnership Agreement.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 2003 and 2002.
The Partnership's loss from operations for the three-month periods ending June
30, 2003 and 2002 was $132 and $1,003, respectively, on rental income of $3,305
and $2,632, respectively. The increase in rental income of $673, or 26%, from
the three-month period ended June 30, 2002 to the comparable period in 2003 was
attributable to increases in container rental income and other rental income.
Income from container rentals increased $617, or 27%, primarily due to an
increase in average on-hire utilization of 44%, partially offset by the
decreases in average rental rates of 7% and average container fleet of 6%
between the periods.
Other rental income was $444 for the three-month period ended June 30, 2003, an
increase of $56 from the equivalent period in 2002. The increase was primarily
due to increases in DPP and location income of $78 and $33, respectively, offset
by the decrease in handling income of $55. DPP income increased primarily due an
increase in the number of containers covered under DPP. Location income
increased primarily due to the increase in charges to lessees for dropping off
containers in certain locations and the increase in charges to one lessee who
required containers to be delivered to specific locations. Handling income
decreased primarily due to the decline in container movement.
Direct container expenses decreased $322, or 28%, from the three-month period
ended June 30, 2002, to the same period in 2003. The decrease was primarily due
to a decrease in storage expense of $426, offset by increases in DPP and
repositioning expenses of $62 and $50, respectively. Storage expense decreased
due to the increase in utilization noted above and the decrease in the average
storage costs per container. DPP expense increased due to increases in the
average DPP repair cost per container and in the number of containers covered
under DPP. Repositioning expense increased primarily due to an increase in the
average repositioning costs due to longer average repositioning moves.
Bad debt expense (benefit) was $56 and ($13) for the three-month periods ended
June 30, 2003 and 2002, respectively. The expense recorded during the
three-month period ended June 30, 2003, reflects a higher reserve requirement,
after deductions had been taken against the reserve from March 31, 2003. The
benefit recorded during the three-month period ended June 30, 2002, reflects a
lower reserve requirement, after deductions had been taken, from March 31, 2002.
Depreciation expense increased $333, or 22%, from the three-month period ended
June 30, 2002 to the comparable period in 2003 primarily due to the changes in
estimated salvage values used to calculate depreciation noted above, offset by
the decrease in average fleet size noted above. The effect of this change for
the three-month period ended June 30, 2003 was an increase to depreciation
expense of $573.
During the three-month periods ended June 30, 2003 and 2002, the Partnership
recorded write-down expenses of $83 and $367, respectively, on 158 and 550
containers identified for sale and requiring a reserve. During the three-month
period ended June 30, 2003, the Partnership sold 229 previously written down
containers for a loss of $31 and sold 805 previously written down containers for
a loss of $93 during the same period in 2002. During the three-month periods
ended June 30, 2003 and 2002, the Partnership also sold containers that had not
been written down and recorded losses of $106 and $23, respectively.
Management fees to affiliates increased $46, or 18%, from the three-month period
ended June 30, 2002 to the comparable period in 2003, primarily due to an
increase in equipment management fees. Equipment management fees increased due
to the increase in rental income and were 7% of rental income for both periods.
General and administrative costs to affiliates decreased $13, or 8%, from the
three-month period ended June 30, 2002 to the same period in 2003 due to
decreases in the allocation of overhead costs from TEM and TFS. The allocation
of overhead costs from TEM decreased as the Partnership represented a smaller
portion of the total fleet managed by TEM. The allocation of overhead from TFS
decreased primarily due to the decrease in the total overhead costs incurred and
allocated by TFS.
Other general and administrative costs decreased $42 from the three-month period
ended June 30, 2002 to the same period in 2003. The decrease was primarily due
to decreases in other service fees between the periods.
Loss on sale of containers increased $21 from the three-month period ended June
30, 2002 to the same period in 2003. Although the Partnership sold fewer
containers during the three-month period ended June 30, 2003, the average loss
incurred on these sales increased, resulting in the increase in loss on
container sales between the periods.
Net loss per limited partnership unit decreased from $0.15 to $0.02 from the
three-month period ended June 30, 2002 to the equivalent period in 2003,
respectively, reflecting the decrease in net loss allocated to limited partners
from $1,010 to $144, respectively. The allocation of loss for the three-month
periods ended June 30, 2003 and 2002, included a special allocation of gross
income to the General Partners in accordance with the Partnership Agreement.
Critical Accounting Policies and Estimates
The Partnership's discussion and analysis of its financial condition and results
of operations are based upon the Partnership's financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. 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. The Partnership's management evaluates its estimates on an
on-going basis, including those related to the container rental equipment,
accounts receivable and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its lessees to make required payments. These
allowances are based on management's current assessment of the financial
condition of the Partnership's lessees and their ability to make their required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required, which would adversely affect the
Partnership's operating results.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased containers
and the estimated sales price at the end of the container's useful life.
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated dollar
residual value. The Partnership will evaluate the estimated residual values and
remaining estimated useful lives on an on-going basis and will revise its
estimates as needed. As a result, depreciation expense may fluctuate in future
periods based on fluctuations in these estimates. If the estimates regarding
residual value and remaining useful life of the containers were to decline,
depreciation expense would increase, adversely affecting the Partnership's
operating results.
Additionally, the recoverability of the recorded amounts of containers to be
held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are not
impaired and that containers identified for sale are recorded at amounts that do
not exceed the estimated fair value of the containers. Containers to be held for
continued use are considered impaired and are written down to estimated fair
value when the estimated future undiscounted cash flows are less than the
recorded values. Containers identified for sale are written down to estimated
fair value when the recorded value exceeds the estimated fair value. In
determining the estimated future undiscounted cash flows and fair value of
containers, assumptions are made regarding future demand and market conditions
for leased containers and the sales prices for used containers. If actual market
conditions are less favorable than those projected or if actual sales prices are
lower than those estimated by the Partnership, additional write-downs may be
required and/or losses may be realized. Any additional write-downs or losses
would adversely affect the Partnership's operating results.
Risk Factors and Forward Looking Statements
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.
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, including bad debts, 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. See "Critical
Accounting Policies and Estimates" above for information on the Partnership's
critical accounting policies and how changes in those estimates could adversely
affect the Partnership's results of operations.
The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing therefore,
alterations in the costs of maintaining and repairing used containers, increases
in competition, changes in the Partnership's ability to maintain insurance for
its containers and its operations, the effects of political conditions on
worldwide shipping and demand for global trade or of other general business and
economic cycles on the Partnership, as well as other risks detailed herein and
from time to time in the Partnership's filings with the Securities and Exchange
Commission. The Partnership does not undertake any obligation to update
forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Inapplicable.
Item 4. Controls and Procedures
Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934),
the managing general partner's principal executive officer and principal
financial officer have found those controls and procedures to be effective as of
the end of the period covered by the report. There has been no change in the
Partnership's internal control over financial reporting that occurred during the
Partnership's most recent fiscal quarter, and which has materially affected, or
is reasonably likely materially to affect, the Partnership's internal control
over financial reporting.
Part II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.
Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Not applicable.
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 _____________________________________________
Ernest J. Furtado
Chief Financial Officer
Date: August 12, 2003
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:
Signature Title Date
________________________ Chief Financial Officer, Senior August 12, 2003
Ernest J. Furtado Vice President and Secretary
________________________ President August 12, 2003
John A. Maccarone
Part II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.
Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Not applicable.
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/Ernest J. Furtado
________________________________________
Ernest J. Furtado
Chief Financial Officer
Date: August 12, 2003
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:
Signature Title Date
/s/Ernest J. Furtado
_________________________________ Chief Financial Officer, Senior August 12, 2003
Ernest J. Furtado Vice President and Secretary
/s/John A. Maccarone
________________________________ President August 12, 2003
John A. Maccarone
EXHIBIT 31.1
CERTIFICATIONS
I, John A. Maccarone, certify that:
1. I have reviewed this quarterly report on form 10-Q of Textainer
Equipment Income Fund IV, L.P.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and we have:
a.) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent function):
a.) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b.) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
August 12, 2003
/s/ John A. Maccarone
______________________________
John A. Maccarone
President and Director of TFS
EXHIBIT 31.2
CERTIFICATIONS
I, Ernest J. Furtado, certify that:
1. I have reviewed this quarterly report on form 10-Q of Textainer
Equipment Income Fund IV, L.P.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and we have:
a.) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent function):
a.) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b.) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
August 12, 2003
/s/ Ernest J. Furtado
__________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Textainer Equipment Income Fund IV,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended June 30,
2003, as filed on August 12, 2003 with the Securities and Exchange Commission
(the "Report"), I, John A. Maccarone, the President and Director of Textainer
Financial Services Corporation ("TFS") and Principal Executive Officer of TFS,
the Managing General Partner of the Registrant, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows of
the Registrant.
August 12, 2003
By /s/ John A. Maccarone
_____________________________________
John A. Maccarone
President and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Reqistrant and furnished
to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Textainer Equipment Income Fund IV,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended June 30,
2003, as filed on August 12, 2003 with the Securities and Exchange Commission
(the "Report"), I, Ernest J. Furtado, Chief Financial Officer, Senior Vice
President, Secretary and Director of Textainer Financial Services Corporation
("TFS") and Principal Financial and Accounting Officer of TFS, the Managing
General Partner of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows of
the Registrant.
August 12, 2003
By /s/ Ernest J. Furtado
_________________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Reqistrant and furnished
to the Securities and Exchange Commission or its staff upon request.