TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 12, 2004
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
First Quarter ended March 31, 2004.
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 March 31, 2004
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 March 31, 2004
Table of Contents
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Page
Part I Financial Information
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2004
and December 31, 2003............................................................................. 3
Statements of Operations for the three months
ended March 31, 2004 and 2003..................................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 2004 and 2003..................................................................... 5
Statements of Cash Flows for the three months
ended March 31, 2004 and 2003..................................................................... 6
Notes to Financial Statements .................................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 23
Item 4. Controls and Procedures...................................................................... 24
Part II Other Information
Item 2(e). Partnership Purchases of Limited Partner Units............................................... 24
Item 6. Exhibits and Reports on Form 8K.............................................................. 25
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Balance Sheets
March 31, 2004 and December 31, 2003
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2004 2003
---------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $49,204 (2003: $51,001) (note 4) $ 31,275 $ 34,518
Cash 2,831 1,845
Accounts receivable, net of allowance for doubtful
accounts of $234 (2003: $208) 3,104 3,219
Due from affiliates, net (note 2) 531 338
Prepaid expenses 26 42
---------------- ----------------
$ 37,767 $ 39,962
================ ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 306 $ 303
Accrued liabilities 260 385
Accrued damage protection plan costs 448 435
Warranty claims 155 170
Deferred quarterly distributions 89 86
Container purchases payable - 292
---------------- ----------------
Total liabilities 1,258 1,671
---------------- ----------------
Partners' capital:
General partners - -
Limited partners 36,509 38,291
---------------- ----------------
Total partners' capital 36,509 38,291
---------------- ----------------
$ 37,767 $ 39,962
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Operations
For the three months ended March 31, 2004 and 2003
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- -----------------------------------------------------------------------------------------------------------
2004 2003
---------------- ----------------
Rental income $ 3,213 $ 3,406
---------------- ----------------
Costs and expenses:
Direct container expenses 637 728
Bad debt expense 26 11
Depreciation (note 4) 1,872 1,937
Write-down of containers (note 4) 108 135
Professional fees 10 8
Management fees to affiliates (note 2) 291 301
General and administrative costs to affiliates (note 2) 145 164
Other general and administrative costs 34 33
Loss (gain) on sale of containers (note 4) 119 (53)
---------------- ----------------
3,242 3,264
---------------- ----------------
(Loss) income from operations (29) 142
---------------- ----------------
Interest income 4 6
---------------- ----------------
Net (loss) earnings $ (25) $ 148
================ ================
Allocation of net (loss) earnings (note 2):
General partners $ 16 $ 17
Limited partners (41) 131
---------------- ----------------
$ (25) $ 148
================ ================
Limited partners' per unit share
of net (loss) earnings $ (0.01) $ 0.02
================ ================
Limited partners' per unit share
of distributions $ 0.25 $ 0.25
================ ================
Weighted average number of limited
partnership units outstanding 6,466,521 6,513,955
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the three months ended March 31, 2004 and 2003
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Partners' Capital
---------------------------------------------------------
General Limited Total
---------------- ---------------- ----------------
Balances at January 1, 2003 $ - $ 45,729 $ 45,729
Distributions (17) (1,631) (1,648)
Redemptions (note 5) - (196) (196)
Net earnings 17 131 148
---------------- ---------------- ----------------
Balances at March 31, 2003 $ - $ 44,033 $ 44,033
================ ================ ================
Balances at January 1, 2004 $ - $ 38,291 $ 38,291
Distributions (16) (1,619) (1,635)
Redemptions (note 5) - (122) (122)
Net earnings (loss) 16 (41) (25)
---------------- ---------------- ----------------
Balances at March 31, 2004 $ - $ 36,509 $ 36,509
================ ================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the three months ended March 31, 2004 and 2003
(Amounts in thousands)
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------
2004 2003
---------------- ----------------
Cash flows from operating activities:
Net (loss) earnings $ (25) $ 148
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation (note 4) 1,872 1,937
Write-down of containers (note 4) 108 135
Increase (decrease) in allowance for doubtful accounts 26 (29)
Loss (gain) on sale of containers 119 (53)
(Increase) decrease in assets:
Accounts receivable 113 (6)
Due from affiliates, net (241) (348)
Prepaid expenses 16 27
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (122) -
Accrued damage protection plan costs 13 2
Warranty claims (15) (16)
---------------- ----------------
Net cash provided by operating activities 1,864 1,797
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of containers 1,194 467
Container purchases (318) (139)
---------------- ----------------
Net cash provided by investing activities 876 328
---------------- ----------------
Cash flows from financing activities:
Redemptions of limited partnership units (122) (196)
Distributions to partners (1,632) (1,645)
---------------- ----------------
Net cash used in financing activities (1,754) (1,841)
---------------- ----------------
Net increase in cash 986 284
Cash at beginning of period 1,845 2,339
---------------- ----------------
Cash at end of period $ 2,831 $ 2,623
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND IV, L.P.
(a California Limited Partnership)
Statements of Cash Flows--Continued
For the three months ended March 31, 2004 and 2003
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of March 31, 2004 and 2003, and December 31, 2003 and 2002,
resulting in differences in amounts recorded and amounts of cash disbursed or
received by the Partnership, as shown in the Statements of Cash Flows for the
three-month periods ended March 31, 2004 and 2003.
Mar. 31 Dec. 31 Mar. 31 Dec. 31
2004 2003 2003 2002
----------- ----------- ----------- -----------
Container purchases included in:
Due to affiliates.............................. $ 1 $ 1 $ 60 $ -
Container purchases payable.................... - 292 1,072 -
Distributions to partners included in:
Due to affiliates.............................. 6 6 6 5
Deferred quarterly distributions............... 89 86 85 83
Proceeds from sale of containers included in:
Due from affiliates............................ 800 848 240 318
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
three-month periods ended March 31, 2004 and 2003.
2004 2003
---- ----
Container purchases recorded......................................... $ 26 $1,271
Container purchases paid............................................. 318 139
Distributions to partners declared................................... 1,635 1,648
Distributions to partners paid....................................... 1,632 1,645
Proceeds from sale of containers recorded............................ 1,146 389
Proceeds from sale of containers received............................ 1,194 467
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying values of containers transferred during the three- month periods
ended March 31, 2004 and 2003 were $24 and $2, 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 months ended March 31, 2004 and 2003
(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.
In March 2004, the Partnership ceased purchasing containers and in April
2004, the Partnership began its liquidation phase. This phase may last up
to six or more years. The final termination and winding up of the
Partnership, as well as payment of liquidating and/or final distributions,
will occur at the end of the liquidation phase when all or substantially
all of the Partnership's containers have been sold and the Partnership
begins its dissolution.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of March 31, 2004 and December 31, 2003 and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 2004 and 2003, 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, 2003, 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 following critical accounting policies are 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.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value.
Additionally, the Partnership writes down the value of its containers if an
evaluation indicates that the recorded amounts of containers are not
recoverable based on estimated future undiscounted cash flows and sales
prices. These estimates are based upon historical useful lives of
containers and container sales prices as well as assumptions about future
demand for leased containers and estimated sale prices.
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform to the 2004 financial statement
presentation.
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 (loss) 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. During the three-month periods ended March
31, 2004 and 2003, the Partnership capitalized $1 and $60 of acquisition
fees, respectively. The Partnership incurred $66 and $64 of incentive
management fees during the three-month periods ended March 31, 2004 and
2003, respectively. There were no equipment liquidation fees incurred
during these periods.
The Partnership's containers are managed by TEM. In its role as manager,
TEM has authority to acquire, hold, manage, lease, sell and dispose of the
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 March 31, 2004 and December 31,
2003.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to master operating leases
and 2% of gross revenues attributable to full payout net leases. These fees
totaled $225 and $237 for the three-month periods ended March 31, 2004 and
2003, respectively.
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-month
periods ended March 31, 2004 and 2003 were as follows:
2004 2003
---- ----
Salaries $ 93 $ 88
Other 52 76
--- ---
Total general and
administrative costs $145 $164
=== ===
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-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
TEM $120 $143
TFS 25 21
--- ---
Total general and
administrative costs $145 $164
=== ===
At March 31, 2004 and December 31, 2003, due from affiliates, net was
comprised of:
2004 2003
---- ----
Due from affiliates:
Due from TEM................. $632 $419
--- ---
Due to affiliates:
Due to TL.................... 1 1
Due to TCC................... 34 9
Due to TFS................... 66 71
--- ---
101 81
--- ---
Due from affiliates, net $531 $338
=== ===
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 March 31, 2004 and 2003:
2004 2003
---- ----
On-lease under master leases 13,893 16,050
On-lease under long-term leases 9,121 6,899
------ ------
Total on-lease containers 23,014 22,949
====== ======
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 March 31, 2004 and 2003 approximately 9%
and 5%, respectively, of the Partnership's off-lease containers had been
specifically identified as for sale and are carried at lower of cost or
estimated disposal proceeds.
Note 4. Container Rental Equipment
The Partnership evaluated the recoverability of the recorded amount of
container rental equipment at March 31, 2004 and 2003 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 these containers was required. The Partnership wrote down
the value of these containers to their estimated fair value, which was
based on recent sales prices less cost of sales. During the three-month
periods ended March 31, 2004 and 2003, the Partnership recorded write-down
expenses of $108 and $135, respectively, on 486 and 182 containers
identified for sale and requiring a reserve. At March 31, 2004 and 2003,
the net book value of the 233 and 281 containers identified as for sale was
$189 and $256, respectively. These containers are included in container
rental equipment in the balance sheets.
The Partnership sold 574 and 139 of these previously written down
containers for a gain of $1 and a loss of $9 during the three-month periods
ended March 31, 2004 and 2003, respectively.
The Partnership also sold containers that had not been written down and
recorded a loss of $120 and a gain of $62 during the three-month periods
ended March 31, 2004 and 2003, respectively.
Note 5. Redemptions
The following redemptions were consummated by the Partnership during the
three-month periods ended March 31, 2004 and 2003:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2002........................ 295,555 $7.33 $2,165
Three-month period ended:
March 31, 2003........................... 36,393 $5.39 196
------- -----
Total Partnership redemptions as of
March 31, 2003........................... 331,948 $7.11 $2,361
======= =====
Total Partnership redemptions as of
December 31, 2003........................ 354,358 $6.98 $2,473
Three-month period ended:
March 31, 2004........................... 25,023 $4.88 122
------- -----
Total Partnership redemptions as of
March 31, 2004........................... 379,381 $6.84 $2,595
======= =====
The redemption price is fixed by formula in accordance with the Partnership
Agreement.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the three-month periods ended March
31, 2004 and 2003. 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.
Introduction
The Partnership is a finite-life entity whose principal business is to own a
fleet of containers for lease to the international shipping industry. The
Partnership's revenues come primarily from the rental income generated by leased
containers and, to a smaller extent, from services related to rental income,
such as handling charges paid by lessees. The Partnership's revenues are,
therefore, dependent on demand for leased containers. Demand for leased
containers drives not only the percentage of the Partnership's containers that
are on lease (utilization), but also, to a certain extent, the rental rates the
Partnership can charge under its leases. When demand declines, utilization
falls, and the Partnership has fewer containers on lease, often earning less
revenue, and more containers off-lease incurring storage expense. In times of
reduced demand, then, the Partnership has higher expenses and may have to reduce
revenues further by offering lessees incentives such as free rental periods or
credits. Conversely, in times of increased demand, rental revenues increase
because the Partnership has more containers on lease, rental rates sometimes
rise, and expenses will drop because the Partnership no longer incurs as many
charges to store or reposition off-lease containers. The General Partners try at
all times to take advantage of the opportunities created by different levels of
demand for leased containers, either by changing services, lease terms or lease
rates offered to customers or by concentrating on different geographic markets.
Demand for containers is driven by many factors, including the overall volume of
worldwide shipping, the number of containers manufactured, the number of
containers available for lease in specific locations and the capacity of the
worldwide shipping industry to transport containers on its existing ships. Since
many of the Partnership's customers are shipping lines that also own their own
containers, the price and availability of new containers directly affects demand
for leased containers. If shipping lines have the cash or financing to buy
containers and find that alternative attractive, demand for leased containers
will fall. Current demand and related market conditions for containers are
discussed below under "Results of Operations: Current Market Conditions for
Leased Containers." Competition for shipping lines' business has increased in
recent years due to operational consolidations among shipping lines and the
entry of new leasing companies that compete with entities like the Partnership.
This competition has generally driven down rental rates and allowed shipping
lines to obtain other favorable lease terms.
The Partnership also recognizes gains and losses from the sale of its
containers. Containers are generally sold either at the end of their useful
life, or when an economic analysis indicates that it would be more profitable to
sell a container rather than to continue to own it. An example of the latter
would be when re-leasing a container might be relatively expensive, either
because of expenses required to repair the container or to reposition the
container to a location where the container could be readily leased.
The Partnership's containers are primarily sold to wholesalers who subsequently
sell to buyers such as mini-storage operators, construction companies, farmers
and other non-marine users. Additionally, if a container is lost or completely
damaged by a lessee, the Partnership receives proceeds from the lessee for the
value of the container. The Partnership counts these transactions as sales, as
well as the more traditional sales to wholesalers. Generally, since 1998, used
container prices have declined, causing the Partnership to realize less from the
sale of its used containers. Used container sales prices stabilized in 2002 and
2003 and sales prices for certain types of containers have increased slightly in
the first part of 2004.
The Partnership's operations and financial results are also affected by the
price of new containers. The price for new containers fell from 1995 through
2003. This decrease significantly depressed rental rates. This decrease has also
caused the Partnership to evaluate the carrying cost of its container fleet, and
has resulted in write-downs of some containers the Partnership has decided to
sell. These matters are discussed in detail below under the caption "Other
Income and Expenses: Write Down of Certain Containers Identified for Sale." The
decrease in new container prices has worked to the Partnership's advantage
though, when, from time to time, the Partnership has bought new containers. New
containers are bought primarily with a portion of the proceeds received from the
sale of containers. In the discussion below, this process is referred to as
reinvestment in containers. Even with the advantage of lower prices for new
containers, reinvestment has replaced only a portion of the containers sold,
resulting in a container fleet that has been getting smaller over time.
The Partnership is no longer reinvesting in new containers. In April, 2004 the
Partnership began its liquidation phase, which means that the Partnership no
longer seeks to replenish its container fleet by buying new containers. During
this phase, the Partnership will either (i) sell its remaining container fleet
to an institutional investor, who would continue to lease the containers or (ii)
sell containers gradually to wholesalers when the containers are at or near the
end of their useful life, or when they come off-lease and a sale seems to offer
a better overall yield than continued operation. The choice of liquidation
options is based on which option is believed to better enhance the overall
economic return to investors.
Over the past several years, the price that institutional investors would have
been willing to pay for a fleet of used containers has been too low in
comparison to the estimated economic benefit of continuing to lease the
containers. As a result, the liquidation phase has been longer, rather than
shorter for other liquidating Partnerships managed by the General Partners. The
liquidation phase can take up to six or more years.
During the first part of 2004, new container prices have significantly increased
due to a worldwide shortage of steel, which has resulted in limited availability
of new containers. Although the Partnership stopped purchasing containers in
March 2004, the increase in new container prices and the limited availability of
new containers has improved demand for used containers. See "Results of
Operations: Current Market Conditions for Leased Containers" for a further
discussion.
Liquidity and Capital Resources
Historical
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 on June 11, 1992 and on April 30, 1994 the Partnership
had received a total subscription amount of $136,918.
General
Now that the Partnership is in its liquidation phase, the Partnership
anticipates that all excess cash, after redemptions and working capital
reserves, will be distributed to the general and limited partners on a monthly
basis. These distributions will consist of cash from operations and/or cash from
sales proceeds. As the Partnership's container fleet decreases, cash from
operations is expected to decrease, while cash from sales proceeds is expected
to fluctuate based on the number of containers sold and the actual sales price
per container received. Consequently, the Partnership anticipates that a large
portion of all future distributions will be a return of capital.
Sources of Cash
Rental income and proceeds from container sales are the Partnership's principal
sources of liquidity, and the source of funds for distributions and
reinvestment. Rental income and container sales prices are affected by market
conditions for leased and used containers. Cash provided from these sources will
fluctuate based on demand for leased and used containers. Demand for leased and
used containers is discussed more fully in "Results of Operations." Cash
provided by operating activities is affected by rental income, operating
expenses and the timing of both payments received from lessees and payments made
by the Partnership for operating expenses. Additionally, a continued stream of
rental income is dependent partly on the Partnership's ability to re-lease
containers as they come off lease. See the discussion of "Utilization" below
under "Results of Operations." Cash provided by proceeds from container sales, a
component of cash from investing activities, is affected by the number of
containers sold, the sale price received on these containers, and the timing of
payments received for these sales. Previously reported cash from operations and
sales proceeds is not indicative of future cash flows as these amounts can
fluctuate significantly based on demand for new and used containers, fleet size
and timing of the payments made and received. Fluctuations in rental income,
operating expenses, and sale prices for used containers are discussed more fully
in "Results of Operations."
Operating and investing activities are discussed in detail below.
Cash from Operations
Net cash provided by operating activities for the three-month periods ended
March 31, 2004 and 2003 was $1,864 and $1,797, respectively. The increase of
$67, or 4%, was primarily attributable to the fluctuations in gross accounts
receivable and due from affiliates, net. The increase was offset by the
fluctuations in accounts payable and accrued liabilities and net earnings,
adjusted for non-cash transactions. The decrease in gross accounts receivable of
$113 during the three-month period ended March 31, 2004 was primarily due to the
decrease in rental income. Gross accounts receivable increased $6 during the
same period in 2003. Fluctuations in due from affiliates, net, between the
periods resulted from timing differences in the payment of expenses and fees and
and the remittance of net rental revenues , as well as in fluctuations in these
amounts. The fluctuations in accounts payable and accrued liabilities resulted
from timing differences in the payment of expenses and fees, as well as in
fluctuations in these amounts. Net earnings, adjusted for non-cash transactions,
declined primarily due to the decrease in rental income, which is discussed more
fully under "Results of Operations."
Cash from Sale of Containers
Current Uses: For the three-month periods ended March 31, 2004 and 2003, cash
provided by investing activities (the sale of containers) was $1,194 and $467.
The increase of $727, or 156%, was primarily due to the increase in the number
of containers sold during the three-month period ended March 31, 2004, compared
to the equivalent period in 2003. The Partnership primarily sells containers
when they come off-lease, and an analysis indicates that the container should be
sold. Fluctuations between periods in the number of containers sold and the sale
price reflect the age and condition of containers coming off-lease, the
geographic market in which they come off-lease, and other related market
conditions. Fluctuations in sales price between the periods can also be affected
by the number of containers bought by lessees, who reimburse the Partnership for
any containers that are lost or completely damaged beyond repair. These
reimbursement amounts are frequently higher than the average sales price for a
container sold in the open market when it comes off-lease. See "Effect of
Container Sales on Future Cash Flows" below.
Effect of Market Conditions: Market conditions can affect the Partnership's
decision to sell an off-lease container. If demand for leased containers is low,
the Partnership is more likely to sell a container rather than incur the cost to
reposition the container to a location where it can be released. If demand is
strong, the Partnership is less likely to identify the container as for sale, as
it is anticipated that the container can be released in its current location or
repositioned to another location where demand is high. The strong utilization in
the first quarter of 2004 and recent increases in demand have resulted in fewer
containers being identified for sale. Some of the market conditions affecting
the sale of containers are discussed below under "Comparative Results of
Operations." The decline in the number of containers identified for sale has
caused the average sales price of used containers to increase slightly in the
first quarter of 2004.
Effect of Container Sales on Future Cash Flows: The number of containers sold
both in low demand locations and elsewhere, as well as the amount of sales
proceeds, will affect how much the Partnership will pay in future distributions
to Partners. As the Partnership has begun its liquidation phase, sales of
containers will permanently reduce the Partnership's container fleet. Fewer
containers will be available for lease and for the generation of rental income.
The limited and general partners will, however, receive more distributions from
sales proceeds, since these proceeds will no longer be used for reinvestment. As
the container fleet diminishes over the course of the liquidation phase,
distributions are expected to decline, as cash from operations and cash from
sales proceeds decrease along with the fleet.
Uses of Cash
Cash from operations is primarily used to pay distributions to partners and
redeem limited partnership units. Prior to April, 2004, the start of the
liquidation phase, cash from operations was also used to purchase containers.
The largest source of funds for the purchase of new containers (or reinvestment)
was the proceeds from the sale of the Partnership's containers. The number of
containers sold and the average sales price affected how much the Partnership
reinvested in new containers.
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.
These activities are discussed in detail below.
Distributions: Limited partners were receiving monthly distributions in an
annualized amount equal to 5% of their original investment during the first
quarter of 2004. During the three-month period ended March 31, 2004, the
Partnership declared cash distributions to limited partners pertaining to the
period from December 2003 through February 2004, in the amount of $1,619. 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.
Capital Commitments: Container purchases
For the three-month periods ended March 31, 2004 and 2003, cash used in
investing activities (the purchase of containers) was $318 and $139,
respectively. The increase of $179 was primarily due to the Partnership paying
for 2003 purchases in 2004. Fluctuations between the periods in the number of
containers purchased reflect (i) the amount of cash available to purchase
containers; (ii) demand for leasing new containers; (iii) the type of container
purchased and (iv) the purchase price of the container.
At March 31, 2004, the Partnership had no commitments to purchase containers.
Capital Commitments: Redemptions
During the three-month period ended March 31, 2004, the Partnership redeemed
25,023 units for a total dollar amount of $122. The Partnership used cash flows
from operations to pay for the redeemed units.
The Partnership invests working capital and cash flow from operations and
investing activities prior to its distribution to the partners in short-term,
liquid investments.
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) is primarily affected by the size of its container fleet, the number
of containers it has on lease (utilization) and the rental rates received under
its leases. The current status of each of these factors is discussed below.
Size of Container Fleet
The following is a summary of the container fleet (in units) available for lease
during the three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
Beginning container fleet......... 26,922 28,024
Ending container fleet............ 25,535 28,355
Average container fleet........... 26,229 28,190
The average container fleet decreased 7% from the three-month period ended March
31, 2003 to the same period in 2004, primarily due to sales of containers. The
decline in the container fleet resulted in lower rental income. An overall
decline in rental income is expected to continue in future years, as the size of
the Partnership's container fleet continues to decrease.
Utilization
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 85% and 81% on average during the
three-month periods ended March 31, 2004 and 2003, respectively. The remaining
container fleet is off-lease and is being stored primarily at a large number of
storage depots. At March 31, 2004 and 2003, utilization was 90%, and 81%,
respectively, and the Partnership's off-lease containers (in units) were located
in the following locations:
2004 2003
---- ----
Americas 958 2,604
Europe 387 1,195
Asia 1,111 1,457
Other 65 150
----- -----
Total off-lease containers 2,521 5,406
===== =====
At March 31, 2004 and 2003 approximately 9% and 5%, respectively, of the
Partnership's off-lease containers had been specifically identified as for sale.
Rental Rates
In addition to utilization, rental income is affected by daily rental rates.
Daily rental rates are different under different lease types. The two primary
lease types for the Partnership's containers are long term leases and master
leases. The average daily rental rate for the Partnership's containers decreased
7 % from the three-month period ended March 31, 2003 compared to the same period
in 2004, primarily due to the decline in long term lease rates. The decline in
average rental rates under master leases between the periods was minor. The
majority of the Partnership's rental income was generated from master leases,
but in the past several years an increasing percentage of the Partnership's
containers have been on lease under long term leases. At March 31, 2004 and
2003, 40% and 30%, 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.
Comparative Results of Operations
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
(Loss) income from operations ($ 29) $ 142
Rental income $3,213 $3,406
Percent change from previous
year in
Utilization 5% 59%
Average container fleet size (7%) ( 8%)
Average rental rates (7%) (11%)
The Partnership's rental income decreased $193, or 6%, from the three-month
period ended March 31, 2003 to the comparable period in 2004. The decrease was
due to a decrease in income from container rentals, and was partially offset by
an increase in other rental income, which is discussed below. Income from
container rentals, the major component of total revenue, decreased $225, or 8%,
from the three-month period ended March 31, 2003 to the same period in 2004
primarily due to decreases in average container fleet and rental rates, offset
by the increase in utilization as detailed in the above table.
Current Market Conditions for Leased Containers: Utilization was stable for most
of 2003 and demand remained strong during the first quarter of 2004. Beginning
in 2004, a worldwide steel shortage caused significant increases in new
container prices and limited the number of new containers being built. As a
result, demand for leased containers increased further beginning in March and
has remained strong through the beginning of May. Additionally, the recent
increases in new container prices have caused lease rates to stabilize and even
increase for new long term leases. The General Partners are cautiously
optimistic that current utilization levels can be maintained during the next
several months. 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 decreases in
utilization, lease rates and container sale prices, adversely affecting the
Partnership's operating results.
Sale of Containers in Lower Demand Locations: Despite the increase in demand,
areas of lower demand for containers still exist due to a continuing trade
imbalance between Asia and the Americas and Europe. However, the number of
off-lease containers in these low demand locations has decreased, as lessees
have returned fewer containers to these lower demand locations and have also
leased containers from some of these locations. In recent years, market
conditions in these low demand locations have driven some sales of off-lease
containers. These sales resulted from the high cost of repositioning containers
from these areas. Before incurring high repositioning costs, the Partnership
generally weighs those costs against the expected future rental stream from a
container. If the repositioning costs are too high when compared to the
anticipated future rental revenues, the container will be identified for sale,
rather than repositioned. Older containers, in particular, have been identified
as for sale in low demand locations because their expected future rental stream
is reduced by their shorter remaining marine life and by the shipping lines'
preference for newer containers. The Partnership anticipates that some sales
will still occur in low demand locations, but expects fewer sales now that fewer
containers are off-lease in these locations. The number of the Partnership's
off-lease containers in the Americas and Europe, where most of these lower
demand locations occur, is detailed above in "Utilization."
Other Income and Expenses
The following is a discussion of other income earned and expenses incurred by
the Partnership:
Other Rental Income
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 three-month period ended March 31, 2004, other rental income was $590,
an increase of $32 from the equivalent period in 2003. The increase in other
rental income was primarily due to an increase in DPP income of $48, offset by
decreases in location and handling income of $9 and $7, respectively.
Direct Container Expenses
Direct container expenses decreased $91, or 13%, from the three-month period
ended March 31, 2003 to the equivalent period in 2004. The decrease was
primarily due to declines in repositioning and storage expenses of $75 and $43,
respectively, offset by an increase in insurance expense of $28.
The decline in repositioning expenses was due to a decline in the number of
containers repositioned and a lower average repositioning cost per container.
Storage expense decreased due to the decline in the average fleet size and
increase in utilization noted above. The decline was partially offset by an
increase in the average storage cost per container. The increase in insurance
expense was primarily due to a premium credit received and recorded during the
three-month period ended March 31, 2003.
Bad Debt Expense
Bad debt expense was $26 and $11 for the three-month periods ended March 31,
2004 and 2003, respectively. Fluctuations in bad debt expense reflect the
adjustments to the bad debt reserve, after deductions have been taken against
the 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. See "Critical Accounting Policies and
Estimates" below. The expenses recorded during the three-month periods ended
March 31, 2004 and 2003 reflect a higher reserve estimate, after deductions had
been taken against the reserve, from December 31, 2003 and 2002.
Depreciation Expense
Depreciation expense decreased $65, or 3%, from the three-month period ended
March 31, 2003 to the comparable period in 2004 primarily due to the decline in
the average fleet size. For a discussion of the Partnership's depreciation
policy, see "Critical Accounting Policies and Estimates: Container Depreciation
Estimates."
Write Down of Certain Containers Identified for Sale
New container prices steadily declined from 1995 through 1999 and remained low
through 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 March 31, 2004 and 2003 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.
Write-down expense decreased $27, or 20%, from the three-month period ended
March 31, 2003 to the comparable period in 2004. Although the number of units
written down increased between the periods, the average required write down was
lower.
Gain and Loss on Sale of Containers
The following details the gain and loss on the sale of containers for the
three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
Gain (loss) on written-down containers $ 1 $(9)
(Loss) gain on other containers (120) 62
---- --
Total (loss) gain on container sales $(119) $53
==== ==
The Partnership recorded a gain on the sale of written down containers for the
three-month period ended March 31, 2004 as the actual sales proceeds received
were slightly greater than the estimated sales proceeds used to determine the
write-down amount. The loss recorded during the comparable period in 2003, was
due to actual sales proceeds that were lower than the estimated sales proceeds
used to determine the write-down. See "Critical Accounting Policies and
Estimates" below.
As the Partnership determines the number of containers identified for sale and
the related write-down amount on a monthly basis, some containers are sold
before they are written down. The (loss) gain on these containers is referred to
in the table above as "(Loss) gain on other containers." The amount of (loss)
gain on the sale of these other containers has fluctuated due to the specific
conditions of the containers sold, the types of container sold, the locations
where the containers were sold and their net book value, rather than any
identifiable trend. Container sales prices appear to have stabilized and have
increased slightly in the first quarter of 2004, after declining for the past
several years.
Management Fees and General and Administrative Costs
Management fees to affiliates consist of equipment management fees, which are
primarily based on rental income, and incentive management fees, which are based
on the Partnership's limited and general partner distributions made from cash
from operations and partners' capital. The following details these fees for the
three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
Equipment management fees $225 $237
Incentive management fees 66 64
--- ---
Management fees to affiliates $291 $301
=== ===
Equipment management fees fluctuated based on the fluctuations in rental income
and were approximately 7% of rental income for both the three-month periods
ended March 31, 2004 and 2003. Fluctuations in incentive management fees between
the periods were primarily due to fluctuations in the amount of distributions
paid from cash from operations.
General and administrative costs to affiliates decreased $19, or 12%, from the
three-month period ended March 31, 2003 to the same period in 2004. This
decrease was primarily due to a decrease in the allocation of overhead costs
from TEM, as the Partnership represented a smaller portion of the total fleet
managed by TEM.
Other general and administrative costs were comparable at $34 and $33 for the
three-month periods ended March 31, 2004 and 2003, respectively.
Contractual Obligations
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.
The Partnership Agreement requires the Partnership to continue to pay these fees
and expenses to the General Partners and to reimburse the General Partners for
expenses incurred by them and other service providers. For the amount of fees
and reimbursements made to the General Partners for the three-month periods
ended March 31, 2004 and 2003, see Note 2 to the Financial Statements in Item 1.
For the amount of fees and reimbursements made to other service providers, see
Other general and administrative expenses in the Statements of Operations in
Item 1.
Net Earnings or Loss per Limited Partnership Unit
2004 2003
---- ----
Net (loss) earnings per limited
partnership unit ($0.01) $0.02
Net (loss) earnings allocated
to limited partners ($ 41) $ 131
Net (loss) earnings per limited partnership unit fluctuates based on
fluctuations in net (loss) earnings allocated to limited partners as detailed
above. The allocation of net (loss) earnings for the three-month periods ended
March 31, 2004 and 2003 included a special allocation of gross earnings to the
General Partners of $19 and $16, respectively, in accordance with the
Partnership Agreement.
Critical Accounting Policies and Estimates
Certain estimates and assumptions were made by the Partnership's management that
affect its financial statements. These estimates are based on historical
experience and on assumptions believed to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the
carrying value of assets and liabilities. Actual results could differ.
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.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is 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 General Partners have established a Credit Committee, which actively manages
and monitors the collection of receivables on at least a monthly basis. This
committee establishes credit limits for every lessee and potential lessee of
equipment, monitors compliance with these limits, monitors collection
activities, follows up on the collection of outstanding accounts, determines
which accounts should be written-off and estimates allowances for doubtful
accounts. As a result of actively managing these areas, the Partnership's
allowance for bad debt as a percentage of accounts receivable has ranged from 5%
to 8% and has averaged approximately 7% over the last 5 years. These allowances
have historically covered all of the Partnership's bad debts.
Container Depreciation Estimates: The Partnership depreciates its container
rental equipment based on certain estimates related to the container's useful
life and salvage value. The Partnership estimates a container's useful life to
be 12 years, an estimate which it has used since the Partnership's inception.
Prior to July 1, 2002, the Partnership estimated salvage value as a percentage
of equipment cost. Effective July 1, 2002, the Partnership revised its estimate
for container salvage value to an estimated dollar residual value, reflecting
current expectations of ultimate residual values.
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. The Partnership will revise its estimate of residual values if it is
determined that these estimates are no longer reasonable based on recent sales
prices and revised assumptions regarding future sales prices. The Partnership
will revise its estimate of container useful life if it is determined that the
current estimates are no longer reasonable based on the average age of
containers sold and revised assumptions regarding future demand for leasing
older containers.
As a result, depreciation expense could fluctuate significantly in future
periods as a result of any revisions made to these estimates. A decrease in
estimated residual values or useful lives of containers would increase
depreciation expense, adversely affecting the Partnership's operating results.
Conversely, any increase in these estimates would result in a lower depreciation
expense, resulting in an improvement in operating results. These changes would
not affect cash generated from operations, as depreciation is a non-cash item.
Container Impairment Estimates: Write-downs of containers are made when it is
determined that the recorded value of the containers exceeds their estimated
fair value. Containers held for continued use and containers identified for sale
in the ordinary course of business are considered to have different estimated
fair values.
In determining estimated fair value for a container held for continued use,
management must estimate the future undiscounted cash flows for the container.
Estimates of future undiscounted cash flows require estimates about future
rental revenues to be generated by the container, future demand for leased
containers, and the length of time for which the container will continue to
generate revenue. To date, management has not found the estimates of future
undiscounted cash flows to be less than the recorded value of the Partnership's
containers. Therefore, the Partnership has not recorded any write-downs of
containers to be held for continued use. Estimates regarding the future
undiscounted cash flows for these containers could prove to be inaccurate. If
these containers are sold prior to the end of their useful lives and before they
are written down, as a result of being identified as for sale, the Partnership
may incur losses on the sale of these containers.
In determining estimated fair value for a container identified for sale, the
current estimated sales price for the container, less estimated cost to sell, is
compared to its recorded value. This recorded value has been found to be higher
than the estimated sales price, less cost to sell, for some containers and these
containers have been written down. See "Write Down of Certain Containers
Identified for Sale" above. The Partnership has, however, recorded some losses
on the sale of these previously written-down containers. Losses were recorded
because the estimated sales price was higher than the actual sales price
realized. Estimated sales prices are difficult to predict, and management's
estimates proved too high in these cases. See "Gain and Loss on Sale of
Containers" above.
The Partnership will continue to monitor the recoverability of its containers.
If actual market conditions for leased containers are less favorable than those
projected, if actual sales prices are lower than those estimated by the
Partnership, or if the estimated useful lives of the Partnership's containers
are shortened, additional write-downs may be required and/or losses may be
incurred. 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, the risk of technological obsolescence,
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 "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, 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. The
Partnership does not undertake any obligation to update forward-looking
statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Exchange Rate Risk
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 does pay a small amount
of its expenses in various foreign currencies. For the three-month period ended
March 31, 2004, approximately 8% of the Partnership's expenses were paid in 15
different foreign currencies. As there are no significant payments made in any
one foreign currency, the Partnership does not hedge these expenses.
Item 4. Controls and Procedures.
Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-15 and 15d-15 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 last 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 2(e). Partnership Purchases of Limited Partner Units.
- --------------------------------------------------------------------------------------------------
Total number of Maximum
units purchased number of units
as part of that may yet be
publicly purchased
Total number Average announced under the
of units price paid redemption redemption
Period purchased (1) per unit program program (2)
- --------------------------------------------------------------------------------------------------
January 1 to
January 31, 2004 25,023 $4.88 25,023 N/A
Total (3)
- --------------------------------------------------------------------------------------------------
(1) These units are purchased as part of the limited partnership's
redemption program and the first redemption offering was announced in
August 1995. Redemptions are held from time to time to give limited
partners the opportunity to sell their units to the Partnership at a
price established by formula. Limited partners are notified of each
regular redemption offer in the Partnership's quarterly or annual
investor report. No units were purchased by the Partnership other than
through the Partnership's publicly announced redemption program.
(2) The redemption program is subject to the following limitation. It has
no expiration date, but redemption offers are made only when the
Partnership has cash available to make redemptions. Under the limited
partnership agreement, redemptions are further subject to the Managing
General Partner's good faith determination that payment for the
redeemed units will not (i) cause the Partnership to be taxed as a
corporation, (ii) impair the capital or operations of the Partnership,
or (iii) impair the ability of the Partnership to pay distributions in
accordance with its distribution policy. The limited partnership
agreement further provides that 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. For
information about units redeemed in prior periods, see notes to the
Financial Statements.
(3) In the first quarter, units were purchased only in January, so the
January amounts represent the total for the quarter.
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: May 12, 2004
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 May 12, 2004
Ernest J. Furtado Vice President and Secretary
_______________________ President May 12, 2004
John A. Maccarone
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: May 12, 2004
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 May 12, 2004
Ernest J. Furtado Vice President and Secretary
/s/John A. Maccarone
_______________________ President May 12, 2004
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.
May 12, 2004
/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.
May 12, 2004
/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 March 31,
2004, as filed on May 12, 2004 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.
May 12, 2004
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 Registrant 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 March 31,
2004, as filed on May 12, 2004 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.
May 12, 2004
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 Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.