TEXTAINER CAPITAL CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 8, 2002
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 VI,
L.P. (the "Partnership") the Partnership's Quarterly Report on Form 10-Q for the
Second Quarter ended June 30, 2002.
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, 2002
Commission file number 0-22337
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
A California Limited Partnership
(Exact name of Registrant as specified in its charter)
California 94-3220152
(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 [ ]
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2002
Table of Contents
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Page
Item 1. Financial Statements
Balance Sheets - June 30, 2002
and December 31, 2001 (unaudited)....................................................... 3
Statements of Operations for the three and six months
ended June 30, 2002 and 2001 (unaudited)................................................ 4
Statements of Partners' Capital for the six months
ended June 30, 2002 and 2001 (unaudited)................................................ 5
Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 (unaudited)................................................ 6
Notes to Financial Statements (unaudited)............................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 13
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 2002 and December 31, 2001
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
2002 2001
---------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $12,691, (2001: $11,689) (note 4) $ 22,558 $ 23,334
Cash 406 466
Accounts receivable, net of allowance
for doubtful accounts of $62, (2001: $51) 859 990
Due from affiliates, net (note 2) 83 79
Prepaid expenses 2 5
---------------- ----------------
$ 23,908 $ 24,874
================ ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 208 $ 204
Accrued liabilities 195 186
Accrued damage protection plan costs 53 52
Accrued recovery costs 99 100
Deferred quarterly distributions 22 22
Deferred damage protection plan revenue 112 120
Container purchases payable 287 -
---------------- ----------------
Total liabilities 976 684
---------------- ----------------
Partners' capital:
General partners - -
Limited partners 22,932 24,190
---------------- ----------------
Total partners' capital 22,932 24,190
---------------- ----------------
$ 23,908 $ 24,874
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Operations
For the three and six months ended June 30, 2002 and 2001
(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, 2002 June 30, 2001 June 30, 2002 June 30, 2001
-------------- -------------- -------------- --------------
Rental income $ 1,026 $ 1,223 $ 2,055 $ 2,552
-------------- -------------- -------------- --------------
Costs and expenses:
Direct container expenses 475 396 845 762
Bad debt (benefit) expense (2) (11) 9 (12)
Depreciation 524 516 1,048 1,028
Professional fees 19 8 30 19
Management fees to affiliates (note 2) 93 116 187 239
General and administrative costs to affiliates (note 2) 63 64 129 133
Other general and administrative costs 24 12 47 24
Gain on sale of containers (2) (9) (4) (6)
-------------- -------------- -------------- --------------
1,194 1,092 2,291 2,187
-------------- -------------- -------------- --------------
(Loss) income from operations (168) 131 (236) 365
-------------- -------------- -------------- --------------
Interest income 2 11 4 25
-------------- -------------- -------------- --------------
Net (loss) earnings $ (166) $ 142 $ (232) $ 390
============== ============== ============== ==============
Allocation of net (loss) earnings (note 2):
General partners $ 51 $ 71 $ 102 $ 142
Limited partners (217) 71 (334) 248
-------------- -------------- -------------- --------------
$ (166) $ 142 $ (232) $ 390
============== ============== ============== ==============
Limited partners' per unit share of
net (loss) earnings $ (0.12) $ 0.04 $ (0.18) $ 0.13
============== ============== ============== ==============
Limited partners' per unit share
of distributions $ 0.25 $ 0.35 $ 0.50 $ 0.70
============== ============== ============== ==============
Weighted average number of limited
partnership units outstanding 1,848,397 1,848,397 1,848,397 1,848,397
============== ============== ============== ==============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Partners' Capital
----------------------------------------------------------
General Limited Total
------------ --------------- ---------------
Balances at January 1, 2001 $ - $ 26,078 $ 26,078
Distributions (142) (1,294) (1,436)
Net earnings 142 248 390
------------ --------------- ---------------
Balances at June 30, 2001 $ - $ 25,032 $ 25,032
============ =============== ===============
Balances at January 1, 2002 $ - $ 24,190 $ 24,190
Distributions (102) (924) (1,026)
Net earnings (loss) 102 (334) (232)
------------ --------------- ---------------
Balances at June 30, 2002 $ - $ 22,932 $ 22,932
============ =============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
2002 2001
---------------- ----------------
Cash flows from operating activities:
Net (loss) earnings $ (232) $ 390
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation 1,048 1,028
Increase (decrease) in allowance for doubtful accounts 11 (14)
Gain on sale of containers (4) (6)
(Increase) decrease in assets:
Accounts receivable 117 241
Due from affiliates, net (8) (20)
Prepaid expenses 3 3
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 13 (40)
Accrued recovery costs (1) 8
Accrued damage protection plan costs 1 (29)
Deferred damage protection plan revenue (8) -
---------------- ----------------
Net cash provided by operating activities 940 1,561
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of containers 88 113
Container purchases (62) (454)
---------------- ----------------
Net cash provided by (used in) investing activities 26 (341)
---------------- ----------------
Cash flows from financing activities:
Distributions to partners (1,026) (1,437)
---------------- ----------------
Net cash used in financing activities (1,026) (1,437)
---------------- ----------------
Net decrease in cash (60) (217)
Cash at beginning of period 466 889
---------------- ----------------
Cash at end of period $ 406 $ 672
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the six months ended June 30, 2002 and 2001
(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 by the Partnership as of June 30, 2002 and 2001, and December 31, 2001
and 2000, 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, 2002 and 2001.
June 30 Dec. 31 June 30 Dec. 31
2002 2001 2001 2000
----------- ----------- ----------- -----------
Container purchases included in:
Container purchases payable.................... $287 $ - $ - $46
Distributions to partners included in:
Due to affiliates.............................. 17 17 23 23
Deferred quarterly distributions............... 22 22 31 32
Proceeds from sale of containers included in:
Due from affiliates............................ 33 37 36 54
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, 2002 and 2001.
2002 2001
---- ----
Container purchases recorded...................................................... $ 349 $ 408
Container purchases paid.......................................................... 62 454
Distributions to partners declared................................................ 1,026 1,436
Distributions to partners paid.................................................... 1,026 1,437
Proceeds from sale of containers recorded......................................... 84 95
Proceeds from sale of containers received......................................... 88 113
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, 2002 and 2001 was $3 and $4, respectively.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND VI, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and six months ended June 30, 2002 and 2001
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------
Note 1. General
Textainer Equipment Income Fund VI, L.P. (the Partnership), a California
limited partnership with a maximum life of 21 years, was formed in 1995.
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, 2002 and December 31, 2001, and the
results of its operations for the three and six-month periods ended June
30, 2002 and 2001 and changes in partners' capital and cash flows for the
six-month periods ended June 30, 2002 and 2001, 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, 2001, 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. If these estimates were subsequently revised based on
permanent changes in the container leasing market, the Partnership would
revise its depreciation policy.
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 as well
as for used 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 August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of," and elements of Accounting Principles Board Opinion 30,
"Reporting the Results of Operations - Reporting the Effects on Disposal of
a Segment of a Business and Extraordinary, Unusual or Infrequently
Occurring Events and Transactions."
SFAS No. 144 establishes a single-accounting model for long-lived assets to
be disposed of while maintaining many of the provisions relating to
impairment testing and valuation. The Partnership adopted this Statement on
January 1, 2002 and there was no material impact on the Partnership's
financial condition, operating results and cash flow.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds FASB Statement 4, Reporting Gains and Losses
of Debt Extinguishments and an amendment of that Statement, FASB No. 64.
This Statement also rescinds FASB No. 44, Accounting for Intangible Assets
of Motor Carriers. FASB 145 also amends FASB Statement No. 13, Accounting
for Leases, to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. These rescissions and amendment are not anticipated to have a
material impact on the financial statements of the Partnership.
Certain reclassifications, not affecting net earnings (loss), have been
made to prior year amounts in order to conform to the 2002 financial
statement presentation.
Note 2. Transactions with Affiliates
Textainer Capital Corporation (TCC) is the managing general partner of the
Partnership. Textainer Equipment Management Limited (TEM) and Textainer
Limited (TL) are the associate general partners of the Partnership. The
managing general partner and associate general partners are collectively
referred to as the General Partners. 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 9.5% to
the General Partners and 90.5% 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 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 incurred $21 and $43 of incentive management
fees during the three and six-month periods ended June 30, 2002
respectively, and $30 and $60, respectively, for the comparable periods in
2001. No equipment liquidation fees were 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
Partnership's containers. TEM holds, for the payment of direct operating
expenses, a reserve of cash that has been collected from container leasing
operations; such cash is included in the amount due from affiliates, net at
June 30, 2002 and December 31, 2001.
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 $72 and $144 for the three and six-month periods ended June 30,
2002, respectively, and $86 and $179, respectively, for the comparable
periods in 2001.
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 TCC and TEM. General and
administrative costs allocated to the Partnership during the three and
six-month periods ended June 30, 2002 and 2001 were as follows:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Salaries $41 $37 $ 82 $ 76
Other 22 27 47 57
-- -- --- ---
Total general and
administrative costs $63 $64 $129 $133
== == === ===
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. TCC allocates these costs based on
the ratio of the Partnership's containers to the total container fleet of
all limited partnerships managed by TCC. The General Partners allocated the
following general and administrative costs to the Partnership during the
three and six-month periods ended June 30, 2002 and 2001:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
TEM $54 $56 $110 $115
TCC 9 8 19 18
-- -- --- ---
Total general and
administrative costs $63 $64 $129 $133
== == === ===
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.
At June 30, 2002 and December 31, 2001, due from affiliates, net is
comprised of:
2002 2001
---- ----
Due from affiliates:
Due from TEM................... $104 $106
--- ---
Due to affiliates:
Due to TCC..................... 4 10
Due to TL...................... 17 17
--- ---
21 27
--- ---
Due from affiliates, net $ 83 $ 79
=== ===
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, 2002 and 2001:
2002 2001
---- ----
On-lease under master leases 4,526 4,481
On-lease under long-term leases 3,666 3,445
----- -----
Total on-lease containers 8,192 7,926
===== =====
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 located primarily at a large
number of storage depots. At June 30, 2002, the Partnership's off-lease
containers were in the following locations:
Americas 943
Europe 742
Asia 1,790
Other 88
-----
Total off-lease containers 3,563
=====
Note 4. Container Rental Equipment
New container prices steadily declined from 1995 through 1999. Although
container prices increased in 2000, these prices declined again in 2001 and
have remained low during the first half of 2002. 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 for containers to be held for continued use as well as for
containers identified for sale in the ordinary course of business. Based on
this evaluation, the Partnership determined that reductions to the carrying
value of these containers were not required during the six-month periods
ended June 30, 2002 and 2001.
The Partnership will continue to evaluate the recoverability of recorded
amounts of container rental equipment and cautions that a write-down of
container rental equipment and/or an increase in its depreciation rate may
be required in future periods for some or all of its container rental
equipment.
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, 2002 and 2001. Please refer to the Financial Statements and Notes
thereto in connection with the following discussion.
Textainer Capital Corporation (TCC) is the Managing General Partner of the
Partnership. 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 10, 1996 until April 30, 1997, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,100 on June 17, 1996, and raised a total of $36,968
from the offering.
The Partnership invests working capital, cash flow from operations 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 has been adversely affected by
current market conditions for leased containers, and these market conditions may
continue or worsen. 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, 2002, the Partnership declared cash distributions to limited
partners pertaining to the period from December 2001 through May 2002 in the
amount of $924. On a cash basis, $838 of these distributions was from operating
activities, and the balance was from cash provided by previous years' operating
activities that has not been distributed or used to purchase containers. On a
financial statement basis, all of these distributions were a return of capital.
From time to time, the Partnership may redeem 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. Since inception, the Partnership has not redeemed
any units.
Net cash provided by operating activities for the six-month periods ended June
30, 2002 and 2001, was $940 and $1,561, respectively. The decrease of $621, or
40%, is primarily attributable to the decrease in net earnings, adjusted for
non-cash transactions and the fluctuations in gross accounts receivable. Net
earnings, adjusted for non-cash transactions, decreased primarily due to the
decrease in rental income and increase in direct container expenses. These
fluctuations are discussed more fully in "Results of Operations." The decrease
in gross accounts receivable of $117 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. The decrease in gross
accounts receivables of $241 during the comparable period in 2001 was primarily
due to the decreases in rental income and the average collection period of
accounts receivable.
At June 30, 2002, the Partnership had no commitments to purchase containers.
For the six-month period ended June 30, 2002, net cash provided by investing
activities (the purchase and sale of containers) was $26, compared to net cash
used in investing activities of $341 for the comparable period in 2001. Net cash
provided by investing activities increased $367 due to the decrease in cash used
for container purchases and was partially offset by the decrease in proceeds
from container sales. Cash used for container purchases decreased primarily due
to the Partnership purchasing fewer containers during the six-month period ended
June 30, 2002 than the same period in 2001 and due to timing differences in the
accrual and payment of these purchases. Proceeds from container sales decreased
primarily due to the decrease in the average container sales price during the
six-month period ended June 30, 2002 compared to the same period in 2001. The
sales price received on container sales decreased as a result of current market
conditions, which have adversely affected the value of used containers. 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. The number of containers sold, both in low demand locations and
elsewhere, as well as the average sales prices, 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. 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. 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 will, over time, affect 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 prices for used containers, and the
majority of cash available for reinvestment is from sales proceeds.
Results of Operations
The Partnership's income (loss) 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, 2002 and 2001, 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:
2002 2001
---- ----
Beginning container fleet............... 11,633 11,151
Ending container fleet.................. 11,755 11,360
Average container fleet................. 11,694 11,256
As noted above, when containers are sold in the future, sales proceeds are not
likely to be sufficient to replace all of the containers sold, which is likely
to result in a trend towards a smaller average container fleet. Other factors
related to the Partnership's ability to reinvest funds in new containers are
discussed above in "Liquidity and Capital Resources".
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 61% and 75% during the six-month
periods ended June 30 2002 and 2001, respectively. The remaining container fleet
is off-lease and is located primarily at a large number of storage depots. At
June 30, 2002, the Partnership's off-lease containers (in units) were in the
following locations:
Americas 943
Europe 742
Asia 1,790
Other 88
-----
Total off-lease containers 3,563
=====
In addition to utilization, rental income is affected by daily rental rates. The
average daily rental rate decreased 9% between the periods.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 2002 and 2001.
The Partnership's (loss) income from operations for the six-month periods ended
June 30, 2002 and 2001 was ($236) and $365 respectively, on rental income of
$2,055 and $2,552, respectively. The decrease in rental income of $497, or 19%,
from the six-month period ended June 30, 2001 to the same period in 2002 was
attributable to the decrease in container rental income, partially offset by the
increase in other rental income, which is discussed below. Income from container
rentals, the major component of total revenue, decreased $561, or 24%, primarily
due to the decreases in the average on-hire utilization of 19% and average
rental rates of 9%. The majority of the Partnership's rental income was
generated from the leasing of the Partnership's containers under master
operating leases.
In the fourth quarter of 2000, utilization began to decline and continued to
decline during 2001 and the beginning of 2002. This decline was due to lower
overall demand by shipping lines for leased containers, which was primarily a
result of the worldwide economic slowdown. Two other factors reduced the demand
for leased containers. Shipping lines added larger vessels to their fleets
which, combined with lower cargo volume growth, made it easier for them to use
otherwise empty vessel space to reposition their own containers back to high
demand locations. Additionally, in anticipation of the delivery of these new,
larger vessels, many shipping lines placed large orders for new containers in
2000 and 2001, thus temporarily reducing their need to lease containers. These
orders for additional containers are part of a general increase in vessel
capacity for the shipping lines. This increase in vessel capacity amounted to
12% in 2001. An additional increase in vessel capacity of approximately 12% is
expected in 2002, because the shipping lines placed orders for additional ships
before recognizing the slowdown in world trade. To the extent that this
increased vessel capacity remains underutilized, shipping lines may seek to cut
costs in order to sustain profits or reduce losses, which may put further
downward pressure on demand for containers.
Utilization improved steadily beginning in March 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 strong demand
o Fewer purchases of new containers by container lessors and shipping lines.
This utilization improvement has continued into the third quarter of 2002 but
the General Partners caution that market conditions could deteriorate again due
to global economic conditions. Demand for leased containers could therefore
decline again and result in a decline in utilization and further declines in
lease rates and container sale prices, adversely affecting the Partnership's
operating results.
Despite the improvement in utilization, the Partnership continues to sell
(rather than reposition) some containers located in low demand locations, but
primarily only those containers that were damaged. For the number of off-lease
containers located in the lower demand locations in the Americas and Europe, see
the chart above. 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.
Current market conditions continue to cause a decline in the economic value of
used containers. The average sales price for containers sold by the Partnership
as well as other Partnerships managed by the General Partners has decreased.
Additionally, other Partnerships managed by the General Partners have recorded
write-downs and losses on certain older containers. Many of these containers
have been located in low demand locations. There have been no such losses or
write-downs recorded by the Partnership primarily due to the young age of the
Partnership's container fleet and a lower average container cost compared to
these other Partnerships. Sales by the Partnership in these low demand locations
have been generally limited to damaged containers. However, as the container
fleet ages, the Partnership may incur losses and/or write-downs on the sale of
its older containers located in low demand locations, if existing market
conditions continue. Should the decline in economic value of continuing to own
such containers turn out to be permanent, the Partnership may be required to
increase its depreciation rate or write-down the value of some or all of its
container rental equipment.
New container prices steadily declined from 1995 through 1999. Although
container prices increased in 2000, these prices declined again in 2001 and have
remained low during the first half of 2002. 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 for
containers to be held for continued use as well as for containers identified for
sale in the ordinary course of business. Based on this evaluation, the
Partnership determined that reductions to the carrying value of these containers
were not required during the six-month periods ended June 30, 2002 and 2001.
The Partnership will continue to evaluate the recoverability of recorded amounts
of container rental equipment and cautions that a write-down of container rental
equipment and/or an increase in its depreciation rate may be required in future
periods for some or all of its container rental equipment.
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, 2002,
other rental income was $275, an increase of $64 from the equivalent period in
2001. The increase was primarily due to increases in location and handling
income of $36 and $31, respectively. Location income increased due to the
decline in credits granted to lessees for picking up containers from surplus
locations as there were fewer leasing opportunities for which credits could be
offered. The increase in location income was partially offset by a decrease in
charges to lessees for dropping off containers in surplus locations. Handling
income increased due to the increase in the average handling price charged per
container and the increase in container movement during the six-month period
ended June 30, 2002 compared to the same period in 2001.
Direct container expenses increased $83, or 11%, from the six-month period ended
June 30, 2001 to the same period in 2002. The increase was primarily due to
increases in storage and handling expenses of $157 and $12, respectively, offset
by a decrease in repositioning expense of $91. Storage expense increased
primarily due to the decrease in utilization noted above. Handling expense
increased primarily due to the increase in container movement. Repositioning
expense decreased due to the decrease in the average repositioning cost per
container, offset by an increase in the number of containers repositioned
between the periods.
Bad debt expense (benefit) was $9 and ($12) for the six-month periods ended June
30, 2002 and 2001, respectively. Fluctuations in bad debt expense/benefit
reflect the 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, 2002 reflects a
higher reserve requirement from December 31, 2001. The benefit recorded during
the comparable period in 2001 reflects a lower reserve requirement from December
31, 2000.
Depreciation expense increased $20, or 2%, from the six-month period ended June
30, 2001 to the comparable period in 2002, primarily due to the increase in the
average fleet size between the periods.
Management fees to affiliates decreased $52, or 22%, from the six-month period
ended June 30, 2001 to the comparable period in 2002, due to decreases in both
equipment and incentive management fees. Equipment management fees decreased due
to the decline in rental income, upon which equipment management fees are
primarily based. These fees were approximately 7% of rental income for both
periods. Incentive management fees, which are based on the Partnership's limited
and general partner distributions made from cash from operations and partners'
capital decreased due to the decrease in the limited partner distribution
percentage from 7% to 5% of initial partners' capital in July 2001.
General and administrative costs to affiliates decreased $4 or 3%, from the
six-month period ended June 30, 2001 to the comparable period in 2002. The
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.
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.
Gain on sale of containers was comparable at $4 and $6 for the six-month periods
ended June 30, 2002 and 2001, respectively.
Net earnings/loss per limited partnership unit fluctuated from earnings of $0.13
to a loss of $0.18 from the six-month period ended June 30, 2001 to the same
period in 2002, respectively, reflecting the fluctuation in net earnings/loss
allocated to limited partners from earnings of $248 to a loss of $334,
respectively. The allocation of net earnings (loss) for the six-month periods
ended June 30, 2002 and 2001 included special allocations of gross income to the
General Partners of $124 and $105, 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, 2002 and 2001.
The Partnership's (loss) income from operations for the three-month periods
ending June 30, 2002 and 2001 was ($168) and $131, respectively, on rental
income of $1,026 and $1,223, respectively. The decrease in rental income of
$197, or 16%, from the three-month period ended June 30, 2001 to the comparable
period in 2002 was primarily attributable to the decrease in container rental
income, partially offset by an increase in other rental income. Income from
container rentals decreased $225, or 20%, primarily due to decreases in the
average on-hire utilization of 13% and average rental rates of 12%.
Other rental income was $126 for the three-month period ended June 30, 2002, an
increase of $28 from the equivalent period in 2001. The increase was primarily
due to increases in handling and location income of $21 and $12, respectively.
Handling income increased due to the increase in container movement, partially
offset by a decrease in the average handling price charged per container.
Location income increased due to the decline in credits granted to lessees for
picking up containers from surplus locations as there were fewer leasing
opportunities for which credits could be offered. The increase in location
income was partially offset by a decrease in charges to lessees for dropping off
containers in surplus locations.
Direct container expenses increased $79, or 20%, from the three-month period
ending June 30, 2001 to the equivalent period in 2002, primarily due to
increases in storage, handling and DPP expenses of $ 51, $12 and $10,
respectively. Storage expense increased primarily due to the decrease in average
utilization noted above. Handling expense increased due to increases in
container movement and the average handling charge 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.
Bad debt benefit decreased from $11 for the three-month period ended June 30,
2001 to $2 for the comparable period in 2002. The decline was due to a lower
adjustment to bad debt reserve during the three-month period ended June 30, 2002
compared to the same period in 2001.
Depreciation expense increased $8, or 2%, from the three-month period ended June
30, 2001 to the comparable period in 2002 due to the increase in fleet size.
Management fees to affiliates decreased $23, or 20%, from the three-month period
ended June 30, 2001 to the comparable period in 2002, due to decreases in both
equipment and incentive management fees. Equipment management fees decreased due
to the decline in rental income and were approximately 7% of rental income for
both periods. Incentive management fees decreased due to the decrease in the
limited partner distribution percentage from 7% to 5% of initial partners'
capital in July 2001.
General and administrative costs to affiliates were comparable at $63 and $64
between the three-month periods ended June 30, 2002 and 2001, respectively.
Gain on sale of containers decreased from $9 for the three-month period ended
June 30, 2001 to $2 for the equivalent period in 2002.
Net earnings/loss per limited partnership unit fluctuated from earnings of $0.04
to a loss of $0.12 from the three-month period ended June 30, 2001 to the same
period in 2002, respectively, reflecting the fluctuation in net earnings/loss
allocated to limited partners from earnings of $71 to a loss of $217,
respectively. The allocation of net earnings (loss) 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. If
these estimates were subsequently revised based on permanent changes in the
container leasing market, the Partnership would revise its depreciation policy,
which could adversely affect 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 as well as for used 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.
Accounting Pronouncement
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of," and
elements of Accounting Principles Board Opinion 30, "Reporting the Results of
Operations - Reporting the Effects on Disposal of a Segment of a Business and
Extraordinary, Unusual or Infrequently Occurring Events and Transactions."
SFAS No. 144 establishes a single-accounting model for long-lived assets to be
disposed of while maintaining many of the provisions relating to impairment
testing and valuation. The Partnership adopted this Statement on January 1, 2002
and there was no material impact on the Partnership's financial condition,
operating results and cash flow.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
rescinds FASB Statement 4, Reporting Gains and Losses of Debt Extinguishments
and an amendment of that Statement, FASB No. 64. This Statement also rescinds
FASB No. 44, Accounting for Intangible Assets of Motor Carriers. FASB 145 also
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects similar to sale-leaseback transactions. These rescissions and amendment
are not anticipated to have a material impact on the financial statements of the
Partnership.
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 therefor,
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.
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 VI, L.P.
A California Limited Partnership
By Textainer Capital Corporation
The Managing General Partner
By _____________________________________
Ernest J. Furtado
Senior Vice President
Date: August 8, 2002
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 Capital
Corporation, the Managing General Partner of the Registrant, in the capacities
and on the dates indicated:
Signature Title Date
___________________________________ Senior Vice President, August 8, 2002
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
___________________________________ President (Principal Executive August 8, 2002
John A. Maccarone Officer)
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 VI, L.P.
A California Limited Partnership
By Textainer Capital Corporation
The Managing General Partner
By /s/Ernest J. Furtado
_____________________________________
Ernest J. Furtado
Senior Vice President
Date: August 8, 2002
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 Capital
Corporation, the Managing General Partner of the Registrant, in the capacities
and on the dates indicated:
Signature Title Date
/s/Ernest J. Furtado
___________________________________ Senior Vice President, August 8, 2002
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
/s/John A. Maccarone
___________________________________ President (Principal Executive August 8, 2002
John A. Maccarone Officer)