<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 0-20140
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3121277
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
650 CALIFORNIA STREET, 16TH FLOOR
SAN FRANCISCO, CALIFORNIA 94108
(Address of Principal Executive Offices) (ZIP Code)
(415) 434-0551
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
<PAGE> 2
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
QUARTERLY REPORT ON FORM 10Q FOR THE
QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - March 31, 1996 (unaudited) and December 31, 1995..... 3
Statements of Earnings for the three months ended
March 31, 1996 and 1995 (unaudited)................................... 4
Statements of Partners' Capital for the three months ended
March 31, 1996 and 1995 (unaudited)................................... 5
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 (unaudited)................................... 6
Notes to Financial Statements (unaudited)............................. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................. 12
</TABLE>
2
<PAGE> 3
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
----------- --------
(unaudited)
ASSETS
<S> <C> <C>
Container rental equipment, net of accumulated
depreciation of $26,316 (1995: $24,768) $86,303 85,982
Cash and cash equivalents (note 1) 1,341 986
Accounts receivable, net of allowance
for doubtful accounts of $1,509 (1995: $1,516) 5,497 5,966
Due from affiliates (note 4) 463 119
Prepaid expenses 33 47
------- -------
$93,637 93,100
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 495 383
Accrued damage protection plan costs (note 2) 424 373
Accrued liabilities 597 563
Due to affiliates (note 4) 230 156
Equipment purchases payable 1,672 738
------- -------
Total liabilities 3,418 2,213
------- -------
Partners' capital:
General partners - -
Limited partners 90,219 90,887
------- -------
Total partners' capital 90,219 90,887
------- -------
$93,637 93,100
======= =======
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF EARNINGS
For the three months ended March 31, 1996 and 1995
(Dollar amounts in thousands except for per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Rental income $ 5,645 5,871
---------- ----------
Costs and expenses:
Direct container expenses 834 742
Bad debt provision 34 179
Depreciation and amortization 1,679 1,640
Professional fees 10 15
Management fees to affiliates (note 4) 513 529
General and administrative costs to affiliates (note 4) 346 373
Other general and administrative costs 60 89
---------- ----------
3,476 3,567
---------- ----------
Income from operations 2,169 2,304
---------- ----------
Other income:
Interest income 29 24
Gain on sales of equipment 88 103
---------- ----------
117 127
---------- ----------
Net earnings $ 2,286 2,431
========== ==========
Allocation of net earnings (note 4):
General partners $ 30 28
Limited partners 2,256 2,403
---------- ----------
$ 2,286 2,431
========== ==========
Limited partners' per unit share
of net earnings $ 0.36 $ 0.39
========== ==========
Limited partners' per unit share
of distributions $ 0.46 $ 0.45
========== ==========
Weighted average number of limited
partnership units outstanding 6,189,743 6,208,399
========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
For the three months ended March 31, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
------------------------------------
GENERAL LIMITED TOTAL
------- ------- --------
<S> <C> <C> <C>
Balances at January 1, 1995 $ - 92,255 92,255
Distributions (28) (2,794) (2,822)
Redemptions (note 6) - (52) (52)
Net earnings 28 2,403 2,431
------- ------- -------
Balances at March 31, 1995 $ - 91,812 91,812
======= ======= =======
Balances at January 1, 1996 $ - 90,887 90,887
Distributions (30) (2,863) (2,893)
Redemptions (note 6) - (61) (61)
Net earnings 30 2,256 2,286
------- ------- -------
Balances at March 31, 1996 $ - 90,219 90,219
======= ======= =======
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and 1995
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,286 2,431
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,679 1,631
(Decrease) increase in allowance for doubtful accounts (7) 132
Gain on sales of rental equipment (88) (103)
Amortization of organization costs - 9
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 461 (491)
(Increase) decrease in due from affiliates, net (282) 77
Increase (decrease) in accounts payable
and accrued liabilities 147 (27)
Increase in accrued damage protection plan costs 51 103
Decrease in prepaid expenses 14 15
------- -------
Net cash provided by operating activities 4,261 3,777
------- -------
Cash flows from investing activities:
Proceeds from sale of container rental equipment 379 902
Container purchases (1,330) (4,079)
------- -------
Net cash used in investing activities (951) (3,177)
------- -------
Cash flows from financing activities:
Redemptions (61) (52)
Distributions to partners (2,894) (2,811)
------- -------
Net cash used in financing activities (2,955) (2,863)
------- -------
Net increase (decrease) in cash and cash equivalents 355 (2,263)
Cash and cash equivalents at beginning of period 986 3,155
------- -------
Cash and cash equivalents at end of period $ 1,341 892
======= =======
Interest paid during the period $ - -
======= =======
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS -- CONTINUED
For the three months ended March 31, 1996 and 1995
(Amounts in thousands)
(unaudited)
SUPPLEMENTAL DISCLOSURES:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of equipment purchases, distributions
to partners, and proceeds from sale of container rental equipment which had not
been paid or received by the Partnership as of March 31, 1996 and 1995 and
December 31, 1995 and 1994, resulting in differences in amounts recorded and
amounts paid by the Partnership, as shown in the Statements of Cash Flows for
the three-month periods ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31 Dec. 31
1996 1995 1995 1994
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates............................ $ 81 86 52 185
Equipment purchases payable.................. 1,672 738 1,576 2,929
Distributions to partners included in:
Due to affiliates............................ 42 42 21 7
Accounts payable and accrued liabilities..... 121 122 123 126
Proceeds from sale of equipment included in:
Due from affiliates.......................... 331 348 395 330
Accounts receivable (payable)................ -- 19 (3) 587
</TABLE>
The following summarizes the amounts of equipment purchases, distributions to
partners, and proceeds from sale of container rental equipment 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, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Equipment purchases recorded................................ $ 2,259 2,593
Equipment purchases paid.................................... 1,330 4,079
Distributions to partners declared.......................... 2,893 2,822
Distributions to partners paid.............................. 2,894 2,811
Proceeds from sale of container rental equipment recorded... 343 377
Proceeds from sale of container rental equipment received... 379 902
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Dollar amounts in thousands except for per unit amounts)
(unaudited)
NOTE 1. GENERAL
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, 1996 and December 31, 1995, and the
results of its operations, changes in partners' capital, and cash flows for
the three-month periods ended March 31, 1996 and 1995, have been made.
The financial information presented herein should be read in conjunction
with the audited financial statements and the accompanying Notes included
in the Partnership's audited financial statements as of December 31, 1995.
For purposes of the Statements of Cash Flows, the Partnership considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Certain reclassifications of prior year amounts have been made in order to
conform with the 1996 financial statement presentation.
NOTE 2. DAMAGE PROTECTION PLAN
The Partnership offers a Damage Protection Plan (the Plan) to lessees of
its container rental equipment. Under the terms of the Plan, the
Partnership earns additional revenues on a daily basis and, as a result,
has agreed to bear certain costs. It is the Partnership's policy to
recognize revenue when earned and to provide a reserve sufficient to cover
the Partnership's obligation for estimated repair costs.
NOTE 3. ACQUISITION OF EQUIPMENT
During the three-month periods ended March 31, 1996 and 1995, the
Partnership purchased container rental equipment (the Equipment) with a
cost of $2,259 and $2,593, respectively.
NOTE 4. 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. Textainer Acquisition
Services Limited (TAS) is an affiliate of the General Partners which
performs services relative to the acquisition of Equipment outside the
United States on behalf of the Partnership. TCC Securities Corporation
(TSC), a licensed broker and dealer in securities and an affiliate of the
General Partners, was the managing sales agent for the offering of Units
for sale.
In accordance with the Partnership Agreement, the net earnings or losses
and partnership distributions are allocated 99% to the limited partners and
1% to the General Partners with the exception of gross income as defined in
the Partnership Agreement. Gross income is allocated to the General
Partners to the extent that their partners' capital accounts show a
deficit.
8
<PAGE> 9
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, or TAS, an incentive management fee, an acquisition
fee, an equipment management fee and an equipment liquidation fee. These
fees are for various services provided in connection with the
administration and management of the Partnership. The Partnership had
capitalized $64 and $188 of equipment acquisition fees as part of Equipment
costs during the three-month periods ended March 31, 1996 and 1995 and had
incurred $121 and $118 of incentive management fees during the three-month
periods ended March 31, 1996 and 1995, respectively. No equipment
liquidation fees were incurred in either period.
The Equipment of the Partnership is managed by TEM. Prior to the sale of
the Partnership's storage fleet during 1995, TEM had entered into an
agreement with its wholly-owned subsidiary Textainer Storage Services (TSS)
to manage storage containers owned by the Partnership and other owners
(note 7). In its role as manager, TEM has authority to acquire, hold,
manage, lease, sell and dispose of the Partnership's Equipment.
Additionally, 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 at March 31, 1996
and December 31, 1995.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross lease revenues attributable to full payout net leases. Such
fees are either retained by TEM or, prior to the sale of the storage fleet,
the fees allocable to TSS, if any, were passed through by TEM for services
rendered. During the three-month periods ended March 31, 1996 and 1995, the
Partnership paid $392 and $411, respectively, in equipment management fees
to TEM and TSS. The Partnership's Equipment is or was leased by TEM and TSS
to third party lessees on operating master leases, spot leases and term
leases. The majority of the Equipment is leased under operating leases with
limited terms and no purchase option.
Certain indirect general and administrative costs incurred in performing
administrative services necessary to the operation of the Partnership are
borne by TEM and, prior to the sale of the storage fleet, TSS. Such costs
are allocated to the Partnership based on the ratio of the Partnership's
interest in managed Equipment to the total Equipment managed by TEM and
TSS. Indirect general and administrative costs allocated to the Partnership
were $283 and $320 for the three-month periods ended March 31, 1996 and
1995, respectively.
TFS, in its capacity as managing general partner, also incurred general and
administrative costs of $63 and $53, during the three-month periods ended
March 31, 1996 and 1995, respectively, which were reimbursed by the
Partnership.
The General Partners or TAS may acquire Equipment in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such Equipment for the Partnership. The Equipment may then
be resold to the Partnership on an all-cash basis at a price equal to the
actual cost, as defined in the Partnership Agreement. In addition, the
General Partners or TAS are entitled to an acquisition fee for any
Equipment resold to the Partnership.
9
<PAGE> 10
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
At March 31, 1996 and December 31, 1995, due from and to affiliates are
comprised of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM and TSS ....................... $ 463 119
===== ======
Due to affiliates:
Due to TAS.................................. $ 64 54
Due to TFS.................................. 135 76
Due to TGH.................................. 1 1
Due to TCC.................................. 17 16
Due to TL................................... 13 9
----- ------
$ 230 156
===== ======
</TABLE>
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 payment of expenses and
fees described above or in the accrual and payment of net rental revenues
from TEM and TSS.
It is the policy of the Partnership and the General Partners to charge
interest on intercompany balances which are outstanding for more than one
month to the extent such balances relate to loans for equipment purchases.
Interest is charged at the Prime Rate plus certain margins based on TGH's
leverage ratio. There was no interest charged on intercompany balances for
the three-month periods ending March 31, 1996 or 1995.
NOTE 5. RENTALS UNDER OPERATING LEASES
The following is a schedule by year of minimum future rentals receivable on
noncancelable operating leases as of March 31, 1996:
<TABLE>
<CAPTION>
Year ending March 31:
<S> <C> <C>
1997.......................................................... $ 2,524
1998.......................................................... 285
1999.......................................................... 193
2000.......................................................... 130
2001.......................................................... 7
-------
Total minimum future rentals receivable....................... $ 3,139
=======
</TABLE>
10
<PAGE> 11
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--CONTINUED
NOTE 6. REDEMPTIONS
The following redemption offerings were consummated by the Partnership
during the three-month period ended March 31, 1996 and the year ended
December 31, 1995:
<TABLE>
<CAPTION>
AVERAGE
UNITS REDEEMED REDEMPTION PRICE AMOUNT PAID
-------------- ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994 38,031 $16.08 $ 611
Quarter ended :
March 31,1995................. 3,570 $14.63 52
Sept. 30,1995................. 8,106 $14.12 114
Dec. 31,1995................. 6,200 $14.61 91
------ -----
Balance at December 31, 1995 55,907 $15.54 868
Quarter ended :
March 31,1996................. 4,350 $13.94 61
------ -----
Balance at March 31, 1996 60,257 $15.42 $ 929
====== =====
</TABLE>
The redemption price is fixed by formula and varies depending on the length
of time the units are outstanding.
NOTE 7. SALE OF STORAGE FLEET
In August 1995, the Partnership sold its storage container fleet, managed
by TSS, to a third party investor. The proceeds from the sale were $345
compared to the Partnership's cost basis in the equipment of $333. The
resulting gain from the sale was $12. The Partnership invested the proceeds
from this sale in marine container rental equipment.
NOTE 8. WARRANTY CLAIM
During 1992 and 1995, the Partnership settled warranty claims against an
equipment manufacturer. The Partnership will amortize the settlement
amounts over the remaining useful life of the equipment (between seven and
eight years), reducing maintenance and repair costs over that time. At
March 31, 1996 and December 31, 1995, the unamortized portion of the
settlement amounts was equal to $297 and $307, respectively, and is
included in accrued liabilities.
11
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in thousands except for 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, 1996 and 1995. Please refer to the Financial Statements and Notes thereto in
connection with the following discussion.
LIQUIDITY AND CAPITAL RESOURCES
From January 16, 1991 until May 4, 1992, the Partnership was involved in the
offering of limited partnership interests to the public. On May 4, 1992, the
Partnership's offering of limited partnership interests was closed at $125,000.
The Partnership has set up a program whereby limited partners may redeem units
for a specified redemption value. The redemption price is set by formula and
varies depending on length of time the units are outstanding. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. During the quarter ended March 31, 1996 the
Partnership redeemed 4,350 units for a total dollar amount of $61 and, during
the year ended December 31, 1995, the Partnership redeemed 17,876 units for a
total dollar amount of $257. The Partnership has used cash flow from operations
to pay for the redeemed units.
The Partnership invests working capital and cash flow from operations prior to
its distribution or reinvestment in additional equipment in short-term, highly
liquid investments. It is the policy of the Partnership to maintain a minimum
working capital reserve in an amount which is the lesser of (i) 1% of capital
contributions or (ii) $100. At March 31, 1996, the Partnership's cash of $1,341
was primarily invested in a market-rate account.
During the quarter ended March 31, 1996, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1995
through February 1996 in the amount of $2,863. These distributions represent
9.25% of original capital (measured on an annualized basis) on each unit. Of
these distributions, on a GAAP basis, $607 was a return of capital and the
balance was from net earnings. On a cash basis, all of these distributions were
from operations.
For the three-month period ended March 31, 1996, the Partnership had net cash
provided by operating activities of $4,382, compared with net cash provided by
operating activities of $3,777 for the comparable period ended March 31, 1995.
This increase was primarily attributable to a decrease in accounts receivable
from operations, as illustrated by an improvement in the average collection
period of accounts receivable from operations from 121 days during the
three-month period ended March 31, 1995 to 113 days during the comparable period
in 1996. In 1995, the Partnership experienced a deterioration in the payment
performance of two of its lessees. The lessees cooperated in returning the
equipment and the returned equipment has been substantially re-leased to other
customers during 1995. This, in conjunction with a partial resolution of payment
problems in the first quarter of 1996 with one of these lessees, were the
primary causes for the improvement in the average collection period between
periods. The Partnership is continuing its efforts to conclude resolution of
both of these accounts in 1996.
While net cash from operating activities has improved, the Partnership's
principal lessees, shipping lines, are currently anticipating over-capacity, due
to the delivery of new ships. This over-capacity may cause shipping lines to
reduce freight rates, which could affect the profitability of their business,
resulting in the possibility of delays in the remittance of rental payments,
pressure on container rental rates, and, in extreme cases, bankruptcy of some
shipping lines. As discussed more fully below under "Results of
12
<PAGE> 13
Operations," utilization rates have reflected a lower demand for containers, and
this over-capacity could also further affect these rates.
Net cash used in investing activities (the purchase and sale of rental
equipment) for the three-month period ended March 31, 1996 was $1,072, compared
with $3,177 for the three-month period ended March 31, 1995. This difference is
primarily due to the fact that, on a cash basis, the Partnership purchased more
equipment in 1995 (because of an increased availability of proceeds from the
sale of a trailer fleet that were received in 1994) than in the same period in
1996. Consistent with its investment objectives, the Partnership intends to
reinvest all or a significant amount of proceeds from future equipment sales in
additional equipment.
RESULTS OF OPERATIONS
The Partnership's operations, which consist of rental income, container
depreciation, direct container expenses, management fees, and reimbursement of
administrative expenses were directly related to the size of the fleet
(inventory) during the three-month periods ended March 31, 1996 and 1995, as
well as certain other factors as discussed below. The following is a summary of
the equipment (in units) available for lease during those periods:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Opening inventory....................... 30,236 28,426
Closing inventory....................... 30,850 28,957
Average................................. 30,543 28,692
</TABLE>
The average inventory (in units) increased by 6.5% from the three-month period
ended March 31, 1995 to the equivalent period in 1996. Average inventory
increased mainly due to reinvestment of proceeds during 1995 from the sale of
the Partnership's storage and trailer fleets.
Rental income and direct container expenses are also affected by the lease
utilization percentages for the equipment, which were 88%, and 92% on average
during the three-month periods ended March 31, 1996 and 1995, respectively. In
addition, rental income is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 1996 and 1995.
The Partnership's income from operations for the three-month periods ended March
31, 1996 and 1995 was $2,169 and $2,304, respectively, on rental income of
$5,645 and $5,871, respectively. The decrease in rental income of $226, or 4%,
from the three-month period ended March 31, 1995 to the same period in 1996, was
primarily attributable to income from container rentals, the major component of
total revenue, which decreased by $108, or 2%, from 1995 to 1996. Income from
container rentals is largely dependent upon three factors: equipment available
for lease (average inventory), average on-hire (utilization) percentage, and
average daily rental rates. Average inventory increased 6.5%, average
utilization decreased 4%, and average daily rental rates decreased by 4% from
the three months ended March 31, 1995 to the same period in 1996.
Utilization began to decrease in the last quarter of 1995 and continued to
decline for all Equipment types owned by the Partnership in the first quarter of
1996. The General Partners believe that this softening in demand has been due,
in part, to a slow-down in activity in the Asia-North America trade route as
well as to seasonal factors. Additionally, as noted above, the Partnership's
principal lessees, shipping lines, are currently anticipating further
over-capacity, which may adversely affect rental payments and/or rates and
utilization. Rental rates have also been restrained by quantity rate discounts
granted to the Partnership's larger container lessees.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's equipment under short-term operating leases.
13
<PAGE> 14
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for pick-up of containers from prime
locations less credits granted to lessees for leasing containers from less
desirable locations (location income), income for handling and returning marine
containers and income from charges to the lessees for a damage protection plan.
For the three-month period ended March 31, 1996, the total of these other
revenue items was $499, a decrease of $118 over the equivalent period in 1995.
This decrease was primarily due to location income, which decreased $121 from
the three-month period ended March 31, 1995 to the equivalent period in 1996.
The decline in location income is mainly due to a decrease in drop-off charges
to lessees for Equipment at less desirable locations, which primarily resulted
from drop-off charges to a specific lessee in the first quarter of 1995 that did
not re-occur in the same period in 1996, as well as an increase in credits given
to lessees for pick-up of Equipment from less desirable locations, which was
largely driven by decreased demand.
Direct container expenses, excluding bad debt expense, increased by $92 from the
three-month period ended March 31, 1995 to the same period in 1996. The primary
component of this increase was costs incurred for storage, which increased by
$115 between periods. These costs increased due to a decline in utilization
rates from the three-month period ended March 31, 1995 to the same period in
1996.
Bad debt expense decreased by $145 from the three-month period ended March 31,
1995 to the same period of 1996. The decrease was primarily due to a reduction
in reserve requirements for a specific lessee as a result of a partial
resolution of payment problems with that lessee during the quarter, as discussed
above.
Depreciation and amortization expense increased by $39 from the three-month
period ended March 31, 1995 to the equivalent period in 1996. Depreciation
increased by $48 due to an increase in average inventory. Organization costs
were fully amortized in 1995.
Management fees to affiliates decreased by $16 from the three-month period ended
March 31, 1995 to the same period in 1996. Equipment management fees, which
decreased by $18 between periods due to a decrease in rental income, were
slightly offset by increased incentive management fees. The increase in
incentive management fees, which are based on the Partnership's distributions to
the limited and general partners, reflects the increase in distribution rate to
the limited partners from 9% to 9.25%.
General and administrative costs to affiliates decreased by $27 in the
three-month period ended March 31, 1996 compared to the same period in 1995.
These costs were 6.1% of total gross rental income for the quarter ended March
31, 1995 compared to 6.4% for the same period in 1995. This decrease was the
result of a decline in allocable overhead costs resulting from the sale of the
storage fleet in 1995.
Other income contained a gain on sales of equipment of $88 for the three month
period ended March 31, 1996 compared to a gain of $103 for the equivalent period
ended March 31, 1995. Interest income increased by $5 from the three-month
period ended March 31, 1995 to the comparable period in 1996.
Net earnings per limited partnership unit decreased from $0.39 for the
three-month period ended March 31, 1995 to $0.36 for the equivalent period in
1996, reflecting the decrease in net earnings from $2,431 for the quarter ended
March 31, 1995 to $2,286 for the same period in 1996.
14
<PAGE> 15
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 Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep the equipment under lease, rather than the geographic location
of the Equipment or the domicile of the lessees. The Partnership's containers
are generally operated on the international high seas rather than on the
domestic waterways. The Partnership's Equipment is subject to the risk of war or
other political, economic or social occurrence where the Equipment is used,
which may result in the loss of Equipment, which, in turn, may have a material
impact on the Partnership's results of operations and financial condition. The
General Partners are not aware of any conditions as of March 31, 1996 which
would result in such risk materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning equipment after it comes off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the Partnership's equipment, and the effect of demand for world trade and/or
general business and economic cycles on the Partnership's operations.
15
<PAGE> 16
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 III, L.P.
(A California Limited Partnership)
By Textainer Financial Services Corporation
The Managing General Partner
By /s/ John R. Rhodes
------------------
John R. Rhodes
Executive Vice President
Date: May 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ James E. Hoelter President (Principal Executive May 10, 1996
- - ------------------------------------ Officer) and Director
James E. Hoelter
/s/ John R. Rhodes Executive Vice President May 10, 1996
- - ------------------------------------ (Principal Financial and
John R. Rhodes Accounting Officer),
Secretary and Treasurer
</TABLE>
16
<PAGE> 17
EXHIBIT INDEX
Exhibit No.
- - -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000866888
<NAME> TEXTAINER EQUIPMENT INCOME FUND III, L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,341
<SECURITIES> 0
<RECEIVABLES> 7,469
<ALLOWANCES> 1,509
<INVENTORY> 0
<CURRENT-ASSETS> 33
<PP&E> 112,619
<DEPRECIATION> 26,316
<TOTAL-ASSETS> 93,637
<CURRENT-LIABILITIES> 3,418
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 90,219
<TOTAL-LIABILITY-AND-EQUITY> 93,637
<SALES> 0
<TOTAL-REVENUES> 5,645
<CGS> 0
<TOTAL-COSTS> 3,476
<OTHER-EXPENSES> (117)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,286
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,286
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
