TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 13, 1997
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund III,
L.P. (the "Company") the Company's Quarterly Report on Form 10-Q for the Second
Quarter ended June 30, 1997.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
<PAGE>
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 June 30, 1997
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>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California Limited Partnership)
Quarterly Report on Form 10Q for the
Quarter Ended June 30, 1997
Table of Contents
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets - June 30, 1997 (unaudited) and December 31, 1996.......................... 3
Statements of Earnings for the six and three months ended
June 30, 1997 and 1996 (unaudited)........................................................ 4
Statements of Partners' Capital for the six months ended
June 30, 1997 and 1996 (unaudited)........................................................ 5
Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 (unaudited)........................................................ 6
Notes to Financial Statements (unaudited)................................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 12
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 1997 and December 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $33,948 (1996: $30,943) $ 80,092 81,075
Cash 199 2,426
Accounts receivable, net of allowance
for doubtful accounts of $1,593 (1996: $1,616) 5,084 5,219
Due from affiliates (note 5) 222 27
Prepaid expenses 13 45
--------------- ---------------
$ 85,610 88,792
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 668 492
Accrued liabilities 197 35
Accrued damage protection plan costs (note 2) 363 422
Warranty claims (note 3) 248 267
Due to affiliates (note 5) 93 79
Deferred quarterly distribution 115 116
Equipment purchases payable 439 580
--------------- ---------------
Total liabilities 2,123 1,991
--------------- ---------------
Partners' capital:
General partners - -
Limited partners 83,487 86,801
--------------- ---------------
Total partners' capital 83,487 86,801
--------------- ---------------
$ 85,610 88,792
=============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Earnings
For the six and three months ended June 30, 1997 and 1996
(Dollar amounts in thousands except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
Ended Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
--------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Rental income $ 9,470 4,734 10,980 5,335
---------------- --------------- -------------- -------------
Costs and expenses:
Direct container expenses 1,897 1,037 1,627 793
Bad debt expense 77 76 172 138
Depreciation 3,415 1,714 3,398 1,719
Professional fees 18 10 17 7
Management fees to affiliates (note 5) 896 447 1,005 492
General and administrative costs
to affiliates (note 5) 619 306 640 294
Other general and administrative costs 105 51 126 66
---------------- ---------------- ----------------- ----------------
7,027 3,641 6,985 3,509
---------------- ---------------- ----------------- ----------------
Income from operations 2,443 1,093 3,995 1,826
---------------- ---------------- ----------------- ----------------
Other income (loss):
Interest income 43 14 47 18
(Loss) gain on sale of equipment (30) (53) 92 4
---------------- ---------------- ----------------- ----------------
13 (39) 139 22
---------------- ---------------- ----------------- ----------------
Net earnings $ 2,456 1,054 4,134 1,848
================ ================ ================= ================
Allocation of net earnings (note 5):
General partners $ 60 30 60 30
Limited partners 2,396 1,024 4,074 1,818
---------------- ---------------- ----------------- ----------------
$ 2,456 1,054 4,134 1,848
================ ================ ================= ================
Limited partners' per unit share
of net earnings $ 0.39 0.17 0.66 0.29
================ ================ ================= ================
Limited partners' per unit share
of distributions $ 0.92 0.46 0.93 0.46
================ ================ ================= ================
Weighted average number of limited
partnership units outstanding 6,168,527 6,168,527 6,189,743 6,189,743
================ ================ ================= ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------------
General Limited Total
------------ ---------------- ---------------
<S> <C> <C> <C>
Balances at January 1, 1996 $ - 90,887 90,887
Distributions (60) (5,726) (5,786)
Redemptions (note 7) - (61) (61)
Net earnings 60 4,074 4,134
------------ ---------------- ---------------
Balances at June 30, 1996 $ - 89,174 89,174
============ ================ ===============
Balances at January 1, 1997 $ - 86,801 86,801
Distributions (60) (5,706) (5,766)
Redemptions (note 7) - (4) (4)
Net earnings 60 2,396 2,456
------------ ---------------- ---------------
Balances at June 30, 1997 $ - 83,487 83,487
============ ================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,456 4,134
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 3,415 3,398
(Decrease) increase in allowance for doubtful accounts (23) 84
Loss (gain) on sale of equipment 30 (92)
Changes in assets and liabilities:
Decrease in accounts receivable 157 412
Decrease in due to affiliates, net (178) (434)
Increase in accounts payable and accrued liabilities 338 73
(Decrease) increase in accrued damage protection plan costs (59) 55
Decrease in warranty claims (19) (19)
Decrease in prepaid expenses 32 28
---------------- ---------------
Net cash provided by operating activities 6,149 7,639
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of equipment 690 656
Equipment purchases (3,296) (2,993)
---------------- ---------------
Net cash used in investing activities (2,606) (2,337)
---------------- ---------------
Cash flows from financing activities:
Redemptions of limited partnership units (4) (61)
Distributions to partners (5,766) (5,789)
---------------- ---------------
Net cash used in financing activities (5,770) (5,850)
---------------- ---------------
Net decrease in cash (2,227) (548)
Cash at beginning of period 2,426 986
---------------- ---------------
Cash at end of period $ 199 438
================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California Limited Partnership)
Statements of Cash Flows--Continued
For the six months ended June 30, 1997 and 1996
(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 Equipment which had not been paid or
received by the Partnership as of June 30, 1997 and 1996, and December 31, 1996
and 1995, 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, 1997 and 1996.
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30 Dec. 31
1997 1996 1996 1995
------- ------- ------- -------
Equipment purchases included in:
<S> <C> <C> <C> <C>
Due to affiliates.......................................... $ 26 -- 103 86
Equipment purchases payable................................ 439 580 278 738
Distributions to partners included in:
Due to affiliates.......................................... 11 10 41 42
Deferred quarterly distribution............................ 115 116 120 122
Proceeds from sale of Equipment included in:
Accounts receivable........................................ -- -- -- 19
Due from affiliates........................................ 411 381 336 348
</TABLE>
The following table summarizes the amounts of Equipment purchases, distributions
to partners and proceeds from sale of Equipment 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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment purchases recorded............................................................... $ 3,181 2,550
Equipment purchases paid................................................................... 3,296 2,993
Distributions to partners declared......................................................... 5,766 5,786
Distributions to partners paid............................................................. 5,766 5,789
Proceeds from sale of Equipment recorded................................................... 720 625
Proceeds from sale of Equipment received................................................... 690 656
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California Limited Partnership)
Notes to Financial Statements
June 30, 1997
(Dollar amounts in thousands except for per unit amounts)
(unaudited)
Note 1. General
Textainer Equipment Income Fund III, L.P. (the Partnership) is a California
limited partnership formed in 1990. The Partnership owns and leases a fleet
of intermodal marine cargo container equipment (the Equipment) 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, 1997 and December 31, 1996, and the
results of its operations, changes in partners' capital, and cash flows for
the six- and three-month periods ended June 30, 1997 and 1996, 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, 1996.
Certain estimates and assumptions were made by the Partnership's management
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2. Damage Protection Plan
The Partnership offers a Damage Protection Plan (the Plan) to lessees of
its 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 repair costs. It is the Partnership's policy to recognize these
revenues when earned and provide a reserve sufficient to cover the
Partnership's obligation for estimated future repair costs. At June 30,
1997 and December 31, 1996, this reserve was equal to $363 and $422,
respectively.
Note 3. Warranty Claims
During 1992 and 1995, the Partnership settled warranty claims against an
equipment manufacturer. The Partnership is amortizing 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 June
30, 1997 and December 31, 1996, the unamortized portion of the settlement
amounts was equal to $248 and $267, respectively.
Note 4. Acquisition of Equipment
During the six-month periods ended June 30, 1997 and 1996, the Partnership
purchased Equipment with a cost of $3,181 and $2,550, respectively.
Note 5. Transactions with Affiliates
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership. TFS is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM) and
Textainer Limited (TL) are associate general partners of the Partnership.
The managing general partner and the associate general partners are
collectively referred to as the General Partners. The General Partners also
act in this capacity for other limited partnerships. Textainer Acquisition
Services Limited (TAS) is an affiliate of the General Partners which
performs services relative to the acquisition of Equipment outside the
United States on behalf of the Partnership. TCC, TEM, TL and TAS are
subsidiaries of Textainer Group Holdings Limited (TGH). 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, and subject to special
allocations described therein, net earnings or losses and partnership
distributions are generally allocated 1% to the General Partners and 99% to
the limited partners with the exception of gross income, as defined in the
Partnership Agreement. Gross income is allocated to the General Partners to
the extent that their capital accounts' deficit exceed the portion of
syndication and offering costs allocated to them. On termination of the
Partnership, the General Partners shall be allocated gross income equal to
their allocations of syndication and offering costs.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, or TAS, an 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 $158 and $144 of equipment acquisition fees as part of
Equipment costs during the six-month periods ended June 30, 1997 and 1996,
respectively. The Partnership had incurred $240 and $120 of incentive
management fees during the six- and three-month periods ended June 30, 1997
and $241 and $121 for the comparable periods in 1996. No equipment
liquidation fees were incurred in either period.
The Equipment of the Partnership is managed by TEM. 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 June 30, 1997 and December 31, 1996.
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. The
Partnership paid $656 and $327 in equipment management fees to TEM during
the six- and three-month periods ended June 30, 1997 and $764 and $371
during the comparable periods in 1996. The Partnership's Equipment is
leased by TEM to third party lessees on operating master leases, spot
leases and term leases. The majority of the Equipment is leased under
operating master leases with limited terms and no purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance, are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are borne by TFS and TEM. Costs allocated to the Partnership
for salaries were $329 and $168 during the six- and three-month periods
ended June 30, 1997 and $313 and $147 for the comparable periods in 1996.
Other general and administrative costs were $290 and $138 during the six-
and three-month periods ended June 30, 1997 and $327 and $147 for the
comparable periods in 1996. TEM allocates these costs based on the ratio of
the Partnership's interest in managed Equipment to the total Equipment
managed by TEM during the period. Indirect general and administrative costs
allocated to the Partnership by TEM were $537 and $262 for the six- and
three-month periods ended June 30, 1997 and $563 and $281 for the
comparable periods in 1996.
TFS allocates indirect general and administrative costs to the Partnership
based on the ratio of the Partnership's Equipment to the total Equipment of
all limited partnerships managed by TFS. TFS allocated $82 and $44 of these
indirect costs to the Partnership during the six- and three-month periods
ended June 30, 1997 and $77 and $13 for the comparable periods in 1996.
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.
At June 30, 1997 and December 31, 1996, due from and to affiliates are
comprised of:
1997 1996
---- ----
Due from affiliates:
Due from TEM................................ 222 27
=========== ===========
$ 222 27
=========== ===========
Due to affiliates:
Due to TAS.................................. $ 23 -
Due to TFS.................................. 56 52
Due to TGH.................................. - 1
Due to TCC.................................. 13 26
Due to TL................................... 1 -
=========== ===========
$ 93 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 payment of expenses and
fees described above or in the accrual and remittance of net rental
revenues from TEM.
It is the policy of the Partnership and the General Partners' to charge
interest on 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 a rate not greater than the General Partners' or
affiliates' own cost of funds. There was no interest expense incurred on
intercompany balances for the six- and three-month periods ended June 30,
1997 or 1996.
Note 6. Rentals under Operating Leases
The following is a schedule by year of minimum future rentals receivable on
noncancelable operating leases as of June 30, 1997:
Year ending June 30:
1998.......................................................... $ 1,320
1999.......................................................... 110
2000.......................................................... 65
-------
Total minimum future rentals receivable....................... $ 1,495
=====
Note 7. Redemptions
The following redemption offerings were consummated by the Partnership
during the six-month period ended June 30, 1997:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996........... 81,098 $14.69 $ 1,191
Quarter ended:
March 31, 1997................... 375 $10.43 4
June 30, 1997.................... - - -
----------- ----------
Partnership to date.................... 81,473 $14.67 $ 1,195
====== ======
The redemption price is fixed by formula and varies depending on the length
of time the units are outstanding.
</TABLE>
<PAGE>
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 six- and three-month periods
ended June 30, 1997 and 1996. 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 six-months ended June 30, 1997 the
Partnership redeemed 375 units for a total dollar amount of $4. The partnership
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 June 30, 1997, the Partnership's cash of $199 was
invested in a market-rate account.
During the six-months ended June 30, 1997, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1996
through May 1997 in the amount of $5,706. These distributions represent 9.25% of
original capital (measured on an annualized basis) on each unit. Of these
distributions, on a GAAP basis, $3,310 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 six-month period ended June 30, 1997, the Partnership had net cash
provided by operating activities of $6,149, compared with net cash provided by
operating activities of $7,639 for the comparable period ended June 30, 1996.
This decrease was primarily attributable to a decrease in net earnings of $1,678
offset by an increase in accounts payable and accrued liabilities. Accounts
payable and accrued liabilities from operations increased due to timing
differences in the accrual and payment of expenses and fees. The decrease in net
earnings of 41% in the six-month period ending June 30, 1997 compared to the
comparable period of 1996 was primarily due to a 14% decrease in rental
revenues. The decrease in rental revenues between periods was due to a decline
in utilization and rental rates. These decreases are discussed more fully below
under "Results of Operations". As explained below under "Results of Operations",
demand for leased containers has declined compared to the prior period, and this
decline has affected the Partnership's financial condition.
Net cash used in investing activities (the purchase and sale of rental
equipment) for the six-month period ended June 30, 1997 was $2,606, compared
with $2,337 for the six-month period ended June 30, 1996. This difference is
primarily due to the fact that, on a cash basis, the Partnership purchased more
equipment in 1997 than in the same period in 1996. The General Partners believe
that these differences reflect normal fluctuations in equipment sales and
purchases. Consistent with its investment objectives and the General Partners'
determination that Equipment can be profitably sold or bought at any time, the
Partnership intends to reinvest all or a significant amount of proceeds from
future Equipment sales in additional Equipment. Such additional Equipment
purchases may not, however, equal the number of units sold.
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 six-month periods ended June 30, 1997 and 1996, 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:
1997 1996
---- ----
Opening inventory....................... 30,605 30,236
Closing inventory....................... 31,542 30,835
Average................................. 31,074 30,536
Rental income and direct container expenses are also affected by the lease
utilization percentages for the equipment, which were 77%, and 87% on average
during the six-month periods ended June 30, 1997 and 1996, respectively. In
addition, rental income is affected by daily rental rates, which declined.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 1997 and 1996.
The Partnership's income from operations for the six-month periods ended June
30, 1997 and 1996 was $2,443 and $3,995, respectively, on rental income of
$9,470 and $10,980, respectively. The decrease in rental income of $1,510, or
14%, from the six-month period ended June 30, 1996 to the same period in 1997,
was primarily attributable to income from container rentals, the major component
of total revenue, which decreased by $1,488, or 15%, from 1996 to 1997. As noted
above, 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 2%,
average utilization decreased 11%, and average daily rental rates decreased by
5% from the six- month periods ended June 30, 1996 to the same period in 1997.
Container utilization began to decline in late 1995 and that decline persisted
throughout 1996 and into the first quarter of 1997. The General Partners believe
that this decrease in demand for leased containers is the result of adverse
changes in the business of its shipping line customers. These changes consist
principally of: (i) a general slowdown in the growth of world containerized
cargo trade, particularly in the Asia-North America and Asia-Europe trade
routes; (ii) over-capacity resulting from the 1996 and 1997 additions of new,
larger ships to the existing container ship fleet at a rate in excess of the
growth rate in containerized cargo trade; and (iii) shipping line alliances and
other operational consolidations that have allowed shipping lines to operate
with fewer containers, thereby decreasing the demand for leased containers. The
container ship over-capacity in particular led to lower shipping rates,
resulting in shipping lines' need to reduce operating costs. The drive to reduce
costs, coupled with the availability of inexpensive financing and lower
container prices, encouraged shipping lines to purchase, rather than lease, a
greater number of new containers in 1996 than in previous years. All of these
factors have led to downward pressure on container lease rates, a decline in
utilization of leased containers, and an increase in leasing incentives and
other discounts being granted to shipping lines by container lessors, further
eroding Partnership profitability. The decline in demand for leased containers
has been accompanied by a drop in the purchase price of new containers.
During the second quarter of 1997, there was a slight improvement in market
conditions as utilization improved and continues to improve into the third
quarter of 1997. Despite the improving utilization, for the near term, the
General Partners do not foresee material changes in current market conditions
and caution that both utilization and lease rates could decline, adversely
affecting the Partnership's operating results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases.
The balance of 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 surplus
locations (location income), income for handling and returning containers and
income from charges to lessees for a damage protection plan (DPP). For the
six-month period ended June 30, 1997, the total of these other revenue items was
$830, a decrease of $22 compared to the equivalent period in 1996. The primary
components of this net decrease were decreases in location income and DPP of $83
and $37, respectively, offset by an increase in handling income of $81. The
decline in location income is mainly due to lower demand, which increased
credits given to lessees for picking up units from less desirable locations. DPP
income decreased due to fewer units participating in the plan. Increased
container movement resulted in increased handling income for the six-months
ending June 30, 1997 as compared to the same period ending in 1996.
Direct container expenses, excluding bad debt expense, increased $270 for the
six-month period ended June 30, 1997 from the same period in 1996. The primary
components of this increase were costs incurred for storage and repositioning,
which increased $443 between periods. The increase was partially offset by a
decrease in DPP expense of $162. Storage expense increased due to a decline in
utilization rates from the six-month period ended June 30, 1996 to the same
period in 1997. Repositioning costs increased due to an increased number of
containers being transported to higher demand locations. DPP expense decreased
due the decrease in the average per unit repair costs from June 30, 1996 to the
same period in 1997.
Bad debt expense decreased by $95 for the six-month period ended June 30, 1997
from the same period of 1996 primarily due to lower reserve requirements.
Depreciation expense was comparable at $3,415 and $3,398 for the the six-month
periods ended June 30, 1997 and 1996, respectively.
Management fees decreased by $109 or 11%, from the six-months ended June 30,
1997 compared to the equivalent period in 1996 due to a decrease in equipment
management fees. Equipment management fees, which are based primarily of gross
revenue, decreased $108 or 14% due to the decrease in rental income and were 7%
of gross revenue for both periods. Incentive management fees, which are based on
the Partnership's limited and general partner distribution percentage and
partners' capital, were comparable at $240 and $241 for the six-month periods
ended June 30, 1997 and 1996, respectively.
General and administrative costs to affiliates decreased by $21, or 3%, in the
six-month period ended June 30, 1997 as compared to the same period in 1996. The
decrease was primarily the result of a decline in overhead costs allocable from
TEM.
Other income contained a loss on sale of equipment of $30 for the six-month
period ended June 30, 1997 as compared to a gain of $92 for the equivalent
period in 1996.
Net earnings per limited partnership unit decreased to $0.39 for the six-month
period ended June 30, 1997 from $0.66 for the equivalent period in 1996,
reflecting the decrease in net earnings to $2,396 for the six months ended June
30, 1997 from $4,074 for the same period in 1996.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 1997 and 1996.
The Partnership's income from operations for the three-month periods ended June
30, 1997 and 1996 was $1,093 and $1,826, respectively, on rental income of
$4,734 and $5,335, respectively. The decrease in rental income of $601, or 11%,
was primarily attributable to income from container rentals, the major component
of total revenue, which decreased by $696, or 14% primarily due to the decrease
in average utilization and average daily rental rates of 9% and 7%,
respectively.
The balance of rental income was $450 for the three-months ended June 30, 1997,
an increase of $95 as compared to the equivalent period in 1996. The primary
component of this increase was an increase in handling income which increased as
a result of increased container movement.
Direct container expenses, excluding bad debt expense, increased by $244 for the
three-month period ended June 30, 1997 from the same period in 1996. The primary
components of this increase were costs incurred for storage and repositioning.
Storage expense increased due to a decline in utilization for the three-month
period ended June 30, 1997 from the same period in 1996. Repositioning expense
increased due to a greater number of units being transported to higher demand
locations. The increase was partially offset by a decrease in DPP expense, which
decreased primarily due to a decrease in the average per unit repair costs from
June 30, 1996 to the same period in 1997.
Bad debt expense decreased by $62 for the three-month period ended June 30, 1997
from the same period in 1996 primarily due to lower reserve requirements.
Depreciation expense remained constant at $1,714 and $1,719 for the six-month
periods ending June 30, 1997 and 1996.
Management fees decreased by $45 or 9%, for the three-months ended June 30, 1997
from the equivalent period in 1996 due to a decrease in equipment management
fees which resulted from the decrease in rental income.
General and administrative costs to affiliates increased by $12, or 4%, in the
three-month period ended June 30, 1997 compared to the same period in 1996
primarily the result of an increase in overhead costs allocable from TFS.
Other income contained a loss on sales of equipment of $53 for the three-month
period ended June 30, 1997 compared to a gain of $4 for the equivalent period in
1996.
Net earnings per limited partnership unit decreased from $0.29 for the
three-month period ended June 30, 1996 to $0.17 for the equivalent period in
1997, reflecting the decrease in net earnings of $1,024 for the three months
ended June 30, 1997 from $1,818 for the same period in 1996.
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 at profitable rates, rather than the
geographic location of the Equipment or the domicile of the lessees. The
Equipment is generally operated on the international high seas rather than on
the domestic waterways. The 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 June 30, 1997 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 Equipment, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California Limited Partnership)
By Textainer Financial Services Corporation
The Managing General Partner
By ________________________________
John R. Rhodes
Executive Vice President
Date: August 13, 1997
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>
Executive Vice President August 13, 1997
- ---------------------------------- (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
President (Principal Executive August 13, 1997
- ---------------------------------- Officer) and Director
James E. Hoelter
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND 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: August 13, 1997
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/ John R. Rhodes Executive Vice President August 13, 1997
- ------------------------------------ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/ James E. Hoelter President (Principal Executive August 13, 1997
- ------------------------------------
James E. Hoelter Officer) and Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund III, LP
</LEGEND>
<CIK> 0000866888
<NAME> Textainer Equipment Income Fund III, LP
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 199
<SECURITIES> 0
<RECEIVABLES> 6,883
<ALLOWANCES> 1,577
<INVENTORY> 0
<CURRENT-ASSETS> 13
<PP&E> 112,574
<DEPRECIATION> 32,482
<TOTAL-ASSETS> 85,610
<CURRENT-LIABILITIES> 2,123
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 83,487
<TOTAL-LIABILITY-AND-EQUITY> 85,610
<SALES> 0
<TOTAL-REVENUES> 9,470
<CGS> 0
<TOTAL-COSTS> 7,027
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,456
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,456
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
