TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 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 First
Quarter ended March 31, 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 March 31, 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 March 31, 1997
Table of Contents
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C>
Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996......................... 3
Statements of Earnings for the three months ended
March 31, 1997 and 1996 (unaudited)....................................................... 4
Statements of Partners' Capital for the three months ended
March 31, 1997 and 1996 (unaudited)....................................................... 5
Statements of Cash Flows for the three months ended
March 31, 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
March 31, 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 $32,482 (1996: $30,943) $ 81,011 81,075
Cash 843 2,426
Accounts receivable, net of allowance
for doubtful accounts of $1,577 (1996: $1,616) 5,070 5,219
Due from affiliates (note 5) 198 -
Prepaid expenses 27 45
--------------- ---------------
$ 87,149 88,765
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 486 492
Accrued liabilities 46 35
Accrued damage protection plan costs (note 2) 388 422
Warranty claims (note 3) 258 267
Due to affiliates (note 5) - 52
Deferred quarterly distribution 116 116
Equipment purchases payable 539 580
--------------- ---------------
Total liabilities 1,833 1,964
--------------- ---------------
Partners' capital:
General partners - -
Limited partners 85,316 86,801
--------------- ---------------
Total partners' capital 85,316 86,801
--------------- ---------------
Commitments (note 8)
$ 87,149 88,765
=============== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California limited partnership)
Statements of Earnings
For the three months ended March 31, 1997 and 1996
(Dollar amounts in thousands except for unit and per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Rental Income $ 4,736 5,645
----------------- -----------------
Costs and expenses:
Direct container expenses 860 834
Bad debt expense 1 34
Depreciation 1,701 1,679
Professional fees 8 10
Management fees to affiliates (note 5) 449 513
General and administrative costs to affiliates
(note 5) 313 346
Other general and administrative costs 54 60
----------------- -----------------
3,386 3,476
----------------- -----------------
Income from operations 1,350 2,169
----------------- -----------------
Other income:
Interest income 29 29
Gain on sale of equipment 23 88
----------------- -----------------
52 117
----------------- -----------------
Net earnings $ 1,402 2,286
================= =================
Allocation of net earnings (note 5):
General partners $ 30 30
Limited partners 1,372 2,256
----------------- -----------------
$ 1,402 2,286
================= =================
Limited partners' per unit share
of net earnings $ 0.22 0.36
================= =================
Limited partners' per unit share
of distributions $ 0.46 0.46
================= =================
Weighted average number of limited
partnership units outstanding 6,168,527 6,189,743
================= =================
</TABLE>
See accompanying notes to financial statements
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California limited partnership)
Statements of Partners' Capital
For the three months ended March 31, 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 (30) (2,863) (2,893)
Redemptions (note 7) - (61) (61)
Net earnings 30 2,256 2,286
------------ ---------------- ---------------
Balances at March 31, 1996 $ - 90,219 90,219
============ ================ ===============
Balances at January 1, 1997 $ - 86,801 86,801
Distributions (30) (2,853) (2,883)
Redemptions (note 7) - (4) (4)
Net earnings 30 1,372 1,402
------------ ---------------- ---------------
Balances at March 31, 1997 $ - 85,316 85,316
============ ================ ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California limited partnership)
Statements of Cash Flows
For the three months ended March 31, 1997 and 1996
(Amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,402 2,286
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 1,701 1,679
Increase in allowance for doubtful accounts (39) (7)
Gain on sale of equipment (23) (88)
Changes in assets and liabilities:
Decrease in accounts receivable 182 461
Decrease in due to affiliates, net (278) (282)
Increase in accounts payable and accrued liabilities 5 156
(Decrease) increase in accrued damage protection plan costs (34) 51
Decrease in warranty claims (9) (9)
Decrease in prepaid expenses 18 14
---------------- ---------------
Net cash provided by operating activities 2,925 4,261
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of equipment 324 379
Equipment purchases (1,945) (1,330)
---------------- ---------------
Net cash used in investing activities (1,621) (951)
---------------- ---------------
Cash flows from financing activities:
Redemptions of limited partnership units (4) (61)
Distributions to partners (2,883) (2,894)
---------------- ---------------
Net cash used in financing activities (2,887) (2,955)
---------------- ---------------
Net (decrease) increase in cash (1,583) 355
Cash at beginning of period 2,426 986
---------------- ---------------
Cash at end of period $ 843 1,341
================ ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California limited partnership)
Statements of Cash Flows--Continued
For the three months ended March 31, 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 March 31, 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 three-month periods ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Mar. 31 Dec. 31 Mar. 31 Dec. 31
1997 1996 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Equipment purchases included in:
Due to affiliates.......................................... $ 47 -- 81 86
Equipment purchases payable................................ 539 580 1,672 738
Distributions to partners included in:
Due to affiliates.......................................... 10 10 42 42
Deferred quarterly distribution............................ 116 116 121 122
Proceeds from sale of Equipment included in:
Accounts receivable........................................ -- -- -- 19
Due from affiliates........................................ 400 381 331 348
</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
three-month periods ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment purchases recorded............................................................... $ 1,951 2,259
Equipment purchases paid................................................................... 1,945 1,330
Distributions to partners declared......................................................... 2,883 2,893
Distributions to partners paid............................................................. 2,883 2,894
Proceeds from sale of Equipment recorded................................................... 343 343
Proceeds from sale of Equipment received................................................... 324 379
</TABLE>
See accompanying notes to financial statements
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California limited partnership)
Notes to Financial Statements
March 31, 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 March 31, 1997 and December 31, 1996, and the
results of its operations, changes in partners' capital, and cash flows for
the three-month periods ended March 31, 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 March 31,
1997 and December 31, 1996, this reserve was equal to $388 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
March 31, 1997 and December 31, 1996, the unamortized portion of the
settlement amounts was equal to $258 and $267, respectively.
Note 4. Acquisition of Equipment
During the three-month periods ended March 31, 1997 and 1996, the
Partnership purchased Equipment with a cost of $1,951 and $2,259,
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 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, 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 $95 and $64 of equipment acquisition fees as part of Equipment
costs during the three-month periods ended March 31, 1997 and 1996 and had
incurred $120 and $121 of incentive management fees during the three-month
periods ended March 31, 1997 and 1996, respectively. 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, net at March 31, 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.
During the three-month periods ended March 31, 1997 and 1996, the
Partnership paid $329 and $392, respectively, in equipment management fees
to TEM. 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. During the three-month periods ended
March 31, 1997 and 1996, costs allocated to the Partnership for salaries
were $161 and $169, respectively and other general and administrative costs
were $152 and $177, respectively. 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 $275 and $283
for the three-month periods ended March 31, 1997 and 1996, respectively.
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 $38 and $63 of these
indirect costs to the Partnership during the three-month periods ended
March 31, 1997 and 1996, respectively.
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 March 31, 1997 and December 31, 1996, due from and to affiliates are
comprised of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Due from affiliates:
Due from TFS................................ $ 162 -
Due from TEM................................ 100 27
=========== ===========
$ 262 27
=========== ===========
Due to affiliates:
Due to TAS.................................. $ 44 -
Due to TFS.................................. - 52
Due to TGH.................................. - 1
Due to TCC.................................. 19 26
Due to TL................................... 1 -
=========== ===========
$ 64 79
=========== ===========
</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 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 three-month periods ended March 31, 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 March 31, 1997:
Year ending March 31:
1998................................................... $ 1,370
1999................................................... 157
2000................................................... 72
-----
Total minimum future rentals receivable................ $ 1,599
=====
Note 7. Redemptions
The following redemption offerings were consummated by the Partnership
during the three-month period ended March 31, 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
------ -----
Partnership to date.................... 81,473 $14.67 $ 1,195
====== =====
</TABLE>
The redemption price is fixed by formula and varies depending on the length
of time the units are outstanding.
Note 8. Commitments
At March 31, 1997, the Partnership has committed to purchase 500 new
containers at an approximate total purchase price of $1,170 which includes
acquisition fees of $56. These commitments were made to TAS which, as the
contracting party, has in turn committed to purchase this Equipment on
behalf of the Partnership.
<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 three-month periods ended March
31, 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 quarter ended March 31, 1997 the
Partnership redeemed 375 units for a total dollar amount of $4.
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, 1997, the Partnership's cash of $843
was primarily invested in a market-rate account.
During the quarter ended March 31, 1997, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1996
through February 1997 in the amount of $2,853. These distributions represent
9.25% of original capital (measured on an annualized basis) on each unit. Of
these distributions, on a GAAP basis, $1,481 was a return of capital and the
balance was from net earnings. On a cash basis, all of these distributions were
from operations.
At March 31, 1997, the Partnership had committed to purchase 500 new containers
at an approximate total purchase price of $1,170, which includes acquisition
fees of $56. At March 31, 1997, the Partnership had cash of $843 and had not yet
received $400 of the proceeds from the 1997 sale of its Equipment. The
Partnership expects to fund the purchase of Equipment with its cash on hand and
with cash flows from operations, which is in excess of distributions. In the
event the Partnership decides not to purchase the Equipment, one of the General
Partners or an affiliate of the General Partners will retain the Equipment for
its own account.
For the three-month period ended March 31, 1997, the Partnership had net cash
provided by operating activities of $2,925, compared with net cash provided by
operating activities of $4,261 for the comparable period ended March 31, 1996.
This decrease was primarily attributable to a decrease in net earnings and
accounts receivable from operations. The decrease in net earnings of 39% in the
first quarter of 1997 compared to the first quarter of 1996 was primarily due to
a 16% decrease in rental revenues. The decrease in rental revenues between
periods was due to a decline in utilization, rental rates and fleet size. These
decreases are discussed more fully below under "Results of Operations". Accounts
receivable from operations decreased primarily due to the decrease in rental
income. The decline was offset by an increase in the average collection period
of accounts receivable from 113 days to 126 days for the three-month periods
ended March 31, 1996 and 1997, respectively.
As explained below under "Results of Operations", demand for leased containers
has declined, 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 three-month period ended March 31, 1997 was $1,621, compared
with $951 for the three-month period ended March 31, 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 three-month periods ended March 31, 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....................... 31,270 30,850
Average................................. 30,938 30,543
Rental income and direct container expenses are also affected by the lease
utilization percentages for the equipment, which were 78%, and 88% on average
during the three-month periods ended March 31, 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
three-month periods ended March 31, 1997 and 1996.
The Partnership's income from operations for the three-month periods ended March
31, 1997 and 1996 was $1,350 and $2,169, respectively, on rental income of
$4,736 and $5,645, respectively. The decrease in rental income of $909, or 16%,
from the three-month period ended March 31, 1996 to the same period in 1997, was
primarily attributable to income from container rentals, the major component of
total revenue, which decreased by $793, or 15%, from 1996 to 1997. 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 1%, average utilization
decreased 11%, and average daily rental rates decreased by 5% from the three
months ended March 31, 1996 to the same period in 1997.
Container utilization began to decline in late 1995 and that decline persisted
throughout 1996 and into 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. For the near
term, the General Partners do not foresee any changes in current market
conditions and caution that both utilization and lease rates could continue to
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 less
desirable locations (location income), income for handling and returning
containers and income from charges to lessees for a damage protection plan
(DPP). For the three-month period ended March 31, 1997, the total of these other
revenue items was $383, a decrease of $116 compared to the equivalent period in
1996. The primary components of this net decrease were decreases in location
income and DPP of $96 and $44, respectively. The decline in location income is
mainly due to lower demand, which drove drop-off charges to lessees down and
increased credits given to lessees for picking up units from less desirable
locations. DPP revenue declined due to the decrease in return fees as a result
of fewer units being turned in during the period ended March 31, 1997 as
compared to the equivalent period in 1996.
Direct container expenses, excluding bad debt expense, increased by $26 from the
three-month period ended March 31, 1996 to the same period in 1997. The primary
component of this increase were costs incurred for storage, which increased $189
between periods, offset in part by a decrease in DPP expense of $114. Storage
expense increased due to a decline in utilization rates from the three-month
period ended March 31, 1996 to the same period in 1997. DPP expense decreased
due to a decrease in the average number of units requiring repairs from March
31, 1996 to the same period in 1997, as well as a slight decrease in the average
repair costs per unit between the two periods.
Bad debt expense decreased by $33 from the three-month period ended March 31,
1996 to the same period of 1997 primarily due to lower reserve requirements as a
result of the decrease in rental income from 1996 to 1997.
Depreciation expense increased by $22 or 1% from the three-month period ended
March 31, 1996 to the equivalent period in 1997. The increase is primarily due
to the 1% increase in average inventory.
Management fees decreased by $64 or 13%, from the three-months ended March 31,
1996 to the equivalent period in 1997 due to a decrease in equipment management
fees. Equipment management fees, which are based primarily of gross revenue,
decreased $64 or 16% 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 $120 for both periods.
General and administrative costs to affiliates decreased by $33, or 10%, in the
three-month period ended March 31, 1997 compared to the same period in 1996. The
decrease was primarily the result of a decline in overhead costs allocable from
TEM and TFS.
Other income contained a gain on sales of equipment of $23 for the three-month
period ended March 31, 1997 compared to a gain of $88 for the equivalent period
ended March 31, 1996. Interest income was $29 for both periods.
Net earnings per limited partnership unit decreased from $0.36 for the
three-month period ended March 31, 1996 to $0.22 for the equivalent period in
1997, reflecting the decrease in net earnings from $2,286 for the quarter ended
March 31, 1996 to $1,402 for the same period in 1997.
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 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 March 31, 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: May 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 May 13, 1997
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
- ---------------------------------- President (Principal Executive May 13, 1997
James E. Hoelter Officer) and Director
</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: May 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 May 13, 1997
- ------------------------------------ (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/ James E. Hoelter President (Principal Executive May 13, 1997
- ------------------------------------ Officer) and Director
James E. Hoelter
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 843
<SECURITIES> 0
<RECEIVABLES> 6,845
<ALLOWANCES> 1,577
<INVENTORY> 0
<CURRENT-ASSETS> 27
<PP&E> 113,493
<DEPRECIATION> 32,482
<TOTAL-ASSETS> 87,149
<CURRENT-LIABILITIES> 1,833
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 85,316
<TOTAL-LIABILITY-AND-EQUITY> 87,149
<SALES> 0
<TOTAL-REVENUES> 4,736
<CGS> 0
<TOTAL-COSTS> 3,386
<OTHER-EXPENSES> (52)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,402
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,402
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
