TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 13, 1998
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 10Q for the Second
Quarter ended June 30, 1998.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
<PAGE>
UNITED STATES
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, 1998
Commission file number 0-20140
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership
(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, CA 94108
(Address of Principal Executive Offices) (ZIP Code)
(415) 434-0551
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10Q for the
Quarter Ended June 30, 1998
Table of Contents
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Page
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Item 1. Financial Statements
Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997.................................. 3
Statements of Earnings for the three and six months
ended June 30, 1998 and 1997 (unaudited).......................................................... 4
Statements of Partners' Capital for the six months
ended June 30, 1998 and 1997 (unaudited).......................................................... 5
Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 (unaudited).......................................................... 6
Notes to Financial Statements (unaudited)......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 13
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 1998 and December 31, 1997
(Amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 1997
--------------- ---------------
(unaudited)
Assets
Container rental equipment, net of accumulated
depreciation of $39,108 (1997: $36,728) $ 72,474 $ 76,802
Cash 2,035 370
Accounts receivable, net of allowance for doubtful
accounts of $566 (1997: $1,534) (note 9) 4,191 4,713
Due from affiliates, net (note 7) 414 191
Prepaid expenses 119 172
--------------- ---------------
$ 79,233 $ 82,248
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 523 $ 488
Accrued liabilities 37 58
Accrued recovery costs (note 2) 77 119
Accrued damage protection plan costs (note 3) 322 351
Accrued maintenance and repair costs (note 4) 118 80
Warranty claims (note 5) 208 228
Deferred quarterly distribution 122 121
Container purchases payable 455 365
--------------- ---------------
Total liabilities 1,862 1,810
--------------- ---------------
Partners' capital:
General partners - -
Limited partners 77,371 80,438
--------------- ---------------
Total partners' capital 77,371 80,438
--------------- ---------------
Commitments (note 11)
$ 79,233 $ 82,248
=============== ===============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three and six months ended June 30, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C>
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
---------------- ----------------- ----------------- ---------------
Rental income $ 4,724 $ 4,734 $ 9,726 $ 9,470
---------------- ----------------- ----------------- ---------------
Costs and expenses:
Direct container expenses 1,055 1,037 2,248 1,897
Bad debt (benefit) expense (103) 76 (202) 77
Depreciation 1,674 1,714 3,369 3,415
Professional fees 11 10 18 18
Management fees to affiliates (note 7) 451 447 868 896
General and administrative costs
to affiliates (note 7) 268 306 573 619
Other general and administrative costs 26 51 79 105
---------------- ----------------- ----------------- ---------------
3,382 3,641 6,953 7,027
---------------- ----------------- ----------------- ---------------
Income from operations 1,342 1,093 2,773 2,443
---------------- ----------------- ----------------- ---------------
Other (expense) income:
Interest income 28 14 43 43
Loss on sale of containers (159) (53) (117) (30)
---------------- ----------------- ----------------- ---------------
(131) (39) (74) 13
---------------- ----------------- ----------------- ---------------
Net earnings $ 1,211 $ 1,054 $ 2,699 $ 2,456
================ ================= ================= ===============
Allocation of net earnings (note 7):
General partners $ 30 $ 30 $ 60 $ 60
Limited partners 1,181 1,024 2,639 2,396
---------------- ----------------- ----------------- ---------------
$ 1,211 $ 1,054 $ 2,699 $ 2,456
================ ================= ================= ===============
Limited partners' per unit share
of net earnings $ 0.19 $ 0.17 $ 0.43 $ 0.39
================ ================= ================= ===============
Limited partners' per unit share
of distributions $ 0.46 $ 0.46 $ 0.93 $ 0.93
================ ================= ================= ===============
Weighted average number of limited
partnership units outstanding 6,168,527 6,168,527 6,168,527 6,168,527
================ ================= ================= ===============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
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Partners' Capital
------------------------------------------------------
General Limited Total
------------- ------------- -------------
<S><C> <C> <C> <C>
Balances at January 1, 1997 $ - $ 86,801 $ 86,801
Distributions (60) (5,706) (5,766)
Redemptions (note 10) - (4) (4)
Net earnings 60 2,396 2,456
------------- ------------- -------------
Balances at June 30, 1997 $ - $ 83,487 $ 83,487
============= ============= =============
Balances at January 1, 1998 $ - $ 80,438 $ 80,438
Distributions (60) (5,706) (5,766)
Net earnings 60 2,639 2,699
------------- ------------- -------------
Balances at June 30, 1998 $ - $ 77,371 $ 77,371
============= ============= =============
See accompanying notes to financial statements
</TABLE>
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<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 1998 and 1997
(Amounts in thousands)
(unaudited)
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<S><C> <C> <C>
1998 1997
------------- -------------
Cash flows from operating activities:
Net earnings $ 2,699 $ 2,456
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 3,369 3,415
Decrease in allowance for doubtful accounts, excluding
write-off (note 9) (288) (23)
Loss on sale of containers 117 30
Changes in assets and liabilities:
Decrease in accounts receivable, excluding write-off (note 9) 861 157
Increase in due from affiliates, net (212) (178)
Decrease in prepaid expenses 53 32
Increase in accounts payable and accrued liabilities 14 278
(Decrease) increase in accrued recovery costs (42) 22
Decrease in accrued damage protection plan costs (29) (59)
Increase in accrued maintenance and repair costs 38 38
Decrease in warranty claims (20) (19)
------------- -------------
Net cash provided by operating activities 6,560 6,149
------------- -------------
Cash flows from investing activities:
Proceeds from sale of containers 1,354 690
Container purchases (484) (3,296)
------------- -------------
Net cash provided by (used in) investing activities 870 (2,606)
------------- -------------
Cash flows from financing activities:
Redemptions of limited partnership units - (4)
Distributions to partners (5,765) (5,766)
------------- -------------
Net cash used in financing activities (5,765) (5,770)
------------- -------------
Net increase (decrease) in cash 1,665 (2,227)
Cash at beginning of period 370 2,426
------------- -------------
Cash at end of period $ 2,035 $ 199
============= =============
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, 1998 and 1997
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of June 30, 1998 and 1997, and December 31, 1997 and 1996, 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, 1998 and 1997.
<TABLE>
<CAPTION>
Jun. 30 Dec. 31 Jun. 30 Dec. 31
1998 1997 1997 1996
----------- ----------- ------------ ----------
<S><C> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates.............................. $ 7 $ 42 $ 26 $ -
Container purchases payable.................... 455 365 439 580
Distributions to partners included in:
Due to affiliates.............................. 10 10 11 10
Deferred quarterly distribution................ 122 121 115 116
Proceeds from sale of containers included in:
Due from affiliates............................ 375 399 411 381
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
six-month periods ended June 30, 1998 and 1997.
1998 1997
---- ----
Container purchases recorded...................................................... $ 539 $ 3,181
Container purchases paid.......................................................... 484 3,296
Distributions to partners declared................................................ 5,766 5,766
Distributions to partners paid.................................................... 5,765 5,766
Proceeds from sale of containers recorded......................................... 1,330 720
Proceeds from sale of containers received......................................... 1,354 690
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the six months ended June 30, 1998 and 1997
(Amounts in thousands except for per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------
Note 1. General
Textainer Equipment Income Fund III, L.P. (the Partnership), a California
limited partnership with a maximum life of 20 years, was formed in 1990.
The Partnership owns and leases a fleet of intermodal marine cargo
containers which are leased to international shipping lines.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of June 30, 1998 and December 31, 1997, and the
results of its operations, changes in partners' capital and cash flows for
the three- and six-month periods ended June 30, 1998 and 1997, have been
made.
The financial information presented herein should be read in conjunction
with the audited financial statements and other accompanying notes
included in the Partnership's annual audited financial statements as of
December 31, 1997, in the Annual Report filed on Form 10K.
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.
Certain reclassifications of prior year amounts have been made in order to
conform with the 1998 financial statement presentation.
Note 2. Recovery Costs
The Partnership accrues an estimate for recovery costs as a result of
defaults under its leases that it expects to incur, which are in excess of
estimated insurance proceeds. At June 30, 1998 and December 31, 1997, the
amounts accrued were $77 and $119, respectively.
Note 3. Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of its
containers. Under the terms of DPP, the Partnership earns additional
revenues on a daily basis and, in return, has agreed to bear certain
repair 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 future repair costs. DPP expenses are included in
direct container expenses in the Statements of Earnings, and at June 30,
1998 and December 31, 1997, the related reserve was $322 and $351,
respectively.
Note 4. Maintenance and Repair
The Partnership accrues maintenance and repair costs on damaged containers
in depots. At June 30, 1998 and December 31, 1997, the amounts accrued
were $118 and $80, respectively.
Note 5. Warranty Claims
During 1992 and 1995, the Partnership settled warranty claims against an
equipment manufacturer relating to certain containers. The Partnership is
amortizing the settlement amounts over the remaining estimated useful life
of these containers (between seven and eight years), reducing maintenance
and repair costs over that time. At June 30, 1998 and December 31, 1997,
the unamortized portion of the settlement amount was $208 and $228,
respectively.
Note 6. Acquisition of Containers
During the periods ended June 30, 1998 and 1997, the Partnership purchased
containers with a cost of $539 and $3,181, respectively.
Note 7. 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
containers outside the United States on behalf of the Partnership. TCC,
TEM, TL and TAS are subsidiaries of Textainer Group Holdings Limited
(TGH). The General Partners manage and control the affairs of the
Partnership.
In accordance with the Partnership Agreement, net earnings or losses and
partnership distributions are 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' deficits 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 incurred
$120 and $240 of incentive management fees during both three- and
six-month periods ended June 30, 1998 and 1997. The Partnership
capitalized $25 and $158 of equipment acquisition fees as part of
container rental equipment costs during the six-month periods ended June
30, 1998 and 1997, respectively. No equipment liquidation fees were
incurred during either period.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the Partnership's containers. TEM holds, for the payment of
direct operating expenses, a reserve of cash that has been collected from
leasing operations; such cash is included in due from affiliates, net at
June 30, 1998 and December 31, 1997.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to operating leases and 2%
of gross revenues attributable to full payout net leases. During the
three- and six-month periods ended June 30, 1998, these fees totaled $331
and $628, respectively, and $327 and $656 for the comparable periods in
1997. The Partnership's container fleet is leased by TEM to third party
lessees on operating master leases, spot leases, term leases and direct
finance leases. The majority of the container fleet 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 incurred and paid by TFS and TEM. For the three- and
six-month periods ended June 30, 1998, total general and administrative
costs allocated to the Partnership were $268 and $573, of which $115 and
$240 were for salaries. Total general and administrative costs allocated
to the Partnership for the three- and six-month periods ended June 30,
1997 were $306 and $619 of which $168 and $329 were for salaries.
TEM allocates these general and administrative costs based on the ratio of
the Partnership's interest in the managed containers to the total
container fleet managed by TEM during the period. TFS allocates these
costs based on the ratio of the Partnership's containers to the total
container fleet of all limited partnerships managed by TFS. General and
administrative costs allocated to the Partnership by TEM were $241 and
$519 for the three- and six-month periods ended June 30, 1998 and were
$262 and $537 for the comparable periods in 1997. TFS allocated $27 and
$54 of general and administrative costs to the Partnership for the three-
and six-month periods ended June 30, 1998 and $44 and $82 for the
comparable periods in 1997.
The General Partners or TAS may acquire containers in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such containers for the Partnership. The containers may
then be resold to the Partnership on an all-cash basis at a price equal to
the actual cost, as defined in the Partnership Agreement. In addition, the
General Partners or TAS are entitled to an acquisition fee for any
containers resold to the Partnership.
At June 30, 1998 and December 31, 1997, due from affiliates, net is
comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM................................... $ 485 $ 297
----- -----
Due to affiliates:
Due to TFS..................................... 49 48
Due to TAS..................................... 7 42
Due to TCC..................................... 14 15
Due to TL...................................... 1 1
----- -----
71 106
----- -----
Due from affiliates, net $ 414 $ 191
===== =====
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 amounts due to the General Partners which are outstanding for
more than one month, to the extent such balances relate to loans for
container 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 amounts due to the General Partners during the three-
and six-month periods ended June 30, 1998 or 1997.
Note 8. Rentals Under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at June 30, 1998. Although the leases are
generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending June 30:
1999............................................. $ 872
2000............................................. 97
2001............................................. 30
2002............................................. 28
2003............................................. 28
-----
Total minimum future rentals receivable.......... $1,055
=====
Note 9. Accounts Receivable Write-Off
During the six-month period ending June 30, 1998, the Partnership
wrote-off $680 of delinquent receivables from two lessees against which
reserves were recorded in 1994 and 1995.
Note 10. 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> <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>
There were no redemptions during the six-month period ended June 30, 1998.
The redemption price is fixed by formula.
Note 11. Commitments
At June 30, 1998, the Partnership has committed to purchase 15 new
containers at an approximate total purchase price of $53 which includes
acquisition fees of $3. These commitments were made to TAS which, as the
contracting party, has in turn committed to purchase these containers on
behalf of the Partnership.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the three- and six-month periods
ended June 30, 1998 and 1997. 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 offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,000 on February 11, 1991, and on May 4, 1992, the
Partnership's offering of limited partnership interests was closed at $125,000.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value which is set by formula. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the managing general partner's discretion. All redemptions
are subject to the managing general partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. During the six-month period ended June 30, 1998,
the Partnership did not redeem any units.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the six-month period ended June 30, 1998, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1997
through May 1998, in the amount of $5,706. These distributions represent a
return of 9% on original capital (measured on an annualized basis) on each unit.
On a cash basis, all of these distributions were from operations. On a GAAP
basis, $3,067 of these distributions was a return of capital and the balance was
from net earnings. Beginning with cash distributions to limited partners for the
month of July 1998, payable August 1998, the Partnership will make distributions
at an annualized rate of 8% on each unit. This reduction in the Partnership
distribution rate is a result of the current market conditions, which are
discussed in detail below.
At June 30, 1998, the Partnership had committed to purchase 15 new containers at
an approximate total purchase price of $53, which includes acquisition fees of
$3. At June 30, 1998, the Partnership had sufficient cash on hand to meet these
commitments. In the event the Partnership decides not to purchase the
containers, one of the General Partners or an affiliate of the General Partners
will acquire the containers for its own account.
Net cash provided by operating activities for the six-month periods ending June
30, 1998 and 1997, was $6,560 and $6,149, respectively. The increase is
primarily attributable to a decrease in accounts receivable, excluding
write-off, during the six-month period ended June 30, 1998 compared to the
equivalent period in 1997. Accounts receivable, excluding write-off, decreased
primarily due to a decrease in the average collection period of accounts
receivable and to the resolution of payment issues with one lessee.
For the six-month period ending June 30, 1998, net cash provided by investing
activities (the purchase and sale of containers) was $870 compared to net cash
used in investing activities of $2,606 for the comparable period in 1997. The
difference of $3,476 is due to the Partnership having purchased more containers
during the six-month period ended June 30, 1997 than in the comparable period in
1998, and due to the Partnership having sold more containers during the
six-month period ended June 30, 1998 than in the comparable period in 1997. The
General Partners believe that these differences reflect normal fluctuations in
container sales and purchases. However, recent container purchases
(reinvestment) are currently lower than anticipated due to the adverse effect of
market conditions on cash available for reinvestment. Market conditions are
discussed more fully under "Results of Operations". Consistent with its
investment objectives, the Partnership intends to reinvest all or a significant
amount of proceeds from future container sales in additional containers.
However, due to the difference between sales proceeds and new container prices,
the number of additional containers purchased may not equal the number of
containers sold.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income, container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet during the six-month periods ended June 30, 1998 and 1997, as
well as certain other factors as discussed below. The following is a summary of
the container fleet (in units) available for lease during those periods:
1998 1997
Opening container fleet................. 31,342 30,605
Closing container fleet................. 30,719 31,542
Average container fleet................. 31,031 31,074
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 80% and 77% on average during the six-month
periods ended June 30, 1998 and 1997, respectively. In addition, rental income
is affected by daily rental rates and leasing incentives.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 1998 and 1997.
The Partnership's income from operations for the six-month periods ending June
30, 1998 and 1997 was $2,773 and $2,443, respectively, on rental income of
$9,726 and $9,470, respectively. The increase in rental income of $256, or 3%,
from the six-month period ended June 30, 1997 to the comparable period in 1998
was primarily attributable to an increase in other rental income which is
discussed below. Income from container rentals, the major component of total
revenue, decreased $124, or 1%. This decrease was primarily due to the decrease
in average rental rates of 5%, offset by a decrease in leasing incentives of 29%
and an increase in average on-hire (utilization) percentage of 4%.
Container utilization and rental rates declined during 1996 and 1997 primarily
due to decreased demand for leased containers and increased competition. The
decrease in demand for leased containers resulted from changes in the business
of shipping line customers consisting primarily of (i) over-capacity resulting
from the 1995 and 1996 additions of new, larger ships to the existing container
ship fleet at a rate in excess of the growth rate in containerized cargo trade;
(ii) shipping line alliances and other operational consolidations that have
allowed shipping lines to operate with fewer containers; and (iii) shipping
lines reducing their ratio of leased versus owned containers by purchasing
containers. This decreased demand, along with the entry of new leasing company
competitors offering low container rental rates to shipping lines, resulted in
downward pressure on rental rates, and caused leasing companies to offer higher
leasing incentives and other discounts to shipping lines. Rental rates were also
adversely affected by a drop in the purchase price of new containers which
resulted in additional downward pressure on rental rates.
Average utilization for the three- and six month-periods ended June 30, 1998 was
greater than the average utilization for the comparable periods in 1997. Despite
the improvement in average utilization from the prior year, utilization has been
slowly declining over the last six months. Rental rates have also been declining
and average rental rates for the six-month period ended June 30, 1998 are lower
than average rental rates for the same period in 1997. These decreases were
offset by decreased leasing incentives during the six-month period ended June
30, 1998 as compared to the same period in 1997. The improvement in utilization
over the prior year and overall improvement in leasing incentives is primarily
due to increased demand in Asia. The weakening of many Asian currencies resulted
in a significant increase in exports from Asia, which has created a strong
demand for containers in certain locations. However, the weakening of these
currencies has also lowered demand in Asia for imports from North America and
Europe resulting in a lower demand for containers in these areas. For the near
term, the General Partners do not foresee material changes in existing market
conditions and caution that both utilization and rental rates could continue
declining, 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 other rental income consists of other lease-related items,
primarily income from charges to lessees for dropping off containers in surplus
locations less credits granted to lessees for leasing containers from surplus
locations (location income), income from charges to lessees for handling and
returning containers and income from charges to lessees for a Damage Protection
Plan (DPP). For the six-month period ended June 30, 1998, the total of these
other rental income items was $1,209, an increase of $380 from the equivalent
period in 1997. The primary component of this increase was an increase in
location income of $411. Location income increased primarily due to a decrease
in credits given to lessees for picking up containers from certain locations and
due to the inclusion of certain credits received during 1997 and 1998 which had
been previously applied against repositioning expense.
Direct container expenses increased $351, or 19%, from the six-month period
ending June 30, 1997 to the equivalent period in 1998. The increase was
primarily due to an increase in repositioning expense of $379. Repositioning
expense increased primarily due to the removal of certain credits from
repositioning costs to other rental income as discussed above and due to an
increase in the average repositioning cost per container.
Bad debt expense decreased from an expense of $77 for the six-month period ended
June 30, 1997 to a benefit of $202 for the comparable period ending June 30,
1998. The write-off of certain receivables that had reserves in excess of the
receivable, due to insurance proceeds received, as well as to the resolution of
payment issues with one lessee resulted in the benefit recorded in 1998.
Depreciation expense decreased $46, or 1%, from the six-month period ended June
30, 1997 to the comparable period in 1998 primarily due to the decrease in fleet
size.
Management fees to affiliates decreased $28, or 3%, from the six-month period
ended June 30, 1997 to the equivalent period in 1998, due to a decrease in
equipment management fees. The decrease in equipment management fees was
primarily due to an adjustment made to reduce fees resulting from the write-off
of receivables for two lessees.
General and administrative costs to affiliates decreased $46, or 7%, from the
six-month period ended June 30, 1997 to the comparable period in 1998 due to a
decrease in overhead costs allocated by TFS and TEM.
Other income decreased from income of $13 for the six-month period ended June
30, 1997 to an expense of $74 for the comparable period in 1998. The decrease
was due to an increase in loss on sale of containers.
Net earnings per limited partnership unit increased from $0.39 to $0.43 from the
six-month period ending June 30, 1997 to the same period in 1998, reflecting the
increase in net earnings allocated to limited partners from $2,396 to $2,639,
for the same periods.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 1998 and 1997.
The Partnership's income from operations for the three-month periods ending June
30, 1998 and 1997 was $1,342 and $1,093, respectively, on rental income of
$4,724 and $4,734, respectively. Income from container rentals, the major
component of rental income, decreased $36, or 1%, primarily due to the decreases
in fleet size and average rental rates of 2% and 5%, respectively, offset by a
decrease in leasing incentives of 50% and an increase in utilization of 3%.
The balance of other rental income for the three-month period ended June 30,
1998 was $476, an increase of $26 from the comparable period in 1997. The
primary component of this increase was an increase in location income of $79,
offset by a decrease in handling income of $35. Location income increased
primarily due to a decrease in credits given to lessees for picking up
containers from certain locations and handling income decreased primarily due to
the decrease in container movement.
Direct container expenses increased $18, or 2%, from the three-month period
ending June 30, 1997 to the equivalent period in 1998. The increase was
primarily due to an increase in repositioning expense of $109, offset by a
decrease in storage expense of $94. Repositioning expense increased primarily
due to an increase in the average repositioning cost per container, offset by a
decrease in the number of containers repositioned. Storage expense decreased
primarily due to the increase in utilization.
Bad debt expense decreased from an expense of $76 for the three-month period
ended June 30, 1997 to a benefit of $103 for the comparable period in 1998. The
benefit recorded in 1998 was primarily due to the resolution of payment issues
with one lessee and due to lower reserve requirements.
Depreciation expense decreased $40, or 2% from the three-month period ended June
30, 1997 to the comparable period in 1998 due to the decrease in fleet size.
Management fees to affiliates were comparable for the three-month periods ended
June 30, 1997 and 1998.
General and administrative costs to affiliates decreased $38, or 12%, from the
three-month period ended June 30, 1997 to the comparable period in 1998 due to a
decrease in overhead costs allocated by TFS and TEM.
Other expense increased $92, primarily due to an increase in loss on sale of
containers of $106 from the three-month period ending June 30, 1997 to the
equivalent period in 1998.
Net earnings per limited partnership unit increased from $0.17 to $0.19 from the
three-month period ending June 30, 1997 to the same period in 1998, reflecting
the increase in net earnings allocated to limited partners from $1,024 to
$1,181, respectively.
Many computer systems may experience difficulty processing dates beyond the year
1999 and, as such, some computer hardware and software will need to be modified
prior to the year 2000 to remain functional. Certain of the General Partners and
Partnership's core internal systems where Year 2000 issues have been identified
are currently being revised. Based on its initial evaluation, the Partnership
and the General Partners do not believe that the cost of remedial actions
relating to these systems will have a material adverse effect on the
Partnership's results of operations and financial condition. Additionally, the
Partnership and the General Partners are continuing their assessment of Year
2000 issues not related to their core systems, including issues surrounding
systems that interface with external third parties. If external third party
systems are not Year 2000 compliant, those external third parties may have
difficulty conducting ordinary operations, which could adversely affect the
General Partners and the Partnership.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of June 30, 1998 which would result in such a risk
materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the containers, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
<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, 1998
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, 1998
John R. Rhodes (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive August 13, 1998
Philip K. Brewer Officer)
</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, 1998
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, 1998
- ------------------------- (Principal Financial and
John R. Rhodes Accounting Officer) and
Secretary
/s/Philip K. Brewer President (Principal Executive August 13, 1998
- --------------------------- Officer)
Philip K. Brewer
</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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,035
<SECURITIES> 0
<RECEIVABLES> 5,171
<ALLOWANCES> 566
<INVENTORY> 0
<CURRENT-ASSETS> 119
<PP&E> 111,582
<DEPRECIATION> 39,108
<TOTAL-ASSETS> 79,233
<CURRENT-LIABILITIES> 1,862
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 77,371
<TOTAL-LIABILITY-AND-EQUITY> 79,233
<SALES> 0
<TOTAL-REVENUES> 9,726
<CGS> 0
<TOTAL-COSTS> 6,953
<OTHER-EXPENSES> 74
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,699
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,699
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
