TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 12, 2000
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 "Partnership") the Partnership's Quarterly Report on Form 10-Q for the
First Quarter ended March 31, 2000.
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 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 [ ]
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 2000
Table of Contents
- -------------------------------------------------------------------------------------------------------------------
Page
<S> <C>
Item 1. Financial Statements
Balance Sheets - March 31, 2000 (unaudited)
and December 31, 1999............................................................................. 3
Statements of Earnings for the three months
ended March 31, 2000 and 1999 (unaudited)......................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 2000 and 1999 (unaudited)......................................................... 5
Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (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>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
March 31, 2000 and December 31, 1999
(Amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------
2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $40,964, (1999: $40,469) (note 4) $ 54,949 $ 56,757
Cash 4,281 3,355
Accounts receivable, net of allowance for doubtful
accounts of $860, (1999: $756) 3,377 3,857
Due from affiliates, net (note 2) 739 816
Prepaid expenses 12 18
--------------- ---------------
$ 63,358 $ 64,803
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 464 $ 432
Accrued liabilities 313 286
Accrued recovery costs 174 165
Accrued damage protection plan costs 451 436
Warranty claims 139 149
Deferred quarterly distributions 81 81
Container purchases payable 487 243
--------------- ---------------
Total liabilities 2,109 1,792
--------------- ---------------
Partners' capital:
General partners - -
Limited partners 61,249 63,011
--------------- ---------------
Total partners' capital 61,249 63,011
--------------- ---------------
$ 63,358 $ 64,803
=============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three months ended March 31, 2000 and 1999
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Rental income $ 3,782 $ 3,866
Costs and expenses:
Direct container expenses 989 1,043
Bad debt expense 109 173
Depreciation 1,443 1,576
Write-down of containers (note 4) 162 175
Professional fees 18 9
Management fees to affiliates (note 2) 355 377
General and administrative costs
to affiliates (note 2) 183 254
Other general and administrative costs 35 41
------------------- ------------------
3,294 3,648
------------------- ------------------
Income from operations 488 218
------------------- ------------------
Other expense:
Interest income 56 47
Loss on sale of containers (131) (257)
------------------- ------------------
(75) (210)
------------------- ------------------
Net earnings $ 413 $ 8
=================== ==================
Allocation of net earnings (note 2):
General partners $ 23 $ 27
Limited partners 390 (19)
------------------- ------------------
$ 413 $ 8
=================== ==================
Limited partners' per unit share
of net earnings $ 0.06 $ 0.00
=================== ==================
Limited partners' per unit share
of distributions $ 0.35 $ 0.41
=================== ==================
Weighted average number of limited
partnership units outstanding 6,136,434 6,136,934
=================== ==================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the three months ended March 31, 2000 and 1999
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------
Partners' Capital
------------------------------------------------------------
General Limited Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Balances at January 1, 1999 $ - $ 73,16 $ 73,166
Distributions (27) (2,534) (2,561)
Redemptions (note 5) - (157) (157)
Net earnings 27 (19) 8
--------------- --------------- ---------------
Balances at March 31, 1999 $ - $ 70,456 $ 70,456
=============== =============== ===============
Balances at January 1, 2000 $ - $ 63,011 $ 63,011
Distributions (23) (2,148) (2,171)
Redemptions (note 5) - (4) (4)
Net earnings 23 390 413
--------------- --------------- ---------------
Balances at March 31, 2000 $ - $ 61,249 $ 61,249
=============== =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the three months ended March 31, 2000 and 1999
(Amounts in thousands)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 413 $ 8
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,443 1,576
Write-down of containers (note 4) 162 175
Increase in allowance for doubtful accounts 104 162
Loss on sale of containers 131 257
(Increase) decrease in assets:
Accounts receivable 414 340
Due from affiliates, net (82) 50
Prepaid expenses 6 9
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 59 39
Accrued recovery costs 9 13
Accrued damage protection plan costs 15 (7)
Warranty claims (10) (10)
---------------- ----------------
Net cash provided by operating activities 2,664 2,612
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of containers 804 1,210
Container purchases (367) (837)
---------------- ----------------
Net cash provided by investing activities 437 373
---------------- ----------------
Cash flows from financing activities:
Redemptions of limited partnership units (4) (157)
Distributions to partners (2,171) (2,560)
---------------- ----------------
Net cash used in financing activities (2,175) (2,717)
---------------- ----------------
Net increase in cash 926 268
Cash at beginning of period 3,355 3,455
---------------- ----------------
Cash at end of period $ 4,281 $ 3,723
================ ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the three months ended March 31, 2000 and 1999
(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 March 31, 2000 and 1999, and December 31, 1999 and 1998,
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, 2000 and 1999.
Mar. 31 Dec. 31 Mar. 31 Dec. 31
2000 1999 1999 1998
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Container purchases included in:
Due to affiliates.............................. $ (2) $ - $ 44 $ 16
Container purchases payable.................... 487 243 1,178 56
Distributions to partners included in:
Due to affiliates.............................. 8 8 9 9
Deferred quarterly distributions................ 81 81 98 97
Proceeds from sale of containers included in:
Due from affiliates............................ 440 601 544 812
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
three-month periods ended March 31, 2000 and 1999.
2000 1999
---- ----
Container purchases recorded...................................................... $ 609 $1,987
Container purchases paid.......................................................... 367 837
Distributions to partners declared................................................ 2,171 2,561
Distributions to partners paid.................................................... 2,171 2,560
Proceeds from sale of containers recorded......................................... 643 942
Proceeds from sale of containers received......................................... 804 1,210
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying values of containers transferred during the three months ended
March 31, 2000 and 1999 were $38 and $35, respectively.
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 three months ended March 31, 2000 and 1999
(Amounts in thousands except for unit and 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 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 March 31, 2000 and December 31, 1999 and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 2000 and 1999, 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, 1999, in the Annual Report filed on Form 10-K.
Certain estimates and assumptions were made by the Partnership's
management that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Note 2. Transactions with Affiliates
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership and 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. The
General Partners manage and control the affairs of the Partnership.
In accordance with the Partnership Agreement, sections 3.08 through 3.12,
net earnings or losses and distributions are generally allocated 1% to the
General Partners and 99% to the Limited Partners. If the allocation of
distributions exceeds the allocation of net earnings and creates a deficit
in the General Partners' aggregate capital account, the Partnership
Agreement provides for a special allocation of gross income equal to the
amount of the deficit to be made to the General Partners.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, an acquisition fee, an equipment management fee, an
incentive management fee and an equipment liquidation fee. These fees are
for various services provided in connection with the administration and
management of the Partnership. The Partnership capitalized $29 and $95 of
container acquisition fees as a component of container costs during the
three-month periods ended March 31, 2000 and 1999, respectively. For the
three-month periods ended March 31, 2000 and 1999 the Partnership incurred
incentive management fees of $90 and $107, respectively. No equipment
liquidation fees were incurred during these periods.
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
March 31, 2000 and December 31, 1999.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to operating leases and 2%
of gross revenues attributable to full payout net leases. These fees
totaled $265 and $270 during the three-month periods ended March 31, 2000
and 1999, respectively. 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. General and
administrative costs allocated to the Partnership during the three-month
periods ended March 31, 2000 and 1999 were as follows:
2000 1999
---- ----
Salaries $ 98 $135
Other 85 119
--- ---
Total general and
administrative costs $183 $254
=== ===
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. The General
Partners allocated the following general and administrative costs to the
Partnership during the three-month periods ended March 31, 2000 and 1999:
2000 1999
---- ----
TEM $158 $227
TFS 25 27
--- ---
Total general and
administrative costs $183 $254
=== ===
The General Partners may acquire containers in their own name and hold
title on a temporary basis for the purpose of facilitating the acquisition
of such containers for the Partnership. The containers may then be resold
to the Partnership on an all-cash basis at a price equal to the actual
cost, as defined in the Partnership Agreement. In addition, the General
Partners are entitled to an acquisition fee for any containers resold to
the Partnership.
At March 31, 2000 and December 31, 1999, due from affiliates, net is
comprised of:
2000 1999
---- ----
Due from affiliates:
Due from TEM................................... $806 $864
--- ---
Due to affiliates:
Due to TFS..................................... 41 34
Due to TCC..................................... 25 13
Due to TL...................................... 1 1
--- ---
67 48
--- ---
Due from affiliates, net $739 $816
=== ===
These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and remittance of expenses
and fees described above and in the accrual and remittance of net rental
revenues and sales proceeds from TEM.
Note 3. Rentals Under Long-Term Operating Leases
The following are the future rent receivables under cancelable long-term
operating leases at March 31, 2000. Although the leases are generally
cancelable with a penalty at the end of each twelve-month period, the
following schedule assumes that the leases will not be terminated.
Year ending March 31:
2001............................................. $ 669
2002............................................. 220
2003............................................. 109
2004............................................. 59
2005............................................. 5
-----
Total future rentals receivable.................. $1,062
=====
Note 4. Container Rental Equipment Write-Down
New container prices have been declining since 1995, and the cost of new
containers at year-end 1998, during 1999 and the beginning of 2000 was
significantly less than the cost of containers purchased in prior years.
The Partnership evaluated the recoverability of the recorded amount of
container rental equipment at December 31, 1999 and March 31, 2000 for
containers to be held for continued use as well as for containers
identified for sale in the ordinary course of business and determined that
a reduction to the carrying value of containers held for continued use was
not required, but that a write-down in value of certain containers
identified for sale was required. The Partnership wrote down the value of
these containers to their estimated fair value, which was based on recent
sales prices less cost to sell.
During the three-month period ended March 31, 2000, the Partnership
recorded a write-down of $162 on 259 containers identified for sale and
sold 243 previously written down containers for a loss of $7. During the
three-month period ended March 31, 1999, the Partnership recorded a
write-down of $175 on 556 containers identified for sale and sold 375
previously written down containers for a loss of $110. The Partnership
incurred losses on the sale of some containers previously written down as
the actual sales prices received on these containers were lower than the
estimates used for the write-downs, primarily due to unexpected declines
in container sales prices. Additionally, the Partnership incurred losses
of $124 and $147 on the sale of containers that had not been written-down
during the three-months ended March 31, 2000 and 1999, respectively.
If more containers are subsequently identified as for sale or if container
sales prices continue to decline, the Partnership may incur additional
write-downs on containers and/or may incur losses on the sale of
containers. The Partnership will continue to evaluate the recoverability
of the recorded amounts of container rental equipment and cautions that a
write-down of container rental equipment and/or an increase in its
depreciation rate may be required in future periods for some or all of its
container rental equipment.
Note 5. Redemptions
<TABLE>
<CAPTION>
The following redemptions were consummated by the Partnership during the
three-month periods ended March 31, 1999 and 2000:
Units Average
Redeemed Redemption Price Amount Paid
----------- ---------------- -----------
<S> <C> <C> <C>
Total Partnership redemption as of
December 31, 1998.................... 96,140 $14.05 $1,350
Quarter ended:
March 31, 1999....................... 16,926 $ 9.28 157
------- -------
Partnership through March 31, 1999 113,066 $13.33 $1,507
======= =======
Total Partnership redemption as of
December 31, 1999.................... 113,066 $13.33 $1,507
Quarter ended:
March 31, 2000....................... 500 $ 7.50 4
------- -------
Partnership through March 31, 2000 113,566 $13.31 $1,511
======= =======
The redemption price is fixed by formula.
</TABLE>
<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 as of and for the three-month periods
ended March 31, 2000 and 1999. 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 interest 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 three-month period ended March 31,
2000, the Partnership redeemed 500 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, cash flow from operations prior to its
distribution to the partners and proceeds from container sales that have not
been used to purchase containers in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
Limited partners are currently receiving monthly distributions in an annualized
amount equal to 7% of their original investment. During the three-month period
ended March 31, 2000, the Partnership declared cash distributions to limited
partners pertaining to the period from December 1999 through February 2000, in
the amount of $2,148. On a cash basis, all of these distributions were from
current year operating activities. On a GAAP basis, $1,758 of these
distributions was a return of capital and the balance was from net earnings.
At March 31, 2000, the Partnership had no commitments to purchase containers.
Net cash provided by operating activities for the three-month periods ended
March 31, 2000 and 1999 was $2,664 and $2,612, respectively. The increase of
$52, or 2%, was primarily attributable to the increase in net earnings, adjusted
for non-cash transactions and fluctuations in accounts receivable, partially
offset by fluctuations in due from affiliates, net. Net earnings, adjusted for
non-cash transactions, increased primarily due to the decline in direct
container expenses, which is discussed more fully in "Results of Operations".
The decreases in accounts receivable of $414 and $340 for the three-months ended
March 31, 2000 and 1999, respectively, were primarily due to the decreases in
rental income. The fluctuations in due from affiliates, net, resulted from
timing differences in the payment of expenses and fees and the remittance of net
rental revenues.
For the three-month period ended March 31, 2000, net cash provided by investing
activities (the purchase and sale of containers) was $437 compared to $373 for
the comparable period in 1999. Net cash provided by investing activities
increased $64 due to the Partnership having purchased fewer containers during
the three months ended March 31, 2000 than in the same period in 1999, partially
offset by the Partnership having sold fewer containers during the three-month
period ended March 31, 2000 than in the equivalent period in 1999. The General
Partners believe that the fluctuation in container purchases reflect normal
fluctuations in recent container purchases. The Partnership continued to sell
containers in low demand locations (described below under "Results of
Operations"); however there were fewer containers in these locations primarily
as a result of previous sales efforts, which resulted in the decline in the
number of containers sold. The sales prices received on container sales
continued to decrease as a result of current market conditions, which have
adversely affected the value of used containers. Until conditions improve in
these low demand locations, the Partnership plans to continue to sell some of
its containers in these locations. The Partnership sells containers when (i) a
container reaches the end of its useful life or (ii) an analysis indicates that
the sale is warranted based on existing market conditions and the container's
age, location and condition. Proceeds from container sales will fluctuate based
on the number of containers sold and the actual price received on the sale.
Sales proceeds will affect the rate of reinvestment in containers.
The rate of reinvestment is also affected by cash from operations available for
reinvestment. Subject to the General Partners' discretion, cash from operations
available for reinvestment is generally equal to cash provided by operating
activities less distributions and redemptions paid. Distributions and
redemptions are determined by the General Partners in accordance with the
Partnership Agreement. Consistent with its investment objectives and subject to
its distribution policy, the Partnership intends to continue to reinvest cash
from operations available for reinvestment and all or a significant amount of
the proceeds from container sales in additional containers. Market conditions
have had and may continue to have an adverse effect on the amount of cash
provided by operations that is available for the purchase of additional
containers. Additionally, these market conditions have had an adverse effect on
the average sales price recently realized from container sales. Furthermore, to
the extent new containers are purchased with sales proceeds, they are not likely
to equal the number of containers sold, as new container prices are likely to be
greater than the average sales price of containers sold. These factors have
contributed to a lower than anticipated rate of reinvestment. Market conditions
are discussed more fully under "Results of Operations". A slower rate of
reinvestment will, over time, affect the size of the Partnership's container
fleet.
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 three-month periods ended March 31, 2000 and 1999, 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:
2000 1999
------ ------
Beginning container fleet............... 27,225 29,237
Ending container fleet.................. 26,951 29,216
Average container fleet................. 27,088 29,227
The decline in the average container fleet of 7% from the three-month period
ended March 31, 1999 to the comparable period in 2000 was due to the Partnership
having sold more containers than it purchased since March 31, 1999. Although
some of the sales proceeds were used to purchase additional containers, fewer
containers were bought than sold, resulting in a net decrease in the size of the
container fleet. As noted above, when containers are sold in the future, sales
proceeds are not likely to be sufficient to replace all of the containers sold.
This trend, which is expected to continue, has contributed to a slower rate of
reinvestment than had been expected by the General Partners. Other factors
related to this trend are discussed above in "Liquidity and Capital Resources".
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 76% and 70% during the three-month
periods ended March 31, 2000 and 1999, respectively. In addition, rental income
is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 2000 and 1999.
The Partnership's income from operations for the three-month periods ended March
31, 2000 and 1999 was $488 and $218, respectively, on rental income of $3,782
and $3,866, respectively. The decrease in rental income of $84, or 2%, from the
three-month period ended March 31, 1999 to the comparable period in 2000 was
attributable to the decrease in container rental income, offset by the increase
in other rental income. Income from container rentals decreased $93, or 3%, due
to the decreases in the average container fleet of 7% and average rental rates
of 6%, offset by the increase in average on-hire utilization of 9%.
The improvement in utilization was due to improvements in demand for leased
containers and in the trade balance, primarily as a result of the improvement in
certain Asian economies and a related increase in exports out of Europe.
Additionally, the container surplus, which existed primarily as a result of the
lower demand in the past several years, has eased as a result of container
lessors selling older containers in low demand locations and as a result of the
improvement in demand discussed above.
However, the trade imbalance between Asia and North America still exists, and as
a consequence, the build-up of containers in North America persists. The
Partnership has been unable to reposition a large number of newer containers to
higher demand locations in Asia, primarily due to lack of available vessel
capacity.
Additionally, the Partnership continues to sell some containers located in low
demand locations. The decision to sell containers is based on the current
expectation that the economic benefit of selling these containers is greater
than the estimated economic benefit of continuing to own these containers. The
majority of the containers sold during 1999 and 2000 were older containers as
the expected economic benefit of continuing to own these containers was
significantly less than that of newer containers primarily due to their shorter
remaining marine life, the cost to reposition containers and the shipping lines'
preference for leasing newer containers when demand is low.
Once the decision had been made to sell containers, the Partnership wrote down
the value of these specifically identified containers to their estimated fair
value, which was based on recent sales prices. Due to unanticipated declines in
container sales prices, the actual sales prices received on some containers were
lower than the estimates used for the write-down, resulting in the Partnership
incurring losses upon the sale of some of these containers. Until the trade
balance between Asia and North America improves, the Partnership may incur
further write-downs and/or losses on the sale of such containers. Should the
decline in economic value of continuing to own such containers turn out to be
permanent, the Partnership may be required to increase its depreciation rate or
write-down the value on some or all of its container rental equipment.
The decline in the purchase price of new containers and the container surplus
mentioned above have resulted in the decline in rental rates in recent years.
However, as a result of the improvement in demand and slight increases in the
purchase price of new containers, rental rates have stabilized during the first
quarter of 2000.
The General Partners are cautiously optimistic that rental rates will remain
stable and the current level of utilization will be maintained during 2000 and
may improve if demand for leased containers and the trade balance continue to
improve. However, the General Partners caution that utilization, lease rates and
container sale prices could also decline, adversely affecting the Partnership's
operating results.
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 (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP). For the three-month period ended March 31, 2000,
other rental income was $446, an increase of $9 from the equivalent period in
1999. The increase was primarily due to an increase in DPP income of $34, offset
by a decrease in location income of $25. DPP income increased due to an increase
in the number of containers carrying DPP, offset by a lower average DPP price
per container. Location income decreased primarily due to a decrease in charges
to lessees for dropping off containers in certain locations, offset by a
decrease in credits granted to lessees for picking up containers from certain
locations.
Direct container expenses decreased $54, or 5% from the three-month period
ending March 31, 1999 to the equivalent period in 2000, primarily due to the
decrease in storage expense of $158, offset by an increase in repositioning
expense of $97. Storage expense decreased primarily due to the increase in
average utilization noted above and a lower average storage cost per container.
Repositioning expense increased due to an increase in the average repositioning
cost per container and an increase in the number of containers repositioned
during the three-month period ended March 31, 2000 compared to the same period
in 1999.
Bad debt expense decreased $64 from the three-month period ended March 31, 1999
to the comparable period in 2000 primarily due to a smaller required increase to
bad debt reserve in 2000.
Depreciation expense decreased $133, or 8%, from the three-month period ended
March 31, 1999 to the comparable period in 2000 primarily due to the decrease in
fleet size.
New container prices have been declining since 1995, and the cost of new
containers at year-end 1998, during 1999 and the beginning of 2000 was
significantly less than the cost of containers purchased in prior years. The
Partnership evaluated the recoverability of the recorded amount of container
rental equipment at December 31, 1999 and March 31, 2000 for containers to be
held for continued use as well as for containers identified for sale in the
ordinary course of business and determined that a reduction to the carrying
value of containers held for continued use was not required, but that a
write-down in value of certain containers identified for sale was required. The
Partnership wrote down the value of these containers to their estimated fair
value, which was based on recent sales prices less cost to sell.
During the three-month period ended March 31, 2000, the Partnership recorded a
write-down of $162 on 259 containers identified for sale and sold 243 previously
written down containers for a loss of $7. During the three-month period ended
March 31, 1999, the Partnership recorded a write-down of $175 on 556 containers
identified for sale and sold 375 previously written down containers for a loss
of $110. The Partnership incurred losses on the sale of some containers
previously written down as the actual sales prices received on these containers
were lower than the estimates used for the write-downs, primarily due to
unexpected declines in container sales prices. Additionally, the Partnership
incurred losses of $124 and $147 on the sale of containers that had not been
written-down during the three-months ended March 31, 2000 and 1999,
respectively.
If more containers are subsequently identified as for sale or if container sales
prices continue to decline, the Partnership may incur additional write-downs on
containers and /or may incur losses on the sale of containers.
Management fees to affiliates decreased $22, or 6%, from the three-month period
ended March 31, 1999 to the comparable period in 2000, due to decreases in
incentive and equipment management fees. Incentive management fees, which are
based on the Partnership's limited and general partner distribution percentage
and partners' capital, decreased from $107 for the three-month period ended
March 31, 1999 to $90 for the same period in 2000, primarily due to the decrease
in the limited partner distribution percentage from 8.25% to 7% of partners'
capital in October 1999. Equipment management fees, which are based primarily on
gross revenue, decreased due to the decrease in rental income and were
approximately 7% of rental income for both periods.
General and administrative costs to affiliates decreased $71, or 28%, from the
three-month period ended March 31, 1999 to the comparable period in 2000
primarily due to a decrease in the allocation of overhead costs from TEM, as the
Partnership represented a smaller portion of the total fleet managed by TEM.
Other expense decreased $135, or 64%, from the three-month period ended March
31, 1999 to the comparable period in 2000 primarily due to the decrease in loss
on sale of containers of $126.
Net earnings per limited partnership unit increased from $0.00 to $0.06 from the
three-month period ended March 31, 1999 to the same period in 2000, reflecting
the increase in net earnings allocated to limited partners from $(19) to $390,
respectively. The allocation of net earnings included a special allocation of
gross income to the General Partners in accordance with the Partnership
Agreement.
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 March 31, 2000, 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.
Effect of Date Crossing to Year 2000
There has been no material effect on the Partnership's financial condition and
results of operations as a result of problems arising from computer systems'
abilities to process dates beyond January 1, 2000. The General Partners do not
currently expect any such problems to arise within their own computer systems.
The likelihood that a failure in a third party's system would occur and have a
significant adverse effect on the Partnership's operations seems increasingly
remote, but no assurance can be given that, due to unforeseen circumstances,
such an event could not occur. Therefore, the Partnership's contingency plan
remains in place; that is, the General Partners continue to remain capable of
switching temporarily to manual operations in the event of a computer system's
failure. There can be no assurance, however, that switching to manual operations
would prevent all adverse effects of any future year 2000 problem.
Forward Looking Statements
The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing therefor,
alterations in the costs of maintaining and repairing used containers, increases
in competition, changes in the Partnership's ability to maintain insurance for
its containers and its operations, the effects of political conditions on
worldwide shipping and demand for global trade or of other general business and
economic cycles on the Partnership, as well as other risks detailed herein and
from time to time in the Partnership's filings with the Securities and Exchange
Commission. The Partnership does not undertake any obligation to update
forward-looking statements.
<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 _______________________________
Ernest J. Furtado
Senior Vice President
Date: May 12, 2000
<TABLE>
<CAPTION>
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:
Signature Title Date
<S> <C> <C>
________________________ Senior Vice President, May 12, 2000
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
________________________ President (Principal Executive May 12, 2000
John A. Maccarone 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/Ernest J. Furtado
_____________________________
Ernest J. Furtado
Senior Vice President
Date: May 12, 2000
<TABLE>
<CAPTION>
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:
Signature Title Date
<S> <C> <C>
/s/Ernest J. Furtado
____________________________ Senior Vice President, May 12, 2000
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
/s/John A. Maccarone
____________________________ President (Principal Executive May 12, 2000
John A. Maccarone Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1st Quarter 2000 10Q
</LEGEND>
<CIK> 0000866888
<NAME> Textainer Equipment Income Fund III, L.P.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,281
<SECURITIES> 0
<RECEIVABLES> 4,976
<ALLOWANCES> 860
<INVENTORY> 0
<CURRENT-ASSETS> 12
<PP&E> 95,913
<DEPRECIATION> 40,964
<TOTAL-ASSETS> 63,358
<CURRENT-LIABILITIES> 2,109
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 61,249
<TOTAL-LIABILITY-AND-EQUITY> 63,358
<SALES> 0
<TOTAL-REVENUES> 3,782
<CGS> 0
<TOTAL-COSTS> 3,294
<OTHER-EXPENSES> 75
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 413
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
