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TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 28, 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 Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
The financial statements included in the enclosed Annual Report on Form 10-K do
not reflect a change from the preceding year in any accounting principles or
practices, or in the method of applying any such principles or practices.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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, CA 94108
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code:
(415) 434-0551
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY UNITS (THE "UNITS")
(TITLE OF CLASS)
LIMITED PARTNERSHIP INTERESTS (UNDERLYING THE UNITS)
(TITLE OF CLASS)
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.
[ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ X ]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and ask prices of such
stock, as of a specified date within 60 days prior to the date of the filing.
Not Applicable.
Documents Incorporated by Reference
The Registrant's Prospectus as contained in Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement dated and filed with the Commission December
21, 1990, as supplemented by Post-Effective Amendments No. 1, 2 and 3 filed with
the Commission under Section 8(c) of the Securities Act of 1933 on March 1,
1991, January 13, 1992 and February 4, 1992, respectively.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
For more detailed information about the Registrant's business, see "Business of
the Partnership" in the Registrant's Prospectus as supplemented.
(a) General Development of Business
The Registrant is a California Limited Partnership formed on July 26,
1990 to purchase, own, operate, lease, and sell equipment used in the
containerized cargo shipping industry. The Registrant commenced
offering units representing limited partnership interests (Units) to
the public on January 16, 1991 in accordance with its Registration
Statement, and ceased to offer such Units as of May 4, 1992. The
Registrant raised a total of $125,000,000 from the offering and
invested a substantial portion of the money raised in equipment. The
Registrant has since engaged in leasing this and other equipment in the
international shipping industry.
See Item 10 herein for a description of the Registrant's General
Partners. See Item 7 herein for a description of current market
conditions affecting the Registrant's business.
(b) Financial Information About Industry Segments
Inapplicable.
(c) Narrative Description of Business
(c)(1)(i) A container leasing company generally, and the Registrant
specifically, is an operating business comparable to a rental
car business. A customer can lease a car from a bank leasing
department for a monthly charge which represents the cost of
the car, plus interest, amortized over the term of the lease;
or the customer can rent the same car from a rental car
company at a much higher daily lease rate. The customer is
willing to pay the higher daily rate for the convenience
and value-added features provided by the rental car company,
the most important of which is the ability to pick up the car
where it is most convenient, use it for the desired period
of time, and then drop it off at a location convenient to
the customer. Rental car companies compete with one another
on the basis of lease rates, availability of cars, and the
provision of additional services. They generate revenues by
maintaining the highest lease rates and the highest
utilization factors that market conditions will allow, and by
augmenting this income with proceeds from sales of insurance,
drop-off fees, and other special charges. A large percentage
of lease revenues earned by car rental companies are generated
under corporate rate agreements wherein, for a stated period
of time, employees of a participating corporation can rent
cars at specific terms, conditions and rental rates.
Container leasing companies and the Registrant operate in a
similar manner by owning a worldwide fleet of new and used
transportation containers and leasing these containers to
international shipping companies hauling various types of
goods among numerous trade routes. All lessees pay a daily
rental rate and in certain markets may pay special handling
fees and/or drop-off charges. In addition to these fees and
charges, a lessee must either provide physical damage and
liability insurance or purchase a damage waiver from the
Registrant, in which case the Registrant agrees to pay the
cost of repairing any physical damage to containers caused by
lessees. Container leasing companies compete with one another
on the basis of lease rates, availability of equipment and
services provided. To ensure the availability of equipment to
its customers, container leasing companies and the Registrant
may pay to reposition containers from low demand locations to
higher demand locations. By maintaining the highest lease
rates and the highest equipment utilization factors allowed by
market conditions, the Registrant attempts to generate revenue
and profit. The majority of the Registrant's equipment is
leased under master leases, which are comparable to the
corporate rate agreements used by rental car companies. The
master leases provide that the lessee, for a specified period
of time, may rent containers at specific terms, conditions and
rental rates. Although the terms of the master lease governing
each container under lease do not vary, the number of
containers in use can vary from time to time within the term
of the master lease. The terms and conditions of the master
lease provide that the lessee pays a daily rental rate for the
entire time the container is in his possession (whether or not
he is actively using it), is responsible for any damage, and
must insure the container against liabilities. For a more
detailed discussion of the leases for the Registrant's
equipment, see "Leasing Policy" under "Business of the
Partnership" in the Registrant's Prospectus as supplemented.
The Registrant also sells containers in the course of its
business as opportunities arise, at the end of the container's
useful life or if market and economic considerations indicate
that a sale would be beneficial. See "Business of the
Partnership" in Registrant's Prospectus, as supplemented.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) Inapplicable.
(c)(1)(vi) Inapplicable.
(c)(1)(vii) No single lessee had generated lease revenue for the years
ended December 31, 1999, 1998 and 1997 which was 10% or more
of the total revenue of the Registrant.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) There are approximately 80 container leasing companies of
which the top ten control approximately 91% of the total
equipment held by all container leasing companies. The top
two container leasing companies combined control approximately
36% of the total equipment held by all container leasing
companies. Textainer Equipment Management Limited, an
Associate General Partner of the Registrant and the manager of
its marine container equipment, is the third largest
container leasing company and manages approximately 13% of
the equipment held by all container leasing companies. The
customers for leased containers are primarily international
shipping lines. The Registrant alone is not a material
participant in the worldwide container leasing market. The
principal methods of competition are price, availability
and the provision of worldwide service to the international
shipping community. Competition in the container leasing
market has increased over the past few years. Since 1996,
shipping alliances and other operational consolidations among
shipping lines have allowed shipping lines to begin operating
with fewer containers, thereby decreasing the demand for
leased containers. Furthermore, primarily as a result of
lower new container prices and low interest rates, shipping
lines now own, rather than lease, a higher percentage of
containers. The decrease in demand from shipping lines,
along with the entry of new leasing company competitors
offering low container rental rates, has increased competition
among container lessors such as the Registrant.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant has no employees. Textainer Financial Services
Corporation (TFS), the Managing General Partner of the
Registrant, is responsible for the overall management of the
business of the Registrant and at December 31, 1999 had 4
employees. Textainer Equipment Management Limited (TEM), an
Associate General Partner, is responsible for the management
of the leasing operations of the Registrant and at December
31, 1999 had a total of 164 employees.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
The Registrant is involved in the leasing of shipping containers to
international shipping companies for use in world trade and
approximately 15%, 22% and 17% of the Registrant's rental revenue
during the years ended December 31, 1999, 1998 and 1997, respectively,
was derived from operations sourced or terminated domestically. These
percentages do not reflect the proportion of the Partnership's income
from operations generated domestically or in domestic waterways.
Substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations. See "Business of
the Partnership", and for a discussion of the risks of leasing
containers for use in world trade, "Risk Factors" in the Registrant's
Prospectus, as supplemented.
ITEM 2. PROPERTIES
As of December 31, 1999, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 8,863
40-foot standard dry freight containers 11,276
40-foot high cube dry freight containers 7,086
------
27,225
======
During December 1999, approximately 77% of these containers were on lease to
international shipping companies, and the balance were being stored at container
manufacturers' locations and at a large number of storage depots located
worldwide. At December 31, 1999, less than 2% of the Partnership's equipment had
been identified as being for sale.
For information about the Registrant's property, see "Business of the
Partnership" and "Risk Factors" in the Registrant's Prospectus, as supplemented.
See also Item 7, "Results of Operations" regarding current, and possible future,
write-downs of some of the Registrant's property.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not subject to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 201:
(a) Market Information.
(a)(1)(i) The Registrant's limited partnership Units are not publicly
traded and there is no established trading market for such
Units. The Registrant has a program whereby limited partners
may redeem Units for a specified redemption price. The program
operates only when the Managing General Partner determines,
among other matters, that payment for redeemed units will not
impair the capital or operations of the Registrant.
(a)(1)(ii) Inapplicable.
(a)(1)(iii) Inapplicable.
(a)(1)(iv) Inapplicable.
(a)(1)(v) Inapplicable.
(a)(2) Inapplicable.
(b) Holders.
(b)(1) As of January 1, 2000, there were 7,925 holders of record
of limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
For details of the distributions which are made monthly by the Registrant to its
limited partners, see Item 6 "Selected Financial Data".
ITEM 701: Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands except for per unit amounts)
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Rental income........................... $ 15,224 $ 18,904 $ 19,361 $ 21,349 $ 23,724
Net (loss) earnings..................... $ (21) $ 3,886 $ 5,173 $ 7,795 $ 10,319
Net (loss) earnings per unit of
limited partner interest.............. $ (0.02) $ 0.61 $ 0.82 $ 1.24 $ 1.64
Distributions per unit of
limited partner interest.............. $ 1.61 $ 1.77 $ 1.85 $ 1.85 $ 1.82
Distributions per unit of limited
partnership interest representing
a return of capital.................. $ 1.61 $ 1.16 $ 1.03 $ 0.61 $ 0.18
Total assets............................ $ 64,803 $ 74,579 $ 82,248 $ 88,765 $ 92,981
ITEM 7. 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 that will assist in evaluating the
financial condition of the Partnership for the years ended December 31, 1999,
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 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 year ended December 31, 1999, the
Partnership redeemed 16,926 units for a total dollar amount of $157. 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 year ended December
31, 1999, the Partnership declared cash distributions to limited partners
pertaining to the period from December 1998 through November 1999, in the amount
of $9,873. On a cash basis, $8,393 of these distributions were from current year
operating activities and the remainder was from cash provided by previous years'
operations that had not been distributed or used to purchase containers or
redeem units. On a GAAP basis, all of these distributions were a return of
capital.
At December 31, 1999, the Partnership had no commitments to purchase containers.
Net cash provided by operating activities for the years ended December 31, 1999
and 1998 was $8,550 and $12,419, respectively. The decrease of $3,869, or 31%,
was primarily attributable to the decrease in net earnings, adjusted for
non-cash transactions and fluctuations in accounts receivable, excluding
write-offs, partially offset by fluctuations in due from affiliates, net. Net
earnings, adjusted for non-cash transactions, decreased primarily due to the
decline in rental income, which is discussed more fully in "Results of
Operations". The decrease in accounts receivable of $145 for the year ended
December 31, 1999 was primarily due to the decrease in rental income, offset by
an increase in the average collection period of accounts receivable. The
decrease in accounts receivable, excluding write-offs, of $1,041 for the
comparable period in 1998 was primarily due to the resolution of payment issues
with one lessee and a decrease in the average collection period of accounts
receivable. 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 year ended December 31, 1999, net cash provided by investing activities
(the purchase and sale of containers) was $1,501 compared to $1,849 for the year
ended December 31, 1998. Net cash provided by investing activities decreased
$348 due to the Partnership having purchased more containers during the year
ended December 31, 1999 than in 1998, partially offset by the Partnership having
sold more containers during the year ended December 31, 1999 than in 1998. The
increase in container purchases from 1998 to 1999 was due to the increase in
cash available for equipment purchases as a result of the increased container
sales. The increase in proceeds from container sales during 1999 was due to the
Partnership continuing to sell containers located in low demand locations as
discussed below in "Results of Operations", offset by lower average sales prices
received on the container sales. The sales prices received on these container
sales decreased 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 located there. 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.
Consistent with its investment objectives, the Partnership intends to continue
to reinvest available cash from operations, after distributions and redemptions,
and all or a significant amount of the proceeds from container sales in
additional containers. However, the number of additional containers purchased is
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. Market
conditions have had an adverse effect on the average sales price recently
realized from container sales and on the amount of cash provided by operations
that is available for additional container purchases. These factors have
contributed to a lower than anticipated reinvestment in containers. The rate
of reinvestment is also affected by distributions and redemptions, which are
determined by the General Partners in accordance with the Partnership Agreement.
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 years ended December 31, 1999, 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:
1999 1998 1997
---- ---- ----
Beginning container fleet............... 29,237 31,342 30,605
Ending container fleet.................. 27,225 29,237 31,342
Average container fleet................. 28,231 30,290 30,974
The decline in the average container fleet of 7% from the year ended December
31, 1998 to the year ended December 31, 1999 was due to the Partnership having
sold more containers than it purchased since December 31, 1998. Although some of
the sales proceeds were used to purchase additional containers, fewer containers
were bought than sold, resulting in the net decrease in the size of the
container fleet. The Partnership plans to use the remaining sales proceeds for
future container purchases. As noted above, when containers are sold, 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 under "Liquidity and Capital
Resources."
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 72%, 78% and 80% on average during the years
ended December 31, 1999, 1998 and 1997, respectively. In addition, rental income
is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
years ended December 31, 1999, 1998 and 1997.
The Partnership's income from operations for the years ended December 31, 1999
and 1998 was $802 and $5,009, respectively, on rental income of $15,224 and
$18,904, respectively. The decrease in rental income of $3,680, or 19%, from the
year ended December 31, 1998 to the year ended December 31, 1999 was
attributable to decreases in container rental income and other rental income,
which is discussed below. Income from container rentals, the major component of
total revenue, decreased $3,217, or 19%, primarily due to the decreases in the
average on-hire utilization of 8%, the average container fleet of 7% and average
rental rates of 5%.
The Partnership's income from operations for the years ended December 31, 1998
and 1997 was at $5,009 and $5,224, respectively, on rental income of $18,904 and
$19,361, respectively. The decrease in rental income of $457, or 2%, from the
year ended December 31, 1997 to the same period in 1998 was primarily
attributable to a decrease in income from container rentals, partially offset by
an increase in other rental income. Income from container rentals decreased
$967, or 5%, primarily due to the decreases in the average container fleet of
2%, average on-hire utilization of 3% and average rental rates of 3%.
Since 1996, the container leasing industry has been adversely affected by lower
demand for leased containers, increased competition and a trade imbalance, which
have resulted in declining utilization and rental rates and increased costs.
Demand for leased containers decreased due to changes in the business of
shipping line customers as a result of (i) over-capacity resulting from the
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 purchasing containers
to take advantage of low prices and favorable interest rates.
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. The decline in the purchase price of new containers during this
period and excess industry capacity have also caused additional downward
pressure on rental rates.
The weakening of many Asian currencies in 1998 resulted in a significant
increase in exports from Asia to North America and Europe and a corresponding
decrease in imports into Asia from North America and Europe. This trade
imbalance created a weak demand for containers in North America and Europe and a
strong demand for containers in Asia, which resulted in a decline in leasing
incentives in Asia, but contributed to a further decline in average utilization
and rental rates for the fleet managed by TEM. This imbalance has also resulted
in an unusually high build-up of containers in lower demand locations. To
alleviate the container build-up, the Partnership has repositioned newer
containers to higher demand locations. However, as a result of this effort, the
Partnership has incurred increased direct container expenses during 1998 and
1999.
In addition to repositioning containers, the Partnership has sold certain
containers located in lower demand locations. The decision to sell these
containers was 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
1998 and 1999 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 shipping lines' preference for leasing newer
containers.
Once the decision had been made to sell certain containers during 1998 and 1999,
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 during 1999 were lower than the estimates used for
the write-down, resulting in the Partnership incurring losses upon the sale of
some of these containers. The Partnership recorded additional write-downs during
1999 on previously written down containers and on containers subsequently
identified for sale. Until market conditions improve, 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 for some or all of its container rental equipment.
Although average utilization during the year ended December 31, 1999 was lower
than the comparable period in 1998 for the reasons discussed above, utilization
has been steadily improving during the second half of 1999 and has remained
stable into the beginning of 2000. This improvement in utilization was due to
slight improvements in demand for leased containers and the trade imbalance
primarily as a result of the improvement in certain Asian economies and a
related increase in exports out of Europe. Although the General Partners do not
foresee material changes in existing market conditions for the near term, they
are cautiously optimistic that the current level of utilization might be
maintained during 2000. However, the General Partners caution that utilization,
lease rates and container sale prices could also 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 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 related
to leasing and returning containers (handling income) and income from charges to
lessees for a Damage Protection Plan (DPP). For the year ended December 31,
1999, the total of these other rental income items was $1,807, a decrease of
$463 from the year ended December 31, 1998. This decrease was primarily due to
the decrease in location income of $460. Location income decreased due to a
decrease in charges to lessees for dropping off containers in certain locations
and an increase in credits given to lessees for picking up containers from
certain locations. These decreases and increases were in the lessees' favor and
were driven by the market conditions described above.
For the year ended December 31, 1998, the total of these other rental income
items was $2,270, an increase of $510 from the year ended December 31, 1997.
Other income increased primarily due to an increase in location income of $723,
offset by a decrease in handling income of $154. Location income increased
primarily due to a decrease in credits given to lessees for picking up
containers from certain locations. Handling income decreased primarily due to a
decrease in container movement.
Direct container expenses increased $486, or 12%, from the year ended December
31, 1998 to same period in 1999. The increase was primarily due to increases in
DPP and storage expenses of $393 and $341, respectively, partially offset by
decreases in insurance and repositioning expenses of $84 and $72, respectively.
DPP expense increased primarily due to an increase in the average repair cost
per DPP container and an increase in the number of containers covered under DPP.
Storage expense increased primarily due to the decrease in average utilization.
Insurance expense decreased due to a reduction in insurance premiums.
Repositioning expense decreased due to lower average repositioning costs per
container, partially offset by an increase in the number of containers
repositioned from the year ended December 31, 1998 to the same period in 1999.
Direct container expenses increased $277, or 7%, from the year ended December
31, 1997 to the year ended December 31, 1998. The increase was primarily due to
an increase in repositioning expense of $519, offset by decreases in handling
and maintenance expense of $75 and $51, respectively. Repositioning expense
increased primarily due to an increase in the number of containers repositioned
at a higher average repositioning cost per container. Handling expense decreased
primarily due to the decrease in container movement. Maintenance expense
decreased due to decreases in the average repair cost per container and the
number of units requiring repair.
Bad debt expense (benefit) was $353, ($244) and $166 for the years ended
December 31, 1999, 1998 and 1997, respectively. The effect of insurance proceeds
received during 1998 relating to certain receivables against which reserves had
been recorded in 1994 and 1995, as well as from the resolution of payment issues
with one lessee during 1998, were primarily responsible for the benefit recorded
in 1998 and, therefore, the fluctuation in bad debt expense (benefit) between
the periods.
Depreciation expense decreased $498, or 7%, and $171, or 3%, from the years
ended December 31, 1998 to 1999 and December 31, 1997 to 1998, respectively, due
to the declines in the average fleet size.
New container prices have been declining since 1995, and the cost of new
containers at year-end 1998 and during 1999, 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, 1998 and 1999, and determined that a reduction to the carrying value of the
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 fourth quarter of 1998, the Partnership recorded a write-down of $349
on 930 containers identified for sale. During the year ended December 31, 1999,
the Partnership recorded additional write-downs of $733 on previously written
down containers and on 1,398 containers subsequently identified for sale. The
Partnership sold 1,998 previously written down containers for a loss of $290.
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 sale prices. Additionally, the Partnership incurred losses
of $691 on the sale of containers that had not been written-down.
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 $244, or 14%, from the year ended
December 31, 1998 to the year ended December 31, 1999 due to decreases in both
equipment and incentive management fees. The decrease in equipment management
fees resulted primarily from the decrease in rental income, upon which the
management fee is primarily based. These fees were approximately 7% of rental
income for both periods. Incentive management fees, which are based on the
Partnership's limited and general partner distribution percentage and partners'
capital, decreased from $454 for the year ended December 31, 1998 to $410 for
the same period in 1999, due to the decrease in the limited partner distribution
percentage from 8.25% to 7% of partners' capital in October 1999.
Management fees to affiliates decreased $100, or 6%, from the year ended
December 31, 1997 to the year ended December 31, 1998 due to decreases in
equipment and incentive management fees. Equipment management fees decreased as
a result of the decrease in rental income and due to an adjustment resulting
from the write-off of receivables for two lessees. Incentive management fees
decreased from $480 to $454 from the year ended December 31, 1997 to the
comparable period in 1998, due to the decrease in the limited partner
distribution percentage from 9.25% to 8.25% of partners' capital, effective July
1998.
General and administrative costs to affiliates decrease $224, or 22% and $144,
or 12%, from the years ended December 31, 1998 to 1999 and December 31, 1997 to
1998, respectively. These decreases were 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 and due to lower costs allocated by TFS.
Other expense decreased $300 from the year ended December 31, 1998 to the year
ended December 31, 1999 primarily due to a decrease in the loss on sale of
containers. Although the Partnership continued to sell containers in low demand
locations at lower average sales prices, as a result of market conditions, it
incurred fewer losses during 1999 than 1998 primarily due to the write-down of
certain containers recorded during 1998 and 1999.
Other expense increased $1,072 from the year ended December 31, 1997 to the year
ended December 31, 1998 due to an increase in the loss on sale of containers,
partially offset by an increase in interest income. The loss on sale of
containers was primarily due to the Partnership selling containers located in
low demand locations at a younger age than they would have been sold during
previous years, as a result of current market conditions.
Net earnings per limited partnership unit decreased from earnings of $0.61 to a
loss of $0.02, and from $0.82 to $0.61 from the years ended December 31, 1998 to
1999 and from December 31, 1997 to 1998, respectively. These decreases reflect
the decreases in net earnings allocated to limited partners from earnings of
$3,771 to a loss of $125 from the year ended December 31, 1998 to 1999 and from
$5,053 to $3,771 from December 31, 1997 to 1998. The allocation of net earnings
for the years ended December 31, 1999, 1998 and 1997 included a special
allocation of gross income of $104, $76 and $68, respectively, 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 December 31, 1999, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached pages 13 to 25.
Independent Auditors' Report
The Partners
Textainer Equipment Income Fund III, L.P.:
We have audited the accompanying balance sheets of Textainer Equipment Income
Fund III, L.P. (a California limited partnership) as of December 31, 1999 and
1998, the related statements of operations, partners' capital and cash flows for
each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Textainer Equipment Income Fund
III, L.P. as of December 31, 1999 and 1998, and the results of its operations,
its partners' capital and its cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
San Francisco, California
February 18, 2000
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
December 31, 1999 and 1998
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------
1999 1998
---------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $40,469 (1998: $40,147) $ 56,757 $ 65,872
Cash 3,355 3,455
Accounts receivable, net of allowance for doubtful
accounts of $756 (1998: $439) (note 5) 3,857 4,185
Due from affiliates, net (note 2) 816 1,041
Prepaid expenses 18 26
--------------- ----------------
$ 64,803 $ 74,579
=============== ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 432 $ 502
Accrued liabilities 286 163
Accrued recovery costs (note 1(j)) 165 116
Accrued damage protection plan costs (note 1(k)) 436 291
Warranty claims (note 1(l)) 149 188
Deferred quarterly distributions (note 1(g)) 81 97
Container purchases payable 243 56
--------------- ----------------
Total liabilities 1,792 1,413
--------------- ----------------
Partners' capital:
General partners - -
Limited partners 63,011 73,166
--------------- ----------------
Total partners' capital 63,011 73,166
--------------- ----------------
$ 64,803 $ 74,579
=============== ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Operations
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------- ---------------- ---------------
Rental income $ 15,224 $ 18,904 $ 19,361
---------------- ---------------- ---------------
Costs and expenses:
Direct container expenses 4,693 4,207 3,930
Bad debt expense (benefit) 353 (244) 166
Depreciation 6,148 6,646 6,817
Write-down of containers (note 1(e)) 733 349 -
Professional fees 70 41 37
Management fees to affiliates (note 2) 1,474 1,718 1,818
General and administrative costs
to affiliates (note 2) 785 1,009 1,153
Other general and administrative costs 166 169 216
---------------- ---------------- ---------------
14,422 13,895 14,137
---------------- ---------------- ---------------
Income from operations 802 5,009 5,224
---------------- ---------------- ---------------
Other expense:
Interest income 158 117 77
Loss on sale of containers (981) (1,240) (128)
---------------- ---------------- ---------------
(823) (1,123) (51)
---------------- ---------------- ---------------
Net (loss) earnings $ (21) $ 3,886 $ 5,173
================ ================ ===============
Allocation of net (loss) earnings (note 1(g)):
General partners $ 104 $ 115 $ 120
Limited partners (125) 3,771 5,053
---------------- ---------------- ---------------
$ (21) $ 3,886 $ 5,173
================ ================ ===============
Limited partners' per unit share
of net (loss) earnings $ (0.02) $ 0.61 $ 0.82
================ ================ ===============
Limited partners' per unit share
of distributions $ 1.61 $ 1.77 $ 1.85
================ ================ ===============
Weighted average number of limited
partnership units outstanding (note 1(m)) 6,136,934 6,162,976 6,168,527
================ ================ ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------
Partners' Capital
---------------------------------------------------------
General Limited Total
-------------- -------------- --------------
Balances at December 31, 1996 $ - $ 86,801 $ 86,801
Distributions (120) (11,412) (11,532)
Redemptions (note 1(n)) - (4) (4)
Net earnings 120 5,053 5,173
-------------- -------------- --------------
Balances at December 31, 1997 - 80,438 80,438
-------------- -------------- --------------
Distributions (115) (10,890) (11,005)
Redemptions (note 1(n)) - (153) (153)
Net earnings 115 3,771 3,886
-------------- -------------- --------------
Balances at December 31, 1998 - 73,166 73,166
-------------- -------------- --------------
Distributions (104) (9,873) (9,977)
Redemptions (note 1(n)) - (157) (157)
Net earnings (loss) 104 (125) (21)
-------------- -------------- --------------
Balances at December 31, 1999 $ - $ 63,011 $ 63,011
============== ============== ==============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------- -------------- --------------
Cash flows from operating activities:
Net (loss) earnings $ (21) $ 3,886 $ 5,173
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities:
Depreciation and container write-downs 6,881 6,995 6,817
Increase (decrease) in allowance for doubtful accounts,
excluding write-off (note 5) 317 (415) (82)
Loss on sale of containers 981 1,240 128
(Increase) decrease in assets:
Accounts receivable, excluding write-off (note 5) 145 1,041 608
Due from affiliates, net 31 (410) (267)
Prepaid expenses 8 146 (127)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 53 39 170
Accrued recovery costs 49 (3) 48
Accrued damage protection plan costs 145 (60) (71)
Warranty claims (39) (40) (39)
------------- -------------- --------------
Net cash provided by operating activities 8,550 12,419 12,358
------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of containers 4,947 3,329 1,601
Container purchases (3,446) (1,480) (4,484)
------------- -------------- --------------
Net cash provided by (used in) investing activities 1,501 1,849 (2,883)
------------- -------------- --------------
Cash flows from financing activities:
Redemptions of limited partnership units (157) (153) (4)
Distributions to partners (9,994) (11,030) (11,527)
------------- -------------- --------------
Net cash used in financing activities (10,151) (11,183) (11,531)
------------- -------------- --------------
Net (decrease) increase in cash (100) 3,085 (2,056)
Cash at beginning of period 3,455 370 2,426
------------- -------------- --------------
Cash at end of period $ 3,355 $ 3,455 $ 370
============= ============== ==============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California Limited Partnership)
Statements of Cash Flows - Continued
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------
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 by the Partnership as of December 31, 1999, 1998, 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.
1999 1998 1997 1996
---- ---- ---- ----
Container purchases included in:
Due to affiliates..................................... $ - $ 16 $ 42 $ -
Container purchases payable........................... 243 56 365 580
Distributions to partners included in:
Due to affiliates..................................... 8 9 10 10
Deferred quarterly distributions...................... 81 97 121 116
Proceeds from sale of containers included in:
Due from affiliates................................... 601 812 399 381
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 on the Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997.
1999 1998 1997
---- ---- ----
Container purchases recorded......................................... $ 3,617 $ 1,145 $ 4,311
Container purchases paid............................................. 3,446 1,480 4,484
Distributions to partners declared................................... 9,977 11,005 11,532
Distributions to partners paid....................................... 9,994 11,030 11,527
Proceeds from sale of containers recorded............................ 4,736 3,742 1,619
Proceeds from sale of containers received............................ 4,947 3,329 1,601
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 years ended December
31, 1999, 1998 and 1997 was $134, $98 and $20, respectively.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
(a) Nature of Operations
Textainer Equipment Income Fund III, L.P. (TEIF III or the Partnership), a
California limited partnership, with a maximum life of 20 years, was
formed on July 26, 1990. The Partnership was formed to engage in the
business of owning, leasing and selling both new and used equipment
related to the international containerized cargo shipping industry,
including, but not limited to, containers, trailers and other
container-related equipment. On January 16, 1991 TEIF III began offering
units representing limited partnership interests (Units) to the public. On
May 4, 1992, the Partnership had sold the maximum number of units offered.
On that date, the Partnership had issued 6,250,000 units, for a total of
$125,000.
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. Prior
to its liquidation in October 1998, Textainer Acquisition Services Limited
(TAS), a former affiliate of the General Partners, performed services
related to the acquisition of containers outside the United States on
behalf of the Partnership. Effective November 1998, these services are
being performed by TEM. The General Partners manage and control the
affairs of the Partnership.
(b) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recorded when earned according to the terms of the container rental
contracts. These contracts are classified as operating leases or direct
finance leases if they so qualify under Statement of Financial Accounting
Standards No. 13: "Accounting for Leases". Substantially all of the
Partnership's rental income was generated from the leasing of the
Partnership's containers under short-term operating leases.
(c) Use of Estimates
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.
(d) Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the Partnership
calculates the fair value of financial instruments and includes this
additional information in the notes to the financial statements when the
fair value is different than the book value of those financial
instruments. At December 31, 1999 and 1998, the fair value of the
Partnership's financial instruments approximates the related book value of
such instruments.
(e) Container Rental Equipment
Container rental equipment is recorded at the cost of the assets
purchased, which includes acquisition fees, less depreciation charged.
Depreciation of new containers is computed using the straight-line method
over an estimated useful life of 12 years to a 28% salvage value. Used
containers are depreciated based upon their estimated remaining useful
life at the date of acquisition (from 2 to 11 years). When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the equipment accounts and any resulting
gain or loss is recognized in income for the period.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" (SFAS 121), the Partnership periodically compares the
carrying value of the containers to expected future cash flows for the
purpose of assessing the recoverability of the recorded amounts. If the
carrying value exceeds expected future cash flows, the assets are written
down to estimated fair value. In addition, containers identified for
disposal are recorded at the lower of carrying amount or fair value less
cost to sell.
New container prices have been declining since 1995, and the cost of new
containers at year-end 1998 and during 1999, was significantly less than
the cost of containers purchased in prior years. The Partnership has
evaluated the recoverability of the recorded amount of container rental
equipment at December 31, 1997 and determined that a reduction to the
carrying value of containers was not required. During the years ended
December 31, 1998 and 1999, the Partnership determined that a reduction to
the carrying value of the 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 fourth quarter of 1998, the Partnership recorded a write-down
of $349 on 930 containers identified for sale. During the year ended
December 31, 1999, the Partnership recorded additional write-downs of $733
on previously written down containers and on 1,398 containers subsequently
identified for sale. The Partnership sold 1,998 previously written down
containers for a loss of $290. 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 $691 on the sale
of containers that had not been written-down.
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.
(f) Nature of Income from Operations
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 that 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 rather than the geographic location of the containers or the
domicile of the lessees.
No single lessee accounted for more than 10% of the Partnership's revenues
for the years ended December 31, 1999, 1998 and 1997.
(g) Allocation of Net Earnings and Partnership Distributions
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.
Actual cash distributions to the Limited Partners differ from the
allocated net earnings (losses) as presented in these financial statements
because cash distributions are based on cash available for distribution.
Cash distributions are paid to the general and limited partners on a
monthly basis in accordance with the provisions of the Partnership
Agreement. Some limited partners have elected to have their distributions
paid quarterly. The Partnership has recorded deferred distributions of $81
and $97 at December 31, 1999 and 1998, respectively.
(h) Income Taxes
The Partnership is not subject to income taxes. Accordingly, no provision
for income taxes has been made. The Partnership files federal and state
information returns only. Taxable income or loss is reportable by the
individual partners.
(i) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees equal
to 5% of the container purchase price were paid to TEM beginning in
November 1998 and TAS through October 1998. These fees are capitalized
as part of the cost of the containers.
(j) 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 December 31, 1999 and 1998, the amounts
accrued were $165 and $116, respectively.
(k) 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 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 Operations and the related
reserve at December 31, 1999 and 1998, was $436 and $291, respectively.
(l) Warranty Claims
During 1992 and 1995, the Partnership settled warranty claims against a
container manufacturer. The Partnership is amortizing the settlement
amounts over the remaining estimated useful lives of the applicable
containers (between six and seven years), reducing maintenance and repair
costs over that time. At December 31, 1999 and 1998, the unamortized
portion of the settlement amount was equal to $149 and $188, respectively.
(m) Limited Partners' Per Unit Share of Net Earnings (Loss) and
Distributions
Limited partners' per unit share of both net earnings (loss) and
distributions were computed using the weighted average number of units
outstanding during the years ended December 31, 1999, 1998 and 1997, which
were 6,136,934, 6,162,976, and 6,168,527, respectively.
(n) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 1999, 1998 and 1997:
Units Average
Redeemed Redemption Price Amount Paid
---------- ----------------- -------------
Total Partnership redemptions as of
December 31, 1996 ..................... 81,098 $14.71 $1,193
------ ------
Year ended December 31, 1997:
1st quarter....................... 375 $10.67 4
------ ------
Year ended December 31, 1998:
3rd quarter....................... 7,538 $10.61 80
4th quarter....................... 7,129 $10.24 73
------ ------
14,667 $10.43 153
------ ------
Year ended December 31, 1999:
1st quarter....................... 16,926 $ 9.28 157
------ ------
Total Partnership redemptions as of
December 31, 1999 ..................... 113,066 $13.33 $1,507
======= ======
The redemption price is fixed by formula.
Note 2. Transactions with Affiliates
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, or TAS prior to its liquidation, 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 $172, $55, and $216 of container acquisition fees
as part of container rental equipment costs during the years ended
December 31, 1999, 1998 and 1997, respectively. The Partnership incurred
$410, $454, and $480 of incentive management fees during each of the three
years ended December 31, 1999, 1998 and 1997, respectively. No equipment
liquidation fees were incurred during these periods.
The Partnership's containers are managed by TEM. In its role as manager,
TEM has authority to acquire, hold, manage, lease, sell and dispose of the
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 December 31, 1999 and 1998.
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. For
the years ended December 31, 1999, 1998 and 1997, equipment management
fees totaled $1,064, $1,264, and $1,338, respectively. The Partnership's
containers are leased by TEM to third party lessees on operating master
leases, spot leases, term leases and full payout net leases. The majority
of the Partnership's leases are operating 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 TEM and TFS. Total general and
administrative costs allocated to the Partnership were as follows:
1999 1998 1997
---- ---- ----
Salaries $ 437 $ 547 $ 628
Other 348 462 525
--- ----- -----
Total general and
administrative costs $ 785 $1,009 $1,153
=== ===== =====
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:
1999 1998 1997
---- ---- ----
TEM $ 701 $ 914 $1,020
TFS 84 95 133
--- ----- -----
Total general and
administrative costs $ 785 $1,009 $1,153
=== ===== =====
The General Partners, or TAS through October 1998, 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 and, prior to its liquidation, TAS are
entitled to an acquisition fee for any containers resold to the
Partnership.
At December 31, 1999 and 1998, due from affiliates, net, is comprised of:
1999 1998
---- ----
Due from affiliates:
Due from TEM........................... $ 864 $1,087
------ -----
Due to affiliates:
Due to TFS............................. 34 37
Due to TCC............................. 13 8
Due to TL.............................. 1 1
------ -----
48 46
------ -----
Due from affiliates, net $ 816 $1,041
====== =====
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.
Note 3. Rentals under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at December 31, 1999. 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 December 31,
2000...................................................... $1,165
2001...................................................... 229
2002...................................................... 197
2003...................................................... 77
2004...................................................... 25
-----
Total minimum future rentals receivable.................... $1,693
=====
Note 4. Income Taxes
At December 31, 1999, 1998 and 1997, there were temporary differences of
$24,756, $33,140, and $36,125, respectively, between the financial
statement carrying value of certain assets and liabilities and the federal
income tax basis of such assets and liabilities. The reconciliation of net
income for financial statement purposes to net income for federal income
tax purposes for the years ended December 31, 1999, 1998 and 1997 is as
follows:
1999 1998 1997
---- ---- ----
Net (loss) income per financial statements............... $ (21) $ 3,886 $ 5,173
Increase (decrease) in provision for bad debt............ 317 (1,095) (82)
Depreciation for federal income tax purposes
less than (in excess of) depreciation for
financial statement purposes............................ 2,373 (782) (10,389)
Gain on sale of fixed assets for federal income
tax purposes in excess of gain/loss recognized
for financial statement purposes....................... 5,588 4,962 1,534
Increase (decrease) in damage protection plan costs...... 145 (60) (71)
Warranty reserve income for tax purposes in excess
of financial statement purposes........................ (39) (40) (39)
----- ------ -------
Net income (loss) for federal income tax purposes........ $ 8,363 $ 6,871 $ (3,874)
===== ===== =======
Note 5. Accounts Receivable Write-Off
During 1998, the Partnership wrote-off $680 of delinquent receivables from
two lessees against which reserves were recorded in 1994 and 1995. During
the year ended December 31, 1999, there were no such write-offs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been none.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no officers or directors.
As described in the Prospectus, the Registrant's three original general partners
were TCC, TEM and Textainer Inc. (TI), which comprised the original Textainer
Group. Effective October 1, 1993, the Textainer Group restructured its
organization by forming a new holding company, Textainer Group Holdings Limited
(TGH), and the shareholders of the underlying companies which include the
General Partners accepted shares in TGH in exchange for their shares in the
individual companies. Textainer Financial Services Corporation (TFS) is the
Managing General Partner of the Partnership (prior to its name change on April
4, 1994, TFS was known as Textainer Capital Corporation). TFS is a wholly-owned
subsidiary of Textainer Capital Corporation (TCC) (prior to its name change on
April 4, 1994, TCC was known as Textainer (Delaware) Inc.). Textainer Equipment
Management Limited (TEM) is an Associate General Partner of the Partnership. TI
was an Associate General Partner of the Partnership through September 30, 1993
when it was replaced in that capacity by Textainer Limited (TL), pursuant to the
corporate restructuring effective October 1, 1993, which caused TFS, TEM and TL
to fall under the common ownership of TGH. Pursuant to this restructuring, TI
transferred substantially all of its assets including all of its rights and
duties as Associate General Partner to TL. This transfer was effective from
October 1, 1993. The end result was that TFS now serves as the Managing General
Partner and TEM and TL now serve as the Associate General Partners. The Managing
General Partner and Associate General Partners are collectively referred to as
the General Partners and are wholly-owned or substantially-owned subsidiaries of
TGH. The General Partners also act in this capacity for other limited
partnerships. Prior to its liquidation in October 1998, Textainer Acquisition
Services Limited (TAS) was an affiliate of the General Partners and performed
services related to the acquisition of equipment outside the United States on
behalf of the Partnership. Effective November 1998, these services are performed
by TEM.
TFS, as the Managing General Partner, is responsible for managing the
administration and operation of the Registrant, and for the formulation and
administration of investment policies.
TEM, an Associate General Partner, manages all aspects of the operation of the
Registrant's equipment.
TL, an Associate General Partner, owns a fleet of container rental equipment
which is managed by TEM. TL provides advice to the Partnership regarding
negotiations with financial institutions, manufacturers and equipment owners,
and regarding the terms upon which particular items of equipment are acquired.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's
General Partners, policy-making officials and persons who beneficially own more
than ten percent of the Units to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Copies of these reports
must also be furnished to the Partnership.
Based solely on a review of the copies of such forms furnished to the
Partnership or on written representations that no forms were required to be
filed, the Partnership believes that with respect to its most recent fiscal year
ended December 31, 1999, all Section 16(a) filing requirements were complied
with. No member of management, or beneficial owner owned more than 10 percent of
any interest in the Partnership. None of the individuals subject to section
16(a) failed to file or filed late any reports of transactions in the Units.
The directors and executive officers of the General Partners are as follows:
Name Age Position
Neil I. Jowell 66 Director and Chairman of TGH, TEM, TL, TCC and TFS
John A. Maccarone 55 President, CEO and Director of TGH, TEM, TL, TCC and TFS
James E. Hoelter 60 Director of TGH, TEM, TL, TCC and TFS
Alex M. Brown 61 Director of TGH, TEM, TL, TCC and TFS
Harold J. Samson 78 Director of TGH and TL
Philip K. Brewer 43 Senior Vice President - Asset Management Group
Robert D. Pedersen 41 Senior Vice President - Leasing Group, Director of TEM
Ernest J. Furtado 44 Senior Vice President , CFO and Secretary of TGH, TEM, TL, TCC and TFS,
Director of TCC and TFS
Wolfgang Geyer 46 Regional Vice President - Europe
Mak Wing Sing 42 Regional Vice President - South Asia
Masanori Sagara 44 Regional Vice President - North Asia
John. A. Lore 46 Regional Vice President - Americas
Stefan Mackula 47 Vice President - Equipment Resale
Anthony C. Sowry 47 Vice President - Corporate Operations and Acquisitions
Richard G. Murphy 47 Vice President - Risk Management
Janet S. Ruggero 51 Vice President - Administration and Marketing Services
Jens W. Palludan 49 Regional Vice President - Logistics Division
Isam K. Kabbani 65 Director of TGH and TL
James A. C. Owens 60 Director of TGH and TL
S. Arthur Morris 66 Director of TGH, TEM and TL
Dudley R. Cottingham 48 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Nadine Forsman 32 Controller of TCC and TFS
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TCC and TFS
and a member of the Investment Advisory Committee (see "Committees" below). He
has served on the Board of Trencor Ltd. since 1966 and as Chairman since 1973.
He is also a director of Mobile Industries, Ltd. (1969 to present), an affiliate
of Trencor, and a non-executive director of Forward Corporation Ltd. (1993 to
present). Trencor is a publicly traded diversified industrial group listed on
the Johannesburg Stock Exchange. Its business is the leasing, owning, managing
and financing of marine cargo containers worldwide and the manufacture and
export of containers for international markets. In South Africa, it is engaged
in manufacturing, trading and exports of general commodities. Trencor also has
an interest in Forward Corporation Ltd., a publicly traded holding company
listed on the Johannesburg Stock Exchange. It has interests in industrial and
consumer businesses operating in South Africa and abroad. Mr. Jowell became
affiliated with the General Partners and its affiliates when Trencor became,
through its beneficial ownership in two controlled companies, a major
shareholder of the Textainer Group in 1992. Mr. Jowell has over 36 years'
experience in the transportation industry. He holds an M.B.A. degree from
Columbia University and Bachelor of Commerce and L.L.B. degrees from the
University of Cape Town.
John A. Maccarone is President, CEO and Director of TGH, TEM, TL, TCC
and TFS. In this capacity he is responsible for overseeing the management of and
coordinating the activities of Textainer's worldwide fleet of marine cargo
containers and the activities of TCC and TFS. Additionally, he is Chairman of
the Equipment Investment Committee, the Credit Committee and the Investment
Advisory Committee (see "Committees", below). Mr. Maccarone was instrumental in
co-founding Intermodal Equipment Associates (IEA), a marine container leasing
company based in San Francisco, and held a variety of executive positions with
IEA from 1979 until 1987, when he joined the Textainer Group. Mr. Maccarone was
previously a Director of Marketing for Trans Ocean Leasing Corporation in Hong
Kong with responsibility for all leasing activities in Southeast Asia. From 1969
to 1977, Mr. Maccarone was a marketing representative for IBM Corporation. He
holds a Bachelor of Science degree in Engineering Management from Boston
University and an M.B.A. from Loyola University of Chicago.
James E. Hoelter is a director of TGH, TEM, TL, TCC and TFS. In
addition, Mr. Hoelter is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Mr. Hoelter was the
President and Chief Executive Officer of TGH and TL from 1993 to 1998 and
currently serves as a consultant to Trencor (1999 to present). Prior to joining
the Textainer Group in 1987, Mr. Hoelter was president of IEA. Mr. Hoelter
co-founded IEA in 1978 with Mr. Maccarone and was president from inception until
1987. From 1976 to 1978, Mr. Hoelter was vice president for Trans Ocean Ltd.,
San Francisco, a marine container leasing company, where he was responsible for
North America. From 1971 to 1976, he worked for Itel Corporation, San Francisco,
where he was director of financial leasing for the container division. Mr.
Hoelter received his B.B.A. in finance from the University of Wisconsin, where
he is an emeritus member of its Business School's Dean's Advisory Board, and his
M.B.A. from the Harvard Graduate School of Business Administration.
Alex M. Brown is a director of TGH, TEM, TL, TCC and TFS.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Among
other directorships, Mr. Brown is a director of Trencor Ltd. (1996 to present)
and Forward Corporation (1997 to present). Both companies are publicly traded
and listed on the Johannesburg Stock Exchange. Mr. Brown became affiliated
with the Textainer Group in April 1986. From 1987 until 1993, he was
President and Chief Executive Officer of Textainer, Inc. and the Chairman of
the Textainer Group. Mr. Brown was the managing director of Cross County
Leasing in England from 1984 until it was acquired by Textainer in 1986. From
1993 to 1997, Mr. Brown was Chief Executive Officer of AAF, a company
affiliated with Trencor Ltd. Mr. Brown was also Chairman of WACO International
Corporation, based in Cleveland, Ohio until 1997.
Harold J. Samson is a director of TGH and TL and is a member of
the Investment Advisory Committee (see "Committees", below). Mr. Samson served
as a consultant to various securities firms from 1981 to 1989. From 1974 to 1981
he was Executive Vice President of Foster & Marshall, Inc., a New York Stock
Exchange member firm based in Seattle. Mr. Samson was a director of IEA from
1979 to 1981. From 1957 to 1984 he served as Chief Financial Officer in several
New York Stock Exchange member firms. Mr. Samson holds a B.S. in Business
Administration from the University of California, Berkeley and is a
California Certified Public Accountant.
Philip K. Brewer was President of TCC and TFS from January 1, 1998 to
December 31, 1998 until his appointment as Senior Vice President - Asset
Management Group. As President of TCC, Mr. Brewer was responsible for overseeing
the management of, and coordinating the activities of TCC and TFS. As Senior
Vice President, he is responsible for optimizing the capital structure of and
identifying new sources of finance for Textainer, as well as overseeing the
management of and coordinating the activities of Textainer's risk management,
logistics and the resale divisions. Mr. Brewer is a member of the Equipment
Investment Committee, the Credit Committee and was a member of the Investment
Advisory Committee through December 31, 1998 (see "Committees" below). Prior to
joining Textainer in 1996, as Senior Vice President - Capital Markets for TGH
and TL, Mr. Brewer worked at Bankers Trust from 1990 to 1996, starting as a Vice
President in Corporate Finance and ending as Managing Director and Country
Manager for Indonesia; from 1989 to 1990, he was Vice President in Corporate
Finance at Jarding Fleming; from 1987 to 1989, he was Capital Markets Advisor to
the United States Agency for International Development; and from 1984 to 1987 he
was an Associate with Drexel Burnham Lambert in New York. Mr. Brewer holds an
M.B.A. in Finance from the Graduate School of Business at Columbia University,
and a B.A. in Economics and Political Science from Colgate University.
Robert D. Pedersen is Senior Vice-President - Leasing Group and a
Director of TEM, responsible for worldwide sales and marketing related
activities and operations. Mr. Pedersen is a member of the Equipment Investment
Committee and the Credit Committee (see "Committees" below). He joined Textainer
in 1991 as Regional Vice President for the Americas Region. Mr. Pedersen has
extensive experience in the industry having held a variety of positions with
Klinge Cool, a manufacturer of refrigerated container cooling units (from 1989
to 1991), where he was worldwide sales and marketing director, XTRA, a container
lessor (from 1985 to 1988) and Maersk Line, a container shipping line (from 1978
to 1984). Mr. Pedersen is a graduate of the A.P. Moller shipping and
transportation program and the Merkonom Business School in Copenhagen, majoring
in Company Organization.
Ernest J. Furtado is Senior Vice President, CFO and Secretary of TGH,
TEM, TL, TCC and TFS and a Director of TCC and TFS, in which capacity he is
responsible for all accounting, financial management, and reporting functions
for TGH, TEM, TL, TCC and TFS. Additionally, he is a member of the Investment
Advisory Committee for which he serves as Secretary, the Equipment Investment
Committee and the Credit Committee (see "Committees", below). Prior to these
positions, he held a number of accounting and financial management positions at
Textainer, of increasing responsibility. Prior to joining Textainer in May 1991,
Mr. Furtado was Controller for Itel Instant Space and manager of accounting for
Itel Containers International Corporation, both in San Francisco, from 1984 to
1991. Mr. Furtado's earlier business affiliations include serving as audit
manager for Wells Fargo Bank and as senior accountant with John F. Forbes & Co.,
both in San Francisco. He is a Certified Public Accountant and holds a B.S. in
business administration from the University of California at Berkeley and an
M.B.A. in information systems from Golden Gate University.
Wolfgang Geyer is based in Hamburg, Germany and is Regional Vice
President - Europe, responsible for coordinating all leasing activities in this
area of operation. Mr. Geyer joined Textainer in 1993 and was the Marketing
Director in Hamburg through July 1997. From 1991 to 1993, Mr. Geyer most
recently was the Senior Vice President for Clou Container Leasing, responsible
for its worldwide leasing activities. Mr. Geyer spent the remainder of his
leasing career, 1975 through 1991, with Itel Container, during which time he
held numerous positions in both operations and marketing within the company.
Mak Wing Sing is based in Singapore and is the Regional Vice President
- - South Asia, responsible for container leasing activities in North/Central
People's Republic of China, Hong Kong, South China (PRC), and Southeast Asia.
Mr. Mak most recently was the Regional Manager, Southeast Asia, for Trans Ocean
Leasing, working there from 1994 to 1996. From 1987 to 1994, Mr. Mak worked with
Tiphook as their Regional General Manager, and with OOCL from 1976 to 1987 in a
variety of positions, most recently as their Logistics Operations Manager.
Masanori Sagara is based in Yokohama, Japan and is the Regional Vice
President - North Asia, responsible for container leasing activities in Japan,
Korea, and Taiwan. Mr. Sagara joined Textainer in 1990 and was the company's
Marketing Director in Japan through 1996. From 1987 to 1990, he was the
Marketing Manager at IEA. Mr. Sagara's other experience in the container leasing
business includes marketing management at Genstar from 1984 to 1987 and various
container operations positions with Thoresen & Company from 1979 to 1984. Mr.
Sagara holds a Bachelor of Science degree in Economics from Aoyama Bakuin
University.
John A. Lore is based in Hackensack, New Jersey and is the Regional
Vice President - Americas, responsible for container leasing activities in
North/South America, Australia/New Zealand, Africa, the Middle East and Persian
Gulf. Prior to joining Textainer in 1999, Mr. Lore was the America's Vice
President for Xtra International Limited from 1996 to 1999 and Area Director
from 1990 to 1996. He has held various positions within the container leasing
industry since 1978. Mr. Lore holds a B.B.A. in Marketing Management from Baruch
College and an M.B.A. in Executive Management from St. John's University.
Stefan Mackula is Vice President - Equipment Resale, responsible for
coordinating the worldwide sale of equipment into secondary markets. Mr. Mackula
also served as Vice President - Marketing from 1989 to 1991 where he was
responsible for coordinating all leasing activities in Europe, Africa, and the
Middle East. Mr. Mackula joined Textainer in 1983 as Leasing Manager for the
United Kingdom. Prior to joining Textainer, Mr. Mackula held, beginning in 1972,
a variety of positions in the international container shipping industry.
Anthony C. Sowry is Vice President - Corporate Operations and
Acquisitions. He is also a member of the Equipment Investment Committee and the
Credit Committee (see "Committees", below). Mr. Sowry supervises all
international container operations and maintenance and technical functions for
the fleets under Textainer's management. In addition, he is responsible for the
acquisition of all new and used containers for the Textainer Group. He began his
affiliation with Textainer in 1982, when he served as Fleet Quality Control
Manager for Textainer Inc. until 1988. From 1980 to 1982, he was operations
manager for Trans Container Services in London; and from 1978 to 1982, he was a
technical representative for Trans Ocean Leasing, also in London. He received
his B.A. degree in business management from the London School of Business. Mr.
Sowry is a member of the Technical Committee of the International Institute of
Container Lessors and a certified container inspector.
Richard G. Murphy is Vice President, Risk Management, responsible for
all credit and risk management functions. He also supervises the administrative
aspects of equipment acquisitions. He is a member of and acts as secretary to
the Equipment Investment and Credit Committees (see "Committees", below). He
previously served as TEM's Director of Credit and Risk Management from 1989 to
1991 and as Controller from 1988 to 1989. Prior to the takeover of the
management of the Interocean Leasing Ltd. fleet by TEM in 1988, Mr. Murphy held
various positions in the accounting and financial areas with that company from
1980, acting as Chief Financial Officer from 1984 to 1988. Prior to 1980, he
held various positions with firms of public accountants in the U.K. Mr. Murphy
is an Associate of the Institute of Chartered Accountants in England and Wales
and holds a Bachelor of Commerce degree from the National University of Ireland.
Janet S. Ruggero is Vice President, Administration and Marketing
Services. Ms. Ruggero is responsible for the tracking and billing of fleets
under TEM management, including direct responsibility for ensuring that all data
is input in an accurate and timely fashion. She assists the marketing and
operations departments by providing statistical reports and analyses and serves
on the Credit Committee (see "Committees", below). Prior to joining Textainer in
1986, Ms. Ruggero held various positions with Gelco CTI over the course of 15
years, the last one as Director of Marketing and Administration for the North
American Regional office in New York City. She has a B.A. in education from
Cumberland College.
Jens W. Palludan is based in Hackensack, New Jersey and is the
Regional Vice President - Logistics Division, responsible for coordinating
container logistics. He joined Textainer in 1993 as Regional Vice President -
Americas/Africa/Australia, responsible for coordinating all leasing activities
in North and South America, Africa and Australia/New Zealand. Mr. Palludan
spent his career from 1969 through 1992 with Maersk Line of Copenhagen, Denmark
in a variety of key management positions in both Denmark and overseas. Mr.
Palludan's most recent position at Maersk was that of General Manager,
Equipment and Terminals, where he was responsible for the entire managed fleet.
Mr. Palludan holds an M.B.A. from the Centre European D'Education Permanente,
Fontainebleau, France.
Sheikh Isam K. Kabbani is a director of TGH and TL. He is Chairman and
principal stockholder of the IKK Group, Jeddah, Saudi Arabia, a manufacturing
and trading group which is active both in Saudi Arabia and internationally. In
1959 Sheikh Isam Kabbani joined the Saudi Arabian Ministry of Foreign Affairs,
and in 1960 moved to the Ministry of Petroleum for a period of ten years. During
this time he was seconded to the Organization of Petroleum Exporting Countries
(OPEC). After a period as Chief Economist of OPEC, in 1967 he became the Saudi
Arabian member of OPEC's Board of Governors. In 1970 he left the ministry of
Petroleum to establish his own business, the National Marketing Group, which has
been his principal business activity for the past 18 years. Sheikh Kabbani holds
a B.A. degree from Swarthmore College, Pennsylvania, and an M.A. degree in
Economics and International Relations from Columbia University.
James A. C. Owens is a director of TGH and TL. Mr. Owens has been
associated with the Textainer Group since 1980. In 1983 he was appointed to
the Board of Textainer Inc., and served as President of Textainer Inc. from
1984 to 1987. From 1987 to 1998, Mr. Owens served as an alternate director on
the Boards of TI, TGH and TL. Apart from his association with the Textainer
Group, Mr. Owens has been involved in insurance and financial brokerage
companies and captive insurance companies. He is a member of a number of Boards
of Directors. Mr. Owens holds a Bachelor of Commerce degree from the University
of South Africa.
S. Arthur Morris is a director of TGH, TEM and TL. He is a founding
partner in the firm of Morris and Kempe, Chartered Accountants (1962-1977) and
currently functions as a correspondent member of a number of international
accounting firms through his firm Arthur Morris and Company (1977 to date). He
is also President and director of Continental Management Limited (1977 to date).
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Morris has over 30 years
experience in public accounting and serves on numerous business and charitable
organizations in the Cayman Islands and Turks and Caicos Islands. Mr. Morris
became a director of TL and TGH in 1993, and TEM in 1994.
Dudley R. Cottingham is Assistant Secretary, Vice President and a
director of TGH, TEM and TL. He is a partner with Arthur Morris and Company
(1977 to date) and a Vice President and director of Continental Management
Limited (1978 to date), both in the Cayman Islands and Turks and Caicos Islands.
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Cottingham has over 20 years
experience in public accounting with responsibility for a variety of
international and local clients. Mr. Cottingham became a director of TL and TGH
in 1993, and TEM in 1994.
Nadine Forsman is the Controller of TCC and TFS. Additionally, she is a
member of the Investment Advisory Committee and Equipment Investment Committee
(See "Committees" below). As controller of TCC and TFS, she is responsible for
accounting, financial management and reporting functions for TCC and TFS as well
as overseeing all communications with the Limited Partners and as such,
supervises personnel in performing these functions. Prior to joining Textainer
in August 1996, Ms. Forsman was employed by KPMG LLP, holding various positions,
the most recent of which was manager, from 1990 to 1996. Ms. Forsman holds a
B.S. in Accounting and Finance from San Francisco State University and holds a
general securities license and a financial and operations principal securities
license.
Committees
The Managing General Partner has established the following three
committees to facilitate decisions involving credit and organizational matters,
negotiations, documentation, management and final disposition of equipment for
the Partnership and for other programs organized by the Textainer Group:
Equipment Investment Committee. The Equipment Investment Committee
will review the equipment leasing operations of the Partnership on a regular
basis with emphasis on matters involving equipment purchases, the equipment mix
in the Partnership's portfolio, equipment remarketing issues, and decisions
regarding ultimate disposition of equipment. The members of the committee
are John A. Maccarone (Chairman), James E. Hoelter, Anthony C. Sowry, Richard
G. Murphy (Secretary), Alex M. Brown, Philip K. Brewer, Robert D. Pedersen,
Ernest J. Furtado and Nadine Forsman.
Credit Committee. The Credit Committee will establish credit limits
for every lessee and potential lessee of equipment and periodically review
these limits. In setting such limits, the Credit Committee will consider such
factors as customer trade routes, country, political risk, operational history,
credit references, credit agency analyses, financial statements, and other
information. The members of the Credit Committee are John A. Maccarone
(Chairman), Richard G. Murphy (Secretary), Janet S. Ruggero, Anthony C. Sowry,
Philip K. Brewer, Ernest J. Furtado and Robert D. Pedersen.
Investment Advisory Committee. The Investment Advisory Committee will
review investor program operations on at least a quarterly basis, emphasizing
matters related to cash distributions to investors, cash flow management,
portfolio management, and liquidation. The Investment Advisory Committee is
organized with a view to applying an interdisciplinary approach, involving
management, financial, legal and marketing expertise, to the analysis of
investor program operations. The members of the Investment Advisory Committee
are John A. Maccarone (Chairman), James E. Hoelter, Ernest J. Furtado
(Secretary), Nadine Forsman, Harold J. Samson, Alex M. Brown and Neil I. Jowell.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant has no executive officers and does not reimburse TFS, TEM or TL
for the remuneration payable to their executive officers. For information
regarding reimbursements made by the Registrant to the General Partners, see
note 2 of the Financial Statements in Item 8.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
There is no person or "Group" who is known to the Registrant to be the
beneficial owner of more than five percent of the outstanding units of
limited partnership interest in the Registrant.
(b) Security Ownership of Management
As of January 1, 2000:
Number
Name of Beneficial Owner Of Units % All Units
-------- ----------
James E. Hoelter........................ 2,500 0.0407%
John A. Maccarone....................... 2,520 0.0411%
Harold Samson........................... 2,500 0.0407%
Anthony C. Sowry........................ 274 0.0045%
----- -------
Officers and Management
as a Group.......................... 7,794 0.1270%
===== =======
(c) Changes in control.
Inapplicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 1999 and 1998, due from affiliates, net, is comprised
of:
1999 1998
---- ----
Due from affiliates:
Due from TEM.......................... $ 864 $1,087
----- -----
Due to affiliates:
Due to TFS............................ 34 37
Due to TCC............................ 13 8
Due to TL............................. 1 1
----- -----
48 46
----- -----
Due from affiliates, net $ 816 $1,041
===== =====
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.
In addition, the Registrant paid or will pay the following amounts
to the General Partners and TAS:
Acquisition fees in connection with the purchase of containers on
behalf of the Registrant:
1999 1998 1997
---- ---- ----
TAS.................... $ - $ 39 $ 216
TEM.................... 172 16 -
----- ------- -----
Total.................. $ 172 $ 55 $ 216
===== ======= =====
Management fees in connection with the operations of the Registrant:
1999 1998 1997
---- ---- ----
TEM.................... $1,154 $1,364 $1,443
TFS.................... 320 354 375
----- ----- -----
Total.................. $1,474 $1,718 $1,818
===== ===== =====
Reimbursement for administrative costs in connection with of the
operations of the Registrant:
1999 1998 1997
---- ---- ----
TEM.................... $ 701 $ 914 $1,020
TFS.................... 84 95 133
--- ----- -----
Total.................. $ 785 $1,009 $1,153
=== ===== =====
(b) Certain Business Relationships.
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Management" and "Compensation of General Partners and Affiliates"
sections of the Registrant's Prospectus, as supplemented, and the Notes to the
Financial Statements in Item 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Audited financial statements of the Registrant for the year
ended December 31, 1999 are contained in Item 8 of this
Report.
2. Financial Statement Schedules.
(i) Independent Auditors' Report on Supplementary Schedule.
(ii) Schedule II - Valuation and Qualifying Accounts.
3. Exhibits Incorporated by reference.
(i) The Registrant's Prospectus as contained in
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement (No. 33-36255), as filed with
the Commission December 21, 1990, as supplemented by
Post-Effective Amendments No. 1, 2 and 3 filed with
the Commission under Section 8(c) of the Securities
Act of 1993 on March 1, 1991, January 13, 1992 and
February 4, 1992, respectively.
(ii) The Registrant's limited partnership agreement, Exhibit
A to the Prospectus.
(b) During the year ended 1999, no reports on Form 8-K have been filed
by the Registrant.
Independent Auditors' Report on Supplementary Schedule
The Partners
Textainer Equipment Income Fund III, L.P.:
Under the date of February 18, 2000, we reported on the balance sheets of
Textainer Equipment Income Fund III, L.P. (the Partnership) as of December 31,
1999 and 1998, and the related statements of operations partners' capital and
cash flows for each of the years in the three-year period ended December 31,
1999, which are included in the 1999 annual report on Form 10-K. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule as listed in Item 14. This financial
statement schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
San Francisco, California
February 18, 2000
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(A California Limited Partnership)
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------
Charged Balance
Balance at to Costs Charged at End
Beginning and to Other of
of Period Expenses Accounts Deduction Period
---------- -------- -------- --------- -------
For the year ended December 31, 1999:
Allowance for
doubtful accounts $ 439 $ 353 $ - $ (36) $ 756
-------- -------- -------- --------- ---------
Recovery cost reserve $ 116 $ 149 $ - $ (100) $ 165
-------- -------- -------- --------- ---------
Damage protection
plan reserve $ 291 $ 692 $ - $ (547) $ 436
-------- -------- -------- --------- ---------
For the year ended December 31, 1998:
Allowance for
doubtful accounts $ 1,534 $ (244) $ (680) $ (171) $ 439
-------- -------- -------- --------- ---------
Recovery cost reserve $ 119 $ 232 $ - $ (235) $ 116
-------- -------- -------- --------- ---------
Damage protection
plan reserve $ 351 $ 299 $ - $ (359) $ 291
-------- -------- -------- --------- ---------
For the year ended December 31, 1997:
Allowance for
doubtful accounts $ 1,616 $ 166 $ - $ (248) $ 1,534
-------- -------- -------- ------- ---------
Recovery cost reserve $ 71 $ 244 $ - $ (196) $ 119
-------- -------- -------- --------- ---------
Damage protection
plan reserve $ 422 $ 303 $ - $ (374) $ 351
-------- -------- -------- --------- ---------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 2000
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
__________________________
Ernest J. Furtado Senior Vice President, CFO March 28, 2000
(Principal Financial and
Accounting Officer),
Secretary and Director
__________________________
John A. Maccarone President (Principal Executive March 28, 2000
Officer), and Director
__________________________ Chairman of the Board and Director March 28, 2000
Neil I. Jowell
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 2000
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/Ernest J. Furtado
_______________________
Ernest J. Furtado Senior Vice President, CFO March 28, 2000
(Principal Financial and
Accounting Officer),
Secretary and Director
/s/John A. Maccarone
_______________________ President (Principal Executive March 28, 2000
John A. Maccarone Officer), and Director
/s/Neil I. Jowell
_______________________ Chairman of the Board and Director March 28, 2000
Neil I. Jowell