TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 8, 2002
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund III,
L.P. (the "Partnership") the Partnership's Quarterly Report on Form 10-Q for the
Second Quarter ended June 30, 2002.
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-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission file number 0-20140
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership
(Exact name of Registrant as specified in its charter)
California 94-3121277
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
650 California Street, 16th Floor
San Francisco, CA 94108
(Address of Principal Executive Offices) (ZIP Code)
(415) 434-0551
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2002
Table of Contents
- ----------------------------------------------------------------------------------------------------------
Page
Item 1. Financial Statements
Balance Sheets - June 30, 2002
and December 31, 2001 (unaudited)................................................ 3
Statements of Operations for the three and six months
ended June 30, 2002 and 2001 (unaudited)......................................... 4
Statements of Partners' Capital for the six months
ended June 30, 2002 and 2001 (unaudited)......................................... 5
Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 (unaudited)......................................... 6
Notes to Financial Statements (unaudited)........................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 14
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 2002 and December 31, 2001
(Amounts in thousands)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
2002 2001
--------------- ---------------
Assets
Container rental equipment, net of accumulated
depreciation of $39,533, (2001: $42,049) (note 4) $ 37,108 $ 42,867
Cash 696 3,253
Accounts receivable, net of allowance for doubtful
accounts of $217, (2001: $232) 2,015 2,455
Due from affiliates, net (note 2) 282 454
Prepaid expenses 5 16
--------------- ---------------
$ 40,106 $ 49,045
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 396 $ 490
Accrued liabilities 241 182
Accrued recovery costs 130 194
Accrued damage protection plan costs 161 162
Warranty claims 50 69
Deferred quarterly distributions 273 54
Deferred damage protection plan revenue 153 149
--------------- ---------------
Total liabilities 1,404 1,300
--------------- ---------------
Partners' capital:
General partners - -
Limited partners 38,702 47,745
--------------- ---------------
Total partners' capital 38,702 47,745
--------------- ---------------
$ 40,106 $ 49,045
=============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Operations
For the three and six months ended June 30, 2002 and 2001
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Rental income $ 2,152 $ 2,984 $ 4,430 $ 6,359
------------- ------------- ------------- -------------
Costs and expenses:
Direct container expenses 812 1,067 1,565 2,403
Bad debt benefit (21) (49) (18) (68)
Depreciation 1,158 1,389 2,378 2,799
Write-down of containers (note 4) 287 118 1,007 200
Professional fees 16 8 29 18
Management fees to affiliates (note 2) 197 299 421 614
General and administrative costs
to affiliates (note 2) 129 159 270 334
Other general and administrative costs 73 40 143 79
Loss on sale of containers (note 4) 23 85 447 181
------------- ------------- ------------- -------------
2,674 3,116 6,242 6,560
------------- ------------- ------------- -------------
Loss from operations (522) (132) (1,812) (201)
------------- ------------- ------------- -------------
Interest income 13 24 28 61
------------- ------------- ------------- -------------
Net loss $ (509) $ (108) $ (1,784) $ (140)
============= ============= ============= =============
Allocation of net (loss) earnings (note 2):
General partners $ 57 $ 23 $ 73 $ 45
Limited partners (566) (131) (1,857) (185)
------------- ------------- ------------- -------------
$ (509) $ (108) $ (1,784) $ (140)
============= ============= ============= =============
Limited partners' per unit share
of net loss $ (0.09) $ (0.02) $ (0.31) $ (0.03)
============= ============= ============= =============
Limited partners' per unit share
of distributions $ 0.93 $ 0.35 $ 1.18 $ 0.70
============= ============= ============= =============
Weighted average number of limited
partnership units outstanding 6,080,851 6,100,776 6,080,851 6,100,776
============= ============= ============= =============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------
Partners' Capital
-----------------------------------------------------------
General Limited Total
--------------- --------------- ---------------
Balances at January 1, 2001 $ - $ 56,884 $ 56,884
Distributions (45) (4,272) (4,317)
Redemptions (note 5) - (109) (109)
Net earnings (loss) 45 (185) (140)
--------------- --------------- ---------------
Balances at June 30, 2001 $ - $ 52,318 $ 52,318
=============== =============== ===============
Balances at January 1, 2002 $ - $ 47,745 $ 47,745
Distributions (73) (7,146) (7,219)
Redemptions (note 5) - (40) (40)
Net earnings (loss) 73 (1,857) (1,784)
--------------- --------------- ---------------
Balances at June 30, 2002 $ - $ 38,702 $ 38,702
=============== =============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2002 2001
---------------- ---------------
Cash flows from operating activities:
Net loss $ (1,784) $ (140)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 2,378 2,799
Write-down of containers (note 4) 1,007 200
Decrease in allowance for doubtful accounts (15) (231)
Loss on sale of containers 447 181
Decrease (increase) in assets:
Accounts receivable 498 887
Due from affiliates, net (51) 300
Prepaid expenses 11 11
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (35) (71)
Accrued recovery costs (64) 27
Accrued damage protection plan costs (1) (68)
Deferred damage protection plan revenue 4 -
Warranty claims (19) (20)
---------------- ---------------
Net cash provided by operating activities 2,376 3,875
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of containers 2,099 1,006
Container purchases 5 (1,411)
---------------- ---------------
Net cash provided by (used in) investing activities 2,104 (405)
---------------- ---------------
Cash flows from financing activities:
Redemptions of limited partnership units (40) (109)
Distributions to partners (6,997) (4,319)
---------------- ---------------
Net cash used in financing activities (7,037) (4,428)
---------------- ---------------
Net decrease in cash (2,557) (958)
Cash at beginning of period 3,253 2,875
---------------- ---------------
Cash at end of period $ 696 $ 1,917
================ ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of June 30, 2002 and 2001, and December 31, 2001 and 2000, resulting
in differences in amounts recorded and amounts of cash disbursed or received by
the Partnership, as shown in the Statements of Cash Flows for the six-month
periods ended June 30, 2002 and 2001.
June 30 Dec. 31 June 30 Dec. 31
2002 2001 2001 2000
----------- ----------- ------------- ----------
Container purchases included in:
Due to (from) affiliates....................... $ - $ (7) $ - $ -
Container purchases payable.................... - - 9 646
Distributions to partners included in:
Due to affiliates.............................. 8 5 8 8
Deferred quarterly distributions............... 273 54 77 79
Proceeds from sale of containers included in:
Due from affiliates............................ 495 708 253 281
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
six-month periods ended June 30, 2002 and 2001.
2002 2001
---- ----
Container purchases recorded...................................................... $ 2 $ 774
Container purchases paid.......................................................... (5) 1,411
Distributions to partners declared................................................ 7,219 4,317
Distributions to partners paid.................................................... 6,997 4,319
Proceeds from sale of containers recorded......................................... 1,886 978
Proceeds from sale of containers received......................................... 2,099 1,006
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying value of containers transferred during the six-month periods ended
June 30, 2002 and 2001 was $43 and $17, respectively.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and six months ended June 30, 2002 and 2001
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------
Note 1. General
Textainer Equipment Income Fund III, L.P. (the Partnership), a California
limited partnership with a maximum life of 20 years, was formed in 1990.
The Partnership owns a fleet of intermodal marine cargo containers, which
are leased to international shipping lines.
In April 2002, the Partnership entered its liquidation phase, which may
last from two to six or more years depending on whether the containers are
sold (i) in one or more large transactions or (ii) gradually, either as
they reach the end of their useful marine lives or when an analysis
indicates that their sale is warranted based on existing market conditions
and the container's age, location and condition. The Partnership
anticipates that all excess cash, after redemptions and working capital
reserves, will be distributed to the general and limited partners on a
monthly basis.
The final termination and winding up of the Partnership, as well as payment
of liquidating and/or final distributions, will occur at the end of the
liquidation phase when all or substantially all of the Partnership's
containers have been sold and the Partnership begins its dissolution.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of June 30, 2002 and December 31, 2001 and the
results of its operations for the three and six-month periods ended June
30, 2002 and 2001 and changes in partners' capital and cash flows for the
six-month periods ended June 30, 2002 and 2001, have been made.
The financial information presented herein should be read in conjunction
with the audited financial statements and other accompanying notes included
in the Partnership's annual audited financial statements as of and for the
year ended December 31, 2001, in the Annual Report filed on Form 10-K.
Certain estimates and assumptions were made by the Partnership's management
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. The Partnership's management evaluates its estimates on
an on-going basis, including those related to the container rental
equipment, accounts receivable and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its lessees to make required
payments. These allowances are based on management's current assessment of
the financial condition of the Partnership's lessees and their ability to
make their required payments. If the financial condition of the
Partnership's lessees were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased
containers and the estimated sales price at the end of the container's
useful life. If these estimates were subsequently revised based on
permanent changes in the container leasing market, the Partnership would
revise its depreciation policy.
Additionally, the recoverability of the recorded amounts of containers to
be held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are
not impaired and that containers identified for sale are recorded at
amounts that do not exceed the estimated fair value of the containers.
Containers to be held for continued use are considered impaired and are
written down to estimated fair value when the estimated future undiscounted
cash flows are less than the recorded values. Containers identified for
sale are written down to estimated fair value when the recorded value
exceeds the estimated fair value. In determining the estimated future
undiscounted cash flows and fair value of containers, assumptions are made
regarding future demand and market conditions for leased containers as well
as for used containers and the sales prices for used containers. If actual
market conditions are less favorable than those projected or if actual
sales prices are lower than those estimated by the Partnership, additional
write-downs may be required and/or losses may be realized.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of," and elements of Accounting Principles Board Opinion 30,
"Reporting the Results of Operations - Reporting the Effects on Disposal of
a Segment of a Business and Extraordinary, Unusual or Infrequently
Occurring Events and Transactions."
SFAS No. 144 establishes a single-accounting model for long-lived assets to
be disposed of while maintaining many of the provisions relating to
impairment testing and valuation. The Partnership adopted this Statement on
January 1, 2002 and there was no material impact on the Partnership's
financial condition, operating results or cash flow.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds FASB Statement 4, Reporting Gains and Losses
of Debt Extinguishments and an amendment of that Statement, FASB No. 64.
This Statement also rescinds FASB No. 44, Accounting for Intangible Assets
of Motor Carriers. FASB 145 also amends FASB Statement No. 13, Accounting
for Leases, to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. These rescissions and amendment are not anticipated to have a
material impact on the financial statements of the Partnership.
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform to the 2002 financial statement
presentation.
Note 2. Transactions with Affiliates
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership and is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM) and
Textainer Limited (TL) are associate general partners of the Partnership.
The managing general partner and the associate general partners are
collectively referred to as the General Partners and are commonly owned by
Textainer Group Holdings Limited (TGH). The General Partners also act in
this capacity for other limited partnerships. The General Partners manage
and control the affairs of the Partnership.
In accordance with the Partnership Agreement, sections 3.08 through 3.12,
net earnings or losses and distributions are generally allocated 1% to the
General Partners and 99% to the Limited Partners. If the allocation of
distributions exceeds the allocation of net earnings and creates a deficit
in the General Partners' aggregate capital account, the Partnership
Agreement provides for a special allocation of gross income equal to the
amount of the deficit to be made to the General Partners.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, an acquisition fee, an equipment management fee, an
incentive management fee and an equipment liquidation fee. These fees are
for various services provided in connection with the administration and
management of the Partnership. The Partnership capitalized $37 of container
acquisition fees as a component of container costs during the six-month
period ended June 30, 2001. No acquisition fees were incurred during the
six-month period ended June 30, 2002. The Partnership incurred $46 and $110
of incentive management fees during the three and six-month periods ended
June 30, 2002, respectively, and $90 and $180 during the equivalent periods
in 2001, respectively. No equipment liquidation fees were incurred during
these periods.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the Partnership's containers. TEM holds, for the payment of
direct operating expenses, a reserve of cash that has been collected from
leasing operations; such cash is included in due from affiliates, net at
June 30, 2002 and December 31, 2001.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross revenues attributable to operating leases and 2%
of gross revenues attributable to full payout net leases. These fees
totaled $151 and $311 for the three and six-month periods ended June 30,
2002, respectively, and $209 and $434, respectively, during the comparable
periods in 2001.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are incurred and paid by TFS and TEM. General and
administrative costs allocated to the Partnership during the three and
six-month periods ended June 30, 2002 and 2001 were as follows:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Salaries $ 83 $ 92 $173 $190
Other 46 67 97 144
--- --- --- ---
Total general and
administrative costs $129 $159 $270 $334
=== === === ===
TEM allocates these general and administrative costs based on the ratio of
the Partnership's interest in the managed containers to the total container
fleet managed by TEM during the period. TFS allocates these costs based on
the ratio of the Partnership's containers to the total container fleet of
all limited partnerships managed by TFS. The General Partners allocated the
following general and administrative costs to the Partnership during the
three and six-month periods ended June 30, 2002 and 2001:
Three months Six months
ended June 30, ended June 30,
--------------- ---------------
2002 2001 2002 2001
---- ---- ---- ----
TEM $110 $138 $230 $290
TFS 19 21 40 44
--- --- --- ---
Total general and
administrative costs $129 $159 $270 $334
=== === === ===
The General Partners were entitled to 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 could
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. One or more
General Partners could have also arranged for the purchase of containers in
its or their names, and the Partnership could then have taken title to the
containers by paying the seller directly. In addition, the General Partners
were entitled to an acquisition fee for containers acquired by the
Partnership under any of these arrangements.
At June 30, 2002 and December 31, 2001, due from affiliates, net is
comprised of:
2002 2001
---- ----
Due from affiliates:
Due from TEM.................. $333 $502
--- ---
Due to affiliates:
Due to TFS.................... 47 25
Due to TCC.................... 3 22
Due to TL..................... 1 1
--- ---
51 48
--- ---
Due from affiliates, net $282 $454
=== ===
These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and remittance of expenses,
fees and distributions described above and in the accrual and remittance of
net rental revenues and container sales proceeds from TEM.
Note 3. Lease Rental Income
Leasing income arises principally from the renting of containers to various
international shipping lines. Revenue is recorded when earned according to
the terms of the container rental contracts. These contracts are typically
for terms of five years or less. The following is the lease mix of the
on-lease containers (in units) at June 30, 2002 and 2001:
2002 2001
---- ----
On-lease under master leases 8,941 11,365
On-lease under long-term leases 5,835 5,436
------ ------
Total on-lease containers 14,776 16,801
====== ======
Under master lease agreements, the lessee is not committed to lease a
minimum number of containers from the Partnership during the lease term and
may generally return any portion or all the containers to the Partnership
at any time, subject to certain restrictions in the lease agreement. Under
long-term lease agreements, containers are usually leased from the
Partnership for periods of between three to five years. Such leases are
generally cancelable with a penalty at the end of each twelve-month period.
Under direct finance leases, the containers are usually leased from the
Partnership for the remainder of the container's useful life with a
purchase option at the end of the lease term.
The remaining containers are off-lease and are located primarily at a large
number of storage depots. At June 30, 2002, the Partnership's off-lease
containers were in the following locations:
Americas 2,413
Europe 953
Asia 4,167
Other 81
-----
Total off-lease containers 7,614
=====
At June 30, 2002 approximately 16% of the Partnership's off-lease
containers had been specifically identified as for sale.
Note 4. Container Rental Equipment Write-Down
New container prices steadily declined from 1995 through 1999. Although
container prices increased in 2000, these prices declined again in 2001 and
have remained low during the first half of 2002. As a result, the cost of
new containers purchased in recent years is significantly less than the
average cost of containers purchased in prior years. The Partnership
evaluated the recoverability of the recorded amount of container rental
equipment at June 30, 2002 and 2001 for containers to be held for continued
use and determined that a reduction to the carrying value of these
containers was not required. The Partnership also evaluated the
recoverability of the recorded amount of containers identified for sale in
the ordinary course of business and determined that a reduction to the
carrying value of these containers 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 of sales. During the six-month
periods ended June 30, 2002 and 2001 the Partnership recorded write-down
expenses of $1,007 and $200, respectively, on 1,456 and 401 containers
identified as for sale and requiring a reserve. During the three-month
periods ended June 30, 2002 and 2001, the Partnership recorded write-down
expenses of $287 and $118, respectively, on 517 and 241 containers
identified for sale and requiring a reserve. At June 30, 2002 and 2001, the
net book value of the 1,226 and 464 containers identified as for sale was
$1,113 and $553, respectively.
The Partnership sold 1,308 previously written down containers for a loss of
$148 during the six-month period ended June 30, 2002 and sold 254
previously written down containers for a loss of $26 during the same period
in 2001. During the three-month period ended June 30, 2002, the Partnership
sold 724 of these previously written down containers for a loss of $82 and
sold 158 previously written down containers for a loss of $16 during the
same period in 2001. 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.
The Partnership also sold containers that had not been written down and
recorded losses of $299 and $155 during the six-month periods ended June
30, 2002 and 2001, respectively. During the three-month periods ended June
30, 2002 and 2001 the Partnership recorded a gain of $59 and a loss of $69,
respectively, on the sale of containers that had not been written down.
As more containers are subsequently identified for sale or if container
sales prices continue to decline, the Partnership may incur additional
write-downs on containers and/or may incur losses on the sale of
containers. The Partnership will continue to evaluate the recoverability of
the recorded amounts of container rental equipment and cautions that a
write-down of container rental equipment and/or an increase in its
depreciation rate may be required in future periods for some or all of its
container rental equipment.
Note 5. Redemptions
The following redemptions were consummated by the Partnership during the
six-month periods ended June 30, 2002 and 2001:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2000.................. 135,538 $12.34 $1,673
Six-month period ended
June 30, 2001...................... 13,686 $ 8.00 109
------- -----
Total Partnership redemptions as of
June 30, 2001...................... 149,224 $11.94 $1,782
======= =====
Total Partnership redemptions as of
December 31, 2001.................. 162,075 $11.55 $1,871
Six-month period ended
June 30, 2002...................... 7,074 $ 5.70 40
------- -----
Total Partnership redemptions as of
June 30, 2002...................... 169,149 $11.30 $1,911
======= =====
The redemption price is fixed by formula.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the three and six-month periods ended
June 30, 2002 and 2001. Please refer to the Financial Statements and Notes
thereto in connection with the following discussion.
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 General
Partners manage and control the affairs of the Partnership.
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.
In April 2002, the Partnership entered its liquidation phase, which may last
from two to six or more years depending on whether the containers are sold (i)
in one or more large transactions or (ii) gradually, either as they reach the
end of their useful marine lives or when an analysis indicates that their sale
is warranted based on existing market conditions and the container's age,
location and condition. The Partnership anticipates that all excess cash, after
redemptions and working capital reserves, will be distributed to the general and
limited partners on a monthly basis. These distributions will consist of cash
from operations and/or cash from sales proceeds. As the Partnership's container
fleet decreases, cash from operations is expected to decrease, while cash from
sales proceeds is expected to fluctuate based on the number of containers sold
and the actual sales price per container received. Consequently, the Partnership
anticipates that a large portion of all future distributions will be a return of
capital. Additionally, the May 2002 distribution, the first distribution paid
during the liquidation period, included cash from reserves, as the General
Partners decided to decrease the Partnership's working capital reserves as the
Partnership was in its liquidation phase.
The final termination and winding up of the Partnership, as well as payment of
liquidating and/or final distributions, will occur at the end of the liquidation
phase when all or substantially all of the Partnership's containers have been
sold and the Partnership begins its dissolution.
The Partnership invests working capital, cash flow from operations and investing
activities prior to its distribution to the partners in short-term, liquid
investments. Rental income is the Partnership's principal source of liquidity
and provides a major source of funds for distributions. Rental income has been
adversely affected by current market conditions for leased containers, and these
market conditions may continue or worsen. Market conditions are discussed more
fully in "Results of Operations." The Partnership's cash is affected by cash
provided by or used in operating, investing and financing activities. These
activities are discussed in detail below.
During the six-month period ended June 30, 2002, the Partnership declared cash
distributions to limited partners pertaining to the period from December 2001
through May 2002, in the amount of $7,146, which represented $1.18 per unit. On
a cash basis, $2,263 of these distributions was from current year operating
activities, $407 was from cash provided by previous years' operating activities
that had not been distributed or used to purchase containers or redeem units and
the balance of $4,476 was a return of capital. On a financial statement basis,
all of these distributions were a return of capital.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value, which is set by formula. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. During the six-month period ended June 30, 2002,
the Partnership redeemed 7,074 units for a total dollar amount of $40. The
Partnership used cash flow from operations to pay for the redeemed units.
Net cash provided by operating activities for the six-month periods ended June
30, 2002 and 2001, was $2,376 and $3,875, respectively. The decrease of $1,499,
or 39%, was primarily attributable to the decrease in net earnings, adjusted for
non-cash transactions, and fluctuations in gross accounts receivable and 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 gross accounts receivable of
$498 during the six-month period ended June 30, 2002 was primarily due to the
decrease in rental income, and was partially offset by the increase in the
average collection period of accounts receivable. The decrease in gross accounts
receivable of $887 during the comparable period in 2001 was primarily due to the
decrease in rental income and a decline in the average collection period of
accounts receivable. The fluctuations in due from affiliates, net, resulted from
timing differences in the payment of expenses, fees and distributions and the
remittance of net rental revenues and container sales proceeds, as well as
fluctuations in these amounts.
For the six-month period ended June 30, 2002, net cash provided by investing
activities (the purchase and sale of containers) was $2,104 compared to net cash
used in investing activities of $405 for the comparable period in 2001. Net cash
provided by investing activities increased $2,509 due to the decrease in cash
used for container purchases and the increase in proceeds from container sales.
Cash used for container purchases decreased $1,416, primarily as the Partnership
did not purchase containers during the six-month period ended June 30, 2002.
Proceeds from container sales increased $1,093 as the Partnership sold more
containers in low demand locations during the six-month period ended June 30,
2002 than in the same period in 2001. This increase was partially offset by the
decrease in the average sales price received on container sales. The sales
prices received on container sales continued to decrease as a result of current
market conditions, which have adversely affected the value of used containers.
Until demand for containers improves in certain low demand locations, the
Partnership plans to continue selling some of its containers that are off-lease
in these locations. Other containers will also likely be sold as the Partnership
continues its liquidation phase as discussed above. The number of containers
sold, both in low demand locations and elsewhere, as well as the average sales
price, will affect how much the Partnership will pay in future distributions.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income less costs and expenses (including container depreciation, direct
container expenses, management fees, and reimbursement of administrative
expenses) was directly related to the size of the container fleet during the
six-month periods ended June 30, 2002 and 2001, 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:
2002 2001
---- ----
Beginning container fleet............... 24,561 27,152
Ending container fleet.................. 22,390 26,601
Average container fleet................. 23,476 26,877
The average container fleet decreased 13% from the six-month period ended June
30, 2001 to the comparable period in 2002, primarily due to continuing sales of
containers (i) that had reached the end of their useful lives or (ii) that an
analysis had indicated their sale was otherwise warranted. Included in this
second group were containers located in low demand locations. The Partnership
expects that the size of its container fleet will further decline as additional
containers are sold for these reasons and as the Partnership continues its
liquidation plans. The decline in the container fleet has contributed to an
overall decline in rental income from the six-month period ended June 30, 2001
to the same period in 2002. This decline is expected to continue in future
years, as the size of the Partnership's container fleet continues to decrease.
Rental income and direct container expenses are also affected by the utilization
of the container fleet, which was 58% and 68% on average during the six-month
periods ended June 30, 2002, and 2001, respectively. The remaining container
fleet is off-lease and is located primarily at a large number of storage depots.
At June 30, 2002, the Partnership's off-lease containers (in units) were in the
following locations:
Americas 2,413
Europe 953
Asia 4,167
Other 81
-----
Total off-lease containers 7,614
=====
At June 30, 2002 approximately 16% of the Partnership's off-lease containers had
been specifically identified as for sale.
In addition to utilization, rental income is affected by daily rental rates. The
average daily rental rate decreased 9% between the periods. The decrease in the
average rental rate was due to declines in master and long term lease rates.
Additionally, a higher percentage of the Partnership's containers are on lease
under long term leases, which generally have lower rental rates than master
leases. Rental rates for long term leases are generally lower because the
lessees have contracted to lease the containers for several years and cannot
return the containers prior to the termination date without a penalty.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 2002 and 2001.
The Partnership's loss from operations for the six-month periods ended June 30,
2002 and 2001 was $1,812 and $201, respectively, on rental income of $4,430 and
$6,359, respectively. The decrease in rental income of $1,929 or 30%, from the
six-month period ended June 30, 2001 to the same period in 2002 was attributable
to the decreases in container rental income and other rental income, which is
discussed below. Income from container rentals, the major component of total
revenue, decreased $1,831, or 32%, primarily due to the decreases in average
on-hire utilization of 15%, average fleet size of 13% and average rental rates
of 9% between the periods. The majority of the Partnership's rental income was
generated from the leasing of the Partnership's containers under master
operating leases.
In the fourth quarter of 2000, utilization began to decline and continued to
decline during 2001 and the beginning of 2002. This decline was due to lower
overall demand by shipping lines for leased containers, which was primarily a
result of the worldwide economic slowdown. Two other factors reduced the demand
for leased containers. Shipping lines added larger vessels to their fleets
which, combined with lower cargo volume growth, made it easier for them to use
otherwise empty vessel space to reposition their own containers back to high
demand locations. Additionally, in anticipation of the delivery of these new,
larger vessels, many shipping lines placed large orders for new containers in
2000 and 2001, thus temporarily reducing their need to lease containers. These
orders for additional containers are part of a general increase in vessel
capacity for the shipping lines. This increase in vessel capacity amounted to
12% in 2001. An additional increase in vessel capacity of approximately 12% is
expected in 2002, because the shipping lines placed orders for additional ships
before recognizing the slowdown in world trade. To the extent that this
increased vessel capacity remains underutilized, shipping lines may seek to cut
costs in order to sustain profits or reduce losses, which may put further
downward pressure on demand for containers.
Utilization improved steadily beginning in March 2002 due to:
o An increase in export cargo out of Asia
o Prior repositioning of containers to Asia which placed large quantities of
containers in areas of strong demand
o Fewer purchases of new containers by container lessors and shipping lines.
This utilization improvement has continued into the third quarter of 2002 but
the General Partners caution that market conditions could deteriorate again due
to global economic conditions. Demand for leased containers could therefore
decline again and result in a decline in utilization and further declines in
lease rates and container sale prices, adversely affecting the Partnership's
operating results.
Despite the improvement in utilization, the Partnership continues to sell
(rather than reposition) some containers located in low demand locations. For
the number of off-lease containers located in the lower demand locations in the
Americas and Europe, see the chart above. The decision to sell containers is
based on the current expectation that the economic benefit of selling these
containers is greater than the estimated economic benefit of continuing to own
these containers. The majority of the containers sold are older containers. The
expected economic benefit of continuing to own these older containers is
significantly less than that of newer containers. This is due to their shorter
remaining marine life, the cost to reposition them, and the shipping lines'
preference for leasing newer containers when they have a choice.
Once the decision had been made to sell containers, the Partnership wrote down
the value of these specifically identified containers when the carrying value
was greater than the container's estimated fair value, which was based on recent
sales prices less cost of sales. Due to declines in container sales prices, the
actual sales prices received on some containers were lower than the estimates
used for the write-down, resulting in the Partnership incurring losses upon the
sale of some of these containers. Until 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 of some or all of its container
rental equipment.
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 six-month period ended June 30, 2002,
other rental income was $581, a decrease of $98 from the equivalent period in
2001. The decrease was primarily due to the decrease in DPP income of $110. DPP
income declined primarily due to a decrease in the number of containers covered
under DPP.
Direct container expenses decreased $838, or 35%, from the six-month period
ended June 30, 2001 to the same period in 2002, primarily due to decreases in
repositioning, maintenance and DPP expenses of $519, $223 and $112,
respectively, offset by the increase in storage expense of $95. Repositioning
expense decreased due to a decrease in the number of containers repositioned and
a decrease in the average repositioning cost per container. Maintenance expense
decreased due to the decrease in the number of containers requiring maintenance
and a decrease in the average maintenance cost per container. DPP expense
declined primarily due to the decrease in the number of containers covered under
DPP. Storage expense increased, despite the decline in average fleet size,
primarily due to the decrease in average utilization noted above.
Bad debt benefit was $18 and $68 for the six-month periods ended June 30, 2002
and 2001, respectively. Fluctuations in bad debt benefit/expense reflect the
adjustment to the bad debt reserve and are based on management's then current
estimates of the portion of accounts receivable that may not be collected, and
which will not be covered by insurance. These estimates are based primarily on
management's current assessment of the financial condition of the Partnership's
lessees and their ability to make their required payments. The benefits recorded
during the six-month periods ended June 30, 2002 and 2001 reflect lower reserve
requirements from December 31, 2001 and 2000.
Depreciation expense decreased $421, or 15%, from the six-month period ended
June 30, 2001 to the comparable period in 2002, primarily due to the decline in
the average fleet size.
New container prices steadily declined from 1995 through 1999. Although
container prices increased in 2000, these prices declined again in 2001 and have
remained low during the first half of 2002. As a result, the cost of new
containers purchased in recent years is significantly less than the average cost
of containers purchased in prior years. The Partnership evaluated the
recoverability of the recorded amount of container rental equipment at June 30,
2002 and 2001 for containers to be held for continued use and determined that a
reduction to the carrying value of these containers was not required. The
Partnership also evaluated the recoverability of the recorded amount of
containers identified for sale in the ordinary course of business and determined
that a reduction to the carrying value of these containers 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 of sales. During the
six-month periods ended June 30, 2002 and 2001 the Partnership recorded
write-down expenses of $1,007 and $200, respectively, on 1,456 and 401
containers identified as for sale and requiring a reserve. At June 30, 2002 and
2001, the net book value of the 1,226 and 464 containers identified as for sale
was $1,113 and $553, respectively.
The Partnership sold 1,308 previously written down containers for a loss of $148
during the six-month period ended June 30, 2002 and sold 254 previously written
down containers for a loss of $26 during the same period in 2001. 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.
The Partnership also sold containers that had not been written down and recorded
losses of $299 and $155 during the six-month periods ended June 30, 2002 and
2001, respectively.
As more containers are subsequently identified 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.
Management fees to affiliates decreased $193, or 31%, from the six-month period
ended June 30, 2001 to the comparable period in 2002 due to decreases in both
equipment and incentive management fees. Equipment management fees decreased due
to the decrease in rental income, upon which equipment management fees are
primarily based. These fees were approximately 7% of rental income for both
six-month periods ended June 30, 2002 and 2001. Incentive management fees, which
are based on the Partnership's limited and general partner distributions made
from cash from operations and partners' capital, decreased primarily due to (i)
the decrease in the limited partner distribution percentage from 7% to 5% of
initial partners' capital in July 2001 and (ii) decreases in partners' capital
due to redemptions of limited partners units.
General and administrative costs to affiliates decreased $64, or 19%, from the
six-month period ended June 30, 2001 to the same period in 2002, primarily due
to a decrease in the allocation of overhead costs from TEM, as the Partnership
represented a smaller portion of the total fleet managed by TEM.
The Partnership Agreement provides for the ongoing payment to the General
Partners of the management fees and the reimbursement of the expenses discussed
above. Since these fees and expenses are established by the Agreement, they
cannot be considered the result of arms' length negotiations with third parties.
The Partnership Agreement was formulated at the Partnership's inception and was
part of the terms upon which the Partnership solicited investments from its
limited partners. The business purpose of paying the General Partners these fees
is to compensate the General Partners for the services they render to the
Partnership. Reimbursement for expenses is made to offset some of the costs
incurred by the General Partners in managing the Partnership and its container
fleet. More details about these fees and expenses are included in footnote 2 to
the Financial Statements.
Loss on sale of containers increased $266 from the six-month period ended June
30, 2001 to the comparable period in 2002. The increase was primarily due to the
Partnership selling more containers at a lower average sales price during the
six-month period ended June 30, 2002, compared to the same period in 2001.
Net loss per limited partnership unit increased from $0.03 to $0.31 from the
six-month period ended June 30, 2001 to the equivalent period in 2002,
respectively, reflecting the increase in net loss allocated to limited partners
from $185 to $1,857, respectively. The allocation of net loss for the six-month
periods ended June 30, 2002 and 2001 included a special allocation of gross
income to the General Partners of $91 and $46, respectively, in accordance with
the Partnership Agreement.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 2002 and 2001.
The Partnership's loss from operations for the three-month periods ended June
30, 2002 and 2001 was $522 and $132, respectively, on rental income of $2,152
and $2,984, respectively. The decrease in rental income of $832, or 28%, from
the three-month period ended June 30, 2001 to the comparable period in 2002 was
attributable to decreases in container rental income and other rental income.
Income from container rentals decreased $795, or 30%, primarily due to decreases
in the average fleet size of 14%, average rental rates of 12% and average
on-hire utilization of 6%.
For the three-month period ended June 30, 2002, other rental income was $263, a
decrease of $37 from the equivalent period in 2001. The decrease was primarily
due to the decrease in DPP income of $67, offset by increases in location and
handling income of $16, and $14, respectively. DPP income decreased primarily
due to a decrease in the number of containers carrying DPP. Location income
increased primarily due to the decline in credits granted to lessees for picking
up containers from surplus locations as there were fewer leasing opportunities
for which credits could be offered. The increase in location income was
partially offset by the decline in charges to lessees for dropping off
containers in surplus locations. Handling income increased primarily due to the
increase in container movement.
Direct container expenses decreased $255, or 24% from the three-month period
ending June 30, 2001 to the equivalent period in 2002, primarily due to
decreases in repositioning, maintenance, and DPP expenses of $90, $88, $41,
respectively. Repositioning expense decreased due to a decrease in the average
repositioning cost per container, offset by an increase in the number of
containers repositioned. Maintenance expense decreased due to the decrease in
the number of containers requiring maintenance and a decrease in the average
maintenance cost per container. DPP expense declined due to the decrease in the
number of containers covered under DPP and a decline in the average DPP repair
cost per container.
Bad debt benefit decreased from $49 during the three-month period ended June 30,
2001 to $21 for the comparable period in 2002. The decline was due to a lower
adjustment to bad debt reserve during the three-month period ended June 30, 2002
compared to the same period in 2001.
Depreciation expense decreased $231, or 17%, from the three-month period ended
June 30, 2001 to the comparable period in 2002 primarily due to the decrease in
fleet size.
During the three-month periods ended June 30, 2002 and 2001, the Partnership
recorded write-down expenses of $287 and $118, respectively, on 517 and 241
containers identified for sale and requiring a reserve. The Partnership sold 724
of these previously written down containers for a loss of $82 during the
three-month period ended June 30, 2002 and sold 158 previously written down
containers for a loss of $16 during the same period in 2001. The Partnership
also sold containers that had not been written down and recorded a gain of $59
and a loss of $69, during the three-month periods ended June 30, 2002 and 2001,
respectively.
Management fees to affiliates decreased $102, or 34%, from the three-month
period ended June 30, 2001 to the comparable period in 2002, due to decreases in
both equipment and incentive management fees. Equipment management fees
decreased due to the decrease in rental income and were approximately 7% of
rental income for both periods. Incentive management fees, decreased primarily
due to (i) the decrease in the limited partner distribution percentage from 7%
to 5% of initial partners' capital in July 2001 and (ii) decreases in partners'
capital due to redemptions of limited partners units.
General and administrative costs to affiliates decreased $30, or 19%, from the
three-month period ended June 30, 2001 to the equivalent period in 2002
primarily due to a decrease in the allocation of overhead costs from TEM, as the
Partnership represented a smaller portion of the total fleet managed by TEM.
Loss on sale of containers decreased $62 from the three-month period ended June
30, 2001 to the comparable period in 2002. The decrease was primarily due to the
Partnership selling fewer containers at a lower average loss per container
during the three-month period ended June 30, 2002, compared to the same period
in 2001.
Net loss per limited partnership unit increased from $0.02 to $0.09 from the
three-month period ended June 31, 2001 to the equivalent period in 2002,
respectively, reflecting the increase in the net loss allocated to limited
partners from $131 to $566, respectively. The allocation of net loss included a
special allocation of gross income to the General Partners in accordance with
the Partnership Agreement.
Critical Accounting Policies and Estimates
The Partnership's discussion and analysis of its financial condition and results
of operations are based upon the Partnership's financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. 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. The Partnership's management evaluates its estimates on an
on-going basis, including those related to the container rental equipment,
accounts receivable and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its lessees to make required payments. These
allowances are based on management's current assessment of the financial
condition of the Partnership's lessees and their ability to make their required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required, which would adversely affect the
Partnership's operating results.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased containers
and the estimated sales price at the end of the container's useful life. If
these estimates were subsequently revised based on permanent changes in the
container leasing market, the Partnership would revise its depreciation policy,
which could adversely affect the Partnership's operating results.
Additionally, the recoverability of the recorded amounts of containers to be
held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are not
impaired and that containers identified for sale are recorded at amounts that do
not exceed the estimated fair value of the containers. Containers to be held for
continued use are considered impaired and are written down to estimated fair
value when the estimated future undiscounted cash flows are less than the
recorded values. Containers identified for sale are written down to estimated
fair value when the recorded value exceeds the estimated fair value. In
determining the estimated future undiscounted cash flows and fair value of
containers, assumptions are made regarding future demand and market conditions
for leased containers as well as for used containers and the sales prices for
used containers. If actual market conditions are less favorable than those
projected or if actual sales prices are lower than those estimated by the
Partnership, additional write-downs may be required and/or losses may be
realized. Any additional write-downs or losses would adversely affect the
Partnership's operating results.
Accounting Pronouncement
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of," and
elements of Accounting Principles Board Opinion 30, "Reporting the Results of
Operations - Reporting the Effects on Disposal of a Segment of a Business and
Extraordinary, Unusual or Infrequently Occurring Events and Transactions."
SFAS No. 144 establishes a single-accounting model for long-lived assets to be
disposed of while maintaining many of the provisions relating to impairment
testing and valuation. The Partnership adopted this Statement on January 1, 2002
and there was no material impact on the Partnership's financial condition,
operating results or cash flow.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
rescinds FASB Statement 4, Reporting Gains and Losses of Debt Extinguishments
and an amendment of that Statement, FASB No. 64. This Statement also rescinds
FASB No. 44, Accounting for Intangible Assets of Motor Carriers. FASB 145 also
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects similar to sale-leaseback transactions. These rescissions and amendment
are not anticipated to have a material impact on the financial statements of the
Partnership.
Risk Factors and Forward Looking Statements
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.
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, including bad debts, 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. See "Critical
Accounting Policies and Estimates" above for information on the Partnership's
critical accounting policies and how changes in those estimates could adversely
affect the Partnership's results of operations.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By ________________________________________
Ernest J. Furtado
Senior Vice President
Date: August 8, 2002
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
___________________________________ Senior Vice President, August 8, 2002
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
___________________________________ President (Principal Executive August 8, 2002
John A. Maccarone Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By /s/Ernest J. Furtado
________________________________________
Ernest J. Furtado
Senior Vice President
Date: August 8, 2002
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
___________________________________ Senior Vice President, August 8, 2002
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
/s/John A. Maccarone
___________________________________ President (Principal Executive August 8, 2002
John A. Maccarone Officer)