TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
November 12, 2003
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
Third Quarter ended September 30, 2003.
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 September 30, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2003
Table of Contents
- -----------------------------------------------------------------------------------------------------------------
Page
Part I Financial Information
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 2003
and December 31, 2002............................................................................. 3
Statements of Operations for the three and nine months
ended September 30, 2003 and 2002................................................................. 4
Statements of Partners' Capital for the nine months
ended September 30, 2003 and 2002................................................................. 5
Statements of Cash Flows for the nine months
ended September 30, 2003 and 2002................................................................. 6
Notes to Financial Statements..................................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 22
Item 4. Controls and Procedures....................................................................... 22
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K. ............................................................ 23
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
September 30, 2003 and December 31, 2002
(Amounts in thousands)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------
2003 2002
--------------- ---------------
Assets
Container rental equipment, net of accumulated
depreciation of $35,895, (2002: $37,690) (note 4) $ 24,837 $ 31,529
Cash 560 548
Accounts receivable, net of allowance for doubtful
accounts of $183, (2002: $119) 2,114 2,441
Due from affiliates, net (note 2) 182 121
Prepaid expenses - 25
--------------- ---------------
$ 27,693 $ 34,664
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 196 $ 200
Accrued liabilities 243 332
Accrued recovery costs 132 128
Accrued damage protection plan costs 252 185
Warranty claims - 30
Deferred quarterly distributions 86 88
Deferred damage protection plan revenue 157 157
--------------- ---------------
Total liabilities 1,066 1,120
--------------- ---------------
Partners' capital:
General partners - -
Limited partners 26,627 33,544
--------------- ---------------
Total partners' capital 26,627 33,544
--------------- ---------------
$ 27,693 $ 34,664
=============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Operations
For the three and nine months ended September 30, 2003 and 2002
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Three months Three months Nine months Nine months
Ended Ended Ended Ended
Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002
--------------- --------------- --------------- ---------------
Rental income $ 2,353 $ 2,427 $ 7,336 $ 6,857
--------------- --------------- --------------- ---------------
Costs and expenses:
Direct container expenses 521 716 1,529 2,281
Bad debt (benefit) expense (8) 14 80 (4)
Depreciation (note 4) 1,378 1,788 4,435 4,166
Write-down of containers (note 4) 22 359 285 1,366
Professional fees 5 13 14 42
Management fees to affiliates (note 2) 241 189 707 609
General and administrative costs
to affiliates (note 2) 108 114 339 385
Other general and administrative costs 32 70 92 213
Loss on sale of containers (note 4) 164 276 323 723
--------------- --------------- --------------- ---------------
2,463 3,539 7,804 9,781
--------------- --------------- --------------- ---------------
Loss from operations (110) (1,112) (468) (2,924)
--------------- --------------- --------------- ---------------
Interest income 1 3 5 31
--------------- --------------- --------------- ---------------
Net loss $ (109) $ (1,109) $ (463) $ (2,893)
=============== =============== =============== ===============
Allocation of net (loss) earnings (note 2):
General partners $ 23 $ 15 $ 65 $ 88
Limited partners (132) (1,124) (528) (2,981)
--------------- --------------- --------------- ---------------
$ (109) $ (1,109) $ (463) $ (2,893)
=============== =============== =============== ===============
Limited partners' per unit share
of net loss $ (0.02) $ (0.19) $ (0.09) $ (0.49)
=============== =============== =============== ===============
Limited partners' per unit share
of distributions $ 0.38 $ 0.24 $ 1.07 $ 1.42
=============== =============== =============== ===============
Weighted average number of limited
partnership units outstanding 5,919,042 5,953,813 5,924,175 6,038,505
=============== =============== =============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the nine months ended September 30, 2003 and 2002
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------
Partners' Capital
----------------------------------------------------------
General Limited Total
-------------- --------------- ---------------
Balances at January 1, 2002 $ - $ 47,745 $ 47,745
Distributions (88) (8,590) (8,678)
Redemptions (note 5) - (599) (599)
Net earnings (loss) 88 (2,981) (2,893)
-------------- --------------- ---------------
Balances at Septmeber 30, 2002 $ - $ 35,575 $ 35,575
============== =============== ===============
Balances at January 1, 2003 $ - $ 33,544 $ 33,544
Distributions (65) (6,321) (6,386)
Redemptions (note 5) - (68) (68)
Net earnings (loss) 65 (528) (463)
-------------- --------------- ---------------
Balances at September 30, 2003 $ - $ 26,627 $ 26,627
============== =============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the nine months ended September 30, 2003 and 2002
(Amounts in thousands)
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
2003 2002
---------------- ----------------
Cash flows from operating activities:
Net loss $ (463) $ (2,893)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation (note 4) 4,435 4,166
Write-down of containers (note 4) 285 1,366
Increase (decrease) in allowance for doubtful accounts 64 (31)
Loss on sale of containers 323 723
Decrease (increase) in assets:
Accounts receivable 265 278
Due from affiliates, net (19) (122)
Prepaid expenses 25 16
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (93) 6
Accrued recovery costs 4 (65)
Accrued damage protection plan costs 67 11
Deferred damage protection plan revenue - 9
Warranty claims (30) (29)
---------------- ----------------
Net cash provided by operating activities 4,863 3,435
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of containers 1,606 3,019
Container purchases - 5
---------------- ----------------
Net cash provided by investing activities 1,606 3,024
---------------- ----------------
Cash flows from financing activities:
Redemptions of limited partnership units (68) (599)
Distributions to partners (6,389) (8,665)
---------------- ----------------
Net cash used in financing activities (6,457) (9,264)
---------------- ----------------
Net increase (decrease) in cash 12 (2,805)
Cash at beginning of period 548 3,253
---------------- ----------------
Cash at end of period $ 560 $ 448
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the nine months ended September 30, 2003 and 2002
(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 September 30, 2003 and 2002, and December 31, 2002 and 2001,
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
nine-month periods ended September 30, 2003 and 2002.
Sept. 30 Dec. 31 Sept. 30 Dec. 31
2003 2002 2002 2001
---------- ---------- ---------- ----------
Container purchases included in:
Due to (from) affiliates....................... $ - $ - $ - $ (7)
Distributions to partners included in:
Due to affiliates.............................. 8 9 7 5
Deferred quarterly distributions............... 86 88 65 54
Proceeds from sale of containers included in:
Due from affiliates............................ 402 361 505 708
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
nine-month periods ended September 30, 2003 and 2002.
2003 2002
---- ----
Container purchases recorded.................................................... $ - $ 2
Container purchases paid........................................................ - (5)
Distributions to partners declared.............................................. 6,386 8,678
Distributions to partners paid.................................................. 6,389 8,665
Proceeds from sale of containers recorded....................................... 1,647 2,816
Proceeds from sale of containers received....................................... 1,606 3,019
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 nine-month periods ended
September 30, 2003 and 2002 was $2 and $58, 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 nine months ended September 30, 2003 and 2002
(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 accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and payments of
liabilities in the ordinary course of business. 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 September 30, 2003 and December 31, 2002 and the
results of its operations for the three and nine-month periods ended
September 30, 2003 and 2002 and changes in partners' capital and cash flows
for the nine-month periods ended September 30, 2003 and 2002, 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, 2002, 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. The Partnership will evaluate the estimated residual values
and remaining estimated useful lives on an on-going basis and will revise
its estimates as needed. As a result, depreciation expense may fluctuate in
future periods based on fluctuations in these estimates.
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 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 June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
With Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. The Partnership adopted SFAS No. 146 on January 1,
2003 and there was no material impact on the Partnership's financial
condition, operating results or cash flow.
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 incurred $74 and $192 of
incentive management fees during the three and nine-month periods ended
September 30, 2003, respectively, and $20 and $130 during the equivalent
periods in 2002, respectively. No acquisition or 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
September 30, 2003 and December 31, 2002.
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 $167 and $515 for the three and nine-month periods ended September
30, 2003, respectively, and $169 and $479, respectively, during the
comparable periods in 2002.
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
nine-month periods ended September 30, 2003 and 2002 were as follows:
Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2003 2002 2003 2002
---- ---- ---- ----
Salaries $ 56 $ 77 $182 $250
Other 52 37 157 135
--- --- --- ---
Total general and
administrative costs $108 $114 $339 $385
=== === === ===
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 investors to the total number of investors
of all limited partnerships managed by TFS or equally among all the limited
partnerships managed by TFS. The General Partners allocated the following
general and administrative costs to the Partnership during the three and
nine-month periods ended September 30, 2003 and 2002:
Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2003 2002 2003 2002
---- ---- ---- ----
TEM $ 92 $100 $293 $330
TFS 16 14 46 55
--- --- --- ---
Total general and
administrative costs $108 $114 $339 $385
=== === === ===
At September 30, 2003 and December 31, 2002, due from affiliates, net is
comprised of:
2003 2002
---- ----
Due from affiliates:
Due from TEM................... $263 $194
--- ---
Due to affiliates:
Due to TFS..................... 71 56
Due to TCC..................... 9 16
Due to TL...................... 1 1
--- ---
81 73
--- ---
Due from affiliates, net $182 $121
=== ===
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 September 30, 2003 and 2002:
2003 2002
---- ----
On-lease under master leases 9,165 10,822
On-lease under long-term leases 6,401 6,157
------ ------
Total on-lease containers 15,566 16,979
====== ======
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 of 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 September 30, 2003 and 2002, the Partnership's
off-lease containers were in the following locations:
2003 2002
---- ----
Americas 1,332 2,085
Europe 416 902
Asia 1,061 1,174
Other 66 78
----- -----
Total off-lease containers 2,875 4,239
===== =====
At September 30, 2003 approximately 10% of the Partnership's off-lease
containers had been specifically identified as for sale.
Note 4. Container Rental Equipment
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated dollar
residual value. The effect of this change for both the three and nine-month
periods ended September 30, 2002 was an increase to depreciation expense of
$690. The Partnership will evaluate the estimated residual values and
remaining estimated useful lives on an on-going basis and will revise its
estimates as needed. As a result, depreciation expense may fluctuate in
future periods based on fluctuations in these estimates.
The Partnership stopped purchasing containers in 2002, but its leasing
activities are affected by fluctuations in new container prices. New
container prices steadily declined from 1995 through 1999 and have remained
low through 2003. 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 September 30, 2003 and
2002 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 some of these
containers was required. The Partnership wrote down the value of these
containers to their estimated net realizable value, which was based on
recent sales prices less cost to sell. During the nine-month periods ended
September 30, 2003 and 2002 the Partnership recorded write-down expenses of
$285 and $1,366, respectively, on 628 and 1,874 containers identified as
for sale and requiring a reserve. For the three-month periods ended
September 30, 2003 and 2002, the Partnership recorded write-down expenses
of $22 and $359, respectively, on 166 and 418 containers identified for
sale and requiring a reserve. Additionally, during the nine-month periods
ended September 30, 2003 and 2002, the Partnership reclassified 42 and 262
containers from containers identified for sale to containers held for
continued use due to the improvement in demand for leased containers in
Asia. At September 30, 2003 and 2002, the net book value of the 287 and 705
containers identified for sale was $245 and $585, respectively.
The Partnership sold 715 previously written down containers for a loss of
$62 during the nine-month period ended September 30, 2003 and sold 1,961
previously written down containers for a loss of $150 during the same
period in 2002. During the three-month period ended September 30, 2003, the
Partnership sold 181 previously written down containers for a loss of $5
and sold 653 previously written down containers for a loss of $75 during
the same period in 2002. 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 $261 and $573 during the nine-month periods ended
September 30, 2003 and 2002, respectively. During the three-month periods
ended September 30, 2003 and 2002 the Partnership recorded losses of $159
and $201, 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 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.
Note 5. Redemptions
The following redemptions were consummated by the Partnership during the
nine-month periods ended September 30, 2003 and 2002:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- ------------
Total Partnership redemptions as of
December 31, 2001....................... 162,075 $11.55 $1,871
Nine-month period ended
September 30, 2002...................... 134,112 $ 4.47 599
------- -----
Total Partnership redemptions as of
September 30, 2002...................... 296,187 $ 8.34 $2,470
======= =====
Total Partnership redemptions as of
December 31, 2002....................... 314,335 $ 8.10 $2,546
Nine-month period ended
September 30, 2003..................... 16,623 $ 4.09 68
------- -----
Total Partnership redemptions as of
September 30, 2003...................... 330,958 $ 7.90 $2,614
======= =====
The redemption price is fixed by formula in accordance with the Partnership
Agreement.
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 nine-month periods
ended September 30, 2003 and 2002. 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. To date, the Partnership has sold containers only
gradually, rather than in large transactions. 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.
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 operating and investing
activities prior to its distribution to the partners in short-term, liquid
investments. Rental income and proceeds from container sales are the
Partnership's principal sources of liquidity and provide the source of funds for
distributions. Rental income and container sales prices are affected by market
conditions for leased containers and used containers. 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 nine-month period ended September 30, 2003, the Partnership declared
cash distributions to limited partners pertaining to the period from December
2002 through August 2003, in the amount of $6,321, which represented $1.07 per
unit. On a cash basis as reflected on the Statements of Cash Flows, after paying
redemptions and general partner distributions, $4,730 of total distributions was
from operations, and the balance was a return of capital. On an accrual basis,
as reflected on the Statements of Partners' Capital, 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 nine-month period ended September 30,
2003, the Partnership redeemed 16,623 units for a total dollar amount of $68.
The Partnership used cash from operating activities to pay for the redeemed
units.
Net cash provided by operating activities for the nine-month periods ended
September 30, 2003 and 2002, was $4,863 and $3,435, respectively. The increase
of $1,428, or 42%, was primarily attributable to fluctuations in net loss,
adjusted for non-cash transactions, and in due from affiliates, net, offset by
the decrease in accounts payable and accrued liabilities. Net loss, adjusted for
non-cash transactions, decreased primarily due to the decrease in direct
container expenses and the increase in rental income, which are discussed more
fully in "Results of Operations." 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. The fluctuations in accounts
payable and accrued liabilities resulted from timing differences in the payment
of expenses and fees, as well as fluctuations in these amounts.
For the nine-month periods ended September 30, 2003 and 2002, net cash provided
by investing activities (the sale of containers) was $1,606 and $3,024,
respectively. Net cash provided by investing activities decreased $1,418
primarily due to the decrease in proceeds from container sales. Proceeds from
container sales decreased $1,413 primarily due to the decrease in the number of
containers sold. Some containers sold were located in low demand locations, and
these sales were driven by the liquidation plans discussed above, and by adverse
market conditions in these locations. 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 rather than incurring the
expense of repositioning them. The sale of containers in low demand locations,
the decline in value for used containers in recent years, and the related market
conditions are discussed more fully under "Results of Operations."
Due, in part, to these market conditions and their effect on demand for used
containers, the Partnership has been primarily selling containers only if the
containers are at the end of their useful lives or if they are located in these
low demand locations. Therefore, and as noted above, the Partnership has
implemented its liquidation phase to date by selling containers gradually. The
Partnership will continue to evaluate its options for selling containers in the
context of both these market conditions and the Partnership's liquidation plans.
The number of containers sold both in low demand locations and elsewhere, as
well as the amount of sales proceeds, will affect how much the Partnership will
pay in future distributions to Partners.
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
nine-month periods ended September 30, 2003 and 2002, 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:
2003 2002
---- ----
Beginning container fleet............... 20,536 24,561
Ending container fleet.................. 18,441 21,218
Average container fleet................. 19,489 22,890
The average container fleet decreased 15% from the nine-month period ended
September 30, 2002 to the comparable period in 2003, 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 Partnership expects rental income to
decline as the container fleet declines. While the decline in container fleet
resulted in lower rental income, this decrease was more than offset by the
improvement in utilization, resulting in the increase in rental income from the
nine-month period ended September 30, 2002 to the same period in 2003. An
overall decline in rental income is expected 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 83% and 62% on average during the nine-month
periods ended September 30, 2003 and 2002, respectively. The remaining container
fleet is off-lease and is located primarily at a large number of storage depots.
At September 30, 2003 and 2002, utilization was 84% and 80%, respectively, and
the Partnership's off-lease containers (in units) were in the following
locations:
2003 2002
---- ----
Americas 1,332 2,085
Europe 416 902
Asia 1,061 1,174
Other 66 78
----- -----
Total off-lease containers 2,875 4,239
===== =====
At September 30, 2003 approximately 10% 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 for the Partnership's containers decreased 8% between
the periods. Average rental rates declined primarily due to the decline in long
term lease rates. The decline in average rental rates under master leases
between the periods was minor. The majority of the Partnership's rental income
was generated from leasing of the Partnership's containers under master
operating leases, but in the past several years an increasing percentage of the
Partnership's containers have been on lease under long term leases. At September
30, 2003 and 2002, 41% and 36%, respectively, of the Partnership's on lease
containers were on lease under long term leases. Long term leases generally have
lower rental rates than master leases 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. Fluctuations in rental rates under
either type of lease generally will affect the Partnership's operating results.
The following is a comparative analysis of the results of operations for the
nine-month periods ended September 30, 2003 and 2002.
The Partnership's loss from operations for the nine-month periods ended
September 30, 2003 and 2002 was $468 and $2,924, respectively, on rental income
of $7,336 and $6,857, respectively. The increase in rental income of $479 or 7%,
from the nine-month period ended September 30, 2002 to the same period in 2003
was attributable to increases in container rental income and other rental
income, which is discussed below. Income from container rentals, the major
component of total revenue, increased $447, or 8%, primarily due to the increase
in average on-hire utilization of 34%, offset by decreases in average fleet size
of 15% and average rental rates of 8% between the periods.
Beginning in March 2002, utilization began to improve and improved steadily
through the end of 2002. Utilization declined slightly in the first quarter of
2003, which is traditionally a slow period for container demand, improved during
the second quarter and was stable in the third quarter of 2003. Utilization has
remained relatively strong due to a large volume of export cargo out of Asia, a
larger percentage of containers under long term lease and efforts by the General
Partners to reduce the quantities of containers that can be redelivered in low
demand locations. However, rental rates continued to slowly decline primarily
due to low new container prices, low interest rates and low rates offered by
competitors. The General Partners are cautiously optimistic that current
utilization levels can be maintained during the next several months. However,
the General Partners caution that market conditions could deteriorate again due
to global economic and political conditions. Demand for leased containers could
therefore weaken again and result in a decrease in utilization and further
declines in lease rates and container sale prices, adversely affecting the
Partnership's operating results.
Although demand for leased containers has improved, the trade imbalance between
Asia and the Americas continues. As a result, a large portion of the
Partnership's off-lease containers are located in low demand locations in the
Americas as detailed in the above chart. For these and other off-lease
containers, the Partnership determines whether these containers should be sold
or held for continued use. 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 is made to sell containers, the Partnership writes down the
value of these specifically identified containers when the carrying value is
greater than the container's estimated net realizable value, which is based on
recent sales prices less cost of sales. Container sales prices appear to have
stabilized as the average sales price for containers sold by TEM on behalf of
the Partnership as well as other container owners was comparable for the
nine-month periods ended September 30, 2003 and 2002. Fluctuations in average
sales prices between the periods are primarily due to the type of container sold
as well as the location of the container.
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 nine-month period ended September 30,
2003, other rental income was $971, an increase of $32 from the equivalent
period in 2002. The increase was primarily due to increases in DPP and location
income of $127 and $11, respectively, offset by the decrease in handling income
of $112. DPP income increased primarily due to an increase in the number of
containers covered under DPP. Location income increased primarily due to the
increase in charges to one lessee who required containers to be delivered to
specific locations. The decrease in handling income was primarily due to the
decrease in container movement.
Direct container expenses decreased $752, or 33%, from the nine-month period
ended September 30, 2002 to the same period in 2003. The decrease was primarily
due to decreases in storage and handling expenses of $902 and $90, respectively,
offset by increases in repositioning and DPP expenses of $195 and $77,
respectively. Storage expense decreased primarily due to the increase in
utilization noted above and the decrease in the average storage cost per
container. The decline in handling expense was primarily due to the decline in
container movement. Repositioning expense increased due to an increase in the
average repositioning costs due to (i) expensive repositioning moves related to
one lessee who required containers to be delivered to certain locations as
discussed above and (ii) longer average repositioning moves. This increase was
partially offset by the decline in the number of containers repositioned between
the periods. The increase in DPP expense was primarily due to an increase in the
number of containers covered under DPP.
Bad debt expense/(benefit) was $80 and ($4) for the nine-month periods ended
September 30, 2003 and 2002, respectively. Fluctuations in bad debt
expense/(benefit) reflect the adjustments to the bad debt reserve, after
deductions have been taken against the 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
expense recorded during the nine-month period ended September 30, 2003 reflects
a higher reserve estimate, after deductions had been taken against the reserve,
from December 31, 2002. The benefit recorded during the same period in 2002
reflects a lower reserve estimate, after deductions had been taken against the
reserve, from December 31, 2001.
Depreciation expense increased $269, or 6%, from the nine-month period ended
September 30, 2002 to the comparable period in 2003. The increase was primarily
due to an increase in the depreciation rate as a result of the Partnership
revising its estimate for container salvage value from a percentage of equipment
cost to an estimated dollar residual value effective July 1, 2002. The
Partnership will evaluate the estimated residual values and remaining estimated
useful lives on an on-going basis and will revise its estimates as needed. As a
result, depreciation expense may fluctuate in future periods based on
fluctuations in these estimates.
The Partnership stopped purchasing containers in 2002, but its leasing
activities are affected by fluctuations in new container prices. New container
prices steadily declined from 1995 through 1999 and have remained low through
2003. 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 September 30, 2003 and 2002 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 some of
these containers was required. The Partnership wrote down the value of these
containers to their estimated net realizable value, which was based on recent
sales prices less cost to sell. During the nine-month periods ended September
30, 2003 and 2002 the Partnership recorded write-down expenses of $285 and
$1,366, respectively, on 628 and 1,874 containers identified as for sale and
requiring a reserve. During the nine-month periods ended September 30, 2003 and
2002, the Partnership also reclassified 42 and 262 containers from containers
identified for sale to containers held for continued use due to the improvement
in demand for leased containers in Asia. At September 30, 2003 and 2002, the net
book value of the 287 and 705 containers identified for sale was $245 and $585,
respectively.
The Partnership sold 715 previously written down containers for a loss of $62
during the nine-month period ended September 30, 2003 and sold 1,961 previously
written down containers for a loss of $150 during the same period in 2002. 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 $261 and $573 during the nine-month periods ended September 30, 2003
and 2002, respectively.
As more containers are subsequently identified for sale or if container sales
prices 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.
Management fees to affiliates increased $98, or 16%, from the nine-month period
ended September 30, 2002 to the comparable period in 2003 due to increases in
both incentive and equipment management fees. Incentive management fees, which
are based on the Partnership's limited and general partner distributions made
from cash from operations and partners' capital increased primarily due to the
increase in the amount of distributions paid from cash from operations between
the two periods. Equipment management fees increased as a result of the increase
in rental income and were approximately 7% of rental income for both nine-month
periods ended September 30, 2003 and 2002.
General and administrative costs to affiliates decreased $46, or 12%, from the
nine-month period ended September 30, 2002 to the same period in 2003. The
decline was primarily due to the decrease in the allocation of overhead costs
from TEM, which decreased 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.
Other general and administrative costs decreased $121 from the nine-month period
ended September 30, 2002 to the same period in 2003. The decrease was primarily
due to decreases in other service fees between the periods.
Loss on sale of containers decreased $400 from the nine-month period ended
September 30, 2002 to the comparable period in 2003. The decrease was due to a
decrease in the number of containers sold and a decrease in the average loss
recorded on container sales.
Net loss per limited partnership unit decreased from $0.49 to $0.09 from the
nine-month period ended September 30, 2002 to the equivalent period in 2003,
respectively, reflecting the decrease in net loss allocated to limited partners
from $2,981 to $528, respectively. The allocation of net loss for the nine-month
periods ended September 30, 2003 and 2002 included a special allocation of gross
income to the General Partners of $70 and $117, respectively, in accordance with
the Partnership Agreement.
The following is a comparative analysis of the results of operations for the
three-month periods ended September 30, 2003 and 2002.
The Partnership's loss from operations for the three-month periods ended
September 30, 2003 and 2002 was $110 and $1,112, respectively, on rental income
of $2,353 and $2,427, respectively. The decrease in rental income of $74, or 3%,
from the three-month period ended September 30, 2002 to the comparable period in
2003 was attributable to decreases in container rental and other rental income.
Income from container rentals decreased $26, or 1%, primarily due to decreases
in average fleet size of 14% and average rental rates of 5% between the periods,
offset by the increase in average on-hire utilization of 18%.
For the three-month period ended September 30, 2003, other rental income was
$310, a decrease of $48 from the equivalent period in 2002. The decrease was
primarily due to decreases in handling and location income of $74 and $27,
respectively, offset by an increase in DPP income of $52. Handling income
decreased primarily due to the decrease in container movement. Location income
declined primarily due to an increase in credits granted to lessees for picking
up containers from certain locations. DPP income increased primarily due to an
increase in the number of containers covered under DPP.
Direct container expenses decreased $195, or 27%, from the three-month period
ending September 30, 2002 to the same period in 2003. The decrease was primarily
due to the decrease in storage and handling expense of $188 and $58,
respectively, offset by the increase in repositioning expense of $59. Storage
expense decreased primarily due to the increase in utilization noted above and
the decrease in the average storage cost per container. Handling expense
decreased primarily due to the decline in container movement. Repositioning
expense increased due to an increase in the average repositioning costs due to
longer average repositioning moves, partially offset by the decline in the
number of containers repositioned between the periods.
Bad debt (benefit)/expense was ($8) and $14 for the three-month periods ended
September 30, 2003 and 2002, respectively. The benefit recorded during the
three-month period ended September 30, 2003 reflects a lower reserve estimate,
after deductions had been taken against the reserve, from June 30, 2003. The
expense recorded during the three-month period ended September 30, 2002 reflects
a higher reserve estimate, after deductions had been taken against the reserve,
from June 30, 2002.
Depreciation expense decreased $410, or 23%, from the three-month period ended
September 30, 2002 to the comparable period in 2003. The decrease was primarily
due to an additional depreciation expense of $91 booked in the third quarter of
2002 to write down fully depreciated containers to the new estimated salvage
values and the decrease in average fleet size noted above.
During the three-month periods ended September 30, 2003 and 2002, the
Partnership recorded write-down expenses of $22 and $359, respectively, on 166
and 418 containers identified for sale and requiring a reserve. The Partnership
sold 181 of these previously written down containers for a loss of $5 during the
three-month period ended September 30, 2003 and sold 653 previously written down
containers for a loss of $75 during the same period in 2002. The Partnership
also sold containers that had not been written down and recorded losses of $159
and $201 during the three-month periods ended September 30, 2003 and 2002,
respectively.
Management fees to affiliates increased $52, or 28%, from the three-month period
ended September 30, 2002 to the comparable period in 2003, primarily due to the
increase in incentive management fees. Incentive management fees increased
primarily due to the increase in the amount of distributions paid from cash from
operations. Equipment management fees declined slightly and were approximately
7% of rental income for both periods.
General and administrative costs to affiliates decreased $6, or 5%, from the
three-month period ended September 30, 2002 to the equivalent period in 2003,
primarily due to a decrease in the allocation of overhead costs from TEM, as the
Partnership represented a smaller portion of the total fleet managed by TEM.
Other general and administrative costs decreased $38 from the three-month period
ended September 30, 2002 to the same period in 2003. The decrease was primarily
due to decreases in other service fees between the periods.
Loss on sale of containers decreased $112 from the three-month period ended
September 30, 2002 to the comparable period in 2003. The decrease was primarily
due to a decrease in the number of containers sold and a decrease in the average
loss recorded on container sales.
Net loss per limited partnership unit decreased from $0.19 to $0.02 from the
three-month period ended September 30, 2002 to the equivalent period in 2003,
respectively, reflecting the decrease in the net loss allocated to limited
partners from $1,124 to $132, 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 on a going concern basis, 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 accompanying financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and payments of liabilities in the ordinary course of
business.
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.
Effective July 1, 2002, the Partnership revised its estimate for container
salvage value from a percentage of equipment cost to an estimated dollar
residual value. The Partnership will evaluate the estimated residual values and
remaining estimated useful lives on an on-going basis and will revise its
estimates as needed. As a result, depreciation expense may fluctuate in future
periods based on fluctuations in these estimates. If the estimates regarding
residual value and remaining useful life of the containers were to decline,
depreciation expense would increase, adversely affecting 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 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.
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 for them,
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 3. Quantitative and Qualitative Disclosures about Market Risk.
Inapplicable.
Item 4. Controls and Procedures
Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934),
the managing general partner's principal executive officer and principal
financial officer have found those controls and procedures to be effective as of
the end of the period covered by the report. There has been no change in the
Partnership's internal control over financial reporting that occurred during the
Partnership's most recent fiscal quarter, and which has materially affected, or
is reasonably likely materially to affect, the Partnership's internal control
over financial reporting.
Part II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.
Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Not applicable.
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
Chief Financial Officer
Date: November 12, 2003
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
________________________ Chief Financial Officer, Senior November 12, 2003
Ernest J. Furtado Vice President and Secretary
________________________ President November 12, 2003
John A. Maccarone
Part II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.
Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Not applicable.
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
Chief Financial Officer
Date: November 12, 2003
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
_________________________________ Chief Financial Officer, Senior November 12, 2003
Ernest J. Furtado Vice President and Secretary
/s/John A. Maccarone
_________________________________ President November 12, 2003
John A. Maccarone
EXHIBIT 31.1
CERTIFICATIONS
I, John A. Maccarone, certify that:
1. I have reviewed this quarterly report on form 10-Q of Textainer Equipment
Income Fund III, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a.) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
November 12, 2003
/s/ John A. Maccarone
__________________________________
John A. Maccarone
President and Director of TFS
EXHIBIT 31.2
CERTIFICATIONS
I, Ernest J. Furtado, certify that:
1. I have reviewed this quarterly report on form 10-Q of Textainer Equipment
Income Fund III, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a.) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
November 12, 2003
/s/ Ernest J. Furtado
___________________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Textainer Equipment Income Fund III,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended September
30, 2003, as filed on November 12, 2003 with the Securities and Exchange
Commission (the "Report"), I, John A. Maccarone, the President and Director of
Textainer Financial Services Corporation ("TFS") and Principal Executive Officer
of TFS, the Managing General Partner of the Registrant, certify, pursuant to 18
U.S.C. ss. 1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of
2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows of
the Registrant.
November 12, 2003
By /s/ John A. Maccarone
__________________________________
John A. Maccarone
President and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Textainer Equipment Income Fund III,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended September
30, 2003, as filed on November 12, 2003 with the Securities and Exchange
Commission (the "Report"), I, Ernest J. Furtado, Chief Financial Officer, Senior
Vice President, Secretary and Director of Textainer Financial Services
Corporation ("TFS") and Principal Financial and Accounting Officer of TFS, the
Managing General Partner of the Registrant, certify, pursuant to 18 U.S.C. ss.
1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows of
the Registrant.
November 12, 2003
By /s/ Ernest J. Furtado
_______________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.