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TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 12, 2004
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
First Quarter ended March 31, 2004.
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 March 31, 2004
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 March 31, 2004
Table of Contents
- -----------------------------------------------------------------------------------------------------------------
Page
Part I Financial Information
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2004
and December 31, 2003............................................................................. 3
Statements of Operations for the three months
ended March 31, 2004 and 2003..................................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 2004 and 2003..................................................................... 5
Statements of Cash Flows for the three months
ended March 31, 2004 and 2003..................................................................... 6
Notes to Financial Statements..................................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 23
Item 4. Controls and Procedures...................................................................... 23
Part II Other Information
Item 2(e). Partnership Purchases of Limited Partner Units............................................... 23
Item 6. Exhibits and Reports on Form 8K.............................................................. 24
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Balance Sheets
March 31, 2004 and December 31, 2003
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------------------------------------------
2004 2003
---------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $32,682 (2003: $34,299) (note 4) $ 20,867 $ 22,714
Cash 567 627
Accounts receivable, net of allowance for doubtful
accounts of $206 (2003: $175) 2,019 2,182
Due from affiliates, net (note 2) 347 290
Prepaid expenses 21 33
---------------- ----------------
$ 23,821 $ 25,846
================ ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 198 $ 178
Accrued liabilities 166 252
Accrued damage protection plan costs 305 302
Deferred quarterly distributions 96 65
Deferred damage protection plan revenue 155 156
---------------- ----------------
Total liabilities 920 953
---------------- ----------------
Partners' capital:
General partners - -
Limited partners 22,901 24,893
---------------- ----------------
Total partners' capital 22,901 24,893
---------------- ----------------
$ 23,821 $ 25,846
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Operations
For the three months ended March 31, 2004 and 2003
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- -----------------------------------------------------------------------------------------------------------
2004 2003
--------------- ---------------
Rental income $ 2,188 $ 2,546
--------------- ---------------
Costs and expenses:
Direct container expenses 450 483
Bad debt expense 34 22
Depreciation (note 4) 1,087 1,648
Write-down of containers (note 4) 34 199
Professional fees 8 3
Management fees to affiliates (note 2) 207 233
General and administrative costs
to affiliates (note 2) 96 122
Other general and administrative costs 30 29
(Gain) loss on sale of containers, net (note 4) (15) 27
--------------- ---------------
1,931 2,766
--------------- ---------------
Income (loss) from operations 257 (220)
--------------- ---------------
Interest income 1 2
--------------- ---------------
Net earnings (loss) $ 258 $ (218)
=============== ===============
Allocation of net earnings (loss) (note 2):
General partners $ 22 $ 20
Limited partners 236 (238)
--------------- ---------------
$ 258 $ (218)
=============== ===============
Limited partners' per unit share
of net earnings (loss) $ 0.04 $ (0.04)
=============== ===============
Limited partners' per unit share
of distributions $ 0.38 $ 0.33
=============== ===============
Weighted average number of limited
partnership units outstanding 5,903,834 5,926,742
=============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the three months ended March 31, 2004 and 2003
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------------------------------
Partners' Capital
-------------------------------------------------------------
General Limited Total
---------------- ---------------- ----------------
Balances at January 1, 2003 $ - $ 33,544 $ 33,544
Distributions (20) (1,977) (1,997)
Redemptions (note 5) - (37) (37)
Net earnings (loss) 20 (238) (218)
---------------- ---------------- ----------------
Balances at March 31, 2003 $ - $ 31,292 $ 31,292
================ ================ ================
Balances at January 1, 2004 $ - $ 24,893 $ 24,893
Distributions (22) (2,214) (2,236)
Redemptions (note 5) - (14) (14)
Net earnings 22 236 258
---------------- ---------------- ----------------
Balances at March 31, 2004 $ - $ 22,901 $ 22,901
================ ================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the three months ended March 31, 2004 and 2003
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2004 2003
---------------- ---------------
Cash flows from operating activities:
Net earnings(loss) $ 258 $ (218)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation (note 4) 1,087 1,648
Write-down of containers (note 4) 34 199
Increase in allowance for doubtful accounts 31 1
(Gain) loss on sale of containers (15) 27
Decrease (increase) in assets:
Accounts receivable 146 57
Due from affiliates, net (123) (262)
Prepaid expenses 12 13
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (66) (25)
Accrued damage protection plan costs 3 2
Deferred damage protection plan revenue (1) -
Warranty claims - (10)
---------------- ---------------
Net cash provided by operating activities 1,366 1,432
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of containers 789 514
---------------- ---------------
Net cash provided by investing activities 789 514
---------------- ---------------
Cash flows from financing activities:
Redemptions of limited partnership units (14) (37)
Distributions to partners (2,201) (2,032)
---------------- ---------------
Net cash used in financing activities (2,215) (2,069)
---------------- ---------------
Net decrease in cash (60) (123)
Cash at beginning of period 627 548
---------------- ---------------
Cash at end of period $ 567 $ 425
================ ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)
Statements of Cash Flows--Continued
For the three months ended March 31, 2004 and 2003
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of distributions to partners and
proceeds from sale of containers which had not been paid or received as of March
31, 2004 and 2003, and December 31, 2003 and 2002, resulting in differences in
amounts recorded and amounts of cash disbursed or received by the Partnership,
as shown in the Statements of Cash Flows for the three-month periods ended March
31, 2004 and 2003.
Mar. 31 Dec. 31 Mar. 31 Dec. 31
2004 2003 2003 2002
----------- ----------- ----------- -----------
Distributions to partners included in:
Due to affiliates.............................. $ 9 $ 5 $ 4 $ 9
Deferred quarterly distributions............... 96 65 58 88
Proceeds from sale of containers included in:
Due from affiliates............................ 450 512 264 361
The following table summarizes the amounts of distributions to partners and
proceeds from sale of containers recorded by the Partnership and the amounts
paid or received as shown in the Statements of Cash Flows for the three-month
periods ended March 31, 2004 and 2003.
2004 2003
---- ----
Distributions to partners declared............................... $2,236 $1,997
Distributions to partners paid................................... 2,201 2,032
Proceeds from sale of containers recorded........................ 727 417
Proceeds from sale of containers received........................ 789 514
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying values of containers transferred during the three-month periods
ended March 31, 2004 and 2003 was $14 and $1, 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 months ended March 31, 2004 and 2003
(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 up to six or more years. 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 March 31, 2004 and December 31, 2003 and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 2004 and 2003, 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, 2003, 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 following critical accounting policies are 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.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value.
Additionally, the Partnership writes down the value of its containers if an
evaluation indicates that the recorded amounts of containers are not
recoverable based on estimated future undiscounted cash flows and sales
prices. These estimates are based upon historical useful lives of
containers and container sales prices as well as assumptions about future
demand for leased containers and estimated sales prices.
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform to the 2004 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 (loss) and creates a
deficit in a 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 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 $54 and $56 of incentive management
fees during the three-month periods ended March 31, 2004 and 2003,
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 containers. TEM holds, for the payment of direct operating
expenses, a reserve of cash that has been collected from leasing
operations; such cash is included in due from affiliates, net at March 31,
2004 and December 31, 2003.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross revenues attributable to full payout net leases. These fees
totaled $153 and $177 for the three-month periods ended March 31, 2004 and
2003, respectively.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are incurred and paid by TFS and TEM. General and
administrative costs allocated to the Partnership during the three-month
periods ended March 31, 2004 and 2003 were as follows:
2004 2003
---- ----
Salaries $63 $ 66
Other 33 56
-- ---
Total general and
administrative costs $96 $122
== ===
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 either
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-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
TEM $80 $107
TFS 16 15
-- ---
Total general and
administrative costs $96 $122
== ===
At March 31, 2004 and December 31, 2003, due from affiliates, net is
comprised of:
2004 2003
---- ----
Due from affiliates:
Due from TEM..................... $434 $353
--- ---
Due to affiliates:
Due to TFS....................... 55 54
Due to TCC....................... 31 8
Due to TL........................ 1 1
--- ---
87 63
--- ---
Due from affiliates, net $347 $290
=== ===
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 March 31, 2004 and 2003:
2004 2003
---- ----
On-lease under master leases 8,714 10,581
On-lease under long-term leases 6,117 6,095
------ ------
Total on-lease containers 14,831 16,676
====== ======
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 March 31, 2004 and 2003, approximately 11% and
14%, respectively, of the Partnership's off-lease containers had been
specifically identified as for sale and are carried at lower of cost or
estimated disposal proceeds.
Note 4. Container Rental Equipment
The Partnership evaluated the recoverability of the recorded amount of
container rental equipment at March 31, 2004 and 2003 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 some of these containers to their estimated fair
value, which was based on recent sales prices less cost of sales. These
containers are included in container rental equipment in the balance
sheets.
During the three-month periods ended March 31, 2004 and 2003 the
Partnership recorded write-down expenses of $34 and $199, respectively, on
201 and 307 containers identified as for sale and requiring a reserve. At
March 31, 2004 and 2003, the net book value of the 193 and 478 containers
identified as for sale was $158 and $413, respectively.
During the three-month periods ended March 31, 2004 and 2003, the
Partnership sold 269 and 219, respectively, of these previously written
down containers for a gain of $10 and a loss of $20, respectively.
The Partnership also sold containers that had not been written down and
recorded a gain of $5 and a loss of $7 during the three-month periods ended
March 31, 2004 and 2003, respectively.
Note 5. Redemptions
The following redemptions were consummated by the Partnership during the
three-month periods ended March 31, 2004 and 2003:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2002.................. 314,335 $8.10 $2,546
Three-month period ended:
March 31, 2003..................... 8,923 $4.15 37
------- -----
Total Partnership redemptions as of
March 31, 2003..................... 323,258 $7.99 $2,583
======= =====
Total Partnership redemptions as of
December 31, 2003.................. 342,366 $7.76 $2,657
Three-month period ended:
March 31, 2004..................... 3,800 $3.68 14
------- -----
Total Partnership redemptions as of
March 31, 2004..................... 346,166 $7.72 $2,671
======= =====
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-month periods ended March
31, 2004 and 2003. 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.
Introduction
The Partnership is a finite-life entity whose principal business is to own a
fleet of containers for lease to the international shipping industry. The
Partnership's revenues come primarily from the rental income generated by leased
containers and, to a smaller extent, from services related to rental income,
such as handling charges paid by lessees. The Partnership's revenues are,
therefore, dependent on demand for leased containers. Demand for leased
containers drives not only the percentage of the Partnership's containers that
are on lease (utilization), but also, to a certain extent, the rental rates the
Partnership can charge under its leases. When demand declines, utilization
falls, and the Partnership has fewer containers on lease, often earning less
revenue, and more containers off-lease incurring storage expense. In times of
reduced demand, then, the Partnership has higher expenses and may have to reduce
revenues further by offering lessees incentives such as free rental periods or
credits. Conversely, in times of increased demand, rental revenues increase
because the Partnership has more containers on lease, rental rates sometimes
rise, and expenses will drop because the Partnership no longer incurs as many
charges to store or reposition off-lease containers. The General Partners try at
all times to take advantage of the opportunities created by different levels of
demand for leased containers, either by changing services, lease terms or lease
rates offered to customers or by concentrating on different geographic markets.
Demand for containers is driven by many factors, including the overall volume of
worldwide shipping, the number of containers manufactured, the number of
containers available for lease in specific locations and the capacity of the
worldwide shipping industry to transport containers on its existing ships. Since
many of the Partnership's customers are shipping lines that also own their own
containers, the price and availability of new containers directly affects demand
for leased containers. If shipping lines have the cash or financing to buy
containers and find that alternative attractive, demand for leased containers
will fall. Current demand and related market conditions for containers are
discussed below under "Results of Operations: Current Market Conditions for
Leased Containers." Competition for shipping lines' business has increased in
recent years due to operational consolidations among shipping lines and the
entry of new leasing companies that compete with entities like the Partnership.
This competition has generally driven down rental rates and allowed shipping
lines to obtain other favorable lease terms.
The Partnership also recognizes gains and losses from the sale of its
containers. Containers are generally sold either at the end of their useful
life, or when an economic analysis indicates that it would be more profitable to
sell a container rather than to continue to own it. An example of the latter
would be when re-leasing a container might be relatively expensive, either
because of expenses required to repair the container or to reposition the
container to a location where the container could be readily leased.
The Partnership's containers are primarily sold to wholesalers who subsequently
sell to buyers such as mini-storage operators, construction companies, farmers
and other non-marine users. Additionally, if a container is lost or completely
damaged by a lessee, the Partnership receives proceeds from the lessee for the
value of the container. The Partnership counts these transactions as sales, as
well as the more traditional sales to wholesalers. Generally, since 1998, used
container prices have declined, causing the Partnership to realize less from the
sale of its used containers. Used container sales prices stabilized in 2002 and
2003 and sales prices for certain types of containers have increased slightly in
the first part of 2004.
The Partnership's operations and financial results are also affected by the
price of new containers. The price for new containers fell from 1995 through
2003. This decrease significantly depressed rental rates. This decrease has also
caused the Partnership to evaluate the carrying cost of its container fleet, and
has resulted in write-downs of some containers the Partnership has decided to
sell. These matters are discussed in detail below under the caption "Other
Income and Expenses: Write Down of Certain Containers Identified for Sale."
Prior to the start of the Partnership's liquidation period, which is discussed
below, the Partnership purchased new containers, which allowed the Partnership
to receive some benefit from the decrease in price for new containers.
During the first part of 2004, new container prices have increased significantly
due to a worldwide shortage of steel, which has resulted in limited availability
of new containers. Although the Partnership is no longer purchasing containers,
the increase in new container prices and the limited availability of new
containers has improved demand for the Partnerships' containers. See "Results of
Opeations: Current Market Conditions for Leased Containers" for a further
discussion.
The Partnership is in its liquidation phase, which means that the Partnership no
longer seeks to replenish its container fleet by buying new containers. During
this phase, the Partnership will either (i) sell its remaining container fleet
to an institutional investor, who would continue to lease the containers or (ii)
sell containers gradually to wholesalers when the containers are at or near the
end of their useful life, or when they come off-lease and a sale seems to offer
a better overall yield than continued operation. The choice of liquidation
options has been based on which option is believed to better enhance the overall
economic return to investors.
Over the past several years, the price that institutional investors would have
been willing to pay for a fleet of used containers has been too low in
comparison to the estimated economic benefit of continuing to lease the
containers. As a result, to date the Partnership has sold containers gradually
to wholesalers and the liquidation phase has been longer, rather than shorter.
The liquidation phase can take up to six or more years.
Liquidity and Capital Resources
Historical
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 on February 11, 1991 and on May 4, 1992 the
Partnership's offering of limited partnership interest was closed at $125,000.
General
In April 2002, the Partnership entered its liquidation phase. During the
liquidation phase 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.
Sources of Cash
Rental income and proceeds from container sales are the Partnership's principal
sources of liquidity, and the source of funds for distributions. Rental income
and container sales prices are affected by market conditions for leased and used
containers. Cash provided from these sources will fluctuate based on demand for
leased and used containers. Demand for leased and used containers is discussed
more fully in "Results of Operations." Cash provided by operating activities is
affected by rental income, operating expenses and the timing of both payments
received from lessees and payments made by the Partnership for operating
expenses. Additionally, a continued stream of rental income is dependent partly
on the Partnership's ability to re-lease containers as they come off lease. See
the discussion of "Utilization" below under "Results of Operations." Cash
provided by investing activities is affected by the number of containers sold,
the sale price received on these containers, and the timing of payments received
for these sales. Previously reported cash from operations and sales proceeds is
not indicative of future cash flows as these amounts can fluctuate significantly
based on demand for new and used containers, fleet size and timing of the
payments made and received. Fluctuations in rental income, operating expenses,
and sale prices for used containers are discussed more fully in "Results of
Operations."
Operating and investing activities are discussed in detail below.
Cash from Operations
Net cash provided by operating activities for the three-month periods ended
March 31, 2004 and 2003, was $1,366 and $1,432, respectively. The decrease of
$66, or 5%, was primarily due to declines in net earnings, adjusted for non-cash
transactions and the fluctuations in accounts payable and accrued liabilities,
offset by fluctuations in due from affiliates, net and gross accounts receivable
between the periods. Net earnings, adjusted for non-cash transactions, declined
primarily due to the decrease in rental income, which is discussed more fully
under "Results of Operations." The fluctuations in accounts payable and accrued
liabilities resulted from timing differences in the payment of expenses and
fees, as well as in fluctuations in these amounts. The fluctuations in due from
affiliates, net, resulted from timing differences in the payment of expenses and
fees and the remittance of net rental revenues, as well as fluctuations in these
amounts. The decrease in gross accounts receivable of $146 during the
three-month period ended March 31, 2004 was primarily due the decrease in rental
income. The decrease in gross accounts receivable of $57 during the same period
in 2003 was primarily due to a decrease in the average collection period of
accounts receivable.
Cash from Sale of Containers
Current Uses: For the three-month periods ended March 31, 2004 and 2003, net
cash provided by investing activities (the sale of containers) was $789 and
$514, respectively. The increase of $275 was primarily due to the Partnership
selling more containers at a higher average container sales price during the
three-month period ended March 31, 2004, compared to the equivalent period in
2003. The Partnership primarily sells containers when they come off-lease, and
an analysis indicates that the container should be sold. Fluctuations between
periods in the number of containers sold reflect the age and condition of
containers coming off-lease, the geographic market in which they come off-lease,
and other related market conditions. Fluctuations in sales price between the
periods can also be affected by the number of containers bought by lessees, who
reimburse the Partnership for any containers that are lost or completely damaged
beyond repair. These reimbursement amounts are frequently higher than the
average sales price for a container sold in the open market when it comes
off-lease. See "Effect of Liquidation on Future Cash Flows" below.
Effect of Market Conditions: Market conditions can affect the Partnership's
decision to sell an off-lease container. If demand for leased containers is low,
the Partnership is more likely to sell a container rather than incur the cost to
reposition the container to a location where it can be released. If demand is
strong, the Partnership is less likely to identify the container as for sale, as
it is anticipated that the container can be released in its current location or
repositioned to another location where demand is high. The strong utilization in
the first quarter of 2004 and recent increases in demand have resulted in fewer
containers being identified for sale. Some of the market conditions affecting
the sale of containers are discussed below under "Comparative Results of
Operations." The decline in the number of containers identified for sale has
caused the average sales price of used containers to increase slightly in the
first quarter of 2004.
Effect of Liquidation on Future Cash Flows: The number of containers sold both
in low demand locations and elsewhere, as well as the amount of sales proceeds
and cash provided by operating activities, will affect how much the Partnership
will pay in future distributions to Partners. Future distributions are expected
to decline as cash from operations and cash from sales proceeds decrease along
with the Partnership's fleet. The fleet will decrease as part of the
Partnership's liquidation and eventual termination.
Uses of Cash
Distributions to partners are the Partnership's primary use of cash. The amount
of distributions paid to partners is dependent on cash received from operations
and the sale of containers, less amounts used to pay redemptions or held as
working 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.
These activities are discussed in detail below.
Distributions: During the three-month period ended March 31, 2004, the
Partnership declared cash distributions to limited partners pertaining to the
period from December 2003 through the February 2004 in the amount of $2,214,
which represented $0.38 per unit. On a cash basis, as reflected in the
Statements of Cash Flows, after paying redemptions and general partner
distributions, $1,330 of these distributions was from operating activities and
the balance of $884 was a return of capital. On an accrual basis, as reflected
on the Statements of Partners' Capital, $222 of these distributions were from
current year earnings and $1,992 was a return of capital.
Capital Commitments: Redemptions: During the three-month period ended March 31,
2004, the Partnership redeemed 3,800 units for a total dollar amount of $14. The
Partnership used cash flows from operations to pay for the redeemed units.
The Partnership invests working capital and cash flow from operations and
investing activities prior to its distribution to the partners in short-term,
liquid investments.
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) is primarily affected by the size of its container fleet, the number
of containers it has on lease (utilization) and the rental rates received under
its leases. The current status of each of these factors is discussed below.
Size of Container Fleet
2004 2003
---- ----
Beginning container fleet............... 17,507 20,536
Ending container fleet.................. 16,641 20,019
Average container fleet................. 17,074 22,278
The average container fleet decreased 23% from the three-month period ended
March 31, 2003 to the same period in 2004, primarily due to the continuing sale
of containers. The decline in container fleet resulted in lower rental income.
An overall decline in rental income is expected to continue in future years, as
the size of the Partnership's container fleet continues to decrease.
Utilization
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 85% and 82% on average during the
three-month periods ended March 31, 2004 and 2003, respectively. The remaining
container fleet is off-lease and is being stored primarily at a large number of
storage depots. At March 31, 2004 and 2003, utilization was 89% and 83%,
respectively, and the Partnership's off-lease containers (in units) were located
in the following locations:
2004 2003
---- ----
Americas 747 1,931
Europe 327 664
Asia 685 677
Other 51 71
----- -----
Total off-lease containers 1,810 3,343
===== =====
At March 31, 2004 and 2003 approximately 11% and 14%, respectively, of the
Partnership's off-lease containers had been specifically identified as for sale.
Rental Rates
In addition to utilization, rental income is affected by daily rental rates.
Daily rental rates are different under different lease types. The two primary
lease types for the Partnership's containers are long term leases and master
leases. The average daily rental rate for the Partnership's containers decreased
5% from the three-month period ended March 31, 2003 compared to the same period
in 2004 primarily due to the decline in long term lease rates. The decline in
average rental rates under master leases between the periods was minimal. The
majority of the Partnership's rental income was generated from master leases,
but in the past several years an increasing percentage of the Partnership's
containers have been on lease under long term leases. At March 31, 2004 and
2003, 41% and 37%, 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.
Comparative Results of Operations
The following is a comparative analysis of the results of operations for the
three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
Income (loss) from operations $ 257 $ (220)
Rental income $2,188 $2,546
Percent change from previous
year in
Utilization 4% 46%
Average container fleet size (23%) (15%)
Average rental rates ( 5%) (11%)
The Partnership's rental income decreased $358 or 14%, from the three-month
period ended March 31, 2003 to 2004. The decrease was due to decreases in income
from container rentals and other rental income, which is discussed below. Income
from container rentals decreased $345, or 16%, primarily due to declines in
average fleet size and rental rates, partially offset by the increase in
utilization as detailed above.
Current Market Conditions for Leased Containers: Utilization was stable for most
of 2003 and demand remained strong during the first quarter of 2004. Beginning
in 2004, a worldwide steel shortage caused significant increases in new
container prices and limited the number of new containers being built. As a
result, demand for leased containers increased further beginning in March and
has remained strong through the beginning of May. Additionally, the recent
increases in new container prices have caused lease rates to stabilize and even
increase for new long term leases. 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 decreases in
utilization, lease rates and container sale prices, adversely affecting the
Partnership's operating results.
Sale of Containers in Lower Demand Locations: Despite this increase in demand,
areas of lower demand for containers still exist due to a continuing trade
imbalance between Asia and the Americas and Europe. However, the number of
off-lease containers in these low demand locations has decreased, as lessees
have returned fewer containers to these lower demand locations and have also
leased containers from some of these locations. In recent years, market
conditions in these low demand locations have driven some sales of off-lease
containers. These sales resulted from the high cost of repositioning containers
from these areas. Before incurring high repositioning costs, the Partnership
generally weighs those costs against the expected future rental stream from a
container. If the repositioning costs are too high when compared to the
anticipated future rental revenues, the container will be identified for sale,
rather than repositioned. Older containers, in particular, have been identified
as for sale in low demand locations because their expected future rental stream
is reduced by their shorter remaining marine life and by the shipping lines'
preference for newer containers. The Partnership anticipates that some sales
will still occur in low demand locations, but expects fewer sales now that fewer
containers are off-lease in these locations. The number of the Partnership's
off-lease containers in the Americas and Europe, where most of these lower
demand locations occur, is detailed above in "Utilization."
Other Income and Expenses
The following is a discussion of other income earned and expenses incurred by
the Partnership:
Other Rental Income
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 three-month period ended March 31, 2004, other rental income was $362, a
decrease of $13 from the equivalent period in 2003. Other rental income
decreased between the periods primarily due to decreases in location and
handling income of $27 and $9, respectively, offset by an increase in DPP income
of $28.
Direct Container Expenses
Direct container expenses decreased $33, or 7%, from the three-month period
ended March 31, 2003 to the equivalent period in 2004, primarily due to the
decline in the average fleet size. The decrease was primarily due to declines in
storage and repositioning expenses of $35 and $20, respectively, offset by an
increase in insurance expense of $21.
Storage expense decreased not only due to the decrease in average fleet size,
but also due to the increase in utilization noted above. The decrease was
partially offset by higher average storage cost per container. Repositioning
expense decreased due to the decrease in the average repositioning costs, offset
by a slight increase in the number of containers repositioned between the
periods. The increase in insurance expense was due to a premium credit received
and recorded during the three-month period ended March 31, 2003.
Bad Debt Expense or Benefit
Bad debt expense was $34 and $22 for the three-month periods ended March 31,
2004 and 2003, respectively. The fluctuations in bad debt expense 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. See "Critical Accounting Policies and
Estimates" below. The expenses recorded during the three-month periods ended
March 31, 2004 and 2003 reflect higher reserve estimates, after deductions had
been taken against the reserve, from December 31, 2003 and 2002.
Depreciation Expense
Depreciation expense decreased $561 or 34% from the three-month period ended
March 31, 2003 to the comparable period in 2004 primarily due to the decline in
average fleet size and a larger portion of the container fleet being fully
depreciated. For a discussion of the Partnership's depreciation policy, see
"Critical Accounting Policies and Estimates: Container Depreciation Estimates."
Write Down of Certain Containers Identified for Sale
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 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 March 31, 2004 and 2003 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.
Write-down expense decreased $165, or 83%, from the three-month period ended
March 31, 2003 to the same period in 2004 primarily due to the decrease in the
number of containers identified for sale and a lower average required write
down. The number of containers identified for sale decreased primarily due to
the decline in the number of containers located in low demand locations as
detailed above.
Gain and Loss on Sale of Containers
The following details the gain (loss) on the sale of containers for the
three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
Gain (loss) on written-down containers $10 $(20)
Gain (loss) on other containers 5 (7)
-- --
Total gain (loss) on container sales $15 $(27)
== ==
The Partnership recorded a gain on the sale of written down containers for the
three-month period ended March 31, 2004 as the actual sales proceeds received
were greater than the estimated sales proceeds used to determine the write-down
amount. The loss recorded during the comparable period in 2003, was due to
actual sales proceeds that were lower than the estimated sales proceeds used to
determine the write-down. See "Critical Accounting Policies and Estimates"
below.
As the Partnership determines the number of containers identified for sale and
the related write-down amount on a monthly basis, some containers are sold
before they are written down. The gain (loss) on these containers is referred to
in the table above as "Gain (loss) on other containers." The amount of gain
(loss) on the sale of these other containers fluctuates based on the specific
conditions of the containers sold, the type of container sold, the locations
where the containers were sold and their net book value, rather than any
identifiable trend. Container sales prices appear to have stabilized and have
increased slightly in 2004, after declining for the past several years.
Management Fees and General and Administrative Costs
Management fees to affiliates consist of equipment management fees, which are
primarily based on rental income, and incentive management fees, which are based
on the Partnership's limited and general partner distributions made from cash
from operations and partners' capital. The following details these fees for the
three-month periods ended March 31, 2004 and 2003:
2004 2003
---- ----
Equipment management fees $153 $177
Incentive management fees 54 56
--- ---
Management fees to affiliates $207 $233
=== ===
Equipment management fees fluctuated based on the fluctuations in rental income
and were approximately 7% of rental income for both the three-month periods
ended March 31, 2004 and 2003. Fluctuations in incentive management fees between
the periods were primarily due to fluctuations in the amount of distributions
paid from cash from operations.
General and administrative costs to affiliates decreased $26, or 21%, from the
three-month period ended March 31, 2003 to the comparable period in 2004. The
decrease was primarily due to decreases in overhead costs allocated from TEM, as
the Partnership represented a smaller portion of the total fleet managed by TEM.
Other general and administrative costs were comparable at $30 and $29 during the
three-month periods ending March 31, 2004 and 2003, respectively.
Contractual Obligations
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.
The Partnership Agreement requires the Partnership to continue to pay these fees
and expenses to the General Partners and to reimburse the General Partners for
expenses incurred by them and other service providers. For the amount of fees
and reimbursements made to the General Partners for the three-month periods
ended March 31, 2004 and 2003, see Note 2 to the Financial Statements in Item 1.
For the amount of fees and reimbursements made to other service providers, see
Other general and administrative expenses in the Statements of Operations in
Item 1.
Net Earnings or Loss per Limited Partnership Unit
2004 2003
---- ----
Net earnings (loss) per limited
partnership unit $0.04 ($0.04)
Net earnings (loss) allocated
to limited partners $ 236 ($ 238)
Net earnings/loss per limited partnership unit fluctuates based on fluctuations
in net earnings/loss allocated to limited partners as detailed above. The
allocation of net earnings/loss for the three-month periods ended March 31, 2004
and 2003 included a special allocation of gross income to the General Partners
of $19 and $22, respectively, in accordance with the Partnership Agreement.
Critical Accounting Policies and Estimates
Certain estimates and assumptions were made by the Partnership's management that
affect its financial statements. These estimates are based on historical
experience and on assumptions believed to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the
carrying value of assets and liabilities. Actual results could differ.
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.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is 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 General Partners have established a Credit Committee, which actively manages
and monitors the collection of receivables on at least a monthly basis. This
committee establishes credit limits for every lessee and potential lessee of
equipment, monitors compliance with these limits, monitors collection
activities, follows up on the collection of outstanding accounts, determines
which accounts should be written-off and estimates allowances for doubtful
accounts. As a result of actively managing these areas, the Partnership's
allowance for bad debt as a percentage of accounts receivable has ranged from 5%
to 13% and has averaged approximately 9% over the last 5 years. These allowances
have historically covered all of the Partnership's bad debts.
Container Depreciation Estimates: The Partnership depreciates its container
rental equipment based on certain estimates related to the container's useful
life and salvage value. The Partnership estimates a container's useful life to
be 12 years, an estimate which it has used since the Partnership's inception.
Prior to July 1, 2002, the Partnership estimated salvage value as a percentage
of equipment cost. Effective July 1, 2002, the Partnership revised its estimate
for container salvage value to an estimated dollar residual value, reflecting
current expectations of ultimate residual values.
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. The Partnership will revise its estimate of residual values if it is
determined that these estimates are no longer reasonable based on recent sales
prices and revised assumptions regarding future sales prices. The Partnership
will revise its estimate of container useful life if it is determined that the
current estimates are no longer reasonable based on the average age of
containers sold and revised assumptions regarding future demand for leasing
older containers.
As a result, depreciation expense could fluctuate significantly in future
periods as a result of any revisions made to these estimates. A decrease in
estimated residual values or useful lives of containers would increase
depreciation expense, adversely affecting the Partnership's operating results.
Conversely, any increase in these estimates would result in a lower depreciation
expense, resulting in an improvement in operating results. These changes would
not affect cash generated from operations, as depreciation is a non-cash item.
Container Impairment Estimates: Write-downs of containers are made when it is
determined that the recorded value of the containers exceeds their estimated
fair value. Containers held for continued use and containers identified for sale
in the ordinary course of business are considered to have different estimated
fair values.
In determining estimated fair value for a container held for continued use,
management must estimate the future undiscounted cash flows for the container.
Estimates of future undiscounted cash flows require estimates about future
rental revenues to be generated by the container, future demand for leased
containers, and the length of time for which the container will continue to
generate revenue. To date, management has not found the estimates of future
undiscounted cash flows to be less than the recorded value of the Partnership's
containers. Therefore, the Partnership has not recorded any write-downs of
containers to be held for continued use. Estimates regarding the future
undiscounted cash flows for these containers could prove to be inaccurate. If
these containers are sold prior to the end of their useful lives and before they
are written down, as a result of being identified as for sale, the Partnership
may incur losses on the sale of these containers.
In determining estimated fair value for a container identified for sale, the
current estimated sales price for the container, less estimated cost to sell, is
compared to its recorded value. This recorded value has been found to be higher
than the estimated sales price, less cost to sell, for some containers and these
containers have been written down. See "Write Down of Certain Containers
Identified for Sale" above. The Partnership has, however, recorded some losses
on the sale of these previously written-down containers. Losses were recorded
because the estimated sales price was higher than the actual sales price
realized. Estimated sales prices are difficult to predict, and management's
estimates proved too high in these cases. See "Gain and Loss on Sale of
Containers" above.
The Partnership will continue to monitor the recoverability of its containers.
If actual market conditions for leased containers are less favorable than those
projected, if actual sales prices are lower than those estimated by the
Partnership, or if the estimated useful lives of the Partnership's containers
are shortened, additional write-downs may be required and/or losses may be
incurred. 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, the risk of technological obsolescence,
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 "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, 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. The
Partnership does not undertake any obligation to update forward-looking
statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Exchange Rate Risk
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 does pay a small amount
of its expenses in various foreign currencies. For the three-month period ended
March 31, 2004, approximately 9% of the Partnership's expenses were paid in 15
different foreign currencies. As there are no significant payments made in any
one foreign currency, the Partnership does not hedge these expenses.
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 last 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 2(e). Partnership Purchases of Limited Partner Units
- ---------------------------------------------------------------------------------------------------------------
Total number of Maximum number
units purchased as of units that may
part of publicly yet be purchased
Total number Average announced under the
of units price paid redemption redemption
Period purchased (1) per unit program program (2)
- ---------------------------------------------------------------------------------------------------------------
January 1 to
January 31, 2004 3,800 $3.68 3,800 N/A
Total (3)
- ---------------------------------------------------------------------------------------------------------------
(1) These units are purchased as part of the limited partnership's
redemption program and the first redemption offering was announced in
May 1994. Redemptions are held from time to time to give limited
partners the opportunity to sell their units to the Partnership at a
price established by formula. Limited partners are notified of each
regular redemption offer in the Partnership's quarterly or annual
investor report. No units were purchased by the Partnership other than
through the Partnership's publicly announced redemption program.
(2) The redemption program is subject to the following limitation. It has
no expiration date, but redemption offers are made only when the
Partnership has cash available to make redemptions. Under the limited
partnership agreement, redemptions are further 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. The limited partnership
agreement further provides that 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. For
information about units redeemed in prior periods, see notes to the
Financial Statements.
(3) In the first quarter, units were purchased only in January, so the
January amounts represent the total for the quarter.
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: May 12, 2004
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 May 12, 2004
Ernest J. Furtado Vice President and Secretary
________________________ President May 12, 2004
John A. Maccarone
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: May 12, 2004
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 May 12, 2004
Ernest J. Furtado Vice President and Secretary
/s/John A. Maccarone
_________________________________ President May 12, 2004
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.
May 12, 2004
/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.
May 12, 2004
/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 March 31,
2004, as filed on May 12, 2004 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.
May 12, 2004
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 March 31,
2004, as filed on May 12, 2004 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.
May 12, 2004
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.