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TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 28, 2000
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund II,
L.P. (the "Partnership") the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
The financial statements included in the enclosed Annual Report on Form 10-K do
not reflect a change from the preceding year in any accounting principles or
practices, or in the method of applying any such principles or practices.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-19145
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(Exact name of Registrant as specified in its charter)
California 94-3097644
(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)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY UNITS (THE "UNITS")
(TITLE OF CLASS)
LIMITED PARTNERSHIP INTERESTS (UNDERLYING THE UNITS)
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ X ]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and ask prices of such
stock, as of a specified date within 60 days prior to the date of the filing.
Not Applicable.
Documents Incorporated by Reference
The Registrant's Prospectus as contained in Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement, as filed with the Commission on November 3,
1989 as supplemented by Post-Effective Amendment No. 2 filed with the Commission
under Section 8(c) of the Securities Act of 1933 on December 11, 1990.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
For more detailed information about the Registrant's business, see "Business of
the Partnership" in the Registrant's Prospectus as supplemented.
(a) General Development of Business
The Registrant is a California Limited Partnership formed on July
11, 1989 to purchase, own, operate, lease, and sell equipment used
in the containerized cargo shipping industry. The Registrant
commenced offering units representing limited partnership interests
(Units) to the public on November 8, 1989 in accordance with its
Registration Statement and ceased to offer such Units as of January
15, 1991. The Registrant raised a total of $75,000,000 from the
offering and invested a substantial portion of the money raised in
equipment. The Registrant has since engaged in leasing this and
other equipment in the international shipping industry.
See Item 10 herein for a description of the Registrant's General
Partners. See Item 7 herein for a description of current market
conditions affecting the Registrant's business.
(b) Financial Information About Industry Segments
Inapplicable.
(c) Narrative Description of Business
(c)(1)(i) A container leasing company generally, and the Registrant
specifically, is an operating business comparable to a rental car
business. A customer can lease a car from a bank leasing department
for a monthly charge which represents the cost of the car, plus
interest,amortized over the term of the lease; or the customer can
rent the same car from a rental car company at a much higher daily
lease rate. The customer is willing to pay the higher daily
rate for the convenience and value-added features provided by the
rental car company, the most important of which is the ability to
pick up the car where it is most convenient, use it for the desired
period of time, and then drop it off at a location convenient
to the customer. Rental car companies compete with one another on
the basis of lease rates, availability of cars, and the provision
of additional services. They generate revenues by maintaining the
highest lease rates and the highest utilization factors that
market conditions will allow, and by augmenting this income with
proceeds from sales of insurance, drop-off fees, and other special
charges. A large percentage of lease revenues earned by car rental
companies are generated under corporate rate agreements wherein, for
a stated period of time, employees of a participating corporation
can rent car at specific terms, conditions and rental rates.
Container leasing companies and the Registrant operate in a similar
manner by owning a worldwide fleet of new and used transportation
containers and leasing these containers to international shipping
companies hauling various types of goods among numerous trade
routes. All lessees pay a daily rental rate and in certain markets
may pay special handling fees and/or drop-off charges. In addition
to these fees and charges, a lessee must either provide physical
damage and liability insurance or purchase a damage waiver from the
Registrant, in which case the Registrant agrees to pay the cost of
repairing any physical damage to containers caused by lessees.
Container leasing companies compete with one another on the basis
of lease rates, availability of equipment and services provided.
To ensure the availability of equipment to its customers,
container leasing companies and the Registrant may pay to reposition
containers from low demand locations to higher demand locations. By
maintaining the highest lease rates and the highest equipment
utilization factors allowed by market conditions, the Registrant
attempts to generate revenue and profit. The majority of the
Registrant's equipment is leased under master leases, which are
comparable to the corporate rate agreements used by rental car
companies. The master leases provide that the lessee, for a
specified period of time, may rent containers at specific terms,
conditions and rental rates. Although the terms of the master lease
governing each container under lease do not vary, the number of
containers in use can vary from time to time within the term of the
master lease. The terms and conditions of the master lease provide
that the lessee pays a daily rental rate for the entire time the
container is in his possession (whether or not he is actively using
it), is responsible for any damage, and must insure the container
against liabilities. For a more detailed discussion of the leases
for the Registrant's equipment, see "Leasing Policy" under "Business
of the Partnership" in the Registrant's Prospectus as supplemented.
The Registrant also sells containers in the course of its business
as opportunities arise, at the end of the container's useful life
or if market and economic considerations indicate that a sale would
be beneficial. See "Business of the Partnership" in Registrant's
Prospectus, as supplemented.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) Inapplicable.
(c)(1)(vi) Inapplicable.
(c)(1)(vii) No single lessee generated lease revenue for the years ended
December 31, 1999, 1998 and 1997 which was 10% or more of the total
revenue of the Registrant.
(c)(1)(viii)Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) There are approximately 80 container leasing companies of which the
top ten control approximately 91% of the total equipment held by all
container leasing companies. The top two container leasing companies
combined control approximately 36% of the total equipment held by
all container leasing companies. Textainer Equipment Management
Limited, an Associate General Partner of the Registrant and the
manager of its marine container equipment, is the third largest
container leasing company and manages approximately 13% of the
equipment held by all container leasing companies. The customers
for leased containers are primarily international shipping lines.
The Registrant alone is not a material participant in the worldwide
container leasing market. The principal methods of competition
are price, availability and the provision of worldwide service to
the international shipping community. Competition in the container
leasing market has increased over the past few years. Since 1996,
shipping alliances and other operational consolidations among
shipping lines have allowed shipping lines to begin operating
with fewer containers, thereby decreasing the demand for leased
containers. Furthermore, primarily as a result of lower new
container prices and low interest rates, shipping lines now own,
rather than lease, a higher percentage of containers. The decrease
in demand from shipping lines, along with the entry of new leasing
company competitors offering low container rental rates, has
increased competition among container lessors such as the
Registrant.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii)The Registrant has no employees. Textainer Financial Services
Corporation (TFS), the Managing General Partner of the Registrant,
is responsible for the overall management of the business of the
Registrant and at December 31, 1999 had 4 employees. Textainer
Equipment Management Limited (TEM), an Associate General Partner, is
responsible for the management of the leasing operations of the
Registrant and at December 31, 1999 had a total of 164 employees.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The Registrant is involved in leasing containers to international
shipping companies for use in world trade. Approximately 14%, 19%
and 14%, of the Registrant's rental revenue during the years ended
December 31, 1999, 1998, and 1997, respectively, was derived from
operations sourced or terminated domestically. These percentages do
not reflect the proportion of the Partnership's income from
operations generated domestically or in domestic waterways.
Substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations. See "Business of
the Partnership", and for a discussion of the risks of leasing
containers for use in world trade, "Risk Factors" in the
Registrant's Prospectus, as supplemented.
ITEM 2. PROPERTIES
As of December 31, 1999, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 5,150
20-foot refrigerated containers 71
40-foot standard dry freight containers 5,176
40-foot high cube dry freight containers 3,872
------
14,269
======
During December 1999, approximately 79% of these containers were on lease to
international shipping companies, and the balance were being stored at container
manufacturers' locations and at a large number of storage depots located
worldwide. At December 31, 1999, approximately 2% of the Partnership's equipment
had been identified as being for sale.
For information about the Registrant's property, see "Business of the
Partnership" in the Registrant's Prospectus, as supplemented. See also Item 7,
"Results of Operations" regarding current, and possible future, write-downs of
some of the Registrant's property.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not subject to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 201:
(a) Market Information.
(a)(1)(i) The Registrant's limited partnership Units are not publicly
traded and there is no established trading market for such
Units. The Registrant has a program whereby Limited Partners
may redeem Units for a specified redemption price. The program
operates only when the Managing General Partner determines,
among other matters, that the payment for redeemed units will
not impair the capital or operations of the Registrant.
(a)(1)(ii) Inapplicable.
(a)(1)(iii) Inapplicable.
(a)(1)(iv) Inapplicable.
(a)(1)(v) Inapplicable.
(a)(2) Inapplicable.
(b) Holders.
(b)(1) As of January 1, 2000, there were 4,683 holders of record
of limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
For details of the distributions which are made monthly by the Registrant to its
limited partners, see Item 6, "Selected Financial Data."
ITEM 701: Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA.
(Amounts in thousands except for per unit amounts)
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Rental income....................... $ 8,133 $ 10,031 $ 10,433 $ 11,613 $ 13,232
Net earnings........................ $ 957 $ 2,492 $ 2,715 $ 2,806 $ 4,579
Net earnings per unit
of limited partnership
interest.......................... $ 0.24 $ 0.63 $ 0.71 $ 0.74 $ 1.21
Distributions per unit of
limited partnership
interest.......................... $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Distributions per unit of
limited partnership
interest representing
a return of capital............... $ 1.36 $ 0.97 $ 0.89 $ 0.86 $ 0.39
Total assets........................ $ 33,676 $ 38,644 $ 42,865 $ 46,510 $ 49,998
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
The Financial Statements contain information, which will assist in evaluating
the financial condition of the Partnership for the years ended December 31,
1999, 1998 and 1997. Please refer to the Financial Statements and Notes thereto
in connection with the following discussion.
Liquidity and Capital Resources
From November 8, 1989 until January 15, 1991, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,000 on December 19, 1989, and on January 15, 1991, the
Partnership had received its maximum subscription amount of $75,000.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value, which is set by formula. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. During the year ended December 31, 1999, the
Partnership redeemed 2,200 units for a total dollar amount of $18. The
Partnership used cash flow from operations to pay for the redeemed units.
The Partnership invests working capital, cash flow from operations prior to its
distribution to the partners and sales proceeds from container sales that have
not been used to purchase containers in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
Limited partners are currently receiving monthly distributions in an annualized
amount equal to 8% of their original investment. During the year ended December
31, 1999, the Partnership declared cash distributions to limited partners
pertaining to the period from December 1998 through November 1999 in the amount
of $5,940. On a GAAP basis, $5,046 of these distributions was a return of
capital and the balance was from net income. On a cash basis, $4,866 of these
distributions were from current year operating activities and the remainder was
from cash provided by previous years' operations that had not been distributed
or used to purchase containers or redeem units. Distributions in future years
may continue to be greater than cash provided by operations and, in this event,
would be made from the remaining undistributed cash from previous years'
operations and then from proceeds from container sales. The portion of future
distributions made from proceeds from container sales would be a return of
capital. Making distributions from proceeds from container sales in future years
was based on the Partnership's age and existing market conditions.
At December 31, 1999, the Partnership had no commitments to purchase containers.
Net cash provided by operating activities for years ended December 31, 1999 and
1998, was $4,884 and $6,674, respectively. The decrease of $1,790, or 27%, was
primarily attributed to the decrease in net earnings, adjusted for non-cash
transactions and fluctuations in accounts receivable net of write-offs, offset
by fluctuations in due from affiliates, net. Net earnings, adjusted for non-cash
transactions decreased primarily due to the decline in rental income, which is
discussed more fully in "Results of Operations". The decrease in accounts
receivable of $70 for the year ended December 31, 1999 was primarily due to the
decrease in rental income, offset by an increase in the average collection
period of accounts receivable. The decrease in accounts receivable, net of
write-offs, of $866 for the comparable period in 1998 was primarily due to the
decrease in rental income, the resolution of payment issues with one lessee, and
a decrease in the average collection period of accounts receivable. The
increases in due from affiliates, net, resulted from timing differences in the
payment of expenses and fees and the remittance of net rental revenues.
For the year ended December 31, 1999, net cash provided by investing activities
(the purchase and sale of containers) was $1,402 compared to $245 for the
comparable period in 1998. The increase of $1,157 was due to the Partnership
having purchased more containers during 1998 than in 1999, partially offset by a
decrease in sales proceeds. The Partnership purchased fewer containers in 1999
than in 1998 due to the decline in sales proceeds and the decline in cash
available from operations for container purchases as a result of current market
conditions and the decision to maintain distributions at existing levels, as
discussed above. Although the Partnership sold more containers during the year
ended December 31, 1999 than in 1998, average sales prices received on the
container sales decreased, resulting in the decline in proceeds from container
sales. The sales prices received on these container sales decreased as a result
of current market conditions, which have adversely affected the value of used
containers. The increase in container sales during 1999 was primarily due to the
Partnership continuing to sell containers located in low demand locations as
discussed below in "Result of Operations". Until conditions improve in these low
demand locations, the Partnership plans to continue to sell some of its
containers there. The Partnership sells containers when (i) a container reaches
the end of its useful life or (ii) an analysis indicates that the sale is
warranted based on existing market conditions and the container's age, location
and condition. Proceeds from container sales will fluctuate based on the number
of containers sold and the actual price received on the sale.
The Partnership intends to continue to reinvest a portion of cash from container
sales proceeds in additional containers. The number of additional containers
purchased is not likely to equal the number of containers sold for several
reasons. First, new container prices are likely to be greater than the average
sales price of containers sold. Additionally, cash available for reinvestment is
likely to be lower than previously anticipated as a portion of future container
sale proceeds is likely to be used to pay distributions. Furthermore, in the
near term, the Partnership does not anticipate having excess cash from
operations, after paying distributions and redeeming units, to reinvest in new
containers, resulting in a slower than anticipated rate of reinvestment.
The amount of distributions and redemptions is determined by the General
Partners in accordance with the Partnership Agreement. Finally, market
conditions have had an adverse effect on the average sales price recently
realized from container sales. Market conditions are discussed more fully below
under "Results of Operations". A slower rate of reinvestment will, over time,
affect the size of the Partnership's container fleet.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income, container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet during the years ended December 31, 1999, 1998 and 1997, as well
as certain other factors as discussed below. The following is a summary of the
container fleet (in units) available for lease during those periods:
1999 1998 1997
---- ---- ----
Beginning container fleet............... 16,281 17,697 18,016
Ending container fleet.................. 14,269 16,281 17,697
Average container fleet................. 15,275 16,989 17,857
The decline in the average container fleet of 10% from the year ended December
31, 1998 to the year ended December 31, 1999 was due to the Partnership having
sold more containers than it purchased since December 31, 1998. Although some of
the sales proceeds were used to purchase additional containers, fewer containers
were bought than sold, resulting in the net decrease in the size of the
container fleet. As noted above, when containers are sold, sales proceeds are
not likely to be sufficient to replace all of the containers sold and all sales
proceeds may not be used for new container purchases. This trend, which is
expected to continue, has contributed to a slower rate of reinvestment than had
been expected by the General Partners. Other factors related to this trend are
discussed above under "Liquidity and Capital Resources".
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 73%, 78% and 78% during the years
ended December 31, 1999, 1998 and 1997, respectively. In addition, rental income
is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
years ended December 31, 1999, 1998 and 1997.
The Partnership's income from operations for the years ended December 31, 1999
and 1998 was $1,144 and $2,690, respectively, on rental income of $8,133 and
$10,031, respectively. The decrease in rental income of $1,898, or 19%, from the
year ended December 31, 1998 to the year ended December 31, 1999 was
attributable to decreases in income from container rentals and other rental
income, which is discussed below. Income from container rentals, the major
component of total revenue, decreased $1,551, or 18%, primarily due to decreases
in the average container fleet of 10%, average utilization of 6% and average
rental rates of 5%.
The Partnership's income from operations for the years ended December 31, 1998
and 1997 was $2,690 and $2,471, respectively, on rental income of $10,031 and
$10,433, respectively. The decrease in rental income of $402, or 4%, from the
year ended December 31, 1997 to the year ended December 31, 1998 was
attributable to a decrease in income from container rentals, partially offset by
an increase in other rental income. Income from container rentals decreased
$636, or 7% primarily due to the decrease in the average container fleet of 5%
and the decrease in average rental rates of 2%.
Since 1996, the container leasing industry has been adversely affected by lower
demand for leased containers, increased competition and a trade imbalance, which
have resulted in declining utilization and rental rates and increased costs.
Demand for leased containers decreased due to changes in the business of
shipping line customers as a result of (i) over-capacity resulting from the
additions of new, larger ships to the existing container ship fleet at a rate in
excess of the growth rate in containerized cargo trade; (ii) shipping line
alliances and other operational consolidations that have allowed shipping lines
to operate with fewer containers; and (iii) shipping lines purchasing containers
to take advantage of low prices and favorable interest rates.
The entry of new leasing company competitors offering low container rental rates
to shipping lines resulted in downward pressure on rental rates, and caused
leasing companies to offer higher leasing incentives and other discounts to
shipping lines. The decline in the purchase price of new containers during this
period and excess industry capacity have also caused additional downward
pressure on rental rates.
The weakening of many Asian currencies in 1998 resulted in a significant
increase in exports from Asia to North America and Europe and a corresponding
decrease in imports into Asia from North America and Europe. This trade
imbalance created a weak demand for containers in North America and Europe and a
strong demand for containers in Asia, which resulted in a decline in leasing
incentives in Asia, but contributed to a further decline in average utilization
and rental rates for the fleet managed by TEM. This imbalance has also resulted
in an unusually high build-up of containers in lower demand locations. To
alleviate the container build-up, the Partnership has repositioned newer
containers to higher demand locations. However, as a result of this effort, the
Partnership has incurred increased direct container expenses during 1998 and
1999.
In addition to repositioning containers, the Partnership has sold certain
containers located in lower demand locations. The decision to sell these
containers was based on the current expectation that the economic benefit of
selling these containers is greater than the estimated economic benefit of
continuing to own these containers. The majority of the containers sold during
1998 and 1999 were older containers as the expected economic benefit of
continuing to own these containers was significantly less than that of newer
containers, primarily due to their shorter remaining marine life, the cost to
reposition containers and shipping lines' preference for leasing newer
containers.
Once the decision had been made to sell certain containers during 1998 and 1999,
the Partnership wrote down the value of these specifically identified containers
to their estimated fair value, which was based on recent sales prices. Due to
unanticipated declines in container sales prices, the actual sales prices
received on some containers during 1999 were lower than the estimates used for
the write-down, resulting in the Partnership incurring losses upon the sale of
some of these containers. The Partnership recorded additional write-downs during
1999 on previously written down containers and on containers subsequently
identified for sale. Until market conditions improve, the Partnership may incur
further write-downs and/or losses on the sale of such containers. Should the
decline in economic value of continuing to own such containers turn out to be
permanent, the Partnership may be required to increase its depreciation rate or
write-down the value for some or all of its container rental equipment.
Although average utilization during the year ended December 31, 1999 was lower
than the comparable period in 1998 for the reasons discussed above, utilization
has been steadily improving during the second half of 1999 and has remained
stable into the beginning of 2000. This improvement in utilization was due to
slight improvements in demand for leased containers and the trade imbalance
primarily as a result of the improvement in certain Asian economies and a
related increase in exports out of Europe. Although the General Partners do not
foresee material changes in existing market conditions for the near term, they
are cautiously optimistic that the current level of utilization might be
maintained during 2000. However, the General Partners caution that utilization,
lease rates and container sale prices could also decline, adversely affecting
the Partnership's operating results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under short-term operating leases. At
December 31, 1999, 1998 and 1997, there were 246, 229 and 98 containers under
direct finance leases, respectively.
The balance of other rental income consists of other lease-related items,
primarily income from charges to lessees for dropping off containers in surplus
locations less credits granted to lessees for leasing containers from surplus
locations (location income), income from charges to lessees for handling related
to leasing and returning containers (handling income) and income from charges to
lessees for a Damage Protection Plan (DPP). For the year ended December 31,
1999, the total of these other rental income items was $1,074, a decrease of
$347 from the equivalent period in 1998. The decrease was primarily due to
decreases in location and handling income of $216 and $86, respectively.
Location income decreased primarily due to a decrease in charges to lessees for
dropping off containers in certain locations. This decrease was in the lessees'
favor and was driven by the market conditions discussed above. Handling income
decreased due to a decrease in the average handling price charged per container
and a decrease in container movement during the year ended December 31, 1999
compared to the equivalent period in 1998. The decline in the average container
fleet also contributed to these declines.
For the year ended December 31, 1998, the total of these other rental income
items was $1,421, an increase of $234 from the year ended December 31, 1997. The
increase was primarily due to an increase in location income of $294, offset by
a decrease in handling income of $78. Location income increased primarily due to
a decrease in credits given to lessees for picking up containers from certain
locations. Handling income decreased primarily due to a decrease in container
movement.
Direct container expenses decreased $190, or 9%, from the year ended December
31, 1998 to the same period in 1999. The decrease was primarily due to the
decline in the average container fleet which contributed to the decreases in
repositioning and maintenance expense of $249 and $64, respectively, offset by
an increase in storage expense of $131. Repositioning expense decreased due to a
lower average repositioning cost per container and a decrease in the number of
containers repositioned. Maintenance expense decreased due to a decrease in the
number of units requiring repair and due to a decrease in the average repair
cost per container. Storage expense increased due to the decrease in average
utilization noted above and due to an increase in the average storage cost per
container.
Direct container expenses increased $212, or 11%, from the year ended December
31, 1997 to the year ended December 31, 1998. The increase was primarily due to
an increase in repositioning expense of $300, offset by a decrease in storage
expense of $60. Repositioning expense increased due to an increase in the number
of containers repositioned and a higher average repositioning cost per
container. Storage expense decreased due to a decrease in the average cost of
storing the containers.
Bad debt expense (benefit) was $124, ($111), and $92 for the years ended
December 31, 1999, 1998 and 1997, respectively. The effect of insurance proceeds
received during 1998 relating to certain receivables against which reserves had
been recorded in 1994 and 1995, as well as the resolution of payment issues with
one lessee during 1998, were primarily responsible for the benefit recorded in
1998 and, therefore, the fluctuation in bad debt expense (benefit) between the
periods.
Depreciation expense decreased $353, or 10%, and $320, or 9%, from the years
ended December 31, 1998 to 1999 and December 31, 1997 to 1998, respectively.
These decreases were primarily due to the smaller average fleet size and certain
containers, acquired used, which have been fully depreciated.
New container prices have been declining since 1995, and the cost of new
containers at year-end 1998 and during 1999, was significantly less than the
cost of containers purchased in prior years. The Partnership evaluated the
recoverability of the recorded amount of container rental equipment at December
31, 1998 and 1999, and determined that a reduction to the carrying value of the
containers held for continued use was not required, but that a write-down in
value of certain containers identified for sale was required. The Partnership
wrote down the value of these containers to their estimated fair value, which
was based on recent sales prices less cost to sell.
During the fourth quarter of 1998, the Partnership recorded a write-down of $232
on 954 containers identified for sale. During the year ended December 31, 1999,
the Partnership recorded additional write-downs of $376 on previously written
down containers and on 1,040 containers subsequently identified for sale. The
Partnership sold 1,790 previously written down containers for a loss of $98. The
Partnership incurred losses on the sale of some containers previously written
down as the actual sales prices received on these containers were lower than the
estimates used for the write-downs, primarily due to unexpected declines in
container sale prices. Additionally, the Partnership incurred losses of $189 on
the sale of containers that had not been written-down.
If more containers aresubsequently identified as for sale or if container sales
prices continue to decline, the Partnership may incur additional write-downs on
containers and/or may incur losses on the sale of containers.
During the year ended December 31, 1997, the Partnership recorded a write-down
of $343 to further write down the value of refrigerated containers. During 1996,
the carrying value of these containers was written down to an amount equal to
the estimated future undiscounted cash flows from these containers as there had
been no recent sales of this equipment type. The additional write-down recorded
during 1997 was based on the sales proceeds received on 1997 sales of these
containers.
Management fees to affiliates decreased $94, or 10%, and $60, or 6%, from the
years ended December 31, 1998 to 1999 and December 31, 1997 to 1998,
respectively, primarily due to decreases in equipment management fees. Equipment
management fees, which are based primarily on gross revenue, decreased as a
result of the decrease in rental income and were approximately 7% of rental
income for the years ended December 31, 1999, 1998 and 1997. Incentive
management fees, which are based on the Partnership's limited and general
partner distribution percentage and partners' capital, remained comparable at
$250, $251 and $251 for the years ended December 31, 1999, 1998 and 1997.
General and administrative costs to affiliates decreased $129, or 24%, and $110,
or 17%, from the years ended December 31, 1998 to 1999 and December 31, 1997 to
1998, respectively. These decreases were primarily due to the decrease in
overhead costs allocated by TEM, as the Partnership represented a smaller
portion of the total fleet managed by TEM.
Other expense decreased $11 from the year ended December 31, 1998 to the year
ended December 31, 1999. The decrease was primarily due to the decrease of $10
in loss on sale of containers. The loss on sale of containers was primarily due
to the Partnership selling 1,051 containers primarily in low demand locations at
lower average sale proceeds and due to the loss recorded in 1999 on the sale of
1,790 containers previously written down as discussed above.
Other income decreased $442 from income of $244 for the year ended December 31,
1997 to an expense of $198 for the comparable period in 1998. The decrease was
primarily due to the fluctuation of gain/loss on sale of containers from a gain
of $169 for the year ended December 31, 1997 to a loss of $297 for the year
ended December 31, 1998. The loss on sale of containers was primarily due to the
Partnership selling containers in low demand locations at a younger age than
they would have been sold during previous years, as a result of market
conditions.
Net earnings per limited partnership unit decreased from $0.63 to $0.24, and
from $0.71 to $0.63 from the years ended December 31, 1998 to 1999 and from
December 31, 1997 to 1998, respectively. These decreases reflect the decreases
in net earnings allocated to limited partners from $2,339 to $894 from the year
ended December 31, 1998 to 1999 and from $2,652 to $2,339 from December 31, 1997
to 1998. The allocation of net earnings for the years ended December 31, 1999,
1998 and 1997 included a special allocation of gross income of $53, $128 and
$36, respectively, to the General Partners in accordance with the Partnership
Agreement.
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of December 31, 1999, which would result in such a
risk materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the containers, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
Effect of Date Crossing to Year 2000
There has been no material effect on the Partnership's financial condition and
results of operations as a result of problems arising from computer systems'
abilities to process dates beyond January 1, 2000. The General Partners do not
currently expect any such problems to arise within their own computer systems.
The likelihood that a failure in a third party's system would occur and have a
significant adverse effect on the Partnership's operations seems increasingly
remote, but no assurance can be given that, due to unforeseen circumstances,
such an event could not occur. Therefore, the Partnership's contingency plan
remains in place; that is, the General Partners continue to remain capable of
switching temporarily to manual operations in the event of a computer system's
failure. There can be no assurance, however, that switching to manual operations
would prevent all adverse effects of any future year 2000 problem.
Forward Looking Statements
The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing therefor,
alterations in the costs of maintaining and repairing used containers, increases
in competition, changes in the Partnership's ability to maintain insurance for
its containers and its operations, the effects of political conditions on
worldwide shipping and demand for global trade or of other general business and
economic cycles on the Partnership, as well as other risks detailed herein and
from time to time in the Partnership's filings with the Securities and Exchange
Commission. The Partnership does not undertake any obligation to update
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Attached pages 13 to 25.
Independent Auditors' Report
The Partners
Textainer Equipment Income Fund II, L.P.:
We have audited the accompanying balance sheets of Textainer Equipment Income
Fund II, L.P. (a California limited partnership) as of December 31, 1999 and
1998, and the related statements of earnings, partners' capital and cash flows
for each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Textainer Equipment Income Fund
II, L.P. as of December 31, 1999 and 1998, and the results of its operations,
its partners' capital, and its cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
San Francisco, California
February 18, 2000
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Balance Sheets
December 31, 1999 and 1998
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------
1999 1998
----------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $18,956 (1998: $21,059) $ 28,795 $ 33,685
Cash 2,018 1,752
Net investment in direct finance leases (note 4) 315 467
Accounts receivable, net of allowance
for doubtful accounts of $398 (1998: $315) (note 6) 2,038 2,191
Due from affiliates, net (note 2) 499 533
Prepaid expenses 11 16
--------------- ----------------
$ 33,676 $ 38,644
=============== ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 187 $ 264
Accrued liabilities 155 89
Accrued damage protection plan costs (note 1(j)) 272 222
Warranty claims (note 1(k)) 172 385
Accrued recovery costs (note 1(l)) 74 48
Deferred quarterly distributions (note 1(g)) 69 68
Container purchases payable 243 -
--------------- ----------------
Total liabilities 1,172 1,076
--------------- ----------------
Partners' capital:
General partners - -
Limited partners 32,504 37,568
--------------- ----------------
Total partners' capital 32,504 37,568
--------------- ----------------
$ 33,676 $ 38,644
=============== ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Earnings
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------- ---------------- ---------------
Rental income $ 8,133 $ 10,031 $ 10,433
---------------- ---------------- ---------------
Costs and expenses:
Direct container expenses 2,025 2,215 2,003
Bad debt expense (benefit) 124 (111) 92
Depreciation 3,060 3,413 3,733
Write-down of containers (note 1(e)) 376 232 343
Professional fees 76 36 33
Management fees to affiliates (note 2) 821 915 975
General and administrative costs to affiliates (note 2) 409 538 648
Other general and administrative costs 98 103 135
---------------- ---------------- ---------------
6,989 7,341 7,962
---------------- ---------------- ---------------
Income from operations 1,144 2,690 2,471
---------------- ---------------- ---------------
Other (expense) income:
Interest income 100 99 75
(Loss) gain on sale of containers (287) (297) 169
---------------- ---------------- ---------------
(187) (198) 244
---------------- ---------------- ---------------
Net earnings $ 957 $ 2,492 $ 2,715
================ ================ ===============
Allocation of net earnings (note 1(g)):
General partners $ 63 $ 153 $ 63
Limited partners 894 2,339 2,652
---------------- ---------------- ---------------
$ 957 $ 2,492 $ 2,715
================ ================ ===============
Limited partners' per unit share
of net earnings $ 0.24 $ 0.63 $ 0.71
================ ================ ===============
Limited partners' per unit share
of distributions $ 1.60 $ 1.60 $ 1.60
================ ================ ===============
Weighted average number of limited
partnership units outstanding (note 1(m)) 3,712,428 3,722,072 3,726,977
================ ================ ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
- --------------------------------------------------------------------------------------------------------------
Partners' Capital
----------------------------------------------------------
General Limited Total
--------------- -------------- ---------------
Balances at December 31, 1996 $ (90) $ 44,617 $ 44,527
Distributions (63) (5,963) (6,026)
Redemptions (note 1(n)) - (1) (1)
Net earnings 63 2,652 2,715
-------------- ------------- --------------
Balances at December 31, 1997 (90) 41,305 41,215
-------------- ------------- --------------
Distributions (63) (5,957) (6,020)
Redemptions (note 1(n)) - (119) (119)
Net earnings 153 2,339 2,492
-------------- ------------- --------------
Balances at December 31, 1998 - 37,568 37,568
-------------- ------------- --------------
Distributions (63) (5,940) (6,003)
Redemptions (note 1(n)) - (18) (18)
Net earnings 63 894 957
-------------- ------------- --------------
Balances at December 31, 1999 $ - $ 32,504 $ 32,504
============== ============= ==============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------- -------------- -------------
Cash flow from operating activities:
Net earnings $ 957 $ 2,492 $ 2,715
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and container write-down 3,436 3,645 4,076
Increase (decrease) in allowance for doubtful accounts,
net of write-off (note 6) 83 (193) (49)
Loss (gain) on sale of containers 287 297 (169)
(Increase) decrease in assets:
Net investment in direct finance leases 248 241 241
Accounts receivable, net of write-off (note 6) 70 866 311
Due from affiliates, net (54) (530) 1,586
Prepaid expenses 5 79 (70)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (11) (53) (63)
Accrued damage protection plan costs 50 (4) (37)
Warranty claims (213) (214) (213)
Accrued recovery costs 26 48 64
------------- -------------- -------------
Net cash provided by operating activities 4,884 6,674 8,392
------------- -------------- -------------
Cash flows from investing activities:
Proceeds from sale of containers 3,295 3,407 3,049
Container purchases (1,893) (3,162) (6,084)
------------- -------------- -------------
Net cash provided by (used in) investing activities 1,402 245 (3,035)
------------- -------------- -------------
Cash flows from financing activities:
Redemptions of limited partnership units (18) (119) (1)
Distributions to partners (6,002) (6,029) (6,030)
------------- -------------- -------------
Net cash used in financing activities (6,020) (6,148) (6,031)
------------- -------------- -------------
Net increase (decrease) in cash 266 771 (674)
Cash at beginning of period 1,752 981 1,655
------------- -------------- -------------
Cash at end of period $ 2,018 $ 1,752 $ 981
============= ============== =============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Cash Flows--Continued
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received by the Partnership as of December 31, 1999, 1998, 1997 and 1996,
resulting in differences in amounts recorded and amounts of cash disbursed or
received by the Partnership, as shown in the Statements of Cash Flows.
1999 1998 1997 1996
---- ---- ---- ----
Container purchases included in:
Due to affiliates........................................ $ - $ 34 $ (3) $ 27
Container purchases payable.............................. 243 - 342 426
Distributions to partners included in:
Due to affiliates........................................ 6 6 6 10
Deferred quarterly distributions......................... 69 68 77 77
Proceeds from sale of containers
Due from affiliates...................................... 367 489 566 498
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 years ended December 31, 1999, 1998 and 1997.
1999 1998 1997
---- ---- ----
Container purchases recorded.............................................. $2,102 $2,857 $5,970
Container purchases paid.................................................. 1,893 3,162 6,084
Distributions to partners declared........................................ 6,003 6,020 6,026
Distributions to partners paid............................................ 6,002 6,029 6,030
Proceeds from sale of containers recorded................................. 3,173 3,330 3,117
Proceeds from sale of containers received................................. 3,295 3,407 3,049
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to net investment in
direct finance leases. The carrying values of containers transferred during the
years ended December 31, 1999, 1998 and 1997 were $96, $215 and $39,
respectively.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
(a) Nature of Operations
Textainer Equipment Income Fund II, L.P. (TEIF II or the Partnership),
a California limited partnership with a maximum life of 20 years, was
formed on July 11, 1989. The Partnership was formed to engage in the
business of owning, leasing and selling both new and used containers
related to the international containerized cargo shipping industry,
including, but not limited to, containers, trailers, and other
container-related equipment. TEIF II offered units representing
limited partnership interests (Units) to the public until January 15,
1991, the close of the offering period, when a total of 3,750,000
Units had been purchased for a total of $75,000.
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership and is a wholly-owned subsidiary of
Textainer Capital Corporation (TCC). Textainer Equipment Management
Limited (TEM) and Textainer Limited (TL) are associate general
partners of the Partnership. The managing general partner and the
associate general partners are collectively referred to as the General
Partners and are commonly owned by Textainer Group Holdings Limited
(TGH). The General Partners also act in this capacity for other
limited partnerships. Prior to its liquidation in October 1998,
Textainer Acquisition Services Limited (TAS), a former affiliate of
the General Partners, performed services related to the acquisition of
containers outside the United States on behalf of the Partnership.
Effective November 1998, these services are being performed by TEM.
The General Partners manage and control the affairs of the
Partnership.
(b) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recorded when earned according to the terms of the equipment rental
contracts. These contracts are classified as operating leases or
direct finance leases if they so qualify under Statement of Financial
Accounting Standards No. 13: "Accounting for Leases". Substantially
all of the Partnership's rental income was generated from the leasing
of the Partnership's containers under short-term operating leases.
(c) Use of Estimates
Certain estimates and assumptions were made by the Partnership's
management that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
(d) Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial Instruments," the
Partnership calculates the fair value of financial instruments and
includes this additional information in the notes to the financial
statements when the fair value is different than the book value of
those financial instruments. At December 31, 1999 and 1998, the fair
value of the Partnership's financial instruments approximates the
related book value of such instruments.
(e) Container Rental Equipment
Container rental equipment is recorded at the cost of the assets
purchased, which includes acquisition fees, less depreciation charged.
Depreciation of new containers is computed using the straight-line
method over an estimated useful life of 12 years to a 28% salvage
value. Used containers are depreciated based upon their estimated
remaining useful life at the date of acquisition (from 2 to 11 years).
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the equipment accounts and
any resulting gain or loss is recognized in income for the period.
In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121), the Partnership
periodically compares the carrying value of the containers to expected
future cash flows for the purpose of assessing the recoverability of
the recorded amounts. If the carrying value exceeds expected future
cash flows, the assets are written down to estimated fair value. In
addition, containers identified for disposal are recorded at the lower
of carrying amount or fair value less cost to sell.
New container prices have been declining since 1995, and the cost of
new containers at year-end 1998 and during 1999, was significantly
less than the cost of containers purchased in prior years. The
Partnership evaluated the recoverability of the recorded amount of
container rental equipment at December 31, 1997, and determined that a
reduction to the carrying value of all but refrigerated containers was
not required. During the years ended December 31, 1998 and 1999, the
Partnership determined that a reduction to the carrying value of the
containers held for continued use was not required, but that a
write-down in value of certain containers identified for sale was
required. The Partnership wrote down the value of these containers to
their estimated fair value, which was based on recent sales prices
less cost to sell.
During the year ended December 31, 1997, the Partnership recorded a
write down of $343 to further write down the value of refrigerated
containers. During 1996, the carrying value of these containers was
written down to an amount equal to the estimated future undiscounted
cash flows from these containers as there had been no recent sales of
this equipment type. The additional write down recorded during 1997
was based on the sales proceeds received on 1997 sales of these
containers.
During the fourth quarter of 1998, the Partnership recorded a
write-down of $232 on 954 containers identified for sale. During the
year ended December 31, 1999, the Partnership recorded additional
write-downs of $376 on previously written down containers and on 1,040
containers subsequently identified for sale. The Partnership sold
1,790 previously written down containers for a loss of $98. The
Partnership incurred losses on the sale of some containers previously
written down as the actual sales prices received on these containers
were lower than the estimates used for the write-downs, primarily due
to unexpected declines in container sales prices. Additionally, the
Partnership incurred losses of $189 on the sale of containers that had
not been written-down.
If more containers are subsequently identified as for sale or if
container sales prices continue to decline, the Partnership may incur
additional write-downs on containers and/or may incur losses on the
sale of containers. The Partnership will continue to evaluate the
recoverability of the recorded amounts of container rental equipment
and cautions that a write-down of container rental equipment and/or an
increase in its depreciation rate may be required in future periods
for some or all of its container rental equipment.
(f) Nature of Income from Operations
Although substantially all of the Partnership's income from operations
is derived from assets employed in foreign operations, virtually all
of this income is denominated in United States dollars. The
Partnership's customers are international shipping lines that
transport goods on international trade routes. The domicile of the
lessee is not indicative of where the lessee is transporting the
containers. The Partnership's business risk in its foreign operations
lies with the creditworthiness of the lessees rather than the
geographic location of the containers or the domicile of the lessees.
For the years ended December 31, 1999, 1998 and 1997, no single lessee
accounted for more than 10% of the Partnership's revenues.
(g) Allocation of Net Earnings and Partnership Distributions
In accordance with the Partnership Agreement, sections 3.08 through
3.12, net earnings or losses and distributions are generally allocated
1% to the General Partners and 99% to the Limited Partners. If the
allocation of distributions exceeds the allocation of net earnings and
creates a deficit in the General Partners' aggregate capital account,
the Partnership Agreement provides for a special allocation of gross
income equal to the amount of the deficit.
Actual cash distributions to the Limited Partners differ from the
allocated net earnings as presented in these financial statements
because cash distributions are based on cash available for
distribution. Cash distributions are paid to the general and limited
partners on a monthly basis in accordance with the provisions of the
Partnership Agreement. Some limited partners have elected to have
their distributions paid quarterly. The Partnership has recorded
deferred distributions of $69 and $68 at December 31, 1999 and 1998,
respectively.
(h) Income Taxes
The Partnership is not subject to income taxes. Accordingly, no
provision for income taxes has been made. The Partnership files
federal and state information returns only. Taxable income or loss
is reportable by the individual partners.
(i) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees equal
to 5% of the container purchase price were paid to TEM beginning in
November 1998 and TAS through October 1998. These fees were
capitalized as part of the cost of the containers.
(j) Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of
its containers. Under the terms of DPP, the Partnership earns
additional revenues on a daily basis and, in return, has agreed to
bear certain repair costs. It is the Partnership's policy to recognize
revenue when earned and to provide a reserve sufficient to cover the
Partnership's obligation for estimated future repair costs. DPP
expenses are included in direct container expenses in the Statements
of Earnings and the related reserve at December 31, 1999 and 1998, was
$272 and $222, respectively.
(k) Warranty Claims
During 1992, 1993 and 1995, the Partnership settled warranty claims
against a container manufacturer. The Partnership is amortizing the
settlement amounts over the remaining estimated useful life of the
applicable containers (between six and seven years), reducing
maintenance and repair costs over that time. At December 31, 1999 and
1998, the unamortized portion of the settlement amounts was equal to
$172 and $385, respectively.
(l) Recovery Costs
The Partnership accrues an estimate for recovery costs as a result of
defaults under its leases that it expects to incur, which are in
excess of estimated insurance proceeds. At December 31, 1999 and 1998,
the amounts accrued were $74 and $48, respectively.
(m) Limited Partners' Per Unit Share of Net Earnings and Distributions
Limited partners' per unit share of both net earnings and
distributions were computed using the weighted average number of units
outstanding during the years ended December 31, 1999, 1998 and 1997,
which were 3,712,428, 3,722,072, and 3,726,977, respectively.
(n) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 1999, 1998 and 1997:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 1996...................... 22,897 $11.57 $ 265
------ -----
Year ended December 31, 1997:
1st quarter..................... 126 $ 7.94 1
------ -----
Year ended December 31, 1998:
3rd quarter...................... 7,169 $ 9.62 69
4th quarter...................... 5,280 $ 9.47 50
------ -----
12,449 $ 9.56 119
------ -----
Year ended December 31, 1999:
1st quarter...................... 2,000 $ 8.50 17
3rd quarter...................... 200 $ 5.00 1
------ -----
2,200 $ 8.18 18
------ -----
Total Partnership redemptions as of
December 31, 1999...................... 37,672 $10.70 $ 403
====== =====
The redemption price is fixed by formula.
(o) Reclassifications
Certain reclassifications, not affecting net earnings, have been made
to prior year amounts in order to conform with the 1999 financial
statement presentation.
Note 2. Transactions with Affiliates
As part of the operation of the Partnership, the Partnership is to pay
to the General Partners, or TAS prior to its liquidation, an
acquisition fee, an equipment management fee, an incentive management
fee and an equipment liquidation fee. These fees are for various
services provided in connection with the administration and management
of the Partnership. The Partnership capitalized $100, $136 and $288 of
equipment acquisition fees as part of container rental equipment costs
during the years ended December 31, 1999, 1998 and 1997, respectively.
The Partnership incurred $250, $251 and $251 of incentive management
fees during each of the three years ended December 31, 1999, 1998 and
1997, respectively. No equipment liquidation fees were incurred during
these periods.
The Partnership's containers are managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the containers. TEM holds, for the payment of direct
operating expenses, a reserve of cash that has been collected from
leasing operations; such cash is included in due from affiliates, net,
at December 31, 1999 and 1998.
Subject to certain reductions, TEM receives a monthly equipment
management fee equal to 7% of gross lease revenues attributable to
operating leases and 2% of gross lease revenues attributable to full
payout net leases. For the years ended December 31, 1999, 1998 and
1997, equipment management fees totaled $571, $664, and $724,
respectively. The Partnership's containers are leased by TEM to third
party lessees on operating master leases, spot leases, term leases and
full payout net leases. The majority of the Partnership's leases are
operating leases with limited terms and no purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are incurred and paid by TEM and TFS. Total general and
administrative costs allocated to the Partnership were as follows:
1999 1998 1997
---- ---- ----
Salaries $227 $291 $352
Other 182 247 296
--- --- ---
Total general and
administrative costs $409 $538 $648
=== === ===
TEM allocates these general and administrative costs based on the
ratio of the Partnership's interest in the managed containers to the
total container fleet managed by TEM during the period. TFS allocates
these costs based on the ratio of the Partnership's containers to the
total container fleet of all limited partnerships managed by TFS. The
General Partners allocated the following general and administrative
costs to the Partnership:
1999 1998 1997
---- ---- ----
TEM $364 $486 $572
TFS 45 52 76
---- ---- ----
Total general and
administrative costs $409 $538 $648
=== === ===
The General Partners, or TAS through October 1998, may acquire
containers in their own name and hold title on a temporary basis for
the purpose of facilitating the acquisition of such containers for the
Partnership. The containers may then be resold to the Partnership on
an all-cash basis at a price equal to the actual cost, as defined in
the Partnership Agreement. In addition, the General Partners and,
prior to its liquidation, TAS are entitled to an acquisition fee for
any containers resold to the Partnership.
At December 31, 1999 and 1998, due from affiliates, net, is comprised
of:
1999 1998
---- ----
Due from affiliates:
Due from TEM.......................... $ 529 $ 560
---- ----
Due to affiliates:
Due to TL............................. 1 1
Due to TCC............................ 6 5
Due to TFS............................ 23 21
---- ----
30 27
---- ----
Due from affiliates, net $ 499 $ 533
==== ====
These amounts receivable from and payable to affiliates were incurred
in the ordinary course of business between the Partnership and its
affiliates and represent timing differences in the accrual and payment
of expenses and fees described above and in the accrual and remittance
of net rental revenues from TEM.
Note 3. Rentals Under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at December 31, 1999. Although the leases
are generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending December 31,
2000................................................ $ 381
2001................................................ 139
2002................................................ 120
2003................................................ 54
2004................................................ 6
----
Total minimum future rentals receivable............. $ 700
====
Note 4. Direct Finance Leases
The Partnership has leased containers under direct finance leases with
terms ranging from two to five years. The components of the net investment
in direct finance leases as of December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Future minimum lease payments receivable............. $ 353 $ 568
Residual value....................................... 3 2
Less: unearned income................................. (41) (103)
---- ----
Net investment in direct finance leases............. $ 315 $ 467
==== ====
The following is a schedule by year of minimum lease payments receivable
under the direct finance leases at December 31, 1999:
Year ending December 31:
2000................................................... $ 274
2001................................................... 33
2002................................................... 22
2003................................................... 18
2004................................................... 6
----
Total minimum lease payments receivable................ $ 353
====
Rental income for the years ended December 31, 1999, 1998, and 1997
includes $79, $100, and $110, respectively, of income from direct
finance leases.
Note 5. Income Taxes
At December 31, 1999, 1998 and 1997, there were temporary differences
of $16,902, $20,102, and $22,980, respectively, between the financial
statement carrying value of certain assets and liabilities and the
federal income tax basis of such assets and liabilities. The
reconciliation of net income for financial statement purposes to net
income for federal income tax purposes for the years ended December
31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
Net income per financial statements.................... $ 957 $ 2,492 $ 2,715
Increase (decrease) in provision for bad debt.......... 83 (709) (49)
Depreciation for federal income tax purposes
(in excess of) less than depreciation for
financial statement purposes ......................... (99) 51 521
Gain on sale of fixed assets for federal income
tax purposes in excess of gain/loss recognized for
financial statement purposes......................... 3,379 3,754 2,969
Increase (decrease) in damage protection
plan costs........................................... 50 (4) (37)
Warranty reserve income for tax purposes in
excess of financial statement purposes............... (213) (214) (213)
----- ----- -----
Net income for
federal income tax purposes.......................... $ 4,157 $ 5,370 $ 5,906
====== ===== =====
Note 6. Accounts Receivable Write-Off
During 1998, the Partnership wrote-off $516 of delinquent receivables
from two lessees against which reserves were recorded in 1994 and
1995. During the year ended December 31, 1999 there were no such
write-offs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been none.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no officers or directors.
As described in the Prospectus, the Registrant's three original general partners
were TCC, TEM and Textainer Inc. (TI), which comprised the original Textainer
Group. Effective October 1, 1993, the Textainer Group restructured its
organization by forming a new holding company, Textainer Group Holdings Limited
(TGH), and the shareholders of the underlying companies which include the
General Partners accepted shares in TGH in exchange for their shares in the
individual companies. Textainer Financial Services Corporation (TFS) is the
Managing General Partner of the Partnership (prior to its name change on April
4, 1994, TFS was known as Textainer Capital Corporation). TFS is a wholly-owned
subsidiary of Textainer Capital Corporation (TCC) (prior to its name change on
April 4, 1994, TCC was known as Textainer (Delaware) Inc.). Textainer Equipment
Management Limited (TEM) is an Associate General Partner of the Partnership. TI
was an Associate General Partner of the Partnership through September 30, 1993
when it was replaced in that capacity by Textainer Limited (TL), pursuant to the
corporate restructuring effective October 1, 1993, which caused TFS, TEM and TL
to fall under the common ownership of TGH. Pursuant to this restructuring, TI
transferred substantially all of its assets including all of its rights and
duties as Associate General Partner to TL. This transfer was effective from
October 1, 1993. The end result was that TFS now serves as Managing General
Partner and TEM and TL now serve as Associate General Partners. The Managing
General Partner and Associate General Partners are collectively referred to as
the General Partners and are wholly-owned or substantially-owned subsidiaries of
TGH. The General Partners also act in this capacity for other limited
partnerships. Prior to its liquidation in October 1998, Textainer Acquisition
Services Limited (TAS) was an affiliate of the General Partners and performed
services related to the acquisition of equipment outside the United States on
behalf of the Partnership. Effective November 1998, these services are performed
by TEM.
TFS, as the Managing General Partner, is responsible for managing the
administration and operation of the Registrant, and for the formulation and
administration of investment policies.
TEM, an Associate General Partner, manages all aspects of the operation of the
Registrant's equipment.
TL, an Associate General Partner, owns a fleet of container rental equipment
which is managed by TEM. TL provides advice to the Partnership regarding
negotiations with financial institutions, manufacturers and equipment owners,
and regarding the terms upon which particular items of equipment are acquired.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's
General Partners, policy-making officials and persons who beneficially own more
than ten percent of the Units to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Copies of these reports
must also be furnished to the Partnership.
Based solely on a review of the copies of such forms furnished to the
Partnership or on written representations that no forms were required to be
filed, the Partnership believes that with respect to its most recent fiscal year
ended December 31, 1999, all Section 16(a) filing requirements were complied
with. No member of management, or beneficial owner owned more than 10 percent of
any interest in the Partnership. None of the individuals subject to section
16(a) failed to file or filed late any reports of transactions in the Units.
The directors and executive officers of the General Partners are as follows:
Name Age Position
- ---- --- --------
Neil I. Jowell 66 Director and Chairman of TGH, TEM, TL, TCC and TFS
John A. Maccarone 55 President, CEO and Director of TGH, TEM, TL, TCC and TFS
James E. Hoelter 60 Director of TGH, TEM, TL, TCC and TFS
Alex M. Brown 61 Director of TGH, TEM, TL, TCC and TFS
Harold J. Samson 78 Director of TGH and TL
Philip K. Brewer 43 Senior Vice President - Asset Management Group
Robert D. Pedersen 41 Senior Vice President - Leasing Group, Director of TEM
Ernest J. Furtado 44 Senior Vice President , CFO and Secretary of TGH, TEM, TL, TCC and TFS,
Director of TCC and TFS
Wolfgang Geyer 46 Regional Vice President - Europe
Mak Wing Sing 42 Regional Vice President - South Asia
Masanori Sagara 44 Regional Vice President - North Asia
John. A. Lore 46 Regional Vice President - Americas
Stefan Mackula 47 Vice President - Equipment Resale
Anthony C. Sowry 47 Vice President - Corporate Operations and Acquisitions
Richard G. Murphy 47 Vice President - Risk Management
Janet S. Ruggero 51 Vice President - Administration and Marketing Services
Jens W. Palludan 49 Regional Vice President - Logistics Division
Isam K. Kabbani 65 Director of TGH and TL
James A. C. Owens 60 Director of TGH and TL
S. Arthur Morris 66 Director of TGH, TEM and TL
Dudley R. Cottingham 48 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Nadine Forsman 32 Controller of TCC and TFS
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TCC and TFS
and a member of the Investment Advisory Committee (see "Committees" below). He
has served on the Board of Trencor Ltd. since 1966 and as Chairman since 1973.
He is also a director of Mobile Industries, Ltd. (1969 to present), an affiliate
of Trencor, and a non-executive director of Forward Corporation Ltd. (1993 to
present). Trencor is a publicly traded diversified industrial group listed on
the Johannesburg Stock Exchange. Its business is the leasing, owning, managing
and financing of marine cargo containers worldwide and the manufacture and
export of containers for international markets. In South Africa, it is engaged
in manufacturing, trading and exports of general commodities. Trencor also has
an interest in Forward Corporation Ltd., a publicly traded holding company
listed on the Johannesburg Stock Exchange. It has interests in industrial and
consumer businesses operating in South Africa and abroad. Mr. Jowell became
affiliated with the General Partners and its affiliates when Trencor became,
through its beneficial ownership in two controlled companies, a major
shareholder of the Textainer Group in 1992. Mr. Jowell has over 36 years'
experience in the transportation industry. He holds an M.B.A. degree from
Columbia University and Bachelor of Commerce and L.L.B. degrees from the
University of Cape Town.
John A. Maccarone is President, CEO and Director of TGH, TEM, TL, TCC
and TFS. In this capacity he is responsible for overseeing the management of and
coordinating the activities of Textainer's worldwide fleet of marine cargo
containers and the activities of TCC and TFS. Additionally, he is Chairman of
the Equipment Investment Committee, the Credit Committee and the Investment
Advisory Committee (see "Committees", below). Mr. Maccarone was instrumental in
co-founding Intermodal Equipment Associates (IEA), a marine container leasing
company based in San Francisco, and held a variety of executive positions with
IEA from 1979 until 1987, when he joined the Textainer Group. Mr. Maccarone was
previously a Director of Marketing for Trans Ocean Leasing Corporation in Hong
Kong with responsibility for all leasing activities in Southeast Asia. From 1969
to 1977, Mr. Maccarone was a marketing representative for IBM Corporation. He
holds a Bachelor of Science degree in Engineering Management from Boston
University and an M.B.A. from Loyola University of Chicago.
James E. Hoelter is a director of TGH, TEM, TL, TCC and TFS. In
addition, Mr. Hoelter is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Mr. Hoelter was the
President and Chief Executive Officer of TGH and TL from 1993 to 1998 and
currently serves as a consultant to Trencor (1999 to present). Prior to joining
the Textainer Group in 1987, Mr. Hoelter was president of IEA. Mr. Hoelter
co-founded IEA in 1978 with Mr. Maccarone and was president from inception until
1987. From 1976 to 1978, Mr. Hoelter was vice president for Trans Ocean Ltd.,
San Francisco, a marine container leasing company, where he was responsible for
North America. From 1971 to 1976, he worked for Itel Corporation, San Francisco,
where he was director of financial leasing for the container division. Mr.
Hoelter received his B.B.A. in finance from the University of Wisconsin, where
he is an emeritus member of its Business School's Dean's Advisory Board, and his
M.B.A. from the Harvard Graduate School of Business Administration.
Alex M. Brown is a director of TGH, TEM, TL, TCC and TFS.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Among other
directorships, Mr. Brown is a director of Trencor Ltd. (1996 to present) and
Forward Corporation (1997 to present). Both companies are publicly traded and
listed on the Johannesburg Stock Exchange. Mr. Brown became affiliated with
the Textainer Group in April 1986. From 1987 until 1993, he was President and
Chief Executive Officer of Textainer, Inc. and the Chairman of the Textainer
Group. Mr. Brown was the managing director of Cross County Leasing in
England from 1984 until it was acquired by Textainer in 1986. From 1993 to
1997, Mr. Brown was Chief Executive Officer of AAF, a company affiliated
with Trencor Ltd. Mr. Brown was also Chairman of WACO International Corporation,
based in Cleveland, Ohio until 1997.
Harold J. Samson is a director of TGH and TL and is a member of
the Investment Advisory Committee (see "Committees", below). Mr. Samson
served as a consultant to various securities firms from 1981 to 1989. From 1974
to 1981 he was Executive Vice President of Foster & Marshall, Inc., a New York
Stock Exchange member firm based in Seattle. Mr. Samson was a director of IEA
from 1979 to 1981. From 1957 to 1984 he served as Chief Financial Officer in
several New York Stock Exchange member firms. Mr. Samson holds a B.S. in
Business Administration from the University of California, Berkeley and is a
California Certified Public Accountant.
Philip K. Brewer was President of TCC and TFS from January 1, 1998 to
December 31, 1998 until his appointment as Senior Vice President - Asset
Management Group. As President of TCC, Mr. Brewer was responsible for overseeing
the management of, and coordinating the activities of TCC and TFS. As Senior
Vice President, he is responsible for optimizing the capital structure of and
identifying new sources of finance for Textainer, as well as overseeing the
management of and coordinating the activities of Textainer's risk management,
logistics and the resale divisions. Mr. Brewer is a member of the Equipment
Investment Committee, the Credit Committee and was a member of the Investment
Advisory Committee through December 31, 1998 (see "Committees" below). Prior to
joining Textainer in 1996, as Senior Vice President - Capital Markets for TGH
and TL, Mr. Brewer worked at Bankers Trust from 1990 to 1996, starting as a Vice
President in Corporate Finance and ending as Managing Director and Country
Manager for Indonesia; from 1989 to 1990, he was Vice President in Corporate
Finance at Jarding Fleming; from 1987 to 1989, he was Capital Markets Advisor to
the United States Agency for International Development; and from 1984 to 1987 he
was an Associate with Drexel Burnham Lambert in New York. Mr. Brewer holds an
M.B.A. in Finance from the Graduate School of Business at Columbia University,
and a B.A. in Economics and Political Science from Colgate University.
Robert D. Pedersen is Senior Vice-President - Leasing Group and a
Director of TEM, responsible for worldwide sales and marketing related
activities and operations. Mr. Pedersen is a member of the Equipment Investment
Committee and the Credit Committee (see "Committees" below). He joined Textainer
in 1991 as Regional Vice President for the Americas Region. Mr. Pedersen has
extensive experience in the industry having held a variety of positions with
Klinge Cool, a manufacturer of refrigerated container cooling units (from 1989
to 1991), where he was worldwide sales and marketing director, XTRA, a container
lessor (from 1985 to 1988) and Maersk Line, a container shipping line (from 1978
to 1984). Mr. Pedersen is a graduate of the A.P. Moller shipping and
transportation program and the Merkonom Business School in Copenhagen, majoring
in Company Organization.
Ernest J. Furtado is Senior Vice President, CFO and Secretary of TGH,
TEM, TL, TCC and TFS and a Director of TCC and TFS, in which capacity he is
responsible for all accounting, financial management, and reporting functions
for TGH, TEM, TL, TCC and TFS. Additionally, he is a member of the Investment
Advisory Committee for which he serves as Secretary, the Equipment Investment
Committee and the Credit Committee (see "Committees", below). Prior to these
positions, he held a number of accounting and financial management positions at
Textainer, of increasing responsibility. Prior to joining Textainer in May 1991,
Mr. Furtado was Controller for Itel Instant Space and manager of accounting for
Itel Containers International Corporation, both in San Francisco, from 1984 to
1991. Mr. Furtado's earlier business affiliations include serving as audit
manager for Wells Fargo Bank and as senior accountant with John F. Forbes & Co.,
both in San Francisco. He is a Certified Public Accountant and holds a B.S. in
business administration from the University of California at Berkeley and an
M.B.A. in information systems from Golden Gate University.
Wolfgang Geyer is based in Hamburg, Germany and is Regional Vice
President - Europe, responsible for coordinating all leasing activities in this
area of operation. Mr. Geyer joined Textainer in 1993 and was the Marketing
Director in Hamburg through July 1997. From 1991 to 1993, Mr. Geyer most
recently was the Senior Vice President for Clou Container Leasing, responsible
for its worldwide leasing activities. Mr. Geyer spent the remainder of his
leasing career, 1975 through 1991, with Itel Container, during which time he
held numerous positions in both operations and marketing within the company.
Mak Wing Sing is based in Singapore and is the Regional Vice President
- - South Asia, responsible for container leasing activities in North/Central
People's Republic of China, Hong Kong, South China (PRC), and Southeast Asia.
Mr. Mak most recently was the Regional Manager, Southeast Asia, for Trans Ocean
Leasing, working there from 1994 to 1996. From 1987 to 1994, Mr. Mak worked with
Tiphook as their Regional General Manager, and with OOCL from 1976 to 1987 in a
variety of positions, most recently as their Logistics Operations Manager.
Masanori Sagara is based in Yokohama, Japan and is the Regional Vice
President - North Asia, responsible for container leasing activities in Japan,
Korea, and Taiwan. Mr. Sagara joined Textainer in 1990 and was the company's
Marketing Director in Japan through 1996. From 1987 to 1990, he was the
Marketing Manager at IEA. Mr. Sagara's other experience in the container leasing
business includes marketing management at Genstar from 1984 to 1987 and various
container operations positions with Thoresen & Company from 1979 to 1984. Mr.
Sagara holds a Bachelor of Science degree in Economics from Aoyama Bakuin
University.
John A. Lore is based in Hackensack, New Jersey and is the Regional
Vice President - Americas, responsible for container leasing activities in
North/South America, Australia/New Zealand, Africa, the Middle East and Persian
Gulf. Prior to joining Textainer in 1999, Mr. Lore was the America's Vice
President for Xtra International Limited from 1996 to 1999 and Area Director
from 1990 to 1996. He has held various positions within the container leasing
industry since 1978. Mr. Lore holds a B.B.A. in Marketing Management from Baruch
College and an M.B.A. in Executive Management from St. John's University.
Stefan Mackula is Vice President - Equipment Resale, responsible for
coordinating the worldwide sale of equipment into secondary markets. Mr. Mackula
also served as Vice President - Marketing from 1989 to 1991 where he was
responsible for coordinating all leasing activities in Europe, Africa, and the
Middle East. Mr. Mackula joined Textainer in 1983 as Leasing Manager for the
United Kingdom. Prior to joining Textainer, Mr. Mackula held, beginning in 1972,
a variety of positions in the international container shipping industry.
Anthony C. Sowry is Vice President - Corporate Operations and
Acquisitions. He is also a member of the Equipment Investment Committee and the
Credit Committee (see "Committees", below). Mr. Sowry supervises all
international container operations and maintenance and technical functions for
the fleets under Textainer's management. In addition, he is responsible for the
acquisition of all new and used containers for the Textainer Group. He began his
affiliation with Textainer in 1982, when he served as Fleet Quality Control
Manager for Textainer Inc. until 1988. From 1980 to 1982, he was operations
manager for Trans Container Services in London; and from 1978 to 1982, he was a
technical representative for Trans Ocean Leasing, also in London. He received
his B.A. degree in business management from the London School of Business. Mr.
Sowry is a member of the Technical Committee of the International Institute of
Container Lessors and a certified container inspector.
Richard G. Murphy is Vice President, Risk Management, responsible for
all credit and risk management functions. He also supervises the administrative
aspects of equipment acquisitions. He is a member of and acts as secretary to
the Equipment Investment and Credit Committees (see "Committees", below). He
previously served as TEM's Director of Credit and Risk Management from 1989 to
1991 and as Controller from 1988 to 1989. Prior to the takeover of the
management of the Interocean Leasing Ltd. fleet by TEM in 1988, Mr. Murphy held
various positions in the accounting and financial areas with that company from
1980, acting as Chief Financial Officer from 1984 to 1988. Prior to 1980, he
held various positions with firms of public accountants in the U.K. Mr. Murphy
is an Associate of the Institute of Chartered Accountants in England and Wales
and holds a Bachelor of Commerce degree from the National University of Ireland.
Janet S. Ruggero is Vice President, Administration and Marketing
Services. Ms. Ruggero is responsible for the tracking and billing of fleets
under TEM management, including direct responsibility for ensuring that all data
is input in an accurate and timely fashion. She assists the marketing and
operations departments by providing statistical reports and analyses and serves
on the Credit Committee (see "Committees", below). Prior to joining Textainer in
1986, Ms. Ruggero held various positions with Gelco CTI over the course of 15
years, the last one as Director of Marketing and Administration for the North
American Regional office in New York City. She has a B.A. in education from
Cumberland College.
Jens W. Palludan is based in Hackensack, New Jersey and is the
Regional Vice President - Logistics Division, responsible for coordinating
container logistics. He joined Textainer in 1993 as Regional Vice President -
Americas/Africa/Australia, responsible for coordinating all leasing activities
in North and South America, Africa and Australia/New Zealand. Mr. Palludan
spent his career from 1969 through 1992 with Maersk Line of Copenhagen, Denmark
in a variety of key management positions in both Denmark and overseas. Mr.
Palludan's most recent position at Maersk was that of General Manager,
Equipment and Terminals, where he was responsible for the entire managed fleet.
Mr. Palludan holds an M.B.A. from the Centre European D'Education Permanente,
Fontainebleau, France.
Sheikh Isam K. Kabbani is a director of TGH and TL. He is Chairman and
principal stockholder of the IKK Group, Jeddah, Saudi Arabia, a manufacturing
and trading group which is active both in Saudi Arabia and internationally. In
1959 Sheikh Isam Kabbani joined the Saudi Arabian Ministry of Foreign Affairs,
and in 1960 moved to the Ministry of Petroleum for a period of ten years. During
this time he was seconded to the Organization of Petroleum Exporting Countries
(OPEC). After a period as Chief Economist of OPEC, in 1967 he became the Saudi
Arabian member of OPEC's Board of Governors. In 1970 he left the ministry of
Petroleum to establish his own business, the National Marketing Group, which has
been his principal business activity for the past 18 years. Sheikh Kabbani holds
a B.A. degree from Swarthmore College, Pennsylvania, and an M.A. degree in
Economics and International Relations from Columbia University.
James A. C. Owens is a director of TGH and TL. Mr. Owens has been
associated with the Textainer Group since 1980. In 1983 he was appointed to
the Board of Textainer Inc., and served as President of Textainer Inc. from
1984 to 1987. From 1987 to 1998, Mr. Owens served as an alternate director on
the Boards of TI, TGH and TL. Apart from his association with the Textainer
Group, Mr. Owens has been involved in insurance and financial brokerage
companies and captive insurance companies. He is a member of a number of Boards
of Directors. Mr. Owens holds a Bachelor of Commerce degree from the University
of South Africa.
S. Arthur Morris is a director of TGH, TEM and TL. He is a founding
partner in the firm of Morris and Kempe, Chartered Accountants (1962-1977) and
currently functions as a correspondent member of a number of international
accounting firms through his firm Arthur Morris and Company (1977 to date). He
is also President and director of Continental Management Limited (1977 to date).
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Morris has over 30 years
experience in public accounting and serves on numerous business and charitable
organizations in the Cayman Islands and Turks and Caicos Islands. Mr. Morris
became a director of TL and TGH in 1993, and TEM in 1994.
Dudley R. Cottingham is Assistant Secretary, Vice President and a
director of TGH, TEM and TL. He is a partner with Arthur Morris and Company
(1977 to date) and a Vice President and director of Continental Management
Limited (1978 to date), both in the Cayman Islands and Turks and Caicos Islands.
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Cottingham has over 20 years
experience in public accounting with responsibility for a variety of
international and local clients. Mr. Cottingham became a director of TL and TGH
in 1993, and TEM in 1994.
Nadine Forsman is the Controller of TCC and TFS. Additionally, she is a
member of the Investment Advisory Committee and Equipment Investment Committee
(See "Committees" below). As controller of TCC and TFS, she is responsible for
accounting, financial management and reporting functions for TCC and TFS as well
as overseeing all communications with the Limited Partners and as such,
supervises personnel in performing these functions. Prior to joining Textainer
in August 1996, Ms. Forsman was employed by KPMG LLP, holding various positions,
the most recent of which was manager, from 1990 to 1996. Ms. Forsman holds a
B.S. in Accounting and Finance from San Francisco State University and holds a
general securities license and a financial and operations principal securities
license.
Committees
The Managing General Partner has established the following three
committees to facilitate decisions involving credit and organizational matters,
negotiations, documentation, management and final disposition of equipment for
the Partnership and for other programs organized by the Textainer Group:
Equipment Investment Committee. The Equipment Investment Committee
will review the equipment leasing operations of the Partnership on a regular
basis with emphasis on matters involving equipment purchases, the equipment
mix in the Partnership's portfolio, equipment remarketing issues, and decisions
regarding ultimate disposition of equipment. The members of the committee
are John A. Maccarone (Chairman), James E. Hoelter, Anthony C. Sowry, Richard
G. Murphy (Secretary), Alex M. Brown, Philip K. Brewer, Robert D. Pedersen,
Ernest J. Furtado and Nadine Forsman.
Credit Committee. The Credit Committee will establish credit limits
for every lessee and potential lessee of equipment and periodically review
these limits. In setting such limits, the Credit Committee will consider such
factors as customer trade routes, country, political risk, operational
history, credit references, credit agency analyses, financial statements,
and other information. The members of the Credit Committee are John A. Maccarone
(Chairman), Richard G. Murphy (Secretary), Janet S. Ruggero, Anthony C. Sowry,
Philip K. Brewer, Ernest J. Furtado and Robert D. Pedersen.
Investment Advisory Committee. The Investment Advisory Committee will
review investor program operations on at least a quarterly basis, emphasizing
matters related to cash distributions to investors, cash flow management,
portfolio management, and liquidation. The Investment Advisory Committee is
organized with a view to applying an interdisciplinary approach, involving
management, financial, legal and marketing expertise, to the analysis of
investor program operations. The members of the Investment Advisory Committee
are John A. Maccarone (Chairman), James E. Hoelter, Ernest J. Furtado
(Secretary), Nadine Forsman, Harold J. Samson, Alex M. Brown and Neil I. Jowell.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant has no executive officers and does not reimburse TFS, TEM or TL
for the remuneration payable to their executive officers. For information
regarding reimbursements made by the Registrant to the General Partners, see
note 2 of the Financial Statements in Item 8.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
There is no person or "Group" who is known to the Registrant to be the
beneficial owner of more than five percent of the outstanding units of
limited partnership investment of the Registrant.
(b) Security Ownership of Management.
As of January 1, 2000:
Number
Name of Beneficial Owner Of Units % All Units
------------------------ -------- ----------
James E. Hoelter ............ 438 0.012%
John A. Maccarone ........... 500 0.013%
Harold J. Samson ............ 2,500 0.067%
----- ------
Officers and Management as a Group .... 3,438 0.092%
===== ======
(c) Changes in Control.
Inapplicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 1999 and 1998, due from affiliates, net, is
comprised of:
1999 1998
---- ----
Due from affiliates:
Due from TEM.......................... $529 $560
--- ---
Due to affiliates:
Due to TL............................. 1 1
Due to TCC............................ 6 5
Due to TFS............................ 23 21
--- ----
30 27
--- ----
Due from affiliates, net $499 $533
=== ===
All amounts receivable from and payable to affiliates were incurred
in the ordinary course of business between the Partnership and its
affiliates and represent timing differences in the accrual and payment
of expenses and fees and in the accrual and remittance of net rental
revenues from TEM.
In addition, the Registrant paid or will pay the following amounts
to the General Partners or TAS:
Acquisition fees in connection with the purchase of containers on
behalf of the Registrant:
1999 1998 1997
---- ---- ----
TAS.......................... $ - $124 $288
TEM.......................... 100 12 -
--- --- ---
Total........................ $100 $136 $288
=== === ===
Management fees in connection with the operations of the Registrant:
1999 1998 1997
---- ---- ----
TEM...................... $626 $719 $779
TFS...................... 195 196 196
--- --- ---
Total.................... $821 $915 $975
=== === ===
Reimbursement for administrative costs in connection with the
operations of the Registrant:
1999 1998 1997
---- ---- ----
TEM......................... $364 $486 $572
TFS......................... 45 52 76
--- --- ---
Total........................ $409 $538 $648
=== === ===
(b) Certain Business Relationships.
Inapplicable.
(c) Indebtedness of Management.
Inapplicable.
(d) Transactions with Promoters.
Inapplicable.
See the "Management" and "Compensation of General Partners and
Affiliates" sections of the Registrant's Prospectus, as supplemented, and
the Notes to Financial Statements in Item 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Audited financial statements of the Registrant for the year ended
December 31, 1999 are contained in Item 8 of this Report.
2. Financial Statement Schedules.
(i) Independent Auditors' Report on Supplementary Schedule.
(ii) Schedule II - Valuation and Qualifying Accounts.
3. Exhibits Incorporated by reference.
(i) The Registrant's Prospectus as contained in Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement (No.
33-29990), filed with the Commission on November 3, 1989 as
supplemented by Post-Effective Amendment No. 2 filed with the
Commission under Section 8(c) of the Securities Act of 1933 on
December 11, 1990.
(ii) The Registrant's limited partnership agreement, Exhibit A to the
Prospectus.
(b) During the year ended 1999, no reports on Form 8-K have been filed by the
Registrant.
Independent Auditors' Report on Supplementary Schedule
The Partners
Textainer Equipment Income Fund II, L.P.:
Under the date of February 18, 2000, we reported on the balance sheets of
Textainer Equipment Income Fund II, L.P. (the Partnership) as of December 31,
1999 and 1998, and the related statements of earnings, partners' capital and
cash flows for each of the years in the three-year period ended December 31,
1999, which are included in the 1999 annual report on Form 10-K. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedule as listed in Item 14. This financial
statement schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
San Francisco, California
February 18, 2000
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------------
Charged Balance
Balance at to Costs Charged at End
Beginning And to Other of
of Period Expenses Accounts Deduction Period
--------- -------- -------- --------- ------
For the year ended December 31, 1999:
Allowance for
doubtful accounts $ 315 $ 124 $ - $ (41) $ 398
------- ------ -------- ------ ------
Recovery cost reserve $ 48 $ 76 $ - $ (50) $ 74
------- ------ -------- ------ ------
Damage protection
plan reserve $ 222 $ 404 $ - $ (354) $ 272
------- ------ -------- ------ ------
For the year ended December 31, 1998:
Allowance for
doubtful accounts $ 1,024 $ (111) $ (516) $ (82) $ 315
------- ------- -------- ------ ------
Recovery cost reserve $ 64 $ 123 $ - $ (139) $ 48
------- ------ -------- ------ ------
Damage protection
plan reserve $ 226 $ 277 $ - $ (281) $ 222
------- ------ -------- ------ ------
For the year ended December 31, 1997:
Allowance for
doubtful accounts $ 1,073 $ 92 $ - $ (141) $ 1,024
------ ------ -------- ----- ------
Recovery cost reserve $ 37 $ 136 $ - $ (109) $ 64
------- ------ -------- ------ ------
Damage protection
plan reserve $ 263 $ 239 $ - $ (276) $ 226
------- ------ -------- ------ ------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By__________________________________
Ernest J. Furtado
Senior Vice President
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the managing general partner of the Registrant, in the
capacities and on the dates indicated:
Signature Title Date
________________________ Senior Vice President, CFO March 28, 2000
Ernest J. Furtado (Principal Financial and
Accounting Officer),
Secretary and Director
________________________ President (Principal Executive March 28, 2000
John A. Maccarone Officer), and Director
________________________ Chairman of the Board and Director March 28, 2000
Neil I. Jowell
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By /s/Ernest J. Furtado
_______________________________
Ernest J. Furtado
Senior Vice President
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the managing general partner of the Registrant, in the
capacities and on the dates indicated:
Signature Title Date
/s/ Ernest J. Furtado Senior Vice President, CFO March 28, 2000
________________________ (Principal Financial and
Ernest J. Furtado Accounting Officer),
Secretary and Director
/s/ John A. Maccarone
________________________ President (Principal Executive March 28, 2000
John A. Maccarone Officer), and Director
/s/ Neil I. Jowell
________________________ Chairman of the Board and Director March 28, 2000
Neil I. Jowell