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TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 20, 2001
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, 2000.
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, 2000
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
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Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY 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.
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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
cars at specific terms, conditions and rental rates.
Container leasing companies and the Registrant operate in a similar
manner by owning a worldwide fleet of new and used transportation
containers and leasing these containers to international shipping
companies hauling various types of goods among numerous trade routes.
All lessees pay a daily rental rate and in certain markets may pay
special handling fees and/or drop-off charges. In addition to these
fees and charges, a lessee must either provide physical damage and
liability insurance or purchase a damage waiver from the Registrant,
in which case the Registrant agrees to pay the cost of repairing any
physical damage to containers caused by lessees. Container leasing
companies compete with one another on the basis of lease rates,
availability of equipment and services provided. To ensure the
availability of equipment to its customers, container leasing
companies and the Registrant may pay to reposition containers from
low demand locations to higher demand locations. By maintaining the
highest lease rates and the highest equipment utilization factors
allowed by market conditions, the Registrant attempts to generate
revenue and profit. The majority of the Registrant's equipment is
leased under master leases, which are comparable to the corporate
rate agreements used by rental car companies. The master leases
provide that the lessee, for a specified period of time, may rent
containers at specific terms, conditions and rental rates. Although
the terms of the master lease governing each container under lease do
not vary, the number of containers in use can vary from time to time
within the term of the master lease. The terms and conditions of the
master lease provide that the lessee pays a daily rental rate for the
entire time the container is in his possession (whether or not he is
actively using it), is responsible for any damage, and must insure
the container against liabilities. For a more detailed discussion of
the leases for the Registrant's equipment, see "Leasing Policy" under
"Business of the Partnership" in the Registrant's Prospectus as
supplemented. The Registrant also sells containers in the course of
its business as opportunities arise, at the end of the container's
useful life or if market and economic considerations indicate that a
sale would be beneficial. See Item 7 herein and "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, 2000, 1999 and 1998 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 89% of the total equipment held by all
container leasing companies. The top two container leasing companies
combined control approximately 34% 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 and allowing lessees to gain
concessions from lessors about price, special charges or credits and,
in certain markets, the age specification of the containers rented.
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), a wholly owned subsidiary of Textainer Capital
Corporation (TCC), the Managing General Partner of the Registrant, is
responsible for the overall management of the business of the
Registrant and at December 31, 2000 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, 2000 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 16%, 14% and
19%, of the Registrant's rental revenue during the years ended
December 31, 2000, 1999, and 1998, 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" in the Registrant's prospectus, as supplemented, and
for a discussion of the risks of leasing containers for use in world
trade see "Risk Factors and Forward-Looking Statements" in Item 7
herein.
ITEM 2. PROPERTIES
As of December 31, 2000, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 4,009
20-foot refrigerated containers 1
40-foot standard dry freight containers 5,043
40-foot high cube dry freight containers 4,190
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13,243
During December 2000, approximately 80% 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. 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. At December 31, 2000, approximately 1% 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, 2001, there were 4,568 holders of record of
limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
At December 31, 2000, the Registrant was paying distributions at an annualized
rate equal to 8% of Unit's initial cost, or $1.60 per Unit per year. For
information about the amount of distributions paid during the five most recent
fiscal years, see Item 6, "Selected Financial Data." Distributions are made
monthly by the Registrant to its limited partners.
ITEM 701: Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands except for per unit amounts)
Year Ended December 31,
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Rental income....................... $ 7,772 $ 8,133 $ 10,031 $ 10,433 $ 11,613
Income from operations.............. $ 2,436 $ 857 $ 2,393 $ 2,640 $ 2,752
Net earnings........................ $ 2,566 $ 957 $ 2,492 $ 2,715 $ 2,806
Net earnings per unit
of limited partnership
interest.......................... $ 0.68 $ 0.24 $ 0.63 $ 0.71 $ 0.74
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............... $ 0.92 $ 1.36 $ 0.97 $ 0.89 $ 0.86
Total assets........................ $ 29,763 $ 33,676 $ 38,644 $ 42,865 $ 46,510
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,
2000, 1999 and 1998. 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, 2000, the
Partnership redeemed 16,522 units for a total dollar amount of $112. 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, 2000, the Partnership declared cash distributions to limited partners
pertaining to the period from December 1999 through November 2000 in the amount
of $5,929. On a GAAP basis, $3,425 of these distributions was a return of
capital and the balance was from net income. On a cash basis, after paying
redemptions, $5,735 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. Any decision to distribute
proceeds from container sales in future years will be based on the Partnership's
age (in the context of the Partnership's finite-life and eventual termination),
operations and existing market conditions.
At December 31, 2000, the Partnership had no commitments to purchase containers.
Net cash provided by operating activities for years ended December 31, 2000 and
1999, was $5,847 and $4,884, respectively. The increase of $963, or 20%, was
primarily attributed to the increase in net earnings, adjusted for non-cash
transactions, and fluctuations in accounts receivable, offset by fluctuations in
accrued damage protection plan costs. Net earnings, adjusted for non-cash
transactions, increased primarily due to the decrease in direct container
expenses, offset by the decrease in rental income. These items are discussed
more fully in "Results of Operations". The decrease in accounts receivable of
$703 for the year ended December 31, 2000 was due to the decline in the average
collection period of accounts receivable and the decrease in rental income. The
decrease in accounts receivable of $70 for the comparable period in 1999 was
primarily due to the decrease in rental income, offset by an increase in the
average collection period of accounts receivable. The decline in accrued damage
protection plan costs during the year ended December 31, 2000 was primarily due
to the decrease in the estimated average repair cost per container and a decline
in the number of containers covered under the damage protection plan.
For the year ended December 31, 2000, net cash used in investing activities (the
purchase and sale of containers) was $107 compared to net cash provided by
investing activities of $1,402 for the comparable period in 1999. The
fluctuation of $1,509 was due to the increase in cash used for container
purchases and a decrease in proceeds from container sales. Cash used for
container purchases increased primarily as a result of timing differences in the
accrual and payment of these purchases. The Partnership's container purchases
reflect the reinvestment of proceeds from recent container sales described
below. The decrease in proceeds from container sales was primarily due to the
Partnership selling fewer containers during the year ended December 31, 2000
than in the same period in 1999. While the Partnership continued to sell
containers in low demand locations (described below under "Results of
Operations"), there were fewer low demand locations and fewer containers in
these locations, primarily as a result of previous sales efforts, which resulted
in the decline in the number of containers sold. The sales prices received on
container sales was comparable for both periods. However, these sales prices are
lower than sales prices received in previous years as a result of current market
conditions, which have adversely affected the value of used containers. Until
conditions improve in these low demand locations, the Partnership plans to
continue to sell some of its containers in these locations. The number of
containers sold and the amount of these sales proceeds will affect how much the
Partnership can reinvest in new containers.
Consistent with its investment objectives and subject to its distribution
policy, the Partnership intends to continue to reinvest both cash from
operations available for reinvestment and some portion of the proceeds from
container sales in additional containers. Cash from operations available for
reinvestment is generally equal to cash provided by operating activities, less
distributions and redemptions paid, which are subject to the General Partners'
authority to set these amounts (and modify reserves and working capital), as
provided in the Partnership Agreement. The amount of sales proceeds will
fluctuate based on the number of containers sold and the sales price received.
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.
The rate of reinvestment is also affected by cash from operations available for
reinvestment which, like sales proceeds, has been adversely affected by market
conditions. These market conditions have resulted in a slower than anticipated
rate of reinvestment. Market conditions are discussed more fully under "Results
of Operations." A slower rate of reinvestment will, over time, affect the size
of the Partnership's container fleet. Furthermore, even with reinvestment, the
Partnership is not likely to be able to replace all the containers it sells,
since new container prices are usually higher than the average sales price for a
used container.
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, 2000, 1999 and 1998, 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:
2000 1999 1998
---- ---- ----
Beginning container fleet............... 14,269 16,281 17,697
Ending container fleet.................. 13,243 14,269 16,281
Average container fleet................. 13,756 15,275 16,989
The average container fleet decreased 10% each year from the years ended
December 31, 1998 to 1999 and 1999 to 2000, primarily due to sales of
containers. Although sales proceeds were used to purchase additional containers,
fewer containers were bought than sold as container sales prices were lower than
new container prices. The Partnership's primary source of funds for container
purchases is these sales proceeds. Additionally, the rate of decline in average
fleet size will fluctuate due to timing differences in the purchase and sale of
containers and fluctuations in container sale and purchase prices during these
periods.
As noted above, when containers are sold in the future, 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, resulting in the
continuing decline in the average container fleet. This trend is expected to
continue. Other factors related to this trend are discussed above in "Liquidity
and Capital Resources".
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 81%, 73% and 78% during the years
ended December 31, 2000, 1999 and 1998, respectively. In addition, rental income
is affected by daily rental rates, which have decreased between the periods, as
described below.
The following is a comparative analysis of the results of operations for the
years ended December 31, 2000, 1999 and 1998.
The Partnership's income from operations for the years ended December 31, 2000
and 1999 was $2,436 and $857, respectively, on rental income of $7,772 and
$8,133, respectively. The decrease in rental income of $361, or 4%, from the
year ended December 31, 1999 to the year ended December 31, 2000 was primarily
attributable to a decrease in other rental income, which is discussed below.
Income from container rentals, the major component of total revenue, was
comparable for both periods as the effect of the decreases in the average
container fleet of 10% and average rental rates of 4% were offset by the
increase in average utilization of 11%.
The Partnership's income from operations for the years ended December 31, 1999
and 1998 was $857 and $2,393, 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. Income from container rentals 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 improvement in utilization, which began in the third quarter of 1999, was
due to improvements in demand for leased containers and in the trade balance,
primarily as a result of the improvement in certain Asian economies and a
related increase in exports out of Europe. This improvement in demand, coupled
with container lessors' efforts to sell older containers in low demand
locations, has also reduced the container surplus.
However, the trade imbalance between Asia and North America still exists, and as
a consequence, the build-up of containers, primarily on the East Coast of the
United States, persists. The Partnership has been unable to reposition a large
number of newer containers to higher demand locations in Asia, due to lack of
available vessel capacity from the United States East Coast ports.
As a result, the Partnership continues to sell some containers located in low
demand locations. The decision to sell containers is based on the current
expectation that the economic benefit of selling these containers is greater
than the estimated economic benefit of continuing to own these containers. The
majority of the containers sold during 1999 and 2000 were older containers. The
expected economic benefit of continuing to own these older containers was less
than that of newer containers primarily due to their shorter remaining marine
life, the cost to reposition containers and the shipping lines' preference for
leasing newer containers when they are available.
Once the decision had been made to sell containers, if the book value of these
containers was greater than the estimated fair value, 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 during 1999, the actual sales prices received on some
containers were lower than the estimates used for the write-down, resulting in
the Partnership incurring losses upon the sale of some of these containers.
Until demand for leased containers improves, 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 on some or all of its container rental equipment.
The decline in the purchase price of new containers and the container surplus
mentioned above have resulted in the decline in rental rates in recent years.
However, as a result of the improvement in demand and increases in the purchase
price of new containers in 2000, rental rates remained stable during 2000.
In the fourth quarter of 2000, utilization began to decline and has continued to
decline into the beginning of 2001. This decline was primarily due to the
slowing United States economy and the resulting decline in exports out of Asia.
The General Partners caution that utilization could continue to decline in 2001
if these conditions persist and demand for leased containers does not improve.
Despite the decline in utilization, rental rates have remained stable into the
beginning of 2001. New container prices declined in 2001, and this decline,
combined with the recent decline in utilization may have a negative effect on
rental rates in the future.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's containers under master operating leases. The
Partnership also leases containers under direct finance leases and at December
31, 2000, 1999 and 1998, there were 231, 246 and 229 containers under direct
finance leases, respectively. Rental income from direct finance leases was $33,
$79 and $100 during the years ended December 31, 2000, 1999 and 1998,
respectively.
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, 2000, the total of
these other rental income items was $716, a decrease of $358 from the equivalent
period in 1999. The decrease was primarily due to the decline in fleet size and
additional decreases in DPP and location income of $173 and $129, respectively.
The decline in DPP income was due to decreases in the average DPP price charged
per container and in the number of containers covered under DPP. The further
decline in location income was primarily due to a decrease in charges to lessees
for dropping off containers in certain locations.
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. 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.
Direct container expenses decreased $758, or 37%, from the year ended December
31, 1999 to the same period in 2000. The decrease was primarily due to declines
in storage, DPP and handling expenses of $336, $275 and $99, respectively. The
decreases in these expenses, as well as other direct container expenses, was
partially due to the overall decrease in the average container fleet. Storage
expense further declined due to the improvement in utilization noted above and a
lower average storage cost per container. DPP expense declined due to decreases
in the average repair cost per DPP container and in the number of containers
covered under DPP. Handling expense decreased due to the decrease in container
movement and a lower average handling cost per container.
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.
Bad debt (benefit) expense was ($44), $124 and ($111) for the years ended
December 31, 2000, 1999 and 1998, respectively. The benefit recorded for the
year ended December 31, 2000 was due to the overall lower required reserves at
December 31, 2000 than at December 31, 1999. 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 1998
and 1999.
Depreciation expense decreased $403, or 13%, and $353, or 10%, from the years
ended December 31, 1999 to 2000 and December 31, 1998 to 1999, 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 steadily declined from 1995 through 1999. Although
container prices increased in 2000, the cost of new containers at year-end 1998,
during 1999 and 2000 was significantly less than the average cost of containers
purchased in prior years. The Partnership evaluated the recoverability of the
recorded amount of container rental equipment at December 31, 2000, 1999 and
1998 for containers to be held for continued use and determined that a reduction
to the carrying value of these containers was not required. The Partnership also
evaluated the recoverability of the recorded amount of containers identified for
sale in the ordinary course of business and determined that a reduction to the
carrying value of these containers was required. The Partnership wrote down the
value of these containers to their estimated fair value, which was based on
recent sales prices less cost to sell. During the years ended December 31, 2000,
1999 and 1998 the Partnership recorded write-down expenses of $255, $376 and
$232, respectively on 631, 1,040 and 954 containers identified as for sale and
requiring a reserve. At December 31, 2000 and 1999, the net book value of
containers identified as for sale was $201 and $379, respectively.
The Partnership sold 716 of these previously written down containers for a loss
of $21 during the year ended December 31, 2000 and sold 1,790 previously written
down containers for a loss of $98 during the same period in 1999. During the
year ended December 31, 1998 there were no sales of previously written down
containers as the initial write-down was recorded at December 31, 1998. 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.
The Partnership also sold containers that had not been written down and recorded
(gains)/losses of ($130), $189 and $297 during the years ended December 31,
2000, 1999 and 1998, respectively.
As more containers are subsequently identified as for sale or if container sales
prices continue to decline, the Partnership may incur additional write-downs on
containers and/or may incur losses on the sale of containers.
Management fees to affiliates decreased $31, or 4% and $94, or 10% from the
years ended December 31, 1999 to 2000 and December 31, 1998 to 1999,
respectively. These decreases were 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, 2000, 1999
and 1998. Incentive management fees, which are based on the Partnership's
limited and general partner distribution percentage and initial limited
partners' capital, were comparable at $250, $250 and $251 for the years ended
December 31, 2000, 1999 and 1998, respectively.
General and administrative costs to affiliates decreased $38, or 9%, and $129,
or 24%, from the years ended December 31, 1999 to 2000 and December 31, 1998 to
1999, 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.
The gain/loss on sale of containers fluctuated from a loss of $287 during the
year ended December 31, 1999 to a gain of $109 for the comparable period in
2000. The fluctuation in gain/loss on sale of containers was primarily due to
the Partnership selling fewer containers at a slightly higher average sales
price during the year ended December 31, 2000 than in the same period in 1999.
The decline in the number of container sold was primarily due to there being
fewer lower demand locations and fewer containers in these locations, primarily
as a result of previous sales efforts.
Loss on sale of containers decreased $10 from the year ended December 31, 1998
to the year ended December 31, 1999. The loss on sale of containers for the year
ended December 31, 1999 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 on the sale of 1,790 containers previously written down
as discussed above.
Net earnings per limited partnership unit increased from $0.24 to $0.68 from the
year ended December 31, 1999 to 2000, respectively, reflecting the increase in
net earnings allocated to limited partners from $894 to $2,504, respectively.
Net earnings per limited partnership unit decreased from $0.63 to $0.24 from the
year ended December 31, 1998 to 1999, respectively, reflecting the decrease in
net earnings allocated to limited partners from $2,339 to $894, respectively.
The allocation of net earnings for the years ended December 31, 2000, 1999 and
1998 included a special allocation to General Partners of $36, $53 and $128,
respectively, in accordance with the Partnership Agreement.
Risk Factors and Forward Looking Statements
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition. The General Partners are not
aware of any conditions as of December 31, 2000, 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, including bad debts, increases in maintenance expenses or other
costs of operating the containers, and the effect of world trade, industry
trends and/or general business and economic cycles on the Partnership's
operations. See "Risk Factors" in the Partnership's Prospectus, as supplemented,
for additional information on risks of the Partnership's business.
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 14 to 26.
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, 2000 and
1999, and the related statements of earnings, partners' capital and cash flows
for each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, 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, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
San Francisco, California
February 16, 2001
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Balance Sheets
December 31, 2000 and 1999
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------
2000 1999
--------------- --------------
Assets
Container rental equipment, net of accumulated
depreciation of $18,108 (1999: $18,956) $ 25,980 $ 28,795
Cash 1,652 2,018
Net investment in direct finance leases (note 3) 123 315
Accounts receivable, net of allowance
for doubtful accounts of $219 (1999: $398) (note 5) 1,514 2,038
Due from affiliates, net (note 2) 484 499
Prepaid expenses 10 11
--------------- --------------
$ 29,763 $ 33,676
=============== ==============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 198 $ 187
Accrued liabilities 205 155
Accrued damage protection plan costs (note 1(j)) 151 272
Warranty claims (note 1(k)) - 172
Accrued recovery costs (note 1(l)) 88 74
Deferred quarterly distributions (note 1(g)) 66 69
Container purchases payable 88 243
--------------- --------------
Total liabilities 796 1,172
--------------- --------------
Partners' capital:
General partners - -
Limited partners 28,967 32,504
--------------- --------------
Total partners' capital 28,967 32,504
--------------- --------------
$ 29,763 $ 33,676
=============== ==============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Earnings
Years ended December 31, 2000, 1999, and 1998 (Amounts in thousands except for
unit and per unit amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------- ----------------- -----------------
Rental income $ 7,772 $ 8,133 $ 10,031
--------------- ----------------- -----------------
Costs and expenses:
Direct container expenses 1,267 2,025 2,215
Bad debt (benefit) expense (44) 124 (111)
Depreciation 2,657 3,060 3,413
Write-down of containers (note 1(e)) 255 376 232
Professional fees 60 76 36
Management fees to affiliates (note 2) 790 821 915
General and administrative costs to affiliates (note 2) 371 409 538
Other general and administrative costs 89 98 103
(Gain)/loss on sale of containers (109) 287 297
--------------- ----------------- -----------------
5,336 7,276 7,638
--------------- ----------------- -----------------
Income from operations 2,436 857 2,393
--------------- ----------------- -----------------
Other income:
Interest income 130 100 99
--------------- ----------------- -----------------
130 100 99
--------------- ----------------- -----------------
Net earnings $ 2,566 $ 957 $ 2,492
=============== ================= =================
Allocation of net earnings (note 1(g)):
General partners $ 62 $ 63 $ 153
Limited partners 2,504 894 2,339
--------------- ----------------- -----------------
$ 2,566 $ 957 $ 2,492
=============== ================= =================
Limited partners' per unit share
of net earnings $ 0.68 $ 0.24 $ 0.63
=============== ================= =================
Limited partners' per unit share
of distributions $ 1.60 $ 1.60 $ 1.60
=============== ================= =================
Weighted average number of limited
partnership units outstanding (note 1(m)) 3,704,302 3,712,428 3,722,072
=============== ================= =================
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, 2000, 1999 and 1998
(Amounts in thousands)
- --------------------------------------------------------------------------------------------------------------
Partners' Capital
--------------------------------------------------------
General Limited Total
------------- -------------- ---------------
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
------------- -------------- ---------------
Distributions (62) (5,929) (5,991)
Redemptions (note 1(n)) - (112) (112)
Net earnings 62 2,504 2,566
------------- -------------- ---------------
Balances at December 31, 2000 $ - $ 28,967 $ 28,967
============= ============== ===============
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, 2000, 1999 and 1998
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------- ------------ ------------
Cash flows from operating activities:
Net earnings $ 2,566 $ 957 $ 2,492
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and container write-down 2,912 3,436 3,645
(Decrease) increase in allowance for doubtful accounts,
net of write-off (note 5) (179) 83 (193)
(Gain) loss on sale of containers (109) 287 297
Decrease (increase) in assets:
Net investment in direct finance leases 244 248 241
Accounts receivable, net of write-off (note 5) 703 70 866
Due from affiliates, net (73) (54) (530)
Prepaid expenses 1 5 79
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 61 (11) (53)
Accrued damage protection plan costs (121) 50 (4)
Warranty claims (172) (213) (214)
Accrued recovery costs 14 26 48
------------- ------------ ------------
Net cash provided by operating activities 5,847 4,884 6,674
------------- ------------ ------------
Cash flows from investing activities:
Proceeds from sale of containers 2,176 3,295 3,407
Container purchases (2,283) (1,893) (3,162)
------------- ------------ ------------
Net cash (used in) provided by investing activities (107) 1,402 245
------------- ------------ ------------
Cash flows from financing activities:
Redemptions of limited partnership units (112) (18) (119)
Distributions to partners (5,994) (6,002) (6,029)
------------- ------------ ------------
Net cash used in financing activities (6,106) (6,020) (6,148)
------------- ------------ ------------
Net (decrease) increase in cash (366) 266 771
Cash at beginning of period 2,018 1,752 981
------------- ------------ ------------
Cash at end of period $ 1,652 $ 2,018 $ 1,752
============= ============ ============
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, 2000, 1999 and 1998
(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, 2000, 1999, 1998 and 1997,
resulting in differences in amounts recorded and amounts of cash disbursed or
received by the Partnership, as shown in the Statements of Cash Flows.
2000 1999 1998 1997
---- ---- ---- ----
Container purchases included in:
Due to affiliates........................................ $ - $ - $ 34 $ (3)
Container purchases payable.............................. 88 243 - 342
Distributions to partners included in:
Due to affiliates........................................ 6 6 6 6
Deferred quarterly distributions......................... 66 69 68 77
Proceeds from sale of containers
Due from affiliates...................................... 279 367 489 566
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, 2000, 1999, and 1998.
2000 1999 1998
---- ---- ----
Container purchases recorded.............................................. $2,128 $2,102 $2,857
Container purchases paid.................................................. 2,283 1,893 3,162
Distributions to partners declared........................................ 5,991 6,003 6,020
Distributions to partners paid............................................ 5,994 6,002 6,029
Proceeds from sale of containers recorded................................. 2,088 3,173 3,330
Proceeds from sale of containers received................................. 2,176 3,295 3,407
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, 2000, 1999 and and 1998 were $52, $96 and $215,
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, 2000, 1999 and 1998
(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, 2000 and 1999, 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 steadily declined from 1995 through 1999.
Although container prices increased in 2000, the cost of new
containers at year-end 1998, during 1999 and 2000 was significantly
less than the average cost of containers purchased in prior years. The
Partnership evaluated the recoverability of the recorded amount of
container rental equipment at December 31, 2000, 1999 and 1998 for
containers to be held for continued use and determined that a
reduction to the carrying value of these containers was not required.
The Partnership also evaluated the recoverability of the recorded
amount of containers identified for sale in the ordinary course of
business and determined that a reduction to the carrying value of
these containers was required. The Partnership wrote down the value of
these containers to their estimated fair value, which was based on
recent sales prices less cost to sell. During the years ended December
31, 2000, 1999 and 1998 the Partnership recorded write-down expenses
of $255, $376 and $232, respectively on 631, 1,040 and 954 containers
identified as for sale and requiring a reserve. At December 31, 2000
and 1999, the net book value of containers identified as for sale was
$201 and $379, respectively.
The Partnership sold 716 of these previously written down containers
for a loss of $21 during the year ended December 31, 2000 and sold
1,790 previously written down containers for a loss of $98 during the
same period in 1999. During the year ended December 31, 1998 there
were no sales of previously written down containers as the initial
write-down was recorded at December 31, 1998. 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.
The Partnership also sold containers that had not been written down
and recorded (gains)/losses of ($130), $189 and $297 during the years
ended December 31, 2000, 1999 and 1998, respectively.
If more containers are subsequently identified for sale or if
container sales prices decline, the Partnership may incur additional
write-downs on containers and/or may incur losses on the sale of
containers. The Partnership will continue to evaluate the
recoverability of the recorded amounts of container rental equipment
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, 2000, 1999 and 1998, 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 $66 and $69 at December 31, 2000 and 1999,
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 TAS through October
1998, and to TEM beginning in November 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
estimated future repair costs. DPP expenses are included in direct
container expenses in the Statements of Earnings and the related
reserve at December 31, 2000 and 1999, was $151 and $272,
respectively.
(k) Warranty Claims
During 1992, 1993 and 1995, the Partnership settled warranty claims
against a container manufacturer. The Partnership was 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. During the year ended
December 31, 2000 these amounts were fully amortized. At December 31,
1999, the unamortized portion of the settlement amounts was equal to
$172.
(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, 2000 and 1999,
the amounts accrued were $88 and $74, 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, 2000, 1999 and 1998,
which were 3,704,302, 3,712,428, and 3,722,072, respectively.
(n) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 2000, 1999 and 1998:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 1997...................... 23,023 $ 11.55 $ 266
------ -----
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 $ 6.39 1
------ -----
2,200 $ 8.18 18
------ -----
Year ended December 31, 2000:
1st quarter...................... 1,000 $ 7.00 7
3rd quarter...................... 12,579 $ 6.75 85
4th quarter...................... 2,943 $ 6.79 20
------ -----
16,522 $ 6.77 112
------ -----
Partnership to date....................... 54,194 $ 9.50 $ 515
====== =====
The redemption price is fixed by formula.
(o) Reclassification
Following the adoption of SAB 101, "Revenue Recognition in Financial
Statements", by the Partnership in the fourth quarter of fiscal 2000,
the Partnership has reclassified gain/loss on sale of containers from
other income (after income from operations) to costs and expenses
(before income from operations). All periods have been amended to
reflect this reclassification.
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 $101, $100 and $136 of
equipment acquisition fees as part of container rental equipment costs
during the years ended December 31, 2000, 1999 and 1998, respectively.
The Partnership incurred $250, $250 and $251 of incentive management
fees during each of the three years ended December 31, 2000, 1999 and
1998, 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, 2000 and 1999.
Subject to certain reductions, TEM receives a monthly equipment
management fee equal to 7% of gross lease revenues attributable to
master operating leases and 2% of gross lease revenues attributable to
full payout net leases. For the years ended December 31, 2000, 1999
and 1998, equipment management fees totaled $540, $571, and $664,
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. Although the Partnership has some rent
receivable under cancelable long term operating 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:
2000 1999 1998
---- ---- ----
Salaries $192 $227 $291
Other 179 182 247
--- --- ---
Total general and
administrative costs $371 $409 $538
=== === ===
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:
2000 1999 1998
---- ---- ----
TEM $323 $364 $486
TFS 48 45 52
--- --- ---
Total general and
administrative costs $371 $409 $538
=== === ===
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, 2000 and 1999, due from affiliates, net, is comprised
of:
2000 1999
---- ----
Due from affiliates:
Due from TEM.......................... $ 516 $ 529
--- ---
Due to affiliates:
Due to TL............................. 1 1
Due to TCC............................ 7 6
Due to TFS............................ 24 23
--- ---
32 30
--- ---
Due from affiliates, net $ 484 $ 499
=== ===
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 and container sales proceeds from TEM.
Note 3. 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, 2000 and 1999
are as follows:
2000 1999
---- ----
Future minimum lease payments receivable......... $ 137 $ 353
Residual value................................... 3 3
Less: unearned income............................ (17) (41)
--- ---
Net investment in direct finance leases.......... $ 123 $ 315
=== ===
The following is a schedule by year of minimum lease payments
receivable under the direct finance leases at December 31, 2000:
Year ending December 31:
2001................................................... $ 57
2002................................................... 38
2003................................................... 28
2004................................................... 13
2005................................................... 1
---
Total minimum lease payments receivable................ $ 137
===
Rental income for the years ended December 31, 2000, 1999, and 1998
includes $33, $79, and $100, respectively, of income from direct
finance leases.
Note 4. Income Taxes
At December 31, 2000, 1999 and 1998, there were temporary differences
of $15,869, $16,582, and $19,783, 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,
2000, 1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Net income per financial statements.................... $ 2,566 $ 957 $ 2,492
(Decrease) increase in provision for bad debt.......... (179) 83 (709)
Depreciation for federal income tax purposes
(in excess of) less than depreciation for
financial statement purposes ......................... (700) (99) 51
Gain on sale of fixed assets for federal income
tax purposes in excess of gain/loss recognized for
financial statement purposes......................... 1,885 3,379 3,754
(Decrease) increase in damage protection
plan costs........................................... (121) 50 (4)
Warranty reserve income for tax purposes in
excess of financial statement purposes............... (172) (213) (214)
----- ----- -----
Net income for
federal income tax purposes.......................... $ 3,279 $ 4,157 $ 5,370
===== ===== =====
Note 5. 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 years ended December 31, 2000 and 1999 there were no such
individually significant write-offs.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Selected Quarterly Financial Data
- ------------------------------------------------------------------------------------------------------------------------
The following is a summary of selected quarterly financial data for the years
ended December 31, 2000, 1999 and 1998:
(Amounts in thousands)
2000 Quarters Ended
--------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------
Rental income $ 1,968 $ 2,025 $ 1,882 $ 1,897
Income from operations $ 502 $ 739 $ 642 $ 553
Net earnings $ 534 $ 776 $ 673 $ 583
Limited partners' share of net earnings $ 518 $ 761 $ 657 $ 568
Limited partners' share of distributions $ 1,485 $ 1,484 $ 1,481 $ 1,479
1999 Quarters Ended
-------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------
Rental income $ 2,103 $ 1,961 $ 2,015 $ 2,054
Income (loss) from operations $ 245 $ (144) $ 275 $ 481
Net earnings (loss) $ 269 $ (117) $ 298 $ 507
Limited partners' share of net earnings (loss) $ 253 $ (132) $ 282 $ 491
Limited partners' share of distributions $ 1,485 $ 1,485 $ 1,485 $ 1,485
1998 Quarters Ended
-------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------
Rental income $ 2,566 $ 2,533 $ 2,524 $ 2,408
Income from operations $ 903 $ 712 $ 640 $ 138
Net earnings $ 920 $ 735 $ 671 $ 166
Limited partners' share of net earnings $ 905 $ 719 $ 655 $ 60
Limited partners' share of distributions $ 1,492 $ 1,490 $ 1,488 $ 1,487
The amounts of income from operations are different from the amounts previously
reported in reports on Form 10-Q filed for the years 2000, 1999 and 1998 as the
Registrant adopted SAB 101, "Revenue Recognition in Financial Statements", in
the fourth quarter of fiscal 2000 and reclassified gain/loss on sale of
containers from other income (after income from operations) to costs and
expenses (before income from operations). To conform to the current year's
presentation, the following reclassifications were made to income from
operations:
Mar. 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------------------
2000 $ (14) $ 108 $ 2 $ 13
1999 $ (49) $ (125) $ (107) $ (6)
1998 $ 137 $ (47) $ (106) $ (281)
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, 2000, 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 67 Director and Chairman of TGH, TEM, TL, TCC and TFS
John A. Maccarone 56 President, CEO and Director of TGH, TEM, TL, TCC and TFS
James E. Hoelter 61 Director of TGH, TEM, TL, TCC and TFS
Alex M. Brown 62 Director of TGH, TEM, TL, TCC and TFS
Harold J. Samson 79 Director of TGH and TL
Philip K. Brewer 44 Senior Vice President - Asset Management Group and Director of TEM and TL
Robert D. Pedersen 41 Senior Vice President - Leasing Group, Director of TEM
Ernest J. Furtado 45 Senior Vice President , CFO and Secretary of TGH, TEM, TL, TCC and TFS,
Director of TEM, TCC and TFS
Wolfgang Geyer 47 Regional Vice President - Europe
Mak Wing Sing 43 Regional Vice President - South Asia
Masanori Sagara 45 Regional Vice President - North Asia
Stefan Mackula 48 Vice President - Equipment Resale
Anthony C. Sowry 48 Vice President - Corporate Operations and Acquisitions
Richard G. Murphy 48 Vice President - Risk Management
Janet S. Ruggero 52 Vice President - Administration and Marketing Services
Jens W. Palludan 50 Regional Vice President - Americas and Logistics
Isam K. Kabbani 66 Director of TGH and TL
James A. C. Owens 61 Director of TGH and TL
S. Arthur Morris 67 Director of TGH, TEM and TL
Dudley R. Cottingham 49 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Nadine Forsman 33 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 all of these corporations. 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),
which is 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 has served as such
since the Textainer Group's reorganization and formation of these companies in
1993. He is also 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 is Senior Vice President - Asset Management Group and
director of TEM and TL. He 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 TEM, 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
Europe, Africa and the Middle East/Persian Gulf. 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), Southeast Asia and
Australia/New Zealand. 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.
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 - Americas and Logistics, responsible for container
leasing activities in North/South America and 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 has served as
such since the Textainer Group's reorganization and formation of these companies
in 1993. 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 since been his principal business activity. 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 and has served as director of TGH and TL since
1998. 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 is a
Certified Public Accountant and holds a B.S. in Accounting and Finance from San
Francisco State University.
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
reviews the equipment leasing operations of the Partnership on a regular basis
with emphasis on matters involving equipment purchases, 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 establishes credit limits
for every lessee and potential lessee of equipment and periodically reviews
these limits. In setting such limits, the Credit Committee considers 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
reviews 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, 2001:
Number
Name of Beneficial Owner Of Units % All Units
------------------------ -------- -----------
James E. Hoelter 438 0.012%
John A. Maccarone 500 0.014%
Harold J. Samson 2,500 0.068%
----- ------
Officers and Management as a Group 3,438 0.094%
===== ======
(c) Changes in Control.
Inapplicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 2000 and 1999, due from affiliates, net, is comprised
of:
2000 1999
---- ----
Due from affiliates:
Due from TEM.......................... $516 $529
--- ---
Due to affiliates:
Due to TL............................. 1 1
Due to TCC............................ 7 6
Due to TFS............................ 24 23
--- ---
32 30
--- ---
Due from affiliates, net $484 $499
=== ===
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 and in the accrual and remittance of net rental
revenues and container sales proceeds 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:
2000 1999 1998
---- ---- ----
TAS...................... $ - $ - $124
TEM...................... 101 100 12
--- --- ---
Total.................... $101 $100 $136
=== === ===
Management fees in connection with the operations of the Registrant:
2000 1999 1998
---- ---- ----
TEM...................... $595 $626 $719
TFS...................... 195 195 196
--- --- ---
Total.................... $790 $821 $915
=== === ===
Reimbursement for administrative costs in connection with the
operations of the Registrant:
2000 1999 1998
---- ---- ----
TEM...................... $323 $364 $486
TFS...................... 48 45 52
--- --- ---
Total.................... $371 $409 $538
=== === ===
(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, 2000 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 2000, 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 16, 2001, we reported on the balance sheets of
Textainer Equipment Income Fund II, L.P. (the Partnership) as of December 31,
2000 and 1999, and the related statements of earnings, partners' capital and
cash flows for each of the years in the three-year period ended December 31,
2000, which are included in the 2000 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 16, 2001
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, 2000:
Allowance for
doubtful accounts $ 398 $ (44) $ - $ (135) $ 219
------- -------- -------- -------- -----
Recovery cost reserve $ 74 $ 60 $ - $ (46) $ 88
------- -------- -------- -------- -----
Damage protection
plan reserve $ 272 $ 129 $ - $ (250) $ 151
------- -------- -------- -------- -----
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
------- -------- -------- -------- -----
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 20, 2001
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 20, 2001
Ernest J. Furtado (Principal Financial and
Accounting Officer),
Secretary and Director
_________________________________ President(Principal Executive
John A. Maccarone Officer), and Director March 20, 2001
_________________________________ Chairman of the Board and Director March 20, 2001
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 20, 2001
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 20, 2001
_________________________________ (Principal Financial and
Ernest J. Furtado Accounting Officer),
Secretary and Director
/s/ John A. Maccarone
_________________________________ President (Principal Executive March 20, 2001
John A. Maccarone Officer), and Director
/s/ Neil I. Jowell
_________________________________ Chairman of the Board and Director March 20, 2001
Neil I. Jowell