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TEXTAINER CAPITAL CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 29, 1999
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 V,
L.P. (the "Partnership") the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
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, 1998
Commission file number 0-25946
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(Exact name of Registrant as specified in its charter)
California 93-1122553
(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)
Registrant's telephone number, including area code:
(415) 434-0551
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS (THE "UNITS")
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ X ]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and ask prices of such
stock, as of a specified date within 60 days prior to the date of the filing.
Not Applicable.
Documents Incorporated by Reference
The Registrant's Prospectus as contained in Pre-Effective Amendment No. 3 to the
Registrant's Registration Statement, as filed with the Commission on April 8,
1994, as supplemented by Post-Effective Amendment No. 2 as filed under Section
8(c) of the Securities Exchange Act of 1933 on May 5, 1995 and as supplemented
by Supplement No. 5 as filed under Rule 424(b) of the Securities Exchange Act of
1933 on March 18, 1996.
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 15,
1993 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 May 1, 1994 in accordance with its Registration Statement
and ceased to offer such Units as of April 29, 1996. The Registrant
raised a total of $89,305,000 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 and leasing a worldwide fleet of new and used
transportation 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, container
leasing companies and the Registrant may 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 generates revenue and profit. Rental
revenues are primarily generated 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 if opportunities arise or at
the end of the container's useful life. See "Business of the
Partnership" in Registrant's Prospectus, as supplemented.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) Inapplicable.
(c)(1)(vi) Inapplicable.
(c)(1)(vii) No single lessee had revenue for the years ended December 31, 1998
and 1997 which was 10% or more of the total revenue of the
Registrant. One lessee had revenue for the year ended December 31,
1996 equal to 10% of the total revenue of the Registrant. No other
single lessee had revenue which was 10% or more of the total revenue
of the Registrant during 1996.
(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 93% of the total equipment held by
all container leasing companies. The top two container leasing
companies combined control approximately 39%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 10% of
the equipment held by all container leasing companies. 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. This decrease in demand, along with the entry of new
leasing company competitors offering low container rental rates to
shipping lines, 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 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, 1998 had 6 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, 1998 had a total
of 162 employees.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
The Registrant is involved in the leasing of shipping containers to
international shipping companies for use in world trade and
approximately 20%, 12% and 11% of the Registrant's rental revenue
during the years ended December 31, 1998, 1997 and 1996, respectively,
was derived from operations sourced or terminated domestically. These
percentages do not reflect the proportion of the Partnership's income
from operations generated domestically or in domestic waterways.
Substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations. See "Business of
the Partnership", and for a discussion of the risks of leasing
containers for use in world trade, "Risk Factors" in the Registrant's
Prospectus, as supplemented.
ITEM 2. PROPERTIES
As of December 31, 1998, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 10,095
40-foot standard dry freight containers 10,224
40-foot high cube dry freight containers 3,846
--------
24,165
========
During December 1998, approximately 78% 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.
For information about the Registrant's property, see "Business of the
Partnership" in the Registrant's Prospectus, as supplemented.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not subject to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR THE 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
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, 1999, there were 4,800 holders of record of limited
partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
For details of the distributions which are made monthly by the Registrant to its
limited partners, see Item 6 "Selected Financial Data".
ITEM 701: Inapplicable.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands except for per unit amounts)
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Rental income................................................. $14,265 $14,012 $13,588 $10,467 $ 3,783
Net earnings.................................................. $ 3,697 $ 3,961 $ 3,834 $ 3,116 $ 367
Net earnings per unit of limited partnership interest......... $ 0.81 $ 0.86 $ 0.91 $ 1.71 $ 1.44
Distributions per unit of limited partnership interest........ $ 1.72 $ 1.87 $ 1.99 $ 1.97 $ 0.81
Distributions per unit of limited partnership interest
representing a return of capital.......................... $ 0.91 $ 1.01 $ 1.08 $ 0.26 N/A
Total assets.................................................. $65,403 $69,623 $73,927 $70,558 $32,265
Outstanding balance on revolving credit line.................. $ - $ - $ - $10,000 $15,000
Intercompany borrowings for container purchases............... $ - $ 318 $ - $ - $ -
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,
1998, 1997 and 1996. Please refer to the Financial Statements and Notes thereto
in connection with the following discussion.
Liquidity and Capital Resources
From May 1, 1994 until April 29, 1996, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $5,000 on August 23, 1994, and on April 29, 1996, the
Partnership's offering of limited partnership interests was closed at $89,305.
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, 1998, the
Partnership did not redeem any units.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners 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.
During the year ended December 31, 1998, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1997
through November 1998, in the amount of $7,647. These distributions represent 9%
on original capital (measured on an annualized basis) on each unit from December
1997 through June 1998 and 8% on original capital (measured on an annualized
basis) on each unit for July through November 1998. On a cash basis, all of
these distributions were from operations. On a GAAP basis, $4,027 of these
distributions was a return of capital and the balance was from net earnings.
Beginning with cash distributions to limited partners for the month of March
1999, payable April 1999, the Partnership will make distributions at an
annualized rate of 7% on each unit. This reduction in the Partnership
distribution rate is the result of current market conditions which are discussed
in detail below.
At December 31, 1998 the Partnership had no commitments to purchase containers.
Net cash provided by operating activities for the years ended December 31, 1998
and 1997, was $8,999 and $8,178, respectively. The increase of $821 was
primarily attributable to fluctuations in accounts receivable offset by
fluctuations in due from (to) affiliates, net. The decrease in accounts
receivable of $579 for the year ended December 31, 1998 was primarily due to the
decrease in the average collection period. The increase in accounts receivable
of $509 for the year ended December 31, 1997 was primarily due to a
deterioration in payment performance of one of its lessees, which leased 9% of
the Partnership's container fleet during 1997. Due from affiliates, net
increased $470 for the year ended December 31, 1998, compared to an increase of
$90 for the year ended December 31, 1997. Fluctuations in due from affiliates,
net result from timing differences in the payment of expenses and fees and in
the remittance of net rental revenues from TEM. The Partnership believes that
cash flow from operating activities may be adversely affected by increased
repositioning costs during 1999. The reasons for these higher costs are
discussed under "Results of Operations".
For the years ended December 31, 1998 and 1997, net cash used in investing
activities (the purchase and sale of containers) was $18 and $906, respectively.
The decrease of $888 is primarily due to the Partnership having purchased more
containers during the year ended December 31, 1997 than in 1998. Additionally,
current market conditions have had an adverse effect on the amount of cash from
operations available for additional container purchases (reinvestment), which
has resulted in lower than anticipated reinvestment. Currently, the Partnership
does not anticipate purchasing containers in the first half of 1999 due to the
anticipated impact of market conditions on cash available from operations for
reinvestment. Market conditions are discussed more fully under "Results of
Operations".
From time to time, the Partnership will likely sell some of its containers.
Consistent with its investment objectives, the Partnership intends to continue
to reinvest available cash from operations as well as the proceeds from
container sales in additional containers. However, the number of additional
containers purchased may not equal the number of containers sold despite the
decline in average container prices from their most recent high in 1995, as new
container prices are likely to be greater than proceeds from container sales.
During 1997, the Partnership borrowed $318 from a general partner to purchase
containers. It is the policy of the Partnership and the General Partners to
charge interest on borrowings from affiliates arising from the Partnership's
acquisition of containers which are outstanding for more than one month.
Interest is charged to the Partnership at a rate not greater than the General
Partners' own cost of funds. The Partnership paid $10 of interest during the
year ended December 31, 1998. The interest rate in effect at March 31, 1998 was
8.5%. The Partnership repaid the loan on March 31, 1998 with cash provided by
operations and proceeds from the sale of containers.
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, 1998, 1997 and 1996, 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:
1998 1997 1996
---- ---- ----
Beginning container fleet............... 24,288 23,952 21,345
Ending container fleet.................. 24,165 24,288 23,952
Average container fleet................. 24,227 24,120 22,649
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 83%, 84% and 81% during the years
ended December 31, 1998, 1997 and 1996, respectively. In addition, rental income
is affected by daily rental rates and leasing incentives.
The following is a comparative analysis of the results of operations for the
years ended December 31, 1998, 1997 and 1996.
The Partnership's income from operations for the years ended December 31, 1998
and 1997 was $3,690 and $3,853, respectively, on rental income of $14,265 and
$14,012, respectively. The increase in rental income of $253, or 2%, from the
year ended December 31, 1997 to the year ended December 31, 1998 was
attributable to an increase in other rental income, which is discussed below,
offset by a decrease in income from container rentals. Income from container
rentals, the major component of total revenue, decreased $282, or 2%, primarily
due to the decreases in average rental rates of 4% and average on-hire
utilization of 1%, offset by a decrease in leasing incentives of 43%.
The Partnership's income from operations for the years ended December 31, 1997
and 1996 was $3,853 and $3,826, respectively, on rental income of $14,012 and
$13,588, respectively. The increase in rental income of $424, or 3% from the
year ended December 31, 1996 to the year ended December 31, 1997, was
attributable to increases in income from container rentals and other rental
income, which is discussed below. Income from container rentals increased $271,
or 2%, primarily due to increases in average inventory of 6% and average on-hire
utilization of 4% and a decrease in leasing incentives of 13%, offset by a
decrease in rental rates of 4%.
Container utilization and rental rates for the fleet managed by TEM have been
declining since 1996. This resulted from changes in the business of shipping
line customers consisting primarily of (i) over-capacity resulting from the
additions of new, larger ships to the existing container ship fleet at a rate in
excess of the growth rate in containerized cargo trade; (ii) shipping line
alliances and other operational consolidations that have allowed shipping lines
to operate with fewer containers; and (iii) shipping lines purchasing containers
to take advantage of low prices and favorable interest rates. The entry of new
leasing company competitors offering low container rental rates to shipping
lines resulted in downward pressure on rental rates, and caused leasing
companies to offer higher leasing incentives and other discounts to shipping
lines. The decline in the purchase price of new containers during this period
and excess industry capacity have also caused additional downward pressure on
rental rates.
Additionally, the weakening of many Asian currencies in 1998 has resulted in a
significant increase in exports from Asia to North America and Europe and a
corresponding decrease in imports into Asia from North America and Europe. This
trade imbalance has created a strong demand for containers in Asia and a weak
demand for containers in North America and Europe. While this imbalance has
resulted in the decline in leasing incentives, it has also contributed to the
further decline in average utilization and rental rates for the fleet managed by
TEM. This imbalance has also resulted in an unusually high build-up of
containers in lower demand locations during the year ended December 31, 1998
compared to 1997. In an effort to improve utilization and to alleviate the
container build-up, the Partnership has repositioned, and plans to continue
repositioning, certain containers to higher demand locations. The Partnership
incurred increased direct container expenses as a result of repositioning
containers from these lower demand locations during 1998 and anticipates
incurring additional direct container costs in 1999 as it continues its
repositioning efforts.
For the fleet managed by TEM, demand has been especially low for containers
manufactured prior to 1993. The General Partners believe that the especially low
demand for these older containers is a temporary situation caused by the current
market conditions discussed above. Should the especially low demand for older
containers turn out to be a permanent situation, the Partnership may be required
to increase its depreciation rate for container rental equipment. For the near
term, the General Partners do not foresee material changes in existing market
conditions and caution that both utilization and lease rates could further
decline, adversely affecting the Partnership's operating results.
All of the Partnership's rental income was generated from the leasing of the
Partnership's containers under short-term operating leases.
The balance of other rental income consists of other lease-related items,
primarily income from charges to lessees for dropping off containers in low
demand locations less credits granted to lessees for leasing containers from low
demand locations (location income), income from charges to lessees for handling
and returning containers (handling income) and income from charges to lessees
for a Damage Protection Plan (DPP). For the year ended December 31, 1998, the
total of these other rental income items was $1,674, an increase of $535 from
the equivalent period in 1997. Other income increased primarily due to an
increase in location income of $728, offset by a decrease in handling income of
$168. Location income increased due to a decrease in credits granted to lessees
for picking up containers from certain locations. Handling income decreased
primarily due to decreases in container movement and in the average handling
price charged per container.
For the year ended December 31, 1997, the total of these other rental income
items was $1,138, an increase of $153 from the equivalent period in 1996. The
increase was primarily due to increases in handling and DPP income of $114 and
$56, respectively, partially offset by a decrease in location income of $20.
Handling income increased due to an increase in container movement and to a
higher average price charged per container during the year ended December 31,
1997, compared to 1996. The increase in DPP income resulted from the increase in
the number of containers under DPP, slightly offset by a lower average DPP price
charged per container during 1997 compared to 1996. Location income decreased
primarily due to lower demand, which increased credits to lessees for picking up
containers from less desirable locations, partially offset by an increase in
average drop-off charges per container.
Direct container expenses increased $652, or 23%, from the year ended December
31, 1997 to the equivalent period in 1998. The increase was primarily due to an
increase in repositioning expense of $770, offset by a decrease in handling
expense of $112. Repositioning expense increased primarily due to an increase in
the number of containers transported from low demand locations to higher demand
locations at a higher average cost per container. Handling expense decreased due
to decreases in container movement and in the average handling cost per
container during the year ended December 31, 1998 compared to the year ended
December 31, 1997.
Direct container expenses increased $277, or 11%, from the year ended December
31, 1996, to the year ended December 31, 1997. The increase was primarily due to
increases in repositioning and handling expenses of $275 and $118, respectively,
offset by a decrease in DPP expense of $136 between periods. Repositioning
expense increased due to a greater number of units being transported from low
demand locations to higher demand locations. The increase in handling expense
resulted from an increase in container movement and a higher average handling
cost per container incurred during 1997 compared to 1996. The decrease in DPP
expense was due to a decrease in the average repair cost per container.
Bad debt expense decreased $111, or 96%, from the year ended December 31, 1997
to the year ended December 31, 1998. The decrease resulted from the resolution
of payment issues with one lessee and from lower reserve requirements. Bad debt
expense decreased $12, or 9%, from the year ended December 31, 1996 to the year
ended December 31, 1997 due to lower reserve requirements.
Depreciation and amortization expense was comparable at $4,837 and $4,825 for
the years ended December 31, 1998 and 1997, respectively. Depreciation expense
increased $109, or 2%, from the year ended December 31, 1996 to the year ended
December 31, 1997 due to the increase in average fleet size. Amortization was
comparable for the years ended December 31, 1997 and 1996.
Management fees to affiliates decreased $13, or 1%, from the year ended December
31, 1997 to the year ended December 31, 1998, due to an increase in equipment
management fees, offset by a decrease in incentive management fees. Equipment
management fees, which are based on gross revenue, increased due to the increase
in rental income and were approximately 7% of gross revenue for the year.
Incentive management fees, which are based on the Partnership's limited and
general partner distributions and partners' capital, decreased due to the
decrease in the limited partner distribution percentage from 9% to 8% in July
1998.
Management fees to affiliates increased $23, or 2%, from the year ended December
31, 1996 to the equivalent period in 1997 due to an increase in equipment
management fees, offset by a decrease in incentive management fees. Equipment
management fees increased as a result of the increase in rental income and were
approximately 7% of gross revenue. Incentive management fees decreased primarily
due to the decrease in the limited partner distribution rate from 10% to 9% in
April 1997.
General and administrative costs to affiliates decreased $87, or 10%, from the
year ended December 31, 1997 to the year ended December 31, 1998 due to
decreases in overhead costs allocated from TCC and TEM. General and
administrative costs to affiliates were comparable from the year ended December
31, 1996 to the year ended December 31, 1997.
Other income decreased $101 from the year ended December 31, 1997 to the year
ended December 31, 1998. The decrease was primarily due to the fluctuation of
gain/loss on sale of containers from a gain of $74 for the year ended December
31, 1997 to a loss of $37 for the year ended December 31, 1998. The loss on sale
of containers was primarily due to the Partnership selling containers located in
low demand locations at a younger age than they would have been sold during
previous years, as a result of current market conditions. As noted above, if
other containers are identified as available for sale, the Partnership may incur
additional losses.
Other income increased $100 from the year ended December 31, 1996 to the year
ended December 31, 1997. The increase was due to the decrease in interest
expense, net of $133, offset by the decrease in gain on sale of containers of
$33.
Net earnings per limited partnership unit decreased from $0.86 to $0.81 from the
year ended December 31, 1997 to the year ended December 31, 1998, reflecting the
decrease in net earnings allocated to limited partners from $3,828 to $3,620,
respectively.
Net earnings per limited partnership unit decreased from $0.91 to $0.86 from the
year ended December 31, 1996 to the year ended December 31, 1997, despite the
growth in limited partner net earnings, which increased from $3,748 for the year
ended December 31, 1996 to $3,828 for the same period in 1997. The decrease was
primarily due to average outstanding units increasing at a greater rate than net
earnings, resulting in a decrease in earnings on a per unit basis.
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, 1998, which would result in such a
risk materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the containers, and the effect of world trade, industry trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented, for additional information on
risks of the Partnership's business.
Readiness for Year 2000
Many computer systems may experience difficulty processing dates beyond the year
1999; as a consequence, some computer hardware and software at many companies
will need to be modified or replaced prior to the year 2000 in order to remain
functional. The Partnership relies on the financial and operating systems
provided by the General Partners; these systems include both information
technology (IT) systems as well as non-information technology (non-IT) systems.
For IT and non-IT systems developed by independent third parties
(externally-developed) the General Partners have obtained representations from
their vendors and suppliers that these systems are Year 2000 compliant and have
internally tested mission critical systems as operational. The General Partners
have reviewed all internally-developed IT and non-IT systems for Year 2000
issues and identified certain of these systems which required revision. The
General Partners have completed the revision and testing of these identified
systems, and these revised systems are now operational.
The cost of the revisions and testing relating to these systems was incurred by
TEM and a portion of the cost was allocated to the Partnership as part of
general and administrative costs allocated from TEM. While Year 2000 remediation
costs were not specifically identified, it is estimated that total Year 2000
related expenses included in allocated overhead from TEM were less than $20. The
Partnership and the General Partners do not anticipate incurring significant
additional remediation costs related to the Year 2000 issue. There has been no
material effect on the Partnership's financial condition and results of
operations as a result of TEM's delay in routine systems projects as a result of
Year 2000 remediation.
As noted above, Year 2000 compliance testing was undertaken by the General
Partners on both externally- and internally-developed systems. Standard
transactions were processed under simulated operating conditions for dates
crossing over January 1, 2000 as well as for other critical dates such as
February 29, 2000. In the standard business scenarios tested, the identified
systems appeared to function correctly. Under nonstandard conditions or
unforeseen scenarios, the results may be different. Therefore, these tests,
regardless of how carefully they were conducted, cannot guarantee that the
General Partners' systems will function without error in the Year 2000 and
beyond. If these systems are not operational in the Year 2000, the General
Partners have determined that they can operate manually for approximately two to
three months while correcting the system problems before experiencing material
adverse effects on the Partnership's and the General Partners' business and
results of operations. However, shifting portions of the daily operations to
manual processes may result in time delays and increased processing costs.
Additionally, the Partnership and General Partners may not be able to provide
lessees with timely and pertinent information, which may negatively affect
customer relations and lead to the potential loss of lessees, even though the
immediate monetary consequences of this would be limited by the standard
Partnership lease agreements between the lessees and the Partnership.
The Partnership and the General Partners are also continuing their assessment of
Year 2000 issues with third parties, comprised of lessees, manufacturers,
depots, and other vendors and suppliers, with whom the Partnership and the
General Partners have a material business relationship (Third Parties).
Currently, the Partnership and the General Partners believe that if a
significant portion of its lessees is non-compliant for a substantial length of
time, the Partnership's operations and financial condition would be materially
adversely affected. Non-compliance by other Third Parties is not expected to
have a material effect on the Partnership's results of operations and financial
condition. The General Partners have sent letters to lessees and other Third
Parties requesting representations on their Year 2000 readiness. The General
Partners have received responses to 53% of the letters sent with all but three
respondents representing that they are or will be Year 2000 compliant.
Non-compliance by these three respondents is not expected to have a material
adverse effect on the Partnership's operations or financial condition. The
General Partners are continuing to follow up with non-respondents and will
continue to identify additional Third Parties whose Year 2000 readiness should
be assessed. As this assessment has not been completed, the General Partners
have not yet assumed that a lack of response means that any non-responding Third
Parties will not be Year 2000 compliant.
Nevertheless, the Partnership and the General Partners believe that they are
likely to encounter Year 2000 problems with certain Third Parties, particularly
those with significant operations within countries that are not actively
promoting correction of Year 2000 issues. Possible consequences of Year 2000
non-compliance among Third Parties include, but are not limited to, (i) TEM's
inability to provide service to certain areas of the world, (ii) delays in
container movement, (iii) payment and collection difficulties, and (iv)
invoicing errors due to late reporting of transactions. These types of problems
could result in additional operating costs and loss of lessee business. As
discussed above, the General Partners are prepared to shift portions of their
daily operations to manual processes in the event of Third Party non-compliance.
With respect to manufacturers, vendors and other suppliers, the General Partners
would also attempt to find alternate sources for goods and services. With
respect to depots and agents who handle, inspect or repair containers, if the
majority of the computer systems and networks of TEM are operational, the
General Partners believe that they will be able to compensate manually for these
Third Parties' failures (e.g., one field office performing data entry for
another, communication with depots conducted without computers), by using
temporary personnel at additional cost. Although costs will be incurred to pay
for the temporary personnel, the Partnership and the General Partners do not
expect these costs to be material to the Partnership. With respect to lessees'
non-compliance, the General Partners would compensate for communications
failures manually. If a lessee's noncompliance is broad enough to disrupt
significantly the operations of its shipping business, the resulting loss of
revenue could result in the lessee renting fewer containers. The Partnership and
the General Partners are unable to estimate the financial impact of these
problems, but to the extent that lessees' problems result in weakening demand
for containers, the Partnership's results of operations would likely be
adversely affected. If Year 2000 problems result in delays in collections,
either because of the additional time required to communicate with lessees or
because of lessees' loss of revenues, the Partnership's cash flow could be
affected and distributions to general and limited partners could be reduced. The
Partnership and the General Partners believe that these risks are inherent in
the industry and are not specific to the Partnership or General Partners.
Forward-Looking Statement and Other Risk Factors Relating to Year 2000
The foregoing analysis of Year 2000 issues includes forward-looking statements
and predictions about possible or future events, results of operations and
financial condition. As such, this analysis may prove to be inaccurate, because
of the assumptions made by the Partnership and the General Partners or the
actual development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct. Some of the risks relating to Year 2000
compliance are described above. In addition, in analyzing Year 2000 issues, the
Partnership and the General Partners have assumed that the infrastructure of the
United States and most other countries, including ports and customs, remains
intact. If the infrastructure of one or more countries were to fail, the
resulting business disruption would likely have an adverse effect on the
Partnership and the General Partners. The Partnership and General Partners are
unable to determine a reasonably likely worst case scenario in the event of an
infrastructure failure or failures.
Various other risks and uncertainties could also affect the Partnership and
could affect the Year 2000 analysis, causing the effect on the Partnership to be
more severe than discussed above. These risks and uncertainties include, but are
not limited to, the following. The Partnerships' and the General Partners' Year
2000 compliance testing cannot guarantee that all computer systems will function
without error beyond the Year 2000. Tests were only conducted of normal business
scenarios, and no independent verification or testing was used. Risks also exist
with respect to Year 2000 compliance by Third Parties, such as the risk that an
external party, who may have no relationship to the Partnership or General
Partners, but who has a significant relationship with one or more Third Parties,
may have a system failure that adversely affects the Partnership's ability to
conduct its business. While the Partnership and the General Partners are
attempting to identify such external parties, no assurance can be given that
they will be able to do so. Furthermore, Third Parties with direct relationships
with the Partnership, whose systems have been identified as likely to be Year
2000 compliant, may suffer a breakdown due to unforeseen circumstances. It is
also possible that the information collected by the General Partners from these
Third Parties regarding their compliance with Year 2000 issues may be incorrect.
Finally, it should be noted that the foregoing discussion of Year 2000 issues
assumes that to the extent the General Partners' systems fail, either because of
unforeseen complications or because of Third Parties', failure, switching to
manual operations will allow the Partnership to continue to conduct its
business. While the Partnership and the General Partners believe this assumption
to be reasonable, if it is incorrect, the Partnership's results of operations
would likely be adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached pages 13 to 24.
Independent Auditors' Report
The Partners
Textainer Equipment Income Fund V, L.P.:
We have audited the accompanying balance sheets of Textainer Equipment Income
Fund V, L.P. (a California limited partnership) as of December 31, 1998 and
1997, and the related statements of earnings, partners' capital and cash flows
for each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Textainer Equipment Income Fund
V, L.P. as of December 31, 1998 and 1997, 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, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
San Francisco, California
February 19, 1999
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(a California Limited Partnership)
Balance Sheets
December 31, 1998 and 1997
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------
1998 1997
---------------- ---------------
Assets
Container rental equipment, net of accumulated
depreciation of $18,459 (1997: $13,833) $ 61,107 $ 66,066
Cash 1,009 108
Accounts receivable, net of allowance
for doubtful accounts of $353 (1997: $387) 2,675 3,220
Due from affiliates (note 2) 558 14
Organization costs, net of accumulated
amortization of $227 (1997: $175) 35 87
Prepaid expenses 19 128
---------------- ---------------
$ 65,403 $ 69,623
================ ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 399 $ 274
Accrued liabilities 109 90
Accrued recovery costs (note 1(k)) 132 89
Accrued damage protection plan costs (note 1(l)) 397 340
Due to affiliates (note 2) 13 426
Deferred quarterly distributions (note 1(g)) 94 114
---------------- ---------------
Total liabilities 1,144 1,333
---------------- ---------------
Partners' capital:
General partners 44 48
Limited partners 64,215 68,242
---------------- ---------------
Total partners' capital 64,259 68,290
---------------- ---------------
$ 65,403 $ 69,623
================ ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(a California Limited Partnership)
Statements of Earnings
Years ended December 31, 1998, 1997 and 1996
(Amounts in thousands except for unit and per unit amounts)
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
Rental income $ 14,265 $ 14,012 $ 13,588
----------------- ----------------- -----------------
Costs and expenses:
Direct container expenses 3,490 2,838 2,561
Bad debt expense 5 116 128
Depreciation and amortization 4,837 4,825 4,715
Professional fees 42 38 50
Management fees to affiliates (note 2) 1,315 1,328 1,305
General and administrative costs to affiliates (note 2) 773 860 862
Other general and administrative costs 113 154 141
----------------- ----------------- -----------------
10,575 10,159 9,762
----------------- ----------------- -----------------
Income from operations 3,690 3,853 3,826
----------------- ----------------- -----------------
Other income:
Interest income (expense), net 44 34 (99)
(Loss) gain on sale of containers (37) 74 107
----------------- ----------------- -----------------
7 108 8
----------------- ----------------- -----------------
Net earnings $ 3,697 $ 3,961 $ 3,834
================= ================= =================
Allocation of net earnings (note 1(g)):
General partners $ 77 $ 133 $ 86
Limited partners 3,620 3,828 3,748
----------------- ----------------- -----------------
$ 3,697 $ 3,961 $ 3,834
================= ================= =================
Limited partners' per unit share of net earnings $ 0.81 $ 0.86 $ 0.91
================= ================= =================
Limited partners' per unit share of distributions $ 1.72 $ 1.87 $ 1.99
================= ================= =================
Weighted average number of limited
partnership units outstanding (note 1(m)) 4,454,893 4,454,893 4,099,685
================= ================= =================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1998, 1997 and 1996
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------------
Partners' Capital
-----------------------------------------------------------
General Limited Total
----------------- ----------------- -----------------
Balances at December 31, 1995 $ 2 $ 58,007 $ 58,009
Proceeds from sale of limited partnership units - 21,848 21,848
Syndication and offering costs - (2,553) (2,553)
Distributions (86) (8,168) (8,254)
Redemptions (note 1(n)) - (152) (152)
Net earnings 86 3,748 3,834
----------------- ----------------- -----------------
Balances at December 31, 1996 2 72,730 72,732
----------------- ----------------- -----------------
Distributions (87) (8,316) (8,403)
Net earnings 133 3,828 3,961
----------------- ----------------- -----------------
Balances at December 31, 1997 48 68,242 68,290
----------------- ----------------- -----------------
Distributions (81) (7,647) (7,728)
Net earnings 77 3,620 3,697
----------------- ----------------- -----------------
Balances at December 31, 1998 $ 44 $ 64,215 $ 64,259
================= ================= =================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(a California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
Cash flows from operating activities:
Net earnings $ 3,697 $ 3,961 $ 3,834
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 4,785 4,772 4,663
(Decrease) increase in allowance for doubtful accounts (34) 118 118
Amortization of organization costs 52 53 52
Loss (gain) on sale of containers 37 (74) (107)
(Increase) decrease in assets:
Accounts receivable 579 (509) (140)
Due from (to) affiliates, net (470) (90) 42
Prepaid expenses 109 (98) (5)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 144 31 (103)
Accrued recovery costs 43 35 50
Accrued damage protection plan costs 57 (21) 129
-------------- -------------- ---------------
Net cash provided by operating activities 8,999 8,178 8,533
-------------- -------------- ---------------
Cash flows from investing activities:
Proceeds from sale of containers 379 459 418
Container purchases (397) (1,365) (10,486)
-------------- -------------- ---------------
Net cash used in investing activities (18) (906) (10,068)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from sales of limited partnership units - - 22,084
Syndication and offering costs - - (2,644)
Distributions to partners (7,762) (8,425) (8,182)
Redemptions of limited partnership units - - (152)
Repayments under revolving credit line - - (10,000)
(Repayment of) borrowings from affiliates (318) 318 -
-------------- -------------- ---------------
Net cash (used in) provided by financing activities (8,080) (8,107) 1,106
-------------- -------------- ---------------
Net increase (decrease) in cash 901 (835) (429)
Cash at beginning of period 108 943 1,372
-------------- -------------- ---------------
Cash at end of period $ 1,009 $ 108 $ 943
============== ============== ===============
Interest paid during the period $ 10 $ - $ 280
============== ============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(A California Limited Partnership)
Statements of Cash Flows--Continued
Years ended December 31, 1998, 1997 and 1996
(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, syndication and offering costs, proceeds from sale of containers
and proceeds from sale of limited partnership units which had not been paid or
received by the Partnership as of December 31, 1998, 1997, 1996 and 1995,
resulting in differences in amounts recorded and amounts paid or received by the
Partnership, as shown in the Statements of Cash Flows.
1998 1997 1996 1995
---- ---- ---- ----
Container purchases included in:
Due to affiliates.......................................... $ - $ 39 $ 4 $ 453
Container purchases payable................................ - - 169 1,168
Distributions to partners included in:
Due to affiliates.......................................... 6 20 32 4
Deferred quarterly distribution............................ 94 114 124 80
Syndication and offering costs included in:
Due to affiliates.......................................... - - - 91
Proceeds from sale of containers included in:
Due from affiliates........................................ 167 51 58 53
Proceeds from sale of limited partnership units included in:
Accounts receivable........................................ - - - 236
The following table summarizes the amounts of container purchases, distributions
to partners, syndication and offering costs, proceeds from sale of containers
and proceeds from the sale of limited partnership units recorded by the
Partnership and the amounts paid or received as shown on the Statements of Cash
Flows for the years ended December 31, 1998, 1997 and 1996.
1998 1997 1996
---- ---- ----
Container purchases recorded........................................ $ 358 $ 1,231 $ 9,038
Container purchases paid............................................ 397 1,365 10,486
Distributions to partners declared.................................. 7,728 8,403 8,254
Distributions to partners paid...................................... 7,762 8,425 8,182
Syndication and offering costs recorded............................. - - 2,553
Syndication and offering costs paid................................. - - 2,644
Proceeds from sale of containers recorded........................... 495 452 423
Proceeds from sale of containers received........................... 379 459 418
Proceeds from sales of limited partnership units recorded........... - - 21,848
Proceeds from sales of limited partnership units received........... - - 22,084
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND V, L.P.
(a California limited partnership)
Notes to Financial Statements
Years ended December 31, 1998, 1997 and 1996
(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 V, L.P. (TEIF V or the Partnership), a
California limited partnership, with a maximum life of 20 years, was
formed on July 15, 1993. The Partnership was formed to engage in the
business of owning, leasing and selling both new and used equipment
related to the international containerized cargo shipping industry,
including, but not limited to, containers, trailers and other
container-related equipment. TEIF V offered units representing limited
partnership interests (Units) to the public from May 1, 1994 until April
29, 1996, the close of the offering period, when a total of 4,465,263
Units had been purchased for a total of $89,305.
Textainer Capital Corporation (TCC) is the managing general partner of the
Partnership. 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 container rental
contracts. These contracts are classified as operating leases or direct
financing 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 the 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, 1998 and 1997, the fair value of
the Partnership's financial instruments approximate 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 equipment to expected future cash flows for the
purpose of assessing the recoverability of the recorded amounts. If the
carrying value exceeds expected future cash flows, the assets are written
down to estimated fair value. In addition, containers identified for
disposal are recorded at the lower of carrying amount or fair value less
cost to sell.
New container prices have been declining since 1995, and the cost of
purchasing new containers at year-end 1998 was significantly less than the
cost of containers purchased in the last several years. The Partnership
has evaluated the recoverability of the recorded amount of container
rental equipment and determined that a reduction to the carrying value of
the containers was not required during the years ended December 31, 1998,
1997 and 1996.
(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 its containers or the
domicile of the lessees.
No single lessee accounted for more than 10% of the Partnership's revenues
for the years ended December 31, 1998 and 1997. For the year ended
December 31, 1996, revenue from one lessee accounted for 10% of the
Partnership's revenues. No other single lessee accounted for more than 10%
of the Partnership's revenues during 1996.
(g) Allocation of Net Earnings and Partnership Distributions
In accordance with the Partnership Agreement, net earnings or losses and
distributions are generally allocated 1% to the General Partners and 99%
to the Limited Partners. However, notwithstanding this general allocation,
gross income, as defined in the Partnership Agreement, is specially
allocated each year to the General Partners to the extent necessary to
cause their Capital Account balances to be not less than zero.
Notwithstanding the above, the special allocation of gross income and
restoration of deficit General Partner capital accounts was deferred by
Partnership agreement amendment until the Partnership's complete
syndication which occurred during the year ended December 31, 1996.
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 $94 and $114 at
December 31, 1998 and 1997, 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) Organization Costs
Organization costs, which resulted from the formation of the Partnership
were capitalized and are being amortized on a straight-line basis over
five years.
(j) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees equal to 5%
of the container purchase price were paid to TEM beginning in November
1998 and TAS through October 1998. These fees are capitalized as part of
the cost of the containers.
(k) 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, 1998 and 1997, the amounts
accrued were $132 and $89, respectively.
(l) 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 provide a reserve sufficient to cover the Partnership's
obligation for estimated future repair costs. DPP expenses are included in
direct container expenses in the Statements of Earnings and the related
reserve at December 31, 1998 and 1997, was $397 and $340, 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, 1998, 1997 and 1996, which were
4,454,893, 4,454,893, and 4,099,685, respectively.
(n) Redemptions
The following redemption offerings were consummated by the Partnership
during the year ended December 31, 1996:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Year ended December 31, 1996:
3rd quarter.................. 5,576 $18.18 $ 102
4th quarter.................. 2,875 $17.57 50
----- -----
Balance at December 31, 1996 8,451 $17.97 152
----- ----
Partnership to date................ 8,451 $17.97 $ 152
===== ====
There were no redemptions during 1997 or 1998. The redemption price is
fixed by formula.
(o) Reclassifications
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform with the 1998 financial statement
presentation.
Note 2. Transactions with Affiliates
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, or TAS prior to its liquidation, an acquisition fee,
an equipment management fee, an incentive management fee and an equipment
liquidation fee. These fees are for various services provided in
connection with the administration and management of the Partnership. The
Partnership capitalized $17, $68, and $478 of equipment acquisition fees
as part of container rental equipment costs during the years ended
December 31, 1998, 1997 and 1996, respectively. The Partnership incurred
$319, $347, and $355 of incentive management fees during each of the three
years ended December 31, 1998, 1997, and 1996. 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 at December 31, 1998 and 1997.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross revenues attributable to full payout net leases. In 1998,
1997 and 1996, equipment management fees totaled $996, $981 and $950,
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. All 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 TCC. Total general and
administrative costs allocated to the Partnership were as follows:
1998 1997 1996
---- ---- ----
Salaries $419 $468 $463
Other 354 392 399
--- --- ---
Total general and
administrative costs $773 $860 $862
=== === ===
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. TCC allocates these
costs based on the ratio of the Partnership's containers to the total
container fleet of all limited partnerships managed by TCC. The General
Partners allocated the following general and administrative costs to the
Partnership:
1998 1997 1996
---- ---- ----
TEM $700 $761 $744
TCC 73 99 118
--- --- ---
Total general and
administrative costs $773 $860 $862
=== === ===
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, 1998 and 1997, due from (to) affiliates is comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM........................... $ 558 $ 14
===== =====
Due to affiliates:
Due to TL.............................. $ 5 $ 338
Due to TCC............................. 8 49
Due to TAS............................. - 39
----- -----
$ 13 $ 426
===== =====
Included in the amount due to TL at December 31, 1997 is $318 in loans
used to facilitate container purchases. The loan was repaid in full on
March 31, 1998. All other amounts receivable from and payable to
affiliates were incurred in the ordinary course of business between the
Partnership and its affiliates and represent timing differences in the
accrual and remittance of expenses and fees described above and in the
accrual and remittance of net rental revenues from TEM.
It is the policy of the Partnership and the General Partners to charge
interest on amounts due to the General Partners which are outstanding for
more than one month, to the extent such balances relate to loans for
container purchases. Interest is charged at a rate not greater than the
General Partners' or affiliates' own cost of funds. The Partnership
incurred $7 and $3 of interest expense on amounts due to the General
Partners for the years ended December 31, 1998 and 1997, respectively.
There was no interest charged on amounts due to the General Partners for
the year ended December 31, 1996.
Note 3. Rentals under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at December 31, 1998. Although the leases are
generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending December 31,
1999................................................... $ 799
2000................................................... 35
2001................................................... 12
2002................................................... 8
2003................................................... 7
---
Total minimum future rentals receivable................ $ 861
===
Note 4. Note Payable
The Partnership had a short-term revolving credit line with an available
limit of $15,000, which was used for container purchases. Balances
borrowed under this credit facility bore interest at either the Prime Rate
plus .25% or the London Interbank Offered Rate (LIBOR) plus 2.00%, and the
Partnership paid a commitment fee of 1/2% on the unused portion of the
credit facility. The credit line was paid in full on April 8, 1996 and
expired on May 31, 1996.
Note 5. Income Taxes
During 1998, 1997 and 1996, there were temporary differences of $30,110,
$21,904, and $13,625, 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 loss for federal income tax
purposes for the years ended December 31, 1998, 1997 and 1996 is as
follows:
1998 1997 1996
---- ---- ----
Net income per financial statements.......................... $ 3,697 $ 3,961 $ 3,834
(Decrease) increase in provision for bad debt................ (34) 118 118
Depreciation for income tax purposes in excess
of depreciation for financial statement purposes......... (8,494) (8,480) (7,799)
Gain on sale of fixed assets for federal income tax
purposes in excess of gain/loss recognized for
financial statement purposes.............................. 265 104 54
Increase (decrease) in damage protection plan reserve........ 57 (21) 129
------- ------- -------
Net loss for federal income tax purposes..................... $ (4,509) $ (4,318) $ (3,664)
======= ======= =======
Note 6. Readiness for Year 2000
Many computer systems may experience difficulty processing dates beyond
the year 1999; as a consequence, some computer hardware and software at
many companies will need to be modified or replaced prior to the year 2000
in order to remain functional. The Partnership relies on the financial and
operating systems provided by the General Partners; these systems include
both information technology systems as well as non-information technology
systems. There can be no assurance that issues related to the Year 2000
will not have a material impact on the financial condition, results of
operations or cash flows of the Partnership.
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 general partners are TCC,
TEM and TL. TCC is the Managing General Partner of the Partnership and TEM and
TL are Associate General Partners. The Managing General Partner and Associate
General Partners are collectively referred to as the General Partners. TCC, TEM
and TL are wholly-owned or substantially-owned subsidiaries of Textainer Group
Holdings (TGH). The General Partners 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. TCC Securities Corporation (TSC), a licensed broker and dealer in
securities and an affiliate of the General Partners, was the managing sales
agent for the offering of Units for sale. TSC was closed and liquidated in
December 1998.
TCC, 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, 1998, 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 65 Director and Chairman of TGH, TEM, TL, TCC and TFS
John A. Maccarone 54 President, CEO and Director of TGH, TEM, TL, TCC and TFS
John R. Rhodes 49 Executive Vice President, CFO, and Secretary of TGH, TEM, TL, TCC and TFS
and Director of TEM, TCC and TFS
James E. Hoelter 59 Director of TGH, TEM, TL, TCC and TFS
Alex M. Brown 60 Director of TGH, TEM, TL, TCC and TFS
Harold J. Samson 77 Director of TGH and TL
Philip K. Brewer 42 Senior Vice President - Asset Management Group, Director of TCC and TFS
Robert D. Pedersen 40 Senior Vice President - Leasing Group, Director of TEM
Wolfgang Geyer 45 Regional Vice President - Europe/Middle East/Persian Gulf
Mak Wing Sing 41 Regional Vice President - South Asia
Masanori Sagara 43 Regional Vice President - North Asia
Stefan Mackula 46 Vice President - Equipment Resale
Anthony C. Sowry 46 Vice President - Operations and Acquisitions
Ernest J. Furtado 43 Vice President - Finance and Assistant Secretary of TGH, TL, TEM, TCC and
TFS, Director of TCC and TFS
Brian W. Anderson 42 Vice President - Information Systems
Richard G. Murphy 46 Vice President - Risk Management
Janet S. Ruggero 50 Vice President - Administration and Marketing Services
Jens W. Palludan 48 Vice President - Logistics Division
Isam K. Kabbani 64 Director of TGH and TL
James A. C. Owens 59 Director of TGH and TL
S. Arthur Morris 65 Director of TGH, TEM and TL
Dudley R. Cottingham 47 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Cara D. Smith 36 Member of Investment Advisory Committee
Nadine Forsman 31 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, transport, 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 a Bachelor of Commerce L.L.B. from the University of
Cape Town.
John A. Maccarone is President, CEO and director of TGH, TEM, TL, TCC
and TFS. In this capacity he is responsible for overseeing the management of and
coordinating the activities of Textainer's worldwide fleet of marine cargo
containers and the activities of TCC and TFS. Additionally, he is Chairman of
the Equipment Investment Committee, the Credit Committee and the Investment
Advisory Committee (see "Committees", below). Mr. Maccarone was instrumental in
co-founding Intermodal Equipment Association (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.
John R. Rhodes is Executive Vice President, Chief Financial Officer
and Secretary of TGH, TEM, TL, TCC and TFS and a director of TEM, TCC and TFS.
In this capacity he is responsible for all accounting, financial management, and
reporting functions for the Textainer Group. He is also a member of the
Equipment Investment Committee, the Credit Committee and Investment Advisory
Committee (see "Committees", below). Prior to joining Textainer in November
1987, Mr. Rhodes was Vice President of Finance for Greenbrier Capital
Corporation in San Francisco, a trailer leasing and management company, from
1986 to 1987; from 1981 to 1985, he was employed by Gelco Rail Services, an
intermodal refrigerated trailer company in San Francisco, first in the capacity
of Vice President and Controller and then as Senior Vice President and General
Manager. Mr. Rhodes' earlier business affiliations include serving as Vice
President and General Manager of Itel Capital Corporation and as senior
accountant with Arthur Andersen & Co., both in San Francisco. He is a Certified
Public Accountant and holds a B.A. in economics from Stanford University and an
M.B.A. in accounting from Golden Gate University.
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. Prior to
joining the Textainer Group in 1987, Mr. Hoelter was president of IEA. Mr.
Hoelter co-founded IEA in 1978 with Mr. Maccarone and was president from
inception until 1987. From 1976 to 1978, Mr. Hoelter was vice president for
Trans Ocean Ltd., San Francisco, a marine container leasing company, where he
was responsible for North America. From 1971 to 1976, he worked for Itel
Corporation, San Francisco, where he was director of financial leasing for the
container division. Mr. Hoelter received his B.B.A. in finance from the
University of Wisconsin, where he is an emeritus member of its Business School's
Dean's Advisory Board, and his M.B.A. from the Harvard Graduate School of
Business Administration.
Alex M. Brown is a director of TGH, TEM, TL, TCC and TFS.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Among other
directorships, Mr. Brown is a director of Trencor Ltd. (1996 to present) and
Forward Corporation (1997 to present). Both companies are publicly traded and
are listed on the Johannesburg Stock Exchange. Mr. Brown became affiliated with
the Textainer Group in April 1986. From 1987 until 1993, he was President and
Chief Executive Officer of Textainer, Inc. and the Chairman of the Textainer
Group. Mr. Brown was the managing director of Cross County Leasing in England
from 1984 until it was acquired by Textainer in 1986. From 1993 to 1997, Mr.
Brown was Chief Executive Officer of AAF, a company affiliated with Trencor Ltd.
Mr. Brown was also Chairman of WACO International Corporation, based in
Cleveland, Ohio until 1997.
Harold J. Samson is a director of TGH and TL and is a member of the
Investment Advisory Committee (see "Committees", below). Mr. Samson served as a
consultant to various securities firms from 1981 to 1989. From 1974 to 1981 he
was Executive Vice President of Foster & Marshall, Inc., a New York Stock
Exchange member firm based in Seattle. Mr. Samson was a director of IEA from
1979 to 1981. From 1957 to 1984 he served as Chief Financial Officer in several
New York Stock Exchange member firms. Mr. Samson holds a B.S. in Business
Administration from the University of California, Berkeley and is a California
Certified Public Accountant.
Philip K. Brewer was President of TCC and TFS from January 1, 1998 to
December 31, 1998 until his appointment as Senior Vice President - Asset
Management Group. As President of TCC, Mr. Brewer was responsible for overseeing
the management of, and coordinating the activities of TCC and TFS. As Senior
Vice President, he is responsible for optimizing the capital structure of and
identifying new sources of finance for Textainer, as well as overseeing the
management of and coordinating the activities of Textainer's risk management,
logistics and the resale divisions. Mr. Brewer is a member of the Equipment
Investment Committee, the Credit Committee and was a member of the Investment
Advisory Committee through December 31, 1998 (see "Committees" below). Prior to
joining Textainer in 1996, 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.
Wolfgang Geyer is based in Hamburg, Germany and is Regional Vice
President - Europe/ Middle East/ Persian Gulf, responsible for coordinating all
leasing activities in these areas of operation. Mr. Geyer joined Textainer in
1993 and was the Marketing Director in Hamburg through July 1997. From 1991 to
1993, Mr. Geyer most recently was the Senior Vice President for Clou Container
Leasing, responsible for its worldwide leasing activities. Mr. Geyer spent the
remainder of his leasing career, 1975 through 1991, with Itel Container, during
which time he held numerous positions in both operations and marketing within
the company.
Mak Wing Sing is based in Singapore and is the Regional Vice President
- - South Asia, responsible for container leasing activities in North/Central
People's Republic of China, Hong Kong, South China (PRC), and Southeast Asia.
Mr. Mak most recently was the Regional Manager, Southeast Asia, for Trans Ocean
Leasing, working there from 1994 to 1996. From 1987 to 1994, Mr. Mak worked with
Tiphook as their Regional General Manager, and with OOCL from 1976 to 1987 in a
variety of positions, most recently as their Logistics Operations Manager.
Masanori Sagara is based in Yokohama, Japan and is the Regional Vice
President - North Asia, responsible for container leasing activities in Japan,
Korea, and Taiwan. Mr. Sagara joined Textainer in 1990 and was the company's
Marketing Director in Japan through 1996. From 1987 to 1990, he was the
Marketing Manager at IEA. Mr. Sagara's other experience in the container leasing
business includes marketing management at Genstar from 1984 to 1987 and various
container operations positions with Thoresen & Company from 1979 to 1984. Mr.
Sagara holds a Bachelor of Science degree in Economics from Aoyama Bakuin
University.
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 - 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.
Ernest J. Furtado is Vice President - Finance and Assistant Secretary
of TGH, TL, TEM, TCC and TFS and a Director of TCC and TFS, in which capacity he
is responsible for all accounting, financial management, and reporting functions
for TGH, TL, TEM, TCC and TFS. Additionally, he is a member of the Equipment
Investment Committee and the Investment Advisory Committee for which he serves
as Secretary (see "Committees", below). 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.
Brian Anderson is Vice President of Information Systems. In this
capacity, he is responsible for the worldwide information systems of Textainer.
He has been in the container industry since 1991 and has more than 15 years of
Information Systems/Information Technology experience. Prior to joining
Textainer in 1994, Mr. Anderson was the Vice-President of Information Systems
for Trans-Ocean Leasing Corporation from 1991 to 1994. Mr. Anderson is a
Certified Public Accountant and in the past has been technology consultant with
Price Waterhouse and several Silicon Valley startups. Mr. Anderson holds
Bachelors degrees in Philosophy and English and Masters degrees in Information
Technology and Accounting.
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 Vice
President - Logistics Division, responsible for coordinating container
logistics. He joined Textainer in 1993 as Regional Vice President -
Americas/Africa/Australia, responsible for coordinating all leasing activities
in North and South America, Africa and Australia/New Zealand. Mr. Palludan spent
his career from 1969 through 1992 with Maersk Line of Copenhagen, Denmark in a
variety of key management positions in both Denmark and overseas. Mr. Palludan's
most recent position was that of General Manager, Equipment and Terminals, where
he was responsible for a fleet of over 200,000 TEUs. Mr. Palludan holds an
M.B.A. from the Centre European D'Education Permanente, Fontainebleau, France.
Sheikh Isam K. Kabbani is a director of TGH and TL. He is Chairman and
principal stockholder of the IKK Group, Jeddah, Saudi Arabia, a manufacturing
and trading group which is active both in Saudi Arabia and internationally. In
1959 Sheikh Isam Kabbani joined the Saudi Arabian Ministry of Foreign Affairs,
and in 1960 moved to the Ministry of Petroleum for a period of ten years. During
this time he was seconded to the Organization of Petroleum Exporting Countries
(OPEC). After a period as Chief Economist of OPEC, in 1967 he became the Saudi
Arabian member of OPEC's Board of Governors. In 1970 he left the ministry of
Petroleum to establish his own business, the National Marketing Group, which has
been his principal business activity for the past 18 years. Sheikh Kabbani holds
a B.A. degree from Swarthmore College, Pennsylvania, and an M.A. degree in
Economics and International Relations from Columbia University.
James A. C. Owens is a director of TGH and TL. Mr. Owens has been
associated with the Textainer Group since 1980. In 1983 he was appointed to the
Board of Textainer Inc., and served as President of Textainer Inc. from 1984 to
1987. From 1987 to 1998, Mr. Owens served as an alternate director on the Boards
of TI, TGH and TL. Apart from his association with the Textainer Group, Mr.
Owens has been involved in insurance and financial brokerage companies and
captive insurance companies. He is a member of a number of Boards of Directors.
Mr. Owens holds a Bachelor of Commerce degree from the University of South
Africa.
S. Arthur Morris is a director of TGH, TEM and TL. He is a founding
partner in the firm of Morris and Kempe, Chartered Accountants (1962-1977) and
currently functions as a correspondent member of a number of international
accounting firms through his firm Arthur Morris and Company (1978 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.
Cara D. Smith is a member of the Investment Advisory Committee (see
"Committees", below). Ms. Smith was the President and Chief Executive Officer of
TCC Securities Corporation through June 1997 and a director of TCC and TFS
through August 1997. Ms. Smith joined Textainer in 1992, and prior to 1996, was
Vice President of Marketing. Ms. Smith has worked in the securities industry for
the past 13 years. Ms. Smith's extensive experience ranges from compliance and
investor relations to administration and marketing of equipment leasing,
multi-family housing and tax credit investment programs. She holds five
securities licenses and is a registered principal. Ms. Smith is also a member of
the International Association of Financial Planners.
Nadine Forsman is the Controller of TCC and TFS. Additionally, she is a
member of the Investment Advisory Committee (See "Committees" below). As
Controller for 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 this function. Prior to joining Textainer in August 1996, Ms. Forsman
was employed by KPMG Peat Marwick LLP, holding various positions, the most
recent of which was manager, from 1990 to 1996. Ms. Forsman holds a B.S. in
Accounting and Finance from San Francisco State University and holds a general
securities license and a financial and operations principal securities license.
Committees
The Managing General Partner has established the following three committees to
facilitate decisions involving credit and organizational matters, negotiations,
documentation, management and final disposition of equipment for the Partnership
and for other programs organized by the Textainer Group:
Equipment Investment Committee. The Equipment Investment Committee
will review the equipment leasing programs of the Partnership on a regular basis
with emphasis on matters involving equipment purchases, the equipment mix in the
Partnership's portfolio, equipment remarketing issues, and decisions regarding
ultimate disposition of equipment. The members of the committee are John A.
Maccarone (Chairman), James E. Hoelter, John R. Rhodes, Anthony C. Sowry,
Richard G. Murphy (Secretary), Alex M. Brown, Philip K. Brewer, Robert D.
Pedersen and Ernest J. Furtado.
Credit Committee. The Credit Committee will establish credit limits
for every lessee and potential lessee of equipment and periodically review these
limits. In setting such limits, the Credit Committee will consider such factors
as customer trade routes, country, political risk, operational history, credit
references, credit agency analyses, financial statements, and other information.
The members of the Credit Committee are John A. Maccarone (Chairman), Richard G.
Murphy (Secretary), Janet S. Ruggero, John R. Rhodes, Anthony C. Sowry, Philip
K. Brewer and Robert D. Pedersen.
Investment Advisory Committee. The Investmen Advisory Committee
will review investor program operations on at least a quarterly basis,
emphasizing matters related to cash distributions to investors, cash flow
management, portfolio management, and liquidation. The Investment Advisory
Committee is organized with a view to applying an interdisciplinary approach,
involving management, financial, legal and marketing expertise, to the analysis
of investor program operations. The members of the Investment Advisory Committee
are John A. Maccarone (Chairman), James E. Hoelter, Cara D. Smith, Ernest J.
Furtado (Secretary), John R. Rhodes, 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 TCC, 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 interest in the Registrant.
(b) Security Ownership of Management
As of January 1, 1999:
Number
Name of Beneficial Owner Of Units % All Units
-------- -----------
Ernest J. Furtado 600 0.0135%
James E. Hoelter 1,370 0.0308%
----- ------
Officers and Management as a Group 1,970 0.0443%
===== ======
(c) Changes In Control.
Inapplicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 1998 and 1997 due from (to) affiliates is comprised of:
1998 1997
---- ----
Due from affiliates:
Due from TEM...................................... $ 558 $ 14
==== ====
Due to affiliates:
Due to TL......................................... $ 5 $ 338
Due to TCC........................................ 8 49
Due to TAS........................................ - 39
---- ----
$ 13 $ 426
==== ====
Included in the amount due to TL at December 31, 1997 is $318 in loans
used to facilitate container purchases. The loan was repaid in full on
March 31, 1998. All other amounts receivable from and payable to
affiliates were incurred in the ordinary course of business between the
Partnership and its affiliates and represent timing differences in the
accrual and remittance of expenses and fees and in the accrual and
remittance of net rental revenues from TEM.
It is the policy of the Partnership and the General Partners to charge
interest on amounts due to the General Partners which are outstanding
for more than one month, to the extent such balances relate to loans
for container purchases. Interest is charged at a rate not greater than
the General Partners' or affiliates' own cost of funds. The Partnership
incurred $7 and $3 of interest expense on amounts due to the General
Partners for the years ended December 31, 1998 and 1997, respectively.
There was no interest charged on amounts due to the General Partners
for the year ended December 31, 1996.
In addition, the Registrant paid or will pay the following amounts to
the General Partners, TAS and TSC:
Syndication fees and organization and offering expense reimbursements:
1998 1997 1996
---- ---- ----
TCC................... $ - $ - $ 272
TSC................... - - 2,281
------ ----- -----
Total................. $ - $ - $ 2,553
====== ===== =====
Acquisition fees in connection with the purchase of containers on
behalf of the Registrant:
1998 1997 1996
---- ---- ----
TAS.................. $ 1 $ 68 $ 478
TEM.................. 16 - -
---- ---- ----
$ 17 $ 68 $ 478
==== ==== ====
Management fees in connection with the operations of the Registrant:
1998 1997 1996
---- ---- ----
TEM.................. $1,315 $1,328 $1,305
===== ===== =====
Reimbursement for administrative costs in connection with the
operations of the Registrant:
1998 1997 1996
---- ---- ----
TEM.................. $ 700 $ 761 $ 744
TCC.................. 73 99 118
------ ------ ------
Total................ $ 773 $ 860 $ 862
====== ====== ======
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Management" and "Compensation of the General Partners and Affiliates"
sections of the Registrant's Prospectus, as supplemented, and the Notes to the
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, 1998 are contained in Item 8 of this
Report.
2. Financial Statement Schedules.
(i) Independent Auditors' Report on Supplementary
Financial 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. 3 to the Registrant's
Registration Statement (No. 33-71944), as filed with
the Commission on April 8, 1994, as supplemented by
Post Effective Amendment No. 2 as filed under Section
8(c) of the Securities Exchange Act of 1933 on May 5,
1996 and Supplement No. 5 as filed under Rule 424(b)
of the Securities Exchange Act of 1933 on March 18,
1996.
(ii) The Registrant's limited partnership agreement,
Exhibit A to the Prospectus.
(b) During the year ended 1998, no reports on Form 8-K have been filed by the
Registrant.
Independent Auditors' Report on Supplementary Schedule
The Partners
Textainer Equipment Income Fund V, L.P.:
Under the date of February 19, 1999, we reported on the balance sheets of
Textainer Equipment Income Fund V, L.P. (the Partnership) as of December 31,
1998 and 1997, and the related statements of earnings, partners' capital and
cash flows for each of the years in the three-year period ended December 31,
1998, which are included in the 1998 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 19, 1999
TEXTAINER EQUIPMENT INCOME FUND V, 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, 1998:
Allowance for doubtful accounts $ 387 $ 5 $ - $ (39) $ 353
------ ----- -------- ------- -----
Recovery cost reserve $ 89 $ 178 $ - $ (135) $ 132
------ ----- -------- ------- -----
Damage protection plan reserve $ 340 $ 331 $ - $ (274) $ 397
------ ----- -------- ------- -----
For the year ended December 31, 1997:
Allowance for doubtful accounts $ 269 $ 116 $ 2 $ - $ 387
------ ----- -------- ------- -----
Recovery cost reserve $ 54 $ 182 $ - $ (147) $ 89
------ ----- -------- ------- -----
Damage protection plan reserve $ 361 $ 248 $ - $ (269) $ 340
------ ----- -------- ------- -----
For the year ended December 31, 1996:
Allowance for doubtful accounts $ 151 $ 128 $ - $ (10) $ 269
------ ----- -------- ------- -----
Recovery cost reserve $ 4 $ 179 $ - $ (129) $ 54
------ ----- -------- ------- -----
Damage protection plan reserve $ 232 $ 384 $ - $ (255) $ 361
------ ----- -------- ------- -----
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 V, L.P.
A California Limited Partnership
By Textainer Capital Corporation
The Managing General Partner
By_______________________________
John R. Rhodes
Executive Vice President
Date: March 29, 1999
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 Capital
Corporation, the Managing General Partner of the Registrant, in the capacities
and on the dates indicated:
Signature Title Date
______________________ Executive Vice President March 29, 1999
John R. Rhodes (Principal Financial and
Accounting Officer), Secretary
and Director
______________________ President (Principal Executive March 29, 1999
John A. Maccarone Officer) and Director
______________________ Vice President, Finance, March 29, 1999
Ernest J. Furtado Assistant Secretary and Director
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 V, L.P.
A California Limited Partnership
By Textainer Capital Corporation
The Managing General Partner
By /s/John R. Rhodes
_______________________________
John R. Rhodes
Executive Vice President
Date: March 29, 1999
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 Capital
Corporation, the Managing General Partner of the Registrant, in the capacities
and on the dates indicated:
Signature Title Date
/s/John R. Rhodes Executive Vice President March 29, 1999
______________________ (Principal Financial and
John R. Rhodes Accounting Officer), Secretary
and Director
/s/John A. Maccarone President (Principal Executive March 29, 1999
______________________ Officer) and Director
John A. Maccarone
/s/Ernest J. Furtado Vice President, Finance March 29, 1999
______________________ Assistant Secretary and Director
Ernest J. Furtado