.
TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 25, 1997
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund II,
L.P. (the "Partnership") the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
The financial statements included in the enclosed Annual Report on Form 10K 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
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-19145
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(Exact name of Registrant as specified in its charter)
California 94-3097644
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
650 California Street, 16th Floor, San Francisco, CA 94108
(Address of Principal Executive Offices) (ZIP Code)
(415) 434-0551
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY UNITS (THE "UNITS")
(TITLE OF CLASS)
LIMITED PARTNERSHIP INTERESTS (UNDERLYING THE UNITS)
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and ask prices of such
stock, as of a specified date within 60 days prior to the date of the filing.
Not Applicable.
Documents Incorporated by Reference
The Registrant's Prospectus as contained in Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement, as filed with the Commission on November 3,
1989 as supplemented by Post-Effective Amendment No. 2 filed with the Commission
under Section 8(c) of the Securities Act of 1933 on December 11, 1990.
<PAGE>
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 as of July
11, 1989 to purchase, own, operate, lease, and sell equipment (the
Equipment) used in the containerized cargo shipping industry. The
Registrant commenced offering units representing limited partnership
interests (Units) to the public on November 8, 1989 in accordance with
its Registration Statement and ceased to offer such Units as of January
15, 1991. The Registrant raised a total of $75,000,000 from the
offering.
See Item 10 herein for a description of the Registrant's General
Partners.
(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. Buying the cars at fleet prices and selling them
in the secondary market are also key elements to the
successful operation of a rental car business.
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. In addition to paying a daily rental rate, all lessees
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, special
handling fees and/or drop-off charges may also be charged in
certain markets. Container leasing companies compete with one
another on the basis of lease rates, availability of equipment
and services provided. Revenues and profits are generated by
maintaining the highest lease rates and the highest equipment
utilization factors allowed by market conditions. Rental
revenues from containers result primarily under master leases
which are comparable to the corporate rate agreements used by
rental car companies. The master leases provide that container
leasing customers, 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 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 Partnership's Equipment, see "Leasing
Policy" under "Business of the Partnership" in the
Registrant's Prospectus as supplemented. Rental car companies
usually purchase only new cars, but since containers are
completely standardized, a used container in serviceable
condition usually rents for the same rate as a new one
although the purchase price is lower. 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 rental billing for the year ended
December 31, 1996 which was 10% or more of the total rental
billing of the Registrant.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) There are approximately 80 container leasing companies
of which the top ten control approximately 93% of the total
equipment held by all container leasing companies. The top
two container leasing companies control approximately 28%
each 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 controls approximately 9% 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 and the provision of worldwide
service to the international shipping community. Additionally,
shipping alliances and other operational consolidations
among shipping lines have recently allowed shipping lines
to operate with fewer containers, thereby decreasing the
demand for leased containers. Competition among lessors such
as the Registrant has, therefore, increased.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant has no employees. Textainer Financial Services
Corporation (TFS), the Managing General Partner of the
Registrant, is responsible for the overall management of the
business of the Registrant and has 26 employees. Textainer
Equipment Management Limited (TEM), an Associate General
Partner, is responsible for the management of the leasing
operations of the Registrant and has a total of 138 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 13.67%, 11.93% and 15.20% of the Registrant's rental
revenue during the years ended December 31, 1996, 1995 and 1994,
respectively, was derived from operations sourced or terminated
domestically. These percentages do not reflect the proportion of the
Partnership's income from operations generated 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 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, 1996, the Registrant owned the following types and quantities
of equipment:
<TABLE>
<CAPTION>
<S> <C> <C>
20-foot standard dry freight containers 10,085
20-foot refrigerated containers 347
40-foot standard dry freight containers 5,377
40-foot high cube dry freight containers 2,207
-------
18,016
</TABLE>
During December 1996, approximately 76% of these shipping containers were on
lease to international shipping companies and the balance were being stored at
shipping container manufacturers' locations and at a large number of storage
depots located worldwide.
For further 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
(a) Market Information.
(a)(1)(i) The units of limited partnership in the Registrant 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.
(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, 1997 there were 4,860 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 6 - SELECTED FINANCIAL DATA
(Dollar amounts in thousands except for per unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental Income..................... $ 11,613 13,232 13,193 13,690 15,989
Net Earnings...................... $ 2,806 4,579 4,166 3,173 4,268
Net Earnings Per Unit
of Limited Partnership
Interest........................ $ 0.74 1.21 1.10 0.82 1.11
Distributions Per Unit
of Limited Partnership
Interest........................ $ 1.60 1.60 1.60 2.13 2.42
Distributions Per Unit
of Limited Partnership
Interest representing a
return of capital.............. $ 0.86 0.39 0.50 1.31 1.31
Total Assets...................... $ 46,510 49,998 51,393 55,675 61,146
Outstanding Balance on
Revolving Credit Line............. $ - - - 2,400 -
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar 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, 1996,
1995, and 1994. Please refer to the Financial Statements and Notes thereto in
connection with the following discussion.
Liquidity and Capital Resources
From November 8, 1989 until January 15, 1991, the Partnership was involved in
the offering of limited partnership interests to the public. The Partnership
received its minimum subscription amount of $1,000 on December 19, 1989, and on
January 15, 1991 the Partnership had received its maximum subscription amount of
$75,000.
The Partnership has set up a program whereby limited partners may redeem units
for a specified redemption value. The redemption price is set by formula and
varies depending on length of time units are outstanding. 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, 1996 the
Partnership redeemed 1,771 units for a total dollar amount of $16. The
Partnership has used cash flow from operations to pay for the redeemed units.
The Partnership invests working capital and cash flow from operations prior to
its distribution or reinvestment in additional equipment in short-term, highly
liquid investments. It is the policy of the Partnership to maintain a minimum
working capital reserve in an amount which is the lesser of (i) 1% of capital
contributions or (ii) $100. At December 31, 1996, the Partnership's cash of
$1,655 was invested primarily in a market-rate account.
During the year ended December 31, 1996, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1995
through November 1996, in the amount of $5,965. These distributions represent 8%
of original capital (measured on an annualized basis) on each unit. Of these
distributions, on a GAAP basis, $3,222 was a return of capital and the balance
was from net earnings. On a cash basis, all of these distributions were from
operations.
At December 31, 1996, the Partnership had committed to purchase Equipment at an
approximate total purchase price of $25 which includes acquisition fees of $1.
The Partnership expects to fund the purchase of Equipment with its cash on hand.
In the event the Partnership decides not to purchase the Equipment, one of the
General Partners or its affiliates will retain the Equipment for its own
account.
For the year ended December 31, 1996, the Partnership had net cash provided by
operating activities of $8,849, compared with net cash provided by operating
activities of $9,678 for the year ended December 31, 1995. This decrease was
primarily attributable to decreases in net earnings, warranty claims and
allowance for doubtful accounts, slightly offset by a decrease in due from
affiliates, net. Net earnings decreased 39% in 1996 from 1995 due to a 12%
decrease in rental revenues and a 1% increase in direct container expenses. The
decrease in rental revenues between periods was due to a decline in utilization,
rental rates and fleet size. The increase in direct container expenses between
periods was primarily due to a decline in utilization. The decline in warranty
claims is due to a settlement against an equipment manufacturer which was
recorded in 1995. The decrease in allowance for doubtful accounts is due to
lower reserve requirements for a specific lessee as a result of a resolution of
prior period payment problems. Decrease in due from affiliates, net is due to
timing differences in the accrual and payment of expenses and fees or in the
accrual and remittance of net rental revenues.
Certain factors have adversely affected and may continue to adversely affect the
Partnership's operations. Shipping lines, which are the Partnership's principal
lessees, continue to experience over-capacity which is directly related to: (i)
the delivery of new and much larger ships and, (ii) a general slow-down in the
growth of world containerized cargo trade. This over-capacity has led to lower
shipping rates, resulting in shipping lines' need to reduce operating costs. The
drive to reduce costs, coupled with the availability of inexpensive financing
and lower container prices, encouraged shipping lines to purchase, rather than
lease, a greater number of new containers in 1996 than in previous years. All of
these factors have led to: (i) a downward pressure on container lease rates;
(ii) an increase in leasing incentives and other discounts being granted to
shipping lines by container lessors; and (iii) a decline in utilization of
leased containers. Declining container utilization is discussed more fully below
under "Results of Operations".
Net cash used in investing activities (the purchase and sale of Equipment) for
the year ended December 31, 1996 was $1,583 compared with $3,685 for the year
ended December 31, 1995. This difference is primarily due to the fact that, on a
cash basis, the Partnership purchased less Equipment in 1996 than in the same
period in 1995. The Partnership has used Equipment in its portfolio and expects
to sell this Equipment periodically when it reaches the end of its useful marine
life. Consistent with its investment objectives and the General Partners'
determination that Equipment can be profitably sold or bought at any time, the
Partnership intends to reinvest all or a significant amount of proceeds from
future Equipment sales in additional Equipment.
Results of Operations
The Partnership's income from operations, which consists of rental income,
container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses were directly related to the size of
the container fleet ("inventory") during the years ended December 31, 1996, 1995
and 1994. The following is a summary of the size of the container fleet (in
units) available for lease during those periods:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Opening inventory................... 18,650 18,522 19,926
Closing inventory................... 18,016 18,650 18,522
Average............................. 18,333 18,586 19,224
</TABLE>
The decline in the average inventory of 1.4% and 3.3% from 1995 to 1996 and 1994
to 1995, respectively, was due, primarily, to the sale of a higher proportion of
used Equipment which generally resulted in lower proceeds available for
reinvestment. To the extent proceeds from the sale of the Equipment were
reinvested in additional Equipment, the proceeds generally bought fewer units
than those sold, resulting in a net decrease in the size of the Equipment fleet.
Moreover, the decline in the container fleet contributed to an overall decline
in rental income from 1995 to 1996 and 1994 to 1995. These factors resulted in a
slower rate of reinvestment than had been expected by the General Partners and
which is currently expected to continue.
Rental income and direct container expenses are also affected by lease
utilization percentages for the equipment which were 81%, 91% and 90% on average
during the years ended December 31, 1996, 1995 and 1994, respectively. In
addition, rental income is affected by daily rental rates.
The following is a comparative analysis of the results of operations for the
years ended December 31, 1996, 1995 and 1994.
The Partnership's income from operations for the years ended December 31, 1996
and 1995 was $2,471 and $4,210, respectively, on total rental income of $11,613
and $13,232, respectively. The largest component of total rental income is
income from container rentals, which decreased by $1,471, or 13%, from 1995 to
1996. Income from container rentals is largely dependent on three factors:
equipment available for lease (average inventory), average on-hire (utilization)
percentage, and average daily rental rates. Average on-hire utilization
decreased 11%, average fleet size decreased 1.3% and average daily rental rates
increased 1.3%.
The Partnership's income from operations for the years ended December 31, 1995
and 1994 was $4,210 and $3,984, respectively, on total rental income of $13,232
and $13,193, respectively. The largest component of total rental income is
income from container rentals, which decreased by $86, or 0.7%, from 1994 to
1995. This decrease was primarily due to a 3% decrease in average fleet size,
offset by a slight increase in utilization of 1% and a 1.4% increase in the
average daily rental rate.
Container utilization began to decline in late 1995 and that decline has
persisted throughout 1996 and into 1997. The General Partners believe that this
decrease in demand for leased containers is the result of recent adverse changes
in the business of its shipping line customers. These changes consist
principally of: (i) a general slowdown in the growth of world containerized
cargo trade, particularly in the Asia-North America and Asia-Europe trade
routes; (ii) over-capacity resulting from the 1996 and 1997 additions of new,
larger ships to the existing container ship fleet at a rate in excess of the
growth rate in containerized cargo trade; (iii) shipping line alliances and
other operational consolidations that have allowed shipping lines to operate
with fewer containers thereby decreasing the demand for leased containers; and
(iv) as noted above, shipping lines' purchased, rather than leased a greater
number of containers. All of these factors have led to lower utilization of
leased containers, which in turn has led to downward pressure on container
rental rates and higher leasing incentives and other discounts for leased
containers, further eroding Partnership profitability. For the near term, the
General Partners do not foresee any changes in this outlook and caution that
both utilization and lease rates could continue to decline, adversely affecting
the Partnership's operating results.
Substantially all of the Partnership's rental income was generated from the
leasing of the Partnership's Equipment under short-term operating leases. There
were fourteen direct financing leases at December 31, 1996, seven direct
financing leases at December 31, 1995 and six direct financing leases at
December 31, 1994.
The balance of rental income consists of other lease-related items, primarily
income from charges to the lessees for pick-up of containers from prime
locations less credits granted to lessees for leasing containers from less
desirable locations (location income), income from charges to the lessees under
a damage protection plan and income for handling and returning containers. For
the year ended December 31, 1996, the total of these other rental income items
was $1,381, a decrease of $148 from the equivalent period in 1995. The primary
component of this net decrease in other rental revenues was due to a decrease in
location income of $234. The decrease in location income is largely due to lower
demand, which drove drop-off charges to lessees down and increased credits to
lessees for picking up units at less desirable locations.
For the year ended December 31, 1995, the total of these other rental income
items increased by $125 over the equivalent period in 1994. The primary
component of this net increase in other rental revenues was due to an increase
in location income of $269, which was largely due to higher demand, resulting in
fewer pick-up incentives granted, higher pick-up charges on new units and higher
drop-off charges on returned units.
Direct container expenses (excluding bad debt expense) decreased by $90 for the
year ended December 31, 1996, compared to the year ended December 31, 1995. The
decrease was primarily due to decreases in damage protection plan expense and
maintenance expense which decreased $120 and $112, respectively, between
periods. The decrease was reduced by by an increase in storage expense of $338.
Accrued maintenance expenses and expenses accrued under the damage protection
plan decreased due to the decrease in the average repair cost for units returned
by lessees for repairs. The increase in storage expense was primarily due to
lower utilization for the year ended December 31, 1996, compared to the same
period in 1995.
Direct container expenses (excluding bad debt expense) increased by $61 for the
year ended December 31, 1995, compared to the comparable period in 1994. The
major component of this increase was expense associated with the damage
protection plan, which increased by $117. Repair expenses accrued under the
damage protection plan increased due to the increase in the average repair cost
for units returned by lessees.
Bad debt expense decreased from an expense of $512 from the year ended December
31, 1995, to a benefit of $97 in the same period in 1996. The benefit recorded
in 1996 was primarily due to a reduction in reserve requirements for a specific
lessee as a result of a resolution of prior period payment problems with that
lessee during 1996.
Bad debt expense decreased by $5 from the year ended December 31, 1994, to the
same period in 1995. Despite lower reserve requirements in 1995 for a specific
lessee which required reserves in 1994, bad debt expense improved only slightly
due to additional reserves required for another lessee in 1995. As noted above,
payment problems associated with this lessee were resolved in 1996.
Depreciation expense (excluding write down of $1,421) decreased by $251, or 6%
from December 31, 1995, to the same period in 1996, and decreased by $250, or
6%, from the year ended December 31, 1994, to the same period in 1995,
reflecting the Partnership's decreased average fleet size of 1.4% and 3.3%,
respectively. The decline from 1995 to 1996 is also attributable to certain
equipment, acquired used, which has now been fully depreciated.
In the fourth quarter of 1996, a pretax charge of $1,421 was recorded to write
down the value of the refrigerated containers owned by the Partnership. The
carrying value of these refrigerated containers was written down to an amount
equal to the estimated future discounted cash flows from these containers and
the charge was included in depreciation expense.
Management fees to affiliates as a percentage of gross revenue were 9.1% and
8.7% for the years ended December 31, 1996 and 1995, respectively. Incentive
management fees, which are based on the Partnership's distributions to the
limited and general partners, were 2.2% and 1.9% of gross revenue in the years
ended December 31, 1996 and 1995. Equipment management fees were 7% of gross
revenue for both periods.
Management fees to affiliates as a percentage of gross revenue were 8.7% and
8.9% for the years ended December 31, 1995 and 1994, respectively. Incentive
management fees increased to 2.2% from 1.9% of gross revenue in the years ended
December 31, 1995 and 1994. Equipment management fees were 7% of gross rental
income for both periods.
General and administrative costs to affiliates decreased by 33%, or $329, in the
year ended December 31, 1996, compared to the same period in 1995, primarily due
to a decline in overhead costs allocated from TEM during these periods. General
and administrative costs to affiliates decreased by 2%, or $23, in the year
ended December 31, 1995, compared to the same period in 1994, primarily due to a
3% decrease in the Partnership's container fleet during these periods.
Other income (expense) provided $335 of additional income for the year ended
December 31, 1996, representing a decrease of $34, or 9%, over the equivalent
period in 1995, and was due to a $52 decrease in gain on sales of Equipment,
reduced by by an $18 increase in interest income.
Other income (expense) provided $369 of additional income for the year ended
December 31, 1995, representing an increase of $187, or 103%, over the
equivalent period in 1994 and was primarily attributable to a $130 increase in
gain from sales of Equipment, in part due to the sale of the storage fleet in
1995, and a $43 decrease in interest expense due to the repayment of the credit
facility.
Net earnings per limited partnership unit decreased from $1.21 to $0.74 per unit
from the year ended December 31, 1995 to the year ended December 31, 1996,
reflecting the decrease in net earnings from $4,579 for the year ended December
31, 1995 to $2,806 for the same period in 1996.
Net earnings per limited partnership unit increased from $1.10 to $1.21 per unit
from the year ended December 31, 1994 to the same period in 1995, reflecting the
increase in net earnings from $4,166 for the year ended December 31, 1994 to
$4,579 for the same period in 1995.
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 Equipment. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep the Equipment under lease, rather than the geographic location
of the Equipment or the domicile of the lessees. The Equipment is generally
operated on the international high seas rather than on the domestic waterways.
The Equipment is subject to the risk of war or other political, economic or
social occurrence where the Equipment is used, which may result in the loss of
Equipment, 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, 1996 which would result in such risk
materializing.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning Equipment after it comes off-lease, the risk of an
uninsured loss, increases in maintenance expenses or other costs of operating
the Equipment, 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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached pages 11 to 24.
<PAGE>
Independent Auditors' Report
The Partners
Textainer Equipment Income Fund II, L.P.:
We have audited the accompanying balance sheets of Textainer Equipment Income
Fund II, L.P. (a California limited partnership) as of December 31, 1996 and
1995, and the related statements of earnings, partners' capital and cash flows
for the years ended December 31, 1996, 1995 and 1994. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Textainer Equipment Income Fund
II, L.P. as of December 31, 1996 and 1995, and the results of its operations,
its partners' capital, and its cash flows for the years ended December 31, 1996,
1995 and 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 17, 1997
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California limited partnership)
Balance Sheets
December 31, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $21,660 (1995: $19,588) $ 39,408 42,977
Cash 1,655 489
Net investment in direct financing leases (note 4) 695 1,141
Accounts receivable, net of allowance
for doubtful accounts of $1,073 (1995: $1,303) 3,126 3,478
Due from affiliates, net (note 2) 1,601 1,888
Prepaid expenses 25 25
--------------- ---------------
$ 46,510 49,998
=============== ===============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 314 262
Accrued liabilities 168 224
Accrued damage protection plan costs (note 1) 263 321
Warranty claims (note 1) 812 1,026
Equipment purchases payable 426 400
--------------- ---------------
Total liabilities 1,983 2,233
--------------- ---------------
Partners' capital:
General partners (90) (90)
Limited partners 44,617 47,855
--------------- ---------------
Total partners' capital 44,527 47,765
--------------- ---------------
Commitments (note 9) $ 46,510 49,998
=============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California limited partnership)
Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
(Dollar amounts in thousands except for unit and per unit amounts)
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- ---------------
<S> <C> <C> <C>
Rental Income $ 11,613 13,232 13,193
-------------- --------------- ---------------
Costs and expenses:
Direct container expenses 1,857 1,947 1,886
Bad debt (benefit) expense (97) 512 517
Depreciation and amortization 3,979 4,230 4,480
Write-down of equipment (note 8) 1,421 - -
Professional fees 48 37 28
Management fees to affiliates (note 2) 1,060 1,145 1,177
General and administrative costs to affiliates (note 2) 665 994 1,017
Other general and administrative costs 209 157 104
-------------- --------------- ---------------
9,142 9,022 9,209
-------------- --------------- ---------------
Income from operations 2,471 4,210 3,984
-------------- --------------- ---------------
Other income (expense):
Interest income 54 36 22
Interest expense - - (43)
Gain on sale of equipment (note 7) 281 333 203
-------------- --------------- ---------------
335 369 182
-------------- --------------- ---------------
Net earnings $ 2,806 4,579 4,166
============== =============== ===============
Allocation of net earnings (note 1):
General partners $ 63 78 61
Limited partners 2,743 4,501 4,105
-------------- --------------- ---------------
$ 2,806 4,579 4,166
============== =============== ===============
Limited partners' per unit share
of net earnings $ 0.74 1.21 1.10
============== =============== ===============
Limited partners' per unit share
of distributions $ 1.60 1.60 1.60
============== =============== ===============
Weighted average number of limited
partnership units outstanding 3,728,358 3,734,955 3,748,696
============== =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California limited partnership)
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
<TABLE>
<CAPTION>
Partners' Capital
----------------------------------------------------------
General Limited Total
------------- ---------------- ---------------
<S> <C> <C> <C>
Balances at December 31, 1993 $ (90) 51,468 51,378
Distributions (61) (5,995) (6,056)
Redemptions (note 1) - (120) (120)
Net earnings 61 4,105 4,166
------------- ---------------- ---------------
Balances at December 31, 1994 (90) 49,458 49,368
------------- ---------------- ---------------
Distributions (78) (5,975) (6,053)
Redemptions (note 1) - (129) (129)
Net earnings 78 4,501 4,579
------------- ---------------- ---------------
Balances at December 31, 1995 (90) 47,855 47,765
------------- ---------------- ---------------
Distributions (63) (5,965) (6,028)
Redemptions (note 1) - (16) (16)
Net Earnings 63 2,743 2,806
------------- ---------------- ---------------
Balances at December 31, 1996 $ (90) 44,617 44,527
============= ================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California limited partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------------- -------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,806 4,579 4,166
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation, equipment write-down and amortization 5,400 4,230 4,480
(Decrease) increase in allowance for doubtful accounts (230) 274 432
Gain on sale of equipment (281) (333) (203)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 495 158 (913)
Proceeds from principal payments on direct financing leases 440 356 219
Decrease in accounts payable and accrued liabilities (1) (63) (208)
(Decrease) increase in accrued damage protection plan costs (58) 102 (120)
(Decrease) increase in warranty claims (214) 371 (140)
Decrease (increase) in due from affiliates, net 492 2 (403)
Decrease (increase) in prepaid expenses - 2 (4)
------------- -------------- --------------
Net cash provided by operating activities 8,849 9,678 7,306
------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of equipment 2,105 2,157 1,903
Equipment purchases (3,688) (5,842) (1,769)
------------- -------------- --------------
Net cash (used in) provided by investing activities (1,583) (3,685) 134
------------- -------------- --------------
Cash flows from financing activities:
Decrease in note payable - - (2,400)
Redemptions of limited partnership units (16) (129) (120)
Distributions to partners (6,084) (6,010) (6,056)
------------- -------------- --------------
Net cash used in financing activities (6,100) (6,139) (8,576)
------------- -------------- --------------
Net increase (decrease) in cash 1,166 (146) (1,136)
Cash at beginning of period 489 635 1,771
------------- -------------- --------------
Cash at end of period $ 1,655 489 635
============= ============== ==============
Interest paid during the period $ - - 43
============= ============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
Textainer Equipment Income Fund II, L.P.
(a California limited partnership)
Statements of Cash Flows--Continued
Years ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of Equipment purchases, distributions
to partners, and proceeds from sale of Equipment which had not been paid or
received by the Partnership as of December 31, 1996, 1995, 1994 and 1993,
resulting in differences in amounts recorded and amounts of cash disbursed or
received by the Partnership, as shown in the Statements of Cash Flows.
<TABLE>
<CAPTION>
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equipment purchase included in:
Due to affiliates............................. $ 27 85 27 6
Equipment purchases payable................... 426 400 599 -
Distributions to partners included in:
Due to affiliates............................. 10 63 17 15
Accounts payable and accrued liabilities...... 77 80 83 85
Proceeds from sale of Equipment included in:
Due from affiliates........................... 498 404 346 301
Accounts receivable........................... - 87 54 86
The following table summarizes the amounts of Equipment purchases, distributions
to partners, and proceeds from sale of Equipment recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
years ended December 31, 1996, 1995, and 1994.
1996 1995 1994
---- ---- ----
Equipment purchases recorded......................................... $ 3,656 5,701 2,389
Equipment purchases paid............................................. 3,688 5,842 1,769
Distributions to partners declared................................... 6,028 6,053 6,056
Distributions to partners paid....................................... 6,084 6,010 6,056
Proceeds from sale of Equipment recorded............................. 2,112 2,248 1,916
Proceeds from sale of Equipment received............................. 2,105 2,157 1,903
See accompanying notes to financial statements
</TABLE>
<PAGE>
Textainer Equipment Income Fund II, L.P.
(a California limited partnership)
Notes to Financial Statements--Continued
Notes to Financial Statements
Years ended December 31, 1996, 1995 and 1994
(Dollar amounts in thousands except for unit and per unit amounts)
Note 1 Summary of Significant Accounting Policies
(a) Nature of Operations
Textainer Equipment Income Fund II, L.P. (TEIF II or the Partnership), a
California Limited Partnership, was formed on July 11, 1989 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 (the Equipment). TEIF II offered units
representing limited partnership interests (Units) to the public until
January 15, 1991, the close of the offering period, when a total of
3,750,000 Units had been purchased for a total of $75,000.
Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership (prior to its name change on April 4, 1994, TFS
was know as Textainer Capital Corporation). TFS is a wholly-owned
subsidiary of Textainer Capital Corporation (TCC) (prior to its name
change on April 4, 1994, TCC was known as Textainer (Delaware) Inc.).
Textainer Equipment Management Limited (TEM) (prior to being redomiciled
on December 20, 1994, TEM was known as Textainer Equipment Management
N.V.) 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.
Textainer Acquisition Services Limited (TAS) is an affiliate of the
General Partners which performs services relative to the acquisition of
Equipment outside the United States on behalf of the Partnership. 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. The General Partners manage and control
the affairs of the Partnership.
(b) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recorded when earned according to the terms of the Equipment rental
contracts. These contracts are typically for a one-year term and are
classified as operating leases, or direct financing leases if they so
qualify under Statement on Financial Accounting Standards No. 13:
"Accounting for Leases". 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.
(c) Equipment
The Equipment is carried at the lower of cost of the assets purchased,
which includes acquisition fees, or the estimated recoverable value of
such assets. Depreciation of new equipment is computed using the
straight-line method over its estimated useful life of 12 years to a 28%
salvage value. Used equipment is depreciated based upon its 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 accounts and any resulting
gain or loss is recognized in income for the period.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of" (SFAS 121). The Partnership adopted
SFAS 121 during 1995. In accordance with SFAS 121, the Partnership
periodically reviews the carrying value of the Equipment to expected
future market conditions for the purpose of assessing the recoverability
of the recorded amounts. There were no reductions to the carrying value of
the Equipment during 1996 and 1995, except as described in note 8.
(d) 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. Once the Equipment is on-hire with a lessee,
the Partnership has no way of knowing its location. The domicile of the
lessee is not indicative of where the lessee is transporting the
Equipment. The Partnership's business risk in its foreign operations lies
with the creditworthiness of the lessees rather than the geographic
location of the Equipment or the domicile of the lessees.
For the years ended December 31, 1996, 1995 and 1994, no single lessee
accounted for more than 10% of the Partnership's revenues.
(e) Allocation of Net Earnings and Partnership Distributions
In accordance with the Partnership Agreement, net earnings or losses and
partnership distributions are allocated 1% to the General Partners and 99%
to the limited partners with the exception of gross income, as defined in
the Partnership agreement. Gross Income is allocated to the General
Partners to the extent that their partners' capital accounts deficits
exceed the portion of syndication and offering costs allocated to them. On
termination of the Partnership, the General Partners shall be allocated
gross income equal to their allocations of syndication and offering costs.
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 these distributions as an accrued liability
at December 31, 1996 and 1995.
(f) 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.
(g) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees are paid to
the General Partners or TAS equal to 5% of the Equipment purchase price
(see note 2). These fees are capitalized as part of the cost of the
Equipment.
(h) Damage Protection Plan
The Partnership offers a Damage Protection Plan (the Plan) to lessees of
its Equipment. Under the terms of the Plan, the Partnership earns
additional revenues on a daily basis and, as a result, has agreed to bear
certain repair costs. It is the Partnership's policy to recognize revenue
when earned and to provide a reserve sufficient to cover the Partnership's
obligation for estimated future repair costs. At December 31, 1996 and
1995, this reserve was equal to $263 and $321, respectively.
(i) Warranty Claims
During 1992, 1993 and 1995, the Partnership settled warranty claims
against an equipment manufacturer. The Partnership is amortizing the
settlement amounts over the remaining estimated useful lives of the
applicable equipment (between six and seven years), reducing maintenance
and repair costs over that time. At December 31, 1996 and 1995, the
unamortized portion of the settlement amounts was equal to $812 and
$1,026, respectively.
(j) 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, 1996, 1995 and 1994, which was
3,728,358, 3,734,955, and 3,748,696, respectively.
(k) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
<S> <C> <C> <C>
Year ended December 31, 1994:
2nd quarter................. 6,082 $12.26 $ 74
3rd quarter................. 3,500 $13.06 46
----- ----
9,582 $12.55 $120
===== ===
Year ended December 31, 1995:
1st quarter................. 4,287 $12.09 $ 52
3rd quarter................. 3,215 $10.76 35
4th quarter................. 4,042 $10.40 42
------- ----
11,544 $11.13 $129
====== ===
Year ended December 31, 1996:
1st quarter................. 250 $ 9.44 $ 2
3rd quarter................. 771 $ 9.12 7
4th quarter................. 750 $ 9.17 7
------ -----
1,771 $ 9.19 $ 16
===== ====
Partnership to date....................... 22,897 $ 11.56 $265
====== ===
</TABLE>
The redemption price is fixed by formula and varies depending on the
length of time the units have been outstanding.
(l) Fair Value of Financial Instruments
To meet the reporting requirements of Financial Accounting Standards Board
Statement 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, 1996 and 1995, the fair
value of the Partnership's financial instruments approximate the related
book value of such instruments.
(m) Reclassifications
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform with the 1996 financial statement
presentation.
Note 2. Transactions with Affiliates
During the offering period, the Partnership paid a managing sales agent
fee to TSC of up to 9% of the gross proceeds from the sale of limited
partnership units, from which TSC paid commissions to independent
participating broker/dealers who participated in the offering.
Additionally, the Partnership reimbursed the General Partners and TSC for
certain organizational and offering costs, incurred in connection with the
organization of the Partnership, up to a maximum of 6% of gross proceeds
raised as allowed in the Partnership Agreement. These amounts, which
totaled $9,023, were deducted as syndication and offering costs in the
determination of net limited partnership contributions. Organization
expenses, which resulted from the formation of the Partnership, were
capitalized as organization costs and were fully amortized in 1994.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners or TAS an incentive management fee, an acquisition
fee, an equipment 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 $173, $281, and $85 of equipment acquisition fees as part of
Equipment costs during the years ended December 31, 1996, 1995 and 1994,
respectively, and incurred $251, $252 and $252 of incentive management
fees during 1996, 1995 and 1994, respectively. No equipment liquidation
fees were incurred in 1996, 1995 or 1994.
The Equipment of the Partnership is managed by TEM. Prior to the
Partnership's sale of its storage fleet in 1995 and trailer fleet in 1994
(note 7), TEM had entered into an agreement with its 100%-owned subsidiary
Textainer Storage Services (TSS) to manage these storage containers and
with its 50%-owned subsidiary Contrail International Services B.V. (CIS)
to manage these trailers. In its role as manager, TEM has authority to
acquire, hold, manage, lease, sell and dispose of the Equipment. 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
the net due from affiliates at December 31, 1996 and 1995.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross lease revenues attributable to full payout net leases.
Such fee is either retained by TEM or, prior to the sales of its storage
and trailer fleets, such fees allocable to TSS or CIS were passed through
by TEM for services rendered. In 1996, 1995 and 1994, equipment management
fees totaled $809, $893 and $925, respectively. The Equipment is or was
leased by TEM, TSS and CIS to third party lessees on operating master
leases, spot leases, term leases and full payout net leases. The majority
of the Partnership's leases are operating leases with limited terms and no
purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance, are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are borne by TFS, TEM, and, prior to the sale of its storage
and trailer fleets, TSS and CIS. During 1996, 1995, and 1994, costs
allocated to the Partnership for salaries were $348, $524 and $564,
respectively and other general and administrative costs were $317, $470
and $453, respectively.
TEM, TSS and CIS allocate these costs based on the ratio of the
Partnership's interest in managed Equipment to the total Equipment managed
by TEM, TSS and CIS during the period. Indirect general and administrative
costs allocated to the Partnership by TEM, TSS and CIS were $577, $850 and
$887 during 1996, 1995 and 1994, respectively.
TFS allocates indirect general and administrative costs to the Partnership
based on the ratio of the Partnership's Equipment to the total Equipment
of all limited partnerships managed by TFS. TFS allocated $88, $144 and
$130 of these indirect costs to the Partnership during 1996, 1995 and
1994, respectively.
The General Partners or TAS may acquire Equipment in their own name and
hold title on a temporary basis for the purpose of facilitating the
acquisition of such Equipment for the Partnership. The Equipment 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 or TAS are entitled to an acquisition fee for any
Equipment resold to the Partnership.
At December 31, 1996 and 1995, due from and to affiliates are comprised
of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM and TSS................... $ 1,665 2,032
----- -----
Due to affiliates:
Due to TL.............................. 1 8
Due to TCC............................. 9 10
Due to TAS............................. 27 77
Due to TGH............................. - 2
Due to TFS............................. 27 47
------ ------
64 144
------ -----
Net due from affiliates $ 1,601 1,888
===== ======
</TABLE>
These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and payment of expenses
and fees described above or in the accrual and remittance of net rental
revenues from TEM and TSS.
Prior to July 1994, it was the policy of the Partnership and the General
Partners to charge interest on intercompany balances outstanding for more
than one month. Interest was charged at the prime rate plus 2%. As of July
1994, this policy was changed so that the Partnership is not charged
interest on intercompany balances except for loans on equipment purchases.
Interest is charged at a rate not greater than the General Partners' or
affiliates' own cost of funds. The Partnership incurred interest expense
of $4 on intercompany balances payable to TFS and TEM for the year ended
December 31, 1994. There was no interest charged on intercompany balances
for 1996 and 1995.
Note 3. Rentals Under Operating Leases
The following is a schedule by year of minimum future rentals receivable
on noncancelable operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C> <C>
1997.............................................................. $ 328
1998.............................................................. 34
1999.............................................................. 1
--------
Total minimum future rentals receivable........................... $ 363
======
</TABLE>
Note 4. Direct Financing Leases
During the period from 1991 to 1996, the Partnership leased 82
refrigerated and 473 standard containers on direct finance leases. The
total receivable over the six-month to five-year terms of these leases
from their inception is $2,585.
The components of the net investment in direct financing leases as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C> <C>
Future minimum lease payments receivable................$... 967 1,620
Residual value.............................................. 4 4
Less: unearned income....................................... (276) (483)
------- -------
Net investment in direct financing leases...............$... 695 1,141
=== ======
</TABLE>
The following is a schedule by year of minimum lease payments receivable
under the direct financing leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C> <C>
1997................................................... $ 360
1998................................................... 249
1999................................................... 221
2000................................................... 137
---
Total minimum lease payments receivable................ $ 967
===
</TABLE>
Rental income for the years ended December 31, 1996, 1995 and 1994
includes $238, $165 and $111, respectively, of income from direct finance
leases.
Note 5. Note Payable
On December 9, 1992, the Partnership was granted a revolving credit line
with an available limit of $2,500 which was available for equipment
purchases. In 1994, the credit line was repaid in full and terminated.
Note 6. Income Taxes
At December 31, 1996, 1995 and 1994, there were temporary differences of
$28,255, $26,201 and $24,773, respectively, between the financial
statement carrying value of certain assets and liabilities and the federal
income tax basis of such assets and liabilities. The reconciliation of net
income for financial statement purposes to net income (loss) for federal
income tax purposes for the years ended December 31, 1996, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $2,806 4,579 4,166
(Decrease) increase in provision for bad debt (230) 274 432
Depreciation for income tax purposes in excess of
depreciation for financial statement purposes (1,631) (6,007) (5,879)
Gain on sale of fixed assets in excess of gain recognized
for financial statement purposes 1,679 2,270 496
(Decrease) increase in damage protection plan reserve (58) 102 (120)
Increase (decrease) in warranty claims 298 (141) (140)
Other - - 28
-------- -------- ------
Net income (loss) for federal income tax purposes $2,864 1,077 (1,017)
====== ===== ======
</TABLE>
Note 7. Sale of Trailer and Storage Fleets
In August 1995, the Partnership sold its container storage fleet, managed
by TSS, to an unrelated purchaser. The proceeds from the sale were $603
compared to the Partnership's cost basis in the equipment of $540. The
resulting gain from the sale was $63. The Partnership invested the
proceeds from this sale in additional marine container rental equipment.
In September 1994, the Partnership sold its trailer fleet, managed by CIS,
to an unrelated purchaser. The proceeds from the sale were $117 compared
to the Partnership's cost basis in the equipment of $119. (This cost basis
does not include the repair reserve of $8 which the Partnership maintained
while it owned the equipment.) The resulting loss from the sale was $2.
The Partnership invested the proceeds from the sale in additional marine
container equipment.
Note 8. Equipment Write-down
In the fourth quarter of 1996, a pretax charge of $1,421 was recorded to
write down the value of refrigerated containers. The write-down is the
result of an evaluation of the Partnership's ability to recover the net
book value of these containers given the changes in market conditions for
this container type. The estimated undiscounted cash flows anticipated
from these containers indicated that a write-down to fair market value was
required under SFAS 121. The carrying value of these containers was
written down to an amount equal to the estimated future discounted cash
flows from these containers.
Note 9. Commitments
At December 31, 1996, the Partnership has committed to purchase Equipment
at an approximate total purchase price of $25 which includes acquisition
fees of $1. These commitments were made to TAS which, as the contracting
party, has in turn committed to purchase this equipment on behalf of the
Partnership.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been none.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no officers or directors.
As described in the Prospectus, the Registrant's three original general partners
were TCC, TEM and TI which have comprised the Textainer Group. Effective October
1, 1993, the Textainer Group streamlined its organization by forming a new
holding company, Textainer Group Holdings Limited (TGH), and the shareholders of
the underlying companies which include the General Partners have accepted shares
in TGH in exchange for their shares in the individual companies. Textainer
Financial Services Corporation (TFS) is the managing general partner of the
Partnership (prior to its name change on April 4, 1994, TFS was known as
Textainer Capital Corporation). TFS is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC) (prior to its name change on April 4,1994, TCC was
known as Textainer (Delaware) Inc.). Textainer Equipment Management Limited
(TEM) is an associate general partner of the Partnership. Textainer Inc. (TI)
was an associate general partner of the Partnership through September 30, 1993,
when it was replaced in that capacity by Textainer Limited (TL), pursuant to a
corporate reorganization effective October 1, 1993, which caused TFS, TEM and TL
to fall under the common ownership of TGH. (The managing general partner and
associate general partners are collectively referred to as the General
Partners). Pursuant to this restructuring, TI has transferred substantially all
of its assets including all of its rights and duties as associate general
partner to TL. This transfer was effective from October 1, 1993. The end result
was that TFS, TEM and TL now serve as General Partners for the Registrant and
are wholly-owned or substantially-owned subsidiaries of TGH. The General
Partners also act in this capacity for other limited partnerships. Textainer
Acquisition Services Limited (TAS) is an affiliate of the General Partners which
performs services relative to the acquisition of Equipment outside the United
States on behalf of the Partnership. 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.
TFS, as the Managing General Partner, is responsible for managing the
administration and operation of the Registrant, and for the formulation and
administration of investment policies.
TEM, an Associate General Partner, manages all aspects of the operation of the
Registrant's Equipment.
TL, an Associate General Partner, owns a fleet of container rental equipment
which is managed by TEM. TL provides advice to the Partnership regarding
negotiations with financial institutions, manufacturers and equipment owners,
and regarding the terms upon which particular items of Equipment are acquired.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Partnership's General Partners, policy-making officials and persons who
beneficially own more than ten percent of the Units to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Copies of these reports must also be furnished to the
Partnership.
Based solely on a review of the copies of such forms furnished to the
Partnership or on written representations that no forms were required to
be filed, the Partnership believes that with respect to its most recent
fiscal year ended December 31, 1996, all Section 16(a) filing requirements
were complied with. No director, officer, or beneficial owner owned more
than 10 percent of any interest in the Partnership. None of the foregoing
failed to file or filed late any reports of transactions in the Units,
except that Philip K. Brewer filed his initial statement of beneficial
interest on Form 3 late.
The directors and executive officers of the General Partners are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Neil I. Jowell 63 Director and Chairman of TGH, TEM, TL, TFS and TCC
James E. Hoelter 57 President and CEO of TGH, TL, TFS and TCC, Director of TGH, TEM, TL, TFS,
TCC and TSC
John A. Maccarone 52 President and CEO of TEM, Vice President of TGH, Director of TGH, TEM, TL,
TFS, TCC and TSC
Cara D. Smith 34 President and CEO of TSC and Director of TCC and TFS
John R. Rhodes 47 Executive Vice President, CFO, and Secretary of TGH, TEM, TL, TFS and TCC
and Director of TEM, TFS and TCC
Alex M. Brown 58 Director of TGH, TEM, TL, TCC and TSC
Harold J. Samson 75 Director of TGH, TL and TSC
Philip K. Brewer 40 Senior Vice President - Capital Markets for TGH and TL
Robert D. Pedersen 38 Senior Vice President - Marketing for TEM
Anthony C. Sowry 44 Vice President - Operations and Acquisitions for TEM
Jens W. Palludan 46 Vice President - Americas/Africa/Australia for TEM
Robert S.A. Goodall 39 Vice President - Europe/Middle East/India for TEM
Wing Sing Mak 39 Vice President - South Asia for TEM
Masanori Sagara 41 Vice President - North Asia for TEM
Stefan Mackula 44 Vice President - Equipment Resale for TEM
Ernest J. Furtado 41 Vice President, Finance and Assistant Secretary of TGH, TEM and TL
Richard G. Murphy 44 Vice President - Risk Management for TEM
Janet S. Ruggero 48 Vice President - Administration and Marketing Services for TEM
Adnan Z. Abou Ayyash 52 Director of TGH and TL
Isam K. Kabbani 62 Director of TGH and TL
S. Arthur Morris 63 Director of TGH, TEM and TL
Dudley R. Cottingham 45 Assistant Secretary, Vice President and Director of TGH, TEM and TL
James S. McCaffrey 41 Executive Vice President, Chief Operating Officer, Assistant Secretary and
Director for TFS and TCC
Jeanene K. Gomes 43 Assistant Secretary of TFS and TCC, Secretary and Compliance Officer of TSC
</TABLE>
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TFS and TCC
and a member of the Investment Advisory Committee and Equipment Investment
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 B.Com.L.L.B. from the University of Cape Town.
James E. Hoelter is President and Chief Executive Officer of TGH, TL,
TFS and TCC and a director of TGH, TEM, TL, TFS, TCC and TSC. As President and
Chief Executive Officer of TGH, Mr. Hoelter is responsible for overseeing the
management of, and coordinating the activities of, TEM, TL, TFS and TCC. He is
also responsible for overseeing TEM's equipment management operations. In
addition, Mr. Hoelter is Chairman of the Credit Committee, the Investment
Advisory Committee and the Equipment Investment Committee (see "Committees",
below). Prior to joining the Textainer Group in 1987, Mr. Hoelter was president
of Intermodal Equipment Associates ("IEA") in San Francisco, California, from
the company's inception in 1979 until 1987. Mr. Hoelter co-founded IEA and
directed its sponsorship of ten public and private investment programs, which
provided more than $100 million of equity from 10,000 investors. From 1976 to
1978, Mr. Hoelter was Vice President - North America for Trans Ocean Ltd., San
Francisco, a marine container leasing company, where he was responsible for all
leasing operations in that area. From 1971 to 1976, he was associated with Itel
Corporation, San Francisco, where he held a number of positions, the most recent
of which was director of financial leasing for Itel's Container Division. Mr.
Hoelter received his B.B.A. in business administration from the University of
Wisconsin, where he currently serves as a member of its Business School's Dean's
Advisory Board, and his M.B.A. from the Harvard Graduate School of Business
Administration.
John A. Maccarone is President and CEO of TEM, Vice President of TGH
and a director of TGH, TEM, TL, TFS, TCC and TSC. In this capacity he is
responsible for the performance of TEM's worldwide fleet of marine cargo
containers. Additionally, he is a member of the Equipment Investment Committee,
the Credit Committee and the Investment Advisory Committee (see "Committees",
below). Mr. Maccarone was instrumental in co-founding IEA with Mr. Hoelter 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 B.S. degree in
Engineering Management from Boston University and an M.B.A. from Loyola
University of Chicago.
Cara D. Smith is President and Chief Executive Officer of TSC, a
director of TFS and TCC and a member of the Investment Advisory Committee (see
"Committees", below). In this capacity Ms. S mith is responsible for the
organization, marketing and after-market support of TSC's investment programs.
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.
John R. Rhodes is Executive Vice President, Chief Financial Officer
and Secretary of TGH, TEM, TL, TFS and TCC and a director of TEM, TFS and TCC.
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 Credit
Committee, the Equipment Investment 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.
Alex M. Brown is a director of TGH, TEM, TL, TCC and TSC.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Mr. Brown became
affiliated with the Textainer Group in April 1986. From August 4, 1987 until
October 1993, he was President and Chief Executive Officer of Textainer, Inc.
and the Chairman of the Textainer Group. From June 1993 to present, Mr. Brown
has been Chief Executive Officer of AAF, a company affiliated with Trencor Ltd.
AAF is a publicly listed company on the London Stock Exchange and is involved in
manufacturing and leasing modular buildings and construction scaffolding. Mr.
Brown is Chairman of WACO International Corporation, which is based in
Cleveland, Ohio. WACO manufactures, rents and erects scaffolding and other
associated construction products throughout the USA. Mr. Brown was the managing
director of Cross County Leasing in England from 1984 until it was acquired by
Textainer in 1986.
Harold J. Samson is a director of TGH, TL and TSC and is a member of
the Investment Advisory Committee (see "Committees", below). Mr. Samson
served as a consultant to various securities firms since 1981 to 1989. From
1974 to 1981 he was Executive Vice President of Foster & Marshall, Inc., a New
York Stock Exchange member firm based in Seattle. Mr. Samson was a director
of IEA from 1979 to 1981. From 1957 to 1984 he served as Chief Financial Officer
in several New York Stock Exchange member firms. Mr. Samson holds a B.S.
in Business Administration from the University of California, Berkeley and is a
California Certified Public Accountant.
Philip K. Brewer is Senior Vice President - Capital Markets for TGH
and TL. Mr. Brewer is responsible for optimizing the capital structure of and
identifying new sources of finance for Textainer. 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 based in San Francisco and is Senior Vice
President - Marketing for TEM, responsible for worldwide sales and marketing
related activities. Mr. Pedersen is a member of the Credit Committee (see
"Committees" below). He joined TEM 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 Maersk Line, a container shipping line (from
1978 to 1984), XTRA, a container lessor (1985 to 1988) and Klinge Cool, a
manufacturer of refrigerated container cooling units (1989 to 1991), where he
was worldwide sales and marketing director. Mr. Pedersen is a graduate of the
A.P. Moller shipping and transportation program and Merkonom Business School in
Copenhagen, majoring in Company Organization.
Anthony C. Sowry is Vice President - Operations and Acquisitions for
TEM. Mr. Sowry supervises all international container operations and maintenance
and technical functions for the fleets under management. In addition, he is
responsible for the acquisition of all new and used containers for the Textainer
Group. He began his affiliation with TEM in 1988 and previously served as Fleet
Quality Control Manager for Textainer Inc. from 1982 through March 1988. He is
also a member of the Credit Committee and the Equipment Investment Committee
(see "Committees", below). 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.
Jens W. Palludan is based in New York and is Vice President -
Americas/Africa/Australia for TEM, 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.
Prior to joining TEM in 1993 Mr. Palludan was 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.
Robert S.A. Goodall is based in London and is Vice President - Europe/
Middle East/India for TEM, in which capacity he is responsible for coordinating
all leasing activities in these three areas of operation. Mr. Goodall joined
TEM in September 1994. Previously, Mr. Goodall spent his career from July 1990
until August 1994 with Tiphook Container Rental, during which time he held
numerous senior marketing positions within the company. He was responsible for
setting up their green field operation in North America, which he successfully
ran from inception for three years. Mr. Goodall also spearheaded a quality
program within the company which received ISO accreditation for the Tank
Container operation and associated business areas. Mr. Goodall has spent
nearly sixteen years in the container leasing and transport industry. Mr.
Goodall graduated from Bloxham College, Oxfordshire and Business Studies at West
London College.
Wing Sing Mak is based in Singapore and is the Regional Vice President
- South Asia. Mr. Mak is responsible for container leasing activities in North
/Central People's Republic of China (PRC), Hong Kong and 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 the Regional Vice President - North Asia of TEM.
Mr. Sagara is responsible for Textainer's marketing 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 with 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 for TEM, in which
capacity he coordinates the worldwide sale of equipment into secondary markets.
Mr. Mackula also served as Vice President - Marketing for TEM, in which capacity
he was responsible for coordinating all leasing activities in Europe, Africa,
and the Middle East. He joined TEM in 1983 as Leasing Manager for the United
Kingdom. Prior to joining TEM, Mr. Mackula held, beginning in 1972, a variety of
positions in the international container shipping industry.
Ernest J. Furtado is Vice President, Finance and Assistant Secretary
of TGH, TEM and TL, in which capacity he is responsible for all accounting,
financial management, and reporting functions for TGH, TEM and TL. 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.
Richard G. Murphy is Vice President, Risk Management for TEM. Mr.
Murphy is responsible for all credit and risk management functions for TEM and
supervises the administrative aspects of equipment acquisitions. He is a member
of and acts as secretary to the Credit and Equipment Investment Committees (see
"Committees", below). He previously served as 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 for TEM. 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.
Dr. Adnan Z. Abou Ayyash is a director of TGH and TL. Since 1974 he
has been General Manager and Chief Executive Officer of one of the largest
firms of consulting engineers in Saudi Arabia, Rashid Engineering. Dr. Adnan
Abou Ayyash holds a B.S. degree in Civil Engineering from the American
University of Beirut, as well as M.S. and Ph.D. degrees in Civil Engineering
from the University of Texas.
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 17 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.
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.
James S. McCaffrey is Executive Vice President, Chief Operating
Officer, Assistant Secretary and a director of TFS and TCC. In this capacity he
is responsible for all accounting, financial management, and reporting functions
for TFS and TCC. He is a member of and acts as secretary to the Investment
Advisory Committee and serves on the Equipment Investment Committee (see
"Committees" below). Prior to joining Textainer in July 1993, Mr. McCaffrey was
Vice President of Finance for Meridian Point Properties, a real estate
syndication and management company, from 1985 to 1993; from 1983 to 1985 he was
employed by Trans-west Capital as Controller and Chief Financial Officer. Mr.
McCaffrey's earlier business affiliations include serving as manager of
financial reporting for Fox and Carskadon Financial Corporation and as a senior
accountant with Arthur Andersen & Co. Mr. McCaffrey is a Certified Public
Accountant and holds a B.S. in business administration and mathematics from
Southern Oregon State College and two securities licenses.
Jeanene K. Gomes is Assistant Secretary of TFS and TCC and Secretary
and Compliance Officer of TSC. Ms. Gomes is responsible for administering the
public partnerships sponsored by the Textainer Group. She is responsible for
ensuring that all data relating to investor accounts is input, monitored, and
stored in a timely manner and in accordance with the limited partnership
agreement for each of the partnerships as well as state and federal securities
regulations. Ms. Gomes oversees all communications with the limited partners and
as such directly supervises all personnel in performing this function. As
compliance officer for TSC, Ms. Gomes is responsible for ensuring compliance
with all securities regulations. Ms. Gomes also serves on the Investment
Advisory Committee (see "Committees" below). Ms. Gomes holds five securities
licenses and was, prior to joining Textainer in 1989, the compliance officer for
CIS Investment Corporation, a broker-dealer.
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
James E. Hoelter (Chairman), John A. Maccarone, John R. Rhodes, Anthony C.
Sowry, James S. McCaffrey, Richard G. Murphy (Secretary), Alex M. Brown and Neil
I. Jowell.
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 James E. Hoelter(Chairman),
John A. Maccarone, Richard G. Murphy (Secretary), Janet S. Ruggero, John R.
Rhodes, Anthony C. Sowry and Robert D. Pedersen.
Investment Advisory Committee. The Investment Advisory Committee
will review investor program operations on at least a quarterly basis,
emphasizing matters related to cash distributions to investors, cash flow
management, portfolio management, and liquidation. The Investment Advisory
Committee is organized with a view to applying an interdisciplinary approach,
involving management, financial, legal and marketing expertise, to the analysis
of investor program operations. The members of the Investment Advisory
Committee are James E. Hoelter (Chairman), John A. Maccarone, Cara D. Smith,
James S. McCaffrey (Secretary), John R. Rhodes, Jeanene K. Gomes, Harold J.
Samson, Alex M. Brown and Neil I. Jowell.
ITEM 11 - EXECUTIVE COMPENSATION
The Registrant has no executive officers and does not reimburse TFS, TEM or TL
for the remuneration payable to their executive officers.
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
<TABLE>
<CAPTION>
As of January 1, 1997:
Number
Name of Beneficial Owner Of Units % All Units
<S> <C> <C>
James E. Hoelter.............................. 438 .0117%
John A. Maccarone............................. 500 .0134%
Harold J. Samson.............................. 2,500 .0671%
----- -----
Officers and Management as a Group............ 3,438 .0922%
===== =====
</TABLE>
c) Changes in control
Inapplicable
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Dollar amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 1996 and 1995, net due from affiliates is comprised of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates:
Due from TEM and TSS................... $ 1,665 2,032
----- -----
Due to affiliates:
Due to TL.............................. $ 1 8
Due to TCC............................. 9 10
Due to TAS............................. 27 77
Due to TGH............................. - 2
Due to TFS............................. 27 47
-- ---
$ 64 144
-- ---
</TABLE>
These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its
affiliates and represent timing differences in the accrual and payment of
expenses and fees described above or in the accrual and remittance of net
rental revenues from TEM and Textainer Storage Services, (TSS) which is a
100% owned subsidiary of TEM.
In addition, the Registrant paid or will pay the following amounts to
the General Partners:
Acquisition fees in connection with the purchase of equipment on behalf
of the Registrant:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
TAS..................... $ 173 281 85
--- --- ---
Management fees in connection with the operations of the Registrant:
1996 1995 1994
---- ---- ----
TFS.......................... $ 196 197 197
TEM and affiliates........... 864 948 980
----- ----- ------
Total........................ $1,060 1,145 1,177
===== ===== ======
Reimbursement for administrative costs in respect of the operations of
the Registrant:
1996 1995 1994
---- ---- ----
TFS........................... $ 88 144 130
TEM and affiliates............ 577 850 887
--- --- ------
Total......................... $ 665 994 1,017
=== === =====
</TABLE>
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Compensation of Affiliates" section 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, 1996 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. 2 to the Registrant's Registration Statement
(No. 33-29990), as filed with the Commission on November
3, 1989 as supplemented by Post-Effective Amendment No. 2
filed with the Commission under Section 8 (c) of the
Securities Act of 1933 on December 11, 1990.
(ii) The Registrant's limited partnership agreement, Exhibit A to
the Prospectus.
(iii)That certain Deposit Agreement dated November 1, 1989 among
the Registrant, its general partners and Textainer Capital
Corporation, in its capacity as depository, filed as an
exhibit to the Registrant's Registration Statement.
b) During the year ended 1996, no reports on Form 8-K have been filed by
the Registrant.
<PAGE>
Independent Auditors' Report on Supplementary Schedule
The Partners
Textainer Equipment Income Fund II, L.P.:
Under the date of February 17, 1997, we reported on the balance sheets of
Textainer Equipment Income Fund II, L.P. (the Partnership) as of December 31,
1996 and 1995, and the related statements of earnings, partners' capital and
cash flows for the years ended December 31, 1996, 1995 and 1994 which are
included in the 1996 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 Peat Marwick LLP
San Francisco, California
February 17, 1997
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
Schedule II - Valuation and Qualifying Accounts
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
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, 1996:
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $ 1,303 (97) - (133) 1,073
----- ------ --------- ----- -----
Damage protection
plan reserve $ 321 218 - (276) 263
----- ---- --------- ----- ------
Warranty settlement $ 1,026 (214) - - 812
----- ----- --------- ------- ------
For the year ended December 31, 1995:
Allowance for
doubtful accounts $ 1,030 512 - (239) 1,303
----- ---- --------- ----- -----
Damage protection
plan reserve $ 219 338 - (236) 321
----- ---- --------- ----- ------
Warranty settlement $ 655 (140) 511 - 1,026
----- ----- ----- ---- -----
For the year ended December 31, 1994:
Allowance for
doubtful accounts $ 597 517 - (84) 1,030
----- ---- --------- ----- -----
Damage protection
plan reserve $ 339 221 - (341) 219
----- ---- --------- ---- -----
Warranty settlement $ 795 (140) - - 655
----- --- --------- ---- -----
Reserve for trailer
maintenance and repairs $ 10 5 - (15) -
----- ------ --------- ----- -----
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By
John R. Rhodes
Executive Vice President
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Executive Vice President March 25, 1997
John R. Rhodes (Principal Financial and
Accounting Officer), and
Secretary
President (PrincipalExecutive March 25, 1997
James E. Hoelter Officer) and Director
Executive Vice President, March 25, 1997
James S. McCaffrey Chief Operating Officer and Director
Director March 25, 1997
John A. Maccarone
Director March 25, 1997
Cara D. Smith
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(A California Limited Partnership)
By Textainer Financial Services Corporation
The Managing General Partner
By /s/John R. Rhodes
John R. Rhodes
Executive Vice President
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/John R. Rhodes Executive Vice President March 25, 1997
- ------------------------------------------------
John R. Rhodes (Principal Financial and
Accounting Officer), and
Secretary
/s/James E. Hoelter President (Principal Executive March 25, 1997
- ------------------------------------------------
James E. Hoelter Officer) and Director
/s/James S. McCaffrey Executive Vice President, Chief March 25, 1997
- ----------------------------------------------
James S. McCaffrey Operating Officer and Director
/s/John A. Maccarone Director March 25, 1997
- ------------------------------------------------
John A. Maccarone
/s/Cara D. Smith Director March 25, 1997
- ------------------------------------------------
Cara D. Smith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1996 Form 10K
</LEGEND>
<CIK> 0000853086
<NAME> Textainer Equipment Income Fund II, L.P.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,665
<SECURITIES> 0
<RECEIVABLES> 6,495
<ALLOWANCES> 1,073
<INVENTORY> 0
<CURRENT-ASSETS> 25
<PP&E> 61,068
<DEPRECIATION> 21,660
<TOTAL-ASSETS> 46,510
<CURRENT-LIABILITIES> 1,983
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 44,527
<TOTAL-LIABILITY-AND-EQUITY> 46,510
<SALES> 0
<TOTAL-REVENUES> 11,613
<CGS> 0
<TOTAL-COSTS> 9,142
<OTHER-EXPENSES> (355)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,806
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,806
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
