TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
March 26, 1998
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, 1997.
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, 1997
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. See item 7 herein for a description of current market
conditions affecting the Registrant's business.
(b) Financial Information About Industry Segments
Inapplicable.
(c) Narrative Description of Business
(c)(1)(i) A container leasing company generally, and the Registrant
specifically, is an operating business comparable to a rental
car business. A customer can lease a car from a bank leasing
department for a monthly charge which represents the cost of
the car, plus interest, amortized over the term of the lease;
or the customer can rent the same car from a rental car
company at a much higher daily lease rate. The customer is
willing to pay the higher daily rate for the convenience and
value-added features provided by the rental car company, the
most important of which is the ability to pick up the car
where it is most convenient, use it for the desired period
of time, and then drop it off at a location convenient to the
customer. Rental car companies compete with one another on
the basis of lease rates, availability of cars, and the
provision of additional services. They generate revenues by
maintaining the highest lease rates and the highest
utilization factors that market conditions will allow, and by
augmenting this income with proceeds from sales of insurance,
drop-off fees, and other special charges. A large percentage
of lease revenues earned by car rental companies are generated
under corporate rate agreements wherein, for a stated period
of time, employees of a participating corporation can rent
cars at specific terms, conditions and rental rates. 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 the Registrant's 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 Registrant'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. For this reason, the
Registrant occasionally buys used containers. 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 revenue for the year ended
December 31, 1997 which was 10% or more of the total rental
revenue of the Registrant.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) There are approximately 80 container leasing companies
of which the top ten control approximately 92% of the
total equipment held by all container leasing companies. The
top two container leasing companies combined control
approximately 47% of the total equipment held by all container
leasing companies. Textainer Equipment Management Limited,
an Associate General Partner of the Registrant and the manager
of its marine container Equipment, is the third largest
container leasing company and manages approximately 8% of
the equipment held by all container leasing companies. The
Registrant alone is not a material participant in the
worldwide container leasing market. The principal methods of
competition are price, availability and the provision of
worldwide service to the international shipping community.
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. This decrease
in demand along with the entry of new leasing company
competitors offering low container rental rates to shipping
lines has increased competition among lessors such as the
Registrant.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant has no employees. Textainer Financial Services
Corporation (TFS), the Managing General Partner of the
Registrant, is responsible for the overall management of the
business of the Registrant and has 7 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 149 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 14.35%, 13.67% and 11.93% of the Registrant's rental
revenue during the years ended December 31, 1997, 1996 and 1995,
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 a discussion of the risks of leasing
containers for use in world trade, "Risk Factors" in the Registrant's
Prospectus, as supplemented.
ITEM 2 - PROPERTIES
As of December 31, 1997, the Registrant owned the following types and quantities
of equipment:
20-foot standard dry freight containers 8,682
20-foot refrigerated containers 158
40-foot standard dry freight containers 6,179
40-foot high cube dry freight containers 2,678
-------
17,697
=======
During December 1997, approximately 81% 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
ITEM 201:
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.
The program operates only when the Managing General Partner
determines, among other matters, that payment for redeemed
units will not impair the capital or operations of the
Registrant.
(a)(1)(ii) Inapplicable.
(a)(1)(iii) Inapplicable.
(a)(1)(iv) Inapplicable.
(a)(1)(v ) Inapplicable.
(a)(2) Inapplicable.
(b) Holders.
(b)(1) As of January 1, 1998 there were 4,814 holders of record of
limited partnership interests in the Registrant.
(b)(2) Inapplicable.
(c) Dividends.
Inapplicable.
For details of the distributions which are made monthly by the Registrant to its
limited partners, see Item 6 "Selected Financial Data."
ITEM 701 - Inapplicable.
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Amounts in thousands except for per unit amounts)
Year Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental income..................... $ 10,433 $ 11,613 $ 13,232 $ 13,193 $ 13,690
Net earnings...................... $ 2,715 $ 2,806 $ 4,579 $ 4,166 $ 3,173
Net earnings per unit
of limited partnership
interest........................ $ 0.71 $ 0.74 $ 1.21 $ 1.10 $ 0.82
Distributions per unit
of limited partnership
interest........................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 2.13
Distributions per unit
of limited partnership
interest representing a
return of capital.............. $ 0.89 $ 0.86 $ 0.39 $ 0.50 $ 1.31
Total assets...................... $ 42,865 $ 46,510 $ 49,998 $ 51,393 $ 55,675
Outstanding balance on
revolving credit line............. $ - $ - $ - $ - $ 2,400
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands except for unit and per unit amounts)
The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the years ended December 31, 1997,
1996, and 1995. Please refer to the Financial Statements and Notes thereto in
connection with the following discussion.
Liquidity and Capital Resources
From November 8, 1989 until January 15, 1991, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1,000 on December 19, 1989, and on January 15, 1991 the
Partnership had received its maximum subscription amount of $75,000.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value. 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, 1997 the Partnership
redeemed 126 units for a total dollar amount of $1, representing an average
redemption price of $8.71. 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 to the partners in short-term, liquid investments. The
Partnership's cash is affected by cash provided by or used in operating,
investing and financing activities. These activities are discussed in detail
below.
During the year ended December 31, 1997, the Partnership declared cash
distributions to limited partners pertaining to the period from December 1996
through November 1997, in the amount of $5,963. These distributions represent a
return of 8% on original capital (measured on an annualized basis) on each unit.
Of these distributions, on a GAAP basis, $3,311 was a return of capital and the
balance was from net earnings. On a cash basis, all of these distributions were
from operations.
For the years ended December 31, 1997 and 1996, the Partnership had net cash
provided by operating activities of $8,392 and $8,849, respectively. The
decrease was primarily attributable to a $1,122 decrease in net earnings,
adjusted for non-cash transactions of depreciation, equipment write-downs,
changes in the bad debt allowance and gain on sale of Equipment, offset by a
decrease in due from affiliates, net of $1,586. Net income adjusted for non-cash
transactions decreased primarily due to a decrease in rental income. This
decrease was primarily due to decreases in utilization, fleet size and rental
rates which are discussed more fully in "Results of Operations". The decrease in
due from affiliates, net was due to timing differences in the accrual and
payment of expenses and fees or in the accrual and remittance of net rental
revenues.
Net cash used in investing activities (the purchase and sale of Equipment) for
the year ended December 31, 1997 was $3,035 compared with $1,583 for the year
ended December 31, 1996. This difference is primarily due to the fact that, on a
cash basis, the Partnership purchased more Equipment in 1997 than in the same
period in 1996. The General Partners believe that these differences reflect
normal fluctuations in Equipment sales and purchases. The Partnership sells
Equipment as it reaches the end of its estimated useful 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. Such additional units of Equipment purchased may not,
however, equal the number of units sold.
At December 31, 1997, the Partnership had no commitments to purchase Equipment.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income, container depreciation, direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet ("inventory") during the years ended December 31, 1997, 1996 and
1995. The following is a summary of the size of the container fleet (in units)
available for lease during those periods:
1997 1996 1995
---- ---- ----
Opening inventory................... 18,016 18,650 18,522
Closing inventory................... 17,697 18,016 18,650
Average............................. 17,857 18,333 18,586
The decline in the average inventory of 3% and 1% from 1996 to 1997 and 1995 to
1996, respectively, was due to the Partnership having sold more Equipment than
it purchased. Although sales proceeds were used to purchase additional
Equipment, fewer containers were bought than sold, resulting in a net decrease
in the size of the Equipment fleet. When Equipment is sold in the future, sales
proceeds are not likely to be sufficient to replace all of the Equipment sold.
Moreover, the decline in the container fleet contributed to an overall decline
in rental income from 1996 to 1997 and 1995 to 1996. These factors resulted in a
slower rate of reinvestment than had been expected by the General Partners. This
trend is currently expected to continue.
Rental income and direct container expenses are also affected by lease
utilization percentages for the Equipment, which were 77%, 81% and 91% on
average during the years ended December 31, 1997, 1996 and 1995, 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, 1997, 1996 and 1995.
The Partnership's income from operations for both the years ended December 31,
1997 and 1996 was $2,471, on total rental income of $10,433 and $11,613,
respectively. The largest component of total rental income is income from
container rentals, which decreased $1,223, or 12%, from 1996 to 1997. As noted
above 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 fleet size decreased 3%,
average on-hire utilization decreased 5% and average daily rental rates
decreased 5%.
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 $1,398, or 12%, from 1995 to
1996. This decrease was primarily due to a decrease in average on-hire
utilization of 11%, and a decrease in average fleet size of 1%, offset by an
increase in average daily rental rates of 1%.
The declines in container utilization during 1996 and part of 1997 and in rental
rates during 1996 and 1997 were primarily due to decreased demand for leased
containers and increased competition. The decrease in demand for leased
containers resulted from changes in the business of shipping line customers
consisting primarily of (i) over-capacity resulting from the 1995 and 1996
additions of new, larger ships to the existing container ship fleet at a rate in
excess of the growth rate in containerized cargo trade; (ii) shipping line
alliances and other operational consolidations that have allowed shipping lines
to operate with fewer containers; and (iii) shipping lines reducing their ratio
of leased versus owned containers by purchasing containers. This decreased
demand, along with the entry of new leasing company competitors offering low
container rental rates to shipping lines, resulted in the downward pressure on
rental rates, and also caused leasing companies to offer higher leasing
incentives and other discounts to shipping lines.
Utilization increased during the second and third quarters of 1997 and began
declining again during the fourth quarter of 1997 and into the beginning of
1998. Rental rates continued to decline into the beginning of 1998. For the near
term, the General Partners do not foresee any changes in existing market
conditions 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. At
December 31, 1997, 1996 and 1995 there were 98, 334 and 367 containers under
direct financing leases, respectively.
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 (DPP) and income for handling and returning containers.
For the year ended December 31, 1997, the total of these other rental income
items was $1,186, an increase of $43 from the equivalent period in 1996. The
primary components of this net increase were increases in DPP and handling
income of $83 and $80, respectively, offset by a decrease in location income of
$108. The increase in DPP income was due to an increased number of containers
participating in the plan, offset by a lower average DPP price charged per
container. Handling income increased as a result of increased container movement
during the year ended December 31, 1997, compared to 1996. This increase was
offset by a lower per container average handling price charged. Location income
decreased primarily due to lower demand, which resulted in an increase in
credits to lessees for picking up containers from less desirable locations and
due to lower average drop-off charges per container which reduced drop-off
charges to lessees during 1997 compared to 1996.
For the year ended December 31, 1996, the total of these other rental income
items was $1,143, a decrease of $221 from the equivalent period in 1995. The
primary component of this net decrease in other rental revenues was a decrease
in location income of $234, which decreased primarily due to lower demand, which
resulted in an increase in credits to lessees for picking up containers from
less desirable locations and due to a lower average drop-off charge per
container which reduced drop-off charges to lessees.
Direct container expenses increased by $146, or 8%, for the year ended December
31, 1997, compared to the year ended December 31, 1996. The increase was
primarily due to increases in repositioning and storage expenses of $182 and
$129, respectively, offset by a decrease in maintenance expense of $150.
Repositioning expense increased due to a greater number of containers being
transported from surplus locations to demand locations during 1997 compared to
1996. The increase in storage expense resulted from the decrease in utilization
in the year ending December 31, 1997 compared to 1996. Maintenance expense
decreased due to the decrease in the average repair cost per container and due
to a decrease in the number of containers requiring repair.
Direct container expenses decreased by $90, or 5%, for the year ended December
31, 1996, compared to the year ended December 31, 1995. The decrease was
primarily due to decreases in DPP and maintenance expense which decreased $120
and $112, respectively, between periods. The decrease was offset by an increase
in storage expense of $338. Accrued maintenance and DPP expenses 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.
Bad debt expense increased from a recovery of $97 for the year ended December
31, 1996, to an expense of $92 for the year ended December 31, 1997. The
recovery 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 from an expense of $512 for the year ended December
31, 1995, to a recovery of $97 for the same period in 1996. The recovery
recorded in 1996 was primarily due to a reduction in reserve requirements for a
specific lessee as discussed above.
Depreciation expense decreased $246, or 6%, from December 31, 1996, to the same
period in 1997, and decreased by $251, or 6%, from the year ended December 31,
1995, to the same period in 1996. The decline for both periods is attributable
to certain Equipment, acquired used, which has now been fully depreciated, as
well as to the smaller average fleet size.
In the fourth quarter of 1996 and the second quarter of 1997, pretax charges of
$1,421 and $343, respectively, were recorded to write down the value of the
refrigerated containers owned by the Partnership. During 1996, the carrying
value of these refrigerated containers was written down to an amount equal to
the estimated future discounted cash flows from these containers as there had
been no recent sales of this Equipment type. The Equipment was further written
down during 1997 based on the sales prices received in recent sales of this
Equipment.
Management fees to affiliates decreased by $85, or 8%, and $85, or 7% between
the years ended December 31, 1997 and 1996 and December 31, 1996 and 1995,
respectively, due to a decline in Equipment management fees. Equipment
management fees, which are based primarily on gross revenue, decreased as a
result of the decrease in rental income and were approximately 7% of gross
revenue for the periods. Incentive management fees, which are based on the
Partnership's limited and general partner distribution percentage and partners'
capital, remained constant at $251 for the years ending December 31, 1997, and
1996 and $252 for the year ending December 31, 1995.
General and administrative costs to affiliates decreased 3%, or $17, for the
year ended December 31, 1997, compared to the same period in 1996, due to a
decrease in overhead costs allocated from TFS and TEM. General and
administrative costs to affiliates decreased 33%, or $329, for the year ended
December 31, 1996, compared to the same period in 1995, primarily due to a
decrease in overhead costs allocated from TEM.
Other income provided $244 of additional income for the year ended December 31,
1997, representing a decrease of $91, or 27%, over the equivalent period in
1996. This decrease was due to a $112 decrease in gain on sale of Equipment,
offset by a $21 increase in interest income.
Other income provided $335 of additional income for the year ended December 31,
1996, representing a decrease of $34, or 9%, from the equivalent period in 1995.
This decrease was due to a $52 decrease in gain on sale of Equipment, and an $18
increase in interest income.
Net earnings per limited partnership unit decreased from $0.74 to $0.71 from the
year ended December 31, 1996 to the year ended December 31, 1997, reflecting the
decrease in limited partner net earnings from $2,743 for the year ended December
31, 1996 to $2,652 for the same period in 1997.
Net earnings per limited partnership unit decreased from $1.21 to $0.74 from the
year ended December 31, 1995 to the year ended December 31, 1996, reflecting the
decrease in limited partner net earnings from $4,501 for the year ended December
31, 1995 to $2,743 for the same period in 1996.
Many computer systems may experience difficulty processing dates beyond the year
1999 and, as such, some computer hardware and software will need to be modified
prior to the year 2000 to remain functional. The Partnership's and General
Partner's certain core internal systems that have recently been implemented are
year 2000 compliant. The remaining core internal systems are scheduled to be
revised to be year 2000 compliant by the end of 1998. Based on its initial
evaluation, the Partnership and the General Partners do not believe that the
cost of remedial actions relating to these systems will have a material adverse
effect on the Partnership's results of operations and financial condition.
Additionally, the Partnership and the General Partners are also completing a
preliminary assessment of year 2000 issues not related to its core systems,
including issues surrounding systems that interface with external third parties.
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 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, 1997 which would result in such a
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 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached pages 12 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, 1997 and
1996, and the related statements of earnings, partners' capital and cash flows
for each of the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations,
its partners' capital, and its cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 18, 1998
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Balance Sheets
December 31, 1997 and 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Assets
Container rental equipment, net of accumulated
depreciation of $22,257 (1996: $21,660) $ 38,315 $ 39,408
Cash 981 1,655
Net investment in direct financing leases (note 4) 493 695
Accounts receivable, net of allowance
for doubtful accounts of $1,024 (1996: $1,073) 2,864 3,126
Due from affiliates, net (note 2) 117 1,601
Prepaid expenses 95 25
----------------- -----------------
$ 42,865 $ 46,510
================= =================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 254 $ 314
Accrued liabilities 229 168
Accrued damage protection plan costs (note 1(j)) 226 263
Warranty claims (note 1(k)) 599 812
Equipment purchases payable 342 426
----------------- -----------------
Total liabilities 1,650 1,983
----------------- -----------------
Partners' capital:
General partners (90) (90)
Limited partners 41,305 44,617
----------------- -----------------
Total partners' capital 41,215 44,527
----------------- -----------------
$ 42,865 $ 46,510
================= =================
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, 1997, 1996 and 1995
(Amounts in thousands except for unit and per unit amounts)
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Rental Income $ 10,433 $ 11,613 $ 13,232
----------------- ----------------- -----------------
Costs and expenses:
Direct container expenses 2,003 1,857 1,947
Bad debt expense (recovery) 92 (97) 512
Depreciation 3,733 3,979 4,230
Write-down of equipment (note 7) 343 1,421 -
Professional fees 33 48 37
Management fees to affiliates (note 2) 975 1,060 1,145
General and administrative costs to affiliates (note 2) 648 665 994
Other general and administrative costs 135 209 157
----------------- ----------------- -----------------
7,962 9,142 9,022
----------------- ----------------- -----------------
Income from operations 2,471 2,471 4,210
----------------- ----------------- -----------------
Other income:
Interest income 75 54 36
Gain on sale of equipment (note 6) 169 281 333
----------------- ----------------- -----------------
244 335 369
----------------- ----------------- -----------------
Net earnings $ 2,715 $ 2,806 $ 4,579
================= ================= =================
Allocation of net earnings (note 1(g)):
General partners $ 63 $ 63 $ 78
Limited partners 2,652 2,743 4,501
----------------- ----------------- -----------------
$ 2,715 $ 2,806 $ 4,579
================= ================= =================
Limited partners' per unit share
of net earnings $ 0.71 $ 0.74 $ 1.21
================= ================= =================
Limited partners' per unit share
of distributions $ 1.60 $ 1.60 $ 1.60
================= ================= =================
Weighted average number of limited
partnership units outstanding (note 1(l)) 3,726,977 3,728,358 3,734,955
================= ================= =================
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, 1997, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
Partners' Capital
---------------------------------------------------------
General Limited Total
-------------- --------------- --------------
<S> <C> <C> <C>
Balances at December 31, 1994 $ (90) $ 49,458 $ 49,368
Distributions (78) (5,975) (6,053)
Redemptions (note 1(m)) - (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(m)) - (16) (16)
Net earnings 63 2,743 2,806
-------------- --------------- --------------
Balances at December 31, 1996 (90) 44,617 44,527
-------------- --------------- --------------
Distributions (63) (5,963) (6,026)
Redemptions (note 1(m)) - (1) (1)
Net earnings 63 2,652 2,715
-------------- --------------- --------------
Balances at December 31, 1997 $ (90) $ 41,305 $ 41,215
============== =============== ==============
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, 1997, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,715 $ 2,806 $ 4,579
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and equipment write-down 4,076 5,400 4,230
(Decrease) increase in allowance for doubtful accounts (49) (230) 274
Gain on sale of equipment (169) (281) (333)
Changes in assets and liabilities:
Decrease in net investment in direct financing leases 241 440 356
Decrease in accounts receivable 311 495 158
Decrease in due from affiliates, net 1,586 492 2
(Increase) decrease in prepaid expenses (70) - 2
Increase (decrease) in accounts payable and accrued liabilities 1 (1) (63)
(Decrease) increase in accrued damage protection plan costs (37) (58) 102
(Decrease) increase in warranty claims (213) (214) 371
--------------- --------------- ------------
Net cash provided by operating activities 8,392 8,849 9,678
--------------- --------------- ------------
Cash flows from investing activities:
Proceeds from sale of equipment 3,049 2,105 2,157
Equipment purchases (6,084) (3,688) (5,842)
--------------- --------------- ------------
Net cash used in investing activities (3,035) (1,583) (3,685)
--------------- --------------- ------------
Cash flows from financing activities:
Redemptions of limited partnership units (1) (16) (129)
Distributions to partners (6,030) (6,084) (6,010)
--------------- --------------- ------------
Net cash used in financing activities (6,031) (6,100) (6,139)
--------------- --------------- ------------
Net (decrease) increase in cash (674) 1,166 (146)
Cash at beginning of period 1,655 489 635
--------------- --------------- ------------
Cash at end of period $ 981 $ 1,655 $ 489
=============== =============== ============
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, 1997, 1996 and 1995
(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, 1997, 1996, 1995 and 1994,
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>
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equipment purchase included in:
Due to affiliates............................. $ (3) $ 27 $ 85 $ 27
Equipment purchases payable................... 342 426 400 599
Distributions to partners included in:
Due to affiliates............................. 6 10 63 17
Accounts payable & accrued liabilities........ 77 77 80 83
Proceeds from sale of Equipment included in:
Due from affiliates........................... 566 498 404 346
Accounts receivable........................... - - 87 54
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, 1997, 1996, and 1995.
1997 1996 1995
---- ---- ----
Equipment purchases recorded......................................... $5,970 $3,656 $5,701
Equipment purchases paid............................................. 6,084 3,688 5,842
Distributions to partners declared................................... 6,026 6,028 6,053
Distributions to partners paid....................................... 6,030 6,084 6,010
Proceeds from sale of Equipment recorded............................. 3,117 2,112 2,248
Proceeds from sale of Equipment received............................. 3,049 2,105 2,157
See accompanying notes to financial statements
</TABLE>
<PAGE>
Textainer Equipment Income Fund II, L.P.
(a California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 1997, 1996 and 1995
(Amounts in thousands except for unit and per unit amounts)
Note 1 Summary of Significant Accounting Policies
(a) Nature of Operations
Textainer Equipment Income Fund II, L.P. (TEIF II or the Partnership), a
California limited partnership, with a maximum life of 20 years, was
formed on July 11, 1989. The Partnership was formed to engage in the
business of owning, leasing and selling both new and used 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 and is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM)
and Textainer Limited (TL) are associate general partners of the
Partnership. The managing general partner and the associate general
partners are collectively referred to as the General Partners and are
commonly owned by Textainer Group Holdings Limited (TGH). The General
Partners also act in this capacity for other limited partnerships.
Textainer Acquisition Services Limited (TAS) is an affiliate of the
General Partners which performs services related 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 classified as operating leases, or direct
financing leases if they so qualify under Statement of Financial
Accounting Standards No. 13: "Accounting for Leases". Substantially all of
the Partnership's rental income was generated from the leasing of the
Partnership's Equipment under short-term operating leases.
(c) Use of Estimates
Certain estimates and assumptions were made by the Partnership's
management that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(d) Fair Value of Financial Instruments
In accordance with the Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial Instruments," the
Partnership calculates the fair value of financial instruments and
includes this additional information in the notes to the financial
statements when the fair value is different than the book value of those
financial instruments. At December 31, 1997 and 1996, the fair value of
the Partnership's financial instruments approximate the related book value
of such instruments.
(e) Equipment
The Equipment is recorded at the cost of the assets purchased, which
includes acquisition fees, less depreciation charged. 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 accordance with the Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" (SFAS 121), the Partnership periodically
compares the carrying value of the Equipment to expected future cash flows
for the purpose of assessing the recoverability of the recorded amounts.
If the carrying value exceeds expected future cash flows, the assets are
written down to fair value. Reductions to the carrying value of the
Equipment, are described in note 7.
(f) Nature of Income from Operations
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this
income is denominated in United States dollars. The Partnership's
customers are international shipping lines that transport goods on
international trade routes. The domicile of the lessee is not indicative
of where the lessee is transporting the 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, 1997, 1996 and 1995, no single lessee
accounted for more than 10% of the Partnership's revenues.
(g) Allocation of Net Earnings and Partnership Distributions
In accordance with the Partnership Agreement, 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, 1997 and 1996.
(h) Income Taxes
The Partnership is not subject to income taxes. Accordingly, no provision
for income taxes has been made. The Partnership files federal and state
information returns only. Taxable income or loss is reportable by the
individual partners.
(i) Acquisition Fees
In accordance with the Partnership Agreement, acquisition fees equal to 5%
of the Equipment purchase price are paid to TAS (see note 2). These fees
are capitalized as part of the cost of the Equipment.
(j) Damage Protection Plan
The Partnership offers a Damage Protection Plan (DPP) to lessees of its
Equipment. Under the terms of DPP, the Partnership earns additional
revenues on a daily basis and, in return, has agreed to bear certain
repair costs. It is the Partnership's policy to recognize revenue when
earned and to provide a reserve sufficient to cover the Partnership's
obligation for estimated future repair costs. DPP expenses are included in
direct container expenses in the Statements of Earnings and the related
reserve at December 31, 1997 and 1996, was $226 and $263, respectively.
(k) 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, 1997 and 1996, the
unamortized portion of the settlement amounts was equal to $599 and $812,
respectively.
(l) 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, 1997, 1996 and 1995, which was
3,726,977, 3,728,358, and 3,734,955, respectively.
(m) Redemptions
The following redemption offerings were consummated by the Partnership
during the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Units Average
Redeemed Redemption Price Amount Paid
<S> <C> <C> <C>
Balance at December 31, 1994: 9,582 $ 12.55 $ 120
===== =====
Year ended December 31, 1995:
1st quarter................. 4,287 $ 12.09 $ 52
2nd quarter................ 3,215 $ 10.76 35
3rd 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
===== ======
Year ended December 31, 1997:
1st quarter................. 126 $ 8.71 $ 1
======= =======
Partnership to date................... 23,023 $ 11.54 $ 266
====== =====
</TABLE>
The redemption price is fixed by formula, and varies depending on the
length of time the units have been outstanding.
(n) Reclassifications
Certain reclassifications, not affecting net earnings, have been made to
prior years' amounts in order to conform with the 1997 financial statement
presentation.
Note 2. Transactions with Affiliates
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners or TAS 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 incurred
$251, $251, and $252 of incentive management fees during the years ended
December 31, 1997, 1996 and 1995, respectively, and incurred and
capitalized $288, $173, and $281 of equipment acquisition fees as part of
Equipment costs during the same periods. No equipment liquidation fees
were incurred in 1997, 1996 or 1995.
The Equipment of the Partnership is managed by TEM. 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 due from affiliates, net, at December
31, 1997 and 1996. Prior to the Partnership's sale of its storage fleet in
1995 (note 6), TEM had entered into an agreement with its 100%-owned
subsidiary Textainer Storage Services (TSS) to manage these storage
containers.
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 sale of its storage
fleet, such fees allocable to TSS were passed through by TEM for services
rendered. In 1997, 1996 and 1995, equipment management fees totaled $724,
$809, and $893, respectively. The Equipment is leased by TEM and was
leased by TSS to third party lessees on operating master leases, spot
leases, term leases and full payout net leases. The majority of the
Partnership's leases are operating leases with limited terms and no
purchase option.
Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are incurred and paid by TFS, TEM, and, prior to the sale of
the Partnership's storage fleet in 1995, TSS. Total general and
administrative costs allocated to the Partnership were $648, $665 and $994
for the years ended December 31, 1997, 1996 and 1995, respectively, of
which $352, $348, and $524 were for salaries.
TEM and TSS allocate these general and administrative costs based on the
ratio of the Partnership's interest in the managed Equipment to the total
Equipment managed by TEM and TSS during the period. TFS allocates these
costs based on the ratio of the Partnership's Equipment to the total
Equipment of all limited partnerships managed by TFS. General and
administrative costs allocated to the Partnership by TEM and TSS were
$572, $577, and $850 for the years ended December 31, 1997, 1996 and 1995,
respectively. TFS allocated $76, $88, and $144 of general and
administrative costs to the Partnership during the same periods.
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, 1997 and 1996, due from affiliates, net is comprised of:
1997 1996
---- ----
Due from affiliates:
Due from TEM........................... $ 152 $ 1,665
------ -------
Due to affiliates:
Due to TL.............................. 1 1
Due to TCC............................. 9 9
Due to TAS............................. - 27
Due to TFS............................. 25 27
-------- ----------
35 64
--------- ----------
Due from affiliates, net $ 117 $ 1,601
====== =======
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.
It is the policy of the Partnership and the General Partners to charge
interest on intercompany balances outstanding for more than one month, to
the extent such balances relate to loans for Equipment purchases. Interest
is charged at a rate not greater than the General Partners' or affiliates'
own cost of funds. There was no interest charged on intercompany balances
for the years ended 1997, 1996, or 1995.
Note 3. Rentals Under Operating Leases
The following are the future minimum rent receivables under cancelable
long-term operating leases at December 31, 1997. Although the leases are
generally cancelable at the end of each twelve-month period with a
penalty, the following schedule assumes that the leases will not be
terminated.
Year ending December 31,
1998.............................................................. $ 343
1999.............................................................. 86
2000.............................................................. 43
-------
Total minimum future rentals receivable........................... $ 472
=====
Note 4. Direct Financing Leases
The Partnership has leased containers under direct finance leases with
terms ranging from six months to five years. The components of the net
investment in direct financing leases as of December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Future minimum lease payments receivable.................... $ 650 $ 967
Residual value.............................................. - 4
Less: unearned income....................................... (157) (276)
-------- -------
Net investment in direct financing leases................... $ 493 $ 695
===== =====
</TABLE>
The following is a schedule by year of minimum lease payments receivable
under the direct financing leases at December 31, 1997:
Year ending December 31:
1998...................................................$ 262
1999................................................... 229
2000................................................... 159
---
Total minimum lease payments receivable................$ 650
===
Rental income for the years ended December 31, 1997, 1996 and 1995
includes $110, $238, and $165, respectively, of income from direct finance
leases.
Note 5. Income Taxes
At December 31, 1997, 1996 and 1995, there were temporary differences of
$23,653, $26,844, and $26,902, respectively, between the financial
statement carrying value of certain assets and liabilities and the federal
income tax basis of such assets and liabilities. The reconciliation of net
income for financial statement purposes to net income for federal income
tax purposes for the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements.............................. $ 2,715 $ 2,806 $ 4,579
(Decrease) increase in provision for bad debt.................... (49) (230) 274
Depreciation for income tax purposes less than (in excess of)
depreciation for financial statement purposes.................. 521 (1,631) (6,007)
Gain on sale of fixed assets for federal income tax
purposes in excess of gain recognized for
financial statement purposes................................... 2,969 1,679 2,270
(Decrease) increase in damage protection plan costs (37) (58) 102
Warranty reserve income for tax purposes in excess of
financial statement purposes................................... (213) 298 (141)
-------- ---------- ----------
Net income for federal income tax purposes....................... $ 5,906 $ 2,864 $ 1,077
========== ======== ========
</TABLE>
Note 6. Sale of Storage Fleet
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,
resulting in a gain of $63. The Partnership invested the proceeds from
this sale in additional marine container rental equipment.
Note 7. Equipment Write-down
In the fourth quarter of 1996, a pretax charge of $1,421 was recorded to
write down the value of certain equipment. The write-down is the result of
an evaluation of the Partnership's ability to recover the net book value
of this equipment given the changes in market conditions for this specific
container type. The estimated undiscounted cash flows anticipated from
these refrigerated containers indicated that a write-down to fair market
value was required under SFAS 121. The carrying value of these
refrigerated containers was written down to an amount equal to the
estimated future discounted cash flows from these refrigerated containers,
as there had been no recent sales of this Equipment type to indicate fair
value.
During 1997, it was determined that an additional write-down of $343 was
required based on 1997 sales of this Equipment. The write-downs were
recorded as additional depreciation expense during 1997 and 1996.
<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 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 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, 1997, all Section 16(a) filing requirements
were complied with (except that Robert D. Pedersen, a newly appointed
director of TEM, filed his initial statement of beneficial interest on
Form 3 late, which Form was filed on Form 5). No member of management, or
beneficial owner owned more than 10 percent of any interest in the
Partnership. None of the individuals subject to section 16(a), including
Mr. Pedersen, failed to file or filed late any reports of transactions in
the Units.
The directors and executive officers of the General Partners are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Neil I. Jowell 64 Director and Chairman of TGH, TEM, TL, TCC and TFS
James E. Hoelter 58 President and CEO of TGH and TL, Director of TGH, TEM, TL, TCC, TFS and TSC
John A. Maccarone 53 President and CEO of TEM and TSC, Vice President of TGH, Director of TGH,
TEM, TL, TCC, TFS and TSC
John R. Rhodes 48 Executive Vice President, CFO, and Secretary of TGH, TEM, TL, TCC and TFS
and Director of TEM, TCC and TFS
Alex M. Brown 59 Director of TGH, TEM, TL, TCC, TFS and TSC
Harold J. Samson 76 Director of TGH, TL and TSC
Philip K. Brewer 41 President of TCC and TFS, Senior Vice President - Capital Markets
for TGH and TL
Robert D. Pedersen 39 Senior Vice President - Marketing for TEM, Director of TEM
Anthony C. Sowry 45 Vice President - Operations and Acquisitions for TEM
Jens W. Palludan 47 Regional Vice President - Americas/Africa/Australia for TEM
Wolfgang Geyer 44 Regional Vice President - Europe/Middle East/Persian Gulf for TEM
Mak Wing Sing 40 Regional Vice President - South Asia for TEM
Masanori Sagara 42 Regional Vice President - North Asia for TEM
Stefan Mackula 45 Vice President - Equipment Resale for TEM
Ernest J. Furtado 42 Vice President, Finance and Assistant Secretary of TGH, TL, TEM, TCC and
TFS, Director of TCC and TFS
Richard G. Murphy 45 Vice President - Risk Management for TEM
Janet S. Ruggero 49 Vice President - Administration and Marketing Services for TEM
Adnan Z. Abou Ayyash 53 Director of TGH and TL
Isam K. Kabbani 63 Director of TGH and TL
S. Arthur Morris 64 Director of TGH, TEM and TL
Dudley R. Cottingham 46 Assistant Secretary, Vice President and Director of TGH, TEM and TL
Cara D. Smith 35 Member of Investment Advisory Committee
Nadine Forsman 30 Controller of TCC, TFS and TSC
</TABLE>
Neil I. Jowell is Director and Chairman of TGH, TEM, TL, TCC and TFS
and a member of the Investment Advisory Committee (see "Committees" below). He
has served on the Board of Trencor Ltd. since 1966 and as Chairman since 1973.
He is also a director of Mobile Industries, Ltd. (1969 to present), an Affiliate
of Trencor, and a non-executive director of Forward Corporation Ltd. (1993 to
present). Trencor is a publicly traded diversified industrial group listed on
the Johannesburg Stock Exchange. Its business is the leasing, owning, managing
and financing of marine cargo containers worldwide and the manufacture and
export of containers for international markets. In South Africa, it is engaged
in manufacturing, transport, trading and exports of general commodities. Trencor
also has an interest in Forward Corporation Ltd., a publicly traded holding
company listed on the Johannesburg Stock Exchange. It has interests in
industrial and consumer businesses operating in South Africa and abroad. Mr.
Jowell became affiliated with the General Partners and its affiliates when
Trencor became, through its beneficial ownership in two controlled companies, a
major shareholder of the Textainer Group in 1992. Mr. Jowell has over 36 years'
experience in the transportation industry. He holds an M.B.A. degree from
Columbia University and a B.Com.L.L.B. from the University of Cape Town.
James E. Hoelter is President and Chief Executive Officer of TGH and
TL, and a director of TGH, TEM, TL, TCC, TFS 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, TCC and TFS. 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"), a marine container leasing company
based in San Francisco. Mr. Hoelter co-founded IEA in 1978 and was president
from inception until 1987. From 1976 to 1978, Mr. Hoelter was vice president for
Trans Ocean Ltd., San Francisco, a marine container leasing company, where he
was responsible for North America. From 1971 to 1976, he worked for Itel
Corporation, San Francisco, where he was director of financial leasing for the
container division. Mr. Hoelter received his B.B.A. in finance from the
University of Wisconsin, where he 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 and TSC, Vice President
of TGH and a director of TGH, TEM, TL, TCC, TFS 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.
John R. Rhodes is Executive Vice President, Chief Financial Officer
and Secretary of TGH, TEM, TL, TCC and TFS and a director of TEM, TCC and TFS.
In this capacity he is responsible for all accounting, financial management, and
reporting functions for the Textainer Group. He is also a member of the 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, TFS and TSC.
Additionally, he is a member of the Equipment Investment Committee and the
Investment Advisory Committee (see "Committees", below). Mr. Brown is also a
director of Trencor Ltd. (1996 to present) and Forward Corporation (1997 to
present). Both companies are publicly traded and are listed on the Johannesburg
Stock Exchange. Mr. Brown became affiliated with the Textainer Group in April
1986. From 1987 until 1993, he was President and Chief Executive Officer of
Textainer, Inc. and the Chairman of the Textainer Group. Mr. Brown was the
managing director of Cross County Leasing in England from 1984 until it was
acquired by Textainer in 1986. From 1993 to 1997, Mr. Brown was Chief Executive
Officer of AAF, a company affiliated with Trencor Ltd. Mr. Brown was also
Chairman of WACO International Corporation, based in Cleveland, Ohio until 1997.
Harold J. Samson is a director of TGH, 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 President of TCC and TFS and is Senior Vice
President Capital Markets for TGH and TL. As President of TCC, Mr. Brewer is
responsible for overseeing the management of, and coordinating the activities of
TCC and TFS. As Senior Vice President, he is responsible for optimizing the
capital structure of and identifying new sources of finance for Textainer. Mr.
Brewer is a member of the Credit Committee, the Investment Advisory Committee
and the Equipment Investment Committee (see "Committees" below). Prior to
joining Textainer in 1996, Mr. Brewer worked at Bankers Trust from 1990 to 1996,
starting as a Vice President in Corporate Finance and ending as Managing
Director and Country Manager for Indonesia; from 1989 to 1990, he was Vice
President in Corporate Finance at Jarding Fleming; from 1987 to 1989, he was
Capital Markets Advisor to the United States Agency for International
Development; and from 1984 to 1987 he was an Associate with Drexel Burnham
Lambert in New York. Mr. Brewer holds an M.B.A. in Finance from the Graduate
School of Business at Columbia University, and a B.A. in Economics and Political
Science from Colgate University.
Robert D. Pedersen is Senior Vice President - Marketing for TEM and a
Director of TEM, responsible for worldwide sales and marketing related
activities. Mr. Pedersen is a member of the Equipment Investment Committee and
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. He is also a member of the Credit Committee and the Equipment Investment
Committee (see "Committees", below). 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. 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 Hackensack, New Jersey and is Regional
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.
Wolfgang Geyer is based in Hamburg, Germany and is Regional Vice
President - Europe/ Middle East/ Persian Gulf for TEM, responsible for
coordinating all leasing activities in these areas of operation. Mr. Geyer
joined Textainer in 1993 and was the Marketing Director in Hamburg through July
1997. Mr. Geyer most recently was the Senior Vice President, for Clou Container
Leasing, responsible for Clou's leasing activities on a worldwide basis. Mr.
Geyer work for Clou from 1991 to 1993. Mr. Geyer spent the remainder of his
leasing career, 1975 through 1991, with Itel Container, during which time he
held numerous positions in both operations and marketing within the company.
Mak Wing Sing is based in Singapore and is the Regional Vice President
- - South Asia for TEM, responsible for container leasing activities in
North/Central People's Republic of China, 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 based in Yokohama, Japan and is the Regional Vice
President - North Asia for TEM, 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, TL, TEM, TCC and TFS and a Director of TCC and TFS, in which capacity he
is responsible for all accounting, financial management, and reporting functions
for TGH, TL, TEM, TCC and TFS. Additionally, he is a member of the Equipment
Investment Committee and the Investment Advisory Committee (see "Committees",
below). Prior to joining Textainer in May 1991, Mr. Furtado was Controller for
Itel Instant Space and manager of accounting for Itel Containers International
Corporation, both in San Francisco, from 1984 to 1991. Mr. Furtado's earlier
business affiliations include serving as audit manager for Wells Fargo Bank and
as senior accountant with John F. Forbes & Co., both in San Francisco. He is a
Certified Public Accountant and holds a B.S. in business administration from the
University of California at Berkeley and an M.B.A. in information systems from
Golden Gate University.
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 TEM's Director of Credit and Risk
Management from 1989 to 1991 and as Controller from 1988 to 1989. Prior to the
takeover of the management of the Interocean Leasing Ltd. fleet by TEM in 1988,
Mr. Murphy held various positions in the accounting and financial areas with
that company from 1980, acting as Chief Financial Officer from 1984 to 1988.
Prior to 1980, he held various positions with firms of public accountants in the
U.K. Mr. Murphy is an Associate of the Institute of Chartered Accountants in
England and Wales and holds a Bachelor of Commerce degree from the National
University of Ireland.
Janet S. Ruggero is Vice President, Administration and Marketing
Services 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 18 years. Sheikh Kabbani holds
a B.A. degree from Swarthmore College, Pennsylvania, and an M.A. degree in
Economics and International Relations from Columbia University.
S. Arthur Morris is a director of TGH, TEM and TL. He is a founding
partner in the firm of Morris and Kempe, Chartered Accountants (1962-1977) and
currently functions as a correspondent member of a number of international
accounting firms through his firm Arthur Morris and Company (1978 to date). He
is also President and director of Continental Management Limited (1977 to date).
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Morris has over 30 years
experience in public accounting and serves on numerous business and charitable
organizations in the Cayman Islands and Turks and Caicos Islands. Mr.
Morris became a director of TL and TGH in 1993, and TEM in 1994.
Dudley R. Cottingham is Assistant Secretary, Vice President and a
director of TGH, TEM and TL. He is a partner with Arthur Morris and Company
(1977 to date) and a Vice President and director of Continental Management
Limited (1978 to date), both in the Cayman Islands and Turks and Caicos Islands.
Continental Management Limited is a Bermuda corporation that provides corporate
representation, administration and management services and corporate and
individual trust administration services. Mr. Cottingham has over 20 years
experience in public accounting with responsibility for a variety of
international and local clients. Mr. Cottingham became a director of TL and TGH
in 1993, and TEM in 1994.
Cara D. Smith is a member of the Investment Advisory Committee
(see "Committees", below). Ms. Smith was the President and Chief Executive
Officer of TSC through June 1997 and a director of TCC and TFS through August
1997. Ms. Smith joined Textainer in 1992, and prior to 1996, was Vice President
of Marketing. Ms. Smith has worked in the securities industry for the past 13
years. Ms. Smith's extensive experience ranges from compliance and investor
relations to administration and marketing of equipment leasing, multi-family
housing and tax credit investment programs. She holds five securities licenses
and is a registered principal. Ms. Smith is also a member of the International
Association of Financial Planners.
Nadine Forsman is the Controller of TCC, TFS and TSC. In this capacity
she is responsible for accounting, financial management and reporting functions
for TCC, TFS and TSC as well as overseeing all communications with the Limited
Partners and as such, supervises personnel in performing this function. She is a
member of the Equipment Investment Committee and the Investment Advisory
Committee (See "Committees" below). Prior to joining Textainer in August 1996,
Ms. Forsman was employed by KPMG Peat Marwick LLP, holding various positions,
the most recent of which was manager, from 1990 to 1996. Ms Forsman holds a B.S.
in Accounting and Finance from San Francisco State University and holds a
financial and operations principal securities license.
Committees
The Managing General Partner has established the following three
committees to facilitate decisions involving credit and organizational matters,
negotiations, documentation, management and final disposition of Equipment for
the Partnership and for other programs organized by the Textainer Group:
Equipment Investment Committee. The Equipment Investment Committee
will review the Equipment leasing programs of the Partnership on a regular basis
with emphasis on matters involving Equipment purchases, the Equipment mix in the
Partnership's portfolio, Equipment remarketing issues, and decisions regarding
ultimate disposition of Equipment. The members of the committee are James E.
Hoelter (Chairman), John A. Maccarone, John R. Rhodes, Anthony C. Sowry, Richard
G. Murphy (Secretary), Alex M. Brown, Philip K. Brewer, Robert D. Pedersen,
Ernest J. Furtado and Nadine Forsman.
Credit Committee. The Credit Committee will establish credit limits
for every lessee and potential lessee of Equipment and periodically review these
limits. In setting such limits, the Credit Committee will consider such factors
as customer trade routes, country, political risk, operational history, credit
references, credit agency analyses, financial statements, and other information.
The members of the Credit Committee are James E. Hoelter (Chairman), John A.
Maccarone, Richard G. Murphy (Secretary), Janet S. Ruggero, John R. Rhodes,
Anthony C. Sowry, Philip K. Brewer 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, Ernest J.
Furtado (Secretary), Philip K. Brewer, John R. Rhodes, Nadine Forsman, Harold J.
Samson, Alex M. Brown and Neil I. Jowell.
ITEM 11 - EXECUTIVE COMPENSATION
The Registrant has no executive officers and does not reimburse TFS, TEM or TL
for the remuneration payable to their executive officers. For information
regarding reimbursements made by the Registrant to the General Partners, see
Note 2 of the Financial Statements.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a) Security Ownership of Certain Beneficial Owners
There is no person or "Group" who is known to the Registrant to be the
beneficial owner of more than five percent of the outstanding units of
limited partnership interest in the Registrant.
b) Security Ownership of Management
As of January 1, 1998:
Number
Name of Beneficial Owner Of Units % All Units
James E. Hoelter...................... 438 0.012%
John A. Maccarone..................... 500 0.013%
Harold J. Samson...................... 2,500 0.067%
----- -----
Officers and Management as a Group.... 3,438 0.092%
===== =====
c) Changes in control
Inapplicable
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Dollar amounts in thousands)
(a) Transactions with Management and Others.
At December 31, 1997 and 1996, net due from affiliates is comprised of:
1997 1996
---- ----
Due from affiliates:
Due from TEM........................... $ 152 $ 1,665
----- -------
Due to affiliates:
Due to TL.............................. 1 1
Due to TCC............................. 9 9
Due to TAS............................. - 27
Due to TFS. ........................... 25 27
------- ----------
35 64
------- ----------
Due from affiliates, net: $ 117 $ 1,601
===== =======
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 or in the accrual and remittance of net rental revenues
from TEM.
In addition, the Registrant paid or will pay the following amounts to
the General Partners and TAS:
Acquisition fees in connection with the purchase of Equipment on behalf
of the Registrant:
1997 1996 1995
---- ---- ----
TAS..................... $ 288 $ 173 $ 281
---- --- ---
Management fees in connection with the operations of the Registrant:
1997 1996 1995
---- ---- ----
TFS.......................... $ 196 $ 196 $ 197
TEM and TSS.................. 779 864 948
----- ----- -----
Total........................ $ 975 $ 1,060 $ 1,145
===== ===== =====
Reimbursement for administrative costs in connection with of the
operations of the Registrant:
1997 1996 1995
---- ---- ----
TFS........................... $ 76 $ 88 $ 144
TEM and TSS................... 572 577 850
--- --- ---
Total......................... $ 648 $ 665 $ 994
=== === ===
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
See the "Management" and "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, 1997 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.
b) During the year ended 1997, 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 18, 1998, we reported on the balance sheets of
Textainer Equipment Income Fund II, L.P. (the Partnership) as of December 31,
1997 and 1996, and the related statements of earnings, partners' capital and
cash flows for each of the years in the three-year period ended December 31,
1997 which are included in the 1997 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.
San Francisco, California
February 18, 1998
<PAGE>
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(A California Limited Partnership)
Schedule II - Valuation and Qualifying Accounts
(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
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997:
Allowance for
doubtful accounts $ 1,073 $ 92 $ - $ (141) $ 1,024
------ ----- ------ ------ ------
Damage protection
plan reserve $ 263 239 $ - $ (276) $ 226
----- ----- ------ ------ -------
For the year ended December 31, 1996:
Allowance for
doubtful accounts $ 1,303 $ (97) $ - $ (133) $ 1,073
----- ------ ------ ------ ------
Damage protection
plan reserve $ 321 $ 218 $ - $ (276) $ 263
----- ---- ------ ------ -------
For the year ended December 31, 1995:
Allowance for
doubtful accounts $ 1,029 $ 512 $ - $ (238) $ 1,303
----- ---- ------ ------ ------
Damage protection
plan reserve $ 219 $ 338 $ - $ (236) $ 321
----- ---- ------ ------ -------
</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 26, 1998
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 26, 1998
John R. Rhodes (Principal Financial and
Accounting Officer), and
Secretary
________________________________ President (Principal Executive March 26, 1998
Philip K. Brewer Officer)
________________________________ Vice President, Finance, March 26, 1998
Ernest J. Furtado Assistant Secretary and Director
________________________________ Director March 26, 1998
James E. Hoelter
________________________________ Director March 26, 1998
John A. Maccarone
</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 26, 1998
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 26, 1998
________________________________ (Principal Financial and
John R. Rhodes Accounting Officer), and
Secretary
/s/Philip K. Brewer President(PrincipalExecutive March 26, 1998
________________________________ Officer)
Philip K. Brewer
/s/Ernest J. Furtado Vice President, Finance March 26, 1998
________________________________ Assistant Secretary and Director
Ernest J. Furtado
/s/James E. Hoelter Director March 26, 1998
________________________________
James E. Hoelter
/s/John A. Maccarone Director March 26, 1998
________________________________
John A. Maccarone
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Textainer Equipment Income Fund II, L.P. 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 981
<SECURITIES> 0
<RECEIVABLES> 4,498
<ALLOWANCES> 1,024
<INVENTORY> 0
<CURRENT-ASSETS> 95
<PP&E> 60,572
<DEPRECIATION> 22,257
<TOTAL-ASSETS> 42,865
<CURRENT-LIABILITIES> 1,650
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 41,215
<TOTAL-LIABILITY-AND-EQUITY> 42,865
<SALES> 0
<TOTAL-REVENUES> 10,433
<CGS> 0
<TOTAL-COSTS> 7,962
<OTHER-EXPENSES> (244)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,715
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,715
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
