TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
August 8, 2002
Securities and Exchange Commission
Washington, DC 20549
Ladies and 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 Quarterly Report on Form 10-Q for the
Second Quarter ended June 30, 2002.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Nadine Forsman
Controller
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission file number 0-19145
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
A California Limited Partnership
(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)
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.
Yes [X] No [ ]
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2002
Table of Contents
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Page
Item 1. Financial Statements
Balance Sheets - June 30, 2002
and December 31, 2001 (unaudited)...................................................... 3
Statements of Operations for the three and six months
ended June 30, 2002 and 2001 (unaudited)............................................... 4
Statements of Partners' Capital for the six months
ended June 30, 2002 and 2001 (unaudited)............................................... 5
Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 (unaudited)............................................... 6
Notes to Financial Statements (unaudited).............................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 15
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Balance Sheets
June 30, 2002 and December 31, 2001
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2002 2001
---------------- ----------------
Assets
Container rental equipment, net of accumulated
depreciation of $15,083 (2001: $16,028) (note 5) $ 19,115 $ 21,072
Cash 223 266
Net investment in direct finance leases (note 4) 85 99
Accounts receivable, net of allowance for doubtful
accounts of $123 (2001: $114) 925 1,069
Due from affiliates, net (note 2) 126 155
Prepaid expenses 3 10
---------------- ----------------
$ 20,477 $ 22,671
================ ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 164 $ 200
Accrued liabilities 140 94
Accrued damage protection plan costs 109 107
Accrued recovery costs 9 93
Deferred quarterly distributions 36 61
Deferred damage protection plan revenue 76 72
---------------- ----------------
Total liabilities 534 627
---------------- ----------------
Partners' capital:
General partners - -
Limited partners 19,943 22,044
---------------- ----------------
Total partners' capital 19,943 22,044
---------------- ----------------
$ 20,477 $ 22,671
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Operations
For the three and six months ended June 30, 2002 and 2001
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
--------------------------------------------------------------------------------------------------------------------------------
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
-------------- -------------- -------------- --------------
Rental income $ 1,105 $ 1,541 $ 2,241 $ 3,250
-------------- -------------- -------------- --------------
Costs and expenses:
Direct container expenses 356 468 685 955
Bad debt (benefit) expense (7) (12) 13 (24)
Depreciation 476 607 996 1,236
Write-down of containers (note 5) 53 86 201 121
Professional fees 14 8 24 18
Management fees to affiliates (note 2) 96 214 199 391
General and administrative costs to affiliates (note 2) 61 76 127 160
Other general and administrative costs 44 25 85 47
(Gain) loss on sale of containers (58) 93 (21) 113
-------------- -------------- -------------- --------------
1,035 1,565 2,309 3,017
-------------- -------------- -------------- --------------
Income (loss) from operations 70 (24) (68) 233
-------------- -------------- -------------- --------------
Interest income 2 19 4 44
-------------- -------------- -------------- --------------
Net earnings (loss) $ 72 $ (5) $ (64) $ 277
============== ============== ============== ==============
Allocation of net earnings (loss) (note 2):
General partners $ 11 $ 15 $ 20 $ 31
Limited partners 61 (20) (84) 246
-------------- -------------- -------------- --------------
$ 72 $ (5) $ (64) $ 277
============== ============== ============== ==============
Limited partners' per unit share
of net earnings (loss) $ 0.02 $ (0.01) $ (0.02) $ 0.07
============== ============== ============== ==============
Limited partners' per unit share
of distributions $ 0.27 $ 0.40 $ 0.52 $ 0.80
============== ============== ============== ==============
Weighted average number of limited
partnership units outstanding 3,654,413 3,692,962 3,654,413 3,692,962
============== ============== ============== ==============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
Partners' Capital
------------------------------------------------------------
General Limited Total
------------- -------------- ---------------
Balances at January 1, 2001 $ - $ 28,967 $ 28,967
Distributions (31) (2,955) (2,986)
Redemptions (note 6) - (20) (20)
Net earnings 31 246 277
------------- -------------- ---------------
Balances at June 30, 2001 $ - $ 26,238 $ 26,238
============= ============== ===============
Balances at January 1, 2002 $ - $ 22,044 $ 22,044
Distributions (20) (1,891) (1,911)
Redemptions (note 6) - (126) (126)
Net earnings (loss) 20 (84) (64)
------------- -------------- ---------------
Balances at June 30, 2002 $ - $ 19,943 $ 19,943
============= ============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- -----------------------------------------------------------------------------------------------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net (loss) earnings $ (64) $ 277
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation 996 1,236
Write-down of containers (note 5) 201 121
Increase (decrease) in allowance for doubtful accounts 9 (99)
(Gain) loss on sale of containers (21) 113
(Increase) decrease in assets:
Net investment in direct finance leases 21 30
Accounts receivable 135 352
Due from affiliates, net (35) 259
Prepaid expenses 7 7
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 10 (95)
Accrued damage protection plan costs 2 (32)
Accrued recovery costs (84) 9
Deferred damage protection plan revenue 4 -
----------- -----------
Net cash provided by operating activities 1,181 2,178
----------- -----------
Cash flows from investing activities:
Proceeds from sale of containers 838 903
Container purchases - (96)
----------- -----------
Net cash provided by investing activities 838 807
----------- -----------
Cash flows from financing activities:
Redemptions of limited partnership units (126) (20)
Distributions to partners (1,936) (2,989)
----------- -----------
Net cash used in financing activities (2,062) (3,009)
----------- -----------
Net decrease in cash (43) (24)
Cash at beginning of period 266 1,652
----------- -----------
Cash at end of period $ 223 $ 1,628
=========== ===========
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements Of Cash Flows--Continued
For the six months ended June 30, 2002 and 2001
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of container purchases, distributions
to partners, and proceeds from sale of containers which had not been paid or
received as of June 30, 2002 and 2001, and December 31, 2001 and 2000, resulting
in differences in amounts recorded and amounts of cash disbursed or received by
the Partnership, as shown in the Statements of Cash Flows for the six-month
periods ended June 30, 2002 and 2001.
June 30 Dec. 31 June 30 Dec. 31
2002 2001 2001 2000
--------- --------- --------- ---------
Container purchases included in:
Container purchases payable.................... $ - $ - $ - $ 88
Distributions to partners included in:
Due to affiliates.............................. 2 2 6 6
Deferred quarterly distributions............... 36 61 63 66
Proceeds from sale of containers included in:
Due from affiliates............................ 180 244 308 279
The following table summarizes the amounts of container purchases, distributions
to partners and proceeds from sale of containers recorded by the Partnership and
the amounts paid or received as shown in the Statements of Cash Flows for the
six-month periods ended June 30, 2002 and 2001.
2002 2001
---- ----
Container purchases recorded...................................................... $ - $ 8
Container purchases paid.......................................................... - 96
Distributions to partners declared................................................ 1,911 2,986
Distributions to partners paid.................................................... 1,936 2,989
Proceeds from sale of containers recorded......................................... 774 932
Proceeds from sale of containers received......................................... 838 903
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to net investment in
direct finance leases. The carrying value of containers transferred during the
six-month periods ended June 30, 2002 and 2001 was $7 and $4, respectively.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three and six months ended June 30, 2002 and 2001
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------
Note 1. General
Textainer Equipment Income Fund II, L.P. (the Partnership), a California
limited partnership with a maximum life of 20 years, was formed in 1989.
The Partnership owns a fleet of intermodal marine cargo containers, which
are leased to international shipping lines.
In July 2001, the Partnership began its liquidation phase. This phase may
last from two to six or more years depending on whether the containers are
sold (i) in one or more large transactions or (ii) gradually, either as
they reach the end of their marine useful lives or when an analysis
indicates that their sale is warranted based on existing market conditions
and the container's age, location and condition. The Partnership
anticipates that all excess cash, after redemptions and working capital
reserves, will be distributed to the limited and general partners on a
monthly basis.
The final termination and winding up of the Partnership, as well as payment
of liquidating and/or final distributions, will occur at the end of the
liquidation phase when all or substantially all of the Partnership's
containers have been sold and the Partnership begins its dissolution.
The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments), which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of June 30, 2002 and December 31, 2001, and the
results of its operations for the three and six-month periods ended June
30, 2002 and 2001 and changes in partners' capital and cash flows for the
six-month periods ended June 30, 2002 and 2001, have been made.
The financial information presented herein should be read in conjunction
with the audited financial statements and the accompanying notes included
in the Partnership's audited financial statements as of and for the year
ended December 31, 2001, in the Annual Report filed on Form 10-K.
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. The Partnership's management evaluates its estimates on
an on-going basis, including those related to the container rental
equipment, accounts receivable and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its lessees to make required
payments. These allowances are based on management's current assessment of
the financial condition of the Partnership's lessees and their ability to
make their required payments. If the financial condition of the
Partnership's lessees were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased
containers and the estimated sales price at the end of the container's
useful life. If these estimates were subsequently revised based on
permanent changes in the container leasing market, the Partnership would
revise its depreciation policy.
Additionally, the recoverability of the recorded amounts of containers to
be held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are
not impaired and that containers identified for sale are recorded at
amounts that do not exceed the estimated fair value of the containers.
Containers to be held for continued use are considered impaired and are
written down to estimated fair value when the estimated future undiscounted
cash flows are less than the recorded values. Containers identified for
sale are written down to estimated fair value when the recorded value
exceeds the estimated fair value. In determining the estimated future
undiscounted cash flows and fair value of containers, assumptions are made
regarding future demand and market conditions for leased containers as well
as for used containers and the sales prices for used containers. If actual
market conditions are less favorable than those projected or if actual
sales prices are lower than those estimated by the Partnership, additional
write-downs may be required and/or losses may be realized.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of," and elements of Accounting Principles Board Opinion 30,
"Reporting the Results of Operations - Reporting the Effects on Disposal of
a Segment of a Business and Extraordinary, Unusual or Infrequently
Occurring Events and Transactions."
SFAS No. 144 establishes a single-accounting model for long-lived assets to
be disposed of while maintaining many of the provisions relating to
impairment testing and valuation. The Partnership adopted this Statement on
January 1, 2002 and there was no material impact on the Partnership's
financial condition, operating results or cash flow.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds FASB Statement 4, Reporting Gains and Losses
of Debt Extinguishments and an amendment of that Statement, FASB No. 64.
This Statement also rescinds FASB No. 44, Accounting for Intangible Assets
of Motor Carriers. FASB 145 also amends FASB Statement No. 13, Accounting
for Leases, to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. These rescissions and amendment are not anticipated to have a
material impact on the financial statements of the Partnership.
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform to the 2002 financial statement
presentation.
Note 2. Transactions with Affiliates
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. The General Partners manage
and control the affairs of the Partnership.
In accordance with the Partnership Agreement, sections 3.08 through 3.12,
net earnings or losses and distributions are generally allocated 1% to the
General Partners and 99% to the Limited Partners. If the allocation of
distributions exceeds the allocation of net earnings and creates a deficit
in the General Partners' aggregate capital account, the Partnership
Agreement provides for a special allocation of gross income equal to the
amount of the deficit to be made to the General Partners.
As part of the operation of the Partnership, the Partnership is to pay to
the General Partners an acquisition fee, an equipment management fee, an
incentive management fee and an equipment liquidation fee. These fees are
for various services provided in connection with the administration and
management of the Partnership. No acquisition fees were incurred during the
six-month periods ended June 30, 2002 and 2001. For the three and six-month
periods ended June 30, 2002 the Partnership incurred $18 and $42 of
incentive management fees, respectively, and $106 and $168, respectively,
for the comparable periods in 2001. There were no equipment liquidation
fees incurred during these periods.
The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the Partnership's containers. TEM holds, for the payment of
direct operating expenses, a reserve of cash that has been collected from
leasing operations; such cash is included in due from affiliates, net at
June 30, 2002 and December 31, 2001.
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.
These fees totaled $78 and $157 for the three and six-month periods ended
June 30, 2002, respectively, and $108 and $223, respectively, for the
comparable periods in 2001.
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 and TEM. General and
administrative costs allocated to the Partnership during the three and
six-month periods ended June 30, 2002 and 2001 were as follows:
Three months Six months
ended June 30, ended June 30,
--------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Salaries $40 $43 $ 81 $ 91
Other 21 33 46 69
-- -- --- ---
Total general and
administrative costs $61 $76 $127 $160
== == === ===
TEM allocates these general and administrative costs based on the ratio of
the Partnership's interest in the managed containers to the total container
fleet managed by TEM during the period. TFS allocates these costs based on
the ratio of the Partnership's containers to the total container fleet of
all limited partnerships managed by TFS. The General Partners allocated the
following general and administrative costs to the Partnership during the
three and six-month periods ended June 30, 2002 and 2001:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
TEM $52 $66 $108 $139
TFS 9 10 19 21
-- -- --- ---
Total general and
administrative costs $61 $76 $127 $160
== == === ===
At June 30, 2002 and December 31, 2001, due from affiliates, net is
comprised of:
2002 2001
---- ----
Due from affiliates:
Due from TEM................... $147 $192
--- ---
Due to affiliates:
Due to TFS..................... 19 23
Due to TCC..................... 2 14
--- ---
21 37
--- ---
Due from affiliates, net $126 $155
=== ===
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 remittance of expenses,
fees and distributions described above and in the accrual and remittance of
net rental revenues and container sales proceeds from TEM.
Note 3. Lease Rental Income
Leasing income arises principally from the renting of containers to various
international shipping lines. Revenue is recorded when earned according to
the terms of the container rental contracts. These contracts are typically
for terms of five years or less. The following is the lease mix of the
on-lease containers (in units) at June 30, 2002 and 2001:
2002 2001
---- ----
On-lease under master leases 4,286 5,682
On-lease under long-term leases 3,012 2,841
----- -----
Total on-lease containers 7,298 8,523
===== =====
Under master lease agreements, the lessee is not committed to lease a
minimum number of containers from the Partnership during the lease term and
may generally return any portion or all the containers to the Partnership
at any time, subject to certain restrictions in the lease agreement. Under
long-term lease agreements, containers are usually leased from the
Partnership for periods of between three to five years. Such leases are
generally cancelable with a penalty at the end of each twelve-month period.
Under direct finance leases, the containers are usually leased from the
Partnership for the remainder of the container's useful life with a
purchase option at the end of the lease term.
The remaining containers are off-lease and are located primarily at a large
number of storage depots. At June 30, 2002, the Partnership's off-lease
containers were in the following locations:
Americas 1,036
Europe 351
Asia 1,399
Other 39
-----
Total off-lease containers 2,825
=====
At June 30, 2002 approximately 14% of the Partnership's off-lease
containers had been specifically identified as for sale.
Note 4. Direct Finance Leases
The Partnership has leased containers under direct finance leases with
terms ranging from two to five years. The components of the net investment
in direct finance leases at June 30, 2002 and December 31, 2001 are as
follows:
2002 2001
---- ----
Future minimum lease payments receivable..... $89 $109
Residual value............................... 2 2
Less: unearned income....................... (6) (12)
-- ---
Net investment in direct finance leases... $85 $ 99
== ===
The following is a schedule by year of minimum lease payments receivable
under the direct finance leases at June 30, 2002:
Year ending June 30:
2003..................................... $54
2004..................................... 31
2005..................................... 4
--
Total minimum lease payments receivable.. $89
==
Rental income for the three and six-month periods ended June 30, 2002 and
2001 includes $2 and $5 and $2 and $3, respectively, of income from direct
finance leases.
Note 5. Container Rental Equipment Write-Down
The Partnership stopped purchasing containers in 2001, but its leasing
activities are effected by fluctuations in new container prices. New
container prices steadily declined from 1995 through 1999. Although
container prices increased in 2000, these prices declined again in 2001 and
have remained low during the first half of 2002. As a result, the cost of
new containers purchased in recent years is significantly less than the
average cost of containers purchased in prior years. The Partnership
evaluated the recoverability of the recorded amount of container rental
equipment at June 30, 2002, and 2001 for containers to be held for
continued use and determined that a reduction to the carrying value of
these containers was not required. The Partnership also evaluated the
recoverability of the recorded amount of containers identified for sale in
the ordinary course of business and determined that a reduction to the
carrying value of these containers was required. The Partnership wrote down
the value of these containers to their estimated fair value, which was
based on recent sales prices less cost of sales. During the six-month
periods ended June 30, 2002 and 2001, the Partnership recorded write-down
expenses of $201 and $121, respectively, on 434 and 345 containers
identified as for sale and requiring a reserve. During the three-month
periods ended June 30, 2002 and 2001, the Partnership recorded write-down
expenses of $53 and $86, respectively, on 155 and 234 containers identified
as for sale and requiring a reserve. At June 30, 2002 and 2001, the net
book value of the 387 and 331 containers identified as for sale was $334
and $307, respectively.
The Partnership sold 457 previously written down containers for a loss of
$46 during the six-month period ended June 30, 2002 and sold 215 previously
written down containers for a loss of $9 during the same period in 2001.
During the three-month period ended June 30, 2002 the Partnership sold 254
of these previously written down containers for a loss of $29 and sold 143
previously written down containers for a loss of $6 during the same period
in 2001. The Partnership incurred losses on the sale of some containers
previously written down as the actual sales prices received on these
containers were lower than the estimates used for the write-downs.
The Partnership also sold containers that had not been written down and
recorded a gain of $67 and loss of $104 during the six-month periods ended
June 30, 2002 and 2001, respectively. During the three-month periods ended
June 30, 2002 and 2001 the Partnership recorded a gain of $87 and a loss of
$87, respectively, on the sale of containers that had not been written
down.
As more containers are subsequently identified for sale or if container
sales prices continue to decline, the Partnership may incur additional
write-downs on containers and/or may incur losses on the sale of
containers. The Partnership will continue to evaluate the recoverability of
the recorded amounts of container rental equipment and cautions that a
write-down of container rental equipment and/or an increase in its
depreciation rate may be required in future periods for some or all of its
container rental equipment.
Note 6. Redemptions
The following redemptions were consummated by the Partnership during the
six-month periods ended June 30, 2002 and 2001:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2000...................... 54,194 $9.50 $515
Six-month period ended
June 30, 2001.......................... 2,843 $7.09 20
------ ---
Total Partnership redemptions as of
June 30, 2001.......................... 57,037 $9.37 $535
====== ===
Total Partnership redemptions as of
December 31, 2001...................... 71,715 $8.66 $621
Six-month period ended
June 30, 2002.......................... 23,872 $5.28 126
------ ---
Total Partnership redemptions as of
June 30, 2002.......................... 95,587 $7.81 $747
====== ===
The redemption price is fixed by formula.
ITEM 2 - 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 three and six-month periods ended
June 30, 2002 and 2001. Please refer to the Financial Statements and Notes
thereto in connection with the following discussion.
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 General
Partners manage and control the affairs of the Partnership.
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.
In July 2001, the Partnership entered its liquidation phase, which may last from
two to six or more years depending on whether the containers are sold (i) in one
or more large transactions or (ii) gradually, either as they reach the end of
their useful marine lives or when an analysis indicates that their sale is
warranted based on existing market conditions and the container's age, location
and condition. The Partnership anticipates that all excess cash, after
redemptions and working capital reserves, will be distributed to the general and
limited partners on a monthly basis. These distributions will consist of cash
from operations and/or cash from sales proceeds. As the Partnership's container
fleet decreases, cash from operations is expected to decrease, while cash from
sales proceeds is expected to fluctuate based on the number of containers sold
and the actual sales price per container received. Consequently, the Partnership
anticipates that a large portion of all future distributions will be a return of
capital.
To date, the Partnership has sold containers only gradually, rather than in
large transactions.
The final termination and winding up of the Partnership, as well as payment of
liquidating and/or final distributions, will occur at the end of the liquidation
phase when all or substantially all of the Partnership's containers have been
sold and the Partnership begins its dissolution.
The Partnership invests working capital, cash flow from operating and investing
activities prior to its distribution to the partners in short-term, liquid
investments. Rental income is the Partnership's principal source of liquidity
and provides a major source of funds for distributions. Rental income has been
adversely affected by current market conditions for leased containers, and these
market conditions may continue or worsen. Market conditions are discussed more
fully in "Results of Operations. " 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 six-month period ended June 30, 2002, the Partnership declared cash
distributions to limited partners pertaining to the period from December 2001
through May 2002 in the amount of $1,891, which represented $0.52 per unit. On a
cash basis, after paying redemptions, $1,035 of these distributions was from
operating activities, and the balance was a return of capital. On a financial
statement basis, all of these distributions were a return of capital.
From time to time, the Partnership redeems units from limited partners for a
specified redemption value, which is set by formula. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy. During the six-month period ended June 30, 2002,
the Partnership redeemed 23,872 units for a total dollar amount of $126. The
Partnership used cash flow from operations to pay for the redeemed units.
Net cash provided by operating activities for the six-month periods ended June
30, 2002 and 2001, was $1,181 and $2,178, respectively. The decrease of $997, or
46%, was primarily attributed to the fluctuation in net (loss) earnings,
adjusted for non-cash transactions, and the fluctuations in due from affiliates,
net and gross accounts receivable. Net earnings, adjusted for non-cash
transactions, decreased primarily due to the decrease in rental income, which is
discussed more fully in "Results of Operations." The fluctuations in due from
affiliates, net, resulted from timing differences in the payment of expenses,
fees and distributions and the remittance of net rental revenues and container
sales proceeds, as well as in fluctuations in these amounts. The decrease of
$135 in gross accounts receivable during the six-month period ended June 30,
2002 was primarily due to the decrease in rental income, and was partially
offset by the increase in the average collection period of accounts receivable.
The decrease in gross accounts receivable of $352 during the same period in 2001
was primarily due to the decrease in rental income and a decline in the average
collection period of accounts receivable.
For the six-month periods ended June 30, 2002 and 2001 net cash provided by
investing activities (the purchase and sale of containers) was $838 and $807,
respectively. The increase of $31 was due to the decrease in cash used for
container purchases of $96, offset by the decrease in proceeds from container
sales of $65. Cash used for container purchases decreased as the Partnership did
not purchase containers during the six-month period ended June 30, 2002 as it is
now in its liquidation phase, as discussed above. Proceeds from container sales
decreased primarily due to the decrease in the number of containers sold and was
partially offset by the fluctuation in accrued sales proceeds receivable. The
Partnership continued to sell containers located in low demand locations during
the six-month period ended June 30, 2002. Additionally, some of the containers
sold during the six-month period ended June 30, 2002 were driven by the
Partnership's liquidation plans discussed above, as well as by adverse market
conditions in low demand locations. Although the average sales price was
comparable between the periods, generally, the sales price received on container
sales continued to decrease as a result of current market conditions, which have
adversely affected the value of used containers. The sale of containers in low
demand locations, the decline in value of used containers, and the related
market conditions are discussed more fully under "Results of Operations."
Due, in part, to these market conditions and their effect on demand for used
containers, the Partnership has been primarily selling containers only if the
containers are at the end of their useful lives or if they are located in these
low demand locations. Therefore, and as noted above, the Partnership has
implemented its liquidation phase to date by selling containers gradually. The
Partnership will continue to evaluate its options for selling containers in the
context of both these market conditions and the Partnership's liquidation plans.
The number of containers sold both in low demand locations and elsewhere, as
well as the amount of sales proceeds, will affect how much the Partnership will
pay in future distributions to Partners.
Results of Operations
The Partnership's income from operations, which consists primarily of rental
income less costs and expenses (including container depreciation, direct
container expenses, management fees and reimbursement of administrative
expenses) was directly related to the size of the container fleet during the
six-month periods ended June 30, 2002 and 2001, as well as certain other factors
as discussed below. The following is a summary of the container fleet (in units)
available for lease during those periods:
2002 2001
---- ----
Beginning container fleet............... 10,990 13,243
Ending container fleet.................. 10,123 12,151
Average container fleet................. 10,557 12,697
The average container fleet decreased 17% from the six-month period ended June
30, 2001 to the comparable period in 2002, primarily due to continuing sales of
containers (i) that had reached the end of their useful lives or (ii) that an
analysis had indicated their sale was otherwise warranted. Included in this
second group were containers located in low demand locations. The Partnership
expects that the size of its container fleet will further decline as additional
containers are sold for these reasons and as the Partnership continues its
liquidation plans. The decline in the container fleet has contributed to an
overall decline in rental income from the six-month period ended June 30, 2001
to the equivalent period in 2002. This decline is expected to continue in future
years, as the size of the Partnership's container fleet continues to decrease.
Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 65%, and 73% during the six-month
periods ended June 30, 2002 and 2001, respectively. The remaining container
fleet is off-lease and is located primarily at a large number of storage depots.
At June 30, 2002, the Partnership's off-lease containers (in units) were in the
following locations:
Americas 1,036
Europe 351
Asia 1,399
Other 39
-----
Total off-lease containers 2,825
=====
At June 30, 2002 approximately 14% of the Partnership's off-lease containers had
been specifically identified as for sale.
In addition to utilization, rental income is affected by daily rental rates. The
average daily rental rate decreased 9% between the periods. The decrease in the
average rental rate was due to declines in master and long term lease rates.
Additionally, a higher percentage of the Partnership's containers are on lease
under long term leases, which generally have lower rental rates than master
leases. Rental rates for long term leases are generally lower because the
lessees have contracted to lease the containers for several years and cannot
return the containers prior to the termination date without a penalty.
The following is a comparative analysis of the results of operations for the
six-month periods ended June 30, 2002 and 2001.
The Partnership's (loss) income from operations for the six-month periods ended
June 30, 2002 and 2001 was ($68) and $233, respectively, on rental income of
$2,241 and $3,250, respectively. The decrease in rental income of $1,009, or
31%, from the six-month period ended June 30, 2001 to the comparable period in
2002 was attributable to the decreases in income from container rentals and
other rental income, which is discussed below. Income from container rentals,
the major component of total revenue, decreased $912, or 32%, primarily due to
decreases in the average container fleet of 17%, the on-hire utilization of 11%,
and average rental rates of 9% between the periods. The majority of the
Partnership's rental income was generated from the leasing of the Partnership's
containers under master operating leases.
In the fourth quarter of 2000, utilization began to decline and continued to
decline during 2001 and the beginning of 2002. This decline was due to lower
overall demand by shipping lines for leased containers, which was primarily a
result of the worldwide economic slowdown. Two other factors reduced the demand
for leased containers. Shipping lines added larger vessels to their fleets
which, combined with lower cargo volume growth, made it easier for them to use
otherwise empty vessel space to reposition their own containers back to high
demand locations. Additionally, in anticipation of the delivery of these new,
larger vessels, many shipping lines placed large orders for new containers in
2000 and 2001, thus temporarily reducing their need to lease containers. These
orders for additional containers are part of a general increase in vessel
capacity for the shipping lines. This increase in vessel capacity amounted to
12% in 2001. An additional increase in vessel capacity of approximately 12% is
expected in 2002, because the shipping lines placed orders for additional ships
before recognizing the slowdown in world trade. To the extent that this
increased vessel capacity remains underutilized, shipping lines may seek to cut
costs in order to sustain profits or reduce losses, which may put further
downward pressure on demand for containers.
Utilization improved steadily beginning in March 2002 due to:
o An increase in export cargo out of Asia
o Prior repositioning of containers to Asia which placed large quantities of
containers in areas of strong demand
o Fewer purchases of new containers by container lessors and shipping lines.
This utilization improvement has continued into the third quarter of 2002 but
the General Partners caution that market conditions could deteriorate again due
to global economic conditions. Demand for leased containers could therefore
decline again and result in a decline in utilization and further declines in
lease rates and container sale prices, adversely affecting the Partnership's
operating results.
Despite the improvement in utilization, the Partnership continues to sell
(rather than reposition) some containers located in low demand locations. For
the number of off-lease containers located in the lower demand locations in the
Americas and Europe, see the chart above. The decision to sell containers is
based on the current expectation that the economic benefit of selling these
containers is greater than the estimated economic benefit of continuing to own
these containers. The majority of the containers sold are older containers. The
expected economic benefit of continuing to own these older containers is
significantly less than that of newer containers. This is due to their shorter
remaining marine life, the cost to reposition them, and the shipping lines'
preference for leasing newer containers when they have a choice.
Once the decision had been made to sell containers, the Partnership wrote down
the value of these specifically identified containers when the carrying value
was greater than the container's estimated fair value, which was based on recent
sales prices less cost of sales. Due to declines in container sales prices, the
actual sales prices received on some containers were lower than the estimates
used for the write-down, resulting in the Partnership incurring losses upon the
sale of some of these containers. Until market conditions improve, the
Partnership may incur further write-downs and/or losses on the sale of such
containers. Should the decline in economic value of continuing to own such
containers turn out to be permanent, the Partnership may be required to increase
its depreciation rate or write-down the value of some or all of its container
rental equipment.
Other rental income consists of other lease-related items, primarily income from
charges to lessees for dropping off containers in surplus locations less credits
granted to lessees for leasing containers from surplus locations (location
income), income from charges to lessees for handling related to leasing and
returning containers (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP). For the six-month period ended June 30, 2002,
other rental income was $272, a decrease of $97 from the equivalent period in
2001. Other rental income decreased primarily due to the declines in DPP and
location income. DPP income decreased $67, primarily due to the decline in the
number of containers covered under DPP. Location income decreased $26, primarily
due to the decrease in charges to lessees for dropping off containers in certain
locations, offset by the decrease in credits granted to lessees for picking up
containers from surplus locations as there were fewer leasing opportunities for
which credits could be offered.
Direct container expenses decreased $270, or 28%, from the six-month period
ended June 30, 2001 to the equivalent period in 2002. The decrease was primarily
due to the decrease in the average fleet size and additional decreases in
repositioning, DPP and maintenance expenses of $204, $32, and $24, respectively,
offset by an increase in storage expense of $32. Repositioning expense decreased
due to the decline in the number of containers repositioned and a decrease in
the average cost of repositioning containers. DPP expense decreased primarily
due to the decrease in the number of containers covered under DPP, offset by the
increase in the average DPP repair cost per container. Maintenance expense
decreased primarily due to the decrease in the number of containers requiring
maintenance and a decrease in the average maintenance cost per container.
Storage expense increased, despite the decline in average fleet size, primarily
due to the decrease in utilization noted above.
Bad debt expense (benefit) was $13, and ($24) for the six-month periods ended
June 30, 2002 and 2001, respectively. Fluctuations in bad debt expense/benefit
reflect the adjustment to the bad debt reserve and are based on management's
then current estimates of the portion of accounts receivable that may not be
collected, and which will not be covered by insurance. These estimates are based
primarily on management's current assessment of the financial condition of the
Partnership's lessees and their ability to make their required payments. The
expense recorded during the six-month period ended June 30, 2002 reflects a
higher reserve requirement from December 31, 2001. The benefit recorded during
the comparable period in 2001 reflects a lower reserve requirement from December
31, 2000.
Depreciation expense decreased $240, or 19%, from the six-month period ended
June 30, 2001 to the comparable period in 2002, primarily due to the decrease in
average fleet size.
The Partnership stopped purchasing containers in 2001, but its leasing
activities are effected by fluctuations in new container prices. New container
prices steadily declined from 1995 through 1999. Although container prices
increased in 2000, these prices declined again in 2001 and have remained low
during the first half of 2002. As a result, the cost of new containers purchased
in recent years is significantly less than the average cost of containers
purchased in prior years. The Partnership evaluated the recoverability of the
recorded amount of container rental equipment at June 30, 2002, and 2001 for
containers to be held for continued use and determined that a reduction to the
carrying value of these containers was not required. The Partnership also
evaluated the recoverability of the recorded amount of containers identified for
sale in the ordinary course of business and determined that a reduction to the
carrying value of these containers was required. The Partnership wrote down the
value of these containers to their estimated fair value, which was based on
recent sales prices less cost of sales. During the six-month periods ended June
30, 2002 and 2001, the Partnership recorded write-down expenses of $201 and
$121, respectively, on 434 and 345 containers identified as for sale and
requiring a reserve. At June 30, 2002 and 2001, the net book value of the 387
and 331 containers identified as for sale was $334 and $307, respectively.
The Partnership sold 457 previously written down containers for a loss of $46
during the six-month period ended June 30, 2002 and sold 215 previously written
down containers for a loss of $9 during the same period in 2001. The Partnership
incurred losses on the sale of some containers previously written down as the
actual sales prices received on these containers were lower than the estimates
used for the write-downs.
The Partnership also sold containers that had not been written down and recorded
a gain of $67 and a loss of $104 during the six-month periods ended June 30,
2002 and 2001, respectively.
As more containers are subsequently identified for sale or if container sales
prices continue to decline, the Partnership may incur additional write-downs on
containers and/or may incur losses on the sale of containers. The Partnership
will continue to evaluate the recoverability of the recorded amounts of
container rental equipment and cautions that a write-down of container rental
equipment and/or an increase in its depreciation rate may be required in future
periods for some or all of its container rental equipment.
Management fees to affiliates decreased $192, or 49% from the six-month period
ended June 30, 2001 to the equivalent period in 2002. The decrease was due to
decreases in both incentive and equipment management fees. Incentive management
fees, which are based on the Partnership's limited and general partner
distributions made from cash from operations and partners' capital decreased
primarily due to the decrease in the amount of distributions paid from cash from
operations between the two periods. Equipment management fees, which are based
primarily on gross revenue, decreased as a result of the decrease in rental
income and were approximately 7% of rental income for both six-month periods
ended June 30, 2002 and 2001.
General and administrative costs to affiliates decreased $33, or 21%, from the
six-month period ended June 30, 2001 to the same period in 2002, primarily due
to the decrease in overhead costs allocated from TEM, as the Partnership
represented a smaller portion of the total fleet managed by TEM.
The Partnership Agreement provides for the ongoing payment to the General
Partners of the management fees and the reimbursement of the expenses discussed
above. Since these fees and expenses are established by the Agreement, they
cannot be considered the result of arms' length negotiations with third parties.
The Partnership Agreement was formulated at the Partnership's inception and was
part of the terms upon which the Partnership solicited investments from its
limited partners. The business purpose of paying the General Partners these fees
is to compensate the General Partners for the services they render to the
Partnership. Reimbursement for expenses is made to offset some of the costs
incurred by the General Partners in managing the Partnership and its container
fleet. More details about these fees and expenses are included in footnote 2 to
the Financial Statements.
Gain/loss on sale of containers fluctuated from a loss of $113 for the six-month
period ended June 30, 2001 to a gain of $21 for the comparable period in 2002.
The fluctuation was primarily due to the Partnership selling containers with
lower net book values during the six-month period ended June 30, 2002, compared
to the same period in 2001.
Net earnings/loss per limited partnership unit fluctuated from earnings of $0.07
during the six-month period ended June 30, 2001 to a loss of $0.02 during the
comparable period in 2002, reflecting the fluctuation in net earnings/loss
allocated to limited partners from earnings of $246 to a loss of $84,
respectively. The allocation of net earnings/loss for the six-month periods
ended June 30, 2002 and 2001 included a special allocation of gross income to
General Partners of $21 and $28, respectively, in accordance with the
Partnership Agreement.
The following is a comparative analysis of the results of operations for the
three-month periods ended June 30, 2002 and 2001.
The Partnership's income (loss) from operations for the three-month periods
ending June 30, 2002 and 2001 was $70 and ($24), respectively, on rental income
of $1,105 and $1,541, respectively. The decrease in rental income of $436, or
28%, from the three-month period ended June 30, 2001 to the comparable period in
2002 was attributable to decreases in container rental income and other rental
income. Income from container rentals decreased $397, or 29%, primarily due to
decreases in the average container fleet of 18%, average rental rates of 12% and
average on-hire utilization of 4%.
For the three-month period ended June 30, 2002, other rental income was $134, a
decrease of $39 from the equivalent period in 2001. The decrease in other rental
income was primarily due to the decrease in DPP income of $39. DPP income
decreased due to the decline in the number of containers carrying DPP and a
lower average DPP price charged per container.
Direct container expenses decreased $112, or 24%, from the three-month period
ending June 30, 2001 to the equivalent period in 2002. The decrease was
primarily due to decreases in repositioning, DPP and storage expenses of $78,
$13 and $12, respectively. Repositioning expense decreased due to the decline in
the number of containers repositioned and a decrease in the average cost of
repositioning containers. The decline in DPP expense was due to decreases in the
average DPP repair cost per container and in the number of containers covered
under DPP. Storage expense decreased primarily due to the decline in average
fleet size, offset by the decrease in utilization noted above.
Bad debt benefit decreased from $12 for the three-month period ended June 30,
2001 to $7 for the comparable period in 2002. The decline was due to a lower
adjustment to bad debt reserve during the three-month period ended June 30, 2002
compared to the same period in 2001.
Depreciation expense decreased $131, or 22%, from the three-month period ended
June 30, 2001 to the comparable period in 2002 primarily due to the decrease in
fleet size.
During the three-month periods ended June 30, 2002 and 2001, the Partnership
recorded write-down expenses of $53 and $86, respectively, on 155 and 234
containers identified as for sale and requiring a reserve. The Partnership sold
254 of these previously written down containers for a loss of $29 during the
three-month period ended June 30, 2002 and sold 143 previously written down
containers for a loss of $6 during the same period in 2001. The Partnership also
sold containers that had not been written down and recorded a gain of $87 and a
loss of $87 during the three-month periods ended June 30, 2002 and 2001,
respectively.
Management fees to affiliates decreased $118, or 55%, from the three-month
period ended June 30, 2001 to the comparable period in 2002. The decrease was
due to decreases in both incentive and equipment management fees. Incentive
management fees decreased primarily due to the decrease in the amount of
distributions made from cash from operations between the two periods. Equipment
management fees decreased as a result of the decrease in rental income and were
approximately 7% of rental income for both periods.
General and administrative costs to affiliates decreased $15, or 20%, from the
three-month period ended June 30, 2001 to the same period in 2002 primarily due
to a decrease in the allocation of overhead costs from TEM, as the Partnership
represented a smaller portion of the total fleet managed by TEM.
Gain/loss on sale of containers fluctuated from a loss of $93 for the
three-month period ended June 30, 2001 to a gain of $58 for the comparable
period in 2002. The fluctuation was primarily due to the Partnership selling
containers with lower net book values during the three-month period ended June
30, 2002 than in the same period in 2001.
Net earnings/loss per limited partnership unit fluctuated from a loss of $0.01
during the three-month period ended June 30, 2001 to earnings of $0.02 during
the comparable period in 2002, reflecting the fluctuation in net earnings/loss
allocated to limited partners from a loss of $20 to earnings of $61,
respectively. The allocation of net earnings (loss) for the three-month periods
ended June 30, 2002 and 2001 included a special allocation of gross income to
the General Partners in accordance with the Partnership Agreement.
Critical Accounting Policies and Estimates
The Partnership's discussion and analysis of its financial condition and results
of operations are based upon the Partnership's financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. 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. The Partnership's management evaluates its estimates on an
on-going basis, including those related to the container rental equipment,
accounts receivable, and accruals.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.
The Partnership's management believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
its financial statements.
The Partnership maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its lessees to make required payments. These
allowances are based on management's current assessment of the financial
condition of the Partnership's lessees and their ability to make their required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required, which would adversely affect the
Partnership's operating results.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value. These
estimates are based upon assumptions about future demand for leased containers
and the estimated sales price at the end of the container's useful life. If
these estimates were subsequently revised based on permanent changes in the
container leasing market, the Partnership would revise its depreciation policy,
which could adversely affect the Partnership's operating results.
Additionally, the recoverability of the recorded amounts of containers to be
held for continued use and identified for sale in the ordinary course of
business are evaluated to ensure that containers held for continued use are not
impaired and that containers identified for sale are recorded at amounts that do
not exceed the estimated fair value of the containers. Containers to be held for
continued use are considered impaired and are written down to estimated fair
value when the estimated future undiscounted cash flows are less than the
recorded values. Containers identified for sale are written down to estimated
fair value when the recorded value exceeds the estimated fair value. In
determining the estimated future undiscounted cash flows and fair value of
containers, assumptions are made regarding future demand and market conditions
for leased containers as well as for used containers and the sales prices for
used containers. If actual market conditions are less favorable than those
projected or if actual sales prices are lower than those estimated by the
Partnership, additional write-downs may be required and/or losses may be
realized. Any additional write-downs, or losses would adversely affect the
Partnership's operating results.
Accounting Pronouncement
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of," and
elements of Accounting Principles Board Opinion 30, "Reporting the Results of
Operations - Reporting the Effects on Disposal of a Segment of a Business and
Extraordinary, Unusual or Infrequently Occurring Events and Transactions."
SFAS No. 144 establishes a single-accounting model for long-lived assets to be
disposed of while maintaining many of the provisions relating to impairment
testing and valuation. The Partnership adopted this Statement on January 1, 2002
and there was no material impact on the Partnership's financial condition,
operating results or cash flow.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
rescinds FASB Statement 4, Reporting Gains and Losses of Debt Extinguishments
and an amendment of that Statement, FASB No. 64. This Statement also rescinds
FASB No. 44, Accounting for Intangible Assets of Motor Carriers. FASB 145 also
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects similar to sale-leaseback transactions. These rescissions and amendment
are not anticipated to have a material impact on the financial statements of the
Partnership.
Risk Factors and Forward Looking Statements
Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition.
Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, including bad debts, increases in maintenance expenses or other
costs of operating the containers, and the effect of world trade, industry
trends and/or general business and economic cycles on the Partnership's
operations. See "Risk Factors" in the Partnership's Prospectus, as supplemented,
for additional information on risks of the Partnership's business. See "Critical
Accounting Policies and Estimates" above for information on the Partnership's
critical accounting policies and how changes in those estimates could adversely
affect the Partnership's results of operations.
The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing therefor,
alterations in the costs of maintaining and repairing used containers, increases
in competition, changes in the Partnership's ability to maintain insurance for
its containers and its operations, the effects of political conditions on
worldwide shipping and demand for global trade or of other general business and
economic cycles on the Partnership, as well as other risks detailed herein and
from time to time in the Partnership's filings with the Securities and Exchange
Commission. The Partnership does not undertake any obligation to update
forward-looking statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By ________________________________________
Ernest J. Furtado
Senior Vice President
Date: August 8, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
Signature Title Date
________________________________ Senior Vice President, August 8, 2002
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
________________________________ President (Principal Executive August 8, 2002
John A. Maccarone Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
A California Limited Partnership
By Textainer Financial Services Corporation
The Managing General Partner
By /s/Ernest J. Furtado
______________________________________
Ernest J. Furtado
Senior Vice President
Date: August 8, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:
Signature Title Date
/s/Ernest J. Furtado
___________________________________ Senior Vice President, August 8, 2002
Ernest J. Furtado (Principal Financial and
Accounting Officer) and
Secretary
/s/John A. Maccarone
___________________________________ President (Principal Executive August 8, 2002
John A. Maccarone Officer)