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TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108
May 16, 2005
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
First Quarter ended March 31, 2005 .
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 March 31, 2005
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 2005
Table of Contents
- -----------------------------------------------------------------------------------------------------------------
Page
Part I Financial Information
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2005
and December 31, 2004............................................................................. 3
Statements of Earnings for the three months
ended March 31, 2005 and 2004..................................................................... 4
Statements of Partners' Capital for the three months
ended March 31, 2005 and 2004..................................................................... 5
Statements of Cash Flows for the three months
ended March 31, 2005 and 2004..................................................................... 6
Notes to Financial Statements..................................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 13
Item 4. Controls and Procedures...................................................................... 17
Part II Other Information
Item 1. Legal Proceedings............................................................................ 17
Item 6. Exhibits..................................................................................... 17
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Balance Sheets
March 31, 2005 and December 31, 2004
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2005 2004
---------------- ----------------
Assets
Container rental equipment held for sale, net of
accumulated depreciation of $3,095 (2004: $-) (notes 4 & 6) $ 9,468 $ -
Container rental equipment, net of accumulated
depreciation of $- (2004: $2,521) (note 4) - 10,335
Cash 791 541
Accounts receivable, net of allowance for doubtful
accounts of $131 (2004: $137) 828 831
Due from affiliates, net (note 2) 333 147
Prepaid expenses 10 14
---------------- ----------------
$ 11,430 $ 11,868
================ ================
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 44 $ 42
Accrued liabilities 43 43
Accrued damage protection plan costs 206 207
Accrued service provider fees 26 37
Deferred quarterly distributions - 43
Deferred damage protection plan revenue 81 83
---------------- ----------------
Total liabilities 400 455
---------------- ----------------
Partners' capital:
General partners - -
Limited partners 11,030 11,413
---------------- ----------------
Total partners' capital 11,030 11,413
---------------- ----------------
$ 11,430 $ 11,868
================ ================
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Earnings
For the three months ended March 31, 2005 and 2004
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
-------------------------------------------------------------------------------------------------------
2005 2004
--------------- ---------------
Rental income $ 1,066 $ 1,088
--------------- ---------------
Costs and expenses:
Direct container expenses 120 243
Bad debt (benefit) expense (4) 13
Depreciation (note 4) 198 458
Write-down of containers (note 4) 515 11
Professional fees 38 10
Management fees to affiliates (note 2) 74 104
General and administrative costs to affiliates (note 2) 58 52
Other general and administrative costs 39 17
(Gain) loss on sale of containers, net (note 4) (70) 9
--------------- ---------------
968 917
--------------- ---------------
Income from operations 98 171
--------------- ---------------
Interest income 3 1
--------------- ---------------
Net earnings $ 101 $ 172
=============== ===============
Allocation of net earnings (note 2):
General partners $ 5 $ 10
Limited partners 96 162
--------------- ---------------
$ 101 $ 172
=============== ===============
Limited partners' per unit share
of net earnings $ 0.03 $ 0.05
=============== ===============
Limited partners' per unit share
of distributions $ 0.13 $ 0.28
=============== ===============
Weighted average number of limited
partnership units outstanding 3,588,941 3,588,941
=============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Partners' Capital
For the three months ended March 31, 2005 and 2004
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
Partners' Capital
-------------------------------------------------------------
General Limited Total
-------------- -------------- ---------------
Balances at January 1, 2004 $ - $ 15,264 $ 15,264
Distributions (10) (987) (997)
Redemptions (note 5) - (20) (20)
Net earnings 10 162 172
-------------- -------------- ---------------
Balances at March 31, 2004 $ - $ 14,419 $ 14,419
============== ============== ===============
Balances at January 1, 2005 $ - $ 11,413 $ 11,413
Distributions (5) (479) (484)
Net earnings 5 96 101
-------------- -------------- ---------------
Balances at March 31, 2005 $ - $ 11,030 $ 11,030
============== ============== ===============
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Cash Flows
For the three months ended March 31, 2005 and 2004
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net earnings $ 101 $ 172
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation (note 4) 198 458
Write-down of containers (note 4) 515 11
(Decrease) increase in allowance for doubtful accounts (6) 13
(Gain) loss on sale of containers (70) 9
Decrease (increase) in assets:
Accounts receivable 9 120
Due from affiliates, net (183) (51)
Prepaid expenses 4 7
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 2 (22)
Accrued damage protection plan costs (1) 7
Accrued service provider fees (11) (9)
Deferred damage protection plan revenue (2) (2)
----------- -----------
Net cash provided by operating activities 556 713
----------- -----------
Cash flows from investing activities:
Proceeds from sale of containers 224 209
----------- -----------
Net cash provided by investing activities 224 209
----------- -----------
Cash flows from financing activities:
Redemptions of limited partnership units - (20)
Distributions to partners (530) (983)
----------- -----------
Net cash used in financing activities (530) (1,003)
----------- -----------
Net increase (decrease) in cash 250 (81)
Cash at beginning of period 541 423
----------- -----------
Cash at end of period $ 791 $ 342
=========== ===========
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Statements of Cash Flows-Continued
For the three-months ended March 31, 2005 and 2004
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Supplemental schedule of non-cash investing and financing activities:
The following table summarizes the amounts of distributions to partners and
proceeds from sale of containers which had not been paid or received by the
Partnership as of March 31, 2005 and 2004, and December 31, 2004 and 2003,
resulting in differences in amounts recorded and amounts of cash disbursed or
received by the Partnership, as shown in the Statements of Cash Flows.
Mar. 31 Dec. 31 Mar. 31 Dec.31
2005 2004 2004 2003
---------- ---------- ---------- ----------
Distributions to partners included in:
Due to affiliates.............................. $ - $ 3 $ 3 $ 4
Deferred quarterly distributions............... - 43 45 30
Proceeds from sale of containers included in:
Due from affiliates............................ 85 85 114 140
The following table summarizes the amounts of 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 three-month
periods ended March 31, 2005 and 2004.
2005 2004
---- ----
Distributions to partners declared.............................................. $484 $997
Distributions to partners paid.................................................. 530 983
Proceeds from sale of containers recorded....................................... 224 183
Proceeds from sale of containers received....................................... 224 209
The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying value of containers transferred during the three-month period ended
March 31, 2004 was $1. There were no such transfers during the three-month
period ended March 31, 2005.
See accompanying notes to financial statements
TEXTAINER EQUIPMENT INCOME FUND II, L.P.
(a California Limited Partnership)
Notes To Financial Statements
For the three months ended March 31, 2005 and 2004
(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.
At a Special Meeting of Limited Partners, held on March 21, 2005, a
proposal to sell substantially all the Partnership's assets to RFH Limited
("RFH") and terminate and dissolve the Partnership was approved. The asset
sale did not close on March 31, 2005 in accordance with the Asset Sale
Agreement, as RFH requested, and the Partnership granted, an extension to
April 15, 2005 to close the Asset Sale. See Note 6.
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 March 31, 2005 and December 31, 2004 and the
results of its operations, changes in partners' capital and cash flows for
the three-month periods ended March 31, 2005 and 2004, have been made.
The financial information presented herein should be read in conjunction
with the audited financial statements and other accompanying notes included
in the Partnership's annual audited financial statements as of and for the
year ended December 31, 2004, 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 following critical accounting policies are 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.
The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value.
Additionally, the Partnership writes down the value of its containers if an
evaluation indicates that the recorded amounts of containers are not
recoverable based on estimated future undiscounted cash flows and sale
prices. These estimates are based upon historical useful lives of
containers and container sales prices as well as assumptions about future
demand for leased containers and estimated sales prices.
Certain reclassifications, not affecting net earnings, have been made to
prior year amounts in order to conform to the 2005 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 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. For the three-month periods ended March 31, 2005 and 2004 the
Partnership incurred $- and $28 of incentive management fees, respectively.
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 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 March 31,
2005 and December 31, 2004.
Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross revenues attributable to full payout net leases. These fees
totaled $74 and $76 for the three-month periods ended March 31, 2005 and
2004, respectively.
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-month
periods ended March 31, 2005 and 2004 were as follows:
2005 2004
---- ----
Salaries $35 $33
Other 23 19
-- --
Total general and
administrative costs $58 $52
== ==
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 interest in the managed containers to the
total container fleet managed by TFS during the period, or the
Partnership's investors to the total number of investors of all limited
partnerships managed by TFS or equally among all the limited partnerships
managed by TFS. The General Partners allocated the following general and
administrative costs to the Partnership during the three-month periods
ended March 31, 2005 and 2004:
2005 2004
---- ----
TEM $42 $43
TFS 16 9
-- --
Total general and
administrative costs $58 $52
== ==
At March 31, 2005 and December 31, 2004, due from affiliates, net is
comprised of:
2005 2004
---- ----
Due from affiliates:
Due from TEM................ $368 $191
--- ---
Due to affiliates:
Due to TCC.................. 27 12
Due to TFS.................. 8 32
--- ---
35 44
--- ---
Due from affiliates, net $333 $147
=== ===
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 March 31, 2005 and 2004:
2005 2004
---- ----
On-lease under master leases 3,845 4,028
On-lease under long-term leases 3,144 3,194
----- -----
Total on-lease containers 6,989 7,222
===== =====
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 being stored primarily at a
number of storage depots.
Note 4. Container Rental Equipment and Container Rental Equipment Held for Sale
At March 31, 2005, all of the Partnership's containers had been identified
as held for sale. At June 30, 2004, the Partnership had written down the
value of containers that had carrying values greater than the sales prices
in the letter of intent from RFH for the sale of the container fleet. At
March 31, 2005, the Partnership evaluated the recoverability of the
recorded amount of the container fleet, now identified as held for sale,
taking into consideration (i) the prices in the Asset Sale Agreement and
(ii) RFH's rights, under the Asset Sale Agreement, to the estimated results
of operations from the container fleet from January 1, 2005 to the date of
the Asset Sale. This comparison resulted in the Partnership recording a
write down of $515. See Note 6 for details on the completion of the Asset
Sale.
The Partnership evaluated the recoverability of the recorded amount of
container rental equipment at March 31, 2004 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 at March 31, 2004 and determined that a
reduction to the carrying value of some of these containers was required.
The Partnership wrote down the value of these containers to their estimated
net realizable value, which was based on recent sales prices less cost to
sell. These containers are included in container rental equipment in the
balance sheets.
During the three-month period ended March 31, 2004 the Partnership recorded
a write-down expense of $11 on 35 containers identified as held for sale
and requiring a reserve. At March 31, 2004 the net book value of the 41
containers identified as held for sale was $36.
During the three-month period ended March 31, 2004, the Partnership sold 44
of these previously written down containers for a loss of $2. The
Partnership also sold containers that had not been written down and
recorded a loss of $7 during the three-month period ended March 31, 2004.
Note 5. Redemptions
The following redemptions were consummated by the Partnership during the
three-month period ended March 31, 2004:
Units Average
Redeemed Redemption Price Amount Paid
-------- ---------------- -----------
Total Partnership redemptions as of
December 31, 2003.................... 155,434 $6.32 $ 983
Three-month period ended:
March 31, 2004 ...................... 5,625 $3.56 20
------- -----
Total Partnership redemptions as of
March 31, 2004 ...................... 161,059 $6.23 $1,003
======= =====
The Partnership did not redeem any units during the three-month period
ended March 31, 2005. The redemption price is fixed by formula in
accordance with the Partnership Agreement.
Note 6. Subsequent Events
On April 14, 2005, RFH requested a short postponement of the closing date
of the Asset Sale due to a lawsuit filed on April 11, 2005, in the Superior
Court of California against the Partnership, RFH and other parties related
to the sale. (This lawsuit was described in a report on Form 8-K filed on
April 15, 2005.) The Partnership agreed to postpone the closing date for
the sale until April 19, 2005.
The Partnership completed the sale of substantially all of its assets to
RFH on April 18, 2005. The total price paid by RFH on April 18, 2005 was
$10,444, which consisted of $10,362 for substantially all of the
Partnership's assets and $82 in interest. The Partnership received $9,922,
or 95%, of the total price and the remaining $522, or 5%, was paid to an
escrow account. On August 1, 2005, any remaining balance in the escrow
account is scheduled to be paid to the Partnership, unless a claim for
indemnification under the Asset Sale Agreement is made by RFH, in which
case the amount of such claim will remain in the escrow account.
In April 2005, two lawsuits filed with the United States District Court for
the Northern District of California against the Partnership, RFH and other
parties related to the sale were consolidated.
In May 2005, the Partnership declared $10,324 as a liquidating
distribution.
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-month periods ended March
31, 2005 and 2004. 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.
Overview of Partnership's Current Status
As of the date this report is being prepared, the Partnership has sold
substantially all of its assets (the "Asset Sale") and anticipates paying to
partners a majority of the proceeds of this sale in May 2005. The Partnership
will then be in the final stages of liquidation and will begin to wind up its
affairs. The Asset Sale was completed on April 18, 2005, which meant that the
Partnership recorded revenues and expenses related to its container fleet
through that date. However, under the Asset Sale Agreement, RFH was entitled to
the results of operations from the container fleet from January 1, 2005 to the
date of the Asset Sale. See "Write Down of Containers" below.
Sale of Partnership's Assets
In November 2004, the Partnership and five other limited partnerships managed by
the General Partners and their affiliates entered into Asset Sale Agreements
with RFH ("the Buyer") to sell substantially all of their assets. At a Special
Meeting of Limited Partners, held on March 21, 2005, the limited partners of the
Partnership approved the Asset Sale. On April 18, 2005, the Asset Sale was
completed. The Partnership received $9,922, or 95%, of the total price and the
remaining $522, or 5%, was paid to an escrow account. On August 1, 2005, any
remaining balance in the escrow account is scheduled to be paid to the
Partnership, unless a claim for indemnification under the Asset Sale Agreement
is made by RFH, in which case the amount of such claim will remain in the escrow
account.
In May 2005, the Partnership plans to pay the first of two planned final
liquidating distributions. This distribution will consist of the proceeds
received from the Asset Sale plus cash held by the Partnership at March 31,
2005, less the estimated total remaining expenses of the Partnership. A second
distribution is planned after the funds in the escrow account are released,
which is currently scheduled to be August 1, 2005. The second distribution will
be substantially smaller than the first, since the first distribution is
expected to represent a majority of the proceeds realized from the Asset Sale.
This second distribution is expected to be the Partnership's final distribution.
There can be no guarantee about the timing or amount of the final distribution,
since this distribution is still subject to conditions and future events,
including the absence of any claim by the Buyer against the funds in the escrow
account or any other legal restriction that could interfere with payment.
Liquidity and Capital Resources
Historical
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 on December 19, 1989, and on January 15, 1991, the
Partnership had received its maximum subscription amount of $75,000.
General
The Partnership has been in its liquidation phase since July 2001, which means
that from that time forward, the Partnership no longer sought to replenish its
container fleet by buying new containers, and considered the possibility of
selling containers, either in one or more groups, or individually when the
containers came off lease. During this phase, the Partnership's policy has
generally been 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 have consisted of cash from operations and/or cash
from sales proceeds.
In April 2005, the Partnership sold substantially all its assets. The
Partnership plans to distribute its remaining cash during 2005 and terminate its
existence.
Sources of Cash
On April 18, 2005, the Partnership sold its container fleet for cash to RFH. The
Partnership plans to distribute a majority of the proceeds from the Asset Sale
in May 2005 and to retain some cash to pay its anticipated remaining expenses.
Additional sources of cash are expected to consist only of (i) the 5% of the
sale proceeds currently being held in an escrow account; (ii) accounts
receivable not included in the Asset Sale; and (iii) interest earned on these
cash balances.
Uses of Cash
Distributions to partners are the Partnership's primary use of cash. The amount
of distributions paid to partners has been dependent on cash received from
operations and the sale of containers, less amounts used to pay redemptions or
held as working capital.
From time to time, the Partnership redeemed 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
were subject to the Managing General Partner's good faith determination that
payment for the redeemed units would 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.
These activities are discussed in detail below.
Distributions: During the three-month period ended March 31, 2005, the
Partnership declared cash distributions to limited partners pertaining to
December 2004 in the amount of $479, which represented $0.13 per unit. On a cash
basis, as reflected in the Statements of Cash Flows, after paying general
partner distributions, all of these distributions were from operating
activities. On an accrual basis, as reflected on the Statements of Partners'
Capital, $96 of these distributions were from current year earnings and $383 was
a return of capital.
In May 2005, the Partnership declared the first of two final liquidating cash
distributions to limited partners in the amount of $2.85 per unit, or 14% of the
original per unit cost of $20.00. This distribution consists of sales proceeds
received by the Partnership on April 18, 2005, plus cash balances at March 31,
2005, less the estimated total remaining expenses of the Partnership.
The Partnership plans to pay a second and final liquidating distribution during
the third quarter of 2005. Payment of the second liquidating distribution is
currently expected to be contingent on the release of funds from the escrow
account, in which 5% of the proceeds from the Asset Sale are currently held. The
funds are scheduled to be released on August 1, 2005, unless a claim for
indemnification is made by the Buyer under the agreement governing the Asset
Sale, in which case the amount of the claim would continue to be held in the
escrow account. Payment of this second liquidating distribution could also be
delayed or otherwise affected by legal restrictions imposed on the Partnership
as a result of certain lawsuits filed with respect to the Asset Sale, and which
have been previously described in the Partnership's report on Form 10-K filed on
March 30, 2005 and in the Partnership's report on Form 8-K filed on April 15,
2005. In addition to the funds released from the escrow account, this second
distribution may include cash received after March 31, 2005 related to accounts
receivable which were not sold to RFH and interest. The amount of the second
distribution may also be adjusted to reflect the then-anticipated final amounts
of the Partnership's expenses.
The amount of the second distribution is expected to be substantially lower than
the first distribution, since the first distribution consists of almost all the
proceeds from the sale of the Partnership's fleet and any cash held on March 31,
2005, less amounts held back for the Partnership's remaining expenses.
Capital Commitments: Redemptions: There were no units redeemed during the
three-month period ended March 31, 2005 and the Partnership does not anticipate
redeeming units prior to its termination.
The Partnership invests working capital and cash flow from operations and
investing activities prior to its distribution to the partners in short-term,
liquid investments.
Results of Operations
As noted above, under the Asset Sale Agreement, RFH was entitled to the results
of operations from the container fleet from January 1, 2005 to the date of the
Asset Sale. As a result, the Partnership determined that certain containers were
impaired and recorded a write-down expense as described below in "Critical
Accounting Policies and Estimates." These items are discussed below, as well as
direct container and depreciation expenses, gain and loss on sale of containers,
and professional fees and general and administrative costs.
Write Down of Containers
Write-down expense increased $504 from the three-month period ended March 31,
2004 to the same period in 2005. The increase was primarily due to the
Partnership recording a write-down of $515 in March 2005. The write-down
occurred because, under the Asset Sale Agreement, RFH was entitled to the
results of operations from the container fleet from January 1, 2005 to the date
of the Asset Sale. See "Critical Accounting Policies and Estimates" below. This
write-down did not affect the cash paid by RFH under the Asset Sale Agreement,
since the Agreement had contemplated that RFH would be entitled to these results
of operations, and RFH paid the sales price originally agreed to in November,
plus interest.
Direct Container Expenses
Direct container expenses decreased $123, or 51%, from the three-month period
ended March 31, 2004 to the equivalent period in 2005. The decrease was
primarily due to declines in storage, repositioning, handling and DPP expenses
of $52, $40, $17 and $13, respectively. Storage expense decreased not only due
to the decrease in average fleet size, but also due to the increase in
utilization and a slight decrease in the average storage cost per container.
Repositioning expense declined due to the decline in the number of containers
repositioned between the periods and a decline in the average reposition cost
per container. The decrease in handling expense was primarily due to a decrease
in container movement. DPP expense declined primarily due to a lower estimated
repair cost per DPP unit and a slight decline in the number of units covered
under DPP between the periods.
Depreciation Expense
Depreciation expense decreased $260, or 57%, from the three-month period ended
March 31, 2004 to the comparable period in 2005 primarily due to (i) the
write-down recorded in June, 2004, which reduced the carrying value of certain
containers and resulted in a lower depreciation expense during the first quarter
of 2005; (ii) the declines in the average fleet size between the periods; and
(iii) the Partnership recording depreciation expense only through March 21,
2005, the date the limited partners approved the Asset Sale and the containers
were reclassified as held for sale.
Gain (Loss) on Sale of Containers
The following details the gain (loss) on the sale of containers for the
three-month periods ended March 31, 2005 and 2004:
2005 2004
---- ----
Gain (loss) on sale of containers $70 $(9)
== ==
The gain in the table above for the first quarter of 2005 is for containers sold
prior to the sale of the entire fleet, which occurred after the end of the first
quarter, on April 18, 2005.
The amount of gain or loss recorded on the sale of containers has fluctuated due
to the specific conditions of the containers sold, the type of containers sold,
the location where the containers were sold and their net book value. The gain
recorded during the three-month period ended March 31, 2005 was primarily due to
the significant reduction in net book value as a result of previous write-downs
and the container sales prices received during the first quarter of 2005.
Professional Fees and General and Administrative Costs
Professional fees increased $28 from the three-month period ended March 31, 2004
to 2005. The increase was primarily due to the increase in legal fees between
the periods. Legal fees increased primarily due to additional fees incurred
related to the proxy statement.
General and administrative costs to affiliates increased $6, from the
three-month period ended March 31, 2004 to 2005, primarily due to an increase in
overhead costs allocated from TFS.
Other general and administrative costs were $39, an increase of $22 from the
three-month period ended March 31, 2004 to 2005. The increase was primarily due
to solicitation, printing and mailing costs associated with the proxy statement
materials mailed in January 2005.
Critical Accounting Policies and Estimates
Certain estimates and assumptions were made by the Partnership's management that
affect its financial statements. These estimates are based on historical
experience and on assumptions believed to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the
carrying value of assets and liabilities. Actual results could differ.
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.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is 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 General Partners have established a Credit Committee, which actively manages
and monitors the collection of receivables on at least a monthly basis. This
committee establishes credit limits for every lessee and potential lessee of
equipment, monitors compliance with these limits, monitors collection
activities, follows up on the collection of outstanding accounts, determines
which accounts should be written-off and estimates allowances for doubtful
accounts. As a result of actively managing these areas, the Partnership's
allowance for bad debt as a percentage of accounts receivable has ranged from 6%
to 14% and has averaged approximately 10% over the last 5 years. These
allowances have historically covered all of the Partnership's bad debts.
Container Impairment Estimates: Write-downs of containers were made when it was
determined that the recorded value of the containers exceeded their estimated
fair value. On March 21, 2005, the limited partners approved the Asset Sale at
the Special Meeting of Limited Partners, and the Partnership's entire container
fleet was reclassified as held for sale. The Partnership compared the recorded
amount of containers identified as for sale to the sales prices detailed in the
Asset Sale Agreement with RFH, less the amount equal to the estimated results of
operations from the container fleet from January 1, 2005 through April 18, 2005.
Once these amounts were compared to the recorded values, the recorded values of
some of the containers were found to be higher. The Partnership, therefore,
recorded an impairment.
Risk Factors and Forward Looking Statements
The Partnership sold substantially all of its assets in April, 2005 and has
described above plans to pay final liquidating distributions in 2005 and
terminate. No assurance can be given that these events will occur. The risks and
uncertainties associated with these events include, but are not limited to, the
following: the timely release of the remaining sales proceeds from the escrow
account; the absence of any legal restrictions that would interfere with the
payment of the final liquidating distributions; and any other events that may
arise as a result of future developments in certain lawsuits filed regarding the
Asset Sale. The Partnership does not undertake any obligation to update any of
its forward-looking statements.
Item 4. Controls and Procedures.
Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934),
the managing general partner's principal executive officer and principal
financial officer have found those controls and procedures to be effective as of
the end of the period covered by the report. There has been no change in the
Partnership's internal control over financial reporting that occurred during the
Partnership's last fiscal quarter, and which has materially affected, or is
reasonably likely materially to affect, the Partnership's internal control over
financial reporting.
Part II
Item 1. Legal Proceedings
Two lawsuits regarding the Asset Sale and filed against the Partnership, RFH and
other parties related to the sale were previously described in the Partnership's
report on Form 10-K filed March 30, 2005. These two lawsuits (Gordon v.
Textainer Financial Services, et al., Case No. C 05-01146 CRB, and Lewis, et al.
v. Textainer Financial Services, et al., Case No. C 05-0969 MMC) were both filed
in the United States District Court for the Northern District of California and
have now been consolidated into Civil Action No. C 05-00969 MMC, captioned "In
re Textainer Partnership Securities Litigation."
There have been no material developments in the lawsuit filed in the Superior
Court of California, San Francisco County, Case No. CGC-05-440303 (Labow v.
Textainer Financial Services, et al.) and described in the Partnership's report
on Form 8-K filed on April 15, 2005.
Item 6. Exhibits.
(a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.
Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.
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
Chief Financial Officer
Date: May 16, 2005
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
________________________ Chief Financial Officer, Senior May 16, 2005
Ernest J. Furtado Vice President and Secretary
________________________ President May 16, 2005
John A. Maccarone
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
Chief Financial Officer
Date: May 16, 2005
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
_______________________________ Chief Financial Officer, Senior May 16, 2005
Ernest J. Furtado Vice President and Secretary
/s/John A. Maccarone
_______________________________ President May 16, 2005
John A. Maccarone
EXHIBIT 31.1
CERTIFICATIONS
I, John A. Maccarone, certify that:
1. I have reviewed this quarterly report on form 10-Q of Textainer Equipment
Income Fund II, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a.) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
May 16, 2005
/s/ John A. Maccarone
____________________________________
John A. Maccarone
President and Director of TFS
EXHIBIT 31.2
CERTIFICATIONS
I, Ernest J. Furtado, certify that:
1. I have reviewed this quarterly report on form 10-Q of Textainer Equipment
Income Fund II, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a.) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
May 16, 2005
/s/ Ernest J. Furtado
________________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Textainer Equipment Income Fund II,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended March 31,
2005 , as filed on May 16, 2005 with the Securities and Exchange Commission (the
"Report"), I, John A. Maccarone, the President and Director of Textainer
Financial Services Corporation ("TFS") and Principal Executive Officer of TFS,
the Managing General Partner of the Registrant, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(i) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all
material respects, the financial condition, results of operations and
cash flows of the Registrant.
May 16, 2005
By /s/ John A. Maccarone
_______________________________
John A. Maccarone
President and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED, REGARDING SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Textainer Equipment Income Fund II,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended March 31,
2005 , as filed on May 16, 2005 with the Securities and Exchange Commission (the
"Report"), I, Ernest J. Furtado, Chief Financial Officer, Senior Vice President,
Secretary and Director of Textainer Financial Services Corporation ("TFS") and
Principal Financial and Accounting Officer of TFS, the Managing General Partner
of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted,
regarding Section 906 of the Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(ii) The information contained in the Report fairly presents, in all
material respects, the financial condition, results of operations and
cash flows of the Registrant.
May 16, 2005
By /s/ Ernest J. Furtado
_______________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS
A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.