Winthrop California Investors LTD Partnership
Filed: 16 Aug 04, 12:00am
U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-14536 Winthrop California Investors Limited Partnership ---------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 04-2869812 - ------------------------------------------------------------- ----------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7 Bulfinch Place, Suite 500, Boston, MA 02114-9507 - ------------------------------------------------------------- ----------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (617) 570-4600 -------------- Indicate by check mark whether 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 ____ No X 1 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- PART 1 - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT UNIT DATA) JUNE 30, 2004 DECEMBER 31, (UNAUDITED) 2003 ------------------ ---------------- ASSETS - ------ Cash and cash equivalents $ 1,701 $ 2,530 Equity investment in Development Partnership 13,659 13,659 Assets of discontinued operations - 68 ------------------ ---------------- Total assets $ 15,360 $ 16,257 ================== ================ LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Liabilities: Accounts payable, accrued expenses and other $ 15 $ 377 Liabilities of discontinued operations - 39 ------------------ ---------------- Total liabilities 15 416 ------------------ ---------------- Partners' capital: Limited Partners - Limited Partners capital-units of Investor Limited Partnership Interest, $65,000 stated value per cash unit and $66,000 stated value per deferred unit; authorized - 3,500 units; issued and outstanding - 3,500 units 34,955 35,386 General partners' deficit (19,610) (19,545) ------------------ ---------------- Total partners' capital 15,345 15,841 ------------------ ---------------- Total liabilities and partners' capital $ 15,360 $ 16,257 ================== ================ See notes to consolidated financial statements. 2 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT DATA) FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2004 2003 2004 2003 ---------------- ------------------ ---------------- ----------------- Income: Miscellaneous income $ - $ 13 $ - $ 13 Interest income 3 8 7 16 ---------------- ------------------ ---------------- ----------------- Total income 3 21 7 29 ---------------- ------------------ ---------------- ----------------- Expenses: General and administrative 45 32 65 95 Asset management fees 187 187 375 375 ---------------- ------------------ ---------------- ----------------- Total expenses 232 219 440 470 ---------------- ------------------ ---------------- ----------------- Loss from continuing operations before equity in loss of Development Partnership (229) (198) (433) (441) Equity in loss of Development Partnership - (303) - (429) ---------------- ------------------ ---------------- ----------------- Loss from continuing operations (229) (501) (433) (870) ---------------- ------------------ ---------------- ----------------- Discontinued Operations: Loss from discontinued operations (1) (6) (7) (11) Equity in income of Jamboree LLC - 540 - 540 ---------------- ---------------- ---------------- ----------------- (Loss) income from discontinued operations (1) 534 (7) 529 ---------------- ------------------ ---------------- ----------------- Net (loss) income $ (230) $ 33 $ (440) $ (341) ================ ================== ================ ================= Net loss allocated to General Partners $ (5) $ - $ (9) $ (7) ================ ================== ================ ================= (Continued) See notes to consolidated financial statements. 3 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) (IN THOUSANDS, EXCEPT UNIT DATA) FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2004 2003 2004 2003 -------------------- ---------------- ----------------- ---------------- Loss from continuing operations allocated to Investor Limited Partners $ (224) $ (491) $ (424) $ (853) (Loss) income from discontinued operations allocated to Investor Limited Partners (1) 524 (7) 519 -------------------- ---------------- ----------------- ---------------- Net (loss) income allocated to Investor Limited Partners $ (225) $ 33 $ (431) $ (334) ==================== ================ ================= ================ Loss from continuing operations per unit of of limited partnership interest $ (64.00) $ (140.28) $ (121.14) $ (243.71) (Loss) income from discontinued operations per unit of limited partnership interest (0.28) 149.71 (2.00) 148.28 -------------------- ---------------- ----------------- ---------------- Net (loss) income per Unit of Limited Partnership Interest $ (64.28) $ 9.43 $ (123.14) $ (95.43) ==================== ================ ================= ================ See notes to consolidated financial statements. 4 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT DATA) UNITS OF INVESTOR INVESTOR LIMITED LIMITED GENERAL TOTAL PARTNERSHIP PARTNERS' PARTNERS' PARTNERS' INTEREST CAPITAL DEFICIT CAPITAL ------------------ ------------------- ------------------ -------------------- Balance - January 1, 2004 3,500 $ 35,386 $ (19,545) $ 15,841 Net loss - (431) (9) (440) Distributions - - (56) (56) ------------------ ------------------- ------------------ -------------------- Balance - June 30, 2004 3,500 $ 34,955 $ (19,610) $ 15,345 ================== =================== ================== ==================== See notes to consolidated financial statements. 5 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 ------------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Continuing Operations: Loss from continuing operations $ (433) $ (870) Adjustments to reconcile loss from continuing operations to net cash used in continuing operations: Equity in loss of Development Partnership - 429 Changes in liabilities: Decrease in accounts payable, accrued expenses and other (362) (245) ------------------ ---------------- Net cash used in continuing operations (795) (686) ------------------ ---------------- Discontinued Operations: (Loss) income from discontinued operations (7) 529 Adjustments to reconcile (loss) income from discontinued operations to net cash provided by discontinued operations: Changes in assets and liabilities: Decrease in assets of discontinued operations 68 - Decrease in liabilities of discontinued operations (39) - ------------------ ---------------- Net cash provided by discontinued operations 22 529 ------------------ ---------------- Net cash used in operating activities (773) (157) ------------------ ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Continuing Operations: Distributions to partners (56) - ------------------ ---------------- Cash used in financing activities (56) - ------------------ ---------------- Net decrease in cash and cash equivalents (829) (157) Cash and cash equivalents, beginning of period 2,530 3,375 ------------------ ---------------- Cash and cash equivalents, end of period $ 1,701 $ 3,218 ================== ================ See notes to consolidated financial statements. 6 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. GENERAL The accompanying consolidated financial statements, footnotes and discussions should be read in conjunction with the consolidated financial statements, related footnotes and discussions contained in the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2003. The financial information contained herein is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial information have been included. All adjustments are of a normal recurring nature. The consolidated balance sheet at December 31, 2003 was derived from audited financial statements at such date. The results of operations for the six months ended June 30, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year. Certain amounts from 2003 have been reclassified to conform to the 2004 presentation. 2. EQUITY INVESTMENT IN DEVELOPMENT PARTNERSHIP AND SUBSEQUENT EVENT The Registrant owned a 25% Limited Partner's interest in Crow Winthrop Development Limited Partnership (the "Development Partnership"), which was accounted for under the equity method of accounting. At June 30, 2004, the historical cost basis of the Registrant's equity investment in the Development Partnership was $13,659,000. As described below, pursuant to a settlement agreement, the Registrant was entitled to receive a preference payment of $22,000,000 from any "Capital Transaction," as defined, in exchange for the Registrant surrendering its interest in the Development Partnership. In October 2003, the Registrant entered into a settlement agreement with Crow Irvine #2, a California Limited Partnership ("Crow") which holds a 75% interest in and is the general partner of the Development Partnership. The Registrant and Crow agreed to the dismissal of two lawsuits between them that were pending in the Superior Court of the State of California, County of Orange. In addition, the Registrant and Crow agreed to an amendment of their partnership agreement. As part of the amendment, the Registrant was entitled to receive a preference payment of $22,000,000 arising from any "Capital Transaction," as defined, that occurs during the period October 3, 2003 through October 2, 2005, in exchange for the Registrant surrendering its interest in the Development Partnership to Crow. In July 2004, Crow entered into a Capital Transaction and paid the Registrant the $22,000,000 preference payment and the Registrant surrendered its interest in the Development Partnership to Crow. As a result of the surrender of the Registrant's interest in the Development Partnership, the Registrant's sole remaining asset is cash and cash equivalents. Accordingly, in August 2004, after satisfying all outstanding payables and establishing necessary reserves, the Registrant distributed $23,083,026 to its limited partners ($6,595.15 per limited partner unit). The Registrant will recognize a gain for financial reporting purposes of approximately $8,341,000. 7 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (CONTINUED) ----------- 3. RELATED PARTY TRANSACTIONS Asset management fees earned by the Managing General Partner totaled $375,000 during the six months ended June 30, 2004 and June 30, 2003. The Registrant paid the General Partners approximately $56,000 during the six months ended June 30, 2004 for distributions that should have been allocated to the General Partners in prior years. In February 2004, Quadrangle Associates III LLC, an affiliate of Winthrop Financial Associates ("WFA"), a General Partner of the Registrant, offered to purchase up to 964 (27.54%) of the outstanding units of limited partnership interest of the Registrant for a purchase price of $2,450 per limited partnership interest upon the terms and subject to the conditions set forth in the affiliate's offer to purchase, as amended. The offer by Quadrangle Associates III LLC expired on March 31, 2004. Quadrangle Associates III LLC accepted a total of 160.25 (4.58%) of the outstanding units of limited partnership interest of the Registrant at the purchase price of $2,450 per unit. In addition, in May 2004, Quadrangle Associates III LLC acquired one of the outstanding units of limited partnership interest of the Registrant. Pursuant to an agreement entered into with MB Special LLC, an entity affiliated with several original partners of WFA who retained an indirect minority interest in WFA and which has the right to review the Registrant's budget, distributions and extraordinary transactions, Mango Bay Realty LLC, an affiliate of MB Special LLC, had the right to acquire up to 46% of any units acquired by Quadrangle Associates III LLC in its offer, at any time prior to May 31, 2004. Mango Bay Realty LLC exercised its option in May 2004 and during the second quarter of 2004, 74.175 units were transferred to Mango Bay Realty LLC. In addition, in July 2004, Quadrangle Associates III LLC acquired one of the outstanding units of limited partnership interest of the Registrant. Other affiliates of the general partner own 1,018 (approximately 29%) of the outstanding limited partnership units. 4. DISCONTINUED OPERATIONS The Registrant has classified the operations of its management partnership, Winthrop California Management Limited Partnership and its operating partnership, Crow Winthrop Operating Partnership as discontinued operations as a result of the sale of the Fluor Corporation World Headquarters Facility during 2002. Discontinued operations are summarized as follows: Six Months Ended June 30, ---------------------------- 2004 2003 ---------- ---------- Income $ 5 $ 540 Expenses 12 11 ---------- ---------- (Loss) income from discontinued operations $ (7) $ 529 =========== ========== 8 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's liquidity, capital resources and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. Liquidity and Capital Resources ------------------------------- In October 2003, the Registrant entered into a settlement agreement with Crow Irvine #2, a California Limited Partnership ("Crow") which holds a 75% interest in and is the general partner of Crow Winthrop Development Limited Partnership (the "Development Partnership"). The Registrant and Crow agreed to the dismissal of two lawsuits between them that were pending in the Superior Court of the State of California, County of Orange. In addition, the Registrant and Crow agreed to an amendment of their partnership agreement. As part of the amendment, the Registrant was entitled to receive a preference payment of $22,000,000 arising from any "Capital Transaction," as defined, that occurs during the period October 3, 2003 through October 2, 2005, in exchange for the Registrant surrendering its interest in the Development Partnership to Crow. In July 2004, Crow entered into a Capital Transaction and paid the Registrant the $22,000,000 preference payment and the Registrant surrendered its interest in the Development Partnership to Crow. As a result of the surrender of the Registrant's interest in the Development Partnership, the Registrant's sole remaining asset is cash and cash equivalents. Accordingly, in August 2004, after satisfying all outstanding payables and establishing necessary reserves, the Registrant distributed $23,083,026 to its limited partners ($6,595.15 per limited partner unit). The Registrant will recognize a gain for financial reporting purposes of approximately $8,341,000. The Registrant had $1,701,000 in cash and cash equivalents at June 30, 2004. Cash and cash equivalents are temporarily invested in short-term instruments. The Registrant's level of liquidity based upon cash and cash equivalents experienced an $829,000 decrease at June 30, 2004 as compared to December 31, 2003. The decrease resulted from $795,000 of net cash used in continuing operations and $56,000 of cash used in financing activities, which were partially offset by $22,000 of net cash provided by discontinued operations. Cash used in financing activities consisted of distributions to the General Partners for amounts that should have been allocated to them in prior years. 9 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED) --------------------------------------------------------- Liquidity and Capital Resources (Continued) ------------------------------------------ In February 2004, Quadrangle Associates III LLC, an affiliate of Winthrop Financial Associates ("WFA"), a General Partner of the Registrant, offered to purchase up to 964 (27.54%) of the outstanding units of limited partnership interest of the Registrant for a purchase price of $2,450 per limited partnership interest upon the terms and subject to the conditions set forth in the affiliate's offer to purchase, as amended. The offer by Quadrangle Associates III LLC expired on March 31, 2004. Quadrangle Associates III LLC accepted a total of 160.25 (4.58%) of the outstanding units of limited partnership interest of the Registrant at the purchase price of $2,450 per unit. In addition, in May 2004, Quadrangle Associates III LLC acquired one of the outstanding units of limited partnership interest of the Registrant. Pursuant to an agreement entered into with MB Special LLC, an entity affiliated with several original partners of WFA who retained an indirect minority interest in WFA and which has the right to review the Registrant's budget, distributions and extraordinary transactions, Mango Bay Realty LLC, an affiliate of MB Special LLC, had the right to acquire up to 46% of any units acquired by Quadrangle Associates III LLC in its offer, at any time prior to May 31, 2004. Mango Bay Realty LLC exercised its option in May 2004 and during the second quarter of 2004, 74.175 units were transferred to Mango Bay Realty LLC. In addition, in July 2004, Quadrangle Associates III LLC acquired one of the outstanding units of limited partnership interest of the Registrant. Results of Operations --------------------- Net Loss The Registrant recorded a net loss of $440,000 for the six months ended June 30, 2004 as compared to a net loss of $341,000 recorded in 2003. The increase in net loss is due to a decrease in income from discontinued operations of $536,000 which was substantially offset by a decrease in the loss from continuing operations of $437,000. Income Interest income decreased by $9,000 during the six months ended June 30, 2004 as compared to 2003. This decrease is due to lower cash balances invested during the six months ended June 30, 2004. Miscellaneous income decreased by $13,000 during the six months ended June 30, 2004 as compared to 2003. The decrease is due to a general liability insurance reimbursement received from the Registrant's insurance carrier in 2003. Expenses Expenses decreased from $470,000 in 2003 to $440,000 in 2004, primarily as a result of decreased professional fees. 10 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED) --------------------------------------------------------- Equity in Loss of Development Partnership Equity in loss of the Development Partnership was $429,000 for the six months ended June 30, 2003 compared to no loss recorded for the six months ended June 30, 2004. As a result of the settlement agreement that is described above in Liquidity and Capital Resources, the Registrant did not record any additional losses on their equity investment in the Development Partnership due to the Registrant's historical cost basis being lower than the preference payment that the Registrant was entitled to receive in connection with the settlement agreement. Discontinued Operations The Registrant has classified the operations of its management partnership, Winthrop California Management Limited Partnership and its operating partnership, Crow Winthrop Operating Partnership as discontinued operations as a result of the sale of the Fluor Corporation World Headquarters Facility (the "Headquarters Facility") in 2002. Income from discontinued operations was $529,000 for the six months ended June 30, 2003 compared to a loss of $7,000 for the six months ended June 30, 2004. Income from discontinued operations for the six months ended June 30, 2003 included $540,000 of equity in income of Jamboree LLC compared with no equity in income of Jamboree LLC for the six months ended June 30, 2004. The 2003 income was the result of a residual payment received of $540,000 from funds held in escrow from the sale of the Headquarters Facility. Quantitative and Qualitative Disclosures of Market Risk ------------------------------------------------------- The Registrant does not have any financial instruments that would expose it to market risk associated with the risk of loss arising from adverse changes in market rates and prices. ITEM 3. CONTROLS AND PROCEDURES ----------------------- The Partnership's management, with the participation of the Partnership's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, the Partnership's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. There have not been any changes in the Partnership's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. 11 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- PART II - OTHER INFORMATION - --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. --------------------------------- (a) Exhibits: Exhibits required by Item 601 of Regulation S-B are filed herewith and are listed in the attached Exhibit Index. (b) Reports of Form 8-K: No reports on Form 8-K were filed during the period ended June 30, 2004. 12 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BY: WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP Managing General Partner BY: /s/ Michael L. Ashner -------------------------------------------- Michael L. Ashner Chief Executive Officer and Director BY: /s/ Thomas C. Staples -------------------------------------------- Thomas C. Staples Chief Financial Officer Dated: August 13, 2004 13 of 19 WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP ------------------------------------------------- FORM 10-QSB JUNE 30, 2004 ------------------------- EXHIBIT INDEX Exhibit Page No. ------- -------- 31.1 Chief Executive Officer's Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 15 - 16 31.2 Chief Financial Officer's Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 17 - 18 32 Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 19 14 of 19