UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission File No. 2-89177
Wellesley Lease Income Limited Partnership II-B
(Exact Name of Registrant as Specified in its Charter)
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Massachusetts 04-2819906
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Financial Center, 21st Floor, Boston, MA 02111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 482-8000
Securities registered pursuant to Section 12(b) of the Act None
Securities registered pursuant to Section 12(g) of the Act Units of Limited Partnership Interests
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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
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 26, 1996: Not applicable, since securities are
non-voting.
Documents incorporated by reference: None.
Exhibit Index on Page: 37
Page 1 of 38
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Graphic image depicting the corporate organization as discussed in Part I, Item
1 Business as follows:
Continental Information Systems Corporation ("Continental") controls CIS
Corporation ("CIS") which controls CMI Holding Co. ("Holding"). Holding controls
TLP Leasing Programs, Inc. ("TLP"), CMI Corporation ("CMI"), and TLP Securities,
Inc. TLP controls TLP Columbia Management Corp. ("TCMC") which serves as General
Partner to the Columbia Lease Income Funds. CMI controls CIS Management Services
Corp. ("CISMS"). Torchmark Corporation ("Torchmark") controls TMK/United, Inc.
which controls Waddell and Reed Financial Services, Inc. ("Waddell And Reed").
Through various dealer-manager arrangements, TLP, CISMS, and Waddell and Reed
serve as corporate general partners to the Wellesley Leasing Partnership
("Wellesley General Partner") and the Hanover Leasing Partnership. The Wellesley
General Partner is the general partner for the Wellesley Lease Income Limited
Partnership. Hanover Leasing Partnership serves as the General Partner for
Hanover Lease Income Limited Partnership with BOT Financial Corporation serving
as agent.
<PAGE>
Part I
Item 1. Business.
Wellesley Lease Income Limited Partnership II-B (the "Partnership") is a limited
partnership organized under the provisions of the Massachusetts Uniform Limited
Partnership Act on January 20, 1984. As of December 31, 1995, the Partnership
consisted of a General Partner and 1,755 Limited Partners owning 25,363 Units of
Limited Partnership Interests of $500 each (the "Units"), except that employees
of the Corporate General Partners of the General Partner and employees and
securities representatives of its affiliates purchased 535 Units for a net price
of $460 per Unit, and the Partnership incurred no obligation to pay any sales
commissions with respect to such sales. The Units were sold commencing April 4,
1984, pursuant to a Registration Statement on Form S-1 under the Securities Act
of 1933. As set forth more fully at Item 10. Directors and Executive Officers of
the Partnership. of this Report, the General Partner is Wellesley Leasing
Partnership, and the General Partner has two Corporate General Partners (the
"Corporate General Partners"): TLP Leasing Programs, Inc. ("TLP") and CIS
Management Services Corporation ("CISMS"), both Massachusetts corporations.
The Partnership was organized to engage in the business of acquiring
income-producing computer peripheral equipment for investment purposes,
principally International Business Machines, Incorporated ("IBM") equipment. The
Partnership's principal objectives are as follows:
1. To acquire and lease equipment, primarily through operating leases, to
generate income during its entire useful life;
2. To provide quarterly distributions of cash to the Limited Partners
from leasing revenues and from the proceeds of sales or other
disposition of Partnership equipment; and
3. To reinvest a portion of lease revenues and a substantial portion of
cash from sales and refinancings in additional equipment during the
first nine years of the Partnership's operations.
The Partnership was formed primarily for investment purposes and not as a "tax
shelter".
The Partnership shall terminate on December 31, 2011, unless sooner dissolved or
terminated as provided in Section 11 of the Amended agreement of Limited
Partnership.
The closing date of the Partnership was August 24, 1984, and aggregate equipment
purchased through December 31, 1995, is $30,071,256. At the end of 1995, there
are 10 leases in place with 7 lessees. The acquisition of these leases and
equipment is described more fully in Item 2. Properties. of this report and
notes 3 and 4 to the financial statements included in Item 8.
Financial Statements and Supplementary Data.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from
CMI Holding Co. Under the new ownership, TLP will continue to operate in the
same manner of business as described below.
Under the Partnership Agreement, the General Partner, Wellesley Leasing
Partnership, is solely responsible for the operation of the Partnership and its
equipment. As discussed above, the General Partner has two Corporate General
Partners: TLP and CISMS. TLP was formed in December 1982 and is a wholly-owned
subsidiary of CMI Holding Co. ("Holding"), the capital stock of which was
acquired in August 1987 by Continental Information Systems Corporation ("CISC"),
in Syracuse, New York (a New York Stock Exchange-listed corporation). Through
this acquisition, CISC became the ultimate parent of TLP and CISMS. On July 20,
1993, Holding became a wholly-owned subsidiary of CIS pursuant to a court
ordered settlement (see note 8 to the financial statements included in Item 8.
Financial Statements and Supplementary Data). While Holding and its subsidiaries
have retained their separate corporate identities since the acquisition, their
operations (except those of TLP and the limited partnerships it manages) have
been effectively integrated into those of CIS Corporation ("CIS") and its
affiliates. These operations include buying, selling, financing, leasing and
sub-leasing new and used computer equipment, and their services include
securing, financing, collecting rentals, supervising equipment maintenance and
service. CISMS was formed in May 1983 and is a wholly-owned subsidiary of CMI
Corporation ("CMI"), which is another wholly-owned subsidiary of Holding and an
affiliate of TLP. CMI is engaged in equipment leasing, primarily involving
computer equipment and aircraft.
The General Partnership Agreement between TLP and CISMS (the "General
Partnership Agreement"), provides that CISMS will propose to the Partnership
equipment acquisitions, leasing, financing and re-financing transactions and
sale transactions, for approval by the Executive Committee and will oversee the
operation, management and use of the Partnership's equipment and that TLP will
oversee the marketing of the Units and all administrative functions of the
Partnership and will supply substantially all of the General Partner's capital
resources. All of the Partnership's equipment to date has been acquired and all
dispositions of Partnership equipment have been made, through CISMS, using the
personnel and resources of CMI, another Continental affiliate, both of which
emerged from protection under Chapter 11 of the United States Bankruptcy Code on
December 21, 1994, and several outside equipment leasing brokers the General
Partner believes would be most advantageous for the Partnership; see note 8 of
Item 8. Financial Statements of Supplementary Data. of this report.
The Partnership's investment policy provides for the acquisition of diversified
types of computer equipment and the leasing of such equipment to others on a
short-term basis under operating leases. The Partnership generally purchases
equipment for which a lease exists, or is entered into at the time of the
Partnership's acquisition of the equipment. This equipment is recorded and
depreciated at the Partnership cost (purchase price plus the acquisition fee).
If at any time the General Partner deems the equipment to be obsolete or related
maintenance and storage costs to be in excess of its fair market value, the
equipment is scrapped or sold at the current fair market value, whichever is
most advantageous for the Partnership.
Pursuant to its leasing policies, the General Partner performs a credit analysis
of potential lessees to determine their creditworthiness. The General Partner
leases all of its equipment to third parties by means of operating leases with
fixed base lease rates. Rents are payable monthly or quarterly. Operating leases
generally do not have terms greater than five years in duration and the
aggregate noncancelable rental payments during the term of the lease (on a net
present value basis), are not sufficient to permit the lessor to recover the
purchase price of the equipment.
At the termination of the lease, the General Partner arranges for the equipment
to be re-leased (either to the same lessee or a new lessee) if it determines
that re-leasing is in the Partnership's best interests. Generally, equipment is
re-leased at least once and possibly several times during the Partnership's
life, unless it is determined that the equipment is not marketable and therefore
may be sold. The General Partner provides, or arranges for the installation,
removal, maintenance and modification of the Partnership's equipment. Also, the
General Partner will purchase and maintain, or cause to be purchased and
maintained, appropriate insurance coverage to protect the interests of the
Partnership.
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At December 31, 1995, the Partnership owned various computer equipment with an
original cost basis of $1,322,322. Listed below is a breakdown of the various
types of computer equipment owned:
Computer peripherals $ 846,286
Processors & upgrades 13,223
Telecommunications 52,893
Other 409,920
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$ 1,322,322
==============
Of the leases in place at December 31, 1995, the average lease term is 30 months
and the average monthly lease rate as a percentage of original equipment cost is
2.27%.
The Partnership's investments in computer peripheral equipment are and will
continue to be subject to various risk factors. The principal business risk
associated with ownership of the equipment is the inability to keep it fully
leased at rentals which, after payment of operating expenses and debt service on
Partnership borrowings, provide, together with any anticipated sales proceeds or
salvage value, an acceptable rate of return. Other risk factors include:
1. Technological and economic equipment obsolescence, physical
deterioration, malfunction and risks attendant upon defaults by lessees
and credit losses.
2. Residual Values of Equipment. The Partnership's return on its
investment in equipment will depend in part upon the continuing value
of such equipment which in turn, depends upon, among other things: (1)
the quality of the equipment; (2) the condition of the equipment; (3)
the timing of the equipment's acquisition; (4) the cost of comparable
new equipment; (5) the technological obsolescence of the equipment; (6)
the General Partner's ability to forecast technological changes which
may reduce the value of the equipment; and (7) market factors.
3. Competition from Full Payout Lessors. In connection with operating
leases, the Partnership will encounter considerable competition from
those offering full payout leases, which are written for a longer term
and a lower rate than the Partnership's operating leases.
4. Competition from Manufacturers. Leases offered by the Partnership will
compete with operating leases and full payout leases offered by
equipment manufacturers in their own lease programs. In addition to
attractive financial terms, manufacturers may also provide certain
ancillary services which the Partnership cannot offer directly, such as
maintenance service (including possible equipment substitution rights),
warranty services and trade-in privileges.
5. Other Competition. There are numerous other potential investors,
including limited partnerships organized and managed similarly to the
Partnership, seeking to purchase equipment subject to either operating
leases or full payout leases, many of which will have greater financial
resources than the Partnership and more experience than the General
Partner. The Partnership will compete in the computer leasing
marketplace with many non-manufacturing firms, including other
equipment dealers, brokers and leasing companies, as well as with
financial institutions.
6. Changes in Marketing Policies. IBM's current marketing policy of
offering accrual discounts (i.e., applying lease payments as a
credit towards the purchase of equipment) and volume discounts enables
certain customers to obtain IBM equipment at a cost lower than its fair
market value. In the case of accrual discounts, lessees of IBM
equipment who have earned a purchase credit toward that equipment can
purchase the equipment from IBM and arrange a cost-effective sale and
leaseback arrangement with CMI or the Partnership. The sale price to
the Partnership will typically be less than the fair market value of
the equipment. The Partnership may be able to participate in volume
discounts through purchases arranged by lessees of CMI. The
Partnership's lower equipment costs in turn should enable the
Partnership to offer lower lease rates to customers and help offset the
risk of early obsolescence. If IBM were to eliminate these policies,
raise its prices, lower its lease rates, or become more active as a
lessor, the Partnership might find it more difficult to compete
successfully as a lessor of IBM equipment.
7. Defaults by Lessees. Default by a lessee may cause equipment to be
returned to the Partnership at a time when the General Partner may
be unable to promptly arrange for its re-leasing (at the rental rate
previously received or otherwise) or sale (with or without a loss),
thus resulting in the loss of anticipated revenues and the inability
to recover the Partnership's investment and repay related debt. Any
related debt may be secured by the returned equipment and in some
cases, by the Partnership's other equipment. If the debt is not paid
in a timely manner, the lender may foreclose and assume ownership
of all equipment securing the debt, resulting in economic loss
and adverse tax consequences to the Partnership's partners. One
lessee, Blue Cross & Blue Shield of Maryland, Incorporated, leases
equipment in which the related rental payments exceed 10% of total
rental income. The related rental payments comprise 22.43% of the
total rental income for the year ended December 31, 1995. Blue Cross
& Blue Shield of Maryland, Incorporated lease equipment comprising
32.90% of the total equipment portfolio at December 31, 1995.
8. Changes in Technology. The General Partner intends to offer lease rates
to the Partnership's lessees which take into account the risk of
technological advances which may reduce the value of such equipment
owned by the Partnership. However, the introduction of an entirely new
technology could lead to a radical reduction in the fair market value
of certain equipment and make such equipment difficult to re-lease.
The Partnership considers itself to be engaged in only one industry segment, the
business of investing primarily in IBM computer peripheral equipment and the
leasing of this equipment to major national corporations on an operating lease
basis; therefore, industry segment information has not been provided.
For information regarding the settlements between the Partnership and the
Liquidating Estate of CIS Corporation, et al, arising out of the emergence from
bankruptcy of CIS and CMI, see Item 3. Legal Proceedings.
During the fourth quarter of 1995, the General Partner announced its intentions
of winding down the operations of the Partnership. It is anticipated that
substantially all of the assets will be liquidated and the proceeds will be used
to settle all outstanding liabilities and make a final distribution during 1996.
The Partnership will not be terminated until the net unsecured pre-petition
claim against CIS Corporation has been settled and any stock received, sold.
<PAGE>
Item 2. Properties.
At December 31, 1995, the Partnership owned computer equipment with a
depreciated cost basis of $18,483, subject to 10 existing leases with 7
different lessees and equipment held in inventory, awaiting re-lease or sale,
with a depreciated cost basis of $26,869. All purchases of computer equipment
are subject to a 3% acquisition fee paid to the General Partner.
<PAGE>
Item 3. Legal Proceedings.
There are no material pending legal proceedings that the Partnership is a party
or of which any of its equipment or leases is the subject, except as described
below and in note 8 to the financial statements herein in Item 8. Financial
Statements and Supplementary Data.
On January 13, 1989 (the "Petition Date"), Continental Information Systems
Corporation ("Continental"), CIS Corporation ("CIS"), CMI Holding Co.
("Holding"), CMI Corporation ("CMI") and certain of its affiliates
(collectively, the "Debtors"), voluntarily petitioned for relief under Chapter
11 of the United States Bankruptcy Code ("Chapter 11"), and thereafter continued
in the management and operation of their businesses and property as Debtors In
Possession until October 25, 1989, when the United States Bankruptcy Court (the
"Court") confirmed the appointment of James P. Hassett as Chapter 11 trustee
(the "Trustee") of the Debtors. Holding is the parent of TLP and CMI is the
parent of CISMS. TLP and CISMS, neither of which filed under Chapter 11, are the
two Corporate General Partners of Wellesley Leasing Partnership, the General
Partner of the Partnership. Both before and after the Petition Date, CIS and CMI
have acted as agents for the Partnership in selling, leasing and remarketing
Partnership equipment. Holding became a wholly-owned subsidiary of CIS pursuant
to a Court ordered settlement on July 20, 1993.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from
Holding. Under the new ownership, it is expected that TLP will continue to
operate in the same manner of business as it has in the past.
As of the Petition Date, there were a number of unsettled transactions between
CIS and CMI and the Partnership and other affiliated partnerships (the
Partnership and such other partnerships are herein collectively referred to as
the "Partnerships"), including outstanding accounts receivable and accounts
payable between each of the Partnerships and CIS and CMI and their affiliates,
sales of equipment and related leases from CIS and CMI to each of the
Partnerships for which not all documentation had been completed as of the
Petition Date, and sales of equipment and related leases from which CIS had
failed to remove prior third-party liens. In addition, accounts receivable and
accounts payable continued to accrue and be paid between each of the
Partnerships and CIS and CMI and their affiliates subsequent to the Petition
Date.
On February 28, 1992, the Court granted an order implementing a settlement of
the outstanding issues between each of the Partnerships and the Debtors. The
settlement occurred on March 13, 1992. In the order the Court approved a set-off
on a partnership-by-partnership basis of pre-petition amounts owed by each
affected Debtor to each Partnership to the extent of pre-petition amounts owed
by that Partnership to that Debtor. As a result of the set-off, the Partnership
had a net unsecured pre-petition claim of $999,632 ($481,910 against CIS and
$517,722 against CMI), as of December 31, 1993 which had been fully reserved.
On November 29, 1994, the Court confirmed the Trustee's proposed Joint Plan of
Reorganization ("the Plan") dated October 4, 1994, and the Debtors emerged from
Chapter 11 bankruptcy protection on December 21, 1994. In accordance with the
Plan projections, 59% of each CIS claim would be paid in total, of which 44%
would be cash and 15% would be common stock of the reorganized Continental
Information Systems Corporation ("CISC"), based on a per share price of $4.29.
Each of the CMI claims would be paid in full, of which 75% would be cash and 25%
would be CISC common stock, as described above. Based on the Plan, the
Partnership`s fully reserved unsecured pre-petition claim balance was reduced to
$802,049.
<PAGE>
On December 27, 1994, the Partnership received the first distribution from the
Trustee (now trustee of the Liquidating Estate of CIS Corporation, et al) with
respect to the net unsecured pre-petition claim described above. The
distribution consisted of cash proceeds of $403,872 and 39,539 shares of common
stock in CISC. On July 20, 1995, the Partnership received the second
distribution which consisted of cash proceeds of $138,838 and 4,717 shares of
common stock in CISC. The Partnership received the third distribution on October
20, 1995, comprised of cash proceeds of $3,026 and 1,929 shares of common stock.
During the second quarter of 1995, the stock of CISC began trading, thereby
providing an objective valuation method for establishing the cost basis of $2.50
per share, which approximated fair value at June 30, 1995. A charge off was made
in 1995 in relation to the difference between the Trustee's original prescribed
value of the CISC stock at $4.29 per share and the cost basis established by the
Partnership. Following the Trustee's third distribution and the charge off made
during the year, the Partnership has a remaining net unsecured pre-petition
claim balance of $56,756 as of December 31, 1995. The General Partner
anticipates that the Liquidating Estate will make future distributions on the
remaining outstanding claim balance, although it is not possible at this time to
determine when these distributions will be made (see note 9 to the financial
statements in Item 8. Financial Statements and Supplementary Data.).
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Item 4. Submission of Matters to a Vote of Security Holders.
None.
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Part II
Item 5. Market for the Partnership's Securities and Related Security Holder
Matters.
(a) Market Information
The Partnership's outstanding securities consist of Limited Partnership
Interests in Units of $500 each. As of December 31, 1995, 25,363 Units had been
sold to the public at a price of $500 per Unit (except for 535 Units which were
sold for a net price of $460 per Unit to employees of the Corporate General
Partners of the General Partner and employees and securities representatives of
its affiliates).
There is no public market for the Units, and it is not anticipated that such a
public market will develop.
(b) Approximate Number of Security Holders
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Number of Unit Number of Units
holders on Record as of
Title of Class as of 12/31/95 12/31/95
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Units of
Limited
Partnership
Interests 1,755 25,363
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(c) Dividend History and Restrictions
During the fiscal period ended December 31, 1984, the Partnership completed its
offering of 25,363 Units. Pursuant to Section 8 of the Limited Partnership
Agreement, the Partnership's "Distributable Cash From Operations" for each year
will be determined and then be distributed to the partners. Upon reaching the
end of its reinvestment period (the ninth anniversary of the Partnership's
closing date), the Partnership will also distribute to the Partners
"Distributable Cash From Sales or Refinancings", if any. The Partnership
distributed $697,482 to the Limited Partners in 1995, $507,260 in 1994 and
$538,965 in 1993 and distributed $36,709 to the General Partner in 1995, $26,696
in 1994 and $28,365 in 1993. The cumulative cash distributions to the Limited
Partners through December 31, 1995, are $14,696,082 as compared with the
contributed Limited Partners' net capital of $11,298,475.
"Cash From Operations" and "Cash From Sales or Refinancing" means the net cash
provided by the Partnership's normal operations or as a result of any sales,
refinancings or other dispositions of equipment, respectively, after the general
expenses and current liabilities of the Partnership (other than the equipment
management fee) are paid, as reduced by any reserves for working capital and
contingent liabilities to the extent deemed reasonable by the General Partner
and as increased by any portion of such reserves then deemed by the General
Partner not to be required for Partnership operations. "Distributable Cash From
Operations" and "Distributable Cash From Sales or Refinancings" means Cash From
Operations or Cash From Sales or Refinancings, respectively, reduced by amounts
which the General Partner determines shall be reinvested (through the ninth
anniversary of the Partnership's closing date) in additional Equipment and by
payments of all accrued but unpaid equipment management fees.
For rendering services in connection with the normal operations of the
Partnership, the Partnership will pay to the General Partner a Partnership
management fee equal to 7% of the monthly rental billings collected.
Each distribution of Distributable Cash From Operations and any Distributable
Cash From Sales or Refinancings from gains of the Partnership shall be allocated
95% to the Limited Partners and 5% to the General Partner. Any losses from Sales
or Refinancings of equipment shall be allocated 99% to the Limited Partners and
1% to the General Partner until "Payout" has occurred. "Payout" means the time
when the aggregate amount of all distributions to the Limited Partners of
Distributable Cash From Operations and of Distributable Cash From Sales or
Refinancings equals the aggregate amount of the Limited Partners' original
invested capital plus a cumulative 10% annual return (compounded daily) on their
aggregate unreturned invested capital (calculated from the beginning of the
first full fiscal quarter following the Partnership's closing date). Including
the distribution for the fourth quarter of 1995 made February 29, 1996,
cumulative distributions to date are $585.68 per Unit. This cumulative
distribution per Unit amount represents 41.20% of "Payout". After Payout has
occurred, any Distributable Cash From Sales or Refinancings will be distributed
15% (plus an additional 1% for each 1% by which the total of all Limited
Partners' original Capital Contributions actually paid or allocated to the
Partnership's investment in equipment exceeds the greater of (i) 80% of the
gross proceeds of the Partnership's offering of Units, reduced by 0.0625% for
each 1% of leverage encumbering Partnership equipment, or (ii) 75% of the gross
proceeds of such offering) to the General Partner, and the remainder to the
Limited Partners. It is not anticipated that Payout will occur as of the
liquidation of this Partnership.
Distributable Cash, if any, will be distributed within 60 days after the
completion of each of the first three fiscal quarters of each Partnership fiscal
year and within 120 days after the completion of each fiscal year, beginning
after the first full fiscal quarter following the Partnership's closing date.
Each such distribution will be described in a statement sent to the Limited
Partners.
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth selected financial information regarding the
Partnership's financial position and operating results. This information should
be read in conjunction with the financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included in Items 8. and 7., respectively, of this report.
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For the Years Ended December 31,
1995 1994 1993 1992 1991
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Operating Data
Rental Income $ 407,384 $ 683,468 $ 855,709 $ 992,230 $ 1,577,640
Interest Income 25,270 6,135 3,111 14,242 41,111
Net Income 523,897 610,513 316,795 386,000 602,437
Net Income Per Limited
Partnership Unit 18.03 16.31 10.73 7.12 22.38
Balance Sheet Data
Cash and Cash Equivalents $ 290,241 $ 571,038 $ 96,504 $ 311,351 $ 482,393
Computer Equipment at Cost 1,322,322 1,671,132 3,381,997 4,015,669 5,618,391
Total Assets 480,391 844,686 815,168 1,156,103 2,228,068
Long-term Debt - 58,821 145,097 223,895 467,488
Distributions to Partners 734,191 533,956 567,330 867,681 934,424
Distributions Per Limited
Partnership Unit 27.50 20.00 21.25 32.50 35.00
Partners' Equity 444,695 672,308 595,751 846,286 1,327,967
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
On August 24, 1984, the Partnership completed its offering and received from the
escrow account $12,660,100 representing 25,363 Units of Limited Partnership
Interests. Of this amount, the Partnership received proceeds from the sale of
535 Units at a price net of sales commission for employees of the Corporate
General Partners of the General Partner and employees and securities
representatives of its affiliates, who are allowed to purchase Units for a net
price of $460 per Unit.
Results of Operations
The following discussion relates to the Partnership's operations for the year
ended December 31, 1995, in comparison to the years ended December 31, 1994 and
1993.
The Partnership realized net income of $523,897, $610,513 and $316,795 for the
years ended December 31, 1995, 1994 and 1993, respectively. Rental income
decreased $276,084 or 40% and $172,241 or 20% in 1995 and 1994, respectively.
The decrease each year is primarily due to lower rental rates obtained on
equipment lease extensions and remarketings resulting after the initial lease
term expires and due to a decrease in the overall size of the equipment
portfolio. Interest income increased $19,135 and $3,024 during 1995 and 1994,
respectively, due to the higher average short-term investment balances held
during those years. The increase in net gain on sale of equipment during 1995 is
attributed to the large number of sales of equipment carrying lower net book
values as compared to 1994 which reflected sales of equipment carrying higher
net book values. The recovery of net unsecured pre-petition claim of $257,327
and $403,872 for the years ended December 31, 1995 and 1994, respectively, was
the result of the receipt of the Trustee's distributions on the fully reserved
net unsecured pre-petition receivable (for further discussion refer to note 8 to
the financial statements). The current year recovery relates to the receipt of
the second and third Trustee's distributions comprised of cash and stock, along
with the second quarter of 1995 establishment of the carrying value of the stock
received in the December 27, 1994 distribution. Accordingly, the prior year
recovery amount represents the cash portion of the Trustee's first distribution.
Total costs and expenses decreased 54% and 18% in 1995 and 1994, respectively,
compared to prior periods. The decrease in costs and expenses each year is
primarily the result of the decrease in depreciation expense. Depreciation
expense decreased each year due to a large portion of the equipment portfolio
becoming fully depreciated and the overall reduction in the equipment portfolio.
The current year reduction in total costs and expenses is also impacted by the
reversal of the provision for doubtful accounts of $34,160, resulting from
successful collection efforts of delinquent accounts. Interest expense decreased
$7,657 and $7,090 in 1995 and 1994, respectively, due to the payoff and paydown,
respectively, of principal on long-term debt during the current and prior year.
Management fees decreased each year as a result of the decline in rental income.
General and administrative expenses increased 8% in 1995 over 1994 and remained
flat from 1993 to 1994. A major factor contributing to this current year
increase is that salaries and expenses of the partnership accounting and
reporting personnel, of the General Partner, which are reimbursable by the
various partnerships under management are being allocated over a diminishing
number of partnerships. The General Partner managed 15 partnerships in 1995, 19
partnerships in 1994 and 21 partnerships in 1993.
The Partnership recorded net income per Limited Partnership Unit of $18.03,
$16.31 and $10.73 for the years ended December 31, 1995, 1994 and 1993,
respectively. The allocation for the years ended December 31, 1995 and 1994
includes a cost recovery allocation of profit and loss among the General and
Limited Partners which results in an allocation of net loss to the Limited
Partners. This cost recovery allocation is required to maintain capital accounts
consistent with the distribution provisions of the Partnership Agreement. In
certain periods, the cost recovery of profit and loss may result in an
allocation of net loss the Limited Partners in instances when the Partnership's
operations were profitable for the period.
Liquidity and Capital Resources
For the year ended December 31, 1995, rental revenue generated from operating
leases was the primary source of funds for the Partnership. As equipment leases
terminate, the General Partner determines if the equipment will be extended to
the same lessee, remarketed to another lessee, or, if it is less marketable,
sold. This decision is made upon analyzing which option would generate the most
favorable results.
Rental income will continue to decrease due to two factors. The first factor is
the rate obtained when the original leases expire and are remarketed at a lower
rate. Typically, the remarketed rates are lower due to the decrease in useful
life of the equipment. Secondly, the increasing change of technology in the
computer industry usually decreases the demand for older equipment, thus
increasing the possibility of obsolescence. Both of these factors together will
cause remarketed rates to be lower than original rates and will cause certain
leases to terminate upon expiration. Future rental revenues from operating
leases amount to $182,108 and are related to leases that expire over the next
year (see note 4 to the financial statements).
During the fourth quarter of 1995, the General Partner announced its intentions
of winding down the operations of the Partnership. It is anticipated that
substantially all of the assets will be liquidated and the proceeds will be used
to settle all outstanding liabilities and make a final distribution during 1996.
The Partnership will not be terminated until the net unsecured pre-petition
claim against CIS Corporation has been settled and any stock received, sold.
The Partnership's investing activities for the year resulted in sales of
equipment with a depreciated cost basis of $7,552, generating $55,748 in
proceeds. The Partnership has no material capital expenditure commitments and
will not purchase equipment in the future as the Partnership has reached the end
of its reinvestment period and has announced its intention of winding down the
Partnership.
The Partnership's financing activities for the year resulted in the payoff of
long-term debt of $58,821 for the year ended December 31, 1995. Total debt
assumed by the Partnership from inception is $13,193,855, for a total leverage
of 44%.
Cash distributions paid in the first quarter of 1996 are currently at an annual
level of 5% per Limited Partnership Unit, or $25.00 per Limited Partnership
Unit. During 1995, the Partnership distributed a total of $27.50 per Limited
Partnership Unit, of which $18.03 per Unit represents income and $9.47 per Unit
represents a return of capital. For the quarter ended December 31, 1995, the
Partnership declared a cash distribution of $166,862, of which $8,343 was
allocated to the General Partner and $158,519 was allocated to the Limited
Partners. The distribution will be made on February 29, 1996. The Partnership
expects distributions to be more volatile as its operations are winding down.
The effects of inflation have not been significant to the Partnership and are
not expected to have any material impact in future periods.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from
CMI Holding Co. Under the new ownership, it is expected that TLP will continue
to operate in the same manner of business as it has in the past.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Partners of Wellesley Lease Income Limited Partnership II-B:
We have audited the accompanying balance sheets of Wellesley Lease Income
Limited Partnership II-B (a Massachusetts Limited Partnership) as of December
31, 1995 and 1994, and the related statements of operations, partners' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1995. In connection with our audits of the financial statements, we
have also audited the accompanying financial statement schedule II for each of
the years in the three-year period ended December 31, 1995. These financial
statements and this financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and this financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wellesley Lease Income Limited
Partnership II-B as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 1, in 1995 the General Partner announced its intentions of
winding down the operations of the Partnership in 1996.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 15, 1996
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets
1995 1994
---------------- ----------------
<S> <C> <C>
Investment property, at cost (notes 3 & 4):
Computer equipment $ 1,322,322 $ 1,671,132
Less accumulated depreciation 1,276,970 1,475,854
---------------- ----------------
Investment property, net 45,352 195,278
Cash and cash equivalents 290,241 571,038
Marketable securities (notes 2 & 7) 98,143 -
Rents receivable, net (notes 2 & 4) 43,205 74,989
Accounts receivable - affiliates, net (notes 2 & 8) 3,450 3,381
---------------- ----------------
Total assets $ 480,391 $ 844,686
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt $ - $ 58,821
Accounts payable and accrued expenses - affiliates (note 5) 10,938 35,622
Accrued expenses and accounts payable 24,758 22,082
Unearned rental revenue - 55,853
---------------- ----------------
Total liabilities 35,696 172,378
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 772,640 706,097
Cumulative cash distributions (773,467) (736,758)
Unrealized losses on marketable securities (note 7) (173) -
---------------- ----------------
- (29,661)
---------------- ----------------
Limited Partners (25,363 units):
Capital contribution, net of offering costs 11,298,475 11,298,475
Cumulative net income 3,859,448 3,402,094
Cumulative cash distributions (14,696,082) (13,998,600)
Unrealized losses on marketable securities (note 7) (17,146) -
---------------- ----------------
444,695 701,969
---------------- ----------------
Total partners' equity 444,695 672,308
---------------- ----------------
Total liabilities and partners' equity $ 480,391 $ 844,686
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------------- --------------- ----------------
<S> <C> <C> <C>
Revenues:
Rental income $ 407,384 $ 683,468 $ 855,709
Interest income 25,270 6,135 3,111
Net gain (loss) on sale of equipment 48,648 (14,947) 28,479
Recovery of net unsecured pre-petition
claim (note 8) 257,327 403,872 -
---------------- --------------- ----------------
Total revenues 738,629 1,078,528 887,299
---------------- --------------- ----------------
Costs and expenses:
Depreciation 142,826 293,835 426,623
(Reversal of) provision for
doubtful accounts (34,160) 60,588 -
Interest 1,984 9,641 16,731
Related party expenses (note 5):
Management fees 31,643 36,740 59,892
General and administrative 72,439 67,211 67,258
---------------- --------------- ----------------
Total costs and expenses 214,732 468,015 570,504
---------------- --------------- ----------------
Net income $ 523,897 $ 610,513 $ 316,795
================ =============== ================
Net income per Limited
Partnership Unit $ 18.03 $ 16.31 $ 10.73
================ =============== ================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Partners' Equity (Deficit)
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
---------------- --------------- ---------------
<S> <C> <C> <C>
Equity (deficit) at
December 31, 1992 $ (216,141) $ 1,062,427 $ 846,286
Net income 44,701 272,094 316,795
Cash distributions (28,365) (538,965) (567,330)
---------------- --------------- ---------------
Equity (deficit) at
December 31, 1993 (199,805) 795,556 595,751
Net income 196,840 413,673 610,513
Cash distributions (26,696) (507,260) (533,956)
---------------- --------------- ---------------
Equity (deficit) at
December 31, 1994 (29,661) 701,969 672,308
Net income 66,543 457,354 523,897
Cash distributions (36,709) (697,482) (734,191)
Unrealized losses on
marketable securities (note 7) (173) (17,146) (17,319)
---------------- --------------- ---------------
Equity at
December 31, 1995 $ - $ 444,695 $ 444,695
================ =============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 523,897 $ 610,513 $ 316,795
--------------- ---------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 142,826 293,835 426,623
(Reversal of) provision for doubtful accounts (34,160) 60,588 -
Net (gain) loss on sale of equipment (48,648) 14,947 (28,479)
Net increase in current assets (49,587) (96,619) (17,489)
Net (decrease) increase in current liabilities (77,861) 39,237 (11,602)
--------------- ---------------- ---------------
Total adjustments (67,430) 311,988 369,053
--------------- ---------------- ---------------
Net cash provided by operating activities 456,467 922,501 685,848
--------------- ---------------- ---------------
Cash flows from investing activities:
Purchase of investment property - - (316,495)
Proceeds from sales of investment property 55,748 172,265 61,928
--------------- ---------------- ---------------
Net cash provided by (used in)
investing activities 55,748 172,265 (254,567)
--------------- ---------------- ---------------
Cash flows from financing activities:
Proceeds from borrowing on notes payable - affiliate - - 12,000
Principal payments on notes payable - affiliate - - (12,000)
Principal payments on long-term debt (58,821) (86,276) (78,798)
Cash distributions to partners (734,191) (533,956) (567,330)
--------------- ---------------- ---------------
Net cash used in financing activities (793,012) (620,232) (646,128)
--------------- ---------------- ---------------
Net (decrease) increase in cash and cash equivalents (280,797) 474,534 (214,847)
Cash and cash equivalents at beginning of year 571,038 96,504 311,351
--------------- ---------------- ---------------
Cash and cash equivalents at end of year $ 290,241 $ 571,038 $ 96,504
=============== ================ ===============
Supplemental cash flow information:
Interest paid during the year $ 3,061 $ 9,664 $ 17,329
=============== ================ ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Organization and Partnership Matters
The Partnership was organized under the Massachusetts Uniform Limited
Partnership Act on January 20, 1984. The Amended Agreement of Limited
Partnership authorized the issuance of up to 25,000 Limited Partnership Units
plus 313 units unsold from a prior partnership at a per unit gross price of $500
and up to 50 additional units to affiliates. The Partnership closed on August
24, 1984, with 25,363 units.
The General Partner has contributed $1,000 as its General Partnership interest.
In addition, the General Partner and its affiliates have acquired an additional
$24,000 of Limited Partnership Units in accordance with the Amended Agreement of
Limited Partnership.
Pursuant to the terms of the Amended Agreement of Limited Partnership,
Distributable Cash From Operations and Profits for federal income tax and
financial reporting purposes from normal operations and any Distributable Cash
From Sales or Refinancings from gains of the Partnership shall be allocated 95%
to the Limited Partners and 5% to the General Partner. Further, gains on sales
of equipment occurring after the reinvestment period end shall be allocated
first to eliminate negative capital accounts, if any, and second 95% to the
Limited Partners and 5% to the General Partner until "Payout" has occurred.
"Payout" means the time when the aggregate amount of all distributions to the
Limited Partners of Distributable Cash From Operations and of Distributable Cash
From Sales or Refinancings equals the aggregate amount of the Limited Partners'
original invested capital plus a cumulative 10% annual return (compounded daily)
on their aggregate unreturned invested capital (calculated from the beginning of
the first full fiscal quarter following the Partnership's closing date). Losses
for federal income tax and financial reporting purposes from normal operations
and any Distributable Cash From Sales or Refinancings from losses of the
Partnership shall be allocated 99% to the Limited Partners and 1% to the General
Partner until Payout has occurred, and 85% to the Limited Partners and 15% to
the General Partner thereafter. In addition, special cost recovery allocations
may be required to reflect the differing initial capital contributions of the
General Partner and the Limited Partners. The Partnership's books and records
are in accordance with the terms of the Amended Agreement of Limited
Partnership. Including the fourth quarter of 1995 distribution made February 29,
1996, cumulative distributions to date are $585.68 per Unit. This cumulative
distribution per Unit amount represents 41.20% of Payout. It is not anticipated
that Payout will occur as of the liquidation of this Partnership.
During the fourth quarter of 1995, the General Partner announced its intentions
of winding down the operations of the Partnership. It is anticipated that
substantially all of the assets will be liquidated and the proceeds will be used
to settle all outstanding liabilities and make a final distribution during 1996.
The Partnership will not be terminated until the net unsecured pre-petition
claim against CIS Corporation has been settled and any stock received, sold.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(2) Significant Accounting Policies
General
The Partnership's records are maintained on the accrual basis of accounting so
that revenues are recognized as earned and expenses are recognized as incurred.
Assets and liabilities are those of the Partnership and do not include any
assets and liabilities of the individual partners. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Depreciation on investment property purchased in 1987 and thereafter is provided
using the double-declining balance method, generally over a five-year period. No
salvage value is assumed. The Partnership's policy is to periodically review the
estimated fair market value of its equipment to assess the recoverability of its
undepreciated cost. In accordance with this policy, the Partnership records a
charge to depreciation expense in instances when the net book value of equipment
exceeds its net realizable value. Routine maintenance and repairs are expensed
as incurred. Major betterments and enhancements are capitalized and depreciated
in accordance with the Partnership's depreciation policy.
Cash and Cash Equivalents
The Partnership considers cash and short-term investments with original
maturities of three months or less to be cash and cash equivalents.
Allowance for Doubtful Accounts
The financial statements include an allowance for estimated losses on receivable
balances. The allowance for doubtful accounts is based on past write off
experience and an evaluation of potential uncollectible accounts within the
current receivable balances. Receivable balances which are determined to be
uncollectible are charged against the allowance and subsequent recoveries, if
any, are credited to the allowance. At December 31, 1995 and 1994, the allowance
for doubtful accounts included in rents receivable was $15,952 and $50,112,
respectively. The allowance for doubtful accounts - affiliates was $56,756 and
$228,555, at December 31, 1995 and 1994, respectively, both of which pertained
to the net unsecured pre-petition claim balance.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and
consist of 46,185 shares of common stock in Continental Information Systems
Corporation ("CISC") received by the Partnership in the distributions made
December 27, 1994, July 20, 1995 and October 20, 1995 by the Trustee of the
Liquidating Estate of CIS Corporation, et al ("the Trustee"), with respect to
the outstanding net unsecured pre-petition claim. During the second quarter of
1995, the stock began trading, thereby providing an objective valuation measure
for establishing the cost basis. Unrealized gains and losses are recorded
directly in partners' equity except those gains and losses that are deemed to be
other than temporary, which would be reflected in income or loss (see note 7).
Income Taxes
No provision for federal income taxes has been made as the liability for such
taxes is that of the Partners rather than that of the Partnership. Taxable
income, as reported in Schedule K-1, Form 1065 "Partner's Share of Income,
Credits, Deductions, etc.", was $150,995, $5,734 and $316,795 in 1995, 1994 and
1993, respectively (see note 6).
Reclassifications
Certain prior year financial statement items have been reclassified to conform
with the current year's financial statement presentation.
(3) Investment Property
At December 31, 1995, the Partnership owned computer equipment with a
depreciated cost basis of $18,483, subject to existing leases and equipment with
a depreciated cost basis of $26,869 in inventory, awaiting re-lease or sale. All
purchases of computer equipment are subject to a 3% acquisition fee paid to the
General Partner.
(4) Leases
Operations consist primarily of leasing computer equipment. All equipment leases
are classified as operating leases and expire over the next two years.
Minimum lease payments scheduled to be received in the future under existing
noncancelable operating leases are as follows:
1996 $ 162,669
1997 19,439
--------------
$ 182,108
==============
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
The following schedule provides an analysis of the cost of capital equipment by
major classes as of December 31, 1995:
Computer peripherals $ 846,286
Processors & upgrades 13,223
Telecommunications 52,893
Other 409,920
---------------
$ 1,322,322
===============
One lessee, Blue Cross & Blue Shield of Maryland, Incorporated, leases equipment
in which the related rental payments exceed 10% of total rental income. The
related rental payments comprise 22.43% of the total rental income for the year
ended December 31, 1995. Blue Cross & Blue Shield of Maryland, Incorporated
lease equipment comprising 32.90% of the total equipment portfolio at December
31, 1995.
(5) Related Party Transactions
Fees, commissions and other expenses paid or accrued by the Partnership to the
General Partner or affiliates of the General Partner for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Equipment acquisition fees $ - $ - $ 9,218
Management fees 31,643 36,740 59,892
Reimbursable expenses paid 60,974 65,388 59,100
------------ ------------ ------------
$ 92,617 $ 102,128 $ 128,210
============ ============ ============
</TABLE>
Under the terms of the Partnership Agreement, the General Partner is entitled to
an equipment acquisition fee of 3% of the purchase price paid by the Partnership
for the equipment. The General Partner is also entitled to a management fee
equal to 7% of the monthly rental billings collected. Also, the Partnership
reimburses the General Partner and its affiliates for certain expenses incurred
by them in connection with the operation of the Partnership.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(6) Reconciliation of Financial Statement Net Income to Taxable Income to
Partners
A reconciliation of financial statement net income to taxable income to partners
is as follows for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Net income per financial statements $ 523,897 $ 610,513 $ 316,795
Depreciation expense for financial statement purposes
in excess of depreciation expense for tax purposes 1,058 - -
Provision for doubtful accounts expense for financial
statement purposes less than provision for doubtful
accounts expense for tax purposes (374,157) (600,742) -
Net gain on sale of equipment for financial statement purposes less than
(in excess of) net gain on sale
of equipment for tax purposes 197 (4,037) -
-------------- ------------- -------------
Taxable income to partners $ 150,995 $ 5,734 $ 316,795
============== ============= =============
</TABLE>
Losses for federal tax purposes from normal operations are allocated 99% to the
Limited Partners and 1% to the General Partner. Profits for federal tax purposes
from normal operations are allocated 95% to the Limited Partners and 5% to the
General Partner. In addition, special cost recovery allocations may be required
to reflect the differing initial capital contribution of the General Partner and
the Limited Partners.
(7) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires investments
in debt and equity securities other than those accounted for under the equity
method to be carried at fair value or amortized cost for debt securities
expected to be held to maturity, the Partnership has classified its investments
in equity securities as available for sale. Accordingly, the net unrealized
gains and losses computed in marking these securities to market are reported as
a component of partners' equity. At December 31, 1995 the difference between the
fair value and the cost basis of these securities is an unrealized loss of
$17,319.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at December 31,
1995 are as follows:
<TABLE>
<CAPTION>
1995
Cost Fair
Basis Value
-------- --------
<S> <C> <C>
Investment in Continental Information
Systems Corporation Stock $115,462 $ 98,143
======== ========
</TABLE>
As was discussed in note 2, Marketable Securities, the Partnership received
stock in CISC as part of the December 27, 1994, July 20, 1995 and October 20,
1995 distributions from the Trustee, with respect to the outstanding net
unsecured pre-petition claim. The receivables comprising the net unsecured
pre-petition claim had been fully reserved during prior years; thus, during the
second quarter of 1995 when the stock began actively trading, the carrying
amount for the stock was established to be $2.50 per share which approximated
fair value at June 30, 1995.
(8) Bankruptcy of Continental Information Systems Corporation
On January 13, 1989 (the "Petition Date"), Continental Information Systems
Corporation ("Continental"), CIS Corporation ("CIS"), CMI Holding Co.
("Holding"), CMI Corporation ("CMI") and certain of its affiliates
(collectively, the "Debtors"), voluntarily petitioned for relief under Chapter
11 of the United States Bankruptcy Code ("Chapter 11"), and thereafter continued
in the management and operation of their businesses and property as Debtors In
Possession until October 25, 1989, when the United States Bankruptcy Court (the
"Court") confirmed the appointment of James P. Hassett as Chapter 11 trustee
(the "Trustee") of the Debtors. Holding is the parent of TLP and CMI is the
parent of CISMS. TLP and CISMS, neither of which filed under Chapter 11, are the
two Corporate General Partners of Wellesley Leasing Partnership, the General
Partner of the Partnership. Both before and after the Petition Date, CIS and CMI
have acted as agents for the Partnership in selling, leasing and remarketing
Partnership equipment. Holding became a wholly-owned subsidiary of CIS pursuant
to a Court ordered settlement on July 20, 1993.
As of the Petition Date, there were a number of unsettled transactions between
CIS and CMI and the Partnership and other affiliated partnerships (the
Partnership and such other partnerships are herein collectively referred to as
the "Partnerships"), including outstanding accounts receivable and accounts
payable between each of the Partnerships and CIS and CMI and their affiliates,
sales of equipment and related leases from CIS and CMI to each of the
Partnerships for which not all documentation had been completed as of the
Petition Date, and sales of equipment and related leases from which CIS had
failed to remove prior third-party liens. In addition, accounts receivable and
accounts payable continued to accrue and be paid between each of the
Partnerships and CIS and CMI and their affiliates subsequent to the Petition
Date.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Notes to Financial Statements
On February 28, 1992, the Court granted an order implementing a settlement of
the outstanding issues between each of the Partnerships and the Debtors. The
settlement occurred on March 13, 1992. In the order the Court approved a set-off
on a partnership-by-partnership basis of pre-petition amounts owed by each
affected Debtor to each Partnership to the extent of pre-petition amounts owed
by that Partnership to that Debtor. As a result of the set-off, the Partnership
had a net unsecured pre-petition claim of $999,632 ($481,910 against CIS and
$517,722 against CMI), as of December 31, 1993 which had been fully reserved.
On November 29, 1994, the Court confirmed the Trustee's proposed Joint Plan of
Reorganization ("the Plan") dated October 4, 1994, and the Debtors emerged from
Chapter 11 bankruptcy protection on December 21, 1994. In accordance with the
Plan projections, 59% of each CIS claim would be paid in total, of which 44%
would be cash and 15% would be common stock of the reorganized Continental
Information Systems Corporation ("CISC"), based on a per share price of $4.29.
Each of the CMI claims would be paid in full, of which 75% would be cash and 25%
would be CISC common stock, as described above. Based on the Plan, the
Partnership`s fully reserved unsecured pre-petition claim balance was reduced to
$802,049.
On December 27, 1994, the Partnership received the first distribution from the
Trustee (now trustee of the Liquidating Estate of CIS Corporation, et al) with
respect to the net unsecured pre-petition claim described above. The
distribution consisted of cash proceeds of $403,872 and 39,539 shares of common
stock in CISC. On July 20, 1995, the Partnership received the second
distribution which consisted of cash proceeds of $138,838 and 4,717 shares of
common stock. The Partnership received the third distribution on October 20,
1995, comprised of cash proceeds of $3,026 and 1,929 shares of common stock.
During the second quarter of 1995, the stock of CISC began trading, thereby
providing an objective valuation method for establishing the cost basis of $2.50
per share, which approximated fair value at June 30, 1995. A charge off was made
in 1995 in relation to the difference between the Trustee's original prescribed
value of the CISC stock at $4.29 per share and the cost basis established by the
Partnership. Following the Trustee's third distribution and the charge off made
during the year, the Partnership has a remaining net unsecured pre-petition
claim balance of $56,756 as of December 31, 1995 (see note 9).
(9) Subsequent Events
On January 19, 1996, the Partnership received the fourth distribution from the
Trustee with respect to the net unsecured pre-petition claim. The distribution
consisted of cash proceeds of $8,795. The cash proceeds will be reflected in the
financial statements for the first quarter of 1996. Following the Trustee's
fourth distribution, the Partnership has a remaining net unsecured pre-petition
claim balance of $47,961 as of January 19, 1996. The General Partner anticipates
that the Liquidating Estate will make future distributions on the remaining
outstanding claim balance, although it is not possible at this time to determine
when these distributions will be made.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from
Holding. Under the new ownership, it is expected that TLP will continue to
operate in the same manner of business as it has in the past.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Schedule II - Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Additions charged
Balance at to (recoveries Balance
beginning credited from) at end
Classification of year costs and expenses Charge-offs of year
<S> <C> <C> <C> <C>
Year ended
December 31, 1993 $ 1,052,118 $ - $ - $ 1,052,118
================ ================ ================ =================
Year ended
December 31, 1994 $ 1,052,118 $ (343,284) $ 260,545 $ 448,289
================ ================ ================ =================
Year ended
December 31, 1995 $ 448,289 $ (291,487) $ 84,094 $ 72,708
================ ================ ================ =================
</TABLE>
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
December 31, 1995
Lessee
Allied Signal Corporation
Blue Cross and Blue Shield of Maryland, Incorporated
FAX International, Incorporated
Halliburton Company
Hughes Aircraft Company, Incorporated
Lamson & Sessions, Incorporated
Metropolitan Edison Company, Incorporated
Equipment Description Acquisition Price
Computer Peripherals $ 846,286
Processors & Upgrades 13,223
Telecommunications 52,893
Other 409,920
----------------
$ 1,322,322
================
<PAGE>
Exhibit 11 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-B
(A Massachusetts Limited Partnership)
Computation of Net Income per Limited Partnership Unit
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ---------------- ----------------
<S> <C> <C> <C>
Net income $ 523,897 $ 610,513 $ 316,795
Gain on sale (48,647) (82,002) (30,304)
Loss on sale - 96,949 1,825
Special cost recovery allocation 6,175 (88,983) -
-------------- ---------------- ----------------
Available income from operations 481,425 536,477 288,316
-------------- ---------------- ----------------
Allocations to General Partner:
Income from operations 24,071 26,824 14,415
Gain on sale 48,647 82,002 30,304
Loss on sale - (969) (18)
Special cost recovery allocation (6,175) 88,983 -
-------------- ---------------- ----------------
Income allocated to General Partner 66,543 196,840 44,701
-------------- ---------------- ----------------
Income allocated to Limited Partners $ 457,354 $ 413,673 $ 272,094
============== ================ ================
Number of Limited Partnership Units 25,363 25,363 25,363
Net income per Limited Partnership Unit $ 18.03 $ 16.31 $ 10.73
============== ================ ================
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Statement Disclosures.
None.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Partnership.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1. of this
report, the General Partner of the Partnership is Wellesley Leasing Partnership.
Under the Partnership Agreement, the General Partner is solely responsible for
the operation of the Partnership's properties, and the Limited Partners have no
right to participate in the control of such operations. The General Partner has
two Corporate General Partners: TLP and CISMS, both Massachusetts corporations.
The names and ages of the Directors and Executive Officers of the Corporate
General Partners are as follows:
<TABLE>
<CAPTION>
TLP
Name Title Age
<S> <C> <C>
Arthur P. Beecher * President and Director 59
Thomas J. Prinzing * Director 49
Frank J. Corcoran Director, Vice President, Treasurer
and Clerk 45
CISMS
Name Title Age
Arthur P. Beecher * President and Assistant Secretary 59
Thomas J. Prinzing * Director 49
Frank J. Corcoran Vice President, Treasurer and Clerk 45
</TABLE>
* Executive Committee Member
(c) Identification of certain significant persons
See Item 10. (a-b)
(d) Family relationship
No family relationship exists between any of the foregoing Directors or
Officers.
(e) Business experience
Arthur P. Beecher is President and Director of TLP. He is also President and
Assistant Secretary of CISMS. Prior to joining TLP in October 1983, Mr. Beecher
was an Officer of Computer Systems of America, Inc., in Boston, Massachusetts,
most recently as Vice President, Finance and Administration since 1975. Mr.
Beecher holds a B.S. from Boston University and is a Certified Public
Accountant.
<PAGE>
Thomas J. Prinzing is a Director of TLP and CISMS. On December 18, 1995, Mr.
Prinzing was elected President, Chief Executive Officer and Director of
Continental Information Systems Corporation ("CISC"). Mr. Prinzing is also the
President of CIS Air Corporation, a position he has held since 1991. From 1984
to 1991 he was Senior Vice President and Chief Financial Officer of CIS. Mr.
Prinzing has an Honors Bachelor of Commerce degree of the University of Windsor
and is a Certified Public Accountant.
Frank J. Corcoran is Director, Vice President, Treasurer and Clerk of TLP, and
is also Vice President, Treasurer and Clerk of CISMS. Mr. Corcoran is Senior
Vice President, Chief Financial Officer, Treasurer and Director of CIS and a
Vice President and Treasurer of Holding. Prior to joining CIS in November 1994,
he was with Unisys Finance Corporation, from 1985 to 1994, most recently as the
Vice President and General Manager. Mr. Corcoran holds a B.S. from Wayne State
University, a M.S. in Taxation from Walsh College and is a Certified Public
Accountant.
(f) Involvement in certain legal proceedings
The Partnership is not aware of any legal proceedings against any Director or
Executive Officer of the Corporate General Partners which may be important for
the evaluation of any such person's ability and integrity.
<PAGE>
Item 11. Management Remuneration and Transactions.
(a), (b), (c), (d), and (e): The Officers and Directors of the Corporate General
Partners receive no current or proposed direct remuneration in such capacities,
pursuant to any standard arrangements or otherwise, from the Partnership. In
addition, the Partnership has not paid and does not propose to pay any options,
warrants or rights to the Officers and Directors of the Corporate General
Partners. There exists no remuneration plan or arrangement with any Officer or
Director of the Corporate General Partners resulting from the resignation,
retirement or any other termination. See note 5 to the financial statements
included in Item 8. of this report for a description of the remuneration paid by
the Partnership to the General Partner and its affiliates during 1995, 1994 and
1993.
<PAGE>
Item 12. Security Ownership of Certain Owners and Management.
By virtue of its organization as a limited partnership, the Partnership has no
outstanding securities possessing traditional voting rights. However, as
provided for in Section 13.2 of the Amended Agreement of Limited Partnership
(subject to Section 13.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Limited Partnership Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of substantially all the assets of the
Partnership.
No person or group is known by the General Partner to own beneficially more than
5% of the Partnership's 25,363 outstanding Limited Partnership Units as of
December 31, 1995.
By virtue of its organization as a limited partnership, the Partnership has no
Officers or Directors. See also note 1 to the financial statements included in
Item 8. and Item 10. of this report.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
(a), (b), and (c): The General Partner of the Partnership is Wellesley Leasing
Partnership, a Massachusetts general partnership which in turn has two Corporate
General Partners: TLP and CISMS, both Massachusetts corporations. The Corporate
General Partners' Directors and Executive Officers are identified in Item 10. of
this report. The Partnership was not involved in any transaction involving any
of these Directors or Officers or any member of the immediate family of these
individuals, nor did any of these persons provide services to the Partnership
for which they received direct or indirect remuneration. Similarly, there exists
no business relationship between the Partnership and any of the Directors or
Officers of the Corporate General Partners, nor were any of the individuals
indebted to the Partnership.
The General Partner is responsible for acquiring, financing, leasing and selling
equipment for the Partnership. CISMS proposes for the Partnership equipment
acquisitions, leasing transactions, financing and refinancing transactions and
sale transactions, for approval by the Executive Committee and oversees the
operation, management and use of each Partnership's equipment. TLP oversaw the
marketing of the Units and oversees all administrative functions of the
Partnership and provides substantially all of the General Partner's capital
resources. In consideration of such services and capital commitments, TLP
receives 40%, and CISMS receives 60%, of all compensation received by the
General Partner in connection with the formation and operation of the
Partnership (including equipment management fees, acquisition fees, subordinated
remarketing fees and the General Partner's share of Distributable Cash From
Sales or Refinancings). The General Partner also was reimbursed in an amount
equal to 3% of the gross proceeds of the Partnership's offerings for
organizational and offering expenses; all such expenses in excess of that amount
were borne by TLP. See note 5 to the financial statements included in Item 8 of
this report for a description of payments made by the Partnership to the General
Partner.
For information regarding the settlements between the Partnership and the
Liquidating Estate of CIS Corporation, et al, arising out of the emergence from
bankruptcy of CIS and CMI, see Item 3. Legal Proceedings.
<PAGE>
<TABLE>
<CAPTION>
Part IV
<S> <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K: None.
(a) 1. Financial Statements Page No.
Independent Auditors' Report 16
Balance Sheets at December 31, 1995 and 1994 17
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 18
Statements of Partners' Equity (Deficit) for
the Years Ended December 31, 1995, 1994 and 1993 19
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 20
Notes to Financial Statements 21 - 27
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves 28
All other financial statement schedules are omitted because they are
not applicable, the data is not significant, or the required
information is shown elsewhere in this report.
Computer Equipment Portfolio (Unaudited) 29
3. Exhibit Index
11 Statement regarding computation of net income per Limited Partnership Unit 30
(b) Report on Form 8-K
N/A
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WELLESLEY LEASE INCOME LIMITED
PARTNERSHIP II-B
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General
Partners
Date: March 28, 1996
By: Arthur P. Beecher,
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000739710
<NAME> WELLESLEY II-B 12/31/95
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 290,241
<SECURITIES> 98,143
<RECEIVABLES> 119,363
<ALLOWANCES> 72,708
<INVENTORY> 0
<CURRENT-ASSETS> 435,039
<PP&E> 1,322,322
<DEPRECIATION> 1,276,970
<TOTAL-ASSETS> 480,391
<CURRENT-LIABILITIES> 35,696
<BONDS> 0
<COMMON> 11,299,475
0
0
<OTHER-SE> (10,854,780)
<TOTAL-LIABILITY-AND-EQUITY> 480,391
<SALES> 407,384
<TOTAL-REVENUES> 738,628
<CGS> 0
<TOTAL-COSTS> 31,643
<OTHER-EXPENSES> 215,264
<LOSS-PROVISION> (34,160)
<INTEREST-EXPENSE> 1,984
<INCOME-PRETAX> 523,897
<INCOME-TAX> 0
<INCOME-CONTINUING> 523,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523,897
<EPS-PRIMARY> 18.03
<EPS-DILUTED> 0
</TABLE>
