UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the United States Securities Exchange Act of 1934 ----------------------- For Quarter Ended March 31, 1996 Commission File No. 2-89177 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (Exact name of registrant as specified in its charter) Massachusetts 04-2819910 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 --------------------------- Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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 ___ There are no Exhibits. Page 1 of 12 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) INDEX Page No. Part I. FINANCIAL INFORMATION Financial Statements Balance Sheets as of March 31, 1996 and December 31, 1995 3 Statements of Operations For the Quarters Ended March 31, 1996 and 1995 4 Statements of Cash Flows For the Quarters Ended March 31, 1996 and 1995 5 Notes to Financial Statements 6 - 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 9 Computer Equipment Portfolio 10 Part II. OTHER INFORMATION Items 1 - 6 11 Signature 12 PART I. FINANCIAL INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Balance Sheets Assets (Unaudited) (Audited) 3/31/96 12/31/95 Investment property, at cost (note 3): Computer equipment $ 378,895 $ 529,185 Less accumulated depreciation 331,401 472,222 ---------------- ---------------- Investment property, net 47,494 56,963 Cash and cash equivalents 39,812 44,985 Marketable securities (note 5) 2,427 2,357 Rents receivable, net (note 2) 3,715 3,675 Accounts receivable - affiliates (note 4) - 7,995 ---------------- ---------------- Total assets $ 93,448 $ 115,975 ================ ================ Liabilities and Partners' Equity Liabilities: Accounts payable and accrued expenses - affiliates (note 4) $ 3,938 $ 4,184 Accrued expenses and accounts payable 21,403 26,037 Unearned rental revenue - 1,835 ---------------- ---------------- Total liabilities 25,341 32,056 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 754,341 752,694 Cumulative cash distributions (755,338) (753,690) Unrealized losses on marketable securities (note 5) (3) (4) ---------------- ---------------- - - ---------------- ---------------- Limited Partners (25,050 units): Capital contribution, net of offering costs 11,158,769 11,158,769 Cumulative net income 3,261,329 3,245,897 Cumulative cash distributions (14,351,648) (14,320,335) Unrealized losses on marketable securities (note 5) (343) (412) ---------------- ---------------- 68,107 83,919 ---------------- ---------------- Total partners' equity 68,107 83,919 ---------------- ---------------- Total liabilities and partners' equity $ 93,448 $ 115,975 ================ ================ See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Statements of Operations For the Quarters ended March 31, 1996 and 1995 (Unaudited) 1996 1995 --------------- -------------- Revenue: Rental income $ 16,952 $ 46,813 Interest income 262 2,728 Net gain on sale of equipment 23,642 585 --------------- -------------- Total revenue 40,856 50,126 --------------- -------------- Costs and expenses: Depreciation 7,920 15,805 Reversal of provision for doubtful accounts - (4,866) Interest - 1,120 Related party expenses (note 4): Management fees 1,095 2,708 General and administrative 14,762 13,077 --------------- -------------- Total costs and expenses 23,777 27,844 --------------- -------------- Net income $ 17,079 $ 22,282 =============== ============== Net income per Limited Partnership Unit $ 0.62 $ 0.50 =============== ============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Statements of Cash Flows For the Quarters Ended March 31, 1996 and 1995 (Unaudited) 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 17,079 $ 22,282 --------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,920 15,805 Reversal of provision for doubtful accounts - (4,866) Net gain on sale of equipment (23,642) (585) Net decrease in current assets 7,955 2,812 Net decrease in current liabilities (6,715) (7,679) --------------- --------------- Total adjustments (14,482) 5,487 --------------- --------------- Net cash provided by operating activities 2,597 27,769 --------------- --------------- Cash flows from investing activities: Proceeds from sales of investment property 25,191 585 --------------- --------------- Net cash provided by investing activities 25,191 585 --------------- --------------- Cash flows from financing activities: Cash distributions to partners (32,961) (93,938) --------------- --------------- Net cash used in financing activities (32,961) (93,938) --------------- --------------- Net decrease in cash and cash equivalents (5,173) (65,584) Cash and cash equivalents at beginning of period 44,985 150,468 --------------- --------------- Cash and cash equivalents at end of period $ 39,812 $ 84,884 =============== =============== Supplemental cash flow information: Interest paid during the period $ - $ 1,120 =============== =============== See accompanying notes to financial statements. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Notes to Financial Statements For the Quarters Ended March 31, 1996 and March 31, 1995 (Unaudited) (1) Organization and Partnership Matters The foregoing financial statements of Wellesley Lease Income Limited Partnership II-C (the "Partnership") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Pursuant to such rules and regulations, certain note disclosures which are normally required under generally accepted accounting principles have been omitted. It is recommended that these financial statements be read in conjunction with the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995. (2) Significant Accounting Policies 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 March 31, 1996 and December 31, 1995, the allowance for doubtful accounts included in rents receivable was $635. (3) Investment Property At March 31, 1996, the Partnership owned computer equipment with a depreciated cost basis of $47,494, subject to existing leases. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Notes to Financial Statements For the Quarters Ended March 31, 1996 and March 31, 1995 (Unaudited) (4) 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 quarters ended March 31, 1996 and 1995 are as follows: 1996 1995 ---- ---- Management fees $ 1,095 $ 2,708 Reimbursable expenses paid 17,816 12,748 ------------ ------------ $ 18,911 $ 15,456 ============ ============ 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. In addition, the Partnership reimburses the General Partner and its affiliates for certain expenses incurred by them in connection with the operation of the Partnership. (5) 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 March 31, 1996 the difference between the fair value and the cost basis of these securities is an unrealized loss of $346. The fair value is based on currently quoted market prices. The cost basis and estimated fair value of the Partnership's marketable securities at March 31, 1996 and December 31, 1995, respectively, are as follows: March 31, 1996 December 31, 1995 ------------------------- ------------------------ Cost Fair Cost Fair Basis Value Basis Value Investment in Continental Information Systems Corporation Stock $ 2,773 $ 2,427 $ 2,773 $ 2,357 ======== ======== ======== ======== WELLESLEY INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Results of Operations The following discussion relates to the Partnership's operations for the quarter ended March 31, 1996 in comparison to the quarter ended March 31, 1995. The Partnership realized net income of $17,079 and $22,282 for the quarters ended March 31, 1996 and 1995, respectively. Rental income decreased $29,861 or 64% between the three month periods primarily due to lower rental rates generated on equipment lease extensions and remarketings resulting after the initial lease term expires and due to a decrease in the size of the equipment portfolio. Interest income decreased as a result of lower average short-term investment balances held during the first quarter of 1996. The increase in net gain on sale of equipment can be attributed to equipment sales carrying lower net book values during the current quarter. Total costs and expenses decreased $4,067 or 15% in 1996 primarily as a result of lower depreciation expense in the current quarter combined with the reversal of provision for doubtful accounts during the prior quarter. Depreciation expense decreased due to a portion of the equipment portfolio becoming fully depreciated and due to an overall reduction in the equipment portfolio. Management fees expense decreased with the decline in rental income. The Partnership was able to reverse its provision for doubtful accounts in the prior quarter due to successful collection efforts on delinquent rents receivables. General and administrative expenses increased $1,685 or 13%. A major factor contributing to this 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 Partnership recorded net income per Limited Partnership Unit of $0.62 and $0.50 for the quarters ended March 31, 1996 and 1995, respectively. The allocation for the quarters ended March 31, 1996 and 1995, respectively, 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 to the Limited Partners in instances when the Partnership's operations were profitable for the period. Liquidity and Capital Resources For the quarter ended March 31, 1996, rental revenue generated from operating leases and sales proceeds generated from equipment sales were the primary sources 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 options would generate the most favorable results. WELLESLEY INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Rental income will continue to decrease due to two factors. The first factor is the lower rate obtained due to the remarketing of existing equipment upon the expiration of the original lease. 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 amount to $29,213 and are to be received over the next three years. During the second 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's investing activities for the year resulted in equipment sales having a depreciated cost basis of $1,549, generating $25,191 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 intentions of winding down the Partnership. Cash distributions are currently at an annual level of 1% per Limited Partnership Unit or $1.25 per Limited Partnership Unit on a quarterly basis. For the quarter ended March 31, 1996, the Partnership declared a cash distribution of $32,961, of which $1,648 was allocated to the General Partner and $31,313 was allocated to the Limited Partners. The distribution will be made on May 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 Leasing Programs, Inc. from CMI Holding Co. Under the new ownership, it is expected that TLP Leasing Programs, Inc. will continue to operate in the same manner of business as it has in the past. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Computer Equipment Portfolio (Unaudited) March 31, 1996 Lessee Caterpillar Tractor Company Coast Pump & Supply Company, Incorporated First Options of Chicago, Incorporated New York Life Insurance Company Owens Corning Fiberglass, Incorporated Equipment Description Acquisition Price Computer Peripherals $ 220,517 Other 158,378 ------------ $ 378,895 ============ PART II. OTHER INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership) Item 1. Legal Proceedings Response: None Item 2. Changes in the Rights of the Partnership's Security Holders Response: None Item 3. Defaults by the Partnership on its Senior Securities Response: None Item 4. Results of Votes of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K Response: A. None B. None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (Registrant) By: Wellesley Leasing Partnership, its General Partner By: TLP Leasing Programs, Inc., one of its Corporate General Partners By: Arthur P. Beecher, President Date: May 14, 1996