UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the United States Securities Exchange Act of 1934
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For Quarter Ended September 30, 1995 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 14
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of September 30, 1995 and December 31, 1994 3
Statements of Operations For the Quarters Ended
September 30, 1995 and 1994 and the Nine Months Ended
September 30, 1995 and 1994 4
Statements of Cash Flows For the Nine Months Ended
September 30, 1995 and 1994 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 11
Computer Equipment Portfolio 12
Part II. OTHER INFORMATION
Items 1 - 6 13
Signature 14
Part I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/95 12/31/94
Investment property, at cost (note 3):
Computer equipment $ 588,810 $ 617,239
Less accumulated depreciation 517,201 499,170
------- -------
Investment property, net 71,609 118,069
Cash and cash equivalents 59,419 150,468
Marketable securities (notes 2 and 5) 11,857 -
Rents receivable, net (note 2) 1,878 1,071
Accounts receivable - affiliates, net (notes 2 and 4) 2,665 2,799
----- -----
Total assets $ 147,428 $ 272,407
= ======= = =======
Liabilities and Partners' Equity
Liabilities:
Accounts payable and accrued expenses - affiliates (note 4) $ 13,553 $ 26,745
Accounts payable and accrued expenses 21,479 30,688
Distribution payable 1,648 -
Unearned rental income - 4,553
----- -----
Total liabilities 36,680 61,986
------ ------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 751,042 735,147
Cumulative cash distributions (752,042) (743,802)
-------- --------
- (7,655)
------ ------
Limited Partners (25,050 Units):
Capital contribution, net of
offering costs 11,158,769 11,158,769
Cumulative net income 3,242,320 3,191,769
Cumulative cash distributions (14,289,023) (14,132,462)
----------- -----------
112,066 218,076
------- -------
Unrealized losses on marketable securities (note 5) (1,318) -
------ ------
Total partners' equity 110,748 210,421
------- -------
Total liabilities and partners' equity $ 147,428 $ 272,407
= ======= = =======
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
Revenue:
Rental income $ 35,719 $ 65,562 $ 120,018 $ 128,720
Interest income 815 2,943 4,491 5,626
Recovery of net unsecured
pre-petition claim (note 6) 14,823 - 25,941 -
Net (loss) gain on sale
of equipment - (647) 1,651 99,508
----- ----- ----- ------
Total revenue 51,357 67,858 152,101 233,854
------ ------ ------- -------
Costs and expenses:
Depreciation 9,655 32,025 41,265 133,280
Interest - - 43 -
Related party expenses (note 4):
Management fees 2,257 3,288 6,782 2,303
General and administrative 13,638 19,564 42,391 51,248
(Reversal of) provision for
doubtful accounts - (2,657) (4,826) 2,756
------ ------ ------ -----
Total costs and expenses 25,550 52,220 85,655 189,587
------ ------ ------ -------
Net income $ 25,807 $ 15,638 $ 66,446 $ 44,267
= ====== = ====== = ====== = ======
Net income (loss) per Limited
Partnership Unit $ 0.86 $ (0.15) $ 2.02 $ (3.99)
= ==== = ===== = ==== = =====
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 66,446 $ 44,267
- ------ - ------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 41,265 133,280
(Reversal of) provision for doubtful accounts (4,826) 2,756
Net gain on sale of equipment (1,651) (99,508)
Net (increase) decrease in current assets (9,022) 1,293
Net decrease in current liabilities (26,954) (21,864)
------- -------
Total adjustments (1,188) 15,957
------ ------
Net cash provided by operating activities 65,258 60,224
------ ------
Cash flows from investing activities:
Proceeds from sales of investment property 6,846 293,949
----- -------
Net cash provided by investing activities 6,846 293,949
----- -------
Cash flows from financing activities:
Cash distributions to partners (163,153) (296,646)
-------- --------
Net cash used in financing activities (163,153) (296,646)
-------- --------
Net (decrease) increase in cash and cash equivalents (91,049) 57,527
Cash and cash equivalents at beginning of period 150,468 105,018
------- -------
Cash and cash equivalents at end of period $ 59,419 $ 162,545
= ====== = =======
Supplemental cash flow information:
Interest paid during 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 Nine Months Ended September 30, 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, 1994.
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 within the
next twelve months.
(2) Significant Accounting Policies
Allowance for Doubtful Accounts
The financial statements include allowances for estimated losses on receivable
balances. The allowances for doubtful accounts are 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 September 30, 1995 and December 31, 1994,
the allowance for doubtful accounts included in rents receivable was $205 and
$56, respectively. The allowance for doubtful accounts included in accounts
receivable - affiliates was $0 and $21,250 at September 30, 1995 and December
31, 1994, respectively, of which $16,275 was related to the net unsecured
pre-petition bankruptcy claim in 1994.
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and
consist of common stock in Continental Information Systems Corporation received
by the Partnership in the distributions made December 27, 1994 and July 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 5).
Reclassifications
Certain prior year financial statement items have been reclassified to conform
with the current year's financial statement presentation.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(Unaudited)
(3) Investment Property
At September 30, 1995, the Partnership owns computer equipment with a cost basis
of $404,968, subject to existing leases, and equipment with a cost basis of
$183,842 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) 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
September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Management fees $ 6,782 $ 2,303
Reimbursable operating expenses 39,538 15,046
------ ------
$ 46,320 $ 17,349
= ====== = ======
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.
(5) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115 ("SFAS 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 September 30, 1995 the
difference between the fair value and the original cost of these securities is
an unrealized loss of $1,318.
The fair value is based on currently quoted market prices. The carrying amount
and estimated fair value of the Partnership's marketable securities for the
quarters ended September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment in Continental Information
Systems Corporation Stock $ 13,175 $ 11,857 $ - $ -
======== ======== =========== ===========
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(Unaudited)
As was discussed in note 2, Marketable Securities, the Partnership received
stock in Continental Information Systems Corporation as part of the December 27,
1994 and July 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.
(6) Bankruptcy of Continental Information Systems Corporation
As was discussed in the Form 10-Q for the quarter ended June 30, 1995, note 5
Subsequent Events, the Partnership received the second and final distribution
from the Trustee, with respect to the net unsecured pre-petition claim. The
distribution consisted of cash proceeds of $12,765 and 823 shares of common
stock in Continental Information Systems Corporation with a carrying value of
$2,058. Following the Trustee's second distribution, the Partnership's net
unsecured pre-petition claim has been settled as of July 20, 1995 and there are
no other outstanding receivable balances.
WELLESLEY LEASE 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
and nine months ended September 30, 1995 in comparison to the same periods in
the prior year.
The Partnership realized net income of $25,807 and $15,638 and rental income of
$35,719 and $65,562 for the quarters ended September 30, 1995 and 1994,
respectively. Rental income decreased $29,843 or 46% due to lower rental rates
obtained on equipment extensions and remarketings and a reduction in the overall
equipment portfolio available for lease. The recovery of the net unsecured
pre-petition claim of $14,823 during the current quarter was the result of the
second and final distribution from the Trustee of the Liquidating Estate of CIS
Corporation, et al, ("the Trustee"), with respect to the outstanding claim
balance.
Total costs and expenses decreased $26,670 or 51% in comparison with the quarter
ended September 30, 1994. The decrease in total costs and expenses was primarily
the result of lower depreciation expense, which accounted for a decrease of
$22,370. Depreciation expense decreased due to a reduction in the size of the
equipment portfolio and an increased portion of the equipment portfolio becoming
fully depreciated. The decline in management fees expense reflects a decline in
rental income. General and administrative expenses decreased due to lower
storage charges as a result of reduced equipment in inventory and due to lower
rates paid for outside services for income tax return preparation. The
Partnership reduced its provision for doubtful accounts by $2,657 in the third
quarter of 1994 due to successful collection efforts on delinquent accounts.
The Partnership realized net income of $66,446 and $44,267 and rental income of
$120,018 and $128,720 for the nine months ended September 30, 1995 and 1994,
respectively. Rental income decreased $8,702 or 7%. As discussed above, the
decrease in rental income is primarily due to lower rental rates obtained on
equipment lease extensions and remarketings and due to a reduction in the
equipment portfolio. Rental income for the nine months ended September 30, 1994
reflects a reduction due to Boeing Computer Services, Inc.'s ("Boeing") exercise
of their option to apply previously accrued and paid rental proceeds toward the
purchase price of equipment leased to them. Boeing's option exercise caused a
reclass of rental income previously accrued and collected in the amount of
$56,442 to sales proceeds. Interest income decreased as a result of lower
average short-term investment balances. The recovery of the net unsecured
pre-petition claim was the result of the third quarter of 1995 receipt of the
Trustee's July 20, 1995 final distribution along with the second quarter of 1995
establishment of the carrying value of the stock received in the December 27,
1994 distribution. The receivables associated with the stock settlement had been
fully reserved in a prior year; accordingly, the Partnership was able to show a
recovery on those receivables as of June 30, 1995, at which time an objective
stock value could be determined due to the stock's trading activities.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased $103,932 or 55% in comparison with the nine
months ended September 30, 1995. The decrease in total costs and expenses is
primarily attributable to the $92,015 or 69% decrease in depreciation expense.
As discussed above in the quarter analysis, the decrease in depreciation expense
is the result of an increased portion of the equipment portfolio becoming fully
depreciated and a reduction in the overall size of the equipment portfolio. The
increase in management fees expense in the current year reflects the reclass of
rental proceeds to sales proceeds in 1994 related to the Boeing option exercise
as discussed above. General and administrative expenses decreased due to lower
storage charges and lower tax preparation costs, as stated above. During the
nine months ended September 30, 1995, the Partnership was able to reverse its
provision for doubtful accounts in the amount of $4,826 due to successful
collection efforts of delinquent rents receivable.
During the quarter and nine months ended September 30, 1995, the Partnership
allocated profits and losses resulting in $0.86 and $2.02 per Limited
Partnership Unit, respectively.
Liquidity and Capital Resources
For the nine months ended September 30, 1995, rental revenue generated from the
operating leases was the primary source of funds for the Partnership. As the
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 derive
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.
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 within the
next twelve months. The Partnership will not be terminated until the stock
received in the settlement of the claim against CMI Corporation has been sold
and the sales proceeds have been distributed to the partners.
The stock cannot be sold immediately by the Partnership due to limitations
imposed by the Securities Exchange Act of 1933 (the "Exchange Act"). Because TLP
Leasing Programs, Inc., one of the Corporate General Partners, is a wholly-owned
subsidiary of Continental Information Systems Corporation ("CIS"), the
Partnership is considered an "Affiliate" of CIS. Accordingly, in order for the
Partnership to sell the shares, the Partnership must comply with the
restrictions imposed by Rule 144 of the Exchange Act
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
The Partnership's investing activities for the nine months ended September 30,
1995 resulted in sales of equipment having a depreciated cost basis of $5,195,
generating $6,846 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 September 30, 1995, the Partnership declared a distribution of
$32,961, of which $1,648 is allocated to the General Partner and $31,313 is
allocated to the Limited Partners. The distribution will be made on November 28,
1995. The Partnership expects distibutions 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 a material impact in future periods.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1995
Lessee
Bangor Hydro Electric Power, Incorporated
Caterpillar Tractor Company
Coast Pump & Supply Company, Incorporated
First Options of Chicago, Incorporated
New York Life Insurance Company
Owens-Corning Fiberglass Corporation
Equipment Description Acquisition Price
Computer peripherals $ 342,746
Other 246,064
-------
$ 588,810
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: November 14, 1995
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