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. 2-95011
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(Exact name of registrant as specified in its charter)
Massachusetts 04-2846629
(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 III-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 III-C
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/95 12/31/94
Investment property, at cost (note 3):
Computer equipment $ 1,547,087 $ 3,574,018
Less accumulated depreciation 1,189,666 3,094,357
--------- ---------
Investment property, net 357,421 479,661
Cash and cash equivalents 52,502 325,125
Marketable securities (notes 2 & 6) 47,223 -
Rents receivable, net (note 2) 36,808 10,842
------ ------
Total assets $ 493,954 $ 815,628
= ======= = =======
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 51,801 $ 53,371
Accounts payable and accrued expenses - affiliates (note 4) 18,953 31,461
Accounts payable and accrued expenses 131,235 140,597
Unearned rental income 2,241 30,098
Distribution payable 6,584 -
Long-term debt, less current portion (note 5) - 38,051
----- ------
Total liabilities 210,814 293,578
------- -------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 537,632 447,566
Cumulative cash distributions (619,232) (599,480)
-------- --------
(80,600) (150,914)
------- --------
Limited Partners (25,020 Units):
Capital contribution, net of offering costs 11,139,685 11,139,685
Cumulative net income 994,707 923,384
Cumulative cash distributions (11,765,405) (11,390,105)
----------- -----------
368,987 672,964
------- -------
Unrealized losses on marketable securities (note 6) (5,247) -
------ -------
Total partners' equity 283,140 522,050
------- -------
Total liabilities and partners' equity $ 493,954 $ 815,628
= ======= = =======
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 $ 135,670 $ 150,580 $ 385,132 $ 464,665
Other income 24,764 - 75,987 -
Interest income 1,656 2,841 6,707 6,841
Net gain (loss) on sale
of equipment - 17,508 (47,379) 49,352
Recovery of net unsecured
pre-petition claim (note 7) 8,195 - 52,470 -
----- - ------ -
Total revenue 170,285 170,929 472,917 520,858
------- ------- ------- -------
Costs and expenses:
Depreciation 54,293 123,811 227,901 357,954
Interest 1,231 - 4,539 -
Related party expenses (note 4):
Management fees 7,535 9,280 23,506 30,949
General and administrative 15,382 15,843 49,862 44,367
Provision for doubtful accounts 13,047 4,503 5,720 4,503
------ ----- ----- -----
Total costs and expenses 91,488 153,437 311,528 437,773
------ ------- ------- -------
Net income $ 78,797 $ 17,492 $ 161,389 $ 83,085
= ====== = ====== = ======= = ======
Net income (loss) per Limited
Partnership Unit $ 2.94 $ 1.19 $ 2.85 $ (2.73)
= ==== = ==== = ==== = =====
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 $ 161,389 $ 83,085
- ------- - ------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 227,901 357,954
Provision for doubtful accounts 5,720 4,503
Net loss (gain) on sale of equipment 47,379 (49,352)
Net increase in current assets (84,156) (2,501)
Net decrease in current liabilities (49,727) (41,005)
------- -------
Total adjustments 147,117 269,599
------- -------
Net cash provided by operating activities 308,506 352,684
------- -------
Cash flows from investing activities:
Purchase of investment property (167,898) (247,289)
Proceeds from sales of investment property 14,858 169,934
------ -------
Net cash used in investing activities (153,040) (77,355)
-------- -------
Cash flows from financing activities:
Principal payments on long-term debt (39,621) (3,363)
Cash distributions to partners (388,468) (395,052)
-------- --------
Net cash used in financing activities (428,089) (398,415)
-------- --------
Net decrease in cash and cash equivalents (272,623) (123,086)
Cash and cash equivalents at beginning of period 325,125 269,150
------- -------
Cash and cash equivalents at end of period $ 52,502 $ 146,064
= ====== = =======
Supplemental cash flow information:
Interest paid during the period $ 5,616 $ 27
= ===== = =====
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley Lease Income Limited Partnership
III-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.
(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 September 30, 1995 and December 31, 1994,
the allowance for doubtful accounts included in rents receivable was $814 and
$8,141, respectively.
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 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 September 30, 1995, the Partnership owned computer equipment with a
depreciated cost basis of $354,809, subject to existing leases and equipment
with a depreciated cost basis of $2,612 in inventory, awaiting re-lease or sale.
All purchases of computer equipment are subject to a 3% acquisition fee paid to
the General Partner.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(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 nine months ended
September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Equipment acquisition fees $ 4,890 $ 5,977
Management fees 23,506 30,949
Reimbursable expenses paid 49,780 40,866
------ ------
$ 78,176 $ 77,792
= ====== = ======
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) Long-term Debt
Long-term debt at September 30, 1995 consists of a $51,801 nonrecourse
installment note with an interest rate of 8.10% from Pioneer Bank and Trust
Company, collateralized by the equipment with a net book value of $68,076 and
assignment of the related lease. Total long-term debt of $51,801 matures in
1996.
Maturities of long-term debt are as follows:
1995 $ 13,749
1996 38,052
------
$ 51,801
= ======
(6) 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 $5,247.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
(Unaudited)
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 $ 52,470 $ 47,223 $ - $ -
======== ======== ====-=== ========
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.
(7) Bankruptcy of Continental Information Systems Corporation
As was discussed in the Form 10-Q for the quarter ended June 30, 1995, note 6
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 $50,840 and of 3,278 shares of common
stock in Continental Information Systems Corporation with a carrying value of
$8,195. 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 III-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, compared to the same period in 1994.
The Partnership realized net income of $78,797 and $17,492 for the three month
periods ended September 30, 1995 and 1994, respectively. Rental income decreased
$14,910 or 10% primarily due to lower rental rates obtained on equipment lease
extensions and remarketings resulting after the initial lease term expires and
due to a net decrease in the overall size of the equipment portfolio. Other
income is the result of the reduction of overstated liabilities recorded in
prior periods. Interest income has decreased between the three month periods as
a result of lower average short-term investment balances. The recovery of the
net unsecured pre-petition claim was the result of the second 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 $61,949 or 40% between the three month
periods. The decrease in costs and expenses is a result of lower depreciation
expense. Depreciation expense decreased due to a large portion of the equipment
portfolio becoming fully depreciated. Interest expense was generated during the
quarter due to the interest paid on long-term debt. The debt was originally
obtained during the fourth quarter of 1994. Management fees have decreased due
to the decline in rental income. General and administrative expenses remained
constant during the three month periods. The Partnership established a provision
for doubtful accounts by $13,047 to reserve for uncollectible accounts
receivable.
The Partnership realized net income of $161,389 and $83,085 for the nine month
periods ended September 30, 1995 and 1994, respectively. Rental income decreased
$79,533 or 17%. As discussed in the quarter analysis above, the decrease in
rental income is primarily due to lower rental rates obtained on equipment lease
extensions and remarketings and to an overall reduction in the equipment
portfolio. As mentioned above, other income is the result of the reduction of
overstated liabilities recorded in prior periods. Interest income declined
slightly due to lower average short-term investment balances. The Partnership
recognized a net loss on sale of equipment in 1995 of $47,379 versus a net gain
of $49,352 in 1994 due to current year sales of equipment with high net book
values. 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 III-C
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased $126,245 or 29% between the nine month
periods. The decrease in costs and expenses is a result of lower depreciation
expense. As discussed above, depreciation expense decreased $130,053 between
1995 and 1994 due to a large portion of the equipment portfolio becoming fully
depreciated and an overall reduction in the equipment portfolio. As stated
above, interest expense was generated during the year due to the interest paid
on long-term debt that was originally obtained in the fourth quarter of 1994. As
mentioned above, management fees decreased due to the decline in rental income.
General and administrative expenses were lower in 1994 due to the 1994 receipt
of a refund related to a sales tax audit assessment that was paid in 1990 and
included in general and administrative expenses at that time. During 1995, the
Partnership established a provision for doubtful accounts of $5,720 to reserve
for uncollectible accounts receivable.
During the quarter and nine months ended September 30, 1995, the Partnership
allocated profits and losses resulting in $2.94 and $2.85 per Limited
Partnership Unit, respectively. The allocation for the nine months ended
September 30, 1995 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 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. This decrease, however, should not affect
the Partnership's ability to meet its future cash requirements, including its
long-term debt obligations. To the extent that future cash flows should be
insufficient to meet the Partnership's operating expenses and liabilities,
additional funds could be obtained through the sale of equipment or from a
reduction in the rate of cash distributions. Future rental revenues amount to
$383,435 and are expected to be received over the next three years.
In the nine months ended September 30, 1995, the Partnership's investing
activities resulted in equipment purchases of $167,898 and sales of equipment
with a depreciated cost basis of $73,804, generating $14,858 of proceeds.
Associated with the equipment sales were $11,567 of loss charge offs against the
reserve, initially set up in prior periods for estimated losses on the ultimate
disposition of equipment. The Partnership has no material capital expenditure
commitments and will not purchase equipment as the Partnership has reached the
ends of its reinvestment period.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
The Partnership's financing activities resulted in the paydown on long-term debt
during the nine months ended September 30, 1995 of $39,621. Such long-term debt
bears interest at 8.10% with installments to be paid monthly. Total long-term
debt assumed by the Partnership from inception is $10,641,478 for a total
leverage of 44%.
Cash distributions are at an annual level of 3% per Limited Partnership Unit or
$3.75 per Limited Partnership Unit on a quarterly basis. For the quarter ended
September 30, 1995, the Partnership declared a distribution of $98,763, of which
$4,938 was allocated to the General Partner and $93,825 was allocated to the
Limited Partners. The distribution will be made on November 28, 1995. The
Partnership expects to continue paying at or near this level in the future. 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 III-C
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1995
Lessee
Baylor Health Network, Incorporated
Centura Bank, Incorporated
Genix Corporation
Hughes Aircraft Company, Incorporated
J. Walter Thompson & Company
Mitsubishi, Incorporated
New York Life Insurance Company, Incorporated
NYNEX National, Incorporated
Sports & Recreation, Incorporated
USG Corporation
Xerox Corporation
Equipment Description Acquisition Price
Computer peripherals $ 293,947
Processors & upgrades 819,956
Telecommunications 386,772
Other 46,412
------
$ 1,547,087
= =========
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-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 III-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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