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 The Quarter Ended June 30, 1996 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 June 30, 1996 and December 31, 1995 3
Statements of Operations For the Quarters Ended
June 30, 1996 and 1995 and For the Six Months Ended
June 30, 1996 and 1995 4
Statements of Cash Flows For the Six Months Ended
June 30, 1996 and 1995 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Conditions
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)
6/30/96 12/31/95
Investment property, at cost (note 3):
Computer equipment $ 592,514 $ 1,495,761
Less accumulated depreciation 398,464 1,217,633
---------------- ----------------
Investment property, net 194,050 278,128
Cash and cash equivalents 84,478 58,929
Marketable securities (note 6) 39,353 44,599
Rents receivable, net (note 2) 711 25,775
Sales receivable 600 50
---------------- ----------------
Total assets $ 319,192 $ 407,481
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 9,706 $ 38,051
Accounts payable and accrued expenses - affiliates (note 4) 7,891 8,210
Accounts payable and accrued expenses 133,849 176,888
Unearned rental revenue 10,954 2,176
---------------- ----------------
Total liabilities 162,400 225,325
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 613,060 540,111
Cumulative cash distributions (630,754) (624,170)
Unrealized losses on marketable securities (note 6) (131) (79)
---------------- ----------------
(16,825) (83,138)
---------------- ----------------
Limited Partners (25,020 units):
Capital contribution, net of offering costs 11,139,685 11,139,685
Cumulative net income 1,031,248 992,631
Cumulative cash distributions (11,984,330) (11,859,230)
Unrealized losses on marketable securities (note 6) (12,986) (7,792)
---------------- ----------------
173,617 265,294
---------------- ----------------
Total partners' equity 156,792 182,156
---------------- ----------------
Total liabilities and partners' equity $ 319,192 $ 407,481
================ ================
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------- ---------------------------------
Revenue:
Rental income $ 22,949 $ 113,181 $ 101,216 $ 249,462
Other income - 24,764 - 51,223
Interest income 1,162 1,532 2,075 5,051
Net gain (loss) on sale
of equipment 43,458 836 139,983 (47,379)
Recovery of unsecured
pre-petition claim - 44,275 - 44,275
------------ ------------ ------------ ------------
Total revenue 67,569 184,588 243,274 302,632
------------ ------------ ------------ ------------
Costs and expenses:
Depreciation 33,367 60,461 66,734 173,608
Interest 390 424 1,066 3,308
Related party expenses (note 4):
Management fees 5,112 6,536 8,458 15,971
General and administrative 21,119 20,623 38,594 34,480
(Reversal of) provision for
doubtful accounts 16,856 (7,327) 16,856 (7,327)
------------ ------------ ------------ ------------
Total costs and expenses 76,844 80,717 131,708 220,040
------------ ------------ ------------ ------------
Net (loss) income $ (9,275) $ 103,871 $ 111,566 $ 82,592
============ ============ ============ ============
Net (loss) income per Limited
Partnership Unit $ (2.10) $ 3.94 $ 1.54 $ (0.09)
============ ============ ============ ============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 111,566 $ 82,592
------------ -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 66,734 173,608
(Reversal of) provision for doubtful accounts 16,856 (7,327)
Net (gain) loss on sale of equipment (139,983) 47,379
Net decrease (increase) in current assets 7,658 (38,584)
Net decrease in current liabilities (34,580) (73,585)
------------ -------------
Total adjustments (83,315) 101,491
------------ -------------
Net cash provided by operating activities 28,251 184,083
------------ -------------
Cash flows from investing activities:
Purchase of investment property - (167,898)
Proceeds from sales of investment property 157,327 14,379
------------ -------------
Net cash provided by (used in) investing activities 157,327 (153,519)
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt (28,345) (26,146)
Cash distributions to partners (131,684) (256,784)
------------ -------------
Net cash used in financing activities (160,029) (282,930)
------------ -------------
Net increase (decrease) in cash and cash equivalents 25,549 (252,366)
Cash and cash equivalents at beginning of period 58,929 325,125
------------ -------------
Cash and cash equivalents at end of period $ 84,478 $ 72,759
============ =============
Supplemental cash flow information:
Interest paid during the period $ 1,066 $ 4,385
============ =============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(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, 1995.
(2) Summary of 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 June 30, 1996 and December 31, 1995, the
allowance for doubtful accounts included in rents receivable was $17,670 and
$814, respectively.
(3) Investment Property
At June 30, 1996, the Partnership owned computer equipment with a depreciated
cost basis of $194,050, 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 III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 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 six months ended
June 30, 1996 and 1995, are as follows:
1996 1995
---- ----
Equipment acquisition fees $ - $ 4,890
Management fees 8,458 15,971
Reimbursable expenses paid 44,506 36,787
------------ ------------
$ 52,964 $ 57,648
============ ============
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. 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 June 30, 1996 consists of a $9,706 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 $46,680 and assignment
of the related lease. Such long-term debt of $9,706 matures in 1996.
(6) 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 June 30, 1996 the difference between the
fair value and the cost basis of these securities is an unrealized loss of
$13,117.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at June 30, 1996
and December 31, 1995, respectively, are as follows:
June 30, 1996 December 31, 1995
---------------------- -------------------------
Cost Fair Cost Fair
Basis Value Basis Value
Investment in Continental Information
Systems Corporation Stock $ 52,470 $ 39,353 $ 52,470 $ 44,599
======== ======== ======== ========
WELLESLEY 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 six months ended June 30, 1996, compared to the same periods in 1995.
The Partnership realized a net loss of $9,275 and net income of $103,871 for
the quarters ended June 30, 1996 and 1995, respectively. Rental income
decreased $90,232 or 80% in 1996. The decrease is primarily due to a $53,340
adjustment for an overaccrual of rental income recognized in prior periods,
relating to equipment that came off lease and was returned to inventory. The
other factors impacting rental income for the second quarter of 1996, were the
lower rental rates obtained on equipment lease extensions and remarketings
resulting after the initial lease term expires and the net decrease in the
overall size of the equipment portfolio. Other income reported in 1995 is the
result of the reduction of overstated liabilities recorded in prior periods. The
net gain on sale of equipment of $43,458 can be attributed to sales of primarily
fully depreciated equipment during the current quarter, versus a net gain on
sale of equipment of $836 recognized in the prior period. The recovery of the
unsecured pre-petition claim in the prior quarter was the result of the
establishment of the carrying value of the stock received in the December 27,
1994 distribution from the Trustee of the Liquidating Estate of CIS Corporation,
et al. 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.
Total costs and expenses decreased $3,873 or 5% between the three month periods.
The decrease in costs and expenses is primarily a result of lower depreciation
expense, offset by the fluctuation in the provision for doubtful accounts.
Depreciation expense decreased $27,094 in the current quarter due to a portion
of the equipment portfolio becoming fully depreciated. For the quarter ended
June 30, 1996, the Partnership recognized a provision for doubtful accounts of
$16,856 for delinquent rents receivable. During the same period in 1995, the
Partnership was able to reverse a portion of its provision for doubtful accounts
taken in a prior period due to successful collection efforts on delinquent
accounts. Management fees expense decreased between the three month periods as a
result of the decrease in rental income. However, the decline in management fees
was not as significant as the decline in rental income due to the increased
collections of rental receivables that occurred in the second quarter of 1996.
General and administrative expenses remained relatively constant.
WELLESLEY INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
The Partnership realized net income of $111,566 and $82,592 and rental income of
$101,216 and $249,462 for the six months ended June 30, 1996 and 1995,
respectively. This overall decrease in rental income can be attributed to lower
rental rates obtained on equipment lease extensions and remarketings after the
initial lease term expires, an overall reduction in the equipment portfolio and
the second quarter of 1996 rental income adjustment, as mentioned above. Other
income, reported in 1995, is the result of the reduction of overstated
liabilities recorded in prior periods, as discussed in the quarter analysis
above. Interest income decreased $2,976 as a result of lower average short-term
investment balances held during 1996. The net gain on sale of equipment of
$139,983 can be attributed to sales of primarily fully depreciated equipment
during 1996, versus a net loss of $47,379 recognized in the prior period. The
recovery of the unsecured pre-petition claim in 1995 was the result of the
establishment of the carrying value of the stock received in the December 27,
1994 distribution from the Trustee of the Liquidating Estate of CIS Corporation,
et al. 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.
Total costs and expenses decreased $88,332 or 40% between the six month periods.
The decrease in costs and expenses is primarily the result of lower depreciation
expense. As discussed above in the quarter analysis, depreciation expense
decreased $106,874 or 62% between 1995 and 1996 due to a large portion of the
equipment portfolio becoming fully depreciated and reduction in the equipment
portfolio. Interest expense decreased $2,242, in relation to the decrease in
long-term debt outstanding. Management fees decreased overall due to the decline
in rental income. General and administrative expenses increased $4,114, or 12%.
As mentioned above, a major factor contributing to this increase is the salaries
and expenses of the partnership accounting and reporting personnel of the
General Partner, which are reimbursable, are being allocated over a diminishing
number of partnerships. As discussed in the quarter analysis above, the
Partnership recognized a provision for doubtful accounts of $16,856 for
delinquent rents receivable, in the current quarter. During the same period in
1995, the Partnership was able to reverse a portion of its provision for
doubtful accounts taken in a prior period due to successful collection efforts
on delinquent accounts.
The Partnership had a net loss and net income per Limited Partnership Unit of
$2.10 and $3.94 for the quarters ended June 30, 1996 and 1995, respectively, and
net income and a net loss of $1.54 and $0.09 for the six months ended June 30,
1996 and 1995, respectively. The allocation for the six months ended June 30,
1996 and 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 in the first quarter of 1996. 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
allocation 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.
WELLESLEY INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Liquidity and Capital Resources
For the six months ended June 30, 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.
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. 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 a reduction in the rate of cash distributions. Future rental
revenues amount to $156,981 and are to be received over the next two years.
The Partnership's investing activities for the first six months of 1996 resulted
in equipment sales with a depreciated cost basis of $17,344, generating $157,327
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.
The Partnership's financing activities resulted in a paydown on long-term debt
during the period of $28,345. 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 43%.
Cash distributions are currently at an annual level of 2% per Limited
Partnership Unit, or $2.50 per Limited Partnership Unit on a quarterly basis.
For the quarter ended June 30, 1996, the Partnership declared a cash
distribution of $65,842, of which $3,292 was allocated to the General Partner
and $62,550 was allocated to the Limited Partners. The distribution will be made
on August 29, 1996. 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 any material impact in the 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 III-C
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1996
Lessee
Baylor Health Network, Incorporated
Centura Bank
Hughes Aircraft Company, Incorporated
J. Walter Thompson & Co.
NYNEX National, Incorporated
Sports & Recreation, Incorporated
USG Corporation
Xerox Corporation
Equipment Description Acquisition Price
Computer peripherals $ 112,578
Processors & upgrades 314,032
Telecommunications 148,129
Other 17,775
--------------
$ 592,514
==============
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 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 III-C
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: August 14, 1996
By: Arthur P. Beecher,
President