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 September 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 13
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, 1996 and December 31, 1995 3
Statements of Operations For the Quarters Ended
September 30, 1996 and 1995 and For the Nine Months Ended
September 30, 1996 and 1995 4
Statements of Cash Flows For the Nine Months Ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 8 - 10
Computer Equipment Portfolio 11
Part II. OTHER INFORMATION
Items 1 - 6 12
Signature 13
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/96 12/31/95
---------------- ----------------
Investment property, at cost (note 3):
Computer equipment $ 592,514 $ 1,495,761
Less accumulated depreciation 429,218 1,217,633
---------------- ----------------
Investment property, net 163,296 278,128
Cash and cash equivalents 20,440 58,929
Marketable securities (note 5) 40,675 44,599
Rents receivable, net (note 2) 9,700 25,775
Sales receivable - 50
---------------- ----------------
Total assets $ 234,111 $ 407,481
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt $ - $ 38,051
Accounts payable and accrued expenses - affiliates (note 4) 6,071 8,210
Accounts payable and accrued expenses 120,818 176,888
Unearned rental revenue 5,856 2,176
---------------- ----------------
Total liabilities 132,745 225,325
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 633,164 540,111
Cumulative cash distributions (634,046) (624,170)
Unrealized losses on marketable securities (note 5) (118) (79)
---------------- ----------------
- (83,138)
---------------- ----------------
Limited Partners (25,020 units):
Capital contribution, net of offering costs 11,139,685 11,139,685
Cumulative net income 1,020,238 992,631
Cumulative cash distributions (12,046,880) (11,859,230)
Unrealized losses on marketable securities (note 5) (11,677) (7,792)
---------------- ----------------
101,366 265,294
---------------- ----------------
Total partners' equity 101,366 182,156
---------------- ----------------
Total liabilities and partners' equity $ 234,111 $ 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 Nine Months Ended
September 30, September 30,
------------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------- ---------------------------------
Revenue:
Rental income $ 54,549 $ 135,670 $ 155,765 $ 385,132
Other income - 24,764 - 75,987
Interest income 641 1,656 2,716 6,707
Net gain (loss) on sale
of equipment - - 139,983 (47,379)
Recovery of net unsecured
pre-petition claim - 8,195 - 52,470
------------ ------------ ------------ ------------
Total revenue 55,190 170,285 298,464 472,917
------------ ------------ ------------ ------------
Costs and expenses:
Depreciation 30,754 54,293 97,488 227,901
Interest 99 1,231 1,165 4,539
Related party expenses (note 4):
Management fees 3,869 7,535 12,327 23,506
General and administrative 20,067 15,382 58,661 49,862
(Reversal of) provision for
doubtful accounts (8,693) 13,047 8,163 5,720
------------ ------------ ------------ ------------
Total costs and expenses 46,096 91,488 177,804 311,528
------------ ------------ ------------ ------------
Net income $ 9,094 $ 78,797 $ 120,660 $ 161,389
============ ============ ============ ============
Net (loss) income per Limited
Partnership Unit $ (0.44) $ 2.94 $ 1.10 $ 2.85
============ ============ ============ ============
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, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 120,660 $ 161,389
------------ -------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 97,488 227,901
Provision for doubtful accounts 8,163 5,720
Net (gain) loss on sale of equipment (139,983) 47,379
Net decrease (increase) in current assets 7,962 (84,156)
Net decrease in current liabilities (54,529) (49,727)
------------ -------------
Total adjustments (80,899) 147,117
------------ -------------
Net cash provided by operating activities 39,761 308,506
------------ -------------
Cash flows from investing activities:
Purchase of investment property - (167,898)
Proceeds from sales of investment property 157,327 14,858
------------ -------------
Net cash provided by (used in) investing activities 157,327 (153,040)
------------ -------------
Cash flows from financing activities:
Principal payments on long-term debt (38,051) (39,621)
Cash distributions to partners (197,526) (388,468)
------------ -------------
Net cash used in financing activities (235,577) (428,089)
------------ -------------
Net decrease in cash and cash equivalents (38,489) (272,623)
Cash and cash equivalents at beginning of period 58,929 325,125
------------ -------------
Cash and cash equivalents at end of period $ 20,440 $ 52,502
============ =============
Supplemental cash flow information:
Interest paid during the period $ 1,165 $ 5,616
============ =============
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, 1996 and September 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 September 30, 1996 and December 31, 1995,
the allowance for doubtful accounts included in rents receivable was $8,377 and
$814, respectively, and $600 and $0 included in sales receivable, respectively.
(3) Investment Property
At September 30, 1996, the Partnership owned computer equipment with a
depreciated cost basis of $163,296, subject to existing leases. 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 nine months ended
September 30, 1996 and 1995, are as follows:
1996 1995
---- ----
Equipment acquisition fees $ - $ 4,890
Management fees 12,327 23,506
Reimbursable expenses paid 57,367 49,780
------------ ------------
$ 69,694 $ 78,176
============ ============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-C
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1996 and September 30, 1995
(Unaudited)
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) 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 September 30, 1996 the difference between
the fair value and the cost basis of these securities is an unrealized loss of
$11,795.
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at September 30,
1996 and December 31, 1995, respectively, are as follows:
September 30, 1996 December 31, 1995
---------------------- ------------------------
Cost Fair Cost Fair
Basis Value Basis Value
Investment in Continental Information
Systems Corporation Stock $ 52,470 $ 40,675 $ 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 nine months ended September 30, 1996, compared to the same periods in 1995.
The Partnership realized net income of $9,094 and net income of $78,797 for the
quarters ended September 30, 1996 and 1995, respectively. Rental income
decreased $81,121 or 60% between the three month periods. The decrease 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 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 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 September 30,
1995, at which time an objective stock value could be determined due to the
stock's trading activities. Interest income decreased $1,015 due to lower
average short-term investment balances held during the current quarter.
Total costs and expenses decreased $45,392 or 50% between the three month
periods. The decrease in costs and expenses is primarily a result of lower
depreciation expense combined with the reversal of the provision for doubtful
accounts. Depreciation expense decreased $23,539 in the current quarter due to a
portion of the equipment portfolio becoming fully depreciated. For the quarter
ended September 30, 1996, the Partnership reversed the provision for doubtful
accounts by $8,693 due to the successful collection efforts on delinquent
accounts. Management fees expense decreased between the three month periods as a
result of the decline in rental income. General and administrative costs
increased $4,685 or 30% mainly due to the increase in the allocable salaries of
the partnership accounting and reporting personnel of the General Partner.
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 $120,660 and $161,389 and rental income
of $155,765 and $385,132 for the nine months ended September 30, 1996 and 1995,
respectively. The decrease in rental income can be attributed to lower rental
rates obtained on equipment lease extensions and remarketings after the initial
lease term expires and the overall reduction in the equipment portfolio. Another
factor impacting rental income between the two periods was 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. 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 $3,991 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 September 30, 1995 at which time an objective stock value could be determined
due to the stock's trading activities.
Total costs and expenses decreased $133,724 or 43% between the nine 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 $130,413 or 57% between 1995 and 1996 due to a large portion
of the equipment portfolio becoming fully depreciated and due to a reduction in
the equipment portfolio. Interest expense decreased $3,374, in relation to the
decrease in long-term debt outstanding. Management fees decreased due to the
decline in rental income. General and administrative expenses increased $8,799
or 18%. As mentioned above, a major factor contributing to this increase is the
increase in the allocable salaries of the partnership accounting and reporting
personnel of the General Partner. The Partnership increased its provision for
doubtful accounts to reserve for potential uncollectible rents receivable as of
September 30, 1996.
The Partnership had a net loss per Limited Partnership Unit of $0.44 and net
income of $2.94 for the quarters ended September 30, 1996 and 1995,
respectively, and net income of $1.10 and $2.85 for the nine months ended
September 30, 1996 and 1995, respectively. The per unit allocation for the nine
months ended September 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 third 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 nine months ended September 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. First, lower rates
are 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. Second, 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. 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 $104,021 and are to be received over the next three
years.
The Partnership's investing activities for the first nine months of 1996
generated proceeds of $157,327 on equipment sales with a depreciated cost basis
of $17,344. 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 the paydown on long-term debt
of $38,051 during the nine periods. 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 September 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 November 27, 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)
September 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: November 14, 1996
By: Arthur P. Beecher,
President