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 June 30, 1997 Commission File No. 2-95011
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(Exact name of registrant as specified in its charter)
Massachusetts 04-2850823
(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-D
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of June 30, 1997 and December 31, 1996 3
Statements of Operations
Quarters Ended June 30, 1997 and 1996 and
Six Months Ended June 30, 1997 and 1996 4
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 5
Notes to Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Condition
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-D
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/97 12/31/96
---------------- ----------------
Investment property, at cost (note 3):
Computer equipment $ 6,087,314 $ 5,844,357
Less accumulated depreciation 3,901,642 3,824,442
---------------- ----------------
Investment property, net 2,185,672 2,019,915
Cash and cash equivalents 257,252 265,199
Rents receivable, net (note 2) 51,481 69,908
Sales receivable, net (note 2) 9,954 -
Accounts receivable - affiliates (note 4) 16,582 84,022
Other assets 24,440 12,779
---------------- ----------------
Total assets $ 2,545,381 $ 2,451,823
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 647,782 $ 550,139
Accounts payable and accrued expenses - affiliates (note 4) 29,264 27,168
Accounts payable and accrued expenses 40,281 93,581
Unearned rental revenue 19,581 15,125
Long-term debt, less current portion (note 5) 297,798 245,786
---------------- ----------------
Total liabilities 1,034,706 931,799
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 589,694 579,070
Cumulative cash distributions (590,694) (580,070)
---------------- ----------------
- -
---------------- ----------------
Limited Partners (20,185 units):
Capital contribution, net of offering costs 8,987,039 8,987,039
Cumulative net income 3,746,500 3,553,999
Cumulative cash distributions (11,222,864) (11,021,014)
---------------- ----------------
1,510,675 1,520,024
---------------- ----------------
Total partners' equity 1,510,675 1,520,024
---------------- ----------------
Total liabilities and partners' equity $ 2,545,381 $ 2,451,823
================ ================
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
--------------------------------- -----------------------------------
1997 1996 1997 1996
--------------------------------- -----------------------------------
Revenue:
Rental income $ 423,709 $ 385,871 $ 808,856 $ 837,186
Interest income 1,365 4,904 3,134 7,342
Net gain on sale
of equipment 8,412 25,088 40,556 229,348
--------------- ------------- --------------- ---------------
Total revenue 433,486 415,863 852,546 1,073,876
--------------- ------------- --------------- ---------------
Costs and expenses:
Depreciation 272,802 296,722 514,509 598,840
(Reversal of) provision for
doubtful accounts (17,960) 11,244 (43,499) 11,244
Interest 15,218 12,358 31,194 27,821
Related party expenses (note 4):
Management fees 30,248 36,348 61,746 68,207
General and administrative 41,469 37,931 85,471 70,637
--------------- ------------- --------------- ---------------
Total costs and expenses 341,777 394,603 649,421 776,749
--------------- ------------- --------------- ---------------
Net income $ 91,709 $ 21,260 $ 203,125 $ 297,127
=============== ============= =============== ===============
Net income per Limited
Partnership Unit $ 4.35 $ 0.52 $ 9.54 $ 13.32
=============== ============= =============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 203,125 $ 297,127
-------------- ---------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 514,509 598,840
(Reversal of) provision for doubtful accounts (43,499) 11,244
Net gain on sale of equipment (40,556) (229,348)
Net decrease (increase) in current assets 107,751 (39,583)
Net decrease in current liabilities (46,748) (6,212)
-------------- ---------------
Total adjustments 491,457 334,941
-------------- ---------------
Net cash provided by operating activities 694,582 632,068
-------------- ---------------
Cash flows from investing activities:
Purchase of investment property (703,107) -
Proceeds from sales of investment property 63,397 318,861
-------------- ---------------
Net cash (used in) provided by investing activities (639,710) 318,861
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings on long-term debt 412,946 -
Principal payments on long-term debt (263,291) (229,151)
Cash distributions to partners (212,474) (424,947)
-------------- ---------------
Net cash used in financing activities (62,819) (654,098)
Net (decrease) increase in cash and cash equivalents (7,947) 296,831
Cash and cash equivalents at beginning of period 265,199 245,755
-------------- ---------------
Cash and cash equivalents at end of period $ 257,252 $ 542,586
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 31,194 $ 27,821
============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Six Months Ended June 30, 1997 and June 30, 1996
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley Lease Income Limited Partnership
III-D (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, 1996.
(2) Summary of 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 June 30, 1997 and December 31, 1996, the
allowance for doubtful accounts included in rents receivable was $2,707 and
$51,713, respectively, and $7,210 and $1,703 included in sales receivable,
respectively.
(3) Investment Property
At June 30, 1997, the Partnership owned computer equipment with a depreciated
cost basis of $2,131,954, subject to existing leases and equipment with a
depreciated cost basis of $53,718 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 six months ended
June 30 are as follows:
1997 1996
---- ----
Equipment acquisition fees $ 20,479 $ -
Management fees 61,746 68,207
Reimbursable expenses paid 84,182 77,809
------------ ------------
$ 166,407 $ 146,016
============ ============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Six Months Ended June 30, 1997 and June 30, 1996
(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. 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 June 30, 1997 consists of two loans totaling $71,055 from
Union Chelsea National Bank each with an interest rate of 9.00%, one loan for
$17,420 from CIT Group/Equipment Financing, Incorporated with an interest rate
of 14.17%, one installment note from Pullman Capital Corporation in the amount
of $56,756 with an interest rate of 8.75%, and eighteen loans totaling $800,349
from Liberty Bank, one bearing interest at 8.50%, one bearing interest at
11.00%, two bearing interest at 7.90%, five bearing interest at 8.25%, and nine
remaining loans bearing interest at 10.50%. All loans are non-recourse and are
collateralized by equipment on the respective leases with a total net book value
of $925,720 and assignment of the related leases.
Maturities on long-term debt are as follows:
1997 $ 346,477
1998 451,599
1999 143,557
2000 3,947
--------------
$ 945,580
==============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(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, 1997 in comparison to the same periods ended June
30, 1996.
The Partnership realized net income of $91,709 and $21,260 for the quarters
ended June 30, 1997 and 1996, respectively. Rental income increased $37,838 or
10% in 1997. The increase in rental income between the two periods is due to new
equipment acquisitions as a result of the extension of the reinvestment period
and due to a $45,000 adjustment to rental income for the quarter ended June 30,
1996. Three sales of equipment previously on lease to AT&T, Chrysler Corporation
and Troll Associates, having a sale date prior to April 1, 1996, were executed
during the second quarter ended June 30, 1996. Interest income decreased as a
result of lower cash balances held during the current quarter. The decrease in
net gain on the sale of equipment in the current quarter is primarily due to a
smaller number of equipment sales.
Total costs and expenses decreased $52,826 or 13% in 1997. The decrease in costs
and expenses is mainly due to the $23,920 reduction in depreciation expense
during the current quarter in comparison to the same period in 1996. The decline
in depreciation expense is primarily due to a portion of the equipment portfolio
becoming fully depreciated. Another element impacting the decline in costs and
expenses is the $17,960 reversal of provision for doubtful accounts. The
reversal is a result of the successful collection efforts of delinquent rents
receivable. Interest expense increased $2,860 as a result of the continued
paydown of long-term debt. Management fees decreased in correlation to an actual
decline in rental income, taking into consideration the $45,000 adjustment to
rental income in 1996. General and administrative expenses increased $3,538. A
major factor contributing to this increase is that the reimbursable salaries and
expenses of the partnership accounting and reporting personnel of the General
Partner are being allocated over a diminishing number of partnerships under
management.
The Partnership realized net income of $203,125 and $297,127 for the six months
ended June 30, 1997 and 1996, respectively. The $28,330 or 3% decrease in rental
income is attributed to lower rental rates obtained on equipment lease
extensions and remarketings resulting after the initial lease term expires.
Interest income decreased from 1996 as a result of lower cash balances held
during the current six month period. The decrease in net gain on sale of
equipment in 1997 is due to a smaller number of equipment sales carrying high
net book values.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased $127,328 or 16% during the six month periods.
The decrease in costs and expenses is mainly due to the $84,331 or 14% decline
in depreciation expense. As discussed in the quarter analysis above, the
reduction in depreciation expense is due to a portion of the initial equipment
portfolio becoming fully depreciated. Another element impacting the decline in
costs and expenses is the $43,499 reversal of provision for doubtful accounts.
The reversal is a result of successful collection efforts of delinquent rents
receivable in 1997. Interest expense increased $3,373 due to the continued
paydown of long-term debt during the six month period ended June 30, 1997.
Management fees decreased between the six month periods in relation to the
decline in rental income. General and administrative expenses increased $14,834
or 21% mainly due to an increase in the allocable salaries of the partnership
accounting and reporting personnel of the General partner during the current
year.
The Partnership recorded net income per Limited Partnership Unit of $4.35 and
$0.52 for the quarters ended June 30, 1997 and 1996, respectively, and $9.54 and
$13.32 for the six month periods ended June 30, 1997 and 1996, respectively. The
allocation for the six months ended June 30, 1997 includes a cost recovery
allocation of profit and loss among the General and 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 June 30, 1997, 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 sold. This decision is made upon analyzing
which option generates the most favorable result.
Rental income will continue to decrease due to two factors. First, lower rates
are obtained on 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, 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 through a
reduction in the rate of cash distributions. Future rental revenues amount to
$2,617,517 and are to be received over the next four years.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
The Partnership's investing activities for the quarter resulted in equipment
purchases of $703,107 and equipment sales with a depreciated cost basis of
$21,758, generating $63,397 in proceeds. Included in equipment sales is a $1,083
loss which was charged against the reserve, initially set up in a prior period
to account for estimated losses on the ultimate disposition of equipment. The
Partnership has capital expenditure commitments of approximately $100,000, which
are expected to be consummated during the third quarter of 1997. The Partnership
will not purchase equipment in the future, except as described above, as the
Partnership reached the end of its extended reinvestment period in June, 1997.
The Partnership's financing activities resulted in proceeds from borrowings on
long-term debt of $412,946. The Partnership's activities also included a paydown
on long-term debt during 1997 of $263,291. The Partnership will payoff its
remaining long-term debt of $945,580 by 2000. Total long-term debt assumed by
the Partnership from inception is $7,700,219, for a total leverage of 25%.
Cash distributions are currently at an annual level of 6% per Limited
Partnership Unit, or $7.50 per Limited Partnership Unit on a quarterly basis.
For the quarter ended June 30, 1997, the Partnership declared a cash
distribution of $159,356, of which $7,968 was distributed to the General Partner
and $151,388 was distributed to the Limited Partners. The distribution will be
made on August 29, 1997. 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 future
periods.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1997
Lessee
American Hard Cider, Incorporated
Baylor Health Network, Incorporated
Caterpillar, Incorporated
Cerulean Technology, Incorporated
Coulter Leasing Corporation
Direct Cable TV, Incorporated
Evare, Limited Liability Corporation
Faxnet, Incorporated
George Melhado and Company
H.J. Meyers & Company, Incorporated
Hughes Aircraft Corporation
Invetech Company
J. Walter Thompson, U.S.A., Incorporated
JumboSports Incorporated
Magnavox Electronic Systems Company, Incorporated
Merchants Association of Florida, Incorporated
Mercury Marine, Division of Brunswick Corporation
NYNEX National, Incorporated
ON Technology Corporation
Owens - Corning Fiberglass Corporation
The Internet Access Company, Incorporated
USG Corporation
Equipment Description Acquisition Price
Computer peripherals $ 2,374,052
Processors & upgrades 2,556,672
Other 1,156,590
----------------
$ 6,087,314
================
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(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-D
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: August 13, 1997
By: Arthur P. Beecher,
President