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, 1995 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 12 (Page 2) 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, 1995 and December 31, 1994 3 Statements of Operations For the Quarters Ended June 30, 1995 and 1994 and the Six Months Ended June 30, 1995 and 1994 4 Statements of Cash Flows For the Six Months Ended June 30, 1995 and 1994 5 Notes to Financial Statements 6 - 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 9 Computer Equipment Portfolio 10 Part II. OTHER INFORMATION Items 1 - 6 11 Signature 12 (Page 3) PART I. FINANCIAL INFORMATION WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Balance Sheets Assets (Unaudited) (Audited) 6/30/95 12/31/94 Investment property, at cost (note 3): Computer equipment $ 8,206,153 $ 7,469,559 Less accumulated depreciation 5,052,191 4,853,270 ---------------------------- Investment property, net 3,153,962 2,616,289 Cash and cash equivalents 191,722 592,377 Rents receivable, net (note 2) 149,046 58,471 Sales receivable, net (note 2) - 4,940 Accounts receivable - affiliates 27,202 12,332 Other accounts receivable 205,244 - ---------------------------- Total assets $ 3,727,176 $ 3,284,409 ---------------------------- ---------------------------- Liabilities and Partners' Equity Liabilities: Current portion of long-term debt (note 6) $ 530,109 $ 278,737 Accounts payable and accrued expenses - affiliates (note 4) 135,095 48,297 Accrued expenses 3,190 11,754 Accounts payable 53,423 78,109 Unearned rental revenue 1,269 31,494 Distribution payable 26,560 - Notes payable - affiliates (note 5) 100,725 - Long-term debt, less current portion (note 6) 276,691 88,008 ---------------------------- Total liabilities 1,127,062 536,399 ---------------------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 508,006 479,918 Cumulative cash distributions (513,670) (487,110) ---------------------------- (4,664) (6,192) ---------------------------- Limited Partners (20,185 units): Capital contribution, net of offering costs 8,987,039 8,987,039 Cumulative net income 3,377,189 3,021,988 Cumulative cash distributions (9,759,450) (9,254,825) ---------------------------- 2,604,778 2,754,202 ---------------------------- Total partners' equity 2,600,114 2,748,010 ---------------------------- Total liabilities and partners' equity $ 3,727,176 $ 3,284,409 ---------------------------- ---------------------------- See accompanying notes to financial statements. (Page 4) WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Operations (Unaudited) Quarters Ended Six Months Ended June 30, June 30, -------------------------------------------------- 1995 1994 1995 1994 -------------------------------------------------- Revenue: Rental income $ 600,236 $ 560,633 $1,228,637 $1,135,379 Interest income 2,138 9,890 8,443 15,151 Net gain on sale of equipment 7,702 176,430 11,254 319,974 ---------------------- ------------------------ Total revenue 610,076 746,953 1,248,334 1,470,504 ---------------------- ------------------------ Costs and expenses: Depreciation 407,489 348,257 733,603 726,479 Reversal of provision for doubtful accounts (6,182) - (20,348) - Interest 6,092 2,165 13,169 3,977 Related party expenses (note 4): Management fee 31,782 34,949 78,405 75,283 General and administrative 36,897 27,720 60,216 49,555 ---------------------- ------------------------ Total costs and expenses 476,078 413,091 865,045 855,294 ---------------------- ------------------------ Net income $ 133,998 $ 333,862 $ 383,289 $ 615,210 ---------------------- ------------------------ ---------------------- ------------------------ Net income per Limited Partnership Unit $ 6.06 $ 15.67 $ 17.60 $ 28.95 ======================= ======================== See accompanying notes to financial statements. (Page 5) WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Statements of Cash Flows For the Six Months Ended June 30, 1995 and 1994 (Unaudited) 1995 1994 Cash flows from operating activities: Net income $ 383,289 $ 615,210 --------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 733,603 726,479 Reversal of provision for doubtful accounts (20,348) - Net gain on sale of equipment (11,254) (319,974) Net (increase) decrease in current assets (285,401) 96,026 Net increase in current liabilities 23,323 51,811 --------------------------- Total adjustments 439,923 554,342 --------------------------- Net cash provided by operating activities 823,212 1,169,552 --------------------------- Cash flows from investing activities: Purchase of investment property (1,353,163) (476,331) Proceeds from sales of investment property 93,141 501,387 --------------------------- Net cash (used in) provided by investing activities (1,260,022) 25,056 --------------------------- Cash flows from financing activities: Proceeds from borrowings on notes payable- affiliates 139,047 - Principal payments on notes payable - affiliates (38,322) - Proceeds from borrowings on long-term debt 643,906 266,596 Principal payments on long-term debt (203,851) (87,969) Cash distributions to partners (504,625) (531,185) ---------------------------- Net cash provided by (used in) financing activities 36,155 (352,558) ---------------------------- Net (decrease) increase in cash and cash equivalents (400,655) 842,050 Cash and cash equivalents at beginning of period 592,377 621,024 ---------------------------- Cash and cash equivalents at end of period $ 191,722 $1,463,074 ---------------------------- ---------------------------- Supplemental cash flow information: Interest paid during the period $ 14,246 $ 4,993 ---------------------------- ---------------------------- See accompanying notes to financial statements. (Page 6) WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Notes to Financial Statements (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, 1994. (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, 1995 and December 31, 1994, the allowance for doubtful accounts included in rents receivable was $39,170 and $55,208, respectively, and $0 and $4,310 included in sales receivable, respectively. Reclassifications Certain prior year financial statement items have been reclassified to conform with the current year's financial statement presentation. (3) Investment Property At June 30, 1995, the Partnership owned computer equipment with a depreciated cost basis of $3,005,045, subject to existing leases and equipment with a depreciated cost basis of $148,917 in inventory, awaiting re-lease or sale. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner. (Page 7) (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 years ended June 30, 1995 and 1994 are as follows: 1995 1994 Equipment acquisition fees $ 39,413 $ 13,638 Management fees 78,405 75,283 Reimbursable expenses paid 60,177 44,274 ------------------------ $ 177,995 $ 133,195 ------------------------ ------------------------ 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) Notes Payable-Affiliates Notes payable-affiliates at June 30, 1995, consists of one non-recourse promissory note payable to TLP Leasing Programs, Inc. in the amount of $100,725, bearing interest at the rate of 9.00%. The note payable matures in 1995. (6) Long-term Debt Long-term debt at June 30, 1995 consists of one loan for $64,383 from Randolph Computer Company with an interest rate of 5.75%, one loan for $117,434 from Relational Funding with an interest rate of 8.15%, two loans totaling $244,966 from Union Chelsea National Bank each with an interest rate of 9.00%, one loan for $60,862 from CIT Group/Equipment Financing, Incorporated with an interest rate of 14.17%, and seven installment notes from Pullman Capital Corporation totaling $319,155, all with an interest rate of 8.00%. All loans are non-recourse and are collateralized by the equipment on the respective leases with a total net book value of $1,075,891 and assignment of the related leases. Maturities on long-term debt are as follows: 1995 $ 343,960 1996 292,364 1997 141,602 1998 28,874 ---------- $ 806,800 ---------- ---------- (Page 8) 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, 1995 in comparison to the same periods ended June 30, 1994. The Partnership realized net income of $133,998 and $333,862 for the quarters ended June 30, 1995 and 1994, respectively. Rental income increased $39,603 or 7% in 1995. The increase in rental income can be attributed to new leases related to new equipment acquisitions in 1995 of $1,353,163. Interest income decreased from 1994 as a result of lower average short-term investment balances held during the three month periods. The decrease in gain on the sale of equipment between the three month periods is primarily due fewer equipment sales in 1995. Total costs and expenses increased 16% in 1995. The increase in costs and expenses is primarily a result of higher depreciation expense. Depreciation expense increased 17% due to the new acquisitions made in 1995. For the quarter ended June 30, 1995, interest expense increased due to new debt leveraged at the end of 1994 and the first six months in 1995. Management fees expense was fairly constant from 1994, although for the quarter ended June 30, 1994, management fees expense reflects a one time adjustment for a change in method on which management fees are calculated. General and administrative expenses increased in relation to the increase in rental income. The reversal of provision for doubtful accounts is due to successful collection efforts on delinquent rents receivable. The Partnership realized net income of $383,289 and $615,210 for the six months ended June 30, 1995 and 1994, respectively. The Partnership recognized rental income of $1,228,637 and $1,135,379 an increase of 9% for the six months ended June 30, 1995 and 1994, respectively. Rental income increased due to new lease transactions generated in late 1994 and the first half of 1995. As discussed in the quarter analysis above, the decrease in interest income between 1995 and 1994 can be attributed to the lower average short-term investment balances. The large 1994 net gain on sale of equipment is due to the large number of equipment sales of equipment carrying low net book values. Total costs and expenses increased $9,751 or 2% between the six month periods. The slight increase in total costs and expenses is primarily attributable to higher interest expense, an increase in general and administrative expenses and a slight increase in depreciation expense, which together more than offset the reversal of provision for doubtful accounts. As discussed above, for the quarter ended June 30, 1995, interest expense increased due to new debt leveraged at the end of 1994 and the first six months of 1995. The increase in general and administrative expenses is in correlation with the increase in rental income. The minimal increase in depreciation expense can be attributed to the new acquisitions made in 1995. Management fees have increased due to management fees incurred on rentals received from new equipment acquisitions and the related leases. The reversal of provision for doubtful accounts for the six months is due to successful collection efforts of delinquent rents receivable. The Partnership recorded net income per Limited Partnership Unit of $17.60 and $28.95 for the six months ended June 30, 1995 and 1994, respectively. (Page 9) Liquidity and Capital Resources For the six months ended June 30, 1995, rental revenue generated from operating leases was the primary source 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 begin to decrease in 1995 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 and notes payable - affiliates 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 $3,044,881 and are to be received over the next five years. In the first six months of 1995, the Partnership's investing activities resulted in equipment purchases of $1,353,163 and equipment sales with a depreciated cost basis of $93,586, generating $93,141 in proceeds. Associated with the equipment sales were $11,699 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 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 in the amount of $203,851 and proceeds from borrowing on long-term debt of $643,906 for the six months ended June 30, 1995. The Partnership will payoff its remaining long-term debt of $806,800 by 1998. Total long- term debt assumed by the Partnership from inception is $6,529,065, for a total leverage of 23%. The Partnership's financing activities also resulted in proceeds from the borrowing on notes payable - affiliates in the amount of $139,047 and the paydown on the installment note during the first six months of 1995 in the amount of $38,322. Such notes payable - affiliates will be paid off in 1995. Cash distributions are currently at an annual level of 8% per Limited Partnership Unit, or $10.00 per Limited Partnership Unit on a quarterly basis. For the quarter ended June 30, 1995, the Partnership declared a cash distribution of $212,474, of which $10,624 was allocated to the General Partner and $201,850 was allocated to the Limited Partners. The distribution will be made on August 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 any material impact in future periods. (Page 10) WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D (A Massachusetts Limited Partnership) Computer Equipment Portfolio (Unaudited) June 30, 1995 Lessee American Telephone & Telegraph Company, Incorporated Applied Magnetics Corporation Caterpillar, Incorporated Champs Software, Incorporated Coulter Leasing Corporation Dan River Corporation Delphi Internet Services Corporation Exxon Company, U.S.A. George Melhado and Company Halliburton Company Hughes Aircraft Company, Incorporated Integrated Systems Technology Corporation Invetech Company J. Walter Thompson, U.S.A., Incorporated Magnavox Electronic Systems Company, Incorporated Maryland Casualty Insurance, Incorporated Merchants Association of Florida, Incorporated Mercury Marine, Division of Brunswick Corporation Mobil Oil Corporation New England Mutual Life Insurance Company New York Life Insurance Company NYNEX National, Incorporated ON Technology Corporation Owens Corning Fiberglass, Incorporated Packard Hughes Interconnect, Incorporated Simmons Market Research Bureau, Incorporated Thomas James Associates, Incorporated Troll Associates, Incorporated Western Atlas Company, Incorporated Xerox Corporation Equipment Description Acquisition Price Computer peripherals $ 3,200,400 Processors & upgrades 3,446,584 Other 1,559,169 ----------- $ 8,206,153 ----------- ----------- (Page 11) 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 (Page 12) 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 11, 1995 By: Arthur P. Beecher, President