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-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 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 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)
9/30/96 12/31/95
---------------- ----------------
Investment property, at cost (note 3):
Computer equipment $ 5,976,472 $ 7,636,323
Less accumulated depreciation 4,015,610 5,022,967
---------------- ----------------
Investment property, net 1,960,862 2,613,356
Cash and cash equivalents 326,734 245,755
Rents receivable, net (note 2) 66,902 173,959
Sales receivable, net (note 2) - 4,275
Accounts receivable - affiliates 82,421 66,971
Other assets 1,876 11,887
---------------- ----------------
Total assets $ 2,438,795 $ 3,116,203
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 299,923 $ 380,602
Accounts payable and accrued expenses - affiliates (note 4) 58,138 32,533
Accounts payable and accrued expenses 99,919 87,381
Unearned rental revenue 9,006 540
Long-term debt, less current portion (note 5) 221,450 352,124
---------------- ----------------
Total liabilities 688,436 853,180
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 568,446 526,973
Cumulative cash distributions (569,446) (534,918)
---------------- ----------------
- (6,945)
---------------- ----------------
Limited Partners (20,185 units):
Capital contribution, net of offering costs 8,987,039 8,987,039
Cumulative net income 3,582,483 3,446,080
Cumulative cash distributions (10,819,163) (10,163,151)
---------------- ----------------
1,750,359 2,269,968
---------------- ----------------
Total partners' equity 1,750,359 2,263,023
---------------- ----------------
Total liabilities and partners' equity $ 2,438,795 $ 3,116,203
================ ================
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------------
1996 1995 1996 1995
--------------------------------- ----------------------------------
Revenue:
Rental income $ 321,786 $ 685,802 $ 1,158,972 $ 1,914,439
Interest income 4,679 4,134 12,021 12,577
Net gain (loss) on sale
of equipment 4,132 (10,144) 233,480 1,110
--------------- ------------- -------------- ---------------
Total revenue 330,597 679,792 1,404,473 1,928,126
--------------- ------------- -------------- ---------------
Costs and expenses:
Depreciation 365,019 394,084 963,859 1,127,687
Interest 10,314 17,249 38,135 30,418
Related party expenses (note 4):
Management fees 28,323 47,454 96,530 125,859
General and administrative 42,825 28,324 113,462 88,540
Provision for (reversal of)
doubtful accounts 3,367 - 14,611 (20,348)
--------------- ------------- -------------- ---------------
Total costs and expenses 449,848 487,111 1,226,597 1,352,156
--------------- ------------- -------------- ---------------
Net (loss) income $ (119,251) $ 192,681 $ 177,876 $ 575,970
=============== ============= ============== ===============
Net (loss) income per Limited
Partnership Unit $ (6.57) $ 8.96 $ 6.76 $ 26.56
=============== ============= ============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(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 $ 177,876 $ 575,970
-------------- ---------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 963,859 1,127,687
Provision for (reversal of) doubtful accounts 14,611 (20,348)
Net gain on sale of equipment (233,480) (1,110)
Net decrease (increase) in current assets 91,282 (77,891)
Net increase in current liabilities 46,609 10,549
-------------- ---------------
Total adjustments 882,881 1,038,887
-------------- ---------------
Net cash provided by operating activities 1,060,757 1,614,857
-------------- ---------------
Cash flows from investing activities:
Purchase of investment property (451,363) (1,601,412)
Proceeds from sales of investment property 373,478 103,042
-------------- ---------------
Net cash used in investing activities (77,885) (1,498,370)
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings on notes payable - affiliates - 339,047
Principal payments on notes payable - affiliates - (139,047)
Proceeds from borrowings on long-term debt 109,263 643,906
Principal payments on long-term debt (320,616) (381,633)
Cash distributions to partners (690,540) (719,756)
-------------- ---------------
Net cash used in financing activities (901,893) (257,483)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 80,979 (140,996)
Cash and cash equivalents at beginning of period 245,755 592,377
-------------- ---------------
Cash and cash equivalents at end of period $ 326,734 $ 451,381
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 38,135 $ 31,496
============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(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-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, 1995.
(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 September 30, 1996 and December 31, 1995,
the allowance for doubtful accounts included in rents receivable was $34,534 and
$28,448, respectively, and $8,525 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 $1,813,368, subject to existing leases and equipment
with a depreciated cost basis of $147,494 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-D
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Nine Months Ended September 30, 1996 and September 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 nine months ended
September 30, 1996 and 1995 are as follows:
1996 1995
---- ----
Equipment acquisition fees $ 13,147 $ 46,643
Management fees 96,530 125,859
Reimbursable expenses paid 100,294 89,336
------------ ------------
$ 209,971 $ 261,838
============ ============
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 September 30, 1996 consists of two loans totaling $139,952
from Union Chelsea National Bank, each bearing interest at 9.00%, one loan for
$35,160 from CIT Group/Equipment Financing, Incorporated, bearing interest at
14.17%, four installment notes from Pullman Capital Corporation totaling
$32,514, each bearing interest at 8.00%, and three loans totaling $313,747 from
Liberty Bank, one bearing interest at 7.75% and the two remaining loans bearing
interest at 7.90%. All loans are non-recourse and are collateralized by
equipment on the respective leases with a total net book value of $632,292 and
assignment of the related leases.
Maturities on long-term debt are as follows:
1996 $ 70,257
1997 302,176
1998 148,940
--------------
$ 521,373
==============
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 nine months ended September 30, 1996 in comparison to the same periods ended
September 30, 1995.
The Partnership realized a net loss of $119,251 and net income of $192,681 for
the quarters ended September 30, 1996 and 1995, respectively. Rental income
decreased $364,016 or 53% 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
decrease in the overall size of the equipment portfolio. Interest income
increased from 1995 as a result of higher average short-term investment balances
held during the current quarter. The increase in net gain on the sale of
equipment in the current quarter is primarily due to a larger number of
equipment sales carrying low net book values.
Total costs and expenses decreased $37,263 or 8% between the three month
periods. Depreciation expense decreased $29,065 or 7% due to a portion of the
equipment portfolio becoming fully depreciated. Also included in depreciation
expense for the quarter ended September 30, 1996 is a provision of $50,000 for
estimated losses on the ultimate disposition of equipment. Interest expense
decreased $6,935 in the current quarter due to the continued paydown of
long-term debt. The long-term debt balance at September 30, 1996 was $521,373
versus a balance of $629,018 at September 30, 1995. Management fees decreased as
a result of the decline in rental income. General and administrative expenses
increased $14,501 or 51% mainly due to an increase in the allocable salaries of
the partnership accounting and reporting personnel of the General Partner. The
Partnership established a provision for doubtful accounts of $3,367 to reserve
for potential uncollectible rents receivable.
The Partnership realized net income of $177,876 and $575,970 for the nine months
ended September 30, 1996 and 1995, respectively. The $755,467 or 39% decrease in
rental income can be attributed to lower rental rates obtained on equipment
lease extensions and remarketings resulting after the initial lease term expires
and due to an overall reduction in equipment portfolio, as mentioned above.
Interest income decreased from 1995 as a result of lower average short-term
investment balances held during the nine month period. The significant increase
in net gain on sale of equipment in 1996 is due to the large number of equipment
sales carrying low 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 $125,559 or 9% during the nine month periods.
As discussed in the quarter analysis above, depreciation expense decreased
$163,828 or 15% between 1996 and 1995 due to the initial equipment portfolio
becoming fully depreciated and a reduction in the overall equipment portfolio.
Also included in depreciation expense for the nine months ended September 30,
1996 is a provision for $100,000 for estimated losses on the ultimate
disposition of equipment. Interest expense increased $7,717 between 1996 and
1995 due to new debt leveraged during the current quarter and the continued
paydown of long-term debt. Management fees decreased between the nine month
periods due to the decline in rental income. General and administrative expenses
increased $24,922 or 28% 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 provision for doubtful accounts increased in the current
year due to an increase in potential uncollectible rents receivable.
The Partnership recorded net loss and net income per Limited Partnership Unit of
$6.57 and $8.96 for the quarters ended September 30, 1996 and 1995,
respectively, and net income of $6.76 and $26.56 for the nine months ended
September 30, 1996 and 1995, respectively.
Liquidity and Capital Resources
For the quarter 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 rental
rates are obtained on the remarketing of existing equipment after 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 a reduction in the rate of cash distributions. Future rental
revenues amount to $1,655,671 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 nine month periods resulted in
equipment purchases of $451,363 and equipment sales with a depreciated cost
basis of $68,826, generating $373,478 in proceeds. Included in equipment sales
is a $71,171 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 will purchase equipment in the future as the
Partnership has extended its reinvestment period.
The Partnership's financing activities resulted in the paydown on long-term debt
in the amount of $320,616 and proceeds from borrowing on long-term debt of
$109,263 for the nine months ended September 30, 1996. The Partnership will
payoff its remaining long-term debt of $521,373 by 1998. Total long-term debt
assumed by the Partnership from inception is $6,908,214, for a total leverage of
23%.
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 September 30, 1996, 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 November 27, 1996. The Partnership expects to continue paying 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.
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-D
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1996
Lessee
Caterpillar Company, Incorporated
Coulter Leasing Corporation
George Melhado and Company
H.J. Meyers & Company, Incorporated
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
NYNEX National, Incorporated
ON Technology
Corporation Owens Corning Fiberglass, Incorporated
Packard Hughes Interconnect, Incorporated
Simmons Market Research Bureau, Incorporated
Sports & Recreation Company, Incorporated
Xerox Corporation
Equipment Description Acquisition Price
Computer peripherals $ 2,330,824
Processors & upgrades 2,510,118
Other 1,135,530
----------------
$ 5,976,472
================
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: November 14, 1996
By: Arthur P. Beecher,
President