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, 1998 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, 1998 and December 31, 1997 3
Statements of Operations
Quarters Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997 4
Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 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)
6/30/98 12/31/97
---------------- ----------------
Investment property, at cost (note 3):
Computer equipment $ 5,314,654 $ 6,164,470
Less accumulated depreciation 3,797,338 4,119,544
---------------- ----------------
Investment property, net 1,517,316 2,044,926
Cash and cash equivalents 286,328 253,590
Rents receivable, net (note 2) 61,564 46,355
Sales receivable, net (note 2) 42,532 2,200
Accounts receivable - affiliates 70,390 17,768
Other assets 18,015 17,293
---------------- ----------------
Total assets $ 1,996,145 $ 2,382,132
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 450,139 $ 628,925
Accounts payable and accrued expenses - affiliates (note 4) 42,682 31,639
Accounts payable and accrued expenses 74,761 61,989
Unearned rental revenue 26,833 39,641
Long-term debt, less current portion (note 5) 35,888 229,717
---------------- ----------------
Total liabilities 630,303 991,911
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 621,566 605,630
Cumulative cash distributions (622,566) (606,630)
---------------- ----------------
- -
---------------- ----------------
Limited Partners (20,185 units):
Capital contribution, net of offering costs 8,987,039 8,987,039
Cumulative net income 4,207,226 3,928,822
Cumulative cash distributions (11,828,423) (11,525,640)
---------------- ----------------
1,365,842 1,390,221
---------------- ----------------
Total partners' equity 1,365,842 1,390,221
---------------- ----------------
Total liabilities and partners' equity $ 1,996,145 $ 2,382,132
================ ================
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,
--------------------------------- -----------------------------------
1998 1997 1998 1997
--------------------------------- -----------------------------------
Revenue:
Rental income $ 464,846 $ 423,709 $ 931,696 $ 808,856
Interest income 2,998 1,365 5,904 3,134
Net gain on sale
of equipment 12,202 8,412 27,383 40,556
--------------- ------------- --------------- ---------------
Total revenue 480,046 433,486 964,983 852,546
--------------- ------------- --------------- ---------------
Costs and expenses:
Depreciation 222,733 272,802 460,743 514,509
(Reversal of) provision for
doubtful accounts (10,854) (17,960) (2,999) (43,499)
Interest 14,392 15,218 33,127 31,194
Related party expenses (note 4):
Management fees 33,751 30,248 68,373 61,746
General and administrative 57,181 41,469 111,407 85,471
--------------- ------------- --------------- ---------------
Total costs and expenses 317,203 341,777 670,651 649,421
--------------- ------------- --------------- ---------------
Net income $ 162,843 $ 91,709 $ 294,332 $ 203,125
=============== ============= =============== ===============
Net income per Limited
Partnership Unit $ 7.67 $ 4.35 $ 13.79 $ 9.54
=============== ============= =============== ===============
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, 1998 and 1997
(Unaudited)
1998 1997
-------------- ---------------
Cash flows from operating activities:
Net income $ 294,332 $ 203,125
-------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 460,743 514,509
(Reversal of) provision for doubtful accounts (2,999) (43,499)
Net gain on sale of equipment (27,383) (40,556)
Net decrease (increase) in current assets (105,886) 107,751
Net increase (decrease) in current liabilities 11,007 (46,748)
-------------- ---------------
Total adjustments 335,482 491,457
-------------- ---------------
Net cash provided by operating activities 629,814 694,582
-------------- ---------------
Cash flows from investing activities:
Purchase of investment property - (703,107)
Proceeds from sales of investment property 94,250 63,397
-------------- ---------------
Net cash (used in) provided by investing activities 94,250 (639,710)
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings on long-term debt - 412,946
Principal payments on long-term debt (372,615) (263,291)
Cash distributions to partners (318,711) (212,474)
-------------- ---------------
Net cash used in financing activities (691,326) (62,819)
Net (decrease) increase in cash and cash equivalents 32,738 (7,947)
Cash and cash equivalents at beginning of period 253,590 265,199
-------------- ---------------
Cash and cash equivalents at end of period $ 286,328 $ 257,252
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 33,127 $ 31,194
============== ===============
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, 1998 and June 30, 1997
(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, 1997.
(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, 1998 and December 31, 1997, the
allowance for doubtful accounts included in rents receivable was $6,607 and
$9,806, respectively, and $0 and $0 included in sales receivable, respectively.
(3) Investment Property
At June 30, 1998, the Partnership owned computer equipment with a depreciated
cost basis of $1,517,316. 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:
1998 1997
---- ----
Equipment acquisition fees $ - $ 20,479
Management fees 68,373 61,746
Reimbursable expenses paid 99,158 84,182
------------ ------------
$ 167,531 $ 166,407
============ ============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP III-D
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Six Months Ended June 30, 1998 and June 30, 1997
(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, 1998 consists of two installment notes from Pullman
Capital Corporation in the amount of $114,654 with interest rates of 8.75% and
10.50%, and eighteen loans totaling $371,372 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 $528,441 and assignment of the
related leases.
Maturities on long-term debt are as follows:
1998 $ 256,310
1999 225,770
2000 3,947
--------------
$ 486,027
==============
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, 1998 in comparison to the same periods ended June
30, 1997.
The Partnership realized net income of $162,843 and $91,709 for the quarters
ended June 30, 1998 and 1997, respectively. Rental income increased $41,137 or
10% in 1998. 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.
Interest income increased as a result of higher cash 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.
Total costs and expenses decreased $24,574 or 7% in 1998. The decrease in costs
and expenses is mainly due to the $50,069 reduction in depreciation expense
during the current quarter in comparison to the same period in 1997. The decline
in depreciation expense is primarily due to a portion of the equipment portfolio
becoming fully depreciated. For the quarters ended June 30, 1998 and 1997, the
reversal of provision for doubtful accounts was $10,854 and $17,960,
respectively. The reversal is a result of the successful collection efforts of
delinquent rents receivable. Management fees increased in correlation to the
rise in rental income. General and administrative expenses increased $15,712. 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 $294,332 and $203,125 for the six months
ended June 30, 1998 and 1997, respectively. The $122,840 or 15% increase in
rental income is attributed to new equipment acquisitions as a result of the
extension of the reinvestment period. Interest income increased from 1997 as a
result of higher cash balances held during the current six month period. The
decrease in net gain on sale of equipment in 1998 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 increased $21,230 or 3% during the six month periods.
The increase in costs and expenses is mainly due to the $25,936 or 30% increase
in general and administrative expenses. As discussed in the quarter analysis
above, the increase is mainly due to an increase in the allocable salaries of
the partnership accounting and reporting personnel of the General Partner during
the current year. Another element impacting the rise in costs and expenses is
the $43,499 reversal of provision for doubtful accounts in 1997. The reversal is
a result of successful collection efforts of delinquent rents receivable in
1997. Management fees increased between the six month periods in relation to the
rise in rental income. The $53,766 decline in depreciation expense is due to a
portion of the initial equipment portfolio becoming fully depreciated.
The Partnership recorded net income per Limited Partnership Unit of $7.67 and
$4.35 for the quarters ended June 30, 1998 and 1997, respectively, and $13.79
and $9.54 for the six month periods ended June 30, 1998 and 1997, respectively.
The allocation for the six months ended June 30, 1998 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, 1998, 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 begin 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
$1,395,866 and are to be received over the next three 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 six months ended June 30
consisted of equipment sales with a depreciated cost basis of $79,951,
generating $94,250 in proceeds. Included in equipment sales is a $13,094 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's financing activities included a paydown on long-term debt
during 1998 of $372,615. The Partnership will payoff its remaining long-term
debt of $486,027 by 2000. Total long-term debt assumed by the Partnership from
inception is $7,820,977, 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, 1998, 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, 1998. 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, 1998
Lessee
American Hard Cider, Incorporated
Cerulean Technology, Incorporated
Coulter Leasing Corporation
Direct Cable TV, Incorporated
Evare, Limited Liability Corporation
Faxnet, Incorporated
George Melhado and Company
Hughes Aircraft Corporation
J. Walter Thompson, U.S.A., Incorporated
JumboSports Incorporated
Magnavox Electronic Systems Company, 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 $ 2,096,149
Processors & upgrades 2,058,978
Other 1,159,527
----------------
$ 5,314,654
================
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, 1998
By: Arthur P. Beecher,
President