<PAGE 1 >
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended Commission file number
December 31, 1996 33-8115
LEASTEC INCOME FUND IV
(Exact name of registrant as specified in its charter)
California 68-0100223
(State or other jurisdiction of (I.R.S. Employer Identifi-
incorporation or organization) cation Number)
2855 Mitchell Drive, Suite 215, Walnut Creek, CA 94598
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 938-3443
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange on
Title of Each Class Which Each Class is
To be Registered To be Registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNER INTEREST (TITLE OF CLASS)
Indicate by a 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
DOCUMENTS INCORPORATED BY REFERENCE
EXHIBIT INDEX LOCATED AT PAGES 21
<PAGE 2>
LEASTEC INCOME FUND IV
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item Page No
Item 1 Business 3
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
Item 5 Market for Registrants Common Equity and
Related Stockholder Matters 4
Item 6 Selected Financial Data 5
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 8 Financial Statements and Supplementary Data 9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
Item 10 Directors and Executive Officers of the Registrant 20
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial Owners and
Management 21
Item 13 Certain Relationships and Related Transactions 21
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 22
<PAGE 3>
Item 1. BUSINESS
Prior to 1993, the Registrant's primary business was to
acquire a diversified portfolio of capital equipment for lease
subject to operating and finance leases with terms of 36 to 60
months. The equipment leased was selected by the lessees and
was purchased directly from the manufacturer, independent third
parties and the lessees (via sale lease back transactions).
Operating leases, primarily of data processing equipment, are
those in which the Registrant maintains ownership of the
equipment at the end of the lease. Finance leases are those in
which the lessee is contractually obligated to purchase the
equipment at a predetermined amount at the end of the lease.
Since the Operating leases did not transfer ownership through a
purchase obligation, the Registrant is dependent on release or
sale of the equipment to realize a profitable return on its
investment in the leased equipment.
Prior to 1993, the Registrant reinvested cash in excess of
partners distributions into new lease transactions. Starting in
1993, the Registrant began to wind down its leasing operations
by returning all cash proceeds from operations to the partners
through quarterly distributions. During the wind down or
liquidation phase, cash proceeds from the rents, equipment sold
and all available cash from operations have been distributed to
the limited partners in proportion to their respective tax
basis capital accounts. The Registrant was fully liquidated as
of December 31, 1996.
During fiscal 1996, the Registrant fully liquidated its
lease and equipment portfolio. The Registrant accrued the final
distribution as of December 31, 1996;; all assets have been
disposed of and all proceeds were distributed in February of
1997. The Partnership was formed in 1985 with a capitalization
of $26,909,750. Limited partner distributions from the
inception of the Partnership to date are as follows:
<PAGE 4>
<TABLE>
<CAPTION>
Year Total Distribution Made
---- -----------------------
<S> <C>
1986 $ 9,511
1987 1,713,643
1988 2,506,596
1989 2,555,962
1990 2,607,188
1991 731,576
1992 738,289
1993 1,399,962
1994 2,155,557
1995 2,975,000
1996 960,991
---- -----------
Total $18,354,275
</TABLE>
Distributions noted herein are on an accrual basis of accounting as
shown on the Statement of Partners' Capital. The Registrant has accrued a
liquidation distribution of $320,991 to the limited partners for the quarter
ended December 31, 1996. Although the Registrant had until December 1997 to
liquidate its operations, the Registrant was fully liquidated at the end of
its tenth full year of operation, December 1996.
The Registrant failed to return 100% of its invested capital. This
loss was primarily caused by the failure of the Operating lease equipment to
achieve its residual values. Under an operating lease the risk of ownership
remains with the lessor and is not passed on to the lessee. An operating lease
yield depends entirely on the realization of residual expectations in order
for the lessor to achieve a positive return. The partnership's greatest risk
area was the residual values on its operating lease portfolio, and this was
the area in which the largest shortfalls occurred. Residual values can be
realized either by the sale or re-lease of equipment. In either case, the
demand for used equipment is affected by the cost of substitutes and the
strength or weakness in the general economy. Substitute new equipment may be
more desirable than used equipment because it has higher performance levels
and if the cost to maintain older equipment is high. Re-lease revenues are
also affected by interest rate levels. A lower interest rate environment will
reduce the monthly rent that can be charged for equipment.
<PAGE 5>
Competition
While the Registrant is no longer seeking new leases, it has competed in
the past with manufacture leasing companies, independent leasing companies,
affiliates of banks, commercial credit companies and other leasing
partnerships. Competition with these entities was based primarily on lease
rates and terms as well as the type and amount of equipment. In addition
the condition and relative obsolescence of equipment are major factors in the
Partnership's ability to re-lease or sell its equipment from operating
leases. Other factors include the demand for a type of equipment, the cost of
maintenance, the availability of financing, trends in the economy, interest
rates, tax laws as well as many other factors over which neither the
Registrant nor its competitors have control.
Working Capital
The Partnership maintains cash reserves for normal operating expenses,
working capital and certain leasing costs such as payment of personal property
taxes, refurbishment cost and repossession costs. The Registrant has no
statistical information to compare its reserves with those of its competitors.
The Registrant's revenues, income and losses, and assets for the years
ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total Revenues $ 451,603 1,467,572 1,611,235
Net (Loss) Income (42,302) 1,071,061 570,459
Assets 569,677 1,925,299 4,685,134
</TABLE>
Item 2. PROPERTIES
The Registrant has no plants, mines or other physical properties.
At December 31, 1996, the portfolio of leases was fully liquidated.
The equipment previously on lease had consisted primarily of data
processing equipment, office furniture, instrumentation and
semi-conductor fabrication equipment.
Item 3. LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal
proceedings at this time.
<PAGE 6>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the period from September 30, 1996 to December 31, 1996, no
matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Registrant's Limited Partner Units and General Partner's
Units are not publicly traded. There is no established public
trading market for such Units and none is expected to develop.
However the Registrant's units are freely transferable. The
General Partner may at its sole discretion determine that the
transfer of a Unit will not become effective if such transfer is
restricted or prohibited under Federal or state securities laws.
In addition, the General Partner , in its sole judgment may
determine that a transfer will not become effective if it would
result in the premature termination of the Partnership for
Federal income tax purposes or increase the risk of
reclassification of the Registrant under the publicly traded
partnership provisions of the Revenue Act of 1987 (the 1987 Act)
or cause the Partnership to be reclassified as an association
taxable as a corporation under Federal income tax regulations.
The 1987 Act contains provisions which have an adverse impact
on investors in "publicly traded partnerships," which include
partnerships whose interests are traded either on an established
securities market or are readily tradable on a secondary market.
If the Partnership were to be classified as a "publicly traded
partnership", the Partnership would be taxed as a corporation as
of the time public trading was deemed to commence.
The general partner has represented that it will take all action
necessary to restrict transfers to assure that the units will not
become readily tradable on a secondary market or substantial
equivalent. To accomplish that goal the General Partner intends
to restrict the transfer of Units to the extent necessary to
comply with IRS Notice 99-75 containing safe harbors for the
transfer of partnership interest.
<PAGE 7>
(b) The number of holders of partnership interests are set forth
below:
Number of Holders
as of
Title of Class December 31, 1996
-------------- ----------------
Limited Partner Units 2,902
General Partner's Unit 1
(c) Distributions
During 1996, the Registrant made four(4) quarterly
distributions and accrued a fifth distribution for
the quarter ended December 31, 1996 (the first
distribution in 1996 related to 1995) to all
limited partners in the amount of $960,991as
follows:
Period Ended Payment Distributions per
$250 Investment Unit
------------ ------- --------------------
December 31, 1995 January 1996 $5.78
March 31, 1996 April 1996 $4.19
June 30, 1996 July 1996 $0.89
September 30, 1996 October 1996 $0.93
December 31, 1996 February 1997 $2.99
Liquidation distributions of varying amounts were
paid in the first three quarters of 1996.
Additionally, $320,991 has been accrued for the
fourth quarter 1996 to be paid in February 1997.
<PAGE 8>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(in thousands, except per unit data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues 452 1,466 1,611 2,703 3,569
Net (loss) income (42) 1,072 570 365 (921)
Total assets at December 31, 570 1,925 4,685 7,321 11,501
Long-term portion of notes payable 0 0 0 352 2,314
Distributions declared to partners 995 3 132 2 269 1,474 777
Net (loss) income per weighted average
limited partner unit outstanding (.71) 8.53 2.23 0 (8.49)
</TABLE>
Cash dividends declared per limited partner unit data is not
applicable as cash distributions are distributed to those investors
electing to receive them at a fixed rate as determined by the general
partner based on the investors original investment for years
1986 - 1992. Distributions for the subsequent quarters were based on
each partner's tax basis capital account.
The above selected financial data should be read in conjunction with
the audited financial statements and related notes to the financial
statements appearing in Item 8 of the Form 10-K.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Basis of Condensed Financial Statement Preparation
The partnership has presented its 1996 financial statements to
reflect its leasing activities on a basis consistent with prior
periods. The partnership has completed its leasing activities and
has distributed its remaining net assets (cash) to the partners and
has dissolved the partnership.
<PAGE 9>
Results of Operations
Life of the Registrant
The Registrant began operations in late 1986. In 1986, the registrant
invested its initial capital into operating leases of IBM equipment in
accordance with the partnership agreement and investment prospectus. Under an
operating lease the risk of ownership remains with the lessor. The expectation
is that the equipment will retain its value and that the lessor will realize
profits through the sale or re-lease of the equipment.
Historically the Leasing Industry had experienced success with
operating leases because the life of IBM computer equipment had exceed the life
of the initial lease contract. However at the end of the 1980's and the
beginning of the 1990's this fundamental premise changed to the detriment of
the partnership's investment. At that time International Data Corporation
(IDC) provided residual value estimates to the Leasing industry through their
Lease Planning Service (LPS).
The following is an example of the unexpected changes which swept through
the computer leasing industry in the period from 1989 to 1992. In October of
1986, IDC estimated that an IBM 3380-AD4 disk drive would have a wholesale
residual value of 27% of original cost in 1990. By 1990 the wholesale cost
had dropped to 5% to 10% representing a 60% to 80% shortfall in residual
expectations. This dramatic drop in value was caused by a surge of
technological changes in the computer industry. The following is another
example of the magnitude of these changes. At the end of 1986 a new IBM 700
megabyte disk drive sold for about $70,000. By 1996 it was possible to buy a
PC 2.1 gigabyte disk drive (200% larger than 700 megabyte) for $350. While an
IBM disk drive and a PC disk drive work in different computing environments,
this example still shows the magnitude of the technological changes which were
competing with IBM equipment and reducing the residual value of its
equipment. The dramatic failure of IBM equipment to maintain its value in the
face of competitive technological changes was also evidenced by the decline of
IBM stock value from $120 to $150 in 1986 to $50 to $40 by 1993. During this
time the demand for main frame computer decreased as competing lower cost
substitute systems became available.
<PAGE 10>
An additional contributing cause to the registrant's failure to return
capital was the bankruptcy of Unicom Computer Corporation, one of the two
original General Partners, in the fall of 1988. As a result, certain rental
receipts were withheld by lessees for several months as claims by Unicom
creditors were worked out. In addition certain pieces of equipment were tied
up and leasing activities were disrupted for almost 9 months. At about this
same time in 1989, IBM Credit Corp became extremely competitive forcing lease
rates down. This made it increasingly difficult for the partnership to find
transactions which met its yield requirements. The competitive force from IBM
Credit Corp exacerbated a decline in rates as the general level of interest
rates also began to fall.
Starting in 1989, the registrant diversified the equipment portfolio away
from IBM by leasing Digital Equipment Corporation (DEC) equipment and
noncomputer assets subject to operating leases. The DEC equipment while
serving a different marketplace (the so-called mini-computer market as opposed'
to the mainframe IBM market) also suffered from extreme residual value
shortfalls caused by the introduction of competing personal computer and
client/server technologies. In 1991 the registrant engaged in finance leasing
to eliminate the risk of residual values. Finance leases passed the risk of
ownership to the lessee by requiring them to buy the equipment at the end of
the lease. However, these leases were written in a decreasing interest rate
environment.
These interest rate decreases were caused in part by the
recession of 1990 to 1992. The market interest rates were at levels below
those required to return 100% capital to the investors. Distributions were
reduced at that time, but continuing losses on the IBM equipment undercut
efforts to earn back lost capital. The 1991 switch to finance leases was
approved by a vote of 88% of the limited partnership units. This vote was
required not only to llow the shift the asset mix away from operating leases
but to change the type of credit which could be accepted by the registrant.
In general finance leases are used by companies which are privately owned and
smaller with higher risk of credit default. While there were credit defaults
as a result of this change, they were significantly smaller than those
incurred by residual value losses. The switch to finance leases did not have
enough time to rebuild the capital lost as equipment was sold from the
operating lease portfolio before the partnerships liquidation date was reached.
In summary the largest risk position in the registrants portfolio was in
residual values of computer equipment, and it was the shortfalls in these
residual values, which was responsible for the registrant's losses.
<PAGE 11>
1995 versus 1996
The Registrant completed ten (10) full years of operations and has
liquidated its assets. During the wind down or liquidation phase of the
Partnership, all cash flows in excess of partnership expenses were distributed
to the limited partners in proportion to their respective tax basis capital
accounts.
Comparisons to prior year activities are limited due to the liquidation
of the Registrants assets during this final year of the Partnership.
Equipment on operating leases and the cost of the equipment held for sale
or lease was disposed of or fully depreciated as of late 1994, and therefore,
not a major factor in the operations of 1995 and 1996.
Operating lease income declined from $340,623 in 1995 to $150,813 in 1996
because of a reduction in the operating lease portfolio. Rental income from
operating leases comprised 33% and 23% of total revenue in 1996 and 1995,
respectively, with interest and other income, direct financing lease income and
gain on disposition of equipment making up the remainder. The increase in the
percentage of income derived from operating leases reflects the decreased size
of the lease portfolio due to liquidation efforts and one large operating lease
which continued through 1996. Direct financing lease income decreased from
$367,988 in 1995 to $40,604 in 1996 as the direct finance lease portfolio was
liquidated.
Management fees decreased from $155,479 in 1995 to $62,306 in 1996.
Management fees are dependent on the amount of rental income derived from both
operating and direct financing lease income and decreased as the lease
portfolio decreased.
Direct services from general partners remained fairly constant from
$80,830 in 1994 to $79,998 in 1995 and $75,929 in 1996. Direct services are
the administrative and personnel costs (payroll) incurred on behalf of the
Partnership. The expense remained constant because a minimal staff was
required to complete the activities of the Partnership.
General and administrative expenses decreased from $186,879 in 1994 to
$141,754 in 1995 and increased to $346,231 in 1996 due to the accrual of
closing expenses required to meet the regulatory requirements of tax
authorities and reporting requirements of the Limited Partnership Agreement.
Total operating expenses increased from $395,971 in 1995 to $493,905 in
1996 due to the closing expenses mentioned above.
The foregoing factors resulted in the Registrant reporting net income of
$1,071,061 in 1995 and a net loss of $42,302 in 1996 which equated to net
income (loss) per weighted average limited partner unit of $8.53 in 1995 and
($0.71) in 1996 respectively.
<PAGE 12>
Liquidity and Capital Resources
Operating activities provided the Registrant with net cash flow of
$1,010,150 in 1995 and net cash used of $184,068 in 1996. The decrease from
year to year is a result of the rapid decline in the size of the lease
portfolio and the liquidation of the Registrant's assets.
Investing activities ( which includes the payment of cash allocable to
return of principal under finance leases) provided net cash of $2,649,373 in
1995 and $929,428 in 1996. Cash from finance leases decreased from $1,918,500
in 1995 to $733,873 in 1996 due to the increased moneys from financing lease
payments allocated to recovery of principal. This increase occurs naturally as
the lease obligation are amortized by payment of rents . The sale of equipment
related to direct financing leases and operating leases provided cash totaling
$739,536 in 1995.
All notes were fully retired at the end of 1995 therefore cash from
financing activities was not used to repay notes payable in 1996, but was used
in amounts totaling $305,610 in 1995 and $1,270,463 in 1994. Cash from
financing activities was also used to make the liquidating distributions to
Partners, which amounted to $1,932,165 in 1994, $3,152,630 in 1995 and the
closing distributions totaling $1,305,264 in 1996.
The cash position fluctuated during the liquidation years of the
Registrant. Cash available from lease rentals, terminations and sale of
equipment was used first to pay expenses and then distributed to the Partners.
The cash available varied quarter to quarter and year to year according to the
timing of the receipts of rents, sales and termination receipts.
<PAGE 13>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEASTEC INCOME FUND IV
(a California Limited Partnership)
Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
LEASTEC INCOME FUND IV
(A California Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
Page Number
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS:
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995 F-4
STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994 F-5
STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994 F-6
STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994 F-7
NOTES TO FINANCIAL STATEMENTS F-8
F-2
<PAGE 14>
LEASTEC INCOME FUND IV
(a California Limited Partnership)
Financial Statements
Independent Auditors' Report
The Partners
Leastec Income Fund IV:
We have audited the accompanying balance sheets of Leastec Income Fund IV
(a California limited partnership) as of December 31, 1996 and 1995, and
the related statements of operations, partners' capital and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in note 1 to the financial statements, the Partnership
discontinued operations on December 31, 1996 and intends to make the final
cash distribution to the partners in 1997.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Leastec Income Fund IV
(a California limited partnership) as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
(signed) KPMG Peat Marwick LLP
February 7, 1997
F-3
<PAGE 15>
<TABLE>
<CAPTION>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 569,677 $1,129,581
Receivables, net:
Rent --- 42,920
Affiliates and other --- 18,925
Net investment in direct financing leases --- 733,873
Equipment on operating leases, net of
accumulated depreciation of $0 in 1996
and $2,201,123 in 1995 --- ---
---------- ----------
$ 569,677 $1,925,299
========== ==========
Liabilities and Partners' Capital
--------------------------------
Trade accounts payable $ 244,749 69,823
Distributions payable to partners 320,991 631,580
Due to affiliates 3,937 2,872
Deferred rent revenue --- 33,801
Deposits --- 150,246
Notes payable --- ---
--------- ---------
Total liabilities 569,677 888,322
--------- ---------
Partners' capital
General partner: Authorized 1414 units;
issued and outstanding 1087 units --- ---
in 1996 and 1995
Limited partners: Authorized 140,000
units; issued and outstanding 107,331
units in 1996 and 1995 --- 1,036,977
---------- ----------
Total partners' capital $ --- 1,036,977
---------- ----------
$ 569,677 $1,925,299
========== ==========
<F/N>
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE 16>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Statement of Operations
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Operating lease income $ 150,813 40,623 883,925
Direct financing lease income 40,604 367,988 594,258
Interest and other income 64,631 47,450 27,230
Recovery on direct financing leases --- 655,915 ---
Gain on disposition of direct
financing leases, net --- 2,400 ---
Gain on disposition of equipment, net 195,555 53,196 105,822
--------- -------- --------
Total revenues 451,603 1,467,572 1,611,235
========= ========= =========
Expenses:
Depreciation of equipment on
operating leases --- --- 369,155
Management fees 62,306 155,479 262,850
Direct services from general partner 75,929 79,998 80,830
Interest 2,204 9,660 102,479
Other expense 7,235 9,080 38,583
General and administrative 346,231 141,754 186,879
--------- --------- ---------
Total Expenses 493,905 395,971 1,040,776
--------- --------- ---------
Net (loss) Income $ (42.302) 1,071,601 570,459
========== ========= =========
Net (loss) income per weighted
average limited partner unit
outstanding $ (.71) 8.53 2.23
========= ========= ========
<F\N>
See accompanying notes to financial statements.
[/TABLE]
F-5
<PAGE 17>
[CAPTION]
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
------- -------- -----
[S] [C] [C] [C]
Partners' capital, December 31, 1993 $ (218,158) 5,013,661 4,795,503
Net income 331,609 238,850 570,459
Distributions to partners (113,451) (2,155,557) (2,269,008)
Partners' capital, December 31, 1994 --- 3,096,954 3,096,954
Net income 156,578 915,023 1,071,601
Distributions to partners (156,578) (2795,000) (3,131,578)
Partners' capital, December 31, 1995 --- 1,036,977 1,036,977
Net income (loss) 33,684 (75,986) (42,302)
Distributions to partners (33,684) (960,991) (994,675)
Partners' capital, December 31, 1996 $ --- --- ---
----------- ---------- ----------
<F\N>
See accompanying notes to financial statements.
[/TABLE]
F-6
<PAGE 18>
<TABLE>
<CAPTION>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (42,302) 1,071,601 570,459
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation --- --- 369,155
Gain on disposition of
equipment, net (195,555) (53,196) (105,822)
Gain on disposition of direct
financing lease --- (2,400) ---
Change in provision for doubtful
direct financing leases --- 383,741 266,259
Changes in operating assets and
liabilities:
Receivables 61,845 (16,400) 160,820
Trade accounts payable 174,926 (44,708) (8,565)
Due to affiliates 1,065 (141,252) 42,704
Deposits and deferred rent
revenue (184,047 (187,236) (38,044)
--------- ---------- ----------
Net cash (used in) provided
by operating activities (184,068) 1,010,150 1,256,966
-------- ---------- ----------
Cash flows from investing activities:
Net investment in direct financing
leases --- (61,859) ---
Decrease in net investment in
direct financing leases 733,873 1,918,500 2,020,203
Proceeds from sale of direct
financing leases --- 739,536 ---
Proceeds from disposition of equipment 195,555 53,196 277,161
---------- ---------- ----------
Net cash provided by
investing activities 929,428 2,649,373 2,297,364
---------- ---------- ----------
Cash flows from financing activities:
Repayment of notes payable
and bank line of credit --- (305,610) (1,270,463)
Distributions to partners (1,305,264) (3,152,630) (1,932,165)
---------- ---------- ----------
Net cash used in financing
activities: (1,305,264) (3,458,240) (3,202,628)
---------- ---------- ----------
Net (decrease) increase in cash
and cash equivalents (559,904) 201,283 351,702
---------- ---------- ----------
Cash and cash equivalents at
beginning of year 1,129,581 928,298 576,596
---------- --------- ----------
Cash and cash equivalents at
end of year $ 569,677 1,129,581 928,298
=========== ========== =========
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 2,204 9,660 102,479
=========== ========= =========
<f\n>
See accompanying notes to financial statements.
</TABLE>
F-7
<PAGE 19>
<TABLE>
<CAPTION
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
Years ended December 31, 1996, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
Leastec Income Fund IV (the Partnership) was formed on July 1, 1986 and
commenced operations on December 1, 1986 as a California limited
partnership. The Partnership was formed for the purpose of purchasing,
holding, leasing and selling equipment; primarily computer peripherals,
terminal systems, small computer systems, communications equipment and
word processing equipment.
The Partnership leased to various companies in a variety of industries
throughout the United States. The Partnership's operations consisted of
direct financing leases and operating leases.
The Partnership's general partner is Leastec Corporation (Leastec).
Leastec manages the Partnership, including investment of funds,
purchase and sale of equipment, lease negotiation and other
administrative duties.
The Partnership ceased operations and prepared for a final liquidating
cash distribution as of December 31, 1996. In accordance with the
Partnership agreement, the general partner will distribute the net
assets of the Partnership based on the limited partners' tax basis
capital accounts. At December 31, 1996, the Partnership accrued
$197,848 of estimated expenses, included in trade accounts payable,
necessary to complete the dissolution of the Partnership. These costs
include estimates for accounting, data processing, administrative
expenses, regulatory filings with the SEC, income tax filings with the
Internal Revenue Service and various states, and property and sales tax
filings with local governments. The General Partner commenced the
dissolution process in 1997.
(b) Allowance for Doubtful Accounts Receivable
The Partnership provides an allowance for doubtful accounts for
receivables deemed uncollectible. No allowance for doubtful accounts
was recorded at December 31, 1996 and 1995, respectively.
(c) Net Investment in Direct Financing Leases
Net investment in direct financing leases is the total of the future
minimum lease payments and the guaranteed residual value accruing to the
benefit of the lessor at the end of the lease term less the unearned
income in the lease.
Generally, leases are secured by the equipment on lease. In the event
of a default on a lease, the Partnership has the right to foreclose on
the assets leased. Assets acquired in the foreclosure are recorded at
the lesser of the net investment in the direct financing lease or their
estimated fair value as of the date of the foreclosure.
(Continued)
F-8
<PAGE 20>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
(1) Organization and Summary of Significant Accounting Policies Continued
(d) Equipment on Operating Leases
Equipment on operating leases is stated at cost less accumulated
depreciation. The cost of equipment includes acquisition fees paid to
the general partners on the purchase price of the equipment.
Depreciation is calculated on the straight-line method over the
estimated useful lives of the equipment ranging from two to seven years
The estimated useful lives of equipment on operating leases and
depreciation rates are adjusted to reflect changes in the estimated
salvage value of the equipment at the end of the related leases caused
by technological advances or other market changes during the lease term.
(e) Recognition of Lease Income
Operating lease income is recognized ratably over the lease term.
Unearned income on direct financing leases is recognized as revenue
over the lease term at a constant rate of return on the net investment
in the lease.
(f) Income Taxes
No provision is made for income taxes since the Partnership is not
a taxable entity. Individual partners report their allocable share of
Partnership taxable income or loss.
(g) Cash Equivalents
For purposes of the statements of cash flows, the Partnership considers
all investments with an initial maturity at date of purchase of three
months or less to be cash equivalents.
(h) Net (Loss) Income Per Weighted Average Limited Partner Unit
Net (loss) income per weighted average limited partner unit is computed
by dividing the net (loss) income allocated to the limited partners
(($75,986) in 1996, $915,023 in 1995 and $238,850 in 1994) by the
weighted average number of limited partner units outstanding during the
period (107,331 in 1996, 1995 and 1994).
(i) Estimates
The preparation of financial statements in conformit with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(Continued)
F-9
<PAGE 21>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
(2) Direct Financing Leases
Net investment in direct financing leases at December 31 consists of
the following:
1996 1995
---- ----
<S> <C> <C>
Total minimum lease payments receivable $ --- 491,018
Guaranteed residual values of leased equipment --- 307,342
Less: Unearned lease income --- (64,487)
---------- --------
$ --- 733,873
========== ========
(3) Recovery on Direct Financing Leases
A lessee of the Partnership filed for Chapter 11 bankruptcy in 1994. The
Partnership had previously established an allowance to cover the loss;
therefore, no loss was charged to the accompanying statement of
operations for the year ended December 31, 1994. The Partnership
subsequently received income from auction sales of recovered equipment
and insurance proceeds on unrecovered equipment which resulted in a
recovery of $64,085 recorded in the year ended December 31, 1995.
In October 1992, a lessee experiencing financial difficulties suspended
lease payments to the Partnership. The Partnership subsequently
renegotiated terms with the lessee to continue monthly rental receipts at
a reduced amount. The management of the Partnership believed that the
lessee would continue to make lease payments. However, due to the
uncertainty of the situation the Partnership recorded an allowance for
possible losses of $383,741 at December 31, 1994. In accordance with the
renegotiated terms with the lessee, the Partnership received 39,907
equity shares of the lessee's common stock. However, the Partnership had
not assigned a value to the shares of common stock as the fair market
value was not determinable. In May 1995 the lessee was purchased by a
third party who paid off the Partnership for the related obligation and
purchased the related common stock shares. At December 31, 1995, the
related balances and allowance were eliminated. The Partnership recognized
income for the transaction which resulted in a recovery of $591,830
recorded in the year ended December 31, 1996.
(Continued)
F-10
<PAGE 22>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
(4) Transactions with the General Partner and Affiliates
The following is a summary of transactions with the general partner
and affiliates.
(a) Management Fees
The general partner is entitled to receive management fees as
compensation for services performed in connection with managing the
equipment, equal to the lesser of (a) 5% of gross revenues from
operating leases, 2% of gross revenues from full payout leases
which contain net lease provisions, or 7% of gross receipts,
excluding sales, from all leases which require equipment management
and additional services relating to the management of the equipment,
whichever is applicable; or (b) the fee which the general partner
reasonably believes to be competitive with that which would be charged
by a non-affiliate for rendering comparable services. Such fees
totaled $62,306 in 1996, $155,479 in 1995 and $262,850 in 1994.
(b) Direct Services
The general partner provides various services directly
related to the operations of the Partnership. The Partnership
reimburses the general partner for administrative and personnel costs
incurred on its behalf. Such reimbursements totaled $75,929 in 1996,
$79,998 in 1995 and $80,830 in 1994.
(c) Due to Affiliates
Amounts due to affiliates for services performed totaled $0 and
$2,872 at December 31, 1996 and 1995, respectively.
(d) Direct Financing Lease Purchase and Sale
The Partnership purchased a direct financing lease from an
affiliate of the general partner in the amount of $61,859 in 1995.
The purchase price was established by the net book value at which the
lease was recorded on the affiliate's books.
The Partnership sold a direct financing lease to the general
partner for $14,711 in 1996. The sales price was established by the
net book value at which the lease was recorded on the Partnership's
books.
(Continued)
F-11
<PAGE 23>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
(5) Cash Distributions and Allocations of Profits and Losses
(a) Cash Distributions
The limited partners and general partner receive 95% and 5%,
respectively, of cash available for distributions as defined in the
Partnership agreement, until the limited partners receive an amount
equal to their original capital contribution plus an amount equal to
the greater of 8% per annum, cumulative, compounded daily or 10% per
annum cumulative, non-compounded on the adjusted purchase price of
limited partner units. Thereafter, the limited partners and general
partner receive 85% and 15% of cash available for distribution,
respectively. Distributions have not reached any of the two previous
limits and are currently distributed 95% to the limited partners and
5% to the general partner.
Cash distributions of $640,000 relating to the 1996 financial year of
operations of the Partnership were made to the limited partners. In
accordance with the Partnership agreement, a liquidating
distribution of $320,991 was declared and accrued to bring the
limited partners' capital account to zero. Under the Partnership
agreement the general partner's capital account was reduced to zero.
(b) Profit and Loss Allocations
Profits are allocated first, 100% to the general partner until the
general partner's capital accounts are brought to zero; second, 1%
to general partner and 99% to limited partners until the total
Partnership deficit is zero; third, to the general partners in an
amount equal to cash distributions, and the remainder to the limited
partners on the basis of their capital account balances.
In 1996 the general partner's capital account received a qualified
income offset allocation pursuant to Section 14.2 of the Partnership
agreement. The qualified income offset allocation was made in order
to maintain capital accounts in accordance with the Partnership
agreement.
(Continued)
F-12
<PAGE 24>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
(6) Tax Information
The following reconciles the net (loss) income for financial reporting
purposes and federal income tax purposes for the years ended
December 31:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net (loss) income per financial statements $ (42,303) 1,071,601 570,459
Gain on disposition of equipment --- 71,486 (54,966)
Depreciation and amortization --- (178,307) (281,893)
Allowance for doubtful direct financing
lease receivables --- (383,741) ---
Allowance for doubtful accounts receivable --- (17,004) ---
Direct financing leases --- 236,253 432,018
Deferred rent revenue (33,801) 22,715 6,379
Gain on liquidation 67,955 --- ---
Syndication fees (3,469,672) --- ---
---------- ---------- --------
Partnership (loss) income for
federal income tax purposes $(3,477,821) 823,003 671,997
=========== ========= =======
</TABLE>
Syndication fees are capitalized when incurred and allocated to the
partners upon liquidation for federal income tax purposes.
The following reconciles partners' capital for financial reporting
purposes and federal income tax purposes as of December 31:
1996 1995
---- ----
Partners' capital per financial statements $ --- 1,036,977
Commissions and offering costs on
sale of limited partnership units --- 3,469,672
Depreciation and amortization --- (2,597,734)
Gain on liquidation --- ---
Direct financing leases --- 2,306,610
Deferred rent revenue --- 33,801
Other --- 223,170
----- ---------
Partners' capital for federal
income tax purposes $ --- 4,472,496
===== =========
F-13
<PAGE 24>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) At December 31, 1996, the General Partner of the Registrant was
Leastec Corporation, a California corporation, a wholly owned
subsidiary of The Earnest Group, formerly Partners Fund
Management, Inc.
(b) The directors and executive officers of the General Partner of
the Registrant who are not themselves general partners of the
Registrant are:
Ernest V. Lavagetto, 49, President, Chief Financial Officer,
Secretary and Director of Leastec Corporation since January 1990.
Mr. Lavagetto's term of office as Director ends on April
30, 1997. Mr Lavagetto joined Leastec Corporation in 1980.
He is a Certified Public Accountant and a member in good
standing of the American Institute of Certified Public
Accountants. The officer noted above is not subject to an
employment contract but serves at the pleasure of the Board of
Directors of the respective corporation.
(c) All significant employees are identified in Item 10 (b) above.
<PAGE 24>
(d) Leastec Corporation was formed in December 1976. Since its
formation, Leastec has sponsored numerous tenancies-in-common,
direct ownership transactions, and limited partnerships
involving the leasing of computer and high technology medical
equipment. Since 1980, Leastec has sponsored and served as a
general partner of the following partnerships
Leastec Investors No. 1
Leastec Investors No. 2
Leastec Investors No. 3
Leastec Investors No. 4
Leastec Investors No. 5
Leastec Investors No. 6
Equipment Investors of Pacific No. 1
Equipment Investors of Pacific No. 2
Equipment Investors of Pacific No. 3
Equipment Investors of Pacific No. 4
Equipment Investors of Pacific No. 5
Equipment Investors of Pacific No. 6
Leastec Associates I
Leastec Associates II
Leastec Associates III
Leastec Associates IV
Leastec Associates V
Leastec Associates VI
Leastec Partners I Leastec
Partners II Leastec
Partners III Leastec
Partners IV Leastec
Partners V
Leastec Partners VI
Leastec Partners VII
Leastec Partners VIII
Leastec Partners IX
Leastec Partners X
Leastec Partners XI
Leastec Partners XII
Leastec Partners XIII
Leastec Partners XV
Leastec Partners XVI
Leastec Systems I
Western Trailer Associates
Catscan Associates
Leastec Income Fund 1984-1
Leastec Income Fund 1985-1
Leastec Income Fund III
Leastec Income Fund V
<PAGE 25>
Item 11. EXECUTIVE COMPENSATION
The Registrant has no employees. For information relating to fees
and compensation paid to the General Partner, see Item 13.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent (5%) of the Limited Partner
Units. As noted below, the General Partner owns 100 percent of
the General Partner Units.
(b) The General Partner of the Registrant owns the equity
securities of the Registrant set forth in the following table:
(1) (2) (3) (4)
Name of Amount and Nature
Title of Beneficial of Beneficial Percent
Class Owner Ownership of Class
General Partner Leastec Corporation 1087 Units 100
Leastec Corporation has the right to acquire all of the
Limited Partner Units of which it is the beneficial owner as
specified in Rule 13d-3(d)(1) under the Exchange Act.
der the Exchange Act.
(Continued)
F-12
<PAGE 23>
LEASTEC INCOME FUND IV
(A California Limited Partnership)
Notes to Financial Statements
Set forth is information relating to all compensation paid or
accrued by the Registrant to the General Partner during the fiscal
year ended December 31, 1996:
(A) (B) (C)
Name of Individual Capacities in Cash
or Number in Group Which Served Compensation
Leastec Corporation General Partner $62,306
The General Partner receives all of its compensation in cash from
the Registrant. The Registrant also reimburses the General Partner
for administrative and personnel costs incurred by the General
Partner on behalf of the Registrant. Such expenses totaled $75,929
in 1996.
<PAGE 26>
Profits are allocated first 100% to the General Partner until the
General Partner's capital account is brought to zero; second, 1% to
the General Partner and 99% to the limited partners until the total
Partnership deficit is zero; third, to the General Partner in an
amount equal to cash distributions, and the remainder to the limited
partners on the basis of their capital account balances. Net losses
are allocated 99% to the limited partners and 1% to the General
Partner. The net income allocated to the General Partner amounted to
$33,684 in 1996 and $156,578 in 1995.
Substantially all equipment leased by the Registrant is initially
purchased by the Registrant from the manufacturer or independent
third parties. The Registrant does not purchase any inventory of
equipment but usually acquires equipment that is already subject to
an existing lease. The Registrant purchases the equipment at cost.
In addition, the Registrant's purchase price includes commissions
paid to independent brokers for originating lease transactions and
acquiring equipment.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
1. Financial Statement Page Number
Independent Auditors' Report F-3
Balance Sheets F-4
Statements of Operations F-5
Statements of Partners' Capital F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
financial statements or notes thereto.
Exhibit Page
Number Exhibit Name Number
3 Leastec Income Fund IV Limited Partnership Agreement
(Incorporated by reference from Exhibit A on Form S-1
filed with the Commission on November 3, 1986
File Number 33-8115)
Subscription Agreement and Power of Attorney
(incorporated by reference from Exhibit B on Form S-1,
November 3, 1986, File No. 33-8115)
Election to Accumulate Cash Distributions (Incorporated
by reference from Exhibit C on Form S-1, November 3,
1986, File No. 33-8115)
(b) No reports on Form 8 - K have been filed during the last
quarter of the fiscal year ending December 31, 1995.
<PAGE 27>
Pursuant to the requirements of Sections 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this 1995
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LEASTEC INCOME FUND IV
(Registrant)
By: LEASTEC CORPORATION
General Partner
Dated: March 30, 1997 By: ERNEST LAVAGETTO
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-K and is qualifiedi in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 569,677
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 569,677
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 569,677
<CURRENT-LIABILITIES> 569,677
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 569,677
<SALES> 451,603
<TOTAL-REVENUES> 451,603
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 491,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,204
<INCOME-PRETAX> (42,302)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,302)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
