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
-----------------------
Quarter Ended September 30, 1997 Commission File No. 33-18859
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(Exact name of registrant as specified in its charter)
Massachusetts 04-2985041
(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 14
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
INDEX Page No.
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of September 30, 1997 and December 31, 1996 3
Statements of Operations
Quarters Ended September 30, 1997 and 1996 and
Nine Months Ended September 30, 1997 and 1996 4
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 5
Notes to Financial Statements 6 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 11
Computer Equipment Portfolio 12
Part II. OTHER INFORMATION
Items 1 - 6 13
Signature 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/97 12/31/96
---------------- ----------------
<S> <C> <C>
Investment property, at cost (note 3):
Computer equipment $ 3,331,637 $ 5,084,339
Less accumulated depreciation 2,591,455 3,807,667
---------------- ----------------
Investment property, net 740,182 1,276,672
Cash and cash equivalents 215,198 36,022
Rents receivable, net (note 2) 15,590 64,103
Sales receivable, net (note 2) 800 6,425
Accounts receivable - affiliates 27,988 -
Marketable securities (note 6) - 600
Other assets 41,267 1,214
---------------- ----------------
Total assets $ 1,041,025 $ 1,385,036
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 258,902 $ 437,438
Accounts payable and accrued expenses - affiliates (note 4) 15,068 28,097
Accounts payable and accrued expenses 51,076 144,138
Unearned rental revenue 5,135 29,795
Long-term debt, less current portion (note 5) 89,899 153,736
---------------- ----------------
Total liabilities 420,080 793,204
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 628,127 610,700
Cumulative cash distributions (623,188) (611,699)
Unrealized losses on marketable securities (note 6) - (1)
---------------- ----------------
5,939 -
---------------- ----------------
Limited Partners (27,226 units):
Capital contribution, net of offering costs 12,148,459 12,148,459
Cumulative net income 481,840 84,457
Cumulative cash distributions (12,015,293) (11,640,935)
Unrealized losses on marketable securities (note 6) - (149)
---------------- ----------------
615,006 591,832
---------------- ----------------
Total partners' equity 620,945 591,832
---------------- ----------------
Total liabilities and partners' equity $ 1,041,025 $ 1,385,036
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
1997 1996 1997 1996
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 228,436 $ 384,183 $ 833,123 $ 1,217,046
Other income 14,123 - 51,800 -
Interest income 3,233 957 6,885 3,712
Net gain (loss) on sale
of equipment (18,666) 464 82,964 3,685
Net loss on sale of
marketable securities - - (117) -
------------- -------------- -------------- ---------------
Total revenue 227,126 385,604 974,655 1,224,443
------------- -------------- -------------- ---------------
Costs and expenses:
Depreciation 50,408 71,238 400,027 755,684
Interest 8,488 19,510 29,920 65,713
Related party expenses (note 4):
Management fees 16,286 27,620 52,188 92,577
General and administrative 32,763 37,258 114,439 114,236
(Reversal of) provision for
doubtful accounts (16,612) 16,874 (36,729) 23,068
------------- -------------- -------------- ---------------
Total costs and expenses 91,333 172,500 559,845 1,051,278
------------- -------------- -------------- ---------------
Net income $ 135,793 $ 213,104 $ 414,810 $ 173,165
============= ============== ============== ===============
Net income (loss) per Limited
Partnership Unit $ 4.72 $ 3.21 $ 14.60 $ (7.38)
============= ============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 414,810 $ 173,165
-------------- ---------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 400,027 755,684
(Reversal of) provision for doubtful accounts (36,729) 23,068
Net gain on sale of equipment (82,964) (3,685)
Net loss on sale of marketable securities 117 -
Net decrease in current assets 22,826 47,635
Net decrease in current liabilities (130,751) (478,587)
-------------- ---------------
Total adjustments 172,526 344,115
-------------- ---------------
Net cash provided by operating activities 587,336 517,280
-------------- ---------------
Cash flows from investing activities:
Purchase of investment property - (506,622)
Proceeds from sale of marketable securities 633 -
Proceeds from sale of investment property 219,427 130,772
-------------- ---------------
Net cash provided by (used in) investing activities 220,060 (375,850)
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowing on notes payable - 223,600
Principal payments on notes payable - (100,000)
Proceeds from borrowing on long-term debt 230,336 189,942
Principal payments on long-term debt (472,709) (413,799)
Cash distributions to partners (385,847) (358,236)
-------------- ---------------
Net cash used in financing activities (628,220) (458,493)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 179,176 (317,063)
Cash and cash equivalents at beginning of period 36,022 336,360
-------------- ---------------
Cash and cash equivalents at end of period $ 215,198 $ 19,297
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 29,920 $ 59,461
============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Nine Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
(1) Organization and Partnership Matters
The foregoing financial statements of Wellesley Lease Income Limited Partnership
IV (the "Partnership") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission for Form 10-Q and reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Pursuant to such
rules and regulations, certain note disclosures which are normally required
under generally accepted accounting principles have been omitted. It is
recommended that these financial statements be read in conjunction with the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1996.
(2) 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, 1997 and December 31, 1996,
the allowance for doubtful accounts included in rents receivable was $26,134 and
$51,763, respectively. The allowance for doubtful accounts included in sales
receivable was $0 and $11,100 at September 30, 1997 and December 31, 1996,
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 September 30, 1997, the Partnership owned computer equipment with a
depreciated cost basis of $724,817, subject to existing leases and equipment
with a depreciated cost basis of $15,365 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>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Nine Months Ended September 30, 1997 and September 30, 1996
(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 are as follows:
1997 1996
---- ----
Equipment acquisition fees $ - $ 14,756
Management fees 52,188 92,577
Reimbursable expenses paid 108,829 105,609
------------ ------------
$ 161,017 $ 212,942
============ ============
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. In addition, 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, 1997 consists of one loan for $62,784 from
Pullman Capital Corporation with an interest at 8.00% and four loans totaling
$286,017 from Liberty Bank, one bearing interest at 9.00% and the three
remaining loans bearing interest at 8.25%. The total outstanding debt balance is
collateralized by equipment with a net book value of $527,599, and assignment of
the related leases.
Maturities of long-term debt are as follows:
1997 $ 72,421
1998 210,271
1999 66,109
-------------
$ 348,801
=============
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Nine Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
(6) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires investments
in debt and equity securities other than those accounted for under the equity
method to be carried at fair value or amortized cost for debt securities
expected to be held to maturity, the Partnership has classified its investments
in equity securities as available for sale. Accordingly, the net unrealized
gains and losses computed in marking these securities to market are reported as
a component of partners' equity. At September 30, 1997, there are no marketable
securities owned by the Partnership, therefore, there is no unrealized gain or
loss included in partners' equity.
The fair value is based on currently quoted market prices. The cost basis and
estimated fair value of the Partnership's marketable securities at September 30,
1997 and December 31, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------ --------------------------
Cost Fair Cost Fair
Basis Value Basis Value
<S> <C> <C> <C> <C>
Investment in Continental Information
Systems Corporation Stock $ - $ - $ 750 $ 600
======= ======= ======= =======
</TABLE>
<PAGE>
WELLESLEY INCOME LIMITED PARTNERSHIP IV
(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, 1997 compared to the same periods in 1996.
The Partnership realized net income of $135,793 and $213,104 for the quarters
ended September 30, 1997 and 1996, respectively. Rental income decreased by
$155,747 or 41% between the three month periods. The decrease is primarily due
to lower rental rates generated on equipment lease extensions and remarketings
resulting after the initial lease term expires and due to a decrease in the size
of the equipment portfolio. Other income is the result of the reduction of
overstated liabilities recorded in prior periods. Interest income increased as
result of higher average short-term investment balances held during the current
quarter. The net loss on sale of equipment in the current quarter is primarily
due to sales of equipment carrying high net book values.
Total costs and expenses decreased $81,167 or 47% between the three month
periods. The decrease in costs and expenses is mainly due to the decline in
depreciation expense during the current quarter in comparison to the same period
in 1996. The decrease in depreciation expense is due to a large portion of the
equipment portfolio becoming fully depreciated and due to an overall reduction
in the equipment portfolio. Interest expense decreased $11,022 as the
Partnership continued paydown the principle on long-term debt during the current
quarter. Management fees decreased in correlation with the decline in rental
income. General and administrative expenses remained relatively flat between the
three month periods. The $16,612 reversal of the provision for doubtful accounts
in the current quarter is due to the successful collection efforts on delinquent
accounts.
The Partnership realized net income of $414,810 and $173,165 for the nine month
periods ended September 30, 1997 and 1996, respectively. Rental income decreased
$383,923 or 32%. As discussed in the quarter analysis above, the decrease in
rental income is primarily due to lower rental rates generated on equipment
lease extensions and remarketings and due to a reduction in the overall
equipment portfolio. Other income is the result of the reduction of overstated
liabilities recorded in prior periods. Interest income increased between the
nine month periods as a result of higher average short-term balances held during
the current nine month period. The $82,964 net gain on sale of equipment is the
result of sales of equipment carrying low net book values. The net loss on sale
of marketable securities in 1997 reflects the below-cost sale of Continental
Information Systems Corporation stock. The stock had been received from the
Trustee of the Liquidating Estate of CIS Corporation (the "Estate"), the former
ultimate parent company of the General Partner, as part of the settlement of
certain outstanding issues between the Partnership and the Estate.
<PAGE>
WELLESLEY INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Total costs and expenses decreased $491,433 or 47% between the nine month
periods. The decrease in costs and expenses is mainly due to the $355,657 or 47%
decline in depreciation expense. As discussed in the quarter analysis above, the
decrease in depreciation expense is due to a large portion of the equipment
portfolio becoming fully depreciated and due to the overall reduction in the
equipment portfolio. Interest expense decrease $35,793 as the Partnership
continued to paydown the principle on its long-term debt during the nine month
period ended September 30, 1997. Management fees decreased between the nine
month periods due to the decline in rental income. General and administrative
expenses remained relatively flat between the nine month periods. The $36,729
reversal of the provision for doubtful accounts is the result of successful
collection efforts on delinquent accounts in 1997.
The Partnership recorded net income per Limited Partnership Unit of $4.72 and
$3.21 for the quarters ended September 30, 1997 and 1996, respectively, and net
income of $14.60 and a net loss of $7.38 for the nine months ended September 30,
1997 and 1996, respectively. The allocation for the nine months ended September
30, 1996 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 nine months ended September 30, 1997, rental revenue generated from
operating leases and proceeds from the sale of investment property 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 has continued to decrease due to two factors. First, lower rates
are obtained on the remarketing of existing equipment upon expiration of the
original leases. 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
$944,455 and are to be received over the next five years.
<PAGE>
WELLESLEY INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
The Partnership's investing activities resulted in sales of equipment with a
depreciated cost basis of $31,113, generating $219,427 in proceeds. Included in
equipment sales is a $167,576 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 not purchase equipment
in the future as the Partnership has reached the end of its reinvestment period.
The Partnership's financing activities resulted in proceeds from borrowing on
long-term debt of $230,336. The Partnership's activities also included a paydown
on long-term debt of $472,709 . The Partnership will payoff its remaining
long-term debt of $348,801 by 1999. Total debt assumed by the Partnership from
inception is $14,500,441, for a total leverage of 43%.
Cash distributions are currently at an annual level of 5% per Limited
Partnership Unit or $6.25 per Limited Partnership Unit on a quarterly basis. For
the quarter ended September 30, 1997, the Partnership declared a cash
distribution of $173,212, of which $3,049 was allocated to the General Partner
and $170,163 was allocated to the Limited Partners. The distribution will be
made on November 26, 1997. The Partnership expects to continue paying at or near
this level in the future. The effects of inflation have not been significant to
the Partnership and are not expected to have any material impact in future
periods.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1997
Lessee
Carr Separations, Incorporated
Chrysler Corporation
Coulter Corporation
Cybersmith, Incorporated
Dave's Custom Caps
H.J. Meyer Company, Incorporated
Hughes Aircraft Company, Incorporated
Internet Access Company, Incorporated
J. Walter Thompson Company
Jumbo Sports, Incorporated
ON Technology Corporation
Sero Company, Incorporated
Equipment Description Acquisition Price
Computer peripherals $ 1,465,920
Processors & upgrades 899,542
Telecommunications 233,215
Other 732,960
----------------
$ 3,331,637
================
<PAGE>
PART II. OTHER INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(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>
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 IV
(Registrant)
By: Wellesley Leasing Partnership,
its General Partner
By: TLP Leasing Programs, Inc.,
one of its Corporate General Partners
Date: November 7, 1997
By: Arthur P. Beecher,
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000825851
<NAME> WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV FDS 9/30/97
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 215,198
<SECURITIES> 0
<RECEIVABLES> 70,512
<ALLOWANCES> 26,134
<INVENTORY> 0
<CURRENT-ASSETS> 300,843
<PP&E> 3,331,637
<DEPRECIATION> 2,591,455
<TOTAL-ASSETS> 1,041,025
<CURRENT-LIABILITIES> 71,279
<BONDS> 348,801
12,149,459
0
<COMMON> 0
<OTHER-SE> (11,528,514)
<TOTAL-LIABILITY-AND-EQUITY> 1,041,025
<SALES> 833,123
<TOTAL-REVENUES> 974,655
<CGS> 0
<TOTAL-COSTS> 52,188
<OTHER-EXPENSES> 514,466
<LOSS-PROVISION> (36,729)
<INTEREST-EXPENSE> 29,920
<INCOME-PRETAX> 414,810
<INCOME-TAX> 0
<INCOME-CONTINUING> 414,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,810
<EPS-PRIMARY> 14.60
<EPS-DILUTED> 0
</TABLE>
