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, 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
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
<S> <C> <C>
Financial Statements
Balance Sheets as of June 30, 1997 and December 31, 1996 3
Statements of Operations
Quarters Ended June 30, 1997 and 1996 and
Six Months Ended June 30, 1997 and 1996 4
Statements of Cash Flows
Six Months Ended June 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
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PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/97 12/31/96
---------------- ----------------
<S> <C> <C>
Investment property, at cost (note 3):
Computer equipment $ 3,651,020 $ 5,084,339
Less accumulated depreciation 2,825,222 3,807,667
---------------- ----------------
Investment property, net 825,798 1,276,672
Cash and cash equivalents 210,179 36,022
Rents receivable, net (note 2) 42,555 64,103
Sales receivable, net (note 2) 103,190 6,425
Marketable securities (note 6) - 600
Other assets 46,915 1,214
---------------- ----------------
Total assets $ 1,228,637 $ 1,385,036
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 292,816 $ 437,438
Accounts payable and accrued expenses - affiliates (note 4) 18,986 28,097
Accounts payable and accrued expenses 122,991 144,138
Unearned rental revenue 5,563 29,795
Long-term debt, less current portion (note 5) 126,907 153,736
---------------- ----------------
Total liabilities 567,263 793,204
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 620,590 610,700
Cumulative cash distributions (617,129) (611,699)
Unrealized losses on marketable securities (note 6) - (1)
---------------- ----------------
4,461 -
---------------- ----------------
Limited Partners (27,226 units):
Capital contribution, net of offering costs 12,148,459 12,148,459
Cumulative net income 353,584 84,457
Cumulative cash distributions (11,845,130) (11,640,935)
Unrealized losses on marketable securities (note 6) - (149)
---------------- ----------------
656,913 591,832
---------------- ----------------
Total partners' equity 661,374 591,832
---------------- ----------------
Total liabilities and partners' equity $ 1,228,637 $ 1,385,036
================ ================
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See accompanying notes to financial statements.
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
-------------------------------- ----------------------------------
1997 1996 1997 1996
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 350,259 $ 375,727 $ 604,687 $ 832,863
Other income 10,964 - 37,677 -
Interest income 2,273 1,306 3,652 2,755
Net (loss) gain on sale
of equipment (55,378) 2,081 101,630 3,221
Net loss on sale of
marketable securities - - (117) -
------------- -------------- -------------- ---------------
Total revenue 308,118 379,114 747,529 838,839
------------- -------------- -------------- ---------------
Costs and expenses:
Depreciation 151,190 281,337 349,619 684,446
Interest 10,377 22,854 21,432 46,203
Related party expenses (note 4):
Management fees 21,136 36,936 35,902 64,957
General and administrative 38,867 40,302 81,676 76,978
(Reversal of) provision for
doubtful accounts 3,673 6,194 (20,117) 6,194
------------- -------------- -------------- ---------------
Total costs and expenses 225,243 387,623 468,512 878,778
------------- -------------- -------------- ---------------
Net income (loss) $ 82,875 $ (8,509) $ 279,017 $ (39,939)
============= ============== ============== ===============
Net income (loss) per Limited
Partnership Unit $ 2.81 $ (0.39) $ 9.88 $ (1.57)
============= ============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
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<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 279,017 $ (39,939)
-------------- ---------------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation 349,619 684,446
(Reversal of) provision for doubtful accounts (20,117) 6,194
Net gain on sale of equipment (101,630) (3,221)
Net loss on sale of marketable securities 117 -
Net (increase) decrease in current assets (100,801) 98,684
Net decrease in current liabilities (54,490) (319,205)
-------------- ---------------
Total adjustments 72,698 466,898
-------------- ---------------
Net cash provided by operating activities 351,715 426,959
-------------- ---------------
Cash flows from investing activities:
Purchase of investment property - (506,622)
Proceeds from sale of investment property 202,885 130,308
Proceeds from sale of marketable securities 633 -
-------------- ---------------
Net cash provided by (used in) investing activities 203,518 (376,314)
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowing on notes payable - affiliate - 124,147
Proceeds from borrowing on long-term debt 230,336 -
Principal payments on long-term debt (401,787) (81,258)
Cash distributions to partners (209,625) (286,589)
-------------- ---------------
Net cash used in financing activities (381,076) (243,700)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 174,157 (193,055)
Cash and cash equivalents at beginning of period 36,022 336,360
-------------- ---------------
Cash and cash equivalents at end of period $ 210,179 $ 143,305
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 21,432 $ 40,324
============== ===============
</TABLE>
See accompanying notes to financial statements.
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Six Months Ended June 30, 1997 and June 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 June 30, 1997 and December 31, 1996, the
allowance for doubtful accounts included in rents receivable was $27,973 and
$51,763, respectively. The allowance for doubtful accounts included in sales
receivable was $14,773 and $11,100 at June 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 June 30, 1997, the Partnership owned computer equipment with a depreciated
cost basis of $758,714, subject to existing leases and equipment with a
depreciated cost basis of $67,084 in inventory, awaiting re-lease or sale. All
purchases of computer equipment are subject to a 3% acquisition fee paid to the
General Partner.
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Six Months Ended June 30, 1997 and June 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 six months ended
June 30 are as follows:
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1997 1996
---- ----
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Equipment acquisition fees $ - $ 14,756
Management fees 35,902 64,957
Reimbursable expenses paid 80,367 82,964
------------ ------------
$ 116,269 $ 162,677
============ ============
</TABLE>
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 June 30, 1997 consists of one loan for $82,892 from Pullman
Capital Corporation with an interest rate of 8.00% and four loans totaling
$336,831 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 $579,296, and assignment of
the related leases.
Maturities of long-term debt are as follows:
1997 $ 143,343
1998 210,271
1999 66,109
--------------
$ 419,723
==============
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Six Months Ended June 30, 1997 and June 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 June 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 June 30, 1997
and December 31, 1996, respectively, are as follows:
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June 30, 1997 December 31, 1996
------------------------ ---------------------------
Cost Fair Cost Fair
Basis Value Basis Value
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Investment in Continental Information
Systems Corporation Stock $ - $ - $ 750 $ 600
========= ========= ======== ========
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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 six month periods ended June 30, 1997 compared to the same periods in 1996.
The Partnership realized net income of $82,875 and a net loss of $8,509 for the
quarters ended June 30, 1997 and 1996, respectively. Rental income decreased by
$25,468 or 7% 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 a
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 $162,380 or 42% between the three month
periods. The decrease in costs and expenses is mainly due to the $130,147
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 $12,477
as the Partnership continued to 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. A provision for doubtful accounts of $3,673 was
established to reserve against delinquent rents receivable in the current
quarter.
The Partnership realized net income of $279,017 and a net loss of $39,939 for
the six month periods ended June 30, 1997 and 1996, respectively. Rental income
decreased $228,176 or 27%. 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 six month periods as a result of higher average short-term balances
held during the current six month period. The $101,630 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
a 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 $410,266 or 47% between the six month
periods. The decrease in costs and expenses is mainly due to the $334,827 or 49%
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 an overall reduction in the
equipment portfolio. Interest expense decreased $24,771 as the Partnership
continued to paydown the principle on its long-term debt during the six month
period ended June 30, 1997. Management fees decreased between the six month
periods due to the decline in rental income. General and administrative expenses
increased $4,698 or 6% mainly due to an increase in the allocable salaries of
the partnership accounting and reporting personnel of the General Partner during
the current year. The $20,117 reversal of provision for doubtful accounts is the
result of successful collection efforts of delinquent rents receivable in 1997.
The Partnership recorded net income per Limited Partnership Unit of $2.81 and a
net loss per Limited Partnership Unit of $0.39 for the quarters ended June 30,
1997 and 1996, respectively, and net income and a net loss of $9.88 and $1.57
for the six months ended June 30, 1997 and 1996, respectively. The allocation
for the six months ended June 30, 1997 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 six months ended June 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
$1,131,315 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 $39,558, generating $202,885 in proceeds. Included in
equipment sales is a $61,697 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 $401,787. The Partnership will payoff its remaining
long-term debt of $419,723 in 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 June 30, 1997, the Partnership declared a cash distribution of
$176,222, of which $6,059 was allocated to the General Partner and $170,163 was
allocated to the Limited Partners. The distribution will be made on August 29,
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)
June 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
UNIFI Communications, Inc.
Equipment Description Acquisition Price
Computer peripherals $ 1,606,449
Processors & upgrades 985,775
Telecommunications 255,571
Other 803,225
----------------
$ 3,651,020
================
<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: August 13, 1997
By: Arthur P. Beecher,
President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000825851
<NAME> FDS FOR WELLESLEY LEASE INCOME LTD PARTNERSHIP IV 6/30/97
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 210,179
<SECURITIES> 0
<RECEIVABLES> 188,491
<ALLOWANCES> 42,746
<INVENTORY> 0
<CURRENT-ASSETS> 402,839
<PP&E> 3,651,020
<DEPRECIATION> 2,825,222
<TOTAL-ASSETS> 1,228,637
<CURRENT-LIABILITIES> 147,540
<BONDS> 419,723
12,149,459
0
<COMMON> 0
<OTHER-SE> (11,488,085)
<TOTAL-LIABILITY-AND-EQUITY> 1,228,637
<SALES> 604,687
<TOTAL-REVENUES> 747,529
<CGS> 0
<TOTAL-COSTS> 35,902
<OTHER-EXPENSES> 431,295
<LOSS-PROVISION> (20,117)
<INTEREST-EXPENSE> 21,432
<INCOME-PRETAX> 279,017
<INCOME-TAX> 0
<INCOME-CONTINUING> 279,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279,017
<EPS-PRIMARY> 9.88
<EPS-DILUTED> 0
</TABLE>
