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 March 31, 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 12
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<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 March 31, 1997 and December 31, 1996 3
Statements of Operations
Quarters Ended March 31, 1997 and 1996 4
Statements of Cash Flows
Quarters Ended March 31, 1997 and 1996 5
Notes to Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
Computer Equipment Portfolio 10
Part II. OTHER INFORMATION
Items 1 - 6 11
Signature 12
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<CAPTION>
PART I: FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
3/31/97 12/31/96
---------------- ----------------
<S> <C> <C>
Investment property, at cost (note 3):
Computer equipment $ 4,619,375 $ 5,084,339
Less accumulated depreciation 3,546,637 3,807,667
---------------- ----------------
Investment property, net 1,072,738 1,276,672
Cash and cash equivalents 177,319 36,022
Rents receivable, net (note 2) 47,480 64,103
Account receivable - affiliates (note 4) 15,752 1,214
Sales receivable, net (note 2) 135,296 6,425
Marketable securities (note 6) - 600
---------------- ----------------
Total assets $ 1,448,585 $ 1,385,036
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 321,940 $ 437,438
Accounts payable and accrued expenses - affiliates (note 4) 27,580 28,097
Accounts payable and accrued expenses 167,839 144,138
Unearned rental revenue 6,384 29,795
Long-term debt, less current portion (note 5) 208,365 153,736
---------------- ----------------
Total liabilities 732,108 793,204
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 614,281 610,700
Cumulative cash distributions (615,281) (611,699)
Unrealized losses on marketable securities (note 6) - (1)
---------------- ----------------
- -
---------------- ----------------
Limited Partners (27,226 units):
Capital contribution, net of offering costs 12,148,459 12,148,459
Cumulative net income 277,018 84,457
Cumulative cash distributions (11,709,000) (11,640,935)
Unrealized losses on marketable securities (note 6) - (149)
---------------- ----------------
716,477 591,832
---------------- ----------------
Total partners' equity 716,477 591,832
---------------- ----------------
Total liabilities and partners' equity $ 1,448,585 $ 1,385,036
================ ================
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See accompanying notes to financial statements.
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<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Operations
Quarters Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
----------------- ----------------
<S> <C> <C>
Revenue:
Rental income $ 254,428 $ 457,136
Other income 26,713 -
Interest income 1,379 1,449
Net gain on sale of equipment 157,008 1,140
Net loss on sale of marketable securities (117) -
----------------- ----------------
Total revenue 439,411 459,725
----------------- ----------------
Costs and expenses:
Depreciation 198,429 403,109
Interest 11,055 23,349
Related party expenses (note 4):
Management fees 14,766 28,021
General and administrative 42,809 36,676
Reversal of provision for doubtful accounts (23,790) -
----------------- ----------------
Total costs and expenses 243,269 491,155
----------------- ----------------
Net income (loss) $ 196,142 $ (31,430)
================= ================
Net income (loss) per Limited Partnership Unit $ 7.07 $ (1.18)
================= ================
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See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Cash Flows
Quarters Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 196,142 $ (31,430)
----------------- ----------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 198,429 403,109
Reversal of provision for doubtful accounts (23,790) -
Net gain on sale of equipment (157,008) (1,140)
Net loss on sale of marketable securities 117 -
Net increase in current assets (102,996) (3,306)
Net decrease in current liabilities (227) (324,874)
----------------- ----------------
Total adjustments (85,475) 73,789
----------------- ----------------
Net cash provided by operating activities 110,667 42,359
----------------- ----------------
Cash flows from investing activities:
Purchase of investment property - (506,622)
Proceeds from sale of investment property 162,513 122,761
Proceeds from sale of marketable securities 633 -
----------------- ----------------
Net cash provided by (used in) investing activities 163,146 (383,861)
----------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings on notes payable - affiliate - 223,600
Proceeds from borrowings on long-term debt 230,336 189,942
Principal payments on long-term debt (291,205) (131,450)
Cash distributions to partners (71,647) (214,942)
----------------- ----------------
Net cash (used in) provided by financing activities (132,516) 67,150
----------------- ----------------
Net increase (decrease) in cash and cash equivalents 141,297 (274,352)
Cash and cash equivalents at beginning of period 36,022 336,360
----------------- ----------------
Cash and cash equivalents at end of period $ 177,319 $ 62,008
================= ================
Supplemental cash flow information:
Interest paid during the period $ 11,055 $ 20,722
================= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Quarters Ended March 31, 1997 and March 31, 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 March 31, 1997 and December 31, 1996, the
allowance for doubtful accounts included in rents receivable was $27,973 and
$51,763, respectively. At March 31, 1997 and December 31, 1996, the allowance
for doubtful accounts included in sales receivable was $11,100.
(3) Investment Property
At March 31, 1997, the Partnership owned computer equipment with a depreciated
cost basis of $1,047,061, subject to existing leases and equipment with a
depreciated cost basis of $25,677 in inventory, awaiting re-lease or sale. All
purchases of computer equipment are subject to a 3% acquisition fee paid to the
General Partner.
(4) Related Party Transactions
Fees, commissions and other expenses paid or accrued by the Partnership to the
General Partner or affiliates of the General Partner for the quarters ended
March 31 are as follows:
1997 1996
---- ----
Equipment acquisition fees $ - $ 14,756
Management fees 14,766 28,021
Reimbursable expenses paid 41,463 40,416
------------ ------------
$ 56,229 $ 83,193
============ ============
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WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Quarters Ended March 31, 1997 and March 31, 1996
(Unaudited)
Under the terms of the Partnership Agreement, the General Partner is entitled to
an equipment acquisition fee of 3% of the purchase price paid by the Partnership
for the equipment. The General Partner is also entitled to a management fee
equal to 7% of the monthly rental billings. 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 March 31, 1997 consists of one loan for $41,130 from Pioneer
Bank and Trust Company with an interest rate of 8.15%, one loan in the amount of
$102,603 from Pullman Capital Corporation with an interest rate of 8.00% and
four loans totaling $386,572 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 $772,711,
and assignment of the related leases.
Maturities of long-term debt are as follows:
1997 $ 253,925
1998 210,271
1999 66,109
--------------
$ 530,305
==============
(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 March 31, 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 March 31,
1997 and December 31, 1996, respectively, are as follows:
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<CAPTION>
March 31, 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
========= ========= ======= =======
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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
ended March 31, 1997 in comparison to the quarter ended March 31, 1996.
The Partnership realized net income of $196,142 and a net loss of $31,430 for
the quarters ended March 31, 1997 and 1996, respectively. Rental income
decreased $202,708 or 44% 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 decreased as a result of lower average short-term investment balances
held during the current quarter. The $157,008 net gain on sale of equipment
recognized in the current quarter 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.
Total costs and expenses decreased $247,886 or 50% between the three month
periods. The most significant factor impacting the decrease is the current
quarter reduction in depreciation expense. Depreciation expense decreased due to
a portion of the equipment portfolio becoming fully depreciated and due to a
reduction in the size of the equipment portfolio. Interest expense decreased
$12,294 due to the continued paydown of long-term debt. Management fees
decreased with the decline in rental income on operating leases. General and
administrative expense increased $6,133. A major factor contributing to this
increase is that salaries and expenses of the accounting and reporting personnel
of the General Partner, which are reimbursable by the various partnerships under
management, are being allocated over a diminishing number of partnerships.
During the first quarter of 1997, the Partnership reversed a provision for
doubtful accounts in the amount of $23,790 due to successful collection efforts
on delinquent rents receivable.
The Partnership recorded net income per Limited Partnership Unit of $7.07 and a
net loss per Limited Partnership Unit of $1.18 for the quarters ended March 31,
1997 and 1996, respectively. The allocation for the quarter ended March 31, 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.
<PAGE>
WELLESLEY INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
Liquidity and Capital Resources
For the quarter ended March 31, 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 a reduction
in the rate of cash distributions. Future rental revenues amount to $1,533,193
and are to be received over the next five years.
The Partnership's investing activities resulted in sales of equipment with a
depreciated cost basis of $5,505, generating $162,513 in proceeds. Included in
equipment sales is a $15,728 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 $291,205. The Partnership will payoff its remaining
long-term debt of $530,305 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 4% per Limited
Partnership Unit or $5.00 per Limited Partnership Unit on a quarterly basis. For
the quarter ended March 31, 1997, the Partnership declared a cash distribution
of $137,978, of which $1,848 was allocated to the General Partner and $136,130
was allocated to the Limited Partners. The distribution will be made on May 30,
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)
March 31, 1997
Lessee
American Freightways, Incorporated
Bassin Distributors, Incorporated
Carr Separations, Incorporated
Chrysler Corporation
Cincinnati Gas & Electric Company
Coulter Corporation
Cybersmith, Incorporated
Dave's Custom Caps
FAX International, Incorporated
H.J. Meyer Company, Incorporated
Hughes Aircraft Company, Incorporated
Internet Access Company, Incorporated
J. Walter Thompson Company
JumboSports, Incorporated
ON Technology Corporation
Sero Company, Incorporated
Equipment Description Acquisition Price
Computer peripherals $ 2,032,525
Processors & upgrades 1,247,231
Telecommunications 323,356
Other 1,016,263
----------------
$ 4,619,375
================
<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
By: Arthur P. Beecher,
President
Date: May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000825851
<NAME> WELLESLEY LEASE INCOME PARTNERSHIP IV FDS 3/31/97
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 177,319
<SECURITIES> 0
<RECEIVABLES> 237,601
<ALLOWANCES> 39,073
<INVENTORY> 0
<CURRENT-ASSETS> 375,847
<PP&E> 4,619,375
<DEPRECIATION> 3,546,637
<TOTAL-ASSETS> 1,448,585
<CURRENT-LIABILITIES> 201,803
<BONDS> 530,305
0
0
<COMMON> 12,149,459
<OTHER-SE> (11,432,982)
<TOTAL-LIABILITY-AND-EQUITY> 1,448,585
<SALES> 254,428
<TOTAL-REVENUES> 439,411
<CGS> 0
<TOTAL-COSTS> 14,766
<OTHER-EXPENSES> 241,238
<LOSS-PROVISION> (23,790)
<INTEREST-EXPENSE> 11,055
<INCOME-PRETAX> 196,142
<INCOME-TAX> 0
<INCOME-CONTINUING> 196,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,142
<EPS-PRIMARY> 7.07
<EPS-DILUTED> 0
</TABLE>
