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
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For Quarter Ended September 30, 1998 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
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
INDEX Page No.
Part I. FINANCIAL INFORMATION
Financial Statements
Balance Sheets as of September 30, 1998 and December 31, 1997 3
Statements of Operations
Quarters Ended September 30, 1998 and 1997 and
Nine Months Ended September 30, 1998 and 1997 4
Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 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
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
9/30/98 12/31/97
---------------- ----------------
Investment property, at cost (note 3):
Computer equipment $ 2,364,561 $ 2,974,475
Less accumulated depreciation 2,150,488 2,341,847
---------------- ----------------
Investment property, net 214,073 632,628
Cash and cash equivalents 43,339 166,324
Rents receivable, net (note 2) 20,055 22,796
Sales receivable, net (note 2) 12,395 -
Account receivable - affiliates 30,222 2,456
Other assets 20,132 35,622
---------------- ----------------
Total assets $ 340,216 $ 859,826
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 5) $ 89,899 $ 210,270
Accounts payable and accrued expenses - affiliates (note 4) 15,866 12,017
Accounts payable and accrued expenses 42,439 38,799
Unearned rental revenue 6,030 4,978
Long-term debt, less current portion (note 5) - 66,109
---------------- ----------------
Total liabilities 154,234 332,173
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 636,265 625,237
Cumulative cash distributions (637,265) (626,237)
---------------- ----------------
- -
---------------- ----------------
Limited Partners (27,226 units):
Capital contribution, net of offering costs 12,148,459 12,148,459
Cumulative net income 495,412 564,650
Cumulative cash distributions (12,457,889) (12,185,456)
---------------- ----------------
185,982 527,653
---------------- ----------------
Total partners' equity 185,982 527,653
---------------- ----------------
Total liabilities and partners' equity $ 340,216 $ 859,826
================ ================
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
1998 1997 1998 1997
-------------------------------- ----------------------------------
Revenue:
Rental income $ 148,832 $ 228,436 $ 485,197 $ 833,123
Other income - 14,123 - 51,800
Interest income 688 3,233 2,540 6,885
Net gain on sale
of equipment 8,827 (18,666) 11,001 82,964
Net loss on sale of
marketable securities - - - (117)
------------- -------------- -------------- ---------------
Total revenue 158,347 227,126 498,738 974,655
------------- -------------- -------------- ---------------
Costs and expenses:
Depreciation 128,065 50,408 389,496 400,027
Interest 2,562 8,488 11,907 29,920
Related party expenses (note 4):
Management fees 10,720 27,361 37,049 92,577
General and administrative 41,781 21,688 117,965 74,050
Provision for (reversal of)
doubtful accounts 285 (16,612) 529 (36,729)
------------- -------------- -------------- ---------------
Total costs and expenses 183,413 91,333 556,946 559,845
------------- -------------- -------------- ---------------
Net income (loss) $ (25,066) $ 135,793 $ (58,208) $ 414,810
============= ============== ============== ===============
Net income (loss) per Limited
Partnership Unit $ (1.03) $ 6.25 $ (2.54) $ 16.13
============= ============== ============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ (58,208) $ 414,810
-------------- ---------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 389,496 400,027
Provision for doubtful accounts 529 (36,729)
Net gain on sale of equipment (11,001) (82,964)
Net loss on sale of marketable securities - 117
Net decrease (increase) in current assets (22,461) 22,826
Net increase (decrease) in current liabilities 8,541 (130,751)
-------------- ---------------
Total adjustments 365,104 172,526
-------------- ---------------
Net cash provided by operating activities 306,896 587,336
-------------- ---------------
Cash flows from investing activities:
Proceeds from sale of marketable securities - 633
Proceeds from sales of investment property 40,060 219,427
-------------- ---------------
Net cash used in investing activities 40,060 220,060
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt - 230,336
Principal payments on long-term debt (186,480) (472,709)
Cash distributions to partners (283,461) (385,847)
-------------- ---------------
Net cash used in financing activities (469,941) (628,220)
-------------- ---------------
Net decrease in cash and cash equivalents (122,985) 179,176
Cash and cash equivalents at beginning of period 166,324 36,022
-------------- ---------------
Cash and cash equivalents at end of period $ 43,339 $ 215,198
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 11,907 $ 29,920
============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Nine Months Ended September 30, 1998 and September 30, 1997
(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, 1998.
(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, 1998 and December 31, 1997,
the allowance for doubtful accounts included in rents receivable was $13,099 and
$25,985, respectively. The allowance for doubtful accounts included in sales
receivable was $0 and $0 at September 30, 1998 and December 31, 1997,
respectively.
(3) Investment Property
At September 30, 1998, the Partnership owned computer equipment with a cost
basis of $214,073. 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 nine months ended
September 30 are as follows:
1998 1997
---- ----
Equipment acquisition fees $ - $ 14,756
Management fees 37,049 92,577
Reimbursable expenses paid 108,282 105,609
------------ ------------
$ 145,331 $ 212,942
============ ============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
Nine Months Ended September 30, 1998 and September 30, 1997
(Unaudited)
Under the terms of the Partnership Agreement, the General Partner is entitled to
an equipment acquisition fee of 3% of the purchase price paid by the Partnership
for the equipment. The General Partner is also entitled to a management fee
equal to 7% of the monthly rental collections. 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, 1998 consisted of one loan totaling $89,899,
bearing interest at 9.00%. The total outstanding debt balance is collateralized
by equipment with a net book value of $99,614, and assignment of the related
leases.
The annual maturities of long-term debt for the next three years are as follows:
Year Ending December 31,
1998 $ 23,790
1999 66,109
-------------
$ 89,899
=============
(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.
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,
1998 and December 31, 1997, respectively, are as follows:
September 30, 1998 December 31, 1997
---------------------- --------------------------
Cost Fair Cost Fair
Basis Value Basis Value
---------------------- --------------------------
Investment in Continental Information
Systems Corporation Stock $ - $ - $ 5,463 $ 4,644
======= ======= ======= =======
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 month periods ended September 30, 1998 compared to the same periods in
1997.
The Partnership realized net income/(loss) of $(25,066) and $135,793 for the
three months ended September 30, 1998 and 1997, respectively. Rental income
decreased by $79,604 or 35% between the three month periods. The decrease is
primarily due to lower rental rates obtained on equipment lease extensions and
remarketings resulting after the initial lease term expires and due to a net
decrease in the overall size of the equipment portfolio. Interest income
decreased $2,545 as result of lower average short-term investment balances held
during the three month periods. The decrease in net gain on sale of equipment is
primarily due to fewer equipment sales in the third quarter of 1998.
Total costs and expenses increased $92,080 or 101% between the three month
periods. The increase in costs and expenses is primarily the result of higher
depreciation expense. The increase in depreciation expense of $77,657 or 154% is
due to a $200,000 reversal of a provision for estimated losses on the ultimate
disposition of equipment in 1997. Interest expense decreased $5,926 between the
three month periods as the Partnership continued to paydown the principal on the
long-term debt during the current quarter. Management fees decreased in
correlation with the decline in rental revenue.
The Partnership realized net income/(loss) of $(58,208) and $414,810 for the
nine month periods ended September 30, 1998 and 1997, respectively. Rental
income decreased $347,926 or 42%. As discussed in the quarter analysis above,
the decrease in rental income is primarily due to lower rental rates obtained on
equipment lease extensions and remarketings and due to a net reduction in the
overall equipment portfolio. Other income is the result of the reduction of
overstated liabilities recorded in prior periods. Interest income decreased
between the nine month periods as a result of lower average short-term balances
held during the current nine month period. The decrease in net gain on sale of
equipment is attributed to fewer equipment sales in 1998.
Total costs and expenses decreased $2,899 or 1% between the nine month periods.
Included in depreciation expense for the nine months ended September 30, 1997 is
a $200,000 reversal of a provision for the estimated losses on the ultimate
disposition of equipment. Interest expense decreased due to the continued
paydown of its existing long-term debt during the current period. Management
fees decreased in correlation to the decrease in rental revenue. General and
administrative expenses increased $43,915 or 59% primarily due to an increase in
the allocable salaries of the partnership accounting and reporting personnel of
the General Partner.
The Partnership recorded net income/(loss) per Limited Partnership Unit of
$(1.03) and $6.25 for the quarters ended September 30, 1998 and 1997,
respectively, and a net loss of $(2.54) and $16.13 for the nine months ended
September 30, 1998 and 1997, respectively. The allocation for the nine months
ended September 30, 1998 and 1997, respectively, includes a cost recovery
allocation of profit and loss among the General and Limited Partners which
results in an allocation of net loss to the 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.
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 nine months ended September 30, 1998, rental revenue generated from
operating leases was the primary source 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 if it is less
marketable, sold. This decision is made upon analyzing which options would
generate the most favorable results.
Rental income will continue to decrease due to two factors. First, lower rental
rates are obtained on the remarketing of existing equipment after the 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 $194,952 and are to be received over the next five years.
As of September 30, 1998, the Partnership's investing activities resulted in
equipment sales with a depreciated cost basis of $70,927, generating $40,060 in
proceeds. Associated with the equipment sales were $41,869 of loss charge offs
against the reserve, initially set up in prior periods for estimated losses on
the ultimate disposition of equipment. The Partnership has no material capital
expenditure commitments and 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 the paydown on long-term debt
in the amount of $186,480 for the nine months ended September 30, 1998. The
Partnership will payoff its remaining long-term debt of $89,899 by 1999. Total
long-term 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 2% per Limited
Partnership Unit or $2.50 per Limited Partnership Unit on a quarterly basis. For
the quarter ended September 30, 1998, the Partnership declared a cash
distribution of $70,931, of which $2,866 was allocated to the General Partner
and $68,065 was allocated to the Limited Partners. The distribution will be made
on November 27, 1998. The Partnership expects to continue paying at or near this
level in the future. The effects of inflation have not been significant to the
Partnership and are not expected to have any material impact in future periods.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
September 30, 1998
Lessee
Carr Separations, Incorporated
Chrysler Corporation
Coulter Corporation
Cybersmith, Incorporated
Elron Software, Incorporated
H.J. Meyer Company, Incorporated
Hughes Aircraft Company, Incorporated
J. Walter Thompson Company
ON Technology Corporation
Sports & Recreation, Incorporated
Equipment Description Acquisition Price
Computer peripherals $ 969,273
Processors & upgrades 596,283
Telecommunications 89,234
Other 709,771
----------------
$ 2,364,561
================
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
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 12, 1998
By: Arthur P. Beecher,
President