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 The Quarter Ended June 30, 1996 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 June 30, 1996 and December 31, 1995 3
Statements of Operations For the Quarters Ended
June 30, 1996 and 1995 and For the Six Months Ended
June 30, 1996 and 1995 4
Statements of Cash Flows For the Six Months Ended
June 30, 1996 and 1995 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
PART I. FINANCIAL INFORMATION
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Balance Sheets
Assets (Unaudited) (Audited)
6/30/96 12/31/95
Investment property, at cost (note 3):
Computer equipment $ 5,914,285 $ 7,388,216
Less accumulated depreciation 4,505,539 5,674,559
---------------- ----------------
Investment property, net 1,408,746 1,713,657
Cash and cash equivalents 143,305 336,360
Rents receivable, net (note 2) 78,070 125,765
Account receivable - affiliates (note 4) 1,940 43,054
Sales receivable, net (note 2) - 16,069
Marketable securities (note 7) 4,097 4,644
---------------- ----------------
Total assets $ 1,636,158 $ 2,239,549
================ ================
Liabilities and Partners' Equity
Liabilities:
Current portion of long-term debt (note 6) $ 556,258 $ 491,254
Notes payable - affiliate (notes 4 and 5) 124,147 -
Accounts payable and accrued expenses - affiliates (note 4) 104,124 420,457
Accounts payable and accrued expenses 246,796 237,953
Unearned rental revenue 15,970 27,685
Long-term debt, less current portion (note 6) 322,987 469,249
---------------- ----------------
Total liabilities 1,370,282 1,646,598
---------------- ----------------
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 479,530 476,748
Cumulative cash distributions (602,743) (588,414)
Unrealized losses on marketable securities (note 7) (14) (8)
---------------- ----------------
(122,227) (110,674)
---------------- ----------------
Limited Partners (27,226 units):
Capital contribution, net of offering costs 12,148,459 12,148,459
Cumulative net loss (288,232) (245,511)
Cumulative cash distributions (11,470,772) (11,198,512)
Unrealized losses on marketable securities (note 7) (1,352) (811)
---------------- ----------------
388,103 703,625
---------------- ----------------
Total partners' equity 265,876 592,951
---------------- ----------------
Total liabilities and partners' equity $ 1,636,158 $ 2,239,549
================ ================
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Operations
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
-------------------------------- ----------------------------------
1996 1995 1996 1995
-------------------------------- ----------------------------------
Revenue:
Rental income $ 375,727 $ 430,266 $ 832,863 $ 897,719
Interest income 1,306 4,368 2,755 14,844
Net gain on sale of equipment 2,081 3,336 3,221 1,516
Recovery of unsecured
pre-petition claim - 4,610 - 4,610
------------- -------------- -------------- ---------------
Total revenue 379,114 442,580 838,839 918,689
------------- -------------- -------------- ---------------
Costs and expenses:
Depreciation 281,337 413,345 684,446 807,305
Interest 22,854 10,447 46,203 23,011
Related party expenses (note 4):
Management fees 36,936 23,693 64,957 52,097
General and administrative 40,302 31,571 76,978 63,700
Provision for doubtful accounts 6,194 566 6,194 3,666
------------- -------------- -------------- ---------------
Total costs and expenses 387,623 479,622 878,778 949,779
------------- -------------- -------------- ---------------
Net loss $ (8,509) $ (37,042) $ (39,939) $ (31,090)
============= ============== ============== ===============
Net loss per Limited
Partnership Unit $ (0.39) $ (1.61) $ (1.57) $ (2.57)
============= ============== ============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (39,939) $ (31,090)
-------------- ---------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 684,446 807,305
Provision for doubtful accounts 6,194 3,666
Net gain on sale of equipment (3,221) (1,516)
Net decrease in current assets 98,684 61,818
Net decrease in current liabilities (319,205) (80,287)
-------------- ---------------
Total adjustments 466,898 790,986
-------------- ---------------
Net cash provided by operating activities 426,959 759,896
-------------- ---------------
Cash flows from investing activities:
Purchase of investment property (506,622) (899,234)
Proceeds from sales of investment property 130,308 224,650
-------------- ---------------
Net cash used in investing activities (376,314) (674,584)
-------------- ---------------
Cash flows from financing activities:
Proceeds from borrowing on notes payable 124,147 -
Proceeds from borrowing on long-term debt - 344,520
Principal payments on long-term debt (81,258) (181,903)
Cash distributions to partners (286,589) (630,496)
-------------- ---------------
Net cash used in financing activities (243,700) (467,879)
-------------- ---------------
Net decrease in cash and cash equivalents (193,055) (382,567)
Cash and cash equivalents at beginning of period 336,360 843,110
-------------- ---------------
Cash and cash equivalents at end of period $ 143,305 $ 460,543
============== ===============
Supplemental cash flow information:
Interest paid during the period $ 40,324 $ 24,088
============== ===============
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(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, 1995.
(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, 1996 and December 31, 1995, the
allowance for doubtful accounts included in rents receivable was $34,889,
respectively. The allowance for doubtful accounts included in sales receivable
was $11,100 and $4,906 at June 30, 1996 and December 31, 1995, respectively.
(3) Investment Property
At June 30, 1996, the Partnership owned computer equipment with a cost basis of
$4,965,441, subject to existing leases and equipment with a cost basis of
$948,844 in inventory, awaiting re-lease or sale. All purchases of computer
equipment are subject to a 3% acquisition fee paid to the General Partner.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(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, 1996 and 1995 are as follows:
1996 1995
---- ----
Equipment acquisition fees $ 14,756 $ 26,191
Management fees 64,957 52,097
Reimbursable expenses paid 82,964 62,211
------------ ------------
$ 162,677 $ 140,499
============ ============
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. The Partnership reimburses the
General Partner and its affiliates for certain expenses incurred by them in
connection with the operation of the Partnership.
(5) Notes Payable - Affiliate
Notes payable - affiliate at June 30, 1996, consists of three non-recourse
promissory notes payable to TLP Leasing Programs, Inc. in the total amount of
$124,147, bearing interest at the rate of 8.75%. TLP Leasing Program, Inc. is
one of the corporate general partners of Wellesley Leasing Partnership, the
General Partner of the Partnership. The notes payable matures in 1996.
(6) Long-term Debt
Long-term debt at June 30, 1996 consisted of two loans totaling $18,070 from
Randolph Computer Company, each bearing interest at 6.00%, one loan in the
amount of $219,480 from Pioneer Bank and Trust Company, bearing interest at
8.15%, two loans totaling $393,738 from Pullman Capital Corporation, each
bearing interest at 8.00%, and three loans totaling $247,957 from Liberty Bank,
each bearing interest at 8.125%. The total outstanding debt balance is
collateralized by equipment with a net book value of $1,100,614, 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,
1996 $ 288,071
1997 437,438
1998 153,736
-------------
$ 879,245
=============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
(7) 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, 1996 the difference between the
fair value and the cost basis of these securities is an unrealized loss of
$1,366.
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, 1996
and December 31, 1995, respectively, are as follows:
June 30, 1996 December 31, 1995
------------------------ --------------------------
Cost Fair Cost Fair
Basis Value Basis Value
Investment in Continental Information
Systems Corporation Stock $ 5,463 $ 4,097 $ 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 six month periods ended June 30, 1996 compared to the same periods in 1995.
The Partnership realized a net loss of $8,509 and $37,042 for the three months
ended June 30, 1996 and 1995, respectively. Rental income decreased by $54,539
or 13% 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 as result of lower
average short-term investment balances held during the current three month
period. The recovery of the unsecured pre-petition claim for the quarter ended
June 30, 1995, was the result of the establishment of the carrying value of the
stock received in the December 27, 1994 distribution from the Trustee of the
Liquidating Estate of CIS Corporation, et al. The receivables associated with
the stock settlement had been fully reserved in a prior year; accordingly, the
Partnership was able to show a recovery on those receivables as of June 30, 1995
at which time an objective stock value could be determined due to the stock's
trading activities.
Total costs and expenses decreased $91,999 or 19% between the three month
periods. The decrease in costs and expenses is primarily the result of lower
depreciation expense. The decrease in depreciation expense of $132,008 or 32% is
due to a large portion of the equipment portfolio having become fully
depreciated and a net reduction in the overall equipment portfolio. Interest
expense increased significantly as a result of the current quarter receipt of
the notes payable - affiliate and the continued paydown of the existing debt.
Management fees increased $13,243 or 56% due to the increased collection of
delinquent rent receivables in the current quarter. General and administrative
expenses increased $8,731 or 28% in the current quarter. A major factor
contributing to the increase is that salaries and expenses of the partnership
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. A provision for doubtful accounts of
$6,194 was established to reserve against delinquent rents receivable in the
current quarter.
The Partnership realized a net loss of $39,939 and $31,090 for the six month
periods ended June 30, 1996 and 1995, respectively. Rental income decreased
$64,856 or 7%. 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. Interest income decreased significantly between the six month periods
as a result of lower average short-term balances held during the current six
month period. Equipment acquisitions totaled $506,622 in the current year,
reducing the cash balance held by the Partnership. As mentioned above, the
recovery of the unsecured pre-petition claim in 1995 was the result of the
establishment of the carrying value of the stock received in the December 27,
1994 distribution from the Trustee of the Liquidating Estate of CIS Corporation,
et al. The receivables associated with the stock settlement had been fully
reserved in a prior year; accordingly, the Partnership was able to show a
recovery on those receivables as of June 30, 1995 at which time an objective
stock value could be determined due to the stock's trading activities.
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 $71,001 or 7% between the six month
periods. The decrease in costs and expenses is primarily the result of lower
depreciation expense. As discussed above, the decrease in depreciation expense
of $122,859 or 15% is due to a large portion of the equipment portfolio becoming
fully depreciated and a net reduction in the overall equipment portfolio.
Interest expense increased significantly due to the Partnership's receipt of the
$124,147 notes payable - affiliate in the second quarter of 1996 and the
continued paydown of its existing long-term debt. As discussed in the quarter
analysis above, the Partnership established a $6,194 provision for doubtful
accounts in 1996 to reserve against delinquent rents receivable. Management fees
increased $12,860 or 25% due to the increased collection of delinquent rent
receivables in 1996. General and administrative expenses increased $13,278 or
21% in the current quarter as the salaries and expenses of the partnership
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.
The Partnership recorded a net loss per Limited Partnership Unit of $0.39 and
$1.61 for the quarters ended June 30, 1996 and 1995, respectively, and a net
loss of $1.57 and $2.57 for the six months ended June 30, 1996 and 1995,
respectively. The allocation for the six months ended June 30, 1996 and 1995,
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.
Liquidity and Capital Resources
For the six months ended June 30, 1996, 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. The first factor is
the lower rate obtained due to 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. Secondly, 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 and notes payable - affiliate
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 $2,328,721 and are to be
received over the next six years.
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 equipment purchases of
$506,622 and sales of equipment with a depreciated cost basis of $127,087,
generating $130,308 in sales proceeds. 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 during the quarter resulted in the
paydown on long-term debt of $81,258. Such long-term debt bears interest rates
ranging from 6.00% to 8.15% with installments to be paid monthly. Total debt
assumed by the Partnership from inception is $14,270,105, for a total leverage
of 43%. The Partnership also received $124,147 in cash proceeds from the receipt
of three notes payable - affiliate. The notes payable each bear interest at
8.75% and mature in 1996.
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 June 30, 1996, the Partnership declared a cash distribution of
$71,647, of which $3,582 was allocated to the General Partner and $68,065 was
allocated to the Limited Partners. The distribution will be made on August 29,
1996. The Partnership's distribution rate dropped significantly in 1996 from
those paid in 1995, due to the large amount of equipment purchases in 1996, for
which there existed firm purchase commitments in 1995. Since the Partnership's
reinvestment period ended on December 31, 1995, the General Partner made a
concerted effort to purchase as many equipment leases as possible to sustain the
Partnership in future years. The effort resulted in significant equipment lease
acquisitions with a resulting reduction in cash available for distribution
purposes. All future cash received will be used to cover operating expenses and
to make cash distributions to the Partners.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP
Leasing Programs, Inc. from CMI Holding Co. Under the new ownership, it is
expected that TLP Leasing Programs, Inc. will continue to operate in the same
manner of business as it has in the past.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP IV
(A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited)
June 30, 1996
Lessee
American Freightways, Incorporated American Telephone and Telegraph Company,
Incorporated Bassin Distributors, Incorporated Blue Cross of Western New York
Burroughs Welcome Company, Incorporated Carr Separations, Incorporated Case
Corporation Chrysler Corporation Cincinnati Gas & Electric Company Comdisco,
Incorporated Coulter Corporation Cybersmith, Incorporated Dave's Custom Caps
Delphi Internet, Incorporated FAX International, Incorporated Halliburton
Company H.J. Meyer Company, Incorporated Hughes Aircraft Company, Incorporated
Internet Access Company, Incorporated J. Walter Thompson Company Mastercard,
Incorporated ON Technology Corporation Sero Company, Incorporated Sports &
Recreation, Incorporated
Equipment Description Acquisition Price
Computer peripherals $ 2,602,285
Processors & upgrades 1,596,857
Telecommunications 414,000
Other 1,301,143
----------------
$ 5,914,285
================
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: August 14, 1996
By: Arthur P. Beecher,
President