-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NxHQhTPB8YPNwqfGAUCdRhcW4QBsIXqF2sm+UzWj448C3FIxrC3Qr/nqhOp7Fh7q xKR2gx1AbnDVywndZ2VWJA== 0000751683-97-000003.txt : 19970328 0000751683-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000751683-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER LEASE INCOME LTD PARTNERSHIP CENTRAL INDEX KEY: 0000796529 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042923206 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15630 FILM NUMBER: 97565492 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR 21ST FLR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174828000 MAIL ADDRESS: STREET 1: ONE FINANCIAL CENTER STREET 2: 21ST FLOOR CITY: BOSTON STATE: MA ZIP: 02111 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission File No. 0-15630 Hanover Lease Income Limited Partnership (Exact Name of Registrant as Specified in its Charter) Massachusetts 04-2923206 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 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 ----------------------------- Securities registered pursuant to Section 12(b) of the Act None ---------------------- Securities registered pursuant to Section 12(g) of the Act Units of Limited Partnership Interests ---------------------- 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 State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 26, 1997: Not applicable, since securities are non-voting. Documents incorporated by reference: None. Exhibit Index on Page: 32 Page 1 of 34 Corporate organization as discussed in Part I, Item 1 Business is as follows: TLP Holding LLC ("Holding") controls TLP Leasing Programs, Inc. ("TLP"), TLP Management Services, Inc. ("TLPMS"), and TLP Securities, Inc. TLP controls TLP Columbia Management Corp. ("TCMC") which serves as General Partner to the Columbia Lease Income Funds. Torchmark Corporation ("Torchmark") controls TMK/United, Inc. which controls Waddell and Reed Financial Services, Inc. ("Waddell and Reed"). Through various dealer-manager arrangements, TLP, TLPMS, and Waddell and Reed serve as corporate general partners to the Wellesley Leasing Partnership ("Wellesley General Partner") and the Hanover Leasing Partnership. The Wellesley General Partner is the general partner for the Wellesley Lease Income Limited Partnerships. Hanover Leasing Partnership serves as the General Partner for Hanover Lease Income Limited Partnership with BOT Financial Corporation serving as agent. Part I Item 1. Business. Hanover Lease Income Limited Partnership (the "Partnership") is a limited partnership organized under the provisions of the Massachusetts Uniform Limited Partnership Act on June 19, 1986. As set forth more fully at Item 10. Directors and Executive Officers of the Partnership. of this Report, the General Partner is Hanover Leasing Partnership, and the General Partner has two Corporate General Partners (the "Corporate General Partners"): TLP Leasing Programs, Inc. ("TLP") or the "Managing General Partner", a Massachusetts corporation, and Waddell & Reed Financial Services, Inc. ("Waddell & Reed", formerly TUP Services, Inc., "TUPS"), a Missouri corporation. As of December 31, 1996, the Partnership consisted of a General Partner and 3,370 Limited Partners owning 57,239 Units of Limited Partnership Interests of $500 each (the "Units"), except that employees and securities representatives of its affiliates purchased 1,011 Units for a net price of $460 per Unit, and the Partnership incurred no obligation to pay any sales commissions with respect to such sales. The Units were sold commencing September 24, 1986, pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933. The Partnership was organized to engage in the business of acquiring diversified types of equipment and lease such equipment to others on a short-term basis under Operating Leases. The Partnership's principal objectives are as follows: 1. To provide quarterly distributions of cash to the Limited Partners from leasing revenues and from the proceeds of sales or other disposition of Partnership equipment; and 2. To maintain equipment residual values for ultimate sale or other disposition. The Partnership was formed primarily for investment purposes and not as a "tax shelter". The Partnership shall terminate on December 31, 2005, unless sooner dissolved or terminated as provided in Section 11 of the Amended Agreement of Limited Partnership. The Partnership has had a total of six closings. The closings occurred on November 17, 1986, February 17, 1987, April 27, 1987, July 7, 1987, August 18, 1987, and October 7, 1987 with 8,501, 15,106, 7,992, 9,047, 5,457, and 11,136 units, respectively. Equipment purchased through December 31, 1996 was $48,419,527. At the end of 1996, there were 8 leases in place with 3 lessees. The acquisition of these leases and equipment is described more fully in Item 2. Properties. of this report and notes 3 and 4 to the financial statements included in Item 8. Financial Statements and Supplementary Data. On January 9, 1996, TLP Holding LLC purchased all of the common stock of TLP from CMI Holding Co. Under the new ownership, TLP will continue to operate in the same manner of business as described below. Under the Partnership Agreement, the General Partner, Hanover Leasing Partnership, is solely responsible for the management of the Partnership's business. TLP was formed in December, 1982 and is a wholly-owned subsidiary of TLP Holding LLC ("Holding"). Waddell & Reed (formerly TUPS) was formed in May 1986, and is an affiliate of Waddell & Reed, Inc., one of the Soliciting Brokers for this offering. Both Waddell & Reed and Waddell & Reed, Inc. are wholly-owned subsidiaries of TMK/United, Inc., which itself is an indirect 85% owned subsidiary of Torchmark. The General Partnership Agreement between TLP and Waddell & Reed (the "General Partnership Agreement"), provides that TLP as the Managing General Partner will manage and control all of the affairs of the Partnership except for specified services to be provided by Waddell & Reed relating primarily to the provision of financial advisory services for the benefit of the Partnership and to the continuing relationships among the Partnership, the General Partner and the Partnership's Limited Partners. The General Partnership Agreement also provides Waddell & Reed with one member on the Investment Committee. The Managing General Partner has also entered into an agreement dated as of June 1, 1986 (the "Agency Agreement") with NEMLC Leasing Corporation ("Agent"), a wholly-owned subsidiary of New England Merchants Leasing Corporation and a member company of BancNewEngland Leasing Group. In 1990, the BancNewEngland Leasing Group was acquired by the Bank of Tokyo; however, the Agency Agreement remains unaffected. Pursuant to the Agency Agreement, the Agent will assist the Managing General Partner in the performance of certain of its responsibilities on behalf of the Partnership, including identification, evaluation and negotiation of specific equipment investments suitable for the Partnership, billing and collections, management of the equipment while it is under lease and remarketing of equipment coming off lease. The Partnership's investment policy was intended for the acquisition of diversified types of equipment and the leasing of such equipment to others on a short-term basis under operating leases. The Partnership generally purchased equipment for which a lease existed, or was entered into at the time of the Partnership's acquisition of the equipment. Typically, the acquisition of the equipment was made from the manufacturer, although in some instances, acquisitions were made by the General Partner, or the Agent. This equipment is recorded and depreciated at the Partnership cost (purchase price plus the acquisition fee). If at any time the General Partner deems the equipment to be obsolete or related maintenance and storage costs to be in excess of its value, the equipment is scrapped or sold at the current fair market value, which ever is most advantageous for the Partnership. The General Partner has not purchased more than 30% of any single type of equipment. The Partnership's investments in capital equipment are and will continue to be subject to various risk factors. The principal business risk associated with ownership of the equipment is the inability to keep it fully leased at rentals which, after payment of operating expenses and debt service on Partnership borrowings, provide, together with any anticipated sales proceeds or salvage value, an acceptable rate of return. Other risk factors include: 1. Technological and economic equipment obsolescence, physical deterioration, malfunction and risks attendant upon defaults by lessees and credit losses. 2. Residual Values of Equipment. The Partnership's return on its investment in equipment will depend in part upon the continuing value of such equipment which, in turn, depends upon, among other things: (1) the quality of the equipment; (2) the condition of the equipment; (3) the timing of the equipment's acquisition; (4) the cost of comparable new equipment; (5) the technological obsolescence of the equipment; (6) the General Partner's ability to forecast technological changes which may reduce the value of the equipment; and (7) market factors. 3. Competition from Full Payout Lessors. In connection with operating leases, the Partnership will encounter considerable competition from those offering full payout leases, which are written for a longer term and a lower rate than the Partnership's operating leases. 4. Competition from Manufacturers. Leases offered by the Partnership will compete with operating leases and full payout leases offered by equipment manufacturers in their own lease programs. In addition to attractive financial terms, manufacturers may also provide certain ancillary services which the Partnership cannot offer directly, such as maintenance service (including possible equipment substitution rights), warranty services and trade-in privileges. 5. Other Competition. There are numerous other potential investors, including limited partnerships organized and managed similarly to the Partnership, seeking to purchase equipment subject to either operating leases or full payout leases, many of which will have greater financial resources than the Partnership and more experience than the General Partner. The Partnership will compete in the computer leasing marketplace with many non-manufacturing firms, including other equipment dealers, brokers and leasing companies, as well as with financial institutions. 6. Defaults by Lessees. Default by a lessee may cause equipment to be returned to the Partnership at a time when the General Partner may be unable to promptly arrange for its re-leasing (at the rental rate previously received or otherwise) or sale (with or without a loss), thus resulting in the loss of anticipated revenues and the inability to recover the Partnership's investment and repay related debt. Any related debt may be secured by the returned equipment and, in some cases, by the Partnership's other equipment. If the debt is not paid in a timely manner, the lender may foreclose and acquire ownership of all equipment securing the debt, resulting in economic loss and adverse tax consequences to the Partnership's partners. Two lessees, BASF Corporation and Sikorsky Aircraft Corporation, lease equipment in which the related rental payments exceed 10% of total rental income. The related rental payments comprise 11.18% and 80.87%, respectively, of the total rental income for the year ended December 31, 1996. BASF Corporation and Sikorsky Aircraft Corporation lease equipment comprising 6.42% and 86.17%, respectively, of the total equipment portfolio at December 31, 1996. 7. Changes in Technology. The General Partner intends to establish lease rates to the Partnership's lessees which take into account the risk of technological advances which may reduce the value of such equipment owned by the Partnership. However, the introduction of an entirely new technology could lead to a radical reduction in the fair market value of certain equipment and make such equipment difficult to re-lease. During 1996, the Partnership leased five main types of equipment: (1) Aircraft: Sikorsky S-76b helicopter. (2) Construction equipment: Includes lifter loaders that perform a variety of applications such as building residential and commercial civil engineering projects. (3) Trucks and Trailers: Trucks are generally used for local delivery products, while trailers are generally used for longer shipments and larger items. (4) Computer equipment and printers: Include various photocopying and data processing such as computer systems, terminals and peripheral equipment. Also included are items used in graphic processing such as print setters and printing presses. (5) Communications equipment: Include various items such as analyzers, oscilloscopes, measuring instruments and a variety of other items used by businesses for ongoing development and research programs. As of December 31, l996, the Partnership owned $5,447,101 of capital equipment (including a 4.75% acquisition fee paid to the General Partner of $247,005). All equipment is on lease and is summarized as follows:
Year Initial Partnership Acquired Equipment Lease Term Purchase Price l987 Helicopter Aircraft 3 years $ 4,678,826 1987-l988 Lifters and Loaders 3-5 years 277,390 1987-l988 Heavy Duty Trucks 3-5 years 74,258 and Trailers l987-l988 Printers 2-4 years 1,052 1986-l989 Computer Equipment 1-5 years 106,217 l986-l987 Research and 3-4 years 143,088 Experimentation l987-l988 Communications 3-4 years 166,270 Equipment ---------------- Total $ 5,447,101 ================
Pursuant to its leasing policies, the General Partner performs a credit analysis of potential lessees to determine creditworthiness. The General Partner has leased all of its equipment to third parties by means of operating leases with fixed base lease rates. Rents are payable monthly or quarterly. Operating leases generally do not have terms greater than five years in duration and the aggregate noncancelable rental payments during the term of the lease (on a net present value basis), are not sufficient to permit the lessor to recover the purchase price of the equipment. At the termination of the initial lease, the General Partner arranges for the equipment to be re-leased (either to the same lessee or a new lessee) if it determines that re-leasing is in the Partnership's best interest. Generally, equipment is re-leased at least once and possibly several times during the Partnership's life, unless it is determined that the equipment is not remarketable and therefore may be sold. The General Partner provides, or arranges for the installation, removal, maintenance and modification of the Partnership's equipment. Also, the General Partner will purchase and maintain, or cause to be purchased and maintained, appropriate insurance coverage to protect the interests of the Partnership. Of the leases in place at December 31, 1996, the average lease term was 23 months and the average monthly lease rate as a percentage of original equipment cost was 1%. During the fourth quarter of 1995, the General Partner announced its intentions of winding down the operations of the Partnership. The helicopter lease with Sikorsky Aircraft Corporation, scheduled to expire in October, 1996, has been extended through January, 1997. Once the helicopter lease terminates and is sold, it is anticipated that substantially all of the assets will be liquidated and the proceeds will be used to settle all outstanding liabilities and make a final distribution to the Partners during 1997. Item 2. Properties. At December 31, 1996, the Partnership owned capital equipment with a cost basis of $5,447,101, subject to 8 existing leases with 3 different lessees. All purchases of capital equipment are subject to a 4.75% acquisition fee paid to the General Partner. Approximately 42% of the initial equipment portfolio was financed. Item 3. Legal Proceedings. There are no material pending legal proceedings to which the Partnership is a party or of which any of its equipment or leases is the subject. Item 4. Submission of Matters to a Vote of Security Holders. None. Part II Item 5. Market for the Partnership's Securities and Related Security Holder Matters. (a) Market Information The Partnership's outstanding securities consist of Limited Partnership Interests in Units of $500 each. As of December 31, 1996, 57,239 Units had been sold to the public at a price of $500 per Unit (except for 1,011 Units which were sold for a net price of $460 per Unit to employees of the General Partners of the General Partner and employees and securities representatives of its affiliates). There is no public market for the Units, and it is not anticipated that such a public market will develop. (b) Approximate Number of Security Holders
Number of Number of Units Unit Holders on Record as of Title of Class as of 12/31/96 12/31/96 -------------- -------- Units of Limited Partnership Interests 3,370 57,239
(c) Dividend History and Restrictions During the year ended December 31, 1987 and the period ended December 31, 1986, the Partnership had six closings with 57,239 Units. Pursuant to Section 8 of the Limited Partnership Agreement, the Partnership's "Distributable Cash from Operations" for each year will be determined and then distributed to the Partners. Upon reaching the end of its reinvestment period (the second anniversary of the Partnership's final closing date), the Partnership will also distribute to the Partners "Distributable Cash From Sales or Refinancings", if any. The Partnership distributed $643,939 to the Limited Partners in 1996, $858,586 in 1995, and $1,144,780 in 1994 and distributed $27,976 to the General Partner in 1996, $35,431 in 1995, and $33,253 in 1994. The cumulative cash distributions to the Limited Partners through December 31, 1996 is $28,785,453 as compared with the contributed Limited Partners' net capital of $25,569,053. "Cash From Operations" and "Cash From Sales or Refinancing" means the net cash provided by the Partnership's normal operations or as a result of any sales, refinancings or other dispositions of equipment, respectively, after the general expenses and current liabilities of the Partnership (other than the equipment management fee) are paid, as reduced by any reserves for working capital and contingent liabilities to the extent deemed reasonable by the General Partner and as increased by any portion of such reserves then deemed by the General Partner not to be required for Partnership operations. "Distributable Cash From Operations" and "Distributable Cash From Sales or Refinancings" means Cash from Operations or Cash From Sales or Refinancings, respectively, reduced by amounts which the General Partner determines shall be reinvested (through the second anniversary of the Partnership's closing date) in additional Equipment and by payments of all accrued but unpaid equipment management fees. For rendering services in connection with the normal operations of the Partnership, the Partnership will pay to the General Partner a Partnership management fee equal to 5% of the monthly rental billings. Each distribution of Distributable Cash From Operations of the Partnership shall be allocated 95% to the Limited Partners and 5% to the General Partner. Any Distributable Cash From Sales or Refinancings from gains and losses shall be allocated 99% to the Limited Partners and 1% to the General Partner until "Payout" has occurred. "Payout" means the time when the aggregate amount of all distributions to the Limited Partners of Distributable Cash From Operations and of Distributable Cash From Sales or Refinancings equals the aggregate amount of the Limited Partners' original invested capital plus a cumulative 8% annual return (compounded daily) on their aggregate unreturned invested capital (calculated from the beginning of the first full fiscal quarter following the Partnership's closing date). Including the distribution made February 28, 1997, cumulative distribution to date is $505.41 per Unit. This cumulative distribution per Unit amount represents 47.96% of "Payout". After Payout has occurred, any Distributable Cash from Sales or Refinancings will be distributed 15% (plus an additional 1% for each 1% by which the total of all Limited Partners' original Capital Contributions actually paid or allocated to the Partnership's investment in equipment exceeds the greater of (i) 80% if the gross proceeds of the Partnership's offering of Units, reduced by 0.0625% for each 1% of leverage encumbering Partnership equipment, or (ii) 75% of the gross proceeds of such offering) to the General Partner, and the remainder to the Limited Partners. It is not anticipated that Payout will occur as of the liquidation of this Partnership. Any Distributable Cash will be distributed within 60 days after the completion of each of the first three fiscal quarters of each Partnership fiscal year, and within 120 days after the completion of each fiscal year, beginning after the first full fiscal quarter following the Partnership's first closing date. Each such distribution will be described in a statement sent to the Limited Partners. Item 6. Selected Financial Data. The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with the financial statements and notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in Items 8. and 7. of this Report.
For the Years Ended December 31, 1996 1995 1994 1993 1992 -------------------------------------------------------------------------------------- Operating Data Rental Income $ 709,278 $ 804,478 $ 1,022,506 $ 1,533,319 $ 4,082,501 Interest Income 7,238 7,252 7,700 26,249 93,901 Net Income 649,566 853,698 1,170,524 994,075 5,424,313 Per Limited Partnership Unit: Net Income Per Limited Partnership Unit 10.88 14.31 19.69 15.13 80.40 Balance Sheet Data Cash and Cash Equivalents 199,970 98,385 213,715 94,835 1,592,308 Capital Equipment at Cost 5,447,101 6,453,248 8,768,519 11,443,550 18,814,025 Total Assets 262,011 146,572 232,475 277,961 2,907,241 Long-term Debt - - - - - Distributions to Partners 671,915 894,017 1,178,033 3,562,609 8,139,894 Distributions Per Limited Partnership Unit 11.25 15.00 20.00 60.00 140.00 Partners' (Deficit) Equity (1,787) 20,562 60,881 68,390 2,636,924
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. General As of October 7, 1987 the Partnership has received and accepted subscriptions for 57,239 Units, which were offered under its public offering. Total proceeds from the offering, adjusted to reflect selling commissions and organization and offering costs, were $25,569,053. Results of Operations The following discussion relates to the Partnership's operations for the year ended December 31, 1996, in comparison to the years ended December 31, 1995 and 1994. The Partnership realized net income of $649,566, $853,698 and $1,170,524 for the years ended December 31, 1996, 1995 and 1994, respectively. Rental income decreased $95,200 or 12% between 1995 and 1996 and $218,028 or 21% between 1994 and 1995. The decrease is due to lower rental rates obtained on equipment lease extensions and remarketings resulting after the initial lease term expires and due to a decrease in the overall size of the equipment portfolio. Interest income remained flat for the three years ended December 31, 1996, 1995 and 1994, respectively. The decrease in net gain on sale of equipment each year can be attributed to a reduction in equipment sales. Total costs and expenses increased 24% in 1996 and decreased 46% in 1995. The increase in costs and expenses can be attributed to an increase in the allocable salaries of the partnership accounting and reporting personnel of the General Partner, and an increase in expenses associated with the helicopter lease with Sikorsky Aircraft Corporation. Depreciation expense decreased due to the initial equipment portfolio becoming fully depreciated and an overall reduction in the equipment portfolio. Management fees expenses have decreased in relation to the decline in rental income for the years ended December 31, 1996, 1995 and 1994. The Partnership recorded net income per Limited Partnership Unit of $10.88, $14.31 and $19.69 for the years ended December 31, 1996, 1995 and 1994, respectively. Liquidity and Capital Resources For the year ended December 31, 1996, rental revenue generated from the operating leases and sales proceeds from equipment sales were the primary sources of funds for the Partnership. As the 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 option would derive the most favorable results. Consistent with prior periods, Hanover's operating activities resulted in a decrease of rental revenues due to expired leases resulting in equipment sales and due to older equipment being remarketed at lower rental rates. As of December 31, 1996, these factors resulted in a decrease in rental revenues over a three-year period. The helicopter lease with Sikorsky Aircraft Corporation, scheduled to expire in October, 1996, has been extended through January, 1997. The rent associated with the Sikorsky Aircraft Corporation lease comprises 81% of the total rental revenue for the year ended December 31, 1996. Upon expiration, the helicopter will likely be sold and the Partnership will be liquidated soon thereafter. Federal Paper Board Company, Incorporated, with equipment on lease representing 15% of the currently monthly rental income, expired during 1996. The equipment was sold during 1996, which generated $124,000 in sales proceeds. Sears, Roebuck and Company, with equipment on lease representing 10% of the 1995 monthly rental income, expired on February 28, 1995. The equipment was subsequently sold on March 1, 1995, generating $97,200 in sales proceeds. The decline in rental revenue should not affect the Partnership's ability to meet its future cash requirements. Future rental revenues amount to $47,499 and are to be received over the first half of 1997 (for further discussion, refer to note 4 to the financial statements). During the fourth quarter of 1995, the General Partner announced its intentions of winding down the operations of the Partnership. As discussed above, once the helicopter lease terminates, it is anticipated that substantially all of the assets will be liquidated and the proceeds will be used to settle all outstanding liabilities and make a final distribution to the Partners during 1997. The Partnership's investing activities for the year ended December 31, 1996 resulted in sales of fully depreciated equipment, generating $136,000 in sales proceeds. The Partnership has no material capital commitments and will not in the future due to the Partnership having fulfilled its capital expenditure commitments in prior years. Cash distributions paid in the first quarter of 1997 are currently at a level of 3% per Limited Partnership Unit, or $15.00 per Limited Partnership Unit. During 1996, the Partnership distributed a total of $11.25 per Limited Partnership Unit, of which $10.88 per Unit represents income and $0.37 per Unit represents a return of capital. For the quarter ended December 31, 1996, the Partnership declared a cash distribution of $225,943, of which $11,297 was distributed to the General Partner and $214,646 was distributed to the Limited Partners. The distribution will be made on February 28, 1997. The Partnership expects distributions to be more volatile as its operations are winding down. The effects of inflation have not been significant to the Partnership to date and are not anticipated to have any material impact in future years. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report To the Partners of Hanover Lease Income Limited Partnership: We have audited the accompanying balance sheets of Hanover Lease Income Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hanover Lease Income Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in note 1, in 1995 the General Partner announced its intentions of winding down the operations of the Partnership in 1997. KPMG Peat Marwick LLP Boston, Massachusetts March 21, 1997 HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Balance Sheets December 31, 1996 and 1995
Assets 1996 1995 ---------------- ---------------- Investment property, at cost (notes 3 & 4): Capital equipment $ 5,447,101 $ 6,453,248 Less accumulated depreciation 5,447,101 6,453,248 ---------------- ---------------- Investment property, net - - Cash and cash equivalents 199,970 98,385 Rents receivable (note 4) 62,041 40,087 Sales receivable - 8,100 ---------------- --------------- Total assets $ 262,011 $ 146,572 ================ ================ Liabilities and Partners' Equity Liabilities: Accounts payable and accrued expenses - affiliates (note 5) $ 10,747 $ 13,594 Accounts payable and accrued expenses 230,551 74,209 Unearned rental income 22,500 38,207 ---------------- ---------------- Total liabilities 263,798 126,010 ---------------- ---------------- Partners' equity: General Partner: Capital contribution 1,000 1,000 Cumulative net income 1,132,009 1,104,971 Cumulative cash distributions (1,124,540) (1,096,564) ---------------- ---------------- 8,469 9,407 ---------------- ---------------- Limited Partners (57,239 units): Capital contribution, net of offering costs 25,569,053 25,569,053 Cumulative net income 3,206,144 2,583,616 Cumulative cash distributions (28,785,453) (28,141,514) ---------------- ---------------- (10,256) 11,155 ---------------- ---------------- Total partners' (deficit) equity (1,787) 20,562 ---------------- ---------------- Total liabilities and partners' equity $ 262,011 $ 146,572 ================ ================
See accompanying notes to financial statements. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Statements of Operations For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ---------------- --------------- --------------- Revenue: Rental income (note 4) $ 709,278 $ 804,478 $ 1,022,506 Interest income 7,238 7,252 7,700 Other income 750 - - Net gain on sale of equipment 136,000 206,727 443,236 ---------------- --------------- --------------- Total revenue 853,266 1,018,457 1,473,442 ---------------- --------------- --------------- Costs and expenses: Depreciation - 927 112,095 Related party expenses (note 5): Management fees 35,465 37,807 50,411 General and administrative 168,235 126,025 140,412 ---------------- --------------- --------------- Total costs and expenses 203,700 164,759 302,918 ---------------- --------------- --------------- Net income $ 649,566 $ 853,698 $ 1,170,524 ================ =============== =============== Net income per Limited Partnership Unit $ 10.88 $ 14.31 $ 19.69 ================ =============== ===============
See accompanying notes to financial statements. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Statements of Partners' Equity (Deficit) For the Years Ended December 31, 1996, 1995 and 1994
General Limited Partner Partners Total ------------- ----------------- ----------------- Equity at December 31, 1993 $ - $ 68,390 $ 68,390 Net income 43,675 1,126,849 1,170,524 Cash distributions (33,253) (1,144,780) (1,178,033) ------------- ----------------- ----------------- Equity at December 31, 1994 10,422 50,459 60,881 Net income 34,416 819,282 853,698 Cash distributions (35,431) (858,586) (894,017) ------------- ----------------- ----------------- Equity at December 31, 1995 9,407 11,155 20,562 Net income 27,038 622,528 649,566 Cash distributions (27,976) (643,939) (671,915) ------------- ----------------- ----------------- Equity (deficit) at December 31, 1996 $ 8,469 $ (10,256) $ (1,787) ============= ================= =================
See accompanying notes to financial statements. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Statements of Cash Flows For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $ 649,566 $ 853,698 $ 1,170,524 --------------- --------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation - 927 112,095 Net gain on sale of equipment (136,000) (206,727) (443,236) Net (increase) decrease in current assets (13,854) (30,354) 202 Net increase (decrease) in current liabilities 137,788 (45,584) (37,977) --------------- --------------- --------------- Total adjustments (12,066) (281,738) (368,916) --------------- --------------- --------------- Net cash provided by operating activities 637,500 571,960 801,608 --------------- --------------- --------------- Cash flows from investing activities: Proceeds from sales of investment property 136,000 206,727 495,305 --------------- --------------- --------------- Net cash provided by investing activities 136,000 206,727 495,305 --------------- --------------- --------------- Cash flows from financing activities: Proceeds from borrowings on note payable - affiliate - - 30,000 Principal payments on note payable - affiliate - - (30,000) Cash distributions to partners (671,915) (894,017) (1,178,033) --------------- --------------- --------------- Net cash used in financing activities (671,915) (894,017) (1,178,033) --------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 101,585 (115,330) 118,880 Cash and cash equivalents at beginning of year 98,385 213,715 94,835 --------------- --------------- --------------- Cash and cash equivalents at end of year $ 199,970 $ 98,385 $ 213,715 =============== =============== =============== Supplemental cash flow information: Interest paid during the year $ - $ - $ - =============== =============== ===============
See accompanying notes to financial statements. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Notes to Financial Statements December 31, 1996, 1995 and 1994 (1) Organization and Partnership Matters The Partnership was organized under the Massachusetts Uniform Limited Partnership Act on June 19, 1986. The Amended Agreement of Limited Partnership authorized the issuance of up to 60,000 Limited Partnership Units at a per unit gross price of $500 and up to 20,000 additional units to affiliates. The Partnership has had in total six closings. The closings occurred on November 17, 1986, February 17, 1987, April 27, 1987, July 7, 1987, August 18, 1987 and October 7, 1987 with 8,501, 15,106, 7,992, 9,047, 5,457 and 11,136 units, respectively. The General Partner has contributed $1,000 in respect of its General Partnership interest. Pursuant to the terms of the Amended Agreement of Limited Partnership, each distribution of Distributable Cash From Operations and profits for federal income tax and financial reporting purposes from normal operations of the Partnership shall be allocated 95% to the Limited Partners and 5% to the General Partner. Losses for federal income tax and financial reporting purposes from normal operations and any Distributable Cash From Sales or Refinancing from gains and losses shall be allocated 99% to the Limited Partners and 1% to the General Partner until "Payout" has occurred, and 85% to the Limited Partners and 15% to the General Partner thereafter. In addition, special income allocations may be required to reflect the differing initial capital contributions of the General Partner and the Limited Partners. Payout means the time when the aggregate amount of all distributions to the Limited Partners of Distributable Cash From Operations and of Distributable Cash From Sales or Refinancing equals the aggregate amount of the Limited Partners' original invested capital plus a cumulative 8% annual return on their aggregate unreturned invested capital (calculated from the beginning of the first full fiscal quarter following each Limited Partner's admission to the Partnership). Including the distribution made February 28, 1997, cumulative distribution to date is $505.41 per Unit. This cumulative distribution per Unit amount represents 47.96% of Payout. It is not anticipated that Payout will occur as of the liquidation of this Partnership. During the fourth quarter of 1995, the General Partner announced its intentions of winding down the operations of the Partnership. The helicopter lease with Sikorsky Aircraft Corporation, scheduled to expire in October, 1996, has been extended through January, 1997. Once the helicopter lease terminates and is sold, it is anticipated that substantially all of the assets will be liquidated and the proceeds will be used to settle all outstanding liabilities and make a final distribution to the Partners during 1997. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Notes to Financial Statements (2) Significant Accounting Policies The Partnership's records are maintained on the accrual basis of accounting so that revenues are recognized as earned and expenses are recognized as incurred. Assets and liabilities are those of the Partnership and do not include any assets and liabilities of the individual partners. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Effective January 1, 1990, depreciation on capital equipment is provided on a double-declining balance method over the economic useful lives of the equipment. No salvage value is assumed. The Partnership's policy is to periodically review the estimated fair market value of its equipment to assess the recoverability of its undepreciated cost. In accordance with this policy, the Partnership records a charge to depreciation expense in instances when the net book value of equipment exceeds its net realizable value. Routine maintenance and repairs are expensed as incurred. Major betterments and enhancements are capitalized and depreciated in accordance with the Partnership's depreciation policy. Income Taxes No provision for federal income taxes has been made as the liability for such taxes is that of the Partners rather than that of the Partnership. Taxable income, as reported in Schedule K-1, Form 1065 "Partner's Share of Income, Credits, Deductions, etc.", was $649,566, $854,625 and $1,232,036 in 1996, 1995 and 1994, respectively (see note 6). Cash and Cash Equivalents The Partnership considers cash and short-term investments with maturities of less than three months to be cash and cash equivalents. (3) Investment Property At December 31, 1996, the Partnership owned capital equipment with a cost basis of $5,447,101. All purchases of capital equipment are subject to a 4.75% acquisition fee paid to the General Partner. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Notes to Financial Statements (4) Leases Operations consist primarily of leasing computer equipment. All equipment leases are classified as operating leases and expire over the next year. Minimum lease payments scheduled to be received in the first half of 1997 under existing noncancelable operating leases amount to $47,499. The following schedule provides an analysis of the cost of capital equipment by major classes as of December 31, 1996: Helicopter aircraft $ 4,678,826 Heavy duty equipment 351,648 Computer equipment & printers 107,269 Research & experimentation equipment 143,088 Other 166,270 --------------- Total $ 5,447,101 =============== Two lessees, BASF Corporation and Sikorsky Aircraft Corporation, lease equipment in which the related rental payments exceed 10% of total rental income. The related rental payments comprise 11.18% and 80.87%, respectively, of the total rental income for the year ended December 31, 1996. BASF Corporation and Sikorsky Aircraft Corporation lease equipment comprising 6.42% and 86.17%, respectively, of the total equipment portfolio at December 31, 1996. (5) 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 years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ---- ---- ---- Management fees $ 35,465 $ 37,807 $ 50,411 Reimbursable expenses paid 114,851 84,444 93,412 ------------- ------------ ------------ $ 150,316 $ 122,251 $ 143,823 ============= ============ ============
Under the terms of the Partnership Agreement, the General Partner is entitled to an Equipment Acquisition Fee of 4.75% of the purchase price paid by the Partnership for the equipment. The General Partner is also entitled to a management fee equal to 5% of the monthly rental billings. Also, the Partnership reimburses the General Partner and their affiliates for certain expenses incurred by them in connection with the operation of the Partnership. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Notes to Financial Statements (6) Reconciliation of Financial Statement Net Income to Taxable Income to Partners A reconciliation of financial statement net income to taxable income to partners is as follows for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Net income per financial statements $ 649,566 $ 853,698 $ 1,170,524 Depreciation expense for financial statement purposes in excess of depreciation expense for tax purposes - 927 100,080 Net gain on sale of equipment for financial statement purposes in excess of net gain on sale of equipment for tax purposes - - (38,568) -------------- ------------- ------------- Taxable income to partners $ 649,566 $ 854,625 $ 1,232,036 ============== ============= =============
Losses for federal tax purposes from normal operations are allocated 99% to the Limited Partners and 1% to the General Partner. Profits for federal tax purposes from normal operations are allocated 95% to the Limited Partners and 5% to the General Partner. In addition, special cost recovery allocations may be required to reflect the differing initial capital contribution of the General Partner and the Limited Partners. HANOVER LEASE INCOME LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) Equipment Portfolio (Unaudited) December 31, 1996 Lessee BASF Corporation Federal Paper Board Company, Incorporated Sikorsky Aircraft Corporation Equipment Description Acquisition Price Helicopter aircraft $ 4,678,826 Heavy duty equipment 351,648 Computer equipment & printers 107,269 Research & experimentation equipment 143,088 Other 166,270 ---------------- $ 5,447,101 ================ Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Statement Disclosures. None. Part III Item 10. Directors and Executive Officers of the Partnership. (a-b) Identification of Directors and Executive Officers The Partnership has no Directors or Officers. As indicated in Item 1. of this report, the General Partner of the Partnership is Hanover Leasing Partnership. Under the Partnership Agreement, the General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. The General Partner has two Corporate General Partners (the "Corporate General Partners"): TLP, a Massachusetts corporation and Waddell & Reed (formerly TUPS), a Missouri corporation. The names and ages of the Directors and Executive Officers of the General Partner are as follows:
TLP Name Title Age Nicholas C. Bogard Director 51 Arthur P. Beecher Director and President 59 Nancy E. Malone Vice President, Lease Financing 38 Irene V. King Vice President, Satellite Operations 50 Joseph P. Colonna Vice President, Marketing 37 James S. Felman Clerk 32 Waddell & Reed Name Title Age Keith A. Tucker President, Chief Executive Officer 52 and Director Robert L. Hechler Vice President, Chief Operations Officer, 60 Treasurer and Director Henry J. Herrmann Vice President, Chief Investment Officer 55 and Director Robert J. Williams, Jr. Vice President and National Sales Manager 53 Sharon K. Pappas Vice President, Secretary 38 and General Counsel
(c) Identification of certain significant persons See Item 10. (a-b) (d) Family relationship No family relationship exists between any of the foregoing Directors or Officers. (e) Business experience Nicholas C. Bogard is Director of TLP. Mr. Bogard served as President and Director of TLP from 1982 - 1992, and served as Director of CS First Boston from 1992 - 1994. He has been working as an independent consultant since 1994. Mr. Bogard holds a B.A. from Princeton University and an M.B.A. from Harvard University. Arthur P. Beecher is President and Director of TLP. Prior to joining TLP, he was an officer of CSA Financial Corp. of Boston, Massachusetts, most recently as Vice President, Finance and Administration since 1975. Mr. Beecher holds a B.S. from Boston University and is a Certified Public Accountant. Nancy E. Malone is Vice President, Lease Financing of TLP. Prior to joining TLP, she was Manager, Lease Financing for 11 years at CSA Financial Corp. of Boston, Massachusetts. Ms. Malone holds a B.A. from The College of the Holy Cross. Irene V. King is Vice President, Satellite Operations for TLP. Prior to joining TLP in April 1994, she was Director of Public Income Funds at CSA Financial Corp. of Boston, Massachusetts and was previously Vice President of Finance at First Alliance Corp. of Wellesley, Massachusetts. Ms. King holds a B.A. from Barat College of the Sacred Heart, Lake Forest, Illinois. James S. Felman is Clerk of TLP. Prior to joining TLP, he was in private practice and was previously employed as a Tax Consultant with Price Waterhouse in Miami, Florida and New York, New York. Mr. Felman received his J.D. from S.U.N.Y. at Buffalo Law School, holds a B.S. in Economics and Business Management from Cornell University, and is a licensed attorney in New York and Florida. Joseph P. Colonna is Vice President, Marketing of TLP. Prior to joining TLP, he was Associate Counsel at CSA Financial Corp. of Boston, Massachusetts in charge of Domestic and International Leasing Transactions. He received his B.A. from Rutgers University, J.D. from Suffolk University Law School and M.S.L. from Vermont Law School. Keith A. Tucker is President, Chief Executive Officer and Director of Waddell & Reed; Chairman of the Board of Directors of WRIMCO, Waddell & Reed, Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice Chairman of the Board of Directors, Chief Executive Officer and President of United Investors Management Company; Vice Chairman of the Board of Directors of Torchmark Corporation; and President of each of the funds in the United, Waddell & Reed and TMK/United mutual fund groups. He is also Director of Southwestern Life Corporation. Prior to joining Torchmark Corporation in 1991, Mr. Tucker was with Trivest, Inc. and Trivest Securities Corporation in Miami, Florida since 1987, most recently as the Senior Vice President and President, respectively. Prior to Trivest, Inc., he was Director of Atlantis Group, Inc., a diversified company. Mr. Tucker holds a B.B.A. and a J. D. both from the University of Texas. Robert L. Hechler is Vice President, Chief Operations Officer, Director and Treasurer of Waddell & Reed; Executive Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO; President, Chief Executive Officer, Principal Financial Officer, Director and Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed Services Company; Vice President, Treasurer and Director of Torchmark Distributors, Inc.; and Vice President and Principal Financial Officer of each of the funds in the United, Waddell & Reed and TMK/United mutual fund groups. He has been employed by Waddell & Reed and its affiliates since 1977. Mr. Hechler holds a B.S. from the University of Illinois and an M.B.A. from the University of Chicago. Henry J. Herrmann is Vice President, Chief Investment Officer and Director of Waddell & Reed; Director of Waddell & Reed, Inc.; President, Chief Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell & Reed Asset Management Company; Senior Vice President and Chief Investment Officer of United Investors Management Company; and Vice President of each of the funds in the United, Waddell & Reed and TMK/United mutual fund groups. He has been employed by Waddell & Reed and its affiliates since 1971. Mr. Herrmann holds a B.S. from New York University. Robert J. Williams, Jr. is Vice President and National Sales Manager of Waddell & Reed and Executive Vice President and National Sales Manager of Waddell & Reed, Inc. He has been employed by Waddell & Reed, Inc. since July 1996. He was employed with Charles Schwab & Company from November 1991 to July 1995. From August 1984 to October 1991, he was employed by American Express Financial Advisors or its affiliates. Mr. Williams holds a B.S. from the University of Utah and an M.B.A. from California State-Humbolt. Sharon K. Pappas is Vice President, Secretary and General Counsel of Waddell & Reed; Senior Vice President, Secretary and General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice President, Secretary and General Counsel of Waddell & Reed Services Company; Director, Secretary and General Counsel of Waddell & Reed Asset Management Company; Vice President, Secretary and General Counsel of Torchmark Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell & Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset Management Company and Waddell & Reed Services Company. She is Vice President, Secretary and General Counsel of each of the funds in the United, Waddell & Reed and TMK/United mutual fund groups. Prior to joining Waddell & Reed and its affiliates in 1989, Ms. Pappas was employed with Stinson, Mag & Fizzell in Kansas City, Missouri. Ms. Pappas holds a B.S. from Kansas State University and a J.D. from the University of Kansas. (f) Involvement in certain legal proceedings The Partnership is not aware of any legal proceedings against any Director or Executive Officer of the Corporate General Partners which may be important for the evaluation of any such person's ability and integrity. Item 11. Management Remuneration and Transactions. (a), (b), (c), (d), and (e): The Officers and Directors of the Corporate General Partners receive no current or proposed direct remuneration in such capacities, pursuant to any standard arrangements or otherwise, from the Partnership. In addition, the Partnership has not paid and does not propose to pay any options, warrants or rights to the Officers and Directors of the Corporate General Partners. There exists no remuneration plan or arrangement with any Officer or Director of the Corporate General Partners resulting from the resignation, retirement or any other termination. See note 5 to the financial statements included in Item 8. of this report for a description of the remuneration paid by the Partnership to the General Partner and its affiliates during 1996, 1995 and 1994. Item 12. Security Ownership of Certain Owners and Management. By virtue of its organization as a limited partnership, the Partnership has outstanding no securities possessing traditional voting rights. However, as provided for in Section 13.2 of the Amended Agreement of Limited Partnership (subject to Section 13.3), a majority interest of the Limited Partners have voting rights with respect to: 1. Amendment of the Limited Partnership Agreement; 2. Termination of the Partnership; 3. Removal of the General Partner; and 4. Approval or disapproval of the sale of substantially all the assets of the Partnership. No person or group is known by the General Partner to own beneficially more than 5% of the Partnership's 57,239 outstanding Limited Partnership Units as of December 31, 1996. By virtue of its organization as a limited partnership, the Partnership has no Officers or Directors. See also note 1 to the financial statements included in Item 8. and Item 10. of this report. Item 13. Certain Relationships and Related Transactions. (a), (b), and (c): The General Partner of the Partnership is Hanover Leasing Partnership, having two Corporate General Partners: TLP, a Massachusetts corporation and Waddell & Reed (formerly TUPS), a Missouri corporation. The identification of the Corporate General Partners' Directors and Executive Officers is indicated in Item 10. of this report. The Partnership was not involved in any transaction involving any of these Directors or Officers of the Corporation or any member of the immediate family of these individuals, nor did any of these persons provide services to the Partnership for which they received direct or indirect remuneration. Similarly, there exists no business relationship between the Partnership and any of the Directors or Officers of the Corporate General Partners, nor were any of the individuals indebted to the Partnership. The General Partnership Agreement between TLP and Waddell & Reed (the "General Partnership Agreement") provides that TLP as the Managing General Partner will manage and control all of the affairs of the Partnership except for specified services to be provided by Waddell & Reed relating primarily to the provision of financial advisory services for the benefit of the Partnership and to the continuing relationships among the Partnership, the General Partner and the Partnership's Limited Partners. The General Partnership agreement also provides Waddell & Reed with one member of the Investment Committee. The Managing General Partner has also entered into an agreement dated as of June 1, 1986 (the "Agency Agreement") with NEMLC Leasing Corporation ("Agent"), a wholly-owned subsidiary of New England Merchants Leasing Corporation and a member company of BancNewEngland Leasing Group. In 1990, the BancNewEngland Leasing Corporation was acquired by the Bank of Tokyo ("BOT"), however, the Agency Agreement remains unaffected. Pursuant to the Agency Agreement, the Agent will assist the Managing General Partner in the performance of certain of its responsibilities on behalf of the Partnership, including identification, evaluation and negotiation of specific equipment investments suitable for the Partnership, billing and collections, management of the equipment while it is under lease and remarketing of equipment coming off lease. In consideration of such services and capital commitments, TLP will receive 30%, Waddell & Reed will receive 3.33% and BOT will receive 66.67% of all compensation received by the General Partner in connection with the formation and operation of the Partnership (including Equipment Management and Acquisition Fees, Subordinated Remarketing Fees and the General Partner's share of Distributable Cash from Sales or Refinancing). The General Partner will also be reimbursed an amount equal to up to 3% of the total gross proceeds of the Partnership's offerings for organizational and offering expenses in excess of that amount will be borne by TLP.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K: None. (a) 1. Financial Statements Page No. Independent Auditors' Report - KPMG Peat Marwick LLP 15 Balance Sheets at December 31, 1996 and 1995 16 Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 17 Statements of Partners' Equity (Deficit) for the Years Ended December 31, 1996, 1995 and 1994 18 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 19 Notes to Financial Statements 20 -23 2. Financial Statement Schedules All financial statement schedules are omitted because they are not applicable, the data is not significant, or the required information is shown elsewhere in this report. Equipment Portfolio (Unaudited) 24 (b) Reports on Form 8-K None
(c) Exhibit Index Exhibits 4. (a) Agreement of Limited Partnership is incorporated by reference to Amendment No. 1 to Form S-1, Registration No. 33-7004, filed with the Securities and Exchange Commission on September 24, 1986. (b) Amendment to Agreement of the Limited Partnership and Schedule A dated March 8, 1991, is incorporated by reference to the exhibits on Form 10-K for the fiscal year ended December 31, 1990 ("1990 Form 10-K"). (c) New Assignment and Amendment Agreement with Bank of Tokyo dated May 31, 1990, is incorporated by reference to the exhibits on the 1990 Form 10-K. (d) Amendment to Agreement of the Limited Partnership, dated March 10, 1992 is incorporated by reference to the exhibits on Form 10-K for the fiscal year ended December 31, 1991 ("1991 Form 10-K"). 10. (a) Material Lease Agreement with Central Ohio Coal dated July 1, 1988, is incorporated by reference to the exhibits on the 1990 Form 10-K. * (b) Rental Schedule A-1 and Certificate of Inspection and Acceptance with United Technologies, dated May 29, 1987, is incorporated by reference to the exhibits on the 1990 Form 10-K. (c) Rental Schedule A-1 and Certificate of Inspection and Acceptance with Storage Technology Corporation, dated November 11, 1991, is incorporated by reference to the exhibits on the 1991 Form 10-K. (d) Lease Supplement with Northwest Aircraft, Inc. dated December 30, 1988, is incorporated by reference to the exhibits on Form 10-K for the fiscal year ended December 31, 1992 ("1992 Form 10-K"). ** (e) Lease Schedule with Federal Paper Board Company, Inc., dated January 22, 1987, is incorporated by reference to the exhibits on the 1992 Form 10-K. 18. (a) KPMG Peat Marwick Letter Regarding hanges in Accounting Principles, dated February 15, 1991 is incorporated by reference to the exhibits on the 1990 Form 10-K. 28. (a) Form of Standard Lease Agreement is incorporated by reference to the exhibits on the 1990 Form 10-K. * Lease terminated during 1992. ** Lease terminated during 1993. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. HANOVER LEASE INCOME LIMITED PARTNERSHIP (Registrant) By: Hanover Leasing Partnership, its General Partner By: TLP Leasing Programs, Inc., one of its Corporate General Partners Date: March 27, 1997 By: Arthur P. Beecher, President EX-27 2
5 0000796529 HANOVER LEASE INCOME LIMITED PARTNERSHIP FDS 12/31/96 12-MOS DEC-31-1996 DEC-31-1996 199,970 0 62,041 0 0 262,011 5,447,101 5,447,101 262,011 263,798 0 25,570,053 0 0 (25,571,840) 262,011 709,278 853,266 0 35,465 168,235 0 0 649,566 0 649,566 0 0 0 649,566 11.02 0
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