-----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, NRXllcKrnxEdqw0Tut3hT/fzqdrtdp9TDopccmx4DLNjmZL3UMS0NhGGPpw+XB3C 9gohJz1MLHb0Kyy1t1ozUw== 0000799179-97-000003.txt : 19970401 0000799179-97-000003.hdr.sgml : 19970401 ACCESSION NUMBER: 0000799179-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEASTEC INCOME FUND IV CENTRAL INDEX KEY: 0000799179 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER RENTAL & LEASING [7377] IRS NUMBER: 680100223 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-08115 FILM NUMBER: 97570038 BUSINESS ADDRESS: STREET 1: 2855 MITCHELL DR STE 215 CITY: WALNUT CREEK STATE: CA ZIP: 94598 BUSINESS PHONE: 4159383443 MAIL ADDRESS: STREET 1: 2855 MITCHELL DRIVE SUITE 215 STREET 2: 2855 MITCHELL DRIVE SUITE 215 CITY: WALNUT CREEK STATE: CA ZIP: 94598 10-K 1 LEASTEC INCOME FUND IV 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 Commission file number December 31, 1996 33-8115 LEASTEC INCOME FUND IV (Exact name of registrant as specified in its charter) California 68-0100223 (State or other jurisdiction of (I.R.S. Employer Identifi- incorporation or organization) cation Number) 2855 Mitchell Drive, Suite 215, Walnut Creek, CA 94598 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 938-3443 Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange on Title of Each Class Which Each Class is To be Registered To be Registered None None Securities registered pursuant to Section 12 (g) of the Act: UNITS OF LIMITED PARTNER INTEREST (TITLE OF CLASS) Indicate by a 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X DOCUMENTS INCORPORATED BY REFERENCE EXHIBIT INDEX LOCATED AT PAGES 21 LEASTEC INCOME FUND IV 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Item Page No Item 1 Business 3 Item 2 Properties 4 Item 3 Legal Proceedings 4 Item 4 Submission of Matters to a Vote of Security Holders 4 Item 5 Market for Registrants Common Equity and Related Stockholder Matters 4 Item 6 Selected Financial Data 5 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 8 Financial Statements and Supplementary Data 9 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20 Item 10 Directors and Executive Officers of the Registrant 20 Item 11 Executive Compensation 21 Item 12 Security Ownership of Certain Beneficial Owners and Management 21 Item 13 Certain Relationships and Related Transactions 21 Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22 Item 1. BUSINESS Prior to 1993, the Registrant's primary business was to acquire a diversified portfolio of capital equipment for lease subject to operating and finance leases with terms of 36 to 60 months. The equipment leased was selected by the lessees and was purchased directly from the manufacturer, independent third parties and the lessees (via sale lease back transactions). Operating leases, primarily of data processing equipment, are those in which the Registrant maintains ownership of the equipment at the end of the lease. Finance leases are those in which the lessee is contractually obligated to purchase the equipment at a predetermined amount at the end of the lease. Since the Operating leases did not transfer ownership through a purchase obligation, the Registrant is dependent on release or sale of the equipment to realize a profitable return on its investment in the leased equipment. Prior to 1993, the Registrant reinvested cash in excess of partners distributions into new lease transactions. Starting in 1993, the Registrant began to wind down its leasing operations by returning all cash proceeds from operations to the partners through quarterly distributions. During the wind down or liquidation phase, cash proceeds from the rents, equipment sold and all available cash from operations have been distributed to the limited partners in proportion to their respective tax basis capital accounts. The Registrant was fully liquidated as of December 31, 1996. During fiscal 1996, the Registrant fully liquidated its lease and equipment portfolio. The Registrant accrued the final distribution as of December 31, 1996;; all assets have been disposed of and all proceeds were distributed in February of 1997. The Partnership was formed in 1985 with a capitalization of $26,909,750. Limited partner distributions from the inception of the Partnership to date are as follows:
Year Total Distribution Made ---- ----------------------- 1986 $ 9,511 1987 1,713,643 1988 2,506,596 1989 2,555,962 1990 2,607,188 1991 731,576 1992 738,289 1993 1,399,962 1994 2,155,557 1995 2,975,000 1996 960,991 ---- ----------- Total $18,354,275
Distributions noted herein are on an accrual basis of accounting as shown on the Statement of Partners' Capital. The Registrant has accrued a liquidation distribution of $320,991 to the limited partners for the quarter ended December 31, 1996. Although the Registrant had until December 1997 to liquidate its operations, the Registrant was fully liquidated at the end of its tenth full year of operation, December 1996. The Registrant failed to return 100% of its invested capital. This loss was primarily caused by the failure of the Operating lease equipment to achieve its residual values. Under an operating lease the risk of ownership remains with the lessor and is not passed on to the lessee. An operating lease yield depends entirely on the realization of residual expectations in order for the lessor to achieve a positive return. The partnership's greatest risk area was the residual values on its operating lease portfolio, and this was the area in which the largest shortfalls occurred. Residual values can be realized either by the sale or re-lease of equipment. In either case, the demand for used equipment is affected by the cost of substitutes and the strength or weakness in the general economy. Substitute new equipment may be more desirable than used equipment because it has higher performance levels and if the cost to maintain older equipment is high. Re-lease revenues are also affected by interest rate levels. A lower interest rate environment will reduce the monthly rent that can be charged for equipment. Competition While the Registrant is no longer seeking new leases, it has competed in the past with manufacture leasing companies, independent leasing companies, affiliates of banks, commercial credit companies and other leasing partnerships. Competition with these entities was based primarily on lease rates and terms as well as the type and amount of equipment. In addition the condition and relative obsolescence of equipment are major factors in the Partnership's ability to re-lease or sell its equipment from operating leases. Other factors include the demand for a type of equipment, the cost of maintenance, the availability of financing, trends in the economy, interest rates, tax laws as well as many other factors over which neither the Registrant nor its competitors have control. Working Capital The Partnership maintains cash reserves for normal operating expenses, working capital and certain leasing costs such as payment of personal property taxes, refurbishment cost and repossession costs. The Registrant has no statistical information to compare its reserves with those of its competitors. The Registrant's revenues, income and losses, and assets for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ---- ---- ---- Total Revenues $ 451,603 1,467,572 1,611,235 Net (Loss) Income (42,302) 1,071,061 570,459 Assets 569,677 1,925,299 4,685,134
Item 2. PROPERTIES The Registrant has no plants, mines or other physical properties. At December 31, 1996, the portfolio of leases was fully liquidated. The equipment previously on lease had consisted primarily of data processing equipment, office furniture, instrumentation and semi-conductor fabrication equipment. Item 3. LEGAL PROCEEDINGS The Registrant is not a party to any material pending legal proceedings at this time. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the period from September 30, 1996 to December 31, 1996, no matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise. Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The Registrant's Limited Partner Units and General Partner's Units are not publicly traded. There is no established public trading market for such Units and none is expected to develop. However the Registrant's units are freely transferable. The General Partner may at its sole discretion determine that the transfer of a Unit will not become effective if such transfer is restricted or prohibited under Federal or state securities laws. In addition, the General Partner , in its sole judgment may determine that a transfer will not become effective if it would result in the premature termination of the Partnership for Federal income tax purposes or increase the risk of reclassification of the Registrant under the publicly traded partnership provisions of the Revenue Act of 1987 (the 1987 Act) or cause the Partnership to be reclassified as an association taxable as a corporation under Federal income tax regulations. The 1987 Act contains provisions which have an adverse impact on investors in "publicly traded partnerships," which include partnerships whose interests are traded either on an established securities market or are readily tradable on a secondary market. If the Partnership were to be classified as a "publicly traded partnership", the Partnership would be taxed as a corporation as of the time public trading was deemed to commence. The general partner has represented that it will take all action necessary to restrict transfers to assure that the units will not become readily tradable on a secondary market or substantial equivalent. To accomplish that goal the General Partner intends to restrict the transfer of Units to the extent necessary to comply with IRS Notice 99-75 containing safe harbors for the transfer of partnership interest. (b) The number of holders of partnership interests are set forth below: Number of Holders as of Title of Class December 31, 1996 -------------- ---------------- Limited Partner Units 2,902 General Partner's Unit 1 (c) Distributions During 1996, the Registrant made four(4) quarterly distributions and accrued a fifth distribution for the quarter ended December 31, 1996 (the first distribution in 1996 related to 1995) to all limited partners in the amount of $960,991as follows: Period Ended Payment Distributions per $250 Investment Unit ------------ ------- -------------------- December 31, 1995 January 1996 $5.78 March 31, 1996 April 1996 $4.19 June 30, 1996 July 1996 $0.89 September 30, 1996 October 1996 $0.93 December 31, 1996 February 1997 $2.99 Liquidation distributions of varying amounts were paid in the first three quarters of 1996. Additionally, $320,991 has been accrued for the fourth quarter 1996 to be paid in February 1997. Item 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, (in thousands, except per unit data) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Total revenues 452 1,466 1,611 2,703 3,569 Net (loss) income (42) 1,072 570 365 (921) Total assets at December 31, 570 1,925 4,685 7,321 11,501 Long-term portion of notes payable 0 0 0 352 2,314 Distributions declared to partners 995 3 132 2 269 1,474 777 Net (loss) income per weighted average limited partner unit outstanding (.71) 8.53 2.23 0 (8.49)
Cash dividends declared per limited partner unit data is not applicable as cash distributions are distributed to those investors electing to receive them at a fixed rate as determined by the general partner based on the investors original investment for years 1986 - 1992. Distributions for the subsequent quarters were based on each partner's tax basis capital account. The above selected financial data should be read in conjunction with the audited financial statements and related notes to the financial statements appearing in Item 8 of the Form 10-K. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Condensed Financial Statement Preparation The partnership has presented its 1996 financial statements to reflect its leasing activities on a basis consistent with prior periods. The partnership has completed its leasing activities and has distributed its remaining net assets (cash) to the partners and has dissolved the partnership. Results of Operations Life of the Registrant The Registrant began operations in late 1986. In 1986, the registrant invested its initial capital into operating leases of IBM equipment in accordance with the partnership agreement and investment prospectus. Under an operating lease the risk of ownership remains with the lessor. The expectation is that the equipment will retain its value and that the lessor will realize profits through the sale or re-lease of the equipment. Historically the Leasing Industry had experienced success with operating leases because the life of IBM computer equipment had exceed the life of the initial lease contract. However at the end of the 1980's and the beginning of the 1990's this fundamental premise changed to the detriment of the partnership's investment. At that time International Data Corporation (IDC) provided residual value estimates to the Leasing industry through their Lease Planning Service (LPS). The following is an example of the unexpected changes which swept through the computer leasing industry in the period from 1989 to 1992. In October of 1986, IDC estimated that an IBM 3380-AD4 disk drive would have a wholesale residual value of 27% of original cost in 1990. By 1990 the wholesale cost had dropped to 5% to 10% representing a 60% to 80% shortfall in residual expectations. This dramatic drop in value was caused by a surge of technological changes in the computer industry. The following is another example of the magnitude of these changes. At the end of 1986 a new IBM 700 megabyte disk drive sold for about $70,000. By 1996 it was possible to buy a PC 2.1 gigabyte disk drive (200% larger than 700 megabyte) for $350. While an IBM disk drive and a PC disk drive work in different computing environments, this example still shows the magnitude of the technological changes which were competing with IBM equipment and reducing the residual value of its equipment. The dramatic failure of IBM equipment to maintain its value in the face of competitive technological changes was also evidenced by the decline of IBM stock value from $120 to $150 in 1986 to $50 to $40 by 1993. During this time the demand for main frame computer decreased as competing lower cost substitute systems became available. An additional contributing cause to the registrant's failure to return capital was the bankruptcy of Unicom Computer Corporation, one of the two original General Partners, in the fall of 1988. As a result, certain rental receipts were withheld by lessees for several months as claims by Unicom creditors were worked out. In addition certain pieces of equipment were tied up and leasing activities were disrupted for almost 9 months. At about this same time in 1989, IBM Credit Corp became extremely competitive forcing lease rates down. This made it increasingly difficult for the partnership to find transactions which met its yield requirements. The competitive force from IBM Credit Corp exacerbated a decline in rates as the general level of interest rates also began to fall. Starting in 1989, the registrant diversified the equipment portfolio away from IBM by leasing Digital Equipment Corporation (DEC) equipment and noncomputer assets subject to operating leases. The DEC equipment while serving a different marketplace (the so-called mini-computer market as opposed' to the mainframe IBM market) also suffered from extreme residual value shortfalls caused by the introduction of competing personal computer and client/server technologies. In 1991 the registrant engaged in finance leasing to eliminate the risk of residual values. Finance leases passed the risk of ownership to the lessee by requiring them to buy the equipment at the end of the lease. However, these leases were written in a decreasing interest rate environment. These interest rate decreases were caused in part by the recession of 1990 to 1992. The market interest rates were at levels below those required to return 100% capital to the investors. Distributions were reduced at that time, but continuing losses on the IBM equipment undercut efforts to earn back lost capital. The 1991 switch to finance leases was approved by a vote of 88% of the limited partnership units. This vote was required not only to llow the shift the asset mix away from operating leases but to change the type of credit which could be accepted by the registrant. In general finance leases are used by companies which are privately owned and smaller with higher risk of credit default. While there were credit defaults as a result of this change, they were significantly smaller than those incurred by residual value losses. The switch to finance leases did not have enough time to rebuild the capital lost as equipment was sold from the operating lease portfolio before the partnerships liquidation date was reached. In summary the largest risk position in the registrants portfolio was in residual values of computer equipment, and it was the shortfalls in these residual values, which was responsible for the registrant's losses. 1995 versus 1996 The Registrant completed ten (10) full years of operations and has liquidated its assets. During the wind down or liquidation phase of the Partnership, all cash flows in excess of partnership expenses were distributed to the limited partners in proportion to their respective tax basis capital accounts. Comparisons to prior year activities are limited due to the liquidation of the Registrants assets during this final year of the Partnership. Equipment on operating leases and the cost of the equipment held for sale or lease was disposed of or fully depreciated as of late 1994, and therefore, not a major factor in the operations of 1995 and 1996. Operating lease income declined from $340,623 in 1995 to $150,813 in 1996 because of a reduction in the operating lease portfolio. Rental income from operating leases comprised 33% and 23% of total revenue in 1996 and 1995, respectively, with interest and other income, direct financing lease income and gain on disposition of equipment making up the remainder. The increase in the percentage of income derived from operating leases reflects the decreased size of the lease portfolio due to liquidation efforts and one large operating lease which continued through 1996. Direct financing lease income decreased from $367,988 in 1995 to $40,604 in 1996 as the direct finance lease portfolio was liquidated. Management fees decreased from $155,479 in 1995 to $62,306 in 1996. Management fees are dependent on the amount of rental income derived from both operating and direct financing lease income and decreased as the lease portfolio decreased. Direct services from general partners remained fairly constant from $80,830 in 1994 to $79,998 in 1995 and $75,929 in 1996. Direct services are the administrative and personnel costs (payroll) incurred on behalf of the Partnership. The expense remained constant because a minimal staff was required to complete the activities of the Partnership. General and administrative expenses decreased from $186,879 in 1994 to $141,754 in 1995 and increased to $346,231 in 1996 due to the accrual of closing expenses required to meet the regulatory requirements of tax authorities and reporting requirements of the Limited Partnership Agreement. Total operating expenses increased from $395,971 in 1995 to $493,905 in 1996 due to the closing expenses mentioned above. The foregoing factors resulted in the Registrant reporting net income of $1,071,061 in 1995 and a net loss of $42,302 in 1996 which equated to net income (loss) per weighted average limited partner unit of $8.53 in 1995 and ($0.71) in 1996 respectively. Liquidity and Capital Resources Operating activities provided the Registrant with net cash flow of $1,010,150 in 1995 and net cash used of $184,068 in 1996. The decrease from year to year is a result of the rapid decline in the size of the lease portfolio and the liquidation of the Registrant's assets. Investing activities ( which includes the payment of cash allocable to return of principal under finance leases) provided net cash of $2,649,373 in 1995 and $929,428 in 1996. Cash from finance leases decreased from $1,918,500 in 1995 to $733,873 in 1996 due to the increased moneys from financing lease payments allocated to recovery of principal. This increase occurs naturally as the lease obligation are amortized by payment of rents . The sale of equipment related to direct financing leases and operating leases provided cash totaling $739,536 in 1995. All notes were fully retired at the end of 1995 therefore cash from financing activities was not used to repay notes payable in 1996, but was used in amounts totaling $305,610 in 1995 and $1,270,463 in 1994. Cash from financing activities was also used to make the liquidating distributions to Partners, which amounted to $1,932,165 in 1994, $3,152,630 in 1995 and the closing distributions totaling $1,305,264 in 1996. The cash position fluctuated during the liquidation years of the Registrant. Cash available from lease rentals, terminations and sale of equipment was used first to pay expenses and then distributed to the Partners. The cash available varied quarter to quarter and year to year according to the timing of the receipts of rents, sales and termination receipts. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LEASTEC INCOME FUND IV (a California Limited Partnership) Financial Statements December 31, 1996, 1995 and 1994 (With Independent Auditors' Report Thereon) LEASTEC INCOME FUND IV (A California Limited Partnership) INDEX TO FINANCIAL STATEMENTS Page Number INDEPENDENT AUDITORS' REPORT F-3 FINANCIAL STATEMENTS: BALANCE SHEETS - DECEMBER 31, 1996 AND 1995 F-4 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 F-5 STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 F-6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 F-7 NOTES TO FINANCIAL STATEMENTS F-8 F-2 LEASTEC INCOME FUND IV (a California Limited Partnership) Financial Statements Independent Auditors' Report The Partners Leastec Income Fund IV: We have audited the accompanying balance sheets of Leastec Income Fund IV (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' capital 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. As discussed in note 1 to the financial statements, the Partnership discontinued operations on December 31, 1996 and intends to make the final cash distribution to the partners in 1997. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Leastec Income Fund IV (a California 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. (signed) KPMG Peat Marwick LLP February 7, 1997 F-3
LEASTEC INCOME FUND IV (A California Limited Partnership) Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 ------ ---- ---- Cash and cash equivalents $ 569,677 $1,129,581 Receivables, net: Rent --- 42,920 Affiliates and other --- 18,925 Net investment in direct financing leases --- 733,873 Equipment on operating leases, net of accumulated depreciation of $0 in 1996 and $2,201,123 in 1995 --- --- ---------- ---------- $ 569,677 $1,925,299 ========== ========== Liabilities and Partners' Capital -------------------------------- Trade accounts payable $ 244,749 69,823 Distributions payable to partners 320,991 631,580 Due to affiliates 3,937 2,872 Deferred rent revenue --- 33,801 Deposits --- 150,246 Notes payable --- --- --------- --------- Total liabilities 569,677 888,322 --------- --------- Partners' capital General partner: Authorized 1414 units; issued and outstanding 1087 units --- --- in 1996 and 1995 Limited partners: Authorized 140,000 units; issued and outstanding 107,331 units in 1996 and 1995 --- 1,036,977 ---------- ---------- Total partners' capital $ --- 1,036,977 ---------- ---------- $ 569,677 $1,925,299 ========== ========== See accompanying notes to financial statements.
F-4 LEASTEC INCOME FUND IV (A California Limited Partnership) Statement of Operations Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Revenues: Operating lease income $ 150,813 40,623 883,925 Direct financing lease income 40,604 367,988 594,258 Interest and other income 64,631 47,450 27,230 Recovery on direct financing leases --- 655,915 --- Gain on disposition of direct financing leases, net --- 2,400 --- Gain on disposition of equipment, net 195,555 53,196 105,822 --------- -------- -------- Total revenues 451,603 1,467,572 1,611,235 ========= ========= ========= Expenses: Depreciation of equipment on operating leases --- --- 369,155 Management fees 62,306 155,479 262,850 Direct services from general partner 75,929 79,998 80,830 Interest 2,204 9,660 102,479 Other expense 7,235 9,080 38,583 General and administrative 346,231 141,754 186,879 --------- --------- --------- Total Expenses 493,905 395,971 1,040,776 --------- --------- --------- Net (loss) Income $ (42.302) 1,071,601 570,459 ========== ========= ========= Net (loss) income per weighted average limited partner unit outstanding $ (.71) 8.53 2.23 ========= ========= ======== See accompanying notes to financial statements. [/TABLE] F-5 [CAPTION] LEASTEC INCOME FUND IV (A California Limited Partnership) Statements of Partners' Capital Years ended December 31, 1996, 1995 and 1994 General Limited Partner Partners Total ------- -------- ----- [S] [C] [C] [C] Partners' capital, December 31, 1993 $ (218,158) 5,013,661 4,795,503 Net income 331,609 238,850 570,459 Distributions to partners (113,451) (2,155,557) (2,269,008) Partners' capital, December 31, 1994 --- 3,096,954 3,096,954 Net income 156,578 915,023 1,071,601 Distributions to partners (156,578) (2795,000) (3,131,578) Partners' capital, December 31, 1995 --- 1,036,977 1,036,977 Net income (loss) 33,684 (75,986) (42,302) Distributions to partners (33,684) (960,991) (994,675) Partners' capital, December 31, 1996 $ --- --- --- ----------- ---------- ---------- See accompanying notes to financial statements. [/TABLE] F-6
LEASTEC INCOME FUND IV (A California Limited Partnership) Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net (loss) income $ (42,302) 1,071,601 570,459 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation --- --- 369,155 Gain on disposition of equipment, net (195,555) (53,196) (105,822) Gain on disposition of direct financing lease --- (2,400) --- Change in provision for doubtful direct financing leases --- 383,741 266,259 Changes in operating assets and liabilities: Receivables 61,845 (16,400) 160,820 Trade accounts payable 174,926 (44,708) (8,565) Due to affiliates 1,065 (141,252) 42,704 Deposits and deferred rent revenue (184,047 (187,236) (38,044) --------- ---------- ---------- Net cash (used in) provided by operating activities (184,068) 1,010,150 1,256,966 -------- ---------- ---------- Cash flows from investing activities: Net investment in direct financing leases --- (61,859) --- Decrease in net investment in direct financing leases 733,873 1,918,500 2,020,203 Proceeds from sale of direct financing leases --- 739,536 --- Proceeds from disposition of equipment 195,555 53,196 277,161 ---------- ---------- ---------- Net cash provided by investing activities 929,428 2,649,373 2,297,364 ---------- ---------- ---------- Cash flows from financing activities: Repayment of notes payable and bank line of credit --- (305,610) (1,270,463) Distributions to partners (1,305,264) (3,152,630) (1,932,165) ---------- ---------- ---------- Net cash used in financing activities: (1,305,264) (3,458,240) (3,202,628) ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (559,904) 201,283 351,702 ---------- ---------- ---------- Cash and cash equivalents at beginning of year 1,129,581 928,298 576,596 ---------- --------- ---------- Cash and cash equivalents at end of year $ 569,677 1,129,581 928,298 =========== ========== ========= Supplemental disclosure of cash flow information: Cash paid for interest $ 2,204 9,660 102,479 =========== ========= ========= See accompanying notes to financial statements.
F-7
LEASTEC INCOME FUND IV (A California Limited Partnership) Notes to Financial Statements (1) Organization and Summary of Significant Accounting Policies Continued (d) Equipment on Operating Leases Equipment on operating leases is stated at cost less accumulated depreciation. The cost of equipment includes acquisition fees paid to the general partners on the purchase price of the equipment. Depreciation is calculated on the straight-line method over the estimated useful lives of the equipment ranging from two to seven years The estimated useful lives of equipment on operating leases and depreciation rates are adjusted to reflect changes in the estimated salvage value of the equipment at the end of the related leases caused by technological advances or other market changes during the lease term. (e) Recognition of Lease Income Operating lease income is recognized ratably over the lease term. Unearned income on direct financing leases is recognized as revenue over the lease term at a constant rate of return on the net investment in the lease. (f) Income Taxes No provision is made for income taxes since the Partnership is not a taxable entity. Individual partners report their allocable share of Partnership taxable income or loss. (g) Cash Equivalents For purposes of the statements of cash flows, the Partnership considers all investments with an initial maturity at date of purchase of three months or less to be cash equivalents. (h) Net (Loss) Income Per Weighted Average Limited Partner Unit Net (loss) income per weighted average limited partner unit is computed by dividing the net (loss) income allocated to the limited partners (($75,986) in 1996, $915,023 in 1995 and $238,850 in 1994) by the weighted average number of limited partner units outstanding during the period (107,331 in 1996, 1995 and 1994). (i) Estimates The preparation of financial statements in conformit 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. (Continued) F-9 LEASTEC INCOME FUND IV (A California Limited Partnership) Notes to Financial Statements (2) Direct Financing Leases Net investment in direct financing leases at December 31 consists of the following: 1996 1995 ---- ---- Total minimum lease payments receivable $ --- 491,018 Guaranteed residual values of leased equipment --- 307,342 Less: Unearned lease income --- (64,487) ---------- -------- $ --- 733,873 ========== ======== (3) Recovery on Direct Financing Leases A lessee of the Partnership filed for Chapter 11 bankruptcy in 1994. The Partnership had previously established an allowance to cover the loss; therefore, no loss was charged to the accompanying statement of operations for the year ended December 31, 1994. The Partnership subsequently received income from auction sales of recovered equipment and insurance proceeds on unrecovered equipment which resulted in a recovery of $64,085 recorded in the year ended December 31, 1995. In October 1992, a lessee experiencing financial difficulties suspended lease payments to the Partnership. The Partnership subsequently renegotiated terms with the lessee to continue monthly rental receipts at a reduced amount. The management of the Partnership believed that the lessee would continue to make lease payments. However, due to the uncertainty of the situation the Partnership recorded an allowance for possible losses of $383,741 at December 31, 1994. In accordance with the renegotiated terms with the lessee, the Partnership received 39,907 equity shares of the lessee's common stock. However, the Partnership had not assigned a value to the shares of common stock as the fair market value was not determinable. In May 1995 the lessee was purchased by a third party who paid off the Partnership for the related obligation and purchased the related common stock shares. At December 31, 1995, the related balances and allowance were eliminated. The Partnership recognized income for the transaction which resulted in a recovery of $591,830 recorded in the year ended December 31, 1996. (Continued) F-10 LEASTEC INCOME FUND IV (A California Limited Partnership) Notes to Financial Statements (4) Transactions with the General Partner and Affiliates The following is a summary of transactions with the general partner and affiliates. (a) Management Fees The general partner is entitled to receive management fees as compensation for services performed in connection with managing the equipment, equal to the lesser of (a) 5% of gross revenues from operating leases, 2% of gross revenues from full payout leases which contain net lease provisions, or 7% of gross receipts, excluding sales, from all leases which require equipment management and additional services relating to the management of the equipment, whichever is applicable; or (b) the fee which the general partner reasonably believes to be competitive with that which would be charged by a non-affiliate for rendering comparable services. Such fees totaled $62,306 in 1996, $155,479 in 1995 and $262,850 in 1994. (b) Direct Services The general partner provides various services directly related to the operations of the Partnership. The Partnership reimburses the general partner for administrative and personnel costs incurred on its behalf. Such reimbursements totaled $75,929 in 1996, $79,998 in 1995 and $80,830 in 1994. (c) Due to Affiliates Amounts due to affiliates for services performed totaled $0 and $2,872 at December 31, 1996 and 1995, respectively. (d) Direct Financing Lease Purchase and Sale The Partnership purchased a direct financing lease from an affiliate of the general partner in the amount of $61,859 in 1995. The purchase price was established by the net book value at which the lease was recorded on the affiliate's books. The Partnership sold a direct financing lease to the general partner for $14,711 in 1996. The sales price was established by the net book value at which the lease was recorded on the Partnership's books. (Continued) F-11 LEASTEC INCOME FUND IV (A California Limited Partnership) Notes to Financial Statements (5) Cash Distributions and Allocations of Profits and Losses (a) Cash Distributions The limited partners and general partner receive 95% and 5%, respectively, of cash available for distributions as defined in the Partnership agreement, until the limited partners receive an amount equal to their original capital contribution plus an amount equal to the greater of 8% per annum, cumulative, compounded daily or 10% per annum cumulative, non-compounded on the adjusted purchase price of limited partner units. Thereafter, the limited partners and general partner receive 85% and 15% of cash available for distribution, respectively. Distributions have not reached any of the two previous limits and are currently distributed 95% to the limited partners and 5% to the general partner. Cash distributions of $640,000 relating to the 1996 financial year of operations of the Partnership were made to the limited partners. In accordance with the Partnership agreement, a liquidating distribution of $320,991 was declared and accrued to bring the limited partners' capital account to zero. Under the Partnership agreement the general partner's capital account was reduced to zero. (b) Profit and Loss Allocations Profits are allocated first, 100% to the general partner until the general partner's capital accounts are brought to zero; second, 1% to general partner and 99% to limited partners until the total Partnership deficit is zero; third, to the general partners in an amount equal to cash distributions, and the remainder to the limited partners on the basis of their capital account balances. In 1996 the general partner's capital account received a qualified income offset allocation pursuant to Section 14.2 of the Partnership agreement. The qualified income offset allocation was made in order to maintain capital accounts in accordance with the Partnership agreement. (Continued) F-12 LEASTEC INCOME FUND IV (A California Limited Partnership) Notes to Financial Statements (6) Tax Information The following reconciles the net (loss) income for financial reporting purposes and federal income tax purposes for the years ended December 31:
1996 1995 1994 ---- ---- ---- Net (loss) income per financial statements $ (42,303) 1,071,601 570,459 Gain on disposition of equipment --- 71,486 (54,966) Depreciation and amortization --- (178,307) (281,893) Allowance for doubtful direct financing lease receivables --- (383,741) --- Allowance for doubtful accounts receivable --- (17,004) --- Direct financing leases --- 236,253 432,018 Deferred rent revenue (33,801) 22,715 6,379 Gain on liquidation 67,955 --- --- Syndication fees (3,469,672) --- --- ---------- ---------- -------- Partnership (loss) income for federal income tax purposes $(3,477,821) 823,003 671,997 =========== ========= =======
Syndication fees are capitalized when incurred and allocated to the partners upon liquidation for federal income tax purposes. The following reconciles partners' capital for financial reporting purposes and federal income tax purposes as of December 31: 1996 1995 ---- ---- Partners' capital per financial statements $ --- 1,036,977 Commissions and offering costs on sale of limited partnership units --- 3,469,672 Depreciation and amortization --- (2,597,734) Gain on liquidation --- --- Direct financing leases --- 2,306,610 Deferred rent revenue --- 33,801 Other --- 223,170 ----- --------- Partners' capital for federal income tax purposes $ --- 4,472,496 ===== ========= F-13 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) At December 31, 1996, the General Partner of the Registrant was Leastec Corporation, a California corporation, a wholly owned subsidiary of The Earnest Group, formerly Partners Fund Management, Inc. (b) The directors and executive officers of the General Partner of the Registrant who are not themselves general partners of the Registrant are: Ernest V. Lavagetto, 49, President, Chief Financial Officer, Secretary and Director of Leastec Corporation since January 1990. Mr. Lavagetto's term of office as Director ends on April 30, 1997. Mr Lavagetto joined Leastec Corporation in 1980. He is a Certified Public Accountant and a member in good standing of the American Institute of Certified Public Accountants. The officer noted above is not subject to an employment contract but serves at the pleasure of the Board of Directors of the respective corporation. (c) All significant employees are identified in Item 10 (b) above. (d) Leastec Corporation was formed in December 1976. Since its formation, Leastec has sponsored numerous tenancies-in-common, direct ownership transactions, and limited partnerships involving the leasing of computer and high technology medical equipment. Since 1980, Leastec has sponsored and served as a general partner of the following partnerships Leastec Investors No. 1 Leastec Investors No. 2 Leastec Investors No. 3 Leastec Investors No. 4 Leastec Investors No. 5 Leastec Investors No. 6 Equipment Investors of Pacific No. 1 Equipment Investors of Pacific No. 2 Equipment Investors of Pacific No. 3 Equipment Investors of Pacific No. 4 Equipment Investors of Pacific No. 5 Equipment Investors of Pacific No. 6 Leastec Associates I Leastec Associates II Leastec Associates III Leastec Associates IV Leastec Associates V Leastec Associates VI Leastec Partners I Leastec Partners II Leastec Partners III Leastec Partners IV Leastec Partners V Leastec Partners VI Leastec Partners VII Leastec Partners VIII Leastec Partners IX Leastec Partners X Leastec Partners XI Leastec Partners XII Leastec Partners XIII Leastec Partners XV Leastec Partners XVI Leastec Systems I Western Trailer Associates Catscan Associates Leastec Income Fund 1984-1 Leastec Income Fund 1985-1 Leastec Income Fund III Leastec Income Fund V Item 11. EXECUTIVE COMPENSATION The Registrant has no employees. For information relating to fees and compensation paid to the General Partner, see Item 13. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) No person owns of record, or is known by the Registrant to own beneficially, more than five percent (5%) of the Limited Partner Units. As noted below, the General Partner owns 100 percent of the General Partner Units. (b) The General Partner of the Registrant owns the equity securities of the Registrant set forth in the following table: (1) (2) (3) (4) Name of Amount and Nature Title of Beneficial of Beneficial Percent Class Owner Ownership of Class General Partner Leastec Corporation 1087 Units 100 Leastec Corporation has the right to acquire all of the Limited Partner Units of which it is the beneficial owner as specified in Rule 13d-3(d)(1) under the Exchange Act. der the Exchange Act. (Continued) F-12 LEASTEC INCOME FUND IV (A California Limited Partnership) Notes to Financial Statements Set forth is information relating to all compensation paid or accrued by the Registrant to the General Partner during the fiscal year ended December 31, 1996: (A) (B) (C) Name of Individual Capacities in Cash or Number in Group Which Served Compensation Leastec Corporation General Partner $62,306 The General Partner receives all of its compensation in cash from the Registrant. The Registrant also reimburses the General Partner for administrative and personnel costs incurred by the General Partner on behalf of the Registrant. Such expenses totaled $75,929 in 1996. Profits are allocated first 100% to the General Partner until the General Partner's capital account is brought to zero; second, 1% to the General Partner and 99% to the limited partners until the total Partnership deficit is zero; third, to the General Partner in an amount equal to cash distributions, and the remainder to the limited partners on the basis of their capital account balances. Net losses are allocated 99% to the limited partners and 1% to the General Partner. The net income allocated to the General Partner amounted to $33,684 in 1996 and $156,578 in 1995. Substantially all equipment leased by the Registrant is initially purchased by the Registrant from the manufacturer or independent third parties. The Registrant does not purchase any inventory of equipment but usually acquires equipment that is already subject to an existing lease. The Registrant purchases the equipment at cost. In addition, the Registrant's purchase price includes commissions paid to independent brokers for originating lease transactions and acquiring equipment. Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits 1. Financial Statement Page Number Independent Auditors' Report F-3 Balance Sheets F-4 Statements of Operations F-5 Statements of Partners' Capital F-6 Statements of Cash Flows F-7 Notes to Financial Statements F-8 All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. Exhibit Page Number Exhibit Name Number 3 Leastec Income Fund IV Limited Partnership Agreement (Incorporated by reference from Exhibit A on Form S-1 filed with the Commission on November 3, 1986 File Number 33-8115) Subscription Agreement and Power of Attorney (incorporated by reference from Exhibit B on Form S-1, November 3, 1986, File No. 33-8115) Election to Accumulate Cash Distributions (Incorporated by reference from Exhibit C on Form S-1, November 3, 1986, File No. 33-8115) (b) No reports on Form 8 - K have been filed during the last quarter of the fiscal year ending December 31, 1995. Pursuant to the requirements of Sections 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this 1995 report to be signed on its behalf by the undersigned, thereunto duly authorized. LEASTEC INCOME FUND IV (Registrant) By: LEASTEC CORPORATION General Partner Dated: March 30, 1997 By: ERNEST LAVAGETTO President EX-27 2
5 This schedule contains summary financial information extracted from Form 10-K and is qualifiedi in its entirety by reference to such statements. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 569,677 0 0 0 0 569,677 0 0 569,677 569,677 0 0 0 0 0 569,677 451,603 451,603 0 0 491,702 0 2,204 (42,302) 0 0 0 0 0 (42,302) (.71) (.71)
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