UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11655
NTS-PROPERTIES IV
(Exact name of registrant as specified in its charter)
| 10172 Linn Station Road | |
| 61-1026356 | Louisville, Kentucky 40223 |
| (I.R.S. Employer Identification No.) | (Address of principal executive offices) |
Registrant's telephone number, including area code:(502) 426-4800
Kentucky
(State or other jurisdiction of incorporation or organization)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each Class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
| Limited partnership interests | None | |
| | | |
| (Title of Class) | (Name of each exchange on which registered) |
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
the 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]
Indicate by check mark whether Registrant is an accelerated filer (as defined by Rule 12b-2
of the Securities Exchange Act of 1934).
Yes [ ]
No [X]
State the aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity, as of a specified date within the past 60
days: No aggregate market value can be determined because no established market exists for the
limited partnership interests.
TABLE OF CONTENTS
PART I
| Pages | ||||
| Items 1. and 2. | Business and Properties | 3-19 | ||
| Item 3. | Legal Proceedings | 19-20 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 20 |
PART II
| Item 5. | Market for Registrant's Limited Partnership Interests | |||
| and Related Partner Matters | 21 | |||
| Item 6. | Selected Financial Data | 22-23 | ||
| Item 7. | Management's Discussion and Analysis of Financial Condition | |||
| and Results of Operations | 23-31 | |||
| Item 7A. | Quantitative and Qualitative Disclosures About | |||
| Market Risk | 32 | |||
| Item 8. | Financial Statements and Supplementary Data | 33-68 | ||
| Item 9. | Change in and Disagreements with Accountants on | |||
| Accounting and Financial Disclosure | 69 |
PART III
| Item 10. | Directors and Executive Officers of the Registrant | 70-71 | ||
| Item 11. | Management Remuneration and Transactions | 71-72 | ||
| Item 12. | Security Ownership of Certain Beneficial | |||
| Owners and Management | 72 | |||
| Item 13. | Certain Relationships and Related Transactions | 73 | ||
| Item 14. | Controls and Procedures | 73 |
PART IV
| Item 15. | Exhibits, Financial Statement Schedules and | |||
| Reports on Form 8-K | 74-76 | |||
| Signatures | 77 | |||
| Certifications | 78-79 |
2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements included in this Form 10-K, particularly those included in Part I, Items 1 and 2 - Business and Properties, and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), may be considered "forward-looking statements" because such statements relate to matters which have not yet occurred. For example, phrases such as "we anticipate," "believe" or "expect" indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which we expected also may not occur or occur in a different manner, which may be more or less favorable to us. We do not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report, reflect management's best judgment based on known factors and involve risks and uncertainties. Actual results could differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including but not limited to those discussed below. Any forward-looking information provided by us pursuant to the "safe harbor" provisions established by recent securities legislation should be evaluated in the context of these factors. See Part II - Item 7 for Cautionary Statements.
PART I
Items 1 and 2 - Business and Properties
Development of Business
NTS-Properties IV (the "Partnership") is a limited partnership organized under the laws of the Commonwealth of Kentucky on May 13, 1983. The General Partner is NTS-Properties Associates IV, a Kentucky limited partnership (the "General Partner"). The general partners of the General Partner are NTS Capital Corporation and J.D. Nichols. As used in this Form 10-K the terms "we," "us" or "our," as the context requires, may refer to the Partnership or its interests in these properties and joint ventures. As of December 31, 2002, the Partnership owned the following properties and joint venture interests listed below:
3
A description of the properties owned by the L/U II Joint Venture as of December 31, 2002 appears
below: 4
We or the joint ventures in which we are a partner have a fee title interest in the above properties.
While we believe that our properties are adequately covered by property insurance, there is a risk
that unknown mold and other microbial damage may not be covered by our insurance. Please see
Part II, Item 7 for a discussion of this potential liability. As of December 31, 2002, our properties and joint venture investments were encumbered by
mortgages as shown in the table below: We are engaged solely in the business of developing, constructing, owning and operating residential
apartments and commercial real estate. See Part II, Item 8 - Note 9 for information regarding our
operating segments. 5
Narrative Description of Business Our current investment objectives are consistent with our original objectives, which are to provide
cash distributions from the operation or financing of our properties, obtain long-term capital gain
treatment on the sale or refinancing of properties, provide limited partners with deferrals of federal
income taxes, and preserve limited partners' capital. Proceeds of any sale or refinancing of our
properties may be distributed to limited partners, or may be used to repay debt or to make capital
improvements to properties. The properties we currently own, which are described in the following section, are the same as those
we originally acquired. Our properties are in a condition suitable for their intended use. We
periodically evaluate whether to retain, refinance, or sell or otherwise dispose of these properties,
with a view toward meeting the above investment objectives, including the making of distributions.
In deciding whether to sell a property, we will consider factors such as potential capital appreciation,
mortgage pre-payment penalties, market conditions, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to the limited partners.
Distributions have been suspended to fund current and future capital improvements and debt
repayment. For information on distributions, see Part II, Item 5 of this Form 10-K. In addition, see
"Potential Consolidation" later in this section for a discussion of our potential consolidation with
other affiliated entities. Description of Real Property As of December 31, 2002, there were 9 tenants leasing space aggregating approximately 76,000
square feet of rentable area at Commonwealth Business Center Phase I. All leases provide for tenants
to contribute toward the payment of common area maintenance expenses, insurance and real estate
taxes. The tenants who occupy Commonwealth Business Center Phase I are professional service
entities. The principal occupations/professions practiced include insurance and machinery
sales/services. Two tenants individually lease more than 10% of Commonwealth Business Center
Phase I's rentable area. The occupancy levels at the business center as of December 31 were 91%
(2002), 90% (2001), 86% (2000), 93% (1999) and 89% (1998). See Part II, Item 7 for average
occupancy information. The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: 6
As of December 31, 2002, there were 8 tenants leasing space aggregating approximately 49,000
square feet of rentable area at Plainview Point Office Center Phases I and II. All leases provide for
tenants to contribute toward the payment of common area maintenance expenses, insurance and real
estate taxes. The tenants who occupy Plainview Point Office Center Phases I and II are professional
service entities. The principal occupations/professions practiced include a business school, mortgage
company and insurance. Two tenants individually lease more than 10% of Plainview Point Office
Center's rentable area. The occupancy levels at the office center as of December 31 were 86%
(2002), 84% (2001), 77% (2000), 79% (1999) and 65% (1998). See Part II, Item 7 for average
occupancy information. The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: Apartments at The Willows of Plainview Phase I include one and two-bedroom lofts and deluxe
apartments and two-bedroom town homes. All apartments have wall-to-wall carpeting, individually
controlled heating and air conditioning, dishwashers, ranges, refrigerators and garbage disposals.
All apartments, except one-bedroom lofts have washer/dryer hook-ups. The one-bedroom lofts have
stackable washers and dryers. Tenants have access to and the use of coin-operated washer/dryer
facilities, clubhouse, management offices, pool, whirlpool and tennis courts. Monthly rental rates at The Willows of Plainview Phase I start at $699 for one-bedroom apartments,
$959 for two-bedroom apartments and $1,059 for two-bedroom town homes, with additional
monthly rental amounts for special features and locations. Tenants pay all costs of heating, air
conditioning, water, sewer and electricity. Most leases are for a period of one year, however some
apartments will be rented on a shorter term basis at an additional charge. The occupancy levels at
the apartment complex as of December 31 were 92% (2002), 78% (2001), 87% (2000), 96% (1999)
and 86% (1998). See Part II, Item 7 for average occupancy information. The following is information regarding the joint venture properties in which we have a 10% or
greater interest as of and for the year ending December 31, 2002. We had a 9.7%, 4.96% and 3.97%
joint venture interest in The Willows of Plainview Phase II, Plainview Point III Office Center and
Golf Brook Apartments, respectively, as of and for the year ending December 31, 2002. 7
A single tenant leases 100% of Blankenbaker Business Center 1A. The annual base rent, which
excludes the cost of utilities, is $7.48 per square foot. The lease term is for 11 years and expires in
July 2005. The lease provides for the tenant to contribute toward the payment of common area
maintenance expenses, insurance and real estate taxes. The tenant is a professional service entity
in the insurance industry. The occupancy level at the business center as of December 31, 2002,
2001, 2000, 1999 and 1998 was 100%. See Part II, Item 7 for average occupancy information. The following table contains approximate data concerning the major tenant lease in effect on
December 31, 2002: As of December 31, 2002, there were 30 tenants leasing space aggregating approximately 73,000
square feet of rentable area at Lakeshore Business Center Phase I. All leases provide for tenants to
contribute toward the payment of common area maintenance expenses, insurance, utilities and real
estate taxes. The tenants who occupy Lakeshore Business Center Phase I are professional service
entities. The principal occupations/professions practiced include telemarketing services, financial
services and computer integration services. There are no tenants that individually lease 10% or more
of Lakeshore Business Center Phase I's rentable area. The occupancy levels at the business center
as of December 31 were 71% (2002), 89% (2001), 85% (2000), 73% (1999) and 85% (1998). See
Part II, Item 7 for average occupancy information. As of December 31, 2002, there were 20 tenants leasing space aggregating approximately 79,000
square feet of the rentable area at Lakeshore Business Center Phase II. All leases provide for tenants
to contribute toward the payment of common area maintenance expenses, insurance, utilities and real
estate taxes. The tenants who occupy Lakeshore Business Center Phase II are professional service
entities. The principal occupations/professions practiced include medical equipment leasing,
insurance services and management offices for the Florida state lottery. One tenant individually
leases more than 10% of Lakeshore Business Center Phase II's rentable area. The occupancy levels
at the business center as of December 31 were 81% (2002), 82% (2001), 86% (2000), 72% (1999)
and 79% (1998). See Part II, Item 7 for average occupancy information. 8
The following table contains approximate data concerning a major tenant lease in effect on
December 31, 2002: As of December 31, 2002, there were 3 tenants leasing approximately 15,000 square feet of the
rentable area at Lakeshore Business Center Phase III. All leases provide for tenants to contribute
toward the payment of common area maintenance expenses, insurance, utilities and real estate taxes.
Tenants who occupy space at Lakeshore Business Center Phase III are professional service entities.
The principal occupations/professions practiced include insurance services and telecommunications.
The occupancy levels at the business center as of December 31 were 37% (2002), 28% (2001) and
12% (2000). See Part II, Item 7 for average occupancy information. The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: Additional Operating Data Additional operating data regarding our properties is furnished in the following table: 9
Depreciation for book purposes is computed using the straight-line method over the estimated useful
lives of the assets which are 5-30 years for land improvements, 3-30 years for buildings and
improvements, 3-30 years for amenities and the applicable lease term for tenant improvements. The
aggregate cost of our properties for federal tax purposes is approximately $15,446,000. Joint Venture Investments On September 1, 1984, we entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate a 144 - unit luxury apartment complex on an 8.29 acre site in Louisville,
Kentucky known as The Willows of Plainview Phase II. The term of the joint venture shall continue
until dissolved. Dissolution shall occur upon, but not before, the first to occur of the following: The apartment complex is encumbered by permanent mortgages with two insurance companies.
Both loans are secured by a first mortgage on the property. The outstanding balances of the
mortgages on December 31, 2002 total $3,984,571 ($2,494,654 and $1,489,917). The mortgages
are recorded as a liability of the joint venture. Both mortgages bear interest at a fixed rate of 7.2%
and are due January 5, 2013. At maturity, we believe the loans will have been repaid based on the
current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" means the excess, if any, of (A) the gross receipts
from the operations of the joint venture property (including investment income) for such period plus
any funds released from previously established reserves (referred to in clause (iv) below), over (B)
the sum of (i) all cash operating expenses paid by the joint venture property during such period in
the course of business, (ii) capital expenditures during such period not funded by capital
contributions, loans or paid out of previously established reserves, (iii) payments during such period
on account of amortization of the principal of any debts or liabilities of the joint venture property
and (iv) reserves for contingent liabilities and future expenses of the joint venture property.
"Percentage Interest" means that percentage which the capital contributions of a Partner bears to the
aggregate capital contributions of all Partners. Net income or loss is allocated between the
Partners in accordance with their joint venture agreement. Our ownership share was 9.70% on
December 31, 2002, 2001 and 2000. 10
On September 1, 1985, we entered into a joint venture agreement with NTS-Properties VI to
develop, construct, own and operate a 158-unit luxury apartment complex on a 13.15 acre site in
Orlando, Florida known as Golf Brook Apartments Phase I. On January 1, 1987, the joint venture
agreement was amended to include Golf Brook Apartments Phase II, a 37-unit luxury apartment
complex located on a 3.069 acre site adjacent to Golf Brook Apartments Phase I. The term of the
joint venture shall continue until dissolved. Dissolution shall occur upon, but not before, the first
to occur of the following: Golf Brook Apartments is encumbered by a mortgage payable to an insurance company. The current
mortgage payable of $6,899,113 is recorded as a liability by NTS-Properties VI in accordance with
the joint venture agreement. The mortgage payable bears interest at a fixed rate of 7.57%, is due
May 15, 2009 and is secured by the assets of Golf Brook Apartments. Monthly principal payments
are based upon a 12-year amortization schedule. At maturity, we believe the loan will have been
repaid based on the current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" means the excess, if any, of (a) the sum of (i) the
gross receipts of the joint venture property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv) below), over (b) the sum
of (i) all cash expenses paid by the joint venture property during such period, (ii) all capital
expenditures paid in cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the joint venture property and (iv) reserves
for contingent liabilities and future expenses of the joint venture property, as established by the
Partners; provided, however, that the amounts referred to in (i), (ii) and (iii) above shall be taken into
account only to the extent not funded by capital contributions or paid out of previously established
reserves. "Percentage Interest" means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners. Net income or loss is allocated
between the Partners in accordance with their joint venture agreement. Our ownership share was
3.97% on December 31, 2002, 2001 and 2000. 11
On March 1, 1987, we entered into a joint venture agreement with NTS-Properties VI to develop,
construct, own and operate an office building in Louisville, Kentucky known as Plainview Point III
Office Center. The terms of the joint venture shall continue until dissolved. Dissolution shall occur
upon, but not before, the first to occur of the following: Plainview Point III Office Center is encumbered by a mortgage payable to a bank. The current
mortgage payable of $3,065,058 is recorded as a liability by NTS-Properties VI in accordance with
the joint venture agreement. The mortgage payable bears interest at 8.38%, matures December 1,
2010 and is secured by the assets of Plainview Point III Office Center. At maturity, we believe the
loan will have been repaid based on the current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" means the excess, if any, of (a) the sum of (i) the
gross receipts of the joint venture property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv) below), over (b) the sum
of (i) all cash expenses paid by the joint venture property during such period, (ii) all capital
expenditures paid in cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the joint venture property and (iv) reserves
for contingent liabilities and future expenses of the joint venture property, as established by the
Partners; provided, however, that the amounts referred to in (i), (ii) and (iii) above shall be taken into
account only to the extent not funded by capital contributions or paid out of previously established
reserves. "Percentage Interest" means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners. Net income or loss is allocated
between the Partners in accordance with their joint venture agreement. Our ownership share was
4.96% on December 31, 2002, 2001 and 2000. 12
On August 16, 1994, the Blankenbaker Business Center joint venture agreement was amended to
admit us to the joint venture. The joint venture was originally formed on December 28, 1990
between NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd., affiliates of our General Partner,
to own and operate Blankenbaker Business Center 1A and to acquire an approximately 2.49 acre
parking lot that was being leased by the business center from an affiliate of our General Partner. The
use of the parking lot is a provision of the tenant's lease agreement with the business center. The
terms of the joint venture shall continue until dissolved. Dissolution shall occur upon, but not
before, the first to occur of the following: The joint venture obtained permanent financing of $4,800,000 in November 1994. The outstanding
balance on December 31, 2002 was $1,733,466. The mortgage is recorded as a liability of the joint
venture. The mortgage bears interest at a fixed rate of 8.5% and is due November 15, 2005.
Monthly principal payments are based upon an 11-year amortization schedule. At maturity, we
believe the mortgage will have been repaid based on the current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" for any period shall mean the excess, if any, of (A)
the sum of (i) the gross receipts of the joint venture property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously established reserves
(referred to in clause (B) (iv) below), over (B) the sum of (i) all cash operating expenses paid by the
joint venture property during such period in the course of the business, (ii) capital expenditures paid
in cash during such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the joint venture property and (iv) reserves for contingent
liabilities and future expenses of the joint venture property as established by the Partners; provided,
however, that the amounts referred to in (B) (i), (ii) and (iii) above shall only be taken into account
to the extent not funded by capital contributions or paid out of previously established reserves.
"Percentage Interest" means that percentage which the capital contributions of a Partner bears to the
aggregate capital contributions of all the Partners. Net income or loss is allocated between the
partners in accordance with their joint venture agreement. Our ownership share was 29.61% on
December 31, 2002, 2001 and 2000. 13
In June 2002, NTS-Properties Plus, one of the original members of the Blankenbaker Business
Center joint venture, merged into ORIG, LLC, an affiliate of ours. As a result of the merger, ORIG
has succeeded to the interests of NTS-Properties Plus in the joint venture. See the information under
the caption "Ownership of Joint Venture" in Part II, Item 7 of this Form 10-K. Lakeshore/University II Joint Venture On January 23, 1995, a joint venture known as the Lakeshore/University II Joint Venture (the "L/U
II Joint Venture") was formed among us and NTS-Properties V, NTS-Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., affiliates of our General Partner, for purposes of owning Lakeshore
Business Center Phases I and II, University Business Center Phase II (property sold during 1998)
and certain undeveloped tracts of land adjacent to the Lakeshore Business Center development. The table below identifies which properties were contributed to the L/U II Joint Venture and the
respective owners of such properties prior to the formation of the joint venture. The term of the joint venture shall continue until dissolved. Dissolution shall occur upon, but not
before, the first to occur of the following: 14
The properties of the L/U II Joint Venture are encumbered by mortgages payable to an insurance
company as follows: The loans are recorded as liabilities of the L/U II Joint Venture. The mortgages of Lakeshore
Business Center Phases I and II bear interest at a fixed rate of 8.125% and are due August 1, 2008.
Monthly principal payments are based upon a 12-year amortization schedule. At maturity, we
believe the loans will have been repaid based on the current rate of amortization. The mortgage of
Lakeshore Business Center Phase III bears interest at a variable rate based on LIBOR daily rate plus
2.3% and is due September 8, 2003. As of December 31, 2002, the interest rate was 4.17%. We
anticipate replacing the construction loan with permanent financing at or before its maturity. On July 1, 2000 and July 1, 1999, NTS-Properties V contributed $500,000 and $1,737,000,
respectively, to the L/U II Joint Venture. The other partners in the joint venture, including us, did
not make capital contributions at that time. Accordingly, the ownership percentages of the other
partners in the joint venture decreased. Effective July 1, 2000, our percentage of ownership in the
joint venture was 10.92%, as compared to 11.93% prior to July 1, 2000, and 17.86% prior to July
1, 1999. On July 23, 1999, the L/U II Joint Venture sold 2.4 acres of land adjacent to the Lakeshore Business
Center for a price of $528,405. We had an 11.93% interest in the joint venture at that date. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interest. The term "Net Cash Flow" means the excess, if any, of (A) the sum of (i) the
gross receipts of the joint venture properties for such period (including loan proceeds), other than
capital contributions, plus (ii) any funds released from previously established reserves (referred to
in clause (B) (iv) below), over (B) the sum of (i) all cash operating expenses paid by the joint venture
during such period in the course of business, (ii) capital expenditures paid in cash during such
period, (iii) payments during such period on account of amortization of the principal of any debts
or liabilities of the joint venture and (iv) reserves for contingent liabilities and future expenses of the
joint venture, as established by the Partners; provided, however, that the amounts referred to in (B)
(i), (ii) and (iii) above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. "Percentage Interest" means that
percentage which the capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners. Net income or loss is allocated between the partners in accordance with their
joint venture agreement. Our ownership share was 10.92% on December 31, 2002, 2001 and 2000. 15
In June 2002, NTS-Properties Plus, one of the original members of the L/U II Joint Venture, merged
into ORIG, LLC, an affiliate of ours. As a result of the merger, ORIG has succeeded to the interests
of NTS-Properties Plus in the joint venture. See the information under the caption "Ownership of
Joint Venture" in Part II, Item 7 of this Form 10-K. Our properties are subject to competition from similar types of properties (including, in certain areas,
properties owned or managed by affiliates of our General Partner) in the respective vicinities in
which they are located. Such competition is generally for the retention of existing tenants at lease
expiration or for new tenants when vacancies occur. We maintain the suitability and competitiveness
of our properties primarily on the basis of effective rents, amenities and service provided to tenants.
Competition is expected to increase in the future as a result of the construction of additional
properties. In the vicinity of Golf Brook Apartments, there are three apartment communities
currently under construction, one apartment community slated to start construction in 2003 and one
apartment community that could potentially start construction in 2003. Construction on the first
community started in 2002, with completion scheduled for late summer 2003. This community will
have 294 apartments. The construction of the second community began in 2002 with a completion
date scheduled for fall 2003. This community will have 200 apartments. The construction of the
third community also started in 2002 but the completion date is unknown at this time. The
community will have 350 apartments. The fourth community was graded in 2002 and construction
is scheduled to begin in 2003. The completion date is unknown at this time. This community will
have 754 apartments. The fifth community is a proposed addition to an existing community of 286
apartments. No construction start date or completion date has been determined. In the vicinity of
The Willows of Plainview (Phase I, Phase II and The Park at the Willows), there are three apartment
communities scheduled to start construction in 2003. The first community will have approximately
300 units and is scheduled to break ground in Spring 2003. The second community will have
approximately 500 units and is scheduled to begin construction in August 2003. The third
community will have approximately 200 units and is expected to start construction some time in the
late summer of 2003. The expected completion date for all three communities is unknown at this
time. Currently, the effect these new properties will have on occupancy at Golf Brook Apartments
and The Willows of Plainview is unknown. We have not commissioned a formal market analysis
of competitive conditions in any market in which we own properties, but rely upon the market
condition knowledge of the employees of NTS Development Company who manage and supervise
leasing for each property. See "Conflict of Interest." NTS Development Company, an affiliate of our General Partner, directs the management of our
properties pursuant to a written agreement (the "Agreement"). NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling interest in NTS
Corporation and is a General Partner of NTS-Properties Associates IV. Under the Agreement, NTS
Development Company establishes rental policies and rates and directs the marketing activity of 16
leasing personnel. NTS Development Company also coordinates the purchase of equipment and
supplies, maintenance activity and the selection of all vendors, suppliers and independent
contractors. As compensation for its services, NTS Development Company received a total of $135,082 in
property management fees for the year ended December 31, 2002. $81,718 was paid by commercial
properties and $53,364 was paid by residential properties. The fee is equal to 6% of gross revenues
from commercial properties and 5% of gross revenues from residential properties. In addition, the Agreement requires us to purchase all insurance relating to the managed properties,
to pay the direct out-of-pocket expenses of NTS Development Company in connection with our
operations, including the cost of goods and materials used for and on our behalf, and to reimburse
NTS Development Company for the salaries, commissions, fringe benefits and related employment
expenses of personnel. The term of the Agreement between NTS Development Company and us was initially for five years,
and renewed thereafter for succeeding one-year periods, until cancelled. The Agreement is subject
to cancellation by either party upon 60-days written notice. As of December 31, 2002, the
Agreement is still in effect. Information about our working capital practices is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7. We do not consider our operations to be seasonal to any material degree. Principals of the General Partner or its affiliates own or operate real estate properties that compete,
directly or indirectly, with properties owned by us. Because we were organized by, and are operated
by the General Partner, conflicts arising from our competition with properties owned by affiliated
partnerships are not resolved through arms-length negotiations, but through the exercise of the
General Partner's judgment consistent with its fiduciary responsibility to the limited partners and
our investment objectives and policies. The General Partner is accountable to the limited partners
as a fiduciary and consequently must exercise good faith and integrity in handling our affairs. A
provision has been made in our Partnership Agreement that the General Partner will not be liable
to us except for acts or omissions performed or omitted fraudulently, in bad faith or with negligence.
The Partnership Agreement provides for indemnification of the General Partner by us for liability
resulting from errors in judgment or certain acts or omissions. The General Partner and its affiliates
have the right to compete with our properties including the right to develop competing properties
now and in the future, in addition to the existing properties which may compete directly or
indirectly. 17
NTS Development Company, an affiliate of the General Partner, acts in a similar capacity for other
affiliated entities in the same geographic region where we have property interests. As a result of the
affiliation between NTS Development Company and our General Partner, there is a conflict of
interest between our General Partner's duty to the limited partners and its incentive to cause us to
retain our properties because of the payment of fees to NTS Development Company. We believe
the agreement with NTS Development Company is on terms no less favorable to us than those which
could be obtained from a third party for similar services in the same geographical region in which
the properties are located. The contract is terminable by either party without penalty upon 60-days
written notice. We have no employees. Under the terms of the property management agreement with NTS
Development Company, NTS Development Company makes its employees available to perform
services for us. In addition to the property management fees that we pay to NTS Development
Company, we reimburse this affiliate for the actual costs of providing such services. See Part II,
Item 8 - Note 7 and Part III, Item 13 for further discussions of related party transactions. Our General Partner, along with the general partners of four other public limited partnerships
affiliated with us, is investigating a consolidation with other affiliated entities. In addition to these
affiliated entities, the consolidation would likely involve several private partnerships and our General
Partner. The new combined entity would own all of the properties currently owned by the various
participants in the consolidation, and the limited partners or other owners of these entities would
receive an ownership interest in the combined entity. The number of ownership interests to be
received by limited partners and the other owners of the entities participating in the consolidation
would likely be determined based on the relative value of the assets contributed to the combined
entity by each participant in the consolidation, reduced by any indebtedness assumed by the entity.
The majority of the contributed assets would consist of real estate properties, whose relative values
would be based on appraisals. The potential benefits of consolidating the entities include: reducing
the administrative costs as a percentage of assets and revenues by creating a single public entity;
diversifying limited partners' investments in real estate to include additional markets and types of
properties; and creating an asset base and capital structure that may enable greater access to the
capital markets. There are, however, also a number of potential adverse consequences to a
consolidation such as, the expenses associated with a consolidation and the fact that the duration of
the new entity would likely exceed our anticipated duration, and that the interests of our limited
partners in the combined entity would be smaller on a percentage basis than their interests in us.
Further, the new entity may adopt investment and management policies that are different from those
presently used by our General Partner. A consolidation requires approval of our limited partners and
the limited partners and other equity holders of the other proposed participants to the consolidation.
Accordingly, there is no assurance that the consolidation will occur. 18
Website Information Our Internet website address is www.ntsdevelopment.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available and may
be accessed free of charge through the "About NTS" section of our Internet website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our
Internet website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $28,000, which was expensed. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against our General Partner, the general partners of three public
partnerships affiliated with us and several individuals and entities affiliated with us. On March 21,
2003, the complaint was amended to include the general partners of another public partnership
affiliated with us and a partnership that was affiliated with us but is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited partners and
derivatively on behalf of us and affiliated public partnerships based on alleged overpayments of fees,
prohibited investments, improper failures to make distributions, purchases of limited partnership 19
interests at insufficient prices and other violations of the limited partnership agreements. The
plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified
amount, an accounting, the appointment of a receiver or liquidating trustee, the entry of an order of
dissolution against the public partnerships, a declaratory judgment, and injunctive relief. Our
General Partner believes that this action is without merit, and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. None. 20
PART II There is no established trading market for the limited partnership interests. We had 1,219 limited
partners as of January 31, 2003. Cash distributions and allocations of income and loss are made as
described in Item 8 - Note 1D. No distributions were paid during 2002 or 2001. Quarterly distributions are determined based on
current cash balances, cash flow being generated by operations and cash reserves needed for future
leasing costs, tenant finish costs and capital improvements. Distributions have been suspended to
fund current and future capital improvements and debt repayment. Our ability to pay distributions
is dependent upon, among other things, our ability to refinance properties on favorable terms. 21
Item 6 - Selected Financial Data Years ended December 31: The above selected financial data should be read in conjunction with the financial statements and
related notes appearing elsewhere in this Form 10-K report. 22
The Emerging Issues Tasks Force ("EITF") of the Financial Accounting Standards Board ("FASB")
reached a consensus on Issue No. 00-1, "Applicability of the Pro Rata Method of Consolidation to
Investments in Certain Partnerships and Other Unincorporated Joint Ventures." The EITF reached
a consensus that a proportionate gross financial statement presentation (referred to as "proportionate
consolidation" in the Notes to Financial Statements) is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of accounting, unless the investee
is in either the construction industry or an extractive industry where there is a longstanding practice
of its use. The consensus is applicable to financial statements for annual periods ending after June 15, 2000.
We have applied the consensus to all comparative financial statements, restating them to conform
with the consensus for all periods presented. The application of this consensus did not result in a
restatement of previously reported partners' equity or results of operations, but did result in a
recharacterization or reclassification of certain financial statements' captions and amounts. The data
in the table above has been restated for all periods presented. Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") should be read in conjunction with the Financial Statements in Item 8 and the
Cautionary Statements below. Critical Accounting Policies Our most critical business assumption is that our properties' occupancy will remain at a level which
provides for debt payments and adequate working capital, currently and in the future. If occupancy
were to fall below that level and remain at or below that level for a significant period of time, then
our ability to make payments due under our debt agreements and to continue paying daily
operational costs would be greatly affected. We review properties for impairment on a property-by-property basis whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. These circumstances
include, but are not limited to, declines in cash flows, occupancy and comparable sales per square
foot at the property. We recognize an impairment of property when the estimated undiscounted
operating income before depreciation and amortization is less than the carrying value of the property.
To the extent an impairment has occurred, we charge to income the excess of the carrying value of
the property over its estimated fair value. We may decide to sell properties that are held for use. The
sales prices of these properties may differ from their carrying values. 23
During the year ended December 31, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." SFAS No. 144 requires one accounting model to be used for long-lived assets
to be disposed of by sale, whether previously held or used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions. Our adoption of
SFAS No. 144 did not impact the financial statements in 2002. The occupancy levels at our properties and joint ventures as of December 31 were as follows: 24
The average occupancy levels at our properties and joint ventures for the years ended December 31
were as follows: Rental and Other Income The rental and other income generated by our properties and joint ventures for the years ended
December 31 were as follows: 25
On June 25, 2002, NTS-Properties Plus Ltd. merged with ORIG, LLC, ("ORIG") an affiliate of our
General Partner. ORIG is the surviving entity as a result of this merger. NTS-Properties IV
continues to hold a 29.61% interest in the Blankenbaker Business Center Joint Venture and a 10.92%
interest in the Lakeshore/University II Joint Venture after the completion of the NTS-Properties Plus,
Ltd./ORIG Merger. ORIG now holds a 39.05% interest in the Blankenbaker Business Center Joint
Venture and a 7.69% interest in the Lakeshore/University II Joint Venture. Results of Operations for 2000, 2001 and 2002 The following table of segment data is provided: Several general trends have affected our recent operating results. Net revenues for residential have
decreased slightly due to lower average occupancy at The Willows of Plainview Phase I, while
commercial net revenues have increased slightly due to increased average occupancy at Plainview
Point Office Center Phase I and II. Operating expenses have remained relatively stable. Interest
expense continues to decrease as a result of normal recurring principal reductions. Depreciation and
amortization has increased slightly as a result of continued capital improvements. There has not been a material change in a particular line item on the Statements of Operations
from one year to the next; therefore we have omitted any discussion concerning individual line
items. 26
The majority of our cash flow is derived from operating activities. Cash flows used in investing
activities consist of amounts spent for capital improvements at our properties. Cash flows used in
financing activities consist of principal payments on mortgages payable, payment of loan costs and
amounts paid to repurchase limited partnership interests. We do not expect any material changes
in the mix and relative cost of capital resources from those in 2002. The following table illustrates our cash flows provided by or used in operating activities, investing
activities and financing activities: Net cash provided by operating activities decreased approximately $97,000, or 13%, in 2002,
primarily due to the changes in accounts receivable and accounts payable, which was partially offset
by the loss on disposal of assets. Net cash provided by operating activities increased approximately $195,000, or 36%, in 2001,
primarily as a result of increased accounts payable, which was partially offset by the decreased net
income. Net cash used in investing activities increased approximately $152,000, or 83%, in 2002, primarily
as the result of increased capital expenditures and an increased investment in and advances to joint
ventures. Net cash used in investing activities increased approximately $139,000 in 2001. The increase is
primarily the result of an increase in investment in or advances to joint ventures. Net cash used in financing activities increased approximately $80,000, or 16%, in 2002, primarily
as the result of continued principal payments made on the Commonwealth Business Center Phase
I and The Willows of Plainview Phase I mortgages. Due to the fact that no distributions were made during 2002, 2001 or 2000, the table which presents
that portion of the distribution that represents a return of capital based on Accounting Principles
Generally Accepted in the United States has been omitted. On March 14, 2003 we reached an agreement with the mortgage lender on the Lakeshore Business
Center Phases I and II mortgages to suspend principal payments for twelve months beginning with
the payments due May 1, 2003. The principal payments due the lender will continue to be paid and
deposited by the lender into an escrow account. We will then be allowed to draw upon the escrowed 27
funds for specific capital improvements listed in the agreement. They include tenant finish costs,
heating and air conditioning equipment and roof replacements. The agreement does not change any
terms of the existing mortgage loans. However, the suspension of principal payments will result in
significant balances remaining due on the loans at maturity in 2008, currently estimated to be
approximately $757,000 and $814,000, respectively. On March 14, 2003 we signed a tenant to a lease for approximately 20,000 square feet of the
Lakeshore Business Center Phase III. The lease agreement calls for us to provide tenant finish
costing approximately $705,000. We expect to use existing and new financing sources to make these
expenditures. There can be no assurances that we will be successful in seeking new sources of
financing for Lakeshore Business Center Phase III. The demand on future liquidity is anticipated to increase as we continue our efforts in the leasing
of Plainview Point III Office Center. One tenant which occupied 16,895 square feet, or 27%, of the
building, vacated its space on November 30, 2001 at the end of their lease. This left Plainview Point
III Office Center with only 54% occupancy. As a result of this vacancy, there will likely be a
protracted period for the property to become fully leased again and substantial funds, currently
estimated to be approximately $717,000 will likely be needed for tenant finish costs. Our share of
these costs would be approximately $36,000. Plainview Point Office Center Phases I and II are expected to require new roofs in 2003. The roof
replacements at Plainview Point Office Center Phases I and II are expected to cost approximately
$87,000. The roof replacements will be funded from existing working capital or additional financing
where necessary. We had no other material commitments for renovations or capital improvements as of December 31,
2002. We are making efforts to increase the occupancy levels at our commercial properties. The leasing
and renewal negotiations at the Lakeshore Business Center development are conducted by an
employee of NTS Development Company, who makes calls to potential tenants and negotiates lease
renewals with current tenants. The leasing and renewal negotiations for our remaining commercial
properties are managed by leasing agents that are employees of NTS Development Company in
Louisville, Kentucky. The leasing agents are located in the same city as commercial properties. All
advertising for these properties is coordinated by NTS Development Company's marketing staff
located in Louisville, Kentucky. In an effort to continue to improve occupancy at our residential
properties, we have an on-site leasing staff that are employees of NTS Development Company, at
each of the apartment communities. The staff facilitates all on-site visits from potential tenants,
coordinates local advertising with NTS Development Company's marketing staff, makes visits to
local companies to promote fully furnished units and negotiates lease renewals with current
residents. 28
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A and Lakeshore
Business Center Phases I, II and III provide for tenants to contribute toward the payment of common
area maintenance expenses, insurance and real estate taxes. Leases at Plainview Point Office Center
Phases I, II and III provide for tenants to contribute toward the payment of common area
maintenance expenses, insurance, utilities and real estate taxes. These lease provisions, along with
the fact that residential leases are generally for a period of one year, provide limited protection to
our operations from the impact of inflation and changing prices. Across the United States there have been recent reports of lawsuits against owners and managers of
multi-family and commercial properties asserting claims of personal injury and property damage
caused by the asserted presence of mold and other microbial organisms in residential units and
commercial space. Some of these lawsuits have resulted in substantial monetary judgments or
settlements. We have not, at present, been named as a defendant in any lawsuit that has alleged the
presence of mold or other microbial organisms. Prior to September 13, 2002, we were insured
against claims arising from the presence of mold due to water intrusion. However, since September
13, 2002, certain of our insurance carriers have excluded from insurance coverage property damage
loss claims arising from the presence of mold, although certain of our insurance carriers do provide
some coverage for personal injury claims. We are in the process of implementing protocols and
procedures to prevent the build-up of mold and other microbial organisms in our properties, and are
in the process of implementing more stringent maintenance, housekeeping and notification
requirements for tenants in our properties. We believe that these measures will eliminate, or at least,
minimize any effect that mold or other microbial organisms could have on our tenants. To date, we
have not incurred any material costs or liabilities relating to claims of mold exposure or to abate
mold conditions. Because the law regarding mold is unsettled and subject to change, however, we
can make no assurance that liabilities resulting from the presence of, or exposure to, mold or other
microbial organisms will not have a material adverse effect on our consolidated financial condition
or results of operations and our subsidiaries taken as a whole. 29
Contractual Obligations and Commercial Commitments The following disclosure represents our obligations and commitments to make future payments
under contracts, such as debt and lease agreements, and under contingent commitments, such as debt
guarantees. 30
Cautionary Statements Our liquidity, capital resources and results of operations are subject to a number of risks and
uncertainties including, but not limited to the following: 31
Item 7A - Quantitative and Qualitative Disclosures About Market Risk Our primary market risk exposure with regard to financial instruments is changes in interest rates.
Our debt bears interest at a fixed rate with the exception of the $3,543 note payable on The
Willows of Plainview Phase I. On December 31, 2002, a hypothetical 100 basis point increase in
interest rates would result in an approximate $149,000 decrease in the fair value of debt and would
not have a significant effect on interest expense due to the variable rate note. 32
Item 8 - Financial Statements and Supplementary Data REPORT OF INDEPENDENT AUDITORS To NTS-Properties IV: We have audited the accompanying balance sheet of NTS-Properties IV (the Partnership) as of
December 31, 2002, and the related statements of operations, partners' equity and cash flows for the
year then ended. Our audit also included the financial statement schedule listed in the index at Item
15(a). 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 audit. The
financial statements of the Partnership and the financial statement schedule as of December 31,
2001, and for each of the two years in the period ended December 31, 2001, were audited by other
auditors who have ceased operations and whose report dated March 21, 2002, expressed an
unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United
States. 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 audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above present fairly, in all material respects,
the financial position of NTS-Properties IV as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein. Louisville, Kentucky 33
This report is a copy of the previously issued Arthur Andersen LLP ("Andersen") Auditors' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NTS-Properties IV, Ltd.: We have audited the accompanying balance sheets of NTS-Properties IV, Ltd. (a Kentucky limited
partnership) as of December 31, 2001 and 2000, and the related statements of operations, partners'
equity and cash flows for each of the three years in the period ended December 31, 2001. These
financial statements and the schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial statements and schedules
based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. 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 NTS-Properties IV, Ltd. as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule of Real Estate and Accumulated Depreciation included in this filing is
presented for purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in relation to the basic financial
statements taken as a whole. ARTHUR ANDERSEN LLP Louisville, Kentucky 34
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 35
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 36
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 37
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 38
NTS-PROPERTIES IV Note 1 - Significant Accounting Policies A) Organization NTS-Properties IV (the "Partnership") is a limited partnership organized under the laws of the
Commonwealth of Kentucky on May 13, 1983. The General Partner is NTS-Properties Associates
IV, a Kentucky limited partnership. The terms "we," "us" or "our," as the context requires, may
refer to the Partnership or its interests in the properties and joint ventures listed below. We are in the
business of developing, constructing, owning and operating residential apartments and commercial
real estate. The financial statements include the accounts of all wholly-owned properties. Intercompany
transactions and balances have been eliminated. Less than 50% owned joint ventures are accounted
for under the equity method. Please see our accompanying Combined Joint Ventures' financial statements and notes, which
include the combined financial statements of the joint ventures listed in Note 1C. We own and operate the following properties and joint ventures: 39
Lakeshore Business Center Phase I - a business center with approximately Lakeshore Business Center Phase II - a business center with approximately Lakeshore Business Center Phase III - a business center with approximately Net cash receipts made available for distribution, as defined in the Partnership Agreement, will be
distributed 1) 99% to the limited partners and 1% to the General Partner until the limited partners
have received their 8% preference distribution as defined in the Partnership Agreement; 2) to the
General Partner in an amount equal to approximately 10% of the limited partners' 8% preference
distribution; and 3) the remainder, 90% to the limited partners and 10% to the General Partner.
Starting December 31, 1996, we have indefinitely interrupted distributions. Net cash proceeds, as defined in the Partnership Agreement, which are available for distribution will
be distributed 1) 99% to the limited partners and 1% to the General Partner until the limited partners
have received distributions from all sources equal to their original capital plus the amount of any
deficiency in their 8% cumulative distribution as defined in the Partnership Agreement; and 2) the
remainder, 75% to the limited partners and 25% to the General Partner. Net income (loss) is to be
allocated 99% to the limited partners and 1% to the General Partner for all periods presented in the
accompanying financial statements. We have received a ruling from the Internal Revenue Service stating that we are classified as a
limited partnership for federal income tax purposes. As such, we make no provision for income
taxes. The taxable income or loss is passed through to the holders of partnership interests for
inclusion on their individual income tax returns. 40
A reconciliation of net income for financial statement purposes versus that for income tax reporting
is as follows: The preparation of financial statements in accordance with Accounting Principles Generally
Accepted in the United States 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. Cash and equivalents include cash on hand and short-term, highly liquid investments with maturities
of three months or less. We have a cash management program which provides for the overnight
investment of excess cash balances. Per an agreement with a bank, excess cash is invested in a
repurchase agreement for U.S. Government or agency securities on a nightly basis. As of December
31, 2002, approximately $118,000 was transferred into the investment. Cash and equivalents - restricted represents funds received for residential security deposits and funds
escrowed with mortgage companies for property taxes and insurance in accordance with the loan
agreements with said mortgage companies. Land, buildings and amenities are stated at historical cost less accumulated depreciation. Costs
directly associated with the acquisition, development and construction of a project are capitalized.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets
which are 5-30 years for land improvements, 3-30 years for buildings and improvements, 3-30 years
for amenities and the applicable lease term for tenant improvements. 41
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying value must be written down to fair
market value. Application of this standard during the year ended December 31, 2002 did not result
in an impairment loss. We recognize revenue in accordance with each tenant's respective lease agreement. Certain of our
lease agreements for the commercial properties are structured to include scheduled and specified rent
increases over the lease term. For financial reporting purposes, the income from these leases is being
recognized on a straight-line basis over the lease term. Accrued income under these leases is
included in accounts receivable and totaled $101,242 and $112,668 on December 31, 2002 and 2001,
respectively. All commissions paid to commercial leasing agents and incentives paid to tenants are
deferred and amortized on a straight-line basis over the applicable lease term. We expense advertising costs as incurred. Advertising expense was immaterial to us during the
years ended December 31, 2002, 2001 and 2000. For purposes of reporting cash flows, cash and equivalents include cash on hand and short-term,
highly liquid investments with initial maturities of three months or less. During the year ended December 31, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
requires one accounting model to be used for long-lived assets to be disposed of by sale, whether
previously held or used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. Our adoption of SFAS No. 144 did not impact the
financial statements in 2002. 42
We own and operate, either wholly or through a joint venture, commercial properties in Louisville,
Kentucky and Fort Lauderdale, Florida. In Louisville, Kentucky, one tenant occupies 100% of the
Blankenbaker Business Center 1A property. We also own and operate, either wholly or through a
joint venture, residential properties in Louisville, Kentucky and Orlando, Florida. The following
table contains approximate data for tenants of our wholly owned properties whose rents represent
10% or more of our total revenues: Our financial instruments that are exposed to concentrations of credit risk consist of cash and
equivalents. We maintain our cash accounts primarily with banks located in Kentucky. The total cash
balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain
accounts, have deposits in excess of $100,000. Between November 20, 1998 and December 31, 2001, we and ORIG, LLC, ("ORIG") an affiliate
of ours, (the "Offerors"), filed four tender offers with the Securities and Exchange Commission.
Through the four tender offers, we repurchased 1,200 Interests for $248,500 at a price ranging from
$205 to $230 per Interest. ORIG purchased 7,559 Interests for $1,678,470 at a price ranging from
$205 to $230 per Interest. We did not participate in the fourth tender offer. Interests repurchased
by us were retired. Interests purchased by ORIG are being held by it. On May 10, 2002, ORIG commenced a tender offer to purchase up to 2,000 Interests at a price of
$230 per Interest. ORIG had the option to acquire additional Interests on a pro rata basis if more than
2,000 Interests were tendered. The tender offer was scheduled to expire on August 9, 2002. On July 31, 2002, ORIG amended its tender offer to extend the expiration date from August 9, 2002,
to September 9, 2002. ORIG's tender offer expired September 9, 2002. A total of 1,175 Interests were tendered. ORIG
accepted all Interests tendered at a purchase price of $230 per Interest for a total of $270,250. We
did not participate in this tender offer. 43
The following schedule provides an analysis of our investment in property held for lease as of
December 31: Mortgages and note payable as of December 31 consist of the following: Our mortgages may be prepaid but are generally subject to prepayment of a yield-maintenance
premium. 44
Scheduled maturities of debt are as follows: Based on the borrowing rates currently available to us for loans with similar terms and average
maturities, the fair value of long-term debt on December 31, 2002 and 2001 was approximately
$3,964,000 and $4,400,000, respectively. The following is a schedule of minimum future rental income on noncancellable operating leases for
our commercial properties as of December 31, 2002: Pursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner,
receives property management fees on a monthly basis. The fees are paid in an amount equal to 5%
of the gross revenues from the residential property and 6% of the gross revenues from the
commercial properties. Also permitted by an agreement, NTS Development Company receives a
repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements.
These repair and maintenance fees are capitalized as part of land, buildings and amenities. We were charged the following amounts pursuant to an agreement with NTS Development Company
for the years ended December 31, 2002, 2001 and 2000. These charges include items which have
been expensed as operating expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land, buildings and amenities. 45
We, as an owner of real estate, are subject to various environmental laws of federal, state and local
governments. Compliance by us with existing laws has not had a material adverse effect on our
financial condition or results of operations. However, we cannot predict the impact of new or
changed laws or regulations on our current properties or on properties that we may acquire in the
future. We are jointly and severally liable for mortgages and notes payable of our unconsolidated Joint
Ventures. The outstanding balances on these mortgages and notes payable on December 31, 2002
and 2001 were $14,450,836 and $16,028,646, respectively. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $28,000, which was expensed. 46
On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against our General Partner, the general partners of three public
partnerships affiliated with us and several individuals and entities affiliated with us. On March 21,
2003, the complaint was amended to include the general partners of another public partnership
affiliated with us and a partnership that was affiliated with us but is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited partners and
derivatively on behalf of us and affiliated public partnerships based on alleged overpayments of fees,
prohibited investments, improper failures to make distributions, purchases of limited partnership
interests at insufficient prices and other violations of the limited partnership agreements. The
plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified
amount, an accounting, the appointment of a receiver or liquidating trustee, the entry of an order of
dissolution against the public partnerships, a declaratory judgment, and injunctive relief. Our
General Partner believes that this action is without merit, and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. Our reportable operating segments include - Residential and Commercial Real Estate Operations.
The residential operations represent our ownership and operating results relative to an apartment
community known as The Willows of Plainview Phase I. The commercial operations represent our
ownership and operating results relative to suburban commercial office space known as
Commonwealth Business Center Phase I and Plainview Point Office Center Phases I and II. The financial information of the operating segments has been prepared using a management
approach, which is consistent with the basis and manner in which our management internally reports
financial information for the purposes of assisting in making internal operating decisions. Our
management evaluates performance based on stand-alone operating segment net income. 47
48
49
A reconciliation of the totals reported for the operating segments to the applicable line items in the financial
statements is necessary given amounts recorded at the Partnership level and not allocated to the operating
properties for internal reporting purposes: 50
Note 10 - Selected Quarterly Financial Data (Unaudited) Note 11 - Subsequent Events On March 14, 2003 we reached an agreement with the mortgage lender on the Lakeshore
Business Center Phases I and II mortgages to suspend principal payments for twelve months
beginning with the payments due May 1, 2003. The principal payments due the lender will
continue to be paid and deposited by the lender into an escrow account. We will then be allowed
to draw upon the escrowed funds for specific capital improvement listed in the agreement. They
include tenant finish costs, heating and air conditioning equipment and roof replacements. The
agreement does not change any terms of the existing mortgage loans. However, the suspension
of principal payments will result in significant balances remaining due on the loans at maturity,
currently estimated to be approximately $757,000 and $814,000, respectively. On March 14, 2003 we signed a tenant to a lease for approximately 20,000 square feet of the
Lakeshore Business Center Phase III. The lease agreement calls for us to provide tenant finish
costing approximately $705,000. 51
REPORT OF INDEPENDENT AUDITORS To NTS-Properties IV: We have audited the accompanying balance sheet of NTS-Properties IV Combined Joint Ventures (the Combined Joint
Ventures) as of December 31, 2002, and the related statements of operations, partners' equity and cash flows for
the year then ended. These financial statements are the responsibility of the Combined Joint Ventures'
management. Our responsibility is to express an opinion on these financial statements based on our audit. The
financial statements of the Combined Joint Ventures as of December 31, 2001, and for each of the two years in the
period ended December 31, 2001, were audited by other auditors who have ceased operations and whose report dated
March 21, 2002, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the
financial position of NTS-Properties IV Combined Joint Ventures as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with accounting principles generally accepted
in the United States. Louisville, Kentucky 52
This report is a copy of the previously issued Arthur Andersen LLP ("Andersen") Auditors' Report. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NTS-Properties IV, Ltd.: We have audited the accompanying combined balance sheets of the NTS-Properties IV, Ltd. Combined Joint Ventures
(the "Combined Joint Ventures" as defined in Note 1 to these combined financial statements) as of December 31,
2001 and 2000, and the related combined statements of operations, partners' equity and cash flows for each of
the three years in the period ended December 31, 2001. These financial statements are the responsibility of the
Combined Joint Ventures' management. Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 the Combined Joint Ventures as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Louisville, Kentucky 53
NTS-PROPERTIES IV The accompanying notes to combined financial statements are an integral part of these
statements. 54
NTS-PROPERTIES IV The accompanying notes to combined financial statements are an integral part of these statements. 55
NTS-PROPERTIES IV The accompanying notes to combined financial statements are an integral part of these statements. 56
NTS-PROPERTIES IV The accompanying notes to combined financial statements are an integral part of these statements. 57
NTS-PROPERTIES IV Note 1- Significant Accounting Policies The "Combined Joint Ventures" consists of NTS/Willows Phase II Joint Venture, NTS Sabal Golf
Villas Joint Venture, Plainview Point III Joint Venture, Blankenbaker Business Center Joint Venture
and Lakeshore/University II Joint Venture described as follows: Lakeshore Business Center Phase I - a business center with approximately Lakeshore Business Center Phase II - a business center with approximately Lakeshore Business Center Phase III - a business center with approximately The terms "we," "us" or "our," as the context requires, may refer to the Combined Joint Ventures
or their properties. 58
The Combined Joint Ventures' financial statements include the accounts of all joint ventures noted
above. Intercompany transactions and balances have been eliminated. For each of the joint ventures, the net cash flow for each calendar quarter is distributed to the
partners in accordance with their respective percentage interests. The term "Net Cash Flow" for any
period shall mean the excess, if any of (A) the sum of (i) the gross receipts of the joint venture
properties for such period, other than capital contributions plus (ii) any funds released by the partners
for previously established reserves (referred to in clause (B) (iv) below), over (B) the sum of (i) all
cash operating expenses paid by the joint venture properties during such period in the course of
business, (ii) capital expenditures paid in cash during such period, (iii) payments during such period
on account of amortization of the principal of any debts or liabilities of the joint venture properties
and (iv) reserves for contingent liabilities and future expenses of the joint venture properties as
established by the partners; provided, however, that the amounts referred to in (B) (i), (ii) and (iii)
above shall only be taken into account to the extent not funded by capital contributions or paid out
of previously established reserves. "Percentage Interest" means that percentage which the capital
contribution of a Partner bears to the aggregate capital contributions of all the partners. Net income
or loss is allocated between the partners in each joint venture pursuant to each respective joint
venture agreement. The preparation of financial statements in accordance with Accounting Principles Generally
Accepted in the United States 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. Cash and equivalents - restricted represents funds received for residential security deposits and funds
which have been escrowed with mortgage companies for property taxes and insurance in accordance
with the loan agreements with said mortgage companies. 59
Land, buildings and amenities are stated at historical cost less accumulated depreciation.
Costs directly associated with the acquisition, development and construction of a project
are capitalized. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets which are 5-30 years for land improvements, 3-30 years for buildings and
improvements, 3-30 years for amenities and the applicable lease term for tenant improvements. Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying value must be written down to fair
market value. Application of this standard during the year ended December 31, 2002 did not result
in an impairment loss. The joint ventures generally recognize revenue in accordance with each tenant's respective lease
agreement. Certain of the joint ventures' lease agreements for the commercial properties are
structured to include scheduled and specified rent increases over the lease term. For financial
reporting purposes, the income from these leases is being recognized on a straight-line basis over
the lease term. Accrued income connected with these leases is included in accounts receivable and
totaled $233,656 and $160,398 on December 31, 2002 and 2001, respectively. All commissions paid to commercial leasing agents and incentives paid to tenants are deferred and
amortized on a straight-line basis over the applicable lease term. The joint ventures expense advertising costs as incurred. Advertising expense was immaterial to the
joint ventures during the years ended December 31, 2002, 2001 and 2000. For purposes of reporting cash flows, cash and equivalents include cash on hand and short-term,
highly liquid investments with initial maturities of three months or less. During the year ended December 31, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, 60
"Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
requires one accounting model to be used for long-lived assets to be disposed of by sale, whether
previously held or used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. Our adoption of SFAS No. 144 did not impact the
financial statements in 2002. The Combined Joint Ventures own and operate commercial properties in Louisville, Kentucky and
Ft. Lauderdale, Florida. Substantially all of the tenants are local businesses or are businesses which
have operations in the location in which they lease space. In Louisville, Kentucky, one tenant
occupies 100% of the Blankenbaker Business Center 1A property. The Combined Joint Ventures
also own and operate two residential properties, one in Louisville, Kentucky and one in Orlando,
Florida. The following schedule provides an analysis of the Combined Joint Ventures' investment in property
held for lease as of December 31: 61
Note 4- Mortgages and Notes Payable Mortgages and notes payable on a combined basis as of December 31 consist of the following: We intend to seek permanent financing for the mortgage loan coming due September 8, 2003. There
can be no assurances that we will be successful in obtaining this financing or that the rates or terms
will be acceptable. Our mortgages may be prepaid but are generally subject to prepayment of a
yield-maintenance premium. 62
Scheduled maturities of debt are as follows: Based on the borrowing rates currently available to the joint ventures for mortgages with similar
terms and average maturities, the fair value of long-term debt on December 31, 2002 and 2001 was
approximately $15,019,000 and $16,252,000, respectively. Note 5 - Rental Income Under Operating Leases The following is a schedule of minimum future rental income on noncancellable operating leases as
of December 31, 2002: Pursuant to an agreement with the partnerships which formed the Combined Joint Ventures, NTS
Development Company, an affiliate of the General Partner of the partnerships, receives property
management fees on a monthly basis. The fee is equal to 5% of the gross revenues from the
residential property and 6% of the gross revenues from the commercial properties. Under a similar
agreement, NTS Development Company receives a repair and maintenance fee equal to 5.9% of
costs incurred which relate to capital improvements. These repair and maintenance fees are
capitalized as a part of land, buildings and amenities. The Combined Joint Ventures were charged the following amounts pursuant to an agreement with
NTS Development Company for the years ended December 31, 2002, 2001 and 2000. These charges
include items which have been expensed as operating expenses - affiliated or professional and
administrative expenses - affiliated and items which have been capitalized as deferred leasing
commissions, other assets or as land, buildings and amenities. 63
The Combined Joint Ventures, as owners of real estate, are subject to various environmental laws
of federal, state and local governments. Compliance by the Combined Joint Ventures with existing
laws has not had a material adverse effect on the Combined Joint Ventures' financial condition and
results of operations. However, the Combined Joint Ventures cannot predict the impact of new or
changed laws or regulations on the currently owned properties or on properties that may be acquired
in the future. The NTS Sabal Golf Villas Joint Venture and Plainview Point III Joint Venture have pledged land
and buildings as collateral for two mortgages payable by NTS-Properties VI, our joint venture
partner. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against the General Partner of NTS-Properties IV, the
general partners of four public partnerships affiliated with us and several individuals and entities
affiliated with us. The action purports to bring claims on behalf of a class of limited partners based
on, among other things, tender offers made by the public partnerships and an affiliate of the General
Partner of NTS-Properties IV. The plaintiffs allege, among other things, that the prices at which
limited partnership interests were purchased in these tender offers were too low. The plaintiffs are
seeking monetary damages and equitable relief, including an order directing the disposition of the
properties owned by the public partnerships and the distribution of the proceeds. No amounts have
been accrued as a liability for this action in our financial statements at December 31, 2002. 64
On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of the General Partner of
NTS-Properties IV and the general partners of two limited partnerships affiliated with us. The effect
of this ruling is that the General Partner of NTS-Properties IV and the other two general partners are
no longer parties to the lawsuit. On the same date the court overruled the demurrer of the general
partners of two of the partnerships affiliated with us and one individual and two entities affiliated
with us. The entities and individuals whose demurrers were overruled remain defendants in the
lawsuit. These parties believe the lawsuit is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against the General Partner of NTS-Properties IV, the general partners
of three public partnerships affiliated with us and several individuals and entities affiliated with us.
On March 21, 2003, the complaint was amended to include the general partners of another public
partnership affiliated with us and a partnership that was affiliated with us but is no longer in
existence. In the amended complaint, the plaintiffs purport to bring claims on behalf of a class of
limited partners and derivatively on behalf of us and affiliated public partnerships based on alleged
overpayments of fees, prohibited investments, improper failures to make distributions, purchases of
limited partnership interests at insufficient prices and other violations of the limited partnership
agreements. The plaintiffs are seeking, among other things, compensatory and punitive damages in
an unspecified amount, an accounting, the appointment of a receiver or liquidating trustee, the entry
of an order of dissolution against the public partnerships, a declaratory judgment, and injunctive
relief. The General Partner of NTS-Properties IV believes that this action is without merit, and
intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. Our reportable operating segments include - Residential and Commercial Real Estate Operations.
The residential operations represent the operating results relative to the apartment complexes known
as The Willows of Plainview Phase II and Golf Brook Apartments. The commercial operations
represent the operating results relative to suburban commercial office space known as Blankenbaker
Business Center 1A, Plainview Point III Office Center and Lakeshore Business Center Phases I, II
and III. 65
The financial information of the operating segments have been prepared using a management
approach, which is consistent with the basis and manner in which our management internally reports
financial information for the purposes of assisting in making internal operating decisions.
Management evaluates performance based on stand-alone operating segment net income. 66
67
Note 9 - Subsequent Events On March 14, 2003 we reached an agreement with the mortgage lender on the Lakeshore Business
Center Phases I and II mortgages to suspend principal payments for twelve months beginning with
the payments due May 1, 2003. The principal payments due the lender will continue to be paid and
deposited by the lender into an escrow account. We will then be allowed to draw upon the escrowed
funds for specific capital improvement listed in the agreement. They include tenant finish costs,
heating and air conditioning equipment and roof replacements. The agreement does not change any
terms of the existing mortgage loans. However, the suspension of principal payments will result in
significant balances remaining due on the loans at maturity, currently estimated to be approximately
$757,000 and $814,000, respectively. On March 14, 2003 we signed a tenant to a lease for approximately 20,000 square feet of the
Lakeshore Business Center Phase III. The lease agreement calls for us to provide tenant finish
costing approximately $705,000. 68
Item 9 - Change in and Disagreements with Accountants on Accounting and Financial
Disclosure None. 69
PART III Because we are a limited partnership and not a corporation, we do not have directors or officers. We
are managed by our General Partner, NTS-Properties Associates IV. Additionally we have entered
into a management contract with NTS Development Company, an affiliate of our General Partner,
to provide property management services. The General Partners of NTS-Properties Associates IV are as follows: Mr. Nichols (age 61) is the managing General Partner of NTS-Properties Associates IV and is
Chairman of the Board of NTS Corporation (since 1985) and NTS Development Company (since
1977). NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation formed in October
1979. J. D. Nichols is Chairman of the Board and the sole director of NTS Capital Corporation. Alliance Realty Corporation was formed in September 1982, and is a wholly-owned subsidiary of
SN Alliance, Inc. SN Alliance, Inc. is also the parent corporation of Stifel, Nicolaus & Company,
Inc., which acted as the "Dealer Manager" in connection with the offering for the interests. The Manager of our properties is NTS Development Company, the executive officers and/or
directors of which are J. D. Nichols, Brian F. Lavin and Gregory A. Wells. Brian F. Lavin (age 49), President of NTS Corporation and NTS Development Company joined the
Manager in June 1997. From November 1994 through June 1997, Mr. Lavin served as President of
the Residential Division of Paragon Group, Inc. and as a Vice President of Paragon's Midwest
Division prior to November 1994. In this capacity, he directed the development, marketing, leasing
and management operations for the firms expanding portfolios. Mr. Lavin attended the University of Missouri where he received his Bachelor's Degree in Business
Administration. He is a licensed Kentucky Real Estate Broker and Certified Property Manager. Mr.
Lavin is a member of the Institute of Real Estate Management, council member of the Urban Land
Institute and member of the National Multi-Housing Council. He has served on the Boards of the 70
Louisville Science Center, Louisville Ballet, Greater Louisville Inc., National Multi-Housing
Council, Louisville Apartment Association, the Board of Trustees for the Louisville Olmsted Parks
Conservancy, Inc. and currently serves on the Board of Directors and Executive Committee of
Greater Louisville Inc. and Board of Overseers for the University of Louisville. Mr. Wells (age 44), Senior Vice President and Chief Financial Officer of NTS Corporation and NTS
Development Company, joined the Manager in July 1999. From May 1998 through June 1999, Mr.
Wells served as Chief Financial Officer of Hokanson Companies, Inc. and as Secretary and Treasurer
of Hokanson Construction, Inc. in Indianapolis, Indiana from January 1995 through May 1998. In
these capacities, he directed financial and operational activities for commercial real estate, company
owned and third-party managed properties, building and suite renovations, and commercial and
residential construction. Mr. Wells previously served as Vice President of Operations and Treasurer
of Executive Telecom System, Inc., a subsidiary of The Bureau of National Affairs, Inc.
(Washington, D.C.). Mr. Wells received a Bachelor's Degree in Business Administration from
George Mason University and is a Certified Public Accountant in Virginia and Kentucky. He
participates in a number of charitable and volunteer activities in the Louisville, Kentucky area. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that certain persons,
including persons who own more than ten percent (10%) of our limited partnership Interests, file
initial statements of beneficial ownership (Form 3), and statements of changes in beneficial
ownership (Forms 4 or 5), with the U.S. Securities and Exchange Commission (the "SEC"). The
SEC requires that these persons furnish us with copies of all forms filed with the SEC. To our knowledge, based solely on review of the copies of forms we received, or written
representations from certain reporting persons, that no additional forms were required for those
persons. The officers and/or directors of our corporate General Partner receive no direct remuneration in such
capacities. We are required to pay a property management fee based on gross revenues to NTS
Development Company. We are also required to pay to NTS Development Company a repair and
maintenance fee on costs related to specific projects and a refinancing fee on net cash proceeds from
the refinancing of our properties. Also, NTS Development Company provides certain other services
to us. See Item 8 - Note 7 which describes the calculations of these fees and sets forth transactions
with affiliates to the General Partner for the years ended December 31, 2002, 2001 and 2000. 71
Our General Partner is entitled to receive cash distributions and allocations of profits and losses from
us. See Item 8 - Note 1D which describes the methods used to determine income allocations and
cash distributions. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations, along with Consolidated Cash Flows and Financial Condition, for information
concerning recent tender offers for our limited partners. The following provides details regarding owners of more than 5% of the total outstanding limited
partnership Interests as of January 31, 2003. ORIG, LLC is a Kentucky limited liability company, the members of which are J. D. Nichols (1%),
Barbara M. Nichols (J. D. Nichols' wife) (74%) and Brian F. Lavin (25%). J. D. Nichols and Brian
F. Lavin are the Chairman and President, respectively, of NTS Capital Corporation, a general partner
of NTS Properties Associates IV, our General Partner. Our General Partner is NTS-Properties Associates IV, a Kentucky limited partnership, 10172 Linn
Station Road, Louisville, Kentucky 40223. The general partners of our General Partner and their
total respective interests (general and limited) in NTS-Properties Associates IV are as follows: 72
Item 13 - Certain Relationships and Related Transactions Pursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner,
receives property management fees on a monthly basis. The fees are paid in an amount equal to 5%
of the gross revenues from the residential property and 6% of the gross revenues from the
commercial properties. Also permitted by an agreement, NTS Development Company receives a
repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements.
These repair and maintenance fees are capitalized as part of land, buildings and amenities. We were charged the following amounts pursuant to an agreement with NTS Development Company
for the years ended December 31, 2002, 2001 and 2000. These charges include items which have
been expensed as operating expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land, buildings and amenities. Our affiliate, ORIG, LLC, has participated in tender offers for our Interests. See Item 8 - Note 3 for
additional information on these tender offers. The Chief Executive Officer and Chief Financial Officer of NTS Capital Corporation, the General
Partner of our General Partner, have concluded, based on their evaluation within 90 days of the filing
date of this report, that our disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information we are required to disclose in our reports filed under the Securities
Exchange Act of 1934. There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of the previously
mentioned evaluation. 73
PART IV Item 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 1 - Financial Statements The financial statements for the year ended December 31, 2002 along with the report from Ernst &
Young LLP dated March 26, 2003, and the financial statements for the years ended December 31,
2001 and 2000 along with a copy of the report from Arthur Andersen LLP dated March 21, 2002,
which has not been reissued, appear in Part II, Item 8. The following schedules should be read in
conjunction with those financial statements. 2 - Financial Statement Schedules All other schedules have been omitted because they are not applicable, are not required, or because the required
information is included in the financial statements or notes thereto. 3 - Exhibits Item 4 - Reports on Form 8-K None. 74
NTS-PROPERTIES IV 75
NTS-PROPERTIES IV 76
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has
been signed below by the following persons on behalf of the registrant in their capacities and on
the date indicated above. We are a limited partnership and no proxy material has been sent to the limited partners. We will
deliver to the limited partners an annual report containing our financial statements and a message
from our General Partner. 77
CERTIFICATION Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 I, Brian F. Lavin, certify that: Date: March 31, 2003 /s/ Brian F. Lavin See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this
report. 78
CERTIFICATION Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 I, Gregory A. Wells, certify that: Date: March 31, 2003 /s/ Gregory A. Wells See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this
report. 79
Interest Maturity Balance
Property Rate Date on 12/31/02
- ------------------------------------------------- --------------- --------------- ------------------
Commonwealth Business Center Phase I 8.80% 10/01/04 (1) $ 737,515
Plainview Point Office Center Phases I and II - - $ --
The Willows of Plainview Phase I 7.15% 01/05/13 (2) $ 1,559,662
The Willows of Plainview Phase I 7.15% 01/05/13 (2) $ 1,484,724
The Willows of Plainview Phase II 7.20% 01/05/13 (2) $ 2,494,654
The Willows of Plainview Phase II 7.20% 01/05/13 (2) $ 1,489,917
Golf Brook Apartments - - $ --(3)
Plainview Point Office Center Phase III - - $ --(4)
Blankenbaker Business Center 1A 8.500% 11/15/05 (5) $ 1,733,466
Lakeshore Business Center Phase I 8.125% 08/01/08 (6) $ 3,315,490
Lakeshore Business Center Phase II 8.125% 08/01/08 (6) $ 3,567,113
Lakeshore Business Center Phase III LIBOR + 2.3% 09/08/03 (7) $ 1,844,049
(1) Current monthly principal payments are based upon a 10-year amortization schedule. At maturity, we believe the
mortgage will have been repaid based on the current rate of amortization.
(2) Current monthly principal payments are based upon a 15-year amortization schedule. At maturity, we believe the
loan will have been repaid based on the current rate of amortization.
(3) Golf Brook Apartments, a joint venture between us and NTS- Properties VI, is encumbered by a mortgage loan
from an insurance company. The $6,899,113 mortgage payable is recorded as a liability by NTS-Properties VI in
accordance with the joint venture agreement. The mortgage bears interest at a fixed rate of 7.57% and matures May
15, 2009. At maturity, we believe the loan will have been repaid based on the current rate of amortization.
(4) Plainview Point Office Center Phase III, a joint venture between us and NTS-Properties VI, is encumbered by a
mortgage loan to a bank. The $3,065,058 mortgage payable is recorded as a liability by NTS-Properties VI in
accordance with the joint venture agreement. The mortgage bears interest at 8.38% and matures December 1, 2010.
At maturity, we believe the loan will have been repaid based on the current rate of amortization.
(5) Current monthly principal payments are based upon an 11-year amortization schedule. At maturity, we believe the
mortgage loan will have been repaid based on the current rate of amortization.
(6) Current monthly principal payments are based upon a 12-year amortization schedule. At maturity, we believe the
mortgage will have been repaid based on the current rate of amortization.
(7) The construction loan for Lakeshore Business Center Phase III required interest payments only through September
2001. Principal payments were required starting October 2001. We anticipate replacing the construction loan with
permanent financing at or before its maturity.
Financial Information About Industry Segments
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2004 40,079 (47.9%) $7.59
2 2008 9,600 (11.5%) $8.30
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2009 28,675 (50.5%) $11.40
2 2004 7,428 (13.1%) $13.60
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
The Willows of Plainview Phase I
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area (2) per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2005 100,640 (100%) $7.48
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
(2) Rentable area includes ground floor and mezzanine square feet.
Lakeshore Business Center Phase I
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2008 27,868 (28.8%) $9.75
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Lakeshore Business Center Phase III
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2006 4,689 (12.0%) $14.15
2 2006 6,190 (15.8%) $14.04
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Federal Property Annual
Tax Basis Tax Rate Property Taxes
------------------ ----------------- ------------------
Wholly-Owned Properties
Commonwealth Business Center Phase I $ 4,142,703 .010850 $ 44,937
Plainview Point Office Center Phases I and II $ 3,689,030 .010950 $ 17,147
The Willows of Plainview Phase I $ 7,565,566 .010950 $ 60,481
Joint Venture Properties
The Willows of Plainview Phase II $ 8,145,197 .010950 $ 65,768
Golf Brook Apartments $ 16,645,019 .017426 $ 276,499
Plainview Point III Office Center $ 4,850,188 .010950 $ 25,517
Blankenbaker Business Center 1A $ 7,386,626 .010850 $ 51,281
Lakeshore Business Center Phase I $ 10,549,904 .025064 $ 168,225
Lakeshore Business Center Phase II $ 12,585,246 .025064 $ 187,967
Lakeshore Business Center Phase III $ 4,729,434 .025064 $ 59,787
Property Contributing Owner
- ----------------------------------------------- ------------------------------------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the Lakeshore NTS-Properties Plus Ltd.
Business Center development (3.8 acres)
Undeveloped land adjacent to the Lakeshore NTS/Fort Lauderdale, Ltd.
Business Center development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS Properties Plus Ltd.
Loan Balance
on 12/31/02 Encumbered Property
- ------------------------- --------------------------------------------
$ 3,315,490 Lakeshore Business Center Phase I
$ 3,567,113 Lakeshore Business Center Phase II
$ 1,844,049 Lakeshore Business Center Phase III
2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- ---------------
Rental and other income $ 2,391,468 $ 2,409,585 $ 2,474,093 $ 2,333,381 $ 2,273,371
Income (loss) from
investment in joint
ventures 81,502 63,818 89,039 82,475 154,446
Gain on sale of assets 498 90 -- -- --
Total expenses (2,391,550) (2,364,503) (2,326,737) (2,418,547) (2,329,521)
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ 81,918 $ 108,990 $ 236,395 $ (2,691)$ 98,296
=============== =============== =============== =============== ===============
Net income (loss)
allocated to:
General Partner $ 819 $ 1,090 $ 2,364 $ (27)$ 983
Limited partners $ 81,099 $ 107,900 $ 234,031 $ (2,664)$ 97,313
Net income (loss) per
limited partnership
interest $ 3.36 $ 4.48 $ 9.67 $ (0.11)$ 3.75
Weighted average number
of limited partnership
interests 24,109 24,109 24,208 24,778 25,918
Cumulative net income
(loss) allocated to:
General Partner $ 8,145 $ 7,326 $ 6,236 $ 3,872 $ 3,899
Limited partners $ 806,219 $ 725,120 $ 617,220 $ 383,189 $ 385,853
Cumulative taxable
income (loss) allocated to:
General Partner $ (22,598) $ (24,899)$ (25,603)$ (27,678)$ (26,810)
Limited partners $ (2,236,659) $ (2,464,497)$ (2,535,209)$ (2,740,689)$ (2,654,795)
Cumulative distributions
declared:
General Partner $ 218,253 $ 218,253 $ 218,253 $ 218,253 $ 218,253
Limited partners $ 21,607,636 $ 21,607,636 $ 21,607,636 $ 21,607,636 $ 21,607,636
At year end:
Land, buildings and
amenities, net $ 6,258,639 $ 6,561,375 $ 6,907,615 $ 7,301,116 $ 7,457,476
Total assets $ 7,874,283 $ 8,320,129 $ 8,615,520 $ 9,024,075 $ 9,578,845
Mortgages and note
payable $ 3,785,444 $ 4,356,152 $ 4,846,678 $ 5,317,257 $ 5,750,946
2002 (1) 2001 2000
------------- ------------- --------------
Wholly-Owned Properties
Commonwealth Business Center Phase I 91% 90% 86%
Plainview Point Office Center Phases I and II 86% 84% 77%
The Willows of Plainview Phase I 92% 78% 87%
Joint Venture Properties
(Ownership % on December 31, 2002)
The Willows of Plainview Phase II (9.70%) 89% 74% 89%
Golf Brook Apartments (3.97%) (2) 88% 89% 87%
Plainview Point III Office Center (4.96%) (3) 51% 54% 73%
Blankenbaker Business Center 1A (29.61%) 100% 100% 100%
Lakeshore Business Center Phase I (10.92%) (2) 71% 89% 85%
Lakeshore Business Center Phase II (10.92%) (2) 81% 82% 86%
Lakeshore Business Center Phase III (10.92%) (4) 37% 28% 12%
(1) Current occupancy levels are considered adequate to continue operation of our properties, with the exception
of Plainview Point III Office Center and Lakeshore Business Center Phases I and III.
(2) In our opinion, the decrease in year ending occupancy is only a temporary fluctuation and does not represent
a permanent downward occupancy trend.
(3) A tenant occupying 16,895 square feet, or 27%, of the building vacated its space on November 30, 2001.
There will likely be a protracted period for the property to become fully leased again and substantial funds,
currently estimated to be approximately $717,000, will likely be needed for tenant finish expenditures. Our
share of these costs would be approximately $36,000.
(4) We expect occupancy levels to stabilize near those of Phase II over the next two years, as Phase III completes
its lease up phase of operations.
2002 2001 2000
------------- ------------- --------------
Wholly-Owned Properties
Commonwealth Business Center Phase I (1) 87% 89% 91%
Plainview Point Office Center Phases I and II 86% 79% 75%
The Willows of Plainview Phase I (1) 85% 87% 94%
Joint Venture Properties
(Ownership % on December 31, 2002)
The Willows of Plainview Phase II (9.70%) 85% 83% 92%
Golf Brook Apartments (3.97%) 91% 90% 92%
Plainview Point III Office Center (4.96%) (2) 55% 90% 88%
Blankenbaker Business Center 1A (29.61%) 100% 100% 100%
Lakeshore Business Center Phase I (10.92%) (1) 80% 85% 78%
Lakeshore Business Center Phase II (10.92%) 84% 82% 83%
Lakeshore Business Center Phase III (10.92%) (3) 36% 26% 12%
(1) In our opinion, the decrease in average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(2) A tenant occupying 16,895 square feet, or 27%, of the building vacated its space on November 30, 2001.
There will likely be a protracted period for the property to become fully leased again and substantial funds,
currently estimated to be approximately $717,000, will likely be needed for tenant finish expenditures. Our
share of these costs would be approximately $36,000.
(3) We expect occupancy levels to stabilize near those of Phases I and II over the next two years, as Phase III
completes its lease up phase of operations.
2002 2001 2000
------------- ------------- --------------
Wholly-Owned Properties
Commonwealth Business Center Phase I $ 744,055 $ 724,243 $ 756,599
Plainview Point Office Center Phases I and II $ 595,898 $ 548,217 $ 512,900
The Willows of Plainview Phase I $ 1,050,881 $ 1,124,254 $ 1,187,368
Joint Venture Properties
(Ownership % on December 31, 2002)
The Willows of Plainview Phase II (9.70%) $ 1,227,435 $ 1,243,469 $ 1,318,620
Golf Brook Apartments (3.97%) $ 2,963,776 $ 2,940,558 $ 3,271,227
Plainview Point III Office Center (4.96%) $ 613,914 $ 858,673 $ 848,522
Blankenbaker Business Center 1A (29.61%) $ 952,219 $ 935,165 $ 908,100
Lakeshore Business Center Phase I (10.92%) $ 1,568,755 $ 1,608,506 $ 1,404,217
Lakeshore Business Center Phase II (10.92%) $ 1,399,961 $ 1,460,407 $ 1,414,306
Lakeshore Business Center Phase III (10.92%) $ 290,618 $ 214,052 $ 5,122
2002
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 1,050,881 $ 1,339,953 $ 82,634 $ 2,473,468
Operating expense 504,361 469,757 (2,000) 972,118
Interest expense 227,071 85,134 -- 312,205
Depreciation and amortization 207,699 286,733 6,116 500,548
Net (loss) income (53,363) 354,527 (219,246) 81,918
2001
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 1,124,254 $ 1,272,460 $ 76,779 $ 2,473,493
Operating expense 493,709 485,554 2,000 981,263
Interest expense 241,524 115,155 -- 356,679
Depreciation and amortization 203,670 278,950 6,116 488,736
Net income (loss) 67,764 254,136 (212,910) 108,990
2000
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 1,187,368 $ 1,269,499 $ 106,265 $ 2,563,132
Operating expense 425,461 490,671 -- 916,132
Interest expense 255,780 142,655 -- 398,435
Depreciation and amortization 198,720 281,433 6,116 486,269
Net income (loss) 151,626 217,342 (132,573) 236,395
2002 2001 2000
-------------- ------------- -------------
Operating activities $ 649,224 $ 745,729 $ 550,526
Investing activities (334,894) (183,059) (43,768)
Financing activities (570,708) (490,526) (493,579)
-------------- ------------- -------------
Net (decrease) increase in cash and equivalents $ (256,378)$ 72,144 $ 13,179
============== ============= =============
Payments Due by Period
--------------------------------------------------------------------------
Within One Two - Three Four - Five After 5
Contractual Obligations Total Year Years Years Years
- -------------------------------- ------------- ------------- ------------- ------------- -------------
Long-term debt $ 3,785,444 $ 604,929 $ 826,185 $ 549,203 $ 1,805,127
Capital lease obligations $ -- $ -- $ -- $ -- $ --
Operating leases (1) $ -- $ -- $ -- $ -- $ --
Other long-term obligations (2) $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
Total contractual cash
obligations $ 3,785,444 $ 604,929 $ 826,185 $ 549,203 $ 1,805,127
============= ============= ============= ============= =============
(1) We are party to numerous small operating leases for office equipment such as copiers, postage machines and fax
machines, which represent an insignificant obligation.
(2) We are party to several annual maintenance agreements with vendors for such items as outdoor maintenance and
security systems, which we may or may not renew each year.
Amount of Commitment Expiration Per Period
-----------------------------------------------------------
Total
Other Commercial Amounts Within One Two - Three Four - Five Over 5
Commitments Committed Year Years Years Years
- ------------------------------- -------------- ------------- ------------- ------------- -------------
Line of credit $ -- $ -- $ -- $ -- $ --
Standby letters of credit and
guarantees (1) $ 14,450,836 $ 3,673,087 $ 4,062,180 $ 3,367,678 $ 3,347,891
Other commercial
commitments (2) $ -- $ -- $ -- $ -- $ --
-------------- ------------- ------------- ------------- -------------
Total commercial
commitments $ 14,450,836 $ 3,673,087 $ 4,062,180 $ 3,367,678 $ 3,347,891
============== ============= ============= ============= =============
(1) As an investor in numerous joint ventures, we are jointly and severally liable for certain of their debts that are
not reflected on our financial statements. See Note 4 of our Combined Joint Ventures.
(2) We do not, as a practice, enter into long term purchase commitments for commodities or services. We may from
time to time agree to "fee for service arrangements" which are for a term of greater than one year.
Ernst & Young LLP
March 26, 2003
Report. This report has not been reissued by Andersen.
March 21, 2002
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
----------------- -----------------
ASSETS
Cash and equivalents $ 205,729 $ 462,107
Cash and equivalents - restricted 26,750 27,757
Accounts receivable 123,412 143,553
Land, buildings and amenities, net 6,258,639 6,561,375
Investment in and advances to joint ventures 1,120,227 952,413
Other assets 139,526 172,924
----------------- -----------------
TOTAL ASSETS $ 7,874,283 $ 8,320,129
================= =================
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $ 3,785,444 $ 4,356,152
Accounts payable 104,646 111,790
Security deposits 31,631 29,931
Other liabilities 86,449 38,061
----------------- -----------------
TOTAL LIABILITIES 4,008,170 4,535,934
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' EQUITY 3,866,113 3,784,195
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 7,874,283 $ 8,320,129
================= =================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- -------------
REVENUES
Rental income $ 2,383,505 $ 2,390,579 $ 2,449,691
Income from investment in joint ventures 81,502 63,818 89,039
Gain on sale of assets 498 90 --
Interest and other income 7,963 19,006 24,402
------------- ------------- -------------
TOTAL REVENUES 2,473,468 2,473,493 2,563,132
------------- ------------- -------------
EXPENSES
Operating expenses 557,689 572,703 529,115
Operating expenses - affiliated 414,429 408,560 387,017
Loss on disposal of assets 51,268 2,147 43,220
Interest expense 312,205 356,679 398,435
Management fees 135,082 133,416 137,432
Real estate taxes 122,565 120,689 112,527
Professional and administrative expenses 154,049 124,299 109,626
Professional and administrative expenses -
affiliated 143,715 157,274 123,096
Depreciation and amortization 500,548 488,736 486,269
------------- ------------- -------------
TOTAL EXPENSES 2,391,550 2,364,503 2,326,737
------------- ------------- -------------
Net income $ 81,918 $ 108,990 $ 236,395
============= ============= =============
Net income allocated to the limited partners $ 81,099 $ 107,900 $ 234,031
============= ============= =============
Net income per limited partnership interest $ 3.36 $ 4.48 $ 9.67
============= ============= =============
Weighted average number of limited
partnership interests 24,109 24,109 24,208
============= ============= =============
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Limited
Partners' Limited General
Interests Partners Partner Total
------------- ------------- -------------- -------------
PARTNERS' EQUITY/(DEFICIT)
Balances on January 1, 2000 24,209 $ 3,676,192 $ (214,382)$ 3,461,810
Net income 234,031 2,364 236,395
Repurchase of limited partnership
interests (100) (23,000) -- (23,000)
------------- ------------- -------------- -------------
Balances on December 31, 2000 24,109 3,887,223 (212,018) 3,675,205
Net income 107,900 1,090 108,990
------------- ------------- -------------- -------------
Balances on December 31, 2001 24,109 3,995,123 (210,928) 3,784,195
Net income 81,099 819 81,918
------------- ------------- -------------- -------------
Balances on December 31, 2002 24,109 $ 4,076,222 $ (210,109)$ 3,866,113
============= ============= ============== =============
(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial
Accounting Standards Board, Statement of Financial Accounting Standards Statement No. 130, "Reporting
Comprehensive Income."
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 81,918 $ 108,990 $ 236,395
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets 51,268 2,147 43,220
Gain on sale of assets (498) (90) --
Depreciation and amortization 541,934 530,199 528,405
Income from investment in joint ventures (81,502) (63,818) (89,039)
Changes in assets and liabilities:
Cash and equivalents - restricted 1,007 11,787 (1,536)
Accounts receivable 20,141 86,472 28,926
Other assets (7,988) (16,103) (44,474)
Accounts payable (7,144) 72,614 (134,608)
Security deposits 1,700 (1,104) (13,518)
Other liabilities 48,388 14,635 (3,245)
------------- ------------- --------------
Net cash provided by operating activities 649,224 745,729 550,526
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (249,080) (144,761) (135,988)
Proceeds from sale of assets 498 208 --
Investment in and advances (to) from joint ventures (86,312) (38,506) 92,220
------------- ------------- --------------
Net cash used in investing activities (334,894) (183,059) (43,768)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable -- 31,742 --
Principal payments on mortgages and note payable (570,708) (522,268) (470,579)
Repurchase of limited partnership interests -- -- (23,000)
------------- ------------- --------------
Net cash used in financing activities (570,708) (490,526) (493,579)
------------- ------------- --------------
Net (decrease) increase in cash and equivalents (256,378) 72,144 13,179
CASH AND EQUIVALENTS, beginning of period 462,107 389,963 376,784
------------- ------------- --------------
CASH AND EQUIVALENTS, end of period $ 205,729 $ 462,107 $ 389,963
============= ============= ==============
Interest paid on a cash basis $ 308,287 $ 352,461 $ 391,080
============= ============= ==============
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
104,000 net rentable square feet located in Fort Lauderdale, Florida.
97,000 net rentable square feet located in Fort Lauderdale, Florida.
39,000 net rentable square feet located in Fort Lauderdale, Florida.
2002 2001 2000
------------- ------------- --------------
Net income $ 81,918 $ 108,990 $ 236,395
Items handled differently for tax purposes:
Depreciation and amortization 122,776 10,875 4,669
Prepaid rent 56,682 20,494 --
Other (31,237) (68,933) (33,509)
------------- ------------- --------------
Taxable income $ 230,139 $ 71,426 $ 207,555
============= ============= ==============
F) Use of Estimates in the Preparation of Financial Statements
2002 2001 2000
-------------------------------- ------------------------------- --------------------------------
% of % of % of
Major Tenant: Rents Revenue Rents Revenue Rents Revenue
- ---------------- ------------- -------------- ------------- ------------- -------------- -------------
1 $ 310,723 12.57% $ 320,623 12.97% $ 304,123 11.87%
2 $ 322,036 13.03% $ 312,721 12.65% $ 286,027 11.16%
2002 2001
--------------- ----------------
Land and improvements $ 3,265,951 $ 3,260,850
Buildings, improvements and amenities 12,255,229 12,180,635
--------------- ----------------
15,521,180 15,441,485
Less accumulated depreciation 9,262,541 8,880,110
--------------- ----------------
$ 6,258,639 $ 6,561,375
=============== ================
Note 5 - Mortgages and Note Payable
2002 2001
---------------- ---------------
Mortgage payable to an insurance company in
monthly installments, bearing interest at a fixed rate
of 8.8%, due October 1, 2004, secured by land and a $ $
building. 737,515 1,092,538
Mortgage payable to an insurance company in
monthly installments, bearing interest at a fixed rate
of 7.15%, due January 5, 2013, secured by land,
buildings and amenities. 1,559,662 1,661,672
Mortgage payable to an insurance company, bearing
interest at a fixed rate of 7.15%, due January 5, 2013,
secured by land, buildings and amenities. 1,484,724 1,581,832
Note payable to a bank, bearing interest at the Prime
Rate, but not less than 6%, due March 27, 2003. At
December 31, 2002, the interest rate was 6%. 3,543 20,110
---------------- ---------------
$ 3,785,444 $ 4,356,152
================ ===============
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 604,929
2004 579,588
2005 246,597
2006 264,818
2007 284,385
Thereafter 1,805,127
---------------------------
$ 3,785,444
===========================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 1,158,843
2004 1,030,852
2005 596,882
2006 513,391
2007 397,768
Thereafter 563,799
---------------------------
$ 4,261,535
===========================
Note 7 - Related Party Transactions
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 135,082 $ 133,416 $ 137,432
------------------ ------------------ -----------------
Property management 235,231 223,555 249,007
Leasing 104,833 116,210 69,283
Administrative - operating 68,398 62,174 61,442
Other 5,967 6,621 7,285
------------------ ------------------ -----------------
Total operating expenses - affiliated 414,429 408,560 387,017
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated 143,715 157,274 123,096
------------------ ------------------ -----------------
Repairs and maintenance fees 13,046 5,085 13,448
Leasing commissions 18,765 11,961 10,022
Other 5,287 2,050 --
------------------ ------------------ -----------------
Total related party transactions capitalized 37,098 19,096 23,470
------------------ ------------------ -----------------
Total related party transactions $ 730,324 $ 718,346 $ 671,015
================== ================== =================
Note 8 - Commitments and Contingencies
2002
------------------------------------------------------------
Residential Commercial Total
------------------ ------------------- -------------------
Rental income $ 1,049,458 $ 1,334,047 $ 2,383,505
Other income 925 5,906 6,831
Gain on sale of assets 498 -- 498
------------------ ------------------- -------------------
Total revenues $ 1,050,881 $ 1,339,953 $ 2,390,834
================== =================== ===================
Operating expenses and operating expenses
- affiliated $ 504,361 $ 469,757 $ 974,118
Loss on disposal of assets 51,268 -- 51,268
Interest expense 227,071 85,134 312,205
Management fees 53,364 81,718 135,082
Real estate taxes 60,481 62,084 122,565
Depreciation and amortization 207,699 286,733 494,432
------------------ ------------------- -------------------
Total expenses $ 1,104,244 $ 985,426 $ 2,089,670
------------------ ------------------- -------------------
Net (loss) income $ (53,363)$ 354,527 $ 301,164
================== =================== ===================
Land, buildings and amenities, net $ 3,278,109 $ 2,972,457 $ 6,250,566
================== =================== ===================
Expenditures for land, buildings and
amenities $ 143,962 $ 105,118 $ 249,080
================== =================== ===================
Segment liabilities $ 3,125,495 $ 866,195 $ 3,991,690
================== =================== ===================
2001
------------------------------------------------------------
Residential Commercial Total
------------------ ------------------- -------------------
Rental income $ 1,122,212 $ 1,268,367 $ 2,390,579
Other income 1,952 4,093 6,045
Gain on sale of assets 90 -- 90
------------------ ------------------- -------------------
Total revenues $ 1,124,254 $ 1,272,460 $ 2,396,714
================== =================== ===================
Operating expenses and operating expenses
- affiliated $ 493,709 $ 485,554 $ 979,263
Loss on disposal of assets 2,147 -- 2,147
Interest expense 241,524 115,155 356,679
Management fees 56,561 76,855 133,416
Real estate taxes 58,879 61,810 120,689
Depreciation and amortization 203,670 278,950 482,620
------------------ ------------------- -------------------
Total expenses $ 1,056,490 $ 1,018,324 $ 2,074,814
------------------ ------------------- -------------------
Net income $ 67,764 $ 254,136 $ 321,900
================== =================== ===================
Land, buildings and amenities, net $ 3,393,113 $ 3,154,807 $ 6,547,920
================== =================== ===================
Expenditures for land, buildings and
amenities $ 77,374 $ 67,387 $ 144,761
================== =================== ===================
Segment liabilities $ 3,356,103 $ 1,153,210 $ 4,509,313
================== =================== ===================
2000
------------------------------------------------------------
Residential Commercial Total
------------------ ------------------- -------------------
Rental income $ 1,185,725 $ 1,263,966 $ 2,449,691
Other income 1,643 5,533 7,176
------------------ ------------------- -------------------
Total revenues $ 1,187,368 $ 1,269,499 $ 2,456,867
================== =================== ===================
Operating expenses and operating expenses
- affiliated $ 425,461 $ 490,671 $ 916,132
Loss on disposal of assets 36,067 7,153 43,220
Interest expense 255,780 142,655 398,435
Management fees 60,503 76,929 137,432
Real estate taxes 59,211 53,316 112,527
Depreciation and amortization 198,720 281,433 480,153
------------------ ------------------- -------------------
Total expenses $ 1,035,742 $ 1,052,157 $ 2,087,899
------------------ ------------------- -------------------
Net income $ 151,626 $ 217,342 $ 368,968
================== =================== ===================
Land, buildings and amenities, net $ 3,521,674 $ 3,367,102 $ 6,888,776
================== =================== ===================
Expenditures for land, buildings and
amenities $ 24,900 $ 111,088 $ 135,988
================== =================== ===================
Segment liabilities $ 3,479,057 $ 1,466,546 $ 4,945,603
================== =================== ===================
2002 2001 2000
------------------ ----------------- ------------------
NET REVENUES
Revenues for reportable segments $ 2,390,834 $ 2,396,714 $ 2,456,867
Other income for Partnership 1,132 12,961 17,226
Income from investments in joint ventures 81,502 63,818 89,039
------------------ ----------------- ------------------
Total consolidated net revenues $ 2,473,468 $ 2,473,493 $ 2,563,132
================== ================= ==================
OPERATING EXPENSES
Operating expenses for reportable segments $ 974,118 $ 979,263 $ 916,132
Other operating expenses for Partnership (2,000) 2,000 --
------------------ ----------------- ------------------
Total operating expenses $ 972,118 $ 981,263 $ 916,132
================== ================= ==================
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for
reportable segments $ 494,432 $ 482,620 $ 480,153
Depreciation and amortization for Partnership 6,116 6,116 6,116
------------------ ----------------- ------------------
Total depreciation and amortization $ 500,548 $ 488,736 $ 486,269
================== ================= ==================
NET INCOME (LOSS)
Net income for reportable segments $ 301,164 $ 321,900 $ 368,968
Net loss for Partnership (219,246) (212,910) (132,573)
------------------ ----------------- ------------------
Total net income $ 81,918 $ 108,990 $ 236,395
================== ================= ==================
LAND, BUILDINGS AND AMENITIES
Land, buildings and amenities for
reportable segments $ 6,250,566 $ 6,547,920 $ 6,888,776
Land, building and amenities for Partnership 8,073 13,455 18,839
------------------ ----------------- ------------------
Total land, buildings and amenities $ 6,258,639 $ 6,561,375 $ 6,907,615
================== ================= ==================
LIABILITIES
Liabilities for reportable segments $ 3,991,690 $ 4,509,313 $ 4,945,603
Liabilities for Partnership 16,480 26,621 (5,288)
------------------ ----------------- ------------------
Total liabilities $ 4,008,170 $ 4,535,934 $ 4,940,315
================== ================= ==================
For the Quarters Ended
--------------------------------------------------------------------
2002 March 31 June 30 September 30 December 31
- ------------------------------------ --------------- ---------------- --------------- ----------------
Total revenues $ 600,987 $ 604,647 $ 623,675 $ 644,159
Total expenses 576,607 621,380 576,637 616,926
Net income (loss) 24,380 (16,733) 47,038 27,233
Net income (loss) allocated to the
limited partners 24,136 (16,566) 46,568 26,961
Net income (loss) per limited
partnership Interest 1.00 (0.69) 1.93 1.12
For the Quarters Ended
--------------------------------------------------------------------
2001 March 31 June 30 September 30 December 31
- ------------------------------------ --------------- ---------------- --------------- ----------------
Total revenues $ 623,899 $ 616,145 $ 605,360 $ 628,089
Total expenses 574,697 639,847 590,621 559,338
Net income (loss) 49,202 (23,702) 14,739 68,751
Net income (loss) allocated to the
limited partners 48,710 (23,465) 14,592 68,063
Net income (loss) per limited
partnership Interest 2.02 (0.97) 0.61 2.82
Ernst & Young LLP
March 26, 2003
This report has not been reissued by Andersen.
March 21, 2002
COMBINED JOINT VENTURES
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
---------------------- ----------------------
ASSETS
Cash and equivalents $ 220,888 $ 200,333
Cash and equivalents - restricted 156,585 214,516
Accounts receivable, net 313,618 261,154
Land, buildings and amenities, net 32,742,164 33,990,819
Other assets 906,080 889,683
---------------------- ----------------------
TOTAL ASSETS $ 34,339,335 $ 35,556,505
====================== ======================
LIABILITIES AND PARTNERS' EQUITY
Mortgages and notes payable $ 14,450,836 $ 16,028,646
Accounts payable 366,863 861,788
Security deposits 255,549 314,808
Other liabilities 281,907 193,266
---------------------- ----------------------
TOTAL LIABILITIES 15,355,155 17,398,508
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY 18,984,180 18,157,997
---------------------- ----------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 34,339,335 $ 35,556,505
====================== ======================
COMBINED JOINT VENTURES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
--------------- --------------- ---------------
REVENUES
Rental income $ 8,986,116 $ 9,232,433 $ 8,833,624
Interest and other income 30,003 28,400 367,453
Gain on sale of assets 559 100 --
--------------- --------------- ---------------
TOTAL REVENUES 9,016,678 9,260,933 9,201,077
--------------- --------------- ---------------
EXPENSES
Operating expenses 2,469,009 2,543,637 2,136,357
Operating expenses - affiliated 1,091,346 1,077,617 953,257
Loss on disposal of assets 71,008 2,978 279,835
Interest expense 1,199,166 1,353,069 1,261,036
Management fees 495,125 507,747 503,273
Real estate taxes 835,044 836,345 772,321
Professional and administrative expenses -- 3,750 --
Professional and administrative expenses - affiliated -- -- 550,000
Depreciation and amortization 2,053,712 1,973,519 1,752,102
--------------- --------------- ---------------
TOTAL EXPENSES 8,214,410 8,298,662 8,208,181
--------------- --------------- ---------------
Net income $ 802,268 $ 962,271 $ 992,896
=============== =============== ===============
COMBINED JOINT VENTURES
STATEMENTS OF PARTNERS' EQUITY(1)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Partners'
Equity
--------------------
PARTNERS' EQUITY
Balances on January 1, 2000 $ 17,966,931
Net income 992,896
Distributions (1,937,713)
Capital contributions 984,143
--------------------
Balances on December 31, 2000 18,006,257
Net income 962,271
Distributions (1,707,149)
Capital contributions 896,618
--------------------
Balances on December 31, 2001 18,157,997
Net income 802,268
Distributions (1,196,767)
Capital contributions 1,220,682
--------------------
Balances on December 31, 2002 $ 18,984,180
====================
(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial
Accounting Standards Board, Statement of Financial Accounting Standards Statement No. 130, "Reporting
Comprehensive Income."
COMBINED JOINT VENTURES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 802,268 $ 962,271 $ 992,896
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of assets (559) (100) --
Loss on disposal of assets 71,008 2,978 279,835
Provision for doubtful accounts 25,123 -- --
Write-off of uncollectible accounts receivable (20,957) -- --
Depreciation and amortization 2,334,474 2,248,839 1,982,528
Changes in assets and liabilities:
Cash and equivalents - restricted 57,931 (82,358) 56,750
Accounts receivable (56,630) (61,707) (32,468)
Other assets (302,873) (164,225) (382,137)
Accounts payable (494,925) (274,298) 197,690
Security deposits (59,259) (51,848) 77,836
Other liabilities 88,641 (136,363) 102,114
--------------- --------------- ---------------
Net cash provided by operating activities 2,444,242 2,443,189 3,275,044
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets 559 232 --
Additions to land, buildings and amenities (870,351) (656,712) (3,695,680)
--------------- --------------- ---------------
Net cash used in investing activities (869,792) (656,480) (3,695,680)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages and note payable 155,974 466,553 1,300,327
Principal payments on mortgages and note payable (1,733,784) (1,571,764) (1,431,100)
Additions to loan costs -- (1,350) (95,140)
Cash distributions (1,196,767) (1,707,149) (1,937,713)
Capital contributions 1,220,682 896,618 984,143
--------------- --------------- ---------------
Net cash used in financing activities (1,553,895) (1,917,092) (1,179,483)
--------------- --------------- ---------------
Net increase (decrease) in cash and equivalents 20,555 (130,383) (1,600,119)
CASH AND EQUIVALENTS, beginning of year 200,333 330,716 1,930,835
--------------- --------------- ---------------
CASH AND EQUIVALENTS, end of year $ 220,888 $ 200,333 $ 330,716
=============== =============== ===============
Interest paid on a cash basis $ 1,146,095 $ 1,302,046 $ 1,318,584
=============== =============== ===============
COMBINED JOINT VENTURES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
104,000 net rentable square feet located in Fort Lauderdale, Florida.
97,000 net rentable square feet located in Fort Lauderdale, Florida.
39,000 net rentable square feet located in Fort Lauderdale, Florida.
2002 2001
--------------- ----------------
Land and improvements $ 16,674,932 $ 16,671,908
Buildings, improvements and amenities 48,214,024 47,818,467
--------------- ----------------
64,888,956 64,490,375
Less accumulated depreciation 32,146,792 30,499,556
--------------- ----------------
$ 32,742,164 $ 33,990,819
=============== ================
2002 2001
--------------- ----------------
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 8.125%, due
August 1, 2008, secured by land and a building. $ 3,567,113 $ 4,043,630
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 8.125%, due
August 1, 2008, secured by land, buildings and amenities. 3,315,490 3,758,395
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 8.5%, due
November 15, 2005, secured by land, buildings and amenities. 1,733,466 2,235,829
Mortgage payable to a bank in monthly installments, bearing
interest at a variable rate based on LIBOR daily rate plus
2.3%, which was 4.17% at December 31, 2002, due
September 8, 2003, secured by land and a building. 1,844,049 1,720,475
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 7.2%, due
January 5, 2013, secured by land, buildings and amenities. 2,494,654 2,657,319
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 7.2%, due
January 5, 2013, secured by land, buildings and amenities. 1,489,917 1,587,068
Note payable to a bank in monthly installments, bearing
interest at the Prime Rate, but not less than 6.0%, due April 5,
2003. At December 31, 2002, the interest rate was 6.0%. 5,595 23,599
Note payable to a bank in monthly installments, bearing
interest at the Prime Rate, but not less than 6.0%, due April 5,
2003. At December 31, 2002, the interest rate was 6.0%. 552 2,331
--------------- ----------------
$ 14,450,836 $ 16,028,646
=============== ================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 3,673,087
2004 1,976,085
2005 2,086,095
2006 1,617,349
2007 1,750,329
Thereafter 3,347,891
---------------------------
$ 14,450,836
===========================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 3,169,185
2004 2,871,262
2005 1,831,931
2006 863,528
2007 684,618
Thereafter 409,353
---------------------------
$ 9,829,877
===========================
Note 6 - Related Party Transactions
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 495,125 $ 507,747 $ 503,273
------------------ ------------------ -----------------
Property management 729,137 688,157 577,929
Leasing 177,116 209,642 199,458
Administrative - operating 177,827 162,537 169,549
Other 7,266 17,281 6,321
------------------ ------------------ -----------------
Total operating expenses - affiliated 1,091,346 1,077,617 953,257
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated -- -- 550,000
------------------ ------------------ -----------------
Repairs and maintenance fees 40,384 53,708 197,753
Leasing commissions 84,954 69,372 118,238
Other 6,060 2,350 38
------------------ ------------------ -----------------
Total related party transactions capitalized 131,398 125,430 316,029
------------------ ------------------ -----------------
Total related party transactions $ 1,717,869 $ 1,710,794 $ 2,322,559
================== ================== =================
Note 7 - Commitments and Contingencies
2002
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 4,185,973 $ 4,800,143 $ 8,986,116
Interest and other income 4,679 25,324 30,003
Gain on sale of assets 559 -- 559
----------------- ------------------ ------------------
Total revenues $ 4,191,211 $ 4,825,467 $ 9,016,678
================= ================== ==================
Operating expenses and operating expenses
- affiliated $ 1,742,374 $ 1,817,981 $ 3,560,355
Loss on disposal of assets 56,896 14,112 71,008
Interest expense 298,498 900,668 1,199,166
Management fees 210,602 284,523 495,125
Real estate taxes 342,267 492,777 835,044
Professional and administrative - affiliated -- -- --
Depreciation and amortization 716,421 1,337,291 2,053,712
----------------- ------------------ ------------------
Total expenses $ 3,367,058 $ 4,847,352 $ 8,214,410
----------------- ------------------ ------------------
Net income (loss) $ 824,153 $ (21,885)$ 802,268
================= ================== ==================
Land, buildings and amenities, net $ 12,044,673 $ 20,697,491 $ 32,742,164
================= ================== ==================
Expenditures for land, buildings and
amenities $ 170,459 $ 699,892 $ 870,351
================= ================== ==================
Segment liabilities $ 4,393,297 $ 10,961,858 $ 15,355,155
================= ================== ==================
2001
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 4,170,498 $ 5,061,935 $ 9,232,433
Interest and other income 13,530 14,870 28,400
Gain on sale of assets 100 -- 100
----------------- ------------------ ------------------
Total revenues $ 4,184,128 $ 5,076,805 $ 9,260,933
================= ================== ==================
Operating expenses and operating expenses
- affiliated $ 1,788,165 $ 1,833,089 $ 3,621,254
Loss on disposal of assets 2,528 450 2,978
Interest expense 317,072 1,035,997 1,353,069
Management fees 209,312 298,435 507,747
Real estate taxes 350,461 485,884 836,345
Professional and administrative - affiliated -- 3,750 3,750
Depreciation and amortization 716,197 1,257,322 1,973,519
----------------- ------------------ ------------------
Total expenses $ 3,383,735 $ 4,914,927 $ 8,298,662
----------------- ------------------ ------------------
Net income $ 800,393 $ 161,878 $ 962,271
================= ================== ==================
Land, buildings and amenities, net $ 12,647,532 $ 21,343,287 $ 33,990,819
================= ================== ==================
Expenditures for land, buildings and
amenities $ 136,861 $ 519,851 $ 656,712
================= ================== ==================
Segment liabilities $ 4,714,559 $ 12,683,949 $ 17,398,508
================= ================== ==================
2000
---------------------------------------------------------
Residential Commercial Total
----------------- ------------------ ------------------
Rental income $ 4,279,702 $ 4,553,922 $ 8,833,624
Interest and other income 310,145 57,308 367,453
----------------- ------------------ ------------------
Total revenues $ 4,589,847 $ 4,611,230 $ 9,201,077
================= ================== ==================
Operating expenses and operating expenses
- affiliated $ 1,633,081 $ 1,456,533 $ 3,089,614
Loss on disposal of assets 119,406 160,429 279,835
Interest expense 332,422 928,614 1,261,036
Management fees 229,668 273,605 503,273
Real estate taxes 348,429 423,892 772,321
Professional and administrative - affiliated 110,000 440,000 550,000
Depreciation and amortization 704,555 1,047,547 1,752,102
----------------- ------------------ ------------------
Total expenses $ 3,477,561 $ 4,730,620 $ 8,208,181
----------------- ------------------ ------------------
Net income (loss) $ 1,112,286 $ (119,390)$ 992,896
================= ================== ==================
Land, buildings and amenities, net $ 13,229,528 $ 22,060,106 $ 35,289,634
================= ================== ==================
Expenditures for land, buildings and
amenities $ 252,272 $ 3,443,408 $ 3,695,680
================= ================== ==================
Segment liabilities $ 4,941,810 $ 14,024,418 $ 18,966,228
================= ================== ==================
ORIG, LLC 10,314 Interests (42.77%)
10172 Linn Station Road
Louisville, Kentucky 40223
J. D. Nichols 69.69%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Sub-Partnership IV 30.00%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 00.30%
10172 Linn Station Road
Louisville, Kentucky 40223
Alliance Realty Corporation 00.01%
500 North Broadway
St. Louis, Missouri 63102
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 135,082 $ 133,416 $ 137,432
------------------ ------------------ -----------------
Property management 235,231 223,555 249,007
Leasing 104,833 116,210 69,283
Administrative - operating 68,398 62,174 61,442
Other 5,967 6,621 7,285
------------------ ------------------ -----------------
Total operating expenses - affiliated 414,429 408,560 387,017
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated 143,715 157,274 123,096
------------------ ------------------ -----------------
Repairs and maintenance fees 13,046 5,085 13,448
Leasing commissions 18,765 11,961 10,022
Other 5,287 2,050 --
------------------ ------------------ -----------------
Total related party transactions capitalized 37,098 19,096 23,470
------------------ ------------------ -----------------
Total related party transactions $ 730,324 $ 718,346 $ 671,015
================== ================== =================
Schedules: Page No.
III-Real Estate and Accumulated Depreciation 75-76
Exhibit No.
3. Amended and Restated Agreement and Certificate of Limited Partnership *
of NTS-Properties IV.
10. Property Management Agreement and Construction Management *
Agreement between NTS Development Company and NTS-Properties IV.
99.1 Certification of Chief Executive Officer Pursuant to Section 906 **
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to Section 906 **
of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference to documents filed with the Securities and Exchange Commission in
connection with the filing of the Registration Statements on Form S-11 on May 16, 1983
(effective August 1, 1983) under Commission File No. 2-83771.
** Attached as an exhibit with this Form 10-K.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2002
Commonwealth Plainview Point The Willows
Business Center Office Center of Plainview
Phase I Phases I and II Phase I Total
----------------- ----------------- --------------- ----------------
Encumbrances (A) None (B)
Initial cost to partnership:
Land $ 928,867 $ 356,048 $ 1,798,292 $ 3,083,207
Buildings and improvements 1,419,653 2,214,001 5,447,513 9,081,167
Cost capitalized subsequent to acquisition:
Improvements (net of retirements) 1,889,466 1,120,016 320,413 3,329,895
Gross amount at which carried
December 31, 2002 (C):
Land $ 951,998 $ 455,804 $ 1,858,149 $ 3,265,951
Buildings and improvements 3,285,988 3,234,261 5,708,069 12,228,318
----------------- ----------------- --------------- ----------------
Total (E) $ 4,237,986 $ 3,690,065 $ 7,566,218 $ 15,494,269
================= ================= =============== ================
Accumulated depreciation $ 2,864,622 $ 2,090,972 $ 4,288,109 $ 9,243,703
================= ================= =============== ================
Date of construction 06/84 N/A 03/85
Date acquired N/A 04/84 N/A
Life at which depreciation in latest
income statement is computed (D) (D) (D)
(A) First mortgage held by an insurance company.
(B) First mortgage held by two insurance companies.
(C) Aggregate cost of real estate for tax purposes is $15,446,211.
(D) Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 3-30
years for land improvements, 3-30 years for buildings and improvements, 3-30 years for amenities and the
applicable lease term for tenant improvements.
(E) Reconciliation, net of accumulated depreciation to financial statements:
Total gross cost on December 31, 2002 $ 15,494,269
Additions to Partnership for computer hardware and software in 1999 and 2000 26,911
------------------
Balance on December 31, 2002 15,521,180
Less accumulated depreciation (9,243,703)
Less accumulated depreciation for Partnership computer hardware and software (18,838)
------------------
Land, buildings and amenities, net on December 31, 2002 $ 6,258,639
==================
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Real Accumulated
Estate Depreciation
------------------ ------------------
Balances on January 1, 2000 $ 15,276,533 $ 7,975,417
Additions during period:
Improvements 135,988 --
Depreciation (A) -- 486,269
Deductions during period:
Retirements (99,233) (56,013)
------------------ ------------------
Balances on December 31, 2000 15,313,288 8,405,673
Additions during period:
Improvements 144,761 --
Depreciation (A) -- 488,736
Deductions during period:
Retirements (16,564) (14,299)
------------------ ------------------
Balances on December 31, 2001 15,441,485 8,880,110
Additions during period:
Improvements 249,080 --
Depreciation (A) -- 500,548
Deductions during period:
Retirements (169,385) (118,117)
------------------ ------------------
Balances on December 31, 2002 $ 15,521,180 $ 9,262,541
================== ==================
A) The additions charged to accumulated depreciation on this schedule will differ from the depreciation and
amortization on the Statements of Cash Flows due to the amortization of loan costs and capitalized leasing costs.
NTS-PROPERTIES IV
By: NTS-Properties Associates IV,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
Gregory A. Wells
Chief Financial Officer of
NTS Capital Corporation
Date: March 31, 2003
Signature Title
/s/ J. D. Nichols
J. D. Nichols General Partner of NTS-Properties Associates IV and
Chairman of the Board and Sole Director of NTS
Capital Corporation
/s/ Brian F. Lavin
Brian F. Lavin President of NTS Capital Corporation
/s/ Gregory A. Wells
Gregory A. Wells Chief Financial Officer of NTS Capital Corporation
President of NTS Capital Corporation, General Partner of NTS-Properties Associates IV, General Partner of NTS-
Properties IV
Chief Financial Officer of NTS Capital Corporation, General Partner of NTS-Properties Associates IV, General Partner
of NTS-Properties IV