UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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
| Kentucky | 61-1026356 |
| (State or other jurisdiction of | (IRS Employer Identification No.) |
| incorporation or organization) |
10172 Linn Station Road, Louisville, Kentucky 40223
(Address of Principal Executive Offices)
(502) 426-4800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
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]
TABLE OF CONTENTS
PART I
| Pages | ||||
| Item 1. | Financial Statements | |||
| Balance Sheets as of March 31, 2003 and December 31, 2002 | 4 | |||
| Statement of Partners' Equity as of March 31, 2003 | 4 | |||
| Statements of Operations for the Three Months | ||||
| Ended March 31, 2003 and 2002 | 5 | |||
| Statements of Cash Flows for the Three Months | ||||
| Ended March 31, 2003 and 2002 | 6 | |||
| Notes to Financial Statements | 7-14 | |||
| Item 2. | Management's Discussion and Analysis of Financial | |||
| Condition and Results of Operations | 15-22 | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 | ||
| Item 4. | Controls and Procedures | 22 |
PART II
| Item 1. | Legal Proceedings | 23 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 23 | ||
| Item 3. | Defaults Upon Senior Securities | 23 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 23 | ||
| Item 5. | Other Information | 23 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 23-24 | ||
| Signatures | 25 | |||
| Certifications | 26-27 |
2
Some of the statements included in this Form 10-Q, particularly those included in Part I, Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of Operations
("MD&A"), may be considered "forward-looking statements" because the 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.
If these events do not occur, the result which we expected also may not occur, or may 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 our general
partner's best judgment based on known factors, but 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 described in our filings with the Securities and
Exchange Commission, particularly our Form 10-K for the year ended December 31, 2002. Any
forward-looking information provided by us pursuant to the safe harbor established by securities
legislation should be evaluated in the context of these factors. 3
PART I - FINANCIAL INFORMATION NTS-PROPERTIES IV NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 4
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 5
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 6
NTS-PROPERTIES IV The unaudited financial statements included herein should be read in conjunction with the NTS-
Properties IV's 2002 Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 31, 2003. In the opinion of our general partner, all adjustments, consisting
only of normal reoccurring accruals, necessary for a fair presentation have been made to the
accompanying financial statements for the three months ended March 31, 2003 and 2002. The
results of operations for the interim periods are not necessarily indicative of the results that may be
expected for the full year or any other interim period. As used in this Quarterly Report on Form 10-
Q the terms "we," "us" or "our," as the context requires, may refer to the Partnership or its interests
in its properties and joint ventures. 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. 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. We own and operate, either wholly or through a joint venture, four commercial properties -
Commonwealth Business Center Phase I, Plainview Point Office Center Phases I and II, Plainview
Point Office Center Phase III and Blankenbaker Business Center 1A, in Louisville, Kentucky and
three commercial properties - Lakeshore Business Center Phases I, II and III, in Fort Lauderdale,
Florida. In Louisville, Kentucky, one tenant occupies 100% of Blankenbaker Business Center 1A.
We also own and operate, either wholly or through a joint venture, two apartment communities - The
Willows of Plainview Phases I and II, in Louisville, Kentucky and one apartment community - Golf
Brook Apartments, in Orlando, Florida. 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. 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. 7
NTS-PROPERTIES IV Cash and equivalents include cash on hand and short-term, highly liquid investments with initial
maturities of three months or less. We have a cash management program which provides for the
overnight investment of excess cash balances. Under an agreement with a bank, excess cash is
invested in a repurchase agreement for U.S. government or agency securities each night. As of
March 31, 2003, approximately $123,000 of our overnight investment was included in cash and cash
equivalents. 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. The aggregate cost of our
properties for federal tax purposes is approximately $15,446,000. 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 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 value. Application of this
standard by management during the period ended March 31, 2003 did not result in an impairment
loss. 8
NTS-PROPERTIES IV We own several investments in joint ventures in conjunction with our affiliates. The unconsolidated
subsidiaries of NTS-Properties IV 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: For the three months ended March 31, 2003 and 2002, the unconsolidated subsidiaries had total
revenues of $2,198,686 and $2,256,972, respectively, and net income of $295,625 and $162,964,
respectively. 9
NTS-PROPERTIES IV Mortgages and note payable consist of the following: Based on the borrowing rates currently available to us for loans with similar terms and average
maturities, the fair value of long-term debt is approximately $3,804,000. Our mortgages may be prepaid but are generally subject to a yield-maintenance premium. 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 our apartment community and 6% of the gross revenues from our
commercial properties. Also pursuant to 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 from NTS Development Company for the three months
ended March 31, 2003 and 2002. 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. 10
NTS-PROPERTIES IV As an owner of real estate, we are subject to various environmental laws of federal, state and local
governments. Our compliance with existing laws has not had a material adverse effect on our
financial condition and results of operations. However, we cannot predict the impact of new or
changed laws or regulations on our current properties or 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 March 31, 2003 and
2002 were $14,075,283 and $15,688,836, respectively, which are not reflected in our financial
statements. 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 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 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. 11
NTS-PROPERTIES IV 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 tenant finish costing
approximately $705,000. Our share of this cost will be approximately $77,000. 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. 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. Under an indemnification agreement with our general partner, we are
responsible for the costs of defending this action. 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 the 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, 12
NTS-PROPERTIES IV 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. No
amounts have been accrued as a liability for this action in our financial statements. Our general
partner believes that this action is without merit, and is vigorously defending 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. 13
NTS-PROPERTIES IV A reconciliation of the totals reported for the operating segments to the applicable line items in the
financial statements for the three months ended March 31, 2003 and 2002 is necessary given
amounts recorded at the Partnership level and not allocated to the operating properties for internal
reporting purposes. 14
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 1 and the
Cautionary Statements below. The accompanying consolidated financial statements were prepared in conformity with accounting
principles generally accepted in the United States. Application of these accounting principles
requires us to make estimates about the future resolution of existing uncertainties; as a result, actual
results could differ from these estimates. In preparing these financial statements, we have made our
best estimates and judgements of the amounts and disclosures included in the financial statements,
giving due regard to materiality. 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 may 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. The following tables include our selected summarized operating data for the three months ended
March 31, 2003 and March 31, 2002. This data should be read in conjunction with our financial
statements, including the notes thereto, in Part I, Item 1 of this report. 15
Several general trends have affected our recent operating results. Net revenues for residential have
increased due to higher average occupancy at The Willows of Plainview Phase I, while commercial
net revenues have essentially remained level. Residential operating expenses have decreased due
to decreased repairs and maintenance expense at The Willows of Plainview Phase I, while the
commercial operating expenses have remained level. 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. Rental and other income generated by our properties and joint ventures for the three months ended
March 31, 2003 and 2002 were as follows: 16
The occupancy levels at our properties and joint ventures as of March 31, 2003 and 2002 were as
follows: The average occupancy levels at our properties and joint ventures for the three months ended March
31, 2003 and 2002 were as follows: 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 off-site
leasing agent. The leasing and renewal negotiations for our remaining commercial properties are
managed by leasing agents, who are employees of NTS Development Company, located in
Louisville, Kentucky. The leasing agents are located in the same city as the 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 17
properties, we have an on-site leasing staff, who 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 apartments and negotiates lease renewals with current
residents. The following discussion relating to changes in our results of operations includes only those line
items within our Statements of Operations for which there was a material change between the three
months ending March 31, 2002 and March 31, 2003. Income from investment in joint venture increased approximately $15,000, or 79%, for the three
months ended March 31, 2003, as compared to the same period in 2002, primarily as the result of
increased net income from The Willows of Plainview Phase II, Golf Brook Apartments and
Blankenbaker Business Center 1A. Operating expenses decreased approximately $25,000, or 18%, for the three months ended March
31, 2003, as compared to the same period in 2002, primarily due to decreased repairs and
maintenance, landscaping, and advertising expense at The Willows of Plainview Phase I. The
decrease is partially offset by increased repairs and maintenance expense at Plainview Point Office
Center Phases I and II. Interest expense decreased approximately $12,000, or 14%, for the three months ended March 31,
2003, as compared to the same period in 2002, primarily as a result of principal payments reducing
the outstanding balance on the Commonwealth Business Center Phase I and The Willows of
Plainview Phase I mortgages. Professional and administrative expenses increased approximately $46,000, for the three months
ended March 31, 2003, as compared to the same period in 2002. The increase is primarily due to an
increase in legal and professional fees related to our potential consolidation. 18
The following table sets forth the cash provided by or used in operating activities, investing activities
and financing activities for the three months ended March 31, 2003 and 2002. Cash flows provided by (used in): Net cash provided by operating activities decreased approximately $70,000, or 37%, for the three
months ended March 31, 2003, as compared to the same period in 2002. The decrease was primarily
driven by a decrease in collections of accounts receivable and decreased accounts payable, partially
offset by increased net income from operations. Net cash used in investing activities decreased approximately $156,000, or 96%, for the three months
ended March 31, 2003, as compared to the same period in 2002. The decrease is the result of
decreased capital expenditures and changes in cash flows from our joint venture investment. Net cash used in financing activities increased approximately $11,000, or 8% for the three months
ended March 31, 2003, as compared to the same period in 2002. The increase is 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 the three months ended March 31, 2003 or
2002, the table which presents that portion of the distributions that represents a return of capital in
accordance with Accounting Principles Generally Accepted in the United States has been omitted. We believe the current occupancy levels are considered adequate to continue the operations of our
properties without additional financing, with the exception of Lakeshore Business Center Phase III
and Plainview Point Office Center Phase III. Our future liquidity depends significantly on our
properties' occupancy remaining 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 impaired. 19
We are aware that one of our most significant commercial tenants whose lease will expire soon is
making efforts to seek alternatives to renewing their expiring lease with us. The failure of this tenant
to renew their lease would result in a loss of annual rental revenue and operating expense recoveries
of approximately $938,000 to the joint venture. Income from our investment in the joint venture that
owns this property would decrease accordingly. This would significantly impact our liquidity, and
could result in significant costs to refurbish the vacated space and locate a new tenant. At this time,
we are not certain whether the tenant intends to renew their lease as allowed by the lease agreement,
or vacate their space. In the next 12 months, the demand on future liquidity is anticipated to increase as a result of the
replacement of the roofs at Plainview Point Office Center Phases I and II, Lakeshore Business
Center Phase I and Blankenbaker Business Center 1A and as we continue our efforts in the leasing
of our commercial properties. There may be significant demands of future liquidity due to the lease
up of Lakeshore Business Center Phase III and returning Plainview Point Office Center Phase III
to full occupancy. 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 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 improvements listed in the agreement. They include tenant finish costs, heating and
air conditioning equipment and roof replacements (some of which are described below). 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 tenant finish costing
approximately $705,000. Our share of this cost will be approximately $77,000. 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 Office Center Phase III. 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 Office Center Phase III 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 $703,000 will likely be needed for tenant finish costs. Our share of
these costs would be approximately $35,000. Plainview Point Office Center Phases I and II, Lakeshore Business center Phase I and Blankenbaker
Business Center 1A are expected to require new roofs in 2003. The roof replacements are expected
to cost approximately $87,000, $150,000 and $235,000, respectively. Our share of these costs for 20
Lakeshore Business Center Phase I and Blankenbaker Business Center 1A would be approximately
$16,000 and $70,000, respectively. The roof replacements will be funded from existing working
capital or additional financing where necessary. We have no other material commitments for renovations or capital improvements as of March 31,
2003. 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 their proportionate
share 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 their proportionate share 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, are intended to
protect us, in part, from the impact of inflation and changing prices. 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. 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 public
limited partnerships, 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
public limited partnership, 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 21
expenses associated with a consolidation and the fact that the interests of our limited partners in the
combined entity would be smaller on a percentage basis than their interests in us. 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. Our 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 website as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. Our website and
the information contained therein or connected thereto are not incorporated into this Quarterly
Report on Form 10-Q. Our primary market risk exposure with regard to financial instruments stems from changes in interest
rates. All of our debt bears interest at a fixed rate. On March 31, 2003, a hypothetical 100 basis
point increase in interest rates would result in an approximate $141,000 decrease in the fair value
of the debt. 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. 22
PART II - OTHER INFORMATION 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. No
amounts have been accrued as a liability for this action in our financial statements. Our general
partner believes that this action is without merit, and is vigorously defending it. Item 2 - Changes in Securities and Use of Proceeds Item 3 - Defaults Upon Senior Securities Item 4 - Submission of Matters to a Vote of Security Holders Item 5 - Other Information Item 6 - Exhibits and Reports on Form 8-K 23
24
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. Date: May 15, 2003 25
CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Brian F. Lavin, certify that: Date: May 15, 2003 /s/ Brian F. Lavin See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is attached as an exhibit
to this report. 26
CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Gregory A. Wells, certify that: Date: May 15, 2003 /s/ Gregory A. Wells See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is attached as an exhibit
to this report. 27
EXHIBIT INDEX
Item 1 - Financial Statements
BALANCE SHEETS
As of As of
March 31, December 31,
2003 2002
-------------------- --------------------
(UNAUDITED)
ASSETS
Cash and equivalents $ 172,129 $ 205,729
Cash and equivalents - restricted 55,719 26,750
Accounts receivable, net 198,341 123,412
Land, buildings and amenities, net 6,148,579 6,258,639
Investment in and advances to joint ventures 1,143,480 1,120,227
Other assets 126,756 139,526
-------------------- --------------------
TOTAL ASSETS $ 7,845,004 $ 7,874,283
==================== ====================
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $ 3,636,137 $ 3,785,444
Accounts payable 117,875 104,646
Security deposits 31,931 31,631
Other liabilities 117,173 86,449
-------------------- --------------------
TOTAL LIABILITIES 3,903,116 4,008,170
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY 3,941,888 3,866,113
-------------------- --------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 7,845,004 $ 7,874,283
==================== ====================
STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Limited General
Partners Partner Total
------------------- ------------------- -------------------
PARTNERS' EQUITY/(DEFICIT)
Capital contributions net of offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 806,219 8,145 814,364
Net income - current year 75,015 758 75,773
Cash distributions declared to date (21,586,280) (218,253) (21,804,533)
Repurchase of limited partnership interests (978,615) -- (978,615)
------------------- ------------------- -------------------
BALANCES ON MARCH 31, 2003 $ 4,151,238 $ (209,350)$ 3,941,888
=================== =================== ===================
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------------------------
2003 2002
------------------- -------------------
REVENUES
Rental income $ 624,518 $ 580,439
Income from investment in joint ventures 33,299 18,602
Interest and other income 498 1,946
------------------- -------------------
TOTAL REVENUES 658,315 600,987
------------------- -------------------
EXPENSES
Operating expenses 115,035 139,608
Operating expenses - affiliated 92,154 101,189
Interest expense 70,613 82,390
Management fees 34,537 31,883
Real estate taxes 31,266 30,788
Professional and administrative expenses 75,823 29,811
Professional and administrative expenses - affiliated 36,794 36,796
Depreciation and amortization 126,320 124,142
------------------- -------------------
TOTAL EXPENSES 582,542 576,607
------------------- -------------------
Net income $ 75,773 $ 24,380
=================== ===================
Net income allocated to the limited partners $ 75,015 $ 24,136
=================== ===================
Net income per limited partnership interest $ 3.11 $ 1.00
=================== ===================
Weighted average number of limited partnership interests 24,109 24,109
=================== ===================
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------------------------
2003 2002
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 75,773 $ 24,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 136,722 134,483
Income from investment in joint ventures (33,299) (18,602)
Changes in assets and liabilities:
Cash and equivalents - restricted (28,969) (24,718)
Accounts receivable (74,929) (3,486)
Other assets 2,370 (17,980)
Accounts payable 13,229 67,765
Security deposits 300 300
Other liabilities 30,724 30,148
------------------- -------------------
Net cash provided by operating activities 121,921 192,290
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (16,260) (129,729)
Investment in and advances from (to) joint ventures 10,046 (32,514)
------------------- -------------------
Net cash used in investing activities (6,214) (162,243)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages and note payable (149,307) (138,367)
------------------- -------------------
Net cash used in financing activities (149,307) (138,367)
------------------- -------------------
Net decrease in cash and equivalents (33,600) (108,320)
CASH AND EQUIVALENTS, beginning of period 205,729 462,107
------------------- -------------------
CASH AND EQUIVALENTS, end of period $ 172,129 $ 353,787
=================== ===================
Interest paid on a cash basis $ 69,683 $ 81,382
=================== ===================
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
March 31, December 31,
2003 2002
------------------- -------------------
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. $ 643,787 $ 737,515
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. 1,533,004 1,559,662
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. 1,459,346 1,484,724
Note payable to a bank in monthly installments, bearing
interest at the Prime Rate, but not less than 6.00%, repaid in
March 2003. -- 3,543
------------------- -------------------
$ 3,636,137 $ 3,785,444
=================== ===================
NOTES TO FINANCIAL STATEMENTS
Three Months Ended
March 31,
---------------------------------------
2003 2002
----------------- ------------------
Property management fees $ 34,537 $ 31,883
----------------- ------------------
Property management 57,903 55,984
Leasing 15,096 28,014
Administrative - operating 18,626 16,201
Other 529 990
----------------- ------------------
Total operating expenses - affiliated 92,154 101,189
----------------- ------------------
Professional and administrative expenses - affiliated 36,794 36,796
----------------- ------------------
Repair and maintenance fees 4,303 7,340
Leasing commissions -- 1,290
Other -- 3,075
----------------- ------------------
Total related party transactions capitalized 4,303 11,705
----------------- ------------------
Total related party transactions $ 167,788 $ 181,573
================= ==================
Note 10 - Commitments and Contingencies
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2003
---------------------------------------------------------
Residential Commercial Total
----------------- ----------------- ------------------
Rental income $ 285,103 $ 339,415 $ 624,518
Interest and other income 63 264 327
----------------- ----------------- ------------------
Total net revenues $ 285,166 $ 339,679 $ 624,845
================= ================= ==================
Operating expenses and operating
expenses - affiliated $ 98,711 $ 108,478 $ 207,189
Interest expense 54,337 16,276 70,613
Management fees 15,053 19,484 34,537
Real estate taxes 15,429 15,837 31,266
Depreciation and amortization 51,685 73,106 124,791
----------------- ----------------- ------------------
Total expenses $ 235,215 $ 233,181 $ 468,396
================= ================= ==================
Net income $ 49,951 $ 106,498 $ 156,449
================= ================= ==================
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2002
---------------------------------------------------------
Residential Commercial Total
----------------- ----------------- ------------------
Rental income $ 247,078 $ 333,361 $ 580,439
Interest and other income 231 961 1,192
----------------- ----------------- ------------------
Total net revenues $ 247,309 $ 334,322 $ 581,631
================= ================= ==================
Operating expenses and operating
expenses - affiliated $ 131,261 $ 107,436 $ 238,697
Interest expense 58,189 24,201 82,390
Management fees 12,226 19,657 31,883
Real estate taxes 15,020 15,768 30,788
Depreciation and amortization 51,095 71,518 122,613
----------------- ----------------- ------------------
Total expenses $ 267,791 $ 238,580 $ 506,371
================= ================= ==================
Net (loss) income $ (20,482) $ 95,742 $ 75,260
================= ================= ==================
Three Months Ended
March 31,
---------------------------------------------
2003 2002
------------------ -------------------
NET REVENUES
Total revenues for reportable segments $ 624,845 $ 581,631
Other income for Partnership 171 754
Income from investment in joint ventures 33,299 18,602
------------------ -------------------
Total consolidated net revenues $ 658,315 $ 600,987
================== ===================
OPERATING EXPENSES
Total operating expenses for reportable segments $ 207,189 $ 238,697
Other operating expenses for Partnership -- 2,100
------------------ -------------------
Total operating expenses $ 207,189 $ 240,797
================== ===================
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for
reportable segments $ 124,791 $ 122,613
Depreciation and amortization for Partnership 1,529 1,529
------------------ -------------------
Total depreciation and amortization $ 126,320 $ 124,142
================== ===================
NET INCOME
Total net income for reportable segments $ 156,449 $ 75,260
Net loss for Partnership (80,676) (50,880)
------------------ -------------------
Total net income $ 75,773 $ 24,380
================== ===================
Three Months Ended March 31, 2003
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 285,166 $ 339,679 $ 33,470 $ 658,315
Operating expenses and operating
expenses - affiliated 98,711 108,478 -- 207,189
Interest expense 54,337 16,276 -- 70,613
Depreciation and amortization 51,685 73,106 1,529 126,320
Net income (loss) 49,951 106,498 (80,676) 75,773
Three Month Ended March 31, 2002
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 247,309 $ 334,322 $ 19,356 $ 600,987
Operating expenses and operating
expenses - affiliated 131,261 107,436 2,100 240,797
Interest expense 58,189 24,201 -- 82,390
Depreciation and amortization 51,095 71,518 1,529 124,142
Net (loss) income (20,482) 95,742 (50,880) 24,380
Three Months Ended
March 31,
-------------------------------------------
2003 2002
------------------ -------------------
Wholly-Owned Properties
Commonwealth Business Center Phase I $ 192,183 $ 183,012
Plainview Point Office Center Phases I & II $ 147,496 $ 151,310
The Willows of Plainview Phase I $ 285,166 $ 247,309
Joint Venture Properties
(Ownership % on March 31, 2003)
The Willows of Plainview Phase II (9.7%) $ 316,131 $ 285,397
Golf Brook Apartments (3.97%) $ 745,284 $ 731,633
Plainview Point Office Center Phase III (4.96%) $ 130,455 $ 145,848
Blankenbaker Business Center 1A (29.61%) $ 237,334 $ 240,098
Lakeshore Business Center Phase I (10.92%) $ 360,924 $ 409,017
Lakeshore Business Center Phase II (10.92%) $ 334,536 $ 375,618
Lakeshore Business Center Phase III (10.92%) $ 74,023 $ 69,362
Three Months Ended
March 31,
---------------------------------------------
2003 2002
------------------- -------------------
Wholly-Owned Properties
Commonwealth Business Center Phase I 91% 85%
Plainview Point Office Center Phases I & II 85% 86%
The Willows of Plainview Phase I 95% 72%
Joint Venture Properties
(Ownership % on March 31, 2003)
The Willows of Plainview Phase II (9.7%) 81% 74%
Golf Brook Apartments (3.97%) 90% 84%
Plainview Point Office Center Phase III (4.96%) 49% 54%
Blankenbaker Business Center 1A (29.61%) 100% 100%
Lakeshore Business Center Phase I (10.92%) 71% 82%
Lakeshore Business Center Phase II (10.92%) 81% 87%
Lakeshore Business Center Phase III (10.92%) 38% 37%
Three Months Ended
March 31,
---------------------------------------------
2003 2002
------------------ ------------------
Wholly-Owned Properties
Commonwealth Business Center Phase I 91% 90%
Plainview Point Office Center Phases I & II 85% 86%
The Willows of Plainview Phase I 95% 75%
Joint Venture Properties
(Ownership % on March 31, 2003)
The Willows of Plainview Phase II (9.7%) 85% 78%
Golf Brook Apartments (3.97%) 92% 86%
Plainview Point Office Center Phase III (4.96%) 49% 54%
Blankenbaker Business Center 1A (29.61%) 100% 100%
Lakeshore Business Center Phase I (10.92%) 70% 84%
Lakeshore Business Center Phase II (10.92%) 81% 85%
Lakeshore Business Center Phase III (10.92%) 37% 34%
Three Months Ended
March 31,
---------------------------------------
2003 2002
----------------- ------------------
Operating activities $ 121,921 $ 192,290
Investing activities (6,214) (162,243)
Financing activities (149,307) (138,367)
----------------- ------------------
Net decrease in cash and equivalents $ (33,600) $ (108,320)
================= ==================
Cash Flows
None.
None.
None.
None.
(a) Exhibits
(3) Amended and Restated Agreement and Certificate of Limited Partnership of 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. **
(b) Reports on Form 8-K
None.
* 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 to this Quarterly Report on Form 10-Q.
NTS-PROPERTIES IV
By: NTS-Properties Associates IV,
General Partner
By: NTS Capital Corporation,
General Partner
/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
Exhibit Number Description of Document
3 Amended and Restated Agreement and Certificate of Limited
Partnership of 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 to this Quarterly Report on Form 10-Q.