SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------------
Commission file number 33-80849
---------------------------------------------------------
Capital Preferred Yield Fund-IV, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1331690
----------------------- ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
7175 West Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 980-1000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 .
----- -----
Exhibit Index Appears on Page 17
Page 1 of 18 Pages
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Quarterly Report on Form 10-Q
For the Quarter Ended
September 30, 1998
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1998 and December 31, 1997 3
Statements of Income - Three and Nine Months Ended
September 30, 1998 and 1997 4
Statement of Partners' Capital - Three and Nine Months
Ended September 30, 1998 and 1997 5
Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 6
Notes to Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit Index 17
Signature 18
2
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
----------- ------------
(Unaudited)
Cash and cash equivalents $ 1,562,460 $ 4,676,747
Accounts receivable 571,122 383,407
Receivable from related party 45 10,000
Equipment held for sale or re-lease 270,124 -
Net investment in direct finance leases 4,297,780 4,602,977
Leased equipment, net 50,364,449 46,488,309
----------- -----------
Total assets $57,065,980 $56,161,440
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 631,759 $ 411,814
Payables to affiliates 44,584 58,722
Rents received in advance 969,505 817,900
Distributions payable to partners 497,346 433,396
Discounted lease rentals 17,325,719 17,633,047
----------- -----------
Total liabilities 19,468,913 19,354,879
----------- -----------
Partners' capital:
General partner - -
Limited partners:
Class A 37,150,531 36,374,010
Class B 446,536 432,551
----------- -----------
Total partners' capital 37,597,067 36,806,561
----------- -----------
Total liabilities and partners' capital $57,065,980 $56,161,440
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Operating lease rentals $ 4,763,322 $ 3,287,838 $13,934,122 $ 7,636,203
Direct finance lease income 90,779 67,999 226,112 168,281
Equipment sales margin 2,840 - 82,825 -
Interest income 11,546 90,231 102,784 186,038
----------- ----------- ----------- -----------
Total revenue 4,868,487 3,446,068 14,345,843 7,990,522
----------- ----------- ----------- -----------
EXPENSES:
Depreciation 3,927,320 2,666,924 11,352,330 6,164,477
Direct services from general partner 38,574 22,646 112,201 64,056
Management fees to general partner 115,718 74,992 313,357 165,690
General and administrative 47,174 28,373 137,539 100,998
Provision for losses - - 25,000 -
Interest on discounted lease rentals 346,282 393,580 1,054,688 902,429
----------- ----------- ----------- -----------
Total expenses 4,475,068 3,186,515 12,995,115 7,397,650
----------- ----------- ----------- -----------
NET INCOME $ 393,419 $ 259,553 $ 1,350,728 $ 592,872
=========== =========== =========== ===========
NET INCOME ALLOCATED:
To the general partner $ 13,310 $ 19,375 $ 47,155 $ 53,848
To the Class A limited partners 376,266 237,740 1,290,388 533,542
To the Class B limited partner 3,843 2,438 13,185 5,482
----------- ----------- ----------- -----------
$ 393,419 $ 259,553 $ 1,350,728 $ 592,872
=========== =========== =========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ 0.76 $ .68 $ 2.62 $ 1.95
=========== =========== =========== ===========
Weighted average Class A limited partner
units outstanding 496,957 348,370 493,339 272,953
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
STATEMENT OF PARTNERS' CAPITAL
For the Three Months Ended September 30, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
Class A
Limited Class A Class B
General Partners Limited Limited
Partner Units Partners Partner Total
-------- -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Partners' capital, June 30, 1997 $ - 311,173 $ 25,367,938 $ 296,687 $ 25,664,625
Capital contributions - 73,204 7,388,361 70,000 7,458,361
Volume discount - - (6,000) - (6,000)
Commissions and offering costs on
sale of Class A limited partner units (10,501) - (1,033,558) - (1,044,059)
Redemptions - (550) (51,628) - (51,628)
Net income 19,375 - 237,740 2,438 259,553
Distributions declared to partners (8,874) - (914,074) (9,363) (932,311)
-------- -------- ------------ --------- ------------
Partners' capital, September 30, 1997 $ - 383,827 $ 30,988,779 $ 359,762 $ 31,348,541
======== ======== ============ ========= ============
Partners' capital, June 30, 1998 $ - 497,204 $ 38,110,797 $ 455,818 $ 38,566,615
Redemptions - (360) (32,002) - (32,002)
Net income 13,310 - 376,266 3,843 393,419
Distributions declared to partners (13,310) - (1,304,530) (13,125) (1,330,965)
-------- -------- ------------ --------- ------------
Partners' capital, September 30, 1998 $ - 496,844 $ 37,150,531 $ 446,536 $ 37,597,067
======== ======== ============ ========= ============
For the Nine Months Ended September 30, 1998 and 1997 (Unaudited)
Partners' capital, January 1, 1997 $ - 154,503 $ 12,878,374 $ 146,243 $ 13,024,617
Capital contributions - 229,954 23,058,428 230,000 23,288,428
Volume discount - - (6,000) - (6,000)
Commissions and offering costs on
sale of Class A limited partner units (33,033) - (3,264,169) - (3,297,202)
Redemptions - (630) (58,902) - (58,902)
Net income 53,848 - 533,542 5,482 592,872
Distributions declared to partners (20,815) - (2,152,494) (21,963) (2,195,272)
-------- -------- ------------ --------- ------------
Partners' capital, September 30, 1997 $ - 383,827 $ 30,988,779 $ 359,762 $ 31,348,541
======== ======== ============ ========= ============
Partners' capital, January 1, 1998 $ - 455,953 $ 36,374,010 $ 432,551 $ 36,806,561
Capital contributions - 43,367 4,336,754 40,000 4,376,754
Volume discount - - (68,895) - (68,895)
Commissions and offering costs on
sale of Class A limited partner units (7,517) - (675,261) - (682,778)
Redemptions - (2,476) (222,436) - (222,436)
Net income 47,155 - 1,290,388 13,185 1,350,728
Distributions declared to partners (39,638) - (3,884,029) (39,200) (3,962,867)
-------- -------- ------------ --------- ------------
Partners' capital, September 30, 1998 $ - 496,844 $ 37,150,531 $ 446,536 $ 37,597,067
======== ======== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 14,383,574 $ 7,378,591
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment on operating leases from affiliate (13,287,282) (19,513,857)
Investment in direct finance leases, acquired from affiliate (952,964) (1,961,774)
------------- -------------
Net cash used in investing activities (14,240,246) (21,475,631)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Class A capital contributions 4,336,754 23,058,428
Proceeds from Class B capital contributions 40,000 230,000
Proceeds from discounted lease rentals 3,994,817 3,695,735
Principal payments on discounted lease rentals (6,756,160) (3,951,135)
Redemptions of Class A limited partner units (222,436) (58,902)
Sales commissions paid to affiliate in connection
with the sale of Class A limited partner units (434,326) (2,305,844)
Non-accountable organization and offering expenses
reimbursed to the general partner in connection
with the sale of Class A limited partner units (317,347) (1,010,258)
Distributions to partners (3,898,917) (1,961,455)
------------- -------------
Net cash (used in) provided by financing activities (3,257,615) 17,696,569
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,114,287) 3,599,529
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,676,747 3,286,072
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,562,460 $ 6,885,601
============= =============
Supplemental disclosure of cash flow information - Interest paid
on discounted lease rentals $ 1,054,688 $ 902,429
Supplemental disclosure of noncash investing and financing
activities - Discounted lease rentals assumed in equipment
acquisitions 2,454,015 16,946,684
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of the general partner, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1997 was derived from the audited financial statements
included in the Partnership's 1997 Form 10-K. For further information,
refer to the financial statements of Capital Preferred Yield Fund-IV, L.P.
(the "Partnership"), and the related notes, included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997
Form 10-K"), previously filed with the Securities and Exchange Commission.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"), which requires comprehensive income to be displayed
prominently within the financial statements. Comprehensive income is
defined as all recognized changes in equity during a period from
transactions and other events and circumstances except those resulting from
investments by owners and distributions to owners. Net income and items
that previously have been recorded directly in equity are included in
comprehensive income. Statement 130 affects only the reporting and
disclosure of comprehensive income but does not affect recognition or
measurement of income. Statement 130 is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The
adoption did not have an impact on its financial reporting.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131
provides guidance for reporting information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial reports of public companies.
An operating segment is defined as a component of a business that engages
in business activities from which it may earn revenue and incur expenses, a
component whose operating results are regularly reviewed by the company's
chief operating decision maker, and a component for which discrete
financial information is available. Statement 131 establishes quantitative
thresholds for determining operating segments of a company. Statement 131
is effective for fiscal years beginning after December 15, 1997, with
earlier application permitted. The Partnership adopted Statement 131 in the
first quarter of 1998. The adoption did not have an impact on its financial
reporting.
2. Transactions With the General Partner and Affiliates
----------------------------------------------------
SALES COMMISSIONS AND OFFERING COSTS
Under the terms of the Partnership Agreement, an affiliate of the general
partner is entitled to receive sales commissions and wholesaling fees equal
to 10% of the Class A limited partners' capital contributions, up to 9% of
which is paid to participating broker-dealers. During the nine months ended
September 30, 1998 the Partnership incurred sales commissions of $433,676,
including $362,775 that were paid to participating broker-dealers.
7
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
SALES COMMISSIONS AND OFFERING COSTS, continued
As provided in the Partnership Agreement, the general partner earned
$249,101 as reimbursement for offering costs incurred during the nine
months ended September 30, 1998 in connection with the organization of the
Partnership and the offering of Class A limited partner units, all of which
were paid in the nine months ended September 30, 1998.
As provided in the Prospectus, a volume discount equal to 1.0% of the
purchase price per unit for all purchases of $500,000 or more was granted
during the nine months ended September 30, 1998 totaling $68,895.
DIRECT SERVICES FROM GENERAL PARTNER
The General Partner and an affiliate provide accounting, investor
relations, billing, collecting, asset management, and other administrative
services to the Partnership. The Partnership reimburses the General Partner
for these services performed on its behalf as permitted under the terms of
the Partnership Agreement. As of September 30, 1998, $12,000 was included
in payables to affiliates.
MANAGEMENT FEES PAID TO GENERAL PARTNER
In accordance with the Partnership Agreement, the General Partner earns a
management fee in connection with its management of the equipment,
calculated as a percentage of the monthly gross rentals received, and paid
monthly in arrears. As of September 30, 1998, $32,584 was included in
payables to affiliates.
GENERAL AND ADMINISTRATIVE EXPENSES
The General Partner and an affiliate are reimbursed for the actual cost of
administrative expenses paid on behalf of Partnership per the terms of the
Partnership Agreement.
RECEIVABLE FROM RELATED PARTY
The General Partner collects and applies rental payments to the lessee's
account with the Partnership, for those lessees who remit directly to the
General Partner. The rental payments are then transferred to the
Partnership, eliminating the receivable from related party balance. At the
end of September 1998, $45 in rents were applied by the General Partner
that were transferred to the Partnership in October 1998.
8
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
EQUIPMENT PURCHASES
During the nine months ended September 30, 1998, the Partnership acquired
the equipment described below from Capital Associates International, Inc.:
<TABLE>
<CAPTION>
Total
Acquisition Equipment
Cost of Fees and Purchase
Lessee Equipment Description Equipment Reimbursements Price
---------------------------- ------------------------------------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Advanced Micro Wafer fabrication equipment $ 2,048,294 $ 70,973 $ 2,119,267
Alliant Techsystems, Inc. Lathes 143,867 4,985 148,852
Alliant Techsystems, Inc. PBX system 711,132 24,641 735,773
Alliant Techsystems, Inc. Sweeper/scrubber 20,818 721 21,539
Ball Corporation Can inspection system 113,570 3,935 117,505
Brown-Strauss Steel Div Forklift 95,526 3,310 98,836
Busy Beaver Building Centers Retail furniture, fixtures & equipment 236,536 8,279 244,815
CH2M Hill, Inc. Office furniture, fixtures & equipment 115,119 3,989 119,108
CMC Industries Solder machine 1,100,000 38,115 1,138,115
Conair Crown lifts 47,282 1,638 48,920
Consolidated Diesel Electric PU 5,611 195 5,806
Consolidated Diesel Reach trucks 12,570 436 13,006
Consolidated Diesel Boom lift 33,750 1,169 34,919
Consolidated Diesel Copier 53,388 1,850 55,238
Consolidated Diesel Lift truck 19,235 666 19,901
Consolidated Diesel Projector 6,649 230 6,879
Darigold, Inc. Hyster forklift 3,486 121 3,607
Dupont Yard tractor 63,756 2,209 65,965
E-Trade Office furniture 939,273 32,546 971,819
Fingerhut Corp. Proofing system 40,000 1,386 41,386
Furr's SuperMarkets Restaurant furniture, fixtures & equipment 406,623 14,232 420,855
GEICO Personal computers 1,480,185 51,289 1,531,474
General Motors Corp. Hyster - walkie 19,865 688 20,553
General Motors Corp. Lawn mower 16,085 557 16,642
General Motors Corp. Material handler 83,062 2,879 85,941
General Motors Corp. Scubber 228,127 7,905 236,032
General Motors Corp. Sweeper 99,203 3,437 102,640
General Motors Corp. Sweeper/scrubber 231,870 8,035 239,905
General Motors Corp. Tractor 57,844 2,004 59,848
Georgetown Steel Hyster forklift 48,867 1,693 50,560
Glassmaster Company Machine tools 566,785 19,838 586,623
ICI Americas, Inc. Boom lift 72,266 2,504 74,770
ICI Americas, Inc. Dell computers 17,300 599 17,899
ICI Americas, Inc. Material handler 76,750 2,659 79,409
ICI Americas, Inc. Scissor lift 8,300 288 8,588
ICI Americas, Inc. Scrubber 29,640 1,027 30,667
International Paper Company Boom lift 35,934 1,245 37,179
International Paper Company Forklift 38,784 1,344 40,128
International Paper Company Lift truck 48,578 1,683 50,261
New York State Electric Personal computers/networking 292,311 10,231 302,542
9
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
EQUIPMENT PURCHASES, continued
Total
Acquisition Equipment
Cost of Fees and Purchase
Lessee Equipment Description Equipment Reimbursements Price
---------------------------- ------------------------------------------ ------------ -------------- ------------
Owens Corning Fiberglass Personal computers/networking $ 2,150,797 $ 75,278 $ 2,226,075
Owens Corning Fiberglass Peripheral-printers 104,925 3,672 108,597
Pharmacia Iovision Inc. Microscopic equipment 159,650 5,532 165,182
Polo Ralph Lauren Personal computers 367,426 12,860 380,286
Prairie International Tractor 443,220 15,358 458,578
Red Mountain Mining Inc. Forklifts 422,968 14,804 437,772
Rohr Hyster - forklift 23,886 828 24,714
Tasc, Inc. Laptops 283,504 9,021 292,525
Teleflex Inc. Personal computers/networking 166,992 5,845 172,837
Things Remembered Point-of-sale equipment 809,666 28,338 838,004
Thomson Industries, Inc. Drilling machine 324,066 11,229 335,295
Thomson Industries, Inc. Machine tools 380,840 13,195 394,035
Thomson Industries, Inc. Thread grinder 251,062 8,699 259,761
Universal Forest Products Forklift 47,580 1,649 49,229
Versar Personal computers 84,712 2,935 87,647
WPM Inc. Construction equipment 444,398 15,554 459,952
----------- ---------- ------------
$ 16,133,933 $ 560,328 $ 16,694,261
============ ========== ============
</TABLE>
As of September 30, 1998, the general partner had identified approximately
$1 million of equipment that satisfied the Partnership's investment
criteria and is expected to be acquired during the remainder of 1998.
10
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed statements of income
categories and analyses of changes in those condensed categories derived from
the Statements of Income:
<TABLE>
<CAPTION>
Condensed Statements Condensed Statements
of Income for The Effect on of Income for The Effect on
the Three Months Net Income the Nine Months Net Income
Ended September 30, of Changes Ended September 30, of Changes
--------------------------- Between -------------------------- Between
1998 1997 Periods 1998 1997 Periods
------------ ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 580,499 $ 295,333 $ 285,166 $ 1,753,216 $ 737,578 $ 1,015,638
Equipment sales margin 2,840 - 2,840 82,825 - 82,825
Interest income 11,546 90,231 (78,685) 102,784 186,038 (83,254)
Management fees to general partner (115,718) (74,992) (40,726) (313,357) (165,690) (147,667)
Direct services from general partner (38,574) (22,646) (15,928) (112,201) (64,056) (48,145)
General and administrative (47,174) (28,373) (18,801) (137,539) (100,998) (36,541)
Provision for losses - - - (25,000) - (25,000)
---------- --------- --------- ----------- ---------- -----------
Net income $ 393,419 $ 259,553 $ 133,866 $ 1,350,728 $ 592,872 $ 757,856
========== ========= ========= =========== ========== ===========
</TABLE>
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating lease rentals $ 4,763,322 $ 3,287,838 $ 13,934,122 $ 7,636,203
Direct finance lease income 90,779 67,999 226,112 168,281
Depreciation (3,927,320) (2,666,924) (11,352,330) (6,164,477)
Interest on discounted lease rentals (346,282) (393,580) (1,054,688) (902,429)
------------ ------------ ------------ ------------
Leasing margin $ 580,499 $ 295,333 $ 1,753,216 $ 737,578
============ ============ ============ ============
Leasing margin ratio 12% 9% 12% 9%
============ ============ ============ ============
</TABLE>
Operating lease rentals, depreciation and direct finance lease income increased
for the three and nine months ended September 30, 1998 ("1998 Quarter and 1998
Period", respectively) compared to the three and nine months ended September 30,
1997 ("1997 Quarter and 1997 Period", respectively) due to growth in the
portfolio. Interest on discounted lease rentals decreased for the 1998 Quarter
compared to the 1997 Quarter due to a net reduction in non-recourse debt. The
increase for the 1998 Period compared to the 1997 Period was primarily due to
the non-recourse debt added to the portfolio in the first six months of 1998.
11
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
- ---------------------
LEASING MARGIN, continued
Leasing margin ratio fluctuates based upon (i) the mix of direct finance leases
and operating leases, (ii) remarketing activities, (iii) the method used to
finance leases added to the Partnership's lease portfolio, and (iv) the relative
age and types of leases in the portfolio (operating leases have a lower leasing
margin early in the lease term, increasing as the term passes and the majority
of leases added to the Partnership's portfolio have been operating leases).
The ultimate profitability of the Partnership's leasing transactions is
dependent in part on interest rates at the time the leases are originated, as
well as future equipment values and on-going lessee creditworthiness. Because
leasing is an alternative to financing equipment purchases with debt, lease
rates tend to rise and fall with interest rates (although lease rate movements
generally lag interest rate changes in the capital markets).
INTEREST INCOME
Interest income decreased for the 1998 Quarter and 1998 Period compared to the
1997 Quarter and 1997 Period due to a decrease in invested cash. Interest income
varies due to (1) the amount of cash available for investment (pending
distribution or equipment purchases) and (2) the interest rate on such invested
cash.
EXPENSES
Management fees, direct services from general partner and general and
administrative expenses increased for the 1998 Quarter and 1998 Period compared
to the 1997 Quarter and 1997 Period due to growth in the Partnership's lease
portfolio.
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment (which is typically not known until remarketing subsequent to the
initial lease termination has occurred) is recorded as provision for losses.
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit exposure and residual value exposure and, accordingly, in the ordinary
course of business, it will incur losses from those exposures. The Partnership
performs on-going quarterly assessments of its assets to identify any
other-than-temporary losses in value. The Partnership recorded a provision for
loss of $25,000 for the nine months ended September 30, 1998 related primarily
to lessees returning equipment to the Partnership.
12
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Liquidity & Capital Resources
- -----------------------------
The Partnership reached its limit of $50 million in unit sales on February 9,
1998.
A summary of the Partnership's offering activities from April 16, 1996
(commencement of operations) to September 30, 1998 is presented below:
Class A limited partnership units sold 500,000
============
Gross offering proceeds $ 50,000,000
Sales commissions (5,000,000)
Non-accountable organization and offering expenses reimbursement (2,000,000)
Due diligence expenses (304,047)
------------
Net offering proceeds $ 42,695,953
============
Class B limited partner (CAII) cash contribution $ 500,000
============
A summary of the Partnership's offering activities for the nine months ended
September 30, 1998 is presented below:
Class A limited partnership units sold 43,367
============
Gross offering proceeds $ 4,336,754
Sales commissions (433,676)
Non-accountable organization and offering expenses reimbursement (173,470)
Due diligence expenses (144,526)
------------
Net offering proceeds $ 3,585,082
============
Class B limited partner (CAII) cash contribution $ 40,000
============
The Partnership funds its operating activities principally with cash from rents,
discounted lease rentals (non-recourse debt), interest income and sales of
off-lease equipment. Available cash and cash reserves of the Partnership are
invested in short-term government securities pending the acquisition of
equipment or distribution to the partners.
During the nine months ended September 30, 1998, the Partnership acquired
equipment subject to leases with a total purchase price of $16,694,261
(including $2,454,015 of discounted lease rentals). As of September 30, 1998,
the general partner had identified approximately $1 million of additional
equipment that satisfied the Partnership's acquisition criteria and is expected
to be acquired during the remainder of 1998.
13
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Liquidity & Capital Resources, continued
- -----------------------------
During the nine months ended September 30, 1998, the Partnership declared
distributions to the Class A limited partners of $3,884,029 ($487,997 of which
was paid in October 1998). A substantial portion of such distributions is
expected to constitute a return of capital. Distributions may be characterized
for tax, accounting and economic purposes as a return of capital, a return on
capital or a portion of both. The portion of each cash distribution by a
partnership which exceeds its net income for the fiscal period may be deemed a
return of capital for accounting purposes. However, the total percentage of a
partnership's return on capital over its life will only be determined after all
residual cash flows (which include proceeds from the re-leasing and sale of
equipment) have been realized at the termination of the Partnership.
The general partner believes that the Partnership will generate sufficient cash
flows from operations during the remainder of 1998, to (1) meet current
operating requirements, (2) fund cash distributions to both the Class A and
Class B limited partners at annualized rates of 10.5% (portions of which are
expected to constitute returns of capital), and (3) reinvest in additional
equipment under leases, provided that suitable equipment can be identified and
acquired.
YEAR 2000 ISSUES
An affiliate provides accounting and other administrative services, including
data processing services to the Partnership. The affiliate has conducted a
comprehensive review of its computer systems to identify systems that could be
affected by the Year 2000 issue. The Year 2000 issue results from computer
programs being written using two digits rather than four to define the
applicable year. Certain computer programs which have time-sensitive software
could recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in major system failures or miscalculations. Certain of the
affiliate's software has already been updated to correctly account for the Year
2000 issue. In addition, the affiliate is engaged in a system conversion,
whereby the affiliate's primary lease tracking and accounting software is being
replaced with new systems which will account for the Year 2000 correctly. The
affiliate expects that the new system will be fully operational by December 31,
1999, and therefore will be fully Year 2000 compliant. The affiliate does not
expect any other changes required for the Year 2000 to have a material effect on
its financial position or results of operations. As such, the affiliate has not
developed any specific contingency plans in the event it fails to complete the
conversion to a new system by December 31, 1999. In addition, the affiliate does
not expect any Year 2000 issues relating to its customers and vendors to have a
material effect on its financial position or results of operations.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement 133").
Statement 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Statement 133 is effective
for fiscal years beginning after June 15, 1999, with earlier application
permitted.
14
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
New Accounting Pronouncements, continued
- -----------------------------
The Partnership will adopt Statement 133 in the first quarter of 1999. The
General Partner does not expect the adoption to have an impact on its financial
reporting.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
- --------------------------------------------------------------------------------
1995
- ----
The statements contained in this report which are not historical facts may be
deemed to contain forward- looking statements with respect to events, the
occurrence of which involve risks and uncertainties, and are subject to factors
that could cause actual future results to differ both adversely and materially
from currently anticipated results, including, without limitation, the level of
lease originations, realization of residual values, the availability and cost of
financing sources and the ultimate outcome of any contract disputes. Certain
specific risks associated with particular aspects of the Partnership's business
are discussed under Results of Operations in this report and under Results of
Operations in the 1997 Form 10-K when and where applicable.
15
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is not a party to any material legal proceedings
outside the ordinary course of its business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended September 30, 1998.
16
<PAGE>
Item No. Exhibit Index
- -------- -------------
27 Financial Data Schedule
17
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL PREFERRED YIELD FUND-IV, L.P.
By: CAI Equipment Leasing V Corp.
Dated: November 13, 1998 By: /s/Anthony M. DiPaolo
--------------------------------
Anthony M. DiPaolo
Senior Vice President
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,562,460
<SECURITIES> 0
<RECEIVABLES> 571,167
<ALLOWANCES> 0
<INVENTORY> 270,124
<CURRENT-ASSETS> 0
<PP&E> 50,364,449
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,065,980
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 37,597,067
<TOTAL-LIABILITY-AND-EQUITY> 57,065,980
<SALES> 82,825
<TOTAL-REVENUES> 14,345,843
<CGS> 0
<TOTAL-COSTS> 12,995,115
<OTHER-EXPENSES> 425,558
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 1,054,688
<INCOME-PRETAX> 1,350,728
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,350,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,350,728
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.62
</TABLE>
