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 June 30, 1999
-------------------------------------------------
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 16
Page 1 of 17 Pages
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Quarterly Report on Form 10-Q
For the Quarter Ended
June 30, 1999
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1999 and December 31, 1998 3
Statements of Income - Three and Six Months Ended
June 30, 1999 and 1998 4
Statements of Cash Flows - Six months Ended
June 30, 1999 and 1998 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Exhibits 16
Signature 17
2
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
BALANCE SHEETS
ASSETS
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
Cash and cash equivalents $ 1,171,017 $ 2,634,551
Accounts receivable, net 398,957 465,374
Receivable from related party 50,356 216,074
Equipment held for sale or re-lease 397,257 410,599
Net investment in direct finance leases 3,238,399 3,810,382
Leased equipment, net 45,737,987 47,340,855
----------- -----------
Total assets $50,993,973 $54,877,835
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 1,202,698 $ 1,080,333
Payables to affiliates 74,824 46,652
Rents received in advance 693,060 597,415
Distributions payable to partners 496,771 497,346
Discounted lease rentals 13,129,452 15,708,835
----------- -----------
Total liabilities 15,596,805 17,930,581
----------- -----------
Partners' capital:
General partner - -
Limited partners:
Class A 34,971,942 36,507,167
Class B 425,226 440,087
----------- -----------
Total partners' capital 35,397,168 36,947,254
----------- -----------
Total liabilities and partners' capital $50,993,973 $54,877,835
=========== ===========
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 Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Operating lease rentals $4,677,802 $4,848,638 $9,378,255 $9,170,800
Direct finance lease income 65,198 46,986 142,166 135,333
Equipment sales margin 39,009 52,890 51,580 79,985
Interest income 21,430 26,441 45,883 91,238
---------- ---------- ---------- ----------
Total revenue 4,803,439 4,974,955 9,617,884 9,477,356
---------- ---------- ---------- ----------
Expenses:
Depreciation 3,665,450 3,942,243 7,416,524 7,425,010
Management fees paid to general partner 106,734 110,146 213,171 197,639
Direct services from general partner 49,359 47,278 97,129 73,627
General and administrative 73,144 49,196 128,161 90,365
Interest on discounted lease rentals 241,649 389,704 497,339 708,406
Provision for losses 25,000 25,000 100,000 25,000
---------- ---------- ---------- ----------
Total expenses 4,161,336 4,563,567 8,452,324 8,520,047
---------- ---------- ---------- ----------
Net income $ 642,103 $ 411,388 $1,165,560 $ 957,309
========== ========== ========== ==========
Net income allocated:
To the general partner $ 13,301 $ 14,067 $ 26,607 $ 33,845
To the Class A limited partners 622,514 393,302 1,127,564 914,122
To the Class B limited partner 6,288 4,019 11,389 9,342
---------- ---------- ---------- ----------
$ 642,103 $ 411,388 $1,165,560 $ 957,309
========== ========== ========== ==========
Net income per weighted average Class A
limited partner unit outstanding $ 1.25 $ .79 $ 2.27 $ 1.86
========== ========== ========== ==========
Weighted average Class A limited partner
units outstanding 496,773 497,640 496,808 491,500
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 10,729,881 $ 8,990,088
------------ ------------
Cash flows from investing activities:
Purchases of equipment on operating leases from affiliate (4,153,246) (12,188,475)
Investment in direct finance leases, acquired from affiliate (563,525) (952,964)
------------ ------------
Net cash used in investing activities (4,716,771) (13,141,439)
------------ ------------
Cash flows from financing activities:
Proceeds from Class A capital contributions - 4,336,754
Proceeds from Class B capital contributions - 40,000
Proceeds from discounted lease rentals - 3,994,817
Principal payments on discounted lease rentals (4,760,423) (4,288,189)
Redemptions of Class A limited partner units (54,927) (190,434)
Sales commissions paid to affiliate in connection
with the sale of Class A limited partner units - (434,326)
Non-accountable organization and offering expenses
reimbursed to the general partner in connection
with the sale of Class A limited partner units - (317,346)
Distributions to partners (2,661,294) (3,055,946)
------------ ------------
Net cash (used in)/provided by financing activities (7,476,644) 85,330
------------ ------------
Net decrease in cash and cash equivalents (1,463,534) (4,066,021)
Cash and cash equivalents at beginning of period 2,634,551 4,676,747
------------ ------------
Cash and cash equivalents at end of period $ 1,171,017 $ 610,726
============ ============
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 490,044 $ 708,406
Supplemental disclosure of noncash investing and
financing activities:
Discounted lease rentals assumed in equipment acquisitions 2,181,040 2,454,015
Reduction in Partner's capital accounts for commissions and
costs payable to affiliates - 51,673
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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, 1998 was derived from the audited financial statements
included in the Partnership's 1998 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, 1998 (the "1998
Form 10-K"), previously filed with the Securities and Exchange Commission.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
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. The Partnership has adopted
Statement 133 in the first quarter of 1999. The adoption has not had any
impact on its financial reporting.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement 133, an Amendment of FASB Statement
133. Statement 137 effectively extends the required application of
Statement 133 to fiscal years beginning after June 15, 2000, with earlier
application permitted. The Partnership adopted Statement 133 in the first
quarter of 1999. The General Partner does not expect the adoption of
Statement 133 or Statement 137 to have an impact on its financial
reporting.
2. Transactions With the General Partner and 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 June 30, 1999, management fees of $28,941 are
included in payables to affiliates.
6
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
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 June 30, 1999, direct services from the
General Partner in the amount of $30,826 are included in payables to
affiliates.
GENERAL AND ADMINISTRATIVE EXPENSES
The General Partner and an affiliate are reimbursed for the actual cost of
administrative expenses incurred on behalf of Partnership per the terms of
the Partnership Agreement. As of June 30, 1999, administrative expenses of
$15,057 are included in payable to affiliates.
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 June 1999, $50,356 in rents were applied by the General Partner that
were transferred to the Partnership in July 1999.
EQUIPMENT PURCHASES
During the six months ended June 30, 1999, 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> <S> <C> <C> <C>
Alliance Data VSAT's $ 626,469 $ 21,707 $ 648,176
Allied Signal Projector 71,101 2,464 73,565
Atmel SDI analyzer 497,357 17,233 514,590
Becton Dickinson Forklift 124,232 4,305 128,537
Consolidated Diesel Forklift 44,895 1,556 46,451
Electronic Payment Service VSAT's 72,797 2,522 75,319
E-Trade Office furniture 1,358,668 47,078 1,405,746
General Motors Corp Forklift 402,034 13,930 415,964
General Motors Corp Material handling 106,735 3,698 110,433
General Motors Corp Scrubber 293,205 10,160 303,365
General Motors Corp Sweeper 85,739 2,943 88,682
General Motors Corp Tow tractor 5,726 198 5,924
ICI American Holdings Computers 17,303 600 17,903
McGraw Hill Computer equipment 17,317 600 17,917
7
<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
-------------------------- --------------------- ------------ -------------- ------------
McGraw Hill Copier $ 94,964 $ 3,291 $ 98,255
McGraw Hill Fax machine 4,193 145 4,338
McGraw Hill Scrubber 33,917 1,175 35,092
Schratter Foods Forklift 206,775 7,165 213,940
Thomson Machine tools 178,954 6,201 185,155
TRW Computers 81,061 2,809 83,870
Geico Servers 68,723 2,381 71,104
API Universal Foils Manufacturing equipment 2,274,668 78,817 2,353,485
----------- --------- -----------
$ 6,666,833 $ 230,978 $ 6,897,811
=========== ========= ===========
</TABLE>
As of June 30, 1999, the general partner had identified approximately $4
million of equipment that satisfied the Partnership's investment criteria
and is expected to be acquired during the remainder of 1999.
3. Year 2000
---------
An affiliate provides accounting and other administrative services,
including data processing services to the Partnership. The affiliate has
conducted a comprehensive review of its internal information technology
("IT") 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. The affiliate is in
the process of upgrading or replacing all components of its IT systems
which were identified as being affected by the Year 2000 issue. At the
present time, the affiliate has completed upgrades and testing of the
upgrades for all components of its IT systems except its primary
application software which controls the partnership's financial records,
asset management detail, and billing records. The affiliate has fully
identified all aspects of the application software which have Year 2000
issues and has commenced the process of upgrading the software. The
affiliate expects that the new upgrades 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 upgrades by December 31, 1999. However,
should the affiliate be unsuccessful in completing the necessary upgrades
by December 31, 1999, the affiliate does not expect there will be a
material adverse effect on the Partnership's financial position or results
of operations. There could be a negative impact on the Partnership's
8
<PAGE>
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Year 2000
---------
ability to realize expected cash flows from leased equipment on a timely
basis due to billing or collection problems which could arise related to
Year 2000 issues. While it is expected that the Partnership's ability to
ultimately realize all expected cash flows will not be impacted, delays in
collecting cash flows would have a negative impact on the timing of
distributions to partners. Because the cost of addressing Year 2000 issues
are borne by the affiliate, it is expected that the costs associated with
Year 2000 readiness will not be material to the partnership. 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, or on its ability to provide services to the Partnership.
9
<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 items of income and expense and
changes in those items derived from the Statements of Income:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
1999 1998 Change 1999 1998 Change
----------- ---------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 835,901 $ 563,677 $ 272,224 $ 1,606,558 $ 1,172,717 $ 433,841
Equipment sales margin 39,009 52,890 (13,881) 51,580 79,985 (28,405)
Interest income 21,430 26,441 (5,011) 45,883 91,238 (45,355)
Management fees paid to general partner (106,734) (110,146) 3,412 (213,171) (197,639) (15,532)
Direct services from general partner (49,359) (47,278) (2,081) (97,129) (73,627) (23,502)
General and administrative expenses (73,144) (49,196) (23,948) (128,161) (90,365) (37,796)
Provision for losses (25,000) (25,000) - (100,000) (25,000) (75,000)
----------- ---------- ---------- ----------- ----------- ---------
Net income $ 642,103 $ 411,388 $ 230,715 $ 1,165,560 $ 957,309 $ 208,251
=========== ========== ========== =========== =========== =========
</TABLE>
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating lease rentals $ 4,677,802 $ 4,848,638 $ 9,378,255 $ 9,170,800
Direct finance lease income 65,198 46,986 142,166 135,333
Depreciation (3,665,450) (3,942,243) (7,416,524) (7,425,010)
Interest on discounted lease rentals (241,649) (389,704) (497,339) (708,406)
----------- ----------- ----------- -----------
Leasing margin $ 835,901 $ 563,677 $ 1,606,558 $ 1,172,717
=========== =========== =========== ===========
Leasing margin ratio 18% 12% 17% 13%
=========== =========== =========== ===========
</TABLE>
Operating lease rentals have increased for the six months ended June 30, 1999
compared to the corresponding period of 1998 due to growth in the portfolio. In
the second quarter of 1999, however, operating lease rentals and depreciation
decreased compared to the second quarter of 1998 primarily due to the
termination of rental income and associated depreciation on certain leases that
reached maturity during the second quarter 1999. Depreciation decreased slightly
for the six months ended June 30, 1999 compared to the same period for 1998 due
to a higher average residual value for the remaining lease portfolio. Although
the size of the direct finance lease portfolio has decreased, direct finance
lease income has increased for the three and six months ended June 30, 1999 as
compared to the three and six months ended June 30, 1998 due to lower average
residual values of the leases comprising the direct finance lease portfolio.
Interest on discounted lease rentals decreased for the three and six months
ended June 30, 1999 compared to the three and six months ended June 30, 1998 due
to a net reduction in non-recourse debt.
10
<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 of lease types in the portfolio. Leasing margin and the related leasing
margin ratio for an operating lease financed with non-recourse debt increases
during the term of the lease since rents and depreciation are typically fixed
while interest expense declines as the related non-recourse debt principal is
repaid.
The ultimate profitability of the Partnership's leasing transactions is
dependent in part on interest rates at the time the leases are originated,
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).
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Equipment sales revenue $ 313,035 $ 106,331 $ 691,266 $ 205,079
Cost of equipment sales (274,026) (53,441) (639,686) (125,094)
--------- --------- --------- ---------
Equipment sales margin $ 39,009 $ 52,890 $ 51,580 $ 79,985
========= ========= ========= =========
Equipment sales margin is affected by the volume and composition of equipment
that becomes available for sale. Some of the Partnership's initial leases have
expired, and the equipment is either being re-leased or sold to the lessee or to
third parties. Equipment sales margin decreased for the three and six months
ended June 30, 1999 compared to the same period in 1998 primarily due to the
composition of equipment that was sold.
INTEREST INCOME
Interest income decreased for the three and six months ended June 30, 1999
compared to the three and six months ended June 30, 1998 due to a decrease in
invested cash. Interest income varies due to (1) the amount of cash available
for investment (pending distribution to partners or investment in equipment
purchases) and (2) the interest rate on such invested cash.
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
- ---------------------
EXPENSES
Management fees are earned on gross rents received and will fluctuate due to
variances in cash flow. Management fees paid to general partner increased for
the six months ended June 30, 1999 compared to the six months ended June 30,1998
primarily due to an increase in rental payments received. The slight decrease in
management fees paid to the general partner for the three months ended June 30,
1999 compared to the corresponding period of 1998 was primarily due to a
decrease in rental payments received on operating leases for the quarter. Direct
services from general partner increased for the three and six months ended June
30, 1999 compared to the three and six months ended June 30, 1998 due to an
increase in remarketing activities associated with equipment returned to the
Partnership at lease maturity. The primary components of general and
administrative expenses are data processing, advertising, audit and tax fees,
insurance, and state income taxes. All components of general and administrative
expenses except data processing increased for the three and six months ended
June 30, 1999 as compared to the three and six months ended June 30, 1998
primarily due to growth in the portfolio. In addition, there was an increase in
advertising costs related to the remarketing of equipment returned to the
partnership at lease maturity.
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 occurs when the equipment is remarketed subsequent to
initial lease termination) 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 such that it
has credit exposure and residual value exposure and will incur losses from those
exposures in the ordinary course of business. The Partnership performs quarterly
assessments of the estimated residual value of its assets to identify any
other-than-temporary losses in value. The Partnership recorded a provision for
loss of $100,000 for the six months ended June 30, 1999 related primarily to
equipment returned to the Partnership at lease maturity.
Liquidity & Capital Resources
- -----------------------------
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 partners.
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, continued
- -----------------------------
During the six months ended June 30, 1999, the Partnership acquired equipment
subject to leases with a total purchase price of $6,897,811. As of June 30,
1999, the general partner had identified approximately $4 million of additional
equipment that satisfied the Partnership's acquisition criteria and is expected
to be acquired during the remainder of 1999.
During the six months ended June 30, 1999, the Partnership declared
distributions to the partners of $2,660,719 ($496,771 of which was paid in July
1999). 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 which exceeds its net income for the
fiscal period may be deemed a return of capital for accounting purposes.
However, the total percentage of the 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 1999, 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 internal information technology ("IT") 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. The affiliate is in the process of upgrading or replacing all
components of its IT systems which were identified as being affected by the Year
2000 issue. At the present time, the affiliate has completed upgrades and
testing of the upgrades for all components of its IT systems except its primary
application software which controls the partnership's financial records, asset
management detail, and billing records. The affiliate has fully identified all
aspects of the application software which have Year 2000 issues and has
commenced the process of upgrading the software. The affiliate expects that the
new upgrades 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 upgrades by December 31,
1999. However, should the affiliate be unsuccessful in completing the necessary
upgrades by December 31, 1999, the affiliate does not expect there will be a
material adverse effect on the Partnership's financial position or results of
operations. There could be a negative impact on the Partnership's ability to
realize expected cash flows from leased equipment on a timely basis due to
billing or collection problems which could arise related to Year 2000 issues.
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
- -----------------------------
YEAR 2000 ISSUES
While it is expected that the Partnership's ability to ultimately realize all
expected cash flows will not be impacted, delays in collecting cash flows would
have a negative impact on the timing of distributions to partners. Because the
cost of addressing Year 2000 issues are borne by the affiliate, it is expected
that the costs associated with Year 2000 readiness will not be material to the
partnership. 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, or on its ability to provide services to the Partnership.
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. The Partnership has adopted Statement 133 in the first quarter of
1999. The adoption has not had any impact on its financial reporting.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement 133, an Amendment of FASB Statement 133.
Statement 137 effectively extends the required application of Statement 133 to
fiscal years beginning after June 15, 2000, with earlier application permitted.
The Partnership adopted Statement 133 in the first quarter of 1999. The General
Partner does not expect the adoption of Statement 133 or Statement 137 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 1998 Form 10-K when and where applicable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The partnership's leases with equipment users are non-cancelable and have lease
rates which are fixed at lease inception. The partnership finances its leases,
in part, with discounted lease rentals. Discounted lease rentals are a fixed
rate debt. The partnerships other assets and liabilities are also at fixed
rates. Consequently the partnership has no interest rate risk or other market
risk exposure.
14
<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 June 30, 1999.
15
<PAGE>
Item No. Exhibit Index
27 Financial Data Schedule
16
<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: August 16, 1999 By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Senior Vice President
17
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,171,017
<SECURITIES> 0
<RECEIVABLES> 449,313
<ALLOWANCES> 0
<INVENTORY> 397,257
<CURRENT-ASSETS> 0
<PP&E> 48,976,386
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,993,973
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 35,397,168
<TOTAL-LIABILITY-AND-EQUITY> 50,993,973
<SALES> 51,580
<TOTAL-REVENUES> 9,617,884
<CGS> 0
<TOTAL-COSTS> 8,452,324
<OTHER-EXPENSES> 310,300
<LOSS-PROVISION> 100,000
<INTEREST-EXPENSE> 497,339
<INCOME-PRETAX> 1,165,560
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,165,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,165,560
<EPS-BASIC> 2.27
<EPS-DILUTED> 2.27
</TABLE>
