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 March 31, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19164
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Capital Preferred Yield Fund, A California Limited Partnership
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 68-0190817
- ----------------------- ------------------------------------
(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 11
Page 1 of 12 Pages
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
Quarterly Report on Form 10-Q
For the Quarter Ended
March 31, 1998
Table of Contents
-----------------
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements (Unaudited)
Balance Sheets-March 31, 1998 and December 31, 1997 3
Statements of Income - Three Months Ended
March 31, 1998 and 1997 4
Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
BALANCE SHEETS
ASSETS
(Unaudited)
March 31, December 31,
1998 1997
----------- -----------
Cash and cash equivalents $ 308,900 $ 2,839,510
Accounts receivable, net 7,559,905 7,579,737
Receivable from related party 20,000 -
Equipment held for sale or re-lease 776,656 887,865
Net investment in direct finance leases 390,413 229,696
Leased equipment, net 605,006 1,074,600
----------- -----------
Total assets $ 9,660,880 $12,611,408
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to affiliate $ 11,165 $ 44,916
Accounts payable and accrued liabilities 855,797 905,979
Rents received in advance 92,801 162,931
Distributions payable to partners 604,994 1,241,334
Discounted lease rentals - 7,835
Financed operating lease rentals 520,238 1,123,270
----------- -----------
Total liabilities 2,084,995 3,486,265
----------- -----------
Partners' capital:
General partner - -
Limited partners:
Class A 5,506,897 6,923,098
Class B 2,068,988 2,202,045
----------- -----------
Total partners' capital 7,575,885 9,125,143
----------- -----------
Total liabilities and partners' capital $ 9,660,880 $12,611,408
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
---------- ----------
REVENUE:
Operating lease rentals $ 110,173 $1,562,212
Direct finance lease income 94,714 249,422
Equipment sales margin 392,662 127,494
Interest income 19,139 20,068
---------- ----------
Total revenue 616,688 1,959,196
---------- ----------
EXPENSES:
Depreciation and amortization 106,316 1,008,536
Management fees paid to general partner 8,570 113,104
Direct services from general partner 23,783 45,091
Interest on discounted lease rentals 28 70,192
Interest on financed operating lease rentals 12,639 13,157
General and administrative 55,378 65,909
Provision for losses 50,000 125,000
---------- ----------
Total expenses 256,714 1,440,989
---------- ----------
NET INCOME $ 359,974 $ 518,207
========== ==========
NET INCOME ALLOCATED:
To the general partner $ 85,916 $ 106,168
To the Class A limited partners 254,798 383,084
To the Class B limited partner 19,260 28,955
---------- ----------
$ 359,974 $ 518,207
========== ==========
Net income per weighted average Class A
limited partner units outstanding $ 1.01 $ 1.52
========== ==========
Weighted average Class A limited partner
unit outstanding 251,388 251,709
========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 625,828 $ 3,210,879
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on financed operating lease rentals (603,032) (42,009)
Principal payments on discounted lease rentals (7,835) (708,155)
Distributions to partners (2,545,571) (2,617,780)
Redemptions of limited partner units - (12,394)
----------- -----------
Net cash used in financing activities (3,156,438) (3,380,338)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,530,610) (169,459)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,839,510 2,672,112
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 308,900 $ 2,502,653
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 28 $ 70,192
Interest paid on financed operating lease rentals 12,639 13,157
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
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 only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1997 has been derived from the audited financial statements
included in the Partnership's 10-K. For further information, refer to the
financial statements of Capital Preferred Yield Fund, A California Limited
Partnership (the "Partnership"), and the related notes, included in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1997, previously filed with the Securities and Exchange Commission.
6
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
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.
Condensed
Statements of Income The Effect
for the Three Months on Net Income
Ended March 31, of Changes
----------------------- Between
1998 1997 Periods
---------- ----------- -------------
Leasing margin $ 85,904 $ 719,749 $(633,845)
Equipment sales margin 392,662 127,494 265,168
Interest income 19,139 20,068 (929)
Management fees paid to general partner (8,570) (113,104) 104,534
Direct services from general partner (23,783) (45,091) 21,308
General and administrative (55,378) (65,909) 10,531
Provision for losses (50,000) (125,000) 75,000
--------- --------- ---------
Net income $ 359,974 $ 518,207 $(158,233)
========= ========= =========
The Partnership is in its liquidation period as defined in the Partnership
Agreement and, as expected, the Partnership is not purchasing additional
equipment, initial leases are expiring and the amount of equipment being
remarketed (i.e., re-leased, renewed, or sold) will increase. As a result, both
the size of the Partnership's leasing portfolio and the amount of leasing
revenue are declining.
LEASING MARGIN
Leasing margin consists of the following:
Three Months Ended
March 31,
-----------------------------
1998 1997
----------- -------------
Operating lease rentals $ 110,173 $ 1,562,212
Direct financing lease income 94,714 249,422
Depreciation and amortization (106,316) (1,008,536)
Interest expense on related financed
operating lease rentals (12,639) (13,157)
Interest expense on related discounted
lease rentals (28) (70,192)
----------- -----------
Leasing margin $ 85,904 $ 719,749
=========== ===========
Leasing margin ratio 42% 40%
=========== ===========
7
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
- ---------------------
LEASING MARGIN, continued
The components of leasing margin have declined and are expected to decline
further due to portfolio run-off.
The ultimate rate of return on leases depends, 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).
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
Three Months Ended
March 31,
-----------------------------
1998 1997
----------- -------------
Equipment sales revenue $ 740,425 $ 1,257,201
Cost of equipment sales (347,763) (1,129,707)
----------- -----------
Equipment sales margin $ 392,662 $ 127,494
=========== ===========
The Partnership is in it's liquidation period (as defined in the Partnership
Agreement). Currently, a portion of the Partnership's initial leases are
expiring and equipment is being remarketed (i.e., re-leased or sold to the
original lessee or third parties). Equipment sales margin increased as the
Partnership was successful in realizing amounts on equipment greater than their
net book values.
INTEREST INCOME
Interest income decreased due to a decrease in cash available for investment as
the Partnership is in liquidation and therefore distributing excess cash to the
partners.
8
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
- ---------------------
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is
reported with 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 and residual value exposure and, accordingly, in the ordinary course of
business, it will incur losses from those exposures. The Partnership performs
ongoing quarterly assessments of its assets to identify other-than-temporary
losses.
The provision for losses recorded for the three months ended March 31, 1998 and
for the same period in 1997 was primarily related to lessees returning equipment
to the Partnership. The Partnership had previously expected to realize the
carrying value of this equipment through lease renewals and proceeds from the
sales of equipment to the original lessees. The fair market value of the
equipment re-leased or sold to a third party was less than anticipated.
EXPENSES
Management fees paid to the general partner decreased primarily as a result of
portfolio run-off.
Direct services from the general partner and general and administrative expenses
decreased primarily due to a decrease in administrative costs for the
remarketing of warehoused equipment.
Liquidity and Capital Resources
- -------------------------------
The Partnership funds its operating activities principally with cash from rents,
non-recourse debt, interest income and sales of off-lease equipment. Available
cash and cash reserves of the Partnership are invested in interest bearing cash
accounts and short-term U.S. Government securities pending distributions to the
partners.
9
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Liquidity and Capital Resources, continued
- -------------------------------
During the three months ended March 31, 1998, the Partnership declared
distributions to the partners of $1,909,232 ($71,382 of which was paid during
April 1998). The Partnership is in its liquidation period (as defined in the
Partnership Agreement) and distributions during the liquidation period will vary
based upon cash availability. All distributions are expected to be a return of
capital for economic purposes.
The general partner currently anticipates that the Partnership will generate
cash flow from operations and equipment sales during the remainder of 1998
which, when added to cash and cash equivalents on hand, should provide
sufficient cash to enable the Partnership to meet its current operating
requirements.
The Class B limited partner distributions of cash from operations are
subordinated to the Class A limited partners receiving distributions of cash
from operations, as scheduled in the Partnership Agreement (i.e., 13%).
Therefore, because of the anticipated decrease in distributions to the Class A
limited partners, CAII, the sole Class B limited partner, ceased receiving
distributions of cash from operations as of August 1997. The general partner
believes these cumulative distributions will be paid when the proceeds from the
sale of certain equipment become available for distribution. Such proceeds are
currently recorded in accounts receivable.
10
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is involved in routine legal proceedings
incidental to the conduct of its business. The general partner
believes none of these legal proceedings will have a material
adverse effect on the financial condition or operations of the
Partnership.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Partnership did not file any reports on Form 8-K during
the three months ended March 31, 1998
11
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
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
A California Limited Partnership
By: CAI Partners Management Company
Dated: May 14, 1998 By: /s/Anthony M. DiPaolo
---------------------
Anthony M. DiPaolo
Senior Vice President
12
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 308,900
<SECURITIES> 0
<RECEIVABLES> 7,559,905
<ALLOWANCES> 0
<INVENTORY> 776,656
<CURRENT-ASSETS> 0
<PP&E> 605,006
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,660,880
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,575,885
<TOTAL-LIABILITY-AND-EQUITY> 9,660,880
<SALES> 392,662
<TOTAL-REVENUES> 616,688
<CGS> 0
<TOTAL-COSTS> 256,714
<OTHER-EXPENSES> 32,353
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 12,667
<INCOME-PRETAX> 359,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 359,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359,974
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
