<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(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__________________
COMMISSION FILE NUMBER 0-19166
PAINEWEBBER PREFERRED YIELD FUND, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1130506
(State of organization) (IRS Employer)
(Identification No.)
7175 WEST JEFFERSON AVENUE
SUITE 4000
LAKEWOOD, COLORADO 80235
(Address of principal (Zip Code)
executive offices)
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 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_____ .
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
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) 2
Balance Sheets - March 31, 1998 and
December 31, 1997
Statements of Income for the three months
ended March 31, 1998 and 1997 3
Statements of Partners' Equity for the three
months ended March 31, 1998 and 1997 4
Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEETS -- MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,422,741 $19,606,352
Rent and other receivables, net 100,054 175,075
Equipment held for sale or lease, net of
accumulated depreciation of
$3,177,718 and $4,103,002 at 1998 and
1997 and write-downs of
$109,534 and $112,754 at 1998 and 1997 639,201 729,481
Net investment in direct financing leases 155,654 170,230
Equipment on operating leases, net of
accumulated depreciation of $9,614,926
in 1998 and $11,966,110 in 1997 and
write downs of $219,266 in
1998 and $300,945 in 1997 7,556,989 8,253,386
Other assets, net 9,688 9,688
----------- -----------
Total assets $11,884,327 $28,944,212
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Prepaid rent (Note 4) $ 5,692,125 $ 6,072,331
Accounts payable and accrued liabilities 981,871 1,299,791
Payable to affiliates (Note 2) 290,701 263,591
Interest payable 6,275 7,792
Deferred rental income and deposits 246,897 246,840
Distributions payable to partners 1,385,139 16,486,153
Discounted lease rentals 1,390,578 1,523,570
----------- -----------
Total liabilities 9,993,586 25,900,068
----------- -----------
Commitments and contingencies (Notes 2 and 3)
PARTNERS' EQUITY:
General Partners 68,462 110,227
Limited Partners:
Class A (142,128 Units outstanding) 1,552,061 2,498,859
Class B 270,218 435,058
----------- -----------
Total Partners' equity 1,890,741 3,044,144
----------- -----------
Total liabilities and partners' equity $11,884,327 $28,944,212
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUE:
Rentals from operating leases $ 700,092 $3,194,329
Direct financing lease income 5,944 105,361
Gain on sale of equipment 186,940 53,716
Other, principally interest 96,106 39,880
---------- ----------
989,082 3,393,286
---------- ----------
EXPENSES:
Depreciation and amortization 510,480 2, 039,036
Management fees (Note 2) 22,944 134,707
Interest 166,325 215,339
General and administrative (Note 2) 57,597 50,600
---------- ----------
757,346 2,439,682
---------- ----------
NET INCOME $ 231,736 $ 953,604
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 8,391 $ 47,680
To the Class A Limited Partners 190,226 895,620
To the Class B Limited Partner 33,119 10,304
---------- ----------
$ 231,736 $ 953,604
========== ==========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 1.34 $ 6.30
========== ==========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING 142,128 142,128
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
Balance, January 1, 1998 $ 110,227 $ 2,498,859 $ 435,058 $ 3,044,144
Net income 8,391 190,226 33,119 231,736
Distributions declared (50,156) (1,137,024) (197,959) (1,385,139)
------------ ------------ ------------ ------------
Balance, March 31, 1998 $ 68,462 $ 1,552,061 $ 270,218 $ 1,890,741
============ ============ ============ ============
Balance, January 1, 1997 $ 1,216,120 $ 21,828,653 $ 3,141,838 $ 26,186,611
Net income 47,680 895,620 10,304 953,604
Distributions declared (143,417) (2,487,240) (237,678) (2,868,335)
------------ ------------ ------------ ------------
Balance, March 31, 1997 $ 1,120,383 $ 20,237,033 $ 2,914,464 $ 24,271,880
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 231,736 $ 953,604
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 510,480 2,039,036
Gains on sale of equipment, net (186,940) (53,716)
Change in assets and liabilities:
Rent and other receivables 49,721 121,873
Accounts payable and accrued liabilities (317,920) (91,699)
Payable to affiliates 27,110 57,362
Interest payable (1,517) (2,204)
Deferred rental income and deposits 57 (438)
Prepaid rent (336,005) (511,439)
Other assets -- 138
------------ ------------
Net cash (used in)provided by operating activities (23,278) 2,512,517
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 20,520 369,184
Proceeds from sale of equipment 438,292 522,242
Purchase of equipment on operating leases (Note 2) -- (3,929)
------------ ------------
Net cash provided by investing activities 458,812 887,497
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of discounted lease rentals (132,992) (344,351)
Cash distributions paid to partners (16,486,153) (1,421,279)
------------ ------------
Net cash used in financing activities (16,619,145) (1,765,630)
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (16,183,611) 1,634,384
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 19,606,352 2,879,451
------------ ------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $3,422,741 $4,513,835
========== ==========
Supplemental schedule of cash flow information:
Interest paid $ 167,842 $ 217,543
========== ==========
NON CASH TRANSACTIONS
Equipment subject to operating leases
converted to direct financing leases at renewal $ -- $ 6,592
========== ==========
Distributions declared but not paid to partners $1,385,139 $3,135,994
========== ==========
Prepaid rent applied in equipment sale $ 44,201 $ 48,253
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
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 Partners, all adjustments (consisting 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 Annual Report on Form
10-K. For further information, refer to the financial statements of PaineWebber
Preferred Yield Fund, 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, previously filed with the Securities and Exchange Commission.
New Accounting Pronouncement: In March 1998 the partnership adopted
SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances arising from nonowner sources. The adoption
of this pronouncement and not impact the reporting of the Partnership's results
of operations.
2. TRANSACTIONS WITH AFFILIATES
Management Fees The General Partners receive a quarterly fee in an
amount equal to 2.0% of gross rentals for Full Payout Leases, as defined in the
Partnership Agreement, and 5.0% of gross rentals for other leases (payable 55%
to the Managing General Partner and 45% to the Administrative General Partner)
as compensation for services rendered in connection with the management of the
equipment. Management fees of $22,944 were earned by the General Partners with
respect to the rental revenues earned by the Partnership during the three months
ended March 31, 1998.
Accountable General and Administrative Expenses The General Partners
are entitled to reimbursement of certain expenses paid on behalf of the
Partnership which are incurred in connection with the Partnership's operations.
Such reimbursable expenses, all of which were paid to the Managing General
Partner, amounted to $6,250 during the three months ended March 31, 1998.
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3. PREPAYMENT OF LEASES
On December 11, 1995, the Partnership entered into a lease (Master
Lease) with an unaffiliated third party (Master Lessee) for a term of
approximately 110 months. Under the terms of the Master Lease, the Partnership
assigned to the Master Lessee certain economic rights to certain user leases
(with remaining lease terms ranging from 10 to 55 months) originally acquired by
the Partnership for purchase prices aggregating $13,879,929 (including related
acquisition fees) (Master Lease Equipment) and which represented future minimum
lease rentals under non-cancelable leases totaling $7,563,186. The Master Lessee
prepaid ("Prepayment of Leases"), on a discounted basis at a rate of 8.25%, the
rent due to the Partnership under the Master Lease in the amount of $11,257,741
of which $5,692,125 and $6,072,331
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remained outstanding at March 31, 1998 and December 31, 1997, respectively. The
Prepayment of Leases is carried as prepaid rent on the balance sheets at such
dates and is accounted for as a financing. The Master Lease term exceeds the
related original user lease terms. Additionally, at the inception of the Master
Lease the amount of the Prepayment of Leases approximated the aggregate of the
remaining rental payments due under the user leases and the residual (salvage)
value estimates for the equipment subject to the user leases. The Partnership
does not have any economic obligations relating to the equipment subject to the
Master Lease until such equipment is returned upon the expiration of the Master
Lease. Upon expiration of the Master Lease, the economic benefits of all
equipment (Master Lease equipment) still being leased by third parties as well
as a portion of the residual value of such equipment based upon a formula will
revert to the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, the Partnership entered into an agreement with an
unaffiliated third party to sell certain equipment subject to leases for an
aggregate sale price of $15,338,420. The equipment, which included printers,
transportation, industrial, communication, manufacturing and research equipment
was originally purchased for purchase prices aggregating $29,855,031 and had an
aggregate net book value of $16,323,645 at September 30, 1997. The equipment had
generated aggregate rents of approximately $19,000,000 for the Partnership
through the date of sale. The Partnership recorded a writedown of $1,000,000 at
September 30, 1997 to reflect the difference between the sale price and the
depreciated value of the equipment. The sale was consummated and the sales
proceeds were received on October 30, 1997. Of the proceeds received, $156,476
was utilized to repay related non-recourse debt and the balance less an amount
reserved for operations, was distributed to partners in January 1998. The
equipment sold represented approximately 57% of the Partnership's remaining
equipment on a net book value basis at September 30, 1997, and approximately 70%
of the September 1997 monthly rental billings. The Managing General Partner of
the Partnership has determined that such sale represents a dissolution event, as
defined and is investigating sales opportunities with respect to the remaining
portfolio of equipment in order to complete the expeditious liquidation of the
Partnership.
Rent and other receivables, net of the allowance for doubtful accounts,
decreased $75,021 from $175,075 at December 31, 1997 to $100,054 at March 31,
1998 due to a decrease in interest receivable (attributable to a reduction in
investments held) partially offset by accounts receivable generated by sales at
March 31, 1998.
During the quarter ended March 31, 1998, the Partnership declared
distributions of cash flow received from operations and cash from sales in the
aggregate amount of $ 1,385,139, which were paid in April 1998. A substantial
portion of each distribution constitutes a return of capital. Distributions will
be determined based upon cash flow and obligations. As of December 31, 1997, the
Partnership had sold a substantial portion of its assets and the Managing
General Partner was exploring opportunities to sell the balance of equipment. In
January 1998 the Partnership distributed $95 per Class A limited partnership
Unit and in April, 1998 distributed an
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additional $8 per Class A limited partnership Unit. Future distributions will be
based upon cash generated by the sale and lease of the remaining equipment and
are not expected to be significant.
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital or both. The portion of
each distribution by a partnership, which exceeds its net income for the fiscal
period, may be deemed a return of capital. Based on the amount of net income
reported by the Partnership for accounting purposes, approximately 83% of the
cash distributions to the Class A Limited Partners for the three months ended
March 31, 1998 constituted a return of capital. Also, based on the amount of net
income reported by the Partnership for accounting purposes, approximately 68% of
the cash distributions paid to the Class A Limited Partners from inception of
the Partnership through March 31, 1998 constituted a return of capital. However,
the total actual return on capital over the Partnership's life can only be
determined at the termination of the Partnership after all residual cash flows
(which include proceeds from the re-leasing and sale of the equipment after
initial lease terms expire) have been realized.
RESULTS OF OPERATIONS
Substantially all of the Partnership's revenue and cashflow during the
1998 Quarter was generated from the leasing of the Partnership's equipment to
unaffiliated third parties under triple net leases. The balance of the
Partnership's cashflow consisted of proceeds from the sale of equipment and
interest income from temporary investments.
Under the terms of the triple net leases, substantially all of the
expenses related to the ownership and operation of the equipment are paid for by
the lessees. For equipment subject to operating leases, the Partnership records
depreciation expense pertaining to the equipment and related management fees.
The Partnership also records general and administrative expenses consisting
primarily of warehouse costs, investor reporting expenses and transfer agent and
audit fees as well as interest expense incurred in connection with discounted
transactions. Because of the sale of a substantial portion of the equipment
subject to lease in late 1997, cash from operations will not be significant.
The Partnership performs ongoing assessments of the likelihood of
lessee defaults on existing leases and the effect that any such defaults may
have on the collectability of the Partnership's recorded accounts receivable,
and the recoverability of recorded equipment residual values based on
independent and internal evaluations of the estimated future value of equipment.
Write downs are recorded when it is determined that it is probable that the
value of a recorded asset has declined on an other than temporary basis.
1998 Compared to 1997
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The Partnership's net income was $231,736 in the 1998 Quarter as
compared to net income of $953,604 for the quarter ended March 31, 1997 ("1997
Quarter"). Net income was lower in 1998 as compared to 1997 due to the sale of
a significant amount of leased equipment in 1997 (principally the October 1997
sale).
Rentals from operating leases declined by approximately 78% or
$2,494,237 in the 1998 Quarter as compared to the 1997 Quarter due principally
to the equipment sale discussed above. A substantial portion of the equipment
sold in 1997 was earning rent during the 1997 Quarter.
Interest income increased by $56,226 in the 1998 Quarter as
compared to the 1997 Quarter due to the increase in amounts available for
short-term interest bearing investments. A substantial portion of the funds
earning interest for all or part of the 1998 Quarter were distributed to
Partners in January 1998 and April 1998.
As discussed above, the Partnership performs ongoing assessments of
recorded equipment residual values based on actual sales of similar equipment
and other evaluations of estimated future equipment values and provides for
write downs when the value of the equipment has been impaired on an other than
temporary basis. No such write downs were incurred during the 1998 Quarter or
the 1997 Quarter.
Depreciation and amortization expense decreased by approximately 5% or
$1,528,556 in the 1998 Quarter as compared to the 1997 Quarter, principally due
to the continued sale of equipment upon the scheduled expiration of leases
(principally, the October, 1997 equipment sale) which was consistent with the
reduction in rentals from operating leases.
Management fees incurred during the 1998 Quarter decreased by 83% or
$111,763 in comparison to the 1997 Quarter which was consistent with the decline
in rentals (from both operating and direct finance leases) which serve as the
base upon which such fees are calculated.
General and administrative expenses incurred during the 1998 Quarter
increased by approximately 14% or $6,997 in comparison to the 1997 Quarter and
was consistent with Partnership operations.
Interest expense incurred during the 1998 Quarter decreased by 23% or
$49,014 as compared to the 1997 Quarter. Interest expense is composed of two
components; (i) interest expense incurred in connection with the discounting of
certain leases with unaffiliated lenders and (ii) interest incurred in
connection with the application of the prepaid rent received pursuant to the
Master Lease transaction. For accounting purposes, the prepaid rent is treated
as a financing. Income is recognized ratably over the terms of the leases and
the related interest is charged to operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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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 first quarter of the fiscal year ending December 31, 1998.
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SIGNATURE
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.
PaineWebber Preferred Yield Fund, L.P. (Registrant)
By: General Equipment Management, Inc.
A General Partner
Date: May 14, 1998 By: /s/Joseph P. Ciavarella
Joseph P. Ciavarella
Vice President, Treasurer
and Chief Financial
and Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998 FOR PAINEWEBBER PREFERRED YIELD FUND LP AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,422,741
<SECURITIES> 0
<RECEIVABLES> 272,954
<ALLOWANCES> (172,900)
<INVENTORY> 0
<CURRENT-ASSETS> 3,532,483
<PP&E> 21,317,634
<DEPRECIATION> 13,121,444<F3>
<TOTAL-ASSETS> 11,884,327
<CURRENT-LIABILITIES> 2,910,883
<BONDS> 1,385,139
0
0
<COMMON> 0
<OTHER-SE> 1,890,741<F2>
<TOTAL-LIABILITY-AND-EQUITY> 11,884,327
<SALES> 0
<TOTAL-REVENUES> 989,082
<CGS> 0
<TOTAL-COSTS> 533,424
<OTHER-EXPENSES> 57,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,325
<INCOME-PRETAX> 231,736
<INCOME-TAX> 0
<INCOME-CONTINUING> 231,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,736
<EPS-PRIMARY> 1.34<F1>
<EPS-DILUTED> 0
<FN>
<F1>INCOME PER CLASS A UNIT OF LIMITED PARTNERSHIP INTEREST
<F2>INCLUDES PARTNER CAPITAL PLUS ACCUMULATED EARNINGS AND DISTRIBUTED TO PARTNERS
<F3>INCLUDES ALLOWANCES FOR WRITEDOWNS
</FN>
</TABLE>
