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, 1999
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 0-19166
PAINEWEBBER PREFERRED YIELD FUND, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1130506
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(State of organization) (IRS Employer Identification No.)
7175 WEST JEFFERSON AVENUE, Suite 4000
Lakewood, Colorado 80235
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(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 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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Exhibit Index Appears on Page 11
Page 1 of 12 Pages
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1999
Table of Contents
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statement of Net Assets in Liquidation as of
March 31, 1999 and December 31, 1998 3
Statement of Changes in Net Assets in Liquidation
for the Three Months March 31, 1999 4
Notes to Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit Index 11
Signature 12
2
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENT OF NET ASSETS IN LIQUIDATION AS OF
ASSETS
March 31, December 31,
1999 1998
---------- ------------
(Unaudited)
Cash and cash equivalents $3,286,123 $3,198,407
Rents and other receivables, net 125,798 163,529
Equipment on operating leases, at liquidation value 1,419,720 1,567,365
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Total Assets $4,831,641 $4,929,301
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LIABILITIES AND NET ASSETS
LIABILITIES:
Accounts payable and accrued liabilities 960,482 731,971
Accrued liquidation expenses 291,595 341,750
Payables to affiliates 113,648 246,884
Accrued interest payable 6,275 6,275
Discounted lease rentals 821,273 969,404
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Total Liabilities 2,193,273 2,296,284
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NET ASSETS: 2,638,368 2,633,017
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Total Liabilities and Net Assets $4,831,641 $4,929,301
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The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Net assets in liquidation at December 31, 1998 $2,633,017
Income from liquidating activities
Interest income 30,735
Other income 214
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30,949
Expenses from liquidating activities
Interest 24,918
General and administrative 680
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25,598
Increase in net assets in liquidation 5,351
Net assets in liquidation at March 31, 1999 $2,638,368
==========
Net assets in liquidation, per weighted average unit (142,128) $ 18.56
==========
4
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
As a result of the sale of substantially all of the Partnership's assets,
the General Partners approved a plan of liquidation in 1998 and commenced
liquidation as of December 31, 1998. Accordingly, the Partnership changed
its basis of accounting from the going-concern basis to the liquidation
basis effective December 31, 1998. The liquidation basis of accounting
presents assets at the amounts expected to be realized in liquidation and
liabilities at amounts expected to be paid to creditors. Adjustments for
changes in estimated liquidating values are recognized currently.
Accordingly, the accompanying unaudited financial statements do not include
all of the information and footnotes necessary for a presentation of
complete financial statements as required by generally accepted accounting
principles for annual financial statements. The accompanying financial
statements are unaudited, but in the opinion of the General Partners, all
adjustments to assets and liabilities considered necessary for the
presentation of amounts at net realizable or estimated values have been
included. These values are based upon management's best estimates of their
liquidation value at March 31, 1999. Such values could differ substantially
from amounts ultimately realized in the future as the Partnership completes
its plan of liquidation. The Managing General Partner is exploring
opportunities for the sale of the remaining equipment during 1999. The
Partnership gives no assurance that final liquidation will occur in 1999.
However, liquidation expenses have been accrued based on the expectation
that liquidation will occur in 1999. The statement of net assets in
liquidation at December 31, 1998, was derived from the audited financial
statements included in the Partnership's Annual Report on Form 10-K. For
further information, including the estimated liquidating values assigned by
the Partnership, 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, 1998, previously filed with the Securities and Exchange Commission.
Equipment on operating leases, at liquidation value, represents the
remaining equipment in the Partnership. In accordance with the liquidation
basis of accounting, the asset is being reduced monthly by the amount of
the rental proceeds and no further depreciation is being recorded.
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 adopted Statement
133 in the first quarter of 1999. The General Partner does not expect the
adoption to have an impact on its financial reporting.
2. TRANSACTIONS WITH AFFILIATES
Management Fees to General Partners
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. At March 31, 1999, management fees of $106,813 are included in
payables to affiliates.
5
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
2. TRANSACTIONS WITH AFFILIATES, continued
Accountable General and Administrative Expenses
The General Partners are entitled to reimbursement of certain expenses
incurred on behalf of the Partnership. In accordance with the plan of
liquidation effective December 31, 1998, the Partnership recorded accrued
liquidation expenses which included future estimated general and
administrative expenses reimbursable to the Managing General Partner.
During the three months ended March 31, 1999, the Partnership paid accrued
liquidation expenses in the amount of $20,830 for general and
administrative expenses incurred by the Managing General Partner on behalf
of the Partnership. As of March 31, 1999, $4,378 of the expenses had not
been reimbursed to the Managing General Partner, and are included in
payables to affiliates.
3. CASH AND CASH EQUIVALENTS
The Partnership invests working capital and cash flow from operations prior
to its distribution to the partners in short-term highly liquid
investments. These investments are recorded at cost which approximates fair
market value. For purposes of the statement of net assets in liquidation,
the Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
4. NON-RECOURSE DISCOUNTING OF RENTALS
The Partnership assigned the rentals from leases to financial institutions
at fixed interest rates on a non-recourse basis. In return for such future
lease payments, the Partnership received the discounted value of the rental
payments in cash. The notes were collateralized by the lease, the related
lease payments and the underlying equipment. Cash proceeds from such
financings were recorded on the balance sheet as discounted lease rentals.
As lessees make payments to the financial institutions, interest expense is
recorded and the outstanding balance of discounted lease rentals is
reduced.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the audited
financial statements of the Partnership and the Notes thereto. This report
contains, in addition to historical information, forward- looking
statements that include risks and other uncertainties. The Partnership's
actual results may differ materially from those anticipated in these
forward-looking statements. Factors that might cause such a difference
include those discussed below, as well as general economic and business
conditions, competition and other factors discussed elsewhere in this
report. The Partnership undertakes no obligation to release publicly any
revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
anticipated or unanticipated events.
The Partnership has adopted a plan of liquidation effective December 31,
1998, and accordingly, is using the liquidation basis of accounting. The
remaining equipment under operating lease is stated at the amount expected
to be realized in liquidation. No further depreciation will be recorded by
the Partnership in accordance with the liquidation basis of accounting.
Under the terms of the triple net lease, substantially all of the expenses
related to the ownership and operation of the equipment are paid for by the
lessee. The remaining equipment under operating lease was financed with
non-recourse debt, therefore rents are remitted by the lessee directly to
the lender. Rental proceeds are applied against the carrying value of
equipment under lease and the loan is reduced by the amount of the rental
proceeds. Interest expense incurred on the loan is recorded monthly.
The Partnership's income from liquidating activities during the quarter
ended March 31, 1999 was generated from interest income from temporary
investments.
Interest expense incurred during the three months ended March 31, 1999 is
comprised of interest expense incurred in connection with the discounting
of the remaining lease with an unaffiliated lender. Interest expense
associated with the remaining discounted lease rental is decreasing as
principle is repaid.
General and administrative expenses for the three months ended March 31,
1999 consisted primarily of state tax fees.
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 estimation of the values of the Partnership's recorded accounts
receivable and equipment. The nature of the Partnership's leasing
activities is such that it has credit and residual value exposure and
accordingly will incur losses from those exposures in the ordinary course
of business. The Partnership performs quarterly assessments of the
estimated amount to be realized in liquidation for the equipment under
lease to identify any required reductions in estimated realizable value.
No adjustments to the estimated realizable value of the equipment remaining
in the Partnership were deemed necessary for the three months ended March
31, 1999.
Cash and cash equivalents and the associated accounts payable and accrued
liabilities have increased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 primarily due to rental
payments received for equipment subsequent to the date of sale to a third
party. The Partnership remits these amounts to the new owners on a monthly
basis. Included in accounts payable and accrued liabilities at March 31,
1999 are approximately $300,000 of rents payable to third parties.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
II. LIQUIDITY AND CAPITAL RESOURCES
Rent and other receivables, net of the allowance for doubtful accounts,
decreased $37,731 from $163,529 at December 31, 1998 to $125,798 at March
31, 1999 primarily due to the collection of amounts related to property
taxes from the lessee.
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. As of March 31, 1999, the
Partnership has sold all but one piece of equipment under operating lease.
A final distribution will be made after receipt of proceeds for the
equipment that remains on lease. The calculation of such distribution will
be net of the estimated amount necessary to settle current obligations and
estimated contingent liabilities, if any, incidental to the liquidation.
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
upgraded to correctly account for the Year 2000 issue. The affiliate is
implementing additional upgrades whereby the affiliate's primary lease
tracking and accounting software will account for the Year 2000 correctly.
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. 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. 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 adopted Statement
133 in the first quarter of 1999. The General Partner does not expect the
adoption to have an impact on its financial reporting.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
II. LIQUIDITY AND CAPITAL RESOURCES, continued
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act
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of 1995
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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 realizability of recorded estimates 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 adopted the liquidation basis of accounting as of December
31, 1998 and all assets and liabilities were stated at anticipated
liquidation value. Consequently the Partnership has no market risk
exposure.
9
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Part II. OTHER INFORMATION
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 three
months ended March 31, 1999.
10
<PAGE>
Item No. Exhibit Index
27 Financial Data Schedule
11
<PAGE>
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: CAI Equipment Leasing II Corporation
A General Partner
Date: May 17, 1999 By: /s/Anthony M. DiPaolo
------------------------------------------
Anthony M. DiPaolo
Senior Vice President, Treasurer and Chief
Administrative Officer
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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,286,123
<SECURITIES> 0
<RECEIVABLES> 125,798
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,419,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,831,641
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,638,368
<TOTAL-LIABILITY-AND-EQUITY> 4,831,641
<SALES> 0
<TOTAL-REVENUES> 30,949
<CGS> 0
<TOTAL-COSTS> 25,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,918
<INCOME-PRETAX> 5,351
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,351
<EPS-PRIMARY> 18.56
<EPS-DILUTED> 18.56
</TABLE>
