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, 1996
--------------------------------------------------
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 33-44158
---------------------------------------------------------
Capital Preferred Yield Fund-III, L.P.
--------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1248907
----------------------- ------------------------------------
(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 20
Page 1 of 21 Pages
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
Quarterly Report on Form 10-Q
For the Quarter Ended
June 30, 1996
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheet - June 30, 1996 and December 31, 1995 3
Statements of Income - Three and Six months ended
June 30, 1996 and 1995 4
Statement of Partners' Capital -
January 1, 1996 - June 30, 1996 5
Statements of Cash Flows - Six months ended
June 30, 1996 and 1995 6
Notes to Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
2
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
----------- ------------
ASSETS
Cash and cash equivalents $ 7,936,527 $ 6,774,071
Accounts receivable 710,718 1,366,351
Net investment in direct finance leases 6,543,539 4,294,046
Leased equipment, net 51,033,956 35,943,402
Deferred financing costs 71,429 85,714
----------- -----------
Total assets $66,296,169 $48,463,584
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 359,584 $ 401,786
Payable to affiliates 46,365 106,196
Rents paid in advance 321,637 236,186
Distributions payable to partners 445,790 319,907
Discounted lease rentals 25,933,458 16,863,892
----------- -----------
Total liabilities 27,106,834 17,927,967
----------- -----------
Partners' Capital:
General partner - -
Limited Partners:
Class A 38,720,794 30,183,575
Class B 468,541 352,042
----------- -----------
Total partners' capital 39,189,335 30,535,617
----------- -----------
Total liabilities and partners' capital $66,296,169 $48,463,584
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Operating lease rentals $3,640,550 $1,323,714 $6,534,019 $2,124,152
Direct finance lease income 99,037 69,302 189,826 112,462
Equipment sales margin 17,311 - 110,831 -
Interest income 125,700 74,713 249,588 118,356
---------- ---------- ---------- ----------
Total revenue 3,882,598 1,467,729 7,084,264 2,354,970
---------- ---------- ---------- ----------
EXPENSES:
Depreciation and amortization 2,631,826 1,004,535 4,927,197 1,640,091
Management fees paid to general partner 85,627 23,372 152,748 40,247
Direct services from general partner 23,607 23,617 48,564 48,099
General and administrative 67,826 46,059 143,446 82,644
Interest on discounted lease rentals 383,784 155,867 719,272 227,596
Provision for losses - 100,000 - 100,000
---------- ---------- ---------- ----------
Total expenses 3,192,670 1,353,450 5,991,227 2,138,677
---------- ---------- ---------- ----------
NET INCOME $ 689,928 $ 114,279 $1,093,037 $ 216,293
========== ========== ========== ==========
NET INCOME ALLOCATED:
To the general partner $ 15,039 $ 14,318 $ 41,743 $ 29,952
To the Class A limited partners 668,071 98,940 1,040,658 184,435
To the Class B limited partner 6,818 1,021 10,636 1,906
---------- ---------- ---------- ----------
$ 689,928 $ 114,279 $1,093,037 $ 216,293
========== ========== ========== ==========
Net income per weighted average Class A
limited partner unit outstanding $ 1.34 $ .44 $ 2.24 $ .95
========== ========== ========== ==========
Weighted average Class A limited
partner units outstanding 499,394 226,935 465,094 194,437
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENT OF PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partner Partners Partner Total
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Partners' capital, January 1, 1996 $ - $ 30,183,575 $ 352,042 $ 30,535,617
Capital contributions - 11,623,048 130,000 11,753,048
Commissions and offering costs on
sale of Class A limited partner units (16,889) (1,672,031) - (1,688,920)
Redemptions - (12,089) - (12,089)
Net income 41,743 1,040,658 10,636 1,093,037
Distributions to partners (24,854) (2,442,367) (24,137) (2,491,358)
---------- ------------ ---------- ------------
Partners' capital, June 30, 1996 $ - $ 38,720,794 $ 468,541 $ 39,189,335
========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
Net cash provided by operating activities $ 7,838,285 $ 1,842,397
------------- -------------
Cash flows from investing activities:
Purchases of equipment on operating leases from affiliate (14,497,042) (13,317,816)
Investment in direct finance leases, acquired from affiliate (776,599) (2,671,913)
------------ -------------
Net cash used in investing activities (15,273,641) (15,989,729)
------------ -------------
Cash flows from financing activities:
Proceeds from Class A capital contributions 11,623,048 12,541,298
Proceeds from Class B capital contributions 130,000 120,000
Proceeds from discounted lease rentals 4,767,017 3,912,905
Principal payments on discounted lease rentals (3,789,846) (550,444)
Redemptions of Class A limited partner units (12,089) -
Commissions paid to affiliate in connection
with the sale of Class A limited partner units (1,204,455) (1,269,750)
Non-accountable organization and offering expenses
reimbursement paid to the general partner in connection
with the sale of Class A limited partner units (550,388) (549,018)
Distributions to partners (2,365,475) (926,258)
------------ -------------
Net cash provided by financing activities 8,597,812 13,278,733
------------ -------------
Net increase (decrease) in cash and cash equivalents 1,162,456 (868,599)
Cash and cash equivalents at beginning of period 6,774,071 1,555,557
------------ -------------
Cash and cash equivalents at end of period $ 7,936,527 $ 686,958
============ =============
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 719,272 $ 227,596
Supplemental disclosure of noncash investing and
financing activities:
Discounted lease rentals assumed in equipment acquisitions 8,092,395 2,086,072
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, 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 only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1995 has been derived from the audited financial statements
included in the Partnership's 1995 Form 10-K. For further information,
refer to the financial statements of Capital Preferred Yield Fund-III, 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, 1995, previously
filed with the Securities and Exchange Commission.
2. Transactions With the General Partner and Affiliates
----------------------------------------------------
SALES COMMISSIONS AND OFFERING COSTS
Under the terms of the Partnership Agreement, CAI Securities Corporation,
an affiliate of the general partner, is entitled to receive sales
commissions and wholesaling fees equal to 10% of the Class A limited
partners' capital contributions, up to 9% of which is paid to participating
broker-dealers. During the six months ended June 30, 1996 CAI Securities
Corporation earned commissions and fees in the amount of $1,162,305,
$991,974 of which was paid to participating broker-dealers.
As provided in the Partnership Agreement, the general partner earned
$464,922 as reimbursement for expenses incurred during the six months ended
June 30, 1996 in connection with the organization of the Partnership and
the offering of Class A limited partner units. The general partner also
received $61,693 as reimbursement for due diligence expenses incurred
during the six months ended June 30, 1996, $10,049 of which will be paid in
the third quarter.
DIRECT SERVICES
The general partner and its affiliates 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. Such reimbursements totaled $48,564 ($7,015 of
which will be paid in the third quarter) during the six months ended June
30, 1996.
7
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
PAYABLE TO AFFILIATES
Payable to affiliates consists of direct services, management fees, sales
commissions and wholesaling fees, and organization and offering expense
reimbursements with respect to Class A limited partner units payable to the
general partner and its affiliates and amounts relating to general and
administrative expenses during the period ended June 30, due to the general
partner and its affiliates.
3. Equipment Purchases
-------------------
During the six months ended June 30, 1996, the Partnership purchased from
Capital Associates International, Inc. ("CAII"), the Class B limited
partner and an affiliate of the general partner, the equipment under lease
listed below. The Partnership purchased the equipment at cost to CAII,
including reimbursement of other acquisition costs and acquisition fees as
provided for in the Partnership Agreement.
<TABLE>
<CAPTION>
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Thomson Saginaw Material handling equipment $ 77,164 $ 2,674 $ 79,838
ICI Americas Forklift 38,913 1,348 40,261
Cerplex Semiconductor 557,438 19,315 576,753
Television City Environmental monitoring equipment 167,083 5,951 173,034
Thomson Saginaw Material handling equipment 59,880 2,075 61,955
Consolidated Diesel Forklifts 59,719 2,069 61,788
Brown Strauss Forklifts 83,000 2,876 85,876
Wayne Farms Spiral freezer 502,758 9,955 512,713
Brown Strauss Forklifts 90,795 3,146 93,941
Lever Brothers HP Server 47,070 1,631 48,701
Louisiana Workers Memory board 6,531 226 6,757
Honeywell Sequencer 264,699 8,495 273,194
In Home Health Modular furniture 113,501 3,933 117,434
General Motors Lift truck 36,120 1,252 37,372
NBC Video equipment 259,730 9,000 268,730
Atlantic Steel Mill equipment 971,059 33,647 1,004,706
Thomson Saginaw Machine tools 60,130 2,084 62,214
Lever Brothers PC's networking 20,828 722 21,550
HK Systems Communication 150,000 5,198 155,198
General Motors Forklifts 76,161 2,639 78,800
Xerox Forklifts 137,740 4,773 142,513
Xerox Forklifts 120,660 4,181 124,841
ITT Automotive Office automation equipment 20,362 706 21,068
8
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Equipment Purchases, continued
-------------------
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
General Motors Forklifts $ 59,208 $ 2,052 $ 61,260
General Motors Forklifts 59,343 2,056 61,399
General Motors Forklifts 17,486 606 18,092
Barber-Colman Machine tools 82,905 2,873 85,778
Barber-Colman Machine tools 12,401 430 12,831
Barber-Colman Machine tools 218,375 7,567 225,942
Barber-Colman Machine tools 30,966 1,073 32,039
Barber-Colman Machine tools 9,351 324 9,675
Barber-Colman Machine tools 6,320 219 6,539
Barber-Colman Machine tools 3,039 105 3,144
Barber-Colman Manufacturing equipment 22,908 794 23,702
Barber-Colman Machine tools 13,801 478 14,279
Barber-Colman Machine tools 5,352 185 5,537
Barber-Colman Machine tools 21,362 740 22,102
Barber-Colman Machine tools 10,661 369 11,030
Barber-Colman Machine tools 1,999 69 2,068
Barber-Colman Machine tools 20,858 723 21,581
Barber-Colman Peripheral controllers 26,189 907 27,096
Barber-Colman Machine tools 73,855 2,559 76,414
Barber-Colman Machine tools 38,952 1,350 40,302
Barber-Colman Machine tools 28,382 983 29,365
Barber-Colman PC's networking 24,351 844 25,195
Barber-Colman Machine tools 176,593 6,119 182,712
Barber-Colman PC's networking 68,069 2,359 70,428
Barber-Colman Manufacturing equipment 79,286 2,747 82,033
Barber-Colman PC's networking 87,826 3,043 90,869
Foxboro Company PC's networking 94,680 3,281 97,961
Foxboro Company Furniture and fixtures 32,831 1,138 33,969
Foxboro Company PC's networking 60,796 2,107 62,903
Foxboro Company PC's networking 60,022 2,080 62,102
Foxboro Company PC's networking 64,671 2,241 66,912
Foxboro Company Manufacturing equipment 22,961 796 23,757
Foxboro Company PC's networking 125,644 4,354 129,998
Foxboro Company PC's networking 105,586 3,659 109,245
Foxboro Company PC's networking 539,488 18,693 558,181
Foxboro Company PC's networking 28,650 993 29,643
Foxboro Company Furniture and fixtures 31,018 1,075 32,093
Foxboro Company Furniture and fixtures 66,268 2,296 68,564
Foxboro Company Research equipment 42,146 1,460 43,606
Foxboro Company Manufacturing equipment 74,091 2,567 76,658
9
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Equipment Purchases, continued
-------------------
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
Foxboro Company Manufacturing equipment $ 212,775 $ 7,373 $ 220,148
Foxboro Company PC's networking 785,128 27,205 812,333
Foxboro Company Manufacturing equipment 183,511 6,359 189,870
Foxboro Company Furniture and fixtures 2,444 85 2,529
Foxboro Company Forklifts 6,305 218 6,523
Foxboro Company Furniture and fixtures 10,198 353 10,551
Keystone Invest Office automation equipment 5,780 200 5,980
Keystone Invest Peripheral printers 17,533 608 18,141
Keystone Invest PC's networking 312,217 10,818 323,035
Keystone Invest PC's networking 120,227 4,166 124,393
Keystone Invest PC's networking 1,086,011 37,630 1,123,641
Keystone Invest Furniture and fixtures 32,414 1,123 33,537
Keystone Invest Peripheral printers 33,613 1,165 34,778
Lucas Industries Furniture and fixtures 47,329 1,640 48,969
Lucas Industries Manufacturing equipment 44,119 1,529 45,648
Lucas Industries Furniture and fixtures 30,228 1,047 31,275
Lucas Industries Furniture and fixtures 163,330 5,659 168,989
Lucas Industries PC's networking 24,190 838 25,028
Lucas Industries PC's networking 147,931 5,126 153,057
Lucas Industries CPU's - DEC 51,904 1,798 53,702
Lucas Industries Research equipment 78,475 2,719 81,194
Lucas Industries PC's networking 381,594 13,222 394,816
Rawlings Sporting Peripheral printers 5,474 190 5,664
Rawlings Sporting PC's networking 54,894 1,902 56,796
Rawlings Sporting PC's networking 114,439 3,965 118,404
Rawlings Sporting PC's networking 153,110 5,305 158,415
Rawlings Sporting PC's networking 35,431 1,228 36,659
Rawlings Sporting PC's networking 6,042 209 6,251
Rawlings Sporting CPU's 197,668 6,849 204,517
Rawlings Sporting Peripheral printers 2,218 77 2,295
Stop & Shop PC's networking 26,588 921 27,509
Stop & Shop PC's networking 8,214 285 8,499
Stop & Shop PC's networking 3,451 120 3,571
Stop & Shop PC's networking 3,440 119 3,559
Stop & Shop PC's networking 3,296 114 3,410
Stop & Shop PC's networking 1,260 44 1,304
Stop & Shop PC's networking 5,923 205 6,128
Stop & Shop PC's networking 5,923 205 6,128
Stop & Shop PC's networking 5,923 205 6,128
Stop & Shop PC's networking 5,923 205 6,128
10
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Equipment Purchases, continued
-------------------
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
Stop & Shop PC's networking $ 5,923 $ 205 $ 6,128
Stop & Shop PC's networking 6,496 225 6,721
Stop & Shop PC's networking 5,923 205 6,128
Stop & Shop PC's networking 6,496 225 6,721
Stop & Shop PC's networking 6,496 225 6,721
Stop & Shop PC's networking 5,923 205 6,128
Stop & Shop PC's networking 5,923 205 6,128
Stop & Shop PC's networking 50,271 1,742 52,013
Stop & Shop PC's networking 7,756 269 8,025
Stop & Shop PC's networking 7,756 269 8,025
Stop & Shop PC's networking 7,756 269 8,025
Stop & Shop PC's networking 32,958 1,142 34,100
Stop & Shop PC's networking 10,880 377 11,257
Stop & Shop PC's networking 5,005 173 5,178
Stop & Shop PC's networking 10,767 373 11,140
Stop & Shop Furniture and fixtures 55,090 1,909 56,999
Stop & Shop PC's networking 5,092 176 5,268
Stop & Shop PC's networking 7,452 258 7,710
Stop & Shop PC's networking 5,092 176 5,268
Stop & Shop PC's networking 5,259 182 5,441
Stop & Shop PC's networking 6,427 223 6,650
Stop & Shop PC's networking 1,335 46 1,381
Stop & Shop PC's networking 178,944 6,200 185,144
Stop & Shop PC's networking 11,011 382 11,393
Stop & Shop Furniture and fixtures 39,556 1,371 40,927
Stop & Shop Furniture and fixtures 50,749 1,758 52,507
Stop & Shop Furniture and fixtures 39,548 1,370 40,918
Stop & Shop PC's networking 11,276 391 11,667
Stop & Shop PC's networking 11,276 391 11,667
Stop & Shop PC's networking 11,276 391 11,667
Stop & Shop PC's networking 11,276 391 11,667
Stop & Shop PC's networking 38,529 1,335 39,864
Stop & Shop PC's networking 49,471 1,714 51,185
Stop & Shop PC's networking 11,202 388 11,590
Stop & Shop PC's networking 11,626 403 12,029
Stop & Shop PC's networking 11,626 403 12,029
Stop & Shop PC's networking 6,916 240 7,156
Stop & Shop PC's networking 11,638 403 12,041
Stop & Shop PC's networking 5,450 189 5,639
Stop & Shop PC's networking 5,330 185 5,515
11
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Equipment Purchases, continued
-------------------
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
Stop & Shop PC's networking $ 11,556 $ 400 $ 11,956
Stop & Shop PC's networking 11,556 400 11,956
Stop & Shop PC's networking 11,556 400 11,956
Stop & Shop PC's networking 11,556 400 11,956
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 6,544 227 6,771
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
Stop & Shop PC's networking 3,428 119 3,547
United Artists Furniture and fixtures 168,696 5,845 174,541
United Artists Furniture and fixtures 124,630 4,318 128,948
United Artists Furniture and fixtures 123,970 4,296 128,266
United Artists Furniture and fixtures 128,896 4,466 133,362
United Artists Furniture and fixtures 116,699 4,044 120,743
United Artists Furniture and fixtures 122,292 4,237 126,529
General Motors Forklifts 76,077 2,636 78,713
General Motors Forklifts 116,620 4,041 120,661
Alloy Polymers Manufacturing equipment 95,296 3,302 98,598
Alterations Plus Manufacturing equipment 31,375 1,087 32,463
Applied Radiological Control Manufacturing equipment 106,993 3,707 110,700
Autry Greer & Sons, Inc. Furniture and fixtures 78,119 2,707 80,825
Bojangles' Restaurants, Inc. Furniture and fixtures 239,536 8,300 247,836
C & H Knit Products, Inc. Manufacturing equipment 213,101 7,384 220,485
C & H Knit Products, Inc. Manufacturing equipment 86,111 2,984 89,095
12
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Equipment Purchases, continued
-------------------
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
Country Cupboard Food Stores Office automation equipment $ 148,317 $ 5,139 $ 153,456
C. T. Harris, Inc. Forklifts 366,146 12,142 378,288
Envirosafe Service, Inc. Forklifts 56,110 1,889 57,999
Floyd Marine Storage, Inc. Forklifts 58,932 2,042 60,974
Freestate Petroleum Corp. Furniture and fixtures 83,827 2,905 86,732
Freestate Petroleum Corp. Furniture and fixtures 95,782 3,319 99,101
Freestate Petroleum Corp. Furniture and fixtures 117,961 4,087 122,048
Freestate Petroleum Corp. Furniture and fixtures 127,676 4,424 132,100
Hokkins Systemation, Inc. Furniture and fixtures 151,534 5,251 156,785
Hough Petroleum Furniture and fixtures 140,741 4,877 145,617
Hough Petroleum Furniture and fixtures 70,782 2,453 73,234
Hough Petroleum Furniture and fixtures 45,985 1,593 47,579
Kessel Food Markets Inc. Furniture and fixtures 1,046,603 36,265 1,082,868
Kop-Flex, Inc. Manufacturing equipment 122,553 4,246 126,799
Lykins Oil Co., Inc. Furniture and fixtures 35,292 1,223 36,515
Lykins Oil Co., Inc. Furniture and fixtures 86,044 2,981 89,026
Madden Services, Inc. Misc. warehouse equipment 599,055 20,757 619,812
Madden Services, Inc. Misc. warehouse equipment 81,901 2,838 84,739
McGavren Guild Inc. Furniture and fixtures 69,826 2,419 72,246
McGavren Guild Inc. Furniture and fixtures 231,485 8,021 239,506
Mt Pleasant Publish PC's networking 45,732 1,585 47,317
Mt Pleasant Publish PC's networking 27,006 936 27,941
Perimeter Oil Company Furniture and fixtures 96,437 3,342 99,778
Quality Oil Company, Inc. Furniture and fixtures 58,006 1,931 59,937
Quality Oil Company, Inc. Furniture and fixtures 8,580 286 8,865
Rainbow Marketers, Inc. Furniture and fixtures 160,637 5,566 166,203
Recycled Materials Construction equipment 174,469 6,045 180,514
Rogers Petroleum, Inc. Research equipment 55,122 1,910 57,032
Shapiro Packing Company Food processing equipment 59,914 2,076 61,990
Shapiro Packing Company Food processing equipment 53,048 1,838 54,886
Shapiro Packing Company Food processing equipment 174,073 6,032 180,105
Shapiro Packing Company Food processing equipment 72,353 2,507 74,860
Shoex, Inc. Furniture and fixtures 243,501 8,437 251,939
SOS Transport, Inc. Transport-Trucks 85,239 2,954 88,192
Tennessee River, Inc. Manufacturing equipment 55,362 1,918 57,281
The Hanson-Whitney Company Machine tools 79,202 2,744 81,946
Trammell Crow Distribution Above ground mining equipment 405,893 14,064 419,957
Valley Innovative Mgmt. Ser Furniture and fixtures 91,888 3,184 95,072
Vfl Technology Corporation Forklifts 442,178 15,321 457,500
Vision Art Design & Animation Communication equipment 27,568 955 28,523
13
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Equipment Purchases, continued
-------------------
Acquisition Total
Equipment Cost of Fees and Equipment
Lessee Description Equipment Reimbursements Purchase Price
------------------------- ---------------------------------- ------------ -------------- --------------
White Consolidated Manufacturing equipment $ 85,246 $ 2,954 $ 88,199
System One PC's networking 160,207 5,551 165,758
Thomson Industries Machine tools 43,248 1,499 44,747
Home Depot Transport Trucks 74,690 2,530 77,221
Home Depot Forklifts 739,889 25,092 764,981
USS Kobe Forklifts 102,722 3,559 106,281
USS Kobe Forklifts 29,283 1,015 30,298
Thomson Industries Machine tools 43,248 1,499 44,748
------------ --------- ------------
$ 22,592,666 $ 773,370 $ 23,366,036
============ ========= ============
</TABLE>
As of June 30, 1996, the general partner had identified $3.4 million of
additional equipment that satisfied the Partnership's acquisition criteria
that is expected to be acquired during the balance of 1996.
14
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- - ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed statements of income
categories and analyses of changes in those condensed categories derived from
the Statements of Income:
<TABLE>
<CAPTION>
Condensed Statements of Condensed Statements of
Income for the three months The effect on Income for the six months The effect on
ended June 30, net income of ended June 30, net income of
--------------------------- changes between ------------------------- changes between
1996 1995 periods 1996 1995 periods
--------------------------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 723,977 $ 232,614 $ 491,363 $ 1,077,376 $ 368,927 $ 708,449
Equipment sales margin 17,311 - 17,311 110,831 - 110,831
Interest income 125,700 74,713 50,987 249,588 118,356 131,232
Management fees paid to
general partner (85,627) (23,372) (62,255) (152,748) (40,247) (112,501)
Direct services from general
partner (23,607) (23,617) 10 (48,564) (48,099) (465)
General and administrative (67,826) (46,059) (21,767) (143,446) (82,644) (60,802)
Provision for losses - (100,000) 100,000 - (100,000) 100,000
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 689,928 $ 114,279 $ 575,649 $ 1,093,037 $ 216,293 $ 876,744
=========== =========== =========== =========== =========== ===========
</TABLE>
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- ------------------------------
1996 1995 1996 1995
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Operating lease rentals $ 3,640,550 $ 1,323,714 $ 6,534,019 $ 2,124,152
Direct finance lease income 99,037 69,302 189,826 112,462
Depreciation and amortization (2,631,826) (1,004,535) (4,927,197) (1,640,091)
Interest expense on discounted lease
rentals (383,784) (155,867) (719,272) (227,596)
----------- ----------- ----------- -----------
Leasing margin $ 723,977 $ 232,614 $ 1,077,376 $ 368,927
=========== =========== =========== ===========
Leasing margin ratio 19% 17% 16% 16%
== == == ==
</TABLE>
15
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations, continued
- - ---------------------
LEASING MARGIN, continued
All components of leasing margin increased due to growth in the Partnership's
lease portfolio.
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate changes in the capital markets). Interest rates have fluctuated
over the past several years as follows: (i) rates decreased from 1990 until the
early part of 1994, (ii) rates then increased through the early part of 1995,
and (iii) rates have decreased to the present time. It is unclear whether
interest rates will continue to decrease, and what effect, if any, such interest
rate decreases will have on lease rates.
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equipment sales revenue $ 124,692 $ - $ 435,815 $ -
Cost of equipment sales (107,381) - (324,984) -
------------ ----------- ------------ ------------
Equipment sales margin $ 17,311 $ - $ 110,831 $ -
============= =========== ============ ============
</TABLE>
INTEREST INCOME
Interest income increased due to an increase in invested cash from sales of
Class A investment units pending the Partnership's initial acquisition of
equipment.
EXPENSES
Management fees and general and administrative expenses increased due to growth
in the Partnership's lease portfolio.
16
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations, continued
- - ---------------------
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment (which is typically not known until remarketing subsequent to the
initial lease termination has occurred) is recorded as provision for losses.
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit exposure and residual value exposure and, accordingly, in the ordinary
course of business, it will incur losses from those exposures. The Partnership
performs on-going quarterly assessments of its assets to identify any
other-than-temporary losses in value.
No provisions for losses were recorded during the first six months of 1996
because no other-than-temporary losses in the value of equipment were identified
in the quarterly assessments of the Partnership's assets.
The Partnership settled its bankruptcy litigation with Grand Palais Riverboat,
Inc. (see discussion immediately below) effective June 8, 1996. The settlement
agreement provides for the full recovery of the cost of the equipment under
lease, as well as legal fees, plus interest. The Partnership has not reversed
the $100,000 reserve for this litigation recorded during 1995. Instead, the
Partnership has included the $100,000 in an allowance for losses maintained to
provide for any future other-than-temporary declines in asset values.
The provision for losses recorded during the six months ended June 30, 1995 was
related to Grand Palais Riverboat, Inc. (see discussion above), a lessee that
defaulted under its lease agreement with the Partnership by failing to make a
lease payment due on June 1, 1995 and then declared Chapter 11 bankruptcy in
July 1995. A provision for loss of $100,000 was recorded during the second
quarter of 1995.
Liquidity & Capital Resources
- - -----------------------------
The Partnership intended to continue offering Class A limited partner units for
sale and admitting additional Class A limited partners through April 15, 1996,
or until $50 million in units have been sold. The Partnership reached its goal
of $50 million in unit sales on April 10, 1996.
17
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity & Capital Resources, continued
- - -----------------------------
A summary of the Partnership's offering activities for the first six months of
1996 is presented below:
Offering activities for
the six months ended
June 30, 1996
-----------------------
Class A limited partner units sold 116,230
============
Gross offering proceeds $ 11,623,048
Sales commissions (1,162,305)
Non-accountable organization and offering
expenses reimbursement (464,922)
Due diligence expenses (61,693)
------------
Net offering proceeds $ 9,934,128
============
Class B limited partner (CAII) cash contribution $ 130,000
============
The Partnership was formed on November 2, 1993. On April 18, 1994, the
Partnership commenced offering 500,000 Class A limited partner units at $100 per
unit. On June 14, 1994, the Partnership held its initial closing, receiving
gross offering proceeds of $1,200,000 from the sale of 12,000 Class A limited
partner units. A summary of the Partnership's offering activities from the
commencement of operations to June 30, 1996 is presented below:
Offering activities from the
Commencement of Operations
(June 14, 1994)
to June 30, 1996
----------------------------
Class A limited partner units sold 500,000
============
Gross offering proceeds $ 50,000,000
Sales commissions (5,000,000)
Non-accountable organization and offering
expenses reimbursement (2,000,000)
Due diligence expenses (184,603)
------------
Net offering proceeds $ 42,815,397
============
Class B limited partner (CAII) cash contribution $ 500,000
============
18
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity & Capital Resources, continued
- - -----------------------------
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. Cash available for purchases of equipment under lease and
cash reserves of the Partnership are invested in short-term government
securities pending the acquisition of equipment or distribution to the partners.
The Partnership purchased equipment under lease during the six months ended June
30, 1996 with a total acquisition cost of $23,366,035. All such equipment was
purchased from Capital Associates International, Inc. ("CAII"), the Class B
limited partner and an affiliate of the general partner. As of June 30, 1996,
the general partner had identified $3.4 million of additional equipment that
satisfied the Partnership's acquisition criteria that is expected to be acquired
during the balance of 1996.
During June 1995, CAII and the Partnership entered into an agreement with a
lender to debt finance up to $50 million of lease receivables as part of a lease
securitization program. Under this program, the Partnership's financing
obligations are collateralized by the leased equipment and related rentals, and
the Partnership has no recourse liability to the lender for repayment of debt.
In addition, this securitized debt vehicle provides an attractive interest rate.
Aggregate closings through June 30, 1996 were $10.2 million for the Partnership.
During the six months ended June 30, 1996, the Partnership declared
distributions to the partners of $2,491,358 ($445,790 of which was paid during
July 1996). A substantial portion of such distributions is expected to
constitute a return of capital. Distributions may be characterized for tax,
accounting and economic purposes as a return of capital, a return on capital or
a portion of both. The portion of each cash distribution by a partnership which
exceeds its net income for the fiscal period may be deemed a return of capital.
However, the total percentage of a partnership's return on capital over its life
will only be determined after all residual cash flows (which include proceeds
from the re-leasing and sale of equipment) have been realized at the termination
of the Partnership. For the six months ended June 30, 1996, approximately 57% of
the cash distributions to the partners constituted a return of capital for
accounting purposes. This percentage may not be reflective of the percentage of
distributions that constitutes a return of capital at any subsequent point in
time.
The general partner believes that the Partnership will generate sufficient cash
flows from operations during 1996, to (1) meet current operating requirements,
(2) enable it to fund cash distributions to both the Class A and Class B limited
partners at annualized rates of 10.5% (substantial portions of which are
expected to constitute returns of capital), on their capital contributions, and
(3) reinvest in additional equipment under leases, provided that suitable
equipment can be identified and acquired.
19
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
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
quarter ended June 30, 1996.
20
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, 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-III, L.P.
By: CAI Equipment Leasing IV Corp.
Dated: August 13, 1996 By: /s/John E. Christensen
----------------------
John E. Christensen
Senior Vice President,
Chief Administrative Officer and
Director
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheets and 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,936,527
<SECURITIES> 0
<RECEIVABLES> 710,718
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 51,033,956
<DEPRECIATION> 0
<TOTAL-ASSETS> 66,296,169
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,189,335
<TOTAL-LIABILITY-AND-EQUITY> 66,296,169
<SALES> 110,831
<TOTAL-REVENUES> 7,084,264
<CGS> 0
<TOTAL-COSTS> 5,991,227
<OTHER-EXPENSES> 201,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 791,272
<INCOME-PRETAX> 1,093,037
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,093,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,093,037
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
</TABLE>
