<PAGE> 1
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 September 30, 2000
-------------------------------------------------
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 .
--- ---
Page 1 of 18 Pages
Exhibit Index appears on Page 19
<PAGE> 2
CAPITAL PREFERRED YIELD FUND-III, L.P.
Quarterly Report on Form 10-Q
For the Quarter Ended
September 30, 2000
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 2000 and December 31, 1999 3
Statements of Income - Three and Nine Months Ended
September 30, 2000 and 1999 4
Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Exhibit Index 19
</TABLE>
2
<PAGE> 3
CAPITAL PREFERRED YIELD FUND-III, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,062,194 $ 4,382,378
Accounts receivable, net 978,996 1,404,792
Receivable from affiliates -- 715,524
Equipment held for sale or re-lease 538,163 1,470,585
Net investment in direct finance leases 2,865,893 1,916,677
Leased equipment, net 30,746,409 32,213,785
------------ ------------
Total assets $ 37,191,655 $ 42,103,741
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 1,205,611 $ 2,337,411
Payables to affiliates 130,845 60,405
Rents received in advance 130,592 471,353
Distributions payable to partners 992,081 442,346
Discounted lease rentals 9,850,095 9,257,171
------------ ------------
Total liabilities 12,309,224 12,568,686
------------ ------------
Partners' capital:
General partner -- --
Limited partners:
Class A 24,532,456 29,158,012
Class B 349,975 377,043
------------ ------------
Total partners' capital 24,882,431 29,535,055
------------ ------------
Total liabilities and partners' capital $ 37,191,655 $ 42,103,741
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Operating lease rentals $ 3,767,359 $ 3,698,059 $ 11,013,923 $ 12,184,419
Direct finance lease income 78,376 52,287 195,375 195,878
Equipment sales margin 226,962 299,591 553,108 471,681
Interest income 27,927 40,403 112,182 367,333
------------ ------------ ------------ ------------
Total revenue 4,100,624 4,090,340 11,874,588 13,219,311
------------ ------------ ------------ ------------
EXPENSES:
Depreciation 2,666,152 3,073,197 8,544,301 9,214,711
Management fees paid to general partner 86,334 79,012 240,692 275,707
Direct services from general partner 11,257 45,506 132,300 138,880
General and administrative 60,654 76,387 294,809 219,168
Interest on discounted lease rentals 223,732 137,100 672,832 503,429
Provision for losses 100,000 200,000 700,000 856,972
------------ ------------ ------------ ------------
Total expenses 3,148,129 3,611,202 10,584,934 11,208,867
------------ ------------ ------------ ------------
NET INCOME $ 952,495 $ 479,138 $ 1,289,654 $ 2,010,444
============ ============ ============ ============
NET INCOME ALLOCATED:
To the general partner $ 32,920 $ 13,193 $ 59,237 $ 39,545
To the Class A limited partners 910,379 461,235 1,218,112 1,950,990
To the Class B limited partner 9,196 4,710 12,305 19,909
------------ ------------ ------------ ------------
$ 952,495 $ 479,138 $ 1,289,654 $ 2,010,444
============ ============ ============ ============
Net income per weighted average Class A
limited partner unit outstanding $ 1.85 $ 0.94 $ 2.48 $ 3.97
============ ============ ============ ============
Weighted average Class A limited
partner units outstanding 491,011 491,795 491,242 491,900
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 14,119,525 $ 15,534,627
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment on operating leases from affiliate (6,830,642) (5,938,292)
Investment in direct finance leases, acquired from affiliate (1,089,822) (178,347)
------------ ------------
Net cash used in investing activities (7,920,464) (6,116,639)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from discounted lease rentals 896,890 205,734
Principal payments on discounted lease rentals (4,023,592) (6,889,539)
Redemptions of Class A limited partner units (19,963) (22,126)
Distributions to partners (5,372,580) (3,952,656)
------------ ------------
Net cash used in financing activities (8,519,245) (10,658,587)
------------ ------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,320,184) (1,240,599)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,382,378 2,723,454
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,062,194 $ 1,482,855
============ ============
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 672,832 $ 503,429
Supplemental disclosure of noncash investing and
financing activities:
Discounted rentals assumed in equipment acquisitions 3,719,626 3,630,085
Discounted lease rental for bankrupt lessee written-off
as uncollectible -- 57,104
Rents deducted from cash paid for equipment acquisitions 1,502 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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 of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1999 was derived from the audited financial statements
included in the Partnership's 1999 Form 10-KA. 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-KA for the year ended December 31, 1999,
previously filed with the Securities and Exchange Commission.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Statement 133 is effective for fiscal years beginning after June 15,
1999, with earlier application permitted. In June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement 133, an Amendment of FASB Statement 133. Statement 137
effectively extends the required application of Statement 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application permitted. The Partnership adopted Statement 133 in the first
quarter of 1999.
2. Transactions With the General Partner and Affiliates
MANAGEMENT FEES TO GENERAL PARTNER
In accordance with the Partnership Agreement, the General Partner earns a
management fee in connection with its management of the equipment,
calculated as a percentage of the monthly gross rentals received, and paid
monthly in arrears. At September 30, 2000, management fees of $26,488 are
included in payables to affiliates.
6
<PAGE> 7
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
DIRECT SERVICES FROM GENERAL PARTNER
The General Partner and an affiliate provide accounting, investor
relations, billing, collecting, asset management, and other administrative
services to the Partnership. The Partnership reimburses the General Partner
for these services performed on its behalf as permitted under the terms of
the Partnership Agreement. At September 30, 2000, there were no direct
services from the General Partner included in payables to affiliates.
GENERAL AND ADMINISTRATIVE EXPENSES
The General Partner and an affiliate are reimbursed for the actual cost of
administrative expenses incurred on behalf of Partnership per the terms of
the Partnership Agreement.
RECEIVABLE FROM AFFILIATES
The General Partner collects rents from lessees and applies these rental
payments to the lessee's account with the Partnership. The General Partner
then transfers the collected rental payments to the Partnership,
eliminating the receivable from related party balance.
7
<PAGE> 8
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
EQUIPMENT PURCHASES
During the nine months ended September 30, 2000, the Partnership acquired
the equipment described below from Capital Associates International, Inc.
("CAII"):
<TABLE>
<CAPTION>
Acquisition Total
Cost of Fees and Equipment
Lessee Equipment Description Equipment Reimbursements Purchase Price
-------------------------- --------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Alliant Tech PC's $ 96,198 $ 3,333 $ 99,531
American Honda Editing Equipment 44,680 1,548 46,228
BE Aerospace Semiconductor 301,478 10,446 311,924
BOC Computer Equipment 1,099,054 38,082 1,137,136
BOC PC's 358,463 12,421 370,883
Daimler Chrysler Pallet Trucks 58,463 2,026 60,489
EEX PC's 167,345 5,798 173,143
EMC Computer Equipment 490,184 16,985 507,169
EMC Servers 470,637 16,308 486,945
Geico Networking 10,970 380 11,350
Geico Servers 192,556 6,672 199,228
General Dynamics Computer 246,644 8,546 255,190
General Motors Corporation Die Handler 663,810 23,001 686,811
General Motors Corporation Fork Lift 57,234 1,983 59,217
General Motors Corporation Platform Truck 554,070 19,199 573,269
General Motors Corporation Rider Die Handler 282,215 9,779 291,994
General Motors Corporation Scrubber 42,351 1,467 43,819
General Motors Corporation Sweeper 107,149 3,713 110,862
General Motors Corporation Utility Carts 183,596 6,362 189,958
Honeywell Computer 961,788 31,547 993,335
Johnson Control Lift Truck 175,114 5,867 180,981
Louisiana Pacific Crawler 248,507 8,611 257,118
Louisiana Workers Copiers 119,409 4,138 123,546
Lucent Fork Lift 58,800 2,037 60,837
Magna Seating Computer 453,511 14,057 467,567
Matsushita Servers 191,910 6,650 198,560
McGraw Hill Computer Equipment 320,524 11,486 332,010
McGraw Hill PC's 50,900 1,764 52,663
McGraw Hill Printers 100,128 3,469 103,598
Nabisco Lift Truck 33,552 1,163 34,714
NBC Media Composer 84,000 2,911 86,911
New York Life Copiers 179,927 6,234 186,161
New York Presbyterian Hosp Medical Equipment 409,060 14,174 423,234
Northrop Grumman Computer 159,255 5,056 164,311
Otis Elevator Workstations 55,854 1,935 57,789
Ryder Fork Lift 55,057 1,908 56,964
Ryder Pallet Trucks 18,830 653 19,483
Ryder Wire Decks 7,801 270 8,071
Teachers Insurance Computer Equipment 262,082 9,081 271,163
Thompson Machine Tools 126,365 4,379 130,744
Thomson Tool Cart 44,495 1,542 46,037
Thomson Industries Machine Tools 126,365 4,379 130,744
TXU Business Computer 265,634 8,423 274,056
</TABLE>
8
<PAGE> 9
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Acquisition Total
Cost of Fees and Equipment
Lessee Equipment Description Equipment Reimbursements Purchase Price
-------------------------- --------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U-Haul Servers 127,134 4,405 131,539
Unilever Fork Lift 100,800 3,493 104,293
Williams Sonoma POS 831,994 28,829 860,823
Xerox Computer Equipment 31,959 1,107 33,066
Xerox Lift Truck 24,582 852 25,434
Xerox PC's 200,734 6,955 207,689
--------------- -------------- --------------
$ 11,253,167 $ 385,421 $ 11,638,588
=============== ============== ==============
</TABLE>
3. General Partner Matters
Until September 2000, the Partnership relied upon the services of Capital
Associates International, Inc. ("CAII"), its affiliate, for origination of
leases, administrative and accounting services and remarketing of leases
and equipment, among other services. The General Partner has terminated its
relationship with CAII and has contracted with Stellar Financial, Inc. to
provide billing, accounting and property tax repayment services and
Mishawaka Leasing Company, Inc. ("Mishawaka") to provide all other lease
accounting, administrative and remarketing services. Many of the management
and administrative personnel of Mishawaka formerly worked for CAII and
serviced the Partnership leases.
CAII owed the Partnership $370,324 for rents, remarketing proceeds and
other amounts (the "Prior Rents") collected by CAII on behalf of the
Partnership during the periods prior to February 1, 2000. On September 8,
2000, as part of the sale of the General Partnership interest owned by CAII
to Mishawaka, Mishawaka repaid the Prior Rents owed by CAII to the
Partnership. Included in payables to affiliates is $104,357 of
administrative expenses that are reimbursable to the General Partner.
9
<PAGE> 10
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 items of income and expense and
changes in those items derived from the Statements of Income:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 955,851 $ 540,049 $ 415,802 $ 1,992,165 $ 2,662,157 $ (669,992)
Equipment sales margin 226,962 299,591 (72,629) 553,108 471,681 81,427
Interest income 27,927 40,403 (12,476) 112,182 367,333 (255,151)
Management fees paid to general partner (86,334) (79,012) (7,322) (240,692) (275,707) 35,015
Direct services from general partner (11,257) (45,506) 34,249 (132,300) (138,880) 6,580
General and administrative expenses (60,654) (76,387) 15,733 (294,809) (219,168) (75,641)
Provision for losses (100,000) (200,000) 100,000 (700,000) (856,972) 156,972
------------ ------------ ------------ ------------ ------------ ------------
Net income $ 952,495 $ 479,138 $ 473,357 $ 1,289,654 $ 2,010,444 $ (720,790)
============ ============ ============ ============ ============ ============
</TABLE>
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating lease rentals $ 3,767,359 $ 3,698,059 $ 11,013,923 $ 12,184,419
Direct finance lease income 78,376 52,287 195,375 195,878
Depreciation (2,666,152) (3,073,197) (8,544,301) (9,214,711)
Interest on discounted lease rentals (223,732) (137,100) (672,832) (503,429)
------------ ------------ ------------ ------------
Leasing margin $ 955,851 $ 540,049 $ 1,992,165 $ 2,662,157
============ ============ ============ ============
Leasing margin ratio 25% 14% 18% 22%
============ ============ ============ ============
</TABLE>
10
<PAGE> 11
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued Results of Operations, continued
Results of Operations, continued
LEASING MARGIN, continued
Leasing margin ratio will vary due to changes in the portfolio, including, among
other things, the mix of operating leases versus direct finance leases, the
average maturity of leases comprising the portfolio, the average residual value
of leases in the portfolio, and the amount of discounted lease rentals financing
the portfolio.
Leasing margin and the related leasing margin ratio for an operating lease
financed with non-recourse debt increases during the term of the lease since
rents and depreciation are typically fixed while interest expense declines as
the related non-recourse debt principle is repaid. Net income has increased for
the three months ended September 30, 2000 compared to the corresponding period
in 1999 primarily due to the increase in leasing margin. Leasing margin and the
leasing margin ratio has increased for the quarter primarily due to a decrease
in depreciation expense. The decrease in depreciation expense was related to an
increase in the expiration of equipment during the third quarter. Leasing margin
and the leasing margin ratio decreased for the nine months ended September 30,
2000 primarily due to a decrease in operating lease rentals. As of July 2000,
the Partnership is no longer purchasing equipment and thus expects operating
lease rentals to decline. Net income decreased for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999
primarily due to a provision for loss in the amount of $550,000 that was
recorded in the second quarter of this year. The provision for loss was related
to the decline in the realizable value of computer equipment returned to the
Partnership. In addition, operating lease rentals decreased for the nine months
ended September 30, 2000 as compared to the nine months ended September 30, 1999
primarily due to portfolio runoff.
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equipment sales revenue $ 813,988 $ 2,726,715 $ 3,204,430 $ 3,695,129
Cost of equipment sales (587,026) (2,427,124) (2,651,3223) (3,223,448)
------------ ------------ ------------ ------------
Equipment sales margin $ 226,962 $ 299,591 $ 553,1087 $ 471,681
============ ============ ============ ============
</TABLE>
11
<PAGE> 12
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
EQUIPMENT SALES MARGIN, continued
Currently, a portion of the Partnership's initial leases have expired and the
equipment is either being re-leased or sold to the lessee or a third party.
Equipment sales margin is affected by the volume and composition of equipment
that become available for sale. Equipment sales margin was higher for the nine
months ended September 30, 2000 compared to the nine months ended September 30,
1999 primarily due to the sale of semiconductor equipment in 2000.
INTEREST INCOME
Interest income decreased due to a decrease in the amount of invested cash
during the nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999. Interest income varies due to (1) the amount of cash
available for investment (pending distribution or equipment purchases) and (2)
the interest rate on such invested cash.
EXPENSES
Management fees are earned on gross rents received and will fluctuate due to
variances in cash flow. Management fees paid to general partner for the nine
months ended September 30, 2000 were lower than the nine months ended September
30, 1999 primarily due to a decrease in rents collected. Management fees are
expected to decline during the liquidation period of the Partnership. The
Partnership will no longer reinvest in additional equipment.
Direct services from general partner decreased for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999
primarily due to a change in the method in which the general partner charges for
its asset management services that was implemented during the fourth quarter of
1999. The Partnership pays a refurbishing charge to the general partner at the
time computer equipment is returned by the lessee to the Partnership. The
refurbishing charge includes all services necessary to prepare the equipment for
re-sale. Computer equipment returned to the Partnership for the nine months
ended September 30, 2000 generated refurbishing charges in the amount of
$75,400.
General and administrative charges increased for the nine months ended September
30, 2000 compared to the nine months ended September 30, 1999 primarily due to
an increase in storage charges for equipment returned to the Partnership at
lease maturity, and increase in sales tax expense due to a change in the way
Michigan apportions multi state companies and an increase in appraisal fees.
12
<PAGE> 13
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued 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 is recorded as provision for losses.
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is such that it
has credit and residual value exposure and will incur losses from those
exposures in the ordinary course of business. The Partnership performs
assessments of the estimated residual values of its assets to identify any
other-than-temporary losses in value.
A provision for loss of $700,000 was recorded for the nine months ended
September 30, 2000 related to a decline in the realizable value of computer
equipment returned to the Partnership.
Liquidity & Capital Resources
The Partnership funds its operating activities principally with cash from rents,
discounted lease rentals (non-recourse debt), interest income, and sales of
off-lease equipment. Available cash and cash reserves of the Partnership are
invested in short-term government securities pending distribution to the
partners.
During the nine months ended September 30, 2000, the Partnership acquired
equipment subject to leases with a total equipment purchase price of
$11,638,588.
During the nine months ended September 30, 2000, the Partnership declared
distributions to the partners of $5,922,315 ($992,081 of which was paid during
October 2000). A substantial portion of such distributions is expected to
constitute a return of capital. Distributions may be characterized for tax,
accounting and economic purposes as a return of capital, a return on capital, or
a portion of both. The portion of each cash distribution which exceeds its net
income for the fiscal period may be deemed a return of capital for accounting
purposes. However, the total percentage of the partnership's return on capital
over its life will only be determined after all residual cash flows (which
include proceeds from the re-leasing and sale of equipment) have been realized
at the termination of the partnership.
13
<PAGE> 14
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued Liquidity & Capital Resources, continued
Liquidity & Capital Resources, continued
The General Partner believes that the Partnership will generate sufficient cash
flows from operations, to (1) meet current operating requirements, (2) fund cash
distributions to Class A limited partners in accordance with the Partnership
Agreement. Distributions during the liquidation phase will vary based upon cash
availability. All distributions are expected to be a return of capital for
economic purposes.
The Class B limited partner distributions of cash from operations are
subordinated to the Class A limited partners cumulative preferred distribution
of 10.5% per annum per the Partnership Agreement. During the nine months ended
September 30, 2000, CAII, the sole Class B limited partner, received
distributions in the amount of $39,375.
The Partnership entered its liquidation period (as defined in the Partnership
Agreement) on approximately July 1, 2000. As a result, the Partnership will no
longer reinvest in additional equipment under leases.
Until September 2000, the Partnership relied upon the services of Capital
Associates International, Inc. ("CAII"), its affiliate, for origination of
leases, administrative and accounting services and remarketing of leases and
equipment, among other services. The General Partner has terminated its
relationship with CAII and has contracted with Stellar Financial, Inc. to
provide billing, accounting and property tax repayment services and Mishawaka
Leasing Company, Inc. ("Mishawaka") to provide all other lease accounting,
administrative and remarketing services. Many of the management and
administrative personnel of Mishawaka formerly worked for CAII and serviced the
Partnership leases.
CAII owed the Partnership $370,324 for rents, remarketing proceeds and other
amounts (the "Prior Rents") collected by CAII on behalf of the Partnership
during the periods prior to February 1, 2000. On September 8, 2000, as part of
the sale of the General Partnership interest owned by CAII to Mishawaka,
Mishawaka repaid the Prior Rents owed by CAII to the Partnership. Included in
payables to affiliates is $104,357 of administrative expenses that are
reimbursable to the General Partner.
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. In June 1999, the Financial Accounting Standards Board issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement 133, an Amendment of FASB Statement 133.
Statement 137 effectively extends the required application of Statement 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000, with
earlier application permitted. The Partnership adopted Statement 133 in the
first quarter of 1999.
14
<PAGE> 15
CAPITAL PREFERRED YIELD FUND-III, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued Liquidity & Capital Resources, continued
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, and are subject to factors
that could cause actual future results to differ both adversely and materially
from currently anticipated results, including, without limitation, the level of
lease originations, realization of residual values, the availability and cost of
financing sources and the ultimate outcome of any contract disputes. Certain
specific risks associated with particular aspects of the Partnership's business
are discussed under Results of Operations in this report and under Results of
Operations in the 1999 Form 10-KA when and where applicable.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership's leases with equipment users are non-cancelable and have lease
rates which are fixed at lease inception. The Partnership finances its leases,
in part, with discounted lease rentals at a fixed debt rate. The Partnership's
other assets and liabilities are also at fixed rates. Consequently the
Partnership has no significant interest rate risk or other market risk exposure.
16
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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) Exhibits
27 Financial Data Schedule
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended September 30, 2000.
17
<PAGE> 18
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: November 14, 2000 By: /s/Susan M. Landi
--------------------------------
Susan M. Landi
Chief Accounting Officer
18
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------
<S> <C>
27 Financial Data Schedule
</TABLE>
19
