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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 33-80849
Capital Preferred Yield Fund-IV, L.P.
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1331690
(State of organization) (I.R.S. Employer Identification Number)
7175 W. Jefferson Avenue, Lakewood, Colorado 80235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 980-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
Exhibit Index Appears on Page 36
Page 1 of 37 Pages
Item 1. Business
--------
Capital Preferred Yield Fund-IV, L.P., a Delaware limited partnership (the
"Partnership"), was organized on December 18, 1995 and is engaged in the
business of owning and leasing equipment. CAI Equipment Leasing V Corp., a
Colorado corporation and a wholly owned subsidiary of Capital Associates, Inc.
("CAI"), is the general partner of the Partnership.
Capital Associates International, Inc. ("CAII"), an affiliate of the general
partner, is the Class B limited partner of the Partnership. In exchange for its
Class B limited partner interest, CAII contributed cash of $10,000 for each
$1,000,000 of investors' capital contributions (i.e., cash investments in the
Partnership) to the Partnership. CAII's interest in Distributable Cash is
subordinated to the Class A limited partners' interest. The contributions of
CAII were made simultaneously with the purchase of equipment by the Partnership.
CAII has contributed $500,000 to the Partnership.
The Partnership's overall investment objectives are to (i) raise the maximum
allowable capital from investors for investment in accordance with the
Partnership's investment objectives described in the Prospectus (which was
reached on February 9, 1998); (ii) invest such capital and related indebtedness
in a diversified portfolio of equipment subject to leases with terms ranging
from two to seven years; (iii) if funds are available for distribution, make
monthly cash distributions to the Class A and Class B limited partners during
the reinvestment period (a period that ends approximately June 30, 2003); (iv)
re-invest all available undistributed cash from operations and cash from sales
in additional equipment during the reinvestment period to increase the
Partnership's portfolio of revenue-generating equipment provided suitable
equipment can be identified and acquired; and (v) sell or otherwise dispose of
the Partnership's equipment and other assets in an orderly manner and promptly
distribute cash from sales thereof to the Partners within three years of the end
of the reinvestment period.
During 1999, the Partnership acquired equipment of various types under lease to
third parties. All of the equipment was purchased by CAII directly from
manufacturers or from other independent third parties and sold
-2-
Item 1. Business, continued
--------
to the Partnership. The equipment is generally comprised of transportation and
industrial equipment, office furniture and equipment, and computer and
peripheral equipment, among others (the "equipment"). See Item 13 of this
report, "Certain Relationships and Related Transactions" for the detail listing
of equipment purchased during 1999. The Partnership expects that a majority of
the equipment purchased during 2000 will be similar in nature to the equipment
acquired in 1999.
The Partnership may assign the rentals from leases to financial institutions, or
acquire leases subject to such assignments, at fixed interest rates on a non-
recourse basis. This non-recourse debt financing, also referred to as
discounted lease rentals, will be utilized to finance the purchase of equipment
under lease, or to invest the proceeds therefrom in additional equipment under
lease. In the event of default by a lessee, the financial institution has a
first lien on the underlying leased equipment with no further recourse against
the Partnership. Cash proceeds from such financings, or the assumption of such
assignments incurred in the acquisition of leases are recorded on the balance
sheet as discounted lease rentals. As lessees make payments to financial
institutions, leasing revenue and interest expense are recorded.
During 1999, the Partnership leased equipment to investment grade lessees in
diverse industries including the material handling, telecommunications and
manufacturing industries. Approximately 69% of the Partnership's equipment
under lease was leased to investment grade lessees as of December 31, 1999.
Pursuant to the Partnership Agreement, an investment grade lessee is a company
(i) with a net worth in excess of $100,000,000 (and no debt issues that are
rated); or (ii) with a credit rating of not less than Baa as determined by
Moody's Investor Services, Inc. or comparable credit rating, as determined by
another recognized credit rating service; or (iii) a lessee, all of whose lease
payments have been unconditionally guaranteed or supported by a letter of credit
issued by a company meeting one of the above requirements. The Partnership
limits its credit risk through selective use of non-recourse debt financing of
future lease rentals, as described above.
The Partnership only acquires equipment that is on lease at the time of
acquisition. After the initial term of its lease, each item of equipment will
be expected to provide additional investment income from its re-lease or sale.
Upon expiration of the initial lease, the Partnership attempts to re-lease or
sell the equipment to the existing lessee. If a re-lease or sale to the lessee
cannot be negotiated, the Partnership will attempt to lease or sell the
equipment to a third party.
The Partnership's business is not subject to seasonal variations.
The ultimate rate of return of the Partnership's leasing transactions is
dependent, in part, on the general level of 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). The amount of future distributions to the partners will
depend, in part, on future interest rates.
-3-
Item 1. Business, continued
--------
The Partnership has no employees. The officers, directors and employees of the
general partner and its affiliates perform services on behalf of the
Partnership. The general partner is entitled to receive certain fees and
expense reimbursements in connection with the performance of these services.
See Item 10 of this Report, "Directors and Executive Officers of the
Partnership" and Item 13 of this Report, "Certain Relationships and Related
Transactions," which are incorporated herein by reference.
The Partnership competes in the leasing marketplace as a lessor with a
significant number of other companies, including equipment manufacturers,
leasing companies and financial institutions. The Partnership competes mainly
on the basis of the expertise of its general partner in remarketing equipment,
terms offered in its transactions, pricing and service. Although the
Partnership does not account for a significant percentage of the leasing market,
the general partner believes that the Partnership's marketing strategies and
financing capabilities enable it to compete effectively in the equipment leasing
and remarketing markets.
The Partnership leases equipment to a significant number of lessees. No lessee
accounted for more than 10% of total revenue of the Partnership during 1999.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2007. However, the general partner anticipates that all
equipment will be sold and the Partnership will be liquidated prior to that
date.
Item 2. Properties
----------
Per the Partnership Agreement, the Partnership does not own or lease any
physical properties other than the equipment discussed in Item 1 "Business," of
this Report, which is incorporated herein by reference.
Item 3. Legal Proceedings
-----------------
Neither the Partnership nor any of the Partnership's equipment is the subject of
any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the limited partners of the Partnership,
through the solicitation of proxies or otherwise, during the fourth quarter
ended December 31, 1999.
Item 5. Market for the Partnership's Common Equity and Related Stockholder
------------------------------------------------------------------
Matters
-------
(a) The Partnership's Class A limited partner units, Class B interest and
general partner interest are not publicly traded. There is no
established public trading market for such units and interests and none
is expected to develop.
(b) At December 31, 1999, there were 2,341 Class A limited partners.
-4-
Item 5. Market for the Partnership's Common Equity and Related Stockholder
------------------------------------------------------------------
Matters, continued
-------
(c) Distributions
-------------
During 1999, the Partnership made twelve (12) distributions (a portion
of which constituted a return of capital) to Class A limited partners
as follows:
Distributions Per
$100 Investment
For the Payment (computed on Total
Period Ended Made During weighted average) Distributions
------------------ -------------- ----------------- -------------
December 31, 1998 January 1999 $ 0.875 $ 487,977
January 31, 1999 February 1999 0.875 408,109
February 28, 1999 March 1999 0.875 408,109
March 31, 1999 April 1999 0.875 487,997
April 30, 1999 May 1999 0.875 408,109
May 31, 1999 June 1999 0.875 408,109
June 30, 1999 July 1999 0.875 487,429
July 31, 1999 August 1999 0.875 407,540
August 31, 1999 September 1999 0.875 407,540
September 30, 1999 October 1999 0.875 486,939
October 31, 1999 November 1999 0.875 407,540
November 30, 1999 December 1999 0.875 407,078
-------- ----------
$ 10.50 $5,212,476
======== ==========
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 for accounting purposes. However, the total percentage of a
partnership's return on capital over its life can 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.
The distribution for the month ended December 31, 1999, totaling
$484,936, was paid to the Class A limited partners on January 4, 2000.
Distributions to the general partner and Class B limited partner during
1999 are discussed in Item 13 of this Report, "Certain Relationships
and Related Transactions."
The general partner believes the Partnership will generate sufficient
cash flows from operations during 2000, 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% of
their capital contributions, (portions of which are expected to
constitute returns of capital) and (3) reinvest in additional equipment
under leases, provided that suitable equipment can be identified and
acquired.
-5-
Item 5. Market for the Partnership's Common Equity and Related Stockholder
------------------------------------------------------------------
Matters, continued
-------
(c) Distributions, continued
-------------
The general partner believes the Partnership will generate sufficient
cash flows from operations during 2000, 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% of their
capital contributions, (portions of which are expected to constitute
returns of capital) and (3) reinvest in additional equipment under
leases, provided that suitable equipment can be identified and acquired.
During 1998, the Partnership made twelve (12) distributions (a portion
of which constituted a return of capital) to Class A limited partners as
follows:
Distributions Per
$100 Investment
For the Payment (computed on Total
Period Ended Made During weighted average) Distributions
------------------ -------------- ----------------- -------------
December 31, 1997 January 1998 $ 0.875 $ 425,478
January 31, 1998 February 1998 0.875 379,360
February 28, 1998 March 1998 0.875 405,854
March 31, 1998 April 1998 0.875 488,864
April 30, 1998 May 1998 0.875 408,547
May 31, 1998 June 1998 0.875 408,547
June 30, 1998 July 1998 0.875 488,330
July 31, 1998 August 1998 0.875 408,424
August 31, 1998 September 1998 0.875 408,109
September 30, 1998 October 1998 0.875 487,997
October 31, 1998 November 1998 0.875 408,109
November 30, 1998 December 1998 0.875 408,109
-------- ----------
$ 10.50 $5,125,728
======== ==========
The following represents annual and cumulative distributions per Class A
limited partner unit, as described in note 1 to Notes to Consolidated
Financial Statements.
Distribution Amount Distribution %
per $100 Class A per $100 Class A
Limited Partner Unit Limited Partner Unit
Payment (computed on (computed on
Made During weighted average) weighted average) (1)
----------- -------------------- ---------------------
1996 $ 7.72 11.0%
1997 10.50 10.5%
1998 10.50 10.5%
1999 10.50 10.5%
-------
$ 39.22
=======
(1) Cumulative distributions, as described in note 1 to Notes to Consolidated
Financial Statements, began May 1996.
-6-
Item 6. Selected Financial Data
-----------------------
The following selected financial data relates to the years ended December 31,
1999, 1998 and 1997. The data should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto appearing with Item 8
herein.
1999 1998 1997 1996*
------------ ------------ ------------ -----------
Total revenue $ 19,046,666 $ 19,560,413 $ 11,907,740 $ 940,346
Net income 1,536,040 2,031,561 955,418 102,627
Net income per weighted average Class A
limited partner unit outstanding 2.96 3.95 2.82 1.33
Total assets 48,430,657 54,877,835 56,161,440 16,652,457
Discounted lease rentals 13,452,270 15,708,835 17,633,047 2,765,239
Distributions declared to partners 5,315,888 5,293,514 3,310,427 448,237
Distributions declared per monthly weighted average
Class A limited partner unit outstanding 10.50 10.50 10.50 7.72
*For the period from April 16, 1996 (commencement of operations) to December
31, 1996
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
I. 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:
Years Ended December 31, Years Ended December 31,
-------------------------- ------------------------------------------------------
1999 1998 Change 1998 1997 Change
------------ ------------ ------------ ------------ ------------ ------------
Leasing margin $ 3,398,704 $ 2,598,528 $ 800,176 $ 2,598,528 $ 1,185,661 $ 1,412,867
Equipment sales margin 245,626 196,434 49,192 196,434 - 196,434
Interest income 82,998 122,325 (39,327) 122,325 253,514 (131,189)
Management fees paid to general partner (401,008) (422,321) 21,313 (422,321) (250,233) (172,088)
Direct services from general partner (208,672) (167,569) (41,103) (167,569) (78,767) (88,802)
General and administrative (214,757) (190,836) (23,921) (190,836) (154,757) (36,079)
Provision for losses (1,366,851) (105,000) (1,261,851) (105,000) - (105,000)
------------ ------------ ------------ ------------ ------------ ------------
Net income $ 1,536,040 $ 2,031,561 $ (495,521) $ 2,031,561 $ 955,418 $ 1,076,143
============ ============ ============ ============ ============ ============
-7-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
------------------------
I. Results of Operations, continued
Leasing Margin
Leasing margin consists of the following:
Years Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
Operating lease rentals $ 18,443,275 $ 18,926,287 $11,394,668
Direct finance lease income 274,767 315,367 259,558
Depreciation (14,386,576) (15,287,524) (9,213,581)
Interest on discounted lease rentals (932,762) (1,355,602) (1,254,984)
------------ ------------ -----------
Leasing margin $ 3,398,704 $ 2,598,528 $ 1,185,661
============ ============ ===========
Leasing margin ratio 18% 14% 10%
============ ============ ===========
All components of leasing margin have decreased for the year ended December 31,
1999 compared to the corresponding period in 1998 primarily due to a decrease in
the size of the Partnership's lease portfolio. Leasing margin and the leasing
margin ratio have increased primarily due to the mix of equipment types within
the portfolio as well as the decrease in interest associated with discounted
lease rentals. Interest on discounted lease rentals did not increase in 1998
compared to 1997 at the same rate as the other components of leasing margin. As
a result, leasing margin ratio increased for the year ended December 31, 1998
compared to the year ended December 31, 1997.
Leasing margin ratio fluctuates based upon (i) the mix of direct finance leases
and operating leases, (ii) remarketing activities, (iii) the method used to
finance leases added to the Partnership's lease portfolio, and (iv) the relative
age of lease types in 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.
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 from remarketing consists of the following:
1999 1998
------------ -----------
Equipment sales revenue $ 3,118,572 $ 1,095,706
Cost of equipment sales (2,872,946) (899,272)
------------ -----------
Equipment sales margin $ 245,626 $ 196,434
============ ===========
-8-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
I. Results of Operations, continued
---------------------
Equipment Sales Margin, continued
Equipment sales margin is affected by the number and dollar amount of equipment
leases that mature in a particular period. 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 third parties. Equipment sales margin has
increased in 1999 compared to 1998 primarily due to an increase in the volume of
equipment leases that are maturing.
Interest Income
Interest income decreased due to a decrease in the amount of invested cash
during 1999 and 1998. 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. Throughout 1997, the Partnership was in
its offering period and as such, invested cash was generally higher pending
purchases of additional equipment.
Expenses
Management fees paid to the general partner decreased in 1999 compared to 1998
primarily due to a decrease in the size of the Partnership's lease portfolio.
Such fees increased in 1998 compared to 1997 primarily due to growth in the
Partnership's lease portfolio.
Direct services from the general partner and general and administrative expenses
increased in 1999 and 1998 compared to 1997 due to an increase in remarketing
activities associated with equipment returned to the Partnership at lease
maturity.
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 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.
The provision for losses recorded during 1999 related to the following:
. $293,568 related to a decline in the residual value of on-lease computer
equipment.
. $31,602 related to anticipated declines in realizable values of on-lease
forklifts.
-9-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
I. Results of Operations, continued
---------------------
Provision for Losses, continued
. $750,000 was recognized as losses on sales of certain computer equipment.
The Partnership had previously expected to realize the carrying value of
that equipment through lease renewals and proceeds from the sale of the
equipment to the original lessees. The fair market value of the equipment
re-leased or sold to third parties was less than anticipated.
. $103,000 was recognized as losses on the sale of various semiconductor,
forklifts, tractors and office furniture.
. $188,681 was related primarily to equipment that has been returned to the
Partnership with fair market values that are lower than the book values.
The provision for losses recorded during 1998 related to the following:
. $75,000 related primarily to equipment that has been returned to the
Partnership. The Partnership had previously expected to realize the
carrying value of that equipment through lease renewals and proceeds from
the sale of the equipment to the original lessees. The fair market value
of the equipment re-leased or sold to third parties was less than
anticipated.
. $30,000 was recorded as a reserve for estimated uncollectible accounts
receivable.
There was no provision for losses recorded during 1997.
II. Liquidity and 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 the acquisition of
equipment or distribution to the partners.
During 1999, 1998 and 1997, the Partnership acquired equipment subject to leases
with a total purchase price of $15,019,045, $18,542,605, and $47,828,704
(including $7,386,009, $3,223,219, and $16,946,684 of equipment acquired subject
to existing non-recourse debt), respectively. Non-recourse borrowing against
unleveraged leases in the Partnership's lease portfolio may occur in the future
as well, when the general partner, in its discretion, determines that such non-
recourse financing is in the best interest of the Partnership.
During 1999, 1998 and 199, the Partnership declared distributions to the Class A
limited partners of $5,209,435, $5,188,246, and $3,246,338, respectively, of
which $484,938 was paid during January 2000. A 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 for accounting purposes. However, the total percentage of a
partnership's return on capital over its life can only be determined after all
residual cash flows (which include proceeds from the re-leasing and sales of
equipment) have been realized at the termination of the Partnership.
-10-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
II. Liquidity and Capital Resources, continued
-------------------------------
The general partner believes that the Partnership will generate sufficient cash
flows from operations during 2000, 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% of their capital contributions (portions
of which are expected to constitute returns of capital); and (3) reinvest in
additional equipment under leases, provided that suitable equipment can be
identified and acquired.
CAII, an affiliate of the general partner, owes the Partnership $865,570 for
rents, remarketing proceeds and other amounts (collectively, the "Prior Rents")
collected by CAII on behalf of the Partnership during periods prior to February
1, 2000 (the "Prior Periods"). According to its own records, CAII owes
approximately $3.1 million to other investors and creditors (who, along with the
Partnership, are referred to herein as the "Payees"), for Prior Rents collected
by CAII on their behalf during the Prior Periods. CAII, which presently does
not have the funds to repay all of the Prior Rents, is in negotiations with the
Payees to develop a plan for repayment of the Prior Rents owed to all Payees
over time. The Partnership is withholding acquisition fees and managements fees
otherwise payable to the general partner and crediting such withheld fees (the
"Fees") against the Prior Rents owing from CAII. The Partnership intends to
continue to withhold future Fees until such time as it recovers all Prior Rents.
Because the Partnership is not the only Payee to whom Prior Rents are owed and
because recovery of such Prior Rents is entirely dependent on CAII's ability
to generate sufficient proceeds from operations after repayment of debt service,
there can be no assurance that CAII will, in fact, be able to repay all of the
Prior Rents owed to the Partnership.
The Partnership relies upon the services of CAII for origination of leases,
administrative and accounting services and remarketing of leases and equipment,
among other services. Should CAII be unable to develop a plan for repayment with
it's Payees, the Partnership may be required to contract with another party for
these services. In such event, there is no assurance that another provider of
these services can be identified.
III. 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. 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 No. 133, an Amendment of FASB Statement 133. Statement 137 effectively
extends the required application of Statement 133 to fiscal years beginning
after June 15, 2000, with earlier application permitted. The Partnership adopted
Statement 133 in the first quarter of 1999. The General Partner does not expect
the adoption of Statement 133 or Statement 137 to have an impact on its
financial reporting.
IV. "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 acquisitions; realization of residual values; customer credit risk;
competition from other lessors, specialty finance lenders or banks; and the
availability and cost of financing sources. Certain specific risks associated
with particular aspects of the Partnership's business are discussed in detail
throughout Parts I and II when and where applicable.
Item 7A. 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. Discounted lease rentals are a fixed
rate debt. The partnerships other assets and liabilities are also at fixed
rates. Consequently the partnership has no significant interest rate risk or
other market risk exposure.
-11-
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements and Financial Statement Schedule
Page
Number
------
Financial Statements
--------------------
Independent Auditors' Report 13
Balance Sheets as of December 31, 1999 and 1998 14
Statements of Income for the years ended December 31, 1999,
1998 and 1997 15
Statements of Partners' Capital for the years ended December 31,
1999, 1998 and 1997 16
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 17-18
Notes to Financial Statements 19-28
Financial Statement Schedule
----------------------------
Independent Auditors' Report 29
Schedule II - Valuation and Qualifying Accounts 30
-12-
Independent Auditors' Report
----------------------------
The Partners
Capital Preferred Yield Fund-IV, L.P.:
We have audited the accompanying balance sheets of Capital Preferred Yield Fund-
IV, L.P. as of December 31, 1999 and 1998, and the related statements of income,
partners' capital, and cash flows for the years ended December 31, 1999, 1998
and 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield Fund-
IV, L.P. as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years ended December 31, 1999, 1998 and 1997, in
conformity with generally accepted accounting principles.
/s/KPMG LLP
----------------------
KPMG LLP
Denver, Colorado
March 24, 2000
-13-
Capital Preferred Yield Fund-IV, L.P.
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
----------- -----------
Cash and cash equivalents $ 1,133,758 $ 2,634,551
Accounts receivable, net 382,407 465,374
Receivable from affiliates 713,249 216,074
Equipment held for sale or re-lease 355,193 410,599
Net investment in direct finance leases 2,919,013 3,810,382
Leased equipment, net 42,927,037 47,340,855
----------- -----------
Total assets $48,430,657 $54,877,835
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 1,047,204 $ 1,080,333
Payables to affiliates 84,045 46,652
Rents received in advance 450,331 597,415
Distributions payable to partners 494,255 497,346
Discounted lease rentals 13,452,270 15,708,835
----------- -----------
Total liabilities 15,528,105 17,930,581
----------- -----------
Commitments and contingencies (Note 10)
Partners' capital:
General partner - -
Limited partners:
Class A 500,000 units authorized; 492,925 and 496,844 units
issued and outstanding in 1999 and 1998, respectively 32,500,144 36,507,167
Class B 402,408 440,087
----------- -----------
Total partners' capital 32,902,552 36,947,254
----------- -----------
Total liabilities and partners' capital $48,430,657 $54,877,835
=========== ===========
See accompanying notes to financial statements.
-14-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
Revenue:
Operating lease rentals $18,443,275 $18,926,287 $11,394,668
Direct finance lease income 274,767 315,367 259,558
Equipment sales margin 245,626 196,434 -
Interest income 82,998 122,325 253,514
----------- ----------- -----------
Total revenue 19,046,666 19,560,413 11,907,740
----------- ----------- -----------
Expenses:
Depreciation 14,386,576 15,287,524 9,213,581
Management fees paid to general partner 401,008 422,321 250,233
Direct services from general partner 208,672 167,569 78,767
General and administrative 214,757 190,836 154,757
Provision for losses 1,366,851 105,000 -
Interest on discounted lease rentals 932,762 1,355,602 1,254,984
----------- ----------- -----------
Total expenses 17,510,626 17,528,852 10,952,322
----------- ----------- -----------
Net income $ 1,536,040 $ 2,031,561 $ 955,418
=========== =========== ===========
Net income allocated:
To the general partner $ 53,953 $ 60,459 $ 74,673
To the Class A limited partners 1,467,266 1,951,241 871,799
To the Class B limited partner 14,821 19,861 8,946
----------- ----------- -----------
$ 1,536,040 $ 2,031,561 $ 955,418
=========== =========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ 2.96 $ 3.95 $ 2.82
=========== =========== ===========
Weighted average Class A limited partner
units outstanding 496,258 494,222 309,586
=========== =========== ===========
See accompanying notes to financial statements.
-15-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1999, 1998 and 1997
Class A
Limited Class A Class B
General Partners Limited Limited
Partner Units Partners Partner Total
--------- --------- ------------- ---------- -------------
Partners' capital, January 1, 1997 $ - 154,503 $12,878,374 $146,243 $13,024,617
Capital contributions - 302,080 30,207,960 310,000 30,517,960
Volume discount - - (6,000) - (6,000)
Commissions and offering costs on
sales of Class A limited partner units (43,22) - (4,272,883) - (4,316,105)
Redemptions - (630) (58,902) - (58,902)
Net income 74,673 - 871,799 8,946 955,418
Distributions declared to partners (31,451) - (3,246,338) (32,638) (3,310,427)
-------- ------- ----------- -------- -----------
Partners' capital, December 31, 1997 - 455,953 36,374,010 432,551 36,806,561
Capital contributions - 43,367 4,336,754 40,000 4,376,754
Volume discount - - (68,895) - (68,895)
Commissions and offering costs on
sales of Class A limited partner units (7,516) - (675,261) - (682,777)
Redemptions - (2,476) (222,436) - (222,436)
Net income 60,459 - 1,951,241 19,861 2,031,561
Distributions declared to partners (52,943) - (5,188,246) (52,325) (5,293,514)
-------- ------- ----------- -------- -----------
Partners' capital, December 31, 1998 - 496,844 36,507,167 440,087 36,947,254
Redemptions - (3,919) (264,854) - (264,854)
Net income 53,953 - 1,467,266 14,821 1,536,040
Distributions declared to partners (53,953) - (5,209,435) (52,500) (5,315,888)
-------- ------- ----------- -------- -----------
Partners' capital, December 31, 1999 $ - 492,925 $32,500,144 $402,408 $32,902,552
======== ======= =========== ======== ===========
See accompanying notes to financial statements.
-16-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 1,536,040 $ 2,031,561 $ 955,418
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 14,386,576 15,287,524 9,213,581
Provision for losses 1,366,851 105,000 -
Cost of equipment sales 2,872,946 899,272 -
Recovery of investment in direct finance leases 1,632,852 1,745,557 1,057,640
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 72,465 (47,265) (319,755)
Increase in receivable from related party (497,175) (206,074) -
Decrease (increase) in accounts payable
and accrued liabilities (33,129) 668,519 122,980
(Decrease) increase in payables to affiliates 37,393 (12,070) 15,239
(Decrease) increase in rents received in advance (147,084) (220,485) 416,514
------------ ------------ ------------
Net cash provided by operating activities 21,227,735 20,251,539 11,461,617
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment on operating leases from affiliates (6,467,930) (14,699,101) (28,986,004)
Investment in direct financing leases, acquired from affiliates (1,034,188) (620,284) (2,123,638)
------------ ------------ ------------
Net cash used in investing activities (7,502,118) (15,319,385) (31,109,642)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from Class A capital contributions - 4,336,754 30,207,960
Proceeds from Class B capital contributions - 40,000 300,000
Proceeds from discounted lease rentals - 3,994,817 3,687,846
Principal payments on discounted lease rentals (9,642,575) (9,142,248) (5,766,722)
Redemptions of Class A limited partner units (264,854) (222,436) (58,902)
Commissions paid to affiliate in connection with
the sale of Class A limited partner units - (434,326) (3,020,146)
Non-accountable organization and offering expense
reimbursement paid to the general partner in connection
with the sale of Class A limited partner units - (317,347) (1,301,960)
Distributions to partners (5,318,981) (5,229,564) (3,009,376)
------------ ------------ ------------
Net cash (used in) provided by financing activities (15,226,410) (6,974,350) 21,038,700
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,500,793) (2,042,196) 1,390,675
Cash and cash equivalents at beginning of period 2,634,551 4,676,747 3,286,072
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,133,758 $ 2,634,551 $ 4,676,747
============ ============ ============
-17-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------- ----------- -----------
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 923,893 $1,343,176 $ 1,238,980
Supplemental disclosure of noncash investing and
financing activities:
Reduction in Partners' capital accounts for
commissions and offering costs payable to affiliates - - 18,879
Rents deducted from cash paid for equipment acquisitions 130,918 - -
Discounted lease rentals assumed in equipment acquisitions 7,386,009 3,223,219 16,946,684
See accompanying notes to financial statements.
-18-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Organization
Capital Preferred Yield Fund-IV, L.P. (the "Partnership") was organized on
December 18, 1995 as a limited partnership under the laws of the State of
Delaware pursuant to an Agreement of Limited Partnership (the "Partnership
Agreement"). The Partnership was formed for the purpose of acquiring and
leasing a diversified portfolio of equipment to unaffiliated third parties.
The Partnership will continue until December 31, 2007 unless terminated
earlier in accordance with the terms of the Partnership Agreement. All
Partnership equipment is expected to be sold and the Partnership liquidated
between 2003 and 2007. The general partner of the Partnership is CAI
Equipment Leasing V Corp., a wholly owned subsidiary of Capital Associates,
Inc. ("CAI").
The general partner manages the Partnership, including investment of funds,
purchase and sale of equipment, lease negotiation and other administrative
duties. The Partnership commenced business operations on April 16, 1996, and
from that date through December 31, 1998, 500,000 Class A limited partner
units were sold to approximately 2,345 investors at a price of $100 per Class
A limited partner unit.
Capital Associates International, Inc. ("CAII"), a wholly owned subsidiary of
CAI, is the Class B limited partner. The Class B limited partner is required
to contribute cash, upon acquisition of equipment, in an amount equal to 1%
of gross offering proceeds received from the sale of Class A limited partner
units.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. For
leasing entities, this includes the estimate of residual values,
collectibility of account receivable and valuation of inventory, as discussed
below. Actual results could differ from those estimates.
Partnership Allocations
Cash Distributions
------------------
During the Reinvestment Period (as defined in the Partnership Agreement),
available cash is distributed to the partners as follows:
First, 1.0% to the general partner and 99.0% to the Class A limited
partners until the class A limited partners receive annual, non-compounded
cumulative distributions equal to 10.5% of their contributed capital.
Second, 1.0% to the general partner and 99.0% to the Class B limited
partner until the Class B limited partner receives annual non-compounded
cumulative distributions equal to 10.5% of its contributed capital.
-19-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Partnership Allocations, continued
Cash Distributions, continued
------------------
Third, any remaining available cash will be reinvested or distributed to
the partners as specified in the Partnership Agreement.
After the Reinvestment Period (as defined in the Partnership Agreement),
available cash will be distributed to the partners as follows:
First, in accordance with the first and second allocations during the
Reinvestment Period as described above.
Second, 99.0% to the Class A limited partners and 1.0% to the general
partner, until the Class A limited partners achieve Payout (as defined in
the Partnership Agreement).
Third, 99.0% to the Class B limited partner, 1.0% to the general partner,
until the Class B limited partner achieves Payout (as defined in the
Partnership Agreement).
Fourth, 99.0% to the Class A and Class B limited partners (as a class) and
1.0% to the general partner, until the Class A and Class B limited partners
receive cash distributions equal to 170% of their capital contributions.
Thereafter, 90% to the Class A and Class B limited partners (as a class)
and 10% to the general partner.
Federal Income Tax Basis Profits and Losses
-------------------------------------------
There are several special allocations that precede the general allocations of
profits and losses to the partners. The most significant special allocations
are as follows:
First, commissions and expenses paid in connection with the sale of Class A
limited partner units are allocated 1.0% to the general partner and 99.0%
to the Class A limited partners.
Second, depreciation relating to Partnership equipment and any losses
resulting from the sale of equipment are generally allocated 1.0% to the
general partner and 99.0% to the limited partners (shared 99.0%/1.0% by the
Class A and Class B limited partners, respectively) until the cumulative
amount of such depreciation and such losses allocated to each limited
partner equals such limited partner's contributed capital reduced by
commissions and other expenses paid in connection with the sale of Class A
limited partner units allocated to such partner. Thereafter, gain on sale
of equipment, if any, will be allocated to the general partner in an amount
equal to the sum of depreciation and loss on sale of equipment previously
allocated to the general partner.
-20-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Partnership Allocations, continued
Federal Income Tax Basis Profits and Losses, continued
-------------------------------------------
Third, notwithstanding anything in the Partnership Agreement to the
contrary, and before any other allocation is made, items of income and gain
for the current year (or period) shall be allocated, as quickly as
possible, to the general partner to the extent of any deficit balance
existing in the general partner's capital account as of the close of the
immediately preceding year, in order to restore the balance in the general
partner's capital account to zero.
After giving effect to special allocations, profits (as defined in the
Partnership Agreement) are first allocated in proportion to, and to the
extent of, any previous losses, in reverse chronological order and
priority. Any remaining profits are allocated in the same order and
priority as cash distributions.
After giving effect to special allocations, losses (as defined in the
Partnership Agreement) are allocated in proportion to, and to the extent
of, any previous profits, in reverse chronological order and priority. Any
remaining losses are allocated 1.0% to the general partner and 99.0% to the
limited partners (shared 99.0%/1.0% by the Class A and Class B limited
partners, respectively).
Financial Reporting - Profits and Losses
- ----------------------------------------
For financial reporting purposes, net income is allocated to the partners in a
manner consistent with the allocation of cash distributions.
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. 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 No. 133, an Amendment of FASB Statement 133. Statement 137 effectively
extends the required application of Statement 133 to fiscal years beginning
after June 15, 2000, with earlier application permitted. The Partnership adopted
Statement 133 in the first quarter of 1999. The General Partner does not expect
the adoption of Statement 133 or Statement 137 to have an impact on its
financial reporting.
-21-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Long-lived Assets
The Partnership accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of
("SFAS No. 121"). SFAS No. 121 requires that long-lived assets, including
equipment subject to operating leases and certain identifiable intangibles to
be held and used by an entity, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity should
estimate the future net cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future net cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets, including equipment subject to operating leases and
identifiable intangibles held by the Partnership, is based on the fair value of
the asset. The fair value of the asset may be calculated by discounting the
expected future net cash flows at an appropriate interest rate.
Lease Accounting
Statement of Financial Accounting Standards No. 13, Accounting for Leases,
requires that a lessor account for each lease by the direct finance, sales-type
or operating lease method. The Partnership currently utilizes the direct
financing and operating methods for all of the Partnership's equipment under
lease. Direct finance leases are defined as those leases which transfer
substantially all of the benefits and risks of ownership of the equipment to
the lessee. For all types of leases, the determination of profit considers the
estimated value of the equipment at lease termination, referred to as the
residual value. After the inception of a lease, the Partner ship may engage
in financing of lease receivables on a nonrecourse basis (i.e., "non-recourse
debt" or "discounted lease rentals") and/or equipment sale transactions to
reduce or recover its investment in the equip ment.
The Partnership's accounting methods and their financial reporting effects are
described below.
Net Investment in Direct Finance Leases ("DFLs")
The cost of the equipment, including acquisition fees paid to the general
partner, is recorded as net investment in DFLs on the accompanying balance
sheet. Leasing revenue, which is recognized over the term of the lease,
consists of the excess of lease payments plus the estimated residual value over
the equipment's cost. Earned income is recognized monthly to provide a
constant yield and is recorded as direct finance lease income on the
accompanying income statements. Residual values are established at lease
inception equal to the estimated value to be received from the equipment
following termination of the initial lease (which in certain circum stances
includes anticipated re-lease proceeds), as determined by the general partner.
In estimating such values, the general partner considers all relevant
information regarding the equipment and the lessee.
-22-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Equipment on Operating Leases ("OLs")
The cost of equipment, including acquisition fees paid to the general partner,
is recorded as leased equipment in the accompanying balance sheets and is
depreciated on a straight-line basis over the lease term to an amount equal to
the estimated residual value at the lease termination date. Leasing revenue
consists principally of monthly rents and is recognized as operating lease
rentals in the accompanying income statements. Residual values are established
at lease inception equal to the estimated value to be received from the
equipment following termination of the initial lease (which in certain
circumstances includes anticipated re-lease proceeds), as determined by the
general partner. In estimating such values, the general partner considers all
relevant information and circumstances regarding the equipment and the lessee.
Because revenue, depreciation expense and the resultant profit margin before
interest expense are recorded on a straight-line basis, and interest expense on
discounted lease rentals (discussed below) is recorded on the interest method,
lower returns are realized in the early years of the term of an OL and higher
returns in later years.
Non-recourse Discounting of Rentals
The Partnership may assign the future rentals from leases to financial
institutions, or acquire leases subject to such assignments, at fixed interest
rates on a non-recourse basis. In return for such assigned future rentals, the
Partnership receives the discounted value of the rentals in cash. In the event
of default by a lessee, the financial institution has a first lien on the
underlying leased equipment, with no further recourse against the Partnership.
Cash proceeds from such financings, or the assumption of such financings, are
recorded on the balance sheet as discounted lease rentals. As lessees make
payments to financial institutions, leasing revenue and interest expense are
recorded.
Allowance for Losses
An allowance for losses is maintained at levels determined by the general
partner to adequately provide for any other-than-temporary declines in asset
values. The Partnership considers, economic conditions, the activity in the
used equipment markets, the effect of actions by equipment manufacturers, the
financial condition of lessees, the expected courses of action by lessees with
regard to leased equipment at termination of the initial lease term, and other
factors which the general partner believes are relevant in determining losses.
Asset chargeoffs are recorded upon the termination or remarketing of the
underlying assets. The lease portfolio is reviewed quarterly to determine the
adequacy of the allowance for losses.
Transactions Subsequent to Initial Lease Termination
After the initial term of equipment under lease expires, the equipment is
either sold or re-leased to the existing lessee or another third party. The
remaining net book value of equipment sold is removed and gain or loss recorded
when equipment is sold. The accounting for re-leased equipment is consistent
with the accounting described under "Net Investment in Direct Financing Leases"
and "Equipment on Operating Leases" above.
Income Taxes
No provision for income taxes has been made in the financial statements since
taxable income or loss is recorded in the tax return of the individual
partners.
-23-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Cash Equivalents
The Partnership considers short-term, highly liquid investments that are
readily convertible to known amounts of cash to be cash equivalents. Cash
equivalents of approximately $1,111,000 and $2,634,000 at December 31, 1999 and
1998, respectively, are comprised of investments in a mutual fund which invests
solely in U.S. Government treasury bills having maturities of 90 days or less.
Net Income Per Class A Limited Partner Unit
Net income per Class A limited partner unit is computed by dividing the net
income allocated to the Class A limited partners by the weighted average number
of Class A limited partner units outstanding during the period.
2. Net Investment in Direct Finance Leases
---------------------------------------
The components of the net investment in direct finance leases as of December
31, 1999 and 1998 were:
1999 1998
------------- -------------
Minimum lease payments receivable $ 2,677,915 $ 3,428,760
Estimated residual values 656,553 805,340
Less unearned income (415,455) (423,718)
------------- -------------
Total $ 2,919,013 $ 3,810,382
============= =============
3. Leased Equipment, net
---------------------
The Partnership's investment in equipment on operating leases by major
classes as of December 31, 1999 and 1998 were:
1999 1998
------------- -------------
Transportation and industrial equipment $ 38,818,396 $ 32,877,921
Computers and peripherals 15,856,195 18,389,166
Office furniture and equipment 15,353,653 17,214,503
Other 3,499,545 2,278,628
------------- -------------
73,527,789 70,760,218
Less:
Accumulated depreciation (30,228,522) (23,344,363)
Allowance for losses (372,230) (75,000)
------------- -------------
$ 42,927,037 $ 47,340,855
============= =============
Depreciation expense for 1999, 1998 and 1997 was $14,386,576, $15,287,524 and
$9,213,581, respectively.
-24-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
4. Future Minimum Lease Payments
-----------------------------
Future minimum lease payments receivable from noncancelable leases as of
December 31, 1999 are as follows:
Years Ending December 31, DFLs OLs
--------------------------- ----------- ------------
2000 $ 996,636 $13,138,892
2001 637,417 9,425,952
2002 470,776 6,835,994
2003 309,426 3,656,963
Thereafter 263,660 1,124,858
---------- -----------
Total $2,677,915 $34,182,659
========== ===========
5. Discounted Lease Rentals
------------------------
Discounted lease rentals outstanding at December 31, 1999 bear interest at
rates primarily ranging between 6% and 10%. Aggregate maturities of such non-
recourse obligations are:
Years Ending December 31,
-------------------------
2000 $ 6,016,436
2001 4,247,432
2002 1,853,895
2003 1,022,594
Thereafter 311,913
-----------
$13,452,270
===========
6. Transactions With the General Partner and Affiliates
----------------------------------------------------
Sales Commissions and Offering Costs
------------------------------------
Under the terms of the Partnership Agreement, 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. No sales commissions were
incurred during 1999. During 1998, the Partnership incurred sales commissions
of approximately $434,000, including $363,000 that were paid to participating
broker-dealers.
No offering costs were incurred during 1999. As provided in the Partnership
Agreement, the general partner earned approximately $174,000 as reimbursement
for offering costs incurred during 1998, in connection with the organization
of the Partnership and the offering of Class A limited partner units. The
general partner also received approximately $75,000 as reimbursement for due
diligence expenses incurred during 1998.
-25-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Capital Contributions
---------------------
No capital contributions were made to the Partnership during 1999. Under
terms of the Partnership Agreement, the Class B limited partner made capital
contributions to the Partnership of $40,000 during 1998.
Origination Fee and Evaluation Fee
----------------------------------
The general partner earns a fee equal to 3.5% of the sales price of equipment
sold to the Partnership (up to a maximum cumulative amount as specified in
the Partnership Agreement), 1.5%, of which, represents compensation for
selecting, negotiating and consummating the acquisition of the equipment and
2%, of which, represents reimbursement for services rendered in connection
with evaluating the suitability of the equipment and the creditworthiness of
the lessees. Origination and evaluation fees totaled approximately $449,000,
$606,000, and $1,586,000 in 1999, 1998, and 1997, respectively, all of which
were capitalized by the Partnership as part of the cost of equipment on
operating leases and net investment in direct financing leases.
Management Fees Paid to General Partner
---------------------------------------
The general partner earns management fees for services performed in
connection with managing the Partnership's equipment equal to 2% of gross
rentals received as permitted under terms of the Partnership Agreement. The
general partner earned approximately $401,000, $422,000 and $250,000 of
management fees during 1999, 1998, and 1997, respectively.
Direct Services from General Partner
------------------------------------
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. The partnership recorded approximately $209,000,
$168,000 and $79,000 of direct services from general partner during 1999,
1998 and 1997, respectively.
Equipment Purchases
-------------------
The Partnership purchased equipment from CAII, with a total purchase price of
approximately $15,019,045, $18,542,605, and $47,828,704 (including
approximately $7,386,009, $3,223,219, and $16,946,684 of discounted lease
rentals) during 1999, 1998, and 1997, respectively. The Partnership purchased
the equipment at CAII's historical cost plus reimbursement of other net
acquisition costs, as provided for in the Partnership Agreement.
-26-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates
----------------------------------------------------
Payables to Affiliates
----------------------
Payables to affiliates of approximately $84,000 and $47,000 in 1999 and 1998,
respectively, consists of $48,000 for direct services from general partner,
$31,000 for management fees paid to general partner, and $5,000 for
reimbursable general and administrative expenses in 1999, and $8,000 for
direct services from general partner, $35,000 for management fees paid to
general partner, and $4,000 for due diligence expenses in 1998.
Receivable from Affiliates
--------------------------
The General Partner collects and applies rental payments to the lessee's
account with the Partnership, for those lessees who remit directly to the
General Partner. The rental payments are then transferred to the Partnership,
eliminating the receivable from related party balance.
7. Tax Information (Unaudited)
---------------------------
The following reconciles net income for financial reporting purposes to the
income for federal income tax purposes for the periods ended December 31:
1999 1998 1997
------------ ------------ ------------
Net income per financial statements $ 1,536,040 $ 2,031,561 $ 955,418
Direct finance leases 1,632,855 1,745,558 1,057,640
Depreciation (2,641,615) (4,962,903) (4,245,112)
Provision for losses 1,366,851 105,000 -
Loss on sale of equipment (1,481,692) (494,248) -
Other 19,032 245,990 400,382
------------ ------------ ------------
Partnership income for federal income tax purposes $ 431,471 $ (1,329,042) $ (1,831,672)
============ ============ ============
The following reconciles partners' capital for financial reporting purposes to
partners' capital for federal income tax purposes as of December 31:
1999 1998 1997
------------ ------------ ------------
Partners' capital per financial statements $ 32,902,552 $ 36,947,254 $ 36,806,561
Commissions and offering costs 7,304,048 7,304,048 6,552,375
Direct finance leases 4,456,093 2,823,238 1,077,680
Depreciation (12,417,445) (9,775,830) (4,812,927)
Provision for losses 1,471,849 105,000 -
Loss on sale of equipment (1,975,940) (494,248) -
Other 787,943 751,712 476,622
------------ ------------ ------------
Partners' capital for federal income tax purposes $ 32,529,100 $ 37,661,174 $ 40,100,311
============ ============ ============
-27-
8. Concentration of Credit Risk
----------------------------
Approximately 69% of the Partnership's equipment under lease was leased to
investment grade companies. Pursuant to the Partnership Agreement, an
investment grade lessee is a company (i) with a net worth in excess of
$100,000,000 (and no debt issues that are rated), or (ii) with a credit
rating of not less than Baa as determined by Moody's Investor Services, Inc.
or comparable credit rating as determined by another recognized credit
rating service; or (iii) a lessee, all of whose lease payments have been
unconditionally guaranteed or supported by a letter of credit issued by a
company meeting one of the above requirements.
No single lessee accounted for more than 10% of total revenue of the
Partnership during 1999.
The Partnership's cash balance is maintained with a high credit quality
financial institution. At times, such balances may be in excess of the FDIC
insurance limit due to the receipt of lockbox amounts that have not cleared
the presentment bank (generally for less than two days). As the funds become
available, they are invested in a money market mutual fund.
9. Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Standards No. 107, Disclosures about Fair Value of
Financial Instruments specifically excludes certain items from its
disclosure requirements such as the Partnership's investment in leased
assets. The carrying amounts at December 31, 1999 for cash and cash
equivalents, accounts receivable, receivable from affiliates, accounts
payable and accrued liabilities, payable to affiliates, rents and sale
proceeds received in advance and distributions payable to partners
approximate their fair values due to the short maturity of these
instruments.
As of December 31, 1999, discounted lease rentals of approximately
$13,455,000 had fair values of approximately $12,242,000. The fair values
were estimated utilizing market rates of comparable debt having similar
maturities and credit quality as of December 31, 1999.
10. General Partner Matters (unaudited)
-----------------------------------
CAII, an affiliate of the general partner, owes the Partnership $865,570 for
rents, remarketing proceeds and other amounts (collectively, the "Prior
Rents") collected by CAII on behalf of the Partnership during periods prior
to February 1, 2000 (the "Prior Periods"). According to its own records,
CAII owes approximately $3.1 million to other investors and creditors (who,
along with the Partnership, are referred to herein as the "Payees"), for
Prior Rents collected by CAII on their behalf during the Prior Periods.
CAII, which presently does not have the funds to repay all of the Prior
Rents, is in negotiations with the Payees to develop a plan for repayment of
the Prior Rents owed to all Payees over time. The Partnership is withholding
acquisition fees and managements fees otherwise payable to the general
partner and crediting such withheld fees (the "Fees") against the Prior
Rents owing from CAII. The Partnership intends to continue to withhold
future Fees until such time as it recovers all Prior Rents.
The Partnership relies upon the services of CAII for origination of leases,
administrative and accounting services and remarketing of leases and
equipment, among other services. Should CAII be unable to develop a plan for
repayment with it's Payees, the Partnership may be required to contract with
another party for these services. In such event, there is no assurance that
another provider of these services can be identified.
-28-
Independent Auditors' Report
----------------------------
The Partners
Capital Preferred Yield Fund-IV, L.P.:
Under date of March 24, 2000 we reported on the balance sheets of Capital
Preferred Yield Fund-IV, L.P. as of December 31, 1999 and 1998, and the related
statements of income, partners' capital, and cash flows for the years ended
December 31, 1999, 1998 and 1997, as contained in the Partnership's annual
report on Form 10-K for the year 1999. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement Schedule II, as listed in the accompanying index. This financial
statement schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/KPMG LLP
------------------------------
KPMG LLP
Denver, Colorado
March 24, 2000
-29-
CAPITAL PREFERRED YIELD FUND-IV, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the year ended December 31, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------- ---------- ---------- ------------ ---------
Balance at Additions Balance
Beginning Charged to at End
Classification of Year Expenses Deductions of Year
- -------------------------------- --------- ---------- ------------ ---------
1999
- --------------------------------
Allowance for losses:
Accounts receivable $ 30,000 $ - $ - $ 30,000
Equipment on operating leases 75,000 1,366,851 (1,069,621) 372,230
--------- ---------- ----------- ---------
$ 105,000 $1,366,851 $(1,069,621) $ 402,230
========= ========== =========== =========
1998
- --------------------------------
Allowance for losses:
Accounts receivable $ - $ 30,000 $ - $ 30,000
Equipment on operating leases - 75,000 - 75,000
--------- ---------- ----------- ---------
$ - $ 105,000 $ - $ 105,000
========= ========== =========== =========
See accompanying independent auditors' report
-30-
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
Item 10. Directors and Executive Officers of the Partnership
---------------------------------------------------
The Partnership has no officers and directors. The general partner manages and
controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business. Information concerning the
directors and executive officers of the general partner is as follows:
CAI Equipment Leasing V Corp.
Name Positions Held
---- --------------
John F. Olmstead President and Director
Richard H. Abernethy Vice President and Director
Joseph F. Bukofski Chief Accounting Officer, Vice President and
Director
Mick Myers Director
John F. Olmstead, age 56, joined CAII as Vice President in December, 1988, is a
Senior Vice President of CAI and CAII and is head of CAII's Public Equity
division. He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He
has over 20 years of experience holding various positions of responsibility in
the leasing industry. Mr. Olmstead holds a Bachelor of Science degree from
Indiana University and a Juris Doctorate degree from Indiana Law School.
Richard H. Abernethy, age 46, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Portfolio Management. Mr.
Abernethy has foureen years experience in the leasing industry, including prior
positions with Barclays Leasing Inc., from November 1986 to February 1992, and
Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.
Joseph F. Bukofski, age 44, joined CAII in June 1990 as a Financial Analyst.
Mr. Bukofski is currently the Vice President and Treasurer. Prior to becoming
Treasurer, Mr. Bukofski was Assistant Vice President and Controller. Prior to
joining the Company, he was a geologist with Barringer Geoservices, Inc. for
eleven years. Mr. Bukofski holds a Bachelor of Science degree in Secondary
Education - Earth Science from Bloomsburg University and a Masters of Science in
Accounting from the University of Colorado.
Mick Myers, age 42, joined CAII in February 1992 as a Senior Portfolio Manager.
Currently he is Vice President of Asset Management. Mr. Myers has nine years
experience in the leasing industry. Previously, he has held the position of
Senior End of Lease Negotiator with ELLCO/GE Capital. Mr. Myers holds a
Bachelor of Science degree from the University of Wyoming.
-31-
Item 11. Executive Compensation
----------------------
No compensation was paid by the Partnership to the officers and directors of the
general partner. See Item 13 of this Report, "Certain Relationships and Related
Transactions," which is incorporated herein by reference, for a description of
the compensation and fees paid to the general partner and its affiliates by the
Partnership during 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) As of the date hereof, no person is known by the Partnership to be the
beneficial owner of more than 5% of the Class A limited partner units of
the Partnership. The Partnership has no directors or officers, and
neither the general partner nor the Class B limited partner of the
Partnership own any Class A limited partner units.
CAII, an affiliate of the general partner is the Class B limited partner.
CAI Equipment Leasing V Corp. is the general partner.
The names and addresses of the general partner and the Class B limited
partner are as follows:
General Partner
---------------
CAI Equipment Leasing V Corp.
7175 W. Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
Class B Limited Partner
-----------------------
Capital Associates International, Inc.
7175 W. Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
(b) No directors or officers of the general partner or the Class B limited
partner owned any Class A limited partner units as of April 11, 2000.
(c) The Partnership knows of no arrangements, the operation of which may at a
subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The general partner and its affiliates receive certain types of compensation,
fees or other distributions in connection with the operations of the
Partnership.
Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1999:
-32-
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Organization and Offering Stage
Sales Commissions
- -----------------
CAI Securities Corporation (the "Dealer-Manager"), an affiliate of the general
partner, earned commissions of 10% of the sales price of Class A limited partner
units sold, up to 9% of which was paid to participating broker-dealers.
Due Diligence Expense Reimbursement
- -----------------------------------
The Dealer-Manager is reimbursed for bona fide due diligence expenses which it
incurs up to a maximum of 1/2% of gross offering proceeds.
Organization and Offering Expense Reimbursement
- -----------------------------------------------
The general partner is reimbursed for the organization and offering expenses it
incurs in organizing the Partnership and offering Class A limited partner units
for sale to the public.
Acquisition and Operating Stages
Acquisition Fee and Acquisition Cost Reimbursement
- --------------------------------------------------
The general partner receives a fee equal to 3.5% of the sales price of equipment
sold to the Partnership, 1.5% of which represents compensation for selecting,
negotiating and consummating the acquisition of the equipment and 2% of which
represents reimbursement for services rendered in connection with evaluating the
suitability of the equipment and the credit worthiness of the Lessee.
Origination and evaluation fees totaled $448,815 in 1999, all of which were
capitalized by the Partnership as part of the cost of equipment on operating
leases and net investment in direct financing leases.
Management Fees
- ---------------
The general partner receives management fees as compensation for services
rendered in connection with managing the Partnership's equipment equal to 2% of
gross rentals received. Such fees totaled $401,008 for 1999.
-33-
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Accountable General and Administrative Expenses
- -----------------------------------------------
The general partner is entitled to reimbursement of certain expenses paid on
behalf of the Partnership which are incurred in connection with the
Partnership's operations. Such reimbursable expenses amounted to $208,672
during 1999.
Additionally, the general partner is allocated 1% of Partnership cash
distributions and net income relating to its general partner interest in the
Partnership. Distributions and net income allocated to the general partner
totaled $53,953 and $53,953, respectively, for 1999. Distributions and net
income allocated to the Class B limited partner totaled $52,500 and $18,074,
respectively, during 1999.
During 1999, the Partnership acquired the equipment described below from CAII:
Cost to
Partnership
Including
Acquisition Debt Annual
Lessee Equipment Description Cost to CAII Fees* Assumed Rents
- ------ --------------------- ------------ ------------ ------------ -----------
ACT Manufacturing Conveyors $ 257,932 $ 266,466 $ 205,943 $ 69,832
ACT Manufacturing Genrad Tester 350,593 362,465 280,868 95,238
ACT Manufacturing Semiconductor 933,105 964,032 749,209 243,334
ACT Manufacturing Tape Feeder 650,078 671,604 530,529 173,101
Alliance Data VSAT's 626,468 648,176 - 68,755
Allied Signal Copier 50,858 52,620 - 16,758
Allied Signal Projector 71,101 73,565 - 26,565
API Universal Foils Manufacturing 2,274,668 2,353,485 2,111,125 648,062
Atmel SDI Analyzer 497,357 514,590 - 78,353
Becton Dickinson Forklift 124,232 128,536 - 24,979
Conair Stockpicker 20,145 20,843 - 4,215
Consolidated Diesel Forklift 44,895 46,451 - 8,428
Electronic Payment Service VSAT's 72,797 75,319 - 14,788
E-Trade Office Furniture 3,349,606 3,414,162 2,974,236 808,672
Geico Servers 68,723 71,104 - 25,579
General Motors Corp. Forklift 402,034 415,964 - 79,609
General Motors Corp. Material Handling 106,735 110,433 - 22,101
General Motors Corp. Scrubber 452,247 467,918 - 102,441
General Motors Corp. Sweeper 114,477 118,444 - 57,752
General Motors Corp. Tow Tractor 5,726 5,926 - 1,917
Hughes Aircraft Device Test System 16,562 17,136 - 4,257
ICI American Holdings Computers 17,303 17,903 - 10,063
Inco Alloys Computer Equipment 102,733 106,292 - 35,504
Mailboxes, Etc. VSAT's 171,108 177,037 - 37,370
McGraw Hill Computer Equipment 17,317 17,917 - 5,553
McGraw Hill Copier 94,964 98,255 - 30,142
McGraw Hill Fax Machine 4,193 4,339 - 1,333
McGraw Hill Scrubber 33,917 35,092 - 7,105
National Discount Brokers Computers 480,181 496,819 386,009 77,652
Parke-Davis Spectrometer 443,618 458,989 - 159,366
Rohr Industries Computer Equipment 48,253 49,925 - 15,344
-34-
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Accountable General and Administrative Expenses, continued
- -----------------------------------------------
Cost to
Partnership
Including
Acquisition Debt Annual
Lessee Equipment Description Cost to CAII Fees* Assumed Rents
- ------ --------------------- ------------ ------------- ----------- -----------
Samoff Corp HP Equipment 184,565 190,960 - 43,432
Schratter Foods Forklift 206,775 213,940 - 60,874
Thomson Machine Tools 424,404 439,110 - 65,164
Thomson Manufacturing 51,210 52,984 - 9,979
TRW Computers 172,680 178,663 148,090 58,961
TRW Semiconductor 1,626,670 1,681,581 - 503,233
------------ ------------- ----------- -----------
$ 14,570,230 $ 15,019,045 $ 7,386,009 $ 3,695,811
============ ============= =========== ===========
* The lower of (a) the price for the equipment plus all costs incurred
in maintaining the equipment (including, without limitation, the
reasonable, necessary and actual expenses, as determined in accordance
with generally accepted accounting principles, of storage, carrying,
warehousing, repair, marketing, financing and taxes) from the date of
acquisition thereof, provided that any proceeds accrued from the first
basic rent date thereof and retained by the general partner or an
affiliate thereof from leasing the equipment or any other arrangement
with respect to the equipment shall be deemed a credit towards the
purchase price paid by the Partnership, or (b) the fair market value
of such equipment, as determined by an independent nationally
recognized appraiser selected by the general partner.
-35-
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)
and
(d) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to Item 8 of
this Report, "Financial Statements and Supplementary Data").
2. Financial Statement Schedule: (Incorporated by reference to Item
8 of this Report, "Financial Statements and Supplementary Data").
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended December 31, 1999.
(c) Exhibits required to be filed.
Exhibit
Number Exhibit Name
------ --------------
4.1* Capital Preferred Yield Fund-IV Limited Partnership
Agreement
4.2* First Amendment to Limited Partnership Agreement dated
November 23, 1996
4.3* Amended and Restated Agreement of Limited Partnership of
Capital Preferred Yield Fund-IV, L.P.
* Not filed herewith. In accordance with Rule 12b-32 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, reference is made to the document
previously filed with the Commission.
-36-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: _________, 2000 Capital Preferred Yield Fund-IV, L.P.
By: CAI Equipment Leasing V Corporation
By: /s/John F. Olmstead
-----------------------------------
John F. Olmstead
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the general
partner of the Partnership and in the capacities indicated on March 30, 1999.
Signature Title
- --------- -----
/s/John F. Olmstead
- -----------------------
John F. Olmstead President and Director
/s/Richard H. Abernethy
- -----------------------
Richard H. Abernethy Vice President and Director
/s/Joseph F. Bukofski
- -----------------------
Joseph F. Bukofski Chief Accounting Officer, Vice President,
and Director
/s/Mick Myers
- -----------------------
Mick Myers Director
-37-