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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, 2000
[ ] 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)
2750 South Wadsworth, C-200, Denver, Colorado 80227
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 963-9600
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 39
Page 1 of 40 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 was a wholly owned subsidiary of Capital Associates, Inc.
("CAI"). CAI Equipment Leasing V Corp. became a wholly owned subsidiary of
Mishawaka Leasing Company, Inc. ("MLC") on September 12, 2000 and is the general
partner of the Partnership. CAI discontinued its operations on December 15,
2000.
Until September 2000, the Partnership relied upon the services of Capital
Associates International, Inc. ("CAII") 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 MLC to provide billing, administrative, remarketing
and accounting services. Many of the management and administrative personnel of
MLC formerly worked for CAII and serviced the Partnership leases.
CAII owed the Partnership $406,144 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 12, 2000, as part of
the Sale of the General Partnership interest owned by CAII to MLC, MLC repaid in
full the Prior Rents owed by CAII to the Partnership. Included in payables to
affiliates is $263,959 of administrative expenses that are reimbursable to the
General Partner. During the year CAII was preparing to liquidate, which it did
on December 15, 2000, CAII was unable to provide investment opportunities for
reinvestment to the Partnership and consequently the Partnership's cash balances
are higher than normal. Also during the same period, CAII did not keep up with
collections of accounts receivable, which are higher than normal. Both of these
events have adversely affected the Partnership's performance.
Capital Associates International, Inc. ("CAII") was the Class B limited partner
of the Partnership through September 12, 2000. 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. The Class B limited partner'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.
Through December 31, 1998, CAII contributed $500,000 to the Partnership. MLC
became the Class B limited partner as of September 12, 2000.
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.
-2-
Item 1. Business, continued
--------
During 2000, the Partnership acquired equipment of various types under lease to
third parties. All of the equipment was (i) purchased by CAII directly from
manufacturers or from other independent third parties and sold to the
Partnership or (ii) arranged by MLC to be acquired by the Partnership from third
parties. 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 2000. The Partnership expects that a majority of the equipment
purchased during 2001 will be similar in nature to the equipment acquired in
2000.
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 2000, the Partnership leased equipment to investment grade lessees in
diverse industries including the material handling, telecommunications and
manufacturing industries. Approximately 70% of the Partnership's equipment under
lease was leased to investment grade lessees as of December 31, 2000. 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 2000.
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.
-4-
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, 2000.
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, 2000, there were 2,340 Class A limited partners.
-5-
Item 5. Market for the Partnership's Common Equity and Related Stockholder
Matters, continued
-------
(c) Distributions
-------------
During 2000, 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, 1999 January 2000 $ 0.875 $ 484,938
January 31, 2000 February 2000 0.875 405,240
February 28, 2000 March 2000 0.875 404,816
March 31, 2000 April 2000 0.875 484,007
April 30, 2000 May 2000 0.875 404,119
May 31, 2000 June 2000 0.875 403,177
June 30, 2000 July 2000 0.875 483,025
July 31, 2000 August 2000 0.875 403,157
August 31, 2000 September 2000 0.875 403,156
September 30, 2000 October 2000 0.875 483,045
October 31, 2000 November 2000 0.875 403,157
November 30, 2000 December 2000 0.875 403,156
-------- -----------
$ 10.50 $ 5,164,993
======== ===========
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, 2000, totaling $483,046,
was paid to the Class A limited partners on January 4, 2001. Distributions
to the general partner and Class B limited partner during 2000 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 2001, 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.
-6-
Item 5. Market for the Partnership's Common Equity and Related Stockholder
Matters, continued
-------
(c) Distributions, continued
-------------
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
======= ===========
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%
2000 10.50 10.5%
--------
$ 49.72
========
(1) Cumulative distributions, as described in note 1 to Notes to
Consolidated Financial Statements, began May 1996.
-7-
Item 6. Selected Financial Data
-----------------------
The following selected financial data relates to the years ended December 31,
2000, 1999 and 1998. 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.
2000 1999 1998
------------ ------------ -----------
Total revenue $ 17,611,643 $ 19,046,666 $ 19,560,413
Net income 2,084,318 1,236,040 2,031,561
Net income per weighted average Class A
limited partner unit outstanding 4.09 2.36 3.95
Total assets 48,673,300 48,130,657 54,877,835
Discounted lease rentals 16,264,856 13,452,270 15,708,835
Distributions declared to partners 5,268,284 5,315,888 5,293,514
Distributions declared per monthly weighted average
Class A limited partner unit outstanding 10.50 10.50 10.50
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,
------------------------ ------------------------
2000 1999 Change 1999 1998 Change
----------- ----------- ---------- ----------- ----------- -----------
Leasing margin $ 3,815,906 $ 3,398,704 $ 417,202 $ 3,398,704 $ 2,598,528 $ 800,176
Equipment sales margin 192,190 245,626 (53,436) 245,626 196,434 49,192
Interest income 160,103 82,998 77,105 82,998 122,325 (39,327)
Management fees paid to general partner (338,261) (401,008) 62,747 (401,008) (422,321) 21,313
Direct services from general partner (139,906) (208,672) 68,766 (208,672) (167,569) (41,103)
General and administrative (339,714) (214,757) (124,957) (214,757) (190,836) (23,921)
Provision for losses (1,266,000) (1,666,851) 400,851 (1,666,851) (105,000) (1,561,851)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 2,084,318 $ 1,236,040 $ 848,278 $ 1,236,040 $ 2,031,561 $ (795,521)
=========== =========== =========== =========== =========== ===========
-8-
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,
----------------------------------------------
2000 1999 1998
---- ---- ----
Operating lease rentals $ 16,247,801 $ 18,443,275 $ 18,926,287
Direct finance lease income 1,011,549 274,767 315,367
Depreciation (12,306,698) (14,386,576) (15,287,524)
Interest on discounted lease rentals (1,136,746) (932,762) (1,355,602)
------------ ------------ ------------
Leasing margin $ 3,815,906 $ 3,398,704 $ 2,598,528
============ ============ ============
Leasing margin ratio 22% 18% 14%
== == ==
Operating lease rentals and depreciation decreased for the year ended December
31, 2000 compared to the year ended December 31, 1999 due to a decrease in the
operating lease portfolio. Interest on discounted lease rentals increased in
2000 compared to 1999 and 1998 primarily due to an increase in remarketing
leases. Direst finance lease income increased for the year ended December 31,
2000 compared to the same period of 1999 and 1998 due to a combination of the
addition of a large lease at the end of 1999 as well as an increase in
remarketing leases.
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 principal is
repaid.
The ultimate profitability of the Partnership's leasing transactions is
dependent in part on interest rates at the time the leases are originated,
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:
2000 1999 1998
---- ---- ----
Equipment sales revenue $ 2,159,596 $ 3,118,572 $ 1,095,706
Cost of equipment sales (1,967,406) (2,872,946) (899,272)
----------- ----------- -----------
Equipment sales margin $ 192,190 $ 245,626 $ 196,434
=========== =========== ===========
-9-
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 volume and composition of equipment
that becomes available for sale. Some of the Partnership's initial leases have
expired, and the equipment is either being re-leased or sold to the lessee or to
third parties. Equipment sales margin decreased for the year ended December 31,
2000 compared to the same period in 1999 primarily due to an increase in the
amount of equipment sold and billed late in the quarter.
Interest Income
Interest income increased for 2000 compared to 1999 due to an increase in
invested cash. Interest income decreased in 1999 compared to 1998 due to an
increase in equipment purchases and a corresponding decrease in invested cash.
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 are earned on gross rents received and will fluctuate due to
variances in cash flow. Management fees paid to the general partner decreased in
2000 compared to 1999 and 1998 primarily due to a decrease in rents collected.
Direct services from the general partner decreased for the year ended December
31, 2000 compared to the year ended December 31, 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
paid a refurbishing charge to CAII at the time computer equipment was returned
by the lessee to the Partnership. The refurbishing charge included all services
necessary to prepare the equipment for re-sale. Computer equipment returned to
the Partnership for the year ended December 31, 2000 generated refurbishing
charges in the amount of $52,030. MLC does not provide such services. This will
now be handled by independent third parties.
General and administrative charges increased for the year ended December 31,
2000 compared to the year ended December 31, 1999 primarily due to a one time
remarketing fee on the renewal of a lease, additional costs associated with the
conversion from CAII, an increase in data processing costs, and an increase in
sales tax expense. The increase in sales tax expense is due to a change by the
State of Michigan in the method of apportions of multi-state companies and an
increase in appraised fees.
Direct services from the general partner and general and administrative expenses
increased in 1999 compared to 1998 due to an increase in remarketing activities
associated with equipment returned to the Partnership at lease maturity.
-10-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
-------------
Provision for Losses
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment 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 2000 related to the following:
o $158,000 related to a decline in the residual value of on-lease office and
computer equipment.
o $334,000 related primarily to computer equipment that has been returned to
the Partnership with fair market values that are lower than the book
values.
o $34,000 was recognized as losses on the sale of various forklifts and
office furniture.
o $50,000 was recorded as a reserve for uncollectible accounts receivable.
o $105,000 was accrued to recognize an anticipated loss on the sale of
forklifts.
o $99,000 related to various forklifts and construction equipment that has
been returned to the Partnership with fair market values that are lower
than book values.
o $450,000 related to a lessee that filed for Chapter 11 bankruptcy
protection on October 5, 2000.
o $36,000 was recorded as a reserve for estimated uncollectible accounts
receivable.
The provision for losses recorded during 1999 related to the following:
o $293,568 related to a decline in the residual value of on-lease computer
equipment o $31,602 related to anticipated declines in realizable values of
on-lease forklifts.
o $750,000 was recognized as losses on sales of certain computer equipment.
The Partnership has previously expected to realize the carry value of that
equipment through lease renewals and proceeds for 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.
o $103,000 was recognized as losses on the sale of various semiconductor,
forklifts, tractors and office furniture.
o $188,681 related primarily to equipment that has been returned to the
Partnership with fair market values that are lower than the book values.
-11-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
-------------
The provision for losses recorded during 1998 related to the following:
o $75,000 related primarily to equipment that has been returned to the
Partnership. The Partnership had previously expected to realize the carry
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 thrid parties was less than anticipated.
o $30,000 was recorded as a reserve for estimated uncollectible accounts
receivable.
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 2000, 1999 and 1998, the Partnership acquired equipment subject to leases
with a total purchase price of $15,061,881, $15,019,045 and $18,542,605
(including $7,994,602, $7,386,009 and $3,223,219 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 2000, 1999 and 1998, the Partnership declared distributions to the Class
A limited partners of $5,163,101, $5,209,435 and $5,188,246, respectively, of
which $483,045 was paid during January 2001. 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.
The general partner believes that the Partnership will generate sufficient cash
flows from operations during 2001, 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.
-12-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
-------------
II. Liquidity and Capital Resources, continued
-------------------------------
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 MLC to provide billing,
administrative, remarketing and accounting services. Many of the management and
administrative personnel of MLC formerly worked for CAII and serviced the
Partnership leases.
CAII owed the Partnership $406,144 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 12, 2000, as part of
the Sale of the General Partnership interest owned by CAII to MLC, MLC repaid in
full the Prior Rents owed by CAII to the Partnership. Included in payables to
affiliates is $263,959 of administrative expenses that are reimbursable to the
General Partner. During the year CAII was preparing to liquidate, which it did
on December 15, 2000, CAII was unable to provide investment opportunities for
reinvestment to the Partnership and consequently the Partnership's cash balances
are higher than normal. Also during the same period, CAII did not to keep up
with collections of accounts receivable, which are higher than normal. Both of
these events have adversely affected the Partnership's performance.
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. Statement 133 is effective
for fiscal years beginning after June 15, 1999, with earlier application
permitted. In June 1999, the Financial Accounting Standard 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, and such adoption had no material impact on the
Partnership.
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.
-13-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
-------------
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 interest rate risk or other market
risk exposure.
-14-
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Number
------
Financial Statements
--------------------
Independent Auditors' Report 16
Balance Sheets as of December 31, 2000 and 1999 17
Statements of Income for the years ended December 31, 2000,
1999 and 1998 18
Statements of Partners' Capital for the years
ended December 31, 2000, 1999 and 1998 19
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 20-21
Notes to Financial Statements 22-31
Financial Statement Schedule
----------------------------
Independent Auditors' Report 32
Schedule II - Valuation and Qualifying Accounts 33
-15-
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, 2000 and 1999, and the related statements of
income, partners' capital, and cash flows for the years ended December 31, 2000,
1999 and 1998. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of its
operations and its cash flows for the years ended December 31, 2000, 1999 and
1998, in conformity with accounting principles generally accepted in the United
States of America.
/s/KPMG LLP
-----------
KPMG LLP
Denver, Colorado
April 20, 2001
Capital Preferred Yield Fund-IV, L.P.
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
----------- -----------
Cash and cash equivalents $ 3,702,069 $ 1,133,758
Accounts receivable, net 1,122,640 382,407
Receivable from affiliates -- 413,249
Equipment held for sale 93,099 355,193
Net investment in direct finance leases 4,403,516 4,405,522
Leased equipment, net 39,351,976 41,440,528
----------- -----------
Total assets $48,673,300 $48,130,657
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 2,078,880 $ 1,047,204
Payables to affiliates 294,170 84,045
Rents received in advance 279,298 450,331
Distributions payable to partners 496,460 494,255
Discounted lease rentals 16,264,856 13,452,270
----------- -----------
Total liabilities 19,413,664 15,528,105
----------- -----------
Partners' capital:
General partner -- --
Limited partners:
Class A 500,000 units authorized; 490,744 and 492,925 units
issued and outstanding in 2000 and 1999, respectively 28,892,412 32,203,144
Class B 367,224 399,408
----------- -----------
Total partners' capital 29,259,636 32,602,552
----------- -----------
Total liabilities and partners' capital $48,673,300 $48,130,657
=========== ===========
See accompanying notes to financial statements.
-17-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ----------- -----------
Revenue:
Operating lease rentals $16,247,801 $18,443,275 $18,926,287
Direct finance lease income 1,011,549 274,767 315,367
Equipment sales margin 192,190 245,626 196,434
Interest income 160,103 82,998 122,325
----------- ----------- -----------
Total revenue 17,611,643 19,046,666 19,560,413
----------- ----------- -----------
Expenses:
Depreciation 12,306,698 14,386,576 15,287,524
Management fees paid to general partner 338,261 401,008 422,321
Direct services from general partner 139,906 208,672 167,569
General and administrative 339,714 214,757 190,836
Provision for losses 1,266,000 1,666,851 105,000
Interest on discounted lease rentals 1,136,746 932,762 1,355,602
----------- ----------- -----------
Total expenses 15,527,325 17,810,626 17,528,852
----------- ----------- -----------
Net income $ 2,084,318 $ 1,236,040 $ 2,031,561
=========== =========== ===========
Net income allocated:
To the general partner $ 52,683 $ 53,953 $ 60,459
To the Class A limited partners 2,011,319 1,170,266 1,951,241
To the Class B limited partner 20,316 11,821 19,861
----------- ----------- -----------
$ 2,084,318 $ 1,236,040 $ 2,031,561
=========== =========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ 4.09 $ 2.36 $ 3.95
=========== =========== ===========
Weighted average Class A limited partner
units outstanding 491,320 496,258 494,222
=========== =========== ===========
See accompanying notes to financial statements.
-18-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 2000, 1999 and 1998
Class A
Limited Class A Class B
General Partners Limited Limited
Partner Units Partners Partner Total
--------- --------- ------------ --------- ------------
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 -- 1,170,266 11,821 1,236,040
Distributions declared to partners (53,953) -- (5,209,435) (52,500) (5,315,888)
--------- --------- ------------ --------- ------------
Partners' capital, December 31, 1999 $ -- 492,925 $ 32,203,144 $ 399,408 $ 32,602,552
Redemptions -- (2,181) (158,950) -- (158,950)
Net income 52,683 -- 2,011,319 20,316 2,084,318
Distributions declared to partners (52,683) -- (5,163,101) (52,500) (5,268,284)
--------- --------- ------------ --------- ------------
Partners' capital, December 31, 2000 $ -- 490,744 $ 28,892,412 $ 367,224 $ 29,259,636
========= ========= ============ ========= ============
See accompanying notes to financial statements.
-19-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 2,084,318 $ 1,236,040 $ 2,031,561
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,306,698 14,386,576 15,287,524
Provision for losses 1,266,000 1,666,851 105,000
Cost of equipment sales 1,967,406 2,872,946 899,272
Recovery of investment in direct finance leases 1,436,847 1,632,852 1,745,557
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (610,911) 72,465 (47,265)
Decrease (increase) in receivable from affiliates 413,249 (497,175) (206,074)
(Decrease) increase in accounts payable
and accrued liabilities 1,031,676 (33,129) 668,519
(Decrease) increase in payables to affiliates 210,125 37,393 (12,070)
(Decrease) increase in rents received in advance (171,033) (147,084) (220,485)
------------ ------------ ------------
Net cash provided by operating activities 19,934,375 21,227,735 20,251,539
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment on operating leases from affiliates (7,400,376) (6,439,871) (14,699,101)
Investment in direct financing leases, acquired from affiliates -- (1,062,247) (620,284)
------------ ------------ ------------
Net cash used in investing activities (7,400,376) (7,502,118) (15,319,385)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from Class A capital contributions -- -- 4,336,754
Proceeds from Class B capital contributions -- -- 40,000
Proceeds from discounted lease rentals 2,453,422 -- 3,994,817
Principal payments on discounted lease rentals (6,991,830) (9,642,575) (9,142,248)
Redemptions of Class A limited partner units (158,950) (264,854) (222,436)
Commissions paid to affiliate in connection with
the sale of Class A limited partner units -- -- (434,326)
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)
Distributions to partners (5,268,330) (5,318,981) (5,229,564)
------------ ------------ ------------
Net cash used in financing activities (9,965,688) (15,226,410) (6,974,350)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,568,311 (1,500,793) (2,042,196)
Cash and cash equivalents at beginning of period 1,133,758 2,634,551 4,676,747
------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,702,069 $ 1,133,758 $ 2,634,551
============ ============ ============
-20-
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $1,101,722 $ 923,893 $1,343,176
Supplemental disclosure of noncash investing and
financing activities:
Rents deducted from cash paid for equipment acquisitions -- 130,918 --
Discounted lease rentals assumed in equipment acquisitions 7,623,018 7,386,009 3,223,219
See accompanying notes to financial statements.
-21-
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 Mishawaka Leasing
Company, Inc. ("MLC").
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.
Mishawaka Leasing Company, Inc. 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, 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.
-22-
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.
-23-
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. Statement 133
is effective for fiscal years beginning after June 15, 1999, with earlier
application permitted. In June 1999, the Financial Accounting Standard 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, and such
adoption had no material impact on the Partnership.
-24-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
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 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 Partnership 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 equipment.
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 as determined by the general
partner. In estimating such values, the general partner considers all
relevant information regarding the equipment and the lessee.
-25-
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 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.
-26-
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 $3,649,000 and $1,111,000 at December 31, 2000
and 1999, 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, 2000 and 1999 were:
2000 1999
----------- -----------
Minimum lease payments receivable $ 4,739,959 $ 4,391,512
Estimated residual values 734,879 831,411
Less unearned income (1,071,322) (817,401)
----------- -----------
Total $ 4,403,516 $ 4,405,522
=========== ===========
3. Leased Equipment, net
---------------------
The Partnership's investment in equipment on operating leases by major
classes as of December 31, 2000 and 1999 were:
2000 1999
------------ ------------
Transportation and industrial equipment $ 42,013,231 $ 38,818,396
Computers and peripherals 18,364,324 15,856,195
Office furniture and equipment 5,976,804 13,867,144
Other 4,065,457 3,499,545
------------ ------------
70,419,816 72,041,280
Less:
Accumulated depreciation (30,292,049) (30,228,522)
Allowance for losses (775,791) (372,230)
------------ ------------
$ 39,351,976 $ 41,440,528
============ ============
Depreciation expense for 2000, 1999 and 1998 was $12,306,698, $14,386,576
and $15,287,524, respectively.
-27-
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, 2000 are as follows:
Years Ending December 31, Direct Finance Leases Operating Leases
-------------------------
2001 $ 2,158,414 $13,083,970
2002 1,173,582 7,236,103
2003 938,806 2,962,873
2004 387,203 1,402,861
Thereafter 81,954 489,565
----------- -----------
Total $ 4,739,959 $25,175,372
=========== ===========
5. Discounted Lease Rentals
------------------------
Discounted lease rentals outstanding at December 31, 2000 bear interest at
rates primarily ranging between 6% and 10%. Aggregate maturities of such
non-recourse obligations are:
Years Ending December 31,
-------------------------
2001 $ 8,266,415
2002 4,907,863
2003 2,098,947
2004 779,622
Thereafter 212,009
-------------
$ 16,264,856
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 2000 and 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 2000 and 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.
-28-
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 2000 and 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 $531,000, $449,000 and $606,000 in 2000, 1999 and
1998, 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 $338,000, $401,000 and $422,000 of
management fees during 2000, 1999, and 1998, 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 $140,000,
$209,000 and $168,000 of direct services from general partner during 2000,
1999 and 1998, respectively.
Equipment Purchases
-------------------
The Partnership purchased equipment, with a total purchase price of
$15,061,881, $15,019,045, and $18,542,605 (including $7,623,018,
$7,386,009, and $3,223,219 of discounted lease rentals) during 2000, 1999,
and 1998, 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. All purchases arranged by MLC
were direct from independent third parties.
-29-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Payables to Affiliates
----------------------
Payables to affiliates of approximately $294,000, $84,000, and $47,000 in
2000, 1999 and 1998, respectively, consist of $7,000 for direct services
from general partner, $24,000 for management fees paid to general partner,
and $263,000 for reimbursable general and administrative expenses in 2000,
$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 to general partner, and $4,000
for due diligence expenses in 1998.
Receivable From Affiliates
--------------------------
CAII collected and applied rental payments to the lessee's account with the
Partnership, for those lessees who remitted directly to CAII. The rental
payments were then transferred to the Partnership, eliminating the
receivable from related party balance. MLC does not collect rental payments
from lessees. All payments are sent directly to the Partnership.
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:
2000 1999 1998
---- ---- ----
Net income per financial statements $ 2,084,318 $ 1,236,040 $ 2,031,561
Direct finance leases 1,295,587 1,632,855 1,745,558
Depreciation (3,176,322) (2,641,615) (4,962,903)
Provision for losses 1,266,000 1,666,851 105,000
Loss on sale of equipment (274,551) (1,481,692) (494,248)
Other (505,555) 19,032 245,990
----------- ----------- -----------
Partnership income for federal income tax purposes $ 689,477 $ 431,471 $(1,329,042)
=========== =========== ===========
The following reconciles partners' capital for financial reporting purposes
to partners' capital for federal income tax purposes as of December 31:
2000 1999 1998
---- ---- ----
Partners' capital per financial statements $ 29,259,636 $ 32,602,552 $ 36,947,254
Commissions and offering costs 7,304,048 7,304,048 7,304,048
Direct finance leases 5,751,680 4,456,093 2,823,238
Depreciation (15,593,767) (12,417,445) (9,775,830)
Provision for losses 3,037,849 1,771,849 105,000
Loss on sale of equipment (2,250,491) (1,975,940) (494,248)
Other 314,148 787,943 751,712
------------ ------------ ------------
Partners' capital for federal income tax purposes $ 27,823,103 $ 32,529,100 $ 37,661,174
============ ============ ============
-30-
Capital Preferred Yield Fund-IV, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
8. Concentration of Credit Risk
----------------------------
Approximately 70% 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 2000.
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, 2000 for cash and cash
equivalents, accounts receivable, 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, 2000, discounted lease rentals of approximately
$16,265,000 had a fair value of approximately $15,959,000. The fair values
were estimated utilizing market rates of comparable debt having similar
maturities and credit quality as of December 31, 2000.
-31-
Independent Auditors' Report
----------------------------
The Partners
Capital Preferred Yield Fund-IV, L.P.:
Under date of April 20, 2001, we reported on the balance sheets of Capital
Preferred Yield Fund-IV, L.P. as of December 31, 2000 and 1999, and the related
statements of income, partners' capital, and cash flows for the years ended
December 31, 2000, 1999 and 1998, as contained in the Partnership's annual
report on Form 10-K for the year 2000. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement Schedule II. 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
April 20, 2001
-32-
CAPITAL PREFERRED YIELD FUND-IV, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the year ended December 31, 2000
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
- -------------- ------------ ------------ ----------- -----------
2000
----
Allowance for losses:
Accounts receivable $ 30,000 $ 36,000 $ -- $ 66,000
Receivable from affiliates 300,000 -- (300,000) --
Equipment on operating leases 372,230 1,266,000 (862,439) 775,791
----------- ----------- ----------- -----------
$ 702,230 $ 1,302,000 $(1,162,439) $ 841,791
=========== =========== =========== ===========
1999
----
Allowance for losses:
Accounts receivable $ 30,000 $ -- $ -- $ 30,000
Receivable from affiliates -- 300,000 -- 300,000
Equipment on operating leases 75,000 1,366,851 (1,069,621) 372,230
----------- ----------- ----------- -----------
$ 105,000 $ 1,666,851 $(1,069,621) $ 702,230
=========== =========== =========== ===========
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
-33-
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
John F. Olmstead, age 57, has been president of Mishawaka Leasing Company, Inc.
since its formation in September 2000. He was Senior Vice President of CAII from
December, 1988, until June 2000. He has served as Chairman of the Board for
Neo-kam Industries, Inc., Matchless Metal Polish Company, Inc. and ACL, Inc.
since 1983. He has over 30 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.
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 2000.
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.
MLC is the Class B limited partner.
CAI Equipment Leasing V Corp. is the general partner.
-34-
Item 12. Security Ownership of Certain Beneficial Owners and Management,
continued
--------------------------------------------------------------
The names and addresses of the general partner and the Class B limited
partner are as follows:
General Partner
---------------
CAI Equipment Leasing V Corp.
2750 South Wadsworth
C-200
Denver, Colorado 80227
Class B Limited Partner
-----------------------
Mishawaka Leasing Company, Inc.
2750 South Wadsworth
C-200
Denver, Colorado 80227
(b) No directors or officers of the general partner or the Class B limited
partner owned any Class A limited partner units as of December 31,
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 2000:
-35-
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
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 $530,640 in 2000, 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 $338,261 for 2000.
-36-
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 $139,906 during
2000.
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 $52,683 and $52,683, respectively, for 2000. Distributions and net
income allocated to the Class B limited partner totaled $52,500 and $20,316,
respectively, during 2000.
During 2000, the Partnership acquired the equipment described below from CAII at
CAII's historical cost plus reimbursement of other net acquisition costs, and
from independent third parties as arranged by MLC:
Cost to
Partnership
Including
Acquisition Debt Annual
Lessee Equipment Description Fees* Assumed Rents
- ------ --------------------- ------------ ------- ---------
American Honda Editing Equipment $ 10,345 $ - $ 3,370
American Microtrace 130,410 - -
Ball-Foster Glass Construction 5,484 2,798 2,885
Ball-Foster Glass Material Handling 82,076 59,301 61,241
Brown-Strauss Steel Miscellaneous 4,751 4,591 3,193
Brown-Strauss Steel Telecommunications 3,852 3,722 2,628
Chrysler Forklift 97,381 - 18,566
Cirrus Logic Miscellaneous 559,702 540,775 556,500
Consolidated Diesel Copiers 518 - -
Consolidated Diesel Manufacturing 10,540 8,684 6,131
DSL Transportation Svcs Miscellaneous 63,531 51,883 52,327
E-Trade Office Furniture 293,454 259,256 65,634
Flynt Fabrics Forklift 6,107 - 510
General Motors Corp Crane 273,515 - 52,709
General Motors Corp Forklift 347,002 15,550 36,171
General Motors Corp Material Handling 12,985 853 853
General Motors Corp Miscellaneous 13,372 879 879
General Motors Corp Railcar Mover 155,764 - 28,617
General Motors Corp Scrubber 131,269 - 38,048
General Motors Corp Sweepers 22,730 1,494 1,494
H.J. Heinz Lift Trucks 1,158,004 - 358,599
Honeywell Computer Equipment 527,207 434,827 214,300
In-Home Health Office Equipment 19,211 13,562 10,104
ITO Corp Forklift 72,414 69,965 75,199
ITO Corp Miscellaneous 42,552 41,113 47,354
ITO Corp Tractors 2,687 2,596 -
Johnson Controls Forklift 441,461 333,571 104,495
Johnson Controls Network 153,558 124,020 73,124
Johnson Controls Scrubber 39,656 30,834 7,757
Johnson Controls Tractor 54,825 42,628 10,725
Labelon Corp Forklift 26,910 - 2,082
Labelon Corp Miscellaneous 44,732 18,219 18,654
Magna Interior Systems Computer Equipment 227,947 125,637 136,565
-37-
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Accountable General and Administrative Expenses, continued
- -----------------------------------------------
Cost to
Partnership
Including
Acquisition Debt Annual
Lessee Equipment Description Fees* Assumed Rents
- ------ --------------------- ------------- ---------- ----------
Magna Interior Systems Machine Tools 19,465 14,875 11,163
Magna Interior Systems Plotter/Printer 45,582 36,001 18,867
McKee Foods Computer Equipment 381,798 337,248 151,046
Michelin Forklift 1,002,369 832,871 218,256
Michelin Tractor 49,891 40,449 10,699
Michigan Consolidated Gas Printing 66,976 18,597 24,348
National Discount Brokers Computer Equipment 224,950 166,403 124,853
NBC Media Composer 677,614 269,044 193,677
Northrop Grumman Corp Computer Equipment 206,599 185,797 73,044
New York Hospital Ultra Sound Equipment 1,285,736 - 227,830
Parke-Davis Spectrometer 140,692 - 93,681
Pillsbury Forklifts 116,856 - 20,164
Plasma Quest Semi-Test 2,601 - 653
Texas Utilities Communications 164,955 138,414 45,773
Texas Utilities Computer Equipment 907,295 766,896 423,356
Texas Utilities Copiers 34,704 28,466 13,992
Texas Utilities Projectors 11,499 9,432 4,636
The Aztec Group, LTD Trailers 23,673 14,872 10,922
The Stop & Shop Point of Sale 214,931 188,875 168,911
Thomson Industries Hobbing Machine 70,201 - 12,052
Thomson Industries Machine Center 371,077 - 76,297
Thomson Industries Machine Tools 206,930 - 46,265
Thomson Industries Mazak Machine 494,081 - 149,798
Thomson Industries Manufacturing 69,341 7,496 11,036
Thomson Industries Miscellaneous 8,875 8,575 10,050
Triad International Aircraft 68,118 14,815 14,892
Triad International Miscellaneous 14,048 3,673 3,685
TRW Semiconductor 3,022,170 2,353,461 924,670
Unilever Forklift 67,543 - 13,560
Xerox Computers 55,359 - 23,904
------------ ---------- ----------
$ 15,061,881 $7,623,018 $5,112,794
============ ========== ===========
* 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.
-38-
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").
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended December 31, 2000.
(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.
-39-
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: May 14, 2001 Capital Preferred Yield Fund-IV, L.P.
By: CAI Equipment Leasing V Corporation
By: ___________________________________
Susan M. Landi
Chief Accounting Officer
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 ___________________.
Signature Title
- --------- -----
________________
John F. Olmstead President and Director
-40-
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: May 14, 2001 Capital Preferred Yield Fund-IV, L.P.
By: CAI Equipment Leasing V Corporation
By: /s/Susan M. Landi
------------------------------------
Susan M. Landi
Chief Accounting Officer
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 April 23, 2001.
Signature Title
- --------- -----
/s/John F. Olmstead
- --------------------
John F. Olmstead President and Director