SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------------
Commission file number 33-80849
---------------------------------
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 No.)
2750 South Wadsworth Blvd., C-200
Denver, Colorado 80227
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (720) 963-9600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
---
Exhibit Index Appears on Page 17
Page 1 of 20 Pages
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Quarterly Report on Form 10-Q
For the Quarter Ended
September 30, 2002
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 2002 and December 31, 2001 3
Statements of Operations - Three and Nine Months Ended
September 30, 2002 and 2001 4
Statements of Cash Flows - Nine Months Ended
September 30, 2002 and 2001 5
Notes to Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial
Conditionand Results of Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
Certifications 19-20
2
CAPITAL PREFERRED YIELD FUND-IV, L.P.
BALANCE SHEETS
ASSETS
September 30, December 31,
2002 2001
------------- ------------
(Unaudited)
Cash and cash equivalents $ 3,271,955 $ 3,917,475
Accounts receivable, net 99,922 1,944,681
Equipment held for sale or re-lease 438,990 918,597
Net investment in direct finance leases 9,014,205 6,859,456
Leased equipment, net 36,499,060 33,272,181
----------- -----------
Total assets $49,324,132 $46,912,390
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 1,074,041 $ 2,511,585
Payables to affiliates 130,360 73,203
Rents received in advance 185,672 40,473
Distributions payable to partners 623,391 488,648
Discounted lease rentals 27,750,413 20,141,516
----------- -----------
Total liabilities 29,763,877 23,255,425
----------- -----------
Partners' capital:
General partner -- --
Limited partners:
Class A 19,285,568 23,343,893
Class B 274,687 313,072
----------- -----------
Total partners' capital 19,560,255 23,656,965
----------- -----------
Total liabilities and partners' capital $49,324,132 $46,912,390
=========== ===========
See accompanying notes to financial statements.
3
CAPITAL PREFERRED YIELD FUND-IV, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue:
Operating lease rentals $ 4,344,436 $ 4,278,720 $ 12,017,668 $ 13,167,055
Direct finance lease income 134,371 177,824 377,979 582,571
Equipment sales margin 96,685 191,863 417,055 301,305
Interest income 11,672 20,734 78,304 87,907
------------ ------------ ------------ ------------
Total revenue 4,587,164 4,669,141 12,891,006 14,138,838
------------ ------------ ------------ ------------
Expenses:
Depreciation 3,656,723 3,974,196 9,661,319 10,502,233
Management fees to general partner 105,601 98,462 289,278 309,987
Direct services from general partner 76,229 77,520 236,280 180,906
General and administrative 89,899 72,985 383,689 495,467
Interest on discounted lease rentals 469,679 298,629 1,286,902 983,645
Provision for losses 488,000 715,000 893,000 1,365,000
------------ ------------ ------------ ------------
Total expenses 4,886,131 5,236,792 12,750,468 13,837,238
------------ ------------ ------------ ------------
Net income (loss) $ (298,967) $ (567,651) $ 140,538 $ 301,600
============ ============ ============ ============
Net income (loss) allocated:
To the general partner $ 15,546 $ 13,132 $ 41,621 $ 39,444
To the Class A limited partners (311,368) (574,975) 97,928 259,534
To the Class B limited partner (3,145) (5,808) 989 2,622
------------ ------------ ------------ ------------
$ (298,967) $ (567,651) $ 140,538 $ 301,600
============ ============ ============ ============
Net income (loss) per weighted average Class A
limited partner unit outstanding $ (0.64) $ (1.17) $ 0.20 $ 0.53
============ ============ ============ ============
Weighted average Class A limited
partner units outstanding 485,362 489,676 485,992 490,384
============ ============ ============ ============
See accompanying notes to financial statements.
4
CAPITAL PREFERRED YIELD FUND-IV, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------------------
September 30, September 30,
2002 2001
---- ----
Net cash provided by operating activities $ 9,787,295 $ 10,966,933
------------ ------------
Cash flows from financing activities:
Proceeds from discounted lease rentals 2,348,846 1,653,629
Principal payments on discounted lease rentals (8,679,156) (8,504,308)
Redemptions of Class A limited partner units (75,006) (151,252)
Distributions to partners (4,027,499) (3,942,324)
------------ ------------
Net cash used in financing activities (10,432,815) (10,944,255)
------------ ------------
Net decrease in cash and cash equivalents (645,520) 22,678
Cash and cash equivalents at beginning of period 3,917,475 3,702,069
------------ ------------
Cash and cash equivalents at end of period $ 3,271,955 $ 3,724,747
============ ============
Supplemental disclosure of cash flow information -Interest
paid on discounted lease rentals $ 1,286,902 $ 983,645
============ ============
Supplemental disclosure of noncash investing and
financing activities - Discounted lease rentals assumed in
equipment acquisitions $ 13,939,207 $ 8,633,427
============ ============
See accompanying notes to financial statements.
5
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and disclosures required by accounting
principles generally accepted in the United States of America for annual
financial statements. In the opinion of the general partner, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 2001 was derived from the audited financial statements
included in the Partnership's 2001 Form 10-K. For further information,
refer to the financial statements of Capital Preferred Yield Fund-IV, L.P.
(the "Partnership"), and the related notes, included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 2001 (the "2001
Form 10-K"), previously filed with the Securities and Exchange Commission.
Recently Issued Financial Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS 145 updates, clarifies
and simplifies existing accounting pronouncements. SFAS 145 rescinds
Statement 4, which required all gains and losses from extinguishments of
debt to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. As a result, the criteria in APB
Opinion 30 will now be used to classify those gains and losses. Statement
64 amended Statement 4, and is no longer necessary because Statement 4 has
been rescinded. Statement 44 was issued to establish accounting
requirements for the effects of transition to the provisions of the Motor
Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that
certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with the FASB's
goal of requiring similar accounting treatment for transactions that have
similar economic effects. SFAS 145 also makes technical corrections to
existing pronouncements. The Partnership does not believe the adoption of
SFAS 145 will have a material impact on the Partnership's financial
position, results of operations or cash flows.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated With Exit or
Disposal Activities." SFAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities, and nullifies
Emerging Issues Task Force Issue No. 94-3 ("EITF 94-3"), "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)".
SFAS 146 requires recognition of a liability for a cost associated with an
exit or disposal activity when the liability is incurred, as opposed to
being recognized at the date an entity commits to an exit plan under EITF
94-3. SFAS 146 also establishes that fair value is the objective for
initial measurement of the liability. SFAS 146 is effective for exit or
disposal activities that are initiated after December 31, 2002, with
earlier application encouraged.
6
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates
----------------------------------------------------
Management Fees Paid to General Partner
In accordance with the Partnership Agreement, the General Partner earns a
management fee in connection with its management of the equipment,
calculated as a percentage of the monthly gross rentals received, and paid
monthly in arrears. As of September 30, 2002, management fees of $26,399
are included in payables to affiliates.
Direct Services from General Partner
The General Partner and an affiliate provide accounting, investor
relations, billing, collecting, asset management, and other administrative
services to the Partnership. The Partnership reimburses the General Partner
for these services performed on its behalf as permitted under terms of the
Partnership Agreement. As of September 30, 2002, direct services from the
General Partner in the amount of $25,498 are included in payables to
affiliates.
General and Administrative Expenses
The General Partner and an affiliate are reimbursed for the actual cost of
administrative expenses incurred on behalf of the Partnership per the terms
of the Partnership Agreement. As of September 30, 2002, administrative
expenses of $78,463 are included in payables to affiliates.
Equipment Purchases
During the nine months ended September 30, 2002, the Partnership acquired
the equipment described below from independent third parties as arranged by
Mishawaka Leasing Company, Inc. (the General Partner):
Total
Acquisition Equipment
Cost of Fees and Purchase
Lessee Equipment Description Equipment Reimbursements Price
- ------ --------------------- --------- -------------- -----
Avery Dennison Forklifts $ 317,876 $ 11,014 $ 328,890
Eye Centers of Florida Medical 45,129 1,564 46,693
Robert Tobin Medical 328,494 11,382 339,876
Hartford Hospital Medical 241,578 8,371 249,949
Vision Care Medical 337,648 11,700 349,348
Suffolk Eye Medical 32,760 1,135 33,895
Saint Raphael Medical 67,441 2,337 69,778
Lapeer Regional Medical 29,764 1,031 30,795
Eye Centers of Florida Medical 327,951 11,364 339,315
Healthsouth Medical 99,745 3,456 103,201
Grant/Riverside Medical 198,702 6,885 205,587
New Milford Hospital Medical 29,328 1,016 30,344
Eye Surgery Consult. Medical 12,998 450 13,448
Sisters of Charity Medical 141,424 4,900 146,324
7
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Equipment Purchases, continued
Johnson Controls Forklifts 38,572 1,200 39,772
Johnson Controls Forklifts 193,296 6,012 199,308
Johnson Controls Pallet Trucks 151,991 4,728 156,719
Johnson Controls Forklifts 64,368 2,002 66,370
Johnson Controls Forklifts 26,454 946 27,400
Johnson Controls Forklifts 28,036 1,002 29,038
Johnson Controls Sweeper/Scrubber 30,024 1,073 31,097
Johnson Controls Forklifts 38,990 1,394 40,384
NBC Broadcasting 217,979 8,068 226,047
Michelin Forklifts 72,398 2,660 75,058
Michelin Forklifts 31,497 1,157 32,654
Johnson Controls Forklifts 163,724 5,857 169,581
Johnson Controls Forklifts 57,041 2,041 59,082
General Motors Forklifts 1,389,210 49,846 1,439,056
General Motors Construction 643,360 22,730 666,090
General Motors Forklifts 329,914 11,634 341,548
General Motors Crane 369,441 13,025 382,466
TRW Workstations 296,671 0 296,671
TRW Telecommunications 45,355 0 45,355
Communications Test Design Material Handling 116,793 0 116,793
Communications Test Design Forklifts 22,111 0 22,111
Communications Test Design Forklifts 85,717 0 85,717
Johnson Controls Forklifts 48,417 0 48,417
Johnson Controls Forklifts 28,987 0 28,987
Johnson Controls Forklifts 22,695 0 22,695
Johnson Controls Forklifts 25,521 0 25,521
Johnson Controls Forklifts 57,975 0 57,975
Michelin Forklifts 75,152 0 75,152
Michelin Forklifts 4,722 0 4,722
Michelin Forklifts 4,722 0 4,722
Michelin Forklifts 50,860 0 50,860
Michelin Forklifts 25,430 0 25,430
Michelin Forklifts 79,375 0 79,375
Michelin Forklifts 60,504 0 60,504
Mississippi Power Co. Tractors 1,370,398 0 1,370,398
NBC Broadcasting 1,035,312 0 1,035,312
Texas Utilities Networking 218,069 0 218,069
Texas Utilities Networking 42,551 0 42,551
Texas Utilities Networking 43,355 0 43,355
Texas Utilities Telecom - PBX 78,328 0 78,328
Texas Utilities Telecom - PBX 48,395 0 48,395
Texas Utilities Printers 89,395 0 89,395
Texas Utilities Printers 36,754 0 36,754
Texas Utilities Printers 37,920 0 37,920
Texas Utilities Printers 38,625 0 38,625
Texas Utilities Telecommunications 111,287 0 111,287
8
CAPITAL PREFERRED YIELD FUND-IV, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Equipment Purchases, continued
TRW Semiconductor 540,698 0 540,698
TRW Office Furniture 265,336 0 265,336
TRW Office Furniture 15,064 0 15,064
TRW Telecommunications 529,153 0 529,153
General Motors Trucks 132,518 0 132,518
General Motors Trucks 344,014 0 344,014
General Motors Construction 56,979 0 56,979
General Motors Machine Tool 51,072 0 51,072
General Motors Machine Tool 31,025 0 31,025
General Motors Forklift 118,990 0 118,990
General Motors Forklift 762,618 0 762,618
General Motors Crane 211,046 0 211,046
General Motors Yellow Gear 104,478 0 104,478
General Motors Construction 853,203 0 853,203
General Motors Manufacturing 196,849 0 196,849
TRW Office Furniture 294,931 0 294,931
Raytheon Company Computer Equipment 192,402 0 192,402
Texas Utilities Computer Equipment 632,444 0 632,444
Texas Utilities Computer Equipment 133,221 0 133,221
Texas Utilities Computer Equipment 542,610 0 542,610
Texas Utilities Computer Equipment 49,359 0 49,359
Texas Utilities Computer Equipment 12,062 0 12,062
Texas Utilities Computer Equipment 66,510 0 66,510
GE Plastics Research 97,343 0 97,343
NBC Broadcasting 379,858 0 379,858
Lockheed Martin Broadcasting 11,172 0 11,172
Lockheed Martin Broadcasting 12,185 0 12,185
Lockheed Martin Broadcasting 10,465 0 10,465
Lockheed Martin Broadcasting 21,857 0 21,857
TRW Office Furniture 114,611 0 114,611
General Motors Forklift 86,899 0 86,899
Lockheed Martin Broadcasting 321,825 0 321,825
Lockheed Martin Broadcasting 286,211 0 286,211
Lockheed Martin Broadcasting 82,615 0 82,615
Northrop Grumman Printers 157,524 0 157,524
Texas Utilities Computer Equipment 871,312 0 871,312
$ 18,848,988 $ 211,980 $ 19,060,968
In addition, during the nine months ended September 30, 2002, the
Partnership reached its Front End Fee Cap, as defined in the Partnership
Agreement. As such, the Partnership ceased paying acquisition fees during
the three months ended March 31, 2002 and anticipates that no such fees
will be paid in future periods.
9
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing items of income and expense and
changes in those items derived from the Statements of Income:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------------ ------------------------------------------
2002 2001 Change 2002 2001 Change
---- ---- ------ ---- ---- ------
Leasing margin $ 352,405 $ 183,719 $ 168,686 $ 1,447,426 $ 2,263,748 $ (816,322)
Equipment sales margin 96,685 191,863 (95,178) 417,055 301,30 5115,750
Interest income 11,672 20,734 (9,062) 78,304 87,907 (9,603)
Management fees to general partner (105,601) (98,462) (7,139) (289,278) (309,987) 20,709
Direct services from general partner (76,229) (77,520) 1,291 (236,280) (180,906) (55,374)
General and administrative (89,899) (72,985) (16,914) (383,689) (495,467) 111,778
Provision for losses (488,000) (715,000) 227,000 (893,000) (1,365,000) 472,000
----------- ----------- ----------- ----------- ----------- -------
Net income (loss) $ (298,967) $ (567,651) $ 268,684 $ 140,538 $ 301,600 $ (161,062)
=========== =========== =========== =========== =========== ===========
Leasing Margin
Leasing margin consists of the following:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Operating lease rentals $ 4,344,436 $ 4,278,720 $ 12,017,668 $ 13,167,055
Direct finance lease income 134,371 177,824 377,979 582,571
Depreciation (3,656,723) (3,974,196) (9,661,319) (10,502,233)
Interest expense on discounted lease rentals (469,679) (298,629) (1,286,902) (983,645)
------------ ------------ ------------ ------------
Leasing margin $ 352,405 $ 183,719 $ 1,447,426 $ 2,263,748
============ ============ ============ ============
Leasing margin ratio 8% 4% 12% 16%
= = == ==
Operating lease rentals decreased for the nine months ended September 30, 2002
and depreciation decreased for the three and nine months ended September 30,
2002 compared to the same periods of 2001 due to a decrease in the average net
book value of the operating lease portfolio. Operating lease rentals increased
for the three months ended September 30, 2002 compared to the three months ended
September 30, 2001 primarily because of an increase in revenue from leases
entering their remarketing period.
Direct finance lease income decreased for the three and nine months ended
September 30, 2002 compared to the same periods of 2001 (which is
counter-intuitive because the average net book value of the direct finance lease
portfolio increased during the period) primarily because during the periods in
2001, the direct finance lease portfolio included a large, high-yielding
remarketed lease.
10
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
- ---------------------
Leasing Margin, continued
Interest expense on discounted lease rentals increased for the three and nine
months ended September 30, 2002 compared to the three and nine months ended
September 30, 2001 due to an increase in non-recourse debt outstanding.
Leasing margin ratio varies due to changes in the portfolio including, among
other things, the mix of operating leases versus direct finance leases, the
average maturity of operating leases in the portfolio, the percentage of leases
in the portfolio that have entered their remarketing stage, and the amount of
discounted lease rentals financing the portfolio. Leasing margin ratio increased
for the three months ended September 30, 2002 compared to the three months ended
September 30, 2001 primarily as a result of the increase in remarketed operating
leases discussed above. Leasing margin ration decreased for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001
primarily because of the increase in non-recourse debt outstanding discussed
above. Leasing margin ratio for a direct finance lease is fixed over the term of
the lease. However, leasing margin ratio for an operating lease financed with
non-recourse debt increases as the lease matures 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 consists of the following:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
Equipment sales revenue $ 381,762 $ 476,893 $ 2,299,227 $ 1,783,390
Cost of equipment sales (285,077) (285,030) (1,882,172) (1,482,085)
----------- -------- ---------- ----------
Equipment sales margin $ 96,685 $ 191,863 $ 417,055 $ 301,305
=========== =========== =========== ===========
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.
Interest Income
Interest income varies due to (1) the amount of cash available for investment
(pending distribution to partners or investment in equipment purchases) and (2)
the interest rate on such invested cash.
11
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
- ---------------------
Expenses
Management fees paid to the general partner are calculated as a percentage of
rents collected during the respective period.
Direct services from general partner increased for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001
primarily due to increased costs related to management's efforts to collect
receivables owed to the Partnership.
General and administrative expenses decreased for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001
primarily because the period during 2001 included a) a one-time charge for
software and computer equipment, and b) charges for data processing and a
computer conversion, all of which were related to a change in the ownership of
the general partner.
Provision for Losses
The realization of greater than the carrying value of equipment (which occurs
when the equipment is remarketed subsequent to initial lease termination) 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 such that it
has credit exposure and residual value exposure and will incur losses from those
exposures in the ordinary course of business. The Partnership performs quarterly
assessments of the estimated residual value of its assets to identify any
other-than-temporary losses in value that, if any, are also recorded as
provision for losses.
The provision for losses of $488,000 and $893,000 recorded during the three and
nine months ended September 30, 2002 related primarily to lower of cost or
market write downs of equipment in inventory in addition to residual value write
downs of leased equipment.
12
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Liquidity & Capital Resources
- -----------------------------
The Partnership funds its operating activities principally with cash from rents,
discounted lease rentals (non-recourse debt), interest income and sales of
off-lease equipment. Available cash and cash reserves of the Partnership are
invested in short-term government securities pending the acquisition of
equipment or distribution to partners.
During the nine months ended September 30, 2002, the Partnership acquired
equipment subject to leases with a total purchase price of $19,060,968
During the nine months ended September 30, 2002, the Partnership declared
distributions to the Class A limited partners of $4,081,245 ($639,756 of which
was paid in October 2002). A substantial portion of such distributions is
expected to constitute a return of capital. Distributions may be characterized
for tax, accounting and economic purposes as a return of capital, a return on
capital, or a portion of both. The portion of each cash distribution that
exceeds its net income for the fiscal period may be deemed a return of capital
for accounting purposes. However, the total percentage of the partnership's
return on capital over its life will only be determined after all residual cash
flows (which include proceeds from the re-leasing and sale of equipment) have
been realized at the termination of the Partnership.
The general partner believes that the Partnership will generate sufficient cash
flows from operations during the remainder of 2002, to (1) meet current
operating requirements, (2) fund cash distributions to both the Class A and
Class B limited partners at annualized rates of 10.5% (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.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
New Accounting Pronouncements
- -----------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. SFAS 145 rescinds Statement 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary because
Statement 4 has been rescinded. Statement 44 was issued to establish accounting
requirements for the effects of transition to the provisions of the Motor
Carrier Act of 1980. Because the transition has been completed, Statement 44 is
no longer necessary. SFAS 145 amends Statement 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. This
amendment is consistent with the FASB's goal of requiring similar accounting
treatment for transactions that have similar economic effects. SFAS 145 also
makes technical corrections to existing pronouncements. The Partnership does not
believe the adoption of SFAS 145 will have a material impact on the
Partnership's financial position, results of operations or cash flows.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS 146"), "Accounting for Costs Associated With Exit or Disposal
Activities." SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities, and nullifies Emerging Issues Task
Force Issue No. 94-3 (EITF 94-3"), "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS 146 requires recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred, as opposed to being recognized at the date an entity
commits to an exit plan under EITF 94-3. SFAS 146 also establishes that fair
value is the objective for initial measurement of the liability. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier application encouraged.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
- -----------------------------------------------------------------------------
1995
- ----
The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, and are subject to factors
that could cause actual future results to differ both adversely and materially
from currently anticipated results, including, without limitation, the level of
lease originations, realization of residual values, the availability and cost of
financing sources and the ultimate outcome of any contract disputes. Certain
specific risks associated with particular aspects of the Partnership's business
are discussed under Results of Operations in this report and under Results of
Operations in the 2001 Form 10-K when and where applicable.
14
CAPITAL PREFERRED YIELD FUND-IV, L.P.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Partnership's leases with equipment users are non-cancelable and have lease
rates that 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 Partnership's other assets and liabilities are also at fixed rates.
Consequently, the Partnership has no interest rate risk or other market risk
exposure.
Item 4. Controls and Procedures
-----------------------
Within 90 days prior to the date of this quarterly report, an evaluation was
performed under the supervision and with the participation of the General
Partner's management, including the President and Director, and the Chief
Accounting Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures. Based on that evaluation, the
General Partner's management, including the President and Director, and the
Chief Accounting Officer, concluded that the Partnership's disclosure controls
and procedures are effective in timely alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC reports. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their evaluation.
15
CAPITAL PREFERRED YIELD FUND-IV, L.P.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is involved in routine legal proceedings
incidental to the conduct of its business. The General Partner
believes none of these legal proceedings will have a material
adverse effect on the financial condition or operations of the
Partnership.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) The Partnership did not file any reports on Form 8-K
during the quarter ended September 30, 2002.
16
Index to Exhibits
Exhibit
Number Description
* 99.1 Certification by John F. Olmstead pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 99.2 Certification by Joseph F. Bukofski pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Filed herewith
17
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL PREFERRED YIELD FUND-IV, L.P.
By: CAI Equipment Leasing V Corp.
Dated: November 14, 2002 By: /s/John F. Olmstead
-------------------
John F. Olmstead
President and Director
(Principal Executive Officer)
CAPITAL PREFERRED YIELD FUND-IV, L.P.
By: CAI Equipment Leasing V Corp.
Dated: November 14, 2002 By: /s/Joseph F. Bukofski
---------------------
Joseph F. Bukofski
Chief Accounting Officer
(Principal Accounting and Financial Officer)
18
CAPITAL PREFERRED YIELD FUND-IV, L.P.
CERTIFICATION
I, John F. Olmstead, President and Director of CAI Equipment Leasing V
Corp., the General Partner of Capital Preferred Yield Fund-IV, L.P. (the
"Partnership"), certify that:
1. I have reviewed this report on Form 10-Q of the Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading as with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this quarterly report;
4. The Partnership's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Partnership, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
in being prepared;
b. evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Partnership's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Partnership's auditors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Partnership's
ability to record, process, summarize and report financial data and
have identified for the Partnership's auditors any material
weaknesses in internal controls; and
b. any fraud, whether of not material, that involves
management or other employees who have a significant role in the
Partnership's internal controls; and
6. The Partnership's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/John F. Olmstead
-------------------
John F. Olmstead
President and Director
(Principal Executive Officer)
November 14, 2002
19
CAPITAL PREFERRED YIELD FUND-IV, L.P.
CERTIFICATION
I, Joseph F. Bukofski, Chief Accounting Officer of CAI Equipment Leasing V
Corp., the General Partner of Capital Preferred Yield Fund-IV, L.P. (the
"Partnership"), certify that:
1. I have reviewed this report on Form 10-Q of the Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading as with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this quarterly report;
4. The Partnership's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Partnership, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
in being prepared;
b. evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Partnership's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Partnership's auditors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Partnership's
ability to record, process, summarize and report financial data and
have identified for the Partnership's auditors any material
weaknesses in internal controls; and
b. any fraud, whether of not material, that involves
management or other employees who have a significant role in the
Partnership's internal controls; and
6. The Partnership's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/Joseph F. Bukofski
---------------------
Joseph F. Bukofski
Chief Accounting Officer
(Principal Accounting and Financial Officer)
November 14, 2002
20