-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bt9WmIg+qjDLj70D5lM8YPIaKZL6vHsz9UxJ/VLrmFJL/XT7lpmIYHVzIIDHo5CM auZAJo5rEmRrdyBOTR8R2Q== 0000853158-98-000012.txt : 19981116 0000853158-98-000012.hdr.sgml : 19981116 ACCESSION NUMBER: 0000853158-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL PREFERRED YIELD FUND CENTRAL INDEX KEY: 0000853158 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 680190817 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19164 FILM NUMBER: 98747240 BUSINESS ADDRESS: STREET 1: 7175 W JEFFERSON AVE STREET 2: STE4000 CITY: LAKEWOOD STATE: CO ZIP: 80235 BUSINESS PHONE: 3039807322 MAIL ADDRESS: STREET 1: 7175 W JEFFERSON #4000 CITY: LAKEWOOD STATE: CO ZIP: 80235 10-Q 1 3Q98CP1.001 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, 1998 ------------------------------------------------- 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 0-19164 --------------------------------------------------------- Capital Preferred Yield Fund, A California Limited Partnership -------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 68-0190817 ----------------------- ------------------------------------ (State of organization) (I.R.S. Employer Identification No.) 7175 West Jefferson Avenue, Suite 4000 Lakewood, Colorado 80235 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 980-1000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Exhibit Index appears on Page 14 Page 1 of 15 Pages CAPITAL PREFERRED YIELD FUND A California Limited Partnership Quarterly Report on Form 10-Q For the Quarter Ended September 30, 1998 Table of Contents ----------------- PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Balance Sheets-September 30, 1998 and December 31, 1997 3 Statements of Income - Three and Nine Months Ended September 30, 1998 and 1997 4 Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 5 Notes to Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 Exhibit Index 14 Signature 15 2 CAPITAL PREFERRED YIELD FUND A California Limited Partnership BALANCE SHEETS ASSETS September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) Cash and cash equivalents $ 3,162,768 $ 2,839,510 Accounts receivable, net 1,477,579 7,059,347 Equipment held for sale or re-lease 152,921 887,865 Net investment in direct finance leases 72,188 229,696 Leased equipment, net 6,386 1,074,600 ----------- ----------- Total assets $ 4,871,842 $12,091,018 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Payables to affiliates $ 7,315 $ 44,916 Accounts payable and accrued liabilities 600,558 905,979 Rents received in advance 92,892 162,931 Distributions payable to partners 3,439,438 1,241,334 Financed operating lease rentals - 1,131,105 ----------- ----------- Total liabilities 4,140,203 3,486,265 ----------- ----------- Partners' capital: General partner - - Limited partners: Class A - 6,439,272 Class B 731,639 2,165,481 ----------- ----------- Total partners' capital 731,639 8,604,753 ----------- ----------- Total liabilities and partners' capital $ 4,871,842 $12,091,018 =========== =========== The accompanying notes are an integral part of these financial statements. 3 CAPITAL PREFERRED YIELD FUND A California Limited Partnership STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------ -------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- REVENUE: Operating lease rentals $ 277,352 $ 1,301,572 $ 439,242 $ 4,470,059 Direct finance lease income 2,282 237,433 106,590 751,812 Equipment sales margin 212,652 58,711 770,658 296,273 Interest income 27,061 11,474 61,532 53,644 ----------- ----------- ----------- ----------- Total revenue 519,347 1,609,190 1,378,022 5,571,788 ----------- ----------- ----------- ----------- EXPENSES: Depreciation 82,179 805,863 210,962 2,750,630 Management fees to general partner 13,362 104,357 31,876 330,457 Direct services from general partner 11,647 31,220 70,286 115,369 Interest on discounted lease rentals - 40,895 28 166,118 Interest on financed operating lease rentals 13,717 11,597 40,754 38,259 General and administrative 35,444 51,551 216,020 213,693 Provision for losses 25,000 25,000 500,000 250,000 ----------- ----------- ----------- ----------- Total expenses 181,349 1,070,483 1,069,926 3,864,526 ----------- ----------- ----------- ----------- NET INCOME $ 337,998 $ 538,707 $ 308,096 $ 1,707,262 =========== =========== =========== =========== NET INCOME ALLOCATED: To the general partner $ 190,190 $ 68,905 $ 368,124 $ 286,858 To the Class A limited partners 137,412 436,789 (55,832) 1,320,591 To the Class B limited partner 10,396 33,013 (4,196) 99,813 ----------- ----------- ----------- ----------- $ 337,998 $ 538,707 $ 308,096 $ 1,707,262 =========== =========== =========== =========== Net income (loss) per weighted average Class A limited partner units outstanding $ .55 $ 1.74 $ (0.22) $ 5.25 =========== =========== =========== =========== Weighted average Class A limited partner unit outstanding 251,376 251,507 251,384 251,609 =========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4 CAPITAL PREFERRED YIELD FUND A California Limited Partnership STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------------- 1998 1997 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,437,467 $ 7,791,920 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on financed operating lease rentals (1,123,270) (245,988) Principal payments on discounted lease rentals (7,835) (2,035,405) Distributions to partners (5,982,405) (7,221,208) Redemptions of limited partner units (699) (23,868) ----------- ----------- Net cash used in financing activities (7,114,209) (9,526,469) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 323,258 (1,734,549) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,839,510 2,672,112 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,162,768 $ 937,563 =========== =========== Supplemental disclosure of cash flow information: Interest paid on discounted lease rentals $ 28 $ 166,118 Interest paid on financed operating lease rentals 40,754 38,259
The accompanying notes are an integral part of these financial statements. 5 CAPITAL PREFERRED YIELD FUND A California Limited Partnership NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for annual financial statements. In the opinion of the general partner, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The balance sheet at December 31, 1997 was derived from the audited financial statements as restated included in the Partnership's 10-K/A. For further information, refer to the financial statements of Capital Preferred Yield Fund, A California Limited Partnership (the "Partnership"), and the related notes, included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, previously filed with the Securities and Exchange Commission. The Partnership is in its liquidation period as defined in the Partnership Agreement. During the liquidation period, the Partnership no longer acquires new leases and the existing lease portfolio is in the process of running-off. As of September 30, 1998, the Partnership had sold a substantial portion of its assets. The General Partner expects to sell the remaining assets by December 31, 1998 and finalize the liquidation of the Partnership. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130"), which requires comprehensive income to be displayed prominently within the financial statements. Comprehensive income is defined as all recognized changes in equity during a period from transactions and other events and circumstances except those resulting from investments by owners and distributions to owners. Net income and items that previously have been recorded directly in equity are included in comprehensive income. Statement 130 affects only the reporting and disclosure of comprehensive income but does not affect recognition or measurement of income. Statement 130 is effective for fiscal years beginning after December 15, 1997, with earlier application permitted. The Partnership adopted Statement 130 in the first quarter of 1998. The adoption did not have an impact on its financial reporting. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("Statement 131"). Statement 131 provides guidance for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports of public companies. An operating segment is defined as a component of a business that engages in business activities from which it may earn revenue and incur expenses, a component 6 CAPITAL PREFERRED YIELD FUND A California Limited Partnership NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation, continued --------------------- RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS, continued whose operating results are regularly reviewed by the company's chief operating decision maker, and a component for which discrete financial information is available. Statement 131 establishes quantitative thresholds for determining operating segments of a company. Statement 131 is effective for fiscal years beginning after December 15, 1997, with earlier application permitted. The Partnership adopted Statement 131 in the first quarter of 1998. The adoption did not have an impact on its financial reporting. 2. Transactions With the General Partner and Affiliate --------------------------------------------------- DIRECT SERVICES FROM GENERAL PARTNER The general partner and an affiliate provide accounting, investor relations, billing, collecting, asset management, and other administrative services to the Partnership. The Partnership reimburses the general partner for these services performed on its behalf as permitted under the terms of the Partnership Agreement. At September 30, 1998, direct services from the General Partner of $6,277 are included in payable to affiliates. MANAGEMENT FEES TO GENERAL PARTNER In accordance with the Partnership Agreement, the General Partner earns a management fee in connection with its management of the equipment, calculated as a percentage of the monthly gross rentals received, and paid monthly in arrears. At September 30, 1998, management fees of $1,038 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 paid on behalf of the Partnership per the terms of the Partnership Agreement. 7 CAPITAL PREFERRED YIELD FUND A California Limited Partnership Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- Presented below are schedules (prepared solely to facilitate the discussion of results of operations that follows) showing condensed statements of income categories and analyses of changes in those condensed categories derived from the Statements of Income.
Condensed Statements Condensed Statements of Income for The Effect on of Income for The Effect on the Three Months Net Income the Nine Months Net Income Ended September 30, of Changes Ended September 30, of Changes -------------------------- Between ------------------------- Between 1998 1997 Periods 1998 1997 Periods ------------ ----------- ------------- ----------- ------------ ------------- Leasing margin $ 183,738 $ 680,650 $ (496,912) $ 294,088 $ 2,266,864 $ (1,972,776) Equipment sales margin 212,652 58,711 153,941 770,658 296,273 474,385 Interest income 27,061 11,474 15,587 61,532 53,644 7,888 Management fees to general partner (13,362) (104,357) 90,995 (31,876) (330,457) 298,581 Direct services from general partner (11,647) (31,220) 19,573 (70,286) (115,369) 45,083 General and administrative (35,444) (51,551) 16,107 (216,020) (213,693) (2,327) Provision for losses (25,000) (25,000) - (500,000) (250,000) (250,000) --------- ---------- ---------- ---------- ----------- ------------ Net income (loss) $ 337,998 $ 538,707 $ (200,709) $ 308,096 $ 1,707,262 $ (1,399,166) ========= ========== ========== ========== =========== ============
The Partnership is in its liquidation period as defined in the Partnership Agreement and, as expected, the Partnership is not purchasing additional equipment, initial leases are expiring and the amount of equipment being remarketed (i.e., re-leased, renewed, or sold) will increase. As a result, both the size of the Partnership's leasing portfolio and the amount of leasing revenue are declining. LEASING MARGIN Leasing margin consists of the following:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ --------------------------- 1998 1997 1998 1997 --------- ----------- ----------- ----------- Operating lease rentals $ 277,352 $ 1,301,572 $ 439,242 $ 4,470,059 Direct financing lease income 2,282 237,433 106,590 751,812 Depreciation (82,179) (805,863) (210,962) (2,750,630) Interest expense (13,717) (52,492) (40,782) (204,377) --------- ----------- ----------- ----------- Leasing margin $ 183,738 $ 680,650 $ 294,088 $ 2,266,864 ========= =========== =========== =========== Leasing margin ratio 66% 38% 54% 43% ========= =========== =========== ===========
8 CAPITAL PREFERRED YIELD FUND A California Limited Partnership Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations, continued - --------------------- LEASING MARGIN, continued The components of leasing margin have declined and are expected to decline further due to portfolio run- off, as the partnership is in the liquidation stage. The ultimate rate of return on leases depends, in part, on interest rates at the time the leases are originated, as well as future equipment values and on-going lessee creditworthiness. Because leasing is an alternative to financing equipment purchases with debt, lease rates tend to rise and fall with interest rates (although lease rate movements generally lag interest rate changes in the capital markets). EQUIPMENT SALES MARGIN Equipment sales margin consists of the following: Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Equipment sales revenue $ 793,995 $ 147,188 $ 2,032,891 $ 1,625,234 Cost of equipment sales (581,343) (88,477) (1,262,233) (1,328,961) ----------- ---------- ----------- ----------- Equipment sales margin $ 212,652 $ 58,711 $ 770,658 $ 296,273 =========== ========== =========== =========== Equipment sales margin increased for the three and ine months ended September 30, 1998 reflecting the efforts of the General Partner to finalize the liquidation of the Partnership. INTEREST INCOME Interest income increased due to an increase in cash available for investment. PROVISION FOR LOSSES The remarketing of equipment for an amount greater than its book value is reported with equipment sales margin (if the equipment is sold) or leasing margin (if the equipment is re-leased). The realization of less than the carrying value of equipment (which is typically not known until remarketing subsequent to the initial lease termination has occurred) is recorded as provision for losses. 9 CAPITAL PREFERRED YIELD FUND A California Limited Partnership Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations, continued - --------------------- PROVISION FOR LOSSES, continued 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 ongoing quarterly assessments of its assets to identify other-than-temporary losses. The provision for losses recorded for the nine months ended September 30, 1998 and 1997 was primarily related to lessees returning equipment to the Partnership. For the nine months ended September 30, 1998, the Partnership recorded a loss of $425,000 on mining and transportation equipment and office furniture and fixtures held for sale or re-lease. The Partnership had previously expected to realize the carrying value of this equipment through proceeds from the sales of equipment to the original lessees. The fair market value of the equipment was less than anticipated. EXPENSES The increase in general and administrative expenses for the nine months ended September 30, 1998 compared to the nine months ended September 30, 1997 was primarily due to an increase in non-resident withholding tax for 1997, paid and expensed on behalf of the limited partners during the second quarter of 1998. Liquidity and Capital Resources - ------------------------------- The Partnership funds its operating activities principally with cash from rents, non-recourse debt, interest income and sales of off-lease equipment. Available cash and cash reserves of the Partnership are invested in interest bearing cash accounts and short-term U.S. Government securities pending distributions to the partners. During the three months ended September 30, 1998, the Partnership declared distributions to the partners of $4,226,443 ($2,814,544 of which was paid during October 1998). A portion of such distributions constituted a return of capital for accounting purposes. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital or both. The portion of each cash distribution by a Partnership which exceeds its net income for the fiscal period may be deemed a return of capital. However, the total percentage of a partnership's return on capital over its life can only be determined after all residual cash flows (which include proceeds from the re-leasing and sales of equipment after initial lease terms expire) have been realized at the termination of the Partnership. The Partnership is in its liquidation period (as defined in the Partnership Agreement) and distributions during the liquidation period will vary based upon cash availability. All distributions are expected to be a return of capital for economic purposes. 10 CAPITAL PREFERRED YIELD FUND A California Limited Partnership Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources, continued - ------------------------------- The General Partner currently anticipates that the Partnership will generate cash flow from operations and equipment sales during the remainder of 1998 which, when added to cash and cash equivalents on hand, should provide sufficient cash to enable the Partnership to meet its current operating requirements. The Class B limited partner distributions of cash from operations are subordinated to the Class A limited partners receiving distributions of cash from operations, as scheduled in the Partnership Agreement (i.e., 13%). Cumulative Class B distributions accrued since August 1997, in the amount of $710,813 were paid in October 1998 due to the receipt of proceeds on the sale of certain equipment. YEAR 2000 ISSUES An affiliate provides accounting and other administrative services, including data processing services to the Partnership. The affiliate has conducted a comprehensive review of its computer systems to identify systems that could be affected by the Year 2000 issue. The Year 2000 issue results from computer programs being written using two digits rather than four to define the applicable year. Certain computer programs which have time-sensitive software could recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major system failures or miscalculations. Certain of the affiliate's software has already been updated to correctly account for the Year 2000 issue. In addition, the affiliate is engaged in a system conversion, whereby the affiliate's primary lease tracking and accounting software is being replaced with new systems which will account for the Year 2000 correctly. The affiliate expects that the new system will be fully operational by December 31, 1999, and therefore will be fully Year 2000 compliant. The affiliate does not expect any other changes required for the Year 2000 to have a material effect on its financial position or results of operations. As such, the affiliate has not developed any specific contingency plans in the event it fails to complete the conversion to a new system by December 31, 1999. In addition, the affiliate does not expect any Year 2000 issues relating to its customers and vendors to have a material effect on its financial position or results of operations. 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. The Partnership will adopt Statement 133 in the first quarter of 1999. The General Partner does not expect the adoption to have an impact on its financial reporting. 11 CAPITAL PREFERRED YIELD FUND A California Limited Partnership Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations "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 1997 Form 10-K when and where applicable. 12 CAPITAL PREFERRED YIELD FUND A California Limited Partnership 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 three months ended September 30, 1998 13 Item No. Exhibit Index 27 Financial Data Schedule 14 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAPITAL PREFERRED YIELD FUND A California Limited Partnership By: CAI Partners Management Company Dated: November 13, 1998 By: /s/Anthony M. DiPaolo -------------------------------- Anthony M. DiPaolo Senior Vice President 15 EX-27 2 3Q98CP1.001
5 The schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of income and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1998 SEP-30-1998 3,162,768 0 1,477,579 0 152,921 0 6,386 0 4,871,842 0 0 0 0 0 731,639 4,871,842 770,658 1,378,022 0 1,069,926 102,162 500,000 40,782 308,096 0 308,096 0 0 0 308,096 (0.22) (0.22)
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