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. ("CAIEL-V"), a Colorado corporation, is the general partner of the Partnership. CAIEL-V was a wholly owned subsidiary of Capital Associates, Inc. ("CAI") until September 12, 2000, the date it was purchased in its entirety by Mishawaka Leasing Company, Inc. ("MLC"). CAI discontinued its operations on December 15, 2000 and filed Chapter 11 Bankruptcy on October 15, 2001.
Capital Associates International, Inc. ("CAII"), a wholly owned subsidiary of CAI, was the Class B limited partner of the Partnership prior to September 12, 2000. In exchange for its Class B limited partner interest, CAII contributed $500,000 (i.e., $10,000 for each $1,000,000 contribution to the Partnership made by the Class A limited partners) to the Partnership making it the largest single investor in the Partnership. The contributions of CAII were made simultaneously with the purchase of equipment by 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; (ii) invest such capital and related indebtedness in a diversified portfolio of equipment subject to leases to creditworthy businesses 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 ended approximately June 30, 2002); (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 that 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 during the liquidation period (within approximately four years of the end of the reinvestment period) and promptly distribute cash from sales thereof to the partners.
Since its formation, the Partnership acquired equipment of various types under lease to third parties on short-term leases (generally five years or less). All of the equipment was either (i) arranged by MLC to be acquired by the Partnership from third parties, or (ii) purchased by CAII directly from manufacturers or from other independent third parties and sold to the Partnership. The equipment generally comprises transportation and industrial equipment, office furniture and equipment, and computer and peripheral equipment, among others. See Item 13 of this report, "Certain Relationships and Related Transactions" for the detail listing of equipment purchased during 2002. The Partnership entered its liquidation period, as defined in the Partnership Agreement, in July 2002. During the liquidation period, purchases of equipment will cease (other than for prior commitments or for equipment upgrades). 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.
The Partnership may assign the rentals from leases to financial institutions, or acquire leases subject to such assignments, at fixed interest rates on a nonrecourse basis. The proceeds of this nonrecourse debt financing will be utilized to finance the purchase of equipment under lease or to invest 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 financings assumed 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.
The Partnership leases equipment to investment grade lessees in diverse industries including the material handling, telecommunications and manufacturing industries. The majority of the Partnership's total equipment under lease was leased to investment grade lessees. 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 nonrecourse 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 is 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 on leases depends, 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.
The Partnership has no employees. Prior to September 12, 2000, the general partner relied upon the services of CAII for origination of leases, administrative and accounting services, and remarketing of leases and equipment, among other services related to the Partnership's assets. Since September 12, 2000, the general partner has contracted with MLC to provide the above services. Many of the management and administrative personnel of MLC formerly worked for CAII and serviced the Partnership's leases. The general partner is entitled to receive certain fees and expense reimbursements in connection with the performance of these services and is responsible for paying MLC. See Item 10 of this Report, "Directors and Executive Officers of the Partnership" and Item 13 of this Report, "Certain Relationships and Related Transactions".
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 and remarketing expertise enable it to compete effectively in the equipment leasing and remarketing markets.
The Partnership leases equipment to a significant number of lessees. One lessee accounted for approximately 10% of total revenue of the Partnership during 2002. No lessee accounted for 10% or greater of total revenue of the Partnership during 2001.
Item 2.
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.
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.
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, 2002.
Item 5.
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, 2002, there were 2,316 Class A limited partners.
Item 5. Market for the Partnership's Common Equity and Related Stockholder ------------------------------------------------------------------ Matters, continued -------
(c) Distributions -------------
During 2002, 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, 2001 January 2002 $ 0.875 $ 479,386 January 31, 2002 February 2002 0.875 399,368 February 28, 2002 March 2002 0.875 399,343 March 31, 2002 April 2002 0.875 479,232 April 30, 2002 May 2002 0.875 399,343 May 31, 2002 June 2002 0.875 399,146 June 30, 2002 July 2002 0.875 478,816 July 31, 2002 August 2002 0.875 398,752 August 31, 2002 September 2002 1.058 514,119 September 30, 2002 October 2002 1.317 639,756 October 31, 2002 November 2002 0.892 433,139 November 30, 2002 December 2002 2.022 982,286 -------- ----------- $ 12.29 $ 6,002,686 ======== ===========
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 that 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.
Distributions for the month ended December 31, 2002, totaling $1,410,079, were paid to the Class A limited partners during January 2003. Distributions to the general partner and Class B limited partner during 2002 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 2003, to (1) meet current operating requirements, and (2) enable it to fund cash distributions to both the Class A and Class B limited partners in accordance with the Partnership Agreement. Distributions during the liquidation period will be based upon cash availability and will vary. All distributions are expected to be a return of capital for economic and accounting purposes.
Item 5. Market for the Partnership's Common Equity and Related Stockholder ------------------------------------------------------------------ Matters, continued -------
(c) Distributions, continued -------------
During 2001, 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, 2000 January 2001 $ 0.875 $ 483,045 January 31, 2001 February 2001 0.875 403,156 February 28, 2001 March 2001 0.875 403,157 March 31, 2001 April 2001 0.875 483,045 April 30, 2001 May 2001 0.875 403,157 May 31, 2001 June 2001 0.875 403,157 June 30, 2001 July 2001 0.875 483,045 July 31, 2001 August 2001 0.875 403,157 August 31, 2001 September 2001 0.875 402,938 September 30, 2001 October 2001 0.875 480,874 October 31, 2001 November 2001 0.875 400,985 November 30, 2001 December 2001 0.875 399,498 ------- ----------- $ 10.50 $ 5,149,214 ======= ===========
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% 2001 10.50 10.5% 2002 12.29 17.0% ------- $ 72.51 =======
(1) Cumulative distributions, as described in note 1 to Notes to Consolidated Financial Statements, began May 1996.
Item 6.
Item 6. Selected Financial Data -----------------------
The following selected financial data relates to the years ended December 31, 2002 through 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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations -------------
I. Results of Operations ---------------------
Critical Accounting Policies
The Partnership's accounting for leases falls under guidelines that have been substantially unchanged since at least 1975. For operating leases, revenue is recorded on a straight-line basis over the lease term, and depreciation is recorded on a straight-line basis over the lease term to an amount equal to the estimated residual value at the lease termination date. For direct finance leases, revenue and amortization to the estimated residual value at the lease termination date are recorded using the interest method (i.e. similar to amortization of a home mortgage).
For both types of leases, two critical assumptions include the probability of future contractual rent collections and an estimate of future residual value. The general partner must make judgments when evaluating both of these assumptions before entering into a lease.
Additionally, the general partner performs quarterly assessments of the carrying value of its assets, including future contractual rent collections and an estimate of future residual value. Recovery of an asset is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. When estimating future contractual rent collections, the general partner considers the then current credit quality of the lessee. When estimating future residuals, the general partner considers all relevant facts regarding the equipment and the lessee, including, for example, the likelihood that the lessee will re-lease or purchase the equipment. If an impairment loss is indicated, the loss recognized in the quarter is measured by the amount the carrying value of an asset exceeds its estimated future net cash flows.
On a per lease basis, future reported results could differ considerably from expected results as conditions arise that significantly affect these two critical assumptions. However, the general partner believes that on a portfolio basis, the likelihood of materially different reported results is minimized (but not removed entirely) because in the normal course of business the Partnership a) assigns certain future rents on a nonrecourse basis to financial institutions for an up front cash payment and b) attempts to keep the Partnership's portfolio diversified as to lessee and equipment type concentrations.
Operating Results
Presented below are schedules (prepared solely to facilitate the discussion of results of operations that follows) showing condensed categories and analyses of changes in those condensed categories derived from the Statements of Operations:
The Partnership entered its liquidation period in 2002, as defined in the Partnership Agreement, and will not purchase significant amounts of equipment in future periods. Furthermore, during future periods, initial leases will expire and the equipment will be remarketed (i.e., re-leased or sold). As a result, both the size of the Partnership's leasing portfolio and the amount of total revenue will decline ("portfolio runoff").
Leasing Margin
Leasing margin consists of the following:
Operating lease rentals and depreciation decreased for the year ended December 31, 2002 compared to the year ended December 31, 2001 primarily due to a decease in the average net book value of the operating lease portfolio. Operating lease
rentals and depreciation increased for the year ended December 31, 2001 compared to the year ended December 31, 2000 primarily because of an increase in leases entering their remarketing period.
Direct finance lease income decreased (which is counter-intuitive because the average net book value of the direct finance lease portfolio increased) primarily because during the 2001 and 2000 periods, the direct finance lease portfolio included a large, high-yielding remarketed lease.
Interest expense on discounted lease rentals increased due to an increase in the average balance of discounted lease rentals outstanding.
Leasing margin and leasing margin ratio vary 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 and leasing margin ratio decreased primarily due to the increase in the average discounted lease rentals outstanding discussed above.
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:
2002 2001 2000 ---- ---- ----
Equipment sales revenue $ 3,934,743 $ 2,746,707 $ 2,159,596 Cost of equipment sales (2,571,969) (1,916,116) (1,967,406) ---------- ---------- ---------- Equipment sales margin $ 1,362,774 $ 830,591 $ 192,190 =========== =========== ===========
Equipment sales margin fluctuates based upon the composition of equipment available for sale. Currently, the Partnership is in its liquidation period (as defined in the Partnership Agreement). Initial leases are expiring and the equipment is either being re-leased or sold to the lessee or a third party. Equipment sales margin varies with the number and dollar amount of equipment leases that mature in a particular period and the current market value for specific equipment and residual value estimates.
Interest Income
Interest income varies due to (1) the amount of cash available for investment (pending distribution or equipment purchases) and (2) the interest rate on such invested cash.
Expenses
Management fees paid to the general partner are calculated as a percentage of rents collected during the respective period.
Direct services from the general partner increased in 2002 compared to 2001 primarily due to increased costs related to management's efforts to collect receivables owed to the Partnership. Direct services from the general partner increased in 2001 compared to 2000 primarily due to activities related to converting the Partnership's assets from the CAII computer systems to the MLC computer systems.
General and administrative expenses were higher in 2001 compared to 2002 and 2000 primarily because 2001 included a) a one-time charge for software and computer equipment, and b) charges for data processing and the computer conversion described above, all of which were related to the change in 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 or purchase 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 recorded during 2002 related to the following: o $55,000 related to the future residual value of equipment on lease to a lessee that filed for Chapter 11 bankruptcy protection. o $1,063,000 related to a decrease in the estimated future residual value of semiconductor manufacturing equipment subject to operating leases. o $589,500 related to decreases in the estimated future residual values of other on-lease equipment. o $543,000 related to equipment sold subsequent to lease maturity.
The provision for losses recorded during 2001 related to the following: o $440,000 related to a lessee that filed for Chapter 11 bankruptcy protection on December 21, 2001. o $300,000 for estimated uncollectible accounts receivable. The reserve was recorded due to the uncertainty of collection. o $1,865,589 related to a decline in the residual value of on-lease equipment.
The provision for losses recorded during 2000 related to the following: o $450,000 related to a lessee that filed for Chapter 11 bankruptcy protection on October 5, 2000. o $86,000 for estimated uncollectible accounts receivable. o $297,000 related to a decline in the residual value of on-lease equipment. o $433,000 related primarily to a decline in the value of off-lease equipment.
II. Liquidity and Capital Resources -------------------------------
During July 2002, the Partnership entered its liquidation period, as defined in the Partnership Agreement. Consequently, material purchases of equipment subject to leases (except for prior commitments or equipment upgrades) will cease. As a result, during future periods, both the size of the Partnership's leasing portfolio and the amount of leasing revenue will decline.
The Partnership funds its operating activities principally with cash from rents, discounted lease rentals (nonrecourse 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 2002, 2001 and 2000, the Partnership acquired equipment subject to leases with a total purchase price of $25,201,626, $16,886,489 and $15,061,881, respectively (subject to $18,945,462, $12,186,758 and $7,623,018, respectively, of existing nonrecourse debt). Also during 2002, 2001 and 2000, the Partnership discounted future rental payments from certain leases with lenders on a nonrecourse basis and received proceeds of $2,348,846, $1,653,629 and $2,453,422, respectively. Nonrecourse borrowing against unleveraged leases in the Partnership's lease portfolio may occur in the future as well, when the general partner, at its discretion, determines that such nonrecourse financing is in the best interest of the Partnership.
During 2002, 2001 and 2000, the Partnership declared distributions to the Class A limited partners of $6,933,379, $5,145,554 and $5,163,101, respectively, of which $1,410,079 was paid during January 2003. 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 that 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 the Partnership will generate sufficient cash flows from operations during 2003, to (1) meet current operating requirements, (2) enable it to fund cash distributions to both the Class A and Class B limited partners in accordance with the Partnership Agreement. Distributions during the liquidation period will be based upon cash availability and will vary. All distributions are expected to be a return of capital for economic and accounting purposes.
Until September 2000, the Partnership relied upon the services of 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 (see discussion below) 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's 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. During 2000, as 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 were higher than normal. Also during the same period, CAII did not to keep up with collections of accounts receivable, which were higher than normal. Both of these events have adversely affected the Partnership's performance. CAII subsequently filed Chapter 11 Bankruptcy on October 15, 2001.
III. 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. The Partnership does not believe the adoption of SFAS 146 will have a material impact on the Partnership's financial position, results of operations or cash flows.
IV. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act -------------------------------------------------------------------------- of 1995 -------
The statements contained in this report which are not historical facts may be deemed to contain forward-looking statements with respect to events, the occurrence of which involve risks and uncertainties, and are subject to factors that could cause actual future results to differ both adversely and materially from currently anticipated results, including, without limitation; the level of lease acquisitions; realization of residual values; customer credit risk; competition from other lessors, specialty finance lenders or banks; and the availability and cost of financing sources. Certain specific risks associated with particular aspects of the Partnership's business are discussed in detail throughout Parts I and II when and where applicable.
Item 7A.
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 at 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 8.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Financial Statement Schedule
Page Number ------ Financial Statements --------------------
Independent Auditors' Report 15
Balance Sheets at December 31, 2002 and 2001 16
Statements of Operations for the years ended December 31, 2002, 2001 and 2000 17
Statements of Partners' Capital for the years ended December 31, 2002, 2001 and 2000 18
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 19-20
Notes to Financial Statements 21-30
Financial Statement Schedule
Independent Auditors' Report on Schedule 31
Schedule II - Valuation and Qualifying Accounts 32
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, 2002 and 2001, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2002. 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, 2002 and 2001, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
/s/KPMG LLP ----------- KPMG LLP
Denver, Colorado March 13, 2003
Capital Preferred Yield Fund-IV, L.P.
BALANCE SHEETS December 31, 2002 and 2001
ASSETS
See accompanying notes to financial statements.
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF OPERATIONS For the Years Ended December 31, 2002, 2001 and 2000
See accompanying notes to financial statements.
Capital Preferred Yield Fund-IV, L.P.
STATEMENTS OF PARTNERS' CAPITAL For the Years Ended December 31, 2002, 2001 and 2000
See accompanying notes to financial statements.
Capital Preferred Yield Fund-IV, L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2002, 2001 and 2000
Capital Preferred Yield Fund-IV, L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2002, 2001 and 2000
See accompanying notes to financial statements.
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 equipment owned by the Partnership is expected to be sold and the Partnership liquidated between 2003 and 2006. 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 initially sold 500,000 Class A limited partner units to 2,345 investors at a price of $100 per Class A limited partner unit.
MLC is the Class B limited partner. The Class B limited partner contributed 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 accounting principles generally accepted in the United States of America 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 and impairment, 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.
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.
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 (loss) is allocated to the partners in a manner consistent with the allocation of cash distributions.
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.
Capital Preferred Yield Fund-IV, L.P. NOTES TO FINANCIAL STATEMENTS, continued
Recently Issued Financial Accounting Standards, continued
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. The Partnership does not believe the adoption of SFAS 146 will have a material impact on the Partnership's financial position, results of operations or cash flows.
Long-Lived Assets
The Partnership accounts for long-lived assets under the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 requires that long-lived assets, including equipment subject to operating leases and certain identifiable intangibles to be held and used by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future net cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future net cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets, including equipment subject to operating lease and identifiable intangibles held by the Partnership, is based on the fair value of the asset. The fair value of the asset may be calculated by discounting the expected future net cash flows at an appropriate discount rate.
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 that 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., "nonrecourse 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 sheets. 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 statements of operations. 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.
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 statements of operations. 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.
Nonrecourse Discounting of Future Lease Rentals
The Partnership may assign the future lease rentals to financial institutions, or acquire leases subject to such assignments, at fixed interest rates on a nonrecourse 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 as discounted lease rentals on the accompanying balance sheets. As lessees make payments to financial institutions, leasing revenue and interest expense are recorded.
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" discussed above.
Income Taxes
No provision for income taxes has been made in the financial statements because taxable income or loss is recorded in the tax return of the individual partners.
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 $2,100,000 and $3,900,000 at December 31, 2002 and 2001, 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.
Equipment Held for Sale
Equipment held for sale, recorded at the lower of cost or market value expected to be realized, consists of equipment previously leased to end users which has been returned to the Partnership following lease expiration.
Net Income (Loss) Per Class A Limited Partner Unit
Net income (loss) per Class A limited partner unit is computed by dividing the net income (loss) 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, were:
2002 2001 ---- ---- Minimum lease payments receivable $ 8,134,831 $ 6,739,161 Estimated residual values 1,041,057 820,547 Unearned income (821,988) (700,252) ------------ ----------- Total $ 8,353,900 $ 6,859,456 ============ ===========
3. Leased Equipment, net ---------------------
The Partnership's investment in equipment on operating leases by major classes as of December 31, were:
2002 2001 ---- ---- Transportation and industrial equipment $ 47,748,152 $ 44,421,752 Computers and peripherals 5,182,532 7,565,165 Office furniture and equipment 2,934,478 4,361,327 Other 9,049,190 3,205,206 ----- ------------ ------------ 64,914,352 59,553,450 Accumulated depreciation (27,789,031) (26,281,269) ----- ------------ ------------ $ 37,125,321 $ 33,272,181 ============ ============
Depreciation expense for 2002, 2001 and 2000 was $13,000,144, $13,816,293 and $12,306,698, respectively.
Capital Preferred Yield Fund-IV, L.P. NOTES TO FINANCIAL STATEMENTS, continued
4. Future Minimum Lease Payments
Future minimum lease payments receivable from non-cancelable leases as of December 31, 2002 are as follows:
Years Ending December 31, Direct Finance Leases Operating Leases ------------------------- --------------------- ----------------
2003 $ 3,473,208 $ 11,900,685 2004 2,419,463 8,095,177 2005 1,272,269 4,833,388 2006 890,864 2,793,396 2007 79,027 1,083,838 ----------- ------------ Total $ 8,134,831 $ 28,706,484 =========== ============
5. Discounted Lease Rentals ------------------------
Discounted lease rentals outstanding at December 31, 2002 bear interest at rates primarily ranging between 6% and 10%. Aggregate maturities of such nonrecourse obligations are:
Years Ending December 31, -------------------------
2003 $ 11,480,804 2004 7,939,448 2005 4,945,626 2006 3,186,514 2007 1,029,942 ------------ $ 28,582,334 ============
6. Transactions With the General Partner and Affiliates ----------------------------------------------------
Origination Fee and Evaluation Fee ----------------------------------
The general partner earns a fee equal to 3.5% of the sales price of equipment acquired by 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 $212,000, $586,000 and $531,000 in 2002, 2001 and 2000, 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.
Capital Preferred Yield Fund-IV, L.P. NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates (continued) ----------------------------------------------------------------
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 $391,000, $405,000 and $338,000 of management fees during 2002, 2001, and 2000, 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 $318,000, $252,000 and $140,000 of direct services from the general partner during 2002, 2001 and 2000, respectively.
Equipment Purchases -------------------
The Partnership purchased equipment, with a total purchase price of $25,201,626, $16,886,489, and $15,061,881 (including $18,945,462, $12,186,758, and $7,632,018 of discounted lease rentals) during 2002, 2001, and 2000, respectively. The Partnership purchased the equipment at its 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.
Payables to Affiliates ----------------------
Payables to affiliates of approximately $209,000 and $73,000 at December 31, 2002 and 2001, respectively, consist of $30,000 for direct services from general partner, $28,000 for management fees paid to general partner, and $151,000 for reimbursable general and administrative expenses in 2002; and $26,000 for direct services from general partner, $27,000 for management fees paid to general partner, and $20,000 for reimbursable general and administrative expenses in 2001.
7. Tax Information (Unaudited) ---------------------------
The following reconciles net income (loss) for financial reporting purposes to the income for federal income tax purposes for the periods ended December 31:
Capital Preferred Yield Fund-IV, L.P. NOTES TO FINANCIAL STATEMENTS, continued
7. Tax Information (Unaudited) (continued) ---------------------------------------
The following reconciles partners' capital for financial reporting purposes to partners' capital for federal income tax purposes as of December 31:
8. Concentration of Credit Risk ----------------------------
The majority 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. The Partnership limits its credit risk through selective use of nonrecourse discounting of future lease rentals as discussed above.
The Partnership leases equipment to a significant number of lessees. One lessee accounted for approximately 10% of total revenue during 2002. No lessees accounted for 10% or greater of total revenue during 2001 or 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.
Independent Auditors' Report on Schedule ----------------------------------------
The Partners Capital Preferred Yield Fund-IV, L.P.:
Under date of March 13, 2003, we reported on the balance sheets of Capital Preferred Yield Fund-IV, L.P. as of December 31, 2002 and 2001, and the related statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2002, which are included in the Partnership's annual report on Form 10-K for the year ended December 31, 2002. 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 March 13, 2003
CAPITAL PREFERRED YIELD FUND-IV, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2002, 2001 and 2000
(1) Principally charge-offs against the established allowances.
See accompanying independent auditors' report
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure --------------------
None.
Item 10.
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 Joseph F. Bukofski Chief Accounting Officer
John F. Olmstead, age 59, 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.
Joseph F. Bukofski, age 47, has been Chief Accounting Officer of CAI Equipment Leasing V Corporation since January 2002. He was employed by CAII from June 1990 until May 2000, most recently holding the position of Vice President and Treasurer. He has served as Chief Financial Officer for a private leasing company since June 2000. Mr. Bukofski holds a Master of Science degree in accounting from the University of Colorado and an active CPA license from the State of Colorado.
Item 11.
Item 11. Executive Compensation ----------------------
Mr. Bukofski provides services related to the Partnership's accounting as a consultant to the general partner. The Partnership paid $12,030 to Mr. Bukofski during 2002 for such services. No compensation was paid by the Partnership to any other officers or 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 2002.
Item 12.
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.
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, 2002.
(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.
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 2002:
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 creditworthiness of lessees. Origination and evaluation fees totaled $211,980 in 2002, 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 $391,387 for 2002.
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 that are incurred in connection with the Partnership's operations. Such reimbursable expenses totaled $317,563 during 2002.
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 $70,563, respectively, for 2002. Distributions and net income allocated to the Class B limited partner totaled $52,500 and $542, respectively, during 2002.
During 2002, the Partnership acquired the equipment described below from independent third parties as arranged by MLC:
*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 accounting principles generally accepted in the United States of America, 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.
Item 14.
Item 14. Controls and Procedures -----------------------
Within 90 days prior to the date of this annual 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.
Item 15.
Item 15. 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, 2002.
(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,
4.3* Amended and Restated Agreement of Limited Partnership of Capital Preferred Yield Fund-IV, L.P.
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.
* 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.
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: March 28, 2003 Capital Preferred Yield Fund-IV, L.P.
By: CAI Equipment Leasing V Corporation
By: /s/Joseph F. Bukofski --------------------- Joseph F. Bukofski 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 March 28, 2003.
Signature Title - --------- -----
/s/John F. Olmstead - ------------------- John F. Olmstead President and Director
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-K of the Partnership;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual 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) March 28, 2003
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-Kof the Partnership;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual 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) March 28, 2003