10-Q 1 cappref410q_09-01.txt SEPTEMER 30, 2001 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, 2001 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________________ to Commission file number __________________________ 33-80849 Capital Preferred Yield Fund-IV, L.P. ------------------------------------- (Exact name of registrant as specified in its charter) Delaware 84-1331690 ----------------------- ------------------------------------ (State of organization) (I.R.S. Employer Identification No.) 2750 South Wadsworth Blvd., C-200 Denver, Colorado 80227 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (720) 963-9600 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ . Exhibit Index Appears on Page 15 Page 1 of 16 Pages CAPITAL PREFERRED YIELD FUND-IV, L.P. Quarterly Report on Form 10-Q For the Quarter Ended September 30, 2001 Table of Contents PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Balance Sheets - September 30, 2001 and December 31, 2000 3 Statements of Income (Loss) - Three and Nine Months Ended September 30, 2001 and 2000 4 Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000 5 Notes to Financial Statements 6 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 Exhibits 15 Signature 16 CAPITAL PREFERRED YIELD FUND-IV, L.P. BALANCE SHEETS

The accompanying notes are an integral part of these financial statements. 2 CAPITAL PREFERRED YIELD FUND-IV, L.P. STATEMENTS OF INCOME (Unaudited)

The accompanying notes are an integral part of these financial statements. 4 CAPITAL PREFERRED YIELD FUND-IV, L.P. STATEMENTS OF CASH FLOWS (Unaudited)

The accompanying notes are an integral part of these financial statements. 5 CAPITAL PREFERRED YIELD FUND-IV, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- The accompanying unaudited financial statements have been prepared in accordance with 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 of normal recurring adjustments) considered necessary for a fair presentation have been included. The balance sheet at December 31, 2000 was derived from the audited financial statements included in the Partnership's 2000 Form 10-K. For further information, refer to the financial statements of Capital Preferred Yield Fund-IV, L.P. (the "Partnership"), and the related notes, included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K"), previously filed with the Securities and Exchange Commission. Recently Issued Financial Accounting Standards In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", effective for the Partnership on January 1, 2003. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" which requires the purchase method and eliminates the option of using the pooling-of-interests method of accounting for all business combinations. The provisions in this statement apply to all business combinations initiated after September 30, 2001, and all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets" which requires that all intangible assets acquired, other than those acquired in a business combination, be initially recognized and measured based on the asset's fair value. In addition, the intangible asset should be amortized based upon its useful life. If the intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life can be determined. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for the Partnership on January 1, 2002. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and other related accounting guidance. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. 6 CAPITAL PREFERRED YIELD FUND-IV, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. Transactions With the General Partner and Affiliates ---------------------------------------------------- Management Fees Paid to General Partner In accordance with the Partnership Agreement, the General Partner earns a management fee in connection with its management of the equipment, calculated as a percentage of the monthly gross rentals received, and paid monthly in arrears. As of September 30, 2001, management fees of $72,326 are included in payables to affiliates. 2. Transactions With the General Partner and Affiliates, continued --------------------------------------------------------------- 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. As of September 30, 2001, direct services from the General Partner in the amount of $41,614 are included in payables to affiliates. General and Administrative Expenses The General Partner and an affiliate are reimbursed for the actual cost of administrative expenses incurred on behalf of Partnership per the terms of the Partnership Agreement. As of September 30, 2001, administrative expenses of $152,179 are included in payables to affiliates. 7 CAPITAL PREFERRED YIELD FUND-IV, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) Equipment Purchases During the nine months ended September 30, 2001, the Partnership acquired the equipment described below from independent third parties as arranged by Mishawaka Leasing Company, Inc., an affiliate:

8 CAPITAL PREFERRED YIELD FUND-IV, L.P. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations --------------------- Presented below are schedules (prepared solely to facilitate the discussion of results of operations that follows) showing items of income and expense and changes in those items derived from the Statements of Income:

Leasing Margin Leasing margin consists of the following:

Operating lease rentals and depreciation increased for the three and nine months ended September 30, 2001 compared to the three and nine months ended September 30, 2000 due to higher average monthly rents and associated depreciation in the portfolio. Interest on discounted lease rentals increased for the three and nine months ended September 30, 2001 compared to the three and nine months ended September 30, 2000 due to a net increase in non-recourse debt. Direct finance lease income decreased for the three and nine months ended September 30, 2001 compared to the same period of 2000 even though net investment in direct finance leases increased. This is primarily due to the addition of approximately $1,350,000 in leases at the end of the quarter. 9 CAPITAL PREFERRED YIELD FUND-IV, L.P. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Results of Operations, continued --------------------- Leasing Margin, continued Leasing margin ratio fluctuates based upon (i) the mix of direct finance leases and operating leases, (ii) remarketing activities, (iii) the method used to finance leases added to the Partnership's lease portfolio, and (iv) the relative age of lease types in the portfolio. Leasing margin and the related leasing margin ratio for an operating lease financed with non-recourse debt increases during the term of the lease since rents and depreciation are typically fixed while interest expense declines as the related non-recourse debt principal is repaid. Leasing margin and leasing margin ratio decreased for the three and nine months ended September 30, 2001 compared to the three and nine months ended September 30, 2000 primarily due to the decline in direct finance lease income and the increase in depreciation. The ultimate profitability of the Partnership's leasing transactions is dependent in part on interest rates at the time the leases are originated, future equipment values, and on-going lessee creditworthiness. Because leasing is an alternative to financing equipment purchases with debt, lease rates tend to rise and fall with interest rates (although lease rate movements generally lag interest rate changes in the capital markets). Equipment Sales Margin Equipment sales margin consists of the following:

Equipment sales margin is affected by the volume and composition of equipment that becomes available for sale. Some of the Partnership's initial leases have expired, and the equipment is either being re-leased or sold to the lessee or to third parties. Equipment sales margin increased for the three and nine months ended September 30, 2001 compared to the same period in 2000 primarily due to an increase in the expiration of leases within the portfolio. Interest Income Interest income decreased for the three and nine months ended September 30, 2001 compared to the three and nine months ended September 30, 2000 due to a decrease in invested cash. Interest income varies due to (1) the amount of cash available for investment (pending distribution to partners or investment in equipment purchases) and (2) the interest rate on such invested cash. 10 CAPITAL PREFERRED YIELD FUND-IV, L.P. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Results of Operations, continued --------------------- Expenses Management fees increased for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 due to growth in the Partnership's lease portfolio. Management fees remained relatively the same for the 3 months ended September 30, 2001 compared to the corresponding period of 2000 primarily due to the timing of the third quarter additions being at the end of the quarter. Direct services from general partner decreased for the nine months ended September 30, 2001 compared to the corresponding period in 2000 primarily due to an increase in management's efforts to collect receivables owed to the Partnership. General and administrative expenses increased for the three and nine months ended September 30, 2001 compared to the three and nine months ended 2000 due to an increase in insurance expense, data processing charges and audit fees. Also contributing to the increase in general and administrative expenses is a one-time charge for software and computer equipment related to a change in the ownership of the General Partner. Provision for Losses The remarketing of equipment for an amount greater than its book value is reported as equipment sales margin (if the equipment is sold) or leasing margin (if the equipment is re-leased). The realization of less than the carrying value of equipment (which occurs when the equipment is remarketed subsequent to initial lease termination) is recorded as provision for losses. Residual values are established equal to the estimated value to be received from the equipment following termination of the lease. In estimating such values, the Partnership considers all relevant facts regarding the equipment and the lessee, including, for example, the likelihood that the lessee will re-lease the equipment. The nature of the Partnership's leasing activities is such that it has credit exposure and residual value exposure and will incur losses from those exposures in the ordinary course of business. The Partnership performs quarterly assessments of the estimated residual value of its assets to identify any other-than-temporary losses in value. The Partnership recorded a provision for loss of $1,365,000 for the nine months ended September 30, 2001 related to changes in the estimated unguaranteed residual values on direct financing and operating leases and a reserve for uncollectible accounts receivable. The reserve was recorded due to the uncertainty of collection. However, management will continue its efforts in trying to collect the receivables. 11 CAPITAL PREFERRED YIELD FUND-IV, L.P. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Liquidity & Capital Resources ----------------------------- The Partnership funds its operating activities principally with cash from rents, discounted lease rentals (non-recourse debt), interest income and sales of off-lease equipment. Available cash and cash reserves of the Partnership are invested in short-term government securities pending the acquisition of equipment or distribution to partners. During the nine months ended September 30, 2001, the Partnership acquired equipment subject to leases with a total purchase price of $12,715,948. During the nine months ended September 30, 2001, the Partnership declared distributions to the Class A limited partners of $3,865,684 ($480,874 of which was paid in October 2001). A substantial portion of such distributions is expected to constitute a return of capital. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital, or a portion of both. The portion of each cash distribution which exceeds its net income for the fiscal period may be deemed a return of capital for accounting purposes. However, the total percentage of the partnership's return on capital over its life will only be determined after all residual cash flows (which include proceeds from the re-leasing and sale of equipment) have been realized at the termination of the Partnership. The general partner believes that the Partnership will generate sufficient cash flows from operations during the remainder of 2001, to (1) meet current operating requirements, (2) fund cash distributions to both the Class A and Class B limited partners at annualized rates of 10.5% (portions of which are expected to constitute returns of capital), and (3) reinvest in additional equipment under leases, provided that suitable equipment can be identified and acquired. New Accounting Pronouncements ----------------------------- In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", effective for the Partnership on January 1, 2003. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" which requires the purchase method and eliminates the option of using the pooling-of-interests method of accounting for all business combinations. The provisions in this statement apply to all business combinations initiated after September 30, 2001, and all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. 12 CAPITAL PREFERRED YIELD FUND-IV, L.P. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued New Accounting Pronouncements, continued ----------------------------- In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets" which requires that all intangible assets acquired, other than those acquired in a business combination, be initially recognized and measured based on the asset's fair value. In addition, the intangible asset should be amortized based upon its useful life. If the intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life can be determined. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" which requires the purchase method and eliminates the option of using the pooling-of-interests method of accounting for all business combinations. The provisions in this statement apply to all business combinations initiated after September 30, 2001, and all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets" which requires that all intangible assets acquired, other than those acquired in a business combination, be initially recognized and measured based on the asset's fair value. In addition, the intangible asset should be amortized based upon its useful life. If the intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life can be determined. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for the Partnership on January 1, 2002. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and other related accounting guidance. The Partnership does not believe the adoption of this statement will have a material impact on the Partnership's financial position, results of operations or cash flows. "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 2000 Form 10-K when and where applicable. 13 CAPITAL PREFERRED YIELD FUND-IV, L.P. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Partnership's leases with equipment users are non-cancelable and have lease rates which are fixed at lease inception. The Partnership finances its leases, in part, with discounted lease rentals. Discounted lease rentals are a fixed rate debt. The Partnership's other assets and liabilities are also at fixed rates. Consequently, the Partnership has no interest rate risk or other market risk exposure. 14 CAPITAL PREFERRED YIELD FUND-IV, L.P. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership is involved in routine legal proceedings incidental to the conduct of its business. The General Partner believes none of these legal proceedings will have a material adverse effect on the financial condition or operations of the Partnership. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) The Partnership did not file any reports on Form 8-K during the quarter ended September 30, 2001. 15 CAPITAL PREFERRED YIELD FUND-IV, L.P. 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-IV, L.P. By: CAI Equipment Leasing V Corp. Dated: November 14, 2001 By: /s/Susan M. Landi ----------------- Susan M. Landi Chief Accounting Officer 16 CAPITAL PREFERRED YIELD FUND-IV, L.P. 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-IV, L.P. By: CAI Equipment Leasing V Corp. Dated: November 14, 2001 By: Susan M. Landi Chief Accounting Officer 16

CAPITAL PREFERRED YIELD FUND IV LP 10-Q