Item 1. Business --------
Capital Preferred Yield Fund-III, L.P., a Delaware limited partnership (the "Partnership"), was organized on November 2, 1993 and is engaged in the business of owning and leasing equipment. CAI Equipment Leasing IV Corp., a Colorado corporation and a wholly owned subsidiary of Capital Associates, Inc. ("CAI"), is the general partner of the Partnership.
Capital Associates International, Inc. ("CAII"), an affiliate of the general partner, is the sole Class B limited partner of the Partnership. In exchange for its Class B limited partner interest, CAII was required to contribute cash of $10,000 for each $1,000,000 of investors' capital contribution (i.e., cash investments in the Partnership) to the Partnership. In addition, the Class B limited partner's interest in Distributable Cash is subordinated to the Class A limited partners' interest. The contributions of the CAII were made simultaneously with the purchase of equipment by the Partnership. As of December 31, 1997, CAII contributed $500,000 to the Partnership making it the largest single investor in the Partnership.
The Partnership's overall investment objectives are to (i) raise the maximum allowable capital from investors (which was achieved on April 10, 1996) 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 ends approximately June 30, 2000); (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 and promptly distribute cash from sales thereof to the Partners within three years of the end of the reinvestment period.
During 1997, the Partnership acquired capital of various types under lease to third parties. All of the capital was purchased by CAII directly from manufacturers or from other independent third parties and sold to the Partnership. The capital is generally comprised of material handling equipment, computer and peripheral equipment, industrial equipment, and telecommunications equipment, among others (the "equipment"). See Item 13 of this report, "Certain Relationships and Related Transactions" for the detail listing of equipment purchased during 1997. The Partnership expects that a majority of the equipment purchased during 1998 will be similar in nature to that mentioned above.
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. This non-recourse debt financing will be utilized to finance the purchase of equipment under lease or to invest the proceeds therefrom in additional equipment under lease. In the event of default by a lessee, the financial institution has a first lien on the underlying leased equipment with no further recourse against the Partnership. Cash proceeds from such financings, or 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.
Item 1. Business, continued --------
During 1997, the Partnership leased equipment to investment grade lessees in diverse industries including the financial services, retail, telecommunications, energy and manufacturing industries. Approximately 70% of the Partnership's total equipment under lease was leased to investment grade lessees as of December 31, 1997. Pursuant to the Partnership Agreement, an investment grade lessee is a company (i) with a net worth in excess of $100,000,000 (and no debt issues that are rated); or (ii) with a credit rating of not less than Baa as determined by Moody's Investor Services, Inc. or comparable credit rating, as determined by another recognized credit rating service; or (iii) a lessee, all of whose lease payments have been unconditionally guaranteed or supported by a letter of credit issued by a company meeting one of the above requirements. The Partnership limits its credit risk through selective use of non-recourse debt financing of future lease rentals, as described above.
The Partnership only acquires equipment that is on lease at the time of acquisition. After the initial term of its lease, each item of equipment will be expected to provide additional investment income from its re-lease or sale. Upon expiration of the initial lease, the Partnership attempts to re-lease or sell the equipment to the existing lessee. If a re-lease or sale to the lessee cannot be negotiated, the Partnership will attempt to lease or sell the equipment to a third party.
The Partnership's business is not subject to seasonal variations.
The ultimate rate of return 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. The officers, directors and employees of the general partner and its affiliates perform services on behalf of the Partnership. The general partner is entitled to receive certain fees and expense reimbursements in connection with the performance of these services. See Item 10 of this Report, "Directors and Executive Officers of the Partnership" and Item 13 of this Report, "Certain Relationships and Related Transactions," which are incorporated herein by reference.
The Partnership competes in the leasing marketplace as a lessor with a significant number of other companies, including equipment manufacturers, leasing companies and financial institutions. The Partnership competes mainly on the basis of the expertise of its general partner in remarketing equipment, terms offered in its transactions, pricing and service. Although the Partnership does not account for a significant percentage of the leasing market, the general partner believes that the Partnership's marketing strategies and financing capabilities enable it to compete effectively in the equipment leasing and remarketing markets.
The Partnership leases equipment to a significant number of lessees. No one lessee and its affiliates accounted for more than 10% of total rental revenue of Partnership during 1997.
The Partnership is required to dissolve and distribute all of its assets no later than December 31, 2011. However, the general partner anticipates that all equipment will be sold and the Partnership will be liquidated prior to that date.
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 of this Report, "Business," 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, 1997.
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, 1997, there were 2,891 Class A limited partners.
(c) Distributions -------------
During 1997, 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, 1996 January 1997 $ 0.875 $ 435,790 January 31, 1997 February 1997 0.875 433,808 February 28, 1997 March 1997 0.875 433,807 March 31, 1997 April 1997 0.875 435,690 April 30, 1997 May 1997 0.875 433,388 May 31, 1997 June 1997 0.875 433,344 June 30, 1997 July 1997 0.875 435,313 July 31, 1997 August 1997 0.875 432,883 August 31, 1997 September 1997 0.875 432,839 September 30, 1997 October 1997 0.875 434,415 October 31, 1997 November 1997 0.875 432,576 November 30, 1997 December 1997 0.875 431,108 ------- ----------- $ 10.50 $ 5,204,961 ======= ===========
Item 5. Market for the Partnership's Common Equity and Related Stockholder ----------------------------------------------------------------------- Matters, continued ------- (c) Distributions, continued -------------
Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital or a portion of both. The portion of each cash distribution by a partnership which exceeds its net income for the fiscal period may be deemed a return of capital for accounting purposes. However, the total percentage of a leasing partnership's return on capital over its life can only be determined after all residual cash flows (which include proceeds from the re-leasing and sale of equipment) have been realized at the termination of the Partnership.
The distribution for the month ended December 31, 1997, totaling $432,859, was paid to the Class A limited partners on January 5, 1998. Distributions to the general partner and Class B limited partner during 1997 are discussed in Item 13 of this Report, "Certain Relationships and Related Transactions."
The general partner believes that the Partnership will generate sufficient cash flows from operations during 1998, to (1) meet current operating requirements, (2) enable it to fund cash distributions to both the Class A and Class B limited partners at annualized rates of 10.5% on their capital contributions (portions of which are expected to constitute returns of capital), and (3) reinvest in additional equipment under leases, provided that suitable equipment can be identified and acquired.
During 1996, 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, 1995 January 1996 $ 0.875 $ 313,566 January 31, 1996 February 1996 0.875 345,254 February 28, 1996 March 1996 0.875 376,218 March 31, 1996 April 1996 0.875 414,345 April 30, 1996 May 1996 0.875 434,253 May 31, 1996 June 1996 0.875 435,339 June 30, 1996 July 1996 0.875 436,957 July 31, 1996 August 1996 0.875 435,339 August 31, 1996 September 1996 0.875 434,827 September 30, 1996 October 1996 0.875 436,228 October 31, 1996 November 1996 0.875 434,346 November 30, 1996 December 1996 0.875 433,908 ------- ----------- $ 10.50 $ 4,930,580 ======= ===========
Item 5. Market for the Partnership's Common Equity and Related Stockholder ----------------------------------------------------------------------- Matters, continued ------- (c) Distributions, continued -------------
The following represents annual and cumulative distributions per Class A limited partner unit, as described in Footnote 1 to Notes to Consolidated Financial Statements.
Distributions per $ Per Class A Limited Class A Partner Unit Payment Limited Partner (computed on Made During Unit Invested weighted average) % (1) ----------- --------------- ----------------- -----
1994 $ 100 $ 5.25 10.5% 1995 10.50 10.5% 1996 10.50 10.5% 1997 10.50 10.5% ------- $ 36.75 =======
(1) Cumulative distributions, as described in Footnote 1 to Notes to Consolidated Financial Statements began July 1994.
Item 6.
Item 6. Selected Financial Data -----------------------
The following selected financial data relates to the years ended December 31, 1994 through 1997. 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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations -------------
Results of Operations - ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of results of operations that follows) showing condensed income statement categories and analyses of changes in those condensed categories derived from the Statements of Income:
LEASING MARGIN
Leasing margin consists of the following:
Years ended December 31, ---------------------------------------------- 1997 1996 1995 ---- ---- ----
Operating lease rentals $ 18,695,558 $ 16,399,312 $ 7,683,820 Direct finance lease income 365,094 414,309 273,067 Depreciation (14,058,981) (12,585,981) (5,895,602) Interest expense on discounted lease rentals (1,505,324) (1,785,640) (1,017,172) ------------ ------------ ------------ Leasing margin $ 3,496,347 $ 2,442,000 $ 1,044,113 ============ ============ ============ Leasing margin ratio 18% 15% 13% ============ ============ ============
Operating lease rentals and depreciation increased 14% and 113% for the years ended December 31, 1997 and 1996, respectively compared to the prior years due to a higher average operating lease portfolio. The decrease in interest expense for the year ended December 31, 1997 and the increase in interest expense for the year ended December 31, 1996 compared to the previous years was directly related to the change in the average outstanding non-recourse debt balance during the comparable periods.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations, continued -------------
Results of Operations, continued - ---------------------
LEASING MARGIN, continued
Leasing margin ratio increased for the years ended December 31, 1997 and 1996, and is expected to increase further primarily because a portion of the Partnership's portfolio consists of operating leases financed with non-recourse debt. 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 is repaid.
The ultimate rate of return on leases depends, in part, on interest rates at the time the leases are originated, as well as, future equipment values and on-going lessee creditworthiness. Because leasing is an alternative to financing equipment purchases with debt, lease rates tend to rise and fall with interest rates (although lease rate movements generally lag interest rate changes in the capital markets).
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following: Years ended December 31, ----------------------------- 1997 1996 ---- ----
Equipment sales revenue $ 6,776,782 $ 454,045 Cost of equipment sales (4,955,363) (343,214) ----------- ----------- Equipment sales margin $ 1,821,419 $ 100,831 =========== ===========
Equipment sales margin is affected by the number and dollar amount of equipment leases that mature in a particular period. Revenue from equipment sales increased primarily due to revenue from the sales of manufacturing, earth moving and computer equipment.
INTEREST INCOME
Interest income decreased in 1997 compared to 1996 due to a decrease in invested cash. During a significant portion of 1996, the Partnership was in its offering period and as such, invested cash was generally higher pending purchases of additional equipment.
Interest income increased in 1996 compared to 1995 due to an increase in invested cash from sales of Class A limited partner units pending the Partnership's initial acquisition of equipment.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations, continued -------------
Results of Operations, continued - ---------------------
EXPENSES
Management fees paid to and direct services from general partner increased in 1997 compared to 1996 due to growth in the Partnership's lease portfolio. General and administrative expenses decreased in 1997 compared to 1996 primarily due to lower legal fees associated with bankrupt lessees.
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 is typically not known until remarketing subsequent to the initial lease termination has occurred) is recorded as provision for losses.
Residual values are established equal to the estimated value to be received from the equipment following termination of the lease. In estimating such values, the Partnership considers all relevant facts regarding the equipment and the lessee, including, for example, the likelihood that the lessee will re-lease the equipment. The nature of the Partnership's leasing activities is that it has credit and residual value exposure and, accordingly, in the ordinary course of business, it will incur losses from those exposures. The Partnership performs on-going quarterly assessments of its assets to identify any other-than-temporary losses in value.
The provision for losses recorded during 1997 was primarily due to the Partnership's loss exposure related to troubled lessees. In addition, there were also losses related to the sales of equipment having a lower fair market value than originally anticipated.
The provision for losses recorded during 1996 was primarily for a deficiency resulting from a lessee default under a note secured by a high pressure cleaning unit under lease to the lessee. Although the lessee has not filed for bankruptcy, they have discontinued their operations and have ceased making rental payments. The equipment was repossessed and sold by the lender pursuant to the terms of the non-recourse debt agreement. The sale of the equipment went toward retiring the debt and the general partner believes it is unlikely that the deficiency will be recovered.
The provision for losses recorded during 1995 was related to two lessees that filed for bankruptcy protection.
Liquidity and Capital Resources - -------------------------------
The Partnership funds its operating activities principally with cash from rents, discounted lease rentals (non-recourse debt), interest income, and sales of off-lease equipment. Available cash and cash reserves of the Partnership are invested in short-term government securities pending the acquisition of equipment or distribution to the partners.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations, continued -------------
Liquidity and Capital Resources, continued - -------------------------------
During 1997, 1996 and 1995, the Partnership acquired equipment subject to leases with a total equipment purchase price of approximately $10,426,000, $35,688,000, and $36,496,000, respectively, net of non-recourse debt to lenders of approximately $3,240,000, $11,368,000 and $2,685,000, respectively. Also, during 1996 and 1995 the Partnership discounted future rental payments from certain leases to non-recourse lenders and received proceeds of $4,767,000 and $15,970,000, respectively. Non-recourse borrowing against unleveraged leases in the Partnership's lease portfolio may occur in the future as well, when the general partner, in its discretion, determines that such non-recourse financing is in the best interest of the Partnership.
During June 1995, CAII and the Partnership entered into an agreement with a lender to debt finance up to $50 million of lease receivables as part of a lease securitization program. Under this program, the Partnership's financing obligations are collateralized by the leased equipment and related rentals, and the Partnership has no recourse liability to the lender for repayment of the debt. In addition, this securitized debt vehicle provides attractive interest rates. Aggregate closings through December 31, 1997 were $10.3 million for the Partnership.
During 1997, 1996 and 1995, the Partnership declared distributions to the partners of approximately $5,308,000, $5,155,000, and $2,712,000, respectively. A substantial portion of such distributions are expected to constitute a return of capital. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital or a portion of both. The portion of each cash distribution by a partnership which exceeds its net income for the fiscal period may be deemed a return of capital for accounting purposes. However, the total percentage of a partnership's return on capital over its life can only be determined after all residual cash flows (which include proceeds from the re-leasing and 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 1998, to (1) meet current operating requirements, (2) enable it to fund cash distributions to both the Class A and Class B limited partners at annualized rates of 10.5% on their capital contributions (portions of which are expected to constitute returns of capital), and (3) reinvest in additional equipment under leases, provided that suitable equipment can be identified and acquired.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
Index to Financial Statements and Financial Statement Schedule
Page Number Financial Statements ------ --------------------
Independent Auditors' Report 12
Balance Sheets as of December 31, 1997 and 1996 13
Statements of Income for the years ended December 31, 1997, 1996 and 1995 14
Statements of Partners' Capital for the years ended December 31, 1997, 1996 and 1995 15
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 16-17
Notes to Financial Statements 18-29
Financial Statement Schedule ----------------------------
Independent Auditors' Report 30
Schedule II - Valuation and Qualifying Accounts 31
INDEPENDENT AUDITORS' REPORT ----------------------------
THE PARTNERS CAPITAL PREFERRED YIELD FUND-III, L.P.:
We have audited the accompanying balance sheets of Capital Preferred Yield Fund-III, L.P. as of December 31, 1997 and 1996, and the related statements of income, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1997. 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 generally accepted auditing standards. 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-III, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP ------------------------ KPMG PEAT MARWICK LLP
Denver, Colorado February 6, 1998
CAPITAL PREFERRED YIELD FUND-III, L.P.
BALANCE SHEETS December 31, 1997 and 1996
ASSETS
1997 1996 ------------ ------------
Cash and cash equivalents $ 2,813,686 $ 798,140 Accounts receivable 1,044,068 883,201 Receivable from related party 6,523 42,691 Equipment held for sale or re-lease 506,197 - Net investment in direct finance leases 3,326,833 5,479,265 Leased equipment, net 46,193,567 55,261,435 Deferred financing costs - 6,577 ------------ ------------ Total assets $ 53,890,874 $ 62,471,309 ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities: Accounts payable and accrued liabilities $ 687,727 $ 684,684 Payables to affiliates 39,276 54,351 Rents received in advance 632,478 461,450 Distributions payable to partners 441,650 444,611 Discounted lease rentals 15,828,174 23,437,868 ------------ ------------ Total liabilities 17,629,305 25,082,964 ------------ ------------
Partners' capital: General partner - - Limited partners: Class A 500,000 units authorized; 493,362 and 496,660 units issued and outstanding in 1997 and 1996, respectively 35,818,106 36,936,407 Class B 443,463 451,938 ------------ ------------
Total partners' capital 36,261,569 37,388,345 ------------ ------------
Total liabilities and partners' capital $ 53,890,874 $ 62,471,309 ============ ============
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF INCOME Years ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF PARTNERS' CAPITAL Years ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND-III, L.P. STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies -----------------------------------------------------------
Organization
Capital Preferred Yield Fund-III, L.P. (the "Partnership") was organized on November 2, 1993 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, 2011 unless terminated earlier in accordance with the terms of the Partnership Agreement. All Partnership equipment is expected to be sold and the Partnership liquidated between 2000 and 2003. The general partner of the Partnership is CAI Equipment Leasing IV Corp., a wholly owned subsidiary of Capital Associates, Inc. ("CAI").
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 4,968 investors at a price of $100 per Class A limited partner unit.
Capital Associates International, Inc. ("CAII"), a wholly owned subsidiary of CAI, is the Class B limited partner. The Class B limited partner was required to contribute cash, upon acquisition of equipment, in an amount equal to 1% of gross offering proceeds received from the sale of Class A limited partner units.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. For leasing entities, this includes the estimate of residual values, as discussed below. Actual results could differ from those estimates.
Partnership Allocations
Cash Distributions ------------------
During the Reinvestment Period (as defined in the Partnership Agreement), available cash is distributed to the partners as follows:
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Partnership Allocations, continued
Cash Distributions, continued ------------------
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.
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.
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:
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Profits and Losses (continued) ------------------
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.
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 -------------------
For financial reporting purposes, net income is allocated to the partners in a manner consistent with the allocation of cash distributions.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Recently Issued Financial Accounting Standards
During 1997, the Partnership adopted SFAS No. 125, Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"). SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The adoption of SFAS No. 125 did not have a material impact on the Partnership's financial position or results of operations.
Long-lived Assets
The Partnership accounts for long-lived assets under the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets, including 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 cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future 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 operating leases, and identifiable intangibles held by the Partnership is based on the fair value of the asset calculated by discounting the expected future cash flows at an appropriate interest rate.
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 of the Partnership's equipment under lease. Direct finance leases are defined as those leases which transfer substantially all of the benefits and risks of ownership of the equipment to the lessee. For all types of leases, the determination of profit considers the estimated value of the equipment at lease termination, referred to as the residual value. After the inception of a lease, the Partnership may engage in financing of lease receivables on a nonrecourse basis (i.e., "non-recourse debt" or "discounted lease rentals") and/or equipment sale transactions to reduce or recover its investment in the equipment.
The Partnership's accounting methods and their financial reporting effects are described below.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Net Investment in Direct Financing Leases ("DFLs")
The cost of the equipment, including acquisition fees paid to the general partner, is recorded as net investment in DFLs on the accompanying balance sheet. Leasing revenue, which is recognized over the term of the lease, consists of the excess of lease payments plus the estimated residual value over the equipment's cost. Earned income is recognized monthly to provide a constant yield and is recorded as direct finance lease income on the accompanying income statements. Residual values are established at lease inception equal to the estimated value to be received from the equipment following termination of the initial lease (which in certain circumstances includes anticipated re-lease proceeds), as determined by the general partner. In estimating such values, the general partner considers all relevant information regarding the equipment and the lessee.
Equipment on Operating Leases ("OLs")
The cost of equipment, including acquisition fees paid to the general partner, is recorded as leased equipment in the accompanying balance sheets and is depreciated on a straight-line basis over the lease term to an amount equal to the estimated residual value at the lease termination date. Leasing revenue consists principally of monthly rents and is recognized as operating lease rentals in the accompanying income statements. Residual values are established at lease inception equal to the estimated value to be received from the equipment following termination of the initial lease (which in certain circumstances includes anticipated re-lease proceeds), as determined by the general partner. In estimating such values, the general partner considers all relevant information and circumstances regarding the equipment and the lessee. Because revenue, depreciation expense and the resultant profit margin before interest expense are recorded on a straight-line basis, and interest expense on discounted lease rentals (discussed below) is recorded on the interest method, lower returns are realized in the early years of the term of an OL and higher returns in later years.
Non-recourse Discounting of Rentals
The Partnership may assign the future rentals from leases to financial institutions, or acquire leases subject to such assignments, at fixed interest rates on a non-recourse basis. In return for such assigned future rentals, the Partnership receives the discounted value of the rentals in cash. In the event of default by a lessee, the financial institution has a first lien on the underlying leased equipment, with no further recourse against the Partnership. Cash proceeds from such financings, or the assumption of such financings, are recorded on the balance sheet as discounted lease rentals. As lessees make payments to financial institutions, leasing revenue and interest expense are recorded.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Allowance for Losses
An allowance for losses is maintained at levels determined by the general partner to adequately provide for any other-than-temporary declines in asset values. In determining losses, economic conditions, the activity in the used equipment markets, the effect of actions by equipment manufacturers, the financial condition of lessees, the expected courses of action by lessees with regard to leased equipment at termination of the initial lease term, and other factors which the general partner believes are relevant, are considered. Asset chargeoffs are recorded upon the termination or remarketing of the underlying assets. The lease portfolio is reviewed quarterly to determine the adequacy of the allowance for losses.
Transactions Subsequent to Initial Lease Termination
After the initial term of equipment under lease expires, the equipment is either sold or re-leased to the existing lessee or another third party. The remaining net book value of equipment sold is removed and gain or loss recorded when equipment is sold. The accounting for re-leased equipment is consistent with the accounting described under "Net Investment in Direct Financing Leases" and "Equipment on Operating Leases" above.
Income Taxes
No provision for income taxes has been made in the financial statements since taxable income or loss is recorded in the tax return of the individual partners.
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 $2,681,000 and $747,000 at December 31, 1997 and 1996, 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.
Deferred Financing Costs
Deferred financing costs, which were incurred by the Partnership in connection with an agreement with a lender to debt finance lease rentals, are charged ratably to operations as additional interest expense over the expected life of the underlying indebtedness.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Net Income Per Class A Limited Partner Unit
Net income per Class A limited partner unit is computed by dividing the net income allocated to the Class A limited partners by the weighted average number of Class A limited partner units outstanding during the period.
2. Net Investment in Direct Financing Leases -----------------------------------------
The components of the net investment in direct finance leases as of December 31, 1997 and 1996 were:
1997 1996 ----------- -----------
Minimum lease payments receivable $ 3,072,652 $ 5,340,323 Estimated residual values 606,407 749,760 Less unearned income (352,226) (610,818) ----------- -----------
Total $ 3,326,833 $ 5,479,265 =========== ===========
3. Leased Equipment ----------------
The Partnership's investment in equipment on operating leases by major classes as of December 31, 1997 and 1996 were:
1997 1996 -------------- -------------
Transportation and industrial equipment $ 41,131,072 $ 47,672,965 Computers and peripherals 13,810,207 12,437,727 Furniture, fixtures and equipment 14,197,395 13,329,611 Other 1,963,783 657,330 ------------- ------------- 71,102,457 74,097,633 Less accumulated depreciation (24,677,113) (18,658,399) Allowance for losses (231,777) (177,799) ------------- -------------
$ 46,193,567 $ 55,261,435 ============= =============
Depreciation expense for 1997, 1996 and 1995 was $14,058,981, $12,585,981 and $5,895,602, respectively.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
4. Future Minimum Lease Payments -----------------------------
Future minimum lease payments receivable from noncancelable leases as of December 31, 1997 are:
Years Ending December 31, DFLs OLs ------------------------- ---- --- 1998 $ 1,632,178 $ 15,207,677 1999 1,241,601 10,351,485 2000 196,149 3,890,580 2001 2,724 1,121,646 2002 - 254,764 Thereafter - 229,962 ----------- ------------
Total $ 3,072,652 $ 31,056,114 =========== ============
5. Discounted Lease Rentals ------------------------
Discounted lease rentals outstanding at December 31, 1997 bear interest at rates primarily ranging between 6% and 11%. Aggregate maturities of such non-recourse obligations are:
Years Ending December 31, -------------------------
1998 $ 8,792,271 1999 5,593,718 2000 1,203,004 2001 231,550 2002 7,631 ------------
Total $ 15,828,174 ============
6. Transactions With the General Partner and Affiliates ----------------------------------------------------
Sales Commissions and Offering Costs ------------------------------------
Under the terms of the Partnership Agreement, an affiliate of the general partner is entitled to receive sales commissions and wholesaling fees equal to 10% of the Class A limited partners' capital contributions, up to 9% of which are paid to participating broker-dealers. During 1996 and 1995, CAI Securities Corporation earned commissions and fees of approximately $1,162,000 and $2,528,000, of which $992,000 and $2,189,000, respectively, were paid to participating broker-dealers.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates, continued ----------------------------------------------------
Sales Commissions and Offering Costs, continued ------------------------------------
As provided in the Partnership Agreement, the general partner earned approximately $465,000 and $1,011,000, as reimbursement for expenses incurred during 1996 and 1995, respectively, in connection with the organization of the Partnership and the offering of Class A limited partner units. The general partner also received approximately $62,000 and $68,000, as reimbursement for due diligence expenses incurred during 1996 and 1995, respectively.
Capital Contributions ---------------------
Under terms of the Partnership Agreement, the Class B limited partner made capital contributions to the Partnership of $130,000 and $240,000 during 1996 and 1995, respectively.
Origination Fee and Evaluation Fee ----------------------------------
The general partner receives a fee equal to 3.5% of the sales price of equipment sold to the Partnership (up to a maximum cumulative amount as specified in the Partnership Agreement), 1.5% of which represents compensation for selecting, negotiating and consummating the acquisition of the equipment and 2%, of which, represents reimbursement for services rendered in connection with evaluating the suitability of the equipment and the credit worthiness of the lessees. Origination and evaluation fees totaled approximately $347,000, $1,185,000 and $1,210,000 in 1997, 1996 and 1995, respectively, all of which were capitalized by the Partnership as part of the cost of equipment on operating leases and net investment in direct financing leases.
Management Fees ---------------
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 $409,000, $391,000 and $156,000 during 1997, 1996 and 1995, respectively.
Direct Services ---------------
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 $120,000, $94,000 and $94,000 during 1997, 1996 and 1995, respectively.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates, continued ----------------------------------------------------
Equipment Purchases -------------------
The Partnership purchased equipment from CAII, with a total purchase price of approximately $10,426,000, $35,688,000 and $36,496,000 (including $3,240,000, $11,369,000 and $2,685,000 of discounted lease rentals) during 1997, 1996 and 1995, respectively. The Partnership purchased the equipment at CAII's historical cost plus reimbursement of other net acquisition costs, as provided for in the Partnership Agreement.
Payables to Affiliates ----------------------
Payables to affiliates of approximately $39,000 and $54,000 during 1997 and 1996, respectively, consists of direct services, management fees and expenses payable to the general partner and its affiliates.
Receivable from Related Party -----------------------------
Receivable from related party represents rents received by the general partner for a lease that was subsequently sold to the Partnership.
7. Tax Information (Unaudited) ---------------------------
The following reconciles net income for financial reporting purposes to the income for federal income tax purposes for the year and period ended December 31,:
1997 1996 1995 ------------- ------------- ------------
Net income per financial statements $ 4,414,329 $ 2,074,001 $ 553,710 Direct financing leases 1,900,541 2,192,802 737,287 Depreciation (4,277,382) (6,587,214) (3,820,726) Provision for losses 250,000 50,000 275,000 Other (932,509) 595,201 (24,469) ------------ ------------ ------------
Partnership income for federal income tax purposes $ 1,354,979 $ (1,675,210) $ (2,279,198) ============ ============ ============
CAPITAL PREFERRED YIELD FUND-III, 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 for the year and period ended December 31,:
1997 1996 1995 ------------- ------------- ------------
Partners' capital per financial statements $ 36,261,569 $ 37,388,345 $ 30,535,617 Commissions and offering costs 7,184,603 7,184,603 5,495,683 Direct financing leases 4,862,737 2,962,196 769,394 Depreciation (15,184,234) (10,906,852) (4,319,638) Provision for losses 575,000 325,000 275,000 Other (355,482) 582,258 (8,487) ------------- ------------- -------------
Partners' capital for federal income tax purposes $ 33,344,193 $ 37,535,550 $ 32,747,569 ============= ============= ============
8. Concentration of Credit Risk ----------------------------
Approximately 70% of the Partnership's equipment under lease was leased to investment grade companies. Pursuant to the Partnership Agreement, an investment grade lessee is a company (i) with a net worth in excess of $100,000,000 (and no debt issues that are rated), or (ii) with a credit rating of not less than Baa as determined by Moody's Investor Services, Inc. or comparable credit rating as determined by another recognized credit rating service; or (iii) a lessee, all of whose lease payments have been unconditionally guaranteed or supported by a letter of credit issued by a company meeting one of the above requirements.
The Partnership's cash balance is maintained with a high credit quality financial institution. At times, such balances may be in excess of the FDIC insurance limit due to the receipt of lockbox amounts that have not cleared the presentment bank (generally for less than two days). As the funds become available, they are invested in a money market mutual fund.
9. Disclosures about Fair Value of Financial Instruments -----------------------------------------------------
Statement of Financial Standards No. 107, Disclosures about Fair Value of Financial Instruments specifically excludes certain items from its disclosure requirements such as the Company's investment in leased assets. The carrying amounts at December 31, 1997 for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, payable to affiliates, rents and sale proceeds received in advance and distributions payable to partners approximate their fair values due to the short maturity of these instruments.
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
9. Disclosures about Fair Value of Financial Instruments, continued -----------------------------------------------------
As of December 31, 1997, discounted lease rentals of approximately $15,828,000 had a fair value of approximately $15,132,000. The fair value was estimated utilizing market rates of comparable debt having similar maturities and credit quality as of December 31, 1997.
INDEPENDENT AUDITORS' REPORT ----------------------------
THE PARTNERS CAPITAL PREFERRED YIELD FUND-III, L.P.:
Under date of February 6, 1998, we reported on the balance sheets of Capital Preferred Yield Fund-III, L.P. as of December 31, 1997 and 1996, and the related statements of income, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1997 as contained in the Partnership's annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement Schedule II, as listed in the accompanying index. 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, the related 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 Peat Marwick LLP ------------------------ KPMG PEAT MARWICK LLP
Denver, Colorado February 6, 1998
CAPITAL PREFERRED YIELD FUND-III, L.P. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended December 31, 1997, 1996 and 1995
(1) Principally charge-offs of assets against the established allowances.
See accompanying independent auditor's 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 IV Corporation
Name Positions Held ---- --------------
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
Anthony M. DiPaolo Senior Vice President, Principle Financial and Chief Administrative Officerand Director
Richard H. Abernethy Vice President and Director
John A. Reed Vice President, Assistant Secretary and Director
Joseph F. Bukofski Vice President, Assistant Secretary and Director
Robert A. Golden Director
Mick Myers Director
Ann Danielson Assistant Vice President
David J. Anderson Chief Accounting Officer and Secretary
JOHN F. OLMSTEAD, age 53, joined CAII as Vice President in December, 1988, is a Senior Vice President of CAI and CAII and is head of CAII's Public Equity division. He has served as Chairman of the Board for Neo-kam Industries, Inc., Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has over 20 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.
DENNIS J. LACEY, age 44, joined CAI as Vice President, Operations, in October 1989. Mr. Lacey was appointed Treasurer on January 1, 1991, Chief Financial Officer on April 11, 1991, a director on July 19, 1991, and President and Chief Executive Officer on September 6, 1991. Prior to joining CAI, Mr. Lacey was an audit partner for the public accounting firm of Coopers & Lybrand. Mr. Lacey is also a director and senior officer of CAII, CAI Equipment Leasing I Corp., CAI Equipment Leasing II Corp., CAI Equipment Leasing III Corp., CAI Equipment Leasing IV Corp., CAI Equipment Leasing V Corp., CAI Leasing Canada, Ltd., CAI Partners Management Company, CAI Securities Corporation, CAI Lease Securitization I Corp. and Capital Equipment Corporation (collectively referred to herein as the "CAI Affiliates"), all of which are first- or second-tier wholly-owned subsidiaries of CAI.
Item 10. Directors and Executive Officers of the Partnership, continued ---------------------------------------------------
ANTHONY M. DIPAOLO, age 39, joined CAII in July 1990 as Assistant Treasurer and is currently Senior Vice President-Chief Financial Officer. He also held the positions of Senior Vice President-Controller and Assistant Vice President-Credit Administration for the Company. Mr. DiPaolo has held similar senior financial management positions with two public companies between 1986 and June 1990, and prior to then was an audit manager for the public accounting firm of Coopers & Lybrand. Mr. DiPaolo holds a Bachelor of Science degree in Accounting from the University of Denver.
RICHARD H. ABERNETHY, age 43, joined CAII in April 1992 as Equipment Valuation Manager and currently serves as Vice President of Asset Management. Mr. Abernethy has thirteen years experience in the leasing industry, including prior positions with Barclays Leasing Inc., from November 1986 to February 1992, and Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy holds a Bachelor of Arts in Business Administration from the University of North Carolina at Charlotte.
JOHN A. REED, age 42, joined CAII in January 1990 as the Tax Director and Assistant Secretary. Mr. Reed is currently the Vice President-Manager, Capital Markets Group and is responsible for obtaining off balance sheet financing, syndications and private programs. Prior to joining the Capital Markets Group, Mr. Reed was Vice President of both Marketing Administration and Credit and Debt Administration. He spent seven and one half years with Coopers & Lybrand in the Tax Department and served on CAII's tax consulting engagement during that time. Mr. Reed holds a Bachelor of Arts degree in Social Sciences and Masters of Science in Accounting, from Colorado State University.
JOSEPH F. BUKOFSKI, age 43, joined CAII in June 1990 as a Financial Analyst. Mr. Bukofski is currently the Vice President of Marketing and is responsible for all lease documentation and management of transaction structuring and processing. Prior to joining the Marketing Department, Mr. Bukofski was Assistant Vice President and Controller. Prior to joining the Company, he was a geologist with Barringer Geoservices, Inc. for eleven years. Mr. Bukofski holds a Bachelor of Science degree in Secondary Education - Earth Science from Bloomsburg University and a Masters of Science in Accounting from the University of Colorado.
ROBERT A. GOLDEN, age 52, is Vice President and the National Sales Manager of the Company. Mr. Golden joined the Company in 1993 as a Branch Manager. He was promoted to his current position in September 1994. Prior to joining the Company, he was an Executive Vice President with the U.S. Funds Group, President of BoCon Capital Group and Vice President with Ellco/GE Capital for fifteen years. Mr. Golden is an officer, but not a director, of CAII.
MICK MYERS, age 40, joined CAI in February 1992 as a Senior Portfolio Manager. Currently he is Assistant Vice President of Asset Management. Mr. Myers has nine years experience in the leasing industry. Previously, he has held the position of Senior End of Lease Negotiator with ELLCO/GE Capital. Mr. Myers holds a Bachelor of Science degree from the University of Wyoming.
Item 10. Directors and Executive Officers of the Partnership, continued ---------------------------------------------------
ANN DANIELSON, age 34, joined CAII in February 1990 and is currently Assistant Vice President, Assistant Treasurer and is responsible for the Company's cash management and collections functions. Prior to joining the Company, she was with U.S. West financial Services and Coopers & Lybrand. Ms. Danielson holds a Bachelor of Arts Degree from the University of Northern Iowa.
DAVID J. ANDERSON, age 45, joined CAII in August 1990 as Manager of Billing & Collections and currently serves as Assistant Vice-President/Chief Accounting Officer. Prior to joining CAII, Mr. Anderson was Vice- President/Controller for Systems Marketing, Inc., from 1985 to 1990, and previous to that worked in several senior staff positions at the Los Alamos National Laboratory and with Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree in Accounting from the University of Wisconsin.
Item 11.
Item 11. Executive Compensation ----------------------
No compensation was paid by the Partnership to the officers and directors of the general partner. See Item 13 of this Report, "Certain Relationships and Related Transactions," which is incorporated herein by reference, for a description of the compensation and fees paid to the general partner and its affiliates by the Partnership during 1996.
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.
CAII, an affiliate of the general partner, is the sole Class B limited partner.
CAI Equipment Leasing IV 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 IV Corp. 7175 West Jefferson Avenue Suite 4000 Lakewood, Colorado 80235
Item 12. Security Ownership of Certain Beneficial Owners and Management, ----------------------------------------------------------------------- continued
Class B Limited Partner -----------------------
Capital Associates International, Inc. 7175 West Jefferson Avenue Suite 4000 Lakewood, Colorado 80235
(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, 1997.
(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 1997:
ACQUISITION AND OPERATING STAGES
Acquisition Fee and Acquisition Cost Reimbursement - --------------------------------------------------
The general partner receives a fee equal to 3.5% of the sales price of equipment sold to the Partnership, 1.5% of which represents compensation for selecting, negotiating and consummating the acquisition of the equipment and 2% of which represents reimbursement for services rendered in connection with evaluating the suitability of the equipment and the credit worthiness of the Lessee. Origination and evaluation fees totaled approximately $347,000 in 1997, 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 earns 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 approximately $409,000 for 1997.
Item 13. Certain Relationships and Related Transactions, continued ----------------------------------------------
Accountable General and Administrative Expenses - -----------------------------------------------
The general partner is entitled to reimbursement of certain expenses paid on behalf of the Partnership which are incurred in connection with the Partnership's operations. Such reimbursable expenses amounted to approximately $120,000 during 1997.
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 approximately $13,000 and $13,000, respectively, for 1997. Distributions and net income allocated to the Class B limited partner totaled approximately $13,000 and $9,000, respectively, for 1997.
During 1997, the Partnership acquired the equipment described below from CAII:
* The lower of (a) the price for the equipment plus all costs incurred in maintaining the equipment (including, without limitation, the reasonable, necessary and actual expenses, as determined in accordance with generally accepted accounting principles, of storage, carrying, warehousing, repair, marketing, financing and taxes) from the date of acquisition thereof, provided that any proceeds accrued from the first basic rent date thereof and retained by the general partner or an affiliate thereof from leasing the equipment or any other arrangement with respect to the equipment shall be deemed a credit towards the purchase price paid by the Partnership, or (b) the fair market value of such equipment, as determined by an independent nationally recognized appraiser selected by the general partner.
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ---------------------------------------------------------------
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to Item 8 of this Report, "Financial Statements and Supplementary Data").
2. Financial Statement Schedule: (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, 1997.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K, ----------------------------------------------------------------------- continued
(c) Exhibits required to be filed.
Exhibit Exhibit Number Name ------- -------
4.1* Capital Preferred Yield Fund-III Limited Partnership Agreement
4.2* First Amendment to Limited Partnership Agreement dated June 14, 1994
4.3* Amended and Restated Agreement of Limited Partnership of Capital Preferred Yield Fund-III, L.P.
* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and Regulations under the Securities Exchange Act of 1934, reference is made to the document previously filed with the Commission.
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 26, 1998 Capital Preferred Yield Fund-III, L.P.
By: CAI Equipment Leasing IV Corporation
By: /s/John F. Olmstead ------------------------------------ John F. Olmstead President and Director
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 26, 1998.
Signature Title - --------- -----
/s/John F. Olmstead - ------------------------- John F. Olmstead President and Director
/s/Dennis J. Lacey - ------------------------- Dennis J. Lacey Senior Vice President and Director
/s/Anthony M. DiPaolo - ------------------------- Senior Vice President, Principle Financial and Chief Anthony M. DiPaolo Administrative Officer and Director
/s/Richard H. Abernethy - ------------------------- Richard H. Abernethy Vice President and Director
/s/John A. Reed - ------------------------- John A. Reed Vice President, Assistant Secretary and Director
/s/Joseph F. Bukofski - ------------------------- Joseph F. Bukofski Vice President, Assistant Secretary and Director
/s/Robert A. Golden - ------------------------- Robert A. Golden Director
/s/Mick Myers - ------------------------- Mick Myers Director
/s/Ann Danielson - ------------------------- Ann Danielson Assistant Vice President
/s/David J. Anderson - ------------------------- David J. Anderson Chief Accounting Officer and Secretary