-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EuZX7udoZHNJo01mk+HNVqsN3VTzVmZKcNy16+flkSlUdCnHelMdEzQ0I1/ok1qC LnkLEP999raFpsxN6Ugq4w== 0000804188-97-000004.txt : 19970407 0000804188-97-000004.hdr.sgml : 19970407 ACCESSION NUMBER: 0000804188-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970404 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL ASSOCIATES INC CENTRAL INDEX KEY: 0000804188 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 841055327 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15525 FILM NUMBER: 97574557 BUSINESS ADDRESS: STREET 1: 7175 W JEFFERSON AVE STE 3000 CITY: LAKEWOOD STATE: CO ZIP: 80235 BUSINESS PHONE: 3039801000 10-Q 1 CAI3Q97.001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. Commission file number 0-15525 CAPITAL ASSOCIATES, INC. ------------------------ (Exact name of registrant as specified in its charter) DELAWARE 84-1055327 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 7175 WEST JEFFERSON AVENUE, LAKEWOOD, COLORADO 80235 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 980-1000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 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 The number of shares outstanding of the Registrant's $.008 par value common stock at March 26, 1997, was 5,011,357. Exhibit Index - Page 15 1 of 17 CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION NUMBER Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - February 28, 1997 and May 31, 1996 3 Consolidated Statements of Income - Three and Nine Months Ended February 28, 1997 and February 29, 1996 4 Consolidated Statements of Cash Flows - Nine Months Ended February 28, 1997 and February 29, 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Exhibit Index 15 Signature 17 2 of 17 CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) ASSETS February 28, May 31, 1997 1996 ------------ -------- Cash and cash equivalents $ 6,487 $ 2,851 Receivables from affiliated limited partnership 650 1,849 Accounts receivable, net 981 945 Equipment held for sale or re-lease 115 177 Residual values and other receivables arising from equipment under lease sold to private investors 4,337 3,374 Net investment in direct finance leases 7,783 14,967 Leased equipment, net 58,290 45,285 Investments in affiliated limited partnershi 7,198 8,759 Other 2,868 3,497 Deferred income taxes 1,721 1,900 Discounted lease rentals assigned to lenders arising from equipment sale transaction 51,625 43,907 -------- --------- $142,055 $127,511 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Recourse bank debt $ 13,900 $ 17,538 Accounts payable - equipment purchases 24,601 14,071 Other liabilities 9,132 9,272 Discounted lease rentals 70,988 63,749 --------- --------- 118,621 104,630 --------- --------- Stockholders' equity: Common stock 32 32 Additional paid-in capital 16,897 17,026 Retained earnings 6,803 6,121 Treasury stock (298) (298) --------- --------- Total stockholders' equity 23,434 22,881 --------- --------- $ 142,055 $ 127,511 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 3 of 17 CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except earnings per share)
Three Months Ended Nine Months Ended ------------------------- -------------------------- February 28, February 29, February 28, February 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Revenue: Equipment sales to affiliated limited partnerships $ 25,674 $ 9,580 $ 55,751 $ 39,145 Other equipment sales 43,073 44,218 108,112 69,284 Leasing 3,492 2,692 11,228 7,476 Interest 1,060 1,630 3,290 5,510 Other 703 969 2,199 2,601 ---------- ---------- ---------- ---------- Total revenue 74,002 59,089 180,580 124,016 ---------- ---------- ---------- ---------- Costs and expenses: Equipment sales 67,132 53,033 160,128 105,481 Leasing 2,183 1,409 6,462 4,033 Operating and other expenses 2,190 1,997 6,873 6,131 Provision for losses 235 25 340 75 Interest: Non-recourse debt 1,435 1,905 4,416 6,210 Recourse debt 430 493 1,452 1,664 ---------- ---------- ---------- ---------- Total costs and expenses 73,605 58,862 179,671 123,594 ---------- ---------- ---------- ---------- Net income before income taxes 397 227 909 422 Income tax expense 99 91 227 169 ---------- ---------- ---------- ---------- Net income $ 298 $ 136 $ 682 $ 253 ========== ========== ========== ========== Earnings per common and dilutive common equivalent share: Primary $ 0.06 $ 0.03 $ 0.13 $ 0.05 ========== ========== ========== ========== Weighted average number of common and dilutive common equivalent shares outstanding used in computing earnings per share: Primary 5,384,000 5,297,000 5,335,000 5,315,000 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 of 17 CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine Months Ended ------------------------------- February 28, February 29, 1997 1996 ------------ ------------- Net cash provided by operating activities $ 28,803 $ 26,619 -------- -------- Cash flows from investing activities: Equipment purchased for leasing (23,776) (20,877) Investment in leased office facility and capital expenditures (333) (163) Net receipts from affiliated limited partnerships 1,416 1,037 -------- -------- Net cash used for investing activities (22,693) (20,003) -------- -------- Cash flows from financing activities: Proceeds from discounting of lease rentals 10,566 6,675 Principal payments on discounted lease rentals (9,273) (4,237) Deferred financing costs - (118) Proceeds from sales of common stock 9 19 Purchase of treasury shares - (247) Purchase of non-employee stock options (138) - Payments on revolving credit facilities (388) (833) Payments on Term Loan (3,250) (3,250) -------- -------- Net cash used for financing activities (2,474) (1,991) -------- -------- Net increase in cash and cash equivalents 3,636 4,625 Cash and cash equivalents at beginning of period 2,851 923 -------- -------- Cash and cash equivalents at end of period $ 6,487 $ 5,548 ======== ======== Supplemental schedule of cash flow information: Recourse interest paid $ 1,452 $ 1,556 Non-recourse interest paid 1,124 702 Income taxes paid 106 1,598 Income tax refunds received 316 - Supplemental schedule of non-cash investing and financing activities: Increase in residual values and other receivables relating to equipment sale transactions 1,067 897 Discounted lease rentals assigned to lenders arising from equipment sales transactions 22,499 - Assumption of discounted lease rentals in lease acquisitions 20,732 -
The accompanying notes are an integral part of these consolidated financial statements. 5 of 17 CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- The accompanying unaudited consolidated 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 management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. For further information, please refer to the financial statements of Capital Associates, Inc. (the "Company"), and the related notes, included within the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1996 (the "1996 Form 10-K"), previously filed with the Securities and Exchange Commission. The balance sheet at May 31, 1996 has been derived from the audited financial statements included in the Company's 1996 Form 10-K. Certain reclassifications have been made to the prior periods' financial statements to conform to the current periods' presentation. 2. Provision for Losses -------------------- During the third quarter of fiscal 1997, as a result of (i) a lease having a net book value of $245,000 at February 28, 1997 with a lessee that filed for bankruptcy protection under Chapter 11 of the Bankruptcy code during the third quarter fiscal 1997 and (ii) a "soft" market for re-leasing one of the Company's aircraft, the Company reserved a provision for loss of $235,000. 6 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations I. Results of Operations --------------------- General Comments During the three months ended February 28, 1997 the Company reported net income of $298,000 representing its nineteenth consecutive profitable quarter. Operating results are subject to fluctuations resulting from several factors, including seasonality of lease originations, variations in the relative percentages of the Company's leases entered into during the period which are classified as DFLs or OLs or are sold for fee income as well as the level of fee income obtained from the sale of leases in excess of lease equipment cost. The Company will adjust the mix of OLs and DFLs and volume of leases sold to private investors from time to time, when and as the Company determines that it would be in its best interests, taking into account profit opportunities, portfolio concentration and residual risk. Lease Originations In the ordinary course of business, the Company will continue to (1) sell new lease originations to its PIFs (to the extent the PIFs have funds available for such purpose) or private investors and (2) sell seasoned lease transactions (previously originated leases held in the Company's portfolio) to private investors. Presented below is a schedule showing new lease originations volume and the placement of new lease originations during the nine-month period ended February 28, 1997 as compared to the comparable period for fiscal year 1996 (in thousands).
Nine Months Ended ------------------------------- February 28, February 29, 1997 1996 ------------------------------- Placement of lease originations: Equipment under lease sold to PIFs $ 52,880 $ 37,980 Equipment under lease sold to private investors 75,790 59,601 Leases added to the Company's lease portfolio (a significant portion of which will be sold during fiscal year 1997) 45,061 25,727 --------- --------- Total lease origination volume $ 173,731 $ 123,308 ========= =========
Leasing is an alternative to financing equipment with debt. Therefore, the ultimate profitability of the Company's leasing transactions is dependent, in part, on the general level of interest rates. Lease rates tend to rise and fall with interest rates, although lease rate movements generally lag interest rate movements. Because the Company finances its lease transactions with recourse and non-recourse debt, the ultimate profitability of leasing transactions is dependent, in part, on the difference between the interest rate inherent in the lease and the underlying debt rate ("rate spread"). Certain of the Company's competitors have access to lower cost funds than the Company. However, the Company has developed relationships with various private investors and formed various strategic alliances with companies that have a lower cost of capital enabling the Company to originate and sell selected leases at competitive prices. 7 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued I. Results of Operations, continued --------------------- Interim Financial Results 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 Consolidated Statements of Income.
Condensed Consolidated Condensed Consolidated Statements of Income Statements of Income for the three months The effect on for the six months The effect on ended February 28, net income of ended February 29, net income of ---------------------- changes between ---------------------- changes between 1996 1995 years 1996 1995 years -------- -------- --------------- -------- --------- --------------- Equipment sales margin $ 1,615 $ 765 $ 850 $ 3,735 $ 2,948 $ 787 Leasing margin (net of interest expense on discounted lease rentals) 934 1,008 (74) 3,640 2,743 897 Other income 703 969 (266) 2,199 2,601 (402) Operating and other expenses (2,190) (1,997) (193) (6,873) (6,131) (742) Provision for losses (235) (25) (210) (340) (75) (265) Interest expense on recourse debt (430) (493) 63 (1,452) (1,664) 212 Income taxes (99) (91) (8) (227) (169) (58) ------- ------- ------- ------- ------- ------- Net income $ 298 $ 136 $ 162 $ 682 $ 253 $ 429 ======= ======= ======= ======= ======= =======
EQUIPMENT SALES MARGIN Equipment sales revenue (and related equipment sales margin) consists of the following (in thousands):
Three Months Ended -------------------------------------------- Increase February 28, 1997 February 29, 1996 (Decrease) ------------------- -------------------- -------------------- Revenue Margin Revenue Margin Revenue Margin --------- -------- --------- -------- --------- -------- Transactions during initial lease term: Equipment under lease sold to PIFs $ 25,674 $ 553 $ 9,580 $ 222 Equipment under lease sold to private investors 38,629 447 43,711 343 -------- -------- -------- -------- 64,303 1,000 53,291 565 $ 11,012 $ 435 -------- -------- -------- -------- -------- -------- Transactions subsequent to initial lease term: Sales of off-lease equipment 4,223 394 435 128 Sales-type leases 10 10 - - Excess collections (cash collections in excess of the associated residual value from equipment under lease sold to private investors) 211 211 72 72 -------- -------- -------- -------- 4,444 615 507 200 3,937 415 Deduct related provision for losses - (235) - (25) - (210) -------- -------- -------- -------- -------- -------- Realization of value in excess of provision for losses 4,444 380 507 175 3,937 205 Add back related provision for losses - 235 - 25 - 210 -------- -------- -------- -------- -------- -------- 4,444 615 507 200 3,937 415 -------- -------- -------- -------- -------- -------- Total equipment sales and equipment sales margin as shown on the above schedule of condensed income statement categories $ 68,747 $ 1,615 $ 53,798 $ 765 $ 14,949 $ 850 ======== ======== ======== ======== ======== ========
8 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued I. Results of Operations, continued --------------------- EQUIPMENT SALES MARGIN, continued
Nine Months Ended -------------------------------------------- Increase February 28, 1997 February 29, 1996 (Decrease) ------------------- -------------------- -------------------- Revenue Margin Revenue Margin Revenue Margin --------- -------- --------- -------- --------- -------- Transactions during initial lease term: Equipment under lease sold to PIFs $ 55,751 $ 1,195 $ 39,145 $ 779 Equipment under lease sold to private investors 102,647 1,404 67,356 1,108 --------- -------- --------- -------- 158,398 2,599 106,501 1,887 $ 51,897 $ 712 --------- -------- --------- -------- --------- --------- Transactions subsequent to initial lease term: Sales of off-lease equipment 4,995 668 1,276 577 Sales-type leases 71 69 279 111 Excess collections (cash collections in excess of the associated residual value from equipment under lease sold to private investors) 399 399 373 373 --------- -------- --------- -------- 5,465 1,136 1,928 1,061 3,537 75 Deduct related provision for losses - (340) - (75) - 265) --------- -------- --------- -------- --------- --------- Realization of value in excess of provision for losses 5,465 796 1,928 986 3,537 (190) Add back related provision for losses - 340 - 75 - 265 --------- -------- --------- -------- --------- --------- 5,465 1,136 1,928 1,061 3,537 75 --------- -------- --------- -------- --------- --------- Total equipment sales and equipment sales margin as shown on the schedule of condensed income statement categories listed on the preceding page $ 163,863 $ 3,735 $ 108,429 $ 2,948 $ 55,434 $ 787 ========= ======== ========= ======== ========= =========
Transactions During Initial Lease Term Equipment sales to PIFs increased during the three and nine months ended February 28, 1997, as compared to the comparable period in fiscal 1996, principally because more leases were identified and closed that satisfied the PIFs underwriting standards. Equipment sales to private investors increased during the nine months ended February 28, 1997 primarily because lease originations increased and, as discussed above, the Company sometimes determines it would be in its best interests to place certain lease transactions with private investors. Lease originations from one customer accounted for approximately 45% of the total lease originations volume for the nine months ended February 28, 1997. Transactions Subsequent to Initial Lease Term The Company has been successful in realizing gains on the remarketing of its equipment after the initial lease term for the past nineteen consecutive quarters. The remarketing of equipment for an amount greater than its book value is reported as equipment sales margin (if the equipment is sold) or as 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. As shown in the table above, the realizations from sales exceeded the provision for losses during the three and nine month periods ended February 28, 1997, even without considering realizations from remarketing activities recorded as leasing margin. 9 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued I. Results of Operations, continued --------------------- EQUIPMENT SALES MARGIN, continued Transactions Subsequent to Initial Lease Term, continued Residual values are established equal to the estimated value to be received from the equipment following termination of the lease. In estimating such values, the Company 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 Company's leasing activities is that it has credit exposure and residual value exposure and, accordingly, in the ordinary course of business it will incur losses arising from these exposures. The Company performs ongoing quarterly assessments of its assets to identify other than temporary losses in value. Margins from remarketing sales (i.e., sales occurring after the initial lease term) are affected by the number and dollar amount of equipment leases that mature in a particular quarter. In general, because the Company did not significantly add to its own lease portfolio during the four years prior to May 31, 1995, fewer leases have matured and less equipment has been available for remarketing each quarter since May 31, 1995. However, revenue and margins from remarketing sales increased during the three and nine month periods ended February 28, 1997, compared to the comparable periods of 1996 primarily due to the sale of approximately $1.5 million of earth moving equipment and the early termination sale of approximately $2.5 million of manufacturing equipment. Although quarterly fluctuations will occur as discussed in the preceding sentence, in general, remarketing revenue and margin are expected to decline in future quarters as maturing leases continue to decrease. The Company's ability to remarket additional amounts of equipment and realize a greater amount of remarketing revenue in future periods is dependent on adding additional leases to its portfolio. However, adding leases to the Company's portfolio will not immediately increase the pool of maturing leases because new leases typically are not remarketed until after the initial term (which averages approximately four years). The provision for losses recorded during the first nine months of fiscal 1997 primarily related to the following: * $235,000 discussed in Note 2 of Notes to Consolidated Financial Statements, and * $105,000 for other-than-temporary declines in the value of equipment which occurred primarily because lessees returned equipment to the Company at the end of lease. The Company had previously expected to realize the carrying value of that equipment through lease renewals and proceeds from sale of the equipment to the original lessee. The fair market value of the equipment re-leased or sold to a third party is considerably less than was anticipated. The provision for losses recorded during the first nine months of fiscal 1996 did not relate to any significant items because no significant other-than-temporary declines in the value of the equipment were identified in the quarterly assessments of the Company's assets. 10 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued I. Results of Operations, continued --------------------- EQUIPMENT SALES MARGIN, continued Transactions Subsequent to Initial Lease Term, continued The changes in the Company's equipment under lease during the nine month period ended February 28, 1997 consisted of the following (in thousands):
Discounted lease Direct finance rentals, net of leases, operating discounted lease Net leases, net and rentals assigned investment equipment held to lenders arising in lease for sale or re-lease from equipment sales portfolio -------------------- --------------------- ---------- As of May 31, 1996 $ 60,429 $ (19,830) $ 40,599 Leases added to the Company's lease portfolio (a significant portion of which will be sold during fiscal year 1997) financed through the use of the Company's cash, accounts payable, non-recourse bank debt and recourse bank debt under its Warehouse Facility 45,061 (10,566) 34,495 Leases sold to PIFs and private investors (25,911) 1,767 (24,144) Related provision for losses (340) - (340) Change as a result of portfolio run-off (13,051) 9,273 ( 3,778) ---------- --------- ---------- As of February 28, 1997 $ 66,188 $ (19,356) $ 46,832 ========== ========= ==========
LEASING MARGIN Leasing margin consists of the following (in thousands):
Three Months Ended Nine Months Ended -------------------------------- ----------------------------- February 28, February 29, February 28, February 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Leasing revenue $ 3,492 $ 2,692 $ 11,228 $ 7,476 Leasing costs and expenses (2,183) (1,409) (6,462) (4,033) Net interest expense on related discounted lease rentals (375) (275) (1,126) (700) -------- ---------- ---------- ---------- Leasing margin $ 934 $ 1,008 $ 3,640 $ 2,743 ======== ========= ========== ========== Leasing margin ratio 27% 37% 32% 37% == == == ==
Leasing margin increased during the nine months ended February 28, 1997, compared to the comparable period of 1996 primarily due to growth in the Company's lease portfolio. 11 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued I. 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, and (iii) the method used to finance leases added to the Company's lease portfolio, as described in the table above. Interest expense arising from non-recourse bank debt (discounted lease rentals) is reflected in leasing margin, but interest arising from the warehouse facility is not reflected in leasing margin. OTHER INCOME Other Income consists of the following (in thousands):
Three Months Ended Nine Months Ended -------------------------------- ----------------------------- February 28, February 29, February 28, February 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Fees and distributions from the Company-sponsored PIFs $ 562 $ 895 $ 1,791 $ 2,250 Interest on income tax refunds - - 103 - Interest on MBank receivable - - - 141 Other 141 74 305 210 ------- ------ ------- ------- $ 703 $ 969 $ 2,199 $ 2,601 ======= ====== ======= =======
OPERATING AND OTHER EXPENSES Operating and Other Expenses increased $0.7 million (12%) for the nine months ended February 28, 1997 as compared to the comparable period in fiscal 1996. The principal components of the increase were: * $450,000 of increased incentive compensation, primarily commissions as a result of higher levels of originations (see page 7 of 18); * $200,000 for costs associated with increased marketing activities; * $150,000 for costs associated with the relocation of the Company's Chairman of the Board to Denver, Colorado; * and that Operating and Other Expenses for the nine months ended February 28, 1997 included (i) $325,000 related to the termination of the Stockholders' Agreement and (ii) a $200,000 credit resulting from the difference between estimated incentive compensation and actual payments as approved by the Company's Board of Directors. INTEREST EXPENSE ON RECOURSE DEBT Recourse interest expense decreased due to a decrease in the average outstanding balance of recourse bank debt. 12 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued I. Results of Operations, continued --------------------- INCOME TAXES Income tax expense is provided on income at the appropriate federal and state statutory rates applicable to such earnings. The aggregate statutory tax rate is 40%, adjusted for utilization of the Company's ITC carryforward (see Note 11 to Notes to the Consolidated Financial Statements to the 1996 Form 10-K). II. Liquidity and Capital Resources ------------------------------- Currently the Company is offering units of CPYF-IV for sale to the public. Through February 28, 1997, the Company sold $21.2 million of Class A units of CPYF-IV. For the remainder of the offering period for CPYF-IV (which ends in April 1998), the Company has $28.8 million of Class A units in CPYF-IV available for sale, which represent a source of financing for the placement of lease originations and acquisition fee income to the Company. III. Business Plan ------------- The Company believes that it has the necessary funding capability for fiscal year 1997 to (1) continue to build its lease origination function and increase its lease origination volume by expanding its field sales force, (2) continue to modestly increase the size of its own lease portfolio, (3) originate/acquire additional leases for sales to PIFs and private investors and (4) build and strengthen its residual remarketing expertise in identified equipment types, such as material handling equipment, by "vertical integration" of individuals or companies with requisite equipment expertise. In addition, the Company continues to focus on identifying attractive acquisition opportunities. The Company's operating results may be affected by the availability of additional sources of capital and the related costs of such capital. The cost of funds for many of the Company's competitors is lower than the Company's cost of funds. Therefore, the Company has expanded its debt and equity placement capabilities with lower cost of capital sources including private investors, private partnerships, a private income fund with an off shore investor and other strategic alliances. These funding sources are intended to provide funds at a cost necessary to facilitate the Company's competitiveness in certain segments of the lease originations market. 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 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 Company's business are discussed in detail throughout Item 2 of this report and Parts I and II of the 1996 Form 10-K. 13 of 17 CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 1. Legal Proceedings (a) HEMMETER LITIGATION. See Note 15 to Notes to Consolidated Financial Statements included in the 1996 Form 10-K for a detailed discussion of the Hemmeter Litigation. On July 29, 1996, the Company received approximately $2 million from the sale of the equipment which had been leased to Grand Palais Riverboat, Inc. (the "Lessee") to the purchaser of the Lessee's riverboat gaming operations. (b) NASD ARBITRATIONS. CAI Securities Corporation ("CAIS"), a wholly-owned subsidiary of the Company has been named as a respondent in three NASD arbitrations initiated by investors in Leastec Income Fund V. The Company believes CAIS has meritorious defenses to the claims; however, it is too early to predict the outcome of any arbitrations. (c) OTHER. The Company is also involved in routine legal proceedings incidental to the conduct of its business. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition or operations of the Company. Item 6. Exhibits and Reports on Form 8-K a. Exhibits b. Reports on Form 8-K None 14 of 17 Item No. Exhibit Index 11A Computation of Primary Earnings Per Share. A computation of fully diluted earnings per share is not presented as dilution is less than 3%. 27 Financial Data Schedule 15 of 17 Exhibit 11A CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended Nine Months Ended ---------------------------- ----------------------------- February 28, February 29, February 28, February 29, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Shares outstanding at beginning of period 5,002,000 4,988,000 4,994,000 5,091,000 Purchase of treasury shares - - - (129,000) Shares issued during the period (weighted average) 3,000 - 7,000 24,000 Dilutive shares contingently issuable upon exercise of options (weighted average) 618,000 997,000 686,000 968,000 Less shares assumed to have been purchased for treasury with assumed proceeds from exercise of stock options (weighted average) (239,000) (688,000) (288,000) (639,000) Effect of non-employee stock option buy-out - - (64,000) - --------- --------- --------- --------- Total shares, primary 5,384,000 5,297,000 5,335,000 5,315,000 ========= ========= ========= ========= Net income $ 298,000 $ 136,000 $ 682,000 $ 253,000 ========= ========= ========= ========= Income per common and common equivalent share, primary $ 0.06 $ 0.03 $ 0.13 $ 0.05 ========= ========= ========= =========
16 of 17 CAPITAL ASSOCIATES INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAPITAL ASSOCIATES, INC. Registrant Date: April 3, 1997 By: /s/Anthony M. DiPaolo ------------------------------- Anthony M. DiPaolo, Senior Vice-President and Chief Financial Officer 17 of 17 EX-27 2 CAI3Q97.001
5 The schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of income and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS MAY-31-1997 FEB-28-1997 6,487 0 1,631 30 115 0 58,290 0 142,055 0 0 0 0 32 23,402 142,055 163,863 180,580 160,128 179,671 6,873 340 5,868 909 227 682 0 0 0 682 .13 .13
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