[TEXT]
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 November 30, 1993
[ ] 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 $.008par value
common stock at January 4, 1994, was 9,710,620.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - November 30, 1993
and May 31, 1993 3
Consolidated Statements of Operations -
Three and Six Months Ended November 30,
1993 and 1992 4
Consolidated Statements of Cash Flows - Six
Months Ended November 30, 1993 and 1992 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Exhibit Index 17
Signature 19
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value)
ASSETS
November 30, May 31,
1993 1993
(Note 1)
Cash and cash equivalents, including
restricted funds of$1,484 and $1,697,
respectively $ 2,658 $ 3,210
Accounts receivable, net of allowance
for doubtful accounts of $700 and $593,
respectively 702 1,376
Income tax refunds receivable 255 1,870
Residual values and other receivables
arising from equipment under lease
sold to private investors 5,987 5,071
Notes receivable arising from sale-leaseback
transactions 37,657 42,674
Net investment in direct finance leases 33,205 51,649
Leased equipment, net 28,406 39,974
Investments in affiliated limited
partnerships 13,592 15,200
Other 5,427 6,084
Discounted lease rentals assigned to
lenders arising from equipment sales 115,769 113,527
$ 243,658 $280,635
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving Credit Facility $ 89 $ 21
Accounts payable and other liabilities 8,098 10,414
Term Loan 28,016 37,836
Deferred income taxes 1,553 1,500
Obligations under capital leases arising
from sale-leaseback transactions 37,530 42,496
Discounted lease rentals 147,616 168,065
222,902 260,332
Stockholders' equity:
Common stock 59 59
Additional paid-in capital 16,604 16,604
Retained earnings 4,144 3,691
Treasury stock (51) (51)
Total stockholders' equity 20,756 20,303
$ 243,658 $ 280,635
See accompanying notes
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except earnings per share)
<TABLE>
Three Months Ended Six Months Ended
November 30, November 30, November 30, November 30,
1993 1992 1993 1992
(Note 1) (Note 1)
<S> <C> <C> <C> <C>
Revenue:
Equipment sales to affiliated
limited partnerships $ 21,882 $ 21,463 $ 49,525 $ 32,216
Other equipment sales 9,616 10,502 25,259 17,675
Leasing 3,609 7,580 7,838 15,138
Interest 4,008 3,767 7,520 8,403
Other 785 790 2,101 1,689
Total revenue 39,900 44,102 92,243 75,121
Costs and expenses:
Equipment sales 29,661 28,716 70,508 43,878
Leasing 1,288 3,563 2,996 7,569
Operating and other expenses 3,167 3,631 6,273 7,051
Interest:
Non-recourse debt 4,887 5,488 9,630 11,916
Recourse debt 464 930 1,018 1,930
Provision for losses 145 1,140 1,060 1,500
Total costs and expenses 39,612 43,468 91,485 73,844
Income before income taxes 288 634 758 1,277
Income tax expense 115 254 303 511
Net income $ 173 $ 380 $ 455 $ 766
Earnings per common and
common equivalent share $ 0.02 $ 0.04 $ 0.04 $ 0.08
Weighted average number of
common and common
equivalent shares
outstanding 11,029,000 9,713,000 11,043,000 9,517,000
See accompanying notes
</TABLE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
November 30, November 30,
1993 1992
Net cash provided by operating
activities $ 4,710 $ 7,640
Cash flows from investing activities:
Recovery of investment in direct
finance leases 7,894 10,685
Equipment purchased for leasing (1,847) (7,870)
Net receipts from affiliated
limited partnerships 1,030 1,289
Proceeds from sales of equipment
held for investment 4,768 8,097
Proceeds from sales of lease rentals 2,960 -
Net cash provided by investing
activities 14,805 12,201
Cash flows from financing activities:
Proceeds from discounting of
lease rentals 2,479 4,333
Principal payments on discounted
lease rentals (12,794) (17,520)
Net payments on recourse debt (9,752) (7,871)
Net cash used in financing
activities (20,067) (21,058)
Net decrease in cash (552) (1,217)
Cash at beginning of period 3,210 7,026
Cash at end of period $ 2,658 $ 5,809
Supplemental schedule of cash
flow information:
Recourse interest paid $ 1,003 $ 2,309
Non-recourse interest paid 1,878 3,304
Income taxes paid 181 1,342
Income tax refunds received 1,614 -
Supplemental schedule of non-cash
investing and financing activities:
Discounted lease rentals assigned
to lenders arising from
equipment sales transactions 28,050 6,679
Assumption of discounted lease
rentals in lease acquisitions 15,675 11,846
Residual values and other
receivables arising from
equipment under lease sold to
private investors 1,658 522
Notes receivable relating to
equipment sale transactions 5,017 4,522
Obligations under capital leases
arising from sale-leaseback
transactions 4,966 4,459
See accompanying notes
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM 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 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, 1993 ("the 1993 Form
10-K"), previously filed with the Securities and Exchange
Commission.
The consolidated balance sheet as of May 31, 1993 and the
consolidated statements of operations for the three and six
months ended November 30, 1992 have been restated to reflect
the adoption of Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes", as
discussed further in Note 3 to Notes to Consolidated Interim
Financial Statements.
Certain reclassifications have been made to prior periods'
financial statements to conform to the current period's
presentation.
2. Credit Facility
The Company's recourse operating credit facility ("Credit
Facility") consists of two facilities, a revolving credit
facility (the "Revolving Credit Facility") and a term
facility (the "Term Loan"). The availability under the
Revolving Credit Facility is equal to (1) the lesser of
$10.75 million or (2) the Borrowing Base amount, reduced by
the outstanding indebtedness under the Revolving Credit
Facility. As of November 30, 1993, the Borrowing Base
amount was $7.8 million, and the outstanding indebtedness
under the Revolving Credit Facility was $89,000, leaving
approximately $7.7 million of availability under the
Revolving Credit Facility to fund the Company's working
capital needs.
The outstanding principal balance of the Term Loan as of
November 30, 1993 was $28,016,000. Principal reductions
under the Term Loan are scheduled to occur as follows (in
thousands):
Six months ended May 31, 1994 $ 7,426
Twelve months ended May 31, 1995 16,446
Balance remaining at May 31, 1995 (the scheduled
termination date of the Credit Facility) 4,144
$ 28,016
At November 30, 1993, CAII had prepaid $400,000 of the
scheduled Term Loan payments, representing approximately one-third
of one month's scheduled payments. As of the time these
financial statements were prepared, there were no Defaults
or Events of Default existing under the Credit Facility.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS,
(continued)
(Unaudited)
2. Credit Facility, (continued)
The Revolving Credit Facility bears interest at the Mellon
Bank, N.A.'s Prime Rate plus 1%, payable monthly, in
arrears. On November 30, 1993, Mellon's Prime Rate was
6.0%. The Term Loan bears interest at a fixed rate of 6.0%,
payable monthly, in arrears.
3. Income Taxes
Effective June 1, 1993, the Company adopted SFAS 109. SFAS
109 requires the recognition of deferred tax liabilities and
assets for the future income tax consequences of events that
have been recognized in the Company's financial statements
or tax returns.
The Company elected to adopt SFAS No. 109 by restating
fiscal years 1993 and 1992 financial statements. The
effects of the restatement on net income and related per
share amounts for the three and six months ended November
30, 1992 are as follows:
Three Months Ended Six Months Ended
November 30, 1992 November 30, 1992
As previously reported:
Net income $ 259,000 $ 527,000
Net income per common
share .03 .06
As restated:
Net income $ 380,000 $ 766,000
Net income per common
share .04 .08
Change in net income due $ 121,000 $ 239,000
to adoption of SFAS 109
Income taxes are provided on net income at the appropriate
federal and state statutory rates. The effective overall
tax rate for fiscal year 1993 was 40%. The Company files
state income tax returns in 50 states. Statutory state
income tax rates vary between 0% and 12%. The changing mix
of business among states impacts the Company's aggregate
effective state income tax rate. The Company estimates that
its effective tax rate will remain at 40% for fiscal year
1994.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
I. 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 Consolidated Statements of
Operations.
<TABLE>
Condensed Consolidated Condensed Consolidated
Statements of Operations Statements of Operations
for the Three Months for the Six Months
Ended November 30, Effect on Ended November 30, Effect on
1993 1992 net income 1993 1992 net income
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Equipment sales margin $ 1,837 $ 3,249 $ (1,412) $ 4,275 $ 6,013 $ (1,738)
Leasing margin (net of
interest expense on
discounted lease rentals) 1,442 2,296 (854) 2,732 4,056 (1,324)
Other income 785 790 (5) 2,101 1,689 412
Operating and other expenses (3,167) (3,631) 464 (6,272) (7,051) 779
Provision for losses (145) (1,140) 995 (1,060) (1,500) 440
Interest expense on recourse debt (464) (930) 466 (1,018) (1,930) 912
Income taxes (115) (254) 139 (303) (511) 208
Net income $ 173 $ 380 $ (207) $ 455 $ 766 $ (311)
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
I. Results of Operations
Equipment Sales
Equipment sales revenue (and related equipment sales margin)
consists of the following (in thousands):
<TABLE>
Three Months Ended November 30, Increase
1993 1992 (Decrease)
Revenue Margin Revenue Margin Revenue Margin
<S> <C> <C> <C> <C> <C>
Transactions during initial lease term:
Equipment under lease sold to PIFs $21,882 $ 538 $21,463 $ 692
Equipment under lease sold to
private investors 7,872 319 5,233 181
29,754 857 26,696 873 $ 3,058 $ (16)
Transactions subsequent to initial lease
termination:
Sales of off-lease equipment 1,127 441 2,741 941
Sales-type leases 232 154 1,414 321
Excess collections (cash collections
in excess of the associated residual
value arising from equipment under
lease sold to private investors) 385 385 1,114 1,114
1,744 980 5,269 2,376 (3,525) (1,396)
$31,498 1,837 $31,965 3,249 $ (467) ($1,412)
Provision for losses 145 1,140
Equipment realizations in excess of
provision for losses $ 1,692 $2,109
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
I. Results of Operations
Equipment Sales, continued
<TABLE>
Six Months Ended November 30, Increase
1993 1992 (Decrease)
Revenue Margin Revenue Margin Revenue Margin
<S> <C> <C> <C> <C>
Transactions during initial lease term:
Equipment under lease sold to PIFs $49,525 $ 1,270 $32,216 $ 865
Equipment under lease sold to
private investors 20,951 738 5,233 180
70,476 2,008 37,449 1,045 $33,027 $ 963
Transactions subsequent to initial lease
termination:
Sales of off-lease equipment 2,540 942 6,877 1,767
Sales-type leases 976 533 3,339 976
Excess collections (cash collections
in excess of the associated residual
value arising from equipment under
lease sold to private investors) 792 792 2,225 2,225
4,308 2,267 12,441 4,968 (8,133) (2,701)
$74,784 4,275 $49,890 6,013 $24,894 ($1,738)
Provision for losses 1,060 1,500
Equipment realizations in excess of
provision for losses $ 3,215 $4,513
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
I. Results of Operations
Equipment Sales, continued
As discussed below, to maintain profitable results of
operations, the Company is selling more leased equipment
during its initial lease term (shown in the preceding table
as an increase in margin of $963,000 for the six months
ended November 30, 1993) to offset the decrease in sales
margins from transactions subsequent to initial lease
termination (shown in preceding table as a decrease in
margin of $2,701,000 for the six months ended November 30,
1993). In the ordinary course of business, the Company will
(i) sell new lease originations to its PIFs (to the extent
the PIFs have funds available for such purpose) or private
investors, and (ii) sell seasoned lease transactions
(previously originated leases held in the Company's
portfolio) to private investors when the profit is desirable
or to reduce perceived residual exposure. The Company
expects to continue to sell leased equipment during the
initial lease term to maintain profitable results of
operations during fiscal 1994. To the extent such sales
involve seasoned lease transactions, it will increase the
effect of portfolio run-off.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
I. Result of Operations, continued
Equipment Sales, continued
The table below demonstrates that the decline in the Company's
lease portfolio during the six months ended November 30, 1993 is
attributable primarily to equipment sales:
<TABLE>
Equipment Sales to:(1)
As of Private Sale of Net Portfolio As of
May 31, 1993 Investors(2) Lease Rentals(3) PIFs Run-off(1) November 30, 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Direct finance leases and
operating leases, net $ 91,623 $ (12,546) $ (2,946) $ (4,049) $ (10,471) $ 61,611
Non-recourse debt (54,538) 9,418 2,933 1,362 8,978 (31,847)
Net investment in leases $ 37,085 $ (3,128) $ 13 $ (2,687) $ (1,493) $ 29,764
(1) Equipment sales and portfolio run-off amounts above are net of
new leases originated during factoringthe six months ended
November 30, 1993.
(2) In connection with one sale to a private investor, the Company
retained its existing interest in the residual value of the
equipment of approximately $974,000 and, accordingly, such
retained residual values have been recorded in the
accompanying balance sheet as residual values and other
receivables arising from sales to private investors.
(3) The Company recorded a gain of $189,000 on the sale of the
underlying lease rentals.
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
I. Result of Operations, continued
Equipment Sales, continued
A significant portion of the Company's net assets consists
of aircraft. The following table summarizes the Company's
investment in aircraft as of November 30, 1993 and May 31,
1993 (in thousands):
November 30, May 31,
1993 1993
Lease equipment, net of $ 18,518 $ 23,836
accumulated depreciation
Associated non-recourse debt (8,396) (12,425)
10,122 11,411
Residual values and other
receivable arising from
equipment under lease sold
to private investors 1,008 1,008
Net investment in aircraft $ 11,130 $ 12,419
To reduce the concentration of aircraft in it's portfolio,
during the first fiscal quarter 1994 the Company sold three
aircraft under lease. The sale of the Company's investment
in these three aircraft represented approximately one-half
of the total net investment of $3,128,000 sold to private
investors during the six months ended November 30, 1993.
Approximately $8.3 million (net of non-recourse debt of $7.4
million) of the Company's current $11.1 million of net
investment in aircraft is represented by three jet aircraft.
Leases on these aircraft expire between December 31, 1993
and December 31, 1994. The existing lessee has signed a
commitment to extend the leases on two of the aircraft
through December 31, 1996. The existing lessee notified the
Company that it would not renew the lease on the third
aircraft after its expiration on December 31, 1993. During
the first fiscal quarter 1994, a provision for loss of
$180,000 was recorded to reduce the carrying value of that
aircraft to its expected net sales value. The Company is
continuing to remarket the third aircraft through re-lease
or sale to other third party users. Due to the long
remaining useful life of this type of asset, the Company
prefers to renew or re-lease, rather than sell, the assets,
in order to maximize their value. However, to reduce the
concentration of its investment in this type of equipment,
the Company will consider a sale of one or more of the
aircraft.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
I. Result of Operations, continued
Equipment Sales, continued
The Company's investment in the third aircraft discussed
above is subject to non-recourse "balloon" debt of
approximately $2.3 million which was payable in full upon
expiration of the lease and, accordingly, the Company funded
such payment using the availability under the Revolving
Credit Facility on January 3, 1994.
Equipment Sales to PIFs
Equipment sales to PIFs increased during both the second
fiscal quarter 1994 and the six months ended November 30,
1993, as compared to the similar periods in fiscal 1993,
principally because more leases that satisfied the Company's
Underwriting Standards were identified, in part as a result
of the opening of new sales offices.
Under applicable regulatory guidelines, the Company is
entitled to receive various fees and distributions in
connection with its activities related to its sponsored
PIFs. One such fee, an acquisition fee payable upon sale of
equipment under lease to a PIF, is, in general, subject to a
regulatory maximum amount over the term of a PIF.
Acquisition fees earned by the Company from equipment sales
to one of its PIFs reached the regulatory maximum during
fiscal 1992 and, during first fiscal quarter 1994, the
maximum was reached for another PIF. These circumstances
will have an impact on reported equipment sales margins in
future periods, but are not expected to impact total
PIF-related income (after costs of equipment sales) in
future periods because other allowable fees and
distributions are expected to increase during such periods.
Equipment Sales to Private Investors
The Company re-opened its private investor sales department
during the second fiscal quarter 1993 and has hired two
experienced private equity salespersons. The Company sold
$7.9 million and $21 million of equipment under lease to
private investors during the three and six month periods
ended November 30, 1993, respectively. This compares to
$5.2 million of sales of equipment to private investors
during the three and six month periods ended November 30,
1992. The development of a customer base of private
investors is a principal operating goal for the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
I. Result of Operations, continued
Remarketing Sales
Margins from remarketing sales (i.e., sales occurring after
the initial lease term) are affected by the amount of
equipment leases that mature in a particular quarter. In
general, as the size of the Company's lease portfolio
declines, fewer leases mature and less equipment is
available for remarketing each quarter. As a result,
remarketing revenue has declined during the three and six
months ended November 30, 1993 compared to similar periods
in fiscal 1993. 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. Accordingly, the
Company is pursuing financing possibilities to obtain funds
to add to its own portfolio, such as lease securitization
and other financing possibilities. See the discussion of
financing possibilities under "Business Plan" below.
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 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 Company performs ongoing
quarterly assessments of its assets to identify other than
temporary losses in value. At the time the first fiscal
quarter 1994 interim financial statements were prepared, the
Company identified a greater than expected amount of
equipment under lease that the Company had expected to be
released, which instead, would be terminated and returned to
the Company. The amounts recovered (and expected to be
recovered) from the sale of such equipment was less than the
previously estimated residual value, and accordingly, an
appropriate provision for loss was recorded. Because the
first quarter's provision considered known second quarter
activity, the Company recorded a correspondingly smaller
provision for loss in the second fiscal quarter 1994.
Provision for losses result from 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). The remarketing of equipment for
an amount greater than its book value is reported as
equipment sales margin or as leasing margin. As shown on
pages 8 and 9 of 19, the "net" realizations from portfolio
sales during the second fiscal quarter 1994 exceeded the
aggregate carrying value of the assets sold, even without
considering realizations from remarketing activities
recorded as leasing margin (see discussion below).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
I. Result of Operations, continued
Leasing Margin
Leasing margin consists of the following (in thousands):
Three Months Ended Six Months Ended
November 30, November 30,
1993 1992 1993 1992
Leasing revenue $ 3,609 $ 7,580 $ 7,838 $ 15,138
Leasing costs and
expenses (1,288) (3,563) (2,996) (7,569)
Net interest expense
on associated
discounted lease
rentals (879) (1,721) (2,110) (3,513)
Leasing margin $ 1,442 $ 2,296 $ 2,732 $ 4,056
Leasing margin ratio 40% 30% 35% 27%
Leasing margin has declined as a result of portfolio
run-off. See the discussion under "Business Plan" below.
The leasing margin ratio has increased as a result of
remarketing activities, which include the rental proceeds
related to renewing, extending or re-leasing equipment
before or after the end of the initial lease term.
Other Income
During the first fiscal quarter 1994, the Company received a
$2 million income tax refund, consisting of $1.6 million
that was previously recorded as "Income tax refunds
receivable", and an additional $.4 million of interest that
was recorded in first fiscal quarter 1994 as "Other income".
Operating and Other Expenses
Operating and other expenses decreased $464,000 (13%) and
$779,000 (11%) for the three and six months ended November
30, 1993, as compared to fiscal 1993. The decrease
principally reflects a reduction in salaries and wages. As
of November 30, 1993, the Company had 119 full-time
employees compared to 149 full-time employees at November
30, 1992. As the portfolio has run-off, the Company has
decreased the size of its back office staff while adding
revenue producing sales personnel. The Company has eleven
field sales offices open as of November 30, 1993.
Interest Income and Expense
Interest income on discounted lease rentals arises when
equipment financed with non-recourse debt is sold to
investors. The Consolidated Statements of Operations
reflect an equal amount of interest expense. The decline in
interest income and non-recourse debt interest expense is
due to portfolio run-off.
The decrease in recourse debt interest expense principally
reflects the decline in the outstanding balance of the
Working Capital Facility.
Income Taxes
Effective June 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes". See Note 3 to Notes to Consolidated Interim
Financial Statements.
II. Liquidity and Capital Resources
The Company's activities are principally funded by the
Revolving Credit Facility, rents, proceeds from sales of
on-lease equipment, non-recourse debt, fees and
distributions from its PIFs, and sales or re-leases of
equipment after the expiration of the initial lease terms.
Cash held by the PIFs available for purchase of equipment
from the Company is:
As of November 30,
1993 1992
Available cash $ 11,238 $ 14,802
Cash committed for equipment purchases 9,122 5,695
Uncommitted cash $ 2,116 $ 9,107
Currently, one PIF, Capital Preferred Yield Fund-II,
("CPYF-II") is actively selling units to the public. Three
other PIFs have ceased offering units, however, they
generate cash for purchase of equipment from operating
activities. The Company anticipates that $19 million of
additional cash available for purchase of equipment will be
generated by the four PIFs during third fiscal quarter
1994. During the fourth fiscal quarter 1994, CPYF-II will
cease offering units for sale to the public. The Company
has commenced the process of registering for sale to the
public up to $50 million of units in a new PIF, Capital
Preferred Yield Fund-III, ("CPYF-III"). The Company
anticipates commencing the offering of unit sales in
CPYF-III following the termination of the offering for
sale to the public of units in CPYF-II.
Management believes the Company's ability to generate cash
from operations is sufficient to fund operations,
particularly when operations are viewed as including
investing and financing activities. In this context, it
should be noted that the Company reduced its recourse debt
by $9.8 million since May 31, 1993 and improved it's
recourse debt-to-equity ratio as follows:
As of
November 30, May 31,
1993 1993
Recourse debt $ 28,105 $ 37,857
Stockholders equity $ 20,756 $ 20,303
Recourse debt/stockholder's equity 1.35 to 1 1.86 to 1
III. Business Plan
As discussed in the 1993 Form 10-K, during fiscal year
1991, the Company agreed with its Lenders to begin repaying
its Credit Facility. Accordingly, during the last four
months of fiscal year 1991, fiscal years 1992 and 1993 and
during the six months ended November 30, 1993, the Company
used substantially all of its cash flow after payment of
operating expenses to pay down its Credit Facility. As a
result of making these repayments, the Company did not have
the funds necessary to significantly add to its leasing
portfolio. Because a leasing portfolio declines in size as
it matures, the Company's leasing portfolio and related
revenue have declined since 1991. The Revolving Credit
Facility provides a limited amount of funds to the Company
to invest in new leases. However, this level of funds is
not sufficient to maintain the current portfolio and,
accordingly, the current level of remarketing profits may
not be achievable in the future. Therefore, maintaining
the current level of profitability is dependent principally
upon equipment sales margins from new lease originations
and from seasoned lease transactions (see the discussion on
page 9 of 19) or development of new sources of revenue
related to the Company's core business.
The Company's current business plan is designed to maintain
profitable operations. The amount of longer-term future
profits, if any, will largely depend on the amount of new
capital available to the Company. Such capital may be in a
variety of forms including new recourse debt, additional
equity (which could include a sale of the Company, possibly
coupled with an infusion of new funds into the Company from
the purchaser), securitized financing vehicles or equity
provided from private purchases of equipment originated by
the Company. The Company is actively pursuing financing
possibilities. No assurance can be given, however, that
the Company will be successful in operating profitably,
developing new sources of revenue or in obtaining access to
new financing.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments during second
fiscal quarter 1994 with respect to the legal
proceedings described in the Company's fiscal 1993 Form
10-K.
Item 4. Submission of Matters to a Vote of Security Holders
The 1993 Annual Meeting of Stockholders of the Company
(the "Annual Meeting") was held on October 15, 1993. At
the Annual Meeting, James D. Edwards, Richard Kazan,
Dennis J. Lacey, William B. Patton, Jr., and Peter F.
Schabarum were re-elected as directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
a. Included as exhibits are the items listed in the
Exhibit Index. The Company will furnish to its
shareholders a copy of any of the exhibits listed
therein upon payment of $.25 per page to cover the
costs to the Company of furnishing the exhibits.
b. There were no reports on Form 8-K filed during the
three months ended November 30, 1993.
Item No. Exhibit Index
11A Computation of Primary Earnings Per Share. A computation
of fully diluted earnings per share is not presented as it
is the same as the computation of primary earnings per
share.
Exhibit 11A
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
Three Months Ended Six Months Ended
November 30, November 30, November 30, November 30,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Shares outstanding at 9,654,000 9,273,000 9,654,000 8,948,000
beginning of period
Shares issued during - - - 162,000
the period
(weighted average)
Shares earned but not 50,000 - 50,000 -
issued under the CEO
Bonus Plan
Dilutive shares 2,286,000 1,103,000 2,286,000 1,092,000
contingently issuable
upon exercise of options
(weighted average)
Less shares assumed to (961,000) (663,000) (947,000) (685,000)
have been purchased
for treasury with assumed
proceeds from exercise of
stock options
(weighted average)
Total shares, primary 11,029,000 9,713,000 11,043,000 9,517,000
Net income $ 173,000 $ 380,000 $ 455,000 $ 766,000
Net income per share, $ 0.02 $ 0.04 $ 0.04 $ 0.08
</TABLE>
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: January 7, 1994 By: /s/Anthony M. DiPaolo
Anthony M. DiPaolo,
Vice-President and Controller
(Principal Accounting Officer)
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