-----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, BHdJUHQBql/iMCjSePnq06MMsxL+0r9cA4X0hHBQBRrmdQ1Al58KRwH3CLdmW1Wv n63MQ/4u5Z2A3GznWZMIpA== 0000950109-97-001245.txt : 19970222 0000950109-97-001245.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950109-97-001245 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCO CAPITAL RESOURCE INC CENTRAL INDEX KEY: 0000922255 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 232493042 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20405 FILM NUMBER: 97532884 BUSINESS ADDRESS: STREET 1: 1738 BASS RD CITY: MACON STATE: GA ZIP: 31210 BUSINESS PHONE: 2152968000 MAIL ADDRESS: STREET 1: BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (Mark One)* [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 1996 or [_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from_____ to_____ Commission file number 0-20405 -------------------------------------------------------- IKON CAPITAL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 23-2493042 - ------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1738 Bass Road, Macon, Georgia 31210 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (912) 471-2300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NONE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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_____ ----- * Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes______ No _____ * Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of January 31, 1997. Common Stock, $.01 par value per share 1,000 shares Registered Debt Outstanding as of January 31, 1997 $1,186,900,000 The registrant, an indirect wholly owned subsidiary of IKON Office Solutions, Inc. ("IKON") (formerly Alco Standard Corporation), meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is, therefore, filing with the reduced disclosure format contemplated thereby. INDEX IKON CAPITAL, INC. PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited) Balance Sheets--December 31, 1996 and September 30, 1996 Statements of Income--Three months ended December 31, 1996 and December 31, 1995 Statements of Cash Flows--Three months ended December 31, 1996 and December 31, 1995 Notes to Financial Statements--December 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K SIGNATURES - ---------- PART I. FINANCIAL INFORMATION ----------------------------- ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) - --------------------------------------- IKON CAPITAL, INC. BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30, 1996 1996 ------------ ------------- ASSETS Investments in leases: Direct financing leases $1,244,553 $1,140,851 Less: Unearned income (221,200) (203,459) ----------- ------------ 1,023,353 937,392 Funded leases, net 357,468 313,250 ----------- ------------ 1,380,821 1,250,642 Accounts receivable 55,365 48,334 Prepaid expenses and other assets 11,510 15,582 Leased equipment-operating rentals at cost less accumulated depreciation of: 12/96 - $22,017 9/96 - $ 17,624 33,828 31,341 Property and equipment at cost, less accumulated depreciation of: 12/96 - $2,728 9/96 - $ 2,536 8,143 6,889 ----------- ------------ Total assets $1,489,667 $1,352,788 =========== ============ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Accounts payable and accrued expenses $40,365 $42,538 Accrued interest 4,641 20,870 Due to IKON Office Solutions 7,438 24,330 Notes payable to Banks 40,000 58,000 Medium Term Notes 1,138,900 969,900 Deferred income taxes 51,371 45,750 ----------- ------------ Total liabilities 1,282,715 1,161,388 Shareholder's equity: Common Stock - $.01 par value, 1,000 shares authorized, issued, and outstanding Contributed capital 118,415 112,415 Retained earnings 88,537 78,985 ----------- ------------ Total shareholder's equity 206,952 191,400 ----------- ------------ Total liabilities and shareholder's equity $1,489,667 $1,352,788 =========== ============
See notes to financial statements. IKON CAPITAL, INC. STATEMENTS OF INCOME (IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31 1996 1995 ----------- --------- REVENUES: Lease finance income $36,900 $25,360 Rental income 4,792 3,231 Interest on IKON income tax deferrals 2,736 1,889 Other income 1,734 1,368 --------- --------- 46,162 31,848 EXPENSES: Interest 17,626 13,417 General and administrative 12,959 8,309 --------- --------- 30,585 21,726 GAIN ON SALE OF LEASE RECEIVABLES 613 312 --------- --------- INCOME BEFORE INCOME TAXES 16,190 10,434 PROVISION FOR INCOME TAXES 6,638 4,278 --------- --------- NET INCOME $ 9,552 $ 6,156 ========= =========
See notes to financial statements. IKON CAPITAL, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, -------------------------- 1996 1995 ------------ ------------ OPERATING ACTIVITIES: Net income $9,552 $6,156 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 4,585 3,148 Provision for deferred taxes 5,621 4,721 Gain on sale of lease receivables (613) (312) Changes in operating assets and liabilities: Accounts receivable (7,031) (6,373) Prepaid expenses and other assets 4,685 (279) Accounts payable and accrued expenses (2,173) 15 Accrued interest (16,229) (8,355) ------------ ------------ Net cash used (1,603) (1,279) ------------ ------------ INVESTING ACTIVITIES: Purchases of equipment for rental, net (6,880) (7,495) Purchases of property and equipment (1,446) (24) Direct financing leases: Additions (239,350) (171,318) Cancellations 35,751 30,177 Collections 92,205 59,451 Proceeds from sale 25,433 13,154 Funded leases: Additions (111,244) (47,968) Cancellations 16,616 8,449 Collections 50,410 16,646 ------------ ------------ Net cash used (138,505) (98,928) ------------ ------------ FINANCING ACTIVITIES: Payments on bank borrowings (18,000) (40,000) Proceeds from issuance of medium term notes 177,000 120,000 Payments on medium term notes (8,000) Contributed capital 6,000 7,000 ------------ ------------ Net cash provided 157,000 87,000 ------------ ------------ DECREASE(INCREASE) IN AMOUNTS DUE TO IKON 16,892 (13,207) DUE (TO) FROM IKON AT BEGINNING OF PERIOD (24,330) 26,577 ------------ ------------ DUE (TO) FROM IKON AT END OF PERIOD ($7,438) $13,370 ============ ============
See notes to financial statements. IKON CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 Note 1: Basis of Presentation --------------------- The accompanying unaudited condensed 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Company's report on Form 10-K for the year ended September 30, 1996. Note 2: Medium Term Note Program ------------------------ During the three months ended December 31, 1996, IKON Capital issued an additional $177 million under its $1.5 billion medium term note program. At December 31, 1996, $1,138.9 million of medium term notes remain outstanding with a weighted average interest rate of 6.7%, leaving $323.1 million available under this program. Note 3: Asset Securitization -------------------- In September 1996, IKON Capital entered into a new agreement which expires in September 1997, to sell, under an asset securitization program, an undivided ownership interest in $150 million of eligible direct financing lease receivables. The September 1994 agreement for $125 million expires in March 1997, but is expected to be renewed. Under these agreements, the company sold $25.4 million in direct financing leases during the first quarter of fiscal 1997, replacing leases which had been liquidated during the quarter and recognized a pretax gain of $613,000. Under the terms of the sales agreements, the Company will continue to service the lease portfolio. Item 2: Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - ------------- Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of the results of operations is presented in lieu of Management's Discussion and Analysis of Financial Condition and Results of Operations. Three Months Ended December 31, 1996 Compared ---------------------------------------------- with the Three Months Ended December 31, 1995 --------------------------------------------- Comparative summarized results of operations for the three months ended December 31, 1996 and 1995 are set forth in the table below. This table also shows the increase in the dollar amounts of major revenue and expense items between periods, as well as the related percentage increase.
Three Months (dollars in thousands) Ended December 31 Increase ----------------- -------- 1996 1995 Amount Percent ---- ---- ------ ------- Revenues: Lease finance income $36,900 $25,360 $ 11,540 45.5% Rental income 4,792 3,231 1,561 48.3% Interest on IKON income tax deferrals 2,736 1,889 847 44.8% Other income 1,734 1,368 366 26.8% ------- ------- ------- 46,162 31,848 14,314 44.9% Expenses: Interest 17,626 13,417 4,209 31.4% General and administrative 12,959 8,309 4,650 56.0% ------- ------- ------- 30,585 21,726 8,859 40.8% Gain on sale of lease receivables 613 312 301 96.5% ------- ------- ------- Income before income taxes 16,190 10,434 5,756 55.2% Provision for income taxes 6,638 4,278 2,360 55.2% ------- ------- ------- Net income $ 9,552 $ 6,156 $ 3,396 55.2% ======= ======= =======
Revenues - -------- Total revenues increased $14.3 million or 44.9% in the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. Approximately 80.6% or $11.5 million of this increase in revenues was a result of increased lease finance income due to continued growth in the portfolio of direct financing and funded leases. The lease portfolio, net of lease receivables that were sold in asset securitization transactions, increased 43.4% from December 31, 1995 to December 31, 1996. In October 1994, the Company began offering an operating lease product to the IKON dealer network, whereby office equipment placed on long term rental to customers could be funded through the Company. In preceding years, this equipment was funded by the respective IKON dealer. During the first quarters of fiscal 1997 and 1996, IKON Capital funded $6.9 million and $7.5 million, respectively. Operating leases contributed $4.8 million in rental income during the first quarter of fiscal 1997, compared to $3.2 million in the first quarter of 1996. The Company earns interest income on the deferred tax liabilities of the IKON dealers resulting from leases funded through the Company at a rate consistent with the Company's weighted average outside borrowing rate of interest. The Company's average rate was 6.9% for the first quarter of fiscal 1997, compared to 6.8% for the first quarter of fiscal 1996. In addition, the deferred tax base upon which these payments are calculated increased 39.5% to $172.4 million at December 31, 1996 from $123.6 million at December 31, 1995. As a result of the increased deferred tax liabilities, interest income on deferred taxes rose $847,000 or 44.8% when comparing the three months ended December 31, 1996 to the three months ended December 31, 1995. Other income consists primarily of late payment charges and various billing fees. The structure of these fees has remained basically unchanged from fiscal 1996. The growth in other income from fees is primarily due to the increased size of the lease portfolio upon which these fees are based. Overall, fee income from these sources grew by $366,000 or 26.8%, when comparing the first quarter of fiscal 1997 to the same period of fiscal 1996. Expenses - -------- Debt to fund the lease portfolio in the form of loans from major banks and the issuance of medium term notes in the public market increased by 37.9%, to $1,178.9 million outstanding at December 31, 1996. The Company paid a weighted average interest rate on all borrowings for the first quarter of fiscal 1997 of 6.9%, compared to 6.8% for the first quarter fiscal 1996. Due to the combined effect of increased borrowings and an increase in the Company's overall weighted average interest rate, interest expense grew by $4.2 million or 31.4%, when comparing the first quarter of fiscal 1997 to fiscal 1996. At December 31, 1996, the Company's debt to equity ratio, including intercompany amounts owed to IKON was 5.7 to 1. The Company has a $1.5 billion medium term note program that allows for the issuance of medium term notes in the public markets with maturities ranging from nine months up to ten years, through four nationally recognized investment firms. At December 31, 1996, $1,138.9 million of medium term notes were outstanding under these two programs with a weighted average interest rate of 6.7%. At December 31, 1996, the Company had outstanding notes payable to banks of $40 million, with a weighted average rate of 6.4%, compared to $133 million at December 31, 1995. Total general and administrative expenses for the quarter ended December 31, 1996 increased by $4.7 million or 56.0%, over the quarter ended December 31, 1995. The general and administrative expense category in the first quarter of fiscal 1997 includes depreciation expense on leased equipment totaling $4.4 million, compared to $3.0 million for the first quarter of fiscal 1996. In addition, the general and administrative expense category includes lease bonus subsidy payments to either IKON or directly to the IKON dealers, based on the level of dealer participation in the Company's leasing programs or for the funding of targeted new lease volume. During the first quarter of fiscal 1997, lease bonus subsidy payments totaled $2.1 million as compared to $449,000 during the first quarter of fiscal 1996. Excluding the effects of depreciation expense on operating leases and lease bonus subsidy payments, remaining general and administrative expenses grew by $1.8 million or 37.2%, when comparing the first quarter of fiscal 1997 to the first quarter of fiscal 1996. Gain on Sale of Lease Receivables - --------------------------------- In September 1996, the Company entered into an asset securitization transaction whereby the Company sold an undivided ownership interest in $150 million in eligible direct financing lease receivables. This agreement was structured as a revolving securitization so that as collections reduce previously sold interests, additional leases can be sold up to $150 million. Under an asset securitization program entered into in September 1994, the Company sold an undivided ownership interest in $125 million of eligible direct financing lease receivables. This agreement, which expires in March 1997 but is expected to be renewed, was also structured as a revolving securitization. Under this program, new leases can be sold up to $125 million as collections reduce previously sold lease receivables. During the three months ended December 31, 1996, collections reduced previously sold interests under these two agreements by approximately $25.4 million. The Company sold an additional $25.4 million in net eligible direct financing leases during the first quarter of fiscal 1997 and recognized pretax gains of $613,000. Income Before Taxes - ------------------- Income before taxes for the first quarter of fiscal 1997 increased by $58 million or 55.2% over the first quarter of fiscal 1996. This increase in income before taxes was essentially the effect of higher earnings on a larger lease portfolio base, partially offset by higher borrowing costs due to the increased debt to fund the lease portfolio and a slightly higher average interest rate in the first quarter of fiscal 1997 versus the first quarter of fiscal 1996. Provision for Income Taxes - -------------------------- Income taxes for the first quarter of fiscal 1997 increased by $2.4 million or 55.2% over the first quarter of fiscal 1996. This increase in income taxes is directly attributable to the increase in income before taxes in the first quarter of fiscal 1997 as compared to the first quarter of fiscal 1996. The effective tax rate was 41% for both the first quarter of fiscal 1997 and 1996. Parent Company Name Change - -------------------------- On January 23, 1997, the shareholders of the Company's parent company, Alco Standard Corporation (Alco), voted to change the name of Alco to IKON Office Solutions, Inc. PART II. OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ (a) The following Exhibits are furnished pursuant to Item 601 of Regulation S-K: Exhibit No. (27) Financial Data Schedule (b) Reports on Form 8-K On November 13, 1996, the registrant filed a Current Report on Form 8- K to file, under Item 5 of the form, the Amended and Restated 1996 Support Agreement with its parent, Alco Standard Corporation ("Alco"), as Exhibit 10 under Item 7 of the Form 8-K and to announce that on November 8, 1996, the Board of Directors of Alco declared a special dividend of 100% of the common stock of Unisource Worldwide, Inc., Alco's wholly-owned subsidiary, payable December 31, 1996 to shareholders of record of Alco common stock on December 13, 1996. SIGNATURES ---------- 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. This report has also been signed by the undersigned in his capacity as the chief accounting officer of the Registrant. IKON CAPITAL, INC. Date February 14, 1997 /s/Robert M. Kearns II ----------------- ---------------------- Robert M. Kearns II Vice President (Chief Accounting Officer) Index to Exhibits ----------------- Exhibit Number - -------------- (27) Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of IKON Capital, Inc. and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-1997 DEC-31-1996 0 0 1,436,186,000 0 0 0 66,716,000 24,745,000 1,489,667,000 0 1,178,900,000 0 0 0 206,952,000 1,489,667,000 0 46,162,000 0 0 12,959,000 0 17,626,000 16,190,000 6,638,000 9,552,000 0 0 0 9,552,000 0 0 Includes net investments in leases of $1,380,821,000 and other accounts receivable. Includes leased equipment of: cost - $55,845,000; accumulated depreciation - $22,017,000. Common stock, $0.01 par value, 1,000 shares outstanding. Since total is less than $1,000, zero is reported. Not required as the registrant is a wholly-owned subsidiary.
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