-----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, BHVWIEO4jwge6aDgCHlPpGy7tZGq2y3xKZC8SNb9VTDa4X4gBAWHYxhG26gnCgPP waiufK3jgDQQnRn5LVMzFg== 0000950159-98-000034.txt : 19980217 0000950159-98-000034.hdr.sgml : 19980217 ACCESSION NUMBER: 0000950159-98-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IOS CAPITAL 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: SEC FILE NUMBER: 000-20405 FILM NUMBER: 98533415 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 FORMER COMPANY: FORMER CONFORMED NAME: IKON CAPITAL INC DATE OF NAME CHANGE: 19980113 FORMER COMPANY: FORMER CONFORMED NAME: ALCO CAPITAL RESOURCE INC DATE OF NAME CHANGE: 19940425 10-Q 1 FORM 10-Q UNITED STATES 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, 1997 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 IOS 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) IKON CAPITAL, INC. (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, 1998. Common Stock, $.01 par value per share 1,000 shares Registered Debt Outstanding as of January 31, 1998 $1,800,750,000 The registrant, an indirect wholly owned subsidiary of IKON Office Solutions, Inc. ("IKON"), 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 IOS CAPITAL, INC. (formerly IKON Capital, Inc.) PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets--December 31, 1997 and September 30, 1997 Statements of Income--Three months ended December 31, 1997 and December 31, 1996 Statements of Cash Flows--Three months ended December 31, 1997 and December 31, 1996 Notes to Financial Statements--December 31, 1997 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) IOS CAPITAL, INC. BALANCE SHEETS (in thousands, except share and per share amounts)
December 31, September 30, 1997 1997 Assets Investment in leases: Direct financing leases $1,733,713 $1,640,559 Less: Unearned income (300,868) (286,769) ----------- ----------- 1,432,845 1,353,790 Funded leases, net 521,876 485,658 ----------- ----------- 1,954,721 1,839,448 Accounts receivable 63,638 55,589 Due from IKON Office Solutions 41,936 4,463 Prepaid expenses and other assets 13,390 13,436 Leased equipment-operating rentals at cost less accumulated depreciation of: 12/97 - $36,385; 9/97 - $ 33,598 62,058 50,945 Property and equipment at cost, less accumulated depreciation of: 12/97 - $4,195; 9/97 - $ 3,771 11,852 12,330 ----------- ----------- Total assets $2,147,595 $1,976,211 =========== =========== Liabilities and shareholder's equity Liabilities: Accounts payable and accrued expenses $53,518 $51,018 Accrued interest 7,390 27,785 Notes payable to banks 25,000 25,000 Medium term notes 1,705,750 1,542,250 Deferred income taxes 71,177 64,177 ----------- ----------- Total liabilities 1,862,835 1,710,230 Shareholder's equity: Common Stock - $.01 par value, 1,000 shares authorized, issued, and outstanding Contributed capital 149,415 144,415 Retained earnings 135,345 121,566 ----------- ----------- Total shareholder's equity 284,760 265,981 ----------- ----------- Total liabilities and shareholder's equity $2,147,595 $1,976,211 =========== ===========
See notes to financial statements. IOS CAPITAL, INC. STATEMENTS OF INCOME (in thousands) Three Months Ended December 31 1997 1996 Revenues: Lease finance income $51,479 $36,900 Rental income 9,051 4,792 Interest on IKON tax deferrals 3,661 2,736 Other income 2,235 1,734 ------- ------- 66,426 46,162 Expenses: Interest 25,865 17,626 General and administrative 17,771 12,959 ------- ------- 43,636 30,585 Gain on sale of lease receivables 564 613 ------- ------- Income before income taxes 23,354 16,190 Provision for income taxes 9,575 6,638 ------- ------- Net income $13,779 $9,552 ======= ======= See notes to financial statements. IOS CAPITAL, INC. STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended December 31, 1997 1996 Operating activities: Net income $13,779 $9,552 Adjustments to reconcile net income to net cash provided (used) in operating activities Depreciation and amortization 8,092 4,585 Provision for deferred taxes 7,000 5,621 Gain on sale of lease receivables (564) (613) Changes in operating assets and liabilities: Accounts receivable (8,049) (7,031) Prepaid expenses and other assets 610 4,685 Accounts payable and accrued expenses 2,500 (2,173) Accrued interest (20,395) (16,229) --------- --------- Net cash provided (used) 2,973 (1,603) --------- --------- Investing activities: Purchases of leased equipment, net (18,782) (6,880) Purchases of property and equipment, net 54 (1,446) Direct financing leases: Additions (285,578) (239,350) Cancellations 51,870 35,751 Collections 128,893 92,205 Proceeds from sale 25,760 25,433 Funded leases: Additions (110,139) (111,244) Cancellations 20,005 16,616 Collections 53,917 50,410 --------- --------- Net cash used (134,000) (138,505) --------- --------- Financing activities: Payments on bank borrowings 0 (18,000) Proceeds from issuance of medium term notes 248,500 177,000 Payments on medium term notes (85,000) (8,000) Capital contributed by IKON 5,000 6,000 --------- --------- Net cash provided 168,500 157,000 --------- --------- Increase in amounts due from IKON 37,473 16,892 Due from (to) IKON at beginning of year 4,463 (24,330) --------- --------- Due from (to) IKON at end of period $41,936 ($7,438) ========= =========
See notes to financial statements. IOS Capital, Inc. Notes to Financial Statements December 31, 1997 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 annual report on Form 10-K for the year ended September 30, 1997. Note 2: Medium Term Note Program During the three months ended December 31, 1997, IOS Capital issued $248.5 million under its medium term note program. At December 31, 1997, $1,705.8 million of medium term notes were outstanding with a weighted average interest rate of 6.6%. The remaining amount available under this program is $1,398.2 million. Note 3: Asset Securitization IOS Capital has asset securitization agreements for $275 million of eligible direct financing receivables that expire March 1998 ($125 million) and September 1998 ($150 million). Both of these agreements are expected to be renewed. Under these agreements, the Company sold $25.8 million in direct financing leases during the first three months of fiscal 1998, replacing leases which had been liquidated during the period and recognized a pretax gain of approximately $564,000. Under the terms of the sales agreements, the Company will continue to service the lease portfolio. Note 4: Name Change On January 22, 1998, the Company changed its name from IKON Capital, Inc. to IOS Capital, Inc. 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, 1997 Compared with the Three Months Ended December 31, 1996 Comparative summarized results of operations for the three months ended December 31, 1997 and 1996 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 1997 1996 Amount Percent Revenues: Lease finance income $51,479 $36,900 $14,579 39.5% Rental income 9,051 4,792 4,259 88.9% Interest on IKON tax deferrals 3,661 2,736 925 33.8% Other income 2,235 1,734 501 28.9% ------ ------ ------ 66,426 46,162 20,264 43.9% Expenses: Interest 25,865 17,626 8,239 46.7% General and administrative 17,771 12,959 4,812 37.1% ------ ------ ------ 43,636 30,585 13,051 42.7% Gain on sale of lease receivables 564 613 (49) (8.0)% ------ ------ ------ Income before income taxes 23,354 16,190 7,164 44.2% Provision for income taxes 9,575 6,638 2,937 44.2% ------ ------ ------ Net income $13,779 $9,552 $4,227 44.2% ====== ====== ======
Revenues Total revenues increased $20.3 million or 43.9% in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. Approximately 71.9% or $14.6 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 41.5 % from December 31, 1996 to December 31, 1997. Office equipment placed on rental by the IKON marketplaces to customers, with cancelable terms, may be purchased by the Company. During the first quarter of fiscal 1998 and 1997, IOS Capital purchased operating lease equipment of $18.8 million and $6.9 million, respectively. Operating leases contributed $9.1 million in rental income during the first quarter of fiscal 1998, compared to $4.8 million in the first quarter of fiscal 1997. The Company earns interest income on the deferred tax liabilities of the IKON marketplaces associated with 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 6.6% for the first quarter of fiscal 1998 and 6.7% for the first quarter of fiscal 1997. In addition, the deferred tax base upon which these payments are calculated increased 37.8% to $237.6 million at December 31, 1997 from $172.4 million at December 31, 1996. Primarily as a result of the increased deferred tax liabilities, interest income on deferred taxes rose $925,000 or 33.8% when comparing the three months ended December 31, 1997 to the three months ended December 31, 1996. Other income consists primarily of late payment charges and various billing fees. The structure of these fees has remained basically unchanged from fiscal 1997. 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 $501,000 or 28.9%, when comparing the first quarter of fiscal 1998 to the same period of fiscal 1997. Expenses Average borrowings to finance the lease portfolio in the form of loans from banks and the issuance of medium term notes in the public market increased by 46.8%, to $1,730.8 million outstanding at December 31, 1997 from December 31, 1996. The Company paid a weighted average interest rate on all borrowings of 6.6% for the first quarter of fiscal 1998 and 6.7% for the first quarter of fiscal 1997. Primarily as a result of the increased borrowings, interest expense grew by $8.2 million or 46.7% when comparing the first quarter of fiscal 1998 to the first quarter of fiscal 1997. At December 31, 1997, the Company's debt to equity ratio, including intercompany amounts due from IKON, was 5.9 to 1. Total general and administrative expenses for the quarter ended December 31, 1997 increased by $4.8 million or 37.1%, over the quarter ended December 31, 1996. However, the general and administrative expense category in the first quarter of fiscal 1998 includes depreciation expense on leased equipment totaling $7.7 million, compared to $4.2 million for the first quarter of fiscal 1997. In addition, the general and administrative expense category includes lease bonus subsidy payments to either IKON or directly to the IKON marketplaces, 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 1998, lease bonus subsidy payments totaled $3.8 million as compared to $2.1 million during the first quarter of fiscal 1997. Excluding the effects of increased depreciation expense on operating leases and lease bonus subsidy payments, remaining general and administrative expenses decreased by $349,000 or 5.2% compared to general and administrative expenses in the first quarter of fiscal 1997. Gain on Sale of Lease Receivables The Company has asset securitization agreements for $275 million of eligible direct financing lease receivables that expire in March 1998 ($125 million) and September 1998 ($150 million). Both of these agreements are expected to be renewed. As collections reduce previously sold interests, new leases can be sold up to the agreement amount. During the three months ended December 31, 1997, collections reduced previously sold interests by approximately $25.8 million on these two agreements. The Company sold an additional $25.8 million in net eligible direct financing leases during the first quarter of fiscal 1998 and recognized pretax gains of $564,000. Income Before Income Taxes Income before income taxes for the first quarter of fiscal 1998 increased by $7.2 million or 44.2% over the first quarter of fiscal 1997. This increase in income before income taxes was essentially the effect of higher earnings on a larger lease portfolio base net of increased general and administrative expenses, partially offset by higher borrowing costs due to the increased debt to fund the lease portfolio. Provision for Income Taxes Income taxes for the first quarter of fiscal 1998 increased by $2.9 million or 44.2% over the first quarter of fiscal 1997. This increase in income taxes is directly attributable to the increase in income before taxes in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. The effective tax rate was 41% for both the first quarter of fiscal 1998 and 1997. FORWARD-LOOKING INFORMATION This document contains disclosures which are forward-looking statements relating to the Company or its parent, IKON, within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the 1934 Act. Such forward-looking statements address, among other things, strategic initiatives (including plans for enhancing the Company's or IKON's business through new acquisitions, information technology systems, sales strategies, market growth plans, margin enhancement initiatives, capital expenditure requirements and financing sources). Such forward-looking information is based upon management's current plans or expectations and is subject to a number of uncertainties and risks that could significantly affect the Company's and/or IKON's current plans, anticipated actions and future financial condition and results. These uncertainties and risks include, but are not limited to, those relating to IKON's successful management of an aggressive program to acquire and integrate new companies, including companies with technical services and products that are relatively new to IKON, and also including companies outside the United States, which present additional risks relating to international operations; risks and uncertainties (applicable to both the Company and IKON) relating to conducting operations in a competitive environment; delays, difficulties, technological changes and employment issues (applicable to both the Company and IKON) associated in a large-scale transformation project; debt service requirements (applicable to both the Company and IKON) including sensitivity to fluctuation in interest rates; and general economic conditions. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the Company or IKON. 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 October 22, 1997, the registrant filed a Current Report on Form 8-K to file, under Item 5 of the form, information contained in a press release issued by its parent, IKON Office Solutions, Inc. ("IKON") concerning IKON's earnings for the fiscal quarter and year ended September 30, 1997. 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. IOS CAPITAL, INC. Date February 12, 1998 /s/ Harry G. Kozee Harry G. Kozee Vice President - Finance (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 IOS Capital, Inc. and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-1998 DEC-31-1997 0 0 2,018,359,000 0 0 0 114,490,000 40,580,000 2,147,595,000 0 1,730,750,000 0 0 0 284,760,000 2,147,595,000 0 66,426,000 0 0 17,771,000 0 25,865,000 23,354,000 9,575,000 13,779,000 0 0 0 13,779,000 0 0 Includes net investments in leases of $1,954,721,000 and other accounts receivable. Includes leased equipment of: cost - $98,443,000; accumulated depreciation - $36,385,000. Common stock, $.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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