-----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, AxXvnCEIZI1kVYLWVSN1MWKlLKyKm69efOzmemNe+05Ll3M455Rne5Tp1Dg8evdA OPgcEjuIiISyMXU/KBZAnw== 0000950159-00-000228.txt : 20000518 0000950159-00-000228.hdr.sgml : 20000518 ACCESSION NUMBER: 0000950159-00-000228 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000517 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/A SEC ACT: SEC FILE NUMBER: 000-20405 FILM NUMBER: 638904 BUSINESS ADDRESS: STREET 1: 1738 BASS RD CITY: MACON STATE: GA ZIP: 31210 BUSINESS PHONE: 9124712300 MAIL ADDRESS: STREET 1: 1738 BASS RD CITY: MACON STATE: GA ZIP: 31210 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/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q/A (Mark One)* [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2000 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) - -------------------------------------------------------------------------------- (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 corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 11, 2000. Common Stock, $.01 par value per share 1,000 shares Registered Debt Outstanding as of May 11, 2000 $763,500,000 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. PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Consolidated Balance Sheets - March 31, 2000 (unaudited) and September 30, 1999 Consolidated Statements of Income - Three and six months ended March 31, 2000 and 1999 (unaudited) Consolidated Statements of Cash Flows - Six months ended March 31, 2000 and 1999 (unaudited) Notes to Condensed Consolidated Financial Statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II. OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I . FINANCIAL INFORMATION ------------------------------ Item 1: Consolidated Financial Statements - ----------------------------------------- IOS CAPITAL, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
March 31, September 30, 2000 1999 (unaudited) ----------- ----------- Assets Investment in leases: Direct financing leases, net of lease default reserve of March 31, 2000 - $66,841; September 30, 1999 - $0 $ 2,727,174 $ 2,310,663 Less: Unearned income (431,500) (374,279) ----------- ----------- 2,295,674 1,936,384 Funded leases, net 367,775 465,188 ----------- ----------- 2,663,449 2,401,572 Cash 1,947 1,335 Restricted Cash 76,551 29,625 Accounts receivable 74,926 76,805 Prepaid expenses and other assets 6,076 10,018 Leased equipment-operating rentals at cost less accumulated depreciation of: March 31, 2000 - $55,955; September 30, 1999 - $51,055 49,418 59,681 Property and equipment at cost, less accumulated depreciation of: March 31, 2000 - $8,260; September 30, 1999 - $7,384 9,397 10,395 ----------- ----------- Total assets $ 2,881,764 $ 2,589,431 =========== =========== Liabilities and shareholder's equity Liabilities: Accounts payable and accrued expenses $ 71,595 $ 65,204 Accrued interest 18,298 23,481 Due to IKON Office Solutions, Inc. 108,908 112,649 Medium term notes 864,850 1,242,850 Lease-backed notes 1,052,682 622,948 Bank debt 250,000 Deferred income taxes 115,463 129,869 ----------- ----------- Total liabilities 2,481,796 2,197,001 Shareholder's equity: Common Stock - $.01 par value, 1,000 shares authorized, issued, and outstanding Contributed capital 149,415 149,415 Retained earnings 250,553 243,015 ----------- ----------- Total shareholder's equity 399,968 392,430 ----------- ----------- Total liabilities and shareholder's equity $ 2,881,764 $ 2,589,431 =========== ===========
See notes to condensed consolidated financial statements. IOS CAPITAL, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands) (unaudited)
Three Months Ended Six Months Ended March 31, March 31, -------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Lease finance income $ 67,831 $ 51,323 $137,044 $111,850 Rental income 9,068 9,195 18,336 19,037 Interest on IKON income tax deferrals 4,286 4,279 8,504 8,475 Other income 5,931 3,937 10,943 7,414 -------- -------- -------- -------- 87,116 68,734 174,827 146,776 Expenses: Interest 36,540 26,607 72,777 55,809 General and administrative 20,097 15,512 39,563 32,544 -------- -------- -------- -------- 56,637 42,119 112,340 88,353 Gain on sale of lease receivables 4,203 76 20,879 -------- -------- -------- -------- Income before income taxes 30,479 30,818 62,563 79,302 Provision for income taxes 12,191 12,944 25,025 33,307 -------- -------- -------- -------- Net income $ 18,288 $ 17,874 $ 37,538 $ 45,995 ======== ======== ======== ========
See notes to condensed consolidated financial statements. IOS CAPITAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended March 31, ----------------------------- 2000 1999 --------- --------- Operating activities: Net income $ 37,538 $ 45,995 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 16,209 16,931 Deferred tax provision 14,944 20,191 Provision for lease default 9,606 Gain on sale of investment in leases (76) (20,879) Changes in operating assets and liabilities: Accounts receivable 1,879 (3,331) Prepaid expenses and other assets 8,571 11,092 Accounts payable and accrued expenses 6,392 16,372 Accrued interest (5,183) (4,027) --------- --------- Net cash provided by operating activities 89,880 82,344 --------- --------- Cash flows from investing activities: Purchases of leased equipment (7,867) (5,707) Proceeds from terminations of leased equipment 2,797 4,573 Purchases of leased equipment (37) Proceeds from sale of property and equipment 122 122 Investment in Leases Additions (896,957) (736,894) Cancellations 149,474 173,730 Collections 673,347 404,055 Lease default reserve transfer from IKON, net of deferred tax 44,955 Proceeds from sale of leases 923 333,017 Repurchase of leases (275,000) --------- --------- Net cash (used in) provided by investing activities (308,206) 172,859 --------- --------- Cash flows from financing activities: Payments on bank borrowings (100,000) Proceeds from bank borrowings 250,000 Payments on medium term notes (378,000) (227,500) Proceeds from issuance of lease-backed notes 697,466 Payments on lease-backed notes (269,861) Deposit to restricted cash (46,926) Dividend to IKON (30,000) (30,000) --------- --------- Net cash provided by (used in) financing activities 222,679 (357,500) --------- --------- Increase (decrease) in cash and amounts due (to) from IKON 4,353 (102,297) Cash and Due (to) from IKON at beginning of year (111,314) 54,681 --------- --------- Cash and Due to IKON at end of period ($106,961) ($ 47,616) ========= =========
See notes to condensed consolidated financial statements. IOS Capital, Inc. Notes to Consolidated Financial Statements (amounts in thousands) (unaudited) Note 1: Basis of Presentation --------------------- The accompanying unaudited condensed consolidated financial statements of IOS Capital, Inc. (the "Company") 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 adjustments) considered necessary for a fair statement of the results of the interim periods 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/A for the year ended September 30, 1999. Certain prior year amounts have been reclassified to conform with the current year presentation. Note 2: Medium Term Note Program ------------------------ On May 21, 1997, the Company increased the amount available to be offered under its medium term note program to $3,500,000. The program allows the Company to offer to the public from time to time medium term notes having an aggregate initial offering price not exceeding the total program amount. These notes are offered at varying maturities of nine months or more from their dates of issue and may be subject to redemption at the option of the Company, in whole or in part, prior to the maturity date in conjunction with meeting specified provisions. Interest rates are determined based on market conditions at the time of issuance. As of March 31, 2000, $864,850 of medium term notes were outstanding with a weighted average interest rate of 6.5%. Note 3: Asset Securitization and Lease Backed Notes ------------------------------------------- On December 9, 1999, the Company pledged or transferred $311,382 in financing lease receivables for $247,600 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. The Company had additional asset securitization agreements for $275,000 of eligible direct financing receivables. These agreements were also structured as revolving securitizations, whereby additional leases can be sold as collections reduce the previously sold interests. During fiscal 1999, collections reduced previously sold interests on the Company's asset securitization agreements by $152,098. The Company sold an additional $152,098 in net eligible direct financing leases and recognized pretax gains of $12,200 for fiscal year 1999. On October 7, 1999, these leases were repurchased with a portion of the proceeds received from the issuance of approximately $700,000 of leased-backed notes. In addition to the $622,948 of lease-backed notes (the "1999-1 Notes") outstanding at September 30, 1999, on October 7, 1999, IKON Receivables, LLC (an affiliate of the Company) publicly issued approximately $700,000 of lease backed notes (the "1999-2 Notes") under its $1.825 billion shelf registration statement. Class A-1 Notes totaling $235,326 have a stated interest rate of 6.14125%, Class A-2 Notes totaling $51,100 have a stated interest rate of 6.31%, Class A-3a Notes totaling $100,000 have a stated interest rate of 6.59%, Class A-3b Notes totaling $240,891 have a variable interest rate and Class A-4 Notes totaling $72,278 have a stated interest rate of 6.88%. The Class A-3b Notes pay interest at a rate of LIBOR plus 0.36% (which we have fixed at 6.63% through an interest rate swap). The 1999-1 and 1999-2 Notes are secured by a pool of office equipment leases or contracts and related assets ("the 1999-1 and 1999-2 Asset Pools") and the payments on the 1999-1 and 1999-2 Notes are made from payments on the leases. The Company received approximately $697,000 in net proceeds from the sale of the 1999-2 Notes and used $275,000 of that amount to repurchase previously sold leases. The repurchased leases were contributed as part of the 1999-2 Asset Pool. Restricted cash on the balance sheet represents cash that has been collected on the lease receivables in the 1999-1 and 1999-2 Asset Pools, which must be used to repay the 1999-1 and 1999-2 Notes. IOS Capital, Inc. Notes to Consolidated Financial Statements (amounts in thousands) (unaudited) Note 4: Comprehensive Income -------------------- As of October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes rules for the reporting and presentation of comprehensive income and its components. SFAS 130 requires mark to market adjustments on the retained interest on lease receivables to be included in other comprehensive income. Total comprehensive income is as follows (in thousands):
Three Months Ended Six Months Ended March 31, March 31, ------------------------ ------------------------ 2000 1999 2000 1999 ------------------------ ------------------------ Net income $18,288 $17,874 $37,538 $45,995 Mark to market adjustment, net of tax 159 1,128 ------- ------- ------- ------- Total comprehensive income $18,288 $18,033 $37,538 $47,123 ======= ======= ======= =======
Note 5: Lease Default Reserve --------------------- Effective the first quarter of fiscal 2000, reserves for credit loss are maintained on the books of the Company, rather than each IKON marketplace. At the beginning of fiscal 2000, lease default reserves of $74,305 were transferred to the Company from the IKON Office Solutions, Inc. ("IKON") marketplaces. During the current fiscal year, a provision for lease defaults of $27,463 was recorded to increase the reserve. Of this provision, $9,606 was recorded as an expense to the books of the Company and $17,857 was recorded as an expense to the books of the IKON marketplaces. Lease write-offs of $34,927 were recorded to reduce the reserve. As a result of the above, the lease default reserve at March 31, 2000 is $66,841. Note 6: Subsequent Event ---------------- In May 2000, IKON Receivables, LLC filed a registration statement with the Securities and Exchange Commission to register the sale of $2,000,000 of lease-backed notes. Each series of notes which may be issued under the registration statement will be issued pursuant to an indenture. 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. Impact of Year 2000 April 2000 Update. Through April 30, 2000, our operations are fully functioning and have not experienced any significant issues associated with the Year 2000 problem. For further information, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's report on Form 10-Q for the period ended December 31, 1999 and the Company's Annual Report on Form 10-K/A for its fiscal year ended September 30, 1999. Three Months Ended March 31, 2000 Compared ------------------------------------------ with the Three Months Ended March 31, 1999 ------------------------------------------ Comparative summarized results of operations for the three months ended March 31, 2000 and 1999 are set forth in the table below. This table also shows the increase or decrease in the dollar amounts of major revenue and expense items between periods, as well as the related percentage increase or decrease.
Three Months Ended March 31, Increase (decrease) -------------------------- ------------------------- (dollars in thousands) 2000 1999 Amount Percent -------- -------- -------- ------- Revenues: Lease finance income $ 67,831 $ 51,323 $ 16,508 32.2% Rental income 9,068 9,195 (127) (1.4%) Interest on IKON tax deferrals 4,286 4,279 7 0.2% Other income 5,931 3,937 1,994 50.6% -------- -------- -------- 87,116 68,734 18,382 26.7% -------- -------- -------- Expenses: Interest 36,540 26,607 9,933 37.3% General and administrative 20,097 15,512 4,585 29.6% -------- -------- -------- 56,637 42,119 14,518 34.5% -------- -------- -------- Gain on sale of lease receivables 4,203 (4,203) (100.0%) -------- -------- -------- Income before income taxes 30,479 30,818 (339) (1.1%) Provision for income taxes 12,191 12,944 (753) (5.8%) -------- -------- -------- Net income $ 18,288 $ 17,874 $ 414 2.3% ======== ======== ========
Revenues - -------- Total revenues increased by $18,382 or 26.7% in the second quarter of fiscal 2000 compared to the second quarter of fiscal 1999. Lease finance income increased by $16,508 or 32.2%. The lease portfolio increased 10.9% from September 30, 1999 to March 31, 2000. This increase is attributable to the repurchase of the leases on October 7, 1999. Office equipment placed on rental by the IKON marketplaces to customers, with cancelable terms, may be purchased by the Company. During the second quarter of fiscal 2000, the Company's purchases of operating lease equipment were $3,936, compared to $0 in the second quarter of fiscal 1999. Operating leases contributed $9,068 in rental income during the second quarter of fiscal 2000, compared to $9,195 in the second quarter of fiscal 1999. 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 6.7% for the second quarter of fiscal 2000 and 6.5% for the second quarter of fiscal 1999. The deferred tax base upon which these payments are calculated decreased by 3.8% to $253,850 at March 31, 2000 from $263,471 at March 31, 1999. Interest income on deferred taxes remained relatively consistent for the three months ended March 31, 2000 as compared to the three months ended March 31, 1999. Other income consists primarily of late payment charges and various billing fees. The structure of these fees has remained basically unchanged from fiscal 1999. The growth in other income from fees is primarily due to interest income on restricted cash in relation to the asset backed securitizations financing. Overall, fee income from these sources grew by $1,994 or 50.6%, when comparing the second quarter of fiscal 2000 to the same period of fiscal 1999. Expenses - -------- Average borrowings to finance the lease portfolio in the form of loans from banks and the issuance of medium term notes and lease-backed notes in the public market increased by 33.6%, with $2,167,532 outstanding at March 31, 2000 compared to $1,622,250 outstanding at March 31, 1999. The Company paid a weighted average interest rate on all borrowings for the second quarter of fiscal 2000 of 6.7% compared to 6.5% for the second quarter of fiscal 1999. Primarily as a result of the increased average borrowings, interest expense grew by $9,933 or 37.3%, when comparing the second quarter of fiscal 2000 to the second quarter of fiscal 1999. At March 31, 2000, the Company's debt to equity ratio including amounts due to IKON was 5.7 to 1. Total general and administrative expenses for the quarter ended March 31, 2000 increased by $4,585 or 29.6%, compared to the quarter ended March 31, 1999. The general and administrative expense category in the second quarter of fiscal 2000 includes depreciation expense on leased equipment totaling $7,586 compared to $7,732 in the second quarter of fiscal 1999. Effective October 1, 1999, the Company terminated the lease bonus program which provided incentives to IKON marketplaces when IKON customers leased equipment from the Company; therefore, there were no lease bonus subsidy payments included in the general and administrative expense category in the second quarter of fiscal 2000 compared to $2,963 in the second quarter of fiscal 1999. In addition, effective October 1, 1999, reserves for credit losses are maintained by the Company rather than the IKON marketplaces; therefore, bad debt expense included in the general and administrative expense category in the second quarter of fiscal 2000 was $5,095 compared to $0 in the second quarter of fiscal 1999. Excluding the effects of depreciation expense on operating leases, lease bonus subsidy payments and bad debt expense, remaining general and administrative expenses increased by $2,599 or 53.9%, when comparing the second quarter of fiscal 2000 to the second quarter of fiscal 1999 primarily due to the repurchase of leases on October 7, 1999. Gain on Sale of Lease Receivables - --------------------------------- During the second quarter of fiscal 1999, the Company entered into an asset securitization agreement whereby it sold $51,882 in net eligible direct financing leases and recognized pretax gains of $4,203. Income Before Income Taxes - -------------------------- Income before income taxes for the three months ended March 31, 2000 decreased by $339 or 1.1% compared to the three months ended March 31, 1999. This decrease in income before income taxes was essentially the effect of increased interest expense and general and administrative expenses in the second quarter of fiscal 2000, and gain on sale of lease receivables recorded in fiscal 1999. Provision for Income Taxes - -------------------------- Income taxes for the three months ended March 31, 2000 decreased by $753 or 5.8% compared to the three months ended March 31, 1999. This decrease in income taxes is directly attributable to the decrease in income before income taxes in the second quarter of fiscal 2000 compared to the second quarter of fiscal 1999. The effective tax rate was 40% for the second quarter of fiscal 2000 and 42% for the second quarter of 1999. Six Months Ended March 31, 2000 Compared ---------------------------------------- with the Six Months Ended March 31, 1999 ---------------------------------------- Comparative summarized results of operations for the six months ended March 31, 2000 and 1999 are set forth in the table below. This table also shows the increase or decrease in the dollar amounts of major revenue and expense items between periods, as well as the related percentage increase or decrease.
Six Months Ended March 31, Increase (decrease) -------------------------- --------------------------- (dollars in thousands) 2000 1999 Amount Percent -------- -------- -------- --------- Revenues: Lease finance income $137,044 $111,850 $ 25,194 22.5% Rental income 18,336 19,037 (701) (3.7%) Interest on IKON tax deferrals 8,504 8,475 29 0.3% Other income 10,943 7,414 3,529 47.6% -------- -------- -------- 174,827 146,776 28,051 19.1% -------- -------- -------- Expenses: Interest 72,777 55,809 16,968 30.4% General and administrative 39,563 32,544 7,019 21.6% -------- -------- -------- 112,340 88,353 23,987 27.1% -------- -------- -------- Gain on sale of lease receivables 76 20,879 (20,803) (99.6%) -------- -------- -------- Income before income taxes 62,563 79,302 (16,739) (21.1%) Provision for income taxes 25,025 33,307 (8,282) (24.9%) -------- -------- -------- Net income $ 37,538 $ 45,995 ($ 8,457) (18.4%) ======== ======== ========
Revenues - -------- Total revenues increased by $28,051 or 19.1% in the first six months of fiscal 2000 compared to the first six months of fiscal 1999. Lease finance income increased by $25,194 or 22.5%. The lease portfolio increased by 10.9% from September 30, 1999 to March 31, 2000. This increase is attributable to the repurchase of the leases on October 7, 1999. Office equipment placed on rental by the IKON marketplaces to customers, with cancelable terms, may be purchased by the Company. During the first six months of fiscal 2000 and 1999, IOS Capital purchased operating lease equipment of $7,867 and $5,707, respectively. Operating leases contributed $18,336 in rental income during the first six months of fiscal 2000, compared to $19,037 in the first six months of fiscal 1999. 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 6.7% for the first six months of fiscal 2000 and 6.5% for the first six months of fiscal 1999. The deferred tax base upon which these payments are calculated decreased by 3.8% to $253,850 at March 31, 2000 from $263,471 at March 31, 1999. Interest income on deferred taxes rose by $29 or .3% when comparing the six months ended March 31, 2000 to the six months ended March 31, 1999. Other income consists primarily of late payment charges and various billing fees. The structure of these fees has remained basically unchanged from fiscal 1999. 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 $3,529 or 47.6%, when comparing the first six months of fiscal 2000 to the same period of fiscal 1999. Expenses - -------- Average borrowings to finance the lease portfolio in the form of loans from banks and the issuance of medium term notes and lease-backed notes in the public market increased by 33.6%, with $2,167,532 outstanding at March 31, 2000 compared to $1,622,250 outstanding at March 31, 1999. The Company paid a weighted average interest rate on all borrowings of 6.7% in the first six months of fiscal 2000 and 6.5% in the first six months of fiscal 1999. Primarily as a result of the increased average borrowings, interest expense grew by $16,968, or 30.4%, when comparing the first six months of fiscal 2000 to the first six months of fiscal 1999. At March 31, 2000, the Company's debt to equity ratio, including intercompany amounts due to IKON, was 5.7 to 1. Total general and administrative expenses for the six months ended March 31, 2000 increased by $7,019 or 21.6%, compared to the six months ended March 31, 1999. The general and administrative expense category in the first six months of fiscal 2000 includes depreciation expense on leased equipment totaling $15,333, compared to $16,024 for the first six months of fiscal 1999. Effective October 1, 1999, the Company terminated the lease bonus program which provided incentives to IKON marketplaces when IKON customers leased equipment from the Company; therefore, there were no lease bonus subsidy payments included in the general and administrative expense category in the six months of fiscal 2000 compared to $5,808 in the six months of fiscal 1999. In addition, effective October 1, 1999, reserves for credit losses are maintained by the Company rather than the IKON marketplaces; therefore, bad debt expense included in the general and administrative expense category in the six months of fiscal 2000 was $9,606 compared to none in the six months of fiscal 1999. Excluding the effects of depreciation expense on operating leases, lease bonus subsidy payments and bad debt expense, remaining general and administrative expenses increased by $3,912 or 36.5%, when comparing the six months of fiscal 2000 to the six months of fiscal 1999. Gain on Sale of Lease Receivables - --------------------------------- The Company entered into various asset securitization transactions whereby it sold direct financing leases. The Company recognized pretax gains on theses transactions of $76 and $20,879 in the six months ended March 31, 2000 and 1999, respectively. Income Before Income Taxes - -------------------------- Income before income taxes for the first six months of fiscal 2000 decreased by $16,739 or 21.1% compared to the first six months of fiscal 1999. This decrease in income before income taxes is directly attributable to the decrease in the gain on sale of lease receivables offset by higher operating income in the first six months of fiscal 2000 compared to the first six months of fiscal 1999. Provision for Income Taxes - -------------------------- Income taxes for the first six months of fiscal 2000 decreased by $8,282 or 24.9% compared to the first six months of fiscal 1999. This decrease in income taxes is directly attributable to the decrease in income before income taxes in the first six months of fiscal 2000 compared to the first six months of fiscal 1999. The effective tax rate was 40% for the first six months of fiscal 2000 and 42% for the first six months of 1999. Subsequent Event - ---------------- In May 2000, IKON Receivables, LLC filed a registration statement with the Securities and Exchange Commission to register the sale of $2,000,000 of lease-backed notes. Each series of notes which may be issued under the registration statement will be issued pursuant to an indenture. Pending Accounting Changes - -------------------------- In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which establishes accounting and reporting standards for derivative instruments and hedging activities. It will require us to recognize all derivatives as either assets or liabilities and measure the instruments at fair value. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company intends to adopt the standard on October 1, 2000. The Company does not believe the effect of adoption will be material. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". The SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. We are currently assessing SAB 101 and can not quantify the impact on our Company, if any, at this time. Any change resulting from the application of SAB 101 will be reported as a change in accounting principle in accordance with APB Opinion No. 20, "Accounting Changes." We are required to begin reporting changes, if any, to our revenue recognition policy in the first quarter of fiscal year 2001. Item 3: Quantitative and Qualitative Disclosures About Market Risk Pursuant to General Instruction H(2)(c) of Form 10-Q the information required by this item has been omitted. FORWARD-LOOKING INFORMATION This Report includes or incorporates by reference information which may constitute forward-looking statements within the meaning of the federal securities laws. Although the Company believes the expectations contained in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove correct. Such forward-looking information is based upon management's current plans or expectations and is subject to a number of risks and uncertainties that could significantly affect current plans, anticipated actions and the Company's and/or IKON's future financial condition and results. These risks and uncertainties, which apply to both the Company and IKON, include, but are not limited to, risks and uncertainties relating to: conducting operations in a competitive environment and a changing industry (which includes technical services and products that are relatively new to the industry, IKON, and to the Company); delays, difficulties, management transitions and employment issues associated with consolidations and/or changes in business operations; managing the integration of acquired businesses; existing and future vendor relationships; risks relating to currency exchange; economic, legal and political issues associated with international operations; potential Year 2000 deficiencies associated with the operation of IKON's or the Company's internal systems and distributed products; the Company's ability to access capital and its debt service requirements (including sensitivity to fluctuation in interest rates); and general economic conditions. Certain additional risks and uncertainties are set forth in the Company's 1999 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission. As a consequence of these and other risks and uncertainties, current plans, anticipated actions and future financial condition and results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. PART II. OTHER INFORMATION -------------------------- Item 5. Other Information - ------- ----------------- Effective July 21, 2000, Marilyn Ware has been elected to serve as a member of the Company's parent's Board of Directors. A copy of the press release announcing her election dated May 3, 2000 is attached hereto as Exhibit No. 99. 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 Exhibit No. (99) Press Release Dated May 3, 2000 (b) Reports on Form 8-K On January 5, 2000, the Company filed a Current Report on Form 8-K/A to file, under Item 4 of the form, information regarding the appointment of PricewaterhouseCoopers LLP as its independent auditors for the fiscal year ending September 30, 2000 to replace the firm of Ernst & Young LLP who were dismissed as auditors of the Company effective with their completion of their audit of the Company's financial statements for the fiscal year ended September 30, 1999. On February 4, 2000, the Company's parent filed a Current Report on Form 8-K to file, under Item 5 of the form, information contained in its press release dated January 26, 2000 regarding the results for the first quarter of fiscal 2000 as well as announcing that Kurt M. Landgraf had been elected to serve as a member of the Company's Board of Directors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. This amended report has also been signed by the undersigned in his capacity as the chief accounting officer of the Registrant. IOS CAPITAL, INC. Date May 17, 2000 /s/ Harry G. Kozee ---------------- -------------------------- Harry G. Kozee Vice President - Finance (Chief Accounting Officer) EX-27 2
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. 0000922255 IOS CAPITAL, INC. 1,000 6-MOS SEP-30-2000 MAR-31-2000 0 0 2,738,375 0 0 0 123,030 64,215 2,881,764 0 2,167,532 0 0 0 399,968 2,881,764 0 174,827 0 0 39,563 0 72,777 62,563 25,025 37,538 0 0 0 37,538 0 0 Includes net investments in leases of $2,663,448 and other accounts receivable. Includes leased equipment of: cost - $105,373; accumulated depreciation - $55,955. 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.
EX-99 3 Exhibit 99 IKON Office Solutions [LOGO] P.O. Box 834 Valley Forge, PA 19482-0834 70 Valley Stream Parkway Malvern, PA 19355 News Release --------------------------------------------------------------------------- Contacts: Veronica L. Rosa Steven K. Eck Investor Relations Media Relations 610-408-7196 610-408-7295 vrosa@ikon.com seck@ikon.com - ------------------ ----------------- IKON OFFICE SOLUTIONS APPOINTS NEW BOARD MEMBER Marilyn Ware Elected to Board of Directors Valley Forge, Pennsylvania - May 3, 2000 - IKON Office Solutions (NYSE: IKN) today announced that Marilyn Ware has been elected a member of the Company's Board of Directors. This appointment fills the vacancy created by the retirement of Barbara Barnes Hauptfuhrer. "We are pleased to have Marilyn Ware join our Board of Directors," said James J. Forese, Chairman and Chief Executive Officer of IKON Office Solutions. "Ms. Ware's diverse experiences in business leadership and community service will be a strong asset to IKON's Board." Ware, 56, is Chairman of the Board of Directors for American Water Works Company, Inc., Voorhees, N.J., the largest U.S.-based investor-owned water service enterprise. She served as Vice Chairman of the Board from 1984 to 1988. Prior to joining American Water Works, Ware was President of the Solanco Publishing Company and President and Publisher of The Sun-Ledger from 1978 to 1982. She has worked as a public relations consultant and a freelance writer and editor for various publications. Ware attended American University and the University of Pennsylvania. Ware currently serves as a board member of CIGNA Corporation, an international Fortune 500 company. She also has served as a board member of Penn Fuel Gas Company, Inc., and PPL Resources. Ware is currently a member of the Board of Trustees for: the National Osteoporosis Foundation; National Council of The Conservation Fund; Gannon University; University of Pennsylvania Health System; The American Enterprise Institute for Public Policy Research, which sponsors original research on government policy, economy and politics; and Eisenhower Exchange Fellowships, which establishes and nurtures the exchange of communications among leaders with fellows representing more than 100 countries, advancing democracy and productivity around the globe. IKON Office Solutions (www.ikon.com) is one of the world's leading providers of products and services that help businesses communicate. IKON provides customers with total business solutions for every office, production and outsourcing need, including copiers and printers, color solutions, distributed printing, facilities management, imaging and legal outsourcing solutions, as well as network design and consulting, application development and technology training. With fiscal 1999 revenues of $5.5 billion, IKON has approximately 900 locations worldwide including the United States, Canada, Mexico, the United Kingdom, France, Germany, Ireland and Denmark. # # # -----END PRIVACY-ENHANCED MESSAGE-----