<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-12G/A
AMENDMENT TO APPLICATION OR REPORT
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
ALCO CAPITAL RESOURCE, INC.
---------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 23-2493042
-------- ----------
(State or Other (I.R.S. Employer
jurisdiction of Identification No.)
Incorporation
or Organization)
1738 Bass Road, Macon, Georgia 31210
---------------------------------- ------
(Address of Principal Executive Offices) (Zip Code)
912-471-2300
------------
(Registrant's Telephone Number, including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act:
None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
The registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing with the reduced
disclosure format contemplated thereby.
The registrant hereby amends its Registration Statement on Form 10 (filed
on May 4, 1994) in the manner set forth herein.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
<S> <C> <C>
ITEM 1. BUSINESS...................................................... 3
ITEM 2 FINANCIAL INFORMATION......................................... 10
ITEM 3 PROPERTIES.................................................... 14
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................... 15
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS.............................. 15
ITEM 6 EXECUTIVE COMPENSATION........................................ 15
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................................. 15
ITEM 8 LEGAL PROCEEDINGS............................................. 15
ITEM 9 MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS................................... 16
ITEM 10 RECENT SALES OF UNREGISTERED SECURITIES....................... 16
ITEM 11 DESCRIPTION OF THE REGISTRANT'S SECURITIES TO
BE REGISTERED................................................. 16
ITEM 12 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 16
ITEM 13 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 17
ITEM 14 DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 17
ITEM 15 FINANCIAL STATEMENTS AND EXHIBITS............................. 18
SIGNATURE PAGE ........................................................... 30
</TABLE>
-2-
<PAGE>
Item 1. Business
General
Alco Capital Resource, Inc. (the "Company") was formed in 1987 to provide
lease financing to customers of the office products segment of Alco Standard
Corporation ("Alco"). The Company's offices are located at 1738 Bass Road,
Macon, Georgia, 31210 (telephone number 912-471-2300). The Company is a wholly-
owned indirect subsidiary of Alco.
Alco is a public company headquartered in Valley Forge, Pennsylvania which
markets and distributes office equipment (copiers and fax machines) and paper
through two business segments, Alco Office Products ("AOP") and Unisource
Worldwide, Inc. ("Unisource"). AOP is the largest independent office equipment
distribution network in North America, with locations in 45 states and 6
Canadian provinces. AOP also has several locations in the United Kingdom and
Germany. Unisource is the largest distributor of printing paper in North America
with facilities in every major metropolitan market in the United States and
Canada. Alco's fiscal 1993 revenues were $6.4 billion, of which $1.6 billion was
generated by AOP.
The Company is engaged in the business of arranging lease financing
exclusively for office equipment marketed by AOP's wholly-owned operating units
("AOP dealers"), which sell and service copier equipment and facsimile machines.
The ability to offer lease financing on this equipment through Alco Capital is
considered a competitive marketing advantage which more closely ties AOP to its
customer base. During the 1993 fiscal year, 46% of new equipment sold by AOP
dealers was financed through the Company. The Company and AOP will seek to
increase this percentage in the future, as leasing enhances the overall profit
margin on equipment and is considered an important customer retention strategy.
The equipment financed by the Company consists of copiers, facsimile
machines, and related accessories and peripheral equipment, the majority of
which are produced by major office equipment manufacturers including Canon,
Ricoh, and Sharp. Currently 79% of the equipment financed by the Company
represents copiers, 16% fax machines, and 5% other equipment. Although equipment
models vary, AOP is increasingly focusing its marketing efforts on the sale of
higher segment equipment, such as copiers which produce 50 or more impressions
per minute.
The Company provides AOP dealers with standard lease rates. However, AOP
dealers may charge the customer more or less than Alco Capital's standard rates,
and the AOP dealer would absorb any difference resulting from any such variances
from Alco Capital's standard rates.
The Company's customer base is widely dispersed, with the ten largest
customers representing less than 2% of the Company's total lease portfolio. The
typical new lease financed by the Company averages $11,000 in amount and 42
months in duration. Although 97% of the leases are scheduled for regular monthly
payments, customers are also offered quarterly, semi-annual, and other
customized payment terms. The Company performs billing services, collection
services, tax filings, and accounting services, and also provides quotes on
equipment upgrades and lease-end notification.
3
<PAGE>
Alco and the Company intend to enter into a support agreement on or prior
to June 1, 1994 (the "1994 Support Agreement") pursuant to which Alco will agree
to make payments to the Company, if necessary, to enable the Company to maintain
(i) a ratio of income before interest expense and taxes to interest expense of
1.25 times and (ii) a minimum consolidated tangible net worth of $1.00 at all
times. In addition, the Company and Alco are currently parties to a maintenance
agreement dated August 15, 1991, (the "1991 Maintenance Agreement") and an
operating agreement dated August 15, 1991, (the "1991 Operating Agreement")
(collectively, the "1991 Maintenance and Operating Agreements") which require
Alco to make payments to the Company, if necessary, to meet a specified minimum
fixed charge coverage ratio and a maximum debt-to-equity ratio. In addition, the
1991 Operating Agreement requires the AOP dealers to repurchase all defaulted
lease contracts. The AOP dealers will not be subject to such repurchase
obligation under the terms of the 1994 Support Agreement. (See "Relationship
with Alco Standard Corporation" on page 5 hereof).
Types of Leases
The lease portfolio of the Company includes direct financing leases and
funded leases. Direct financing leases are contractual obligations between the
Company and the AOP customer and represent the majority of the Company's lease
portfolio. Funded leases are contractual obligations between the AOP dealer
and the AOP customer which have been financed by the Company.
Funded leases represented approximately 15% of the Company's leases as of
March 31, 1994. The AOP dealers have assigned to the Company, with full
recourse, their rights under the funded leases including the right to receive
lease and rental payments as well as a security interest in the related
equipment.
Direct financing leases and funded leases are either tax oriented or
non-tax oriented in nature, as described below.
Tax Oriented Leases
-------------------
Tax oriented leases represented 93% of the Company's total lease
portfolio as of March 31, 1994. The Company (for direct financing leases)
or the AOP dealer (for funded leases) is considered to be the owner of the
equipment for tax purposes during the life of these leases. Tax oriented
leases are structured with a fair market value purchase option. Generally, the
customer may return the equipment, continue to rent the equipment or purchase
the equipment for its fair market value at the end of the lease.
Each tax oriented lease has a stated equipment residual value generally
ranging from 0% to 10%. As of March 31, 1994, the average equipment residual
value for all leases in the Company's portfolio was 3.5% and by AOP policy
cannot exceed 8%. Upon early termination of the lease or at normal end of lease
term, the Company charges the AOP dealer for the stated residual position, if
any, and the equipment is returned to the AOP dealer. Any gain or loss on the
equipment's residual value is realized by the AOP dealer.
Non-Tax Oriented Leases
-----------------------
Non-tax oriented leases and conditional sales contracts account for the
remaining 7% of the total leases in the Company's portfolio. Under these
arrangements, the customer is considered to be the owner of the equipment for
tax purposes. Non-tax leases are customarily structured with a bargain
purchase option for the equipment at lease-end (usually $1.00). The customer
generally exercises the purchase option at the end of the lease term.
4
<PAGE>
Relationship With Alco Standard Corporation
The Company, as the captive finance subsidiary of Alco, derives its
customer base from the business sourced by its affiliates within Alco (the AOP
dealers). There are several agreements and programs between the Company and
Alco, which are described below.
Support Agreements
------------------
The Company and Alco are parties to a Maintenance Agreement dated August
15, 1991 and an Operating Agreement dated August 15, 1991 (the "1991 Maintenance
and Operating Agreements"), which are further described below. The Company has
agreed with its existing lenders pursuant to loan agreements entered into before
June 1994 ("Existing Lenders") that it will not amend the 1991 Maintenance and
Operating Agreements without each Existing Lender's consent until all
outstanding debt under such loan agreements shall have been paid.
On or prior to June 1, 1994, the Company and Alco intend to enter into a
new agreement (the "1994 Support Agreement"). The Company intends to covenant
with noteholders and other lenders after June 1, 1994 ("New Lenders") that it
will not amend the 1994 Support Agreement except under certain circumstances.
(See "1994 Support Agreement on page 6 hereof).
1. The 1991 Maintenance and Operating Agreements
---------------------------------------------
The terms of the 1991 Maintenance Agreement provide that Alco will make a
cash payment to the Company (or an investment in the form of equity or
subordinated notes) as needed in amounts sufficient to meet a specified minimum
fixed charge coverage ratio and a maximum debt-to-equity ratio. The fixed charge
coverage ratio requirement is defined as earnings before fixed charges
(primarily interest) and must be at least 1.3 times fixed charges. The Company
has satisfied this requirement independently (without requiring payment or an
investment from Alco) for the last three fiscal years. The Company's debt-to-
equity ratio is limited to 6 to 1 according to the terms of the Maintenance
Agreement. The Company must also maintain minimum tangible net worth of not less
than $1.00.
5
<PAGE>
Pursuant to the terms of the 1991 Maintenance Agreement, the Company
received capital contributions from Alco in the amount of $2,615,000 in 1993,
none in 1992, and $13,250,000 in 1991. In the first six months of fiscal 1994,
the Company received capital contributions of $3,900,000 from Alco.
In accordance with the 1991 Operating Agreement, the AOP dealers are
required to repurchase all defaulted lease contracts. A default is defined in
the Operating Agreement as any receivable which is past due for 120 days or is
otherwise reasonably declared uncollectible by the Company. The repurchase
amount is identified as the net book value of a lease on the default date.
The 1991 Maintenance and Operating Agreements provide for modification or
amendment with both parties' consent and provide for cancellation by either
party upon 90 days written notice.
2. The 1994 Support Agreement
--------------------------
The 1994 Support Agreement between the Company and Alco, which the parties
intend to sign on or prior to June 1, 1994, will provide that Alco will make a
cash payment to the Company (or an investment in the form of equity or
subordinated notes) as needed to comply with two requirements: i) that the
Company will maintain a pre-tax interest coverage ratio (income before interest
expense and taxes divided by interest expense) so that the Company's pre-tax
income plus interest expense will not be less than 1.25 times interest expense,
and ii) that the Company will maintain a minimum tangible net worth of $1.00.
The 1994 Support Agreement further provides that Alco may not assign the 1994
Support Agreement unless: (a) all the outstanding debt of the Company is
repaid or (b) two nationally recognized securities rating organizations
confirm in writing prior to the effectiveness of any such assignment that the
Company's debt rating would not be downgraded as a result of such assignment.
The Company will provide in the indenture or other documentation governing
future debt that the 1994 Support Agreement cannot be amended or terminated
without the consent of noteholders or other lenders unless either i) all the
outstanding debt of the Company is repaid, or ii) two nationally recognized
securities rating organizations confirm in writing prior to the effectiveness of
any such amendment or termination that the Company's debt rating would not be
downgraded as a result of such amendment or termination.
Cash Management Program
-----------------------
The Company participates in Alco's domestic Cash Management program. Under
this program, the Company has an account with Alco through which cash in excess
of current operating requirements is temporarily placed on deposit. Similarly,
amounts are periodically borrowed from Alco. Interest is paid (or charged) by
Alco on these amounts. The Company was a net borrower in 1993, 1992, and 1991
incurring net interest costs of $579,000, $1,090,000, and $510,000, respectively
under this program.
Management Fee
--------------
The Company is charged a management fee by Alco to cover certain corporate
overhead expenses. These charges are included as general and administrative
expenses in the Company's financial statements and amounted to $360,000 in 1993,
$192,000 in 1992, and $180,000 in 1991.
6
<PAGE>
Federal Income Tax Allocation Agreement
---------------------------------------
Alco and the Company participate in a Federal Income Tax Allocation
Agreement dated June 30, 1989, in which the Company consents to the filing of
consolidated federal income tax returns with Alco. Alco agrees to collect from
or pay to the Company its allocated share of any consolidated federal income tax
liability or refund applicable to any period for which the Company is included
in Alco's consolidated federal income tax return.
Interest on Income Tax Deferrals
--------------------------------
The Company provides substantial tax benefits to Alco through the use of
the installment sales method on equipment financed through the Company. Taxes
deferred by Alco due to this tax treatment totalled a cumulative amount of
approximately $67,000,000 at the end of fiscal 1993. Alco pays the Company
interest on the portion of these tax deferrals (approximately $53,000,000 at
the end of fiscal 1993) which arise from tax deferrals on intercompany sales.
In fiscal 1993, interest was earned by the Company at a rate of 6% and totalled
$2,926,000. In fiscal 1992 and 1991, the interest earned amounted to
$3,050,000 and $1,800,000, respectively, and was computed at a 9% rate.
Lease Bonus Program
-------------------
In January 1992, a lease bonus subsidy program was initiated which provides
incentives to AOP dealers when AOP customers lease equipment from the Company.
The payments under this program can be reduced or eliminated by the Company at
any time. In fiscal 1992, the program was nine months in duration, and
$3,300,000 in bonus payments were made to the AOP dealers for leases of certain
higher industry segment equipment. Fiscal 1993 bonus payments were calculated on
the basis of the AOP dealer's increase in the percentage of equipment sales
leased through the Company, and totalled $5,900,000 . Fiscal year 1994 lease
bonus payments are calculated on the same basis as the 1993 payments; the lease
bonus payments were $3,600,000 for the first six months of fiscal 1994.
Credit Policies and Loss Experience
Each AOP dealer is responsible for developing and maintaining a formal
credit policy that governs credit practices and procedures. In addition, the
credit practices of the individual AOP dealers must be consistent with Alco's
overall policies for leasing and credit approval.
Under the terms of the 1991 Operating Agreement, the Company has full
recourse to the AOP dealer for any lease which becomes past due by 120 days or
more. Excluding the effect of recoveries, the gross value of leases charged back
to AOP dealers under this arrangement was $13,300,000 in fiscal 1993 and
$9,700,000 in fiscal 1992. For both fiscal 1993 and 1992, the gross chargebacks
represented 3.2 % of the average portfolio balances during the year.
Chargeback recoveries are pursued by each AOP dealer, not by the Company.
During fiscal 1993, recoveries by AOP dealers on chargebacks which occurred
during the fiscal year totalled approximately $5,000,000. Recoveries on
chargebacks which occurred during fiscal 1992 totalled approximately $4,100,000.
As a percentage of gross chargebacks during 1993
7
<PAGE>
and 1992, the recoveries represented 38% and 42%, respectively. The credit loss
ratios as a percentage of the average portfolio balance at September 30, 1993
and 1992 were 2.0% and 1.9%, respectively, after adjusting for recoveries.
Reserves for credit losses are maintained by the AOP dealers and AOP. On a
monthly basis, the Company reports the respective net investment value of the
lease portfolio to each AOP dealer so the AOP dealer can properly accrue the
credit reserve balance. In accordance with AOP policy, each AOP dealer must
maintain aggregate reserves of at least 3% of the AOP dealer's total portfolio.
Reserves maintained for fiscal 1994 (first six months), 1993, 1992 and 1991
were as follows:
<TABLE>
<CAPTION>
(dollars in millions)
Ending Total
Fiscal Portfolio Default % of
Period Balance Reserve Portfolio
------ --------- ------- ---------
<S> <C> <C> <C>
1994 (first six months) $543.7 $26.8 4.9%
1993 $472.0 $25.2 5.3%
1992 $363.5 $17.2 4.7%
1991 $265.7 $10.3 3.9%
</TABLE>
Delinquencies remained at a consistent level for fiscal 1993 and 1992.
During this two-year period, accounts classified as current (less than 30 days
past due) ranged from 88% to 91% of the total portfolio balance on a monthly
basis. The aging of the Company's lease portfolio receivables at March 31,
1994 was as follows:
<TABLE>
<CAPTION>
(dollars in millions)
<S> <C> <C>
Current $569.3 90.6%
Over 30 days 40.2 6.4%
Over 60 days 12.9 2.1%
Over 90 days 5.7 0.9%
----- ------
$628.1 100.0%
======
Less:
Unearned interest (84.4)
-----
$543.7
=====
</TABLE>
Funding
The majority of the Company's debt funding has been through privately
placed term notes with banks and an insurance company. The Company has followed
a policy of matching the maturities of borrowed funds to the average life of the
leases being financed in order to minimize the impact of interest rate changes
on its operations. All notes carry terms of one to three years and are either at
fixed interest rates or have had the interest rate risk eliminated
8
<PAGE>
through interest rate swap contracts. (See Note 5 to the Company's Financial
Statements, beginning on page 18 hereof). Covenants in the note agreements with
Existing Lenders include a minimum fixed charge coverage requirement of 1.3
times fixed charges and a maximum debt-to-equity ratio of 6 to 1. Also, there is
a covenant in each note agreement which requires each Existing Lender's consent
to any amendment to the 1991 Maintenance and Operating Agreements (see page 5
hereof for a description of the 1991 Maintenance and Operating Agreements). As
of September 30, 1993, the amounts outstanding under the Company's note
agreements totalled $395,000,000.
Historically, the only other funding source for the Company has been
capital contributions received from Alco. As of September 30, 1993, the
Company's total shareholders' equity was $65,957,000, of which $45,115,000
consisted of contributed capital.
The Company is presently considering an additional source of outside
funding through the sale of $125,000,000 of lease contracts. This would be in
the form of an asset securitization program which is in the process of being
evaluated by the Company.
Employees
At March 31, 1994, the Company had approximately 110 employees. Employee
relations are considered to be excellent.
Competition and Government Regulation
The finance business in which the Company is engaged is highly competitive.
Competitors include leasing companies, commercial finance companies, commercial
banks and other financial institutions.
The Company competes primarily on the basis of financing rates, customer
convenience and quality customer service. AOP dealers offer financing by the
Company at the time equipment is leased or sold to the customer, reducing the
likelihood that the customer will contact outside funding sources. There is a
communications network between the Company and the AOP dealers to allow prompt
transmittal of customer and product information. Contract documentation is
straightforward and clearly written, so that financings are completed quickly
and to the customer's satisfaction. Finally, both the Company and the AOP
dealers are firmly committed to providing excellent customer service over the
duration of the contract.
Certain states have enacted retail installment sales or installment loan
statutes relating to consumer credit, the terms of which vary from state to
state. The Company does not generally extend consumer credit as defined in those
statutes.
The financing activities of the Company are dependent upon sales or leases
of office equipment by the AOP dealers, who are subject to substantial
competition by both independent office equipment dealers and the direct sales
forces of office equipment manufacturers. AOP is the largest network of
independent copier and office equipment dealers in North America and in the
United Kingdom, and represents the only independent distribution network with
national scope. AOP dealers compete on the basis of price, quality of service
and product performance.
9
<PAGE>
Item 2. Financial Information
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations
----------
Pursuant to General Instruction J(2)(a) of Form 10-K, 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.
Six Months Ended March 31, 1994 Compared with the
Six Months Ended March 31, 1993
-------------------------------------------------
Comparative summarized results of operation for the six months ended
March 31, 1994 and 1993 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 change.
<TABLE>
<CAPTION>
(dollars in thousands) Six Months
Ended March 31 Increase
--------------- --------
1994 1993 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Revenues
Lease finance income $28,248 $21,909 $6,339 28.9%
Interest on Alco income tax
deferral 1,650 1,245 405 32.5
Other income 1,408 1,094 314 28.7
------ ------ -----
31,306 24,248 7,058 29.1
Expenses
Interest 12,207 11,117 1,090 9.8
General & administrative 9,107 6,371 2,736 42.9
------ ------ -----
Income before income taxes
and cumulative effect of change
in accounting principle 9,992 6,760 3,232 47.8
Income taxes 3,870 2,702 1,168 43.2
------ ------ -----
Income before cumulative effect
of change in accounting
principle 6,122 4,058 2,064 50.9
Cumulative effect of change
in accounting for income taxes 140 140
------ ------ -----
Net income $ 6,262 $ 4,058 $2,204 54.3%
======= ======= ======
</TABLE>
Revenues
- --------
Total revenues increased $7.1 million or 29.1% from the first six months of
fiscal 1993 to the first six months of fiscal 1994. This increase was
primarily due to the improvement in lease finance income, reflecting the
continued growth of the lease portfolio, which increased 30.8% from March 31,
1993 to March 31, 1994.
The Company charges Alco interest at a 6% rate on the benefit Alco receives
for income tax deferrals associated with the Company's leasing transactions.
Interest income on deferred taxes rose $405,000 or 32.5%, when comparing the
six months ended March 31, 1993 to the six months ended March 31, 1994. This
increase was due to an increased deferred tax base upon which the interest
payment is calculated.
Other income, which consists primarily of late payment and billing fees,
increased by $314,000 or 28.7%, due to the increased size of the lease
portfolio upon which these fees are earned.
10
<PAGE>
Expenses
- --------
Average borrowings to finance the lease portfolio grew by 30.1%, from $322
million during the first half of fiscal 1993 to $419 million during the first
half of fiscal 1994. As a result, interest expense grew by $1.1 million or
9.8%.
Reductions in the Company's incremental borrowing rate largely offset the
increase in average borrowings, and allowed interest expense to grow at a
slower pace than the average borrowings. For comparative purposes, the
weighted average rate on borrowings at March 31, 1993 was 7.06% as compared to
5.67% at March 31, 1994.
The general and administrative expense category includes dealer lease bonus
payments based on new lease volume. These payments were $2.8 million for the
first half of fiscal 1993 and $3.6 million for the first half of fiscal 1994.
This increase in lease bonus expense was due to increased lease volume in
fiscal 1994.
Excluding the effect of the lease bonus program, the remaining general and
administrative expenses rose $1.9 million or 52.8% from the first half of
fiscal 1993 to the first half of fiscal 1994. This expense growth continues to
be indicative of the overall growth of the lease portfolio and its effects on
the operations of the Company. Also reflected in the increased general and
administrative expenses are several new initiatives for fiscal 1994, including
a reengineering of the leasing computer software and the development of
several new products such as cost per copy leasing, credit scoring, and
automation of the lease input process.
Income Before Taxes
- -------------------
Income before taxes increased $3.2 million or 47.8%, when comparing the first
half of fiscal 1993 to the first half of fiscal 1994. This increase is
essentially the net effect of higher earnings on a larger portfolio offset by
lower borrowing costs.
Taxes on Income/Accounting Changes
- ----------------------------------
The increase of $1.2 million in income taxes was attributable to increased
income before taxes for the first half of fiscal 1994, as compared to the
first half of fiscal 1993.
In the first quarter of fiscal 1994, the Company adopted the provisions of
SFAS No. 109, "Accounting for Income Taxes", which resulted in an increase in
net income of $140,000 in the first half of fiscal 1994. This amount
represented the cumulative effect of this accounting change recorded in the
first quarter of fiscal 1994.
11
<PAGE>
Fiscal Year 1993 Compared with Fiscal Year 1992
-----------------------------------------------
Comparative summarized results of operation for the fiscal years ended
September 30, 1993 and September 30, 1992 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 years, as well as the percentage increase/decrease.
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Year
Ended Sept. 30 Increase(Decrease)
------------------ ------------------
1993 1992 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Revenues
Lease finance income $ 46,880 $ 35,693 $11,187 31.3%
Interest on Alco income
tax deferral 2,926 3,050 (124) (4.1)
Other income 2,377 1,158 1,219 105.3
------ ------ ------
52,183 39,901 12,282 30.8
Expenses
Interest (22,701) (20,068) 2,633 13.1
General & administrative (13,928) (9,253) 4,675 50.5
------ ------ ------
Income before income taxes 15,554 10,580 4,974 47.0
Income taxes (6,218) (4,033) 2,185 54.2
------ ------ ------
Net income $ 9,336 $ 6,547 $ 2,789 42.6%
====== ====== ======
</TABLE>
Revenues
- --------
Overall revenues increased $12,300,000 during fiscal 1993 or 30.8%, which
was primarily a result of the growth in the lease portfolio. The net lease
portfolio increased 29.8% during fiscal 1993 from $363,500,000 to $472,000,000.
There were no significant changes in the lease rates charged by the Company
during fiscal 1993; accordingly, lease finance income grew 31.3% in fiscal 1993
as compared to fiscal 1992 as a direct result of the growth in the lease
portfolio.
The Company charges Alco interest on the benefit Alco receives for income
tax deferrals associated with the Company's leasing transactions. The interest
rate is set each year by agreement between Alco and the Company. The $124,000 or
4.1% decline in the interest income during fiscal 1993 is due to a reduction in
the interest rate from 9% in fiscal 1992 to 6% in fiscal 1993.
Other income, which consists primarily of late charges and billing fees,
grew $1,200,000 or 105.3% in fiscal 1993, reflecting the growth in the lease
portfolio base upon which these fees are applied.
12
<PAGE>
Expenses
- --------
Interest expense grew $2,600,000 or 13.1% during fiscal 1993, reflecting an
increase in average borrowings to finance the lease portfolio of $346,600,000 in
fiscal 1993 from $253,500,000 in fiscal 1992. This increase was offset by a
reduction in borrowing rates during 1993. The weighted average rate of loans
outstanding at September 30, 1993 was 6.01% as compared to 7.40% at September
30, 1992.
The increase in general and administrative expenses includes an increase of
79% in the lease bonus program payments made to AOP dealers to $5,900,000 in
fiscal 1993 from $3,300,000 in fiscal 1992. Fiscal 1993 represented the first
full year of the lease bonus program, which was in effect for only the last nine
months of fiscal 1992.
Excluding the effect of the lease bonus program, remaining general and
administrative expenses rose $2,100,000 or 34.9% during fiscal 1993, which
corresponds to the growth of the lease portfolio during this same period. In
addition, the Company was engaged in bringing several new leasing programs and
services on-line that will increase effectiveness and fee income in the future.
Pre-tax Income
- --------------
Fiscal 1993 pre-tax income increased $5,000,000 or 47% as compared to
fiscal 1992. As previously discussed, this increase is primarily due to the
lease income on a larger lease portfolio.
Income Taxes
- ------------
The increase of $2,185,000 in income taxes was attributable to the increase
in pre-tax income and an increase in the statutory federal rate to 35% during
fiscal 1993 from 34% in fiscal 1992.
13
<PAGE>
Quarterly Data
--------------
The following table shows comparative summarized quarterly results for
fiscal 1994 (first two quarters only), 1993 and 1992.
<TABLE>
<CAPTION>
(in thousands)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
- ----
Lease finance income $13,668 $14,580 $ $ $28,248
Interest expense 5,994 6,213 12,207
Income before income taxes 4,773 5,219 9,992
Net income 3,052 3,210 6,262
1993
- ----
Lease finance income $10,596 $11,313 $12,097 $12,874 $46,880
Interest expense 5,735 5,382 5,745 5,839 22,701
Income before income taxes 2,885 3,875 4,171 4,623 15,554
Net income 1,732 2,326 2,503 2,775 9,336
1992
- ----
Lease finance income $ 7,963 $ 8,567 $ 9,226 $ 9,937 $35,693
Interest expense 4,673 4,870 5,056 5,469 20,068
Income before income taxes 2,702 2,310 2,457 3,111 10,580
Net income 1,675 1,432 1,524 1,916 6,547
</TABLE>
Any additional information required by this item has been omitted pursuant
to General Instruction J(2)(a) of Form 10-K.
Item 3. Properties
The Company's operations are located in a leased facility located in Macon,
Georgia occupying approximately 19,000 square feet. In August 1994, the Company
will expand its operations to occupy an additional 18,000 square feet of space
in a newly constructed adjoining facility. Certain specialized services are also
performed for the Company at Alco's corporate headquarters located in Valley
Forge, Pennsylvania. The Company's facilities are deemed adequate by management
to conduct the Company's business. See Note 6 of Notes to Financial Statements
under Item 15 for additional information as to lease commitments.
Any additional information called for by this item has been omitted
pursuant to General Instruction J(2)(d).
14
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item has been omitted pursuant to
General Instruction J(2)(c).
Item 5. Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Richard P. Maier has been President of the Company since 1989. He joined
----------------
the Company's parent, Alco Standard Corporation, in 1981 as Controller of the
Alco Automotive Group and was promoted to Division Controller of Alco Office
Products in 1983. He served as Vice President of Acme Business Products (an AOP
dealer) from 1984 to 1988 and became Vice President of Alco Capital in 1988.
Robert M. Kearns II is Vice President of the Company. He is also Vice
-------------------
President - Finance of the Alco Office Products Group of Alco Standard
Corporation (which includes all of the AOP dealers). Before assuming his current
responsibilities, Mr. Kearns was Vice President - Finance of Copyrite, an AOP
dealer located in Indianapolis, Indiana.
James E. Head is the sole director of the Company. He is also President of
-------------
the Alco Office Products Group of Alco Standard Corporation (which includes all
of the AOP dealers). Before assuming his current responsibilities, Mr. Head was
President of Copyrite, an AOP dealer located in Indianapolis, Indiana.
Item 6. Executive Compensation
The information called for by this item has been omitted pursuant to
General Instruction J(2)(c).
Item 7. Certain Relationships and Related Transactions
See Item 1 hereof for information concerning the relationship between the
Company, Alco and the AOP dealers.
Any additional information required by this item has been omitted pursuant
to General Instruction J(2)(c).
Item 8. Legal Proceedings
The Company does not believe that the outcome of lawsuits or other legal
proceedings to which it is a party (or to which any of its property is subject)
will materially affect the Company or its operations. To the Company's
knowledge, no material legal proceedings are contemplated by governmental
authorities against the Company or its properties.
15
<PAGE>
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
All outstanding shares of the Company's common stock are currently owned by
AOP, Inc., a subsidiary of MDR Corporation, which is a subsidiary of Alco.
Therefore, there is no market for the Company's common stock. In the first
quarter of 1992, the Company paid a dividend of $182,000 to its parent and there
have been no subsequent dividends paid by the Company. The Company and Alco
will, from time to time, determine the appropriate capitalization for the
Company, which will, in part, affect any future payment of dividends to or
capital contributions to the Company.
Item 10. Recent Sales of Unregistered Securities
None
Item 11. Description of Registrant's Securities to be Registered
The class of securities to be registered is the Common Stock, par value of
$.01 per share, of the Company. There are 1,000 shares of authorized Common
Stock, of which 1000 shares are issued, outstanding, fully paid and
nonassessable. Each holder of Common Stock of the Company is entitled (a) to
receive dividends if, as, and when declared payable by the Board of Directors
out of funds legally available for such payment, and (b) to one vote for each
share held on all matters submitted for a stockholder vote. There are no
cumulative voting rights. The Board of Directors is not classified. The Common
Stock has no preemptive rights or conversion rights and is not subject to any
redemption or sinking fund provisions. Upon liquidation, the holders of the
Common Stock are entitled to share pro rata in any liquidating distributions to
stockholders. There are no provisions discriminating against any existing or
prospective holder of Common Stock as a result of any holder of Common Stock
owning a substantial amount of Common Stock.
Item 12. Indemnification of Directors and Officers
As permitted by Delaware law, under which the Company is incorporated, the
Company's Articles of Incorporation and By-Laws provide that officers and
directors of the Company shall be indemnified for expenses (including attorneys'
fees) reasonably incurred in the successful defense of a suit or proceeding
brought by reason of such persons being officers or directors of the Company.
If unsuccessful in defense of a third-party civil suit or a criminal suit,
or if such a suit is settled, such a person shall be indemnified under the By-
Laws against both (1) expenses (including attorneys' fees) and (2) judgments,
fines and amounts paid in settlement if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, if he had no reasonable cause
to believe his conduct was unlawful.
16
<PAGE>
If unsuccessful in defense of a suit brought by or in the right of the
Company, or if such suit is settled, such a person may be indemnified under
state law only against expenses (including attorneys' fees) incurred in the
defense or settlement of such suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company except that if such a person is adjudged to be liable in such a suit for
negligence or misconduct in the performance of his duty to the Company, he
cannot be indemnified unless specific court approval is obtained.
The Company has purchased liability insurance policies covering its
directors and officers to provide protection where the Company cannot legally
indemnify a director or officer and where a claim arises under the Employee
Retirement Income Security Act of 1974 against a director or officer based upon
an alleged breach of fiduciary duty or other wrongful act.
Item 13. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are
listed in Item 15.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
17
<PAGE>
Item 15. Financial Statements and Exhibits
(a) 1. Financial Statements Page
-------------------- ----
Report of Ernst & Young,
Independent Auditors 19
Balance Sheets at March 31, 1994
(unaudited) and September 30, 1993 and 1992 20
Statements of Income for the six months ended
March 31, 1994 and 1993 (unaudited) and
fiscal years ended September 30, 1993, 1992
and 1991 21
Statements of Changes in Shareholder's Equity
for the six months ended March 31, 1994,
(unaudited) and the fiscal years ended
September 30, 1993, 1992 and 1991 22
Statements of Cash Flows for the six months
ended March 31, 1994 and 1993 (unaudited)
and fiscal years ended September 30, 1993,
1992 and 1991 23
Notes to Financial Statements 24
Financial Statements and Schedules other than those listed above are
omitted because the required information is included in the financial statements
or the notes thereto or because they are inapplicable.
(b) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the
accompanying exhibit index.
18
<PAGE>
Report of Independent Auditors
Board of Directors
Alco Standard Corporation
We have audited the accompanying balance sheets of Alco Capital Resource, Inc.
(a wholly-owned subsidiary of Alco Standard Corporation) as of September 30,
1993 and 1992, and the related statements of income, changes in shareholder's
equity, and cash flows for each of the three years in the period ended
September 30, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alco Capital Resource, Inc.
at September 30, 1993 and 1992, and the results of its operations and its cash
flows for each of the three years ended September 30, 1993, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young
Ernst & Young
October 22, 1993
Philadelphia, Pennsylvania
19
<PAGE>
Alco Capital Resource, Inc.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30
March 31 ---------------
1994 1993 1992
----------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Assets
Investments in leases (notes 3 and 4):
Direct financing leases $537,859 $467,199 $325,446
Less: Unearned income (74,712) (71,703) (51,050)
-------- -------- --------
463,147 395,496 274,396
Funded leases, net 80,512 76,499 89,070
-------- -------- --------
543,659 471,995 363,466
Accounts receivable 11,934 9,863 8,418
Due from Alco Standard Corporation (note 3) 552
Prepaid income taxes and other expenses 2,029 282 74
Property and equipment at cost, less accumulated
depreciation of: 3/94 - $1,740; 9/93 - $1,572;
9/92 - $1,189 (note 2) 1,217 677 958
-------- -------- --------
Total assets $558,839 $483,369 $372,916
======== ======== ========
Liabilities and shareholder's equity
Liabilities:
Accounts payable and accrued expenses $ 5,032 $ 2,866 $ 2,739
Accrued interest 5,577 5,337 4,653
Due to Alco Standard Corporation (note 3) 23,869 9,549
Income taxes payable 1,867
Notes payable (note 5) 431,000 395,000 290,000
Deferred income taxes (note 7) 17,242 14,209 10,102
-------- -------- --------
Total liabilities 482,720 417,412 318,910
Shareholder's equity:
Common Stock - $.01 par value, 1,000 shares
authorized, issued, and outstanding
Contributed capital 49,015 45,115 42,500
Retained earnings 27,104 20,842 11,506
-------- -------- --------
Total shareholder's equity 76,119 65,957 54,006
-------- -------- --------
Total liabilities and shareholder's equity $558,839 $483,369 $372,916
======== ======== ========
</TABLE>
See accompanying notes.
20
<PAGE>
Alco Capital Resource, Inc.
Statements of Income
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended
March 31 September 30
---------------------- ----------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Lease finance income (note 2) $ 28,248 $ 21,909 $ 46,880 $ 35,693 $ 22,899
Rental contracts 1,489
Interest on Alco income tax deferrals (note 3) 1,650 1,245 2,926 3,050 1,800
Other income 1,408 1,094 2,377 1,158 536
-------- --------- --------- ---------- --------
31,306 24,248 52,183 39,901 26,724
Expenses:
Interest (note 3) 12,207 11,117 22,701 20,068 14,126
General and administrative (note 2) 9,107 6,371 13,928 9,253 4,541
-------- --------- --------- ---------- --------
21,314 17,488 36,629 29,321 18,667
-------- --------- --------- ---------- --------
Income before income taxes and
cumulative effect of change in
accounting principle 9,992 6,760 15,554 10,580 8,057
Provision for income taxes (note 7):
Current 697 477 1,118 1,831 203
Deferred 3,173 2,225 5,100 2,202 2,952
-------- --------- --------- ---------- --------
3,870 2,702 6,218 4,033 3,155
-------- --------- --------- ---------- --------
Income before cumulative effect of
change in accounting principle 6,122 4,058 9,336 6,547 4,902
Cumulative effect of change in
accounting for income taxes (note 7) 140
-------- --------- --------- ---------- --------
Net income $ 6,262 $ 4,058 $ 9,336 $ 6,547 $ 4,902
======== ========= ========= ========== ========
</TABLE>
See accompanying notes.
21
<PAGE>
Alco Capital Resource, Inc.
Statements of Changes in Shareholder's Equity
(in thousands)
<TABLE>
<CAPTION>
Common Contributed Retained
Stock Capital Earnings Total
------- ----------- -------- -------
<S> <C> <C> <C> <C>
Balance at October 1, 1990 $ * $ 32,352 $ 4,330 $ 36,682
Net income 4,902 4,902
Capital contribution from Alco 13,250 13,250
Dividends paid to Alco, including return
of contributed capital, - $7.19 per share (3,102) (4,091) (7,193)
------- -------- ------- --------
Balance at September 30, 1991 42,500 5,141 47,641
Net income 6,547 6,547
Dividends paid to Alco - $.18 per share (182) (182)
------- -------- ------- --------
Balance at September 30, 1992 42,500 11,506 54,006
Net income 9,336 9,336
Capital contribution from Alco 2,615 2,615
------- -------- ------- --------
Balance at September 30, 1993 45,115 20,842 65,957
Net income 6,262 6,262
Capital contributions from Alco 3,900 3,900
------- -------- ------- --------
Balance at March 31, 1994 $ * $ 49,015 $27,104 $ 76,119
======= ======== ======= ========
</TABLE>
* Amount is less than one thousand dollars.
See accompanying notes.
22
<PAGE>
Alco Capital Resource, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended
March 31 September 30
--------------------- -----------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income $ 6,262 $ 4,058 $ 9,336 $ 6,547 $ 4,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 171 194 383 428 358
Cumulative effect of change in accounting
principle (140)
Provision for deferred taxes 3,173 2,225 5,100 2,202 2,952
Changes in operating assets and liabilities:
Accounts receivable (2,071) (409) (1,445) (3,290) (2,030)
Prepaid income taxes and other expenses (1,747) 1,758 (3,068) (2,976) 2,628
Accounts payable and accrued expenses 2,166 200 127 867 451
Accrued interest 240 (22) 684 561 1,785
---------- --------- ---------- ---------- ---------
Net cash provided by operating activities 8,054 8,004 11,117 4,339 11,046
Investing activities
Purchases of property and equipment, net (711) (85) (102) (515) (239)
Lease additions, net of cancellations (169,534) (128,526) (272,721) (221,006) (185,528)
Lease collections 97,870 75,573 164,192 123,277 71,652
Rental contract additions, net of cancellations (4,032)
Rental contract collections 16,160
---------- --------- ---------- ---------- ---------
Net cash used by investing activities (72,375) (53,038) (108,631) (98,244) (101,987)
Financing activities
Proceeds from bank borrowings 48,000 40,000 180,000 122,000 105,000
Payments on bank borrowings (12,000) (34,000) (75,000) (48,000) (13,000)
Contributed capital 3,900 2,615 13,250
Dividends paid, including return
of contributed capital (182) (7,193)
---------- --------- ---------- ---------- ---------
Net cash provided by financing activities 39,900 6,000 107,615 73,818 98,057
---------- --------- ---------- ---------- ---------
Decrease (increase) in amounts due to Alco (24,421) (39,034) 10,101 (20,087) 7,116
Due (to) from Alco at beginning of period 552 (9,549) (9,549) 10,538 3,422
---------- --------- ---------- ---------- ---------
Due from (to) Alco at end of period $ (23,869) $ (48,583) $ 552 $ (9,549) $ 10,538
========== ========= ========== ========== =========
</TABLE>
See accompanying notes.
23
<PAGE>
Alco Capital Resource, Inc.
Notes to Financial Statements
(All references to March 31, 1994
and 1993 are unaudited)
1. Business
Alco Capital Resource, Inc. ("ACR" or the "Company"), an indirect wholly-owned
subsidiary of Alco Standard Corporation ("Alco"), purchases office equipment
exclusively from dealers in Alco's Office Products Group ("AOP dealers") and
leases the equipment to third-party customers under direct financing leases.
The Company also funds direct financing leases and noncancellable rental
contracts entered into by AOP dealers.
2. Accounting Policies
Revenue Recognition
Unearned lease finance income is amortized into revenue using the effective
interest method over the term of the lease agreements or rental contracts.
Property and Equipment
Property and equipment is carried on the basis of cost. Depreciation is
computed using a combination of straight-line and accelerated methods over the
estimated useful lives of the assets.
Income Taxes
The Company's deferred tax expense and the related liability are primarily the
result of the difference between the financial statement and income tax
treatment of direct financing leases.
Fair Value Disclosures
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
Company has computed and disclosed the fair value of its notes payable and
interest rate swaps (Note 5).
24
<PAGE>
3. Agreements between ACR and Alco
Cash Management Program
The Company participates in Alco's working capital cash management program.
Under this program, the Company has accounts with Alco wherein cash temporarily
in excess of current operating requirements earns interest at rates established
by Alco. Similarly, amounts are periodically borrowed from Alco, with interest
charged at market rates on borrowed funds. The Company was a net borrower during
fiscal years 1993, 1992 and 1991 and incurred net interest costs of $579,000,
$1,090,000 and $510,000, respectively, under this program. The Company considers
its account with Alco to represent its cash balance. Accordingly, the
accompanying Statements of Cash Flows present the changes in the caption "Due
from (to) Alco".
Included in general and administrative expenses are corporate overhead expenses
charged by Alco of $360,000, $192,000 and $180,000 in fiscal years 1993, 1992
and 1991, respectively. These corporate charges represent management's estimate
of costs incurred by Alco on behalf of ACR.
Interest on Alco Income Tax Deferrals
The Company charges Alco interest on Alco's income tax deferrals associated with
the Company's leasing transactions. Such charges were calculated at 6% in 1993
and 9% in 1992 and 1991.
Operating Agreement
In the event of default of any lease on equipment purchased by the Company
from AOP dealers, the Operating Agreement requires Alco to repurchase the
equipment at the net investment value of the lease on the default date.
Default is defined by the Operating Agreement as any receivable becoming 120
days past due or otherwise being reasonably declared uncollectible by the
Company. At March 31, 1994 and September 30, 1993 and 1992, all of the
Company's accounts receivable and direct financing leases, including residual
values, were subject to such repurchase terms. In view of the foregoing terms
of the Operating Agreement, the Company has made no provision in the
accompanying financial statements for uncollectible receivables.
Maintenance Agreement
The Maintenance Agreement between the Company and Alco provides that Alco will
pay fees and make capital contributions to the Company in amounts sufficient to
meet the restrictive financial covenants included in the Company's loan
agreements (Note 5).
4. Investment in Leases
The Company's funded leases include certain internal lease portfolios and non-
cancellable rental contracts for AOP dealers, which have been financed by the
Company. Under the terms
25
<PAGE>
4. Investment in Leases (continued)
of these financing arrangements, the AOP dealer maintains the contractual
relationship with the third party customer.
The AOP dealers have assigned to the Company, with full recourse, their rights
under the funded leases, including the right to receive lease and rental
payments and a security interest in the related equipment.
At September 30, 1993, aggregate future minimum payments to be received,
including guaranteed residual values, for each of the succeeding fiscal years
under direct financing and funded leases are as follows (in thousands):
<TABLE>
<CAPTION>
Direct
Financing Funded
Leases Leases
-------- --------
<S> <C> <C>
1994 $183,549 $ 34,147
1995 144,828 26,940
1996 89,845 16,696
1997 38,913 7,223
1998 10,064 1,892
-------- --------
467,199 86,898
Less unearned interest (71,703) (10,399)
-------- --------
$395,496 $ 76,499
======== ========
</TABLE>
5. Notes Payable
Notes payable to various banks at September 30, 1993 bear interest at rates
ranging from 4.01% to 8.62% (5.32% to 9.45% at September 30, 1992) and mature on
various dates through September 30, 1996. The weighted average interest rate for
the notes outstanding at September 30, 1993 was 6.01% (7.40% at September 30,
1992).
Future maturities of all notes payable outstanding at September 30, 1993 are as
follows (in thousands):
Fiscal 1994 $113,000
1995 167,000
1996 115,000
--------
$395,000
========
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its variable rate notes payable. At September
30, 1993, the Company had outstanding four interest rate swap agreements with
commercial banks, having a total notional principal amount of $92 million. Those
agreements effectively change the Company's interest rate exposure on $92
million of variable rate notes due in 1994 through 1996 to rates ranging from
4.69% to 8.43%. The interest rate swap agreements mature at the time the related
notes
26
<PAGE>
5. Notes Payable (continued)
mature. The Company is exposed to credit loss in the event of nonperformance by
the counterparties to the interest rate swap agreements. However, the Company
does not anticipate nonperformance by the counterparties.
The Company must comply with certain restrictive covenants under the terms of
its loan agreements. Among other things, the Company agrees to maintain earnings
before fixed charges (primarily interest) of not less than 1.3 times fixed
charges, a ratio of debt to tangible net worth not exceeding 6 to 1 and tangible
net worth not less than $1.
Interest paid amounted to $11,967,000 and $11,139,000 for the six months ended
March 31, 1994 and 1993, respectively, and $22,122,000, $19,507,000 and
$12,340,000 for the fiscal years ended September 30, 1993, 1992 and 1991,
respectively.
At September 30, 1993, the fair value of the Company's notes payable is
estimated to be $398,860,000 using a discounted cash flow analysis. Fair values
for the Company's interest rate swaps (off-balance sheet instruments) are
estimated to be $1,241,000 based on the estimated costs to terminate the
agreements.
6. Lease Commitments
The Company leases office space under a 10-year agreement which began October 1,
1990 from a joint venture in which a wholly-owned subsidiary of Alco has a 50%
ownership, for an amount which management believes is not above the current
market rate. Total rent expense aggregated $319,000 in 1993, $234,000 in 1992
and $180,000 in 1991 under all operating leases. Future minimum rent commitments
under operating lease agreements as of September 30, 1993 are as follows (in
thousands):
1994 $ 198
1995 176
1996 190
1997 167
1998 167
Thereafter 334
---
Total $1,232
=====
7. Income Taxes
Taxable income of the Company is included in the consolidated federal income tax
return of Alco and all estimated tax payments and refunds, if any, are made
through Alco. The provision for income taxes was determined as if the Company
were a separate taxpayer.
27
<PAGE>
7. Income Taxes (continued)
Provision for income taxes:
Fiscal Year Ended September 30 (in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
Current Deferred Current Deferred Current Deferred
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Federal $ 702 $4,527 $1,913 $1,780 $ 20 $2,431
State 416 573 (82) 422 183 521
------ ------ ------ ------ ---- ------
Taxes on income $1,118 $5,100 $1,831 $2,202 $203 $2,952
====== ====== ====== ====== ==== ======
</TABLE>
Deferred taxes resulting from temporary differences between financial and tax
accounting:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands)
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Lease income recognition $5,190 $2,400 $3,290
Other (90) (198) (338)
------ ------ ------
Deferred taxes $5,100 $2,202 $2,952
====== ====== ======
</TABLE>
The deferred tax expense and the related liability result primarily from
differences in the method of recognizing income from investments in leases for
financial reporting and income tax purposes.
A reconciliation of income taxes provided with those calculated at the statutory
federal rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Taxes at Federal statutory rate 34.8% 34.0% 34.0%
State taxes, net of federal benefit 3.9 3.2 4.7
Increase in deferred tax liability
due to increase in statutory rate 2.0 - -
Other (0.7) 0.9 0.4
----- ----- -----
Effective income tax rate 40.0% 38.1% 39.1%
===== ===== =====
</TABLE>
The Company made net tax payments of $2,153,000 and $1,236,000
for the six months ended March 31, 1994 and 1993, respectively, and
$4,214,000 and $4,706,000 in fiscal years 1993 and 1992, respectively. In
fiscal 1991, the Company received net tax refunds from Alco of
$2,859,000.
Effective October 1, 1993, the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes". The cumulative effect of adopting SFAS No. 109
was to increase net income by $140,000 in the first six months of fiscal
1994.
28
<PAGE>
8. Pension and Stock Purchase Plan
The Company participates in Alco's defined benefit pension plan covering the
majority of its employees. The Company's policy is to fund pension costs as
accrued. Pension expense recorded in 1993, 1992 and 1991 was $12,000, $8,400
and $4,700, respectively.
The majority of the Company's employees are also eligible to participate in
Alco's Stock Participation Plan. They may invest 2% to 6% of regular
compensation before taxes. The Company contributes an amount equal to two-
thirds of the employees' investments and all amounts are invested in Alco's
common shares. Employees fully vest in the Company's contributions upon the
completion of five years of service. The cost of this plan amounted to $63,200,
$46,500 and $33,900 in 1993, 1992 and 1991, respectively.
9. Supplementary Income Statement Information
The following supplementary information is provided pursuant to Regulation S-X
Section 210.5-04 (in thousands):
<TABLE>
<CAPTION>
Charged To
Cost And Expenses
Fiscal Years ended September 30
-------------------------------
Item 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs $ * $ * $ *
Depreciation and amortization of
intangible assets, pre-operating
costs and similar deferrals * * 359
Taxes, other than payroll and
income taxes: Property tax expense * 510 301
Royalties * * *
Advertising costs * * *
- --------------------------------------------------------------------------
</TABLE>
* Less than 1% of total revenues
29
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment on Form 10/A to its
registration statement on Form 10 to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALCO CAPITAL RESOURCE, INC.
Date: May 27, 1994 By:
--------------------------
Richard P. Maier
President
30
<PAGE>
ALCO CAPITAL RESOURCE, INC.
INDEX TO EXHIBITS
Exhibit No. Title Page
- ----------- ----- ----
3.1 Articles of Incorporation of the Company, filed on
May 4, 1994 as Exhibit 3.1 to the Company's
Registration Statement on Form 10, are incorporated
herein by reference.
3.2 Bylaws of the Company, filed on May 4, 1994 as
Exhibit 3.2 to the Company's Registration Statement
on Form 10, are incorporated herein by reference.
4.1 Pursuant to Regulation S-K item 601 (b)(4)(iii),
the Company agrees to furnish to the Commission,
upon request, a copy of instruments defining the
rights of holders of long-term debt of the Company.
10.1 Federal Income Tax Allocation Agreement, filed on
May 4, 1994 as Exhibit 10.1 to the Company's
Registration Statement on Form 10, is incorporated
herein by reference.
10.2 Maintenance Agreement, dated as of August 15, 1991,
between the Company and Alco Standard Corporation,
filed on May 4, 1994 as Exhibit 10.2 to the Company's
Registration Statement on Form 10, is incorporated
herein by reference.
10.3 Operating Agreement, dated as of August 15, 1991,
between the Company and Alco Standard Corporation,
filed on May 4, 1994 as Exhibit 10.3 to the Company's
Registration Statement on Form 10, is incorporated
herein by reference.
10.4 1994 Support Agreement, dated as of June 1, 1994,
between the Company and Alco Standard Corporation. 32
31
<PAGE>
Exhibit 10.4
1994 SUPPORT AGREEMENT
----------------------
By and Between
Alco Standard Corporation
and
Alco Capital Resource, Inc.
SUPPORT AGREEMENT, dated as of this 1st day of June, 1994 by and between
ALCO STANDARD CORPORATION, an Ohio corporation ("Alco") and ALCO CAPITAL
RESOURCE, INC., a Delaware corporation ("ACR"). Alco, in consideration of
$10 and other good and valuable consideration, receipt and adequacy of which
is hereby acknowledged, and to induce ACR to provide leasing services with
respect to products sold and serviced by Alco, hereby agrees with ACR as set
forth below.
1. Pretax Interest Coverage. From and after the execution of this
------------------------
Support Agreement, Alco will, within 45 days after the last day of each annual
fiscal period of ACR, make, or cause to be made, a determination of the ratio
of Income Before Interest Expense and Taxes to Interest Expense for such
period. If said ratio of Income Before Interest Expense and Taxes to Interest
Expense shall be less than 1.25 to 1, Alco will, within 10 days after the date
of such determination, pay to ACR a fee (the "Support Fee") in an amount at
least sufficient to increase said ratio of Income Before Interest Expense and
Taxes to 1.25 to 1.
2. Maintenance of Net Worth. From and after the execution of this
------------------------
Support Agreement, Alco will, within 45 days after the last day of each
quarter end period, make, or cause to be made such payment to ACR as shall be
necessary to enable ACR to have a Tangible Net Worth of at least one dollar
($1.00).
32
<PAGE>
3. Definitions. As used in this Agreement, the following terms have the
-----------
meanings indicated:
"Interest Expense" of ACR and its subsidiaries shall mean the annual
interest charges on the aggregate principal amount of consolidated
indebtedness of ACR and its subsidiaries, including intercompany debt owed to
Alco.
"Income Before Interest Expense and Taxes" shall mean the consolidated
net income of ACR and its subsidiaries determined in accordance with generally
accepted accounting principles, except that such determination shall be made
before any deduction for Interest Expense or provisions for taxes in respect
of income.
"Tangible Net Worth" shall mean an amount equal to the capital stock and
surplus accounts (including retained earnings) of ACR and its subsidiaries
after deducting therefrom the book amount of all assets of ACR and its
subsidiaries which would be treated as intangible assets, all determined on a
consolidated basis in accordance with generally accepted accounting
principles.
4. Termination Amendment and Waiver. This agreement, or any term,
--------------------------------
covenant, agreement or condition hereof may be amended or terminated by either
party hereto upon not less than ninety (90) days written notice and provided
that either: (i) all the outstanding debt of ACR is repaid, or (ii) two
nationally recognized securities rating organizations confirm in writing prior
to the effectiveness of any such amendment or termination that ACR's debt
rating would not be downgraded as a result of such amendment or termination.
5. Assignment. This Agreement (or any rights herein) may not be
----------
assigned by Alco unless: (i) all the outstanding debt of ACR is repaid, or
(ii) two nationally recognized securities rating organizations confirm in
writing prior to the effectiveness of any such assignment that ACR's debt
rating would not be downgraded as a result of such assignment.
33
<PAGE>
6. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
the parties hereto and their respective successors and permitted assigns.
7. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware.
ALCO STANDARD CORPORATION
BY
---------------------------
O. Gordon Brewer, Jr.
Vice President-Finance
Accepted and agreed to by
ALCO CAPITAL RESOURCE, INC.
BY
-------------------------
Richard P. Maier
President
34
