<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1994 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
------------------------------------------
ALCO CAPITAL RESOURCE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2493042
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1738 Bass Road, Macon, Georgia 31210
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(912) 471-2300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
* Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No ___
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1995.
Common Stock, $.01 par value per share 1,000 shares
The registrant 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.
<PAGE>
INDEX
ALCO CAPITAL RESOURCE, INC.
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Balance Sheets--December 31, 1994 and
September 30, 1994
Statements of Income--Three months ended
December 31, 1994 and December 31, 1993
Statements of Cash Flows--Three months ended
December 31, 1994 and December 31, 1993
Notes to Financial Statements--December 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
- ----------------------------
ALCO CAPITAL RESOURCE, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31 September 30
1994 1994
----------- ------------
<S> <C> <C>
Assets
Investments in leases:
Direct financing leases $ 555,117 $ 508,365
Less: Unearned income (84,758) (76,689)
---------- ----------
470,359 431,676
Funded leases, net 117,470 103,797
---------- ----------
587,829 535,473
Accounts receivable 21,064 17,700
Prepaid expenses and other assets 5,265 5,037
Leased equipment at cost, less accumulated
depreciation of: 12/94 -$457 7,834
Property and equipment at cost, less accumulated
depreciation of: 12/94 - $2,088; 9/94 - $1,939 4,864 3,418
---------- ----------
Total assets $ 626,856 $ 561,628
========== ==========
Liabilities and shareholder's equity
Liabilities:
Accounts payable and accrued expenses $ 7,280 $ 6,438
Accrued interest 5,218 5,342
Due to Alco Standard Corporation 6,269 11,419
Income taxes payable 2,310 353
Notes payable to Banks 295,000 330,000
Medium Term Notes 203,000 105,000
Deferred income taxes 20,538 20,048
---------- ----------
Total liabilities 539,615 478,600
Shareholder's equity:
Common Stock - $.01 par value, 1,000 shares
authorized, issued, and outstanding
Contributed capital 53,415 53,415
Retained earnings 33,826 29,613
---------- ----------
Total shareholder's equity 87,241 83,028
---------- ----------
Total liabilities and shareholder's equity $ 626,856 $ 561,628
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
ALCO CAPITAL RESOURCE, INC.
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31
-----------------------
1994 1993
--------- ----------
<S> <C> <C>
Revenues:
Lease finance income $ 15,868 $ 13,668
Rental income 567
Interest on Alco income tax deferrals 1,296 801
Other income 940 642
--------- ---------
18,671 15,111
Expenses:
Interest 7,051 5,994
General and administrative 5,286 4,344
--------- ---------
12,337 10,338
Gain on sale of lease receivables 573
--------- ---------
Income before income taxes and cumulative
effect of change in accounting principle 6,907 4,773
Provision for income taxes 2,694 1,861
--------- ---------
Income before cumulative effect of change
in accounting principle 4,213 2,912
Cumulative effect of change in accounting
for income taxes 140
--------- ---------
Net income $ 4,213 $ 3,052
========= =========
</TABLE>
See notes to financial statements.
<PAGE>
ALCO CAPITAL RESOURCE, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------------
1994 1993
----------- ----------
<S> <C> <C>
Operating activities
Net income $ 4,213 $ 3,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 606 71
Cumulative effect of change in accounting
principle (140)
Provision for deferred taxes 490 1,526
Gain on sale of lease receivables (573)
Changes in operating assets and liabilities:
Accounts receivable (3,364) (2,743)
Income taxes 1,957 189
Prepaid expenses and other assets 345 128
Accounts payable and accrued expenses 842 1,089
Accrued interest (124) (964)
----------- ----------
Net cash provided 4,392 2,208
Investing activities
Purchases of equipment for rental, net (8,291)
Purchases of property and equipment, net (1,595) (98)
Direct financing leases:
Additions (117,657) (78,496)
Cancellations 17,739 11,769
Collections 42,400 35,205
Proceeds from sale 18,835
Funded leases:
Additions (29,415) (13,852)
Cancellations 4,435 2,077
Collections 11,307 11,429
----------- ----------
Net cash used (62,242) (31,966)
Financing activities
Proceeds from bank borrowings 33,000
Payments on bank borrowings (35,000)
Proceeds from issuance of medium term notes 98,000
Contributed capital 2,500
----------- ----------
Net cash provided 63,000 35,500
----------- ----------
Decrease in amounts due to Alco 5,150 5,742
Due (to) from Alco at beginning of period (11,419) 552
----------- ----------
Due (to) from Alco at end of period $ (6,269) $ 6,294
=========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
Alco Capital Resource, Inc.
Notes to Financial Statements
December 31, 1994
Note 1: Medium Term Note Program
------------------------
Effective July 1994, the Company began offering to the public from time to
time medium term notes having an aggregate initial offering price not exceeding
$500 million or the equivalent thereof in foreign currency. 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 or repayment at
the option of the holder, 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 December 31, 1994,
$203 million of medium term notes were outstanding with a weighted average
interest rate of 7.4%.
Note 2: Asset Securitization
--------------------
Under an asset securitization agreement entered into in September, 1994 the
Company sold an undivided ownership interest in $125 million of eligible direct
financing lease receivables. The agreement, which expires in September 1995,
was structured as a revolving securitization so that as collections reduce
previously sold interests, new leases can be sold up to $125 million. During
the first quarter of fiscal 1995, collections reduced previously sold interests
by $18.8 million. The Company sold an additional $18.8 million in net eligible
direct financing leases and recognized a $573,000 gain on the sale ($349,500,
net of tax).
Note 3: Supplemental Information to Statements of Cash Flows
----------------------------------------------------
Interest paid for the three months ended December 31, 1994 and 1993 was
$8.2 million and $7 million, respectively. Cash paid for income taxes was
$247,000 and $101,000 for the three months ended December 31, 1994 and 1993,
respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Pursuant to General Instruction H(2)(a) of Form 10-Q, the following analysis of
the results of operations is presented in lieu of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Three Months Ended December 31, 1994 Compared with the
Three Months Ended December 31, 1993
-------------------------------------------------------
Comparative summarized results of operations for the three months ended December
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 percentage increase.
<TABLE>
<CAPTION>
(dollars in thousands) Three Months
Ended December 31 Increase
----------------- ---------
1994 1993 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Revenues
Lease finance income $15,868 $13,668 $2,200 16.1%
Rental income 567 567
Interest on Alco income tax
deferral 1,296 801 495 61.8
Other income 940 642 298 46.4
------ ------ -----
18,671 15,111 3,560 23.6
Expenses
Interest 7,051 5,994 1,057 17.6
General & administrative 5,286 4,344 942 21.7
------ ------ -----
12,337 10,338 1,999 19.3
Gain on sale of lease receivables 573 573
------ ------ -----
Income before income taxes and
cumulative effect of change
in accounting principle 6,907 4,773 2,134 44.7
Income taxes 2,694 1,861 833 44.8
------ ------ -----
Income before cumulative effect
of change in accounting
principle 4,213 2,912 1,301 44.7
Cumulative effect of change
in accounting for
income taxes 140 (140)
------ ------ -----
Net income $ 4,213 $ 3,052 $1,161 38.0%
====== ====== =====
</TABLE>
Revenues
- --------
Total revenues increased $3.6 million or 23.6% from the three month period ended
December 31, 1993 to the three month period ended December 31, 1994.
Approximately 62% of this increase in revenues was due to increased lease
finance income resulting from additional leases in the portfolio, which
continues to experience growth. During the twelve month period from December
1993 to December 1994, the portfolio grew at a 16.7% rate, net of lease
receivables that were sold in asset securitization transactions. For the same
period, the total portfolio, including securitized assets, grew by 41.5%.
<PAGE>
At the start of the first quarter of fiscal year 1995, the Company began
offering a new operating lease product to the Alco Office Products dealer
network, whereby office equipment rented to customers could be funded through
the Company. At the end of the first quarter, operating leases with equipment
totalling $7.8 million in value, net of accumulated depreciation, were
outstanding. This new product contributed rental income totalling $567,000 to
total revenues during the first quarter of fiscal 1995. Management expects the
use of operating leases to grow steadily over time.
For the first quarter of both fiscal 1995 and 1994, the Company charged Alco
Standard interest at a rate of 6% on the benefit that Alco receives for income
tax deferrals associated with the Company's leasing transactions. Due to an
increase in the deferred tax base upon which these payments are calculated,
interest earned on deferred taxes rose $495,000 or 61.8% when comparing the
first quarter of fiscal 1994 to the first quarter of fiscal 1995. At December
31, 1993, the cumulative deferred tax base amounted to $59.6 million and grew to
$84.3 million by December 31, 1994.
Other income, which consists primarily of late payment charges and various
billing fees also increased because of the larger lease portfolio upon which
these fees are based. Overall, fee income from these sources grew by $298,000
or 46.4%.
Expenses
- --------
Debt to fund the lease portfolio in the form of loans from major banks and the
issuance of medium term notes in the public markets rose by 16.4%, from a total
of $428 million outstanding at December 31, 1993 to $498 million at December 31,
1994. Interest expense grew by $1.1 million or 17.6% from the first quarter of
fiscal 1994 to the first quarter of fiscal 1995, as a result of the increased
borrowings and an increase in interest rates. At December 31, 1994, the debt to
equity ratio, including amounts due to Alco Standard Corporation, was at 5.8:1.
Included in the general and administrative expense category is the dealer lease
bonus program which represents special bonus subsidy payments to Alco Office
Products companies based on their new lease volume. For the three months ended
December 31, 1994, the lease bonus payments were 2% higher or $1,661,000, as
compared to $1,624,000 for the three months ended December 31, 1993. At the
start of fiscal 1995, the Company reduced the bonus subsidy payout to
approximately two-thirds of the fiscal 1994 level, in the anticipation of higher
borrowing costs to fund the portfolio.
Excluding the effect of the lease bonus program, remaining general and
administrative expenses grew $905,000 or 33.3% when comparing the first quarter
of fiscal 1994 to the first quarter of fiscal 1995. The increase in general and
administrative expenses is indicative of the continued growth of the lease
portfolio and the related rise in the portfolio servicing costs of the Company.
<PAGE>
Gain on Sale of Lease Receivables
- ---------------------------------
Under an asset securitization agreement entered into in September, 1994 the
Company sold an undivided ownership interest in $125 million of eligible direct
financing lease receivables. The agreement, which expires in September 1995,
was structured as a revolving securitization so that as collections reduce
previously sold interests, new leases can be sold up to $125 million. During
the first quarter of fiscal 1995, collections reduced previously sold interests
by $18.8 million. The Company sold an additional $18.8 million in net eligible
direct financing leases and recognized a $573,000 gain on the sale ($349,500,
net of tax).
Income Before Taxes
- -------------------
Income before taxes grew by $2.1 million or 44.7%, when comparing pre-tax
earnings for the first quarters of fiscal 1995 and fiscal 1994. This increase
in income before taxes was essentially the net effect of higher earnings on a
larger lease portfolio, that was supplemented by strong growth in other income
and a slower growth rate in general and administrative expenses than was
experienced in fiscal 1994.
Taxes on Income
- ---------------
The $833,000 or 44.8% increase in income taxes from the three month period ended
December 31, 1993 to the three month period ending December 31, 1994 is directly
attributable to the higher income before income taxes in the first quarter of
fiscal 1995 as compared to the first quarter of fiscal 1994. The effective tax
rate was 39% for each period.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) The following Exhibits are furnished pursuant to
Item 601 of Regulation S-K:
Exhibit No. (27) Financial Data Schedule
<PAGE>
BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes thereto included in the Company's report on Form 10-K for the year
ended September 30, 1994.
Date February 14, 1995 /s/Robert M. Kearns II
--------------------- ----------------------------------
Robert M. Kearns II
Vice President
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. This report has also been signed by the
undersigned in his capacity as the chief accounting officer of the Registrant.
ALCO CAPITAL RESOURCE, INC.
Date February 14, 1995 /s/Robert M. Kearns II
--------------------- -----------------------------------
Robert M. Kearns II
Vice President
(Chief Accounting Officer)
<PAGE>
Index to Exhibits
-----------------
Exhibit Number
- --------------
(27) Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Alco Capital Resource, Inc., and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 608,893,000<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15,243,000<F2>
<DEPRECIATION> 2,545,000<F2>
<TOTAL-ASSETS> 626,856,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 10
0
0
<OTHER-SE> 87,240,990
<TOTAL-LIABILITY-AND-EQUITY> 626,856,000
<SALES> 0
<TOTAL-REVENUES> 18,671,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,051,000
<INCOME-PRETAX> 6,907,000
<INCOME-TAX> 2,694,000
<INCOME-CONTINUING> 4,213,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,213,000
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<FN>
<F1>Includes net investments in leases of $587,829,000 and other accounts
receivable.
<F2>Includes leased equipment of: cost - $8,291,000; accumulated depreciation
- $457,000.
<F3>Not required as the registrant is a wholly-owned subsidiary.
</FN>
</TABLE>
