<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, 1995 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, 1996.
Common Stock, $.01 par value per share 1,000 shares
Registered Debt Outstanding as of January 31, 1996 $722 million
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, 1995 and
September 30, 1995
Statements of Income--Three months ended
December 31, 1995 and December 31, 1994
Statements of Cash Flows--Three months ended
December 31, 1995 and December 31, 1994
Notes to Financial Statements--December 31, 1995
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 STATEMENTS
---------------------------
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------
ALCO CAPITAL RESOURCE, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
---------------- ------------------
<S> <C> <C>
ASSETS
Investments in leases:
Direct financing leases $906,784 $824,876
Less: Unearned income (145,800) (132,428)
---------------- -----------------
760,984 692,448
Funded leases, net 201,821 178,948
---------------- -----------------
962,805 871,396
Accounts receivable 33,020 26,647
Due from Alco Standard Corporation 13,370 26,577
Prepaid expenses and other assets 8,239 7,648
Leased equipment-operating
rentals at cost, less accumulated
depreciation of: 12/95 - $8,907
9/95 - $ 5,912 29,746 25,247
Property and equipment at cost, less
accumulated depreciation of:
12/95 - $2,021 9/95 - $ 1,869 4,532 4,660
---------------- -----------------
TOTAL ASSETS $1,051,712 $962,175
================ =================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $10,855 $10,840
Accrued interest 4,194 12,549
Notes payable to Banks 133,000 173,000
Medium Term Notes 722,000 602,000
Deferred income taxes 38,619 33,898
---------------- -----------------
TOTAL LIABILITIES 908,668 832,287
SHAREHOLDER'S EQUITY:
Common Stock - $.01 par value, 1,000 shares
authorized, issued, and outstanding
Contributed capital 89,415 82,415
Retained earnings 53,629 47,473
---------------- -----------------
TOTAL SHAREHOLDER'S EQUITY 143,044 129,888
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,051,712 $962,175
================ =================
</TABLE>
See notes to financial statements.
<PAGE>
ALCO CAPITAL RESOURCE, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
--------------------------
1995 1994
---------- ------------
<S> <C> <C>
REVENUES:
Lease finance income $25,360 $16,183
Rental income 3,231 567
Interest on Alco income tax deferrals 1,889 1,296
Other income 1,368 940
---------- ------------
31,848 18,986
EXPENSES:
Interest 13,417 7,051
General and administrative 8,309 5,309
---------- ------------
21,726 12,360
GAIN ON SALE OF LEASE RECEIVABLES 312 281
---------- ------------
INCOME BEFORE INCOME TAXES 10,434 6,907
PROVISION FOR INCOME TAXES 4,278 2,694
---------- ------------
NET INCOME $ 6,156 $ 4,213
========== ============
</TABLE>
See notes to financial statements.
<PAGE>
ALCO CAPITAL RESOURCE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
---------------------------
1995 1994
------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $6,156 $4,213
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 3,148 606
Provision for deferred taxes 4,721 490
Gain on sale of lease receivables (312) (281)
Changes in operating assets and liabilities:
Accounts receivable (6,373) (3,364)
Prepaid expenses and other assets (279) 2,010
Accounts payable and accrued expenses 15 842
Accrued interest (8,355) (124)
------------- -----------
Net cash provided (used) (1,279) 4,392
------------- -----------
INVESTING ACTIVITIES:
Purchases of equipment for rental, net (7,495) (8,291)
Purchases of property and equipment (24) (1,595)
Direct financing leases:
Additions (171,318) (117,657)
Cancellations 30,177 17,739
Collections 59,451 44,326
Proceeds from sale 13,154 16,909
Funded leases:
Additions (47,968) (29,415)
Cancellations 8,449 4,435
Collections 16,646 11,307
------------- -----------
Net cash used (98,928) (62,242)
------------- -----------
FINANCING ACTIVITIES:
Payments on bank borrowings (40,000) (35,000)
Proceeds from issuance of medium term notes 120,000 98,000
Contributed capital 7,000
------------- -----------
Net cash provided 87,000 63,000
------------- -----------
DECREASE (INCREASE) IN AMOUNTS DUE TO ALCO (13,207) 5,150
DUE (TO) FROM ALCO AT BEGINNING OF PERIOD 26,577 (11,419)
------------- -----------
DUE FROM (TO) ALCO AT END OF PERIOD $13,370 ($6,269)
============= ===========
</TABLE>
See notes to financial statements.
<PAGE>
ALCO CAPITAL RESOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1: Basis of Presentation
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the financial statements and
footnotes thereto included in the Company's report on Form 10-K for the year
ended September 30, 1995. Certain prior year amounts have been reclassified to
conform with the current year presentation.
Note 2: Medium Term Note Program
------------------------
During the three months ended December 31, 1995, Alco Capital issued an
additional $120 million under its medium term note program. At December 31,
1995, $722 million of medium term notes were outstanding with a weighted average
interest rate of 6.8%, leaving $778 million available under this program.
Note 3: Asset Securitization
--------------------
Under its $125 million asset securitization agreement commenced in
September 1994, Alco Capital sold $13 million in direct financing leases during
the first quarter of fiscal 1996, replacing leases which had been liquidated
during the quarter and recognized a pretax gain of $312,000. Under the terms of
the sales agreement, the Company will continue to service the lease portfolio.
<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, 1995 Compared
---------------------------------------------
with the Three Months Ended December 31, 1994
---------------------------------------------
Comparative summarized results of operations for the three months ended December
31, 1995 and 1994 are set forth in the table below. This table also shows the
increase in the dollar amounts of major revenue and expense items between
periods, as well as the related percentage increase.
<TABLE>
<CAPTION>
Three Months
(dollars in thousands) Ended December 31 Increase
----------------- ---------
1995 1994 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Revenues:
Lease finance income $25,360 $16,183 $9,177 56.7%
Rental income 3,231 567 2,664
Interest on Alco income tax deferrals 1,889 1,296 593 45.8%
Other income 1,368 940 428 45.5%
------- -------- ------
31,848 18,986 12,862 67.7%
Expenses:
Interest 13,417 7,051 6,366 90.3%
General and administrative 8,309 5,309 3,000 56.5%
------- ------- ------
21,726 12,360 9,366 75.8%
Gain on sale of lease receivables 312 281 31 11.0%
----- ------- ------
Income before taxes 10,434 6,907 3,527 51.1%
Provision for income taxes 4,278 2,694 1,584 58.8%
------- ------- ------
Net income $ 6,156 $ 4,213 $1,943 46.1%
======= ======= ======
</TABLE>
Revenues
- --------
Total revenues increased $12.9 million or 67.7% in the first quarter of fiscal
1996 compared to the first quarter of fiscal 1995. Approximately 71.3% or $9.2
million of this increase in revenues was a result of increased lease finance
income due to growth in the portfolio of direct financing and funded leases.
During the twelve month period from December 31, 1994 to December 31, 1995, the
portfolio grew at a 63.8% rate, net of lease receivables that were sold in
asset securitization transactions.
Effective October 1, 1994, the Company began offering a new operating lease
program to the AOP dealer network, whereby office equipment placed on rental
with a customer, with cancellable terms, could be funded through the Company and
rented back to the AOP dealer. In prior years, this equipment was funded by the
respective AOP dealer. At December 31, 1995, equipment with a net book value of
$29.7 million was leased under this program, compared to $7.8 million at
December 31, 1994, resulting in rental income of $3.2 million in the first
quarter of fiscal 1996 compared to $567,000 in the first quarter of fiscal 1995.
<PAGE>
Effective October 1, 1995, management decided to revert back to its previous
strategy for funding this rental equipment. The majority of the equipment, with
the exception of large transactions generally exceeding $250,000 in amount, will
once again be funded by the respective AOP dealer, rather than the Company.
Accordingly, management expects operating leases funded through the Company to
be at a reduced level during fiscal 1996.
The Company continues to charge Alco interest on the benefit Alco receives for
income tax deferrals associated with the Company's leasing transactions. By
agreement with Alco, the Company earns interest on the deferred tax balances at
a rate consistent with the Company's average cost of capital. Under this
agreement, the Company earned interest at a 6.8% rate for the first quarter of
fiscal 1996, compared to 6.0% during the first quarter of fiscal 1995. At
December 31, 1995, the deferred tax base upon which these payments are
calculated increased to $123.6 million, from $84.3 million at December 31, 1994.
Due to the combined effect of the increased rate of interest and the increased
deferred tax balances, interest on Alco income tax deferrals rose $593,000 or
45.8% when comparing the three months ended December 31, 1995 to the three
months ended December 31, 1994.
Other income consists primarily of late payment charges and various billing
fees. The structure of these fees has remained basically unchanged from fiscal
1995. 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 $428,000 or 45.5%, when comparing the first quarter
of fiscal 1996 to the same period of fiscal 1995.
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 71.7%, to a total of
$855 million outstanding at December 31, 1995, up from $498 million outstanding
at December 31, 1994. Due to the combined effect of increased borrowing to fund
the portfolio and an increase in the Company's overall weighted average interest
rate on all borrowings, interest expense grew by $6.4 million or 90.3% when
comparing the first three months of fiscal 1996 to the first three months of
fiscal 1995. The Company's average cost of capital was 6.8% at December 31,
1995 as compared to 6.5% at December 31, 1994. At December 31, 1995, the
Company's debt to equity ratio, including intercompany amounts due from Alco,
was 5.9 to 1.
Total general and administrative expenses grew by approximately $3.0 million or
56.5%, when comparing the first three months of fiscal 1996 to the same period
of fiscal 1995. However, depreciation expense on leased equipment increased to
$3.0 million for the first three months of fiscal 1996, compared to $457,000 for
the first three months of fiscal 1995. In addition, lease bonus subsidy
payments to AOP dealers were $449,000 for the first quarter of fiscal 1996
compared to $1.7 million for the first quarter of fiscal 1995 due to the
suspension of the program in October and November 1995. Management currently
intends to continue the program for the remainder of the fiscal year at levels
consistent with fiscal 1995.
Excluding the effects of the additional depreciation expense on operating leases
and the reduction of dealer lease bonus payments in the first quarter of fiscal
1996, remaining general and administrative expenses grew $1.7 million or 52.4%,
when comparing the first quarter of fiscal 1996 to the first quarter of fiscal
1995. This increase is a direct result of the growth of the serviced lease
portfolio.
<PAGE>
Gain on Sale of Lease Receivables
- ---------------------------------
Under an asset securitization program entered into in September 1994, the
Company sold an undivided ownership interest in $125 million of eligible direct
financing lease receivables. This agreement, which expires in September 1996,
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
three months ended December 31, 1995, collections reduced previously sold
interests by approximately $13.2 million. The Company sold an additional $13.2
million in net eligible direct financing leases during the quarter and
recognized gains of $312,000.
Income Before Taxes
- -------------------
Income before taxes grew by $3.5 million or 51.1%, when comparing the first
quarters of fiscal 1996 and fiscal 1995. This increase resulted primarily from
higher earnings on a larger lease portfolio base, partially offset by higher
borrowing costs due to the increased debt to fund the portfolio and a slightly
higher average cost of debt.
Taxes on Income
- ---------------
The $1.6 million or 58.8% increase in income taxes in the three month period
ended December 31, 1995 compared to the three month period ended December 31,
1994 is directly attributable to the higher income before taxes in the first
three months of fiscal 1996 as compared to the first three months of fiscal
1995. The effective tax rate was 41% for the first quarter of fiscal 1996 as
compared to an effective tax rate of 39% for the first quarter of fiscal 1995.
<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
Exhibit No. (99) Additional Exhibits
<PAGE>
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, 1996 /s/Robert M. Kearns II
------------------- ----------------------
Robert M. Kearns II
Vice President
(Chief Accounting Officer)
<PAGE>
Index to Exhibits
-----------------
Exhibit Number
- --------------
(27) Financial Data Schedule
(99) Additional Exhibits
<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-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 995,825,000<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,206,000<F2>
<DEPRECIATION> 10,928,000<F2>
<TOTAL-ASSETS> 1,051,712,000
<CURRENT-LIABILITIES> 0
<BONDS> 855,000,000
0
0
<COMMON> 0<F3>
<OTHER-SE> 143,044,000
<TOTAL-LIABILITY-AND-EQUITY> 1,051,712,000
<SALES> 0
<TOTAL-REVENUES> 31,848,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,309,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,417,000
<INCOME-PRETAX> 10,434,000
<INCOME-TAX> 4,278,000
<INCOME-CONTINUING> 6,156,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,156,000
<EPS-PRIMARY> 0<F4>
<EPS-DILUTED> 0<F4>
<FN>
<F1>Includes net investments in leases of $962,805,000 and other accounts
receivable.
<F2>Includes leased equipment of: cost - $38,653,000; accumulated depreciation -
$8,907,000
<F3>Common stock, $0.01 par value, 1,000 shares outstanding. Since total is less
than $1,000, zero is reported.
<F4>Not required as the registrant is a wholly-owned subsidiary.
</FN>
</TABLE>
<PAGE>
Exhibit 99
[Letterhead of ALCO Standard Corporation]
ALCO STANDARD COMMENTS ON STRATEGIC OPTIONS
VALLEY FORGE, PENNSYLVANIA--FEBRUARY 6, 1996--In response to a security analyst
report issued today, Alco Standard Corporation confirmed that it continues to
consider the possibility of establishing Alco Office Products and Unisource as
separate public companies.
John Stuart, Alco's chairman and chief executive officer, said "Our goal remains
to take all appropriate steps to insure long-term growth for shareholders. We
believe that as separately capitalized and managed companies, AOP and Unisource
may have better long-term growth prospects than under common ownership. There
are many complex structural and operational issues which will need to be
evaluated before we will be in position to come to any judgment on what course
of action, if any, should be taken."
No timetable has been established for finalizing any decisions concerning such
a transaction.
Alco Standard Corporation is headquartered in Valley Forge, Pennsylvania. Alco
operates the largest independent marketer and distributor of office equipment in
North America and the United Kingdom through Alco Office Products and is the
largest marketer and distributor of paper and supply systems in North America
through Unisource Worldwide, Inc. Revenues for fiscal year 1995, which ended
September 30, were nearly $10 billion.
# # #
