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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q/A
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1996 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
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IKON CAPITAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2493042
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1738 Bass Road, Macon, Georgia 31210
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(Address of principal executive offices)
(Zip Code)
(912) 471-2300
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(Registrant's telephone number, including area code)
NONE
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(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
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* 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, 1997.
Common Stock, $.01 par value per share 1,000 shares
Registered Debt Outstanding as of January 31, 1997 $1,186,900,000
The registrant, an indirect wholly owned subsidiary of IKON Office Solutions,
Inc. ("IKON") (formerly Alco Standard Corporation), 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.
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INDEX
IKON CAPITAL, INC.
PART I. FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Registrant is filing this Form 10-Q/A in order to correct a
typographical error contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations under
the heading "Income Before Taxes". The Form 10-Q/A indicates that
income before taxes for the first quarter of fiscal 1997
increased by $5.8 million or 55.2% over the first quarter of
fiscal 1996, not $58 million as originally reported.
SIGNATURES
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Item 2: Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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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, 1996 Compared
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with the Three Months Ended December 31, 1995
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Comparative summarized results of operations for the three months ended December
31, 1996 and 1995 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
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1996 1995 Amount Percent
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<S> <C> <C> <C>
Revenues:
Lease finance income $36,900 $25,360 $ 11,540 45.5%
Rental income 4,792 3,231 1,561 48.3%
Interest on IKON income tax deferrals 2,736 1,889 847 44.8%
Other income 1,734 1,368 366 26.8%
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46,162 31,848 14,314 44.9%
Expenses:
Interest 17,626 13,417 4,209 31.4%
General and administrative 12,959 8,309 4,650 56.0%
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30,585 21,726 8,859 40.8%
Gain on sale of lease receivables 613 312 301 96.5%
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Income before income taxes 16,190 10,434 5,756 55.2%
Provision for income taxes 6,638 4,278 2,360 55.2%
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Net income $ 9,552 $ 6,156 $ 3,396 55.2%
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</TABLE>
Revenues
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Total revenues increased $14.3 million or 44.9% in the first quarter of fiscal
1997 compared to the first quarter of fiscal 1996. Approximately 80.6% or $11.5
million of this increase in revenues was a result of increased lease finance
income due to continued growth in the portfolio of direct financing and funded
leases. The lease portfolio, net of lease receivables that were sold in asset
securitization transactions, increased 43.4% from December 31, 1995 to December
31, 1996.
In October 1994, the Company began offering an operating lease product to the
IKON dealer network, whereby office equipment placed on long term rental to
customers could be funded through the Company. In preceding years, this
equipment was funded by the respective IKON dealer. During the first quarters
of fiscal 1997 and 1996, IKON Capital funded $6.9 million and $7.5 million,
respectively. Operating leases contributed $4.8 million in rental income during
the first quarter of fiscal 1997, compared to $3.2 million in the first quarter
of 1996.
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The Company earns interest income on the deferred tax liabilities of the IKON
dealers resulting from leases funded through the Company at a rate consistent
with the Company's weighted average outside borrowing rate of interest. The
Company's average rate was 6.9% for the first quarter of fiscal 1997, compared
to 6.8% for the first quarter of fiscal 1996. In addition, the deferred tax base
upon which these payments are calculated increased 39.5% to $172.4 million at
December 31, 1996 from $123.6 million at December 31, 1995. As a result of the
increased deferred tax liabilities, interest income on deferred taxes rose
$847,000 or 44.8% when comparing the three months ended December 31, 1996 to the
three months ended December 31, 1995.
Other income consists primarily of late payment charges and various billing
fees. The structure of these fees has remained basically unchanged from fiscal
1996. 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 $366,000 or 26.8%, when comparing the first quarter
of fiscal 1997 to the same period of fiscal 1996.
Expenses
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Debt to fund the lease portfolio in the form of loans from major banks and the
issuance of medium term notes in the public market increased by 37.9%, to
$1,178.9 million outstanding at December 31, 1996. The Company paid a weighted
average interest rate on all borrowings for the first quarter of fiscal 1997 of
6.9%, compared to 6.8% for the first quarter fiscal 1996. Due to the combined
effect of increased borrowings and an increase in the Company's overall weighted
average interest rate, interest expense grew by $4.2 million or 31.4%, when
comparing the first quarter of fiscal 1997 to fiscal 1996. At December 31,
1996, the Company's debt to equity ratio, including intercompany amounts owed to
IKON was 5.7 to 1.
The Company has a $1.5 billion medium term note program that allows for the
issuance of medium term notes in the public markets with maturities ranging from
nine months up to ten years, through four nationally recognized investment
firms. At December 31, 1996, $1,138.9 million of medium term notes were
outstanding under these two programs with a weighted average interest rate of
6.7%.
At December 31, 1996, the Company had outstanding notes payable to banks of $40
million, with a weighted average rate of 6.4%, compared to $133 million at
December 31, 1995.
Total general and administrative expenses for the quarter ended December 31,
1996 increased by $4.7 million or 56.0%, over the quarter ended December 31,
1995. The general and administrative expense category in the first quarter of
fiscal 1997 includes depreciation expense on leased equipment totaling $4.4
million, compared to $3.0 million for the first quarter of fiscal 1996. In
addition, the general and administrative expense category includes lease bonus
subsidy payments to either IKON or directly to the IKON dealers, based on the
level of dealer participation in the Company's leasing programs or for the
funding of targeted new lease volume. During the first quarter of fiscal 1997,
lease bonus subsidy payments totaled $2.1 million as compared to $449,000 during
the first quarter of fiscal 1996.
Excluding the effects of depreciation expense on operating leases and lease
bonus subsidy payments, remaining general and administrative expenses grew by
$1.8 million or 37.2%, when comparing the first quarter of fiscal 1997 to the
first quarter of fiscal 1996.
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Gain on Sale of Lease Receivables
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In September 1996, the Company entered into an asset securitization transaction
whereby the Company sold an undivided ownership interest in $150 million in
eligible direct financing lease receivables. This agreement was structured as a
revolving securitization so that as collections reduce previously sold
interests, additional leases can be sold up to $150 million.
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 March 1997 but is
expected to be renewed, was also structured as a revolving securitization.
Under this program, new leases can be sold up to $125 million as collections
reduce previously sold lease receivables.
During the three months ended December 31, 1996, collections reduced previously
sold interests under these two agreements by approximately $25.4 million. The
Company sold an additional $25.4 million in net eligible direct financing leases
during the first quarter of fiscal 1997 and recognized pretax gains of $613,000.
Income Before Taxes
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Income before taxes for the first quarter of fiscal 1997 increased by $5.8
million or 55.2% over the first quarter of fiscal 1996. This increase in income
before taxes was essentially the effect of higher earnings on a larger lease
portfolio base, partially offset by higher borrowing costs due to the increased
debt to fund the lease portfolio and a slightly higher average interest rate in
the first quarter of fiscal 1997 versus the first quarter of fiscal 1996.
Provision for Income Taxes
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Income taxes for the first quarter of fiscal 1997 increased by $2.4 million or
55.2% over the first quarter of fiscal 1996. This increase in income taxes is
directly attributable to the increase in income before taxes in the first
quarter of fiscal 1997 as compared to the first quarter of fiscal 1996. The
effective tax rate was 41% for both the first quarter of fiscal 1997 and 1996.
Parent Company Name Change
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On January 23, 1997, the shareholders of the Company's parent company, Alco
Standard Corporation (Alco), voted to change the name of Alco to IKON Office
Solutions, Inc.
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SIGNATURES
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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.
IKON CAPITAL, INC.
Date March 6, 1997 /s/Robert M. Kearns II
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Robert M. Kearns II
Vice President
(Chief Accounting Officer)
