UNITED STATES
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, 1999 or [ ] Transition
report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
Commission file number 0-20405
IOS CAPITAL, INC.
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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)
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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
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 11, 2000.
Common Stock, $.01 par value per share 1,000 shares
Registered Debt Outstanding as of February 11, 2000 $864,500,000
The registrant, an indirect wholly owned subsidiary of IKON Office Solutions,
Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is, therefore, filing with the reduced disclosure format
contemplated thereby.
<PAGE>
INDEX
IOS CAPITAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - December 31, 1999 (unaudited) and
September 30, 1999
Statements of Income - Three months ended
December 31, 1999 and 1998 (unaudited)
Statements of Cash Flows - Three months ended
December 31, 1999 and 1998 (unaudited)
Notes to Financial Statements - December 31, 1999 (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I . FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
IOS CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, September 30,
1999 1999
(unaudited)
----------- -----------
Assets
Investment in leases:
Direct financing leases, net of lease default
reserve of December 31, 1999 - $73,013;
September 30, 1999 - $0 $ 2,596,472 $ 2,310,663
Less: Unearned income (411,364) (374,279)
----------- -----------
2,185,108 1,936,384
Funded leases, net 431,502 465,188
----------- -----------
2,616,610 2,401,572
Cash 1,335
Restricted Cash 69,028 29,625
Accounts receivable 87,237 76,805
Due from IKON Office Solutions, Inc. 203,253
Prepaid expenses and other assets 7,210 10,018
Leased equipment-operating rentals at cost
less accumulated depreciation of:
December 31, 1999 - $53,074;
September 30, 1999 - $51,055 54,090 59,681
Property and equipment at cost, less
accumulated depreciation of:
December 31, 1999 - $7,826;
September 30, 1999 - $7,384 9,831 10,395
----------- -----------
Total assets $ 3,047,259 $ 2,589,431
=========== ===========
Liabilities and Shareholder's Equity
Liabilities:
Accounts payable and accrued expenses $ 90,512 $ 65,204
Accrued interest 8,347 23,481
Due to IKON Office Solutions 112,649
Medium term notes 1,012,850 1,242,850
Lease-backed notes 1,183,902 622,948
Bank debt 247,600
Deferred income taxes 92,368 129,869
----------- -----------
Total liabilities 2,635,579 2,197,001
Shareholder's equity:
Common Stock - $.01 par value, 1,000 shares
authorized, issued, and outstanding
Contributed capital 149,415 149,415
Retained earnings 262,265 243,015
----------- -----------
Total shareholder's equity 411,680 392,430
----------- -----------
Total liabilities and shareholder's equity $ 3,047,259 $ 2,589,431
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(unaudited)
Three Months Ended
December 31,
------------------------
1999 1998
------- -------
Revenues:
Lease finance income $69,213 $60,527
Rental income 9,268 9,842
Interest on IKON income tax deferrals 4,218 4,196
Other income 5,012 3,477
------- -------
87,711 78,042
Expenses:
Interest 36,237 29,202
General and administrative 19,466 17,032
------- -------
55,703 46,234
Gain on sale of lease receivables 76 16,676
------- -------
Income before income taxes 32,084 48,484
Provision for income taxes 12,834 20,363
------- -------
Net income $19,250 28,121
======= =======
See notes to consolidated financial statements.
<PAGE>
IOS CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
December 31,
-----------------------------
1999 1998
--------- ---------
Operating activities:
Net income $ 19,250 $ 28,121
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 8,189 8,760
Deferred tax (benefit) provision (37,501) 10,515
Provision for lease default 4,510
Gain on sale of investment in leases (76) (16,676)
Changes in operating assets and liabilities:
Accounts receivable (10,432) (4,794)
Prepaid expenses and other assets 5,895 2,153
Accounts payable and accrued expenses 25,308 12,685
Accrued interest (15,134) (25,686)
--------- ---------
Net cash provided by operating activities 9 15,078
--------- ---------
Cash flows from investing activities:
Purchases of leased equipment, net (2,156) (2,601)
Disposals of property and equipment, net 122 121
Investment in Leases
Additions (404,640) (364,990)
Cancellations 79,298 86,115
Collections 310,486 212,636
Lease default reserve transfer from IKON 74,305
Lease default reserve write-offs (5,802)
Proceeds from sale of leases 923 281,135
Repurchase of leases (275,000)
--------- ---------
Net cash (used in) provided by investing activities (222,464) 212,416
--------- ---------
Cash flows from financing activities:
Payments on bank borrowings (100,000)
Proceeds from bank borrowings 247,600
Payments on medium term notes (230,000) (135,000)
Proceeds from issuance of lease-backed notes 697,466
Payments on lease-backed notes (138,641)
Deposit to restricted cash (39,403)
Dividend to IKON (30,000)
--------- ---------
Net cash provided by (used in) financing activities 537,022 (265,000)
--------- ---------
Decrease (increase) in cash and amounts due (to) from IKON 314,567 (37,506)
Cash and Due (to) from IKON at beginning of year (111,314) 54,681
--------- ---------
Cash and Due from IKON at end of period $ 203,253 $ 17,175
========= =========
</TABLE>
See notes to financial consolidated statements.
<PAGE>
IOS Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of IOS Capital, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair 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/A for the year ended September 30,
1999. Certain prior year amounts have been reclassified to conform with the
current year presentation.
Note 2: Medium Term Note Program
On May 21, 1997, the Company increased the amount available to be
offered under its medium term note program to $3.5 billion. The program allows
the Company to offer to the public from time to time medium term notes having an
aggregate initial offering price not exceeding the total program amount. These
notes are offered at varying maturities of nine months or more from their dates
of issue and may be subject to redemption at the option of the Company, in whole
or in part, prior to the maturity date in conjunction with meeting specified
provisions. Interest rates are determined based on market conditions at the time
of issuance. As of December 31, 1999, $1,012.9 million of medium term notes were
outstanding with a weighted average interest rate of 6.4%.
Note 3: Asset Securitization and Lease Backed Notes
In December 1998, the Company entered into an asset securitization
transaction whereby it sold $366.6 million in direct financing lease receivables
for $250 million in cash and a retained interest in the remainder. The agreement
is for an initial three year term with certain renewal provisions and is
structured as a revolving asset securitization so that as collections reduce
previously sold interests in this new pool of leases, additional leases can be
sold up to $250 million. The terms of the agreement require that the Company
continue to service the lease portfolio. The Company recognized a pretax gain of
$14.3 million during the first quarter of fiscal 1999 on this agreement. On May
25, 1999, the Company repurchased the leases sold in this transaction with the
proceeds from the lease-backed notes described below.
On December 9, 1999, the Company sold an additional $311.4 million in
financing lease receivables for $247.6 million in cash in connection with this
revolving asset securitization.
The Company had additional asset securitization agreements for $275
million of eligible direct financing receivables. These agreements were also
structured as revolving securitizations, whereby additional leases can be sold
as collections reduce the previously sold interests. During fiscal 1999,
collections reduced previously sold interests on these two agreements and the
$250 million transaction, described above, by $152.1 million. The Company sold
an additional $152.1 million in net eligible direct financing leases and
recognized pretax gains of $12.2 million for fiscal year 1999. On October 7,
1999, these leases were repurchased with a portion of the proceeds received from
the issuance of approximately $700 million of leased-backed notes.
<PAGE>
IOS Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
On May 19, 1999, IKON Receivables, LLC (an affiliate of the Company)
publicly issued approximately $752 million of lease backed notes (the "Notes")
under a $1.825 billion shelf registration statement. Class A-1 Notes totaling
approximately $304 million have a stated interest rate of 5.11%, Class A-2 Notes
totaling approximately $62 million have a stated interest rate of 5.60%, Class
A-3 Notes totaling approximately $304 million have a stated interest rate of
5.99% and Class A-4 Notes totaling approximately $81 million have a stated
interest rate of 6.23%. The transaction was structured using two special purpose
limited liability companies: IKON Receivables-1, LLC, of which the Company is
the sole member, and IKON Receivables, LLC, of which IKON Receivables-1, LLC is
the sole member. The Company contributed to IKON Receivables-1, LLC a pool of
office equipment leases or contracts and related assets (the "1999-1 Asset
Pool"), and IKON Receivables-1, LLC transferred them (other than equipment) to
IKON Receivables, LLC, which is the issuer of the Notes. The Notes are
collateralized by the Asset Pool and the payments on the Notes are made from
payments on the leases. The Company received approximately $749 million in net
proceeds from the sale of the Notes and used $250 million of that amount to
repurchase previously sold assets in connection with the asset securitization
transaction completed in December 1998. The repurchased assets were contributed
to IKON Receivables-1, LLC as part of the 1999-1 Asset Pool.
On October 7, 1999, IKON Receivables, LLC (an affiliate of the
Company) publicly issued approximately $700 million of lease backed notes (the
"1999-2 Notes") under the $1.825 billion shelf registration statement noted
above. Class A-1 Notes totaling approximately $235 million have a stated
interest rate of 6.14125%, Class A-2 Notes totaling approximately $51 million
have a stated interest rate of 6.31%, Class A-3a Notes totaling approximately
$100 million have a stated interest rate of 6.59%, Class A-3b Notes totaling
approximately $241 million have a variable interest rate and Class A-4 Notes
totaling approximately $72 million have a stated interest rate of 6.88%. The
Class A-3b Notes pay interest at a rate of LIBOR plus 0.36% (which we have fixed
at 6.63% through an interest rate swap). The transaction was structured the same
as the 1999-1 Notes described above. The Notes are secured by a pool of office
equipment leases or contracts and related assets ("the 1999-2 Asset Pool") and
the payments on the Notes are made from payments on the leases. The Company
received approximately $697 million in net proceeds from the sale of the 1999-2
Notes and used $275 million of that amount to repurchase previously sold leases.
The repurchased leases were contributed as part of the 1999-2 Asset Pool.
Restricted cash on the balance sheet represents cash that has been
collected on the lease receivables in the 1999-1 and 1999-2 Asset Pools, which
must be used to repay the Notes.
<PAGE>
IOS Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 4: Comprehensive Income
As of October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
establishes rules for the reporting and presentation of comprehensive income and
its components. SFAS 130 requires mark to market adjustments on the retained
interest on lease receivables to be included in other comprehensive income.
Total comprehensive income is as follows (in thousands):
Three Months Ended
December 31
----------------------
1999 1998
---- ----
Net income $19,250 $28,121
Mark to market adjustment, net of tax 969
------- -------
Total comprehensive income $19,250 $29,090
======= =======
Note 5: Lease Default Reserve
Effective the first quarter of fiscal 2000, reserves for credit loss
are maintained by the Company, rather than each IKON marketplace. During the
quarter, lease default reserves of $74,305 were transferred to the Company from
the IKON marketplaces. Additionally, the Company recorded a provision for lease
defaults of $4,510 and had lease write-offs of $5,802. As a result of the above,
the lease default reserve at December 31, 1999 is $73,013.
<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.
Impact of Year 2000
January 2000 Update. Through January 31, 2000, our operations are fully
functioning and have not experienced any significant issues associated with the
Year 2000 problem (as described below).
State of Readiness. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs or hardware that have
date-sensitive software or embedded technology (non-IT systems) may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The potential
for a problem exists with all computer hardware and software, as well as in
products with embedded technology; copiers and fax machines; security and HVAC
systems; voice/telephony systems; elevators, etc.
IKON has appointed a Year 2000 Corporate Compliance Team, which has
prepared a compliance program for all business units, including the Company, and
is responsible for coordination and inspecting compliance activities in all
business units. The compliance program requires all business units and locations
in every country to inventory potentially affected systems and products, assess
risk, take any required corrective actions, test and certify compliance. IKON's
Year 2000 Testing and Certification Guidelines delineate the Year 2000
compliance process, testing and quality assurance guidelines, certification and
reporting processes and contingency planning. An independent consulting company
has reviewed the compliance program.
Costs. The Company has used both internal and external resources to
reprogram or replace, test and implement its IT and non-IT systems for Year 2000
modifications. The Company does not separately track the internal costs incurred
on the Year 2000 project. Such costs are principally payroll and related costs
for internal IT personnel. The Company's total cost of the Year 2000 project,
excluding these internal costs, is approximately $1.2 million and is being
funded through operating cash flows. Of the total estimated project cost,
approximately $0.2 million is attributable to the purchase of new software and
hardware and has been capitalized. Through January 31, 2000, IOS Capital has
incurred approximately $1.2 million ($1.0 million expensed and $0.2 million
capitalized), related to its Year 2000 project.
Risks. Management believes, based on the information currently
available to it, that the most reasonably likely worst case scenario that could
be caused by technology failures relating to Year 2000 could pose a significant
threat not only to the Company, IKON, its customers and suppliers, but to all
businesses. Risks include:
o Legal risks, including customer, supplier, employee or shareholder
lawsuits over failure to deliver contracted services, product failure,
or health and safety issues.
o Loss of revenues due to failure to meet customer quality expectations.
<PAGE>
o Increased operational costs due to manual processing, data corruption
or disaster recovery.
o Inability to bill or invoice.
The cost of the project and the date on which IKON and the Company
believe it will complete the Year 2000 modifications are based on management's
best estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and costs of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
Contingency Plans. IKON's Guidelines require that contingency plans be
developed and validated in the event that any critical system cannot be
corrected and certified before the system's failure date. Contingency plans have
been developed and completed.
Three Months Ended December 31, 1999 Compared
with the Three Months Ended December 31, 1998
Comparative summarized results of operations for the three months ended
December 31, 1999 and 1998 are set forth in the table below. This table also
shows the increase or decrease in the dollar amounts of major revenue and
expense items between periods, as well as the related percentage increase or
decrease.
<TABLE>
<CAPTION>
Three Months
(dollars in thousands) Ended December 31 Increase (Decrease)
1999 1998 Amount Percent
Revenues:
<S> <C> <C> <C> <C>
Lease finance income $69,213 $60,527 $ 8,686 14.4%
Rental income 9,268 9,842 (574) (5.8)%
Interest on IKON tax deferrals 4,218 4,196 22 .5%
Other income 5,012 3,477 1,535 44.1%
--------- --------- ---------
87,711 78,042 9,669 12.4%
Expenses:
Interest 36,237 29,202 7,035 24.1%
General and administrative 19,466 17,032 2,434 14.3%
--------- --------- ---------
55,703 46,234 9,469 20.5%
Gain on sale of lease receivables 76 16,676 (16,600) (99.5)%
--------- --------- ---------
Income before income taxes 32,084 48,484 (16,400) (33.8)%
Provision for income taxes 12,834 20,363 (7,529) (37.0)%
--------- ------ ---------
Net income $ 19,250 $ 28,121 $ (8,871) (31.5)%
========= ========= =========
</TABLE>
Revenues
Total revenues increased by approximately $9.7 million or 12.4% in the
first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Lease
finance income increased by
<PAGE>
approximately $8.7 million or 14.4%. The lease portfolio, net of lease
receivables sold in asset securitization transactions, increased 9% from
September 30, 1999 to December 31, 1999, This increase is attributable to the
repurchase of the leases on October 7, 1999.
Office equipment placed on rental by the IKON marketplaces to
customers, with cancelable terms, may be purchased by the Company. During the
first quarter of fiscal 2000, the Company's net purchases of operating lease
equipment were $2.2 million, compared to $2.6 million in the first quarter of
fiscal 1999. Operating leases contributed $9.3 million in rental income during
the first quarter of fiscal 2000, compared to $9.8 million in the first quarter
of fiscal 1999. Effective October 1, 1998, the Company has limited the funding
of rental equipment to the IKON marketplaces to select accounts.
The Company earns interest income on the deferred tax liabilities of
the IKON marketplaces associated with leases funded through the Company at a
rate consistent with the Company's weighted average outside borrowing rate of
interest. The Company's average rate was 6.5% for the first quarter of fiscal
2000 and 6.4% for the first quarter of fiscal 1999. The deferred tax base upon
which these payments are calculated increased by 2.1% to $259.6 million at
December 31, 1999 from $254.3 million at December 31, 1998. Interest income on
deferred taxes remained relatively consistent for the three months ended
December 31, 1999 as compared to the three months ended December 31, 1998.
Other income consists primarily of late payment charges and various
billing fees. The structure of these fees has remained basically unchanged from
fiscal 1999. The growth in other income from fees is primarily due to the
increased size of the lease portfolio upon which these fees are based. Overall,
fee income from these sources grew by $1.5 million or 44.1%, when comparing the
first quarter of fiscal 2000 to the same period of fiscal 1999. Effective
October 1, 1999 the Company has discontinued its policy of charging billing fees
to the IKON marketplaces.
Expenses
Average borrowings to finance the lease portfolio in the form of loans
from banks and the issuance of medium term notes and lease-backed notes in the
public market increased by 42.5%, with $2,444.4 million outstanding at December
31, 1999. The Company paid a weighted average interest rate on all borrowings
for the first quarter of fiscal 2000 of 6.3% compared to 6.4% for the first
quarter of fiscal 1999. Primarily as a result of the increased average
borrowings, interest expense grew by $7 million or 24.1%, when comparing the
first quarter of fiscal 2000 to the first quarter of fiscal 1999. At December
31, 1999, the Company's debt to equity ratio including amounts due to IKON was
5.9 to 1.
Total general and administrative expenses for the quarter ended
December 31, 1999 increased by $2.4 million or 14.3%, compared to the quarter
ended December 31, 1998. The general and administrative expense category in the
first quarter of fiscal 2000 includes depreciation expense on leased equipment
totaling $7.7 million compared to $8.3 million in the first quarter of fiscal
1999. Effective October 1, 1999, the Company terminated the lease bonus program
which provided incentives to IKON marketplaces when IKON customers leased
equipment from the Company; therefore, there were no lease bonus subsidy
payments included in the general and administrative expense category in the
first quarter of fiscal 2000 compared to $2.8 million in the first quarter of
fiscal 1999. In addition, effective October 1, 1999, reserves for credit losses
are maintained by the Company rather than the IKON marketplaces; therefore, bad
debt expense included in the general and administrative expense category in the
first quarter of fiscal 2000 was $4.5 million compared to $0 in the first
quarter of fiscal 1999. Excluding the effects of depreciation expense on
operating leases, lease bonus subsidy payments and bad debt expense lease
default, remaining general and administrative expenses increased by $1.3 million
or 22.3%, when comparing the first quarter of fiscal 2000 to the first quarter
of fiscal 1999.
<PAGE>
Gain on Sale of Lease Receivables
In December 1998, the Company entered into an asset securitization
transaction whereby it sold $366.6 million in direct financing lease receivables
for $250 million in cash and a retained interest in the remainder. The agreement
is for an initial three-year term with certain renewal provisions and was
structured as a revolving asset securitization so that as collections reduce
previously sold interests in the pool of leases, additional leases can be sold
up to $250 million. The terms of the agreement require that the Company will
continue to service the lease portfolio. The Company recognized a pretax gain of
$14.3 million during the first quarter of fiscal 1999 on this agreement. On May
25, 1999, the Company repurchased leases sold under this agreement with the
proceeds from the lease-backed notes. As a result of the repurchase, the $250
million commitment remains available.
The Company had additional asset securitization agreements for $275
million of eligible direct financing receivables. These agreements were also
structured as revolving securitizations, whereby additional leases can be sold
as collections reduce the previously sold interests. During fiscal 1999,
collections reduced previously sold interests on these two agreements and the
$250 million transaction, described above, by $152.1 million. The Company sold
an additional $152.1 million in net eligible direct financing leases and
recognized pretax gains of $12.2 million for fiscal year 1999. On October 7,
1999, these leases were repurchased with a portion of the proceeds received from
the issuance of approximately $700 million of leased-backed notes.
Income Before Income Taxes
Income before income taxes for the first three months of fiscal 2000
decreased by $16.4 million or 33.8% over the first three months of fiscal 1999.
This decrease in income before income taxes was essentially the effect of the
nonrecurring gain on the repurchased asset securitization in the first quarter
of fiscal 1999 and increased interest expense and general and administrative
expenses in the first quarter of fiscal 2000.
Provision for Income Taxes
Income taxes for the first three months of fiscal 2000 decreased by
$7.5 million or 37.0% over the first three months of fiscal 1999. This decrease
in income taxes is directly attributable to the decrease in income before income
taxes in the first three months of fiscal 2000 compared to the first three
months of fiscal 1999. The effective tax rate was 40% for the first three months
of fiscal 2000 and 42% for the first three months of 1999.
Pending Accounting Changes
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which establishes
accounting and reporting standards for derivative instruments and hedging
activities. It will require us to recognize all derivatives as either assets or
liabilities and measure the instruments at fair value. The statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company intends to adopt the standard on October 1, 2000. The Company does
not believe the effect of adoption will be material.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Pursuant to General Instruction H(2)(c) of Form 10-Q the information
required by this item has been omitted.
<PAGE>
FORWARD-LOOKING INFORMATION
This Report includes or incorporates by reference information which may
constitute forward-looking statements within the meaning of the federal
securities laws. Although the Company believes the expectations contained in
such forward-looking statements are reasonable, it can give no assurances that
such expectations will prove correct. Such forward-looking information is based
upon management's current plans or expectations and is subject to a number of
risks and uncertainties that could significantly affect current plans,
anticipated actions and the Company's and/or IKON's future financial condition
and results. These risks and uncertainties, which apply to both the Company and
IKON, include, but are not limited to, risks and uncertainties relating to:
conducting operations in a competitive environment and a changing industry
(which includes technical services and products that are relatively new to the
industry, IKON, and to the Company); delays, difficulties, management
transitions and employment issues associated with consolidations and/or changes
in business operations; managing the integration of acquired businesses;
existing and future vendor relationships; risks relating to currency exchange;
economic, legal and political issues associated with international operations;
potential Year 2000 deficiencies associated with the operation of IKON's or the
Company's internal systems and distributed products; the Company's ability to
access capital and its debt service requirements (including sensitivity to
fluctuation in interest rates); and general economic conditions. Certain
additional risks and uncertainties are set forth in the Company's 1999 Annual
Report on Form 10-K/A filed with the Securities and Exchange Commission. As a
consequence of these and other risks and uncertainties, current plans,
anticipated actions and future financial condition and results may differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company.
<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
(b) Reports on Form 8-K
On October 21, 1999, the registrant's parent filed a Current Report
on Form 8-K to file, under Item 5 of the form, information
contained in its press release dated October 21, 1999 that the
Company would not meet the First Call consensus estimate of $.22
per share earnings for the fiscal quarter and year ended September
30, 1999. Based on preliminary results the Company expects earnings
to be in the range of $.13 to $.15 per share.
On November 24, 1999, the registrant's parent filed a Current
Report on Form 8-K to file under Item 5 of the form, information
announcing the registrant had reached an agreement to settle,
subject to court approval, the securities class action and
derivative lawsuits brought by its shareholders.
On December 21, 1999, the registrant filed a Current Report on Form
8-K to file, under Item 4 of the form, information regarding the
appointment of PricewaterhouseCoopers LLP as its independent
auditors for the fiscal year ending September 30, 2000 to replace
the firm of Ernst & Young LLP who were dismissed as auditors of the
registrant effective with their completion of their audit of the
registrant's financial statements for the fiscal year ended
September 30, 1999.
<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.
IOS CAPITAL, INC.
Date February 14, 2000 /s/ Harry G. Kozee
----------------- ---------------------
Harry G. Kozee
Vice President - Finance
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of IOS Capital, Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000922255
<NAME> IOS CAPITAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-2000
<PERIOD-END> Dec-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,703,847 <F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 124,821 <F2>
<DEPRECIATION> 60,900 <F2>
<TOTAL-ASSETS> 3,047,259
<CURRENT-LIABILITIES> 0
<BONDS> 2,444,352
0
0
<COMMON> 0 <F3>
<OTHER-SE> 411,680
<TOTAL-LIABILITY-AND-EQUITY> 3,047,259
<SALES> 0
<TOTAL-REVENUES> 87,711
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,237
<INCOME-PRETAX> 32,084
<INCOME-TAX> 12,834
<INCOME-CONTINUING> 19,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,250
<EPS-BASIC> 0 <F4>
<EPS-DILUTED> 0 <F4>
<FN>
<F1>
(1) Includes net investments in leases of $2,616,610 and accounts receivable.
<F2>
(2) Includes leased equipment of: cost - $107,164; accumulated depreciation -
$53,074.
<F3>
(3) Common stock, $.01 par value, 1,000 shares outstanding. Since total is less
than $1, zero is reported.
<F4>
(4) Not required as the registrant is a wholly-owned subsidiary.
</FN>
</TABLE>
