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, 2002 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, LLC
(Exact name of registrant as specified in its charter)
| DELAWARE |
23-2493042 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 1738 Bass Road, Macon, Georgia |
31210 | |
| (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (478) 471-2300
Former name, former address and former fiscal year, if changed since last report: None
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Registered debt outstanding as of February 13, 2003 was $1,954,255,410.
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.
IOS Capital, LLC
INDEX*
PART I. FINANCIAL INFORMATION
| Item | 1. Condensed Consolidated Financial Statements |
Consolidated Balance Sheets – December 31, 2002 (unaudited) and September 30, 2002
Consolidated Statements of Income—Three months ended December 31, 2002 and 2001 (unaudited)
Consolidated Statements of Cash Flows – Three months ended December 31, 2002 and 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
| 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
*All amounts contained in this quarterly report on Form 10-Q are in thousands unless otherwise noted.
2
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 IOS Capital, LLC (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 future financial condition and results of the Company and IKON Office Solutions, Inc. (“IKON”). These risks and uncertainties, which apply to both the Company and IKON, include, but are not limited to, risks and uncertainties relating to: factors which may affect the Company’s ability to collect amounts due from lessees in order to make payments due in connection with the Company’s lease-backed notes (such as lessee defaults or factors impeding recovery efforts); growth opportunities and increasing market share; productivity and infrastructure initiatives; earnings, revenue, cash flow, margin, and cost-savings projections; the effect of competitive pressures on equipment sales; expected savings and lower costs from the productivity and infrastructure initiatives; developing and expanding strategic alliances and partnerships; the impact of e-commerce and e-procurement initiatives; the implementation of e-IKON; anticipated growth rates in the digital and color equipment and outsourcing industries; the effect of foreign currency exchange risk; the reorganization of the Company’s business segments and the anticipated benefits of operational synergies related thereto; and the Company’s ability to finance its current operations and its growth initiatives. 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.
3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
IOS Capital, LLC
Consolidated Balance Sheets
| December 31, 2002 (unaudited) |
September 30, 2002 |
|||||||
| Assets |
||||||||
| Investments in leases: |
||||||||
| Direct financing leases, net of lease default reserve of: |
||||||||
| December 31, 2002—$48,283; September 30, 2002—$49,821 |
$ |
3,401,229 |
|
$ |
3,364,776 |
| ||
| Less: Unearned income |
|
(638,745 |
) |
|
(572,865 |
) | ||
|
|
2,762,484 |
|
|
2,791,911 |
| |||
| Funded leases, net |
|
291,580 |
|
|
244,574 |
| ||
|
|
3,054,064 |
|
|
3,036,485 |
| |||
| Cash |
|
3,949 |
|
|
10,994 |
| ||
| Restricted cash |
|
125,837 |
|
|
115,594 |
| ||
| Accounts receivable |
|
76,690 |
|
|
65,107 |
| ||
| Prepaid expenses and other assets |
|
18,436 |
|
|
18,236 |
| ||
| Leased equipment—operating rentals at cost, less accumulated depreciation of: |
||||||||
| December 31, 2002—$41,381; September 30, 2002—$42,196 |
|
74,891 |
|
|
72,271 |
| ||
| Property and equipment at cost, less accumulated depreciation of: |
||||||||
| December 31, 2002—$9,532; September 30, 2002—$9,406 |
|
1,202 |
|
|
1,329 |
| ||
| Total Assets |
$ |
3,355,069 |
|
$ |
3,320,016 |
| ||
| Liabilities and Member’s Equity |
||||||||
| Liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ |
63,400 |
|
$ |
65,567 |
| ||
| Accrued interest |
|
7,375 |
|
|
17,045 |
| ||
| Due to IKON Office Solutions, Inc. (“IKON”) |
|
31,341 |
|
|
1,566 |
| ||
| Convertible subordinated notes |
|
300,000 |
|
|
300,000 |
| ||
| Notes payable |
|
267,345 |
|
|
277,170 |
| ||
| Lease-backed notes |
|
1,479,516 |
|
|
1,690,828 |
| ||
| Asset securitization conduit financing |
|
509,232 |
|
|
312,500 |
| ||
| Deferred income taxes |
|
240,308 |
|
|
224,657 |
| ||
| Total Liabilities |
|
2,898,517 |
|
|
2,889,333 |
| ||
| Commitments and contingencies |
||||||||
| Member’s equity: |
||||||||
| Contributed capital |
|
179,796 |
|
|
179,796 |
| ||
| Retained earnings |
|
297,551 |
|
|
275,057 |
| ||
| Accumulated other comprehensive loss |
|
(20,795 |
) |
|
(24,170 |
) | ||
| Total Member’s Equity |
|
456,552 |
|
|
430,683 |
| ||
| Total Liabilities and Member’s Equity |
$ |
3,355,069 |
|
$ |
3,320,016 |
| ||
See notes to condensed consolidated financial statements.
4
IOS Capital, LLC
Consolidated Statements of Income
(unaudited)
| Three Months Ended December 31, | ||||||
| 2002 |
2001 | |||||
| Revenues |
||||||
| Lease finance income |
$ |
87,336 |
$ |
85,683 | ||
| Rental income |
|
9,592 |
|
7,659 | ||
| Other income |
|
4,446 |
|
5,407 | ||
|
|
101,374 |
|
98,749 | |||
| Expenses |
||||||
| Interest |
|
35,799 |
|
39,336 | ||
| Lease default, net of recoveries |
|
10,482 |
|
4,008 | ||
| Depreciation |
|
7,951 |
|
6,408 | ||
| General and administrative |
|
9,620 |
|
8,260 | ||
|
|
63,852 |
|
58,012 | |||
| Income before taxes on income |
|
37,522 |
|
40,737 | ||
| Taxes on income |
|
15,028 |
|
16,295 | ||
| Net income |
$ |
22,494 |
$ |
24,442 | ||
See notes to condensed consolidated financial statements.
5
IOS Capital, LLC
Consolidated Statements of Cash Flows
(unaudited)
| Three Months Ended December 31, |
||||||||
| 2002 |
2001 |
|||||||
| Cash Flows from Operating Activities |
||||||||
| Net income |
$ |
22,494 |
|
$ |
24,442 |
| ||
| Additions (deductions) to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
|
10,140 |
|
|
8,597 |
| ||
| Provision for deferred income taxes |
|
13,401 |
|
|
14,612 |
| ||
| Provision for lease default |
|
12,442 |
|
|
5,556 |
| ||
| Changes in operating assets and liabilities: |
||||||||
| (Increase) decrease in accounts receivable |
|
(11,583 |
) |
|
1,340 |
| ||
| Increase in prepaid expenses and other assets |
|
(2,390 |
) |
|
(1,247 |
) | ||
| Increase in accounts payable and accrued expenses |
|
3,457 |
|
|
2,795 |
| ||
| Decrease in accrued interest |
|
(9,670 |
) |
|
(7,456 |
) | ||
| Net cash provided by operating activities |
|
38,291 |
|
|
48,639 |
| ||
| Cash Flows from Investing Activities |
||||||||
| Purchases of equipment |
|
(11,805 |
) |
|
(8,756 |
) | ||
| Proceeds from terminations of leased equipment |
|
1,363 |
|
|
1,224 |
| ||
| Investments in leases: |
||||||||
| Additions |
|
(410,970 |
) |
|
(408,658 |
) | ||
| Cancellations |
|
55,937 |
|
|
69,223 |
| ||
| Collections |
|
325,012 |
|
|
319,597 |
| ||
| Net cash used in investing activities |
|
(40,463 |
) |
|
(27,370 |
) | ||
| Cash Flows from Financing Activities |
||||||||
| Proceeds from asset securitization conduit financing |
|
196,732 |
|
|
160,000 |
| ||
| Payments on asset securitization conduit financing |
|
(70,000 |
) | |||||
| Payments on medium term notes |
|
(82,000 |
) | |||||
| Net (payments) proceeds from notes payable |
|
(9,825 |
) |
|
3,389 |
| ||
| Proceeds from issuance of lease-backed notes |
|
74,551 |
| |||||
| Payments on lease-backed notes |
|
(211,312 |
) |
|
(192,123 |
) | ||
| Net increase in intercompany debt |
|
29,775 |
|
|
162,391 |
| ||
| (Increase) decrease in restricted cash |
|
(10,243 |
) |
|
7,465 |
| ||
| Dividends to IKON |
|
(100,000 |
) | |||||
| Net cash used in financing activities |
|
(4,873 |
) |
|
(36,327 |
) | ||
| Net decrease in cash |
|
(7,045 |
) |
|
(15,058 |
) | ||
| Cash at beginning of year |
|
|||||||