10-Q 1 ikonllc10q.txt IKON RECEIVABLES, LLC 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 June 30, 2001 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 333-71073 ------------------------------------------------------------------------------- IKON Receivables, LLC ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 23-2990188 ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1738 Bass Road, P.O. Box 9115, Macon, GA 31208 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (478) 471-2300 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------------------------------------- (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 issuer's classes of common stock, as of August 10, 2001: Common Stock None. Registered Debt Outstanding as of August 10, 2001 $1,931,702,662 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. INDEX IKON RECEIVABLES, LLC PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements Balance Sheets - June 30, 2001 (unaudited) and September 30, 2000 Statements of Income - Three and nine months ended June 30, 2001 and 2000 (unaudited) Statements of Cash Flows - Nine months ended June 30, 2001 and 2000 (unaudited) Notes to Condensed 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 Item 1: Condensed Financial Statements IKON RECEIVABLES, LLC BALANCE SHEETS (in thousands)

See notes to condensed financial statements. IKON RECEIVABLES, LLC STATEMENTS OF INCOME (in thousands) (unaudited)

See notes to condensed financial statements. IKON RECEIVABLES, LLC STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

See notes to condensed financial statements. IKON RECEIVABLES, LLC NOTES TO CONDENSED FINANCIAL STATEMENTS (in thousands) (unaudited) Note 1: Basis of Presentation The accompanying unaudited condensed financial statements of IKON Receivables, LLC (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 only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000. Certain prior year amounts have been reclassified to conform with the current year presentation. Note 2: Adoption of SFAS 133 The Company adopted Statement of Financial Accounting Standards (SFAS) 133, as amended by SFAS 138, "Accounting for Derivative Instruments and Hedging Activities", on October 1, 2000. SFAS 133 requires that all derivatives be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in earnings or Other Comprehensive Income (Loss) ("OCI") depending on the type of hedging instrument and the effectiveness of those hedges. In accordance with the transition provisions of SFAS 133, the Company recorded a cumulative loss adjustment to OCI of $3,471, after taxes, to recognize the fair value of its derivatives, as of the date of adoption. All of the derivatives used by the Company as hedges are highly effective as defined by SFAS 133 because all of the critical terms of the derivatives match those of the hedged item. All of the derivatives used by the Company have been designated as cash flow hedges at the time of the adoption of SFAS 133 or at the time they were executed, if later than October 1, 2000. All derivatives are adjusted to their fair market values at the end of each quarter. Unrealized net gains and losses for cash flow hedges are recorded in OCI. As of June 30, 2001, all of the derivatives designated as hedges by the Company are interest rate swaps which qualify for evaluation using the "shortcut method" for assessing effectiveness. As such, there is an assumption of no ineffectiveness. The Company uses interest rate swaps to fix the interest rates on its variable rate classes of lease-backed notes, which results in a lower cost of capital than if the Company had issued fixed rate notes. During the nine months ended June 30, 2001, unrealized net losses totaling $16,400 after taxes were recorded in OCI, including $3,471 cumulative effect as of October 1, 2000. Note 3: Capital Contributions In connection with the lease-backed notes issued December 7, 2000 (the "2000-2 Notes"), $714,698 of leases were contributed by IKON Receivables-1, LLC as collateral for the borrowing of $634,431. In connection with the lease-backed notes issued June 28, 2001 (the "2001-1 Notes"), $635,246 of leases were contributed by IKON Receivables-1, LLC as collateral for the borrowing of $595,200. During the first nine months of fiscal 2001, an additional $112,239, $101,654, $52,779, $50,803, and $1,579 of leases were added to the 1999-1, 1999-2, 2000-1, 2000-2 and 2001-1 Asset Pools (as defined below) as substitution for $58,295, $52,711, $27,451, $29,164, and $719 that were cancelled or defaulted during the first nine months of fiscal 2001 resulting in a net non-cash capital contribution of $1,500,658. Note 4: Lease-backed Notes In addition to the $1,267,641 of lease-backed notes (the "Notes") outstanding at September 30, 2000, on December 7, 2000, the Company issued $634,431 of 2000-2 Notes under its $2,000,000 shelf registration statement filed with the Securities and Exchange Commission. The 2000-2 Notes are comprised of Class A-1 Notes totaling $193,532 and have a stated interest rate of 6.66125%, Class A-2 Notes totaling $70,193 have a stated interest rate of 6.60%, Class A-3 Notes totaling $290,800 have a variable interest rate and Class A-4 Notes totaling $79,906 have a variable interest rate. Class A-3 Notes pay an interest rate of one-month LIBOR plus 0.23% (which has been fixed at 6.475% through an interest rate swap). Class A-4 Notes pay an interest rate of one-month LIBOR plus 0.27% (which has been fixed at 6.475% through an interest rate swap). The 2000-2 Notes are collateralized by a pool of office equipment leases or contracts and related assets and the payments on the 2000-2 Notes are made from payments received on the equipment leases. The Company received $633,000 in net proceeds from the issuance of the 2000-2 Notes. Additionally, on June 28, 2001, the Company issued $595,200 of lease-backed notes (the "2001-1 Notes") under its $2,000,000 shelf registration statement filed with the Securities and Exchange Commission. The 2001-1 Notes are comprised of Class A-1 Notes totaling $168,000 and have a stated interest rate of 3.73375%, Class A-2 Notes totaling $41,000 have a stated interest rate of 4.16%, Class A-3 Notes totaling $260,000 have a variable interest rate, and Class A-4 Notes totaling $126,200 have a variable interest rate. Class A-3 Notes pay an interest rate of one-month LIBOR plus 0.23% (which has been fixed at 4.825% through an interest rate swap). Class A-4 Notes pay an interest rate of one-month LIBOR plus 0.26% (which has been fixed at 5.435% through an interest rate swap). The 2001-1 Notes are collateralized by a pool of office equipment leases or contracts and related assets and the payments on the 2001-1 Notes are made from payments received on the equipment leases. The Company received $593,761 in net proceeds from the issuance of the 2001-1 Notes. The average interest rate on all the lease-backed notes outstanding at June 30, 2001 was 6.8%. Interest paid amounted to $80,695 for the first nine months of fiscal 2001 and $55,205 for the first nine months of fiscal 2000. Note 5: Comprehensive Income Total comprehensive income is as follows:

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. All amounts are in thousands unless otherwise noted. IKON Receivables, LLC (the "Company") is a special purpose Delaware limited liability company, all of the membership interests in the Company are held by IKON Receivables-1, LLC, also a special purpose Delaware limited liability company. All of the membership interests in IKON Receivables-1, LLC are owned by IOS Capital, Inc. ("IOSC"), a wholly owned finance subsidiary of IKON Office Solutions, Inc. ("IKON"), a publicly traded office technology company with fiscal 2000 revenues of approximately $5.4 billion. The Company was organized in the State of Delaware on January 20, 1999 and is managed by IKON Receivables Funding, Inc. In addition to the $1,267,641 of lease-backed notes (the "Notes") outstanding at September 30, 2000, on December 7, 2000, the Company issued $634,431 of lease-backed notes (the "2000-2 Notes") under its $2,000,000 shelf registration statement filed with the Securities and Exchange Commission. The 2000-2 Notes are comprised of Class A-1 Notes totaling $193,532 and have a stated interest rate of 6.66125%, Class A-2 Notes totaling $70,193 have a stated interest rate of 6.60%, Class A-3 Notes totaling $290,800 have a variable interest rate and Class A-4 Notes totaling $79,906 have a variable interest rate. Class A-3 Notes pay an interest rate of one-month LIBOR plus 0.23% (which has been fixed at 6.475% through an interest rate swap). Class A-4 Notes pay an interest rate of one-month LIBOR plus 0.27% (which has been fixed at 6.475% through an interest rate swap). The 2000-2 Notes are collateralized by a pool of office equipment leases or contracts and related assets and the payments on the 2000-2 Notes are made from payments received on the equipment leases. The Company received $633,000 in net proceeds from the issuance of the 2000-2 Notes. Additionally, on June 28, 2001, the Company issued $595,200 of lease-backed notes (the "2001-1 Notes") under its $2,000,000 shelf registration statement filed with the Securities and Exchange Commission. The 2001-1 Notes are comprised of Class A-1 Notes totaling $168,000 and have a stated interest rate of 3.73375%, Class A-2 Notes totaling $41,000 have a stated interest rate of 4.16%, Class A-3 Notes totaling $260,000 have a variable interest rate, and Class A-4 Notes totaling $126,200 have a variable interest rate. Class A-3 Notes pay an interest rate of one-month LIBOR plus 0.23% (which has been fixed at 4.825% through an interest rate swap). Class A-4 Notes pay an interest rate of one-month LIBOR plus 0.26% (which has been fixed at 5.435% through an interest rate swap). The 2001-1 Notes are collateralized by a pool of office equipment leases or contracts and related assets and the payments on the 2001-1 Notes are made from payments received on the equipment leases. The Company received $593,761 in net proceeds from the issuance of the 2001-1 Notes. Interest income earned on the Asset Pool is expected to offset interest expense on the Notes, amortization of debt issuance costs and discounts on the Notes and the fees charged by IOSC for servicing the Asset Pool and providing administrative services to the Company. For the third quarter of fiscal 2001, income generated from the Asset Pool was $52,590, other income earned was $1,208, interest expense was $27,192 and administrative expenses were $2,839. Collections on the lease receivables were $231,484 and the Company repaid $165,878 of principal on the Notes for the third quarter of fiscal 2001. For the third quarter of fiscal 2000, income generated from the Asset Pool was $36,581, other income earned was $1,067, while interest expense was $19,534 and administrative expenses were $2,019. Collections on the lease receivables were $173,223 and the Company repaid $136,578 of principal on the Notes during the third quarter of fiscal 2000. The Company's portfolio of leases had an average yield of 10.7% at June 30, 2001, while the Company's weighted average interest rate of its total debt cost was 7.2% during the third quarter of fiscal 2001. During the first nine months of fiscal 2001, income generated from the Asset Pool was $151,188, other income earned was $4,387, interest expense was $81,697 and administrative expenses were $8,333. Collections on the lease receivables were $664,796 and the Company repaid $495,185 of principal on the Notes for the first nine months of fiscal 2001. During the first nine months of fiscal 2000, income generated from the Asset Pool was $110,425, other income earned was $2,931, interest expense was $58,198 and administrative expenses were $6,235. Collections on lease receivables were $512,509 and the Company repaid $406,439 of principal on the Notes during the first nine months of fiscal 2000. The Company's portfolio of leases had an average yield of 10.7% at June 30, 2001, while the Company's weighted average interest rate of its total debt cost was 7.1% during the first nine months of fiscal 2001. 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 IOSC's and/or IKON's future financial condition and results. These risks and uncertainties, which apply to the Company, IOSC and IKON, include, but are not limited to: factors which may affect the Company's ability to recoup the full amount due on the 1999-1, 1999-2, 2000-1, 2000-2 and 2001-1 Leases (such as lessee defaults or factors impeding recovery efforts); and risks and uncertainties affecting the business of IOSC and/or IKON as set forth in IOSC's and IKON's periodic reports filed with the Securities and Exchange Commission, including, but not limited to: conducting operations in a competitive environment and in 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 the consolidation of, and/or changes in business operations; managing the integration of existing and acquired companies; existing and future vendor relationships; risks relating to currency exchange; economic, legal and political issues associated with international operations, the Company's ability to access capital and meet 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 fiscal 2000 Annual Report on Form 10-K 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. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K On June 20, 2001, the Company filed a Current Report on Form 8-K to file, under Item 5 of the Form, regarding the consolidated financial statements of Ambac Assurance Corporation in connection with the Company's issuance of the 2001-1 Notes. 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. IKON RECEIVABLES, LLC By: IKON RECEIVABLES FUNDING, INC. As Manager Date August 13, 2001 /s/ J. F. Quinn ------------------- --------------------- J. F. Quinn Treasurer

IKON RECEIVABLES LLC 10-Q