10-Q 1 reciev6-02q.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (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, 2002 or |_| Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______ FORM 10-Q 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, Georgia 31208 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (478) 471-2300 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 |_| Registered debt outstanding as of August 14, 2002 was $1,771,279,643. 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. ================================================================================ IKON RECEIVABLES, LLC INDEX* PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements Balance Sheets - June 30, 2002 (unaudited) and September 30, 2001 Statements of Operations - Three and nine months ended June 30, 2002 and 2001 (unaudited) Statement of Changes in Member's (Deficit) Equity - For the Period Ended June 30, 2002 (unaudited) Statements of Cash Flows - Nine months ended June 30, 2002 and 2001 (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 * All amounts contained in this quarterly report on Form 10-Q are in thousands unless otherwise noted. 2 PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements IKON RECEIVABLES, LLC BALANCE SHEETS

See notes to condensed financial statements. 3 IKON RECEIVABLES, LLC STATEMENTS OF OPERATIONS (unaudited)

See notes to condensed financial statements. 4

See notes to condensed financial statements. 5 IKON RECEIVABLES, LLC STATEMENTS OF CASH FLOWS (unaudited)

See notes to condensed financial statements. 6 IKON RECEIVABLES, LLC NOTES TO CONDENSED FINANCIAL STATEMENTS (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 of the 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, 2001. Note 2: Financial Instruments As of June 30, 2002, all of the Company's derivatives designated as hedges are interest rate swaps which qualify for evaluation using the "short cut" 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 we had issued fixed rate notes. During the nine months ended June 30, 2002, unrealized net income totaling $8,629 after taxes, was recorded in accumulated other comprehensive loss. Note 3: Capital Contributions During the first nine months of fiscal 2002, IOS Capital, LLC made noncash capital contributions of $63,375 of office equipment leases or contracts (the "Leases") and related assets to the Company. Note 4: Comprehensive Income Total comprehensive income is as follows:

Note 5: Income Taxes The Company is classified as a single-member limited liability corporation ("LLC") and, as such, is disregarded as an entity separate from its owners for income tax purposes. The Company has become aware that the predominant practice for single-member LLCs is to provide for income taxes in their separate financial statements, and has concluded that is a more informative presentation. On April 1, 2002, the Company changed its accounting policy to a preferable method and began recording income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"). The Company and the Sole Member are included in the consolidated tax return of IKON Office Solutions, Inc. ("IKON") and, for purposes of applying FAS 109, are allocated current and deferred income taxes on a separate return basis. Currently payable/receivable income taxes are settled in accordance with an informal tax sharing agreement with IKON and the Sole Member. The change in accounting for income taxes has been retroactively adopted as of October 1, 2001, the first day of the current fiscal year. The $843,752 cumulative effect of the change on prior years is included in income for the nine months ended June 30, 2002. The effect of the change on the three months ended June 30, 2002 was to decrease net income by $8,776; the effect of the change on the nine months ended June 30, 2002 was to decrease income before cumulative effect of a change in accounting principle by $29,404 and net income by $873,156. The effect of the change on the three months ended March 31, 2002 was to decrease net income by $10,283 to $15,424 and for the three months ended December 21, 2001 was to decrease net income before cumulative effect of a change in accounting principle by $10,345 to $15,519 and net income (loss) by 7 $854,097 to ($828,233). The pro forma amounts on the Statement of Income reflect the effect of retroactive application of the accounting change had the new method been in effect. The net investments in leases represents the uncollected contractual cash flow of the leases that were contributed to the Company by the Sole Member in the form of contributed capital. The tax basis and related income tax benefits attributable to the leases are retained by the Sole Member. Therefore, the effect of the change in principle has resulted in a deferred tax liability of $843,752 and $614,623 at October 1, 2001 and June 30, 2002, respectively. The related deferred tax liability is attributed to the difference between the book and tax basis of the net leases outstanding. Because, under the informal tax-sharing agreement the Company is not obligated to reimburse the Sole Member for current income taxes, all reversals of the deferred tax liability to current income taxes payable for the Company are expected to result in additional capital contributions from the Sole Member at the time of the reversal. At June 30, 2002, the components of the net deferred tax liability were as follows: Deferred tax asset: Interest rate swaps $ 14,497 Deferred tax liability: Investment in leases, net 614,623 ---------- Net deferred tax liability $ 600,126 ========== 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. 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 IOS Capital, LLC ("IOSC") and/or IKON Office Solutions, Inc.'s ("IKON") future financial condition and results. These risks and uncertainties, which apply to the Company, IOSC and IKON, include, but are not limited to, risks and uncertainties relating 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 foreign 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 2001 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. 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 IOSC, a wholly-owned finance subsidiary of IKON, a publicly traded office technology company with fiscal 2001 revenues of approximately $5.3 billion. The Company was organized in the State of Delaware on January 20, 1999 and is managed by IKON Receivables Funding, Inc. 8 Three Months Ended June 30, 2002 compared with the Three Months Ended June 30, 2001 Interest income earned on the leases offsets interest expense on the lease-backed notes, amortization of debt issuance costs and discounts on the lease-backed notes and the fees charged by IOSC for servicing the leases and providing administrative services to the Company. For the third quarter of fiscal 2002, income generated from the leases was $46,089, other income earned was $323, interest expense was $21,934 and administrative expenses were $2,539. Collections on the lease receivables were $170,397 and the Company repaid $191,686 of principal on the lease-backed notes for the third quarter of fiscal 2002. For the third quarter of fiscal 2001, income generated from the leases was $52,590, other income earned was $1,208, while 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 lease-backed notes during the third quarter of fiscal 2001. The changes described above are directly related to the paydown of the debt and amortization of the related assets in the Company from June 30, 2001 to June 30, 2002. Nine Months Ended June 30, 2002 compared with the Nine Months Ended June 30, 2001 Interest income earned on the leases offsets interest expense on the lease-backed notes, amortization of debt issuance costs and discounts on the lease-backed notes and the fees charged by IOSC for servicing the leases and providing administrative services to the Company. For the nine months ended June 30, 2002, income generated from the leases was $155,554, other income earned was $1,458, interest expense was $74,833 and administrative expenses were $8,669. Collections on the lease receivables were $572,466 and the Company repaid $568,352 of principal on the lease-backed notes for the nine months ended June 30, 2002. For the nine months ended June 30, 2001, income generated from the leases was $151,188, other income earned was $4,387, while 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 lease-backed notes during the nine months ended June 30, 2001. The changes described above are directly related to the paydown of the debt and amortization of the related assets in the Company from June 30, 2001 to June 30, 2002. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18.1 Preferability Letter from PricewaterhouseCoopers LLP dated August 12, 2002. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 9 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 Date: August 14, 2002 By: IKON RECEIVABLES FUNDING, INC., as Sole Member and Initial Manager By: /s/ Harry G. Kozee ----------------------------- Name: Harry G. Kozee Title: Vice President - Finance (Chief Accounting Officer 10

IKON RECEIVABLES LLC 10-Q