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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 333-71362
IKON Receivables Funding, LLC
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(Exact name of registrant as specified in its charter)
DELAWARE 52-2652209
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1738 Bass Road, P.O. Box 9115, Macon, Georgia 31208
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(Address of principal executive offices) (Zip Code)
(478) 471-2300
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(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 $602,449,025.
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.
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IKON RECEIVABLES FUNDING, LLC
INDEX*
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheet - June 30, 2002 (unaudited)
Statement of Income - For the Period Ended June 30, 2002 (unaudited)
Statement of Changes in Member's Deficit - For the Period Ended June 30,
2002 (unaudited)
Statement of Cash Flows - For the Period Ended June 30, 2002 (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 FUNDING, LLC
BALANCE SHEET
(unaudited)
June 30, 2002
---------
Assets
Investments in leases:
Financing lease receivables $ 800,975
Less: Unearned income (157,556)
---------
643,419
Cash 1
Restricted cash 30,042
Accounts receivable 10,806
Prepaid expenses and other assets 1,995
---------
Total assets $ 686,263
=========
Liabilities and Member's Deficit
Liabilities:
Accrued expenses $ 913
Lease-backed notes 618,054
Deferred income taxes 257,368
---------
Total liabilities 876,335
---------
Member's deficit:
Contributed capital (195,710)
Retained earnings 5,638
---------
Total member's deficit (190,072)
---------
Total liabilities and member's deficit $ 686,263
=========
See notes to condensed financial statements.
3
IKON RECEIVABLES FUNDING, LLC
STATEMENT OF INCOME
(unaudited)
For the Period
Ended
June 30, 2002
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Revenues:
Lease finance income $11,862
Interest income on restricted cash 32
-------
11,894
-------
Expenses:
Interest 2,259
General and administrative 239
-------
2,498
-------
Income before income taxes 9,396
Provision for income taxes 3,758
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Net income $ 5,638
=======
See notes to condensed financial statements.
4
IKON RECEIVABLES FUNDING, LLC
STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
(unaudited)
Contributed Retained
Capital Earnings Total
------------------- ---------------- --------------
Balance April 1, 2002 $ 1 $ 1
Net income $ 5,638 5,638
Other comprehensive income
Equipment lease contributed by sole member, net
of deferred taxes of $268,116 402,174 402,174
Distributions to Sole Member (612,391) (612,391)
Reversal of income tax liability (Note 5) 14,506 14,506
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Balance at June 30, 2002 $ (195,710) $ 5,638 $ (190,072)
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See notes to condensed financial statements.
5
IKON RECEIVABLES FUNDING, LLC
STATEMENT OF CASH FLOWS
(unaudited)
For the Period
Ended
June 30, 2002
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Cash flows from operating activities
Net income $ 5,638
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization 68
Provision for deferred taxes 3,758
Changes in operating assets and liabilities:
Increase in accounts receivable (10,806)
Increase in prepaid expenses and other assets (2,063)
Increase in accrued expenses 913
---------
Net cash used in operating activities (2,492)
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Cash flows from investing activities
Investments in leases:
Collections, net of financing income 26,871
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Net cash provided by investing activities 26,871
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Cash flows from financing activities
Proceeds from issuance of lease-backed notes 634,800
Payments on lease-backed notes (16,746)
Deposits to restricted cash (30,042)
Capital distributed to Sole Member (612,391)
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Net cash used in financing activities (24,379)
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Increase in cash 0
Cash at beginning of period 1
---------
Cash at end of period $ 1
=========
Supplemental noncash financing activities:
Noncash capital contributions $ 689,523
=========
See notes to condensed financial statements.
6
IKON RECEIVABLES FUNDING, LLC
Notes to Condensed Financial Statements
(unaudited)
Note 1: Basis of Presentation
The accompanying unaudited condensed financial statements of IKON Receivables
Funding, 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.
Note 2: Organization
The Company is a special purpose Delaware limited liability company, all of the
membership interests in which are held by IKON Receivables-2, LLC ("Sole
Member"), also a special purpose Delaware limited liability company. All of the
membership interests in the Sole Member are owned by IOS Capital, LLC ("IOSC"),
a wholly owned finance subsidiary of IKON Office Solutions, Inc. ("IKON"), a
publicly traded office technology company with fiscal 2001 revenues of $5.3
billion. The Company was organized in the State of Delaware on October 9, 2001
and is managed by IKON Receivables Funding, Inc. (the "Manager").
The Company was organized to engage exclusively in the following business and
financial activities: to purchase or acquire from IKON, or any subsidiary or
affiliate of IKON, any right to payment, whether constituting an account,
chattel paper, instrument or general intangible, and certain related property
(other than equipment) and rights (collectively, "Lease Receivables"), and hold,
sell, transfer, pledge or otherwise dispose of Lease Receivables or interests
therein; to enter into any agreement related to any Lease Receivables that
provides for the administration, servicing and collection of amounts due on such
Lease Receivables and any interest rate hedging arrangements in connection
therewith; to distribute Lease Receivables or proceeds from Lease Receivables
and any other income to its Sole Member; and to engage in any lawful act or
activity and to exercise any power that is incidental and is necessary or
convenient to the foregoing and permitted under Delaware law.
Neither the Sole Member nor the Manager is liable for the debts, liabilities,
contracts or other obligations of the Company solely by reason of being the Sole
Member or Manager of the Company.
The Company's organizational documents require it to operate in such a manner
that it should not be consolidated in the bankruptcy estate of the Sole Member,
IOSC, or IKON, should any of these entities become subject to such a proceeding.
The Company is legally separate from each of the foregoing entities and the
assets of the Company, including, without limitation, the Lease Receivables, are
not available to the creditors of the Sole Member, IOSC, or IKON.
Note 3: Capital Contributions
The Company was formed on October 10, 2001 and the Sole Member made an initial
capital contribution of $1 to the Company on March 5, 2002. Subsequently on May
21, 2002, the Sole Member contributed a segregated pool of $671,206 of office
equipment leases or contracts and related assets (the "2002-1 Asset Pool") to
the Company as an initial transfer of leases to the Company. An additional
$3,811 of leases were added to the 2002-1 Asset Pool after the initial transfer
through June 30, 2002 as substitutions for leases that were cancelled or
defaulted.
Note 4: Lease-Backed Notes
On May 21, 2002, the Company issued $634,800 of lease-backed notes (the "2002-1
Notes") pursuant to a shelf registration statement filed with the Securities and
Exchange Commission. The 2002-1 Notes consist of Class A-1 Notes totaling
$171,000 with a stated interest rate of 2.044%, Class A-2 Notes totaling $46,000
with a stated interest rate of 2.91%, Class A-3 Notes totaling $266,400 with a
stated interest rate of 3.90% and Class A-4 Notes totaling $151,400 with a
stated interest rate of 4.68%. The 2002-1 Notes are collateralized by a pool of
office equipment leases or contracts and related assets and the payments on the
2002-1 Notes are made from payments received on the equipment leases. The
Company repaid $16,746 of lease-backed notes for the three months ended June 30,
2002.
Note 5: Income Taxes
The Company is classified as a single-member limited liability corporation and,
as such, is disregarded as an entity separate from its owners for income tax
purposes. Income taxes are reported in accordance with an informal tax sharing
agreement with IKON. The income tax provision provided by the Company pursuant
to this agreement is on a separate return basis.
7
The net investment 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
contribution of the leases resulted in a deferred tax liability and is
attributed to the differences between the book and tax basis of the net leases
outstanding as calculated by the Company pursuant to Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Because 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 and any
current income taxes payable are considered additional capital contributions
from the Sole Member.
At June 30, 2002, the only component of the net deferred tax liability is
related to the net investment in leases.
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.
IKON Receivables Funding, LLC (the "Company") is a special purpose Delaware
limited liability company, all of the membership interests in which are held by
IKON Receivables-2, LLC (the "Sole Member"), also a special purpose Delaware
limited liability company. All of the membership interests in the Sole Member
are owned by IOS Capital, LLC ("IOSC"), a wholly owned finance subsidiary of
IKON Office Solutions, Inc. ("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 October 9, 2001 and is managed by IKON
Receivables Funding, Inc.
Interest income earned on the Asset Pool offsets interest expense on the Notes,
amortization of debt issuance costs and the fees charged by IOS Capital for
servicing the Asset Pool and providing administrative services to the Company.
For the period ended June 30, 2002, income generated from the Asset Pool was
$11,862, other income earned was $32, while interest expense during this period
was $2,259 and administrative expenses were $239. Income taxes for the period
ended June 30, 2002 were $3,758. The effective income tax rate was 40%.
Contractual Obligations
The following summarizes the Company's significant contractual obligations and
commitments as of June 30, 2002:
Payments Due by Period
Contractual Obligations
Less Than
Total 1 year 1 - 3 years 4 - 5 years After 5 years
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Total Long-term debt $618,054 $183,694 $410,136 $24,224 -
Payments on long-term debt generally are made from collections of the finance
receivables. At June 30, 2002, long-term debt was $618,054 and finance
receivables were $643,419.
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, risks and uncertainties relating to:
factors which may affect the Company's ability to recoup the full amount due on
the 2002-1 Leases (such as lessee defaults or factors impeding recovery
efforts); 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. 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.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
On May 23, 2002, the Company filed a Current Report on Form 8-K to file, under
Item 5 of the Form, containing the financial statements of Ambac Assurance
Corporation in connection with its 2002-1 Notes.
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 FUNDING, LLC
Date August 14, 2002
By: /s/ Harry G. Kozee
Name: Harry G. Kozee
Title: Vice President - Finance (Chief Accounting Officer)