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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 March 31, 2003 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
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IOS CAPITAL, LLC
(Exact name of registrant as specified in its charter)
DELAWARE 23-2493042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
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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 May 14, 2003 was $2,547,204,481.
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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1
IOS Capital, LLC
INDEX*
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2003 (unaudited)
and September 30, 2002
Consolidated Statements of Income - Three and six months ended
March 31, 2003 and 2002 (unaudited)
Consolidated Statements of Cash Flows - Six
months ended March 31, 2003 and 2002 (unaudited)
Notes to Condensed Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 4. Controls and Procedures
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" or "IOSC") 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 and
IKON's business segments and the anticipated benefits of operational synergies
related thereto; and the Company's or IKON's ability to finance their 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 or IKON.
3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
IOS Capital, LLC
Consolidated Balance Sheets
March 31,
2003 September 30,
(unaudited) 2002
- ------------------------------------------------------------------------------------------------------------------------------
Assets
Investments in leases:
Direct financing leases, net of lease default reserve of:
March 31, 2003 - $46,162; September 30, 2002 - $49,821 $ 3,474,916 $ 3,364,776
Less: Unearned income (575,768) (572,865)
- ------------------------------------------------------------------------------------------------------------------------------
2,899,148 2,791,911
Funded leases, net 172,066 244,574
- ------------------------------------------------------------------------------------------------------------------------------
3,071,214 3,036,485
- ------------------------------------------------------------------------------------------------------------------------------
Cash 11,955 10,994
Restricted cash 110,773 115,594
Accounts receivable 83,867 65,107
Prepaid expenses and other assets 16,063 18,236
Leased equipment - operating rentals at cost, less accumulated depreciation of:
March 31, 2003 - $43,778; September 30, 2002 - $42,196 77,409 72,271
Property and equipment at cost, less accumulated depreciation of:
March 31, 2003 - $9,634; September 30, 2002 - $9,406 1,100 1,329
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 3,372,381 $ 3,320,016
==============================================================================================================================
Liabilities and Member's Equity
Liabilities:
Accounts payable and accrued expenses $ 59,789 $ 65,567
Accrued interest 16,483 17,045
Due to IKON Office Solutions, Inc. ("IKON") 36,798 1,566
Convertible subordinated notes 300,000 300,000
Notes payable 406,770 277,170
Lease-backed notes 1,216,046 1,690,828
Asset securitization conduit financing 638,645 312,500
Deferred income taxes 255,175 224,657
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,929,706 2,889,333
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Member's equity:
Contributed capital 179,796 179,796
Retained earnings 280,051 275,057
Accumulated other comprehensive loss (17,172) (24,170)
- ------------------------------------------------------------------------------------------------------------------------------
Total Member's Equity 442,675 430,683
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Member's Equity $ 3,372,381 $ 3,320,016
==============================================================================================================================
See notes to condensed consolidated financial statements.
4
IOS Capital, LLC
Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------
Revenues:
Lease finance income $ 86,585 $ 87,018 $ 173,921 $ 172,701
Rental income 9,161 8,485 18,753 16,144
Other income 4,453 5,632 8,899 11,039
- ------------------------------------------------------------------------------------------------
100,199 101,135 201,573 199,884
- ------------------------------------------------------------------------------------------------
Expenses:
Interest 32,651 37,301 68,450 76,637
Lease defaults, net of recoveries 12,768 3,901 23,250 7,909
Depreciation 7,722 9,214 15,673 17,811
General and administrative 9,591 6,372 19,211 12,443
- ------------------------------------------------------------------------------------------------
62,732 56,788 126,584 114,800
- ------------------------------------------------------------------------------------------------
Income before taxes on income 37,467 44,347 74,989 85,084
Taxes on income 14,967 17,739 29,995 34,034
- ------------------------------------------------------------------------------------------------
Net income $ 22,500 $ 26,608 $ 44,994 $ 51,050
================================================================================================
See notes to condensed consolidated financial statements.
5
IOS Capital, LLC
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
March 31,
- ----------------------------------------------------------------------------------------------------------------------------------
2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 44,994 $ 51,050
Additions (deductions) to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 19,480 17,811
Provision for deferred income taxes 25,852 30,154
Provision for lease default reserves 27,458 11,264
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (18,760) 28,025
Increase in prepaid expenses and other assets (1,634) (4,219)
Increase in accounts payable and accrued expenses 5,885 5,876
Decrease in accrued interest (562) (2,211)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 102,713 137,750
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of equipment (24,434) (20,206)
Proceeds from terminations of leased equipment 3,854 1,897
Investments in leases:
Additions (871,357) (824,769)
Cancellations 133,533 146,184
Collections 675,636 651,944
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (82,768) (44,950)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from asset securitization conduit financing 326,145 242,336
Payments on asset securitization conduit financing (70,000)
Payments on medium term notes (82,000)
Net proceeds from notes payable 129,600 5,733
Proceeds from issuance of lease-backed notes 74,551
Payments on lease-backed notes (474,782) (307,959)
Net increase in intercompany debt 35,232 168,808
Decrease in restricted cash 4,821 2,478
Dividends to IKON (40,000) (126,499)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (18,984) (92,552)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 961 248
Cash at beginning of year 10,994 16,056
- ----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 11,955 $ 16,304
==================================================================================================================================
See notes to condensed consolidated financial statements.
6
IOS Capital, LLC
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1: Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements of IOS
Capital, LLC ("IOSC" or the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States 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 of
the interim periods have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 2002.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Note 2: Notes Payable and Lease-Backed Notes
-------------------------------------
During the six months ended March 31, 2003, the Company repurchased $9,500 of
9.75% notes payable due June 15, 2004 for $9,598. During the six months ended
March 31, 2003, the Company repaid $474,782 of lease-backed notes.
At March 31, 2003, notes payable included borrowings of $140,900 related to the
Company's $300,000 unsecured credit facility. As discussed in Note 6, the
Company repaid the borrowings under the unsecured credit facility in April 2003.
Note 3: Asset Securitization Conduit Financing
--------------------------------------
During the six months ended March 31, 2003, the Company pledged or transferred
$385,140 in financing lease receivables for $326,145 in cash in connection with
its revolving asset securitization conduit financing agreements (the
"Conduits"). As of March 31, 2003, the Company had approximately $66,355
available under revolving asset securitization conduit financing agreements.
Note 4: Comprehensive Income
--------------------
Total comprehensive income is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------- -------------- -------------
Net income $ 22,451 $ 26,608 $ 44,945 $ 51,050
Gain on derivative financial instruments, net of tax expense
of: $2,416 and $4,376, for the three months ended
March 31, 2003 and 2002, respectively; $4,666 and $7,000,
for the six months ended March 31, 2003 and 2002,
respectively. 3,623 6,564 6,998 10,501
--------- ---------- ---------- ----------
Total comprehensive income $ 26,074 $ 33,172 $ 51,943 $ 61,551
========= ========== ========== ==========
Note 5: Financial Instruments
---------------------
As of March 31, 2003, 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 six months
ended March 31, 2003, unrealized gains totaling $6,998 after taxes, were
recorded in accumulated other comprehensive loss.
7
Note 6: Subsequent Events
-----------------
On April 23, 2003, IKON Receivables Funding, LLC (a wholly-owned subsidiary of
the Company) issued Series 2003-1 Lease-Backed Notes (the "2003 Notes") as
described below:
Principal Stated
Issuance Issuance Maturity
Series Notes Date Amount Interest Rate Date
-------------------------------------------------------------------------------------------------
2003-1 Class A-1 04/23/03 $253,200 1.30813% May 2004
Class A-2 04/23/03 26,700 1.68% November 2005
Class A-3a 04/23/03 206,400 LIBOR + 0.24% December 2007
Class A-3b 04/23/03 206,400 2.33% December 2007
Class A-4 04/23/03 159,385 3.27% July 2011
-------------------------------------------------------------------------------------------------
Total $852,085
-------------------------------------------------------------------------------------------------
Proceeds from the issuance of the 2003 Notes were used to make payments on the
Company's Conduits, repay the unsecured credit facility borrowings and increase
the Company's cash balance.
In April 2003, the Company entered into a swap transaction to hedge the variable
rate 2003-1 Class A-3a lease-backed note to a fixed rate of 2.095%. This hedge
qualifies for evaluation using the "short cut" method of assessing
effectiveness; accordingly, there is an assumption of no ineffectiveness.
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.
Critical Accounting Policies and Estimates
- ------------------------------------------
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," we have identified below the
accounting principles critical to our business and results of operations. We
determined the critical principles by considering accounting policies that
involve the most complex or subjective decisions or assessments. We discuss
these accounting policies at relevant sections in this discussion and analysis
and in the notes to the consolidated financial statements contained in our 2002
Annual Report on Form 10-K. In addition, we believe our most critical accounting
policies include the following:
Residual Values. IKON and IOSC estimate the residual value of equipment sold
under sales-type leases. Our residual values are based on the dollar value of
the equipment. Residual values generally range between 0% to 22% of
manufacturers suggested retail price, depending on equipment model and lease
term. We evaluate residual values quarterly for impairment. Changes in market
conditions could cause actual residual values to differ from estimated values,
which could accelerate the write-down of the value of the equipment.
Allowance for Receivables. IOSC maintains an allowance for lease defaults for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of IKON's customers were to deteriorate,
resulting in an impairment of their ability to make required payments, increases
to our allowance may be required.
Our preparation of this Quarterly Report on Form 10-Q and other financial
statements filed with the SEC requires us to make estimates and assumptions that
affect amounts reported in the condensed consolidated financial statements and
notes. Actual results could differ from those estimates and assumptions.
Three Months Ended March 31, 2003
Compared to the Three Months Ended March 31, 2002
Total revenues decreased by $936, or 0.9%, in the second quarter of fiscal 2003
compared to the second quarter of fiscal 2002. Lease finance income decreased by
$433, or 0.5%, due to the decrease in the average yield of leases in the
portfolio in the second quarter of fiscal 2003 compared to the second quarter of
fiscal 2002. This decrease was partially offset by the growth in the lease
portfolio from the second quarter of fiscal 2003 compared to the second quarter
of fiscal 2002.
8
Office equipment placed on rental, with cancelable terms, by the IKON
marketplaces to customers may be purchased by the Company. During the second
quarter of fiscal 2003, the Company purchased operating lease equipment of
$12,629 compared to $11,450 during the second quarter of fiscal 2002. The
increase in purchases is due to an increase in operating rentals written by the
IKON marketplaces. Since the Company can service operating rentals more
efficiently than the IKON marketplaces, substantially all of the operating
rentals written by the IKON marketplaces are purchased by the Company. Rental
income increased by $676, or 8.0%, during the second quarter of fiscal 2003
compared to the second quarter of fiscal 2002, primarily due to an increase in
the leased equipment portfolio.
Other income consists primarily of late payment charges, various billing fees,
and interest income on restricted cash. Overall, income from these sources
decreased by $1,179, or 20.9%, in the second quarter of fiscal 2003 compared to
the second quarter of fiscal 2002. Interest income on restricted cash decreased
by $276, or 54.0%, in the second quarter of 2003 compared to the second quarter
of fiscal 2002, due to the decline in short-term interest rates. Late payment
charges and various billing fees decreased $519, or 14.1%, in the second quarter
of fiscal 2003 compared to the second quarter of fiscal 2002, due to the
improvement in the delinquency of the lease portfolio.
Total expenses increased $5,944, or 10.5%, for the three months ended March 31,
2003 compared to the three months ended March 31, 2002. Average borrowings to
finance the investment in leases in the form of convertible subordinated notes,
notes payable to banks, asset securitization conduit financing, lease-backed
notes in the public market and intercompany borrowings with IKON with $2,598,259
outstanding at March 31, 2003 compared to $2,558,183 outstanding at March 31,
2002 increased due primarily to the borrowings of $140,900 on the revolving
credit facility. The Company paid a weighted average interest rate on all
borrowings of 5.2% as of March 31, 2003 compared to 6.3% as of March 31, 2002.
Primarily as a result of the decrease in the weighted average interest rate on
all borrowings, interest expense decreased by $4,650, or 12.5%, in the second
quarter of fiscal 2003 compared to the second quarter of fiscal 2002. At March
31, 2003 and September 30, 2002, the Company's debt to equity ratio, including
amounts due to IKON, was 5.9 to 1 and 6.0 to 1, respectively.
Lease defaults, net of recoveries, increased by $8,867, or 227.3%, for the three
months ended March 31, 2003 compared to the three months ended March 31, 2002.
Prior to October 1, 2002, the Company was involved in a shared recourse
arrangement with the IKON marketplaces. This arrangement provided for net losses
resulting from lease defaults to be shared equally. Effective October 1, 2002,
the shared recourse arrangement with IKON marketplaces was terminated, and the
Company records the entire provision for lease defaults.
Depreciation expense decreased by $1,492, or 16.2%, for the three months ended
March 31, 2003 compared to the three months ended March 31, 2002, due to the
volume and mix of leased equipment. General and administrative expenses
increased by $3,219, or 50.5%, for the three months ended March 31, 2003
compared to the three months ended March 31, 2002. This increase is due to the
sale leaseback of the Company's facilities during fiscal 2002, which increased
its monthly rent expense in the current period. In addition, the Company is now
responsible for the cost of the lease sales and marketing staff and certain
credit investigation expenses, both of which were previously expensed by the
IKON marketplaces.
Income before taxes on income for the second quarter of fiscal 2003 decreased by
$6,880, or 15.5%, compared to the second quarter of fiscal 2002 as a result of
the items above.
Taxes on income for the second quarter of fiscal 2003 decreased by $2,772, or
15.6%, compared to the second quarter of fiscal 2002. The effective income tax
rate was 40% for the three months ended March 31, 2003 and March 31, 2002. The
decrease in taxes on income is directly attributable to the decrease in income
before taxes on income for the second quarter of fiscal 2003 as compared to the
second quarter of fiscal 2002.
Six Months Ended March 31, 2003
Compared to the Six Months Ended March 31, 2002
Total revenues increased by $1,689, or 0.8%, for the six months ended March 31,
2003 compared to the six months ended March 31, 2002. Lease finance income
increased by $1,220, or 0.7%, due to the growth in the lease receivables
portfolio and the longer average lease terms in the portfolio for the six months
ended March 31, 2003 compared to the six months ended March 31, 2002.
Office equipment placed on rental, with cancelable terms, by the IKON
marketplaces to customers, may be purchased by the Company. During the six
months ended March 31, 2003, the Company purchased operating lease equipment of
$24,434 compared to $20,206 during the six months ended March 31, 2002. The
increase in purchases is due to an increase in operating rentals written by the
IKON marketplaces. Since the Company can service operating rentals more
efficiently than the IKON marketplaces, substantially all of the operating
rentals written by the IKON marketplaces are purchased by the Company. Rental
income increased by $2,609, or 16.2%
9
during the six months ended March 31, 2003, compared to the six months ended
March 31, 2002, due to the increase in the leased equipment portfolio.
Other income consists primarily of late payment charges, various billing fees,
and interest income on restricted cash. Overall, income from these sources
decreased by $2,140, or 19.4%, in the six months ended March 31, 2003 compared
to the six months ended March 31, 2002. Interest income on restricted cash
decreased by $309, or 48.5%, compared to the six months ended March 31, 2002,
due to the decline in short-term interest rates. Late payment charges and
various billing fees decreased by $1,122, or 31.1%, compared to the six months
ended March 31, 2002, primarily due to the improvement in the delinquency of the
lease portfolio.
Total expenses increased by $11,784, or 10.3%, during the six months ended March
31, 2003 compared to the six months ended March 31, 2002. Average borrowings to
finance the investment in leases in the form of convertible subordinated notes,
notes payable to banks, asset securitization conduit financing, lease-backed
notes in the public market and intercompany borrowings with IKON with $2,598,259
outstanding at March 31, 2003 compared to $2,558,183 outstanding at March 31,
2002 increased due primarily to the borrowings of $140,000 on the revolving
credit facility. The Company paid a weighted average interest rate on all
borrowings of 5.2% as of March 31, 2003 compared to 6.3% as of March 31, 2002.
Primarily as a result of the decrease in the weighted average interest rate on
all borrowings, interest expense decreased by $8,187, or 10.7%, during the six
months ended March 31, 2003 compared to the six months ended March 31, 2002.
Lease defaults, net of recoveries, increased by $15,341, or 194.0%, during the
six months ended March 31, 2003 compared to the six months ended March 31, 2002.
Prior to October 1, 2002, the Company was involved in a shared recourse
arrangement with the IKON marketplaces. This arrangement provided for net losses
resulting from lease defaults to be shared equally. Effective October 1, 2002,
the shared recourse arrangement with IKON marketplaces was terminated, and the
Company records the entire provision for lease defaults.
Depreciation expense decreased by $2,138, or 12.0%, during the six months ended
March 31, 2003 compared to the six months ended March 31, 2002, due to the
volume and mix of leased equipment. General and administrative expenses
increased by $6,768, or 54.4%, during the six months ended March 31, 2003
compared to the six months ended March 31, 2002. This increase is due to the
sale leaseback of the Company's facilities during fiscal 2002, which increased
its monthly rent expense in the current period. In addition, the Company is now
responsible for the cost of the lease sales and marketing staff and certain
credit investigation expenses, both of which were previously expensed by the
IKON marketplaces.
Income before taxes on income for the six months ended March 31, 2003 decreased
by $10,095, or 11.9%, compared to the six months ended March 31, 2002 as a
result of the items above.
Taxes on income for the six months ended March 31, 2003 decreased by $4,039, or
11.9%, compared to the six months ended March 31, 2002. The effective income tax
rate was 40% for the six months ended March 31, 2003 and March 31, 2002. The
decrease in income taxes is directly attributable to the decrease in income
before taxes on income for the six months ended March 31, 2003 as compared to
the six months ended March 31, 2002.
Contractual Obligations
The following summarizes IOSC's significant contractual obligations and
commitments as of March 31, 2003:
Payments due by
---------------------------------------------------------------------------------------
March 31 March 31, March 31,
Contractual Obligations Total 2004 2006 2008 Thereafter
----------------------------------------------------------------------------------------------------------------------
Debt $2,561,461 $1,457,483 $801,745 $302,233
Operating Leases 17,057 3,114 2,069 2,017 $9,857
----------------------------------------------------------------------------------------------------------------------
Total $2,578,518 $1,460,597 $803,814 $304,250 $9,857
----------------------------------------------------------------------------------------------------------------------
Payments on our debt generally are made from collections of our finance
receivables. At March 31, 2003, the Company's debt was $2,561,461 and net
finance receivables were $3,071,214.
On April 23, 2003, IKON Receivables Funding, LLC (a wholly-owned subsidiary of
the Company) issued Series 2003-1 Leased-Backed Notes (the "2003 Notes") as
described below:
10
Principal Stated
Issuance Issuance Maturity
Series Notes Date Amount Interest Rate Date
--------------------------------------------------------------------------------------------------
2003-1 Class A-1 04/23/03 $253,200 1.30813% May 2004
Class A-2 04/23/03 26,700 1.68% November 2005
Class A-3a 04/23/03 206,400 LIBOR + 0.24% December 2007
Class A-3b 04/23/03 206,400 2.33% December 2007
Class A-4 04/23/03 159,385 3.27% July 2011
--------------------------------------------------------------------------------------------------
Total $852,085
--------------------------------------------------------------------------------------------------
Proceeds from the issuance of the 2003 Notes were used to make payments on the
Company's Conduits, repay the unsecured credit facility borrowings and increase
the Company's cash balance.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's Principle
Executive Officer and Principle Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) as of an
evaluation date within 90 days prior to the filing date of this Quarterly Report
on Form 10-Q. Based on this evaluation, they have concluded that, as of the
evaluation date, the Company's disclosure controls and procedures are reasonably
designed to alert them on a timely basis to material information relating to the
Company (including its consolidated subsidiaries) required to be included in its
reports filed or submitted under the Exchange Act.
Changes in Internal Controls. Since the evaluation date referred to above, there
have not been any significant changes in the Company's internal controls or in
other factors that could significantly affect such controls.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.1 First Amendment, dated as of February 28, 2003, to the Credit Agreement,
dated May 24, 2002, among IKON and various institutional lenders, with JP
Morgan Chase Bank, N.A., as Agent (Filed as Exhibit 4.1 to the quarterly
report of IKON Office Solutions Inc. for the quarter ended March 31, 2003).
4.2 Second Amendment, dated as of April 11, 2003, to the Credit Agreement,
dated May 24, 2002, among IKON and various institutional lenders, with JP
Morgan Chase Bank, N.A., as Agent (Filed as Exhibit 4.2 to the quarterly
report of IKON Office Solutions Inc. for the quarter ended March 31, 2003).
10.1 Amended and Restated Agreement dated as of March 28, 2003, relating to the
Asset Backed Loan Agreement between RochFord, Inc., as Borrower, and IKON
Capital PLC, as Originator and Servicer, and Park Avenue Receivables
Corporation, as Conduit Lender, and Certain APA Banks and JP Morgan Chase
Bank, as Funding Agent (Filed as Exhibit 10.1 to the quarterly report of
IKON Office Solutions Inc. for the quarter ended March 31, 2003).
10.2 Amended and Restated Receivables Transfer Agreement dated as of March 31,
2003 among IKON Funding-3, LLC, as Transferor, IOS Capital, LLC, as
Originator and Collection Agent, Gemini Securitization Corp., as Conduit
Transferee, The Several Financial Institutions party hereto from time to
time, as Alternate Transferees, and Deutsche Bank AG, New York Branch, as
Administrative Agent (Filed as Exhibit 10.2 to the quarterly report of IKON
Office Solutions Inc. for the quarter ended March 31, 2003).
10.3 First Amendment, dated as of May 9, 2003, to the Amended and Restated
Transfer Agreement, dated as of March 31, 2003, among IKON Funding -3, LLC,
as Transferor, IOS Capital, LLC, as Originator and Collection Agent, Gemini
Securitization Corp., as Conduit Transferee, The Several Financial
Institutions party hereto from time to time, as Alternate Transferees, and
Deutsche Bank AB, New York Branch, as Administrative Agent (Filed as
Exhibit 10.3 to the quarterly report of IKON Office Solutions Inc. for the
quarter ended March 31, 2003).
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Certification Pursuant to 18 U.S.C. Section 1850, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
On January 24, 2003, the Company filed a Current Report on Form 8-K to file,
under Item 5 of the Form, information contained in its parent's press release
dated January 23, 2003 regarding its results for the first quarter of fiscal
2003.
On February 26, 2003, the Company filed a Current Report on Form 8-K to file,
under Item 5 of the Form, information contained in its parent's press release
dated February 25, 2003 regarding the election of Matthew J. Espe, President and
CEO, to the additional position of Chairman of the Board.
11
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, LLC
Date: May 15, 2003
By: /s/ Harry G. Kozee
-----------------------------
Name: Harry G. Kozee
Title: Vice President - Finance (Principal Financial Officer)
12
CERTIFICATIONS
I, Russell S. Slack, President and Principal Executive Officer of IOS Capital,
LLC, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IOS Capital, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information contained in this quarterly report, fairly present, in all
material respects, the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Russell S. Slack
- --------------------------
Russell S. Slack
President and Principal Executive Officer
13
I, Harry G. Kozee, Vice President - Principal Financial Officer, and Principal
Accounting Officer of IOS Capital, LLC, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IOS Capital, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information contained in this quarterly report, fairly present, in all
material respects, the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 15, 2003
/s/ Harry G. Kozee
- ---------------------------
Harry G. Kozee
Vice President - Finance, Principal Financial Officer,
and Principal Accounting Officer
14