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, 2000 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
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2990188
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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, GA 31208
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(Address of principal executive offices)
(Zip Code)
(912) 471-2300
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(Registrant's telephone number, including area code)
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(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 the latest practicable date. (Not applicable)
Registered Debt Outstanding as of August 11, 2000 $1,364,311,866
The registrant, an indirect wholly owned subsidiary of IKON Office Solutions,
Inc. ("IKON"), 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.
<PAGE>
INDEX
IKON RECEIVABLES, LLC
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheets - June 30, 2000 (unaudited) and September 30, 1999
Statements of Income - Three and Nine months ended June 30,
2000 and the period April 6, 1999 (Inception) through June
30, 1999 (unaudited)
Statements of Cash Flow - Nine months ended June 30, 2000 and
the period April 6, 1999 (Inception) through June 30,
1999(unaudited)
Notes to Condensed Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1: Condensed Financial Statements
---------------------------------------
IKON RECEIVABLES, LLC
BALANCE SHEETS
(in thousands)
June 30, September 30,
2000 1999
(unaudited)
----------- -----------
Assets
Investment in leases:
Direct financing leases $ 1,977,808 $ 827,842
Less: Unearned income (298,154) (120,076)
----------- -----------
1,679,654 707,766
Cash 1 26,694
Restricted Cash 89,179 29,625
Accounts receivable 48,480 24,057
Prepaid expenses and other assets 5,463 3,045
----------- -----------
Total assets $ 1,822,777 $ 791,187
=========== ===========
Liabilities and Member's Equity
Liabilities:
Accounts payable and accrued expenses $ 6 $ 1
Accrued interest 4,533 1,540
Lease backed notes 1,414,614 622,948
----------- -----------
Total liabilities 1,419,153 624,489
----------- -----------
Member's Equity:
Contributed capital 337,127 149,124
Retained earnings 66,497 17,574
----------- -----------
Total member's equity 403,624 166,698
----------- -----------
Total liabilities and member's equity $ 1,822,777 $ 791,187
=========== ===========
See notes to condensed financial statements.
<PAGE>
IKON RECEIVABLES, LLC
STATEMENTS OF INCOME
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
April 6, 1999
Three Months Nine Months (Inception)
Ended Ended through
June 30, June 30, June 30,
2000 2000 1999
-------- -------- --------
Revenues:
<S> <C> <C> <C>
Lease finance income $ 36,581 $110,425 $ 13,031
Other income 1,067 2,931 182
-------- -------- --------
Total revenues 37,648 113,356 13,213
Expenses:
Interest 19,534 58,198 4,530
General and administrative 2,019 6,235 748
-------- -------- --------
Total expenses 21,553 64,433 5,278
-------- -------- --------
Net income $ 16,095 $ 48,923 $ 7,935
======== ======== ========
</TABLE>
See notes to condensed financial statements.
<PAGE>
IKON RECEIVABLES, LLC
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
April 6, 1999
(Inception)
Nine Months Ended through
June 30, 2000 June 30, 1999
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 48,923 $ 7,935
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable (24,423) (27,549)
Prepaid expenses and other assets 838 (1,029)
Accounts payable and accrued expenses 5 89
Accrued interest 2,993 1,645
----------- -----------
Net cash provided by (used in) operating activities 28,336 (18,909)
----------- -----------
Cash flows from investing activities:
Collections on lease receivables , net of finance income 512,509 42,269
----------- -----------
Net cash provided by investing activities 512,509 42,269
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of lease-backed notes 1,194,849 749,331
Payments on lease-backed notes (406,439) (55,105)
Deposit to restricted cash (59,554) (33,433)
Capital (Distribution)/Contribution to Sole Member (1,296,394) 1
----------- -----------
Net cash (used in) provided by financing activities (567,538) 660,794
----------- -----------
Net (decrease) increase in Cash (26,693) 684,154
Cash at beginning of year 26,694 0
----------- -----------
Cash at end of period $ 1 $ 684,154
=========== ===========
Supplemental noncash financing activities:
Noncash capital contributions $ 1,484,398 $ 0
=========== ===========
</TABLE>
See notes to condensed financial statements.
<PAGE>
IKON RECEIVABLES, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
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 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, 1999.
2. Capital Contributions
IKON Receivables-1, LLC (the "Sole Member") made an initial cash capital
contribution of $1 to the Company on April 6, 1999. Subsequently, the Sole
Member contributed a segregated pool of $819,572 of office equipment leases or
contracts and related assets (the "1999-1 Asset Pool") to the Company as an
initial transfer of leases to the Company. After the initial transfer and
through September 30, 1999, an additional $45,941 of leases were added to the
1999-1 Asset Pool as substitution for $41,922 that were cancelled or defaulted
subsequent to April 1, 1999, resulting in a net noncash capital contribution of
$4,019. During fiscal year 1999, the Company distributed $674,468 to its Sole
Member.
During the first quarter of fiscal 2000, the Sole Member contributed a
second segregated pool of $809,556 of office equipment leases or contracts and
related assets (the "1999-2 Asset Pool") to the Company. During the third
quarter of fiscal 2000, the Sole Member contributed a third segregated pool of
$575,761 of office equipment leases or contracts and related assets (the "2000-1
Asset Pool") to the Company. An additional $243,729 of leases were added to the
combined 1999-1 Asset Pool, 1999-2 Asset Pool and 2000-1 Asset Pool as
substitution for $144,648 that were cancelled or defaulted subsequent to October
1, 1999, resulting in a net noncash capital contribution of $1,484,398. During
the first nine months of fiscal 2000, the Company distributed $1,296,394 to its
Sole Member.
3. Servicing Agreement
The Company has a servicing agreement with IOS Capital, Inc. ("IOS
Capital") for which IOS Capital services the 1999-1, 1999-2 and 2000-1 Asset
Pools and provides administrative services to the Company. The servicing fee is
calculated by multiplying 0.75% by the lesser of the discounted present value of
performing leases or the outstanding amount of the lease-backed notes (see Note
4). The servicing fee expense was $6,235 for the period from October 1, 1999
through June 30, 2000 and $748 for the period April 6, 1999 (Inception) through
June 30, 1999.
<PAGE>
4. Lease-Backed Notes
In addition to the $622,948 of Lease-Backed Notes outstanding at September
30, 1999, on October 7, 1999, the Company issued approximately $700,000 of lease
backed notes (the "1999-2 Notes") under its $1,825,000 shelf registration
statement filed May 7, 1999 with the Securities and Exchange Commission. The
1999-2 Notes consist of $235,326 in aggregate principal amount of 6.14125%
Lease-Backed Notes, Class A-1 (the "Class A-1 Notes"), $51,100 in aggregate
principal amount of 6.31% Lease-Backed Notes, Class A-2 (the "Class A-2 Notes"),
$100,000 in aggregate principal amount of 6.59% Lease-Backed Notes, Class A-3a
(the "Class A-3a Notes"), $240,891 in aggregate principal amount of variable
rate Lease-Backed Notes, Class A-3b (the "Class A-3b Notes"), and $72,278 in
aggregate principal amount of 6.88% Lease-Backed Notes, Class A-4 (the "Class
A-4 Notes" and, together with the Class A-1 Notes, the Class A-2 Notes, the
Class A-3a Notes, the Class A-3b Notes, and collectively the "1999-2 Notes").
The Class A-3b Notes are variable rate notes paying interest at a rate of
1-month LIBOR plus 0.36% (which has been fixed at 6.63% through an interest rate
swap). The 1999-2 Notes were issued pursuant to an Indenture dated as of October
1, 1999 between the Company, IOS Capital, and Harris Trust and Savings Bank, as
Indenture Trustee. The Sole Member contributed a segregated pool of $809,556 of
office equipment leases or contracts and related assets (the "1999-2 Asset
Pool") to the Company. The 1999-2 Notes are collateralized solely by the 1999-2
Asset Pool, which includes a portfolio of chattel paper composed of leases,
leases intended as security agreements and installment sales contracts acquired
or originated by IOS Capital (the "1999-2 Leases") together with the equipment
financing portion of each periodic lease or rental payment due under the 1999-2
Leases on or after September 1, 1999, and all related casualty payments,
retainable deposits, and termination payments. The 1999-2 Notes have certain
credit enhancement features available to noteholders including a reserve
account, an overcollateralization account and a noncancellable insurance policy
from Ambac Assurance Corporation with respect to the 1999-2 Notes.
Payments on the 1999-2 Notes are due on the fifteenth day of each month (or
if that is not a Business Day, the next succeeding Business Day), commencing on
November 15, 1999. The 1999-2 Notes bear interest from October 7, 1999 at the
respective interest rates specified above. The interest rate is calculated on
the basis of a year of 360 days comprised of twelve 30-day months (except in the
case of the Class A-1 Notes and the Class A-3b Notes, for which interest will be
calculated on the basis of a year of 360 days and the actual number of days in
the interest period) payable on the payment date. On each payment date, to the
extent funds are available therefore from the collection of the lease
receivables, principal payment will be made to noteholders in the following
priority: (i) to the Class A-1 noteholders only, until the outstanding principal
amount on the Class A-1 Notes has been reduced to zero, then (ii) to the Class
A-2 noteholders only, until the outstanding principal amount on the Class A-2
Notes has been reduced to zero, then (iii) to the Class A-3 noteholders only,
until the outstanding principal amount on the Class A-3 Notes has been reduced
to zero, and then (iv) to the Class A-4 noteholders, until the outstanding
principal amount on the Class A-4 Notes has been reduced to zero. Each class of
1999-2 Notes will be payable in full on the applicable stated maturity date,
which is as follows: Class A-1 Notes - October 2000, Class A-2 Notes - May 2001,
Class A-3a Notes - August 2003, Class A-3b Notes - August 2003, and Class A-4
Notes - November 2005. However, if all payments are made on the 1999-2 Leases as
scheduled, final payment on the 1999-2 Notes will be earlier than the stated
maturity dates. The Company may, on any payment date, redeem the 1999-2 Notes
<PAGE>
when the total discounted lease balance is less than or equal to 10% of the
total discounted lease balance as of September 1, 1999.
IOS Capital services the 1999-2 Leases pursuant to an Assignment and
Servicing Agreement by and among IOS Capital, as Originator and Servicer, the
Sole Member, as Seller, and the Company, as Issuer. IOS Capital may delegate its
servicing responsibilities to one or more sub-servicers, but such delegation
does not relieve IOS Capital of its liabilities with respect thereto. IOS
Capital retains possession of the 1999-2 Leases and related files, and receives
a monthly service fee from the Company for servicing the 1999-2 Leases.
On June 2, 2000, the Company issued $130,000 in aggregate principal amount
of 6.99625% Lease-Backed Notes, Class A-1 (the "Class A-1 Notes"), $54,000 in
aggregate principal amount of 7.51% Lease-Backed Notes, Class A-2 (the "Class
A-2 Notes"), $230,000 in aggregate principal amount of variable rate
Lease-Backed Notes, Class A-3 (the "Class A-3 Notes"), and $84,510 in aggregate
principal amount of variable rate Lease-Backed Notes, Class A-4 (the "Class A-4
Notes" and, together with the Class A-1 Notes, the Class A-2 Notes, the Class
A-3 Notes, and collectively the "2000-1 Notes"). The Class A-3 Notes are
variable rate notes paying interest at a rate of 1-month LIBOR plus 0.19% (which
has been fixed at 7.802% through an interest rate swap). The Class A-4 Notes are
variable rate notes paying interest at a rate of 1-month LIBOR plus 0.23% (which
has been fixed at 7.82% through an interest rate swap). The 2000-1 Notes were
issued pursuant to an Indenture dated as of June 1, 2000 between the Company,
IOS Capital, and Bank One Trust Company, as Indenture Trustee. The Sole Member
contributed a segregated pool of $575,761 of office equipment leases or
contracts and related assets (the "2000-1 Asset Pool") to the Company. The
2000-1 Notes are collateralized solely by the 2000-1 Asset Pool, which includes
a portfolio of chattel paper composed of leases, leases intended as security
agreements and installment sales contracts acquired or originated by IOS Capital
(the "2000-1 Leases") together with the equipment financing portion of each
periodic lease or rental payment due under the 2000-1 Leases on or after May 1,
2000, and all related casualty payments, retainable deposits,and termination
payments. The 2000-1 Notes have certain credit enhancement features available to
noteholders including a reserve account, an overcollateralization account and a
noncancellable insurance policy from Ambac Assurance Corporation with respect to
the 2000-1 Notes.
Payments on the 2000-1 Notes are due on the fifteenth day of each month (or
if that is not a Business Day, the next succeeding Business Day), commencing on
June 15, 2000. The 2000-1 Notes bear interest from June 2, 2000 at the
respective interest rates specified above. The interest rate is calculated on
the basis of a year of 360 days and the actual number of days in the interest
period (except in the case of the Class A-2 Notes, for which interest will be
calculated on the basis of a year of 360 days comprised of twelve 30-day months
and the actual number of days in the interest period) payable on the payment
date. On each payment date, to the extent funds are available therefore from the
collection of the lease receivables, principal payment will be made to
noteholders in the following priority: (i) to the Class A-1 noteholders only,
until the outstanding principal amount on the Class A-1 Notes has been reduced
to zero, then (ii) to the Class A-2 noteholders only, until the outstanding
principal amount on the Class A-2 Notes has been reduced to zero, then (iii) to
the Class A-3 noteholders only, until the outstanding principal amount on the
Class A-3 Notes has been reduced to zero, and then (iv) to the Class A-4
noteholders, until the outstanding principal amount on the Class A-4 Notes has
been reduced to zero. Each class of 2000-1 Notes will be payable in full on the
applicable stated maturity date, which is as follows: Class A-1 Notes - June
<PAGE>
2001, Class A-2 Notes - March 2002, Class A-3 Notes - March 2004, and Class A-4
Notes - September 2006. However, if all payments are made on the 2000-1 Leases
as scheduled, final payment on the 2000-1 Notes will be earlier than the stated
maturity dates. The Company may, on any payment date, redeem the 2000-1 Notes
when the total discounted lease balance is less than or equal to 10% of the
total discounted lease balance as of May 1, 2000.
IOS Capital services the 2000-1 Leases pursuant to an Assignment and
Servicing Agreement by and among IOS Capital, as Originator and Servicer, the
Sole Member, as Seller, and the Company, as Issuer. IOS Capital may delegate its
servicing responsibilities to one or more sub-servicers, but such delegation
does not relieve IOS Capital of its liabilities with respect thereto. IOS
Capital retains possession of the 2000-1 Leases and related files, and receives
a monthly service fee from the Company for servicing the 2000-1 Leases.
The average interest rate on all the lease-backed notes outstanding at
June 30, 2000 was 6.8%. Interest paid amounted to $55,205 for the period October
1, 1999 through June 30, 2000 and $2,885 for the period April 6, 1999
(Inception) through June 30, 1999.
Results of operations for the three months and nine months ended June
30, 2000 may not be comparable to the results of operations for the period from
April 6, 1999 (Inception) through June 30, 1999 as the fiscal 1999 results
reflect a period shorter than that in fiscal 2000 as a result of the Company's
inception on April 6, 1999.
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 which are held by IKON
Receivables-1, 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, Inc. ("IOS Capital"), a wholly owned finance subsidiary of IKON
Office Solutions, Inc. ("IKON"), a publicly traded office technology company
with fiscal 1999 revenues of approximately $5,500,000. The Company was organized
in the State of Delaware on January 20, 1999 and is managed by IKON Receivables
Funding, Inc. (the "Manager").
On May 19, 1999, the Company issued $304,474 aggregate principal amount of
5.11% Lease-Backed Notes, Class A-1 (the "Class A-1 Notes"), $61,579 aggregate
principal amount of 5.60% Lease-Backed Notes, Class A-2 (the "Class A-2 Notes"),
$304,127 aggregate principal amount of 5.99% Lease-Backed Notes, Class A-3 (the
"Class A-3 Notes"), and $81,462 aggregate principal amount of 6.23% Lease-Backed
Notes, Class A-4 (the "Class A-4 Notes") and, together with the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes, the "1999-1 Notes"). The 1999-1 Notes
were issued pursuant to an Indenture dated as of April 1, 1999 between the
Company, IOS Capital, and Harris Trust and Savings Bank, as Indenture Trustee.
The 1999-1 Notes are collateralized solely by the 1999-1 Asset Pool, which
includes a portfolio of chattel paper composed of
<PAGE>
leases, leases intended as security agreements and installment sales contracts
acquired or originated by IOS Capital (the "1999-1 Leases") (together with the
equipment financing portion of each periodic lease or rental payment due under
the 1999-1 Leases on or after April 1, 1999), and all related casualty payments,
retainable deposits, and termination payments. The 1999-1 Notes have certain
credit enhancement features available to noteholders including a reserve
account, an overcollateralization account and a noncancellable insurance policy
from Ambac Assurance Corporation with respect to the 1999-1 Notes.
Payments on the 1999-1 Notes are due on the fifteenth day of each month (or
if that is not a Business Day, the next succeeding Business Day), commencing on
June 15, 1999. The 1999-1 Notes bear interest from May 25, 1999 at the
respective fixed per annum interest rates specified above. The interest rate is
calculated on the basis of a year of 360 days comprised of twelve 30-day months
(except in the case of the Class A-1 Notes, for which interest will be
calculated on the basis of a year of 360 days and the actual number of days in
the interest period) payable on the payment date. On each payment date, to the
extent funds are available therefore from the collection of the lease
receivables, principal payments will be made to noteholders in the following
priority: (i) to the Class A-1 noteholders only, until the outstanding principal
amount on the Class A-1 Notes has been reduced to zero, then (ii) to the Class
A-2 noteholders only, until the outstanding principal amount on the Class A-2
Notes has been reduced to zero, then (iii) to the Class A-3 noteholders only,
until the outstanding principal amount on the Class A-3 Notes has been reduced
to zero, and then (iv) to the Class A-4 noteholders, until the outstanding
principal amount on the Class A-4 Notes has been reduced to zero. Each class of
1999-1 Notes will be payable in full on the applicable stated maturity date,
which is as follows: Class A-1 Notes - June 2000, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes - May 2005. However, if all payments are made on the
1999-1 Leases as scheduled, final payment on the 1999-1 Notes will be earlier
than the stated maturity dates. The Company may, on any payment date, redeem the
1999-1 Notes when the total discounted lease balance is less than or equal to
10% of the total discounted lease balance as of April 1, 1999.
IOS Capital services the 1999-1 Leases pursuant to an Assignment and
Servicing Agreement by and among IOS Capital, as Originator and Servicer, the
Sole Member, as Seller, and the Company, as Issuer. IOS Capital may delegate its
servicing responsibilities to one or more sub-servicers, but such delegation
does not relieve IOS Capital of its liabilities with respect thereto. IOS
Capital retains possession of the 1999-1 Leases and related files, and receives
a monthly service fee from the Company for servicing the 1999-1 Leases.
On October 7, 1999, the Company issued $235,326 in aggregate principal
amount of 6.14125% Lease-Backed Notes, Class A-1 (the "Class A-1 Notes"),
$51,100 in aggregate principal amount of 6.31% Lease-Backed Notes, Class A-2(the
"Class A-2 Notes"), $100,000 in aggregate principal amount of 6.59% Lease-Backed
Notes, Class A-3a (the "Class A-3a Notes"), $240,891 in aggregate principal
amount of variable rate Lease-Backed Notes, Class A-3b (the "Class A-3b Notes"),
and $72,278 in aggregate principal amount of 6.88% Lease-Backed Notes, Class A-4
(the "Class A-4 Notes" and, together with the Class A-1 Notes, the Class A-2
Notes, the Class A-3a Notes, Class A-3b Notes, and collectively the "1999-2
Notes"). The Class A-3b Notes are variable rate notes paying interest at a rate
of 1-month LIBOR plus 0.36% (which has been fixed at 6.63% through an interest
rate swap). The 1999-2 Notes were issued pursuant to an Indenture dated as of
October 1, 1999 between the Company, IOS Capital and Harris Trust and Savings
Bank, as Indenture Trustee. The Sole Member contributed a segregated pool of
$809,556 of office equipment leases or
<PAGE>
contracts and related assets (the "1999-2 Asset Pool") to the Company. The
1999-2 Notes are collateralized solely by the 1999-2 Asset Pool, which includes
a portfolio of chattel paper composed of leases, leases intended as security
agreements and installment sales contracts acquired or originated by IOS Capital
(the "1999-2 Leases") together with the equipment financing portion of each
periodic lease or rental payment due under the 1999-2 Leases on or after
September 1, 1999, and all related casualty payments, retainable deposits, and
termination payments. The 1999-2 Notes have certain credit enhancement features
available to noteholders including a reserve account, an overcollateralization
account and a noncancellable insurance policy from Ambac Assurance Corporation
with respect to the 1999-2 Notes.
Payments on the 1999-2 Notes are due on the fifteenth day of each month (or
if that is not a Business Day, the next succeeding Business Day), commencing on
November 15, 1999. The 1999-2 Notes bear interest from October 7, 1999 at the
respective interest rates specified above. The interest rate is calculated on
the basis of a year of 360 days comprised of twelve 30-day months (except in the
case of the Class A-1 Notes and the Class A-3b Notes, for which interest will be
calculated on the basis of a year of 360 days and the actual number of days in
the interest period) payable on the payment date. On each payment date, to the
extent funds are available therefore from the collection of the lease
receivables, principal payments will be made to noteholders in the following
priority: (i) to the Class A-1 Noteholders only, until the outstanding principal
amount on the Class A-1 Notes has been reduced to zero, then (ii) to the Class
A-2 noteholders only, until the outstanding principal amount on the Class A-2
Notes has been reduced to zero, then (iii) to the Class A-3 noteholders only,
until the outstanding principal amount on the Class A-3 Notes has been reduced
to zero, and then (iv) to the Class A-4 noteholders, until the outstanding
principal amount on the Class A-4 Notes has been reduced to zero. Each class of
1999-2 Notes will be payable in full on the applicable stated maturity date,
which is as follows: Class A-1 Notes - October 2000, Class A-2 Notes - May 2001,
Class A-3a Notes - August 2003, Class A-3b Notes - August 2003, and Class A-4
Notes - November 2005. However, if all payments are made on the 1999-2 Leases as
scheduled, final payment on the 1999-2 Notes will be earlier than the stated
maturity dates. The Company may, on any payment date, redeem the 1999-2 Notes
when the total discounted lease balance is less than or equal to 10% of the
total discounted lease balance as of September 1, 1999.
IOS Capital services the 1999-2 Leases pursuant to an Assignment and
Servicing Agreement by and among IOS Capital, as Originator and Servicer, the
Sole Member, as Seller, and the Company, as Issuer. IOS Capital may delegate its
servicing responsibilities to one or more sub-servicers, but such delegation
does not relieve IOS Capital of its liabilities with respect thereto. IOS
Capital retains possession of the 1999-2 Leases and related files, and receives
a monthly service fee from the Company for servicing the 1999-2 Leases.
On June 2, 2000, the Company issued $130,000 in aggregate principal
amount of 6.99625% Lease-Backed Notes, Class A-1 (the "Class A-1 Notes"),
$54,000 in aggregate principal amount of 7.51% Lease-Backed Notes, Class A-2
(the "Class A-2 Notes"), $230,000 in aggregate principal amount of variable rate
Lease-Backed Notes, Class A-3 (the "Class A-3 Notes"), and $84,510 in aggregate
principal amount of variable rate Lease-Backed Notes, Class A-4 (the "Class A-4
Notes" and, together with the Class A-1 Notes, the Class A-2 Notes, the Class
A-3 Notes, and collectively the "2000-1 Notes"). The Class A-3 Notes are
variable rate notes paying interest at a rate of 1-month LIBOR plus 0.19% (which
has been fixed at 7.802% through an interest rate swap). The Class A-4 Notes are
variable rate notes paying interest at a rate of 1-month LIBOR plus 0.23% (which
has
<PAGE>
been fixed at 7.82% through an interest rate swap). The 2000-1 Notes were issued
pursuant to an Indenture dated as of June 1, 2000 between the Company, IOS
Capital, and Bank One Trust Company, as Indenture Trustee. The Sole Member
contributed a segregated pool of $575,761 of office equipment leases or
contracts and related assets (the "2000-1 Asset Pool") to the Company. The
2000-1 Notes are collateralized solely by the 2000-1 Asset Pool, which includes
a portfolio of chattel paper composed of leases, leases intended as security
agreements and installment sales contracts acquired or originated by IOS Capital
(the "2000-1 Leases") together with the equipment financing portion of each
periodic lease or rental payment due under the 2000-1 Leases on or after May 1,
2000, and all related casualty payments, retainable deposits,and termination
payments. The 2000-1 Notes have certain credit enhancement features available to
noteholders including a reserve account, an overcollateralization account and a
noncancellable insurance policy from Ambac Assurance Corporation with respect to
the 2000-1 Notes.
Payments on the 2000-1 Notes are due on the fifteenth day of each month
(or if that is not a Business Day, the next succeeding Business Day), commencing
on June 15, 2000. The 2000-1 Notes bear interest from June 2, 2000 at the
respective interest rates specified above. The interest rate is calculated on
the basis of a year of 360 days and the actual number of days in the interest
period (except in the case of the Class A-2 Notes, for which interest will be
calculated on the basis of a year of 360 days comprised of twelve 30-day months
and the actual number of days in the interest period) payable on the payment
date. On each payment date, to the extent funds are available therefore from the
collection of the lease receivables, principal payment will be made to
noteholders in the following priority: (i) to the Class A-1 noteholders only,
until the outstanding principal amount on the Class A-1 Notes has been reduced
to zero, then (ii) to the Class A-2 noteholders only, until the outstanding
principal amount on the Class A-2 Notes has been reduced to zero, then (iii) to
the Class A-3 noteholders only, until the outstanding principal amount on the
Class A-3 Notes has been reduced to zero, and then (iv) to the Class A-4
noteholders, until the outstanding principal amount on the Class A-4 Notes has
been reduced to zero. Each class of 2000-1 Notes will be payable in full on the
applicable stated maturity date, which is as follows: Class A-1 Notes - June
2001, Class A-2 Notes - March 2002, Class A-3 Notes - March 2004, and Class A-4
Notes - September 2006. However, if all payments are made on the 2000-1 Leases
as scheduled, final payment on the 2000-1 Notes will be earlier than the stated
maturity dates. The Company may, on any payment date, redeem the 2000-1 Notes
when the total discounted lease balance is less than or equal to 10% of the
total discounted lease balance as of May 1, 2000.
IOS Capital services the 2000-1 Leases pursuant to an Assignment and
Servicing Agreement by and among IOS Capital, as Originator and Servicer, the
Sole Member, as Seller, and the Company, as Issuer. IOS Capital may delegate its
servicing responsibilities to one or more sub-servicers, but such delegation
does not relieve IOS Capital of its liabilities with respect thereto. IOS
Capital retains possession of the 2000-1 Leases and related files, and receives
a monthly service fee from the Company for servicing the 2000-1 Leases.
Interest income earned on the Asset Pool is expected to offset interest
expense on the Notes, amortization of debt issuance costs and discount on the
notes and the fees charged by IOS Capital for servicing the Asset Pool and
providing administrative services to the Company. For the quarter ended June
30, 2000, income generated from the Asset Pool was approximately $36,581, other
income earned was $1,067, while interest expense during the quarter was $19,534
and administrative expenses were $2,019. Collections on the lease
<PAGE>
receivables were $173,223 and the Company repaid $136,578 of principal on the
Notes. For the period from April 6, 1999 (Inception) through June 30, 1999,
income generated from the Asset Pool was approximately $13,031, other income
earned was $182, while interest expense during the period was $4,530 and
administrative expenses were $748. Collections on the lease receivables were
$42,269 and the Company repaid $55,105 of principal on the Notes. During the
nine months ended June 30, 2000, income generated from the Asset Pool was
$110,425, other income earned was $2,931, while interest expense was $58,198 and
administrative expenses were $6,235. Collections on lease receivables during the
nine months ended June 30, 2000, were $512,509 and the Company repaid $406,439
of principal on the Notes. The Company portfolio of leases has an average yield
of 10.6% at June 30, 2000, while the Company's weighted average interest rate of
its total debt cost during the quarter ended June 30, 2000, is 6.9%. This rate
differential, in addition to the overcollateralization of the lease portfolio,
gives rise to the 43% net income to revenue relationship for the quarter.
Impact of Year 2000
Through July 31, 2000, the Company's and IOS Capital's operations are fully
functioning and have not experienced any significant issues associated with the
Year 2000 problem. For further information, refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's quarterly report on Form 10-Q for the period ended March 31, 2000 and
the Company's Annual Report on Form 10-K for its fiscal year ended September 30,
1999.
Pending Accounting Changes
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. It will require us
to recognize all derivatives as either assets or liabilities and measure the
instruments at fair value. The statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
Statement No.138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - An Amendment to FASB Statement No.133" which addresses a
limited number of implementation issues and should be adopted concurrently with
Statement No.133. The Company intends to adopt both standards on October 1,
2000. The Company does not believe the effect of adoption will be material.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Pursuant to General Instruction H(2)(c) of Form 10-Q the information required by
this item has been omitted.
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
<PAGE>
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 Company's and/or IKON's future financial condition
and results. These risks and uncertainties, 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 and 2000-1 Leases (such as lessee defaults or factors
impeding recovery efforts), and risks and uncertainties affecting the business
of IOS Capital and/or IKON as set forth in IOS Capital's and IKON's periodic
reports filed with the Securities & Exchange Commission, including, but not
limited to, risks and uncertainties relating to conducting operations in a
competitive environment; delays, difficulties, management transitions and
employment issues associated with consolidation of, and/or changes in business
operations; managing the integration of existing and acquired companies; risks
and uncertainties associated with existing or future vendor relationships;
potential year 2000 deficiencies associated with the operation of IKON's, IOS
Capital's or the Company's internal systems or distributed products; and general
economic conditions. Certain additional risks and uncertainties are set forth in
the Company's fiscal 1999 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.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are furnished pursanant to Item 601 of
Regulation S-K:
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K
On May 3, 2000, the Company's parent filed a Current Report on Form 8-K to file,
under Item 5 of the form, information contained in its press release dated April
26, 2000 regarding the results for the second quarter of fiscal 2000 as well as
announcing that James J. Forese had been named to serve as Chairman of IKON's
Board of Directors.
On May 22, 2000, and as amended on May 25, 2000, the Company filed a Current
Report on Form 8-K to file, under Item 5 of the form, information that
incorporated by reference the consolidated financial statements of Ambac
Assurance Corporation and its subsidiaries as of December 31, 1999 and December
31, 1998 and for each of the years in the three-year period ended December 31,
1999, included in the Annual Report on Form 10-K of Ambac Financial Group, Inc.
and the unaudited consolidated financial statements of Ambac Assurance
Corporation and its subsidiaries as of March 31, 2000, and for the periods ended
March 31, 2000, and March 31, 1999, included in the Quarterly Report on Form
10-Q of Ambac Financial Group, Inc. for the period ended March 31, 2000. The
above referenced consolidated financial statements were also incorporated into
the Registration Statement of IKON Receivables, LLC and the Preliminary
Prospectus Supplement dated May 19, 2000 and as amended on May 25, 2000,
respectively, relating to IKON Receivables, LLC's Lease-Backed Notes, Series
2000-1.
On May 30, 2000, the Company filed a Current Report on Form 8-K to file, under
Item 5 of the form, information furnished to certain prospective investors
regarding the offering of IKON Receivables, LLC Lease-Backed Notes, Series
2000-1.
On June 16, 2000, the Company filed a Current Report on Form 8-K to file, under
Item 2 of the form, information regarding the registration of $2,000,000 in
principal amount of Lease-Backed Notes by a Registration Statement on Form S-3
and the issuance of $498,510 in principal amount of said Lease-Backed Notes.
Each series of notes which may be issued under the registration statement will
be issued pursuant to an indenture.
<PAGE>
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 14, 2000 /s/ Jack F. Quinn
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Jack F. Quinn
Treasurer
