##### Table of Contents

As filed with the Securities and Exchange Commission on December 30, 2002


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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-K





(Mark One)


| | x |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 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
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------




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 incorporation or organization)

(I.R.S. Employer 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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Securities registered
pursuant to Section 12(b) of the Act:    None


Securities registered pursuant to Section 12(g) of the Act:    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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x





Registered debt outstanding as of December 30, 2002 was $2,061,659,782.





Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  ̈ No x





DOCUMENTS INCORPORATED BY REFERENCE:





None





The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is
therefore filing with the reduced disclosure format contemplated thereby.





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##### Table of Contents

INDEX*Page No.PART IITEM 1.

BUSINESS

4ITEM 2.

PROPERTIES

12ITEM 3.

LEGAL PROCEEDINGS

12ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

12PART IIITEM 5.

MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

12ITEM 7.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

13ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

15ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

16ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

16PART IIIITEM 14.

CONTROLS AND PROCEDURES

17PART IVITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

17


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|* |  | All amounts contained in this annual report on Form 10-K are in thousands unless otherwise noted.
|- |  | -------------------------------------------------------------------------------------------------



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##### Table of Contents

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) 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 business segments and the anticipated benefits of operational synergies related thereto; and the Companys ability to finance its 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.




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##### Table of Contents




PART I





Item 1.Business.





General





IOS Capital, LLC (IOSC or the Company), was formed in 1987 to provide lease financing to customers of IKON Office
Solutions, Inc. (IKON). The Companys offices are located at 1738 Bass Road, Macon, Georgia, 31210 (telephone number 478-471-2300). The Company is a wholly-owned subsidiary of IKON.





IKON is a public company headquartered in Malvern, Pennsylvania and a leading provider of products and services that help businesses
manage document workflow and increase efficiency. IKON provides customers with total business solutions for every office, production and outsourcing need, including copiers and printers, color solutions, distributed printing, facilities management,
imaging and legal document solutions, as well as network design and consulting and e-business development. IKON has locations worldwide, including in the United States, Canada, Mexico, the United Kingdom, France, Germany, Ireland and Denmark.
IKONs fiscal 2002 revenues were approximately $4.8 billion.





The Company is engaged in the business of
arranging lease financing primarily for office equipment marketed by IKONs U.S. marketplaces. The ability to offer lease financing on equipment through IOSC is considered a competitive marketing advantage which more closely ties IKON to its
customer base. During fiscal 2002, 79% of equipment sold by IKON was financed through the Company. The Company and IKON will seek to increase this percentage in the future, as leasing enhances the overall profit margin on equipment and is considered
an important customer retention strategy.





The equipment financed by the Company consists of copiers, facsimile
machines, and related accessories and peripheral equipment, the majority of which are produced by major office equipment manufacturers including Canon, Ricoh, Hewlett-Packard and Océ. Currently, 85% of the equipment financed by the Company
represents digital copiers (including color copiers), 11% analog copiers, 2% facsimile machines and 2% other equipment.





The Companys customer base (which consists of end users of the equipment sold by IKON) is widely dispersed, with the ten largest customers representing less than 3% of the Companys total lease portfolio. The typical new
lease financed by the Company averages $20 in amount and 51 months in duration. Although 95% of the leases are scheduled for regular monthly payments, customers are also offered quarterly, semi-annual and annual payment terms. In connection with its
leasing activities, the Company performs billing, collection, property and sales tax filings, and provides quotes on equipment upgrades and lease-end notification. The Company also provides certain financial reporting services to the IKON
marketplaces, such as a monthly report of marketplace leasing activity and related statistics.





Types of Leases





The lease portfolio of the Company includes direct financing leases and funded leases. Direct financing
leases are contractual obligations between the Company and the IKON customer (the customer) and represented 92% of the Companys lease portfolio as of September 30, 2002. Funded leases are contractual obligations between the IKON
marketplace and the customer which have been financed by the Company. Funded leases represented approximately 8% of the Companys lease portfolio as of September 30, 2002. The IKON marketplaces have assigned to the Company their rights under
the underlying contracts, including the right to receive lease and rental payments as well as a security interest in the related equipment.





Direct financing leases and funded leases are structured as either tax leases (from the Companys perspective) or conditional sales contracts, depending on the customers (or, for funded
leases, the IKON marketplaces) needs. The customer (or the IKON marketplace for funded leases) decides which of the two structures is desired. Under either structure, the total cost of the equipment to the customer (or to the IKON marketplace)
is substantially the same (assuming the exercise of the purchase option).




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##### Table of Contents




Tax Leases





Tax leases represented 97% of the Companys lease portfolio as of September 30, 2002. The Company or the IKON marketplace is considered to be the owner of the
equipment for tax purposes during the life of these leases and receives the tax benefit associated with equipment depreciation. Tax leases are structured with a fair market value purchase option. Generally, at the end of the lease term, the customer
may return the equipment, continue to rent the equipment or purchase the equipment for its fair market value.





Each tax lease has a stated equipment residual value generally ranging from 0% to 25% of retail price, depending on equipment model and lease term. As of September 30, 2002, the average equipment residual value for all leases in the
Companys portfolio was 10.3% of retail price. Upon early termination of the lease or at the end of the lease term, the Company charges the IKON marketplace for the stated residual position, if any, and the equipment is returned to the IKON
marketplace. Any gain or loss on the equipments residual value is realized by the IKON marketplace.





Conditional Sales Contracts





Conditional sales contracts accounted for the remaining 3% of the leases in the Companys lease
portfolio as of September 30, 2002. Under these arrangements, the customer is considered to be the owner of the equipment for tax purposes and receives any tax benefit associated with equipment depreciation. Each conditional sales contract has a
stated residual value of 0% of retail price. Conditional sales contracts are customarily structured with higher monthly lease payments than the tax leases and have a one-dollar purchase option for the equipment at lease-end. Thus, because of the
higher monthly payments, the after-tax cost of the equipment to the customer (or, for funded leases, to the IKON marketplace) under a conditional sales contract is substantially the same as under a tax lease (assuming the exercise of the purchase
option). Although the customer has the option of returning or continuing to rent the equipment at lease-end, the customer almost always exercises the one-dollar purchase option at the end of the lease term.





Leased Equipment





The Company offers financing for the cost of office equipment that the IKON marketplaces maintain in inventory for short-term rental to customers. This category of leased equipment also includes equipment currently rented to
customers where the rental agreements are considered to be cancelable by the customer, based on the terms and conditions of the rental contracts in effect. Under current operating guidelines, any equipment not physically on rental to customers for a
period exceeding 120 continuous days must be repurchased by the IKON marketplaces at its current book value.





Relationship With IKON





There are several agreements and programs between the Company and
IKON, which are described below.





Support Agreement





The 1996 Support Agreement between the Company and IKON provides that IKON will make a cash payment to the Company (or an investment in the form of equity or subordinated
notes) as needed to comply with two requirements: i) that the Company will maintain a pre-tax interest coverage ratio (income before interest expense and taxes divided by interest expense), so that the Companys pre-tax income plus interest
expense will not be less than 1.25 times fixed charges, and ii) that the Company will maintain a minimum tangible net worth of one-dollar. The agreement also provides that IKON will maintain 100% direct or indirect ownership of the Company and
limits the leverage of debt to equity to a maximum of 6 to 1.





Pursuant to the indentures and other documentation
governing debt incurred after June 1, 1994, the Company is not permitted to amend or terminate the 1996 Support Agreement unless: (a) all of the outstanding debt of the Company is repaid, or (b) approval of two-thirds of the debt holders (not
including IKON or its affiliates) for all amounts outstanding and covered by the 1996 Support Agreement (generally, all debt entered into after June 1, 1994) is obtained.




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##### Table of Contents




Cash Management Program





The Company participates in IKONs domestic cash management program. Under this program, the Company has an account with IKON through which cash in excess of current
operating requirements is temporarily placed on deposit. Similarly, amounts are periodically borrowed from IKON, with interest paid or charged at market rates. The Company was in a net average borrowing position with IKON during fiscal 2002 and 2001
and incurred interest expense of $3,009 and $7,788, respectively, and was in a net average deposit position with IKON during fiscal 2000 and earned interest income of $2,281 (netted against interest expense).





Management Fee





Included in general and administrative expenses are corporate expenses charged by IKON of $2,535, $2,210 and $1,500 in fiscal 2002, 2001 and 2000, respectively. These corporate charges represent managements estimate of costs
incurred by IKON on behalf of IOSC. The increase in corporate charges in fiscal 2002 compared to fiscal 2001 and fiscal 2000 is due to the increase in legal, treasury, tax and marketing support provided by IKON as a result of the increase in the
Companys financing activity.





Federal Income Tax Allocation Agreement





IKON and the Company participate in a Federal Income Tax Allocation Agreement dated June 30, 1989, in which the Company consents to the filing of consolidated federal
income tax returns with IKON. IKON agrees to collect from or pay to the Company its allocated share of any consolidated federal income tax liability or refund applicable to any period for which the Company is included in IKONs consolidated
federal income tax return.





Interest on Income Tax Deferrals





The Company charged IKON interest on IKONs income tax deferrals associated with the Companys leasing transactions. Such charges were calculated at 6.7% in
fiscal 2000 totaling $16,773. Effective October 1, 2000, the Company and IKON agreed to terminate this program.





Credit Policies and
Loss Experience





Effective October 1, 1999, the Company began a shared recourse arrangement with the IKON
marketplaces. This arrangement provided for net losses resulting from lease defaults to be shared equally. The lease default reserve is maintained at the Company and the provisions for lease default are shared between the Company and the IKON
marketplaces. On October 1, 1999, lease default reserves of $74,305 and the related deferred tax liability of $29,350 were transferred to the Company from the IKON marketplaces.




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##### Table of Contents




The following table provides a rollforward of changes in the lease default
reserve from October 1, 1999 to September 30, 2002:





IOSC


IKON Marketplaces

TotalBalance at October 1, 1999

$
74,305





$
74,305Provision


20,333


$
37,780


58,113Write-offs


(70,152
)





(70,152
)Balance at September 30, 2000









62,266Provision


21,413



39,767


61,180Write-offs


(64,288
)





(64,288
)Balance at September 30, 2001









59,158Provision


21,835



41,554


63,389Write-offs


(72,726
)





(72,726
)Balance at September 30, 2002








$
49,821





Effective October 1, 2002, the shared recourse arrangement with the
IKON marketplaces has been terminated, and the Company will record the entire provision for lease defaults.





During fiscal 2002 and 2001, accounts classified as current (less than 30 days outstanding) ranged from 87% to 93% of the total portfolio balance on a monthly basis. The aging of the Companys net lease receivables at September
30, 2002 was as follows:





Current

$
3,405,720


93.2
%31-60 days


149,822


4.1
%61-90 days


54,813


1.5
%Over 90 days


43,851


1.2
%3,654,206


100.0
%Less: Unearned income


(617,721
)$
3,036,485





Funding





The Company may offer notes from time to time under its medium term note program. These notes are offered at varying maturities of nine months or more from their dates of
issue and may be subject to redemption at the option of the Company, in whole or in part, prior to the maturity date in conjunction with meeting specified provisions. Interest rates are determined based on market conditions at the time of issuance.
During fiscal 2002, the Company repaid $82,000 of 6.30% medium term notes. As of September 30, 2002, the Company had no medium term notes outstanding.





On May 13, 2002, the Company issued $300,000 of convertible subordinated notes (the Convertible Notes) with an interest rate of 5.0%, which are due on May 1, 2007. The Convertible Notes can
be converted into shares of IKON common stock at any time before maturity at a conversion price of $15.03 per share. Interest is paid on the Convertible Notes semi-annually beginning November 1, 2002. The Company used the net proceeds to repay loans
due to IKON and for general corporate purposes.





In fiscal 2002, the Company signed promissory notes and pledged
$16,755 of lease receivables for $14,259 of proceeds. During fiscal 2002, the Company repaid $8,381 of the promissory notes. In fiscal 2001, the Company signed promissory notes and pledged $26,784 of lease receivables for $22,471 of proceeds. During
fiscal 2001, the Company repaid $1,179 of the promissory notes. These notes have various interest rates ranging from 6.24% to 8.614% with maturities through July 2007.




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IOSC has three revolving asset securitization agreements with 364 day terms that
expire in fiscal 2003 with certain renewal provisions. The agreements are structured so that as collections reduce previously pledged or transferred interests in the leases, additional leases can be pledged or transferred up to $705,000. All of the
agreements require that IOSC continue to service the lease portfolio.





During fiscal 2002 and 2001, IOSC entered
into revolving asset securitization transactions whereby it pledged or transferred $716,533 and $703,522, respectively, of finance receivables for $712,411 and $648,500, respectively, in cash. During fiscal 2002, IOSC repaid $593,411 under its
revolving asset securitization conduit financing agreements. Repayments were made with proceeds received from the issuance of the Series 2002-1 Notes described below. In fiscal 2001, IOSC repaid $1,037,795 under its revolving asset securitization
conduit financing agreements. Repayments were made with proceeds from the issuance of the Series 2000-2 and 2001-1 Notes described below.





On June 15, 2001, the Company issued $250,000 of notes with an interest rate of 9.75% (10% yield including the original issue discount) which are due on June 15, 2004. Interest is paid on the notes semi-annually beginning
December 15, 2001. With the net proceeds from the issuance, the Company repaid $150,000 of 6.73% medium term notes due June 15, 2001 and used the remainder of the proceeds for general corporate purposes.





The Company must comply with certain restrictive covenants under the terms of its loan agreements. The Company agrees to maintain earnings
before fixed charges of not less than 1.25 times fixed charges, a debt to equity ratio of not more than 6 to 1 and a minimum tangible net worth of one-dollar.





Interest paid amounted to $148,048, $168,574 and $156,974 for the fiscal years ended September 30, 2002, 2001 and 2000, respectively.





At September 30, 2002 and 2001, the fair value of debt outstanding is estimated to be $2,553,006 and $2,200,331, respectively, using a discounted cash flow analysis.




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IKON Receivables, LLC (a wholly-owned subsidiary of the Company) has issued
Series 1999-1, 1999-2, 2000-1, 2000-2 and 2001-1 Lease-Backed Notes (collectively, together with the Lease-Backed Notes issued by IKON Receivables Funding LLC, the Notes) as described below:





Series

Notes

Issuance Date

Principal Issuance  Amount

Principal Amount Outstanding at September 30, 2002

Interest Rate

Stated Maturity Date1999-1

Class A-l

05/25/99

$
304,474




5.11%

June 2000Class A-2

05/25/99


61,579




5.60%

May 2005Class A-3

05/25/99


304,127

$
23,046

5.99%

May 2005Class A-4

05/25/99


81,462


81,462

6.23%

May 2005Sub-Total


751,642


104,5081999-2

Class A-l

10/07/99


235,326




6.14125%

October 2000Class A-2

10/07/99


51,100




6.31%

May 2001Class A-3a

10/07/99


100,000


19,319

6.59%

August 2003Class A-3b

10/07/99


240,891


46,538

LIBOR + 0.36%

August 2003Class A-4

10/07/99


72,278


72,278

6.88%

November 2005Sub-Total


699,595


138,1352000-1

Class A-l

06/02/00


130,000




6.99625%

June 2001Class A-2

06/02/00


54,000




7.51%

March 2002Class A-3

06/02/00


230,000


86,634

LIBOR + 0.19%

March 2004Class A-4

06/02/00


84,510


84,510

LIBOR + 0.23%

September 2006Sub-Total


498,510


171,1442000-2

Class A-l

12/07/00


193,532




6.66125%

December 2001Class A-2

12/07/00


70,193




6.60%

September 2002Class A-3

12/07/00


290,800


192,557

LIBOR + 0.23%

October 2004Class A-4

12/07/00


79,906


79,906

LIBOR + 0.27%

July 2007Sub-Total


634,431


272,4632001-1

Class A-l

06/28/01


168,000




3.73375%

July 2002Class A-2

06/28/01


41,000




4.16%

March 2004Class A-3

06/28/01


260,000


241,592

LIBOR + 0.23%

January 2006Class A-4

06/28/01


126,200


126,200

LIBOR + 0.26%

October 2008Sub-Total


595,200


367,792Total

$
3,179,378

$
1,054,042




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IKON Receivables Funding, LLC (a wholly-owned subsidiary of the Company) has
issued Series 2002-1 Lease-Backed Notes as described below:





Series

Notes

Issuance Date

Principal Issuance Amount

Principal Amount Outstanding at September 30, 2002

Interest Rate


Stated Maturity Date2002-1

Class A-1

05/30/02

$
171,000

$
106,424

2.044
%

June 2003Class A-2

05/30/02


46,000


46,000

2.91
%

February 2005Class A-3

05/30/02


266,400


266,400

3.90
%

October 2006Class A-4

05/30/02


151,400


151,400

4.68
%

November 2009Total

$
634,800

$
570,224





The Notes were issued pursuant to certain indentures
(Indentures) between IKON Receivables, LLC or IKON Receivables Funding, LLC, IOSC and certain Indenture trustees. The Notes are collateralized by a pool of office equipment leases or contracts and related assets (the Leases)
acquired or originated by IOSC (together with the equipment financing portion of each periodic lease or rental payment due under the Leases on or after the related indenture date) and all related casualty payments, retainable deposits, and
termination payments. Payments on the Notes are made from payments on the Leases. The Notes have certain credit enhancement features available to noteholders, including reserve accounts, overcollateralization accounts and noncancelable insurance
policies from Ambac Assurance Corporation with respect to the Notes. On each payment date, funds available from the collection of lease receivables will be paid to the noteholders in the order of their priority class.





The Notes bear interest from the related issuance date at the stated rates specified above. The variable rate 1999-2 Class A-3b, 2000-1
Class A-3, 2000-1 Class A-4, 2000-2 Class A-3, 2000-2 Class A-4, 2001-1 Class A-3 and 2001-1 Class A-4 Notes have been fixed at 6.63%, 7.802%, 7.82%, 6.475%, 6.475%, 4.825% and 5.435%, respectively, through interest rate swaps.





IOSC services the Leases and may delegate its servicing responsibilities to one or more sub-servicers, but such delegation does
not relieve IOSC of its liabilities with respect thereto. IOSC retains possession of the Leases and related files.





On December 28, 2001, IOSC and IKON issued $87,011 and repurchased $12,460 of lease-backed notes (the Other Notes) for a net issuance of $74,551. The repurchased amount was sold on May 24, 2002 for $10,806. The Other
Notes have a stated maturity of September 15, 2008 and pay an average yield of 5.06%. The Other Notes are collateralized by a pool of office equipment leases or contracts and related assets (the Other Leases) acquired or originated by
the Company (together with the equipment financing portion of each periodic lease or rental payment due under the Other Leases on or after the related transfer date) and all related casualty payments, retainable deposits and termination payments.
Payments on the Other Notes are made from payments on the Other Leases. The Other Notes have certain credit enhancement features available to noteholders, including a reserve account and an overcollateralization account.





On May 24, 2002, IKON obtained a new $300,000 unsecured credit facility (the New Credit Facility) with a group of lenders. The
New Credit Facility replaces IKONs $600,000 credit facility that was to expire in January 2003. Revolving loans are available to the Company. The New Credit Facility contractually matures on May 24, 2005. As of September 30, 2002, the Company
had no borrowings outstanding under the New Credit Facility. The New Credit Facility also provides support for letters of credit for IKON and its subsidiaries. As of September 30, 2002, letters of credit supported by the New Credit Facility




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amounted to $21,448. The amount available under the New Credit Facility is determined by the level of certain of IKONs unsecured assets and the open letters of credit for IKON and its
subsidiaries. The remaining amount available to the Company under the New Credit Facility for borrowings or letters of credit is $234,705, as of September 30, 2002.





The New Credit Facility contains affirmative and negative covenants, including limitations on certain fundamental changes, investments and acquisitions, mergers, certain
transactions with affiliates, creation of liens, asset transfers, payment of dividends, intercompany loans and certain restricted payments. The New Credit Facility does not affect our ability to continue to securitize lease receivables. In addition,
unless IKON achieves certain ratings on its long and short term senior, unsecured debt (as defined) or has not redeemed or defeased the Companys 9.75% Notes due June 15, 2004 ($250,000 outstanding at September 30, 2002), all loans under the
New Credit Facility will mature on December 15, 2003. Cash dividends may be paid on IKONs common stock subject to certain limitations. The New Credit Facility also contains certain financial covenants including (i) corporate leverage ratio;
(ii) consolidated interest expense ratio; (iii) consolidated asset test ratios; and (iv) limitations on capital expenditures. The New Credit Facility contains default provisions customary for facilities of this type. Failure to be in compliance with
any material provision of the New Credit Facility could have a material adverse effect on our liquidity, financial position and results of operations.





Restricted cash on the consolidated balance sheets represents the cash that has been collected on the leases that are pledged as collateral for lease-backed notes. This cash must be segregated within
two business days into a trust account and the cash is used to pay the principal and interest on lease-backed notes as well as any associated administrative expenses. The level of restricted cash is impacted from one period to the next by the volume
of leases and timing of collections on such leases.





Future maturities of the Notes and Other Notes, based on
contractual maturities of the Leases and the Other Leases, for each of the succeeding fiscal years are as follows:





1999-1 Series Notes

1999-2 Series Notes

2000-1 Series Notes

2000-2 Series Notes

2001-1 Series Notes

2002-1 Series Notes

Other Notes

Total2003

$
104,508

$
138,135

$
99,682

$
145,201

$
168,106

$
191,375

$
29,716

$
876,7232004








71,462


127,262


129,148


178,300


24,822


530,9942005














70,538


132,840


12,024


215,4022006

















67,709





67,709$
104,508

$
138,135

$
171,144

$
272,463

$
367,792

$
570,224

$
66,562

$
1,690,828





Future maturities of all debt outstanding at September 30, 2002 are
as follows:





Fiscal2003

$1,199,1322004

789,4012005

221,1642006

70,3692007

300,432$2,580,498





Employees





At September 30, 2002, the Company had approximately 356 employees. Employee relations are considered to be good.





Proprietary Matters





Other than the
IOS Capital trade name and service mark, the Company has no names, trademarks, trade names, or service marks which are used in the conduct of its business.




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Competition and Government Regulation





The finance business in which the Company is engaged is highly competitive. Competitors include leasing companies, commercial finance
companies, commercial banks and other financial institutions. The Company competes primarily on the basis of financing rates, customer convenience and quality customer service.





Certain states have enacted retail installment sales or installment loan statutes relating to consumer credit, the terms of which vary from state to state. The Company does
not generally extend consumer credit as defined in those statutes.





The financing activities of the Company are
dependent upon sales or leases of office equipment by the IKON marketplaces, who are subject to substantial competition by both independent office equipment dealers and the direct sales forces of office equipment manufacturers. IKON is the largest
independent distribution network of office equipment in North America. IKON marketplaces compete on the basis of technology, performance, price, quality, reliability, distribution, customer service and support.





Item 2.Properties.





The Companys operations are located in Macon,
Georgia in leased facilities occupying approximately 70,000 square feet. In addition, IKON utilizes approximately 27,000 square feet in adjacent facilities leased by the Company for a corporate-wide data center and local IKON marketplace. The
Company uses its facility for normal operating activities such as lease processing, customer service, billing and collections. Certain specialized services (such as legal, accounting, treasury, tax and audit services) are also performed for the
Company at IKONs corporate headquarters located in Malvern, Pennsylvania. The Companys facilities are deemed adequate by management to conduct the Companys business.





Item 3.Legal Proceedings.





There are contingent liabilities for taxes, guarantees,
other lawsuits and various other matters occurring in the ordinary course of business. On the basis of information furnished by counsel and others, and after consideration of the defenses available to the Company and any related reserves and
insurance coverage, management believes that none of these other contingencies will materially affect the consolidated financial statements of the Company.





Item 4.Submission of Matters to a Vote of Security Holders.





(No response to this item is
required.)





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PART II





Item 5.Market for Registrants Common Equity and Related Stockholder Matters.





There is currently no market for the Registrants equity securities nor is it anticipated that such a market will develop. The Company paid IKON dividends of $174,501 in fiscal 2002 and $60,000 in fiscal 2000. No dividends were
paid in fiscal 2001. The Company and IKON will, from time to time, determine the appropriate capitalization for the Company, which will, in part, affect any future payment of dividends to IKON or capital contributions to the Company.




12




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##### Table of Contents




Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.





Pursuant to General Instruction I(2)(a) of Form 10-K, 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 this 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 25% of 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 Form 10-K requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and notes. Actual
results could differ from those estimates and assumptions.





Fiscal 2002 Compared with Fiscal 2001





Comparative results of operations for the fiscal years ended September 30, 2002 and 2001 are set forth in the table below. This
table also shows the increase (decrease) in the dollar amounts of revenue and expense items from fiscal 2001 to fiscal 2002 between periods, as well as the related percentage change.





Fiscal Year Ended September 30,

Increase (Decrease)2002

2001

Amount


PercentRevenues:Lease finance income

$
347,531

$
321,866

$
25,665


8.0
%Rental income


33,628


31,573


2,055


6.5
%Other income


19,789


23,974


(4,185
)

(17.5
)%400,948


377,413


23,535


6.2
%Expenses:Interest


151,220


166,926


(15,706
)

(9.4
)%Lease default, net of recoveries


14,445


15,755


(1,310
)

(8.3
)%Depreciation


28,471


26,414


2,057


7.8
%General and administrative


33,141


31,152


1,989


6.4
%227,277


240,247


(12,970
)

(5.4
)%Income before income taxes


173,671


137,166


36,505


26.6
%Provision for income taxes


71,282


52,428


18,854


36.0
%Net income

$
102,389

$
84,738

$
17,651


20.8
%







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##### Table of Contents




Revenues





Total revenues increased by $23,535, or 6.2%, in fiscal 2002 from fiscal 2001. Lease finance income increased by $25,665 due to continued growth in the lease receivables portfolio and the increased
average yield of leases in the portfolio. The investment in leases increased by 1.9% from September 30, 2001 to September 30, 2002.





Office equipment placed on rental, with cancelable terms, by the IKON marketplaces to customers may be purchased by the Company. During fiscal 2002 and 2001, IOSC purchased operating lease equipment of $60,619 and $35,611,
respectively. Operating leases contributed $33,628 and $31,573 in rental income to total revenues during fiscal 2002 and 2001, respectively.





Other income consists primarily of late payment charges, and various billing fees and interest income on restricted cash. Overall, income from these sources decreased by $4,185, or 17.5%, primarily due
to the decline in short term market rates of interest paid on restricted cash balances when comparing fiscal 2002 to fiscal 2001.





Expenses





Average borrowings to finance the investment in leases in the form of loans from
banks, the issuance of medium term notes, lease-backed notes in the public market and intercompany borrowings with IKON increased by 2.2%, with $2,582,064 outstanding at September 30, 2002. The Company paid a weighted average interest rate on all
borrowings for fiscal 2002 of 6.0%, compared to 6.4% for fiscal 2001. Primarily as a result of the decreased average interest rate on all borrowings, interest expense decreased by $15,706, or 9.4%, when comparing fiscal 2002 to fiscal 2001. At
September 30, 2002, the Companys debt to equity ratio was 6.0 to 1.





The Companys lease default
reserve was $49,821 and $59,158 at September 30, 2002 and 2001, respectively. The decrease was primarily due to improvement in the cumulative expected loss rate of the lease portfolio as a result of the following factors. The lease credit review,
approval function and collection functions were centralized at IOSC during the past several years. Additionally, IOS created the Special Assets Recovery Group in fiscal 1999 to improve IKONs equipment recovery rate and pursue deficient
balances on lease write-offs. Since creation, IKONs equipment recovery rate has risen from approximately 60% to 88%. Also, during fiscal 2002, the Special Assets Recovery Group recovered approximately $7,400 in deficient balances. The combined
effect is an increase of IKONs overall recovery rate from approximately 30% to 42% over the past three years.





Depreciation expense for fiscal 2002 increased by $2,057, or 7.8%, compared to fiscal 2001 primarily due to the increase in purchases of leased equipment. General and administrative expenses increased by $1,989, or 6.4%, compared to
fiscal 2001 due to increased rental expense commitments associated with the sale leaseback of the Companys headquarters in fiscal 2002.





Income Before Income Taxes





Income before income taxes for fiscal 2002 increased by
$36,505, or 26.6%, compared to fiscal 2001, as a result of the items described above.





Provision for Income Taxes





Income taxes for fiscal 2002 increased by $18,854, or 36.0%, compared to fiscal 2001. The increase in income taxes is directly
attributable to the increase in income before income taxes in fiscal 2002 as compared to fiscal 2001. During fiscal 2002, the Companys effective income tax rate was 41.0%, as compared to 38.2% in fiscal 2001.




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##### Table of Contents




Contractual Obligations





The following summarizes lOSCs significant contractual obligations and commitments as of September 30, 2002:





Payments dueContractual Obligations

Total

Fiscal 2003

Fiscal 2004- Fiscal
2005

Fiscal 2006- Fiscal
2007

ThereafterLong-term debt

$
2,580,498

$
1,199,132

$
1,010,565

$
370,801Operating leases


18,094


3,796


2,789


2,002

$
9,507Total

$
2,598,592

$
1,202,928

$
1,013,354

$
372,803

$
9,507





Payments on long-term debt generally are made from collections of
our finance receivables. At September 30, 2002, long-term debt was $2,580,498 and net finance receivables were $3,036,485.





Item
7A.Quantitative and Qualitative Disclosures About Market Risk.





The Company
incurs debt to fund the origination of leases. The interest rates charged on the debt are determined based on current market conditions and may include variable measures of interest rates such as LIBOR. The Company monitors interest rates on debt in
order to mitigate exposure to unfavorable variations as compared to the interest rate earned on the pledged finance lease receivables. The objective in managing this risk is to achieve fixed-rate financing at the same time the Company establishes
the rate to be received by the Company on the leases. As a result, from time to time interest rate swaps are utilized to effectively fix the rate on variable rate debt, as opposed to a direct issuance of fixed rate debt. The risk associated with the
use of interest rate swaps is the possible inability of the counterparties to meet the terms of their contracts. The Company does not enter into interest rate swap agreements for trading purposes.





The following tables present, as of September 30, 2002 and 2001, information regarding the interest rate swap agreements to which we are a
party: (i) the notional amount, (ii) the fixed interest rate payable by the Company, (iii) the variable interest rate payable to the Company by the counterparty under the agreement, (iv) the fair value of the instrument, and (v) the maturity date of
the agreement.





September 30, 2002Notional Amount

Fixed Interest Rate


Variable Interest Rate

Fair Value


Maturity Date$
272,463

6.475
%

LIBOR

$
(13,671
)

July 2007$
241,592

4.825
%

LIBOR + 0.23%

$
(6,002
)

January 2006$
86,634

7.802
%

LIBOR + 0.19%

$
(2,536
)

March 2004$
46,538

6.270
%

LIBOR

$
(314
)

August 2003$
126,200

5.435
%

LIBOR + 0.26%

$
(8,383
)

October 2008$
84,510

7.820
%

LIBOR + 0.23%

$
(7,281
)

September 2006$
66,562

4.180
%

LIBOR

$
(2,096
)

November 2007September 30, 2001Notional Amount

Fixed Interest Rate


Variable Interest Rate

Fair Value


Maturity Date$
370,706

6.475
%

LIBOR

$
(19,060
)

July 2007$
260,000

4.825
%

LIBOR + 0.23%

$
(6,004
)

January 2006$
219,939

7.802
%

LIBOR + 0.19%

$
(9,357
)

March 2004$
145,407

6.270
%

LIBOR

$
(3,382
)

August 2003$
126,200

5.435
%

LIBOR + 0.26%

$
(4,715
)

October 2008$
84,510

7.820
%

LIBOR + 0.23%

$
(8,104
)

September 2006




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##### Table of Contents

Item 8.Financial Statements and Supplementary Data.





The financial statements of
IOSC are submitted herewith on Pages F-l through F-16 of this report.





Quarterly Data





The following table shows comparative summarized unaudited quarterly results for fiscal 2002 and 2001.





First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total2002Lease finance income

$
85,683

$
87,018

$
85,900

$
88,930

$
347,531Interest expense


39,336


37,301


37,337


37,246


151,220Income before income taxes


40,737


44,347


42,593


45,994


173,671Net income


24,442


26,608


25,556


25,783


102,389First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Total2001Lease finance income

$
76,657

$
79,090

$
81,905

$
84,214

$
321,866Interest expense


41,495


41,963


41,360


42,108


166,926Income before income taxes


31,687


33,408


35,691


36,380


137,166Net income


19,012


20,045


21,229


24,452


84,738





Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.





(No response to this item is required.)




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##### Table of Contents

PART III





Item 14.Controls and Procedures.





Evaluation of Disclosure Controls and
Procedures.    The Companys Principal Executive Officer and Principal 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 Annual Report on Form 10-K. Based on this evaluation, they have concluded that, as of the evaluation date, the Companys
disclosure controls and procedures are effective in alerting 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 IV





Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.





(a) (1) and (2) Financial
Statements





PageReport of Independent Accountants

F-lConsolidated Balance Sheets at September 30, 2002 and 2001

F-2Consolidated Statements of Income for Fiscal Years Ended September 30, 2002, 2001 and 2000

F-3Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 2002, 2001 and 2000

F-4Consolidated Statements of Changes in Members Equity for Fiscal Years Ended September 30, 2002, 2001 and
2000

F-5Notes to Consolidated Financial Statements

F-6





Financial Statements and Schedules other than those listed above
are omitted because the required information is included in the financial statements or the notes thereto or because they are inapplicable.





(a) (3) Exhibits





2.1

Certificate of Conversion of IOS Capital, Inc. into IOS Capital, LLC filed on December 23, 2002 as Exhibit 2.1 to the Companys Registration Statement
(Registration No. 333-27141) on Form S-3 (Form S-3) is incorporated herein by reference.3.1

Certificate of Formation of the Company filed on December 23, 2002 as Exhibit 3.1 to the Companys Form S-3 is incorporated herein by
reference.3.2

Operating Agreement of the Company filed on December 23, 2002 as Exhibit 3.2 to the Companys Form S-3 is incorporated herein by reference.4.1

Indenture dated as of July 1, 1995 (the Indenture) between the Company and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.), as Trustee,
filed as Exhibit 10.8 to IKONs Form 10-K for the fiscal year ended September 30, 1996 is incorporated herein by reference.4.2

First Amendment to the Indenture filed as Exhibit 4.2 to the Companys Form 10-K for the fiscal year ended September 30, 2001 is incorporated herein by
reference.4.3

Second Amendment to the Indenture dated July 1, 1995 between the Company and Chase Manhattan Bank, as Trustee, filed as Exhibit 4.3 to the Companys
Form 8-K dated June 14, 2001 is incorporated herein by reference.4.4

Third Amendment dated March 15, 2002 to the Indenture.




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##### Table of Contents

4.5

Indenture dated May 13, 2002 by and among IKON, the Company, and Deutsche Bank Americas, as Trustee, filed as Exhibit 4.2 to IKONs Form 10-Q for the
quarter ended June 30, 2002.4.6

Pursuant to Regulation S-K item 601 (b)(4)(iii), the Company agrees to furnish to the Commission, upon request, a copy of instruments defining the rights of
holders of long-term debt of the Company.10.1

Support Agreement, dated as of October 22, 1996, between the Company and IKON (formerly Alco Standard Corporation), filed as Exhibit 10.4 to the
Companys Form 8-K dated November 12, 1996 is incorporated herein by reference.10.2

Distribution Agreement dated as of June 4, 1997, between the Company and various distribution agents, filed as Exhibit 10.13 to IKONs Form 10-K for the
fiscal year ended September 30, 1997, is incorporated herein by reference.10.3

Distribution Agreement dated as of June 30, 1995 between the Company and various distribution agents, filed as Exhibit 10.21 to IKONs Form 10-K for the
fiscal year ended September 30, 1995 is incorporated herein by reference.10.4

Federal Income Tax Allocation Agreement, filed on May 4, 1994, filed as Exhibit 10.1 to the Companys Registration Statement on Form 10 is incorporated
herein by reference.10.5

Receivables Transfer Agreement dated as of March 28, 2001 among the Company, IKON Funding-3, LLC and Twin Towers, Inc. The Deutsche Bank AG, New York Branch,
as agent and the several financial institutions party thereto from time to time, filed as Exhibit 10.54 to IKONs 2001 Form 10-K is incorporated herein by reference.10.6

Transfer Agreement dated as of March 28, 2001 between IKON Funding-3, LLC and the Company filed as Exhibit 10.37 to IKONs 2001 Form 10-K is
incorporated herein by reference.10.7

Receivables Transfer Agreement entered September 19, 2000, among IKON Funding-2, LLC, the Company, Park Avenue Receivables Corporation, the Chase Manhattan
Bank and the several financial institutions a party thereto from time to time, filed as Exhibit 10.12 to the Companys 2000 Form 10-K is incorporated herein by reference.10.8

Transfer Agreement dated as of September 19, 2001 among IKON Funding-2, LLC and the Company, filed as Exhibit 10.13 to the Companys 2000 Form 10-K is
incorporated herein by reference.10.9

Receivables Transfer Agreement dated as of December 1, 1998 among IKON Funding-1, LLC, the Company, Market Street Funding Corporation and PNC Bank, National
Association, filed as Exhibit 10.9 to IKONs 1998 Form 10-K is incorporated herein by reference.10.10

Transfer Agreement dated as of December 1, 1998 between IKON Funding-1, LLC and the Company filed as Exhibit 10.10 to IKONs 1998 Form 10-K is
incorporated herein by reference.10.11

Indenture, dated as of April 1, 1999 among IKON Receivables, LLC, BNY Midwest Trust Company, as Trustee, and the Company, as Servicer, (the April 1,
1999 Indenture) filed as Exhibit 4.1 to the Companys Form 8-K dated May 25, 1999 is incorporated herein by reference.10.12

First Supplemental Indenture dated as of May 3, 2002 to the April 1, 1999 Indenture.10.13

Indenture, dated as of October 1, 1999 among IKON Receivables, LLC, BNY Midwest Trust Company, as Trustee, and the Company, as Servicer, (the October
1, 1999 Indenture) filed as Exhibit 4.1 to the Companys Form 8-K dated October 21, 1999 is incorporated herein by reference.




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##### Table of Contents

10.14

First Supplemental Indenture dated as of May 3, 2002 to the October 1, 1999 Indenture.10.15

Indenture, dated as of June 1, 2000 among IKON Receivables, LLC, the Chase Manhattan Bank, as Trustee, and the Company, as Servicer, (the June 1, 2000
Indenture) filed as Exhibit 4.1 to the Companys Form 8-K dated June 16, 2001 is incorporated herein by reference.10.16

First Supplemental Indenture dated as of May 3, 2002 to the June 1, 2000 Indenture.10.17

Indenture, dated as of December 1, 2000 among IKON Receivables, LLC, The Chase Manhattan Bank, as Trustee, and the Company, as Servicer, (the December
1, 2000 Indenture) filed as Exhibit 4.1 to IKON Receivables, LLCs Current Report on Form 8-K dated November 29, 2000 is incorporated herein by reference.10.18

First Supplemental Indenture dated as of May 3, 2002 to the December 1, 2000 Indenture.10.19

Indenture, dated as of June 1, 2001, among IKON Receivables, LLC, SunTrust Bank, as Trustee, and the Company, as Servicer, (the June 1, 2001
Indenture) filed as Exhibit 4.1 to IKON Receivables, LLCs Current Report on Form 8-K dated June 16, 2001 is incorporated herein by reference.10.20

First Supplemental Indenture dated as of May 3, 2002 to the June 1, 2001 Indenture.10.21

Indenture, dated as of May 1, 2002, among IKON Receivables Funding, LLC, BNY Midwest Trust Company, as Trustee, and the Company, as Servicer, filed as
Exhibit 4.1 to IKON Receivables Funding, LLCs Current Report on Form 8-K dated May 30, 2002 is incorporated herein by reference.10.22

Assignment and Servicing Agreement, dated as of April 1, 1999, among IKON Receivables, LLC, IKON Receivables-1, LLC, and the Company, as Originator and
Servicer, (the April 1, 1999 Servicing Agreement) filed as Exhibit 10.1 to the Companys Form 8-K dated May 25, 1999 is incorporated herein by reference.10.23

Amendment dated as of May 3, 2002 to the April 1, 1999 Servicing Agreement.10.24

Assignment and Servicing Agreement, dated as of October 1, 1999, among IKON Receivables, LLC, IKON Receivables-1, LLC, and the Company, as Originator and
Servicer, (the October 1, 1999 Servicing Agreement) filed as Exhibit 10.1 to the Companys Form 8-K dated October 21,1999 is incorporated herein by reference.10.25

Amendment dated May 3, 2002 to the October 1, 1999 Servicing Agreement.10.26

Assignment and Servicing Agreement, dated as of June 1, 2000, (the June 1, 2000 Servicing Agreement) among IKON Receivables, LLC, IKON
Receivables-1, LLC, and the Company, as Originator and Servicer, filed as Exhibit 10.1 to the Companys Current Report on Form 8-K dated June 16, 2001 is incorporated herein by reference.10.27

Amendment dated May 3, 2002 to the June 1, 2000 Servicing Agreement.10.28

Assignment and Servicing Agreement, dated as of December 1, 2000 (the December 1, 2000 Servicing Agreement), among IKON Receivables, LLC, IKON
Receivables-1, LLC, and the Company, as Originator and Servicer, filed as Exhibit 10.1 to IKON Receivables, LLCs Current Report on Form 8-K dated November 29, 2000 is incorporated herein by reference.10.29

Amendment dated May 3, 2002 to the June 1, 2000 Servicing Agreement.10.30

Assignment and Servicing Agreement, dated as of June 1, 2001, among IKON Receivables, LLC, IKON Receivables-1, LLC, and the Company as Originator and
Servicer, (the June 1, 2001 Servicing Agreement) filed as Exhibit 10.1 to IKON Receivables, LLCs Current Report on Form 8-K dated June 16, 2001 is incorporated herein by reference.




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##### Table of Contents

10.31

Amendment dated May 3, 2002 to the June 1, 2001 Servicing Agreement.10.32

Assignment and Servicing Agreement, dated as of May 1, 2002, among IKON Receivables Funding, LLC, IKON Receivables-2, LLC, and the Company as Originator and
Servicer, filed as Exhibit 10.1 to IKON Receivables Funding, LLCs Current Report on Form 8-K dated May 30, 2002 is incorporated herein by reference.10.33

Indemnification Agreement, dated as of October 7, 1999, among Lehman Brothers, Chase Securities Inc., Deutsche Bank Securities Inc., PNC Capital Markets,
Inc., as Underwriters, and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.2 to the Companys Form 8-K dated October 21, 1999 is incorporated herein by reference.10.34

Indemnification Agreement, dated as of May 25, 1999, among Lehman Brothers, Chase Securities Inc., Deutsche Bank Securities Inc., PNC Capital Markets, Inc.,
as Underwriters, and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.2 to the Companys Form 8-K dated May 25, 1999 is incorporated herein by reference.10.35

Indemnification Agreement, dated June 2, 2000, among Chase Securities Inc., Banc of America Securities LLC, Deutsche Banc Alex. Brown, Lehman Brothers Inc.,
and PNC Capital Markets, Inc., as Underwriters and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.2 to the Companys Form 8-K dated June 16, 2001 is incorporated herein by reference.10.36

Indemnification Agreement, dated December 7, 2000, among Chase Securities, Inc., Banc of America Securities LLC, Deutsche Banc Alex. Brown, Lehman Brothers,
Inc. and PNC Capital Markets, Inc., as Underwriters and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to IKON Receivables, LLCs Current Report on Form 8-K dated November 29, 2000 is incorporated herein by
reference.10.37

Indemnification Agreement, dated June 28, 2001, among Deutsche Banc Alex. Brown Inc., Banc of America Securities LLC, J. P. Morgan Securities Inc., Lehman
Brothers Inc. and PNC Capital Markets, Inc., as Underwriters and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.2 to IKON Receivables, LLCs Current Report on Form 8-K dated June 16, 2001 is incorporated herein by
reference.10.38

Indemnification Agreement, dated May 30, 2002, among Banc of America Securities LLC, Lehman Brothers Inc. and First Union Securities LLC, as Underwriters and
Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.2 to IKON Receivables Funding, LLCs Current Report on Form 8-K dated May 30, 2002 is incorporated herein by reference.10.39

Insurance and Indemnity Agreement, dated as of May 25, 1999, among the Company, as Originator and Servicer, IKON Receivables, LLC, IKON Receivables-1, LLC,
Harris Trust and Savings Bank and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to the Companys Form 8-K dated May 25, 1999 is incorporated herein by reference.10.40

Insurance and Indemnity Agreement, dated as of October 7, 1999, among the Company, as Originator and Servicer, IKON Receivables, LLC, IKON Receivables-1,
LLC, Harris Trust and Savings Bank and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to the Companys Form 8-K dated October 21, 1999 is incorporated herein by reference.10.41

Insurance and Indemnity Agreement, dated June 2, 2000, among the Company, as Originator and Servicer, IKON Receivables, LLC, IKON Receivables-1, LLC, Bank
One, N. A. and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to the Companys Current Report on Form 8-K dated June 16, 2001 is incorporated herein by reference.




20




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##### Table of Contents

10.42

Insurance and Indemnity Agreement, dated December 7, 2000, among the Company, as Originator and Servicer, IKON Receivables, LLC, IKON Receivables-1, LLC, The
Chase Manhattan Bank and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to IKON Receivables, LLCs Current Report on Form 8-K dated November 29, 2000 is incorporated herein by reference.10.43

Insurance and Indemnity Agreement, dated June 28, 2001, among the Company, as Originator and Servicer, IKON Receivables, LLC, IKON Receivables-1, LLC,
SunTrust Bank and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to IKON Receivables, LLCs Current Report on Form 8-K dated June 16, 2001 is incorporated herein by reference.10.44

Insurance and Indemnity Agreement, dated May 30, 2002, among the Company, as Originator and Servicer, IKON Receivables Funding, LLC, IKON Receivables-2, LLC,
BNY Midwest Trust Company and Ambac Assurance Corporation, as Insurer, filed as Exhibit 10.3 to IKON Receivables Funding, LLCs Current Report on Form 8-K dated May 30, 2002 is incorporated herein by reference.


10.45

Schedule to ISDA Master Agreement (the Schedule), between the Chase Manhattan Bank and IKON Receivables, LLC, Credit Support Annex to the
Schedule, between the Chase Manhattan Bank and the Issuer, Confirmation to the ISDA Master Agreement for the Class A-3 Notes, between the Chase Manhattan Bank and the Issuer, and Confirmation to the ISDA Master Agreement for the Class A-4 Notes,
between the Chase Manhattan Bank and the Issuer, each dated as of June 2, 2000, filed as Exhibit 10.4 to the Companys Current Report on Form 8-K dated June 16, 2001 is incorporated herein by reference.10.46

Schedule to ISDA Master Agreement (the Schedule), between Lehman Brothers Financial Products, Inc. and IKON Receivables, LLC, Credit Support
Annex to the Schedule, between Lehman Brothers Financial Products, Inc. and IKON Receivables, LLC, Confirmation to the ISDA Master Agreement for the Class 3b Notes, between Lehman Brothers Financial Products, Inc. and IKON Receivables, LLC, each
dated as of October 7, 1999, filed as Exhibit 10.4 to the Companys Current Report on Form 8-K dated October 21, 1999 is incorporated herein by reference.10.47

Schedule to ISDA Master Agreement, between Lehman Brothers Special Financing Inc. and IKON Receivables, LLC and Confirmation to the ISDA Master Agreement for
the Class A-3 and A-4 Notes, between Lehman Brothers Special Financing, Inc. and IKON Receivables, LLC, each dated as of December 7, 2000, filed as Exhibit 10.4 to IKON Receivables, LLCs Current Report on Form 8-K dated November 29, 2000 is
incorporated herein by reference.10.48

Schedule to ISDA Master Agreement, between Deutsche Bank AG, New York Branch and the Issuer and Confirmations to the ISDA Master Agreement for Class A-3 and
A-4 Notes, between Deutsche Bank AG, New York Branch and the Issuer, each dated as of June 28, 2001, filed as Exhibit 10.4 to IKON Receivables, LLCs Current Report on Form 8-K dated November 29, 2000 is incorporated herein by
reference.12

Ratio of Earnings to Fixed Charges23

Consent of PricewaterhouseCoopers LLP99.1

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 July 31, 2002, 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 July 24,
2002 regarding the results of its parent for the third quarter of fiscal 2002.







21




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REPORT OF INDEPENDENT ACCOUNTANTS





To the Board of Directors and Shareholders


of IKON Office Solutions, Inc.:





In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and
changes in members equity, present fairly, in all material respects, the financial position of IOS Capital, LLC and its subsidiaries at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management; our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





As discussed in Notes 2 and 11 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards
No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities, in Fiscal 2001.





/s/    PricewaterhouseCoopers LLP


Philadelphia, PA


December 2, 2002




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IOS CAPITAL, LLC





CONSOLIDATED BALANCE SHEETS





September 30,2002


2001AssetsInvestments in leases:Direct financing leases, net of lease default reserve of: 2002$49,821; 2001$59,158

$
3,364,776


$
3,284,106Less:    unearned income


(572,865
)


(545,451
)2,791,911



2,738,655Funded leases, net of unearned income of: 2002$44,856; 2001$43,574


244,574



240,9653,036,485



2,979,620Cash


10,994



16,056Restricted cash


115,594



126,861Accounts receivable


65,107



91,775Prepaid expenses and other assets


18,236



10,548Leased equipmentoperating rentals at cost, less accumulated depreciation of: 2002$42,196;
2001$40,552


72,271



44,793Property and equipment at cost, less accumulated depreciation of: 2002$9,406; 2001$10,332



1,329



8,145Total assets

$
3,320,016


$
3,277,798Liabilities and Members EquityLiabilities:Accounts payable and accrued expenses

$
65,567


$
78,011Accrued interest


17,045



13,873Due to IKON Office Solutions, Inc. (IKON)


1,566



182,533Medium term notes






82,000Convertible subordinated notes


300,000Notes payable


277,170



271,292Lease-backed notes


1,690,828



1,797,389Asset securitization conduit financing


312,500



193,500Deferred income taxes


224,657



162,609Total liabilities


2,889,333



2,781,207Commitments and contingenciesMembers equity:Contributed capital


179,796



179,796Retained earnings


275,057



347,169Accumulated other comprehensive loss


(24,170
)


(30,374
)Total members equity


430,683



496,591Total liabilities and members equity

$
3,320,016


$
3,277,798





See notes to consolidated financial statements.




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IOS CAPITAL, LLC





CONSOLIDATED STATEMENTS OF INCOME





Fiscal Year Ended September
30,2002

2001

2000Revenues:Lease finance income

$
347,531

$
321,866

$
280,610Rental income


33,628


31,573


36,187Interest on IKON income tax deferrals








16,773Other income


19,789


23,974


24,854400,948


377,413


358,424Expenses:Interest


151,220


166,926


149,014Lease default, net of recoveries


14,445


15,755


20,333Depreciation


28,471


26,414


30,233General and administrative


33,141


31,152


31,058227,277


240,247


230,638Gain on sale of lease receivables








76Income before income taxes


173,671


137,166


127,862Provision for income taxes


71,282


52,428


48,446Net income

$
102,389

$
84,738

$
79,416








See notes to consolidated financial
statements.




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##### Table of Contents

IOS CAPITAL, LLC





CONSOLIDATED STATEMENTS OF CASH FLOWS





Fiscal Year Ended September 30,2002


2001


2000Cash flows from operating activitiesNet income

$
102,389


$
84,738


$
79,416Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


36,521



35,498



31,830Provision for deferred taxes


78,364



43,232



39,107Provision for lease default


21,835



21,413



20,333Gain on sale of lease receivables










(76
)Changes in operating assets and liabilities:Decrease (increase) in accounts receivable


26,668



9,914



(24,884
)(Increase) decrease in prepaid expenses and other assets


(14,555
)


(6,540
)


12,059Decrease in accounts payable and accrued expenses


(2,105
)


(27,939
)


(10,621
)Increase (decrease) in accrued interest


3,172



(1,648
)


(7,960
)Net cash provided by operating activities


252,289



158,668



139,204Cash flows from investing activitiesPurchases of equipment


(60,759
)


(36,010
)


(20,044
)Proceeds from terminations of leased equipment


11,626



7,499



6,201Investments in leases:Additions


(1,707,074
)


(1,921,775
)


(1,947,885
)Cancellations


310,860



313,218



298,518Collections


1,316,332



1,412,950



1,418,013Lease default reserve transfer from IKON, net of deferred tax










44,955Proceeds from sale










923Repurchase of leases sold










(275,000
)Net cash used in investing activities


(129,015
)


(224,118
)


(474,319
)Cash flows from financing activitiesProceeds from asset securitization conduit financing


712,411



648,500



832,795Payments on asset securitization conduit financing


(593,411
)


(1,037,795
)


(250,000
)Proceeds from issuance of notes






250,000Payments on medium term notes


(82,000
)


(486,500
)


(674,350
)Net proceeds from issuance of notes payable


5,878



21,292Proceeds from issuance of lease-backed notes


720,289



1,226,761



1,194,849Payments on lease-backed notes


(826,850
)


(699,883
)


(553,412
)Proceeds from issuance of convertible subordinated notes


300,000(Decrease) increase in intercompany debt, net of proceeds and payments


(201,419
)


159,699



(89,815
)Decrease (increase) in restricted cash


11,267



(34,947
)


(62,289
)Capital contributions from IKON






30,381Dividends to IKON


(174,501
)






(60,000
)Net cash (used in) provided by financing activities


(128,336
)


77,508



337,778(Decrease) increase in cash


(5,062
)


12,058



2,663Cash at beginning of year


16,056



3,998



1,335Cash at end of year

$
10,994


$
16,056


$
3,998





See notes to consolidated financial statements.




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IOS CAPITAL, LLC





CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY


Contributed Capital

Retained Earnings


Accumulated Other Comprehensive Loss


Total Members Equity


Total Comprehensive IncomeBalance at September 30, 1999

$
149,415

$
243,015






$
392,430Net income





79,416







79,416


$
79,416Dividends to IKON





(60,000
)






(60,000
)Total comprehensive income

















79,416Balance at September 30, 2000


149,415


262,431







411,846Net income





84,738







84,738



84,738Capital contributions from IKON


30,381










30,381Cumulative effect of change in accounting principle for derivative and hedging activities (SFAS 133), net of tax expense
of $2,314








$
(3,471
)


(3,471
)


(3,471
)Loss on derivative financial instruments, net of tax benefit of $17,934









(26,903
)


(26,903
)


(26,903
)Total comprehensive income

















54,364Balance at September 30, 2001


179,796


347,169



(30,374
)


496,591Net income





102,389







102,389



102,389Dividends to IKON





(174,501
)






(174,501
)Gain on derivative financial instruments, net of tax expense of ($4,135)









6,204



6,204



6,204Total comprehensive income
















$
108,593Balance at September 30, 2002

$
179,796

$
275,057


$
(24,170
)

$
430,683





See notes to consolidated financial statements.




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##### Table of Contents



IOS CAPITAL, LLC





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







1.    Business





IOS Capital, LLC (IOSC or the Company), was formed in 1987 to provide lease financing to customers of IKON Office
Solutions, Inc. (IKON). The Companys offices are located at 1738 Bass Road, Macon, Georgia, 31210 (telephone number 478-471-2300). The Company is a wholly-owned subsidiary of IKON.





IKON is a public company headquartered in Malvern, Pennsylvania and a leading provider of products and services that help businesses
manage document workflow and increase efficiency. IKON provides customers with total business solutions for every office, production and outsourcing need, including copiers and printers, color solutions, distributed printing, facilities management,
imaging and legal document solutions, as well as network design and consulting and e-business development. IKON has locations worldwide including in the United States, Canada, Mexico, the United Kingdom, France, Germany, Ireland and Denmark.
IKONs fiscal 2002 revenues were approximately $4.8 billion.





The Company is engaged in the business of
arranging lease financing primarily for office equipment marketed by IKONs U.S. marketplaces. The ability to offer lease financing on equipment through IOSC is considered a competitive marketing advantage which more closely ties IKON to its
customer base. During fiscal 2002, 79% of equipment sold by IKON was financed through the Company. The Company and IKON will seek to increase this percentage in the future, as leasing enhances the overall profit margin on equipment and is considered
an important customer retention strategy.





The equipment financed by the Company consists of copiers, facsimile
machines, and related accessories and peripheral equipment, the majority of which are produced by major office equipment manufacturers including Canon, Ricoh, Hewlett-Packard and Océ. Currently 85% of the equipment financed by the Company
represents digital copiers (including color copiers), 11% analog copiers, 2% facsimile machines and 2% other equipment.





The Companys customer base (which consists of end users of the equipment sold by IKON) is widely dispersed, with the ten largest customers representing less than 3% of the Companys total lease portfolio. The typical new
lease financed by the Company averages $20 in amount and 51 months in duration. Although 95% of the leases are scheduled for regular monthly payments, customers are also offered quarterly, semi-annual and annual payment terms. In connection with its
leasing activities, the Company performs billing, collection, property and sales tax filings, and provides quotes on equipment upgrades and lease-end notification. The Company also provides certain financial reporting services to the IKON
marketplaces, such as a monthly report of marketplace leasing activity and related statistics.





2.    Significant
Accounting Policies





Principles of Consolidation





The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, after elimination of all intercompany transactions,
accounts and profits.





Use of Estimates





The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates and assumptions.




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##### Table of Contents




Revenue Recognition





Finance income and rental income are recognized over the related lease term. Revenue for other income is recognized in the period earned.





Property and Equipment





Property and equipment, including leased equipment, is carried on the basis of cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as
follows: equipment on operating leases3-5 years; furniture and office equipment3-7 years; leasehold improvementsshorter of the asset life or term of lease.





Income Taxes





The
Companys deferred tax expense and the related liability are primarily the result of the difference between the financial statement and income tax treatment of direct financing leases. IKON and the Company participate in a Federal Income Tax
Allocation Agreement dated June 30, 1989, in which the Company consents to the filing of consolidated federal income tax returns with IKON. IKON agrees to collect from or pay to the Company its allocated share of any consolidated federal income tax
liability or refund applicable to any period for which the Company is included in IKONs consolidated federal income tax return.





Financial Instruments





The Company uses interest rate swap agreements for purposes
other than trading. Interest rate swap agreements are used by the Company to modify variable rate obligations to fixed rate obligations, thereby reducing the exposure to market rate fluctuations. The interest rate swap agreements are designated as
hedges, and effectiveness is determined by matching the principal balance and terms with that specific obligation. Such an agreement involves the exchange of amounts based on fixed interest rates for amounts based on variable interest rates over the
life of the agreement without an exchange of the notional amount upon which payments are based. Gains and losses on terminations of interest rate swap agreements are deferred and amortized over the remaining term of the original contract life of the
terminated swap agreement. In the event of early extinguishment of the obligation, any realized or unrealized gain or loss from the swap would be recognized in income at the time of extinguishment.





IOSC adopted Statement of Financial Accounting Standards (SFAS) 133, as amended by SFAS 138, Accounting for Derivative
Instruments and Hedging Activities, on October 1, 2000. SFAS 133 requires that all derivatives be recorded on the consolidated balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in earnings or
Other Comprehensive Income (Loss) (OCI) depending on the type of hedging instrument and the effectiveness of those hedges. In accordance with the transition provisions of SFAS 133, IOSC recorded a cumulative loss adjustment to OCI of
$3,471, after taxes, to recognize the fair value of its derivatives as of the date of adoption.





All of the
derivatives used by IOSC as hedges are highly effective as defined by SFAS 133 because all of the critical terms of the derivatives match those of the hedged item. All of the derivatives used by IOSC have been designated as cash flow hedges at the
time of adoption of SFAS 133 or at the time they were executed, if later than October 1, 2000. All derivatives are adjusted to their fair market values at the end of each quarter with unrealized net gains and losses for cash flow hedges recorded in
OCI.





As of September 30, 2002, all of lOSC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




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##### Table of Contents

no ineffectiveness. IOSC uses interest rate swaps to fix the interest rates on our 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 year ended September 30, 2002, unrealized net gains totaling $6,204, after taxes, were recorded in OCI.





Restricted Cash





Restricted cash on the consolidated balance sheets represents the
cash that has been collected on the leases that are pledged as collateral for lease-backed notes. This cash must be segregated within two business days into a trust account and the cash is used to pay the principal and interest on lease-backed notes
as well as any associated administrative expenses. The level of restricted cash is impacted from one period to the next by the volume of leases and timing of collections on such leases.





IKON Stock





Pursuant to the
terms of the convertible debt issued on May 13, 2002, the Company may be required to issue IKON common stock to satisfy all or a portion of its obligation if the debt holders exercise their conversion option. While at this time the Company does not
hold any IKON stock, the Companys policy is to account for such stock as treasury stock, which would be presented as a contra equity account reducing the Companys contributed capital.





3.    Agreements between IOS Capital and IKON





Cash Management Program





The Company participates in IKONs domestic cash
management program. Under this program, the Company has an account with IKON through which cash in excess of current operating requirements is temporarily placed on deposit. Similarly, amounts are periodically borrowed from IKON, with interest paid
or charged at market rates. The Company was in a net average borrowing position with IKON during fiscal 2002 and 2001 and paid interest expense of $3,009 and $7,788, respectively and was in a net average deposit position with IKON during fiscal 2000
and earned interest income of $2,281 (netted against interest expense).





Management Fee





Included in general and administrative expenses are corporate expenses charged by IKON of $2,535, $2,210 and $1,500 in fiscal
2002, 2001 and 2000, respectively. These corporate charges represent managements estimate of costs incurred by IKON on behalf of IOSC for legal, treasury, tax and marketing support.





Interest on Income Tax Deferrals





The Company charged IKON interest on IKONs income tax deferrals associated with the Companys leasing transactions. Such charges were calculated at 6.7% in fiscal 2000 totaling $16,773. Effective October 1, 2000, the
Company and IKON agreed to terminate this program.





Lease Defaults





Effective October 1, 1999, the Company began a shared recourse arrangement with the IKON marketplaces. This arrangement provided for net
losses resulting from lease defaults to be shared equally. The lease default reserve is maintained at the Company and the provisions for lease default are shared between the Company and the IKON marketplaces. On October 1, 1999, lease default
reserves of $74,305 and the related deferred tax liability of $29,350 were transferred to the Company from the IKON marketplaces.




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##### Table of Contents




The following table provides a rollforward of changes in the lease default
reserve from October 1, 1999 to September 30, 2002:





IOSC


IKON Marketplaces

TotalBalance at October 1, 1999

$
74,305





$
74,305Provision


20,333


$
37,780


58,113Write-offs


(70,152
)





(70,152
)Balance at September 30, 2000









62,266Provision


21,413



39,767


61,180Write-offs


(64,288
)





(64,288
)Balance at September 30, 2001









59,158Provision


21,835



41,554


63,389Write-offs


(72,726
)





(72,726
)Balance at September 30, 2002








$
49,821





Effective October 1, 2002, the shared recourse arrangement with the
IKON marketplaces has been terminated, and the Company will record the entire provision for lease defaults.





The 1996 Support Agreement





The 1996 Support Agreement between the Company and IKON
provides that IKON will make a cash payment to the Company (or an investment in the form of equity or subordinated notes) as needed to comply with two requirements: i) that the Company will maintain a pre-tax interest coverage ratio (income before
interest expense and taxes divided by interest expense), so that the Companys pre-tax income plus interest expense will not be less than 1.25 times fixed charges, and ii) that the Company will maintain a minimum tangible net worth of
one-dollar. The agreement also provides that IKON will maintain 100% direct or indirect ownership of the Company and limits the leverage of debt to equity to a maximum of 6 to 1.





Pursuant to the indentures and other documentation governing debt incurred after June 1, 1994, the Company is not permitted to amend or terminate the 1996 Support Agreement
unless: (a) all of the outstanding debt of the Company is repaid, or (b) approval of two-thirds of the debt holders (not including IKON or its affiliates) for all amounts outstanding and covered by the 1996 Support Agreement (generally, all debt
entered into after June 1, 1994) is obtained.





4.    Unsecured Credit Facility





On May 24, 2002, IKON obtained a new $300,000 unsecured credit facility (the New Credit Facility) with a group of lenders. The
New Credit Facility replaces IKONs $600,000 credit facility that was to expire in January 2003. Revolving loans are available to the Company. The New Credit Facility contractually matures on May 24, 2005. As of September 30, 2002, the Company
had no borrowings outstanding under the New Credit Facility. The New Credit Facility also provides support for letters of credit for IKON and its subsidiaries. As of September 30, 2002, letters of credit supported by the New Credit Facility amounted
to $21,448. The amount available under the New Credit Facility is determined by the level of certain of IKONs unsecured assets and the open letters of credit for IKON and its subsidiaries. The remaining amount available to the Company under
the New Credit Facility for borrowings or letters of credit is $234,705, as of September 30, 2002.




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##### Table of Contents




The New Credit Facility contains affirmative and negative covenants, including
limitations on certain fundamental changes, investments and acquisitions, mergers, certain transactions with affiliates, creation of liens, asset transfers, payment of dividends, intercompany loans and certain restricted payments. The New Credit
Facility does not affect our ability to continue to securitize lease receivables. In addition, unless IKON achieves certain ratings on its long and short term senior, unsecured debt (as defined) or has not redeemed or defeased the Companys
9.75% Notes due June 15, 2004 ($250,000 outstanding at September 30, 2002), all loans under the New Credit Facility will mature on December 15, 2003. Cash dividends may be paid on IKONs common stock subject to certain limitations. The New
Credit Facility also contains certain financial covenants including (i) corporate leverage ratio; (ii) consolidated interest expense ratio; (iii) consolidated asset test ratios; and (iv) limitations on capital expenditures. The New Credit Facility
contains default provisions customary for facilities of this type. Failure to be in compliance with any material provision of the New Credit Facility could have a material adverse effect on our liquidity, financial position and results of
operations.





5.    Investments in Leases





The Companys lease portfolio contains direct financing leases and funded leases. Direct financing leases include noncancelable lease agreements which are serviced by
the Company. The Companys funded leases include certain internal lease portfolios and noncancelable rental contracts for IKON marketplaces, which have been financed by the Company. Under the terms of these funded leases, the IKON marketplace
maintains the contractual relationship with the third-party customer. The IKON marketplaces have assigned to the Company, with full recourse, their rights under the underlying contracts including the right to receive lease and rental payments and a
security interest in the related equipment.





At September 30, 2002, aggregate future minimum payments to be
received, including residual values, for each of the succeeding fiscal years, under direct financing and funded leases are as follows:





Net Leases


Residual


Investment in
Leases2003

$
1,191,136


$
157,658


$
1,348,7942004


946,007



125,213



1,071,2202005


643,318



85,149



728,4672006


356,121



47,136



403,2572007


133,378



17,654



151,0322008


1,018



135



1,1532009


93



11



104$
3,271,071


$
432,956


$
3,704,027Less unearned income


(544,892
)


(72,829
)


(617,721
)2,726,179



360,127



3,086,306Less lease default reserve


(43,947
)


(5,874
)


(49,821
)$
2,682,232


$
354,253


$
3,036,485





6.    Medium Term Notes,
Convertible Subordinated Notes, Asset Securitization Conduit Financing and Other Notes





The Company may offer
notes from time to time under its medium term note program. These notes are offered at varying maturities of nine months or more from their dates of issue and may be subject to redemption at the option of the Company, in whole or in part, prior to
the maturity date in conjunction with meeting specified




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##### Table of Contents

provisions. Interest rates are determined based on market conditions at the time of issuance. During fiscal 2002, the Company repaid $82,000 of 6.30% medium term notes. As of September 30, 2002,
the Company had no medium term notes outstanding.





On May 13, 2002, the Company issued $300,000 of convertible
subordinated notes (the Convertible Notes) with an interest rate of 5.0%, which are due on May 1, 2007. The Convertible Notes can be converted into shares of IKON common stock at any time before maturity at a conversion price of $15.03
per share. Interest is paid on the Convertible Notes semi-annually beginning November 1, 2002. The Company used the net proceeds to repay loans due to IKON and for general corporate purposes.





In fiscal 2002, the Company signed promissory notes and pledged $16,755 of lease receivables for $14,259 of proceeds. During fiscal 2002, the Company repaid $8,381 of
the promissory notes. In fiscal 2001, the Company signed promissory notes and pledged $26,784 of lease receivables for $22,471 of proceeds. During fiscal 2001, the Company repaid $1,179 of the promissory notes. These notes have various interest
rates ranging from 6.24% to 8.614% with maturities through July 2007.





IOSC has three revolving asset
securitization agreements with 364 day terms that expire in fiscal 2003 with certain renewal provisions. The agreements are structured so that as collections reduce previously pledged or transferred interests in the leases, additional leases can be
pledged or transferred up to $705,000. All of the agreements require that IOSC continue to service the lease portfolio.





During fiscal 2002 and 2001, IOSC entered into revolving asset securitization transactions whereby it pledged or transferred $716,533 and $703,522, respectively, of finance receivables for $712,411 and $648,500, respectively, in
cash. During fiscal 2002, IOSC repaid $593,411 under its revolving asset securitization conduit financing agreements. Repayments were made with proceeds received from the issuance of the Series 2002-1 Notes described below. In fiscal 2001, IOSC
repaid $1,037,795 under its revolving asset securitization conduit financing agreements. Repayments were made with proceeds from the issuance of the Series 2000-2 and 2001-1 Notes described below.





On June 15, 2001, the Company issued $250,000 of notes with an interest rate of 9.75% (10% yield including the original issue discount)
which are due on June 15, 2004. Interest is paid on the notes semi-annually beginning December 15, 2001. With the net proceeds from the issuance, the Company repaid $150,000 of 6.73% medium term notes due June 15, 2001 and used the remainder of the
proceeds for general corporate purposes.





The Company must comply with certain restrictive covenants under the
terms of its loan agreements. The Company agrees to maintain earnings before fixed charges of not less than 1.25 times fixed charges, a debt to equity ratio of not more than 6 to 1 and a minimum tangible net worth of one-dollar.





Interest paid amounted to $148,048, $168,574 and $156,974 for the fiscal years ended September 30, 2002, 2001 and 2000,
respectively.





At September 30, 2002 and 2001, the fair value of debt outstanding is estimated to be $2,553,006
and $2,200,331, respectively, using a discounted cash flow analysis.





Future maturities of all debt outstanding at
September 30, 2002 are as follows:





Fiscal2003

$
1,199,1322004


789,4012005


221,1642006


70,3692007


300,432$
2,580,498




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##### Table of Contents




7.    Lease-Backed Notes





IKON Receivables, LLC (a wholly-owned subsidiary of the Company) has issued Series 1999-1, 1999-2, 2000-1, 2000-2 and 2001-1 Lease-Backed
Notes (collectively, together with the Lease-Backed Notes issued by IKON Receivables Funding, LLC, the Notes) as described below:





Series

Notes

Issuance Date

Principal Issuance Amount

Principal Amount Outstanding at September 30, 2002

Interest Rate

Stated MaturityDate1999-1

Class A-l

05/25/99

$
304,474




5.11%

June 2000Class A-2

05/25/99


61,579




5.60%

May 2005Class A-3

05/25/99


304,127

$
23,046

5.99%

May 2005Class A-4

05/25/99


81,462


81,462

6.23%

May 2005Sub-Total


751,642


104,5081999-2

Class A-l

10/07/99


235,326




6.14125%

October 2000Class A-2

10/07/99


51,100




6.31%

May 2001Class A-3a

10/07/99


100,000


19,319

6.59%

August 2003Class A-3b

10/07/99


240,891


46,538

LIBOR + 0.36%

August 2003Class A-4

10/07/99


72,278


72,278

6.88%

November 2005Sub-Total


699,595


138,1352000-1

Class A-l

06/02/00


130,000




6.99625%

June 2001Class A-2

06/02/00


54,000




7.51%

March 2002Class A-3

06/02/00


230,000


86,634

LIBOR + 0.19%

March 2004Class A-4

06/02/00


84,510


84,510

LIBOR + 0.23%

September 2006Sub-Total


498,510


171,1442000-2

Class A-l

12/07/00


193,532




6.66125%

December 2001Class A-2

12/07/00


70,193




6.60%

September 2002Class A-3

12/07/00


290,800


192,557

LIBOR + 0.23%

October 2004Class A-4

12/07/00


79,906


79,906

LIBOR + 0.27%

July 2007Sub-Total


634,431


272,4632001-1

Class A-l

06/28/01


168,000




3.73375%

July 2002Class A-2

06/28/01


41,000




4.16%

March 2004Class A-3

06/28/01


260,000


241,592

LIBOR + 0.23%

January 2006Class A-4

06/28/01


126,200


126,200

LIBOR + 0.26%

October 2008Sub-Total


595,200


367,792Total

$
3,179,378

$
1,054,042




F-12




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##### Table of Contents




IKON Receivables Funding, LLC (a wholly-owned subsidiary of the Company) has
issued Series 2002-1 Lease-Backed Notes as described below:





Series

Notes

Issuance Date

Principal Issuance Amount

Principal Amount Outstanding at September 30, 2002

Interest Rate


Stated Maturity Date2002-1

Class A-1

05/30/02

$
171,000

$
106,424

2.044
%

June 2003Class A-2

05/30/02


46,000


46,000

2.91
%

February 2005Class A-3

05/30/02


266,400


266,400

3.90
%

October 2006Class A-4

05/30/02


151,400


151,400

4.68
%

November 2009Total

$
634,800

$
570,224





The Notes were issued pursuant to certain indentures
(Indentures) between IKON Receivables, LLC or IKON Receivables Funding, LLC, IOSC and certain Indenture trustees. The Notes are collateralized by a pool of office equipment leases or contracts and related assets (the Leases)
acquired or originated by IOSC (together with the equipment financing portion of each periodic lease or rental payment due under the Leases on or after the related indenture date) and all related casualty payments, retainable deposits, and
termination payments. Payments on the Notes are made from payments on the Leases. The Notes have certain credit enhancement features available to noteholders, including reserve accounts, overcollateralization accounts and noncancelable insurance
policies from Ambac Assurance Corporation with respect to the Notes. On each payment date, funds available from the collection of lease receivables will be paid to the noteholders in the order of their priority class.





The Notes bear interest from the related issuance date at the stated rates specified above. The variable rate 1999-2 Class A-3b, 2000-1
Class A-3, 2000-1 Class A-4, 2000-2 Class A-3, 2000-2 Class A-4, 2001-1 Class A-3 and 2001-1 Class A-4 Notes have been fixed at 6.63%, 7.802%, 7.82%, 6.475%, 6.475%, 4.825% and 5.435%, respectively, through interest rate swaps.





IOSC services the Leases and may delegate its servicing responsibilities to one or more sub-servicers, but such delegation does
not relieve IOSC of its liabilities with respect thereto. IOSC retains possession of the Leases and related files.





On December 28, 2001, IOSC and IKON issued $87,011 and repurchased $12,460 of lease-backed notes (the Other Notes) for a net issuance of $74,551. The repurchased amount was sold on May 24, 2002 for $10,806. The Other
Notes have a stated maturity of September 15, 2008 and pay an average yield of 5.06%. The Other Notes are collateralized by a pool of office equipment leases or contracts and related assets (the Other Leases) acquired or originated by
the Company (together with the equipment financing portion of each periodic lease or rental payment due under the Other Leases on or after the related transfer date) and all related casualty payments, retainable deposits and termination payments.
Payments on the Other Notes are made from payments on the Other Leases. The Other Notes have certain credit enhancement features available to noteholders, including a reserve account and an overcollateralization account.




F-13




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##### Table of Contents




Future maturities of the Notes and Other Notes, based on contractual maturities
of the Leases and the Other Leases, for each of the succeeding fiscal years are as follows:





1999-1 Series Notes

1999-2 Series Notes

2000-1 Series Notes

2000-2 Series Notes

2001-1 Series Notes

2002-1 Series Notes

Other Notes

Total2003

$
104,508

$
138,135

$
99,682

$
145,201

$
168,106

$
191,375

$
29,716

$
876,7232004








71,462


127,262


129,148


178,300


24,822


530,9942005














70,538


132,840


12,024


215,4022006

















67,709





67,709$
104,508

$
138,135

$
171,144

$
272,463

$
367,792

$
570,224

$
66,562

$
1,690,828





8.    Lease Commitments





Total rent expense under all operating leases aggregated $3,504, $1,988 and $1,580 in fiscal 2002, 2001 and 2000, respectively. At
September 30, 2002, future minimum payments under noncancelable operating leases with initial or remaining terms of more than one year for each of the succeeding fiscal years are as follows: 2003$3,796; 2004$1,788; 2005$1,001;
2006$1,001; 2007$1,001; and thereafter$9,507.





9.    Income Taxes





During fiscal 2002 the Company converted into a limited liability company and will be treated as a disregarded entity for tax purposes.
The Company and IKON will be treated as a single entity for tax purposes. Taxable income of the Company is included in the consolidated federal income tax return of IKON and all estimated tax payments and refunds, if any, are made through IKON. The
federal provision for income taxes was determined as if the Company was a separate taxpayer.





Provision for income
taxes:





Fiscal Year Ended September 30,2002

2001

2000Current


Deferred

Current

Deferred

Current

DeferredFederal

$
(7,195
)

$
67,806

$
7,480

$
39,855

$
8,773

$
35,836State


113



10,558


1,716


3,377


567


3,270Total

$
(7,082
)

$
78,364

$
9,196

$
43,232

$
9,340

$
39,106




F-14




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##### Table of Contents




The components of deferred income tax assets and liabilities were as follows:





September 30,2002


2001Deferred tax assets:Accrued liabilities

$
26,981


$
24,902Derivatives and hedging activities under SFAS 133


16,113



20,248Net operating loss and alternative minimum tax credit carryforwards


181,662



67,460Other, net






66Total deferred tax assets


224,756



112,676Valuation allowance


663



750Net deferred tax assets


224,093



111,926Deferred tax liabilities:Accrued liabilities






(2,910
)Depreciation


(3,541
)


(879
)Lease income recognition


(445,209
)


(270,746
)Total deferred tax liabilities


(448,750
)


(274,535
)Net deferred tax liabilities

$
(224,657
)

$
(162,609
)





Net operating loss carryforwards consist primarily of federal
carryforwards of approximately $287,577, which will expire in fiscal 2022. Credit carryforwards consist primarily of federal and state alternative minimum tax credits of approximately $80,346 (with no expiration date). A valuation allowance has been
established against certain state alternative minimum tax credit carryforwards. The reduction in the valuation allowance is due to the elimination of the need for a valuation allowance on certain state net operating loss carryforwards.





The components of the effective income tax rate were as follows:





Fiscal Year Ended September
30,2002


2001


2000Taxes at federal statutory rate

35.0
%

35.0
%

35.0
%State taxes, net of federal benefit

6.1


3.3


2.8Other

(0.1
)

(0.1
)

0.1Effective income tax rate

41.0
%

38.2
%

37.9
%





The increase in state taxes was due to the deferred provision for
those states that allow the federal bonus depreciation under the Federal Job Creation and Workers Assistance Act of 2002. The Company made net income tax payments, including amounts paid to IKON, of $194, $8,775, and $20,006 in fiscal years 2002,
2001 and 2000, respectively.





10.    Pension and Stock Purchase Plan





The Company participates in IKONs defined benefit pension plan covering the majority of its employees. The benefits generally are
based on years of service and compensation. The Companys policy is to fund pension costs as accrued. Pension expense was $209, $189 and $276 in fiscal 2002, 2001 and 2000, respectively.




F-15




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##### Table of Contents




The majority of the Companys employees were eligible to participate in
IKONs Retirement Savings Plan (RSP). The RSP allows employees to invest 1% to 16% of regular compensation before taxes in nine different investment funds. The Company contributes an amount equal to two-thirds of the employees
investments, up to 6% of regular compensation, for a maximum Company match of 4%. Substantially, all Company contributions are invested in IKONs common stock. Employees vest in a percentage of the Companys contribution after two years of
service, with full vesting at the completion of five years of service. The Companys cost of the plan amounted to $302, $304 and $214 in fiscal 2002, 2001 and 2000, respectively. Effective November 1, 2002, RSP participants with greater than
two years of employment may elect to allocate the Companys matching contribution in investment options other than IKON common stock. Effective January 1, 2003, the Company will reduce its matching contribution to an amount equal to 50% of the
employees investments, up to 6% of regular compensation, for a maximum Company match of 3%.





11.    Financial Instruments





The Company incurs debt to fund the
origination of leases. The interest rates charged on the debt are determined based on current market conditions and include variable measures of interest rates such as LIBOR. The Company monitors interest rates on debt in order to mitigate exposure
to unfavorable variations as compared to the interest rate earned on the pledged finance lease receivables. The objective in managing this risk is to achieve fixed-rate financing at the same time the Company establishes the rate to be received by
the Company on the leases. As a result, from time to time interest rate swaps are utilized to effectively fix the rate on variable rate debt, as opposed to a direct issuance of fixed rate debt. The risk associated with the use of interest rate swaps
is the possible inability of the counterparties to meet the terms of their contracts. The Company does not enter into interest rate swap agreements for trading purposes.





The following tables present, as of September 30, 2002 and 2001, information regarding the interest rate swap agreements to which we are a party: (i) the notional amount,
(ii) the fixed interest rate payable by the Company, (iii) the variable interest rate payable to the Company by the counterparty under the agreement, (iv) the fair value of the instrument, and (v) the maturity date of the agreement.





September 30, 2002Notional Amount

Fixed Interest Rate


Variable Interest Rate

Fair Value


Maturity Date$
272,463

6.475
%

LIBOR

$
(13,671
)

July 2007$
241,592

4.825
%

LIBOR + 0.23%

$
(6,002
)

January 2006$
86,634

7.802
%

LIBOR + 0.19%

$
(2,536
)

March 2004$
46,538

6.270
%

LIBOR

$
(314
)

August 2003$
126,200

5.435
%

LIBOR + 0.26%

$
(8,383
)

October 2008$
84,510

7.820
%

LIBOR + 0.23%

$
(7,281
)

September 2006$
66,562

4.180
%

LIBOR

$
(2,096
)

November 2007September 30, 2001Notional Amount

Fixed Interest Rate


Variable Interest Rate

Fair Value


Maturity Date$
370,706

6.475
%

LIBOR

$
(19,060
)

July 2007$
260,000

4.825
%

LIBOR + 0.23%

$
(6,004
)

January 2006$
219,939

7.802
%

LIBOR + 0.19%

$
(9,357
)

March 2004$
145,407

6.270
%

LIBOR

$
(3,382
)

August 2003$
126,200

5.435
%

LIBOR + 0.26%

$
(4,715
)

October 2008$
84,510

7.820
%

LIBOR + 0.23%

$
(8,104
)

September 2006





12.    Sale-leaseback Transaction





During fiscal 2002, the Company entered into a sale-leaseback transaction involving its facilities in Macon, Georgia resulting in a gain
of approximately $2,136 that will be amortized over the remaining lease term which expires March, 2017.




F-16




---

##### Table of Contents

SIGNATURES





Pursuant to the requirements of section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal year ended September 30, 2002 to be signed on its behalf by the
undersigned, thereunto duly authorized.





IOS CAPITAL, LLCDate:    December 30, 2002



By:

/s/    HARRY G.
KOZEEHarry G. Kozee Vice
PresidentFinance





Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed below on December 30, 2002 by the following persons on behalf of the registrant and in the capacities indicated.





Signatures

Title/s/    RUSSELL S.
SLACK Russell S. Slack

President (Principal Executive Officer)/s/    HARRY G.
KOZEE Harry G. Kozee

Vice PresidentFinance (Principal Financial Officer and Principal Accounting Officer)/s/    WILLIAM S.
URKIEL William S. Urkiel

Director




---

##### Table of Contents




CERTIFICATIONS





I, Russell S. Slack, President and Principal Executive Officer of IOS Capital, LLC, certify that:





| | 1. |  | I have reviewed this annual report on Form 10-K of IOS Capital, LLC;
| | -- |  | --------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this annual 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 annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 date of this annual
report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this annual 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 annual 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:    December 30, 2002





/s/    RUSSELL S. SLACKRussell S. Slack President and Principal Executive Officer




---

##### Table of Contents




I, Harry G. Kozee, Vice PresidentFinance, Principal Financial Officer, and
Principal Accounting Officer of IOS Capital, LLC, certify that:





| | 1. |  | I have reviewed this annual report on Form 10-K of IOS Capital, LLC;
| | -- |  | --------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this annual 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 annual report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 date of this annual
report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this annual 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 annual 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:    December 30, 2002


/s/    HARRY G. KOZEEHarry G. Kozee Vice PresidentFinance, Principal Financial Officer,
and Principal Accounting Officer