<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 15, 1997
IKON Office Solutions, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
OHIO File No. 1-5964 23-0334400
- ------------------------------- ---------------- --------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
</TABLE>
P.O. Box 834, Valley Forge, Pennsylvania 19482
-------------------------------------------- -----------
Registrant's telephone number, including area code: (610) 296-8000
--------------
Not Applicable
-----------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
------------
The Registrant is filing this Report on Form 8-K in order to file, as an
exhibit to the Report, its Ratios of Earnings to Fixed Charges for each of the
years in the five-year period ended September 30, 1997, and in order to file its
results for the fiscal year ended September 30, 1997.
On October 15, 1997, the Registrant issued a press release announcing its
results for the quarter and year ended September 30, 1997. Earnings per share
from the continuing operations for the fourth quarter were $0.35 per share,
excluding transformation costs. Revenues for the fourth quarter increased 24%
over the same period last year to $1.4 billion, and income from continuing
operations was $51.4 million, excluding transformation costs, up 3% from $50
million, excluding transformation costs, in the same period last year. Including
approximately $28 million in transformation costs, net income for the fourth
quarter of fiscal 1997 was $33.0 million and earnings per share were $0.21.
For the 1997 fiscal year, revenues totaled $5.1 billion, a 25% increase
over the same period last year. Excluding transformation costs and a one-time,
first quarter charge for the early extinguishment of debt, income from
continuing operations for fiscal 1997 was $204.9 million, a 15% increase over
last year. Earnings per share, on the same basis, rose 12% to $1.38 from $1.23
in fiscal 1996.
Including transformation costs, the one-time charge, and discontinued
operations, net income for fiscal 1997 was $130.4 million and earnings per share
for the same period were $0.83. Discontinued operations represent Unisource
Worldwide Inc. (UWW), which began operating as a separate public company on
January 1, 1997.
With regard to the Registrant's ongoing transformation, the Registrant
expects its transformation process to be substantially completed by the end of
fiscal 1998. The transformation program includes a variety of activities
designed to lower its administrative costs and improve margins. These
activities include consolidating purchasing, inventory control, logistics, and
other activities into 13 customer service centers in the United States,
establishing a single financial processing center, building a common information
technology system, adopting a common name, and creating sales and service
marketplaces.
The Report includes or incorporates by reference information which may
constitute forward-looking statements within the meaning of the federal
securities laws. Although the Registrant believes the expectations contained in
such forward-looking statements are reasonable, no assurances can be given 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
uncertainties and risks that could significantly affect current plans,
anticipated actions and the Registrant's future financial condition and results.
These uncertainties and risks include, but are not limited to, those relating to
successfully managing an aggressive program to acquire and integrate new
companies, including companies with technical services and products that are
relatively new to the Registrant, and also including companies outside the
United States, which present additional risks relating to international
operations; risks and uncertainties relating to conducting operations in a
competitive environment; delays, difficulties, technological changes, management
transitions and employment issues associated with a large-scale transformation
project; debt service requirements (including sensitivity to fluctuation in
interest rates); and general economic conditions. As a consequence, 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 Registrant.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(c) Exhibits.
--------
(12.1) Ratio of Earnings to Fixed Charges
(12.2) Ratio of Earnings to Fixed Charges
(Excluding Captive Finance Subsidiaries)
(99) Press Release dated October 15, 1997
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Michael J. Dillon
--------------------------------
Michael J. Dillon
Vice President and Controller
Dated: October 22, 1997
<PAGE>
Index to Exhibit
----------------
(12.1) Ratio of Earnings to Fixed Charges
(12.2) Ratio of Earnings to Fixed Charges
(Excluding Captive Finance Subsidiaries)
(99) Press Release Dated October 15, 1997
<PAGE>
EXHIBIT 12.1
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Income from continuing operations $122,362 $164,893 $115,011 $ 1,996 $ 61,276
Add:
Loss from unconsolidated affiliate 117,158 2,538
Provision for income taxes 90,751 107,984 75,501 41,315 40,093
Fixed charges 192,021 127,970 82,672 60,481 49,524
------- ------- ------- ------- ------
Earnings, as adjusted (A) $405,134 $400,847 $273,184 $220,950 $153,431
======= ======= ======= ======= =======
Fixed charges
Other interest expense, including
interest on capital leases $146,117 $105,222 $ 61,888 $ 44,096 $ 39,044
Estimated interest component of
rental expense 27,203 22,748 20,784 16,385 10,480
Prepayment penalties on early
extinguishment of debt 18,701
------- ------- ------- ------- -------
Total fixed charges (B) $192,021 $127,970 $ 82,672 $ 60,481 $ 49,524
======= ======= ======= ======= =======
Ratio of earnings to fixed charges
(A) divided by (B) 2.1(1) 3.1(2) 3.3 3.7 3.1
======= ======= ======= ======= =======
</TABLE>
(1) Excluding the effect of transformation costs, the ratio of earnings to
fixed charges for the fiscal year ended September 30, 1997 is 2.8.
(2) Excluding the effect of transformation costs, the ratio of earnings to
fixed charges for the fiscal year ended September 30, 1996 is 3.3.
<PAGE>
EXHIBIT 12.2
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES (EXCLUDING CAPTIVE FINANCE SUBSIDIARIES)
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $85,897 $140,656 $100,539 $(11,351) $ 53,174
Add:
Loss from unconsolidated affiliate 117,158 2,538
Provision for income taxes 65,931 85,512 63,938 32,904 34,621
Fixed charges 92,738 59,514 42,138 32,389 25,707
------- ------- ------- ------- -------
Earnings, as adjusted (A) $244,566 $285,682 $206,615 $171,100 $116,040
======= ======= ======= ======= =======
Fixed charges
Other interest expense, including
interest on capital leases $ 47,453 $ 37,179 $ 21,672 $ 16,118 $ 15,382
Estimated interest component of
rental expense 26,584 22,335 20,466 16,271 10,325
Prepayment penalties on early
extinguishment of debt 18,701
------- ------- ------- ------- -------
Total fixed charges (B) $ 92,738 $ 59,514 $ 42,138 $ 32,389 $ 25,707
======= ======= ======= ======= =======
Ratio of earnings to fixed charges
(A) divided by (B) 2.6(1) 4.8(2) 4.9 5.3 4.5
======= ======= ======= ======= =======
</TABLE>
(1) Excluding the effect of transformation costs,the ratio of earnings to
fixed charges (excluding finance subsidiaries) for the fiscal year ended
September 30, 1997 is 4.0.
(2) Excluding the effects of transformation costs, the ratio of earnings to
fixed charges (excluding finance subsidiaries) for the fiscal year ended
September 30, 1996 is 5.2.
<PAGE>
EXHIBIT 99
<TABLE>
<CAPTION>
CONTACTS:
<S> <C> <C> <C>
Michael N. Kilpatric Steven K. Eck Suzanne C. Shenk Susan G. Gaffney
News Media News Media Investor Relations Investor Relations
610-408-7294 610-408-7295 610-408-7290 610-408-7292
[email protected] [email protected] [email protected] [email protected]
</TABLE>
IKON OFFICE SOLUTIONS ANNOUNCES
FOURTH QUARTER AND FULL YEAR RESULTS
Achieves Revised Earnings Target for the Fourth Quarter
Continues on Solid Growth Track
Valley Forge, Pennsylvania--October 15, 1997--IKON Office Solutions
(NYSE: IKN) today announced that earnings per share from continuing operations
in the fourth quarter, ended September 30, 1997, were $0.35, excluding
transformation costs. The results were 3 percent ahead of last year's fourth
quarter, which posted earnings per share of $0.34, excluding transformation
costs, and were within IKON's revised earnings expectations of $0.33 to $0.36
per share, excluding transformation costs, announced in mid-June.
For the 1997 fiscal year's fourth quarter, revenues increased 24 percent to
$1.4 billion, and income from continuing operations was $51.4 million, excluding
transformation costs, up 3 percent from $50.0 million, excluding transformation
costs, in the same period last year. Including approximately $28 million in
transformation costs, net income for the fourth quarter in fiscal 1997 was $33.0
million and earnings per share were $0.21.
"Our business strategy--to deliver customers total office technology
solutions from copiers and printers to computer networks and document services--
continues on a solid growth track. Although 1997 was a difficult year of
transition, our revenue growth continues to be
- more -
<PAGE>
strong, and we are making steady progress on our infrastructure transformation,"
said John E. Stuart, IKON's chairman and chief executive officer. "In
particular, our newer outsourcing and technology services businesses continue
their sound performance, and the United Kingdom, where we had some
transformation difficulties earlier in the year, has improved and is poised for
growth."
The internal rate of revenue growth for the 1997 fourth quarter was 12
percent in North America, while the overall rate for the Company was 10 percent,
reflecting the impact of the disruption to our operations in the United Kingdom.
As part of its ongoing strategy, IKON acquired 25 companies during the
fourth quarter for a total of 89 acquisitions for the 1997 fiscal year. The 89
acquisitions represent approximately $528 million in revenues from the acquired
companies for the year preceding their purchase and include 28 systems
integration companies, 27 outsourcing and imaging companies, and 34 office
equipment companies. IKON continues to aggressively acquire systems integration
and outsourcing/imaging capabilities in addition to expanding its traditional
office equipment base.
IKON also recently announced the introduction of the IKON Director Plus,
the first open-architecture output management solution offered by a major
distributor of office technology. The lead version of this new product can
direct print jobs to any printer connected to any network that supports
Microsoft NT Server version 4.0 print services. IKON Director Plus is the first
in a series of products which will provide customers with cost-effective means
of connecting computer networks with the output devices that support them.
Fiscal 1997 Results
- -------------------
For the 1997 fiscal year, revenues totaled $5.1 billion, a 25 percent
increase over the same period last year. Excluding transformation costs and a
one-time, first quarter charge for the early extinguishment of debt, income from
continuing operations of fiscal 1997 was $204.9 million, a 15 percent increase
over last year. Earnings per share, on the same basis, rose 12 percent to $1.38
from $1.23 in fiscal 1996.
- more -
<PAGE>
Including transformation costs, the one-time charge, and discontinued
operations, net income for fiscal 1997 was $130.4 million and earnings per share
for the same period were $0.83. Discontinued operations represent Unisource
Worldwide Inc. (UWW), which began operating as a separate public company on
January 1, 1997.
1998 Outlook
- ------------
IKON expects its transformation process to be substantially completed by
the end of fiscal 1998. The transformation program includes a variety of
activities designed to lower its administrative costs and improve margins.
These activities include consolidating purchasing, inventory control, logistics,
and other activities into 13 customer service centers in the U.S., establishing
a single financial processing center, building a common information technology
system, adopting a common name, and creating sales and service marketplaces.
Stuart said, "IKON expects to increase earnings per share, before
transformation costs, by 20 percent in 1998 as we continue to drive
transformation and implement our total solutions strategy. We remain committed
to increasing shareholder value, and believe that our business strategy and
transformation program will enable us to achieve that goal."
IKON Office Solutions (www.ikon.com) is one of the world's leading office
technology companies, providing customers with total office solutions from
copier and printing systems, computer networking and print-on-demand services to
copy center management, hardware and software product interfaces, and electronic
file conversion. With fiscal 1997 revenues of more than $5 billion, IKON has
operations in the U.S., Canada, Mexico, the United Kingdom, France, Germany and
Denmark.
This news release includes information which may constitute forward-looking
statements made pursuant to the safe harbor provisions of the federal securities
laws. Although IKON believes the expectations contained in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove correct. This information is subject to risk and uncertainties such as
those relating to managing an aggressive program to acquire and integrate new
companies; conducting activities in a competitive environment; delays,
difficulties, management transitions and employment issues associated with its
transformation; and general economic conditions. Therefore, actual results may
differ materially from the forward-looking statements.
# # #
<PAGE>
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended September 30
--------------------------------
1997 1996 % Change
--------- --------- --------
<S> <C> <C> <C>
Revenues
Net sales $ 775,476 $ 665,888 16.5%
Service and rentals 554,882 408,630 35.8
Finance income 63,475 50,190 26.5
--------- ---------
1,393,833 1,124,708 23.9
--------- ---------
Costs and Expenses
Cost of goods sold 509,783 437,785 16.4
Service and rental costs 266,638 190,820 39.7
Finance interest expense 28,933 19,970 44.9
Selling and administrative 487,344 382,865 27.3
Transformation costs 28,414 9,492
--------- ---------
1,321,112 1,040,932 26.9
--------- ---------
Operating income 72,721 83,776 (13.2)
Interest expense 15,558 11,237
--------- ---------
Income from continuing operations before taxes 57,163 72,539 (21.2)
Taxes on income 24,203 28,725 (15.7)
--------- ---------
Income from continuing operations 32,960 43,814 (24.8)
Discontinued operations 11,131
--------- ---------
Net income 32,960 54,945
--------- ---------
Less preferred dividends 4,885 4,885
--------- ---------
Available to common shareholders $ 28,075 $ 50,060
========= =========
Earnings Per Share
Continuing operations $0.21 $0.30 (30.0)%
Discontinued operations $0.08
--------- ---------
$0.21 $0.38
========= =========
Average Shares Outstanding 133,530 131,953 1.2%
========= =========
Continuing Operations Analysis:
Gross profit %, net sales 34.3% 34.3%
Gross profit %, service and rentals 51.9% 53.3%
Gross profit %, finance subsidiaries 54.4% 60.2%
Total gross profit % 42.3% 42.3%
SG&A as a % of revenue 35.0% 34.0%
Operating income % of revenue 5.2% 7.4%
Oper inc % of rev, excl trans costs 7.3% 8.3%
</TABLE>
<PAGE>
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
1997 1996 % Change
<S> <C> <C> <C>
Revenues
Net sales $2,841,561 $2,381,151 19.3 %
Service and rentals 2,063,186 1,560,915 32.2
Finance income 223,686 157,707 41.8
--------- ---------
5,128,433 4,099,773 25.1
Costs and Expenses
Cost of goods sold 1,828,883 1,552,183 17.8
Service and rental costs 1,007,060 743,110 35.5
Finance interest expense 98,664 68,043 45.0
Selling and administrative 1,806,352 1,404,958 28.6
Transformation costs 126,908 21,423
--------- ---------
4,867,867 3,789,717 28.4
--------- ---------
Operating income 260,566 310,056 (16.0)
Interest expense 47,453 37,179
--------- ---------
Income from continuing operations before taxes
and extraordinary loss 213,113 272,877 (21.9)
Taxes on income 90,751 107,984 (16.0)
--------- ---------
Income from continuing operations before
extraordinary loss 122,362 164,893 (25.8)
Discontinued operations 20,151 45,848
--------- ---------
Income before extraordinary loss 142,513 210,741
Extraordinary loss from early extinguishment
of debt, net of tax benefit (12,156)
--------- ---------
Net income 130,357 210,741
Less preferred dividends 19,540 22,319
--------- ---------
Available to common shareholders $110,817 $ 188,422
========= =========
Earnings (Loss) Per Share
Continuing operations $ 0.77 $ 1.12 (31.3)%
Discontinued operations $ 0.15 $ 0.36
Extraordinary loss $ (0.09)
--------- ---------
$ 0.83 $ 1.48
========= =========
Average Shares Outstanding 134,373 127,649 5.3 %
========= =========
</TABLE>
<TABLE>
<CAPTION>
Continuing Operations Analysis:
<S> <C> <C>
Gross profit %, net sales 35.6% 34.8%
Gross profit %, service and rentals 51.2% 52.4%
Gross profit %, finance subsidiaries 55.9% 56.9%
Total gross profit % 42.8% 42.4%
SG&A as a % of revenue 35.2% 34.3%
Operating income % of revenue 5.1% 7.6%
Oper inc % of rev, excl trans costs 7.6% 8.1%
</TABLE>
<PAGE>
October 15, 1997
Attached are supplemental financial summaries of IKON Office Solutions for the
fourth quarter of 1997 and the full fiscal year ending September 30, 1997,
excluding the effect of transformation costs on operating income.
This information is provided for additional analysis and is not intended to be a
presentation in accordance with generally accepted accounting principles.
<PAGE>
This schedule presents the financial results of IKON Office Solutions, Inc.
excluding the transformation costs amounting to ($.14) per share in the fourth
quarter of fiscal 1997 and ($.04) in the fourth quarter of fiscal 1996.
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended September 30
--------------------------------
1997 1996 % Change
-------- ------- -------
<S> <C> <C> <C>
Revenues
Net sales $ 775,476 $ 665,888 16.5%
Service and rentals 554,882 408,630 35.8
Finance income 63,475 50,190 26.5
--------- ---------
1,393,833 1,124,708 23.9
Costs and Expenses
Cost of goods sold 509,783 437,785 16.4
Service and rental costs 266,638 190,820 39.7
Finance interest expense 28,933 19,970 44.9
Selling and administrative 487,344 382,865 27.3
--------- ---------
1,292,698 1,031,440 25.3
--------- ---------
Operating income 101,135 93,268 8.4
Interest expense 15,558 11,237
--------- ---------
Income from continuing operations before taxes 85,577 82,031 4.3
Taxes on income 34,148 32,047 6.6
--------- ---------
Income from continuing operations 51,429 49,984 2.9
Discontinued operations 11,131
--------- ---------
Net income 51,429 61,115
Less preferred dividends 4,885 4,885
--------- ---------
Available to common shareholders $ 46,544 $ 56,230
========= =========
Earnings Per Share
Continuing operations $0.35 $0.34 2.9%
Discontinued operations $0.08
--------- ---------
$0.35 $0.42
========= =========
Average Shares Outstanding 133,530 131,953 1.2%
========= =========
Continuing Operations Analysis:
Gross profit %, net sales 34.3% 34.3%
Gross profit %, service and rentals 51.9% 53.3%
Gross profit %, finance subsidiaries 54.4% 60.2%
Total gross profit % 42.3% 42.3%
SG&A as a % of revenue 35.0% 34.0%
Operating income % of revenue 7.3% 8.3%
</TABLE>
This information is provided for additional analysis and is not intended to be
a presentation in accordance with generally accepted accounting principles.
<PAGE>
This schedule presents the financial results of IKON Office Solutions, Inc.
excluding the transformation costs amounting to ($.61) per share in
fiscal 1997 and ($.11) in fiscal 1996.
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
---------------------------------
1997 1996 % Change
------- ------- --------
<S> <C> <C> <C>
Revenues
Net sales $2,841,561 $2,381,151 19.3%
Service and rentals 2,063,186 1,560,915 32.2
Finance income 223,686 157,707 41.8
--------- ---------
5,128,433 4,099,773 25.1
Costs and Expenses
Cost of goods sold 1,828,883 1,552,183 17.8
Service and rental costs 1,007,060 743,110 35.5
Finance interest expense 98,664 68,043 45.0
Selling and administrative 1,806,352 1,404,958 28.6
--------- ---------
4,740,959 3,768,294 25.8
--------- ---------
Operating income 387,474 331,479 16.9
Interest expense 47,453 37,179
--------- ---------
Income from continuing operations before taxes
and extraordinary loss 340,021 294,300 15.5
Taxes on income 135,169 115,483 17.0
--------- ---------
Income from continuing operations before
extraordinary loss 204,852 178,817 14.6
Discontinued operations 20,151 45,848
--------- ---------
Income before extraordinary loss 225,003 224,665
Extraordinary loss from early extinguishment
of debt, net of tax benefit (12,156)
--------- ---------
Net income 212,847 224,665
Less preferred dividends 19,540 22,319
--------- ---------
Available to common shareholders $193,307 $ 202,346
========= =========
Earnings (Loss) Per Share
Continuing operations $ 1.38 $ 1.23 12.2%
Discontinued operations $ 0.15 $ 0.36
Extraordinary loss $ (0.09)
--------- ---------
$ 1.44 $ 1.59
========= =========
Average Shares Outstanding 134,373 127,649 5.3%
========= =========
Continuing Operations Analysis:
Gross profit %, net sales 35.6% 34.8%
Gross profit %, service and rentals 51.2% 52.4%
Gross profit %, finance subsidiaries 55.9% 56.9%
Total gross profit % 42.8% 42.4%
SG&A as a % of revenue 35.2% 34.3%
Operating income % of revenue 7.6% 8.1%
</TABLE>
This information is provided for additional analysis and is not intended to be
a presentation in accordance with generally accepted accounting principles.
