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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) June 19, 1997
IKON OFFICE SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
OHIO File No. 1-5964 23-0334400
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
P.O. Box 834, Valley Forge, Pennsylvania 19482
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Registrant's telephone number, including area code: (610) 296-8000
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
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On June 19, 1997, the Registrant issued a press release announcing that
earnings for the third quarter ending June 30, 1997 would be lower than
expected, due to short-term issues related to the acceleration of its business
transformation process. Excluding $18 million to $22 million in transformation
costs, the Registrant expects to earn approximately $0.30 to $0.32 per share
compared with a consensus market expectation of $0.40 per share. For the fourth
quarter, the Registrant now expects earnings per share in the range of $0.33 to
$0.36 before transformation costs of about $20 million to $25 million. The
Registrant stated that, despite the reduced expectations, its business remains
strong, with continuing healthy revenue growth and solid gross margins in all
aspects of the Registrant's operations. The shortfall does not reflect any
fundamental operating problems.
Of the operating income shortfall anticipated in the third quarter,
approximately half is due to lower sales productivity in certain markets, which
is expected to result in a lower internal revenue growth rate of approximately
11% to 12% in North America. The remaining half of the shortfall is due to SG&A
(sales, general and administrative) expenses that were expected to be eliminated
in the third quarter through the transformation process.
The Registrant's report further indicated that the transformation, which has
been underway for eighteen months, has achieved substantial progress and is on
target to be substantially completed by the end of 1998. In fiscal 1998, the
Registrant expects to achieve 20% earnings growth, excluding transformation
costs of $50 million to $75 million.
This report includes information which may constitute forward-looking
statements made pursuant to the safe harbor provisions of the federal securities
laws. Although the Registrant 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 risks 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 the Registrant's transformation project; and general economic
conditions. Therefore, actual results may differ materially from the forward-
looking statements.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(c) Exhibits.
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(99) Press Release dated June 19, 1997
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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
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Michael J. Dillon
Vice President and Controller
Dated: June 19, 1997
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Index to Exhibit
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(99) Press Release dated June 19, 1997
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EXHIBIT 99
Contacts:
Michael N. Kilpatric Steven K. Eck Suzanne C. Shenk Susan G. Gaffney
News Media News Media Investor Relations Investor Relations
610-993-3662 610-993-3501 610-993-3526 610-993-3694
[email protected] [email protected] [email protected] [email protected]
IKON OFFICE SOLUTIONS LOWERS
EARNINGS EXPECTATION FOR THIRD QUARTER
Cites Short-Term Issues Related to Acceleration of Company's Transformation
Process
Valley Forge, Pennsylvania---June 19, 1997---IKON Office Solutions
(NYSE: IKN) today announced that it anticipates lower-than-expected earnings in
its fiscal third quarter, ending June 30. The Company said that the decline is
due to short-term issues related to the acceleration of its business
transformation process. IKON expects to earn, excluding $18 million to $22
million in transformation costs, approximately $0.30 to $0.32 per share in the
third quarter compared with a consensus market expectation of $0.40 per share.
For the fourth quarter, the Company now expects earnings per share in the range
of $0.33 to $0.36 before transformation costs of about $20 million to $25
million.
Of the operating income shortfall we anticipate in the third quarter,
approximately half is due to lower sales productivity in certain markets which
we expect will result in a lower internal revenue growth rate of approximately
11 percent to 12 percent in North America. The remaining half is in SG&A
(sales, general and administrative) expenses that were expected to be eliminated
this quarter through the transformation process.
"Despite the reduced expectations, our business remains strong, with
continuing healthy revenue growth and solid gross margins in all aspects of our
operations," said John E. Stuart, IKON's chairman and chief executive officer.
"However, we
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overestimated our ability to complete the transformation while also maintaining
the `sprint pace' in growth that we have enjoyed historically. We failed to
recognize the temporary strain the transformation would put on sales growth in
our traditional copier business. At the same time, however, our newer
businesses--outsourcing and technology services--continue on plan and are
performing exceptionally well.
"Our business strategy is sound, and our long-term prospects are excellent.
The markets in which we compete are high-growth and service-oriented, and we are
changing our infrastructure and processes to capitalize on the many
opportunities there. IKON's transformation, which has been underway for 18
months, has achieved significant progress and is on target to be substantially
completed by the end of 1998. In 1998, we expect to achieve 20 percent earnings
growth, excluding transformation costs of $50 million to $75 million. The
shortfall we are announcing today does not reflect any fundamental operating
problems."
Stuart added, "At the end of the second quarter in March of this year, we
entered the most challenging stage of the accelerated transformation as we began
the actual movement of people and processes within IKON. This is inherently the
most disruptive phase of the change process, and we very much underestimated its
impact on our business."
IKON's transformation program includes a variety of activities designed to
significantly lower its administrative costs and dramatically 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.
Stuart said, "We remain committed to substantially completing the
transformation on time, and we are confident that our total solutions strategy
will result in significant growth and increased shareholder value."
IKON Office Solutions (http://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 digital document services
to copy center
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management, technology training and electronic file conversion. With fiscal 1996
revenues of more than $4 billion, IKON Office Solutions has more than 900
locations 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 expectation 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 project; and general economic conditions. Therefore, actual
results may differ materially from the forward-looking statements.
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