UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1997 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 1-5964
IKON OFFICE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
OHIO 23-0334400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 834, Valley Forge, Pennsylvania 19482
(Address of principal executive offices)
(Zip Code)
(610) 296-8000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
* Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1998.
Common Stock, no par value 134,617,971 shares
<PAGE>
INDEX
IKON OFFICE SOLUTIONS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--December 31, 1997
and September 30, 1997
Consolidated Statements of Income--Three months
ended December 31, 1997 and December 31, 1996
Consolidated Statements of Cash Flows--Three months
ended December 31, 1997 and December 31, 1996
Notes to Consolidated Financial Statements--
December 31, 1997
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition and Liquidity
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
( in thousands )
December 31 September 30
ASSETS 1997 1997
Current Assets
Cash $20,636 $21,341
Accounts receivable, net 810,662 765,660
Finance receivables, net 713,969 670,784
Inventories 539,202 442,207
Prepaid expenses 114,744 101,294
Deferred taxes 122,023 124,520
---------- ----------
Total current assets 2,321,236 2,125,806
---------- ----------
Investments and Long-Term Receivables 14,718 17,508
Long-Term Finance Receivables, net 1,422,689 1,331,372
Equipment on Operating Leases, net 109,153 101,900
Property and Equipment, at cost 493,443 462,360
Less accumulated depreciation 240,530 222,815
---------- ----------
252,913 239,545
---------- ----------
Other Assets
Goodwill 1,375,020 1,348,133
Miscellaneous 171,233 159,622
---------- ----------
1,546,253 1,507,755
---------- ----------
$5,666,962 $5,323,886
========== ==========
See notes to consolidated financial statements.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
( in thousands )
<TABLE>
<CAPTION>
December 31 September 30
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $59,688 $60,794
Current portion of long-term debt, finance subsidiaries 358,752 251,711
Notes payable 146,417 266,979
Trade accounts payable 206,884 206,547
Accrued salaries, wages and commissions 79,448 110,628
Deferred revenues 200,133 208,612
Other accrued expenses 270,460 268,511
----------- -----------
Total current liabilities 1,321,782 1,373,782
----------- -----------
Long-Term Debt 740,433 490,235
Long-Term Debt, Finance Subsidiaries 1,577,330 1,494,043
Deferred Taxes 339,325 330,996
Other Long-Term Liabilities 157,016 153,182
Shareholders' Equity
Series BB conversion preferred stock, no par value:
3,877 depositary shares issued and outstanding 290,170 290,170
Common stock, no par value:
Authorized 300,000 shares
Issued 135,705 shares 677,681 677,681
Retained earnings 602,751 574,646
Foreign currency translation adjustment (716) (728)
Cost of common shares in treasury: 12/97 - 1,519 shares;
9/97 - 2,401 shares (38,810) (60,121)
----------- -----------
1,531,076 1,481,648
----------- -----------
$5,666,962 $5,323,886
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
Three Months Ended
December 31
1997 1996
Revenues
Net sales $728,105 $629,427
Service and rentals 575,822 463,261
Finance income 70,330 47,746
----------- -----------
1,374,257 1,140,434
----------- -----------
Costs and Expenses
Cost of goods sold 468,200 402,046
Service and rental costs 285,283 219,046
Finance interest expense 30,746 20,011
Selling and administrative 488,091 403,576
Transformation costs 19,519 14,343
----------- -----------
1,291,839 1,059,022
----------- -----------
Operating income 82,418 81,412
Interest expense 17,029 8,201
----------- -----------
Income from continuing operations before taxes
and extraordinary loss 65,389 73,211
Taxes on income 28,405 28,552
----------- -----------
Income from continuing operations before
extraordinary loss 36,984 44,659
Discontinued operations 20,151
----------- -----------
Income before extraordinary loss 36,984 64,810
Extraordinary loss from early extinguishment
of debt, net of tax benefit (12,156)
----------- -----------
Net Income 36,984 52,654
Less: Preferred Dividends 4,885 4,885
----------- -----------
Available to Common Shareholders $32,099 $47,769
=========== ===========
Basic and Diluted Earnings Per Share
Continuing Operations $0.24 $0.30
Discontinued Operations $0.15
Extraordinary loss $(0.09)
----------- -----------
$0.24 $0.36
=========== ===========
See notes to consolidated financial statements.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1997 1996
<S> <C> <C>
Operating Activities
Income from continuing operations before extraordinary loss $36,984 $44,659
Additions (deductions) to reconcile income from continuing
operations before extraordinary loss to net cash
used in operating activities of continuing operations
Depreciation 31,617 28,616
Amortization 15,052 11,211
Provisions for losses on accounts receivable 13,188 7,430
Provision for deferred taxes 15,000 18,800
Writeoff of fixed assets related to transformation 1,251
Changes in operating assets and liabilities, net of effects from
acquisitions and divestitures:
Increase in accounts receivable (53,763) (63,384)
Increase in inventories (95,246) (79,134)
Increase in prepaid expenses (15,755) (54,245)
(Decrease) increase in accounts payable, deferred
revenues and accrued expenses (42,126) 17,446
Miscellaneous 3,070 7,186
--------- ---------
Net cash used in operating activities of continuing operations (90,728) (61,415)
Net cash provided by operating activities of
discontinued operations 24,176
--------- ---------
Net cash used in operating activities (90,728) (37,239)
Investing activities
Proceeds from the sale of property and equipment 7,851 10,679
Cost of companies acquired, net of cash acquired (26,149) (41,224)
Expenditures for property and equipment (58,769) (38,912)
Purchase of miscellaneous assets (9,969) (9,249)
Finance subsidiaries receivables - additions (344,812) (317,869)
Finance subsidiaries receivables - collections 182,808 142,615
--------- ---------
Net cash used in investing activities of continuing operations (249,040) (253,960)
Net cash used in investing activities of discontinued operations (38,058)
--------- ---------
Net cash used in investing activities (249,040) (292,018)
Financing activities
Payments of short-term borrowings, net (120,958) (180,351)
Proceeds from issuance of long-term debt 253,654 14,591
Proceeds from option exercises and sale of treasury shares 5,600 27,874
Proceeds from sale of finance subsidiaries lease receivables 25,760 25,433
Proceeds from discontinued operations 553,479
Long-term debt repayments (5,071) (258,969)
Finance subsidiaries debt - additions 275,328 200,008
Finance subsidiaries debt - repayments (85,000) (26,000)
Dividends paid (10,240) (23,537)
Purchase of treasury shares (10) (1,786)
--------- ---------
Net cash provided by financing activities of continuing operations 339,063 330,742
Net cash provided by financing activities of discontinued operations 13,882
--------- ---------
Net cash provided by financing activities 339,063 344,624
--------- ---------
Net (decrease) increase in cash (705) 15,367
Cash at beginning of year 21,341 46,056
--------- ---------
Cash at end of period $20,636 $61,423
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended September 30, 1997.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Note 2: Debt
On January 16, 1998, the Company's credit agreement with several
banks was amended to increase the amount available from $400 million to $600
million. There were no other significant changes to the terms of the agreement.
On October 27, 1997, the Company completed a $250 million
underwritten public debt offering consisting of $125 million 6.75% notes due
November 1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75%
notes were sold at a discount to yield 6.794% and carry a make-whole call
provision with a five basis-points premium. The 7.3% notes were also sold at a
discount to yield 7.344% and carry a make-whole call provision with a 15
basis-points premium. The proceeds of the offering were used to repay short-term
borrowings.
Note 3: Discontinued Operations
Discontinued operations of the Company represent the operations of
Unisource Worldwide, Inc. ("Unisource"), which was spun off as a separate public
company on December 31, 1996. The results of discontinued operations, included
in the Company's results of operations through December 31, 1996, are as follows
(in thousands):
Three Months Ended
December 31, 1996
Revenues $1,728,533
Income before taxes $34,743
Tax expense 14,592
----------
Net income $20,151
==========
In December 1996, Unisource repaid $553.5 million of intercompany debt
outstanding with the Company and the Unisource stock was distributed to IKON
shareholders. Equity of the Company was reduced by $952.3 million, which was the
equity of Unisource at December 31, 1996.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1997
Note 4: Extraordinary Loss on Early Extinguishment of Debt
On December 2, 1996, Unisource borrowed under its new credit facility
to repay $553.5 million of intercompany debt with the Company. The Company
prepaid debt in the amount of $514 million from these funds. Early repayment of
this debt resulted in certain prepayment penalties. Total prepayment penalties
of $18.7 million and related tax benefits of $6.5 million are reflected as an
extraordinary loss on early extinguishment of debt on the Statement of Income
for the three months ended December 31, 1996.
Note 5: Transformation Costs
At the end of fiscal 1995, the Company announced its transformation
program to change its organization into a more cohesive and efficient network by
building a uniform information technology system and implementing best practices
for critically important management functions throughout the IKON companies. In
March 1997, the Company announced that it was accelerating the transformation
program. As a result, the Company began to separately disclose these costs as a
component of operating expenses on the Statement of Income. The Company expects
to substantially complete the transformation program by the end of fiscal 1998.
The transformation involves a variety of activities which the Company believes
will significantly lower administrative costs and improve margins. These
activities include consolidating purchasing, inventory control, logistics and
other activities into thirteen 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 marketplace-focused field
operations with greater attention to customer sales and services. Costs charged
to transformation expense in the first quarter of fiscal 1998 of $19.5 million
relate principally to severance and other employee-related costs, including
temporary labor ($14.3 million), facility consolidation costs, including lease
buyouts and write-offs of leasehold improvements ($3.3 million) and technology
conversion costs ($1.9 million). Transformation costs of $14.3 million for the
first quarter of fiscal 1997 consist primarily of severance and other
employee-related costs, including temporary labor and costs related to
consultants assisting in the transformation ($8.3 million), facility
consolidation costs, including lease buyouts and write-offs of leasehold
improvements ($1.3 million), technology conversion costs ($4.0 million) and
costs incurred to adopt the IKON name ($.7 million).
Note 6: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations (in thousands):
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Numerator:
Income from continuing operations $ 36,984 $ 44,659
Preferred stock dividends 4,885 4,885
------------- ------------
Numerator for continuing operations
basic earnings per share - income
available to common shareholders 32,099 39,774
Effect of dilutive securities:
Convertible loan notes 77 85
------------- ------------
Numerator for continuing operations
diluted earnings per share - income
available to common shareholders
after assumed conversions $ 32,176 $ 39,859
============= ============
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1997
Note 6: Earnings Per Share (continued)
Denominator:
Denominator for basic earnings per
share - weighted average shares 133,729 132,801
Effect of dilutive securities:
Employee stock options 780 1,546
Convertible loan notes 258 230
------------- ------------
Dilutive potential common shares 1,038 1,776
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 134,767 134,577
============= ============
Basic earnings per share from
continuing operations $0.24 $0.30
===== =====
Diluted earnings per share from
continuing operations $0.24 $0.30
===== =====
</TABLE>
Options to purchase 3,034,759 shares of common stock at $28.88 per
share to $61.08 per share were outstanding during the first quarter of fiscal
1998 but were not included in the computation of diluted earnings per share
because the options' exercise prices were greater than the average market price
of the common shares and, therefore, the effect would be antidilutive.
The Company's Series BB conversion preferred stock is excluded from the
diluted calculation because the effect of adding 9,682,144 shares and deleting
the preferred dividends to reflect assumed conversion would be antidilutive.
<PAGE>
Item 2: Management's Discussion and Analysis of Results of Operations
and Financial Condition and Liquidity
Continuing operations of the Company consist of IKON, which sells,
rents and leases photocopiers, digital printers and other automated office
equipment for use in both traditional and integrated office environments. IKON
also provides outsourcing and imaging services and offers consulting, design,
computer networking and technology training for the networked office
environment.
Results of Operations
The discussion of the results of operations reviews the continuing
operations of the Company as contained in the Consolidated Statements of Income.
Three Months Ended December 31, 1997
Compared with the Three Months Ended December 31, 1996
Revenues and income before taxes for the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31 %
1997 1996 Change
(in millions)
<S> <C> <C> <C>
REVENUES $1,374 $1,140 20.5%
====== ======
INCOME BEFORE TAXES:
Operating income, excluding transformation costs $101.9 $95.8 6.4%
Transformation costs (19.5) (14.3)
------ ------
Operating income 82.4 81.4
Interest expense (17.0) (8.2)
------ ------
$65.4 $73.2 (10.7%)
====== ======
</TABLE>
The Company's first quarter revenues increased $234 million, or 20.5%
over the first quarter of fiscal 1997, of which $129 million relates to current
and prior year acquisitions and $105 million to base companies' internal growth.
The Company's worldwide internal revenue growth was 9% in the first quarter of
fiscal 1998 compared to 10% in the fourth quarter of fiscal 1997. The internal
revenue growth rate was 10% in North America for the first quarter of fiscal
1998, the decrease to 9% worldwide was the result of the remaining impact of
transformation in the U.K. Revenues from the Company's operations outside the
U.S. were $177 million for the first quarter of fiscal 1998 compared to $147
million for the same period of the prior fiscal year. The Company's European
operations accounted for $14 million of the increase, primarily from
acquisitions, while Canadian revenues increased $14 million as a result of
acquisitions and internal growth in base companies. Other foreign operations
revenue increased $2 million in the first quarter of fiscal 1998 compared to the
first quarter of fiscal 1997.
The Company's operating income increased by $1 million compared to the
prior year's quarter. Operating income for the first quarter of fiscal 1998
continues to be impacted by the effects of transformation. Excluding
transformation costs, operating income increased 6.4% to $101.9 million for the
first quarter of fiscal 1998 compared to $95.8 million in the prior year.
Finance subsidiaries contributed 20.6% of the Company's operating income before
transformation costs in the first quarter of fiscal 1998 compared to 17.7% in
the first quarter of fiscal 1997. The Company's operating margins were 6.0% in
the first quarter of fiscal 1998, compared to 7.1% in fiscal 1997. Excluding
transformation costs, the Company's operating margins were 7.4% in the first
quarter of fiscal 1998, compared to 8.4% in the first quarter of fiscal 1997,
however, the first quarter of fiscal 1998 is showing an improvement in operating
margins, excluding transformation costs, from the 7.3% operating margin reported
in the fourth quarter of fiscal 1997.
<PAGE>
Costs associated with the Company's transformation program increased
$5.2 million in the first quarter of fiscal 1998 compared to the first quarter
of fiscal 1997, primarily relating to employee severance agreements.
Operating income from foreign operations was $12.6 million for the
three months ended December 31, 1997, up $2.6 million from the prior year's
quarter. European operations increased by $1.4 million in the first quarter,
while Canadian operating income increased $.5 million and other foreign
operations increased $.7 million in the first quarter of fiscal 1998. There was
no material effect of foreign currency exchange rate fluctuations on the results
of operations in the first quarter of fiscal 1998 compared to the first quarter
of fiscal 1997.
Acquisitions
In the first quarter of fiscal 1998, the Company completed 17
acquisitions with trailing revenues of $86 million. Of the 17 companies
acquired, five were outsourcing and imaging companies, five were systems
integration companies and seven were traditional copier companies. The focus of
acquisition activity for fiscal 1998 will be to continue to build a presence in
Europe and expand capability in technology services and outsourcing/imaging.
Other
Interest expense increased $8.8 million in the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997 as a result of increased debt
levels from investment in working capital, acquisitions and the share repurchase
program which began in the third quarter of fiscal 1997.
Income before taxes decreased by $7.8 million in the first quarter over
the prior year, primarily reflecting the combined result of internal growth from
base companies, along with earnings contributed by acquisitions, net of
increased transformation and interest costs. The effective income tax rate for
the first quarter of fiscal 1998 is 43.4% compared with 39.0% for the
comparative period in fiscal 1997. The effective tax rate for the full year of
fiscal 1997 was 42.6%.
The Company used the proceeds of a December 2, 1996 $553.5 million
intercompany debt repayment from its discontinued operation, Unisource, to
prepay $514 million of corporate debt. The Company recorded an extraordinary
charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of
fiscal 1997 primarily for prepayment penalties relating to its early
extinguishment of certain corporate debt.
Earnings per share from continuing operations, assuming dilution,
decreased from $.30 per share for the first quarter of fiscal 1997 to $.24 per
share for the first quarter of fiscal 1998. Excluding transformation costs,
earnings per share from continuing operations, assuming dilution, decreased 8.3%
from $.36 per share for the first quarter of fiscal 1997 to $.33 per share in
the first quarter of fiscal 1998. Including income from discontinued operations
and the extraordinary loss on the extinguishment of debt, earnings per share,
assuming dilution, of the Company were $.36 for the first quarter of fiscal
1997.
<PAGE>
Financial Condition and Liquidity
Net cash used by operating activities for the first three months of
fiscal 1998 was $91 million, primarily the result of increases in working
capital. During the same period, the Company used $249 million in cash for
investing activities, which included finance subsidiary activity of $162
million, acquisition activity at a cash cost of $26 million and capital
expenditures of $59 million. Investing activities were funded by financing
activities. Cash provided by financing activities includes $133 million net
increase in corporate debt and $190 million increase in finance subsidiaries
debt. Debt, excluding finance subsidiaries, was $946.5 million at December 31,
1997, an increase of $128.5 million from the debt balance at September 30, 1997
of $818 million. The debt to capital ratio, excluding finance subsidiaries, was
38.2% at December 31, 1997 compared to 35.6% at September 30, 1997. The Company
has placed increased emphasis on working capital reduction as short-term goal.
On January 16, 1998, the Company amended its December 16, 1996 credit
agreement to increase the borrowing limit from $400 million to $600 million. As
of December 31, 1997, short-term borrowings supported by the agreement totaled
$130 million. In October 1997, the Company completed a $250 million two tranche
underwritten public offering consisting of $125 million 6.75% notes due November
1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75% notes were
sold at a discount to yield 6.794% and carry a make-whole call provision with a
five basis-points premium. The 7.3% notes were also sold at a discount to yield
7.344% and carry a make-whole call provision with a 15 basis-points premium. The
proceeds of the offering were used to repay short-term borrowings. The Company
also has $200 million available for either stock or debt offerings under its
shelf registration statement filed in November 1995. In January 1998, the Board
of Directors approved the filing of an additional $500 million shelf
registration statement for either stock or debt offerings.
Finance subsidiaries debt grew by $190.3 million from September 30,
1997, a result of increased leasing activity. During the three months ended
December 31, 1997, the U.S. finance subsidiary issued an additional $248.5
million under its medium term notes program. At December 31, 1997, $1.7 billion
of medium term notes were outstanding with a weighted interest rate of 6.6%,
while $1.4 billion remains available under this program. Under its $275 million
asset securitization programs, the U.S. finance subsidiary sold $25.8 million in
direct financing leases during the first three months of fiscal 1998, replacing
those leases liquidated and leaving the amount of contracts sold unchanged.
The Company filed shelf registrations for 10 million shares of common
stock in April 1997 and 5 million shares of common stock in March 1996. Shares
issued under these registration statements are being used for acquisitions.
Approximately 4.7 million shares have been issued under these shelf
registrations through December 31, 1997, leaving 10.3 million shares available
for issuance.
On April 17, 1997, the Company announced that it may repurchase from
time to time as much as five percent of the outstanding IKON common stock in
open market transactions. Through fiscal 1997, the Company repurchased 4.4
million common shares for $109.7 million. There were no shares repurchased under
this program during the first quarter of fiscal 1998.
The Company believes that its operating cash flow together with unused
bank credit facilities and other financing arrangements will be sufficient to
finance current operating requirements including capital expenditures,
acquisitions, dividends, stock repurchases and costs associated with the
Company's transformation program. The Company estimates the total remaining
costs of its transformation program to be from $35 million to $50 million,
excluding capital costs. Transformation costs are expected to be in the range of
$5 million to $20 million for each of the next three quarters.
<PAGE>
Forward-Looking Information
This document contains, and other materials filed or to be filed by the
Company with the Commission which are incorporated by reference herein, as well
as information included in oral statements or other written statements made or
to be made by the Company, contain or will contain or include, disclosures which
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the 1934 Exchange Act.
Such forward-looking statements address, among other things, strategic
initiatives (including plans for enhancing the Company's business through new
acquisitions, information technology systems, sales strategies, market growth
plans, margin enhancement initiatives, capital expenditures and financing
sources). 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 Company'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 Company, and also
including companies outside the U.S., 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 fluctuations in interest rates); and general economic conditions.
As a consequence, current plans, anticipated actions and future financial
condition and results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are furnished pursuant to Item 601 of
Regulation S-K:
Exhibit No. (27) Financial Data Schedule
(b) Reports on Form 8-K
On October 2, 1997, the registrant filed a Current Report on Form
8-K to file, under Item 5 of the form, the press release dated
September 26, 1997, indicating that it planned to release fourth
quarter and fiscal 1997 earnings on October 15, 1997 and
indicating that the registrant expects earnings per share from
continuing operations, excluding transformation charges, to be
within the range of $.33 - $.36 for the quarter.
On October 22, 1997, the registrant filed a Current Report on
Form 8-K to file, under Item 5 of the form, as an exhibit to the
report, its Ratio of Earnings to Fixed Charges for each of the
years in the five-year period ended September 30, 1997, and its
results for the fiscal year ended September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. This report has also been signed by the
undersigned in his capacity as the chief accounting officer of the Registrant.
IKON OFFICE SOLUTIONS, INC.
Date February 12, 1998 /s/ Michael J. Dillon
Michael J. Dillon
Vice President and Controller
(Chief Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit Number
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of IKON Office Solutions, Inc. and
subsidiaries and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 20,636,000
<SECURITIES> 0
<RECEIVABLES> 873,863,000
<ALLOWANCES> 63,201,000
<INVENTORY> 539,202,000
<CURRENT-ASSETS> 2,321,236,000
<PP&E> 767,395,000<F1>
<DEPRECIATION> 405,329,000<F2>
<TOTAL-ASSETS> 5,666,962,000
<CURRENT-LIABILITIES> 1,321,782,000
<BONDS> 2,317,763,000
<COMMON> 677,681,000
0
290,170,000
<OTHER-SE> 563,225,000
<TOTAL-LIABILITY-AND-EQUITY> 5,666,962,000
<SALES> 728,105,000
<TOTAL-REVENUES> 1,374,257,000
<CGS> 468,200,000
<TOTAL-COSTS> 784,229,000<F3>
<OTHER-EXPENSES> 507,610,000<F4>
<LOSS-PROVISION> 13,188,000
<INTEREST-EXPENSE> 17,029,000
<INCOME-PRETAX> 65,389,000
<INCOME-TAX> 28,405,000
<INCOME-CONTINUING> 36,984,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,984,000
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<FN>
<F1>Includes equipment on operating leases, at cost, of $273,952,000
<F2>Includes accumulated depreciations for equipment on operating leases of
$164,799,000
<F3>Includes Finance Subsidiaries interest of $30,746,000
<F4>Represents selling, general and administrative expenses and transformation
costs.
</FN>
</TABLE>
