<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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) April 22, 1998
IKON Office Solutions, Inc.
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(Exact name of registrant as specified in its charter)
OHIO File No. 1-5964 23-0334400
---------------- ---------------- --------------
(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)
<PAGE>
Item 5. Other Events.
------------
On April 22, 1998, the Registrant reported its earnings for the fiscal
quarter ended March 31, 1998, provided earnings estimates for the remainder of
the Registrant's 1998 fiscal year and provided additional information regarding
its business, acquisitions and transformation process.
This 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.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(c) Exhibits
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(99) Press Release dated April 22, 1998
<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: April 22, 1998
<PAGE>
Index to Exhibit
----------------
(99) Press Release dated April 22, 1998
<PAGE>
[LETTERHEAD OF IKON APPEARS HERE]
NEWS RELEASE
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Contacts:
Susan G. Gaffney Suzanne C. Shenk
Investor Relations Investor Relations
610-408-7292 610-408-7290
[email protected] [email protected]
IKON OFFICE SOLUTIONS ANNOUNCES
SECOND QUARTER RESULTS
VALLEY FORGE, PENNSYLVANIA APRIL 22, 1998 IKON Office Solutions (NYSE:
IKN) today announced that earnings per share in the second quarter ended March
31, 1998 were $0.35, excluding costs of the Company's ongoing transformation
process.
For the 1998 second quarter, revenues increased 13 percent to $1.4 billion.
The internal rate of revenue growth for the period was five percent. Internal
growth was impacted by the transformation and the combination of increased
competitive pressures and the product rationalization strategy.
Income from operations in the second quarter was $104.6 million, excluding
transformation costs, compared with $102.9 million for the same period last
year. Including approximately $20 million in transformation costs, net income
for the 1998 second quarter was $39.3 million and earnings per share were $0.25,
while net income including transformation costs for the second quarter last year
was $14.6 million or $0.07 per share.
"IKON continues to expand its solid foundation both in terms of geographic
presence and the range of products and services it offers to customers," said
John E. Stuart, IKON's chairman and chief executive officer. "We continue to
grow, both internally and through acquisition, and
-more-
<PAGE>
-2-
are investing in outsourcing and technology services, which are the future
growth vehicles for IKON.
"Revenues are ahead of the same period in 1997, however, our results for
the second quarter of 1998 fell short of expectations. The shortfall is
isolated to our business services unit and is the result of three major factors
1) issues related to our ongoing transformation process; 2) competitive pricing
pressures which have reduced margins on the equipment side of the business; and
3) product rationalization -- focusing on the products that provide the best
solutions for our customers.
The transformation issues include continued disruption as we assimilate
acquired business entities into a cohesive business unit in a marketplace and
the inconsistent achievement of sales targets. As IKON continues to enhance its
organizational structure, the span of control is increasing for many managers,
some of whom are much more adept at running larger businesses than others. "In
hindsight, we underestimated the time it would take to fully stabilize after
merging multiple dealers within a marketplace. The current field management
team is focused on meeting our objectives and continues to implement better
forecasting and control systems to ensure improved linkage among growth targets,
margin opportunity, and resource requirements.
"Equipment pricing has come under pressure from competitors and from our
vendors alike. Price decreases, coupled with increased sales expense resulting
from our recent investment in additional salespeople, had a negative impact on
our equipment contribution in the second quarter.
"In addition, we began a rationalization strategy in a number of districts
during the second quarter and are expanding the initiative throughout business
services. The purpose is to focus on the product and vendor offerings that best
address our customers' needs. As a result, we are eliminating tertiary
offerings. Our vendor selection will focus on leading providers to ensure that
customers' current and future digital connectivity and color requirements are
met. We believe the long-term benefits of this strategy outweigh any adverse
short-term considerations.
-more-
<PAGE>
-3-
OUTSOURCING AND TECHNOLOGY SERVICES CONTINUE RAPID GROWTH
IKON's outsourcing and technology services businesses continued to generate
double-digit, internal revenue growth in the second quarter. In outsourcing,
IKON offers the largest network of digital print-on-demand centers, as well as
the largest litigation document network in the country.
In technology services, the Company continues to build a strong presence in
the education and training, systems integration, network maintenance and
application development arenas that form the cornerstone of this business.
ACQUISITIONS INCREASE REVENUE BASE, EXPAND PRESENCE
In support of its total solutions strategy, IKON acquired 10 companies
during the second quarter of fiscal 1998. The acquisitions represent
approximately $45 million in trailing revenues, which include four technology
services companies, two outsourcing and imaging companies, and four office
equipment companies. The focus of IKON's acquisition activities continues to be
increasing its worldwide presence and expanding capability in technology
services and outsourcing.
GROWTH ESTIMATES FOR 1998 FISCAL YEAR
"Business services maintained market share for the quarter but did not meet
our expectations. It is the foundation of our total solutions strategy, acting
as a cash engine to fund acquisitions, providing an annuity stream of earnings
from aftermarket, and serving as the point of entry for customers who may
ultimately require our outsourcing and technology services' offerings.
"Significant growth opportunities exist for business services in color and
the high-end. In addition there is the prospect of a large scale refresh of
equipment from analog to digital for many of our customers. We expect
outsourcing and technology services to continue to generate double-digit growth.
-more-
<PAGE>
-4-
"Given the short-term transformation issues and the pricing factors
impacting the equipment side of the business, our previous EPS growth estimate
for fiscal 1998 is too ambitious. We expect to improve on 1997's performance in
every major indicator. For the remaining six months of fiscal 1998, we expect
EPS of $0.72 to $0.76 before transformation expense and an internal revenue
growth rate of five to seven percent. For the remainder of the fiscal year, we
will incur $25-40 million of expense to substantially complete our primary
transformation initiatives," Stuart concluded.
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 digital document services to copy
center management, hardware and software product interfaces and electronic file
conversion. With fiscal 1997 revenues of more than $5 billion, IKON Office
Solutions has more than 1,100 locations in the U.S., Canada, Mexico, the United
Kingdom, France, Germany and Denmark.
This news release includes information that 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 March 31
-----------------------------------
1998 1997 % Change
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES
Net sales $ 793,965 $ 722,197 9.9 %
Service and rentals 570,066 502,648 13.4
Finance income 74,580 53,015 40.7
- ------------------------------------------------------------------------
1,438,611 1,277,860 12.6
- ------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 513,780 461,696 11.3
Service and rental costs 286,365 248,157 15.4
Finance interest expense 33,522 23,370 43.4
Selling and administrative 500,306 441,733 13.3
Transformation costs 20,192 61,190
- ------------------------------------------------------------------------
1,354,165 1,236,146 9.5
- ------------------------------------------------------------------------
OPERATING INCOME 84,446 41,714 102.4
Interest expense 16,243 11,605 40.0
- ------------------------------------------------------------------------
Income before taxes 68,203 30,109 126.5
Taxes on income 28,917 15,494 86.6
- ------------------------------------------------------------------------
Net income 39,286 14,615 168.8
- ------------------------------------------------------------------------
Less preferred dividends 4,885 4,885
- ------------------------------------------------------------------------
Available to common shareholders $ 34,401 $ 9,730
========= =========
EARNINGS PER COMMON SHARE $0.25 $0.07
========= =========
Weighted Average Shares Outstanding 134,974 134,797 0.1 %
========= =========
Earnings Per Common Share, assuming dilution $0.25 $0.07
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING, ASSUMING 136,302 136,545 (0.2)%
DILUTION ========= =========
Continuing Operations Analysis:
Gross profit %, net sales 35.3% 36.1%
Gross profit %, service and rentals 49.8% 50.6%
Gross profit %, finance subsidiaries 55.1% 55.9%
Total gross profit % 42.1% 42.7%
SG&A as a % of revenue 34.8% 34.6%
Operating income % of revenue 5.9% 3.3%
Oper inc % of rev, excl trans costs 7.3% 8.1%
</TABLE>
<PAGE>
IKON Office Solutions, Inc.
- ---------------------------
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Six Months Ended March 31
-------------------------------------
1998 1997 % Change
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES
Net sales $ 1,522,070 $ 1,351,624 12.6 %
Service and rentals 1,145,888 965,909 18.6
Finance income 144,910 100,761 43.8
- -------------------------------------------------------------------------
2,812,868 2,418,294 16.3
- -------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 981,980 863,742 13.7
Service and rental costs 571,648 467,203 22.4
Finance interest expense 64,268 43,381 48.1
Selling and administrative 988,397 845,309 16.9
Transformation costs 39,711 75,533
- -------------------------------------------------------------------------
2,646,004 2,295,168 15.3
- -------------------------------------------------------------------------
Operating income 166,864 123,126 35.5
Interest expense 33,272 19,806
- -------------------------------------------------------------------------
Income from continuing operations before taxes
and extraordinary loss 133,592 103,320 29.3
Taxes on income 57,322 44,046 30.1
- -------------------------------------------------------------------------
Income from continuing operations before
extraordinary loss 76,270 59,274 28.7
Discontinued operations 20,151
- -------------------------------------------------------------------------
Income before extraordinary loss 76,270 79,425
Extraordinary loss from early extinguishment
of debt, net of tax benefit (12,156)
- -------------------------------------------------------------------------
Net income 76,270 67,269
- -------------------------------------------------------------------------
Less preferred dividends 9,770 9,770
- -------------------------------------------------------------------------
Available to common shareholders $ 66,500 $ 57,499
========== ==========
EARNINGS PER COMMON SHARE
Continuing operations $0.49 $0.37 32.4 %
Discontinued operations $0.15
Extraordinary loss ($0.09)
- -------------------------------------------------------------------------
$0.49 $0.43
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 134,344 133,723 0.5 %
========== ==========
Earnings Per Common Share, assuming dilution
Continuing operations $0.49 $0.37 32.4 %
Discontinued operations $0.15
Extraordinary loss ($0.09)
- ------------------------------------------------------------------------
$0.49 $0.43
========== ==========
Weighted Average Shares Outstanding,
assuming dilution 135,649 135,486 0.1 %
========== ==========
Continuing Operations Analysis:
Gross profit %, net sales 35.5% 36.1%
Gross profit %, service and rentals 50.1% 51.6%
Gross profit %, finance subsidiaries 55.6% 56.9%
Total gross profit % 42.5% 43.2%
SG&A as a % of revenue 35.1% 35.0%
Operating income % of revenue 5.9% 5.1%
Oper inc % of rev, excl trans costs 7.4% 8.2%
</TABLE>
<PAGE>
April 22, 1998
Attached are supplemental summaries of IKON Office Solutions for the second
quarter of 1998, excluding the effect of transformation costs on operating
income.
The information is provided for additional analysis and is not intended to be a
presentation in accordance with generally accepted accounting principles.
<PAGE>
This schedule presents the financial results of IKON Office Solutions, Inc.
excluding the transformation costs amounting to ($.10) per share in the second
quarter of fiscal 1998 and ($.30) in the second quarter of fiscal 1997. (Diluted
EPS calculation)
IKON Office Solutions, Inc.
- ---------------------------
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------------
1998 1997 % Change
---------- ---------- ---------
<S> <C> <C> <C>
Revenues
Net sales $ 793,965 $ 722,197 9.9 %
Service and rentals 570,066 502,648 13.4
Finance income 74,580 53,015 40.7
- -------------------------------------------------------------------------
1,438,611 1,277,860 12.6
- -------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 513,780 461,696 11.3
Service and rental costs 286,365 248,157 15.4
Finance interest expense 33,522 23,370 43.4
Selling and administrative 500,306 441,733 13.3
- -------------------------------------------------------------------------
1,333,973 1,174,956 13.5
- -------------------------------------------------------------------------
Operating income 104,638 102,904 1.7
Interest expense 16,243 11,605 40.0
- -------------------------------------------------------------------------
Income before taxes 88,395 91,299 (3.2)
Taxes on income 35,984 36,337 (1.0)
- -------------------------------------------------------------------------
Net income 52,411 54,962 (4.6)
- -------------------------------------------------------------------------
Less preferred dividends 4,885 4,885
- -------------------------------------------------------------------------
Available to common shareholders $ 47,526 $ 50,077
========== ==========
Earnings Per Common Share $0.35 $0.37 (5.4)%
========== ==========
Weighted Average Shares Outstanding 134,974 134,797 0.1 %
========== ==========
Earnings Per Common Share, assuming dilution $0.35 $0.37 (5.4)%
========== ==========
Weighted Average Shares Outstanding, assuming
dilution 136,302 136,545 (0.2)%
========== ==========
Continuing Operations Analysis:
Gross profit %, net sales 35.3% 36.1%
Gross profit %, service and rentals 49.8% 50.6%
Gross profit %, finance subsidiaries 55.1% 55.9%
Total gross profit % 42.1% 42.7%
SG&A as a % of revenue 34.8% 34.6%
Operating income % of revenue 7.3% 8.1%
</TABLE>
<PAGE>
This schedule presents the financial results of IKON Office Solutions, Inc.
excluding the transformation costs amounting to ($.19) per share in the first
six months of fiscal 1998 and ($.36) in the first six months of fiscal 1997.
(Diluted EPS calculation)
IKON Office Solutions, Inc.
- --------------------------
FINANCIAL SUMMARY (in thousands, except earnings per share)
<TABLE>
<CAPTION>
Six Months Ended March 31
-------------------------------------
1998 1997 % Change
------------ ------------ ----------
<S> <C> <C> <C>
Revenues
Net sales $ 1,522,070 $ 1,351,624 12.6 %
Service and rentals 1,145,888 965,909 18.6
Finance income 144,910 100,761 43.8
- ------------------------------------------------------------------------
2,812,868 2,418,294 16.3
- ------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 981,980 863,742 13.7
Service and rental costs 571,648 467,203 22.4
Finance interest expense 64,268 43,381 48.1
Selling and administrative 988,397 845,309 16.9
- ------------------------------------------------------------------------
2,606,293 2,219,635 17.4
- ------------------------------------------------------------------------
Operating income 206,575 198,659 4.0
Interest expense 33,272 19,806
- ------------------------------------------------------------------------
Income from continuing operations before taxes
and extraordinary loss 173,303 178,853 (3.1)
Taxes on income 71,221 70,483 1.0
- ------------------------------------------------------------------------
Income from continuing operations before
extraordinary loss 102,082 108,370 (5.8)
Discontinued operations 20,151
- ------------------------------------------------------------------------
Income before extraordinary loss 102,082 128,521
Extraordinary loss from early extinguishment
of debt, net of tax benefit (12,156)
- ------------------------------------------------------------------------
Net income 102,082 116,365
- ------------------------------------------------------------------------
Less preferred dividends 9,770 9,770
- ------------------------------------------------------------------------
Available to common shareholders $ 92,312 $ 106,595
========== ==========
Earnings Per Common Share
Continuing operations $0.69 $0.74 (6.8)%
Discontinued operations $0.15
Extraordinary loss ($0.09)
- ------------------------------------------------------------------------
$0.69 $0.80
========== ==========
Weighted Average Shares Outstanding 134,344 133,723 0.5 %
========== ==========
Earnings Per Common Share, assuming dilution
Continuing operations $0.68 $0.73 (6.8)%
Discontinued operations $0.15
Extraordinary loss ($0.09)
- ------------------------------------------------------------------------
$0.68 $0.79
========== ==========
Weighted Average Shares Outstanding, assuming 135,649 135,486 0.1 %
dilution ========== ==========
Continuing Operations Analysis:
Gross profit %, net sales 35.5% 36.1%
Gross profit %, service and rentals 50.1% 51.6%
Gross profit %, finance subsidiaries 55.6% 56.9%
Total gross profit % 42.5% 43.2%
SG&A as a % of revenue 35.1% 35.0%
Operating income % of revenue 7.4% 8.2%
</TABLE>
