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 March 31, 2000 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 corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 4, 2000.
Common Stock, no par value 149,301,000 shares
<PAGE>
INDEX
IKON OFFICE SOLUTIONS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets--March 31, 2000
(unaudited) and September 30, 1999
Consolidated Statements of Operations--Three and six
months ended March 31, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows--Six months
ended March 31, 2000 and 1999 (unaudited)
Notes to Condensed Consolidated Financial Statements--
March 31, 2000 (unaudited)
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition and Liquidity
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
( in thousands )
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
ASSETS (unaudited)
- ------ ----------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 51,345 $ 3,386
Restricted cash 76,551 29,625
Accounts receivable, less allowances of: March 31, 2000 - $44,837,
September 30, 1999 - $43,543 688,512 725,308
Finance receivables, net 1,013,111 887,396
Inventories 379,124 338,947
Prepaid expenses and other current assets 104,236 111,386
Deferred taxes 138,520 137,853
----------- -----------
Total current assets 2,451,399 2,233,901
----------- -----------
Long-Term Finance Receivables, net 1,918,323 1,677,230
Equipment on Operating Leases, net 80,954 87,496
Property and Equipment, at cost 548,509 535,304
Less accumulated depreciation 301,373 275,489
----------- -----------
247,136 259,815
----------- -----------
Goodwill, net 1,337,333 1,385,295
Other assets 137,394 157,576
----------- -----------
$ 6,172,539 $ 5,801,313
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 85,836 $ 95,262
Current portion of long-term debt, finance subsidiaries 1,317,300 974,033
Notes payable 222,587 44,968
Trade accounts payable 196,065 169,763
Accrued salaries, wages and commissions 116,076 128,501
Accrued shareholder litigation settlement 831 117,652
Deferred revenues 204,214 205,654
Other accrued expenses 343,214 311,758
----------- -----------
Total current liabilities 2,486,123 2,047,591
----------- -----------
Long-Term Debt 713,647 718,814
Long-Term Debt, Finance Subsidiaries 982,538 1,029,176
Deferred Taxes 386,321 375,007
Other Long-Term Liabilities 171,985 170,185
Shareholders' Equity
Common stock, no par value
Authorized - 300,000 shares
Issued March 31, 2000 - 150,366 shares; 1,016,039 1,008,392
September 30, 1999 - 149,271 shares
Unearned compensation (8,670) (5,513)
Retained earnings 431,080 464,150
Accumulated other comprehensive loss (5,775) (4,922)
Common shares in treasury, at cost: March 31, 2000 - 25 shares;
September 30, 1999 - 53 shares (749) (1,567)
----------- -----------
1,431,925 1,460,540
----------- -----------
$ 6,172,539 $ 5,801,313
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
IKON Office Solutions, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 727,929 $ 720,062 $ 1,396,411 $ 1,427,781
Service and rentals 571,329 585,662 1,154,250 1,186,921
Finance income 81,070 66,926 162,167 154,365
----------- ----------- ----------- -----------
1,380,328 1,372,650 2,712,828 2,769,067
----------- ----------- ----------- -----------
Costs and Expenses
Cost of goods sold 484,074 492,363 935,166 964,109
Service and rental costs 353,831 342,832 699,269 692,713
Finance interest expense 39,508 29,306 78,960 61,986
Selling and administrative 424,559 453,888 862,782 922,851
Asset impairment charge 51,548
Restructuring charge 53,792
----------- ----------- ----------- -----------
1,301,972 1,318,389 2,681,517 2,641,659
----------- ----------- ----------- -----------
Operating income 78,356 54,261 31,311 127,408
Interest expense 17,626 18,995 33,620 38,542
----------- ----------- ----------- -----------
Income (loss) before income tax expense 60,730 35,266 (2,309) 88,866
Income tax expense 25,877 12,399 18,474 37,323
----------- ----------- ----------- -----------
Net income (loss) $ 34,853 $ 22,867 $ (20,783) $ 51,543
=========== =========== =========== ===========
Basic and Diluted Earnings (Loss) Per Common Share $ 0.23 $ 0.15 $ (0.14) $ 0.35
=========== =========== =========== ===========
Cash Dividends Per Common Share $ 0.04 $ 0.04 $ 0.08 $ 0.08
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating Activities
Net (loss) income $ (20,783) $ 51,543
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation 68,038 71,160
Amortization 32,395 30,720
Provision for losses on accounts receivable 15,421 13,787
Provision for deferred income taxes 14,300 25,000
Provision for lease default reserves 13,093 32,676
Gain on asset securitizations (73) (21,672)
Asset impairment and restructuring charge 105,340
Changes in operating assets and liabilities, net
of effects from acquisitions:
Decrease in accounts receivable 18,431 45,260
(Increase) decrease in inventories (41,711) 31,377
Decrease (increase) in prepaid expenses and other current assets 4,053 (4,101)
Increase (decrease) in accounts payable, deferred
revenues and accrued expenses 2,500 (62,543)
Decrease in accrued shareholder litigation settlement (116,821)
Decrease in accrued restructuring (8,074)
Other (2,030) 4,436
--------- ---------
Net cash provided by operating activities 84,079 217,643
Cash flows from investing activities
Proceeds from the sale of property and equipment 4,248 11,569
Proceeds from the sale of property and equipment on operating leases 7,369 10,045
Cost of companies acquired, net of cash acquired (3,745) (22,449)
Expenditures for property and equipment (52,175) (48,127)
Expenditures for property and equipment on operating leases (22,146) (32,374)
Finance receivables - additions (802,551) (669,344)
Finance receivables - collections 685,078 445,311
Proceeds from the sale of finance subsidiaries' lease receivables 16,887 357,024
Repurchase of finance subsidiary's lease receivables (275,000)
Other (2,832) (2,830)
--------- ---------
Net cash (used in) provided by investing activities (444,867) 48,825
Cash flows from financing activities
Short-term borrowings, net 178,824 59,698
Proceeds from issuance of long-term debt 5,556 37,801
Long-term debt repayments (16,968) (17,595)
Finance subsidiaries' debt - issuances 948,016 1,549
Finance subsidiaries' debt - repayments (647,788) (336,049)
Dividends paid (11,923) (11,804)
Deposit to restricted cash (46,926)
Proceeds from option exercises and sale of treasury shares 183 4,364
Purchase of treasury shares (227) (152)
--------- ---------
Net cash provided by (used in) financing activities 408,747 (262,188)
Net increase in cash and cash equivalents 47,959 4,280
Cash and cash equivalents at beginning of year 3,386 963
--------- ---------
Cash and cash equivalents at end of period $ 51,345 $ 5,243
========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
Note 1: Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
of IKON Office Solutions, Inc. and subsidiaries (the "Company", "we", or "our")
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 adjustments) 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/A for the year ended September 30, 1999.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Note 2: Restructuring and Asset Impairment Charge
-----------------------------------------
In the first quarter of fiscal 2000, the Company announced plans to
improve performance and efficiency and incurred a total pre-tax restructuring
and asset impairment charge (the "charge") of $105,340 ($78,479 after-tax, or
$0.52 per share on a basic and diluted basis). These actions address
under-performance in certain Technology Services, Business Document Services,
and Business Information Services locations; as well as the Company's desire to
strategically position these businesses for integration and profitable growth.
Plans include consolidating or disposing of certain under-performing and
non-core locations; implementing productivity enhancements through the
consolidation and centralization of activities in inventory management,
purchasing, finance/accounting and other administrative functions; and
consolidating real estate through the co-location of business units as well as
the disposition of unproductive real estate. Savings from the above programs are
anticipated to be approximately $15,000 in fiscal 2000 and approximately $45,000
on an annualized basis beginning in fiscal 2001.
The pre-tax components of the charge are as follows:
Type of Charge
Restructuring Charge:
Severance $ 16,389
Contractual Commitments 37,403
--------
Total Restructuring Charge 53,792
--------
Asset Impairment Charge:
Fixed Assets 12,668
Goodwill and Intangibles 38,880
--------
Total Asset Impairment Charge 51,548
--------
Total Charge $105,340
========
The severance charge relates to the elimination of approximately 1,900
positions, while the charge for contractual commitments relates to lease
commitments where the Company is exiting certain locations and/or businesses
which are expected to be paid over the next 9 years.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company commenced several actions specified under these initiatives
in the first quarter of fiscal 2000, which continued through the second quarter.
The following presents a reconciliation of the original components of the
pre-tax restructuring charge to the balance remaining at March 31, 2000, which
is included in other accrued expenses on the balance sheet:
<TABLE>
<CAPTION>
Balance Balance
September 30, Provision Payments March 31,
1999 Fiscal 2000 Fiscal 2000 2000
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Severance $ -- $16,389 $ 5,017 $11,372
Contractual Commitments -- 37,403 3,057 34,346
--------- ------- ------- -------
Total $ -- $53,792 $ 8,074 $45,718
========= ======= ======= =======
</TABLE>
During the first six months of fiscal 2000 approximately 620 employees
were terminated and left the Company and 13 facilities were closed.
Note 3: Asset Securitization
--------------------
In December 1999, our U.S. finance subsidiary pledged or transferred
$311,382 in direct financing lease receivables for $247,600 in cash and a
retained interest in the remainder under our revolving asset securitization
agreement, in a transfer accounted for as a financing. Our U.S. finance
subsidiary also had asset securitization agreements for $275,000 of eligible
direct financing lease receivables at September 30, 1999. On October 7, 1999
these leases were repurchased with a portion of the proceeds received from the
issuance of lease-backed notes as described in Note 4.
Note 4: Lease-Backed Notes
------------------
On October 7, 1999, IKON Receivables, LLC (an affiliate of the U.S.
finance subsidiary) publicly issued $699,604 of lease-backed notes (the "Notes")
under our $1,825,000 shelf registration statement. Class A-1 Notes totaling
$235,326 have a stated interest rate of 6.14%, Class A-2 Notes totaling $51,100
have a stated interest rate of 6.31%, Class A3a Notes totaling $100,000 have a
stated interest rate of 6.59%, Class A3b Notes totaling $240,891 have a variable
rate of libor plus 0.36% (which we have fixed at 6.63% through an interest rate
swap) and Class A-4 Notes totaling $72,287 have a stated interest rate of 6.88%.
Our U.S. finance subsidiary received approximately $697,000 in net proceeds from
the sale of the Notes and used $275,000 of that amount to repurchase previously
sold leases. The Notes are collateralized by a pool of office equipment leases
or contracts and related assets and payments on the Notes are made from payments
on the leases.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5: Comprehensive Income (Loss)
---------------------------
Total comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 34,853 $ 22,867 $(20,783) $51, 543
Foreign currency translation adjustments 962 700 (853) 235
Mark to market adjustment on the retained interest of
lease receivables, net of tax 159 1,128
-------- -------- -------- --------
Total comprehensive income (loss) $ 35,815 $ 23,726 $(21,636) $ 52,906
======== ======== ======== ========
</TABLE>
Minimum pension liability is adjusted at each year end, therefore there is
no impact on total comprehensive income (loss) during interim periods. The
balances for foreign currency translation adjustments and minimum pension
liability adjustments included in accumulated other comprehensive income (loss)
were $(4,125) and $(1,650), respectively, at March 31, 2000 and $(3,272) and
$(1,650), respectively, at September 30, 1999.
Note 6: Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ---------------------------
Numerator: 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 34,853 $ 22,867 $ (20,783) $ 51,543
========= ========= ========= =========
Denominator:
Weighted average common shares 149,283 147,866 149,276 147,409
Contingently issuable common shares 14 735 7 1,059
--------- --------- --------- ---------
Denominator for basic earnings per common
share - weighted average common shares 149,297 148,601 149,283 148,468
Effect of dilutive securities:
Additional contingently issuable common shares 79 301
Employee stock options 295 190 113
--------- --------- --------- ---------
Dilutive potential common shares 295 269 -- 414
Denominator for diluted earnings per
common share - adjusted weighted average
common shares and assumed conversions 149,592 148,870 149,283 148,882
========= ========= ========= =========
Basic earnings (loss) per common share $ 0.23 $ 0.15 $ (0.14) $ 0.35
========= ========= ========= =========
Diluted earnings (loss) per common share $ 0.23 $ 0.15 $ (0.14) $ 0.35
========= ========= ========= =========
</TABLE>
Options to purchase 6,304 shares of common stock at $7.50 per share to
$56.42 per share were outstanding during the second quarter of fiscal 2000 and
options to purchase 6,424 shares of common stock at $14.18 per share to $56.42
per share were outstanding during the second quarter of fiscal 1999, but were
not included in the computation of diluted earnings per common share because the
effect would be antidilutive.
Options to purchase 9,576 shares of common stock at $4.73 per share to
$56.42 per share were outstanding during the first six months of fiscal 2000 and
options to purchase 7,040 shares of common stock at $11.60 per share to $56.42
per share were outstanding during the first six months of fiscal 1999, but were
not included in the computation of diluted earnings per common share because the
effect would be antidilutive.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7: Segment Reporting
-----------------
In the first six months of fiscal 2000, we made the following changes
to our segment reporting as a result of our restructuring program: IKON Document
Services (which was reported in Other in fiscal 1999) was split into Business
Document Services ("BDS"), Legal Document Services ("LDS") and Business Imaging
Services ("BIS"). BDS and LDS are aligned with and included in IKON North
America and BIS remains in Other. Prior year results have been reclassified to
conform with the current year presentation.
The table below presents segment information for the three and six months ended
March 31, 2000 and 1999:
<TABLE>
<CAPTION>
IKON Corporate
North IKON and
Three Months Ended March 31, 2000 America Europe Other Eliminations Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, excluding finance income $ 1,059,570 $ 122,304 $ 117,384 $ 1,299,258
Finance income 75,570 5,500 81,070
Intersegment revenues 4,734 825 $ (5,559)
Operating income (loss) 111,941 5,974 (13,452) (26,107) 78,356
Interest expense (17,626) (17,626)
Income before taxes 60,730
Three Months Ended March 31, 1999
Revenues, excluding finance income 1,024,208 133,176 148,340 1,305,724
Finance income 61,986 4,940 66,926
Intersegment revenues 1,715 1,140 (2,855)
Operating income (loss) 86,757 7,537 (177) (39,856) 54,261
Interest expense (18,995) (18,995)
Income before taxes 35,266
Six Months Ended March 31, 2000
Revenues, excluding finance income 2,057,118 244,292 249,251 2,550,661
Finance income 151,228 10,939 162,167
Intersegment revenues 7,034 1,714 (8,748)
Operating income (loss) before
restructuring and asset impairment 221,241 11,254 (21,630) (74,214) 136,651
Restructuring and asset impairment charges (34,752) (4,286) (12,124) (54,178) (105,340)
Operating income (loss) 186,489 6,968 (33,754) (128,392) 31,311
Interest expense (33,620) (33,620)
Loss before income tax benefit (2,309)
Six Months Ended March 31, 1999
Revenues, excluding finance income 2,060,532 259,256 294,914 2,614,702
Finance income 144,188 10,177 154,365
Intersegment revenues 6,512 1,776 (8,288)
Operating income (loss) 197,995 13,501 (708) (83,380) 127,408
Interest expense (38,542) (38,542)
Income before taxes 88,866
</TABLE>
<PAGE>
IKON OFFICE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8: Shareholder Lawsuit
-------------------
On November 24, 1999, subject to formal approval by the court, we
reached a settlement with the plaintiffs in the series of class action
complaints which were filed in the United States District Court for the Eastern
District of Pennsylvania on behalf of our shareholders, and with the plaintiff
in a companion derivative lawsuit. Pursuant to the settlement, we paid $111
million into an escrow account. After holding a hearing in early April, the
court approved the settlement on May 11, 2000. During fiscal 2000, the Company
has received total insurance proceeds of $33,546 related to the settlement.
The matter of Whetman, et al. v. IKON Office Solutions, Inc., et al.
contains one claim brought under the Employee Retirement Income Security Act of
1974 ("ERISA"). In connection with that claim, the plaintiffs allege that the
Company and various individuals violated fiduciary duties under ERISA based on
allegedly improper investments in the Company's stock made through the Company's
Retirement Savings Plan. The court certified a class with respect to this claim
consisting generally of all those participants in the Retirement Savings Plan
after September 30, 1995 and through August 13, 1998, subject to certain
exceptions. To the extent that any of the ERISA class claim survives the
settlement of the federal securities class action and companion derivative suit,
the Company believes that said claim is without merit and will vigorously defend
the suit.
Note 9: Subsequent Event
----------------
In May 2000, IKON Receivables, LLC filed a registration statement with
the Securities and Exchange Commission to register the sale of $2,000,000 of
lease-backed notes. Each series of notes which may be issued under the
registration statement will be issued pursuant to an indenture.
<PAGE>
Item 2: Management's Discussion and Analysis of Results of Operations and
Financial Condition and Liquidity
The following discussion is in thousands, except per share amounts.
The Company provides products and services to meet business communications
needs, including copiers and printers, color solutions, distributed printing,
outsourcing services, imaging and legal outsourcing solutions, as well as
network design and consulting, application development and technology training.
Results of Operations
---------------------
The discussion of the results of operations reviews the operations of
the Company as reported in the Consolidated Statements of Operations.
Three and Six Months Ended March 31, 2000
Compared with the Three and Six Months Ended March 31, 1999
Results of operations for the second quarter and the first six months
of fiscal 2000 compared to the second quarter and the first six months of fiscal
1999 were as follows:
Second Quarter:
Our second quarter revenues increased by $7,678, or 0.6%, compared to
the second quarter of fiscal 1999. Excluding Technology Services, which has been
impacted by a slowdown in network integration projects since the fourth quarter
of fiscal 1999, revenues increased by approximately $47,700, or 4% compared to
the second quarter of fiscal 1999. Net sales, which includes equipment revenue,
increased by $7,867 or 1.1%. Excluding hardware sales associated with our
Technology Services business, net sales increased by 6% compared to the second
quarter of fiscal 1999, reflecting improvement in equipment placements and
productivity in higher end digital and color products. The increase is due
mainly to our continued focus on customized solutions and a consultative sales
approach rather than geographic sales coverage. During the second quarter we
added 138 sales representatives concentrated in our areas of highest growth,
such as color, high volume and facilities management. Our Segment 3 - 6 copier
placements increased by 17% compared to second quarter of fiscal 1999 and we
continue to expand our machine base in the high end, with our Segment 3 - 6
copier base up 7% compared to the second quarter of fiscal 1999. Service and
rental revenue decreased by $14,333 or 2.4%. The decrease resulted from the
decline in our Technology Services revenues and the closure of non-strategic
outsourcing sites associated with our restructuring program which was announced
in the first quarter of fiscal 2000. Finance income increased by $14,144 or
21.1% compared to the second quarter of fiscal 1999 due to the repurchase of
leases on October 7, 1999.
Gross margin was 36.4%, compared to 37.0% in the second quarter of
fiscal 1999 largely due to lower service margins in our traditional equipment
business and fixed costs associated with lower revenues for Technology Services.
The gross margin on equipment sales was 33.5% compared to 31.6% in the second
quarter of fiscal 1999. This was due to the higher margins associated with
digital and color products as compared to analog and the prepurchase of
inventory in anticipation of vendor price increases during the quarter. The
gross margin on service and rentals decreased to 38.1% compared to 41.5% in the
second quarter of fiscal 1999. The decrease primarily resulted from fixed costs
associated with lower Technology Services revenues and lower productivity in
servicing new digital products, including the impact of new vendor and digital
training programs.
Selling and administrative expense as a percent of revenue was 30.8% in
the second quarter of fiscal 2000 compared to 33.1% in the second quarter of
fiscal 1999. Excluding $17,000 of insurance proceeds related to our shareholder
litigation settlement, selling and administrative expense was 32.0% in the
second quarter of fiscal 2000. The decrease was the result of the increase in
revenue combined with controlled costs due to our cost competitiveness programs,
including centralizing certain key functions, adopting new credit controls and
productivity improvements within our business segments.
Our operating income increased by $24,095 or 44.4% compared to the
second quarter of fiscal 1999. Excluding $17,000 of insurance proceeds related
to our shareholder litigation settlement,
<PAGE>
operating income increased by $7,095 or 13.1% to $61,356 for the second quarter
of fiscal 2000, compared to $54,261 in the prior year. Our operating margin,
excluding the gain in fiscal 2000 improved from 4.0% in the second quarter of
fiscal 1999 to 4.4% in the second quarter of fiscal 2000. This resulted from the
increase in revenue and the improved management of selling and administrative
costs.
Interest expense decreased by $1,369 in the second quarter of fiscal
2000 compared to the second quarter of fiscal 1999 as a result of lower average
debt levels during the second quarter of fiscal 2000 as compared to fiscal 1999.
There was income before taxes of $60,730 in the second quarter of
fiscal 2000 compared to $35,266 in the second quarter of fiscal 1999. Excluding
the insurance proceeds related to our shareholder litigation settlement in
fiscal 2000, income before taxes increased by $8,464 to $43,730. The increase
was primarily the result of the increase in revenue combined with the decrease
in selling and administrative expenses and interest expense described above. The
effective income tax rate for the second quarter of fiscal 2000, excluding the
effect of the insurance proceeds, was 42.0% compared to 46.5%, excluding a
$4,000 benefit related to restructuring our European leasing operations, for the
comparable period in fiscal 1999. The tax rate reduction was primarily due to
the recording of benefits resulting from legislative changes that facilitated
utilization of net operating losses that previously had a full valuation
allowance.
Diluted earnings per common share increased to $0.23 per share for the
second quarter of fiscal 2000 from $0.15 per share for the second quarter of
fiscal 2000. Excluding the after-tax effect of the insurance proceeds in fiscal
2000, diluted earnings per common share were $0.17 in the second quarter of
fiscal 2000 compared to $0.15 in the second quarter of fiscal 1999.
Review of Business Segments
---------------------------
In the second quarter of fiscal 2000, we made the following change to
our segment reporting as a result of our restructuring program: Legal Document
Services, which was included in Other in the first quarter of fiscal 2000, is
now aligned with and included in IKON North America. Prior year results have
been reclassified to conform with the current-year presentation.
IKON North America
Revenues, excluding finance income, increased by $35,362, or 3.5%, to
$1,059,570 in the second quarter of fiscal 2000 from $1,024,208 in the second
quarter of fiscal 1999. The increase was primarily due to strong net sales
growth offset by minimal growth in Service and Rentals due to the closure of
unprofitable or non-strategic document service locations associated with the
restructuring program. Approximately 81% of our equipment revenues came from
digital and color sales as compared to 79% in the first quarter of fiscal 2000
and 52% in the second quarter of fiscal 1999. Finance income increased by
$13,584, or 21.9%, to $75,570 in the second quarter of fiscal 2000 compared to
$61,986 in the second quarter of fiscal 1999. The increase was due to the
repurchase of leases on October 7, 1999. Operating income increased by $25,184
or 29.0% to $111,941 in the second quarter of fiscal 2000 from $86,757 in the
second quarter of fiscal 1999. The increase was due mainly to increased revenue
and the improved management of selling and administrative costs described above.
IKON Europe
Revenues, excluding finance income, decreased by $10,872, or 8.2%, to
$122,304 in the second quarter of fiscal 2000 from $133,176 in the second
quarter of fiscal 1999 due mainly to a decrease in technology service revenues.
Finance income increased by $560, or 11.3%, to $5,500 in the second quarter of
fiscal 2000 from $4,940 in the
<PAGE>
second quarter of fiscal 1999 due to growth in the lease portfolio. Operating
income decreased by $1,563, or 20.7%, to $5,974 in the second quarter of fiscal
2000 from $7,537 in the second quarter of fiscal 1999.
Other
Other revenues decreased by $30,956, or 20.9%, to $117,384 in the
second quarter of fiscal 2000 from $148,340 in the second quarter of fiscal
1999. There was an operating loss of $13,452 in the second quarter of fiscal
2000 compared to $177 in the second quarter of fiscal 1999. The decrease in
revenues and operating income was due to a significant decline in our
traditional systems integration business as customers' demands have shifted from
internal systems deployment and Y2K migration to external, Internet-based
applications. The Company has developed an e-commerce business group to address
this shift in market conditions.
Six Months:
Our revenues for the first six months of fiscal 2000 decreased by
$56,239, or 2.0%, compared to the first six months fiscal 1999. Excluding a
$14,333 gain from an asset securitization in fiscal 1999, revenues decreased by
$41,906, or 1.5%. The decrease resulted from fewer sales representatives on
average during the period as compared to the prior year and a significant
decline in our traditional systems integration business. Net sales, which
includes equipment revenue, decreased by $31,370 or 2.2%. The decrease is due
mainly to fewer sales representatives on average as compared to the prior year,
the impact of the Year 2000 on first quarter fiscal 2000 net sales and a
significant decline in our traditional systems integration business. During the
year we added 313 sales representatives concentrated in our areas of highest
growth, such as color, high volume and facilities management and at the end of
March 2000, our sales force is at the same level as March 1999. Service and
rental revenue decreased by $32,671 or 2.8%. The decrease resulted from the
decline in our Technology Services revenues and the closure of non-strategic
outsourcing sites associated with our restructuring program which was announced
in the first quarter of fiscal 2000. Finance income, excluding the $14,333 gain
from an asset securitization in fiscal 1999, increased by $22,135 or 15.8%
compared to the first six months of fiscal 1999 due to the repurchase of leases
on October 7, 1999.
Gross margin was 36.8%, compared to 37.6% in the first six months of
fiscal 1999, excluding the gain from the asset securitization. This decrease is
largely due to lower service margins in our traditional equipment business and
fixed costs associated with lower revenues for Technology Services. The gross
margin on equipment sales was 33.0% compared to 32.5% in the first six months of
fiscal 1999. This was due mainly to a significant increase in higher margin
digital and color revenues as compared to the first six months of fiscal 1999.
The gross margin on service and rentals decreased to 39.4% compared to 41.6% in
the first six months of fiscal 1999. The decrease primarily resulted from fixed
costs associated with lower Technology Service revenues and lower productivity
in servicing new digital products, including the impact of new vendor and
digital training programs.
In the first quarter of fiscal 2000, the Company announced plans to
improve performance and efficiency and incurred a total pre-tax restructuring
and asset impairment charge (the "charge") of $105,340 ($78,479 after-tax, or
$0.52 per share on a basic and diluted basis). These actions address
under-performance in certain Technology Services, Business Document Services,
and Business Information Services locations; as well as the Company's desire to
strategically position these businesses for integration and profitable growth.
Plans include consolidating or disposing of certain under-performing and
non-core locations; implementing productivity enhancements through the
consolidation and centralization of activities in inventory management,
purchasing, finance/accounting and other administrative functions; and
consolidating real estate through the co-location of business units as well as
the disposition of unproductive real estate. Savings from the above programs are
anticipated to be approximately $15,000 in fiscal 2000 and approximately $45,000
on an annualized basis beginning in fiscal 2001.
<PAGE>
The pre-tax components of the charge are as follows:
Type of Charge
Restructuring Charge:
Severance $ 16,389
Contractual Commitments 37,403
--------
Total Restructuring Charge 53,792
--------
Asset Impairment Charge:
Fixed Assets 12,668
Goodwill and Intangibles 38,880
--------
Total Asset Impairment Charge 51,548
--------
Total Charge $105,340
========
The severance charge relates to the elimination of approximately 1,900
positions, while the charge for contractual commitments relates to lease
commitments where the Company is exiting certain locations and/or businesses
which are expected to be paid over the next 9 years.
The Company commenced several actions specified under these initiatives
in the first quarter of fiscal 2000, which continued through the second quarter.
The following presents a reconciliation of the original components of the
pre-tax restructuring charge to the balance remaining at March 31, 2000, which
is included in other accrued expenses on the balance sheet:
<TABLE>
<CAPTION>
Balance Balance
September 30, Provision Payments March 31,
1999 Fiscal 2000 Fiscal 2000 2000
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Severance $ -- $16,389 $ 5,017 $11,372
Contractual Commitments -- 37,403 3,057 34,346
--------- ------- ------- -------
Total $ -- $53,792 $ 8,074 $45,718
========= ======= ======= =======
</TABLE>
During the first six months of fiscal 2000 approximately 620 employees
were terminated and left the Company and 13 facilities were closed.
Selling and administrative expense as a percent of revenue was 31.8%
for the first six months of fiscal 2000 compared to 33.3% in the prior year.
Excluding $17,000 of insurance proceeds related to our shareholder litigation
settlement, selling and administrative expense was 32.4% for the first six
months of fiscal 2000 compared to 33.5% in the first six months of fiscal 1999,
excluding the $14,333 gain from an asset securitization. The decrease was the
result of centralizing certain key functions, adopting new credit controls, and
productivity improvements within our business segments.
Our operating income, excluding the $105,340 asset impairment and
restructuring charges and the $17,000 of insurance proceeds related to our
shareholder litigation settlement in fiscal 2000 and the $14,333 gain from an
asset securitization in fiscal 1999, increased by $6,576 compared to the first
six months of fiscal 1999. Our operating margin, excluding the special items
noted above improved from 4.1% in the first six months of fiscal 1999 to 4.4% in
the first six months of fiscal 2000. This resulted from the improved management
of selling and administrative costs described above.
Interest expense decreased by $4,922 in the first six months of fiscal
2000 compared to the first six months of fiscal 1999 as a result of lower
average debt levels.
There was a loss before taxes of $2,309 in the first six months of
fiscal 2000 compared to income before taxes of $88,866 in the first six months
of fiscal 1999. Excluding the restructuring and asset impairment charge and the
insurance proceeds related to our shareholder litigation in fiscal 2000 and the
<PAGE>
gain from an asset securitization in fiscal 1999, income before taxes increased
by $11,498 to $86,031 compared to $74,533 in the prior year. The increase was
primarily due to the decrease in selling and administrative expenses and
interest expense described above. The effective income tax rate for the first
six months of fiscal 2000, excluding the effect of the asset impairment and
restructuring charge and insurance proceeds, is 44.0% compared to 47.7%,
excluding the gain from an asset securitization and a $4,000 benefit related to
restructuring our European leasing operations, for the comparable period in
fiscal 1999. The tax rate reduction was primarily due to the recording of
benefits resulting from legislative changes that facilitated utilization of net
operating losses that previously had a full valuation allowance.
Diluted loss per common share was $0.14 for the first six months of
fiscal 2000 compared to diluted earnings per share of $0.35 for the first six
months of fiscal 1999. Excluding the after-tax effect of the special items
described above, diluted earnings per common share were $0.32 in the first six
months of fiscal 2000 compared to $0.29 in the first six months of fiscal 1999.
Review of Business Segments
---------------------------
During the first six months of fiscal 2000, we made the following
changes to our segment reporting as a result of our restructuring program: IKON
Document Services (included in Other in fiscal 1999) was split into Business
Document Services ("BDS"), Legal Document Services ("LDS") and Business Imaging
Services ("BIS"). BDS and LDS are aligned with and included in IKON North
America and BIS remains in Other. Prior year results have been reclassified to
conform with the current year presentation.
IKON North America
Revenues, excluding finance income, decreased by $3,414, or 0.2%, to
$2,057,118 in the first six of fiscal 2000 from $2,060,532 in the first six
months of fiscal 1999. The decrease was due to fewer sales representatives on
average as compared to the prior year, minimal growth in Service and Rentals due
to the closure of unprofitable or non-strategic document service locations
associated with the restructuring program offset by strong net sales growth.
Finance income increased by $7,040, or 4.9%, to $151,228 in the first six months
of fiscal 2000 compared to $144,188 in the first six months of fiscal 1999. The
increase was due to the repurchase of leases on October 7, 1999 offset by a
$14,333 gain from an asset securitization in fiscal 1999. Operating income,
excluding the gain from the asset securitization, increased by $2,827 to
$186,489 in the first six months of fiscal 2000 from $183,662 in the first six
months of fiscal 1999. The increase was due mainly to increased total revenue
and the improved management of selling and administrative costs.
IKON Europe
Revenues, excluding finance income, decreased by $14,964, or 5.8%, to
$244,292 in the the first six months of fiscal 2000 from $259,256 in the first
six months of fiscal 1999. Finance income increased by $762, or 7.5%, to $10,939
in the first six months of fiscal 2000 from $10,177 in the first six months of
fiscal 1999 due to growth in the lease portfolio. Operating income decreased by
$6,533, or 48.4%, to $6,968 in the first six months of fiscal 2000 from $13,501
in the first six months of fiscal 1999 mainly due to the underperformance of
technology services.
Other
Other revenues decreased by $45,663, or 15.5%, to $249,251 in the first
six months of fiscal 2000 from $294,914 in the first six months of fiscal 1999.
There was an operating loss of $33,754 in the first six months of fiscal 2000
compared to $708 in the first six months of fiscal 1999. The decrease in
<PAGE>
revenues and operating income was due to a significant decline in our
traditional systems integration business as customers' demands have shifted from
internal systems deployment and Y2K migration to external, Internet-based
applications. The Company has developed an e-commerce business group to address
this shift in market conditions.
Subsequent Event
----------------
In May 2000, IKON Receivables, LLC filed a registration statement with the
Securities and Exchange Commission to register the sale of $2,000,000 of
lease-backed notes. Each series of notes which may be issued under the
registration statement will be issued pursuant to an indenture.
Impact of Year 2000
-------------------
April 2000 Update. Through April 30, 2000, our operations are fully
functioning and have not experienced any significant issues associated with the
Year 2000 problem. For further information, refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our report
on Form 10-Q for the period ended December 31, 1999 and the Company's Annual
Report on Form 10-K/A for its fiscal year ended September 30, 1999.
Financial Condition and Liquidity
---------------------------------
Net cash provided by operating activities for the first six months of
fiscal 2000 was $84,079. During the same period, the Company used $444,867 of
cash in investing activities, which included net finance subsidiary use of
$375,586, acquisition activity at a cash cost of $3,745, capital expenditures
for property and equipment of $52,175 and capital expenditures for equipment on
operating leases of $22,146. Cash provided by financing activities of $408,747,
includes a $119,375 net increase in corporate debt and a $340,280 increase in
finance subsidiaries debt. Debt, excluding finance subsidiaries, was $978,419 at
March 31, 2000, an increase of $119,375 from the debt balance at September 30,
1999 of $859,044. The debt to capital ratio, excluding finance subsidiaries, was
40.6% at March 31, 2000 compared to 37.0% at September 30, 1999. Excluding the
impact of loans from our finance subsidiaries, our debt increased by $141,200 at
March 31, 2000 compared to September 30, 1999. The increase was due mainly to
payments related to the shareholder litigation settlement and the restructuring
program. The increase in the Company's assets was due mainly to the repurchase
of $275,000 of direct financing lease receivables in the first quarter of fiscal
2000. Restricted cash on the balance sheet represents cash collected on certain
lease receivables which must be used to repay the lease-backed notes.
As of March 31, 2000, short-term borrowings under a $600,000 credit
agreement totaled $25,000. The Company also has $700,000 available for either
stock or debt offerings under a shelf registration statement filed with the
Securities and Exchange Commission.
Finance subsidiaries debt increased by $340,280 from September 30,
1999, as a result of the issuance of lease-backed notes offset by payments on
medium term notes and bank borrowings. During the six months ended March 31,
2000, the U.S. finance subsidiary repaid $647,861 of debt, $697,466 of
lease-backed notes were issued and there was $250,000 of new bank borrowings. At
March 31, 2000, $864,850 of medium term notes were outstanding with a weighted
interest rate of 6.5%. In December 1999, the U.S. finance subsidiary entered
into a new asset securitization agreement under which it received cash of
$250,000. In October 1999, a portion of the cash received from the issuance of
the lease-backed notes was used to repurchase the direct financing leases
related to its previously existing $275,000 asset securitization program. During
the first six months of fiscal 2000, our Canadian finance subsidiary sold CN$
26,817 in leases under the Canadian CN$175,000 asset securitization agreement
and received CN$24,672 in cash.
<PAGE>
The Company filed a shelf registration statement with the Securities
and Exchange Commission to register the sale of 10,000 shares of common stock in
April 1997. Shares issued under the registration statement may be used for
acquisitions. Approximately 3,500 shares have been issued under this shelf
registration through March 31, 2000, leaving 6,500 shares available for
issuance.
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 the remaining accrued costs
associated with the Company's restructuring charge.
Pending Accounting Changes
--------------------------
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It will
require us to recognize all derivatives as either assets or liabilities and
measure the instruments at fair value. The statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. We intend to adopt the
standard on October 1, 2000. We do not believe the effect of adoption will be
material.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The SAB summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in the financial
statements. We are currently assessing SAB 101 and can not quantify the impact
on our Company, if any, at this time. Any change resulting from the application
of SAB 101 will be reported as a change in accounting principle in accordance
with APB Opinion No. 20, Accounting Changes. We are required to begin reporting
changes, if any, to our revenue recognition policy in the first quarter of
fiscal year 2001.
<PAGE>
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk:
Our exposure to market risk for changes in interest rates relates
primarily to our long-term debt. We have no cash flow exposure due to interest
rate changes for long-term debt obligations. We primarily enter into debt
obligations to support general corporate purposes, including acquisitions,
capital expenditures and working capital needs. Finance subsidiaries' long-term
debt is used to fund the lease receivables portfolio. The carrying amounts for
cash, accounts receivable, long-term receivables and notes payable reported in
the consolidated balance sheets approximate fair value. Additional disclosures
regarding interest rate risk are set forth in the Company's 1999 Annual Report
on Form 10-K/A filed with the Securities and Exchange Commission.
Foreign Exchange Risk:
The Company does not have significant foreign exchange risk. Foreign
denominated intercompany debt borrowed in one currency and repaid in another is
fixed via currency swap agreements.
Forward-Looking Information
---------------------------
This document includes or incorporates by reference information which
constitutes forward-looking statements within the meaning of the federal
securities laws, including but not limited to, statements regarding: the impact
of e-commerce initiatives; growth opportunities, productivity initiatives, and
the impact of the Company's revenue, margin, and cost-savings projections,
expected savings from the repositioning program, anticipated growth rates in the
digital equipment and outsourcing industries; the cost and completion date of
the Company's Year 2000 remediation project (and the possible negative impact
which might result from nonremediated systems of the Company and/or its
vendors); the reorganization of the Company's business segments; and the
Company's ability to finance its current operations and growth initiatives.
Although the Company believes such forward-looking statements are reasonable,
based on management's current plans and expectations, the statements are 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, and therefore, no assurances can be given that such statements will
prove correct. These uncertainties and risks include, but are not limited to,
risks and uncertainties relating to: conducting operations in a competitive
environment and a changing industry (which includes technical services and
products that are relatively new to the industry and to the Company); delays,
difficulties, management transitions and employment issues associated with
consolidations and/or changes in business operations; managing the integration
of acquired businesses; existing and future vendor relationships; risks relating
to currency exchange; economic, legal and political issues associated with
international operations; potential Year 2000 deficiencies associated with the
operation of IKON's internal systems and distributed products; the Company's
ability to access capital and its debt service requirements (including
sensitivity to fluctuation in interest rates); and general economic conditions.
Certain additional risks and uncertainties are set forth in the Company's 1999
Annual Report on Form 10-K/A filed with the Securities and Exchange Commission.
As a consequence, future results may differ materially from those expressed in
any forward-looking statements made by or on behalf of the Company.
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 4: Submission of Matters to a Vote of Security Holders
On February 23, 2000, the Company held its annual meeting of
shareholders at which time nine directors were elected to hold office
until the election of their successors. The Company's Non-Employee
Director Compensation Plan and Executive Incentive Plan were also
approved.
<TABLE>
<CAPTION>
For Against Withheld
----------- ---------- ----------
<S> <C> <C> <C>
Judith M. Bell 131,274,462 3,183,109
James R. Birle 131,542,085 2,915,487
Philip E. Cushing 131,510,468 2,947,103
James J. Forese 131,364,005 3,093,562
Robert M. Furek 131,545,296 2,912,275
Thomas R. Gibson 131,560,391 2,897,180
Richard A. Jalkut 131,500,759 2,956,812
Arthur E. Johnson 130,993,067 3,464,504
Kurt M. Landgraf 131,205,094 3,252,477
Non-Employee Director Compensation Plan 116,386,931 17,029,126 1,041,513
Executive Incentive Plan 116,252,384 17,173,769 1,031,418
</TABLE>
Item 5: Other Information
Effective July 21, 2000, Marilyn Ware has been elected to serve as a
member of the Company's Board of Directors. A copy of the press
release dated May 3, 2000 announcing her election is attached hereto
as Exhibit No. 99.
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
Exhibit No. (99) Press Release dated May 3, 2000
(b) Reports on Form 8-K
On January 5, 2000, the Company filed a Current Report on Form 8-K/A
to file, under Item 4 of the form, information regarding the
appointment of PricewaterhouseCoopers LLP as its independent auditors
for the fiscal year ending September 30, 2000 to replace the firm of
Ernst & Young LLP who were dismissed as auditors of the Company
effective with their completion of their audit of the Company's
financial statements for the fiscal year ended September 30, 1999.
On February 4, 2000, the Company filed a Current Report on Form 8-K to
file, under Item 5 of the form, information contained in its press
release dated January 26, 2000 regarding the results for the first
quarter of fiscal 2000 as well as announcing that Kurt M. Landgraf had
been elected to serve as a member of the Company's Board of Directors.
<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 May 15, 2000 /s/ William S. Urkiel
-------------------------- --------------------------
William S. Urkiel
Senior Vice President and
Chief Financial Officer
<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>
<CIK> 0000003370
<NAME> IKON OFFICE SOLUTIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 51,345
<SECURITIES> 0
<RECEIVABLES> 733,349
<ALLOWANCES> 44,837
<INVENTORY> 379,124
<CURRENT-ASSETS> 2,451,399
<PP&E> 781,525<F1>
<DEPRECIATION> 453,435<F2>
<TOTAL-ASSETS> 6,172,539
<CURRENT-LIABILITIES> 2,486,123
<BONDS> 1,696,185
0
0
<COMMON> 1,016,039
<OTHER-SE> 415,886
<TOTAL-LIABILITY-AND-EQUITY> 6,172,539
<SALES> 1,396,411
<TOTAL-REVENUES> 2,712,828
<CGS> 935,166
<TOTAL-COSTS> 1,713,395<F3>
<OTHER-EXPENSES> 968,122<F4>
<LOSS-PROVISION> 15,421
<INTEREST-EXPENSE> 33,620
<INCOME-PRETAX> (2,309)
<INCOME-TAX> 18,474
<INCOME-CONTINUING> (20,783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,783)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
<FN>
<F1> Includes equipment on operating leases, at cost, of $233,016
<F2> Includes accumulated depreciation for equipment on operating leases of
$152,062
<F3> Includes Finance Subsidiaries interest of $78,960
<F4> Represents selling, general and administrative expenses and restructuring
and asset impairment charge.
</FN>
</TABLE>
Exhibit 99
IKON Office Solutions [LOGO]
P.O. Box 834
Valley Forge, PA 19482-0834
70 Valley Stream Parkway
Malvern, PA 19355
News Release
---------------------------------------------------------------------------
Contacts:
Veronica L. Rosa Steven K. Eck
Investor Relations Media Relations
610-408-7196 610-408-7295
[email protected] [email protected]
- ------------------ -----------------
IKON OFFICE SOLUTIONS APPOINTS NEW BOARD MEMBER
Marilyn Ware Elected to Board of Directors
Valley Forge, Pennsylvania - May 3, 2000 - IKON Office Solutions (NYSE: IKN)
today announced that Marilyn Ware has been elected a member of the Company's
Board of Directors. This appointment fills the vacancy created by the retirement
of Barbara Barnes Hauptfuhrer.
"We are pleased to have Marilyn Ware join our Board of Directors," said James J.
Forese, Chairman and Chief Executive Officer of IKON Office Solutions. "Ms.
Ware's diverse experiences in business leadership and community service will be
a strong asset to IKON's Board."
Ware, 56, is Chairman of the Board of Directors for American Water Works
Company, Inc., Voorhees, N.J., the largest U.S.-based investor-owned water
service enterprise. She served as Vice Chairman of the Board from 1984 to 1988.
Prior to joining American Water Works, Ware was President of the Solanco
Publishing Company and President and Publisher of The Sun-Ledger from 1978 to
1982. She has worked as a public relations consultant and a freelance writer and
editor for various publications. Ware attended American University and the
University of Pennsylvania.
<PAGE>
Ware currently serves as a board member of CIGNA Corporation, an international
Fortune 500 company. She also has served as a board member of Penn Fuel Gas
Company, Inc., and PPL Resources. Ware is currently a member of the Board of
Trustees for: the National Osteoporosis Foundation; National Council of The
Conservation Fund; Gannon University; University of Pennsylvania Health System;
The American Enterprise Institute for Public Policy Research, which sponsors
original research on government policy, economy and politics; and Eisenhower
Exchange Fellowships, which establishes and nurtures the exchange of
communications among leaders with fellows representing more than 100 countries,
advancing democracy and productivity around the globe.
IKON Office Solutions (www.ikon.com) is one of the world's leading providers of
products and services that help businesses communicate. 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 outsourcing solutions, as well as
network design and consulting, application development and technology training.
With fiscal 1999 revenues of $5.5 billion, IKON has approximately 900 locations
worldwide including the United States, Canada, Mexico, the United Kingdom,
France, Germany, Ireland and Denmark.
# # #
