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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 19, 1997
IKON CAPITAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE File No. 0-20405 23-2493042
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification
Number)
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1738 Bass Road, Macon, Georgia 31210
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(Address of principal executive offices) (Zip Code)
(912) 471-2300
Registrant's telephone number, including area code:
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
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On June 19, 1997, the Registrant's parent, IKON Office Solutions, Inc.
("IKON") issued a press release announcing that IKON's earnings for the third
quarter ending June 30, 1997 would be lower than expected, due to short-term
issues related to the acceleration of its business transformation process.
Excluding $18 million to $22 million in transformation costs, IKON expects to
earn approximately $0.30 to $0.32 per share compared with a consensus market
expectation of $0.40 per share. For the fourth quarter, IKON now expects
earnings per share in the range of $0.33 to $0.36 before transformation costs of
about $20 million to $25 million. IKON stated that, despite the reduced
expectations, its business remains strong, with continuing healthy revenue
growth and solid gross margins in all aspects of its operations; the shortfall
does not reflect any fundamental operating problems.
Of the operating income shortfall IKON anticipates in the third quarter,
approximately half is due to lower sales productivity in certain markets, which
is expected to result in a lower internal revenue growth rate of approximately
11% to 12% in North America. The remaining half of the shortfall is due to SG&A
(sales, general and administrative) expenses that were expected to be eliminated
in the third quarter through the transformation process.
The press release further indicated that IKON's transformation, which has
been underway for eighteen months, has achieved substantial progress and is on
target to be substantially completed by the end of 1998. In fiscal 1998, IKON
expects to achieve 20% earnings growth, excluding transformation costs of $50
million to $75 million.
This report includes information which may constitute forward-looking
statements about the Registrant or IKON made pursuant to the safe harbor
provisions of the federal securities laws. Although the Registrant believes the
expectations contained in such forward-looking statements are reasonable, no
assurances can be given that such expectations will prove correct. This
information is subject to risks and uncertainties that could significantly
affect the Registrant's and/or IKON's current plans, anticipated actions and
future financial condition and results. These uncertainties and risks include,
but are not limited to, those relating to IKON's successful management of an
aggressive program to acquire and integrate new companies, risks and
uncertainties (applicable to both the Registrant and IKON) relating to
conducting operations in a competitive environment; delays, difficulties,
technological changes and employment issues (applicable to both the Registrant
and IKON) associated in a large-scale transformation project; debt service
requirements (applicable to both the Registrant and IKON) including sensitivity
to fluctuation in interest rates; and general economic conditions. Therefore,
actual results may differ materially from the forward-looking statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(c) Exhibits.
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(99) Press Release dated June 19, 1997
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IKON CAPITAL, INC.
By: /s/ O. Gordon Brewer, Jr.
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O. Gordon Brewer, Jr.
Treasurer
Dated: June 19, 1997
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Index to Exhibit
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(99) Press Release dated June 19, 1997
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EXHIBIT 99
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CONTACTS:
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Michael N. Kilpatric Steven K. Eck Suzanne C. Shenk Susan G. Gaffney
News Media News Media Investor Relations Investor Relations
610-993-3662 610-993-3501 610-993-3526 610-993-3694
[email protected] [email protected] [email protected] [email protected]
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IKON OFFICE SOLUTIONS LOWERS
EARNINGS EXPECTATION FOR THIRD QUARTER
CITES SHORT-TERM ISSUES RELATED TO ACCELERATION
OF COMPANY'S TRANSFORMATION PROCESS
VALLEY FORGE, PENNSYLVANIA---JUNE 19, 1997---IKON Office Solutions
(NYSE: IKN) today announced that it anticipates lower-than-expected earnings in
its fiscal third quarter, ending June 30. The Company said that the decline is
due to short-term issues related to the acceleration of its business
transformation process. IKON expects to earn, excluding $18 million to $22
million in transformation costs, approximately $0.30 to $0.32 per share in the
third quarter compared with a consensus market expectation of $0.40 per share.
For the fourth quarter, the Company now expects earnings per share in the range
of $0.33 to $0.36 before transformation costs of about $20 million to $25
million.
Of the operating income shortfall we anticipate in the third quarter,
approximately half is due to lower sales productivity in certain markets which
we expect will result in a lower internal revenue growth rate of approximately
11 percent to 12 percent in North America. The remaining half is in SG&A
(sales, general and administrative) expenses that were expected to be eliminated
this quarter through the transformation process.
"Despite the reduced expectations, our business remains strong, with
continuing healthy revenue growth and solid gross margins in all aspects of our
operations," said John E. Stuart, IKON's chairman and chief executive officer.
"However, we
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overestimated our ability to complete the transformation while also maintaining
the 'sprint pace' in growth that we have enjoyed historically. We failed to
recognize the temporary strain the transformation would put on sales growth in
our traditional copier business. At the same time, however, our newer
businesses--outsourcing and technology services--continue on plan and are
performing exceptionally well.
"Our business strategy is sound, and our long-term prospects are excellent.
The markets in which we compete are high-growth and service-oriented, and we are
changing our infrastructure and processes to capitalize on the many
opportunities there. IKON's transformation, which has been underway for 18
months, has achieved significant progress and is on target to be substantially
completed by the end of 1998. In 1998, we expect to achieve 20 percent earnings
growth, excluding transformation costs of $50 million to $75 million. The
shortfall we are announcing today does not reflect any fundamental operating
problems."
Stuart added, "At the end of the second quarter in March of this year, we
entered the most challenging stage of the accelerated transformation as we began
the actual movement of people and processes within IKON. This is inherently the
most disruptive phase of the change process, and we very much underestimated its
impact on our business."
IKON's transformation program includes a variety of activities designed to
significantly lower its administrative costs and dramatically improve margins.
These activities include consolidating purchasing, inventory control, logistics,
and other activities into 13 customer service centers in the United States,
establishing a single financial processing center, building a common information
technology system, adopting a common name, and creating sales and service
marketplaces.
Stuart said, "We remain committed to substantially completing the
transformation on time, and we are confident that our total solutions strategy
will result in significant growth and increased shareholder value."
IKON Office Solutions (HTTP://WWW.IKON.COM) is one of the world's leading
office technology companies providing customers with total office solutions from
copier and printing systems, computer networking and digital document services
to copy center
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management, technology training and electronic file conversion. With fiscal
1996 revenues of more than $4 billion, IKON Office Solutions has more than 900
locations in the U.S., Canada, Mexico, the United Kingdom, France, Germany and
Denmark.
This news release includes information which may constitute forward-looking
statements made pursuant to the safe harbor provisions of the federal securities
laws. Although IKON believes the expectations contained in such forward-looking
statements are reasonable, it can give no assurance that such expectation will
prove correct. This information is subject to risk and uncertainties such as
those relating to managing an aggressive program to acquire and integrate new
companies; conducting activities in a competitive environment; delays,
difficulties, management transitions and employment issues associated with its
transformation project; and general economic conditions. Therefore, actual
results may differ materially from the forward-looking statements.
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