Exhibit 99
IKON REPORTS THIRD QUARTER EARNINGS UP 12%
Execution and Commitment to Long-Term Strategies Yielding Intended Results
Company Increases Full-Year Expectations
Valley Forge, Pennsylvania - July 24, 2002 - IKON Office Solutions (NYSE: IKN),
a leading provider of business communications solutions, today reported results
for its third fiscal quarter ended June 30, 2002. Net income for the third
quarter of Fiscal 2002 was $43.1 million, or $.28 per diluted share. These
results exceeded the Company's expectations for the quarter and represent a 12%
increase over $.25 per diluted share in the prior year, assuming the impact of
not amortizing goodwill in accordance with SFAS 142.
"Our strong earnings performance this quarter highlights the effectiveness of
the revenue and operating strategies we have implemented over the last several
years and our commitment to deliver significant earnings improvement in Fiscal
2002 - despite an anticipated decline in revenues," said James J. Forese,
Chairman and Chief Executive Officer. "We are executing on strategies to
penetrate new market opportunities, on actions to significantly improve the
bottom line, and we have taken appropriate steps to ensure our financial
strength. Our performance is on track and the outlook for the business remains
strong. By developing IKON into a more efficient and scalable distribution and
service organization, we are building value within the business and positioning
the Company to take advantage of future market and business growth
opportunities."
Revenues for the third quarter of Fiscal 2002 were $1.22 billion, compared to
$1.31 billion for the same period a year ago. While delayed customer spending
continued to impact revenues generated from sales of copier/printer equipment,
the Company delivered on its specific objectives for Fiscal 2002, including
growth in sales of high-end production equipment, facilities management, and
continued penetration into more major and national account business that
leverages the Company's substantial sales and service capabilities. The Company
has divested or downsized several business lines throughout Fiscal 2002, and the
impact from the decline in those revenues as compared to the prior year
accounted for approximately three quarters of the 7% revenue decline for the
quarter.
Year to date free cash flow was $139 million compared to $120 million for the
same nine month period in Fiscal 2001, which excludes approximately $23 million
in proceeds received in the prior year for the sale of certain real estate in
the United Kingdom. The Company continues to expect to generate $220 to $230
million of free cash flow for Fiscal 2002. Excluding finance subsidiaries' debt,
the Company's debt to capital ratio was 29% at June 30, 2002.
Net Sales, which includes the sale of copier/printer equipment, supplies, and
technology hardware, declined 7% from the prior year, led largely by a 30%
decline in technology-related hardware. The Company has been de-emphasizing this
low-margin revenue stream on a gradual basis, choosing instead to redirect its
technical capabilities to support the growing service opportunities in document
management and digital connectivity. In sales of copier/printer equipment, the
Company's performance remained strong in the high-end, segment 5 & 6 market, as
evidenced by double-digit growth in the sale of monochrome and production color
devices. Sales of lower-end copier/printer equipment and supply sales declined
compared to the prior year - a reflection of the strategies the Company has
employed to shift its sales focus to more profitable and strategic product and
service offerings, as well as a soft economy.
Services, which primarily includes revenues from the servicing of copier/printer
equipment, and outsourcing and other services, declined 9% from the prior year.
The Company's significant installed equipment base continues to generate solid
revenues from the servicing of copier/printer equipment, which grew slightly
from the prior year as the base continues to undergo a shift from analog to
digital technology, and from the Company's focus on expanding its product mix to
more higher-end devices. The downsizing or sale of non-strategic outsourcing and
other service businesses, including the sale of the Company's technology
education business, and the sale or closure of a number of digital print centers
and technology service locations, accounted for essentially all of the decline
from the prior year. Strategic service offerings such as facilities management,
legal document services, and professional services continued to perform well in
light of current economic conditions.
Finance Income grew 1% from the prior year. During the quarter, approximately
79% of IKON's customers leased through IOS Capital, IKON's captive leasing
organization in North America. Effective this quarter, income generated through
IOS Capital's administrative infrastructure such as syndication fees, late fees,
and other processing-related revenues will be reported as Services rather than
within Finance Income. There was no impact on operating income, net income or
earnings per share as a result of this change. For comparative purposes,
additional quarterly information has been included in the Notes to the attached
financial tables.
Total Gross Profit remained strong at 39.7%, unchanged versus the prior year, a
result of stronger margins on Services and Finance Income, offset by reduced
margins on Net Sales.
Selling and Administrative Costs declined $55.2 million from the prior year
through improved productivity, centralization and consolidation strategies, the
downsizing or elimination of unprofitable businesses, and the elimination of
approximately $10 million of goodwill amortization under SFAS 142. The Company
has made significant investments to centralize and streamline its infrastructure
over the years, and as a result of these strategies and in anticipation of a
tough economic climate for most of Fiscal 2002, the Company set out to reduce
Selling and Administrative costs by $190 million from Fiscal 2001 levels. Year
to date, Selling and Administrative costs have declined by approximately $160
million compared to the first nine months of Fiscal 2001.
Operating Margin was 6.8% compared to 4.9% in the third quarter a year ago, or
5.7% assuming goodwill amortization was not expensed in the third quarter of
Fiscal 2001. The improvement in the operating margin reflects the Company's
drive toward its long-term goal of 8% to 10% operating margins.
Outlook
"We are encouraged by the permanent improvements we are making to our
operational infrastructure, to our revenue mix, and by the sequential
improvement we are seeing in our core revenue streams," said Mr. Forese.
"Although the fourth quarter is typically a softer quarter on the revenue front
for IKON as compared to the third, we expect to finish out the year with a solid
performance. As a result, we are raising our Fiscal 2002 expectation from
earnings per diluted share of $.87 - $.92 to $.94 - $.96 for an anticipated
improvement of over 16% from the prior year. This places our fourth quarter
earnings expectation in the $.20 - $.22 per diluted share range. Revenues will
continue to be affected by the de-emphasis of certain revenue streams, revenue
mix strategies, and a cautious economic climate; therefore, revenues are
expected to decline by approximately 8% for the full year, and 4% to 6% for the
fourth quarter."
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 document solutions, as well as network
design and consulting, and e-business development. IOS Capital, LLC, a
wholly-owned subsidiary of IKON, provides lease financing to customers and is
one of the largest captive finance companies in North America. With Fiscal 2001
revenues of $5.3 billion, IKON has approximately 600 locations worldwide
including the United States, Canada, Mexico, the United Kingdom, France,
Germany, Ireland and Denmark.
================================================================================
Conference Call and Website Information: Additional information regarding the
third quarter results and the Company's outlook for the fourth quarter and the
full fiscal year will be discussed on a conference call hosted by IKON at 9:00
a.m. EST on Wednesday, July 24, 2002. Please call (719) 867-0680 to
participate. Beginning at 12:00 p.m. EST on July 24, 2002 and ending at
midnight on July 28, 2002, a complete replay of the conference call can also
be accessed via telephone by calling (719) 457-0820 and using the access code
770945. In addition, a complete replay of the conference call will be
available over the Internet on IKON's Investor Relations homepage
approximately two hours after the call ends. To listen, please go to
www.ikon.com and click on Invest in IKON.
================================================================================
This news release includes information which may constitute forward-looking
statements within the meaning of the federal securities laws. These
forward-looking statements include, but are not limited to, statements relating
to the Company's outlook for the fourth quarter and fiscal year 2002, our
long-term profitability and growth opportunities, and the execution and impact
of the Company's strategies. Although IKON believes the expectations contained
in such forward-looking statements are reasonable, it can give no assurances
that such expectations will prove correct. Such forward-looking statements are
based upon management's current plans or expectations and are subject to a
number of risks and uncertainties, including, but not limited to: risks and
uncertainties relating to conducting operations in a competitive environment and
a changing industry; delays, difficulties, management transitions and employment
issues associated with consolidation of, and/or changes in business operations;
managing the integration of existing and acquired companies; risks and
uncertainties associated with existing or future vendor relationships; and
general economic conditions. Certain additional risks and uncertainties are set
forth in IKON's 2001 Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission. As a consequence of these and other risks and
uncertainties, IKON's current plans, anticipated actions and future financial
condition and results may differ materially from those expressed in any
forward-looking statements.
# # #
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
Third Quarter Fiscal
------------------------------------------
2002 2001
------------------ ------------------
Revenues
Net sales $ 598,698 $ 641,858
Services 527,204 577,741 (b)
Finance income 92,714 91,558 (b)
- ------------------------------------------------------------------------------------------------------------------
1,218,616 1,311,157
- ------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 390,757 409,861
Services costs 304,755 338,486 (b)
Finance interest expense 39,103 41,783
Selling and administrative 401,017 456,249 (b)
- ------------------------------------------------------------------------------------------------------------------
1,135,632 1,246,379
- ------------------------------------------------------------------------------------------------------------------
Operating income 82,984 64,778
Interest expense 12,955 18,345
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 70,029 46,433
Income taxes 26,887 20,431
- ------------------------------------------------------------------------------------------------------------------
Net income $ 43,142 $ 26,002
- ------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share $0.30 $0.18
================== ==================
Diluted Earnings Per Common Share $0.28 (a) $0.18
================== ==================
Weighted Average Common Shares Outstanding, Basic 143,867 141,546
================== ==================
Weighted Average Common Shares Outstanding, Diluted 158,595 145,431
================== ==================
Operations Analysis:
Gross profit %, net sales 34.7% 36.1%
Gross profit %, services 42.2% 41.4%
Gross profit %, finance subsidiaries 57.8% 54.4%
Total gross profit % 39.7% 39.7%
Selling and administrative as a % of revenue 32.9% 34.8%
Operating income as a % of revenue 6.8% 4.9%
(a) The calculation of diluted earnings per common share for the third quarter
of fiscal 2002 assumes the conversion of convertible notes issued in May 2002 by
IOS Capital, LLC. For purposes of diluted earnings per common share, net income
for the third quarter of fiscal 2002 includes the add-back of interest expense,
net of taxes, associated with such convertible notes.
(b) The following revenue and expense amounts have been reclassified to conform
with current year presentation. There was no impact on operating income, net
income or earnings per share on any quarter as a result of the
reclassifications. The following table summarizes the effect of the
reclassifications:
Revenue* Expense**
------------------ ------------------
Quarter ended December 31, 2000 $5,778 $590
Quarter ended March 31, 2001 $6,282 $592
Quarter ended June 30, 2001 $6,079 $631
Quarter ended September 30, 2001 $5,834 $568
Quarter ended December 31, 2001 $5,407 $699
Quarter ended March 31, 2002 $5,632 $607
Quarter ended June 30, 2002 $4,894 $676
* Amounts that have been reclassifed from Finance Income to Services Revenue. **
Amounts that have been reclassifed from Selling and Administrative Expenses to
Services Costs.
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
Year to Date Fiscal
-----------------------------------------
2002 2001
----------------- ------------------
Revenues
Net sales $ 1,759,136 $ 2,001,648
Services 1,610,611 1,721,934 (b)
Finance income 279,492 266,852 (b)
- -----------------------------------------------------------------------------------------------------------------
3,649,239 3,990,434
- -----------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 1,155,784 1,305,473
Services costs 955,169 1,030,613 (b)
Finance interest expense 117,263 132,350
Selling and administrative 1,202,562 1,362,578 (b)
- -----------------------------------------------------------------------------------------------------------------
3,430,778 3,831,014
- -----------------------------------------------------------------------------------------------------------------
Operating income 218,461 159,420
Interest expense 41,551 54,222
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 176,910 105,198
Income taxes 65,899 46,287
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations 111,011 58,911
Discontinued operations, net of income taxes of $942 1,200
- -----------------------------------------------------------------------------------------------------------------
Net income $ 111,011 $ 60,111
================= ==================
Basic Earnings Per Common Share
Continuing operations $0.78 $0.41
Discontinued operations $0.01
----------------- ------------------
Net income $0.78 $0.42
================= ==================
Diluted Earnings Per Common Share
Continuing operations $0.74 $0.41
Discontinued operations $0.01
----------------- ------------------
Net income $0.74 (a) $0.42
================= ==================
Weighted Average Common Shares Outstanding, Basic 142,901 142,121
================= ==================
Weighted Average Common Shares Outstanding, Diluted 150,918 143,982
================= ==================
Operations Analysis:
Gross profit %, net sales 34.3% 34.8%
Gross profit %, services 40.7% 40.1%
Gross profit %, finance subsidiaries 58.0% 50.4%
Total gross profit % 38.9% 38.1%
Selling and administrative as a % of revenue 33.0% 34.1%
Operating income as a % of revenue 6.0% 4.0%
(a) The calculation of diluted earnings per common share for fiscal 2002 assumes
the conversion of convertible notes issued in May 2002 by IOS Capital, LLC. For
purposes of diluted earnings per common share, net income in fiscal 2002
includes the add-back of interest expense, net of taxes, associated with such
convertible notes.
(b) The following revenue and expense amounts have been reclassified to conform
with current year presentation. There was no impact on operating income, net
income or earnings per share as a result of the reclassifications. The following
table summarizes the effect of the reclassifications:
Revenue* Expense**
----------------- ----------------
Nine Months ended June 30, 2001 $18,139 $1,813
Nine Months ended June 30, 2002 $15,933 $1,982
* Amounts that have been reclassifed from Finance Income to Services Revenue. **
Amounts that have been reclassifed from Selling and Administrative Expenses to
Services Costs.
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
Excluding Special Items
Year to Date Fiscal
-----------------------------------------
2002 2001 (b)
------------------ -----------------
Revenues
Net sales $ 1,759,136 $ 2,001,648
Services 1,610,611 1,721,934 (c)
Finance income 279,492 266,852 (c)
- ----------------------------------------------------------------------------------------------------------------
3,649,239 3,990,434
- ----------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 1,155,784 1,305,473
Services costs 955,169 1,030,613 (c)
Finance interest expense 117,263 132,350
Selling and administrative 1,202,562 1,362,578 (c)
- ----------------------------------------------------------------------------------------------------------------
3,430,778 3,831,014
- ----------------------------------------------------------------------------------------------------------------
Operating income 218,461 159,420
Interest expense 41,551 54,222
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 176,910 105,198
Income taxes 65,899 46,287
- ----------------------------------------------------------------------------------------------------------------
Net income $ 111,011 $ 58,911
================== =================
Basic Earnings Per Common Share $0.78 $0.41
================== =================
Diluted Earnings Per Common Share $0.74 (a) $0.41
================== =================
Weighted Average Common Shares Outstanding, Basic 142,901 142,121
================== =================
Weighted Average Common Shares Outstanding, Diluted 150,918 143,982
================== =================
Operations Analysis:
Gross profit %, net sales 34.3% 34.8%
Gross profit %, services 40.7% 40.1%
Gross profit %, finance subsidiaries 58.0% 50.4%
Total gross profit % 38.9% 38.1%
Selling and administrative as a % of revenue 33.0% 34.1%
Operating income as a % of revenue 6.0% 4.0%
(a) The calculation of diluted earnings per common share for fiscal 2002 assumes
the conversion of convertible notes issued in May 2002 by IOS Capital, LLC. For
purposes of diluted earnings per common share, net income in fiscal 2002
includes the add-back of interest expense, net of taxes, associated with such
convertible notes.
(b) Fiscal 2001 excludes a gain from discontinued operations of $2,142 ($1,200
after-tax).
(c) The following revenue and expense amounts have been reclassified to conform
with current year presentation. There was no impact on operating income, net
income or earnings per share as a result of the reclassifications. The following
table summarizes the effect of the reclassifications:
Revenue* Expense**
------------------ -----------------
Nine Months ended June 30, 2001 $18,139 $1,813
Nine Months ended June 30, 2002 $15,933 $1,982
* Amounts that have been reclassifed from Finance Income to Services Revenue.
**Amounts that have been reclassifed from Selling and Administrative Expenses to
Services Costs.
This information is provided for additional analysis and is not intended to be a
presentation in accordance with generally accepted accounting principles.
IKON Office Solutions, Inc.
Consolidated Balance Sheets
June 30,
2002 September 30,
(in millions) (unaudited) 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 90.2 $ 80.3
Restricted cash 135.2 128.4
Accounts receivable, less allowances of: June 30, 2002 - $17.1;
September 30, 2001 - $23.5 597.8 641.0
Finance receivables, less allowances of: June 30, 2002 - $20.5;
September 30, 2001 - $24.4 1,194.2 1,171.0
Inventories 326.8 299.8
Prepaid expenses and other current assets 105.6 95.4
Deferred taxes 98.5 98.7
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 2,548.3 2,514.6
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term finance receivables, less allowances of: June 30, 2002 -
$38.1; September 30, 2001 - $45.4 2,217.8 2,176.2
Equipment on operating leases, net 92.1 71.2
Property and equipment, net 209.1 207.8
Goodwill, net 1,244.1 1,258.1
Other assets 60.9 63.1
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 6,372.3 $ 6,291.0
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 13.1 $ 17.6
Current portion of long-term debt, finance subsidiaries 1,065.3 1,229.6
Notes payable 7.6 183.7
Trade accounts payable 221.9 223.0
Accrued salaries, wages and commissions 95.2 126.3
Deferred revenues 164.7 185.3
Other accrued expenses 278.4 299.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,846.2 2,265.1
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt 595.3 599.6
Long-term debt, finance subsidiaries 1,715.0 1,366.1
Deferred taxes 497.9 446.1
Other long-term liabilities 208.5 218.5
Commitments and contingencies
Shareholders' Equity
Common stock, no par value: authorized 300.0 shares; issued: June
30, 2002-150.0 shares; September 30, 2001-150.1 shares;
outstanding: June 30, 2002-144.0 shares; September 30, 2001-
141.8 shares 1,010.5 1,012.3
Series 12 preferred stock, no par value: authorized 0.5 shares; none
issued or outstanding
Unearned compensation (2.4) (3.7)
Retained earnings 561.8 463.1
Accumulated other comprehensive loss (37.2) (43.5)
Cost of common shares in treasury: June 30, 2002-5.3 shares;
September 30, 2001-7.5 shares (23.3) (32.6)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,509.4 1,395.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 6,372.3 $ 6,291.0
- ---------------------------------------------------------------------------------------------------------------------------------