[GRAPHIC OMITTED] IKON Office Solutions, Inc.
P.O. Box 834
Valley Forge, PA 19482-0834
70 Valley Stream Parkway
Malvern, PA 19355
News Release
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Contacts:
Veronica L. Rosa Steven K. Eck
Investor Relations Media Relations
610-408-7196 610-408-7295
vrosa@ikon.com seck@ikon.com
IKON ANNOUNCES FOURTH QUARTER
AND FISCAL 2003 RESULTS
Strong Growth in Fourth Quarter Equipment Sales
Fiscal Year Closes With Strengthened Balance Sheet, Exceptionally Strong Cash
Generation
Valley Forge, Pennsylvania - October 27, 2003 - IKON Office Solutions (NYSE:IKN)
today reported fourth quarter revenue and earnings per share that exceeded the
Company's expectations for the quarter. For the full fiscal year, approximately
$439 million in cash generated from operations also exceeded the Company's
expectations, fueled by working capital improvements in most areas. Cash was
primarily used throughout Fiscal 2003 to strengthen the Company's financial
flexibility, including the reduction of non-finance subsidiary debt to $430
million - a more than 50% reduction from June 2001.
Net income for the fourth quarter was $32.4 million, or $.21 per diluted share,
including a $7 million pretax gain, or $.03 per diluted share, from the early
extinguishment of debt during the quarter. Excluding the gain, fourth quarter
earnings were $.18 per diluted share, compared to expectations of $.15 to $.17
per diluted share for the quarter. These results were due to stronger than
expected revenues for the fourth quarter, particularly in sales of
copier/printer equipment. Sales of copier/printer equipment grew 5% from the
fourth quarter of Fiscal 2002, the first period of growth since the second
quarter of Fiscal 2001.
Revenues for the fourth quarter were $1.20 billion compared to $1.21 billion for
the fourth quarter of Fiscal 2002, a decline of 1.3%. (Both current and prior
year Net Sales and Cost of Goods Sold include a reclassification adjustment as
detailed on the attached schedule; there is no impact on gross profit or
operating income dollars.) Excluding approximately $21 million of revenue
decrease from downsizing and exit strategies the Company commenced during Fiscal
2002, core revenues, representing all other revenues, including the sale of
copier/printer technologies, supplies, and the Company's wide array of services,
demonstrated positive growth in the fourth quarter compared to the prior year.
"Our fiscal year closed with a strong drive by our sales organization to grow
market share with our traditional corporate customers, and expand our presence
in new geographies and with Fortune 1000 customers that are part of our future
growth platform." said Matthew J. Espe, IKON's Chairman and Chief Executive
Officer. "In a tough operating environment, business leaders need a partner that
can deliver savings and productivity to their organization through a
well-integrated document strategy. Customers are increasingly recognizing IKON
as the best choice to fulfill their needs, with our breadth of on-site and
off-site
service capabilities, document expertise, best-in-class technologies from
manufacturers like Canon and Ricoh and our ability to seamlessly integrate these
solutions into the workflow.
"During the quarter, we continued to execute against our growth platform, with
strong sales in our targeted metro markets and new customer wins in our national
account program. To ensure we are able to support future growth and improve our
productivity, we balanced the year with continued reductions in our expense
structure in the quarter while simultaneously funding our e-IKON process and
systems redesign project. We also further strengthened the balance sheet through
substantial reductions in non-finance subsidiary debt, with over 80% of the
remaining non-finance subsidiary debt maturing in 2025 and beyond," Mr. Espe
continued.
The IKON Board of Directors approved the Company's regular quarterly cash
dividend of $.04 per common share. The dividend is payable on December 10, 2003
to holders of record at the close of business on November 24, 2003.
Fourth Quarter Analysis
Year-to-year comparisons of both Net Sales and Services were impacted
unfavorably by prior year actions to strengthen the business model and improve
the quality of revenue streams. During Fiscal 2002, the Company exited its
telephony business, sold its technology education business, and began the
process of closing or selling a number of digital print centers and technology
services locations. In addition, the Company continued to de-emphasize the
distribution of low-margin technology hardware such as computers, routers and
servers throughout Fiscal 2002 and 2003.
Net Sales of $600.5 million, which include the sale of copier/printer equipment,
supplies and technology hardware, declined by 0.9% from the fourth quarter of
Fiscal 2002. Net Sales grew by 2.3% excluding a $19 million decline in
technology hardware. Contributing to this growth was a 5% increase in sales of
copier/printer equipment in the quarter, offset by a $10 million decline in
supply sales. Growth in copier/printer equipment revenues was led by exceptional
growth in color and growth in sales of over 70 pages per minute production
equipment, offset by a slight decline in sales of lower-end copier/printers.
Contributing to overall equipment growth was the flow-through of the third
quarter's higher than average level of vendor backorders. Gross profit margin on
Net Sales declined to 29.2% from 32.5% in the fourth quarter of Fiscal 2002, due
primarily to a more competitive environment for copier/printer equipment,
product and customer mix, and a higher level of inventory write-offs compared to
a year ago.
Services of $496.1 million, which include revenues from the servicing of
copier/printer equipment, and outsourcing and other services, declined by 2.8%
from the fourth quarter of Fiscal 2002. Revenues from the servicing of
copier/printer equipment are linked closely to the number of copies customers
generated on copier/printer equipment - an installed base of more 900,000
machines managed by IKON's team of 7,000 service technicians. For the fourth
quarter, equipment service revenues declined by 2.4% from the fourth quarter a
year ago, primarily due to a lower level of copy volume growth compared to the
same period a year ago. Outsourcing and other services declined by 3.2% from the
prior year, or 2.6% excluding a $2 million revenue decline associated with the
exit and downsizing of certain businesses in Fiscal 2002. Within outsourcing and
other services, fourth quarter growth in facilities management services of 4%
was offset by declines in off-site digital print and legal document services
when compared to the prior year. Gross profit margin on Services improved
slightly to 40.6% from 40.2% for the same period a year ago.
Finance Income grew by 3.8% from the prior year to $99.1 million. In the fourth
quarter, approximately 81% of IKON's equipment revenues in the U.S. were
financed through IKON's largest leasing subsidiary, IOS Capital, LLC, compared
to 79%
in the prior year. Portfolio quality at IOS Capital remains stable, with
charge-offs and collections improving over 2002. Gross profit margin from
finance subsidiaries increased to 63.7% in the fourth quarter, from 57.4% for
the same period a year ago due to market rate reductions and the Company's
chosen mix of capital resources - primarily lease-backed notes - to support
lease financing.
Selling and Administrative Expenses declined by $9.2 million from the fourth
quarter of the prior year, primarily from improvements in selling costs and
continued expense and headcount controls. These savings have been partially
offset by higher pension, health care, and e-IKON implementation expenses in
Fiscal 2003. Total employment at the end of Fiscal 2003 was 30,250, compared to
33,200 at the end of Fiscal 2002.
Operating Income of $56.5 million in the fourth quarter declined by $18.6
million from the prior year, or $8.1 million excluding the reversal of fourth
quarter restructuring charges, as the decline in total gross profit outpaced
improvements in Selling and Administrative expenses.
Fiscal Year 2003 Results
For the fiscal year ended September 30, 2003, net income was $116.0 million, or
$.75 per diluted share, which includes $19.2 million in pretax net losses, or
$.07 per diluted share, from the early extinguishment of debt. Excluding these
net losses, earnings for the fiscal year ended September 30, 2003 were $.82 per
diluted share. Prior year net income totaled $150.3 million, or $.99 per diluted
share, which includes a $.04 benefit related to the reversal of Fiscal 2001
restructuring charges. Excluding the benefit of the restructuring reversal, net
income for Fiscal 2002 was $143.5 million, or $.95 per diluted share.
Fiscal 2003 revenues of $4.71 billion declined by $219 million or 4.4% from the
prior year, with approximately $156 million of the decline related to downsizing
and exit strategies commenced during the first quarter of Fiscal 2002. Excluding
the impact of these actions, core revenues for Fiscal 2003 declined by 1.3%, but
improved consistently over the course of Fiscal 2003.
Balance Sheet and Liquidity
As of September 30, 2003, the Company had approximately $360 million in
non-restricted cash on its balance sheet. Cash from operations for the fiscal
year totaled approximately $439 million, exceeding expectations due to working
capital benefits in accounts receivable, inventory, and accounts payable. The
most significant improvement was an increase in inventory turns from the prior
year due to centralization and organizational benefits in supply chain. Capital
expenditures on operating rentals and property and equipment, net of proceeds,
totaled $68 million, or $90 million excluding $22 million of proceeds recorded
from the Company's sale and leaseback of its headquarters building in the fourth
quarter.
During the fourth quarter, the Company continued to strengthen the balance sheet
by repurchasing $64.3 million of non-finance subsidiary debt in the open market.
As of September 30, 2003, the remaining non-finance subsidiary debt was $430
million. Finance subsidiary debt, which is supported by a $3.6 billion lease
receivable portfolio, net of reserves, is maintained at no more than a debt to
equity ratio of 6 to 1.
Outlook
"We are excited about the momentum in the business as we exited Fiscal 2003 and
believe customers are increasingly recognizing IKON's ability to be their single
source for best-in-class document management solutions," commented Mr. Espe.
"Our efforts in 2004 will continue to strengthen the business model to enhance
shareholder value through a balanced approach
toward developing our growth platform, investing in operational excellence, and
achieving greater financial flexibility. We believe this combination will allow
us to grow earnings per share, on average, in a range of 5% to 10% over the next
three years.
"For Fiscal 2004, we expect revenues to grow up to 1%, through a blend of
equipment and services growth, with earnings per diluted share in the $.82 to
$.87 range. Cash from operations is expected to be in the range of $325 to $350
million for Fiscal 2004. Capital expenditures, net of proceeds, should be
approximately $90 million. For the first quarter ended December 31, 2003,
revenues should be similar to the first quarter of Fiscal 2003 with earnings per
diluted share expected to be in the range of $.17 to $.19," Mr. Espe concluded.
These expectations exclude any additional potential gain or loss from the early
extinguishment of debt that the Company may incur in the first quarter or the
full year Fiscal 2004.
Adjusted Financial Information
Net income and earnings per diluted share in this earnings release are presented
on an adjusted basis to exclude the impact of the gain/loss from the early
extinguishment of debt. Revenues are also presented on an adjusted basis to
exclude the impact of downsizing and exit strategies commenced during the first
quarter of Fiscal 2002. Operating income is presented on an adjusted basis
excluding the reversal of restructuring charges in the fourth quarter of Fiscal
2002. In addition, capital expenditures, net of proceeds, are presented
excluding proceeds recorded from the sale and leaseback of the Company's
headquarters building in the fourth quarter of Fiscal 2003. Management believes
these presentations provide a reasonable basis on which to present adjusted
financial information and ratios that provide investors with a useful indication
of the performance of the Company's ongoing operations and financial strength.
This adjusted financial information should not be construed as an alternative to
our reported results determined in accordance with generally accepted accounting
principles (GAAP). Further, our definition of this adjusted financial
information may differ from similarly titled measures used by other companies.
A supplemental schedule attached provides a quantitative reconciliation of the
differences between the adjusted financial information and the financial
measures calculated and presented in accordance with GAAP. This reconciliation,
in addition to other adjusted financial measures used by management, may be
found at the Company's website at www.ikon.com in the Investor Relations
section.
About IKON
IKON Office Solutions (www.ikon.com) integrates imaging systems and services
that help businesses manage document workflow and increase efficiency. As the
world's largest independent distribution channel for copier and printer
technologies, IKON offers best-in-class systems from leading manufacturers such
as Canon, Ricoh and Hewlett Packard and service support through its team of
7,000 service professionals worldwide. IKON also represents the industry's
broadest portfolio of document management services: outsourcing and professional
services, on-site copy and mailroom management, fleet management, off-site
digital printing solutions, and customized workflow and imaging application
development. IKON also provides lease financing services to its customers
through its wholly-owned subsidiaries, including IOS Capital, LLC. With Fiscal
2003 revenues of $4.7 billion, IKON has approximately 600 locations throughout
North America and Europe.
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QUARTERLY EARNINGS CONFERENCE CALL: Additional information regarding the
fourth quarter and Fiscal 2003 results and the Company's outlook for Fiscal
2004 will be discussed on a conference call hosted by IKON at 10:00 a.m. EST
on Monday, October 27, 2003. Please call (719) 457-2661 to participate. The
live audio broadcast of the call can be accessed on IKON's Investor Relations
homepage. A complete replay of the conference call will also be available on
IKON's Investor Relations homepage approximately two hours after the call ends
through the next quarterly reporting period. To listen, please go to
www.ikon.com and click on Invest in IKON. Beginning at 1:00 p.m. EST on
October 27, 2003 and ending at midnight EST on October 30, 2003, a complete
replay of the conference call can also be accessed via telephone by calling
(719) 457-0820 and using the access code 787011.
NON-GAAP INFORMATION: In the event any non-GAAP measures are discussed during
the conference call, a file will be available, within 24 hours, on the
Company's website, www.ikon.com, that reconciles non-GAAP and GAAP results.
The file can be accessed on the Investor Relations home page by clicking 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 our first quarter and full Fiscal 2004 results, earnings per share growth
range, and other future growth opportunities. 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; the implementation, timing and cost of
the e-IKON initiative; 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 2002 Annual Report on Form 10-K
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.
Consolidated Balance Sheets
Preliminary
September 30,
2003 September 30,
(in millions) (unaudited) 2002
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Assets
Cash and cash equivalents $ 360.0 $ 271.8
Restricted cash 165.3 116.1
Accounts receivable, less allowances of: September 30, 2003 - $11.9;
September 30, 2002 - $14.2 560.3 568.6
Finance receivables, less allowances of: September 30, 2003 - $20.5;
September 30, 2002 - $20.4 1,205.1 1,198.3
Inventories 224.3 318.2
Prepaid expenses and other current assets 103.4 82.9
Deferred taxes 44.1 65.3
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Total current assets 2,662.5 2,621.2
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Long-term finance receivables, less allowances of: September 30, 2003 -
$38.0; September 30, 2002 - $37.8 2,370.9 2,231.5
Equipment on operating leases, net 103.5 99.6
Property and equipment, net 177.6 202.9
Goodwill, net 1,258.4 1,235.4
Other assets 66.6 67.2
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Total Assets $ 6,639.5 $ 6,457.8
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Liabilities and Shareholders' Equity
Current portion of long-term debt, excluding finance subsidiaries $ 6.5 $ 11.5
Current portion of long-term debt of finance subsidiaries 1,445.2 1,312.0
Notes payable 4.0 7.2
Trade accounts payable 245.7 232.1
Accrued salaries, wages and commissions 117.1 127.7
Deferred revenues 143.5 161.5
Other accrued expenses 275.4 300.9
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Total current liabilities 2,237.4 2,152.9
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Long-term debt, excluding finance subsidiaries 419.1 594.4
Long-term debt of finance subsidiaries 1,563.5 1,495.8
Deferred taxes 482.6 479.4
Other long-term liabilities 301.5 200.4
Commitments and contingencies
Shareholders' Equity
Common stock, no par value: authorized: 300.0 shares; issued: September
30, 2003-150.0 shares; September 30, 2002-150.0 shares;
outstanding: September 30, 2003-146.4 shares; September 30, 2002-
144.0 shares 1,015.7 1,015.2
Series 12 preferred stock, no par value: authorized 0.5 shares; none
issued or outstanding
Unearned compensation (2.5) (2.0)
Retained earnings 696.1 595.7
Accumulated other comprehensive loss (60.8) (50.8)
Cost of common shares in treasury: September 30, 2003 - 2.9 shares;
September 30, 2002-5.3 shares (13.1) (23.2)
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Total Shareholders' Equity 1,635.4 1,534.9
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Total Liabilities and Shareholders' Equity $ 6,639.5 $ 6,457.8
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IKON Office Solutions, Inc.
Consolidated Statement of Cash Flows
Preliminary
September 30,
2003
(in millions) (unaudited) 2002
- --------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 116.0 $ 150.3
Additions (deductions) to reconcile net income to net cash
provided by operating activities of continuing operations:
Depreciation 102.6 116.8
Amortization 9.8 14.2
Provisions for losses on accounts receivable 13.4 4.7
Provision for deferred income taxes 71.6 73.6
Provision for lease default reserves 67.9 67.7
Pension expense 37.8 19.0
Loss from early extinguishment of debt 19.2
Restructuring reversals (10.5)
Changes in operating assets and liabilities:
Decrease in accounts receivable 2.8 68.8
Decrease (increase) in inventories 89.4 (3.1)
Increase in prepaid expenses and other current assets (19.2) (3.0)
(Decrease) increase in accounts payable, deferred (79.2) 2.9
revenues
and accrued expenses
Decrease in accrued restructuring (10.9) (20.9)
Other 18.1 (3.9)
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Net cash provided by operating activities of continuing 439.3 476.6
operations
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Cash Flows from Investing Activities
Cost of companies acquired, net of cash acquired
Expenditures for property and equipment (62.6) (93.2)
Expenditures for equipment on operating leases (63.0) (85.6)
Proceeds from sale of property and equipment 41.0 26.5
Proceeds from sale of equipment on operating leases 16.3 14.7
Finance receivables--additions (1,691.2) (1,602.8)
Finance receivables--collections 1,520.7 1,451.6
Proceeds from sale of finance subsidiaries' lease
receivables
Other 1.8 (12.3)
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Net cash used in investing activities (237.0) (301.1)
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Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 0.9 2.5
Short-term repayments, net (3.5) (178.6)
Long-term debt repayments (199.5) (14.7)
Finance subsidiaries' debt--issuances 2,420.9 1,786.7
Finance subsidiaries' debt--repayments (2,260.7) (1,582.5)
Dividends paid (23.2) (22.9)
(Increase) decrease in restricted cash (49.2) 12.3
Proceeds from option exercises and sale of treasury shares 3.2 6.6
Purchase of treasury shares and other (0.5) (0.3)
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Net cash (used in) provided by financing activities (111.6) 9.1
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Effect of exchange rate changes on cash and cash equivalents (2.5) 6.8
Net increase in cash and cash equivalents 88.2 191.4
Cash and cash equivalents at beginning of year 271.8 80.4
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Cash and cash equivalents at end of year $ 360.0 $ 271.8
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IKON Office Solutions, Inc.
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FINANCIAL SUMMARY (in thousands, except earnings per share)
(unaudited)
Fourth Quarter Fiscal
---------------------------------------------------------
2003 2002
---- ----
Revenues
Net sales $ 600,477 $ 606,200
Services 496,117 510,221
Finance income 99,075 95,429
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1,195,669 1,211,850
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Costs and Expenses
Cost of goods sold 424,910 408,889
Services costs 294,845 305,056
Finance interest expense 35,980 40,628
Selling and administrative 383,404 392,646
Restructuring reversal (10,497)
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1,139,139 1,136,722
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Operating income 56,530 75,128
Gain from early extinguishment of debt, net 7,017
Interest expense 11,450 12,838
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Income before taxes on income 52,097 62,290
Taxes on income 19,667 22,967
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Net income $ 32,430 $ 39,323
===================== =======================
Basic Earnings Per Common Share $ 0.22 $ 0.27
===================== =======================
Diluted Earnings Per Common Share $ 0.21 (a) $ 0.25 (a)
===================== =======================
Weighted Average Common Shares Outstanding, Basic 146,324 144,000
===================== =======================
Weighted Average Common Shares Outstanding, Diluted 168,669 167,441
===================== =======================
Operations Analysis:
Gross profit %, net sales 29.2% 32.5%
Gross profit %, services 40.6% 40.2%
Gross profit %, finance subsidiaries 63.7% 57.4%
Total gross profit % 36.8% 37.7%
Selling and administrative as a % of revenue 32.1% 32.4%
Operating income as a % of revenue 4.7% 6.2%
(a) The calculation of diluted earnings per common share for the fourth
quarter of fiscal 2003 and 2002 assumes the conversion of convertible
notes issued in May 2002 by IOS Capital, LLC resulting in 19,960 shares.
For purposes of diluted earnings per common share, net income for
the fourth quarter of fiscal 2003 and 2002 includes the add-back of
$2,354 and $2,372, respectively, representing interest expense, net of
taxes, associated with such convertible notes.
Certain prior year amounts have been reclassified to conform with the current
year presentation. Fourth quarter fiscal 2002 net sales and cost of goods sold
have each been increased by $33,587 from amounts previously reported. The effect
on net sales and cost of goods sold in the fourth quarter of fiscal 2003 is
$31,876. In addition, the previously reported quarters have been reclassified
for the following amounts:
Fiscal 2003 Fiscal 2002
---------- -----------
Quarter ended December 31, 20,412 21,811
Quarter ended March 31, 24,461 25,024
Quarter ended June 30, 27,672 21,543
There was no impact on gross profit, operating income, net income or earnings
per share on any quarter as a result of the above.
IKON Office Solutions, Inc.
FINANCIAL SUMMARY (in thousands, except earnings per share)
(unaudited)
Year Ended September 30,
----------------------------------------------
2003 2002
--------------------- -------------
Revenues
Net sales $ 2,289,578 $ 2,433,714
Services 2,033,141 2,120,832
Finance income 388,193 374,921
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4,710,912 4,929,467
- -----------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 1,567,273 1,633,051
Services costs 1,206,140 1,260,225
Finance interest expense 148,072 157,891
Selling and administrative 1,534,834 1,595,208
Restructuring reversal (10,497)
- -----------------------------------------------------------------------------------------------------------------
4,456,319 4,635,878
- -----------------------------------------------------------------------------------------------------------------
Operating income 254,593 293,589
Loss from early extinguishment of debt , net 19,187
Interest expense 49,033 54,389
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Income before taxes on income 186,373 239,200
Taxes on income 70,356 88,866
- -----------------------------------------------------------------------------------------------------------------
Net income $ 116,017 $ 150,334
===================== =================
Basic Earnings Per Common Share $ 0.80 $ 1.05
===================== =================
Diluted Earnings Per Common Share $ 0.75 (a) $ 0.99 (a)
===================== =================
Weighted Average Common Shares Outstanding, Basic 145,216 143,178
===================== =================
Weighted Average Common Shares Outstanding, Diluted 167,802 155,084
===================== =================
Operations Analysis:
Gross profit %, net sales 31.5% 32.9%
Gross profit %, services 40.7% 40.6%
Gross profit %, finance subsidiaries 61.9% 57.9%
Total gross profit % 38.0% 38.1%
Selling and administrative as a % of revenue 32.6% 32.4%
Operating income as a % of revenue 5.4% 6.0%
(a) The calculation of diluted earnings per common share for fiscal 2003
and 2002 assumes the conversion of convertible notes issued in May
2002 by IOS Capital, LLC resulting in 19,960 and 7,711 shares,
respectively. For purposes of diluted earnings per common share, net
income for fiscal 2003 and 2002 includes the add-back of $9,338 and
$3,636, respectively, representing interest expense, net of taxes,
associated with such convertible notes.
IKON Office Solutions, Inc.
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(in thousands, except earnings per share)
(unaudited)
Three Months Ended September 30,
-----------------------------------------
2003 2002
---------------------------- ---------------------------
Basic Diluted Basic Diluted
---------- --------- -------- --------
Average Shares Outstanding
Common shares 146,324 146,324 144,000 144,000
Convertible notes 19,960 19,960
Restricted stock awards 368 529
Stock options 2,017 2,952
---------- --------- --------- --------
Total shares 146,324 168,669 144,000 167,441
---------- --------- --------- --------
Income
Net income $ 32,430 $ 32,430 $ 39,323 $ 39,323
Interest on convertible notes, net 2,354 2,372
---------- --------- --------- --------
Adjusted net income $ 32,430 $ 34,784 $ 39,323 $ 41,695
---------- --------- --------- --------
---------- --------- --------- --------
EPS $ 0.22 $ 0.21 $ 0.27 $ 0.25
========== ========= ========= ========
Three Months Ended September 30,
-----------------------------------------
2003 2002
---------------------------- ---------------------------
Basic Diluted Basic Diluted
---------- --------- -------- --------
Average Shares Outstanding
Common shares 145,216 145,216 143,178 143,178
Convertible notes 19,960 7,711
Restricted stock awards 304 470
Stock options 2,322 3,725
---------- --------- --------- --------
Total shares 145,216 167,802 143,178 155,084
---------- --------- --------- --------
Income
Net income $116,017 $116,017 $150,334 $150,334
Interest on convertible notes, net 9,338 3,636
---------- --------- --------- --------
Adjusted net income $116,017 $125,355 $150,334 $153,970
---------- --------- --------- --------
---------- --------- --------- --------
EPS $ 0.80 $ 0.75 $ 1.05 $ 0.99
========== ========= ========= ========
IKON Office Solutions, Inc.
Non-GAAP Net Income, Operating Income and Earnings per Diluted Share
Reconciliation (in thousands, except per share data)
Three Months Ended September 30, 2003
GAAP Non - GAAP
As Reported Adjustment (1),(2) As Adjusted
--------------- -------------- -------------
Net income $ 32,430 $ (4,368) $ 28,062
Diluted earnings per common share $ 0.21 $ (0.03) $ 0.18
Year Ended September 30, 2003
Net income $ 116,017 $ 11,944 $ 127,961
Diluted earnings per common share $ 0.75 $ 0.07 $ 0.82
Three Months Ended September 30, 2002
Operating income $ 75,128 $ (10,497) $ 64,631
Net income $ 39,323 $ (6,823) $ 32,500
Diluted earnings per common share $ 0.25 $ (0.04) $ 0.21
Year Ended September 30, 2002
Operating income $ 293,589 $ (10,497) $ 283,092
Net income $ 150,334 $ (6,823) $ 143,511
Diluted earnings per common share $ 0.99 $ (0.04) $ 0.95
(1)The adjustment for the three months and year ended September 30, 2003
represents the exclusion of the impact of the (gain) loss from the early
extinguishment of debt, net of taxes. The (gain) loss from the early
extinguishment of debt for the three and twelve months ended September 30, 2003,
was $(7,017) and $19,187, respectively.
(2)The adjustment for the three months and year ended September 30, 2002
represents the exclusion of the impact of the reversal of $10,497 ($6,597,
after-tax) of restructuring reserves during the fourth quarter of fiscal 2002.
Reconciliation of Reported to Core Revenue
(in thousands)
Fourth Quarter Fiscal 2003
Revenues Reported Adjustment (1) Core
Revenue
--------------- -------------- ----------------
Net sales $ 600,477 $ (22,985) $ 577,492
Services 496,117 (6,599) 489,518
Finance income 99,075 99,075
--------------- -------------- ----------------
Total revenues $1,195,669 $ (29,584) $1,166,085
=============== ============== ================
Fourth Quarter Fiscal 2002
Net sales $ 606,200 $ (41,652) $ 564,548
Services 510,221 (8,311) 501,910
Finance income 95,429 95,429
--------------- -------------- ----------------
Total revenues $1,211,850 $ (49,963) $1,161,887
=============== ============== ================
(1) Adjusted for downsizing and exit strategies commenced during the first
quarter of Fiscal 2002, including the de-emphasis of non-core technology
hardware such as computers, routers, and servers.
Reconciliation of Net Capital Expenditures
(in thousands)
Year Ended September 30, 2003
GAAP Non - GAAP
As Reported Adjustment (1) As Adjusted
--------------- -------------- -----------
Net capital expenditures $ 68,263 $ 22,300 $ 90,563
(1) The adjustment represents the exclusion of the $22.3 million of proceeds
received from the sale and lease back of the Company's corporate headquarters
building in the fourth quarter of fiscal 2003.