Exhibit 99.2
Contacts:
Susan G. Gaffney Veronica L. Rosa
Investor Relations Investor Relations
610-408-7292 610-408-7196
sgaffney@ikon.com vrosa@ikon.com
IKON OFFICE SOLUTIONS ANNOUNCES FOURTH QUARTER AND FULL YEAR RESULTS
Conversion of Analog to Digital, Key to Future Growth,
Continues To Accelerate
Company Taking Aggressive Actions To Increase Revenue Growth
Valley Forge, Pennsylvania - October 27, 1999 - IKON Office Solutions (NYSE:
IKN) today reported results for the fourth quarter and fiscal year ended
September 30, 1999.
Earnings for the fourth quarter ended September 30, 1999, were $21.7
million, or $.15 per share. Revenues for the fourth quarter were $1.37 billion,
a decline of 1.3% from the third quarter of 1999.
Transition to Digital Continues to Accelerate
"There is no question that the current operating environment is tough
for our entire industry," said James J. Forese, President and Chief Executive
Officer. "Buying patterns are changing in response to technological advances and
intense competitive forces. The key dynamic in our markets right now is the
rapid transition from analog to digital. For IKON, the pace of that transition
continued to accelerate in the fourth quarter, as we benefited from the third
quarter introduction of the new Canon digital offering. In fact, IKON's new
equipment revenue is now 69% digital and 31% analog, and digital black and white
revenue in the fourth quarter was up 111% from the same period last year. For
the whole year, digital black and white revenue was twice as much as it was in
fiscal 1998. The strategy of converting the base to digital is critical to the
long-term success of our services
model, because conversion provides the annuity stream to fund the evolution of
this model and develops the customer relationships through which we can sell
services.
"Although we've made great progress during 1999 in expanding our
digital offerings and instituting a new sales model that defines markets by
customer need rather than simply by geographic location, our fourth quarter
results fell short of expectations. Earnings for the quarter were down due
primarily to lower-than-anticipated revenues and the underperformance of certain
operations in two of our business units, Technology Services and Document
Services," Mr. Forese added.
Revenues, Mr. Forese said, were negatively impacted by:
o higher-than-anticipated sales force attrition, resulting in a shortage
of almost 250 representatives as IKON enters the first quarter;
o an increased backlog in Canon digital products;
o the delay by some customers in purchasing decisions due to concerns
about Y2K issues; and
o a 3% decrease in service and rental revenue as a result of
underperformance in some Document Services and Technology Services
units and lower copy volumes due to a de-emphasis of the Company's
segments 1 and 2 equipment base.
Fiscal 1999 Results
For fiscal 1999, the Company generated net income of $100.6 million, or
$.67 per diluted share, including a gain from asset securitization of $14.3
million, or $.06 per share. This compares to a net loss of $83 million, or $.76
per share, for fiscal 1998. Fiscal 1998 results include transformation and
special charges of $230.4 million, or $1.16 per share; excluding these items,
fiscal 1998 net income would have been $73.9 million or $.40 per share. Revenues
for fiscal 1999 decreased 1.9% to $5.5 billion from $5.6 billion in fiscal 1998.
The full year decline is due primarily to the elimination of unprofitable
revenue streams and a reduction in the sales force of close to 1,000
representatives.
Actions To Address Marketplace Changes and Spur Growth
Mr. Forese stated, "We are taking a number of actions to address the
challenges that IKON, and to a great extent the industry as a whole, are
facing." These initiatives for fiscal 2000, he said, are designed to stimulate
revenue growth by:
o Building an increasingly robust product line - adding to our
outstanding portfolio of digital and color products from Ricoh and
Canon;
o Accelerating our introduction of diverse high-value-added services to
aid in integrating and optimizing high-end office equipment. The
service portfolio will be expanded through alliances for image capture
and creation, further integration of IKON's Digital Express network,
expansion of Information Technology "help desk" and network analysis
services, and development of a document repository service;
o Adding 400-500 salespeople, including 300-400 in the high volume,
color and major accounts areas, as well as approximately 100 in
management services;
o Reducing attrition in the sales force through new training and
recruitment programs started in fiscal 1999;
o Continuing the roll-out of the new sales model introduced at the
beginning of fiscal 1999, which focuses on customer needs and provides
tools for sales and analysis;
o Accelerating telemarketing and e-commerce initiatives;
o Focusing the sales force on protecting the low-end customer base for
the purpose of converting it to digital or up-market products;
o Launching a global branding campaign to promote revenue growth and
protect the existing customer base;
o Accelerating productivity initiatives, including a "shared services"
program to consolidate all field accounting nationwide at two U.S.
centers and a supply chain management project to establish a
nationwide organization to monitor and manage product planning and
procurement and inventory control; and
o Consolidating and disposing of unproductive assets. Over the next 60
to 90 days, IKON will identify and quantify the specific costs to be
charged in the first quarter of year 2000 to dispose of certain
underperforming operations, consolidate real estate and provide for
employee severance payments related to these dispositions and the
productivity programs cited above.
Near-term Outlook
Mr. Forese said, "We expect to see continuing acceleration of the trend
to digital along with a decline of the analog base. We also expect to see growth
in key business segments, including facilities management, color, mid-range and
high volume.
"Given industry trends, we anticipate that fiscal 2000 is going to be
a difficult year. We anticipate revenue will grow 1-2% for the year, and that
earnings per share will be $.75 to $.85 before any special charges. We believe
the productivity initiatives and asset dispositions will produce long-term
savings for the Company but are expected to result in charges of approximately
$100-$125 million in the first quarter of fiscal year 2000. The cash impact of
the charge is expected to be
approximately half of that total. Long-term savings from these dispositions and
productivity initiatives are anticipated to be approximately $50 to $65 million
on an annualized basis.
"The essential challenges to our industry at this time," Mr. Forese
stated, "are the threat of price deterioration; the need to adapt to digital and
services sales models that require increasingly sophisticated personnel and have
longer selling cycles; changes in distribution channels; and excess capacity.
Against these challenges, this company is building an increasingly competitive
position for the long term. We have made substantial progress in cutting costs,
imposing operating and financial disciplines, consolidating operations and
focusing on productivity initiatives. We have also stabilized this organization.
Now, we must concentrate primarily on revenue growth.
"When I became Chief Executive Officer, I said I would take whatever
actions might prove to be necessary to develop the potential of this Company,
root out its problems and overcome the challenges confronting the industry. I
believe we are doing just that," Mr. Forese concluded.
IKON Office Solutions (www.ikon.com) is one of the world's leading
office technology companies, providing customers with total office solutions
from copier and printing systems, computer networking and digital document
services to copy center management, technology training and electronic file
conversion. With fiscal 1999 revenues of $5.5 billion, IKON has more than 1,000
locations including the United States, Canada, Mexico, the United Kingdom,
France, Germany and Denmark.
This news release includes information which may constitute forward-looking
statements within the meaning of the federal securities laws, including, but not
limited to: statements concerning expected revenue growth, cost savings and
increased margins resulting from IKON's growth and productivity initiatives; and
statements concerning special charges, cash impact and expected savings relating
to certain planned asset dispositions and consolidations. 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 1998 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.
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