AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant in Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1998 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
BOX 834, VALLEY FORGE, PENNSYLVANIA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (610) 296-8000
Securities registered pursuant to Section 12 (b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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Common Stock, no par value New York Stock Exchange
(with Preferred Share Purchase Rights)
Securities registered pursuant to Section 12(g) of the Act: None
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
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 18, 1998 WAS APPROXIMATELY $1,287,849,603 BASED UPON
THE CLOSING SALES PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE OF
$8.8125 PER COMMON SHARE ON DECEMBER 18, 1998. FOR PURPOSES OF THE FOREGOING
SENTENCE ONLY, ALL DIRECTORS AND OFFICERS OF THE REGISTRANT WERE ASSUMED TO BE
AFFILIATES.
THE NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, OF THE REGISTRANT
OUTSTANDING AS OF DECEMBER 18, 1998 WAS 147,233,253.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS I AND II--PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1998
PART III--PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1999 ANNUAL
MEETING OF SHAREHOLDERS
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PART I
ITEM 1. BUSINESS.
IKON Office Solutions, Inc. ("IKON" or the "Company") was incorporated in
Ohio in 1952 and is the successor to a business incorporated in 1928. The
address of the Company's principal executive offices is 70 Valley Stream
Parkway, Malvern, Pennsylvania 19355 (telephone number: (610) 296-8000).
IKON provides fully customized cost-effective document-management and
network solutions, offering products manufactured by a variety of leading
vendors. IKON provides a high level of personal service and support for these
products, so that customers can achieve the full measure of office technology
integration. IKON has three categories of product and service offerings--
business services, document services and technology services.
IKON'S business services product offerings include traditional analog copier
and facsimile products, with an increased emphasis on digital, high-volume and
color units which may also include networking capability. There are over one
million copiers placed and serviced by IKON worldwide, with approximately 70%
of this equipment covered by lease and service contracts, which provide a
predictable revenue stream.
IKON'S document services offerings include photocopying and document coding
services for the legal industry, and document production (including services
such as digital printing, binding and finishing, and conversion of paper files
to electronic format). IKON also provides management services for customers'
mailrooms, copy centers and general administrative facilities, serving over
1300 customers in 70 cities.
IKON'S technology services offerings include consulting and professional
services for network integration and design, network support and management
services, and education and training services.
IKON operates over 800 locations in the United States, Canada, Mexico, the
United Kingdom, Germany, France and Denmark. These locations comprise the
largest network of independent copier and office equipment dealers in North
America and in the United Kingdom. IKON competes against numerous competitors
over a wide range of markets, competing on the basis of quality, customer
service, price and product performance.
IKON distributes the products of numerous manufacturers, including Canon,
Oce and Ricoh, throughout the United States, Canada, in Europe and in Mexico.
IKON also distributes the products of Microsoft, IBM, Lotus, Compaq and
Hewlett-Packard in the United States and Canada. Customers include large and
small businesses, professional firms and government agencies.
In fiscal 1998, IKON generated approximately $5.6 billion in revenues, and
had operating income of $74.5 million, including pretax charges of $150
million, before transformation costs (see "Business Transformation," below).
After transformation costs, the Company sustained an operating loss for fiscal
1998 of $3.5 million.
During fiscal 1998, IKON acquired 34 companies in the United States, Canada,
and Europe, with an aggregate of approximately $231 million in annualized
trailing revenues. Of the 34 companies acquired in fiscal 1998, thirteen were
traditional copier companies, ten were outsourcing and imaging companies and
eleven were technology services companies. IKON's international expansion
during fiscal 1998 included the acquisition of companies in the United
Kingdom, France and Germany.
In the fourth quarter of fiscal 1998, the Company initiated a program to
increase productivity and reduce costs (see New Management Program on page 2).
As a result, while there can be no assurance of future results, IKON expects
its financial performance to begin to show improvement in fiscal 1999.
1
INFORMATION CONCERNING IKON'S BUSINESS IN GENERAL
MANAGEMENT AND BOARD CHANGES
On July 9, 1998, the Company's Board of Directors appointed James J. Forese
as the Company's President and Chief Executive Officer, and elected him a
member of the Board of Directors. The Board also named Richard A. Jalkut, a
director of the Company since 1996, as Non-Executive Chairman. John E. Stuart,
who had served as Chairman and Chief Executive Officer, resigned all positions
with the Company.
After Mr. Forese's appointment, a number of other executive appointments
occurred. Peter W. Shoemaker was named Senior Vice President and President of
North American Business Services, and Lynn B. Graham was named Senior Vice
President, in addition to his existing role as President of IKON Document
Services. Edward C. Groark was named Vice President and President of IKON
Technology Services and David M. Mills was named Vice President and President
of IKON - Europe.
Judith M. Bell, a proprietor of several small businesses, was elected to the
Board of Directors in May 1998. Thomas P. Gerrity, Dean of The Wharton School
of the University of Pennsylvania, also joined the Board in May 1998, after
his election by the shareholders in January 1998.
NEW MANAGEMENT PROGRAM
The Company's new management team initiated a program in the fourth quarter
of fiscal 1998 to increase productivity and reduce costs. Components of the
program include: restructuring of business districts nationwide using IKON's
successful Northeast District as a model; increasing sales focus on fast-
growing segments; creating integrated marketing on a nationwide basis;
centralizing financial reporting; implementing work force reductions; closing
under-performing branches; consolidating operations to achieve greater
economies of scale; changing sales compensation; realigning sales territories;
and introducing a national sales training curriculum. In addition, the Company
has hired PricewaterhouseCoopers to examine the Company's structure and
productivity to identify ways to achieve a higher level of efficiency.
BUSINESS TRANSFORMATION
In September 1995, the Company announced its transformation program designed
to change the organization into a more cohesive and integrated network by
building a uniform information technology system and implementing best
practices for critically important management functions throughout the IKON
companies. The transformation involved a variety of activities that IKON
believes will ultimately lower administrative costs and improve gross margins
through the creation of marketplace-focused field operations with greater
attention to customer sales and services. These activities included
consolidating purchasing, inventory control, logistics and other activities
into thirteen 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 common benefit programs.
The Company incurred transformation expense of $78 million, $127 million and
$21 million during fiscal 1998, 1997 and 1996, respectively. At September 30,
1998, the transformation program was substantially complete. The Company's
September 30, 1998 balance sheet, as set forth on page 35 of the Company's
1998 Annual Report to Shareholders ("1998 Annual Report") includes a severance
accrual of approximately $9.3 million and facility consolidation accrual of
approximately $10.8 million relating to the transformation program.
SUPPLIERS AND CUSTOMERS
Products distributed by IKON are purchased from numerous domestic and
overseas suppliers, primarily Canon, Oce and Ricoh. There has been no
significant difficulty in obtaining products from these suppliers.
2
Supplier relationships are good and are expected to continue. IKON has a large
number of customers, and is not dependent upon a single customer, or a few
customers, the loss of any one or more of which would have a material adverse
effect on IKON's business taken as a whole.
Many of the Company's operations carry significant amounts of inventory to
meet rapid delivery requirements of customers. At September 30, 1998,
inventories accounted for approximately 19% of IKON's current assets.
PROPRIETARY MATTERS
The Company has a number of trademarks, trade names and service marks which
the Company uses in the conduct of its business. However, except for the "IKON
Office Solutions" and "IKON" designations, the Company does not believe that
any single name, trademark, trade name or service mark is material to its
business taken as a whole.
ENVIRONMENTAL REGULATION
IKON is engaged in distribution and services businesses which do not
generate significant hazardous wastes. Some of IKON's distribution facilities
have tanks for storage of diesel fuel and other petroleum products which are
subject to laws regulating such storage tanks. Federal, state and local
provisions relating to the protection of the environment have not had and are
not expected to have a material adverse effect upon the Company's capital
expenditures, liquidity, earnings or competitive position. Certain
environmental claims, however, are now pending against the Company for
manufacturing or landfill sites relating to predivestiture activities of
discontinued manufacturing operations. While it is not possible to estimate
what expenditures may be required in order for the Company to comply with
environmental laws or discharge environmental liabilities in the future, the
Company does not believe that such expenditures will have a material adverse
effect on it or its operations as a whole.
EMPLOYEES
At September 30, 1998, IKON had approximately 42,600 employees. IKON
believes its relations with its employees are good.
FOREIGN OPERATIONS
IKON has operations in Canada, Mexico, the United Kingdom, Germany, France
and Denmark. Information concerning revenues, income before taxes and
identifiable assets of the Company's foreign continuing operations for each of
the three years in the period ended September 30, 1998 set forth in note 17 to
the consolidated financial statements (included on page 48 of the 1998 Annual
Report) is incorporated herein by reference. Revenues from exports during the
last three fiscal years were not significant. There are additional risks
attendant to foreign operations, such as possible currency fluctuations and
unsettled political conditions.
ITEM 2. PROPERTIES.
At September 30, 1998, IKON owned or leased approximately 880 facilities in
50 states, ten Canadian provinces, in Europe and in Mexico, of which
approximately 1% are owned and 99% are leased under lease agreements with
various expiration dates. These properties occupy a total of approximately 8.6
million square feet. IKON believes that its facilities are suitable and
adequate for the purposes for which they are used.
3
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain current and former principal officers and employee
directors were named as defendants in a series of purported class action
complaints which were purportedly filed on behalf of purchasers of the
Company's common stock. The complaints were filed in the United States
District Court for the Eastern District of Pennsylvania following the issuance
of the Company's August 14, 1998 earnings release. By court order dated
November 30, 1998, the Court appointed co-lead plaintiffs and co-lead counsel.
By court order dated December 3, 1998, all of the complaints were
consolidated. The consolidated complaint (the "Complaint") was filed on
December 18, 1998 and alleges that the defendants publicly disseminated a
series of false and misleading statements, including filings with the
Securities and Exchange Commission, concerning the Company's revenue,
profitability and financial condition, in violation of the federal securities
laws. The plaintiffs seek to represent a class of persons who purchased or
acquired the Company's common stock between January 24, 1996 and August 14,
1998. The Complaint seeks unspecified compensatory and punitive damages,
prejudgment interest, attorneys' fees and costs. The Company has not yet
responded to the Complaint, but believes that the allegations contained
therein are without merit and that the outcome of the proceedings will not
have a material adverse effect on the financial position or overall trends in
the results of operations of the Company. However, due to the inherent
uncertainties of litigation, the Company cannot predict the ultimate outcome
of these proceedings or the probability of any liability or losses relating
thereto, and, accordingly, no provision has been made for any liability or
loss that may result from the adjudication or settlement of these proceedings
in the financial statements contained in the 1998 Annual Report. An
unfavorable outcome of these proceedings could have a material adverse impact
on the Company's financial condition and results of operations.
A number of ordinary course legal proceedings are pending against the
Company. The outcome of these legal proceedings is not expected to have a
material adverse effect on the Company's financial condition and results of
operations.
Except as described above, there are no material pending legal proceedings
to which the Company is a party (or to which any of its property is subject),
and to the Company's knowledge, no material legal proceedings are contemplated
by governmental authorities against the Company or any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(No response to this item is required.)
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4
EXECUTIVE OFFICERS OF IKON
The following is a list of the Company's executive officers, their ages and
their positions for at least the last five years. Unless otherwise indicated,
positions shown are with IKON or its subsidiaries.
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NAME AGE POSITION AND YEARS SERVED
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James J. Forese......... 63 Chairman, Chief Executive Officer and a director (1998-
Present); Executive Vice President and President,
International Operations (1996-1998); Chief Operating
Officer (1996) and a director (1994-1996)
Kurt E. Dinkelacker..... 45 Executive Vice President and Chief Financial Officer
(1997-Present; 1993-1995); President (1995-1997) and
Chief Operating Officer (1996-1997)
Peter W. Shoemaker...... 56 Senior Vice President and President, North American
Business Services (1998-Present); Senior Vice President
(1997-1998); President, IKON Northeast Region (1995-
1997); Executive Vice President, Alco Office Products
(former division of the Company)(1994-1995)
Lynn B. Graham.......... 51 Senior Vice President (1998-Present) and President, IKON
Document Services (1994-1998); Regional Vice President,
NightRider (former division of the Company)(1992-1994)
David M. Mills.......... 40 Vice President and President, IKON-Europe (1998-Present);
President, IKON-United Kingdom (1996-1998); United
Kingdom Finance Director, Alco Office Products (former
division of the Company)(1993-1996)
Edward C. Groark........ 53 Vice President and President, IKON Technology Services
(1998-Present); President, Technology Services (IKON
Washington, D.C. and IKON Baltimore locations) (1997-
1998); President, Riverbend Group, Inc. (1983-1997)
David M. Gadra.......... 50 Senior Vice President and Chief Information Officer
(1996-Present); Manager, General Electric Corporation
Corporate Information Services (1992-1996)
Michael J. Dillon....... 45 Vice President (1994-Present) and Controller (1993-
Present); Group Controller, Office Products Group (1991-
1993)
Michael H. Dudek........ 42 Vice President-Finance (1998-Present); Vice President-
Acquisitions (1993-1998); Director of Financial
Operations, Office Products Group (1991-1993)
Beth B. Sexton.......... 42 Vice President--Human Resources (1996-Present); Human
Resources Director, Americas, CH2M Hill (1993-1996)
Karin M. Kinney......... 38 Corporate Secretary (1996-Present) and Corporate Counsel
(1992-Present); Counsel (1990-1992)
J. F. Quinn............. 43 Treasurer (1997-Present); Assistant Treasurer (1996-
1997); Manager, Foreign Exchange and Cash Management
(1994-1996); Manager, Foreign Exchange, ARCO Chemical
Company (1991-1994)
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The New York Stock Exchange is the principal market on which the Company's
common stock is traded (ticker symbol IKN). As of December 18, 1998, there
were approximately 14,910 holders of record of IKON's common stock. The
information regarding the quarterly market price ranges of IKON's common stock
and dividend payments under "Quarterly Financial Summary" on page 49 of the
1998 Annual Report is incorporated herein by reference.
IKON anticipates that it will pay a quarterly dividend of $.04 per common
share in March 1999. The Company currently expects to continue its policy of
paying regular cash dividends, although there can be no assurance as to future
dividends because they are dependent upon future operating results, capital
requirements and financial condition and may be limited by covenants in
certain loan agreements.
ITEM 6. SELECTED FINANCIAL DATA.
Information appearing under "Corporate Financial Summary" for fiscal 1994
through 1998 regarding revenues, income from continuing operations, income
from continuing operations per common share, total assets, total debt, serial
preferred stock and cash dividends per common share on pages 50 and 51 of the
1998 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information appearing under "Financial Review" on pages 29 through 33 of the
1998 Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information appearing under "Market Risk" on page 33 of the 1998 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Auditors and Consolidated Financial Statements of
IKON and its subsidiaries on page 28 and pages 34 through 48 and the
information appearing under "Quarterly Financial Summary" for fiscal 1998 and
1997 on page 49 of the 1998 Annual Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
(No response to this item is required)
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors appearing in IKON's Notice of Annual Meeting
of Shareholders and Proxy Statement for the March 23, 1999 annual meeting of
shareholders (the "1999 Proxy Statement") is incorporated herein by reference.
Information regarding executive officers is set forth in Part I of this report
and additional information regarding executive officers appearing under
"Executive Compensation" in the 1999 Proxy Statement is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" in the 1999 Proxy
Statement is incorporated herein by reference.
6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management appearing under "Security Ownership" in the 1999 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Transactions" in the 1999 Proxy
Statement is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules.
The response to this portion of Item 14 is submitted on page S-1 hereof as a
separate section of this report.
(a) (3) List of Exhibits.*
The following exhibits are filed as a part of this report (listed by numbers
corresponding to the Exhibit Table of Item 601 in Regulation S-K):
3.1 Amended and Restated Articles of Incorporation, filed as
Exhibit 3.1 to IKON's Form 10-K for the year ended September
30, 1997, are incorporated herein by reference. Amendment to
Amended and Restated Articles of Incorporation.
3.2 Code of Regulations of IKON, filed as Exhibit 3.2 to IKON's
Form 10-Q for the quarter ended March 31, 1996, is incorporated
herein by reference.
4.1 Credit Agreement, dated January 16, 1998, among IKON and
various institutional lenders, with CoreStates Bank, N.A., as
Agent.
4.2 Credit Agreement among IKON, certain of its subsidiaries,
various banks and Deutsche Bank AG, New York Branch, as Agent,
dated as of August 30, 1996. Amendment 1 to Credit Agreement,
dated as of April 1, 1997, filed as Exhibit 4.2 to IKON's 1997
Form 10-K, is incorporated herein by reference. Amendment 2 to
Credit Agreement.
4.3 Credit Agreement dated as of October 13, 1995 among IKON Office
Solutions, Inc., an Ontario corporation (formerly Alco Office
Systems Canada), Deutsche Bank Canada, Chemical Bank of Canada
and Royal Bank of Canada, filed as Exhibit 4.5 to IKON's 1995
Form 10-K, is incorporated herein by reference. Amendment 1 to
Guarantee.
4.4 Note Purchase Agreement between IKON and various purchasers
dated July 15, 1995 for $55 million in 7.15% Notes due November
15, 2005, filed as Exhibit 4.9 to IKON's 1995 Form 10-K, is
incorporated herein by reference.
4.5 Pursuant to Regulation S-K item 601(b)(iii), IKON agrees to
furnish to the Commission, upon request, a copy of other
instruments defining the rights of holders of long-term debt of
IKON and its subsidiaries.
10.1 Distribution Agreement between IKON and Unisource dated as of
November 20, 1996, filed as Exhibit 2.1 to Unisource's
Registration Statement on Form 10 (effective November 26,
1996), is incorporated herein by reference.
10.2 Tax Sharing and Indemnification Agreement between IKON and
Unisource dated as of November 20, 1996, filed as Exhibit 10.1
to Unisource's Registration Statement on Form 10 (effective
November 26, 1996), is incorporated herein by reference.
10.3 Benefits Agreement between IKON and Unisource dated as of
November 20, 1996, filed as Exhibit 10.5 to Unisource's
Registration Statement on Form 10 (effective November 26,
1996), is incorporated herein by reference.
7
10.4 Support Agreement dated as of October 22, 1996 between IKON and
IKON Capital, Inc. (IKON's leasing subsidiary), filed as
Exhibit 10.4 to IOS Capital, Inc.'s Form 8-K dated October 22,
1996, is incorporated herein by reference.
10.5 Amended and Restated Receivables Transfer Agreement dated as of
March 31, 1997 among IKON Funding, Inc., IOS Capital, Inc.,
Twin Towers, Inc. and Deutsche Bank AG, New York Branch, filed
as Exhibit 10.5 to IKON's 1997 Form 10-K, is incorporated
herein by reference.
10.6 First Tier Transfer Agreement, dated as of March 31, 1997,
between IOS Capital, Inc. and IKON Funding, Inc., filed as
Exhibit 10.6 to IKON's 1997 Form 10-K, is incorporated herein
by reference.
10.7 Receivables Transfer Agreement dated as of September 30, 1996
among IKON Funding, Inc., IOS Capital, Inc., Old Line Funding
Corp. and Royal Bank of Canada, filed as Exhibit 10.5 to IKON's
1996 Form 10-K, is incorporated herein by reference. Amendment
1 to Receivables Transfer Agreement, dated as of November 7,
1997.
10.8 Transfer Agreement dated as of September 30, 1996 between IOS
Capital, Inc. and IKON Funding, Inc., filed as Exhibit 10.6 to
IKON's 1997 Form 10-K, is incorporated herein by reference.
Amendment 1 to Transfer Agreement.
10.9 Receivables Transfer Agreement dated as of December 1, 1998
among IOS Capital, Inc., IKON Funding-1, LLC, Market Street
Funding Corporation and PNC Bank, N.A., as Agent.
10.10 Transfer Agreement dated as of December 1, 1998 between IKON
Funding-1, LLC and IOS Capital, Inc.
10.11 Master Concurrent Lease Agreement between IKON Office
Solutions, Inc., a Canadian corporation, IKON Capital, Inc., a
Canadian corporation, IKON Office Solutions, Inc., an Ohio
corporation, Prime Trust and TD Securities, Inc.
10.12 Indenture dated as of December 11, 1995 between IKON and First
Union Bank, N.A., as Trustee, filed as Exhibit 4 to IKON's
Registration Statement No. 33-64177, is incorporated herein by
reference.
10.13 Indenture dated as of July 1, 1995 between IOS Capital, Inc.
and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.),
as Trustee, filed as Exhibit 10.8 to IKON's 1996 Form 10-K, is
incorporated herein by reference.
10.14 Indenture dated as of July 1, 1994 between IOS Capital, Inc.
and NationsBank, N.A., as Trustee, filed as Exhibit 4 to IKON
Capital, Inc.'s Registration Statement No. 33-53779, is
incorporated herein by reference.
10.15 Indenture dated as of April 1, 1986 between IKON and the Chase
Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to
IKON's Registration Statement No. 30-4829, is incorporated
herein by reference.
10.16 Distribution Agreement dated as of June 4, 1997 between IOS
Capital, Inc. and various distribution agents, filed as Exhibit
10.13 to IKON's 1997 Form 10-K, is incorporated herein by
reference.
10.17 Distribution Agreement dated as of June 30, 1995 between IOS
Capital, Inc. and various distribution agents, filed as Exhibit
10.21 to IKON's 1995 Form 10-K, is incorporated herein by
reference.
10.18 Distribution Agreement dated July 1, 1994, filed as Exhibit 1
to IOS Capital Inc.'s Form 10-Q for the quarter ended June 30,
1994, is incorporated herein by reference.
10.19 Rights Agreement dated as of February 10, 1988 between IKON and
National City Bank, filed on February 11, 1988 as Exhibit 1 to
IKON's Registration Statement on Form 8-A, as amended by an
Amended and Restated Rights Agreement dated as of June 18,
1997, filed as Exhibit 4.1 to IKON's Form 8-K dated June 18,
1997, is incorporated herein by reference.
8
10.20 Amended and Restated Long Term Incentive Compensation Plan,
filed as Exhibit 10.1 to IKON's Form 10-Q for the quarter ended
March 31, 1996, is incorporated herein by reference. Amendment
Number 1 to Long Term Incentive Compensation Plan.
10.21 Annual Bonus Plan, filed as Exhibit 10.3 to IKON's 1994 Form
10-K, is incorporated herein by reference**
10.22 1986 Stock Option Plan, filed as Exhibit 10.6 to IKON's 1995
Form 10-K, is incorporated herein by reference. Amendment to
1986 Stock Option Plan**
10.23 1995 Stock Option Plan, filed as Exhibit 10.5 to IKON's Form
10-Q for the quarter ended March 31, 1996, is incorporated
herein by reference. Amendment to 1995 Stock Option Plan**
10.24 Non-Employee Directors Stock Option Plan, filed as Exhibit
10.31 to IKON's 1997 Form 10-K, is incorporated herein by
reference.**
10.25 Executive Employment Contracts for Lynn B. Graham and Peter W.
Shoemaker**
10.26 Executive Employment Contracts for John E. Stuart, Kurt E.
Dinkelacker and David M. Gadra., filed as Exhibit 10.25 to
IKON's 1997 Form 10-K, are incorporated herein by reference**
10.27 Form of Change in Control Agreement--Peter W. Shoemaker, Lynn
B. Graham and David M. Gadra, filed as Exhibit 10.26 to IKON's
1997 Form 10-K, is incorporated herein by reference.
10.28 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to
IKON's 1992 Form 10-K, is incorporated herein by reference.
Amendment dated November 6, 1997 to 1980 Deferred Compensation
Plan**
10.29 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to
IKON's 1992 Form 10-K, is incorporated herein by reference.
Amendment dated November 6, 1997 to 1985 Deferred Compensation
Plan**
10.30 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to
IKON's 1992 Form 10-K, is incorporated herein by reference.
Amendment dated November 6, 1997 to 1991 Deferred Compensation
Plan**
10.31 Amended and Restated 1994 Deferred Compensation Plan. **
10.32 Executive Deferred Compensation Plan.**
12.1 Ratio of Earnings to Fixed Charges.
12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance
Subsidiaries.
12.3 Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
12.4 Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends Excluding Captive Finance Subsidiaries.
13 Financial Section of IKON's Annual Report to Shareholders for
the fiscal year ended September 30, 1998 (which, except for
those portions thereof expressly incorporated herein by
reference, is furnished for the information of the Commission
and is not "filed" as part of this report).
21 Subsidiaries of IKON.
23 Auditors' Consent.
24 Powers of Attorney; certified resolution re: Powers of
Attorney.
27 Financial Data Schedule.
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* Copies of the exhibits will be furnished to any security holder of IKON upon
payment of the reasonable cost of reproduction.
** Management contract or compensatory plan or arrangement.
9
(b) Reports on Form 8-K.
On July 10, 1998, the Company filed a Current Report on Form 8-K to file,
under Item 5 of the form, its press release dated July 9, 1998, announcing the
appointment of James J. Forese as the Company's President, Chief Executive
Officer and a member of the Board of Directors. IKON also announced that
Richard A. Jalkut, a director of IKON since 1996, was appointed Non-executive
Chairman. John E. Stuart, who had served as IKON's Chairman, President and
Chief Executive Officer, resigned all positions with IKON.
On August 5, 1998, the Company filed a Current Report on form 8-K to file,
under Item 5 of the Form, its press release dated August 4, 1998, stating that
IKON is in the process of conducting the full review of operations previously
announced and that third quarter results would be announced on August 14,
1998.
On November 5, 1998, 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
November 4, 1998 concerning IKON's earnings for the fiscal quarter and year
ended September 30, 1998.
(c) The response to this portion of Item 14 is submitted in response to Item
14(a)(3) above.
(d) The response to this portion of Item 14 is contained on page F-1 of this
report.
FORWARD LOOKING INFORMATION
This Report includes or incorporates by reference information which may
constitute forward-looking statements within the meaning of the federal
securities laws, including, but not limited to, fiscal 1999 predictions of
improved performance. Although the Company believes the expectations contained
in such forward-looking statements are reasonable, no assurances can be given
that such expectations will prove correct. Such forward-looking information is
based upon management's current plans or expectations and is 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. These uncertainties and risks include, but are not limited to, those
relating to successfully managing the integration of acquired companies,
including companies with technical services and products that are relatively
new to the Company, and also including companies outside the United States,
which present additional risks relating to international operations; risks and
uncertainties relating to conducting operations in a competitive environment;
delays, difficulties, technological changes, management transitions and
employment issues associated with consolidation of business operations; risks
and uncertainties associated with the adoption of a preferred vendor program;
risks and uncertainties relating to potential Year 2000 deficiencies
associated with IKON's internal systems and distributed products; risks and
uncertainties relating to material litigation; debt service requirements
(including sensitivity to fluctuation in interest rates); and general economic
conditions. As a consequence, current plans, anticipated actions and future
financial condition and results may differ materially from those expressed in
any forward-looking statements made by or on behalf of the Company.
10
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
ITEMS 14(A)(1) AND (2) AND 14(D)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS: The following consolidated financial statements of
IKON Office Solutions, Inc. and its subsidiaries included in the 1998 Annual
Report to Shareholders are incorporated by reference in Item 8 of Part II of
this report:
Consolidated Statements of Operations
--Fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996
Consolidated Balance Sheets
--September 30, 1998 and September 30, 1997
Consolidated Statements of Cash Flows
--Fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996
Consolidated Statements of Changes in Shareholders' Equity
--Fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES: The following consolidated financial
statement schedule of IKON Office Solutions, Inc. and its subsidiaries is
submitted in response to Item 14(d):
Schedule II--Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
F-1
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1998 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
IKON OFFICE SOLUTIONS, INC.
Date: December 18, 1998
/s/ Michael J. Dillon
By___________________________________
(MICHAEL J. DILLON) VICE PRESIDENT
AND CONTROLLER (PRINCIPAL
ACCOUNTING OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT ON FORM 10-K HAS BEEN SIGNED BELOW ON DECEMBER 18, 1998 BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURES TITLE
/s/ James J. Forese President, Chief Executive Officer
- ------------------------------------- and a Director (Principal Executive
(JAMES J. FORESE) Officer)
/s/ Kurt E. Dinkelacker Executive Vice President, Chief
- ------------------------------------- Financial Officer and a Director
(KURT E. DINKELACKER) (Principal Financial Officer)
/s/ Michael J. Dillon Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
(MICHAEL J. DILLON)
*Judith M. Bell Director
- -------------------------------------
(JUDITH M. BELL)
*James R. Birle Director
- -------------------------------------
(JAMES R. BIRLE)
*Philip E. Cushing Director
- -------------------------------------
(PHILIP E. CUSHING)
*Thomas P. Gerrity Director
- -------------------------------------
(THOMAS P. GERRITY)
*Frederick S. Hammer Director
- -------------------------------------
(FREDERICK S. HAMMER)
*Barbara Barnes Hauptfuhrer Director
- -------------------------------------
(BARBARA BARNES HAUPTFUHRER)
*Richard A. Jalkut Non-Executive Chairman and a
- ------------------------------------- Director
(RICHARD A. JALKUT)
*By his signature set forth below, Michael J. Dillon, pursuant to duly
executed Powers of Attorney duly filed with the Securities and Exchange
Commission, has signed this Form 10-K on behalf of the persons whose
signatures are printed above, in the capacities set forth opposite their
respective names.
/s/ Michael J. Dillon December 18, 1998
- -------------------------------------
(MICHAEL J. DILLON)
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
------ ------------ ------ ------------ -----------
ADDITIONS
----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ----------- ---------- ------------ -----------
Year Ended September 30,
1998
Allowance for doubtful
accounts............... $54,192,000 $47,052,000 $ 903,000(1) $38,556,000(2) $63,591,000
Lease default reserve... 76,767,000 94,768,000 74,014,000(2) 97,521,000
Year Ended September 30,
1997
Allowance for doubtful
accounts............... $35,308,000 $25,724,000 $3,755,000(1) $10,595,000(2) $54,192,000
Lease default reserve... 60,484,000 56,231,000 39,948,000(2) 76,767,000
Year Ended September 30,
1996
Allowance for doubtful
accounts............... $32,856,000 $18,296,000 $6,634,000(1) $22,478,000(2) $35,308,000
Lease default reserve... 46,994,000 36,651,000 23,161,000(2) 60,484,000
(1) Represents beginning balances of acquired companies.
(2) Accounts written off during year, net of recoveries.
IKON OFFICE SOLUTIONS, INC.
P.O. BOX 834
VALLEY FORGE, PENNSYLVANIA 19482-0834
(610) 296-8000