CONTACTS:
Susan G. Gaffney Veronica L. Rosa
Investor Relations Investor Relations
610-408-7292 610-408-7196
sgaffney@ikon.com vrosa@ikon.com
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IKON OFFICE SOLUTIONS ANNOUNCES FIRST QUARTER RESULTS
CONTINUES ON TRACK FOR EARNINGS IMPROVEMENT IN FISCAL 1999
VALLEY FORGE, PENNSYLVANIA -- JANUARY 27, 1999 -- IKON Office Solutions
(NYSE: IKN) today reported results for the first quarter of fiscal 1999. IKON
generated net income of $20.1 million or $.13 per share, excluding an after-tax
gain of $8.6 million or $.06 per share from a $250 million asset securitization.
The fiscal 1999 first quarter results reflect substantial improvements in
earnings trends as compared to results reported for the second half of fiscal
1998.
For the first quarter of fiscal 1998, the Company generated $49.7 million
in net income or $.33 per share before transformation costs. Including
transformation costs, net income was $37 million or $.24 per share.
"We are encouraged by our results as we begin fiscal 1999, which confirm
that IKON is heading in the right direction," stated James J. Forese, President
and Chief Executive Officer. "We continue to be on course to achieve earnings
per share of $0.65 to $0.75 this fiscal year."
Revenues for the quarter were $1.38 billion excluding the gain, compared to
$1.37 billion in the first quarter of fiscal 1998. The flat revenue reflects
the elimination of unprofitable revenue streams and a transition away from low-
margin, commodity products.
The company's 38.8% gross margin, excluding the securitization gain, for
the 1999 first quarter reflected an improvement of 450 basis points over the
34.3% gross margin reported for the 1998 fourth quarter. The improvement
reflected greater profitability in both equipment and service sales, due to the
elimination of inappropriate discounting, an increased focus on controlling
service costs, and the strong turnaround in Management Services.
PRODUCTIVITY IMPROVEMENT INITIATIVES CONTINUE
Mr. Forese added: "In fulfilling its business plan, IKON is making
excellent progress across a broad front: We are maintaining a tight focus on
operational improvements that will allow us to capitalize on our strong
fundamentals, including a large and growing customer base, state-of-the-art
product and service offerings, and an abundance of talented people. We are
devoting more attention to our focus products and services that deliver added
value and greater margins such as color and high-volume capabilities, digital
and imaging technology, and document services.
"Tying all this together, we are taking comprehensive, well-coordinated
action to become one of the industry's most efficient players. Specifically, we
are seeking to enhance our competitiveness, to further centralize management
controls, to establish more consistency in business processes and financial
policies, and to create a united management team focused on long-term operating
performance and the success of the Company as a whole."
The Company continues to roll out the program of expense reductions and
productivity initiatives announced in the 3rd and 4th quarters of fiscal 1998.
During the first quarter IKON:
. Reduced the worldwide workforce by 1,300 positions, or 3%, to enhance
productivity throughout the organization;
. Closed or merged four field offices in Document Services;
. Completed the closing of one Technology Services company;
. Merged two districts and four marketplaces in Business Services, North
America;
. Implemented in six districts a new sales model which includes increased
training, sales compensation tied to gross profit and focus products, and a
realignment of the sales territories for higher productivity; and
. Commenced the previously announced project in which PricewaterhouseCoopers
will work with IKON to strengthen the efficiency of the Company's
infrastructure and reduce SG&A costs as a percentage of revenues.
"We will continue to take aggressive steps," Mr. Forese stated, "to make IKON
one of the industry leaders in efficiency and to pursue the many opportunities
before us to increase IKON's share of value-added, high-margin markets."
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 1998 revenues of $5.6 billion, IKON has more than 1,000 locations in
the U.S., Canada, Mexico, the United Kingdom, France, Germany and Denmark.
This news release includes information that may constitute forward-looking
statements made pursuant to the safe harbor provisions of the federal securities
laws. Although IKON believes the expectations contained in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove correct. This information is subject to risk and uncertainties such as
those relating to conducting activities in a competitive environment; delays,
difficulties, management transitions and employment issues associated with
consolidation of business operations; managing the integration of acquired
companies; risks and uncertainties associated with implementation of a preferred
vendor program and general economic conditions. Therefore, actual results may
differ materially from the forward-looking statements.
# # #
IKON OFFICE SOLUTIONS, INC.
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FINANCIAL SUMMARY (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
FIRST QUARTER
FISCAL
------------------------------------------------------
1999 1998 % CHANGE
------------------- -----------------------------
REVENUES
Net sales $ 707,719 $ 728,105 (2.8) %
Service and rentals 591,417 575,822 2.7
Finance income 97,281 (1) 70,330 38.3
- -------------------------------------------------------------------------------------------------------------
1,396,417 1,374,257 1.6
- -------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 471,746 468,200 0.8
Service and rental costs 341,589 332,155 2.8
Finance interest expense 32,680 30,746 6.3
Selling and administrative 477,255 441,219 8.2
Transformation costs 19,519
- -------------------------------------------------------------------------------------------------------------
1,323,270 1,291,839 2.4
- -------------------------------------------------------------------------------------------------------------
Operating income 73,147 82,418 (11.2)
Interest expense 19,547 17,029 14.8
- -------------------------------------------------------------------------------------------------------------
Income before taxes 53,600 65,389 (18.0)
Income taxes 24,924 28,405 (12.3)
- -------------------------------------------------------------------------------------------------------------
Net income 28,676 36,984 (22.5)
- -------------------------------------------------------------------------------------------------------------
Less preferred dividends 4,885
- -------------------------------------------------------------------------------------------------------------
Available to common shareholders $ 28,676 $ 32,099 (10.7)
=================== =============
BASIC EARNINGS PER SHARE $ 0.19 $ 0.24 (20.8) %
=================== =============
DILUTED EARNINGS PER SHARE $ 0.19 $ 0.24 (20.8) %
=================== =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC 148,349 133,729 10.9 %
=================== =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED 148,907 134,767 10.5 %
=================== =============
Operations Analysis:
Gross profit %, net sales 33.3% 35.7%
Gross profit %, service and rentals 42.2% 42.3%
Gross profit %, finance subsidiaries, excl. gain 60.6% 56.3%
Total gross profit %, excl. gain 38.8% 39.5%
SG&A as a % of revenue, excl. gain 34.5% 32.1%
Operating income % of revenue, excl. gain 4.3% 6.0%
Oper inc % of rev., excl. transformation costs and gain 7.4%
(1) - Includes gain of $14.3 million on a $250 million asset securitization.
IKON OFFICE SOLUTIONS, INC. SUPPLEMENTAL
- ----------------------------------------------------------
FINANCIAL SUMMARY (IN THOUSANDS, EXCEPT EARNINGS PER
SHARE)
FIRST QUARTER FOURTH QUARTER
FISCAL 1999 FISCAL 1998 % CHANGE
--------------- ----------------- --------------
REVENUES
Net sales $ 707,719 $ 775,914 (8.8) %
Service and rentals 591,417 569,420 3.9
Finance income 97,281 (2) 82,755 17.6
- -----------------------------------------------------------------------------------------------------
1,396,417 1,428,089 (2.2)
- -----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 471,746 548,493 (14.0)
Service and rental costs 341,589 357,266 (4.4)
Finance interest expense 32,680 32,272 1.3
Selling and administrative 477,255 530,232 (1) (10.0)
Transformation costs 23,783
- -----------------------------------------------------------------------------------------------------
1,323,270 1,492,046 (11.3)
- -----------------------------------------------------------------------------------------------------
Operating income 73,147 (63,957)
Interest expense 19,547 19,712
- -----------------------------------------------------------------------------------------------------
Income before taxes 53,600 (83,669)
Income taxes 24,924 (21,989)
- -----------------------------------------------------------------------------------------------------
Net income 28,676 (61,680)
- -----------------------------------------------------------------------------------------------------
Less preferred dividends 4,885
- -----------------------------------------------------------------------------------------------------
Available to common shareholders $ 28,676 $ (66,565)
=============== =================
BASIC EARNINGS PER SHARE $ 0.19 ($0.49)
=============== =================
DILUTED EARNINGS PER SHARE $ 0.19 ($0.49)
=============== =================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC 148,349 136,145 9.0 %
=============== =================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED 148,907 136,145 9.4 %
=============== =================
Operations Analysis:
Gross profit %, net sales 33.3% 29.3%
Gross profit %, service and rentals 42.2% 37.3%
Gross profit %, finance subsidiaries, excl gain 60.6% 61.0%
Total gross profit %, excl. gain 38.8% 34.3%
SG&A as a % of revenue, excl. gain 34.5% 37.1%
Operating income % of revenue, excl. gain 4.3% -4.5%
Oper inc % of rev., excl. transformation costs and gain -2.8%
(1) Includes $40.4 million special charges.
(2) Includes gain of $14.3 million on a $250 million asset
securitization.