-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpAh4eHQMe3F3AQK+sUm6CkLIQAT6RiMetNJVUHS+YOkI77/sqZRi4PFSyt7zxwB 4ArdbjO/hrMUCW2bWOWZ1A== 0000950159-00-000204.txt : 20000516 0000950159-00-000204.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950159-00-000204 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IKON OFFICE SOLUTIONS INC CENTRAL INDEX KEY: 0000003370 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 230334400 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05964 FILM NUMBER: 631320 BUSINESS ADDRESS: STREET 1: PO BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6102968000 MAIL ADDRESS: STREET 1: PO BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: ALCO STANDARD CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ALCO CHEMICAL CORP DATE OF NAME CHANGE: 19680218 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (Mark One)* [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2000 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 incorporation or organization) Identification No.) P.O. Box 834, Valley Forge, Pennsylvania 19482 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (610) 296-8000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NONE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 * Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 4, 2000. Common Stock, no par value 149,301,000 shares INDEX IKON OFFICE SOLUTIONS, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets--March 31, 2000 (unaudited) and September 30, 1999 Consolidated Statements of Operations--Three and six months ended March 31, 2000 and 1999 (unaudited) Consolidated Statements of Cash Flows--Six months ended March 31, 2000 and 1999 (unaudited) Notes to Condensed Consolidated Financial Statements-- March 31, 2000 (unaudited) Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition and Liquidity Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES IKON OFFICE SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS ( in thousands )
March 31, September 30, 2000 1999 ASSETS (unaudited) - ------ ----------- ------------- Current Assets Cash and cash equivalents $ 51,345 $ 3,386 Restricted cash 76,551 29,625 Accounts receivable, less allowances of: March 31, 2000 - $44,837, September 30, 1999 - $43,543 688,512 725,308 Finance receivables, net 1,013,111 887,396 Inventories 379,124 338,947 Prepaid expenses and other current assets 104,236 111,386 Deferred taxes 138,520 137,853 ----------- ----------- Total current assets 2,451,399 2,233,901 ----------- ----------- Long-Term Finance Receivables, net 1,918,323 1,677,230 Equipment on Operating Leases, net 80,954 87,496 Property and Equipment, at cost 548,509 535,304 Less accumulated depreciation 301,373 275,489 ----------- ----------- 247,136 259,815 ----------- ----------- Goodwill, net 1,337,333 1,385,295 Other assets 137,394 157,576 ----------- ----------- $ 6,172,539 $ 5,801,313 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of long-term debt $ 85,836 $ 95,262 Current portion of long-term debt, finance subsidiaries 1,317,300 974,033 Notes payable 222,587 44,968 Trade accounts payable 196,065 169,763 Accrued salaries, wages and commissions 116,076 128,501 Accrued shareholder litigation settlement 831 117,652 Deferred revenues 204,214 205,654 Other accrued expenses 343,214 311,758 ----------- ----------- Total current liabilities 2,486,123 2,047,591 ----------- ----------- Long-Term Debt 713,647 718,814 Long-Term Debt, Finance Subsidiaries 982,538 1,029,176 Deferred Taxes 386,321 375,007 Other Long-Term Liabilities 171,985 170,185 Shareholders' Equity Common stock, no par value Authorized - 300,000 shares Issued March 31, 2000 - 150,366 shares; 1,016,039 1,008,392 September 30, 1999 - 149,271 shares Unearned compensation (8,670) (5,513) Retained earnings 431,080 464,150 Accumulated other comprehensive loss (5,775) (4,922) Common shares in treasury, at cost: March 31, 2000 - 25 shares; September 30, 1999 - 53 shares (749) (1,567) ----------- ----------- 1,431,925 1,460,540 ----------- ----------- $ 6,172,539 $ 5,801,313 =========== ===========
See notes to condensed consolidated financial statements IKON Office Solutions, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
Three Months Ended Six Months Ended March 31, March 31, ------------------------------ ------------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenues Net sales $ 727,929 $ 720,062 $ 1,396,411 $ 1,427,781 Service and rentals 571,329 585,662 1,154,250 1,186,921 Finance income 81,070 66,926 162,167 154,365 ----------- ----------- ----------- ----------- 1,380,328 1,372,650 2,712,828 2,769,067 ----------- ----------- ----------- ----------- Costs and Expenses Cost of goods sold 484,074 492,363 935,166 964,109 Service and rental costs 353,831 342,832 699,269 692,713 Finance interest expense 39,508 29,306 78,960 61,986 Selling and administrative 424,559 453,888 862,782 922,851 Asset impairment charge 51,548 Restructuring charge 53,792 ----------- ----------- ----------- ----------- 1,301,972 1,318,389 2,681,517 2,641,659 ----------- ----------- ----------- ----------- Operating income 78,356 54,261 31,311 127,408 Interest expense 17,626 18,995 33,620 38,542 ----------- ----------- ----------- ----------- Income (loss) before income tax expense 60,730 35,266 (2,309) 88,866 Income tax expense 25,877 12,399 18,474 37,323 ----------- ----------- ----------- ----------- Net income (loss) $ 34,853 $ 22,867 $ (20,783) $ 51,543 =========== =========== =========== =========== Basic and Diluted Earnings (Loss) Per Common Share $ 0.23 $ 0.15 $ (0.14) $ 0.35 =========== =========== =========== =========== Cash Dividends Per Common Share $ 0.04 $ 0.04 $ 0.08 $ 0.08 =========== =========== =========== ===========
See notes to condensed consolidated financial statements IKON OFFICE SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended March 31, --------------------------- 2000 1999 --------- --------- Operating Activities Net (loss) income $ (20,783) $ 51,543 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation 68,038 71,160 Amortization 32,395 30,720 Provision for losses on accounts receivable 15,421 13,787 Provision for deferred income taxes 14,300 25,000 Provision for lease default reserves 13,093 32,676 Gain on asset securitizations (73) (21,672) Asset impairment and restructuring charge 105,340 Changes in operating assets and liabilities, net of effects from acquisitions: Decrease in accounts receivable 18,431 45,260 (Increase) decrease in inventories (41,711) 31,377 Decrease (increase) in prepaid expenses and other current assets 4,053 (4,101) Increase (decrease) in accounts payable, deferred revenues and accrued expenses 2,500 (62,543) Decrease in accrued shareholder litigation settlement (116,821) Decrease in accrued restructuring (8,074) Other (2,030) 4,436 --------- --------- Net cash provided by operating activities 84,079 217,643 Cash flows from investing activities Proceeds from the sale of property and equipment 4,248 11,569 Proceeds from the sale of property and equipment on operating leases 7,369 10,045 Cost of companies acquired, net of cash acquired (3,745) (22,449) Expenditures for property and equipment (52,175) (48,127) Expenditures for property and equipment on operating leases (22,146) (32,374) Finance receivables - additions (802,551) (669,344) Finance receivables - collections 685,078 445,311 Proceeds from the sale of finance subsidiaries' lease receivables 16,887 357,024 Repurchase of finance subsidiary's lease receivables (275,000) Other (2,832) (2,830) --------- --------- Net cash (used in) provided by investing activities (444,867) 48,825 Cash flows from financing activities Short-term borrowings, net 178,824 59,698 Proceeds from issuance of long-term debt 5,556 37,801 Long-term debt repayments (16,968) (17,595) Finance subsidiaries' debt - issuances 948,016 1,549 Finance subsidiaries' debt - repayments (647,788) (336,049) Dividends paid (11,923) (11,804) Deposit to restricted cash (46,926) Proceeds from option exercises and sale of treasury shares 183 4,364 Purchase of treasury shares (227) (152) --------- --------- Net cash provided by (used in) financing activities 408,747 (262,188) Net increase in cash and cash equivalents 47,959 4,280 Cash and cash equivalents at beginning of year 3,386 963 --------- --------- Cash and cash equivalents at end of period $ 51,345 $ 5,243 ========= =========
See notes to condensed consolidated financial statements IKON OFFICE SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) (unaudited) Note 1: Basis of Presentation --------------------- The accompanying unaudited condensed consolidated financial statements of IKON Office Solutions, Inc. and subsidiaries (the "Company", "we", or "our") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K/A for the year ended September 30, 1999. Certain prior year amounts have been reclassified to conform with the current year presentation. Note 2: Restructuring and Asset Impairment Charge ----------------------------------------- In the first quarter of fiscal 2000, the Company announced plans to improve performance and efficiency and incurred a total pre-tax restructuring and asset impairment charge (the "charge") of $105,340 ($78,479 after-tax, or $0.52 per share on a basic and diluted basis). These actions address under-performance in certain Technology Services, Business Document Services, and Business Information Services locations; as well as the Company's desire to strategically position these businesses for integration and profitable growth. Plans include consolidating or disposing of certain under-performing and non-core locations; implementing productivity enhancements through the consolidation and centralization of activities in inventory management, purchasing, finance/accounting and other administrative functions; and consolidating real estate through the co-location of business units as well as the disposition of unproductive real estate. Savings from the above programs are anticipated to be approximately $15,000 in fiscal 2000 and approximately $45,000 on an annualized basis beginning in fiscal 2001. The pre-tax components of the charge are as follows: Type of Charge Restructuring Charge: Severance $ 16,389 Contractual Commitments 37,403 -------- Total Restructuring Charge 53,792 -------- Asset Impairment Charge: Fixed Assets 12,668 Goodwill and Intangibles 38,880 -------- Total Asset Impairment Charge 51,548 -------- Total Charge $105,340 ======== The severance charge relates to the elimination of approximately 1,900 positions, while the charge for contractual commitments relates to lease commitments where the Company is exiting certain locations and/or businesses which are expected to be paid over the next 9 years. IKON OFFICE SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Company commenced several actions specified under these initiatives in the first quarter of fiscal 2000, which continued through the second quarter. The following presents a reconciliation of the original components of the pre-tax restructuring charge to the balance remaining at March 31, 2000, which is included in other accrued expenses on the balance sheet:
Balance Balance September 30, Provision Payments March 31, 1999 Fiscal 2000 Fiscal 2000 2000 --------- ----------- ----------- --------- Severance $ -- $16,389 $ 5,017 $11,372 Contractual Commitments -- 37,403 3,057 34,346 --------- ------- ------- ------- Total $ -- $53,792 $ 8,074 $45,718 ========= ======= ======= =======
During the first six months of fiscal 2000 approximately 620 employees were terminated and left the Company and 13 facilities were closed. Note 3: Asset Securitization -------------------- In December 1999, our U.S. finance subsidiary pledged or transferred $311,382 in direct financing lease receivables for $247,600 in cash and a retained interest in the remainder under our revolving asset securitization agreement, in a transfer accounted for as a financing. Our U.S. finance subsidiary also had asset securitization agreements for $275,000 of eligible direct financing lease receivables at September 30, 1999. On October 7, 1999 these leases were repurchased with a portion of the proceeds received from the issuance of lease-backed notes as described in Note 4. Note 4: Lease-Backed Notes ------------------ On October 7, 1999, IKON Receivables, LLC (an affiliate of the U.S. finance subsidiary) publicly issued $699,604 of lease-backed notes (the "Notes") under our $1,825,000 shelf registration statement. Class A-1 Notes totaling $235,326 have a stated interest rate of 6.14%, Class A-2 Notes totaling $51,100 have a stated interest rate of 6.31%, Class A3a Notes totaling $100,000 have a stated interest rate of 6.59%, Class A3b Notes totaling $240,891 have a variable rate of libor plus 0.36% (which we have fixed at 6.63% through an interest rate swap) and Class A-4 Notes totaling $72,287 have a stated interest rate of 6.88%. Our U.S. finance subsidiary received approximately $697,000 in net proceeds from the sale of the Notes and used $275,000 of that amount to repurchase previously sold leases. The Notes are collateralized by a pool of office equipment leases or contracts and related assets and payments on the Notes are made from payments on the leases. IKON OFFICE SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 5: Comprehensive Income (Loss) --------------------------- Total comprehensive income (loss) is as follows:
Three Months Ended Six Months Ended March 31, March 31, ------------------------ ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income (loss) $ 34,853 $ 22,867 $(20,783) $51, 543 Foreign currency translation adjustments 962 700 (853) 235 Mark to market adjustment on the retained interest of lease receivables, net of tax 159 1,128 -------- -------- -------- -------- Total comprehensive income (loss) $ 35,815 $ 23,726 $(21,636) $ 52,906 ======== ======== ======== ========
Minimum pension liability is adjusted at each year end, therefore there is no impact on total comprehensive income (loss) during interim periods. The balances for foreign currency translation adjustments and minimum pension liability adjustments included in accumulated other comprehensive income (loss) were $(4,125) and $(1,650), respectively, at March 31, 2000 and $(3,272) and $(1,650), respectively, at September 30, 1999. Note 6: Earnings Per Share ------------------ The following table sets forth the computation of basic and diluted earnings per common share:
Three Months Ended Six Months Ended March 31, March 31, -------------------------- --------------------------- Numerator: 2000 1999 2000 1999 --------- --------- --------- --------- Net income (loss) $ 34,853 $ 22,867 $ (20,783) $ 51,543 ========= ========= ========= ========= Denominator: Weighted average common shares 149,283 147,866 149,276 147,409 Contingently issuable common shares 14 735 7 1,059 --------- --------- --------- --------- Denominator for basic earnings per common share - weighted average common shares 149,297 148,601 149,283 148,468 Effect of dilutive securities: Additional contingently issuable common shares 79 301 Employee stock options 295 190 113 --------- --------- --------- --------- Dilutive potential common shares 295 269 -- 414 Denominator for diluted earnings per common share - adjusted weighted average common shares and assumed conversions 149,592 148,870 149,283 148,882 ========= ========= ========= ========= Basic earnings (loss) per common share $ 0.23 $ 0.15 $ (0.14) $ 0.35 ========= ========= ========= ========= Diluted earnings (loss) per common share $ 0.23 $ 0.15 $ (0.14) $ 0.35 ========= ========= ========= =========
Options to purchase 6,304 shares of common stock at $7.50 per share to $56.42 per share were outstanding during the second quarter of fiscal 2000 and options to purchase 6,424 shares of common stock at $14.18 per share to $56.42 per share were outstanding during the second quarter of fiscal 1999, but were not included in the computation of diluted earnings per common share because the effect would be antidilutive. Options to purchase 9,576 shares of common stock at $4.73 per share to $56.42 per share were outstanding during the first six months of fiscal 2000 and options to purchase 7,040 shares of common stock at $11.60 per share to $56.42 per share were outstanding during the first six months of fiscal 1999, but were not included in the computation of diluted earnings per common share because the effect would be antidilutive. IKON OFFICE SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 7: Segment Reporting ----------------- In the first six months of fiscal 2000, we made the following changes to our segment reporting as a result of our restructuring program: IKON Document Services (which was reported in Other in fiscal 1999) was split into Business Document Services ("BDS"), Legal Document Services ("LDS") and Business Imaging Services ("BIS"). BDS and LDS are aligned with and included in IKON North America and BIS remains in Other. Prior year results have been reclassified to conform with the current year presentation. The table below presents segment information for the three and six months ended March 31, 2000 and 1999:
IKON Corporate North IKON and Three Months Ended March 31, 2000 America Europe Other Eliminations Total ----------- ----------- ----------- ----------- ----------- Revenues, excluding finance income $ 1,059,570 $ 122,304 $ 117,384 $ 1,299,258 Finance income 75,570 5,500 81,070 Intersegment revenues 4,734 825 $ (5,559) Operating income (loss) 111,941 5,974 (13,452) (26,107) 78,356 Interest expense (17,626) (17,626) Income before taxes 60,730 Three Months Ended March 31, 1999 Revenues, excluding finance income 1,024,208 133,176 148,340 1,305,724 Finance income 61,986 4,940 66,926 Intersegment revenues 1,715 1,140 (2,855) Operating income (loss) 86,757 7,537 (177) (39,856) 54,261 Interest expense (18,995) (18,995) Income before taxes 35,266 Six Months Ended March 31, 2000 Revenues, excluding finance income 2,057,118 244,292 249,251 2,550,661 Finance income 151,228 10,939 162,167 Intersegment revenues 7,034 1,714 (8,748) Operating income (loss) before restructuring and asset impairment 221,241 11,254 (21,630) (74,214) 136,651 Restructuring and asset impairment charges (34,752) (4,286) (12,124) (54,178) (105,340) Operating income (loss) 186,489 6,968 (33,754) (128,392) 31,311 Interest expense (33,620) (33,620) Loss before income tax benefit (2,309) Six Months Ended March 31, 1999 Revenues, excluding finance income 2,060,532 259,256 294,914 2,614,702 Finance income 144,188 10,177 154,365 Intersegment revenues 6,512 1,776 (8,288) Operating income (loss) 197,995 13,501 (708) (83,380) 127,408 Interest expense (38,542) (38,542) Income before taxes 88,866
IKON OFFICE SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 8: Shareholder Lawsuit ------------------- On November 24, 1999, subject to formal approval by the court, we reached a settlement with the plaintiffs in the series of class action complaints which were filed in the United States District Court for the Eastern District of Pennsylvania on behalf of our shareholders, and with the plaintiff in a companion derivative lawsuit. Pursuant to the settlement, we paid $111 million into an escrow account. After holding a hearing in early April, the court approved the settlement on May 11, 2000. During fiscal 2000, the Company has received total insurance proceeds of $33,546 related to the settlement. The matter of Whetman, et al. v. IKON Office Solutions, Inc., et al. contains one claim brought under the Employee Retirement Income Security Act of 1974 ("ERISA"). In connection with that claim, the plaintiffs allege that the Company and various individuals violated fiduciary duties under ERISA based on allegedly improper investments in the Company's stock made through the Company's Retirement Savings Plan. The court certified a class with respect to this claim consisting generally of all those participants in the Retirement Savings Plan after September 30, 1995 and through August 13, 1998, subject to certain exceptions. To the extent that any of the ERISA class claim survives the settlement of the federal securities class action and companion derivative suit, the Company believes that said claim is without merit and will vigorously defend the suit. Note 9: Subsequent Event ---------------- In May 2000, IKON Receivables, LLC filed a registration statement with the Securities and Exchange Commission to register the sale of $2,000,000 of lease-backed notes. Each series of notes which may be issued under the registration statement will be issued pursuant to an indenture. Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition and Liquidity The following discussion is in thousands, except per share amounts. The Company provides products and services to meet business communications needs, including copiers and printers, color solutions, distributed printing, outsourcing services, imaging and legal outsourcing solutions, as well as network design and consulting, application development and technology training. Results of Operations --------------------- The discussion of the results of operations reviews the operations of the Company as reported in the Consolidated Statements of Operations. Three and Six Months Ended March 31, 2000 Compared with the Three and Six Months Ended March 31, 1999 Results of operations for the second quarter and the first six months of fiscal 2000 compared to the second quarter and the first six months of fiscal 1999 were as follows: Second Quarter: Our second quarter revenues increased by $7,678, or 0.6%, compared to the second quarter of fiscal 1999. Excluding Technology Services, which has been impacted by a slowdown in network integration projects since the fourth quarter of fiscal 1999, revenues increased by approximately $47,700, or 4% compared to the second quarter of fiscal 1999. Net sales, which includes equipment revenue, increased by $7,867 or 1.1%. Excluding hardware sales associated with our Technology Services business, net sales increased by 6% compared to the second quarter of fiscal 1999, reflecting improvement in equipment placements and productivity in higher end digital and color products. The increase is due mainly to our continued focus on customized solutions and a consultative sales approach rather than geographic sales coverage. During the second quarter we added 138 sales representatives concentrated in our areas of highest growth, such as color, high volume and facilities management. Our Segment 3 - 6 copier placements increased by 17% compared to second quarter of fiscal 1999 and we continue to expand our machine base in the high end, with our Segment 3 - 6 copier base up 7% compared to the second quarter of fiscal 1999. Service and rental revenue decreased by $14,333 or 2.4%. The decrease resulted from the decline in our Technology Services revenues and the closure of non-strategic outsourcing sites associated with our restructuring program which was announced in the first quarter of fiscal 2000. Finance income increased by $14,144 or 21.1% compared to the second quarter of fiscal 1999 due to the repurchase of leases on October 7, 1999. Gross margin was 36.4%, compared to 37.0% in the second quarter of fiscal 1999 largely due to lower service margins in our traditional equipment business and fixed costs associated with lower revenues for Technology Services. The gross margin on equipment sales was 33.5% compared to 31.6% in the second quarter of fiscal 1999. This was due to the higher margins associated with digital and color products as compared to analog and the prepurchase of inventory in anticipation of vendor price increases during the quarter. The gross margin on service and rentals decreased to 38.1% compared to 41.5% in the second quarter of fiscal 1999. The decrease primarily resulted from fixed costs associated with lower Technology Services revenues and lower productivity in servicing new digital products, including the impact of new vendor and digital training programs. Selling and administrative expense as a percent of revenue was 30.8% in the second quarter of fiscal 2000 compared to 33.1% in the second quarter of fiscal 1999. Excluding $17,000 of insurance proceeds related to our shareholder litigation settlement, selling and administrative expense was 32.0% in the second quarter of fiscal 2000. The decrease was the result of the increase in revenue combined with controlled costs due to our cost competitiveness programs, including centralizing certain key functions, adopting new credit controls and productivity improvements within our business segments. Our operating income increased by $24,095 or 44.4% compared to the second quarter of fiscal 1999. Excluding $17,000 of insurance proceeds related to our shareholder litigation settlement, operating income increased by $7,095 or 13.1% to $61,356 for the second quarter of fiscal 2000, compared to $54,261 in the prior year. Our operating margin, excluding the gain in fiscal 2000 improved from 4.0% in the second quarter of fiscal 1999 to 4.4% in the second quarter of fiscal 2000. This resulted from the increase in revenue and the improved management of selling and administrative costs. Interest expense decreased by $1,369 in the second quarter of fiscal 2000 compared to the second quarter of fiscal 1999 as a result of lower average debt levels during the second quarter of fiscal 2000 as compared to fiscal 1999. There was income before taxes of $60,730 in the second quarter of fiscal 2000 compared to $35,266 in the second quarter of fiscal 1999. Excluding the insurance proceeds related to our shareholder litigation settlement in fiscal 2000, income before taxes increased by $8,464 to $43,730. The increase was primarily the result of the increase in revenue combined with the decrease in selling and administrative expenses and interest expense described above. The effective income tax rate for the second quarter of fiscal 2000, excluding the effect of the insurance proceeds, was 42.0% compared to 46.5%, excluding a $4,000 benefit related to restructuring our European leasing operations, for the comparable period in fiscal 1999. The tax rate reduction was primarily due to the recording of benefits resulting from legislative changes that facilitated utilization of net operating losses that previously had a full valuation allowance. Diluted earnings per common share increased to $0.23 per share for the second quarter of fiscal 2000 from $0.15 per share for the second quarter of fiscal 2000. Excluding the after-tax effect of the insurance proceeds in fiscal 2000, diluted earnings per common share were $0.17 in the second quarter of fiscal 2000 compared to $0.15 in the second quarter of fiscal 1999. Review of Business Segments --------------------------- In the second quarter of fiscal 2000, we made the following change to our segment reporting as a result of our restructuring program: Legal Document Services, which was included in Other in the first quarter of fiscal 2000, is now aligned with and included in IKON North America. Prior year results have been reclassified to conform with the current-year presentation. IKON North America Revenues, excluding finance income, increased by $35,362, or 3.5%, to $1,059,570 in the second quarter of fiscal 2000 from $1,024,208 in the second quarter of fiscal 1999. The increase was primarily due to strong net sales growth offset by minimal growth in Service and Rentals due to the closure of unprofitable or non-strategic document service locations associated with the restructuring program. Approximately 81% of our equipment revenues came from digital and color sales as compared to 79% in the first quarter of fiscal 2000 and 52% in the second quarter of fiscal 1999. Finance income increased by $13,584, or 21.9%, to $75,570 in the second quarter of fiscal 2000 compared to $61,986 in the second quarter of fiscal 1999. The increase was due to the repurchase of leases on October 7, 1999. Operating income increased by $25,184 or 29.0% to $111,941 in the second quarter of fiscal 2000 from $86,757 in the second quarter of fiscal 1999. The increase was due mainly to increased revenue and the improved management of selling and administrative costs described above. IKON Europe Revenues, excluding finance income, decreased by $10,872, or 8.2%, to $122,304 in the second quarter of fiscal 2000 from $133,176 in the second quarter of fiscal 1999 due mainly to a decrease in technology service revenues. Finance income increased by $560, or 11.3%, to $5,500 in the second quarter of fiscal 2000 from $4,940 in the second quarter of fiscal 1999 due to growth in the lease portfolio. Operating income decreased by $1,563, or 20.7%, to $5,974 in the second quarter of fiscal 2000 from $7,537 in the second quarter of fiscal 1999. Other Other revenues decreased by $30,956, or 20.9%, to $117,384 in the second quarter of fiscal 2000 from $148,340 in the second quarter of fiscal 1999. There was an operating loss of $13,452 in the second quarter of fiscal 2000 compared to $177 in the second quarter of fiscal 1999. The decrease in revenues and operating income was due to a significant decline in our traditional systems integration business as customers' demands have shifted from internal systems deployment and Y2K migration to external, Internet-based applications. The Company has developed an e-commerce business group to address this shift in market conditions. Six Months: Our revenues for the first six months of fiscal 2000 decreased by $56,239, or 2.0%, compared to the first six months fiscal 1999. Excluding a $14,333 gain from an asset securitization in fiscal 1999, revenues decreased by $41,906, or 1.5%. The decrease resulted from fewer sales representatives on average during the period as compared to the prior year and a significant decline in our traditional systems integration business. Net sales, which includes equipment revenue, decreased by $31,370 or 2.2%. The decrease is due mainly to fewer sales representatives on average as compared to the prior year, the impact of the Year 2000 on first quarter fiscal 2000 net sales and a significant decline in our traditional systems integration business. During the year we added 313 sales representatives concentrated in our areas of highest growth, such as color, high volume and facilities management and at the end of March 2000, our sales force is at the same level as March 1999. Service and rental revenue decreased by $32,671 or 2.8%. The decrease resulted from the decline in our Technology Services revenues and the closure of non-strategic outsourcing sites associated with our restructuring program which was announced in the first quarter of fiscal 2000. Finance income, excluding the $14,333 gain from an asset securitization in fiscal 1999, increased by $22,135 or 15.8% compared to the first six months of fiscal 1999 due to the repurchase of leases on October 7, 1999. Gross margin was 36.8%, compared to 37.6% in the first six months of fiscal 1999, excluding the gain from the asset securitization. This decrease is largely due to lower service margins in our traditional equipment business and fixed costs associated with lower revenues for Technology Services. The gross margin on equipment sales was 33.0% compared to 32.5% in the first six months of fiscal 1999. This was due mainly to a significant increase in higher margin digital and color revenues as compared to the first six months of fiscal 1999. The gross margin on service and rentals decreased to 39.4% compared to 41.6% in the first six months of fiscal 1999. The decrease primarily resulted from fixed costs associated with lower Technology Service revenues and lower productivity in servicing new digital products, including the impact of new vendor and digital training programs. In the first quarter of fiscal 2000, the Company announced plans to improve performance and efficiency and incurred a total pre-tax restructuring and asset impairment charge (the "charge") of $105,340 ($78,479 after-tax, or $0.52 per share on a basic and diluted basis). These actions address under-performance in certain Technology Services, Business Document Services, and Business Information Services locations; as well as the Company's desire to strategically position these businesses for integration and profitable growth. Plans include consolidating or disposing of certain under-performing and non-core locations; implementing productivity enhancements through the consolidation and centralization of activities in inventory management, purchasing, finance/accounting and other administrative functions; and consolidating real estate through the co-location of business units as well as the disposition of unproductive real estate. Savings from the above programs are anticipated to be approximately $15,000 in fiscal 2000 and approximately $45,000 on an annualized basis beginning in fiscal 2001. The pre-tax components of the charge are as follows: Type of Charge Restructuring Charge: Severance $ 16,389 Contractual Commitments 37,403 -------- Total Restructuring Charge 53,792 -------- Asset Impairment Charge: Fixed Assets 12,668 Goodwill and Intangibles 38,880 -------- Total Asset Impairment Charge 51,548 -------- Total Charge $105,340 ======== The severance charge relates to the elimination of approximately 1,900 positions, while the charge for contractual commitments relates to lease commitments where the Company is exiting certain locations and/or businesses which are expected to be paid over the next 9 years. The Company commenced several actions specified under these initiatives in the first quarter of fiscal 2000, which continued through the second quarter. The following presents a reconciliation of the original components of the pre-tax restructuring charge to the balance remaining at March 31, 2000, which is included in other accrued expenses on the balance sheet:
Balance Balance September 30, Provision Payments March 31, 1999 Fiscal 2000 Fiscal 2000 2000 --------- ----------- ----------- --------- Severance $ -- $16,389 $ 5,017 $11,372 Contractual Commitments -- 37,403 3,057 34,346 --------- ------- ------- ------- Total $ -- $53,792 $ 8,074 $45,718 ========= ======= ======= =======
During the first six months of fiscal 2000 approximately 620 employees were terminated and left the Company and 13 facilities were closed. Selling and administrative expense as a percent of revenue was 31.8% for the first six months of fiscal 2000 compared to 33.3% in the prior year. Excluding $17,000 of insurance proceeds related to our shareholder litigation settlement, selling and administrative expense was 32.4% for the first six months of fiscal 2000 compared to 33.5% in the first six months of fiscal 1999, excluding the $14,333 gain from an asset securitization. The decrease was the result of centralizing certain key functions, adopting new credit controls, and productivity improvements within our business segments. Our operating income, excluding the $105,340 asset impairment and restructuring charges and the $17,000 of insurance proceeds related to our shareholder litigation settlement in fiscal 2000 and the $14,333 gain from an asset securitization in fiscal 1999, increased by $6,576 compared to the first six months of fiscal 1999. Our operating margin, excluding the special items noted above improved from 4.1% in the first six months of fiscal 1999 to 4.4% in the first six months of fiscal 2000. This resulted from the improved management of selling and administrative costs described above. Interest expense decreased by $4,922 in the first six months of fiscal 2000 compared to the first six months of fiscal 1999 as a result of lower average debt levels. There was a loss before taxes of $2,309 in the first six months of fiscal 2000 compared to income before taxes of $88,866 in the first six months of fiscal 1999. Excluding the restructuring and asset impairment charge and the insurance proceeds related to our shareholder litigation in fiscal 2000 and the gain from an asset securitization in fiscal 1999, income before taxes increased by $11,498 to $86,031 compared to $74,533 in the prior year. The increase was primarily due to the decrease in selling and administrative expenses and interest expense described above. The effective income tax rate for the first six months of fiscal 2000, excluding the effect of the asset impairment and restructuring charge and insurance proceeds, is 44.0% compared to 47.7%, excluding the gain from an asset securitization and a $4,000 benefit related to restructuring our European leasing operations, for the comparable period in fiscal 1999. The tax rate reduction was primarily due to the recording of benefits resulting from legislative changes that facilitated utilization of net operating losses that previously had a full valuation allowance. Diluted loss per common share was $0.14 for the first six months of fiscal 2000 compared to diluted earnings per share of $0.35 for the first six months of fiscal 1999. Excluding the after-tax effect of the special items described above, diluted earnings per common share were $0.32 in the first six months of fiscal 2000 compared to $0.29 in the first six months of fiscal 1999. Review of Business Segments --------------------------- During the first six months of fiscal 2000, we made the following changes to our segment reporting as a result of our restructuring program: IKON Document Services (included in Other in fiscal 1999) was split into Business Document Services ("BDS"), Legal Document Services ("LDS") and Business Imaging Services ("BIS"). BDS and LDS are aligned with and included in IKON North America and BIS remains in Other. Prior year results have been reclassified to conform with the current year presentation. IKON North America Revenues, excluding finance income, decreased by $3,414, or 0.2%, to $2,057,118 in the first six of fiscal 2000 from $2,060,532 in the first six months of fiscal 1999. The decrease was due to fewer sales representatives on average as compared to the prior year, minimal growth in Service and Rentals due to the closure of unprofitable or non-strategic document service locations associated with the restructuring program offset by strong net sales growth. Finance income increased by $7,040, or 4.9%, to $151,228 in the first six months of fiscal 2000 compared to $144,188 in the first six months of fiscal 1999. The increase was due to the repurchase of leases on October 7, 1999 offset by a $14,333 gain from an asset securitization in fiscal 1999. Operating income, excluding the gain from the asset securitization, increased by $2,827 to $186,489 in the first six months of fiscal 2000 from $183,662 in the first six months of fiscal 1999. The increase was due mainly to increased total revenue and the improved management of selling and administrative costs. IKON Europe Revenues, excluding finance income, decreased by $14,964, or 5.8%, to $244,292 in the the first six months of fiscal 2000 from $259,256 in the first six months of fiscal 1999. Finance income increased by $762, or 7.5%, to $10,939 in the first six months of fiscal 2000 from $10,177 in the first six months of fiscal 1999 due to growth in the lease portfolio. Operating income decreased by $6,533, or 48.4%, to $6,968 in the first six months of fiscal 2000 from $13,501 in the first six months of fiscal 1999 mainly due to the underperformance of technology services. Other Other revenues decreased by $45,663, or 15.5%, to $249,251 in the first six months of fiscal 2000 from $294,914 in the first six months of fiscal 1999. There was an operating loss of $33,754 in the first six months of fiscal 2000 compared to $708 in the first six months of fiscal 1999. The decrease in revenues and operating income was due to a significant decline in our traditional systems integration business as customers' demands have shifted from internal systems deployment and Y2K migration to external, Internet-based applications. The Company has developed an e-commerce business group to address this shift in market conditions. Subsequent Event ---------------- In May 2000, IKON Receivables, LLC filed a registration statement with the Securities and Exchange Commission to register the sale of $2,000,000 of lease-backed notes. Each series of notes which may be issued under the registration statement will be issued pursuant to an indenture. Impact of Year 2000 ------------------- April 2000 Update. Through April 30, 2000, our operations are fully functioning and have not experienced any significant issues associated with the Year 2000 problem. For further information, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in our report on Form 10-Q for the period ended December 31, 1999 and the Company's Annual Report on Form 10-K/A for its fiscal year ended September 30, 1999. Financial Condition and Liquidity --------------------------------- Net cash provided by operating activities for the first six months of fiscal 2000 was $84,079. During the same period, the Company used $444,867 of cash in investing activities, which included net finance subsidiary use of $375,586, acquisition activity at a cash cost of $3,745, capital expenditures for property and equipment of $52,175 and capital expenditures for equipment on operating leases of $22,146. Cash provided by financing activities of $408,747, includes a $119,375 net increase in corporate debt and a $340,280 increase in finance subsidiaries debt. Debt, excluding finance subsidiaries, was $978,419 at March 31, 2000, an increase of $119,375 from the debt balance at September 30, 1999 of $859,044. The debt to capital ratio, excluding finance subsidiaries, was 40.6% at March 31, 2000 compared to 37.0% at September 30, 1999. Excluding the impact of loans from our finance subsidiaries, our debt increased by $141,200 at March 31, 2000 compared to September 30, 1999. The increase was due mainly to payments related to the shareholder litigation settlement and the restructuring program. The increase in the Company's assets was due mainly to the repurchase of $275,000 of direct financing lease receivables in the first quarter of fiscal 2000. Restricted cash on the balance sheet represents cash collected on certain lease receivables which must be used to repay the lease-backed notes. As of March 31, 2000, short-term borrowings under a $600,000 credit agreement totaled $25,000. The Company also has $700,000 available for either stock or debt offerings under a shelf registration statement filed with the Securities and Exchange Commission. Finance subsidiaries debt increased by $340,280 from September 30, 1999, as a result of the issuance of lease-backed notes offset by payments on medium term notes and bank borrowings. During the six months ended March 31, 2000, the U.S. finance subsidiary repaid $647,861 of debt, $697,466 of lease-backed notes were issued and there was $250,000 of new bank borrowings. At March 31, 2000, $864,850 of medium term notes were outstanding with a weighted interest rate of 6.5%. In December 1999, the U.S. finance subsidiary entered into a new asset securitization agreement under which it received cash of $250,000. In October 1999, a portion of the cash received from the issuance of the lease-backed notes was used to repurchase the direct financing leases related to its previously existing $275,000 asset securitization program. During the first six months of fiscal 2000, our Canadian finance subsidiary sold CN$ 26,817 in leases under the Canadian CN$175,000 asset securitization agreement and received CN$24,672 in cash. The Company filed a shelf registration statement with the Securities and Exchange Commission to register the sale of 10,000 shares of common stock in April 1997. Shares issued under the registration statement may be used for acquisitions. Approximately 3,500 shares have been issued under this shelf registration through March 31, 2000, leaving 6,500 shares available for issuance. The Company believes that its operating cash flow together with unused bank credit facilities and other financing arrangements will be sufficient to finance current operating requirements including capital expenditures, acquisitions, dividends, stock repurchases and the remaining accrued costs associated with the Company's restructuring charge. Pending Accounting Changes -------------------------- In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It will require us to recognize all derivatives as either assets or liabilities and measure the instruments at fair value. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. We intend to adopt the standard on October 1, 2000. We do not believe the effect of adoption will be material. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. We are currently assessing SAB 101 and can not quantify the impact on our Company, if any, at this time. Any change resulting from the application of SAB 101 will be reported as a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes. We are required to begin reporting changes, if any, to our revenue recognition policy in the first quarter of fiscal year 2001. Item 3: Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk: Our exposure to market risk for changes in interest rates relates primarily to our long-term debt. We have no cash flow exposure due to interest rate changes for long-term debt obligations. We primarily enter into debt obligations to support general corporate purposes, including acquisitions, capital expenditures and working capital needs. Finance subsidiaries' long-term debt is used to fund the lease receivables portfolio. The carrying amounts for cash, accounts receivable, long-term receivables and notes payable reported in the consolidated balance sheets approximate fair value. Additional disclosures regarding interest rate risk are set forth in the Company's 1999 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission. Foreign Exchange Risk: The Company does not have significant foreign exchange risk. Foreign denominated intercompany debt borrowed in one currency and repaid in another is fixed via currency swap agreements. Forward-Looking Information --------------------------- This document includes or incorporates by reference information which constitutes forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding: the impact of e-commerce initiatives; growth opportunities, productivity initiatives, and the impact of the Company's revenue, margin, and cost-savings projections, expected savings from the repositioning program, anticipated growth rates in the digital equipment and outsourcing industries; the cost and completion date of the Company's Year 2000 remediation project (and the possible negative impact which might result from nonremediated systems of the Company and/or its vendors); the reorganization of the Company's business segments; and the Company's ability to finance its current operations and growth initiatives. Although the Company believes such forward-looking statements are reasonable, based on management's current plans and expectations, the statements are 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, and therefore, no assurances can be given that such statements will prove correct. These uncertainties and risks include, but are not limited to, risks and uncertainties relating to: conducting operations in a competitive environment and a changing industry (which includes technical services and products that are relatively new to the industry and to the Company); delays, difficulties, management transitions and employment issues associated with consolidations and/or changes in business operations; managing the integration of acquired businesses; existing and future vendor relationships; risks relating to currency exchange; economic, legal and political issues associated with international operations; potential Year 2000 deficiencies associated with the operation of IKON's internal systems and distributed products; the Company's ability to access capital and its debt service requirements (including sensitivity to fluctuation in interest rates); and general economic conditions. Certain additional risks and uncertainties are set forth in the Company's 1999 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission. As a consequence, future results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. PART II. OTHER INFORMATION - --------------------------- Item 4: Submission of Matters to a Vote of Security Holders On February 23, 2000, the Company held its annual meeting of shareholders at which time nine directors were elected to hold office until the election of their successors. The Company's Non-Employee Director Compensation Plan and Executive Incentive Plan were also approved.
For Against Withheld ----------- ---------- ---------- Judith M. Bell 131,274,462 3,183,109 James R. Birle 131,542,085 2,915,487 Philip E. Cushing 131,510,468 2,947,103 James J. Forese 131,364,005 3,093,562 Robert M. Furek 131,545,296 2,912,275 Thomas R. Gibson 131,560,391 2,897,180 Richard A. Jalkut 131,500,759 2,956,812 Arthur E. Johnson 130,993,067 3,464,504 Kurt M. Landgraf 131,205,094 3,252,477 Non-Employee Director Compensation Plan 116,386,931 17,029,126 1,041,513 Executive Incentive Plan 116,252,384 17,173,769 1,031,418
Item 5: Other Information Effective July 21, 2000, Marilyn Ware has been elected to serve as a member of the Company's Board of Directors. A copy of the press release dated May 3, 2000 announcing her election is attached hereto as Exhibit No. 99. Item 6: Exhibits and Reports on Form 8-K (a) The following Exhibits are furnished pursuant to Item 601 of Regulation S-K: Exhibit No. (27) Financial Data Schedule Exhibit No. (99) Press Release dated May 3, 2000 (b) Reports on Form 8-K On January 5, 2000, the Company filed a Current Report on Form 8-K/A to file, under Item 4 of the form, information regarding the appointment of PricewaterhouseCoopers LLP as its independent auditors for the fiscal year ending September 30, 2000 to replace the firm of Ernst & Young LLP who were dismissed as auditors of the Company effective with their completion of their audit of the Company's financial statements for the fiscal year ended September 30, 1999. On February 4, 2000, 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 January 26, 2000 regarding the results for the first quarter of fiscal 2000 as well as announcing that Kurt M. Landgraf had been elected to serve as a member of the Company's Board of Directors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. This report has also been signed by the undersigned in his capacity as the chief accounting officer of the Registrant. IKON OFFICE SOLUTIONS, INC. Date May 15, 2000 /s/ William S. Urkiel -------------------------- -------------------------- William S. Urkiel Senior Vice President and Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from the consolidated financial statements of IKON Office Solutions, Inc. and subsidiaries and is qualified in its entirety by reference to such financial statements. 0000003370 IKON OFFICE SOLUTIONS, INC. 1,000 6-MOS SEP-30-2000 MAR-31-2000 51,345 0 733,349 44,837 379,124 2,451,399 781,525 453,435 6,172,539 2,486,123 1,696,185 0 0 1,016,039 415,886 6,172,539 1,396,411 2,712,828 935,166 1,713,395 968,122 15,421 33,620 (2,309) 18,474 (20,783) 0 0 0 (20,783) (0.14) (0.14) Includes equipment on operating leases, at cost, of $233,016 Includes accumulated depreciation for equipment on operating leases of $152,062 Includes Finance Subsidiaries interest of $78,960 Represents selling, general and administrative expenses and restructuring and asset impairment charge.
EX-99 3 Exhibit 99 IKON Office Solutions [LOGO] P.O. Box 834 Valley Forge, PA 19482-0834 70 Valley Stream Parkway Malvern, PA 19355 News Release --------------------------------------------------------------------------- Contacts: Veronica L. Rosa Steven K. Eck Investor Relations Media Relations 610-408-7196 610-408-7295 vrosa@ikon.com seck@ikon.com - ------------------ ----------------- IKON OFFICE SOLUTIONS APPOINTS NEW BOARD MEMBER Marilyn Ware Elected to Board of Directors Valley Forge, Pennsylvania - May 3, 2000 - IKON Office Solutions (NYSE: IKN) today announced that Marilyn Ware has been elected a member of the Company's Board of Directors. This appointment fills the vacancy created by the retirement of Barbara Barnes Hauptfuhrer. "We are pleased to have Marilyn Ware join our Board of Directors," said James J. Forese, Chairman and Chief Executive Officer of IKON Office Solutions. "Ms. Ware's diverse experiences in business leadership and community service will be a strong asset to IKON's Board." Ware, 56, is Chairman of the Board of Directors for American Water Works Company, Inc., Voorhees, N.J., the largest U.S.-based investor-owned water service enterprise. She served as Vice Chairman of the Board from 1984 to 1988. Prior to joining American Water Works, Ware was President of the Solanco Publishing Company and President and Publisher of The Sun-Ledger from 1978 to 1982. She has worked as a public relations consultant and a freelance writer and editor for various publications. Ware attended American University and the University of Pennsylvania. Ware currently serves as a board member of CIGNA Corporation, an international Fortune 500 company. She also has served as a board member of Penn Fuel Gas Company, Inc., and PPL Resources. Ware is currently a member of the Board of Trustees for: the National Osteoporosis Foundation; National Council of The Conservation Fund; Gannon University; University of Pennsylvania Health System; The American Enterprise Institute for Public Policy Research, which sponsors original research on government policy, economy and politics; and Eisenhower Exchange Fellowships, which establishes and nurtures the exchange of communications among leaders with fellows representing more than 100 countries, advancing democracy and productivity around the globe. IKON Office Solutions (www.ikon.com) is one of the world's leading providers of products and services that help businesses communicate. IKON provides customers with total business solutions for every office, production and outsourcing need, including copiers and printers, color solutions, distributed printing, facilities management, imaging and legal outsourcing solutions, as well as network design and consulting, application development and technology training. With fiscal 1999 revenues of $5.5 billion, IKON has approximately 900 locations worldwide including the United States, Canada, Mexico, the United Kingdom, France, Germany, Ireland and Denmark. # # # -----END PRIVACY-ENHANCED MESSAGE-----