EX-99.1 2 exhibit1.htm EX-99.1 EX-99.1

Exhibit 99.1

IKON ANNOUNCES FOURTH QUARTER AND FISCAL YEAR 2008 RESULTS
Fourth Quarter EPS of $0.31 Excluding Items; EPS of $0.23 as Reported
Fiscal Year 2008 EPS of $1.07 Excluding Items; EPS of $0.91 as Reported

MALVERN, Pa.—October 22, 2008 – IKON Office Solutions (NYSE:IKN), the world’s largest independent channel for document management systems and services, today reported results for the fourth quarter and fiscal year, which ended September 30, 2008. For the fourth quarter, earnings per diluted share were $0.23, including restructuring and asset impairment charges related to the Company’s Off-site Managed Services business and costs associated with the Company’s pending acquisition by Ricoh Company, Ltd. Excluding these non-recurring items, earnings per diluted share were $0.31. These results were in line with the Company’s previously communicated guidance including a $0.05 per share benefit from the favorable closure of a tax audit. In the fourth quarter of fiscal 2007, the Company earned $0.23 per diluted share.

Total revenue for the fourth quarter of fiscal 2008 was $1.1 billion. As reported, operating income was $39.3 million and operating income margin was 3.7 percent in the quarter. Excluding the restructuring and asset impairment charges and the acquisition-related costs totaling $12.4 million, operating income was $51.7 million and operating income margin was 4.9 percent. Interest expense, net of interest income, increased $3 million year over year to $13 million, and weighted average fully diluted shares declined 20 percent to approximately 97 million, primarily due to the financing associated with the Company’s share repurchase activity in the first quarter. The Company’s effective tax rate for the fourth quarter was 17 percent as reported, compared with 28 percent in the prior-year quarter, due to the favorable closure of federal income tax audits and the expiration of certain statutes of limitations. Net income for the quarter was $22 million and included $8 million in after-tax charges from non-recurring items. Excluding these items, net income was $30 million.

For fiscal year 2008, earnings per diluted share were $0.91, including restructuring and asset impairment charges, acquisition-related costs and a loss from the early extinguishment of debt. Excluding these non-recurring items, earnings per diluted share were $1.07. In fiscal 2007, the Company earned $0.91 per diluted share.
Total revenue was $4.2 billion in fiscal 2008, essentially flat year over year, including a currency benefit of 1 percentage point. Net income for fiscal 2008 was $91.3 million and included $15.3 million in after-tax charges from non-recurring items. Excluding these items, net income was $106.6 million.

Balance Sheet and Cash Flow
The Company’s cash increased $110 million in the quarter to $216 million driven by strong operating cash flow. The Company generated $272 million of cash from operations in fiscal 2008, compared with $172 million in fiscal 2007. Capital expenditures on operating leases and property and equipment, net of proceeds, totaled $45 million in fiscal 2008, compared with $53 million in fiscal 2007. As a result, free cash flow was $227 million in fiscal 2008, compared with $119 million in fiscal 2007.

The Company paid $4 million, or $0.04 per share, of dividends to shareholders during the quarter. At September 30, 2008, actual shares outstanding were approximately 95 million.

Pending Acquisition by Ricoh

On August 27, 2008, IKON announced it had entered into a definitive agreement to be acquired by Ricoh Company, Ltd. for $17.25 per share. The transaction, which was approved by the Boards of Directors of both companies, is subject to regulatory approval in the U.S., Canada and Europe, customary closing conditions and IKON shareholder approval. On October 31, 2008, IKON shareholders will vote on the pending acquisition. For more information on the proposed transaction, see the definitive proxy statement filed on October 3, 2008, which is available on the Investor Relations section of IKON’s web site (www.ikon.com).

About IKON
IKON Office Solutions, Inc. is the world’s largest independent channel for document management systems and services, enabling customers to improve document workflow and increase efficiency. IKON integrates best-in-class copiers, printers and MFP technologies from leading manufacturers and document management software and systems, to deliver tailored, high-value solutions implemented and supported by its global services organization — IKON Enterprise Services. With fiscal year 2008 revenue of $4.2 billion, IKON has approximately 24,000 employees in over 400 locations throughout North America and Western Europe.

The Company has reported its financial results in accordance with generally accepted accounting principles (GAAP). In addition, this news release contains certain non-GAAP financial measures such as free cash flow, adjusted operating income and income margin, and adjusted EPS.  

Free cash flow is defined as cash from operations less expenditures for property and equipment, less expenditures for equipment on operating leases, plus proceeds from the sale of property and equipment and equipment on operating leases.  IKON believes free cash flow is useful because it provides insight into the amount of cash that the Company has available for discretionary uses, after expenditures for capital commitments.

Adjusted operating income and operating income margin exclude the restructuring and asset impairment charges and acquisition-related costs. Adjusted net income and adjusted EPS exclude restructuring and asset impairment charges, acquisition-related costs and a loss from the early extinguishment of debt. IKON believes these measures provide investors with useful indications of the performance of IKON’s ongoing operations and financial position.

The reader is encouraged to evaluate these non-GAAP financial measures and the reasons IKON considers them useful for supplemental analysis.

IKON Office Solutions® and IKON: Document Efficiency at Work® are trademarks of IKON Office Solutions, Inc. All other trademarks are the property of their respective owners.

(FIKN)
# # #

1

                                 
IKON Office Solutions, Inc.                
Consolidated Balance Sheets                
(unaudited)                
(in thousands)                
        September 30,
        2008       2007
Assets
                                
Cash and cash equivalents
           $ 216,236             $ 349,237  
Accounts receivable, net
             529,629               552,776  
Lease receivables, net
             74,757               84,207  
Inventories
             237,289               287,503  
Prepaid expenses and other current assets
             33,955               35,025  
Income taxes receivable
             2,067               —  
Deferred taxes
             41,955               48,167  
 
                                
Total current assets
             1,135,888               1,356,915  
 
                                
Long-term lease receivables, net
             247,051               251,776  
Equipment on operating leases, net
             53,906               72,052  
Property and equipment, net
             139,479               154,218  
Deferred taxes
             14,946               18,144  
Goodwill
             1,296,576               1,333,249  
Other assets
             78,488               84,354  
 
                                
Total Assets
           $ 2,966,334             $ 3,270,708  
 
                                
 
                                
Liabilities
                                
Current portion of corporate debt
           $ 3,915             $ 16,798  
Current portion of non-corporate debt
             60,229               51,077  
Trade accounts payable
             268,520               263,657  
Accrued salaries, wages and commissions
             117,133               93,052  
Deferred revenues
             107,099               109,796  
Income taxes payable
             —               15,240  
Other accrued expenses
             128,478               129,323  
 
                                
Total current liabilities
             685,374               678,943  
 
                                
Long-term corporate debt
             574,987               576,199  
Long-term non-corporate debt
             162,635               181,334  
Other long-term liabilities
             135,347               128,211  
 
                                
Total Shareholders’ Equity
             1,407,991               1,706,021  
 
                                
Total Liabilities and Shareholders’ Equity
           $ 2,966,334             $ 3,270,708  
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                
 
                                

2

                 
IKON Office Solutions, Inc.
Income Statement and Operational Analysis (in thousands, except earnings per share)
(unaudited)
    Three Months Ended September 30,
    2008   2007
Revenues
                
Equipment
   $ 459,703     $ 470,080  
Customer service and supplies
     345,549       340,505  
Managed and professional services
     204,225       203,110  
Rental and fees
     34,114       34,736  
Other
     15,229       16,277  
 
                
 
     1,058,820       1,064,708  
 
                
Cost of Revenues
                
Equipment
     350,620       357,035  
Customer service and supplies
     197,301       187,979  
Managed and professional services
     145,417       146,790  
Rental and fees
     7,293       7,911  
Other
     8,784       10,893  
 
                
 
     709,415       710,608  
 
                
Gross Profit
                
Equipment
     109,083       113,045  
Customer service and supplies
     148,248       152,526  
Managed and professional services
     58,808       56,320  
Rental and fees
     26,821       26,825  
Other
     6,445       5,384  
 
                
 
     349,405       354,100  
Selling and administrative
     297,743       305,536  
Restructuring charge
     5,698       —  
Asset impairment
     200       —  
Transactional costs associated with pending acquisition of IKON
     6,479       —  
 
                
Operating income
     39,285       48,564  
Interest income
     732       2,500  
Interest expense
     13,847       12,949  
 
                
Income before taxes on income
     26,170       38,115  
Taxes on income
     4,377       10,484  
 
                
Net income
   $ 21,793     $ 27,631  
 
                
Basic Earnings Per Common Share
   $ 0.23     $ 0.23  
 
                
Diluted Earnings Per Common Share
   $ 0.23     $ 0.23  
 
                
Cash Dividends Per Common Share
   $ 0.04     $ 0.04  
 
                
Weighted Average Common Shares Outstanding, Basic
     94,397       120,160  
 
                
Weighted Average Common Shares Outstanding, Diluted
     96,730       121,610  
 
                
Operational Analysis:
                
Gross profit %, equipment
     23.7 %     24.0 %
Gross profit %, customer service and supplies
     42.9 %     44.8 %
Gross profit %, managed and professional services
     28.8 %     27.7 %
Gross profit %, rental and fees
     78.6 %     77.2 %
Gross profit %, other
     42.3 %     33.1 %
Total gross profit %
     33.0 %     33.3 %
Selling and administrative as a % of revenue
     28.1 %     28.7 %
Operating income as a % of revenue
     3.7 %     4.6 %

3

                 
IKON Office Solutions, Inc.
Income Statement and Operational Analysis (in thousands, except earnings per share)
(unaudited)
    Fiscal Year Ended September 30,
    2008   2007
Revenues
                
Equipment
   $ 1,751,306     $ 1,787,730  
Customer service and supplies
     1,386,957       1,377,669  
Managed and professional services
     831,805       796,962  
Rental and fees
     130,917       136,674  
Other
     65,568       69,309  
 
                
 
     4,166,553       4,168,344  
 
                
Cost of Revenues
                
Equipment
     1,308,035       1,346,244  
Customer service and supplies
     798,788       778,013  
Managed and professional services
     594,526       580,164  
Rental and fees
     29,629       34,650  
Other
     41,469       46,094  
 
                
 
     2,772,447       2,785,165  
 
                
Gross Profit
                
Equipment
     443,271       441,486  
Customer service and supplies
     588,169       599,656  
Managed and professional services
     237,279       216,798  
Rental and fees
     101,288       102,024  
Other
     24,099       23,215  
 
                
 
     1,394,106       1,383,179  
Selling and administrative
     1,184,080       1,180,326  
Restructuring charge
     11,259       —  
Asset impairment
     200       —  
Transactional costs associated with pending acquisition of IKON
     6,479       —  
 
                
Operating income
     192,088       202,853  
Loss from the early extinguishment of debt
     5,702       —  
Interest income
     5,005       11,372  
Interest expense
     59,661       50,791  
 
                
Income before taxes on income
     131,730       163,434  
Taxes on income
     40,395       48,947  
 
                
Net income
   $ 91,335     $ 114,487  
 
                
Basic Earnings Per Common Share
   $ 0.92     $ 0.92  
 
                
Diluted Earnings Per Common Share
   $ 0.91     $ 0.91  
 
                
Cash Dividends Per Common Share
   $ 0.16     $ 0.16  
 
                
Weighted Average Common Shares Outstanding, Basic
     98,931       124,563  
 
                
Weighted Average Common Shares Outstanding, Diluted
     99,974       126,342  
 
                
Operational Analysis:
                
Gross profit %, equipment
     25.3 %     24.7 %
Gross profit %, customer service and supplies
     42.4 %     43.5 %
Gross profit %, managed and professional services
     28.5 %     27.2 %
Gross profit %, rental and fees
     77.4 %     74.6 %
Gross profit %, other
     36.8 %     33.5 %
Total gross profit %
     33.5 %     33.2 %
Selling and administrative as a % of revenue
     28.4 %     28.3 %
Operating income as a % of revenue
     4.6 %     4.9 %

4

                                         
IKON Office Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands and unaudited)                   Fiscal Year Ended September 30,
Cash Flows from Operating Activities                   2008   2007
   Net income
                   $ 91,335     $ 114,487  
   Additions (deductions) to reconcile net income to net cash provided by operating activities:
                
      Depreciation
             72,782       68,719  
      Amortization
             1,080       1,010  
      Other non-cash items
             3,325       2,394  
      Loss on disposal of property and equipment
     2,634       759  
      Provision for losses on accounts and lease receivables
     7,397       6,940  
      Restructuring charge
             11,259       —  
      Asset impairment
             200          
      Provision for deferred income taxes
     32,245       6,333  
      Stock-based compensation expense
     10,277       9,637  
      Excess tax benefits from stock-based payments arrangements
     (984 )     (1,740 )
      Pension expense
             4,341       2,372  
      Loss from the early extinguishment of debt
     5,702       -  
      Changes in operating assets and liabilities:
                
         (Increase) decrease in accounts receivables
     (1,055 )     40,624  
         (Increase) decrease in finance lease receivables
     (10,035 )     4,019  
         Decrease (increase) in inventories
     45,494       (67,893 )
         Increase in prepaid expenses and other assets
     (6,508 )     (3 )
         Increase in accounts payable
     11,183       33,523  
         Increase (decrease) in deferred revenue
     1,831       (12,858 )
         Payments related to restructuring plans
     (3,606 )     —  
         Increase (decrease) in accrued expenses
     22,144       (28,040 )
         Contributions to pension plans
     (3,422 )     (9,725 )
         (Decrease) increase in income taxes payable
     (25,485 )     1,262  
      Other
             —       80  
 
                                        
      Net cash provided by operating activities
     272,134       171,900  
 
                                        
Cash Flows from Investing Activities
                                
Expenditures for property and equipment
                     (33,101 )     (34,269 )
Expenditures for equipment on operating leases
                     (22,772 )     (29,600 )
Proceeds from the sale of property and equipment and equipment on operating leases
     10,886       11,015  
Proceeds from life insurance
                     4,366       5,821  
Other
                             (4,264 )     (2,124 )
 
                                        
      Net cash used in investing activities
     (44,885 )     (49,157 )
 
                                        
Cash Flows from Financing Activities
                                
Repayment of other borrowings
                     (5,859 )     (66 )
Debt issuance costs
                             (3,970 )     —  
Debt modification costs
                             —       (16,430 )
Corporate debt — issuances
                     152,051       -  
Corporate debt — repayments
                     (172,072 )     (2,598 )
Non-corporate debt — issuances
                     22,566       158,244  
Non-corporate debt — repayments
                     (20,595 )     (166,225 )
Dividends paid
                             (15,903 )     (20,048 )
Proceeds from stock option exercises
                     10,517       17,944  
Excess tax benefits from stock-based payments arrangements
             984       1,740  
Purchase of treasury shares
                     (316,988 )     (174,968 )
 
                                        
      Net cash used in financing activities
     (349,269 )     (202,407 )
 
                                        
Effect of exchange rate changes on cash and cash equivalents
             (10,981 )     14,662  
 
                                        
Net decrease in cash and cash equivalents
                     (133,001 )     (65,002 )
Cash and cash equivalents at beginning of year
                     349,237       414,239  
 
                                        
Cash and cash equivalents at end of year
                   $ 216,236     $ 349,237  
 
                                        
Non-cash investing and financing activities:
                                
Assets acquired under capital leases
                   $ 3,270     $ 15,406  
 
                                        

5