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

Exhibit 99.1

IKON ANNOUNCES FOURTH QUARTER
AND FISCAL YEAR 2006 RESULTS

Full Year and Fourth Quarter EPS Exceed Company Guidance

Malvern, Pa. – October 26, 2006 – IKON Office Solutions (NYSE:IKN), the world’s largest independent channel for document management systems and services, today reported results for the fiscal year and fourth quarter ended September 30, 2006. Net income from continuing operations for fiscal year 2006 was $106 million, or $0.80 per diluted share, including a $0.01 net benefit from the gain on the sale of Kafevend, partially offset by a loss from the early extinguishment of debt. Excluding this net benefit, diluted earnings per share were $0.79, representing a 33% increase over the adjusted $0.59 last year and exceeding the Company’s previously communicated guidance of $0.75 to $0.77. As reported, earnings per diluted share from continuing operations increased 56%.

Total revenue for fiscal year 2006 was $4.2 billion, a decline of 3% compared to $4.4 billion in fiscal year 2005. This decline was consistent with the Company’s revenue guidance of a 3% to 4% decline, and was driven by the decision to sell or exit unprofitable and non-strategic businesses. Targeted revenue, which represents 98% of total revenue, was flat year over year, and consistent with the Company’s guidance of flat to up 1%.

Selling and Administrative expenses declined $145 million year over year and represented 29.6% of revenue in fiscal year 2006, achieving the Company’s expense-to-revenue goal of less than 30%. This expense reduction contributed to an increased operating income margin of 4.8% for fiscal year 2006. Excluding the gain on the sale of Kafevend, the Company’s operating income margin was 4.7%.

“We made significant progress in fiscal year 2006 delivering on the goals we set last year at our November 2005 investor conference. Our adjusted earnings per diluted share were $0.79, exceeding both our initial projection of $0.70 to $0.75 and our recently increased guidance of $0.75 to $0.77. I am pleased with our performance and with the contributions made by all IKON employees to deliver these solid results,” said Matthew J. Espe, IKON’s Chairman and Chief Executive Officer.

Fourth Quarter 2006 Financial Details
For the fourth quarter of fiscal year 2006, net income from continuing operations was $26 million, or $0.20 per diluted share, representing a 31% increase over the adjusted $0.15 in the fourth quarter of fiscal year 2005 and exceeding the Company’s guidance of $0.17 to $0.19. As reported, earnings per diluted share from continuing operations increased 48%. Total revenue for the fourth quarter of fiscal year 2006 was $1.06 billion, down 4% year over year. Targeted revenue declined 2% compared to the same quarter last year.

Equipment Revenue of $459 million, which includes the sale of copier/printer multifunction products, declined 3% against a strong fourth quarter of fiscal year 2005. The year-over-year decline was driven primarily by lower revenue in the black and white office market due to continued pricing pressures in line with industry trends and a mix shift in the quarter toward lower-priced segments. Color revenue declined year over year driven by product transitions and customer buying delays in anticipation of new products, including the IKON CPP TM 650, which was launched this month. Gross margin on equipment was 25.5%, down from 25.9% in the same quarter a year ago, due to ongoing pricing pressures, as expected.

Customer Service and Supplies revenue of $351 million, which includes revenue from the servicing of copier/printer equipment and direct sales of supplies, decreased 3% year over year. The Company continued to experience a decrease in revenue per copy, contributing to the overall Customer Service revenue decline. The Company believes this year-over-year trend is likely to continue into fiscal year 2007, although improvement is expected as the year progresses. Gross margin on Customer Service and Supplies decreased to 44.4% from 46.7% a year ago as a result of lower revenue in Customer Service.

Managed and Professional Services revenue of $192 million, which includes both on-site and off-site Managed Services, as well as Professional Services, increased 9% compared to the fourth quarter of fiscal year 2005. This strong performance resulted from 10% revenue growth in on-site Managed Services and 29% revenue growth in Professional Services, partially offset by a 1% decline in off-site Managed Services. Gross margin on Managed and Professional Services increased 360 basis points to 27.5% from 23.9% a year ago as a result of improved on-site Managed Services contract profitability in both North America and Europe and better cost management in off-site Managed Services.

Rental and Fees revenue of $34 million decreased 27%, and gross margin decreased to 67.5% from 68.9% a year ago, driven primarily by the sale of the U.S. retained lease portfolio in the third quarter of fiscal year 2006. Other revenue of $22 million decreased 47% compared to the fourth quarter of fiscal year 2005, due primarily to the Company’s decision to sell or exit unprofitable and non-strategic businesses.

Targeted revenue includes all revenues except those categorized as “Other.” Other revenue includes finance income and revenue generated by the remaining technology services and hardware businesses. Prior to fiscal year 2006, Other revenue also included revenue from the Company’s operating subsidiaries in France and Mexico, which were sold during fiscal year 2005, and revenue from Kafevend, which was sold in the first quarter of fiscal year 2006.

Selling and Administrative expenses were $312 million in the fourth quarter of fiscal year 2006, down 13% year over year. S&A expenses represented 29.5% of revenue and were below 30% for the third consecutive quarter. Operating income margin in the fourth quarter increased to 4.1% and the effective tax rate was 26%.

Balance Sheet and Liquidity
Cash was $414 million as of September 30, 2006, and cash from operations totaled $98 million for fiscal year 2006, even after payment of $130 million for income taxes related to the U.S. retained lease portfolio and contributions of $100 million to IKON’s defined benefit pension plans. The Company’s solid cash flow for the year was driven by improvements in net income and working capital, including a $92 million reduction in accounts receivable and a $29 million reduction in inventory, partially offset by a $24 million decrease in accounts payable. Capital expenditures on operating rentals and property and equipment, net of proceeds, totaled $57 million for the year, compared to $48 million for fiscal year 2005. The Company’s total debt-to-capital ratio decreased to 33% as of September 30, 2006, from 44% as of September 30, 2005, as a result of debt reductions totaling $442 million, including $134 million of corporate debt.

For the fourth quarter, fully diluted weighted average shares were 131 million. At the end of the quarter, actual shares outstanding were 128 million, a reduction of 5% year over year driven by the Company’s share repurchase program. The Company purchased 3 million shares of common stock for $40 million during the fourth quarter. For fiscal year 2006, the Company purchased a total of 11 million shares for $131 million, achieving the Company’s previously communicated guidance of more than $120 million. For fiscal year 2006, the Company maintained its dividend strategy and paid $21 million in dividends or $0.16 per share. IKON’s Board of Directors approved the Company’s regular quarterly cash dividend of $0.04 per common share, payable on December 10, 2006 to holders of record at the close of business on November 20, 2006.

Outlook
“Our ability to accomplish the goals we set out at the beginning of fiscal year 2006 positions us well for another solid year as we enter fiscal 2007,” Espe said. “Our strategy is to further accelerate our color equipment placement growth and increase our color page volume mix to help us offset the expected decline in black and white revenue per copy. We expect this acceleration to be driven by the unprecedented new color product launches from Canon, Ricoh and Konica Minolta, which will expand our color product portfolio and differentiate our offerings in the marketplace. We also anticipate continued growth in Managed and Professional Services.

“For fiscal year 2007, we expect earnings per diluted share from continuing operations to range between $0.90 and $0.95. This range represents an EPS increase of up to 20% year over year. We also anticipate total revenue to be flat to down 1% and targeted revenue to be flat to up 1%. Cash from operations is expected to range between $170 million and $190 million and net capital expenditures between $70 million and $90 million. As a result, we expect free cash flow of $80 million to $120 million, or up to three times what we generated in fiscal year 2006. Our effective tax rate for fiscal 2007 is expected to be between 36% and 37%. For the first quarter of fiscal year 2007, we expect earnings per diluted share to range between $0.20 and $0.22. As in prior years, we anticipate operating activities to use cash in the first quarter.”

About IKON
IKON Office Solutions, Inc. (www.ikon.com), the world’s largest independent channel for copier, printer and MFP technologies, delivers integrated document management solutions and systems, enabling customers worldwide to improve document workflow and increase efficiency. IKON integrates best-in-class systems from leading manufacturers, such as Canon, Ricoh, Konica Minolta, EFI and HP, and document management software from companies like Captaris, Kofax, eCopy and others, to deliver tailored, high-value solutions implemented and supported by its global services organization—IKON Enterprise Services. With fiscal year 2006 revenue of $4.2 billion, IKON has approximately 25,000 employees in over 400 locations throughout North America and Western Europe.

 
 
QUARTERLY EARNINGS CONFERENCE CALL: Additional information regarding the
fourth quarter and fiscal year 2006 results and the Company’s outlook for
fiscal year 2007 will be discussed on a conference call hosted by IKON at
10:00 a.m. ET on Thursday, October 26, 2006. The live audio broadcast of the
call, with slides, can be accessed on IKON’s Investor Relations homepage or
by calling (201) 689-8261. A complete replay of the conference call will
also be available on IKON’s Investor Relations homepage approximately two
hours after the call ends through the next quarterly reporting period. To
listen, please go to www.ikon.com and click on Investor Relations. Beginning
at 1:00 p.m. ET on October 26, 2006 and ending at midnight ET on October 31,
2006, a complete replay of the conference call can also be accessed via
telephone by calling (877) 660-6853 or (201) 612-7415 and entering account
number 270 and conference number 216254.
 
NON-GAAP INFORMATION: IKON will refer to certain non-GAAP measures during
the conference call, which IKON believes provide a reasonable basis on which
to present adjusted financial information that provides investors with a
useful indication of the performance of IKON’s ongoing operations and
financial position. This adjusted financial information should not be
construed as an alternative to our reported results determined in accordance
with GAAP. A reconciliation of these non-GAAP financial measures to GAAP can
be found within the slide presentation.
MARK YOUR CALENDAR: IKON’s first quarter fiscal year 2007 results will be
discussed on Thursday, January 25, 2007, on a conference call hosted at 10:00
a.m. ET. More information on how to access the audio broadcast and replay
will be provided at a later date.

This news release includes information that may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to, statements relating to our expected first quarter and full fiscal year 2007 results from continuing operations, color product strategies, and our ability to execute on our strategic priorities, including growth objectives, improved operating efficiency and balanced capital strategy. Although IKON believes the expectations contained in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove correct. Such forward-looking statements are based upon management’s current plans or expectations and are subject to a number of risks and uncertainties set forth in our filings with the Securities and Exchange Commission. As a consequence of these and other risks and uncertainties, IKON’s current plans, anticipated actions and future financial condition and results may differ materially from those expressed in any forward-looking statements. This news release also refers to certain non-GAAP financial measures, which IKON believes provide a reasonable basis on which to present adjusted financial information that provides investors with a useful indication of the performance of IKON’s ongoing operations and financial position. This adjusted financial information should not be construed as an alternative to our reported results determined in accordance with GAAP.

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

(FIKN)
# # #

1

                                                         
    IKON Office Solutions, Inc.                                                
    Income Statement and Operational Analysis (in thousands, except earnings per share)                                
    (unaudited)                    
                    Fourth Quarter Fiscal        
                    2006                   2005        
 
   Revenues                                                
 
   Equipment
           $ 459,176                     $ 475,153          
 
   Customer service and supplies
             351,368                       363,516          
 
   Managed and professional services
             191,870                       175,468          
 
   Rental and fees
             33,546                       45,776          
 
   Other
             22,020                       41,369          
 
                     1,057,980                       1,101,282          
 
                                                        
 
                                                        
 
   Cost of Revenues                                                
 
   Equipment
             342,149                       352,220          
 
   Customer service and supplies
             195,212                       193,872          
 
   Managed and professional services
             139,040                       133,493          
 
   Rental and fees
             10,919                       14,258          
 
   Other
             14,442                       20,887          
 
                     701,762                       714,730          
 
                                                        
 
                                                        
 
   Gross Profit                                                
 
   Equipment
             117,027                       122,933          
 
   Customer service and supplies
             156,156                       169,644          
 
   Managed and professional services
             52,830                       41,975          
 
   Rental and fees
             22,627                       31,518          
 
   Other
             7,578                       20,482          
 
                     356,218                       386,552          
 
                                                        
 
                                                        
 
   Selling and administrative             311,999                       359,776          
 
   (Loss) gain on divestiture of businesses and assets             (463 )                     9,651          
 
   Asset impairment and restructuring (benefit) charge             (58 )                     (788 )        
 
                                                        
 
   Operating income             43,814                       37,215          
 
                                                        
 
   Loss from the early extinguishment of debt
             19                       4,300          
 
   Interest income
             3,980                       2,244          
 
   Interest expense
             11,978                       12,687          
 
                                                        
 
   Income from continuing operations before taxes on income
             35,797                       22,472          
 
   Taxes on income
             9,419                       3,271          
 
                                                        
 
   Income from continuing operations
             26,378                       19,201          
 
   Discontinued Operations:                                                
 
   Operating loss
             (63 )                     (1,299 )        
 
   Tax benefit
             25                       513          
 
                                                        
 
   Net loss from discontinued operations
             (38 )                     (786 )        
 
   Net income
           $ 26,340                     $ 18,415          
 
                                                        
 
                                                        
 
   Basic Earnings (Loss) Per Common Share                                                
 
   Continuing operations
   $         0.20             $         0.14          
 
   Discontinued operations
             0.00                       (0.01 )        
 
                                                        
 
   Net income
           $ 0.20             $         0.13          
 
                                                        
 
                                                        
 
   Diluted Earnings (Loss) Per Common Share                                                
 
   Continuing operations
   $         0.20             $         0.14          
 
   Discontinued operations
             0.00                       (0.01 )        
 
                                                        
 
   Net income
           $ 0.20             $         0.13       (a )
 
                                                        
 
                                                        
 
   Weighted Average Common Shares Outstanding, Basic             129,027                       137,865          
 
                                                        
 
                                                        
 
   Weighted Average Common Shares Outstanding, Diluted             130,574                       151,806          
 
                                                        
 
                                                        
 
   Operational Analysis:
                                                
 
   Gross profit %, equipment
             25.5 %                     25.9 %        
 
   Gross profit %, customer service and supplies
             44.4 %                     46.7 %        
 
   Gross profit %, managed and professional services
             27.5 %                     23.9 %        
 
   Gross profit %, rental and fees
             67.5 %                     68.9 %        
 
   Gross profit %, other
             34.4 %                     49.5 %        
 
   Total gross profit %
             33.7 %                     35.1 %        
 
   Selling and administrative as a % of revenue
             29.5 %                     32.7 %        
 
   Operating income as a % of revenue
             4.1 %                     3.4 %        
(a)   The calculation of diluted earnings per common share for the three months ended September 30, 2005 assumes the conversion of convertible notes resulting in 12,921 shares. For purposes of calculating diluted earnings per common share, net income for the three months ended September 30, 2005 includes the add-back of $1,481, representing interest expense, net of taxes, associated with such convertible notes.
        
 
                                                        

2

                                                         
    IKON Office Solutions, Inc.                        
    Income Statement and Operational Analysis (in thousands, except earnings per share)                
    (unaudited)                        
                             
            Fiscal Year Ended September 30    
            2006           2005    
 
   Revenues                                                
 
   Equipment
           $ 1,790,188             $         1,767,012          
 
   Customer service and supplies
             1,445,561                       1,482,020          
 
   Managed and professional services
             740,998                       710,002          
 
   Rental and fees
             151,228                       175,257          
 
   Other
             100,274                       243,014          
 
                     4,228,249                       4,377,305          
 
                                                        
 
                                                        
 
   Cost of Revenues                                                
 
   Equipment
             1,339,862                       1,300,156          
 
   Customer service and supplies
             797,541                       811,540          
 
   Managed and professional services
             547,284                       527,659          
 
   Rental and fees
             45,288                       51,664          
 
   Other
             56,496                       134,608          
 
                     2,786,471                       2,825,627          
 
                                                        
 
                                                        
 
   Gross Profit                                                
 
   Equipment
             450,326                       466,856          
 
   Customer service and supplies
             648,020                       670,480          
 
   Managed and professional services
             193,714                       182,343          
 
   Rental and fees
             105,940                       123,593          
 
   Other
             43,778                       108,406          
 
                     1,441,778                       1,551,678          
 
                                                        
 
                                                        
 
   Selling and administrative             1,251,848                       1,396,669          
 
   Gain on divestiture of businesses and assets             11,497                       11,531          
 
   Asset impairment and restructuring (benefit) charge             (322 )                     10,543          
 
                                                        
 
   Operating income             201,749                       155,997          
 
                                                        
 
   Loss from the early extinguishment of debt
             5,535                       6,034          
 
   Interest income
             13,040                       7,388          
 
   Interest expense
             51,336                       52,401          
 
                                                        
 
   Income from continuing operations before taxes on income
             157,918                       104,950          
 
   Taxes on income
             51,669                       31,755          
 
                                                        
 
   Income from continuing operations
             106,249                       73,195          
 
   Discontinued Operations:                                                
 
   Operating loss
             (78 )                     (20,709 )        
 
   Tax benefit
             31                       8,180          
 
                                                        
 
   Net loss from discontinued operations
             (47 )                     (12,529 )        
 
   Net income
           $ 106,202                     $ 60,666          
 
                                                        
 
                                                        
 
   Basic Earnings (Loss) Per Common Share                                                
 
   Continuing operations
   $         0.81             $         0.52          
 
   Discontinued operations
             0.00                       (0.09 )        
 
                                                        
 
   Net income
           $ 0.81             $         0.43          
 
                                                        
 
                                                        
 
   Diluted Earnings (Loss) Per Common Share                                                
 
   Continuing operations
   $         0.80             $         0.51          
 
   Discontinued operations
             0.00                       (0.08 )        
 
                                                        
 
   Net income
           $ 0.80       (a )   $         0.43       (a )
 
                                                        
 
                                                        
 
   Weighted Average Common Shares Outstanding, Basic             131,336                       139,890          
 
                                                        
 
                                                        
 
   Weighted Average Common Shares Outstanding, Diluted             132,941                       157,691          
 
                                                        
 
                                                        
 
                                                        
 
   Operational Analysis:
                                                
 
   Gross profit %, equipment
             25.2 %                     26.4 %        
 
   Gross profit %, customer service and supplies
             44.8 %                     45.2 %        
 
   Gross profit %, managed and professional services
             26.1 %                     25.7 %        
 
   Gross profit %, rental and fees
             70.1 %                     70.5 %        
 
   Gross profit %, other
             43.7 %                     44.6 %        
 
   Total gross profit %
             34.1 %                     35.4 %        
 
   Selling and administrative as a % of revenue
             29.6 %                     31.9 %        
 
   Operating income as a % of revenue
             4.8 %                     3.6 %        
 
                                                        
(a)   The calculation of diluted earnings per common share for the year ended September 30, 2006 assumes the conversion of convertible notes resulting in 194 shares. The calculation of diluted earnings per common share for the year ended September 30, 2005 assumes the conversion of convertible notes resulting in 16,613 shares. For purposes of calculating diluted earnings per common share, net income for the years ended September 30, 2006 and 2005 includes the add-back of $88 and $7,553, respectively, representing interest expense, net of taxes, associated with such convertible notes.
        
 
                                                        
     
        

3

                 
IKON Office Solutions, Inc.
Consolidated Balance Sheets
(in thousands and unaudited)
    September 30,
    2006   2005
Assets
                
Cash and cash equivalents
   $ 414,239     $ 373,705  
Restricted cash
     —       18,272  
Accounts receivable, net
     586,246       678,313  
Lease receivables, net
     83,051       317,928  
Inventories
     214,792       241,470  
Prepaid expenses and other current assets
     34,742       42,660  
Deferred taxes
     46,504       55,566  
Total current assets
     1,379,574       1,727,914  
 
                
Long-term lease receivables, net
     222,333       503,281  
Equipment on operating leases, net
     83,248       101,614  
Property and equipment, net
     144,453       144,309  
Deferred taxes
     30,215       —  
Goodwill
     1,297,333       1,280,578  
Other assets
     74,543       74,123  
Total Assets
   $ 3,231,699     $ 3,831,819  
 
                
Liabilities
                
 
           $    
Current portion of corporate debt
   $ 1,487       1,137  
Current portion of non-corporate debt
     152,971       299,359  
Trade accounts payable
     220,585       240,306  
Accrued salaries, wages and commissions
     109,090       94,614  
Deferred revenues
     118,146       111,890  
Income taxes payable
     15,831       26,218  
Other accrued expenses
     139,590       163,816  
Total current liabilities
     757,700       937,340  
 
                
Long-term corporate debt
     593,578       728,156  
Long-term non-corporate debt
     64,005       225,307  
Deferred taxes
     —       20,853  
Other long-term liabilities
     130,283       349,819  
Shareholders’ Equity
     1,686,133       1,570,344  
 
                
Total Liabilities and Shareholders’ Equity
   $ 3,231,699     $ 3,831,819  
 
                

4

                         
IKON Office Solutions, Inc.
Consolidated Statements of Cash Flows           Year Ended September 30
(in thousands and unaudited)           2006   2005
Cash Flows from Operating Activities
                        
Net income
           $ 106,202     $ 60,666  
Net loss from discontinued operations
             (47 )     (12,529 )
 
                        
Income from continuing operations
             106,249       73,195  
Additions (deductions) to reconcile net income to net cash provided by (used in) operating activities:
                
   Depreciation
     70,070       73,110  
   Amortization
     3,300       5,256  
   Gain from divestiture of businesses and assets
     (11,497 )     (11,531 )
   Loss on disposal of property and equipment
     4,057       3,729  
   Provision for losses on accounts receivable
     2,165       14,237  
   Restructuring and asset impairment (benefit) charges
     (322 )     10,543  
   Deferred income taxes
     (96,153 )     (102,972 )
   Provision for lease default reserves
     437       2,929  
   Stock-based compensation expense
     9,197       10,060  
   Pension expense
     27,603       43,079  
   Loss from the early extinguishment of debt
     5,535       6,034  
   Changes in operating assets and liabilities, net of divestiture of businesses:
                
   Decrease in accounts receivable
     91,536       37,288  
   Decrease (increase) in inventories
     29,204       (14,116 )
   Decrease in prepaid expenses and other current assets
     2,704       8,003  
   Decrease in accounts payable
     (23,594 )     (68,557 )
   Increase in deferred revenue
     3,220       2,058  
   Decrease in accrued expenses
     (11,346 )     (1,694 )
   Pension contributions
     (100,210 )     (44,108 )
   Decrease in taxes payable
     (10,739 )     (28,098 )
   Decrease in accrued restructuring
     (1,534 )     (8,306 )
   Other
     (932 )     218  
 
                        
   Net cash provided by continuing operations
     98,950       10,357  
   Net cash used in discontinued operations
     (1,159 )     (13,076 )
   Net cash provided by (used in) operating activities
     97,791       (2,719 )
 
                        
Cash Flows from Investing Activities
                        
Proceeds from the divestiture of businesses and assets
             242,043       23,107  
Expenditures for property and equipment
             (37,470 )     (28,000 )
Expenditures for equipment on operating leases
             (40,705 )     (44,149 )
Proceeds from the sale of equipment on operating leases
             21,647       23,677  
Proceeds from the sale of lease receivables
             201,687       249,083  
Lease receivables — additions
             (348,119 )     (385,630 )
Lease receivables — collections
             292,421       531,267  
Proceeds from life insurance (cash surrender value)
             —       55,343  
Other
             (3,946 )     (1,032 )
   Net cash provided by continuing operations
     327,558       423,666  
   Net cash provided by discontinued operations
     —       1,558  
   Net cash provided by investing activities
     327,558       425,224  
 
                        
Cash Flows from Financing Activities
                        
Short-term corporate debt repayments, net
             (30 )     (774 )
Repayment of other borrowings
             (7,786 )     (3,429 )
Proceeds from issuance of long-term corporate debt
             —       227,049  
Debt issuance costs
             (2,510 )     (4,140 )
Long-term corporate debt repayments
             (138,748 )     (300,723 )
Non-corporate debt — issuances
             23,964       18,756  
Non-corporate debt — repayments
             (142,452 )     (366,481 )
Dividends paid
             (21,009 )     (22,393 )
Decrease in restricted cash
             2,127       8,760  
Proceeds from stock option exercises
             22,182       4,787  
Tax benefit relating to stock plans
             5,696       1,843  
Purchase of treasury shares
             (131,190 )     (86,943 )
Other
             (49 )     —  
   Net cash used in financing activities
     (389,805 )     (523,688 )
 
                        
Effect of exchange rate changes on cash and cash equivalents
             4,990       1,937  
 
                        
Net increase (decrease) in cash and cash equivalents
             40,534       (99,246 )
Cash and cash equivalents at beginning of the year
             373,705       472,951  
Cash and cash equivalents at end of the year
           $ 414,239     $ 373,705  
 
                        

5

                                                                 
IKON Office Solutions, Inc.                                                    
Reconciliation of Reported to Adjusted Earnings per Diluted Share                    
Three months ended September 30, 2005 and 2006, respectively                            
            Q4 FY05           Q4 FY06        
            Actual   Adj.   Non-GAAP           Actual        
(in millions, except per share data)
          
   Adjusted                        
 
            
                                
Revenue
   $ 1,101                     $ 1,101             $ 1,058          
Gross profit margin
     35.1 %                     35.1 %             33.7 %        
Selling & Administrative expense ratio
     32.7 %                     31.2 %             29.5 %        
Operating income
   $ 37       5       (a )   $ 43             $ 44          
Operating income margin
     3.4 %                     3.9 %             4.1 %        
 
                                     -                  
Loss from the early extinguishment of debt
     4       (4 )             -               -          
Interest expense, net
     10                       10               8          
Taxes on income
     3       7               10               9          
Net income, continuing operations
   $ 19                     $ 22             $ 26          
Diluted EPS, continuing operations
   $ 0.14                     $ 0.15             $ 0.20          
 
                     -               -                  
Y/Y Growth rate vs. Adjusted 4Q FY05
                                             31 %        
Y/Y Growth rate vs. Actual 4Q FY05
                                             48 %        
 
                                                                
(a)   Charge of $16 million, including $7 million for early termination of consulting contract, $4 million for U.K. pension plan, $4 million for lease terminations and $1 million reserve for Hurricanes Katrina and Rita; partially offset by non-taxable $10 million gain from the sale of our operating subsidiary in France and $1 million adjustment for restructuring and asset impairment
        
 
   May not add due to rounding
                                                        
 
                                                                

6

                                                                                 
IKON Office Solutions, Inc.                                                                        
Reconciliation of Reported to Adjusted Earnings per Diluted Share and Adjusted Operating Income Margin        
Fiscal years ended September 30, 2005 and 2006, respectively            
            FY05           FY06
            Actual   Adj.   Non-GAAP           Actual   Adj.   Non-GAAP
(in millions, except per share data)
          
   Adjusted                
   Adjusted
 
            
                            
        
Revenue
   $ 4,377                     $ 4,377             $ 4,228                     $ 4,228  
Gross profit margin
     35.4 %                     35.4 %             34.1 %                     34.1 %
Selling & Administrative expense ratio
     31.9 %                     31.5 %             29.6 %                     29.6 %
Operating income
   $ 156       18     (a )   $174           $ 202   (5 )   (b )   $197
Operating income margin
     3.6 %                     4.0 %             4.8 %                     4.7 %
 
                                     -                                  
Loss from the early extinguishment of debt
     6       (6 )             -               6       (6 )             -  
Interest expense, net
     45                       45               38                       38  
Taxes on income
     32       11               43               52       2               54  
Net income, continuing operations
   $ 73                     $ 86             $ 106                     $ 105  
Diluted EPS, continuing operations
   $ 0.51                     $ 0.59             $ 0.80                     $ 0.79  
 
                     -               -                       -          
Y/Y Growth rate
                                             56 %                     33 %
(a)   Charge of approximately $29 million, including $7 million for early termination of consulting contract, $4 million for U.K. pension plan, $6 million for early termination of real estate leases and $1 million reserve for Hurricanes Katrina and Rita, $11 million for net restructuring and asset impairment charges and other; partially offset by approximately $12 million of gain from divestiture of businesses
(b)
   Gain on sale of Kafevend
                                                                        
 
   May not add due to rounding                                                                        

7