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

Exhibit 99.1

IKON ANNOUNCES SECOND QUARTER RESULTS
EPS of $0.24 at High End of Improved Outlook

MALVERN, Pa.—April 24, 2008 – IKON Office Solutions (NYSE:IKN), the world’s largest independent channel for document management systems and services, today reported results for the second quarter of fiscal 2008, which ended March 31, 2008. For the second quarter, earnings per diluted share were $0.24, at the high end of the Company’s improved outlook of $0.22 to $0.24 per diluted share provided on April 10, 2008. For the second quarter of fiscal 2007, earnings per diluted share were $0.24.

Total revenue for the second quarter of fiscal 2008 was $1.1 billion, a 1 percent increase year over year, including 1.4 points of currency benefit. Total gross profit increased $6 million year over year to $351 million and resulted in a 30 basis point improvement in gross profit margin. Selling and administrative expenses increased $6 million year over year to $299 million, primarily due to higher sales compensation-related expenses and currency, partially offset by lower administrative expenses. Selling and administrative expenses were 28.2 percent of revenue in the second quarter of fiscal 2008 versus 27.9 percent in the second quarter of fiscal 2007.

Operating income for the second quarter of fiscal 2008 was $52 million, or 4.9 percent of revenue, unchanged from the prior-year quarter. Interest expense, net of interest income, increased $7 million year over year to $16 million and weighted average fully diluted shares declined 27 percent to 94 million, primarily due to the Company’s share repurchase-related activity. The Company’s effective tax rate for the second quarter was 36 percent, up from 28 percent in the prior-year quarter. Net income was $22 million in the second quarter of fiscal 2008, compared with $30 million in the prior-year quarter.

“We are gaining traction from the actions we took to improve our financial performance and built momentum through the quarter,” said IKON Chairman and Chief Executive Officer Matthew J. Espe. “Our new IKON U.S. leadership is off to a great start. We generated strong cash flow and we are on track to reduce costs and expenses by $25 million in fiscal 2008 as part of our spending reduction plan announced in January.”

Second Quarter Fiscal 2008 Financial Details
Equipment revenue, which includes the sale of copier/printer multifunction products, was $455 million, consistent with the prior-year quarter. Total Equipment revenue was driven primarily by growth in the U.S. color office and color production segments of 1 and 18 percent, respectively; growth in Europe; and a currency benefit of 1.6 points; partially offset by lower revenue in the U.S. black and white office and production segments of 7 and 5 percent, respectively. Gross margin on Equipment increased to 26.6 percent from 25.6 percent due to higher average selling prices and a higher mix of used equipment.

Customer Service and Supplies revenue, which includes revenue from the servicing of copier/printer equipment and direct sales of supplies, was $344 million, consistent with the prior-year quarter. This performance reflects growth in Europe and a currency benefit of 1.8 points, offset by lower revenue in North America. Customer Service and Supplies revenue in North America declined primarily due to lower total page volume, a decline in analog copier machines in field (MIF) as expected, and a 1 percent decline in digital copier MIF. Total North American digital copier MIF, including On-site Managed Services, increased 2 percent year over year. Gross margin on Customer Service and Supplies was 40.0 percent in the second quarter of fiscal 2008, compared with 41.3 percent in the second quarter of fiscal 2007, primarily due to cost declines in North America, which did not keep pace with revenue.

Managed and Professional Services revenue was $211 million, up 6 percent year over year. On-site Managed Services revenue, which represents approximately two-thirds of total Managed and Professional Services, increased 7 percent. Professional Services grew 9 percent. Off-site Managed Services increased 3 percent. Gross margin on Managed and Professional Services increased to 28.4 percent from 27.3 percent a year ago, primarily due to strong Professional Services revenue on relatively fixed costs and continued contract profitability growth in On-site Managed Services.

Rental and Fees revenue of $34 million declined 3 percent from the prior-year quarter, primarily due to lower rental revenue. Gross margin improved to 77.8 percent from 75.5 percent in the prior year. Other revenue of $16 million declined from $19 million year over year.

Balance Sheet and Liquidity
During the second quarter, the Company’s cash balance increased $61 million to $203 million. The Company reduced inventory $89 million to $268 million and reduced accounts payable $66 million to $242 million in the quarter.

In the first six months of fiscal 2008, the Company generated $61 million of cash from operations, compared to a use of $11 million in the first half of fiscal 2007. Capital expenditures on operating rentals and property and equipment, net of proceeds, totaled $24 million in the first six months of fiscal 2008, compared with $20 million in the comparable period of fiscal 2007. As a result, free cash flow was $37 million in the first half of fiscal 2008. Free cash flow improved $68 million year over year.

In the second quarter, the Company paid $4 million in dividends to shareholders. In April, IKON’s Board of Directors approved the Company’s regular quarterly cash dividend of $0.04 per common share, payable on June 10, 2008, to holders of record at the close of business on May 19, 2008. At March 31, 2008, actual shares outstanding were 94 million.

During the balance of fiscal 2008, the Company expects to purchase $25 million of its shares as part of its repurchase program. In the near term, the Company expects to repurchase its shares and pay dividends within the covenants of its existing debt agreements and to deploy remaining available cash to reduce debt. In early April, the Company announced the redemption of $50 million of its 2012 Notes. As a result of this partial redemption, the Company expects to incur a $1.7 million pretax loss on the early extinguishment of debt in the third quarter of fiscal 2008.

Outlook
For fiscal 2008, the Company expects its revenue to be flat year over year, its expense-to-revenue ratio to be approximately 28 percent, its operating income margin to be about 5 percent, and its earnings per diluted share to range from $0.92 to $0.98. For the third quarter, the Company expects its earnings per diluted share to range from $0.29 to $0.32. This outlook excludes the $7 million pretax restructuring charge ($0.04 per diluted share) taken in the first quarter of fiscal 2008, any loss from the early extinguishment of debt, and the impact of any future actions the Company may take to improve its business.

For fiscal 2008, the Company anticipates fully diluted weighted average shares to range from 99 to 100 million and free cash flow to range from $80 to $110 million. The Company also anticipates its effective tax rate to approximate 33 percent for fiscal 2008 and be less than 24 percent for the third quarter.

“We are pleased with our execution in the quarter,” said Espe. “We must remain intensely focused on improving sales productivity, driving placement of color machines, growing our annuity streams, improving working capital and reducing costs and expenses.”

Conference Call, Webcast and Replays—Note Updated Dial-in Number
IKON will host a conference call and webcast at 10:00 a.m. EDT on Thursday, April 24, 2008 to discuss its results for the second quarter of fiscal 2008. The live audio broadcast of the call, with slides, can be accessed on IKON’s Investor Relations homepage or by calling (877) 869-3847 (updated).

A complete replay of the conference call will also be available on IKON’s Investor Relations homepage approximately two hours after the call ends. To listen, please visit www.ikon.com and click on Investor Relations and then Calendar & Presentations.

Beginning at approximately 12:00 p.m. EDT on April 24, 2008, and ending at midnight EDT on April 28, 2008, 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 280810.

2008 Investor Conference
IKON will hold its annual conference for investors and analysts in New York on May 14, 2008. Registration will begin at 1:30 p.m. EDT followed by management presentations beginning at 2:00 p.m. EDT. For additional information, please contact Jim Jacobson, Director of Investor Relations, at jamjacobson@ikon.com.

About IKON
IKON Office Solutions, Inc. (www.ikon.com) 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, such as Canon, Ricoh, Konica Minolta and HP, and document management software and systems from companies like Captaris, Kofax, EFI, eCopy and others, to deliver tailored, high-value solutions implemented and supported by its global services organization – IKON Enterprise Services. With fiscal year 2007 revenue of $4.2 billion, IKON has approximately 25,000 employees in over 400 locations throughout North America and Western Europe.

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 third quarter and full fiscal year 2008 results from operations, revenues, cost and expense reductions, margins, tax rate, cash flow, and our strategic priorities, including: growth objectives; operational leverage; and capital strategy initiatives including share repurchases and debt reduction. 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 U.S. Securities and Exchange Commission. As a consequence of these and other risks and uncertainties, IKON’s current plans, anticipated actions and future financial condition, results may differ materially from those expressed in any forward-looking statements.

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, free cash flow and non-GAAP 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.

Non-GAAP EPS as used in this presentation, excludes the restructuring charge incurred in the first quarter of fiscal 2008, any loss from the early extinguishment of debt, and the impact of any future actions the Company may take to improve its business. IKON believes this measure provides investors with a useful indication 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)                
        March 31,       September 30,
        2008       2007
Assets
                                
Cash and cash equivalents
           $ 203,042             $ 349,237  
Accounts receivable, net
             577,046               552,716  
Lease receivables, net
             81,391               84,207  
Inventories
             268,213               287,503  
Prepaid expenses and other current assets
             30,490               35,085  
Income taxes receivable
             4,104               —  
Deferred taxes
             48,028               48,167  
 
                                
Total current assets
             1,212,314               1,356,915  
 
                                
Long-term lease receivables, net
             252,795               251,776  
Equipment on operating leases, net
             62,317               72,052  
Property and equipment, net
             150,667               154,218  
Deferred taxes
             30,015               18,144  
Goodwill
             1,334,523               1,333,249  
Other assets
             93,737               84,354  
 
                                
Total Assets
           $ 3,136,368             $ 3,270,708  
 
                                
 
                                
Liabilities
                                
Current portion of corporate debt
           $ 17,248             $ 16,798  
Current portion of non-corporate debt
             59,989               51,077  
Trade accounts payable
             241,752               263,657  
Accrued salaries, wages and commissions
             85,724               93,052  
Deferred revenues
             112,596               109,796  
Income taxes payable
             —               15,240  
Other accrued expenses
             136,358               129,323  
 
                                
Total current liabilities
             653,667               678,943  
Long-term corporate debt
             724,154               576,199  
Long-term non-corporate debt
             180,036               181,334  
Other long-term liabilities
             160,033               128,211  
 
                                
Total Shareholders’ Equity
             1,418,478               1,706,021  
 
                                
Total Liabilities and Shareholders’ Equity
           $ 3,136,368             $ 3,270,708  
 
                                
 
                                
 
                                

2

                             
IKON Office Solutions, Inc.                    
Income Statement and Operational Analysis (in thousands, except earnings per share)            
(unaudited)                    
                     
    Three Months Ended March 31,    
    2008           2007    
Revenues
                           
Equipment
  $
454,640 		 
  		 
  		 
$453,686 		 
 
Customer service and supplies
    344,347               345,267      
Managed and professional services
    211,057               198,237      
Rental and fees
    33,521               34,576      
Other
    15,635               18,970      
 
                          
 
    1,059,200               1,050,736      
 
                          
Cost of Revenues
                           
Equipment
    333,541               337,709      
Customer service and supplies
    206,658               202,691      
Managed and professional services
    151,134               144,211      
Rental and fees
    7,435               8,486      
Other
    9,873               12,630      
 
                          
 
    708,641               705,727      
 
                          
Gross Profit
                           
Equipment
    121,099               115,977      
Customer service and supplies
    137,689               142,576      
Managed and professional services
    59,923               54,026      
Rental and fees
    26,086               26,090      
Other
    5,762               6,340      
 
                          
 
    350,559               345,009      
 
                           
Selling and administrative
    299,060               293,280      
Restructuring benefit
    71               -      
 
                          
Operating income
    51,570               51,729      
 
                           
Interest income
    880               3,039      
Interest expense
    17,041               12,530      
 
                          
Income before taxes on income
    35,409               42,238      
Taxes on income
    12,920               11,785      
 
                          
Net income
  $
22,489 		 
  		 
  		 
$30,453 		 
 
 
                          
 
                           
Basic Earnings Per Common Share
  $
0.24 		 
  		 
  		 
$ 0.24 		 
 
 
                          
 
                           
Diluted Earnings Per Common Share
  $
0.24 		 
  		 
  		 
$ 0.24 		 
 
 
                          
 
                           
 
                          
Cash dividends Per Common Share
  $
0.04 		 
  		 
  		 
$ 0.04 		 
 
 
                          
 
                           
Weighted Average Common Shares Outstanding, Basic
    93,871               126,329      
 
                          
 
                           
 
              
 
 
Weighted Average Common Shares Outstanding, Diluted
    93,977               128,182      
 
                          
 
                           
 
              
 
 
Operational Analysis:
                           
Gross profit %, equipment
    26.6 %             25.6 %    
Gross profit %, customer service and supplies
    40.0 %             41.3 %    
Gross profit %, managed and professional services
    28.4 %             27.3 %    
Gross profit %, rental and fees
    77.8 %             75.5 %    
Gross profit %, other
    36.9 %             33.4 %    
Total gross profit %
    33.1 %             32.8 %    
Selling and administrative as a % of revenue
    28.2 %             27.9 %    
Operating income as a % of revenue
    4.9 %             4.9 %    
 
                           

3

                             
IKON Office Solutions, Inc.                    
Income Statement and Operational Analysis (in thousands, except earnings per share)            
(unaudited)                    
                     
    Six Months Ended March 31,    
    2008           2007    
Revenues
                           
Equipment
  $
847,283 		 
  		 
  		 
$869,923 		 
 
Customer service and supplies
    694,568               691,237      
Managed and professional services
    416,932               390,480      
Rental and fees
    64,484               69,984      
Other
    33,988               36,996      
 
                          
 
    2,057,255               2,058,620      
 
                          
Cost of Revenues
                           
Equipment
    624,485               650,093      
Customer service and supplies
    404,748               396,921      
Managed and professional services
    300,288               286,463      
Rental and fees
    15,133               18,395      
Other
    22,147               24,627      
 
                          
 
    1,366,801               1,376,499      
 
                          
Gross Profit
                           
Equipment
    222,798               219,830      
Customer service and supplies
    289,820               294,316      
Managed and professional services
    116,644               104,017      
Rental and fees
    49,351               51,589      
Other
    11,841               12,369      
 
                          
 
    690,454               682,121      
 
                           
Selling and administrative
    594,489               581,417      
Restructuring charge
    6,612               -      
 
                          
Operating income
    89,353               100,704      
 
                           
Interest income
    3,281               6,399      
Interest expense
    30,277               24,982      
 
                          
Income before taxes on income
    62,357               82,121      
Taxes on income
    24,895               24,331      
 
                          
Net income
  $
37,462 		 
  		 
  		 
$57,790 		 
 
 
                          
 
                           
Basic Earnings Per Common Share
  $
0.36 		 
  		 
  		 
$ 0.46 		 
 
 
                          
 
                           
Diluted Earnings Per Common Share
  $
0.36 		 
  		 
  		 
$ 0.45 		 
 
 
                          
 
                           
 
                          
Cash dividends Per Common Share
  $
0.08 		 
  		 
  		 
$ 0.08 		 
 
 
                          
 
                           
Weighted Average Common Shares Outstanding, Basic
    103,717               126,787      
 
                          
 
                           
 
              
 
 
Weighted Average Common Shares Outstanding, Diluted
    104,334               128,747      
 
                          
 
                           
 
              
 
 
Operational Analysis:
                           
Gross profit %, equipment
    26.3 %             25.3 %    
Gross profit %, customer service and supplies
    41.7 %             42.6 %    
Gross profit %, managed and professional services
    28.0 %             26.6 %    
Gross profit %, rental and fees
    76.5 %             73.7 %    
Gross profit %, other
    34.8 %             33.4 %    
Total gross profit %
    33.6 %             33.1 %    
Selling and administrative as a % of revenue
    28.9 %             28.2 %    
Operating income as a % of revenue
    4.3 %             4.9 %    
 
                           

4

                                                         
IKON Office Solutions, Inc.                
Consolidated Statements of Cash Flows   Six Months Ended March 31,    
(in thousands and unaudited)   2008       2007    
Cash Flows from Operating Activities
                    
    Net income   $ 37,462       $ 57,790    
    Additions (deductions) to reconcile net income to net cash provided by (used in) operating activities:            
        Depreciation   36,796       33,862    
        Amortization   517       352    
        Other non-cash items   1,645       675    
        Loss on disposal of property and equipment   200       503    
        Provision for losses on accounts and lease receivables   3,842       3,891    
        Restructuring charge   6,612       -    
        Provision for deferred income taxes   9,002       7,256    
        Stock-based compensation expense   5,574       4,980    
        Excess tax benefits from stock-based payments arrangements   (215 )       (1,466 )    
        Pension expense   2,099       1,029    
        Changes in operating assets and liabilities:                
 
           (Increase) decrease in accounts receivable
   (29,550 )       22,261    
 
           Decrease (increase) in inventories
   19,184       (109,434 )    
 
           Decrease in prepaid expenses and other current assets
   121       4,646    
 
           (Decrease) increase in accounts payable
   (22,334 )       30,606    
 
           Increase (decrease) in deferred revenue
   1,975       (10,584 )    
 
           Decrease in accrued expenses
   (12,298 )       (49,671 )    
 
           Contributions to pension plans
   (1,926 )       (1,936 )    
 
           Increase (decrease) in taxes payable
   2,535       (6,280 )    
        Other   -       48    
                -   -   —        
        Net cash provided by (used in) operating activities   61,241       (11,472 )    
                                             
 
                            
Cash Flows from Investing Activities
                
Expenditures for property and equipment
   (17,710 )       (11,708 )    
Expenditures for equipment on operating leases
   (11,886 )       (12,731 )    
Proceeds from the sale of property and equipment and equipment on operating leases
   5,679       4,928    
Proceeds from the sale of lease receivables
   97,752       106,964    
Lease receivables — additions
   (150,443 )       (152,026 )    
Lease receivables — collections
   50,721       49,311    
Proceeds from life insurance
   1,977       3,805    
Other
       (3,467 )       (868 )    
 
                   -                
        Net cash used in investing activities   (27,377 )       (12,325 )    
                        -                
 
                            
Cash Flows from Financing Activities
                
Short-term corporate debt borrowings, net
   -       1    
Repayment of other borrowings
   (5,790 )       (42 )    
Debt issuance costs
   (3,915 )       -    
Debt modification costs
   -       (15,750 )    
Corporate debt — issuances
   151,780       -    
Corporate debt — repayments
   (5,933 )       (615 )    
Non-corporate debt — issuances
   18,714       4,220    
Non-corporate debt — repayments
   (9,849 )       (7,175 )    
Dividends paid
   (8,386 )       (10,135 )    
Proceeds from stock option exercises
   1,368       15,244    
Excess tax benefits from stock-based payments arrangements
   215       1,466    
Purchase of treasury shares
   (316,962 )       (56,115 )    
 
           -                
        Net cash used in financing activities   (178,758 )       (68,901 )    
                        -                
 
                            
Effect of exchange rate changes on cash and cash equivalents
   (1,301 )       2,111    
 
           -                
 
                            
Net decrease in cash and cash equivalents
   $ (146,195 )       $ (90,587 )    
Cash and cash equivalents at beginning of year
   349,237       414,239    
 
           -                
Cash and cash equivalents at end of period
   $ 203,042       $ 323,652    
 
           -                
 
                            
Non-cash investing and financing activities:
                
Assets acquired under capital leases
   $ 1,925       $ 5,998    
 
           -                
 
                                                        
 
                                                        

5