IKON Announces 1Q Results, Double-digit Growth in Facilities Management

Press release from the issuing company

VALLEY FORGE, Pa., Jan. 25 - IKON reported results for its first fiscal quarter ended December 31, 2001. Net income for the first quarter of Fiscal 2002 grew to $32.6 million. Earnings from continuing operations increased to $.22 per diluted share compared to $.18 per diluted share (assumes impact of SFAS 142 adoption), a 22% increase from the prior year. "We are extremely pleased that we were able to exceed our own profitability expectations for the first quarter,'' stated James J. Forese, Chairman and Chief Executive Officer. "This performance reflects our commitment to deliver earnings per share growth even as we continue to rationalize our revenue mix in terms of long-term profitability and strategic value. We realize the vital importance of reaching our Fiscal 2002 goals and are working hard to meet or surpass those objectives.'' Effective October 1, 2001, IKON adopted SFAS 142, which results in the elimination of a significant portion of the Company's amortization expense on a prospective basis. The above earnings comparison to the prior year is based on pro forma results, as if the new accounting rule applied to that period. These pro forma results increase the quarterly diluted earnings per share in the prior year from $.11 to $.18, excluding a $.01 gain from discontinued operations. Revenues for the first quarter of Fiscal 2002 were $1.21 billion compared to $1.32 billion for the same period a year ago. These results reflect the general slowdown in the economic environment experienced since the first half of Fiscal 2001 in addition to the Company's continuing drive to improve the quality of its revenue mix through de-emphasis, closure, or sale of selected businesses. The Company continued to show positive performance in areas of strategic emphasis, with double-digit growth in sales of high-end, segment 5 and 6 copiers/printers and facilities management services. "The foundation of IKON's long-term business model is the customer, since the customer will ultimately define our industry,'' said Mr. Forese. "Today's customer wants to leverage digital technology to reduce document costs and improve productivity through document management solutions customized for their business. These customers also demand reliable service and technical support, and we have positioned IKON to deliver all of these capabilities. "Being a leader in this changing industry also means that IKON must be highly efficient, flexible, and quick to respond to rapidly evolving economic trends. Our infrastructure initiatives -- past and present -- have been designed to maximize these important characteristics. During the quarter, we continued to execute on these important business drivers, as evidenced by our earnings performance this quarter. We completed our exit from the telephony business, sold our technology education business, and executed on a number of cost reduction plans directed toward our core operations in North America and Europe. We also took additional steps to strengthen the bottom line by completing some tax planning during the quarter to lower the effective tax rate expected for Fiscal 2002 from 38% to 36.5%. "During the quarter, we also continued to make steady progress with our Oracle e-business project. In the U.S., we entered the last phase of design and began testing as we prepare for pilot implementation in the U.S., and in the U.K. our operations went live on more than 15 Oracle e-business modules in December. All of these actions are consistent with the strategies we have communicated, and we are optimistic about IKON's future as we strengthen our focus, competitive positioning, and infrastructure,'' concluded Mr. Forese. Net Sales, which include the sale of copier/printer equipment, supplies, and technology hardware, declined 13.1% from the prior year. Technology hardware, which the Company has been de-emphasizing, declined sharply as anticipated. Sales of copier/printer equipment also declined from the prior year as slow economic conditions made for difficult year to year comparisons. A decline in sales of lower-end copier/printer equipment was slightly offset by continued strong growth in higher-end, segment 5 and 6 copier/printer sales. Service & Rentals, which primarily includes revenues from the servicing of copier/printer equipment, and outsourcing and other professional services declined 4.7% from the prior year, primarily due to the downsizing of our digital print production centers, and the sale of the Company's technology education business in December 2001. Finance Income grew 5.5% from the prior year due to continued growth in the lease receivables portfolio as a greater percentage of IKON's customers take advantage of IOS Capital, the Company's U.S. captive leasing organization, for equipment financing. Total Gross Profit increased from the prior year to 38.6% of revenues due to a combination of revenue mix -- higher margin products and services comprising a larger percentage of IKON's total revenues for the quarter -- and stronger than anticipated margins on equipment sales and equipment service. Selling and Administrative Costs declined $47.6 million from the prior year, largely due to the operational improvements previously discussed, lower selling costs, disciplined cost controls throughout the organization, as well as the elimination of goodwill amortization under SFAS 142. Outlook "Our second quarter performance should look similar to the first quarter, with diluted earnings per share in the $.20 to $.23 range, and revenues down approximately 7% to 9%. We are encouraged by our progress this quarter and remain confident that we can deliver on our Fiscal 2002 objectives. Therefore, we reiterate our expectations for diluted earnings per share of $.84 to $.89 for Fiscal 2002 on a revenue decline of 4% to 6%,'' concluded Mr. Forese.