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IKON OFFICE SOLUTIONS, INC.
FORM 10-K
September 30, 1999
As filed with the Securities and Exchange Commission on December 28, 1999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]Annual report pursuant in Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1999 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)
23-0334400
OHIO (I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
19482
(Zip Code)
Box 834, Valley Forge, Pennsylvania
(Address of principal executive
offices)
Registrant's telephone number, including area code: (610) 296-8000
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of Class on which registered
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Common Stock, no par value New York Stock Exchange
(with Preferred Share Purchase Rights)
Securities registered pursuant to Section 12(g)
of the Act: None
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 22, 1999, was approximately $606,302,003 based upon
the closing sales price on the New York Stock Exchange Composite Tape of
$5.875 per common share on December 22, 1999. For purposes of the foregoing
sentence only, all directors and executive officers of the registrant were
assumed to be affiliates.
The number of shares of common stock, no par value, of the registrant
outstanding as of December 22, 1999 was 148,809,581.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II--Portions of the Registrant's Annual Report to Shareholders
for fiscal year ended September 30, 1999
Part III--Portions of the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders
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FORWARD LOOKING INFORMATION
IKON Office Solutions, Inc. (the "Registrant," "IKON" or the "Company") may
from time to time provide information, whether verbally or in writing,
including certain statements included in or incorporated by reference in this
Form 10-K, which constitute "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act of 1995 ("Litigation Reform
Act"). These forward-looking statements include statements regarding the
following (and certain matters discussed in greater detail herein): growth
opportunities, productivity initiatives and the impact of the Company's brand
strategy; earnings revenue, margin, and cost-savings projections; anticipated
growth rates in the digital equipment and outsourcing industries; the
financial and legal impact of the class action litigation settlement; the cost
and completion date of the Company 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 its
growth initiatives. Although IKON believes the expectations contained in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove correct.
The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Registrant with respect to future
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
The Registrant does not intend to update these forward-looking statements.
In accordance with the provisions of the Litigation Reform Act, we are
making investors aware that such "forward-looking" statements, because they
relate to future events, are by their very nature subject to many important
factors which could cause actual results to differ materially from those
contained in the "forward-looking" statements. These uncertainties and risks
include, but are not limited to, the following (some of which are explained in
greater detail below): 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 consolidation
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.
Competition. The Registrant operates in a highly competitive environment,
in which technological advances and demands of customers change rapidly.
There are a number of competitors of the Company with significant financial
resources to provide similar products and services in each of the markets
served by the Registrant, some of whom operate on a global basis. The
Registrant's success in its future performance is largely dependent upon
its ability to compete successfully in its currently-served markets and to
expand into additional product and service segments.
Transition to Digital. The analog segment of the office equipment market is
declining, as the market transitions to digital technology. Some of the new
digital products placed by the Registrant replace or compete with the
current analog products placed by the Registrant. Changes in the mix of
products from analog to digital, and the acceleration of that change, as
well as competitive developments, could cause actual results to vary from
those expected.
Pricing. The Registrant's ability to succeed is dependent upon its ability
to obtain adequate pricing for its products and services. Depending on
competitive market factors, future prices the Registrant can obtain for its
products and services may vary from historical levels.
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Vendor Relationships. The Registrant is not a manufacturer of any of the
equipment it sells. The cessation or deterioration of any significant
vendor relationship that may cause the Company to be unable to distribute
equipment, including digital products and high-volume copiers, parts and
supplies, would cause actual results to differ materially from those
expected.
Financing Business. A significant portion of the Registrant's profits are
derived from the financing of equipment provided to its customers. The
Registrant's ability to provide such financing at competitive rates and
realize profitable margins is highly dependent upon its own costs of
borrowing. Significant changes in credit ratings could reduce our access to
certain credit markets. The Registrant's credit ratings have declined in
recent years; however, the effects of such decline have been mitigated by
the Company's utilization of asset securitizations as a funding source.
Asset securitizations continue to be a viable funding source for the
Company, and our present credit ratings permit us ready access to the
credit markets. There is no assurance that these credit ratings can be
maintained and/or ready access to the credit markets can be assured.
Productivity Initiatives. The Registrant's ability to improve its profit
margins is largely dependent on its ability to maintain an efficient, cost-
effective operation. Under certain productivity initiatives (sometimes
referred to as the "Competitiveness and Productivity Project"), various
productivity improvements are being implemented. The Registrant's ability
to improve its profit margins through the implementation of these
productivity initiatives is dependent upon certain factors outside the
control of the Registrant and therefore could cause actual results to
differ materially from those anticipated.
International Operations. The Registrant's future revenue, cost and profit
results could be affected by a number of factors, including changes in
foreign currency exchange rates, changes in economic conditions from
country to country, changes in a country's political condition, trade
protection measures, licensing and other legal requirements and local tax
issues.
Consolidation and Disposition of Unproductive Assets. In the first quarter
of fiscal 2000, the Company approved a restructuring charge of
approximately $102 million. This charge is to consolidate or dispose of
certain underperforming and non-core locations and implement productivity
enhancements through consolidation/centralization of activities in
inventory management, purchasing, financial/accounting and other
administrative functions and consolidate or eliminate unproductive real
estate facilities. These efforts are aimed at improving our performance and
efficiency. The failure to execute these actions effectively would cause
actual results to differ materially from those anticipated.
Integration of Acquired Companies. The Company's success is dependent upon
its ability to integrate acquired companies and their operations which
include companies with technical services and products that are relatively
new to the Company and companies outside the United States, that present
additional risks relating to international operations. There can be no
assurance the Company will be successful in managing the integration of
acquired companies and their operations.
Year 2000. The Registrant's success on its Year 2000 plan is dependent upon
the availability of resources, the Registrant's ability to discover and
correct the Year 2000 sensitive problems which could have a serious impact
on the Registrant's information management systems, facilities and
products, and the ability of the Registrant's suppliers and customers to
bring their systems into Year 2000 compliance.
PART I
Item 1. Business.
General
IKON Office Solutions, Inc. was incorporated in Ohio in 1952 and is the
successor to a business incorporated in 1928. References herein to "we," "us"
or "our" refers to IKON and consolidated subsidiaries unless the context
specifically requires otherwise. The address of the Company's principal
executive offices is 70 Valley Stream Parkway, Malvern, Pennsylvania 19355
(telephone number: (610) 296-8000).
IKON provides a broad range of products and services to meet business
communication needs, and people with the expertise to deliver these products
and services effectively. Our products and services include copiers
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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. IKON aims to
furnish a high level of personal service and support for these products and
services, so customers can achieve the full measure of office technology
integration.
IKON operates over 1,000 locations in the United States, Canada, Mexico, the
United Kingdom, Germany, France, Ireland and Denmark. These locations comprise
the largest independent distribution network of office equipment in North
America.
IKON distributes the products of numerous manufacturers, including Canon,
Ricoh and Oce. IKON also distributes products from Microsoft, IBM, Lotus,
Compaq, Novell, Cisco, Citrix, and Hewlett-Packard. Customers include large
and small businesses, professional firms and government agencies.
In fiscal 1999, IKON generated approximately $5.5 billion in revenues, and
had operating income of $237.4 million, excluding a gain from asset
securitization of $14.3 million and the $101.1 million charge related to the
shareholder litigation settlement (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Notes 10 and 18 appended
thereto).
Operating Segments
During fiscal year 1999, IKON adopted Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures About Segments Of An Enterprise And
Related Information, which requires segment data to be measured and analyzed
on a basis that is consistent with how business activities are reported
internally to management.
Revenue and segment profit information about the Company's operating
segments in accordance with SFAS No. 131 is presented on page 52 of the 1999
Annual Report to Shareholders. Additional financial data and commentary on
recent financial results for operating segments are provided on pages 30
through 32 of that Report and in note 16 to the consolidated financial
statements (included on pages 51 through 53 of the 1999 Annual Report).
Operating businesses that are reported as segments under SFAS No. 131
include IKON North America and IKON Europe. The remaining businesses do not
meet the definition of a reportable segment and have been aggregated into
Other operations. A summary description of each of the Company's operating
segments follows.
IKON NORTH AMERICA. IKON North America ("INA") provides business services
and management services and includes our captive finance subsidiaries in North
America. Our business services product offerings include traditional copiers,
printers, and other office equipment and services, with an increased emphasis
on digital, high-volume and color units which may also include networking
capability. To assure we can deliver and maintain these capabilities to best
meet customers' needs, we offer competitive pricing, factory-certified
technicians for all equipment, and through our captive finance subsidiaries,
flexible financing and lease programs. We have placed over one million pieces
of office equipment with approximately 70% of this equipment covered by lease
and service contracts, which provide a predictable revenue stream. Management
services handles the outsourcing of our customers' mailrooms, copy centers and
general administrative facilities.
IKON EUROPE. IKON Europe's ("IE") product offerings include digital and
analog copiers, printers, and other office equipment, with an increased
emphasis on digital, high-volume and color units which may also include
networking capability. IE also provides management services for customers'
mailrooms, copy centers and general administrative facilities and document
production and overflow services.
OTHER. IKON's other businesses include document services and technology
services. Document services focuses on print-on-demand services and electronic
file conversion.
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Technology services provides design, planning and support services, for
network platforms and IT integration projects, and education and training
services.
Management and Board Changes
On October 21, 1999, the Company's Board of Directors elected as its
additional members Robert M. Furek, Chairman of the Board of Trustees of the
Hartford School System and a partner in Resolute Partners, a private equity
investment firm; Thomas R. Gibson, Chairman, Chief Executive Officer of the
Asbury Automotive Group; and Arthur E. Johnson, Vice President Corporate
Strategic Development for Lockheed Martin Corporation. Barbara Barnes
Hauptfuhrer, who has served as a director of the Company since 1988, and who
acted as Chairman of the Independent Directors from 1995 through 1998, has
reached the mandatory retirement age of 70, and therefore will not be standing
for reelection at the 2000 annual meeting of shareholders. Thomas P. Gerrity,
who has served as a director of the Company since 1997, and who acted as
Chairman of the Retirement Plans Investment Committee, resigned as of December
7, 1999. The Company wishes to thank Mrs. Hauptfuhrer and Mr. Gerrity for
their significant contributions to IKON's Board of Directors and to the
Company.
During fiscal 1999, a number of management appointments and promotions
occurred. William S. Urkiel was named Senior Vice President and Chief
Financial Officer, Barbara Pellow was named Senior Vice President of
Marketing, Dennis LeStrange was promoted to Senior Vice President, IKON North
America, Don Liu was named Senior Vice President and General Counsel, Beth
Sexton was promoted to Senior Vice President of Human Resources, Stephen
LaHood was named Vice President of Supply Chain and Paul Nellis was promoted
to Vice President, IKON Technology Services.
Transition to Digital Products
During fiscal 1999, we experienced a rapid transition from analog to digital
products (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations"). We believe that the office equipment market will
continue to change with the increasing acceptance of digital technology.
Digital products have the ability to communicate with other office equipment
and often eliminate the distinction between traditional photocopiers,
facsimile equipment and printers. Digital multifunctional office equipment can
offer customers the ability to print, copy, scan and fax all from one machine.
One of our goals is to convert our customer base to digital products as
quickly as possible. This part of our strategy is important to our long-term
success because conversion provides the ongoing revenue benefit of our service
relationship and permits us to develop customer relationships through which we
can sell additional products and services.
Operations Integration
In fiscal 1999, IKON took significant steps in its effort to integrate its
business operations. In May of this year, we created IKON North America
through the integration of our largest business divisions (See "Operating
Segments"). In addition, we recently announced that our Business Document
Services unit, which operates document production centers in the United States
and Canada, will be integrated into IKON North America. To help implement this
realignment of our business divisions, we appointed Dennis P. LeStrange to
head IKON North America (See "Management Changes").
By realigning these business divisions, we believe we can acquire a greater
understanding of our customers needs and are better positioned to design
customized solutions for their business challenges. This integration of
business divisions provides IKON North America with a broad portfolio of
products and services, which permit it to provide solutions on-site and
through outsourcing to meet the needs of a range of customers, from the
general office environment to the high-volume demands of the production
environment.
In addition to the integration of our businesses, in a further effort to
streamline our operations and increase our profitability, during the first
quarter of fiscal 2000, the Company approved a restructuring charge of
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approximately $102 million. This charge is comprised of $14 million severance,
$52 million in asset write downs (net of sale proceeds), and $36 million
facility and other contract cancellation expenses. The cash impact of the
charge is expected to be a net outflow of $41 million. This charge is to
consolidate or dispose of certain underperforming and non-core locations and
implement productivity enhancements through consolidation/centralization of
activities in inventory management, purchasing, financial/accounting and other
administrative functions and consolidate or eliminate unproductive real estate
facilities. These efforts are aimed at improving our performance and
efficiency (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations").
Marketing and Sales and Service Organizations
During 1999 we developed the strategy and creative direction for our
comprehensive, coordinated branding campaign that will be implemented over the
course of next year. The campaign includes television, radio, and print
advertising; public relations and trade show initiatives; and plans for a
bolder presence at our Web site, IKON.com. The campaign will showcase the full
range of IKON's capabilities, the strength of our local teams of experts, and
our commitment to customer service. We believe we can expand the market's
understanding of what we do and heighten marketplace awareness of our ability
to address critical needs--providing solutions that boost productivity and
help businesses communicate.
Our customer loyalty is built on our employees' ability to form strong
working relationships with the people they serve in the marketplace and our
employees' ability to deliver consistently superior service and support. In
fiscal 1999, we implemented a National Sales Model that is now in place in
virtually all of our U.S. and Canadian districts that is intended to improve
our ability to align our sales professionals with opportunities in the market.
The model uses a three-tiered system for deploying sales teams, and assigns
coverage for each geographic territory, and for specific named and major
accounts. Account representatives acting as primary client contacts are
supported by specialists in color, high-volume, outsourcing, and technology
applications. The coverage plan works together with a new sales compensation
plan that will be launched throughout fiscal 2000 and that provides incentives
to help ensure that efforts in the field are fully coordinated with corporate
goals. Sales personnel turnover is common in the industry and the Company is
making a considerable effort to attract and retain qualified sales personnel.
We have a worldwide service force of approximately 10,000 employees. Our
service force is continually trained on our new products. We are able to
provide a consistent level of service nationwide and worldwide because we do
not rely on independent local dealers for service and our service force is not
focused exclusively on metropolitan areas.
Productivity Initiatives
The Company, together with PricewaterhouseCoopers LLP, conducted a thorough
review of our business in an effort to improve its cost-competitiveness and
productivity. The focus of this effort was not just to identify cost-cutting
initiatives, but also to discover areas of opportunity within our organization
that we could leverage to gain efficiencies, and invest the resulting savings
in areas that are critical to our long-term success. Significant initiatives
from this review include the following: (a) Customer Service--we are focusing
on process areas such as cycle billing, order entry processes and billing
accuracy to simplify and improve the billing for all of our products and
services and enhancing our service focus, including digital help desk support,
service territory analysis, service and quality measurements and consistent
support tools in dispatch call centers; (b) Marketing--the Company has created
a team to develop integrated marketing programs and strategies across all of
our business units, as well as build awareness for the IKON brand; (c)
Purchasing, Inventory Management and Controllable Expenses--we are developing
a national supply chain organization that will seek to leverage our buying
power with vendors and streamline our distribution and inventory management
processes to gain
6
efficiencies; (d) Human Resources--we have implemented a new organizational
structure that will support geographic territories across all business units;
and (e) Sales--we are implementing a sales coverage model to align our sales
professionals with the right opportunities, and provide them with territory
analysis and sales automation tools to effectively manage their territories as
well as a national sales compensation model that will be implemented
throughout the next fiscal year.
Customers
No single customer accounted for more than 10% of IKON's net sales in 1999.
IKON does, however, have certain major customers. The loss of, or major
reduction in business from, one or more of IKON's major customers could have a
negative effect on IKON's financial position or results of operations.
Suppliers and Inventory
The Company's business is dependent upon close relationships with its
vendors and its ability to purchase products from these vendors on competitive
terms. Products distributed by IKON are purchased from numerous domestic and
overseas suppliers, primarily Canon, Ricoh and Oce. The Company also relies on
its equipment vendors for parts and supplies. As a result of the current
demand for digital office products, we have been unable to secure a sufficient
supply of digital office equipment from our suppliers to meet our customers'
demands (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Transition to Digital Products").
The Company conducts its business in reliance upon its continuing ability to
purchase equipment, supplies, and parts from its current manufacturers
pursuant to authorized retail dealer and wholesale agreements.
Many of the Company's operations carry significant amounts of inventory to
meet rapid delivery requirements of customers. At September 30, 1999,
inventories accounted for approximately 15% of IKON's current assets.
Proprietary Matters
The Company has a number of trademarks, trade names and service marks which
the Company uses in the conduct of its business. However, except for the "IKON
Office Solutions" and "IKON" designations, the Company does not believe that
any single name, trademark, trade name or service mark is material to its
business taken as a whole.
Environmental Regulation
IKON presently is engaged in distribution and services businesses which do
not generate significant hazardous wastes. Some of IKON's distribution
facilities have tanks for storage of diesel fuel and other petroleum products
which are subject to laws regulating such storage tanks. Federal, state and
local provisions relating to the protection of the environment have not had
and are not expected to have a material adverse effect upon the Company's
capital expenditures, liquidity, earnings or competitive position. Certain
environmental claims, however, are now pending against the Company for
manufacturing or landfill sites relating to pre-divestiture activities of
discontinued manufacturing operations. While it is not possible to estimate
what expenditures may be required in order for the Company to comply with
environmental laws or discharge environmental liabilities in the future, the
Company does not believe that such expenditures will have a material adverse
effect on it or its operations taken as a whole.
Employees
At September 30, 1999, IKON had approximately 39,400 employees. IKON
believes its relations with its employees are good.
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Competition
IKON operates in a highly competitive environment. There are a number of
companies worldwide with significant financial resources which compete with
IKON to provide similar products and services in each of the markets served by
IKON. IKON's success in its future performance is largely dependent upon its
ability to compete successfully in its currently-served markets and to expand
into additional product and services segments.
Foreign Operations
IKON has operations in Canada, Mexico, the United Kingdom, Germany, France,
Ireland and Denmark. Information concerning revenues and long lived assets of
the Company's foreign continuing operations for each of the three years in the
period ended September 30, 1999 set forth in note 16 to the consolidated
financial statements (included on pages 51 through 53 of the 1999 Annual
Report) is incorporated herein by reference. Revenues from exports during the
last three fiscal years were not significant.
Item 2. Properties.
At September 30, 1999, IKON owned or leased over 950 facilities in 50
states, ten Canadian provinces, Europe and Mexico, of which approximately 1%
are owned and 99% are leased under lease agreements with various expiration
dates. These properties occupy a total of approximately 9.3 million square
feet.
Item 3. Legal Proceedings.
Subject to formal approval by the court, the Company has reached a
settlement with the Plaintiffs in the series of purported class action
complaints which were filed in the United States District Court for the
Eastern District of Pennsylvania on behalf of the Company's shareholders, and
with the Plaintiff in a companion derivative lawsuit. The Plaintiffs alleged
that during the period from January 24, 1996 to August 13, 1998, IKON and
certain current and former principal officers and employee directors publicly
disseminated false and misleading statements concerning the Company's revenue,
profitability and financial condition in violation of the federal securities
law. Under the settlement, the Company will pay $111,000,000. The court has
preliminarily approved the settlement. The Company anticipates that a final
settlement agreement will be submitted to the court and that the court will
hold a hearing on the approval of the settlement agreement in February or
March, 2000. The Company believes that the settlement also resolves a
purported class action claim pending in federal court in Utah. The Utah action
contains one claim purporting to be a class claim brought under the Employee
Retirement Income Security Act of 1974 ("ERISA"). The plaintiffs seek to
represent a class of persons who participated in the Company's Retirement
Savings Plan after January 1, 1994. The class allegations in the Utah action
largely mirror the allegations made in the complaints filed in the Eastern
District of Pennsylvania.
There are other contingent liabilities for taxes, guarantees, other
lawsuits, environmental remediation claims relating to discontinued operations
and various other matters occurring in the ordinary course of business. On the
basis of information furnished by counsel and others, management believes that
none of these other contingencies will materially affect the Company.
Except as described above, there are no material pending legal proceedings
to which the Company is a party (or to which any of its property is subject),
and to the Company's knowledge, no material legal proceedings are contemplated
by governmental authorities against the Company or any of its properties.
Item 4. Submission of Matters to a Vote of Security Holders.
(No response to this item is required.)
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EXECUTIVE OFFICERS OF IKON
The following is a list of the Company's executive officers, their ages and
their positions for at least the last five years. Unless otherwise indicated,
positions shown are with IKON or its subsidiaries.
----------------
Name Age Position and Years Served
---- --- -------------------------
James J. Forese......... 64 President, Chief Executive Officer and a director (1998-
Present); Executive Vice President and President,
International Operations (1996-1998); Chief Operating
Officer (1996) and a director (1994-1996)
Michael J. Dillon....... 46 Vice President (1994-Present) and Controller (1993-
Present); Group Controller, Office Products Group (1991-
1993)
David M. Gadra.......... 51 Senior Vice President and Chief Information Officer
(1996-Present); Manager, General Electric Corporation
Corporate Information Services (1992-1996)
Dennis P. LeStrange..... 45 Senior Vice President, IKON North America (1998-Present);
Senior Vice President of Marketing IKON Business Services
(1998-1999); President and Chief Executive Officer of
IKON New England (1994-1998)
Don H. Liu.............. 38 Senior Vice President and General Counsel (1999-Present);
Vice President and Deputy Chief Legal Officer, Aetna U.S.
Healthcare, including predecessor entity (1992-1999)
Barbara A. Pellow....... 45 Senior Vice President, Marketing (1999-Present); Industry
Consultant and a director, CAP Ventures (1996-1999); Vice
President of Marketing, Indigo; Vice President and
General Manager, Xerox Document Production Systems (1993-
1995)
Beth Sexton............. 43 Senior Vice President, Human Resources (1999-Present);
Vice President Human Resources (1997-1999); Regional Vice
President (1996 to 1997); Senior Management roles in
Human Resources with CH2M Hill and Norfolk South (1995)
William S. Urkiel....... 54 Senior Vice President and Chief Financial Officer (1999-
Present); Corporate Vice President and Chief Financial
Officer, AMP, Inc. (1997-1998); Corporate Controller,
AMP, Inc. (1995-1996); Senior Managing Director and Chief
Financial Officer, IBM Japan (1994)
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The New York Stock Exchange is the principal market on which the Company's
common stock is traded (ticker symbol IKN). As of December 15, 1999, there
were approximately 14,440 holders of record of IKON's common stock. The
information regarding the quarterly market price ranges of IKON's common stock
and dividend payments under "Quarterly Financial Summary" on page 55 of the
1999 Annual Report is incorporated herein by reference.
IKON anticipates that it will pay a quarterly dividend of $.04 per common
share in March 2000. The Company currently expects to continue its policy of
paying regular cash dividends, although there can be no assurance as to future
dividends because they are dependent upon future operating results, capital
requirements and financial condition and may be limited by covenants in
certain loan agreements.
Item 6. Selected Financial Data.
Information appearing under "Corporate Financial Summary" for fiscal 1995
through 1999 regarding revenues, income from continuing operations, income
from continuing operations per common share, total assets, total debt, serial
preferred stock and cash dividends per common share on pages 56 and 57 of the
1999 Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information appearing under "Financial Review" on pages 28 through 35 of the
1999 Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information appearing under "Market Risk" on page 35 of the 1999 Annual
Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors and Consolidated Financial Statements of
IKON and its subsidiaries on page 28 and pages 29 through 57 and the
information appearing under "Quarterly Financial Summary" for fiscal 1999 and
1998 on page 55 of the 1999 Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
(No response to this item is required)
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors appearing in IKON's Notice of Annual Meeting
of Shareholders and Proxy Statement for the February 23, 2000 annual meeting
of shareholders (the "2000 Proxy Statement") is incorporated herein by
reference. Information regarding executive officers is set forth in Part I of
this report and additional information regarding executive officers appearing
under "Executive Compensation" in the 2000 Proxy Statement is incorporated
herein by reference.
Item 11. Executive Compensation.
Information appearing under "Executive Compensation" in the 2000 Proxy
Statement is incorporated herein by reference.
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Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners and
management appearing under "Security Ownership" in the 2000 Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information appearing under "Certain Transactions" in the 2000 Proxy
Statement is incorporated herein by reference.
----------------
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules.
The response to this portion of Item 14 is submitted on page S-1 hereof as a
separate section of this report.
(a) (3) List of Exhibits.*
The following exhibits are filed as a part of this report (listed by numbers
corresponding to the Exhibit Table of Item 601 in Regulation S-K):
3.1 Amended and Restated Articles of Incorporation, filed as
Exhibit 3.1 to IKON's 1997 Form 10-K is incorporated herein by
reference.
3.2 Amendment to Amended and Restated Articles of Incorporation
filed as Exhibit 3.1 to IKON's 1998 Form 10-K is incorporated
herein by reference.
3.3 Code of Regulations of IKON, filed as Exhibit 3.2 to IKON's
Form 10-Q for the quarter ended March 31, 1996 is incorporated
herein by reference.
4.1 Credit Agreement, dated January 16, 1998, among IKON and
various institutional lenders, with CoreStates Bank, N.A., as
Agent filed as Exhibit 4.1 to IKON's 1998 Form 10-K is
incorporated herein by reference.
4.2 Credit Agreement among IKON, certain of its subsidiaries,
various banks and Deutsche Bank AG, New York Branch, as Agent,
dated as of August 30, 1996 and Amendment 1 to Credit
Agreement, dated as of April 1, 1997, ("DB Credit Agreement")
filed as Exhibit 4.2 to IKON's 1997 Form 10-K is incorporated
herein by reference.
4.3 Extension to DB Credit Agreement dated August 30, 1999.
4.4 Credit Agreement dated as of October 13, 1995 among IKON Office
Solutions, Inc., an Ontario corporation (formerly Alco Office
Systems Canada), Deutsche Bank Canada, Chemical Bank of Canada
and Royal Bank of Canada (the "1995 Credit Agreement"), filed
as Exhibit 4.5 to IKON's 1998 Form 10-K is incorporated herein
by reference.
4.5 Amendment Number 1 to Guarantee appended to the 1995 Credit
Agreement, filed as Exhibit 4.3 to IKON"s 1998 Form 10-K is
incorporated herein by reference.
4.6 Note Purchase Agreement between IKON and various purchasers
dated July 15, 1995 for $55 million in 7.15% Notes due November
15, 2005, filed as Exhibit 4.9 to IKON's 1995 Form 10-K is
incorporated herein by reference.
4.8 Pursuant to Regulation S-K item 601(b)(iii), IKON agrees to
furnish to the Commission, upon request, a copy of other
instruments defining the rights of holders of long-term debt of
IKON and its subsidiaries.
10.1 Distribution Agreement between IKON and Unisource Worldwide,
Inc. ("Unisource") dated as of November 20, 1996, filed as
Exhibit 2.1 to Unisource's Registration Statement on Form 10
(effective November 26, 1996) is incorporated herein by
reference.
11
10.2 Tax Sharing and Indemnification Agreement between IKON and
Unisource dated as of November 20, 1996, filed as Exhibit 10.1
to Unisource's Registration Statement on Form 10 (effective
November 26, 1996) is incorporated herein by reference.
10.3 Benefits Agreement between IKON and Unisource dated as of
November 20, 1996, filed as Exhibit 10.5 to Unisource's
Registration Statement on Form 10 (effective November 26, 1996)
is incorporated herein by reference.
10.4 Support Agreement dated as of October 22, 1996 between IKON and
IKON Capital, Inc. (IKON's leasing subsidiary), filed as
Exhibit 10.4 to IOS Capital, Inc.'s Form 8-K dated October 22,
1996 is incorporated herein by reference.
10.5 Amended and Restated Receivables Transfer Agreement dated as of
March 31, 1997 among IKON Funding, Inc., IOS Capital, Inc.,
Twin Towers, Inc. and Deutsche Bank AG, New York Branch, filed
as Exhibit 10.5 to IKON's 1997 Form 10-K is incorporated herein
by reference.
10.6 First Tier Transfer Agreement, dated as of March 31, 1997,
between IOS Capital, Inc. and IKON Funding, Inc., filed as
Exhibit 10.6 to IKON's 1997 Form 10-K is incorporated herein by
reference.
10.7 Receivables Transfer Agreement dated as of September 30, 1996
among IKON Funding, Inc., IOS Capital, Inc., Old Line Funding
Corp. and Royal Bank of Canada, filed as Exhibit 10.5 to IKON's
1996 Form 10-K is incorporated herein by reference.
10.8 Amendment number 1 to Receivables Transfer Agreement dated as
of November 7, 1997 filed as Exhibit 10.7 to IKON's 1998 Form
10-K is incorporated herein by reference.
10.9 Transfer Agreement dated as of September 30, 1996 between IOS
Capital, Inc. and IKON Funding, Inc., filed as Exhibit 10.6 to
IKON's 1997 Form 10-K is incorporated herein by reference.
10.10 Amendment number 1 to Transfer Agreement dated September 30,
1996 filed as Exhibit 10.8 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.11 Receivables Transfer Agreement dated as of December 1, 1998
among IOS Capital, Inc., IKON Funding-1, LLC, Market Street
Funding Corporation and PNC Bank, N.A., as Agent filed as
Exhibit 10.9 to IKON's 1998 Form 10-K is incorporated herein by
reference.
10.12 Transfer Agreement dated as of December 1, 1998 between IKON
Funding-1, LLC and IOS Capital, Inc filed as Exhibit 10.10 to
IKON's 1998 Form 10-K, is incorporated herein by references.
10.13 First Amendment dated September 10, 1999 to Transfer Agreement.
10.14 Master Concurrent Lease Agreement between IKON Office
Solutions, Inc., a Canadian corporation, IKON Capital, Inc., a
Canadian corporation, IKON Office Solutions, Inc., an Ohio
corporation, Prime Trust and TD Securities, Inc. filed as
Exhibit 10.11 to IKON's 1998 Form 10-K is incorporated herein
by reference.
10.15 Indenture dated as of December 11, 1995 between IKON and First
Union Bank, N.A., as Trustee, filed as Exhibit 4 to IKON's
Registration Statement No. 33-64177 is incorporated herein by
reference.
10.16 Indenture dated as of July 1, 1995 between IOS Capital, Inc.
and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.),
as Trustee, filed as Exhibit 10.8 to IKON's 1996 Form 10-K is
incorporated herein by reference.
10.17 Indenture dated as of July 1, 1994 between IOS Capital, Inc.
and NationsBank, N.A., as Trustee, filed as Exhibit 4 to IKON
Capital, Inc.'s Registration Statement No. 33-53779 is
incorporated herein by reference.
12
10.18 Indenture dated as of April 1, 1986 between IKON and the Chase
Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to
IKON's Registration Statement No. 30-4829 is incorporated
herein by reference.
10.19 Distribution Agreement dated as of June 4, 1997 between IOS
Capital, Inc. and various distribution agents, filed as Exhibit
10.13 to IKON's 1997 Form 10-K is incorporated herein by
reference.
10.20 Distribution Agreement dated as of June 30, 1995 between IOS
Capital, Inc. and various distribution agents, filed as Exhibit
10.21 to IKON's 1995 Form 10-K is incorporated herein by
reference.
10.21 Distribution Agreement dated July 1, 1994, filed as Exhibit 1
to IOS Capital Inc.'s Form 10-Q for the quarter ended June 30,
1994 is incorporated herein by reference.
10.22 Rights Agreement dated as of February 10, 1988 between IKON and
National City Bank, filed on February 11, 1988 as Exhibit 1 to
IKON's Registration Statement on Form 8-A is incorporated
herein by reference.
10.23 Amended and Restated Rights Agreement dated as of June 18,
1997, filed as Exhibit 4.1 to IKON's Form 8-K dated June 18,
1997 and filed as Exhibit 10.19 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.24 Amended and Restated Long Term Incentive Compensation Plan,
filed as Exhibit 10.1 to IKON's Form 10-Q for the quarter ended
March 31, 1996 is incorporated herein by reference.
10.25 Amendment Number 1 to Amended and Restated Long Term Incentive
Compensation Plan, filed as 10.2 to IKON's 1998 Form 10-K, is
incorporated herein.
10.26 Annual Bonus Plan, filed as Exhibit 10.3 to IKON's 1994 Form
10-K, is incorporated herein by reference**.
10.27 1986 Stock Option Plan, filed as Exhibit 10.6 to IKON's 1995
Form 10-K is incorporated herein by reference.
10.28 Amendment to 1986 Stock Option Plan** as filed as Exhibit 10.22
to IKON's 1998 Form 10-K is incorporated herein by reference.
10.29 1995 Stock Option Plan, filed as Exhibit 10.5 to IKON's Form
10-Q for the quarter ended March 31, 1996 is incorporated
herein by reference.
10.30 Amendment to 1995 Stock Option Plan filed as Exhibit 10.23 to
IKON's 1998 Form 10-K is incorporated herein by reference.
10.31 Non-Employee Directors Stock Option Plan, filed as Exhibit
10.31 to IKON's 1997 Form 10-K is incorporated herein by
reference.
10.32 Executive Employment Contract for David M. Gadra, filed as
Exhibit 10.26 to IKON's 1997 Form 10-K is incorporated herein
by reference.
10.33 Executive Employment Contract for James J. Forese.**
10.34 Executive Employment Contract for David Mills.**
10.35 Amended Executive Employment Contract for David Mills.**
10.36 Letter amending Executive Employment Contract for Dennis P.
LeStrange.**
10.37 Executive Employment Contract for Peter W. Shoemaker, filed as
Exhibit 10.25 to IKON's 1998 Form 10-K is incorporated herein
by reference.
10.38 Executive Employment Contract for Lynn B. Graham, filed as
Exhibit 10.25 to IKON's 1998 Form 10-K is incorporated herein
by reference.
10.39 Form of Change in Control Agreement David M. Gadra, filed as
Exhibit 10.26 to IKON's 1997 Form 10-K is incorporated herein
by reference.
10.40 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to
IKON's 1992 Form 10-K is incorporated herein by reference.
13
10.41 Amendment dated November 6, 1997 to 1980 Deferred Compensation
Plan** filed as Exhibit 10.28 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.42 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to
IKON's 1992 Form 10-K is incorporated herein by reference.
10.43 Amendment dated November 6, 1997 to 1985 Deferred Compensation
Plan** filed as Exhibit 10.29 to IKON's 1998 10-K is
incorporated herein by reference.
10.44 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to
IKON's 1992 Form 10-K is incorporated herein by reference.
10.45 Amendment dated November 6, 1997 to 1991 Deferred Compensation
Plan** filed as Exhibit 10.30 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.46 Amended and Restated 1994 Deferred Compensation Plan filed as
Exhibit 10.31 to IKON's 1998 Form 10-K is incorporated herein
by reference.**
10.47 Executive Deferred Compensation Plan filed as Exhibit 10.32 to
IKON's 1998 Form 10-K is incorporated herein by reference.**
10.48 Concurrent Lease Agreement between IKON Office Solutions, Inc.
et al. And Care Trust dated September 14, 1999.
12.1 Ratio of Earnings to Fixed Charges.
12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance
Subsidiaries.
12.3 Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
12.4 Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends Excluding Captive Finance Subsidiaries.
13 Financial Section of IKON's Annual Report to Shareholders for
the fiscal year ended September 30, 1999 (which, except for
those portions thereof expressly incorporated herein by
reference, is furnished for the information of the Commission
and is not "filed" as part of this report).
21 Subsidiaries of IKON.
23 Auditors' Consent.
24 Powers of Attorney; certified resolution re: Powers of
Attorney.
27 Financial Data Schedule.
- --------
* Copies of the exhibits will be furnished to any security holder of IKON
upon payment of the reasonable cost of reproduction.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
(c) The response to this portion of Item 14 is submitted in response to Item
14(a)(3) above.
(d) The response to this portion of Item 14 is contained on page F-1 of this
report.
14
IKON Office Solutions, Inc. and Subsidiaries
ANNUAL REPORT ON FORM 10-K
ITEMS 14(a)(1) and (2) and 14(d)
List of Financial Statements and
Financial Statement Schedules
Financial Statements: The following consolidated financial statements of
IKON Office Solutions, Inc. and its subsidiaries included in the 1999 Annual
Report to Shareholders are incorporated by reference in Item 8 of Part II of
this report:
Consolidated Statements of Operations
--Fiscal years ended September 30, 1999, September 30, 1998 and
September 30, 1997
Consolidated Balance Sheets
--September 30, 1999 and September 30, 1998
Consolidated Statements of Cash Flows
--Fiscal years ended September 30, 1999, September 30, 1998 and
September 30, 1997
Consolidated Statements of Changes in Shareholders' Equity
--Fiscal years ended September 30, 1999, September 30, 1998 and
September 30, 1997
Notes to Consolidated Financial Statements
Financial Statement Schedules: The following consolidated financial
statement schedule of IKON Office Solutions, Inc. and its subsidiaries is
submitted in response to Item 14(d).
Schedule II--Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report on Form 10-K for the Fiscal
Year ended September, 30, 1999 to be signed on its behalf by the undersigned,
thereunto duly authorized.
IKON OFFICE SOLUTIONS, INC.
Date: December 28, 1999
/s/ Michael J. Dillon
By: _________________________________
(Michael J. Dillon)
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below on December 28, 1999 by the following
persons on behalf of the registrant and in the capacities indicated.
SIGNATURES TITLE
/s/ James J. Forese President, Chief Executive
_______________________________ Officer and a Director
(James J. Forese) (Principal Executive Officer)
/s/ William S. Urkiel Senior Vice President and
_______________________________ Chief Financial Officer
(William S. Urkiel) (Principal Financial Officer)
/s/ Michael J. Dillon Vice President and Controller
_______________________________ (Principal Accounting
(Michael J. Dillon) Officer)
*Judith M. Bell Director
_______________________________
(Judith M. Bell)
*James R. Birle Director
_______________________________
(James R. Birle)
*Philip E. Cushing Director
_______________________________
(Phillip E. Cushing)
*Robert M. Furek Director
_______________________________
(Robert M. Furek)
*Thomas R. Gibson Director
_______________________________
(Thomas R. Gibson)
16
SIGNATURES TITLE
*Barbara Barnes Hauptfuhrer Director
______________________________
(Barbara Barnes Hauptfuhrer)
*Richard A. Jalkut Non-Executive Chairman and a
______________________________ Director
(Richard A. Jalkut)
*Arthur E. Johnson Director
______________________________
(Arthur E. Johnson)
*By her signature set forth below, Karin M. Kinney, pursuant to duly executed
Powers of Attorney duly filed with the Securities and Exchange Commission, has
signed this Form 10-K on behalf of the persons whose signatures are printed
above, in the capacities set forth opposite their respective names.
/s/ Karin M. Kinney December 28, 1999
______________________________
(Karin M. Kinney)
17
IKON OFFICE SOLUTIONS
SCHEDULE II--VALUATION AND QUALIFYING ASSETS
Col. A Col. B Col. C Col. D Col. E
------ ------------ ----------------------- ------------- -----------
Charged to
Balance at Charged to Other Balance
Beginning of Costs and Accounts -- Deductions -- at End
Description Period Expenses Describe Describe of Period
----------- ------------ ----------- ----------- ------------- -----------
Year Ended September 30,
1999
Allowance for doubtful
accounts............... $63,591,000 $31,765,000 $ 550,000 (1) $52,363,000(2) $43,543,000
Lease Default Reserve... 83,507,000 62,790,000 (710,000)(3) 72,223,000(2) 74,784,000
Year Ended September 30,
1998
Allowance for doubtful
accounts............... $54,192,000 $47,052,000 $ 903,000 (1) $38,556,000(2) $63,591,000
Lease Default Reserve... 76,767,000 94,768,000 14,014,000 (3) 74,014,000(2) 83,507,000
Year Ended September 30,
1997
Allowance for doubtful
accounts............... $35,308,000 $25,724,000 $3,755,000 (1) $10,595,000(2) $54,192,000
Lease Default Reserve... 60,484,000 56,231,000 39,948,000(2) 76,767,000
- --------
(1) Represents beginning balances of acquired companies.
(2) Accounts written off during year, net of recoveries.
(3) Represents portion related to assets sold
18