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IKON Announces Third Quarter Results; New $200 Million Credit Facility

3 Aug, 2004

IKON Announces Third Quarter Results; New $200 Million Credit Facility

IKON Office Solutions reported $1.16 billion in revenue for the third fiscal quarter, a decline of 1.3 percent compared to the prior year.

Growth in targeted revenue streams was offset by the decline in finance revenues as the company began its transition out of captive lease financing in North America. Targeted revenue streams, which represent 95 percent of total revenues and exclude revenues from U.S. and Canadian lease financing and computer-related technology hardware, grew by 4 percent compared to the same period a year ago. Finance income from the U.S. and Canadian portfolios declined by 61 percent from the prior year and is expected to decline primarily over the next 24 months, as the company completes its previously announced transition out of captive lease financing in the U.S. and Canada. This strategic shift includes the funding of new lease originations by IKON Financial Services, a strategic alliance under GE Commercial Finance ("GE"). Foreign currency translation provided a 1.1 percent benefit to total revenues.

"We were pleased to deliver positive results for both our customers and shareholders in the quarter," stated Matthew J. Espe, IKON's Chairman and Chief Executive Officer. "The third quarter was our first under a dramatically different business model, and the transition went smoothly. This important business transition for IKON was successful because of our customer-centric focus, and the value of the IKON sales and service distribution network. This highly-focused business model allows us to integrate new technologies from various manufacturers and newly developed relationships with best-in-class solution providers more effectively than any competitor in our industry. In addition, many of our growth initiatives are going well, fueled by organic improvements as well as the new GE relationship.”

Highlights in the quarter, according to Espe, included:

-- Exceptional color performance, where we delivered 50 percent growth over the prior year. With IKON's color portfolio boasting technologies from industry leaders such as Canon, Ricoh and, the IKON CPP 8050 co-branded with Konica-Minolta - which has become the industry's top selling light production color unit - we're confident that color will be a positive contributor to our long-term growth profile.

-- The introduction of Enterprise Services, which includes post-sale Customer Service, outsourced Managed Services, and higher-end Professional Services. This strategic framework allows IKON to provide end-to-end document management solutions at varying degrees of customer needs, and serves as the platform for the ongoing development of the Company's global document management software and solutions distribution model.

-- National account business also continued to accelerate, with revenues more than doubling in the quarter compared to a year ago. Year-to-date, we've already eclipsed our total 2003 success rate in winning new Fortune 1000 customers. Our best-in-class products and our integrated services are the differentiators that are increasingly hard for competitors to beat. These investments allow our customers to fully leverage the range of capabilities IKON offers within Enterprise Services.

“Our investments and strategic repositioning efforts also are beginning to yield benefits," continued Espe. "As we complete the transition out of captive leasing in North America through the run-off of our remaining U.S. lease portfolio, we look forward to the continued deployment of cash proceeds toward execution of our share repurchase program and other opportunities that strengthen our financial position and improve our prospects for growth."

Since last quarter, the company executed a number of capital structure and liquidity related objectives. The cumulative effect of these, and prior actions, has contributed to the decline in the Company's total debt to capital ratio to 50.8 percent from 67.7 percent a year ago.

IKON also announced the completion of a $200 million senior secured revolving credit facility. The new facility will be used for general corporate purposes. Wachovia Capital Markets is the sole administrative agent on the facility, which includes a syndicate of banks and other financial institutions. Financial covenants of the credit facility are consistent with IKON's long-term financial objectives for share repurchases, dividends, and other investment opportunities.

"As we approach the close of Fiscal 2004, we will continue to focus on the strategic initiatives and opportunities that position us for improved operational leverage and to become a stronger channel for document management products and services," continued Espe. "Through operational initiatives such as e-IKON, Six Sigma and Teleweb, we expect to achieve further productivity and sales effectiveness. Our National Accounts momentum coupled with positive trends in color and high-volume equipment will continue to augment core growth, and opportunities in the European markets and Enterprise Services hold promise for further expansion across all of IKON's businesses. And now, with our strategic alliance with GE in place, we have created new opportunities that will move us toward our goal of becoming the pre-eminent channel for document management systems and services in the industry."



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