RICOH USA INC 
By 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 2007 ended March 31, 2007. For the second quarter, net income was $30 million, or $0.24 per diluted share, representing a 26% increase over $0.19 in the second quarter of fiscal year 2006, and exceeding the Company's previously communicated guidance of $0.19 to $0.21.
Total revenue for the second quarter of fiscal year 2007 was $1.1 billion, down 3% year over year, including a 1% currency benefit. Targeted revenue, which represents 98% of total revenue, declined 2% compared to the same quarter last year. Targeted revenue includes all revenues except those categorized as ?Other.?
Selling and administrative expenses decreased $22 million year over year and represented 27.9% of revenue in the second quarter, in line with the Company's expense-to-revenue ratio goal of less than 29% for fiscal year 2007. The decrease in selling and administrative expenses was driven by reductions in every area of the business, including lower headcount and compensation, professional fees, pension, real estate, and other corporate expenses.
Operating income margin in the second quarter of 2007 was 4.9%, representing a 20 basis point improvement from the 4.7% reported in the second quarter of 2006. The Company's effective tax rate for the quarter was 28%. The Company anticipates that the tax rate for the full fiscal year 2007 will be less than 32%.
?We are pleased with our earnings performance for the quarter. Our Customer Service and Supplies revenue is beginning to stabilize, our Managed and Professional Services revenue continues to grow, and we had strong color equipment placements and revenue growth. We also had good results in Europe and continued to focus on expense management throughout the business,? said Matthew J. Espe, IKON's Chairman and Chief Executive Officer.
Second Quarter 2007 Financial Details
Equipment revenue of $454 million, which includes the sale of copier/printer multifunction products, declined 2% from the second quarter of fiscal year 2006. The year-over-year decline was primarily driven by lower revenue in the black and white office and production segments due to continued pricing pressures, partially offset by color revenue growth and currency. Color equipment revenue growth in the second quarter was driven by strong placements and revenue from both office color and production color devices. The Company's U.S. color equipment revenue mix increased to 37% from 28% in the second quarter last year. Gross margin on equipment increased to 25.6% from 25.5% in the second quarter of fiscal year 2006 due to strong color equipment revenue and placements.
Customer Service and Supplies revenue of $345 million, which includes revenue from the servicing of copier/printer equipment and direct sales of supplies, decreased 4% year over year, but was flat sequentially as Customer Service revenue begins to stabilize in line with the Company's expectations. Customer Service revenue declined year over year primarily due to lower revenue per copy. The Company expects that Customer Service and Supplies revenue in the second half of the fiscal year will decrease 1% to 2% from the first half of fiscal year 2007. Gross margin on Customer Service and Supplies decreased to 41.3% from 42.8% a year ago due to lower revenue partially offset by lower cost.
Managed and Professional Services revenue of $198 million, which includes both on-site and off-site Managed Services, as well as Professional Services, increased 7% compared to the second quarter of fiscal year 2006. On-site Managed Services revenue, which represents approximately two-thirds of total Managed and Professional Services, increased 7% year over year. Professional Services grew 28% and off-site Managed Services declined 2% year over year. Gross margin on Managed and Professional Services increased to 27.3% from 26.5% a year ago due to improvements in on-site Managed Services' contract profitability and Professional Services.
Rental and Fees revenue of $35 million declined 20%, and gross margin increased to 75.5% from 70% year over year, both primarily due to the sale of the U.S. retained lease portfolio.
Other revenue of $19 million declined 36%, as expected, compared to the second quarter of fiscal year 2006 due to the sales of the U.S. retained and German lease portfolios. In fiscal 2007, Other revenue includes finance income from the Company's European leasing business and revenue generated by the remaining European technology services and hardware businesses. In fiscal 2006, Other revenue also included finance income from the Company's U.S. retained and German lease portfolios, which were sold during fiscal 2006.
Balance Sheet and Liquidity
The Company's cash balance was $324 million as of March 31, 2007 and the Company's debt-to-capital ratio was 32%, a decline from 33% at the end of the first quarter. Cash used in operations totaled $11 million for the first six months of fiscal year 2007, compared to cash provided by operations of $40 million for the first six months of last year. The cash usage in the first half of the year was driven by a $109 million increase in inventory, partially offset by improvements in accounts receivable and accounts payable. The Company now expects fiscal year-end 2007 inventory to range from $265 million to $275 million, compared to $326 million at the end of the second quarter of fiscal 2007. Capital expenditures on operating rentals and property and equipment, net of proceeds, totaled $20 million for the first six months, compared to $15 million for the first six months of fiscal year 2006. Free cash flow was a negative $31 million for the first six months of the year. The Company expects free cash flow will improve as the year progresses and anticipates it will be at the high-end of the previously communicated range of $80 million to $120 million for fiscal year 2007.
For the second quarter, fully diluted weighted average shares were 128 million. At the end of the quarter, actual shares outstanding were 126 million, a reduction of 4% year over year, driven by the Company's share repurchase program. The Company purchased 1.4 million shares for $22 million during the second quarter. Since the Company initiated its share repurchase program three years ago, the Company has repurchased a total of 30 million shares for $351 million, and also eliminated its convertible debt, which could have been converted into 20 million common shares.
The Company negotiated significant incremental flexibility for its share repurchase program in the second quarter of fiscal year 2007. First, through a successful consent solicitation, the Company amended the indenture governing its 2015 Notes. Second, the Company amended the terms of its credit facility, eliminating limitations on the Company's ability to make restricted payments for share repurchases and dividends, provided the Company remains in compliance with basic maintenance covenants. In addition, on April 24, 2007, the Company's Board of Directors increased its share repurchase authorization by $200 million, to $600 million in total. Given the increased share repurchase capacity, the Company now plans to spend $80 million to $90 million during the second half of fiscal year 2007. This increase represents total expected share purchases of $135 million to $145 million for fiscal year 2007, exceeding the Company's initial goal of $75 million to $100 million.
IKON's Board of Directors also approved the Company's regular quarterly cash dividend of $0.04 per common share, payable on June 10, 2007 to holders of record at the close of business on May 21, 2007.
Outlook
?Looking ahead to the third quarter of 2007, we expect earnings per fully diluted share to range from $0.22 to $0.24,? said Espe. ?We are focused on our action plans to grow revenue as we move forward, including adding over 150 selling resources in the field in the third quarter, and driving color placements to increase our color copy volume mix. In addition, we are excited by the upcoming launch of the new Canon imagePRESS C7000VP, which represents new pages for IKON in the production color space. We have presales activity underway and customer reaction has been very positive.
?Our expectations for fiscal year 2007 are to deliver an operating income margin of approximately 5%, up from the prior year, and earnings per fully diluted share of $0.90 to $0.93.?
Mark Your Calendar
IKON will be hosting its Fiscal Year 2007 Investor Conference on May 9, 2007 in New York City. The conference will be webcast and available on the Company's website at www.ikon.com under Calendar & Presentations.
About IKON
IKON Office Solutions, Inc. (www.ikon.com) is the world's largest independent channel for document management systems and services, enabling customers worldwide 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, Kyocera Mita 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 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 second quarter 2007 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, April 26, 2007. 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 and then Calendar & Presentations. Beginning at 1:00 p.m. ET on April 26, 2007 and ending at midnight ET on April 30, 2007, 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 237242.
MARK YOUR CALENDAR: |
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 2007 results from continuing operations, Customer Service and Supplies revenue, inventory, free cash flow, tax rate, color growth strategies, and our ability to execute on our strategic priorities, including growth objectives, improved operating efficiency and capital strategy, including our share repurchase program. 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.
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, including targeted revenue and free cash flow, which IKON believes provide investors with a useful indication of the performance of IKON's ongoing operations and financial position.
IKON believes targeted revenue is a useful measure because it excludes Other revenue which consists of sold and de-emphasized operations.
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.
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)
IKON Office Solutions, Inc. | |||||
| Three Months Ended March 31, | |||||
| 2007 | 2006 | ||||
| Revenues | |||||
| Equipment | $ | 453,686 | $ | 460,748 | |
| Customer service and supplies | 345,267 | 361,383 | |||
| Managed and professional services | 198,237 | 185,470 | |||
| Rental and fees | 34,576 | 43,248 | |||
| Other | 18,970 | 29,660 | |||
| 1,050,736 | 1,080,509 | ||||
| Cost of Revenues | |||||
| Equipment | 337,709 | 343,405 | |||
| Customer service and supplies | 202,691 | 206,679 | |||
| Managed and professional services | 144,211 | 136,366 | |||
| Rental and fees | 8,486 | 12,975 | |||
| Other | 12,630 | 15,757 | |||
| 705,727 | 715,182 | ||||
| Gross Profit | |||||
| Equipment | 115,977 | 117,343 | |||
| Customer service and supplies | 142,576 | 154,704 | |||
| Managed and professional services | 54,026 | 49,104 | |||
| Rental and fees | 26,090 | 30,273 | |||
| Other | 6,340 | 13,903 | |||
| 345,009 | 365,327 | ||||
| Selling and administrative | 293,280 | 314,827 | |||
| Gain on divestiture of business | - | 105 | |||
| Restructuring expense | - | 17 | |||
| Operating income | 51,729 | 50,588 | |||
| Interest income | 3,039 | 2,365 | |||
| Interest expense | 12,530 | 13,315 | |||
| Income from continuing operations before taxes on income | 42,238 | 39,638 | |||
| Taxes on income | 11,785 | 14,270 | |||
| Income from continuing operations | 30,453 | 25,368 | |||
| Discontinued Operations: | |||||
| Operating loss | - | 51 | |||
| Tax benefit | - | 21 | |||
| Net loss from discontinued operations | - | 30 | |||
| Net income | $ | 30,453 | $ | 25,338 | |
| Basic Earnings Per Common Share | |||||
| Continuing operations | $ | 0.24 | $ | 0.19 | |
| Discontinued operations | - | 0.00 | |||
| Net income | $ | 0.24 | $ | 0.19 | |
| Diluted Earnings Per Common Share | |||||
| Continuing operations | $ | 0.24 | $ | 0.19 | |
| Discontinued operations | - | 0.00 | |||
| Net income | $ | 0.24 | $ | 0.19 | |
| Weighted Average Common Shares Outstanding, Basic | 126,329 | 132,506 | |||
| Weighted Average Common Shares Outstanding, Diluted | 128,182 | 134,033 | |||
| Operational Analysis: | |||||
| Gross profit %, equipment | 25.6% | 25.5% | |||
| Gross profit %, customer service and supplies | 41.3% | 42.8% | |||
| Gross profit %, managed and professional services | 27.3% | 26.5% | |||
| Gross profit %, rental and fees | 75.5% | 70.0% | |||
| Gross profit %, other | 33.4% | 46.9% | |||
| Total gross profit % | 32.8% | 33.8% | |||
| Selling and administrative as a % of revenue | 27.9% | 29.1% | |||
| Operating income as a % of revenue | 4.9% | 4.7% | |||
| IKON Office Solutions, Inc. Income Statement and Operational Analysis (in thousands, except earnings per share) (unaudited) | ||||||||||||||||||||||||||||||
| Six Months Ended March 31, | ||||||||||||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||
| Equipment | $ | 869,923 | $ | 885,737 | ||||||||||||||||||||||||||
| Customer service and supplies | 691,237 | 732,606 | ||||||||||||||||||||||||||||
| Managed and professional services | 390,480 | 361,852 | ||||||||||||||||||||||||||||
| Rental and fees | 69,984 | 83,675 | ||||||||||||||||||||||||||||
| Other | 36,996 | 59,502 | ||||||||||||||||||||||||||||
| 2,058,620 | 2,123,372 | |||||||||||||||||||||||||||||
| Cost of Revenues | ||||||||||||||||||||||||||||||
| Equipment | 650,093 | 666,648 | ||||||||||||||||||||||||||||
| Customer service and supplies | 396,921 | 405,732 | ||||||||||||||||||||||||||||
| Managed and professional services | 286,463 | 268,012 | ||||||||||||||||||||||||||||
| Rental and fees | 18,395 | 25,773 | ||||||||||||||||||||||||||||
| Other | 24,627 | 29,687 | ||||||||||||||||||||||||||||
| 1,376,499 | 1,395,852 | |||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||
| Equipment | 219,830 | 219,089 | ||||||||||||||||||||||||||||
| Customer service and supplies | 294,316 | 326,874 | ||||||||||||||||||||||||||||
| Managed and professional services | 104,017 | 93,840 | ||||||||||||||||||||||||||||
| Rental and fees | 51,589 | 57,902 | ||||||||||||||||||||||||||||
| Other | 12,369 | 29,815 | ||||||||||||||||||||||||||||
| 682,121 | 727,520 | |||||||||||||||||||||||||||||
| Selling and administrative | 581,417 | 628,814 | ||||||||||||||||||||||||||||
| Gain on divestiture of business | - | 5,029 | ||||||||||||||||||||||||||||
| Restructuring benefit | - | 135 | ||||||||||||||||||||||||||||
| Operating income | 100,704 | 103,870 | ||||||||||||||||||||||||||||
| Loss from the early extinguishment of debt | - | 1,650 | ||||||||||||||||||||||||||||
| Interest income | 6,399 | 4,936 | ||||||||||||||||||||||||||||
| Interest expense | 24,982 | 27,113 | ||||||||||||||||||||||||||||
| Income from continuing operations before taxes on income | 82,121 | 80,043 | ||||||||||||||||||||||||||||
| Taxes on income | 24,331 | 27,043 | ||||||||||||||||||||||||||||
| Income from continuing operations | 57,790 | 53,000 | ||||||||||||||||||||||||||||
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© Business Wire - 2007
Ricoh USA, Inc is a global technology company. The Company offers document management systems, information technology (IT) services, production print solutions, visual communications systems, digital cameras, and industrial systems. The Company operates in approximately 200 countries and regions.
Sector
Office Equipment
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