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IKON Eliminates 1,500 Jobs in North America

2 Mar, 2005

IKON Eliminates 1,500 Jobs in North America

IKON Office Solutions, the world's largest independent channel for document management systems and services, today announced that the company will take several actions to reduce costs, increase productivity and improve operating income.

The actions involve IKON's operations in Business Document Services, Legal Document Services and Mexico, the company's North American field organization and its corporate support staff. These efforts will enable IKON to create a more cost-effective structure, improving the company's competitiveness.

The actions will result in the elimination of approximately 1,500 positions in North America. The company currently employs approximately 29,000 people throughout North America and Europe.

Business Document Services

The company is exiting its Business Document Services unit, which provides off-site document management solutions for businesses, including outsourced digital print and fulfillment services. This segment of the industry continues to commoditize and does not offer the company an attractive revenue and profitability model. Exiting this business will allow the company to focus its investments on opportunities that provide the best revenue and operating income growth potential. The pretax charges related to this action are estimated to be in the range of $18 million to $28 million. The company has a plan in place to ensure smooth customer transition as it exits the business. IKON expects to report the results of this business as discontinued operations.

Legal Document Services

IKON offers specialized off-site document management solutions for the legal industry, including document imaging, coding and conversion services, legal graphics and electronic discovery, through 82 sites in North America. The company is reducing the number of sites to 65, which will provide both cost flexibility and cost savings. This business remains strategically important to IKON, and the company will continue to actively serve this market across North America. The pretax charges related to this action are estimated to be in the range of $3 million to $4 million.

Field Organization and Corporate Support Staff

In February, the company began reorganizing its field structure in North America to serve its customers in a more cost-effective manner, while maximizing sales potential. IKON is expanding geographic coverage under certain area vice presidents, allowing the company to reduce the number of its marketplaces. By streamlining its field leadership structure and reducing other corporate support staff, IKON will be able to save costs while maintaining its sales capabilities and the service provided to its customers. The pretax charges related to this action are estimated to be in the range of $11 million to $12 million.

Operations in Mexico

The company has sold substantially all of its operations in Mexico. The sale will allow the company to re-position its resources to serve its larger customers more effectively and efficiently. IKON will continue to serve its national and multi-national customers through locations in Mexico City, Monterrey and Guadalajara and operate its remanufacturing facility located in Tijuana. The company expects to incur a pretax loss on the sale of approximately $6 million to $8 million.

"We are dedicated to making IKON the strongest independent channel in our industry," said Matthew J. Espe, chairman and chief executive officer, IKON Office Solutions. "By exiting non-strategic businesses, rationalizing our structure in legal document services and streamlining our field and corporate organizations, we are creating a cost-competitive infrastructure and focusing our resources and energy on key areas of profitable growth, such as color solutions and enterprise services."

The total pretax charges associated with the actions include severance expenses, asset impairments, contract costs, loss on the sale of a business, and other charges estimated to be in the range of $38 million to $52 million, or $0.18 to $0.25 per diluted share, a significant portion of which is expected to be reported in the second quarter of fiscal 2005, with the remainder to be taken through the rest of the fiscal year. These charges include those related to reporting the results of Business Document Services as discontinued operations. The estimated after-tax cash expenditures total approximately $17 million to $25 million and consist primarily of severance payments and lease termination costs. The company expects to complete these actions by the end of fiscal 2005.

"We remain committed to achieving our financial objectives, and will continue to look for opportunities to improve our operational efficiency and increase our competitiveness," added Espe. "Excluding the charges discussed above and those related to expensing stock options beginning in the fourth quarter of fiscal 2005, our previously communicated expectation of $0.63 to $0.68 earnings per diluted share for the fiscal year remains unchanged, and we expect to improve this performance as we move into fiscal 2006."

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