##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the three months ended December 31, 2007
 Or
 o
    
    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)
 OHIO(State or other jurisdiction of 
incorporation or organization)
    
    23-0334400(I.R.S. Employer
Identification No.)70 Valley Stream Parkway 
Malvern, Pennsylvania(Address of principal executive offices)
    
    19355(Zip Code)
 Registrants telephone number, including area code:
(610) 296-8000
 
  þ o
  þ o o
 o þ




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##### 



INDEX
 Page No.CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATIONITEM 1.
    
    CONDENSED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS  DECEMBER 31, 2007 AND
SEPTEMBER 30, 2007 (UNAUDITED)
    
    
    4CONSOLIDATED STATEMENTS OF INCOME  THREE MONTHS ENDED
DECEMBER 31, 2007 AND 2006 (UNAUDITED)
    
    
    5CONSOLIDATED STATEMENTS OF CASH FLOWS  THREE MONTHS
ENDED DECEMBER 31, 2007 AND 2006 (UNAUDITED)
    
    
    6NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    
    
    7-15ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    16-24ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    24ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    24-25PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    26ITEM 1A.
    
    RISK FACTORS
    
    
    26ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    26ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    26ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    26ITEM 5.
    
    OTHER INFORMATION
    
    
    26ITEM 6.
    
    EXHIBITS
    
    
    26SIGNATURESCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
   2




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FORWARD-LOOKING STATEMENTS
   
    
    conducting operations in a competitive environment and a changing industry;
    
    existing or future supplier relationships;
    
    our lease program relationships with General Electric Capital Corporation (GE);
    
    our ability to execute on our strategic priorities;
    
    our One Platform Conversion and our infrastructure and productivity initiatives;
    
    new technologies;
    
    economic, legal and political issues associated with our international operations; and
    
    our ability to maintain effective internal control over financial reporting.
  3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Financial Statements
 
 IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
 December 31, 2007
    
    
    September 30, 2007AssetsCash and cash equivalents
    
    $
    142,446
    
    
    $
    349,237Accounts receivable, net
    
    
    553,913
    
    
    
    552,716Lease receivables, net
    
    
    81,604
    
    
    
    84,207Inventories
    
    
    357,329
    
    
    
    287,503Prepaid expenses and other current assets
    
    
    33,502
    
    
    
    35,085Deferred taxes
    
    
    51,729
    
    
    
    48,167Total current assets
    
    
    1,220,523
    
    
    
    1,356,915Long-term lease receivables, net
    
    
    249,283
    
    
    
    251,776Equipment on operating leases, net
    
    
    64,801
    
    
    
    72,052Property and equipment, net
    
    
    153,775
    
    
    
    154,218Deferred taxes
    
    
    35,806
    
    
    
    18,144Goodwill
    
    
    1,326,564
    
    
    
    1,333,249Other assets
    
    
    91,965
    
    
    
    84,354Total Assets
    
    $
    3,142,717
    
    
    $
    3,270,708LiabilitiesCurrent portion of corporate debt
    
    $
    20,482
    
    
    $
    16,798Current portion of non-corporate debt
    
    
    49,508
    
    
    
    51,077Trade accounts payable
    
    
    307,438
    
    
    
    263,657Accrued salaries, wages and commissions
    
    
    71,756
    
    
    
    93,052Deferred revenues
    
    
    103,169
    
    
    
    109,796Income taxes payable
    
    
    5,379
    
    
    
    15,240Other accrued expenses
    
    
    125,495
    
    
    
    129,323Total current liabilities
    
    
    683,227
    
    
    
    678,943Long-term corporate debt
    
    
    725,144
    
    
    
    576,199Long-term non-corporate debt
    
    
    178,582
    
    
    
    181,334Other long-term liabilities
    
    
    164,954
    
    
    
    128,211Commitments and contingencies (Note 9)Shareholders EquityCommon stock, no par value
    
    
    1,062,267
    
    
    
    1,058,104Retained earnings
    
    
    921,987
    
    
    
    912,974Accumulated other comprehensive income
    
    
    118,011
    
    
    
    132,189Cost of common stock in treasury
    
    
    (711,455
    )
    
    
    (397,246
    )Total Shareholders Equity
    
    
    1,390,810
    
    
    
    1,706,021Total Liabilities and Shareholders Equity
    
    $
    3,142,717
    
    
    $
    3,270,708Supplemental InformationShares of common stock authorized
    
    
    300,000
    
    
    
    300,000Shares of common stock issued
    
    
    149,310
    
    
    
    149,310Treasury stock
    
    
    55,816
    
    
    
    31,740Shares of common stock outstanding
    
    
    93,494
    
    
    
    117,570
 See notes to condensed consolidated financial statements.
 4




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IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share data)
 Three Months EndedDecember 312007
    
    
    2006RevenuesEquipment
    
    $
    392,643
    
    
    $
    416,237Customer service and supplies
    
    
    350,221
    
    
    
    345,970Managed and professional services
    
    
    205,875
    
    
    
    192,243Rental and fees
    
    
    30,963
    
    
    
    35,408Other
    
    
    18,353
    
    
    
    18,026998,055
    
    
    
    1,007,884Cost of RevenuesEquipment
    
    
    290,944
    
    
    
    312,384Customer service and supplies
    
    
    198,090
    
    
    
    194,230Managed and professional services
    
    
    149,154
    
    
    
    142,252Rental and fees
    
    
    7,698
    
    
    
    9,909Other
    
    
    12,274
    
    
    
    11,997658,160
    
    
    
    670,772Gross ProfitEquipment
    
    
    101,699
    
    
    
    103,853Customer service and supplies
    
    
    152,131
    
    
    
    151,740Managed and professional services
    
    
    56,721
    
    
    
    49,991Rental and fees
    
    
    23,265
    
    
    
    25,499Other
    
    
    6,079
    
    
    
    6,029339,895
    
    
    
    337,112Selling and
administrative expenses
    
    
    295,429
    
    
    
    288,137Restructuring charges
    
    
    6,683
    
    
    
    Operating income
    
    
    37,783
    
    
    
    48,975Interest income
    
    
    2,401
    
    
    
    3,360Interest expense
    
    
    13,236
    
    
    
    12,452Income before taxes on income
    
    
    26,948
    
    
    
    39,883Taxes on income
    
    
    11,975
    
    
    
    12,546Net income
    
    $
    14,973
    
    
    $
    27,337Basic Earnings Per Common Share
    
    $
    0.13
    
    
    $
    0.21Diluted Earnings Per Common Share
    
    $
    0.13
    
    
    $
    0.21Cash dividends per common share
    
    $
    0.04
    
    
    $
    0.04
 See notes to condensed consolidated financial statements
 5




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IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Three Months Ended December 312007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    14,973
    
    
    $
    27,337Additions (deductions) to reconcile net income to net cash used in operating activities:Depreciation
    
    
    18,372
    
    
    
    17,143Amortization
    
    
    252
    
    
    
    59Other non-cash items
    
    
    354
    
    
    
    458Loss on disposal of property and equipment
    
    
    68
    
    
    
    151Provision for losses on accounts receivable
    
    
    2,665
    
    
    
    1,782Restructuring charges
    
    
    6,683
    
    
    
    Provision for deferred income taxes
    
    
    (335
    )
    
    
    (4,282
    )Stock-based compensation expense
    
    
    3,139
    
    
    
    2,848Excess tax benefits from stock-based payments arrangements
    
    
    (141
    )
    
    
    (788
    )Pension expense
    
    
    1,058
    
    
    
    524Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (3,657
    )
    
    
    29,482Increase in inventories
    
    
    (70,798
    )
    
    
    (51,051
    )Decrease in prepaid expenses and other current assets
    
    
    2,661
    
    
    
    2,995Increase in accounts payable
    
    
    41,675
    
    
    
    15,235Decrease in deferred revenue
    
    
    (6,719
    )
    
    
    (7,580
    )Decrease in accrued expenses
    
    
    (33,573
    )
    
    
    (55,302
    )Contributions to pension plans
    
    
    (1,102
    )
    
    
    (801
    )Increase in taxes payable
    
    
    8,718
    
    
    
    13,674Other
    
    
    
    
    
    
    (324
    )Net cash used in operating activities
    
    
    (15,707
    )
    
    
    (8,440
    )Cash Flows from Investing ActivitiesExpenditures for property and equipment
    
    
    (9,908
    )
    
    
    (4,837
    )Expenditures for equipment on operating leases
    
    
    (3,658
    )
    
    
    (7,345
    )Proceeds from the sale of property and equipment and equipment on operating leases
    
    
    3,294
    
    
    
    2,732Proceeds from the sale of lease receivables
    
    
    52,325
    
    
    
    53,481Lease receivables  additions
    
    
    (82,696
    )
    
    
    (80,925
    )Lease receivables  collections
    
    
    28,011
    
    
    
    24,597Proceeds from life insurance
    
    
    921
    
    
    
    2,227Other
    
    
    (1,620
    )
    
    
    76Net cash used in investing activities
    
    
    (13,331
    )
    
    
    (9,994
    )Cash Flows from Financing ActivitiesShort-term corporate debt borrowings, net
    
    
    
    
    
    
    1Repayment of other borrowings
    
    
    (5,780
    )
    
    
    (27
    )Debt issuance costs
    
    
    (2,506
    )
    
    
    Corporate  debt issuances
    
    
    151,780
    
    
    
    Corporate  debt repayments
    
    
    (1,278
    )
    
    
    (218
    )Non-corporate debt  issuances
    
    
    
    
    
    
    4,220Non-corporate debt  repayments
    
    
    
    
    
    
    (7,139
    )Dividends paid
    
    
    (4,641
    )
    
    
    (5,092
    )Proceeds from stock option exercises
    
    
    1,350
    
    
    
    10,283Excess tax benefits from stock-based payments arrangements
    
    
    141
    
    
    
    788Purchase of treasury shares
    
    
    (315,804
    )
    
    
    (34,091
    )Net cash used in financing activities
    
    
    (176,738
    )
    
    
    (31,275
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,015
    )
    
    
    1,284Net decrease in cash and cash equivalents
    
    
    (206,791
    )
    
    
    (48,425
    )Cash and cash equivalents at beginning of year
    
    
    349,237
    
    
    
    414,239Cash and cash equivalents at end of period
    
    $
    142,446
    
    
    $
    365,814Supplemental cash flow information:Cash paid for income taxes
    
    $
    3,485
    
    
    $
    3,743Cash paid for interest
    
    $
    16,092
    
    
    $
    13,746Non-cash investing and financing activities:Assets acquired under capital leases
    
    $
    1,874
    
    
    $
    2,242
 See notes to condensed consolidated financial statements
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IKON OFFICE SOLUTIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. BASIS OF PRESENTATION
    2. RECENT ACCOUNTING STANDARDS
 Pending Accounting Changes
   7




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New Accounting Standards and Accounting Changes
      8




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3. ACCOUNTING FOR STOCK BASED COMPENSATION
 Stock Options
    WeightedShares
    
    Average PriceOutstanding at September 30, 2007
    
    
    7,656
    
    
    $
    11.60Granted
    
    
    1,123
    
    
    
    13.68Exercised
    
    
    151
    
    
    
    8.94Cancelled
    
    
    496
    
    
    
    21.83Outstanding at December 31, 2007
    
    
    8,132
    
    
    $
    11.31Exercisable at December 31, 2007
    
    
    6,214
    *
    
    $
    10.61
 
 *
    
    5,297 of the 6,214 options exercisable at December 31, 2007 have an exercise price that is lower
than the closing price of the Companys stock on December 31, 2007.    Three Months Ended December 312007
    
    2006Expected dividend yield (1)
    
    
    1.2
    %
    
    
    1.0
    %Expected volatility rate (2)
    
    
    28.3
    %
    
    
    24.6
    %Expected lives (3)
    
    5.0 years
    
    5.0 yearsRisk-free interest rate (4)
    
    
    3.6
    %
    
    
    4.4
    %
 
 (1)
    
    Dividend yield assumption is based on the Companys history and expectation of future
dividend payouts.(2)
    
    The expected volatility rate is determined using historical price observations at regular
intervals since April 1, 2004, which reflects our current business model by utilizing the date
at which we sold our U.S. leasing business, April 1, 2004, as the historical starting point.(3)
    
    The expected life of employee stock options is based on both historical exercise pattern and
from calculating an expected term from the option date to full exercise for the options
granted.(4)
    
    Risk-free interest rate assumption is based upon the interest rates published by the Federal
Reserve for U.S. Treasury Securities with a five-year life. 9




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Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Number
    
    
    Weighted-
    
    
    Average
    
    
    
    
    
    
    Number
    
    
    Weighted-
    
    
    AverageOutstanding
    
    
    Average
    
    
    Remaining
    
    
    Aggregate
    
    
    Exercisable at
    
    
    Average
    
    
    Remaining
    
    
    AggregateRange of
    
    at December
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic
    
    
    December 31,
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicExercise Prices
    
    31, 2007
    
    
    Price
    
    
    Life
    
    
    Value
    
    
    2007
    
    
    Price
    
    
    Life
    
    
    Value$2.50   9.80
    
    
    1,836
    
    
    $
    6.51
    
    
    5.2 years
    
    $
    11,950
    
    
    
    1,836
    
    
    $
    6.51
    
    
    5.2 years
    
    $
    11,9509.81  10.90
    
    
    2,109
    
    
    
    10.75
    
    
    
    6.9
    
    
    
    4,778
    
    
    
    1,702
    
    
    
    10.76
    
    
    
    6.6
    
    
    
    3,85210.91  13.00
    
    
    1,783
    
    
    
    11.34
    
    
    
    5.9
    
    
    
    2,989
    
    
    
    1,759
    
    
    
    11.33
    
    
    
    5.8
    
    
    
    2,97513.01  15.50
    
    
    1,240
    
    
    
    13.77
    
    
    
    9.8
    
    
    
    
    
    
    
    110
    
    
    
    14.45
    
    
    
    8.3
    
    
    
    15.51  33.47
    
    
    1,164
    
    
    
    17.22
    
    
    
    5.1
    
    
    
    
    
    
    
    807
    
    
    
    17.49
    
    
    
    3.4
    
    
    
    8,132
    
    
    $
    11.31
    
    
    6.5 years
    
    $
    19,717
    
    
    
    6,214
    
    
    $
    10.60
    
    
    5.6 years
    
    $
    18,777
  Stock Awards
    4. GOODWILL
  IKON North
    
    
    IKONAmerica
    
    
    Europe
    
    
    TotalGoodwill at September 30, 2007
    
    $
    964,517
    
    
    $
    368,732
    
    
    $
    1,333,249Translation adjustment
    
    
    (78
    )
    
    
    (6,607
    )
    
    
    (6,685
    )Goodwill at December 31, 2007
    
    $
    964,439
    
    
    $
    362,125
    
    
    $
    1,326,564
  5. EARNINGS PER COMMON SHARE
  Three Months EndedDecember 312007
    
    
    2006Numerator:Numerator for basic & diluted earnings per common share  net income
    
    $
    14,973
    
    
    $
    27,337Denominator:Denominator for basic earnings per common share  weighted
average common shares
    
    
    113,457
    
    
    
    127,235Effect of dilutive securities:Employee stock awards
    
    
    553
    
    
    
    679Employee stock options
    
    
    576
    
    
    
    1,390
 10




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Three Months EndedDecember 312007
    
    
    2006Dilutive potential common shares
    
    
    1,129
    
    
    
    2,069Denominator for diluted earnings per common share  adjusted
weighted average common shares
    
    
    114,586
    
    
    
    129,304Basic earnings per common share
    
    $
    0.13
    
    
    $
    0.21Diluted earnings per common share
    
    $
    0.13
    
    
    $
    0.21
  6. DEBT
  7. SHARE REPURCHASES
  8. COMPREHENSIVE INCOME
  Three Months EndedDecember 312007
    
    
    2006Net income
    
    $
    14,973
    
    
    $
    27,337Foreign currency translation adjustments
    
    
    (13,562
    )
    
    
    16,567Loss on derivative financial instruments (net of tax benefit of $88)
    
    
    (615
    )
    
    
    Total comprehensive income
    
    $
    796
    
    
    $
    43,904
 11




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9. CONTINGENCIES
 Environmental and Legal
     Other Contingencies
  12




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10. SEGMENT REPORTING
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended December 31, 2007Revenues:Equipment
    
    $
    330,785
    
    
    $
    61,858
    
    
    $
    
    
    
    $
    392,643Customer service and supplies
    
    
    303,097
    
    
    
    47,124
    
    
    
    
    
    
    
    350,221Managed and professional services
    
    
    191,459
    
    
    
    14,416
    
    
    
    
    
    
    
    205,875Rental and fees
    
    
    29,134
    
    
    
    1,829
    
    
    
    
    
    
    
    30,963Other
    
    
    
    
    
    
    18,353
    
    
    
    
    
    
    
    18,353Total revenues
    
    
    854,475
    
    
    
    143,580
    
    
    
    
    
    
    
    998,055Cost of Revenues:Equipment
    
    
    251,523
    
    
    
    39,421
    
    
    
    
    
    
    
    290,944Customer service and supplies
    
    
    165,342
    
    
    
    32,748
    
    
    
    
    
    
    
    198,090Managed and professional services
    
    
    136,087
    
    
    
    13,067
    
    
    
    
    
    
    
    149,154Rental and fees
    
    
    7,479
    
    
    
    219
    
    
    
    
    
    
    
    7,698Other
    
    
    
    
    
    
    12,274
    
    
    
    
    
    
    
    12,274Total cost of revenues
    
    
    560,431
    
    
    
    97,729
    
    
    
    
    
    
    
    658,160Gross Profit:Equipment
    
    
    79,262
    
    
    
    22,437
    
    
    
    
    
    
    
    101,699Customer service and supplies
    
    
    137,755
    
    
    
    14,376
    
    
    
    
    
    
    
    152,131Managed and professional services
    
    
    55,372
    
    
    
    1,349
    
    
    
    
    
    
    
    56,721Rental and fees
    
    
    21,655
    
    
    
    1,610
    
    
    
    
    
    
    
    23,265Other
    
    
    
    
    
    
    6,079
    
    
    
    
    
    
    
    6,079Total gross profit
    
    
    294,044
    
    
    
    45,851
    
    
    
    
    
    
    
    339,895Selling and
administrative expenses
    
    
    227,354
    
    
    
    36,320
    
    
    
    31,755
    
    
    
    295,429Restructuring charge
    
    
    6,683
    
    
    
    
    
    
    
    
    
    
    
    6,683Operating income
    
    
    60,007
    
    
    
    9,531
    
    
    
    (31,755
    )
    
    
    37,783Interest income
    
    
    
    
    
    
    
    
    
    
    2,401
    
    
    
    2,401Interest expense
    
    
    
    
    
    
    
    
    
    
    13,236
    
    
    
    13,236Income before taxes on income
    
    $
    60,007
    
    
    $
    9,531
    
    
    $
    (42,590
    )
    
    $
    26,948
 13




---



##### Table of Contents



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended December 31, 2006Revenues:Equipment
    
    $
    361,755
    
    
    $
    54,482
    
    
    $
    
    
    
    $
    416,237Customer service and supplies
    
    
    304,617
    
    
    
    41,353
    
    
    
    
    
    
    
    345,970Managed and professional services
    
    
    178,473
    
    
    
    13,770
    
    
    
    
    
    
    
    192,243Rental and fees
    
    
    33,192
    
    
    
    2,216
    
    
    
    
    
    
    
    35,408Other
    
    
    
    
    
    
    18,026
    
    
    
    
    
    
    
    18,026Total revenues
    
    
    878,037
    
    
    
    129,847
    
    
    
    
    
    
    
    1,007,884Cost of Revenues:Equipment
    
    
    277,522
    
    
    
    34,862
    
    
    
    
    
    
    
    312,384Customer service and supplies
    
    
    165,687
    
    
    
    28,543
    
    
    
    
    
    
    
    194,230Managed and professional services
    
    
    129,925
    
    
    
    12,327
    
    
    
    
    
    
    
    142,252Rental and fees
    
    
    9,692
    
    
    
    217
    
    
    
    
    
    
    
    9,909Other
    
    
    
    
    
    
    11,997
    
    
    
    
    
    
    
    11,997Total cost of revenues
    
    
    582,826
    
    
    
    87,946
    
    
    
    
    
    
    
    670,772Gross Profit:Equipment
    
    
    84,233
    
    
    
    19,620
    
    
    
    
    
    
    
    103,853Customer service and supplies
    
    
    138,930
    
    
    
    12,810
    
    
    
    
    
    
    
    151,740Managed and professional services
    
    
    48,548
    
    
    
    1,443
    
    
    
    
    
    
    
    49,991Rental and fees
    
    
    23,500
    
    
    
    1,999
    
    
    
    
    
    
    
    25,499Other
    
    
    
    
    
    
    6,029
    
    
    
    
    
    
    
    6,029Total gross profit
    
    
    295,211
    
    
    
    41,901
    
    
    
    
    
    
    
    337,112Selling and
administrative expenses
    
    
    219,772
    
    
    
    33,054
    
    
    
    35,311
    
    
    
    288,137Operating income
    
    
    75,439
    
    
    
    8,847
    
    
    
    (35,311
    )
    
    
    48,975Interest income
    
    
    
    
    
    
    
    
    
    
    3,360
    
    
    
    3,360Interest expense
    
    
    
    
    
    
    
    
    
    
    12,452
    
    
    
    12,452Income before taxes on income
    
    $
    75,439
    
    
    $
    8,847
    
    
    $
    (44,403
    )
    
    $
    39,883
 
 *
    
    Corporate and Eliminations, which is not treated as a business segment, includes certain
selling and administrative functions such as finance and customer support. 11. PENSION PLANS
    Three Months Ended December 312007
    
    
    2006U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansService cost
    
    $
    
    
    
    $
    822
    
    
    $
    
    
    
    $
    720Interest cost
    
    
    8,464
    
    
    
    1,431
    
    
    
    8,191
    
    
    
    1,234Expected return on assets
    
    
    (8,803
    )
    
    
    (1,590
    )
    
    
    (9,089
    )
    
    
    (1,400
    )Amortization of prior service cost
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (52
    )Recognized net actuarial loss
    
    
    689
    
    
    
    105
    
    
    
    673
    
    
    
    247Net periodic pension (income) cost
    
    $
    350
    
    
    $
    708
    
    
    $
    (225
    )
    
    $
    749
 14




---



##### Table of Contents



12. RESTRUCTURING
    Fiscal 2008
    
    Fiscal 2009
    
    Fiscal 2010
    
    Beyond
    
    TotalProjected severance payments

    $
    4,552
    
    
    $
    1,546
    
    
    $
    585
    
    
    
    
    
    
    $
    6,683
  Remaining EmployeesFiscal 2008
    
    yet to beEmployees
    
    Employee
    
    TerminatedHeadcount Reductions
    
    Affected
    
    Terminations
    
    at December 31, 2007U.S. field and operations organizations
    
    
    251
    
    
    
    
    
    
    
    251Corporate staff
    
    
    35
    
    
    
    
    
    
    
    35Total
    
    
    286
    
    
    
    
    
    
    
    286
 15




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 OVERVIEW
 The Company
  Summary of Consolidated Results for the Three Months Ended December 31, 2007
  Outlook
   16




---



##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended December 31, 2007 Compared to the Three Months Ended December 31, 2006
 Reportable Segments
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended December 31, 2007Revenues:Equipment
    
    $
    330,785
    
    
    $
    61,858
    
    
    $
    
    
    
    $
    392,643Customer service and supplies
    
    
    303,097
    
    
    
    47,124
    
    
    
    
    
    
    
    350,221Managed and professional services
    
    
    191,459
    
    
    
    14,416
    
    
    
    
    
    
    
    205,875Rental and fees
    
    
    29,134
    
    
    
    1,829
    
    
    
    
    
    
    
    30,963Other
    
    
    
    
    
    
    18,353
    
    
    
    
    
    
    
    18,353Total revenues
    
    
    854,475
    
    
    
    143,580
    
    
    
    
    
    
    
    998,055Cost of Revenues:Equipment
    
    
    251,523
    
    
    
    39,421
    
    
    
    
    
    
    
    290,944Customer service and supplies
    
    
    165,342
    
    
    
    32,748
    
    
    
    
    
    
    
    198,090Managed and professional services
    
    
    136,087
    
    
    
    13,067
    
    
    
    
    
    
    
    149,154Rental and fees
    
    
    7,479
    
    
    
    219
    
    
    
    
    
    
    
    7,698Other
    
    
    
    
    
    
    12,274
    
    
    
    
    
    
    
    12,274Total cost of revenues
    
    
    560,431
    
    
    
    97,729
    
    
    
    
    
    
    
    658,160Gross Profit:Equipment
    
    
    79,262
    
    
    
    22,437
    
    
    
    
    
    
    
    101,699Customer service and supplies
    
    
    137,755
    
    
    
    14,376
    
    
    
    
    
    
    
    152,131Managed and professional services
    
    
    55,372
    
    
    
    1,349
    
    
    
    
    
    
    
    56,721Rental and fees
    
    
    21,655
    
    
    
    1,610
    
    
    
    
    
    
    
    23,265Other
    
    
    
    
    
    
    6,079
    
    
    
    
    
    
    
    6,079Total gross profit
    
    
    294,044
    
    
    
    45,851
    
    
    
    
    
    
    
    339,895Selling and
administrative expenses
    
    
    227,354
    
    
    
    36,320
    
    
    
    31,755
    
    
    
    295,429Restructuring charges
    
    
    6,683
    
    
    
    
    
    
    
    
    
    
    
    6,683Operating income
    
    
    60,007
    
    
    
    9,531
    
    
    
    (31,755
    )
    
    
    37,783Interest income
    
    
    
    
    
    
    
    
    
    
    2,401
    
    
    
    2,401Interest expense
    
    
    
    
    
    
    
    
    
    
    13,236
    
    
    
    13,236Income before taxes on income
    
    $
    60,007
    
    
    $
    9,531
    
    
    $
    (42,590
    )
    
    $
    26,948Three Months Ended December 31, 2006Revenues:Equipment
    
    $
    361,755
    
    
    $
    54,482
    
    
    $
    
    
    
    $
    416,237Customer service and supplies
    
    
    304,617
    
    
    
    41,353
    
    
    
    
    
    
    
    345,970Managed and professional services
    
    
    178,473
    
    
    
    13,770
    
    
    
    
    
    
    
    192,243Rental and fees
    
    
    33,192
    
    
    
    2,216
    
    
    
    
    
    
    
    35,408Other
    
    
    
    
    
    
    18,026
    
    
    
    
    
    
    
    18,026Total revenues
    
    
    878,037
    
    
    
    129,847
    
    
    
    
    
    
    
    1,007,884Cost of Revenues:Equipment
    
    
    277,522
    
    
    
    34,862
    
    
    
    
    
    
    
    312,384Customer service and supplies
    
    
    165,687
    
    
    
    28,543
    
    
    
    
    
    
    
    194,230Managed and professional services
    
    
    129,925
    
    
    
    12,327
    
    
    
    
    
    
    
    142,252Rental and fees
    
    
    9,692
    
    
    
    217
    
    
    
    
    
    
    
    9,909Other
    
    
    
    
    
    
    11,997
    
    
    
    
    
    
    
    11,997Total cost of revenues
    
    
    582,826
    
    
    
    87,946
    
    
    
    
    
    
    
    670,772
 17




---



##### Table of Contents



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalGross Profit:Equipment
    
    
    84,233
    
    
    
    19,620
    
    
    
    
    
    
    
    103,853Customer service and supplies
    
    
    138,930
    
    
    
    12,810
    
    
    
    
    
    
    
    151,740Managed and professional services
    
    
    48,548
    
    
    
    1,443
    
    
    
    
    
    
    
    49,991Rental and fees
    
    
    23,500
    
    
    
    1,999
    
    
    
    
    
    
    
    25,499Other
    
    
    
    
    
    
    6,029
    
    
    
    
    
    
    
    6,029Total gross profit
    
    
    295,211
    
    
    
    41,901
    
    
    
    
    
    
    
    337,112Selling and
administrative expenses
    
    
    219,772
    
    
    
    33,054
    
    
    
    35,311
    
    
    
    288,137Operating income
    
    
    75,439
    
    
    
    8,847
    
    
    
    (35,311
    )
    
    
    48,975Interest income
    
    
    
    
    
    
    
    
    
    
    3,360
    
    
    
    3,360Interest expense
    
    
    
    
    
    
    
    
    
    
    12,452
    
    
    
    12,452Income before taxes on income
    
    $
    75,439
    
    
    $
    8,847
    
    
    $
    (44,403
    )
    
    $
    39,883
 
 *
    
    Corporate and eliminations, which is not treated as a reportable segment, includes certain
selling and administrative functions such as finance and customer support. Equipment
 2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    392,643
    
    
    $
    416,237
    
    
    $
    (23,594
    )
    
    
    (5.7
    )%Cost of revenue
    
    
    290,944
    
    
    
    312,384
    
    
    
    (21,440
    )
    
    
    (6.9
    )%Gross profit
    
    $
    101,699
    
    
    $
    103,853
    
    
    $
    (2,154
    )
    
    
    (2.1
    )%Gross profit %
    
    
    25.9
    %
    
    
    25.0
    %
    18




---



##### Table of Contents



Customer Service and Supplies
 2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    350,221
    
    
    $
    345,970
    
    
    $
    4,251
    
    
    
    1.2
    %Cost of revenue
    
    
    198,090
    
    
    
    194,230
    
    
    
    3,860
    
    
    
    2.0
    %Gross profit
    
    $
    152,131
    
    
    $
    151,740
    
    
    $
    391
    
    
    
    0.3
    %Gross profit %
    
    
    43.4
    %
    
    
    43.9
    %
  Managed and Professional Services
 2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    205,875
    
    
    $
    192,243
    
    
    $
    13,632
    
    
    
    7.1
    %Cost of revenue
    
    
    149,154
    
    
    
    142,252
    
    
    
    6,902
    
    
    
    4.9
    %Gross profit
    
    $
    56,721
    
    
    $
    49,991
    
    
    $
    6,730
    
    
    
    13.5
    %Gross profit %
    
    
    27.6
    %
    
    
    26.0
    %
   19




---



##### Table of Contents



.
 Rental and Fees
 2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    30,963
    
    
    $
    35,408
    
    
    $
    (4,445
    )
    
    
    (12.6
    )%Cost of revenue
    
    
    7,698
    
    
    
    9,909
    
    
    
    (2,211
    )
    
    
    (22.3
    )%Gross profit
    
    $
    23,265
    
    
    $
    25,499
    
    
    $
    (2,234
    )
    
    
    (8.8
    )%Gross profit %
    
    
    75.1
    %
    
    
    72.0
    %
  Other Revenue
 2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeFinance income
    
    $
    6,303
    
    
    $
    5,975
    
    
    $
    328
    
    
    
    5.5
    %Other
    
    
    12,050
    
    
    
    12,051
    
    
    
    (1
    )
    
    
    (0.0
    )%Total other revenue
    
    $
    18,353
    
    
    $
    18,026
    
    
    $
    327
    
    
    
    1.8
    %Finance interest expense
    
    $
    1,827
    
    
    $
    1,418
    
    
    $
    409
    
    
    
    28.8
    %Other
    
    
    10,447
    
    
    
    10,579
    
    
    
    (132
    )
    
    
    (1.2
    )%Total cost of other revenue
    
    $
    12,274
    
    
    $
    11,997
    
    
    $
    277
    
    
    
    2.3
    %Finance income gross profit
    
    $
    4,476
    
    
    $
    4,557
    
    
    $
    (81
    )
    
    
    (1.8
    )%Other gross profit
    
    
    1,603
    
    
    
    1,472
    
    
    
    131
    
    
    
    8.9
    %Total other gross profit
    
    $
    6,079
    
    
    $
    6,029
    
    
    $
    50
    
    
    
    0.8
    %Finance income gross profit %
    
    
    71.0
    %
    
    
    76.3
    %Other gross profit%
    
    
    13.3
    %
    
    
    12.2
    %Total gross profit %
    
    
    33.1
    %
    
    
    33.4
    %
  Selling and Administrative Expenses
 2008
    
    2007
    
    $ Change
    
    % ChangeSelling and administrative expenses
    
    $
    295,429
    
    
    $
    288,137
    
    
    $
    7,292
    
    
    
    2.5
    %Selling and administrative
expenses as a % of revenue
    
    
    29.6
    %
    
    
    28.6
    %
   
    
    an increase in compensation and benefits of approximately $9,000, primarily as a
result of higher fixed selling wages and a year-over-year increase in sales headcount;
 20




---



##### Table of Contents




    
    an increase in travel expense of $1,600 primarily driven by the year-over-year
increase in sales headcount; and
    
    a decrease of $3,500 as a result of lower spending for information technology and
professional fees.
 Other Items
 2008
    
    2007Restructuring charge
    
    $
    6,683
    
    
    
    Interest income
    
    
    2,401
    
    
    
    3,360Interest expense
    
    
    13,236
    
    
    
    12,452Taxes on income
    
    
    11,975
    
    
    
    12,546Net income
    
    
    14,973
    
    
    
    27,337Diluted earnings per common share
    
    $
    0.13
    
    
    $
    0.21
      FINANCIAL CONDITION AND LIQUIDITY
 Cash Flows and Liquidity
  2008Cash used in operating activities
    
    $
    (15,707
    )Cash used in investing activities
    
    
    (13,331
    )Cash used in financing activities
    
    
    (176,738
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,015
    )Decrease in cash and cash equivalents
    
    
    (206,791
    )Cash and cash equivalents at the beginning of the year
    
    
    349,237Cash and cash equivalents at the end of period
    
    $
    142,446
 21




---



##### Table of Contents



Operating Cash Flows
  Investing Cash Flows
  Financing Cash Flows
  Capital Structure
  22




---



##### Table of Contents



Payments Due by PeriodLess ThanTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    Thereafter2012 Notes
    
    $
    213,866
    
    
    $
    11,820
    
    
    $
    47,946
    
    
    $
    154,100
    
    
    
    
  Liquidity Outlook
    RESTRUCTURING
  23




---



##### Table of Contents



Fiscal 2008
    
    Fiscal 2009
    
    Fiscal 2010
    
Beyond
    
    TotalProjected severance payments
    

    $
    4,552
    
    
    $
    1,546
    
    
    $
    585
    
    
    
    
    
    
    $
    6,683
  Remaining EmployeesFiscal 2008
    
    yet to beEmployees
    
    Employee
    
    TerminatedHeadcount Reductions
    
    Affected
    
    Terminations
    
    at December 31, 2007U.S. field and operations organizations
    
    
    251
    
    
    
    
    
    
    
    251Corporate staff
    
    
    35
    
    
    
    
    
    
    
    35Total
    
    
    286
    
    
    
    
    
    
    
    286
 RECENT ACCOUNTING STANDARDS
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  24




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  25




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity
Securities
  ApproximateTotal Number
    
    
    Dollar Valueof Shares
    
    
    of Shares thatTotal Number
    
    
    Average
    
    
    Purchased as
    
    
    May Yet Beof Shares
    
    
    Price Paid
    
    
    Part of
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    per Share
    
    
    Repurchase Plan
    
    
    the Repurchase PlanOctober 1, 2007  October 31, 2007
    
    
    1,566
    
    
    $
    12.77
    
    
    
    1,566
    
    
    $
    110,285November 1, 2007  November 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    610,285December 1, 2007  December 31, 2007
    
    
    22,692
    
    
    
    13.00
    
    
    
    22,692
    
    
    
    315,28524,258
    
    
    $
    12.99
    
    
    
    24,258
    
    
    $
    315,285
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended31.2
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended32.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 135032.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
 26




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##### Table of Contents



SIGNATURES
  IKON OFFICE SOLUTIONS, INC.Date: February 5, 2008By:

/s/ ROBERT F. WOODS(Robert F. Woods)Senior Vice President and Chief
Financial Officer(Principal Financial Officer) 27