---

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549

# Form 10-Q

(Mark One)

[X]    
          Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
          of 1934 for the quarterly period ended            March 31, 2004 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)

|OHIO                        
(State or other jurisdiction of          
incorporation or organization)
P.O. Box 834, Valley Forge, Pennsylvania 
(Address of principal executive offices) | 23-0334400
(I.R.S. Employer Identification No.)
19482
(Zip Code)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------

Registrants
telephone number, including area code:    (610) 296-8000Former name, former
address and former fiscal year, if changed since last report:   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 whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes   [X]         No  [   ]

Applicable only to
corporate issuers:

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of May 12,
2004:

Common Stock, no par value          
                
                
                
                  
          


        
                 
  

                148,025,002 shares

1

---

IKON Office Solutions, Inc.INDEX

# PART I.   FINANCIAL
INFORMATION

|Item 1.               Item 2.
               Item 3.
               Item 4. | Financial Statements
     Consolidated Balance Sheets - March 31, 2004 (unaudited) and September 30, 2003
     Consolidated Statements of Income - Three and six months ended March
31, 2004 and 2003 (unaudited)
     Consolidated Statements of Cash Flows - Six months ended March 31, 2004 and 2003 (unaudited)
     Notes to Condensed Consolidated Financial Statements (unaudited)
     Management's
Discussion and Analysis of Financial Condition and Results of Operations     Quantitative and Qualitative Disclosures About Market Risk
     Controls and  Procedures
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# PART II.   OTHER INFORMATION

| | 
| | 

|        |                                                                                 
|------- | --------------------------------------------------------------------------------
|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|        |                                                                                 
|Item 6. | Exhibits and Reports on Form 8-K                                                

# SIGNATURES

2

---

FORWARD-LOOKING
INFORMATION

IKON
Office Solutions, Inc. (we, us, our, 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-Q, 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, but are not limited to, statements regarding the
following (and certain other matters discussed in greater detail herein): the expected
impact of the transaction with General Electric Capital Corporation (GE)
involving the sale of certain assets and liabilities of IOS Capital, LLC (IOSC) and the execution
of the related Program Agreement; the
expected consummation and impact of the sale of certain assets of the leasing operations (the "Canadian
Leasing Business") of IKON Office Solutions, Inc.,
a Canadian subsidiary of the Company ("IKON Canada"), to Heller Financial Canada, an affiliate of GE ("Heller"); the expected
proceeds from these transactions; the use of proceeds from these transactions; plans to enter into
a revolving credit facility;
core business growth opportunities and increasing market share;
infrastructure and operational efficiency initiatives; earnings, revenue, cash flow,
margin, and cost-savings projections; the effect of competitive pressures on equipment
sales; developing and expanding strategic alliances and partnerships; the impact of
e-commerce and e-procurement initiatives; the implementation of e-IKON; anticipated growth
rates in the digital monochrome and color equipment and outsourcing industries; the effect
of foreign currency exchange risk; the reorganization of the Companys business
segments and the anticipated benefits of operational synergies related thereto; 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. References
herein to we, us, our, IKON, or the
Company refer to IKON and its subsidiaries unless the context specifically
requires otherwise.

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 Company 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 Company assumes no
obligations and does not intend to update these forward-looking statements.

In
accordance with the provisions of the Litigation Reform Act, the Company is 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 herein): risks and uncertainties relating
to IKONs ability to successfully integrate its equipment distribution business with
a third-party vendor finance program, which involves the integration and transition of
complex systems and processes; 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 consolidations and/or changes in business operations,
including e-IKON; existing and future vendor relationships; risks relating to foreign
currency exchange; economic, legal and political issues associated with international
operations; the Companys ability to access capital and meet its debt service
requirements (including sensitivity to fluctuations in interest rates); and general
economic conditions.

Competition.     IKON
operates in a highly competitive environment. Competition is based largely upon
technology, performance, pricing, quality, reliability, distribution and customer service and
support. A number of companies worldwide with significant financial resources or customer relationships compete with
IKON to provide similar products and services, such as Xerox, Pitney Bowes and Danka. Our
competitors may be positioned to offer more favorable product and service terms to the
marketplace, resulting in reduced profitability and loss of market share for IKON. Some of
our competitors, such as Canon, Ricoh and HP, are also suppliers to IKON of the products
we sell, service and lease. In addition, we compete against smaller local independent
office equipment distributors. Financial pressures faced by our competitors may cause them
to engage in uneconomic pricing practices, which could cause the prices that IKON is able
to charge in the future for its products and services to be less than it has historically
charged. Our future success is based in large part upon our ability to successfully
compete in the markets that we currently serve and to expand into additional product and
services offerings. These risks could lead to a loss of market share for IKON, resulting
in a negative impact on our results of operations.

Pricing.     Our
ability to succeed is dependent upon our ability to obtain adequate pricing for the
equipment, parts, supplies and services we offer. Depending on competitive market factors, future
prices we can obtain for the equipment, parts, supplies and services we offer may vary from
historical levels.

Vendor
Relationships.IKONs access to equipment, parts, supplies and
services depends upon its relationships with, and its ability to purchase these items on
competitive terms from, its principal vendors, Canon, Ricoh, Konica-Minolta, HP, and Océ. IKON has
not and does not currently enter into long-term supply contracts with these vendors, and
we have no current plans to do so in the future. These vendors are not required to use
IKON to distribute their equipment and are free to change the prices and other terms at
which they sell to us. In addition, IKON competes with the direct selling efforts of some
of these vendors. Significant deterioration in relationships with, or in the financial
condition of, these significant vendors could have an adverse impact on IKONs
ability to sell and lease equipment as well as its ability to provide effective service
and technical support. If one of these vendors terminated or significantly curtailed its
relationship with IKON, or if one of these vendors ceased operations, IKON would be forced
to expand its relationship with other vendors, seek out new relationships with other
vendors, or risk a loss in market share due to diminished product offerings and
availability.

3

---

Sale
of U.S. Leasing Operations.     In December 2003, IKON entered
into a definitive asset purchase agreement (the "U.S. Agreement") with GE to sell
certain assets and liabilities of IKON, solely in its capacity as successor to IOSC, including, without
limitation, servicing functions, facilities, systems and processes.  The sale of such assets and liabilities
pursuant to the U.S. Agreement was effective as of March 31, 2004, on which date IKON and GE executed a Program
Agreement (the "Program Agreement", and, together with the U.S. Agreement, the "Transaction") to provide for the
funding of IKON's lease originations in the United States.  In the event that we are unable to successfully
integrate our equipment distribution business with a third party vendor finance program, which involves the
integration and transition of complex systems and processes, our liquidity, financial position and results of
operations may be adversely affected.  In addition, a significant portion of our profits were derived from IOSC's leasing operations. We are
entitled to receive certain origination fees under the Program Agreement in respect of future leases funded by GE, and we currently
intend to use the proceeds from the Transaction to, among other things, enhance our core business of document management solutions,
reduce our debt and purchase shares of our common stock. However, the ability to attain accretion as a result of the Transaction will
depend upon our ability to successfully implement these strategies and the price, timing and quantity of debt reductions and share
repurchase activity, as well as other factors that are beyond our control. Our failure to successfully implement these strategies, or
the failure of these strategies to result in improved profitability, could have a material adverse effect on our liquidity, financial
position and results of operations.  The Transaction was consummated on March 31, 2004 and, therefore, the financial statements included in this report, and all previously reported financial
statements, are not indicative of our future financial performance.  In connection with the Transaction, GE
agreed to act as servicer for the portion of the U.S. lease asset
portfolio retained by IKON and to provide periodic reporting and audit rights with respect to both the serviced
and originated portfolios.

Sale
of Canadian Leasing Business. On March 31, 2004, IKON Canada executed an Asset Purchase Agreement (the
Canadian Agreement) with Heller pursuant to which, among other things, Heller will
acquire the Company's Canadian Leasing Business and become IKON's preferred lease financing
source in Canada. The sale of the Canadian Leasing Business is subject to regulatory
approvals and other customary conditions. The consummation of the Canadian Agreement is also
subject to the execution of a Canadian Program Agreement, which IKON expects will contain terms
and conditions similar to those set forth in the U.S. Program Agreement. We cannot assure you that the transactions
contemplated by the Canadian Agreement will occur.

Liquidity.     
As of March 31, 2004, the Company terminated its $300,000,000 unsecured credit facility.  Although the Company is
currently negotiating a new credit facility, there can be no assurance as to the amount of any new credit
facility or whether the new credit facility will be on an unsecured basis and otherwise on similar or improved
terms and conditions relative to the prior credit facility.  Furthermore, there can be no assurance that a new
credit facility will actually be obtained.

As of March 31, 2004, the credit ratings
on the Company's senior unsecured debt were designated Ba1 with negative outlook by Moody's Investor
Services and BB with stable outlook by Standard and Poor's.  On April 27, 2004, Moody's Investor Services
lowered the Company's senior unsecured debt rating to Ba2 with a stable outlook.  Our access to certain credit markets is dependent upon our credit ratings.  Our current
credit ratings, and any further downgrades, could reduce or foreclose our access to certain credit markets.
There is no assurance that these credit ratings can be maintained or improved or that the credit markets can be
readily accessed.

Operational
Efficiencies.      IKONs ability to improve its profit
margins is largely dependent on the success of its initiatives to streamline its
infrastructure and drive operational efficiencies across IKON. Such initiatives, which
include e-IKON and Six Sigma, focus on strategic priorities such as process improvement,
organizational development and asset management. e-IKON is a comprehensive, multi-year
initiative to centralize operational support functions and re-design enterprise-wide
processes under the Oracle E-Business Suite. As a result of resources being reallocated
from marketplace level development to operations to accelerate productivity in supply
chain and customer care support and to ensure that operational implications of the Transaction
are fully addressed, the implementation of e-IKON in the remaining marketplaces and
customer care centers will not occur until after 2004. Six Sigma is a disciplined business
methodology designed to assist companies in increasing profitability by streamlining
operations, improving quality and eliminating possible defects in processes. Six Sigma is
intended to provide specific methods to re-create a particular process - starting
from the customers vantage point - so that defects in the process are
effectively eliminated. IKONs ability to improve its profit margins through the
implementation of these initiatives is dependent upon certain factors that IKON cannot
entirely control, including the implementation and transition costs and expenses
associated with the initiatives. Our failure to successfully implement these initiatives,
or the failure of such initiatives to result in improved margins, could have a material
adverse effect on our liquidity, financial position and results of operations.

International
Operations.      IKON operates in eight countries outside of
the United States. Approximately 16% of our revenues are derived from our international
operations, and approximately 74% of those revenues are derived from Canada and the United
Kingdom. Political or economic instability in Canada or the United Kingdom could have a
material adverse impact on our liquidity, financial position and results of operations.
IKONs future revenues, costs of operations and profits could be affected by a number
of factors related to its international operations, 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. Unanticipated currency fluctuations in the Canadian
Dollar, British Pound or Euro vis-à-vis the U.S. Dollar could lead to lower
reported consolidated results of operations due to the translation of these currencies.

New
Product Offerings.      Our business is driven primarily by
customers needs and demands and by the products developed and manufactured by third
parties. Because IKON distributes products developed and manufactured by third parties,
IKONs business would be adversely affected if its suppliers fail to anticipate which
products or technologies will gain market acceptance or if IKON cannot sell these products
at competitive prices. IKON cannot be certain that its suppliers will permit IKON to
distribute their newly developed products, or that such products will meet our
customers needs and demands. Additionally, because some of our principal competitors
design and manufacture new technology, those competitors may have a competitive advantage
over IKON. To successfully compete, IKON must maintain an efficient cost structure, an
effective sales and marketing team and offer additional services that distinguish IKON
from its competitors. Failure to execute these strategies successfully could result in
reduced market share for IKON or could have an adverse impact on our results of
operations.

4

---

PART 1.    FINANCIAL
INFORMATION

Item 1:    Financial Statements

IKON Office Solutions,
Inc. Consolidated Balance Sheets

|(in thousands)                                                         | March 31,
2004  (unaudited) | September 30,
2003 |   |          
|---------------------------------------------------------------------- | --------------------------- | ------------------ | - | ---------
|                                                                      
|Assets                                                                 |                             |                    |   |          
|Cash and cash equivalents                                              |                             |                    | $ | 853,314  
|Restricted cash                                                        |                             |                    |   | 122,674  
|Accounts receivable, less allowances of:  March 31, 2004 - $20,756;    |                             |                   
|September 30, 2003 - $14,258                                           |                             |                    |   | 543,588  
|Finance receivables, less allowances of:  March 31, 2004 - $2,518;     |                             |                   
|September 30, 2003 - $20,467                                           |                             |                    |   | 535,972  
|Inventories                                                            |                             |                    |   | 241,498  
|Prepaid expenses and other current assets                              |                             |                    |   | 76,111   
|Deferred taxes                                                         |                             |                    |   | 44,142   
|Receivable from divestiture of business (note 2)                       |                             |                    |   | 177,483  
|Assets held for sale (note 13)                                         |                             |                    |   | 176,888  
|                                                                      
|Total current assets                                                   |                             |                    |   | 2,771,670
|                                                                      
|                                                                      
|Long-term finance receivables, less allowances of:  March 31, 2004 -   |                             |                   
|$4,677; September 30, 2003 - $38,010                                   |                             |                    |   | 1,077,529
|                                                                      
|Equipment on operating leases, net of accumulated depreciation of:     |                             |                    |   |          
|March 31, 2004 - $75,062; September 30, 2003 - $93,607                 |                             |                    |   | 63,851   
|                                                                      
|Property and equipment, net of accumulated depreciation of:            |                             |                   
|March 31, 2004 - $309,412;  September 30, 2003 - $299,178              |                             |                    |   | 165,830  
|                                                                      
|Goodwill, net                                                          |                             |                    |   | 1,289,421
|                                                                      
|Other assets                                                           |                             |                    |   | 99,407   
|                                                                      
|Total Assets                                                           |                             |                    | $ | 5,467,708
|                                                                      
|                                                                      
|Liabilities and Shareholders' Equity                                   |                             |                    |   |          
|Current portion of corporate debt                                      |                             |                    | $ | 95,726   
|Current portion of debt supporting finance contracts                   |                             |                    |   | 549,742  
|Notes payable                                                          |                             |                    |   | 1,404    
|Trade accounts payable                                                 |                             |                    |   | 168,277  
|Accrued salaries, wages and commissions                                |                             |                    |   | 105,546  
|Deferred revenues                                                      |                             |                    |   | 127,237  
|Taxes payable                                                          |                             |                    |   | 330,623  
|Other accrued expenses                                                 |                             |                    |   | 217,837  
|                                                                      
|Total current liabilities                                              |                             |                    |   | 1,596,392
|                                                                      
|                                                                      
|Long-term corporate debt                                               |                             |                    |   | 1,001,637
|                                                                      
|Long-term debt supporting finance contracts                            |                             |                    |   | 600,294  
|                                                                      
|Deferred taxes                                                         |                             |                    |   | 238,227  
|                                                                      
|Other long-term liabilities                                            |                             |                    |   | 285,354  
|                                                                      
|Commitments and contingencies                                          |                             |                    |   |          
|                                                                      
|Shareholders' Equity                                                   |                             |                    |   |          
|Common stock, no par value:  authorized 300,000 shares; issued:  March |                             |                   
|31, 2004 - 149,901 shares; September 30, 2003 - 149,982 shares;        |                             |                   
|outstanding:  March 31, 2004 - 147,739 shares; September 30, 2003 -    |                             |                   
|146,368 shares                                                         |                             |                    |   | 1,015,037
|Series 12 preferred stock, no par value:  authorized 480 shares; none  |                             |                    |   |          
|issued or outstanding                                                  |                             |                    |   |          
|Unearned compensation                                                  |                             |                    |   | (2,319   
|Retained earnings                                                      |                             |                    |   | 742,222  
|Accumulated other comprehensive loss                                   |                             |                    |   | (2,032   
|Cost of common shares in treasury:  March 31, 2004 - 1,571 shares;     |                             |                   
|September 30, 2003 - 2,942 shares                                      |                             |                    |   | (7,104   
|                                                                      
|Total Shareholders' Equity                                             |                             |                    |   | 1,745,804
|                                                                      
|Total Liabilities and Shareholders' Equity                             |                             |                    | $ | 5,467,708
|                                                                      

See notes to condensed consolidated
financial statements.

5

---

IKON Office Solutions,
Inc. Consolidated Statements
of Income (unaudited)

|                                              | Three Months Ended
     March 31 | Six Months Ended
    March 31
|--------------------------------------------- | -------------------------------- | -----------------------------
|                                             
|(in thousands, except per share amounts)      |                                  | 2004                         
|                                             
|Revenues                                      |                                  |                              
|Net sales                                     | $                                | 500,683                      
|Services                                      |                                  | 585,375                      
|Finance income                                |                                  | 98,259                       
|                                             
|                                              |                                  | 1,184,317                    
|                                             
|                                             
|Costs and Expenses                            |                                  |                              
|Cost of goods sold                            |                                  | 358,827                      
|Services costs                                |                                  | 346,295                      
|Finance interest expense                      |                                  | 34,336                       
|Selling and administrative                    |                                  | 383,220                      
|Loss from divestiture of business (note 2)    |                                  | 12,125                       
|                                             
|                                             
|                                              |                                  | 1,134,803                    
|                                             
|                                             
|Operating income                              |                                  | 49,514                       
|Loss (gain) from early extinguishment of debt |                                  | 3,146                        
|Interest expense, net                         |                                  | 9,662                        
|                                             
|Income before taxes on income                 |                                  | 36,706                       
|Taxes on income                               |                                  | 6,533                        
|                                             
|Net income                                    | $                                | 30,173                       
|                                             
|                                             
|                                             
|Basic earnings per common share               | $                                | 0.20                         
|                                             
|Diluted earnings per common share             | $                                | 0.19                         
|                                             
|Cash dividends per common share               | $                                | 0.04                         

See notes to condensed consolidated
financial statements.

6

---

IKON Office Solutions,
Inc. Consolidated Statements
of Cash Flows (unaudited)

|                                                                                              | Six Months EndedMarch 31
|--------------------------------------------------------------------------------------------- | ------------------------
|                                                                                             
|(in thousands)                                                                                |                         
|                                                                                             
|Cash Flows from Operating Activities                                                          |                         
|Net income                                                                                    |                         
|Additions (deductions) to reconcile net income to net cash                                    |                         
|provided by operating activities:                                                             |                         
|Depreciation                                                                                  |                         
|Amortization                                                                                  |                         
|Loss from divestiture of business                                                             |                         
|Provision for losses on accounts receivable                                                   |                         
|Provision for deferred income taxes                                                           |                         
|Provision for lease default reserves                                                          |                         
|Pension expense                                                                               |                         
|Loss (gain) from early extinguishment of debt                                                 |                         
|Changes in operating assets and liabilities, net of divestiture of business:                  |                         
|Increase  in accounts receivable                                                              |                         
|(Increase) decrease in inventories                                                            |                         
|Decrease (increase) in prepaid expenses and other current assets                              |                         
|Decrease in accounts payable, deferred revenues and accrued 
               
        expenses |                         
|Decrease in accrued restructuring                                                             |                         
|Other                                                                                         |                         
|                                                                                             
|Net cash provided by operating activities                                                     |                         
|                                                                                             
|                                                                                             
|Cash Flows from Investing Activities                                                          |                         
|Proceeds from divestiture of business (note 2)                                                |                         
|Expenditures for property and equipment                                                       |                         
|Expenditures for equipment on operating leases                                                |                         
|Proceeds from sale of property and equipment                                                  |                         
|Proceeds from sale of equipment on operating leases                                           |                         
|Finance receivables - additions                                                               |                         
|Finance receivables - collections                                                             |                         
|Other                                                                                         |                         
|                                                                                             
|Net cash provided by (used in) investing activities                                           |                         
|                                                                                             
|                                                                                             
|Cash Flows from Financing Activities                                                          |                         
|Proceeds from issuance of long-term corporate debt                                            |                         
|Short-term corporate debt repayments, net                                                     |                         
|Repayment of other borrowings                                                                 |                         
|Long-term corporate debt repayments                                                           |                         
|Debt supporting finance contracts - issuances                                                 |                         
|Debt supporting finance contracts - repayments                                                |                         
|Dividends paid                                                                                |                         
|(Increase) decrease in restricted cash                                                        |                         
|Proceeds from option exercises and sale of treasury shares                                    |                         
|Purchase of treasury shares and other                                                         |                         
|                                                                                             
|Net cash used in financing activities                                                         |                         
|                                                                                             
|Effect of exchange rate changes on cash and cash equivalents                                  |                         
|                                                                                             
|                                                                                             
|Net increase (decrease) in cash and cash equivalents                                          |                         
|Cash and cash equivalents at beginning of year                                                |                         
|                                                                                             
|Cash and cash equivalents at end of period                                                    |                         
|                                                                                             

See notes to condensed consolidated
financial statements.

7

---

IKON Office Solutions,
Inc. Notes to Condensed
Consolidated Financial Statements (in thousands, except
per share amounts) (unaudited)

Note 1:     Significant
Accounting Policies

Basis of Presentation

The accompanying unaudited condensed
consolidated financial statements of IKON Office Solutions, Inc. and its subsidiaries (the
Company, IKON, we, or our) have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
In the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes thereto included in the
Companys annual report on Form 10-K for the year ended September 30, 2003. Certain
prior year amounts have been reclassified to conform with the current year presentation.

Use of Estimates

The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect
amounts reported in the consolidated financial statements and footnotes. Actual results
could differ from those estimates and assumptions.

Accounting for
Stock-based Compensation

As permitted by Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-Based Compensation, we continue to account for our stock options in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Employee stock options are granted at or above the market price at dates
of grant which does not require us to recognize any compensation expense. In general,
these options expire in ten years (twenty years for certain non-employee director options)
and vest over three years (five years for grants issued prior to December 15, 2000). The
proceeds from options exercised are credited to shareholders equity. A plan for our
non-employee directors enables participants to receive their annual directors fees
in the form of options to purchase shares of common stock at a discount. The discount is
equivalent to the annual directors fees and is charged to expense.

If we had elected to recognize
compensation expense based on the fair value at the date of grant for awards in fiscal
years 2004 and 2003, consistent with the provisions of SFAS 123, our net income and
earnings per share would have been reduced to the following unaudited pro forma amounts:

|                                               | Three Months Ended March 31 |  | Six Months Ended March 31
|---------------------------------------------- | --------------------------- |  | -------------------------
|                                               |                             |  |                          
|                                               | 2004                        |  | 2003                     
|                                               |                             |  |                          
|Net income, as reported                        | $   30,173                  |  | $   36,422               
|Pro forma effect of expensing stock based      |                             |  |                          
|compensation plans using the fair value method | (1,710)                     |  | (1,404)                  
|                                               |                             |  |                          
|Net income, as adjusted                        | $   28,463                  |  | $   35,018               
|                                               |                             |  |                          
|Basic earnings per common share:               |                             |  |                          
|As reported                                    | $       0.20                |  | $       0.25             
|Pro forma effect of expensing stock based      |                             |  |                          
|compensation plans using fair value method     | (0.01)                      |  | (0.01)                   
|                                               |                             |  |                          
|Basic earnings per common                      |                             |  |                          
|share, as adjusted                             | $       0.19                |  | $       0.24             
|                                               |                             |  |                          
|Diluted earnings per common share:             |                             |  |                          
|As reported                                    | $       0.19                |  | $       0.23             
|Pro forma effect of expensing stock based      |                             |  |                          
|compensation plans using fair value method     | (0.01)                      |  | (0.01)                   
|                                               |                             |  |                          
|Diluted earnings per common                    |                             |  |                          
|share, as adjusted                             | $       0.18                |  | $       0.22             
|                                               |                             |  |                          

8

---

Pending Accounting Changes

In December 2003, the Financial
Accounting Standards Board (the FASB) revised FASB Statement No. 132
(SFAS 132), Employers Disclosures about Pensions and Other
Postretirement Benefits. The revised standard mandates additional required
disclosures for pensions and other postretirement benefit plans and is designed to improve
disclosure transparency within financial statements and requires certain disclosures to be
made on a quarterly basis (collectively, the Amended Disclosures). The revised
standard replaces existing pension disclosure requirements. Compliance with the Amended
Disclosures was effective for fiscal periods beginning after December 15, 2003.  Interim period disclosures have been
made in this quarterly report on Form 10-Q. The adoption of the Amended Disclosures did not have a material impact on our consolidated financial
statements.

In May 2003, the FASB issued FASB
Statement No. 150 (SFAS 150), Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150 affects
three types of freestanding financial instruments that should now be classified as
liabilities: (i) mandatorily redeemable shares which are required to be redeemed at a
specified or determinable date or upon an event certain to occur; (ii) put options and
forward purchase contracts, which involves financial instruments embodying an obligation
that the issuer must or could choose to settle by issuing a variable number of its shares
or other equity instruments based solely on something other than the issuers own
equity shares; and (iii) certain obligations that can be settled with shares, the monetary
value of which is fixed, or tied to a variable (such as a market index) or varies
inversely with the value of the issuers shares. SFAS 150 also requires disclosures
about alternative ways of settling the instruments and the capital structure of entities
whose shares are mandatorily redeemable. SFAS 150 was effective for all financial
instruments entered into or modified after May 31, 2003 and otherwise was to be effective
at the beginning of the first interim period beginning after June 15, 2003. However, the
FASB issued a staff position that delayed the effective date for certain provisions of
paragraphs nine and ten as they apply to mandatorily redeemable noncontrolling interests
(the Deferred Provisions) to the first fiscal period beginning after December
15, 2003. There was no impact on our consolidated financial statements from
the adoption of the Deferred Provisions on January 1, 2004.

In January 2004, the FASB released FASB Staff
Position No. FAS 106-1 ("FSP 106-1") discussing FASB Statement No. 106 ("FAS 106"),
"Employers' Accounting for Postretirement Benefits Other Than Pensions."  FAS 106 requires a company to consider current changes in
applicable laws when measuring its postretirement benefit costs and accumulated postretirement benefit obligation. However, because
(1) uncertainties may exist for plan sponsors surrounding the effect of the provisions of the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the "Act") and (2) certain accounting issues raised by the Act are not addressed by FAS 106, FSP 106-1
allows plan sponsors to elect a one-time deferral of the accounting for the Act. If deferral is elected, the deferral must remain in
effect until the earlier of (a) the issuance of guidance by the FASB or (b) the remeasurement of plan assets and obligations
subsequent to January 31, 2004. Further, even if an entity elects deferral, certain disclosure requirements are still required.  The
Company is currently evaluating the impact of FSP 106-1, but does not expect a material impact from the adoption of FSP 106-1 on our
consolidated financial statements.

Note 2:      Divestiture of U.S. Leasing Operations

On December 10, 2003, the Company
entered into an Asset Purchase  Agreement,  as amended by the First  Amendment dated March 31, 2004,
(the "U.S.  Agreement"),  with General Electric Capital  Corporation ("GE") pursuant to which, among other things,  IKON agreed to sell
to GE certain assets and liabilities of IKON,  solely in its capacity as successor to IOS Capital,  LLC ("IOSC"),  including  servicing
functions,  facilities,  systems and processes.  The sale of such assets and liabilities  pursuant to the U.S. Agreement was effective
as of March  31,  2004.  In  addition,  IKON and GE  executed  a  Program  Agreement (the "Program
Agreement," and together with the U.S. Agreement, the "Transaction") on  March  31,  2004.  During the initial five-year term of the Program  Agreement,  IKON will
receive an origination fee on all new leases  underwritten by GE. In addition,  IKON will receive a fee (the "Other Fees")
 from GE in  consideration of GE
being IKON's  preferred  lease  financing  source in the U.S.  The term of the Program  Agreement may be renewed by
IKON for a subsequent three or five-year period during which period IKON will be entitled to origination fees but not the Other Fees.

On March 31, 2004, the Company received from GE, $1,504,786 of initial proceeds
from the Transaction, subject to final closing
adjustments, including, without limitation, the impact on proceeds from changes in the sold lease portfolio and related debt balances
of IOSC occurring between September 30, 2003 and March 31, 2004.  The Company has estimated additional proceeds from GE of
approximately $177,483, which is recorded as "Receivable from Divestiture of Business" in the unaudited consolidated balance sheet at March
31, 2004.  The Company anticipates that the remaining net cash proceeds will be
used to retire debt, repurchase outstanding shares or invest in the Company's growth initiatives.

Immediately following the closing,
GE repaid, on the Company's behalf, $796,070
of outstanding balances under the Company's U.S. asset securitization
conduit financing agreements (the "Conduits") from the proceeds of the Transaction.  The proceeds from the Transaction
and the repayment of the U.S. Conduits have been presented as if the Company made the repayment of the U.S. Conduits directly
to the lenders in the Company's consolidated statement of cash flows for the six months ended March 31, 2004.

The Company
incurred a loss of $12,125 from the divestiture of the U.S. leasing business resulting from the
difference between the carrying amount of assets sold and proceeds received and certain costs
associated with the Transaction.

The Transaction qualifies as a sale of a business under
the applicable accounting literature, however, due to the significant
continuing involvement by the Company under the Program Agreement, the sale does not qualify as a discontinued operation.

Under the Program Agreement, GE assumes
 substantially all risks related to lease defaults for both retained and sold lease receivables of IOSC.

Note 3:      Taxes on Income

The Company recorded
a tax benefit of $4,720 during 2004, associated with the reversal of valuation
allowances as a result of the tax gain generated by the
Transaction described in note 2 which will allow for utilization of the state net operating loss
carryovers during fiscal 2004 and 2005.

In addition,
the Company recorded a tax benefit of $2,603 during 2004, associated with the reversal
of valuation allowances as a result of improved financial performance
achieved by the Company's Canadian operations which will allow for utilization of the Canadian net operating loss carryovers
prior to expiration dates in future periods.

Approximately $286,280
of taxes previously deferred were reclassified as currently payable on the Company's consolidated balance sheet at
March 31, 2004, as a result of the Transaction.

9

---

Note 4:      Goodwill

The Company has identified the
following reporting units and associated goodwill:

|                               |                                    |                                         |              |             
|------------------------------ | ---------------------------------- | --------------------------------------- | ------------ | ------------
|                               | IKON North America Copier Business | IKON North America Outsourcing Business | IKON Europe  | Total       
|                               |                                    |                                         |              |             
|                               |                                    |                                         |              |             
|Goodwill at March 31, 2004     | $    866,426                       | $     79,938                            | $    343,057 | $  1,289,421
|                               |                                    |                                         |              |             
|Goodwill at September 30, 2003 | $    864,035                       | $     79,938                            | $    314,403 | $  1,258,376

The IKON North America Copier
Business and the IKON North America Outsourcing Business reporting units comprise the IKON
North America operating segment.

Changes in the goodwill balance since
September 30, 2003 are attributable to foreign currency translation adjustments.

Note 5:      Notes Payable and
Long-term Debt

Notes payable and long-term debt
consisted of:

|                                                                     | March 31,
2004 |  | September 30,
2003 |           | 
|-------------------------------------------------------------------- | -------------- |  | ------------------ | --------- | 
|                                                                     |                |  |                    |           | 
|Outstanding corporate debt                                           |                |  |                    |           | 
|Bond issues                                                          |                |  | $                  | 411,996   | 
|Convertible subordinated notes *                                     |                |  |                    | 300,000   | 
|Notes payable *                                                      |                |  |                    | 377,714   | 
|Miscellaneous notes, bonds, mortgages, and capital lease obligations |                |  |                    | 9,057     | 
|                                                                     |                |  |                    |           | 
|                                                                     |                |  |                    | 1,098,767 | 
|Less:   Current maturities                                           |                |  |                    | 97,130    | 
|                                                                     |                |  |                    |           | 
|                                                                     |                |  | $                  | 1,001,637 | 
|                                                                     |                |  |                    |           | 
|                                                                     |                |  |                    |           | 
|Outstanding debt supporting finance contracts                        |                |  |                    |           | 
|Convertible subordinated notes  *                                    |                |  |                    |           | 
|Notes payable  *                                                     |                |  |                    |           | 
|Lease-backed notes                                                   |                |  | $                  | 911,146   | 
|Asset securitization conduit financing                               |                |  |                    | 212,709   | 
|Notes payable to banks                                               |                |  |                    | 26,181    | 
|                                                                     |                |  |                    |           | 
|                                                                     |                |  |                    | 1,150,036 | 
|Less:   Current maturities                                           |                |  |                    | 549,742   | 
|                                                                     |                |  |                    |           | 
|                                                                     |                |  | $                  | 600,294   | 
|                                                                     |                |  |                    |           | 

* The convertible subordinated
notes and notes payable presented at September 30, 2003 have been reclassified from debt supporting
finance contracts to corporate debt at March 31, 2004.

Debt Supporting Finance Contracts

During the six months
ended March 31, 2004, the Company repaid $1,238,209 of debt supporting finance contracts and received $317,925 from the
issuance of related debt instruments.

As of March 31, 2004,
IKON Capital, PLC, IKON's leasing subsidiary in the United Kingdom, and IKON Capital, Inc., IKON's leasing
subsidiary in Canada, had approximately $9,800 and CN$84,000 available under their revolving
asset securitization conduit financing agreements (the "Conduits"). During the six months ended March 31, 2004,
the Company pledged
or transferred $175,251 in financing lease receivables for $150,101 in cash in connection with these Conduits.

Immediately following the closing of the
Transaction, GE repaid, on the Company's behalf, $796,070 of outstanding balances under the
Company's U.S. Conduits from the proceeds of the Transaction.  The Company terminated the U.S. Conduits on March 31, 2004.
During the six months ended March 31, 2004, the Company pledged
or transferred $361,952 in financing lease receivables for $306,134 in cash in connection with the U.S. Conduits.

10

---

Credit Facility

The Company
terminated its $300,000 unsecured credit facility (the "Credit Facility") on March 31, 2004.  The Company
intends to replace the Credit Facility in the future with an arrangement with terms more appropriate for the
Company's new capital structure.

Loss on Early Extinguishment of Debt

During the six months
ended March 31, 2004, the Company repurchased the following notes payable:

|                                                   |  |  | Principal AmountRepurchased |  | SettlementAmount |  | 
|-------------------------------------------------- |  |  | --------------------------- |  | ---------------- |  | 
|                                                   |  |  |                             |  |                  |  | 
|Bond issue at stated rate of 9.75%, notes due 2004 |  |  | $    2,000                  |  | $    2,073       |  | 
|Bond issue at stated rate of 7.25%, notes due 2008 |  |  | 5,000                       |  | 5,350            |  | 
|Bond issue at stated rate of 6.75%, notes due 2004 |  |  | 3,963                       |  | 4,100            |  | 
|                                                   |  |  |                             |  |                  |  | 
|                                                   |  |  | $   10,963                  |  | $   11,523       |  | 
|                                                   |  |  |                             |  |                  |  | 

As a result of these
repurchases and the termination of the U.S. Conduits and Credit Facility discussed above, the Company recognized
a loss, including the write-off of unamortized costs, of $3,219, which is included in loss from early
extinguishment of debt, in the consolidated statements of income for the six months ended March 31, 2004.

Letters of Credit

The Company has certain
commitments available to it in the form of standby letters of credit. As of March 31, 2004, the Company had
$27,621 utilized under standby letters of credit. These letters of credit were supported by the Credit Facility prior to its
termination.  In March 2004, the Company deposited $27,729 into an escrow account as collateral for outstanding letters of credit
until a new credit facility is
established.  The cash collateral is recorded in restricted cash in the Company's balance sheet as of March 31, 2004.

Credit Ratings

As of March 31, 2004,
the credit ratings on the Company's senior unsecured debt were designated Ba1 with negative
outlook by Moody's Investor Services and BB with stable outlook by Standard and Poor's. On April 27, 2004,
Moody's Investor Services lowered the Company's senior unsecured debt rating to Ba2 with a stable outlook.

11

---

Note 6:      Share Repurchases

In March 2004,
the Company's Board of Directors authorized the repurchase of up to $250 million of the Company's
outstanding shares of common stock, superceding the fiscal 2000 share repurchase authorization.

Note 7:      Comprehensive
Income

Total comprehensive income is as
follows:

|                                                    | Three Months Ended  March 31 |  | Six Months Ended March 31
|--------------------------------------------------- | ---------------------------- |  | -------------------------
|                                                    |                              |  |                          
|                                                    | 2004                         |  | 2003                     
|                                                    |                              |  |                          
|Net income                                          | $    30,173                  |  | $    36,422              
|Foreign currency translation adjustments            | 8,817                        |  | 6,670                    
|Gain on derivative financial instruments, net      
|of tax expense of: $3,760 and $2,416               
|for the three months ended March 31, 2004 and 2003,
|respectively; $5,945 and $4,666 for the six        
|months ended March 31, 2004 and 2003, respectively  | 6,684                        |  | 3,623                    
|                                                    |                              |  |                          
|Total comprehensive income                          | $    45,674                  |  | $    46,715              
|                                                    |                              |  |                          

The minimum pension liability is adjusted
at each fiscal year end; therefore, there is no impact on total comprehensive income
during interim periods. The balances for foreign currency translation, minimum pension
liability and derivative financial instruments included in accumulated other comprehensive
loss in the consolidated balance sheets were $72,066, $(72,740) and $(1,358),
respectively, at March 31, 2004 and $23,876, $(72,740) and $(11,927), respectively, at
September 30, 2003.

12

---

Note 8:      Earnings Per
Common Share

The following table sets forth the
computation of basic and diluted earnings per common share:

|                                                                                         | Three Months Ended  March 31 |  | Six Months Ended  March 31
|---------------------------------------------------------------------------------------- | ---------------------------- |  | --------------------------
|                                                                                         |                              |  |                           
|                                                                                         | 2004                         |  | 2003                      
|                                                                                         |                              |  |                           
|Numerator:                                                                              
|Numerator for basic earnings per common share -                                         
|Net income                                                                               | $    30,173                  |  | $    36,422               
|Effect of dilutive securities:  Interest expense                                         |                              |  |                           
|on convertible notes, net of tax                                                         | 2,328                        |  | 2,302                     
|                                                                                         |                              |  |                           
|Numerator for diluted earnings per common share     - net
income plus assumed conversion | $    32,501                  |  | $    38,724               
|                                                                                         |                              |  |                           
|Denominator:                                                                            
|Denominator for basic earnings per common share                                         
|- weighted average common shares                                                         | 147,453                      |  | 144,483                   
|Effect of dilutive securities:                                                          
|Convertible notes                                                                        | 19,960                       |  | 19,960                    
|Employee stock awards                                                                    | 341                          |  | 251                       
|Employee stock options                                                                   | 3,147                        |  | 2,343                     
|                                                                                         |                              |  |                           
|Dilutive potential common shares                                                         | 23,448                       |  | 22,554                    
|                                                                                         |                              |  |                           
|Denominator for diluted earnings per common share -                                      |                              |  |                           
|adjusted weighted average                                                                | 170,901                      |  | 167,037                   
|                                                                                         |                              |  |                           
|Basic earnings per common share                                                          | $      0.20                  |  | $      0.25               
|                                                                                         |                              |  |                           
|Diluted earnings per common share                                                        | $      0.19                  |  | $      0.23               
|                                                                                         |                              |  |                           

The Company accounts for the
 effect
of its convertible notes in the diluted earnings per common share calculation using the
if converted method. Under that method, the convertible notes are assumed to
be converted to shares (weighted for the number of days outstanding in the period) at a
conversion price of $15.03, and interest expense, net of taxes, related to the convertible
notes is added back to net income.

Options to purchase 2,917
shares of
common stock at $12.23 to $46.59 per share were outstanding during the second
quarter of fiscal 2004 and options to purchase 8,867 shares of common stock at $7.50 to $46.59 per share were outstanding during the second quarter of fiscal 2003, but
were not included in the computation of diluted earnings per common share because the
options prices were greater than the average market price of the common shares;
therefore, the effect would be antidilutive.

Options to purchase 7,388 shares of
common stock at $10.67 to $46.59 per share were outstanding during the first
six months of fiscal 2004 and options to purchase 8,867 shares of common stock at $7.50 to $46.59 per share were outstanding during the first six months of fiscal 2003, but
were not included in the computation of diluted earnings per common share because the
options prices were greater than the average market price of the common shares;
therefore, the effect would be antidilutive.

13

---

Note 9:     Segment Reporting

The table below presents segment
information for the three months ended March 31, 2004 and 2003:

|                                  |  |                    |  |             | 
|--------------------------------- |  | ------------------ |  | ----------- | 
|                                  |  | IKON North America |  | IKON Europe | 
|                                 
|Three Months Ended March 31, 2004 |  |                    |  |             | 
|Net sales                         |  | $   422,948        |  | $   77,735  | 
|Services                          |  | 533,039            |  | 52,336      | 
|Finance income                    |  | 91,666             |  | 6,593       | 
|Finance interest expense          |  | 32,762             |  | 1,574       | 
|Loss from divestiture of business |  | 12,125             |  |             | 
|Operating income (loss)           |  | 131,855            |  | 6,109       | 
|Interest expense, net             |  |                    |  |             | 
|Income before taxes on income     |  |                    |  |             | 
|                                  |  |                    |  |             | 
|Three Months Ended March 31, 2003 |  |                    |  |             | 
|Net sales                         |  | $   443,033        |  | $   66,947  | 
|Services                          |  | 524,086            |  | 48,310      | 
|Finance income                    |  | 91,264             |  | 5,744       | 
|Finance interest expense          |  | 34,961             |  | 1,683       | 
|Operating income (loss)           |  | 137,930            |  | 6,172       | 
|Interest expense, net             |  |                    |  |             | 
|Income before taxes on income     |  |                    |  |             | 

The table below presents segment
information for the six months ended March 31, 2004 and 2003:

|                                  |  |                    |  |             | 
|--------------------------------- |  | ------------------ |  | ----------- | 
|                                  |  | IKON North America |  | IKON Europe | 
|                                 
|Six Months Ended March 31, 2004   |  |                    |  |             | 
|Net sales                         |  | $   814,135        |  | $   149,275 | 
|Services                          |  | 1,057,908          |  | 102,208     | 
|Finance income                    |  | 184,585            |  | 12,685      | 
|Finance interest expense          |  | 66,052             |  | 3,222       | 
|Loss from divestiture of business |  | 12,125             |  |             | 
|Operating income (loss)           |  | 272,239            |  | 11,200      | 
|Interest expense, net             |  |                    |  |             | 
|Income before taxes on income     |  |                    |  |             | 
|                                  |  |                    |  |             | 
|Six Months Ended March 31, 2003   |  |                    |  |             | 
|Net sales                         |  | $   852,764        |  | $   133,493 | 
|Services                          |  | 1,064,551          |  | 94,047      | 
|Finance income                    |  | 180,586            |  | 11,321      | 
|Finance interest expense          |  | 72,172             |  | 3,491       | 
|Operating income (loss)           |  | 285,111            |  | 12,212      | 
|Interest expense, net             |  |                    |  |             | 
|Income before taxes on income     |  |                    |  |             | 

The Company reports information about
its operating segments according to the management approach. The management
approach is based on the way management organizes the segments within the enterprise for
making operating decisions and assessing performance. Under SFAS 131, our reportable
segments are IKON North America (INA) and IKON Europe (IE). The
INA and IE segments provide copiers, printers, color solutions, distributed printing,
facilities management, legal document solutions, business imaging services and other
office equipment and services, as well as customized workflow and imaging application development. These segments also include our captive
finance subsidiaries in North America (including those now divested) and Europe, respectively.

Corporate/Operations, which is not
treated as a business segment, includes certain selling and administrative functions such as finance,
supply chain, and customer service.

14

---

Note 10:      Contingencies

Environmental Matters

The Company is involved in a number
of environmental remediation actions to investigate and clean up certain sites related to
its discontinued operations in accordance with applicable federal and state laws.
Uncertainties about the status of laws and regulations, technology and information related
to individual sites, including the magnitude of possible contamination, the timing and
extent of required corrective actions and proportionate liabilities of other responsible
parties, make it difficult to develop a meaningful estimate of probable future remediation
costs. While the actual costs of remediation at these sites may vary from
managements estimate because of these uncertainties, the Company had accrued
balances, included in other long-term liabilities in the Companys consolidated
balance sheets, of $7,696 and $7,913 as of March 31, 2004 and September 30, 2003,
respectively, for its environmental liabilities, and the accrual is based on
managements best estimate of the aggregate environmental remediation exposure. The
measurement of environmental liabilities is based on an evaluation of currently available
facts with respect to each individual site and considers factors such as existing
technology, presently enacted laws and regulations, prior experience in remediation of
contaminated sites and any studies performed for a site. As assessments and remediation
progress at individual sites, these liabilities are reviewed and adjusted to reflect
additional technical and legal information that becomes available. After consideration of
the defenses available to the Company, the accrual for such exposure, insurance coverage
and other responsible parties, management does not believe that its obligations to
remediate these sites would have a material adverse effect on the Companys
consolidated financial statements.

The accruals for environmental
liabilities are reflected in the consolidated balance sheets as part of other long-term
liabilities. The Company has not recorded any potential third party recoveries. The
Company is indemnified by an environmental contractor performing remedial work at a site
in Bedford Heights, OH. The contractor has agreed to indemnify the Company from cost
overruns associated with the plan of remediation. Further, the Company has cost sharing
arrangements in place with other potentially responsible parties (PRPs)
at sites located in Barkhamsted, CT and Rockford, IL. The cost-sharing agreement for the
Barkhamsted, CT site relates to apportionment of expenses associated with non-time
critical removal actions and operation and maintenance work, such as capping the landfill,
maintaining the landfill, fixing erosion rills and gullies, maintaining site security,
maintaining vegetative growth on the landfill cap and groundwater monitoring. Under the
agreement, the Company and other PRPs agreed to reimburse Rural Refuse Disposal
District No. 2, a Connecticut Municipal Authority, for 50% of these costs. The Company
currently pays a 4.54% share of these costs. The cost-sharing arrangement for the
Rockford, IL site relates to apportioning the costs of a Remedial
Investigation/Feasibility Study and certain operation and maintenance work, such as
fencing the site, removing waste liquids and sludges, capping a former surface impoundment
and demolishing certain buildings. Under this arrangement, the Company pays 5.12% of these
costs.

During fiscal 2003 and 2004, the
Company did not incur any expenses for environmental capital projects, but incurred
various expenses in conjunction with its obligations under consent decrees, orders,
voluntary remediation plans, settlement agreements and other actions to comply with
environmental laws and regulations. For the six months ending March 31, 2004, and March
31, 2003, these expenses were $216 and $228, respectively. All expenses were charged
against the related environmental accrual. The Company will continue to incur expenses in
order to comply with its obligations under consent decrees, orders, voluntary remediation
plans, settlement agreements and other actions to comply with environmental laws and
regulations.

Black Lung & Worker's Compensation Matters

The Company has an accrual related to
black lung and workers compensation liabilities relating to the operations of a
former subsidiary, Barnes & Tucker Company (B&T). B&T owned and
operated coalmines throughout Pennsylvania. IKON sold B&T in 1986. In connection with
the sale, IKON entered into a financing agreement with B&T whereby IKON agreed to
reimburse B&T for 95% of all costs and expenses incurred by B&T for black lung and
workers compensation liabilities, until said liabilities were extinguished. From
1986 through 2000, IKON reimbursed B&T in accordance with the terms of the financing
agreement. In 2000, B&T filed for bankruptcy protection under Chapter 11. The
bankruptcy court approved a plan of reorganization which created a black lung trust and a
workers compensation trust to handle the administration of all black lung and
workers compensation claims relating to B&T. IKON now reimburses the trusts for
95% of the costs and expenses incurred by the trusts for black lung and workers
compensation claims. As of March 31, 2004 and September 30, 2003, the Companys
accrual for black lung and workers compensation liabilities related to B&T was
$14,275 and $15,515, respectively.

Tax Matters

The Company received notice of
possible additional taxes due related to international matters. The Company believes they
will not materially affect the consolidated financial statements of the Company.

Guarantees

As a result of the Transaction,
the Company has agreed to indemnify GE with respect to certain liabilities that may arise
in connection with business activities that occurred prior to the completion of the Transaction.  If GE were to incur a liability
or have a liability increase as a result of a successful claim, pursuant to the
terms of the indemnification, the Company would be required to reimburse GE.  These indemnifications generally relate to recourse on
different types of lease receivables sold to GE that could
potentially become uncollectable.  In the event that all lease receivables for which the Company has indemnified GE become uncollectable, the maximum potential loss the Company could incur as a result of
these indemnifications at March 31, 2004 was $258,598.  Based on the Company's analysis of historical losses for these types of
leases, the Company has recorded reserves of approximately $664 at March 31, 2004.  The equipment leased to the
customers related to the above indemnifications, represents collateral in which the
Company would be entitled to recover and could be remarketed by IKON.  No specific recourse provisions exist with
other parties.

There are other contingent
liabilities for taxes, guarantees, other lawsuits and various other matters occurring in
the ordinary course of business. On the basis of information furnished by counsel and
others, and after consideration of the defenses available to the Company and any related
reserves and insurance coverage, management believes that none of these other
contingencies will materially affect the consolidated financial statements of the Company.

Note 11:      Financial
Instruments

As of March 31, 2004, all of the
Companys derivatives designated as hedges are interest rate swaps which qualify for
evaluation using the short cut method for assessing effectiveness. As such,
there is an assumption of no ineffectiveness. The Company uses interest rate swaps to fix
the interest rates on its variable rate classes of lease-backed notes, which results in a
lower cost of capital than if we had issued fixed rate notes. During the six months
ended March 31, 2004, unrealized gains totaling $10,569, after taxes, were recorded in
accumulated other comprehensive loss.

15

---

Note 12:      Pension

The Company sponsors defined benefit
pension plans for the majority of its employees. The benefits generally are based on years
of service and compensation. The Company funds at least the minimum amount required by
government regulations.

The components of the net periodic
pension cost for the company-sponsored defined benefit pension plans are:

|                                              | Three Months Ended March 31 |  | Six Months Ended March 31
|--------------------------------------------- | --------------------------- |  | -------------------------
|                                              |                             |  |                          
|                                              | 2004                        |  | 2003                     
|                                              |                             |  |                          
|Service cost                                  | $      8,751                |  | $    6,918               
|Interest cost on projected benefit obligation | 8,469                       |  | 7,771                    
|Expected return on plan assets                | (6,407)                     |  | (6,095)                  
|Amortization of net obligation (asset)        | 9                           |  | (305)                    
|Amortization of prior service cost            | 143                         |  | 143                      
|Recognized net actuarial loss                 | 2,854                       |  | 1,024                    
|                                              |                             |  |                          
|Net periodic benefit cost                     | $    13,819                 |  | $    9,456               
|                                              |                             |  |                          

The Company expected to contribute
$15,900 to the plans during the year ended September 30, 2004. As of March 31, 2004, $700
of contributions had been made. In April 2004, the Company contributed $82,600 to the Company's plans, including
a special contribution of $75,000.  The Company expects to contribute an additional $7,600 to the
plans during the remainder of fiscal 2004.

Note 13:      Assets Held for Sale

On March
31, 2004, IKON Office Solutions, Inc., a Canadian subsidiary of the Company ("IKON Canada"), executed an Asset Purchase Agreement (the
"Canadian Agreement") with Heller Financial Canada, an affiliate of GE ("Heller"), pursuant to which, among other
things, Heller will acquire certain assets relating to the leasing operations of IKON Canada (the "Canadian Leasing Business") and
become IKON's preferred lease financing source in Canada.  Expected proceeds from the transaction are $176,888, which represents the
carrying amount of the Canadian Leasing Business at March 31, 2004.  This amount will change due to normal lease activity occurring
from March 31, 2004 to the closing date of the transaction and the result of final negotiations.

At March 31, 2004, all criteria for
classification as assets held for sale as defined by SFAS No. 144, ("SFAS 144"), "Accounting for the Impairment
or Disposal of Long-Lived Assets" had been met. In accordance with SFAS 144, an estimate of assets to be sold to Heller
have been reclassified from various line items within the balance sheet and aggregated into "Assets Held for Sale."

The Canadian Agreement
contains representations, warranties, covenants, indemnifications and provisions that are customary for a
transaction of this type. The closing is subject to regulatory approvals and other customary conditions and is subject to the
execution of a Canadian Program Agreement, which the Company expects will contain
terms similar to those set forth in the U.S. Program Agreement.  The transactions
contemplated by the Canadian Agreement are expected to close in the third quarter of fiscal 2004.  This description
of the transactions is qualified in its entirety by reference to the full text of the Canadian Agreement included with IKON's current
report on Form 8-K as filed with the U.S. Securities and Exchange Commission on April 6, 2004 as exhibit 2.2.

Note 14:      Subsequent Event

In April 2004,
the Company completed its tender for $250,165 of aggregate principal of its outstanding $345 million 7.25% notes due
2008.  As a result of the completion of the tender, the Company expects to incur a pretax loss on early
extinguishment of debt of approximately $32 million, including $5 million related to the write-off of unamoritized costs,
in the third quarter of fiscal 2004.

16

---

Item 2:      Managements Discussion
and Analysis of Financial Condition and Results of Operations

All dollar and share amounts are in
thousands, except per share data.

Our preparation of this quarterly
report on Form 10-Q and other financial statements filed with the Securities and Exchange
Commission (SEC) requires us to make estimates and assumptions that affect
amounts reported in the consolidated financial statements and notes. Actual results could
differ from those estimates and assumptions.

References herein to "IKON",
the "Company", we,
us, or our refer to IKON Office Solutions, Inc. and its
subsidiaries unless the context specifically requires otherwise.

Executive Summary

IKON integrates imaging systems and services that help
businesses manage document workflow and increase efficiency. We are the world's largest independent distribution
channel for copier and printer technologies, offering best-in-class systems from leading manufacturers such as
Canon, Ricoh, Konica-Minolta, HP and Océ and service support through our team of 7,000 service professionals worldwide. We also
represent the industry's broadest portfolio of document management services including: outsourcing and
professional services, on-site copy and mailroom management, fleet management, off-site digital printing
solutions, and customized workflow and imaging application development.  We have approximately 600 locations
worldwide, including locations in the United States, Canada, Mexico, the United Kingdom, France, Germany,
Ireland, Denmark and the Netherlands.

Success factors we feel are critical to our business include building solid growth initiatives to expand our
market reach, developing a highly responsive and cost efficient infrastructure, and achieving greater financial
flexibility to ensure we can return value to our shareholders and respond more aggressively to new market
opportunities.

In order to build solid growth initiatives and expand our market reach, our long-term strategy involves enhancing
our supplier relationships, expanding our sales channels, and improving our overall business mix. Recognizing our
role as a major sales and service channel to our suppliers, we are enhancing those relationships to target new
customer and geographic opportunities, launch new products, develop IKON exclusive offerings, and ensure that our
execution in the field is effective. The national account program and the metro market initiatives are two of the
Company's most important market expansion strategies. The national account program targets multi-million dollar
long-term contracts with Fortune 1000 and large regional companies. Our revenues from the national account
program grew by over 100% compared to the first half of 2003, with several significant new customer wins made during Fiscal 2004.
The metro market initiative is designed to expand the Company's presence in major cities where we had not
aggressively marketed in the past. In improving our overall business mix, we are focusing on higher growth
technologies like color and high-end black & white production - two important drivers to fuel aftermarket
supplies and service revenues. In color, we experienced a 62% increase from the first half of Fiscal 2003 as higher quality
and more affordably priced products introduced by both Canon and Ricoh throughout Fiscal 2003 continue to drive
the acceptance of color into the workplace.  Our strong product mix from industry leaders including Canon, Ricoh,
and the IKON CPP 8050 we co-branded with Konica-Minolta, continue to see increased placements in both color and
high-end black & white equipment. In Services, we are focusing on faster growing markets such as outsourcing,
particularly facilities management, and professional services. Our increased focus on professional services,
comprised of our technology experts who blend workflow expertise with hardware and software solutions to improve
overall document efficiency, led to increased connectivity rates (the percentage of new equipment sold that is
connected to a network) of nearly 50% for Fiscal 2004.

To develop a highly
responsive and cost efficient infrastructure, our focus is to maximize the efficiency of our
organization through a streamlined infrastructure, comprehensive information technology system, process
improvements, and effective asset management. In our effort to streamline our infrastructure, we continue to
implement our e-IKON initiative, a process and systems software solution that integrates more than forty of the forty-five
Oracle E-Business modules in the United States. Current e-IKON activity is focused on optimizing supply chain and
customer care support - two areas of the Company with the most identified opportunity in terms of productivity
and potential costs savings. As a result of our efforts, our supply chain delivered significantly improved
inventory turns of 10.4 for the quarter compared to 9.9 at September 30, 2003.  We will continue to place our resources into  e-IKON as it represents
an area of substantial productivity and cost savings opportunities. Six-Sigma is a disciplined business
methodology designed to assist companies in increasing profitability by streamlining operations, improving
quality and eliminating possible defects in processes. We are seeing some of the first benefits from our initial
Six-Sigma projects that are reaching conclusion and we now have eighty trained "black-belts" in the program
all targeting measurable financial and process benefits for the Company.

Closely linked with the success
factors described above is our continued drive to achieve greater financial
flexibility. During the quarter, we announced the completion of our transaction with General Electric Capital
Corporation ("GE") in which the Company sold to GE certain assets and liabilities
of IKON, solely in its capacity as successor to IOS Capital, LLC ("IOSC").  The Company and GE executed
a Program Agreement with an initial term of five years, during which time the Company will receive
fees on all new leases underwritten by GE.  The sale of certain of IOSC's assets and liabilities to GE, together with the transactions
contemplated by the Program Agreement, are referred to in this report as the "Transaction."  In addition, we executed an Asset
Purchase Agreement ("the Canadian Agreement") between IKON Canada and Heller Financial Canada, an affiliate of GE ("Heller"),
pursuant to which, among other things, Heller will acquire certain assets relating the leasing operations of IKON
Canada ( the "Canadian Leasing Business") and become IKON's preferred lease financing source in Canada. These
transactions effectively transition us out of the captive leasing business in the United States and Canada,
simplify our capital structure, and give us a substantial
amount of cash to redeploy in growth initiatives, and share and debt repurchases.  For example, our total debt
to capital ratio for the quarter declined to 56.3% from 67.7% compared to the
second quarter of Fiscal 2003. In addition, we recently tendered $250 million of our
7.25% notes due 2008 which will further reduce our debt to capital ratio.

For the quarter, the Company had
revenues of $1.18 billion, representing a slight increase in revenues from the
second quarter of Fiscal 2003, with foreign currency translation providing 2.2% of the benefit.  Diluted earnings
per share was $0.19, which included a pre-tax loss of $12.1 million from the sale of the Company's U.S. leasing
operations; a pretax loss of $3.1 million on the early extinguishment of debt and a tax benefit of
$4.7 million associated with the utilization of net operating loss carryovers as a result of the tax gain recognized on the
sale of the U.S. leasing operations.   Refer to "Results of Operations" for further discussion of our quarterly financial
statements.

17

---

Outlook

As a result of the Transaction, beginning with the third quarter of fiscal 2004, finance income will decline as
leases in the retained U.S. lease asset portfolio expire.  Fees and profit sharing opportunities resulting from
the new alliance with GE, to be reflected in Net Sales and Services, may only partially replace
historically reported finance income.  We intend to use the proceeds of the Transaction to, among other things,
enhance our core business of document management solutions, reduce our debt and purchase shares of our common
stock.

Results of Operations

This discussion reviews the results
of operations of the Company as reported in the consolidated statements of income. Unless
otherwise noted, references to 2004 and 2003 in the section relating to the three months ended March 31, 2004
refer to the three months ended March 31, 2004 and 2003, respectively, and references to 2004 and
2003 in the section relating to the six months ended March 31, 2004 refer to the six months ended
March 31, 2004 and 2003, respectively.

Three Months Ended March 31, 2004
                                         Compared to the Three Months Ended March 31, 2003

Revenues

|               |                |                |         | 
|-------------- | -------------- | -------------- | ------- | 
|               |                |                |         | 
|               | 2004           | 2003           | Change  | 
|               |                |                |         | 
|Net sales      | $     500,700  | $     510,000  | (1.8) % | 
|Services       | 585,400        | 572,400        | 2.3     | 
|Finance income | 98,200         | 97,000         | 1.2     | 
|               |                |                |         | 
|               | $    1,184,300 | $    1,179,400 | 0.4 %   | 
|               |                |                |         | 

The increase in revenues of 0.4%
compared to 2003, which includes a currency benefit of 2.2% (revenues denominated in
foreign currencies impacted favorably when converted to U.S. dollars for reporting
purposes), is a result of an overall decrease in net sales, offset by increases in
services and finance income.

Net sales includes
revenues from the sale of copier/printer multi-function equipment, direct supplies, and
technology hardware.  The decrease in net sales includes a currency benefit of 2.9%.  Sales of technology
hardware declined by $4,900 compared to the second quarter of 2003 as several large customer relationships were
not renewed by the Company for 2004 as we continue to de-emphasize this business.  Direct supply sales of $49,200 remained relatively flat compared to the prior year.
Equipment revenue, which comprised over 87% of the Company's net sales mix during the second quarter of 2004,
decreased 1%, or $4,400, compared to 2003.  Revenues generated from the sale of color devices increased by 62%
compared to 2003 due to higher demand for these products, particularly higher-end color production equipment, as
new products were introduced at more affordable prices.  As a percentage of equipment revenue, color devices increased
from approximately 12% in 2003 to approximately 20% in 2004.  The Company also experienced growth in black &
white production equipment (segment 5 - 6 devices with page outputs greater than 70 pages per minute) of
approximately 4%, due in part, to an increase of approximately 20% in Canon imageRUNNER 110/150 placements.
Sales of black & white production and color devices, a high growth area for the Company, represented 35% of the Company's
equipment revenues in 2004 compared to 27% in 2003.  These increases were offset by decreases from the sale of
black & white office equipment (segment 1 - 4 devices with page outputs less than 70 pages per minute) of
approximately 9%, compared to 2003.   This decrease was due to lower demand for these products compared to the
prior year, due in part, to the shift of sales to color devices.  As a percentage of equipment revenue, sales of
black & white office equipment (including miscellaneous equipment) represented 65% in 2004 compared to 73% in 2003.

Services consists of revenue from the servicing of copier/printer equipment and outsourcing and other services,
such as facilities management, digital print production, legal document services, professional services and other
services, and rentals. Services increased by 2.3%, which includes a currency benefit of 1.7%.  Outsourcing and
other services increased by $4,000, or 1.8%, compared to 2003.  Equipment service, which is significantly
impacted by the level and mix of copy volumes, increased by $8,900, or 2.6%, compared to the second quarter of
2003, as the Company began to realize the benefit of a more favorable mix of color and production technologies
and benefits from strategic investments that enhance the potential for aftermarket revenues.  Total copy volume
grew by approximately 5% compared to 2003.

18

---

Finance income
is generated by IKON's wholly-owned leasing subsidiaries. IOSC, IKON's former leasing subsidiary
in the United States, accounted for 88% of the Company's finance income during 2004, compared to 89% during 2003.
Approximately 84% of IKON's copier and equipment revenues in the United States
were financed by IOSC during 2004, compared to approximately 78% during 2003. The increase in finance income is
primarily due to growth in the gross lease portfolio  of 4.6% compared to 2003 (prior to the Transaction on March 31, 2004) and a currency benefit of 1.5%.  These increases were
partially offset by a decrease in the Company's average financing rate charged on our lease receivables compared
to 2003.  Although we will receive finance income under certain leases that will be financed directly by the Company, our total finance
income will decrease  in future periods as a result of the Transaction.

Gross Margin

|                             |        |        |  | 
|---------------------------- | ------ | ------ |  | 
|                             |        |        |  | 
|                             | 2004   | 2003   |  | 
|                             |        |        |  | 
|Gross margin, net sales      | 28.3 % | 30.5 % |  | 
|Gross margin, services       | 40.8   | 40.5   |  | 
|Gross margin, finance income | 65.1   | 62.2   |  | 
|Gross margin, total          | 37.6   | 38.0   |  | 

Total gross margin decreased from 38.0% in 2003 to 37.6% in 2004. Over 50% of the decrease in gross margin on net
sales was due to less favorable product and customer mix and a more competitive environment for copier/printer
equipment that resulted in additional pricing pressures compared to 2003. Changes in customer and product mix
negatively impacted gross margin, as new technology was introduced at more affordable prices. Color was the
largest driver of this change, as average selling price decreased by over 12% compared to the second quarter of
2003. While color pricing has declined with new technology introductions, lower pricing led to a stronger acceptance of
color in the marketplace, resulting in increased unit placements and a 62% increase in color equipment revenues
compared to the second quarter of 2003.   The remaining decrease in gross margin was primarily attributable to
lower sales of high-margin used equipment and write-offs related to our continued centralization efforts.

The gross
margin on services increased slightly compared to 2003 due mainly to continued productivity and
operational improvements.

The gross margin on finance income increased compared to 2003 due to the effect of lower average borrowing rates,
partially offset by a decrease in the Company's average financing rate charged on our lease receivables.   The
average financing rate on our lease receivables was approximately 10.7% and 11.1% for 2004 and 2003,
respectively. Additionally, our  average cost of debt supporting finance contracts was approximately 4.7% and 5.3% for
2004 and 2003, respectively.

19

---

Other

|                                              |            |             |         | 
|--------------------------------------------- | ---------- | ----------- | ------- | 
|                                              |            |             |         | 
|                                              | 2004       | 2003        | Change  | 
|                                              |            |             |         | 
|Selling and administrative expenses           | $  383,200 | $   377,900 | 1.4 %   | 
|S&A as a % of revenue                         | 32.4  %    | 32.0 %      |         | 
|Loss from divestiture of business             | 12,100     |             | 100.0   | 
|Operating income                              | 49,500     | 69,800      | (29.1)  | 
|Loss (gain) from early extinguishment of debt | 3,100      | (1,300)     | (338.5) | 
|Interest expense, net                         | 9,700      | 12,600      | (23.0)  | 
|Taxes on income                               | 6,500      | 22,100      | (70.6)  | 
|Net income                                    | 30,200     | 36,400      | (17.0)  | 
|Diluted earnings per common share             | 0.19       | 0.23        | (17.4)  | 

Selling and
administrative expense increased by $5,300, or 1.4%, during 2004 compared to 2003, and increased
slightly as a percentage of revenue.  A significant portion of this increase is attributable to the unfavorable
impact of changes in foreign currency rates of $6,300 compared to the prior year, additional pension expense of
$4,400 and incremental increases in other benefit related costs compared to 2003.   Partially offsetting these increases
was a decrease in the provision for lease defaults of $4,700 due to the strengthening of the lease portfolio compared to
2003.

The Company incurred a loss
of $12,100 from the divestiture of the U.S. leasing business resulting from the difference
between the carrying amount of assets sold and proceeds received and certain costs associated with the Transaction.

Our operating
income decreased by 29.1% compared to the three months ended March 31, 2003, as a result of the
factors discussed above.

During the three
months ended March 31, 2004, the Company recorded a loss from early extinguishment of debt of
$3,100, as a result of the repurchases of debt and other financing related actions discussed below under "Debt
Structure."  During 2003, the Company recorded a gain from the early extinguishment of debt of $1,300, as a
result of the repurchase of various debt instruments.

The decrease
in interest expense was due to lower average outstanding debt balances in 2004 compared to 2003.
This decrease is partially offset by higher weighted average interest rates during the second quarter of 2004
compared to the second quarter of 2003.

The effective
income tax rate was 17.80% and 37.75% for 2004 and 2003, respectively.  This decrease was due to
the reversal of valuation allowances on state net operating loss carryovers of $4,700 as a result of the tax gain
generated by the Transaction in 2004.  In addition, during 2004, the Company reversed valuation allowances on the
Company's Canadian net operating loss carryovers of $2,600 as a result of improved financial performance achieved
by the Company's Canadian operations.

Diluted earnings
per common share were $0.19 for the three months ended March 31, 2004 compared to $0.23 for the
three months ended March 31, 2003.

Review of Business
Segments

IKON North America

|                                  |            |            |        |     
|--------------------------------- | ---------- | ---------- | ------ | ----
|                                  |            |            |        |     
|                                  | 2004       | 2003       | Change |     
|                                  |            |            |        |     
|Net sales                         | $  422,900 | $  443,000 | (4.5   | )  %
|Services                          | 533,000    | 524,100    | 1.7    |     
|Finance income                    | 91,700     | 91,300     | 0.4    |     
|Finance interest expense          | 32,800     | 35,000     | (6.3   | )   
|Loss from divestiture of business | 12,100     |            | 100.0  |     
|Operating income                  | 131,800    | 137,900    | (4.4   | )   

Approximately 90% of the
Companys revenues are generated by IKON North America (INA). As a
result, many of the items discussed above regarding the Company are applicable to INA.

Approximately 66% of the net sales decrease was due to a decline in copier/printer equipment sales of 3.5%, or
$13,600, due to lower average selling prices and less favorable product mix. Technology hardware decreased by
$5,100 as a result of several large customer relationships that were not renewed for 2004 by the Company. Services increased by
approximately 1.7%, or $8,900.  Equipment services  increased by 1.9%, or $5,900, compared to 2003, as the
Company began to realize the benefit of a more favorable mix of color and production technologies and benefits
from strategic investments that enhance the potential for aftermarket revenues.  Outsourcing and other services
increased 1.5%, or $3,000, compared to 2003, due primarily to an increase in professional services.
Finance income increased due to growth in the lease portfolio compared to 2003, partially offset by a decrease in
the Company's average financing rate charged on our lease receivables compared to 2003.   Finance interest
expense decreased due to lower average borrowing rates compared to 2003.  The Company incurred a loss of $12,100
from the divestiture of the U.S. leasing business resulting from the difference between the
carrying amount of assets sold and proceeds received and certain costs associated with the Transaction. Operating income
decreased due to lower revenues and lower profit margins on revenues compared to 2003 and the loss from the
divestiture of the U.S. leasing business.

20

---

IKON Europe

|                         |           |           |        |  
|------------------------ | --------- | --------- | ------ | -
|                         |           |           |        |  
|                         | 2004      | 2003      | Change |  
|                         |           |           |        |  
|Net sales                | $  77,800 | $  67,000 | 16.1   | %
|Services                 | 52,400    | 48,300    | 8.5    |  
|Finance income           | 6,500     | 5,700     | 14.0   |  
|Finance interest expense | 1,600     | 1,700     | (5.9   | )
|Operating income         | 6,100     | 6,200     | (1.6   | )

Net sales
increased as a result of
currency benefits of approximately $10,600. Excluding the impact of currency, sales of copier/printer equipment remained
relatively flat compared to 2003.  Services and finance income increased as a result of
currency benefits of approximately $6,900 and $860, respectively.
Operating income for 2004 remained relatively flat compared to 2003.

Corporate/Operations

Corporate/Operations,
which is not
treated as a business segment, includes certain selling and administrative functions
such as finance, supply chain, and customer service.  Operating costs in
Corporate/Operations were $88,400 and $74,300 in 2004 and 2003, respectively.

Six Months Ended March 31, 2004
                                         Compared to the Six Months Ended March 31, 2003

Revenues

|               |                |                |         | 
|-------------- | -------------- | -------------- | ------- | 
|               |                |                |         | 
|               | 2004           | 2003           | Change  | 
|               |                |                |         | 
|Net sales      | $     963,400  | $     986,300  | (2.3) % | 
|Services       | 1,160,100      | 1,158,600      | 0.1     | 
|Finance income | 197,300        | 191,900        | 2.8     | 
|               |                |                |         | 
|               | $    2,320,800 | $    2,336,800 | (0.7) % | 
|               |                |                |         | 

The decrease in revenues of 0.7%
compared to 2003, which includes a currency benefit of 2.0% (revenues denominated in
foreign currencies impacted favorably when converted to U.S. dollars for reporting
purposes), is a result of an overall decrease in net sales, partially offset by increases in
services and finance income.

Net sales includes revenues
from the sale of copier/printer multi-function equipment, direct supplies, and
technology hardware.  The decrease in net sales includes a currency benefit of 2.8%.  Sales of technology
hardware declined by $13,100, compared to the six months ended 2003, as several large customer relationships were
not renewed by the Company for 2004 as we continue to de-emphasize this business.  Direct supply sales of $94,300 remained relatively flat compared to the prior year.
Equipment revenue, which comprised over 87% of the Company's net sales mix during the six months ended March 31, 3004,
decreased approximately 1%, or $9,100, compared to the prior year.  Revenues generated from the sale of color devices
increased by 62% compared to 2003 due to higher demand for these products, particularly higher-end color
production equipment, as new products were introduced at more affordable prices.  As a percentage of equipment revenue,
color devices increased from approximately 12% in 2003 to approximately 19% in 2004.  The Company also
experienced growth in black & white production equipment (segment 5 - 6 devices with page outputs greater than
70 pages per minute) of approximately 1%, due in part, to an increase of approximately 16% in Canon imageRUNNER
110/150 placements.   Sales of black & white production and color devices, a high growth area for the
Company, represented 35% of our equipment revenues in 2004 compared to 28% in 2003.  These increases were offset
by decreases from the sale of black & white office equipment (segment 1 - 4 devices with page outputs less than
70 pages per minute) of approximately 7%, compared to 2003.   This decrease was due to lower demand for these
products compared to the prior year, due in part, to the shift of sales to color devices and lower average selling
prices for these products.  As a percentage of equipment revenue, sales of black & white office equipment (including miscellaneous
equipment) represented 65% in 2004 compared to 72% in 2003.

Services
consists of revenue from the servicing of copier/printer equipment and outsourcing and other services,
such as facilities management, digital print production, legal document services, professional services and other
services, and rentals. Services increased by 0.1%, which includes a currency benefit of 1.5%.  Excluding this
currency benefit, overall services decreased approximately 1.4% compared to 2003.  Outsourcing and other services
increased by $18,500, or 4.2%, compared to 2003.  The Company earned no profit related to the completion of a
multi-year commercial imaging contract, which accounted for approximately 55% of the outsourcing and other services revenue
increase and negatively impacted the services gross margin percentage by seventy basis points.  Equipment
service, which is significantly impacted by the level and mix of copy volumes, decreased by $17,000, or 2.4%,
compared to the six months ended March 31, 2003, due to the unfavorable impact of price and mix of copy volumes,
particularly during the first quarter of 2004 compared to the first quarter of 2003 (which experienced unusually
strong equipment service revenues).  However, the Company began to realize the benefit of a more favorable mix of
color and production technologies and benefits from strategic investments that enhance the potential for
aftermarket revenues during the second quarter of 2004.  Total copy volume grew by approximately 5% compared
to 2003.

21

---

Finance income is
generated by IKON's wholly-owned leasing subsidiaries. IOSC, IKON's former leasing subsidiary
in the United States, accounted for 88% of the Company's finance income during 2004, compared to 91% during 2003.
Approximately 83% of IKON's copier and equipment revenues in the United States
were financed by IOSC during 2004, compared to approximately 79% during 2003. The increase in finance income is
primarily due to growth in the gross lease portfolio of 4.4% compared to 2003 (prior to the Transaction on March 31, 2004)
and a currency benefit of 1.3%.  These increases were
partially offset by a decrease in the Company's average financing rate charged on our lease receivables compared
to 2003.  Although we will receive finance income under certain leases that will be
financed directly by the Company, our total finance income will decrease in future periods as a result of the Transaction.

Gross Margin

|                             |        |        |  | 
|---------------------------- | ------ | ------ |  | 
|                             |        |        |  | 
|                             | 2004   | 2003   |  | 
|                             |        |        |  | 
|Gross margin, net sales      | 28.9 % | 31.0 % |  | 
|Gross margin, services       | 40.5   | 40.9   |  | 
|Gross margin, finance income | 64.9   | 60.6   |  | 
|Gross margin, total          | 37.7   | 38.3   |  | 

Total gross margin
decreased from 38.3% in 2003 to 37.7% in 2004. Over 50% of the decrease in gross margin on net
sales was due to less favorable product and customer mix and a more competitive environment for copier/printer
equipment that resulted in additional pricing pressures compared to 2003. Changes in customer and product mix
negatively impacted gross margin, as new technology was introduced at more affordable prices. Color was the
largest driver of this change, as average selling price decreased by over 18% compared to the first half of 2003.
While color pricing has declined with new technology introductions, lower pricing led to a stronger acceptance of color in
the marketplace, resulting in increased unit placements and a 62% increase in color equipment revenues compared
to the first half of 2003.   The remaining decrease in gross margin was primarily attributable to lower sales of
high-margin used equipment and write-offs related to our continued centralization efforts, partially offset by
continued benefits realized from the centralization of our supply chain function.

The gross
margin on services decreased slightly compared to 2003 due mainly to the impact from the completion of a
multi-year commercial imaging contract in which no profit was earned.

The gross margin on
finance income increased compared to 2003 due to the effect of lower average borrowing rates,
partially offset by a decrease in the Company's average financing rate charged on our lease receivables.   The
average financing rate on our lease receivables during the six months ended March 31, 2004 and 2003, was
approximately 10.7% and 11.0%, respectively. Additionally, our average cost of debt supporting finance contracts was
approximately 4.7% and 5.4% for the six months ended March 31, 2004 and 2003, respectively.

22

---

Other

|                                              |            |             |         | 
|--------------------------------------------- | ---------- | ----------- | ------- | 
|                                              |            |             |         | 
|                                              | 2004       | 2003        | Change  | 
|                                              |            |             |         | 
|Selling and administrative expenses           | $  759,700 | $   761,700 | (0.3) % | 
|S&A as a % of revenue                         | 32.7  %    | 32.6 %      |         | 
|Loss from divestiture of business             | 12,100     |             | 100.0   | 
|Operating income                              | 104,100    | 134,200     | (22.4)  | 
|Loss (gain) from early extinguishment of debt | 3,200      | (1,300)     | (346.2) | 
|Interest expense, net                         | 19,700     | 24,800      | (20.6)  | 
|Taxes on income                               | 23,300     | 41,800      | (44.3)  | 
|Net income                                    | 57,800     | 68,900      | (16.1)  | 
|Diluted earnings per common share             | 0.37       | 0.44        | (15.9)  | 

Selling
and administrative expense remained relatively consistent compared to 2003.  Selling and administrative
expense was unfavorably impacted by $11,800 due to foreign currency translation compared to the prior year.
Pension and bad debt expense increased $8,700 and $4,400, respectively, compared to 2003.  These increases were
offset by a decrease in compensation expense of  $16,600 due primarily to headcount reductions compared to 2003
as the Company continues its efforts to consolidate and centralize certain administrative functions.   In
addition, the provision for lease defaults decreased by $8,800 due to the strengthening of the lease portfolio
compared to 2003.

The Company incurred a
loss of $12,100 from the divestiture of the U.S. leasing business relating to expenses resulting from the
difference from the carrying amount of assets sold and proceeds received and certain costs associated with the
Transaction.

Our operating income
decreased by 22.4% compared to the six months ended March 31, 2003, as a result of the
factors discussed above.

During the six
months ended March 31, 2004, the Company recorded a loss from early extinguishment of debt of
$3,200, as a result of the repurchases of debt and other financing related actions discussed below under "Debt
Structure."  During 2003, the Company recorded a gain from the early extinguishment of debt of $1,300, as a
result of the repurchase of various debt instruments.

The decrease
in interest expense was due to  lower average outstanding debt balances in 2004 compared to 2003.
This decrease is partially offset by higher weighted average interest rates during the six months ended 2004
compared to the six months ended March 31, 2003.

The effective
income tax rate was 28.72% and 37.75%, respectively for 2004 and 2003.   This decrease was due to
the reversal of valuation allowances on state net operating loss carryovers of $4,700 as a result of the tax gain
generated by the Transaction in 2004.  In addition, during 2004, the Company reversed valuation allowances on the
Company's Canadian net operating loss carryovers of $2,600 as a result of improved financial performance achieved
by the Company's Canadian operations.

Diluted
earnings per common share were $0.37 for the six months ended March 31, 2004 compared to $0.44 for the
six months ended March 31, 2003.

Review of Business
Segments

IKON North America

|                                  |            |            |        |     
|--------------------------------- | ---------- | ---------- | ------ | ----
|                                  |            |            |        |     
|                                  | 2004       | 2003       | Change |     
|                                  |            |            |        |     
|Net sales                         | $  814,100 | $  852,800 | (4.5   | )  %
|Services                          | 1,057,900  | 1,064,600  | (0.6   | )   
|Finance income                    | 184,600    | 180,600    | 2.2    |     
|Finance interest expense          | 66,100     | 72,200     | (8.4   | )   
|Loss from divestiture of business | 12,100     |            | 100.0  |     
|Operating income                  | 272,200    | 285,100    | (4.5   | )   

Approximately 90% of the
Companys revenues are generated by IKON North America (INA). As a
result, many of the items discussed above regarding the Company are applicable to INA.

Approximately 60%
of the net sales decrease was due to a decline in sales of copier/printer equipment of $24,000,
or 3.2%, due to lower average selling prices and less favorable product mix. Technology hardware decreased
$12,000 as a result of several large customer relationships that were not renewed for 2004 by the Company. Services decreased by
approximately 0.6%, or $6,700, due primarily to declines in equipment services of 4.5% compared to 2003. This decrease was
partially offset by an increase in outsourcing and other services of 4.0%, or $16,400, compared to 2003,
benefiting from a one-time commercial imaging contract, which accounted for a significant portion of this growth.
Finance income increased due to growth in the lease portfolio compared to 2003, partially offset by a decrease in
the Company's average financing rate charged on our lease receivables compared to 2003.   Finance interest
expense decreased due to lower average borrowing rates compared to 2003. The Company incurred a loss of $12,100
from the divestiture of the U.S. leasing business resulting from the difference between the
carrying amount of assets sold and proceeds received and certain costs associated with the Transaction.  Operating income
decreased due
to lower revenues and lower profit margins on revenues compared to 2003 and the loss from the divestiture of the
U.S. leasing business.

23

---

IKON Europe

|                         |            |            |        |  
|------------------------ | ---------- | ---------- | ------ | -
|                         |            |            |        |  
|                         | 2004       | 2003       | Change |  
|                         |            |            |        |  
|Net sales                | $  149,300 | $  133,500 | 11.8   | %
|Services                 | 102,200    | 94,000     | 8.7    |  
|Finance income           | 12,700     | 11,300     | 12.4   |  
|Finance interest expense | 3,200      | 3,500      | (8.6   | )
|Operating income         | 11,200     | 12,200     | (8.2   | )

Net sales increased
as a result of currency benefits of approximately $18,400. Excluding the impact of currency, sales of copier/printer equipment remained
relatively flat compared to 2003.  Services increased as a result of
currency benefits of approximately $12,000, offset by a decrease of $3,800 due to declines in equipment
services compared to 2003.  Finance income increased as a result of currency benefits of $1,400. Operating income decreased
during 2004 due to an increase in cost of goods sold of $13,200 and services costs of $11,300. These
increases are primarily due to an unfavorable currency impact compared to 2003.

Corporate/Operations

Corporate/Operations, which is not
treated as a business segment, includes certain selling and administrative functions
such as finance, supply chain, and customer service. Operating costs in
Corporate/Operations were $179,300 and $163,100 in 2004 and 2003, respectively.

Financial Condition and
Liquidity

Cash Flows and Liquidity

|                                               |  |  |   | 2004      |   |  |  | 
|---------------------------------------------- |  |  | - | --------- | - |  |  | 
|                                               |  |  |   |           |   |  |  | 
|Cash provided by operating activities          |  |  | $ | 56,700    |   |  |  | 
|Cash provided by investing activities          |  |  |   | 1,432,600 |   |  |  | 
|Cash used in financing activities              |  |  |   | (998,300  | ) |  |  | 
|Effect of exchange rates                       |  |  |   | 2,300     |   |  |  | 
|                                               |  |  |   |           |   |  |  | 
|Increase in cash                               |  |  |   | 493,300   |   |  |  | 
|Cash and cash equivalents at beginning of year |  |  |   | 360,000   |   |  |  | 
|                                               |  |  |   |           |   |  |  | 
|Cash and cash equivalents at end of period     |  |  | $ | 853,300   |   |  |  | 
|                                               |  |  |   |           |   |  |  | 

24

---

Operating Cash Flows

Cash provided from
operating activities was $56,700 during the six months ended March 31, 2004. The most
significant use of cash was from the decrease of accounts payable, deferred revenues and accrued expenses of
$151,100 during the six months ended March 31, 2004, due to decreases in
trade accounts payable as a result of higher inventory purchases compared to the fourth quarter of 2003 and the timing of
terms with some of our vendors at March 31, 2004, compared to September 30, 2003, and decreases in accrued
salaries due to the payment for 2003 performance compensation.  During the first half of 2004, the Company used
$13,700 of cash to replenish inventories that were at historically low levels at September 30, 2003, due to
improved inventory management as a result of the Company's centralization initiatives and the fourth quarter
sales initiative. In addition, the Company used $4,600 of cash as a result of an increase in accounts receivable
compared to September 30, 2003. This increase was due primarily to higher than normal cash collection efforts
during the fourth quarter of 2003.  Net income was $57,800 during the six months ended March 31, 2004, and
non-cash operating expenses were $170,600, including depreciation, amortization, provision for losses on accounts
receivable and lease receivables, provision for deferred taxes, pension expense, loss from early extinguishment of debt, and loss on
divestiture of business.

Investing Cash Flows

During fiscal 2004,
the Company received $1,432,600 from investing activities, which included proceeds from the
divestiture of business totaling $1,504,800 from the Transaction with GE.  The Company had capital
expenditures for property and equipment of $12,000 and capital expenditures for equipment on operating leases of
$23,900. Capital expenditures for equipment on operating leases represent purchases of equipment that are placed
on rental with customers. Proceeds from the sale of property and equipment during the first half of 2004
were $7,800.  Cash provided from investing activities includes net cash used by finance subsidiaries of $39,900 due to
additions exceeding collections of lease receivables.

Financing Cash Flows

During the first half of
fiscal 2004, the Company used $998,300 of cash for financing activities. Also during the first half of fiscal 2004,
the Company received proceeds of $500 and made repayments of $45,300 related to corporate debt and other borrowings.
During the six months ended March 31, 2004, the Company's repaid $1,238,200 of debt supporting finance contracts, of
which $796,400 was related to the repayment of the Company's U.S. revolving asset securitization conduit
financing arrangements (the "Conduits") upon the completion of the Transaction with GE.  During
the six months ended March 31, 2004, the Company received $317,900 from the issuance of debt supporting finance
contracts.  Repayments of debt supporting finance contracts includes the early extinguishment of $2,000 par value
of the Company's 2004 Notes for $2,100, $5,000 par value of the Company's 2008 Notes for $5,300 and $4,000 par
value of the Company's 2004 Bonds for $4,100. As a result of these repurchases and the termination of the U.S.
Conduits and Credit Facility, the Company recognized a loss of $3,200, which is included in loss from early
extinguishment of debt, in the consolidated statements of income for the six months ended March 31, 2004.

The Company
paid $11,800 of dividends to shareholders, or $0.08 per common share during the six months ended
March 31, 2004.

Cash flows from
financing activities includes a $26,300 increase in restricted cash.  Restricted cash primarily
represents the cash that has been collected on the leases that are pledged as collateral for lease-backed notes.
This cash must be segregated within two business days into a trust account and the cash is used to pay the
principal and interest on lease-backed notes as well as any associated administrative expenses. The level of
restricted cash is impacted from one period to the next by the volume of leases pledged as collateral on the
lease-backed notes and timing of collections on such leases. Restricted cash includes $32,700 deposited with an
escrow agent during 2003 to defease the Company's 2004 Notes.  Restricted cash also includes $27,700 deposited into an
escrow account during 2004 as collateral for standby letters of credit which were previously supported by the
Company's Credit Facility which was terminated in March 2004.

25

---

Debt Structure

|                                                                     | March 31,
2004 | September 30,
2003 |   |           | 
|-------------------------------------------------------------------- | -------------- | ------------------ | - | --------- | 
|                                                                     |                |                    |   |           | 
|Outstanding corporate debt                                           |                |                    |   |           | 
|Bond issues                                                          |                |                    | $ | 412,000   | 
|Convertible subordinated notes *                                     |                |                    |   | 300,000   | 
|Notes payable *                                                      |                |                    |   | 377,700   | 
|Miscellaneous notes, bonds, mortgages, and capital lease obligations |                |                    |   | 9,000     | 
|                                                                     |                |                    |   |           | 
|                                                                     |                |                    |   | 1,098,700 | 
|Less:   Current maturities                                           |                |                    |   | 97,100    | 
|                                                                     |                |                    |   |           | 
|                                                                     |                |                    | $ | 1,001,600 | 
|                                                                     |                |                    |   |           | 
|                                                                     |                |                    |   |           | 
|Outstanding debt supporting finance contracts                        |                |                    |   |           | 
|Convertible subordinated notes  *                                    |                |                    |   |           | 
|Notes payable  *                                                     |                |                    |   |           | 
|Lease-backed notes                                                   |                |                    | $ | 911,100   | 
|Asset securitization conduit financing                               |                |                    |   | 212,700   | 
|Notes payable to banks                                               |                |                    |   | 26,200    | 
|                                                                     |                |                    |   |           | 
|                                                                     |                |                    |   | 1,150,000 | 
|Less:   Current maturities                                           |                |                    |   | 549,700   | 
|                                                                     |                |                    |   |           | 
|                                                                     |                |                    | $ | 600,300   | 
|                                                                     |                |                    |   |           | 

* The convertible
subordinated notes and notes payable presented at September 30, 2003 have been reclassified from
debt supporting finance contracts to corporate debt at March 31, 2004.

Our debt to capital
ratio was 56.3% at March 31, 2004, compared to 67.8% at September 30, 2003. This decrease is
primarily a result of the Transaction and the repayment of $796,100 of the Conduits from the proceeds
received from the Transaction. Also contributing to the decrease was the early extinguishment of $11,000 of
notes payable during the six months ended March 31, 2004 as discussed below.  In April 2004, the Company completed
its tender of $250,200 of aggregate principal of its outstanding $345 million 7.25% notes due 2008 which will further
reduce our debt to capital ratio.

During the six months
ended March 31, 2004, the Company repaid $1,238,200 of debt supporting finance contracts
and received $317,900 from the issuance of related debt instruments.

As of March 31, 2004, IKON
Capital, PLC, IKON's leasing subsidiary in the United Kingdom, and IKON Capital, Inc., IKON's leasing
subsidiary in Canada, had approximately $9,800 and CN$84,000 available
under their Conduits. During the six months ended March 31, 2004,
the Company pledged or transferred $175,300 in
financing lease receivables for $150,100 in cash in connection with these Conduits.

26

---

During the six months
ended March 31, 2004, the Company pledged or transferred $362,000 in financing lease
receivables for $306,100 in cash in connection with the U.S. Conduits. Immediately following the close of the Transaction,
the outstanding balances of the U.S. Conduits were repaid and the U.S. Conduit arrangements were terminated.

The Company terminated
its $300,000 unsecured credit facility (the "Credit Facility") on March 31, 2004. The Company intends to
replace the Credit Facility in the future with an arrangement with terms more appropriate for the Company's
new capital structure.

During the six months
ended March 31, 2004, the Company repurchased the following notes payable:

|                                                   |  |  | Principal AmountRepurchased |  | SettlementAmount |  | 
|-------------------------------------------------- |  |  | --------------------------- |  | ---------------- |  | 
|                                                   |  |  |                             |  |                  |  | 
|Bond issue at stated rate of 9.75%, notes due 2004 |  |  | $    2,000                  |  | $    2,100       |  | 
|Bond issue at stated rate of 7.25%, notes due 2008 |  |  | 5,000                       |  | 5,300            |  | 
|Bond issue at stated rate of 6.75%, notes due 2004 |  |  | 4,000                       |  | 4,100            |  | 
|                                                   |  |  |                             |  |                  |  | 
|                                                   |  |  | $   11,000                  |  | $   11,500       |  | 
|                                                   |  |  |                             |  |                  |  | 

As a result
of these repurchases and the termination of the U.S. Conduits and Credit Facility discussed above,
the Company recognized a loss, including the write-off of unamortized costs, of $3,200, which is included in loss
from early extinguishment of debt, in the consolidated statements of income for the six months ended March 31,
2004.

In April 2004, the Company completed its tender of $250,200
of aggregate principal of its outstanding $345 million 7.25% notes due 2008.  As a result of the completion of the tender,
the Company expects to incur a pretax loss on early extinguishment of debt of approximately $32 million, including $5 million
related to the write-off of unamortized costs, in the third quarter of fiscal 2004.

The Company
has certain commitments available to it in the form of standby letters of credit. As of March 31,
2004, the Company had $27,600 utilized under standby letters of credit. These letters of credit were supported by
the Credit Facility prior to its termination. In March 2004, the Company deposited $27,700 into an escrow
account as collateral for outstanding letters of credit until a new credit facility is established. The cash collateral is recorded in restricted
cash in the Company's balance sheet as of March 31, 2004.

As of March 31, 2004,
the credit ratings on the Company's senior unsecured debt were designated Ba1 with negative
outlook by Moody's Investor Services and BB with stable outlook by Standard and Poor's. On April 27, 2004,
Moody's Investor Services lowered the Company's senior unsecured debt rating to Ba2 with a stable outlook.

The Company uses
interest rate swaps to fix the interest rates on its variable rate classes of lease-backed
notes, which results in a lower cost of capital than if it had issued fixed rate notes. During the six months
ended March 31, 2004, unrealized gains totaling $10,600 after taxes, were recorded in accumulated other
comprehensive loss. As of March 31, 2004, all of the Company's derivatives designated as hedges are interest rate
swaps which qualify for evaluation using the "short cut" method for assessing effectiveness. As such, there is an
assumption of no ineffectiveness.

27

---

Outlook

The following summarizes IKONs
significant contractual obligations and commitments as of March 31, 2004:

|                                            | Payments due by
|------------------------------------------- | ---------------
|                                            |                
|                                            |                
|Contractual Obligations                     | Total          
|                                           
|Long-term corporate debt                    | $     1,097,400
|Long-term debt supporting finance contracts | 1,150,000      
|Notes payable                               | 1,400          
|Purchase commitments                        | 800            
|Operating leases                            | 436,300        
|Other long-term liabilities                 | 275,900        
|                                           
|Total                                       | $  2,961,800   
|                                           

Other long-term liabilities exclude $9,100 of
accrued contingencies due to the inability to predict the timing of payments due to the
uncertainty of their outcome.  Planned contributions to the Company's defined benefit plans have been included in the estimated period
of payment.  All other liabilities related to pension are included in "Thereafter" ($109,800) as required payments are based on
actuarial data that has not yet been determined.  Payment requirements may change significantly based on the outcome or changes of
various actuarial assumptions.

Payments on long-term debt
supporting finance contracts generally are made from collections on our finance receivables. At March
31, 2004, long-term debt supporting finance contracts was $1,150,000 and finance receivables,
net of allowances, were $1,613,500.

Purchase commitments represent future
cash payments related to our implementation of the Oracle E-Business Suite. Contractual
obligations for software of $800 is included in fixed assets and accrued liabilities as
of March 31, 2004.

Immediately following the closing of the
Transaction, GE repaid, on the Company's behalf, $796,100
of outstanding balances under the Company's U.S. Conduits from the proceeds of the Transaction.  The proceeds from the Transaction
and the repayment of the U.S. Conduits have been presented as if the Company made the repayment of the U.S. Conduits directly
to the lenders in the Company's consolidated statement of cash flows for the six months ended March 31, 2004.

In March 2004,
the Company's Board of Directors authorized the repurchase of up to $250 million of the Company's
outstanding shares
of common stock, superceding the fiscal 2000 share repurchase authorization.  From time to time, the Retirement Savings
Plan of the Company may acquire
shares of the common stock of the Company in open market transactions or from treasury
shares held by the Company. Additionally, from time to time the Company may repurchase
available outstanding indebtedness in open market and private transactions.

The Company expects
cash used in operations for 2004 to be $240 to $250
million, including a $285 million tax payment related to the Transaction and an additional $75 million pension contribution.  Capital
expenditures, net of proceeds are expected to be approximately $70 million.

The Company believes that its
operating cash flow together with its current cash position and other financing
arrangements will be sufficient to finance current operating requirements for fiscal 2004,
including capital expenditures, dividends and the remaining accrued costs associated with
the Companys restructuring charges.

28

---

Pending Accounting Changes

In December 2003, the Financial
Accounting Standards Board (the FASB) revised FASB Statement No. 132
(SFAS 132), Employers Disclosures about Pensions and Other
Postretirement Benefits. The revised standard mandates additional required
disclosures for pensions and other postretirement benefit plans and is designed to improve
disclosure transparency within financial statements and requires certain disclosures to be
made on a quarterly basis (collectively, the Amended Disclosures). The revised
standard replaces existing pension disclosure requirements. Compliance with the Amended
Disclosures was effective for fiscal periods beginning after December 15, 2003.  Interim period disclosures have been
made in this quarterly report on Form 10-Q. The adoption of the Amended Disclosures did not have a material impact on our consolidated financial
statements.

In May 2003, the FASB issued FASB
Statement No. 150 (SFAS 150), Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150 affects
three types of freestanding financial instruments that should now be classified as
liabilities: (i) mandatorily redeemable shares which are required to be redeemed at a
specified or determinable date or upon an event certain to occur; (ii) put options and
forward purchase contracts, which involves financial instruments embodying an obligation
that the issuer must or could choose to settle by issuing a variable number of its shares
or other equity instruments based solely on something other than the issuers own
equity shares; and (iii) certain obligations that can be settled with shares, the monetary
value of which is fixed, or tied to a variable (such as a market index) or varies
inversely with the value of the issuers shares. SFAS 150 also requires disclosures
about alternative ways of settling the instruments and the capital structure of entities
whose shares are mandatorily redeemable. SFAS 150 was effective for all financial
instruments entered into or modified after May 31, 2003 and otherwise was to be effective
at the beginning of the first interim period beginning after June 15, 2003. However, the
FASB issued a staff position that delayed the effective date for certain provisions of
paragraphs nine and ten as they apply to mandatorily redeemable noncontrolling interests
(the Deferred Provisions) to the first fiscal period beginning after December
15, 2003. There was no impact on our consolidated financial statements from
the adoption of the Deferred Provisions on January 1, 2004.

In January 2004, the FASB released FASB Staff
Position No. FAS 106-1 ("FSP 106-1") discussing FASB Statement No. 106 ("FAS 106"),
"Employers' Accounting for Postretirement Benefits Other Than Pensions."  FAS 106 requires a company to consider current changes in
applicable laws when measuring its postretirement benefit costs and accumulated postretirement benefit obligation. However, because
(1) uncertainties may exist for plan sponsors surrounding the effect of the provisions of the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the "Act") and (2) certain accounting issues raised by the Act are not addressed by FAS 106, FSP 106-1
allows plan sponsors to elect a one-time deferral of the accounting for the Act. If deferral is elected, the deferral must remain in
effect until the earlier of (a) the issuance of guidance by the FASB or (b) the remeasurement of plan assets and obligations
subsequent to January 31, 2004. Further, even if an entity elects deferral, certain disclosure requirements are still required.  The
Company is currently evaluating the impact of FSP 106-1, but does not expect a material impact from the adoption of FSP 106-1 on our
consolidated financial statements.

29

---

Item 3:      Quantitative and
Qualitative Disclosures About Market Risk

Interest Rate Risk.      Our exposure to
market risk for changes in interest rates relates primarily to our long-term debt. We have
no cash flow exposure due to interest rate changes for long-term debt obligations as the
Company uses interest rate swaps to fix the interest rates on our variable rate classes of
lease-backed notes and other debt obligations. We primarily enter into debt obligations to
support general corporate purposes, including capital expenditures, working capital needs
and acquisitions. Debt supporting finance contracts is used primarily to fund the
lease receivables portfolio. The carrying amounts for cash and cash equivalents, accounts
receivable and notes payable reported in the consolidated balance sheets approximate fair
value. Additional disclosures regarding interest rate risk are set forth in the
Companys 2003 annual report on Form 10-K filed with the Securities and Exchange
Commission.

Foreign Exchange Risk.      The Company
has various non-U.S. operating locations which expose it to foreign currency exchange
risk. Foreign denominated intercompany debt borrowed in one currency and repaid in another
may be fixed via currency swap agreements. Additional disclosures regarding foreign
exchange risk are set forth in the Companys 2003 annual report on Form 10-K filed
with the Securities and Exchange Commission.

Item 4:      Controls and
Procedures

Evaluation of Disclosure Controls and
Procedures.      The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and procedures (as
such term is defined in Rule 13a-15(e) and under the Exchange Act) as of the end of the
period covered by this quarterly report on Form 10-Q. Based on this evaluation, they have
concluded that, as of the evaluation date, the Companys disclosure controls and
procedures are effective and are reasonably designed to alert them on a timely basis to material information
relating to the Company (including its consolidated subsidiaries) required to be included
in its reports filed or submitted under the Exchange Act.

During the
quarter ended March 31, 2004, there has been no change
in the Company's internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f), that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.

A control
system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been detected. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

30

---

PART II.    OTHER
INFORMATION

|Item 2: | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------

In March 2004, IKON's Board
of Directors approved a new share repurchase program to
begin immediately, authorizing management to purchase up to $250,000,000 of IKON's outstanding common stock. At
that time, there were 147,696,452 common shares outstanding. This program will remain in effect until the $250,000,000
repurchase limit is reached; however, it may be discontinued at any time. As of March 31, 2004, no shares have
been repurchased in conjunction with this program.

|Item 6: | Exhibits and Reports on Form 8-K
|------- | --------------------------------

| | a) | Exhibits                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                  
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    | 2.1                                                                                                                                                                                                                                              | First Amendment dated March 31, 2004 to the Asset Purchase Agreement dated December 10, 2003, between IKON Office
Solutions, Inc. and  General Electric Capital Corporation, as filed as Exhibit 2.1 to IKON's Form 8-K
dated April 6, 2004, is incorporated herein by reference.
|
| |    | 2.2                                                                                                                                                                                                                                              | Asset Purchase Agreement dated as of
March 31, 2004, between IKON Office Solutions, Inc., an Ontario corporation,
and Heller Financial Canada, as filed as Exhibit 2.2 to IKON's Form 8-K dated April 6, 2004, is incorporated
herein by reference.                              
|
| |    | 10.1                                                                                                                                                                                                                                             | Program Agreement dated March 31, 2004, between IKON
Office Solutions, Inc. and General Electric Capital Corporation, as
filed as Exhibit 10.1 to IKON's Form 8-K dated April 6, 2004, is incorporated herein by reference.                                                      
|
| |    | 10.2                                                                                                                                                                                                                                             | Amendment Number 2004-1, dated as of January 20,
2004, to the IKON Office Solutions, Inc. Executive Deferred Compensation Plan.                                                                                                                                                  
|
| |    | 31.1                                                                                                                                                                                                                                             | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                                                                                                                   
|
| |    | 31.2                                                                                                                                                                                                                                             | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934                                                                                                                                                                   
|
| |    | 32.1                                                                                                                                                                                                                                             | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                  
|
| |    | 32.2                                                                                                                                                                                                                                             | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                  
|
| | b) | Reports on Form 8-K                                                                                                                                                                                                                             
|
| |    | On January 29, 2004,
the Company filed a current report on Form 8-K to file, under Items 7 and 12 of the Form, information contained
in its press release dated January 29, 2004 regarding its results for the first quarter of fiscal 2004.    
|
| |    | On March 30, 2004, the Company
filed a current report on Form 8-K to file, under Items 5 and 7 of the Form, information contained in
its press release dated March 29, 2004 regarding a tender offer of the Company's 7.25% notes due June 2008.

31

---

SIGNATURES

Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the  undersigned,  thereunto  duly  authorized.  This  report  has also been  signed by the
undersigned in his capacity as the chief accounting officer of the Registrant.

IKON OFFICE SOLUTIONS, INC.

|Date:    May 14, 2004 | /s/ William S. Urkiel   
William S. Urkiel
Senior Vice President and
Chief Financial Officer
|--------------------- | --------------------------------------------------------------------------------------------

32

---