---

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            June 30, 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 August 9,
2004:

Common Stock, no par value          
                
                
                
                  
          


               
  146,080,247 shares

1

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IKON Office Solutions, Inc.INDEX

# PART I.   FINANCIAL
INFORMATION

|Item 1.               Item 2.
               Item 3.
               Item 4. | Financial Statements
     Consolidated Balance Sheets - June 30, 2004 (unaudited) and September 30, 2003
     Consolidated Statements of Income - Three and nine months ended June
30, 2004 and 2003 (unaudited)
     Consolidated Statements of Cash Flows - Nine months ended June 30, 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

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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 and use of proceeds from the transactions between IKON and General Electric
Capital Corporation ("GE") and its affiliates involving the sale of certain assets and liabilities of our leasing
operations in the U.S. and Canada, including without limitation the servicing functions, facilities, systems and processes;
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; conducting operations in a competitive environment and a
changing industry;  the implementation, timing and cost  of the e-IKON initiative; 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; the Company's ability to finance its current operations and its growth initiatives; and existing
or future vendor relationships. 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 factors include, but are not limited to, the following (some of which are
explained in greater detail herein): 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 technological 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 service offerings. These risks
could lead to a loss of market share for IKON, resulting in a negative impact on its 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, the future prices that we can obtain for
the equipment, parts, supplies and services we offer may vary from historical levels and may impact our profitability.

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

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Sale
of U.S. and Canadian 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 IOS Capital, LLC ("IOSC"),
including, without limitation, servicing functions, facilities, systems and processes relating to its U.S. leasing operations.
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," collectively with the U.S. Agreement, the "U.S. Transaction") to provide
for the funding of IKON's lease originations in
the United States.  On March 31, 2004, IKON Office Solutions, Inc., an Ontario corporation and wholly-owned subsidiary of IKON
("IKON Canada"), entered into a definitive asset purchase agreement (the "Canadian Agreement") with Heller Financial Canada, an
affiliate of GE ("Heller"),
to sell certain assets and liabilities of IKON Canada (the "Canadian Leasing Business") and designate Heller to be
IKON's preferred lease financing source in Canada. On June 30, 2004, Heller, General Electric Capital Canada, Inc.,
as general partner of GE VFS Canada
Limited Partnership ("GE Canada"), IKON, and IKON Office Solutions Northern Ltd., a Northwest Territory corporation, executed an Assignment and
Amendment Agreement to
assign Heller's rights and obligations under the Canadian Agreement to GE Canada.  The sale of such assets and liabilities was
effective as of
June 30, 2004, on which date IKON, GE Canada, and IKON Office Solutions Northern Ltd. executed a Canadian rider to the Program Agreement
(the "Canadian Rider"
and together with the U.S. Transaction and Canadian Agreement,
the "Transactions") to provide for the funding of IKON's lease originations in
Canada.

If 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 the leasing operations in the U.S. and Canada. We are entitled to
receive certain  fees under the Program Agreement and the Canadian Rider in respect of future leases funded by GE, and we currently intend
to use the proceeds from
the Transactions 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
Transactions 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.

Liquidity.     On July 29, 2004,
the Company obtained a new $200,000,000 secured credit facility (the "New Credit Facility") with a
group of lenders.  Under the New Credit Facility,
revolving loans are available, with certain sub-limits, to the Company and its subsidiaries. The New Credit
Facility also provides support for letters of credit for the Company and its subsidiaries. The amount available
under the New Credit Facility is determined by the level of certain assets and open letters of credit
of the Company and its subsidiaries.  The New Credit Facility is secured by our accounts receivable and
inventory, the stock of our first-tier domestic subsidiaries, 65% of the stock in our first-tier foreign
subsidiaries, and all of our intangible assets. All security interests related to the New Credit
Facility will be shared with the holders of the Company's 7.25% notes due 2008 (the "2008 Notes").

The New Credit Facility
contains affirmative and negative covenants, including limitations on certain fundamental changes, investments
and acquisitions, mergers, certain transactions with affiliates, creation of liens, asset transfers, payment of
dividends, intercompany loans and certain restricted payments. The New Credit Facility does not, however, limit our ability to
continue to securitize lease receivables. The New Credit Facility matures on March 1, 2008,
but is subject to certain early maturity events in November 2006, January 2007 and April 2007 if the
5% convertible notes due 2007 (the "Convertible Notes") have not been converted to equity or refinanced, and minimum liquidity is
not met as of such dates. Minimum liquidity is defined as having sufficient cash, including unused capacity
under the New Credit Facility, to repay the balance of the Convertible Notes plus an additional $100,000,000.
The New Credit Facility
contains certain financial covenants relating to: (i) corporate leverage ratios;
(ii) a consolidated interest coverage ratio; (iii) a consolidated asset coverage ratio; (iv) consolidated net worth ratios; (v)
limitations on the Company's capital
expenditures; and (vi) limitations on additional indebtedness and liens. Under the terms of the New Credit Facility, share repurchases
are permitted up to $150,000,000 until September 2005. Beginning October 1, 2005, the Company is permitted to
repurchase shares and pay dividends up to 50% of our annual net income.  The New Credit Facility contains
default provisions customary for facilities of this type. Failure to comply with any material provision
of the New Credit Facility could have a material adverse effect on our liquidity, financial position and results
of operations.

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 Transactions 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 17% of our revenues are derived from
our international operations, and approximately 75% 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-á-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 effect on our results of operations.

4

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PART 1.    FINANCIAL
INFORMATION

Item 1.    Financial Statements

IKON Office Solutions,
Inc. Consolidated Balance Sheets

|(in thousands)                                                        | June 30, 2004  (unaudited) | September 30,
2003 |   |          
|--------------------------------------------------------------------- | -------------------------- | ------------------ | - | ---------
|                                                                     
|Assets                                                                |                            |                    |   |          
|Cash and cash equivalents                                             |                            |                    | $ | 438,738  
|Restricted cash                                                       |                            |                    |   | 94,719   
|Accounts receivable, less allowances of:  June 30, 2004 - $19,958;    |                            |                   
|September 30, 2003 - $14,258                                          |                            |                    |   | 741,730  
|Finance receivables, less allowances of:  June 30, 2004 - $2,535;     |                            |                   
|September 30, 2003 - $20,467                                          |                            |                    |   | 457,837  
|Inventories                                                           |                            |                    |   | 270,051  
|Prepaid expenses and other current assets                             |                            |                    |   | 82,207   
|Deferred taxes                                                        |                            |                    |   | 44,142   
|                                                                     
|Total current assets                                                  |                            |                    |   | 2,129,424
|                                                                     
|                                                                     
|Long-term finance receivables, less allowances of:  June 30, 2004 -   |                            |                   
|$4,707; September 30, 2003 - $38,010                                  |                            |                    |   | 868,741  
|                                                                     
|Equipment on operating leases, net of accumulated depreciation of:    |                            |                    |   |          
|June 30, 2004 - $77,454; September 30, 2003 - $93,607                 |                            |                    |   | 68,637   
|                                                                     
|Property and equipment, net of accumulated depreciation of:           |                            |                   
|June 30, 2004 - $317,574;  September 30, 2003 - $299,178              |                            |                    |   | 164,475  
|                                                                     
|Goodwill, net                                                         |                            |                    |   | 1,281,759
|                                                                     
|Other assets                                                          |                            |                    |   | 124,146  
|                                                                     
|Total Assets                                                          |                            |                    | $ | 4,637,182
|                                                                     
|                                                                     
|Liabilities and Shareholders' Equity                                  |                            |                    |   |          
|Current portion of corporate debt                                     |                            |                    | $ | 62,522   
|Current portion of debt supporting finance contracts                  |                            |                    |   | 502,900  
|Notes payable                                                         |                            |                    |   | 1,388    
|Trade accounts payable                                                |                            |                    |   | 205,469  
|Accrued salaries, wages and commissions                               |                            |                    |   | 96,225   
|Deferred revenues                                                     |                            |                    |   | 122,597  
|Taxes payable                                                         |                            |                    |   | 55,943   
|Other accrued expenses                                                |                            |                    |   | 159,746  
|Payable from the divestiture of business (note 2)                     |                            |                    |   | 265      
|                                                                     
|Total current liabilities                                             |                            |                    |   | 1,207,055
|                                                                     
|                                                                     
|Long-term corporate debt                                              |                            |                    |   | 741,343  
|                                                                     
|Long-term debt supporting finance contracts                           |                            |                    |   | 463,857  
|                                                                     
|Deferred taxes                                                        |                            |                    |   | 272,318  
|                                                                     
|Other long-term liabilities                                           |                            |                    |   | 237,553  
|                                                                     
|Commitments and contingencies                                         |                            |                    |   |          
|                                                                     
|Shareholders' Equity                                                  |                            |                    |   |          
|Common stock, no par value:  authorized 300,000 shares; issued:  June |                            |                   
|30, 2004-149,881 shares; September 30, 2003 - 149,982 shares;         |                            |                   
|outstanding:  June 30, 2004 - 146,162 shares; September 30, 2003-     |                            |                   
|146,368 shares                                                        |                            |                    |   | 1,014,832
|Series 12 preferred stock, no par value:  authorized 480 shares; none |                            |                    |   |          
|issued or outstanding                                                 |                            |                    |   |          
|Deferred compensation                                                 |                            |                    |   | 208      
|Unearned compensation                                                 |                            |                    |   | (1,887   
|Retained earnings                                                     |                            |                    |   | 744,085  
|Accumulated other comprehensive loss                                  |                            |                    |   | (13,286  
|Cost of common shares in treasury:  June 30, 2004 - 3,168 shares;     |                            |                   
|September 30, 2003-2,942 shares                                       |                            |                    |   | (28,896  
|                                                                     
|Total Shareholders' Equity                                            |                            |                    |   | 1,715,056
|                                                                     
|Total Liabilities and Shareholders' Equity                            |                            |                    | $ | 4,637,182
|                                                                     

See notes to condensed consolidated
financial statements.

5

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

|                                                    | Three Months Ended
     June 30 | Nine Months Ended
    June 30
|--------------------------------------------------- | ------------------------------- | -----------------------------
|                                                   
|(in thousands, except per share amounts)            |                                 | 2004                         
|                                                   
|Revenues                                            |                                 |                              
|Net sales                                           | $                               | 514,098                      
|Services                                            |                                 | 607,247                      
|Finance income                                      |                                 | 41,827                       
|                                                   
|                                                    |                                 | 1,163,172                    
|                                                   
|                                                   
|Costs and Expenses                                  |                                 |                              
|Cost of goods sold                                  |                                 | 366,881                      
|Services costs                                      |                                 | 350,581                      
|Finance interest expense                            |                                 | 11,473                       
|Selling and administrative                          |                                 | 373,995                      
|(Gain) loss from divestiture of businesses (note 2) |                                 | (698)                        
|                                                   
|                                                   
|                                                    |                                 | 1,102,232                    
|                                                   
|                                                   
|Operating income                                    |                                 | 60,940                       
|Loss from early extinguishment of debt, net         |                                 | 32,687                       
|Interest expense, net                               |                                 | 15,175                       
|                                                   
|Income before taxes on income                       |                                 | 13,078                       
|Taxes on income                                     |                                 | 4,937                        
|                                                   
|Net income                                          | $                               | 8,141                        
|                                                   
|                                                   
|                                                   
|Basic earnings per common share                     | $                               | 0.06                         
|                                                   
|Diluted earnings per common share                   | $                               | 0.05                         
|                                                   
|Cash dividends per common share                     | $                               | 0.04                         

See notes to condensed consolidated
financial statements.

6

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

|                                                                                             | Nine Months Ended
    June 30
|-------------------------------------------------------------------------------------------- | -----------------------------
|                                                                                            
|(in thousands)                                                                               |                              
|                                                                                            
|Cash Flows from Operating Activities                                                         |                              
|Net income                                                                                   |                              
|Additions (deductions) to reconcile net income to net cash                                   |                              
|(used in) provided by
operating activities:                                                  |                              
|Depreciation                                                                                 |                              
|Amortization                                                                                 |                              
|Loss from divestiture of businesses                                                          |                              
|Provision for losses on accounts receivable                                                  |                              
|Deferred income taxes                                                                        |                              
|Provision for lease default reserves                                                         |                              
|Pension expense                                                                              |                              
|Loss from early extinguishment of debt                                                       |                              
|Changes in operating assets and liabilities, net of divestiture of businesses:               |                              
|Increase in accounts receivable                                                              |                              
|(Increase) decrease in inventories                                                           |                              
|Increase in prepaid expenses and other current assets                                        |                              
|Decrease in accounts payable, deferred revenues and accrued 
                       expenses |                              
|Decrease in accrued restructuring                                                            |                              
|Other                                                                                        |                              
|                                                                                            
|Net cash (used in) provided by operating activities                                          |                              
|                                                                                            
|                                                                                            
|Cash Flows from Investing Activities                                                         |                              
|Proceeds from divestiture of businesses (note 2)                                             |                              
|Proceeds from sale of finance receivables (note 13)                                          |                              
|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                                                                               |                              
|Decrease (increase) in restricted cash                                                       |                              
|Proceeds from option exercises and sale of treasury shares                                   |                              
|Purchase of treasury shares                                                                  |                              
|                                                                                            
|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

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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, us, 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.

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 June 30 |  | Nine Months Ended June 30
|---------------------------------------------- | -------------------------- |  | -------------------------
|                                               |                            |  |                          
|                                               | 2004                       |  | 2003                     
|                                               |                            |  |                          
|Net income, as reported                        | $   8,141                  |  | $   14,695               
|Pro forma effect of expensing stock based      |                            |  |                          
|compensation plans using the fair value method | (1,513)                    |  | (1,466)                  
|                                               |                            |  |                          
|Net income, as adjusted                        | $   6,628                  |  | $   13,229               
|                                               |                            |  |                          
|Basic earnings per common share:               |                            |  |                          
|As reported                                    | $       0.06               |  | $       0.10             
|Pro forma effect of expensing stock based      |                            |  |                          
|compensation plans using fair value method     | (0.01)                     |  | (0.01)                   
|                                               |                            |  |                          
|Basic earnings per common                      |                            |  |                          
|share, as adjusted                             | $       0.05               |  | $       0.09             
|                                               |                            |  |                          
|Diluted earnings per common share:             |                            |  |                          
|As reported                                    | $       0.05               |  | $       0.10             
|Pro forma effect of expensing stock based      |                            |  |                          
|compensation plans using fair value method     | (0.01)                     |  | (0.01)                   
|                                               |                            |  |                          
|Diluted earnings per common                    |                            |  |                          
|share, as adjusted                             | $       0.04               |  | $       0.09             
|                                               |                            |  |                          

8

---

Reclassifications

Certain prior year amounts have been reclassified
to conform with the current year presentation.

Pending Accounting Changes

In December 2003, the Financial
Accounting Standards Board (the FASB) revised FASB Statement No. 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 North American
Leasing Operations

United States

On December 10, 2003, the Company entered
into a definitive 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 relating to its U.S. leasing operations. 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 on March 31, 2004 (the "Program Agreement," and
together with the U.S.
Agreement, the "U.S. Transaction"). During the initial five-year term of the Program Agreement, IKON will
receive an origination fee on all new leases underwritten by GE and income from the sharing of residual value gains on certain leases
and lease default reserve recoveries. In addition, IKON will receive a fee from GE for providing exclusive services for lease
generation in the U.S. (the "Preferred Fees"). The term of the Program Agreement may be renewed
by IKON for a subsequent three or five-year period during which IKON will be entitled to origination fees and income from the
sharing of residual value gains on certain leases and lease default reserve recoveries, but not the Preferred Fees.

During 2004, the Company received from GE,
$1,689,967 of proceeds from the U.S. Transaction, subject to final closing
adjustments that may result from a closing balance sheet audit.  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 "U.S. Conduits") from the proceeds of the U.S. Transaction. The
proceeds from the U.S. 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 nine months ended June 30,
2004.

In addition to the repayment of the U.S. Conduits,
the Company will continue to use any additional proceeds from the U.S. Transaction
to repay debt, repurchase shares, and invest in the Company's growth initiatives.

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

Canada

On March 31, 2004, IKON Office Solutions, Inc.,
an Ontario corporation and wholly-owned subsidiary of IKON ("IKON Canada"), entered into a definitive asset purchase
agreement (the "Canadian Agreement") with Heller Financial Canada, an affiliate of GE ("Heller"), to sell certain assets and
liabilities of IKON Canada (the "Canadian Leasing Business") and designate Heller to be IKON's preferred lease financing source
in Canada. On June 30, 2004, Heller, General Electric Capital Canada, Inc., as general partner of GE VFS
Canada Limited Partnership ("GE Canada"), IKON, and IKON Office Solutions Northern Ltd. executed an Assignment and
Amendment Agreement, to assign Heller's rights and obligations under the Canadian Agreement to GE Canada.  The sale of such assets
and liabilities was effective as of June 30, 2004, on which date IKON, GE Canada, and IKON Office Solutions Northern Ltd., a Northwest
Territory corporation, executed a Canadian rider to the Program Agreement (the "Canadian Rider," and together with the Canadian Agreement, the
"Canadian Transaction") to provide for the funding of IKON's lease originations in Canada.  During the initial five-year term of
the Canadian Rider, IKON will receive an origination fee on all new leases underwritten by GE.  The term of the Canadian
Rider may be renewed by IKON for a subsequent three or five-year period.

On June 30, 2004, the Company received from GE,
$159,445 of initial proceeds from the Canadian Transaction, subject to final
closing adjustments, including, without limitation, the impact on proceeds from changes in the sold lease portfolio occurring between
February 29, 2004 and June 30, 2004. As a result, the Company has estimated a liability to GE of approximately $265, which is recorded as
"Payable
from the Divestiture of Business" in the unaudited consolidated balance sheet at June 30, 2004.

Immediately following the closing of the
Canadian Transaction,
GE repaid, on the Company's behalf, $63,677 of outstanding
balances under the Company's Canadian asset securitization conduit financing agreement (the "Canadian Conduit") from the proceeds of
the Canadian Transaction. The proceeds from the Canadian Transaction and the repayment of the Canadian Conduit have been presented as
if the Company made the repayment of the Canadian Conduit directly to the lender in the Company's consolidated statement of cash
flows for the nine months ended June 30, 2004.

The Company incurred a gain of $698 during
the third quarter from the Canadian Transaction resulting from the difference between the carrying amount of assets sold
and proceeds received and certain costs associated with the Canadian Transaction.

The U.S. and Canadian Transactions (collectively,
the "Transactions") qualify as a sale of businesses under the applicable accounting literature; however, due to the
significant continuing involvement by the Company under the Program Agreement and the Canadian Rider, the sale of the U.S. and Canadian
leasing businesses do not qualify as discontinued operations.

Under the Transactions, GE assumes substantially all risks related to lease defaults for both the
retained and sold lease receivables.

9

---

Note 3:      Taxes on Income

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

In addition,
the Company recorded a tax benefit of $2,603 during fiscal 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.

Note 4:     Goodwill

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

|                               |                                                         |                                              |              |             
|------------------------------ | ------------------------------------------------------- | -------------------------------------------- | ------------ | ------------
|                               | IKON North America Equipment Sales and Service Business | IKON North America Document Service Business | IKON Europe  | Total       
|                               |                                                         |                                              |              |             
|                               |                                                         |                                              |              |             
|Goodwill at September 30, 2003 | $    864,035                                            | $     79,938                                 | $    314,403 | $  1,258,376
|                               |                                                         |                                              |              |             
|Translation adjustment         | (1,146)                                                 |                                              | 24,529       | 23,383      
|                               |                                                         |                                              |              |             
|Goodwill at June 30, 2004      | $    862,889                                            | $     79,938                                 | $    338,932 | $  1,281,759
|                               |                                                         |                                              |              |             

The IKON North America Equipment Sales
and Service Business and the IKON North America Document Service Business reporting units comprise
the IKON North America operating segment.

Note 5:      Notes Payable and
Long-term Debt

Notes payable and long-term debt
consisted of:

|                                                                     | June 30,
2004 |  | September 30,
2003 |         | 
|-------------------------------------------------------------------- | ------------- |  | ------------------ | ------- | 
|                                                                     |               |  |                    |         | 
|Outstanding corporate debt                                           |               |  |                    |         | 
|Bond issues                                                          |               |  | $                  | 412,022 | 
|Convertible subordinated notes *                                     |               |  |                    | 290,000 | 
|Notes payable *                                                      |               |  |                    | 94,835  | 
|Miscellaneous notes, bonds, mortgages, and capital lease obligations |               |  |                    | 8,396   | 
|                                                                     |               |  |                    |         | 
|                                                                     |               |  |                    | 805,253 | 
|Less:   Current maturities                                           |               |  |                    | 63,910  | 
|                                                                     |               |  |                    |         | 
|                                                                     |               |  | $                  | 741,343 | 
|                                                                     |               |  |                    |         | 
|                                                                     |               |  |                    |         | 
|Outstanding debt supporting finance contracts                        |               |  |                    |         | 
|Convertible subordinated notes  *                                    |               |  |                    |         | 
|Notes payable  *                                                     |               |  |                    |         | 
|Lease-backed notes                                                   |               |  | $                  | 814,205 | 
|Asset securitization conduit financing                               |               |  |                    | 135,070 | 
|Notes payable to banks                                               |               |  |                    | 17,482  | 
|                                                                     |               |  |                    |         | 
|                                                                     |               |  |                    | 966,757 | 
|Less:   Current maturities                                           |               |  |                    | 502,900 | 
|                                                                     |               |  |                    |         | 
|                                                                     |               |  | $                  | 463,857 | 
|                                                                     |               |  |                    |         | 

* On March 31, 2004, the convertible subordinated
notes and notes payable presented at September 30, 2003 were reclassified from debt supporting
finance contracts to corporate debt as a result of the U.S. Transaction.

10

---

Debt

During the nine months
ended June 30, 2004, the Company early extinguished the following notes payable and convertible debt:

|                                                    |  |  | Principal AmountRepurchased |  | SettlementAmount |  | 
|--------------------------------------------------- |  |  | --------------------------- |  | ---------------- |  | 
|                                                    |  |  |                             |  |                  |  | 
|Bond issue at stated rate of 9.75%, notes due 2004  |  |  | $       7,500               |  | $       7,628    |  | 
|Bond issue at stated rate of 7.25%, notes due 2008  |  |  | 255,165                     |  | 282,611          |  | 
|Bond issue at stated rate of 6.75%, notes due 2004  |  |  | 3,963                       |  | 4,100            |  | 
|Convertible notes at stated rate of 5.00%, due 2007 |  |  | 10,000                      |  | 10,300           |  | 
|                                                    |  |  |                             |  |                  |  | 
|                                                    |  |  | $   276,628                 |  | $   304,639      |  | 
|                                                    |  |  |                             |  |                  |  | 

As a result of these repurchases and the
termination of the U.S. Conduits and the $300,000 unsecured credit facility (the "Credit Facility") discussed below,
the Company recognized a loss, including the write-off of unamortized costs, of $35,906, which is included in
loss from early extinguishment of debt, in the consolidated statements of income for the nine months ended June
30, 2004.

In addition to the early extinguishment of
$7,500 of the 9.75% notes due 2004 (the "2004 Notes"), the Company repaid the outstanding
$27,214 balance of the 2004 Notes upon maturity in June 2004. Prior to the third quarter of fiscal 2004, $32,714 was held in escrow
to defease the outstanding balance of the 2004 Notes and was included in restricted cash on the Company's balance sheet.

During the nine months ended June 30, 2004, the
Company repaid $1,436,277 of debt supporting finance contracts
and received $337,070 from the issuance of related debt instruments.

Immediately following the closing of the U.S. and
Canadian Transactions, GE repaid on the Company's behalf,
$796,070 and $63,677 of outstanding balances under the Company's U.S. and Canadian Conduits, respectively, from
the proceeds of the Transactions. The proceeds from the Transactions and the repayment of the U.S. and Canadian Conduits have been presented as if the Company made the
repayments of the U.S. and Canadian Conduits directly to the lenders in the Company's consolidated statement of cash flows for
the nine months ended June 30, 2004.  The U.S. and Canadian Conduits were terminated on March 31, 2004 and June 30,
2004, respectively. During the nine months ended June 30, 2004, the Company pledged or transferred $361,952 and
$14,278 in financing lease receivables for $306,134 and $12,136 in cash in connection with the U.S. and
Canadian Conduits, respectively.

As of June 30, 2004, IKON Capital, PLC, IKON's leasing subsidiary in the United Kingdom, had approximately
$17,610 available under their revolving asset securitization conduit financing agreement (the "U.K. Conduit"). During
the nine months ended June 30, 2004, the Company pledged or transferred $165,960 in financing lease receivables
for $134,380 in cash in connection with the U.K. Conduit.

Credit Facility

The Company terminated the Credit Facility on
March 31, 2004.  On July 29, 2004, the Company obtained a new $200,000 secured credit facility (the "New Credit Facility") with a
group of lenders.  Under the New Credit Facility, revolving loans are available, with certain sub-limits, to the Company and
its subsidiaries. The New Credit Facility also provides support for letters of credit for the Company and its subsidiaries. The
amount available under the New Credit Facility is determined by the level of certain assets and open letters of credit
of the Company and its subsidiaries.  The New Credit Facility is secured by our
accounts receivable and
inventory, the stock of our first-tier domestic subsidiaries, 65% of the stock in our first-tier foreign
subsidiaries, and all of our intangible assets. All security interests related to the New Credit
Facility will be shared with the holders of the Company's 7.25% notes due 2008 (the "2008 Notes").

The New Credit Facility
contains affirmative and negative covenants, including limitations on certain fundamental changes, investments
and acquisitions, mergers, certain transactions with affiliates, creation of liens, asset transfers, payment of
dividends, intercompany loans and certain restricted payments. The New Credit Facility does not, however, limit our ability to
continue to securitize lease receivables. The New Credit Facility matures on March 1, 2008,
but is subject to certain early maturity events in November 2006, January 2007 and April 2007 if the
5% convertible notes due 2007 (the "Convertible Notes") have not been converted to equity or refinanced, and minimum liquidity is
not met as of such dates. Minimum liquidity is defined as having sufficient cash, including unused capacity
under the New Credit Facility, to repay the balance of the Convertible Notes plus an additional $100,000.
The New Credit Facility
contains certain financial covenants relating to: (i) corporate leverage ratios;
(ii) a consolidated interest coverage ratio; (iii) a consolidated asset coverage ratio; (iv) consolidated net worth ratios; (v)
limitations on the Company's capital
expenditures; and (vi) limitations on additional indebtedness and liens. Under the terms of the New Credit
Facility, share repurchases
are permitted up to $150,000 until September 2005. Beginning October 1, 2005, the Company is permitted to
repurchase shares and pay dividends up to 50% of our annual net income.  The New Credit Facility contains
default provisions customary for facilities of this type. Failure to comply with any material provision
of the New Credit Facility could have a material adverse effect on our liquidity, financial position and results
of operations.

11

---

Letters of Credit

The Company has certain commitments
available to it in the form of standby letters of credit. As of June 30,
2004, the Company had $34,621 of standby letters of credit. These letters of credit were supported by
the Credit Facility prior to its termination. The Company deposited $34,729 into an escrow account as collateral
for outstanding letters of credit until the New Credit Facility, described above, was established. The cash
collateral is recorded in restricted cash in the Company's balance sheet as of June 30, 2004.

Credit Ratings

As of June 30, 2004, the credit
ratings on the Company's senior unsecured debt were designated Ba2 with stable
outlook by Moody's Investor Services and BB with stable outlook by Standard and Poor's.

Note 6:      Share Repurchases

In March 2004,
the Company's Board of Directors authorized the repurchase of up to $250,000 of the Company's
outstanding shares of common stock, superceding the fiscal 2000 share repurchase authorization.  During the third quarter of 2004,
the Company repurchased 2,272 shares of IKON's outstanding common stock for $25,409, leaving $224,591 remaining for share
repurchases under the 2004 Board authorization.  Under the terms of the New Credit Facility, share repurchases
are permitted up to $150,000 until September 2005. Beginning October 1, 2005, the Company is permitted to
repurchase shares and pay dividends up to 50% of our annual net income.

Note 7:      Comprehensive (Loss) Income

Total comprehensive income is as
follows:

|                                                   | Three Months Ended June 30 |  | Nine Months Ended June 30
|-------------------------------------------------- | -------------------------- |  | -------------------------
|                                                   |                            |  |                          
|                                                   | 2004                       |  | 2003                     
|                                                   |                            |  |                          
|Net income                                         | $    8,141                 |  | $    14,695              
|Foreign currency translation adjustments           | (12,821)                   |  | 34,276                   
|Gain on derivative financial instruments, net     
|of tax expense of: $890 and $1,293                
|for the three months ended June 30, 2004 and 2003,
|respectively; $6,836 and $5,430 for the nine      
|months ended June 30, 2004 and 2003, respectively  | 1,567                      |  | 1,939                    
|                                                   |                            |  |                          
|Total comprehensive (loss) income                  | $    (3,113)               |  | $    50,910              
|                                                   |                            |  |                          

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 $59,246, $(72,740) and $209,
respectively, at June 30, 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 June 30 |  | Nine Months Ended June 30
|---------------------------------------------------------------------------------------- | -------------------------- |  | -------------------------
|                                                                                         |                            |  |                          
|                                                                                         | 2004                       |  | 2003                     
|                                                                                         |                            |  |                          
|Numerator:                                                                              
|Numerator for basic earnings per common share -                                         
|Net income                                                                               | $    8,141                 |  | $    14,695              
|Effect of dilutive securities:  Interest expense                                        
|on convertible notes, net of tax                                                         |                            |  |                          
|                                                                                         |                            |  |                          
|Numerator for diluted earnings per common share     - net
income plus assumed conversion | $    8,141                 |  | $    14,695              
|                                                                                         |                            |  |                          
|Denominator:                                                                            
|Denominator for basic earnings per common share                                         
|- weighted average common shares                                                         | 147,657                    |  | 145,201                  
|Effect of dilutive securities:                                                          
|Convertible notes                                                                        |                            |  |                          
|Employee stock awards                                                                    | 355                        |  | 335                      
|Employee stock options                                                                   | 2,519                      |  | 2,429                    
|                                                                                         |                            |  |                          
|Dilutive potential common shares                                                         | 2,874                      |  | 2,764                    
|                                                                                         |                            |  |                          
|Denominator for diluted earnings per common share -
adjusted weighted average            | 150,531                    |  | 147,965                  
|                                                                                         |                            |  |                          
|Basic earnings per common share                                                          | $      0.06                |  | $      0.10              
|                                                                                         |                            |  |                          
|Diluted earnings per common share                                                        | $      0.05                |  | $      0.10              
|                                                                                         |                            |  |                          

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.  The calculation of diluted earnings per common share for the third quarter of fiscal 2004 and 2003
excludes the assumed conversion of the Convertible Notes because the impact is antidilutive.

Options to purchase 3,022
shares of
common stock at $11.62 to $46.59 per share were outstanding during the third
quarter of fiscal 2004 and options to purchase 6,477 shares of common stock at $8.30 to $46.59 per share were outstanding
during the third 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 5,230 shares of
common stock at $11.22 to $46.59 per share were outstanding during the first
nine months of fiscal 2004 and options to purchase 8,322 shares of common stock at $7.75 to $46.59 per
share were outstanding during the first nine 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

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Note 9:     Segment Reporting

The table below presents segment
information for the three months ended June 30, 2004 and 2003:

|                                  |  |                    |  |             | 
|--------------------------------- |  | ------------------ |  | ----------- | 
|                                  |  | IKON North America |  | IKON Europe | 
|                                 
|Three Months Ended June 30, 2004  |  |                    |  |             | 
|Net sales                         |  | $   442,694        |  | $   71,404  | 
|Services                          |  | 550,519            |  | 56,728      | 
|Finance income                    |  | 35,369             |  | 6,458       | 
|Finance interest expense          |  | 9,460              |  | 2,013       | 
|Gain from divestiture of business |  | 698                |  |             | 
|Operating income (loss)           |  | 150,248            |  | 6,179       | 
|Interest expense, net             |  |                    |  |             | 
|Income before taxes on income     |  |                    |  |             | 
|                                  |  |                    |  |             | 
|Three Months Ended June 30, 2003  |  |                    |  |             | 
|Net sales                         |  | $   425,861        |  | $   63,757  | 
|Services                          |  | 537,808            |  | 53,842      | 
|Finance income                    |  | 91,432             |  | 5,779       | 
|Finance interest expense          |  | 35,127             |  | 1,302       | 
|Operating income (loss)           |  | 134,777            |  | 7,044       | 
|Interest expense, net             |  |                    |  |             | 
|Income before taxes on income     |  |                    |  |             | 

The table below presents segment
information for the nine months ended June 30, 2004 and 2003:

|                                    |  |                    |  |             | 
|----------------------------------- |  | ------------------ |  | ----------- | 
|                                    |  | IKON North America |  | IKON Europe | 
|                                   
|Nine Months Ended June 30, 2004     |  |                    |  |             | 
|Net sales                           |  | $   1,242,253      |  | $   210,626 | 
|Services                            |  | 1,623,002          |  | 168,990     | 
|Finance income                      |  | 219,954            |  | 19,143      | 
|Finance interest expense            |  | 75,512             |  | 5,235       | 
|Loss from divestiture of businesses |  | 11,427             |  |             | 
|Operating income (loss)             |  | 422,487            |  | 17,379      | 
|Interest expense, net               |  |                    |  |             | 
|Income before taxes on income       |  |                    |  |             | 
|                                    |  |                    |  |             | 
|Nine Months Ended June 30, 2003     |  |                    |  |             | 
|Net sales                           |  | $   1,279,102      |  | $   188,550 | 
|Services                            |  | 1,601,882          |  | 156,590     | 
|Finance income                      |  | 272,018            |  | 17,100      | 
|Finance interest expense            |  | 107,299            |  | 4,793       | 
|Operating income (loss)             |  | 419,888            |  | 19,256      | 
|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. The Company's 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 support.

14

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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 $7,630 and $7,913 as of June 30, 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 2004 and 2003, 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 nine months ending June 30, 2004 and 2003, these
expenses were $282 and $437, 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 coal mines 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
June 30, 2004 and September 30, 2003, the Company's accrual for black lung and worker's compensation liabilities related to B&T was
$13,779 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 U.S. 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 U.S. Transaction or that may arise in
connection with leases sold to GE under the Program Agreement. 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 indemnification obligations 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 June 30, 2004
was $249,295.  Based on the Company's analysis of historical losses for these types of leases, the Company has
recorded reserves totaling approximately $664 at June 30, 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 related to assets sold under the U.S. Agreement.

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 June 30, 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 nine months
ended June 30, 2004, unrealized gains totaling $12,136, after taxes, were recorded in
accumulated other comprehensive loss.

15

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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 June 30 |  | Nine Months Ended June 30
|--------------------------------------------- | -------------------------- |  | -------------------------
|                                              |                            |  |                          
|                                              | 2004                       |  | 2003                     
|                                              |                            |  |                          
|Service cost                                  | $      8,242               |  | $    6,960               
|Interest cost on projected benefit obligation | 8,370                      |  | 7,790                    
|Expected return on plan assets                | (6,737)                    |  | (6,113)                  
|Amortization of net obligation (asset)        | 9                          |  | (305)                    
|Amortization of prior service cost            | 143                        |  | 143                      
|Recognized net actuarial loss                 | 2,729                      |  | 1,025                    
|                                              |                            |  |                          
|Net periodic benefit cost                     | $    12,756                |  | $    9,500               
|                                              |                            |  |                          

The Company expected to contribute $15,900 to
the plans during the year ended September 30, 2004. As of June 30, 2004, $83,400 of contributions had been made, including a special
contribution of $75,000. The Company expects to contribute an additional $7,700 to the plans during the remainder of fiscal 2004.

All U.S. employees hired on or
after July 1, 2004 are not eligible to participate in the U.S. defined benefit pension plan.

Note 13:      Sale of Lease Receivables

Under the Program Agreement and the Canadian Rider, from time to time the Company may sell customer lease
receivables. The Company does not expect to retain interests in these assets. Gains or losses on the sale of these lease
receivables depends in part on the previous carrying amount of the financial assets involved in the transfer. The Company
estimates fair value based on the present value of future expected cash flows using management's best estimates. As
these same assumptions are used in recording the lease receivables, and sale of the lease receivables occurs shortly thereafter,
management anticipates that in most instances, book value is expected to approximate fair value.

During the third quarter 2004, the
Company sold lease receivables totaling $162,498 for cash proceeds in
transactions to GE representing leases that were accrued by IOSC at March 31, 2004 and sold to GE. In those transactions, GE will
service the lease
receivables and we will not retain any interest in the assets.

No material gain resulted from these transactions.

16

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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 and multi-functional products,
offering best-in-class systems from leading manufacturers such as Canon, Ricoh, Konica Minolta, HP and Océ and
service support through our team of over 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 believe 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 third quarter 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 such as color and high-end black & white production, which are two important drivers to fuel
aftermarket supplies and service revenues. In color, we experienced a 50% increase from the third quarter 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 recently announced the
formation of the Enterprise Services group which is made up of our Customer Service group, Managed Services, and
Professional Services. Enterprise Services integrates IKON's
document management solutions and services in order to participate in a larger, faster
growing, market segment.

17

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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 U.S. Current e-IKON activity is focused on optimizing
supply chain and customer care support, which are two areas of the Company that management believes have the most opportunity in terms
of productivity and potential costs savings. As a result of our efforts, our supply chain delivered significantly
improved inventory turns of 10.5 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 one hundred
trained "black-belts" in the program 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 second quarter of 2004, we announced the completion of our transaction with General Electric
Capital Corporation ("GE") in which we sold to GE certain assets and liabilities of IKON (collectively,
with the Program Agreement, the "U.S. Transaction"), solely in its capacity as successor to IOS Capital,
LLC ("IOSC") including servicing functions, facilities, systems and processes relating to its U.S. leasing operations. In addition, during the third quarter of 2004,
we announced the completion of our transaction with GE in which the Company sold certain assets relating
the leasing operations of IKON Canada (the "Canadian Transaction," collectively with the U.S. Transaction, the
"Transactions") and became IKON's preferred lease financing source in Canada.  With the proceeds from the Transactions,
during the third quarter of 2004, we tendered $250 million of our 7.25% notes due 2008
(the "2008 Notes") and repurchased $25,400 of
shares under our new 2004 $250 million Board authorization.  Proceeds from the Transactions will be used in the future to
continue to repurchase shares and invest in growth initiatives. As a result of the
Transactions and other actions taken by the Company to improve our liquidity, our total debt to capital ratio for the quarter declined
to 50.8% from 67.7% compared to the third quarter of 2003.  We recently announced our completion of a new
$200 million secured credit facility which replaces our terminated $300 million unsecured credit facility with
terms more appropriate for the Company's new capital structure.

For the third quarter of 2004,
the Company had revenues of $1.16 billion, representing a slight decrease from the
third quarter of 2003. Diluted earnings per share were $0.05, which included a pretax loss of $33 million
on the early extinguishment of debt. Refer to "Results of Operations" for further discussion of our quarterly
financial statements.

Outlook

As a result of the U.S. Transaction, finance income declined significantly in the third quarter of fiscal
2004. In the fourth quarter of fiscal 2004, the Company expects finance income to continue to decline as leases in the retained U.S.
and Canadian lease portfolios continue to expire. Fees and profit sharing opportunities resulting from the new alliance with GE, reflected
in net sales and services, will only partially replace historically reported finance income. The Company expects earnings
per diluted share to be in the range of $.14 to $.17 per diluted share for the fourth quarter and $.70 to $.75 per diluted share for
fiscal 2004. The Company has established financial objectives from fiscal 2004 through 2007 (excluding non-recurring items), targeting $5 billion in revenues
through organic growth; improvement in operating margins to 6%, to be achieved by the establishment of a more effective selling and
administrative structure and a stronger mix of high margin product and service revenues around document management; and earnings
per share growth of 8% to 12%.

18

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Critical Accounting Policies

We have identified below
the accounting principles critical to our business and results of operations.
We determined the critical principles by considering accounting policies that involve the most complex or
subjective decisions or assessments. We state these accounting policies in Management's Discussion and Analysis of Financial Condition
and Results of Operations and in the notes to the consolidated financial statements contained in our Annual Report on Form 10-K
for our fiscal year ended September 30, 2003, and at relevant sections in this discussion and analysis.
In addition, we believe our most critical accounting policies include the following:

Revenue Recognition.     We install the majority of the equipment we sell.  Revenues for company-installed
copier/printer equipment and technology hardware, included in net sales, are recognized upon credit approval,
receipt of a signed sale or lease contract, and a "delivery and acceptance" certificate.  The
"delivery and acceptance" certificate confirms that the product has been delivered and accepted by the customer under the sales or
lease contract.  Revenues for customer-installed copier/printer equipment and technology
hardware, included in net sales, are recognized upon credit approval, receipt of a sales or lease contract,
and delivery.   Generally, the Company does not offer any equipment warranties in addition to those
which are provided by the equipment manufacturer.  Revenues for sales of supplies are recognized at time of
shipment following the placement of an order from a customer.  Revenues for monthly equipment service and
facilities management service are recognized in the month in which the service is performed.  Revenues for other
services and rentals are recognized in the period performed.  The present value of payments due under sales-type
lease contracts is recorded as revenue within net sales and cost of goods sold is charged with the book value of
the equipment when products are delivered to and accepted by the customer.  Finance income is recognized over the
related lease term.  Fees earned under the Program Agreement and the Canadian Rider with GE are recognized as they are earned.

Supporting the Company's
objective to provide complete solutions to its customers, the Company generally bundles
a service agreement with copier/printer equipment when sold.  The typical agreement includes a minimum number of
copies for a base service fee plus an overage charge for any copies in excess of the minimum.  Revenue for each
element of a bundled contract is derived from our national price lists for equipment and service.  The national
price list for equipment includes a price range between the manufacturers' suggested retail price ("MSRP") and
the minimum price for which our sales force is permitted to sell equipment. The price list for equipment is
updated monthly to reflect any vendor-communicated changes in MSRP and any changes in the fair value for which
equipment is being sold to customers.  The national price list for service reflects the price of service charged
to customers.  The price list for service is updated quarterly to reflect new service offerings and any changes
in the competitive environment affecting the fair value for which service is being provided to customers.  The
national price list, therefore, is representative of the fair value of each element of a bundled agreement when
it is sold unaccompanied by the other elements.

Revenue for a bundled
contract is first allocated to service revenue using the fair value per our national price
list.  The remaining revenue is allocated to equipment revenue and finance income based on a net present value
calculation utilizing an appropriate interest rate that considers the creditworthiness of the customer, term of
the lease, transaction size, and costs of financing.  The equipment revenue is compared to the national price
list.  If the equipment revenue falls within the price range per the national price list, no adjustment is
required.  If the equipment revenue is not within the price range per the national price list, service and
equipment revenues are proportionately adjusted while holding the interest rate constant, so that both service
and equipment revenues fall within the price range per the national price list.

Goodwill.     
IKON evaluates goodwill in accordance with Statement of Financial Accounting Standards ("SFAS 142").
SFAS 142 prescribes a two-step method for determining goodwill impairment.  In the first step, we determine the
fair value of the reporting unit using expected future discounted cash flows.  If the net book value of the
reporting unit exceeds the fair value, we would then perform the second step of the impairment test which
requires allocation of the reporting unit's fair value to all of its assets and liabilities in a manner similar
to a purchase price allocation, with any residual fair value being allocated to goodwill.  The fair value of the
goodwill is then compared to its carrying amount to determine impairment.  If future discounted cash flows are
less favorable than those anticipated, goodwill may be impaired.

Inventories.     
Inventories are stated at the lower of cost or market using the average cost or specific
identification methods and consist of finished goods available for sale. IKON writes down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and
estimated market value based upon assumptions about future demand and market conditions.  If actual market
conditions are less favorable than those anticipated, inventory adjustments may be required.

Allowances for Receivables.
     IKON maintains allowances for doubtful accounts and lease defaults for estimated
losses resulting from the inability of its customers to make required payments.  If the financial condition of
IKON's customers were to significantly deteriorate, resulting in an impairment of their ability to make required
payments, changes to our allowances may be required.

Income Taxes.     
Income taxes are determined in accordance with SFAS 109, which requires recognition of deferred
income tax liabilities and assets for the expected future tax consequences of events that have been included in
the consolidated financial statements or tax returns. Under this method, deferred income tax liabilities and
assets are determined based on the difference between financial statement and tax basis of liabilities and assets
using enacted tax rates in effect for the year in which the differences are expected to reverse. SFAS 109 also
provides for the recognition of deferred tax assets if it is more likely than not that the assets will be
realized in future years. A valuation allowance has been established for deferred tax assets for which
realization is not likely.  In assessing the valuation allowance, IKON has considered future taxable income and
ongoing prudent and feasible tax planning strategies.  However, in the event that IKON determines the value of a
deferred tax asset has fluctuated from its net recorded amount, an adjustment to the deferred tax asset would be
necessary.

Pension.     
Certain assumptions are used in the calculation of the actuarial valuation of our Company-sponsored
defined benefit pension plans.  These assumptions include the weighted average discount rate, rates of increase
in compensation levels and expected long-term rates of return on assets.  If actual results are less favorable
than those assumed, additional pension expense may be required.

Residual Values.
     IKON estimates the residual value of equipment sold under sales-type leases.  Our residual
values are based on the dollar value of the equipment and generally range between 0% to 24% of MSRP, depending on
the equipment model and lease term.  We evaluate residual values quarterly for impairment.  Changes in market
conditions could cause actual residual values to differ from estimated values, which could accelerate write-down
of the value of the equipment. As a result of the Transactions, this critical
accounting policy only affects the Company
for residual values on lease receivables of our European operations, U.S. lease receivables retained by the Company after the sale
of the Company's U.S. leasing operations, and new leases of IKON North America that are self-funded.

Other Accounting Policies.
     Other accounting polices, not involving the same level of significance as those
discussed above, are nevertheless important to an understanding of our financial statements.  See note 1 to the
consolidated financial statements, Significant Accounting Policies, which discusses other accounting policies.

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 June 30, 2004
refer to the three months ended June 30, 2004 and 2003, respectively, and references to 2004 and
2003 in the section relating to the nine months ended June 30, 2004 refer to the nine months ended
June 30, 2004 and 2003, respectively.

Three Months Ended June 30, 2004
                                         Compared to the Three Months Ended June 30, 2003

Revenues

|               |                |                |         | 
|-------------- | -------------- | -------------- | ------- | 
|               |                |                |         | 
|               | 2004           | 2003           | Change  | 
|               |                |                |         | 
|Net sales      | $     514,100  | $     489,600  | 5.0  %  | 
|Services       | 607,300        | 591,700        | 2.6     | 
|Finance income | 41,800         | 97,200         | (57.0)  | 
|               |                |                |         | 
|               | $    1,163,200 | $    1,178,500 | (1.3) % | 
|               |                |                |         | 

The decrease in revenues of 1.3% compared to 2003, which includes a currency benefit of 1.1% (revenues denominated in foreign
currencies impacted favorably when converted to U.S. dollars for reporting purposes), is a result of an overall decrease in finance
income, offset by increases in net sales and services.

Net sales includes revenues from the sale of copier/printer multi-function equipment, direct supplies, and technology hardware. The
increase in net sales includes a currency benefit of 1.4%. Equipment revenue, which comprises approximately 90% of the Company's net sales mix,
 increased by 8.1%, or $34,900, compared to 2003, due to the net impact of the new relationship with GE
and continued growth in color revenues. Revenues generated from the sale of color devices increased by 50% 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 16% in 2003 to approximately 23%
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 15%. Sales of black & white production and color devices, a high growth area for the
Company, represented 44% of the Company's equipment revenues in 2004 compared to 34% 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, faxes and other
equipment) of
approximately 13% 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 56% in 2004 compared to 66% in 2003. The increase in equipment revenue is offset by decreases in
supply sales of $9,200 due to lower demand for fax and lower-end copier supplies, and technology hardware of $1,100, when compared to
2003.

Services is comprised of Enterprise Services and Other Services.  Enterprise Services consists of Managed Services, providing on and
off-site outsourcing services and other expertise; Customer Service (equipment service); and
Professional Services, which focuses on integrating hardware and software technologies that capture, manage, control, and store
output for customer's document lifecycles.  Other Services includes rental income on operating leases, income
from the sharing of residual value gains on certain leases and lease default reserve recoveries with GE, and fees for providing exclusive services for lease generation from GE over the next five years.  Services increased by 2.6%, which includes a currency benefit of 0.9%. Services growth was driven by an increase in Professional
Services of $6,000, or 39.5%, and the impact of fees received as a result of the
new GE relationship including fees for providing exclusive services for lease generation ("Preferred Fees"), which were approximately
$12,700 in the third quarter of 2004.  The Company expects to earn approximately $50,000 of Preferred Fees annually until the
initial term of the Program Agreement terminates on March 31, 2009. These increases were offset
by decreases in Customer Service revenues (which are significantly
impacted by the level of and mix of copy volumes) of 1.2%, or $4,300, due to the unfavorable impact of price and mix of copy
volumes.  Rental revenue decreased by $1,200, or 5.8%, compared to 2003 due to the sale of $38,900 of rental assets to GE on March 31,
2004.

19

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Finance income is generated by IKON's wholly-owned leasing subsidiaries as well as certain lease receivables of IOSC not sold to GE
as part of the U.S. Transaction. The decrease in finance income is primarily due to the impact of the sale of $1,868,000 of lease
receivables to GE on March 31, 2004 as part of the U.S. Transaction. Accordingly, these lease receivables did not generate finance
income for the Company during the third quarter of 2004. 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 Transactions. In
addition, finance income decreased due to a decrease in the Company's average financing rate charged on our lease receivables
compared to 2003. These decreases were partially offset by a currency benefit of 1.8%.

Gross Margin

|                             |        |        |  | 
|---------------------------- | ------ | ------ |  | 
|                             |        |        |  | 
|                             | 2004   | 2003   |  | 
|                             |        |        |  | 
|Gross margin, net sales      | 28.6 % | 29.0 % |  | 
|Gross margin, services       | 42.3   | 42.4   |  | 
|Gross margin, finance income | 72.6   | 62.5   |  | 
|Gross margin, total          | 37.3   | 38.5   |  | 

Total gross margin decreased from 38.5% in 2003 to 37.3% in 2004 due mainly to a lower mix of higher profit finance income compared
to 2003 as a result of the U.S. Transaction.

The gross margin on net sales decreased from 29.0% in 2003 to 28.6% due to lower sales of high-margin used equipment and higher sales
to lower-margin national account customers compared to 2003.  These decreases were partially offset by increases in gross margin from
the net impact of the new relationship with GE and fewer write-offs compared to 2003.

The gross margin on services decreased slightly
compared to 2003 due to a lower mix of Customer Service revenues and was partially offset by the net impact of
high margin fees received as a result of the new GE relationship (income from the
sharing of residual value gains on certain leases and lease default reserve recoveries as well as the Preferred Fees).

The gross margin on finance income increased from 62.5% in 2003 to 72.6% in 2004 due to higher-margin European leasing revenues
becoming a larger part of the finance income mix in 2004 compared to 2003 and a lower leverage ratio on the U.S. lease receivable
portfolio that was retained by the Company. In addition, approximately $8,200 of interest expense was recorded in "Interest expense,
net" during 2004 related to debt that was reclassified from debt supporting finance contracts to corporate debt beginning on April 1,
2004. As a result, the gross margin on finance income was positively impacted. Our average cost of debt supporting finance contracts
was approximately 2.7% and 5.1% for 2004 and 2003, respectively. Partially offsetting the positive impact of these items was a
decrease in the Company's average financing rate charged on our lease receivables compared to 2003. The average financing rate on our
lease receivables was approximately 10.5% and 11.0% for 2004 and 2003, respectively.

20

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Other

|                                       |            |             |         | 
|-------------------------------------- | ---------- | ----------- | ------- | 
|                                       |            |             |         | 
|                                       | 2004       | 2003        | Change  | 
|                                       |            |             |         | 
|Selling and administrative expenses    | $  374,000 | $   389,700 | (4.0) % | 
|S&A as a % of revenue                  | 32.2  %    | 33.1 %      |         | 
|Gain from divestiture of business      | 700        |             | 100.0   | 
|Operating income                       | 60,900     | 63,800      | (4.5)   | 
|Loss from early extinguishment of debt | 32,700     | 27,500      | 18.9    | 
|Interest expense, net                  | 15,200     | 12,800      | 18.8    | 
|Taxes on income                        | 4,900      | 8,900       | (44.9)  | 
|Net income                             | 8,100      | 14,700      | (44.9)  | 
|Diluted earnings per common share      | 0.05       | 0.10        | (50.0)  | 

Selling and administrative expense, which was unfavorably impacted by $3,200 due to foreign currency translation
compared to the prior year, decreased by $15,700, or 4.0%, during 2004 compared to 2003, and decreased from 33.1%
to 32.2% as a percentage of revenue. These decreases were due to the following:

Net Impact of U.S Transaction

The net impact of the U.S. Transaction, resulting in a decrease of approximately $15,800, was the largest driver of the change in selling
and administrative expense compared to 2003. Approximately $11,600 of this decrease was due to no lease default
expense being required for either retained or sold IOSC lease receivables during the three months ended June 30,
2004. Under the terms of the Program Agreement, GE assumed substantially all risks related to lease defaults
for both the retained and sold lease receivables of IOSC. The remaining decrease in selling and administrative
expense as a result of the U.S. Transaction was due to the decrease of over 300 employees that were transferred
by the Company to GE. Partially offsetting the lease default and headcount decreases were increases in fees paid
to GE for servicing the Company's U.S. lease portfolio as well as other corporate costs to support the U.S.
Transaction.

Other Selling and Administrative

Other changes in selling and
administrative expense impacting the Company were increases in pension and health
care related costs of $1,900 offset by a $3,200 decrease in compensation related expenses, primarily the result
of headcount reductions compared to 2003 as the Company continues its efforts to consolidate and centralize
certain administrative functions.  The impact of headcount reductions on compensation expense was partially
offset by higher employee salary levels compared to 2003.

During the three  months  ended June 30,  2004,  the Company  incurred a gain of $700 from the Canadian Transaction
resulting from the difference  between the carrying amount of assets sold and proceeds
received and certain costs associated with the Canadian Transaction.

Operating  income  decreased by 4.5%  compared to the three months ended June 30, 2003,  as a result of the factors
discussed  above.  In addition,  interest  expense from certain of the Company's  borrowings,  which had previously
been recorded in Finance Interest Expense,  were charged to Interest  expense,  net beginning April 1, 2004. As
a result, operating income was favorably impacted by $8,200 as a result of this change during 2004.

During the three months  ended June 30,  2004,  the Company  recorded a loss from early  extinguishment  of debt of
$32,700,  as a result of the  repurchases of debt and other financing  related actions  discussed below under "Debt
Structure."  During  2003,  the Company  recorded a loss from the early  extinguishment  of debt of  $27,500,  as a
result of the repurchase of various debt instruments.

Interest  expense,  net,  increased  by $2,400 as a result of higher  corporate debt levels compared to 2003 resulting
from the  Company's  assumption  of  IOSC's  public  debt  (the  9.75% Notes due 2004 (the "2004  Notes"),
5% convertible notes due 2007 (the "Convertible  Notes") and the 2008  Notes;
collectively, the  "Additional  Corporate  Debt")  as part of the  U.S.  Transaction.  Interest  on this  debt  was
reported in Finance  Interest  Expense  prior to April 1, 2004.  This change  resulted in  approximately  $8,200 of
additional  interest expense to be recorded in Interest  expense,  net compared to 2003.  Excluding the impact of
the Additional  Corporate Debt,  Interest expense,  net decreased as a result of several debt repurchases made by
the Company since June 30, 2003.

The effective income tax rate was 37.75% for 2004 and 2003, respectively.

Diluted  earnings per common  share were $0.05 for the three  months ended June 30, 2004  compared to $0.10 for the
three months ended June 30, 2003.

21

---

Review of Business
Segments

IKON North America

|                                  |            |            |        |  
|--------------------------------- | ---------- | ---------- | ------ | -
|                                  |            |            |        |  
|                                  | 2004       | 2003       | Change |  
|                                  |            |            |        |  
|Net sales                         | $  442,700 | $  425,900 | 3.9    | %
|Services                          | 550,600    | 537,800    | 2.4    |  
|Finance income                    | 35,400     | 91,400     | (61.3) |  
|Finance interest expense          | 9,500      | 35,100     | (72.9) |  
|Gain from divestiture of business | 700        |            | 100.0  |  
|Operating income                  | 150,200    | 134,800    | 11.4   |  

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.

Net sales increased by 3.9% due to
the net impact of the new relationship with GE and an increase in copier/printer equipment sales of 7.2%, or
$26,900, due to higher average selling prices and more favorable product mix. These increases were offset by a decrease in supplies of
$9,900 as a result of lower demand for fax and lower-end copier supplies. Services increased by approximately 2.4%, or
$12,800.  Services growth was driven by  growth
in Professional Services and the net impact of fees received as a result of the new GE relationship for providing exclusive services for lease generation, which were approximately $12,700 in the third quarter of 2004.
These increases were partially offset by decreases in Customer Services revenues of 2.0%, or $6,800,
compared to 2003, due to the unfavorable impact of price and mix of copy volume.
Finance income decreased due to the impact of the sale of lease receivables to GE on March 31, 2004 as part of the U.S. Transaction.  Accordingly,
these lease receivables did not generate finance income for the Company during the third quarter.  Finance interest expense
decreased due to lower debt supporting finance contracts.  The Company incurred a gain of $700
from the divestiture of the Canadian leasing business resulting from the difference between the
carrying amount of assets sold and proceeds received and certain costs associated with the Canadian Transaction. Operating income
increased due to an increase in net sales and services, lower selling and administration expense, and a gain on the divestiture of the Canadian leasing business, offset by a decrease in finance
income and related expense compared to 2003.

IKON Europe

|                         |           |           |        |  
|------------------------ | --------- | --------- | ------ | -
|                         |           |           |        |  
|                         | 2004      | 2003      | Change |  
|                         |           |           |        |  
|Net sales                | $  71,400 | $  63,700 | 12.1   | %
|Services                 | 56,700    | 53,900    | 5.2    |  
|Finance income           | 6,400     | 5,800     | 10.3   |  
|Finance interest expense | 2,000     | 1,300     | 53.8   |  
|Operating income         | 6,200     | 7,000     | (11.4) |  

Net sales increased as a result of currency
benefits of approximately $6,300. Excluding the impact of currency, sales of copier/printer equipment increased by 2.0%, or $1,300
compared to 2003.   The increase in sales of copier/printer equipment was experienced in all of IKON's European markets, except France.
Services increased as a result of currency benefits of approximately $5,100.
Excluding the impact of currency, services declined by 4.2%, due to a decrease in equipment service and outsourcing revenues.
Finance income increased as a result of currency benefits of approximately $600.  Operating income for 2004 decreased due to an
increase in finance interest expense, cost of sales and service costs, offset by a reduction in selling and administration expense
of 3.8%, when 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 support.  Operating costs in
Corporate/Operations were $95,500 and $78,000 in 2004 and 2003, respectively.

Nine Months Ended June 30, 2004
                                         Compared to the Nine Months Ended June 30, 2003

Revenues

|               |                 |                 |         | 
|-------------- | --------------- | --------------- | ------- | 
|               |                 |                 |         | 
|               | 2004            | 2003            | Change  | 
|               |                 |                 |         | 
|Net sales      | $     1,452,900 | $     1,467,700 | (1.0) % | 
|Services       | 1,792,000       | 1,758,500       | 1.9     | 
|Finance income | 239,100         | 289,100         | (17.3)  | 
|               |                 |                 |         | 
|               | $    3,484,000  | $    3,515,300  | (0.9) % | 
|               |                 |                 |         | 

The decrease in revenues of 0.9%
compared to 2003, which includes a currency benefit of 1.8% (revenues denominated in
foreign currencies impacted favorably when converted to U.S. dollars for reporting
purposes), is a result of an overall decrease in finance income and net sales, partially offset by an increase in
services.

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 2.2%. Sales of technology hardware
declined by $14,000, compared to the nine 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
decreased by approximately 21%, or $26,300, compared to the prior year due to lower demand for fax and lower-end copier supplies.
Equipment revenue, which comprises approximately 90% of the Company's net sales mix, increased by
approximately 2%, or $25,800, compared to the prior year due mainly to the net impact of the new
relationship with GE and continued growth in color revenues. Revenues generated from the sale of color devices
increased by 51% 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 in 2003. As a percentage of equipment
revenue, color devices increased from approximately 14% in 2003 to approximately 22% 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 6%. Sales of black & white production and color devices, a high growth area
for the Company, represented 40% of our equipment revenues in 2004 compared to 32% 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, fax and other equipment) of approximately 12%, 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 60% in 2004 compared to 68% in 2003.

22

---

Services is comprised of Enterprise Services and Other Services.  Enterprise Services consists of Managed Services, providing on and
off-site outsourcing services and other expertise; Customer Service (equipment service); and
Professional Services, which focuses on integrating hardware and software technologies that capture, manage, control, and store
output for customer's document lifecycles.  Other Services includes rental income on operating leases, income from the
sharing of residual value gains on certain leases and lease default reserve recoveries
with GE, and fees for providing exclusive services for lease generation from GE over the next five years.  Services
increased by 1.9%, which includes a currency benefit of 1.4%. Excluding
this currency benefit, overall services increased approximately 0.5% compared to 2003 due to  an increase in Managed Services of $6,400, or
1.2%, and the impact of Preferred Fees of approximately $12,700 compared to 2003.  The Company expects to earn approximately $50,000 of Preferred Fees annually until the initial term of the Program
Agreement terminates on March 31, 2004. The Company earned no profit related to the completion
of a multi-year commercial imaging contract, which accounted for approximately $10,100 of the Managed Services revenue increase but
negatively impacted the services gross margin percentage by seventy basis
points. Customer Service revenues (which is significantly impacted by the level and mix of copy volumes), decreased by
$4,900, or 0.5%, compared to the nine months ended June 30, 2003, due to the unfavorable impact of price and
mix of copy volumes. Total copy volume grew by approximately 4.1% compared to 2003.  Professional Services, our
fastest and most important growth opportunity over the next several years, increased by $6,400, or 13.4%, due to a number of new customer wins during 2004.

Finance income is generated by IKON's
wholly-owned leasing subsidiaries as well as certain lease receivables of
IOSC not sold to GE as part of the U.S. Transaction. The decrease in finance income is primarily due to the impact of
the sale of $1,868,000 of lease receivables to GE on March 31, 2004 as part of the U.S.
Transaction.  Accordingly, these lease receivables did not generate finance income for the Company during the
third quarter of 2004.  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
Transactions.  In addition, finance income decreased due to a decrease in the Company's average financing rate
charged on our lease receivables compared to 2003.  These decreases were partially offset by the impact of growth
in the lease portfolio prior to the Transaction and a currency benefit of 2.0%.

Gross Margin

|                             |        |        |  | 
|---------------------------- | ------ | ------ |  | 
|                             |        |        |  | 
|                             | 2004   | 2003   |  | 
|                             |        |        |  | 
|Gross margin, net sales      | 28.9 % | 30.4 % |  | 
|Gross margin, services       | 40.8   | 41.3   |  | 
|Gross margin, finance income | 66.2   | 61.2   |  | 
|Gross margin, total          | 37.6   | 38.4   |  | 

Total gross margin decreased from 38.4% in 2003 to 37.6% in 2004. The decrease in gross margin on net sales was due to a less
favorable mix of used equipment, growth in lower-margin national account purchases, and continued market competitiveness. While lower
selling prices have fueled increased demand for color and higher-volume black and white equipment, the lower end of the black & white
equipment market continues to commoditize and remains competitive. Partially offsetting these negative trends was an improved mix of
higher-margin color equipment revenues, continued benefits realized from the centralization of our supply chain function, and the net
impact of the new GE relationship.

The gross margin on services decreased slightly compared to 2003 due mainly to a lower mix of Customer Service revenues and
the impact from the completion of a multi-year commercial imaging contract in which no profit was earned.  These decreases
were partially offset by the net impact of high margin fees received as a result of the new GE relationship (income from the
sharing of residual value gains on certain leases and lease default reserve recoveries as well as the Preferred Fees).

The gross margin on finance income increased
from 61.2% in 2003 to 66.2% in 2004 due to higher-margin European leasing revenues becoming a larger part of the finance
income mix in 2004 compared to 2003 and a lower leverage ratio on the U.S. lease receivable
portfolio during the third quarter of 2004 that was retained by the Company after the U.S. Transaction.  In addition, approximately
$8,200 of interest expense was recorded in "Interest expense, net" during 2004 related to debt that was reclassified  from debt
supporting finance contracts to corporate debt beginning on April 1, 2004.  As a result, the gross margin on finance income was
positively impacted.  Partially offsetting the positive impact of these items was a decrease in the Company's average financing rate charged
on our lease receivables compared to 2003.

23

---

Other

|                                       |              |               |         | 
|-------------------------------------- | ------------ | ------------- | ------- | 
|                                       |              |               |         | 
|                                       | 2004         | 2003          | Change  | 
|                                       |              |               |         | 
|Selling and administrative expenses    | $  1,133,700 | $   1,151,400 | (1.5) % | 
|S&A as a % of revenue                  | 32.5  %      | 32.8 %        |         | 
|Loss from divestiture of businesses    | 11,400       |               | 100.0   | 
|Operating income                       | 165,100      | 198,100       | (16.7)  | 
|Loss from early extinguishment of debt | 35,900       | 26,200        | 37.0    | 
|Interest expense, net                  | 34,900       | 37,600        | (7.2)   | 
|Taxes on income                        | 28,200       | 50,700        | (44.4)  | 
|Net income                             | 66,000       | 83,600        | (21.1)  | 
|Diluted earnings per common share      | 0.43         | 0.54          | (20.4)  | 

Selling and administrative expense, which was unfavorably impacted by $15,000 due to foreign currency translation
compared to the prior year, decreased by $17,700, or 1.5%, during 2004 compared to 2003, and decreased from 32.8%
to 32.5% as a percentage of revenue.  These decreases were due to the following:

Net Impact of U.S Transaction

The net impact of the U.S. Transaction, resulting in a decrease of approximately $15,800, was a significant driver of the
change in selling and administrative expense compared to 2003. Approximately $11,600 of this decrease was due to no lease default
expense being required for either retained or sold IOSC lease receivables during the three months ended June 30,
2004. Under the terms of the Program Agreement, GE assumed substantially all risks related to lease defaults
for both the retained and sold lease receivables of IOSC. The remaining decrease in selling and administrative
expense as a result of the U.S. Transaction was due to the decrease of over 300 employees that were transferred
by the Company to GE. Partially offsetting the lease default and headcount decreases were increases in fees paid
to GE for servicing the Company's U.S. lease portfolio as well as other corporate costs to support the U.S.
Transaction.

Other Selling and Administrative

Other changes in selling and
administrative expense impacting the Company were increases in pension and health
care related costs of $7,800 and increases in insurance and non-income tax related expenses of $7,100 compared to
2003.  These increases were offset by a $17,700 decrease in compensation related expenses, primarily the result
of headcount reductions compared to 2003 as the Company continues its efforts to consolidate and centralize
certain administrative functions.  The impact of headcount reductions on compensation expense was partially
offset by higher employee salary levels compared to 2003.

During the nine months ended June 30, 2004, the Company incurred a net loss of $11,400 from the Transactions
resulting from the difference between the carrying amount of assets sold and proceeds received and certain costs
associated with the Transactions.

Operating  income  decreased by 16.7% compared to the nine months ended June 30, 2003, as a result of the factors  discussed  above. In
addition,  interest  expense  from  certain of the  Company's  borrowings,  which had  previously  been  recorded in Finance  Interest
Expense,  were charged to Interest  expense,  net beginning April 1, 2004. As a result,  operating income was favorably  impacted by
$8,200 as a result of this change during 2004.

During the nine months ended June 30, 2004, the Company recorded a loss from early extinguishment of debt of $35,900, as a result of
the repurchases of debt and other financing related actions discussed below under "Debt Structure." During 2003, the Company recorded
a loss from the early extinguishment of debt of $26,200, as a result of the repurchase of various debt instruments.

The decrease in interest expense, net 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 nine months ended 2004 compared to the nine months ended June
30, 2003.  In addition, as a result of the Company's assumption of the Additional Corporate Debt as part of the U.S. Transaction,
interest on this debt, which was reported in Finance Interest Expense prior to April 1, 2004, is now reported as Interest expense,
net.   This change resulted in approximately $8,200 of additional interest expense to be recorded in Interest expense, net
compared to 2003.

The effective income tax rate was 29.98% 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 U.S. 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 $0.43 for the nine months ended June 30, 2004 compared to $0.54 for the nine months ended June
30, 2003.

24

---

Review of Business
Segments

IKON North America

|                                    |              |              |        |     
|----------------------------------- | ------------ | ------------ | ------ | ----
|                                    |              |              |        |     
|                                    | 2004         | 2003         | Change |     
|                                    |              |              |        |     
|Net sales                           | $  1,242,300 | $  1,279,100 | (2.9   | )  %
|Services                            | 1,623,000    | 1,601,900    | 1.3    |     
|Finance income                      | 220,000      | 272,000      | (19.1  | )   
|Finance interest expense            | 75,500       | 107,300      | (29.6  | )   
|Loss from divestiture of businesses | 11,400       |              | 100.0  |     
|Operating income                    | 422,500      | 419,900      | 0.6    |     

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.

Net sales decreased by 2.9%
due to a decline in direct supply sales of approximately 24%
compared to 2003 due to lower demand for fax and lower-end copier supplies.  Technology hardware decreased by $12,400
as a result of several large customer relationships that were not renewed for 2004 by the Company. Services increased by
approximately 1.3% due primarily to the net impact of fees received as a result of the new GE relationship, an increase in
Professional Services, and an increase in Managed Services of $7,300, compared to 2003.  These increases are
partially offset by a decrease in Customer Service revenues of $14,800, or 1.5%, compared to 2003, due to the unfavorable
impact of price and mix of copy volume.  Finance income decreased
due to the impact of the sale of lease receivables to GE on March 31, 2004 as part of the U.S. Transaction.
Finance interest expense decreased due to lower average debt supporting finance contracts compared to 2003.  The Company incurred a
loss of $11,400 from the divestiture of the U.S. and Canadian leasing businesses resulting from the difference between the
carrying amount of assets sold and proceeds received and certain costs associated with the Transactions. Operating income
remained relatively flat compared to 2003.

IKON Europe

|                         |            |            |        |  
|------------------------ | ---------- | ---------- | ------ | -
|                         |            |            |        |  
|                         | 2004       | 2003       | Change |  
|                         |            |            |        |  
|Net sales                | $  210,600 | $  188,600 | 11.7   | %
|Services                 | 169,000    | 156,600    | 7.9    |  
|Finance income           | 19,100     | 17,100     | 11.7   |  
|Finance interest expense | 5,200      | 4,800      | 8.3    |  
|Operating income         | 17,400     | 19,300     | (9.8   | )

Net sales increased by 11.7% as a result of currency
benefits of approximately $23,600. 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 $18,300, offset by a decrease of $5,900
due to declines in equipment services compared to 2003. Finance income increased as a result of currency benefits of $2,000.
Operating income decreased during 2004 due to an increase in cost of goods sold and services costs, offset by a 2.7% reduction in
selling and administrative expenses. 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 support. Operating costs in
Corporate/Operations were $274,800 and $241,100 in 2004 and 2003, respectively.

Financial Condition and
Liquidity

Cash Flows and Liquidity

|                                               |  |  |   | 2004       |   |  |  | 
|---------------------------------------------- |  |  | - | ---------- | - |  |  | 
|                                               |  |  |   |            |   |  |  | 
|Cash used in operating activities              |  |  | $ | (450,000   | ) |  |  | 
|Cash provided by investing activities          |  |  |   | 2,046,700  |   |  |  | 
|Cash used in financing activities              |  |  |   | (1,523,000 | ) |  |  | 
|Effect of exchange rates                       |  |  |   | 5,000      |   |  |  | 
|                                               |  |  |   |            |   |  |  | 
|Increase in cash                               |  |  |   | 78,700     |   |  |  | 
|Cash and cash equivalents at beginning of year |  |  |   | 360,000    |   |  |  | 
|                                               |  |  |   |            |   |  |  | 
|Cash and cash equivalents at end of period     |  |  | $ | 438,700    |   |  |  | 
|                                               |  |  |   |            |   |  |  | 

25

---

Operating Cash Flows

Cash used in operating activities was
$450,000 during the nine months ended June 30, 2004.  The most significant use of cash was from
the decrease of accounts payable, deferred revenues and accrued expenses of $224,300 during the nine months ended June 30, 2004.
This decrease was due to pension contributions of $83,400 and decreases in trade accounts payable as a result of higher inventory
purchases and timing of terms with some of our vendors at June 30, 2004, compared to September 30, 2003.  In addition, accrued
salaries decreased due to the payment for 2003 performance compensation during 2004, interest payable decreased due to
the timing of interest payments and overall reductions in debt balances compared to September 30, 2003 and deferred
revenues decreased compared to September 30, 2003.  During the nine months ended June 30, 2004, the Company used $43,300 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 2003 sales initiative.  In addition, the
Company used $219,600 of cash as a result of an increase
in accounts receivable compared to September 30, 2003.  Approximately $215,000 of this increase is a result of the U.S. Transaction,
the most significant impact being that unpaid
sales of equipment to GE are now reflected as trade accounts receivable (affecting "Cash Provided by Operating Activities")
whereas unfunded sales of equipment to customers under leasing arrangements were previously reflected as finance receivables (affecting
"Cash Used in Investing Activities").  Also, the Company paid $220,000 in federal income
taxes during 2004.  Net income was $66,000 during the nine months ended June 30, 2004, and non-cash operating expenses were
$202,600, including depreciation, amortization, provision for losses on accounts receivable and lease receivables, pension
expense, loss from early extinguishment of debt, and loss on divestiture of businesses.

Investing Cash Flows

During 2004, the Company received
$2,046,700 from investing activities, which included proceeds from the divestiture of
the Company's U.S and Canadian leasing businesses totaling $1,849,100.  Additionally, the Company received proceeds from the sale of
finance receivables of $162,500 for the nine months ended June 30, 2004 representing leases that were accrued by IOSC at March 31,
2004, and sold to GE during the three months ended June 30, 2004.  The Company had capital expenditures for property and equipment of
$25,200 and capital expenditures for equipment on operating leases of $39,500.  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 nine months ended June 30, 2004 were $16,900.  Cash provided by investing activities includes net cash received by
finance subsidiaries of $90,800 due to collections exceeding additions of lease receivables.

Financing Cash Flows

During the nine months ended June 30, 2004,
the Company used $1,523,000 of cash for financing activities.  During fiscal 2004, the
Company received proceeds of $600 and made repayments of $390,200 related to corporate debt and other borrowings.  During the nine
months ended June 30, 2004, the Company's repaid $1,436,300 of debt supporting finance contracts, of which $796,100 and
$63,700 was related to the repayment of the Company's U.S. and Canadian Conduits, respectively, upon the
completion of the Transactions.  Repayments of debt supporting finance contracts includes
the early extinguishment of $2,000 par value of the Company's 9.75% notes due 2004 (the "2004 Notes") for $2,100 and
$4,000 par value of the Company's 6.75% notes due 2004 for $4,100.  Long-term corporate debt repayments include
early extinguishment of $10,000 of the Company's 5% convertible notes due 2007 (the "Convertible Notes") for $10,500 and $5,500 of the Company's 2004 Notes.  During the third quarter of fiscal
2004 the Company completed its tender offer for $250,100 of its 7.25% notes due 2008 (the "2008 Notes"),
included in long-term corporate debt repayments,
resulting in a loss on early extinguishment of debt of $32,100, in addition to the $5,000 purchased during the second quarter
for a $400 loss, included in repayments of debt supporting finance contracts.  As a result of these repurchases and the termination
of the U.S. Conduits and the Company's $300,000 unsecured credit facility (the "Credit Facility"), the Company recognized a loss of $35,900,
which is included in loss from early extinguishment of debt, in the consolidated statements of income for the nine months ended June
30, 2004.  During the nine months ended June 30, 2004, the Company received $337,100 from the issuance of debt supporting finance
contracts.

The Company paid $17,700 of
dividends to shareholders, or $0.12 per common share during the nine months ended June 30, 2004.

In March 2004, the Company's Board of
Directors authorized the repurchase of up to $250,000 of the Company's outstanding shares
of common stock, superceding the fiscal 2000 share repurchase authorization. During the third quarter of 2004, the Company repurchased 2.3
million shares of IKON's outstanding common stock for $25,400, leaving $224,600 remaining for share repurchases under the 2004 Board
authorization.

Cash flows from financing activities
include a $1,100 decrease 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 also includes $34,700
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.  This increase was offset by the decrease in restricted cash of $32,700
related to the 2004 Notes which were defeased in 2003.  During the third quarter of 2004, the 2004 Notes were repaid
upon maturity.

26

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Debt Structure

|                                                                     | June 30,
2004 | September 30,
2003 |   |         | 
|-------------------------------------------------------------------- | ------------- | ------------------ | - | ------- | 
|                                                                     |               |                    |   |         | 
|Outstanding corporate debt                                           |               |                    |   |         | 
|Bond issues                                                          |               |                    | $ | 412,000 | 
|Convertible subordinated notes *                                     |               |                    |   | 290,000 | 
|Notes payable *                                                      |               |                    |   | 94,800  | 
|Miscellaneous notes, bonds, mortgages, and capital lease obligations |               |                    |   | 8,400   | 
|                                                                     |               |                    |   |         | 
|                                                                     |               |                    |   | 805,200 | 
|Less:   Current maturities                                           |               |                    |   | 63,900  | 
|                                                                     |               |                    |   |         | 
|                                                                     |               |                    | $ | 741,300 | 
|                                                                     |               |                    |   |         | 
|                                                                     |               |                    |   |         | 
|Outstanding debt supporting finance contracts                        |               |                    |   |         | 
|Convertible subordinated notes  *                                    |               |                    |   |         | 
|Notes payable  *                                                     |               |                    |   |         | 
|Lease-backed notes                                                   |               |                    | $ | 814,200 | 
|Asset securitization conduit financing                               |               |                    |   | 135,100 | 
|Notes payable to banks                                               |               |                    |   | 17,500  | 
|                                                                     |               |                    |   |         | 
|                                                                     |               |                    |   | 966,800 | 
|Less:   Current maturities                                           |               |                    |   | 502,900 | 
|                                                                     |               |                    |   |         | 
|                                                                     |               |                    | $ | 463,900 | 
|                                                                     |               |                    |   |         | 

* On March 31, 2004, the convertible
subordinated notes and notes payable presented at September 30, 2003 were reclassified from
debt supporting finance contracts to corporate debt as a result of the U.S. Transaction.

Our debt to capital ratio was 50.8% at
June 30, 2004, compared to 67.8% at September 30, 2003. This decrease is
primarily a result of the U.S. and Canadian Transactions and the repayment of the U.S. and Canadian Conduits from
the proceeds received from these Transactions. Also contributing to the decrease was the early extinguishment of
$276,600 of notes payable during the nine months ended June 30, 2004. In addition to the early extinguishment of
$7,500 of the 2004 Notes, the Company repaid the outstanding $25,200 balance of the 2004 Notes in June 2004 upon
maturity. During the nine months ended June 30, 2004, the Company repaid $1,463,500 of debt supporting finance
contracts and received $337,100 from the issuance of related debt instruments.

During the nine months ended June 30, 2004,
the Company early extinguished the following notes payable and
convertible debt:

|                                                    |  |  | Principal AmountRepurchased |  | SettlementAmount |  | 
|--------------------------------------------------- |  |  | --------------------------- |  | ---------------- |  | 
|                                                    |  |  |                             |  |                  |  | 
|Bond issue at stated rate of 9.75%, notes due 2004  |  |  | $       7,500               |  | $       7,600    |  | 
|Bond issue at stated rate of 7.25%, notes due 2008  |  |  | 255,100                     |  | 282,600          |  | 
|Bond issue at stated rate of 6.75%, notes due 2004  |  |  | 4,000                       |  | 4,100            |  | 
|Convertible notes at stated rate of 5.00%, due 2007 |  |  | 10,000                      |  | 10,300           |  | 
|                                                    |  |  |                             |  |                  |  | 
|                                                    |  |  | $   276,600                 |  | $   304,600      |  | 
|                                                    |  |  |                             |  |                  |  | 

As a result of these repurchases
and the termination of the U.S. Conduits and Credit Facility discussed below,
the Company recognized a loss, including the write-off of unamortized costs, of $35,900, which is included in
loss from early extinguishment of debt, in the consolidated statements of income for the nine months ended June
30, 2004.

Immediately following the close of the U.S.
and Canadian Transactions, GE repaid on the Company's behalf,
$796,100 and $63,700 of outstanding balances under the Company's U.S. and Canadian Conduits, respectively, from
the proceeds of the Transactions. The proceeds from the Transactions and the repayment of the U.S. and Canadian Conduits have
been presented as if the Company made the repayments of the U.S. and Canadian Conduits directly to the lenders in the Company's
consolidated statement of cash flows for the nine months ended June 30, 2004.  The
U.S. and Canadian Conduits were terminated on March 31, 2004 and June 30,
2004, respectively. During the nine months ended June 30, 2004, the Company pledged or transferred $362,000 and $14,300 in
financing lease receivables for $306,100 and $12,100 in cash in connection
with the U.S. and Canadian Conduits, respectively.

As of June 30, 2004, IKON Capital, PLC,
IKON's leasing subsidiary in the United Kingdom, had approximately $17,600 available under their revolving asset securitization conduit
financing agreement (the "U.K. Conduit"). During the nine months ended June 30, 2004, the Company pledged or
transferred $166,000 in financing lease receivables for $134,400 in cash in connection
with the U.K. Conduit.

27

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The Company terminated the Credit Facility on
March 31, 2004.  On July 29, 2004, the Company obtained a new $200,000 secured credit facility (the "New Credit Facility") with a
group of lenders.  Under the New Credit Facility, revolving loans are available, with certain sub-limits, to the Company and
its subsidiaries. The New Credit Facility also provides support for letters of credit for the Company and its subsidiaries. The
amount available under the New Credit Facility is determined by the level of certain assets and open letters of credit
of the Company and its subsidiaries.

The New Credit Facility is secured by our
accounts receivable and
inventory, the stock of our first-tier domestic subsidiaries, 65% of the stock in our first-tier foreign
subsidiaries, and all of our intangible assets. All security interests related to the New Credit
Facility will be shared with the holders of the Company's 2008 Notes.

The New Credit Facility
contains affirmative and negative covenants, including limitations on certain fundamental changes, investments
and acquisitions, mergers, certain transactions with affiliates, creation of liens, asset transfers, payment of
dividends, intercompany loans and certain restricted payments. The New Credit Facility does not, however, limit our ability to
continue to securitize lease receivables. The New Credit Facility matures on March 1, 2008,
but is subject to certain early maturity events in November 2006, January 2007 and April 2007 if the
Convertible Notes have not been converted to equity or refinanced, and minimum liquidity is
not met as of such dates. Minimum liquidity is defined as having sufficient cash, including unused capacity
under the New Credit Facility, to repay the balance of the Convertible Notes plus an additional $100,000.
The New Credit Facility contains certain financial covenants relating to: (i) corporate leverage ratios;
(ii) a consolidated interest coverage ratio; (iii) a consolidated asset coverage ratio; (iv) consolidated net worth ratios; (v)
limitations on the Company's capital
expenditures; and (vi) limitations on additional indebtedness and liens. Under the terms of the New Credit Facility, share repurchases
are permitted up to $150,000 until September 2005. Beginning October 1, 2005, the Company is permitted to
repurchase shares and pay dividends up to 50% of our annual net income.  The New Credit Facility contains
default provisions customary for facilities of this type. Failure to comply with any material provision
of the New Credit Facility could have a material adverse effect on our liquidity, financial position and results
of operations.

The Company has certain commitments
available to it in the form of standby letters of credit. As of June 30,
2004, the Company had $34,600 of standby letters of credit. These letters of credit were supported by
the Credit Facility prior to its termination. The Company deposited $34,700 into an escrow account as collateral
for outstanding letters of credit until the New Credit Facility, described above, was established. The cash
collateral is recorded in restricted cash in the Company's balance sheet as of June 30, 2004.

As of June 30, 2004, the credit ratings
on the Company's senior unsecured debt were designated Ba2 with stable
outlook by Moody's Investor Services and BB with stable outlook by Standard and Poor's.

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 nine months ended June 30, 2004, unrealized gains totaling $12,100 after taxes, were
recorded in accumulated other comprehensive loss. As of June 30, 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.

28

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Outlook

The following summarizes IKONs
significant contractual obligations and commitments as of June 30, 2004:

|                                            | Payments due by
|------------------------------------------- | ---------------
|                                            |                
|                                            |                
|Contractual Obligations                     | Total          
|                                           
|Long-term corporate debt                    | $     803,900  
|Long-term debt supporting finance contracts | 966,800        
|Notes payable                               | 1,400          
|Operating leases                            | 381,200        
|Other long-term liabilities                 | 226,000        
|Purchase commitments                        | 800            
|                                           
|Total                                       | $  2,380,100   
|                                           

Other long-term liabilities excludes $8,500
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" ($110,800) 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 June 30,
2004, debt supporting finance contracts was $966,800 and finance receivables, net of allowances, were $1,326,600.

Purchase commitments represent future cash payments related to an agreement with an outside consultant for services to be rendered
prior to December 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 (the "2004 plan"), 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. During the third quarter, the Company repurchased approximately 2.3 million shares of outstanding stock under
the 2004 plan for $25 million.

For fiscal 2004, the Company expects to use
$300,000 to
$340,000 in cash for operations, which includes a $220,000 tax payment
related to the U.S. Transaction and an additional $75,000 pension contribution made in the third quarter of
2004. The remaining
deferred tax obligations related to the retained U.S. leasing portfolio will be paid over the next several years as the underlying
leases run-off. The Company will make an additional tax payment of approximately $80,000 in September 2004.
The Company expects
net lease receivable collections, reported under "Cash from Investing Activities," to more than offset the future tax liabilities, as
well as the obligations for the underlying debt supporting the lease receivables. For fiscal 2004, the Company expects net lease
collections to be in the range of $370,000 to $390,000. Capital expenditures, net of proceeds
from the sale of fixed assets, are
expected to be approximately $70,000 for fiscal 2004.

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, and payment of dividends.

29

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Pending Accounting Changes

In December 2003, the Financial
Accounting Standards Board (the FASB) revised FASB Statement No. 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.

30

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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, under the supervision and with the participation of its management including its Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the
period covered by this quarterly report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective in
reaching a reasonable level of assurance that information required to be included in its reports filed or
submitted under the Exchange Act is reported, processed, summarized and reported within the time period specified
in the Securities and Exchange Commission's rules and forms.

During the quarter ended June 30, 2004, GE acted as servicer for the portion of the U.S. lease asset portfolio retained by IKON under
the U.S. Transaction and provided periodic reporting with respect to both the serviced and originated lease portfolios.  Both the
Program Agreement and the Canadian Program Agreement contain audit right provisions that require GE's external auditors to perform
certain audit procedures and issue annual and quarterly reports to IKON relating to GE's servicing of such portfolios ("GE
Controls"), including a Type II SAS 70 Report relating to the GE Controls.  The audit rights and Type II SAS 70 Report are designed to
inform IKON of any identified weakness relating to the GE Controls and to provide IKON with an opportunity to review and understand
such findings in advance of its fiscal year reporting requirements.  IKON believes that such audit rights and the Type II SAS 70
Report are reasonably designed to confirm that the objectives of the GE Controls are met.

With the exception
of this change in controls relating to the serviced and
originated U.S. lease portfolios, 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.

31

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PART II.    OTHER
INFORMATION

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

The
following table provides information relating to the Companys purchases of its
common stock during the quarter ended June 30, 2004:

|                               |                                      |                              |                                                                            |                                                                               
|------------------------------ | ------------------------------------ | ---------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------------------
|Period                         | Total Number of Shares Purchases (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
|                               |                                      |                              |                                                                            |                                                                               
|                               |                                      |                              |                                                                            |                                                                               
|April 1, 2004 - April 30, 2004 |                                      |                              |                                                                            | $  250,000,000                                                                
|                               |                                      |                              |                                                                            |                                                                               
|May 1, 2004 - May 31, 2004     | 534,600                              | 10.72                        | 534,600                                                                    | 244,269,801                                                                   
|                               |                                      |                              |                                                                            |                                                                               
|June 1, 2004 - June 30, 2004   | 1,737,200                            | 11.33                        | 1,737,200                                                                  | 224,591,268                                                                   
|                               |                                     
|Total                          | 2,271,800                            | 11.19                        | 2,271,800                                                                  | $  224,591,268                                                                

(1)    
          We repurchased a total of 2,271,800 shares of our common stock pursuant to the
          repurchase program (the Program) that we publicly announced in our
          quarterly report on Form 10-Q filed with the Securities and Exchange Commission
          on May 14, 2004.

(2)    
          Our Board of Directors authorized us to repurchase up to $250,000,000 of our
          outstanding common stock under the Program. The Program will remain in effect
          until the $250,000,000 repurchase limit is reached; however, the Program may be
          discontinued by our Board of Directors at any time. Under the terms of the New Credit Facility, share repurchases
are permitted up to $150,000,000 until September 2005. Beginning October 1, 2005, the Company is permitted to
repurchase shares and pay dividends up to 50% of our annual net income.

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

| | a) | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------
|
| |    | 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 April 2, 2004, the Company filed a current report on Form 8-K under Items 5 and 7 of the Form, disclosing information contained in
its press release dated March 31, 2004 regarding the completion of the transaction contemplated by the Asset Purchase Agreement dated
December 10, 2003 among the Company, IOS Capital, LLC and General Electric Capital Corporation; the execution of a definitive
agreement to sell the Company's Canadian leasing operations; and the termination of the Company's $300 million credit facility.
|
| |    | On April 6, 2004, the Company filed a current report on Form 8-K under Items 5 and 7 of the Form, disclosing information contained in
the Program Agreement between the Company and General Electric Capital Corporation.                                                                                                                                                                                                                                                                                                                
|
| |    | On April 15, 2004, the Company filed a current report on Form 8-K under Items 2 and 7 of the Form, disclosing pro-forma financial
information relating to the disposition of assets resulting from the completion of the transaction contemplated by the Asset Purchase
Agreement among the Company, IOS Capital, LLC and General Electric Capital Corporation, and the expected sale of the Company's
Canadian leasing operations.                                                                                                      
|
| |    | On April 29, 2004, the Company filed a current report on Form 8-K under Items 7 and 12 of the Form, disclosing information contained
in its press release dated April 29, 2004 regarding its financial results for the second quarter of fiscal year 2004.                                                                                                                                                                                                                                                                               
|
| |    | On May 6, 2004, the Company filed a current report on Form 8-K under Items 5 and 7 of the Form, disclosing information contained in
its press release dated May 5 regarding the formation of a new business group, which included the consolidation of three existing
business groups.                                                                                                                                                                                                                                                   

32

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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:    August 16, 2004 | /s/ William S. Urkiel   
William S. Urkiel
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
|------------------------ | --------------------------------------------------------------------------------------------------------------------------

33

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