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UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONWashington, 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 three months ended December 31, 2004 or
|- | ---------------------------------------------------------------------------------------------------------------------------------------

|o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from
             to
            .
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

# Commission file number
1-5964 ____________________________

IKON OFFICE SOLUTIONS,
INC.(Exact name of
registrant as specified in its charter)

|OHIO         
 (State or other jurisdiction of
 incorporation or organization)              |  | 23-0334400             
(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------
|70 Valley Stream Parkway, Malvern, Pennsylvania
   (Address of principal executive offices) |  | 19355    
 (Zip Code)                                       

Registrant's telephone number, including area code:  (610) 296-8000

____________________________

Securities registered pursuant to Section 12(b) of the Act:

|Title of each class
___________________________Common Stock, no par value
(with Preferred Share Purchase Rights) |  | Name of each exchange
on which registered
__________________________New York Stock Exchange
|---------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act:  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
 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes x   No
 o

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of February 4, 2005:



|Common Stock, no par value | 140,633,100
 shares
|-------------------------- | -------------------

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1

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IKON OFFICE SOLUTIONS, INC.

                                                       INDEX





                                                      PART I - FINANCAL INFORMATION

|ITEM 1. | Financial Statements
Consolidated Balance Sheets - December 31, 2004 (unaudited) and September 30, 2004
Consolidated Statements of Income - Three months ended December 31, 2004 and 2003 (unaudited)
Consolidated Statements of Cash Flows - Three months ended December 31, 2004 and 2003 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

|ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

|ITEM 4. | Controls and Procedures
|------- | -----------------------

PART II - OTHER INFORMATION

|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

|ITEM 6. | Exhibits
|------- | --------

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  constitutes  "forward-looking"  statements  within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"). These  forward-looking  statements include,
but are not limited to,  statements  regarding  the  following:  the expected  impact and use of proceeds  from our
transactions  with 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;  earnings,  revenue,  cash flow,  margin,
and cost-savings  projections;  core business growth opportunities and increasing market share;  infrastructure and
operational  leverage and  efficiency  initiatives;  our ability to repay debt;  the run-off of our  retained  U.S.
lease  portfolio;  the expensing of our stock  options;  the effect of  competitive  pressures on equipment  sales;
conducting  operations in a competitive  environment and a changing  industry;  developing and expanding  strategic
alliances and partnerships;  the implementation,  timing, and cost of our ongoing conversion to a common enterprise
resource planning ("ERP") system,  which is primarily based on the Oracle E-Business Suite (the "ERP  Conversion");
anticipated  growth rates in the digital  monochrome  and color  equipment  and  outsourcing  areas;  the effect of
foreign  currency  exchange risks;  the  reorganization  of our business  segments and the anticipated  benefits of
operational  synergies related thereto;  our ability to finance our current operations and growth initiatives;  and
existing or future vendor  relationships.  Although we believe the expectations  contained in such  forward-looking
statements are reasonable,  we 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 or implies otherwise.

The words  "anticipate,"  "believe,"  "estimate,"  "expect,"  "intend,"  "will," "should," "may," "plan," and
similar expressions,  as they relate to us or our management, are intended to identify forward-looking  statements.
Such  statements  reflect our 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, intended, or planned. We assume no obligations related to, nor do we
intend to update, these forward-looking statements.

In accordance  with the  provisions of the  Litigation  Reform Act, we are 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  these
forward-looking  statements.  These  factors  include,  but are not  limited to, the  following  (some of which are
explained in greater detail in this Form 10-Q):  our ability to successfully  integrate our equipment  distribution
business with a third-party  finance  vendor  program,  which  involves the  integration  and transition of complex
systems  and  processes;   operating  in  a  competitive  environment  and  a  changing  industry,  which  includes
technological  services and products that are  relatively  new to the industry;  delays,  difficulties,  management
transitions,  and  employment  issues  associated  with  consolidations  and/or  changes  in  business  operations,
including  our ERP  Conversion;  existing  and future  vendor  relationships;  risks  relating to foreign  currency
exchange;  economic,  legal, and political issues associated with international  operations;  our ability to access
capital and meet our debt service  requirements  (including  sensitivity to  fluctuations in interest  rates);  and
general economic conditions.

Competition.  We  operate  in  a  highly  competitive  environment.   Competition  is  based  largely  upon
technology,  performance, pricing, quality, reliability,  distribution, and customer support. A number of companies
worldwide  with  significant  financial  resources or customer  relationships  compete  with us 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 us.  Some of our  competitors,  such as Canon,  Ricoh,  Konica  Minolta,  and HP, also supply us with 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 we are able to charge in the future for our  products and services to
be less  than we have  historically  charged.  Our  future  success  is based in large  part  upon our  ability  to
successfully  compete  in the  markets  we  currently  serve and to expand  into  additional  product  and  service
offerings.  Our  failure  to do so could lead to a loss of market  share for us,  resulting  in a material  adverse
effect on our results of operations.

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

Third-party  Finance  Vendor  Relationships.    If  we are unable to continue to  successfully  integrate our
equipment  distribution  business with third-party  finance vendors under our program agreement (the "U.S.  Program
Agreement") with GE and our rider to the U.S. Program  Agreement with GE in Canada (the "Canadian  Rider;" together
with the U.S.  Program  Agreement,  the "Program  Agreements"),  which involves the  integration  and transition of
complex  systems and  processes,  our  liquidity,  financial  position,  and results of operations may be adversely
affected.  Prior to our entry into the Program  Agreements,  significant  portions of our profits were derived from
our leasing  operations  in the U.S.  and Canada.  Currently,  we are  entitled to receive  certain  fees under the
Program  Agreements  for future  leases  funded by GE. We intend to use these fees as well as the proceeds from the
sale of our North American leasing operations to implement certain  strategies,  including,  among other things, to
enhance our core business of document  management  solutions,  reduce our debt, and repurchase shares of our common
stock.  Our  failure to  successfully  implement  these  strategies  could have a  material  adverse  effect on our
liquidity, financial position, and results of operations.

3

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Our  ability to generate
ongoing  revenue  from the  Program  Agreements  is  dependent  upon our ability to identify  and  secure  opportunities  for
lease-financing  transactions  with  our  customers  under  the  Program Agreements.  Our failure to secure such  opportunities
for funding by GE could result in a material adverse effect on our liquidity, financial position, and results of operations.

Vendor   Relationships.    Our   access  to  equipment,  parts,  supplies,  and  services  depends  upon  our
relationships  with,  and our ability to purchase these items on  competitive  terms from,  our principal  vendors,
Canon, Ricoh,  Konica Minolta,  EFI, and HP. We do not 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 us to  distribute  their
equipment  and are free to change  the prices and other  terms at which  they sell to us. In  addition,  we compete
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 our ability to sell and
lease  equipment  as well as our  ability to provide  effective  service  and  technical  support.  If one of these
vendors  terminated  or  significantly  curtailed  its  relationship  with us,  or if one of these  vendors  ceased
operations,  we would be forced to expand our relationship with other vendors,  seek new  relationships  with other
vendors,  or risk a loss in market share due to diminished product offerings and availability.  In addition,  as we
continue to seek expansion of our products and services  portfolio,  we are developing  relationships  with certain
software vendors.  As our  relationships  with software vendors become more integral to our development and growth,
the  termination or significant  curtailment of these  relationships  may force us to seek new  relationships  with
other software vendors, or pose a risk of loss in market share due to diminished software offerings.

New  Product  Offerings.    Our  business  is driven  primarily  by  customers'  needs and demands and by the
products  developed and manufactured by third parties.  Because we distribute  products  developed and manufactured
by third parties,  our business would be adversely  affected if our suppliers fail to anticipate  which products or
technologies  will gain market  acceptance or if we cannot sell these products at competitive  prices. We cannot be
certain that our suppliers will permit us 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  their own products  rather than rely on third  parties to supply them,  those  competitors  may have a
competitive  advantage  over us. To  successfully  compete,  we must  maintain  an  efficient  cost  structure,  an
effective  sales and marketing  team,  and offer  additional  services that  distinguish  us from our  competitors.
Failure to execute  these  strategies  successfully  could  result in reduced  market  share for us or could have a
material adverse effect on our liquidity, financial position, and results of operations.

Liquidity.    We  maintain a $200 million  secured credit  facility (the "Credit  Facility")  with a group of
lenders.  The Credit Facility provides the availability of revolving loans, with certain  sub-limits,  and provides
support  for  letters  of credit.  The amount of credit  available  under the  Credit  Facility  is reduced by open
letters of credit.  The amount  available under the Credit Facility for borrowings or additional  letters of credit
was $165.6 million at December 31, 2004. The Credit  Facility is secured by our accounts  receivable and inventory,
the stock of our first-tier domestic  subsidiaries,  65% of the stock of our first-tier foreign  subsidiaries,  and
all of our  intangible  assets.  All  security  interests  pledged  under the Credit  Facility  are shared with the
holders of our 7.25% notes payable due 2008.

The  Credit  Facility  contains  affirmative  and  negative  covenants,   including  limitations  on  certain
fundamental core business changes,  investments and acquisitions,  mergers,  certain  transactions with affiliates,
creations of liens, asset transfers,  payments of dividends,  intercompany loans, and certain restricted  payments.
The Credit Facility does not, however,  limit our ability to continue to securitize lease  receivables.  The Credit
Facility  matures on March 1, 2008,  but is subject to certain  early  maturity  events in November  2006,  January
2007,  and April 2007 if our 5% convertible  subordinated  notes due May 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 any unused capacity under the Credit  Facility,  to repay the balance of the
Convertible  Notes plus an additional  $100 million.  The Credit  Facility  contains  certain  financial  covenants
relating  to:  (i) our  corporate  leverage  ratios;  (ii) our  consolidated  interest  coverage  ratio;  (iii) our
consolidated  asset  coverage  ratio;  (iv) our  consolidated  net worth  ratios;  (v)  limitations  on our capital
expenditures;  and (vi) limitations on additional  indebtedness and liens.  Under the terms of the Credit Facility,
share  repurchases  are permitted in an aggregate  amount not to exceed $250 million  during the period of July 28,
2004 through March 1, 2008. From July 28, 2004 through  September 30, 2005,  share  repurchases are permitted in an
aggregate  amount not to exceed $150 million.  Beginning on October 1, 2005,  we are  permitted to  repurchase  (a)
shares and pay dividends in an aggregate  annual  amount not to exceed 50% of our annual net income,  plus (b) that
portion of the $150 million  allowance  that we did not utilize  prior to October 1, 2005. As of December 31, 2004,
$72.7 million of the $150 million  allowance was  utilized.  Additionally,  the Credit  Facility  contains  default
provisions  customary  for  facilities  of this type.  Failure to comply with any material  provision of the Credit
Facility could have a material adverse effect on our liquidity, financial position, and results of operations.

Operational  Efficiencies.  Our  ability to improve our profit margins is largely  dependent on the success
of our initiatives to streamline our infrastructure  and drive operational  efficiencies  across our company.  Such
initiatives,  which include  consolidation  and process  redesign and the ERP Conversion,  and process  enhancement
through Six Sigma, are focused on strategic  priorities such as process  redesign and  improvement,  organizational
development,  and asset management.  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 eliminated and any potential  defects are prevented.
Our failure to successfully  implement these initiatives,  or the failure of such initiatives to result in improved
profit  margins,  could have a  material  adverse  effect on our  liquidity,  financial  position,  and  results of
operations.

4

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International  Operations.
We  have  international  operations  in Canada,  Mexico,  and  Western  Europe.
Approximately  17% of our revenues are derived from our  international  operations,  and approximately 73% of those
revenues are derived from Canada and the United  Kingdom.  Our future  revenues,  costs of operations,  and profits
could be affected by a number of factors  related to our  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. For example,
unanticipated  currency  fluctuations in the Canadian Dollar,  British Pound, or Euro versus the U.S. Dollar  could
lead to lower reported consolidated results of operations due to the translation of these currencies.

5

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PART I - FINANCIAL INFORMATION

Item 1.        Financial Statements

IKON OFFICE SOLUTIONS, INC.CONSOLIDATED BALANCE SHEETS

|                                                                                   | December
      31, 2004 (unaudited) | September
      30,2004
|---------------------------------------------------------------------------------- | ----------------------------------- | -----------------------
|                                                                                   |                                    
|                                                                                   | (in thousands)                     
|Assets                                                                             |                                     |                        
|Cash and cash equivalents                                                          |                                     |                        
|Restricted cash                                                                    |                                     |                        
|Accounts receivable, less allowances of:  December 31, 2004 - $22,177;             |                                     |                        
|September 30, 2004 - $20,112                                                       |                                     |                        
|Finance receivables, less allowances of: December 31, 2004 - $2,870;               |                                     |                        
|September V30, 2004 - $2,514                                                       |                                     |                        
|Inventories                                                                        |                                     |                        
|Prepaid expenses and other current assets                                          |                                     |                        
|Deferred taxes                                                                     |                                     |                        
|                                                                                   |                                    
|Total current assets                                                               |                                     |                        
|                                                                                   |                                    
|Long-term finance receivables, less allowances of: December 31, 2004 - $3,963;     |                                     |                        
|September 30, 2004 - $3,932                                                        |                                     |                        
|Equipment on operating leases, net of accumulated depreciation of:
December 31,    |                                     |                        
|2004 - $80,356; September 30, 2004 - $76,456                                       |                                     |                        
|Property and equipment, net of accumulated depreciation of:
December 31, 2004 -    |                                     |                        
|$328,886; September 30, 2004 - $321,789                                            |                                     |                        
|Goodwill                                                                           |                                     |                        
|Unsold residual value (note 2)                                                     |                                     |                        
|Other assets                                                                       |                                     |                        
|                                                                                   |                                    
|Total Assets                                                                       |                                     |                        
|                                                                                   |                                    
|Liabilities and Shareholders' Equity                                               |                                     |                        
|Current portion of corporate debt                                                  |                                     |                        
|Current portion of debt supporting finance contracts and unsold residual value     |                                     |                        
|Notes payable                                                                      |                                     |                        
|Trade accounts payable                                                             |                                     |                        
|Accrued salaries, wages, and commissions                                           |                                     |                        
|Deferred revenues                                                                  |                                     |                        
|Taxes payable                                                                      |                                     |                        
|Other accrued expenses                                                             |                                     |                        
|                                                                                   |                                    
|Total current liabilities                                                          |                                     |                        
|                                                                                   |                                    
|Long-term corporate debt                                                           |                                     |                        
|Long-term debt supporting finance contracts and unsold residual value              |                                     |                        
|Deferred taxes                                                                     |                                     |                        
|Other long-term liabilities                                                        |                                     |                        
|                                                                                  
|Commitments and contingencies (note 9)                                             |                                     |                        
|                                                                                   |                                    
|Shareholders' Equity                                                               |                                     |                        
|Common stock, no par value: authorized 300,000 shares issued: December 31, 2004 -  |                                     |                        
|150,196 shares; September 30, 2004 -149,955 shares; shares outstanding: December   |                                     |                        
|31, 2004 - 140,381 shares; September 30, 2004 - 142,133 shares                     |                                     |                        
|Series 12 preferred stock, no par value: authorized 480 shares;                    |                                     |                        
|none issued or outstanding                                                         |                                     |                        
|Deferred compensation                                                              |                                     |                        
|Unearned compensation                                                              |                                     |                        
|Retained earnings                                                                  |                                     |                        
|Accumulated other comprehensive income                                             |                                     |                        
|Cost of common shares in treasury: December 31, 2004 - 8,909 shares; September 30, |                                     |                        
|2004 - 7,196 shares                                                                |                                     |                        
|                                                                                   |                                    
|Total Shareholders' Equity                                                         |                                     |                        
|                                                                                   |                                    
|Total Liabilities and Shareholders' Equity                                         |                                     |                        
|                                                                                   |                                    

See notes to condensed consolidated financial statements.

6

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IKON OFFICE SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF INCOME(unaudited)

|                                       | Three Months Ended December 31       
|-------------------------------------- | -------------------------------------
|                                       |                                      
|                                       | 2004                                 
|                                       | (in thousands, except per share data)
|Revenues                               |                                      
|Net sales                              |                                      
|Services                               |                                      
|Finance income                         |                                      
|                                       |                                      
|                                       |                                      
|                                       |                                      
|Costs and Expenses                     |                                      
|Cost of goods sold                     |                                      
|Services costs                         |                                      
|Finance interest expense               |                                      
|Selling and administrative             |                                      
|                                       |                                      
|                                       |                                      
|                                       |                                      
|Operating income                       |                                      
|Loss from early extinguishment of debt |                                      
|Interest expense, net                  |                                      
|                                       |                                      
|Income before taxes on income          |                                      
|Taxes on income                        |                                      
|                                       |                                      
|Net income                             |                                      
|                                       |                                      
|Basic Earnings Per Common Share        |                                      
|Net income                             |                                      
|                                       |                                      
|Diluted Earnings Per Common Share      |                                      
|Net income                             |                                      
|                                       |                                      
|Cash dividends per common share        |                                      
|                                       |                                      

See notes to condensed consolidated financial statements.

7

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IKON OFFICE SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)

|                                                                             | Three Months Ended December 31
|---------------------------------------------------------------------------- | ------------------------------
|                                                                             | 2004                          
|                                                                             | (in thousands)                
|Cash Flows from Operating Activities                                         |                               
|Net income                                                                   |                               
|Additions (deductions) to reconcile net income to net cash used in operating |                               
|activities:                                                                  |                               
|Depreciation                                                                 |                               
|Amortization                                                                 |                               
|Provisions for losses on accounts receivable                                 |                               
|Deferred income taxes                                                        |                               
|Provision for lease default reserves                                         |                               
|Pension expense                                                              |                               
|Non-cash interest expense on debt supporting unsold residual value           |                               
|Loss from early extinguishment of debt                                       |                               
|Changes in operating assets and liabilities                                  |                               
|Increase in accounts receivable                                              |                               
|Increase in inventories                                                      |                               
|Decrease (increase) in prepaid expenses and other current assets             |                               
|Decrease in accounts payable, deferred revenues and accrued expenses         |                               
|Other                                                                        |                               
|                                                                             |                               
|Net cash used in operating activities                                        |                               
|                                                                             |                               
|Cash Flows from Investing Activities                                         |                               
|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                          |                               
|Proceeds from the sale of finance receivables                                |                               
|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 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.

8

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IKON OFFICE SOLUTIONS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

IKON
Office Solutions, Inc. (IKON or the Company) delivers integrated
document management solutions and systems, enabling customers to improve document workflow
and increase efficiency. We are the worlds largest independent channel for copier,
printer and multifunction product (MFP) technologies, integrating
best-in-class systems from leading manufacturers, such as Canon, Ricoh, Konica Minolta,
EFI, and HP, and document management software from companies such as Captaris, EMC
(Documentum), Kofax, and others, to deliver tailored, high-value solutions implemented and
supported by our services organization - Enterprise Services. We offer financing in North
America through a program agreement (the U.S. Program Agreement) with IKON
Financial Services, a wholly owned subsidiary of General Electric Capital Corporation
(GE), and a rider to the U.S. Program Agreement (the Canadian
Rider) with GE in Canada. We entered into the U.S. Program Agreement and Canadian
Rider as part of the sale of certain assets and liabilities of our U.S. leasing business
to GE (the U.S. Transaction) and our Canadian lease portfolio (the
Canadian Transaction, and together with the U.S. Program Agreement, the
Canadian Rider and the U.S. Transaction, the Transactions), respectively. We
represent one of the industrys broadest portfolios of document management services,
including professional services, a unique blend of on-site and off-site Managed Services,
customized workflow solutions, and comprehensive support through our service force of
16,600 employees, including our team of 7,000 customer service technicians and support
resources worldwide. We have approximately 500 locations throughout North America and
Western Europe. References herein to we, us, or our
refer to IKON and its subsidiaries unless the context specifically requires otherwise. All
dollar and share amounts are in thousands, except per share data.

1.        SIGNIFICANT
ACCOUNTING POLICIES

Basis of Presentation

The
accompanying unaudited condensed consolidated financial statements 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 considered necessary for a
fair presentation have been included. For further information, refer to the consolidated
financial statements and footnotes thereto included in our annual report on Form 10-K for
the year ended September 30, 2004.

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
notes. Actual results could differ from those estimates and assumptions. Book Overdrafts
        We had $28,988 and $92,968 of book overdrafts (outstanding checks on zero balance bank
accounts which are funded from an investment account with another financial institution upon presentation for
payment) included within our accounts payable balance at December 31, 2004 and September 30, 2004, respectively.
The changes in these book overdrafts are included as a component of cash flows from operations in our
consolidated statements of cash flows.

Accounting for Stock-Based
Compensation

We
have stock-based employee compensation plans. As permitted by Statement of Financial
Accounting Standards (SFAS) 123, Accounting for Stock-Based
Compensation (SFAS 123), we continue to account for our stock options in
accordance with APB 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.

9

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If we had  elected  to  recognize  compensation  expense  based on the fair  value at the date of grant  for
awards in the first  quarter of fiscal years 2005 and 2004,  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 December 31
|----------------------------------------------------------------------- | ------------------------------
|                                                                        | 2004                          
|Net income as reported                                                  |                               
|Pro forma effect of expensing stock based compensation plans using fair |                               
|value method not included in net income as reported                     |                               
|                                                                        |                               
|Net income, as adjusted                                                 |                               
|                                                                        |                               
|Basic earnings per common share:                                        |                               
|Net income as reported                                                  |                               
|Pro forma effect of expensing stock based compensation plans using      |                               
|fair value method not included in net income as reported                |                               
|                                                                        |                               
|Basic earnings per common share, as adjusted                            |                               
|                                                                        |                               
|Diluted earnings per common share:                                      |                               
|Net income as reported                                                  |                               
|Pro forma effect of expensing stock based compensation plans using      |                               
|fair value method not included in net income as reported                |                               
|                                                                        |                               
|Diluted earnings per common share, as adjusted                          |                               
|                                                                        |                               

Pending Accounting Changes
 
        In October  2004,  the American  Jobs  Creation  Act (the  "AJCA") was signed into law.  The AJCA  includes a
deduction of 85% of certain foreign  earnings that are  repatriated,  as defined by the AJCA. We may elect to apply
this  provision to  qualifying  earnings  repatriations  in either the balance of fiscal 2005 or in fiscal 2006. We
have begun an  evaluation of the effects of the  repatriation  provision;  however,  we do not expect to be able to
complete this evaluation until after Congress or the Treasury Department  provides  additional  clarifying language
on key  elements  of the  provision.  We expect to  complete  our  evaluation  of the  effects of the  repatriation
provision  within a reasonable  period of time following the  publication of the  additional  clarifying  language.
The range of possible  amounts that we are  considering  for  repatriation  under this  provision is between $0 and
$130,000.  The related potential range of income tax is between $0 and $7,000.

        In December  2004,  the  Financial  Accounting  Standards  Board (the  "FASB")  issued its final  standard on
accounting for share-based  payments,  SFAS 123R (Revised 2004),  "Share-Based  Payments" ("SFAS 123R").  SFAS 123R
requires  companies to expense the fair value of employee  stock  options and other similar  awards,  effective for
interim and annual  periods  beginning on or after June 15, 2005.  When  measuring the fair value of theses awards,
companies can choose from two different  pricing models that  appropriately  reflect their  specific  circumstances
and the  economics  of their  transactions.  In addition,  we are in the process of selecting  one of three
transition  methods  available to us under SFAS 123R.  Accordingly,  we have not yet  determined  the impact on our
consolidated  financial  statements of adopting SFAS 123R.  Additional  information  regarding the pro forma impact
of expensing stock options is presented above.

        Also in December  2004,  the FASB issued its final  standard on  accounting  for  exchanges  of  non-monetary
assets,  SFAS 153,  "Exchanges of  Non-monetary  Assets an amendment of APB Opinion No. 29" ("SFAS 153").  SFAS 153
requires that exchanges of non-monetary  assets be measured based on the fair value of assets  exchanged for annual
periods  beginning  after June 15, 2005. We are currently  evaluating  the impact of SFAS 153, but we do not expect
a material impact from the adoption of SFAS 153 on our consolidated financial statements.

10

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2.        NOTES PAYABLE AND LONG-TERM DEBT
        Long-term corporate debt and notes payable consisted of:

|                                                                     | December 31, 2004 | September 30, 2004
|-------------------------------------------------------------------- | ----------------- | ------------------
|Bond issues                                                          |                   |                   
|Convertible subordinated notes                                       |                   |                   
|Notes payable                                                        |                   |                   
|Miscellaneous notes, bonds, mortgages, and capital lease obligations |                   |                   
|                                                                     |                  
|                                                                     |                   |                   
|Less: current maturities                                             |                   |                   
|                                                                     |                  
|                                                                     |                   |                   
|                                                                     |                  

Long-term debt supporting finance contracts and unsold residual value ("Non-Corporate Debt") consisted of:

|                                       | December 31, 2004 | September 30, 2004
|-------------------------------------- | ----------------- | ------------------
|Lease-backed notes                     |                   |                   
|Asset securitization conduit financing |                   |                   
|Notes payable to banks                 |                   |                   
|Debt supporting unsold residual value  |                   |                   
|                                       |                  
|                                       |                   |                   
|Less: current maturities               |                   |                   
|                                       |                  
|                                       |                   |                   
|                                       |                  

Our  6.75%  notes due 2004 were  paid  upon  maturity  in  November  2004.  The  balance  of these  notes at
September 30, 2004 was $56,659.

During the first quarter of fiscal 2005, we repaid $97,624 of lease-backed notes.

Asset Securitization Conduit Financing Agreements

As of  December  31,  2004,
IKON  Capital,  PLC,  our  leasing  subsidiary  in the  United  Kingdom,  had
approximately  $29,175  available  under its asset  securitization  conduit  financing  agreement (the  "Conduit").
During the three months ended December 31, 2004,  IKON Capital,  PLC repaid $3,453 in connection  with the Conduit.
No additional borrowings were made in connection with the Conduit during the first quarter of fiscal 2005.

Debt Supporting Unsold Residual Value

Due mainly to certain  provisions  within our agreements  with GE and other lease  syndicators,  which do not
allow us to recognize  the sale of the residual  value on leases in which we are the  equipment  lessor  (primarily
state and local  government  contracts),  we must keep the present  value of the residual  value of those leases on
our balance  sheet.  A  corresponding  amount of debt is recorded  representing  the cash  received from GE and the
other lease  syndicators for the residual value.  This debt will not be repaid unless required under the applicable
agreement in the event that an IKON service  performance  failure is  determined to relieve the lessee of its lease
payment  obligations.  Over the last three years,  total  repurchases of lease  receivables  related to our service
performance  failures  have  amounted  to  approximately  $500 on a  cumulative  basis.  The net book  value of the
combined lease portfolio as of December 31, 2004 was approximately $3,100,000.

In  addition,  we  transferred  lease  receivables  to GE for  which  we have  retained  all of the  risks of
ownership.  A  corresponding  amount  of debt  was  recorded  representing  the  cash  received  from GE for  these
receivables.

As of December 31, 2004,
we had $59,511 of debt related to $58,370 of unsold  residual  value and the present
value of the remaining  lease  receivables  that remained on our balance sheet.  During the first quarter of fiscal
2005, we imputed  interest at our average  borrowing rate of 3.73% and recorded $500 of interest expense related to
this debt.  Upon the end of the lease term or repurchase of the lease,  whichever  comes first, we will reverse the
unsold residual value and related debt as the underlying  leases mature and any differential  will be recorded as a
gain on the extinguishment of debt.  As of December 31, 2004, this differential was $1,141.

11

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Credit Facility

We maintain a $200,000  secured credit facility (the "Credit  Facility") with a group of lenders.  The Credit
Facility  provides the availability of revolving loans, with certain  sub-limits,  and provides support for letters
of credit.  The amount of credit  available  under the Credit  Facility is reduced by open  letters of credit.  The
amount  available  under the Credit  Facility  for  borrowings  or  additional  letters of credit was  $165,579  at
December 31,  2004.  The Credit  Facility is secured by our accounts  receivable  and  inventory,  the stock of our
first-tier  domestic  subsidiaries,  65% of the  stock  of our  first-tier  foreign  subsidiaries,  and  all of our
intangible  assets.  All security  interests  pledged under the Credit  Facility are shared with the holders of our
7.25% notes payable due 2008.

The  Credit  Facility  contains  affirmative  and  negative  covenants,   including  limitations  on  certain
fundamental core business changes,  investments and acquisitions,  mergers,  certain  transactions with affiliates,
creations of liens, asset transfers,  payments of dividends,  intercompany loans, and certain restricted  payments.
The Credit Facility does not, however,  limit our ability to continue to securitize lease  receivables.  The Credit
Facility  matures on March 1, 2008,  but is subject to certain  early  maturity  events in November  2006,  January
2007,  and April 2007 if our 5% convertible  subordinated  notes due May 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 any unused capacity under the Credit  Facility,  to repay the balance of the
Convertible Notes plus an additional  $100,000.  The Credit Facility contains certain financial  covenants relating
to: (i) our corporate  leverage  ratios;  (ii) our  consolidated  interest  coverage ratio;  (iii) our consolidated
asset coverage ratio;  (iv) our consolidated  net worth ratios;  (v) limitations on our capital  expenditures;  and
(vi) limitations on additional  indebtedness and liens.  Under the terms of the Credit Facility,  share repurchases
are  permitted in an aggregate  amount not to exceed  $250,000  during the period of July 28, 2004 through March 1,
2008. From July 28, 2004 through  September 30, 2005,  share  repurchases are permitted in an aggregate  amount not
to exceed  $150,000.  Beginning on October 1, 2005, we are permitted to repurchase  (a) shares and pay dividends in
an  aggregate  annual  amount not to exceed 50% of our annual net  income,  plus (b) that  portion of the  $150,000
allowance  that we did not utilize  prior to October 1, 2005.  As of December  31,  2004,  $72,742 of the  $150,000
allowance was utilized.  Additionally,  the Credit Facility contains default provisions customary for facilities of
this type.

Letters of Credit

We have certain  commitments  available  to us in the form of lines of credit and standby  letters of credit.
As of December 31, 2004, we had $179,164  available under lines of credit,  including the $165,579  available under
the  Credit  Facility  and had open  standby  letters  of credit  totaling  $34,421.  These  letters  of credit are
primarily supported by the Credit Facility. All letters of credit expire within one year.

3.        SALE OF LEASE RECEIVABLES

Under  the U.S.  Program  Agreement,  the  Canadian  Rider,  and  agreements  with  other  syndicators,  from
time-to-time we may sell customer lease  receivables.  We do not expect to retain interests in these assets.  Gains
or losses on the sale of these lease  receivables  depend in part on the previous  carrying amount of the financial
assets  involved in the transfer.  We estimate fair value based on the present value of future expected cash flows.
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  first  quarter  of fiscal 2005,  we sold  lease  receivables  totaling  $61,428  for cash  proceeds  in
transactions to GE and other  syndicators.  In those  transactions,  we will not retain any interest in the assets.
No material gain or loss resulted from these transactions.

4.        GOODWILL

Goodwill associated with our reporting segments was:

|                               | IKON NorthAmerica | IKONEurope | Total
|------------------------------ | ----------------- | ---------- | -----
|Goodwill at September 30, 2004 |                   |            | $    
|Translation adjustment         |                   |            |      
|                               |                  
|Goodwill at December 31, 2004  |                   |            | $    
|                               |                  

Changes in the goodwill  balance since September 30, 2004 are  attributable to foreign  currency  translation
adjustments.

As of December  31,  2004,  we had no  intangible  assets other than  goodwill  except  those  related to our
defined benefit plans.

12

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5.        SHARE REPURCHASES

In March 2004, our Board of Directors  authorized the repurchase of up to $250,000 of our  outstanding
shares of common stock (the "2004 Plan").  From  time-to-time,  our  Retirement  Savings Plan may acquire shares of
our common  stock in open market  transactions  or from our  treasury  shares.  During the first  quarter of fiscal
2005, we repurchased  1,957 shares of our  outstanding  common stock for $21,797,  leaving  $150,629  remaining for
share  repurchases  under the 2004 Plan.  Under the terms of the Credit Facility,  share  repurchases are permitted
up to $150,000  until  September  2005.  Beginning on October 1, 2005, we are  permitted to  repurchase  (a) shares
and pay dividends in an aggregate  annual amount not to exceed 50% of our annual net income,  plus (b) that portion
of the $150,000  allowance  that we did not utilize prior to October 1, 2005.  As of December 31, 2004,  $72,742 of
the $150,000 allowance was utilized.

6.        COMPREHENSIVE INCOME

Total comprehensive income is as follows:

|                                                       | Three Months EndedDecember 31
|------------------------------------------------------ | -----------------------------
|                                                       | 2004                         
|Net income                                             |                              
|Foreign currency translation adjustments               |                              
|Gain on derivative financial instruments, net of tax   |                              
|expense of: $170 and $2,186 for the three months ended |                              
|December 31, 2004 and 2003, respectively               |                              
|                                                       |                              
|Total comprehensive income                             |                              
|                                                       |                              

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 income in the consolidated balance sheets were
$115,645, $(46,400) and $442, respectively, at December 31, 2004 and $66,418, $(46,400)
and $177, respectively, at September 30, 2004.

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7.        EARNINGS PER COMMON SHARE

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

|                                                                                     | Three Months Ended December 31
|------------------------------------------------------------------------------------ | ------------------------------
|                                                                                     | 2004                          
|Numerator:                                                                           |                               
|Numerator for basic earnings per common share - net income                           |                               
|Effect of dilutive securities:                                                       |                               
|Interest expense on Convertible Notes, net of taxes                                  |                               
|                                                                                     |                               
|Numerator for diluted earnings per common share - net income                         |                               
|                                                                                     |                               
|Denominator:                                                                         |                               
|Denominator for basic earnings per common share - weighted average common shares     |                               
|Effect of dilutive securities:                                                       |                               
|Convertible Notes                                                                    |                               
|Employee stock options                                                               |                               
|Employee stock awards                                                                |                               
|                                                                                     |                               
|Dilutive potential common shares                                                     |                               
|Denominator for diluted earnings per common share - adjusted weighted average common |                               
|shares and assumed conversions                                                       |                               
|                                                                                     |                               
|Basic earnings per common share                                                      |                               
|                                                                                     |                               
|Diluted earnings per common share                                                    |                               
|                                                                                     |                               

We account for the effect of the  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 first quarter of fiscal 2005  excludes the assumed  conversion  of the  Convertible  Notes
because the impact is antidilutive.

Options to purchase  4,854 shares of common stock at $11.22 to $46.59 per share were  outstanding  during the
first  quarter of fiscal  2005 and options to purchase  8,091  shares of common  stock at $9.05 to $46.59 per share
were  outstanding  during the first  quarter of fiscal 2004,  but were not included in the  computation  of diluted
earnings per share because the options'  exercise  prices were greater than the average  market price of the common
shares; therefore, the effect would be antidilutive.

8.        SEGMENT REPORTING

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

|                                     | IKON North America | IKON Europe | Corporate and Eliminations | Total  
|------------------------------------ | ------------------ | ----------- | -------------------------- | -------
|Three Months Ended December 31, 2004
|Net sales                            |                    |             | $                          | 385,484
|Services                             |                    |             |                            | 541,817
|Finance income                       |                    |             |                            | 24,051 
|Finance interest expense             |                    |             |                            | 6,158  
|Operating income (loss)              |                    |             |                            | 106,512
|Interest expense, net                |                    |             |                            |        
|Income before taxes                  |                    |             |                            |        

|Three Months Ended December 31, 2003
|------------------------------------
|Net sales                           
|Services                            
|Finance income                      
|Finance interest expense            
|Operating income (loss)             
|Interest expense, net               
|Income before taxes                 

We report  information about our 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.  Our  reportable  segments are IKON North  America  ("INA") and IKON Europe
("IE"). The INA and IE segments provide copiers,  printers,  color solutions,  and a variety of document management
service  capabilities  through Enterprise  Services.  These segments also include our captive finance  subsidiaries
in North America (including those now divested) and Europe, respectively.

14

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

9.        CONTINGENCIES

We are involved in a number of  environmental  remediation  actions to investigate and clean up certain sites
related to our 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,  we had  accrued  balances,  included  in  other  long-term  liabilities  in our
consolidated  balance  sheets,  of $7,840 and $7,928 as of December 31, 2004 and September 30, 2004,  respectively,
for our  environmental  liabilities,  and the  accrual is based on  management's  best  estimate  of the  aggregate
environmental  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 us, 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
our consolidated financial statements.

The accruals for such environmental  liabilities are reflected in the consolidated  balance sheets as part of
other accrued  liabilities.  We have not recorded any potential  third party  recoveries.  We are indemnified by an
environmental  contractor  performing  remedial work at a site in Bedford Heights,  Ohio. The contractor has agreed
to  indemnify  us from  cost  overruns  associated  with the plan of  remediation.  Further,  we have  cost-sharing
arrangements in place with other potentially  responsible parties at sites located in Barkhamsted,  Connecticut and
Rockford,  Illinois. The cost-sharing  agreement for the Barkhamsted,  Connecticut 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,  we and other potentially
responsible  parties agreed to reimburse Rural Refuse Disposal District No. 2, a Connecticut  Municipal  Authority,
for 50% of these  costs.  We currently  pay a 4.54% share of these  costs.  The  cost-sharing  arrangement  for the
Rockford,  Illinois  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,  we pay 5.12% of these
costs.

During  fiscal 2005 and 2004, we did not incur any costs for  environmental  capital  projects,  but incurred
various costs in conjunction  with our obligations  under consent decrees,  orders,  voluntary  remediation  plans,
settlement  agreements,  and other actions to comply with environmental laws and regulations.  For the three months
ended  December  31, 2004 and  December  31,  2003,  these costs were $101 and $132,  respectively.  All costs were
charged against the related  environmental  accrual. We will continue to incur expenses in order to comply with our
obligations under consent decrees,  orders,  voluntary remediation plans, settlement agreements,  and other actions
to comply with environmental laws and regulations.

We have an accrual related to black
lung and workers compensation liabilities relating to the operations of a former
subsidiary, Barnes & Tucker Company (B&T). B&T owned and operated
coalmines throughout Pennsylvania. We sold B&T in 1986. In connection with the sale,
we entered into a financing agreement with B&T whereby we agreed to reimburse B&T
for 95% of all costs and expenses incurred by B&T for black lung and workers
compensation liabilities, until such liabilities were extinguished. From 1986 through
2000, we 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 that created a black lung trust and a workers
compensation trust to handle the administration of all black lung and workers
compensation claims relating to B&T. We now reimburse the trusts for 95% of the costs
and expenses incurred by the trusts for black lung and workers compensation claims.
As of December 31, 2004 and September 30, 2004, our accrual for black lung and
workers compensation liabilities related to B&T was $12,252 and $12,384,
respectively, and was reflected in the consolidated balance sheets as part of other
long-term liabilities.

We received notice of possible  additional taxes due related to international  matters.  We believe they will
not materially affect our consolidated financial statements.

We recognize certain guarantees in accordance with FASB  Interpretation No. 45.  Accordingly,  we recognize a
liability related to guarantees for the fair value, or market value, of the obligation we assume.

15

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As a result of the U.S.  Transaction,  we 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 U.S.  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,  we would be required to  reimburse  GE for the full amount of GE's  damages;  provided,  that for
certain successful  claims, we would only be required to reimburse GE for damages in excess of $20,000,  but not to
exceed, in the aggregate,  $2,000,000.  These indemnification obligations generally relate to recourse on different
types of lease  receivables sold to GE that could  potentially  become  uncollectible.  In the event that all lease
receivables for which we have indemnified GE become  uncollectible,  the maximum potential loss we could incur as a
result of these  indemnifications  at December 31, 2004 was $273,462.  Based on our analysis of  historical  losses
for these types of leases,  we had  recorded  reserves  totaling  approximately  $464 at  December  31,  2004.  The
equipment leased to the customers  related to the above  indemnifications  represents  collateral which we would be
entitled to recover  and could be  remarketed  by us. No  specific  recourse  provisions  exist with other  parties
related to assets sold under the U.S. Program Agreement.

We  guarantee  an  industrial  revenue  bond  in  Covington,  Tennessee  relating  to  The  Delfield  Company
("Delfield"),  a former  subsidiary  of Alco  Standard  (our  predecessor  company).  This bond  matures in full on
September  1, 2006.  We have not accrued any  liability  with  respect to this  guarantee  based on our analysis of
Delfield's  ability and intent to make payment or refinance the bond. In the event  Delfield  defaults on the bond,
we would be required  under the  agreement  to make payment to the lender.  As of December  31,  2004,  the maximum
amount that we would be required to pay the lender is $3,150.

There are other contingent liabilities for taxes,  guarantees,  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 us and any  related  reserves  and  insurance  coverage,  management
believes that none of these other contingencies will materially affect our consolidated financial statements.

10.        PENSION PLANS

We sponsor defined  benefit  pension plans for the majority of our employees (all U.S.  employees hired on or
after July 1, 2004 are not  eligible to  participate  in the U.S.  defined  benefit  pension  plan).  The  benefits
generally  are  based on years of  service  and  compensation.  We fund at least the  minimum  amount  required  by
government regulations.

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

|                                              | Three Months Ended December 31
|--------------------------------------------- | ------------------------------
|                                              | 2004                          
|                                              | U.S. Plans                    
|Service cost                                  |                               
|Interest cost on projected benefit obligation |                               
|Expected return on assets                     |                               
|Amortization of net obligation                |                               
|Amortization of prior service cost            |                               
|Recognized net actuarial loss                 |                               
|                                              |                               
|Net periodic pension cost                     |                               
|                                              |                               

As of December 31, 2004,  $8,871 of  contributions  had been made.  We expect to  contribute  an  additional
$3,350 to the plans during the remainder of fiscal 2005.

11.        FINANCIAL INSTRUMENTS

As of December 31, 2004,  all of our  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 that the
interest  rate swaps are fully  effective.  We use interest  rate swaps to fix the  interest  rates on our 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 three months ended  December  31,  2004,  unrealized  gains  totaling  $265,  after taxes,  were
recorded in accumulated other comprehensive income.

16

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

IKON Office Solutions,  Inc. ("IKON" or the "Company") delivers integrated document management  solutions and
systems,  enabling  customers to improve  document  workflow and increase  efficiency.  We are the world's  largest
independent channel for copier, printer and multifunction product ("MFP") technologies,  integrating  best-in-class
systems from leading  manufacturers,  such as Canon,  Ricoh,  Konica Minolta,  EFI, and HP, and document management
software from companies such as Captaris,  EMC (Documentum),  Kofax, and others,  to deliver  tailored,  high-value
solutions  implemented  and  supported  by our services  organization - Enterprise  Services.  We offer  financing in
North America through a program agreement (the "U.S.  Program  Agreement") with IKON Financial  Services,  a wholly
owned subsidiary of General  Electric Capital  Corporation  ("GE"),  and a rider to the U.S Program  Agreement (the
"Canadian  Rider") with GE in Canada.  We entered into the U.S.  Program  Agreement  and Canadian  Rider as part of
the sale of certain assets and  liabilities of our U.S.  leasing  business to GE (the "U.S.  Transaction")  and our
Canadian lease portfolio (the "Canadian  Transaction," and together with the U.S. Program  Agreement,  the Canadian
Rider and the U.S.  Transaction,  the  "Transactions"),  respectively.  We represent one of the industry's broadest
portfolios  of  document  management  services,  including  professional  services,  a unique  blend of on-site and
off-site Managed Services,  customized workflow solutions,  and comprehensive  support through our service force of
16,600  employees,  including our team of 7,000 customer service  technicians and support resources  worldwide.  We
have approximately 500 locations throughout North America and Western Europe.

For fiscal 2005, we have outlined the following objectives for our business:

|- | improving operational leverage;
|- | -------------------------------
|- | core growth; and               
|- | related expansion.             

These  objectives  assume continued  growth and  profitability  improvements in our ongoing revenue streams,
while we continue to transition out of our captive leasing business in North America.

Operating  leverage  requires that we continue to lower our overall  cost-to-serve and improve both sales and
administrative  productivity  through  centralization,  process,  and system  enhancements.  In  particular,  we are
focused on reducing our selling and  administrative  expenses to more  competitive  levels,  and have established a
fiscal 2005 target for selling and  administrative  expense as a  percentage  of revenues of one  percentage  point
below  fiscal year 2004  levels.  In the first  quarter of fiscal  2005,  selling and  administrative  expense as a
percentage  of revenue was 32.7%  compared to 33.1% a year ago.  We had a headcount  decline of over 350  employees
in the first  quarter of fiscal 2005,  driven by our  centralization  and  productivity  initiatives.  In addition,
improved  visibility in our supply chain function is yielding new  opportunities  through real estate  benefits and
additional  headcount  reductions.  We continued to consolidate  our supply chain during the quarter,  reducing our
equipment configuration centers to 24 from 28 at September 30, 2004.

Core growth has three points of focus:  improvement of sales  effectiveness in all market  segments;  gain of
market share in  underrepresented  markets;  and the  targeting of product  segments in which demand is growing the
fastest.  A top priority for us in fiscal 2005 is our  implementation  of the integrated  selling  model,  which is
designed to provide  sales  coverage on a  lower-cost-to-serve  basis through the use of  professional  phone based
sales  representatives  working in concert with our  field-based  representatives.  We believe this model will also
improve  our  retention  of small to  medium-sized  customers  while at the same time  provide us with added  sales
capacity for  higher-end  selling  solutions.  In the first quarter of fiscal 2005,  the  integrated  selling model
went live in 17 of our U.S. and Canadian  marketplaces,  bringing over 50% of our marketplaces  onto this new model
at the end of the first  quarter of fiscal  2005.  Also during the first  quarter of fiscal  2005,  we continued to
strengthen our share of the market  encompassing  Fortune 500 and large global and private  companies  (through our
"National  Account  Program"), as we added 13 new contracts and added sales  resources to this focus area. To ensure
that we capture the fastest growing product  technologies,  we continue to strengthen our color equipment portfolio
with a  diversified  mixture of products.  Color  equipment  revenues  grew 17% in the first quarter of fiscal 2005
compared to the same period of fiscal 2004, fueling double-digit growth in Customer Service color copy volumes.

We are  expanding  into  adjacent  markets  such as Europe and new service  opportunities  within  Enterprise
Services  that  differentiate  and build  solidly  on our core  business,  which  involves equipment  sales and the
ongoing  volume in services  and  supplies  that those sales  generate.  In Europe,  our City  Strategy  focuses on
expansion to key cities throughout Europe.  Under this strategy,  we commenced operations in two additional cities,
Milan and Barcelona,  in the first quarter of fiscal 2005.  Within  Enterprise  Services,  Professional  Services is a key
growth  opportunity  for us, and we  experienced an increase in revenues of 22% in the first quarter of fiscal 2005
compared  to the first  quarter of fiscal  2004.  Activity  in this area  during the first  quarter of fiscal  2005
included  training on our new,  integrated  solutions  model and changes to coverage and  incentive  structures  to
ensure that we continue to support the increasing demand for this area of our business.

17

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For the first  quarter of fiscal 2005,  we had revenues of $1.1  billion,  representing  a 3.6% decline from
the first  quarter of fiscal  2004.  This decline was due in large  measure to the impact of lower North  American
equipment  revenues;  lower  Managed  Services  revenues;  and our  transition  out of the North  American  leasing
operations  in fiscal 2004 and the decrease in  high-margin  revenues  previously  recognized  from that  business.
Diluted  earnings per share for the first quarter of fiscal 2005 were $0.12.  Refer to "Results of Operations"  for
further discussion of our quarterly financial statements.

OUTLOOK

We expect our second  quarter  fiscal 2005 earnings to be $0.14 to $0.16 per diluted  share,  with full year
earnings  of $0.63 to $0.68 per  diluted  share.  These full year  earnings  expectations  are based on an expected
decline of total  revenues  between 2% and 4% compared to fiscal  2004,  including a decline in finance  revenues as
our retained U.S.  lease  portfolio  continues to run-off  through fiscal 2007,  partially  offset by fees received
from our  relationship  with GE. We expect  the  leasing  transaction  to  contribute  to a  headwind
(the term "headwind" refers to the expected reduction in diluted earnings per share in
fiscal years 2005, 2006, and 2007 compared to the immediately preceding fiscal year, resulting from a decline in
finance revenues due to the run-off of the retained U.S. lease portfolio in those fiscal years)

of approximately $0.15 per
diluted share in both fiscal 2005 and fiscal 2006 and an  additional  headwind of approximately $0.05 per diluted share in fiscal
2007.

Excluded from these  expectations are any charges we may incur to improve our business,  including  possible
charges from the off-site Managed  Services  business,  as well as the expensing of stock options  beginning in the
fourth quarter of fiscal 2005.

RESULTS OF OPERATIONS

This discussion  reviews the results of our operations as reported in the consolidated  statements of income.
All dollar and share amounts are in thousands,  except per share data.  Unless otherwise noted,  references to 2005
and 2004 refer to the three months ended December 31, 2004 and 2003, respectively.

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

Revenues

|               | 2005 | 2004 | Change
|-------------- | ---- | ---- | ------
|Net sales      |      |      | $     
|Services       |      |      |       
|Finance income |      |      |       
|               |     
|               |      |      | $     
|               |     

The  decrease in revenues of 3.6%  compared to the first  quarter of fiscal 2004,  which  includes a currency
benefit of 1.5% (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 as a result of the sale of our North
American  leasing  business,  lower  equipment  revenues in North  America,  and lower Managed  Services  revenues,
partially  offset by an increase in net sales and  services as a result of  benefits  realized  from fees  received
under the U.S. Program Agreement and the Canadian Rider and revenues generated from our National Account Program.

Net sales includes revenues from the sale of copier/printer  multifunction  equipment,  direct supplies,  and
technology  hardware.  The increase in net sales  includes a currency  benefit of 1.8%.  Equipment  revenue,  which
comprises  approximately  90% of our net sales mix,  increased by approximately  3.5%, or $13,980,  compared to the
same period in fiscal 2004 due mainly to the net impact of the  relationship  with GE and continued growth from the
sale of color  equipment.  Origination  fees from,  and sales of residual  value to, GE (not  recognized as revenue
when we had captive finance  subsidiaries  in North America)  contributed  $38,283 of equipment  revenue during the
first  quarter  of fiscal  2005.  As a result,  equipment  revenue  would  have  decreased  by  approximately  5.6%
excluding the impact of the  origination  fees and sales of residual  value.  While European  equipment  sales were
stronger  compared to the first quarter of fiscal 2004, North American  equipment sales declined due to competitive
pressure,  and lower  sales  productivity.  North  America  was  impacted  by  changes in sales  coverage,  selling
processes and  incentives, as we launched  important  long-term  initiatives  in  Professional  Services and the new
integrated  selling  model.  Revenues  generated  from the sale of color  devices  increased by 17% compared to the
first quarter of fiscal 2004 due to higher demand for these  products,  particularly  higher-end  color  production
equipment,  as new products  continued to be introduced  at more  affordable  prices.  As a percentage of equipment
revenue,  color devices  increased from  approximately 20% in the first quarter of fiscal 2004 to approximately 25%
in the  first  quarter  of fiscal  2005.  Revenues  from the sale of  segment 5 and  6 black  and white  production
equipment  (devices with page outputs  greater than 70 pages per minute)  decreased  approximately  18% compared to
the first  quarter of fiscal 2004 due to continued  pricing  pressure,  a shift to lower-end  products  within this
segment and new alternate  products  available in segment 4.  However,  during the first quarter of fiscal 2005, we
experienced  strong  performance  in the  high-end of segment 6 equipment  sales.  Sales of segment 1 - 4 black and
white  office  equipment  (devices  with  page  outputs  less than 70 pages per  minute,  fax and other  equipment)
declined  approximately  6% compared to the first quarter of fiscal 2004.  This decrease was  attributable to lower
demand for these  products  compared to the same period in the prior year,  due in part to the shift of sales focus
to color devices and lower average selling prices for these products.  As of December 31, 2004,  sales of black and
white office equipment  represented 59% of equipment  revenue,  compared to 60% at December 31, 2003. Direct supply
sales  decreased  by  approximately  11%, or $3,588,  compared to the first  quarter of fiscal  2004,  due to lower
demand for fax and lower-end copier supplies.

18

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Services is comprised of Enterprise  Services and Other  Services.  Enterprise  Services  consists of Managed
Services,  which provides on- and off-site outsourcing  services and other expertise;  Customer Services (equipment
service);  and  Professional  Services,  which  focuses on  integrating  hardware  and software  technologies  that
capture,  manage,  control,  and store output for customers'  document  lifecycles.  Other Services includes rental
income on operating leases,  income from the sharing of gains on certain lease-end  activities with GE in the U.S.,
and fees received  from GE for  providing  preferred  services for lease  generation  in the U.S.  (the  "Preferred
Fees").  Services increased by 2.9% including a currency benefit of approximately  $7,143.  Excluding the impact of
currency  translation,  services increased by approximately  1.7%.

Managed Services revenues,  which includes both
on-site Managed Services and off-site  digital print and legal document  services,  decreased by $11,317,  or 5.9%,
due mainly to the  recognition  of a large  commercial  imaging  contract  during the first  quarter of fiscal 2004
which  benefited  the first quarter of fiscal 2004 revenues by $10,119.  Off-site  Managed  Services,  a short-cycle  and
increasingly  competitive  transactional  business, declined by approximately  $17,430 compared to the first quarter
of fiscal  2004 due to  pricing  pressure,  lower  copy  volumes  and the  impact of the large  commercial  imaging
contract  discussed above.

On-site Managed  Services  revenues grew from the prior year, due to an increase in new
contracts and an improved  retention rate.  Customer  Services  revenues (which are  significantly  impacted by the
amount and mix of copy  volumes)  increased  by $7,198,  or 2.1%,  compared  to the first  quarter of fiscal  2004,
attributable  mainly to an increase  in copy  volumes of  approximately  4% which was fueled by growth in color and
segment 5 and 6 copy volumes.  Professional  Services  increased  22%, or by $3,943,  compared to the first quarter
of fiscal 2004 as a result of continued  focus on providing  customers  with digital  technologies  to reduce their
costs and improve workflow.  We believe that our new solutions portfolio,  expanded sales coverage,  and incentives
built into our  commission  structure will continue to fuel growth into this important area during the remainder of
fiscal 2005. A  significant  contribution  to the services  increase was the impact of fees received as a result of
the GE relationship,  including  Preferred Fees of $12,677 during the first quarter of fiscal 2005 partially offset
by the  impact of  lease-end  activities  of  approximately  $7,244.  We expect to earn  approximately  $50,000  of
Preferred  Fees  annually  until the initial  term of the U.S.  Program  Agreement  terminates  on March 31,  2009.
Rental  revenue  decreased by $3,171,  or 14.2%,  compared to the first quarter of fiscal 2004,  due primarily from
the sale of $38,900 of rental  assets to GE on March 31,  2004.  We expect  rental  revenue to  continue to decline
through the second quarter of fiscal 2005 when compared to the same period of fiscal 2004.

Finance income is generated by our leasing  subsidiaries,  as well as by certain lease  receivables  not sold
to GE as part of the U.S.  Transaction.  The decrease in finance income was due primarily to the impact of the sale
of  $2,027,832  of lease  receivables  to GE during  fiscal 2004 as part of the  Transactions.  Accordingly,  lease
receivables  sold as part of the  Transactions  did not generate  finance income for us during the first quarter of
fiscal 2005.  This  decrease  was  partially  offset by a currency  benefit of 1.9%.  Although we will  continue to
receive  finance  income under certain  leases that will be financed  directly by us, our total finance income will
continue to decrease in future  periods as a result of the  Transactions.  In fiscal 2005, we expect finance income
to decline  approximately  60% compared to fiscal 2004 as a result of the Transactions and the continued run-off of
the retained U.S. lease portfolio.

Gross Margin

|                             | 2005 | 2004
|---------------------------- | ---- | ----
|Gross margin, net sales      |      |     
|Gross margin, services       |      |     
|Gross margin, finance income |      |     
|Gross margin, total          |      |     

The  decrease in the gross  margin  percentage  on net sales was due to a less  favorable  mix of  equipment,
growth in lower-margin National Account Program revenues,  and continued market  competitiveness.  In addition, the
net impact of  origination  fees and sales of equipment  residual  values to GE  negatively  impacted the net sales
gross  margin  by  approximately  26 basis  points.  We expect  the net  impact  of  origination  fees and sales of
equipment  residual  values to GE to continue to  negatively  impact the net sales gross margin  percentage  during
fiscal 2005 compared to fiscal 2004.

The gross  margin  percentage  on  services  remained  flat  compared  to the first  quarter of fiscal  2004.
However,  the services gross margin percentage  during the first quarter of fiscal 2004 was negatively  impacted by
70 basis points from the  completion  of a multi-year  commercial  imaging  contract in which no profit was earned.
Off-site  Managed  Services  margins  declined  compared  to the first  quarter of fiscal 2004 due to the impact of
lower  revenues.  The off-site  Managed  Services cost structure is less variable than our other lines of business;
therefore,  gross  margin  percentages  are more  heavily  influenced  by  changes  in  revenue.  We will be taking
aggressive  actions to improve the  variability  of the cost  structure  of off-site  Managed  Services  during the
remainder  of fiscal  2005.  Professional  Services  margins  declined  as a result of our  increase in staffing in
advance of our  expected  increase in demand.  These  decreases  were  offset by an  increase in Customer  Services
gross margin  percentage of  approximately  50 basis points and the net impact of the GE relationship  (income from
the sharing of gains on certain  lease-end  activities  with GE as well as the Preferred  Fees),  which  positively
impacted the services  gross margin  percentage  by  approximately  41 basis points.  We expect the services  gross
margin  percentage  to improve  during the  remainder  of fiscal 2005 as we take  actions to reduce the overhead of
off-site Managed Services,  continue to grow  Professional  Services revenues and complete Six Sigma projects which
will benefit many services offerings.

19

---

The gross margin  percentage on finance  income  increased  from 64.7% in the first quarter of fiscal 2004 to
74.4% in the first quarter of fiscal 2005 due to European  leasing  revenues  becoming a larger part of the finance
income mix in fiscal 2005 compared to fiscal 2004.  Because  European  leases are leveraged  with a lower amount of
debt,  European leases generate higher profit margins than our sold North American leases.  In addition,  there was
a lower leverage ratio on the U.S. lease receivable  portfolio after the U.S.  Transaction during the first quarter
of fiscal 2005 compared to the first quarter of fiscal 2004.  Part of this lower  leverage was due to the fact that
$5,980 of interest  expense  recorded  in  "Interest  expense,  net"  during  fiscal 2005  related to debt that was
reclassified from debt supporting finance contracts and unsold residual value  ("Non-Corporate  Debt") to corporate
debt beginning on April 1, 2004.  Prior to April 1, 2004,  interest costs of the  Non-Corporate  Debt were recorded
in finance  interest  expense.  As a result,  the gross margin on finance  income was  positively  impacted by this
change in  classification.  In fiscal  2005,  we expect  finance  income to decline  approximately  60% compared to
fiscal 2004 as a result of the  Transactions  and the continued  run-off of the retained U.S. lease  portfolio.  By
September 30, 2005, we believe that  approximately  83% of the gross profit we estimated  would be generated by the
retained U.S. lease portfolio as of the consummation of the U.S. Transaction will have been earned.

Selling and Administrative Expenses

|                                    | 2005 | 2004 | Change 
|----------------------------------- | ---- | ---- | -------
|Selling and administrative expenses |      | $    | 357,755
|S&A as a % of revenue               |      |      | 32.7   

Selling and  administrative  expense,  which was  unfavorably  impacted by $4,135 due to foreign  currency
translation  compared to the prior  year,  decreased  by $18,713,  or 5.0%,  during the first  quarter  fiscal 2005
compared to the first quarter of fiscal 2004, and decreased from 33.1% to 32.7% as a percentage of revenue.

The net impact of the  Transactions  of $22,486  was a  significant  factor of the  decrease  in selling  and
administrative  expense  compared  to fiscal  2004.  Approximately  $11,295  of this  decrease  was due to no lease
default  expense being required for either  retained or sold IOS Capital LLC, our former leasing  subsidiary in the
U.S.  ("IOSC"),  lease  receivables  during the first quarter of fiscal 2005.  Under the terms of the U.S.  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 Transactions
was due to the  transfer  of over 300  employees  to GE. In  addition,  during the first  quarter of fiscal 2005 we
received a refund from GE of  approximately  $3,400  related to  administrative  fees paid to GE for  servicing our
retained  U.S.  lease  portfolio  during  fiscal 2004.  Partially  offsetting  these  decreases  were  increases in
corporate costs to support the Transactions, including headcount and certain infrastructure enhancements.

Other changes in selling and administrative expenses impacting the Company were:

|- | A decrease in pension costs of $1,506  compared to the first  quarter of fiscal 2004,  due mainly to the
impact of changes in  actuarial  assumptions  compared  to fiscal  2004.  Pension  expense is  allocated
between  selling  and  administrative  expense  and cost of  revenues  based on the number of  employees
related to those areas. We expect that our total fiscal 2005 pension  expense will decrease  compared to
fiscal 2004; and
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | An increase in bad debt expense,  lease default expense (excluding the impact of the Transactions),  and
concessions  made to  customers  of  $1,428.  This  increase  was due  mainly to the  impact of  further
consolidation  of our  customer  care  centers  which caused a temporary  disruption  in our  collection
efforts  during the first  quarter of fiscal 2005 and the second half of fiscal 2004.                                    

The positive  impact of headcount  reduction  efforts  made during  fiscal 2004 as a result of our  continued
efforts to  consolidate  and centralize  administrative  functions was offset by higher  employee  salary levels in
fiscal 2005.

20

---

Compared to the fourth quarter of fiscal 2004,  selling and  administrative  expense  declined by $22,198 due
to a decline in variable  selling costs as a result of lower  equipment  sales in the first quarter of fiscal 2005,
administrative  headcount  reductions during the fourth quarter of fiscal 2004 and first quarter of fiscal 2005, as
well as lower facilities  expense,  information  technology  spending and consulting compared to the fourth quarter
of fiscal 2004.

For  the  remainder  of  fiscal  2005,  we  will  be  taking  aggressive   actions  to  reduce  selling  and
administrative  expense to achieve  our goal of reducing  selling and  administrative  expense as a  percentage  of
revenue for the 2005 fiscal year by one  percentage  point  compared to fiscal year 2004.  We expect to  accomplish
this goal through a combination of possible headcount reductions,  real estate and  discretionary expense reductions,
and we will review  the  profitability  of certain  business  lines to  streamline  our selling  and  administrative
structure.  In addition,  we expect to continue to realize benefits of lower selling and administrative  expense in
the second quarter of fiscal 2005 as a result of the  Transactions.  These  decreases  will be partially  offset by
the  impact of an  increase  in  consulting  and audit  fees related to our  Sarbanes-Oxley  internal  control
certification efforts, with which we are required to be in compliance by September 30, 2005.

Other

|                                       | 2005 | 2004 | Change |       
|-------------------------------------- | ---- | ---- | ------ | ------
|Operating income                       |      |      | $      | 37,451
|Loss from early extinguishment of debt |      |      |        |       
|Interest expense, net                  |      |      |        | 12,803
|Taxes on income                        |      |      |        | 8,021 
|Net income                             |      |      |        | 16,627
|Diluted earnings per common share      |      |      |        | 0.12  

Operating  income  decreased  in fiscal  2005 by 31.4%  compared to fiscal  2004,  as a result of the factors
discussed above.

During the first  quarter of fiscal 2004, we recorded a loss from the early  extinguishment  of debt of $73,
as a result of the repurchase of $2,000 of the 9.75% notes due 2004 (the "2004 Notes").

The increase in interest  expense,  net was primarily  due to our  assumption of IOSC's public debt (the 2004
Notes, 5% convertible  notes due May 2007 (the  "Convertible  Notes"),  and the 7.25% notes payable due 2008 (the "2008
Notes");  collectively,  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  $5,980 of additional  interest  expense being  recorded in "Interest
expense,  net"  compared to fiscal  2004.  We expect to  continue  to  experience  a modest  increase in  "Interest
expense,  net," as the  Additional  Corporate  Debt will be included on this income  statement  line for the entire
2005 fiscal  year,  partially  offset by the  benefit of lower  average  outstanding  balances of other debt during
fiscal 2005.

The  effective  income  tax rate was  32.50%  and  37.75%  for the first  quarter  of  fiscal  2005 and 2004,
respectively.  This decrease is primarily due to the deferral of  depreciation  expense for tax purposes
in Ireland as a result of tax planning  strategies.  In particular,  we have previously  expensed  depreciable asset
purchases  in  accordance  with  Irish  tax law  provisions.  We are  currently  taxed at 10% of  income;  however,
effective  January  1, 2006,  we will be taxed at 12.5% of income.  During  the first  quarter of fiscal  2005,  we
determined that we would not deduct  depreciable  asset  purchases in fiscal 2004 and fiscal 2005. As a result,  we
will receive a tax benefit of 12.5% rather than 10% from the  depreciation  of these  assets.  The first quarter of
fiscal 2005  results  reflect the  benefit of the change in tax  planning  with  respect to  depreciable  assets in
fiscal  2004 of  $1,345.  The  fiscal  2005  expected  benefit  of $822  has been  considered  in the
determination  of the  expected  effective  tax  rate  for  fiscal  2005.  The  effective  income  tax rate for the
remaining quarters of fiscal 2005 is expected to be 38.0%, resulting in a full year effective tax rate of 37.1%.

Diluted  earnings  per common share were $0.12 for the first  quarter of fiscal  2005,  compared to $0.18 for
the first  quarter of fiscal  2004.  The  decline  in  diluted  earnings  per share is mainly  attributable  to the
negative  impact of the  Transactions,  lower profit  generated by legal document  services and the impact of lower
equipment sales partially offset by the impact of a non-recurring  tax adjustment,  the effect of lower outstanding
shares and other operational changes compared to the first quarter of fiscal 2004.

Review of Business Segments

Our reportable  business  segments are IKON North America ("INA") and IKON Europe ("IE").  INA and IE provide
copiers,  printers,  color solutions,  and a variety of document management service capabilities through Enterprise
Services.  These  segments also include our captive  finance  subsidiaries  in North America  (including  those now
divested) and Europe.

21

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IKON North America

|                         | 2005 | 2004 | Change
|------------------------ | ---- | ---- | ------
|Net sales                |      |      | $     
|Services                 |      |      |       
|Finance income           |      |      |       
|Finance interest expense |      |      |       
|Operating income         |      |      |       

Approximately  87% of our  revenues are  generated by INA;  accordingly,  many of the items  discussed  above
regarding our consolidated results are applicable to INA.

Net sales  increased  by 0.2% due to an increase in  equipment  sales of 1.2% due mainly to the net impact of
the  relationship  with GE and continued  growth from the sale of color  equipment.  Origination  fees and sales of
residual  value to GE (not  recognized  as revenue  when we had  captive  finance  subsidiaries  in North  America)
contributed  to $38,283 of  equipment  revenue  during  fiscal  2005.  As a result,  equipment  revenue  would have
decreased  approximately  9.8%  excluding  the impact of the  origination  fees and sales of residual  value.  This
decline was due to competitive  pressure and lower sales  productivity as a result of several  long-term  strategic
priorities  launched  during the first quarter of fiscal 2005.  Revenues  generated  from the sale of color devices
increased  compared  to the first  quarter of fiscal  2004 due to higher  demand for these  products,  particularly
higher-end  color  production  equipment,  as new products  continued to be introduced at more  affordable  prices.
These  increases  were  offset by a large  decrease  in the sale of  segment  5 and  6 black  and white  production
equipment  compared to the first  quarter of fiscal 2004 due to continued  pricing  pressure,  a shift to lower-end
products  within  this  segment  and new  alternate  products  available  in segment 4.  However,  during the first
quarter of fiscal 2005, we experienced  strong  performance in the high-end of segment 6 equipment sales.  Sales of
segment 1 - 4 black and white  office  equipment  declined  compared  to the first  quarter  of fiscal  2004.  This
decrease was  attributable  to lower demand for these  products  compared to the same period in the prior year, due
in part, to the shift of sales focus to color devices and lower average selling prices for these  products.  Direct
supply sales  decreased by  approximately  12.0%  compared to the first quarter of fiscal 2004, due to lower demand
for fax and lower-end equipment supplies.

Services  increased  by  2.0%  due  primarily  to the  fees  received  as a  result  of the GE  relationship.
Professional  Services  grew by  $2,544,  or 22%,  compared  to the first  quarter  of  fiscal  2004 as a result of
continued  focus on providing  customers  with  digital  technologies  to reduce their costs and improve  workflow.
Also  contributing  to the  increase  in  Services  was an  increase  in  Customer  Services  of  $2,399,  or 0.8%,
attributable  mainly to an increase in copy  volumes,  which was fueled by growth in color and segment 5 and 6 copy
volumes.  These increases were partially  offset by decreases in Managed  Services of $11,815,  or 6.6%, due mainly
to the  recognition  of a large  commercial  imaging  contract  during  the first  quarter  of fiscal  2004,  which
benefited  the first  quarter of fiscal  2004  revenue by $10,119.  On-site  Managed  Services  grew from the prior
year, due to an increase in new contracts and an improved  retention rate.  Off-site Managed Services,  declined by
approximately  $17,430 due to pricing pressure,  lower copy volumes and the impact of the large commercial  imaging
contract  discussed above.  Rental revenue  decreased by $3,142,  or 15.1%, due primarily to the sale of $38,900 of
rental assets to GE on March 31, 2004.

Finance income and finance interest expense  decreased as a result of the  Transactions.  Accordingly,  lease
receivables  sold as part of the  Transactions  did not generate  finance income for us during the first quarter of
fiscal 2005.

Operating  income  decreased  primarily due to a decline in finance income,  lower  equipment  revenues and a
decline in off-site Managed  Services  revenues  compared to the first quarter of fiscal 2004,  partially offset by
the impact of the reclassification of the Additional Corporate Debt of $5,980.

IKON Europe

|                         | 2005 | 2004 | Change
|------------------------ | ---- | ---- | ------
|Net sales                |      |      | $     
|Services                 |      |      |       
|Finance income           |      |      |       
|Finance interest expense |      |      |       
|Operating income         |      |      |       

Net  sales  includes  a  currency  benefit  of  approximately  $6,663.   Excluding  the  impact  of  currency
translation,  net sales increased by 4.2% primarily driven by an increase in equipment sales of 17.7%,  compared to
fiscal 2004,  due to several  large  contracts  during the first  quarter of fiscal 2005 as a result of our ongoing
emphasis on national and global  accounts.  The increases in equipment sales were partially  offset by decreases in
direct supplies sales and technology  hardware  revenues of 1.1% and 4.7%,  respectively.  Services  increased as a
result of currency  benefits of  approximately  $5,169.  Excluding  the impact of  currency  translation,  services
increased  by 2.7% due to an  increase in  customer  services  revenues of 14.1% as a result of an increase in copy
volumes across Europe.  Finance income increased primarily as a result of strengthened  foreign  currencies,  which
resulted  in a benefit of $574.  Operating  income in fiscal  2005  increased  due to the  operational  performance
discussed above and the favorable impact of currency.

22

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Corporate and Eliminations

Corporate and Eliminations,  which is not treated as a business segment,  is comprised of certain selling and
administrative  functions including finance,  supply chain, and customer service. INA and IE are not presented on a
comparative  basis because  certain  administrative  costs of INA are included in Corporate and  Eliminations,  and
excluded  from the  presentation  of  results  of INA,  but are  included  in the  presentation  of  results of IE.
Operating  losses in Corporate and  Eliminations,  were $75,976 and $74,214 in the first quarter of fiscal 2005 and
the first quarter of fiscal 2004, respectively.

Financial Condition and Liquidity

Cash Flows and Liquidity

The  following  summarizes  cash flows for the three  months  ended  December  31,  2004 as  reported  in our
consolidated statements of cash flows:

|                                                   | 2005
|-------------------------------------------------- | ----
|Cash used in operating activities                  |     
|Cash provided by investing activities              |     
|Cash used in financing activities                  |     
|Effect of exchange rates                           |     
|                                                   |     
|Decrease in cash                                   |     
|Cash and cash equivalents at beginning of the year |     
|                                                   |     
|Cash and cash equivalents at end of period         |     
|                                                   |     

Operating Cash Flows

We used  $92,133 of cash for  operating  activities  during the first  quarter  of fiscal  2005.  Our most
significant use of cash was due to the decrease in accounts  payable,  deferred  revenue,  and accrued  expenses of
$56,037  from  September  30,  2004,  due mainly to a decrease in  accounts  payable of $41,270 as a result of less
favorable  terms with some of our  vendors  compared  to  September  30,  2004,  partially  offset by the impact on
accounts  payable for late fourth quarter  inventory  purchases as discussed  below.  Accrued  salaries,  wages and
commissions  decreased  as a result of the timing of the payroll  cycle and the payment of fiscal 2004  performance
compensation  during the first  quarter of fiscal 2005.  In addition,  interest  payable  decreased by $13,523 as a
result of a  semi-annual  interest  payment that was made during  fiscal 2005. We used $52,925 of cash to replenish
inventories that were depleted due to our sales  initiatives  late in the fourth quarter of fiscal 2004,  including
a large  purchase of inventory  made late in the first  quarter of fiscal 2005. As a result,  our  inventory  turns
decreased  to 9.2 from 9.6 turns at September  30, 2004.  An increase in accounts  receivable  negatively  impacted
cash flow from  operations  by $13,641 as a result of higher  days sales  outstanding  compared  to  September  30,
2004.  Partially  offsetting  these uses of cash was a decrease in prepaid  expenses  and other  current  assets of
$8,711  due mainly to receipt of a tax refund  during  the first  quarter of fiscal  2005.  Net income was  $16,627
during the first quarter of fiscal 2005 and non-cash operating expenses were $3,640,  which includes  depreciation,
amortization,  provision for losses on accounts and lease receivables,  deferred income taxes, pension expense, and
non-cash interest expense on debt supporting unsold residual value.

Investing Cash Flows

During the first  quarter of fiscal 2005,  we generated  $88,485 of cash from  investing  activities,  mainly
attributable  to the sale and  collection  of  $61,428  and  $136,106,  respectively,  of our  finance  receivables
partially  offset by $88,159 of finance  receivable  additions during the first quarter of fiscal 2005. As a result
of the  Transactions,  collections  received from our U.S.  retained lease portfolio will continue to significantly
outpace finance  receivable  additions.  During the first quarter of fiscal 2005, we had capital  expenditures  for
property and equipment of $4,848 and capital  expenditures  for equipment on operating  leases of $13,856.  Capital
expenditures  for equipment on operating  leases  represent  purchases of equipment  that are placed on rental with
our  customers.  Proceeds from the sale of property and equipment  during fiscal 2005 were $643.  Proceeds from the
sale of equipment on operating leases during fiscal 2005 were $975.

Financing Cash Flows

During the first quarter of fiscal 2005, we used $183,877 of cash for financing  activities.  As discussed in
further  detail below under "Debt  Structure"  on page 24 during  fiscal 2005 we used  $163,473 for debt  payments.
These  payments  include the maturity of $56,659 of the 6.75% notes due 2004 (the  "November 2004 Notes") that were
paid in November  2004 and $103,905 of lease related debt.  In March 2004,  the Board of Directors  authorized  the
repurchase of up to $250,000 of our  outstanding  shares of common stock (the "2004 Plan"),  superceding the fiscal
2000 share  repurchase  authorization.  During the first quarter of fiscal 2005, we repurchased  1.9 million shares
of our outstanding  common stock for $21,916  (including  payment of related fees),  leaving $150,629 remaining for share
repurchases under the 2004 Plan. During the remainder of fiscal 2005, we plan to continue share repurchases.

23

---

During the first  quarter of fiscal 2005, we paid $5,667 of  dividends,  representing  $0.04 per common share
to shareholders of record.

Debt Structure

Long-term corporate debt and notes payable consisted of:

|                                                                     | December 31, 2004 | September 30,2004
|-------------------------------------------------------------------- | ----------------- | -----------------
|Bond issues                                                          |                   |                  
|Convertible subordinated notes                                       |                   |                  
|Notes payable                                                        |                   |                  
|Miscellaneous notes, bonds, mortgages, and capital lease obligations |                   |                  
|                                                                     |                  
|                                                                     |                   |                  
|Less: current maturities                                             |                   |                  
|                                                                     |                  
|                                                                     |                   |                  
|                                                                     |                  

Long-term
debt supporting finance contracts and unsold residual value (Non-Corporate
Debt) consisted of:

|                                       | December 31, 2004 | September 30,2004
|-------------------------------------- | ----------------- | -----------------
|Lease-backed notes                     |                   |                  
|Asset securitization conduit financing |                   |                  
|Notes payable to banks                 |                   |                  
|Debt supporting unsold residual value  |                   |                  
|                                       |                  
|                                       |                   |                  
|Less: current maturities               |                   |                  
|                                       |                  
|                                       |                   |                  
|                                       |                  

Our
November 2004 Notes were paid upon maturity in November 2004. The balance of these notes
at September 30, 2004 was $56,659.

During
the first quarter of fiscal 2005, we repaid $97,624 of lease-backed notes.

Asset Securitization
Conduit Financing Agreements

As
of December 31, 2004, IKON Capital, PLC, our leasing subsidiary in the United
Kingdom, had approximately $29,175 available under its asset securitization conduit
financing agreement (the Conduit). During the first quarter of fiscal 2005,
IKON Capital, PLC repaid $3,453 in connection with the Conduit. No additional borrowings
were made in connection with the Conduit during the first quarter of fiscal 2005.

Debt Supporting Unsold
Residual Value

Due
mainly to certain provisions within our agreements with GE and other lease syndicators,
which do not allow us to recognize the sale of the residual value on leases in which we
are the equipment lessor (primarily state and local government contracts), we must keep
the present value of the residual value of those leases on our balance sheet. A
corresponding amount of debt is recorded representing the cash received from GE and the
other lease syndicators for the residual value. This debt will not be repaid unless
required under the applicable agreement in the event that an IKON service performance
failure is determined to relieve the lessee of its lease payment obligations. Over the
last three years, total repurchases of lease receivables related to our service
performance failures have amounted to approximately $500 on a cumulative basis. The net
book value of the combined lease portfolio as of December 31, 2004 was approximately
$3,100,000.

In
addition, we transferred lease receivables to GE for which we have retained all of the
risks of ownership. A corresponding amount of debt was recorded representing the cash
received from GE for these receivables.

24

---

As
of December 31, 2004, we had $59,511 of debt related to $58,370 of unsold residual value
and the present value of the remaining lease receivables that remained on our balance
sheet. During the first quarter of fiscal 2005, we imputed interest at our average
borrowing rate of 3.73% and recorded $500 of interest expense related to this debt. Upon
the end of the lease term or repurchase of the lease, whichever comes first, we will
reverse the unsold residual value and related debt as the underlying leases mature and any
differential will be recorded as a gain on the extinguishment of debt. As of December 31,
2004, this differential was $1,141.

Credit Facility

We
maintain a $200,000 secured credit facility (the Credit Facility) with a group
of lenders. The Credit Facility provides the availability of revolving loans, with certain
sub-limits, and provides support for letters of credit. The amount of credit available
under the Credit Facility is reduced by open letters of credit. The amount available under
the Credit Facility for borrowings or additional letters of credit was $165,579 at
December 31, 2004. The Credit Facility is secured by our accounts receivable and
inventory, the stock of our first-tier domestic subsidiaries, 65% of the stock of our
first-tier foreign subsidiaries, and all of our intangible assets. All security interests
pledged under the Credit Facility are shared with the holders of our 7.25% notes payable
due 2008.

The
Credit Facility contains affirmative and negative covenants, including limitations on
certain fundamental core business changes, investments and acquisitions, mergers, certain
transactions with affiliates, creations of liens, asset transfers, payments of dividends,
intercompany loans, and certain restricted payments. The Credit Facility does not,
however, limit our ability to continue to securitize lease receivables. The Credit
Facility matures on March 1, 2008, but is subject to certain early maturity events in
November 2006, January 2007, and April 2007 if our 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 any unused capacity
under the Credit Facility, to repay the balance of the Convertible Notes plus an
additional $100,000. The Credit Facility contains certain financial covenants relating to:
(i) our corporate leverage ratios; (ii) our consolidated interest coverage ratio; (iii)
our consolidated asset coverage ratio; (iv) our consolidated net worth ratios; (v)
limitations on our capital expenditures; and (vi) limitations on additional indebtedness
and liens. Under the terms of the Credit Facility, share repurchases are permitted in an
aggregate amount not to exceed $250,000 during the period of July 28, 2004 through March
1, 2008. From July 28, 2004 through September 30, 2005, share repurchases are permitted in
an aggregate amount not to exceed $150,000. Beginning on October 1, 2005, we are permitted
to repurchase (a) shares and pay dividends in an aggregate annual amount not to exceed 50%
of our annual net income, plus (b) that portion of the $150,000 allowance that we did not
utilize prior to October 1, 2005. As of December 31, 2004, $72,742 of the $150,000
allowance was utilized. Additionally, the Credit Facility contains default provisions
customary for facilities of this type.

Letters of Credit

We
have certain commitments available to us in the form of lines of credit and standby
letters of credit. As of December 31, 2004, we had $179,164 available under lines of
credit, including the $165,579 available under the Credit Facility and had open standby
letters of credit totaling $34,421. These letters of credit are primarily supported by the
Credit Facility. All letters of credit expire within one year.

Credit Ratings

As
of December 31, 2004, the credit ratings on our senior unsecured debt were designated Ba2
with stable outlook by Moodys Investor Services and BB with stable outlook by
Standard and Poors.

Liquidity Outlook

The
following summarizes our significant contractual obligations and commitments as of
December 31, 2004:

|                            |  | Payments due
|--------------------------- |  | ------------
|
|Corporate debt              |  |             
|Non-Corporate Debt          |  |             
|Notes payable               |  |             
|Purchase commitments        |  |             
|Other long-term liabilities |  |             
|Operating leases            |  |             
|                            | 
|Total                       |  |             
|                            | 

Non-Corporate  Debt excludes the maturity of debt  supporting  unsold  residual  value of $59,511.  This debt
will not be repaid unless  required  under the applicable  agreement in the event that an IKON service  performance
failure is  determined  to relieve the lessee of its lease payment  obligations.  Over the last three years,  total
repurchases  of lease  receivables  related to our service  performance  have amounted to  approximately  $500 on a
cumulative  basis.  The net book value of the combined  lease  portfolio as of December 31, 2004 was  approximately
$3,100,000.  Maturities of debt include estimated interest payments.  Maturities of lease-backed notes are based on
the contractual  maturities of leases.  Payments on  Non-Corporate  Debt are generally made from collections of our
finance  receivables.  At December 31, 2004,  Non-Corporate  Debt (excluding debt supporting unsold residual value)
was $727,753 and finance receivables, net of allowances, were $1,117,001.

25

---

Other  long-term  liabilities  exclude  $8,634 of accrued  contingencies  due to the inability to predict the
timing of payments due to the  uncertainty of their outcome.  Planned  contributions  to our defined  benefit plans
have been included in the estimated  period of payment.  All other  liabilities  related to pension are included in
"Thereafter" ($48,121), 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.

Purchase  commitments  represent future cash payments  related to an agreement with an outside  consultant to
be rendered prior to March 31, 2005.

From  time-to-time,  our Retirement Savings Plan may acquire shares of our common stock in open market
transactions or from our treasury shares.  Additionally,  from time-to-time we may repurchase available outstanding
indebtedness  in open market and private  transactions.  During the first  quarter of fiscal 2005,  we  repurchased
1,957 shares of our outstanding  common stock for $21,797,  leaving $150,629  remaining for share repurchases under
the 2004 Plan.  Under the terms of the Credit  Facility,  share  repurchases  are  permitted  up to $150,000  until
September  2005.  Beginning on October 1, 2005, we are  permitted to repurchase  (a) shares and pay dividends in an
aggregate  annual  amount  not to exceed  50% of our  annual net  income,  plus (b) that  portion  of the  $150,000
allowance  that we did not utilize  prior to October 1, 2005.  As of December  31,  2004,  $72,742 of the  $150,000
allowance was utilized.

For fiscal 2005, we expect to generate  (use) $25,000 to $(25,000) in cash from  operations.  These  expected
results are  primarily due to the payment of tax  obligations  related to the retained  U.S.  leasing  portfolio in
which we will continue to pay over the next several years as the underlying  leases run-off.  We expect to make tax
payments of  approximately  $150,000 to $170,000  during fiscal 2005. We expect net lease  receivable  collections,
reported  under  "Cash from  Investing  Activities,"  to more than  offset the  future tax  liabilities related to leases during the
transition  period,  as well as the obligations for the underlying debt supporting the lease  receivables.  Capital
expenditures,  net of proceeds from the sale of fixed assets,  are expected to be approximately  $90,000 for fiscal
2005.

We believe  that our  operating  cash flow  together  with our  current  cash  position  and other  financing
arrangements  will be sufficient to finance  current  operating  requirements  for fiscal 2005,  including  capital
expenditures, and payment of dividends.

PENDING ACCOUNTING CHANGES

In October  2004,  the American  Jobs  Creation  Act (the  "AJCA") was signed into law.  The AJCA  includes a
deduction of 85% of certain foreign  earnings that are  repatriated,  as defined by the AJCA. We may elect to apply
this  provision to  qualifying  earnings  repatriations  in either the balance of fiscal 2005 or in fiscal 2006. We
have begun an  evaluation of the effects of the  repatriation  provision;  however,  we do not expect to be able to
complete this evaluation until after Congress or the Treasury Department  provides  additional  clarifying language
on key  elements  of the  provision.  We expect to  complete  our  evaluation  of the  effects of the  repatriation
provision  within a reasonable  period of time following the  publication of the  additional  clarifying  language.
The range of possible  amounts that we are  considering  for  repatriation  under this  provision is between $0 and
$130,000.  The related potential range of income tax is between $0 and $7,000.

In December  2004,  the  Financial  Accounting  Standards  Board (the  "FASB")  issued its final  standard on
accounting for share-based  payments,  SFAS 123R (Revised 2004),  "Share-Based  Payments" ("SFAS 123R").  SFAS 123R
requires  companies to expense the fair value of employee  stock  options and other similar  awards,  effective for
interim and annual  periods  beginning on or after June 15, 2005.  When  measuring the fair value of theses awards,
companies can choose from two different  pricing models that  appropriately  reflect their  specific  circumstances
and the  economics  of their  transactions.  In addition,  we are in the process of selecting one of three
transition  methods  available to us under SFAS 123R.  Accordingly,  we have not yet  determined  the impact on our
consolidated  financial  statements of adopting SFAS 123R.  Additional  information  regarding the pro forma impact
of expensing  stock  options is presented in note 1 to the Notes to  Condensed  Consolidated  Financial  Statements
(Unaudited).

26

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Also in December  2004,  the FASB issued its final  standard on  accounting  for  exchanges  of  non-monetary
assets,  SFAS 153,  "Exchanges of  Non-monetary  Assets an amendment of APB Opinion No. 29" ("SFAS 153").  SFAS 153
requires that exchanges of non-monetary  assets be measured based on the fair value of assets  exchanged for annual
periods  beginning  after June 15, 2005. We are currently  evaluating  the impact of SFAS 153, but we do not expect
a material impact from the adoption of SFAS 153 on our consolidated financial statements.

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 we
use 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 our 2004 annual report on Form 10-K filed with the  Securities  and
Exchange Commission (the "SEC").

Foreign  Exchange  Risk.        We  have  various  non-U.S.  operating  locations  which  expose us to foreign
currency exchange risk.  Foreign  denominated  intercompany debt borrowed in one currency and repaid in another may
be fixed via currency swap agreements.

Item 4.        Controls and Procedures

We, under the  supervision  and with the  participation  of our management  including our Chief  Executive
Officer and Chief Financial  Officer,  have evaluated the  effectiveness of our 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 our  disclosure  controls  and  procedures  are  effective  in reaching a
reasonable  level of assurance  that  information  required to be included in our reports filed or submitted  under
the Exchange Act is recorded,  processed,  summarized,  and reported within the time period  specified in the SEC's
rules and forms.

During the quarter ended  December 31, 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 U.S.  Program  Agreement and the Canadian Rider contain audit
right  provisions that require,  upon our request,  GE's external  auditors to perform certain audit procedures and
issue annual and quarterly  reports to us relating to GE's  servicing of such  portfolios  ("Servicing  Controls"),
including a Type II Statement on Auditing  Standards  ("SAS") 70 Report  relating to the  Servicing  Controls.  The
audit  rights  and Type II SAS 70 Report are  designed  to inform us of any  identified  weakness  relating  to the
Servicing  Controls and to provide us with an opportunity to review and understand  such findings in advance of our
fiscal  year  reporting  requirements.  We  believe  that  such  audit  rights  and the Type II SAS 70  Report  are
reasonably designed to confirm that the objectives of the Servicing Controls are met.

In  response  to the  requirements  of  Section  404 of the  Sarbanes-Oxley  Act of  2002,  we have  invested
significant  resources to document and assess our systems of internal  controls.  We have identified  certain areas
in our internal  controls  requiring  improvement  and are designing  enhanced  procedures and controls to address
these areas.

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 our 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.

27

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PART II - OTHER INFORMATION

Item 2.
        Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to our purchases of our common stock during the quarter
ended December 31, 2004:

|Period                               | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Numberof SharesPurchasedas Part of PubliclyAnnouncedProgram | ApproximateDollar Valueof Shares ThatMay Yet BePurchased Under theProgram (2)
|------------------------------------ | ------------------------------------ | ---------------------------- | ----------------------------------------------------------------- | -----------------------------------------------------------------------------
|October 1, 2004 - October 31, 2004   |                                      |                              |                                                                   | 244,500                                                                      
|November 1, 2004 - November 30, 2004 |                                      |                              |                                                                   | 704,000                                                                      
|December 1, 2004 - December 31, 2004 |                                      |                              |                                                                   | 1,008,500                                                                    
|                                     |                                     
|                                     |                                      |                              |                                                                   | 1,957,000                                                                    
|                                     |                                      |                              |                                                                   |                                                                              

| | (1) | As of December 31, 2004, we repurchased a total of 8,697,500 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 SEC 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, our Board of
               Directors may discontinue the Program at any time. As of December 31, 2004, we
               had utilized $99,370,888 under the Program (see page 25 for information
               concerning our share repurchase activity and how it relates to our Credit
               Facility).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item
6.Exhibits

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                               

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities 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: | February 8, 2005                                                                                                     | 
|----- | -------------------------------------------------------------------------------------------------------------------- | 
|By:   | /s/ ROBERT F. WOODS(Robert F. Woods)
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) | 

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