##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended March 31, 2007
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                    to                    .
 Commission file number 1-5964
 
 IKON OFFICE SOLUTIONS, INC.
 (Exact name of registrant as specified in its charter)
 OHIO(State or other jurisdiction of 
incorporation or organization)
    
    23-0334400(I.R.S. Employer
Identification No.)
 70 Valley Stream Parkway 
Malvern, Pennsylvania
    
    19355(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(610) 296-8000
  þ o
  þ o o
 o þ




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##### 



INDEX
 Page No.CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATIONITEM 1.
    
    CONDENSED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS  MARCH 31, 2007 AND SEPTEMBER
30, 2006 (UNAUDITED)
    
    
    4CONSOLIDATED STATEMENTS OF INCOME  THREE AND SIX MONTHS
ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)
    
    
    5CONSOLIDATED STATEMENTS OF CASH FLOWS  SIX MONTHS ENDED
MARCH 31, 2007 AND 2006 (UNAUDITED)
    
    
    6NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    
    
    7-16ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    17-28ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    28ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    29-30PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    31ITEM 1A.
    
    RISK FACTORS
    
    
    31ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    31ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    31ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    31ITEM 5.
    
    OTHER INFORMATION
    
    
    31ITEM 6.
    
    EXHIBITS
    
    
    31SIGNATURESAll dollar and share amounts are in thousands, except per share
data or as otherwise noted.
 2




---



##### 



FORWARD-LOOKING STATEMENTS
   
    
    conducting operations in a competitive environment and a changing industry;
    
    existing or future supplier relationships;
    
    our relationship with General Electric Capital Corporation (GE);
    
    our One Platform Conversion and our infrastructure and productivity initiatives;
    
    our ability to remediate our material weakness in billing and achieve effective
internal control over financial reporting;
    
    our ability to improve operational efficiency;
    
    new technologies;
    
    our ability to finance current operations and growth initiatives; and
    
    economic, legal and political issues associated with our international operations.
 3




---



##### 



PART I  FINANCIAL INFORMATION
 Item 1. Condensed Financial Statements
 IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
 March 31, 2007
    
    
    September 30, 2006AssetsCash and cash equivalents
    
    $
    323,652
    
    
    $
    414,239Accounts receivable, net
    
    
    568,376
    
    
    
    589,973Lease receivables, net
    
    
    80,769
    
    
    
    83,051Inventories
    
    
    325,913
    
    
    
    214,792Prepaid expenses and other current assets
    
    
    30,526
    
    
    
    34,742Deferred taxes
    
    
    50,930
    
    
    
    46,504Total current assets
    
    
    1,380,166
    
    
    
    1,383,301Long-term lease receivables, net
    
    
    239,368
    
    
    
    222,333Equipment on operating leases, net
    
    
    75,873
    
    
    
    83,248Property and equipment, net
    
    
    142,493
    
    
    
    144,453Deferred taxes
    
    
    17,945
    
    
    
    30,215Goodwill
    
    
    1,311,322
    
    
    
    1,297,333Other assets
    
    
    69,513
    
    
    
    74,543Total Assets
    
    $
    3,236,680
    
    
    $
    3,235,426LiabilitiesCurrent portion of corporate debt
    
    $
    3,491
    
    
    $
    1,487Current portion of non-corporate debt
    
    
    157,512
    
    
    
    152,971Trade accounts payable
    
    
    256,880
    
    
    
    224,312Accrued salaries, wages and commissions
    
    
    77,570
    
    
    
    109,090Deferred revenues
    
    
    110,367
    
    
    
    118,146Income taxes payable
    
    
    6,478
    
    
    
    15,831Other accrued expenses
    
    
    121,163
    
    
    
    139,590Total current liabilities
    
    
    733,461
    
    
    
    761,427Long-term corporate debt
    
    
    581,320
    
    
    
    593,578Long-term non-corporate debt
    
    
    69,140
    
    
    
    64,005Other long-term liabilities
    
    
    128,657
    
    
    
    130,283Commitments and contingencies (Note 9)Shareholders EquityCommon stock, no par value
    
    
    1,054,365
    
    
    
    1,044,633Retained earnings
    
    
    872,257
    
    
    
    828,255Accumulated other comprehensive income
    
    
    80,653
    
    
    
    59,169Cost of common stock in treasury
    
    
    (283,173
    )
    
    
    (245,924
    )Total Shareholders Equity
    
    
    1,724,102
    
    
    
    1,686,133Total Liabilities and Shareholders Equity
    
    $
    3,236,680
    
    
    $
    3,235,426Supplemental InformationShares of common stock authorized
    
    
    300,000
    
    
    
    300,000Shares of common stock issued
    
    
    149,310
    
    
    
    149,310Treasury stock
    
    
    23,715
    
    
    
    21,695Shares of common stock outstanding
    
    
    125,595
    
    
    
    127,615Series 12 preferred stock, no par
value: authorized 480 shares; none issued
or outstanding
    
    
    
    
    
    
    
 See notes to condensed consolidated financial statements
 4




---



##### 



IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesEquipment
    
    $
    453,686
    
    
    $
    460,748
    
    
    $
    869,923
    
    
    $
    885,737Customer service and supplies
    
    
    345,267
    
    
    
    361,383
    
    
    
    691,237
    
    
    
    732,606Managed and professional services
    
    
    198,237
    
    
    
    185,470
    
    
    
    390,480
    
    
    
    361,852Rental and fees
    
    
    34,576
    
    
    
    43,248
    
    
    
    69,984
    
    
    
    83,675Other
    
    
    18,970
    
    
    
    29,660
    
    
    
    36,996
    
    
    
    59,5021,050,736
    
    
    
    1,080,509
    
    
    
    2,058,620
    
    
    
    2,123,372Cost of RevenuesEquipment
    
    
    337,709
    
    
    
    343,405
    
    
    
    650,093
    
    
    
    666,648Customer service and supplies
    
    
    202,691
    
    
    
    206,679
    
    
    
    396,921
    
    
    
    405,732Managed and professional services
    
    
    144,211
    
    
    
    136,366
    
    
    
    286,463
    
    
    
    268,012Rental and fees
    
    
    8,486
    
    
    
    12,975
    
    
    
    18,395
    
    
    
    25,773Other
    
    
    12,630
    
    
    
    15,757
    
    
    
    24,627
    
    
    
    29,687705,727
    
    
    
    715,182
    
    
    
    1,376,499
    
    
    
    1,395,852Gross ProfitEquipment
    
    
    115,977
    
    
    
    117,343
    
    
    
    219,830
    
    
    
    219,089Customer service and supplies
    
    
    142,576
    
    
    
    154,704
    
    
    
    294,316
    
    
    
    326,874Managed and professional services
    
    
    54,026
    
    
    
    49,104
    
    
    
    104,017
    
    
    
    93,840Rental and fees
    
    
    26,090
    
    
    
    30,273
    
    
    
    51,589
    
    
    
    57,902Other
    
    
    6,340
    
    
    
    13,903
    
    
    
    12,369
    
    
    
    29,815345,009
    
    
    
    365,327
    
    
    
    682,121
    
    
    
    727,520Selling and administrative
    
    
    293,280
    
    
    
    314,827
    
    
    
    581,417
    
    
    
    628,814Gain on divestiture of business
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    5,029Restructuring (expense) benefit
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    135Operating income
    
    
    51,729
    
    
    
    50,588
    
    
    
    100,704
    
    
    
    103,870Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,650Interest income
    
    
    3,039
    
    
    
    2,365
    
    
    
    6,399
    
    
    
    4,936Interest expense
    
    
    12,530
    
    
    
    13,315
    
    
    
    24,982
    
    
    
    27,113Income from continuing operations before
taxes on income
    
    
    42,238
    
    
    
    39,638
    
    
    
    82,121
    
    
    
    80,043Taxes on income
    
    
    11,785
    
    
    
    14,270
    
    
    
    24,331
    
    
    
    27,043Income from continuing operations
    
    
    30,453
    
    
    
    25,368
    
    
    
    57,790
    
    
    
    53,000Discontinued Operations:Operating loss
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    32Tax benefit
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    13Net loss from discontinued operations
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    19Net income
    
    $
    30,453
    
    
    $
    25,338
    
    
    $
    57,790
    
    
    $
    52,981Basic Earnings Per Common ShareContinuing operations
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.46
    
    
    $
    0.40Discontinued operations
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Net income
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.46
    
    
    $
    0.40Diluted Earnings Per Common ShareContinuing operations
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.45
    
    
    $
    0.39Discontinued operations
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Net income
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.45
    
    
    $
    0.39Cash dividends per common share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.08
 See notes to condensed consolidated financial statements
 5




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##### 



IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Six Months Ended March 312007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    57,790
    
    
    $
    52,981Net loss from discontinued operations
    
    
    
    
    
    
    19Income from continuing operations
    
    
    57,790
    
    
    
    53,000Additions (deductions) to reconcile net income to net cash (used in) provided by operating activities:Depreciation
    
    
    33,862
    
    
    
    36,119Amortization
    
    
    1,027
    
    
    
    2,033Gain from divestiture of business
    
    
    
    
    
    
    (5,029
    )Loss on disposal of property and equipment
    
    
    503
    
    
    
    1,276Provision for losses on accounts receivable
    
    
    3,865
    
    
    
    (1,117
    )Provision for deferred income taxes
    
    
    7,256
    
    
    
    (27,750
    )Provision for lease default reserves
    
    
    26
    
    
    
    1,086Stock-based compensation expense
    
    
    4,980
    
    
    
    5,084Pension expense
    
    
    1,029
    
    
    
    21,820Loss from the early extinguishment of debt
    
    
    
    
    
    
    1,650Changes in operating assets and liabilities, net of divestiture of businesses:Decrease in accounts receivable
    
    
    22,261
    
    
    
    6,987Increase in inventories
    
    
    (109,434
    )
    
    
    (22,321
    )Decrease in prepaid expenses and other current assets
    
    
    4,646
    
    
    
    14,463Increase (decrease) in accounts payable
    
    
    30,606
    
    
    
    (6,165
    )Decrease in deferred revenue
    
    
    (10,584
    )
    
    
    (4,101
    )Decrease in accrued expenses
    
    
    (49,671
    )
    
    
    (39,379
    )Contributions to pension plans
    
    
    (1,936
    )
    
    
    (5,592
    )(Decrease) increase in income taxes payable
    
    
    (7,746
    )
    
    
    10,143Other
    
    
    48
    
    
    
    (1,295
    )Net cash (used in) provided by continuing operations
    
    
    (11,472
    )
    
    
    40,912Net cash used in discontinued operations
    
    
    
    
    
    
    (846
    )Net cash (used in) provided by operating activities
    
    
    (11,472
    )
    
    
    40,066Cash Flows from Investing ActivitiesProceeds from the divestiture of a business
    
    
    
    
    
    
    19,575Expenditures for property and equipment
    
    
    (11,708
    )
    
    
    (18,517
    )Expenditures for equipment on operating leases
    
    
    (12,731
    )
    
    
    (12,211
    )Proceeds from the sale of property and equipment and equipment on operating leases
    
    
    4,928
    
    
    
    15,754Proceeds from the sale of lease receivables
    
    
    106,964
    
    
    
    92,865Lease receivables  additions
    
    
    (152,026
    )
    
    
    (186,542
    )Lease receivables  collections
    
    
    49,311
    
    
    
    238,495Proceeds from life insurance
    
    
    3,805
    
    
    
    1,821Other
    
    
    (868
    )
    
    
    (3,067
    )Net cash (used in) provided by investing activities
    
    
    (12,325
    )
    
    
    148,173Cash Flows from Financing ActivitiesShort-term corporate debt borrowings (repayments), net
    
    
    1
    
    
    
    (30
    )Repayment of other borrowings
    
    
    (42
    )
    
    
    (3,754
    )Debt issuance costs
    
    
    
    
    
    
    (984
    )Debt modification costs
    
    
    (15,750
    )
    
    
    Corporate debt   repayments
    
    
    (615
    )
    
    
    (54,460
    )Non-corporate debt  issuances
    
    
    4,220
    
    
    
    7,256Non-corporate debt  repayments
    
    
    (7,175
    )
    
    
    (134,298
    )Dividends paid
    
    
    (10,135
    )
    
    
    (10,614
    )Decrease in restricted cash
    
    
    
    
    
    
    1,489Proceeds from stock option exercises
    
    
    15,244
    
    
    
    13,758Tax benefit relating to stock plans
    
    
    1,466
    
    
    
    4,997Purchase of treasury shares
    
    
    (56,115
    )
    
    
    (68,975
    )Net cash used in financing activities
    
    
    (68,901
    )
    
    
    (245,615
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2,111
    
    
    
    (4,676
    )Net decrease in cash and cash equivalents
    
    
    (90,587
    )
    
    
    (62,052
    )Cash and cash equivalents at beginning of year
    
    
    414,239
    
    
    
    373,705Cash and cash equivalents at end of period
    
    $
    323,652
    
    
    $
    311,653Supplemental cash flow information:Cash paid for income taxes
    
    $
    23,676
    
    
    $
    46,295Cash paid for interest on corporate and non-corporate debt
    
    $
    27,081
    
    
    $
    35,940Non-cash investing and financing activities:Property and equipment acquired under capital leases
    
    $
    5,998
    
    
    $
    
 See notes to condensed consolidated financial statements
 6




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##### 



IKON OFFICE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED)
 1. BASIS OF PRESENTATION
     2. RECENT ACCOUNTING STANDARDS
   7




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##### 



3. ACCOUNTING FOR STOCK BASED COMPENSATION
 Stock Options
      WeightedShares
    
    
    Average PriceOutstanding at September 30, 2006
    
    
    9,366
    
    
    $
    11.50Granted
    
    
    648
    
    
    
    16.31Exercised
    
    
    1,631
    
    
    
    9.35Cancelled
    
    
    223
    
    
    
    32.60Outstanding at March 31, 2007
    
    
    8,160
    
    
    $
    11.74Exercisable at March 31, 2007
    
    
    6,290
    *
    
    $
    11.54
 
 *
    
    4,929 of the 6,290 options exercisable at March 31, 2007 have an exercise price that is lower than
the closing price of the Companys stock on March 31, 2007.   8




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##### 



Three Months Ended March 31
    
    Six Months Ended March 312007
    
    2006
    
    2007
    
    2006Expected dividend yield (1)
    
    
    1.1
    %
    
    
    1.3
    %
    
    
    1.0
    %
    
    
    1.5
    %Expected volatility rate (2)
    
    
    25.3
    %
    
    
    54.7
    %
    
    
    24.7
    %
    
    
    55.1
    %Expected lives (3)
    
    5.0 years
    
    5.0 years
    
    5.0 years
    
    5.0 yearsRisk-free interest rate (4)
    
    
    4.7
    %
    
    
    4.6
    %
    
    
    4.5
    %
    
    
    4.4
    %
 
 (1)
    
    Dividend yield assumption is based on the Companys history and expectation of future
dividend payouts.(2)
    
    For options granted prior to October 1, 2006, the expected volatility rate is determined
using historical price observations at regular intervals since 1993 through the respective
option date. For options granted after October 1, 2006, the expected volatility rate is
determined using historical price observations at regular intervals since April 1, 2004.(3)
    
    The expected life of employee stock options is based on both historical exercise pattern and
from calculating an expected term from the option date to full exercise for the options
granted.(4)
    
    Risk-free interest rate assumption is based upon the interest rates published by the Federal
Reserve for U.S. Treasury Securities with a five-year life.  Options Outstanding
    
    Options ExercisableNumber
    
    Weighted
    
    WeightedAverage
    
    Aggregate
    
    Number
    
    Weighted
    
    WeightedAverage
    
    AggregateRange of
    
    Outstanding
    
    Average
    
    Remaining
    
    Intrinsic
    
    Exercisable
    
    Average
    
    Remaining
    
    IntrinsicExercise Prices
    
    at March 31, 2007
    
    Exercise Price
    
    Contractual Life
    
    Value
    
    at March 31, 2007
    
    Exercise Price
    
    Contractual Life
    
    Value$   2.38  9.10
    
    
    1,879
    
    
    $
    6.19
    
    
    5.97 years
    
    $
    15,366
    
    
    
    1,729
    
    
    $
    5.95
    
    
    5.99 years
    
    $
    14,5689.11  10.99
    
    
    3,278
    
    
    
    10.77
    
    
    
    7.70
    
    
    
    11,798
    
    
    
    2,157
    
    
    
    10.74
    
    
    
    7.30
    
    
    
    7,83011.00  14.50
    
    
    1,094
    
    
    
    11.68
    
    
    
    5.77
    
    
    
    2,944
    
    
    
    1,043
    
    
    
    11.63
    
    
    
    5.63
    
    
    
    2,85314.51  19.90
    
    
    1,398
    
    
    
    16.10
    
    
    
    5.48
    
    
    
    
    
    
    
    850
    
    
    
    15.79
    
    
    
    2.62
    
    
    
    19.91   44.63
    
    
    511
    
    
    
    26.60
    
    
    
    1.60
    
    
    
    
    
    
    
    511
    
    
    
    26.60
    
    
    
    1.60
    
    
    
    8,160
    
    
    $
    11.74
    
    
    
    6.28
    
    
    $
    30,108
    
    
    
    6,290
    
    
    $
    11.54
    
    
    
    5.57
    
    
    $
    25,251
 Stock Awards
   9




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##### 



4. GOODWILL
  IKON North
    
    
    IKONAmerica
    
    
    Europe
    
    
    TotalGoodwill at September 30, 2006
    
    $
    962,407
    
    
    $
    334,926
    
    
    $
    1,297,333Translation adjustment
    
    
    (3,304
    )
    
    
    17,293
    
    
    
    13,989Goodwill at March 31, 2007
    
    $
    959,103
    
    
    $
    352,219
    
    
    $
    1,311,322
  5. EARNINGS PER COMMON SHARE
  Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Numerator for basic earnings per common share 
income from continuing operations
    
    $
    30,453
    
    
    $
    25,368
    
    
    $
    57,790
    
    
    $
    53,000Effect of dilutive securities:Interest expense on convertible notes, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Numerator for diluted earnings per common share  net
income from continuing operations
    
    $
    30,453
    
    
    $
    25,368
    
    
    $
    57,790
    
    
    $
    53,088Denominator:Denominator for basic earnings per common share 
weighted average common shares
    
    
    126,329
    
    
    
    132,506
    
    
    
    126,787
    
    
    
    132,827Effect of dilutive securities:Convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389Employee stock awards
    
    
    706
    
    
    
    550
    
    
    
    692
    
    
    
    492Employee stock options
    
    
    1,147
    
    
    
    977
    
    
    
    1,268
    
    
    
    745Dilutive potential common shares
    
    
    1,853
    
    
    
    1,527
    
    
    
    1,960
    
    
    
    1,626Denominator for diluted earnings per common share 
adjusted weighted average common shares and assumed
conversions
    
    
    128,182
    
    
    
    134,033
    
    
    
    128,747
    
    
    
    134,453Basic earnings per common share from continuing operations
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.46
    
    
    $
    0.40Diluted earnings per common share from continuing
operations
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.45
    
    
    $
    0.39
   10




---



##### 



6. DEBT AGREEMENTS
   7. SHARE REPURCHASES
   11




---



##### 



8. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    30,453
    
    
    $
    25,338
    
    
    $
    57,790
    
    
    $
    52,981Foreign currency translation adjustments
    
    
    4,917
    
    
    
    5,783
    
    
    
    21,484
    
    
    
    (6,084
    )Loss on derivative financial instruments
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    (228
    )Minimum pension liability adjustment
    
    
    
    
    
    
    2,026
    **
    
    
    
    
    
    
    26,810
    *Total comprehensive income
    
    $
    35,370
    
    
    $
    33,050
    
    
    $
    79,274
    
    
    $
    73,479
 
 *
    
    As a result of freezing the U.S. Plans and one of our Non-U.S. Plans (discussed in Note 11).**
    
    As a result of freezing one of our Non-U.S. Plans (discussed in Note 11). 9. CONTINGENCIES
 Environmental and Legal
    12




---



##### 



Other Contingencies
    10. SEGMENT REPORTING
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended March 31, 2007Revenues:Equipment
    
    $
    395,592
    
    
    $
    58,094
    
    
    $
    
    
    
    $
    453,686Customer service and supplies
    
    
    302,407
    
    
    
    42,860
    
    
    
    
    
    
    
    345,267Managed and professional services
    
    
    183,443
    
    
    
    14,794
    
    
    
    
    
    
    
    198,237Rental and fees
    
    
    32,661
    
    
    
    1,915
    
    
    
    
    
    
    
    34,576Other
    
    
    
    
    
    
    18,970
    
    
    
    
    
    
    
    18,970Total revenues
    
    
    914,103
    
    
    
    136,633
    
    
    
    
    
    
    
    1,050,736Cost of Revenues:Equipment
    
    
    299,559
    
    
    
    38,150
    
    
    
    
    
    
    
    337,709Customer service and supplies
    
    
    172,296
    
    
    
    30,395
    
    
    
    
    
    
    
    202,691Managed and professional services
    
    
    131,085
    
    
    
    13,126
    
    
    
    
    
    
    
    144,211Rental and fees
    
    
    8,276
    
    
    
    210
    
    
    
    
    
    
    
    8,486Other
    
    
    
    
    
    
    12,630
    
    
    
    
    
    
    
    12,630
 13




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalTotal cost of revenues
    
    
    611,216
    
    
    
    94,511
    
    
    
    
    
    
    
    705,727Gross Profit:Equipment
    
    
    96,033
    
    
    
    19,944
    
    
    
    
    
    
    
    115,977Customer service and supplies
    
    
    130,111
    
    
    
    12,465
    
    
    
    
    
    
    
    142,576Managed and professional services
    
    
    52,358
    
    
    
    1,668
    
    
    
    
    
    
    
    54,026Rental and fees
    
    
    24,385
    
    
    
    1,705
    
    
    
    
    
    
    
    26,090Other
    
    
    
    
    
    
    6,340
    
    
    
    
    
    
    
    6,340Total gross profit
    
    
    302,887
    
    
    
    42,122
    
    
    
    
    
    
    
    345,009Selling and administrative
    
    
    222,292
    
    
    
    33,832
    
    
    
    37,156
    
    
    
    293,280Operating income
    
    
    80,595
    
    
    
    8,290
    
    
    
    (37,156
    )
    
    
    51,729Interest income
    
    
    
    
    
    
    
    
    
    
    3,039
    
    
    
    3,039Interest expense
    
    
    
    
    
    
    
    
    
    
    12,530
    
    
    
    12,530Income from continuing operations before
taxes on income
    
    $
    80,595
    
    
    $
    8,290
    
    
    $
    (46,647
    )
    
    $
    42,238Three Months Ended March 31, 2006Revenues:Equipment
    
    $
    407,819
    
    
    $
    52,929
    
    
    $
    
    
    
    $
    460,748Customer service and supplies
    
    
    324,513
    
    
    
    36,870
    
    
    
    
    
    
    
    361,383Managed and professional services
    
    
    172,407
    
    
    
    13,063
    
    
    
    
    
    
    
    185,470Rental and fees
    
    
    41,976
    
    
    
    1,272
    
    
    
    
    
    
    
    43,248Other
    
    
    11,839
    
    
    
    17,821
    
    
    
    
    
    
    
    29,660Total revenues
    
    
    958,554
    
    
    
    121,955
    
    
    
    
    
    
    
    1,080,509Cost of revenues:Equipment
    
    
    308,809
    
    
    
    34,596
    
    
    
    
    
    
    
    343,405Customer service and supplies
    
    
    179,715
    
    
    
    26,964
    
    
    
    
    
    
    
    206,679Managed and professional services
    
    
    124,763
    
    
    
    11,603
    
    
    
    
    
    
    
    136,366Rental and fees
    
    
    12,791
    
    
    
    184
    
    
    
    
    
    
    
    12,975Other
    
    
    4,075
    
    
    
    11,682
    
    
    
    
    
    
    
    15,757Total cost of revenues
    
    
    630,153
    
    
    
    85,029
    
    
    
    
    
    
    
    715,182Gross profit:Equipment
    
    
    99,010
    
    
    
    18,333
    
    
    
    
    
    
    
    117,343Customer service and supplies
    
    
    144,798
    
    
    
    9,906
    
    
    
    
    
    
    
    154,704Managed and professional services
    
    
    47,644
    
    
    
    1,460
    
    
    
    
    
    
    
    49,104Rental and fees
    
    
    29,185
    
    
    
    1,088
    
    
    
    
    
    
    
    30,273Other
    
    
    7,764
    
    
    
    6,139
    
    
    
    
    
    
    
    13,903Total gross profit
    
    
    328,401
    
    
    
    36,926
    
    
    
    
    
    
    
    365,327Selling and administrative
    
    
    240,356
    
    
    
    30,834
    
    
    
    43,637
    
    
    
    314,827(Loss) gain on divestiture of business
    
    
    (234
    )
    
    
    339
    
    
    
    
    
    
    
    105Restructuring expense
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Operating income
    
    
    87,794
    
    
    
    6,431
    
    
    
    (43,637
    )
    
    
    50,588Loss from the early extinguishment of debt
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    2,365
    
    
    
    2,365Interest expense
    
    
    
    
    
    
    
    
    
    
    13,315
    
    
    
    13,315Income from continuing operations before
taxes on income
    
    $
    87,794
    
    
    $
    6,431
    
    
    $
    (54,587
    )
    
    $
    39,638
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalSix Months Ended March 31, 2007Revenues:Equipment
    
    $
    757,347
    
    
    $
    112,576
    
    
    $
    
    
    
    $
    869,923Customer service and supplies
    
    
    607,024
    
    
    
    84,213
    
    
    
    
    
    
    
    691,237Managed and professional services
    
    
    361,916
    
    
    
    28,564
    
    
    
    
    
    
    
    390,480Rental and fees
    
    
    65,853
    
    
    
    4,131
    
    
    
    
    
    
    
    69,984Other
    
    
    
    
    
    
    36,996
    
    
    
    
    
    
    
    36,996Total revenues
    
    
    1,792,140
    
    
    
    266,480
    
    
    
    
    
    
    
    2,058,620Cost of Revenues:Equipment
    
    
    577,081
    
    
    
    73,012
    
    
    
    
    
    
    
    650,093Customer service and supplies
    
    
    337,983
    
    
    
    58,938
    
    
    
    
    
    
    
    396,921Managed and professional services
    
    
    261,010
    
    
    
    25,453
    
    
    
    
    
    
    
    286,463
 14




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalRental and fees
    
    
    17,968
    
    
    
    427
    
    
    
    
    
    
    
    18,395Other
    
    
    
    
    
    
    24,627
    
    
    
    
    
    
    
    24,627Total cost of revenues
    
    
    1,194,042
    
    
    
    182,457
    
    
    
    
    
    
    
    1,376,499Gross Profit:Equipment
    
    
    180,266
    
    
    
    39,564
    
    
    
    
    
    
    
    219,830Customer service and supplies
    
    
    269,041
    
    
    
    25,275
    
    
    
    
    
    
    
    294,316Managed and professional services
    
    
    100,906
    
    
    
    3,111
    
    
    
    
    
    
    
    104,017Rental and fees
    
    
    47,885
    
    
    
    3,704
    
    
    
    
    
    
    
    51,589Other
    
    
    
    
    
    
    12,369
    
    
    
    
    
    
    
    12,369Total gross profit
    
    
    598,098
    
    
    
    84,023
    
    
    
    
    
    
    
    682,121Selling and administrative
    
    
    442,064
    
    
    
    66,886
    
    
    
    72,467
    
    
    
    581,417Operating income
    
    
    156,034
    
    
    
    17,137
    
    
    
    (72,467
    )
    
    
    100,704Interest income
    
    
    
    
    
    
    
    
    
    
    6,399
    
    
    
    6,399Interest expense
    
    
    
    
    
    
    
    
    
    
    24,982
    
    
    
    24,982Income from continuing operations before
taxes on income
    
    $
    156,034
    
    
    $
    17,137
    
    
    $
    (91,050
    )
    
    $
    82,121Six Months Ended March 31, 2006Revenues:Equipment
    
    $
    783,542
    
    
    $
    102,195
    
    
    $
    
    
    
    $
    885,737Customer service and supplies
    
    
    661,181
    
    
    
    71,425
    
    
    
    
    
    
    
    732,606Managed and professional services
    
    
    335,231
    
    
    
    26,621
    
    
    
    
    
    
    
    361,852Rental and fees
    
    
    81,003
    
    
    
    2,672
    
    
    
    
    
    
    
    83,675Other
    
    
    25,113
    
    
    
    34,389
    
    
    
    
    
    
    
    59,502Total revenues
    
    
    1,886,070
    
    
    
    237,302
    
    
    
    
    
    
    
    2,123,372Cost of revenues:Equipment
    
    
    600,023
    
    
    
    66,625
    
    
    
    
    
    
    
    666,648Customer service and supplies
    
    
    354,567
    
    
    
    51,165
    
    
    
    
    
    
    
    405,732Managed and professional services
    
    
    245,009
    
    
    
    23,003
    
    
    
    
    
    
    
    268,012Rental and fees
    
    
    25,440
    
    
    
    333
    
    
    
    
    
    
    
    25,773Other
    
    
    7,815
    
    
    
    21,872
    
    
    
    
    
    
    
    29,687Total cost of revenues
    
    
    1,232,854
    
    
    
    162,998
    
    
    
    
    
    
    
    1,395,852Gross profit:Equipment
    
    
    183,519
    
    
    
    35,570
    
    
    
    
    
    
    
    219,089Customer service and supplies
    
    
    306,614
    
    
    
    20,260
    
    
    
    
    
    
    
    326,874Managed and professional services
    
    
    90,222
    
    
    
    3,618
    
    
    
    
    
    
    
    93,840Rental and fees
    
    
    55,563
    
    
    
    2,339
    
    
    
    
    
    
    
    57,902Other
    
    
    17,298
    
    
    
    12,517
    
    
    
    
    
    
    
    29,815Total gross profit
    
    
    653,216
    
    
    
    74,304
    
    
    
    
    
    
    
    727,520Selling and administrative
    
    
    465,152
    
    
    
    60,638
    
    
    
    103,024
    
    
    
    628,814(Loss) gain on divestiture of business
    
    
    (233
    )
    
    
    5,262
    
    
    
    
    
    
    
    5,029Restructuring benefit
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    135Operating income
    
    
    187,966
    
    
    
    18,928
    
    
    
    (103,024
    )
    
    
    103,870Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    1,650
    
    
    
    1,650Interest income
    
    
    
    
    
    
    
    
    
    
    4,936
    
    
    
    4,936Interest expense
    
    
    
    
    
    
    
    
    
    
    27,113
    
    
    
    27,113Income from continuing operations before
taxes on income
    
    $
    187,966
    
    
    $
    18,928
    
    
    $
    (126,851
    )
    
    $
    80,043
 
 *
    
    Corporate and Eliminations, which is not treated as a business segment, includes certain
corporate and administrative functions such as finance and customer support. 11. PENSION PLANS
   15




---



##### 



Three Months Ended March 312007
    
    
    2006U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansService cost
    
    $
    
    
    
    $
    700
    
    
    $
    
    
    
    $
    1,203Interest cost
    
    
    8,191
    
    
    
    1,242
    
    
    
    8,021
    
    
    
    1,122Expected return on assets
    
    
    (9,089
    )
    
    
    (1,411
    )
    
    
    (7,777
    )
    
    
    (1,034
    )Amortization of net obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Amortization of prior service cost
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    (51
    )Recognized net actuarial loss
    
    
    673
    
    
    
    250
    
    
    
    2,310
    
    
    
    398Curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    776Net periodic pension (income) cost
    
    $
    (225
    )
    
    $
    730
    
    
    $
    2,554
    
    
    $
    2,423
 Six Months Ended March 312007
    
    
    2006U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansService cost
    
    $
    
    
    
    $
    1,420
    
    
    $
    8,721
    
    
    $
    2,392Interest cost
    
    
    16,382
    
    
    
    2,476
    
    
    
    16,438
    
    
    
    2,238Expected return on assets
    
    
    (18,178
    )
    
    
    (2,811
    )
    
    
    (15,580
    )
    
    
    (2,062
    )Amortization of net obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Amortization of prior service cost
    
    
    
    
    
    
    (103
    )
    
    
    47
    
    
    
    (102
    )Recognized net actuarial loss
    
    
    1,346
    
    
    
    497
    
    
    
    5,288
    
    
    
    795Curtailment
    
    
    
    
    
    
    
    
    
    
    2,852
    
    
    
    776Net periodic pension (income) cost
    
    $
    (450
    )
    
    $
    1,479
    
    
    $
    17,766
    
    
    $
    4,054
   16




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 OVERVIEW
 The Company
  Summary of Consolidated Results
 Three Months Ended
    
    
    
    
    
    Six Months EndedMarch 31,
    
    
    
    
    
    March 31,2007
    
    2006
    
    change
    
    2007
    
    2006
    
    changeRevenue
    
    $
    1,050,736
    
    
    $
    1,080,509
    
    
    
    (2.8
    )%
    
    $
    2,058,620
    
    
    $
    2,123,372
    
    
    
    (3.0
    )%Selling and
administrative
expense as a % of
revenue
    
    
    27.9
    %
    
    
    29.1
    %
    
    (120) basis points
    
    
    28.2
    %
    
    
    29.6
    %
    
    (140) basis pointsOperating income as % of
revenue
    
    
    4.9
    %
    
    
    4.7
    %
    
    20 basis points
    
    
    4.9
    %
    
    
    4.9
    %
    
    
    Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.19
    
    
    
    26.3
    %
    
    $
    0.45
    
    
    $
    0.39
    
    
    
    15.4
    %
  17




---



##### 



RESULTS OF OPERATIONS
 Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006
 Reportable Segments
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended March 31, 2007Revenues:Equipment
    
    $
    395,592
    
    
    $
    58,094
    
    
    $
    
    
    
    $
    453,686Customer service and supplies
    
    
    302,407
    
    
    
    42,860
    
    
    
    
    
    
    
    345,267Managed and professional services
    
    
    183,443
    
    
    
    14,794
    
    
    
    
    
    
    
    198,237Rental and fees
    
    
    32,661
    
    
    
    1,915
    
    
    
    
    
    
    
    34,576Other
    
    
    
    
    
    
    18,970
    
    
    
    
    
    
    
    18,970Total revenues
    
    
    914,103
    
    
    
    136,633
    
    
    
    
    
    
    
    1,050,736Cost of Revenues:Equipment
    
    
    299,559
    
    
    
    38,150
    
    
    
    
    
    
    
    337,709Customer service and supplies
    
    
    172,296
    
    
    
    30,395
    
    
    
    
    
    
    
    202,691Managed and professional services
    
    
    131,085
    
    
    
    13,126
    
    
    
    
    
    
    
    144,211Rental and fees
    
    
    8,276
    
    
    
    210
    
    
    
    
    
    
    
    8,486Other
    
    
    
    
    
    
    12,630
    
    
    
    
    
    
    
    12,630Total cost of revenues
    
    
    611,216
    
    
    
    94,511
    
    
    
    
    
    
    
    705,727Gross Profit:Equipment
    
    
    96,033
    
    
    
    19,944
    
    
    
    
    
    
    
    115,977Customer service and supplies
    
    
    130,111
    
    
    
    12,465
    
    
    
    
    
    
    
    142,576Managed and professional services
    
    
    52,358
    
    
    
    1,668
    
    
    
    
    
    
    
    54,026Rental and fees
    
    
    24,385
    
    
    
    1,705
    
    
    
    
    
    
    
    26,090Other
    
    
    
    
    
    
    6,340
    
    
    
    
    
    
    
    6,340Total gross profit
    
    
    302,887
    
    
    
    42,122
    
    
    
    
    
    
    
    345,009Selling and administrative
    
    
    222,292
    
    
    
    33,832
    
    
    
    37,156
    
    
    
    293,280Operating income
    
    
    80,595
    
    
    
    8,290
    
    
    
    (37,156
    )
    
    
    51,729Interest income
    
    
    
    
    
    
    
    
    
    
    3,039
    
    
    
    3,039Interest expense
    
    
    
    
    
    
    
    
    
    
    12,530
    
    
    
    12,530Income from continuing operations before
taxes on income
    
    $
    80,595
    
    
    $
    8,290
    
    
    $
    (46,647
    )
    
    $
    42,238Three Months Ended March 31, 2006Revenues:Equipment
    
    $
    407,819
    
    
    $
    52,929
    
    
    $
    
    
    
    $
    460,748Customer service and supplies
    
    
    324,513
    
    
    
    36,870
    
    
    
    
    
    
    
    361,383Managed and professional services
    
    
    172,407
    
    
    
    13,063
    
    
    
    
    
    
    
    185,470Rental and fees
    
    
    41,976
    
    
    
    1,272
    
    
    
    
    
    
    
    43,248Other
    
    
    11,839
    
    
    
    17,821
    
    
    
    
    
    
    
    29,660
 18




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalTotal revenues
    
    
    958,554
    
    
    
    121,955
    
    
    
    
    
    
    
    1,080,509Cost of revenues:Equipment
    
    
    308,809
    
    
    
    34,596
    
    
    
    
    
    
    
    343,405Customer service and supplies
    
    
    179,715
    
    
    
    26,964
    
    
    
    
    
    
    
    206,679Managed and professional services
    
    
    124,763
    
    
    
    11,603
    
    
    
    
    
    
    
    136,366Rental and fees
    
    
    12,791
    
    
    
    184
    
    
    
    
    
    
    
    12,975Other
    
    
    4,075
    
    
    
    11,682
    
    
    
    
    
    
    
    15,757Total cost of revenues
    
    
    630,153
    
    
    
    85,029
    
    
    
    
    
    
    
    715,182Gross profit:Equipment
    
    
    99,010
    
    
    
    18,333
    
    
    
    
    
    
    
    117,343Customer service and supplies
    
    
    144,798
    
    
    
    9,906
    
    
    
    
    
    
    
    154,704Managed and professional services
    
    
    47,644
    
    
    
    1,460
    
    
    
    
    
    
    
    49,104Rental and fees
    
    
    29,185
    
    
    
    1,088
    
    
    
    
    
    
    
    30,273Other
    
    
    7,764
    
    
    
    6,139
    
    
    
    
    
    
    
    13,903Total gross profit
    
    
    328,401
    
    
    
    36,926
    
    
    
    
    
    
    
    365,327Selling and administrative
    
    
    240,356
    
    
    
    30,834
    
    
    
    43,637
    
    
    
    314,827(Loss) gain on divestiture of business
    
    
    (234
    )
    
    
    339
    
    
    
    
    
    
    
    105Restructuring
expense
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Operating income
    
    
    87,794
    
    
    
    6,431
    
    
    
    (43,637
    )
    
    
    50,588Loss from the early extinguishment of debt
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    2,365
    
    
    
    2,365Interest expense
    
    
    
    
    
    
    
    
    
    
    13,315
    
    
    
    13,315Income from continuing operations before
taxes on income
    
    $
    87,794
    
    
    $
    6,431
    
    
    $
    (54,587
    )
    
    $
    39,638
 
 *
    
    Corporate and eliminations, which is not treated as a reportable segment, includes certain
selling and administrative functions such as finance and customer support. Equipment
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    453,686
    
    
    $
    460,748
    
    
    $
    (7,062
    )
    
    
    (1.5
    )%Cost of revenue
    
    
    337,709
    
    
    
    343,405
    
    
    
    (5,696
    )
    
    
    (1.7
    )%Gross profit
    
    $
    115,977
    
    
    $
    117,343
    
    
    $
    (1,366
    )Gross profit %
    
    
    25.6
    %
    
    
    25.5
    %
   19




---



##### 







Customer Service and Supplies


2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    345,267
    
    
    $
    361,383
    
    
    $
    (16,116
    )
    
    
    (4.5
    )%Cost of revenue
    
    
    202,691
    
    
    
    206,679
    
    
    
    (3,988
    )
    
    
    (1.9
    )%Gross profit
    
    $
    142,576
    
    
    $
    154,704
    
    
    $
    (12,128
    )Gross profit %
    
    
    41.3
    %
    
    
    42.8
    %






Managed and Professional Services


2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    198,237
    
    
    $
    185,470
    
    
    $
    12,767
    
    
    
    6.9
    %Cost of revenue
    
    
    144,211
    
    
    
    136,366
    
    
    
    7,845
    
    
    
    5.8
    %Gross profit
    
    $
    54,026
    
    
    $
    49,104
    
    
    $
    4,922Gross profit %
    
    
    27.3
    %
    
    
    26.5
    %






20




---



##### 



Rental and Fees
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    34,576
    
    
    $
    43,248
    
    
    $
    (8,672
    )
    
    
    (20.1
    )%Cost of revenue
    
    
    8,486
    
    
    
    12,975
    
    
    
    (4,489
    )
    
    
    (34.6
    )%Gross profit
    
    $
    26,090
    
    
    $
    30,273
    
    
    $
    (4,183
    )Gross profit %
    
    
    75.5
    %
    
    
    70.0
    %
  Other Revenue
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeFinance income
    
    $
    6,166
    
    
    $
    16,497
    
    
    $
    (10,331
    )
    
    
    (62.6
    )%Other
    
    
    12,804
    
    
    
    13,163
    
    
    
    (359
    )
    
    
    (2.7
    )%Total other revenue
    
    $
    18,970
    
    
    $
    29,660
    
    
    $
    (10,690
    )Finance interest expense
    
    $
    1,497
    
    
    $
    3,840
    
    
    $
    (2,343
    )
    
    
    (61.0
    )%Other
    
    
    11,133
    
    
    
    11,917
    
    
    
    (784
    )
    
    
    (6.6
    )%Total cost of other revenue
    
    $
    12,630
    
    
    $
    15,757
    
    
    $
    (3,127
    )Finance income gross profit
    
    $
    4,669
    
    
    $
    12,657
    
    
    $
    (7,988
    )
    
    
    (63.1
    )%Other gross profit
    
    
    1,671
    
    
    
    1,246
    
    
    
    425
    
    
    
    34.1
    %Total other gross profit
    
    $
    6,340
    
    
    $
    13,903
    
    
    $
    (7,563
    )Finance income gross profit %
    
    
    75.7
    %
    
    
    76.7
    %Other gross profit%
    
    
    13.1
    %
    
    
    9.5
    %Total gross profit %
    
    
    33.4
    %
    
    
    46.9
    %
  Selling and Administrative Expenses
 2007
    
    2006
    
    $ Change
    
    % ChangeSelling and administrative expenses
    
    $
    293,280
    
    
    $
    314,827
    
    
    $
    (21,547
    )
    
    
    (6.8
    )%Selling and administrative expenses as
a % of revenue
    
    
    27.9
    %
    
    
    29.1
    %
   
    
    a decrease of $11,063 related to compensation and benefits due in part to a
reduction year over year in the number of employees and also from the decrease in
expense year over year related to lower accrual requirements for performance
compensation;
 21




---



##### 




    
    a decrease of $9,207 compared to fiscal 2006 as a result of lower spending for
contract labor, healthcare costs, information technology and professional fees, which
includes lower fees paid to GE as a result of the sale of the U.S. Retained Portfolio;
 
    
    pension expense, which is allocated between selling and administrative expense and
cost of revenues based on the number of employees related to those areas, decreased
from $4,977 to $505 in fiscal 2007 primarily as a result of the impact of the expected
returns on assets due largely to the significant voluntary contributions we made during
the second half of fiscal 2006 in our effort to fully fund our U.S. tax-qualified
defined benefit pension plan covering active employees. Additionally, we incurred a
curtailment charge in the second quarter of fiscal 2006 of $776 as a result of the
freezing of one of our non-U.S. Plans. The year-over-year decline in pension expense
attributed specifically to selling and administrative was approximately $2,300; and
 
    
    an increase in bad debt expense of approximately $2,000 related primarily to a large
customer bankruptcy.
 Other Items
 2007
    
    2006
    
    $ ChangeGain on divestiture of business
    
    $
    
    
    
    $
    105
    
    
    $
    (105
    )Restructuring
expense
    
    
    
    
    
    
    17
    
    
    
    (17
    )Interest income
    
    
    3,039
    
    
    
    2,365
    
    
    
    674Interest expense
    
    
    12,530
    
    
    
    13,315
    
    
    
    (785
    )Taxes on income
    
    
    11,785
    
    
    
    14,270
    
    
    
    (2,485
    )Income from continuing operations
    
    
    30,453
    
    
    
    25,368
    
    
    
    5,085Diluted earnings per common share  continuing operations
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.05
     Six Months Ended March 31, 2007 Compared to the Six Months Ended March 31, 2006
 Reportable Segments
 *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalSix Months Ended March 31, 2007Revenues:Equipment
    
    $
    757,347
    
    
    $
    112,576
    
    
    $
    
    
    
    $
    869,923Customer service and supplies
    
    
    607,024
    
    
    
    84,213
    
    
    
    
    
    
    
    691,237Managed and professional services
    
    
    361,916
    
    
    
    28,564
    
    
    
    
    
    
    
    390,480Rental and fees
    
    
    65,853
    
    
    
    4,131
    
    
    
    
    
    
    
    69,984Other
    
    
    
    
    
    
    36,996
    
    
    
    
    
    
    
    36,996Total revenues
    
    
    1,792,140
    
    
    
    266,480
    
    
    
    
    
    
    
    2,058,620Cost of Revenues:Equipment
    
    
    577,081
    
    
    
    73,012
    
    
    
    
    
    
    
    650,093
 22




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalCustomer service and supplies
    
    
    337,983
    
    
    
    58,938
    
    
    
    
    
    
    
    396,921Managed and professional services
    
    
    261,010
    
    
    
    25,453
    
    
    
    
    
    
    
    286,463Rental and fees
    
    
    17,968
    
    
    
    427
    
    
    
    
    
    
    
    18,395Other
    
    
    
    
    
    
    24,627
    
    
    
    
    
    
    
    24,627Total cost of revenues
    
    
    1,194,042
    
    
    
    182,457
    
    
    
    
    
    
    
    1,376,499Gross Profit:Equipment
    
    
    180,266
    
    
    
    39,564
    
    
    
    
    
    
    
    219,830Customer service and supplies
    
    
    269,041
    
    
    
    25,275
    
    
    
    
    
    
    
    294,316Managed and professional services
    
    
    100,906
    
    
    
    3,111
    
    
    
    
    
    
    
    104,017Rental and fees
    
    
    47,885
    
    
    
    3,704
    
    
    
    
    
    
    
    51,589Other
    
    
    
    
    
    
    12,369
    
    
    
    
    
    
    
    12,369Total gross profit
    
    
    598,098
    
    
    
    84,023
    
    
    
    
    
    
    
    682,121Selling and administrative
    
    
    442,064
    
    
    
    66,886
    
    
    
    72,467
    
    
    
    581,417Operating income
    
    
    156,034
    
    
    
    17,137
    
    
    
    (72,467
    )
    
    
    100,704Interest income
    
    
    
    
    
    
    
    
    
    
    6,399
    
    
    
    6,399Interest expense
    
    
    
    
    
    
    
    
    
    
    24,982
    
    
    
    24,982Income from continuing operations before
taxes on income
    
    $
    156,034
    
    
    $
    17,137
    
    
    $
    (91,050
    )
    
    $
    82,121Six Months Ended March 31, 2006Revenues:Equipment
    
    $
    783,542
    
    
    $
    102,195
    
    
    $
    
    
    
    $
    885,737Customer service and supplies
    
    
    661,181
    
    
    
    71,425
    
    
    
    
    
    
    
    732,606Managed and professional services
    
    
    335,231
    
    
    
    26,621
    
    
    
    
    
    
    
    361,852Rental and fees
    
    
    81,003
    
    
    
    2,672
    
    
    
    
    
    
    
    83,675Other
    
    
    25,113
    
    
    
    34,389
    
    
    
    
    
    
    
    59,502Total revenues
    
    
    1,886,070
    
    
    
    237,302
    
    
    
    
    
    
    
    2,123,372Cost of revenues:Equipment
    
    
    600,023
    
    
    
    66,625
    
    
    
    
    
    
    
    666,648Customer service and supplies
    
    
    354,567
    
    
    
    51,165
    
    
    
    
    
    
    
    405,732Managed and professional services
    
    
    245,009
    
    
    
    23,003
    
    
    
    
    
    
    
    268,012Rental and fees
    
    
    25,440
    
    
    
    333
    
    
    
    
    
    
    
    25,773Other
    
    
    7,815
    
    
    
    21,872
    
    
    
    
    
    
    
    29,687Total cost of revenues
    
    
    1,232,854
    
    
    
    162,998
    
    
    
    
    
    
    
    1,395,852Gross profit:Equipment
    
    
    183,519
    
    
    
    35,570
    
    
    
    
    
    
    
    219,089Customer service and supplies
    
    
    306,614
    
    
    
    20,260
    
    
    
    
    
    
    
    326,874Managed and professional services
    
    
    90,222
    
    
    
    3,618
    
    
    
    
    
    
    
    93,840Rental and fees
    
    
    55,563
    
    
    
    2,339
    
    
    
    
    
    
    
    57,902Other
    
    
    17,298
    
    
    
    12,517
    
    
    
    
    
    
    
    29,815Total gross profit
    
    
    653,216
    
    
    
    74,304
    
    
    
    
    
    
    
    727,520Selling and administrative
    
    
    465,152
    
    
    
    60,638
    
    
    
    103,024
    
    
    
    628,814(Loss) gain on divestiture of business
    
    
    (233
    )
    
    
    5,262
    
    
    
    
    
    
    
    5,029Restructuring and asset benefit
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    135Operating income
    
    
    187,966
    
    
    
    18,928
    
    
    
    (103,024
    )
    
    
    103,870Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    1,650
    
    
    
    1,650Interest income
    
    
    
    
    
    
    
    
    
    
    4,936
    
    
    
    4,936Interest expense
    
    
    
    
    
    
    
    
    
    
    27,113
    
    
    
    27,113Income from continuing operations before
taxes on income
    
    $
    187,966
    
    
    $
    18,928
    
    
    $
    (126,851
    )
    
    $
    80,043
 
 *
    
    Corporate and eliminations, which is not treated as a reportable segment, includes certain
selling and administrative functions such as finance and customer support. Equipment
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    869,923
    
    
    $
    885,737
    
    
    $
    (15,814
    )
    
    
    (1.8
    )%Cost of revenue
    
    
    650,093
    
    
    
    666,648
    
    
    
    (16,555
    )
    
    
    (2.5
    )%Gross profit
    
    $
    219,830
    
    
    $
    219,089
    
    
    $
    741Gross profit %
    
    
    25.3
    %
    
    
    24.7
    %
 23




---



##### 



Customer Service and Supplies
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    691,237
    
    
    $
    732,606
    
    
    $
    (41,369
    )
    
    
    (5.6
    )%Cost of revenue
    
    
    396,921
    
    
    
    405,732
    
    
    
    (8,811
    )
    
    
    (2.2
    )%Gross profit
    
    $
    294,316
    
    
    $
    326,874
    
    
    $
    (32,558
    )Gross profit %
    
    
    42.6
    %
    
    
    44.6
    %
   Managed and Professional Services
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    390,480
    
    
    $
    361,852
    
    
    $
    28,628
    
    
    
    7.9
    %Cost of revenue
    
    
    286,463
    
    
    
    268,012
    
    
    
    18,451
    
    
    
    6.9
    %Gross profit
    
    $
    104,017
    
    
    $
    93,840
    
    
    $
    10,177Gross profit %
    
    
    26.6
    %
    
    
    25.9
    %
   24




---



##### 



Rental and Fees
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    69,984
    
    
    $
    83,675
    
    
    $
    (13,691
    )
    
    
    (16.4
    )%Cost of revenue
    
    
    18,395
    
    
    
    25,773
    
    
    
    (7,378
    )
    
    
    (28.6
    )%Gross profit
    
    $
    51,589
    
    
    $
    57,902
    
    
    $
    (6,313
    )Gross profit %
    
    
    73.7
    %
    
    
    69.2
    %
  Other Revenue
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeFinance income
    
    $
    12,141
    
    
    $
    35,570
    
    
    $
    (23,429
    )
    
    
    (65.9
    )%Other
    
    
    24,855
    
    
    
    23,932
    
    
    
    923
    
    
    
    3.9
    %Total other revenue
    
    $
    36,996
    
    
    $
    59,502
    
    
    $
    (22,506
    )
    
    
    (37.8
    )%Finance interest expense
    
    $
    2,915
    
    
    $
    8,451
    
    
    $
    (5,536
    )
    
    
    (65.5
    )%Other
    
    
    21,712
    
    
    
    21,236
    
    
    
    476
    
    
    
    2.2
    %Total cost of other revenue
    
    $
    24,627
    
    
    $
    29,687
    
    
    $
    (5,060
    )
    
    
    (17.0
    )%Finance income gross profit
    
    $
    9,226
    
    
    $
    27,119
    
    
    $
    (17,893
    )Other gross profit
    
    
    3,143
    
    
    
    2,696
    
    
    
    447Total other gross profit
    
    $
    12,369
    
    
    $
    29,815
    
    
    $
    (17,446
    )Finance income gross profit %
    
    
    76.0
    %
    
    
    76.2
    %Other gross profit%
    
    
    12.6
    %
    
    
    11.3
    %Total gross profit %
    
    
    33.4
    %
    
    
    50.1
    %
  Selling and Administrative Expenses
 2007
    
    2006
    
    $ Change
    
    % ChangeSelling and administrative expenses
    
    $
    581,417
    
    
    $
    628,814
    
    
    $
    (47,397
    )
    
    
    (7.5
    )%Selling and administrative expenses as
a % of revenue
    
    
    28.2
    %
    
    
    29.6
    %
   25




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##### 




    
    a decrease of $18,774 compared to the first six months of fiscal 2006 as a result of
lower spending for contract labor, information technology, healthcare costs and
facilities due to spending actions taken during fiscal 2006;
    
    a decrease of $13,841 related to compensation and benefits due in part to a
reduction year over year in the number of employees and from the decrease in expense
year over year related to lower accrual requirements for compensation payments;
    
    pension expense, which is allocated between selling and administrative expense and
cost of revenues based on the number of employees related to those areas, decreased
from $21,820 to $1,029 in fiscal 2007 primarily as a result of the freezing of certain
of our defined benefit pension plans during fiscal 2006 (which included curtailment
charges in the aggregate of $3,628) and as a result of the impact of the expected
returns on assets due largely to the significant voluntary contributions we made during
the second half of fiscal 2006. The year-over-year decline for the first six months
attributed specifically to selling and administrative was approximately $11,000;
    
    a decrease of $5,496 in professional fees, which includes lower fees paid to GE as a
result of the sale of the U.S. Retained Portfolio;
    
    an increase in bad debt expense of approximately $4,000. In fiscal 2006, we had
lower bad debt expense due to improvements in our accounts receivable aging compared to
prior periods. This, coupled with a large customer bankruptcy during the second
quarter of fiscal 2007, resulted in higher bad debt expense for the first six months of
fiscal 2007.
 Other Items
 2007
    
    2006
    
    $ ChangeGain on divestiture of business
    
    $
    
    
    
    $
    5,029
    
    
    $
    (5,029
    )Restructuring benefit
    
    
    
    
    
    
    135
    
    
    
    (135
    )Loss from the early extinguishment of debt
    
    
    
    
    
    
    1,650
    
    
    
    (1,650
    )Interest income
    
    
    6,399
    
    
    
    4,936
    
    
    
    1,463Interest expense
    
    
    24,982
    
    
    
    27,113
    
    
    
    (2,131
    )Taxes on income
    
    
    24,331
    
    
    
    27,043
    
    
    
    (2,712
    )Income from continuing operations
    
    
    57,790
    
    
    
    53,000
    
    
    
    4,790Diluted earnings per common share  continuing operations
    
    $
    0.45
    
    
    $
    0.39
    
    
    $
    0.06
       26




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##### 



FINANCIAL CONDITION AND LIQUIDITY
 Cash Flows and Liquidity
  2007Cash used in operating activities
    
    $
    (11,472
    )Cash used in investing activities
    
    
    (12,325
    )Cash used in financing activities
    
    
    (68,901
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2,111Decrease in cash and cash equivalents
    
    
    (90,587
    )Cash and cash equivalents at the beginning of the year
    
    
    414,239Cash and cash equivalents at the end of period
    
    $
    323,652
 Operating Cash Flows
  Investing Cash Flows
  Financing Cash Flows
 27




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##### 



Capital Structure
  Liquidity Outlook
   RECENT ACCOUNTING STANDARDS
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
 Foreign Exchange Risk
 28




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##### 



Item 4. Controls and Procedures
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
    Material Weakness in Internal Control Over Financial Reporting
   Managements Remediation Initiatives
  29




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##### 



Changes in Internal Control Over Financial Reporting
  30




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##### 



PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities
  ApproximateTotal Number
    
    
    Dollar Valueof Shares
    
    
    of Shares thatTotal Number
    
    
    Average
    
    
    Purchased as
    
    
    May Yet Beof Shares
    
    
    Price Paid
    
    
    Part of
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    per Share
    
    
    Repurchase Plan
    
    
    the Repurchase PlanJanuary 1, 2007  January 31, 2007
    
    
    691
    
    
    $
    16.27
    
    
    
    691
    
    
    $
    59,678February 1, 2007  February 28, 2007
    
    
    407
    
    
    
    14.64
    
    
    
    407
    
    
    
    53,730March 1, 2007  March 31, 2007
    
    
    333
    
    
    
    14.41
    
    
    
    333
    
    
    
    48,9321,431
    
    
    $
    15.37
    
    
    
    1,431
    
    
    $
    48,932
 
 See Note 7 to our consolidated financial statements for further information regarding our
share repurchases. Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
 31.1
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended31.2
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended32.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 135032.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
 
 31




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##### 



SIGNATURES
  IKON OFFICE SOLUTIONS, INC.Date: May 1, 2007By:

/s/ ROBERT F. WOODS(Robert F. Woods)Senior Vice President and Chief
Financial Officer
(Principal Financial Officer) 32