##### 



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 June 30, 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
    
    23-0334400(State or other jurisdiction of 
incorporation or organization)
    
    (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 STATEMENTS 
CONSOLIDATED BALANCE SHEETS  JUNE 30, 2007 AND SEPTEMBER 30,
2006       (UNAUDITED)
    
    
    4CONSOLIDATED
STATEMENTS OF INCOME  THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006 (UNAUDITED)
    
    
    5CONSOLIDATED STATEMENTS OF CASH FLOWS  NINE MONTHS ENDEDJUNE 30, 2007 AND 2006 (UNAUDITED)
    
    
    6NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    
    
    7-16ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
    
    
    16-28ITEM 3.
    
    QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    28ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    28-30PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    31ITEM 1A.
    
    RISK FACTORS
    
    
    31ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    32AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    32ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    32ITEM 5.
    
    OTHER INFORMATION
    
    
    32ITEM 6.
    
    EXHIBITS
    
    
    32SIGNATURES
  2




---



##### 



FORWARD-LOOKING STATEMENTS
   
    
    conducting operations in a competitive environment and a changing industry;
    
    existing or future supplier relationships;
    
    our relationship with 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)
 June 30, 2007
    
    
    September 30, 2006AssetsCash and cash equivalents
    
    $
    287,291
    
    
    $
    414,239Accounts receivable, net
    
    
    589,782
    
    
    
    589,973Lease receivables, net
    
    
    83,824
    
    
    
    83,051Inventories
    
    
    314,931
    
    
    
    214,792Prepaid expenses and other current assets
    
    
    40,596
    
    
    
    34,742Deferred taxes
    
    
    49,240
    
    
    
    46,504Total current assets
    
    
    1,365,664
    
    
    
    1,383,301Long-term lease receivables, net
    
    
    233,275
    
    
    
    222,333Equipment on operating leases, net
    
    
    69,300
    
    
    
    83,248Property and equipment, net
    
    
    147,516
    
    
    
    144,453Deferred taxes
    
    
    18,528
    
    
    
    30,215Goodwill
    
    
    1,322,675
    
    
    
    1,297,333Other assets
    
    
    68,181
    
    
    
    74,543Total Assets
    
    $
    3,225,139
    
    
    $
    3,235,426LiabilitiesCurrent portion of corporate debt
    
    $
    16,622
    
    
    $
    1,487Current portion of non-corporate debt
    
    
    50,120
    
    
    
    152,971Trade accounts payable
    
    
    228,290
    
    
    
    224,312Accrued salaries, wages and commissions
    
    
    89,302
    
    
    
    109,090Deferred revenues
    
    
    105,849
    
    
    
    118,146Income taxes payable
    
    
    12,750
    
    
    
    15,831Other accrued expenses
    
    
    122,214
    
    
    
    139,590Total current liabilities
    
    
    625,147
    
    
    
    761,427Long-term corporate debt
    
    
    571,958
    
    
    
    593,578Long-term non-corporate debt
    
    
    169,158
    
    
    
    64,005Other long-term liabilities
    
    
    129,780
    
    
    
    130,283Commitments and contingencies (Note 9)Shareholders EquityCommon stock, no par value
    
    
    1,056,647
    
    
    
    1,044,633Retained earnings
    
    
    895,827
    
    
    
    828,255Accumulated other comprehensive income
    
    
    101,450
    
    
    
    59,169Cost of common stock in treasury
    
    
    (324,828
    )
    
    
    (245,924
    )Total Shareholders Equity
    
    
    1,729,096
    
    
    
    1,686,133Total Liabilities and Shareholders Equity
    
    $
    3,225,139
    
    
    $
    3,235,426Supplemental InformationShares of common stock authorized
    
    
    300,000
    
    
    
    300,000Shares of common stock issued
    
    
    149,310
    
    
    
    149,310Treasury stock
    
    
    26,517
    
    
    
    21,695Shares of common stock outstanding
    
    
    122,793
    
    
    
    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
    
    
    Nine Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesEquipment
    
    $
    447,727
    
    
    $
    445,275
    
    
    $
    1,317,650
    
    
    $
    1,331,012Customer service and supplies
    
    
    345,927
    
    
    
    361,587
    
    
    
    1,037,164
    
    
    
    1,094,193Managed and professional services
    
    
    203,372
    
    
    
    187,276
    
    
    
    593,852
    
    
    
    549,128Rental and fees
    
    
    31,954
    
    
    
    34,007
    
    
    
    101,938
    
    
    
    117,682Other
    
    
    16,036
    
    
    
    18,752
    
    
    
    53,032
    
    
    
    78,2541,045,016
    
    
    
    1,046,897
    
    
    
    3,103,636
    
    
    
    3,170,269Cost of RevenuesEquipment
    
    
    339,116
    
    
    
    331,065
    
    
    
    989,209
    
    
    
    997,713Customer service and supplies
    
    
    193,113
    
    
    
    196,597
    
    
    
    590,034
    
    
    
    602,329Managed and professional services
    
    
    146,911
    
    
    
    140,232
    
    
    
    433,374
    
    
    
    408,244Rental and fees
    
    
    8,344
    
    
    
    8,596
    
    
    
    26,739
    
    
    
    34,369Other
    
    
    10,574
    
    
    
    12,367
    
    
    
    35,201
    
    
    
    42,054698,058
    
    
    
    688,857
    
    
    
    2,074,557
    
    
    
    2,084,709Gross ProfitEquipment
    
    
    108,611
    
    
    
    114,210
    
    
    
    328,441
    
    
    
    333,299Customer service and supplies
    
    
    152,814
    
    
    
    164,990
    
    
    
    447,130
    
    
    
    491,864Managed and professional services
    
    
    56,461
    
    
    
    47,044
    
    
    
    160,478
    
    
    
    140,884Rental and fees
    
    
    23,610
    
    
    
    25,411
    
    
    
    75,199
    
    
    
    83,313Other
    
    
    5,462
    
    
    
    6,385
    
    
    
    17,831
    
    
    
    36,200346,958
    
    
    
    358,040
    
    
    
    1,029,079
    
    
    
    1,085,560Selling and administrative
    
    
    293,373
    
    
    
    311,035
    
    
    
    874,790
    
    
    
    939,849Gain on divestiture of businesses and assets
    
    
    
    
    
    
    6,931
    
    
    
    
    
    
    
    11,960Restructuring benefit
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    264Operating income
    
    
    53,585
    
    
    
    54,065
    
    
    
    154,289
    
    
    
    157,935Loss from the early extinguishment of debt
    
    
    
    
    
    
    3,866
    
    
    
    
    
    
    
    5,516Interest income
    
    
    2,473
    
    
    
    4,124
    
    
    
    8,872
    
    
    
    9,060Interest expense
    
    
    12,860
    
    
    
    12,245
    
    
    
    37,842
    
    
    
    39,358Income from continuing operations before
taxes on income
    
    
    43,198
    
    
    
    42,078
    
    
    
    125,319
    
    
    
    122,121Taxes on income
    
    
    14,132
    
    
    
    15,207
    
    
    
    38,463
    
    
    
    42,250Income from continuing operations
    
    
    29,066
    
    
    
    26,871
    
    
    
    86,856
    
    
    
    79,871Discontinued Operations:Operating income (loss)
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    (15
    )Tax (expense) benefit
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    6Net income (loss) from discontinued operations
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    (9
    )Net income
    
    $
    29,066
    
    
    $
    26,881
    
    
    $
    86,856
    
    
    $
    79,862Basic Earnings Per Common ShareContinuing operations
    
    $
    0.23
    
    
    $
    0.21
    
    
    $
    0.69
    
    
    $
    0.60Discontinued operations
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Net income
    
    $
    0.23
    
    
    $
    0.21
    
    
    $
    0.69
    
    
    $
    0.60Diluted Earnings Per Common ShareContinuing operations
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.68
    
    
    $
    0.60Discontinued operations
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Net income
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.68
    
    
    $
    0.60Cash dividends per common share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12
 See notes to condensed consolidated financial statements
 5




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##### 



IKON OFFICE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Nine Months Ended June 302007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    86,856
    
    
    $
    79,862Net loss from discontinued operations
    
    
    
    
    
    
    9Income from continuing operations
    
    
    86,856
    
    
    
    79,871Additions (deductions) to reconcile net income to net cash provided by (used in) operating activities:Depreciation
    
    
    52,002
    
    
    
    52,366Amortization
    
    
    1,864
    
    
    
    2,663Gain from divestiture of businesses and assets
    
    
    
    
    
    
    (11,960
    )Loss on disposal of property and equipment
    
    
    628
    
    
    
    4,017Provision for losses on accounts and lease receivables
    
    
    4,131
    
    
    
    2,283Provision for deferred income taxes
    
    
    10,147
    
    
    
    (108,922
    )Stock-based compensation expense
    
    
    7,039
    
    
    
    7,502Pension expense
    
    
    1,730
    
    
    
    24,973Loss from the early extinguishment of debt
    
    
    
    
    
    
    5,516Changes in operating assets and liabilities, net of divestiture of businesses:Decrease in accounts receivable
    
    
    5,015
    
    
    
    17,089Increase in inventories
    
    
    (96,760
    )
    
    
    (38,313
    )Increase in prepaid expenses and other current assets
    
    
    (4,703
    )
    
    
    (2,555
    )Increase (decrease) in accounts payable
    
    
    685
    
    
    
    (31,532
    )Decrease in deferred revenue
    
    
    (14,784
    )
    
    
    (2,178
    )Decrease in accrued expenses
    
    
    (36,983
    )
    
    
    (28,424
    )Contributions to pension plans
    
    
    (4,514
    )
    
    
    (63,464
    )(Decrease) increase in income taxes payable
    
    
    (3,304
    )
    
    
    66,279Other
    
    
    (7
    )
    
    
    (1,659
    )Net cash provided by (used in) continuing operations
    
    
    9,042
    
    
    
    (26,448
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (1,158
    )Net cash provided by (used in) operating activities
    
    
    9,042
    
    
    
    (27,606
    )Cash Flows from Investing ActivitiesProceeds from the divestiture of businesses and assets
    
    
    
    
    
    
    251,642Expenditures for property and equipment
    
    
    (23,366
    )
    
    
    (26,093
    )Expenditures for equipment on operating leases
    
    
    (17,118
    )
    
    
    (27,610
    )Proceeds from the sale of property and equipment and equipment on operating leases
    
    
    7,952
    
    
    
    18,346Proceeds from the sale of lease receivables
    
    
    160,181
    
    
    
    145,969Lease receivables  additions
    
    
    (226,494
    )
    
    
    (264,161
    )Lease receivables  collections
    
    
    74,134
    
    
    
    268,412Proceeds from life insurance
    
    
    4,781
    
    
    
    4,630Other
    
    
    (1,251
    )
    
    
    (3,553
    )Net cash (used in) provided by investing activities
    
    
    (21,181
    )
    
    
    367,582Cash Flows from Financing ActivitiesShort-term corporate debt borrowings (repayments), net
    
    
    1
    
    
    
    (855
    )Repayment of other borrowings
    
    
    (55
    )
    
    
    (3,792
    )Debt issuance costs
    
    
    
    
    
    
    (2,304
    )Debt modification costs
    
    
    (16,430
    )
    
    
    Corporate debt   repayments
    
    
    (1,255
    )
    
    
    (138,804
    )Non-corporate debt  issuances
    
    
    158,244
    
    
    
    7,312Non-corporate debt  repayments
    
    
    (166,211
    )
    
    
    (142,354
    )Dividends paid
    
    
    (15,141
    )
    
    
    (15,841
    )Decrease in restricted cash
    
    
    
    
    
    
    2,127Proceeds from stock option exercises
    
    
    16,858
    
    
    
    18,025Tax benefit relating to stock plans
    
    
    1,586
    
    
    
    4,922Purchase of treasury shares
    
    
    (99,873
    )
    
    
    (90,816
    )Other
    
    
    
    
    
    
    (49
    )Net cash used in financing activities
    
    
    (122,276
    )
    
    
    (362,429
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    7,467
    
    
    
    2,593Net decrease in cash and cash equivalents
    
    
    (126,948
    )
    
    
    (19,860
    )Cash and cash equivalents at beginning of year
    
    
    414,239
    
    
    
    373,705Cash and cash equivalents at end of period
    
    $
    287,291
    
    
    $
    353,845Supplemental cash flow information:Cash paid for income taxes
    
    $
    28,672
    
    
    $
    80,323Cash paid for interest on corporate and non-corporate debt
    
    $
    42,222
    
    
    $
    53,533Non-cash investing and financing activities:Property and equipment acquired under capital leases
    
    $
    10,029
    
    
    $
    
 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
    
    
    650
    
    
    
    16.31Exercised
    
    
    1,805
    
    
    
    9.34Cancelled
    
    
    396
    
    
    
    27.96Outstanding at June 30, 2007
    
    
    7,815
    
    
    $
    11.57Exercisable at June 30, 2007
    
    
    5,976
    *
    
    $
    11.30
 
 *
    
    4,998 of the 5,976 options exercisable at June 30, 2007 have an exercise price that is lower than
the closing price of the Companys stock on June 30, 2007.   8




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##### 



Three Months Ended June 30
    
    
    Nine Months Ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006Expected dividend yield (1)
    
    
    1.0
    %
    
    
    1.2
    %
    
    
    1.0
    %
    
    
    1.5
    %Expected volatility rate (2)
    
    
    25.2
    %
    
    
    54.4
    %
    
    
    24.7
    %
    
    
    55.0
    %Expected lives (3)
    
    5.0 years
    
    
    5.0 years
    
    
    5.0 years
    
    
    5.0 yearsRisk-free interest rate (4)
    
    
    4.5
    %
    
    
    5.0
    %
    
    
    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.
Effective October 1, 2006, we revised the historical period in which we use to calculate our
volatility assumption. This change was made to more accurately reflect our current business
model by utilizing the date which we sold our U.S. leasing business, April 1, 2004, as the
historical starting point. We believe this period more accurately reflects the volatility of
our stock price going forward. Furthermore, the change in our methodology is not expected to
have a material impact on our consolidated statement of operations for fiscal 2007; however,
this change may or may not have a material impact on future years.(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 ExercisableWeighted-Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-AverageRange of Exercise
    
    Number Outstanding
    
    Weighted-Average
    
    Remaining
    
    Aggregate Intrinsic
    
    Number Exercisable
    
    Weighted-Average
    
    Remaining
    
    Aggregate IntrinsicPrices
    
    at June 30, 2007
    
    Exercise Price
    
    Contractual Life
    
    Value
    
    at June 30, 2007
    
    Exercise Price
    
    Contractual Life
    
    Value$  2.38    9.10
    
    
    1,825
    
    
    $
    6.23
    
    
    6.03 years
    
    $
    17,119
    
    
    
    1,674
    
    
    $
    5.97
    
    
    6.06 years
    
    $
    16,1359.11  11.00
    
    
    3,172
    
    
    
    10.77
    
    
    
    7.72
    
    
    
    15,356
    
    
    
    2,077
    
    
    
    10.73
    
    
    
    7.31
    
    
    
    10,13111.01  15.50
    
    
    1,296
    
    
    
    12.28
    
    
    
    5.50
    
    
    
    4,317
    
    
    
    1,246
    
    
    
    12.26
    
    
    
    5.63
    
    
    
    4,16915.51  20.00
    
    
    1,121
    
    
    
    16.35
    
    
    
    5.89
    
    
    
    
    
    
    
    578
    
    
    
    16.12
    
    
    
    2.09
    
    
    
    20.01  44.63
    
    
    401
    
    
    
    26.49
    
    
    
    1.94
    
    
    
    
    
    
    
    401
    
    
    
    26.49
    
    
    
    1.94
    
    
    
    7,815
    
    
    $
    11.57
    
    
    
    6.40
    
    
    $
    36,792
    
    
    
    5,976
    
    
    $
    11.30
    
    
    
    5.69
    
    
    $
    30,435
 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
    
    
    1,248
    
    
    
    24,094
    
    
    
    25,342Goodwill at June 30, 2007
    
    $
    963,655
    
    
    $
    359,020
    
    
    $
    1,322,675
  5. EARNINGS PER COMMON SHARE
  Three Months Ended
    
    
    Nine Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Numerator for basic earnings per common share  income
from continuing operations
    
    $
    29,066
    
    
    $
    26,871
    
    
    $
    86,856
    
    
    $
    79,871Effect of dilutive securities:Interest expense on convertible notes, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Numerator for diluted earnings per common share  net
income from continuing operations
    
    $
    29,066
    
    
    $
    26,871
    
    
    $
    86,856
    
    
    $
    79,959Denominator:Denominator for basic earnings per common share 
weighted average common shares
    
    
    124,818
    
    
    
    130,690
    
    
    
    126,131
    
    
    
    132,115Effect of dilutive securities:Convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Employee stock awards
    
    
    748
    
    
    
    635
    
    
    
    711
    
    
    
    528Employee stock options
    
    
    997
    
    
    
    986
    
    
    
    1,178
    
    
    
    825Dilutive potential common shares
    
    
    1,745
    
    
    
    1,621
    
    
    
    1,889
    
    
    
    1,613Denominator for diluted earnings per common share 
adjusted weighted average common shares and assumed
conversions
    
    
    126,563
    
    
    
    132,311
    
    
    
    128,020
    
    
    
    133,728Basic earnings per common share from continuing operations
    
    $
    0.23
    
    
    $
    0.21
    
    
    $
    0.69
    
    
    $
    0.60Diluted earnings per common share from continuing
operations
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.68
    
    
    $
    0.60
    10




---



##### 



6. DEBT AGREEMENTS
   7. SHARE REPURCHASES
  8. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    
    Nine Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    29,066
    
    
    $
    26,881
    
    
    $
    86,856
    
    
    $
    79,862Foreign currency translation adjustments
    
    
    20,797
    
    
    
    39,332
    
    
    
    42,281
    
    
    
    33,248Loss on derivative financial instruments
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (262
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,810
    *Total comprehensive income
    
    $
    49,863
    
    
    $
    66,179
    
    
    $
    129,137
    
    
    $
    139,658
 
 *
    
    As a result of freezing the U.S. Plans and one of our Non-U.S. Plans (discussed in Note 11). 11




---



##### 



9. CONTINGENCIES
 Environmental and Legal
     Other Contingencies
  12




---



##### 



10. SEGMENT REPORTING
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended June 30, 2007Revenues:Equipment
    
    $
    387,858
    
    
    $
    59,869
    
    
    $
    
    
    
    $
    447,727Customer service and supplies
    
    
    301,895
    
    
    
    44,032
    
    
    
    
    
    
    
    345,927Managed and professional services
    
    
    189,043
    
    
    
    14,329
    
    
    
    
    
    
    
    203,372Rental and fees
    
    
    29,869
    
    
    
    2,085
    
    
    
    
    
    
    
    31,954Other
    
    
    
    
    
    
    16,036
    
    
    
    
    
    
    
    16,036Total revenues
    
    
    908,665
    
    
    
    136,351
    
    
    
    
    
    
    
    1,045,016Cost of Revenues:Equipment
    
    
    298,612
    
    
    
    40,504
    
    
    
    
    
    
    
    339,116Customer service and supplies
    
    
    162,425
    
    
    
    30,688
    
    
    
    
    
    
    
    193,113Managed and professional services
    
    
    134,433
    
    
    
    12,478
    
    
    
    
    
    
    
    146,911Rental and fees
    
    
    8,120
    
    
    
    224
    
    
    
    
    
    
    
    8,344Other
    
    
    
    
    
    
    10,574
    
    
    
    
    
    
    
    10,574Total cost of revenues
    
    
    603,590
    
    
    
    94,468
    
    
    
    
    
    
    
    698,058Gross Profit:Equipment
    
    
    89,246
    
    
    
    19,365
    
    
    
    
    
    
    
    108,611Customer service and supplies
    
    
    139,470
    
    
    
    13,344
    
    
    
    
    
    
    
    152,814Managed and professional services
    
    
    54,610
    
    
    
    1,851
    
    
    
    
    
    
    
    56,461Rental and fees
    
    
    21,749
    
    
    
    1,861
    
    
    
    
    
    
    
    23,610Other
    
    
    
    
    
    
    5,462
    
    
    
    
    
    
    
    5,462Total gross profit
    
    
    305,075
    
    
    
    41,883
    
    
    
    
    
    
    
    346,958Selling and administrative
    
    
    223,246
    
    
    
    34,345
    
    
    
    35,782
    
    
    
    293,373Operating income
    
    
    81,829
    
    
    
    7,538
    
    
    
    (35,782
    )
    
    
    53,585Interest income
    
    
    
    
    
    
    
    
    
    
    2,473
    
    
    
    2,473Interest expense
    
    
    
    
    
    
    
    
    
    
    12,860
    
    
    
    12,860Income from continuing operations before
taxes on income
    
    $
    81,829
    
    
    $
    7,538
    
    
    $
    (46,169
    )
    
    $
    43,198
 13




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended June 30, 2006Revenues:Equipment
    
    $
    391,677
    
    
    $
    53,598
    
    
    $
    
    
    
    $
    445,275Customer service and supplies
    
    
    323,348
    
    
    
    38,239
    
    
    
    
    
    
    
    361,587Managed and professional services
    
    
    173,891
    
    
    
    13,385
    
    
    
    
    
    
    
    187,276Rental and fees
    
    
    31,754
    
    
    
    2,253
    
    
    
    
    
    
    
    34,007Other
    
    
    964
    
    
    
    17,788
    
    
    
    
    
    
    
    18,752Total revenues
    
    
    921,634
    
    
    
    125,263
    
    
    
    
    
    
    
    1,046,897Cost of revenues:Equipment
    
    
    297,614
    
    
    
    33,451
    
    
    
    
    
    
    
    331,065Customer service and supplies
    
    
    169,777
    
    
    
    26,820
    
    
    
    
    
    
    
    196,597Managed and professional services
    
    
    128,329
    
    
    
    11,903
    
    
    
    
    
    
    
    140,232Rental and fees
    
    
    7,924
    
    
    
    672
    
    
    
    
    
    
    
    8,596Other
    
    
    784
    
    
    
    11,583
    
    
    
    
    
    
    
    12,367Total cost of revenues
    
    
    604,428
    
    
    
    84,429
    
    
    
    
    
    
    
    688,857Gross profit:Equipment
    
    
    94,063
    
    
    
    20,147
    
    
    
    
    
    
    
    114,210Customer service and supplies
    
    
    153,571
    
    
    
    11,419
    
    
    
    
    
    
    
    164,990Managed and professional services
    
    
    45,562
    
    
    
    1,482
    
    
    
    
    
    
    
    47,044Rental and fees
    
    
    23,830
    
    
    
    1,581
    
    
    
    
    
    
    
    25,411Other
    
    
    180
    
    
    
    6,205
    
    
    
    
    
    
    
    6,385Total gross profit
    
    
    317,206
    
    
    
    40,834
    
    
    
    
    
    
    
    358,040Selling and administrative
    
    
    240,079
    
    
    
    32,898
    
    
    
    38,058
    
    
    
    311,035Gain on divestiture of businesses and assets
    
    
    6,858
    
    
    
    73
    
    
    
    
    
    
    
    6,931Restructuring benefit
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    129Operating income
    
    
    84,114
    
    
    
    8,009
    
    
    
    (38,058
    )
    
    
    54,065Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3,866
    
    
    
    3,866Interest income
    
    
    
    
    
    
    
    
    
    
    4,124
    
    
    
    4,124Interest expense
    
    
    
    
    
    
    
    
    
    
    12,245
    
    
    
    12,245Income from continuing operations before
taxes on income
    
    $
    84,114
    
    
    $
    8,009
    
    
    $
    (50,045
    )
    
    $
    42,078
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalNine Months Ended June 30, 2007Revenues:Equipment
    
    $
    1,145,205
    
    
    $
    172,445
    
    
    $
    
    
    
    $
    1,317,650Customer service and supplies
    
    
    908,919
    
    
    
    128,245
    
    
    
    
    
    
    
    1,037,164Managed and professional services
    
    
    550,959
    
    
    
    42,893
    
    
    
    
    
    
    
    593,852Rental and fees
    
    
    95,722
    
    
    
    6,216
    
    
    
    
    
    
    
    101,938Other
    
    
    
    
    
    
    53,032
    
    
    
    
    
    
    
    53,032Total revenues
    
    
    2,700,805
    
    
    
    402,831
    
    
    
    
    
    
    
    3,103,636Cost of Revenues:Equipment
    
    
    875,693
    
    
    
    113,516
    
    
    
    
    
    
    
    989,209Customer service and supplies
    
    
    500,408
    
    
    
    89,626
    
    
    
    
    
    
    
    590,034Managed and professional services
    
    
    395,443
    
    
    
    37,931
    
    
    
    
    
    
    
    433,374Rental and fees
    
    
    26,088
    
    
    
    651
    
    
    
    
    
    
    
    26,739Other
    
    
    
    
    
    
    35,201
    
    
    
    
    
    
    
    35,201Total cost of revenues
    
    
    1,797,632
    
    
    
    276,925
    
    
    
    
    
    
    
    2,074,557Gross Profit:Equipment
    
    
    269,512
    
    
    
    58,929
    
    
    
    
    
    
    
    328,441Customer service and supplies
    
    
    408,511
    
    
    
    38,619
    
    
    
    
    
    
    
    447,130Managed and professional services
    
    
    155,516
    
    
    
    4,962
    
    
    
    
    
    
    
    160,478Rental and fees
    
    
    69,634
    
    
    
    5,565
    
    
    
    
    
    
    
    75,199Other
    
    
    
    
    
    
    17,831
    
    
    
    
    
    
    
    17,831Total gross profit
    
    
    903,173
    
    
    
    125,906
    
    
    
    
    
    
    
    1,029,079Selling and administrative
    
    
    665,310
    
    
    
    101,231
    
    
    
    108,249
    
    
    
    874,790Operating income
    
    
    237,863
    
    
    
    24,675
    
    
    
    (108,249
    )
    
    
    154,289Interest income
    
    
    
    
    
    
    
    
    
    
    8,872
    
    
    
    8,872Interest expense
    
    
    
    
    
    
    
    
    
    
    37,842
    
    
    
    37,842Income from continuing operations before
taxes on income
    
    $
    237,863
    
    
    $
    24,675
    
    
    $
    (137,219
    )
    
    $
    125,319
 14




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalNine Months Ended June 30, 2006Revenues:Equipment
    
    $
    1,175,219
    
    
    $
    155,793
    
    
    $
    
    
    
    $
    1,331,012Customer service and supplies
    
    
    984,529
    
    
    
    109,664
    
    
    
    
    
    
    
    1,094,193Managed and professional services
    
    
    509,122
    
    
    
    40,006
    
    
    
    
    
    
    
    549,128Rental and fees
    
    
    112,757
    
    
    
    4,925
    
    
    
    
    
    
    
    117,682Other
    
    
    26,077
    
    
    
    52,177
    
    
    
    
    
    
    
    78,254Total revenues
    
    
    2,807,704
    
    
    
    362,565
    
    
    
    
    
    
    
    3,170,269Cost of revenues:Equipment
    
    
    897,637
    
    
    
    100,076
    
    
    
    
    
    
    
    997,713Customer service and supplies
    
    
    524,344
    
    
    
    77,985
    
    
    
    
    
    
    
    602,329Managed and professional services
    
    
    373,337
    
    
    
    34,907
    
    
    
    
    
    
    
    408,244Rental and fees
    
    
    33,364
    
    
    
    1,005
    
    
    
    
    
    
    
    34,369Other
    
    
    8,599
    
    
    
    33,455
    
    
    
    
    
    
    
    42,054Total cost of revenues
    
    
    1,837,281
    
    
    
    247,428
    
    
    
    
    
    
    
    2,084,709Gross profit:Equipment
    
    
    277,582
    
    
    
    55,717
    
    
    
    
    
    
    
    333,299Customer service and supplies
    
    
    460,185
    
    
    
    31,679
    
    
    
    
    
    
    
    491,864Managed and professional services
    
    
    135,785
    
    
    
    5,099
    
    
    
    
    
    
    
    140,884Rental and fees
    
    
    79,393
    
    
    
    3,920
    
    
    
    
    
    
    
    83,313Other
    
    
    17,478
    
    
    
    18,722
    
    
    
    
    
    
    
    36,200Total gross profit
    
    
    970,423
    
    
    
    115,137
    
    
    
    
    
    
    
    1,085,560Selling and administrative
    
    
    705,231
    
    
    
    93,537
    
    
    
    141,081
    
    
    
    939,849Gain on divestiture of businesses and assets
    
    
    6,624
    
    
    
    5,336
    
    
    
    
    
    
    
    11,960Restructuring benefit
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    264Operating income
    
    
    272,080
    
    
    
    26,936
    
    
    
    (141,081
    )
    
    
    157,935Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    5,516
    
    
    
    5,516Interest income
    
    
    
    
    
    
    
    
    
    
    9,060
    
    
    
    9,060Interest expense
    
    
    
    
    
    
    
    
    
    
    39,358
    
    
    
    39,358Income from continuing operations before
taxes on income
    
    $
    272,080
    
    
    $
    26,936
    
    
    $
    (176,895
    )
    
    $
    122,121
 
 *
    
    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 June 302007
    
    

2006U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansService cost
    
    $
    
    
    
    $
    747
    
    
    $
    231
    
    
    $
    879Interest cost
    
    
    8,358
    
    
    
    1,279
    
    
    
    7,702
    
    
    
    1,151Expected return on assets
    
    
    (9,193
    )
    
    
    (1,451
    )
    
    
    (7,777
    )
    
    
    (1,263
    )Amortization of net obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    (53
    )Recognized net actuarial loss
    
    
    758
    
    
    
    256
    
    
    
    1,921
    
    
    
    332Net periodic pension (income) cost
    
    $
    (77
    )
    
    $
    777
    
    
    $
    2,077
    
    
    $
    1,046
 Nine Months Ended June 302007
    
    
    2006U.S.
    
    
    Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansService cost
    
    $
    
    
    
    $
    2,167
    
    
    $
    8,952
    
    
    $
    3,281Interest cost
    
    
    24,740
    
    
    
    3,756
    
    
    
    24,140
    
    
    
    3,389Expected return on assets
    
    
    (27,372
    )
    
    
    (4,262
    )
    
    
    (23,357
    )
    
    
    (3,319
    )Amortization of net obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Amortization of prior service cost
    
    
    
    
    
    
    (157
    )
    
    
    47
    
    
    
    (155
    )Recognized net actuarial loss
    
    
    2,106
    
    
    
    752
    
    
    
    7,209
    
    
    
    1,129Curtailment
    
    
    
    
    
    
    
    
    
    
    2,852
    
    
    
    787Net periodic pension (income) cost
    
    $
    (526
    )
    
    $
    2,256
    
    
    $
    19,843
    
    
    $
    5,130
   12. RIGHTS PLAN
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 OVERVIEW
 The Company
  16




---



##### 



Summary of Consolidated Results
 Three Months Ended
    
    
    
    
    
    Nine Months EndedJune 30,
    
    
    
    
    
    June 30,2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    ChangeRevenue
    
    $
    1,045,016
    
    
    $
    1,046,897
    
    
    
    (0.2
    )%
    
    $
    3,103,636
    
    
    $
    3,170,269
    
    
    
    (2.1
    )%Selling and
administrative
expense as a % of
revenue
    
    
    28.1
    %
    
    
    29.7
    %
    
    (160)basis points
    
    
    28.2
    %
    
    
    29.6
    %
    
    (140)basis pointsOperating income as % of
revenue
    
    
    5.1
    %
    
    
    5.2
    %
    
    (10)basis points
    
    
    5.0
    %
    
    
    5.0
    %
    
    
    Diluted earnings per share
    
    $
    0.23
    
    
    $
    0.20
    
    
    
    15.0
    %
    
    $
    0.68
    
    
    $
    0.60
    
    
    
    13.3
    %
    17




---



##### 



RESULTS OF OPERATIONS
 Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
 Reportable Segments
  *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalThree Months Ended June 30, 2007Revenues:Equipment
    
    $
    387,858
    
    
    $
    59,869
    
    
    $
    
    
    
    $
    447,727Customer service and supplies
    
    
    301,895
    
    
    
    44,032
    
    
    
    
    
    
    
    345,927Managed and professional services
    
    
    189,043
    
    
    
    14,329
    
    
    
    
    
    
    
    203,372Rental and fees
    
    
    29,869
    
    
    
    2,085
    
    
    
    
    
    
    
    31,954Other
    
    
    
    
    
    
    16,036
    
    
    
    
    
    
    
    16,036Total revenues
    
    
    908,665
    
    
    
    136,351
    
    
    
    
    
    
    
    1,045,016Cost of Revenues:Equipment
    
    
    298,612
    
    
    
    40,504
    
    
    
    
    
    
    
    339,116Customer service and supplies
    
    
    162,425
    
    
    
    30,688
    
    
    
    
    
    
    
    193,113Managed and professional services
    
    
    134,433
    
    
    
    12,478
    
    
    
    
    
    
    
    146,911Rental and fees
    
    
    8,120
    
    
    
    224
    
    
    
    
    
    
    
    8,344Other
    
    
    
    
    
    
    10,574
    
    
    
    
    
    
    
    10,574Total cost of revenues
    
    
    603,590
    
    
    
    94,468
    
    
    
    
    
    
    
    698,058Gross Profit:Equipment
    
    
    89,246
    
    
    
    19,365
    
    
    
    
    
    
    
    108,611Customer service and supplies
    
    
    139,470
    
    
    
    13,344
    
    
    
    
    
    
    
    152,814Managed and professional services
    
    
    54,610
    
    
    
    1,851
    
    
    
    
    
    
    
    56,461Rental and fees
    
    
    21,749
    
    
    
    1,861
    
    
    
    
    
    
    
    23,610Other
    
    
    
    
    
    
    5,462
    
    
    
    
    
    
    
    5,462Total gross profit
    
    
    305,075
    
    
    
    41,883
    
    
    
    
    
    
    
    346,958Selling and administrative
    
    
    223,246
    
    
    
    34,345
    
    
    
    35,782
    
    
    
    293,373Operating income
    
    
    81,829
    
    
    
    7,538
    
    
    
    (35,782
    )
    
    
    53,585Interest income
    
    
    
    
    
    
    
    
    
    
    2,473
    
    
    
    2,473Interest expense
    
    
    
    
    
    
    
    
    
    
    12,860
    
    
    
    12,860Income from continuing operations before
taxes on income
    
    $
    81,829
    
    
    $
    7,538
    
    
    $
    (46,169
    )
    
    $
    43,198Three Months Ended June 30, 2006Revenues:Equipment
    
    $
    391,677
    
    
    $
    53,598
    
    
    $
    
    
    
    $
    445,275Customer service and supplies
    
    
    323,348
    
    
    
    38,239
    
    
    
    
    
    
    
    361,587Managed and professional services
    
    
    173,891
    
    
    
    13,385
    
    
    
    
    
    
    
    187,276Rental and fees
    
    
    31,754
    
    
    
    2,253
    
    
    
    
    
    
    
    34,007Other
    
    
    964
    
    
    
    17,788
    
    
    
    
    
    
    
    18,752Total revenues
    
    
    921,634
    
    
    
    125,263
    
    
    
    
    
    
    
    1,046,897Cost of revenues:Equipment
    
    
    297,614
    
    
    
    33,451
    
    
    
    
    
    
    
    331,065Customer service and supplies
    
    
    169,777
    
    
    
    26,820
    
    
    
    
    
    
    
    196,597
 18




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalManaged and professional services
    
    
    128,329
    
    
    
    11,903
    
    
    
    
    
    
    
    140,232Rental and fees
    
    
    7,924
    
    
    
    672
    
    
    
    
    
    
    
    8,596Other
    
    
    784
    
    
    
    11,583
    
    
    
    
    
    
    
    12,367Total cost of revenues
    
    
    604,428
    
    
    
    84,429
    
    
    
    
    
    
    
    688,857Gross profit:Equipment
    
    
    94,063
    
    
    
    20,147
    
    
    
    
    
    
    
    114,210Customer service and supplies
    
    
    153,571
    
    
    
    11,419
    
    
    
    
    
    
    
    164,990Managed and professional services
    
    
    45,562
    
    
    
    1,482
    
    
    
    
    
    
    
    47,044Rental and fees
    
    
    23,830
    
    
    
    1,581
    
    
    
    
    
    
    
    25,411Other
    
    
    180
    
    
    
    6,205
    
    
    
    
    
    
    
    6,385Total gross profit
    
    
    317,206
    
    
    
    40,834
    
    
    
    
    
    
    
    358,040Selling and administrative
    
    
    240,079
    
    
    
    32,898
    
    
    
    38,058
    
    
    
    311,035Gain on divestiture of businesses and assets
    
    
    6,858
    
    
    
    73
    
    
    
    
    
    
    
    6,931Restructuring benefit
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    129Operating income
    
    
    84,114
    
    
    
    8,009
    
    
    
    (38,058
    )
    
    
    54,065Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3,866
    
    
    
    3,866Interest income
    
    
    
    
    
    
    
    
    
    
    4,124
    
    
    
    4,124Interest expense
    
    
    
    
    
    
    
    
    
    
    12,245
    
    
    
    12,245Income from continuing operations before
taxes on income
    
    $
    84,114
    
    
    $
    8,009
    
    
    $
    (50,045
    )
    
    $
    42,078
 
 *
    
    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
    
    $
    447,727
    
    
    $
    445,275
    
    
    $
    2,452
    
    
    
    0.6
    %Cost of revenue
    
    
    339,116
    
    
    
    331,065
    
    
    
    8,051
    
    
    
    2.4
    %Gross profit
    
    $
    108,611
    
    
    $
    114,210
    
    
    $
    (5,599
    )Gross profit %
    
    
    24.3
    %
    
    
    25.6
    %
   19




---



##### 



Customer Service and Supplies
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    345,927
    
    
    $
    361,587
    
    
    $
    (15,660
    )
    
    
    (4.3
    )%Cost of revenue
    
    
    193,113
    
    
    
    196,597
    
    
    
    (3,484
    )
    
    
    (1.8
    )%Gross profit
    
    $
    152,814
    
    
    $
    164,990
    
    
    $
    (12,176
    )Gross profit %
    
    
    44.2
    %
    
    
    45.6
    %
   Managed and Professional Services
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    203,372
    
    
    $
    187,276
    
    
    $
    16,096
    
    
    
    8.6
    %Cost of revenue
    
    
    146,911
    
    
    
    140,232
    
    
    
    6,679
    
    
    
    4.8
    %Gross profit
    
    $
    56,461
    
    
    $
    47,044
    
    
    $
    9,417Gross profit %
    
    
    27.8
    %
    
    
    25.1
    %
   20




---



##### 



Rental and Fees
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    31,954
    
    
    $
    34,007
    
    
    $
    (2,053
    )
    
    
    (6.0
    )%Cost of revenue
    
    
    8,344
    
    
    
    8,596
    
    
    
    (252
    )
    
    
    (2.9
    )%Gross profit
    
    $
    23,610
    
    
    $
    25,411
    
    
    $
    (1,801
    )Gross profit %
    
    
    73.9
    %
    
    
    74.7
    %
  Other Revenue
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeFinance income
    
    $
    6,215
    
    
    $
    6,496
    
    
    $
    (281
    )
    
    
    (4.3
    )%Other
    
    
    9,821
    
    
    
    12,256
    
    
    
    (2,435
    )
    
    
    (19.9
    )%Total other revenue
    
    
    16,036
    
    
    
    18,752
    
    
    
    (2,716
    )Finance interest expense
    
    
    1,537
    
    
    
    1,355
    
    
    
    182
    
    
    
    13.4
    %Other
    
    
    9,037
    
    
    
    11,012
    
    
    
    (1,975
    )
    
    
    (17.9
    )%Total cost of other revenue
    
    
    10,574
    
    
    
    12,367
    
    
    
    (1,793
    )Finance income gross profit
    
    
    4,678
    
    
    
    5,141
    
    
    
    (463
    )
    
    
    (9.0
    )%Other gross profit
    
    
    784
    
    
    
    1,244
    
    
    
    (460
    )
    
    
    (37.0
    )%Total other gross profit
    
    $
    5,462
    
    
    $
    6,385
    
    
    $
    (923
    )Finance income gross profit %
    
    
    75.3
    %
    
    
    79.1
    %Other gross profit%
    
    
    8.0
    %
    
    
    10.2
    %Total gross profit %
    
    
    34.1
    %
    
    
    34.0
    %
  Selling and Administrative Expenses
 2007
    
    2006
    
    $ Change
    
    % ChangeSelling and administrative expenses
    
    $
    293,373
    
    
    $
    311,035
    
    
    $
    (17,662
    )
    
    
    (5.7
    )%Selling and administrative expenses as
a % of revenue
    
    
    28.1
    %
    
    
    29.7
    %
   
    
    a decrease of $7,800 compared to fiscal 2006 as a result of lower spending for
contract labor, facilities, information technology and professional fees,
    
    a decrease of approximately $7,500 related to compensation and benefits related
primarily to lower accrual requirements for performance compensation; and
 
 21




---



##### 




    
    and a decrease in pension expense attributed specifically to selling and
administrative of approximately $1,300
 Other Items
 2007
    
    2006
    
    $ ChangeGain on divestiture of businesses and assets
    
    $
    
    
    
    $
    6,931
    
    
    $
    (6,931
    )Restructuring benefit
    
    
    
    
    
    
    129
    
    
    
    (129
    )Loss from early extinguishment of debt
    
    
    
    
    
    
    3,866
    
    
    
    (3,866
    )Interest income
    
    
    2,473
    
    
    
    4,124
    
    
    
    (1,651
    )Interest expense
    
    
    12,860
    
    
    
    12,245
    
    
    
    615Taxes on income
    
    
    14,132
    
    
    
    15,207
    
    
    
    (1,075
    )Income from continuing operations
    
    
    29,066
    
    
    
    26,871
    
    
    
    2,195Diluted earnings per common share  continuing operations
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.03
      Nine Months Ended June 30, 2007 Compared to the Nine Months Ended June 30, 2006
 Reportable Segments
 *CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalNine Months Ended June 30, 2007Revenues:Equipment
    
    $
    1,145,205
    
    
    $
    172,445
    
    
    $
    
    
    
    $
    1,317,650Customer service and supplies
    
    
    908,919
    
    
    
    128,245
    
    
    
    
    
    
    
    1,037,164Managed and professional services
    
    
    550,959
    
    
    
    42,893
    
    
    
    
    
    
    
    593,852Rental and fees
    
    
    95,722
    
    
    
    6,216
    
    
    
    
    
    
    
    101,938Other
    
    
    
    
    
    
    53,032
    
    
    
    
    
    
    
    53,032Total revenues
    
    
    2,700,805
    
    
    
    402,831
    
    
    
    
    
    
    
    3,103,636Cost of Revenues:Equipment
    
    
    875,693
    
    
    
    113,516
    
    
    
    
    
    
    
    989,209Customer service and supplies
    
    
    500,408
    
    
    
    89,626
    
    
    
    
    
    
    
    590,034Managed and professional services
    
    
    395,443
    
    
    
    37,931
    
    
    
    
    
    
    
    433,374Rental and fees
    
    
    26,088
    
    
    
    651
    
    
    
    
    
    
    
    26,739Other
    
    
    
    
    
    
    35,201
    
    
    
    
    
    
    
    35,201Total cost of revenues
    
    
    1,797,632
    
    
    
    276,925
    
    
    
    
    
    
    
    2,074,557Gross Profit:Equipment
    
    
    269,512
    
    
    
    58,929
    
    
    
    
    
    
    
    328,441Customer service and supplies
    
    
    408,511
    
    
    
    38,619
    
    
    
    
    
    
    
    447,130
 22




---



##### 



*CorporateIKON North
    
    
    IKON
    
    
    andAmerica
    
    
    Europe
    
    
    Eliminations
    
    
    TotalManaged and professional services
    
    
    155,516
    
    
    
    4,962
    
    
    
    
    
    
    
    160,478Rental and fees
    
    
    69,634
    
    
    
    5,565
    
    
    
    
    
    
    
    75,199Other
    
    
    
    
    
    
    17,831
    
    
    
    
    
    
    
    17,831Total gross profit
    
    
    903,173
    
    
    
    125,906
    
    
    
    
    
    
    
    1,029,079Selling and administrative
    
    
    665,310
    
    
    
    101,231
    
    
    
    108,249
    
    
    
    874,790Operating income
    
    
    237,863
    
    
    
    24,675
    
    
    
    (108,249
    )
    
    
    154,289Interest income
    
    
    
    
    
    
    
    
    
    
    8,872
    
    
    
    8,872Interest expense
    
    
    
    
    
    
    
    
    
    
    37,842
    
    
    
    37,842Income from continuing operations before
taxes on income
    
    $
    237,863
    
    
    $
    24,675
    
    
    $
    (137,219
    )
    
    $
    125,319Nine Months Ended June 30, 2006Revenues:Equipment
    
    $
    1,175,219
    
    
    $
    155,793
    
    
    $
    
    
    
    $
    1,331,012Customer service and supplies
    
    
    984,529
    
    
    
    109,664
    
    
    
    
    
    
    
    1,094,193Managed and professional services
    
    
    509,122
    
    
    
    40,006
    
    
    
    
    
    
    
    549,128Rental and fees
    
    
    112,757
    
    
    
    4,925
    
    
    
    
    
    
    
    117,682Other
    
    
    26,077
    
    
    
    52,177
    
    
    
    
    
    
    
    78,254Total revenues
    
    
    2,807,704
    
    
    
    362,565
    
    
    
    
    
    
    
    3,170,269Cost of revenues:Equipment
    
    
    897,637
    
    
    
    100,076
    
    
    
    
    
    
    
    997,713Customer service and supplies
    
    
    524,344
    
    
    
    77,985
    
    
    
    
    
    
    
    602,329Managed and professional services
    
    
    373,337
    
    
    
    34,907
    
    
    
    
    
    
    
    408,244Rental and fees
    
    
    33,364
    
    
    
    1,005
    
    
    
    
    
    
    
    34,369Other
    
    
    8,599
    
    
    
    33,455
    
    
    
    
    
    
    
    42,054Total cost of revenues
    
    
    1,837,281
    
    
    
    247,428
    
    
    
    
    
    
    
    2,084,709Gross profit:Equipment
    
    
    277,582
    
    
    
    55,717
    
    
    
    
    
    
    
    333,299Customer service and supplies
    
    
    460,185
    
    
    
    31,679
    
    
    
    
    
    
    
    491,864Managed and professional services
    
    
    135,785
    
    
    
    5,099
    
    
    
    
    
    
    
    140,884Rental and fees
    
    
    79,393
    
    
    
    3,920
    
    
    
    
    
    
    
    83,313Other
    
    
    17,478
    
    
    
    18,722
    
    
    
    
    
    
    
    36,200Total gross profit
    
    
    970,423
    
    
    
    115,137
    
    
    
    
    
    
    
    1,085,560Selling and administrative
    
    
    705,231
    
    
    
    93,537
    
    
    
    141,081
    
    
    
    939,849Gain on divestiture of businesses and assets
    
    
    6,624
    
    
    
    5,336
    
    
    
    
    
    
    
    11,960Restructuring benefit
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    264Operating income
    
    
    272,080
    
    
    
    26,936
    
    
    
    (141,081
    )
    
    
    157,935Loss from the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    5,516
    
    
    
    5,516Interest income
    
    
    
    
    
    
    
    
    
    
    9,060
    
    
    
    9,060Interest expense
    
    
    
    
    
    
    
    
    
    
    39,358
    
    
    
    39,358Income from continuing operations before
taxes on income
    
    $
    272,080
    
    
    $
    26,936
    
    
    $
    (176,895
    )
    
    $
    122,121
 
 *
    
    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
    
    $
    1,317,650
    
    
    $
    1,331,012
    
    
    $
    (13,362
    )
    
    
    (1.0
    )%Cost of revenue
    
    
    989,209
    
    
    
    997,713
    
    
    
    (8,504
    )
    
    
    (0.9
    )%Gross profit
    
    $
    328,441
    
    
    $
    333,299
    
    
    $
    (4,858
    )Gross profit %
    
    
    24.9
    %
    
    
    25.0
    %
  23




---



##### 



Customer Service and Supplies
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    1,037,164
    
    
    $
    1,094,193
    
    
    $
    (57,029
    )
    
    
    (5.2
    )%Cost of revenue
    
    
    590,034
    
    
    
    602,329
    
    
    
    (12,295
    )
    
    
    (2.0
    )%Gross profit
    
    $
    447,130
    
    
    $
    491,864
    
    
    $
    (44,734
    )Gross profit
%
    
    
    43.1
    %
    
    
    45.0
    %
   Managed and Professional Services
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    593,852
    
    
    $
    549,128
    
    
    $
    44,724
    
    
    
    8.1
    %Cost of revenue
    
    
    433,374
    
    
    
    408,244
    
    
    
    25,130
    
    
    
    6.2
    %Gross profit
    
    $
    160,478
    
    
    $
    140,884
    
    
    $
    19,594Gross profit %
    
    
    27.0
    %
    
    
    25.7
    %
   24




---



##### 



Rental and Fees
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenue
    
    $
    101,938
    
    
    $
    117,682
    
    
    $
    (15,744
    )
    
    
    (13.4
    )%Cost of revenue
    
    
    26,739
    
    
    
    34,369
    
    
    
    (7,630
    )
    
    
    (22.2
    )%Gross profit
    
    $
    75,199
    
    
    $
    83,313
    
    
    $
    (8,114
    )Gross profit %
    
    
    73.8
    %
    
    
    70.8
    %
  Other Revenue
 2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeFinance income
    
    $
    18,356
    
    
    $
    42,066
    
    
    $
    (23,710
    )
    
    
    (56.4
    )%Other
    
    
    34,676
    
    
    
    36,188
    
    
    
    (1,512
    )
    
    
    (4.2
    )%Total other revenue
    
    $
    53,032
    
    
    $
    78,254
    
    
    $
    (25,222
    )Finance interest expense
    
    $
    4,452
    
    
    $
    9,806
    
    
    $
    (5,354
    )
    
    
    (54.6
    )%Other
    
    
    30,749
    
    
    
    32,248
    
    
    
    (1,499
    )
    
    
    (4.6
    )%Total cost of other revenue
    
    $
    35,201
    
    
    $
    42,054
    
    
    $
    (6,853
    )Finance income gross profit
    
    $
    13,904
    
    
    $
    32,260
    
    
    $
    (18,356
    )
    
    
    (56.9
    )%Other gross profit
    
    
    3,927
    
    
    
    3,940
    
    
    
    (13
    )
    
    
    (0.3
    )%Total other gross profit
    
    $
    17,831
    
    
    $
    36,200
    
    
    $
    (18,369
    )Finance income gross profit %
    
    
    75.7
    %
    
    
    76.7
    %Other gross profit%
    
    
    11.3
    %
    
    
    10.9
    %Total gross profit %
    
    
    33.6
    %
    
    
    46.3
    %
  Selling and Administrative Expenses
 2007
    
    2006
    
    $ Change
    
    % ChangeSelling and administrative expenses
    
    $
    874,790
    
    
    $
    939,849
    
    
    $
    (65,059
    )
    
    
    (6.9
    )%Selling and administrative expenses as
a % of revenue
    
    
    28.2
    %
    
    
    29.6
    %
   
    
    a decrease of $25,100 related to compensation and benefits driven by 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 performance compensation ;
    
    a decrease of $19,300 compared to the first nine months of fiscal 2006 as a result
of lower spending for contract labor and professional fees;
 25




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
    
    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 $24,973 to $1,730 in fiscal 2007 primarily as a result of the freezing of certain
of our defined benefit pension plans at the end of fiscal 2005 and during fiscal 2006
(which included curtailment charges in the aggregate of $3,628) and as a result of the
positive 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 nine months attributed specifically to selling and
administrative was approximately $12,000;
    
    a decrease of $11,400 compared to the first nine months of fiscal 2006 as a result
of lower spending on facilities, information technology and lower non-income related
tax expense;
    
    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 nine months
of fiscal 2007.
 Other Items
 2007
    
    2006
    
    $ ChangeGain on divestiture of businesses and assets
    
    $
    
    
    
    $
    11,960
    
    
    $
    (11,960
    )Restructuring benefit
    
    
    
    
    
    
    264
    
    
    
    (264
    )Loss from the early extinguishment of debt
    
    
    
    
    
    
    5,516
    
    
    
    (5,516
    )Interest income
    
    
    8,872
    
    
    
    9,060
    
    
    
    (188
    )Interest expense
    
    
    37,842
    
    
    
    39,358
    
    
    
    (1,516
    )Taxes on income
    
    
    38,463
    
    
    
    42,250
    
    
    
    (3,787
    )Income from continuing operations
    
    
    86,856
    
    
    
    79,871
    
    
    
    6,985Diluted earnings per common share  continuing operations
    
    $
    0.68
    
    
    $
    0.60
    
    
    $
    0.08
      26




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##### 



FINANCIAL CONDITION AND LIQUIDITY
 Cash Flows and Liquidity
  2007Cash provided by operating activities
    
    $
    9,042Cash used in investing activities
    
    
    (21,181
    )Cash used in financing activities
    
    
    (122,276
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    7,467Decrease in cash and cash equivalents
    
    
    (126,948
    )Cash and cash equivalents at the beginning of the year
    
    
    414,239Cash and cash equivalents at the end of period
    
    $
    287,291
 Operating Cash Flows
  Investing Cash Flows
  27




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##### 



Financing Cash Flows
  Capital Structure
  Liquidity Outlook
    RECENT ACCOUNTING STANDARDS
  Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Item 4. Controls and Procedures
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
   28




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##### 



Material Weakness in Internal Control Over Financial Reporting
   Managements Remediation Initiatives
   Changes in Internal Control Over Financial Reporting
  29




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##### 



30




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##### 



PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  Our liquidity, financial position and results of operations are dependent on our relationship with
GE.
    31




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##### 



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 PlanApril 1, 2007  April 30, 2007
    
    
    507
    
    
    $
    15.18
    
    
    
    507
    
    
    $
    241,234May 1, 2007  May 31, 2007
    
    
    957
    
    
    
    14.52
    
    
    
    957
    
    
    
    227,336June 1, 2007  June 30, 2007
    
    
    1,510
    
    
    
    14.62
    
    
    
    1,510
    
    
    
    205,2712,974
    
    
    $
    14.68
    
    
    
    2,974
    
    
    $
    205,271
 
 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
 
 32




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##### 



SIGNATURES
  IKON OFFICE SOLUTIONS, INC.
Date: July 30, 2007By:
    /s/ ROBERT F. WOODS(Robert F. Woods)Senior Vice President and Chief
Financial Officer
(Principal Financial Officer) 33