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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended September 30, 2005                                                
|          
|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(Address of principal executive offices) |  | 19355(Zip Code)                         

Registrants telephone number, including area code:


(610) 296-8000





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


|                                                                      |  |                                          
|--------------------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                                   |  | Name of Each Exchange on Which Registered
|                                                                      |  |                                          
|Common Stock, no par value
    (with Preferred Share Purchase Rights) |  | New York Stock Exchange                  

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


None


þ o


o þ


þ o


þ






þ o


o


DOCUMENTS INCORPORATED BY REFERENCE















|  |                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The registrant is voluntarily providing this disclosure as the
    registrant notes that such disclosure only applies to Annual
    Reports on Form 10-K relating to fiscal years ending on or
    after December 1, 2005.



---










INDEX


|                                                                                |  |                                                                                                                       |  |          |    |  |  | 
|------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | -------- | -- |  |  | 
|                                                                                |  |                                                                                                                       |  | Page No. |   
|                                                                                |  |                                                                                                                       |  |          |   
|PART I                                                                         
|ITEM 1.                                                                         |  | BUSINESS                                                                                                              |  |          | 7  | 
|ITEM 2.                                                                         |  | PROPERTIES                                                                                                            |  |          | 14 | 
|ITEM 3.                                                                         |  | LEGAL PROCEEDINGS                                                                                                     |  |          | 14 | 
|ITEM 4.                                                                         |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                                               |  |          | 15 | 
|ITEM 4A.                                                                        |  | EXECUTIVE OFFICERS OF THE REGISTRANT                                                                                  |  |          | 16 | 
|                                                                               
|PART II                                                                        
|ITEM 5.                                                                         |  | MARKET FOR REGISTRANTS COMMON EQUITY,
    RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
    SECURITIES |  |          | 18 | 
|ITEM 6.                                                                         |  | SELECTED FINANCIAL DATA                                                                                               |  |          | 19 | 
|ITEM 7.                                                                         |  | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             |  |          | 21 | 
|ITEM 7A.                                                                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                        |  |          | 48 | 
|ITEM 8.                                                                         |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA                                                                       |  |          | 50 | 
|ITEM 9.                                                                         |  | CHANGES IN AND DISAGREEMENTS WITH
    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                              |  |          | 95 | 
|ITEM 9A.                                                                        |  | CONTROLS AND PROCEDURES                                                                                               |  |          | 95 | 
|ITEM 9B.                                                                        |  | OTHER INFORMATION                                                                                                     |  |          | 97 | 
|                                                                               
|PART III                                                                       
|ITEM 10.                                                                        |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT                                                                |  |          | 97 | 
|ITEM 11.                                                                        |  | EXECUTIVE COMPENSATION                                                                                                |  |          | 97 | 
|ITEM 12.                                                                        |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                    |  |          | 97 | 
|ITEM 13.                                                                        |  | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS                                                                    |  |          | 98 | 
|ITEM 14.                                                                        |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                |  |          | 98 | 
|                                                                               
|PART IV                                                                        
|ITEM 15.                                                                        |  | EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES                                                                        |  |          | 99 | 
|AMENDMENT 2005-1 TO IKON'S 1994 DEFERRED COMP PLAN                             
|AMENDMENT 2005-1 TO IKON'S EXECUTIVE DEFERRED COMP. PLAN                       
|EXECUTIVE EMPLOYMENT AGREEMENT FOR DAVID MILLS                                 
|SUPPLEMENTAL EXECUTIVE EMPLOYMENT AGREEMENT FOR DAVID MILLS                    
|Ratio of Earnings to Fixed Charges                                             
|Subsidiaries of IKON                                                           
|Consent of PricewaterhouseCoopers LLP                                          
|Certification of Principal Executive Officer                                   
|Certification of Principal Financial Officer                                   
|Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
|Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350





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FORWARD-LOOKING STATEMENTS








| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | risks and uncertainties relating to conducting operations in a
    competitive environment and a changing industry;                                                                                        
|
| |  | risks and uncertainties associated with existing or future
    supplier relationships;                                                                                                                     
|
| |  | risks and uncertainties associated with our relationship with
    General Electric Capital Corporation (GE);                                                                                             
|
| |  | our ability to finance current operations and growth initiatives;                                                                                                                                          
|
| |  | our ability to improve operational efficiency and reduce our
    administrative costs;                                                                                                                     
|
| |  | risks associated with new technologies;                                                                                                                                                                    
|
| |  | our ability to have effective internal control over financial
    reporting;                                                                                                                               
|
| |  | risks associated with the implementation of an enterprise-wide
    information technology platform in our North American and
    European markets, our infrastructure and productivity
    initiatives; and
|
| |  | economic, legal and political issues associated with
    international operations.                                                                                                                         



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The intense competition in our industry could result in
    reduced profitability and loss of market 
     share for us.



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| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A deterioration in our relationships with our suppliers or
    in the financial condition of our suppliers could adversely
    affect our liquidity, financial position and results of
    operations.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our liquidity, financial position and results of
    operations are dependent on our relationship with GE.





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| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to comply with any material provisions of our
    secured credit facility could have a material adverse effect on
    our liquidity, financial position and results of
    operations.







| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to improve our operational efficiency and
    reduce our administrative costs could have a material adverse
    effect on our liquidity, financial position and results of
    operations.





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | New technologies may affect our operations, and failures
    in the transition to new technologies could adversely affect our
    business.



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| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to maintain an effective system of internal
    control over financial reporting, we may not be able to
    accurately report our financial results or prevent fraud. As a
    result, our business, brand and operating results could be
    harmed or we could fail to meet our reporting
    obligations.





| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | We continue to implement substantial changes to our
    information systems. These actions could disrupt our
    business.





| |                                                                  
| | -----------------------------------------------------------------
| | Added risks are associated with our international
    operations.



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PART I







|        |         
|------- | --------
|Item 1. | Business







Strategy Overview






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Operational Leverage. We are focused on reducing our cost
    structure to improve profitability. Our initiatives include a
    conversion to a common enterprise-wide information technology
    platform, billing process improvements designed to assure the
    timeliness and accuracy of our customer invoices, and the
    reduction of administrative costs. We are also using the Six
    Sigma methodology, which is designed to eliminate process
    defects from the customers perspective, to simplify and
    streamline processes in other areas of our business (see
     Efficiency Initiatives). In addition, we
    are focused on continued cost reductions at every level of the
    Company, including administrative and real estate costs and
    employee benefits expenses.
|
| | Another element of operational leverage is organizational
    development. We will continue to invest in development
    opportunities across the Company and strive to achieve best
    practices in organizational vitality, diversity, sales force
    engagement, and new leader assimilation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Growth and Expansion. We believe that generating core and
    related market growth are the two primary drivers of enhanced
    market leadership. Within our core markets, we are targeting the
    mid-market to leverage the scope and reach of our sales and
    service capabilities across North America and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Western Europe. This target market accounts for a meaningful
    portion of our revenue and remains an essential part of our
    business. Additionally, we are investing in sales force
    effectiveness initiatives. We continue to direct our business
    mix toward higher growth areas such as color and high-volume
    equipment, professional services and outsourcing relationships.
    To improve aftermarket supplies and maintenance revenues, we are
    investing in market-share strategies that are designed to
    increase unit placements and result in the higher margins
    associated with post-sales revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | We have added resources dedicated to securing relationships in
    our National Accounts target market, which includes companies in
    the Fortune 500 and other large global and private companies.
    Our customers in this market represent a wide range of
    industries, including healthcare, financial services, retail and
    manufacturing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | In terms of related expansion, our two principal focus areas are
    Enterprise Services and Europe. Within Enterprise Services, we
    will seek to ensure that our products and services portfolio is
    customer-focused, services-centric, and flexible. We will
    continue to lead with document strategy assessments, and
    leverage the strength of our combined services offerings to
    cross-sell in existing accounts and add new customers. With our
    portfolio of document management solutions, Enterprise Services
    delivers document management solutions that address the specific
    document challenges of both office and production environments.
    In Europe, we will continue to expand into related markets to
    extend our reach through our City Expansion Strategy, targeting
    major markets with substantial opportunity for growth, and Pan
    European Account Program, focusing on large, multi-national
    accounts. We will also seek to leverage our Enterprise Services
    strategy to drive new business across Europe.                                                                                                                                                           
|
| | Capital Structure. Over the last several years, we have
    focused on maximizing cash flow, reducing debt and reducing
    outstanding shares of our common stock by implementing
    initiatives to enhance our profitability. We have reduced
    corporate debt (which does not include debt attributable to our
    finance business) from $804,880 at September 30, 2004 to
    $729,293 at September 30, 2005. In addition, during fiscal
    2005, we repurchased 8,453 shares of our common stock for
    $86,943. The sale of a portion of our North American lease
    portfolio in March 2004 generated a significant amount of cash
    and enabled us to reduce the financing risk inherent in a
    captive leasing business. We are focused on cash generation
    through reductions in our working capital, in particular the
    reduction of our accounts receivable balance, through
    improvement in our billing processes and increasing the
    efficiency of our processing of new leases funded by GE. We
    believe these working capital improvements, combined with growth
    in our targeted revenue streams and reductions in administrative
    costs, will be catalysts for future cash flow generation.

General Business Developments






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Business Division Integration. Beginning in fiscal 1999,
    we created our reporting units, IKON North America
    (INA) and IKON Europe (IE), by
    integrating our Business Services, Managed Services, and captive
    finance subsidiaries. Our Business Service offerings include
    traditional copiers, printers, MFP technologies, and other
    office equipment and services. Managed Services includes the
    management of our customers mailrooms, copy centers, and
    general administrative facilities, as well as off-site managed
    services through legal document services (see
     Product and Service Offerings).

8



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the past several years, we have focused on developing and
    growing INA and IE by enhancing our growth platforms and
    de-emphasizing the sale of lower-margin technology services,
    hardware, and software in North America and Europe. Through our
    captive finance subsidiaries, we arranged lease financing
    primarily for equipment marketed by us. In fiscal 2004, we
    entered into the U.S. Program Agreement and the Canadian
    Rider to enable GE to provide lease financing for equipment
    marketed by us in the U.S. and Canada, including copiers, fax
    machines, and related accessories and peripheral equipment, the
    majority of which are manufactured by Canon and Ricoh. In
    addition, in fiscal 2005, we announced the consolidation of our
    three U.S. regions into two regions in order to continue to
    centralize and streamline our operational structure.                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Operations Integration and Enhancements. As we have
    integrated our business divisions over the past several years,
    we have taken actions to centralize and consolidate a variety of
    operational functions, including: (i) integrating and
    consolidating our financial and accounting functions into shared
    service centers; (ii) establishing customer care centers;
    and (iii) developing a national supply chain organization
    to leverage our buying power with suppliers and streamline our
    distribution and inventory management processes. We have aligned
    the service and sales functions of our marketplace activities
    and have implemented a sales coverage model to align our sales
    professionals with the right opportunities to effectively manage
    their territories (see  Efficiency
    Initiatives).                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Product Transition. Virtually all of the new office
    equipment we distribute represents digital technology (as
    compared to analog), which has the ability to communicate across
    a network, enabling work to be performed collaboratively and
    often eliminates the distinction between traditional copiers,
    fax equipment, and printers. We have continued to focus on the
    distribution of color products and digital multifunction office
    equipment that enable our customers to print, copy, scan, and
    fax, from one device. We believe that the office equipment
    market will continue to change with the increasing acceptance of
    black and white multifunction and color technology and that the
    manufacturers of the products we distribute will continue to
    focus on developing and manufacturing these products. The
    evolution of digital technology has allowed our suppliers to
    develop high-end segment 5 and 6 equipment (equipment with
    output speeds in excess of 69 pages per minute) and color
    products. We have pursued opportunities to market these high-end
    products. During fiscal 2005, sales of high-end equipment and
    color products represented approximately 42% of our office
    equipment revenues in North America.
|
| | Equipment Financing. During fiscal 2004, we sold certain
    of our assets, including facilities, systems and processes
    relating to our U.S. and Canadian leasing operations, to GE and
    designated GE as our preferred lease financing source in the
    U.S. and Canada. Prior to our arrangement with GE, a significant
    portion of our profits were derived from our leasing operations
    in the U.S. and Canada. Pursuant to the agreements governing our
    relationship with GE, we are entitled to receive origination and
    certain other fees and income from sharing of gains on certain
    lease-end activities with respect to future leases funded by GE.
    Our right to receive a portion of these fees will end as of
    March 31, 2009, which is the end of the initial five-year
    term of our U.S. lease program agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Segments








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Board of Directors and Management Transitions


Board of Directors.


Management.


Sales and Service Organizations






Product and Services Offerings








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Digital Copying and Printing. Sales, integration, and
    support of an array of digital copiers, MFPs, printers and print
    controllers for network and production copying and printing,
    including products from suppliers such as Canon, Ricoh, Konica
    Minolta, EFI, and HP.                                                                                                                                                                                                                                                                          
|
| | Enterprise Services. Sales, integration, and support of
    our customizable products and services portfolio for every phase
    of the document lifecycle (i.e., the document capture, workflow,
    output, and retention phases) to enhance the ability of
    customers to achieve greater cost savings, increased efficiency,
    and integrated document management capabilities by leveraging
    the services offered through Professional Services, Managed
    Services, and Customer Services.                                                         
|
| | Professional Services. A team of Professional Services
    analysts perform document strategy assessment services to
    examine critical documents and workflow, and suggest improved
    methods of managing document capture, workflow and output to
    increase efficiency and productivity. Professional Services also
    includes the installation, configuration, and connectivity of
    digital network devices and document management software and
    solutions, as well as end user training, application
    customization and help desk services.
|
| | Managed Services. Includes on-site facilities management
    and Legal Document Services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

10



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| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On-site Facilities Management. On-site fleet management
    of equipment and turnkey copy center and mailroom management
    solutions that blend equipment, staff, service, and supplies to
    maximize resources, minimize costs, and improve customer
    operations.                                 
|
| |  | Legal Document Services. Specialized document management
    solutions for the legal industry, addressing the requirements of
    law firms and corporate counsel, including litigation
    reprographics, document imaging, coding and conversion services,
    legal graphics, and electronic discovery.



| |                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Customer Services. Preventative maintenance and service
    support for office equipment.                                                                                                                                                                                  
|
| | Lease Financing. Equipment lease financing to our North
    American customers mainly through the U.S. Program
    Agreement and Canadian Rider. Equipment lease financing is
    offered to our European customers through our captive finance
    subsidiaries in Europe.



tm tm tm tm tm tm


tm tm tm tm


Efficiency Initiatives






11



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Customers






Suppliers and Inventory








Proprietary Matters




12



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Environmental Regulation






Employees




Competition






Foreign Operations




13



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Availability of SEC Reports


www.ikon.com.


www.sec.gov.







|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





14



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



15



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|         |                                     
|-------- | ------------------------------------
|Item 4A. | Executive Officers of the Registrant



|                     |  |                                                                               |  |            |      |  |     |  |    | 
|-------------------- |  | ----------------------------------------------------------------------------- |  | ---------- | ---- |  | --- |  | -- | 
|                     |  |                                                                               |  | Year First |      |  |    
|Name                 |  | Title                                                                         |  | Appointed  |      |  | Age | 
|                     |  |                                                                               |  |            |      |  |     | 
|Matthew J. Espe      |  | Chief Executive Officer, President and Chairman of the Board of
    Directors |  |            | 2002 |  |     |  | 47 | 
|Robert F. Woods      |  | Senior Vice President and Chief Financial Officer                             |  |            | 2004 |  |     |  | 50 | 
|Brian D. Edwards     |  | Senior Vice President, North American Sales                                   |  |            | 2004 |  |     |  | 42 | 
|Mark A. Hershey      |  | Senior Vice President, General Counsel and Secretary                          |  |            | 2005 |  |     |  | 36 | 
|Jeffrey W. Hickling  |  | Senior Vice President, Operations                                             |  |            | 2005 |  |     |  | 50 | 
|Michael E. Kohlsdorf |  | Senior Vice President, Enterprise Services and IT                             |  |            | 2004 |  |     |  | 50 | 
|Cathy L. Lewis       |  | Senior Vice President, Marketing                                              |  |            | 2001 |  |     |  | 53 | 
|Beth B. Sexton       |  | Senior Vice President, Human Resources                                        |  |            | 1999 |  |     |  | 49 | 
|David Mills          |  | Vice President, IKON Europe                                                   |  |            | 1998 |  |     |  | 47 | 
|Theodore E. Strand   |  | Vice President and Controller                                                 |  |            | 2002 |  |     |  | 61 | 

Matthew J. Espe.


Robert F. Woods.


Brian D. Edwards.


Mark A. Hershey.


Jeffrey W. Hickling.


Michael E. Kohlsdorf.


16



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Cathy L. Lewis.


Beth B. Sexton.


David Mills.


Theodore E. Strand.


17



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PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters, and Issuer Purchases of Equity
    Securities









|                                      |  |              |       |  |            |                  |      |                     |                 |  |              |  |  |   |         | 
|------------------------------------- |  | ------------ | ----- |  | ---------- | ---------------- | ---- | ------------------- | --------------- |  | ------------ |  |  | - | ------- | 
|                                      |  |              |       |  |            |                  |      | Approximate         |                
|                                      |  |              |       |  |            | Total Number of  |      |                     | Dollar Value of | 
|                                      |  |              |       |  |            | Shares Purchased |      |                     | Shares That May | 
|                                      |  | Total Number |       |  | Average    |                  |      | as Part of Publicly |                 |  | be Purchased | 
|                                      |  | of Shares    |       |  | Price Paid |                  |      | Announced           |                 |  | Under the    | 
|Period                                |  | Purchased(1) |       |  | per Share  |                  |      | Program             |                 |  | Program(2)   | 
|                                      |  |              |       |  |            |                  |      |                     |                 |  |              | 
|July 1, 2005- July 31, 2005           |  |              |      |  |            | $                |     |                     |                 |  |             |  |  | $ | 138,398 | 
|August 1, 2005- August 31, 2005       |  |              | 3,447 |  |            |                  | 9.81 |                     |                 |  | 3,447        |  |  |   | 104,577 | 
|September 1, 2005- September 30, 2005 |  |              | 1,880 |  |            |                  | 9.98 |                     |                 |  | 1,880        |  |  |   | 85,810  | 
|                                      |  |              |       |  |            |                  |      |                     |                 |  |              | 
|                                      |  |              | 5,327 |  |            |                  |      |                     |                 |  | 5,327        |  |  |   |         | 
|                                      |  |              |       |  |            |                  |      |                     |                 |  |              | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We purchased a total of 15,178 shares of our common stock
    pursuant to the repurchase program (the Program)
    that we publicly announced in our Quarterly Report on
    Form 10-Q filed with the SEC on May 14, 2004.                                                                                                                                                                                                                                                                                                                        
|   
|(2) | Our Board of Directors authorized us to repurchase up to
    $250,000 of our outstanding common stock under the Program. The
    Program will remain in effect until the $250,000 repurchase
    limit is reached; however, the Program may be discontinued by
    our Board of Directors at any time. As of September 30,
    2005 we purchased common stock with a market value of $164,190
    under the Program (see page 42 for information concerning
    our share repurchase activity and how it may be limited by our
    Credit Facility).

18



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                            |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |       |  
|------------------------------------------- | ------------------------- | ---------------------------------------------------------- | ------- | ----- | ------- | - | ------- | ------- | - | - | ------- | ----- | - | ------- | ------- | ----- | - | - | ------- | ----- | -
|                                            |                           | 2005(a)                                                    |         |       | 2004(b) |   |         | 2003(c) |   |   | 2002(d) |       |   | 2001(e) |        
|                                            |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |        
|                                            |                           | (in millions, except per share data, ratios and employees) |        
|Continuing Operations                       |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|Revenue                                     |                           | $                                                          | 4,377.3 |       |         | $ | 4,565.7 |         |   | $ | 4,661.2 |       |   | $       | 4,847.5 |       |   | $ | 5,223.2 |      
|Gross profit                                |                           |                                                            | 1,551.7 |       |         |   | 1,684.7 |         |   |   | 1,778.6 |       |   |         | 1,850.7 |       |   |   | 1,969.7 |      
|Selling and administrative                  |                           |                                                            | 1,396.7 |       |         |   | 1,470.7 |         |   |   | 1,505.4 |       |   |         | 1,554.8 |       |   |   | 1,754.9 |      
|Operating income                            |                           |                                                            | 156.0   |       |         |   | 202.6   |         |   |   | 273.2   |       |   |         | 301.5   |       |   |   | 164.1   |      
|Income before taxes                         |                           |                                                            | 105.0   |       |         |   | 118.6   |         |   |   | 205.0   |       |   |         | 247.3   |       |   |   | 94.8    |      
|Income from continuing operations           |                           |                                                            | 73.2    |       |         |   | 88.3    |         |   |   | 127.4   |       |   |         | 155.5   |       |   |   | 29.5    |      
|Earnings per common share                   |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|                                            | Basic                     |                                                            |         | 0.52  |         |   |         | 0.60    |   |   |         | 0.88  |   |         |         | 1.09  |   |   |         | 0.21  |  
|                                            | Diluted                   |                                                            |         | 0.51  |         |   |         | 0.58    |   |   |         | 0.81  |   |         |         | 1.03  |   |   |         | 0.20  |  
|Capital expenditures                        |                           |                                                            | 72.1    |       |         |   | 90.2    |         |   |   | 124.4   |       |   |         | 178.7   |       |   |   | 133.6   |      
|Depreciation and amortization               |                           |                                                            | 80.6    |       |         |   | 91.0    |         |   |   | 110.8   |       |   |         | 126.2   |       |   |   | 173.3   |      
|Discontinued Operations                     |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|Net loss                                    |                           | $                                                          | (12.5   | )     |         | $ | (4.6    | )       |   | $ | (4.3    | )     |   | $       | (7.5    | )     |   | $ | (14.2   | )    
|Net loss per common share                   |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|                                            | Basic                     |                                                            |         | (0.09 | )       |   |         | (0.03   | ) |   |         | (0.03 | ) |         |         | (0.05 | ) |   |         | (0.10 | )
|                                            | Diluted                   |                                                            |         | (0.08 | )       |   |         | (0.03   | ) |   |         | (0.03 | ) |         |         | (0.05 | ) |   |         | (0.10 | )
|Total Operations                            |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|Net income                                  |                           | $                                                          | 60.7    |       |         | $ | 83.7    |         |   | $ | 123.1   |       |   | $       | 148.0   |       |   | $ | 15.3    |      
|Earnings per common share                   |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|                                            | Basic                     |                                                            |         | 0.43  |         |   |         | 0.57    |   |   |         | 0.85  |   |         |         | 1.03  |   |   |         | 0.11  |  
|                                            | Diluted                   |                                                            |         | 0.43  |         |   |         | 0.55    |   |   |         | 0.79  |   |         |         | 0.98  |   |   |         | 0.11  |  
|Share Activity                              |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|Dividends per common share                  |                           | $                                                          | 0.16    |       |         | $ | 0.16    |         |   | $ | 0.16    |       |   | $       | 0.16    |       |   | $ | 0.16    |      
|Per common share book value                 |                           |                                                            | 11.64   |       |         |   | 11.87   |         |   |   | 10.97   |       |   |         | 10.40   |       |   |   | 9.60    |      
|Return on shareholders equity %            |                           |                                                            | 3.9     |       |         |   | 5.0     |         |   |   | 7.7     |       |   |         | 9.9     |       |   |   | 1.1     |      
|Weighted average common shares (basic)      |                           |                                                            | 139.9   |       |         |   | 146.6   |         |   |   | 145.2   |       |   |         | 143.2   |       |   |   | 141.9   |      
|Weighted average common shares (diluted)    |                           |                                                            | 157.7   |       |         |   | 169.3   |         |   |   | 167.8   |       |   |         | 155.1   |       |   |   | 144.4   |      
|Supplementary Information                   |                           |                                                            |         |       |         |   |         |         |   |   |         |       |   |         |         |       |   |   |         |      
|Current ratio(f)                            |                           |                                                            | 1.8     |       |         |   | 1.6     |         |   |   | 1.2     |       |   |         | 1.2     |       |   |   | 1.1     |      
|Working capital(g)                          |                           | $                                                          | 790.6   |       |         | $ | 789.9   |         |   | $ | 395.1   |       |   | $       | 431.3   |       |   | $ | 214.7   |      
|Total assets                                |                           |                                                            | 3,831.8 |       |         |   | 4,518.4 |         |   |   | 6,600.6 |       |   |         | 6,397.3 |       |   |   | 6,254.8 |      
|Total debt                                  |                           |                                                            | 1,254.0 |       |         |   | 1,667.7 |         |   |   | 3,438.3 |       |   |         | 3,420.9 |       |   |   | 3,396.7 |      
|                                            | % of capitalization(i)    |                                                            |         | 44.4  |         |   |         | 49.7    |   |   |         | 68.2  |   |         |         | 69.6  |   |   |         | 71.4  |  
|Total debt, excluding non-corporate debt(h) |                           | $                                                          | 729.3   |       |         | $ | 804.9   |         |   | $ | 429.5   |       |   | $       | 613.0   |       |   | $ | 800.9   |      
|                                            | % of capitalization(h)(i) |                                                            |         | 31.7  |         |   |         | 32.3    |   |   |         | 21.1  |   |         |         | 29.0  |   |   |         | 37.1  |  
|Employees                                   |                           |                                                            | 25,700  |       |         |   | 29,400  |         |   |   | 30,250  |       |   |         | 33,200  |       |   |   | 37,600  |      



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Notes: |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|(a)    |  | Fiscal year results include a $7.0 charge from the early
    termination of a consulting contract, a $3.8 charge due to a
    change in certain UK pension liabilities, a $1.0 charge from the
    impact of Hurricanes Katrina and Rita, a $7.9 charge for the
    expensing of stock based compensation in accordance with FASB
    123(R), Share Based Payment-Revised 2004, a $10.7
    charge for restructuring and asset impairments, a $6.1 charge
    from the early termination of real estate leases, a $11.5 gain
    from the divestiture of businesses (collectively, the
    Charges) and a $6.0 charge from the early
    extinguishment of debt. The Charges resulted in a decrease in

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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | operating income of $25.0. The Charges and the loss from the
    early extinguishment of debt resulted in a decrease in net
    income of $17.2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(b) |  | Fiscal year results include $35.9 of losses from the early
    extinguishment of debt, a net loss of $11.4 on the divestiture
    of our North American leasing businesses (the Loss on
    Sale), tax reserve adjustments of $11.8 related to a tax
    gain on the sale of our U.S. leasing operations, and
    benefits mainly from the settlement of a U.S. federal audit
    (the Tax Adjustments). The losses from the early
    extinguishment of debt and Loss on Sale resulted in a decrease
    in pre-tax income of $47.3 and the losses from the early
    extinguishment of debt, the Loss on Sale and the Tax Adjustments
    resulted in a decrease in net income of $17.9.
|   
|(c) |  | Fiscal year results include losses from early extinguishment of
    debt, resulting in a decrease in pre-tax income of $19.2 and net
    income of $11.9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(d) |  | Fiscal year results include gains from the reversal of certain
    prior year restructuring charges, resulting in an increase in
    operating income of $5.6 and net income of $3.6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(e) |  | Fiscal year results include $50.8 of restructuring and asset
    impairment charges (the Restructuring Charge),
    reserve adjustments of $5.3 related primarily to the exit from
    our telephony operations (the Exit Costs), and a tax
    reserve increase of $10.0 related to our use of corporate-owned
    life insurance programs (the Tax Increase). The
    Restructuring Charge and the Exit Costs resulted in a decrease
    in operating income of $56.1, and the Restructuring Charge, the
    Exit Costs, the Tax Increase, and $8.6 of loss from discontinued
    operations resulted in a decrease in net income of $61.3.                                           
|   
|(f) |  | Current ratio = Total current assets/ Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(g) |  | Working capital = Total current assets  Total current
    liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(h) |  | Non-corporate debt refers to the line items on the balance
    sheet, current portion of non-corporate debt and
    long-term non-corporate debt. This debt is excluded
    from this calculation because lease receivables represent the
    primary source of repayment of non-corporate debt.                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(i) |  | Capitalization = Total shareholders equity + Total debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

OVERVIEW








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







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CRITICAL ACCOUNTING POLICIES




Revenue Recognition




22



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Goodwill




23



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Inventories




Allowances for Receivables




Income Taxes




Pension






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| |                    
| | -------------------
| | Pension Assumptions



|                                            |  |             |     |   |             |  |     |             |  |  |          |   |  |       |     |   |          |  |     |   |  |  |     |  
|------------------------------------------- |  | ----------- | --- | - | ----------- |  | --- | ----------- |  |  | -------- | - |  | ----- | --- | - | -------- |  | --- | - |  |  | --- | -
|                                            |  | Fiscal 2005 |     |   | Fiscal 2004 |  |     | Fiscal 2003 | 
|                                            |  |             |     |   |             |  |     |             | 
|                                            |  | U.S.        |     |   | Non-U.S.    |  |     | U.S.        |  |  | Non-U.S. |   |  | U.S.  |     |   | Non-U.S. | 
|                                            |  | Plans       |     |   | Plans       |  |     | Plans       |  |  | Plans    |   |  | Plans |     |   | Plans    | 
|                                            |  |             |     |   |             |  |     |             |  |  |          |   |  |       |     |   |          | 
|Weighted average discount rates             |  |             | 6.3 | % |             |  | 5.8 | %           |  |  | 6.0      | % |  |       | 5.7 | % |          |  | 7.2 | % |  |  | 6.4 | %
|Rates of increase in compensation levels    |  |             | 3.0 |   |             |  | 4.0 |             |  |  | 3.0      |   |  |       | 4.0 |   |          |  | 4.0 |   |  |  | 4.0 |  
|Expected long-term rate of return on assets |  |             | 8.5 |   |             |  | 8.0 |             |  |  | 8.5      |   |  |       | 8.0 |   |          |  | 8.5 |   |  |  | 7.6 |  



|                                         |  |                    |     |   |          |  |     |       |  |  |          |   |  |       |     |   |          |  |     |   |  |  |     |  
|---------------------------------------- |  | ------------------ | --- | - | -------- |  | --- | ----- |  |  | -------- | - |  | ----- | --- | - | -------- |  | --- | - |  |  | --- | -
|                                         |  | Ended September 30 |    
|                                         |  |                    |    
|                                         |  | 2005               |     |   | 2004     |  |     | 2003  | 
|                                         |  |                    |     |   |          |  |     |       | 
|                                         |  | U.S.               |     |   | Non-U.S. |  |     | U.S.  |  |  | Non-U.S. |   |  | U.S.  |     |   | Non-U.S. | 
|                                         |  | Plans              |     |   | Plans    |  |     | Plans |  |  | Plans    |   |  | Plans |     |   | Plans    | 
|                                         |  |                    |     |   |          |  |     |       |  |  |          |   |  |       |     |   |          | 
|Weighted average discount rates          |  |                    | 5.2 | % |          |  | 5.1 | %     |  |  | 6.3      | % |  |       | 5.8 | % |          |  | 6.0 | % |  |  | 5.7 | %
|Rates of increase in compensation levels |  |                    | 3.0 |   |          |  | 4.0 |       |  |  | 3.0      |   |  |       | 4.0 |   |          |  | 3.0 |   |  |  | 4.0 |  





| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | Moodys AA bond averages plus a spread to approximate the
    duration of our plan liabilities;
|
| |  | the zero coupon Treasury bond rates; and                                                       
|
| |  | the Citigroup Pension Discount Curve.                                                          











| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 25 basis point change in the discount rates from those
    used would have changed fiscal 2005 pension expense by
    approximately $4,200;            
|
| |  | A 25 basis point change in the expected rates of return
    from those used would have changed fiscal 2005 pension expense
    by approximately $926; and

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| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 25 basis point change in the increase in compensation
    levels from those used would have changed fiscal 2005 pension
    expense by approximately $1,350.



| |                             
| | ----------------------------
| | Financial Impact of Pensions















Residual Values




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RESULTS OF OPERATIONS




Fiscal 2005 Compared to Fiscal 2004




| |         
| | --------
| | Revenues

|               |  |      |           |  |      |   |           |          |  |   |           |  |  |  |        | 
|-------------- |  | ---- | --------- |  | ---- | - | --------- | -------- |  | - | --------- |  |  |  | ------ | 
|               |  | 2005 |           |  | 2004 |   |           | $ Change |  |   | % Change  | 
|               |  |      |           |  |      |   |           |          |  |   |           | 
|Net sales      |  | $    | 1,963,267 |  |      | $ | 1,988,764 |          |  | $ | (25,497)  |  |  |  | (1.3)% | 
|Services       |  |      | 2,308,766 |  |      |   | 2,303,553 |          |  |   | 5,213     |  |  |  | 0.2    | 
|Finance income |  |      | 105,272   |  |      |   | 273,391   |          |  |   | (168,119) |  |  |  | (61.5) | 
|               |  |      |           |  |      |   |           |          |  |   |           | 
|               |  | $    | 4,377,305 |  |      | $ | 4,565,708 |          |  | $ | (188,403) |  |  |  | (4.1)% | 
|               |  |      |           |  |      |   |           |          |  |   |           | 





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| |             
| | ------------
| | Gross Margin

|                             |  |      |      |   |      |  |      |  
|---------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|                             |  | 2005 |      |   | 2004 | 
|                             |  |      |      |   |      | 
|Gross margin, net sales      |  |      | 26.7 | % |      |  | 28.2 | %
|Gross margin, services       |  |      | 41.1 |   |      |  | 40.8 |  
|Gross margin, finance income |  |      | 75.0 |   |      |  | 67.3 |  
|Gross margin, total          |  |      | 35.4 |   |      |  | 36.9 |  









| |                                    
| | -----------------------------------
| | Selling and Administrative Expenses

|                                    |                                                       |      |           |      |      |   |           |          |   |   |          |   |  |  |      |    | 
|----------------------------------- | ----------------------------------------------------- | ---- | --------- | ---- | ---- | - | --------- | -------- | - | - | -------- | - |  |  | ---- | -- | 
|                                    |                                                       | 2005 |           |      | 2004 |   |           | $ Change |   |   | % Change |  
|                                    |                                                       |      |           |      |      |   |           |          |   |   |          |  
|Selling and administrative expenses |                                                       | $    | 1,396,669 |      |      | $ | 1,470,707 |          |   | $ | (74,038  | ) |  |  | (5.0 | )%
|                                    | Selling and administrative expenses as a % of revenue |      |           | 31.9 | %    |   |           | 32.2     | % |   |          |   |  |  |      |    | 





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| |                                          
| | -----------------------------------------
| | Other Selling and Administrative Expenses





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A decrease in pension costs of $4,253 compared to fiscal 2004,
    due mainly to the impact of changes in actuarial assumptions.
    Pension expense is allocated between selling and administrative
    expense and cost of revenues based on the number of employees
    related to those areas;                                                                                                                            
|
| |  | A decrease of $8,896 in selling compensation and benefit costs
    due primarily to headcount reductions and a decline in revenues
    compared to fiscal 2004;                                                                                                                                                                                                                                                               
|
| |  | An increase of $7,863 related to expensing of stock based
    compensation due to adoption of SFAS 123(R) Share
    Based Payment  Revised 2004
    (SFAS 123(R)), during fiscal 2005. Fiscal 2004
    results did not include any expense related to our stock based
    compensation plans;                                                                                                                            
|
| |  | A decrease of $19,575 compared to fiscal 2004 as a result of
    lower spending for information technology, travel, and other
    expenses due to discretionary spending reductions during fiscal
    2005, partially offset by higher consulting fees from our
    internal controls certification efforts required by the
    Sarbanes-Oxley Act of 2002;                                                                   
|
| |  | A decrease of $10,547 compared to fiscal 2004 related to a
    reduction of real estate facility costs primarily due to the
    closure of 16 LDS sites as a result of the restructuring actions
    taken during the second quarter of fiscal 2005 and the closure
    and consolidation of other facilities during the third and
    fourth quarters of fiscal 2005 as we continue to rationalize our
    real estate needs;
|
| |  | A charge of $6,112 incurred during fiscal 2005 to terminate
    several real estate leases during the year, representing both
    lease termination payments made to lessors as well as future
    lease payments for sites in which we ceased using the facility;                                                                                                                                                            
|
| |  | A charge of $7,000 for the termination of a consulting contract
    during the fourth quarter of fiscal 2005;                                                                                                                                                                                                                                                                                                                 
|
| |  | A charge of $1,000 incurred during fiscal 2005 related to the
    impact of Hurricanes Katrina and Rita;                                                                                                                                                                                                                                                                                                                      
|
| |  | A charge of $3,798 related to changes in certain U.K. pension
    liabilities; and                                                                                                                                                                                                                                                                                                                                            
|
| |  | During fiscal 2004, we incurred a charge of $6,272 related to
    termination costs of a long-term disability plan and incurred a
    charge of $2,300 related to an adverse legal judgment we
    received on a claim in Canada.                                                                                                                                                                                             



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| |      
| | -----
| | Other

|                                                              |  |      |         |   |      |   |         |          |  |   |          |   |  |  |       |   
|------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  |  | ----- | --
|                                                              |  | 2005 |         |   | 2004 |   |         | $ Change |  |   | % Change |  
|                                                              |  |      |         |   |      |   |         |          |  |   |          |  
|(Gain) loss from divestiture of businesses, net               |  | $    | (11,531 | ) |      | $ | 11,427  |          |  | $ | (22,958  | ) |  |  | N/A   |   
|Restructuring and asset impairments                           |  |      | 10,543  |   |      |   |        |          |  |   | 10,543   |   |  |  | N/A   |   
|Operating income                                              |  |      | 155,997 |   |      |   | 202,582 |          |  |   | (46,585  | ) |  |  | (23.0 | )%
|Loss from early extinguishment of debt, net                   |  |      | 6,034   |   |      |   | 35,906  |          |  |   | (29,872  | ) |  |  | (83.2 | ) 
|Interest income                                               |  |      | 7,388   |   |      |   | 3,259   |          |  |   | 4,129    |   |  |  | 126.7 |   
|Interest expense                                              |  |      | 52,401  |   |      |   | 51,318  |          |  |   | 1,083    |   |  |  | 2.1   |   
|Taxes on income                                               |  |      | 31,755  |   |      |   | 30,308  |          |  |   | 1,447    |   |  |  | 4.8   |   
|Income from continuing operations                             |  |      | 73,195  |   |      |   | 88,309  |          |  |   | (15,114  | ) |  |  | (17.1 | ) 
|Diluted earnings per common share  continuing
    operations |  |      | 0.51    |   |      |   | 0.58    |          |  |   | (0.07    | ) |  |  | (12.1 | ) 















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| |                            
| | ---------------------------
| | Review of Business Segments





| |                   
| | ------------------
| | IKON North America

|                                            |  |      |           |   |      |   |           |          |  |   |           |  |  |  |        | 
|------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -------- |  | - | --------- |  |  |  | ------ | 
|                                            |  | 2005 |           |   | 2004 |   |           | $ Change |  |   | % Change  | 
|                                            |  |      |           |   |      |   |           |          |  |   |           | 
|Net sales                                   |  | $    | 1,668,287 |   |      | $ | 1,708,470 |          |  | $ | (40,183)  |  |  |  | (2.4)% | 
|Services                                    |  |      | 2,074,392 |   |      |   | 2,076,981 |          |  |   | (2,589)   |  |  |  | (0.1)  | 
|Finance income                              |  |      | 78,066    |   |      |   | 247,568   |          |  |   | (169,502) |  |  |  | (68.5) | 
|(Gain) loss on divestiture of business, net |  |      | (1,421    | ) |      |   | 11,427    |          |  |   | (12,848)  |  |  |  | N/A    | 
|Restructuring and asset impairments         |  |      | 9,424     |   |      |   |          |          |  |   | 9,424     |  |  |  | N/A    | 
|Operating income                            |  |      | 360,687   |   |      |   | 436,699   |          |  |   | (76,012)  |  |  |  | (17.4) | 





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| |            
| | -----------
| | IKON Europe

|                                  |  |      |         |  |      |   |         |          |  |   |          |  |  |  |      |  
|--------------------------------- |  | ---- | ------- |  | ---- | - | ------- | -------- |  | - | -------- |  |  |  | ---- | -
|                                  |  | 2005 |         |  | 2004 |   |         | $ Change |  |   | % Change | 
|                                  |  |      |         |  |      |   |         |          |  |   |          | 
|Net sales                         |  | $    | 294,980 |  |      | $ | 280,294 |          |  | $ | 14,686   |  |  |  | 5.2  | %
|Services                          |  |      | 234,374 |  |      |   | 226,572 |          |  |   | 7,802    |  |  |  | 3.4  |  
|Finance income                    |  |      | 27,206  |  |      |   | 25,823  |          |  |   | 1,383    |  |  |  | 5.4  |  
|Gain on divestiture of businesses |  |      | 10,110  |  |      |   |        |          |  |   | 10,110   |  |  |  | N/A  |  
|Operating income                  |  |      | 39,649  |  |      |   | 25,286  |          |  |   | 14,363   |  |  |  | 56.8 |  

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| |                           
| | --------------------------
| | Corporate and Eliminations



Fiscal 2004 Compared to Fiscal 2003




| |         
| | --------
| | Revenues

|               |  |      |           |  |      |   |           |          |  |   |          |   |  |  |       |   
|-------------- |  | ---- | --------- |  | ---- | - | --------- | -------- |  | - | -------- | - |  |  | ----- | --
|               |  | 2004 |           |  | 2003 |   |           | $ Change |  |   | % Change |  
|               |  |      |           |  |      |   |           |          |  |   |          |  
|Net sales      |  | $    | 1,988,764 |  |      | $ | 1,989,845 |          |  | $ | (1,081   | ) |  |  | (0.1  | )%
|Services       |  |      | 2,303,553 |  |      |   | 2,283,118 |          |  |   | 20,435   |   |  |  | 0.9   |   
|Finance income |  |      | 273,391   |  |      |   | 388,193   |          |  |   | (114,802 | ) |  |  | (29.6 | ) 
|               |  |      |           |  |      |   |           |          |  |   |          |  
|               |  | $    | 4,565,708 |  |      | $ | 4,661,156 |          |  | $ | (95,448  | ) |  |  | (2.0  | )%
|               |  |      |           |  |      |   |           |          |  |   |          |  





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| |             
| | ------------
| | Gross Margin

|                             |  |      |      |   |      |  |      |  
|---------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|                             |  | 2004 |      |   | 2003 | 
|                             |  |      |      |   |      | 
|Gross margin, net sales      |  |      | 28.2 | % |      |  | 29.6 | %
|Gross margin, services       |  |      | 40.8 |   |      |  | 41.6 |  
|Gross margin, finance income |  |      | 67.3 |   |      |  | 61.9 |  
|Gross margin, total          |  |      | 36.9 |   |      |  | 38.2 |  

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| |                                    
| | -----------------------------------
| | Selling and Administrative Expenses

|                                    |                                                       |      |           |      |      |   |           |          |   |   |          |   |  |  |      |    | 
|----------------------------------- | ----------------------------------------------------- | ---- | --------- | ---- | ---- | - | --------- | -------- | - | - | -------- | - |  |  | ---- | -- | 
|                                    |                                                       | 2004 |           |      | 2003 |   |           | $ Change |   |   | % Change |  
|                                    |                                                       |      |           |      |      |   |           |          |   |   |          |  
|Selling and administrative expenses |                                                       | $    | 1,470,707 |      |      | $ | 1,505,386 |          |   | $ | (34,679  | ) |  |  | (2.3 | )%
|                                    | Selling and administrative expenses as a % of revenue |      |           | 32.2 | %    |   |           | 32.3     | % |   |          |   |  |  |      |    | 





| |                               
| | ------------------------------
| | Net Impact of the Transactions





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| |                                          
| | -----------------------------------------
| | Other Selling and Administrative Expenses





| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in pension costs of $7,010 compared to fiscal 2003,
    due mainly to the impact of changes in actuarial assumptions
    compared to fiscal 2003. Pension expense is allocated between
    selling and administrative expense and cost of revenues based on
    number of employees related to those areas;                                               
|
| |  | An increase in insurance and non-income taxes of $7,175,
    compared to 2003 due to higher workers compensation costs
    and property tax expenses compared to fiscal 2003;                                                                                                                                                                                        
|
| |  | An increase of $6,272 related to termination costs of a
    long-term disability plan; and                                                                                                                                                                                                                                                                            
|
| |  | An increase of $8,472 related to higher legal costs during
    fiscal 2004 compared to fiscal 2003. During fiscal 2004, we
    recorded a charge of approximately $2,300 related to an adverse
    judgment we received on a claim in Canada. During fiscal 2003,
    we received a favorable judgment on a matter in the U.S. and we
    recognized income of $5,560.





| |      
| | -----
| | Other

|                                                        |  |      |         |   |      |   |         |          |  |   |          |   |  |  |       |   
|------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -------- |  | - | -------- | - |  |  | ----- | --
|                                                        |  | 2004 |         |   | 2003 |   |         | $ Change |  |   | % Change |  
|                                                        |  |      |         |   |      |   |         |          |  |   |          |  
|Loss on divesture of businesses, net                    |  | $    | 11,427  |   |      | $ |        |          |  | $ | 11,427   |   |  |  | N/A   |   
|Operating income                                        |  |      | 202,582 |   |      |   | 273,168 |          |  |   | (70,586  | ) |  |  | (25.8 | )%
|Loss from early extinguishment of debt, net             |  |      | 35,906  |   |      |   | 19,187  |          |  |   | 16,719   |   |  |  | 87.1  |   
|Interest income                                         |  |      | 3,259   |   |      |   | 1,512   |          |  |   | 1,747    |   |  |  | 115.5 |   
|Interest expense                                        |  |      | (51,318 | ) |      |   | (50,543 | )        |  |   | (775     | ) |  |  | (1.5  | ) 
|Taxes on income                                         |  |      | 30,308  |   |      |   | 77,544  |          |  |   | (47,236  | ) |  |  | (60.9 | ) 
|Net income from continuing operations                   |  |      | 88,309  |   |      |   | 127,406 |          |  |   | (39,097  | ) |  |  | (30.7 | ) 
|Diluted earnings per common share-continuing operations |  |      | 0.58    |   |      |   | 0.81    |          |  |   | (0.23    | ) |  |  | (28.4 | ) 











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| |                            
| | ---------------------------
| | Review of Business Segments



| |                   
| | ------------------
| | IKON North America

|                                     |  |      |           |  |      |   |           |          |  |   |          |   |  |  |       |   
|------------------------------------ |  | ---- | --------- |  | ---- | - | --------- | -------- |  | - | -------- | - |  |  | ----- | --
|                                     |  | 2004 |           |  | 2003 |   |           | $ Change |  |   | % Change |  
|                                     |  |      |           |  |      |   |           |          |  |   |          |  
|Net sales                            |  | $    | 1,708,470 |  |      | $ | 1,736,350 |          |  | $ | (27,880  | ) |  |  | (1.6  | )%
|Services                             |  |      | 2,076,981 |  |      |   | 2,075,202 |          |  |   | 1,779    |   |  |  | 0.1   |   
|Finance income                       |  |      | 247,568   |  |      |   | 365,264   |          |  |   | (117,696 | ) |  |  | (32.2 | ) 
|Loss on divesture of businesses, net |  |      | 11,427    |  |      |   |          |          |  |   | 11,427   |   |  |  | N/A   |   
|Operating income                     |  |      | 436,699   |  |      |   | 455,630   |          |  |   | (18,931  | ) |  |  | (4.2  | ) 







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| |            
| | -----------
| | IKON Europe

|                 |  |      |         |  |      |   |         |          |  |   |          |   |  |  |      |  
|---------------- |  | ---- | ------- |  | ---- | - | ------- | -------- |  | - | -------- | - |  |  | ---- | -
|                 |  | 2004 |         |  | 2003 |   |         | $ Change |  |   | % Change |  
|                 |  |      |         |  |      |   |         |          |  |   |          |  
|Net sales        |  | $    | 280,294 |  |      | $ | 253,495 |          |  | $ | 26,799   |   |  |  | 10.6 | %
|Services         |  |      | 226,572 |  |      |   | 207,916 |          |  |   | 18,656   |   |  |  | 9.0  |  
|Finance income   |  |      | 25,823  |  |      |   | 22,929  |          |  |   | 2,894    |   |  |  | 12.6 |  
|Operating income |  |      | 25,286  |  |      |   | 25,830  |          |  |   | (544     | ) |  |  | (2.1 | )





| |                           
| | --------------------------
| | Corporate and Eliminations



Financial Condition and Liquidity




| |                         
| | ------------------------
| | Cash Flows and Liquidity



|                                                             |  |      |          |  
|------------------------------------------------------------ |  | ---- | -------- | -
|                                                             |  | 2005 |         
|                                                             |  |      |         
|Cash used in operating activities                            |  | $    | (6,448   | )
|Cash provided by investing activities                        |  |      | 428,953  |  
|Cash used in financing activities                            |  |      | (523,688 | )
|Effect of exchange rate changes on cash and cash equivalents |  |      | 1,937    |  
|                                                             |  |      |         
|Decrease in cash and cash equivalents                        |  |      | (99,246  | )
|Cash and cash equivalents at beginning of the year           |  |      | 472,951  |  
|                                                             |  |      |         
|Cash and cash equivalents at end of the year                 |  | $    | 373,705  |  
|                                                             |  |      |         



| |                     
| | --------------------
| | Operating Cash Flows



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| |                     
| | --------------------
| | Investing Cash Flows





| |                     
| | --------------------
| | Financing Cash Flows





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| |               
| | --------------
| | Debt Structure

|                                                                         |  |              |         |  |      |   |         | 
|------------------------------------------------------------------------ |  | ------------ | ------- |  | ---- | - | ------- | 
|                                                                         |  | September 30 |        
|                                                                         |  |              |        
|                                                                         |  | 2005         |         |  | 2004 |  
|                                                                         |  |              |         |  |      |  
|Outstanding corporate debt                                               |  |              |         |  |      |   |         | 
|Bond issues                                                              |  | $            | 354,850 |  |      | $ | 411,423 | 
|Convertible subordinated notes                                           |  |              | 53,242  |  |      |   | 290,000 | 
|Notes payable                                                            |  |              | 319,835 |  |      |   | 94,835  | 
|Miscellaneous notes, bonds, mortgages, and capital lease
    obligations |  |              | 1,366   |  |      |   | 8,622   | 
|                                                                         |  |              |         |  |      |  
|                                                                         |  |              | 729,293 |  |      |   | 804,880 | 
|Less: current maturities                                                 |  |              | 1,137   |  |      |   | 63,023  | 
|                                                                         |  |              |         |  |      |  
|                                                                         |  | $            | 728,156 |  |      | $ | 741,857 | 
|                                                                         |  |              |         |  |      |  
|Outstanding non-corporate debt                                           |  |              |         |  |      |   |         | 
|Lease-backed notes                                                       |  | $            | 332,233 |  |      | $ | 683,086 | 
|Asset securitization conduit financing                                   |  |              | 124,122 |  |      |   | 129,668 | 
|Notes payable to banks                                                   |  |              | 9,422   |  |      |   | 3,868   | 
|Debt supporting unsold residual value                                    |  |              | 58,889  |  |      |   | 46,187  | 
|                                                                         |  |              |         |  |      |  
|                                                                         |  |              | 524,666 |  |      |   | 862,809 | 
|Less: current maturities                                                 |  |              | 299,359 |  |      |   | 439,941 | 
|                                                                         |  |              |         |  |      |  
|                                                                         |  | $            | 225,307 |  |      | $ | 422,868 | 
|                                                                         |  |              |         |  |      |  





|                                                    |  |           |         |  |            |   |         | 
|--------------------------------------------------- |  | --------- | ------- |  | ---------- | - | ------- | 
|                                                    |  | Principal |         |  |           
|                                                    |  | Amount    |         |  | Settlement |  
|                                                    |  | Purchased |         |  | Amount     |  
|                                                    |  |           |         |  |            |  
|Convertible Notes at stated rate of 5.00%, due 2007 |  | $         | 236,758 |  |            | $ | 239,763 | 







| |                                                  
| | -------------------------------------------------
| | Asset Securitization Conduit Financing Agreements





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| |                                      
| | -------------------------------------
| | Debt Supporting Unsold Residual Value







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have transferred $35,145 of lease receivables to GE for which
    we have retained all of the risks of ownership at
    September 30, 2005. This balance was $14,665 at
    September 30, 2004.                                                                                                                                                                                                                                                                                           
|
| |  | We have transferred lease receivables to GE for which we have
    retained all of the risks of ownership due mainly to the
    performance features discussed above. As a result, we are
    required to record an asset and a corresponding amount of debt
    representing the present value of the residual value related to
    these lease receivables. At September 30, 2005 and 2004, we
    had recorded $9,798 and $30,883, respectively, of debt and
    associated residual value.
|
| |  | We have $12,428 of debt related to equipment on operating leases
    that has been funded by GE.                                                                                                                                                                                                                                                                                                                                                                                             





| |                
| | ---------------
| | Credit Facility





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| |                  
| | -----------------
| | Letters of Credit





| |               
| | --------------
| | Credit Ratings





| |                  
| | -----------------
| | Liquidity Outlook



|                            |       |       |           |                 |        |   |         |           |  |   |           |         |  |            |        |         |  |   |           |           | 
|--------------------------- | ----- | ----- | --------- | --------------- | ------ | - | ------- | --------- |  | - | --------- | ------- |  | ---------- | ------ | ------- |  | - | --------- | --------- | 
|                            |       |       |           | Payments Due by |       
|                            |       |       |           |                 |       
|                            |       |       |           | Less Than       |        |   |        
|Contractual Obligations     |       | Total |           |                 | 1 Year |   |         | 1-3 Years |  |   | 3-5 Years |         |  | Thereafter |       
|                            |       |       |           |                 |        |   |         |           |  |   |           |         |  |            |       
|Corporate debt              |       | $     | 1,556,795 |                 |        | $ | 54,715  |           |  | $ | 251,641   |         |  | $          | 88,039 |         |  | $ | 1,162,400 |          
|Non-corporate debt          |       |       | 481,183   |                 |        |   | 308,058 |           |  |   | 172,598   |         |  |            | 527    |         |  |   |          |          
|Purchase commitments        |       |       | 2,200     |                 |        |   | 1,100   |           |  |   | 1,100     |         |  |            |       |         |  |   |          |          
|Other long-term liabilities |       |       | 349,664   |                 |        |   | 3,764   |           |  |   | 20,788    |         |  |            | 14,736 |         |  |   | 310,376   |          
|Operating leases            |       |       | 314,529   |                 |        |   | 94,100  |           |  |   | 125,111   |         |  |            | 53,453 |         |  |   | 41,865    |          
|                            |       |       |           |                 |        |   |         |           |  |   |           |         |  |            |       
|                            | Total |       | $         | 2,704,371       |        |   | $       | 461,737   |  |   | $         | 571,238 |  |            | $      | 156,755 |  |   | $         | 1,514,641 | 
|                            |       |       |           |                 |        |   |         |           |  |   |           |         |  |            |       









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RESTRUCTURING AND ASSET IMPAIRMENT CHARGES






| |                           
| | --------------------------
| | Business Document Services



44



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|                                         |                         |                            |       |       |        | 
|---------------------------------------- | ----------------------- | -------------------------- | ----- | ----- | ------ | 
|                                         |                         | Fiscal Year Ended          |      
|                                         |                         | September 30, 2005         |      
|                                         |                         |                            |      
|Type of Charge                           |                         |                            |       |      
|Restructuring charge:                    |                         |                            |       |      
|                                         | Severance               |                            | $     | 3,584 |       
|                                         | Contractual commitments |                            |       | 2,686 |       
|                                         | Contract termination    |                            |       | 2,997 |       
|                                         |                         |                            |      
|                                         |                         | Total restructuring charge |       |       | 9,267  | 
|Asset impairment charge for fixed assets |                         |                            | 1,331 |      
|Other non-restructuring items            |                         |                            | 891   |      
|                                         |                         |                            |      
|                                         |                         | Total                      |       | $     | 11,489 | 
|                                         |                         |                            |      





| |                        
| | -----------------------
| | Legal Document Services





|                                         |                         |                            |     |       |       | 
|---------------------------------------- | ----------------------- | -------------------------- | --- | ----- | ----- | 
|                                         |                         | Fiscal Year Ended          |    
|                                         |                         | September 30, 2005         |    
|                                         |                         |                            |    
|Type of Charge                           |                         |                            |     |      
|Restructuring charge:                    |                         |                            |     |      
|                                         | Severance               |                            | $   | 1,322 |      
|                                         | Contractual commitments |                            |     | 612   |      
|                                         | Contract termination    |                            |     | 160   |      
|                                         |                         |                            |    
|                                         |                         | Total restructuring charge |     |       | 2,094 | 
|Asset impairment charge for fixed assets |                         |                            | 229 |      
|Other non-restructuring items            |                         |                            | 112 |      
|                                         |                         |                            |    
|                                         |                         | Total                      |     | $     | 2,435 | 
|                                         |                         |                            |    





| |                                                 
| | ------------------------------------------------
| | Field Organization and Corporate Staff Reduction



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Summarized Restructuring Activity




|                                         |                         |                            |       |        |        | 
|---------------------------------------- | ----------------------- | -------------------------- | ----- | ------ | ------ | 
|                                         |                         | Fiscal Year Ended          |      
|                                         |                         | September 30, 2005         |      
|                                         |                         |                            |      
|Type of Charge                           |                         |                            |       |       
|Restructuring charge:                    |                         |                            |       |       
|                                         | Severance               |                            | $     | 13,082 |       
|                                         | Contractual commitments |                            |       | 3,298  |       
|                                         | Contract termination    |                            |       | 3,157  |       
|                                         |                         |                            |      
|                                         |                         | Total restructuring charge |       |        | 19,537 | 
|Asset impairment charge for fixed assets |                         |                            | 1,672 |       
|Other non-restructuring items            |                         |                            | 1,003 |       
|                                         |                         |                            |      
|                                         |                         | Total                      |       | $      | 22,212 | 
|                                         |                         |                            |      







|                              |       |             |        |        |             |   |          |             |  |   |                    |       |  |   |       |       | 
|----------------------------- | ----- | ----------- | ------ | ------ | ----------- | - | -------- | ----------- |  | - | ------------------ | ----- |  | - | ----- | ----- | 
|                              |       |             |        | Cash   |             |   | Non-Cash |             |  |  
|                              |       | Fiscal 2005 |        |        | Payments    |   |          | Charges     |  |   | Ending Balance     |      
|                              |       | Charge      |        |        | Fiscal 2005 |   |          | Fiscal 2005 |  |   | September 30, 2005 |      
|                              |       |             |        |        |             |   |          |             |  |   |                    |      
|Severance                     |       | $           | 13,082 |        |             | $ | 11,107   |             |  | $ |                   |       |  | $ | 1,975 |      
|Contractual commitments       |       |             | 3,298  |        |             |   | 1,846    |             |  |   |                   |       |  |   | 1,452 |      
|Contract termination          |       |             | 3,157  |        |             |   | 3,034    |             |  |   |                   |       |  |   | 123   |      
|Asset impairments             |       |             | 1,672  |        |             |   |         |             |  |   | 1,672              |       |  |   |      |      
|Other non-restructuring items |       |             | 1,003  |        |             |   |         |             |  |   | 1,003              |       |  |   |      |      
|                              |       |             |        |        |             |   |          |             |  |   |                    |      
|                              | Total |             | $      | 22,212 |             |   | $        | 15,987      |  |   | $                  | 2,675 |  |   | $     | 3,550 | 
|                              |       |             |        |        |             |   |          |             |  |   |                    |      



|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |     |     |  |   |       |       | 
|----------------------- | ----- | ----------- | ----- | ----- | ----------- | - | --- | ----------- |  | - | ------ | --- |  | ----- | --- | --- |  | - | ----- | ----- | 
|                        |       | Fiscal 2006 |       |       | Fiscal 2007 |   |     | Fiscal 2008 |  |   | Beyond |     |  | Total |    
|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |    
|Projected Payments      |       |             |       |       |             |   |     |             |  |   |        |     |  |       |     |     |  |   |       |      
|Severance               |       | $           | 1,975 |       |             | $ |    |             |  | $ |       |     |  | $     |    |     |  | $ | 1,975 |      
|Contractual commitments |       |             | 617   |       |             |   | 331 |             |  |   | 248    |     |  |       | 256 |     |  |   | 1,452 |      
|Contract termination    |       |             | 123   |       |             |   |    |             |  |   |       |     |  |       |    |     |  |   | 123   |      
|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |    
|                        | Total |             | $     | 2,715 |             |   | $   | 331         |  |   | $      | 248 |  |       | $   | 256 |  |   | $     | 3,550 | 
|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |    



46



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|                                       |       |              |     |     | 
|-------------------------------------- | ----- | ------------ | --- | --- | 
|                                       |       | Fiscal 2005  |    
|                                       |       | Employee     |    
|                                       |       | Terminations |    
|                                       |       |              |    
|Headcount Reductions                   |       |              |     |    
|BDS                                    |       |              | 302 |    
|LDS                                    |       |              | 157 |    
|Field organization and corporate staff |       |              | 381 |    
|                                       |       |              |    
|                                       | Total |              |     | 840 | 
|                                       |       |              |    



|              |       |                      |    |                 |               |  |    |                       |  |  |     |     | 
|------------- | ----- | -------------------- | -- | --------------- | ------------- |  | -- | --------------------- |  |  | --- | --- | 
|              |       |                      |    | Sites Closed at |               |  |   
|              |       | Initial Planned Site |    |                 | September 30, |  |    | Change in Estimate of | 
|              |       | Closures             |    |                 | 2005          |  |    | Site Closures         | 
|              |       |                      |    |                 |               |  |    |                       | 
|Site Closures |       |                      |    |                 |               |  |    |                       |  |  |     |    
|BDS           |       |                      | 11 |                 |               |  | 11 |                       |  |  |    |    
|LDS           |       |                      | 17 |                 |               |  | 16 |                       |  |  | (1) |    
|              |       |                      |    |                 |               |  |    |                       | 
|              | Total |                      |    | 28              |               |  |    | 27                    |  |  |     | (1) | 
|              |       |                      |    |                 |               |  |    |                       | 



PENDING ACCOUNTING CHANGES








47



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Interest Rate Risk




48



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|                                                                                        |                            |      |   |         |      |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |         |  
|--------------------------------------------------------------------------------------- | -------------------------- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - | ---- | - | ---------- | - |  | - | - |  |  | - | ------- | -
|                                                                                        |                            | 2006 |   |         | 2007 |  |   | 2008    |   |  | 2009 |        |   | 2010 |   | Thereafter |  
|                                                                                        |                            |      |   |         |      |  |   |         |   |  |      |        |   |      |   |            |  
|Corporate debt                                                                          |                            |      |   |         |      |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |        
|                                                                                        | Fixed rate                 |      | $ | 1,137   |      |  | $ | 53,464  |   |  | $    | 94,835 |   |      | $ |           |   |  | $ |  |  |  | $ | 579,857 |  
|                                                                                        | Average interest rate      |      |   | 5.9     | %    |  |   | 5.0     | % |  |      | 7.3    | % |      |   |            |   |  |   |   |  |  |   | 7.2     | %
|Non-corporate debt                                                                      |                            |      |   |         |      |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |        
|                                                                                        | Fixed rate                 |      | $ | 252,535 |      |  | $ | 160,588 |   |  | $    | 8,421  |   |      | $ | 514        |   |  | $ |  |  |  | $ |        |  
|                                                                                        | Average interest rate      |      |   | 4.4     | %    |  |   | 4.4     | % |  |      | 5.7    | % |      |   | 4.8        | % |  |   |   |  |  |   |         |  
|                                                                                        | Variable rate              |      | $ | 43,719  |      |  | $ |        |   |  | $    |       |   |      | $ |           |   |  | $ |  |  |  | $ |        |  
|                                                                                        | Average interest rate      |      |   | 2.1     | %    |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |         |  
|Interest rate derivative financial instruments related to
    debt interest rate swaps: |                            |      |   |         |      |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |        
|                                                                                        | Pay fixed/receive variable |      | $ | 43,719  |      |  | $ |        |   |  | $    |       |   |      | $ |           |   |  | $ |  |  |  | $ |        |  
|                                                                                        | Average pay rate           |      |   | 2.1     | %    |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |         |  
|                                                                                        | Average receive rate       |      |   | 2.7     | %    |  |   |         |   |  |      |        |   |      |   |            |   |  |   |   |  |  |   |         |  



|                    |                                   |               |     |         |            |  |          |         |  |  |            |         |  |  |     |         | 
|------------------- | --------------------------------- | ------------- | --- | ------- | ---------- |  | -------- | ------- |  |  | ---------- | ------- |  |  | --- | ------- | 
|                    |                                   | September 30, |    
|                    |                                   |               |    
|                    |                                   | 2005          |     |         | 2004       | 
|                    |                                   |               |     |         |            | 
|                    |                                   | Carrying      |     |         |            |  | Carrying |         |  | 
|                    |                                   | Amount        |     |         | Fair Value |  |          | Amount  |  |  | Fair Value |        
|                    |                                   |               |     |         |            |  |          |         |  |  |            |        
|Long-term debt:     |                                   |               |     |         |            |  |          |         |  |  |            |         |  |  |     |        
|                    | Bond issues                       |               | $   | 728,657 |            |  | $        | 664,118 |  |  | $          | 798,742 |  |  | $   | 756,080 | 
|                    | Sundry notes, bonds and mortgages |               |     | 636     |            |  |          | 636     |  |  |            | 6,138   |  |  |     | 6,083   | 
|                    | Non-corporate debt                |               |     | 465,777 |            |  |          | 458,645 |  |  |            | 816,622 |  |  |     | 811,770 | 
|Interest rate swaps |                                   |               | 411 |         |            |  | 411      |         |  |  | 283        |         |  |  | 283 |        



|                   |        |  |                     |  |        |                        |  |            |  |   |               |  |  |          
|------------------ | ------ |  | ------------------- |  | ------ | ---------------------- |  | ---------- |  | - | ------------- |  |  | ---------
|September 30, 2005
|                  
|Notional Amount    |        |  | Fixed Interest Rate |  |        | Variable Interest Rate |  | Fair Value |  |   | Maturity Date
|                   |        |  |                     |  |        |                        |  |            |  |   |              
|$                  | 43,719 |  |                     |  | 2.095% |                        |  | LIBOR      |  | $ | 411           |  |  | July 2007

|                   |         |  |                     |  |        |                        |  |            |  |   |               |   |  |              
|------------------ | ------- |  | ------------------- |  | ------ | ---------------------- |  | ---------- |  | - | ------------- | - |  | -------------
|September 30, 2004
|                  
|Notional Amount    |         |  | Fixed Interest Rate |  |        | Variable Interest Rate |  | Fair Value |  |   | Maturity Date
|                   |         |  |                     |  |        |                        |  |            |  |   |              
|$                  | 7,525   |  |                     |  | 4.180% |                        |  | LIBOR      |  | $ | (170          | ) |  | July 2007    
|                   | 156,875 |  |                     |  | 2.095% |                        |  | LIBOR      |  |   | 453           |   |  | December 2007

Foreign Exchange Risk




49



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data




Report of Independent Registered Public Accounting Firm








Consolidated financial statements and financial statement
schedule






Internal control over financial reporting


Internal Control 
Integrated Framework




50



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##### Table of Contents









Internal Control  Integrated Framework Internal Control 
Integrated Framework .




|                           | 
|-------------------------- | 
|PricewaterhouseCoopers LLP | 





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IKON OFFICE SOLUTIONS, INC.





CONSOLIDATED STATEMENTS OF INCOME


|                                                         |  |                                       |           |   |      |   |           |      |  |   |           |   
|-------------------------------------------------------- |  | ------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | --
|                                                         |  | Fiscal Year Ended September 30        |          
|                                                         |  |                                       |          
|                                                         |  | 2005                                  |           |   | 2004 |   |           | 2003 | 
|                                                         |  |                                       |           |   |      |   |           |      | 
|                                                         |  | (in thousands, except per share data) |          
|Revenues                                                 |  |                                       |           |   |      |   |           |      |  |   |           |   
|Net sales                                                |  | $                                     | 1,963,267 |   |      | $ | 1,988,764 |      |  | $ | 1,989,845 |   
|Services                                                 |  |                                       | 2,308,766 |   |      |   | 2,303,553 |      |  |   | 2,283,118 |   
|Finance income                                           |  |                                       | 105,272   |   |      |   | 273,391   |      |  |   | 388,193   |   
|                                                         |  |                                       |           |   |      |   |           |      | 
|                                                         |  |                                       | 4,377,305 |   |      |   | 4,565,708 |      |  |   | 4,661,156 |   
|Costs and Expenses                                       |  |                                       |           |   |      |   |           |      |  |   |           |   
|Cost of goods sold                                       |  |                                       | 1,438,556 |   |      |   | 1,427,218 |      |  |   | 1,400,441 |   
|Services costs                                           |  |                                       | 1,360,783 |   |      |   | 1,364,358 |      |  |   | 1,334,089 |   
|Finance interest expense                                 |  |                                       | 26,288    |   |      |   | 89,416    |      |  |   | 148,072   |   
|Selling and administrative*                              |  |                                       | 1,396,669 |   |      |   | 1,470,707 |      |  |   | 1,505,386 |   
|(Gain) loss on divestiture of businesses, net            |  |                                       | (11,531   | ) |      |   | 11,427    |      |  |   |          |   
|Restructuring and asset impairments                      |  |                                       | 10,543    |   |      |   |          |      |  |   |          |   
|                                                         |  |                                       |           |   |      |   |           |      | 
|                                                         |  |                                       | 4,221,308 |   |      |   | 4,363,126 |      |  |   | 4,387,988 |   
|Operating income                                         |  |                                       | 155,997   |   |      |   | 202,582   |      |  |   | 273,168   |   
|Loss from early extinguishment of debt, net              |  |                                       | 6,034     |   |      |   | 35,906    |      |  |   | 19,187    |   
|Interest income                                          |  |                                       | 7,388     |   |      |   | 3,259     |      |  |   | 1,512     |   
|Interest expense                                         |  |                                       | (52,401   | ) |      |   | (51,318   | )    |  |   | (50,543   | ) 
|                                                         |  |                                       |           |   |      |   |           |      | 
|Income from continuing operations before taxes on income |  |                                       | 104,950   |   |      |   | 118,617   |      |  |   | 204,950   |   
|Taxes on income                                          |  |                                       | 31,755    |   |      |   | 30,308    |      |  |   | 77,544    |   
|                                                         |  |                                       |           |   |      |   |           |      | 
|Income from continuing operations                        |  |                                       | 73,195    |   |      |   | 88,309    |      |  |   | 127,406   |   
|Discontinued Operations                                  |  |                                       |           |   |      |   |           |      |  |   |           |   
|Operating loss                                           |  |                                       | (20,709   | ) |      |   | (7,623    | )    |  |   | (6,859    | ) 
|Tax benefit                                              |  |                                       | 8,180     |   |      |   | 3,008     |      |  |   | 2,560     |   
|                                                         |  |                                       |           |   |      |   |           |      | 
|Net loss from discontinued operations                    |  |                                       | (12,529   | ) |      |   | (4,615    | )    |  |   | (4,299    | ) 
|                                                         |  |                                       |           |   |      |   |           |      | 
|Net income                                               |  | $                                     | 60,666    |   |      | $ | 83,694    |      |  | $ | 123,107   |   
|                                                         |  |                                       |           |   |      |   |           |      | 
|Basic Earnings (Loss) Per Common Share                   |  |                                       |           |   |      |   |           |      |  |   |           |   
|Continuing operations                                    |  | $                                     | 0.52      |   |      | $ | 0.60      |      |  | $ | 0.88      |   
|Discontinued operations                                  |  |                                       | (0.09     | ) |      |   | (0.03     | )    |  |   | (0.03     | ) 
|                                                         |  |                                       |           |   |      |   |           |      | 
|Net income                                               |  | $                                     | 0.43      |   |      | $ | 0.57      |      |  | $ | 0.85      |   
|                                                         |  |                                       |           |   |      |   |           |      | 
|Diluted Earnings (Loss) Per Common Share                 |  |                                       |           |   |      |   |           |      |  |   |           |   
|Continuing operations                                    |  | $                                     | 0.51      |   |      | $ | 0.58      |      |  | $ | 0.81      |   
|Discontinued operations                                  |  |                                       | (0.08     | ) |      |   | (0.03     | )    |  |   | (0.03     | ) 
|                                                         |  |                                       |           |   |      |   |           |      | 
|Net income                                               |  | $                                     | 0.43      |   |      | $ | 0.55      |      |  | $ | 0.79      | **
|                                                         |  |                                       |           |   |      |   |           |      | 
|Cash dividends per common share                          |  | $                                     | 0.16      |   |      | $ | 0.16      |      |  | $ | 0.16      |   
|                                                         |  |                                       |           |   |      |   |           |      | 






|  |                                                                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Selling and administrative expense for fiscal 2005 includes
    $7,863 of expense as a result of the adoption of
    SFAS 123(R) on October 1, 2004. Prior to the adoption
    of SFAS 123(R), we were not required to recognize certain
    stock-based compensation as expense under prior accounting
    standards. See Notes 1 and 19.



|   |                                                                                      
|-- | -------------------------------------------------------------------------------------
|** | The sum of the earnings per share amounts do not equal the total
    due to rounding.

See notes to consolidated financial statements.


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IKON OFFICE SOLUTIONS, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                   |                                            |                |           |           |      |   |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------- | --------- | --------- | ---- | - | --------- | --------- | 
|                                                                                                                                                                                   |                                            | September 30   |          
|                                                                                                                                                                                   |                                            |                |          
|                                                                                                                                                                                   |                                            | 2005           |           |           | 2004 |  
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                   |                                            | (in thousands) |          
|Assets                                                                                                                                                                             |                                            |                |           |           |      |   |           |          
|Cash and cash equivalents                                                                                                                                                          |                                            | $              | 373,705   |           |      | $ | 472,951   |          
|Restricted cash                                                                                                                                                                    |                                            |                | 18,272    |           |      |   | 27,032    |          
|Accounts receivable, less allowances of: 2005 
    $12,284; 2004  $7,224                                                                                                         |                                            |                | 678,313   |           |      |   | 747,177   |          
|Lease receivables, net                                                                                                                                                             |                                            |                | 317,928   |           |      |   | 457,615   |          
|Inventories                                                                                                                                                                        |                                            |                | 241,470   |           |      |   | 233,345   |          
|Prepaid expenses and other current assets                                                                                                                                          |                                            |                | 42,660    |           |      |   | 62,645    |          
|Deferred taxes                                                                                                                                                                     |                                            |                | 55,566    |           |      |   | 64,481    |          
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                   | Total current assets                       |                |           | 1,727,914 |      |   |           | 2,065,246 | 
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|Long-term lease receivables, net                                                                                                                                                   |                                            |                | 458,338   |           |      |   | 753,146   |          
|Equipment on operating leases, net of accumulated depreciation
    of:                                                                                                             |                                            |                |           |           |      |   |           |          
|                                                                                                                                                                                   | 2005  $76,774; 2004  $76,456             |                |           | 101,614   |      |   |           | 78,673    | 
|Property and equipment, net                                                                                                                                                        |                                            |                | 144,309   |           |      |   | 164,132   |          
|Goodwill                                                                                                                                                                           |                                            |                | 1,277,785 |           |      |   | 1,286,564 |          
|Unsold residual value (Note 7)                                                                                                                                                     |                                            |                | 44,943    |           |      |   | 45,548    |          
|Other assets                                                                                                                                                                       |                                            |                | 76,916    |           |      |   | 125,104   |          
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                   | Total Assets                               |                | $         | 3,831,819 |      |   | $         | 4,518,413 | 
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                  
|Liabilities                                                                                                                                                                        |                                            |                |           |           |      |   |           |          
|Current portion of corporate debt                                                                                                                                                  |                                            | $              | 1,137     |           |      | $ | 63,023    |          
|Current portion of non-corporate debt                                                                                                                                              |                                            |                | 299,359   |           |      |   | 439,941   |          
|Trade accounts payable                                                                                                                                                             |                                            |                | 211,783   |           |      |   | 307,170   |          
|Accrued salaries, wages and commissions                                                                                                                                            |                                            |                | 94,614    |           |      |   | 124,808   |          
|Deferred revenues                                                                                                                                                                  |                                            |                | 111,890   |           |      |   | 132,274   |          
|Taxes payable                                                                                                                                                                      |                                            |                | 79,458    |           |      |   | 52,976    |          
|Other accrued expenses                                                                                                                                                             |                                            |                | 139,099   |           |      |   | 155,149   |          
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                   | Total current liabilities                  |                |           | 937,340   |      |   |           | 1,275,341 | 
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|Long-term corporate debt                                                                                                                                                           |                                            |                | 728,156   |           |      |   | 741,857   |          
|Long-term non-corporate debt                                                                                                                                                       |                                            |                | 225,307   |           |      |   | 422,868   |          
|Deferred taxes                                                                                                                                                                     |                                            |                | 20,853    |           |      |   | 187,091   |          
|Other long-term liabilities                                                                                                                                                        |                                            |                | 349,819   |           |      |   | 203,538   |          
|Commitments and contingencies (Note 11)                                                                                                                                            |                                            |                |           |           |      |   |           |          
|Shareholders Equity                                                                                                                                                               |                                            |                |           |           |      |   |           |          
|Common stock, no par value: authorized 300,000 shares;
    issued: 2005  150,140 shares; 2004 
    149,955 shares; outstanding: 2005 
    135,750 shares; 2004  142,779 shares |                                            |                | 1,035,014 |           |      |   | 1,022,842 |          
|Series 12 preferred stock, no par value: authorized
    480 shares; none issued or outstanding                                                                                     |                                            |                |           |           |      |   |           |          
|Deferred compensation                                                                                                                                                              |                                            |                | 215       |           |      |   | 209       |          
|Unearned compensation                                                                                                                                                              |                                            |                | (4,767    | )         |      |   | (2,448    | )        
|Retained earnings                                                                                                                                                                  |                                            |                | 755,864   |           |      |   | 723,847   |          
|Accumulated other comprehensive (loss) income                                                                                                                                      |                                            |                | (65,426   | )         |      |   | 20,195    |          
|Cost of common shares in treasury: 2005 
    14,390 shares; 2004  7,176 shares                                                                                                   |                                            |                | (150,556  | )         |      |   | (76,927   | )        
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                   | Total Shareholders Equity                 |                |           | 1,570,344 |      |   |           | 1,687,718 | 
|                                                                                                                                                                                   |                                            |                |           |           |      |  
|                                                                                                                                                                                   | Total Liabilities and Shareholders Equity |                | $         | 3,831,819 |      |   | $         | 4,518,413 | 
|                                                                                                                                                                                   |                                            |                |           |           |      |  

See notes to consolidated financial statements.


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IKON OFFICE SOLUTIONS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |          |            |            |         |         |          |  
|---------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------ | -------- | -------- | -------- | ---------- | -------- | -------- | ---------- | ---------- | ------- | ------- | -------- | -
|                                                                                                           |                                                                                    | Fiscal Year Ended September 30                                            |                                                       
|                                                                                                           |                                                                                    |                                                                           |                                                       
|                                                                                                           |                                                                                    | 2005                                                                      |                                                        |          | 2004     |          |            | 2003     |         
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    | (in thousands)                                                            |                                                       
|Cash Flows from Operating Activities                                                                       |                                                                                    |                                                                           |                                                        |          |          |          |            |          |          |            |            |        
|Net income                                                                                                 |                                                                                    | $                                                                         | 60,666                                                 |          |          | $        | 83,694     |          |          | $          | 123,107    |        
|                                                                                                           | Net loss from discontinued operations                                              |                                                                           |                                                        | (12,529  | )        |          |            | (4,615   | )        |            |            | (4,299  | )      
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           | Income from continuing operations                                                  |                                                                           |                                                        | 73,195   |          |          |            | 88,309   |          |            |            | 127,406 |        
|Additions (deductions) to reconcile net income to net cash
    (used in) provided by operating activities: |                                                                                    |                                                                           |                                                        |          |          |          |            |          |          |            |            |        
|                                                                                                           | Depreciation                                                                       |                                                                           |                                                        | 73,110   |          |          |            | 81,894   |          |            |            | 100,971 |        
|                                                                                                           | Amortization                                                                       |                                                                           |                                                        | 7,453    |          |          |            | 9,085    |          |            |            | 9,864   |        
|                                                                                                           | Gain (loss) on divestiture of businesses, net                                      |                                                                           |                                                        | (11,531  | )        |          |            | 11,427   |          |            |            |        |        
|                                                                                                           | Provision for losses on accounts receivable                                        |                                                                           |                                                        | 14,237   |          |          |            | 7,684    |          |            |            | 8,042   |        
|                                                                                                           | Restructuring and asset impairment charges                                         |                                                                           |                                                        | 10,543   |          |          |            |         |          |            |            |        |        
|                                                                                                           | Deferred income taxes                                                              |                                                                           |                                                        | (102,972 | )        |          |            | (289,380 | )        |            |            | 78,586  |        
|                                                                                                           | Provision for lease default reserves                                               |                                                                           |                                                        | 2,929    |          |          |            | 28,226   |          |            |            | 67,922  |        
|                                                                                                           | Stock-based compensation expense                                                   |                                                                           |                                                        | 7,863    |          |          |            |         |          |            |            |        |        
|                                                                                                           | Pension expense                                                                    |                                                                           |                                                        | 43,079   |          |          |            | 51,065   |          |            |            | 37,838  |        
|                                                                                                           | Non-cash interest expense on debt supporting unsold residual
    value (Note 3)    |                                                                           |                                                        | 879      |          |          |            | 639      |          |            |            |        |        
|                                                                                                           | Loss from early extinguishment of debt                                             |                                                                           |                                                        | 6,034    |          |          |            | 35,906   |          |            |            | 19,187  |        
|                                                                                                           | Changes in operating assets and liabilities, net of divestiture
    of businesses: |                                                                           |                                                        |          |          |          |            |          |          |            |            |         |        
|                                                                                                           |                                                                                    | Decrease (increase) in accounts receivable                                |                                                        |          | 37,288   |          |            |          | (252,755 | )          |            |         | (19,839 | )       
|                                                                                                           |                                                                                    | (Increase) decrease in inventories                                        |                                                        |          | (14,116  | )        |            |          | (5,951   | )          |            |         | 88,203  |         
|                                                                                                           |                                                                                    | Decrease (increase) in prepaid expenses and other current assets          |                                                        |          | 8,003    |          |            |          | (39,804  | )          |            |         | (19,482 | )       
|                                                                                                           |                                                                                    | Decrease in accounts payable, deferred revenues, and accrued
    expenses |                                                        |          | (140,399 | )        |            |          | (93,764  | )          |            |         | (62,234 | )       
|                                                                                                           |                                                                                    | Decrease in accrued restructuring                                         |                                                        |          | (8,306   | )        |            |          |         |            |            |         |        |         
|                                                                                                           | Other                                                                              |                                                                           |                                                        | (661     | )        |          |            | (3,091   | )        |            |            | 7,997   |        
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    |                                                                           | Net cash provided by (used in) continuing operations   |          |          | 6,628    |            |          |          | (370,510   | )          |         |         | 444,461  |  
|                                                                                                           |                                                                                    |                                                                           | Net cash used in discontinued operations               |          |          | (13,076  | )          |          |          | (6,742     | )          |         |         | (5,081   | )
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    |                                                                           | Net cash (used in) provided by operating activities    |          |          | (6,448   | )          |          |          | (377,252   | )          |         |         | 439,380  |  
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|Cash Flows from Investing Activities                                                                       |                                                                                    |                                                                           |                                                        |          |          |          |            |          |          |            |            |        
|Proceeds from the divestiture of businesses (Note 2)                                                       |                                                                                    |                                                                           | 23,107                                                 |          |          |          | 1,849,148  |          |          |            |           |        
|Expenditures for property and equipment                                                                    |                                                                                    |                                                                           | (28,000                                                | )        |          |          | (37,725    | )        |          |            | (61,390    | )      
|Expenditures for equipment on operating leases                                                             |                                                                                    |                                                                           | (44,149                                                | )        |          |          | (52,459    | )        |          |            | (62,971    | )      
|Proceeds from sale of property and equipment                                                               |                                                                                    |                                                                           | 3,729                                                  |          |          |          | 5,125      |          |          |            | 40,638     |        
|Proceeds from sale of equipment on operating leases                                                        |                                                                                    |                                                                           | 23,677                                                 |          |          |          | 12,003     |          |          |            | 16,295     |        
|Proceeds from the sale of lease receivables (Note 6)                                                       |                                                                                    |                                                                           | 249,083                                                |          |          |          | 383,381    |          |          |            |           |        
|Lease receivables  additions                                                                              |                                                                                    |                                                                           | (385,630                                               | )        |          |          | (1,191,212 | )        |          |            | (1,691,222 | )      
|Lease receivables  collections                                                                            |                                                                                    |                                                                           | 531,267                                                |          |          |          | 1,172,942  |          |          |            | 1,520,678  |        
|Proceeds from life insurance (cash surrender value)                                                        |                                                                                    |                                                                           | 55,343                                                 |          |          |          |           |          |          |            |           |        
|Other                                                                                                      |                                                                                    |                                                                           | (1,032                                                 | )        |          |          | (7,639     | )        |          |            | 1,776      |        
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    |                                                                           | Net cash provided by (used in) continuing operations   |          |          | 427,395  |            |          |          | 2,133,564  |            |         |         | (236,196 | )
|                                                                                                           |                                                                                    |                                                                           | Net cash provided by (used in) discontinued operations |          |          | 1,558    |            |          |          | (1,319     | )          |         |         | (836     | )
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    |                                                                           | Net cash provided by (used in) investing activities    |          |          | 428,953  |            |          |          | 2,132,245  |            |         |         | (237,032 | )
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|Cash Flows from Financing Activities                                                                       |                                                                                    |                                                                           |                                                        |          |          |          |            |          |          |            |            |        
|Short-term corporate debt repayments, net                                                                  |                                                                                    |                                                                           | (774                                                   | )        |          |          | (3,167     | )        |          |            | (3,526     | )      
|Repayment of other borrowings                                                                              |                                                                                    |                                                                           | (3,429                                                 | )        |          |          | (60,047    | )        |          |            |           |        
|Proceeds from issuance of long-term corporate debt                                                         |                                                                                    |                                                                           | 222,909                                                |          |          |          | 1,055      |          |          |            | 969        |        
|Long-term corporate debt repayments                                                                        |                                                                                    |                                                                           | (300,723                                               | )        |          |          | (327,929   | )        |          |            | (199,463   | )      
|Non-corporate debt  issuances                                                                             |                                                                                    |                                                                           | 18,756                                                 |          |          |          | 440,974    |          |          |            | 2,420,914  |        
|Non-corporate debt  repayments                                                                            |                                                                                    |                                                                           | (366,481                                               | )        |          |          | (1,676,603 | )        |          |            | (2,260,714 | )      
|Dividends paid                                                                                             |                                                                                    |                                                                           | (22,393                                                | )        |          |          | (23,476    | )        |          |            | (23,194    | )      
|Decrease (increase) in restricted cash                                                                     |                                                                                    |                                                                           | 8,760                                                  |          |          |          | 68,815     |          |          |            | (49,187    | )      
|Proceeds from option exercises and sale of treasury shares                                                 |                                                                                    |                                                                           | 4,787                                                  |          |          |          | 10,154     |          |          |            | 3,184      |        
|Tax benefit relating to stock plans                                                                        |                                                                                    |                                                                           | 1,843                                                  |          |          |          |           |          |          |            |           |        
|Purchase of treasury shares                                                                                |                                                                                    |                                                                           | (86,943                                                | )        |          |          | (78,124    | )        |          |            | (528       | )      
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    |                                                                           | Net cash used in continuing operations                 |          |          | (523,688 | )          |          |          | (1,648,348 | )          |         |         | (111,545 | )
|                                                                                                           |                                                                                    |                                                                           | Net cash used in discontinued operations               |          |          |         |            |          |          |           |            |         |         | (51      | )
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|                                                                                                           |                                                                                    |                                                                           | Net cash used in financing activities                  |          |          | (523,688 | )          |          |          | (1,648,348 | )          |         |         | (111,596 | )
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|Effect of exchange rate changes on cash and cash equivalents                                               |                                                                                    |                                                                           | 1,937                                                  |          |          |          | 6,276      |          |          |            | (2,538     | )      
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|Net (decrease) increase in cash and cash equivalents                                                       |                                                                                    |                                                                           | (99,246                                                | )        |          |          | 112,921    |          |          |            | 88,214     |        
|Cash and cash equivalents at beginning of the year                                                         |                                                                                    |                                                                           | 472,951                                                |          |          |          | 360,030    |          |          |            | 271,816    |        
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         
|Cash and cash equivalents at end of the year                                                               |                                                                                    | $                                                                         | 373,705                                                |          |          | $        | 472,951    |          |          | $          | 360,030    |        
|                                                                                                           |                                                                                    |                                                                           |                                                        |          |          |          |            |          |         

See notes to consolidated financial statements.


54



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.





CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY


|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |         |           |  
|----------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------- | - | --------- | ------- | --------- | - | ------- | ------ | ------- | ------ | --------- | ------- | --------- | - | ------- | ------ | ------- | - | --------- | ------- | --------- | -
|                                                                                                                                          |                                                                       | Fiscal Year Ended September 30        |        
|                                                                                                                                          |                                                                       |                                       |        
|                                                                                                                                          |                                                                       | 2005                                  |         |        | 2004    |   |           | 2003    |          
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |          
|                                                                                                                                          |                                                                       | Shares                                |         |        | Amounts |   |           | Shares  |           |   | Amounts |        |         | Shares |           |         | Amounts   |  
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | (in thousands, except per share data) |        
|Common Stock                                                                                                                              |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Balance, beginning of year                                                                                                                |                                                                       |                                       | 149,955 |        |         | $ | 1,022,842 |         |           |   | 149,982 |        |         | $      | 1,015,706 |         |           |   | 150,003 |        |         | $ | 1,015,177 |        
|Stock awards granted                                                                                                                      |                                                                       |                                       | 458     |        |         |   | 4,908     |         |           |   | 161     |        |         |        | 1,862     |         |           |   | 371     |        |         |   | 3,223     |        
|Stock awards earned                                                                                                                       |                                                                       |                                       | (209    | )      |         |   | (1,735    | )       |           |   | (138    | )      |         |        | (1,352    | )       |           |   | (250    | )      |         |   | (2,294    | )      
|Stock awards cancelled                                                                                                                    |                                                                       |                                       | (64     | )      |         |   | (695      | )       |           |   | (50     | )      |         |        | (351      | )       |           |   | (142    | )      |         |   | (1,914    | )      
|Stock-based compensation expense                                                                                                          |                                                                       |                                       |         |        |         |   | 7,863     |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Tax benefit relating to stock plans                                                                                                       |                                                                       |                                       |         |        |         |   | 1,831     |         |           |   |         |        |         |        | 5,428     |         |           |   |         |        |         |   | 1,514     |        
|Discount on stock options issued to directors                                                                                             |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        | 1,549     |         |           |   |         |        |         |   |           |        
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        | 150,140 |   |           | $       | 1,035,014 |   |         |        | 149,955 |        |           | $       | 1,022,842 |   |         |        | 149,982 |   |           | $       | 1,015,706 |  
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Deferred Compensation                                                                                                                     |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Balance, beginning of year                                                                                                                |                                                                       |                                       |         |        |         | $ | 209       |         |           |   |         |        |         | $      |          |         |           |   |         |        |         | $ |          |        
|Compensation deferred in common stock                                                                                                     |                                                                       |                                       |         |        |         |   | 2         |         |           |   |         |        |         |        | 207       |         |           |   |         |        |         |   |          |        
|Dividends earned on deferred compensation                                                                                                 |                                                                       |                                       |         |        |         |   | 4         |         |           |   |         |        |         |        | 2         |         |           |   |         |        |         |   |          |        
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        |         |   |           | $       | 215       |   |         |        |         |        |           | $       | 209       |   |         |        |         |   |           | $       |          |  
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Unearned Compensation                                                                                                                     |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Balance, beginning of year                                                                                                                |                                                                       |                                       |         |        |         | $ | (2,448    | )       |           |   |         |        |         | $      | (2,514    | )       |           |   |         |        |         | $ | (1,981    | )      
|Stock awards granted                                                                                                                      |                                                                       |                                       |         |        |         |   | (4,358    | )       |           |   |         |        |         |        | (1,000    | )       |           |   |         |        |         |   | (2,625    | )      
|Amortization                                                                                                                              |                                                                       |                                       |         |        |         |   | 1,344     |         |           |   |         |        |         |        | 715       |         |           |   |         |        |         |   | 178       |        
|Awards cancelled                                                                                                                          |                                                                       |                                       |         |        |         |   | 695       |         |           |   |         |        |         |        | 351       |         |           |   |         |        |         |   | 1,914     |        
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        |         |   |           | $       | (4,767    | ) |         |        |         |        |           | $       | (2,448    | ) |         |        |         |   |           | $       | (2,514    | )
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Retained Earnings                                                                                                                         |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Balance, beginning of year                                                                                                                |                                                                       |                                       |         |        |         | $ | 723,847   |         |           |   |         |        |         | $      | 666,118   |         |           |   |         |        |         | $ | 558,600   |        
|Net income                                                                                                                                |                                                                       |                                       |         |        |         |   | 60,666    |         |           |   |         |        |         |        | 83,694    |         |           |   |         |        |         |   | 123,107   |        
|Cash dividends declared:                                                                                                                  |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|                                                                                                                                          | Common stock, per share: 2005  $0.16;
    2004  $0.16; 2003  $0.16 |                                       |         |        |         |   |           | (22,393 | )         |   |         |        |         |        |           | (23,476 | )         |   |         |        |         |   |           | (23,194 | )        
|Issuance of treasury shares                                                                                                               |                                                                       |                                       |         |        |         |   | (6,256    | )       |           |   |         |        |         |        | (2,489    | )       |           |   |         |        |         |   | 7,605     |        
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        |         |   |           | $       | 755,864   |   |         |        |         |        |           | $       | 723,847   |   |         |        |         |   |           | $       | 666,118   |  
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Accumulated Other Comprehensive Income (Loss)                                                                                             |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Balance, beginning of year                                                                                                                |                                                                       |                                       |         |        |         | $ | 20,195    |         |           |   |         |        |         | $      | (60,791   | )       |           |   |         |        |         | $ | (50,805   | )      
|Translation adjustment                                                                                                                    |                                                                       |                                       |         |        |         |   | (4,402    | )       |           |   |         |        |         |        | 42,542    |         |           |   |         |        |         |   | 48,066    |        
|SFAS 133 adjustment                                                                                                                       |                                                                       |                                       |         |        |         |   | 85        |         |           |   |         |        |         |        | 12,104    |         |           |   |         |        |         |   | 12,243    |        
|Minimum pension liability adjustment                                                                                                      |                                                                       |                                       |         |        |         |   | (81,304   | )       |           |   |         |        |         |        | 26,340    |         |           |   |         |        |         |   | (70,295   | )      
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Other comprehensive (loss) income                                                                                                         |                                                                       |                                       |         |        |         |   | (85,621   | )       |           |   |         |        |         |        | 80,986    |         |           |   |         |        |         |   | (9,986    | )      
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        |         |   |           | $       | (65,426   | ) |         |        |         |        |           | $       | 20,195    |   |         |        |         |   |           | $       | (60,791   | )
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Cost of Common Shares in Treasury                                                                                                         |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Balance, beginning of year                                                                                                                |                                                                       |                                       | 7,176   |        |         | $ | (76,927   | )       |           |   | 2,942   |        |         | $      | (13,099   | )       |           |   | 5,286   |        |         | $ | (23,167   | )      
|Purchases                                                                                                                                 |                                                                       |                                       | 8,453   |        |         |   | (86,943   | )       |           |   | 6,778   |        |         |        | (78,124   | )       |           |   | 67      |        |         |   | (528      | )      
|Reissued for:                                                                                                                             |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|                                                                                                                                          | Exercise of options                                                   |                                       |         | (1,030 | )       |   |           | 11,097  |           |   |         | (2,406 | )       |        |           | 13,643  |           |   |         | (1,026 | )       |   |           | 4,441   |          
|                                                                                                                                          | Sales to employee stock plans                                         |                                       |         | (209   | )       |   |           | 2,217   |           |   |         | (138   | )       |        |           | 653     |           |   |         | (253   | )       |   |           | 1,118   |          
|                                                                                                                                          | Contribution to IKON Pension Plan                                     |                                       |         |       |         |   |           |        |           |   |         |       |         |        |           |        |           |   |         | (1,132 | )       |   |           | 5,037   |          
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        | 14,390  |   |           | $       | (150,556  | ) |         |        | 7,176   |        |           | $       | (76,927   | ) |         |        | 2,942   |   |           | $       | (13,099   | )
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Comprehensive (Loss) Income                                                                                                               |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Net income                                                                                                                                |                                                                       |                                       |         |        |         | $ | 60,666    |         |           |   |         |        |         | $      | 83,694    |         |           |   |         |        |         | $ | 123,107   |        
|Other comprehensive (loss) income per above                                                                                               |                                                                       |                                       |         |        |         |   | (85,621   | )       |           |   |         |        |         |        | 80,986    |         |           |   |         |        |         |   | (9,986    | )      
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Comprehensive (loss) income           |         |        |         |   |           | $       | (24,955   | ) |         |        |         |        |           | $       | 164,680   |   |         |        |         |   |           | $       | 113,121   |  
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|Components of Accumulated Other Comprehensive (Loss)
    Income                                                                           |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |   |         |        |         |   |           |        
|Accumulated translation                                                                                                                   |                                                                       |                                       |         |        |         | $ | 62,016    |         |           |   |         |        |         | $      | 66,418    |         |           |   |         |        |         | $ | 23,876    |        
|Net gain (loss) on derivative financial instruments, net of tax
    (expense) benefit of: 2005  $(150);
    2004  $(106); 2003  $6,709 |                                                                       |                                       |         |        |         |   | 262       |         |           |   |         |        |         |        | 177       |         |           |   |         |        |         |   | (11,927   | )      
|Minimum pension liability                                                                                                                 |                                                                       |                                       |         |        |         |   | (127,704  | )       |           |   |         |        |         |        | (46,400   | )       |           |   |         |        |         |   | (72,740   | )      
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  
|                                                                                                                                          |                                                                       | Balance, end of year                  |         |        |         |   |           | $       | (65,426   | ) |         |        |         |        |           | $       | 20,195    |   |         |        |         |   |           | $       | (60,791   | )
|                                                                                                                                          |                                                                       |                                       |         |        |         |   |           |         |           |   |         |        |         |        |           |         |           |  

See notes to consolidated financial statements.


55



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






|   |                                
|-- | -------------------------------
|1. | SIGNIFICANT ACCOUNTING POLICIES



| |                      
| | ---------------------
| | Basis of Presentation





| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Revenue Recognition



56



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |            
| | -----------
| | Advertising





| |             
| | ------------
| | Income Taxes





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                
| | ---------------
| | Restricted Cash



57



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                
| | ---------------
| | Book Overdrafts





| |                    
| | -------------------
| | Supplier Allowances





| |                          
| | -------------------------
| | Sale of Lease Receivables





| |            
| | -----------
| | Inventories





| |                  
| | -----------------
| | Long-Lived Assets



|                               |  |                                           
|------------------------------ |  | ------------------------------------------
|Equipment on operating leases  |  | 3-5 years                                 
|Production equipment           |  | 3-5 years                                 
|Furniture and office equipment |  | 3-7 years                                 
|Capitalized software           |  | 3-10 years                                
|Leasehold improvements         |  | shorter of the asset life or term of lease
|Buildings                      |  | 20 years                                  





58



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                          
| | -------------------------
| | Environmental Liabilities





| |                           
| | --------------------------
| | Shipping and Handling Fees





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                                        
| | ---------------------------------------
| | Accounting for Stock-Based Compensation



59



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |   |         |       |         | 
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ----- | ------ | - | ------- | ----- | ------- | 
|                                                                                                                                |                                                                                                                                 | Fiscal Year Ended                              |       
|                                                                                                                                |                                                                                                                                 | September 30                                   |       
|                                                                                                                                |                                                                                                                                 |                                                |       
|                                                                                                                                |                                                                                                                                 | 2004                                           |        |       | 2003   |  
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  
|Net income as reported                                                                                                          |                                                                                                                                 | $                                              | 83,694 |       |        | $ | 123,107 |      
|Pro forma effect of expensing stock based compensation plans
    using fair value method not included in net income as reported |                                                                                                                                 |                                                | (6,437 | )     |        |   | (5,985  | )    
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  
|                                                                                                                                |                                                                                                                                 | Net income, as adjusted                        |        | $     | 77,257 |   |         | $     | 117,122 | 
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  
|Basic earnings per common share:                                                                                                |                                                                                                                                 |                                                |        |       |        |   |         |      
|                                                                                                                                | Net income as reported                                                                                                          |                                                | $      | 0.57  |        |   | $       | 0.85  |        
|                                                                                                                                | Pro forma effect of expensing stock based compensation plans
    using fair value method not included in net income as reported |                                                |        | (0.04 | )      |   |         | (0.04 | )      
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  
|                                                                                                                                |                                                                                                                                 | Basic earnings per common share, as adjusted   |        | $     | 0.53   |   |         | $     | 0.81    | 
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  
|Diluted earnings per common share:                                                                                              |                                                                                                                                 |                                                |        |       |        |   |         |      
|                                                                                                                                | Net income as reported                                                                                                          |                                                | $      | 0.55  |        |   | $       | 0.79  |        
|                                                                                                                                | Pro forma effect of expensing stock based compensation plans
    using fair value method not included in net income as reported |                                                |        | (0.04 | )      |   |         | (0.04 | )      
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  
|                                                                                                                                |                                                                                                                                 | Diluted earnings per common share, as adjusted |        | $     | 0.51   |   |         | $     | 0.75    | 
|                                                                                                                                |                                                                                                                                 |                                                |        |       |        |  

60



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                      
| | ---------------------
| | Financial Instruments







| |                  
| | -----------------
| | Reclassifications





| |                           
| | --------------------------
| | Pending Accounting Changes



61



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














62



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                          
|-- | -------------------------
|2. | DIVESTITURE OF BUSINESSES

NORTH AMERICAN LEASING OPERATIONS




| |              
| | -------------
| | United States











| |       
| | ------
| | Canada



63



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














SALE OF FRENCH OPERATING SUBSIDIARY




SALE OF MEXICAN OPERATING SUBSIDIARY




OTHER DIVESTITURES








64



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                 
|-- | --------------------------------
|3. | NOTES PAYABLE AND LONG-TERM DEBT



| |               
| | --------------
| | Long-term Debt



|                                                                                                                                                |  |              |         |  |      |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ---- | - | ------- | 
|                                                                                                                                                |  | September 30 |        
|                                                                                                                                                |  |              |        
|                                                                                                                                                |  | 2005         |         |  | 2004 |  
|                                                                                                                                                |  |              |         |  |      |  
|Bond issue at stated interest rate of 6.75%, net of discount
    (2005  $3,438; 2004  $3,515), due 2025,
    effective interest rate of 6.85% |  | $            | 260,304 |  |      | $ | 260,227 | 
|Bond issue at stated interest rate of 6.75%, net of discount
    (2004  $2), due 2004, effective interest rate of 6.76%                        |  |              |        |  |      |   | 56,659  | 
|Bond issue at stated interest rate of 7.30%, net of discount
    (2005  $454; 2004  $463), due 2027,
    effective interest rate of 7.34%     |  |              | 94,546  |  |      |   | 94,537  | 
|Convertible subordinated notes at stated interest rate of 5.00%,
    due 2007                                                                   |  |              | 53,242  |  |      |   | 290,000 | 
|Notes payable at stated interest rate of 7.25%, due 2008                                                                                        |  |              | 94,835  |  |      |   | 94,835  | 
|Notes payable at stated interest rate of 7.75%, due 2015                                                                                        |  |              | 225,000 |  |      |   |        | 
|Sundry notes, bonds and mortgages at average interest rate
    (2005  4.1%; 2004  5.76%), due
    2004  2006                                 |  |              | 636     |  |      |   | 6,138   | 
|Present value of capital lease obligations (gross amount:
    2005  $893; 2004  $2,790)                                                       |  |              | 730     |  |      |   | 2,484   | 
|                                                                                                                                                |  |              |         |  |      |  
|                                                                                                                                                |  |              | 729,293 |  |      |   | 804,880 | 
|Less: current maturities                                                                                                                        |  |              | 1,137   |  |      |   | 63,023  | 
|                                                                                                                                                |  |              |         |  |      |  
|                                                                                                                                                |  | $            | 728,156 |  |      | $ | 741,857 | 
|                                                                                                                                                |  |              |         |  |      |  



|                                                                                                                      |  |              |         |  |      |   |         | 
|--------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ---- | - | ------- | 
|                                                                                                                      |  | September 30 |        
|                                                                                                                      |  |              |        
|                                                                                                                      |  | 2005         |         |  | 2004 |  
|                                                                                                                      |  |              |         |  |      |  
|Lease-backed notes at average interest rate of 3.35%
    (2005) and 3.17% (2004), due 2004  2007                     |  | $            | 332,233 |  |      | $ | 683,086 | 
|Asset securitization conduit financing at average interest rate
    of 6.53% (2005) and 6.53% (2004), due 2004  2007 |  |              | 124,122 |  |      |   | 129,668 | 
|Notes payable to banks at average interest rate: 4.86%
    (2005) and 4.47% (2004), due 2004  2008                   |  |              | 9,422   |  |      |   | 3,868   | 
|Debt supporting unsold residual value, imputed interest rate of
    3.7%                                              |  |              | 58,889  |  |      |   | 46,187  | 
|                                                                                                                      |  |              |         |  |      |  
|                                                                                                                      |  |              | 524,666 |  |      |   | 862,809 | 
|Less: current maturities                                                                                              |  |              | 299,359 |  |      |   | 439,941 | 
|                                                                                                                      |  |              |         |  |      |  
|                                                                                                                      |  | $            | 225,307 |  |      | $ | 422,868 | 
|                                                                                                                      |  |              |         |  |      |  

65



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|            |  |                |         |  |                    |   |         | 
|----------- |  | -------------- | ------- |  | ------------------ | - | ------- | 
|Fiscal Year |  | Corporate Debt |         |  | Non-Corporate Debt |  
|            |  |                |         |  |                    |  
|2006        |  | $              | 1,137   |  |                    | $ | 296,254 | 
|2007        |  |                | 53,464  |  |                    |   | 160,588 | 
|2008        |  |                | 94,835  |  |                    |   | 8,421   | 
|2009        |  |                |        |  |                    |   | 514     | 
|2010        |  |                |        |  |                    |   |        | 
|2011  2027 |  |                | 579,857 |  |                    |   |        | 





|                                                                 |  |           |         |  |            |   |         | 
|---------------------------------------------------------------- |  | --------- | ------- |  | ---------- | - | ------- | 
|                                                                 |  | Principal |         |  |           
|                                                                 |  | Amount    |         |  | Settlement |  
|                                                                 |  | Purchased |         |  | Amount     |  
|                                                                 |  |           |         |  |            |  
|Convertible subordinated notes at stated rate of 5.00%, due 2007 |  | $         | 236,758 |  |            | $ | 239,763 | 







|                                                    |  |           |         |  |            |   |         | 
|--------------------------------------------------- |  | --------- | ------- |  | ---------- | - | ------- | 
|                                                    |  | Principal |         |  |           
|                                                    |  | Amount    |         |  | Settlement |  
|                                                    |  | Purchased |         |  | Amount     |  
|                                                    |  |           |         |  |            |  
|Bond issue at rate of 6.75%, due 2004               |  | $         | 4,588   |  |            | $ | 4,730   | 
|Bond issue at rate of 9.75%, due 2004               |  |           | 7,500   |  |            |   | 7,628   | 
|Bond issue at rate of 7.25%, due 2008               |  |           | 255,165 |  |            |   | 282,611 | 
|Convertible Notes at stated rate of 5.00%, due 2007 |  |           | 10,000  |  |            |   | 10,300  | 
|                                                    |  |           |         |  |            |  
|                                                    |  | $         | 277,253 |  |            | $ | 305,269 | 
|                                                    |  |           |         |  |            |  









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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                   
| | ------------------
| | Lease-Backed Notes



|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      |  |  |              |   |  |  |               | 
|------ | ------ |  | ----- | -------- | ----------- | --------- | -------- |  | ---------------- | -------------- |  | ------------------ | --------- |  | --------------- | - | ------- | ---- |  |  | ------------ | - |  |  | ------------- | 
|       |        |  |       |          |             | Principal |          |  | Principal Amount |                |  |                    |           | 
|       |        |  |       | Issuance |             |           | Issuance |  |                  | Outstanding at |  |                    |           |  | Stated Maturity |  
|Series |        |  | Notes |          |             | Date      |          |  | Amount           |                |  | September 30, 2005 |           |  | Interest Rate   |   |         | Date | 
|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      | 
|       | 2002-1 |  |       |          | Class  A-1  |           |          |  | 05/30/02         |                |  | $                  | 171,000   |  |                 | $ |        |      |  |  | 2.044        | % |  |  | June 2003     | 
|       |        |  |       |          | Class  A-2  |           |          |  | 05/30/02         |                |  |                    | 46,000    |  |                 |   |        |      |  |  | 2.91         | % |  |  | February 2005 | 
|       |        |  |       |          | Class  A-3  |           |          |  | 05/30/02         |                |  |                    | 266,400   |  |                 |   |        |      |  |  | 3.90         | % |  |  | October 2006  | 
|       |        |  |       |          | Class  A-4  |           |          |  | 05/30/02         |                |  |                    | 151,400   |  |                 |   | 85,410  |      |  |  | 4.68         | % |  |  | November 2009 | 
|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      | 
|       |        |  |       |          | Sub-Total   |           |          |  |                  |                |  |                    | 634,800   |  |                 |   | 85,410  |      |  |  |              |   |  |  |               | 
|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      | 
|       | 2003-1 |  |       |          | Class  A-1  |           |          |  | 04/23/03         |                |  |                    | 253,200   |  |                 |   |        |      |  |  | 1.30813      | % |  |  | May 2004      | 
|       |        |  |       |          | Class  A-2  |           |          |  | 04/23/03         |                |  |                    | 26,700    |  |                 |   |        |      |  |  | 1.68         | % |  |  | November 2005 | 
|       |        |  |       |          | Class  A-3a |           |          |  | 04/23/03         |                |  |                    | 206,400   |  |                 |   | 43,719  |      |  |  | LIBOR + 0.24 | % |  |  | December 2007 | 
|       |        |  |       |          | Class  A-3b |           |          |  | 04/23/03         |                |  |                    | 206,400   |  |                 |   | 43,719  |      |  |  | 2.33         | % |  |  | December 2007 | 
|       |        |  |       |          | Class  A-4  |           |          |  | 04/23/03         |                |  |                    | 159,385   |  |                 |   | 159,385 |      |  |  | 3.27         | % |  |  | July 2011     | 
|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      | 
|       |        |  |       |          | Sub-Total   |           |          |  |                  |                |  |                    | 852,085   |  |                 |   | 246,823 |      |  |  |              |   |  |  |               | 
|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      | 
|       |        |  |       |          | Total       |           |          |  |                  |                |  | $                  | 1,486,885 |  |                 | $ | 332,233 |      |  |  |              |   |  |  |               | 
|       |        |  |       |          |             |           |          |  |                  |                |  |                    |           |  |                 |   |         |      | 





67



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














| |                                                                      
| | ---------------------------------------------------------------------
| | Asset Securitization Conduit Financing
    Agreements  North America





| |                                                                       
| | ----------------------------------------------------------------------
| | Asset Securitization Conduit Financing
    Agreements  United Kingdom





| |                                      
| | -------------------------------------
| | Debt Supporting Unsold Residual Value



68



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have transferred $35,145 of lease receivables to GE for which
    we have retained all of the risks of ownership at
    September 30, 2005. This balance was $14,665 at
    September 30, 2004.                                                                                                                                                                                                                                                                                           
|
| |  | We have transferred lease receivables to GE for which we have
    retained all of the risks of ownership due mainly to the
    performance features discussed above. As a result, we are
    required to record an asset and a corresponding amount of debt
    representing the present value of the residual value related to
    these lease receivables. At September 30, 2005 and 2004, we
    had recorded $9,798 and $30,883, respectively, of debt and
    associated residual value.
|
| |  | We have $12,428 of debt related to equipment on operating leases
    that have been funded by GE.                                                                                                                                                                                                                                                                                                                                                                                            





| |                          
| | -------------------------
| | Capital Lease Obligations





| |                
| | ---------------
| | Credit Facility





69



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Letters of Credit





| |                  
| | -----------------
| | Interest Payments





|   |                    
|-- | -------------------
|4. | ACCOUNTS RECEIVABLE



|                                                      |                         |      |         |         |      |   |         |         | 
|----------------------------------------------------- | ----------------------- | ---- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                      |                         | 2005 |         |         | 2004 |  
|                                                      |                         |      |         |         |      |  
|Trade receivables from GE, including amounts unbilled |                         | $    | 150,047 |         |      | $ | 215,740 |        
|Trade receivables from other customers                |                         |      | 447,517 |         |      |   | 441,638 |        
|                                                      |                         |      |         |         |      |  
|                                                      | Total trade receivables |      |         | 597,564 |      |   |         | 657,378 | 
|Other                                                 |                         |      | 80,749  |         |      |   | 89,799  |        
|                                                      |                         |      |         |         |      |  
|                                                      |                         | $    | 678,313 |         |      | $ | 747,177 |        
|                                                      |                         |      |         |         |      |  





|             |  |              |        |  |                    |   |             |            |  |            |        |  |  |   |        | 
|------------ |  | ------------ | ------ |  | ------------------ | - | ----------- | ---------- |  | ---------- | ------ |  |  | - | ------ | 
|             |  | Balance at   |        |  |                    |   | Write-Offs, |            |  | Balance at |       
|             |  | Beginning of |        |  |                    |   | Net of      |            |  | End of     |       
|September 30 |  | Year         |        |  | Charged to Expense |   |             | Recoveries |  |            | Year   | 
|             |  |              |        |  |                    |   |             |            |  |            |        | 
|2005         |  | $            | 7,224  |  |                    | $ | 13,899      |            |  | $          | 8,839  |  |  | $ | 12,284 | 
|2004         |  |              | 6,894  |  |                    |   | 7,642       |            |  |            | 7,312  |  |  |   | 7,224  | 
|2003         |  |              | 10,278 |  |                    |   | 8,437       |            |  |            | 11,821 |  |  |   | 6,894  | 



|   |                  
|-- | -----------------
|5. | LEASE RECEIVABLES



70



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |  |              |          |   |      |   |           |  
|-------------------------------- |  | ------------ | -------- | - | ---- | - | --------- | -
|                                 |  | September 30 |         
|                                 |  |              |         
|                                 |  | 2005         |          |   | 2004 |  
|                                 |  |              |          |   |      |  
|Gross receivables                |  | $            | 732,767  |   |      | $ | 1,203,785 |  
|Unearned income                  |  |              | (110,315 | ) |      |   | (197,559  | )
|Unguaranteed residuals           |  |              | 160,427  |   |      |   | 210,981   |  
|Lease default reserve            |  |              | (6,613   | ) |      |   | (6,446    | )
|                                 |  |              |          |   |      |  
|Lease receivables, net           |  |              | 776,266  |   |      |   | 1,210,761 |  
|Less: current portion            |  |              | 317,928  |   |      |   | 457,615   |  
|                                 |  |              |          |   |      |  
|Long-term lease receivables, net |  | $            | 458,338  |   |      | $ | 753,146   |  
|                                 |  |              |          |   |      |  



















|   |                          
|-- | -------------------------
|6. | SALE OF LEASE RECEIVABLES



71



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                      
|-- | ---------------------
|7. | UNSOLD RESIDUAL VALUE







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have transferred $35,145 of lease receivables to GE for which
    we have retained all of the risks of ownership at
    September 30, 2005. This balance was $14,665 at
    September 30, 2004.                                                                                                                                                                                                                                                                                           
|
| |  | We have transferred lease receivables to GE for which we have
    retained all of the risks of ownership due mainly to the
    performance features discussed above. As a result, we are
    required to record an asset and a corresponding amount of debt
    representing the present value of the residual value related to
    these lease receivables. At September 30, 2005 and 2004, we
    had recorded $9,798 and $30,883, respectively, of debt and
    associated residual value.





|   |                       
|-- | ----------------------
|8. | PROPERTY AND EQUIPMENT



|                                     |  |              |         |  |      |   |         | 
|------------------------------------ |  | ------------ | ------- |  | ---- | - | ------- | 
|                                     |  | September 30 |        
|                                     |  |              |        
|                                     |  | 2005         |         |  | 2004 |  
|                                     |  |              |         |  |      |  
|Land                                 |  | $            | 1,484   |  |      | $ | 1,638   | 
|Buildings and leasehold improvements |  |              | 60,584  |  |      |   | 66,929  | 
|Production equipment                 |  |              | 32,318  |  |      |   | 44,513  | 
|Furniture and office equipment       |  |              | 153,115 |  |      |   | 181,981 | 
|Capitalized software                 |  |              | 203,464 |  |      |   | 190,860 | 
|                                     |  |              |         |  |      |  
|                                     |  |              | 450,965 |  |      |   | 485,921 | 
|Less: accumulated depreciation       |  |              | 306,656 |  |      |   | 321,789 | 
|                                     |  |              |         |  |      |  
|                                     |  | $            | 144,309 |  |      | $ | 164,132 | 
|                                     |  |              |         |  |      |  

72



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |         
|-- | --------
|9. | GOODWILL



|                               |  |            |         |  |        |   |         |       |  |   |           |  
|------------------------------ |  | ---------- | ------- |  | ------ | - | ------- | ----- |  | - | --------- | -
|                               |  | IKON North |         |  | IKON   |   |         |      
|                               |  | America    |         |  | Europe |   |         | Total | 
|                               |  |            |         |  |        |   |         |       | 
|Goodwill at September 30, 2004 |  | $          | 949,138 |  |        | $ | 337,426 |       |  | $ | 1,286,564 |  
|Sale of business               |  |            |        |  |        |   | (9,806  | )     |  |   | (9,806    | )
|Translation adjustment         |  |            | 8,899   |  |        |   | (7,872  | )     |  |   | 1,027     |  
|                               |  |            |         |  |        |   |         |       | 
|Goodwill at September 30, 2005 |  | $          | 958,037 |  |        | $ | 319,748 |       |  | $ | 1,277,785 |  
|                               |  |            |         |  |        |   |         |       | 







|    |       
|--- | ------
|10. | LEASES











|    |              
|--- | -------------
|11. | CONTINGENCIES



73



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














74



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                     
|--- | --------------------
|12. | SHAREHOLDERS EQUITY







75



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##### Table of Contents



IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|    |                          
|--- | -------------------------
|13. | EARNINGS PER COMMON SHARE



|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         |  |   |         |         | 
|----------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------ | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                                        |                                                                                                             | September 30 |        
|                                                                                                                        |                                                                                                             |              |        
|                                                                                                                        |                                                                                                             | 2005         |         |         | 2004 |   |         | 2003    | 
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 
|Numerator:                                                                                                              |                                                                                                             |              |         |         |      |   |         |         |  |   |         |        
|                                                                                                                        | Numerator for basic earnings per common share  income
    from continuing operations                       |              | $       | 73,195  |      |   | $       | 88,309  |  |   | $       | 127,406 | 
|Effect of dilutive securities:                                                                                          |                                                                                                             |              |         |         |      |   |         |         |  |   |         |        
|                                                                                                                        | Interest expense on Convertible Notes, net of taxes of:
    2005  $4,931; 2004  $5,596;
    2003  $5,662 |              |         | 7,553   |      |   |         | 9,228   |  |   |         | 9,338   | 
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 
|Numerator for diluted earnings per common share  net
    income from continuing operations                             |                                                                                                             | $            | 80,748  |         |      | $ | 97,537  |         |  | $ | 136,744 |        
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 
|Denominator:                                                                                                            |                                                                                                             |              |         |         |      |   |         |         |  |   |         |        
|                                                                                                                        | Denominator for basic earnings per common share 
    weighted average common shares                        |              |         | 139,890 |      |   |         | 146,634 |  |   |         | 145,216 | 
|Effect of dilutive securities:                                                                                          |                                                                                                             |              |         |         |      |   |         |         |  |   |         |        
|                                                                                                                        | Convertible Notes                                                                                           |              |         | 16,613  |      |   |         | 19,726  |  |   |         | 19,960  | 
|                                                                                                                        | Employee stock awards                                                                                       |              |         | 378     |      |   |         | 329     |  |   |         | 304     | 
|                                                                                                                        | Employee stock options                                                                                      |              |         | 810     |      |   |         | 2,593   |  |   |         | 2,322   | 
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 
|Dilutive potential common shares                                                                                        |                                                                                                             |              | 17,801  |         |      |   | 22,648  |         |  |   | 22,586  |        
|Denominator for diluted earnings per common share 
    adjusted weighted average common shares and assumed conversions |                                                                                                             |              | 157,691 |         |      |   | 169,282 |         |  |   | 167,802 |        
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 
|Basic earnings per common share from continuing operations                                                              |                                                                                                             | $            | 0.52    |         |      | $ | 0.60    |         |  | $ | 0.88    |        
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 
|Diluted earnings per common share from continuing operations                                                            |                                                                                                             | $            | 0.51    |         |      | $ | 0.58    |         |  | $ | 0.81    |        
|                                                                                                                        |                                                                                                             |              |         |         |      |   |         |         | 

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                
|--- | ---------------
|14. | TAXES ON INCOME



|                |  |                                |         |  |          |   |          |         |  |   |          |  |  |         |          |   |          |   |        |   |  |   |        | 
|--------------- |  | ------------------------------ | ------- |  | -------- | - | -------- | ------- |  | - | -------- |  |  | ------- | -------- | - | -------- | - | ------ | - |  | - | ------ | 
|                |  | Fiscal Year Ended September 30 |        
|                |  |                                |        
|                |  | 2005                           |         |  | 2004     |   |          | 2003    | 
|                |  |                                |         |  |          |   |          |         | 
|                |  | Current                        |         |  | Deferred |   |          | Current |  |   | Deferred |  |  | Current |          |   | Deferred |  
|                |  |                                |         |  |          |   |          |         |  |   |          |  |  |         |          |   |          |  
|Federal         |  | $                              | 115,404 |  |          | $ | (89,711  | )       |  | $ | 292,937  |  |  | $       | (266,131 | ) |          | $ | (9,338 | ) |  | $ | 69,092 | 
|Foreign         |  |                                | 14,414  |  |          |   | (12,015  | )       |  |   | 5,525    |  |  |         | (2,721   | ) |          |   | 7,005  |   |  |   | 4,217  | 
|State           |  |                                | 4,909   |  |          |   | (1,246   | )       |  |   | 21,226   |  |  |         | (20,528  | ) |          |   | 1,291  |   |  |   | 5,277  | 
|                |  |                                |         |  |          |   |          |         |  |   |          |  |  |         |          |   |          |  
|Taxes on income |  | $                              | 134,727 |  |          | $ | (102,972 | )       |  | $ | 319,688  |  |  | $       | (289,380 | ) |          | $ | (1,042 | ) |  | $ | 78,586 | 
|                |  |                                |         |  |          |   |          |         |  |   |          |  |  |         |          |   |          |  



|                          |                                                         |                                       |         |         |         |  |         |         |          |  
|------------------------- | ------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------- |  | ------- | ------- | -------- | -
|                          |                                                         | September 30                          |        
|                          |                                                         |                                       |        
|                          |                                                         | 2005                                  |         |         | 2004    | 
|                          |                                                         |                                       |         |         |         | 
|Deferred tax assets:      |                                                         |                                       |         |         |         |  |         |        
|                          | Accrued liabilities, accounts receivable, and inventory |                                       | $       | 176,546 |         |  | $       | 132,360 |         
|                          | Net operating loss and capital loss carryforwards       |                                       |         | 53,072  |         |  |         | 51,257  |         
|                          | Tax credit carryforwards                                |                                       |         | 165     |         |  |         | 1,237   |         
|                          | Other                                                   |                                       |         | 2,901   |         |  |         | 1,324   |         
|                          |                                                         |                                       |         |         |         | 
|                          |                                                         | Total deferred tax assets             |         |         | 232,684 |  |         |         | 186,178  |  
|Valuation allowance       |                                                         |                                       | 30,946  |         |         |  | 29,162  |        
|                          |                                                         |                                       |         |         |         | 
|Net deferred tax assets   |                                                         |                                       | 201,738 |         |         |  | 157,016 |        
|                          |                                                         |                                       |         |         |         | 
|Deferred tax liabilities: |                                                         |                                       |         |         |         |  |         |        
|                          | Depreciation and lease income recognition               |                                       | $       | 167,025 |         |  | $       | 279,626 |         
|                          |                                                         |                                       |         |         |         | 
|                          |                                                         | Total deferred tax liabilities        |         |         | 167,025 |  |         |         | 279,626  |  
|                          |                                                         |                                       |         |         |         | 
|                          |                                                         | Net deferred tax assets (liabilities) |         | $       | 34,713  |  |         | $       | (122,610 | )
|                          |                                                         |                                       |         |         |         | 



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


























78



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                    |  |                                |        |   |      |   |         |      |  |   |        |  
|--------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                    |  | Fiscal Year Ended September 30 |       
|                                                    |  |                                |       
|                                                    |  | 2005                           |        |   | 2004 |   |         | 2003 | 
|                                                    |  |                                |        |   |      |   |         |      | 
|Tax at statutory rate                               |  | $                              | 37,010 |   |      | $ | 41,516  |      |  | $ | 71,732 |  
|State income taxes, net of U.S. federal tax benefit |  |                                | 4,917  |   |      |   | 5,289   |      |  |   | 5,022  |  
|Net (decrease) increase in tax reserves             |  |                                | (691   | ) |      |   | 10,345  |      |  |   |       |  
|Valuation allowance changes                         |  |                                | (2,674 | ) |      |   | (23,241 | )    |  |   | 2,486  |  
|Foreign, including credits                          |  |                                | (5,118 | ) |      |   | (1,423  | )    |  |   | (231   | )
|Other                                               |  |                                | (1,689 | ) |      |   | (2,178  | )    |  |   | (1,465 | )
|                                                    |  |                                |        |   |      |   |         |      | 
|                                                    |  | $                              | 31,755 |   |      | $ | 30,308  |      |  | $ | 77,544 |  
|                                                    |  |                                |        |   |      |   |         |      | 





|    |                  
|--- | -----------------
|15. | SEGMENT REPORTING









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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                         |  |            |           |   |        |           |         |              |  |   |          |   |  |   |           |  
|-------------------------------------------------------- |  | ---------- | --------- | - | ------ | --------- | ------- | ------------ |  | - | -------- | - |  | - | --------- | -
|                                                         |  |            |           |   |        | Corporate |         |              | 
|                                                         |  | IKON North |           |   | IKON   |           |         | and          |  |   |         
|                                                         |  | America    |           |   | Europe |           |         | Eliminations |  |   | Total    |  
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  
|Year Ended September 30, 2005                            |  |            |           |   |        |           |         |              |  |   |          |   |  |   |           |  
|Net sales                                                |  | $          | 1,668,287 |   |        | $         | 294,980 |              |  | $ |         |   |  | $ | 1,963,267 |  
|Services                                                 |  |            | 2,074,392 |   |        |           | 234,374 |              |  |   |         |   |  |   | 2,308,766 |  
|Finance income                                           |  |            | 78,066    |   |        |           | 27,206  |              |  |   |         |   |  |   | 105,272   |  
|(Gain) on divestiture of businesses, net                 |  |            | (1,421    | ) |        |           | (10,110 | )            |  |   |         |   |  |   | (11,531   | )
|Restructuring and asset impairments                      |  |            | 9,424     |   |        |           |        |              |  |   | 1,119    |   |  |   | 10,543    |  
|Operating income (loss)                                  |  |            | 360,687   |   |        |           | 39,649  |              |  |   | (244,339 | ) |  |   | 155,997   |  
|Loss from early extinguishment of debt, net              |  |            |          |   |        |           |        |              |  |   | 6,034    |   |  |   | 6,034     |  
|Interest income                                          |  |            |          |   |        |           |        |              |  |   | 7,388    |   |  |   | 7,388     |  
|Interest expense                                         |  |            |          |   |        |           |        |              |  |   | (52,401  | ) |  |   | (52,401   | )
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  
|Income from continuing operations before taxes on income |  | $          | 360,687   |   |        | $         | 39,649  |              |  | $ | (295,386 | ) |  | $ | 104,950   |  
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  
|Year Ended September 30, 2004                            |  |            |           |   |        |           |         |              |  |   |          |   |  |   |           |  
|Net sales                                                |  | $          | 1,708,470 |   |        | $         | 280,294 |              |  | $ |         |   |  | $ | 1,988,764 |  
|Services                                                 |  |            | 2,076,981 |   |        |           | 226,572 |              |  |   |         |   |  |   | 2,303,553 |  
|Finance income                                           |  |            | 247,568   |   |        |           | 25,823  |              |  |   |         |   |  |   | 273,391   |  
|Loss on divestiture of businesses, net                   |  |            | 11,427    |   |        |           |        |              |  |   |         |   |  |   | 11,427    |  
|Operating income (loss)                                  |  |            | 436,699   |   |        |           | 25,286  |              |  |   | (259,403 | ) |  |   | 202,582   |  
|Loss from early extinguishment of debt, net              |  |            |          |   |        |           |        |              |  |   | 35,906   |   |  |   | 35,906    |  
|Interest income                                          |  |            |          |   |        |           |        |              |  |   | 3,259    |   |  |   | 3,259     |  
|Interest expense                                         |  |            |          |   |        |           |        |              |  |   | (51,318  | ) |  |   | (51,318   | )
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  
|Income from continuing operations before taxes on income |  | $          | 436,699   |   |        | $         | 25,286  |              |  | $ | (343,368 | ) |  | $ | 118,617   |  
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  
|Year Ended September 30, 2003                            |  |            |           |   |        |           |         |              |  |   |          |   |  |   |           |  
|Net sales                                                |  | $          | 1,736,350 |   |        | $         | 253,495 |              |  | $ |         |   |  | $ | 1,989,845 |  
|Services                                                 |  |            | 2,075,202 |   |        |           | 207,916 |              |  |   |         |   |  |   | 2,283,118 |  
|Finance income                                           |  |            | 365,264   |   |        |           | 22,929  |              |  |   |         |   |  |   | 388,193   |  
|Operating income (loss)                                  |  |            | 455,630   |   |        |           | 25,830  |              |  |   | (208,292 | ) |  |   | 273,168   |  
|Loss from early extinguishment of debt, net              |  |            |          |   |        |           |        |              |  |   | 19,187   |   |  |   | 19,187    |  
|Interest income                                          |  |            |          |   |        |           |        |              |  |   | 1,512    |   |  |   | 1,512     |  
|Interest expense                                         |  |            |          |   |        |           |        |              |  |   | (50,543  | ) |  |   | (50,543   | )
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  
|Income from continuing operations before taxes on income |  | $          | 455,630   |   |        | $         | 25,830  |              |  | $ | (276,510 | ) |  | $ | 204,950   |  
|                                                         |  |            |           |   |        |           |         |              |  |   |          |  



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                         |  |            |           |  |        |           |         |              |  |   |         |  |  |   |           | 
|-------------------------------------------------------- |  | ---------- | --------- |  | ------ | --------- | ------- | ------------ |  | - | ------- |  |  | - | --------- | 
|                                                         |  |            |           |  |        | Corporate |         |              | 
|                                                         |  | IKON North |           |  | IKON   |           |         | and          |  |   |        
|                                                         |  | America    |           |  | Europe |           |         | Eliminations |  |   | Total   | 
|                                                         |  |            |           |  |        |           |         |              |  |   |         | 
|Year Ended September 30, 2005                            |  |            |           |  |        |           |         |              |  |   |         |  |  |   |           | 
|Segment assets                                           |  | $          | 2,261,502 |  |        | $         | 821,642 |              |  | $ | 748,675 |  |  | $ | 3,831,819 | 
|Depreciation expense from continuing operations          |  |            | 48,379    |  |        |           | 7,542   |              |  |   | 17,189  |  |  |   | 73,110    | 
|Expenditures for fixed assets from continuing operations |  |            | 60,942    |  |        |           | 9,698   |              |  |   | 1,509   |  |  |   | 72,149    | 
|Year Ended September 30, 2004                            |  |            |           |  |        |           |         |              |  |   |         |  |  |   |           | 
|Segment assets                                           |  | $          | 2,855,113 |  |        | $         | 843,676 |              |  | $ | 819,624 |  |  | $ | 4,518,413 | 
|Depreciation expense from continuing operations          |  |            | 51,386    |  |        |           | 8,240   |              |  |   | 22,268  |  |  |   | 81,894    | 
|Expenditures for fixed assets from continuing operations |  |            | 80,262    |  |        |           | 9,916   |              |  |   | 6       |  |  |   | 90,184    | 
|Year Ended September 30, 2003                            |  |            |           |  |        |           |         |              |  |   |         |  |  |   |           | 
|Segment assets                                           |  | $          | 5,174,006 |  |        | $         | 774,829 |              |  | $ | 651,772 |  |  | $ | 6,600,607 | 
|Depreciation expense from continuing operations          |  |            | 68,240    |  |        |           | 7,337   |              |  |   | 25,394  |  |  |   | 100,971   | 
|Expenditures for fixed assets from continuing operations |  |            | 83,645    |  |        |           | 10,035  |              |  |   | 30,681  |  |  |   | 124,361   | 







|               |  |      |           |  |      |   |           |      |  |   |           | 
|-------------- |  | ---- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|               |  | 2005 |           |  | 2004 |   |           | 2003 | 
|               |  |      |           |  |      |   |           |      | 
|Revenues       |  |      |           |  |      |   |           |      |  |   |           | 
|United States  |  | $    | 3,592,387 |  |      | $ | 3,799,004 |      |  | $ | 3,949,061 | 
|United Kingdom |  |      | 388,860   |  |      |   | 361,883   |      |  |   | 339,425   | 
|Canada         |  |      | 207,280   |  |      |   | 213,402   |      |  |   | 199,950   | 
|Other          |  |      | 188,778   |  |      |   | 191,419   |      |  |   | 172,720   | 
|               |  |      |           |  |      |   |           |      | 
|               |  | $    | 4,377,305 |  |      | $ | 4,565,708 |      |  | $ | 4,661,156 | 
|               |  |      |           |  |      |   |           |      | 

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                  |  |      |           |  |      |   |           |      |  |   |           | 
|----------------- |  | ---- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|                  |  | 2005 |           |  | 2004 |   |           | 2003 | 
|                  |  |      |           |  |      |   |           |      | 
|Long-Lived Assets |  |      |           |  |      |   |           |      |  |   |           | 
|United States     |  | $    | 1,135,016 |  |      | $ | 1,164,372 |      |  | $ | 1,103,331 | 
|United Kingdom    |  |      | 280,752   |  |      |   | 288,319   |      |  |   | 267,525   | 
|Canada            |  |      | 155,981   |  |      |   | 148,457   |      |  |   | 133,886   | 
|Other             |  |      | 70,823    |  |      |   | 95,264    |      |  |   | 95,361    | 
|                  |  |      |           |  |      |   |           |      | 
|                  |  | $    | 1,642,572 |  |      | $ | 1,696,412 |      |  | $ | 1,600,103 | 
|                  |  |      |           |  |      |   |           |      | 





|    |                       
|--- | ----------------------
|16. | EMPLOYEE BENEFIT PLANS



| |                      
| | ---------------------
| | Defined Benefit Plans





Required Pension Information  June 30, 2005
Measurement Date




|                                              |                           |                                |         |        |          |   |        |       |  |   |          |        |  |       |        |       |          |   |         |        |  |   |        |       | 
|--------------------------------------------- | ------------------------- | ------------------------------ | ------- | ------ | -------- | - | ------ | ----- |  | - | -------- | ------ |  | ----- | ------ | ----- | -------- | - | ------- | ------ |  | - | ------ | ----- | 
|                                              |                           | Fiscal Year Ended September 30 |        
|                                              |                           |                                |        
|                                              |                           | 2005                           |         |        | 2004     |   |        | 2003  | 
|                                              |                           |                                |         |        |          |   |        |       | 
|                                              |                           | U.S.                           |         |        | Non-U.S. |   |        | U.S.  |  |   | Non-U.S. |        |  | U.S.  |        |       | Non-U.S. |  
|                                              |                           | Plans                          |         |        | Plans    |   |        | Plans |  |   | Plans    |        |  | Plans |        |       | Plans    |  
|                                              |                           |                                |         |        |          |   |        |       |  |   |          |        |  |       |        |       |          |  
|Service cost                                  |                           | $                              | 28,490  |        |          | $ | 3,899  |       |  | $ | 28,898   |        |  | $     | 4,107  |       |          | $ | 24,406  |        |  | $ | 3,332  |      
|Interest cost on projected benefit obligation |                           |                                | 32,869  |        |          |   | 3,839  |       |  |   | 30,327   |        |  |       | 3,159  |       |          |   | 28,496  |        |  |   | 2,462  |      
|Expected return on assets                     |                           |                                | (31,476 | )      |          |   | (3,736 | )     |  |   | (24,037  | )      |  |       | (2,911 | )     |          |   | (21,683 | )      |  |   | (2,575 | )    
|Amortization of net obligation                |                           |                                |        |        |          |   | 642    |       |  |   |         |        |  |       | 710    |       |          |   | (1,252  | )      |  |   | 352    |      
|Amortization of prior service cost            |                           |                                | 566     |        |          |   | 6      |       |  |   | 566      |        |  |       | 5      |       |          |   | 566     |        |  |   |       |      
|Recognized net actuarial loss                 |                           |                                | 7,943   |        |          |   |       |       |  |   | 10,030   |        |  |       | 175    |       |          |   | 3,720   |        |  |   | 14     |      
|Amortization of transition amount             |                           |                                |        |        |          |   | 37     |       |  |   |         |        |  |       | 36     |       |          |   |        |        |  |   |       |      
|                                              |                           |                                |         |        |          |   |        |       |  |   |          |        |  |       |        |       |          |  
|                                              | Net periodic pension cost |                                | $       | 38,392 |          |   | $      | 4,687 |  |   | $        | 45,784 |  |       | $      | 5,281 |          |   | $       | 34,253 |  |   | $      | 3,585 | 
|                                              |                           |                                |         |        |          |   |        |       |  |   |          |        |  |       |        |       |          |  

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |                                          |                                |     |     |          |  |     |       |  |  |          |     |  |       |     |     |          |  |     |     |  |  |     |     | 
|------------------------------------------- | ---------------------------------------- | ------------------------------ | --- | --- | -------- |  | --- | ----- |  |  | -------- | --- |  | ----- | --- | --- | -------- |  | --- | --- |  |  | --- | --- | 
|                                            |                                          | Fiscal Year Ended September 30 |    
|                                            |                                          |                                |    
|                                            |                                          | 2005                           |     |     | 2004     |  |     | 2003  | 
|                                            |                                          |                                |     |     |          |  |     |       | 
|                                            |                                          | U.S.                           |     |     | Non-U.S. |  |     | U.S.  |  |  | Non-U.S. |     |  | U.S.  |     |     | Non-U.S. | 
|                                            |                                          | Plans                          |     |     | Plans    |  |     | Plans |  |  | Plans    |     |  | Plans |     |     | Plans    | 
|                                            |                                          |                                |     |     |          |  |     |       |  |  |          |     |  |       |     |     |          | 
|Weighted average discount rates             |                                          |                                | 6.3 | %   |          |  | 5.8 | %     |  |  | 6.0      | %   |  |       | 5.7 | %   |          |  | 7.2 | %   |  |  | 6.4 | %  
|                                            | Rates of increase in compensation levels |                                |     | 3.0 |          |  |     | 4.0   |  |  |          | 3.0 |  |       |     | 4.0 |          |  |     | 4.0 |  |  |     | 4.0 | 
|Expected long-term rate of return on assets |                                          |                                | 8.5 |     |          |  | 8.0 |       |  |  | 8.5      |     |  |       | 8.0 |     |          |  | 8.5 |     |  |  | 7.6 |    



|                                         |  |                    |     |   |          |  |     |       |  |  |          |   |  |       |     |   |          |  |     |   |  |  |     |  
|---------------------------------------- |  | ------------------ | --- | - | -------- |  | --- | ----- |  |  | -------- | - |  | ----- | --- | - | -------- |  | --- | - |  |  | --- | -
|                                         |  | Ended September 30 |    
|                                         |  |                    |    
|                                         |  | 2005               |     |   | 2004     |  |     | 2003  | 
|                                         |  |                    |     |   |          |  |     |       | 
|                                         |  | U.S.               |     |   | Non-U.S. |  |     | U.S.  |  |  | Non-U.S. |   |  | U.S.  |     |   | Non-U.S. | 
|                                         |  | Plans              |     |   | Plans    |  |     | Plans |  |  | Plans    |   |  | Plans |     |   | Plans    | 
|                                         |  |                    |     |   |          |  |     |       |  |  |          |   |  |       |     |   |          | 
|Weighted average discount rates          |  |                    | 5.2 | % |          |  | 5.1 | %     |  |  | 6.3      | % |  |       | 5.8 | % |          |  | 6.0 | % |  |  | 5.7 | %
|Rates of increase in compensation levels |  |                    | 3.0 |   |          |  | 4.0 |       |  |  | 3.0      |   |  |       | 4.0 |   |          |  | 3.0 |   |  |  | 4.0 |  



|                                               |                                   |              |         |         |          |   |        |        |  |   |          |         |  |   |        |        | 
|---------------------------------------------- | --------------------------------- | ------------ | ------- | ------- | -------- | - | ------ | ------ |  | - | -------- | ------- |  | - | ------ | ------ | 
|                                               |                                   | September 30 |        
|                                               |                                   |              |        
|                                               |                                   | 2005         |         |         | 2004     |  
|                                               |                                   |              |         |         |          |  
|                                               |                                   | U.S.         |         |         | Non-U.S. |   |        | U.S.   |  |   | Non-U.S. |        
|                                               |                                   | Plans        |         |         | Plans    |   |        | Plans  |  |   | Plans    |        
|                                               |                                   |              |         |         |          |   |        |        |  |   |          |        
|Change in Benefit Obligation                   |                                   |              |         |         |          |   |        |        |  |   |          |         |  |   |        |       
|Benefit obligation at beginning of year        |                                   | $            | 524,833 |         |          | $ | 62,289 |        |  | $ | 514,219  |         |  | $ | 50,083 |       
|Service cost                                   |                                   |              | 28,490  |         |          |   | 3,899  |        |  |   | 28,898   |         |  |   | 4,107  |       
|Interest cost                                  |                                   |              | 32,869  |         |          |   | 3,839  |        |  |   | 30,327   |         |  |   | 3,159  |       
|Actuarial loss (gain)                          |                                   |              | 148,542 |         |          |   | 19,060 |        |  |   | (30,683  | )       |  |   | 695    |       
|Benefits paid                                  |                                   |              | (18,166 | )       |          |   | (1,448 | )      |  |   | (18,211  | )       |  |   | (1,103 | )     
|Special termination benefits                   |                                   |              |        |         |          |   |       |        |  |   | 283      |         |  |   |       |       
|Employee contributions                         |                                   |              |        |         |          |   | 348    |        |  |   |         |         |  |   | 364    |       
|Translation adjustment                         |                                   |              |        |         |          |   | (14    | )      |  |   |         |         |  |   | 4,984  |       
|                                               |                                   |              |         |         |          |   |        |        |  |   |          |        
|                                               | Benefit obligation at end of year |              | $       | 716,568 |          |   | $      | 87,973 |  |   | $        | 524,833 |  |   | $      | 62,289 | 
|                                               |                                   |              |         |         |          |   |        |        |  |   |          |        
|Change in Plan Assets                          |                                   |              |         |         |          |   |        |        |  |   |          |         |  |   |        |       
|Fair value of plan assets at beginning of year |                                   | $            | 364,061 |         |          | $ | 44,770 |        |  | $ | 251,263  |         |  | $ | 32,911 |       
|Actual return on plan assets                   |                                   |              | 21,439  |         |          |   | 7,074  |        |  |   | 42,219   |         |  |   | 4,858  |       
|Employer contribution                          |                                   |              | 40,392  |         |          |   | 3,716  |        |  |   | 92,569   |         |  |   | 4,931  |       
|Employee contributions                         |                                   |              |        |         |          |   | 348    |        |  |   |         |         |  |   | 364    |       
|Expenses                                       |                                   |              | (4,148  | )       |          |   | (912   | )      |  |   | (3,779   | )       |  |   | (811   | )     
|Benefits paid                                  |                                   |              | (18,166 | )       |          |   | (1,448 | )      |  |   | (18,211  | )       |  |   | (1,103 | )     
|Translation adjustment                         |                                   |              |        |         |          |   | 149    |        |  |   |         |         |  |   | 3,620  |       
|                                               |                                   |              |         |         |          |   |        |        |  |   |          |        

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |         |   |   |         |        |  
|---------------------------------------------------- | ---------------------------------------- | ------------ | -------- | ------- | -------- | - | ------- | ------ | - | - | -------- | ------- | - | - | ------- | ------ | -
|                                                     |                                          | September 30 |         
|                                                     |                                          |              |         
|                                                     |                                          | 2005         |          |         | 2004     |  
|                                                     |                                          |              |          |         |          |  
|                                                     |                                          | U.S.         |          |         | Non-U.S. |   |         | U.S.   |   |   | Non-U.S. |        
|                                                     |                                          | Plans        |          |         | Plans    |   |         | Plans  |   |   | Plans    |        
|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |        
|                                                     | Fair value of plan assets at end of year |              | $        | 403,578 |          |   | $       | 53,697 |   |   | $        | 364,061 |   |   | $       | 44,770 |  
|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |        
|Funded status                                        |                                          | $            | (312,990 | )       |          | $ | (34,276 | )      |   | $ | (160,772 | )       |   | $ | (17,519 | )     
|Unrecognized net actuarial loss                      |                                          |              | 275,233  |         |          |   | 31,782  |        |   |   | 120,446  |         |   |   | 16,113  |       
|Unamortized transition amount                        |                                          |              |         |         |          |   | 799     |        |   |   |         |         |   |   | 853     |       
|Unrecognized prior service cost                      |                                          |              | 2,898    |         |          |   | 69      |        |   |   | 3,465    |         |   |   | 69      |       
|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |        
|                                                     | Net amount recognized                    |              | $        | (34,859 | )        |   | $       | (1,626 | ) |   | $        | (36,861 | ) |   | $       | (484   | )
|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |        
|Amounts recognized on the consolidated balance sheet |                                          |              |          |         |          |   |         |        |   |   |          |         |   |   |         |       
|Accrued benefit obligation                           |                                          | $            | (223,812 | )       |          | $ | (24,190 | )      |   | $ | (103,600 | )       |   | $ | (13,005 | )     
|Deferred taxes                                       |                                          |              | 73,492   |         |          |   | 6,555   |        |   |   | 24,993   |         |   |   | 3,480   |       
|Intangible asset                                     |                                          |              | 2,898    |         |          |   | 868     |        |   |   | 3,465    |         |   |   | 922     |       
|Accumulated other comprehensive loss                 |                                          |              | 112,563  |         |          |   | 15,141  |        |   |   | 38,281   |         |   |   | 8,119   |       
|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |        
|                                                     | Net amount recognized                    |              | $        | (34,859 | )        |   | $       | (1,626 | ) |   | $        | (36,861 | ) |   | $       | (484   | )
|                                                     |                                          |              |          |         |          |   |         |        |   |   |          |        







|                          |                                      |              |      |     |          |  |      |       |  |  |          |     |  |  |      |     | 
|------------------------- | ------------------------------------ | ------------ | ---- | --- | -------- |  | ---- | ----- |  |  | -------- | --- |  |  | ---- | --- | 
|                          |                                      | September 30 |     
|                          |                                      |              |     
|                          |                                      | 2005         |      |     | 2004     | 
|                          |                                      |              |      |     |          | 
|                          |                                      | U.S.         |      |     | Non-U.S. |  |      | U.S.  |  |  | Non-U.S. |    
|                          |                                      | Plans        |      |     | Plans    |  |      | Plans |  |  | Plans    |    
|                          |                                      |              |      |     |          |  |      |       |  |  |          |    
|Percentage of Plan Assets |                                      |              |      |     |          |  |      |       |  |  |          |     |  |  |      |    
|                          | Equity securities                    |              |      | 72% |          |  |      | 72%   |  |  |          | 81% |  |  |      | 76% | 
|                          | Debt securities                      |              |      | 18  |          |  |      | 20    |  |  |          | 16  |  |  |      | 17  | 
|                          | Other, primary cash/cash equivalents |              |      | 10  |          |  |      | 8     |  |  |          | 3   |  |  |      | 7   | 
|                          |                                      |              |      |     |          |  |      |       |  |  |          |    
|                          |                                      |              | 100% |     |          |  | 100% |       |  |  | 100%     |     |  |  | 100% |    
|                          |                                      |              |      |     |          |  |      |       |  |  |          |    



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|             |  |       |         |  |          |   |        | 
|------------ |  | ----- | ------- |  | -------- | - | ------ | 
|             |  | U.S.  |         |  | Non-U.S. |  
|             |  | Plans |         |  | Plans    |  
|             |  |       |         |  |          |  
|Fiscal year: |  |       |         |  |          |   |        | 
|2006         |  | $     | 18,055  |  |          | $ | 1,180  | 
|2007         |  |       | 18,941  |  |          |   | 1,272  | 
|2008         |  |       | 19,209  |  |          |   | 1,409  | 
|2009         |  |       | 19,586  |  |          |   | 1,556  | 
|2010         |  |       | 20,115  |  |          |   | 1,733  | 
|2011  2015  |  |       | 116,222 |  |          |   | 13,073 | 

Supplemental Pension Information - July 2005 Measurement Date
- U.S. Plans




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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                            |  |                  |          |   |                  |   |          |        |  |   |          |  
|------------------------------------------- |  | ---------------- | -------- | - | ---------------- | - | -------- | ------ |  | - | -------- | -
|                                            |  | June 2005        |          |   | July 2005        |   |          |       
|                                            |  | Measurement Date |          |   | Measurement Date |   |          | Change | 
|                                            |  |                  |          |   |                  |   |          |        | 
|U.S. Plans                                  |  |                  |          |   |                  |   |          |        |  |   |          |  
|Projected benefit obligation at end of year |  | $                | 716,568  |   |                  | $ | 602,502  |        |  | $ | (114,066 | )
|Accumulated benefit obligation              |  |                  | 627,390  |   |                  |   | 602,502  |        |  |   | (24,888  | )
|Funded status                               |  |                  | (312,990 | ) |                  |   | (187,447 | )      |  |   | 125,543  |  
|Unrecognized net actuarial loss             |  |                  | 275,233  |   |                  |   | 145,236  |        |  |   | (129,997 | )





| |                          
| | -------------------------
| | Defined Contribution Plan





| |                                      
| | -------------------------------------
| | Long-Term Incentive Compensation Plan





|    |                                           
|--- | ------------------------------------------
|17. | RESTRUCTURING AND ASSET IMPAIRMENT CHARGES





| |                           
| | --------------------------
| | Business Document Services



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                         |                         |                            |       |       |        | 
|---------------------------------------- | ----------------------- | -------------------------- | ----- | ----- | ------ | 
|                                         |                         | Fiscal Year Ended          |      
|                                         |                         | September 30, 2005         |      
|                                         |                         |                            |      
|Type of Charge                           |                         |                            |       |      
|Restructuring charge:                    |                         |                            |       |      
|                                         | Severance               |                            | $     | 3,584 |       
|                                         | Contractual commitments |                            |       | 2,686 |       
|                                         | Contract termination    |                            |       | 2,997 |       
|                                         |                         |                            |      
|                                         |                         | Total restructuring charge |       |       | 9,267  | 
|Asset impairment charge for fixed assets |                         |                            | 1,331 |      
|Other non-restructuring items            |                         |                            | 891   |      
|                                         |                         |                            |      
|                                         |                         | Total                      |       | $     | 11,489 | 
|                                         |                         |                            |      





| |                        
| | -----------------------
| | Legal Document Services





|                                         |                         |                            |     |       |       | 
|---------------------------------------- | ----------------------- | -------------------------- | --- | ----- | ----- | 
|                                         |                         | Fiscal Year Ended          |    
|                                         |                         | September 30, 2005         |    
|                                         |                         |                            |    
|Type of Charge                           |                         |                            |     |      
|Restructuring charge:                    |                         |                            |     |      
|                                         | Severance               |                            | $   | 1,322 |      
|                                         | Contractual commitments |                            |     | 612   |      
|                                         | Contract termination    |                            |     | 160   |      
|                                         |                         |                            |    
|                                         |                         | Total restructuring charge |     |       | 2,094 | 
|Asset impairment charge for fixed assets |                         |                            | 229 |      
|Other non-restructuring items            |                         |                            | 112 |      
|                                         |                         |                            |    
|                                         |                         | Total                      |     | $     | 2,435 | 
|                                         |                         |                            |    



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                 
| | ------------------------------------------------
| | Field Organization and Corporate Staff Reduction





| |                                  
| | ---------------------------------
| | Summarized Restructuring Activity



|                                         |                         |                            |       |        |        | 
|---------------------------------------- | ----------------------- | -------------------------- | ----- | ------ | ------ | 
|                                         |                         | Fiscal Year Ended          |      
|                                         |                         | September 30, 2005         |      
|                                         |                         |                            |      
|Type of Charge                           |                         |                            |       |       
|Restructuring charge:                    |                         |                            |       |       
|                                         | Severance               |                            | $     | 13,082 |       
|                                         | Contractual commitments |                            |       | 3,298  |       
|                                         | Contract termination    |                            |       | 3,157  |       
|                                         |                         |                            |      
|                                         |                         | Total restructuring charge |       |        | 19,537 | 
|Asset impairment charge for fixed assets |                         |                            | 1,672 |       
|Other non-restructuring items            |                         |                            | 1,003 |       
|                                         |                         |                            |      
|                                         |                         | Total                      |       | $      | 22,212 | 
|                                         |                         |                            |      







|                              |       |             |        |        |             |   |          |             |  |   |                    |       |  |   |       |       | 
|----------------------------- | ----- | ----------- | ------ | ------ | ----------- | - | -------- | ----------- |  | - | ------------------ | ----- |  | - | ----- | ----- | 
|                              |       |             |        | Cash   |             |   | Non-Cash |             |  |  
|                              |       | Fiscal 2005 |        |        | Payments    |   |          | Charges     |  |   | Ending Balance     |      
|                              |       | Charge      |        |        | Fiscal 2005 |   |          | Fiscal 2005 |  |   | September 30, 2005 |      
|                              |       |             |        |        |             |   |          |             |  |   |                    |      
|Severance                     |       | $           | 13,082 |        |             | $ | 11,107   |             |  | $ |                   |       |  | $ | 1,975 |      
|Contractual commitments       |       |             | 3,298  |        |             |   | 1,846    |             |  |   |                   |       |  |   | 1,452 |      
|Contract termination          |       |             | 3,157  |        |             |   | 3,034    |             |  |   |                   |       |  |   | 123   |      
|Asset impairments             |       |             | 1,672  |        |             |   |         |             |  |   | 1,672              |       |  |   |      |      
|Other non-restructuring items |       |             | 1,003  |        |             |   |         |             |  |   | 1,003              |       |  |   |      |      
|                              |       |             |        |        |             |   |          |             |  |   |                    |      
|                              | Total |             | $      | 22,212 |             |   | $        | 15,987      |  |   | $                  | 2,675 |  |   | $     | 3,550 | 
|                              |       |             |        |        |             |   |          |             |  |   |                    |      

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |     |     |  |   |       |       | 
|----------------------- | ----- | ----------- | ----- | ----- | ----------- | - | --- | ----------- |  | - | ------ | --- |  | ----- | --- | --- |  | - | ----- | ----- | 
|                        |       | Fiscal 2006 |       |       | Fiscal 2007 |   |     | Fiscal 2008 |  |   | Beyond |     |  | Total |    
|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |    
|Projected Payments      |       |             |       |       |             |   |     |             |  |   |        |     |  |       |     |     |  |   |       |      
|Severance               |       | $           | 1,975 |       |             | $ |    |             |  | $ |       |     |  | $     |    |     |  | $ | 1,975 |      
|Contractual commitments |       |             | 617   |       |             |   | 331 |             |  |   | 248    |     |  |       | 256 |     |  |   | 1,452 |      
|Contract termination    |       |             | 123   |       |             |   |    |             |  |   |       |     |  |       |    |     |  |   | 123   |      
|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |    
|                        | Total |             | $     | 2,715 |             |   | $   | 331         |  |   | $      | 248 |  |       | $   | 256 |  |   | $     | 3,550 | 
|                        |       |             |       |       |             |   |     |             |  |   |        |     |  |       |    





|                                       |       |              |     |     | 
|-------------------------------------- | ----- | ------------ | --- | --- | 
|                                       |       | Fiscal 2005  |    
|                                       |       | Employee     |    
|                                       |       | Terminations |    
|                                       |       |              |    
|Headcount Reductions                   |       |              |     |    
|BDS                                    |       |              | 302 |    
|LDS                                    |       |              | 157 |    
|Field organization and corporate staff |       |              | 381 |    
|                                       |       |              |    
|                                       | Total |              |     | 840 | 
|                                       |       |              |    



|              |       |                 |    |    |                    |  |    |                    |  |  |     |     | 
|------------- | ----- | --------------- | -- | -- | ------------------ |  | -- | ------------------ |  |  | --- | --- | 
|              |       | Initial Planned |    |    | Sites Closed at    |  |    | Change in Estimate | 
|              |       | Site Closures   |    |    | September 30, 2005 |  |    | of Site Closures   | 
|              |       |                 |    |    |                    |  |    |                    | 
|Site Closures |       |                 |    |    |                    |  |    |                    |  |  |     |    
|BDS           |       |                 | 11 |    |                    |  | 11 |                    |  |  |    |    
|LDS           |       |                 | 17 |    |                    |  | 16 |                    |  |  | (1) |    
|              |       |                 |    |    |                    |  |    |                    | 
|              | Total |                 |    | 28 |                    |  |    | 27                 |  |  |     | (1) | 
|              |       |                 |    |    |                    |  |    |                    | 



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                        
|--- | -----------------------
|18. | DISCONTINUED OPERATIONS



|                                      |  |                                |         |   |      |   |        |      |  |   |        |  
|------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                      |  | Fiscal Year Ended September 30 |        
|                                      |  |                                |        
|                                      |  | 2005                           |         |   | 2004 |   |        | 2003 | 
|                                      |  |                                |         |   |      |   |        |      | 
|Revenues                              |  | $                              | 20,577  |   |      | $ | 47,843 |      |  | $ | 52,004 |  
|Operating loss                        |  |                                | (20,709 | ) |      |   | (7,623 | )    |  |   | (6,859 | )
|Tax benefit                           |  |                                | 8,180   |   |      |   | 3,008  |      |  |   | 2,560  |  
|                                      |  |                                |         |   |      |   |        |      | 
|Net loss from discontinued operations |  | $                              | (12,529 | ) |      | $ | (4,615 | )    |  | $ | (4,299 | )
|                                      |  |                                |         |   |      |   |        |      | 







|    |              
|--- | -------------
|19. | STOCK OPTIONS



|                    |           |        |        |          |               |   |       |       | 
|------------------- | --------- | ------ | ------ | -------- | ------------- | - | ----- | ----- | 
|                    |           |        |        | Weighted |              
|                    |           | Shares |        |          | Average Price |  
|                    |           |        |        |          |               |  
|September 30, 2002  |           |        | 14,766 |          |               | $ | 10.14 |      
|                    | Granted   |        |        | 2,095    |               |   |       | 7.73  | 
|                    | Exercised |        |        | (1,026   | )             |   |       | 3.09  | 
|                    | Cancelled |        |        | (1,662   | )             |   |       | 10.57 | 
|                    |           |        |        |          |               |  
|September 30, 2003  |           |        | 14,173 |          |               |   | 10.28 |      
|                    | Granted   |        |        | 2,139    |               |   |       | 10.84 | 
|                    | Exercised |        |        | (2,406   | )             |   |       | 4.23  | 
|                    | Cancelled |        |        | (736     | )             |   |       | 14.12 | 
|                    |           |        |        |          |               |  
|September 30, 2004  |           |        | 13,170 |          |               |   | 11.28 |      
|                    | Granted   |        |        | 1,656    |               |   |       | 10.89 | 
|                    | Exercised |        |        | (1,024   | )             |   |       | 4.61  | 
|                    | Cancelled |        |        | (1,298   | )             |   |       | 14.34 | 
|                    |           |        |        |          |               |  
|September 30, 2005  |           |        | 12,504 |          |               | $ | 11.46 |      
|                    |           |        |        |          |               |  
|Available for Grant |           |        | 4,946  |          |               |   |       |      
|                    |           |        |        |          |               |  

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |                                |      |   |            |  |      |      |            |  |      |  
|------------------------ |  | ------------------------------ | ---- | - | ---------- |  | ---- | ---- | ---------- |  | ---- | -
|                         |  | Fiscal Year Ended September 30 |     
|                         |  |                                |     
|                         |  | 2005                           |      |   | 2004       |  |      | 2003 |           
|                         |  |                                |      |   |            |  |      |      |           
|Expected dividend yield  |  |                                | 1.5  | % |            |  | 1.5  | %    |            |  | 2.1  | %
|Expected volatility rate |  |                                | 53.7 | % |            |  | 51.7 | %    |            |  | 53.0 | %
|Expected lives           |  | 5.0  years                     |      |   | 5.0  years |  |      |      | 5.0  years | 
|Risk-free interest rate  |  |                                | 3.6  | % |            |  | 3.2  | %    |            |  | 3.1  | %











|                         |  |                     |       |           |                     |  |           |           |           |   |           |  |  |                    |       |  |          |  |       |             |  |   |           |  |  |  |           |  |  |   |        | 
|------------------------ |  | ------------------- | ----- | --------- | ------------------- |  | --------- | --------- | --------- | - | --------- |  |  | ------------------ | ----- |  | -------- |  | ----- | ----------- |  | - | --------- |  |  |  | --------- |  |  | - | ------ | 
|                         |  | Options Outstanding |       |           | Options Exercisable | 
|                         |  |                     |       |           |                     | 
|                         |  |                     |       | Weighted- |                     |  |           |           |           |   | Weighted- |  |  |                   
|                         |  |                     |       | Average   |                     |  |           |           | Weighted- |   |           |  |  | Weighted-          |       |  | Average  |  |       |            
|                         |  | Number              |       |           | Remaining           |  |           | Aggregate |           |   | Average   |  |  | Number             |       |  | Average  |  |       | Remaining   |  |   | Aggregate | 
|                         |  | Outstanding at      |       |           | Contractual         |  |           | Intrinsic |           |   | Exercise  |  |  | Exercisable at     |       |  | Exercise |  |       | Contractual |  |   | Intrinsic | 
|Range of Exercise Prices |  | September 30, 2005  |       |           | Life                |  |           | Value     |           |   | Price     |  |  | September 30, 2005 |       |  | Price    |  |       | Life        |  |   | Value     | 
|                         |  |                     |       |           |                     |  |           |           |           |   |           |  |  |                    |       |  |          |  |       |             |  |   |           | 
|$ 2.38 -  7.92           |  |                     | 4,330 |           |                     |  | 5.0 years |           |           | $ | 21,577    |  |  | $                  | 5.10  |  |          |  | 3,882 |             |  | $ | 4.80      |  |  |  | 5.8 years |  |  | $ | 20,109 | 
|8.20 - 11.22             |  |                     | 3,884 |           |                     |  | 7.6       |           |           |   | 622       |  |  |                    | 10.53 |  |          |  | 1,226 |             |  |   | 10.07     |  |  |  | 6.9       |  |  |   | 595    | 
|11.45 - 18.14            |  |                     | 3,008 |           |                     |  | 4.7       |           |           |   |          |  |  |                    | 12.79 |  |          |  | 2,941 |             |  |   | 12.81     |  |  |  | 5.2       |  |  |   |       | 
|19.90 - 46.59            |  |                     | 1,281 |           |                     |  | 1.5       |           |           |   |          |  |  |                    | 32.69 |  |          |  | 1,281 |             |  |   | 32.69     |  |  |  | 1.5       |  |  |   |       | 



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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                      
|--- | ---------------------
|20. | FINANCIAL INSTRUMENTS





| |                             
| | ----------------------------
| | Concentration of Credit Risk







| |                   
| | ------------------
| | Interest Rate Caps





| |                                           
| | ------------------------------------------
| | Interest Rate and Currency Swap Agreements









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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                      
| | ---------------------------------------------------------------------
| | Cash and Cash Equivalents, Accounts Receivable, and
    Notes Payable





| |               
| | --------------
| | Long-Term Debt





|                    |                                   |              |     |         |            |  |          |         |  |  |            |         |  |  |     |         | 
|------------------- | --------------------------------- | ------------ | --- | ------- | ---------- |  | -------- | ------- |  |  | ---------- | ------- |  |  | --- | ------- | 
|                    |                                   | September 30 |    
|                    |                                   |              |    
|                    |                                   | 2005         |     |         | 2004       | 
|                    |                                   |              |     |         |            | 
|                    |                                   | Carrying     |     |         |            |  | Carrying |         |  | 
|                    |                                   | Amount       |     |         | Fair Value |  |          | Amount  |  |  | Fair Value |        
|                    |                                   |              |     |         |            |  |          |         |  |  |            |        
|Long-term debt:     |                                   |              |     |         |            |  |          |         |  |  |            |         |  |  |     |        
|                    | Bond issues                       |              | $   | 728,657 |            |  | $        | 664,118 |  |  | $          | 798,742 |  |  | $   | 756,080 | 
|                    | Sundry notes, bonds and mortgages |              |     | 636     |            |  |          | 636     |  |  |            | 6,138   |  |  |     | 6,083   | 
|                    | Non-corporate debt                |              |     | 465,777 |            |  |          | 458,645 |  |  |            | 816,622 |  |  |     | 811,770 | 
|Interest rate swaps |                                   |              | 411 |         |            |  | 411      |         |  |  | 283        |         |  |  | 283 |        






|    |                                        
|--- | ---------------------------------------
|21. | QUARTERLY FINANCIAL SUMMARY (unaudited)

|                                                         |            |                         |             |      |         |   |            |         |       |   |            |      |       |       |            |      |       |   |            |      |       |  
|-------------------------------------------------------- | ---------- | ----------------------- | ----------- | ---- | ------- | - | ---------- | ------- | ----- | - | ---------- | ---- | ----- | ----- | ---------- | ---- | ----- | - | ---------- | ---- | ----- | -
|                                                         |            | First                   |             |      | Second  |   |            | Third   |       |   | Fourth     |      |       |      
|                                                         |            | Quarter                 |             |      | Quarter |   |            | Quarter |       |   | Quarter    |      |       | Total |           
|                                                         |            |                         |             |      |         |   |            |         |       |   |            |      |       |       |           
|2005                                                     |            |                         |             |      |         |   |            |         |       |   |            |      |       |       |            |      |       |   |            |     
|Revenues                                                 |            | $                       | 1,085,445   |      |         | $ | 1,092,273  |         |       | $ | 1,098,305  |      |       | $     | 1,101,282  |      |       | $ | 4,377,305  |     
|Gross profit                                             |            |                         | 393,474     |      |         |   | 382,213    |         |       |   | 389,439    |      |       |       | 386,552    |      |       |   | 1,551,678  |     
|Income from continuing operations before taxes on income |            |                         | 31,763      |      |         |   | 12,622     |         |       |   | 38,093     |      |       |       | 22,472     |      |       |   | 104,950    |     
|Income from continuing
    operations                    |            |                         | 20,872      |      |         |   | 7,749      |         |       |   | 25,373     |      |       |       | 19,201     |      |       |   | 73,195     |     
|Net loss from discontinued operations                    |            |                         | (1,126      | )    |         |   | (8,675     | )       |       |   | (1,942     | )    |       |       | (786       | )    |       |   | (12,529    | )   
|Net income                                               |            |                         | 19,746      |      |         |   | (926       | )       |       |   | 23,431     |      |       |       | 18,415     |      |       |   | 60,666     |     
|Basic earnings (loss) per common share                   |            |                         |             |      |         |   |            |         |       |   |            |      |       |       |            |      |       |   |            |     
|                                                         |            | Continuing operations   |             |      | 0.15    |   |            |         | 0.06  |   |            |      | 0.18  |       |            |      | 0.14  |   |            |      | 0.52  |  
|                                                         |            | Discontinued operations |             |      | (0.01   | ) |            |         | (0.06 | ) |            |      | (0.01 | )     |            |      | (0.01 | ) |            |      | (0.09 | )
|                                                         | Net income |                         |             | 0.14 |         |   |            | (0.01   | )*    |   |            | 0.17 |       |       |            | 0.13 |       |   |            | 0.43 |      
|Diluted earnings (loss) per common share                 |            |                         |             |      |         |   |            |         |       |   |            |      |       |       |            |      |       |   |            |     
|                                                         |            | Continuing operations   |             |      | 0.14    |   |            |         | 0.06  |   |            |      | 0.17  |       |            |      | 0.14  |   |            |      | 0.51  |  
|                                                         |            | Discontinued operations |             |      | (0.01   | ) |            |         | (0.06 | ) |            |      | (0.01 | )     |            |      | (0.01 | ) |            |      | (0.08 | )
|                                                         | Net income |                         |             | 0.14 | *       |   |            | (0.01   | )*    |   |            | 0.16 |       |       |            | 0.13 |       |   |            | 0.43 |      
|Dividends per common share                               |            |                         | 0.04        |      |         |   | 0.04       |         |       |   | 0.04       |      |       |       | 0.04       |      |       |   | 0.16       |     
|Common stock price-high/low                              |            |                         | 12.14/10.07 |      |         |   | 11.55/9.72 |         |       |   | 10.34/8.55 |      |       |       | 10.19/9.18 |      |       |   | 12.14/8.55 |     






|  |                              
|- | -----------------------------
|* | Does not add due to rounding.

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IKON OFFICE SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                         |            |                         |            |      |         |   |             |         |       |   |             |      |       |       |             |      |       |   |            |      |       |  
|-------------------------------------------------------- | ---------- | ----------------------- | ---------- | ---- | ------- | - | ----------- | ------- | ----- | - | ----------- | ---- | ----- | ----- | ----------- | ---- | ----- | - | ---------- | ---- | ----- | -
|                                                         |            | First                   |            |      | Second  |   |             | Third   |       |   | Fourth      |      |       |      
|                                                         |            | Quarter                 |            |      | Quarter |   |             | Quarter |       |   | Quarter     |      |       | Total |            
|                                                         |            |                         |            |      |         |   |             |         |       |   |             |      |       |       |            
|2004                                                     |            |                         |            |      |         |   |             |         |       |   |             |      |       |       |             |      |       |   |            |     
|Revenues                                                 |            | $                       | 1,124,310  |      |         | $ | 1,161,127   |         |       | $ | 1,143,227   |      |       | $     | 1,137,044   |      |       | $ | 4,565,708  |     
|Gross profit                                             |            |                         | 427,714    |      |         |   | 430,090     |         |       |   | 424,571     |      |       |       | 402,341     |      |       |   | 1,684,716  |     
|Income from continuing operations before taxes on income |            |                         | 47,913     |      |         |   | 33,837      |         |       |   | 14,830      |      |       |       | 22,037      |      |       |   | 118,617    |     
|Income from continuing operations                        |            |                         | 29,766     |      |         |   | 28,439      |         |       |   | 9,202       |      |       |       | 20,902      |      |       |   | 88,309     |     
|Net loss from discontinued operations                    |            |                         | (988       | )    |         |   | (1,180      | )       |       |   | (809        | )    |       |       | (1,638      | )    |       |   | (4,615     | )   
|Net income                                               |            |                         | 28,778     |      |         |   | 27,259      |         |       |   | 8,393       |      |       |       | 19,264      |      |       |   | 83,694     |     
|Basic earnings (loss) per common share                   |            |                         |            |      |         |   |             |         |       |   |             |      |       |       |             |      |       |   |            |     
|                                                         |            | Continuing operations   |            |      | 0.20    |   |             |         | 0.19  |   |             |      | 0.06  |       |             |      | 0.14  |   |            |      | 0.60  |  
|                                                         |            | Discontinued operations |            |      | (0.01   | ) |             |         | (0.01 | ) |             |      | (0.01 | )     |             |      | (0.01 | ) |            |      | (0.03 | )
|                                                         | Net income |                         |            | 0.20 |         |   |             | 0.18    |       |   |             | 0.06 |       |       |             | 0.13 |       |   |            | 0.57 |      
|Diluted earnings (loss) per common share                 |            |                         |            |      |         |   |             |         |       |   |             |      |       |       |             |      |       |   |            |     
|                                                         |            | Continuing operations   |            |      | 0.19    |   |             |         | 0.18  |   |             |      | 0.06  |       |             |      | 0.14  |   |            |      | 0.58  |  
|                                                         |            | Discontinued operations |            |      | (0.01   | ) |             |         | (0.01 | ) |             |      | (0.01 | )     |             |      | (0.01 | ) |            |      | (0.03 | )
|                                                         | Net income |                         |            | 0.18 |         |   |             | 0.17    |       |   |             | 0.06 |       |       |             | 0.13 |       |   |            | 0.55 |      
|Dividends per common share                               |            |                         | 0.04       |      |         |   | 0.04        |         |       |   | 0.04        |      |       |       | 0.04        |      |       |   | 0.16       |     
|Common stock price-high/low                              |            |                         | 12.20/7.25 |      |         |   | 13.25/11.15 |         |       |   | 13.00/10.15 |      |       |       | 12.41/10.90 |      |       |   | 13.25/7.25 |     



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



|    |                                                 
|--- | ------------------------------------------------
|(a) | Evaluation of Disclosure Controls and Procedures









| |                                     
| | ------------------------------------
| | Managements Remediation Initiatives





| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | realigning responsibilities to ensure direct accountability for
    all customer billing;                 
|
| |  | synchronizing service contract initialization and termination
    with equipment installation and removal;
|
| |  | creating a quality assurance function to audit contract set-up
    and termination;                       
|
| |  | improving our meter reading collection process and reducing
    reliance on meter estimates; and          
|
| |  | standardizing our issue resolution process across all IKON
    locations in North America.                



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|    |                                                                     
|--- | --------------------------------------------------------------------
|(b) | Managements Report on Internal Control Over Financial
    Reporting





Internal Control  Integrated
Framework






Internal Control  Integrated Framework


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|    |                                                     
|--- | ----------------------------------------------------
|(c) | Changes in Internal Control Over Financial Reporting








|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



www.ikon.com







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



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|                                                          |  |                      |            |  |                      |     |                      |                          |  |  |           | 
|--------------------------------------------------------- |  | -------------------- | ---------- |  | -------------------- | --- | -------------------- | ------------------------ |  |  | --------- | 
|                                                          |  |                      |            |  |                      | (c) |                     
|                                                          |  | (a)                  |            |  |                      |     | Number of Securities |                         
|                                                          |  | Number of Securities |            |  | (b)                  |     |                      | Remaining Available for  | 
|                                                          |  | to be Issued Upon    |            |  | Weighted-Average     |     |                      | Future Equity Issuance   | 
|                                                          |  | Exercise of          |            |  | Exercise Price of    |     |                      | Under Compensation Plans | 
|                                                          |  | Outstanding Options, |            |  | Outstanding Options, |     |                      | (Excluding Securities    | 
|                                                          |  | Warrants or Rights   |            |  | Warrants or Rights   |     |                      | Reflected in Column(a))  | 
|                                                          |  |                      |            |  |                      |     |                      |                          | 
|Plan Category                                             |  |                      |            |  |                      |     |                      |                          |  |  |           | 
|Equity compensation plans approved by security holders    |  |                      | 13,184,382 |  |                      | $   | 11.87                |                          |  |  | 3,568,459 | 
|Equity compensation plans not approved by shareholders(1) |  |                      | 4,034,479  |  |                      | $   | 8.43                 |                          |  |  | 897,812   | 
|                                                          |  |                      |            |  |                      |     |                      |                          | 
|Total                                                     |  |                      | 17,218,861 |  |                      | $   | 11.07                |                          |  |  | 4,466,271 | 
|                                                          |  |                      |            |  |                      |     |                      |                          | 



|    |                               
|--- | ------------------------------
|(1) | Non-Shareholder Approved Plans








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



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PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





|                                                               |  |      |    | 
|-------------------------------------------------------------- |  | ---- | -- | 
|                                                               |  | Page |   
|                                                               |  |      |   
|Report of Independent Registered Public
    Accounting Firm    |  |      | 50 | 
|Consolidated Statements of Income                              |  |      | 52 | 
|Consolidated Balance Sheets                                    |  |      | 53 | 
|Consolidated Statements of Cash Flows                          |  |      | 54 | 
|Consolidated Statements of Changes in
    Shareholders Equity |  |      | 55 | 
|Notes to Consolidated Financial
    Statements                 |  |      | 56 | 
|Quarterly Financial Summary                                    |  |      | 93 | 







SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                 |  |                |        |  |                  |   |         |          |  |  |            |            |        |        |        |     |  |   |        | 
|-------------------------------- |  | -------------- | ------ |  | ---------------- | - | ------- | -------- |  |  | ---------- | ---------- | ------ | ------ | ------ | --- |  | - | ------ | 
|Col. A                           |  | Col. B         |        |  | Col. C           |   |         | Col. D   |  |  | Col. E     |           
|                                 |  |                |        |  |                  |   |         |          |  |  |            |           
|                                 |  | Balance at     |        |  |                  |   | Charged |          |  |  |            | Balance at |       
|                                 |  | Beginning of   |        |  | Charged to Costs |   |         | to Other |  |  |            |            | End of |       
|Description                      |  | Period         |        |  | and Expenses     |   |         | Accounts |  |  | Deductions |            |        | Period |       
|                                 |  |                |        |  |                  |   |         |          |  |  |            |            |        |        |       
|                                 |  | (in thousands) |       
|Year Ended September 30, 2005    |  |                |        |  |                  |   |         |          |  |  |            |            |        |        |        |     |  |   |        | 
|Allowance for doubtful accounts  |  | $              | 7,224  |  |                  | $ | 13,899  | (4)      |  |  |            |            |        | $      | 8,839  | (1) |  | $ | 12,284 | 
|Lease default reserve(5)         |  |                | 6,446  |  |                  |   | 2,841   |          |  |  |            |            |        |        | 2,674  | (1) |  |   | 6,613  | 
|Deferred tax valuation allowance |  |                | 29,162 |  |                  |   | (2,674  | )        |  |  |            |            |        |        | (4,458 | )   |  |   | 30,946 | 
|                                
|Year Ended September 30, 2004    |  |                |        |  |                  |   |         |          |  |  |            |            |        |        |        |     |  |   |        | 
|Allowance for doubtful accounts  |  | $              | 6,894  |  |                  | $ | 7,642   | (4)      |  |  |            |            |        | $      | 7,312  | (1) |  | $ | 7,224  | 
|Lease default reserve(5)         |  |                | 58,477 |  |                  |   | 28,226  |          |  |  |            |            |        |        | 80,257 | (2) |  |   | 6,446  | 
|Deferred tax valuation allowance |  |                | 55,171 |  |                  |   | (23,241 | )        |  |  |            |            |        |        | 2,768  | (3) |  |   | 29,162 | 
|                                
|Year Ended September 30, 2003    |  |                |        |  |                  |   |         |          |  |  |            |            |        |        |        |     |  |   |        | 
|Allowance for doubtful accounts  |  | $              | 10,278 |  |                  | $ | 8,437   | (4)      |  |  |            |            |        | $      | 11,821 | (1) |  | $ | 6,894  | 
|Lease default reserve            |  |                | 58,148 |  |                  |   | 67,922  |          |  |  |            |            |        |        | 67,593 | (1) |  |   | 58,477 | 
|Deferred tax valuation allowance |  |                | 51,790 |  |                  |   | 2,486   |          |  |  |            |            |        |        | (895   | )   |  |   | 55,171 | 
|                                



|    |                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Accounts written-off during the
    year, net of recoveries for total operations.                                                                                                                                                                   
|   
|(2) | Accounts written-off during the
    year, net of recoveries. In addition, $58,293 of lease default
    reserves were sold to GE as part of the Transactions. See
    Note 2 to the consolidated financial statements for
    additional information.
|   
|(3) | Primarily represents the
    expiration of net operating losses and tax credits for which
    evaluation allowance was provided.                                                                                                                    

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|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(4) | Amounts represent charges related
    to total operations.                                  
|   
|(5) | Balance at September 30, 2005
    and 2004, relates only to our European leasing operations.





|                                                                                                     |   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---------------------------------------------------------------------------------------------------- | - | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Sale of Certain Assets and Liabilities Relating to our
    Leasing Operations in the U.S. and Canada
|                                                                                                    
|                                                                                                     | 2 | .1 |  | Asset Purchase Agreement dated as of December 11, 2003, by and
    among IKON, IOS Capital, LLC (IOSC) and General
    Electric Capital Corporation, filed as Exhibit 2.1 to
    IKONs Form 8-K dated December 15, 2003, is incorporated
    herein by reference.                                                                                                                                                                               
|                                                                                                    
|                                                                                                     | 2 | .2 |  | First Amendment dated as of March 31, 2004, between IKON and
    General Electric Capital Corporation, to the Asset Purchase
    Agreement dated as of December 10, 2003, filed as
    Exhibit 2.1 to IKONs Form 8-K dated April 6, 2004, is
    incorporated herein by reference.                                                                                                                                                                
|                                                                                                    
|                                                                                                     | 2 | .3 |  | Asset Purchase Agreement dated as of March 31, 2004, between
    IKON, an Ontario corporation, and Heller Financial Canada, filed
    as Exhibit 2.2 to IKONs Form 8-K dated April 6, 2004, is
    incorporated herein by reference.                                                                                                                                                                                                              
|                                                                                                    
|                                                                                                     | 2 | .4 |  | Assignment and Amendment Agreement dated as of June 30, 2004, by
    and among Heller Financial Canada, General Electric Capital
    Canada, Inc., as general partner of GE VFS Canada Limited
    Partnership Corporation, IKON, and IKON Office Solutions
    Northern Ltd., to the Asset Purchase Agreement dated as of March
    31, 2004, filed as Exhibit 2.1 to IKONs Form 8-K dated
    July 7, 2004, is incorporated herein by reference.
|                                                                                                    
|Corporate Documents                                                                                 
|                                                                                                    
|                                                                                                     | 3 | .1 |  | Amended and Restated Articles of Incorporation, filed as Exhibit
    3.1 to IKONs 1997 Form 10-K, is incorporated herein
    by reference.                                                                                                                                                                                                                                                                                                        
|                                                                                                    
|                                                                                                     | 3 | .2 |  | Amendment to Amended and Restated Articles of Incorporation,
    filed as Exhibit 3.1 to IKONs 1998 Form 10-K, is
    incorporated herein by reference.                                                                                                                                                                                                                                                                                           
|                                                                                                    
|                                                                                                     | 3 | .3 |  | Code of Regulations, filed as Exhibit 3.2 to IKONs Form
    10-Q for the quarter ended March 31, 1996, is incorporated
    herein by reference.                                                                                                                                                                                                                                                                                                   
|                                                                                                    
|Instruments Defining the Rights of Security Holders                                                 
|                                                                                                    
|Rights Agreement                                                                                    
|                                                                                                    
|                                                                                                     | 4 | .1 |  | Amended and Restated Rights Agreement dated as of June 18, 1997,
    filed as Exhibit 4.1 to IKONs Form 8-K dated June 18, 1997
    is incorporated herein by reference.                                                                                                                                                                                                                                                                          
|                                                                                                    
|                                                                                                     | 4 | .2 |  | Amendment No. 1 dated as of January 27, 2005 to the to the
    Amended and Restated Rights Agreement dated as of June 18, 1997,
    filed as Exhibit 4 to IKONs Form 8-K dated January 27,
    2005, is incorporated herein by reference.                                                                                                                                                                                                         
|                                                                                                    
|$300 Million
    63/4%
    Notes Due 2025 and Notes due 2027                                        
|                                                                                                    
|                                                                                                     | 4 | .3 |  | Indenture dated as of December 11, 1995, between IKON and First
    Fidelity Bank, N.A., as Trustee, filed as Exhibit 4 to
    IKONs Registration Statement No. 33-64177, is incorporated
    herein by reference.                                                                                                                                                                                                                                
|                                                                                                    
|$300 Million 5% Convertible Subordinated Notes due 2007                                             
|                                                                                                    
|                                                                                                     | 4 | .4 |  | Indenture dated May 13, 2002, by and among IKON, IOSC, and
    Deutsche Bank Trust Company Americas, as Trustee, filed as
    Exhibit 4.1 to IKONs Form 10-Q for the quarter ended June
    30, 2002, is incorporated herein by reference.                                                                                                                                                                                                        

100



---



##### Table of Contents



|                                                                               |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------ | -- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                              
|                                                                               | 4  | .5  |  | Registration Rights Agreement dated May 13, 2002, among IKON and
    Deutsche Bank Securities, Inc., Bank of America Securities, LLC,
    and JP Morgan Securities, Inc., filed as Exhibit 4.2 to
    IKONs Form 10-Q for the quarter ended June 30, 2002, is
    incorporated herein by reference.                                                                                                                                                       
|IOS Capital, LLC Notes                                                        
|                                                                              
|                                                                               | 4  | .6  |  | Indenture dated as of July 1, 1995, between IOSC and Chase
    Manhattan Bank, N.A., as Trustee (the IOSC
    Indenture), filed as Exhibit 10.8 to IKONs 1996 Form
    10-K is incorporated herein by reference.                                                                                                                                                                                                                                        
|                                                                              
|                                                                               | 4  | .7  |  | Amendment Number 1 dated June 4, 1997, to the IOSC Indenture,
    filed as Exhibit 4.2 to IOSCs 2001 Form 10-K is
    incorporated herein by reference.                                                                                                                                                                                                                                                                                                   
|                                                                              
|                                                                               | 4  | .8  |  | Amendment Number 2 dated June 12, 2001, to the IOSC Indenture,
    filed as Exhibit 4.3 to IOSCs Form 8-K dated June 14, 2001
    is incorporated herein by reference.                                                                                                                                                                                                                                                                                    
|                                                                              
|                                                                               | 4  | .9  |  | Amendment Number 3 dated March 15, 2002, to the IOSC Indenture,
    filed as Exhibit 4.4 to IOSCs 2002 Form 10-K is
    incorporated herein by reference.                                                                                                                                                                                                                                                                                                 
|                                                                              
|                                                                               | 4  | .10 |  | Amendment Number 4 dated June 16, 2003, to the IOSC Indenture,
    filed as Exhibit 10.5 to IKONs 2003 Form 10-K is
    incorporated herein by reference.                                                                                                                                                                                                                                                                                                 
|                                                                              
|                                                                               | 4  | .11 |  | Distribution Agreement dated as of June 4, 1997, between IOSC
    and various distribution agents, filed as Exhibit 10.13 to
    IKONs 1997 Form 10-K is incorporated herein by reference.                                                                                                                                                                                                                                                                
|                                                                              
|                                                                               | 4  | .12 |  | Distribution Agreement dated as of June 30, 1995, between IOSC
    and various distribution agents, filed as Exhibit 10.21 to
    IKONs 1995 Form 10-K is incorporated herein by reference.                                                                                                                                                                                                                                                               
|                                                                              
|$225 Million
    73/4%
    Notes due 2015                                     
|                                                                              
|                                                                               | 4  | .13 |  | Indenture dated as of September 21, 2005 between IKON and The
    Bank of New York, filed as Exhibit 10.1 to IKONs Form 8-K
    dated September 22, 2005, is incorporated herein by reference.                                                                                                                                                                                                                                                            
|                                                                              
|                                                                               | 4  | .14 |  | Registration Rights Agreement dated as of September 21, 2005
    between IKON and the Initial Purchasers of the Notes, filed as
    Exhibit 10.2 to IKONs Form 8-K dated September 22, 2005,
    is incorporated herein by reference.                                                                                                                                                                                                                     
|                                                                              
|Agreement with Commission pursuant to Regulation S-K, Item
    6.01(b)(4)(iii)
|                                                                              
|                                                                               | 4  | .15 |  | Pursuant to Regulation S-K, Item 601(b)(4)(iii), IKON agrees to
    furnish to the Commission, upon request, a copy of other
    instruments defining the rights of holders of long-term debt of
    IKON and its subsidiaries.                                                                                                                                                                                                                            
|                                                                              
|Credit Facility                                                               
|                                                                              
|                                                                               | 10 | .1  |  | Credit Agreement dated as of July 28, 2004, by and among IKON
    (as U.S. Borrower), IKON Office Solutions Group, PLC (as U.K.
    borrower) and various institutional lenders, with Wachovia Bank
    National Association, as Administrative Agent, Collateral Agent,
    Swingline Lender, Alternative Currency Lender, and Issuing
    Lender, filed as Exhibit 10.1 to IKONs Form 8-K dated
    August 2, 2004, is incorporated herein by reference.
|                                                                              
|                                                                               | 10 | .2  |  | First Amendment and Consent dated as of March 24, 2005 to the
    Credit Agreement dated as of July 28, 2004, filed as Exhibit
    10.1 to IKONs Form 8-K dated March 28, 2005, is
    incorporated herein by reference.                                                                                                                                                                                                                                  
|                                                                              
|                                                                               | 10 | .3  |  | Second Amendment dated as of October 20, 2005 to the Credit
    Agreement dated as of July 28, 2004, filed as Exhibit 10.1 to
    IKONs Form 8-K dated October 26, 2005, is incorporated
    herein by reference.                                                                                                                                                                                                                                         
|                                                                              
|Leasing Programs                                                              
|                                                                              
|                                                                               | 10 | .4  |  | Program Agreement dated March 31, 2004, between IKON and General
    Electric Capital Corporation, filed as Exhibit 10.1 to
    IKONs Form 8-K dated April 6, 2004, is incorporated herein
    by reference.                                                                                                                                                                                                                                              

101



---



##### Table of Contents



|                   |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------ | -- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  
|                   | 10 | .5  |  | Canadian Rider, dated June 30, 2004, among IKON Office
    Solutions, Inc., General Electric Capital Canada, Inc., as
    general partner of GE VFS Canada Limited Partnership
    Corporation, and IKON Office Solutions Northern Ltd., to the
    Program Agreement dated March 31, 2004 among IKON, General
    Electric Capital Corporation, and GE Capital Information
    Technology Solutions, Inc., filed as Exhibit 10.1 to IKONs
    Form 8-K dated July 7, 2004, is incorporated herein by reference.
|                  
|Compensatory Plans
|                  
|                   | 10 | .6  |  | Amended and Restated Long Term Incentive Compensation Plan,
    filed as Exhibit 10.1 to IKONs Form 10-Q for the quarter
    ended March 31, 1996, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                       
|                  
|                   | 10 | .7  |  | Amendment Number 1 to Amended and Restated Long Term Incentive
    Compensation Plan, filed as Exhibit 10.2 to IKONs 1998
    Form 10-K, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                 
|                  
|                   | 10 | .8  |  | Annual Bonus Plan, filed as Exhibit 10.3 to IKONs 1994
    Form 10-K, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                                                                                    
|                  
|                   | 10 | .9  |  | 1986 Stock Option Plan, filed as Exhibit 10.6 to IKONs
    1995 Form 10-K, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                                                                               
|                  
|                   | 10 | .10 |  | Amendment to 1986 Stock Option Plan, filed as Exhibit 10.22 to
    IKONs 1998 Form 10-K, is incorporated herein by
    reference.**                                                                                                                                                                                                                                                                                                                                                                             
|                  
|                   | 10 | .11 |  | 1995 Stock Option Plan, filed as Exhibit 10.5 to IKONs
    Form 10-Q for the quarter ended March 31, 1996, is incorporated
    herein by reference.**                                                                                                                                                                                                                                                                                                                                                           
|                  
|                   | 10 | .12 |  | Amendment to 1995 Stock Option Plan, filed as Exhibit 10.23 to
    IKONs 1998 Form 10-K, is incorporated herein by
    reference.**                                                                                                                                                                                                                                                                                                                                                                             
|                  
|                   | 10 | .13 |  | Non-Employee Directors Stock Option Plan, filed as Exhibit 10.31
    to IKONs 1997 Form 10-K, is incorporated herein by
    reference.                                                                                                                                                                                                                                                                                                                                                                          
|                  
|                   | 10 | .14 |  | 2000 IKON Office Solutions, Inc. Non-Employee Directors
    Compensation Plan, filed as Exhibit 99.1 to the
    Companys Registration Statement on Form S-8 dated June 20,
    2000 (Registration number 333-40108), is incorporated herein by
    reference.**                                                                                                                                                                                                                                                 
|                  
|                   | 10 | .15 |  | 2000 IKON Office Solutions, Inc. Executive Incentive Plan, filed
    as Exhibit 99.2 to the Companys Registration Statement on
    Form S-8 dated June 20, 2000 (Registration
    number 333-40108), is incorporated herein by reference.**                                                                                                                                                                                                                                                                     
|                  
|                   | 10 | .16 |  | 2000 IKON Office Solutions, Inc. Employee Stock Option Plan,
    filed as Exhibit 99.3 to the Companys Registration
    Statement on Form S-8 dated June 20, 2000 (Registration
    number 333-40108), is incorporated herein by reference.**                                                                                                                                                                                                                                                                   
|                  
|                   | 10 | .17 |  | 2003 IKON Office Solutions, Inc. Non-Employee Directors
    Compensation Plan, filed as Exhibit A to IKONs 2003
    Proxy Statement on January 15, 2003, is incorporated herein by
    reference.**                                                                                                                                                                                                                                                                                                            
|                  
|                   | 10 | .18 |  | 2003 IKON Office Solutions, Inc. Employee Equity Incentive Plan,
    filed as Exhibit B to IKONs 2003 Proxy Statement on
    January 15, 2003, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                           
|                  
|                   | 10 | .19 |  | 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to
    IKONs 1992 Form 10-K, is incorporated herein by
    reference.**                                                                                                                                                                                                                                                                                                                                                                                  
|                  
|                   | 10 | .20 |  | Amendment dated January 1, 1997, to the 1980 Deferred
    Compensation Plan, filed as Exhibit 10.37 to IKONs
    2000 Form 10-K, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                         
|                  
|                   | 10 | .21 |  | Amendment dated November 6, 1997, to 1980 Deferred Compensation
    Plan, filed as Exhibit 10.28 to IKONs 1998 Form 10-K,
    is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                            
|                  
|                   | 10 | .22 |  | 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to
    IKONs 1992 Form 10-K, is incorporated herein by
    reference.**                                                                                                                                                                                                                                                                                                                                                                                  
|                  
|                   | 10 | .23 |  | Amendment dated November 6, 1997, to 1985 Deferred Compensation
    Plan, filed as Exhibit 10.29 to IKONs 1998 Form 10-K,
    is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                            
|                  
|                   | 10 | .24 |  | Amendment dated January 1, 1997, to the 1985 Deferred
    Compensation Plan, filed as Exhibit 10.41 to IKONs
    2000 Form 10-K, is incorporated herein by reference.**                                                                                                                                                                                                                                                                                                                                         

102



---



##### Table of Contents



|                                               |    |     |  |                                                                                                                                                                                                                                                                                                                                                        
|---------------------------------------------- | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                              
|                                               | 10 | .25 |  | Amended and Restated 1994 Deferred Compensation Plan, filed as
    Exhibit 10.42 to IKONs 2000 Form 10-K, is incorporated
    herein by reference.**                                                                                                                                                                                                  
|                                              
|                                               | 10 | .26 |  | Amended and Restated Executive Deferred Compensation Plan, filed
    as Exhibit 10.43 to IKONs 2000 Form 10-K, is incorporated
    herein by reference.**                                                                                                                                                                                             
|                                              
|                                               | 10 | .27 |  | Amendment Number 2004-1, dated as of January 20, 2004, to the
    Executive Deferred Compensation Plan, filed as Exhibit 10.2 to
    IKONs Form 10-Q for the quarter ended March 31, 2004, is
    incorporated herein by reference.**                                                                                                                 
|                                              
|                                               | 10 | .28 |  | Amendment 2005-1, dated as of July 26, 2005, to IKONs
    1994 Deferred Compensation Plan.**                                                                                                                                                                                                                                                          
|                                              
|                                               | 10 | .29 |  | Amendment 2005-1, dated as of July 26, 2005, to IKONs
    Executive Deferred Compensation Plan.**                                                                                                                                                                                                                                                     
|                                              
|                                               | 10 | .30 |  | Changes to the compensation payable to IKONs independent
    directors, filed under Item 1.01 to IKONs Form 8-K dated
    December 14, 2004, is incorporated herein by reference.**                                                                                                                                                                  
|                                              
|Management Contracts                          
|                                              
|                                               | 10 | .31 |  | Employment Agreement for Matthew J. Espe dated as of September
    28, 2005, filed as Exhibit 10.1 to IKONs Form 8-K
    dated September 30, 2005, is incorporated herein by reference.**                                                                                                                                                             
|                                              
|                                               | 10 | .32 |  | Amendment dated as of October 25, 2005 to the Employment
    Agreement for Matthew J. Espe, filed as Exhibit 10.2 to
    IKONs Form 8-K dated October 26, 2005, is incorporated
    herein by reference.**                                                                                                                                            
|                                              
|                                               | 10 | .33 |  | Senior Executive Employment Agreement for Robert F. Woods, filed
    as Exhibit 10.1 to IKONs Form 8-K dated September 23,
    2004, is incorporated herein by reference.**                                                                                                                                                                           
|                                              
|                                               | 10 | .34 |  | Employment Agreement for Jeffrey W. Hickling dated as of March
    11, 2005, filed as Exhibit 10.1 to IKONs Form 8-K
    dated March 21, 2005, is incorporated herein by reference.**                                                                                                                                                                 
|                                              
|                                               | 10 | .35 |  | Senior Executive Employment Agreement for Brian D. Edwards dated
    August 9, 2004, filed as Exhibit 10.42 to IKONs 2004 Form
    10-K, is incorporated herein by reference.**                                                                                                                                                                       
|                                              
|                                               | 10 | .36 |  | Executive Employment Agreement for David Mills dated as of
    October 22, 1997.**                                                                                                                                                                                                                                                                     
|                                              
|                                               | 10 | .37 |  | Supplemental Executive Employment Agreement for David Mills
    dated as of April 16, 1999.**                                                                                                                                                                                                                                                          
|                                              
|Asset-Backed Securitization Transaction  2002
|                                              
|                                               | 10 | .38 |  | Indenture, dated as of May 1, 2002, among IKON Receivables
    Funding, LLC, BNY Midwest Trust Company, as Trustee, and IOSC,
    as Servicer, filed as Exhibit 4.1 to IKON Receivables Funding,
    LLCs Form 8-K dated May 30, 2002, is incorporated herein
    by reference.                                                                       
|                                              
|                                               | 10 | .39 |  | Assignment and Servicing Agreement, dated as of May 1, 2002,
    among IKON Receivables Funding, LLC, IKON Receivables-2, LLC,
    and IOSC, as Originator and Servicer, filed as Exhibit 10.1 to
    IKON Receivables Funding, LLCs Form 8-K dated May 30,
    2002, is incorporated herein by reference.                                            
|                                              
|                                               | 10 | .40 |  | Indemnification Agreement, dated May 30, 2002, among Banc of
    America Securities LLC, Lehman Brothers Inc., and First Union
    Securities LLC, as Underwriters, and Ambac Assurance
    Corporation, as Insurer, filed as Exhibit 10.2 to IKON
    Receivables Funding, LLCs Form 8-K dated May 30, 2002, is
    incorporated herein by reference.
|                                              
|                                               | 10 | .41 |  | Insurance and Indemnity Agreement, dated May 30, 2002, among
    IOSC, as Originator and Servicer, IKON Receivables Funding, LLC,
    IKON Receivables-2, LLC, and Ambac Assurance Corporation, as
    Insurer, filed as Exhibit 10.3 to IKON Receivables Funding,
    LLCs Form 8-K dated May 30, 2002, is incorporated herein
    by reference.     
|                                              
|Asset-Backed Securitization Transaction  2003
|                                              
|                                               | 10 | .42 |  | Indenture, dated as of April 1, 2003, among the IKON Receivables
    Funding, LLC, BNY Midwest Trust Company, as Trustee, and IOSC,
    as Servicer, filed as Exhibit 4.1 to IKON Receivables Funding,
    LLCs Form 8-K dated April 23, 2003, is incorporated herein
    by reference.                                                               

103



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##### Table of Contents



|              |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------- | -- | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             
|              | 10 | .43 |  | Assignment and Servicing Agreement, dated as of April 1, 2003,
    among IKON Receivables Funding, LLC, IKON Receivables-2, LLC,
    and IOSC, as Originator and Servicer, filed as Exhibit 10.1 to
    IKON Receivables Funding, LLCs Form 8-K dated April 23,
    2003, is incorporated herein by reference.                                                                                                                           
|             
|              | 10 | .44 |  | Indemnification Agreement, dated April 23, 2003, among Lehman
    Brothers, Inc., J.P. Morgan Securities, Inc., Bank of America
    Securities, LLC, Deutsche Bank Securities, Inc., and PNC Capital
    Markets, Inc., as Underwriters, and Ambac Assurance Corporation,
    as Insurer, filed as Exhibit 10.2 to IKON Receivables Funding,
    LLCs Form 8-K dated April 23, 2003, is incorporated herein
    by reference.            
|             
|              | 10 | .45 |  | Insurance and Indemnity Agreement, dated April 23, 2003, among
    IOSC, as Originator and Servicer, IKON Receivables Funding, LLC,
    IKON Receivables-2, LLC, and Ambac Assurance Corporation, as
    Insurer, filed as Exhibit 10.3 to IKON Receivables Funding,
    LLCs Form 8-K dated April 23, 2003, is incorporated herein
    by reference.                                                                                    
|             
|              | 10 | .46 |  | Schedule to ISDA Master Agreement, between Lehman Brothers
    Special Financing Inc. and IKON Receivables Funding, LLC and
    Confirmation to the ISDA Master Agreement, between Lehman
    Brothers Special Financing Inc. and IKON Receivables Funding,
    LLC, each dated as of April 23, 2003, filed as Exhibit 10.4 to
    IKON Receivables Funding, LLCs Form 8-K dated
    April 23, 2003, is incorporated herein by reference.
|             
|Miscellaneous
|             
|              | 10 | .47 |  | Lease between Lexington Malvern L.P. and IKON Office Solutions,
    Inc. dated September 22, 2003 for 70 Valley Stream Parkway,
    Malvern, PA 19355, filed as Exhibit 10.80 to IKONs 2003
    Form 10-K, is incorporated herein reference.                                                                                                                                                                                             
|             
|              | 12 | .1  |  | Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                                                                       
|             
|              | 21 |     |  | Subsidiaries of IKON.                                                                                                                                                                                                                                                                                                                                                                                                                     
|             
|              | 23 |     |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                    
|             
|              | 31 | .1  |  | Certification of Principal Executive Officer pursuant to Rule
    13a-14(a).                                                                                                                                                                                                                                                                                                                                                              
|             
|              | 31 | .2  |  | Certification of Principal Financial Officer pursuant to Rule
    13a-14(a).                                                                                                                                                                                                                                                                                                                                                              
|             
|              | 32 | .1  |  | Certification of Principal Executive Officer pursuant to 18
    U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                      
|             
|              | 32 | .2  |  | Certification of Principal Financial Officer pursuant to 18
    U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                      






| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| | * | Copies of the exhibits will be furnished to any security holder
    of IKON upon payment of the reasonable cost of reproduction.



|   |                                                         
|-- | --------------------------------------------------------
|** | Management contract or compensatory plan or arrangement.



| |     |                                                                                     
| | --- | ------------------------------------------------------------------------------------
| | (b) | The response to this portion of Item 15 is contained in
    Item 15(a)(3) above.    
|
| | (c) | The response to this portion of Item 15 is contained on
    page 103 of this Report.

104



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##### Table of Contents



SIGNATURES






|                            | 
|--------------------------- | 
|IKON Office Solutions, Inc. | 
|                           
|Date: December 9, 2005      | 



|    |                     | 
|--- | ------------------- | 
|By: | /s/ Robert F. Woods | 

|                                                      | 
|----------------------------------------------------- | 
|                                                      | 
|(Robert F. Woods)                                     | 
|Senior Vice President and Chief
    Financial Officer | 



|                                           |  |                                                                                     |  |                  |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------- |  | ---------------- |  | 
|Signature                                  |  | Title                                                                               |  | Date            
|                                           |  |                                                                                     |  |                 
|                                          
|/s/ Matthew J. Espe(Matthew J. Espe)       |  | Chairman and Chief Executive Officer
    (Principal Executive Officer)              |  | December 9, 2005
|                                          
|/s/ Robert F. Woods(Robert F. Woods)       |  | Senior Vice President and Chief Financial Officer
    (Principal Financial Officer) |  | December 9, 2005
|                                          
|/s/ Theodore E. Strand(Theodore E. Strand) |  | Vice President and Controller
    (Principal Accounting Officer)                    |  | December 9, 2005
|                                          
|/s/ Judith M. Bell(Judith M. Bell)         |  | Director                                                                            |  | December 9, 2005
|                                          
|/s/ Philip E. Cushing(Philip E. Cushing)   |  | Director                                                                            |  | December 9, 2005
|                                          
|/s/ Thomas R. Gibson(Thomas R. Gibson)     |  | Director                                                                            |  | December 9, 2005
|                                          
|/s/ Richard A. Jalkut(Richard A. Jalkut)   |  | Director                                                                            |  | December 9, 2005
|                                          
|/s/ Arthur E. Johnson(Arthur E. Johnson)   |  | Director                                                                            |  | December 9, 2005
|                                          
|/s/ Kurt M. Landgraf(Kurt M. Landgraf)     |  | Director                                                                            |  | December 9, 2005

105



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|                                                       |  |          |  |                  |  | 
|------------------------------------------------------ |  | -------- |  | ---------------- |  | 
|Signature                                              |  | Title    |  | Date            
|                                                       |  |          |  |                 
|                                                      
|/s/ Gerald Luterman(Gerald Luterman)                   |  | Director |  | December 9, 2005
|                                                      
|/s/ William E.
    McCracken(William E. McCracken)     |  | Director |  | December 9, 2005
|                                                      
|/s/ William L. Meddaugh(William L. Meddaugh)           |  | Director |  | December 9, 2005
|                                                      
|/s/ Anthony P.
    Terracciano(Anthony P. Terracciano) |  | Director |  | December 9, 2005

106