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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 1934For the fiscal year ended
    September 30, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE
    SECURITIES EXCHANGE ACT OF 1934For 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 RegisteredCommon 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
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 þ o o
  Rule 12b-2 o
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



INDEX
  Page No.PART IITEM 1.

BUSINESS


4ITEM 1A.

RISK
    FACTORS


10ITEM 1B.

UNRESOLVED STAFF
    COMMENTS


14ITEM 2.

PROPERTIES


14ITEM 3.

LEGAL
    PROCEEDINGS


14ITEM 4.

SUBMISSION OF
    MATTERS TO A VOTE OF SECURITY HOLDERS


14ITEM 4A.

EXECUTIVE OFFICERS
    OF THE REGISTRANT


14PART IIITEM 5.

MARKET FOR
    REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
    ISSUER PURCHASES OF EQUITY SECURITIES


16ITEM 6.

SELECTED FINANCIAL
    DATA


17ITEM 7.

MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS


19ITEM 7A.

QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


41ITEM 8.

FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA


43ITEM 9.

CHANGES IN AND
    DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE


88ITEM 9A.

CONTROLS AND
    PROCEDURES


88ITEM 9B.

OTHER
    INFORMATION


90PART IIIITEM 10.

DIRECTORS AND
    EXECUTIVE OFFICERS OF THE REGISTRANT


90ITEM 11.

EXECUTIVE
    COMPENSATION


90ITEM 12.

SECURITY OWNERSHIP
    OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
    STOCKHOLDER MATTERS


90ITEM 13.

CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS


91ITEM 14.

PRINCIPAL
    ACCOUNTANT FEES AND SERVICES


91PART IVITEM 15.

EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES


91Senior Executive Employment Agreement for Michael KohlsdorfRatio of Earnings to Fixed ChargesSubsidiaries of IKONConsent of PricewaterhouseCoopers LLPCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350     2




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FORWARD-LOOKING
    STATEMENTS
  Form 10-K, E-Business
    
    conducting operations in a competitive environment and a
    changing industry;
    existing or future supplier relationships;
    our relationship with General Electric Capital Corporation
    (GE);
    our One Platform Conversion and our infrastructure and
    productivity initiatives;
    our ability to remediate our material weakness in billing and
    achieve effective internal control over financial reporting;
    our ability to improve operational efficiency;
    new technologies;
    our ability to finance current operations and growth
    initiatives; and
    economic, legal and political issues associated with our
    international operations. 3




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PART I  Item 1.
    Business  best-in-class on-site
      Strategy
    Overview
    Core Growth.
    On-site
  Operational Leverage.  W
 4




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Balanced Capital Strategy.
  General
    Business Developments
    Business Division Integration.
  Operations Integration and Enhancements.
 5




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Product Transition.
  Equipment Financing.
  Segments
        Sales and
    Services Organizations
     6




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On-site
  Product
    and Services Offerings
      Digital Copying and Printing.
  Enterprise Services.
  Professional Services.
  Managed Services. On-site
  
    On-site
    Managed
    Services.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.
    Off-site Managed Services.  Specialized
    document management solutions for the legal industry through
    Legal Document Services, addressing the requirements of law
    firms and corporate counsel, including litigation reprographics,
    document imaging, coding and conversion services, legal graphics
    and electronic data discovery.  Customer Services.
  Lease Financing.
    tm page-per-minute
 7




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tm tm tm tm
  tm tm tm tm tm
    Efficiency
    Initiatives
    Customers
      Suppliers
    and Inventory
   8




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Proprietary
    Matters
  and/or
  Environmental
    Regulation
      Employees
    Competition
   9




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Foreign
    Operations
    Availability
    of SEC Reports
  www.ikon.com Form 10-K, Form 10-Q, Form 8-K
  www.sec.gov 1-800-SEC-0330
  Item 1A.
    Risk
    Factors  The
    intense competition in our industry could result in reduced
    profitability and loss of market share.
   10




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A
    deterioration in our relationships with our suppliers or in the
    financial condition of our suppliers could have a material
    adverse effect on our liquidity, financial position and results
    of operations.
    Our
    liquidity, financial position and results of operations are
    dependent on our relationship with GE.
     11




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We
    continue to implement substantial changes to our information
    systems. These actions could disrupt our business.
    Our
    system of internal control over financial reporting is currently
    ineffective due to a material weakness in our billing processes.
    If we fail to remediate this material weakness or any material
    weaknesses we may discover in the future, 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.
    Our
    failure to improve our operational efficiency could have a
    material adverse effect on our liquidity, financial position and
    results of operations.
   12




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New
    technologies may affect our operations, and failures in the
    transition to new technologies could have a material adverse
    effect on our business.
    Our
    failure to comply with any material provisions of our various
    borrowing agreements could have a material adverse effect on our
    liquidity, financial position and results of
    operations.
      Added
    risks are associated with our international
    operations.
   13




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings  Regulation S-K.
  Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 4A.
    Executive
    Officers of the Registrant    Year FirstName

Title

Appointed

AgeMatthew J. Espe

Chief Executive Officer, President
    and Chairman of the Board of Directors


2002



48Robert F. Woods

Senior Vice President and Chief
    Financial Officer


2004



51Brian D. Edwards

Senior Vice President, North
    American Sales and Services


2004



43Mark A. Hershey

Senior Vice President, General
    Counsel and Secretary


2005



37Jeffrey W. Hickling

Senior Vice President, Operations


2005



51Beth B. Sexton

Senior Vice President, Human
    Resources


1999



50David Mills

Vice President, IKON Europe


1998



48Theodore E. Strand

Vice President and Controller


2002



62   Matthew J. Espe.
  Robert F. Woods.
  Brian D. Edwards.
 14




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Mark A. Hershey.
  Jeffrey W. Hickling.
  Beth B. Sexton.
  David Mills.
  Theodore E. Strand.
 15




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PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities          ApproximateTotal Number of


Dollar Value ofShares Purchased


Shares That MayTotal Number


Average


as Part of


Yet be Purchasedof Shares


Price Paid


Repurchase


Under thePeriod

Purchased(1)


per Share


Program


Repurchase Plan(2)July 1, 2006 -
    July 31, 2006


712


$
12.72



712


$
136,125August 1, 2006 -
    August 31, 2006


1,067



13.63



1,067



121,590September 1, 2006 -
    September 30, 2006


1,217



13.67



1,217



104,9532,996


$
13.43



2,996


$
104,953     (1)
    
    As of September 30, 2006, we
    repurchased a total of 25,855 shares of our common stock
    pursuant to the Repurchase Plan adopted by our Board of
    Directors in March 2004 and publicly announced in our quarterly
    report on
    Form 10-Q
    filed with the SEC on May 14, 2004.(2)
    
    In March 2004, our Board of
    Directors authorized us to repurchase up to $250,000 of our
    outstanding common stock under the Repurchase Plan. In February
    2006, our Board of Directors authorized a $150,000 increase to
    the Repurchase Plan, resulting in a new authorization of up to
    $400,000. The Repurchase Plan will remain in effect until the
    $400,000 repurchase limit is reached; however, our Board of
    Directors may discontinue the Repurchase Plan at any time. As of
    September 30, 2006, we had utilized $295,047 under the
    Repurchase Plan (see pages 63-64 for information concerning
    our share repurchase activity and how it may be limited by our
    Credit Facility and our 2015 Notes). 16




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Item 6.
    Selected
    Financial Data  2006(a)


2005(b)


2004(c)


2003(d)


2002(e)(in millions, except per share data, ratios and employees)Continuing OperationsRevenue

$
4,228.2


$
4,377.3


$
4,565.7


$
4,661.2


$
4,847.5Gross profit


1,441.8



1,551.7



1,684.7



1,778.6



1,850.7Selling and administrative(j)


1,251.8



1,396.7



1,470.7



1,505.4



1,554.8Operating income


201.7



156.0



202.6



273.2



301.5Income before taxes


157.9



105.0



118.6



205.0



247.3Income from continuing operations


106.2



73.2



88.3



127.4



155.5Earnings per common shareBasic


0.81



0.52



0.60



0.88



1.09Diluted


0.80



0.51



0.58



0.81



1.03Capital expenditures


78.2



72.1



90.2



124.4



178.7Depreciation and amortization


73.4



78.4



90.5



110.8



126.2Discontinued
    OperationsNet loss

$
0.0


$
(12.5
)

$
(4.6
)

$
(4.3
)

$
(7.5
)Net loss per common shareBasic


0.0



(0.09
)


(0.03
)


(0.03
)


(0.05
)Diluted


0.0



(0.08
)


(0.03
)


(0.03
)


(0.05
)Total OperationsNet income

$
106.2


$
60.7


$
83.7


$
123.1


$
148.0Earnings per common shareBasic


0.81



0.43



0.57



0.85



1.03Diluted


0.80



0.43



0.55



0.79



0.98Share ActivityDividends per common share

$
0.16


$
0.16


$
0.16


$
0.16


$
0.16Per common share book value


13.08



11.57



11.87



10.97



10.40Return on shareholders
    equity %


6.3



3.9



5.0



7.7



9.9Weighted average common shares
    (basic)


131.3



139.9



146.6



145.2



143.2Weighted average common shares
    (diluted)


132.9



157.7



169.3



167.8



155.1Supplementary
    InformationCurrent ratio(f)


1.8



1.8



1.6



1.2



1.2Working capital(g)

$
621.9


$
790.6


$
789.9


$
395.1


$
431.3Total assets


3,231.7



3,831.8



4,518.4



6,600.6



6,397.3Total debt


812.0



1,254.0



1,667.7



3,438.3



3,420.9% of capitalization(i)


32.5



44.4



49.7



68.2



69.6Total debt, excluding
    non-corporate debt(h)

$
595.1


$
729.3


$
804.9


$
429.5


$
613.0% of capitalization(h)(i)


26.1



31.7



32.3



21.1



29.0Employees


25,100



25,700



29,400



30,250



33,200   Notes:
  (a)
    
    Fiscal year results include an
    $11.5 net gain on the divestiture of businesses and a $5.5
    charge from the early extinguishment of debt. The gain on
    divestiture of business resulted in an increase in operating
    income of $11.5. The gain on divestiture of businesses and the
    loss from the early extinguishment of debt resulted in an
    increase in pre-tax income of $6.0 and an increase in net income
    of $7.9.(b)
    
    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 $0.3 charge related to the consolidation of the
    Legal Document Services business, a $10.5 charge for
    restructuring and asset impairments, a $6.1 charge from the
    early termination of real estate 17




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leases, a $11.5 net 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
    operating income of $17.2. The Charges and the loss from the
    early extinguishment of debt resulted in a decrease in pre-tax
    income of $23.2 and net income of $12.2.(c)
    
    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.(d)
    
    Fiscal year results include losses
    from the early extinguishment of debt, resulting in a decrease
    in pre-tax income of $19.2 and net income of $11.9.(e)
    
    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.(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(j)
    
    The amount of stock based
    compensation reflected in selling and administrative expense for
    fiscal years 2006 and 2005 was $9,197 and $10,060, respectively,
    as a result of the adoption of Statement of Financial Accounting
    Standards (SFAS) 123(R), Share Based
    Payment  Revised 2004 in fiscal 2005. 18




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  OVERVIEW
  best-in-class on-site
    
    core growth;
    operational leverage; and
    balanced capital strategy.       19




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RESULTS
    OF OPERATIONS
    Fiscal
    2006 Compared to Fiscal 2005
  Summary
    of Consolidated Results
    Reportable
    Segments
    CorporateIKON North


IKON


andAmerica


Europe


Eliminations*


TotalFiscal 2006Revenues:Equipment

$
1,576,071


$
214,117


$



$
1,790,188Customer service and supplies


1,296,012



149,549







1,445,561Managed and professional services


688,357



52,641







740,998Rental and fees


144,347



6,881







151,228Other


26,448



73,826







100,274Total revenues


3,731,235



497,014







4,228,249 20




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CorporateIKON North


IKON


andAmerica


Europe


Eliminations*


TotalGross profit:Equipment


373,904



76,422







450,326Customer service and supplies


604,075



43,945







648,020Managed and professional services


187,213



6,501







193,714Rental and fees


100,465



5,475







105,940Other


17,503



26,275







43,778Total gross profit


1,283,160



158,618







1,441,778Selling and administrative


957,489



127,816



166,543



1,251,848Gain on divestiture of businesses
    and assets, net


6,161



5,336







11,497Asset impairments and
    restructuring benefit


322











322Operating income


332,154



36,138



(166,543
)


201,749Loss from the early extinguishment
    of debt










5,535



5,535Interest income










13,040



13,040Interest expense










51,336



51,336Income from continuing operations
    before taxes on income

$
332,154


$
36,138


$
(210,374
)

$
157,918Fiscal 2005Revenues:Equipment

$
1,560,977


$
206,035


$



$
1,767,012Customer service and supplies


1,336,369



145,651







1,482,020Managed and professional services


652,999



57,003







710,002Rental and fees


169,540



5,717







175,257Other


100,861



142,153







243,014Total revenues


3,820,746



556,559







4,377,305Gross profit:Equipment


390,402



76,454







466,856Customer service and supplies


626,558



43,922







670,480Managed and professional services


175,821



6,522







182,343Rental and fees


118,528



5,065







123,593Other


60,747



47,659







108,406Total gross profit


1,372,056



179,622







1,551,678Selling and administrative


1,004,666



150,271



241,732



1,396,669Gain on divestiture of businesses
    and assets, net


1,421



10,110







11,531Asset impairments and
    restructuring charge


9,423







1,120



10,543Operating income


359,388



39,461



(242,852
)


155,997Loss from the early extinguishment
    of debt










6,034



6,034Interest income










7,388



7,388Interest expense










52,401



52,401Income from continuing operations
    before taxes on income

$
359,388


$
39,461


$
(293,899
)

$
104,950   *
    
    Corporate and eliminations, which
    is not treated as a reportable segment, includes certain selling
    and administrative functions such as finance, legal, marketing,
    human resources and executive costs. 21




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Equipment
  2006


2005


$ Change


% ChangeRevenue

$
1,790,188


$
1,767,012


$
23,176



1.3
%Cost of revenue


1,339,862



1,300,156



39,706



3.1
%Gross profit

$
450,326


$
466,856


$
(16,530
)


(3.5
)%Gross profit %


25.2
%


26.4
%     year-over-year tm year-over-year, tm year-over-year.
  year-over-year
  Customer
    Service and Supplies
  2006


2005


$ Change


% ChangeRevenue

$
1,445,561


$
1,482,020


$
(36,459
)


(2.5
)%Cost of revenue


797,541



811,540



(13,999
)


(1.7
)%Gross profit

$
648,020


$
670,480


$
(22,460
)


(3.3
)%Gross profit %


44.8
%


45.2
%   year-to-year
 22




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year-over-year year-over-year year-over-year
  year-over-year
  Managed
    and Professional Services
  2006


2005


$ Change


% ChangeRevenue

$
740,998


$
710,002


$
30,996



4.4
%Cost of revenue


547,284



527,659



19,625



3.7
%Gross profit

$
193,714


$
182,343


$
11,371



6.2
%Gross profit %


26.1
%


25.7
%   On-site On-site
  On-site year-over-year year-over-year On-Site
  Rental
    and Fees
  2006


2005


$ Change


% ChangeRevenue

$
151,228


$
175,257


$
(24,029
)


(13.7
)%Cost of revenue


45,288



51,664



(6,376
)


(12.3
)%Gross profit

$
105,940


$
123,593


$
(17,653
)


(14.3
)%Gross profit %


70.1
%


70.5
%  23




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Other
    Revenue
  2006


2005


$ Change


% ChangeFinance income

$
48,018


$
105,272


$
(57,254
)


(54.4
)%Other


52,256



137,742



(85,486
)


(62.1
)%Total other revenue

$
100,274


$
243,014


$
(142,740
)


(58.7
)%Finance interest expense

$
10,902


$
26,288


$
(15,386
)


(58.5
)%Other


45,594



108,320



(62,726
)


(57.9
)%Total cost of other revenue

$
56,496


$
134,608


$
(78,112
)


(58.0
)%Finance income gross profit

$
37,116


$
78,984


$
(41,868
)


(53.0
)%Other gross profit


6,662



29,422



(22,760
)


(77.4
)%Total other gross profit

$
43,778


$
108,406


$
(64,628
)


(59.6
)%Finance income gross profit %


77.3
%


75.0
%Other gross profit %


12.7
%


21.4
%Total gross profit %


43.7
%


44.6
%   year-over-year
  Selling
    and Administrative Expenses
  2006

2005

$ Change

% ChangeSelling and administrative expenses

$
1,251,848


$
1,396,669


$
(144,821
)


(10.4
)%Selling and administrative
    expenses as a % of revenue


29.6
%


31.9
%       
    a decrease of $54,529 compared to fiscal 2005 as a result of
    lower spending for information technology, travel and other
    expenses due to spending actions taken during fiscal 2005 and
    fiscal 2006;
    a decrease of approximately $21,462 related to the sale of
    businesses during fiscal 2005 and October 2005; 24




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##### Table of Contents




    a decrease of $11,926 related to rent and facilities expense
    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 offset
    slightly by charges incurred in fiscal 2006 related to other
    real estate closures as we continue to rationalize our real
    estate needs;
    a decrease of $23,334 in professional fees related primarily to
    a decrease in marketing and other professional fees during
    fiscal 2006 compared to fiscal 2005, a one time charge of $7,000
    in the fourth quarter of fiscal 2005 related to the termination
    of a consulting contract and lower fees incurred in fiscal 2006
    compared to fiscal 2005 in our effort to comply with the
    Sarbanes-Oxley Act of 2002 (SOX);
    a one time charge of $3,798 incurred in fiscal 2005 related to
    changes in certain U.K. pension liabilities;
    pension expense, which is allocated between selling and
    administrative expense and cost of revenues based on the number
    of employees related to those areas, decreased from $43,079 in
    fiscal 2005 to $27,603 in fiscal 2006 as a result of the freeze
    of our U.S. Pension Plans and the change in the weighted
    average discount rate assumption. The
    year-over-year
    decline attributed specifically to selling and administrative
    was $9,569.  Other
    Items
  2006


2005


$ ChangeGain on divestiture of businesses
    and assets, net

$
11,497


$
11,531


$
(34
)Asset impairments and
    restructuring (benefit) charge


(322
)


10,543



(10,865
)Loss from the early extinguishment
    of debt


5,535



6,034



(499
)Interest income


13,040



7,388



5,652Interest expense


51,336



52,401



(1,065
)Taxes on income


51,669



31,755



19,914Income from continuing operations


106,249



73,195



33,054Diluted earnings per common
    share  continuing operations

$
0.80


$
0.51


$
0.29         10-year
   25




---



##### Table of Contents



year-over-year
  Fiscal
    2005 Compared to Fiscal 2004
  Summary
    of Consolidated Results
  year-over-year
  CorporateIKON North


IKON


andAmerica


Europe


Eliminations*


TotalFiscal 2005Revenues:Equipment

$
1,560,977


$
206,035


$



$
1,767,012Customer service and supplies


1,336,369



145,651







1,482,020Managed and professional services


652,999



57,003







710,002Rental and fees


169,540



5,717







175,257Other


100,861



142,153







243,014Total revenues


3,820,746



556,559







4,377,305Gross profit:Equipment


390,402



76,454







466,856Customer service and supplies


626,558



43,922







670,480Managed and professional services


175,821



6,522







182,343Rental and fees


118,528



5,065







123,593Other


60,747



47,659







108,406Total gross profit


1,372,056



179,622







1,551,678Selling and administrative


1,004,666



150,271



241,732



1,396,669Gain on divestiture of businesses
    and assets, net


1,421



10,110







11,531Asset impairments and
    restructuring charge


9,423







1,120



10,543Operating income


359,388



39,461



(242,852
)


155,997Loss from the early extinguishment
    of debt










6,034



6,034Interest income










7,388



7,388Interest expense










52,401



52,401Income from continuing operations
    before taxes on income

$
359,388


$
39,461


$
(293,899
)

$
104,950 26




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##### Table of Contents



CorporateIKON North


IKON


andAmerica


Europe


Eliminations*


TotalFiscal 2004Revenues:Equipment

$
1,561,294


$
182,899


$



$
1,744,193Customer service and supplies


1,368,756



136,788







1,505,544Managed and professional services


662,937



57,824







720,761Rental and fees


128,856



4,941







133,797Other


311,176



150,237







461,413Total revenues


4,033,019



532,689







4,565,708Gross profit:Equipment


427,003



64,460







491,463Customer service and supplies


621,221



42,291







663,512Managed and professional services


205,149



8,114







213,263Rental and fees


95,556



4,308







99,864Other


171,221



45,393







216,614Total gross profit


1,520,150



164,566







1,684,716Selling and administrative


1,072,116



139,279



259,312



1,470,707Loss on divestiture of businesses
    and assets, net


11,427











11,427Operating income


436,607



25,287



(259,312
)


202,582Loss from the early extinguishment
    of debt










35,906



35,906Interest income










3,259



3,259Interest expense










51,318



51,318Income from continuing operations
    before taxes on income

$
436,607


$
25,287


$
(343,277
)

$
118,617     *
    
    Corporate and eliminations, which
    is not treated as a reportable segment, includes certain selling
    and administrative functions such as finance, legal, marketing,
    human resources and executive costs.  Equipment
  2005


2004


$ Change


% ChangeRevenue

$
1,767,012


$
1,744,193


$
22,819



1.3
%Cost of revenue


1,300,156



1,252,730



47,426



3.8
%Gross profit

$
466,856


$
491,463


$
(24,607
)


(5.0
)%Gross profit %


26.4
%


28.2
%    27




---



##### Table of Contents



Customer
    Service and Supplies
  2005


2004


$ Change


% ChangeRevenue

$
1,482,020


$
1,505,544


$
(23,524
)


(1.6
)%Cost of revenue


811,540



842,032



(30,492
)


(3.6
)%Gross profit

$
670,480


$
663,512


$
6,968



1.1
%Gross profit %


45.2
%


44.1
%       Managed
    and Professional Services
  2005


2004


$ Change


% ChangeRevenue

$
710,002


$
720,761


$
(10,759
)


(1.5
)%Cost of revenue


527,659



507,498



20,161



4.0
%Gross profit

$
182,343


$
213,263


$
(30,920
)


(14.5
)%Gross profit %


25.7
%


29.6
%   On-site
 28




---



##### Table of Contents



Rental
    and Fees
  2005


2004


$ Change


% ChangeRevenue

$
175,257


$
133,797


$
41,460



31.0
%Cost of revenue


51,664



33,933



17,731



52.3
%Gross profit

$
123,593


$
99,864


$
23,729



23.8
%Gross profit %


70.5
%


74.6
%     Other
    Revenue
  2005


2004


$ Change


% ChangeFinance income

$
105,272


$
273,391


$
(168,119
)


(61.5
)%Other


137,742



188,022



(50,280
)


(26.7
)%Total other revenue

$
243,014


$
461,413


$
(218,399
)


(47.3
)%Finance interest expense

$
26,288


$
89,416


$
(63,128
)


(70.6
)%Other


108,320



155,383



(47,063
)


(30.3
)%Total cost of other revenue

$
134,608


$
244,799


$
(110,191
)


(45.0
)%Finance income gross profit

$
78,984


$
183,975


$
(104,991
)


(57.1
)%Other gross profit


29,422



32,639



(3,217
)


(9.9
)%Total other gross profit

$
108,406


$
216,614


$
(108,208
)


(50.0
)%Finance income gross profit %


75.0
%


67.3
%Other gross profit %


21.4
%


17.4
%Total gross profit %


44.6
%


46.9
%   year-over-year
 29




---



##### Table of Contents



Selling
    and Administrative Expenses
  2005


2004


$ Change


% ChangeSelling 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
%       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 $10,060 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 option
    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 SOX; 30




---



##### Table of Contents




    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.  Other
    Items
  2005


2004


$ Change(Gain) loss on divestiture of
    businesses and assets

$
(11,531
)

$
11,427



(22,958
)Asset impairments and
    restructuring charge


10,543







10,543Loss from the early extinguishment
    of debt


6,034



35,906



(29,872
)Interest income


7,388



3,259



4,129Interest expense


52,401



51,318



1,083Taxes on income


31,755



30,308



1,447Income from continuing operations


73,195



88,309



(15,114
)Diluted earnings per common
    share  continuing operations

$
0.51


$
0.58



(0.07
)         year-over-year.
   31




---



##### Table of Contents



Financial
    Condition and Liquidity
  Cash
    Flows and Liquidity
    2006Cash provided by operating
    activities

$
97,791Cash provided by investing
    activities


327,558Cash used in financing activities


(389,805
)Effect of exchange rate changes on
    cash and cash equivalents


4,990Increase in cash and cash
    equivalents


40,534Cash and cash equivalents at the
    beginning of the year


373,705Cash and cash equivalents at the
    end of the year

$
414,239   Operating
    Cash Flows
  year-over-year year-over-year
 32




---



##### Table of Contents



Investing
    Cash Flows
    Financing
    Cash Flows
    Contractual
    Obligations and Commitments
    Payments Due by PeriodLess ThanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


ThereafterCorporate debt (including
    estimated interest payments)

$
1,244,507


$
45,536


$
101,268


$
85,623


$
1,012,080Non-corporate debt (including
    estimated interest payments)


162,261



162,213



48







Purchase commitments


92,216



92,163



53







Other long-term liabilities


130,283



7,439



23,240



15,549



84,055Operating leases


320,703



105,060



123,575



57,287



34,781Total

$
1,949,970


$
412,411


$
248,184


$
158,459


$
1,130,916    33




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##### Table of Contents



Off-Balance
    Sheet Arrangements
  Regulation S-K, Accounting for
    Contingencies Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others
  Liquidity
    Outlook
      CRITICAL
    ACCOUNTING POLICIES
    Revenue
    Recognition
   34




---



##### Table of Contents



Goodwill
   35




---



##### Table of Contents



Income
    Taxes
    Pension
    non-U.S. Plans.
    Pension
    Assumptions
    Fiscal 2006


Fiscal 2005


Fiscal 2004U.S.


Non-U.S.


U.S.


Non-U.S.


U.S.


Non-U.S.Plans


Plans


Plans


Plans


Plans


PlansWeighted average discount rates


5.3
%


5.3
%


6.3
%


5.8
%


6.0
%


5.7
%Rates of increase in compensation
    levels


N/A



4.0



3.0



4.0



3.0



4.0Expected long-term rate of return
    on assets


7.5



7.6



8.5



8.0



8.5



8.0  36




---



##### Table of Contents



Ended September 302006


2005


2004U.S.


Non-U.S.


U.S.


Non-U.S.


U.S.


Non-U.S.Plans


Plans


Plans


Plans


Plans


PlansWeighted average discount rates


6.4
%


5.4
%


5.2
%


5.1
%


6.3
%


5.8
%Rates of increase in compensation
    levels


N/A



4.0



3.0



4.0



3.0



4.0   non-U.S. defined
    
    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.  non-U.S. Plans.
  non-U.S. Plans,
      
    a 25 basis point change in the discount rates from those
    used would have changed fiscal 2006 pension expense by
    approximately $2,547;
    a 25 basis point change in the expected rates of return
    from those used would have changed fiscal 2006 pension expense
    by approximately $1,034; and
    a 25 basis point change in compensation levels from those
    used would have no impact on fiscal 2006 pension expense as a
    result of the freeze of the U.S. pension plans. 37




---



##### Table of Contents



non-U.S. Plans
  Financial
    Impact of Pensions
  non-U.S. Plans
  non-U.S. Plans,
  non-U.S. defined
  non-U.S. Plans. non-U.S. plans year-over-year
        RESTRUCTURING
    Business
    Document Services
   38




---



##### Table of Contents



Fiscal Year Ended


Fiscal Year EndedSeptember 30, 2006


September 30, 2005Type of ChargeRestructuring charge (benefit):Severance

$
(78
)

$
3,584Contractual commitments


588



2,686Contract termination


(66
)


2,997Total restructuring charge


444



9,267Asset impairment charge for fixed
    assets






1,331Other non-restructuring items


(241
)


891Total

$
203


$
11,489     Legal
    Document Services
      Fiscal Year Ended


Fiscal Year EndedSeptember 30, 2006


September 30, 2005Type of ChargeRestructuring charge (benefit):Severance

$
(23
)

$
1,322Contractual commitments


68



612Contract termination


1



160Total restructuring charge


46



2,094Asset impairment charge for fixed
    assets






229Other non-restructuring items


(126
)


112Total

$
(80
)

$
2,435    39




---



##### Table of Contents



Field
    Organization and Corporate Staff Reduction
    Summarized
    Restructuring Activity
    Fiscal Year Ended


Fiscal Year EndedSeptember 30, 2006


September 30, 2005Type of ChargeRestructuring charge:Severance

$
(469
)

$
13,082Contractual commitments


656



3,298Contract termination


(65
)


3,157Total restructuring charge


122



19,537Asset impairment charge for fixed
    assets






1,672Other non-restructuring items


(367
)


1,003Total

$
(245
)

$
22,212         Cash


Non-Cash








CashFiscal 2005


Payments


Charges


Balance


Fiscal 2006


Payments


Ending BalanceCharge


Fiscal 2005


Fiscal 2005


September 30, 2005


Adjustments*


Fiscal 2006


September 30, 2006Severance

$
13,082


$
(11,107
)

$



$
1,975


$
(469
)

$
(1,506
)

$
Contractual commitments


3,298



(1,846
)






1,452



656



(1,211
)


897Contract termination


3,157



(3,034
)






123



(65
)


(58
)


Asset impairments


1,672







(1,672
)














Other non-restructuring items


1,003







(1,003
)






(367
)


367



Total

$
22,212


$
(15,987
)

$
(2,675
)

$
3,550


$
(245
)

$
(2,408
)

$
897     *
    
    The adjustments in the table above
    are the result of revising our estimates based on more recent
    information, which we did not have at the time the reserve was
    established. The adjustments made during fiscal 2006 were not
    material to our consolidated financial statements.   40




---



##### Table of Contents



Fiscal 2007


Fiscal 2008


Fiscal 2009


Beyond


TotalProjected PaymentsContractual commitments

$
426


$
226


$
183


$
62


$
897       Fiscal 2005EmployeeTerminationsHeadcount ReductionsBDS


302LDS


157Field organization and corporate
    staff


381Total


840     Sites Closed atInitial Planned Site


September 30,


Change in Estimate ofClosures


2005


Site ClosuresSite ClosuresBDS


11



11



LDS


17



16



(1
)Total


28



27



(1
)     Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
   41




---



##### Table of Contents



2007


2008


2009


2010


2011


ThereafterCorporate debtFixed rate

$
1,487


$
13,631


$



$



$



$
579,947Average interest rate


5.0
%


7.3
%














7.2
%Non-corporate debtVariable rate

$
152,971


$
45


$



$



$



$
Average interest rate


6.0
%


6.2
%     September 30,2006


2005Carrying





CarryingAmount


Fair Value


Amount


Fair ValueLong-term debt:Bond issues

$
593,571


$
550,318


$
727,927


$
663,388Sundry notes, bonds and mortgages


1,494



1,494



1,366



1,366Non-corporate debt


153,016



153,016



465,777



458,645Interest rate swaps










411



411     September 30, 2005Notional Amount


Fixed Interest Rate


Variable Interest Rate

Fair Value


Maturity Date$
43,719



2.095%


LIBOR

$
411



July 2007   Foreign
    Exchange Risk
  non-U.S. operating
 42




---



##### Table of Contents



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
     43




---



##### Table of Contents



Internal Control  Integrated Framework Internal
    Control  Integrated Framework
      44




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  Fiscal Year Ended September 302006


2005


2004(in thousands, except per share data)RevenuesEquipment

$
1,790,188


$
1,767,012


$
1,744,193Customer service and supplies


1,445,561



1,482,020



1,505,544Managed and professional services


740,998



710,002



720,761Rental and fees


151,228



175,257



133,797Other


100,274



243,014



461,4134,228,249



4,377,305



4,565,708Cost of RevenuesEquipment


1,339,862



1,300,156



1,252,730Customer service and supplies


797,541



811,540



842,032Managed and professional services


547,284



527,659



507,498Rental and fees


45,288



51,664



33,933Other


56,496



134,608



244,7992,786,471



2,825,627



2,880,992Gross ProfitEquipment


450,326



466,856



491,463Customer service and supplies


648,020



670,480



663,512Managed and professional services


193,714



182,343



213,263Rental and fees


105,940



123,593



99,864Other


43,778



108,406



216,6141,441,778



1,551,678



1,684,716Selling and administrative


1,251,848



1,396,669



1,470,707(Gain) loss on divestiture of
    businesses and assets, net


(11,497
)


(11,531
)


11,427Asset impairments and
    restructuring (benefit) charge


(322
)


10,543



Operating income


201,749



155,997



202,582Loss from the early extinguishment
    of debt, net


5,535



6,034



35,906Interest income


13,040



7,388



3,259Interest expense


51,336



52,401



51,318Income from continuing operations
    before taxes on income


157,918



104,950



118,617Taxes on income


51,669



31,755



30,308Income from continuing operations


106,249



73,195



88,309Discontinued
    OperationsOperating loss


(78
)


(20,709
)


(7,623
)Tax benefit


31



8,180



3,008Net loss from discontinued
    operations


(47
)


(12,529
)


(4,615
)Net income

$
106,202


$
60,666


$
83,694Basic Earnings (Loss) Per
    Common ShareContinuing operations

$
0.81


$
0.52


$
0.60Discontinued operations


0.00



(0.09
)


(0.03
)Net income

$
0.81


$
0.43


$
0.57Diluted Earnings (Loss) Per
    Common ShareContinuing operations

$
0.80


$
0.51


$
0.58Discontinued operations


0.00



(0.08
)


(0.03
)Net income

$
0.80


$
0.43


$
0.55Cash dividends per common share

$
0.16


$
0.16


$
0.16   See notes to consolidated financial statements.
 45




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  CONSOLIDATED
    BALANCE SHEETS
  September 302006


2005(in thousands)AssetsCash and cash equivalents

$
414,239


$
373,705Restricted cash






18,272Accounts receivable, net
    (Note 2)


586,246



678,313Lease receivables, net
    (Note 3)


83,051



317,928Inventories


214,792



241,470Prepaid expenses and other current
    assets


34,742



42,660Deferred taxes (Note 15)


46,504



55,566Total current assets


1,379,574



1,727,914Long-term lease receivables, net
    (Note 3)


222,333



503,281Equipment on operating leases, net
    (Note 5)


83,248



101,614Property and equipment, net
    (Note 5)


144,453



144,309Deferred taxes


30,215



Goodwill (Note 6)


1,297,333



1,280,578Other assets


74,543



74,123Total Assets

$
3,231,699


$
3,831,819LiabilitiesCurrent portion of corporate debt
    (Note 7)

$
1,487


$
1,137Current portion of non-corporate
    debt (Note 7)


152,971



299,359Trade accounts payable


220,585



240,306Accrued salaries, wages and
    commissions


109,090



94,614Deferred revenues


118,146



111,890Taxes payable


15,831



26,218Other accrued expenses


139,590



163,816Total current liabilities


757,700



937,340Long-term corporate debt
    (Note 7)


593,578



728,156Long-term non-corporate debt
    (Note 7)


64,005



225,307Deferred taxes (Note 15)






20,853Other long-term liabilities


130,283



349,819Commitments and contingencies
    (Note 8)Shareholders
    EquityCommon stock, no par value


1,044,633



1,030,462Retained earnings


828,255



755,864Accumulated other comprehensive
    income (loss)


59,169



(65,426
)Cost of common shares in treasury


(245,924
)


(150,556
)Total Shareholders Equity


1,686,133



1,570,344Total Liabilities and
    Shareholders Equity

$
3,231,699


$
3,831,819Supplemental
    InformationShares of common stock authorized


300,000



300,000Shares of common stock issued


150,624



150,140Treasury stock


21,695



14,390Shares of common stock outstanding


128,929



135,750Series 12 preferred stock, no
    par value: authorized 480 shares; none issued or outstanding






   See notes to consolidated financial statements.
 46




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Fiscal Year Ended September 302006


2005


2004(in thousands)Cash Flows from Operating
    ActivitiesNet income

$
106,202


$
60,666


$
83,694Net loss from discontinued
    operations


(47
)


(12,529
)


(4,615
)Income from continuing operations


106,249



73,195



88,309Additions (deductions) to reconcile
    net income to net cash provided by (used in) operating
    activities:Depreciation


70,070



73,110



81,894Amortization


3,300



5,256



8,570(Gain) loss from divestiture of
    businesses and assets


(11,497
)


(11,531
)


11,427Loss on disposal of property and
    equipment


4,057



3,729



5,125Provision for losses on accounts
    receivable


2,165



14,237



7,684Restructuring and asset impairment
    (benefit) charge


(322
)


10,543



Provision for deferred income taxes


(95,261
)


(102,972
)


(289,380
)Provision for lease default reserves


437



2,929



28,226Stock-based compensation expense


9,197



10,060



515Pension expense


27,603



43,079



51,065Loss from the early extinguishment
    of debt


5,535



6,034



35,906Changes in operating assets and
    liabilities, net of divestiture of businesses:Decrease (increase) in accounts
    receivable


91,536



37,288



(252,755
)Decrease (increase) in inventories


29,204



(14,116
)


(5,951
)Decrease (increase) in prepaid
    expenses and other current assets


2,704



8,003



(39,804
)(Decrease) increase in accounts
    payable


(23,594
)


(68,557
)


57,838Increase in deferred revenue


3,220



2,058



9,944Decrease in accrued expenses


(11,346
)


(1,694
)


(54,638
)Contributions to pension plans


(100,210
)


(44,108
)


(97,500
)Decrease in taxes payable


(11,632
)


(28,098
)


(9,408
)Decrease in accrued restructuring


(1,534
)


(8,306
)


Other


(931
)


218



(2,452
)Net cash provided by (used in)
    continuing operations


98,950



10,357



(365,385
)Net cash used in discontinued
    operations


(1,159
)


(13,076
)


(6,742
)Net cash provided by (used in)
    operating activities


97,791



(2,719
)


(372,127
)Cash Flows from Investing
    ActivitiesProceeds from the divestiture of
    businesses and assets (Note 13)


242,043



23,107



1,849,148Expenditures for property and
    equipment


(37,470
)


(28,000
)


(37,725
)Expenditures for equipment on
    operating leases


(40,705
)


(44,149
)


(52,459
)Proceeds from the sale of equipment
    on operating leases


21,647



23,677



12,003Proceeds from the sale of lease
    receivables (Note 3)


201,687



249,083



383,381Lease receivables 
    additions


(348,119
)


(385,630
)


(1,191,212
)Lease receivables 
    collections


292,421



531,267



1,172,942Proceeds from life insurance (cash
    surrender value)






55,343



Other


(3,946
)


(1,032
)


(7,639
)Net cash provided by continuing
    operations


327,558



423,666



2,128,439Net cash provided by (used in)
    discontinued operations






1,558



(1,319
)Net cash provided by investing
    activities


327,558



425,224



2,127,120Cash Flows from Financing
    ActivitiesShort-term corporate debt
    repayments, net


(30
)


(774
)


(3,167
)Repayment of other borrowings


(7,786
)


(3,429
)


(60,047
)Proceeds from the issuance of
    long-term corporate debt






227,049



1,055Debt issuance costs


(2,510
)


(4,140
)


Long-term corporate debt repayments


(138,748
)


(300,723
)


(327,929
)Non-corporate debt 
    issuances


23,964



18,756



440,974Non-corporate debt 
    repayments


(142,452
)


(366,481
)


(1,676,603
)Dividends paid


(21,009
)


(22,393
)


(23,476
)Decrease in restricted cash


2,127



8,760



68,815Proceeds from option exercises


22,182



4,787



10,154Tax benefit relating to stock plans


5,696



1,843



Purchase of treasury shares


(131,190
)


(86,943
)


(78,124
)Other


(49
)






Net cash used in financing
    activities


(389,805
)


(523,688
)


(1,648,348
)Effect of exchange rate changes on
    cash and cash equivalents


4,990



1,937



6,276Net increase (decrease) in cash and
    cash equivalents


40,534



(99,246
)


112,921Cash and cash equivalents at the
    beginning of the year


373,705



472,951



360,030Cash and cash equivalents at the
    end of the year

$
414,239


$
373,705


$
472,951   See notes to consolidated financial statements.
 47




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
  Fiscal Year Ended September 302006


2005


2004Common StockBalance, beginning of year

$
1,030,462


$
1,020,603


$
1,013,192Stock based compensation expense


9,197



10,060



515Tax benefit relating to stock plans


5,696



1,843



5,428Other, net


(722
)


(2,044
)


1,468Balance, end of year

$
1,044,633


$
1,030,462


$
1,020,603Retained EarningsBalance, beginning of year

$
755,864


$
723,847


$
666,118Net income


106,202



60,666



83,694Cash dividends declared:Common stock, per share:
    2006  $0.16; 2005  $0.16; 2004 
    $0.16


(21,009
)


(22,393
)


(23,476
)Issuance of treasury shares


(12,802
)


(6,256
)


(2,489
)Balance, end of year

$
828,255


$
755,864


$
723,847Accumulated Other Comprehensive
    Income (Loss)Balance, beginning of year

$
(65,426
)

$
20,195


$
(60,791
)Translation adjustment


38,444



(4,402
)


42,542SFAS 133 adjustment


(262
)


85



12,104Minimum pension liability
    adjustment


86,413



(81,304
)


26,340Other comprehensive income (loss)


124,595



(85,621
)


80,986Balance, end of year

$
59,169


$
(65,426
)

$
20,195Treasury StockBalance, beginning of year

$
(150,556
)

$
(76,927
)

$
(13,099
)Purchases


(131,190
)


(86,943
)


(78,124
)Exercise of options


35,031



11,097



13,643Issuance of shares for employee
    stock plans


791



2,217



653Balance, end of year

$
(245,924
)

$
(150,556
)

$
(76,927
)Comprehensive Income
    (Loss)Net income

$
106,202


$
60,666


$
83,694Other comprehensive income (loss)
    per above


124,595



(85,621
)


80,986Comprehensive income (loss)

$
230,797


$
(24,955
)

$
164,680Components of Accumulated Other
    Comprehensive Income (Loss)Accumulated translation

$
100,460


$
62,016


$
66,418Net gain on derivative financial
    instruments, net of tax expense of: 2005  $(150);
    2004  $(106)






262



177Minimum pension liability


(41,291
)


(127,704
)


(46,400
)Balance, end of year

$
59,169


$
(65,426
)

$
20,195   See notes to consolidated financial statements.
 48




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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
       49




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Advertising
    Income
    Taxes
    Sales
    Taxes
    Cash
    and Cash Equivalents
   50




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted
    Cash
    Book
    Overdrafts
    Supplier
    Allowances
  No. 02-16,
  Sale
    of Lease Receivables
  time-to-time,
  Inventories
    Long-Lived
    Assets
   51




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Equipment on operating leases

1-5 yearsProduction equipment

3-5 yearsFurniture and office equipment

3-7 yearsCapitalized software

3-10 yearsLeasehold improvements

shorter of the asset life or term
    of leaseBuildings

20 years         Goodwill
    Environmental
    Liabilities
    Shipping
    and Handling Fees
   52




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cost
    of Revenues and Selling and Administrative
    Expenses
    Cost of
    Revenues
    Selling
    and Administrative
    Foreign
    Currency Translation
  non-U.S. subsidiaries
  Financial
    Instruments
     53




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
    Pending
    Accounting Changes
    non-U.S. plans.
     54




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    ACCOUNTS
    RECEIVABLE    2006


2005Gross trade receivables from GE,
    including amounts unbilled

$
88,812


$
150,047Gross trade receivables from other
    customers


453,628



459,801Allowance for doubtful
    accounts  trade receivables


(8,493
)


(12,284
)Total trade receivables, net


533,947



597,564Other receivables, gross


66,799



95,678Allowance for doubtful
    accounts  other receivables


(14,500
)


(14,929
)Total other receivables, net


52,299



80,749Total accounts receivable, net

$
586,246


$
678,313     3.
    LEASE
    RECEIVABLES      September 302006


2005Gross receivables

$
252,877


$
731,180Unearned income


(42,893
)


(110,478
)Unguaranteed residuals


100,873



207,120Lease default reserve


(5,473
)


(6,613
)Lease receivables, net


305,384



821,209Less: current portion


83,051



317,928Long-term lease receivables, net

$
222,333


$
503,281        55




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            4.
    LEASES        5.
    PROPERTY
    AND EQUIPMENT    September 302006


2005Land

$
1,484


$
1,484Buildings and leasehold
    improvements


38,247



37,236Production equipment


27,801



15,378Furniture and office equipment


47,494



56,280Capitalized software


146,887



141,635261,913



252,013Less: accumulated depreciation


(117,460
)


(107,704
)$
144,453


$
144,309  56




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    September 302006


2005Equipment on operating leases

$
147,855


$
173,502Less: accumulated depreciation


(64,607
)


(71,888
)$
83,248


$
101,614   6.
    GOODWILL    IKON North


IKONAmerica


Europe


TotalGoodwill at September 30, 2004

$
951,931


$
337,426


$
1,289,357Sale of business






(9,806
)


(9,806
)Translation adjustment


8,899



(7,872
)


1,027Goodwill at September 30, 2005

$
960,830


$
319,748


$
1,280,578Sale of business






(12,511
)


(12,511
)Acquisitions






5,512



5,512Translation adjustment


1,577



22,177



23,754Goodwill at September 30, 2006

$
962,407


$
334,926


$
1,297,333       7.
    NOTES PAYABLE
    AND LONG-TERM DEBT  Long-term
    Debt
    September 302006


2005Bond issue at stated interest rate
    of 6.75%, net of discount (2006  $3,356;
    2005  $3,438), due 2025, effective interest rate of
    6.85%

$
260,386


$
260,304Bond issue at stated interest rate
    of 7.30%, net of discount (2006  $446;
    2005  $454), due 2027, effective interest rate of
    7.34%


94,554



94,546Convertible subordinated notes at
    stated interest rate of 5.00%, due 2007






53,242Notes payable at stated interest
    rate of 7.25%, due 2008


13,631



94,835Notes payable at stated interest
    rate of 7.75%, due 2015


225,000



225,000Sundry notes, bonds and mortgages
    at average interest rate (2006  5.6%;
    2005  4.1%), due 2007


709



636Present value of capital lease
    obligations (gross amount: 2006  $911;
    2005  $893)


785



730595,065



729,293Less: current maturities


1,487



1,137$
593,578


$
728,156  57




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    September 302006


2005Lease-backed notes at average
    interest rate of 3.35%

$



$
332,233Asset securitization conduit
    financing at average interest rate of 6.04% (2006) and
    6.53% (2005) due  2007


152,915



124,122Notes payable to banks at average
    interest rate: 6.23% (2006) and 4.86% (2005) due
    2007  2008


101



9,422Debt supporting certain lease and
    residual value guarantees


63,960



58,889216,976



524,666Less: current maturities


152,971



299,359$
64,005


$
225,307     Corporate


Non-CorporateFiscal Year

Debt


Debt2007

$
1,487


$
152,9712008


13,631



452009






2010






2011






2012  2027


579,947



     Debt
    Purchases
    PrincipalAmount


SettlementPurchased


AmountNote payable at stated interest
    rate of 7.25%, due 2008

$
81,204


$
84,007Convertible subordinated notes at
    stated rate of 5.00%, due 2007


53,242



54,307$
134,446


$
138,314        58




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Debt
    Issuances
            Lease-Backed
    Notes
    Asset
    Securitization Conduit Financing Agreements  United
    Kingdom
    Debt
    Supporting Certain Lease and Residual Value
    Guarantees
    
    We have transferred $54,623 of lease receivables to GE ($53,034
    in the U.S. and $1,589 in Germany), for which we have retained
    certain risks of ownership relating to the assignment of the
    receivables. As a result, we are required to record an asset and
    a corresponding amount of debt representing the present value of
    the lease receivables on our balance sheet. In the event GE is
    unable to recover any lease payments from the lessee as a result
    of our retained ownership risk, we would be required to
    repurchase the lease receivable. Since the inception of our
    relationship with GE in 2004, we have not been required to
    repurchase any lease receivables under this scenario. This
    balance was $35,145 at September 30, 2005. 59




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    We have transferred lease receivables to GE for which we have
    retained certain risks of ownership relating to potential
    service performance failures. 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, 2006 and 2005, we had
    recorded $3,850 and $9,798, respectively, of debt and associated
    residual value. This debt will not be repaid unless required
    under the applicable lease agreement in the event that an IKON
    service performance failure is determined to relieve the lessee
    of its lease payment obligations. We expect the total
    repurchases of lease receivables in the future, if any, relating
    to our service performance to be immaterial.
    We have $5,487 of debt related to equipment on operating leases
    that has been funded by GE for which we are required to keep the
    net book value of the operating leases and a corresponding
    amount of debt on our balance sheet until the expiration of the
    operating lease agreement. This balance was $12,428 at
    September 30, 2005.  Capital
    Lease Obligations
    Credit
    Facility
  sub-limits,
    Debt
    Covenants
    Lines
    of Credit
   60




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest
    Payments
    8.
    CONTINGENCIES  Environmental
    and Legal
         61




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Contingencies
      Form 10-Q
   62




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    SHAREHOLDERS
    EQUITY    As of September 30,2006


2005


2004Common StockBalance, beginning of year


150,140



149,955



149,982Stock awards granted


681



458



161Stock awards earned and issued out
    of Treasury


(68
)


(209
)


(138
)Stock awards cancelled


(129
)


(64
)


(50
)Balance, end of year


150,624



150,140



149,955   2006


2005


2004Treasury StockBalance, beginning of year


14,390



7,176



2,942Purchases


10,683



8,453



6,778Reissued for:Exercise of options


(3,305
)


(1,030
)


(2,406
)Issuance of shares for employee
    stock plans


(73
)


(209
)


(138
)Balance, end of year


21,695



14,390



7,176              63




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    time-to-time,
  10.
    EARNINGS
    PER COMMON SHARE    September 302006


2005


2004Numerator:Numerator for basic earnings per
    common share  income from continuing operations

$
106,249


$
73,195


$
88,309Effect of dilutive securities:Interest expense on Convertible
    Notes, net of taxes of: 2006  $58; 2005 
    $4,931; 2004  $5,596


88



7,553



9,228Numerator for diluted earnings per
    common share  net income from continuing operations

$
106,337


$
80,748


$
97,537Denominator:Denominator for basic earnings per
    common share  weighted average common shares


131,336



139,890



146,634Effect of dilutive securities:Convertible Notes


194



16,613



19,726Employee stock awards


551



378



329Employee stock options


860



810



2,593Dilutive potential common shares


1,605



17,801



22,648Denominator for diluted earnings
    per common share  adjusted weighted average common
    shares and assumed conversions


132,941



157,691



169,282Basic earnings per common share
    from continuing operations

$
0.81


$
0.52


$
0.60Diluted earnings per common share
    from continuing operations

$
0.80


$
0.51


$
0.58    64




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        11.
    STOCK
    BASED COMPENSATION        Stock
    Options
         65




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedShares


Average PriceSeptember 30, 2003


14,173


$
10.28Granted


2,139



10.84Exercised


(2,406
)


4.23Cancelled


(736
)


14.12September 30, 2004


13,170



11.28Granted


1,656



10.89Exercised


(1,030
)


4.61Cancelled


(1,292
)


14.34September 30, 2005


12,504



11.46Granted


1,242



10.92Exercised


(3,305
)


12.07Cancelled


(1,075
)


25.10September 30, 2006


9,366


$
11.50Exercisable at September 30,
    2006


6,822
*

$
11.78     *
    
    1,485 of the 6,822 options
    exercisable at September 30, 2006 have a market value in
    excess of the strike price.      Fiscal Year Ended September 302006


2005


2004Expected dividend yield(1)


1.5%



1.5%



1.5%Expected volatility rate(2)


55.0%



53.7%



51.7%Expected life(3)


5.0 years



5.0 years



5.0 yearsRisk-free interest rate(4)


4.4%



3.6%



3.2%     (1)
    
    Dividend yield assumption is based
    on the Companys history and expectation of future dividend
    payouts.(2)
    
    Expected volatility rate is
    determined using historical price observations at regular
    intervals since 1993 through the respective option date.(3)
    
    The expected life of employee stock
    options is based on both historical exercise pattern and from
    calculating an expected term from the option date to full
    exercise for the options granted.(4)
    
    Risk-free interest rate assumption
    is based upon the interest rates published by the Federal
    Reserve for U.S. Treasury Securities with a five-year life. 66




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding


Options ExercisableWeighted-











Weighted-Number


Weighted-


Average





Number


Weighted-


AverageOutstanding at


Average


Remaining


Aggregate


Exercisable at


Average


Remaining


AggregateRange of Exercise

September 30,


Exercise


Contractual


Intrinsic


September 30,


Exercise


Contractual


IntrinsicPrices

2006


Price


Life


Value


2006


Price


Life


Value$ 2.38 - 9.10


2,344


$
5.94



5.5 years


$
17,591



2,193


$
5.72



5.7 years


$
16,9279.11 - 10.90


2,834



10.59



7.4



8,075



1,178



10.34



5.9



3,65710.91 - 13.44


2,703



11.40



6.0



5,502



1,966



11.53



5.2



3,74713.45 - 46.59


1,485



22.20



1.8







1,485



22.20



1.8



9,366


$
11.50



5.6 years


$
31,168



6,822


$
11.78



4.7 years


$
24,331       Fiscal Year EndedSeptember 30, 2004Net income as reported

$
83,694Pro forma effect of expensing
    stock based compensation plans using fair value method not
    included in net income as reported


(6,437
)Net income, as adjusted

$
77,257Basic earnings per common
    share:Net income as reported

$
0.57Pro forma effect of expensing
    stock based compensation plans using fair value method not
    included in net income as reported


(0.04
)Basic earnings per common share,
    as adjusted

$
0.53Diluted earnings per common
    share:Net income as reported

$
0.55Pro forma effect of expensing
    stock based compensation plans using fair value method not
    included in net income as reported


(0.04
)Diluted earnings per common share,
    as adjusted

$
0.51   Stock
    Awards
     67




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    EMPLOYEE
    BENEFIT PLANS  Defined
    Benefit Plans
    non-U.S. Plans.
    Fiscal Year Ended September 302006


2005


2004U.S. Plans





U.S. Plans





U.S. PlansMain


Other


Non-U.S.


Main


Other


Non-U.S.


Main


Other


Non-U.S.Plan


Plans


Plans


Plan


Plans


Plans


Plan


Plans


PlansService cost

$
8,872


$
80


$
4,170


$
28,218


$
272


$
3,899


$
28,749


$
149


$
4,107Interest cost on projected benefit
    obligation


31,020



1,022



4,562



31,652



1,217



3,839



29,122



1,205



3,159Expected return on assets


(31,871
)






(4,603
)


(31,476
)






(3,736
)


(24,037
)






(2,911
)Amortization of net obligation










1,018











642











710Amortization of prior service cost


42



5



(207
)


511



55



6



511



55



5Recognized net actuarial loss


8,930



443



452



7,439



504







9,441



589



175Amortization of transition amount










18











37











36Curtailment


2,641



211



798























Net periodic pension cost

$
19,634


$
1,761


$
6,208


$
36,344


$
2,048


$
4,687


$
43,786


$
1,998


$
5,281  68




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal Year Ended September 302006


2005


2004U.S.


Non-U.S.


U.S.


Non-U.S.


U.S.


Non-U.S.Plans


Plans


Plans


Plans


Plans


PlansWeighted average discount rates


5.3
%


5.3
%


6.3
%


5.8
%


6.0
%


5.7
%Rates of increase in compensation
    levels


N/A



4.0



3.0



4.0



3.0



4.0Expected long-term rate of return
    on assets


7.5



7.6



8.5



8.0



8.5



8.0     Ended September 302006


2005


2004U.S.


Non-U.S.


U.S.


Non-U.S.


U.S.


Non-U.S.Plans


Plans


Plans


Plans


Plans


PlansWeighted average discount rates


6.4
%


5.4
%


5.2
%


5.1
%


6.3
%


5.8
%Rates of increase in compensation
    levels


N/A



4.0



3.0



4.0



3.0



4.0   non-U.S. defined
    2006


2005U.S. Plans





U.S. PlansMain


Other


Non-U.S.


Main


Other


Non-U.S.Plan


Plans


Plans


Plan


Plans


PlansChange in Benefit
    ObligationBenefit obligation at beginning of
    year

$
693,572


$
22,996


$
87,973


$
504,199


$
20,634


$
62,289Service cost


8,872



80



4,170



28,218



272



3,899Interest cost


31,020



1,022



4,562



31,652



1,217



3,839Amendments










(2,849
)










Actuarial (gain) loss


(124,234
)


(3,705
)


(5,787
)


146,178



2,364



19,060Benefits paid


(18,067
)


(1,500
)


(2,203
)


(16,675
)


(1,491
)


(1,448
)Special termination benefits






















Employee contributions










167











348Translation adjustment










5,529











(14
)Curtailment


(81,851
)


(1,641
)


(1,950
)










Benefit obligation at end of year

$
509,312


$
17,252


$
89,612


$
693,572


$
22,996


$
87,973 69




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006


2005U.S. Plans





U.S. PlansMain


Other


Non-U.S.


Main


Other


Non-U.S.Plan


Plans


Plans


Plan


Plans


PlansChange in Plan AssetsFair value of plan assets at
    beginning of year

$
403,578


$



$
53,697


$
364,061


$



$
44,770Actual return on plan assets


42,011







6,293



21,439







7,074Employer contribution


85,000



1,878



13,332



38,901



1,491



3,716Employee contributions










167











348Expenses


(3,600
)






(975
)


(4,148
)






(912
)Benefits paid


(18,067
)


(1,500
)


(2,203
)


(16,675
)


(1,491
)


(1,448
)Translation adjustment










3,795











149Fair value of plan assets at end
    of year

$
508,922


$
378


$
74,106


$
403,578


$



$
53,697Funded status

$
(390
)

$
(16,874
)

$
(15,506
)

$
(289,994
)

$
(22,996
)

$
(34,276
)Unrecognized net actuarial loss


43,664



4,225



23,150



265,219



10,014



31,782Unamortized transition amount






















799Unrecognized prior service cost










(2,628
)


2,683



215



69Net amount recognized

$
43,274


$
(12,649
)

$
5,016


$
(22,092
)

$
(12,767
)

$
(1,626
)Amounts recognized on the
    consolidated balance
    sheetAccrued benefit obligation

$
(390
)

$
(16,874
)

$
(12,898
)

$
(202,562
)

$
(21,250
)

$
(24,190
)Deferred taxes


17,247



1,670



5,595



70,226



3,266



6,555Intangible asset














2,683



215



868Accumulated other comprehensive
    loss


26,417



2,555



12,319



107,561



5,002



15,141Net amount recognized

$
43,274


$
(12,649
)

$
5,016


$
(22,092
)

$
(12,767
)

$
(1,626
)   non-U.S. defined
  non-U.S. Plans
 70




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    September 302006


2005U.S.


Non-U.S.


U.S.


Non-U.S.Plans


Plans


Plans


PlansPercentage of Plan
    AssetsEquity securities


50
%


66
%


72
%


72
%Debt securities


43



20



18



20Other, primarily cash/cash
    equivalents


7



14



10



8100
%


100
%


100
%


100
%         non-U.S. Plans,
  non-U.S. Plans
  non-U.S. Plans,
 71




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    U.S.


Non-U.S.Plans


PlansFiscal year:2007

$
19,923


$
1,7982008


20,070



1,9352009


20,270



2,0832010


20,752



2,2052011


21,458



2,3342012  2016


123,556



13,108   Defined
    Contribution Plan
    Long-Term
    Incentive Compensation Plan
    13.
    DIVESTITURE
    OF BUSINESSES AND ASSETS  LEASING
    OPERATIONS
  United
    States
   72




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Canada
     73




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Germany
    KAFEVEND
    SALE OF
    FRENCH OPERATING SUBSIDIARY
    SALE OF
    MEXICAN OPERATING SUBSIDIARY
   74




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  OTHER
    DIVESTITURES
      14.
    RESTRUCTURING
    AND ASSET IMPAIRMENT CHARGES    Business
    Document Services
      Fiscal Year Ended


Fiscal Year EndedSeptember 30, 2006


September 30, 2005Type of ChargeRestructuring charge(benefit):Severance

$
(78
)

$
3,584Contractual commitments


588



2,686Contract termination


(66
)


2,997Total restructuring charge


444



9,267Asset impairment charge for fixed
    assets






1,331Other non-restructuring items


(241
)


891Total

$
203


$
11,489     Legal
    Document Services
   75




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal Year Ended


Fiscal Year EndedSeptember 30, 2006


September 30, 2005Type of ChargeRestructuring charge(benefit):Severance

$
(23
)

$
1,322Contractual commitments


68



612Contract termination


1



160Total restructuring charge


46



2,094Asset impairment charge for fixed
    assets






229Other non-restructuring items


(126
)


112Total

$
(80
)

$
2,435     Field
    Organization and Corporate Staff Reduction
   76




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Summarized
    Restructuring Activity
    Fiscal Year Ended


Fiscal Year EndedSeptember 30, 2006


September 30, 2005Type of ChargeRestructuring charge:Severance

$
(469
)

$
13,082Contractual commitments


656



3,298Contract termination


(65
)


3,157Total restructuring charge


122



19,537Asset impairment charge for fixed
    assets






1,672Other non-restructuring items


(367
)


1,003Total

$
(245
)

$
22,212         Fiscal


Cash


Non-Cash


Balance





Cash


Ending Balance2005


Payments


Charges


September 30,


Fiscal 2006


Payments


September 30,Charge


Fiscal 2005


Fiscal 2005


2005


Adjustments*


Fiscal 2006


2006Severance

$
13,082


$
(11,107
)

$



$
1,975


$
(469
)

$
(1,506
)

$
Contractual commitments


3,298



(1,846
)






1,452



656



(1,211
)


897Contract termination


3,157



(3,034
)






123



(65
)


(58
)


Asset impairments


1,672







(1,672
)














Other non-restructuring items


1,003







(1,003
)






(367
)


367



Total

$
22,212


$
(15,987
)

$
(2,675
)

$
3,550


$
(245
)

$
(2,408
)

$
897     *
    
    The adjustments in the table above
    are the result of revising our estimates based on more recent
    information, which we did not have at the time the reserve was
    established. The adjustments made during fiscal 2006 were not
    material to our consolidated financial statements.      Fiscal 2007


Fiscal 2008


Fiscal 2009


Beyond


TotalProjected PaymentsContractual commitments

$
426


$
226


$
183


$
62


$
897  77




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fiscal 2005EmployeeTerminationsHeadcount ReductionsBDS


302LDS


157Field organization and corporate
    staff


381Total


840     Change inInitial Planned


Sites Closed at


Estimate ofSite Closures


September 30, 2005


Site ClosuresSite ClosuresBDS


11



11



LDS


17



16



(1
)Total


28



27



(1
)     15.
    TAXES ON
    INCOME    Fiscal Year Ended September 302006


2005


2004Current


Deferred


Current


Deferred


Current


DeferredFederal

$
132,912


$
(89,522
)

$
115,404


$
(89,711
)

$
292,937


$
(266,131
)Foreign


5,742



944



14,414



(12,015
)


5,525



(2,721
)State


8,276



(6,683
)


4,909



(1,246
)


21,226



(20,528
)Taxes on income

$
146,930


$
(95,261
)

$
134,727


$
(102,972
)

$
319,688


$
(289,380
)  78




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    September 302006


2005Deferred tax assets:Accrued liabilities, accounts
    receivable and inventory

$
97,991


$
176,546Net operating loss and capital
    loss carryforwards


39,947



53,072Tax credit carryforwards


406



165Other






2,901Total deferred tax assets


138,344



232,684Valuation allowance


28,483



30,946Net deferred tax assets

$
109,861


$
201,738Deferred tax liabilities:Depreciation and lease income
    recognition

$
32,992


$
167,025Other


150



Total deferred tax liabilities


33,142



167,025Net deferred tax assets

$
76,719


$
34,713         
    a valuation allowance of $910 against net operating losses
    generated in certain foreign jurisdictions, primarily Italy,
    Spain and Switzerland;
    a valuation allowance of $251 against net operating losses
    generated in France. Partially offsetting this tax expense, we
    recorded a tax benefit of $245 associated with the reversal of
    valuation allowances for capital loss carryforwards, as
    additional proceeds were received from the sale of our French
    operations that occurred in fiscal 2005;
    a tax benefit of $1,723 associated with the divestiture of
    Kafevend as the gain on the divestiture of Kafevend is exempt
    from income tax under United Kingdom tax law;
    a tax benefit of $2,700 associated with the release of a
    Canadian tax reserve for which the underlying tax exposure has
    been resolved;
    additional tax expense of $2,400 resulting from the revaluation
    of a Canadian deferred tax asset driven by legislative tax rate
    changes;
    a tax benefit of $2,341 associated with the reversal of
    valuation allowances for capital loss carryforwards as a result
    of the gain on sale of the U.S. Retained Portfolio; 79




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    a tax benefit of $1,039 resulting from the revaluation of the
    state net operating loss deferred tax asset driven by a
    Pennsylvania legislative change to annual NOL utilization
    limitations; and
    a benefit from the difference between our actual state tax
    liability upon the filing of our state tax returns compared to
    the deferred state tax provision.      
    total tax benefits of $2,127, associated with the deferral of
    depreciation expense for tax purposes in Ireland. This includes
    $1,345 of benefits related to depreciable assets purchased in
    fiscal 2004. During fiscal 2005, we deferred the deduction of
    Irish tax depreciation expense, in accordance with Irish tax
    law, until fiscal 2006 when the Irish rate increased to 12.5%;
    a valuation allowance of $1,536 against net operating losses
    generated in certain foreign jurisdictions, primarily France and
    Mexico; and
    a tax benefit of $3,539 associated with the reversal of the
    valuation allowances on the French Sale. Since the tax basis in
    the French investment was higher than the book basis, an
    additional tax benefit of $7,876 was generated. This benefit was
    offset by a valuation allowance due to capital loss limitations.        Fiscal Year Ended September 302006


2005


2004Tax at statutory rate

$
55,271


$
37,010


$
41,516State income taxes, net of
    U.S. federal tax benefit


1,298



4,917



5,289Net (decrease) increase in tax
    reserves


(2,373
)


(691
)


10,345Valuation allowance changes


(2,145
)


(2,674
)


(23,241
)Foreign, including credits


(3,265
)


(5,118
)


(1,423
)Homeland Repatriation


2,400







Other


483



(1,689
)


(2,178
)$
51,669


$
31,755


$
30,308  80




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    16.
    DISCONTINUED
    OPERATIONS    Fiscal Year Ended September 302006


2005


2004Revenues

$



$
20,577


$
47,843Operating loss


(78
)


(20,709
)


(7,623
)Tax benefit


31



8,180



3,008Net loss from discontinued
    operations

$
(47
)

$
(12,529
)

$
(4,615
)     17.
    SEGMENT
    REPORTING       81




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    IKON North


IKON


Corporate andAmerica


Europe


Eliminations


TotalYear Ended September 30,
    2006Revenues:Equipment

$
1,576,071


$
214,117


$



$
1,790,188Customer service and supplies


1,296,012



149,549







1,445,561Managed and professional services


688,357



52,641







740,998Rental and fees


144,347



6,881







151,228Other


26,448



73,826







100,274Total revenues


3,731,235



497,014







4,228,249Gross ProfitEquipment


373,904



76,422







450,326Customer service and supplies


604,075



43,945







648,020Managed and professional services


187,213



6,501







193,714Rental and fees


100,465



5,475







105,940Other


17,503



26,275







43,778Total gross profit


1,283,160



158,618







1,441,778Selling and administrative


957,489



127,816



166,543



1,251,848Gain on the divestiture of
    businesses, net


6,161



5,336







11,497Restructuring and asset
    impairments benefit


322











322Operating income (loss)


332,154



36,138



(166,543
)


201,749Loss from the early extinguishment
    of debt










5,535



5,535Interest income










13,040



13,040Interest expense










51,336



51,336Income from continuing operations
    before taxes on income

$
332,154


$
36,138


$
(210,374
)

$
157,918Year Ended September 30,
    2005Revenues:Equipment

$
1,560,977


$
206,035


$



$
1,767,012Customer service and supplies


1,336,369



145,651







1,482,020Managed and professional services


652,999



57,003







710,002Rental and fees


169,540



5,717







175,257Other


100,861



142,153







243,014Total revenues


3,820,746



556,559







4,377,305 82




---



##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  IKON North


IKON


Corporate andAmerica


Europe


Eliminations


TotalGross ProfitEquipment


390,402



76,454







466,856Customer service and supplies


626,558



43,922







670,480Managed and professional services


175,821



6,522







182,343Rental and fees


118,528



5,065







123,593Other


60,747



47,659







108,406Total gross profit


1,372,056



179,622







1,551,678Selling and administrative


1,004,666



150,271



241,732



1,396,669Gain on the divestiture of
    businesses, net


1,421



10,110







11,531Restructuring and asset
    impairments charge


9,423







1,120



10,543Operating income (loss)


359,388



39,461



(242,852
)


155,997Loss from the early extinguishment
    of debt










6,034



6,034Interest income










7,388



7,388Interest expense










52,401



52,401Income from continuing operations
    before taxes on income

$
359,388


$
39,461


$
(293,899
)

$
104,950Year Ended September 30,
    2004Revenues:Equipment

$
1,561,294


$
182,899


$



$
1,744,193Customer service and supplies


1,368,756



136,788







1,505,544Managed and professional services


662,937



57,824







720,761Rental and fees


128,856



4,941







133,797Other


311,176



150,237







461,413Total revenues


4,033,019



532,689







4,565,708Gross ProfitEquipment


427,003



64,460







491,463Customer service and supplies


621,221



42,291







663,512Managed and professional services


205,149



8,114







213,263Rental and fees


95,556



4,308







99,864Other


171,221



45,393







216,614Total gross profit


1,520,150



164,566







1,684,716Selling and administrative


1,072,116



139,279



259,312



1,470,707Loss on divestiture of businesses,
    net


11,427











11,427Operating income (loss)


436,607



25,287



(259,312
)


202,582Loss from the early extinguishment
    of debt










35,906



35,906Interest income










3,259



3,259Interest expense










51,318



51,318Income from continuing operations
    before taxes on income

$
436,607


$
25,287


$
(343,277
)

$
118,617  83




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    IKON North


IKON


Corporate andAmerica


Europe


Eliminations


TotalYear Ended September 30,
    2006Segment assets

$
1,640,061


$
818,701


$
772,937


$
3,231,699Depreciation expense from
    continuing operations


45,564



6,913



17,593



70,070Expenditures for fixed assets from
    continuing operations


70,666



7,509







78,175Year Ended September 30,
    2005Segment assets

$
2,264,324


$
821,642


$
745,853


$
3,831,819Depreciation expense from
    continuing operations


48,379



7,542



17,189



73,110Expenditures for fixed assets from
    continuing operations


60,942



9,698



1,509



72,149Year Ended September 30,
    2004Segment assets

$
2,855,113


$
843,676


$
819,624


$
4,518,413Depreciation expense from
    continuing operations


51,386



8,240



22,268



81,894Expenditures for fixed assets from
    continuing operations


80,262



9,916



6



90,184         2006


2005


2004RevenuesUnited States

$
3,516,683


$
3,602,492


$
3,799,004United Kingdom


350,397



378,755



361,883Canada


207,690



207,280



213,402Other


153,479



188,778



191,419$
4,228,249


$
4,377,305


$
4,565,708   2006


2005


2004Long-Lived AssetsUnited States

$
1,070,771


$
1,090,073


$
1,118,824United Kingdom


286,847



280,752



288,319Canada


159,655



155,981



148,457Other


80,426



70,823



95,264$
1,597,699


$
1,597,629


$
1,650,864  84




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    18.
    FINANCIAL
    INSTRUMENTS    Concentration
    of Credit Risk
      Interest
    Rate Caps
    Interest
    Rate Agreements
      Cash and
    Cash Equivalents, Accounts Receivable and
    Notes Payable
    Long-Term
    Debt
   85




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    September 30,2006


2005Carrying





CarryingAmount


Fair Value


Amount


Fair ValueLong-term debt:Bond issues

$
593,571


$
550,318


$
727,927


$
663,388Sundry notes, bonds and mortgages


1,494



1,494



1,366



1,366Non-corporate debt


153,016



153,016



465,777



458,645Interest rate swaps










411



411   19.
    QUARTERLY
    FINANCIAL SUMMARY (unaudited)  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Total2006Revenues

$
1,042,863


$
1,080,509


$
1,046,897


$
1,057,980


$
4,228,249Gross profit


362,193



365,327



358,040



356,218



1,441,778Income from continuing operations
    before taxes on income


40,405



39,638



42,078



35,797



157,918Income from continuing operations


27,632



25,368



26,871



26,378



106,249Net income (loss) from
    discontinued operations


11



(30
)


10



(38
)


(47
)Net income (loss)


27,643



25,338



26,881



26,340



106,202Basic earnings per common shareContinuing operations


0.21



0.19



0.21



0.20



0.81Discontinued operations


0.00



0.00



0.00



0.00



0.00Net income


0.21



0.19



0.21



0.20



0.81Diluted earnings per common shareContinuing operations


0.21



0.19



0.20



0.20



0.80Discontinued operations


0.00



0.00



0.00



0.00



0.00Net income


0.21



0.19



0.20



0.20



0.80Dividends per common share


0.04



0.04



0.04



0.04



0.16Common stock price-high/low


11.06/9.60



14.34/10.32



14.37/12.15



14.36/12.15



14.37/9.60     86




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##### Table of Contents



IKON
    OFFICE SOLUTIONS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Total2005Revenues

$
1,085,445


$
1,092,273


$
1,098,305


$
1,101,282


$
4,377,305Gross profit


393,474



382,213



389,439



386,552



1,551,678Income from continuing operations
    before taxes on income


31,763



12,622



38,093



22,472



104,950Income from continuing operations


20,872



7,749



25,373



19,201



73,195Net loss from discontinued
    operations


(1,126
)


(8,675
)


(1,942
)


(786
)


(12,529
)Net income (loss)


19,746



(926
)


23,431



18,415



60,666Basic earnings (loss) per common
    shareContinuing operations


0.15



0.06



0.18



0.14



0.52Discontinued operations


(0.01
)


(0.06
)


(0.01
)


(0.01
)


(0.09
)Net income


0.14



(0.01
)*


0.17



0.13



0.43Diluted earnings (loss) per common
    shareContinuing operations


0.14



0.06



0.17



0.14



0.51Discontinued operations


(0.01
)


(0.06
)


(0.01
)


(0.01
)


(0.08
)Net income


0.14
*


(0.01
)*


0.16



0.13



0.43Dividends per common share


0.04



0.04



0.04



0.04



0.16Common 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.   87




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##### Table of Contents



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    Rule 13a-15(e) Rule 13a-15(b)
    Managements
    Remediation Initiatives
    
    establishing a fully-staffed service billing organization under
    an aligned organization structure;
    refocusing on our conversion to One Platform comprised of a
    common enterprise resource planning system, primarily based on
    the Oracle
    E-Business
    Suite (the One Platform Conversion);
    conducting tests of contract
    set-up
    procedures at each of our North American billing centers and
    subsequently launching a re-designed contract
    set-up
    module in the Oracle
    E-Business
    Suite in order to simplify the contract
    set-up
    process and reduce billing errors;
    using actual service billing data from our service provider in
    lieu of estimated amounts;
    initializing and subsequently expanding a program designed to
    assess the accuracy of estimated meter reads; and
    launching a standardization project to re-evaluate key controls
    over financial reporting at our North American billing centers. 88




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##### Table of Contents




    significant improvement in accounts receivable aging trends and
    the timeliness in which we issued invoice adjustments;
    substantial reduction in contract
    set-up and
    billing errors as quality improved at each of our four North
    American billing centers, three of which are now utilizing the
    Oracle
    E-Business
    Suite;
    the establishment of new key financial controls; and
    steady progress in our remediation efforts relating to
    deficiencies in the segregation of incompatible duties within
    our billing function.    (b)
    Managements
    Report on Internal Control Over Financial Reporting  Rule 13a-15(f).
    Internal Control  Integrated
    Framework
     89




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##### Table of Contents



Internal Control  Integrated Framework Form 10-K.
  (c)
    Changes
    in Internal Control Over Financial Reporting  Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Form 10-K
  www.ikon.com Form 8-K
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   90




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##### Table of Contents



(c)(a)





Number of SecuritiesNumber of Securities


(b)


Remaining Available forto be Issued Upon


Weighted-Average


Future Equity IssuanceExercise of


Exercise Price of


Under Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding SecuritiesWarrants or Rights


Warrants or Rights


Reflected in Column(a))Plan CategoryEquity compensation plans approved
    by security holders


10,846,921


$
11.40



10,926,821Equity compensation plans not
    approved by security holders










Total


10,846,921


$
11.40



10,926,821   Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules      PageReport of Independent Registered
    Public Accounting Firm


43Consolidated Statements of Income


45Consolidated Balance Sheets


46Consolidated Statements of Cash
    Flows


47Consolidated Statements of Changes
    in Shareholders Equity


48Notes to Consolidated Financial
    Statements


49Quarterly Financial Summary


86      91




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##### Table of Contents



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Col. A

Col. B


Col. C


Col. D


Col. EBalance at





Charged





Balance atBeginning of


Charged to Costs


to Other





End ofDescription

Period


and Expenses


Accounts


Deductions


Period(in thousands)Year Ended September 30,
    2006Allowance for doubtful accounts on
    trade receivables

$
12,284


$
2,410
(4)





$
6,201
(1)

$
8,493Lease default reserve(5)


6,613



(112
)






1,028
(1)


5,473Deferred tax valuation allowance


30,946



(2,145
)






318



28,483Year Ended September 30,
    2005Allowance for doubtful accounts on
    trade receivables

$
7,224


$
13,899
(4)





$
8,839
(1)

$
12,284Lease default reserve(5)


6,446



2,841







2,674
(1)


6,613Deferred tax valuation allowance


29,162



(2,674
)






(4,458
)


30,946Year Ended September 30,
    2004Allowance for doubtful accounts on
    trade receivables

$
6,894


$
7,642
(4)





$
7,312
(1)

$
7,224Lease default reserve(5)


58,477



28,226







80,257
(2)


6,446Deferred tax valuation allowance


55,171



(23,241
)






2,768
(3)


29,162   (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 13 to the consolidated financial statements for
    additional information.(3)
    
    Primarily represents the expiration
    of net operating losses and tax credits for which a valuation
    allowance was provided.(4)
    
    Amounts represent charges related
    to total operations.(5)
    
    Balance at September 30, 2006
    and 2005, relates only to our European leasing operations.  Regulation S-K):
    Sale of Certain Assets and
    Liabilities Relating to our Leasing Operations in the U.S. and
    Canada2
.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. 92




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##### Table of Contents



2
.5

Asset Purchase Agreement dated as
    of April 1, 2006, between IKON and General Electric Capital
    Corporation, filed as Exhibit 2.1 to IKONs
    Form 10-Q
    for the quarter ended March 31, 2006, is incorporated
    herein by reference.Corporate Documents3
.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 HoldersRights Agreement4
.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 20274
.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$225 Million
    73/4%
    Notes due 20154
.4

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
.5

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
.6

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 Facility10
.1

Amended and Restated Credit
    Agreement dated as of June 28, 2006, by and among IKON, as
    Borrower, the lenders referred to therein, Deutsche Bank
    Securities Inc., as Syndication Agent, PNC Bank National
    Association, as Syndication Agent, The Royal Bank of Scotland
    PLC, as Documentation Agent, LaSalle Bank National Association,
    as Documentation Agent, Wachovia Bank, National Association, as
    Administrative Agent, Collateral Agent, Swingline Lender, and
    Issuing Lender, and Wachovia Capital Markets, LLC as Sole Lead
    Arranger and Sole Book Manager, filed as Exhibit 10.1 to
    IKONs
    Form 8-K
    dated June 28, 2006, is incorporated herein by reference.Leasing Programs10
.2

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.10
.3

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.10
.4

Amended and Restated Program
    Agreement dated as of April 1, 2006, by and among IKON,
    General Electric Capital Corporation and GE Capital Information
    Technology Solutions, Inc., filed as Exhibit 10.1 to
    IKONs
    Form 10-Q
    for the quarter ended March 31, 2006, is incorporated
    herein by reference. 93




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##### Table of Contents



10
.5

First Amendment to Amended and
    Restated Program Agreement dated as of October 11, 2006, by
    and 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 October 11, 2006, is incorporated herein by reference.Compensatory Plans10
.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

Amendment to 1986 Stock Option
    Plan, filed as Exhibit 10.22 to IKONs 1998
    Form 10-K,
    is incorporated herein by reference.**10
.10

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
.11

Amendment to 1995 Stock Option
    Plan, filed as Exhibit 10.23 to IKONs 1998
    Form 10-K,
    is incorporated herein by reference.**10
.12

Non-Employee Directors Stock
    Option Plan, filed as Exhibit 10.31 to IKONs 1997
    Form 10-K,
    is incorporated herein by reference.**10
.13

1980 Deferred Compensation Plan,
    filed as Exhibit 10.7 to IKONs 1992
    Form 10-K,
    is incorporated herein by reference.**10
.14

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
.15

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
.16

1985 Deferred Compensation Plan,
    filed as Exhibit 10.8 to IKONs 1992
    Form 10-K,
    is incorporated herein by reference.**10
.17

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
.18

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.**10
.19

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
.20

Amendment 2005-1, dated as of
    July 26, 2005, to IKONs 1994 Deferred Compensation
    Plan, filed as Exhibit 10.28 to IKONs 2005
    Form 10-K,
    is incorporated herein by reference.**10
.21

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.**10
.22

Amended and Restated IKON Office
    Solutions, Inc. Executive Deferred Compensation Plan dated as of
    February 22, 2006, filed as Exhibit 10.4 to
    IKONs
    Form 8-K
    dated February 22, 2006, is incorporated herein by
    reference.**10
.23

2006 Omnibus Equity Compensation
    Plan, effective February 22, 2006, filed as
    Exhibit 10.1 to IKONs
    Form 8-K
    dated February 22, 2006, is incorporated herein by
    reference.**Forms of Award Agreements under
    the 2006 Omnibus Equity Compensation Plan10
.24

Form of Stock Unit Grant Agreement
    for IKONs directors, filed as Exhibit 10.2 to
    IKONs
    Form 8-K
    dated February 22, 2006, is incorporated herein by
    reference.**10
.25

Form of Nonqualified Stock Option
    Grant Agreement for IKONs directors, filed as
    Exhibit 10.3 to IKONs
    Form 8-K
    dated February 22, 2006, is incorporated herein by
    reference.**10
.26

Form of U.S. Stock Unit Grant
    Agreement, filed as Exhibit 10.1 to IKONs
    Form 8-K
    dated April 25, 2006, is incorporated herein by
    reference.** 94




---



##### Table of Contents



10
.27

Form of U.S. Nonqualified Stock
    Option Grant Agreement, filed as Exhibit 10.2 to
    IKONs
    Form 8-K
    dated April 25, 2006, is incorporated herein by reference.**10
.28

Form of Performance Plan Incentive
    Unit Agreement, filed as Exhibit 10.3 to IKONs
    Form 8-K
    dated April 25, 2006, is incorporated herein by reference.**Management Contracts10
.29

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
.30

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
.31

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
.32

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
.33

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
.34

Executive Employment Agreement for
    David Mills dated as of October 22, 1997, filed as
    Exhibit 10.36 to IKONs 2005
    Form 10-K,
    is incorporated herein by reference.**10
.35

Supplemental Executive Employment
    Agreement for David Mills dated as of April 16, 1999, filed
    as Exhibit 10.37 to IKONs 2005
    Form 10-K,
    is incorporated herein by reference.**10
.36

Senior Executive Employment
    Agreement for Michael Kohlsdorf dated as of May 10,
    2004.**Miscellaneous10
.37

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.
    
    Filed herewith.     95




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##### Table of Contents



SIGNATURES
  Form 10-K
  IKON Office Solutions,
    Inc.
    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 1, 2006/s/  Robert
    F. Woods(Robert
    F. Woods)

Senior Vice President and Chief
    Financial Officer
    (Principal Financial Officer)

December 1, 2006/s/  Theodore
    E. Strand(Theodore
    E. Strand)

Vice President and Controller
    (Principal Accounting Officer)

December 1, 2006/s/  Philip
    E. Cushing(Philip
    E. Cushing)

Director

December 1, 2006/s/  Thomas
    R. Gibson(Thomas
    R. Gibson)

Director

December 1, 2006/s/  Richard
    A. Jalkut(Richard
    A. Jalkut)

Director

December 1, 2006/s/  Arthur
    E. Johnson(Arthur
    E. Johnson)

Director

December 1, 2006/s/  Kurt
    M. Landgraf(Kurt
    M. Landgraf)

Director

December 1, 2006/s/  Gerald
    Luterman(Gerald
    Luterman)

Director

December 1, 2006/s/  William
    E.
    McCracken(William
    E. McCracken)

Director

December 1, 2006 96




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##### Table of Contents



Signature

Title

Date/s/  William
    L. Meddaugh(William
    L. Meddaugh)

Director

December 1, 2006/s/  Anthony
    P.
    Terracciano(Anthony
    P. Terracciano)

Director

December 1, 2006  97