content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended March 31,  1998 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from to
  
  Commission file number     1-5964
  
  
                             IKON OFFICE SOLUTIONS, INC.
               (Exact name of registrant as specified in its charter)
  
               OHIO                                           23-0334400
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                           Identification No.)
  
  
                   P.O. Box 834, Valley Forge, Pennsylvania 19482
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (610) 296-8000
                (Registrant's telephone number, including area code)
  
                                        NONE
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes    X    No
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes         No
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of April 30, 1998.
  
  Common Stock, no par value                               135,396,257  shares
  
  <PAGE>
                                        INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  
  PART I.  FINANCIAL INFORMATION
  
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--March 31, 1998
                           and September 30, 1997
  
                           Consolidated Statements of Income--Three and six months
                           ended March 31, 1998 and March 31, 1997
  
                           Consolidated  Statements of Cash  Flows--Three  and six
                           months ended March 31, 1998 and March 31, 1997
  
                           Notes to Consolidated Financial Statements--
                           March 31, 1998
  
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  
  
  PART II.  OTHER INFORMATION
  
  
      Item 4.              Submission of Matters to a Vote of Securities Holders
  
  
      Item 6.              Exhibits and Reports on Form 8-K
  
  
  
  SIGNATURES
  
  
  <PAGE>
                            PART I. FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  <TABLE>
  <CAPTION>
  <S>                                                                  <C>                     <C>             
                                                                              March 31           September 30
  ASSETS                                                                       1998                    1997
  
  Current Assets
       Cash                                                            $          23,503       $         21,341
       Accounts receivable, net                                                  818,272                765,660
       Finance receivables, net                                                  762,368                670,784
       Inventories                                                               497,111                442,207
       Prepaid expenses                                                          113,893                101,294
       Deferred taxes                                                            122,122                124,520
                                                                       ------------------      -----------------
       Total current assets                                                    2,337,269              2,125,806
                                                                       ------------------      -----------------
  
  Investments and Long-Term Receivables                                           12,789                 17,508
  
  Long-Term Finance Receivables, net                                           1,533,319              1,331,372
  
  Equipment on Operating Leases, net                                             107,528                101,900
  
  Property and Equipment, at cost                                                498,637                462,360
       Less accumulated depreciation                                             232,925                222,815
                                                                       ------------------      -----------------
                                                                                 265,712                239,545
                                                                       ------------------      -----------------
  
  Other Assets
       Goodwill                                                                1,374,752              1,348,133
       Miscellaneous                                                             159,667                159,622
                                                                       ------------------      -----------------
                                                                               1,534,419              1,507,755
                                                                       ------------------      -----------------
  
  
                                                                     $         5,791,036     $        5,323,886
                                                                       ==================      =================
  
  </TABLE>
  
  See notes to consolidated financial statements.
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  
  <TABLE>
  <CAPTION>
  <S>                                                               <C>                  <C>              
                                                                            March 31           September 30
  LIABILITIES AND SHAREHOLDERS' EQUITY                                        1998                 1997
  
  Current Liabilities
      Current portion of long-term debt                             $          57,846    $          60,794
      Current portion of long-term debt, finance subsidiaries                 402,827              251,711
      Notes payable                                                           113,203              266,979
      Trade accounts payable                                                  206,733              206,547
      Accrued salaries, wages and commissions                                  88,761              110,628
      Deferred revenues                                                       205,192              208,612
      Other accrued expenses                                                  286,377              268,511
                                                                       ---------------      ---------------
      Total current liabilities                                             1,360,939            1,373,782
                                                                       ---------------      ---------------
  
  Long-Term Debt                                                              745,862              490,235
  
  Long-Term Debt, Finance Subsidiaries                                      1,587,527            1,494,043
  
  Deferred Taxes                                                              352,409              330,996
  
  Other Long-Term Liabilities                                                 155,590              153,182
  
  
  Shareholders' Equity
      Series BB conversion preferred stock, no par value:
         3,877 depositary shares issued and outstanding                       290,170              290,170
      Common stock, no par value:
         Authorized 300,000 shares
         Issued 135,705 shares                                                677,681              677,681
      Retained earnings                                                       634,118              574,646
      Foreign currency translation adjustment                                  (1,007)                (728)
      Cost of common shares in treasury: 3/98 - 422 shares;
         9/97 - 2,401 shares                                                  (12,253)             (60,121)
                                                                       ---------------      ---------------
                                                                            1,588,709            1,481,648
                                                                       ---------------      ---------------
  
                                                                    $       5,791,036    $       5,323,886
                                                                       ===============      ===============
  </TABLE>
  
  
  See notes to consolidated financial statements.
  
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except earnings per share)
  
  <TABLE>
  <CAPTION>
  <S>                                                <C>                <C>                <C>                <C>          
                                                             Three Months Ended                     Six Months Ended
                                                                  March 31                              March 31
                                                       -------------------------------       -------------------------------
                                                            1998               1997               1998               1997
                                                       ------------       ------------       ------------       ------------
  Revenues
  Net sales                                          $     793,965      $     722,197      $   1,522,070      $   1,351,624
  Service and rentals                                      570,066            502,648          1,145,888            965,909
  Finance income                                            74,580             53,015            144,910            100,761
                                                       ------------       ------------       ------------       ------------
                                                         1,438,611          1,277,860          2,812,868          2,418,294
                                                       ------------       ------------       ------------       ------------
  
  Costs and Expenses
  Cost of goods sold                                       513,780            461,696            981,980            863,742
  Service and rental costs                                 286,365            248,157            571,648            467,203
  Finance interest expense                                  33,522             23,370             64,268             43,381
  Selling and administrative                               500,306            441,733            988,397            845,309
  Transformation costs                                      20,192             61,190             39,711             75,533
                                                       ------------       ------------       ------------       ------------
                                                         1,354,165          1,236,146          2,646,004          2,295,168
                                                       ------------       ------------       ------------       ------------
  
  Operating income                                          84,446             41,714            166,864            123,126
  Interest expense                                          16,243             11,605             33,272             19,806
                                                       ------------       ------------       ------------       ------------
  Income from continuing operations before taxes
      and extraordinary loss                                68,203             30,109            133,592            103,320
  Taxes on income                                           28,917             15,494             57,322             44,046
                                                       ------------       ------------       ------------       ------------
  Income from continuing operations before
       extraordinary loss                                   39,286             14,615             76,270             59,274
  
  Discontinued operations                                                                                            20,151
                                                       ------------       ------------       ------------       ------------
  Income before extraordinary loss                          39,286             14,615             76,270             79,425
  Extraordinary loss from early extinguishment
       of debt, net of tax benefit                                                                                  (12,156)
                                                       ------------       ------------       ------------       ------------
  
  Net Income                                                39,286             14,615             76,270             67,269
  Less:  Preferred Dividends                                 4,885              4,885              9,770              9,770
                                                       ------------       ------------       ------------       ------------
  Available to Common Shareholders                   $      34,401      $       9,730      $      66,500      $      57,499
                                                       ============       ============       ============       ============
  
  Basic and Diluted Earnings Per Share
  Continuing Operations                                      $ 0.25             $ 0.07             $ 0.49             $ 0.37
  Discontinued Operations                                                                                             $ 0.15
  Extraordinary loss                                                                                                 $ (0.09)
                                                       ------------       ------------       ------------       ------------
                                                             $ 0.25             $ 0.07             $ 0.49             $ 0.43
                                                       ============       ============       ============       ============
  
  </TABLE>
  
  See notes to consolidated financial statements.
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                                                                      Six Months Ended
                                                                                                          March 31
                                                                                      -------------------------------------
                                                                                               1998               1997
                                                                                      -------------------------------------
  <S>                                                                                 <C>                <C>           
  Operating Activities
       Income from continuing operations before extraordinary loss                    $        76,270    $       59,274
       Additions (deductions) to reconcile income from continuing
          operations before extraordinary loss to net cash
          provided by operating activities of continuing operations
              Depreciation                                                                     66,126            50,418
              Amortization                                                                     32,277            22,730
              Provisions for losses on accounts receivable                                     14,111            11,339
              Provision for deferred taxes                                                     31,000            30,000
              Writeoff of fixed assets related to transformation                                2,157            23,311
              Changes in  operating  assets and  liabilities,  net of effects from
                 acquisitions and divestitures:
                     Increase in accounts receivable                                          (53,320)          (82,394)
                     Increase in inventories                                                  (48,197)          (81,428)
                     Increase in prepaid expenses                                             (15,251)          (34,154)
                     Increase in accounts payable, deferred
                        revenues and accrued expenses                                             965            47,907
              Miscellaneous                                                                    (4,855)            1,372
                                                                                        --------------     -------------
  Net cash provided by operating activities of continuing operations                          101,283            48,375
  Net cash provided by operating activities of
       discontinued operations                                                                                   24,176
                                                                                        --------------     -------------
  Net cash provided by operating activities                                                   101,283            72,551
  
  Investing activities
       Proceeds from the sale of property and equipment                                        12,215            19,106
       Payments received on long-term receivables                                               3,792             4,999
       Payments made on deferred liabilities                                                   (5,180)          (13,442)
       Cost of companies acquired, net of cash acquired                                       (39,859)          (99,856)
       Expenditures for property and equipment                                                (67,351)          (32,557)
       Expenditures for equipment on operating leases                                         (42,883)          (44,819)
       Purchase of miscellaneous assets                                                        (3,015)           (9,509)
       Finance subsidiaries receivables - additions                                          (728,789)         (741,735)
       Finance subsidiaries receivables - collections                                         379,240           303,913
                                                                                        --------------     -------------
  Net cash used in investing activities of continuing operations                             (491,830)         (613,900)
  Net cash used in investing activities of discontinued operations                                              (38,058)
                                                                                        --------------     -------------
  Net cash used in investing activities                                                      (491,830)         (651,958)
  
  Financing activities
       Payments of short-term borrowings, net                                                (149,799)         (131,380)
       Proceeds from issuance of long-term debt                                               259,333            39,878
       Proceeds from option exercises and sale of treasury shares                              15,584            33,134
       Proceeds from sale of finance subsidiaries lease receivables                            52,271            51,407
       Proceeds from discontinued operations                                                                    553,183
       Long-term debt repayments                                                               (8,190)         (316,784)
       Finance subsidiaries debt - additions                                                  399,600           427,688
       Finance subsidiaries debt - repayments                                                (155,000)          (76,000)
       Dividends paid                                                                         (20,523)          (33,815)
       Purchase of treasury shares                                                               (567)           (2,415)
                                                                                        --------------     -------------
  Net cash provided by financing activities of continuing operations                          392,709           544,896
  Net cash provided by financing activities of discontinued operations                                           13,882
                                                                                        --------------     -------------
  Net cash provided by financing activities                                                   392,709           558,778
                                                                                        --------------     -------------
  
  Net increase (decrease) in cash                                                               2,162           (20,629)
  Cash at beginning of year                                                                    21,341            46,056
                                                                                        --------------     -------------
  Cash at end of period                                                               $        23,503    $       25,427
                                                                                        ==============     =============
  </TABLE>
  
  See notes to consolidated financial statements.
  
  <PAGE>
  
                             IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   MARCH 31, 1998
  
  
  Note 1:  Basis of Presentation
  
           The accompanying  unaudited condensed consolidated financial statements
  have been prepared in accordance with generally accepted  accounting  principles
  for interim  financial  information  and the  instructions to Form 10-Q and Rule
  10-01  of  Regulation  S-X.  In  the  opinion  of  management,  all  adjustments
  (consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
  presentation  have  been  included.  For  further  information,   refer  to  the
  consolidated   financial  statements  and  footnotes  thereto  included  in  the
  Company's  annual  report on Form 10-K for the year ended  September  30,  1997.
  Certain  prior year amounts have been  reclassified  to conform with the current
  year presentation.
  
  Note 2:  Debt
  
              On January 16, 1998,  the Company's  credit  agreement  with several
  banks was amended to increase  the amount  available  from $400  million to $600
  million and to extend the  termination to January 16, 2003.  There were no other
  significant changes to the terms of the agreement.
  
               On  October  27,  1997,  the  Company   completed  a  $250  million
  underwritten  public debt  offering  consisting  of $125 million 6.75% notes due
  November 1, 2004 and $125  million  7.3% notes due  November 1, 2027.  The 6.75%
  notes  were sold at a  discount  to yield  6.794%  and carry a  make-whole  call
  provision with a five basis-points  premium.  The 7.3% notes were also sold at a
  discount  to yield  7.344%  and  carry a  make-whole  call  provision  with a 15
  basis-points premium. The proceeds of the offering were used to repay short-term
  borrowings.
  
  Note 3: Discontinued Operations
  
           Discontinued  operations  of the Company  represent  the  operations of
  Unisource Worldwide, Inc. ("Unisource"), which was spun off as a separate public
  company on December 31, 1996. The results of discontinued  operations,  included
  in the Company's  results of operations for the six months ended March 31, 1997,
  are as follows (in thousands):
  
                                                            Three Months Ended
                                                            December 31, 1996
  
           Revenues                                             $1,728,533
                                                                ==========
  
           Income before taxes                                  $   34,743
           Tax expense                                              14,592
                                                                ----------
           Net income                                           $   20,151
                                                                ==========
  
           In December 1996,  Unisource repaid $553.5 million of intercompany debt
  outstanding  with the Company and the Unisource  stock was  distributed  to IKON
  shareholders.  Equity  of the  Company  was  reduced  by $952.3  million,  which
  represented the equity of Unisource at December 31, 1996.
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1998
  
  Note 4:  Extraordinary Loss on Early Extinguishment of Debt
  
           On December 2, 1996,  Unisource  borrowed under its new credit facility
  to repay  $553.5  million of  intercompany  debt with the  Company.  The Company
  prepaid debt in the amount of $514 million from these funds.  Early repayment of
  this debt resulted in certain prepayment  penalties.  Total prepayment penalties
  of $18.7  million and related tax benefits of $6.5  million are  reflected as an
  extraordinary  loss on early  extinguishment  of debt on the Statement of Income
  for the six months ended March 31, 1997.
  
  
  Note 5:  Transformation Costs
  
           In September 1995, the Company announced its transformation  program to
  change its organization into a more cohesive and efficient network by building a
  uniform  information  technology  system and  implementing  best  practices  for
  critically  important  management  functions  throughout the IKON companies.  In
  March 1997, the Company  announced that it was accelerating  the  transformation
  program.  As a result, the Company began to separately disclose these costs as a
  component of operating  expenses on the Statement of Income. The Company expects
  to substantially  complete the transformation program by the end of fiscal 1998.
  The  transformation  involves a variety of activities which the Company believes
  will significantly lower  administrative costs and improve gross margins through
  the creation of  marketplace-focused  field operations with greater attention to
  customer sales and service.  These activities include consolidating  purchasing,
  inventory control, logistics and other activities into thirteen customer service
  centers in the U.S., establishing a single financial processing center, building
  a common  information  technology  system,  adopting  a common  name and  common
  benefit programs. Transformation costs in the first six months of fiscal 1998 of
  $39.7 million relate principally to severance and other employee-related  costs,
  including  temporary  labor  ($28.7  million),   facility  consolidation  costs,
  including lease buyouts and write-offs of leasehold  improvements ($6.7 million)
  and technology  conversion costs ($4.3 million).  Transformation  costs of $75.5
  million for the first six months of fiscal 1997  consist  primarily of severance
  and other employee-related costs, including temporary labor and costs related to
  consultants   assisting  in  the   transformation   ($26.5  million),   facility
  consolidation  costs,  including  lease  buyouts  and  write-offs  of  leasehold
  improvements ($7.8 million), technology conversion costs, including write-off of
  the SAP computer  platform pilot ($30.9 million) and costs incurred to adopt the
  IKON Office Solutions name worldwide ($10.3 million).
  
  Note 6:  Earnings Per Share
  
           The  following  table sets forth the  computation  of basic and diluted
  earnings per share from continuing operations (in thousands):
  <TABLE>
  <CAPTION>
  <S>                                                           <C>                          <C>          
  For the fiscal quarter ended                                     3/31/98                      3/31/97
  Numerator:
       Income from continuing operations                        $      39,286                $      14,615
       Preferred stock dividends                                        4,885                        4,885
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings per share - income
          available to common shareholders                             34,401                        9,730
  
       Effect of dilutive securities:
          Convertible loan notes                                           77                           81
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings per share - income
          available to common shareholders
          after assumed conversions                             $      34,478                 $      9,811
                                                                =============                 ============
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1998
  
  Note 6:  Earnings Per Share (continued)
  
  Denominator:
       Weighted average shares                                        134,853                      134,797
       Contingently issuable shares                                       121
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             134,974                      134,797
  
       Effect of dilutive securities:
          Additional contingently issuable shares                         141
          Employee stock options                                          929                        1,461
          Convertible loan notes                                          258                          287
                                                                -------------                 ------------
       Dilutive potential common shares                                 1,328                        1,748
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          136,302                      136,545
                                                                =============                 ============
  
  Basic earnings per share from
       continuing operations                                            $0.25                        $0.07
                                                                        =====                        =====
  
  Diluted earnings per share from
       continuing operations                                            $0.25                        $0.07
                                                                        =====                        =====
  
  For the six months ended                                           3/31/98                       3/31/97
  Numerator:
       Income from continuing operations                        $      76,270                $      59,274
       Preferred stock dividends                                        9,770                        9,770
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings per share - income
          available to common shareholders                             66,500                       49,504
  
       Effect of dilutive securities:
          Convertible loan notes                                          155                          166
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings per share - income
          available to common shareholders
          after assumed conversions                             $      66,655                 $     49,670
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        134,284                      133,723
       Contingently issuable shares                                        60
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             134,344                      133,723
  
       Effect of dilutive securities:
          Additional contingently issuable shares                         202
          Employee stock options                                          845                        1,504
          Convertible loan notes                                          258                          259
                                                                -------------                 ------------
       Dilutive potential common shares                                 1,305                        1,763
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          135,649                      135,486
                                                                =============                 ============
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1998
  
  Note 6:  Earnings Per Share (continued)
  
  Basic earnings per share from
       continuing operations                                            $0.49                        $0.37
                                                                        =====                        =====
  
  Diluted earnings per share from
       continuing operations                                            $0.49                        $0.37
                                                                        =====                        =====
  </TABLE>
  
  
           Options  to  purchase  2,074,130  shares of common  stock at $32.66 per
  share to $62.10 per share were  outstanding  during the second quarter of fiscal
  1998 but were not  included in the  computation  of diluted  earnings  per share
  because the options'  exercise prices were greater than the average market price
  of the common shares and, therefore, the effect would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted  calculation  because the effect of adding 9,682,144 shares and deleting
  the preferred dividends to reflect assumed conversion would be antidilutive.  In
  accordance with the terms of the Series BB preferred  stock, the Company expects
  to convert the Series BB preferred  stock to common stock  effective  October 1,
  1998.
  
  
  <PAGE>
  Item 2:  Management's  Discussion  and  Analysis  of Results of  Operations  and
  Financial Condition and Liquidity
  
           Operations  of the  Company  consist of IKON,  which  sells,  rents and
  leases  photocopiers,  digital printers and other automated office equipment for
  use in both traditional and integrated office  environments.  IKON also provides
  outsourcing  and  imaging  services  and  offers  consulting,  design,  computer
  networking and technology training for the networked office environment.
  
                                Results of Operations
  
           The  discussion  of the results of  operations  reviews the  continuing
  operations of the Company as contained in the Consolidated Statements of Income.
  
                      Three and Six Months Ended March 31, 1998
             Compared with the Three and Six Months Ended March 31, 1997
  
           Revenues  and  income   before   taxes  for  the  second   quarter  and
  year-to-date  of fiscal 1998 compared to the second quarter and  year-to-date of
  fiscal 1997 were as follows:
  <TABLE>
  <CAPTION>
  <S>                                          <C>         <C>           <C>          <C>        <C>          <C>  
                                               Three Months Ended                       Six Months Ended
                                                     March 31             %                 March  31           %
                                                 1998        1997        Change         1998       1997       Change
  (in millions)
  REVENUES                                     $1,439      $1,278        12.6%        $2,813     $2,418       16.3%
                                               ======      ======                     ======     ======
  
  INCOME BEFORE TAXES:
  Operating income, excluding
     transformation costs                      $104.6      $102.9         1.7%        $206.6     $198.6        4.0%
  Transformation costs                          (20.2)      (61.2)                     (39.7)     (75.5)
                                                ------      ------                     -----      -----
        Operating income                         84.4        41.7                      166.9      123.1
  Interest expense                              (16.2)      (11.6)                     (33.3)     (19.8)
                                                ------      ------                     -----      -----
                                                $68.2       $30.1       126.6%        $133.6     $103.3       29.3%
                                                =====       =====                     ======     ======
  </TABLE>
  
  
  SECOND QUARTER:
           The Company's second quarter revenues increased $161 million,  or 12.6%
  over the second quarter of fiscal 1997, of which $98 million  relates to current
  and prior year acquisitions and $63 million to base companies'  internal growth.
  The Company's  worldwide internal revenue growth was 5% in the second quarter of
  fiscal  1998  compared  to 9% in the  first  quarter  of fiscal  1998.  Although
  revenues  were ahead of the same period last year,  second  quarter  fiscal 1998
  results fell short of  expectations.  The shortfall is isolated to the Company's
  North  American  copier  business and is the result of three major  factors - 1)
  issues related to the ongoing  transformation  process;  2) competitive  pricing
  pressures which have reduced margins on the equipment side of the business;  and
  3) product  rationalization  -- focusing on the products  that provided the best
  solutions for our customers.  Given these issues,  the expected internal revenue
  growth rate for the remainder of the fiscal year has been revised downward to 5%
  to 7%. Revenues from the Company's operations outside the U.S. were $190 million
  for the second  quarter of fiscal  1998  compared  to $167  million for the same
  period of the prior fiscal year. The Company's European operations accounted for
  $16  million  of the  increase,  primarily  from  acquisitions,  while  Canadian
  revenues  increased  $4 million  as a result of  acquisitions,  net of  negative
  internal  growth  in  the  second  quarter.  Other  foreign  operations  revenue
  increased $3 million in the second quarter of fiscal 1998 compared to the second
  quarter of fiscal 1997.
  
           The Company's  operating  income increased by $42.7 million compared to
  the prior year's quarter.  However,  excluding  transformation costs,  operating
  income  increased  1.7% to $104.6  million for the second quarter of fiscal 1998
  compared to $102.9 million in the prior year. Finance  subsidiaries  contributed
  21.3% of the  Company's  operating  income  before  transformation  costs in the
  second  quarter of fiscal 1998 compared to 13.5% in the second quarter of fiscal
  1997. The Company's  operating margins were 5.9% in the second quarter of fiscal
  
  <PAGE>
  
  1998,  compared  to  3.3%  in the  second  quarter  of  fiscal  1997.  Excluding
  transformation  costs, the Company's  operating  margins were 7.3% in the second
  quarter of fiscal 1998,  compared to 8.1% in the second  quarter of fiscal 1997.
  Excluding  transformation  costs,  the  Company's  second  quarter  fiscal  1998
  operating margins were consistent with the last two quarters.
  
           Costs associated with the Company's  transformation  program  decreased
  $41 million in the second  quarter of fiscal 1998 compared to the second quarter
  of fiscal 1997. Second quarter 1997 transformation  costs included the write-off
  of capitalized  costs related to the abandoned SAP computer pilot program of $23
  million and costs incurred to adopt the IKON Office  Solutions name worldwide of
  $9 million.  Other  technology  conversion  costs,  severance and other employee
  costs and  facility  consolidation  costs  decreased  $9  million  in the second
  quarter of fiscal 1998 compared to the second quarter of fiscal 1997.
  
           Operating  income from  foreign  operations  was $10.6  million for the
  second  quarter of fiscal 1998,  down $1.6  million  from $12.2  million for the
  second quarter of fiscal 1997. European operations  increased by $3.8 million in
  the second quarter,  while Canadian operating income decreased $6.4 million, the
  impact of negative internal revenue growth.  Other foreign operations  increased
  $1.0 million in the second quarter of fiscal 1998.  There was no material effect
  of foreign currency  exchange rate  fluctuations on the results of operations in
  the second quarter of fiscal 1998 compared to the second quarter of fiscal 1997.
  
  
  SIX MONTHS:
           The  Company's  revenues  for the  six  months  ended  March  31,  1998
  increased  $395  million,  or 16.3% over the first six months of fiscal 1997, of
  which  $227  million  relates to current  and prior year  acquisitions  and $168
  million  to  base  companies'  internal  growth.  Revenues  from  the  Company's
  operations outside the U.S. were $367 million for the first six months of fiscal
  1998 compared to $314 million for the same period of the prior fiscal year.  The
  Company's European operations  accounted for $30 million of the increase,  while
  Canadian revenues increased $18 million, both primarily from acquisitions. Other
  foreign  operations  revenue  increased  $5  million  in the first six months of
  fiscal 1998 compared to the first six months of fiscal 1997.
  
           For the six months ended March 31, 1998, the Company's operating income
  increased  by $43.8  million  compared  to the prior  year.  However,  excluding
  transformation costs,  operating income increased 4.0% to $206.6 million for the
  first six months of fiscal 1998  compared  to $198.6  million in the prior year.
  Finance subsidiaries  contributed 21.0% of the Company's operating income before
  transformation costs in the first six months of fiscal 1998 compared to 14.3% in
  the first six months of fiscal 1997. The Company's  operating  margins were 5.9%
  in the first six months of fiscal 1998, compared to 5.1% in the first six months
  of fiscal 1997. Excluding  transformation costs, the Company's operating margins
  were 7.4% in the first six months of fiscal 1998,  compared to 8.2% in the first
  six months of fiscal 1997.
  
           Costs associated with the Company's  transformation  program  decreased
  approximately $36 million in the first six months of fiscal 1998 compared to the
  first  six  months  of  fiscal  1997.  The  first  six  months  of  fiscal  1997
  transformation  costs included the write-off of capitalized costs related to the
  abandoned SAP computer  pilot program of $23 million and costs incurred to adopt
  the IKON Office  Solutions  name  worldwide  of $10  million.  Other  technology
  conversion costs,  severance and other employee costs and facility consolidation
  costs decreased a net $3 million in the first six months of fiscal 1998 compared
  to the same period in the prior year.
  
           Operating income from foreign  operations was $23.2 million for the six
  months  ended March 31,  1998,  up $1.1  million from the prior year's six month
  period.  European operations  increased by $5.2 million in the first six months,
  while  Canadian  operating  income  decreased  $5.9  million  and other  foreign
  operations  increased $1.8 million in the first six months of fiscal 1998. There
  was no material  effect of foreign  currency  exchange rate  fluctuations on the
  results of  operations  in the first six months of fiscal  1998  compared to the
  first six months of fiscal 1997.
  
  <PAGE>
  
  Acquisitions
           In the  second  quarter  of  fiscal  1998,  the  Company  completed  10
  acquisitions,  bringing  total  year-to-date  acquisitions  to  27.  Of  the  27
  companies  acquired  this  fiscal  year,  seven  were  outsourcing  and  imaging
  companies,  nine were  systems  integration  companies  and 11 were  traditional
  copier companies.  The focus of acquisition  activity for fiscal 1998 will be to
  continue  to build a  presence  in Europe and expand  capability  in  technology
  services and outsourcing/imaging.
  
  Other
           Interest expense increased $4.6 million in the second quarter of fiscal
  1998 and $13.5 million year-to-date. The increased expense is due to higher debt
  levels from investment in working capital, acquisitions and the share repurchase
  program which began in the third quarter of fiscal 1997.
  
           Income before taxes  increased by $38.1  million in the second  quarter
  and $30.3 million  year-to-date  over the prior year,  primarily  reflecting the
  combined  result of  internal  revenue  growth from base  companies,  along with
  earnings contributed by acquisitions,  plus a decrease in transformation  costs,
  net of increased interest costs. The effective income tax rate for the first six
  months of fiscal 1998 is 42.9% compared with 42.6% for the comparative period in
  fiscal 1997.
  
           The Company used the proceeds of a December 2, 1996  intercompany  debt
  repayment  of $553.5  million from its  discontinued  operation,  Unisource,  to
  prepay $514 million of corporate  debt.  The Company  recorded an  extraordinary
  charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of
  fiscal  1997   primarily  for  prepayment   penalties   relating  to  its  early
  extinguishment of certain corporate debt.
  
           Earnings per common share,  assuming dilution,  increased from $.07 per
  share for the  second  quarter  of fiscal  1997 to $.25 per share for the second
  quarter of fiscal  1998.  Excluding  transformation  costs,  earnings per common
  share,  assuming  dilution,  decreased  5.4% from $.37 per share for the  second
  quarter of fiscal 1997 to $.35 per share in the second  quarter of fiscal  1998.
  Year-to-date,  earnings per share from continuing operations, assuming dilution,
  increased  from $.37 per share for the first six  months of fiscal  1997 to $.49
  per  share for the first six  months of fiscal  1998.  Excluding  transformation
  costs,  year-to-date  earnings per share from  continuing  operations,  assuming
  dilution,  decreased 6.8% from $.73 per share for the first six months of fiscal
  1997 to $.68 per share in the first six months of fiscal 1998.  Including income
  from discontinued operations and the extraordinary loss on the extinguishment of
  debt,  year-to-date  earnings per share,  assuming dilution, of the Company were
  $.79 for the first six months of fiscal 1997.
  
  
                          Financial Condition and Liquidity
  
           Net cash provided by operating  activities  for the first six months of
  fiscal 1998 was $101  million.  During the same  period,  the Company  used $492
  million in cash for investing activities,  which included net finance subsidiary
  activity of $350 million, acquisition activity at a cash cost of $40 million and
  capital  expenditures  for  property  and  equipment  of $67 million and capital
  expenditures  for  equipment  on  operating  leases  of $43  million.  Investing
  activities  were funded by cash from operations and financing  activities.  Cash
  provided by financing activities includes $101 million net increase in corporate
  debt and $245 million increase in finance  subsidiaries  debt.  Debt,  excluding
  finance  subsidiaries,  was $917 million at March 31,  1998,  an increase of $99
  million from the debt balance at September 30, 1997 of $818 million. The debt to
  capital  ratio,  excluding  finance  subsidiaries,  was 36.6% at March 31,  1998
  compared to 35.6% at September 30, 1997.  The Company has  established  goals to
  reduce working capital and related debt levels.
  
           On January 16, 1998,  the Company  amended its December 16, 1996 credit
  agreement to increase the borrowing limit from $400 million to $600 million.  As
  of March 31, 1998, short-term borrowings supported by the agreement totaled $101
  million.  In October  1997,  the Company  completed  a $250  million two tranche
  underwritten public offering consisting of $125 million 6.75% notes due November
  1, 2004 and $125 million  7.3% notes due November 1, 2027.  The 6.75% notes were
  sold at a discount to yield 6.794% and carry a make-whole  call provision with a
  five basis-points  premium. The 7.3% notes were also sold at a discount to yield
  7.344% and carry a make-whole call provision with a 15 basis-points premium. The
  
  <PAGE>
  
  proceeds of the offering were used to repay short-term  borrowings.  The Company
  also has $700 million  available  for either stock or debt  offerings  under its
  shelf registration statement.
  
           Finance  subsidiaries  debt grew by $244.6  million from  September 30,
  1997, a result of increased leasing activity.  During the six months ended March
  31, 1998, the U.S. finance  subsidiary issued an additional $193.5 million under
  its medium  term notes  program,  net of  repayments.  At March 31,  1998,  $1.7
  billion of medium term notes were outstanding  with a weighted  interest rate of
  6.5%,  while $1.3 billion remains  available under this program.  Under its $275
  million asset  securitization  programs,  the U.S. finance subsidiary sold $52.3
  million in direct  financing  leases during the first six months of fiscal 1998,
  replacing  those  leases  liquidated  and leaving the amount of  contracts  sold
  unchanged.  On April 30, 1998,  the Company  entered into a CN$175 million asset
  securitization  agreement for direct financing lease receivables of its Canadian
  finance  subsidiary.   CN$70  million  (approximately  $49  million)  of  direct
  financing leases were sold under this agreement on April 30, 1998.
  
           The Company filed shelf  registrations  for 10 million shares of common
  stock in April 1997 and 5 million  shares of common stock in March 1996.  Shares
  issued  under these  registration  statements  are being used for  acquisitions.
  Approximately   5.3  million   shares   have  been  issued   under  these  shelf
  registrations  through March 31, 1998,  leaving 9.7 million shares available for
  issuance.
  
           On April 17, 1997, the Company  announced  that it may repurchase  from
  time to time as much as five  percent of the  outstanding  IKON common  stock in
  open market  transactions.  Through  fiscal 1997,  the Company  repurchased  4.4
  million common shares for $109.7 million. There were no shares repurchased under
  this program during the first six months of fiscal 1998.
  
           The Company  believes that its operating cash flow together with unused
  bank credit  facilities and other financing  arrangements  will be sufficient to
  finance  current  operating   requirements   including   capital   expenditures,
  acquisitions,  dividends,  stock  repurchases  and  costs  associated  with  the
  Company's  transformation  program.  For the  remainder of the fiscal year,  the
  Company expects to incur $25 million to $40 million of expense to  substantially
  complete its transformation initiatives.
  
  
                             Forward-Looking Information
  
           This document contains, and other materials filed or to be filed by the
  Company with the Commission which are incorporated by reference  herein, as well
  as information  included in oral statements or other written  statements made or
  to be made by the Company, contain or will contain or include, disclosures which
  are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
  Securities  Act of 1933,  as amended,  and Section 21E of the 1934 Exchange Act.
  Such  forward-looking   statements  address,   among  other  things,   strategic
  initiatives  (including  plans for enhancing the Company's  business through new
  acquisitions,  information technology systems,  sales strategies,  market growth
  plans,  margin  enhancement  initiatives,  capital  expenditures  and  financing
  sources).  Such  forward-looking  information is based upon management's current
  plans or expectations and is subject to a number of uncertainties and risks that
  could significantly affect current plans,  anticipated actions and the Company's
  future financial  condition and results.  These uncertainties and risks include,
  but are not limited to, those  relating to  successfully  managing an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical services and products that are relatively new to the Company, and also
  including companies outside the U.S., which present additional risks relating to
  international  operations;   risks  and  uncertainties  relating  to  conducting
  operations in a competitive  environment;  delays,  difficulties,  technological
  changes,   management  transitions  and  employment  issues  associated  with  a
  large-scale   transformation   project;  debt  service  requirements  (including
  sensitivity to fluctuations in interest rates); and general economic conditions.
  As a  consequence,  current  plans,  anticipated  actions  and future  financial
  condition  and results may differ from those  expressed  in any  forward-looking
  statements made by or on behalf of the Company.
  
  <PAGE>
                             PART II. OTHER INFORMATION
  
  
  Item 4. Submission of Matters to a Vote of Security Holders
  
           On  January  22,  1998,   the  Company  held  its  annual   meeting  of
  shareholders,  at which nine  directors  were  elected to hold office  until the
  election of their successors:
  
                                                  For                   Withheld
           James R. Birle                     102,514,041               9,930,874
           Philip E. Cushing                  102,399,043              10,045,872
           Kurt E. Dinkelacker                102,452,665               9,992,250
           William F. Drake, Jr.              102,484,802               9,960,113
           Thomas P. Gerrity                  102,475,176               9,969,739
           Frederick S. Hammer                102,421,194              10,023,721
           Barbara Barnes Hauptfuhrer         102,500,741               9,944,174
           Richard A. Jalkut                  102,499,819               9,945,096
           John E. Stuart                     102,232,220              10,212,695
  
  
  
  Item 6.  Exhibits and Reports on Form 8-K
  
           (a)   The  following  Exhibits  are  furnished  pursuant to Item 601 of
                 Regulation S-K:
  
                 Exhibit No. (27) Financial Data Schedule
  
           (b)   Reports on Form 8-K
  
                 On March 6, 1998, the  registrant  filed a Current Report on Form
                 8-K to file,  under  Item 5 of the  form,  as an  exhibit  to the
                 report,  the effect of adoption of SFAS 128 on the Annual  Report
                 on Form 10-K for the fiscal year ended September 30, 1997 and the
                 related  restatement of earnings per share therein,  so that such
                 information may be  incorporated  by reference into  Registration
                 Statements filed on Forms S-3 and S-8 filed subsequent to the 8-K
                 filing.
  
  
                 On April 24, 1998, the registrant  filed a Current Report on Form
                 8-K to file,  under Item 5 of the form,  the press  release dated
                 April 22,  1998,  which  reported  its  earnings  for the  fiscal
                 quarter ended March 31, 1998, provided earnings estimates for the
                 remainder  of the  registrant's  1998  fiscal  year and  provided
                 additional  information regarding its business,  acquisitions and
                 transformation process.
  
  
  
  
  <PAGE>
                                     SIGNATURES
  
  
  Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned,  thereunto duly authorized. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
  
                                          IKON OFFICE SOLUTIONS, INC.
  
  
  Date        May 14, 1998                /s/ Michael J. Dillon
                                          Michael J. Dillon
                                          Vice President and Controller
                                          (Chief Accounting Officer)
  
  <PAGE>
                                  INDEX TO EXHIBITS
  
  Exhibit Number
  
  
           (27)       Financial Data Schedule
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 59161}]
metadata_filer: {"company-data": {"conformed-name": "IKON OFFICE SOLUTIONS INC", "cik": "0000003370", "assigned-sic": "5045", "irs-number": "230334400", "state-of-incorporation": "OH", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-05964", "film-number": "98619361"}, "business-address": {"street1": "70 VALLEY STREAM", "city": "MALVERN", "state": "PA", "zip": "19355", "phone": "2152968000"}, "mail-address": {"street1": "BOX 834", "city": "VALLEY FORGE", "state": "PA", "zip": "19482"}, "former-company": [{"former-conformed-name": "ALCO STANDARD CORP", "date-changed": "19920703"}, {"former-conformed-name": "ALCO CHEMICAL CORP", "date-changed": "19680218"}]}
text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended March 31,  1998 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from to
  
  Commission file number     1-5964
  
                             IKON OFFICE SOLUTIONS, INC.
               (Exact name of registrant as specified in its charter)
  
               OHIO                                           23-0334400
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                           Identification No.)
  
                   P.O. Box 834, Valley Forge, Pennsylvania 19482
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (610) 296-8000
                (Registrant's telephone number, including area code)
  
                                        NONE
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes    X    No
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes         No
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of April 30, 1998.
  
  Common Stock, no par value                               135,396,257  shares
  INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  PART I.  FINANCIAL INFORMATION
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--March 31, 1998
                           and September 30, 1997
  
                           Consolidated Statements of Income--Three and six months
                           ended March 31, 1998 and March 31, 1997
  
                           Consolidated  Statements of Cash  Flows--Three  and six
                           months ended March 31, 1998 and March 31, 1997
  
                           Notes to Consolidated Financial Statements--
                           March 31, 1998
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  PART II.  OTHER INFORMATION
  
      Item 4.              Submission of Matters to a Vote of Securities Holders
  
      Item 6.              Exhibits and Reports on Form 8-K
  
  SIGNATURES
  PART I. FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  March 31           September 30
  ASSETS                                                                       1998                    1997
  
  Current Assets
       Cash                                                            $          23,503       $         21,341
       Accounts receivable, net                                                  818,272                765,660
       Finance receivables, net                                                  762,368                670,784
       Inventories                                                               497,111                442,207
       Prepaid expenses                                                          113,893                101,294
       Deferred taxes                                                            122,122                124,520
                                                                       ------------------      -----------------
       Total current assets                                                    2,337,269              2,125,806
                                                                       ------------------      -----------------
  
  Investments and Long-Term Receivables                                           12,789                 17,508
  
  Long-Term Finance Receivables, net                                           1,533,319              1,331,372
  
  Equipment on Operating Leases, net                                             107,528                101,900
  
  Property and Equipment, at cost                                                498,637                462,360
       Less accumulated depreciation                                             232,925                222,815
                                                                       ------------------      -----------------
                                                                                 265,712                239,545
                                                                       ------------------      -----------------
  
  Other Assets
       Goodwill                                                                1,374,752              1,348,133
       Miscellaneous                                                             159,667                159,622
                                                                       ------------------      -----------------
                                                                               1,534,419              1,507,755
                                                                       ------------------      -----------------
  
                                                                     $         5,791,036     $        5,323,886
                                                                       ==================      =================
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  March 31           September 30
  LIABILITIES AND SHAREHOLDERS' EQUITY                                        1998                 1997
  
  Current Liabilities
      Current portion of long-term debt                             $          57,846    $          60,794
      Current portion of long-term debt, finance subsidiaries                 402,827              251,711
      Notes payable                                                           113,203              266,979
      Trade accounts payable                                                  206,733              206,547
      Accrued salaries, wages and commissions                                  88,761              110,628
      Deferred revenues                                                       205,192              208,612
      Other accrued expenses                                                  286,377              268,511
                                                                       ---------------      ---------------
      Total current liabilities                                             1,360,939            1,373,782
                                                                       ---------------      ---------------
  
  Long-Term Debt                                                              745,862              490,235
  
  Long-Term Debt, Finance Subsidiaries                                      1,587,527            1,494,043
  
  Deferred Taxes                                                              352,409              330,996
  
  Other Long-Term Liabilities                                                 155,590              153,182
  
  Shareholders' Equity
      Series BB conversion preferred stock, no par value:
         3,877 depositary shares issued and outstanding                       290,170              290,170
      Common stock, no par value:
         Authorized 300,000 shares
         Issued 135,705 shares                                                677,681              677,681
      Retained earnings                                                       634,118              574,646
      Foreign currency translation adjustment                                  (1,007)                (728)
      Cost of common shares in treasury: 3/98 - 422 shares;
         9/97 - 2,401 shares                                                  (12,253)             (60,121)
                                                                       ---------------      ---------------
                                                                            1,588,709            1,481,648
                                                                       ---------------      ---------------
  
                                                                    $       5,791,036    $       5,323,886
                                                                       ===============      ===============
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except earnings per share)
  Three Months Ended                     Six Months Ended
                                                                  March 31                              March 31
                                                       -------------------------------       -------------------------------
                                                            1998               1997               1998               1997
                                                       ------------       ------------       ------------       ------------
  Revenues
  Net sales                                          $     793,965      $     722,197      $   1,522,070      $   1,351,624
  Service and rentals                                      570,066            502,648          1,145,888            965,909
  Finance income                                            74,580             53,015            144,910            100,761
                                                       ------------       ------------       ------------       ------------
                                                         1,438,611          1,277,860          2,812,868          2,418,294
                                                       ------------       ------------       ------------       ------------
  
  Costs and Expenses
  Cost of goods sold                                       513,780            461,696            981,980            863,742
  Service and rental costs                                 286,365            248,157            571,648            467,203
  Finance interest expense                                  33,522             23,370             64,268             43,381
  Selling and administrative                               500,306            441,733            988,397            845,309
  Transformation costs                                      20,192             61,190             39,711             75,533
                                                       ------------       ------------       ------------       ------------
                                                         1,354,165          1,236,146          2,646,004          2,295,168
                                                       ------------       ------------       ------------       ------------
  
  Operating income                                          84,446             41,714            166,864            123,126
  Interest expense                                          16,243             11,605             33,272             19,806
                                                       ------------       ------------       ------------       ------------
  Income from continuing operations before taxes
      and extraordinary loss                                68,203             30,109            133,592            103,320
  Taxes on income                                           28,917             15,494             57,322             44,046
                                                       ------------       ------------       ------------       ------------
  Income from continuing operations before
       extraordinary loss                                   39,286             14,615             76,270             59,274
  
  Discontinued operations                                                                                            20,151
                                                       ------------       ------------       ------------       ------------
  Income before extraordinary loss                          39,286             14,615             76,270             79,425
  Extraordinary loss from early extinguishment
       of debt, net of tax benefit                                                                                  (12,156)
                                                       ------------       ------------       ------------       ------------
  
  Net Income                                                39,286             14,615             76,270             67,269
  Less:  Preferred Dividends                                 4,885              4,885              9,770              9,770
                                                       ------------       ------------       ------------       ------------
  Available to Common Shareholders                   $      34,401      $       9,730      $      66,500      $      57,499
                                                       ============       ============       ============       ============
  
  Basic and Diluted Earnings Per Share
  Continuing Operations                                      $ 0.25             $ 0.07             $ 0.49             $ 0.37
  Discontinued Operations                                                                                             $ 0.15
  Extraordinary loss                                                                                                 $ (0.09)
                                                       ------------       ------------       ------------       ------------
                                                             $ 0.25             $ 0.07             $ 0.49             $ 0.43
                                                       ============       ============       ============       ============
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Six Months Ended
                                                                                                          March 31
                                                                                      -------------------------------------
                                                                                               1998               1997
                                                                                      -------------------------------------
  Operating Activities
       Income from continuing operations before extraordinary loss                    $        76,270    $       59,274
       Additions (deductions) to reconcile income from continuing
          operations before extraordinary loss to net cash
          provided by operating activities of continuing operations
              Depreciation                                                                     66,126            50,418
              Amortization                                                                     32,277            22,730
              Provisions for losses on accounts receivable                                     14,111            11,339
              Provision for deferred taxes                                                     31,000            30,000
              Writeoff of fixed assets related to transformation                                2,157            23,311
              Changes in  operating  assets and  liabilities,  net of effects from
                 acquisitions and divestitures:
                     Increase in accounts receivable                                          (53,320)          (82,394)
                     Increase in inventories                                                  (48,197)          (81,428)
                     Increase in prepaid expenses                                             (15,251)          (34,154)
                     Increase in accounts payable, deferred
                        revenues and accrued expenses                                             965            47,907
              Miscellaneous                                                                    (4,855)            1,372
                                                                                        --------------     -------------
  Net cash provided by operating activities of continuing operations                          101,283            48,375
  Net cash provided by operating activities of
       discontinued operations                                                                                   24,176
                                                                                        --------------     -------------
  Net cash provided by operating activities                                                   101,283            72,551
  
  Investing activities
       Proceeds from the sale of property and equipment                                        12,215            19,106
       Payments received on long-term receivables                                               3,792             4,999
       Payments made on deferred liabilities                                                   (5,180)          (13,442)
       Cost of companies acquired, net of cash acquired                                       (39,859)          (99,856)
       Expenditures for property and equipment                                                (67,351)          (32,557)
       Expenditures for equipment on operating leases                                         (42,883)          (44,819)
       Purchase of miscellaneous assets                                                        (3,015)           (9,509)
       Finance subsidiaries receivables - additions                                          (728,789)         (741,735)
       Finance subsidiaries receivables - collections                                         379,240           303,913
                                                                                        --------------     -------------
  Net cash used in investing activities of continuing operations                             (491,830)         (613,900)
  Net cash used in investing activities of discontinued operations                                              (38,058)
                                                                                        --------------     -------------
  Net cash used in investing activities                                                      (491,830)         (651,958)
  
  Financing activities
       Payments of short-term borrowings, net                                                (149,799)         (131,380)
       Proceeds from issuance of long-term debt                                               259,333            39,878
       Proceeds from option exercises and sale of treasury shares                              15,584            33,134
       Proceeds from sale of finance subsidiaries lease receivables                            52,271            51,407
       Proceeds from discontinued operations                                                                    553,183
       Long-term debt repayments                                                               (8,190)         (316,784)
       Finance subsidiaries debt - additions                                                  399,600           427,688
       Finance subsidiaries debt - repayments                                                (155,000)          (76,000)
       Dividends paid                                                                         (20,523)          (33,815)
       Purchase of treasury shares                                                               (567)           (2,415)
                                                                                        --------------     -------------
  Net cash provided by financing activities of continuing operations                          392,709           544,896
  Net cash provided by financing activities of discontinued operations                                           13,882
                                                                                        --------------     -------------
  Net cash provided by financing activities                                                   392,709           558,778
                                                                                        --------------     -------------
  
  Net increase (decrease) in cash                                                               2,162           (20,629)
  Cash at beginning of year                                                                    21,341            46,056
                                                                                        --------------     -------------
  Cash at end of period                                                               $        23,503    $       25,427
                                                                                        ==============     =============
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   MARCH 31, 1998
  
  Note 1:  Basis of Presentation
  
           The accompanying  unaudited condensed consolidated financial statements
  have been prepared in accordance with generally accepted  accounting  principles
  for interim  financial  information  and the  instructions to Form 10-Q and Rule
  10-01  of  Regulation  S-X.  In  the  opinion  of  management,  all  adjustments
  (consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
  presentation  have  been  included.  For  further  information,   refer  to  the
  consolidated   financial  statements  and  footnotes  thereto  included  in  the
  Company's  annual  report on Form 10-K for the year ended  September  30,  1997.
  Certain  prior year amounts have been  reclassified  to conform with the current
  year presentation.
  
  Note 2:  Debt
  
              On January 16, 1998,  the Company's  credit  agreement  with several
  banks was amended to increase  the amount  available  from $400  million to $600
  million and to extend the  termination to January 16, 2003.  There were no other
  significant changes to the terms of the agreement.
  
               On  October  27,  1997,  the  Company   completed  a  $250  million
  underwritten  public debt  offering  consisting  of $125 million 6.75% notes due
  November 1, 2004 and $125  million  7.3% notes due  November 1, 2027.  The 6.75%
  notes  were sold at a  discount  to yield  6.794%  and carry a  make-whole  call
  provision with a five basis-points  premium.  The 7.3% notes were also sold at a
  discount  to yield  7.344%  and  carry a  make-whole  call  provision  with a 15
  basis-points premium. The proceeds of the offering were used to repay short-term
  borrowings.
  
  Note 3: Discontinued Operations
  
           Discontinued  operations  of the Company  represent  the  operations of
  Unisource Worldwide, Inc. ("Unisource"), which was spun off as a separate public
  company on December 31, 1996. The results of discontinued  operations,  included
  in the Company's  results of operations for the six months ended March 31, 1997,
  are as follows (in thousands):
  
                                                            Three Months Ended
                                                            December 31, 1996
  
           Revenues                                             $1,728,533
                                                                ==========
  
           Income before taxes                                  $   34,743
           Tax expense                                              14,592
                                                                ----------
           Net income                                           $   20,151
                                                                ==========
  
           In December 1996,  Unisource repaid $553.5 million of intercompany debt
  outstanding  with the Company and the Unisource  stock was  distributed  to IKON
  shareholders.  Equity  of the  Company  was  reduced  by $952.3  million,  which
  represented the equity of Unisource at December 31, 1996.
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1998
  
  Note 4:  Extraordinary Loss on Early Extinguishment of Debt
  
           On December 2, 1996,  Unisource  borrowed under its new credit facility
  to repay  $553.5  million of  intercompany  debt with the  Company.  The Company
  prepaid debt in the amount of $514 million from these funds.  Early repayment of
  this debt resulted in certain prepayment  penalties.  Total prepayment penalties
  of $18.7  million and related tax benefits of $6.5  million are  reflected as an
  extraordinary  loss on early  extinguishment  of debt on the Statement of Income
  for the six months ended March 31, 1997.
  
  Note 5:  Transformation Costs
  
           In September 1995, the Company announced its transformation  program to
  change its organization into a more cohesive and efficient network by building a
  uniform  information  technology  system and  implementing  best  practices  for
  critically  important  management  functions  throughout the IKON companies.  In
  March 1997, the Company  announced that it was accelerating  the  transformation
  program.  As a result, the Company began to separately disclose these costs as a
  component of operating  expenses on the Statement of Income. The Company expects
  to substantially  complete the transformation program by the end of fiscal 1998.
  The  transformation  involves a variety of activities which the Company believes
  will significantly lower  administrative costs and improve gross margins through
  the creation of  marketplace-focused  field operations with greater attention to
  customer sales and service.  These activities include consolidating  purchasing,
  inventory control, logistics and other activities into thirteen customer service
  centers in the U.S., establishing a single financial processing center, building
  a common  information  technology  system,  adopting  a common  name and  common
  benefit programs. Transformation costs in the first six months of fiscal 1998 of
  $39.7 million relate principally to severance and other employee-related  costs,
  including  temporary  labor  ($28.7  million),   facility  consolidation  costs,
  including lease buyouts and write-offs of leasehold  improvements ($6.7 million)
  and technology  conversion costs ($4.3 million).  Transformation  costs of $75.5
  million for the first six months of fiscal 1997  consist  primarily of severance
  and other employee-related costs, including temporary labor and costs related to
  consultants   assisting  in  the   transformation   ($26.5  million),   facility
  consolidation  costs,  including  lease  buyouts  and  write-offs  of  leasehold
  improvements ($7.8 million), technology conversion costs, including write-off of
  the SAP computer  platform pilot ($30.9 million) and costs incurred to adopt the
  IKON Office Solutions name worldwide ($10.3 million).
  
  Note 6:  Earnings Per Share
  
           The  following  table sets forth the  computation  of basic and diluted
  earnings per share from continuing operations (in thousands):
  For the fiscal quarter ended                                     3/31/98                      3/31/97
  Numerator:
       Income from continuing operations                        $      39,286                $      14,615
       Preferred stock dividends                                        4,885                        4,885
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings per share - income
          available to common shareholders                             34,401                        9,730
  
       Effect of dilutive securities:
          Convertible loan notes                                           77                           81
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings per share - income
          available to common shareholders
          after assumed conversions                             $      34,478                 $      9,811
                                                                =============                 ============
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1998
  
  Note 6:  Earnings Per Share (continued)
  
  Denominator:
       Weighted average shares                                        134,853                      134,797
       Contingently issuable shares                                       121
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             134,974                      134,797
  
       Effect of dilutive securities:
          Additional contingently issuable shares                         141
          Employee stock options                                          929                        1,461
          Convertible loan notes                                          258                          287
                                                                -------------                 ------------
       Dilutive potential common shares                                 1,328                        1,748
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          136,302                      136,545
                                                                =============                 ============
  
  Basic earnings per share from
       continuing operations                                            $0.25                        $0.07
                                                                        =====                        =====
  
  Diluted earnings per share from
       continuing operations                                            $0.25                        $0.07
                                                                        =====                        =====
  
  For the six months ended                                           3/31/98                       3/31/97
  Numerator:
       Income from continuing operations                        $      76,270                $      59,274
       Preferred stock dividends                                        9,770                        9,770
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings per share - income
          available to common shareholders                             66,500                       49,504
  
       Effect of dilutive securities:
          Convertible loan notes                                          155                          166
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings per share - income
          available to common shareholders
          after assumed conversions                             $      66,655                 $     49,670
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        134,284                      133,723
       Contingently issuable shares                                        60
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             134,344                      133,723
  
       Effect of dilutive securities:
          Additional contingently issuable shares                         202
          Employee stock options                                          845                        1,504
          Convertible loan notes                                          258                          259
                                                                -------------                 ------------
       Dilutive potential common shares                                 1,305                        1,763
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          135,649                      135,486
                                                                =============                 ============
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1998
  
  Note 6:  Earnings Per Share (continued)
  
  Basic earnings per share from
       continuing operations                                            $0.49                        $0.37
                                                                        =====                        =====
  
  Diluted earnings per share from
       continuing operations                                            $0.49                        $0.37
                                                                        =====                        =====
  Options  to  purchase  2,074,130  shares of common  stock at $32.66 per
  share to $62.10 per share were  outstanding  during the second quarter of fiscal
  1998 but were not  included in the  computation  of diluted  earnings  per share
  because the options'  exercise prices were greater than the average market price
  of the common shares and, therefore, the effect would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted  calculation  because the effect of adding 9,682,144 shares and deleting
  the preferred dividends to reflect assumed conversion would be antidilutive.  In
  accordance with the terms of the Series BB preferred  stock, the Company expects
  to convert the Series BB preferred  stock to common stock  effective  October 1,
  1998.
  Item 2:  Management's  Discussion  and  Analysis  of Results of  Operations  and
  Financial Condition and Liquidity
  
           Operations  of the  Company  consist of IKON,  which  sells,  rents and
  leases  photocopiers,  digital printers and other automated office equipment for
  use in both traditional and integrated office  environments.  IKON also provides
  outsourcing  and  imaging  services  and  offers  consulting,  design,  computer
  networking and technology training for the networked office environment.
  
                                Results of Operations
  
           The  discussion  of the results of  operations  reviews the  continuing
  operations of the Company as contained in the Consolidated Statements of Income.
  
                      Three and Six Months Ended March 31, 1998
             Compared with the Three and Six Months Ended March 31, 1997
  
           Revenues  and  income   before   taxes  for  the  second   quarter  and
  year-to-date  of fiscal 1998 compared to the second quarter and  year-to-date of
  fiscal 1997 were as follows:
  Three Months Ended                       Six Months Ended
                                                     March 31             %                 March  31           %
                                                 1998        1997        Change         1998       1997       Change
  (in millions)
  REVENUES                                     $1,439      $1,278        12.6%        $2,813     $2,418       16.3%
                                               ======      ======                     ======     ======
  
  INCOME BEFORE TAXES:
  Operating income, excluding
     transformation costs                      $104.6      $102.9         1.7%        $206.6     $198.6        4.0%
  Transformation costs                          (20.2)      (61.2)                     (39.7)     (75.5)
                                                ------      ------                     -----      -----
        Operating income                         84.4        41.7                      166.9      123.1
  Interest expense                              (16.2)      (11.6)                     (33.3)     (19.8)
                                                ------      ------                     -----      -----
                                                $68.2       $30.1       126.6%        $133.6     $103.3       29.3%
                                                =====       =====                     ======     ======
  SECOND QUARTER:
           The Company's second quarter revenues increased $161 million,  or 12.6%
  over the second quarter of fiscal 1997, of which $98 million  relates to current
  and prior year acquisitions and $63 million to base companies'  internal growth.
  The Company's  worldwide internal revenue growth was 5% in the second quarter of
  fiscal  1998  compared  to 9% in the  first  quarter  of fiscal  1998.  Although
  revenues  were ahead of the same period last year,  second  quarter  fiscal 1998
  results fell short of  expectations.  The shortfall is isolated to the Company's
  North  American  copier  business and is the result of three major  factors - 1)
  issues related to the ongoing  transformation  process;  2) competitive  pricing
  pressures which have reduced margins on the equipment side of the business;  and
  3) product  rationalization  -- focusing on the products  that provided the best
  solutions for our customers.  Given these issues,  the expected internal revenue
  growth rate for the remainder of the fiscal year has been revised downward to 5%
  to 7%. Revenues from the Company's operations outside the U.S. were $190 million
  for the second  quarter of fiscal  1998  compared  to $167  million for the same
  period of the prior fiscal year. The Company's European operations accounted for
  $16  million  of the  increase,  primarily  from  acquisitions,  while  Canadian
  revenues  increased  $4 million  as a result of  acquisitions,  net of  negative
  internal  growth  in  the  second  quarter.  Other  foreign  operations  revenue
  increased $3 million in the second quarter of fiscal 1998 compared to the second
  quarter of fiscal 1997.
  
           The Company's  operating  income increased by $42.7 million compared to
  the prior year's quarter.  However,  excluding  transformation costs,  operating
  income  increased  1.7% to $104.6  million for the second quarter of fiscal 1998
  compared to $102.9 million in the prior year. Finance  subsidiaries  contributed
  21.3% of the  Company's  operating  income  before  transformation  costs in the
  second  quarter of fiscal 1998 compared to 13.5% in the second quarter of fiscal
  1997. The Company's  operating margins were 5.9% in the second quarter of fiscal
  1998,  compared  to  3.3%  in the  second  quarter  of  fiscal  1997.  Excluding
  transformation  costs, the Company's  operating  margins were 7.3% in the second
  quarter of fiscal 1998,  compared to 8.1% in the second  quarter of fiscal 1997.
  Excluding  transformation  costs,  the  Company's  second  quarter  fiscal  1998
  operating margins were consistent with the last two quarters.
  
           Costs associated with the Company's  transformation  program  decreased
  $41 million in the second  quarter of fiscal 1998 compared to the second quarter
  of fiscal 1997. Second quarter 1997 transformation  costs included the write-off
  of capitalized  costs related to the abandoned SAP computer pilot program of $23
  million and costs incurred to adopt the IKON Office  Solutions name worldwide of
  $9 million.  Other  technology  conversion  costs,  severance and other employee
  costs and  facility  consolidation  costs  decreased  $9  million  in the second
  quarter of fiscal 1998 compared to the second quarter of fiscal 1997.
  
           Operating  income from  foreign  operations  was $10.6  million for the
  second  quarter of fiscal 1998,  down $1.6  million  from $12.2  million for the
  second quarter of fiscal 1997. European operations  increased by $3.8 million in
  the second quarter,  while Canadian operating income decreased $6.4 million, the
  impact of negative internal revenue growth.  Other foreign operations  increased
  $1.0 million in the second quarter of fiscal 1998.  There was no material effect
  of foreign currency  exchange rate  fluctuations on the results of operations in
  the second quarter of fiscal 1998 compared to the second quarter of fiscal 1997.
  
  SIX MONTHS:
           The  Company's  revenues  for the  six  months  ended  March  31,  1998
  increased  $395  million,  or 16.3% over the first six months of fiscal 1997, of
  which  $227  million  relates to current  and prior year  acquisitions  and $168
  million  to  base  companies'  internal  growth.  Revenues  from  the  Company's
  operations outside the U.S. were $367 million for the first six months of fiscal
  1998 compared to $314 million for the same period of the prior fiscal year.  The
  Company's European operations  accounted for $30 million of the increase,  while
  Canadian revenues increased $18 million, both primarily from acquisitions. Other
  foreign  operations  revenue  increased  $5  million  in the first six months of
  fiscal 1998 compared to the first six months of fiscal 1997.
  
           For the six months ended March 31, 1998, the Company's operating income
  increased  by $43.8  million  compared  to the prior  year.  However,  excluding
  transformation costs,  operating income increased 4.0% to $206.6 million for the
  first six months of fiscal 1998  compared  to $198.6  million in the prior year.
  Finance subsidiaries  contributed 21.0% of the Company's operating income before
  transformation costs in the first six months of fiscal 1998 compared to 14.3% in
  the first six months of fiscal 1997. The Company's  operating  margins were 5.9%
  in the first six months of fiscal 1998, compared to 5.1% in the first six months
  of fiscal 1997. Excluding  transformation costs, the Company's operating margins
  were 7.4% in the first six months of fiscal 1998,  compared to 8.2% in the first
  six months of fiscal 1997.
  
           Costs associated with the Company's  transformation  program  decreased
  approximately $36 million in the first six months of fiscal 1998 compared to the
  first  six  months  of  fiscal  1997.  The  first  six  months  of  fiscal  1997
  transformation  costs included the write-off of capitalized costs related to the
  abandoned SAP computer  pilot program of $23 million and costs incurred to adopt
  the IKON Office  Solutions  name  worldwide  of $10  million.  Other  technology
  conversion costs,  severance and other employee costs and facility consolidation
  costs decreased a net $3 million in the first six months of fiscal 1998 compared
  to the same period in the prior year.
  
           Operating income from foreign  operations was $23.2 million for the six
  months  ended March 31,  1998,  up $1.1  million from the prior year's six month
  period.  European operations  increased by $5.2 million in the first six months,
  while  Canadian  operating  income  decreased  $5.9  million  and other  foreign
  operations  increased $1.8 million in the first six months of fiscal 1998. There
  was no material  effect of foreign  currency  exchange rate  fluctuations on the
  results of  operations  in the first six months of fiscal  1998  compared to the
  first six months of fiscal 1997.
  Acquisitions
           In the  second  quarter  of  fiscal  1998,  the  Company  completed  10
  acquisitions,  bringing  total  year-to-date  acquisitions  to  27.  Of  the  27
  companies  acquired  this  fiscal  year,  seven  were  outsourcing  and  imaging
  companies,  nine were  systems  integration  companies  and 11 were  traditional
  copier companies.  The focus of acquisition  activity for fiscal 1998 will be to
  continue  to build a  presence  in Europe and expand  capability  in  technology
  services and outsourcing/imaging.
  
  Other
           Interest expense increased $4.6 million in the second quarter of fiscal
  1998 and $13.5 million year-to-date. The increased expense is due to higher debt
  levels from investment in working capital, acquisitions and the share repurchase
  program which began in the third quarter of fiscal 1997.
  
           Income before taxes  increased by $38.1  million in the second  quarter
  and $30.3 million  year-to-date  over the prior year,  primarily  reflecting the
  combined  result of  internal  revenue  growth from base  companies,  along with
  earnings contributed by acquisitions,  plus a decrease in transformation  costs,
  net of increased interest costs. The effective income tax rate for the first six
  months of fiscal 1998 is 42.9% compared with 42.6% for the comparative period in
  fiscal 1997.
  
           The Company used the proceeds of a December 2, 1996  intercompany  debt
  repayment  of $553.5  million from its  discontinued  operation,  Unisource,  to
  prepay $514 million of corporate  debt.  The Company  recorded an  extraordinary
  charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of
  fiscal  1997   primarily  for  prepayment   penalties   relating  to  its  early
  extinguishment of certain corporate debt.
  
           Earnings per common share,  assuming dilution,  increased from $.07 per
  share for the  second  quarter  of fiscal  1997 to $.25 per share for the second
  quarter of fiscal  1998.  Excluding  transformation  costs,  earnings per common
  share,  assuming  dilution,  decreased  5.4% from $.37 per share for the  second
  quarter of fiscal 1997 to $.35 per share in the second  quarter of fiscal  1998.
  Year-to-date,  earnings per share from continuing operations, assuming dilution,
  increased  from $.37 per share for the first six  months of fiscal  1997 to $.49
  per  share for the first six  months of fiscal  1998.  Excluding  transformation
  costs,  year-to-date  earnings per share from  continuing  operations,  assuming
  dilution,  decreased 6.8% from $.73 per share for the first six months of fiscal
  1997 to $.68 per share in the first six months of fiscal 1998.  Including income
  from discontinued operations and the extraordinary loss on the extinguishment of
  debt,  year-to-date  earnings per share,  assuming dilution, of the Company were
  $.79 for the first six months of fiscal 1997.
  
                          Financial Condition and Liquidity
  
           Net cash provided by operating  activities  for the first six months of
  fiscal 1998 was $101  million.  During the same  period,  the Company  used $492
  million in cash for investing activities,  which included net finance subsidiary
  activity of $350 million, acquisition activity at a cash cost of $40 million and
  capital  expenditures  for  property  and  equipment  of $67 million and capital
  expenditures  for  equipment  on  operating  leases  of $43  million.  Investing
  activities  were funded by cash from operations and financing  activities.  Cash
  provided by financing activities includes $101 million net increase in corporate
  debt and $245 million increase in finance  subsidiaries  debt.  Debt,  excluding
  finance  subsidiaries,  was $917 million at March 31,  1998,  an increase of $99
  million from the debt balance at September 30, 1997 of $818 million. The debt to
  capital  ratio,  excluding  finance  subsidiaries,  was 36.6% at March 31,  1998
  compared to 35.6% at September 30, 1997.  The Company has  established  goals to
  reduce working capital and related debt levels.
  
           On January 16, 1998,  the Company  amended its December 16, 1996 credit
  agreement to increase the borrowing limit from $400 million to $600 million.  As
  of March 31, 1998, short-term borrowings supported by the agreement totaled $101
  million.  In October  1997,  the Company  completed  a $250  million two tranche
  underwritten public offering consisting of $125 million 6.75% notes due November
  1, 2004 and $125 million  7.3% notes due November 1, 2027.  The 6.75% notes were
  sold at a discount to yield 6.794% and carry a make-whole  call provision with a
  five basis-points  premium. The 7.3% notes were also sold at a discount to yield
  7.344% and carry a make-whole call provision with a 15 basis-points premium. The
  proceeds of the offering were used to repay short-term  borrowings.  The Company
  also has $700 million  available  for either stock or debt  offerings  under its
  shelf registration statement.
  
           Finance  subsidiaries  debt grew by $244.6  million from  September 30,
  1997, a result of increased leasing activity.  During the six months ended March
  31, 1998, the U.S. finance  subsidiary issued an additional $193.5 million under
  its medium  term notes  program,  net of  repayments.  At March 31,  1998,  $1.7
  billion of medium term notes were outstanding  with a weighted  interest rate of
  6.5%,  while $1.3 billion remains  available under this program.  Under its $275
  million asset  securitization  programs,  the U.S. finance subsidiary sold $52.3
  million in direct  financing  leases during the first six months of fiscal 1998,
  replacing  those  leases  liquidated  and leaving the amount of  contracts  sold
  unchanged.  On April 30, 1998,  the Company  entered into a CN$175 million asset
  securitization  agreement for direct financing lease receivables of its Canadian
  finance  subsidiary.   CN$70  million  (approximately  $49  million)  of  direct
  financing leases were sold under this agreement on April 30, 1998.
  
           The Company filed shelf  registrations  for 10 million shares of common
  stock in April 1997 and 5 million  shares of common stock in March 1996.  Shares
  issued  under these  registration  statements  are being used for  acquisitions.
  Approximately   5.3  million   shares   have  been  issued   under  these  shelf
  registrations  through March 31, 1998,  leaving 9.7 million shares available for
  issuance.
  
           On April 17, 1997, the Company  announced  that it may repurchase  from
  time to time as much as five  percent of the  outstanding  IKON common  stock in
  open market  transactions.  Through  fiscal 1997,  the Company  repurchased  4.4
  million common shares for $109.7 million. There were no shares repurchased under
  this program during the first six months of fiscal 1998.
  
           The Company  believes that its operating cash flow together with unused
  bank credit  facilities and other financing  arrangements  will be sufficient to
  finance  current  operating   requirements   including   capital   expenditures,
  acquisitions,  dividends,  stock  repurchases  and  costs  associated  with  the
  Company's  transformation  program.  For the  remainder of the fiscal year,  the
  Company expects to incur $25 million to $40 million of expense to  substantially
  complete its transformation initiatives.
  
                             Forward-Looking Information
  
           This document contains, and other materials filed or to be filed by the
  Company with the Commission which are incorporated by reference  herein, as well
  as information  included in oral statements or other written  statements made or
  to be made by the Company, contain or will contain or include, disclosures which
  are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
  Securities  Act of 1933,  as amended,  and Section 21E of the 1934 Exchange Act.
  Such  forward-looking   statements  address,   among  other  things,   strategic
  initiatives  (including  plans for enhancing the Company's  business through new
  acquisitions,  information technology systems,  sales strategies,  market growth
  plans,  margin  enhancement  initiatives,  capital  expenditures  and  financing
  sources).  Such  forward-looking  information is based upon management's current
  plans or expectations and is subject to a number of uncertainties and risks that
  could significantly affect current plans,  anticipated actions and the Company's
  future financial  condition and results.  These uncertainties and risks include,
  but are not limited to, those  relating to  successfully  managing an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical services and products that are relatively new to the Company, and also
  including companies outside the U.S., which present additional risks relating to
  international  operations;   risks  and  uncertainties  relating  to  conducting
  operations in a competitive  environment;  delays,  difficulties,  technological
  changes,   management  transitions  and  employment  issues  associated  with  a
  large-scale   transformation   project;  debt  service  requirements  (including
  sensitivity to fluctuations in interest rates); and general economic conditions.
  As a  consequence,  current  plans,  anticipated  actions  and future  financial
  condition  and results may differ from those  expressed  in any  forward-looking
  statements made by or on behalf of the Company.
  PART II. OTHER INFORMATION
  
  Item 4. Submission of Matters to a Vote of Security Holders
  
           On  January  22,  1998,   the  Company  held  its  annual   meeting  of
  shareholders,  at which nine  directors  were  elected to hold office  until the
  election of their successors:
  
                                                  For                   Withheld
           James R. Birle                     102,514,041               9,930,874
           Philip E. Cushing                  102,399,043              10,045,872
           Kurt E. Dinkelacker                102,452,665               9,992,250
           William F. Drake, Jr.              102,484,802               9,960,113
           Thomas P. Gerrity                  102,475,176               9,969,739
           Frederick S. Hammer                102,421,194              10,023,721
           Barbara Barnes Hauptfuhrer         102,500,741               9,944,174
           Richard A. Jalkut                  102,499,819               9,945,096
           John E. Stuart                     102,232,220              10,212,695
  
  Item 6.  Exhibits and Reports on Form 8-K
  
           (a)   The  following  Exhibits  are  furnished  pursuant to Item 601 of
                 Regulation S-K:
  
                 Exhibit No. (27) Financial Data Schedule
  
           (b)   Reports on Form 8-K
  
                 On March 6, 1998, the  registrant  filed a Current Report on Form
                 8-K to file,  under  Item 5 of the  form,  as an  exhibit  to the
                 report,  the effect of adoption of SFAS 128 on the Annual  Report
                 on Form 10-K for the fiscal year ended September 30, 1997 and the
                 related  restatement of earnings per share therein,  so that such
                 information may be  incorporated  by reference into  Registration
                 Statements filed on Forms S-3 and S-8 filed subsequent to the 8-K
                 filing.
  
                 On April 24, 1998, the registrant  filed a Current Report on Form
                 8-K to file,  under Item 5 of the form,  the press  release dated
                 April 22,  1998,  which  reported  its  earnings  for the  fiscal
                 quarter ended March 31, 1998, provided earnings estimates for the
                 remainder  of the  registrant's  1998  fiscal  year and  provided
                 additional  information regarding its business,  acquisitions and
                 transformation process.
  SIGNATURES
  
  Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned,  thereunto duly authorized. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
                                          IKON OFFICE SOLUTIONS, INC.
  
  Date        May 14, 1998                /s/ Michael J. Dillon
                                          Michael J. Dillon
                                          Vice President and Controller
                                          (Chief Accounting Officer)
  INDEX TO EXHIBITS
  
  Exhibit Number
  
           (27)       Financial Data Schedule