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  June 30,  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 July 31, 1998.
  
  Common Stock, no par value                            135,556,149 shares
  <PAGE>
                                        INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  
  PART I.  FINANCIAL INFORMATION
  
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--June 30, 1998
                           and September 30, 1997
  
                           Consolidated   Statements  of  Income--Three  and  nine
                           months ended June 30, 1998 and June 30, 1997
  
                           Consolidated  Statements  of  Cash  Flows--Nine  months
                           ended June 30, 1998 and June 30, 1997
  
                           Notes to Consolidated Financial Statements--
                           June 30, 1998
  
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  
  
  PART II.  OTHER INFORMATION
  
  
       Item 5.             Other Information
  
       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 )
  
  
                                               June 30      September 30
  ASSETS                                         1998           1997
  
  Current Assets
      Cash                                      $4,633        $21,341
      Accounts receivable, net                 760,872        765,660
      Finance receivables, net                 800,919        670,784
      Inventories                              475,827        442,207
      Prepaid expenses                         108,133        101,294
      Deferred taxes                           122,028        124,520
                                            ----------     ----------
      Total current assets                   2,272,412      2,125,806
                                            ----------     ----------
  
  
  Investments and Long-Term Receivables         16,482         17,508
  
  Long-Term Finance Receivables, net         1,535,008      1,331,372
  
  Equipment on Operating Leases, net           112,870        101,900
  
  Property and Equipment, at cost              498,725        462,360
      Less accumulated depreciation            237,809        222,815
                                            ----------     ----------
                                               260,916        239,545
                                            ----------     ----------
  
  Other Assets
      Goodwill                               1,354,736      1,348,133
      Miscellaneous                            155,817        159,622
                                            ----------     ----------
                                             1,510,553      1,507,755
                                            ----------     ----------
  
  
                                            $5,708,241     $5,323,886
                                            ==========     ==========
  
  See notes to consolidated financial statements.
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  <TABLE>
  <CAPTION>
                                                                    June 30         September 30
  LIABILITIES AND SHAREHOLDERS' EQUITY                                1998               1997
  <S>                                                                 <C>              <C>    
  Current Liabilities
      Current portion of long-term debt                              $125,073          $60,794
      Current portion of long-term debt, finance subsidiaries         645,911          251,711
      Notes payable                                                    90,677          266,979
      Trade accounts payable                                          224,838          206,547
      Accrued salaries, wages and commissions                         100,711          110,628
      Deferred revenues                                               205,050          208,612
      Other accrued expenses                                          250,795          268,511
                                                                  -----------      -----------
      Total current liabilities                                     1,643,055        1,373,782
                                                                  -----------      -----------
  
  Long-Term Debt                                                      664,567          490,235
  
  Long-Term Debt, Finance Subsidiaries                              1,433,635        1,494,043
  
  Deferred Taxes                                                      340,321          330,996
  
  Other Long-Term Liabilities                                         138,616          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                                               526,932          574,646
      Foreign currency translation adjustment                          (1,198)            (728)
      Cost of common shares in treasury: 6/98 - 179 shares;
         9/97 - 2,401 shares                                           (5,538)         (60,121)
                                                                  -----------      -----------
                                                                    1,488,047        1,481,648
                                                                  -----------      -----------
  
                                                                   $5,708,241       $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>
                                                           Three Months Ended                Nine Months Ended
                                                                June 30                          June 30
                                                          1998             1997            1998             1997
  <S>                                                    <C>              <C>            <C>              <C>       
  Revenues
  Net sales                                              $721,044         $714,461       $2,236,092       $2,066,085
  Service and rentals                                     594,806          542,395        1,740,694        1,508,304
  Finance income                                           78,878           59,450          223,788          160,211
                                                      -----------      -----------      -----------      -----------
                                                        1,394,728        1,316,306        4,200,574        3,734,600
                                                      -----------      -----------      -----------      -----------
  
  Costs and Expenses
  Cost of goods sold                                      520,442          455,358        1,490,189        1,319,100
  Service and rental costs                                307,632          273,219          892,274          740,422
  Finance interest expense                                 33,171           26,350           96,876           69,731
  Selling and administrative                              587,772          473,699        1,586,547        1,319,008
  Loss from asset impairment                               20,000                            20,000
  Transformation costs                                     16,539           22,961           54,250           98,494
                                                      -----------      -----------      -----------      -----------
                                                        1,485,556        1,251,587        4,140,136        3,546,755
                                                      -----------      -----------      -----------      -----------
  
  Operating income (loss)                                 (90,828)          64,719           60,438          187,845
  Interest expense                                         17,684           12,089           50,956           31,895
                                                      -----------      -----------      -----------      -----------
  Income (loss) from continuing operations before
      taxes and extraordinary loss                       (108,512)          52,630            9,482          155,950
  Taxes on income                                         (19,867)          22,502           30,852           66,548
                                                      -----------      -----------      -----------      -----------
  Income (loss) from continuing operations before
       extraordinary loss                                 (88,645)          30,128          (21,370)          89,402
  
  Discontinued operations                                                                                     20,151
                                                      -----------      -----------      -----------      -----------
  Income (loss) before extraordinary loss                 (88,645)          30,128          (21,370)         109,553
  Extraordinary loss from early extinguishment
       of debt, net of tax benefit                                                                           (12,156)
                                                      -----------      -----------      -----------      -----------
  
  Net Income (Loss)                                       (88,645)          30,128          (21,370)          97,397
  Less:  Preferred Dividends                                4,885            4,885           14,655           14,655
                                                      -----------      -----------      -----------      -----------
  Available to Common Shareholders                       $(93,530)         $25,243         $(36,025)         $82,742
                                                      ===========      ===========      ===========      ===========
  
  Basic and Diluted Earnings Per Share
  Continuing Operations                                    $(0.69)           $0.19           $(0.27)           $0.56
  Discontinued Operations                                                                                      $0.15
  Extraordinary loss                                                                                          $(0.09)
                                                      -----------      -----------      -----------      -----------
                                                           $(0.69)           $0.19           $(0.27)           $0.62
                                                      ===========      ===========      ===========      ===========
  
  Cash Dividends Per Share of Common Stock                   $.04             $.04             $.12             $.22
                                                      ===========      ===========      ===========      ===========
  </TABLE>
  
  
  See notes to consolidated financial statements.
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                                                    Nine Months Ended
                                                                                         June 30
                                                                                   1998             1997
  <S>                                                                           <C>               <C>    
  Operating Activities
      Income (loss) from continuing operations before extraordinary loss        $(21,370)         $89,402
      Additions (deductions) to reconcile income (loss) from continuing
         operations before extraordinary loss to net cash
         provided by operating activities of continuing operations
            Depreciation                                                         101,219           77,335
            Amortization                                                          50,152           34,737
            Provisions for losses on accounts receivable                          46,421           18,385
            Provision for deferred taxes                                          14,000           58,000
            Writeoff of fixed assets related to transformation                     3,459           24,183
            Loss from asset impairment                                            20,000
            Changes in  operating  assets and  liabilities,  net
               of effects from acquisitions and divestitures:
                   Increase in accounts receivable                               (27,364)        (175,078)
                   Increase in inventories                                       (26,802)        (105,960)
                   Increase in prepaid expenses                                  (10,445)         (34,241)
                   Increase in accounts payable, deferred
                      revenues and accrued expenses                               19,473            7,162
            Miscellaneous                                                         (9,322)          10,453
                                                                             -----------      -----------
  Net cash provided by operating activities of continuing operations             159,421            4,378
  Net cash provided by operating activities of
      discontinued operations                                                                      24,174
                                                                             -----------      -----------
  Net cash provided by operating activities                                      159,421           28,552
  
  Investing activities
      Proceeds from the sale of property and equipment                            24,087           25,878
      Payments made on deferred liabilities                                       (7,295)         (19,501)
      Cost of companies acquired, net of cash acquired                           (41,186)        (128,772)
      Expenditures for property and equipment                                    (91,228)         (76,863)
      Expenditures for equipment on operating leases                             (68,969)         (51,767)
      Purchase of miscellaneous assets                                            (9,042)         (10,585)
      Finance subsidiaries receivables - additions                            (1,156,662)      (1,092,435)
      Finance subsidiaries receivables - collections                             626,042          477,994
                                                                             -----------      -----------
  Net cash used in investing activities of continuing operations                (724,253)        (876,051)
  Net cash used in investing activities of discontinued operations                                (38,058)
                                                                             -----------      -----------
  Net cash used in investing activities                                         (724,253)        (914,109)
  
  Financing activities
      Proceeds (payments) of short-term borrowings, net                         (172,398)          84,210
      Proceeds from issuance of long-term debt                                   259,356           36,662
      Proceeds from option exercises and sale of treasury shares                  17,566           39,348
      Proceeds from sale of finance subsidiaries lease receivables               162,095           77,251
      Proceeds from discontinued operations                                                       553,700
      Long-term debt repayments                                                  (17,704)        (322,971)
      Finance subsidiaries debt - additions                                      601,892          697,215
      Finance subsidiaries debt - repayments                                    (267,890)        (159,000)
      Dividends paid                                                             (30,830)         (43,978)
      Purchase of treasury shares                                                 (3,963)        (112,154)
                                                                             -----------      -----------
  Net cash provided by financing activities of continuing operations             548,124          850,283
  Net cash provided by financing activities of discontinued operations                             13,882
                                                                             -----------      -----------
  Net cash provided by financing activities                                      548,124          864,165
                                                                             -----------      -----------
  
  Net decrease in cash                                                           (16,708)         (21,392)
  Cash at beginning of year                                                       21,341           46,056
                                                                             -----------      -----------
  Cash at end of period                                                           $4,633          $24,664
                                                                             ===========      ===========
  </TABLE>
  
  
  See notes to consolidated financial statements.
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    JUNE 30, 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 and the unusual charges  described in
  note 8) 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 nine months ended June 30, 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.)
                                    JUNE 30, 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 nine months ended June 30, 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 ultimately 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 nine months of fiscal 1998
  of $54.3 million  relate  principally  to severance  and other  employee-related
  costs, including temporary labor ($36.7 million),  facility consolidation costs,
  including lease buyouts and write-offs of leasehold improvements ($12.2 million)
  and technology  conversion costs ($5.4 million).  Transformation  costs of $98.5
  million for the first nine 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   ($40.1  million),   facility
  consolidation  costs,  including  lease  buyouts  and  write-offs  of  leasehold
  improvements ($13.1 million),  technology conversion costs,  including write-off
  of the SAP computer  platform pilot ($34.7  million) and costs incurred to adopt
  the IKON name worldwide ($10.6 million).
  
  
  Note 6:  Earnings (Loss) Per Share
  
           The  following  table sets forth the  computation  of basic and diluted
  earnings (loss) per share from continuing operations (in thousands):
  <TABLE>
  <CAPTION>
  For the fiscal quarter ended                                     6/30/98                      6/30/97
  Numerator:
  <S>                                                           <C>                          <C>          
       Income (loss) from continuing operations                 $    (88,645)                $      30,128
       Preferred stock dividends                                        4,885                        4,885
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings (loss) per share - income
          (loss) available to common shareholders                    (93,530)                       25,243
  
       Effect of dilutive securities:
          Convertible loan notes                                                                        83
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings (loss) per share - income
          (loss) available to common shareholders
          after assumed conversions                             $    (93,530)                 $     25,326
                                                                =============                 ============
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                    JUNE 30, 1998
  
  Note 6:  Earnings (Loss) Per Share (continued)
  
  Denominator:
       Weighted average shares                                        135,465                      132,781
       Contingently issuable shares                                       116
                                                                -------------                 ------------
       Denominator for basic earnings (loss) 
          per share - weighted average shares                         135,581                      132,781
  
       Effect of dilutive securities:
          Additional contingently issuable shares
          Employee stock options                                                                       771
          Convertible loan notes                                                                       287
                                                                -------------                 ------------
       Dilutive potential common shares                                                              1,058
       Denominator for diluted earnings (loss) per
              share - adjusted weighted average
              shares and assumed conversions                          135,581                      133,839
                                                                =============                 ============
  
  Basic earnings (loss) per share from
       continuing operations                                          ($0.69)                        $0.19
                                                                =============                 ============
  
  Diluted earnings (loss) per share from
       continuing operations                                          ($0.69)                        $0.19
                                                                =============                 ============
  
  For the nine months ended                                          6/30/98                       6/30/97
  Numerator:
       Income (loss) from continuing operations                 $    (21,370)                $      89,402
       Preferred stock dividends                                       14,655                       14,655
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings (loss) per share - income
          (loss) available to common shareholders                    (36,025)                       74,747
  
       Effect of dilutive securities:
          Convertible loan notes                                                                       249
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings (loss) per share - income
          (loss) available to common shareholders
          after assumed conversions                             $    (36,025)                 $     74,996
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        134,681                      133,410
       Contingently issuable shares                                       118
                                                                -------------                 ------------
       Denominator for basic earnings (loss) per
          share - weighted average shares                             134,799                      133,410
  
       Effect of dilutive securities:
          Additional contingently issuable shares
          Employee stock options                                                                     1,259
          Convertible loan notes                                                                       268
                                                                -------------                 ------------
       Dilutive potential common shares                                                              1,527
       Denominator for diluted earnings (loss) per
              share - adjusted weighted average
              shares and assumed conversions                          134,799                      134,937
                                                                =============                 ============
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                    JUNE 30, 1998
  
  Note 6:  Earnings (Loss) Per Share (continued)
  
  Basic earnings (loss) per share from
       continuing operations                                          ($0.27)                        $0.56
                                                                       ======                        =====
  
  Diluted earnings (loss) per share from
       continuing operations                                          ($0.27)                        $0.56
                                                                       ======                        =====
  </TABLE>
  
  
           Basic and  diluted  loss per share  amounts are the same in fiscal 1998
  because the effect, if any, of securities  considered in the diluted computation
  would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted  calculation for 1997 because the effect of adding  9,682,144 shares and
  deleting  the  preferred  dividends  to  reflect  assumed  conversion  would  be
  antidilutive.
  
  
  Note 7:  Income Taxes
  
           Tax expense for the first nine months of fiscal 1998 was $31.0  million
  on income before taxes of $9.5 million.  The unusual  effective tax rate of 325%
  is the result of the  impact of non-tax  deductible  items  (primarily  goodwill
  amortization and loss from asset  impairment) in relation to lower income before
  taxes.
  
  Note 8:  Unusual Charges and Restatement of Second Quarter Results
  
           The Company  completed  an  in-depth  review of its  operations  during
  August 1998 and determined that it was necessary and appropriate to take charges
  to earnings  totaling $110 million on a pre-tax  basis.  Of those  charges,  $94
  million was applied against earnings for the quarter ended June 30, 1998 and $16
  million against the quarter ended March 31, 1998,  which has been restated.  The
  charges  related  to  increased  accounts  receivable  reserves  ($20  million),
  increased  lease  default  reserves  ($28  million),  an asset  impairment  in a
  technology  service  company  involved in  high-end  software  development  ($20
  million),  adjustments  related to a  breakdown  in  internal  controls  at four
  operating  units ($19 million third  quarter,  $16 million  second  quarter) and
  adjustments at other operating units ($7 million).
  
           The Company has restated  earnings for the quarter ended March 31, 1998
  to reflect the $16 million charge ($9 million net of income taxes). Restated net
  income for the quarter  ended March 31, 1998 is $30.3  million  ($.19 per share)
  compared to previously reported net income of $39.3 million ($.25 per share).
  
  <PAGE>
  Item 2:  Management's  Discussion  and  Analysis  of Results of  Operations  and
  Financial Condition and Liquidity
  
           IKON 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 reported in the Consolidated Statements of Income.
  
                      Three and Nine Months Ended June 30, 1998
             Compared with the Three and Nine Months Ended June 30, 1997
  
           Results of operations for the third quarter and  year-to-date of fiscal
  1998  compared  to the third  quarter  and  year-to-date  of fiscal 1997 were as
  follows:
  <TABLE>
  <CAPTION>
                                               Three Months Ended                     Nine Months Ended
                                                     June 30               %               June  30               %
                                                 1998        1997        Change         1998       1997         Change
  (in millions)
  <S>                                          <C>         <C>            <C>         <C>        <C>             <C>  
  REVENUES                                     $1,395      $1,316         6.0%        $4,201     $3,735          12.5%
                                               ======      ======                     ======     ======
  
  INCOME (LOSS) BEFORE TAXES:
  Operating income (loss), excluding
     transformation costs                      ($74.3)      $87.7                     $114.7     $286.3         (59.9%)
  Transformation costs                          (16.5)      (23.0)                     (54.3)     (98.5)
                                                -----       -----                      -----      ----- 
        Operating income (loss)                 (90.8)       64.7                       60.4      187.8
  Interest expense                              (17.7)      (12.1)                     (50.9)     (31.9)
                                                -----       -----                      -----      ----- 
                                              ($108.5)      $52.6                       $9.5      $155.9        (93.9%)
                                               ======      ======                     ======     ======
  </TABLE>
  
  THIRD QUARTER:
           The Company's  third quarter  revenues  increased $79 million,  or 6.0%
  over the third  quarter of fiscal  1997.  Net sales,  which  includes  equipment
  revenue,  increased $7 million or .9%.  Equipment revenues have been impacted by
  increasing competition, which is driving sales prices down, although the Company
  continues to maintain its market share.  As a result of the recent  acceleration
  of the shift from black and white analog product to digital product,  prices are
  falling for black and white analog sales.  Service and rental revenue  increased
  $52 million or 9.7%. This increase  resulted from increases in equipment service
  revenue,   outsourcing  and  systems  integration  consulting.   Finance  income
  increased $19 million, or 32.7% due to the growth in the lease portfolio.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $181
  million for the third  quarter of fiscal 1998  compared to $169  million for the
  same  period  of the  prior  fiscal  year.  The  Company's  European  operations
  accounted for $4 million of the increase,  while Canadian revenues  increased $6
  million and other foreign  operations  revenue increased $2 million in the third
  quarter of fiscal 1998 compared to the third quarter of fiscal 1997.
  
           The Company's  operating income decreased by $155.5 million compared to
  the prior year's  quarter.  Excluding  transformation  costs,  operating  income
  decreased $162.0 million to a $74.3 million loss for the third quarter of fiscal
  1998  compared  to $87.7  million  of  income  in the prior  year.  The  Company
  completed an in-depth review of its operations during August 1998 and determined
  that it was necessary and appropriate to take charges to earnings  totaling $110
  million on a pre-tax  basis.  $94 million of those charges were applied  against
  third quarter 1998 earnings and $16 million  against  second  quarter  earnings,
  which have been restated.  These adjustments relate to the following four areas:
  
  <PAGE>
  
  1) Increases to accounting  estimates for lease default  reserves of $28 million
  and accounts receivable  reserves of $20 million.  The increase in lease default
  reserves is a result of recent  trends in customer  defaults,  especially in the
  print-for-pay  customer  segment of the  business.  The increase in the accounts
  receivable  reserve  relates  primarily  to  certain  business  units  which are
  experiencing  billing and collection  issues relating to systems  conversion and
  consolidation  of  operating  locations,  2) A $20  million  loss  from an asset
  impairment  in a  technology  service  company  involved  in  high-end  software
  development,  3)  $19  million  of  third  quarter  adjustments  related  to the
  breakdown in the execution of internal  controls at four operating  units (these
  breakdowns also caused the $16 million charge in the second quarter),  and 4) $7
  million of adjustments  at other  operating  units.  Excluding the third quarter
  charges,  pre-transformation  operating  income  would have been $19.8  million,
  which is substantially below the prior year's  pre-transformation  third quarter
  operating  income of $87.7  million.  This decrease  relates  primarily to gross
  margin  declines  in  equipment  sales  due  to  increasing  competition  in the
  high-end,  black and white and new digital products.  Gross margins in the third
  quarter of fiscal 1998 were 38.2%, 40.3% exclusive of unusual charges,  compared
  to 42.7% in the prior  year.  Gross  margins  are lower  this  quarter  than the
  previous  quarter due to competitive  pricing in equipment sales and because the
  lower margin  outsourcing and technology  services business have become a larger
  part of the revenue  mix.  The Company  expects  this trend to continue as gross
  margins  continue to be impacted by these  factors.  Selling and  administrative
  expense as a percent of revenue  was 42.1% in the third  quarter of fiscal  1998
  compared  to 36.0% in the third  quarter of fiscal  1997.  Adjusted  for unusual
  charges,  selling and  administrative  expense to revenue would have been 38.9%,
  which is still an increase  over the third  quarter of fiscal 1997.  The Company
  intends to reduce the selling and administrative expense to revenue relationship
  by focusing on increased sales  productivity  and  implementation  of an expense
  reduction program.
  
           Costs associated with the Company's transformation program decreased $7
  million in the third  quarter of fiscal 1998  compared  to the third  quarter of
  fiscal  1997.  Severance  and other  employee  costs  decreased  $4 million  and
  facility consolidation costs decreased $3 million in the third quarter of fiscal
  1998 compared to the third quarter of fiscal 1997.
  
           Operating income from foreign operations was $7.2 million for the third
  quarter of fiscal 1998, excluding the effects of the unusual charges,  down $5.6
  million  from  $12.8  million  for the third  quarter of fiscal  1997.  European
  operations  decreased  by $.3  million  in the  third  quarter,  while  Canadian
  operating income decreased $6.7 million. Other foreign operations increased $1.4
  million in the third  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.
  
  
  NINE MONTHS:
           The  Company's  revenues  for the  nine  months  ended  June  30,  1998
  increased $466 million, or 12.5% over the first nine months of fiscal 1997. This
  increase  consists of increased  net sales of $170 million,  or 8.2%,  increased
  service  and rental  revenue of $232  million,  or 15.4% and  increased  finance
  income of $64 million, or 39.7%.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $548
  million for the first nine months of fiscal  1998  compared to $483  million for
  the same period of the prior  fiscal year.  The  Company's  European  operations
  accounted for $35 million of the increase, while Canadian revenues increased $24
  million and other foreign  operations  revenue increased $6 million in the first
  nine months of fiscal 1998 compared to the first nine months of fiscal 1997.
  
           For the nine months ended June 30, 1998, the Company's operating income
  decreased by $127.4 million compared to the prior year. Excluding transformation
  costs, operating income decreased $171.6 million to $114.7 million for the first
  nine months of fiscal  1998  compared  to $286.3  million in the prior year.  As
  noted  above,  the Company took charges to earnings of $110 million on a pre-tax
  basis in fiscal 1998.  Excluding  these  charges,  pre-transformation  operating
  income would have been $226.4  million,  which is a decrease from the prior year
  of 20.9%.  The year to date  operating  income  has been  impacted  by the third
  quarter issues discussed above.
  <PAGE>
           Costs associated with the Company's  transformation  program  decreased
  approximately  $44 million in the first nine  months of fiscal 1998  compared to
  the first  nine  months of fiscal  1997.  The first nine  months of fiscal  1997
  transformation costs included the write-off of cost related to the abandoned SAP
  computer  pilot program of $23 million and costs incurred to adopt the IKON name
  worldwide of $10 million. Other technology conversion costs, severance and other
  employee costs and facility  consolidation  costs decreased a net $11 million in
  the first nine  months of fiscal  1998  compared to the same period in the prior
  year.
  
           Operating income from foreign operations was $30.6 million for the nine
  months ended June 30, 1998,  excluding the effects of the unusual charges,  down
  $4.4  million  from the prior  year's  nine month  period.  European  operations
  increased  by $4.9 million in the first nine months,  while  Canadian  operating
  income  decreased  $12.7 million and other  foreign  operations  increased  $3.4
  million in the first nine months of fiscal 1998. There was no material effect of
  foreign currency  exchange rate fluctuations on the results of operations in the
  first nine  months of fiscal  1998  compared  to the first nine months of fiscal
  1997.
  
  Acquisitions
           In  the  third  quarter  of  fiscal  1998,  the  Company   completed  4
  acquisitions,  bringing  total  year-to-date  acquisitions  to  31.  Of  the  31
  companies   acquired  this  fiscal  year,  nine  were  outsourcing  and  imaging
  companies, ten were systems integration companies and 12 were traditional copier
  companies.  Acquisition  activity has been put on hold for six to nine months in
  North America as management concentrates on improving operations.
  
  Other
           Interest expense  increased $5.6 million in the third quarter of fiscal
  1998 and $19.1 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  decreased by $161.1  million in the third quarter
  and $146.4 million  year-to-date over the prior year, as a result of the unusual
  charges,  decreasing  gross margins and  increasing  selling and  administrative
  expenses and interest expense,  offset by lower  transformation  expenses in the
  third  quarter and nine months  ended June 30,  1998.  Tax expense for the first
  nine  months of fiscal  1998 was $31.0  million on income  before  taxes of $9.5
  million.  The unusual  effective tax rate of 325% is the result of the impact of
  non-tax  deductible items (primarily  goodwill  amortization and loss from asset
  impairment) in relation to lower income before taxes.
  
           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,  decreased from $.19 per
  share for the third  quarter of fiscal  1997 to a loss per share of $.69 for the
  third  quarter of fiscal  1998.  Excluding  transformation  costs,  earnings per
  common share,  assuming  dilution,  decreased  from $.30 per share for the third
  quarter  of  fiscal  1997 to a loss per share of $.61 in the  third  quarter  of
  fiscal  1998.  Year-to-date,  earnings  per share  from  continuing  operations,
  assuming  dilution,  decreased  from $.56 per share for the first nine months of
  fiscal  1997 to a loss per  share of $.27 for the  first  nine  months of fiscal
  1998.  Excluding  transformation  costs,  year-to-date  earnings  per share from
  continuing operations, assuming dilution, decreased from $1.03 per share for the
  first nine  months of fiscal  1997 to a loss per share of $.01 in the first nine
  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 $.62 for the first nine months of
  fiscal 1997.
  
  <PAGE>
                          Financial Condition and Liquidity
  
           Net cash provided by operating  activities for the first nine months of
  fiscal 1998 was $159  million.  During the same  period,  the Company  used $724
  million in cash for investing activities,  which included net finance subsidiary
  activity of $531 million, acquisition activity at a cash cost of $41 million and
  capital  expenditures  for  property  and  equipment  of $91 million and capital
  expenditures for equipment on operating leases of $69 million.  Cash provided by
  financing  activities  includes $69 million net  increase in corporate  debt and
  $334 million  increase in finance  subsidiaries  debt. Debt,  excluding  finance
  subsidiaries, was $880 million at June 30, 1998, an increase of $62 million from
  the debt  balance at  September  30, 1997 of $818  million.  The debt to capital
  ratio,  excluding finance  subsidiaries,  was 37.2% at June 30, 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 June 30, 1998,  short-term  borrowings supported by the agreement totaled $78
  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 $333.8  million from  September 30,
  1997, a result of increased leasing activity.  During the nine months ended June
  30, 1998, the U.S. finance  subsidiary issued an additional $132.5 million under
  its medium term notes program, net of repayments. At June 30, 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 $78.8 million in
  direct financing  leases during the first nine 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$98.2 million  (approximately  $83.3 million) of direct financing
  leases were sold under this agreement through June 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   5.6  million   shares   have  been  issued   under  these  shelf
  registrations  through June 30, 1998,  leaving 9.4 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.  An additional  150,000  shares were
  repurchased  under this program during the third quarter of fiscal 1998 for $3.3
  million.
  
           On August 14, 1998,  Standard and Poor's lowered its credit ratings one
  level on the  Company  and IOS  Capital,  Inc.  to "BBB+"  from "A-" and Moody's
  Investor  Service  lowered  its credit  ratings one level on the Company and IOS
  Capital, Inc. from "A3" to "Baa1".
  
  <PAGE>
           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 $20 million to $30 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 risks and  uncertainties  relating to
  conducting  operations  in  a  competitive  environment;  delays,  difficulties,
  technological  changes,  management transitions and employment issues associated
  with  consolidation  of business  operations;  managing a 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;  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 5.     Other Information
  
  TIMELY SUBMISSION OF STOCKHOLDER PROPOSALS
  
                   The  Securities  and  Exchange  Commission  ("SEC")  requires a
  registrant to give  stockholders  notice of deadlines  for timely  submission of
  certain types of stockholder  proposals that  stockholders wish to present for a
  vote at a registrant's annual meeting.  These deadlines are set based on certain
  SEC rules as they relate to the registrant's  annual meeting and proxy statement
  mailing  dates and relevant  provisions  of its charter and  by-laws.  Set forth
  below are the deadlines applicable to Company stockholders.  The Company's Board
  has not yet acted to set a 1999 annual  meeting date;  the  following  dates are
  based on an  assumed  meeting  date of  February  4, 1999 and an  assumed  proxy
  statement  mailing  date of  December  24,  1998 for the  Company's  1999 Annual
  Meeting.
  
                   Stockholder  proposals  submitted  outside  the process of Rule
  14a-8 under the Securities Exchange Act of 1934, as amended, must be received by
  November 10, 1998, or they will be considered untimely.
  
                   In the event a  stockholder  does not timely notify the Company
  concerning  stockholder  proposals,  the Company will have the right to exercise
  its  discretionary  authority  (through the right conferred upon its proxies) to
  vote against such stockholder proposal.
  
  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
  
               Exhibit No. (99) Press Release Dated August 14, 1998
  
        (b)    Reports on Form 8-K
  
               On April 27, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, its press release dated
               April 22, 1998 which reported earnings for the fiscal quarter ended
               March 31, 1998, provided earnings estimates for the remainder of
               IKON's 1998 fiscal year and provided additional information
               regarding its business, acquisitions and transformation process.
  
               On June 29, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, its press release dated June 29,
               1998, indicating that IKON anticipates earnings will be
               significantly lower than the First Call consensus estimate of $.34
               per share for the quarter ending June 30, 1998 and that IKON
               expects to release third quarter earnings on July 22, 1998.
  
               On July 10, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, its press release dated July 9,
               1998 announcing the appointment of James J. Forese as IKON's
               President, Chief Executive Officer and a member of the Board of
               Directors. IKON also announced that Richard A. Jalkut, who has been
               a director of IKON since 1996, has been appointed non-executive
               Chairman. John E. Stuart, who had served as IKON's Chairman,
               President and Chief Executive Officer, has resigned his positions
               with IKON.
  
               On August 5, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, its press release dated
               August 4, 1998, stating that IKON is in the process of conducting
               the full review of operations previously announced and that IKON's
               third quarter results will be announced on August 14, 1998.
  
  <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        August 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
  
           (99)       Press Release dated August 14, 1998
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 60484}]
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": "98691452"}, "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  June 30,  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 July 31, 1998.
  
  Common Stock, no par value                            135,556,149 shares
  INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  PART I.  FINANCIAL INFORMATION
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--June 30, 1998
                           and September 30, 1997
  
                           Consolidated   Statements  of  Income--Three  and  nine
                           months ended June 30, 1998 and June 30, 1997
  
                           Consolidated  Statements  of  Cash  Flows--Nine  months
                           ended June 30, 1998 and June 30, 1997
  
                           Notes to Consolidated Financial Statements--
                           June 30, 1998
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  PART II.  OTHER INFORMATION
  
       Item 5.             Other Information
  
       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 )
  
                                               June 30      September 30
  ASSETS                                         1998           1997
  
  Current Assets
      Cash                                      $4,633        $21,341
      Accounts receivable, net                 760,872        765,660
      Finance receivables, net                 800,919        670,784
      Inventories                              475,827        442,207
      Prepaid expenses                         108,133        101,294
      Deferred taxes                           122,028        124,520
                                            ----------     ----------
      Total current assets                   2,272,412      2,125,806
                                            ----------     ----------
  
  Investments and Long-Term Receivables         16,482         17,508
  
  Long-Term Finance Receivables, net         1,535,008      1,331,372
  
  Equipment on Operating Leases, net           112,870        101,900
  
  Property and Equipment, at cost              498,725        462,360
      Less accumulated depreciation            237,809        222,815
                                            ----------     ----------
                                               260,916        239,545
                                            ----------     ----------
  
  Other Assets
      Goodwill                               1,354,736      1,348,133
      Miscellaneous                            155,817        159,622
                                            ----------     ----------
                                             1,510,553      1,507,755
                                            ----------     ----------
  
                                            $5,708,241     $5,323,886
                                            ==========     ==========
  
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  June 30         September 30
  LIABILITIES AND SHAREHOLDERS' EQUITY                                1998               1997
  Current Liabilities
      Current portion of long-term debt                              $125,073          $60,794
      Current portion of long-term debt, finance subsidiaries         645,911          251,711
      Notes payable                                                    90,677          266,979
      Trade accounts payable                                          224,838          206,547
      Accrued salaries, wages and commissions                         100,711          110,628
      Deferred revenues                                               205,050          208,612
      Other accrued expenses                                          250,795          268,511
                                                                  -----------      -----------
      Total current liabilities                                     1,643,055        1,373,782
                                                                  -----------      -----------
  
  Long-Term Debt                                                      664,567          490,235
  
  Long-Term Debt, Finance Subsidiaries                              1,433,635        1,494,043
  
  Deferred Taxes                                                      340,321          330,996
  
  Other Long-Term Liabilities                                         138,616          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                                               526,932          574,646
      Foreign currency translation adjustment                          (1,198)            (728)
      Cost of common shares in treasury: 6/98 - 179 shares;
         9/97 - 2,401 shares                                           (5,538)         (60,121)
                                                                  -----------      -----------
                                                                    1,488,047        1,481,648
                                                                  -----------      -----------
  
                                                                   $5,708,241       $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                Nine Months Ended
                                                                June 30                          June 30
                                                          1998             1997            1998             1997
  Revenues
  Net sales                                              $721,044         $714,461       $2,236,092       $2,066,085
  Service and rentals                                     594,806          542,395        1,740,694        1,508,304
  Finance income                                           78,878           59,450          223,788          160,211
                                                      -----------      -----------      -----------      -----------
                                                        1,394,728        1,316,306        4,200,574        3,734,600
                                                      -----------      -----------      -----------      -----------
  
  Costs and Expenses
  Cost of goods sold                                      520,442          455,358        1,490,189        1,319,100
  Service and rental costs                                307,632          273,219          892,274          740,422
  Finance interest expense                                 33,171           26,350           96,876           69,731
  Selling and administrative                              587,772          473,699        1,586,547        1,319,008
  Loss from asset impairment                               20,000                            20,000
  Transformation costs                                     16,539           22,961           54,250           98,494
                                                      -----------      -----------      -----------      -----------
                                                        1,485,556        1,251,587        4,140,136        3,546,755
                                                      -----------      -----------      -----------      -----------
  
  Operating income (loss)                                 (90,828)          64,719           60,438          187,845
  Interest expense                                         17,684           12,089           50,956           31,895
                                                      -----------      -----------      -----------      -----------
  Income (loss) from continuing operations before
      taxes and extraordinary loss                       (108,512)          52,630            9,482          155,950
  Taxes on income                                         (19,867)          22,502           30,852           66,548
                                                      -----------      -----------      -----------      -----------
  Income (loss) from continuing operations before
       extraordinary loss                                 (88,645)          30,128          (21,370)          89,402
  
  Discontinued operations                                                                                     20,151
                                                      -----------      -----------      -----------      -----------
  Income (loss) before extraordinary loss                 (88,645)          30,128          (21,370)         109,553
  Extraordinary loss from early extinguishment
       of debt, net of tax benefit                                                                           (12,156)
                                                      -----------      -----------      -----------      -----------
  
  Net Income (Loss)                                       (88,645)          30,128          (21,370)          97,397
  Less:  Preferred Dividends                                4,885            4,885           14,655           14,655
                                                      -----------      -----------      -----------      -----------
  Available to Common Shareholders                       $(93,530)         $25,243         $(36,025)         $82,742
                                                      ===========      ===========      ===========      ===========
  
  Basic and Diluted Earnings Per Share
  Continuing Operations                                    $(0.69)           $0.19           $(0.27)           $0.56
  Discontinued Operations                                                                                      $0.15
  Extraordinary loss                                                                                          $(0.09)
                                                      -----------      -----------      -----------      -----------
                                                           $(0.69)           $0.19           $(0.27)           $0.62
                                                      ===========      ===========      ===========      ===========
  
  Cash Dividends Per Share of Common Stock                   $.04             $.04             $.12             $.22
                                                      ===========      ===========      ===========      ===========
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Nine Months Ended
                                                                                         June 30
                                                                                   1998             1997
  Operating Activities
      Income (loss) from continuing operations before extraordinary loss        $(21,370)         $89,402
      Additions (deductions) to reconcile income (loss) from continuing
         operations before extraordinary loss to net cash
         provided by operating activities of continuing operations
            Depreciation                                                         101,219           77,335
            Amortization                                                          50,152           34,737
            Provisions for losses on accounts receivable                          46,421           18,385
            Provision for deferred taxes                                          14,000           58,000
            Writeoff of fixed assets related to transformation                     3,459           24,183
            Loss from asset impairment                                            20,000
            Changes in  operating  assets and  liabilities,  net
               of effects from acquisitions and divestitures:
                   Increase in accounts receivable                               (27,364)        (175,078)
                   Increase in inventories                                       (26,802)        (105,960)
                   Increase in prepaid expenses                                  (10,445)         (34,241)
                   Increase in accounts payable, deferred
                      revenues and accrued expenses                               19,473            7,162
            Miscellaneous                                                         (9,322)          10,453
                                                                             -----------      -----------
  Net cash provided by operating activities of continuing operations             159,421            4,378
  Net cash provided by operating activities of
      discontinued operations                                                                      24,174
                                                                             -----------      -----------
  Net cash provided by operating activities                                      159,421           28,552
  
  Investing activities
      Proceeds from the sale of property and equipment                            24,087           25,878
      Payments made on deferred liabilities                                       (7,295)         (19,501)
      Cost of companies acquired, net of cash acquired                           (41,186)        (128,772)
      Expenditures for property and equipment                                    (91,228)         (76,863)
      Expenditures for equipment on operating leases                             (68,969)         (51,767)
      Purchase of miscellaneous assets                                            (9,042)         (10,585)
      Finance subsidiaries receivables - additions                            (1,156,662)      (1,092,435)
      Finance subsidiaries receivables - collections                             626,042          477,994
                                                                             -----------      -----------
  Net cash used in investing activities of continuing operations                (724,253)        (876,051)
  Net cash used in investing activities of discontinued operations                                (38,058)
                                                                             -----------      -----------
  Net cash used in investing activities                                         (724,253)        (914,109)
  
  Financing activities
      Proceeds (payments) of short-term borrowings, net                         (172,398)          84,210
      Proceeds from issuance of long-term debt                                   259,356           36,662
      Proceeds from option exercises and sale of treasury shares                  17,566           39,348
      Proceeds from sale of finance subsidiaries lease receivables               162,095           77,251
      Proceeds from discontinued operations                                                       553,700
      Long-term debt repayments                                                  (17,704)        (322,971)
      Finance subsidiaries debt - additions                                      601,892          697,215
      Finance subsidiaries debt - repayments                                    (267,890)        (159,000)
      Dividends paid                                                             (30,830)         (43,978)
      Purchase of treasury shares                                                 (3,963)        (112,154)
                                                                             -----------      -----------
  Net cash provided by financing activities of continuing operations             548,124          850,283
  Net cash provided by financing activities of discontinued operations                             13,882
                                                                             -----------      -----------
  Net cash provided by financing activities                                      548,124          864,165
                                                                             -----------      -----------
  
  Net decrease in cash                                                           (16,708)         (21,392)
  Cash at beginning of year                                                       21,341           46,056
                                                                             -----------      -----------
  Cash at end of period                                                           $4,633          $24,664
                                                                             ===========      ===========
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    JUNE 30, 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 and the unusual charges  described in
  note 8) 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 nine months ended June 30, 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.)
                                    JUNE 30, 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 nine months ended June 30, 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 ultimately 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 nine months of fiscal 1998
  of $54.3 million  relate  principally  to severance  and other  employee-related
  costs, including temporary labor ($36.7 million),  facility consolidation costs,
  including lease buyouts and write-offs of leasehold improvements ($12.2 million)
  and technology  conversion costs ($5.4 million).  Transformation  costs of $98.5
  million for the first nine 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   ($40.1  million),   facility
  consolidation  costs,  including  lease  buyouts  and  write-offs  of  leasehold
  improvements ($13.1 million),  technology conversion costs,  including write-off
  of the SAP computer  platform pilot ($34.7  million) and costs incurred to adopt
  the IKON name worldwide ($10.6 million).
  
  Note 6:  Earnings (Loss) Per Share
  
           The  following  table sets forth the  computation  of basic and diluted
  earnings (loss) per share from continuing operations (in thousands):
  For the fiscal quarter ended                                     6/30/98                      6/30/97
  Numerator:
  Income (loss) from continuing operations                 $    (88,645)                $      30,128
       Preferred stock dividends                                        4,885                        4,885
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings (loss) per share - income
          (loss) available to common shareholders                    (93,530)                       25,243
  
       Effect of dilutive securities:
          Convertible loan notes                                                                        83
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings (loss) per share - income
          (loss) available to common shareholders
          after assumed conversions                             $    (93,530)                 $     25,326
                                                                =============                 ============
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                    JUNE 30, 1998
  
  Note 6:  Earnings (Loss) Per Share (continued)
  
  Denominator:
       Weighted average shares                                        135,465                      132,781
       Contingently issuable shares                                       116
                                                                -------------                 ------------
       Denominator for basic earnings (loss) 
          per share - weighted average shares                         135,581                      132,781
  
       Effect of dilutive securities:
          Additional contingently issuable shares
          Employee stock options                                                                       771
          Convertible loan notes                                                                       287
                                                                -------------                 ------------
       Dilutive potential common shares                                                              1,058
       Denominator for diluted earnings (loss) per
              share - adjusted weighted average
              shares and assumed conversions                          135,581                      133,839
                                                                =============                 ============
  
  Basic earnings (loss) per share from
       continuing operations                                          ($0.69)                        $0.19
                                                                =============                 ============
  
  Diluted earnings (loss) per share from
       continuing operations                                          ($0.69)                        $0.19
                                                                =============                 ============
  
  For the nine months ended                                          6/30/98                       6/30/97
  Numerator:
       Income (loss) from continuing operations                 $    (21,370)                $      89,402
       Preferred stock dividends                                       14,655                       14,655
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings (loss) per share - income
          (loss) available to common shareholders                    (36,025)                       74,747
  
       Effect of dilutive securities:
          Convertible loan notes                                                                       249
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings (loss) per share - income
          (loss) available to common shareholders
          after assumed conversions                             $    (36,025)                 $     74,996
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        134,681                      133,410
       Contingently issuable shares                                       118
                                                                -------------                 ------------
       Denominator for basic earnings (loss) per
          share - weighted average shares                             134,799                      133,410
  
       Effect of dilutive securities:
          Additional contingently issuable shares
          Employee stock options                                                                     1,259
          Convertible loan notes                                                                       268
                                                                -------------                 ------------
       Dilutive potential common shares                                                              1,527
       Denominator for diluted earnings (loss) per
              share - adjusted weighted average
              shares and assumed conversions                          134,799                      134,937
                                                                =============                 ============
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                    JUNE 30, 1998
  
  Note 6:  Earnings (Loss) Per Share (continued)
  
  Basic earnings (loss) per share from
       continuing operations                                          ($0.27)                        $0.56
                                                                       ======                        =====
  
  Diluted earnings (loss) per share from
       continuing operations                                          ($0.27)                        $0.56
                                                                       ======                        =====
  Basic and  diluted  loss per share  amounts are the same in fiscal 1998
  because the effect, if any, of securities  considered in the diluted computation
  would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted  calculation for 1997 because the effect of adding  9,682,144 shares and
  deleting  the  preferred  dividends  to  reflect  assumed  conversion  would  be
  antidilutive.
  
  Note 7:  Income Taxes
  
           Tax expense for the first nine months of fiscal 1998 was $31.0  million
  on income before taxes of $9.5 million.  The unusual  effective tax rate of 325%
  is the result of the  impact of non-tax  deductible  items  (primarily  goodwill
  amortization and loss from asset  impairment) in relation to lower income before
  taxes.
  
  Note 8:  Unusual Charges and Restatement of Second Quarter Results
  
           The Company  completed  an  in-depth  review of its  operations  during
  August 1998 and determined that it was necessary and appropriate to take charges
  to earnings  totaling $110 million on a pre-tax  basis.  Of those  charges,  $94
  million was applied against earnings for the quarter ended June 30, 1998 and $16
  million against the quarter ended March 31, 1998,  which has been restated.  The
  charges  related  to  increased  accounts  receivable  reserves  ($20  million),
  increased  lease  default  reserves  ($28  million),  an asset  impairment  in a
  technology  service  company  involved in  high-end  software  development  ($20
  million),  adjustments  related to a  breakdown  in  internal  controls  at four
  operating  units ($19 million third  quarter,  $16 million  second  quarter) and
  adjustments at other operating units ($7 million).
  
           The Company has restated  earnings for the quarter ended March 31, 1998
  to reflect the $16 million charge ($9 million net of income taxes). Restated net
  income for the quarter  ended March 31, 1998 is $30.3  million  ($.19 per share)
  compared to previously reported net income of $39.3 million ($.25 per share).
  Item 2:  Management's  Discussion  and  Analysis  of Results of  Operations  and
  Financial Condition and Liquidity
  
           IKON 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 reported in the Consolidated Statements of Income.
  
                      Three and Nine Months Ended June 30, 1998
             Compared with the Three and Nine Months Ended June 30, 1997
  
           Results of operations for the third quarter and  year-to-date of fiscal
  1998  compared  to the third  quarter  and  year-to-date  of fiscal 1997 were as
  follows:
  Three Months Ended                     Nine Months Ended
                                                     June 30               %               June  30               %
                                                 1998        1997        Change         1998       1997         Change
  (in millions)
  REVENUES                                     $1,395      $1,316         6.0%        $4,201     $3,735          12.5%
                                               ======      ======                     ======     ======
  
  INCOME (LOSS) BEFORE TAXES:
  Operating income (loss), excluding
     transformation costs                      ($74.3)      $87.7                     $114.7     $286.3         (59.9%)
  Transformation costs                          (16.5)      (23.0)                     (54.3)     (98.5)
                                                -----       -----                      -----      ----- 
        Operating income (loss)                 (90.8)       64.7                       60.4      187.8
  Interest expense                              (17.7)      (12.1)                     (50.9)     (31.9)
                                                -----       -----                      -----      ----- 
                                              ($108.5)      $52.6                       $9.5      $155.9        (93.9%)
                                               ======      ======                     ======     ======
  THIRD QUARTER:
           The Company's  third quarter  revenues  increased $79 million,  or 6.0%
  over the third  quarter of fiscal  1997.  Net sales,  which  includes  equipment
  revenue,  increased $7 million or .9%.  Equipment revenues have been impacted by
  increasing competition, which is driving sales prices down, although the Company
  continues to maintain its market share.  As a result of the recent  acceleration
  of the shift from black and white analog product to digital product,  prices are
  falling for black and white analog sales.  Service and rental revenue  increased
  $52 million or 9.7%. This increase  resulted from increases in equipment service
  revenue,   outsourcing  and  systems  integration  consulting.   Finance  income
  increased $19 million, or 32.7% due to the growth in the lease portfolio.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $181
  million for the third  quarter of fiscal 1998  compared to $169  million for the
  same  period  of the  prior  fiscal  year.  The  Company's  European  operations
  accounted for $4 million of the increase,  while Canadian revenues  increased $6
  million and other foreign  operations  revenue increased $2 million in the third
  quarter of fiscal 1998 compared to the third quarter of fiscal 1997.
  
           The Company's  operating income decreased by $155.5 million compared to
  the prior year's  quarter.  Excluding  transformation  costs,  operating  income
  decreased $162.0 million to a $74.3 million loss for the third quarter of fiscal
  1998  compared  to $87.7  million  of  income  in the prior  year.  The  Company
  completed an in-depth review of its operations during August 1998 and determined
  that it was necessary and appropriate to take charges to earnings  totaling $110
  million on a pre-tax  basis.  $94 million of those charges were applied  against
  third quarter 1998 earnings and $16 million  against  second  quarter  earnings,
  which have been restated.  These adjustments relate to the following four areas:
  1) Increases to accounting  estimates for lease default  reserves of $28 million
  and accounts receivable  reserves of $20 million.  The increase in lease default
  reserves is a result of recent  trends in customer  defaults,  especially in the
  print-for-pay  customer  segment of the  business.  The increase in the accounts
  receivable  reserve  relates  primarily  to  certain  business  units  which are
  experiencing  billing and collection  issues relating to systems  conversion and
  consolidation  of  operating  locations,  2) A $20  million  loss  from an asset
  impairment  in a  technology  service  company  involved  in  high-end  software
  development,  3)  $19  million  of  third  quarter  adjustments  related  to the
  breakdown in the execution of internal  controls at four operating  units (these
  breakdowns also caused the $16 million charge in the second quarter),  and 4) $7
  million of adjustments  at other  operating  units.  Excluding the third quarter
  charges,  pre-transformation  operating  income  would have been $19.8  million,
  which is substantially below the prior year's  pre-transformation  third quarter
  operating  income of $87.7  million.  This decrease  relates  primarily to gross
  margin  declines  in  equipment  sales  due  to  increasing  competition  in the
  high-end,  black and white and new digital products.  Gross margins in the third
  quarter of fiscal 1998 were 38.2%, 40.3% exclusive of unusual charges,  compared
  to 42.7% in the prior  year.  Gross  margins  are lower  this  quarter  than the
  previous  quarter due to competitive  pricing in equipment sales and because the
  lower margin  outsourcing and technology  services business have become a larger
  part of the revenue  mix.  The Company  expects  this trend to continue as gross
  margins  continue to be impacted by these  factors.  Selling and  administrative
  expense as a percent of revenue  was 42.1% in the third  quarter of fiscal  1998
  compared  to 36.0% in the third  quarter of fiscal  1997.  Adjusted  for unusual
  charges,  selling and  administrative  expense to revenue would have been 38.9%,
  which is still an increase  over the third  quarter of fiscal 1997.  The Company
  intends to reduce the selling and administrative expense to revenue relationship
  by focusing on increased sales  productivity  and  implementation  of an expense
  reduction program.
  
           Costs associated with the Company's transformation program decreased $7
  million in the third  quarter of fiscal 1998  compared  to the third  quarter of
  fiscal  1997.  Severance  and other  employee  costs  decreased  $4 million  and
  facility consolidation costs decreased $3 million in the third quarter of fiscal
  1998 compared to the third quarter of fiscal 1997.
  
           Operating income from foreign operations was $7.2 million for the third
  quarter of fiscal 1998, excluding the effects of the unusual charges,  down $5.6
  million  from  $12.8  million  for the third  quarter of fiscal  1997.  European
  operations  decreased  by $.3  million  in the  third  quarter,  while  Canadian
  operating income decreased $6.7 million. Other foreign operations increased $1.4
  million in the third  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.
  
  NINE MONTHS:
           The  Company's  revenues  for the  nine  months  ended  June  30,  1998
  increased $466 million, or 12.5% over the first nine months of fiscal 1997. This
  increase  consists of increased  net sales of $170 million,  or 8.2%,  increased
  service  and rental  revenue of $232  million,  or 15.4% and  increased  finance
  income of $64 million, or 39.7%.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $548
  million for the first nine months of fiscal  1998  compared to $483  million for
  the same period of the prior  fiscal year.  The  Company's  European  operations
  accounted for $35 million of the increase, while Canadian revenues increased $24
  million and other foreign  operations  revenue increased $6 million in the first
  nine months of fiscal 1998 compared to the first nine months of fiscal 1997.
  
           For the nine months ended June 30, 1998, the Company's operating income
  decreased by $127.4 million compared to the prior year. Excluding transformation
  costs, operating income decreased $171.6 million to $114.7 million for the first
  nine months of fiscal  1998  compared  to $286.3  million in the prior year.  As
  noted  above,  the Company took charges to earnings of $110 million on a pre-tax
  basis in fiscal 1998.  Excluding  these  charges,  pre-transformation  operating
  income would have been $226.4  million,  which is a decrease from the prior year
  of 20.9%.  The year to date  operating  income  has been  impacted  by the third
  quarter issues discussed above.
  Costs associated with the Company's  transformation  program  decreased
  approximately  $44 million in the first nine  months of fiscal 1998  compared to
  the first  nine  months of fiscal  1997.  The first nine  months of fiscal  1997
  transformation costs included the write-off of cost related to the abandoned SAP
  computer  pilot program of $23 million and costs incurred to adopt the IKON name
  worldwide of $10 million. Other technology conversion costs, severance and other
  employee costs and facility  consolidation  costs decreased a net $11 million in
  the first nine  months of fiscal  1998  compared to the same period in the prior
  year.
  
           Operating income from foreign operations was $30.6 million for the nine
  months ended June 30, 1998,  excluding the effects of the unusual charges,  down
  $4.4  million  from the prior  year's  nine month  period.  European  operations
  increased  by $4.9 million in the first nine months,  while  Canadian  operating
  income  decreased  $12.7 million and other  foreign  operations  increased  $3.4
  million in the first nine months of fiscal 1998. There was no material effect of
  foreign currency  exchange rate fluctuations on the results of operations in the
  first nine  months of fiscal  1998  compared  to the first nine months of fiscal
  1997.
  
  Acquisitions
           In  the  third  quarter  of  fiscal  1998,  the  Company   completed  4
  acquisitions,  bringing  total  year-to-date  acquisitions  to  31.  Of  the  31
  companies   acquired  this  fiscal  year,  nine  were  outsourcing  and  imaging
  companies, ten were systems integration companies and 12 were traditional copier
  companies.  Acquisition  activity has been put on hold for six to nine months in
  North America as management concentrates on improving operations.
  
  Other
           Interest expense  increased $5.6 million in the third quarter of fiscal
  1998 and $19.1 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  decreased by $161.1  million in the third quarter
  and $146.4 million  year-to-date over the prior year, as a result of the unusual
  charges,  decreasing  gross margins and  increasing  selling and  administrative
  expenses and interest expense,  offset by lower  transformation  expenses in the
  third  quarter and nine months  ended June 30,  1998.  Tax expense for the first
  nine  months of fiscal  1998 was $31.0  million on income  before  taxes of $9.5
  million.  The unusual  effective tax rate of 325% is the result of the impact of
  non-tax  deductible items (primarily  goodwill  amortization and loss from asset
  impairment) in relation to lower income before taxes.
  
           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,  decreased from $.19 per
  share for the third  quarter of fiscal  1997 to a loss per share of $.69 for the
  third  quarter of fiscal  1998.  Excluding  transformation  costs,  earnings per
  common share,  assuming  dilution,  decreased  from $.30 per share for the third
  quarter  of  fiscal  1997 to a loss per share of $.61 in the  third  quarter  of
  fiscal  1998.  Year-to-date,  earnings  per share  from  continuing  operations,
  assuming  dilution,  decreased  from $.56 per share for the first nine months of
  fiscal  1997 to a loss per  share of $.27 for the  first  nine  months of fiscal
  1998.  Excluding  transformation  costs,  year-to-date  earnings  per share from
  continuing operations, assuming dilution, decreased from $1.03 per share for the
  first nine  months of fiscal  1997 to a loss per share of $.01 in the first nine
  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 $.62 for the first nine months of
  fiscal 1997.
  Financial Condition and Liquidity
  
           Net cash provided by operating  activities for the first nine months of
  fiscal 1998 was $159  million.  During the same  period,  the Company  used $724
  million in cash for investing activities,  which included net finance subsidiary
  activity of $531 million, acquisition activity at a cash cost of $41 million and
  capital  expenditures  for  property  and  equipment  of $91 million and capital
  expenditures for equipment on operating leases of $69 million.  Cash provided by
  financing  activities  includes $69 million net  increase in corporate  debt and
  $334 million  increase in finance  subsidiaries  debt. Debt,  excluding  finance
  subsidiaries, was $880 million at June 30, 1998, an increase of $62 million from
  the debt  balance at  September  30, 1997 of $818  million.  The debt to capital
  ratio,  excluding finance  subsidiaries,  was 37.2% at June 30, 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 June 30, 1998,  short-term  borrowings supported by the agreement totaled $78
  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 $333.8  million from  September 30,
  1997, a result of increased leasing activity.  During the nine months ended June
  30, 1998, the U.S. finance  subsidiary issued an additional $132.5 million under
  its medium term notes program, net of repayments. At June 30, 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 $78.8 million in
  direct financing  leases during the first nine 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$98.2 million  (approximately  $83.3 million) of direct financing
  leases were sold under this agreement through June 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   5.6  million   shares   have  been  issued   under  these  shelf
  registrations  through June 30, 1998,  leaving 9.4 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.  An additional  150,000  shares were
  repurchased  under this program during the third quarter of fiscal 1998 for $3.3
  million.
  
           On August 14, 1998,  Standard and Poor's lowered its credit ratings one
  level on the  Company  and IOS  Capital,  Inc.  to "BBB+"  from "A-" and Moody's
  Investor  Service  lowered  its credit  ratings one level on the Company and IOS
  Capital, Inc. from "A3" to "Baa1".
  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 $20 million to $30 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 risks and  uncertainties  relating to
  conducting  operations  in  a  competitive  environment;  delays,  difficulties,
  technological  changes,  management transitions and employment issues associated
  with  consolidation  of business  operations;  managing a 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;  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 5.     Other Information
  
  TIMELY SUBMISSION OF STOCKHOLDER PROPOSALS
  
                   The  Securities  and  Exchange  Commission  ("SEC")  requires a
  registrant to give  stockholders  notice of deadlines  for timely  submission of
  certain types of stockholder  proposals that  stockholders wish to present for a
  vote at a registrant's annual meeting.  These deadlines are set based on certain
  SEC rules as they relate to the registrant's  annual meeting and proxy statement
  mailing  dates and relevant  provisions  of its charter and  by-laws.  Set forth
  below are the deadlines applicable to Company stockholders.  The Company's Board
  has not yet acted to set a 1999 annual  meeting date;  the  following  dates are
  based on an  assumed  meeting  date of  February  4, 1999 and an  assumed  proxy
  statement  mailing  date of  December  24,  1998 for the  Company's  1999 Annual
  Meeting.
  
                   Stockholder  proposals  submitted  outside  the process of Rule
  14a-8 under the Securities Exchange Act of 1934, as amended, must be received by
  November 10, 1998, or they will be considered untimely.
  
                   In the event a  stockholder  does not timely notify the Company
  concerning  stockholder  proposals,  the Company will have the right to exercise
  its  discretionary  authority  (through the right conferred upon its proxies) to
  vote against such stockholder proposal.
  
  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
  
               Exhibit No. (99) Press Release Dated August 14, 1998
  
        (b)    Reports on Form 8-K
  
               On April 27, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, its press release dated
               April 22, 1998 which reported earnings for the fiscal quarter ended
               March 31, 1998, provided earnings estimates for the remainder of
               IKON's 1998 fiscal year and provided additional information
               regarding its business, acquisitions and transformation process.
  
               On June 29, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, its press release dated June 29,
               1998, indicating that IKON anticipates earnings will be
               significantly lower than the First Call consensus estimate of $.34
               per share for the quarter ending June 30, 1998 and that IKON
               expects to release third quarter earnings on July 22, 1998.
  
               On July 10, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, its press release dated July 9,
               1998 announcing the appointment of James J. Forese as IKON's
               President, Chief Executive Officer and a member of the Board of
               Directors. IKON also announced that Richard A. Jalkut, who has been
               a director of IKON since 1996, has been appointed non-executive
               Chairman. John E. Stuart, who had served as IKON's Chairman,
               President and Chief Executive Officer, has resigned his positions
               with IKON.
  
               On August 5, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, its press release dated
               August 4, 1998, stating that IKON is in the process of conducting
               the full review of operations previously announced and that IKON's
               third quarter results will be announced on August 14, 1998.
  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        August 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
  
           (99)       Press Release dated August 14, 1998