content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended March 31,  1999 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from to
  
  Commission file number 1-5964
  
  
                             IKON OFFICE SOLUTIONS, INC.
  --------------------------------------------------------------------------------
               (Exact name of registrant as specified in its charter)
  
               OHIO                                        23-0334400       
  --------------------------------------------------------------------------------
  (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                        Identification No.)
  
  
                   P.O. Box 834, Valley Forge, Pennsylvania 19482
  --------------------------------------------------------------------------------
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (610) 296-8000
  --------------------------------------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                        NONE
  --------------------------------------------------------------------------------
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes    X    No        
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes         No        
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of April 30, 1999.
  
  Common Stock, no par value                                  148,697,871 shares
  
  
  <PAGE>
                                        INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  
  PART I.  FINANCIAL INFORMATION
  
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--March 31, 1999
                           and September 30, 1998
  
                           Consolidated Statements of Income--Three and Six Months
                           ended March 31, 1999 and March 31, 1998
  
                           Consolidated Statements of Cash Flows--Six Months ended
                           March 31, 1999 and March 31, 1998
  
                           Notes to Consolidated Financial Statements--
                           March 31, 1999
  
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  
  
  PART II.  OTHER INFORMATION
  
  
      Item 4.              Submission of Matters to a Vote of Securities Holders
  
  
      Item 6.              Exhibits and Reports on Form 8-K
  
  
  
  SIGNATURES
  
  <PAGE>
                            PART I. FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                                            March 31       September 30
  ASSETS                                                                      1999             1998
  
  Current Assets
  <S>                                                                     <C>              <C>        
      Cash                                                                $     5,243      $       963
      Accounts receivable, net                                                736,476          793,934
      Finance receivables, net                                                769,163          827,363
      Inventories                                                             400,383          431,837
      Prepaid expenses and other current assets                               142,258           97,534
      Deferred taxes                                                          112,159          112,609
                                                                          -----------      -----------
      Total current assets                                                  2,165,682        2,264,240
                                                                          -----------      -----------
  
  Investments and Long-Term Receivables                                        25,837           25,109
  
  Long-Term Finance Receivables, net                                        1,458,820        1,565,674
  
  Equipment on Operating Rental, net                                          103,757          110,891
  
  Property and Equipment, at cost                                             509,520          499,546
      Less accumulated depreciation                                           257,776          239,440
                                                                          -----------      -----------
                                                                              251,744          260,106
                                                                          -----------      -----------
  
  Goodwill                                                                  1,395,968        1,387,390
  
  Miscellaneous                                                               139,400          149,400
                                                                          -----------      -----------
  
                                                                          $ 5,541,208      $ 5,762,810
                                                                          ===========      ===========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  Current Liabilities
      Current portion of long-term debt                                   $    73,607      $    56,358
      Current portion of long-term debt, finance subsidiaries                 404,570          726,159
      Notes payable                                                           146,404           87,180
      Trade accounts payable                                                  196,731          245,520
      Accrued salaries, wages and commissions                                 102,747          115,101
      Deferred revenues                                                       202,707          211,824
      Other accrued expenses                                                  359,868          326,725
                                                                          -----------      -----------
      Total current liabilities                                             1,486,634        1,768,867
                                                                          -----------      -----------
  
  Long-Term Debt                                                              714,830          712,384
  
  Long-Term Debt, Finance Subsidiaries                                      1,354,758        1,374,478
  
  Deferred Taxes                                                              348,321          325,488
  
  Other Long-Term Liabilities                                                 153,555          154,305
  
  Shareholders' Equity
      Series BB conversion preferred stock, no par value,
         9/98 - 3,877  depositary  shares issued and  outstanding                              290,170 
      Common stock, no par value:
         Authorized - 300,000 shares
         Issued 3/99 - 148,576 shares; 9/98 - 137,139 shares                  999,652          689,195
      Unearned compensation                                                    (5,968)
      Retained earnings                                                       491,744          452,051
      Accumulated other comprehensive income                                      890             (473)
      Cost of common shares in treasury: 3/99 - 104 shares;
         9/98 - 124 shares                                                     (3,208)          (3,655)
                                                                          -----------      -----------
                                                                            1,483,110        1,427,288
                                                                          -----------      -----------
  
                                                                          $ 5,541,208      $ 5,762,810
                                                                          ===========      ===========
  </TABLE>
  
  See notes to consolidated financial statements 
  <PAGE>
  
                             IKON OFFICE SOLUTIONS, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share amounts)
  
  <TABLE>
  <CAPTION>
                                                            Three Months Ended                    Six Months Ended
                                                                  March 31                             March 31
                                                       ------------------------------       ------------------------------
                                                           1999             1998                1999             1998
                                                       --------------    ------------       --------------    ------------
  <S>                                                <C>               <C>                <C>               <C>          
  Revenues
  Net sales                                          $       720,062   $     786,943      $     1,427,781   $   1,515,048
  Service and rentals                                        576,467         570,066            1,167,884       1,145,888
  Finance income                                              76,121          74,580              173,402         144,910
                                                       --------------    ------------       --------------    ------------
                                                           1,372,650       1,431,589            2,769,067       2,805,846
                                                       --------------    ------------       --------------    ------------
  
  Costs and Expenses
  Cost of goods sold                                         492,363         501,547              964,109         969,747
  Service and rental costs                                   335,101         344,658              676,690         676,813
  Finance interest expense                                    29,306          32,959               61,986          63,705
  Selling and administrative                                 461,619         465,385              938,874         906,604
  Transformation costs                                                        18,192                               37,711
                                                       --------------    ------------       --------------    ------------
                                                           1,318,389       1,362,741            2,641,659       2,654,580
                                                       --------------    ------------       --------------    ------------
  
  Operating income                                            54,261          68,848              127,408         151,266
  Interest expense                                            18,995          16,243               38,542          33,272
                                                       --------------    ------------       --------------    ------------
  Income before taxes                                         35,266          52,605               88,866         117,994
  Income taxes                                                12,399          22,314               37,323          50,719
                                                       --------------    ------------       --------------    ------------
  Net Income                                                  22,867          30,291               51,543          67,275
  Less:  Preferred Dividends                                                   4,885                                9,770
                                                       --------------    ------------       --------------    ------------
  Available to Common Shareholders                   $        22,867   $      25,406      $        51,543   $      57,505
                                                       ==============    ============       ==============    ============
  
  Basic and Diluted Earnings Per Share                        $ 0.15          $ 0.19               $ 0.35          $ 0.43
                                                       ==============    ============       ==============    ============
  
  Cash Dividends Per Share of Common Stock                    $ 0.04          $ 0.04               $ 0.08          $ 0.08
                                                       ==============    ============       ==============    ============
  </TABLE>
  
  See notes to consolidated financial statements.
  
  <PAGE>
  
                             IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                                                                Six Months Ended
                                                                                                     March 31
                                                                                    -------------------------------------
                                                                                             1999              1998
                                                                                    -------------------------------------
  Operating Activities
  <S>                                                                                  <C>               <C>            
       Net income                                                                      $       51,543    $        67,275
       Additions (deductions) to reconcile net income to net cash
           provided by operating activities
              Depreciation                                                                     71,160             66,144
              Amortization                                                                     30,720             32,277
              Provisions for losses on accounts receivable                                     13,787             14,111
              Provision for deferred taxes                                                     25,000             31,000
              Gain on asset securitizations                                                   (21,672)            (1,181)
              Changes in  operating  assets and  liabilities,  net of effects from
                  acquisitions:
                     Decrease (increase) in accounts receivable                                49,852            (48,117)
                     Decrease (increase) in inventories                                        32,925            (62,955)
                     Increase in prepaid expenses and other current assets                       (576)            (9,237)
                     (Increase) decrease in accounts payable, deferred
                         revenues and accrued expenses                                        (61,849)            13,844
              Miscellaneous                                                                     4,170             (8,406)
                                                                                         -------------     --------------
  Net cash provided by operating activities                                                   195,060             94,755
  
  Investing activities
       Proceeds from the sale of property and equipment                                        11,569              4,144
       Cost of companies acquired, net of cash acquired                                       (22,449)           (39,859)
       Expenditures for property and equipment                                                (48,127)           (67,351)
       Expenditures for equipment on operating rental, net                                    (22,329)           (34,812)
       Purchase of miscellaneous assets                                                        (2,830)            (3,015)
       Finance subsidiaries receivables - additions                                          (615,724)          (728,789)
       Finance subsidiaries receivables - collections                                         424,565            379,240
       Proceeds from sale of finance subsidiaries lease receivables                           357,024             52,271
                                                                                         -------------     --------------
  Net cash provided by (used in) investing activities                                          81,699           (438,171)
  
  Financing activities
       Proceeds (payments) of short-term borrowings, net                                       59,224           (149,799)
       Proceeds from issuance of long-term debt                                                35,612            259,333
       Proceeds from option exercises and sale of treasury shares                               4,364             15,584
       Long-term debt repayments                                                              (18,414)            (8,190)
       Finance subsidiaries debt - additions                                                      670            399,600
       Finance subsidiaries debt - repayments                                                (341,979)          (155,000)
       Dividends paid                                                                         (11,804)           (20,523)
       Purchase of treasury shares                                                               (152)              (567)
                                                                                         -------------     --------------
  Net cash (used in) provided by financing activities                                        (272,479)           340,438
  
  Net increase (decrease) in cash                                                               4,280             (2,978)
  Cash at beginning of year                                                                       963             21,341
                                                                                         -------------     --------------
  Cash at end of period                                                                $        5,243    $        18,363
                                                                                         =============     ==============
  </TABLE>
  
  See notes to consolidated financial statements.
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   MARCH 31, 1999
  
  Note 1:  Basis of Presentation
  
           The accompanying  unaudited condensed consolidated financial statements
  have been prepared in accordance with generally accepted  accounting  principles
  for interim  financial  information  and the  instructions to Form 10-Q and Rule
  10-01  of  Regulation  S-X.  In  the  opinion  of  management,  all  adjustments
  (consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
  presentation  have  been  included.  For  further  information,   refer  to  the
  consolidated   financial  statements  and  footnotes  thereto  included  in  the
  Company's  annual  report on Form 10-K/A for the year ended  September 30, 1998.
  Certain prior year amounts have been reclassified to conform to the current year
  presentation.
  
  Note 2:  Asset Securitization
  
           In addition to the $410  million of asset  securitizations  in place at
  the end of fiscal 1998 in the U.S. and Canada,  in December  1998, the Company's
  U.S. finance subsidiary entered into an asset securitization transaction whereby
  it sold $366.6 million in direct financing lease receivables for $250 million in
  cash and a retained  interest in the remainder.  The agreement is for an initial
  three-year  term  with  certain  renewal  provisions  and  was  structured  as a
  revolving asset  securitization  so that as collections  reduce  previously sold
  interests  in the  pool  of  leases,  additional  leases  can be sold up to $250
  million.  The terms of the  agreement  provide that the Company will continue to
  service the lease portfolio for the securitization  provider. At March 31, 1999,
  the  interest-only  strip of $26.2  million  related to the sale is  included in
  prepaid  expenses  and other  current  assets  and the  recourse  and  servicing
  obligations  of $8.3  million and $5.2  million,  respectively,  are included in
  other accrued  expenses.  The retained interest is classified in current finance
  receivables  ($42.2 million) and long-term finance  receivables ($78.4 million).
  The Company  recognized a pretax gain of $14.3 million  during the first quarter
  of fiscal 1999 on this agreement and additional  gains on the revolving  portion
  of  all   agreements  of  $7.4  million,   for  total  a  total  gain  on  asset
  securitizations of $21.7 million for the six months ended March 31, 1999.
  
  
  Note 3:  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.  The
  Company substantially  completed the transformation  program as of September 30,
  1998.  The  transformation  involved a variety of  activities  that 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 included consolidating
  purchasing,  inventory  control,  logistics and other  activities  into thirteen
  customer service centers in the U.S., establishing a single financial processing
  center,  building a common information technology system, adopting a common name
  and common  benefit  programs.  Transformation  costs in the first six months of
  fiscal  1998  of  $37.7  million  relate  principally  to  severance  and  other
  employee-related  costs,  including  temporary labor ($26.8  million),  facility
  consolidation  costs,  including  lease  buyouts  and  write-offs  of  leasehold
  improvements  ($6.7 million),  and technology  conversion  costs ($4.2 million).
  Cash of $7.5  million was  expended  during the first six months of fiscal 1999,
  reducing the  September  30, 1998  severance  and lease buyout  accruals to $4.8
  million and $7.8 million, respectively, at March 31, 1999.
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1999
  
  Note 4:  Comprehensive Income
  
           As of October 1, 1998,  the  Company  adopted  Statement  of  Financial
  Accounting Standards No. 130, "Reporting  Comprehensive Income" (SFAS 130). SFAS
  130 establishes rules for the reporting and presentation of comprehensive income
  and its components.  SFAS 130 requires foreign currency translation adjustments,
  equity adjustments related to pension liabilities and mark to market adjustments
  on retained interests in lease receivables to be included in other comprehensive
  income.  Equity  accounts as of  September  30, 1998 have been  reclassified  to
  conform to the requirements of SFAS 130. The adoption of SFAS 130 did not impact
  the Company's net income or total shareholders' equity.
  
           Total comprehensive income is as follows (in thousands):
  <TABLE>
  <CAPTION>
                                                                         Three Months Ended           Six Months Ended
                                                                             March  31                    March 31
                                                                             ---------                    --------
                                                                         1999           1998           1999          1998
                                                                         ----           ----           ----          ----
  <S>                                                                  <C>             <C>           <C>            <C>    
           Net income                                                  $22,867         $30,291       $51,543        $67,275
           Foreign currency translation adjustments                        700           (291)           235          (279)
           Mark to market adjustment, net of tax                           159                         1,128               
                                                                       -------         -------       -------       -------
           Total comprehensive income                                  $23,726         $30,000       $52,906       $66,996
                                                                       =======       =========    ==========       =======
  </TABLE>
  
  
  Note 5:  Conversion of Series BB Preferred Stock
  
           On October 1, 1998,  each of the outstanding  depositary  shares of the
  Series BB Preferred  Stock  automatically  converted to 2.4972  shares of common
  stock per  depositary  share,  resulting  in the  issuance of  9,682,143  common
  shares.  The common stock  account  increased  by $290.2  million to reflect the
  conversion. There was no change to total shareholders' equity.
  
  Note 6:  Earnings Per Share
  
           The  following  table sets forth the  computation  of basic and diluted
  earnings per share (in thousands):
  <TABLE>
  <CAPTION>
  For the fiscal quarter ended                                      3/31/99                      3/31/98
  Numerator:
  <S>                                                           <C>                          <C>          
       Net income                                               $      22,867                $      30,291
       Preferred stock dividends                                                                     4,885
                                                                -------------                 ------------
       Numerator for basic earnings per
          share - income available to
          common shareholders                                          22,867                       25,406
  
       Effect of dilutive securities:
          Convertible loan notes                                                                        77
                                                                -------------                 ------------
       Numerator for diluted earnings per
          share - income available to common
          shareholders after assumed conversions                $      22,867                 $     25,483
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        147,866                      134,853
       Contingently issuable shares                                       735                          121
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             148,601                      134,974
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1999
  
  
  Note 6:  Earnings Per Share (continued)
  
       Effect of dilutive securities:
          Additional contingently issuable shares                          79                          141
          Employee stock options                                          190                          929
          Convertible loan notes                                                                       258
                                                                -------------                 ------------
       Dilutive potential common shares                                   269                        1,328
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          148,870                      136,302
                                                                =============                 ============
  
  Basic earnings per share                                              $0.15                        $0.19
                                                                        =====                        =====
  
  Diluted earnings per share                                            $0.15                        $0.19
                                                                        =====                        =====
  
  
  For the six months ended                                           3/31/99                     3/31/98
  Numerator:
       Net income                                               $      51,543                $      67,275
       Preferred stock dividends                                                                     9,770
                                                                -------------                 ------------
       Numerator for basic earnings per
          share - income available to
          common shareholders                                          51,543                       57,505
  
       Effect of dilutive securities:
          Convertible loan notes                                                                       155
                                                                -------------                 ------------
       Numerator for diluted earnings per
          share - income available to common
          shareholders after assumed conversions                $      51,543                 $     57,660
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        147,409                      134,284
       Contingently issuable shares                                     1,059                           60
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             148,468                      134,344
  
  Effect of dilutive securities:
          Additional contingently issuable shares                         301                          202
          Employee stock options                                          113                          845
          Convertible loan notes                                                                       258
                                                                -------------                 ------------
       Dilutive potential common shares                                   414                        1,305
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          148,882                      135,649
                                                                =============                 ============
  
  Basic earnings per share                                              $0.35                        $0.43
                                                                        =====                        =====
  
  Diluted earnings per share                                            $0.35                        $0.43
                                                                        =====                        =====
  </TABLE>
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1999
  
  
  Note 6:  Earnings Per Share (continued)
  
           Options  to  purchase  6,423,506  shares of common  stock at $14.18 per
  share to $56.42 per share were  outstanding  during the second quarter of fiscal
  1999 and  options to  purchase  2,074,130  shares of common  stock at $32.66 per
  share to $62.10 per share were  outstanding  during the second quarter of fiscal
  1998 but were not  included in the  computation  of diluted  earnings  per share
  because the options'  exercise prices were greater than the average market price
  of the common shares and, therefore, the effect would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted  calculation for the quarter and six months ended March 31, 1998 because
  the effect of adding  9,682,143  shares and deleting the preferred  dividends to
  reflect assumed conversion would be antidilutive.
  
  
  Note 7:   Income Tax Benefit
  
           During  the second  quarter  of fiscal  1999,  the  Company  recorded a
  one-time  tax benefit of $4.0  million  related to  restructuring  the  European
  leasing operations.  Excluding the one-time benefit,  diluted earnings per share
  for the quarter ended March 31, 1999 would have been $.13.
  
  
  Note 8:  Shareholder Lawsuit
  
           The Company  and certain  current  and former  principal  officers  and
  employee  directors  were named as  defendants  in a series of  purported  class
  action  complaints which were  purportedly  filed on behalf of purchasers of the
  Company's  common stock. The complaints were filed in the United States District
  Court for the Eastern  District of  Pennsylvania  following  the issuance of the
  Company's  August 14, 1998 earnings  release.  By court order dated November 30,
  1998 the Court appointed co-lead counsel. By court order dated December 3, 1998,
  all the complaints were  consolidated.  The consolidated  complaint was filed on
  December 18, 1998 and alleges that the defendants publicly disseminated a series
  of false and misleading  statements,  including  filings with the Securities and
  Exchange  Commission,   concerning  the  Company's  revenue,  profitability  and
  financial condition,  in violation of the federal securities law. The plaintiffs
  seek to represent a class of persons who  purchased  or acquired  the  Company's
  equity  securities  between  January 24, 1996 and August 13, 1998. The complaint
  seeks  unspecified  compensatory  and punitive  damages,  prejudgment  interest,
  attorneys'  fees and costs.  The  Company has  responded  to the  complaint  and
  believes that the allegations  contained  therein are without merit and that the
  outcome  of the  proceedings  will not have a  material  adverse  effect  on the
  financial  position  or  overall  trends in the  results  of  operations  of the
  Company.  However, due to the inherent uncertainties of litigation,  the Company
  cannot predict the ultimate  outcome of these  proceedings or the probability of
  any liability or losses relating  thereto,  and,  accordingly,  no provision has
  been made for any  liability  or loss that may result from the  adjudication  or
  settlement of these  proceedings  in the financial  statements for the first six
  months of fiscal 1999. An unfavorable  outcome of these proceedings could have a
  material  adverse  impact on the  Company's  financial  condition and results of
  operations.
  
  
  <PAGE>
  Item 2: Management's Discussion and Analysis of Results of Operations and
  Financial Condition and Liquidity
  
           The Company sells, rents and leases photocopiers,  digital printers and
  other  automated  office  equipment for use in both  traditional  and integrated
  office environments.  The Company 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 operations of
  the Company as reported in the Consolidated Statements of Income.
  
                      Three and Six Months Ended March 31, 1999
             Compared with the Three and Six Months Ended March 31, 1998
  
           Results of operations for the second quarter and year-to-date of fiscal
  1999  compared  to the second  quarter and  year-to-date  of fiscal 1998 were as
  follows:
  <TABLE>
  <CAPTION>
                                                    Three Months Ended                    Six Months Ended            
                                                         March 31         %                   March  31          %
                                                 1999        1998        Change         1999       1998         Change
                                                 ----        ----        ------         ----       ----         ------
  (in millions)
  <S>                                          <C>         <C>           <C>          <C>        <C>          <C>   
  REVENUES                                     $1,373      $1,432        (4.1)%       $2,769     $2,806       (1.3)%
                                               ======      ======                     ======     ======
  
  INCOME BEFORE TAXES:
  Operating income, excluding
     transformation costs                       $54.3       $87.0       (37.6)%       $127.4     $189.0      (32.6)%
  Transformation costs                                      (18.2)                                (37.7)
                                               ------      ------                     ------     ------
        Operating income                         54.3        68.8                      127.4      151.3
  Interest expense                              (19.0)      (16.2)                     (38.5)     (33.3)
                                               ------      ------                     ------     ------
                                                $35.3       $52.6       (32.9)%        $88.9     $118.0      (24.7)%
                                               ======      ======                     ======     ======
  </TABLE>
  
  
  SECOND QUARTER:
           The Company's second quarter revenues  decreased by $59 million or 4.1%
  from the second quarter of fiscal 1998. The decrease in revenue is  attributable
  primarily to limited  availability  of digital  equipment from suppliers and the
  Company's  productivity  initiatives,  encompassing  reductions in the Company's
  sales force and more disciplined  marketing practices,  including tighter credit
  standards. Net sales, which includes equipment revenue, decreased by $67 million
  or 8.5% in the second quarter of fiscal 1999,  compared to the second quarter of
  fiscal 1998. However,  net sales increased by $12 million or 1.7% from the first
  quarter of fiscal 1999.  Service and rental  revenue  increased by $6 million or
  1.1%  compared to the second  quarter  fiscal  1998,  but has  decreased  by $15
  million from the first  quarter of fiscal 1999.  This  decrease is the result of
  the  Company's  ongoing  productivity  initiatives  and the  rationalization  of
  document  services  and  technology  services  infrastructure.   Finance  income
  increased by $2 million or 2.1%, due to the growth in the lease  portfolio,  net
  of the impact of the asset securitizations.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $207
  million for the second  quarter of fiscal 1999  compared to $190 million for the
  same period of the prior  fiscal  year.  European  operations  increased  by $31
  million, due primarily to acquisitions, while Canadian revenues decreased by $12
  million and other  foreign  operations  revenue  decreased  by $2 million in the
  second quarter of fiscal 1999 compared to the second quarter of fiscal 1998.
  There were no acquisitions in the second quarter of fiscal 1999.
  <PAGE>
           The Company's  operating  income decreased by $14.5 million compared to
  the  prior  year's  quarter.  Excluding  transformation  costs in  fiscal  1998,
  operating  income  decreased  by $32.7  million to $54.3  million for the second
  quarter of fiscal 1999 compared to $87.0 million in the second quarter of fiscal
  1998. Gross margins in the second quarter of fiscal 1999 were 37.6%, compared to
  38.6% in the  prior  year  and  38.8%  in the  first  quarter  of  fiscal  1999,
  reflecting  the  anticipated  decrease  in  equipment  margins  caused  by price
  compression in analog products.  Selling and administrative expense as a percent
  of revenue was 33.6% in the second  quarter of fiscal 1999  compared to 32.5% in
  the second  quarter of fiscal  1998.  Selling  and  administrative  expense as a
  percent of revenue decreased in the second quarter of fiscal 1999 from the 34.5%
  in the first quarter of fiscal 1999.
  
           Costs associated with the Company's  transformation  program were $18.2
  million in the second quarter of fiscal 1998. Severance and other employee costs
  were  $12.5  million,   facility  consolidation  costs  were  $3.4  million  and
  technology conversion costs were $2.3 million. The transformation is essentially
  complete and there are no significant transformation expenses in fiscal 1999.
  
           Operating  income  from  foreign  operations  was $5.7  million for the
  second quarter of fiscal 1999,  down $4.9 million from $10.6 million  (excluding
  transformation  costs)  for the second  quarter of fiscal  1998 but up from $3.6
  million for the first quarter of fiscal 1999. European  operations  decreased by
  $3.1  million  compared  to the  second  quarter of last  year,  while  Canadian
  operating  income  decreased  by  $1.7  million  and  other  foreign  operations
  decreased by $.1 million. European operations experienced margin declines as the
  U.K. recession and pricing pressures continued into the second quarter of fiscal
  1999.  There  was  no  material  effect  of  foreign   currency   exchange  rate
  fluctuations  on the results of operations in the second  quarter of fiscal 1999
  compared to the second quarter of fiscal 1998.
  
  SIX MONTHS:
           The  Company's  revenues  for the  first  six  months  of  fiscal  1999
  decreased  by $37  million  or 1.3%  compared  to the first six months of fiscal
  1998.  The first  quarter of fiscal 1999  included a $14.3  million gain from an
  asset  securitization.   Excluding  the  securitization  gain,  overall  revenue
  decreased by $51 million  compared to the first six months of fiscal  1998.  Net
  sales,  which  includes  equipment  revenue,  decreased  by $87  million or 5.8%
  compared  to the first six months of fiscal  1998.  Equipment  revenue  has been
  affected by the shift from analog to digital, color and high volume copiers, and
  the  sales  activity  has been  impacted  by the  transition  to a common  sales
  strategy and a centralized,  tighter  credit policy.  Service and rental revenue
  increased by $22 million or 1.9%.  This  increase is lower than in prior periods
  due to the Company's ongoing productivity initiatives and the rationalization of
  document  services  and  technology  services  infrastructure.   Finance  income
  increased $14.2 million,  or 9.8%,  excluding the gain, due to the growth in the
  lease portfolio.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $405
  million for the first six months of fiscal 1999 compared to $367 million for the
  same period of the prior  fiscal  year.  European  operations  increased  by $61
  million, due primarily to acquisitions, while Canadian revenues decreased by $21
  million and other  foreign  operations  revenue  decreased  by $2 million in the
  first six months of fiscal 1999 compared to the first six months of fiscal 1998.
  In the first quarter of fiscal 1999, the Company  completed  five  acquisitions,
  all in Europe.
  
           The Company's  operating income decreased by $23.9 million in the first
  six  months of  fiscal  1999  compared  to the prior  year's  six month  period.
  Excluding  transformation  costs in  fiscal  1998 and the  gain  from the  asset
  securitization  in fiscal 1999,  operating  income decreased by $75.9 million to
  $113.1  million  for the first six  months of  fiscal  1999  compared  to $189.0
  million for the first six months of the prior fiscal year.  Gross margins in the
  first six months of fiscal  1999,  excluding  the gain,  were 38.2%  compared to
  39.0% in the first  six  months of the prior  fiscal  year,  reflecting  pricing
  pressures  and  the  switch  from  analog  to  digital  equipment.  Selling  and
  administrative expense as a percent of revenue was 34.1% in the first six months
  of fiscal 1999 compared to 32.3% in the first six months of fiscal 1998.
  
  
  <PAGE>
           Costs associated with the Company's  transformation  program were $37.7
  million in the first six months of fiscal  1998.  Severance  and other  employee
  costs were $26.8  million,  facility  consolidation  costs were $6.7 million and
  technology conversion costs were $4.2 million. The transformation is essentially
  complete and there are no significant transformation expenses in fiscal 1999.
  
           Operating income from foreign operations was $9.2 million for the first
  six  months of fiscal  1999,  down $14  million  from $23.2  million  (excluding
  transformation  costs)  for the  first  six  months  of  fiscal  1998.  European
  operations  decreased  by $4.8  million  compared  to the  prior  period,  while
  Canadian operating income decreased by $8.4 million and other foreign operations
  decreased  by $.8  million.  There was no  material  effect of foreign  currency
  exchange rate  fluctuations on the results of operations in the first six months
  of fiscal 1999 compared to the first six months of fiscal 1998.
  
  Other
           Interest  expense  increased by $2.8  million in the second  quarter of
  fiscal 1999  compared to the second  quarter of fiscal 1998 and $5.2 million for
  the first six months of fiscal  1999  compared to the first six months of fiscal
  1998.  The  increased  expense is due to higher debt levels and slightly  higher
  interest rates than in the comparable period of fiscal 1998.
  
           Income before taxes decreased by $17.3 million in the second quarter of
  fiscal 1999 and $29.1 million in the first six months of fiscal 1999 compared to
  the comparable  periods in the prior fiscal year, as a result of decreased gross
  margins,  increased selling and  administrative  expenses and increased interest
  expense,  offset by no  transformation  expense in the current  fiscal year. The
  effective  income  tax rate for the  first  six  months  of  fiscal  1999 is 42%
  compared to 43% for the comparable  period in fiscal 1998. Income tax expense in
  the second  quarter of fiscal 1999  includes a one-time  tax benefit  related to
  restructuring the European leasing operations.  Excluding this one-time benefit,
  the effective tax rate would have been 46.5%.  The increase in the effective tax
  rate (excluding the one-time benefit) from 43% in the prior fiscal year to 46.5%
  in fiscal year 1999 is due to the effect of non-tax-deductible  items, primarily
  goodwill amortization, on lower pretax income.
  
           Diluted earnings per common share decreased from $.19 per share for the
  second quarter of fiscal 1998 to $.15 per share for the second quarter of fiscal
  1999.  Excluding  transformation  costs,  diluted earnings per common share were
  $.27 per share in the second quarter of fiscal 1998. Diluted earnings per common
  share  decreased  from $.43 per share for the first six months of fiscal 1998 to
  $.35 per share for the first six months of fiscal 1999.  Excluding the after-tax
  gain on the asset  securitization  that was completed in December 1998,  diluted
  earnings  per common share were $.29 in the first six months of fiscal 1999 and,
  excluding  transformation costs, diluted earnings per common share were $.61 per
  share in the first six months of fiscal 1998.  Diluted  weighted  average shares
  increased  13.2 million for the six months  ended March 31, 1999  primarily as a
  result of the  conversion  of the Series BB  preferred  stock on October 1, 1998
  (9.7 million  weighted  shares) and the full period  impact of 1998 common share
  issuances related to acquisitions (3.8 million weighted shares).
  
  Impact of Year 2000
  
           State of Readiness.  The Year 2000 issue arises from computer  programs
  being written using two digits rather than four to define the  applicable  year.
  Any of the  Company's  computer  programs or hardware  that have  date-sensitive
  software or embedded technology (non-IT systems) may recognize a date using "00"
  as the year  1900  rather  than the year  2000.  This  could  result in a system
  failure or miscalculations causing disruptions of operations,  including,  among
  other things, a temporary inability to process  transactions,  send invoices, or
  engage in similar normal business activities. The potential for a problem exists
  with all computer  hardware and  software,  as well as in products with embedded
  technology: copiers and fax machines; security and HVAC systems; voice/telephony
  systems; elevators, etc.
  
  <PAGE>
           The Company has appointed a Year 2000 Corporate  Compliance Team, which
  has  prepared  an  international  compliance  program  for  the  Company  and is
  responsible  for  coordinating  and  inspecting  compliance  activities  in  all
  business units. The compliance program requires all business units and locations
  in every country to inventory potentially affected systems and products,  assess
  risk, take any required  corrective actions,  test and certify  compliance.  The
  Company's Year 2000 Testing and Certification Guidelines delineate the Year 2000
  compliance process, testing and quality assurance guidelines,  certification and
  reporting processes and contingency planning. An independent  consulting company
  has reviewed the compliance program.
  
           The  Company's  Year  2000  compliance  program  has  five  phases:  1)
  inventory of internal IT and non-IT systems; 2) risk assessment of the Year 2000
  compliance  issues  associated  with such  internal  IT and non-IT  systems;  3)
  remediation of  non-compliant  systems;  4) testing and validation of remediated
  systems; and 5) implementation of remediated systems throughout the Company. The
  progress  to date of each of these  phases is as  follows:  1)  internal  IT and
  non-IT systems have been inventoried;  2) appropriate risk assessments have been
  completed;  3) remediation of critical systems has been substantially  completed
  and  remediation  of  non-critical  systems  is  progressing;   4)  testing  and
  validation of critical  systems has been  substantially  completed;  and 5) Year
  2000  compliant  versions  are in the  process  of  being  implemented  in field
  operations.  The Company  anticipates  completing the Year 2000 project no later
  than October 31, 1999, which is prior to any anticipated  material impact on its
  operating systems.
  
           Product warranties and certifications are being sought from vendors and
  suppliers.  The  Company  has  obtained  "Year 2000  Statements"  from  critical
  national equipment vendors including Canon, Oce, Ricoh and Sharp.
  
           Costs.  The Company will use both  internal  and external  resources to
  reprogram or replace, test and implement its IT and non-IT systems for Year 2000
  modifications. The Company does not separately track the internal costs incurred
  on the Year 2000 project.  Such costs are principally  payroll and related costs
  for its  internal  IT  personnel.  The  total  cost of the  Year  2000  project,
  excluding  these  internal  costs,  is estimated  at $11.4  million and is being
  funded  through  operating  cash flows.  Of the total  estimated  project  cost,
  approximately $2.4 million is attributable to the purchase of new software which
  will be capitalized. The remaining $9.0 million will be expensed as incurred. To
  date, the Company has incurred approximately $2.7 million ($2.4 million expensed
  and $303,000 capitalized), related to its Year 2000 project.
  
           Risks.   Management  believes,   based  on  the  information  currently
  available to it, that the most reasonably  likely worse case scenario that could
  be  caused  by  technology  failures  relating  to the Year  2000  could  pose a
  significant threat not only to the Company, its customers and suppliers,  but to
  all businesses. Risks include, but are not limited to:
  
  o    Legal risks, including customer, supplier, employee or shareholder lawsuits
       over failure to deliver contracted services, product failure, or health and
       safety issues.
  o    Loss of sales due to  failure  to meet  customer  quality  expectations  or
       inability to ship products.
  o    Increased  operational costs due to manual  processing,  data corruption or
       disaster recovery.
  o    Inability to bill or invoice.
  
       The  Company  has taken  steps to limit the scope of  product  and  service
  warranties to customers to either the replacement of noncompliant products or to
  reimbursement  of the cost of the product or service  provided.  With respect to
  products sold by the Company prior to the inclusion of such limited  warranties,
  differing  interpretations  of the  warranties  included with such products will
  likely  result in  litigation  against the  Company.  The Company is not able to
  assess the impact of such potential litigation at this time.
  
       The Company is engaged in the  provision of certain  Year 2000  services to
  customers,  whereby the Company evaluates the Year 2000 compliance of customers'
  software and hardware,  and works with  customers to find solutions to Year 2000
  problems.  The Company has taken steps to limit its  warranties  with respect to
  the Company's provision of such services.
  
  <PAGE>
       The cost of the project and the date on which the Company  believes it will
  complete the Year 2000  modifications  are based on management's best estimates,
  which were derived using numerous  assumptions  of future events,  including the
  continued  availability of certain resources and other factors.  However,  there
  can be no guarantee  that these  estimates  will be achieved and actual  results
  could differ  materially  from those  anticipated.  Specific  factors that might
  cause  such  material   differences   include,  but  are  not  limited  to,  the
  availability  and cost of personnel  trained in this area, the ability to locate
  and correct all relevant computer codes, and other uncertainties.
  
           Contingency  Plans. The Company's  Guidelines  require that contingency
  plans be developed and validated in the event that any critical system cannot be
  corrected and certified before the system's failure date.  Contingency plans are
  currently  being  developed and are expected to be in place by October 31, 1999.
  In  addition,  the  Company is forming a rapid  response  team as part of its IT
  group that will respond to any  operational  problems  during the Year 2000 date
  change period.
  
  
                          Financial Condition and Liquidity
  
           Net cash provided by operating  activities  for the first six months of
  fiscal 1999 was $195 million.  During the same period, the Company generated $82
  million in cash from investing activities, which included net finance subsidiary
  activity  of $166  million,  less  acquisition  activity  at a cash  cost of $22
  million,  capital  expenditures  for property  and  equipment of $48 million and
  capital expenditures for equipment on operating rental of $22 million. Cash used
  in financing  activities  includes  $76 million net increase in corporate  debt,
  excluding  the effects of  acquisitions,  and $341  million  decrease in finance
  subsidiaries  debt. Debt,  excluding finance  subsidiaries,  was $935 million at
  March 31,  1999,  an increase of $79 million  from the debt balance at September
  30,  1998  of $856  million.  The  debt  to  capital  ratio,  excluding  finance
  subsidiaries,  was 38.7% at March 31, 1999  compared to 37.5% at  September  30,
  1998.  The Company  continues  to focus on goals to reduce  working  capital and
  related debt levels.
  
           As of March 31, 1999, short-term borrowings supported by a $600 million
  credit  agreement  totaled  $124  million.  The  Company  also has $700  million
  available  for  either  stock or debt  offerings  under its  shelf  registration
  statement.
  
           Finance  subsidiaries debt decreased by $341 million from September 30,
  1998, as a result of payments on medium term notes and bank  borrowings.  During
  the six months ended March 31, 1999,  the U.S.  finance  subsidiary  repaid $228
  million of its medium term notes and $100  million of bank debt and no new notes
  were  issued.  At March 31,  1999,  $1.6  billion  of  medium  term  notes  were
  outstanding  with a weighted  interest rate of 6.5%,  while $1.1 billion remains
  available  under this program.  In December  1998, the U.S.  finance  subsidiary
  entered into a new asset  securitization  agreement under which it received cash
  of $250 million in December  1998.  Under its  previously  existing $275 million
  asset  securitization  programs and the securitization  closed in December 1998,
  the U.S.  finance  subsidiary sold an additional $83 million in direct financing
  leases  during  the first six  months of fiscal  1999,  replacing  those  leases
  liquidated  and leaving the amount of contracts  sold  unchanged.  CN$36 million
  ($24 million) of additional  leases were sold under the Canadian  CN$175 million
  asset  securitization  agreement  during  the first six  months of fiscal  1999,
  replacing leases liquidated.  The balance of Canadian securitized receivables at
  March 31, 1999 is CN$156 million.
  
  
  <PAGE>
           During  the third  quarter of fiscal  1999,  IKON  Receivables,  LLC (a
  second-tier  wholly-owned  subsidiary of the U.S. finance subsidiary) expects to
  publicly  offer  approximately   $752.93  million  of  lease-backed  notes  (the
  "Notes").  This transaction will be structured using two special purpose limited
  liability companies: IKON Receivables-1, LLC, of which the finance subsidiary is
  sole member, and IKON Receivables, LLC of which IKON Receivables-1,  LLC is sole
  member. The finance subsidiary will contribute to IKON Receivables-1, LLC a pool
  of office  equipment  leases or contracts and related assets (the "Asset Pool"),
  and IKON Receivables-1,  LLC will transfer them to IKON Receivables,  LLC, which
  will be the issuer of the Notes. The Notes will be secured by the Asset Pool and
  the  payments on the Notes will be made from  payments  on the leases.  The U.S.
  finance subsidiary will receive  approximately $750 million in proceeds from the
  sale of the Notes and will use  approximately  $250  million  of that  amount to
  repurchase  previously sold assets in connection  with the asset  securitization
  transaction   completed  in  December  1998.  The  repurchased  assets  will  be
  contributed as part of the Asset Pool.
  
           The Company filed a shelf  registration for 10 million shares of common
  stock in April 1997.  Shares issued under the  registration  statement are being
  used for  acquisitions.  Approximately 2.8 million shares have been issued under
  this shelf  registration  through  March 31,  1999,  leaving 7.2 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 1998,  the Company  repurchased  4.6
  million common shares for $113 million under this program.
  
           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 the  remaining  accrued costs
  associated with the Company's transformation program.
  
                             Forward-Looking Information
  
           This Report includes or incorporates by reference information which may
  constitute   forward-looking  statements  within  the  meaning  of  the  federal
  securities laws.  Although the Company  believes the  expectations  contained in
  such forward-looking  statements are reasonable,  it can give no assurances that
  such expectations will prove correct. Such forward-looking  information is based
  upon  management's  current plans or expectations  and is subject to a number of
  risks  and  uncertainties  that  could   significantly   affect  current  plans,
  anticipated  actions and the Company's future  financial  condition and results.
  These  risks  and  uncertainties  include,  but are not  limited  to,  risks and
  uncertainties  relating to conducting  operations in a competitive  environment;
  delays,  difficulties,  management  transitions and employment issues associated
  with  consolidation  of,  and/or  changes in business  operations;  managing the
  integration  of  existing  and  acquired  companies;   risks  and  uncertainties
  associated with existing or future vendor  relationships;  and general  economic
  conditions.  Certain  additional  risks and  uncertainties  are set forth in the
  Company's  1998  Annual  Report on Form  10-K/A  filed with the  Securities  and
  Exchange   Commission.   As  a   consequence   of  these  and  other  risks  and
  uncertainties, current plans, anticipated actions and future financial condition
  and results may differ  materially from those  expressed in any  forward-looking
  statements made by or on behalf of the Company.
  
  <PAGE>
                             PART II. OTHER INFORMATION
  
  Item 4. Submission of Matters to a Vote of Security Holders
  
           On March 23, 1999, the Company held its annual meeting of shareholders,
  at which eight directors were elected to hold office until the election of their
  successors:
  
                                          For                   Withheld
           Judith M. Bell             131,594,192               1,768,717
           James R. Birle             131,885,267               1,477,642
           Philip E. Cushing          131,820,312               1,542.596
           Kurt E. Dinkelacker        131,240,785               2,122,224
           James J. Forese            131,900,184               1,462,725
           Thomas P. Gerrity          131,853,048               1,509,860
           Barbara Barnes Hauptfuhrer 131,450,962               1,911,946
           Richard A. Jalkut          131,501,324               1,861,584
  
              On May 1, 1999, Mr. Dinkelacker resigned his position as Senior Vice
  President and Chief Financial Officer and a director of the Company.
  
  Item 6. Exhibits and Reports on Form 8-K
  
        (a)  The  following  Exhibits  are  furnished  pursuant  to  Item  601  of
  Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
  
        (b)    Reports on Form 8-K
  
               On January 26, 1999, the Company filed a Current Report on Form 8-K
               to file,  under Item 5 of the form, its press release dated January
               19, 1999,  indicating  that the Company  anticipated  first quarter
               earnings  to exceed the First Call  consensus  estimate of $.05 per
               share for the  quarter  ending  December  31,  1998,  and  provided
               additional information.
  
               On February 5, 1999, the Company filed a Current Report on Form 8-K
               to file,  under Item 5 of the form,  information  contained  in its
               press release dated  January 27, 1999  concerning  earnings for the
               first quarter ended December 31, 1998.
  
               On March 10, 1999,  the Company filed a Current  Report on Form 8-K
               to file,  under Item 5 of the form,  information  contained  in its
               press release dated March 9, 1999  announcing  the  resignation  of
               Kurt E.  Dinkelacker  as Chief  Financial  Officer  and a member of
               IKON's Board of Directors, effective May 1, 1999.
  
               On May 5, 1999,  the Company filed a Current  Report on Form 8-K to
               file,  under Item 5 of the form,  information  contained  in 1) its
               press release dated April 22, 1999  regarding  the  appointment  of
               William S.  Urkiel as the  Company's  Chief  Financial  Officer and
               Senior Vice  President,  and 2) the press  release  dated April 28,
               1999 regarding the Company's financial results for the period ended
               March 31, 1999,  including  unaudited  consolidated  statements  of
               income for the three months ended March 31, 1999 and the six months
               ended March 31, 1999.
  
  <PAGE>
                                     SIGNATURES
  
  
  Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned,  thereunto duly authorized. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
  
                                        IKON OFFICE SOLUTIONS, INC.
  
  
  Date  May 14, 1999                    /s/ Michael J. Dillon               
        ------------                        ------------------------------------
                                            Michael J. Dillon
                                            Vice President and Controller
                                            (Chief Accounting Officer)
  
  
  
  <PAGE>
                                  INDEX TO EXHIBITS
  
  
  
  Exhibit Number
  
  
  (27)     Financial Data Schedule
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 66967}]
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": "99623846"}, "business-address": {"street1": "70 VALLEY STREAM", "city": "MALVERN", "state": "PA", "zip": "19355", "phone": "6102968000"}, "mail-address": {"street1": "BOX 834", "city": "VALLEY FORGE", "state": "PA", "zip": "19482"}, "former-company": [{"former-conformed-name": "ALCO STANDARD CORP", "date-changed": "19920703"}, {"former-conformed-name": "ALCO CHEMICAL CORP", "date-changed": "19680218"}]}
text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended March 31,  1999 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from to
  
  Commission file number 1-5964
  
                             IKON OFFICE SOLUTIONS, INC.
  --------------------------------------------------------------------------------
               (Exact name of registrant as specified in its charter)
  
               OHIO                                        23-0334400       
  --------------------------------------------------------------------------------
  (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                        Identification No.)
  
                   P.O. Box 834, Valley Forge, Pennsylvania 19482
  --------------------------------------------------------------------------------
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (610) 296-8000
  --------------------------------------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                        NONE
  --------------------------------------------------------------------------------
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes    X    No        
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes         No        
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of April 30, 1999.
  
  Common Stock, no par value                                  148,697,871 shares
  INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  PART I.  FINANCIAL INFORMATION
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--March 31, 1999
                           and September 30, 1998
  
                           Consolidated Statements of Income--Three and Six Months
                           ended March 31, 1999 and March 31, 1998
  
                           Consolidated Statements of Cash Flows--Six Months ended
                           March 31, 1999 and March 31, 1998
  
                           Notes to Consolidated Financial Statements--
                           March 31, 1999
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  PART II.  OTHER INFORMATION
  
      Item 4.              Submission of Matters to a Vote of Securities Holders
  
      Item 6.              Exhibits and Reports on Form 8-K
  
  SIGNATURES
  PART I. FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                   (in thousands)
  March 31       September 30
  ASSETS                                                                      1999             1998
  
  Current Assets
  Cash                                                                $     5,243      $       963
      Accounts receivable, net                                                736,476          793,934
      Finance receivables, net                                                769,163          827,363
      Inventories                                                             400,383          431,837
      Prepaid expenses and other current assets                               142,258           97,534
      Deferred taxes                                                          112,159          112,609
                                                                          -----------      -----------
      Total current assets                                                  2,165,682        2,264,240
                                                                          -----------      -----------
  
  Investments and Long-Term Receivables                                        25,837           25,109
  
  Long-Term Finance Receivables, net                                        1,458,820        1,565,674
  
  Equipment on Operating Rental, net                                          103,757          110,891
  
  Property and Equipment, at cost                                             509,520          499,546
      Less accumulated depreciation                                           257,776          239,440
                                                                          -----------      -----------
                                                                              251,744          260,106
                                                                          -----------      -----------
  
  Goodwill                                                                  1,395,968        1,387,390
  
  Miscellaneous                                                               139,400          149,400
                                                                          -----------      -----------
  
                                                                          $ 5,541,208      $ 5,762,810
                                                                          ===========      ===========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  Current Liabilities
      Current portion of long-term debt                                   $    73,607      $    56,358
      Current portion of long-term debt, finance subsidiaries                 404,570          726,159
      Notes payable                                                           146,404           87,180
      Trade accounts payable                                                  196,731          245,520
      Accrued salaries, wages and commissions                                 102,747          115,101
      Deferred revenues                                                       202,707          211,824
      Other accrued expenses                                                  359,868          326,725
                                                                          -----------      -----------
      Total current liabilities                                             1,486,634        1,768,867
                                                                          -----------      -----------
  
  Long-Term Debt                                                              714,830          712,384
  
  Long-Term Debt, Finance Subsidiaries                                      1,354,758        1,374,478
  
  Deferred Taxes                                                              348,321          325,488
  
  Other Long-Term Liabilities                                                 153,555          154,305
  
  Shareholders' Equity
      Series BB conversion preferred stock, no par value,
         9/98 - 3,877  depositary  shares issued and  outstanding                              290,170 
      Common stock, no par value:
         Authorized - 300,000 shares
         Issued 3/99 - 148,576 shares; 9/98 - 137,139 shares                  999,652          689,195
      Unearned compensation                                                    (5,968)
      Retained earnings                                                       491,744          452,051
      Accumulated other comprehensive income                                      890             (473)
      Cost of common shares in treasury: 3/99 - 104 shares;
         9/98 - 124 shares                                                     (3,208)          (3,655)
                                                                          -----------      -----------
                                                                            1,483,110        1,427,288
                                                                          -----------      -----------
  
                                                                          $ 5,541,208      $ 5,762,810
                                                                          ===========      ===========
  See notes to consolidated financial statements
  IKON OFFICE SOLUTIONS, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share amounts)
  Three Months Ended                    Six Months Ended
                                                                  March 31                             March 31
                                                       ------------------------------       ------------------------------
                                                           1999             1998                1999             1998
                                                       --------------    ------------       --------------    ------------
  Revenues
  Net sales                                          $       720,062   $     786,943      $     1,427,781   $   1,515,048
  Service and rentals                                        576,467         570,066            1,167,884       1,145,888
  Finance income                                              76,121          74,580              173,402         144,910
                                                       --------------    ------------       --------------    ------------
                                                           1,372,650       1,431,589            2,769,067       2,805,846
                                                       --------------    ------------       --------------    ------------
  
  Costs and Expenses
  Cost of goods sold                                         492,363         501,547              964,109         969,747
  Service and rental costs                                   335,101         344,658              676,690         676,813
  Finance interest expense                                    29,306          32,959               61,986          63,705
  Selling and administrative                                 461,619         465,385              938,874         906,604
  Transformation costs                                                        18,192                               37,711
                                                       --------------    ------------       --------------    ------------
                                                           1,318,389       1,362,741            2,641,659       2,654,580
                                                       --------------    ------------       --------------    ------------
  
  Operating income                                            54,261          68,848              127,408         151,266
  Interest expense                                            18,995          16,243               38,542          33,272
                                                       --------------    ------------       --------------    ------------
  Income before taxes                                         35,266          52,605               88,866         117,994
  Income taxes                                                12,399          22,314               37,323          50,719
                                                       --------------    ------------       --------------    ------------
  Net Income                                                  22,867          30,291               51,543          67,275
  Less:  Preferred Dividends                                                   4,885                                9,770
                                                       --------------    ------------       --------------    ------------
  Available to Common Shareholders                   $        22,867   $      25,406      $        51,543   $      57,505
                                                       ==============    ============       ==============    ============
  
  Basic and Diluted Earnings Per Share                        $ 0.15          $ 0.19               $ 0.35          $ 0.43
                                                       ==============    ============       ==============    ============
  
  Cash Dividends Per Share of Common Stock                    $ 0.04          $ 0.04               $ 0.08          $ 0.08
                                                       ==============    ============       ==============    ============
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Six Months Ended
                                                                                                     March 31
                                                                                    -------------------------------------
                                                                                             1999              1998
                                                                                    -------------------------------------
  Operating Activities
  Net income                                                                      $       51,543    $        67,275
       Additions (deductions) to reconcile net income to net cash
           provided by operating activities
              Depreciation                                                                     71,160             66,144
              Amortization                                                                     30,720             32,277
              Provisions for losses on accounts receivable                                     13,787             14,111
              Provision for deferred taxes                                                     25,000             31,000
              Gain on asset securitizations                                                   (21,672)            (1,181)
              Changes in  operating  assets and  liabilities,  net of effects from
                  acquisitions:
                     Decrease (increase) in accounts receivable                                49,852            (48,117)
                     Decrease (increase) in inventories                                        32,925            (62,955)
                     Increase in prepaid expenses and other current assets                       (576)            (9,237)
                     (Increase) decrease in accounts payable, deferred
                         revenues and accrued expenses                                        (61,849)            13,844
              Miscellaneous                                                                     4,170             (8,406)
                                                                                         -------------     --------------
  Net cash provided by operating activities                                                   195,060             94,755
  
  Investing activities
       Proceeds from the sale of property and equipment                                        11,569              4,144
       Cost of companies acquired, net of cash acquired                                       (22,449)           (39,859)
       Expenditures for property and equipment                                                (48,127)           (67,351)
       Expenditures for equipment on operating rental, net                                    (22,329)           (34,812)
       Purchase of miscellaneous assets                                                        (2,830)            (3,015)
       Finance subsidiaries receivables - additions                                          (615,724)          (728,789)
       Finance subsidiaries receivables - collections                                         424,565            379,240
       Proceeds from sale of finance subsidiaries lease receivables                           357,024             52,271
                                                                                         -------------     --------------
  Net cash provided by (used in) investing activities                                          81,699           (438,171)
  
  Financing activities
       Proceeds (payments) of short-term borrowings, net                                       59,224           (149,799)
       Proceeds from issuance of long-term debt                                                35,612            259,333
       Proceeds from option exercises and sale of treasury shares                               4,364             15,584
       Long-term debt repayments                                                              (18,414)            (8,190)
       Finance subsidiaries debt - additions                                                      670            399,600
       Finance subsidiaries debt - repayments                                                (341,979)          (155,000)
       Dividends paid                                                                         (11,804)           (20,523)
       Purchase of treasury shares                                                               (152)              (567)
                                                                                         -------------     --------------
  Net cash (used in) provided by financing activities                                        (272,479)           340,438
  
  Net increase (decrease) in cash                                                               4,280             (2,978)
  Cash at beginning of year                                                                       963             21,341
                                                                                         -------------     --------------
  Cash at end of period                                                                $        5,243    $        18,363
                                                                                         =============     ==============
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   MARCH 31, 1999
  
  Note 1:  Basis of Presentation
  
           The accompanying  unaudited condensed consolidated financial statements
  have been prepared in accordance with generally accepted  accounting  principles
  for interim  financial  information  and the  instructions to Form 10-Q and Rule
  10-01  of  Regulation  S-X.  In  the  opinion  of  management,  all  adjustments
  (consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
  presentation  have  been  included.  For  further  information,   refer  to  the
  consolidated   financial  statements  and  footnotes  thereto  included  in  the
  Company's  annual  report on Form 10-K/A for the year ended  September 30, 1998.
  Certain prior year amounts have been reclassified to conform to the current year
  presentation.
  
  Note 2:  Asset Securitization
  
           In addition to the $410  million of asset  securitizations  in place at
  the end of fiscal 1998 in the U.S. and Canada,  in December  1998, the Company's
  U.S. finance subsidiary entered into an asset securitization transaction whereby
  it sold $366.6 million in direct financing lease receivables for $250 million in
  cash and a retained  interest in the remainder.  The agreement is for an initial
  three-year  term  with  certain  renewal  provisions  and  was  structured  as a
  revolving asset  securitization  so that as collections  reduce  previously sold
  interests  in the  pool  of  leases,  additional  leases  can be sold up to $250
  million.  The terms of the  agreement  provide that the Company will continue to
  service the lease portfolio for the securitization  provider. At March 31, 1999,
  the  interest-only  strip of $26.2  million  related to the sale is  included in
  prepaid  expenses  and other  current  assets  and the  recourse  and  servicing
  obligations  of $8.3  million and $5.2  million,  respectively,  are included in
  other accrued  expenses.  The retained interest is classified in current finance
  receivables  ($42.2 million) and long-term finance  receivables ($78.4 million).
  The Company  recognized a pretax gain of $14.3 million  during the first quarter
  of fiscal 1999 on this agreement and additional  gains on the revolving  portion
  of  all   agreements  of  $7.4  million,   for  total  a  total  gain  on  asset
  securitizations of $21.7 million for the six months ended March 31, 1999.
  
  Note 3:  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.  The
  Company substantially  completed the transformation  program as of September 30,
  1998.  The  transformation  involved a variety of  activities  that 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 included consolidating
  purchasing,  inventory  control,  logistics and other  activities  into thirteen
  customer service centers in the U.S., establishing a single financial processing
  center,  building a common information technology system, adopting a common name
  and common  benefit  programs.  Transformation  costs in the first six months of
  fiscal  1998  of  $37.7  million  relate  principally  to  severance  and  other
  employee-related  costs,  including  temporary labor ($26.8  million),  facility
  consolidation  costs,  including  lease  buyouts  and  write-offs  of  leasehold
  improvements  ($6.7 million),  and technology  conversion  costs ($4.2 million).
  Cash of $7.5  million was  expended  during the first six months of fiscal 1999,
  reducing the  September  30, 1998  severance  and lease buyout  accruals to $4.8
  million and $7.8 million, respectively, at March 31, 1999.
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1999
  
  Note 4:  Comprehensive Income
  
           As of October 1, 1998,  the  Company  adopted  Statement  of  Financial
  Accounting Standards No. 130, "Reporting  Comprehensive Income" (SFAS 130). SFAS
  130 establishes rules for the reporting and presentation of comprehensive income
  and its components.  SFAS 130 requires foreign currency translation adjustments,
  equity adjustments related to pension liabilities and mark to market adjustments
  on retained interests in lease receivables to be included in other comprehensive
  income.  Equity  accounts as of  September  30, 1998 have been  reclassified  to
  conform to the requirements of SFAS 130. The adoption of SFAS 130 did not impact
  the Company's net income or total shareholders' equity.
  
           Total comprehensive income is as follows (in thousands):
  Three Months Ended           Six Months Ended
                                                                             March  31                    March 31
                                                                             ---------                    --------
                                                                         1999           1998           1999          1998
                                                                         ----           ----           ----          ----
  Net income                                                  $22,867         $30,291       $51,543        $67,275
           Foreign currency translation adjustments                        700           (291)           235          (279)
           Mark to market adjustment, net of tax                           159                         1,128               
                                                                       -------         -------       -------       -------
           Total comprehensive income                                  $23,726         $30,000       $52,906       $66,996
                                                                       =======       =========    ==========       =======
  Note 5:  Conversion of Series BB Preferred Stock
  
           On October 1, 1998,  each of the outstanding  depositary  shares of the
  Series BB Preferred  Stock  automatically  converted to 2.4972  shares of common
  stock per  depositary  share,  resulting  in the  issuance of  9,682,143  common
  shares.  The common stock  account  increased  by $290.2  million to reflect the
  conversion. There was no change to total shareholders' equity.
  
  Note 6:  Earnings Per Share
  
           The  following  table sets forth the  computation  of basic and diluted
  earnings per share (in thousands):
  For the fiscal quarter ended                                      3/31/99                      3/31/98
  Numerator:
  Net income                                               $      22,867                $      30,291
       Preferred stock dividends                                                                     4,885
                                                                -------------                 ------------
       Numerator for basic earnings per
          share - income available to
          common shareholders                                          22,867                       25,406
  
       Effect of dilutive securities:
          Convertible loan notes                                                                        77
                                                                -------------                 ------------
       Numerator for diluted earnings per
          share - income available to common
          shareholders after assumed conversions                $      22,867                 $     25,483
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        147,866                      134,853
       Contingently issuable shares                                       735                          121
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             148,601                      134,974
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1999
  
  Note 6:  Earnings Per Share (continued)
  
       Effect of dilutive securities:
          Additional contingently issuable shares                          79                          141
          Employee stock options                                          190                          929
          Convertible loan notes                                                                       258
                                                                -------------                 ------------
       Dilutive potential common shares                                   269                        1,328
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          148,870                      136,302
                                                                =============                 ============
  
  Basic earnings per share                                              $0.15                        $0.19
                                                                        =====                        =====
  
  Diluted earnings per share                                            $0.15                        $0.19
                                                                        =====                        =====
  
  For the six months ended                                           3/31/99                     3/31/98
  Numerator:
       Net income                                               $      51,543                $      67,275
       Preferred stock dividends                                                                     9,770
                                                                -------------                 ------------
       Numerator for basic earnings per
          share - income available to
          common shareholders                                          51,543                       57,505
  
       Effect of dilutive securities:
          Convertible loan notes                                                                       155
                                                                -------------                 ------------
       Numerator for diluted earnings per
          share - income available to common
          shareholders after assumed conversions                $      51,543                 $     57,660
                                                                =============                 ============
  
  Denominator:
       Weighted average shares                                        147,409                      134,284
       Contingently issuable shares                                     1,059                           60
                                                                -------------                 ------------
       Denominator for basic earnings per
          share - weighted average shares                             148,468                      134,344
  
  Effect of dilutive securities:
          Additional contingently issuable shares                         301                          202
          Employee stock options                                          113                          845
          Convertible loan notes                                                                       258
                                                                -------------                 ------------
       Dilutive potential common shares                                   414                        1,305
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          148,882                      135,649
                                                                =============                 ============
  
  Basic earnings per share                                              $0.35                        $0.43
                                                                        =====                        =====
  
  Diluted earnings per share                                            $0.35                        $0.43
                                                                        =====                        =====
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   MARCH 31, 1999
  
  Note 6:  Earnings Per Share (continued)
  
           Options  to  purchase  6,423,506  shares of common  stock at $14.18 per
  share to $56.42 per share were  outstanding  during the second quarter of fiscal
  1999 and  options to  purchase  2,074,130  shares of common  stock at $32.66 per
  share to $62.10 per share were  outstanding  during the second quarter of fiscal
  1998 but were not  included in the  computation  of diluted  earnings  per share
  because the options'  exercise prices were greater than the average market price
  of the common shares and, therefore, the effect would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted  calculation for the quarter and six months ended March 31, 1998 because
  the effect of adding  9,682,143  shares and deleting the preferred  dividends to
  reflect assumed conversion would be antidilutive.
  
  Note 7:   Income Tax Benefit
  
           During  the second  quarter  of fiscal  1999,  the  Company  recorded a
  one-time  tax benefit of $4.0  million  related to  restructuring  the  European
  leasing operations.  Excluding the one-time benefit,  diluted earnings per share
  for the quarter ended March 31, 1999 would have been $.13.
  
  Note 8:  Shareholder Lawsuit
  
           The Company  and certain  current  and former  principal  officers  and
  employee  directors  were named as  defendants  in a series of  purported  class
  action  complaints which were  purportedly  filed on behalf of purchasers of the
  Company's  common stock. The complaints were filed in the United States District
  Court for the Eastern  District of  Pennsylvania  following  the issuance of the
  Company's  August 14, 1998 earnings  release.  By court order dated November 30,
  1998 the Court appointed co-lead counsel. By court order dated December 3, 1998,
  all the complaints were  consolidated.  The consolidated  complaint was filed on
  December 18, 1998 and alleges that the defendants publicly disseminated a series
  of false and misleading  statements,  including  filings with the Securities and
  Exchange  Commission,   concerning  the  Company's  revenue,  profitability  and
  financial condition,  in violation of the federal securities law. The plaintiffs
  seek to represent a class of persons who  purchased  or acquired  the  Company's
  equity  securities  between  January 24, 1996 and August 13, 1998. The complaint
  seeks  unspecified  compensatory  and punitive  damages,  prejudgment  interest,
  attorneys'  fees and costs.  The  Company has  responded  to the  complaint  and
  believes that the allegations  contained  therein are without merit and that the
  outcome  of the  proceedings  will not have a  material  adverse  effect  on the
  financial  position  or  overall  trends in the  results  of  operations  of the
  Company.  However, due to the inherent uncertainties of litigation,  the Company
  cannot predict the ultimate  outcome of these  proceedings or the probability of
  any liability or losses relating  thereto,  and,  accordingly,  no provision has
  been made for any  liability  or loss that may result from the  adjudication  or
  settlement of these  proceedings  in the financial  statements for the first six
  months of fiscal 1999. An unfavorable  outcome of these proceedings could have a
  material  adverse  impact on the  Company's  financial  condition and results of
  operations.
  Item 2: Management's Discussion and Analysis of Results of Operations and
  Financial Condition and Liquidity
  
           The Company sells, rents and leases photocopiers,  digital printers and
  other  automated  office  equipment for use in both  traditional  and integrated
  office environments.  The Company 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 operations of
  the Company as reported in the Consolidated Statements of Income.
  
                      Three and Six Months Ended March 31, 1999
             Compared with the Three and Six Months Ended March 31, 1998
  
           Results of operations for the second quarter and year-to-date of fiscal
  1999  compared  to the second  quarter and  year-to-date  of fiscal 1998 were as
  follows:
  Three Months Ended                    Six Months Ended            
                                                         March 31         %                   March  31          %
                                                 1999        1998        Change         1999       1998         Change
                                                 ----        ----        ------         ----       ----         ------
  (in millions)
  REVENUES                                     $1,373      $1,432        (4.1)%       $2,769     $2,806       (1.3)%
                                               ======      ======                     ======     ======
  
  INCOME BEFORE TAXES:
  Operating income, excluding
     transformation costs                       $54.3       $87.0       (37.6)%       $127.4     $189.0      (32.6)%
  Transformation costs                                      (18.2)                                (37.7)
                                               ------      ------                     ------     ------
        Operating income                         54.3        68.8                      127.4      151.3
  Interest expense                              (19.0)      (16.2)                     (38.5)     (33.3)
                                               ------      ------                     ------     ------
                                                $35.3       $52.6       (32.9)%        $88.9     $118.0      (24.7)%
                                               ======      ======                     ======     ======
  SECOND QUARTER:
           The Company's second quarter revenues  decreased by $59 million or 4.1%
  from the second quarter of fiscal 1998. The decrease in revenue is  attributable
  primarily to limited  availability  of digital  equipment from suppliers and the
  Company's  productivity  initiatives,  encompassing  reductions in the Company's
  sales force and more disciplined  marketing practices,  including tighter credit
  standards. Net sales, which includes equipment revenue, decreased by $67 million
  or 8.5% in the second quarter of fiscal 1999,  compared to the second quarter of
  fiscal 1998. However,  net sales increased by $12 million or 1.7% from the first
  quarter of fiscal 1999.  Service and rental  revenue  increased by $6 million or
  1.1%  compared to the second  quarter  fiscal  1998,  but has  decreased  by $15
  million from the first  quarter of fiscal 1999.  This  decrease is the result of
  the  Company's  ongoing  productivity  initiatives  and the  rationalization  of
  document  services  and  technology  services  infrastructure.   Finance  income
  increased by $2 million or 2.1%, due to the growth in the lease  portfolio,  net
  of the impact of the asset securitizations.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $207
  million for the second  quarter of fiscal 1999  compared to $190 million for the
  same period of the prior  fiscal  year.  European  operations  increased  by $31
  million, due primarily to acquisitions, while Canadian revenues decreased by $12
  million and other  foreign  operations  revenue  decreased  by $2 million in the
  second quarter of fiscal 1999 compared to the second quarter of fiscal 1998.
  There were no acquisitions in the second quarter of fiscal 1999.
  The Company's  operating  income decreased by $14.5 million compared to
  the  prior  year's  quarter.  Excluding  transformation  costs in  fiscal  1998,
  operating  income  decreased  by $32.7  million to $54.3  million for the second
  quarter of fiscal 1999 compared to $87.0 million in the second quarter of fiscal
  1998. Gross margins in the second quarter of fiscal 1999 were 37.6%, compared to
  38.6% in the  prior  year  and  38.8%  in the  first  quarter  of  fiscal  1999,
  reflecting  the  anticipated  decrease  in  equipment  margins  caused  by price
  compression in analog products.  Selling and administrative expense as a percent
  of revenue was 33.6% in the second  quarter of fiscal 1999  compared to 32.5% in
  the second  quarter of fiscal  1998.  Selling  and  administrative  expense as a
  percent of revenue decreased in the second quarter of fiscal 1999 from the 34.5%
  in the first quarter of fiscal 1999.
  
           Costs associated with the Company's  transformation  program were $18.2
  million in the second quarter of fiscal 1998. Severance and other employee costs
  were  $12.5  million,   facility  consolidation  costs  were  $3.4  million  and
  technology conversion costs were $2.3 million. The transformation is essentially
  complete and there are no significant transformation expenses in fiscal 1999.
  
           Operating  income  from  foreign  operations  was $5.7  million for the
  second quarter of fiscal 1999,  down $4.9 million from $10.6 million  (excluding
  transformation  costs)  for the second  quarter of fiscal  1998 but up from $3.6
  million for the first quarter of fiscal 1999. European  operations  decreased by
  $3.1  million  compared  to the  second  quarter of last  year,  while  Canadian
  operating  income  decreased  by  $1.7  million  and  other  foreign  operations
  decreased by $.1 million. European operations experienced margin declines as the
  U.K. recession and pricing pressures continued into the second quarter of fiscal
  1999.  There  was  no  material  effect  of  foreign   currency   exchange  rate
  fluctuations  on the results of operations in the second  quarter of fiscal 1999
  compared to the second quarter of fiscal 1998.
  
  SIX MONTHS:
           The  Company's  revenues  for the  first  six  months  of  fiscal  1999
  decreased  by $37  million  or 1.3%  compared  to the first six months of fiscal
  1998.  The first  quarter of fiscal 1999  included a $14.3  million gain from an
  asset  securitization.   Excluding  the  securitization  gain,  overall  revenue
  decreased by $51 million  compared to the first six months of fiscal  1998.  Net
  sales,  which  includes  equipment  revenue,  decreased  by $87  million or 5.8%
  compared  to the first six months of fiscal  1998.  Equipment  revenue  has been
  affected by the shift from analog to digital, color and high volume copiers, and
  the  sales  activity  has been  impacted  by the  transition  to a common  sales
  strategy and a centralized,  tighter  credit policy.  Service and rental revenue
  increased by $22 million or 1.9%.  This  increase is lower than in prior periods
  due to the Company's ongoing productivity initiatives and the rationalization of
  document  services  and  technology  services  infrastructure.   Finance  income
  increased $14.2 million,  or 9.8%,  excluding the gain, due to the growth in the
  lease portfolio.
  
           Revenues  from the  Company's  operations  outside  the U.S.  were $405
  million for the first six months of fiscal 1999 compared to $367 million for the
  same period of the prior  fiscal  year.  European  operations  increased  by $61
  million, due primarily to acquisitions, while Canadian revenues decreased by $21
  million and other  foreign  operations  revenue  decreased  by $2 million in the
  first six months of fiscal 1999 compared to the first six months of fiscal 1998.
  In the first quarter of fiscal 1999, the Company  completed  five  acquisitions,
  all in Europe.
  
           The Company's  operating income decreased by $23.9 million in the first
  six  months of  fiscal  1999  compared  to the prior  year's  six month  period.
  Excluding  transformation  costs in  fiscal  1998 and the  gain  from the  asset
  securitization  in fiscal 1999,  operating  income decreased by $75.9 million to
  $113.1  million  for the first six  months of  fiscal  1999  compared  to $189.0
  million for the first six months of the prior fiscal year.  Gross margins in the
  first six months of fiscal  1999,  excluding  the gain,  were 38.2%  compared to
  39.0% in the first  six  months of the prior  fiscal  year,  reflecting  pricing
  pressures  and  the  switch  from  analog  to  digital  equipment.  Selling  and
  administrative expense as a percent of revenue was 34.1% in the first six months
  of fiscal 1999 compared to 32.3% in the first six months of fiscal 1998.
  Costs associated with the Company's  transformation  program were $37.7
  million in the first six months of fiscal  1998.  Severance  and other  employee
  costs were $26.8  million,  facility  consolidation  costs were $6.7 million and
  technology conversion costs were $4.2 million. The transformation is essentially
  complete and there are no significant transformation expenses in fiscal 1999.
  
           Operating income from foreign operations was $9.2 million for the first
  six  months of fiscal  1999,  down $14  million  from $23.2  million  (excluding
  transformation  costs)  for the  first  six  months  of  fiscal  1998.  European
  operations  decreased  by $4.8  million  compared  to the  prior  period,  while
  Canadian operating income decreased by $8.4 million and other foreign operations
  decreased  by $.8  million.  There was no  material  effect of foreign  currency
  exchange rate  fluctuations on the results of operations in the first six months
  of fiscal 1999 compared to the first six months of fiscal 1998.
  
  Other
           Interest  expense  increased by $2.8  million in the second  quarter of
  fiscal 1999  compared to the second  quarter of fiscal 1998 and $5.2 million for
  the first six months of fiscal  1999  compared to the first six months of fiscal
  1998.  The  increased  expense is due to higher debt levels and slightly  higher
  interest rates than in the comparable period of fiscal 1998.
  
           Income before taxes decreased by $17.3 million in the second quarter of
  fiscal 1999 and $29.1 million in the first six months of fiscal 1999 compared to
  the comparable  periods in the prior fiscal year, as a result of decreased gross
  margins,  increased selling and  administrative  expenses and increased interest
  expense,  offset by no  transformation  expense in the current  fiscal year. The
  effective  income  tax rate for the  first  six  months  of  fiscal  1999 is 42%
  compared to 43% for the comparable  period in fiscal 1998. Income tax expense in
  the second  quarter of fiscal 1999  includes a one-time  tax benefit  related to
  restructuring the European leasing operations.  Excluding this one-time benefit,
  the effective tax rate would have been 46.5%.  The increase in the effective tax
  rate (excluding the one-time benefit) from 43% in the prior fiscal year to 46.5%
  in fiscal year 1999 is due to the effect of non-tax-deductible  items, primarily
  goodwill amortization, on lower pretax income.
  
           Diluted earnings per common share decreased from $.19 per share for the
  second quarter of fiscal 1998 to $.15 per share for the second quarter of fiscal
  1999.  Excluding  transformation  costs,  diluted earnings per common share were
  $.27 per share in the second quarter of fiscal 1998. Diluted earnings per common
  share  decreased  from $.43 per share for the first six months of fiscal 1998 to
  $.35 per share for the first six months of fiscal 1999.  Excluding the after-tax
  gain on the asset  securitization  that was completed in December 1998,  diluted
  earnings  per common share were $.29 in the first six months of fiscal 1999 and,
  excluding  transformation costs, diluted earnings per common share were $.61 per
  share in the first six months of fiscal 1998.  Diluted  weighted  average shares
  increased  13.2 million for the six months  ended March 31, 1999  primarily as a
  result of the  conversion  of the Series BB  preferred  stock on October 1, 1998
  (9.7 million  weighted  shares) and the full period  impact of 1998 common share
  issuances related to acquisitions (3.8 million weighted shares).
  
  Impact of Year 2000
  
           State of Readiness.  The Year 2000 issue arises from computer  programs
  being written using two digits rather than four to define the  applicable  year.
  Any of the  Company's  computer  programs or hardware  that have  date-sensitive
  software or embedded technology (non-IT systems) may recognize a date using "00"
  as the year  1900  rather  than the year  2000.  This  could  result in a system
  failure or miscalculations causing disruptions of operations,  including,  among
  other things, a temporary inability to process  transactions,  send invoices, or
  engage in similar normal business activities. The potential for a problem exists
  with all computer  hardware and  software,  as well as in products with embedded
  technology: copiers and fax machines; security and HVAC systems; voice/telephony
  systems; elevators, etc.
  The Company has appointed a Year 2000 Corporate  Compliance Team, which
  has  prepared  an  international  compliance  program  for  the  Company  and is
  responsible  for  coordinating  and  inspecting  compliance  activities  in  all
  business units. The compliance program requires all business units and locations
  in every country to inventory potentially affected systems and products,  assess
  risk, take any required  corrective actions,  test and certify  compliance.  The
  Company's Year 2000 Testing and Certification Guidelines delineate the Year 2000
  compliance process, testing and quality assurance guidelines,  certification and
  reporting processes and contingency planning. An independent  consulting company
  has reviewed the compliance program.
  
           The  Company's  Year  2000  compliance  program  has  five  phases:  1)
  inventory of internal IT and non-IT systems; 2) risk assessment of the Year 2000
  compliance  issues  associated  with such  internal  IT and non-IT  systems;  3)
  remediation of  non-compliant  systems;  4) testing and validation of remediated
  systems; and 5) implementation of remediated systems throughout the Company. The
  progress  to date of each of these  phases is as  follows:  1)  internal  IT and
  non-IT systems have been inventoried;  2) appropriate risk assessments have been
  completed;  3) remediation of critical systems has been substantially  completed
  and  remediation  of  non-critical  systems  is  progressing;   4)  testing  and
  validation of critical  systems has been  substantially  completed;  and 5) Year
  2000  compliant  versions  are in the  process  of  being  implemented  in field
  operations.  The Company  anticipates  completing the Year 2000 project no later
  than October 31, 1999, which is prior to any anticipated  material impact on its
  operating systems.
  
           Product warranties and certifications are being sought from vendors and
  suppliers.  The  Company  has  obtained  "Year 2000  Statements"  from  critical
  national equipment vendors including Canon, Oce, Ricoh and Sharp.
  
           Costs.  The Company will use both  internal  and external  resources to
  reprogram or replace, test and implement its IT and non-IT systems for Year 2000
  modifications. The Company does not separately track the internal costs incurred
  on the Year 2000 project.  Such costs are principally  payroll and related costs
  for its  internal  IT  personnel.  The  total  cost of the  Year  2000  project,
  excluding  these  internal  costs,  is estimated  at $11.4  million and is being
  funded  through  operating  cash flows.  Of the total  estimated  project  cost,
  approximately $2.4 million is attributable to the purchase of new software which
  will be capitalized. The remaining $9.0 million will be expensed as incurred. To
  date, the Company has incurred approximately $2.7 million ($2.4 million expensed
  and $303,000 capitalized), related to its Year 2000 project.
  
           Risks.   Management  believes,   based  on  the  information  currently
  available to it, that the most reasonably  likely worse case scenario that could
  be  caused  by  technology  failures  relating  to the Year  2000  could  pose a
  significant threat not only to the Company, its customers and suppliers,  but to
  all businesses. Risks include, but are not limited to:
  
  o    Legal risks, including customer, supplier, employee or shareholder lawsuits
       over failure to deliver contracted services, product failure, or health and
       safety issues.
  o    Loss of sales due to  failure  to meet  customer  quality  expectations  or
       inability to ship products.
  o    Increased  operational costs due to manual  processing,  data corruption or
       disaster recovery.
  o    Inability to bill or invoice.
  
       The  Company  has taken  steps to limit the scope of  product  and  service
  warranties to customers to either the replacement of noncompliant products or to
  reimbursement  of the cost of the product or service  provided.  With respect to
  products sold by the Company prior to the inclusion of such limited  warranties,
  differing  interpretations  of the  warranties  included with such products will
  likely  result in  litigation  against the  Company.  The Company is not able to
  assess the impact of such potential litigation at this time.
  
       The Company is engaged in the  provision of certain  Year 2000  services to
  customers,  whereby the Company evaluates the Year 2000 compliance of customers'
  software and hardware,  and works with  customers to find solutions to Year 2000
  problems.  The Company has taken steps to limit its  warranties  with respect to
  the Company's provision of such services.
  The cost of the project and the date on which the Company  believes it will
  complete the Year 2000  modifications  are based on management's best estimates,
  which were derived using numerous  assumptions  of future events,  including the
  continued  availability of certain resources and other factors.  However,  there
  can be no guarantee  that these  estimates  will be achieved and actual  results
  could differ  materially  from those  anticipated.  Specific  factors that might
  cause  such  material   differences   include,  but  are  not  limited  to,  the
  availability  and cost of personnel  trained in this area, the ability to locate
  and correct all relevant computer codes, and other uncertainties.
  
           Contingency  Plans. The Company's  Guidelines  require that contingency
  plans be developed and validated in the event that any critical system cannot be
  corrected and certified before the system's failure date.  Contingency plans are
  currently  being  developed and are expected to be in place by October 31, 1999.
  In  addition,  the  Company is forming a rapid  response  team as part of its IT
  group that will respond to any  operational  problems  during the Year 2000 date
  change period.
  
                          Financial Condition and Liquidity
  
           Net cash provided by operating  activities  for the first six months of
  fiscal 1999 was $195 million.  During the same period, the Company generated $82
  million in cash from investing activities, which included net finance subsidiary
  activity  of $166  million,  less  acquisition  activity  at a cash  cost of $22
  million,  capital  expenditures  for property  and  equipment of $48 million and
  capital expenditures for equipment on operating rental of $22 million. Cash used
  in financing  activities  includes  $76 million net increase in corporate  debt,
  excluding  the effects of  acquisitions,  and $341  million  decrease in finance
  subsidiaries  debt. Debt,  excluding finance  subsidiaries,  was $935 million at
  March 31,  1999,  an increase of $79 million  from the debt balance at September
  30,  1998  of $856  million.  The  debt  to  capital  ratio,  excluding  finance
  subsidiaries,  was 38.7% at March 31, 1999  compared to 37.5% at  September  30,
  1998.  The Company  continues  to focus on goals to reduce  working  capital and
  related debt levels.
  
           As of March 31, 1999, short-term borrowings supported by a $600 million
  credit  agreement  totaled  $124  million.  The  Company  also has $700  million
  available  for  either  stock or debt  offerings  under its  shelf  registration
  statement.
  
           Finance  subsidiaries debt decreased by $341 million from September 30,
  1998, as a result of payments on medium term notes and bank  borrowings.  During
  the six months ended March 31, 1999,  the U.S.  finance  subsidiary  repaid $228
  million of its medium term notes and $100  million of bank debt and no new notes
  were  issued.  At March 31,  1999,  $1.6  billion  of  medium  term  notes  were
  outstanding  with a weighted  interest rate of 6.5%,  while $1.1 billion remains
  available  under this program.  In December  1998, the U.S.  finance  subsidiary
  entered into a new asset  securitization  agreement under which it received cash
  of $250 million in December  1998.  Under its  previously  existing $275 million
  asset  securitization  programs and the securitization  closed in December 1998,
  the U.S.  finance  subsidiary sold an additional $83 million in direct financing
  leases  during  the first six  months of fiscal  1999,  replacing  those  leases
  liquidated  and leaving the amount of contracts  sold  unchanged.  CN$36 million
  ($24 million) of additional  leases were sold under the Canadian  CN$175 million
  asset  securitization  agreement  during  the first six  months of fiscal  1999,
  replacing leases liquidated.  The balance of Canadian securitized receivables at
  March 31, 1999 is CN$156 million.
  During  the third  quarter of fiscal  1999,  IKON  Receivables,  LLC (a
  second-tier  wholly-owned  subsidiary of the U.S. finance subsidiary) expects to
  publicly  offer  approximately   $752.93  million  of  lease-backed  notes  (the
  "Notes").  This transaction will be structured using two special purpose limited
  liability companies: IKON Receivables-1, LLC, of which the finance subsidiary is
  sole member, and IKON Receivables, LLC of which IKON Receivables-1,  LLC is sole
  member. The finance subsidiary will contribute to IKON Receivables-1, LLC a pool
  of office  equipment  leases or contracts and related assets (the "Asset Pool"),
  and IKON Receivables-1,  LLC will transfer them to IKON Receivables,  LLC, which
  will be the issuer of the Notes. The Notes will be secured by the Asset Pool and
  the  payments on the Notes will be made from  payments  on the leases.  The U.S.
  finance subsidiary will receive  approximately $750 million in proceeds from the
  sale of the Notes and will use  approximately  $250  million  of that  amount to
  repurchase  previously sold assets in connection  with the asset  securitization
  transaction   completed  in  December  1998.  The  repurchased  assets  will  be
  contributed as part of the Asset Pool.
  
           The Company filed a shelf  registration for 10 million shares of common
  stock in April 1997.  Shares issued under the  registration  statement are being
  used for  acquisitions.  Approximately 2.8 million shares have been issued under
  this shelf  registration  through  March 31,  1999,  leaving 7.2 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 1998,  the Company  repurchased  4.6
  million common shares for $113 million under this program.
  
           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 the  remaining  accrued costs
  associated with the Company's transformation program.
  
                             Forward-Looking Information
  
           This Report includes or incorporates by reference information which may
  constitute   forward-looking  statements  within  the  meaning  of  the  federal
  securities laws.  Although the Company  believes the  expectations  contained in
  such forward-looking  statements are reasonable,  it can give no assurances that
  such expectations will prove correct. Such forward-looking  information is based
  upon  management's  current plans or expectations  and is subject to a number of
  risks  and  uncertainties  that  could   significantly   affect  current  plans,
  anticipated  actions and the Company's future  financial  condition and results.
  These  risks  and  uncertainties  include,  but are not  limited  to,  risks and
  uncertainties  relating to conducting  operations in a competitive  environment;
  delays,  difficulties,  management  transitions and employment issues associated
  with  consolidation  of,  and/or  changes in business  operations;  managing the
  integration  of  existing  and  acquired  companies;   risks  and  uncertainties
  associated with existing or future vendor  relationships;  and general  economic
  conditions.  Certain  additional  risks and  uncertainties  are set forth in the
  Company's  1998  Annual  Report on Form  10-K/A  filed with the  Securities  and
  Exchange   Commission.   As  a   consequence   of  these  and  other  risks  and
  uncertainties, current plans, anticipated actions and future financial condition
  and results may differ  materially from those  expressed in any  forward-looking
  statements made by or on behalf of the Company.
  PART II. OTHER INFORMATION
  
  Item 4. Submission of Matters to a Vote of Security Holders
  
           On March 23, 1999, the Company held its annual meeting of shareholders,
  at which eight directors were elected to hold office until the election of their
  successors:
  
                                          For                   Withheld
           Judith M. Bell             131,594,192               1,768,717
           James R. Birle             131,885,267               1,477,642
           Philip E. Cushing          131,820,312               1,542.596
           Kurt E. Dinkelacker        131,240,785               2,122,224
           James J. Forese            131,900,184               1,462,725
           Thomas P. Gerrity          131,853,048               1,509,860
           Barbara Barnes Hauptfuhrer 131,450,962               1,911,946
           Richard A. Jalkut          131,501,324               1,861,584
  
              On May 1, 1999, Mr. Dinkelacker resigned his position as Senior Vice
  President and Chief Financial Officer and a director of the Company.
  
  Item 6. Exhibits and Reports on Form 8-K
  
        (a)  The  following  Exhibits  are  furnished  pursuant  to  Item  601  of
  Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
        (b)    Reports on Form 8-K
  
               On January 26, 1999, the Company filed a Current Report on Form 8-K
               to file,  under Item 5 of the form, its press release dated January
               19, 1999,  indicating  that the Company  anticipated  first quarter
               earnings  to exceed the First Call  consensus  estimate of $.05 per
               share for the  quarter  ending  December  31,  1998,  and  provided
               additional information.
  
               On February 5, 1999, the Company filed a Current Report on Form 8-K
               to file,  under Item 5 of the form,  information  contained  in its
               press release dated  January 27, 1999  concerning  earnings for the
               first quarter ended December 31, 1998.
  
               On March 10, 1999,  the Company filed a Current  Report on Form 8-K
               to file,  under Item 5 of the form,  information  contained  in its
               press release dated March 9, 1999  announcing  the  resignation  of
               Kurt E.  Dinkelacker  as Chief  Financial  Officer  and a member of
               IKON's Board of Directors, effective May 1, 1999.
  
               On May 5, 1999,  the Company filed a Current  Report on Form 8-K to
               file,  under Item 5 of the form,  information  contained  in 1) its
               press release dated April 22, 1999  regarding  the  appointment  of
               William S.  Urkiel as the  Company's  Chief  Financial  Officer and
               Senior Vice  President,  and 2) the press  release  dated April 28,
               1999 regarding the Company's financial results for the period ended
               March 31, 1999,  including  unaudited  consolidated  statements  of
               income for the three months ended March 31, 1999 and the six months
               ended March 31, 1999.
  SIGNATURES
  
  Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned,  thereunto duly authorized. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
                                        IKON OFFICE SOLUTIONS, INC.
  
  Date  May 14, 1999                    /s/ Michael J. Dillon               
        ------------                        ------------------------------------
                                            Michael J. Dillon
                                            Vice President and Controller
                                            (Chief Accounting Officer)
  INDEX TO EXHIBITS
  
  Exhibit Number
  
  (27)     Financial Data Schedule