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 December 31, 1997 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 January 31, 1998.
  
  Common Stock, no par value                            134,617,971  shares
  
  <PAGE>
  
                                        INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  
  PART I.  FINANCIAL INFORMATION
  
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--December 31, 1997
                           and September 30, 1997
  
                           Consolidated Statements of Income--Three months
                           ended December 31, 1997 and December 31, 1996
  
                           Consolidated Statements of Cash Flows--Three months
                           ended December 31, 1997 and December 31, 1996
  
                           Notes to Consolidated Financial Statements--
                           December 31, 1997
  
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  
  
  PART II.  OTHER INFORMATION
  
  
  
      Item 6.              Exhibits and Reports on Form 8-K
  
  
  
  SIGNATURES
  
  
  <PAGE>
  
                            PART I. FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                                 IKON OFFICE SOLUTIONS, INC.
                                 CONSOLIDATED BALANCE SHEETS
                                      ( in thousands )
  
                                            December 31    September 30
  ASSETS                                        1997           1997
  
  Current Assets
       Cash                                    $20,636        $21,341
       Accounts receivable, net                810,662        765,660
       Finance receivables, net                713,969        670,784
       Inventories                             539,202        442,207
       Prepaid expenses                        114,744        101,294
       Deferred taxes                          122,023        124,520
                                            ----------     ----------
       Total current assets                  2,321,236      2,125,806
                                            ----------     ----------
  
  
  Investments and Long-Term Receivables         14,718         17,508
  
  Long-Term Finance Receivables, net         1,422,689      1,331,372
  
  Equipment on Operating Leases, net           109,153        101,900
  
  Property and Equipment, at cost              493,443        462,360
       Less accumulated depreciation           240,530        222,815
                                            ----------     ----------
                                               252,913        239,545
                                            ----------     ----------
  
  Other Assets
       Goodwill                              1,375,020      1,348,133
       Miscellaneous                           171,233        159,622
                                            ----------     ----------
                                             1,546,253      1,507,755
                                            ----------     ----------
  
  
                                            $5,666,962     $5,323,886
                                            ==========     ==========
  
  See notes to consolidated financial statements.
  
  <PAGE>
  
                             IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  
  <TABLE>
  <CAPTION>
                                                                     December 31     September 30
  LIABILITIES AND SHAREHOLDERS' EQUITY                                  1997             1997
  <S>                                                                  <C>              <C>    
  Current Liabilities
      Current portion of long-term debt                                $59,688          $60,794
      Current portion of long-term debt, finance subsidiaries          358,752          251,711
      Notes payable                                                    146,417          266,979
      Trade accounts payable                                           206,884          206,547
      Accrued salaries, wages and commissions                           79,448          110,628
      Deferred revenues                                                200,133          208,612
      Other accrued expenses                                           270,460          268,511
                                                                   -----------      -----------
      Total current liabilities                                      1,321,782        1,373,782
                                                                   -----------      -----------
  
  Long-Term Debt                                                       740,433          490,235
  
  Long-Term Debt, Finance Subsidiaries                               1,577,330        1,494,043
  
  Deferred Taxes                                                       339,325          330,996
  
  Other Long-Term Liabilities                                          157,016          153,182
  
  Shareholders' Equity
      Series BB conversion preferred stock, no par value:
         3,877 depositary shares issued and outstanding                290,170          290,170
      Common stock, no par value:
         Authorized 300,000 shares
         Issued 135,705 shares                                         677,681          677,681
      Retained earnings                                                602,751          574,646
      Foreign currency translation adjustment                             (716)            (728)
      Cost of common shares in treasury: 12/97 - 1,519 shares;
         9/97 - 2,401 shares                                           (38,810)         (60,121)
                                                                   -----------      -----------
                                                                     1,531,076        1,481,648
                                                                   -----------      -----------
  
                                                                    $5,666,962       $5,323,886
                                                                   ===========      ===========
  </TABLE>
  
  
  See notes to consolidated financial statements.
  
  <PAGE>
  
                             IKON OFFICE SOLUTIONS, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except earnings per share)
  
  
                                                          Three Months Ended
                                                              December 31
                                                          1997            1996
  
  Revenues
  Net sales                                             $728,105         $629,427
  Service and rentals                                    575,822          463,261
  Finance income                                          70,330           47,746
                                                     -----------      -----------
                                                       1,374,257        1,140,434
                                                     -----------      -----------
  
  Costs and Expenses
  Cost of goods sold                                     468,200          402,046
  Service and rental costs                               285,283          219,046
  Finance interest expense                                30,746           20,011
  Selling and administrative                             488,091          403,576
  Transformation costs                                    19,519           14,343
                                                     -----------      -----------
                                                       1,291,839        1,059,022
                                                     -----------      -----------
  
  Operating income                                        82,418           81,412
  Interest expense                                        17,029            8,201
                                                     -----------      -----------
  Income from continuing operations before taxes
      and extraordinary loss                              65,389           73,211
  Taxes on income                                         28,405           28,552
                                                     -----------      -----------
  Income from continuing operations before
       extraordinary loss                                 36,984           44,659
  
  Discontinued operations                                                  20,151
                                                     -----------      -----------
  Income before extraordinary loss                        36,984           64,810
  Extraordinary loss from early extinguishment
       of debt, net of tax benefit                                        (12,156)
                                                     -----------      -----------
  
  Net Income                                              36,984           52,654
  Less:  Preferred Dividends                               4,885            4,885
                                                     -----------      -----------
  Available to Common Shareholders                       $32,099          $47,769
                                                     ===========      ===========
  
  Basic and Diluted Earnings Per Share
  Continuing Operations                                    $0.24            $0.30
  Discontinued Operations                                                   $0.15
  Extraordinary loss                                                       $(0.09)
                                                     -----------      -----------
                                                           $0.24            $0.36
                                                     ===========      ===========
  
  
  See notes to consolidated financial statements.
  
  <PAGE>
  
                             IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                                                       Three Months Ended
                                                                                          December 31
                                                                                       1997           1996
  <S>                                                                                <C>            <C>    
  Operating Activities
       Income from continuing operations before extraordinary loss                   $36,984        $44,659
       Additions (deductions) to reconcile income from continuing
          operations before extraordinary loss to net cash
          used in operating activities of continuing operations
              Depreciation                                                            31,617         28,616
              Amortization                                                            15,052         11,211
              Provisions for losses on accounts receivable                            13,188          7,430
              Provision for deferred taxes                                            15,000         18,800
              Writeoff of fixed assets related to transformation                       1,251
              Changes in operating assets and liabilities, net of effects from
                 acquisitions and divestitures:
                     Increase in accounts receivable                                 (53,763)       (63,384)
                     Increase in inventories                                         (95,246)       (79,134)
                     Increase in prepaid expenses                                    (15,755)       (54,245)
                     (Decrease) increase in accounts payable, deferred
                        revenues and accrued expenses                                (42,126)        17,446
              Miscellaneous                                                            3,070          7,186
                                                                                   ---------      ---------
  Net cash used in operating activities of continuing operations                     (90,728)       (61,415)
  Net cash provided by operating activities of
       discontinued operations                                                                       24,176
                                                                                   ---------      ---------
  Net cash used in operating activities                                              (90,728)       (37,239)
  
  Investing activities
       Proceeds from the sale of property and equipment                                7,851         10,679
       Cost of companies acquired, net of cash acquired                              (26,149)       (41,224)
       Expenditures for property and equipment                                       (58,769)       (38,912)
       Purchase of miscellaneous assets                                               (9,969)        (9,249)
       Finance subsidiaries receivables - additions                                 (344,812)      (317,869)
       Finance subsidiaries receivables - collections                                182,808        142,615
                                                                                   ---------      ---------
  Net cash used in investing activities of continuing operations                    (249,040)      (253,960)
  Net cash used in investing activities of discontinued operations                                  (38,058)
                                                                                   ---------      ---------
  Net cash used in investing activities                                             (249,040)      (292,018)
  
  Financing activities
       Payments of short-term borrowings, net                                       (120,958)      (180,351)
       Proceeds from issuance of long-term debt                                      253,654         14,591
       Proceeds from option exercises and sale of treasury shares                      5,600         27,874
       Proceeds from sale of finance subsidiaries lease receivables                   25,760         25,433
       Proceeds from discontinued operations                                                        553,479
       Long-term debt repayments                                                      (5,071)      (258,969)
       Finance subsidiaries debt - additions                                         275,328        200,008
       Finance subsidiaries debt - repayments                                        (85,000)       (26,000)
       Dividends paid                                                                (10,240)       (23,537)
       Purchase of treasury shares                                                       (10)        (1,786)
                                                                                   ---------      ---------
  Net cash provided by financing activities of continuing operations                 339,063        330,742
  Net cash provided by financing activities of discontinued operations                               13,882
                                                                                   ---------      ---------
  Net cash provided by financing activities                                          339,063        344,624
                                                                                   ---------      ---------
  
  Net (decrease) increase in cash                                                       (705)        15,367
  Cash at beginning of year                                                           21,341         46,056
                                                                                   ---------      ---------
  Cash at end of period                                                              $20,636        $61,423
                                                                                   =========      =========
  </TABLE>
  
  See notes to consolidated financial statements.
  
  
  
  <PAGE>
                             IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 1997
  
  
  Note 1:  Basis of Presentation
  
           The accompanying unaudited condensed consolidated financial statements
  have been prepared in accordance with generally accepted accounting principles
  for interim financial information and the instructions to Form 10-Q and Rule
  10-01 of Regulation S-X. In the opinion of management, all adjustments
  (consisting of normal recurring accruals) considered necessary for a fair
  presentation have been included. For further information, refer to the
  consolidated financial statements and footnotes thereto included in the
  Company's annual report on Form 10-K for the year ended September 30, 1997.
  Certain prior year amounts have been reclassified to conform with the current
  year presentation.
  
  
  Note 2:  Debt
  
              On January 16, 1998, the Company's credit agreement with several
  banks was amended to increase the amount available from $400 million to $600
  million. There were no other significant changes to the terms of the agreement.
  
               On October 27, 1997, the Company completed a $250 million
  underwritten public debt offering consisting of $125 million 6.75% notes due
  November 1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75%
  notes were sold at a discount to yield 6.794% and carry a make-whole call
  provision with a five basis-points premium. The 7.3% notes were also sold at a
  discount to yield 7.344% and carry a make-whole call provision with a 15
  basis-points premium. The proceeds of the offering were used to repay short-term
  borrowings.
  
  
  Note 3: Discontinued Operations
  
           Discontinued operations of the Company represent the operations of
  Unisource Worldwide, Inc. ("Unisource"), which was spun off as a separate public
  company on December 31, 1996. The results of discontinued operations, included
  in the Company's results of operations through December 31, 1996, are as follows
  (in thousands):
  
                                          Three Months Ended
                                          December 31, 1996
  
                      Revenues                $1,728,533
  
                      Income before taxes        $34,743
                      Tax expense                 14,592
                                              ----------
                      Net income                 $20,151
                                              ==========
  
  
           In December 1996, Unisource repaid $553.5 million of intercompany debt
  outstanding with the Company and the Unisource stock was distributed to IKON
  shareholders. Equity of the Company was reduced by $952.3 million, which was the
  equity of Unisource at December 31, 1996.
  
  
  <PAGE>
  
  
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                  DECEMBER 31, 1997
  
  Note 4:  Extraordinary Loss on Early Extinguishment of Debt
  
           On December 2, 1996, Unisource borrowed under its new credit facility
  to repay $553.5 million of intercompany debt with the Company. The Company
  prepaid debt in the amount of $514 million from these funds. Early repayment of
  this debt resulted in certain prepayment penalties. Total prepayment penalties
  of $18.7 million and related tax benefits of $6.5 million are reflected as an
  extraordinary loss on early extinguishment of debt on the Statement of Income
  for the three months ended December 31, 1996.
  
  
  Note 5:  Transformation Costs
  
           At the end of fiscal 1995, the Company announced its transformation
  program to change its organization into a more cohesive and efficient network by
  building a uniform information technology system and implementing best practices
  for critically important management functions throughout the IKON companies. In
  March 1997, the Company announced that it was accelerating the transformation
  program. As a result, the Company began to separately disclose these costs as a
  component of operating expenses on the Statement of Income. The Company expects
  to substantially complete the transformation program by the end of fiscal 1998.
  The transformation involves a variety of activities which the Company believes
  will significantly lower administrative costs and improve margins. These
  activities include consolidating purchasing, inventory control, logistics and
  other activities into thirteen customer service centers in the U.S.,
  establishing a single financial processing center, building a common information
  technology system, adopting a common name and creating marketplace-focused field
  operations with greater attention to customer sales and services. Costs charged
  to transformation expense in the first quarter of fiscal 1998 of $19.5 million
  relate principally to severance and other employee-related costs, including
  temporary labor ($14.3 million), facility consolidation costs, including lease
  buyouts and write-offs of leasehold improvements ($3.3 million) and technology
  conversion costs ($1.9 million). Transformation costs of $14.3 million for the
  first quarter of fiscal 1997 consist primarily of severance and other
  employee-related costs, including temporary labor and costs related to
  consultants assisting in the transformation ($8.3 million), facility
  consolidation costs, including lease buyouts and write-offs of leasehold
  improvements ($1.3 million), technology conversion costs ($4.0 million) and
  costs incurred to adopt the IKON name ($.7 million).
  
  Note 6:  Earnings Per Share
  
           The following table sets forth the computation of basic and diluted
  earnings per share from continuing operations (in thousands):
  <TABLE>
  <CAPTION>
                                                                   12/31/97                     12/31/96
  <S>                                                           <C>                          <C>
  Numerator:
       Income from continuing operations                        $      36,984                $      44,659
       Preferred stock dividends                                        4,885                        4,885
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings per share - income
          available to common shareholders                             32,099                       39,774
  
       Effect of dilutive securities:
          Convertible loan notes                                           77                           85
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings per share - income
          available to common shareholders
          after assumed conversions                             $      32,176                 $     39,859
                                                                =============                 ============
  
  
  
  
  <PAGE>
  
  
                             IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                  DECEMBER 31, 1997
  
  Note 6:  Earnings Per Share (continued)
  
  Denominator:
       Denominator for basic earnings per
          share - weighted average shares                             133,729                      132,801
  
       Effect of dilutive securities:
          Employee stock options                                          780                        1,546
          Convertible loan notes                                          258                          230
                                                                -------------                 ------------
       Dilutive potential common shares                                 1,038                        1,776
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          134,767                      134,577
                                                                =============                 ============
  
  Basic earnings per share from
       continuing operations                                            $0.24                        $0.30
                                                                        =====                        =====
  
  Diluted earnings per share from
       continuing operations                                            $0.24                        $0.30
                                                                        =====                        =====
  </TABLE>
  
           Options to purchase 3,034,759 shares of common stock at $28.88 per
  share to $61.08 per share were outstanding during the first quarter of fiscal
  1998 but were not included in the computation of diluted earnings per share
  because the options' exercise prices were greater than the average market price
  of the common shares and, therefore, the effect would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted calculation because the effect of adding 9,682,144 shares and deleting
  the preferred dividends to reflect assumed conversion would be antidilutive.
  
  <PAGE>
  Item 2:  Management's Discussion and Analysis of Results of Operations
  and Financial Condition and Liquidity
  
           Continuing operations of the Company consist of IKON, which sells,
  rents and leases photocopiers, digital printers and other automated office
  equipment for use in both traditional and integrated office environments. IKON
  also provides outsourcing and imaging services and offers consulting, design,
  computer networking and technology training for the networked office
  environment.
  
                                Results of Operations
  
           The discussion of the results of operations reviews the continuing
  operations of the Company as contained in the Consolidated Statements of Income.
  
                        Three Months Ended December 31, 1997
               Compared with the Three Months Ended December 31, 1996
  
           Revenues and income before taxes for the first quarter of fiscal 1998
  compared to the first quarter of fiscal 1997 were as follows:
  <TABLE>
  <CAPTION>
  
                                                                 Three Months Ended
                                                                December  31           %
                                                           1997       1996          Change
  (in millions)
  <S>                                                    <C>           <C>            <C>
  REVENUES                                               $1,374        $1,140         20.5%
                                                         ======        ======
  
  INCOME BEFORE TAXES:
  Operating income, excluding transformation costs       $101.9         $95.8          6.4%
  Transformation costs                                    (19.5)        (14.3)
                                                         ------        ------
        Operating income                                   82.4          81.4
  Interest expense                                        (17.0)         (8.2)
                                                         ------        ------
                                                          $65.4         $73.2        (10.7%)
                                                         ======        ======
  </TABLE>
  
  
           The Company's first quarter revenues increased $234 million, or 20.5%
  over the first quarter of fiscal 1997, of which $129 million relates to current
  and prior year acquisitions and $105 million to base companies' internal growth.
  The Company's worldwide internal revenue growth was 9% in the first quarter of
  fiscal 1998 compared to 10% in the fourth quarter of fiscal 1997. The internal
  revenue growth rate was 10% in North America for the first quarter of fiscal
  1998, the decrease to 9% worldwide was the result of the remaining impact of
  transformation in the U.K. Revenues from the Company's operations outside the
  U.S. were $177 million for the first quarter of fiscal 1998 compared to $147
  million for the same period of the prior fiscal year. The Company's European
  operations accounted for $14 million of the increase, primarily from
  acquisitions, while Canadian revenues increased $14 million as a result of
  acquisitions and internal growth in base companies. Other foreign operations
  revenue increased $2 million in the first quarter of fiscal 1998 compared to the
  first quarter of fiscal 1997.
  
           The Company's operating income increased by $1 million compared to the
  prior year's quarter. Operating income for the first quarter of fiscal 1998
  continues to be impacted by the effects of transformation. Excluding
  transformation costs, operating income increased 6.4% to $101.9 million for the
  first quarter of fiscal 1998 compared to $95.8 million in the prior year.
  Finance subsidiaries contributed 20.6% of the Company's operating income before
  transformation costs in the first quarter of fiscal 1998 compared to 17.7% in
  the first quarter of fiscal 1997. The Company's operating margins were 6.0% in
  the first quarter of fiscal 1998, compared to 7.1% in fiscal 1997. Excluding
  transformation costs, the Company's operating margins were 7.4% in the first
  quarter of fiscal 1998, compared to 8.4% in the first quarter of fiscal 1997,
  however, the first quarter of fiscal 1998 is showing an improvement in operating
  margins, excluding transformation costs, from the 7.3% operating margin reported
  in the fourth quarter of fiscal 1997.
  
  <PAGE>
  
           Costs associated with the Company's transformation program increased
  $5.2 million in the first quarter of fiscal 1998 compared to the first quarter
  of fiscal 1997, primarily relating to employee severance agreements.
  
           Operating income from foreign operations was $12.6 million for the
  three months ended December 31, 1997, up $2.6 million from the prior year's
  quarter. European operations increased by $1.4 million in the first quarter,
  while Canadian operating income increased $.5 million and other foreign
  operations increased $.7 million in the first quarter of fiscal 1998. There was
  no material effect of foreign currency exchange rate fluctuations on the results
  of operations in the first quarter of fiscal 1998 compared to the first quarter
  of fiscal 1997.
  
  Acquisitions
           In the first quarter of fiscal 1998, the Company completed 17
  acquisitions with trailing revenues of $86 million. Of the 17 companies
  acquired, five were outsourcing and imaging companies, five were systems
  integration companies and seven were traditional copier companies. The focus of
  acquisition activity for fiscal 1998 will be to continue to build a presence in
  Europe and expand capability in technology services and outsourcing/imaging.
  
  Other
           Interest expense increased $8.8 million in the first quarter of fiscal
  1998 compared to the first quarter of fiscal 1997 as a result of increased debt
  levels from investment in working capital, acquisitions and the share repurchase
  program which began in the third quarter of fiscal 1997.
  
           Income before taxes decreased by $7.8 million in the first quarter over
  the prior year, primarily reflecting the combined result of internal growth from
  base companies, along with earnings contributed by acquisitions, net of
  increased transformation and interest costs. The effective income tax rate for
  the first quarter of fiscal 1998 is 43.4% compared with 39.0% for the
  comparative period in fiscal 1997. The effective tax rate for the full year of
  fiscal 1997 was 42.6%.
  
           The Company used the proceeds of a December 2, 1996 $553.5 million
  intercompany debt repayment from its discontinued operation, Unisource, to
  prepay $514 million of corporate debt. The Company recorded an extraordinary
  charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of
  fiscal 1997 primarily for prepayment penalties relating to its early
  extinguishment of certain corporate debt.
  
           Earnings per share from continuing operations, assuming dilution,
  decreased from $.30 per share for the first quarter of fiscal 1997 to $.24 per
  share for the first quarter of fiscal 1998. Excluding transformation costs,
  earnings per share from continuing operations, assuming dilution, decreased 8.3%
  from $.36 per share for the first quarter of fiscal 1997 to $.33 per share in
  the first quarter of fiscal 1998. Including income from discontinued operations
  and the extraordinary loss on the extinguishment of debt, earnings per share,
  assuming dilution, of the Company were $.36 for the first quarter of fiscal
  1997.
  
  
  
  
  <PAGE>
  
  
                          Financial Condition and Liquidity
  
           Net cash used by operating activities for the first three months of
  fiscal 1998 was $91 million, primarily the result of increases in working
  capital. During the same period, the Company used $249 million in cash for
  investing activities, which included finance subsidiary activity of $162
  million, acquisition activity at a cash cost of $26 million and capital
  expenditures of $59 million. Investing activities were funded by financing
  activities. Cash provided by financing activities includes $133 million net
  increase in corporate debt and $190 million increase in finance subsidiaries
  debt. Debt, excluding finance subsidiaries, was $946.5 million at December 31,
  1997, an increase of $128.5 million from the debt balance at September 30, 1997
  of $818 million. The debt to capital ratio, excluding finance subsidiaries, was
  38.2% at December 31, 1997 compared to 35.6% at September 30, 1997. The Company
  has placed increased emphasis on working capital reduction as short-term goal.
  
           On January 16, 1998, the Company amended its December 16, 1996 credit
  agreement to increase the borrowing limit from $400 million to $600 million. As
  of December 31, 1997, short-term borrowings supported by the agreement totaled
  $130 million. In October 1997, the Company completed a $250 million two tranche
  underwritten public offering consisting of $125 million 6.75% notes due November
  1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75% notes were
  sold at a discount to yield 6.794% and carry a make-whole call provision with a
  five basis-points premium. The 7.3% notes were also sold at a discount to yield
  7.344% and carry a make-whole call provision with a 15 basis-points premium. The
  proceeds of the offering were used to repay short-term borrowings. The Company
  also has $200 million available for either stock or debt offerings under its
  shelf registration statement filed in November 1995. In January 1998, the Board
  of Directors approved the filing of an additional $500 million shelf
  registration statement for either stock or debt offerings.
  
           Finance subsidiaries debt grew by $190.3 million from September 30,
  1997, a result of increased leasing activity. During the three months ended
  December 31, 1997, the U.S. finance subsidiary issued an additional $248.5
  million under its medium term notes program. At December 31, 1997, $1.7 billion
  of medium term notes were outstanding with a weighted interest rate of 6.6%,
  while $1.4 billion remains available under this program. Under its $275 million
  asset securitization programs, the U.S. finance subsidiary sold $25.8 million in
  direct financing leases during the first three months of fiscal 1998, replacing
  those leases liquidated and leaving the amount of contracts sold unchanged.
  
           The Company filed shelf registrations for 10 million shares of common
  stock in April 1997 and 5 million shares of common stock in March 1996. Shares
  issued under these registration statements are being used for acquisitions.
  Approximately 4.7 million shares have been issued under these shelf
  registrations through December 31, 1997, leaving 10.3 million shares available
  for issuance.
  
           On April 17, 1997, the Company announced that it may repurchase from
  time to time as much as five percent of the outstanding IKON common stock in
  open market transactions. Through fiscal 1997, the Company repurchased 4.4
  million common shares for $109.7 million. There were no shares repurchased under
  this program during the first quarter of fiscal 1998.
  
           The Company believes that its operating cash flow together with unused
  bank credit facilities and other financing arrangements will be sufficient to
  finance current operating requirements including capital expenditures,
  acquisitions, dividends, stock repurchases and costs associated with the
  Company's transformation program. The Company estimates the total remaining
  costs of its transformation program to be from $35 million to $50 million,
  excluding capital costs. Transformation costs are expected to be in the range of
  $5 million to $20 million for each of the next three quarters.
  <PAGE>
                             Forward-Looking Information
  
           This document contains, and other materials filed or to be filed by the
  Company with the Commission which are incorporated by reference herein, as well
  as information included in oral statements or other written statements made or
  to be made by the Company, contain or will contain or include, disclosures which
  are forward-looking statements within the meaning of Section 27A of the
  Securities Act of 1933, as amended, and Section 21E of the 1934 Exchange Act.
  Such forward-looking statements address, among other things, strategic
  initiatives (including plans for enhancing the Company's business through new
  acquisitions, information technology systems, sales strategies, market growth
  plans, margin enhancement initiatives, capital expenditures and financing
  sources). Such forward-looking information is based upon management's current
  plans or expectations and is subject to a number of uncertainties and risks that
  could significantly affect current plans, anticipated actions and the Company's
  future financial condition and results. These uncertainties and risks include,
  but are not limited to, those relating to successfully managing an aggressive
  program to acquire and integrate new companies, including companies with
  technical services and products that are relatively new to the Company, and also
  including companies outside the U.S., which present additional risks relating to
  international operations; risks and uncertainties relating to conducting
  operations in a competitive environment; delays, difficulties, technological
  changes, management transitions and employment issues associated with a
  large-scale transformation project; debt service requirements (including
  sensitivity to fluctuations in interest rates); and general economic conditions.
  As a consequence, current plans, anticipated actions and future financial
  condition and results may differ from those expressed in any forward-looking
  statements made by or on behalf of the Company.
  <PAGE>
                             PART II. OTHER INFORMATION
  
  
  
  
  Item 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 October 2, 1997, the registrant filed a Current Report on Form
                 8-K to file, under Item 5 of the form, the press release dated
                 September 26, 1997, indicating that it planned to release fourth
                 quarter and fiscal 1997 earnings on October 15, 1997 and
                 indicating that the registrant expects earnings per share from
                 continuing operations, excluding transformation charges, to be
                 within the range of $.33 - $.36 for the quarter.
  
                 On October 22, 1997, the registrant filed a Current Report on
                 Form 8-K to file, under Item 5 of the form, as an exhibit to the
                 report, its Ratio of Earnings to Fixed Charges for each of the
                 years in the five-year period ended September 30, 1997, and its
                 results for the fiscal year ended September 30, 1997.
  
  <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  February 12, 1998                     /s/ Michael J. Dillon
                                              Michael J. Dillon
                                              Vice President and Controller
                                              (Chief Accounting Officer)
  
  
  
  <PAGE>
  
                                  INDEX TO EXHIBITS
  
  
  
  Exhibit Number
  
  
           (27)       Financial Data Schedule
metadata_documents: [{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q", "secsgml_size_bytes": 43353}]
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": "98533411"}, "business-address": {"street1": "P O BOX 834", "city": "VALLEY FORGE", "state": "PA", "zip": "19482", "phone": "2152968000"}, "mail-address": {"street1": "BOX 834", "city": "VALLEY FORGE", "state": "PA", "zip": "19482"}, "former-company": [{"former-conformed-name": "ALCO STANDARD CORP", "date-changed": "19920703"}, {"former-conformed-name": "ALCO CHEMICAL CORP", "date-changed": "19680218"}]}
text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
  Act of 1934 for the quarterly period ended December 31, 1997 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 January 31, 1998.
  
  Common Stock, no par value                            134,617,971  shares
  INDEX
  
                             IKON OFFICE SOLUTIONS, INC.
  
  PART I.  FINANCIAL INFORMATION
  
       Item 1.             Financial Statements (Unaudited)
  
                           Consolidated Balance Sheets--December 31, 1997
                           and September 30, 1997
  
                           Consolidated Statements of Income--Three months
                           ended December 31, 1997 and December 31, 1996
  
                           Consolidated Statements of Cash Flows--Three months
                           ended December 31, 1997 and December 31, 1996
  
                           Notes to Consolidated Financial Statements--
                           December 31, 1997
  
       Item 2.             Management's Discussion and Analysis of Results
                           of Operations and Financial Condition and Liquidity
  
  PART II.  OTHER INFORMATION
  
      Item 6.              Exhibits and Reports on Form 8-K
  
  SIGNATURES
  PART I. FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                                 IKON OFFICE SOLUTIONS, INC.
                                 CONSOLIDATED BALANCE SHEETS
                                      ( in thousands )
  
                                            December 31    September 30
  ASSETS                                        1997           1997
  
  Current Assets
       Cash                                    $20,636        $21,341
       Accounts receivable, net                810,662        765,660
       Finance receivables, net                713,969        670,784
       Inventories                             539,202        442,207
       Prepaid expenses                        114,744        101,294
       Deferred taxes                          122,023        124,520
                                            ----------     ----------
       Total current assets                  2,321,236      2,125,806
                                            ----------     ----------
  
  Investments and Long-Term Receivables         14,718         17,508
  
  Long-Term Finance Receivables, net         1,422,689      1,331,372
  
  Equipment on Operating Leases, net           109,153        101,900
  
  Property and Equipment, at cost              493,443        462,360
       Less accumulated depreciation           240,530        222,815
                                            ----------     ----------
                                               252,913        239,545
                                            ----------     ----------
  
  Other Assets
       Goodwill                              1,375,020      1,348,133
       Miscellaneous                           171,233        159,622
                                            ----------     ----------
                                             1,546,253      1,507,755
                                            ----------     ----------
  
                                            $5,666,962     $5,323,886
                                            ==========     ==========
  
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                             CONSOLIDATED BALANCE SHEETS
                                  ( in thousands )
  December 31     September 30
  LIABILITIES AND SHAREHOLDERS' EQUITY                                  1997             1997
  Current Liabilities
      Current portion of long-term debt                                $59,688          $60,794
      Current portion of long-term debt, finance subsidiaries          358,752          251,711
      Notes payable                                                    146,417          266,979
      Trade accounts payable                                           206,884          206,547
      Accrued salaries, wages and commissions                           79,448          110,628
      Deferred revenues                                                200,133          208,612
      Other accrued expenses                                           270,460          268,511
                                                                   -----------      -----------
      Total current liabilities                                      1,321,782        1,373,782
                                                                   -----------      -----------
  
  Long-Term Debt                                                       740,433          490,235
  
  Long-Term Debt, Finance Subsidiaries                               1,577,330        1,494,043
  
  Deferred Taxes                                                       339,325          330,996
  
  Other Long-Term Liabilities                                          157,016          153,182
  
  Shareholders' Equity
      Series BB conversion preferred stock, no par value:
         3,877 depositary shares issued and outstanding                290,170          290,170
      Common stock, no par value:
         Authorized 300,000 shares
         Issued 135,705 shares                                         677,681          677,681
      Retained earnings                                                602,751          574,646
      Foreign currency translation adjustment                             (716)            (728)
      Cost of common shares in treasury: 12/97 - 1,519 shares;
         9/97 - 2,401 shares                                           (38,810)         (60,121)
                                                                   -----------      -----------
                                                                     1,531,076        1,481,648
                                                                   -----------      -----------
  
                                                                    $5,666,962       $5,323,886
                                                                   ===========      ===========
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except earnings per share)
  
                                                          Three Months Ended
                                                              December 31
                                                          1997            1996
  
  Revenues
  Net sales                                             $728,105         $629,427
  Service and rentals                                    575,822          463,261
  Finance income                                          70,330           47,746
                                                     -----------      -----------
                                                       1,374,257        1,140,434
                                                     -----------      -----------
  
  Costs and Expenses
  Cost of goods sold                                     468,200          402,046
  Service and rental costs                               285,283          219,046
  Finance interest expense                                30,746           20,011
  Selling and administrative                             488,091          403,576
  Transformation costs                                    19,519           14,343
                                                     -----------      -----------
                                                       1,291,839        1,059,022
                                                     -----------      -----------
  
  Operating income                                        82,418           81,412
  Interest expense                                        17,029            8,201
                                                     -----------      -----------
  Income from continuing operations before taxes
      and extraordinary loss                              65,389           73,211
  Taxes on income                                         28,405           28,552
                                                     -----------      -----------
  Income from continuing operations before
       extraordinary loss                                 36,984           44,659
  
  Discontinued operations                                                  20,151
                                                     -----------      -----------
  Income before extraordinary loss                        36,984           64,810
  Extraordinary loss from early extinguishment
       of debt, net of tax benefit                                        (12,156)
                                                     -----------      -----------
  
  Net Income                                              36,984           52,654
  Less:  Preferred Dividends                               4,885            4,885
                                                     -----------      -----------
  Available to Common Shareholders                       $32,099          $47,769
                                                     ===========      ===========
  
  Basic and Diluted Earnings Per Share
  Continuing Operations                                    $0.24            $0.30
  Discontinued Operations                                                   $0.15
  Extraordinary loss                                                       $(0.09)
                                                     -----------      -----------
                                                           $0.24            $0.36
                                                     ===========      ===========
  
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Three Months Ended
                                                                                          December 31
                                                                                       1997           1996
  Operating Activities
       Income from continuing operations before extraordinary loss                   $36,984        $44,659
       Additions (deductions) to reconcile income from continuing
          operations before extraordinary loss to net cash
          used in operating activities of continuing operations
              Depreciation                                                            31,617         28,616
              Amortization                                                            15,052         11,211
              Provisions for losses on accounts receivable                            13,188          7,430
              Provision for deferred taxes                                            15,000         18,800
              Writeoff of fixed assets related to transformation                       1,251
              Changes in operating assets and liabilities, net of effects from
                 acquisitions and divestitures:
                     Increase in accounts receivable                                 (53,763)       (63,384)
                     Increase in inventories                                         (95,246)       (79,134)
                     Increase in prepaid expenses                                    (15,755)       (54,245)
                     (Decrease) increase in accounts payable, deferred
                        revenues and accrued expenses                                (42,126)        17,446
              Miscellaneous                                                            3,070          7,186
                                                                                   ---------      ---------
  Net cash used in operating activities of continuing operations                     (90,728)       (61,415)
  Net cash provided by operating activities of
       discontinued operations                                                                       24,176
                                                                                   ---------      ---------
  Net cash used in operating activities                                              (90,728)       (37,239)
  
  Investing activities
       Proceeds from the sale of property and equipment                                7,851         10,679
       Cost of companies acquired, net of cash acquired                              (26,149)       (41,224)
       Expenditures for property and equipment                                       (58,769)       (38,912)
       Purchase of miscellaneous assets                                               (9,969)        (9,249)
       Finance subsidiaries receivables - additions                                 (344,812)      (317,869)
       Finance subsidiaries receivables - collections                                182,808        142,615
                                                                                   ---------      ---------
  Net cash used in investing activities of continuing operations                    (249,040)      (253,960)
  Net cash used in investing activities of discontinued operations                                  (38,058)
                                                                                   ---------      ---------
  Net cash used in investing activities                                             (249,040)      (292,018)
  
  Financing activities
       Payments of short-term borrowings, net                                       (120,958)      (180,351)
       Proceeds from issuance of long-term debt                                      253,654         14,591
       Proceeds from option exercises and sale of treasury shares                      5,600         27,874
       Proceeds from sale of finance subsidiaries lease receivables                   25,760         25,433
       Proceeds from discontinued operations                                                        553,479
       Long-term debt repayments                                                      (5,071)      (258,969)
       Finance subsidiaries debt - additions                                         275,328        200,008
       Finance subsidiaries debt - repayments                                        (85,000)       (26,000)
       Dividends paid                                                                (10,240)       (23,537)
       Purchase of treasury shares                                                       (10)        (1,786)
                                                                                   ---------      ---------
  Net cash provided by financing activities of continuing operations                 339,063        330,742
  Net cash provided by financing activities of discontinued operations                               13,882
                                                                                   ---------      ---------
  Net cash provided by financing activities                                          339,063        344,624
                                                                                   ---------      ---------
  
  Net (decrease) increase in cash                                                       (705)        15,367
  Cash at beginning of year                                                           21,341         46,056
                                                                                   ---------      ---------
  Cash at end of period                                                              $20,636        $61,423
                                                                                   =========      =========
  See notes to consolidated financial statements.
  IKON OFFICE SOLUTIONS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  DECEMBER 31, 1997
  
  Note 1:  Basis of Presentation
  
           The accompanying unaudited condensed consolidated financial statements
  have been prepared in accordance with generally accepted accounting principles
  for interim financial information and the instructions to Form 10-Q and Rule
  10-01 of Regulation S-X. In the opinion of management, all adjustments
  (consisting of normal recurring accruals) considered necessary for a fair
  presentation have been included. For further information, refer to the
  consolidated financial statements and footnotes thereto included in the
  Company's annual report on Form 10-K for the year ended September 30, 1997.
  Certain prior year amounts have been reclassified to conform with the current
  year presentation.
  
  Note 2:  Debt
  
              On January 16, 1998, the Company's credit agreement with several
  banks was amended to increase the amount available from $400 million to $600
  million. There were no other significant changes to the terms of the agreement.
  
               On October 27, 1997, the Company completed a $250 million
  underwritten public debt offering consisting of $125 million 6.75% notes due
  November 1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75%
  notes were sold at a discount to yield 6.794% and carry a make-whole call
  provision with a five basis-points premium. The 7.3% notes were also sold at a
  discount to yield 7.344% and carry a make-whole call provision with a 15
  basis-points premium. The proceeds of the offering were used to repay short-term
  borrowings.
  
  Note 3: Discontinued Operations
  
           Discontinued operations of the Company represent the operations of
  Unisource Worldwide, Inc. ("Unisource"), which was spun off as a separate public
  company on December 31, 1996. The results of discontinued operations, included
  in the Company's results of operations through December 31, 1996, are as follows
  (in thousands):
  
                                          Three Months Ended
                                          December 31, 1996
  
                      Revenues                $1,728,533
  
                      Income before taxes        $34,743
                      Tax expense                 14,592
                                              ----------
                      Net income                 $20,151
                                              ==========
  
           In December 1996, Unisource repaid $553.5 million of intercompany debt
  outstanding with the Company and the Unisource stock was distributed to IKON
  shareholders. Equity of the Company was reduced by $952.3 million, which was the
  equity of Unisource at December 31, 1996.
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                  DECEMBER 31, 1997
  
  Note 4:  Extraordinary Loss on Early Extinguishment of Debt
  
           On December 2, 1996, Unisource borrowed under its new credit facility
  to repay $553.5 million of intercompany debt with the Company. The Company
  prepaid debt in the amount of $514 million from these funds. Early repayment of
  this debt resulted in certain prepayment penalties. Total prepayment penalties
  of $18.7 million and related tax benefits of $6.5 million are reflected as an
  extraordinary loss on early extinguishment of debt on the Statement of Income
  for the three months ended December 31, 1996.
  
  Note 5:  Transformation Costs
  
           At the end of fiscal 1995, the Company announced its transformation
  program to change its organization into a more cohesive and efficient network by
  building a uniform information technology system and implementing best practices
  for critically important management functions throughout the IKON companies. In
  March 1997, the Company announced that it was accelerating the transformation
  program. As a result, the Company began to separately disclose these costs as a
  component of operating expenses on the Statement of Income. The Company expects
  to substantially complete the transformation program by the end of fiscal 1998.
  The transformation involves a variety of activities which the Company believes
  will significantly lower administrative costs and improve margins. These
  activities include consolidating purchasing, inventory control, logistics and
  other activities into thirteen customer service centers in the U.S.,
  establishing a single financial processing center, building a common information
  technology system, adopting a common name and creating marketplace-focused field
  operations with greater attention to customer sales and services. Costs charged
  to transformation expense in the first quarter of fiscal 1998 of $19.5 million
  relate principally to severance and other employee-related costs, including
  temporary labor ($14.3 million), facility consolidation costs, including lease
  buyouts and write-offs of leasehold improvements ($3.3 million) and technology
  conversion costs ($1.9 million). Transformation costs of $14.3 million for the
  first quarter of fiscal 1997 consist primarily of severance and other
  employee-related costs, including temporary labor and costs related to
  consultants assisting in the transformation ($8.3 million), facility
  consolidation costs, including lease buyouts and write-offs of leasehold
  improvements ($1.3 million), technology conversion costs ($4.0 million) and
  costs incurred to adopt the IKON name ($.7 million).
  
  Note 6:  Earnings Per Share
  
           The following table sets forth the computation of basic and diluted
  earnings per share from continuing operations (in thousands):
  12/31/97                     12/31/96
  Numerator:
       Income from continuing operations                        $      36,984                $      44,659
       Preferred stock dividends                                        4,885                        4,885
                                                                -------------                 ------------
       Numerator for continuing operations
          basic earnings per share - income
          available to common shareholders                             32,099                       39,774
  
       Effect of dilutive securities:
          Convertible loan notes                                           77                           85
                                                                -------------                 ------------
       Numerator for continuing operations
          diluted earnings per share - income
          available to common shareholders
          after assumed conversions                             $      32,176                 $     39,859
                                                                =============                 ============
  IKON OFFICE SOLUTIONS, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                  DECEMBER 31, 1997
  
  Note 6:  Earnings Per Share (continued)
  
  Denominator:
       Denominator for basic earnings per
          share - weighted average shares                             133,729                      132,801
  
       Effect of dilutive securities:
          Employee stock options                                          780                        1,546
          Convertible loan notes                                          258                          230
                                                                -------------                 ------------
       Dilutive potential common shares                                 1,038                        1,776
       Denominator for diluted earnings per
              share - adjusted weighted average
              shares and assumed conversions                          134,767                      134,577
                                                                =============                 ============
  
  Basic earnings per share from
       continuing operations                                            $0.24                        $0.30
                                                                        =====                        =====
  
  Diluted earnings per share from
       continuing operations                                            $0.24                        $0.30
                                                                        =====                        =====
  Options to purchase 3,034,759 shares of common stock at $28.88 per
  share to $61.08 per share were outstanding during the first quarter of fiscal
  1998 but were not included in the computation of diluted earnings per share
  because the options' exercise prices were greater than the average market price
  of the common shares and, therefore, the effect would be antidilutive.
  
           The Company's Series BB conversion preferred stock is excluded from the
  diluted calculation because the effect of adding 9,682,144 shares and deleting
  the preferred dividends to reflect assumed conversion would be antidilutive.
  Item 2:  Management's Discussion and Analysis of Results of Operations
  and Financial Condition and Liquidity
  
           Continuing operations of the Company consist of IKON, which sells,
  rents and leases photocopiers, digital printers and other automated office
  equipment for use in both traditional and integrated office environments. IKON
  also provides outsourcing and imaging services and offers consulting, design,
  computer networking and technology training for the networked office
  environment.
  
                                Results of Operations
  
           The discussion of the results of operations reviews the continuing
  operations of the Company as contained in the Consolidated Statements of Income.
  
                        Three Months Ended December 31, 1997
               Compared with the Three Months Ended December 31, 1996
  
           Revenues and income before taxes for the first quarter of fiscal 1998
  compared to the first quarter of fiscal 1997 were as follows:
  Three Months Ended
                                                                December  31           %
                                                           1997       1996          Change
  (in millions)
  REVENUES                                               $1,374        $1,140         20.5%
                                                         ======        ======
  
  INCOME BEFORE TAXES:
  Operating income, excluding transformation costs       $101.9         $95.8          6.4%
  Transformation costs                                    (19.5)        (14.3)
                                                         ------        ------
        Operating income                                   82.4          81.4
  Interest expense                                        (17.0)         (8.2)
                                                         ------        ------
                                                          $65.4         $73.2        (10.7%)
                                                         ======        ======
  The Company's first quarter revenues increased $234 million, or 20.5%
  over the first quarter of fiscal 1997, of which $129 million relates to current
  and prior year acquisitions and $105 million to base companies' internal growth.
  The Company's worldwide internal revenue growth was 9% in the first quarter of
  fiscal 1998 compared to 10% in the fourth quarter of fiscal 1997. The internal
  revenue growth rate was 10% in North America for the first quarter of fiscal
  1998, the decrease to 9% worldwide was the result of the remaining impact of
  transformation in the U.K. Revenues from the Company's operations outside the
  U.S. were $177 million for the first quarter of fiscal 1998 compared to $147
  million for the same period of the prior fiscal year. The Company's European
  operations accounted for $14 million of the increase, primarily from
  acquisitions, while Canadian revenues increased $14 million as a result of
  acquisitions and internal growth in base companies. Other foreign operations
  revenue increased $2 million in the first quarter of fiscal 1998 compared to the
  first quarter of fiscal 1997.
  
           The Company's operating income increased by $1 million compared to the
  prior year's quarter. Operating income for the first quarter of fiscal 1998
  continues to be impacted by the effects of transformation. Excluding
  transformation costs, operating income increased 6.4% to $101.9 million for the
  first quarter of fiscal 1998 compared to $95.8 million in the prior year.
  Finance subsidiaries contributed 20.6% of the Company's operating income before
  transformation costs in the first quarter of fiscal 1998 compared to 17.7% in
  the first quarter of fiscal 1997. The Company's operating margins were 6.0% in
  the first quarter of fiscal 1998, compared to 7.1% in fiscal 1997. Excluding
  transformation costs, the Company's operating margins were 7.4% in the first
  quarter of fiscal 1998, compared to 8.4% in the first quarter of fiscal 1997,
  however, the first quarter of fiscal 1998 is showing an improvement in operating
  margins, excluding transformation costs, from the 7.3% operating margin reported
  in the fourth quarter of fiscal 1997.
  Costs associated with the Company's transformation program increased
  $5.2 million in the first quarter of fiscal 1998 compared to the first quarter
  of fiscal 1997, primarily relating to employee severance agreements.
  
           Operating income from foreign operations was $12.6 million for the
  three months ended December 31, 1997, up $2.6 million from the prior year's
  quarter. European operations increased by $1.4 million in the first quarter,
  while Canadian operating income increased $.5 million and other foreign
  operations increased $.7 million in the first quarter of fiscal 1998. There was
  no material effect of foreign currency exchange rate fluctuations on the results
  of operations in the first quarter of fiscal 1998 compared to the first quarter
  of fiscal 1997.
  
  Acquisitions
           In the first quarter of fiscal 1998, the Company completed 17
  acquisitions with trailing revenues of $86 million. Of the 17 companies
  acquired, five were outsourcing and imaging companies, five were systems
  integration companies and seven were traditional copier companies. The focus of
  acquisition activity for fiscal 1998 will be to continue to build a presence in
  Europe and expand capability in technology services and outsourcing/imaging.
  
  Other
           Interest expense increased $8.8 million in the first quarter of fiscal
  1998 compared to the first quarter of fiscal 1997 as a result of increased debt
  levels from investment in working capital, acquisitions and the share repurchase
  program which began in the third quarter of fiscal 1997.
  
           Income before taxes decreased by $7.8 million in the first quarter over
  the prior year, primarily reflecting the combined result of internal growth from
  base companies, along with earnings contributed by acquisitions, net of
  increased transformation and interest costs. The effective income tax rate for
  the first quarter of fiscal 1998 is 43.4% compared with 39.0% for the
  comparative period in fiscal 1997. The effective tax rate for the full year of
  fiscal 1997 was 42.6%.
  
           The Company used the proceeds of a December 2, 1996 $553.5 million
  intercompany debt repayment from its discontinued operation, Unisource, to
  prepay $514 million of corporate debt. The Company recorded an extraordinary
  charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of
  fiscal 1997 primarily for prepayment penalties relating to its early
  extinguishment of certain corporate debt.
  
           Earnings per share from continuing operations, assuming dilution,
  decreased from $.30 per share for the first quarter of fiscal 1997 to $.24 per
  share for the first quarter of fiscal 1998. Excluding transformation costs,
  earnings per share from continuing operations, assuming dilution, decreased 8.3%
  from $.36 per share for the first quarter of fiscal 1997 to $.33 per share in
  the first quarter of fiscal 1998. Including income from discontinued operations
  and the extraordinary loss on the extinguishment of debt, earnings per share,
  assuming dilution, of the Company were $.36 for the first quarter of fiscal
  1997.
  Financial Condition and Liquidity
  
           Net cash used by operating activities for the first three months of
  fiscal 1998 was $91 million, primarily the result of increases in working
  capital. During the same period, the Company used $249 million in cash for
  investing activities, which included finance subsidiary activity of $162
  million, acquisition activity at a cash cost of $26 million and capital
  expenditures of $59 million. Investing activities were funded by financing
  activities. Cash provided by financing activities includes $133 million net
  increase in corporate debt and $190 million increase in finance subsidiaries
  debt. Debt, excluding finance subsidiaries, was $946.5 million at December 31,
  1997, an increase of $128.5 million from the debt balance at September 30, 1997
  of $818 million. The debt to capital ratio, excluding finance subsidiaries, was
  38.2% at December 31, 1997 compared to 35.6% at September 30, 1997. The Company
  has placed increased emphasis on working capital reduction as short-term goal.
  
           On January 16, 1998, the Company amended its December 16, 1996 credit
  agreement to increase the borrowing limit from $400 million to $600 million. As
  of December 31, 1997, short-term borrowings supported by the agreement totaled
  $130 million. In October 1997, the Company completed a $250 million two tranche
  underwritten public offering consisting of $125 million 6.75% notes due November
  1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75% notes were
  sold at a discount to yield 6.794% and carry a make-whole call provision with a
  five basis-points premium. The 7.3% notes were also sold at a discount to yield
  7.344% and carry a make-whole call provision with a 15 basis-points premium. The
  proceeds of the offering were used to repay short-term borrowings. The Company
  also has $200 million available for either stock or debt offerings under its
  shelf registration statement filed in November 1995. In January 1998, the Board
  of Directors approved the filing of an additional $500 million shelf
  registration statement for either stock or debt offerings.
  
           Finance subsidiaries debt grew by $190.3 million from September 30,
  1997, a result of increased leasing activity. During the three months ended
  December 31, 1997, the U.S. finance subsidiary issued an additional $248.5
  million under its medium term notes program. At December 31, 1997, $1.7 billion
  of medium term notes were outstanding with a weighted interest rate of 6.6%,
  while $1.4 billion remains available under this program. Under its $275 million
  asset securitization programs, the U.S. finance subsidiary sold $25.8 million in
  direct financing leases during the first three months of fiscal 1998, replacing
  those leases liquidated and leaving the amount of contracts sold unchanged.
  
           The Company filed shelf registrations for 10 million shares of common
  stock in April 1997 and 5 million shares of common stock in March 1996. Shares
  issued under these registration statements are being used for acquisitions.
  Approximately 4.7 million shares have been issued under these shelf
  registrations through December 31, 1997, leaving 10.3 million shares available
  for issuance.
  
           On April 17, 1997, the Company announced that it may repurchase from
  time to time as much as five percent of the outstanding IKON common stock in
  open market transactions. Through fiscal 1997, the Company repurchased 4.4
  million common shares for $109.7 million. There were no shares repurchased under
  this program during the first quarter of fiscal 1998.
  
           The Company believes that its operating cash flow together with unused
  bank credit facilities and other financing arrangements will be sufficient to
  finance current operating requirements including capital expenditures,
  acquisitions, dividends, stock repurchases and costs associated with the
  Company's transformation program. The Company estimates the total remaining
  costs of its transformation program to be from $35 million to $50 million,
  excluding capital costs. Transformation costs are expected to be in the range of
  $5 million to $20 million for each of the next three quarters.
  Forward-Looking Information
  
           This document contains, and other materials filed or to be filed by the
  Company with the Commission which are incorporated by reference herein, as well
  as information included in oral statements or other written statements made or
  to be made by the Company, contain or will contain or include, disclosures which
  are forward-looking statements within the meaning of Section 27A of the
  Securities Act of 1933, as amended, and Section 21E of the 1934 Exchange Act.
  Such forward-looking statements address, among other things, strategic
  initiatives (including plans for enhancing the Company's business through new
  acquisitions, information technology systems, sales strategies, market growth
  plans, margin enhancement initiatives, capital expenditures and financing
  sources). Such forward-looking information is based upon management's current
  plans or expectations and is subject to a number of uncertainties and risks that
  could significantly affect current plans, anticipated actions and the Company's
  future financial condition and results. These uncertainties and risks include,
  but are not limited to, those relating to successfully managing an aggressive
  program to acquire and integrate new companies, including companies with
  technical services and products that are relatively new to the Company, and also
  including companies outside the U.S., which present additional risks relating to
  international operations; risks and uncertainties relating to conducting
  operations in a competitive environment; delays, difficulties, technological
  changes, management transitions and employment issues associated with a
  large-scale transformation project; debt service requirements (including
  sensitivity to fluctuations in interest rates); and general economic conditions.
  As a consequence, current plans, anticipated actions and future financial
  condition and results may differ from those expressed in any forward-looking
  statements made by or on behalf of the Company.
  PART II. OTHER INFORMATION
  
  Item 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 October 2, 1997, the registrant filed a Current Report on Form
                 8-K to file, under Item 5 of the form, the press release dated
                 September 26, 1997, indicating that it planned to release fourth
                 quarter and fiscal 1997 earnings on October 15, 1997 and
                 indicating that the registrant expects earnings per share from
                 continuing operations, excluding transformation charges, to be
                 within the range of $.33 - $.36 for the quarter.
  
                 On October 22, 1997, the registrant filed a Current Report on
                 Form 8-K to file, under Item 5 of the form, as an exhibit to the
                 report, its Ratio of Earnings to Fixed Charges for each of the
                 years in the five-year period ended September 30, 1997, and its
                 results for the fiscal year ended September 30, 1997.
  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  February 12, 1998                     /s/ Michael J. Dillon
                                              Michael J. Dillon
                                              Vice President and Controller
                                              (Chief Accounting Officer)
  INDEX TO EXHIBITS
  
  Exhibit Number
  
           (27)       Financial Data Schedule