Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1994 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
--------------------------------------------------------
ALCO STANDARD CORPORATION
- - --------------------------------------------------------------------------------
(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.)
Box 834, Valley Forge, Pennsylvania 19482
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 296-8000
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
* Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No ___
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1994.
Common Stock, no par value 54,254,244 shares
Page 2
INDEX
ALCO STANDARD CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--June 30, 1994
and September 30, 1993
Consolidated Statements of Income--Three months
ended June 30, 1994 and June 30, 1993;
Nine months ended June 30, 1994 and
June 30, 1993
Consolidated Statements of Cash Flows--Nine
months ended June 30, 1994 and June 30, 1993
Notes to Consolidated Financial Statements--
June 30, 1994
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 3
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
ALCO STANDARD CORPORATION
CONSOLIDATED BALANCE SHEETS
( in thousands )
June 30 September 30
ASSETS 1994 1993
------------ -------------
Current Assets
Cash $ 41,848 $ 36,495
Accounts receivable less allowance for doubtful accounts:
6/94 - $33,248; 9/93 - $27,528 876,792 855,666
Inventories 612,993 591,964
Prepaid expenses, deposits and deferred taxes 110,194 92,600
--------- ---------
Total current assets 1,641,827 1,576,725
--------- ---------
Investment in Unconsolidated Affiliate 118,060
Other Investments and Long-Term Receivables 70,292 46,813
Property and Equipment, at cost 655,716 596,901
Less accumulated depreciation 302,604 260,551
--------- ---------
353,112 336,350
--------- ---------
Other Assets
Excess of cost of acquired companies over equity 713,978 694,757
Miscellaneous 73,651 69,662
Deferred taxes 24,127 22,454
--------- ---------
811,756 786,873
--------- ---------
Finance Subsidiaries Assets 610,248 484,069
--------- ---------
$ 3,487,235 $ 3,348,890
========= =========
See notes to consolidated financial statements.
Page 4
ALCO STANDARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30 September 30
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
- - ------------------------------------ ----------- -------------
Current Liabilities
Current portion of long-term debt $ 40,820 $ 39,915
Notes payable 149,632 164,249
Trade accounts payable 395,203 426,971
Accrued salaries, wages and commissions 80,230 80,097
Deferred revenues 128,610 116,631
Restructuring costs 75,988 27,480
Other accrued expenses 144,182 164,831
----------- -------------
Total current liabilities 1,014,665 1,020,174
----------- -------------
Long-Term Debt 431,933 590,154
Other Liabilities
Restructuring costs 65,000 142,459
Workers' compensation and other 142,271 113,069
----------- -------------
207,271 255,528
----------- -------------
Finance Subsidiaries Liabilities;
including debt of: 6/94 - $492,664 ; 9/93 - $413,092 520,806 437,418
Redeemable Preferred Stock of Subsidiary 25,000
Shareholders' Equity
Series AA convertible preferred stock, no par value,
4,025 depositary shares issued and outstanding 199,409 197,900
Common stock, no par value: authorized 75,000 shares;
Issued 6/94 - 54,522 shares; 9/93 - 48,772 shares 549,440 259,031
Retained earnings 611,691 651,373
Foreign currency translation adjustment (28,807) (23,640)
Cost of common shares in treasury: 6/94 - 432
shares; 9/93 - 1,808 shares (19,173) (64,048)
----------- -------------
1,312,560 1,020,616
----------- -------------
$ 3,487,235 $ 3,348,890
=========== =============
See notes to consolidated financial statements.
Page 5
ALCO STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Nine Months Ended
June 30 June 30
----------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
Revenues
Net sales $ 1,983,171 $ 1,532,801 $ 5,841,787 $ 4,442,242
Dividends, interest and other income 970 1,193 2,819 2,932
Finance subsidiaries 17,183 13,201 47,922 37,070
----------- ----------- ----------- -----------
2,001,324 1,547,195 5,892,528 4,482,244
----------- ----------- ----------- -----------
Costs and Expenses
Cost of goods sold 1,458,835 1,152,037 4,340,153 3,329,210
Selling and administrative 448,230 327,992 1,304,670 964,578
Interest 10,876 9,667 33,157 31,174
Finance subsidiaries interest 7,074 5,983 19,901 17,564
----------- ----------- ----------- -----------
1,925,015 1,495,679 5,697,881 4,342,526
----------- ----------- ----------- -----------
Income (Loss) from Unconsolidated Affiliate (115,265) (689) (117,158) 484
----------- ----------- ----------- -----------
Income (Loss) from Continuing
Operations, Before Taxes (38,956) 50,827 77,489 140,202
Taxes on Income 9,350 20,123 55,920 55,199
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations (48,306) 30,704 21,569 85,003
Income from discontinued operations,
net of income taxes 3,218
----------- ----------- ----------- -----------
Income (Loss) before cumulative effect of
changes in accounting principles (48,306) 30,704 21,569 88,221
Cumulative effect of
Postretirement benefits other than
pensions, net of income taxes (1,421)
Income taxes 1,421
----------- ----------- ----------- -----------
Net Income (Loss) (48,306) 30,704 21,569 88,221
Preferred Dividends 2,893 2,893 8,679 6,107
----------- ----------- ----------- -----------
Net Income (Loss) Available to Common
Shareholders $ (51,199) $ 27,811 $ 12,890 $ 82,114
=========== =========== =========== ===========
Earnings (Loss) Per Share (1)
Continuing operations ($0.95) $0.58 $0.24 $1.67
Discontinued operations 0.07
----------- ----------- ----------- -----------
Before cumulative effect of changes
in accounting principles (0.95) 0.58 0.24 1.74
Cumulative effect of
Postretirement benefits other than
pensions, net of income taxes (0.03)
Income taxes 0.03
----------- ----------- ----------- -----------
($0.95) $0.58 $0.24 $1.74
=========== =========== =========== ===========
Cash dividends per share of common stock $0.25 $0.24 $0.75 $0.72
=========== =========== =========== ===========
(1) See Exhibit 11 for computation of earnings per share.
See notes to consolidated financial statements.
Page 6
ALCO STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
June 30,
--------------------
1994 1993
--------- ---------
Operating activities
Net income $ 21,569 $ 88,221
Additions (deductions) to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 51,840 41,530
Amortization 19,233 15,516
Provision for losses on accounts receivable 15,675 12,387
Benefit for deferred income taxes (240) (380)
Change in deferred liabilities 1,978 (1,561)
Loss on disposition of investment in IMMOS 115,265
Changes in operating assets and liabilities, net
of effects from acquisitions and divestitures:
Increase in accounts receivable (16,975) (27,745)
Increase in inventories (8,366) (45,465)
Increase in prepaid expenses (17,360) (11,498)
Decrease in accounts payable, deferred
revenues and accrued expenses (68,418) (39,099)
Miscellaneous (6,351) (8,327)
--------- ---------
Net cash provided 107,850 23,579
Investing activities
Proceeds from sale of property and equipment 14,612 7,576
Payments received on long-term receivables 8,513 5,026
Cost of companies acquired, net of cash acquired (27,376) (269,030)
Expenditures for property and equipment (77,438) (60,144)
Purchase of miscellaneous assets (5,440) (7,812)
Finance subsidiaries receivables - additions (286,034) (200,665)
Finance subsidiaries receivables - collections 157,012 119,959
--------- ---------
Net cash used (216,151) (405,090)
Financing activities
Proceeds from issuance of long-term debt 111,319 242,301
Proceeds from option exercises and sale of treasury
shares 50,600 46,806
Proceeds from issuance of common stock, net 293,500
Proceeds from issuance of preferred stock, net 196,335
Proceeds (repayments) from short-term borrowings, net (5,278) 76,620
Long-term debt repayments (333,474) (199,385)
Finance subsidiaries debt - issuance 139,880 181,498
Finance subsidiaries debt - repayments (60,308) (103,672)
Dividends paid (45,147) (36,212)
Purchase of treasury shares (37,438) (17,142)
--------- ---------
Net cash provided 113,654 387,149
--------- ---------
Net increase in cash 5,353 5,638
Cash at beginning of year 36,495 24,386
--------- ---------
Cash at end of period $ 41,848 $ 30,024
========= =========
See notes to consolidated financial statements.
Page 7
Alco Standard Corporation
Notes To Consolidated Financial Statements
June 30, 1994
Note 1: Accounting Changes
------------------
Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", and SFAS No. 109,
"Accounting for Income Taxes". In adopting SFAS No. 106, the Company has elected
to immediately recognize the transition obligation, which resulted in a
cumulative effect charge of $1,421,000, net of taxes, or $.03 per share. The new
standard for income taxes permitted the Company to recognize the benefit of
certain deferred tax assets that was prohibited under the previous standard,
SFAS No. 96, which the Company adopted for the fiscal year ended September 30,
1988. The cumulative effect of establishing the net deferred tax asset as of
October 1, 1993 was to increase net income by $1,421,000, or $.03 per share.
Note 2: Common Stock
------------
In December, 1993, the Company issued 5,750,000 shares of common stock in a
public offering. The net proceeds from the offering of approximately $294
million were used for repayment of debt. Net income from continuing operations
and earnings per share from continuing operations for the fiscal year ended
September 30, 1993 would have been $13,288,000 and $.07, respectively, if the
offering had occurred on October 1, 1992. Net income and earnings per share for
nine months ended June 30, 1994 would have been $22,161,000 and $.26,
respectively, if the offering had occurred on October 1, 1993.
Note 3: Investment in Unconsolidated Affiliate
--------------------------------------
On June 29, 1994 a preliminary agreement was signed which provides that the
Company will sell its 49.9% interest in its unconsolidated affiliate, IMM Office
Systems GmbH (IMMOS) for cash plus a passive interest in any subsequent sale of
IMMOS. The Company will retain no ongoing liability in the joint venture and
the parties will exchange complete mutual releases for past actions. In
addition, the Company will be relieved of the covenant not to compete in Europe
contained in the joint venture agreement, although the parties will not compete
with each other for a period expiring on December 31, 1995. As part of the
transaction, the Company will acquire profitable operations in Denmark and
France and retain its U.K. based Erskine House operations. The Company
recognized the loss on the expected sale of its interest in IMMOS in the quarter
ended June 30, 1994. Accordingly, the Company recorded a pre-tax loss of $115.3
million ($95.1 million, net of tax) equating to a loss per share of $1.75 for
the quarter. This charge represents
Page 8
Alco Standard Corporation
Notes To Consolidated Financial Statements
June 30, 1994
Note 3: Investment in Unconsolidated Affiliate (Continued)
-------------------------------------------------
the write-off of Alco's investment in IMMOS, plus certain transactional costs
less the expected net cash proceeds from the sale together with related tax
benefits. The $117.2 million loss from IMMOS for the nine months ended June 30,
1994 includes $1.9 million which represents the Company's share of IMMOS
operating losses for the first half of the fiscal year.
Note 4: Debt
----
On December 13, 1993, the Company amended its $200 million credit agreement
dated December 18, 1991 to extend the term of the 364 day portion of the
facility to December 14, 1994 and the three year portion to December 18, 1996.
On January 14, 1994, the Company amended its DM 180 million credit
agreement dated October 15, 1992 to extend the expiration date of the commitment
to January 11, 1995.
On April 20, 1994, the Company amended its $200 million credit agreement
dated April 21, 1993 to extend the term of the 364 day portion of the facility
to April 19, 1995. The facility fee on the 364 day portion of the agreement was
reduced from 1/8% per annum to 1/10%, while the facility fee on the remaining
portion of the agreement was reduced from 3/16% per annum to 3/20%.
On May 13, 1994, the Company entered into an agreement to amend the terms
of the $35 million of 10.7% notes and replaced $25 million of 9.14% redeemable
preferred stock of a subsidiary. The notes and redeemable preferred stock were
assumed in connection with the acquisition of Erskine House Group PLC in fiscal
1993. Under the terms of the new agreement, the Company issued $35 million of
10.51% senior notes which are due in equal annual installments beginning on
April 24, 1997 through April 24, 2001 and $25 million of 8.61% senior notes
which are due in equal annual installments beginning on April 1, 2000 through
April 1, 2005. This is a non-cash transaction which is excluded from the
accompanying Consolidated Statements of Cash Flows.
On April 30, 1994, the Company issued two promissory notes representing the
Company's investment in a limited partnership which is constructing affordable
housing units. Each promissory note is for $4,962,500, bears interest at 7.25%,
and is due in installments beginning on January 1, 1995 through January 1, 2001.
This is a non-cash transaction which is excluded from the accompanying
Consolidated Statements of Cash Flows.
Page 9
Alco Standard Corporation
Notes To Consolidated Financial Statements
June 30, 1994
Note 4: Debt (Continued)
---------------
On June 22, 1994, the Company issued two additional promissory notes
representing the Company's investment in two limited partnerships which are
constructing affordable housing units. One promissory note is for $4,665,616,
bears interest at 7.78%, and is due in annual installments beginning on April 3,
1995 through April 1, 2002. The other note is for $4,988,750, bears interest at
6.58%, and is due in annual installments beginning on March 1, 1995 through
March 1, 2001. This is a non-cash transaction which is excluded from the
accompanying Consolidated Statements of Cash Flows.
Note 5: Supplemental Information to Statements of Cash Flows
----------------------------------------------------
The Company has presented statements of cash flows for the periods ended
June 30, 1994 and 1993 in accordance with SFAS No. 95.
Interest paid for the nine months ended June 30, 1994 was $56,600,000.
Interest paid for the nine months ended June 30, 1993 approximates the amount
disclosed in the accompanying Statements of Income.
Income tax payments of $47,493,000 and $50,750,000 were made during the
nine months ended June 30, 1994 and 1993, respectively.
The total assets for acquisitions amounted to $84,675,000 during the nine
months ended June 30, 1994 and $285,862,000, which included the joint venture
investment in IMMOS of $122,500,000 during the nine months ended June 30, 1993.
The excess of cost over acquired equity included in these assets was $35,681,000
at June 30, 1994 and $128,351,000 including $96,066,000 relating to IMMOS at
June 30, 1993.
Note 6: Medium Term Note Program
------------------------
As of July 1, 1994, Alco Capital Resource, Inc. (ACR) may offer from time
to time Medium Term Notes having an aggregate initial offering price not
exceeding $500 million or the equivalent thereof in foreign currency. These
notes will be offered at varying maturities of nine months or more from their
dates of issue and may be subject to redemption at the option of ACR or
repayment at the option of the Holder, in whole or in part, prior to the
maturity date in conjunction with meeting specified provisions. Interest rates
will be determined based on market conditions at the time of issuance.
Page 10
Item 2: Management's Discussion and Analysis of Results of Operations
- - -----------------------------------------------------------------------
and Financial Condition and Liquidity
-------------------------------------
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 June 30, 1994
compared with Three Months Ended June 30, 1993
----------------------------------------------
Revenues and income (loss) before taxes for the third quarter of fiscal
1994 compared to the third quarter of fiscal 1993 were as follows:
Revenues Income (Loss) Before Taxes
----------------------- --------------------------
June 30 % June 30 %
---------------- ----------------
1994 1993 Change 1994 1993 Change
----- ----- ------ ---- ---- ------
(in millions)
Alco Office Products $ 589 $ 386 52.6% $ 54.1 $34.3 57.7 %
Unisource:
United States 1,253 988 26.8 40.8 27.2 50.0
Canada 161 175 (8.0) 4.2 5.8 (27.6)
------ ------ ------- -----
Total Unisource 1,414 1,163 21.6 45.0 33.0 36.4
------ ------ ------- -----
Operating 2,003 1,549 29.3 99.1 67.3 47.3
Unconsolidated Affiliate (115.3) (.7)
Interest Expense (10.9) (9.7)
Eliminations and
Non-Allocated (2) (2) (11.9) (6.1)
------ ------ ------- -----
$2,001 $1,547 29.3% $ (39.0) $50.8
====== ====== ======= =====
Alco Office Products (AOP) contributed $203 million of additional revenues,
of which $146 million related to current and prior year acquisitions. The
remaining $57 million increase reflects continued internal growth in all revenue
areas of AOP's base companies, but primarily in the equipment, service and
facilities management businesses. The $265 million increase in revenues from
Unisource's U.S. operations includes $250 million from prior year acquisitions
and $15 million of internal growth from its base companies. The $14 million
revenue decrease in the Unisource Canadian paper businesses is primarily
attributable to the 8% decrease in the average foreign exchange rate.
AOP's increase in operating income of $19.8 million includes $9.2 million
from current and prior year acquisitions. The remaining $10.6 million of
internal growth from its base companies is primarily the result of higher
operating contributions from the service, supplies and facilities management
areas of AOP's businesses, along with increased operating income related to
AOP's leasing activities through Alco Capital Resource, Inc. Operating income
from Unisource's U.S. paper operations increased $13.6 million including $6.7
million from prior year acquisitions and $6.9 million from its base companies.
The internal growth is attributable to improved gross margins and expense
reductions associated with the restructuring plan. The decrease in operating
income in the Canadian paper distribution business of $1.6 million is a result
of the negative impact of foreign exchange rates along with an increase in
operating expenses at a rate in excess of the growth in revenues and gross
margins.
Page 11
Revenues from the Company's paper and office products operations outside
the U.S. were $209 million for the third quarter of fiscal 1994 compared to
$197 million for the third quarter of fiscal 1993. The $12 million increase
reflects internal growth in the AOP operations along with contributions from
prior year AOP acquisitions. These results collectively more than offset the
$14 million decrease in revenues from the Canadian paper distribution
business.
Operating income from foreign operations was $8.5 million for the three
months ended June 30, 1994, a decline of $500,000 from the prior year which
is attributed to the decrease in the operating income of the Canadian paper
distribution business. The decrease in foreign paper distribution operating
income was offset by positive contributions from the AOP foreign operations
of $1.1 million.
The 49.9% investment in IMM Office Systems (IMMOS) marked the entry of
the Company into the European market, and was to serve as a base for further
expansion in Europe. The venture agreement provided the Company with the
option of acquiring the remaining shares of IMMOS over a three-year period
beginning in 1996 if IMMOS achieved certain operating goals. However, the
capital structure and organizational complexities of IMMOS, exacerbated by
the distressed European economy and operational differences among the venture
partners, have prevented IMMOS from progressing toward those goals. As a
result, on June 29, 1994 a preliminary agreement was signed which provides
that the Company will sell its 49.9% interest in IMM Office Systems (IMMOS)
for cash plus a passive interest in any subsequent sale of IMMOS. The
Company will retain no ongoing liability in the joint venture and the parties
will exchange complete mutual releases for past actions. In addition, the
Company will be relieved of the covenant not to compete in Europe contained
in the joint venture, although the parties will not compete with each other
for a period expiring on December 31, 1995. As part of the transaction, the
Company will acquire profitable operations in Denmark and France and retain
its U.K. based Erskine House operations. The Company recognized a loss on
the expected sale of its interest in IMMOS in the quarter ended June 30,
1994, and recorded a pre-tax loss of $115.3 million ($95.1 million, net of
tax) equating to a loss per share of $1.75 for the quarter. This charge
represents the write-off of Alco's investment in IMMOS plus certain
transactional costs less the expected net cash proceeds from the sale
together with related tax benefits.
Interest expense increased by $1.2 million, a result of higher average
interest rates and debt levels. The $89.8 million decrease in income before
taxes represents a $25.5 million earnings improvement relating to the base
companies along with current and prior year acquisitions and a $115.3 million
loss on the expected sale of the investment in IMMOS. Income taxes for the
third quarter include a $20.2 million benefit on the loss on disposition of
IMMOS. Excluding the related tax benefit on this loss, the effective income
tax rate for the third quarter was 38.7% compared with 39.6% in fiscal 1993.
The increase of 6 million in weighted average shares for the quarter ended
June 30, 1994 compared to the comparable period of the prior year is
primarily attributable to a public offering of common stock in December 1993.
The $.95 loss per share for the current quarter includes a $1.75 loss per
share relating to the expected sale of the investment in IMMOS and earnings
per share of $.80 relating to the operations of the base companies along with
current and prior year acquisitions. Earnings per share for the comparable
period in the prior fiscal year was $.58.
Page 12
Nine Months Ended June 30, 1994
compared with Nine Months Ended June 30, 1993
---------------------------------------------
Revenues and income before taxes for the first nine months of fiscal
1994 compared to the first nine months of fiscal 1993 were as follows:
Revenues Income Before Taxes
----------------------- ------------------------
June 30 % June 30 %
---------------- ---------------
1994 1993 Change 1994 1993 Change
------ ---- ------ ---- ---- ------
(in millions)
Alco Office Products $1,632 $1,105 47.7% $ 144.4 $ 96.3 49.9 %
Unisource:
United States 3,786 2,865 32.1 104.0 84.2 23.5
Canada 480 517 (7.2) 9.4 14.5 (35.2)
----- ----- ----- -----
Total Unisource 4,266 3,382 26.1 113.4 98.7 14.9
----- ----- ----- -----
Operating 5,898 4,487 31.4 257.8 195.0 32.2
Unconsolidated Affiliate (117.2) .5
Interest Expense (33.2) (31.2)
Eliminations and
Non-Allocated (5) (5) (29.9) (24.1)
----- ----- ----- -----
$5,893 $4,482 31.5% $ 77.5 $140.2 (44.7)%
===== ===== ===== =====
Alco Office Products generated $527 million in increased revenues of
which $283 million relates to fiscal 1993 acquisitions and $84 million to
fiscal 1994 acquisitions. The remaining $160 million increase reflects
continued growth in all revenue areas of AOP's base companies, but
particularly in its equipment, service and facilities management businesses.
The $921 million increase in revenues from Unisource's U.S. operations
includes $762 million from Butler Paper, a fiscal 1993 acquisition and $159
million of internal growth from its base companies. The $37 million revenue
decrease in the Unisource Canadian paper businesses is primarily attributable
to a 6% decrease in the average foreign exchange rate.
AOP's operating income increase of $48.1 million includes $16.1 million
from prior year acquisitions and $6 million from current year acquisitions.
The remaining $26 million increase reflects internal growth from its base
companies which is primarily the result of higher operating contributions
from the service, supply and facilities management areas of AOP's businesses,
along with increased operating income related to its leasing activities
through Alco Capital Resource, Inc. Operating income from Unisource's U.S.
paper operations increased $19.8 million. This increase represents a
contribution of $17.5 million from prior year acquisitions and $2.3 million
from its base companies. The internal growth is attributable to improved
gross margins and expense reductions realized in the third quarter offset
primarily by lower comparable margins experienced in the first and second
quarters. The Canadian paper distribution business decrease in operating
income of $5.1 million is the result of the carryover of certain incremental
merger costs related to the Canadian merger plan implemented in fiscal 1993,
gross margin erosion in the first half of the fiscal year, and the effects of
the declining foreign exchange rates.
Geographically, revenues from the Company's paper and office products
operations outside the U.S. were $621 million for the first nine months of
fiscal 1994 compared to $581 million for the same period in the prior fiscal
year. The increase reflects $71 million from the European operations of
Erskine acquired in fiscal 1993 along with $6 million from AOP internal
growth offset by a decrease of $37 million from the Canadian paper
distribution business.
Page 13
Operating income from foreign operations was $20.5 million for the nine
months ended June 30, 1994, down $2.9 million from the prior year primarily
the result of the decrease in operating income of the Canadian paper
distribution business. The decrease in foreign paper distribution operating
income was offset by positive contributions from the AOP foreign operations
of $2.2 million.
For the nine months ended June 30, 1994, the Company has recorded a
loss of $117.2 million relating to its investment in IMMOS which includes the
$1.9 million loss on its investment as of March 31, 1994 along with the
$115.3 million loss recorded in the third quarter on the expected sale of its
investment in IMMOS.
Interest expense increased by $2 million from the comparable period in
fiscal 1993, a result of higher interest rates along with higher borrowing
levels to fund acquisitions and working capital requirements. The decrease
in income before taxes of $62.7 million is a result of the $115.3 million
loss on the expected disposition of IMMOS and a $52.6 million earnings
improvement from our base companies, current and prior year acquisitions.
The effective income tax rate for the current period excluding the effect of
the expected sale of IMMOS was 39.5% compared with 39.4% in fiscal 1993. At
June 30, 1994 weighted average shares were 6 million shares greater than the
47 million shares at June 30, 1993. This increase includes the impact of a
public offering of common stock in December, 1993.
The Unisource restructuring plan announced in September, 1993 is
proceeding as planned, with seventy-seven facility mergers expected to be
completed by the end of the fourth quarter. Since September 30, 1993,
Unisource has reduced its employee base by approximately 700. This excludes
the data processing personnel that transferred as part of the information
technology system outsourcing agreement with Integrated Systems Solutions
Corporation, a subsidiary of IBM. This 10 year agreement for $300 million,
which was effective January 1, 1994, will provide the information technology
system to be implemented as part of the restructuring plan.
During the first quarter of fiscal 1994, the Company adopted Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" and Financial Accounting Standard No. 109,
"Accounting for Income Taxes"; the combined effect on earnings of these
accounting changes was neutral.
Page 14
Financial Condition and Liquidity
---------------------------------
In December 1993, the Company issued 5,750,000 shares of common stock in
a public offering, and the net proceeds of approximately $294 million were
used to reduce outstanding debt. On May 13, 1994, the Company entered into
an agreement retiring $25 million of redeemable preferred stock of a
subsidiary and issued senior notes in an equivalent amount.
The Company's total debt (excluding finance subsidiaries) decreased to
$622 million at June 30, 1994 from $794 million at September 30, 1993. At
June 30, 1994 debt as a percentage of capitalization was 32.2% and the
current ratio was 1.6 to 1. The Company had a total of $613 million in bank
credit commitments as of June 30, 1994, of which $365 million were unused and
available.
Finance subsidiaries debt grew by $80 million from September 30, 1993, a
result of increased leasing activity. As of July 1, 1994, Alco Capital
Resource, Inc. (ACR) may offer from time to time Medium Term Notes having an
aggregate initial offering price not exceeding $500 million or the equivalent
thereof in foreign currency. These notes will be offered at varying
maturities of nine months or more from their dates of issue and may be
subject to redemption at the option of ACR or repayment at the option of the
Holder, in whole or in part, prior to the maturity date in conjunction with
meeting specified provisions. Interest rates will be determined based on
market conditions at the time of issuance.
In connection with the Unisource restructuring accrual, the Company
estimates that total cash expenditures will amount to $148 million, of which
approximately $39 million has been spent to date. Related cash expenditures
in the fourth quarter are estimated to aggregate to $21 million.
The Company believes that its operating cash flow together with unused
lines of credit will be sufficient to finance current operating requirements
including capital expenditure, acquisition and restructuring programs.
Page 15
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) The following Exhibit is furnished pursuant to Item 601
of Regulation S-K:
Exhibit No. (3) Amended and Restated Articles
of Incorporation
Exhibit No. (11) Computation of Earnings Per Share
(b) On June 30, 1994, the Registrant filed a Current
Report on Form 8-K to announce that the
Registrant had reached a preliminary agreement
with its equity partners in IMM Office Systems
(IMMOS) for the dissolution of the German-based
joint venture and its expected sale of its
investment in IMMOS.
Page 16
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 with the instructions to Form 10Q 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, 1993.
Date August 12, 1994 /s/Michael J. Dillon
--------------------- ----------------------------------
Michael J. Dillon
Vice President and Controller
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.
ALCO STANDARD CORPORATION
Date August 12, 1994 /s/Michael J. Dillon
--------------------- -----------------------------------
Michael J. Dillon
Vice President and Controller
(Chief Accounting Officer)
Page 17
Index to Exhibits
-----------------
Exhibit Number
- - --------------
(3) Amended and Restated Articles of Incorporation
(11) Computation of Earnings Per Share