Exhibit 13
FINANCIAL SECTION
OF ALCO STANDARD
CORPORATION
ANNUAL REPORT
20 Management's Responsibility for Financial Reporting
20 Report of Ernst & Young LLP, Independent Auditors
21 Consolidated Financial Statements
36 Financial Review
40 Corporate Financial Summary
42 Segment Data
44 Quarterly Data
19
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Alco Standard Corporation and Subsidiaries
The management of Alco Standard Corporation is responsible for the preparation
and presentation of the financial statements and related financial information
included in this annual report. The financial statements include amounts that
are based on management's best estimates and judgements. These statements have
been prepared in conformity with generally accepted accounting principles
consistently applied and have been audited by Ernst & Young LLP, independent
auditors.
Management is also responsible for maintaining systems of internal accounting
controls that are designed to provide reasonable assurance as to the integrity
of the financial records and the protection of corporate assets. Alco Standard
Corporation supports an active program of auditing to monitor the proper
functioning of its systems. The reports issued by the Alco Audit Department, as
well as comment letters from Ernst & Young LLP, are reviewed regularly by the
Audit Committee of the Board of Directors, which is composed of five directors
who are not employees of the Company. The Audit Committee meets periodically
with Ernst & Young LLP, the Alco Audit Department and management to review audit
scope, timing and results.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Alco Standard Corporation
We have audited the accompanying consolidated balance sheets of Alco Standard
Corporation and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Alco
Standard Corporation and subsidiaries at September 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 17, 1994
20
CONSOLIDATED STATEMENTS OF INCOME
Alco Standard Corporation and Subsidiaries
Fiscal Year Ended September 30 (in thousands except per share data)
1994 1993 1992
-------------------------------------------------------------------
REVENUES
Net sales $7,925,784 $6,387,078 $4,882,908
Dividends, interest and other income 3,537 6,332 3,292
Finance subsidiaries (note 13) 66,731 51,149 38,936
-------------------------------------------------------------------
7,996,052 6,444,559 4,925,136
-------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 5,884,819 4,799,757 3,638,494
Selling and administrative 1,765,483 1,378,814 1,069,602
Interest 43,802 40,189 31,680
Finance subsidiaries interest (note 13) 27,978 23,662 19,523
Restructuring costs (note 16) 175,000
-------------------------------------------------------------------
7,722,082 6,417,422 4,759,299
-------------------------------------------------------------------
LOSS FROM UNCONSOLIDATED AFFILIATE (note 4) (117,158) (2,538)
INVESTMENT GAIN, net (note 11) 6,683
-------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 156,812 24,599 172,520
TAXES ON INCOME (note 7) 86,203 16,984 68,303
-------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 70,609 7,615 104,217
LOSS FROM DISCONTINUED OPERATIONS, net of taxes (note 2) (7,515) (8,455)
-------------------------------------------------------------------
NET INCOME 70,609 100 95,762
PREFERRED DIVIDENDS (note 6) 11,572 9,571
-------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 59,037 $ (9,471) $ 95,762
===================================================================
EARNINGS (LOSS) PER SHARE (note 1)
Continuing operations $ 1.10 $ (.04) $ 2.22
Discontinued operations (.16) (.18)
-------------------------------------------------------------------
$ 1.10 $ (.20) $ 2.04
===================================================================
See notes to consolidated financial statements.
21
CONSOLIDATED BALANCE SHEETS
Alco Standard Corporation and Subsidiaries
September 30 (dollars in thousands)
1994 1993
-----------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 53,369 $ 36,495
Accounts receivable, less allowance for doubtful accounts:
1994-$29,428; 1993-$27,528 (note 14) 915,495 855,666
Inventories (note 1) 609,974 591,964
Prepaid expenses and deferred taxes 131,638 92,600
-----------------------------------------
Total current assets 1,710,476 1,576,725
-----------------------------------------
INVESTMENT IN UNCONSOLIDATED AFFILIATE (note 4) 118,060
OTHER INVESTMENTS AND LONG-TERM RECEIVABLES 68,472 46,813
PROPERTY AND EQUIPMENT, at cost (note 5)
Land 29,308 23,959
Buildings and improvements 213,037 226,256
Machinery and equipment 411,377 346,686
-----------------------------------------
653,722 596,901
Less accumulated depreciation 299,775 260,551
-----------------------------------------
353,947 336,350
-----------------------------------------
OTHER ASSETS
Excess of cost of acquired companies over equity (note 1) 747,629 694,757
Miscellaneous 59,331 69,662
Deferred taxes 22,454
-----------------------------------------
806,960 786,873
-----------------------------------------
FINANCE SUBSIDIARIES ASSETS (note 13) 562,403 484,069
-----------------------------------------
$3,502,258 $3,348,890
=========================================
See notes to consolidated financial statements.
22
CONSOLIDATED BALANCE SHEETS
Alco Standard Corporation and Subsidiaries
September 30 (dollars in thousands)
1994 1993
-----------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 12,299 $ 39,915
Notes payable (note 5) 91,999 164,249
Trade accounts payable 500,166 426,971
Accrued salaries, wages and commissions 96,987 80,097
Deferred revenues 134,485 116,631
Restructuring costs (note 16) 56,971 27,480
Other accrued expenses 164,023 164,831
-----------------------------------------
Total current liabilities 1,056,930 1,020,174
-----------------------------------------
LONG-TERM DEBT (note 5) 340,771 590,154
DEFERRED TAXES AND OTHER LIABILITIES
Deferred taxes 32,192
Restructuring costs (note 16) 50,000 142,459
Workers' compensation and other 156,511 113,069
-----------------------------------------
238,703 255,528
-----------------------------------------
FINANCE SUBSIDIARIES LIABILITIES (note 13) 498,710 437,418
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY (note 5) 25,000
SHAREHOLDERS' EQUITY (note 6)
Series AA convertible preferred stock, no par value:
4,025,000 depositary shares issued and outstanding 199,912 197,900
Common stock, no par value: authorized 75,000,000 shares;
issued 1994-54,522,000 shares; 1993-48,772,000 shares 551,215 259,031
Retained earnings 642,634 651,373
Foreign currency translation adjustment (22,550) (23,640)
Cost of common shares in treasury: 1994-74,000 shares;
1993-1,808,000 shares (4,067) (64,048)
-----------------------------------------
1,367,144 1,020,616
-----------------------------------------
$3,502,258 $3,348,890
=========================================
See notes to consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Alco Standard Corporation and Subsidiaries
Fiscal Year Ended September 30 (in thousands except per share data)
1994 1993 1992
--------------------------------------------------------------------------
SHARES AMOUNTS Shares Amounts Shares Amounts
--------------------------------------------------------------------------
SERIES AA CONVERTIBLE PREFERRED STOCK
Balance, beginning of year 4,025 $197,900
Issued in public offering 4,025 $196,335
Dividend accretion 2,012 1,565
--------------------------------------------------------------------------
Balance, end of year 4,025 $199,912 4,025 $197,900
==========================================================================
COMMON STOCK
Balance, beginning of year 48,772 $259,031 48,772 $257,069 48,772 $ 249,870
Issued in public offering 5,750 293,500
Mergers (4,104) 5,854
Tax benefit relating to stock plans 2,788 1,962 1,345
--------------------------------------------------------------------------
Balance, end of year 54,522 $551,215 48,772 $259,031 48,772 $ 257,069
==========================================================================
RETAINED EARNINGS
Balance, beginning of year $651,373 $699,015 $ 687,892
Net income 70,609 100 95,762
Cash dividends declared:
Preferred stock, per share: 1994-$2.875;
1993-$2.236 (11,572) (9,571)
Common stock, per share: 1994-$1.00;
1993-$.96; 1992-$.92 (52,222) (44,858) (41,520)
Pooled companies, prior to merger (2,408) (3,907)
Credits (charges) from issuance of
treasury shares and other (13,146) 6,687 (39,212)
--------------------------------------------------------------------------
Balance, end of year $642,634 $651,373 $ 699,015
==========================================================================
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, beginning of year $(23,640) $ (6,622) $ 2,039
Translation adjustment (1,347) (17,018) (8,661)
Sale of investment in unconsolidated affiliate 2,437
--------------------------------------------------------------------------
Balance, end of year $(22,550) $(23,640) $ (6,622)
==========================================================================
COST OF COMMON SHARES IN TREASURY
Balance, beginning of year 1,808 $(64,048) 2,823 $(89,099) 4,134 $(118,606)
Purchases 887 (47,733) 756 (32,389) 1,569 (57,200)
Reissued for
Exercise of options (454) 18,027 (405) 13,063 (297) 8,814
Sales to employee stock plans (1,172) 47,799 (1,250) 40,564 (1,114) 33,127
Mergers, acquisitions and other (995) 41,888 (116) 3,813 (1,469) 44,766
--------------------------------------------------------------------------
Balance, end of year 74 $ (4,067) 1,808 $(64,048) 2,823 $ (89,099)
==========================================================================
See notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
Alco Standard Corporation and Subsidiaries
Fiscal Year Ended September 30 (in thousands)
1994 1993 1992
-------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 70,609 $ 100 $ 95,762
Additions (deductions) to reconcile net income to
net cash provided by operating activities
Depreciation 70,037 57,272 47,510
Amortization 26,791 22,137 16,628
Provision for losses on accounts receivable 19,668 19,702 14,636
Provision (benefit) for deferred income taxes 22,487 (55,042) 10,243
Change in deferred liabilities 2,816 15,232 1,198
Restructuring costs (46,588) 169,939
Loss (gain) on sale of
Investment in unconsolidated affiliate 115,265
Alco Diversified Services 9,841 15,294
Alco Food Systems (5,669)
Other investments (6,683)
Changes in operating assets and liabilities
Decrease (increase) in
Accounts receivable (74,369) (72,064) (48,870)
Inventories 3,154 (52,877) (28,954)
Prepaid expenses (17,873) (5,083) (3,225)
Increase (decrease) in accounts payable,
deferred revenues, and accrued expenses 79,855 (52,563) 44,254
Miscellaneous 364 (13,267) (10,880)
-------------------------------------------------------
Net cash provided 272,216 43,327 141,244
-------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale (net of cash retained) of
Investment in unconsolidated affiliate 8,226
Alco Diversified Services 69,836
Alco Food Systems 7,756
Other investments 15,881
Cost of companies acquired, net of cash acquired (46,705) (439,447) (330,635)
Proceeds from sale of property and equipment 24,833 21,769 8,123
Expenditures for property and equipment (107,969) (83,789) (58,076)
Payments received on long-term receivables 9,251 5,369 2,740
Purchases of miscellaneous assets (7,973) (10,702) (26,339)
Finance subsidiaries receivables - Additions (408,412) (278,503) (228,951)
Finance subsidiaries receivables - Collections 210,969 166,274 126,493
-------------------------------------------------------
Net cash used (317,780) (549,193) (483,008)
-------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from
Issuance of long-term debt 20,835 319,338 191,898
Issuance of common stock, net 293,500
Issuance of Series AA convertible preferred stock, net 196,335
Option exercises and sale of treasury shares 69,914 62,284 47,096
Sale of finance subsidiaries lease receivables 125,000
Life insurance borrowings 31,055
Issuance (repayment) of short-term borrowings, net (68,278) 163,563
Proceeds (repayments) of accounts receivable sold 14,985 (3,440) 52,124
Long-term debt repayments (369,238) (241,827) (26,148)
Finance subsidiaries debt - Issuance 248,098 228,307 127,843
Finance subsidiaries debt - Repayments (196,308) (124,201) (48,000)
Dividends paid (59,392) (49,995) (41,582)
Purchase of treasury shares (47,733) (32,389) (57,200)
-------------------------------------------------------
Net cash provided 62,438 517,975 246,031
-------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 16,874 12,109 (95,733)
CASH AT BEGINNING OF YEAR 36,495 24,386 120,119
-------------------------------------------------------
CASH AT END OF YEAR $ 53,369 $ 36,495 $ 24,386
=======================================================
See notes to consolidated financial statements.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alco Standard Corporation and Subsidiaries
1. SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATION
All wholly-owned subsidiaries are consolidated and intercompany transactions
have been eliminated. The investment in unconsolidated affiliate at September
30, 1993 represented a 49.9% ownership interest in IMM Office Systems GmbH
(IMMOS) which was accounted for by the equity method. The Company sold its
investment in IMMOS in fiscal 1994 (note 4).
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from service contracts are recognized in earnings over the
term of the contract. The present values of payments due under sales-type
lease contracts are recorded as revenues and cost of goods sold is charged
with the book value of the equipment at the time of shipment. Future interest
income is deferred and recognized over the related lease term.
INVENTORIES
Inventories are stated at the lower of cost or market and consist of finished
goods available for sale. The Company uses the LIFO method of determining
cost for approximately 60% of its inventories and the FIFO method for the
balance. If the FIFO method of accounting had been used for all inventories,
these balances would have been $36,877,000 higher at September 30, 1994 and
$38,630,000 higher at September 30, 1993.
EXCESS OF COST OF ACQUIRED COMPANIES OVER EQUITY
Substantially all of the excess of cost of acquired companies over equity is
amortized over 40 years by the straight-line method. The recoverability of
the asset is evaluated at the operating unit level by an analysis of
operating results and consideration of other significant events or changes in
the business environment. If an operating unit has current operating losses
and based upon projections there is a likelihood that such operating losses
will continue, the Company will measure impairment on the basis of
undiscounted expected future cash flows from operations before interest.
DEPRECIATION
Properties and equipment are depreciated over their useful lives by the
straight-line method.
EARNINGS PER SHARE
Earnings per share are based on 53,729,000 weighted average shares in 1994,
47,396,000 shares in 1993 and 46,876,000 shares in 1992, and include the
dilutive effect of common stock equivalents, principally stock options.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of
shareholders' equity.
ACCOUNTING CHANGES
During fiscal 1994, the Company changed its methods of accounting for income
taxes and retiree healthcare benefits. The cumulative effect of adopting each
of these required new accounting methods was immaterial.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2. DISCONTINUED OPERATIONS
In September 1992, the Company decided to sell Alco Diversified Services
(ADS). Accordingly, ADS results for fiscal years 1993 and 1992 are reported
in the accompanying Statements of Income as discontinued operations. In
fiscal 1992, the Company provided for an anticipated loss on the sale of ADS
of $15,294,000. In July 1993, the Company completed the sale of ADS assets of
approximately $102,000,000 to an investor group for $84,000,000 in cash and
notes. The Company recorded an additional loss of $9,841,000, net of a LIFO
layer liquidation of $3,572,000, in fiscal 1993 in connection with this sale.
The 1993 tax benefit for ADS in the table on page 27 is comprised of
$1,449,000 relating to ADS operations and $4,966,000 relating to the loss on
the sale of ADS. The 1992 tax expense for ADS relates to its operating
income. No tax benefits were recorded for the loss on disposal anticipated at
September 30, 1992, since it consisted principally of the write-off of
nondeductible cost in excess of net assets of acquired businesses.
In fiscal 1990, the Company decided to sell Alco Food Systems (AFS) and began
presenting AFS as discontinued operations at that time. During fiscal 1991,
the Company sold six AFS businesses for $201,000,000 in cash and notes.
Assets of the companies sold were $155,599,000. The remaining two AFS
businesses with assets of $16,764,000 were sold in fiscal 1992 for cash,
notes and preferred stock of $20,714,000.
26
2. DISCONTINUED OPERATIONS (continued)
The results of discontinued operations are:
Fiscal Year Ended September 30 (in thousands) 1993 1992
----------------------------------
Revenues
Alco Diversified Services $ 153,063 $ 222,764
Alco Food Systems 18,233
----------------------------------
$ 153,063 $ 240,997
==================================
Income (loss) before taxes
Alco Diversified Services
Operating $ (3,946) $ 10,158
Loss on disposal (9,841) (15,294)
Alco Food Systems
Operating (5,281)
Gain on disposals 5,669
Other (477)
----------------------------------
(13,787) (5,225)
----------------------------------
Tax expense (benefit)
Alco Diversified Services (6,415) 3,239
Alco Food Systems 153
Other 143 (162)
----------------------------------
(6,272) 3,230
----------------------------------
Net income (loss)
Alco Diversified Services (7,372) (8,375)
Alco Food Systems 235
Other (143) (315)
----------------------------------
$ (7,515) $ (8,455)
==================================
3. ACQUISITIONS
In fiscal 1994, the Company issued 698,675 common shares from treasury for
three acquisitions accounted for as poolings-of-interests and their results
of operations were included from the beginning of the fiscal year. Also
during fiscal 1994, 47 other acquisitions were made for an aggregate purchase
price of $62,009,000 in cash, notes and stock. Total assets related to these
47 acquisitions were $111,099,000 including excess of cost over equity of
$55,165,000. An additional $4,900,000 was paid and capitalized in fiscal 1994
relating to prior years' acquisitions.
In June 1993, the Company acquired over 90% of the outstanding shares of
Erskine House Group PLC (Erskine), a United States and European distributor
of office products, and the remaining outstanding shares were acquired during
the fourth quarter of fiscal 1993. The purchase price was approximately
$103,000,000, plus the assumption of approximately $101,000,000 of debt and
redeemable preferred stock. Total assets acquired were $278,975,000, which
includes excess of cost over acquired equity of $180,408,000.
In July 1993, the Company acquired the paper distribution businesses of
Butler Paper Company for a purchase price of $140,000,000. Total assets
acquired were $277,843,000 and excess of acquired equity over cost of
approximately $37,157,000 was allocated to fixed assets.
During fiscal 1993, 21 other acquisitions were made for an aggregate purchase
price of $50,606,000 in cash and stock. Total assets acquired were
$68,878,000 including excess of cost over equity of $30,645,000. An
additional $30,236,000 was paid and capitalized in 1993 relating to prior
years' acquisitions.
During fiscal 1992, the Company issued 1,416,311 common shares from treasury
for two acquisitions accounted for as poolings-of-interests and their results
of operations were included from the beginning of the fiscal year. In
September 1992, the Company purchased the Paper Distribution Group of
Abitibi-Price (Abitibi) for $309,246,000 in cash. Total assets acquired were
$322,700,000 including excess of cost over acquired equity of $163,246,000.
The Company made eight other acquisitions in fiscal 1992 for $40,839,000 in
cash, and costs relating to prior years' acquisitions of $4,768,000 were paid
and capitalized. Total assets related to fiscal 1992 acquisitions, excluding
Abitibi, were $79,595,000 including excess of cost over acquired equity of
$17,948,000.
All acquisitions, unless otherwise noted, are included from their dates of
acquisition.
27
3. ACQUISITIONS (continued)
Had the purchase acquisitions been made at the beginning of the year prior to
their acquisition and the poolings been made on October 1, 1991, pro forma
results from continuing operations would have been:
Fiscal Year Ended September 30 (in thousands except per share data) 1994 1993 1992
-------------------------------------------------
Revenues $8,111,204 $7,735,647 $7,217,085
Income from continuing operations 77,560 24,277 117,054
Earnings per share 1.20 .23 1.98
-------------------------------------------------
The pro forma results assume that $201,250,000 of the purchase price of 1993 and
1992 acquisitions was funded by the proceeds from issuance of the Series AA
convertible preferred stock, while $293,500,000 of the total purchase price of
1994 and 1993 acquisitions was funded by the proceeds from issuance of common
stock in December 1993.
Pro forma earnings per share for fiscal 1993 are diluted by a $4,647,000
write-off of Advance Corporation Tax related to Erskine.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
In October 1992, the Company purchased a 49.9% interest in IMM Office Systems
GmbH, a European distributor of office products, for $122,500,000 in cash, which
included excess of cost over equity of $107,478,000. In September 1994, the
Company completed the sale of this investment for cash plus a passive interest
in any subsequent sale of IMMOS for five years. The Company retains no ongoing
liability in the joint venture and the parties exchanged complete mutual
releases for past actions. In addition, the Company was 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 acquired profitable operations in
Denmark and France and retained limited operations in Germany. The Company
recognized a loss on the sale of its investment in IMMOS in the quarter ended
June 30, 1994, recording a pretax loss of $115,300,000 ($95,100,000, net of tax)
equating to a loss per share of $1.75 in the quarter ended June 30, 1994 and
$1.77 for the fiscal year ended September 30, 1994. This loss represents the
write-off of the Company's investment in IMMOS, plus certain transactional costs
less the cash proceeds from the sale together with related tax benefits. In
addition, the Company recorded losses totaling $1,900,000 which represent the
Company's share of IMMOS operating losses for the first half of the fiscal year.
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consisted of:
September 30 (in thousands) 1994 1993
------------------------------
Notes payable to banks at average interest rate:
1994-5.5%; 1993-3.9% $ 91,419 $ 73,563
Commercial paper at interest rate of 3.2% 90,000
Other notes payable at average interest rate:
1994-7.1%; 1993-6.9% 580 686
------------------------------
$ 91,999 $164,249
==============================
Long-term debt consisted of:
September 30 (in thousands) 1994 1993
------------------------------
Notes payable at average interest rate of 3.9% $300,000
Bond issue at interest rate of 8 7/8% due 2001 $150,000 150,000
Private placement debt at average interest rate:
1994-8.2%; 1993-8.1%; due 1996-1998 70,000 100,000
Notes payable to insurance company at average interest rate:
1994-9.7%; 1993-10.7%; due 1997-2005 60,000 35,000
Industrial revenue bonds at average interest rate:
1994-8.4%; 1993-8.0%; due 1994-2001 10,537 11,787
Sundry notes, bonds and mortgages at average interest rate:
1994-7.5%; 1993-7.3%; due 1994-2005 38,341 6,850
Present value of capital lease obligations (gross amount:
1994-$40,928; 1993-$45,784) 24,192 26,432
------------------------------
353,070 630,069
Less current maturities 12,299 39,915
------------------------------
Long-term debt $340,771 $590,154
==============================
28
5. NOTES PAYABLE AND LONG-TERM DEBT (continued)
Long-term debt matures in fiscal years: 1995-$12,299,000; 1996-$16,599,000;
1997-$26,119,000; 1998-$5,227,000; 1999-$54,481,000; 2000-2005-$238,345,000.
On June 8, 1993, the Company entered into a revolving credit agreement with four
banks allowing the Company to borrow up to $100,000,000 or the Pounds Sterling
equivalent. This credit agreement carries a facility fee of 3/16% per annum and
expires in October 1995. Loans under this agreement may be made under a
selection of rate formulas including prime, Eurodollar or Eurosterling rates.
The Company amended its April 21, 1993 credit agreement with four banks in April
1994, allowing the Company to borrow up to $200,000,000 or the Canadian dollar
equivalent. A facility fee of 1/10% per annum is charged for the $100,000,000
portion of the commitment expiring in April 1995, and 3/20% per annum is charged
for the $100,000,000 portion expiring in April 1996. Loans under the agreement
may be made under a selection of rate formulas including prime, the Eurodollar
rate in the United States or Canada, or the Canadian Bankers Acceptance rate.
On October 15, 1992, the Company entered into a credit agreement with six banks
to borrow up to DM180,000,000, or the U.S. dollar equivalent ($116,000,000). A
facility fee of 1/8% per annum is charged for this commitment, which expires on
January 11, 1995 per an amendment executed in January 1994. Loans under this
agreement may be made under a selection of prime, DM Eurocurrency or Eurodollar
rate formulas.
On December 18, 1991, the Company entered into a credit agreement with 15 banks
to borrow up to $200,000,000. The agreement, which was amended in December 1993,
has two parts: half is subject to termination on December 18, 1996; the other
half is available for 364 days subject to annual renewal for successive 364-day
periods. Annual fees of 3/16% on the three-year portion and 1/8% on the 364-day
portion are charged for these commitments. The agreement provides that loans may
be made under either domestic or Eurodollar notes at rates computed under
various formulas selected by the Company from among the domestic certificates of
deposit rate, prime rate or Eurodollar rate.
At September 30, 1994, $91,419,000 was outstanding under the combined lines of
credit and $524,581,000 was unused and available. In December 1994, the Company
intends to replace three of the above lines of credit with one $500,000,000
multi-currency facility with more favorable terms and to reduce the commitment
under the April 21, 1993 agreement to $100,000,000.
On May 13, 1994, the Company entered into an agreement to amend the terms of
$35,000,000 of 10.7% notes payable to an insurance company and replaced
$25,000,000 of 9.14% redeemable preferred stock of a subsidiary. The notes and
redeemable preferred stock were assumed in connection with the acquisition of
Erskine in fiscal 1993. Under the terms of the new agreement, the Company issued
$35,000,000 of 10.51% senior notes which are due in equal annual installments
beginning on April 24, 1997 through April 24, 2001 and $25,000,000 of 8.61%
senior notes which are due in equal annual installments beginning on April 1,
2000 through April 1, 2005.
The Company is in compliance with all covenants, including financial, for all
loan agreements. The industrial revenue bonds, capital lease obligations and
mortgages are secured by property and equipment that had a net book value of
$53,671,000 at September 30, 1994.
Interest paid approximated the amounts of interest expense in the Consolidated
Statements of Income for fiscal years 1994, 1993 and 1992.
6. SHAREHOLDERS' EQUITY
In December 1993, the Company issued 5,750,000 shares of common stock in a
public offering. The net proceeds from the offering of $293,500,000 were used
for repayment of debt. Income and earnings per share from continuing operations
for fiscal year 1993 would have been $13,288,000 and $.07, respectively, if the
offering had occurred on October 1, 1992. Income from continuing operations for
fiscal 1994 would have been $71,896,000 and earnings per share would have been
unchanged if the offering had occurred on October 1, 1993.
On December 22, 1992, the Company sold 4,025,000 depositary shares, each
representing 1/100th of a share of Series AA convertible preferred stock at
$50.00 per depositary share totaling $201,250,000, and used the net proceeds
to reduce debt. Dividends are cumulative at $2.375 per year per depositary
share through January 2, 1996 and $3.25 per depositary share per year
thereafter. The dividend is accrued on a straight-line basis ($2.875 per
depositary share) and accretion for the difference between the accrued and
cash dividend amounting to $3,577,000 at September 30, 1994 has been credited
to Series AA convertible preferred stock. This series of preferred stock has
one vote per share (equivalent to 1/100 vote per depositary share) and is
convertible at a rate of 1.1201 shares of the Company's common stock per
depositary share at any time. The Series AA convertible preferred stock,
unless previously converted into common stock, is redeemable by issuance of
common stock at the Company's option at the rate of 1.1201 shares of common
stock per depositary share (with certain limitations) on or after January 9,
1996 through January 9, 2000. On or after January 9, 2000, this series of
preferred stock is redeemable at the Company's option at $50.00 per
depositary share. Upon liquidation, the Series AA convertible preferred stock
has preference equivalent to $50.00 per depositary share plus an amount equal
to accrued and unpaid dividends. At September 30, 1994, 4,508,403 shares of
common stock were reserved for conversion of the Series AA convertible
preferred stock.
29
6. SHAREHOLDERS' EQUITY (continued)
Employee stock options are granted at the market price at dates of grant and
expire in ten years. The proceeds of options exercised are credited to
shareholders' equity. There are no charges or credits to income in connection
with these options. A 1989 plan for the Company's directors enables participants
to receive their annual directors' fees in the form of options to purchase
shares of common stock at a discount. The discount is equivalent to the annual
directors' fees and is charged to expense.
Changes in common shares under option were:
Directors Employees
-------------------------------------------------------------------------
Shares Option Price Range Shares Option Price Range
-------------------------------------------------------------------------
September 30, 1991 70,450 $19.55 to $26.34 2,162,325 $ 9.13 to $35.63
Granted 18,624 28.69 432,250 31.50 to 38.25
Exercised (2,391) 19.55 to 26.34 (294,908) 9.13 to 35.63
Cancelled (44,070) 9.38 to 38.25
---------------------------------- -------------------------------
September 30, 1992 86,683 19.55 to 28.69 2,255,597 16.13 to 38.25
Granted 24,669 30.19 to 40.25 567,817 35.25 to 40.25
Exercised (17,224) 19.55 to 26.34 (387,916) 16.13 to 38.25
Cancelled (211,717) 22.88 to 40.25
---------------------------------- -------------------------------
September 30, 1993 94,128 19.55 to 40.25 2,223,781 16.13 to 40.25
Granted 17,416 42.28 to 56.38 462,335 49.00 to 62.00
Exercised (21,315) 19.55 to 40.25 (432,741) 16.13 to 40.25
Cancelled (760) 30.19 (10,551) 16.13 to 57.63
---------------------------------- -------------------------------
September 30, 1994 89,469 19.55 to 56.38 2,242,824 18.19 to 62.00
================================== ===============================
At September 30, 1994, options to purchase 1,171,573 shares were exercisable
(1994: employees-1,099,520, directors-72,053; 1993: employees-1,070,710,
directors-69,459) and 648,632 shares were available for grant (1994: employees-
183,767, directors-464,865; 1993: employees-782,051, directors-481,521). At
September 30, 1994, 6,782,962 shares of common stock were reserved for sale to
employee stock plans.
The Company has issued options pursuant to the Company's 1986 Stock Option
Plan to purchase common stock in accordance with the Company's Long-Term
Incentive Compensation Plan. The options become exercisable only to the
extent that credits are issued pursuant to the plan and the award of credits
is conditional upon achieving predetermined performance objectives during
three-year intervals. The value of these awards is charged to expense over
the related plan period. In fiscal 1994, the Company issued options to
purchase 150,575 shares of common stock relating to the three-year
performance period ending September 30, 1996. Options to purchase 107,814
shares of common stock were issued in fiscal 1993, of which 4,575 were
cancelled in fiscal 1994, leaving 103,239 options to cover the performance
period ending September 30, 1995.
One preferred share purchase right (Right) exists for each outstanding share
of common stock (the Shares). The Rights become exercisable ten days after
the earlier of a public announcement by another entity that it has acquired
beneficial ownership of 20% or more of the Shares or a public announcement of
another entity's intention to commence a tender offer to acquire beneficial
ownership of 30% or more of the Shares.
When the Rights become exercisable, each Right will entitle a holder to
purchase 1/100th of a share of Series 12 preferred stock for an exercise
price of $75. If the Company consolidates or merges with another entity, or
sells assets that aggregate 50% of its consolidated assets or generates more
than 50% of its consolidated operating income or cash flow, then each Right
holder will have the right to purchase, for the exercise price, a number of
shares of the other entity having a then-current market value equal to twice
the exercise price.
If another entity owning 20% or more of the Shares (a) engages in certain
transactions with the Company, or (b) causes the Company to forgo or reduce
quarterly dividends or take an action that would result in a more than 2%
increase in the other entity's proportionate share of the outstanding shares;
or if another entity becomes the beneficial owner of 30% or more of the
outstanding shares; then each Right holder (other than the other entity) will
have the right to purchase, for the exercise price, a number of shares of the
Company having a then-current market value equal to twice the exercise price.
The Rights are redeemable by the Company prior to becoming exercisable at
$.05 per Right and expire on February 10, 1998.
7. TAXES ON INCOME - CONTINUING OPERATIONS
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No.
109 permitted the Company to recognize the benefit of certain deferred tax
assets that could not be recognized under the previous standard, SFAS No. 96,
which the Company adopted in fiscal 1988. The cumulative effect of adopting
SFAS No. 109 as of October 1, 1993 was to increase net income by $1,421,000
or $.03 per share. As permitted under SFAS No. 109, prior years' financial
statements have not been restated.
30
7. TAXES ON INCOME - CONTINUING OPERATIONS (continued)
Provision for income taxes:
1994 1993 1992
------------------------------------------------------------------------
Fiscal Year Ended September 30 (in thousands) CURRENT DEFERRED Current Deferred Current Deferred
------------------------------------------------------------------------
Federal $46,349 $29,421 $57,200 $(48,149) $45,872 $10,503
Foreign 11,862 (7,855) 6,602 (948) 5,239
State 5,505 921 3,706 (1,427) 6,254 435
------------------------------------------------------------------------
Taxes on income $63,716 $22,487 $67,508 $(50,524) $57,365 $10,938
========================================================================
Deferred taxes resulting from temporary differences between financial and tax
accounting, which have not been restated for SFAS No. 109:
Fiscal Year Ended September 30 (in thousands) 1993 1992
-----------------------------
Depreciation $ 4,741 $(1,658)
Lease income recognition 11,993 13,648
Nondeductible reserves (67,115) (5,568)
Other (143) 4,516
-----------------------------
Deferred taxes $(50,524) $10,938
=============================
The components of deferred income tax assets and liabilities as of September
30, 1994, including finance subsidiaries, were as follows (in thousands):
Deferred tax assets:
Nondeductible reserves $143,579
Net operating loss carryforwards 34,932
Other - net 10,454
--------------
Total deferred tax assets 188,965
Valuation allowance (50,592)
--------------
Total deferred tax assets 138,373
--------------
Deferred tax liabilities:
Depreciation 42,778
Lease income recognition 82,837
--------------
Total deferred tax liabilities 125,615
--------------
Net deferred tax assets $ 12,758
==============
The net operating loss deferred tax asset consists primarily of foreign
carryforwards of $59,371,000 principally expiring in years 1996 through 2000.
The valuation allowance increased by $11,124,000 during fiscal 1994 primarily
due to the effects of the IMMOS sale.
Components of the effective income tax rate:
Fiscal Year Ended September 30 1994 1993 1992
-----------------------------------------------
Federal 35.0% 34.8% 34.0%
State 2.3 6.1 2.6
Goodwill 3.5 16.1 2.0
Foreign 1.0 8.2 1.2
Effect of sale of IMMOS 12.9
Other .3 3.8 (.2)
-----------------------------------------------
Effective income tax rate 55.0% 69.0% 39.6%
===============================================
The effective tax rate for the fiscal year ended September 30, 1994, excluding
the effects of the loss on the sale of the investment in IMMOS, is 39.1%. The
effective tax rate for the fiscal year ended September 30, 1993, excluding the
effects of the restructuring costs, is 39.6%.
Net income tax payments for all operations amounted to $62,270,000 in 1994,
$77,487,000 in 1993 and $57,861,000 in 1992.
Undistributed earnings of the Company's foreign subsidiaries were
approximately $28,040,000 at September 30, 1994. Those earnings are
considered to be indefinitely reinvested and, therefore, no provision has
been recorded for U.S. federal and state income taxes.
31
8. PENSION AND STOCK PURCHASE PLANS
The Company sponsors defined benefit pension plans for the majority of its
employees. The benefits generally are based on years of service and
compensation. The Company funds at least the minimum amount required by
government regulations. The cost of these plans, together with contributions
to multiemployer and defined contribution pension plans ($6,880,000 in 1994,
$5,134,000 in 1993 and $2,642,000 in 1992), charged to continuing operations
amounted to $18,283,000 for 1994, $12,684,000 for 1993 and $7,116,000 for 1992.
The components of net periodic pension cost for the Company-sponsored defined
benefit pension plans are:
Fiscal Year Ended September 30 (in thousands) 1994 1993 1992
------------------------------------------------------
Service cost $ 16,991 $ 11,123 $ 8,131
Interest cost on projected benefit obligation 18,507 13,416 11,644
Actual return on plan assets (11,020) (34,238) (22,732)
Net amortization and deferral (13,075) 17,249 6,520
------------------------------------------------------
Net pension cost $ 11,403 $ 7,550 $ 3,563
======================================================
Assumptions used in accounting for the Company-sponsored defined benefit pension
plans were:
1994 1993 1992
-----------------------------------------------------
Weighted average discount rates 7.75% 7.25% 7.75%
Rates of increase in compensation levels 6.25% 5.75% 6.25%
Expected long-term rate of return on assets 10.00% 10.00% 10.00%
The funded status and amounts recognized in the Consolidated Balance Sheets
for the Company-sponsored defined benefit pension plans are:
September 30 (in thousands) 1994 1993
--------------------------------
Actuarial present value of benefit obligations
Vested $237,874 $216,926
================================
Accumulated $241,069 $224,431
================================
Projected $277,500 $258,136
Plan assets at fair value 256,610 254,083
--------------------------------
Plan assets less than projected benefits (20,890) (4,053)
Items not yet recognized
Net gain (3,873) (7,445)
Prior service cost 11,657 7,737
Net asset existing at transition date (16,397) (18,260)
Adjustment required to recognize minimum liability (8,385) (4,902)
--------------------------------
Net pension liability $(37,888) $(26,923)
================================
Substantially all of the plan assets at September 30, 1994 are invested in
listed stocks, bonds and government securities including common stock of the
Company of $49,700,000.
During fiscal 1994, the Company increased its net pension liability by
$5,949,000 due to early retirement benefits granted to 338 employees in
connection with the Unisource restructuring program (note 16).
The majority of the Company's employees are also eligible to participate in
the Company's Stock Participation Plan. They may invest 2% to 6% of regular
compensation before taxes. The Company contributes an amount equal to
two-thirds of the employees' investments and all amounts are invested in the
Company's common shares. Employees fully vest in the Company's contributions
upon the completion of five years of service. There is a similar plan for
eligible management employees. The cost of these plans charged to continuing
operations amounted to $23,484,000 in 1994, $16,174,000 in 1993 and
$12,797,000 in 1992.
9. SEGMENT REPORTING
A description of each of the Company's industry segments appears elsewhere in
this report. Dollar amounts for revenues, income before taxes, assets,
capital expenditures, and depreciation and amortization for each segment for
1994, 1993 and 1992 are reported on page 42.
32
9. SEGMENT REPORTING (continued)
Revenues, income before taxes and identifiable assets by geographic area from
continuing operations for the fiscal years ended September 30 are as follows:
(in millions) 1994 1993 1992
------------------------------------------------------
REVENUES
Domestic $7,153.8 $5,649.8 $4,758.3
Foreign 843.1 799.9 168.8
------------------------------------------------------
Operating 7,996.9 6,449.7 4,927.1
Eliminations and nonallocated (.9) (5.1) (2.0)
------------------------------------------------------
Total $7,996.0 $6,444.6 $4,925.1
======================================================
INCOME BEFORE TAXES
Domestic $ 332.6 $ 73.5 $ 211.9
Foreign 29.1 27.3 13.8
------------------------------------------------------
Operating 361.7 100.8 225.7
Unconsolidated affiliate (117.2) (2.5)
Investment gain, net 6.7
Nonallocated (87.7)* (73.7)* (59.9)*
------------------------------------------------------
Total $ 156.8 $ 24.6 $ 172.5
======================================================
ASSETS
Domestic $2,787.7 $2,547.5 $1,838.3
Foreign 572.5 536.4 413.7
------------------------------------------------------
Operating 3,360.2 3,083.9 2,252.0
Unconsolidated affiliate 118.1
Nonallocated 142.1 146.9 69.2
------------------------------------------------------
Total $3,502.3 $3,348.9 $2,321.2
======================================================
* Includes interest costs and net corporate expenses.
Included in income before taxes for fiscal 1993 are restructuring costs of
$171,500,000 for domestic operations and $3,500,000 for foreign operations.
10. LEASES - CONTINUING OPERATIONS
Equipment acquired under capital leases is included in property and equipment
in the amount of $37,160,000 in 1994 and $34,583,000 in 1993 and the related
amounts of accumulated amortization are $15,888,000 in 1994 and $15,735,000
in 1993. Related obligations are in long-term debt and related amortization
is included in depreciation.
At September 30, 1994, future minimum payments under noncancelable operating
leases with initial or remaining terms of more than one year were:
1995-$76,023,000; 1996-$63,552,000; 1997-$52,906,000; 1998-$43,444,000;
1999-$51,477,000; thereafter-$84,289,000.
Total rental expense was $89,998,000 in 1994, $68,293,000 in 1993 and
$56,894,000 in 1992.
11. INVESTMENT GAIN
In fiscal 1992, the Company sold debentures received in the 1989 sale of its
equity interest in a former subsidiary, which resulted in a pretax gain of
approximately $8,100,000 and also recorded nonrecurring expenses of
approximately $1,400,000.
12. CONTINGENCIES
There were contingent liabilities for taxes, guarantees, lawsuits, and
environmental and various other matters occurring in the ordinary course of
business. On the basis of information furnished by counsel and others,
management believes that none of these contingencies will materially affect
the Company.
The Company is presently in arbitration with a former subsidiary, which has
asserted that the Company is liable to it for certain liabilities arising
under the "Coal Industry Health Benefit Act of 1992". Based on consultation
with its counsel, the Company does not believe that it is responsible for
such liabilities and, therefore, no provision for this matter has been
recorded in the financial statements. In the event that the arbitrators
decide in favor of the claimant, the Company estimates that it would be
obligated to pay approximately $36,000,000 over a twenty-year period, which
would result in an after-tax charge of approximately $23,000,000 to
discontinued operations.
33
13. FINANCE SUBSIDIARIES
The Company's wholly-owned finance subsidiaries are engaged in purchasing
office equipment from Company dealers and leasing the equipment to customers
under direct financing leases.
Summarized financial information of the finance subsidiaries is as follows:
September 30 (in thousands) 1994 1993
---------------------------------
Future minimum lease payments receivable $ 645,083 $555,020
Less: Unearned income (109,416) (82,102)
---------------------------------
Lease receivables 535,667 472,918
Accounts receivable and other assets 26,736 11,151
---------------------------------
Finance subsidiaries assets $ 562,403 $484,069
=================================
Debt at average interest rate:
1994-5.8%; 1993-6% due 1995-1997 $ 464,882 $413,092
Other liabilities 33,828 24,326
---------------------------------
Finance subsidiaries liabilities $ 498,710 $437,418
=================================
The finance subsidiaries results of operations included in the Company's
consolidated net income were net income of $13,347,000 in 1994, $8,180,000 in
1993, and $6,055,000 in 1992.
At September 30, 1994, future minimum payments to be received under direct
financing leases were: 1995-$255,987,000; 1996-$197,789,000; 1997-$120,699,000;
1998-$52,281,000; 1999-$18,090,000; thereafter-$237,000.
Effective July 1, 1994, Alco Capital Resource, Inc. (Alco Capital), a
wholly-owned finance subsidiary of the Company, may offer to the public from
time to time medium term notes having an aggregate initial offering price not
exceeding $500,000,000 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 Alco Capital
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 are determined based on market conditions at the time of issuance. As
of September 30, 1994, $105,000,000 of medium term notes are outstanding
with a weighted average interest rate of 6.9%.
Alco Capital has followed a policy of matching the maturities of borrowed funds
to the average life of its direct financing leases in order to minimize the
impact of interest rate changes on its operations. Alco Capital has therefore
entered into interest rate swap agreements to eliminate the impact of interest
rate changes on its variable rate notes payable. The interest rate swap
agreements effectively convert the variable rate notes into fixed rate
obligations. At September 30, 1994, there were two variable rate notes
outstanding and two related interest rate swap agreements on a
principal/notional amount of $57,000,000. The weighted average interest rate on
these variable rate notes and related interest rate swap agreements was 5.48%
and 5.04%, respectively, at September 30, 1994. During fiscal 1994, there were
four variable rate notes outstanding and four related interest rate swap
agreements on a weighted average principal/notional amount of $88,000,000. The
weighted average interest rate on these variable rate notes and related interest
rate swap agreements was 4.14% and 5.93%, respectively, during fiscal 1994. The
interest rate swap agreements mature at the time the related notes mature. Alco
Capital is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate swap agreements. However, Alco Capital does
not anticipate nonperformance by the counterparties.
In September 1994, Alco Capital entered into an agreement to sell, under an
asset securitization program, an undivided ownership interest in $125,000,000
of eligible direct financing lease receivables. The agreement, which expires
in September 1995, contains limited recourse provisions which require Alco
Capital to assign an additional undivided interest in leases to cover any
potential losses to the purchaser due to uncollectible leases. As collections
reduce previously sold interests, new leases can be sold up to $125,000,000.
As of September 30, 1994, $125,000,000 of leases have been sold pursuant to
the agreement.
14. SALE OF ACCOUNTS RECEIVABLE
In September 1992, the Company entered into an agreement to sell, with limited
recourse, up to CN$70,000,000 of certain eligible Canadian accounts receivable.
In December 1993, this agreement was amended to extend the termination date from
December 20, 1993 to December 1, 1995. In September 1994, this agreement was
further amended to increase the maximum amount of receivables sold to
CN$85,000,000. The agreement provides limited recourse to the Company in the
event that any of the previously sold receivables become uncollectible. As
collections reduce previously sold interests, new receivables will be sold up to
CN$85,000,000. The amount of receivables outstanding under the agreement was
CN$81,000,000 (US$60,000,000) and CN$60,000,000 (US$45,000,000) at September 30,
1994 and 1993, respectively.
34
15. FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its business.
These financial instruments include debt, commitments to extend credit and
interest rate swap agreements. The notional or contractual amounts of these
commitments and other financial instruments are discussed below.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables and
short-term cash investments. Credit risk with respect to trade receivables is
minimized because of a large customer base and its geographic dispersion.
Short-term cash investments are placed with high credit quality financial
institutions and in short duration corporate and government debt securities
funds. By policy, the Company limits the amount of credit exposure in any one
type of investment instrument.
INTEREST RATE SWAP AGREEMENTS
Please refer to note 13 for information on these instruments.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
CASH, NOTES PAYABLE AND LONG-TERM RECEIVABLES
The carrying amount reported in the balance sheet approximates fair value.
LONG-TERM DEBT
The fair value of long-term debt instruments is estimated using a discounted
cash flow analysis. For more information on these instruments, refer to note 5.
OFF-BALANCE SHEET INSTRUMENTS
Fair values for the Company's off-balance sheet instruments (interest rate
swaps) are based on the termination of the agreements.
The carrying amounts and fair values of the Company's financial instruments
at September 30, 1994 are as follows:
(in thousands) Carrying Amount Fair Value
-------------------------------------------
Long-term debt:
Bond issue $150,000 $156,833
Private placement debt 70,000 71,837
Notes payable to insurance company 60,000 62,614
Industrial revenue bonds 10,537 11,442
Sundry notes, bonds and mortgages 38,341 36,786
Finance subsidiaries debt 464,882 455,674
Interest rate swaps 1,426
16. RESTRUCTURING COSTS
On September 29, 1993, the Company adopted a plan to restructure its paper
distribution business including the following: installation of a
customer-focused information system, redesigning of warehouse and
transportation management functions, regionalization of management and
administrative support functions and consolidation of service center
locations. In connection with certain elements of the restructuring plan, the
Company recorded a charge to earnings of $175,000,000 ($112,875,000 net of
taxes or $2.38 per share) in the fourth quarter of fiscal 1993. The charge
provided for facility consolidation ($60,700,000), severance costs
($48,000,000) and related organizational and system redesign ($22,000,000).
At September 30, 1994, the remaining restructuring reserve is $106,971,000,
which management believes is adequate to complete the restructuring plan by
the end of fiscal 1996. As of September 30, 1994, 68 facility consolidations
had been substantially completed. The estimated cost to complete the facility
consolidations is $44,400,000 of which a significant portion relates to costs
to dispose and maintain facilities which have been or will be vacated.
Severance costs have been incurred during 1994 in accordance with the plan
and $23,800,000 is the estimated balance for severance costs. The related
organizational and system redesign is estimated to have a remaining cost of
$16,200,000. The Company estimates cash expenditures for the restructuring
plan will be $53,000,000 in fiscal 1995 and $43,000,000 in fiscal 1996.
17. COMMITMENTS
Effective January 1, 1994, the Company entered into an outsourcing agreement
which will provide the information technology system to be implemented as
part of the Unisource restructuring plan (note 16). This agreement calls for
the payment of $300,000,000 over a ten-year period. This contract has been
expanded to provide automated warehouse and truck routing systems at an
estimated cost of approximately $30,000,000 over the contract period.
35
F I N A N C I A L R E V I E W
Alco Standard Corporation and Subsidiaries
The discussion of the results of operations for the three years ended
September 30, 1994 reviews the continuing operations of the Company as
contained in the Consolidated Statements of Income.
RESULTS OF OPERATIONS - 1994
Revenues and income before taxes by segment for fiscal years ended September
30, 1994 and September 30, 1993 and the percentage change for 1994 versus
1993 were:
Revenues Income Before Taxes
------------------------------------ ----------------------------------
(in millions) 1994 1993 %CHANGE 1994 1993 %CHANGE
------------------------------------ ----------------------------------
Alco Office Products $2,240 $1,586 41.2% $ 199.4 $ 138.8 43.7%
Unisource
United States 5,108 4,174 22.4 148.8 118.7 25.4
Canada 649 690 (5.9) 13.5 18.3 (26.2)
Restructuring costs (175.0)
------------------------------------ ----------------------------------
Total Unisource 5,757 4,864 18.4 162.3 (38.0)
------------------------------------ ----------------------------------
Operating 7,997 6,450 24.0 361.7 100.8
Unconsolidated affiliate (117.2) (2.5)
Eliminations and nonallocated (1) (5) (87.7) (73.7)*
------------------------------------ ----------------------------------
$7,996 $6,445 24.1 $ 156.8 $ 24.6
==================================== ==================================
* Includes interest costs and net corporate expenses.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company's revenues for fiscal 1994 were $8 billion, an increase of $1.5
billion over fiscal 1993 revenues of $6.5 billion. Income before taxes from
operations increased to $361.7 million from $100.8 million in fiscal 1993,
which included a restructuring charge of $175 million related to the
Unisource operations. Earnings per share from continuing operations for
fiscal 1994 were $1.10 compared to $(.04) for fiscal 1993 which included a
loss of $2.38 per share resulting from the Unisource restructuring charge.
Earnings per share excluding the loss on the sale of the investment in IMM
Office Systems (IMMOS) in fiscal 1994 and the effect of the restructuring
charge in fiscal 1993 were $2.87 and $2.34, respectively.
Alco Office Products (AOP) generated $654 million in increased revenues of
which $288 million relates to fiscal 1993 acquisitions and $134 million to
fiscal 1994 acquisitions. The remaining $232 million increase reflects
continued internal growth in all revenue areas of AOP's base companies,
particularly in its equipment, service and facilities management businesses.
The $934 million increase in revenues from Unisource's U.S. operations
includes $764 million from acquisitions (primarily Butler Paper) and $170
million of internal growth from its base companies. The $41 million revenue
decrease in the Unisource Canadian paper businesses is primarily attributable
to a 5.9% decrease in the average foreign exchange rate.
AOP's operating income increase of $60.6 million includes $16.4 million from
prior year acquisitions and $10.2 million from current year acquisitions. The
remaining $34 million increase reflects continued 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. (Alco Capital).
Operating income from Unisource's U.S. paper operations increased $30.1
million. This increase represents a contribution of $17.6 million from prior
year acquisitions and $12.5 million from its base companies. The internal
growth is attributable to improved gross margins and expense reductions
realized in the last half of the fiscal year offset primarily by lower
comparable margins experienced in the first half of the year. The Canadian
paper distribution business decrease in operating income of $4.8 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.
36
Geographically, revenues from the Company's paper and office products
operations outside the U.S. were $843 million for fiscal 1994 compared to
$800 million for the prior fiscal year. The increase reflects $77 million
from the European operations of Erskine acquired in fiscal 1993 along with $7
million from AOP internal growth offset by a decrease of $41 million from the
Canadian paper distribution business. Operating income from foreign
operations was $29.1 million for fiscal 1994, an increase of $1.8 million
from the prior year, the result of increased AOP foreign operations, offset
by the decrease in operating income of the Canadian paper distribution
business.
The 49.9% investment in IMMOS in October 1992, marked the entry of the
Company into the European market, and it 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, had prevented IMMOS from progressing toward those goals. As a
result, in September 1994, the Company sold its 49.9% interest in IMMOS for
cash plus a passive interest in any subsequent sale of IMMOS for five years.
The Company retains no ongoing liability in the joint venture and the parties
exchanged complete mutual releases for past actions. In addition, the Company
was 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 acquired profitable operations in Denmark and France and retained
limited operations in Germany. The Company recognized a loss on the sale of
its interest in IMMOS in the quarter ended June 30, 1994, and recorded a
pretax loss of $115.3 million ($95.1 million, net of tax) equating to a loss
per share of $1.75 for the quarter ($1.77 for fiscal 1994). This charge
represents the write-off of the Company's investment in IMMOS plus certain
transactional costs less cash proceeds from the sale together with related
tax benefits. For the fiscal year ended September 30, 1994, the Company
recorded a total pretax loss of $117.2 million from its investment in an
unconsolidated affiliate. This includes the pretax loss of $115.3 million
relating to the sale previously discussed and a $1.9 million operating loss
on its investment through March 31, 1994.
Interest expense increased by $3.6 million from fiscal 1993, a result of
higher interest rates along with higher borrowing levels during the year to
fund acquisitions and working capital requirements. Income before taxes from
continuing operations increased by $132.2 million, which reflects the net
effect of the $115.3 million loss on the sale of IMMOS in fiscal 1994 and the
$175 million charge for restructuring costs in fiscal 1993. Income before
taxes from continuing operations also includes improved operating results
from base companies and earnings contributed by current and prior year
acquisitions net of increased interest costs and other corporate items. The
effective income tax rate for fiscal 1994 is 55% compared to 69% in fiscal
1993. The effective income tax rate for fiscal 1994, excluding the effect of
the sale of IMMOS, is 39.1% compared with 39.6% in fiscal 1993, excluding the
effect of the restructuring costs. Fiscal 1994 weighted average shares were
6.3 million shares greater than the 47.4 million shares for fiscal 1993,
primarily the result of a public offering of common stock in December 1993.
Most facets of the Unisource restructuring plan announced in September 1993
are proceeding as planned. As of September 30, 1994, Unisource had
substantially completed 68 facility consolidations and reduced its employee
base by approximately 725. This excludes the data processing personnel that
transferred to Integrated Systems Solutions Corporation (ISSC), a subsidiary
of IBM, as part of the information technology system outsourcing agreement
with ISSC. However, due to a change in software, initial implementation of
the information technology system was postponed by six months. This is not
anticipated to delay the completion of the restructuring plan by the end of
fiscal 1996.
At September 30, 1994, the remaining restructuring reserve is $107 million,
which management believes is adequate to complete the restructuring plan by
the end of fiscal 1996 and also obtain the goal of increasing Unisource's
operating return on sales to a run rate of 4% by the end of fiscal 1996. The
estimated cost to complete the facility consolidations is $44.4 million of
which a significant portion relates to costs to dispose and maintain
facilities which have been or will be vacated. Severance costs have
been incurred during 1994 in accordance with the plan and $23.8 million is
the estimated balance for severance costs. The related organizational and
system redesign is estimated to have a remaining cost of $16.2 million.
The Company is presently in arbitration with a former subsidiary, which has
asserted that the Company is liable to it for certain liabilities arising
under the Coal Industry Health Benefit Act of 1992. Based on consultation
with its counsel, the Company does not believe that it is responsible for
such liabilities and, therefore, no provision for this matter has been
recorded in the financial statements. In the event that the arbitrators
decide in favor of the claimant, the Company estimates that it would be
obligated to pay approximately $36 million over a twenty-year period, which
would result in an after-tax charge of approximately $23 million to
discontinued operations.
During the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"; the individual
and combined effect on earnings of these accounting changes was immaterial.
37
RESULTS OF OPERATIONS - 1993
Revenues and income before taxes by segment for fiscal years ended September
30, 1993 and September 30, 1992 and the percentage change for 1993 versus
1992 were:
Revenues Income Before Taxes
-------------------------------------- -------------------------------------
(in millions) 1993 1992 %Change 1993 1992 %Change
-------------------------------------- -------------------------------------
Alco Office Products $1,586 $1,259 26.0% $ 138.8 $105.2 31.9%
Unisource
United States 4,174 3,585 16.4 118.7 118.2 .4
Canada 690 83 18.3 2.3
Restructuring costs (175.0)
-------------------------------------- -------------------------------------
Total Unisource 4,864 3,668 32.6 (38.0) 120.5
-------------------------------------- -------------------------------------
Operating 6,450 4,927 30.9 100.8 225.7 (55.3)
Unconsolidated affiliate (2.5)
Investment gain, net 6.7
Eliminations and nonallocated (5) (2) (73.7)* (59.9)*
-------------------------------------- -------------------------------------
$6,445 $4,925 30.9 $ 24.6 $172.5 (85.7)
====================================== =====================================
* Includes interest costs and net corporate expenses.
FISCAL 1993 COMPARED WITH FISCAL 1992
The Company increased revenues $1.6 billion to $6.5 billion in fiscal 1993
from $4.9 billion in fiscal 1992. Income before taxes from operations, which
includes a restructuring charge of $175 million relating to Unisource
operations, decreased from $226 million in fiscal 1992 to $101 million in
fiscal 1993. Earnings per share from continuing operations decreased from
$2.22 to $(.04), including the Unisource restructuring charge of $2.38.
Earnings per share from continuing operations excluding the effect of the
restructuring charge were $2.34.
AOP generated $327 million in increased revenues of which $17 million relates
to fiscal 1992 acquisitions and $100 million to current year acquisitions.
The remaining $210 million increase reflects continued growth in all revenue
areas of AOP's base companies, including its equipment, service
and facilities management businesses. The $589 million increase in
revenues from Unisource's U.S. operations represents $161 million from its
base companies and $428 million from current and prior year acquisitions. The
$607 million revenue increase in the Unisource Canadian paper businesses is
primarily attributable to the prior year acquisitions and includes a decrease
of $32 million relating to changes in foreign currency rates.
The Company's total foreign operations including the foreign operations of
AOP and Unisource Canada generated $800 million in revenues for the fiscal
year 1993 compared with $169 million for the same period of the prior fiscal
year. The increase is primarily the result of the Canadian paper distribution
acquisitions made in September 1992 and reflects a $48 million negative
impact because of foreign currency rate changes.
AOP's operating income increase of $33.6 million includes $1.7 million from
fiscal 1992 acquisitions and $2.7 million from current year acquisitions. The
remaining $29.2 million increase from its base companies is primarily the
result of higher operating contributions from the service and supply areas of
AOP's businesses. Unisource's U.S. paper operations include an increase in
operating income of $.5 million, reflecting $10.2 million contributed by
current and prior year acquisitions, offset by a decrease in earnings of $9.7
million from base paper distribution companies caused by competitive business
conditions in the paper industry. Unisource's Canadian paper operations
include a $16 million increase in operating income primarily relating to
fiscal 1992 acquisitions. The overall decrease in operating income for
Unisource is primarily attributed to the $175 million of restructuring costs,
$171.5 million relating to U.S. operations and $3.5 million relating to
Canadian operations.
In September 1993, the Company adopted the Unisource restructuring plan as a
proactive response to changes in the business environment in which Unisource
operates. In recent periods, mills have experienced overcapacity, resulting
in depressed pricing and pressure on distributor's margins. The usage and
demand for paper has shifted significantly because of consolidation in the
commercial printing industry, enhancements in imaging technology and the
related growth in reprographics segment.
The restructuring plan encompasses the following: adoption of the "Unisource"
identity, installation of a customer-focused information system,
re-engineering of warehouse and transportation management functions,
regionalization of management and administrative support functions and
consolidation of service center locations. In connection with certain
elements of the restructuring plan, the Company recorded a charge to earnings
of $175 million ($112.9 million net of taxes or $2.38 per share) in the fourth
quarter of fiscal 1993. The major components of the restructuring costs
are location consolidation ($60.7 million), severance costs ($48 million)
and related information system redesign ($22 million). Included in
the charge are noncash asset
38
writedowns relating to inventory and equipment that approximate $22.5 million
and are directly attributable to the Unisource restructuring. The
restructuring charge will be funded from Unisource's cash flow. The Company's
objective in adopting the restructuring plan is to increase Unisource's
operating return on sales from 2.6% in the fourth quarter of fiscal 1993 to
4% by the end of fiscal 1996.
Income from foreign operations was $27.3 million for the year ended September
30, 1993. This represents an increase of $13.5 million over the prior year
results of $13.8 million and is primarily attributable to the Canadian paper
distribution acquisitions in September 1992. Fluctuations in the foreign
currency rates reduced the increase by $1.9 million. The Company recorded a
$2.5 million loss from an unconsolidated affiliate, IMM Office Systems GmbH,
due to recessionary conditions and costs associated with an increase in sales
force.
Interest expense increased $8.5 million from the comparable period in fiscal
1992, a result of higher borrowing levels to fund acquisitions. Income before
taxes from continuing operations decreased by $147.9 million, which reflects
the $175 million restructuring charge in fiscal 1993. Income before taxes
from continuing operations also includes the combined result of improved
operations from base companies along with earnings contributed by key
acquisitions made in the prior year, which were achieved despite the increase
in interest cost and the $6.7 million net investment gain from the prior
year. The effective income tax rate for the current period is 69%. The
effective tax rate, excluding the restructuring costs, is 39.6%, the same as
the effective rate for the year ended September 30, 1992.
FINANCIAL CONDITION AND LIQUIDITY
Debt, excluding finance subsidiaries, was $445 million at September 30, 1994, a
decrease of $349 million from the Company's debt balance at September 30, 1993
of $794 million. The Company had a total of $616 million in bank credit
commitments as of September 30, 1994, of which $525 million were unused and
available. In December 1994, the Company intends to replace three of these
credit agreements with one $500 million multi-currency facility with more
favorable terms and to reduce the commitment under the remaining credit
agreement to $100 million, resulting in total bank credit commitments of $600
million. Debt as a percentage of capitalization was 24.6% and the current ratio
was 1.6 to 1 at September 30, 1994. At the end of fiscal 1994, the Company's
commitments for capital expenditures were approximately $22 million, all of
which is expected to be expended during fiscal 1995.
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. The Company entered into an agreement in May 1994
retiring $25 million of redeemable preferred stock of a subsidiary and issued
senior notes in an equivalent amount.
The Company estimates that total cash expenditures in connection with the
Unisource restructuring plan will amount to $148 million, of which approximately
$52 million has been spent to date, with $53 million anticipated to be paid in
fiscal 1995 and $43 million in fiscal 1996. Effective January 1, 1994, Unisource
entered into a ten-year agreement with ISSC for $300 million, to provide the
information technology system to be implemented as part of the restructuring
plan. Such contract has been expanded to provide automated warehouse and truck
routing systems at an estimated cost of approximately $30 million over the same
contract period. The forgoing commitments are anticipated to be funded from
Unisource's operating cash flow.
Finance subsidiaries debt grew by $52 million from September 30, 1993, a
result of increased leasing activity. Effective July 1, 1994, Alco Capital
entered into a Medium Term Note Program, whereby Alco Capital may offer to
the public 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 are offered at varying maturities of nine
months or more from their dates of issue and may be subject to redemption at
the option of Alco Capital 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 are determined based on market conditions at the
time of issuance. As of September 30, 1994, Alco Capital had issued $105
million of medium term notes bearing a weighted average interest rate of 6.9%.
In addition, Alco Capital entered into an agreement in September 1994 to sell
under an asset securitization program, an undivided ownership interest in
$125 million of eligible direct financing lease receivables. The agreement,
which expires in September 1995, contains limited recourse provisions that
require Alco Capital to assign an additional undivided interest in leases to
cover any potential losses to the purchaser due to uncollectible leases. As
collections reduce previously sold interests, new lease receivables can be
sold up to $125 million. As of September 30, 1994, $125 million of lease
receivables have been sold pursuant to the agreement.
The Company believes that its operating cash flow together with unused lines
of credit and other financing arrangements will be sufficient to finance
current operating requirements including capital expenditure, acquisition and
restructuring programs.
39
CORPORATE FINANCIAL SUMMARY
Alco Standard Corporation and Subsidiaries
(in millions except per share data, shareholders of record, employees)
SEVEN-YEAR
COMPOUND GROWTH 1994 1993
----------------------------------------------------------------
CONTINUING OPERATIONS
Revenues 14.1% $7,996.0 $6,444.6
Gross profit 18.2 2,083.3 1,621.1
% of revenues 26.1 25.2
Selling and administrative 18.1 1,765.5 1,378.8
% of gross profit 84.7 85.1
Operating income 21.0 361.7 100.8
% of revenues 4.5 1.6
Income before taxes 18.1/(a)/ 156.8 24.6
% of revenues 2.0 .4
Effective income tax rate (%) 55.0 69.0
Income 18.8/(a)/ 70.6 7.6
% of revenues .9 .1
Earnings (loss) per share
Primary 1.10 (.04)
Fully diluted /(d)/ /(d)/
Capital expenditures 17.0 108.0 78.8
Depreciation and amortization 15.0 96.8 76.1
----------------------------------------------------------------
DISCONTINUED OPERATIONS
Income (loss) $ (7.5)
Earnings (loss) per share
Primary (.16)
Fully diluted /(d)/
----------------------------------------------------------------
TOTAL OPERATIONS
Net income 10.9%/(a)/ $ 70.6 $ .1
Earnings (loss) per share
Primary 1.10 (.20)
Fully diluted /(d)/ /(d)/
----------------------------------------------------------------
SHARE ACTIVITY
Dividends per share 6.6% $ 1.00 $ .96
Per share book value 8.1 21.44 17.52
Return on shareholders' equity 14.8/(a)/ 11.5/(a)/
Average common and common equivalent shares 53.7 47.4
Shareholders of record 14,348 13,999
----------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Days sales outstanding 37.8 38.9
Inventory turns (FIFO basis) 6.3 6.3
Current ratio 1.6 1.5
Pretax return on capital employed 17.1/(a)/ 14.7/(a)/
Pretax return on capital employed with
finance subsidiaries on equity method 18.4/(a)/ 15.7/(a)/
Working capital 5.1% $ 653.5 $ 556.6
Total assets 14.1 3,502.3 3,348.9
Total debt 21.8 910.0 1,207.4
% of capitalization 40.0 53.6
Total debt excluding finance subsidiaries 11.7 445.1 794.3
% of capitalization 24.6 43.2
Serial preferred stock .3
Employees 30,600 28,500
(a) Excludes the effect of the sale of IMMOS (note 4) in fiscal 1994 and
restructuring costs (note 16) in fiscal 1993.
(b) Includes the sale of an automobile leasing subsidiary which resulted in
a pretax gain of $17,637,000.
(c) Includes unusual pretax charges relating to the Hillman Companies of
$10,323,000.
(d) Dilution is immaterial after 1987, therefore no disclosure.
(e) Excludes gain on sale of Alco Health Services Corporation of pretax -
$96,800,000; net income - $61,900,000.
Note: Unless otherwise noted, ratios and operating results include the effect
of: fiscal 1994 - loss on sale of investment in IMMOS (note 4), pretax
income ($115,265,000), net income ($95,086,000), earnings per share ($1.77);
fiscal 1993 - restructuring costs (note 16), operating income ($175,000,000),
net income ($112,875,000), earnings per share ($2.38).
40
1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------
$4,925.1 $4,516.0 $4,293.4 $3,783.6 $3,379.4 $3,173.7
1,267.1 1,110.0 1,022.4 841.9 690.3 646.8
25.7 24.6 23.8 22.3 20.4 20.4
1,069.6 946.8 864.4 711.1 584.7 552.1
84.4 85.3 84.5 84.5 84.7 85.4
225.7 195.3 190.0 153.0 128.4 95.2
4.6 4.3 4.4 4.0 3.8 3.0
172.5 125.8 111.5/(c)/ 97.8 90.2 84.7/(b)/
3.5 2.8 2.6 2.6 2.7 2.7
39.6 39.1 42.3 17.1 18.2 38.3
104.2 76.7 64.3/(c)/ 81.1 72.5 49.7/(b)/
2.1 1.7 1.5 2.1 2.1 1.6
2.22 1.70 1.44/(c)/ 1.80 1.49 1.10/(b)/
/(d)/ /(d)/ /(d)/ /(d)/ /(d)/ 1.05/(b)/
54.8 47.4 57.9 57.1 38.3 35.9
59.3 58.2 49.5 43.8 37.3 36.4
- ----------------------------------------------------------------------------------------------------------------------------
$ (8.4) $ 40.9 $ 29.2 $ 85.5 $ 37.0 $ 30.5
(.18) .91 .66 1.89 .76 .68
/(d)/ /(d)/ /(d)/ /(d)/ /(d)/ .62
- ----------------------------------------------------------------------------------------------------------------------------
$ 95.8 $ 117.6 $ 93.5/(c)/ $ 166.6 $ 109.5 $ 80.2/(b)/
2.04 2.61 2.10/(c)/ 3.69 2.25 1.78/(b)/
/(d)/ /(d)/ /(d)/ /(d)/ /(d)/ 1.67/(b)/
- ----------------------------------------------------------------------------------------------------------------------------
$ .92 $ .88 $ .84 $ .76 $ .68 $ .64
18.72 18.40 16.93 14.96 14.08 12.43
11.4 15.0 13.5 16.9/(e)/ 16.9 15.8
46.9 45.1 44.6 45.2 48.7 45.2
13,726 14,096 14,152 13,410 14,103 12,875
- ----------------------------------------------------------------------------------------------------------------------------
37.8 38.6 39.7 39.3 38.5 38.9
5.9 5.7 5.7 5.7 5.6 5.3
1.7 1.9 1.7 1.6 1.9 2.1
15.3 20.8 20.1 20.8/(e)/ 19.9 21.3
16.2 22.5 21.6 21.7/(e)/ 20.3 21.3
$ 496.0 $ 516.0 $ 404.3 $ 342.8 $ 412.3 $ 462.5
2,444.8 2,020.6 1,916.5 1,623.9 1,512.4 1,389.3
782.2 524.9 450.6 378.0 253.6 229.4
47.6 38.9 37.4 36.9 26.6 26.3
481.7 304.2 291.0 283.5 201.4 205.8
35.8 27.0 27.8 30.5 22.4 24.2
1.6 2.9 4.9 7.4 9.9 11.4
23,500 18,800 20,900 19,800 17,300 17,300
41
SEGMENT DATA
Alco Standard Corporation and Subsidiaries
(continuing operations, in millions)
Depreciation
Income Capital and
Revenues Before Taxes Assets Expenditures Amortization
----------------------------------------------------------------------------------
SEVEN-YEAR COMPOUND GROWTH
1987-1994
Alco Office Products 33.0% 41.4% 38.5% 23.0% 22.4%
Unisource 14.1 11.1 18.0 19.7 17.2
==================================================================================
1994
Alco Office Products $2,240.4 $199.4 $1,672.2 $ 72.5 $62.7
Unisource
United States 5,107.6 148.8 1,391.5 30.5 26.1
Canada 648.9 13.5 296.5 3.4 6.4
----------------------------------------------------------------------------------
Total Unisource 5,756.5 162.3 1,688.0 33.9 32.5
----------------------------------------------------------------------------------
Operating 7,996.9 361.7 3,360.2 106.4 95.2
Unconsolidated affiliate (117.2)
Eliminations and nonallocated (.9) (87.7)* 142.1 1.6 1.6
----------------------------------------------------------------------------------
$7,996.0 $156.8 $3,502.3 $108.0 $96.8
==================================================================================
1993
Alco Office Products $1,585.6 $138.8 $1,450.0 $ 55.9 $45.4
Unisource
United States 4,173.7 118.7 1,319.6 18.8 22.3
Canada 690.4 18.3 314.3 2.9 6.9
Restructuring costs (175.0)
----------------------------------------------------------------------------------
Total Unisource 4,864.1 (38.0) 1,633.9 21.7 29.2
----------------------------------------------------------------------------------
Operating 6,449.7 100.8 3,083.9 77.6 74.6
Unconsolidated affiliate (2.5) 118.1
Eliminations and nonallocated (5.1) (73.7)* 146.9 1.2 1.5
----------------------------------------------------------------------------------
$6,444.6 $ 24.6 $3,348.9 $ 78.8 $76.1
==================================================================================
1992
Alco Office Products $1,259.2 $105.2 $ 967.5 $ 33.8 $37.0
Unisource
United States 3,585.1 118.2 988.7 19.1 20.0
Canada 82.8 2.3 295.8 1.1 .6
----------------------------------------------------------------------------------
Total Unisource 3,667.9 120.5 1,284.5 20.2 20.6
----------------------------------------------------------------------------------
Operating 4,927.1 225.7 2,252.0 54.0 57.6
Investment gain, net 6.7
Eliminations and nonallocated (2.0) (59.9)* 69.2 .8 1.7
----------------------------------------------------------------------------------
$4,925.1 $172.5 $2,321.2 $ 54.8 $59.3
==================================================================================
* Includes interest costs and net corporate expenses.
42
Depreciation
Income Capital and
Revenues Before Taxes Assets Expenditures Amortization
----------------------------------------------------------------------------------
1991
Alco Office Products $1,047.1 $ 79.6 $ 781.3 $28.6 $36.3
Unisource
United States 3,441.1 113.8 897.3 16.1 18.4
Canada 35.8 1.9 8.2 .2 .4
----------------------------------------------------------------------------------
Total Unisource 3,476.9 115.7 905.5 16.3 18.8
----------------------------------------------------------------------------------
Operating 4,524.0 195.3 1,686.8 44.9 55.1
Eliminations and nonallocated (8.0) (69.5)* 177.8 2.5 3.1
----------------------------------------------------------------------------------
$4,516.0 $125.8 $1,864.6 $47.4 $58.2
==================================================================================
1990
Alco Office Products $ 951.7 $ 58.9 $ 680.5 $32.3 $33.2
Unisource
United States 3,316.3 129.4 843.9 24.6 14.9
Canada 22.2 1.7 8.5 .1 .2
----------------------------------------------------------------------------------
Total Unisource 3,338.5 131.1 852.4 24.7 15.1
----------------------------------------------------------------------------------
Operating 4,290.2 190.0 1,532.9 57.0 48.3
Investment Gain 5.6
Unusual charges (AOP) (10.3)
Eliminations and nonallocated 3.2 (73.8)* 88.8 .9 1.2
----------------------------------------------------------------------------------
$4,293.4 $111.5 $1,621.7 $57.9 $49.5
==================================================================================
1989
Alco Office Products $ 729.5 $ 41.3 $ 540.4 $26.5 $26.7
Unisource - United States 3,047.3 111.7 692.7 27.5 14.5
----------------------------------------------------------------------------------
Operating 3,776.8 153.0 1,233.1 54.0 41.2
Eliminations and nonallocated 6.8 (55.2)* 108.3 3.1 2.6
----------------------------------------------------------------------------------
$3,783.6 $ 97.8 $1,341.4 $57.1 $43.8
==================================================================================
1988
Alco Office Products $ 484.8 $ 28.9 $ 328.7 $19.6 $19.4
Unisource - United States 2,755.5 99.5 670.9 15.9 13.9
----------------------------------------------------------------------------------
Operating 3,240.3 128.4 999.6 35.5 33.3
Gains, net of losses, from divestitures 7.9
Eliminations and nonallocated 139.1 (46.1)* 140.0 2.8 4.0
----------------------------------------------------------------------------------
$3,379.4 $ 90.2 $1,139.6 $38.3 $37.3
==================================================================================
1987
Alco Office Products $ 303.7 $ 17.6 $ 171.0 $17.0 $15.2
Unisource - United States 2,281.7 77.6 528.8 9.6 10.7
----------------------------------------------------------------------------------
Operating 2,585.4 95.2 699.8 26.6 25.9
Gains, net of losses, from divestitures 17.6
Eliminations and nonallocated 588.3 (28.1)* 348.5 9.3 10.5
----------------------------------------------------------------------------------
$3,173.7 $ 84.7 $1,048.3 $35.9 $36.4
==================================================================================
* Includes interest costs and net corporate expenses.
43
QUARTERLY DATA
Alco Standard Corporation and Subsidiaries
(unaudited, in millions except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------------
1994
Revenues $1,921.8 $1,969.4 $2,001.3 $2,103.5 $7,996.0
Gross profit 485.4 511.7 535.4 550.8 2,083.3
Income (loss) before taxes 53.4 63.0 (38.9)/(b)/ 79.3 156.8/(b)/
Net income (loss) 31.9 38.0 (48.3)/(b)/ 49.0 70.6/(b)/
Earnings (loss) per share .60 .64 (.95)/(b)/ .83 1.10/(b)/
Dividends $ .25 $ .25 $ .25 $ .25 $ 1.00
Common stock price
High/Low 54 3/4-43 1/2 58 7/8-51 1/2 60 3/8-49 1/2 65 1/2-57 65 1/2-43 1/2
- -----------------------------------------------------------------------------------------------------------------------------
1993
Revenues $1,444.5 $1,490.6 $1,547.1 $1,962.4 $6,444.6
Gross profit 364.2 382.1 389.2 485.6 1,621.1
Income (loss) before taxes 40.9 48.5 50.8 (115.6)/(c)/ 24.6/(c)/
Income (loss)
Continuing operations $ 24.8 $ 29.5 $ 30.7 $ (77.4)/(c)/ $ 7.6/(c)/
Discontinued operations /(a)/ 1.2 2.0 (10.7) (7.5)
---------------------------------------------------------------------------------------
Net income (loss) $ 26.0 $ 31.5 $ 30.7 $ (88.1)/(c)/ $ .1/(c)/
=======================================================================================
Earnings (loss) per share
Continuing operations $ .52 $ .57 $ .58 $ (1.71)/(c)/ $ (.04)/(c)/
Discontinued operations /(a)/ .03 .04 (.23) (.16)
---------------------------------------------------------------------------------------
$ .55 $ .61 $ .58 $ (1.94)/(c)/ $ (.20)/(c)/
=======================================================================================
Dividends $ .24 $ .24 $ .24 $ .24 $ .96
Common stock price
High/Low 38 1/2-33 1/4 45 3/4-35 3/4 50 5/8-44 3/4 49 3/8-42 1/4 50 5/8-33 1/4
(a) The Company recorded an additional pretax charge of $9,800,000 or $.10
per share, in 1993 for the loss on the disposal of ADS.
(b) Includes a pretax charge of $115,265,000 ($95,086,000 net of taxes or $1.75
per share for the third quarter and $1.77 for the fiscal year) for the sale
of the investment in IMMOS.
(c) Includes a pretax charge of $175,000,000 ($112,875,000 net of taxes or
$2.38 per share) for restructuring costs.
44