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, 1996 or [ ] Transition
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report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
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Commission file number 1-5964
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ALCO STANDARD CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 23-0334400
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 834, Valley Forge, Pennsylvania 19482
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(Address of principal executive offices)
(Zip Code)
(610) 296-8000
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(Registrant's telephone number, including area code)
NONE
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(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
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* 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
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* 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, 1996.
Common Stock, no par value 130,268,309 shares
INDEX
ALCO STANDARD CORPORATION
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--June 30, 1996
and September 30, 1995
Consolidated Statements of Income--Three months
ended June 30, 1996 and June 30, 1995 and
Nine months ended June 30, 1996 and June 30, 1995
Consolidated Statements of Cash Flows--Nine
months ended June 30, 1996 and June 30, 1995
Notes to Consolidated Financial Statements--
June 30, 1996
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition and Liquidity
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
ALCO STANDARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30 September 30
1996 1995
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ASSETS
- ------
Current Assets
Cash $ 74,185 $ 66,413
Accounts receivable, net 469,283 368,518
Finance receivable, net 471,167 351,567
Inventories 347,675 267,756
Prepaid expenses, deposits and deferred taxes 152,417 102,944
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Total current assets 1,514,727 1,157,198
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Investments and Long-Term Receivables 50,011 47,185
Long-Term Finance Receivables, net 852,466 587,789
Property and Equipment, at cost 516,444 422,594
Less accumulated depreciation 298,981 255,091
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217,463 167,503
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Other Assets
Goodwill 993,376 792,850
Miscellaneous 80,009 22,829
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1,073,385 815,679
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Net Assets held for Distribution to Shareholders 1,558,807 1,334,976
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$5,266,859 $4,110,330
========== ==========
See notes to consolidated financial statements.
ALCO STANDARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30 September 30
1996 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current portion of long-term debt $ 49,350 $ 42,712
Current portion of long-term debt, finance subsidiaries 184,000 171,232
Notes payable 221,105 251,346
Trade accounts payable 145,817 68,827
Accrued salaries, wages and commissions 84,555 82,382
Deferred revenues 198,229 182,172
Other accrued expenses 243,921 188,593
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Total current liabilities 1,126,977 987,264
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Long-Term Debt 732,471 316,688
Long-Term Debt, finance subsidiaries 952,096 646,353
Other Liabilities
Deferred taxes 154,515 108,706
Other long-term liabilities 164,597 159,957
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319,112 268,663
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Shareholders' Equity
Series AA convertible preferred stock, no par value:
Depositary shares issued and outstanding
9/95 - 4,025 shares 201,924
Series BB conversion preferred stock, no par value:
3,877 depositary shares issued and outstanding 290,170 290,152
Common stock, no par value:
Authorized 300,000 shares
Issued 6/96 - 129,701 shares; 9/95 - 116,136
shares 1,200,331 643,998
Retained earnings 671,821 781,554
Foreign currency translation adjustment (25,213) (21,540)
Cost of common shares in treasury; 6/96 - 17 shares;
9/95 - 118 shares (906) (4,726)
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2,136,203 1,891,362
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$5,266,859 $4,110,330
========== ==========
See notes to consolidated financial statements.
ALCO STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
Three Months Ended Nine Months Ended
June 30 June 30
------------------------- -----------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
Revenues
Net sales $ 615,245 $478,677 $1,715,263 $1,308,369
Service and rental revnue 403,794 308,683 1,152,285 858,778
Finance subsidiaries 40,086 24,603 107,517 64,331
---------- -------- ---------- ----------
1,059,125 811,963 2,975,065 2,231,478
---------- -------- ---------- ----------
Costs and Expenses
Cost of goods sold 387,266 314,196 1,114,398 857,061
Service and rental costs 207,990 153,992 590,510 434,339
Finance subsidiaries interest 17,334 10,872 48,073 27,469
Selling and administrative 364,339 275,775 995,804 756,001
---------- -------- ---------- ----------
976,929 754,835 2,748,785 2,074,870
---------- -------- ---------- ----------
Income from operations 82,196 57,128 226,280 156,608
Interest 9,435 5,985 25,942 15,733
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Income from continuing operations before taxes 72,761 51,143 200,338 140,875
Taxes on Income 29,105 20,275 79,259 56,259
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Income from continuing operations 43,656 30,868 121,079 84,616
Discontinued operations (20,143) 29,018 34,717 71,978
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Net Income 23,513 59,886 155,796 156,594
Less: Preferred Dividends 4,885 2,893 17,434 8,679
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Available to Common Shareholders $ 18,628 $ 56,993 $ 138,362 $ 147,915
========== ======== ========== ==========
Earnings (Loss) Per Share (1)
Continuing Operations $0.30 $0.24 $0.82 $0.66
Discontinued Operations ($0.16) $0.25 $0.28 $0.62
---------- -------- ---------- ----------
$0.14 $0.49 $1.10 $1.28
========== ======== ========== ==========
(1) See Exhibit 11 for computation of earnings per share.
See notes to contolidated financial statements.
ALCO STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended June 30,
---------------------------------
1996 1995
---------------------------------
Operating Activities
Income from continuing operations $ 121,079 $ 84,616
Additions (deductions) to reconcile income from continuing
operations to net cash provided by operating activities
of continuing operations
Depreciation 58,775 40,726
Amortization 23,571 17,953
Provisions for losses on accounts receivable 12,594 5,249
Provision for deferred taxes 50,817 36,739
Changes in operating assets and liabilities, net
of effects from acquisitions and divestitures:
Increase in accounts receivable (70,670) (34,130)
Increase in inventories (44,473) (44,415)
Increase in prepaid expenses (61,528) (17,001)
Increase in accounts payable, deferred
revenues and accrued expenses 68,869 60,810
Miscellaneous (9,611) 536
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Net cash provided by operating activities of continuing operations 149,423 151,083
Net cash provided by (used in) operating activities of
discontinued operations 146,750 (97,010)
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Net cash provided by operating activities 296,173 54,073
Investing activities
Proceeds from the sale of property and equipment 29,163 13,995
Cost of companies acquired, net of cash acquired (123,733) (223,780)
Expenditures for property and equipment (85,782) (41,851)
Purchase of miscellaneous assets (15,891) (7,455)
Finance subsidiaries receivables - additions (691,842) (499,280)
Finance subsidiaries receivables - collections 282,967 170,300
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Net cash used in investing activities of continuing operations (605,118) (588,071)
Net cash used in investing activities of discontinued operations (237,241) (80,264)
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Net cash used in investing activities (842,359) (668,335)
Financing activities
Proceeds from short-term borrowings, net 5,023 129,734
Proceeds from issuance of long-term debt 435,487 289,446
Proceeds from option exercises and sale of treasury shares 46,053 62,494
Proceeds from sale of finance subsidiaries lease receivables 39,571 58,183
Debt issue costs (5,965)
Long-term debt repayments (100,473) (31,744)
Finance subsidiaries debt - additions 439,743 370,161
Finance subsidiaries debt - repayments (121,232) (120,011)
Dividends paid (68,630) (49,943)
Purchase of treasury shares (59,512) (75,822)
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Net cash provided by financing activities of continuing operations 610,065 632,498
Net cash used in financing activities of discontinued operations (56,107) (6,905)
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Net cash provided by financing activities 553,958 625,593
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Net increase in cash 7,772 11,331
Cash at beginning of year 66,413 37,001
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Cash at end of period $ 74,185 $ 48,332
========== ==========
See notes to consolidated financial statements.
ALCO STANDARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
Note 1: Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended September 30, 1995. Certain prior year amounts have
been reclassified to conform with the current year presentation. As a result of
the decision to spin off Unisource as discussed in Note 4 and the merger of two
companies that have been accounted for as a pooling-of-interests, prior period
amounts have been restated.
Note 2: Debt
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On December 11, 1995, the Company issued $300 million of 30-year bonds at a
stated interest rate of 6.75% to the public at a discount price of 98.48%. The
effective yield on the bonds is 6.87%. The bonds will be redeemable as a whole
or in part, at the option of the Company at any time, at a redemption price
equal to the greater of (i) 100% of their principal amount, or (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
thereon, discounted to maturity on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Yield (as defined) plus 15
basis points, plus in each case accrued interest to the date of redemption.
Interest on the bonds is paid semi-annually. The bonds are not subject to
sinking fund provisions.
On August 6, 1996, the Board of Directors approved the future
capitalization of Unisource Worldwide, Inc. ("Unisource"), its wholly owned
paper and supply systems distribution subsidiary, including a $600 million cash
dividend to be paid by Unisource to the Company in the first quarter of fiscal
1997, the proceeds which will be used to retire debt of continuing operations.
The dividend will be paid in connection with the spin-off of Unisource as a
separately owned public company. (See Note 4 for information concerning the
Unisource spin-off.)
Note 3: Series AA Preferred Stock Redemption
------------------------------------
On February 9, 1996, the Company redeemed all of its Series AA
Preferred Stock for common stock at a conversion rate of 2.2402 shares of common
stock for each depositary share redeemed. Common shares totaling 8,585,000 were
issued in connection with this redemption.
Note 4: Discontinued Operations
-----------------------
On June 19, 1996, the Company announced that it would spin off its
paper and supply systems distribution group, Unisource Worldwide, Inc. as a
separate publicly owned company through a tax free distribution of Unisource
stock to the Company's shareholders by the end of calendar year 1996. As a
result of this decision, the Company has accounted for Unisource as a
discontinued operation for all periods presented in these financial statements.
Prior year amounts for Unisource have been restated to reflect interest and
other expenses allocated by Alco. The Company recorded a charge against earnings
of $50 million in the third quarter of fiscal 1996 for new restructuring
activities at Unisource. The charge includes the cost of severance for
approximately 900 employees ($17 million) and facility closures ($33 million)
associated with the group's recently announced regional realignment from ten to
five regions in the United States and facilities mergers in the U.S. and Canada.
An $18 million charge against earnings was recorded in the third quarter of
fiscal 1996 for costs associated with the disposition of Unisource consisting
primarily of investment banking fees, legal and accounting fees, filing fees and
employee termination costs directly related to the spin-off.
The results of discontinued operations are as follows (in thousands):
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ -----------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
Revenues $1,748,732 $1,833,657 $5,211,718 $5,130,589
========== ========== ========== ==========
Income (loss) before taxes
(including $50 million
restructuring charge and $18 million
disposition charge in 1996) $ (23,821) $ 47,648 $ 66,574 $ 118,190
Tax expense (benefit) (3,678) 18,630 31,857 46,212
---------- ---------- ---------- ----------
Net income (loss) $ (20,143) $ 29,018 $ 34,717 $ 71,978
========== ========== ========== ==========
The unusual effective tax rates of 15.4% and 47.9% for the three
months and nine months ended June 30, 1996, respectively, result primarily from
the impact of certain nondeductible components of the disposition charge. Absent
such impact, the estimated annual effective tax rate for Unisource is
approximately 39.5%.
As of the dates shown below, the net assets to be distributed to
shareholders consisted of (in thousands):
6/30/96 9/30/95
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Working capital $ 822,844 $ 792,260
Net property and equipment 234,869 227,137
Other assets 580,672 367,694
Long-term debt and other liabilities (79,578) (52,115)
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$1,558,807 $1,334,976
========== ==========
In the first quarter of fiscal 1997, Unisource will pay a cash
dividend to the Company of $600 million which it intends to finance with
borrowed funds.
Item 2: Management's and Analysis of Results of Operations and Financial
- -------------------------------------------------------------------------
Condition and Liquidity
- -----------------------
On June 19, 1996, the Company announced that it would split its two
operating units into independent companies by spinning off its paper and supply
systems distribution group, Unisource Worldwide, Inc. (Unisource), as a separate
publicly owned company. The Company will accomplish the transaction through a
tax-free distribution of Unisource stock to Company shareholders, and expects to
complete the separation by the end of calendar year 1996. As a result of the
decision to spin off Unisource, the Company has accounted for Unisource as a
discontinued operation. Continuing operations of the Company consist of IKON
Office Solutions (IKON), formerly Alco Office Products, the Company's office
technology solutions group.
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,
as well as the discontinued operations of Unisource.
Three and Nine Months Ended June 30, 1996
Compared with the Three and Nine Months Ended June 30, 1995
-----------------------------------------------------------
Continuing Operations - IKON Office Solutions
Revenues and income before taxes for the third quarter and year-to-date of
fiscal 1996 compared to the third quarter and year-to-date of fiscal 1995 were
as follows:
Three Months Ended Nine Months Ended
------------------------- --------------------------
June 30 June 30
---------------- % --------- %
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- --------- -------
(in millions)
REVENUES $1,059 $ 812 30.4% $2,975 $2,231 33.3%
====== ===== ====== ======
INCOME BEFORE TAXES:
Operating income $ 82.2 $57.1 44.0% $226.3 $156.6 44.5%
Interest expense (9.4) (6.0) (26.0) (15.7)
------ ----- ------ ------
$ 72.8 $51.1 42.5% $200.3 $140.9 42.2%
====== ===== ====== ======
THIRD QUARTER:
IKON's third quarter revenues increased $247 million, or 30.4% over the
third quarter of fiscal 1995, of which $115 million relates to current and prior
year acquisitions and $132 million to base companies' internal growth. IKON's
internal revenue growth was 16.3% in the third quarter of fiscal 1996. Revenues
from the Company's operations outside the U.S. were $135 million for the third
quarter of fiscal 1996 compared to $72 million for the same period of the prior
fiscal year. IKON's European operations accounted for $47 million of the
increase, primarily the result of the acquisitions of A:Copy (UK) PLC and
Copymore PLC in the third and fourth quarters of fiscal 1995, while IKON's
Canadian revenues increased $16 million as a result of acquisitions and internal
growth in base companies.
IKON's operating income increased by $25.1 million, or 44.0% over the prior
year's quarter. Current and prior year acquisitions accounted for $10.2
million, while the remaining $14.9 million was the result of base companies'
internal growth. IKON Capital, Inc. (formerly Alco Capital Resource, Inc.)
contributed 16.5% of IKON's operating income in the third quarter of fiscal 1996
compared to 14.7% in the third quarter of fiscal 1995. IKON's operating margins
were 7.8% in the third quarter of fiscal 1996, compared to 7.0% in fiscal 1995.
Operating income from foreign operations was $13.3 million for the three
months ended June 30, 1996, up $7.8 million from the prior year's quarter, of
which $6.9 million is attributable to IKON's European operations and $.9 million
is attributable to IKON's Canadian operations. There was no material effect of
foreign currency exchange rate fluctuations on the results of operations in the
third quarter of fiscal 1996 compared to the third quarter of fiscal 1995.
NINE MONTHS:
For the nine months ended June 30, 1996, IKON's revenues increased $744
million, or 33.3% over the prior year period, of which $532 million relates to
current and prior year acquisitions and $212 million to base companies' internal
growth. For the first nine months of fiscal 1996, revenues from the Company's
operations outside the U.S. increased to $393 million, compared to $212 million
for the same period of the prior fiscal year. IKON's European operations
accounted for $136 million of the increase, primarily the result of the
acquisitions of A:Copy (UK) PLC and Copymore PLC in the third and fourth quarter
of fiscal 1995, while IKON's Canadian operations increased $45 million as a
result of acquisitions and internal growth in base companies.
Operating income at IKON increased 44.5%, or $69.7 million, over the prior
year. Current and prior year acquisitions contributed $43.2 million, while the
remaining $26.5 million was the result of internal growth from its base
companies. IKON Capital contributed 15.7% of IKON's operating income in the
first nine months of fiscal 1996 compared to 14.3% in the first nine months of
fiscal 1995. IKON's operating margins were 7.6% in the first nine months of
fiscal 1996, compared to 7.0% in fiscal 1995.
Operating income of foreign operations was $39.2 million for the nine
months ended June 30, 1996, up $24.9 million from the prior year, of which $21.2
million is attributable to IKON's European operations and $3.7 million is
attributable to IKON's Canadian operations. There was no material effect of
foreign currency exchange rate fluctuations on the results of operations during
the first nine months of fiscal 1996 compared to the first nine months of fiscal
1995.
Acquisitions
In the third quarter of fiscal 1996, IKON completed 16 acquisitions with
annualized revenues of $182 million, bringing total year-to-date acquisitions to
70, with annualized revenues of almost $700 million. Third quarter acquisitions
included the company's entrance into the French marketplace. IKON also expanded
its outsourcing and digital networking capability as a result of its third
quarter acquisitions.
Other
Interest expense, net of corporate interest expense allocated to
discontinued operations, increased $3.4 million in the third quarter of fiscal
1996 and $10.3 million year-to-date, primarily the result of increased borrowing
levels during the first nine months of fiscal 1996 compared to fiscal 1995.
Income before taxes increased by $21.7 million, or 42.5% for the third
quarter and $59.4 million, or 42.2% year-to-date over the prior year, primarily
reflecting the combined result of internal growth from base companies, along
with earnings contributed by acquisitions, net of increased interest costs. The
effective income tax rate year-to-date is 39.6% compared with 39.9% for the
comparative period in fiscal 1995.
Earnings per share from continuing operations increased 25% from $.24 per
share for the third quarter of fiscal 1995 to $.30 per share for the third
quarter of fiscal 1996. Year-to-date, earnings per share from continuing
operations increased 24.2% from $.66 per share to $.82 per share.
Weighted average shares of 131.0 million for the quarter ended June 30,
1996 were 14.3 million shares greater than the 116.7 million for the quarter
ended June 30, 1995, primarily the result of acquisitions for stock (4.7 million
weighted shares) and conversion of the Series AA Preferred Stock effective
February 9, 1996 (9.0 million weighted shares).
Discontinued Operations - Unisource
Revenues and income before taxes for the third quarter and year-to-date of
fiscal 1996 compared to the third quarter and year-to-date of fiscal 1995 were
as follows:
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
June 30 June 30
----------------- % ------------------ %
1996 1995 Change 1996 1995 Change
--------- ------ -------- ------- --------- --------
(in millions)
REVENUES
United States $1,555 $1,622 (4.1)% $4,628 $4,540 1.9%
Canada 194 212 (8.5)% 584 591 (1.2)%
------ ------ ------ ------
$1,749 $1,834 (4.6)% $5,212 $5,131 1.6%
====== ====== ====== ======
INCOME BEFORE TAXES:
Operating income:
United States $ 44.5 $ 46.0 (3.3)% $136.7 118.0 15.8%
Canada 7.6 10.8 (29.6)% 20.8 26.0 (20.0)%
Restructuring charge (50.0) (50.0)
------ ------ ------ ------
2.1 56.8 (96.3)% 107.5 144.0 (25.3)%
Interest expense (7.9) (9.2) (22.9) (25.8)
------ ------ ------ ------
$ (5.8) $ 47.6 $ 84.6 $118.2 (28.4)%
====== ====== ====== ======
The table above excludes the $18 million charge to discontinued operations
relating to expenses resulting from the decision to spin off Unisource.
THIRD QUARTER:
Revenues from Unisource's U.S. operations decreased $67 million or 4.1% for
the quarter compared to the prior year's quarter, while revenues of Unisource's
Canadian operations decreased by $18 million, or 8.5%. Current and prior year
acquisitions (primarily in the United States) contributed $156 million to
revenues, but revenues in base companies were down $241 million for the quarter,
primarily due to price declines in the paper industry. Paper prices declined
13% from the third quarter of fiscal 1995. Because pricing has not yet
stabilized, Unisource cannot predict the effect the current pricing environment
will have on its fourth quarter revenues.
Excluding the effects of the restructuring charge, operating income from
Unisource's U.S. operations decreased $1.5 million, while Unisource's Canadian
operations experienced a $3.2 million decrease in operating income. Current and
prior year acquisitions added $8.4 million to operating income. Operating
income from base companies decreased $13.1 million primarily due to the effects
of price declines, net of improvement in gross trading margin percentages,
restructuring benefits and operating efficiencies. Operating margins, excluding
the restructuring charge, were 3.0% in the third quarter of fiscal 1996,
compared to 3.1% in the third quarter of fiscal 1995. There was no material
effect of foreign currency exchange rate fluctuations on the results of
operations for the third quarter of fiscal 1996 compared to the third quarter of
fiscal 1995. The overall decrease in operating income of 96.3% is primarily
attributable to the $50 million of restructuring costs recorded in the third
quarter of fiscal 1996, $38 million relating to U.S. operations and $12 million
relating to Canadian operations.
NINE MONTHS:
The $88 million increase in revenues from Unisource's U.S. operations
includes current and prior year acquisitions of $349 million, offset by revenue
declines of $261 million in base companies. Unisource's Canadian operations
revenues decreased by $7 million, net of $11 million contributed by a 1995
acquisition. Revenues of base companies are down as a result of price and
volume declines in the first nine months of fiscal 1996 compared to the first
nine months of fiscal 1995.
Excluding the effects of the restructuring charge, operating income from
Unisource's U.S. operations increased $18.7 million, primarily the result of
$18.9 million contributed by current and prior year acquisitions. Operating
income from base companies decreased only $.2 million despite price and volume
declines during the first nine months of fiscal 1996 primarily due to
improvement in gross trading margin percentages, restructuring benefits and
operating efficiencies. The decrease of $5.2 million in the Canadian operating
income reflects price and volume decreases. Operating margins, excluding the
restructuring charge, were 3.0% in the first nine months of fiscal 1996,
compared to 2.8% in fiscal 1995. There was no material effect of foreign
currency exchange rate fluctuations on the results of operations during the
first nine months of fiscal 1996 compared to the first nine months of fiscal
1995. The overall decrease in operating income of 25.3% is primarily
attributable to the $50 million of restructuring costs recorded in the third
quarter of fiscal 1996.
Unisource Restructuring
During the quarter, Unisource recorded a restructuring charge of $50
million. The charge includes the cost of severance for approximately 900
employees ($17 million) and facility closures ($33 million) associated with the
group's recently announced regional realignment from ten to five regions in the
United States and facilities mergers in the U.S. and Canada.
Unisource expects to deliver $40 million of restructuring benefits in
fiscal 1996. This is $10 million less than previously expected as a result of
delays in the rollout of the new information technology (IT) system. The IT
system is currently not expected to be fully implemented before the end of
calendar year 1998. At June 30, 1996, the restructuring reserve is $57.8
million, including the $50 million recorded in the third quarter.
Total cash expenditures in connection with the Unisource restructuring
plans, including the $50 million charge in the third quarter, are estimated to
be $177 million. In addition to the $112 million spent through fiscal 1995, $32
million was expended in the first nine months of fiscal 1996, totaling $144
million spent to date. Unisource anticipates cash expenditures of $5 million
during the remainder of fiscal 1996. The remaining commitment under Unisource's
$300 million 10 year information technology outsourcing agreement, which was
effective January 1, 1994, is $185 million at June 30, 1996. The foregoing
commitments are anticipated to be funded from Unisource's operating cash flow.
Acquisitions
Unisource completed 7 acquisitions in the third quarter of fiscal 1996 with
annualized revenues of $193 million. For the nine months ended June 30, 1996,
Unisource completed 28 acquisitions with annualized revenues of $707 million.
Almost all of the U.S.-based acquisitions in the third quarter are supply
systems companies, reflecting Unisource's goal of a balanced revenue
contribution between its paper and supply systems product lines. Two of the
third quarter acquisitions are located in Mexico, for a total of six year-to-
date, further expanding the group's presence in the Mexican market.
Other
Discontinued operations also includes an $18 million charge for the costs
associated with the spin-off of Unisource. The charge consists primarily of
investment banking fees, legal and accounting fees, filing fees and employee
termination costs directly related to the spin-off.
Financial Condition and Liquidity
---------------------------------
Net cash provided by operating activities of continuing operations for the
first nine months of fiscal 1996 was $149 million. This cash, plus operating
cash provided by discontinued operations and increased debt levels, funded the
Company's cash usage for the first nine months of fiscal 1996, primarily
acquisitions, capital expenditures, dividends and investing and financing
activities of discontinued operations.
Debt of continuing operations, excluding finance subsidiaries, was $1
billion at June 30, 1996, an increase of $392 million from continuing operations
debt balance at September 30, 1995 of $611 million. On August 6, 1996, the
Board of Director's approved the capitalization of Unisource in connection with
the spin-off, which will include a cash dividend to be paid by Unisource to the
Company in the first quarter of fiscal 1997 of $600 million, the proceeds which
will be used to retire debt of the continuing operation. Unisource intends to
borrow funds to finance the dividend payment. The Company will also incur
additional costs to retire this debt early, which will be recorded as an
extraordinary charge when incurred. On December 11, 1995, the Company issued to
the public $300 million of 30 year bonds with a stated interest rate of 6.75%
and a discount of 98.48%. The proceeds were used to repay short term
borrowings. The Company had a total of $600 million in bank credit commitments
as of June 30, 1996. Short term borrowings supported by these facilities
totaled $235 million leaving $365 million unused and available.
The Company filed a shelf registration for 10 million shares of common
stock in January 1996. Shares issued under this registration statement are
being used primarily for acquisitions. Approximately 7.2 million shares have
been issued under this shelf registration through June 30, 1996. A shelf
registration statement for 5 million shares of common stock, which will also be
used for acquisitions, was filed in March 1996.
Finance subsidiaries debt grew by $319 million from September 30, 1995, a
result of increased leasing activity. During the nine months ended June 30,
1996, IKON Capital issued an additional $397.9 million under its medium term
notes program which began in July 1994. At June 30, 1996, $969.9 million of
medium term notes were outstanding with a weighted interest rate of 6.8%,
leaving $500.1 million available under this program. Under its $125 million
asset securitization agreement commenced in September 1994, IKON Capital sold
$39.6 million in direct financing leases during the first half of fiscal 1996,
replacing those leases liquidated and leaving the amount of contracts sold
unchanged.
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 expenditures, acquisitions and
discontinued operations through the end of calendar 1996.
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) The following Exhibits are furnished pursuant to Item 601 of
Regulation S-K:
Exhibit No. (11) Computation of Earnings per Share
Exhibit No. (27) Financial Data Schedule.
(b) Reports on Form 8-K
On April 22, 1996, the registrant filed a Current Report on Form 8-K to
file, under Item 5 of the form, the announcement made April 17, 1996 of
the decision to structure the Company's two businesses, IKON Office
Solutions, Inc. and Unisource Worldwide, Inc., under separate
ownership.
On June 21, 1996, the registrant filed a Current Report on Form 8-K to
file, under Item 5 of the form, the announcement made June 19, 1996 of
its decision to spin off Unisource. The Form 8-K also reported
additional information announced on June 19, 1996, including (i) the
registrant's lowering of its earnings expectation for the third quarter
due to lower than expected revenues at Unisource, (ii) a one-time
charge against earnings of approximately $40-$50 million in the third
quarter for new restructuring activities at Unisource, and (iii) a
charge against earnings in the third quarter of $12-$18 million for
costs associated with the disposition of Unisource.
On August 2, 1996, the registrant filed a Current Report on Form 8-K to
file, under Item 5 of the form, the long-term growth goals for IKON
Office Solutions and Unisource Worldwide, Inc. as presented at an
investors' conference in New York City on July 31, 1996. The two
businesses will begin operating as independent publicly-owned companies
in January 1997.
SIGNATURES
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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 13, 1996 /s/ Michael J. Dillon
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Michael J. Dillon
Vice President and Controller
(Chief Accounting Officer)
INDEX TO EXHIBITS
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Exhibit Number
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(11) Computation of Earnings per Share
(27) Financial Data Schedule.