<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1994 or [ ] Transition
-----------------
report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from _________ to __________
Commission file number 1-5964
------------------------------------------
ALCO STANDARD CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 23-0334400
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 834, Valley Forge, Pennsylvania 19482
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(610) 296-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
* Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No ___
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1995.
Common Stock, no par value 54,501,186 shares
<PAGE>
INDEX
ALCO STANDARD CORPORATION
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--December 31, 1994
and September 30, 1994
Consolidated Statements of Income--Three months
ended December 31, 1994 and December 31, 1993
Consolidated Statements of Cash Flows--Three
months ended December 31, 1994 and
December 31, 1993
Notes to Consolidated Financial Statements--
December 31, 1994
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition and Liquidity
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1: Financial Statements
- ----------------------------
ALCO STANDARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31 September 30
1994 1994
------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash $ 33,127 $ 53,369
Accounts receivable less allowance for doubtful accounts:
12/94 - $32,138; 9/94 - $29,428 969,702 915,495
Inventories 745,460 609,974
Prepaid expenses and deferred taxes 131,997 131,638
------------ ------------
Total current assets 1,880,286 1,710,476
------------ ------------
Investments and Long-Term Receivables 48,484 68,472
Property and Equipment, at cost 662,735 653,722
Less accumulated depreciation 313,584 299,775
------------ ------------
349,151 353,947
------------ ------------
Other Assets
Excess of cost of acquired companies over equity 762,725 747,629
Miscellaneous 77,675 59,331
------------ ------------
840,400 806,960
------------ ------------
Finance Subsidiaries Assets 659,006 562,403
------------ ------------
$ 3,777,327 $ 3,502,258
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALCO STANDARD CORPORATION
CONSOLIDATED BALANCE SHEETS
( in thousands )
<TABLE>
<CAPTION>
December 31 September 30
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1994
- ------------------------------------ -------------- --------------
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 12,649 $ 12,299
Notes payable 266,426 91,999
Trade accounts payable 450,104 500,166
Accrued salaries, wages and commissions 65,303 96,987
Deferred revenues 137,202 134,485
Restructuring costs 58,552 56,971
Other accrued expenses 181,924 164,023
------------ ------------
Total current liabilities 1,172,160 1,056,930
------------ ------------
Long-Term Debt 437,286 340,771
Other Liabilities
Deferred taxes 33,560 32,192
Restructuring costs 39,000 50,000
Workers' compensation and other 159,009 156,511
------------ ------------
231,569 238,703
------------ ------------
Finance Subsidiaries Liabilities;
including debt of: 12/94 - $525,539; 9/94 - $464,882 561,234 498,710
Shareholders' Equity
Series AA convertible preferred stock, no par value,
4,025 depositary shares issued and outstanding 200,415 199,912
Common stock, no par value: authorized 75,000 shares;
Issued 12/94 - 54,595 shares; 9/94 - 54,522 shares 555,446 551,215
Retained earnings 669,953 642,634
Foreign currency translation adjustment (31,688) (22,550)
Cost of common shares in treasury: 12/94 - 333 shares;
9/94 - 74 shares (19,048) (4,067)
------------ ------------
1,375,078 1,367,144
------------ ------------
$ 3,777,327 $ 3,502,258
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALCO STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
December 31
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues
Net sales $ 2,160,791 $ 1,905,989
Dividends, interest and other income 870 950
Finance subsidiaries 19,940 14,841
------------ ------------
2,181,601 1,921,780
------------ ------------
Costs and Expenses
Cost of goods sold 1,606,209 1,430,134
Selling and administrative 479,274 419,097
Interest 11,950 12,143
Finance subsidiaries interest 9,619 6,292
------------ ------------
2,107,052 1,867,666
------------ ------------
Loss from Unconsolidated Affiliate (736)
------------ ------------
Income Before Taxes 74,549 53,378
Taxes on Income 29,080 21,524
------------ ------------
Net Income 45,469 31,854
Preferred Dividends 2,893 2,893
------------ ------------
Net Income Available to Common Shareholders $ 42,576 $ 28,961
============ ============
Earnings Per Share (1) $0.77 $0.60
============ ============
Cash dividends per share of common stock $0.26 $0.25
============ ============
(1) See Exhibit 11 for computation of earnings per share.
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALCO STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------
1994 1993
----------- ------------
<S> <C> <C>
Operating activities
Net income $ 45,469 $ 31,854
Additions (deductions) to reconcile net income to net
cash used by operating activities:
Depreciation 18,116 16,269
Amortization 7,591 6,353
Restructuring costs (7,503)
Provision for losses on accounts receivable 5,526 5,606
Provision (benefit) for deferred income taxes 119 (303)
Change in deferred credits 1,805 6,911
Changes in operating assets and liabilities, net
of effects from acquisitions and divestitures:
Decrease (increase) in accounts receivable (58,129) 32,466
Increase in inventories (130,349) (66,507)
Increase in prepaid expenses (9,886) (13,640)
Decrease in accounts payable, deferred
revenues and accrued expenses (63,852) (64,308)
Miscellaneous (236) (4,073)
----------- ------------
Net cash used (191,329) (49,372)
Investing activities
Proceeds from sale of property and equipment 7,776 5,058
Payments received on long-term receivables 913 1,626
Cost of companies acquired, net of cash acquired (22,460) (9,160)
Expenditures for property and equipment (20,564) (22,499)
Purchase of miscellaneous assets (23,057) (2,847)
Finance subsidiaries receivables - additions (133,398) (82,247)
Finance subsidiaries receivables - collections 71,489 46,839
----------- -----------
Net cash used (119,301) (63,230)
Financing activities
Proceeds from short-term borrowings, net 156,000 84,179
Proceeds from issuance of long-term debt 108,814 6,818
Proceeds from option exercises and sale of treasury shares 20,735 18,975
Proceeds from issuance of common stock, net 293,755
Long-term debt repayments (2,456) (310,742)
Finance subsidiaries debt - additions 99,246 36,723
Finance subsidiaries debt - repayments (38,589) (3,308)
Dividends paid (16,555) (14,193)
Purchase of treasury shares (36,807) (4,816)
----------- -----------
Net cash provided 290,388 107,391
----------- -----------
Net decrease in cash (20,242) (5,211)
Cash at beginning of year 53,369 36,495
----------- -----------
Cash at end of period $ 33,127 $ 31,284
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ALCO STANDARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
Note 1: Debt
----
On December 1, 1994, the Company entered into a credit agreement with 14
banks to borrow up to $500 million. This multi-currency facility replaces three
other lines of credit amounting to approximately $415 million. The new
agreement has two parts: $350 million is subject to termination on December 1,
1999; the other $150 million is available for 364 days subject to annual renewal
for successive 364-day periods. Facility fees of 10 basis points per annum on
the five-year portion and 8 basis points per annum on the 364-day portion are
charged for these commitments. The agreement provides that loans may be made
under either domestic or Eurocurrency notes at rates computed under a selection
of rate formulas including prime or Eurocurrency rates. At the same time, the
Company has reduced the commitment under another agreement from $200 million to
$100 million.
Note 2: Supplemental Information to Statements of Cash Flows
----------------------------------------------------
The Company has presented statements of cash flows for the
periods ended December 31, 1994 and 1993 in accordance with SFAS No. 95.
Interest paid for the quarter ended December 31, 1994 was $23.5 million.
Interest paid for the quarter ended December 31, 1993 was $22.1 million.
State and Foreign income tax payments of $2.8 million and $3.5 million were
made during the three months ended December 31, 1994 and 1993, respectively.
The total assets for acquisitions amounted to $41.3 million during the
three months ended December 31, 1994 and $15.5 million during the three months
ended December 31, 1993. The excess of cost over acquired equity included in
these assets was $27.3 million and $8 million, respectively.
<PAGE>
Item 2: Management's Discussion and Analysis of Results of Operations
- ------- -------------------------------------------------------------
and Financial Condition and Liquidity
-------------------------------------
Results of Operations
---------------------
The discussion of the results of operations reviews the operations of the
Company as contained in the Consolidated Statements of Income.
Three Months Ended December 31, 1994
Compared with Three Months Ended December 31, 1993
--------------------------------------------------
Revenues and income before taxes for the first quarter of fiscal 1995
compared to the first quarter of fiscal 1994 were as follows:
<TABLE>
<CAPTION>
Revenues Income Before Taxes
----------------------- -----------------------
December 31 % December 31 %
--------------- --------------
1994 1993 Change 1994 1993 Change
------- ---- ------ ----- ---- ------
<S> <C> <C> <C> <C> <C> <C>
(in millions)
Alco Office Products $ 636 $ 498 27.7% $55.1 $42.5 29.6%
Unisource
United States 1,367 1,266 8.0 36.1 28.9 24.9
Canada 180 160 12.5 6.5 2.2
------ ----- ----- -----
Total Unisource 1,547 1,426 8.5 42.6 31.1 37.0
------ ----- ----- -----
Operating 2,183 1,924 13.5 97.7 73.6 32.7
Unconsolidated affiliate (.7)
Interest (11.9) (12.1)
Eliminations and
non-Allocated (1) (2) (11.2) (7.4)
------ ------ ----- -----
$2,182 $1,922 13.5% $74.6 $53.4 39.7%
====== ====== ===== =====
</TABLE>
The Company's revenues for the first quarter of fiscal year 1995 were $2.2
billion, 13.5% ahead of the comparable period in the prior year. Income before
taxes increased to $74.6 million from $53.4 million reported in the first
quarter of fiscal year 1994. Earnings per share of $.77 were 28.3% higher than
the $.60 reported in the prior year.
Alco Office Products generated $138 million in increased revenues, of which
$88 million related to AOP's base companies and $50 million to current and prior
year acquisitions. Internal growth in AOP's base companies continues to be
across all revenue segments but primarily in equipment sales, service and
facilities management businesses. Revenues from Unisource's U.S. operations
increased by $101 million. All but $4 million relating to current and prior
year acquisitions was a result of the strong revenue gains within Unisource.
Unisource's Canadian operations increased their revenues by $20 million despite
a $6 million negative impact from foreign exchange rates. The improvement in
Unisource's revenues reflects both price and volume increases in its fine paper
and supply systems businesses.
<PAGE>
AOP's operating income increased by $12.6 million. Current and prior year
acquisitions contributed $4.5 million. The remaining $8.1 million represents
the internal growth from its base companies. This growth primarily represents
higher operating contributions from the service, supply and facilities
management areas of AOP's businesses, but also includes 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 $7.2 million which includes $7.1 million from its base companies and
$.1 million from prior year acquisition. The increase in operating income was
due to cost reductions gained as a result of Unisource's ongoing
restructuring, productivity realized and the impact from price and volume
increases realized during the quarter. The increase of $4.3 million in the
Canadian paper distribution business represents strong growth in the fine
paper distribution business including the positive effects of price increases
along with administrative cost reductions.
Revenues from the Company's paper and office products operations outside
the U.S. were $247 million for the first quarter of fiscal 1995 compared to
$204 million for the same period of the prior fiscal year. The increase
includes $20 million from the Canadian paper distribution business and $3
million of internal growth in the AOP Canadian operations. It also includes
$20 million relating to the European operations of Erskine and the two
companies acquired in September 1994. The Company incurred an equity loss of
$.7 million from IMM Office Systems GmbH (IMMOS) in the first quarter of
fiscal 1994. The investment in IMMOS was sold in September 1994. Income from
foreign operations was $10 million for the three months ended December 31,
1994, up $4.4 million from the prior year, primarily attributable to the
Canadian paper distribution business.
Interest expense increased overall by approximately $.2 million, the net
effect of increased borrowing levels and interest rates during fiscal 1995
offset by the effect of the debt reduction resulting from the Company's common
stock offering in December 1993. Income before taxes increased by $21.2
million primarily reflecting the combined result of improved operations from
base companies along with earnings contributed by acquisitions. The effective
income tax rate is currently 39% compared with 40.3% for the comparative
period in fiscal 1994. Weighted average shares of 55.4 million at December
31, 1994 were 6.8 million shares greater than the 48.6 million at December 31,
1993. This is primarily the result of a public offering of 5.8 million common
shares in December 1993.
The Unisource restructuring plan announced in September, 1993 basically
is proceeding as planned. As of December 31, 1994, Unisource had
substantially completed 72 facility consolidations and expects to complete an
additional 3 consolidations by the end of the second quarter. Unisource
reduced its employee base by approximately 725 excluding those data processing
personnel transferred to Integrated Systems Solution Corporation (ISSC) as of
December 31, 1994. At December 31, 1994, the remaining restructuring reserve
is $97.6 million, which management continues to believe is adequate to
complete the restructuring plan by the end of fiscal 1996.
<PAGE>
Financial Condition and Liquidity
---------------------------------
Debt, excluding finance subsidiaries, was $716 million at December 31,
1994, an increase of $271 million from the Company's debt balance at September
30, 1994 of $445 million. This increase in borrowing levels was primarily to
satisfy the Company's working capital requirements. On December 1, 1994, the
Company entered into a new credit agreement to borrow up to $500 million.
This multi-currency facility replaces three other lines of credit amounting to
approximately $415 million. At the same time, the Company also reduced the
commitment under another agreement from $200 million to $100 million. The
Company had a total of $600 million in bank credit commitments as of December
31, 1994, of which $245 million were unused and available. At December 31,
1994, debt as a percentage of capitalization was 34.3% and the current ratio
was 1.6 to 1.
The Company's change in cash from operating activities during the first
quarter primarily relates to working capital expenditures. Unisource reduced
its accounts payable by $79 million and increased inventory by $97 million
reflecting supplier price increases as well as higher inventory quantities to
support expected increases in demand and uncertainty regarding availability of
certain product grades. AOP expended $34 million for inventory which resulted
from growth within the business, supplier price increases, restriction on
product availability in the fourth quarter of fiscal 1994 which was filled in
the first quarter of fiscal 1995, and the cost of equipment relating to higher
segment machines. For the first quarter in fiscal 1994 changes in cash from
operating activities included the following: $23 million for special
purchases of inventory by some AOP companies due to expected price increases;
$12 million for Company bonus payments; and $71 million for the reduction of
Accounts Payable for the Unisource businesses.
The Company estimated that total cash expenditures in connection with the
Unisource restructuring plan will amount to $148 million. In addition to the
$52 million spent in fiscal 1994, $8 million was expended in the first quarter
of fiscal 1995, totaling $60 million spent to date. Unisource anticipates
spending an additional $45 million during the remainder of fiscal 1995.
Finance subsidiaries debt grew by $61 million from September 30, 1994, a
result of increased leasing activity. During the three months ended December
31, 1994, Alco Capital had issued an additional $98 million under its Medium
Term Notes Program which began in July 1994. At December 31, 1994, $203
million of the $500 million available under this program was outstanding.
Alco Capital under its $125 million asset securitization agreement commenced
in September 1994, sold an additional $18.8 million in direct financing leases
during the first quarter of fiscal 1995, replacing those leases liquidated
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 expenditure, acquisition and
restructuring programs.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) The following Exhibits are furnished pursuant to Item 601
of Regulation S-K:
Exhibit No. (11) Computation of Earnings Per Share
Exhibit No. (27) Financial Data Schedule
<PAGE>
BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10Q and Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended September 30, 1994.
Date February 14, 1995 /s/Michael J. Dillon
--------------------- ----------------------------------
Michael J. Dillon
Vice President and Controller
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. This report has also been signed by the
undersigned in his capacity as the chief accounting officer of the Registrant.
ALCO STANDARD CORPORATION
Date February 14, 1995 /s/Michael J. Dillon
--------------------- -----------------------------------
Michael J. Dillon
Vice President and Controller
(Chief Accounting Officer)
<PAGE>
Index to Exhibits
-----------------
Exhibit Number
- --------------
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
<PAGE>
EXHIBIT 11
- ----------
ALCO STANDARD CORPORATION
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended December 31
----------------------------------------------------
1994 1993
--------------------- -----------------------
Fully Fully
Primary Diluted(1) Primary Diluted(1)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Average Shares Outstanding
Common shares 54,381 54,381 47,748 47,748
Preferred stock
Considered common equivalents 12 12
Senior Securities 4,508 4,508
Options 1,039 1,141 881 1,033
--------- --------- --------- ---------
Total shares 55,420 60,030 48,641 53,301
========= ========= ========= =========
Income
Net income $ 45,469 $ 45,469 $ 31,854 $ 31,854
Preferred dividends 2,893 2,893
--------- --------- --------- ---------
Income available to common shareholders $ 42,576 $ 45,469 $ 28,961 $ 31,854
========= ========= ========= =========
Earnings Per Share $0.77 $0.76 $0.60 $0.60
========= ========= ========= =========
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item 601
(b) (11) although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Alco Standard Corporation and subsidiaries
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> DEC-31-1994
<CASH> $33,127,000
<SECURITIES> 0
<RECEIVABLES> 1,001,840,000
<ALLOWANCES> 32,138,000
<INVENTORY> 745,460,000
<CURRENT-ASSETS> 1,880,286,000
<PP&E> 662,735,000
<DEPRECIATION> 313,584,000
<TOTAL-ASSETS> 3,777,327,000<F2>
<CURRENT-LIABILITIES> 1,172,160,000
<BONDS> 437,286,000
<COMMON> 555,446,000
0
200,415,000<F1>
<OTHER-SE> 619,217,000
<TOTAL-LIABILITY-AND-EQUITY> 3,777,327,000<F3>
<SALES> 2,160,791,000
<TOTAL-REVENUES> 2,181,601,000
<CGS> 1,606,209,000
<TOTAL-COSTS> 1,615,828,000<F4>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,526,000
<INTEREST-EXPENSE> 11,950,000
<INCOME-PRETAX> 74,549,000
<INCOME-TAX> 29,080,000
<INCOME-CONTINUING> 45,469,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,469,000
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.76
<FN>
<F1>Redeemable solely at the Company's option.
<F2>Includes Finance Subsidiaries assets (primarily lease receivables) of
$659,006,000.
<F3>Includes Finance Subsidiaries liabilities (primarily debt) of $561,234,000
<F4>Includes Finance Subsidiaries interest of $9,619,000.
</FN>
</TABLE>
