<PAGE>
RULE NO.424(b)(4)
REGISTRATION NO. 33-64177
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 1, 1995)
$300,000,000
Alco Standard Corporation
6 3/4% BONDS DUE DECEMBER 1, 2025
---------------
Interest payable June 1 and December 1
---------------
THE 6 3/4% BONDS DUE DECEMBER 1, 2025 (THE "BONDS") WILL MATURE ON DECEMBER 1,
2025. INTEREST ON THE BONDS IS PAYABLE SEMIANNUALLY ON JUNE 1 AND DECEMBER 1 OF
EACH YEAR, BEGINNING JUNE 1, 1996. THE BONDS WILL NOT BE SUBJECT TO ANY SINKING
FUND. 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 HEREIN) PLUS 15 BASIS POINTS, PLUS IN EACH
CASE ACCRUED INTEREST TO THE DATE OF REDEMPTION. THE BONDS WILL BE REPRESENTED
BY ONE OR MORE GLOBAL BONDS REGISTERED IN THE NAME OF THE NOMINEE OF THE
DEPOSITORY TRUST COMPANY. BENEFICIAL INTERESTS IN THE GLOBAL BONDS WILL BE
SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED BY DTC AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, BONDS IN
DEFINITIVE FORM WILL NOT BE ISSUED. THE BONDS WILL BE ISSUED ONLY IN
DENOMINATIONS OF $1,000 AND INTEGRAL MULTIPLES THEREOF. THE BONDS WILL TRADE IN
DTC'S SAME-DAY FUNDS SETTLEMENT SYSTEM UNTIL MATURITY, AND SECONDARY MARKET
TRADING ACTIVITY FOR THE BONDS WILL THEREFORE SETTLE IN IMMEDIATELY AVAILABLE
FUNDS. ALL PAYMENTS OF PRINCIPAL (AND PREMIUM, IF ANY) AND INTEREST WILL BE
MADE BY THE COMPANY IN IMMEDIATELY AVAILABLE FUNDS. SEE "DESCRIPTION OF BONDS--
SAME-DAY SETTLEMENT AND PAYMENT".
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
PRICE 98.480% AND ACCRUED INTEREST, IF ANY
---------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
------------ -------------- -------------
<S> <C> <C> <C>
Per Bond.............................. 98.480% .875% 97.605%
Total................................. $295,440,000 $2,625,000 $292,815,000
</TABLE>
- -------
(1) Plus accrued interest, if any, from December 11, 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933.
(3) Before deducting estimated expenses of $226,131 payable by the Company.
---------------
The Bonds are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to receipt by the Underwriters of an
opinion of counsel for the Underwriters. It is expected that delivery of the
Bonds will be made on or about December 11, 1995 through the book-entry
facilities of The Depository Trust Company, against payment therefor in
immediately available funds.
---------------
MORGAN STANLEY & CO.
Incorporated
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
December 6, 1995
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company................................................................ S-3
Recent Developments........................................................ S-4
Use of Proceeds............................................................ S-4
Capitalization............................................................. S-5
Selected Financial Information............................................. S-6
Management's Discussion and Analysis....................................... S-7
Business................................................................... S-12
Description of Bonds....................................................... S-14
Underwriting............................................................... S-17
Legal Matters.............................................................. S-17
Experts.................................................................... S-17
PROSPECTUS
Available Information...................................................... 2
Documents Incorporated By Reference........................................ 2
The Company................................................................ 3
Ratio of Earnings to Fixed Charges......................................... 4
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends........... 4
Use of Proceeds............................................................ 4
Description of Debt Securities............................................. 5
Description of Capital Stock............................................... 10
Description of Depositary Shares........................................... 13
Plan of Distribution....................................................... 16
Experts.................................................................... 17
Validity of Securities..................................................... 17
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
THE COMPANY
Alco Standard Corporation ("Alco" or the "Company") is a marketing,
distribution and services company with operations in two primary businesses:
Alco Office Products ("AOP") and Unisource ("Unisource"). Alco's fiscal 1995
revenues were approximately $9.9 billion and its operating income was $477
million.
AOP is the largest independent copier distribution network in North America
and the United Kingdom, with a presence in Europe. AOP has more than 813
locations in forty-eight states, six Canadian provinces and Europe. AOP sells,
rents and leases copiers, fax machines and other automated office equipment.
AOP also provides equipment services and supplies, reprographic facilities
management and specialized document copying services. Through its captive
leasing companies, AOP finances equipment leases for customers of AOP companies
throughout the United States, Canada and the United Kingdom. AOP's primary
leasing company is Alco Capital Resource, Inc., which serves the United States
market. In fiscal 1995, AOP's revenues were $2.9 billion and its operating
income was $252 million.
Unisource is North America's largest marketer and distributor of paper and
imaging products. Through its supply systems segment, Unisource also
distributes disposable paper and plastic products, packaging systems and
maintenance supplies. Unisource has 380 facilities, which are located in every
major metropolitan market in the United States, in every province of Canada and
in Mexico. Unisource focuses on five market segments: printing and publishing,
business imaging, general manufacturing, food processing and retail grocery.
Unisource combines its broad array of products with specialized customer
services and is implementing a sophisticated information technology system to
offer custom solutions which lower the total customer cost of procurement and
improve the efficiency of customers' operations. In fiscal 1995, Unisource's
revenues were $7.0 billion and its operating income was $225 million.
Alco pursues an active strategic acquisition program for both AOP and
Unisource. In fiscal 1995, Alco acquired 114 companies for a total purchase
price of approximately $422 million. During that year, AOP acquired 102 office
products companies in the United States, Canada and Europe, with an aggregate
of over $578 million in annualized revenues, and Unisource acquired twelve
companies, primarily in supply systems target markets, with $152 million in
annualized revenues, including four companies in Mexico.
Alco's strategic direction includes continued growth through acquisitions and
implementation of specific initiatives for each group. Initiatives for AOP
include a transformation program intended to sharpen the marketing and service
focus of the group, while reducing administrative costs and improving
productivity. Over the next several years, AOP will also implement a uniform
information technology system and a common name. Initiatives for Unisource
include a restructuring announced in fiscal 1993, which is now in its third
year and is expected to be completed during 1997. Unisource is currently
focusing on regionalization of certain customer service functions and on
acquiring companies in the supply systems segment. In addition, Unisource's new
information technology system, which allows the group to provide timely and
detailed information to customers and suppliers across the country, is now
being implemented and will be fully operational in 1997.
In addition to the above strategies, Alco is committed to maintaining a
strong balance sheet and adhering to prudent financial policies. Alco's
financial strength has provided it with the flexibility to compete effectively
and take advantage of attractive acquisitions. During the last three fiscal
years, the Company has completed three equity offerings, raising capital of
approximately $800 million.
Alco is managed as "The Corporate Partnership." Under this entrepreneurial
philosophy, field executives maintain a high degree of operating autonomy over
issues that affect the Company's ability to serve customers, while financial
and administrative support is provided on a centralized basis.
S-3
<PAGE>
RECENT DEVELOPMENTS
In July 1995, Alco completed a public offering of 3,877,200 depositary
shares, each representing 1/100 of a share of Series BB conversion preferred
stock, and used the net proceeds of approximately $290 million to reduce
outstanding debt. The Series BB preferred stock automatically converts into
Alco Common Stock on October 1, 1998.
In September 1995, Alco sold its Central Products Company to Spinnaker
Industries, Inc. Central Products, a manufacturer of a wide variety of carton
sealing tapes, with annualized revenues of approximately $120 million, was
Alco's last remaining manufacturing company.
The Company has owned several manufacturing and industrial businesses, all of
which have been sold. Alco has retained certain environmental liabilities,
however, relating to the pre-divestiture waste disposal activities of these
discontinued businesses at manufacturing or landfill sites in the United
States. As a result of several recent environmental remediation claims and
increased costs associated with existing environmental remediation sites
(primarily related to discontinued manufacturing operations divested by the
Company in 1991 and prior, no one of which is material on an individual basis
to the Company's operations taken as a whole), the Company took a fourth
quarter charge in fiscal 1995 to increase its accrual for environmental
remediation. The discontinued operations charge was approximately $24 million
($17 million net of tax) or $.14 per share. The adjustment reflects
management's best estimate, based on information currently available, of costs
to be incurred in connection with all existing and probable environmental
liabilities relating to discontinued operations (which currently relate to
eighteen different sites). Since most environmental claims are paid over a
period of years, the impact on annual cash flow is expected to be minimal.
While it is not possible to estimate what expenditures may be required in order
for Alco to comply with environmental laws or discharge environmental
liabilities in the future, Alco does not expect that expenditures for
environmental claims will have a material adverse effect on it or its
operations taken as a whole.
USE OF PROCEEDS
The net proceeds of the sale of the Bonds, estimated to be $292,589,000 after
deducting the underwriting discount and estimated offering expenses, will be
used to repay short-term borrowings incurred to fund working capital
requirements and acquisitions. Any proceeds remaining after repayment of such
short-term borrowings will be used for working capital requirements and to fund
the Company's ongoing acquisition program. See "The Company." At September 30,
1995, such short-term borrowings carried an average interest rate of 6.8% and
had a maturity of one to thirty days.
S-4
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company at September 30, 1995 and as adjusted to reflect
the issuance of the Bonds and the application of $280,832,000 of the estimated
proceeds therefrom to repay short-term borrowings as described in "Use of
Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total Short-Term Debt.................................. $ 280,832 $ 0
========== ==========
Long-Term Debt:
8 7/8% Notes due 2001................................ $ 150,000 $ 150,000
6 3/4% Bonds due 2025 (Face Amount $300 Million)..... -- 295,440
Private Placement Debt............................... 50,000 50,000
Industrial Revenue Bonds............................. 10,328 10,328
Sundry Notes, Bonds and Mortgages.................... 51,893 51,893
Present Value of Capital Lease Obligations........... 29,412 29,412
Notes Payable to Insurance Company................... 60,000 60,000
---------- ----------
351,633 647,073
Less Current Maturities.............................. 26,319 26,319
---------- ----------
Total Long-Term Debt................................... 325,314 620,754
Finance Subsidiaries Debt.............................. 817,585 817,585
Shareholders' Equity:
Series BB Conversion Preferred Stock, no par value
(3,877,200 depositary shares issued and outstand-
ing)................................................ 290,152 290,152
Series AA Convertible Preferred Stock, no par value
(4,025,000 depositary shares issued and outstanding)
(1)................................................. 201,924 201,924
Common Stock, no par value (authorized 150,000,000
shares; issued 112,182,000 shares) (2)(3)........... 637,414 637,414
Retained Earnings.................................... 765,309 765,309
Foreign Currency Translation Adjustment.............. (21,536) (21,536)
Cost of Common Shares in Treasury (118,000 shares)... (4,726) (4,726)
---------- ----------
Total Shareholders' Equity............................. 1,868,537 1,868,537
---------- ----------
Total Capitalization................................... $3,011,436 $3,306,876
========== ==========
</TABLE>
- --------
(1) Series AA Preferred Stock is redeemable for Common Stock at the option of
the Company after January 9, 1996, provided that the closing price of the
Common Stock of the Company on the New York Stock Exchange exceeds $29.02
for twenty of the thirty consecutive trading days prior to the redemption
date. See "Description of Capital Stock--Redemption Provisions and Sinking
Fund--Preferred Stock" in the accompanying Prospectus. Assuming that the
foregoing conditions are met, the Company intends to announce its intention
to exercise this option to redeem the Series AA preferred shares on January
9, 1996.
(2) At September 30, 1995, options to purchase 4,586,358 shares of Common Stock
were outstanding under the Company's stock option plans.
(3) All Common Stock amounts have been adjusted to give retroactive effect to a
two-for-one stock split effected in the form of a stock dividend
distributed on November 9, 1995.
S-5
<PAGE>
SELECTED FINANCIAL INFORMATION
The following annual data has been derived from financial statements audited
by Ernst & Young LLP, independent auditors. Consolidated balance sheets at
September 30, 1995 and September 30, 1994 and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each
of the three fiscal years in the period ended September 30, 1995, and the
related auditor's report, appear in the Company's 1995 Annual Report to
Shareholders, portions of which are incorporated by reference in the Company's
Annual Report on Form 10-K for the year ended September 30, 1995. The
information set forth below should be read in conjunction with the financial
statements and discussion included in the Form 10-K incorporated by reference
in the accompanying Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Net Sales............... $9,794,186 $7,925,784 $6,387,078 $4,882,908 $4,481,324
Dividends, Interest and
Other Income........... 4,621 3,537 6,332 3,292 6,088
Finance Subsidiaries.... 93,019 66,731 51,149 38,936 28,565
---------- ---------- ---------- ---------- ----------
9,891,826 7,996,052 6,444,559 4,925,136 4,515,977
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of Goods Sold...... 7,326,721 5,884,819 4,799,757 3,638,494 3,390,246
Selling and
Administrative......... 2,109,148 1,765,483 1,378,814 1,069,602 946,756
Interest................ 55,838 43,802 40,189 31,680 37,426
Finance Subsidiaries
Interest............... 40,216 27,978 23,662 19,523 15,747
---------- ---------- ---------- ---------- ----------
9,531,923 7,722,082 6,242,422 4,759,299 4,390,175
---------- ---------- ---------- ---------- ----------
Restructuring Costs..... (175,000)
Loss from Unconsolidated
Affiliate.............. (117,158) (2,538)
Investment Gain, Net.... 6,683
---------- ---------- ---------- ---------- ----------
Income From Continuing
Operations Before
Taxes.................. 359,903 156,812 24,599 172,520 125,802
Taxes on Income......... 140,630 86,203 16,984 68,303 49,160
---------- ---------- ---------- ---------- ----------
Income From Continuing
Operations............. 219,273 70,609 7,615 104,217 76,642
Income (Loss) From
Discontinued
Operations, Net of
Income Taxes........... (16,541) (7,515) (8,455) 40,939
---------- ---------- ---------- ---------- ----------
Net Income.............. 202,732 70,609(1) 100 (2) 95,762 117,581
---------- ---------- ---------- ---------- ----------
Preferred Dividends..... 15,209 11,572 9,571
---------- ---------- ---------- ---------- ----------
Net Income (Loss)
Available to Common
Shareholders........... $ 187,523 $ 59,037(1) $ (9,471)(2) $ 95,762 $ 117,581
========== ========== ========== ========== ==========
EARNINGS (LOSS) PER
SHARE(5):
Continuing Operations... $ 1.81 $ 0.55(1) $ (.02)(2) $ 1.11 $ 0.85
Discontinued Operations. (.14) (.08) (0.09) 0.45
---------- ---------- ---------- ---------- ----------
$ 1.67 $ 0.55 $ (.10) $ 1.02 $ 1.30
========== ========== ========== ========== ==========
Dividends Per Share(5).. $ 0.52 $ 0.50 $ 0.48 $ 0.46 $ 0.44
BALANCE SHEET DATA (AT
PERIOD END):
Working Capital......... $ 770,490 $ 653,546 $ 556,551 $ 496,037 $ 515,956
Total Assets............ 4,737,575 3,502,258 3,348,890 2,444,761 2,020,571
Total Debt, Excluding
Finance Subsidiaries... 632,465 445,069 794,318 481,686 304,245
Total Debt of Finance
Subsidiaries........... 817,585 464,882 413,092 300,509 220,666
---------- ---------- ---------- ---------- ----------
Total Debt............. 1,450,050 909,951 1,207,410 782,195 524,911
Shareholders' Equity.... 1,868,537 1,367,144 1,020,616 860,363 821,195
RATIO OF EARNINGS TO
COMBINED FIXED
CHARGES:(3)
Including Captive
Finance Subsidiaries .. 3.8 3.7 1.3(4) 3.5 2.8
Excluding Captive
Finance Subsidiaries .. 4.7 4.4 1.4(4) 4.2 3.3
</TABLE>
- -------
(1) Includes a pretax charge of $115 million ($95 million net of taxes or
$0.88 per share for the fiscal year) for the sale of the Company's
investment in IMM Office Systems GmbH, a European distributor of office
products.
(2) Includes a pretax charge of $175 million ($113 million net of taxes or
$1.19 per share) for Unisource restructuring costs.
(3) For purposes of calculating this ratio, earnings consist of income from
continuing operations before provisions for income taxes and excluding the
loss from unconsolidated affiliate, plus fixed charges. Fixed charges
include interest expense on indebtedness and an estimate of the interest
component of rental expense. The first ratio gives effect to the
consolidation of the captive finance subsidiaries of Alco Office Products.
The second ratio excludes the income from continuing operations before
provision for income taxes and the fixed charges attributable to those
captive finance subsidiaries.
(4) The 1993 ratios include the Unisource $175 million ($113 million net of
taxes) restructuring charge; if the restructuring charge were excluded for
1993, the ratios would be 3.3 (including captive finance subsidiaries) and
4.2 (excluding captive finance subsidiaries).
(5) Adjusted to give retroactive effect to a two-for-one stock split effected
on November 9, 1995.
S-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS--1995
Revenues and income before taxes by segment for fiscal years ended September
30, 1995 and September 30, 1994 and the percentage change for 1995 versus 1994
were:
<TABLE>
<CAPTION>
REVENUES INCOME BEFORE TAXES
------------------------ ----------------------------
1995 1994 % CHANGE 1995 1994 % CHANGE
------ ------ -------- ------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Alco Office Products..... $2,912 $2,240 30.0% $ 251.8 $1199.4 26.3%
Unisource
United States.......... 6,183 5,108 21.0 184.1 148.8 23.7
Canada................. 804 649 23.9 41.0 13.5 203.7
------ ------ ------- -------
Total Unisource........ 6,987 5,757 21.4 225.1 162.3 38.7
------ ------ ------- -------
Operating................ 9,899 7,997 23.8 476.9 361.7 31.8
Unconsolidated affiliate. (117.2)
Eliminations and
nonallocated............ (7) (1) (117.0)* (87.7)*
------ ------ ------- -------
$9,892 $7,996 23.7 $ 359.9 $ 156.8
====== ====== ======= =======
</TABLE>
- --------
* Includes interest costs and net corporate expenses.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company increased revenues $1.9 billion to $9.9 billion in fiscal 1995
from $8 billion in fiscal 1994. Income before taxes increased from $156.8
million in fiscal 1994 to $359.9 million in fiscal 1995. Earnings per share
increased from $.55 to $1.67. Earnings per share from continuing operations in
fiscal 1995 were $1.81, a 26.6% increase over $1.43 per share in 1994,
excluding the loss on the sale of IMM Office Systems (IMMOS).
AOP generated $672 million in increased revenues of which $387 million is
related to AOP's base companies, while $68 million relates to fiscal 1994
acquisitions and $217 million to current-year acquisitions. Internal growth in
AOP's base companies continues to be across all revenue segments but primarily
in equipment sales, outsourcing and supplies. Revenues from Unisource's US
operations increased $1.1 billion, of which $74 million relates to current- and
prior-year acquisitions. Unisource's Canadian operations increased revenues
$155 million, which is net of a negative impact of approximately $12 million
relating to foreign currency rate fluctuations. Increased revenue at Unisource
is primarily related to substantial price increases experienced in the paper
industry during fiscal 1995, as well as sales volume increases.
AOP's operating income increase of $52.4 million includes $6.1 million from
fiscal 1994 acquisitions and $20.2 million from current-year acquisitions. The
remaining $26.1 million increase from its base companies is primarily the
result of higher operating contributions from the equipment, outsourcing and
supply areas of AOP's businesses, along with increased operating income
relating to its leasing activities through Alco Capital Resource, Inc. ("Alco
Capital"), net of transformation program costs. Operating margins were 8.6% in
1995 compared to 8.9% in 1994. Excluding costs related to the AOP
transformation program, the operating margin for 1995 was 9.0%.
Operating income for Unisource's US operations increased $35.3 million. This
increase includes $3.9 million contributed by current- and prior-year
acquisitions. The remaining $31.4 million is from base companies, reflecting
the impact of price and volume increases along with the net benefits realized
from its restructuring program. Operating income for the Canadian paper
operations increased $27.5 million primarily
S-7
<PAGE>
as a result of price increases and growth in the fine paper distribution
business and restructuring benefits. Unisource's operating margins increased to
3.2% in fiscal 1995, from 2.8% in the prior year.
The Company's foreign operations of AOP and Unisource generated $1.1 billion
in revenues for fiscal 1995 compared with $843 million for the same period of
the prior fiscal year. The Canadian paper distribution business represents $155
million or 62% of the total increase. The increase also includes $78 million
from AOP's European operations and $17 million from AOP's Canadian operations.
Operating income from foreign operations was $69 million for 1995, up $40
million from the prior year primarily as a result of the increase in operating
income of the Canadian paper distribution business. In fiscal 1994, the Company
recorded a total pretax loss of $117.2 million from its investment in IMMOS.
In September 1995, the Company divested Central Products Company for $80
million in cash and notes and recorded a continuing operations pretax gain of
approximately $4 million on the sale. Also included in the Company's continuing
operations, and related to Central Products Company, are fiscal 1995 revenues
of approximately $120 million and net income of $2.7 million.
Interest expense increased $12 million from the comparable period in fiscal
1994, as a result of higher interest rates and borrowing levels during the year
to fund acquisitions and working capital requirements, offset by the effect of
the debt reductions resulting from the Company's conversion preferred stock
offering in July 1995. The increase in income from continuing operations before
taxes of $203.1 million consists of $85.9 million relating to the combined
effect of improved operations from base companies and earnings contributed by
acquisitions, net of increased interests costs and other corporate items and
the $117.2 million loss on the investment in IMMOS recorded in 1994. The
effective income tax rate for the current period is 39.1%. The effective tax
rate for 1994 was 55%; however, excluding the IMMOS loss, the effective rate
was 39.1%. Fiscal 1995 weighted average shares were 5.1 million shares greater
than the 107.5 million shares for fiscal 1994, primarily the result of issuance
of shares for acquisitions.
The Company has owned several manufacturing and industrial businesses, all of
which have been sold. Alco has retained certain environmental liabilities,
however, relating to the pre-divestiture waste disposal activities of these
discontinued businesses at manufacturing or landfill sites in the United
States. As a result of several recent environmental remediation claims and
increased costs associated with existing environmental remediation sites
(primarily related to discontinued manufacturing operations divested by the
Company in 1991 and prior, and no one of which is material on an individual
basis to the Company's operations taken as a whole), the Company took a fourth
quarter charge in fiscal 1995 to increase its accrual for environmental
remediation. The discontinued operations charge was approximately $24 million
($17 million net of tax) or $.14 per share. The adjustment reflects
management's best estimate, based on information currently available, of costs
to be incurred for all existing and probable environmental liabilities relating
to discontinued operations (which currently relate to eighteen different
sites). Since most environmental claims are paid over a period of years, the
impact on annual cash flow is expected to be minimal. While it is not possible
to estimate what expenditures may be required in order for Alco to comply with
environmental laws or discharge environmental liabilities in the future, Alco
does not expect that expenditures for environmental claims will have a material
adverse effect on it or its operations taken as a whole.
The major components of the Unisource restructuring plan are proceeding as
planned. Unisource management has reduced the pace at which certain changes are
being made in order to better control the transformation process, thereby
affecting the pace of planned headcount reductions and the timing of originally
anticipated net benefits. Unisource expects to achieve the full benefit of the
projected $100 million net annual benefits resulting from the completion of the
restructuring in fiscal 1997. The restructuring reserve at September 30, 1995
is $39.3 million, which management believes is adequate to complete the
restructuring plan.
AOP has initiated a three-year transformation program to change its
organization into a more cohesive and efficient network by building a uniform
information technology system and implementing best practices for critically
important management functions throughout the AOP companies. The initiative
will include the exploration of new vendor alliances, the establishment of a
national identity for the group and a targeted national accounts program.
S-8
<PAGE>
The Company was in arbitration with a former subsidiary, which had asserted
that the Company was liable for certain employee liabilities. During the second
quarter of fiscal 1995, the Company agreed to pay $10 million to the former
subsidiary to settle this claim, which primarily has been charged against
existing reserve for discontinued operations. The Company paid $5 million
during the second quarter with the remaining $5 million to be paid over the
next four years.
In fiscal 1996, the Company plans to early adopt Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The effect on earnings of
this accounting change is expected to be immaterial.
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:
<TABLE>
<CAPTION>
REVENUES INCOME BEFORE TAXES
------------------------ --------------------------
1994 1993 % CHANGE 1994 1993 % CHANGE
------ ------ -------- ------ ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
- --------
* 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
$.55 compared to $(.02) for fiscal 1993 which included a loss of $1.19 per
share resulting from the Unisource restructuring charge. Earnings per share
excluding the loss on the sale of the investment in IMMOS in fiscal 1994 and
the effect of the restructuring charge in fiscal 1993 were $1.43 and $1.17,
respectively.
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 outsourcing businesses. The $934 million increase in
revenues from Unisource's US 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 outsourcing areas of AOP's businesses, along with
increased operating income related to its leasing activities through Alco
Capital. Operating income from Unisource's US paper operations
S-9
<PAGE>
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.
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 $.87 for the
quarter ($.88 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 a
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 and borrowing levels during the year. 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 was 55% compared to 69% in fiscal 1993. The effective
income tax rate for fiscal 1994, excluding the effect of the sale of IMMOS, was
39.1% compared with 39.6% in fiscal 1993, excluding the effect of the
restructuring costs. Fiscal 1994 weighted average shares were 12.7 million
shares greater than the 94.8 million shares for fiscal 1993, primarily the
result of a public offering of Common Stock in December 1993.
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.
S-10
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Debt, excluding finance subsidiaries, was $632 million at September 30, 1995,
an increase of $187 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 and acquisition requirements, net of the
proceeds from the July 1995 conversion preferred stock offering described
below. On December 1, 1994, the Company entered into a credit agreement under
which it may borrow up to $500 million. The Company may also borrow up to $100
million under another credit agreement. At September 30, 1995, short-term
borrowings supported by these two facilities totaled $252.5 million, leaving
$347.5 million unused and available. Debt as a percentage of capitalization was
25.3%, while the current ratio was 1.6 to 1. In July 1995, Moody's Investor
Services upgraded the Company's debt rating to A3, from Baa1. At the end of
fiscal 1995, the Company's commitments for capital expenditures were
approximately $23 million, all of which is expected to be expended during
fiscal 1996.
In July 1995, the Company completed a public offering of approximately 3.9
million depositary shares, each representing 1/100 of a share of Series BB
Conversion Preferred Stock. The Series BB Preferred Stock carries a dividend
yield of 6.5% and automatically converts into the Company's Common Stock on
October 1, 1998, unless previously converted at the option of the holder. The
purpose of the offering is to fund the Company's ongoing acquisition program.
Net proceeds of approximately $290 million were used to repay short-term
borrowings incurred to fund working capital requirements and acquisitions.
The Company recorded a pretax charge of approximately $24 million for
environmental claims associated with discontinued manufacturing operations
during the fourth quarter of fiscal 1995. Since most environmental claims are
paid over a period of years, the impact on annual cash flow is expected to be
minimal.
The Company's change in cash from operating activities during fiscal 1995
primarily relates to working capital requirements. Unisource's working capital
primarily reflects the effects of substantial price increases experienced in
the paper business along with the increased sales volume. Changes in AOP's
working capital primarily related to inventory from growth in the business
along with supplier price increases.
The Company estimates that total cash expenditures in connection with the
Unisource restructuring plan will amount to $143 million, of which
approximately $112 million has been spent to date, with the $31 million balance
anticipated to be paid in fiscal 1996 and early fiscal 1997. 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. At September 30, 1995, the remaining commitment
under the agreement was $217 million. The foregoing commitments are anticipated
to be funded from Unisource's operating cash flow.
Finance subsidiaries debt grew by $352.7 million from September 30, 1994, a
result of increased leasing activity. On June 30, 1995, Alco Capital increased
the amount available to be offered under its medium-term note program by $1
billion or the equivalent thereof in a foreign currency or currencies, of which
$898 million is unused and available. The program allows Alco Capital to offer
to the public, from time to time, medium-term notes having an aggregate initial
offering price not exceeding the total program amount. 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, 1995,
$602 million of medium-term notes bearing a weighted average interest rate of
7.0% were outstanding.
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 1996, contains limited recourse provisions that require
Alco Capital to assign an additional undivided interest in leases to cover any
potential losses to the purchaser
S-11
<PAGE>
due to uncollectible leases. As collections reduce previously sold interests,
new lease receivables can be sold up to $125 million. During fiscal 1995, Alco
Capital sold $67 million in direct financing leases, replacing those leases
liquidated and leaving the total amount of contracts sold unchanged at $125
million.
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
restructuring and transformation programs.
BUSINESS
Over the past decade, Alco has evolved from a diversified company into a
growth-oriented, focused distribution company with two business segments, AOP
and Unisource. The Company's expansion has been generated by both internal
growth and strategic acquisitions. AOP is the largest network of independent
office equipment dealers in North America and the United Kingdom, with a
growing presence in Europe. Unisource is the leading paper and supply systems
distribution network in the United States and Canada, and has recently expanded
into Mexico.
Alco has expanded by selectively acquiring domestic and international
distribution companies which are integrated into Alco's existing distribution
networks. This strategic acquisition policy has allowed Alco to grow market
share and to expand into new markets. During fiscal 1995, AOP acquired 102
office products companies in the United States, Canada and Europe, with
annualized revenues of approximately $578 million. These acquisitions include
Southern Business Group (renamed A: Copy (UK) PLC), a publicly held office
products dealer located in the United Kingdom, with revenues of approximately
$86 million. During fiscal 1995, Unisource completed twelve acquisitions,
primarily in supply systems target markets, with annualized revenues of
approximately $152 million. Alco expects that acquisitions will continue to
play an important role in its growth strategy.
Alco is committed to maintaining a strong balance sheet and adhering to
prudent financial policies. Alco's financial strength has provided it with the
strategic flexibility to compete effectively and to take advantage of
attractive acquisitions. During the last three fiscal years, the Company has
completed three equity offerings, raising capital of approximately $800
million.
Alco's two business segments have had a record of consistent growth in
revenues and operating income. Revenues from continuing operations increased to
$9.9 billion in fiscal 1995, from $4.3 billion in 1990. Operating income from
continuing operations has grown to $477 million in fiscal 1995, from $190
million in fiscal 1990.
ALCO OFFICE PRODUCTS
AOP is the largest independent marketer and distributor of copiers and office
equipment in North America and the United Kingdom, with a growing presence in
Europe. AOP has more than 813 locations in forty-eight states, six Canadian
provinces and in Europe (mostly in the United Kingdom).
AOP sells, rents and leases copiers, fax machines and other automated office
equipment. AOP also provides equipment service and supplies. AOP provides
customer financing through three equipment leasing subsidiaries in the United
States, Canada and the United Kingdom. These leasing subsidiaries lease
exclusively to AOP customers and provide a competitive advantage in marketing
and customer retention. Alco's most significant leasing entity, Alco Capital,
which serves AOP's U.S. market, had total assets of approximately $1 billion as
of the end of fiscal 1995. AOP also operates a facilities management business
(FM), which provides central reprographic services for its customers on a per
copy fee basis, mail/distribution services, records management, microfilming,
office supplies and other services.
AOP primarily distributes the products of Canon, Oce, Ricoh and Sharp. AOP
has capitalized on the growth in demand for color copiers and plain paper fax
machines as well as having expanded its product line
S-12
<PAGE>
to include larger, higher volume copiers, which increases servicing and supply
opportunities. The Company's distribution agreement with Oce grants AOP
distribution rights in the U.S. for the Oce high volume models 2475 and 2600.
Oce's products are new to the American market, but well-known in Europe. Oce's
products are recognized for their speed, quality and durability. Oce's superior
quality, high volume copiers allow AOP to compete for the first time in this
attractive segment of the copier market which represents nearly one-quarter of
total copy volume in the United States.
During fiscal years 1993, 1994 and 1995, AOP accounted for approximately 25%,
28% and 29%, respectively, of Alco's consolidated revenues from continuing
operations, and 50%, 55% and 53%, respectively, of Alco's operating income
(excluding Unisource restructuring charges of $175 million in 1993).
AOP has pursued an active acquisition program. During fiscal 1995, AOP
acquired 102 office products companies in the United States, Canada and Europe,
with annualized revenues of approximately $578 million. AOP's fiscal 1995
acquisitions in the United Kingdom included Southern Business Group (renamed A:
Copy (UK) PLC). The acquisition of A: Copy, with fiscal 1995 annualized
revenues of approximately $86 million, nearly doubles AOP's market share in the
U.K. and adds a remanufacturing capability which offers additional
opportunities for growth.
AOP believes that it is positioned to benefit from the growth in multi-
functional and network connected digital equipment, as these technologies
develop and mature. The Company believes that these technologies will provide
incremental growth opportunities through the remainder of the decade.
AOP competes against numerous competitors over a wide range of markets on the
basis of price, quality of service and product performance. Customers include
large and small businesses, professional firms and governmental agencies.
AOP recently initiated a three-year program to change its organization into a
more cohesive and efficient network by building a uniform information
technology system and implementing best practices for critically important
management functions throughout the AOP companies. The initiative will include
the establishment of a national identity for AOP, a targeted national accounts
program and the exploration of new vendor alliances.
UNISOURCE
Unisource is the largest marketer and distributor of paper and imaging
products in North America. Unisource also distributes supply systems products,
such as disposable paper and plastic products, packaging systems and
maintenance supplies. Unisource has approximately 380 warehouses, distribution
centers, sales offices and other facilities located throughout the United
States, Canada and Mexico.
Unisource focuses on five market segments: printing and publishing, business
imaging, general manufacturing, food processing and retail grocery. Unisource
combines its broad array of products with specialized customer services and is
implementing sophisticated information technology to tailor solutions which
lower the total cost of customers' procurement and improve the efficiency of
their operations. Unisource offers its customers coordinated delivery of
products, customized reporting and consolidated billing. Unisource's national
distribution capabilities allow it to respond quickly to the customer's needs.
Unisource is the leading supplier of printing papers to commercial printers,
publishers and business forms manufacturers, which produce catalogs, brochures,
advertising supplements, annual reports, business forms and direct mail
advertising. Unisource's geographic scope and its market-driven orientation
allow it to serve as a single-source supplier to meet all of its customers'
paper and supply systems needs. Approximately 72% of Unisource's revenues are
derived from the distribution of coated and uncoated printing, writing and
reprographic papers. Unisource expects its supply systems operations, which
currently represent approximately 28% of its revenues, to account for an
increasing percentage of its sales in the future, and will focus its
acquisition program over the next several years on supply systems companies.
S-13
<PAGE>
During fiscal 1993, 1994 and 1995, Unisource accounted for approximately 75%,
72% and 71%, respectively, of consolidated revenues from continuing operations,
and 50%, 45% and 47%, respectively, of Alco's operating income (excluding
Unisource restructuring charges of $175 million in 1993).
In 1993, Unisource adopted a restructuring plan that encompasses 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 customer service
locations. The major components of the Unisource restructuring plan are
proceeding as planned. Unisource expects to achieve the full benefit of the
projected $100 million annual net benefits resulting from the completion of the
restructuring by the end of fiscal 1997. In fiscal 1995, Unisource achieved $25
million of such net benefits. Management believes that the remaining
restructuring reserve at September 30, 1995 of $39 million is adequate to
complete the restructuring plan.
Unisource's extensive distribution network and national presence in both the
United States and Canada enables it to service national accounts, and its large
size gives the Company important economies of scale in purchasing and other
functions. Unisource's operations compete in many different markets against
both independent distributors and those owned by major paper manufacturers.
Unisource competes principally on the basis of price, quality of service, and
the range of products maintained in inventory. The percentage of paper products
sold through distributors such as Unisource has increased over the past several
years, and Unisource expects this trend to continue.
Unisource is committed to growing its business both internally and through
acquisitions. During fiscal 1995, Unisource completed twelve acquisitions
(primarily supply systems and packaging companies), with annualized revenues of
approximately $152 million.
DESCRIPTION OF BONDS
The following description of the particular terms of the Bonds offered hereby
(referred to in the Prospectus as "Debt Securities") supplements, and to the
extent inconsistent therewith replaces, the description of the general terms
and provisions of Debt Securities set forth in the Prospectus, to which
description reference is hereby made.
The Bonds offered hereby will be limited to $300,000,000 aggregate principal
amount and will constitute a series of Debt Securities of the Company. The
Bonds will bear interest at the rate of 6 3/4% per annum, from December 11,
1995, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable semiannually on June 1 and December 1,
commencing June 1, 1996, to the persons in whose names the Bonds are registered
at the close of business on the May 15 and November 15, as the case may be,
preceding such June 1 and December 1. Principal of (and premium, if any) and
interest on the Bonds will be payable at the office of First Fidelity Bank,
N.A., the Trustee under the Indenture, in Philadelphia, Pennsylvania or at such
other office designated by the Company; provided, however, that at the option
of the Company, payment of interest may be made by check mailed to the address
of the person entitled thereto as such address shall appear in the Bond
Register. The Bonds will mature on December 1, 2025.
OPTIONAL REDEMPTION
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 plus 15 basis points, plus in each case accrued interest
to the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the
S-14
<PAGE>
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Bonds that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of a maturity comparable to the remaining
term of the Bonds. "Independent Investment Banker" means Morgan Stanley & Co.
Incorporated or, if such firm is unwilling or unable to select the Comparable
Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m. on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated,
Goldman, Sachs & Co., Lehman Brothers Inc. and Prudential Securities
Incorporated and their respective successors, provided, however, that if any of
the foregoing shall cease to be a primary U.S. Government securities dealer in
New York City (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer.
Holders of Bonds to be redeemed will be given notice thereof by first-class
mail at least 30 and not more than 60 days prior to the date fixed for
redemption.
BOOK-ENTRY-ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Bonds. The information in this
section concerning DTC and DTC's book-entry system is based upon information
obtained from DTC. The Bonds will be issued only as fully-registered Bonds
registered in the name of Cede & Co. (as nominee for DTC). One or more fully-
registered global Bonds will be issued, evidencing in the aggregate the total
number of Bonds, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants")
deposit with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations ("Direct
Participants"). Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants").
S-15
<PAGE>
Purchases of Bonds within the DTC system must be made by or through Direct
Participants, which will receive a credit for the Bonds on DTC's records. The
ownership interest of each actual purchaser of a Bond ("Beneficial Owner") is
in turn to be recorded on the Direct or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the Beneficial
Owners purchased Bonds. Transfers of ownership interests in Bonds are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners.
DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Bonds are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Principal (and premium, if any) and interest payments on the Bonds will be
made to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive
payments on such payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices and will be
the responsibility of such Participant and not of DTC or Alco, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of Alco,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
No Bonds evidenced by global Bonds may be exchanged in whole or in part for
Bonds registered, and no transfer of global Bonds in whole or in part may be
registered, in the name of any person other than DTC or any nominee of DTC
unless DTC has notified the Company that it is unwilling or unable to continue
as depositary for such global Bonds. All Bonds evidenced by one or more global
Bonds or any portion thereof will be registered in such names as DTC may
direct.
As long as DTC, or its nominee, is the registered owner of the global Bonds,
DTC or such nominee, as the case may be, will be considered the sole owner and
holder of the global Bonds for all purposes under the Bonds and the Indenture.
Except in the limited circumstances referred to above, owners of beneficial
interests in global Bonds will not be entitled to have the global Bonds
evidencing such Bonds registered in their names, will not receive or be
entitled to receive physical delivery of Bonds in exchange therefor and will
not be considered to be owners or holders of such global Bonds for any purpose
under the Bonds.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Bonds will be made in immediately available funds. All
payments of principal (and premium, if any) and interest will be made by the
Company in immediately available funds.
Secondary trading in long-term notes, bonds and debentures of corporate
issuers is generally settled in clearing house or next-day funds. In contrast,
the Bonds will trade in the Depository's Same-Day Funds Settlement System until
maturity, and secondary market trading in the Bonds will therefore be required
by the Depository to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Bonds.
S-16
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of such Underwriters has severally agreed to purchase
from the Company, the principal amount of the Bonds set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF BONDS
- ---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated.............................. $ 75,000,000
Goldman, Sachs & Co............................................ 75,000,000
Lehman Brothers Inc............................................ 75,000,000
Prudential Securities Incorporated............................. 75,000,000
------------
Total........................................................ $300,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Bonds offered hereby,
if any are taken.
The Underwriters propose to offer the Bonds in part directly to the public at
the initial public offering price set forth on the cover page of this
Prospectus Supplement, and in part to certain securities dealers at such price
less a concession of .50% of the principal amount of the Bonds. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of .25% of the principal amount of the Bonds to certain brokers and
dealers. After the initial offering of the Bonds, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company does not intend to apply for listing of the Bonds on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Bonds, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Bonds and any such market making may be discontinued at any time at the
sole discretion of the Underwriters. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the Bonds.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, or contribute to payments the Underwriters
may be required to make in respect thereof.
Certain of the Underwriters and their affiliates engage in transactions with
and perform services for the Company in the ordinary course of business.
LEGAL MATTERS
The validity of the Bonds will be passed upon for the Company by its General
Counsel, J. Kenneth Croney, and for the Underwriters by Sullivan & Cromwell,
New York, New York. As of October 31, 1995, Mr. Croney beneficially owned
58,714 shares of Common Stock of Alco, including 41,940 shares over which he
has the right to acquire beneficial ownership through the exercise of stock
options granted under Alco's 1981 Stock Option Plan or 1986 Stock Option Plan.
Sullivan & Cromwell from time to time performs legal services for Alco. Mr.
Croney and Sullivan & Cromwell will rely as to matters of Ohio law upon the
opinion of Thompson, Hine and Flory, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of Alco Standard Corporation
incorporated by reference in the Company's Annual Report (Form 10-K) for the
year ended September 30, 1995 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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