ITEM 1. BUSINESS.
Alco Standard Corporation ("Alco") was incorporated in Ohio in 1952 and is the successor to a business incorporated under a similar name in 1928. The term "Alco" generally includes Alco Standard Corporation and its subsidiaries and divisions. The address of Alco's principal executive offices is P.O. Box 834, Valley Forge, Pennsylvania 19482 (telephone number: (610) 296-8000).
Alco markets and distributes office equipment and paper. In fiscal 1994, Alco had annual revenues of approximately $8 billion. The information concerning revenues, income before taxes and assets attributable to each of Alco's business segments for each of the three years in the period ended September 30, 1994 set forth under "Segment Data" in the consolidated financial statements included on page 42 of Alco's Annual Report to Shareholders for the fiscal year ended September 30, 1994 ("1994 Annual Report") is incorporated herein by reference.
Alco was founded and continues to operate as "The Corporate Partnership." Under this entrepreneurial principle, Alco field executives maintain a high degree of operating autonomy, which enhances the company's ability to serve and support its customers. The following describes Alco's two business segments.
ALCO OFFICE PRODUCTS
Alco Office Products ("AOP") sells, rents and leases photocopiers, fax machines and other automated office equipment. AOP also provides equipment service, supplies, and equipment leasing, and provides reprographic facilities management and specialized document copying services.
AOP has locations throughout the United States, Canada and in Europe (primarily in the United Kingdom). These companies comprise the largest network of independent copier and office equipment dealers in North America and in the United Kingdom, and represent the only independent distribution network with national scope. AOP competes against numerous competitors over a wide range of markets, competing on the basis of price, quality of service, and product performance.
AOP distributes the products of numerous manufacturers, including Canon, Ricoh and Sharp, throughout 47 states, four Canadian provinces and in Europe. Customers include large and small businesses, professional firms and government agencies.
During fiscal 1992, 1993 and 1994, AOP accounted for approximately 26%, 25% and 28%, respectively, of Alco's consolidated revenues, and 47%, 50% and 55%, respectively, of Alco's operating income (excluding Unisource restructuring costs in 1993).
During fiscal 1994, AOP acquired 45 office products companies in the United States and Canada, with an aggregate of over $200 million in annualized revenues. AOP also expanded Erskine House Ltd., its office equipment distribution network based in the United Kingdom, through two contiguous acquisitions. In addition, as part of the IMM divestiture (described on page 3 hereof), AOP acquired operations in Denmark and France.
UNISOURCE
Unisource Worldwide, Inc. ("Unisource") markets and distributes papers for office and reprographic use, distributes quality printing papers, and distributes paper and plastic packaging supply items for food retailers and food processors. Unisource also distributes commercial sanitary and maintenance products and industrial packaging equipment, closure systems, and supplies. The Unisource companies were formerly known as "Paper Corporation of America," and are currently in the process of restructuring and consolidating under the single name "Unisource." Information concerning the restructuring is contained on page 2 of this report.
During fiscal 1992, 1993 and 1994, Unisource accounted for approximately 74%, 75% and 72%, respectively, of Alco's consolidated revenues from continuing operations, and 53%, 50%, and 45%, respectively, of Alco's operating income (excluding Unisource restructuring costs in 1993).
Unisource's products are distributed to commercial printers and publishers, and to all types of manufacturers, offices, government agencies and other institutions. Paper, printing supplies and industrial and office supply products are also sold directly to the commercial retail market through Unisource's Paper Plus (R) retail stores.
Unisource sells the products of substantially all major domestic and Canadian paper manufacturers and suppliers. There has been no difficulty in obtaining products from these suppliers. Supplier relationships are good and are expected to continue.
Unisource's operations constitute the largest independent network of paper distributors in the United States and Canada. Although substantial in the aggregate, these operations compete separately in many different markets against numerous competitors, including both independent distributors and those owned by major paper manufacturers. Although its business is highly competitive and its competitors numerous, Unisource believes that its competitive position is strong. Unisource competes principally on the basis of price, quality customer service and the range of products maintained in inventory.
Unisource has locations throughout the United States and Canada. In the aggregate, Unisource occupies over 17 million square feet of space.
In June 1994, Unisource acquired Larsen Packaging Equipment Company, a distributor of packaging film and equipment located in St. Louis, Missouri, with approximately $10 million in annual revenues.
INFORMATION CONCERNING ALCO'S BUSINESS IN GENERAL
RESTRUCTURING PLAN
In September 1993, the Board of Directors approved a restructuring plan for Alco's paper distribution business and changed the name of such business from "Paper Corporation of America" to "Unisource Worldwide, Inc." As a result of the restructuring, a pretax charge of $175 million was recorded in the fourth quarter of fiscal 1993.
The Unisource restructuring plan was adopted as a proactive response to changes in the business environment in which Unisource operates. In recent periods, mills have experienced overcapacity, resulting in depressed pricing and pressure on distributors' margins. The usage and demand for paper has shifted significantly because of consolidation in the commercial printing industry, enhancements in imaging technology and the related growth in the reprographics segment. Customers are increasingly requiring distributors to provide enhanced services and greater capabilities.
Most facets of the Unisource restructuring plan are proceeding as planned, with 68 facility consolidations substantially completed by the end of fiscal 1994. By September 30, 1994, Unisource reduced its employee base by approximately 725. This excludes the data processing personnel who transferred to Integrated Systems Solutions Corporation ("ISSC"), a subsidiary of IBM, as part of an information technology system outsourcing agreement with ISSC. This ten-year agreement for $300 million, which was effective January 1, 1994, will provide the information technology system to be implemented as part of the restructuring plan. The agreement was also expanded to automated warehouse and truck routing systems at an estimated cost of approximately $30 million over the ten-year period of the agreement. Due to a change in software, initial implementation of the information technology system was postponed by six months. This is not anticipated to delay the completion of the restructuring plan by the end of fiscal 1996.
BOARD AND MANAGEMENT CHANGES
Three new members were elected in 1994 to Alco's Board of Directors: Paul J. Darling II, Chairman, President and Chief Executive of Corey Steel Company; James J. Forese, IBM Vice President, Chairman of IBM Credit Corporation and a member of IBM's Worldwide Management Council; and Dana J. Mead, President and Chief Executive Officer of Tenneco, Inc., Chairman and Chief Executive Officer of Case Corporation, a Tenneco subsidiary and former Executive Vice President and Director of International Paper Company. Retiring from the Board were Robert H. Potts and William J. Scharffenberger.
Among other executive changes during the 1994 fiscal year, J. Kenneth Croney was appointed General Counsel of Alco succeeding Hugh G. Moulton, who continues as Executive Vice President. Kathleen M. Burns, Treasurer, and Michael J. Dillon, Controller, were named corporate vice presidents of Alco.
In August 1994, William T. Leith was named Executive Vice President of Unisource with responsibility for all Unisource's U.S. operations. Mr. Leith was formerly President of Distribix (a Unisource operating company located in St. Louis, Missouri) and President of the Unisource Central Region. Jack H. Keeney, formerly Vice President--Finance of Distribix, was appointed Unisource's Vice President, Finance--U.S. Operations. Raymond A. Peterson was named Executive Vice President of Unisource's Canadian Operations.
Two former AOP operating company presidents joined AOP group management in fiscal 1994 in new executive vice president positions. In June 1994, Peter W. Shoemaker was appointed Executive Vice President of AOP with responsibility for all North American operations. In July 1994, Michael S. Koether was appointed Executive Vice President--Marketing of AOP with responsibility for all North American marketing and acquisition activities.
On October 17, 1994, Ray B. Mundt, who served as Chief Executive Officer from 1980 until August 1993, announced his retirement from his ongoing duties as an officer of Alco, effective December 31, 1994. Mr. Mundt will continue in his duties as Chairman of the Board during fiscal 1995 and will remain available to provide guidance and advice in the future as appropriate.
EQUITY OFFERINGS
In December 1993, Alco completed a public offering of 5,750,000 shares of common stock, and used the net proceeds of approximately $294 million primarily to reduce outstanding debt.
DIVESTITURES
In October 1992, Alco made a 49.9% investment in IMM Office Systems ("IMMOS"), a European office equipment distribution joint venture, marking Alco's entry into the European market. Alco's investment in IMMOS was intended to serve as a base for further expansion in Europe. The venture agreement provided Alco 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, prevented IMMOS from progressing toward those goals. As a result, in September 1994, Alco sold its 49.9% interest in IMMOS for cash plus a passive interest in any subsequent sale of IMMOS for five years. Alco retains no ongoing liability in the joint venture and the parties exchanged complete mutual releases for past actions. In addition, Alco 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, Alco acquired profitable operations in Denmark and France and retained limited operations in Germany. Alco recognized a loss on the sale of its interest in IMMOS in the quarter ended June 30, 1994, and recorded a pre-tax loss of $115.3 million ($95.1 million, net of tax) equating to a loss per share of $1.75 for the quarter ($1.77 for fiscal 1994). This charge represents the write-off of Alco's investment in IMMOS plus certain transactional costs less cash proceeds from the sale together with related tax benefits.
SUPPLIERS AND CUSTOMERS
Products distributed by Alco are purchased from numerous domestic and overseas suppliers. There has been no significant difficulty in obtaining products from these suppliers. No industry segment of Alco is dependent upon a single customer, or a few customers, the loss of any one or more of which would have a material adverse effect on Alco's business taken as a whole.
Backlog is not significant because virtually all of Alco's revenues during the last two fiscal years were derived from its distribution operations which fill orders shortly after receipt from customers. There is no material seasonal fluctuation in Alco's business as a whole.
Many of Alco's operations are required to carry significant amounts of inventory to meet rapid delivery requirements of customers. At September 30, 1994, inventories accounted for approximately 36% of Alco's total current assets.
PROPRIETARY MATTERS
Alco has a number of patents, licenses and trademarks. Alco does not believe, however, that any patent, license or trademark is material to its operations as a whole.
ENVIRONMENTAL REGULATION
Environmental laws and liabilities relating to Alco's current businesses (which are primarily distribution operations) have not had and are not expected to have a material adverse effect upon Alco's capital expenditures, earnings or competitive position. Although Alco has retained certain environmental liabilities relating to the predivestiture operations of its divested manufacturing companies, such environmental liabilities have not had and are not expected to have a material adverse effect on Alco. 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 believe that such expenditures will have a material adverse effect on it or its operations as a whole.
EMPLOYEES
At September 30, 1994, Alco had approximately 30,600 employees.
FOREIGN OPERATIONS
Alco's operations in Canada distribute paper, industrial supplies and packaging products, and distribute and service office equipment. Alco's European operations distribute and service office equipment. Alco's 49.9% equity interest in IMMOS, a German-based office equipment distribution network, was divested in September 1994 (See "Divestitures", on page 3 hereof). Information concerning revenues, income before taxes and identifiable assets of Alco's foreign operations for each of the three years in the period ended September 30, 1994 set forth in note 9 to the consolidated financial statements included in Alco's 1994 Annual Report is incorporated herein by reference. Revenues from exports during the last three fiscal years were not significant.
There are additional risks attendant to foreign operations, such as possible currency fluctuations and unsettled political conditions.
ITEM 2.
ITEM 2. PROPERTIES.
At September 30, 1994, Alco owned or leased facilities in 47 states, nine Canadian provinces and in Europe. These properties occupy a total of approximately 22.6 million square feet of which approximately 8.1 million square feet are owned and the balance are leased under lease agreements with various expiration dates. Alco believes that none of its properties is materially important to its operations as a whole, and believes that its facilities are suitable and adequate for the purposes for which they are used.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Alco does not believe that the outcome of lawsuits or other legal proceedings to which it is a party will materially affect Alco or its operations as a whole. However, Alco is presently in arbitration with a former subsidiary, which has asserted that Alco is liable to it for certain liabilities arising under the Coal Industry Health Benefit Act of 1992. Based on consultation with its counsel, Alco does not believe that it is responsible for such liabilities and, therefore, no provision for this matter has been recorded in Alco's financial statements for the fiscal year ended September 30, 1994. In the event that the arbitrators decide in favor of the claimant, Alco estimates that it would be obligated to pay approximately $36 million over a twenty-year period which would result in an after-tax charge of approximately $23 million to discontinued operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(No response to this item is required.)
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EXECUTIVE OFFICERS OF ALCO
The following is a list of Alco's executive officers, their ages and their positions with Alco or its subsidiaries for the last five years.
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PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The New York Stock Exchange is the principal market on which Alco's common stock is traded (ticker symbol ASN). Alco's common stock is also traded on the Philadelphia and Chicago Stock Exchanges. As of November 28, 1994, there were approximately 14,404 holders of record of Alco's common stock. The information regarding the quarterly market price ranges of Alco's common stock and dividend payments under "Quarterly Data" on page 44 of the 1994 Annual Report is incorporated herein by reference.
Alco currently expects to continue its policy of paying regular cash dividends, although there can be no assurance as to future dividends because they are dependent upon future operating results, capital requirements and financial condition and may be limited by covenants in certain loan agreements.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Information appearing under "Corporate Financial Summary" for fiscal 1990 through 1994 regarding revenues, income from continuing operations, income from continuing operations per common share, total assets, total debt, serial preferred stock and cash dividends per common share on pages 40 and 41 of the 1994 Annual Report is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Information appearing under "Financial Review" on pages 36 through 39 of the 1994 Annual Report is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Auditors and Consolidated Financial Statements of Alco and its subsidiaries on pages 20 through 35 and the information appearing under "Quarterly Data" for fiscal 1994 and 1993 on page 44 of the 1994 Annual Report are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
(No response to this item is required)
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PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors appearing in Alco's Notice of Annual Meeting of Shareholders and Proxy Statement for the January 26, 1995 annual meeting of shareholders (the "1995 Proxy Statement") is incorporated herein by reference. Information regarding executive officers is set forth in Part I of this report and is incorporated herein by reference to the 1995 Proxy Statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" in the 1995 Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and management appearing under "Security Ownership" in the 1995 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Transactions" in the 1995 Proxy Statement is incorporated herein by reference.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) List of Financial Statements and Financial Statement Schedules.
The response to this portion of Item 14 is submitted on page hereof as a separate section of this report.
(a) (3) List of Exhibits.*
The following exhibits are filed as a part of this report (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K):
- --------
* Copies of the exhibits will be furnished to any security holder of Alco upon payment of the reasonable cost of reproduction.
**Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
On June 30, 1994, Alco filed a Current Report on Form 8-K to report under Item 5 its decision to divest its 49.9% interest in IMMOS.
(c) The response to this portion of Item 14 is submitted in response to Item 14(a)(3) above.
(d) The response to this portion of Item 14 is contained on pages S-1, S-2 and S-3 of this report.
ALCO STANDARD CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K ITEMS 14(A)(1) AND (2) AND 14(D) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS: The following consolidated financial statements of Alco Standard Corporation and its subsidiaries included in the 1994 Annual Report to Shareholders are incorporated by reference in Item 8 of Part II of this report:
Consolidated Statements of Income --Fiscal years ended September 30, 1994, September 30, 1993 and September 30, 1992
Consolidated Balance Sheets --September 30, 1994 and September 30, 1993
Consolidated Statements of Cash Flows --Fiscal years ended September 30, 1994, September 30, 1993 and September 30, 1992
Consolidated Statements of Changes in Shareholders' Equity --Fiscal years ended September 30, 1994, September 30, 1993 and September 30, 1992
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES: The following consolidated financial statement schedules of Alco Standard Corporation and its subsidiaries are submitted in response to Item 14(d):
Schedule II--Amounts Receivable From Related Parties and Underwriters, Promoters and Employees Other Than Related Parties.
Schedule VIII--Valuation and Qualifying Accounts.
Schedule IX--Short-term Borrowings.
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
ALCO STANDARD CORPORATION AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
- -------- (1) The notes receivable are secured by the debtors' pledge of Alco stock, bear interest at 6% and are due upon demand.
S-1
ALCO STANDARD CORPORATION AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
- -------- (1) Represents beginning balances of acquired companies. (2) Accounts written off during year, net of recoveries.
S-2
ALCO STANDARD CORPORATION AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
- -------- (1) Notes payable to banks represent borrowings under confirmed lines of credit that are supported by bank credit agreements (See note 5 to the consolidated financial statements). (2) Commercial paper matures generally 30 days from date of issue. (3) The average amount outstanding during the period was computed by dividing the sum of the daily principal balances by 365. (4) The weighted average interest rate during the period was computed by dividing the actual interest expense by the average short-term debt outstanding.
S-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Alco Standard Corporation
Date: November 29, 1994
By /s/ Michael J. Dillon ---------------------------------------- (MICHAEL J. DILLON) CONTROLLER(PRINCIPAL ACCOUNTING OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS FORM 10-K HAS BEEN SIGNED BELOW ON NOVEMBER 29, 1994 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURES TITLE ---------- -----
*John E. Stuart Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) (JOHN E. STUART)
/s/ Kurt E. Dinkelacker Chief Financial Officer (Principal - ------------------------------------- Financial Officer) (KURT E. DINKELACKER)
/s/ Michael J. Dillon Controller (Principal Accounting - ------------------------------------- Officer) (MICHAEL J. DILLON)
*Ray B. Mundt Chairman of the Board of Directors - -------------------------------------
(RAY B. MUNDT)
*J. Mahlon Buck, Jr. Director - ------------------------------------- (J. MAHLON BUCK, JR.)
*Paul J. Darling Director - ------------------------------------- (PAUL J. DARLING)
*William F. Drake, Jr. Director - ------------------------------------- (WILLIAM F. DRAKE, JR.)
*James J. Forese Director - ------------------------------------- (JAMES J. FORESE)
*Frederick S. Hammer Director - ------------------------------------- (FREDERICK S. HAMMER)
*Barbara Barnes Hauptfuhrer Director - ------------------------------------- (BARBARA BARNES HAUPTFUHRER)
*Dana G. Mead Director - ------------------------------------- (DANA G. MEAD)
*Paul C. O'Neill Director - ------------------------------------- (PAUL C. O'NEILL)
*Rogelio G. Sada Director - ------------------------------------- (ROGELIO G. SADA)
*James W. Stratton Director - ------------------------------------- (JAMES W. STRATTON)
*By his signature set forth below, Hugh G. Moulton, pursuant to duly executed Powers of Attorney duly filed with the Securities and Exchange Commission, has signed this Form 10-K on behalf of the persons whose signatures are printed above, in the capacities set forth opposite their respective names.
/s/ Hugh G. Moulton - ------------------------------------- November 29, 1994 (HUGH G. MOULTON)
EXHIBIT INDEX
- --------
* Copies of the exhibits will be furnished to any security holder of Alco upon payment of the reasonable cost of reproduction.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
On June 30, 1994, Alco filed a Current Report on Form 8-K to report under Item 5 its decision to divest its 49.9% interest in IMMOS.
(c) The response to this portion of Item 14 is submitted in response to Item 14(a)(3) above.
(d) The response to this portion of Item 14 is contained on pages S-1, S-2 and S-3 of this report.