<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1996 or [_] Transition
-----------------
report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
_____ _____
Commission file number 1-14482
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UNISOURCE WORLDWIDE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-5369500
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
825 Duportail Road, Wayne, Pennsylvania 19087
Box 958, Valley Forge, Pennsylvania 19482
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(Address of principal executive offices)
(Zip Code)
(610) 296-4470
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(Registrant's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X** No ** With respect to (2) above, registrant has been
----- ----- subject to the Exchange Act filing requirements since
November 26, 1996.
* Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
* Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1997.
Common Stock, par value $0.001 66,944,719 shares
<PAGE>
INDEX
UNISOURCE WORLDWIDE, INC.
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--December 31, 1996 3-4
and September 30, 1996
Condensed Consolidated Statements of Income--Three months 5
ended December 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash Flows--Three 6
months ended December 31, 1996 and December 31, 1995
Notes to Condensed Consolidated Financial Statements-- 7-8
December 31, 1996
Item 2. Management's Discussion and Analysis of Results 9-11
of Operations and Financial Condition and Liquidity
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
- ----------------------------------------
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1996
- ------ ----------- -------------
<S> <C> <C>
Current Assets
Cash $ 46,931 $ 14,596
Accounts receivable, net 736,896 790,818
Inventories 497,201 470,217
Prepaid expenses and deferred taxes 52,894 54,853
---------- ------------
Total current assets 1,333,922 1,330,484
---------- ------------
Long-Term Receivables 8,961 21,890
Property and Equipment, at cost 403,468 396,681
Less accumulated depreciation 181,716 172,513
---------- ------------
221,752 224,168
---------- ------------
Goodwill 502,742 509,850
Deferred costs and other assets 124,531 105,322
---------- ------------
$ 2,191,908 $ 2,191,714
========== ============
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ------------------------------------ ------------- -------------
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 655 $ 840
Notes payable 28,029 38,367
Trade accounts payable 381,654 438,899
Accrued salaries, wages and commissions 22,451 27,011
Restructuring costs 11,871 15,575
Other accrued expenses 91,604 59,000
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Total current liabilities 536,264 579,692
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Long-Term Debt 598,981 21,097
Notes and Advances Payable to IKON 221 553,700
Other Liabilities
Deferred taxes 45,671 54,462
Restructuring costs 12,000 13,896
Other long-term liabilities 46,510 33,366
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104,181 101,724
------------- -------------
Stockholders' Equity
Common stock, 12/31 - par value $.001, authorized 250,000,000
shares issued and outstanding - 66,902,083 shares; 9/30 -
par value $.01, authorized 10,000,000 shares, issued and
outstanding - 100,000 shares 67 1
Additional paid in capital 779,703 778,444
Retained earnings 201,609 181,458
Foreign currency translation adjustments (29,118) (24,402)
------------- -------------
952,261 935,501
------------- -------------
$ 2,191,908 $ 2,191,714
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
Revenues $ 1,728,533 $ 1,716,165
Costs and Expenses
Cost of goods sold 1,428,429 1,446,701
Selling and administrative 255,000 219,277
------------------ -------------------
1,683,429 1,665,978
------------------ -------------------
Income from operations 45,104 50,187
Interest expense 10,361 6,905
------------------ -------------------
Income before taxes 34,743 43,282
Provision for income taxes 14,592 17,053
------------------ -------------------
Net income $ 20,151 $ 26,229
================== ===================
Earnings Per Share $0.30
Pro Forma Earnings Per Share $0.35
Shares Outstanding 67,576 67,576
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNISOURCE WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31,
------------------------------------
1996 1995
------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 20,151 $ 26,229
Additions (deductions) to reconcile net income
to net cash provided (used) by operating activities:
Depreciation 7,340 6,245
Amortization 4,401 2,529
Provisions for losses on accounts receivable 4,025 3,328
Payments for restructuring costs (5,853) (13,644)
Changes in operating assets and liabilities, net of effects
from acquisitions and divestitures:
Decrease in accounts receivable 43,569 88,604
Increase in inventories (26,754) (70,741)
Decrease (increase) in prepaid expenses 1,960 (3,184)
Decrease in accounts payable and
accrued expenses (24,915) (104,733)
Miscellaneous 252 1,603
------------- ------------
Net cash provided (used) by operating activities 24,176 (63,764)
------------- ------------
Investing activities
Proceeds from the sale of property and equipment 3,630 919
Collection of notes receivable 19,250 -
Cost of companies acquired, net of cash acquired (3,255) (60,763)
Expenditures for property and equipment (7,678) (10,554)
Deferred cost expenditures (17,670) (20,440)
------------- ------------
Net cash used in investing activities (5,723) (90,838)
------------- ------------
Financing activities
Debt repayments (21,639) (8,079)
Proceeds from revolving credit facility borrowings, net 589,000 -
(Repayments to) proceeds from IKON (553,479) 146,387
------------- ------------
Net cash provided by financing activities 13,882 138,308
------------- ------------
Net increase (decrease) in cash 32,335 (16,294)
Cash at beginning of period 14,596 23,657
------------- ------------
Cash at end of period $ 46,931 $ 7,363
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note 1: Spin-off and Basis of Presentation
----------------------------------
Effective December 31, 1996, one share of Unisource Worldwide, Inc.
(the "Company" or "Unisource") common stock was distributed to holders of Alco
Standard Corporation ("Alco") common stock for every two shares of Alco common
stock owned at the established record date ( the "Spin-off"). Effective
January 23, 1997, Alco changed its name to IKON Office Solutions, Inc.
("IKON"). At the time of the Spin-off, the Company became a separate publicly
owned company.
The unaudited condensed consolidated financial statements included
herein have been prepared on the historical cost basis and present the
Company's financial position, results of operations and cash flows as derived
from IKON's historical financial statements, except that the method of
allocation of general corporate expenses has been changed to more
appropriately reflect the Company's actual use of corporate services. IKON's
interest expense on consolidated borrowings for the three months ended
December 31, 1995 was allocated to Unisource based on the relationship of its
net assets to consolidated IKON net assets. The Company's interest expense
for the three months ended December 31, 1996 was based on its actual
borrowings, including notes and advances payable to IKON and borrowings under
the Company's credit facility described in Note 2.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations for the
three months ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 1997.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included in its Form 10
Registration Statement that became effective November 26, 1996.
Note 2: Debt
----
On November 22, 1996, the Company entered into a $1,000,000,000
five-year unsecured revolving credit facility. The credit facility includes
multicurrency options for up to $100,000,000 in Pounds Sterling, Deutsche
Marks and French Francs and a $100,000,000 subfacility for Canadian dollar
loans. Borrowings under the revolver bear interest at either the Alternate
Base Rate (as defined) or LIBOR
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<PAGE>
plus a spread equal to 18.5 basis points during the initial six months of the
credit facility. After the initial six month period, the LIBOR spread will
range from 14.5 to 30 basis points, depending on certain financial ratios or
credit ratings. The credit facility provides for certain fees, including a
facility fee and utilization fee. The facility fee ranges from 8 to 15 basis
points per annum on the full amount of the credit facility, determined in a
manner consistent with the LIBOR spread described above. A utilization fee of
5 basis points per annum accrues on the aggregate amount of all loans
outstanding during the initial six months of the credit facility and 5 basis
points per annum thereafter each day the aggregate amount of all loans under
the credit facility exceeds two-thirds of the aggregate commitment. The
credit facility includes financial covenants requiring a ratio of funded debt
to capitalization of less than 55% and a minimum net worth of $745,000,000
plus 50% of consolidated net income (without deduction for losses) after the
date of the credit facility.
The amount outstanding under this facility at December 31, 1996 was
$589,000,000. The majority of these proceeds were used to repay intercompany
debt to IKON in conjunction with the Spin-off.
Note 3: Earnings Per Share and Pro Forma Earnings per Share
---------------------------------------------------
Earnings per share for the three months ended December 31, 1996 was
calculated based on the number of Company shares issued and outstanding as of
December 31, 1996 plus the dilutive effect of stock options.
Pro Forma earnings per share for the three months ended December 31,
1995 includes additional pro forma interest expense of $3,741,000 ($2,259,000
net of tax), which assumes that the Spin-off occurred on October 1, 1995. The
same share base that was used for the December 31, 1996 earnings per share
calculation was used for the pro forma calculation.
- 8 -
<PAGE>
Item 2: Management's Discussion and Analysis of Results
--------------------------------------------------------
of Operations and Financial Condition and Liquidity
---------------------------------------------------
Results of Operations
---------------------
Revenues and income before taxes for the first quarter of fiscal
1997 compared to the first quarter of fiscal 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31
--------------------------------
1996 1995 % Change
---- ---- --------
(In Millions)
<S> <C> <C> <C>
Revenues $1,729 $1,716 0.7%
====== ======
Gross profit $300.1 $269.5 11.4%
Selling and administrative
expense 255.0 219.3 16.3%
------ ------
Operating income 45.1 50.2 (10.1%)
Interest expense 10.4 6.9 50.1%
------ ------
Income before taxes $ 34.7 $ 43.3 (19.7%)
====== ======
</TABLE>
Revenues increased $13 million, or 0.7% to $1.73 billion in the first quarter
of fiscal 1997, compared to the first quarter of the prior year. This change
is due to increases associated with current and prior year acquisitions of
$152 million, which were offset by revenue declines of $139 million in base
operations. The decline in base operations is principally due to an estimated
decrease in average paper prices of 17% compared to the same period last year.
The price deflation was partially offset by volume gains in the base
operations.
Gross margins increased by $30.6 million, or 11.4% to $300.1 million. This
change is due to increases associated with current and prior year acquisitions
of $39.8 million, offset by declines of $9.2 million in base operations.
Gross margin percentages rose to 17.4% from 15.7% of revenues due to lower
costs from suppliers for many products, higher margin percentages generated by
acquired companies, and a higher proportion of Unisource warehouse delivered
(versus mill direct) sales.
Selling and administrative expense increased by $35.7 million, or 16.3%,
including $30 million related to current and prior year acquisitions.
Operating income decreased $5.1 million, or 10.1%. Current and prior year
acquisitions contributed an incremental $9.8 million of operating income.
Operating income from base operations declined $14.9 million, primarily due to
paper price declines which were
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<PAGE>
partially offset by improvement in gross margin percentages and volume
increases. Operating margins were 2.6% of revenues for the first quarter of
1997 compared to 2.9% in the prior year.
Interest expense increased by $3.5 million to $10.4 million during the first
three months of fiscal 1997 compared to the prior year. The increase was
attributable to higher average outstanding borrowings due to the
recapitalization of the Company as of September 30, 1996 in anticipation of
the Spin-off from IKON. The $6.9 million of interest expense for the first
three months of fiscal 1996 represents an allocation of IKON's outside
interest expense based on the relationship of the Company's net assets to
IKON's net assets, plus some interest associated with direct indebtedness of
the Company. Interest expense on a pro forma basis for the first three months
of fiscal 1996 was $10.6 million assuming that the Spin-off occurred on
October 1, 1995.
Foreign Operations
Revenues from foreign operations increased $1.2 million to $216.2 million in
fiscal 1997. Revenues from Canadian operations decreased $13.6 million to
$182 million, while revenues from Mexican operations increased $13.7 million
to $26.9 million and revenues from foreign sales offices (Vienna and Hong
Kong) increased $1.1 million to $7.2 million. The decrease in Canadian
revenues was attributable to declining paper prices, while the increase in
Mexico was the result of acquisitions.
Operating income from foreign operations decreased $2.3 million to $7.2
million in fiscal 1997. Canadian operating income decreased $2 million to
$6.3 million due to lower paper prices. Mexican operating income was flat at
$1.4 million with the increase from acquisitions being offset by a decline in
paper prices. The foreign sales offices operating income decreased by $0.3
million.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations during the first three months of fiscal 1997
compared to the first three months of fiscal 1996.
Financial Condition and Liquidity
---------------------------------
Net cash provided by operating activities for the first three months of fiscal
1997 was $24.2 million. Included in operating activities were cash
expenditures of $5.9 million in connection with the Company's restructuring
programs. Remaining restructuring cash expenditures are estimated at $24
million. During the same period $5.7 million in cash was used for investing
activities which included deferred cost expenditures of $17.7 million
principally associated with the development of the Company's new Information
Technology system, capital expenditures of $7.7 million and acquisition
expenditures of $3.3 million. Investing activity expenditures were partially
offset by proceeds received from the sale of property and the collection of
notes receivable. Cash provided by
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<PAGE>
financing activities of $13.9 million included net proceeds received from
borrowings under the Company's Credit Facility of $589 million offset by a
$553.5 million net debt repayment to IKON and $21.6 million of other third
party debt payments.
On December 31,1996, total debt of $628 million was outstanding. The Company
had a total of $1 billion in bank credit commitments as of December 31, 1996,
of which $411 million was unused and available.
In January 1997, the Company declared a dividend on its Common Stock of $.20
per share payable March 10, 1997 to shareholders of record on February 24,
1997.
The Company intends to file a shelf registration for 5 million shares of
common stock in February 1997, which will be primarily used for acquisitions.
The Company believes that its operating cash flow, together with financing
arrangements, will be sufficient to finance current operating requirements,
including capital expenditures, acquisitions, other cash requirements, and
future dividends.
- 11 -
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K Page No.
- ----------------------------------------- --------
(a) The following Exhibit is furnished pursuant
to Item 601 of Regulation S-K:
Exhibit No. (27) Financial Data Schedule. 15
(b) Reports on Form 8-K - none
- 12 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. This report has also been signed by
the undersigned in his capacity as the chief accounting officer of the
Registrant.
UNISOURCE WORLDWIDE, INC.
Date February 14, 1997 /s/ Jack H. Keeney
----------------- --------------------------
Jack H. Keeney
Vice President - Finance
(Chief Accounting Officer)
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<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Number
--------------
(27) Financial Data Schedule.
- 14 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF UNISOURCE WORLDWIDE, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46,931,000
<SECURITIES> 0
<RECEIVABLES> 760,496,000
<ALLOWANCES> 23,600,000
<INVENTORY> 497,201,000
<CURRENT-ASSETS> 1,333,922,000
<PP&E> 403,468,000
<DEPRECIATION> 181,716,000
<TOTAL-ASSETS> 2,191,908,000
<CURRENT-LIABILITIES> 536,264,000
<BONDS> 598,981,000
0
0
<COMMON> 67,000
<OTHER-SE> 952,194,000
<TOTAL-LIABILITY-AND-EQUITY> 2,191,908,000
<SALES> 1,728,533,000
<TOTAL-REVENUES> 1,728,533,000
<CGS> 1,428,429,000
<TOTAL-COSTS> 1,428,429,000
<OTHER-EXPENSES> 255,000,000
<LOSS-PROVISION> 4,025,000
<INTEREST-EXPENSE> 10,361,000
<INCOME-PRETAX> 34,743,000
<INCOME-TAX> 14,592,000
<INCOME-CONTINUING> 20,151,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,151,000
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
