<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14482
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UNISOURCE WORLDWIDE, INC.
--------------------------
(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 Identification No.)
incorporation or organization)
740 Springdale Drive, Exton, Pennsylvania 19341 (see Item 2 herein)
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-296-4470
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.001 Par Value New York Stock Exchange
Philadelphia Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
----- -----
On December 10, 1997, the aggregate market value of the registrant's Common
Stock, $.001 par value, held by non-affiliates of the registrant was
$1,034,089,005. Such amount was calculated by excluding all shares held by
directors and executive officers without conceding that all such persons are
"affiliates" of the registrant for purposes of the federal securities laws.
On December 10, 1997, there were 69,026,357 shares of the registrant's Common
Stock, $.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part II - Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended September 30, 1997 are incorporated by reference into Items 7
and 8, inclusive.
Part III - Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on January 28, 1998 are incorporated by reference in
Items 10, 11, 12 and 13.
<PAGE>
UNISOURCE WORLDWIDE, INC.
Form 10-K
For the Year Ended September 30, 1997
<TABLE>
Page of
Form 10-K
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<S> <C> <C>
Part I
Item 1. Business................................................................................. 3
Item 2. Properties............................................................................... 9
Item 3. Legal Proceedings........................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders...................................... 9
Item 4.1 Executive Officers of the Registrant...................................................... 10
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 11
Item 6. Selected Financial Data................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 13
Item 8. Financial Statements and Supplementary Data............................................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 13
Part III
Item 10. Directors and Executive Officers of the Registrant........................................ 14
Item 11. Executive Compensation.................................................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 14
Item 13. Certain Relationships and Related Transactions............................................ 14
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 15
</TABLE>
2
<PAGE>
Part I
Item 1. Business
--------
Unisource Worldwide, Inc., a Delaware corporation (hereinafter referred to as
"Unisource" or the "Company"), was incorporated in August 1975. Prior to
December 31, 1996, Unisource was a wholly-owned subsidiary of Alco Standard
Corporation ("Alco"). Effective December 31, 1996, pursuant to Alco's spin-off
of Unisource, the Company became a separate public company. Also, as of January
23, 1997, Alco changed its name to, and is known as, IKON Office Solutions, Inc.
("IKON").
Unisource is the largest marketer and distributor of Printing & Imaging papers
and Supply Systems in North America, with distribution facilities throughout the
United States, Canada and Mexico. In fiscal 1997, Unisource generated $7.1
billion in revenues and $144.7 million in operating income. Printing & Imaging
papers and Supply Systems represented the following percentages of the Company's
revenues:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------
<S> <C> <C> <C>
Printing & Imaging 65% 68% 72%
Supply Systems 35% 32% 28%
</TABLE>
Based on 1996 data, the Company has an estimated 17% share of the U.S. Printing
& Imaging market and a 45% market share in Canada. The Company's share of the
highly fragmented Supply Systems market is estimated at 8% in the U.S. and 12%
in Canada.
CUSTOMERS AND PRODUCTS
Printing & Imaging encompasses the marketing and distribution of quality
printing, writing and copying papers to printers, publishers, business forms
manufacturers and direct mail firms, as well as corporate and retail copy
centers, in-plant print facilities, government institutions and other paper-
intensive businesses. The products distributed to these customers include
various types of paper for catalogs, brochures, advertising supplements, annual
reports, business forms and other imaging or copying requirements. In fiscal
1997, Printing & Imaging contributed approximately $4.6 billion to Unisource
revenues.
Supply Systems encompasses the distribution of a broad range of paper and
plastic products; sanitary maintenance supplies, equipment and service; and
packaging equipment, service and supplies, principally to manufacturers, food
processors, and retail and institutional customers. Products distributed
include shipping room supplies such as corrugated boxes, cushioning materials,
tapes and labeling; packaging equipment and supplies such as carton erectors,
baggers and fillers as well as films, shrink wrap and cushioning materials;
sanitary maintenance equipment and supplies such as towels, tissues, can liners
and sanitation chemicals; and foodservice supplies such as films and food wraps,
food containers and disposable apparel for foodservice workers. In fiscal 1997,
Supply Systems contributed approximately $2.5 billion to Unisource revenues.
Unisource believes that the critical factors for success in the markets in which
it competes include prompt and accurate delivery of orders, close contact with
customers and the ability to provide a full array of products and services. The
Company offers daily delivery to most customer locations and has the capability
of delivering special orders on short notice. The Company's more than 3,600
sales and marketing representatives actively market current and new product
offerings and fulfill customer requirements.
3
<PAGE>
Unisource's extensive distribution network and national presence enable it to
service national accounts, and the Company's large size gives it important
economies of scale in purchasing and other functions.
No single customer accounted for more than 2% of Unisource's sales for its
fiscal year ended September 30, 1997.
Although Unisource does not produce paper products and is not directly exposed
to related production and raw material risks, the acquisition cost of paper has
a direct correlation to the Company's Printing & Imaging revenues and related
operating margins. In fiscal 1995, average prices for the Printing & Imaging
products sold by Unisource increased by more than 24% over average 1994 levels.
In fiscal 1996 and 1997, such average pricing decreased by 5% and 8%,
respectively, compared to the preceding year.
DISTRIBUTION & LOGISTICS
Unisource distributes Printing & Imaging and Supply Systems products from
warehouses located throughout North America. The majority of these warehouses
distribute both Printing & Imaging and Supply Systems products. Supply Systems
products are distributed primarily through Unisource warehouses. Printing &
Imaging products are distributed through Unisource warehouses and through mill
direct deliveries (i.e., deliveries directly from manufacturers to Unisource
customers). Approximately 48% of the Company's $4.6 billion of Printing &
Imaging revenues in fiscal 1997 were effected through its own distribution
facilities, and 52% were mill direct deliveries. The quantity of goods ordered
and delivery lead times are the primary factors involved in determining whether
an order will be filled from the warehouse or directly shipped from a mill.
STRATEGY
Unisource's long-term strategy is to leverage its distribution strengths to
become a broad-based marketing and logistics company in order to:
(i) minimize exposure to the cyclical paper market;
(ii) position Unisource to compete based on its ability to lower
customers' overall cost of procurement rather than on individual
product cost; and
(iii) take advantage of the highly-fragmented supply systems markets.
Unisource is pursuing these objectives through the following means:
Expanded product and service offerings
Unisource intends to expand its product and service offerings to meet a broader
range of customer needs and become a single source of supply for its customers.
The Company has already expanded beyond Printing & Imaging papers to include a
broad range of Supply Systems products, and has recently added safety equipment
and supplies to its diverse offerings.
4
<PAGE>
Increased Contribution from Supply Systems
Unisource is expanding through acquisitions and internal growth in the highly-
fragmented Supply Systems market, which is now comprised of many small
competitors that do not have the broad infrastructure, economies of scale and
breadth of product line enjoyed by Unisource. Supply Systems growth will
establish greater revenue balance, reduce exposure to the cyclical business
trends associated with the paper industry and enhance overall gross margins.
Increased Market Share Through Segmentation
Unisource intends to increase market share through sales and marketing programs
that focus on specific customer segments, offering valuable procurement
solutions through a combination of products and services. Currently, the
Company is focusing on four customer segments on a national basis: Printers &
Publishers, Business Imaging Customers, General Manufacturers, and Food
Processors. In addition, the Company services a group called Select Segments,
which encompasses health care, hospitality, and other region-specific industry
groups.
Each of the Company's major target customer segments has dedicated salespeople,
customer service professionals and, in some instances, specialty groups
dedicated to understanding the customer's business and satisfying the specific
requirements of that industry group.
Expanded Sales to National Accounts
Unisource believes that its extensive distribution network, broad product range
and professional customer service capabilities uniquely qualify the Company to
service large multi-location customers seeking to consolidate supplier and
procurement activities and lower their total cost of procurement. In fiscal
1997, Unisource had in excess of $450 million in sales to national accounts.
SOURCE OF SUPPLY
The Company's Printing & Imaging suppliers include the major North American
paper producers. The Company's ten largest suppliers accounted for more than
80% of its Printing & Imaging purchases, and Unisource is one of the leading
Printing & Imaging customers for each of its ten largest suppliers. Unisource
does not anticipate the termination of any significant Printing & Imaging supply
relationship. However, if any such termination would occur, management believes
the Company would be able to arrange comparable alternative supply arrangements.
The Company has numerous Supply Systems suppliers. Currently, the Company's
twenty largest suppliers represent in excess of 50% of Supply Systems product
purchases and Unisource is one of the leading Supply Systems customers for most
of its major suppliers. Unisource does not anticipate the termination of any
significant Supply Systems relationships with any of its largest suppliers.
However, if any such termination would occur, management believes the Company
would be able to arrange comparable alternative supply arrangements.
5
<PAGE>
COMPETITION
Unisource operates within highly competitive markets. Based on 1996 data, the
Company is the largest distributor in its industry, with an estimated 17% share
of the United States Printing & Imaging market and an estimated 45% share of the
Canadian market. The Company's Printing & Imaging competitors include the
distribution units of large paper manufacturers (e.g., International Paper's
xpedx, Mead Corporation's Zellerbach and Champion International's Nationwide
Papers), as well as independent local and regional distributors.
Unisource is the largest North American distributor of, and a leading
consolidator in, the Supply Systems market. The Company has an estimated 8%
share of the U. S. market and an estimated 12% market share in Canada.
Unisource competes with a large number of local and regional distributors, as
well as national distributors such as xpedx and Zellerbach.
During 1995, Unisource entered the Mexican Printing & Imaging and Supply Systems
distribution markets. These markets are highly fragmented.
Although Unisource's businesses are highly competitive, the Company believes
that its size, strategic supply relationships and distribution and servicing
capabilities have resulted in a strong competitive position in the markets in
which Unisource competes. The Company competes principally on the basis of
responsiveness to needs, price, quality of customer service and the range of
products maintained in inventory.
International Operations
Unisource has operations in every major province of Canada and throughout
Mexico. During fiscal 1997, the Company's international revenues were $903
million, including $752 million attributable to Canadian operations, $118
million attributable to Mexican operations and $33 million in revenues derived
from other foreign sales offices. In fiscal 1997, foreign operations
represented approximately 13% of revenues and 22% of operating income. At
September 30, 1997, approximately 16% of total assets were attributable to these
operations. Unisource plans to expand its presence in Canada and Mexico through
internal growth and selective acquisitions.
For further information regarding international operations, see Item 8, Note 18
to the Consolidated Financial Statements of the Annual Report and Item 7,
Financial Review. There are certain risks attendant to foreign operations,
including, but not limited to, risks with respect to currency fluctuations and
the political environment.
ACQUISITIONS AND DIVESTITURES
In fiscal 1997, Unisource acquired 14 companies with more than $550 million in
annualized revenues, consisting predominantly of Supply Systems companies with
approximately $495 million in revenues. The largest of these was National
Sanitary Supply Company, a sanitary maintenance supply company with annual
revenues in excess of $310 million, which was acquired on September 30, 1997.
In fiscal 1996, Unisource acquired 41 companies with $854 million in annualized
revenues, predominantly Supply Systems companies with approximately $750 million
in annualized revenues.
6
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Unisource's current acquisition strategy includes a long-term commitment to
building market share in the North American Supply Systems market in order to:
(i) achieve greater revenue balance between Printing & Imaging and Supply
Systems and reduce the Company's exposure to the cyclical paper
market;
(ii) provide a broader range of products and services to customers; and
(iii) leverage its distribution infrastructure to increase sales and
profitability.
In October 1997, the Company divested its U.S. Grocery Supply Systems ("GSS")
business. Unisource entered this business in 1993 and grew it to nearly $300
million in revenues. However, this business was unprofitable and unlikely to
achieve adequate returns in the near future. Divesting this business allows the
Company to redeploy those assets into other supply systems segments that the
Company believes offer the potential for better returns. Unisource retained
some profitable grocery business in the U.S. and will continue to operate the
profitable Canadian grocery supply business. Sales to grocery stores are
integrated into the core operations in Canada and represent nearly 25% of that
region's supply systems revenues.
Business Transformation
Beginning in 1993, Unisource embarked on an ambitious restructuring program to
transform itself from a distributor, focused principally in paper and imaging
products, to a leading marketing and logistics company which provides a broad
array of products and services to target customer markets. The Company's
transformation program was focused on:
(i) unifying its business under one name -- Unisource;
(ii) re-engineering business processes;
(iii) consolidating administrative and operational functions;
(iv) implementing a common IT system; and
(v) realigning our organization to focus on target market segments.
These changes were intended to allow Unisource to pursue growth in market
share, improve customer convenience and service, facilitate electronic
communication with suppliers and customers, increase operating efficiencies and
reduce expenses.
To date, the restructuring effort has resulted in the following operating
improvements:
(i) the consolidation of 23 autonomous U.S. companies into a new
streamlined structure consisting of 5 regional units;
(ii) the consolidation of over 100 operating divisions; and
(iii) the consolidation of over 200 customer service departments into 11
customer service centers in the United States.
7
<PAGE>
INFORMATION TECHNOLOGY SYSTEM
Since 1994, Unisource has made significant investments in the design, testing
and implementation of a company-wide information systems project (North American
Distribution System - "NADS"). The system was originally scheduled to begin
operating in 1995, but implementation was delayed to allow for additional
enhancements to the system and to better prepare the Company's field operations
for installation. To date, implementation, development and operating costs of
NADS have been more expensive and time consuming than originally projected.
Accordingly, in October 1997, the Company commenced a three to six month in-
depth study to re-evaluate its current information technology program to ensure
that the program meets future requirements in a cost effective manner. While
conducting this evaluation, the Company has limited its NADS implementation
efforts to the four divisions serviced by its Fort Washington, Pennsylvania,
Customer Service Center. Due to the implementation delay, the Company will take
the required steps to make its existing computer systems Year 2000 ready, at an
estimated cost in the range of $8 million to $12 million over the next two
years. If such efforts are not completed timely, the Year 2000 issue may have a
material impact on the operations of the Company.
The potential alternatives related to the information technology program re-
evaluation include, but are not limited to: (i) abandon NADS and the Systems,
Applications and Products in Data Processing ("SAP") software platform; (ii)
retain NADS and SAP but significantly scale back implementation until benefits
in relation to costs are validated; and (iii) consolidate current legacy systems
to three to four integrated non-SAP systems.
If the Company decides to abandon or significantly limit the NADS
implementation, such action could result in a partial or full write-off of
deferred costs associated with NADS and related information technology
outsourcing agreements ($136,177,000 capitalized at September 30, 1997) and
could trigger other additional contract exit and severance costs. If the
Company continues with NADS implementation throughout fiscal 1998, incremental
costs associated with the implementation, development and operating costs of
NADS together with Year 2000 readiness costs associated with the legacy computer
systems are estimated to be in the range of $31 million to $51 million.
EMPLOYEES
Unisource employs approximately 14,200 people, of whom approximately 10.5% are
unionized. In the United States, approximately 9% of the Company's employees
are unionized. There are 36 separate collective bargaining agreements in the
U.S., with a total of eight unions covering 1,036 employees; 80% of these
unionized employees are covered under collective bargaining agreements with the
International Brotherhood of Teamsters. In Canada, approximately 13% of the
employees are unionized under collective bargaining agreements with four unions.
Approximately 82% of Unisource's total workforce is employed in the United
States, 12% of the workforce is in Canada and the remaining 6% is in Mexico.
There have been no work stoppages or threatened work stoppages in recent years.
Unisource believes its relations with its employees and unions are good.
PROPRIETARY MATTERS
Unisource has a number of trademarks and trade names, which the Company believes
to be important to its business. However, except for the Unisource trademark,
Unisource is not dependent upon any single trademark or trade name, or group of
trademarks or trade names. The trademark on the Unisource name and logo is
registered throughout North America and such registrations may be renewed an
unlimited number of times. Other trademarks and trade names which the Company
uses in its business are registered and maintained throughout North America. In
addition, certain trademark registrations are maintained in other countries.
8
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ENVIRONMENTAL REGULATION
Unisource is engaged in distribution businesses which do not generate
significant hazardous wastes. Unisource's distribution facilities have tanks
for storage of diesel fuel and other petroleum products which are subject to
laws regulating such storage tanks. Federal, state and local provisions
relating to the protection of the environment or the discharge of hazardous
materials have not had, and are not expected to have, a material adverse effect
on Unisource's capital expenditures, liquidity, earnings or competitive
position.
FORWARD-LOOKING STATEMENTS
Certain statements set forth herein or incorporated by reference with respect
to future operations and strategy, acquisition plans, expansion of international
operations, expansion of product and service offerings, future effect of
environmental regulations, and the implementation and technology outsourcing
costs and plans associated with NADS and Year 2000 readiness are forward-looking
statements based upon management's current plans and expectations, and are
subject to a number of uncertainties and risks that could cause actual results
to differ materially. Such uncertainties and risks include changes in pulp and
paper prices and market conditions within the Company's businesses; delays,
difficulties and costs associated with systems implementation or Year 2000
readiness programs; debt service requirements and liquidity; and availability
of, and ability to close, acquisition opportunities on terms acceptable to the
Company.
Item 2. Properties
----------
Unisource leases its current principal executive office, located in Exton,
Pennsylvania. In January 1998, the Company is scheduled to relocate to its new
principal executive office which will be located at 1100 Cassatt Road, Berwyn,
Pennsylvania, 19312. This new facility consists of approximately 44,000 square
feet of office space.
Unisource has a total of 490 facilities in North America, consisting of 175
primary warehouses (greater than 30,000 square feet), 109 other warehouses, 134
retail locations, 11 U.S. regional customer service centers and 61 offices and
other facilities. Of the total facilities, 426 are located in the United States,
31 in Canada, and 33 in Mexico. As of September 30, 1997, leased facilities
comprised approximately 12.9 million square feet of space and owned facilities
comprised approximately 6.0 million square feet of space.
Unisource believes that such facilities are generally suitable for present
operations and adequate for current requirements. Productive capacity and
extent of utilization of Unisource's facilities are difficult to quantify with
certainty because in any one facility maximum capacity and utilization varies
from time to time depending upon the nature of the product that is being
distributed, the degree of automation and the utilization of the labor force in
the facility. Unisource believes that its facilities have the capacity, if
necessary, to expand distribution capabilities to meet customer demand.
Item 3. Legal Proceedings
-----------------
Unisource is party to litigation arising in the ordinary course of business.
Unisource does not believe the results of such litigation, even if the outcome
is unfavorable to the Company, would have a material adverse effect on its
financial position.
Item 4. Submission of Matters to a Vote of Security Holders
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None.
9
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Item 4.1 Executive Officers of the Registrant
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The executive officers of Unisource are as follows:
<TABLE>
<CAPTION>
Name Age Position and Professional Experience
- ----- --- ------------------------------------
<S> <C> <C>
Ray B. Mundt............ 69 Chairman and Chief Executive Officer (August 1996-Present), Unisource;
Chairman (1986-1995), Chief Executive Officer (1980-1993) and President
(1974-1988), Alco
Charles F. White........ 51 President and Chief Operating Officer (August 1996-Present), Unisource;
President, Unisource Southeast Region (1994-1996); President, Unijax-
Sloan (a Unisource company) (1993-1994); President, Monarch Paper (a
Unisource company) (1986-1993)
Hugh G. Moulton......... 64 Executive Vice President and Chief Administrative Officer (January 1997 -
Present), Unisource; Executive Vice President (1992-1996), General
Counsel (1979-1994), Senior Vice President - Administration (1983-1992),
Alco
Richard H. Bogan........ 46 Senior Vice President and Chief Financial Officer (August 1997 - Present),
Unisource; Senior Vice President - Finance, Strategy and Information Systems
(1995-1997), Philip Morris Miller Brewing Division; Vice President -
Information Systems and Financial Analysis (1994-1995), Vice President -
Corporate Audit (1992-1994), Director - Corporate Audit (1986-
1992), Philip Morris
Thomas A. Decker........ 51 Senior Vice President, General Counsel and Secretary (January 1997 -
Present), Unisource; Executive Vice President, Chief Operating Officer
and General Counsel (1996-1997), Executive Vice President and General
Counsel (1994-1996),Vice President, General Counsel and Secretary
(1991-1994), Saint-Gobain Corporation; Vice President, General Counsel
and Secretary (1974-1991), Certainteed Corporation.
David L. Rhodes, Jr..... 44 Senior Vice President - Sales and Marketing (May 1997-Present), Senior
Vice President - Printing & Imaging (1994-1997), Unisource; President
(1993-1994), Unisource South Region; Vice President - Marketing (1992-
1993), Unisource West Region; President Western Area (1986-1992),
Zellerbach Paper Company
Kathleen M. Burns....... 45 Vice President and Treasurer (January 1997 - Present), Unisource; Vice
President (1994-1996) and Treasurer (1989-1996), Alco
Robert M. McLaughlin.... 40 Vice President and Controller (May 1997 - Present),Controller (1993-
1997), Assistant Controller (1992-1993), Unisource
</TABLE>
10
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Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
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The Company's Common Stock is listed and traded on the New York Stock Exchange
("NYSE") (symbol: UWW). The following table sets forth, for the fiscal periods
indicated, the high and low sale prices of the Company's common stock together
with information concerning cash dividends paid per share during those periods.
The following quotations represent prices between dealers and do not include
retail markup, markdown, or commissions. They do not necessarily represent
actual transactions. The high and low sale prices for each quarterly period
since the Company commenced "when issued" trading are:
Fiscal 1997 High Low Dividends Per Share
- -------------------- ------- -------- -------------------
Fourth Quarter $19 3/4 $16 7/16 $.20
Third Quarter 17 3/4 13 3/4 .20
Second Quarter 22 5/8 15 3/8 .20
First Quarter (1) 22 1/8 18 5/8 -
(1) On December 9, 1996, the Company commenced "when issued" trading, that
continued through December 31, 1996, at which time the spin-off from IKON
became effective, and the stock began "regular way" trading on January 2,
1997.
The Company's common stock is also listed and traded on the Philadelphia Stock
Exchange and the Chicago Stock Exchange (symbol: UWW).
On December 10, 1997, the last sale price for the Company's Common Stock was
$15 1/8. As of September 30, 1997, the Company had 13,003 shareholders of
record of its Common Stock.
11
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Item 6. Selected Financial Data
-----------------------
The following table summarizes certain selected historical financial information
of Unisource that has been derived from the audited financial statements of
Unisource for each of the five years in the period ended September 30, 1997.
The financial information may not be indicative of Unisource's future
performance. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Unisource's Consolidated Financial Statements and notes thereto
included as an Exhibit to this Form 10-K.
<TABLE>
<CAPTION>
(in millions, except employees and per share data)
1997 1996 1995 1994 1993
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $7,108.4 $7,022.8 $6,987.3 $5,756.5 $4,864.1
--------- -------- -------- -------- ----------
Costs and expenses:
Cost of goods sold 5,911.7 5,896.2 5,925.2 4,825.7 4,077.1
Selling and administrative 1,052.0 942.1 855.8 782.3 661.0
Restructuring charge - 50.0 - - 175.0
--------- -------- -------- -------- ----------
6,963.7 6,888.3 6,781.0 5,608.0 4,913.1
--------- -------- -------- -------- ----------
Income from operations 144.7 134.5 206.3 148.5 (49.0)
Interest expense 41.6 31.5 33.6 26.2 23.8
--------- -------- -------- -------- ----------
Income before income taxes and
cumulative effect of accounting change 103.1 103.0 172.7 122.3 (72.8)
Provision for income taxes 44.4 43.0 67.5 47.8 (7.7)
--------- -------- -------- -------- ----------
Income before cumulative effect of
accounting change 58.7 60.0 105.2 74.5 (65.1)
Cumulative effect of change in method
of accounting for income taxes - - - 14.0 -
--------- -------- -------- -------- ----------
Net income (loss) 58.7 60.0 105.2 88.5 (65.1)
========= ======== ======== ======== ==========
Earnings per share(1) .87 - - - -
Proforma earnings per share(1) - .81 - - -
Dividends per share .60(2) - - - -
--------- ---------- ---------- ---------- -----------
SUPPLEMENTARY INFORMATION
Capital expenditures $ 25.3 $ 35.8 $ 50.1 $ 33.9 $ 21.7
Depreciation and amortization 46.8 40.0 33.4 32.5 28.7
Working capital 667.4 750.8 815.1 549.8 551.0
Total assets 2,558.8 2,191.7 2,019.0 1,720.0 1,633.9
Total debt 806.9 60.3 71.0 75.2 82.0
Total shareholders' equity 984.4 935.5 415.9 353.5 280.3
Total employees 14,200 11,800 11,800 11,200 11,800
--------- ---------- ---------- ---------- -------------
</TABLE>
(1) Historical earnings per share has been omitted for the fiscal years 1993
through 1996 since Unisource was a wholly-owned subsidiary of IKON during
these periods and was recapitalized as part of the spin-off. Pro forma
earnings per share was calculated for fiscal 1996 as if the spin-off had
occurred on October 1, 1995. See Note 2 to the Company's Consolidated
Financial Statements per "Item 8" within this Form 10-K.
(2) Represents dividends for three quarters (January 1, 1997 through
September 30, 1997).
12
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Incorporated herein by reference are pages 35 through 39 of the Company's Annual
Report to Shareholders for the fiscal year ended September 30, 1997 (the "1997
Annual Report"), which pages are included as part of Exhibit 13 to this Form
10-K as pages 45 to 49.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Incorporated herein by reference are pages 18 through 34 of the 1997 Annual
Report, which pages are included as part of Exhibit 13 to this Form 10-K as
pages 23 to 44.
Quarterly Financial Summary on page 42 of the 1997 Annual Report, which page is
included as part of Exhibit 13 to this Form 10-K as page 50, is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
13
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Part III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required by this Item, except that which is presented in Item
4.1 in Part I above, is included in the sections entitled "Nominees for Election
as Directors" on pages 1 through 2 and "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 20 of the Proxy Statement for the Annual Meeting
of Stockholders to be held January 28, 1998 (the "Proxy Statement"), and is
incorporated herein by reference.
Item 11. Executive Compensation
----------------------
The information required by this Item is included in the sections entitled
"Executive Compensation" on pages 4 through 8, "Human Resources Committee Report
on Executive Compensation" on pages 8 through 10, and "Performance of Unisource
Common Stock" on page 20 of the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by this Item is included in the section entitled
"Security Ownership of Unisource Common Stock by Certain Beneficial Owners,
Directors and Executive Officers of Unisource" on page 3 of the Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by this Item is included in the subsection entitled
"Loan Program" on page 8 of the Proxy Statement and is incorporated herein by
reference.
14
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. Consolidated Financial Statements
---------------------------------
The following consolidated financial statements of Unisource Worldwide,
Inc., included in the Annual Report to Shareholders for the fiscal year
ended September 30, 1997, are incorporated by reference in Item 8 of Part
II of this Form 10-K.
Consolidated Statements of Income - fiscal years ended September 30, 1997,
1996 and 1995;
Consolidated Balance Sheets - as of September 30, 1997 and 1996;
Consolidated Statements of Changes in Shareholders' Equity - fiscal years
ended September 30, 1997, 1996 and 1995;
Consolidated Statements of Cash Flows - fiscal years ended September 30,
1997, 1996 and 1995;
Notes to Consolidated Financial Statements - September 30, 1997.
2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts for fiscal years ended
September 30, 1997, 1996 and 1995 is included on page 16 of this Form 10-K.
Other schedules have been omitted because they are not applicable or the
required information is shown in or can be derived from the financial
statements and notes thereto.
15
<PAGE>
UNISOURCE WORLDWIDE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended September 30, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------- --------------- Additions -------------- ---------------
---------------------------------
Balance at Charged to Charged to Additions Balance at
Beginning Costs and Other (Deductions) End of
Description of Period Expenses Accounts(1) (Describe)(2) Period
- ---------------------------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1997:
Allowance for doubtful accounts $19,927 $15,232 $3,037 $(13,613) $24,583
Year ended September 30, 1996:
Allowance for doubtful accounts 15,772 17,204 4,009 (17,058) 19,927
Year ended September 30, 1995:
Allowance for doubtful accounts 15,934 12,960 187 (13,309) 15,772
</TABLE>
(1) Represents beginning balances of acquired companies.
(2) Represents amounts written off as uncollectible, net of recoveries.
16
<PAGE>
3. Exhibits
--------
Exhibit No. Document
----------- --------
2.1 Distribution Agreement between Alco Standard
Corporation and Unisource and certain of its
subsidiaries, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file
#1-14482).
3.1 Restated Certificate of Incorporation of Unisource,
incorporated by reference to Unisource's S-4
Registration Statement dated April 25, 1997 (file
#333-25897).
3.2 Amended and Restated By-laws of Unisource,
incorporated by reference to Unisource's S-4
Registration Statement dated April 25, 1997 (file
#333-25897).
4.1 Rights Agreement dated as of December 30, 1996 between
Unisource and National City Bank, as rights agent,
incorporated by reference to Registration Statement on
Form 8-A dated April 24, 1997 (file #1-14482).
10.1 Tax Sharing Agreement between Alco Standard
Corporation and Unisource and certain of its
subsidiaries, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file
#1-14482).
10.2 Unisource Worldwide, Inc. 1996 Directors' Stock Option
Plan (as amended and restated on November 7, 1997),
incorporated by reference to Appendix D to Definitive
Proxy Statement on Schedule 14A dated December 2, 1997
(file #1-14482).
10.3 Unisource Worldwide, Inc. Supplemental Employee
Retirement Plan, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file
#1-14482).
10.4 Information Technology Services Agreement between
Unisource and Integrated Systems Solutions
Corporation, incorporated by reference to Alco
Standard Corporation Form 10-K for fiscal year ended
1995, Exhibit 10.19 (file #1-05964).
10.5 Benefits Agreement between Alco Standard Corporation
and Unisource dated November 20, 1996, incorporated by
reference to Form 10 Registration Statement dated
November 26, 1996 (file #1-14482).
10.6 Unisource Worldwide, Inc. Incentive Compensation Plan,
incorporated by reference to Appendix B to Definitive
Proxy Statement on Schedule 14A dated December 2, 1997
(file #1-14482).
10.7 Partners Stock Purchase Plan, incorporated by
reference to Form S-8 Registration Statement dated
December 13, 1996 (file #333-17947).
10.8 Restricted Stock Plan for Directors, incorporated by
reference to Appendix C to Definitive Proxy Statement
on Schedule 14A dated December 2, 1997 (file
#1-14482).
10.9 1997 Deferred Compensation Plan, incorporated by
reference to Form 10 Registration Statement dated
November 26, 1996 (file #1-14482).
10.10 Credit Agreement along Unisource, Unisource Capital
Corporation, Unisource Canada, Inc., the Chase
Manhattan Bank, as administrative agent, and the
lenders party thereto, incorporated by reference to
Form 10 Registration Statement dated November 26, 1996
(file #1-14482).
10.11 Partners Loan Program, incorporated by reference to
Form 10 Registration Statement dated November 26, 1996
(file #1-14482).
10.12 Southpoint Five Office Building Lease agreement dated
February 1, 1997 by and between Terramics/Southpoint
Associates V Limited Partnership and Unisource
incorporated by reference to Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
10.13 Receivables Purchase Agreement and Guarantee between
PCA Paper Acquisition, Inc., Stars Trust, Alco and
Bank of Montreal, filed as Exhibit 4.4 to Alco's 1992
Form 10-K is incorporated herein by reference.
Amendment dated September 30, 1994 to Receivables
Purchase Agreement, filed as Exhibit 4.4 to Alco's
1994 Form 10-K, is incorporated by reference (file
#1-05964).
10.14 Unisource Worldwide, Inc. Stock Option Plan for
employees, incorporated by reference to Appendix A to
Definitive Proxy Statement on Schedule 14A dated
December 2, 1997 (file #1-14482).
10.15 Unisource Worldwide, Inc. Retirement Savings Plan,
incorporated by reference to Form S-8 Registration
Statement dated December 13, 1996 (file #333-17951).
11 Statements re: Computation of Per Share Earnings
13 Portions of the Annual Report to Shareholders for the
fiscal year ended September 30, 1997 specifically
incorporated by reference as part of this Form 10-K.
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24.1 Powers of Attorney Executed by Certain Directors of
(a) to (e) Unisource Worldwide, Inc.
27 Financial Data Schedule
17
<PAGE>
(b) Reports on Form 8-K
-------------------
The Company filed with the Securities and Exchange Commission a
Current Report on Form 8-K, dated August 11, 1997, with respect to Item 5
reporting on the signing of a definitive merger agreement whereby National
Sanitary Supply Company will become a wholly owned subsidiary of Unisource.
The Company filed with the Securities and Exchange Commission a
Current Report on Form 8-K, dated August 15, 1997, with respect to Item 5
reporting on an agreement in principle by Unisource to sell its Grocery
Supply Systems division and other related U.S. grocery supply business to
Bunzl plc .
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Unisource Worldwide, Inc.
-------------------------
(Registrant)
By: /s/ Robert M. McLaughlin
------------------------
Robert M. McLaughlin
Vice President and Controller
Date: December 17, 1997
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ray B. Mundt Chairman, Chief Executive Officer December 17, 1997
- ---------------- and Director
Ray B. Mundt
/s/ Richard H. Bogan Senior Vice President and Chief December 17, 1997
- -------------------- Financial Officer
Richard H. Bogan
/s/ Robert M. McLaughlin Vice President and Controller December 17, 1997
- ------------------------ (Principal Accounting Officer)
Robert M. McLaughlin
Paul J. Darling, III* Director December 17, 1997
- ---------------------
Paul J. Darling, III
James J. Forese* Director December 17, 1997
- ----------------
James J. Forese
Dana G. Mead* Director December 17, 1997
- -------------
Dana G. Mead
Rogelio G. Sada* Director December 17, 1997
- ----------------
Rogelio G. Sada
James W. Stratton* Director December 17, 1997
- ------------------
James W. Stratton
* By /s/ Thomas A. Decker, Senior Vice President, General Counsel and Secretary,
as attorney in-fact pursuant to power of attorney filed as an exhibit to this
Form 10-K.
20
<PAGE>
Unisource Worldwide, Inc.
Annual Report on Form 10-K for the Year Ended September 30, 1997
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Document Page No.
----------- -------- --------
<S> <C> <C>
2.1 Distribution Agreement between Alco Standard
Corporation and Unisource and certain of its
subsidiaries, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file
#1-14482). --
3.1 Restated Certificate of Incorporation of Unisource,
incorporated by reference to Unisource's S-4
Registration Statement dated April 25, 1997 (file
#333-25897). --
3.2 Amended and Restated By-laws of Unisource,
incorporated by reference to Unisource's S-4
Registration Statement dated April 25, 1997 (file
#333-25897). --
4.1 Rights Agreement dated as of December 30, 1996 between
Unisource and National City Bank, as rights agent,
incorporated by reference to Registration Statement on
Form 8-A dated April 24, 1997 (file #1-14482). --
10.1 Tax Sharing Agreement between Alco Standard
Corporation and Unisource and certain of its
subsidiaries, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file
#1-14482). --
10.2 Unisource Worldwide, Inc. 1996 Directors' Stock Option
Plan (as amended and restated on November 7, 1997),
incorporated by reference to Appendix D to Definitive
Proxy Statement on Schedule 14A dated December 2, 1997
(file #1-14482). --
10.3 Unisource Worldwide, Inc. Supplemental Employee
Retirement Plan, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file
#1-14482). --
10.4 Information Technology Services Agreement between
Unisource and Integrated Systems Solutions
Corporation, incorporated by reference to Alco
Standard Corporation Form 10-K for fiscal year ended
1995, Exhibit 10.19 (file #1-05964). --
10.5 Benefits Agreement between Alco Standard Corporation
and Unisource dated November 20, 1996, incorporated by
reference to Form 10 Registration Statement dated
November 26, 1996 (file #1-14482). --
10.6 Unisource Worldwide, Inc. Incentive Compensation Plan,
incorporated by reference to Appendix B to Definitive
Proxy Statement on Schedule 14A dated December 2, 1997
(file #1-14482). --
10.7 Partners Stock Purchase Plan, incorporated by
reference to Form S-8 Registration Statement dated
December 13, 1996 (file #333-17947). --
10.8 Restricted Stock Plan for Directors, incorporated by
reference to Appendix C to Definitive Proxy Statement
on Schedule 14A dated December 2, 1997 (file
#1-14482). --
10.9 1997 Deferred Compensation Plan, incorporated by
reference to Form 10 Registration Statement dated
November 26, 1996 (file #1-14482). --
10.10 Credit Agreement along Unisource, Unisource Capital
Corporation, Unisource Canada, Inc., the Chase
Manhattan Bank, as administrative agent, and the
lenders party thereto, incorporated by reference to
Form 10 Registration Statement dated November 26, 1996
(file #1-14482). --
10.11 Partners Loan Program, incorporated by reference to
Form 10 Registration Statement dated November 26, 1996
(file #1-14482). --
10.12 Southpoint Five Office Building Lease agreement dated
February 1, 1997 by and between Terramics/Southpoint
Associates V Limited Partnership and Unisource
incorporated by reference to Quarterly Report on Form
10-Q for the quarter ended June 30, 1997. --
10.13 Receivables Purchase Agreement and Guarantee between
PCA Paper Acquisition, Inc., Stars Trust, Alco and
Bank of Montreal, filed as Exhibit 4.4 to Alco's 1992
Form 10-K is incorporated herein by reference.
Amendment dated September 30, 1994 to Receivables
Purchase Agreement, filed as Exhibit 4.4 to Alco's
1994 Form 10-K, is incorporated by reference (file
#1-05964). --
10.14 Unisource Worldwide, Inc. Stock Option Plan for
employees, incorporated by reference to Appendix A to
Definitive Proxy Statement on Schedule 14A dated
December 2, 1997 (file #1-14482). --
10.15 Unisource Worldwide, Inc. Retirement Savings Plan,
incorporated by reference to Form S-8 Registration
Statement dated December 13, 1996 (file #333-17951). --
11 Statements re: Computation of Per Share Earnings 22
13 Portions of the Annual Report to Shareholders for the
fiscal year ended September 30, 1997 specifically
incorporated by reference as part of this Form 10-K. 23-50
21 Subsidiaries of the Registrant 51
23 Consent of Ernst & Young LLP, Independent Auditors 52
24.1 Powers of Attorney Executed by Certain Directors of
(a) to (e) Unisource Worldwide, Inc. 53-57
27 Financial Data Schedule --
</TABLE>
21
<PAGE>
Exhibit 11
----------
Statements re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
(in thousands, except per share data) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income $58,686 $54,449/(1)/
======= =======
Weighted average shares outstanding 67,149 66,902
Net effect of dilutive stock options 647 674
------- -------
Total 67,796 67,576
======= =======
Primary earnings per share $ .87 $ .81/(2)/
======= =======
Fully diluted earnings per share $ .87 $ .81/(2)/
======= =======
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Reflects $5,549,000 of pro forma adjustments as disclosed within Note 2
to the Notes to Consolidated Financial Statements included in Exhibit 13
of this Form 10-K.
/(2)/ Pro forma earnings per share were calculated for fiscal 1996 as if the
spin-off had occurred on October 1, 1995. See Note 2 to the Notes to
Consolidated Financial Statements included in Exhibit 13 of this Form
10-K.
22
<PAGE>
Exhibit 13
----------
Summary Historical and Pro Forma Financial Information
Unisource Worldwide, Inc.
Historical and Pro Forma Income Statement Data
Years Ended September 30, 1997 and 1996 (in millions, except per share data)
<TABLE>
<CAPTION>
1996 Pro Forma
1997 Pro Forma Adjustments 1996
Historical (Unaudited) (Unaudited) Historical
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $7,108.4 $7,022.8 $7,022.8
Costs and Expenses:
Cost of goods sold 5,911.7 5,896.2 5,896.2
Selling and administrative 1,052.0 942.1 942.1
Restructuring charge 50.0 50.0
- -----------------------------------------------------------------------------------------------------------------------------------
6,963.7 6,888.3 6,888.3
- -----------------------------------------------------------------------------------------------------------------------------------
Income from Operations 144.7 134.5 134.5
Interest Expense 41.6 40.7 $ 9.2/(2a)/ 31.5
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 103.1 93.8 (9.2) 103.0
Provision for Income Taxes 44.4 39.4 (3.6)/(2b)/ 43.0
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 58.7 $ 54.4 $ (5.6) $ 60.0
===================================================================================================================================
Earnings Per Share $ .87 $ .81/(3)/
========================================================================================================
</TABLE>
Historical and Pro Forma Balance Sheet Data
September 30, 1997 and 1996 (in millions)
<TABLE>
<CAPTION>
1996 Pro Forma
1997 Pro Forma Adjustments 1996
Historical (Unaudited) (Unaudited) Historical
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Total current assets $1,472.9 $1,330.5 $1,330.5
Long-term receivables 7.8 21.9 21.9
Property and equipment, net 246.4 224.2 224.2
Goodwill 668.6 509.8 509.8
Deferred costs and other assets 163.1 105.3 105.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $2,558.8 $2,191.7 $2,191.7
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Total current liabilities $ 805.5 $ 572.4 $ (7.3)/(2a)/ $ 579.7
Long-term debt 661.3 582.1 561.0/(2a)/ 21.1
Notes and advances payable to IKON -- -- (553.7)/(2a)/ 553.7
Deferred taxes and other liabilities 107.6 101.7 101.7
Shareholders' Equity
Common stock and additional paid-in capital 820.3 778.4 778.4
Unearned compensation (5.8) -- --
Retained earnings 199.8 181.5 181.5
Foreign currency translation adjustments (29.3) (24.4) (24.4)
Cost of common shares in treasury (.6) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 984.4 935.5 -- 935.5
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,558.8 $2,191.7 $ -- $2,191.7
===================================================================================================================================
</TABLE>
See notes to summary historical and pro forma financial information.
23
<PAGE>
Notes to the Summary Historical and Pro Forma Financial Information (Unaudited)
Unisource Worldwide, Inc.
On December 31, 1996, Unisource Worldwide, Inc. ("Unisource") became a separate
public company, upon a distribution ("Spin-off") to the shareholders of Alco
Standard Corporation ("Alco") of all the shares of common stock of Unisource.
Alco's name was changed to IKON Office Solutions, Inc. ("IKON"), on January 23,
1997.
The Pro Forma Income Statement Data for the year ended September 30, 1996 and
the Pro Forma Balance Sheet Data as of September 30, 1996 present the
consolidated results of operations and consolidated financial position of
Unisource assuming that the Spin-off had been completed as of the beginning of
fiscal 1996 and as of September 30, 1996, respectively. The historical financial
information has been derived from the Company's audited financial statements.
The unaudited pro forma information presented is for informational purposes only
and may not necessarily reflect future results of operations or financial
position, or the results of operations or financial position had the Spin-off
occurred as assumed herein, or had Unisource been operated as a separate, stand-
alone company during the period shown.
1. The accompanying unaudited Pro Forma Financial Information reflects all
adjustments which, in the opinion of management, are necessary to present
fairly the pro forma financial position and pro forma results of
operations. The information should be read in conjunction with Unisource's
historical financial statements and notes thereto.
2. The pro forma adjustments to the accompanying financial information as of
and for the year ended September 30, 1996, are described below:
(a) To record the repayment of $554 million of intercompany notes to IKON
and notes payable to banks of $7 million and the associated increase in
debt and interest expense from the borrowings incurred to fund the
repayment. An interest rate of 7% is assumed on the borrowings. The pro
forma interest expense adjustment is net of the corporate interest expense
allocated by IKON and reflected in the historical amounts.
(b) To record the estimated income tax benefit on the income effect of pro
forma adjustment (a) above.
3. Pro forma earnings per share information is based upon 67.6 million common
and common equivalent shares for the fiscal year ended September 30, 1996.
The share base utilized is based upon the number of common shares issued
and outstanding as of the Spin-off date ("December 31, 1996"), plus the
dilutive effect of stock options. Excluding the restructuring charge, pro
forma net income per share for fiscal 1996 would have been $1.29.
24
<PAGE>
Management's Responsibility for Financial Reporting
The management of Unisource Worldwide, Inc. is responsible for the preparation
and presentation of the financial statements and related financial information
included in this annual report. The financial statements include amounts that
are based on management's best estimates and judgments. These statements have
been prepared in conformity with generally accepted accounting principles
consistently applied and have been audited by Ernst & Young LLP, independent
auditors.
Management is also responsible for maintaining systems of internal accounting
controls that are designed to provide reasonable assurance as to the integrity
of the financial records and the protection of corporate assets. Unisource
Worldwide, Inc. supports and manages a program of auditing to monitor the proper
functioning of its systems. The reports issued under this program, as well as
comment letters from Ernst & Young LLP, are reviewed regularly by the Audit
Committee of the Board of Directors, which is composed of two directors who are
not employees of the Company. The Audit Committee meets periodically with Ernst
& Young LLP and management to review audit scope, timing and results.
<TABLE>
<CAPTION>
<S> <C>
/s/ Ray B. Mundt /s/ Richard H. Bogan
Ray B. Mundt Richard H. Bogan
Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders
Unisource Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of Unisource
Worldwide, Inc. as of September 30, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Unisource
Worldwide, Inc. at September 30, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 21, 1997
25
<PAGE>
Consolidated Statements Of Income
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands except per share data)
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $7,108,355 $7,022,808 $6,987,274
Costs and Expenses:
Cost of goods sold 5,911,713 5,896,251 5,925,174
Selling and administrative 1,051,947 942,088 855,818
Restructuring charge -- 50,000 --
- -------------------------------------------------------------------------------------------------------------------------------
6,963,660 6,888,339 6,780,992
- -------------------------------------------------------------------------------------------------------------------------------
Income from Operations 144,695 134,469 206,282
Interest Expense 41,637 31,466 33,537
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 103,058 103,003 172,745
Provision for Income Taxes 44,372 43,005 67,543
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 58,686 $ 59,998 $ 105,202
===============================================================================================================================
Earnings Per Share $ .87
- -------------------------------------------------------------------------------------------------------
Dividends Per Share (1) $ .60
- -------------------------------------------------------------------------------------------------------
Pro Forma Earnings Per
Share (Unaudited) -- (see Note 2) $ .81
- -------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 67,796 67,576
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents dividends for three quarters (January 1, 1997 through September
30, 1997).
See notes to consolidated financial statements.
26
<PAGE>
Consolidated Balance Sheets
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
September 30 (dollars in thousands, except par value data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 45,384 $ 14,596
Accounts receivable, less allowances for doubtful accounts:
1997 -- $24,583; 1996 -- $19,927 882,360 790,818
Inventories 495,330 470,217
Prepaid expenses and deferred taxes 49,875 54,853
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 1,472,949 1,330,484
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Receivables 7,790 21,890
Property and Equipment, net 246,426 224,168
Goodwill 668,575 509,850
Deferred Costs and Other Assets 163,092 105,322
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $2,558,832 $2,191,714
=========================================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 638 $ 840
Notes payable 144,882 38,367
Trade accounts payable 498,503 438,899
Accrued salaries, wages and commissions 33,906 27,011
Restructuring costs 8,172 15,575
Other accrued expenses 119,431 59,000
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 805,532 579,692
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Debt 661,350 21,097
Notes and Advances Payable to IKON -- 553,700
Deferred Taxes and Other Liabilities
Deferred taxes 61,082 54,462
Restructuring costs 8,383 13,896
Other long-term liabilities 38,100 33,366
- -------------------------------------------------------------------------------------------------------------------------
107,565 101,724
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, 9/30/97 -- par value $.001, authorized --
10,000,000 shares, no shares issued and outstanding; 9/30/96 --
par value $.01, authorized -- 200,000 shares, no shares issued
and outstanding -- --
Common stock, 9/30/97 -- par value $.001,
authorized -- 250,000,000 shares, issued and outstanding --
68,792,842 shares; 9/30/96 -- par value $.01, authorized --
200,000 shares, issued and outstanding -- 100,000 shares 69 1
Additional paid-in capital 820,213 778,444
Unearned compensation (5,845) --
Retained earnings 199,828 181,458
Foreign currency translation adjustments (29,320) (24,402)
Cost of common shares in treasury -- 32,027 shares (560) --
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 984,385 935,501
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,558,832 $2,191,714
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
Consolidated Statements Of Changes In Shareholders' Equity
Unisource Worldwide, Inc.
<TABLE>
<CAPTION> Foreign Cost Of
Additional Currency Common
Preferred Common Paid-in Unearned Retained Translation Shares In
(dollars in thousands) Stock Stock Capital Compensation Earnings Adjustments Treasury Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994 $ 122,884 $ 1 $184,394 $ -- $ 65,989 $ (19,794) $ -- $353,474
Net income 105,202 105,202
Translation adjustments 510 510
Preferred stock dividend
to IKON (14,746) (14,746)
Common stock dividend
to IKON (28,553) (28,553)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1995 122,884 1 184,394 -- 127,892 (19,284) -- 415,887
Equity of company pooled
by IKON 8,314 8,314
Net income 59,998 59,998
Translation adjustments (5,118) (5,118)
Preferred stock dividend
to IKON 14,746 (14,746) --
Contribution of Preferred
Stock to capital (122,884) 122,884 --
Contribution of IKON
intercompany notes and
advances to capital 456,420 456,420
- ----------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996 -- 1 778,444 -- 181,458 (24,402) -- 935,501
Net income 58,686 58,686
Translation adjustments (4,918) (4,918)
Cancellation of common
stock in connection with
Spin-off (100,000 shares) (1) (1)
Issuance of common stock
in connection with Spin-off --
(66,895,190 shares) 67 (67) --
Common stock issued in
connection with an
acquisition (1,442,929 shares) 2 26,478 26,480
Restricted stock issued,
net -- (300,500 shares) 5,845 (5,845) --
Stock option exercises,
net -- (186,250 shares) 1,435 1,435
Treasury stock purchases,
net -- (32,027 shares) (560) (560)
Tax benefits relating to
stock options 556 556
Dividend payments (40,316) (40,316)
Contribution from IKON, net 7,522 7,522
- ----------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1997 $ -- $69 $820,213 $(5,845) $199,828 $ (29,320) $(560) $984,385
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
Consolidated Statements Of Cash Flows
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 58,686 $ 59,998 $ 105,202
Additions (deductions) to reconcile net income
to net cash provided (used) by operating activities:
Depreciation 29,828 27,248 24,435
Amortization 17,013 12,771 8,973
Provision for losses on accounts receivable 15,232 17,204 12,960
Provision for deferred income taxes 25,735 32,314 33,281
(Payments) provision for restructuring costs, net (12,344) 14,703 (60,364)
Changes in operating assets and liabilities, net
of effects from acquisitions and divestiture:
(Increase) decrease in accounts receivable (54,890) 46,492 (122,744)
Decrease (increase) in inventories 15,390 71,347 (70,671)
Decrease (increase) in prepaid expenses 12,152 (877) 5,245
Increase (decrease) in accounts payable
and accrued expenses 43,431 (70,949) (9,352)
Miscellaneous 10,868 (4,337) 6,417
- --------------------------------------------------------------------------------------------------
Net cash provided (used) 161,101 205,914 (66,618)
- --------------------------------------------------------------------------------------------------
Investing Activities
Cost of companies acquired, net of cash acquired (223,236) (191,196) (38,865)
Collection of notes receivable 21,443 59,500 --
Proceeds from the sale of property and equipment 11,204 9,327 7,499
Expenditures for property and equipment (25,271) (35,758) (50,054)
Deferred cost expenditures (58,707) (52,290) (57,337)
- --------------------------------------------------------------------------------------------------
Net cash used (274,567) (210,417) (138,757)
- --------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from borrowings under credit facilities, net 625,857 -- --
Proceeds from other borrowings 146,963 -- --
Debt repayments (37,216) (57,928) (4,706)
Dividend payments to IKON -- -- (43,299)
Payment of dividends (40,316) -- --
(Repayment to) proceeds from IKON (553,700) 53,370 260,872
Other 2,666 -- --
- --------------------------------------------------------------------------------------------------
Net cash provided (used) 144,254 (4,558) 212,867
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 30,788 (9,061) 7,492
Cash and cash equivalents at beginning of year 14,596 23,657 16,165
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 45,384 $ 14,596 $ 23,657
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
Unisource Worldwide, Inc. ("Unisource" or the "Company") is engaged in the
marketing and distribution of quality printing papers, paper and imaging
products for office and reprographic use, and supply systems products-
disposable paper and plastic products, packaging equipment and supplies, and
sanitary maintenance supplies and equipment.
1. Distribution and Basis of Presentation
IKON Office Solutions, Inc. ("IKON"), formerly Alco Standard Corporation,
separated Unisource from its office solutions business, with each business
operating as a stand-alone, publicly traded company. Effective December 31,
1996, one share of Unisource common stock was distributed to holders of IKON
common stock for every two shares of IKON stock owned at the record date (the
"Spin-off" or "Distribution").
Prior to fiscal 1997, the consolidated financial statements include the assets,
liabilities, revenues and expenses of IKON's wholly owned subsidiary, Unisource,
and the assets, liabilities, revenues and expenses of certain operations that
were contributed to Unisource by IKON on October 1, 1995. All transactions
between entities included in the consolidated financial statements have been
eliminated. The consolidated financial statements for periods prior to fiscal
1997 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 and corporate interest expense has been changed to more
appropriately reflect the Company's actual use of corporate services, and to
allocate IKON's interest expense on consolidated borrowings to Unisource based
on the relationship of its net assets to consolidated IKON net assets.
In conjunction with the separation of their businesses, Unisource and IKON
entered into various agreements that address the allocation of assets and
liabilities between them and define their relationship after the separation,
including a Distribution Agreement, a Benefits Agreement and a Tax Sharing and
Indemnification Agreement ("Tax Sharing Agreement").
The Distribution Agreement provides for, among other things, the principal
transactions required to effect the distribution, the allocation between the
Company and IKON of certain assets and liabilities, and cooperation between the
two companies and includes cross-indemnification provisions for damages that may
arise out of breach of obligations under the agreement.
Under the Benefits Agreement, the wages, salaries and employee benefits of all
employees of the Company are the responsibility of the Company. Generally, the
Company's obligation to provide benefits includes all obligations with respect
to Company employees under pension plans, savings plans, multi-employer plans,
welfare plans (retiree medical plans), supplemental benefit plans, certain
deferred compensation plans, incentive plans, stock-based plans and other plans
covering Company employees and includes liabilities that arose while the
individuals were employed by IKON. The Benefits Agreement requires IKON to
reimburse Unisource for a portion of any payments made by Unisource to former
Unisource employees under IKON's 1985, 1991 and 1994 deferred compensation
plans. The Company assumed certain IKON pension plans covering Company
employees. Assets and liabilities attributable to Company employees under IKON's
participating companies pension plan and IKON's 401(k) plan were transferred to
new Company pension and 401(k) plans. IKON assumed certain benefit obligations
and related assets for retirees and terminated vested employees of the Company.
30
<PAGE>
1. Distribution and Basis of Presentation (Continued)
Unisource employees and directors were given the opportunity to convert IKON
options into options to purchase Unisource common stock.
Under the Tax Sharing Agreement, Unisource will bear its respective share of (i)
IKON's federal consolidated income tax liability (or benefit), (ii) any unitary
state income tax liability and (iii) IKON's consolidated personal property tax
liability for all tax periods that end before or that include the Spin-off date
of December 31, 1996. The agreement also provides that if, within two years
after the Spin-off, either party engages in any transaction involving its assets
or stock, and, as a result, the Distribution is treated as a taxable event, then
the party engaging in such transaction shall hold the other party harmless from
any tax liability that results from the treatment of the distribution as a
taxable event.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements reflect the consolidated accounts of Unisource and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Revenue Recognition
The Company's revenues are recorded at the time the products are shipped.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and notes. Actual results
could differ from those estimates and assumptions.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries that operate in
economies that are not highly inflationary are translated into U.S. dollars at
fiscal year end exchange rates. The resulting translation adjustments are
recorded as a component of equity. Income and expense items are translated at
average exchange rates prevailing during the fiscal year. Beginning January 1,
1997, assets and liabilities of the Company's subsidiaries operating in Mexico,
a highly inflationary economy, are remeasured into U.S. dollars with resulting
gains and losses reflected in net income. The impact of this remeasurement was
not material in 1997. Net monetary assets subject to such remeasurement were
US$13,700,000 at September 30, 1997.
Inventories
Inventories are stated at the lower of cost or market. The Company uses the
last-in, first-out ("LIFO") method of determining cost for approximately 76% of
its inventories and the first-in, first-out ("FIFO") method for the balance.
Depreciation and Amortization
Property and equipment are depreciated over their useful lives by the straight-
line method. Amortization of capital lease assets is included in depreciation
expense.
31
<PAGE>
2. Summary of Significant Accounting Policies (Continued)
Goodwill
Substantially all goodwill (excess of purchase price over net assets acquired)
is amortized over 40 years by the straight-line method. The recoverability of
goodwill is evaluated at the operating unit level by an analysis of operating
results and consideration of other significant events or changes in the business
environment. If an operating unit has current operating losses and based upon
projections there is a likelihood that such operating losses will continue, the
Company will evaluate whether impairment exists on the basis of undiscounted
expected future cash flows from operations before interest for the remaining
amortization period. If impairment exists, the carrying amount of the goodwill
is reduced by the estimated shortfall of cash flows.
Interest Rate Swap Agreements
The Company uses interest rate swap agreements for purposes other than trading
and they are treated as off-balance sheet items. Interest rate swap agreements
are used by the Company to modify variable rate debt to fixed rate debt, thereby
reducing the exposure to market rate fluctuations. An interest rate swap
agreement is designated as a hedge, and its effectiveness is determined by
matching the principal balance and terms with that specific debt obligation.
Such an agreement involves the exchange of amounts based on fixed interest rates
for amounts based on variable interest rates over the life of the agreement
without an exchange of the notional amount upon which payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the debt. The related
amount payable to or receivable from counterparties is included as an adjustment
to accrued interest in other accrued liabilities. Gains and losses on
terminations of interest rate swap agreements are deferred as an adjustment to
the carrying amount of the outstanding debt and amortized as an adjustment to
interest expense related to the debt over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated debt obligation, any realized or unrealized gain
or loss from the swap would be recognized in net income coincident with the
extinguishment.
Cash Equivalents
Cash equivalents represent funds temporarily invested with original maturities
not exceeding three months.
Reclassifications
Certain prior-year amounts have been reclassified to conform to current-year
presentation.
Accounting Changes
In March 1995, the FASB issued Statement No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which the Company adopted in fiscal 1997.
In October 1995, the FASB issued Statement No. 123 (FAS 123), "Accounting for
Stock-Based Compensation." FAS 123 requires companies to measure employee stock
compensation plans based on the fair value method of accounting or to continue
to apply APB No. 25, "Accounting for Stock Issued to Employees," and provide pro
forma footnote disclosures under the fair value method in FAS 123. The Company
will continue to apply the principles of APB No. 25 and has provided the
required disclosures in Note 13.
In June 1996, the FASB issued Statement No. 125 (FAS 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which the Company adopted during fiscal 1997.
32
<PAGE>
2. Summary of Significant Accounting Policies (Continued)
The effect of adopting the above statements was not material to the Company's
consolidated financial statements.
Pending Accounting Changes
In February 1997, the FASB issued Statement No. 128 (FAS 128), "Earnings per
Share," which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. The impact of FAS 128 on the
calculation of earnings per share is not expected to produce materially
different results than the current calculation.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." The Company will adopt this Statement in fiscal 1999.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Company will adopt this Statement by
fiscal 1999.
Earnings Per Share
Earnings per share for the fiscal year ended September 30, 1997 was calculated
based upon the weighted average number of common shares issued and outstanding
for the period December 31, 1996 ("Spin-off" date) through September 30, 1997,
plus the dilutive effect of stock options.
Pro Forma Earnings Per Share (Unaudited)
Historical net income per share has been omitted for fiscal years 1996 and 1995
since Unisource was a wholly- owned subsidiary of IKON during these periods and
was recapitalized as part of the Spin-off. Pro forma earnings per share was
calculated as if the Spin-off had occurred on October 1, 1995 and assumes
Unisource borrowed to repay the $553,700,000 intercompany notes payable (see
Note 5) and $7,300,000 of other notes payable. Net income used in determining
the pro forma amount was based on historical net income, adjusted for $9,187,000
of additional interest expense and $3,638,000 of related tax benefits. These
adjustments relate to the assumed borrowings of $561,000,000 at an assumed
weighted average interest rate of 7%, less corporate interest previously
allocated by IKON. The assumed number of weighted average shares was based upon
the number of common shares issued and outstanding as of December 31, 1996, plus
the dilutive effect of stock options issued to replace IKON stock options held
by Unisource employees. Excluding the $50 million restructuring charge in 1996,
pro forma earnings per share would have been $1.29.
3. Acquisitions and Divestiture
In fiscal 1997, the Company made 14 acquisitions for an aggregate purchase price
of $240,021,000 in cash, notes payable and Unisource common stock. Total assets
related to these acquisitions were $309,441,000, including goodwill of
$165,555,000. An additional $15,811,000 relating to prior years' acquisitions
was paid and capitalized in fiscal 1997.
In fiscal 1996, the Company made 40 acquisitions for an aggregate purchase price
of $305,615,000 in cash, notes payable and IKON common stock. Total assets
related to these acquisitions were $359,717,000, including goodwill of
$241,272,000. IKON also issued 651,175 shares of its common stock for an
additional acquisition accounted for as a pooling-of-interests and results of
operations of that acquisition have been included from the beginning of the 1996
fiscal year. An additional $10,315,000 relating to prior years' acquisitions was
paid and capitalized in fiscal 1996.
33
<PAGE>
3. Acquisitions and Divestiture (Continued)
In fiscal 1995, the Company made 12 acquisitions for $38,515,000 in cash. Assets
relating to these acquisitions totaled $54,870,000, including goodwill of
$26,119,000. An additional $350,000 relating to prior years' acquisitions was
paid and capitalized in fiscal 1995.
In September 1995, Central Products Company was sold for $2,000,000 in cash and
$78,000,000 in notes, and a pretax gain of $3,867,000 was realized.
All purchase acquisitions are included in results of operations from their dates
of acquisition.
Adjusted for the effects of the divestiture, had the purchase acquisitions been
made at the beginning of fiscal 1995, unaudited pro forma results of operations
would have been:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
(in millions, except per share data) 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $7,593.6 $7,955.5 $8,223.2
Net income 61.3 72.0 123.5
Pro forma earnings per share
- see Note 2 $ 0.89 $ 0.96
</TABLE>
The Central Products Company divestiture decreased pro forma net income by
$4,793,000 in fiscal 1995.
4. Sale of Accounts Receivable
The Company entered into an agreement to sell, with limited recourse, up to
CN$95,000,000 of certain eligible Canadian accounts receivable through June 15,
1998. The agreement provides limited recourse to the Company in the event that
previously sold receivables become uncollectible. As collections reduce
previously sold interests, new receivables will be sold up to CN$95,000,000. The
amount of receivables sold under the agreement was CN$90,000,000 (US$65,142,000)
and CN$90,000,000 (US$66,100,000) at September 30, 1997 and 1996, respectively.
5. Transactions with IKON
The balance of the intercompany notes and advances in excess of $553,700,000 was
contributed to Unisource's common shareholders' equity as of September 30, 1996.
Effective September 30, 1996, the $553,700,000 plus any additional advances to
Unisource subsequent to September 30, 1996 incurred interest at 6.75% per annum.
Such interest expense incurred in fiscal 1997 totaled $7,203,000. In December
1996, Unisource borrowed under its credit facility (see Note 9) to repay the
outstanding intercompany notes, advances payable and accrued interest to IKON.
Unisource's Preferred Stock, all of which was owned by IKON, and the related
fiscal 1996 cumulative dividends were contributed to the Company's common equity
by IKON on September 30, 1996.
Prior to the Spin-off, there were no material intercompany purchase or sale
transactions between IKON and Unisource. Under IKON's centralized cash
management system, short-term advances from IKON and excess cash sent to IKON
were reflected as intercompany advances. Notes payable to IKON reflect
borrowings by the Company to finance acquisitions. Unisource has been charged
corporate interest expense based on the relationship of its net assets to total
IKON net assets, excluding corporate debt, in amounts of $29,572,000 in 1996 and
$26,586,000 in 1995.
34
<PAGE>
5. Transactions with IKON (Continued)
Included in the Consolidated Statements of Income is an allocation of general
corporate expenses related to services provided for Unisource by IKON in the
amounts of $2,308,000 in 1997, $18,014,000 in 1996 and $14,168,000 in 1995. This
allocation was based on an estimate of the proportion of corporate expenses
related to the Unisource business for the periods presented and, in the opinion
of management, has been made on a reasonable basis and approximates the
incremental costs that would have been incurred had Unisource been operating on
a stand-alone basis.
6. Inventories
If the FIFO method of accounting had been used exclusively, inventories would
have been $49,068,000 and $68,463,000 higher at September 30, 1997 and 1996,
respectively. Inventories consist principally of finished goods.
7. Property and Equipment
Property and equipment, at cost, consisted of:
<TABLE>
<CAPTION>
September 30 (in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 26,638 $ 24,937
Buildings and improvements 182,737 177,289
Machinery and equipment 225,387 194,455
- --------------------------------------------------------------------------------
434,762 396,681
Less: accumulated depreciation 188,336 172,513
- --------------------------------------------------------------------------------
$246,426 $224,168
================================================================================
</TABLE>
8. Notes Payable
Notes payable as of September 30, 1997 and 1996 includes $144,882,000 and
$38,367,000, primarily related to acquisitions, at average interest rates of
7.0% and 5.9%, respectively.
During fiscal 1997, the Company utilized its credit facility (see Note 9) to
cancel and repay a credit agreement whereby up to $100,000,000 or the Canadian
dollar equivalent could be borrowed.
Interest paid on notes payable was $2,274,000, $2,295,000 and $3,799,000 in
1997, 1996 and 1995, respectively.
35
<PAGE>
9. Long-Term Debt and Credit Facility
Long-term debt and credit facility borrowings consisted of:
<TABLE>
<CAPTION>
September 30 (in thousands) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Credit facility at average interest rate of 6.2% in 1997
(including the effect of interest rate swaps) $625,857 $ --
Other line of credit at average interest rate of 6.7% in 1997 15,000 --
Industrial revenue bonds at average interest rate of 4.5%
in 1997 and 4.4% in 1996 9,365 9,424
Capital lease obligations 11,728 12,322
Sundry notes, bonds and mortgages at average interest rate
of 5.0% in 1997 and 6.7% in 1996 38 191
- --------------------------------------------------------------------------------------------
661,988 21,937
Less current maturities 638 840
- --------------------------------------------------------------------------------------------
$661,350 $21,097
============================================================================================
</TABLE>
On November 22, 1996, the Company entered into a $1,000,000,000 five-year
unsecured credit agreement (the "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 Canadian dollar subfacility. Borrowings
under the credit facility bear interest at either the Alternate Base Rate (as
defined) or LIBOR 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 ranges from 14.5 to 30 basis points, depending on certain financial
ratios and 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 net losses) after December 31,
1996.
The majority of the proceeds from the credit facility were used to repay
intercompany notes and advances payable to IKON in conjunction with the Spin-
off. The amount available under this facility at September 30, 1997 was
$374,143,000.
The industrial revenue bonds, capital lease obligations and mortgages are
secured by related property and equipment with a net book value of approximately
$13,120,000 and $14,962,000 at September 30, 1997 and 1996, respectively.
Interest paid on long-term debt, excluding amounts charged by IKON, totaled
$28,553,000, $3,213,000 and $3,079,000 in 1997, 1996 and 1995, respectively.
Long-term debt matures in fiscal years as follows:
1998 -- $638,000; 1999 -- $624,000; 2000 -- $15,642,000; 2001 -- $676,000;
2002 -- $630,120,000; 2003-2012 -- $14,288,000.
36
<PAGE>
10. Taxes on Income
For the three-month period ended December 31, 1996, and for fiscal years 1996
and 1995, the Company has been included in the consolidated federal income tax
return of IKON. The following provision for income taxes for all periods was
determined as if the Company were a separate taxpayer.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $15,585 $ 6,093 $ 32,486
Foreign 742 2,728 1,946
State and local 2,310 1,870 (170)
- -------------------------------------------------------------------------------------------------------------
18,637 10,691 34,262
- -------------------------------------------------------------------------------------------------------------
Deferred provision:
Federal 12,557 26,265 25,070
Foreign 12,898 3,801 8,258
State and local 280 2,248 (47)
- -------------------------------------------------------------------------------------------------------------
25,735 32,314 33,281
- -------------------------------------------------------------------------------------------------------------
$44,372 $ 43,005 $ 67,543
=============================================================================================================
</TABLE>
The components of deferred income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
September 30 (in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $ 43,420 $ 32,917
Long-term contract 48,715 37,868
Other 2,988 1,021
- -------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 95,123 71,806
- -------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Nondeductible accruals 38,574 30,292
Net operating loss carryforwards 27,165 20,408
- -------------------------------------------------------------------------------------------------------------
Total deferred tax assets 65,739 50,700
Valuation allowance (14,175) (12,736)
- -------------------------------------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance 51,564 37,964
- -------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 43,559 $ 33,842
=============================================================================================================
</TABLE>
The net operating loss deferred tax asset at September 30, 1997 consists
primarily of foreign carryforwards of $41,036,000 principally expiring in years
2001 through 2006 and domestic state carryforwards expiring in years 1998
through 2012.
Components of the effective income tax rate:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Federal 35.0% 35.0% 35.0%
State 2.2 2.5 (.1)
Goodwill 2.7 1.4 .9
Foreign, including credits 1.7 4.2 2.0
Other 1.5 (1.3) 1.3
- --------------------------------------------------------------------
43.1% 41.8% 39.1%
====================================================================
</TABLE>
37
<PAGE>
10. Taxes on Income (Continued)
Prior to January 1, 1997, tax provisions were settled through the intercompany
account and IKON made (received) payments (refunds) on behalf of the Company,
which approximated $(14,070,000) in 1996 and $12,610,000 in 1995. In fiscal
1997, the Company made tax payments totaling $11,036,000, which is net of a
refund received from IKON of $8,500,000.
Undistributed earnings of the Company's foreign subsidiaries were approximately
$7,648,000 at September 30, 1997. Those earnings are considered to be
indefinitely reinvested and, therefore, no provision has been recorded for U.S.
federal and state income taxes.
11. Pension and Stock Purchase Plans
The Company sponsors defined benefit pension plans for the majority of its
employees. The benefits generally are based on years of service and average
compensation. The Company funds at least the minimum amount required by
government regulations. The cost of these plans, together with contributions to
multi-employer and defined contribution pension plans ($4,194,000 in 1997,
$3,748,000 in 1996 and $2,619,000 in 1995), is charged to operations, and
amounted to $16,044,000, $14,552,000 and $11,600,000 in 1997, 1996 and 1995,
respectively.
The components of net periodic pension cost for Company-sponsored defined
benefit pension plans are:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 14,270 $ 12,850 $ 10,896
Interest cost on projected benefit obligation 9,172 17,611 15,191
Actual return on plan assets (18,989) (42,193) (41,761)
Net amortization and deferral 7,397 22,536 24,655
- ------------------------------------------------------------------------------------------------------------------------------
$ 11,850 $ 10,804 $ 8,981
==============================================================================================================================
</TABLE>
Assumptions used in accounting for the Company-sponsored defined benefit pension
plans were:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates 7.75% 7.75% 7.50%
Rates of increase in compensation levels 6.25% 6.25% 6.00%
Expected long-term rate of return on assets 10.00% 10.00% 10.00%
</TABLE>
The funded status and amounts recognized in the consolidated balance sheets for
the Company-sponsored defined benefit pension plans are:
<TABLE>
<CAPTION>
September 30 (in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 98,082 $112,041
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated $102,081 $115,707
- -------------------------------------------------------------------------------------------------------------------------------
Projected $137,612 $138,033
Plan assets at fair value 155,103 132,644
- -------------------------------------------------------------------------------------------------------------------------------
Plan assets greater (less) than projected benefits 17,491 (5,389)
Items not yet recognized:
Net gain (30,101) (14,541)
Prior service cost 4,476 7,496
Transition asset, net of amortization (3,289) (4,487)
Adjustment required to recognize minimum liability (1,822) (3,831)
- -------------------------------------------------------------------------------------------------------------------------------
Net pension liability $(13,245) $(20,752)
===============================================================================================================================
</TABLE>
38
<PAGE>
11. Pension and Stock Purchase Plans (Continued)
Under the Benefits Agreement, IKON assumed certain benefit obligations and
related assets for retirees and terminated vested employees of the Company,
which were estimated to be $101 million and have been excluded from the
September 30, 1996 balances reflected in the 1996 table above. Such estimates
were refined during fiscal 1997 and served to reduce benefit obligations and
related assets by an additional $7 million.
Substantially all of the Unisource plan assets, totaling $155,103,000 at
September 30, 1997, are invested in listed stocks, bonds and government
securities, including common stock of Unisource having a fair value of
$11,400,000.
The majority of the Company's employees were eligible to participate in IKON's
Stock Participation Plan through fiscal 1995, under which they were permitted to
invest 2% to 6% of regular compensation before taxes. The Company contributed an
amount equal to two-thirds of the employees' investments and all amounts were
invested in IKON's common shares. Effective October 2, 1995, the Stock
Participation Plan was replaced by a Retirement Savings Plan ("RSP"). The RSP
allows employees to invest 1% to 16% of regular compensation before taxes in
multiple investment funds. The Company contributes an amount equal to two-thirds
of the employees' investments, up to 6% of regular compensation, for a maximum
company match of 4%. Prior to the Spin-off, Company contributions were invested
in IKON common stock. Following the Spin-off, Company contributions are invested
in Unisource common stock. Employees vest in a percentage of the Company's
contribution after two years of service, with full vesting at the completion of
five years of service. There is a similar plan for eligible management
employees. The cost of the plans charged to operations amounted to $12,378,692,
$13,307,000 and $9,902,000 in 1997, 1996 and 1995, respectively.
As a result of the divestiture of Central Products Company, the Company realized
and recorded a curtailment loss of $446,000 in 1995.
12. Leases
Capital leases are included in property and equipment in the amount of
$15,623,000 and $15,596,000 at September 30, 1997 and 1996, respectively.
Accumulated amortization of $9,140,000 and $8,508,000 is included in accumulated
depreciation at September 30, 1997 and 1996, respectively. Related obligations
are in long-term debt (see Note 9).
Future minimum lease payments under noncancelable leases with remaining terms of
more than one year are due as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Ended September 30 (in thousands) Leases Leases
- -----------------------------------------------------------------------
<S> <C> <C>
1998 $ 1,823 $ 49,730
1999 1,741 44,223
2000 1,726 38,014
2001 1,724 30,297
2002 1,679 25,254
2003 and thereafter 12,639 51,878
- -----------------------------------------------------------------------
Total minimum lease payments 21,332 $239,396
========
Amount representing interest and executory costs (9,604)
- ------------------------------------------------------------
Present value of net minimum lease payments $11,728
============================================================
</TABLE>
39
<PAGE>
12. Leases (Continued)
Rental expense under operating leases for the years ended September 30, 1997,
1996 and 1995 totaled $69,164,000, $61,907,000 and $51,090,000, respectively.
13. Stock Related Plans
Stock Options
Effective December 1996, the Company adopted a "Stock Option Plan" whereby key
employees and eligible consultants may be issued options to purchase up to an
aggregate of ten million shares of the Company's common stock.
The exercise price of options issued under the above plan is the market price on
the date of grant. Options generally expire in ten years and vest over a five-
year period.
Also, effective December 1996, the Company adopted a Directors' Stock Option
Plan ("Directors' Plan") under which options to purchase up to a total of
250,000 shares may be granted to outside directors. The Directors' Plan also
enables participants to receive their annual cash retainer in the form of
options to purchase shares of common stock at a discount. The discount is
equivalent to the annual directors' fees and is charged to expense.
Prior to the Spin-off, IKON had certain Stock Option Plans (the "Plans") under
which incentive stock options and nonqualified stock options could be granted to
officers, key employees and directors of Unisource. In connection with the
separation of Unisource from IKON, option holders who became employees or
directors of Unisource after the Distribution were given the opportunity to
receive options to purchase shares of Unisource common stock in lieu of their
IKON options. The number of shares subject to, and the exercise price of, each
IKON option that was converted to a Unisource option was determined based upon a
formula that preserved the inherent economic value and vesting and term
provisions of such IKON options. The number of IKON stock options converted to
Unisource stock options as of the Spin-off date was approximately 955,000 with
option prices ranging from $9.77 to $47.88. These options were converted into
approximately 2,632,000 Unisource stock options with option prices ranging from
$3.66 to $18.09.
The following is a summary of IKON options held by Unisource employees and
outside directors, and the related transactions for the years ended September
30, 1995 and 1996 and for the three months ended December 31, 1996. Also shown
are the Unisource stock options that were substituted for the IKON options on
December 31, 1996 and the other Unisource option transactions for the nine
months ended September 30, 1997.
<TABLE>
<CAPTION>
Unisource Options IKON Options
------------------- ---------------------------------------------------------------
9 months Weighted 3 months Weighted 12 months Weighted 12 months Weighted
(in thousands, except for ended Average ended Average ended Average ended Average
weighted average price) 9/30/97 Price 12/31/96 Price 9/30/96 Price 9/30/95 Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period 955 $31.41 1,276 $26.35 1,151 $18.28 1,431 $17.04
Effect for Spin-off conversion 1,677 -- -- -- -- -- -- --
Granted 659 21.33 80 46.13 419 42.04 210 29.33
Exercised (186) 7.71 (400) 18.17 (271) 15.69 (325) 14.91
Canceled (49) 13.86 (1) 43.58 (23) 31.98 (165) 20.12
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at
end of period 3,056 14.16 955 31.41 1,276 26.35 1,151 18.28
- ----------------------------------------------------------------------------------------------------------------------
Options exercisable at
end of period 920 8.82 367 20.84 586 16.68 630 15.26
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
13. Stock Related Plans (Continued)
The following table summarizes information related to stock options outstanding
as of September 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
---------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
$ 3.69 -- $ 6.07 371,914 5.56 $ 5.50 371,914 $ 5.50
6.61 -- 9.28 353,865 5.89 6.86 238,994 6.94
10.65 -- 14.69 564,758 7.59 11.77 143,671 11.44
15.23 -- 22.63 1,765,594 8.85 18.21 165,051 16.73
--------------------------------------------------- -----------------
$ 3.69 -- $22.63 3,056,131 7.88 $14.16 919,630 $ 8.82
----------------------------------------------------- -----------------
</TABLE>
Long-Term Incentive Compensation Plan
In fiscal 1997, with Board of Directors' approval, the Company established a
Long-Term Incentive Compensation Plan (LTIP). The plan is intended to motivate,
recognize and reward key management employees for long-term performance. Under
the plan, key management employees are granted restricted stock awards that are
earned upon achieving predetermined performance objectives during the plan
period. Unearned compensation is recognized at the issuance date and the value
of these awards is charged to expense over the related performance period, upon
the determination that it is probable the awards will be earned. Awards earned
vest over a three-year period after the end of the performance period. In fiscal
1997, the Company granted 355,500 shares of restricted stock under the plan. At
September 30, 1997, 2,681 of these awards were earned and 55,000 stock awards
were forfeited or canceled.
Stockholder Rights Plan
During fiscal 1997, the Company's Board of Directors adopted a Stockholder
Rights Plan (the "Rights Plan"). The Rights Plan established an exercise price
of $80.00 (subject to adjustment) per preferred stock purchase right
(individually, a "Right," and collectively the "Rights"). A Right entitles
holders thereof to buy 1/100th of a share of Preferred Stock of the Company (the
"Preferred Shares"). The Rights expire at the close of business on November 8,
2006, unless sooner exercised or redeemed or unless certain transactions set
forth in the Rights Plan have occurred.
The Rights Plan provides that the Rights will be exercisable and will trade
separately from shares of the Company's common stock upon the earlier of (i) ten
days following an announcement that a person or group, including affiliates and
associates (an "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of the
Company's common stock (the "Stock Acquisition Date") or (ii) a date as
determined by the Company's Board of Directors, which must be within ten days
following the commencement of a tender or exchange offer that would result in a
person or group beneficially owning 20% or more of the outstanding shares of the
Company's common stock. Only when one or more of these events occur will
stockholders receive certificates for the Rights.
If (i) the Company is the surviving corporation in a merger with an Acquiring
Person and Company common stock remains outstanding, or (ii) any person acquires
beneficial ownership of 20% or more of the outstanding shares of common stock,
other than through certain tender or exchange offers for all shares of the
Company's common stock that provide fair price and other terms for such shares,
or (iii) an Acquiring Person engages in certain "self-dealing" transactions, or
(iv) an Acquiring Person's beneficial ownership of common stock increases by
more than one percent, then the stockholders (excluding the Acquiring Person)
will be able to exercise the Rights and receive shares of common stock of the
Company having twice the value of the exercise price of the Rights.
41
<PAGE>
13. Stock Related Plans (Continued)
In the event that, at any time following the Stock Acquisition Date: (i)
Unisource is acquired in a merger or other business combination transaction in
which Unisource is not the surviving corporation (other than a merger that is
described in, or that follows a tender offer or exchange offer described in the
preceding paragraph) or (ii) 50% or more of Unisource's assets or earning power
is sold or transferred, each holder of a Right (except certain Rights that
previously have been voided) shall thereafter have the right to receive, upon
exercise, common shares of the acquiring company having a value equal to
approximately two times the exercise prices of the Rights.
The Rights Plan allows stockholders, upon action by a majority of the Continuing
Directors (as defined), to exercise their Rights for 50% of the shares of stock
otherwise purchasable upon surrender to the Company of the Rights so exercised
and without other payment of the exercise price.
The Rights Plan has also established the price at which the Board of Directors
can redeem the Rights at $0.01 per Right. The Rights, in general, may be
redeemed at any time prior to the tenth day following the Stock Acquisition
Date.
Stock-Based Compensation Disclosure
The following assumptions under the Black-Scholes method were applied in
determining the effect of FAS 123: (i) expected dividend yields of 4.18%, (ii)
expected volatility rates of .24 and (iii) expected lives of 5.4 years. The
risk-free interest rate applied was 5.9%. The use of these assumptions results
in an estimated weighted average fair value of $4.40 at grant date for stock
options granted during fiscal 1997.
Had compensation expense for the Company's stock option and LTIP plans been
determined by FAS 123, the Company's pro forma net income and earnings per share
for the years ended September 30, 1997 and 1996 would not have been materially
different from the amounts reported. The effects of applying FAS 123 in 1997 for
purposes of determining pro forma compensation expense disclosure may not be
representative of the effects on reported net income, or earnings per share in
future years.
14. Financial Instruments
Concentration of Credit Risk
The Company is subject to credit risk through trade receivables. Credit risk
with respect to trade receivables is minimized because of a large customer base
and its geographic dispersion. The Company is also subject to credit risk in the
event of nonperformance by the counterparties to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
Interest Rate Swap Agreements
The Company has entered into nine interest rate swap agreements with terms
beginning December 2, 1996 and expiring through June 28, 2002. These agreements
have a total principal/notional amount of $367 million and have fixed rates from
5.8% to 7.9%. The Company is required to make payments to the counterparties at
the fixed rate stated in the agreements and in return the Company receives
payments at variable rates (LIBOR), effectively converting a portion of the
expected borrowings under the variable rate credit facility to fixed rate
borrowings. At September 30, 1997, these interest rate swap agreements had a
fair value of ($3,778,000) based upon the termination value of these contracts.
42
<PAGE>
14. Financial Instruments (Continued)
Cash, Notes Payable and Long-Term Receivables
The carrying amounts reported in the balance sheet approximate fair value.
Long-Term Debt
The Company's long-term debt (excluding capital leases) is primarily comprised
of the outstanding balance under a five year credit facility (see Note 9). The
interest rate for this facility is effectively negotiated on a current (90 day)
basis; therefore, the fair value approximates the carrying amount of long-term
debt as of September 30, 1997. The Company also utilizes interest rate swap
agreements (discussed above) to reduce exposure to market rate fluctuations.
15. Restructuring
In June 1996, the Company recorded a restructuring charge of $50,000,000
associated with the regional realignment from ten to five regions in the United
States and facility mergers in the United States and Canada. The $50,000,000
charge included facility closure costs of $33,000,000 and severance costs for
approximately 900 employees of $17,000,000.
The remaining restructuring reserves are approximately $16,550,000 as of
September 30, 1997, which consists of $12,137,000 for facilities consolidation
and $4,413,000 for severance costs, and approximately $29,500,000 as of
September 30, 1996, which consists of $14,800,000 for facilities consolidation
and $14,700,000 for severance costs.
16. Contingencies
There are contingent liabilities for taxes, guarantees, lawsuits, environmental
remediation claims and various other matters occurring in the ordinary course of
business. On the basis of information furnished by counsel and others,
management believes that none of these contingencies will materially affect the
Company.
17. Deferred Costs and Commitments--Information Technology System
Effective January 1, 1994, the Company entered into an outsourcing agreement
that provides for the information technology system referred to as NADS ("North
American Distribution System"). This agreement calls for the payment of
$300,000,000 over a ten-year period. Supplemental amendments to the contract
prior to fiscal 1997, extended the contract through fiscal 2005 and provided for
additional services and payments. During 1997, amendments related to such
additional services were canceled. At September 30, 1997, the remaining
commitment under the agreement is $147,000,000.
Included in deferred costs and other assets is $136,177,000 and $90,940,000 at
September 30, 1997 and 1996, respectively, of costs associated with the NADS
outsourcing agreement and other development costs. The NADS implementation,
development and operating costs have been more expensive and time consuming than
originally projected. Accordingly, the Company has commenced a three to six
month in-depth study to examine costs and benefits relating to NADS and to re-
evaluate its current information technology program. While such study is in a
preliminary stage, if Unisource concludes that NADS will not provide a cost
effective information technology solution for its operations, the Company may
cancel part, or possibly all, of its NADS implementation. Such action could
result in a partial or full write-off of deferred costs associated with NADS and
related information technology outsourcing agreements and trigger other
additional contract exit and severance costs. It will not be possible to
estimate the amount of
43
<PAGE>
17. Deferred Costs and Commitments -- Information Technology System (Continued)
write-offs or other costs that may arise until this study is completed and the
future information technology program is determined.
18. Geographic Information
Revenues, income before taxes and identifiable assets by geographic area for
fiscal years ended September 30 are as follows:
<TABLE>
<CAPTION>
(in millions) 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Revenues
Domestic $6,205.8 $6,101.9 $6,110.5
Canada 752.4 774.0 804.0
Other foreign 150.2 146.9 72.8
- ----------------------------------------------------------
Total $7,108.4 $7,022.8 $6,987.3
==========================================================
Income before income taxes
Domestic $ 71.3 $ 81.9 $ 138.3
Canada 25.1 13.2 32.5
Other foreign 6.7 7.9 1.9
- ----------------------------------------------------------
Total $ 103.1 $ 103.0 $ 172.7
==========================================================
Assets
Domestic $2,139.8 $1,804.0 $1,665.3
Canada 299.4 280.6 330.3
Other foreign 119.6 107.1 23.4
- ----------------------------------------------------------
Total $2,558.8 $2,191.7 $2,019.0
==========================================================
</TABLE>
Included in income before taxes for fiscal 1996 are restructuring costs of
$38,000,000 for domestic operations and $12,000,000 for Canadian operations.
"Other foreign" consists of operations in Mexico and other foreign sales
offices.
19. Subsequent Events
Effective October 1, 1997, the Company entered into an agreement to sell up to
$150,000,000 of certain qualifying accounts receivable. As collections reduce
previously sold interests, new receivables may be sold up to $150,000,000. The
proceeds from the sale were primarily utilized to repay certain notes payable
(see Note 8).
Effective October 20, 1997, the Company sold a significant portion of its United
States-based Grocery Supply Systems business for approximately $51 million in
cash. Additional proceeds of $16 million are expected primarily from the
collection of retained receivables related to this divestiture. The Company has
estimated that the pretax effect of the sale will not be material; however, it
expects to record a tax charge of $6 million ($0.08 per share). The tax charge
relates to non-deductible intangible assets related to the business sold.
44
<PAGE>
Financial Review
Unisource Worldwide, Inc.
GENERAL
The following is a discussion of Unisource's financial condition and operating
results for fiscal 1997 compared to fiscal 1996 and for fiscal 1996 compared to
fiscal 1995.
Unisource is the largest marketer and distributor of printing and imaging and
supply systems products in North America. These products are primarily paper or
paper-based products. As such, the Company's revenues, gross profit and net
income are affected by fluctuations in pulp and paper prices. Volatility in pulp
and paper prices may also alter purchasing patterns and cause customers to defer
paper purchases and/or deplete inventory levels until long-term price stability
occurs, which can cause fluctuations in quarterly results.
Following the Spin-off, the Company's results were impacted by an increase in
interest expense resulting from expected higher borrowing costs as a stand-alone
entity and the refinancing of intercompany notes payable to IKON. While such
borrowing costs are expected to fluctuate as interest rates change, the Company
has entered into interest rate swap agreements to minimize the impact of such
fluctuations.
Future results also may be impacted by the degree of success encountered in
implementing the Company's acquisition strategy and in realizing growth and
efficiency through the Company's restructuring program.
The implementation, development and operating costs of the Company-wide
information systems project (NADS) have been more expensive and time consuming
than originally projected. Accordingly, the Company has commenced a three to six
month in-depth study to re-evaluate its current information technology program
to ensure such program meets future requirements in a cost effective manner.
While conducting this evaluation, the Company has limited its NADS
implementation efforts to the four divisions serviced by its Fort Washington,
Pennsylvania, Customer Service Center. Due to the implementation delay, the
Company will take the required steps to make its existing computer systems Year
2000 ready at an estimated cost in the range of $8 million to $12 million over
the next two years.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium ("Year 2000") approaches. The
Company has created a Corporate Year 2000 Project Office which will coordinate
the efforts to evaluate, identify, correct or reprogram, and test the systems
for Year 2000 readiness. If such efforts are not completed timely, the Year 2000
issue may have a material impact on the operations of the Company.
The potential alternatives related to the information technology program
re-evaluation include, but are not limited to: (i) abandon NADS and the SAP
software platform; (ii) retain NADS and SAP but significantly scale back
implementation until benefits in relation to costs are validated; and (iii)
consolidate current legacy systems to three to four integrated non-SAP systems.
If the Company decides to abandon or significantly limit the NADS
implementation, such action could result in a partial or full write-off of
deferred costs associated with NADS and related information technology
outsourcing agreements ($136,177,000 capitalized at September 30, 1997), and
could trigger other additional contract exit and severance costs. If the Company
continues with NADS implementation throughout fiscal 1998, incremental costs
associated with the implementation, development and operating costs of NADS
together with Year 2000 readiness costs associated with the legacy computer
systems are estimated to be in the range of $31 million to $51 million.
45
<PAGE>
RESULTS OF OPERATIONS
Revenues and operating income for the fiscal years ended September 1997 versus
1996 and September 1996 versus 1995 were as follows:
<TABLE>
<CAPTION>
% %
Fiscal Year Ended September 30 (in millions) 1997 1996 CHANGE 1996 1995 CHANGE
- ------------------------------------------------------------------------------------------------------------------
Revenues $ 7,108.4 $7,022.8 1.2% $7,022.8 $6,987.3 .5%
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Gross profit 1,196.6 1,126.6 6.2% 1,126.6 1,062.1 6.1%
Selling and administrative expense (1,051.9) (942.1) 11.7% (942.1) (855.8) 10.1%
Restructuring charge -- (50.0) -- (50.0) -- --
- ------------------------------------------------------------------------------------------------------------------
Operating income $ 144.7 $ 134.5 7.6% $ 134.5 $ 206.3 (34.8%)
==================================================================================================================
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues increased $85.6 million to $7.1 billion in fiscal 1997. The increase
was primarily associated with current and prior year acquisitions of $365.3
million, which were substantially offset by revenue declines of $279.7 million
in base operations for the 12-month period ended September 30, 1997. The decline
in base operations is principally due to an estimated decrease in pricing of
6.7%, partially offset by volume gains. Gross profit increased by $70.0 million,
or 6.2%, in fiscal 1997. This change is due to an increase of $97.4 million
associated with current and prior year acquisitions, offset by declines of $27.4
million in base operations for the 12-month period ended September 30, 1997.
Gross profit percentages rose to 16.8% from 16.0% due primarily to higher margin
percentages generated by acquired companies. Selling and administrative expense
increased by $109.8 million, or 11.7% in fiscal 1997. The increase is primarily
attributable to costs associated with current and prior year acquisitions along
with expenditures associated with NADS. In fiscal 1997, the Company incurred
approximately $21 million of incremental expense associated with NADS.
Operating income for fiscal 1997 increased $10.2 million from fiscal 1996.
Excluding the $50 million restructuring charge recorded in the third quarter of
fiscal 1996, operating income decreased $39.8 million or 21.6%. This decrease in
operating income was due to a $53.2 million decrease in base operations, which
was offset by a $13.4 million increase in operating income as a result of
current and prior year acquisitions. The decrease in base operations was
primarily due to a decrease in paper and supply systems pricing and expenses
related to the implementation of NADS, which were partially offset by
improvement in gross profit percentages and volume increases. Operating margins
were 2.0%, compared to 2.6% for the corresponding 12-month period of fiscal 1996
(excluding the restructuring charge).
Interest expense increased by $10.2 million to $41.6 million in fiscal 1997. 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. The $31.5 million of interest expense for the 12-month period 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 interest
expense associated with direct indebtedness of the Company, which was not
significant. Interest expense on a pro forma basis for the 12-month period of
fiscal 1996 was $40.7 million, assuming that the Spin-off occurred on October 1,
1995.
Foreign Operations
Revenues from foreign operations decreased $18 million to $903 million in fiscal
1997. Revenues from Canadian operations decreased $22 million to $752 million,
while revenues from Mexican operations increased $45 million to $118 million.
The decrease in Canadian revenues was attributable to declining paper prices,
while the increase in Mexico was the result of acquisitions, which was partially
offset by lower paper prices. Also, revenues from the foreign sales offices
decreased $41 million to $32 million for
46
<PAGE>
the 12-month period. Fiscal 1996 foreign sales office revenues benefited from
sales generated from a supplier's excess inventory, which did not recur in
fiscal 1997.
Operating income from foreign operations decreased $1.7 million to $31.9 million
in fiscal 1997 as compared to fiscal 1996, excluding a 1996 restructuring charge
of $12 million relating to Canadian operations. Canadian operating income
decreased $1.1 million (excluding the 1996 restructuring charge) to $26.2
million, primarily due to lower paper prices. Mexican operating income increased
$1.4 million to $6.3 million due primarily to acquisitions. The foreign sales
offices' operating income decreased by $2.0 million for fiscal 1997, primarily
as a result of the decrease in sales volume.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations during fiscal 1997. Mexico is considered a
hyper-inflationary economy for accounting purposes and the changes in exchange
rates applied to the Company's net monetary assets are reflected in net income.
The net monetary assets at September 30, 1997 were US$13.7 million.
The Company believes that its foreign operations do not expose it to material
foreign currency risk. Unisource believes that economic risk is minimized
because the Company sources locally approximately 70% of the products it
distributes within its foreign markets and consistent with its growth plans, the
Company reinvests profits in the country in which such profits are derived,
except with respect to a limited amount of interest.
Acquisitions
In fiscal 1997, Unisource completed 14 acquisitions with annualized revenues of
more than $550 million. Substantially all of the U.S.-based acquisitions are
supply systems companies, reflecting Unisource's goal of moving toward a
balanced revenue contribution between the printing and imaging and supply
systems businesses. Four of the acquisitions, with annualized revenues of $51
million, primarily represent supply systems companies that are located in Canada
and Mexico. The 14 acquisitions were financed with cash ($208 million),
Unisource common stock ($26 million) and promissory notes ($6 million).
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues increased $35.5 million, or .5% to $7 billion in fiscal 1996. This
increase is principally due to increases associated with current and prior-year
acquisitions of $527.9 million, which were offset by revenue declines of $383.0
million in base operations and $109.4 million related to an operation sold in
September 1995. Revenues of base operations are down as a result of paper price
and volume declines. Gross profit percentages rose from 15.2% in fiscal 1995 to
16.0% in fiscal 1996 due to lower costs from suppliers for many products, higher
gross profit percentages generated by acquired companies and a higher proportion
of Unisource warehouse delivered (versus mill direct) sales. Warehouse delivered
sales generally result in higher gross profits, as compared to mill direct
sales, but also have higher associated operating expenses due to related
warehouse handling and delivery costs. Selling and administrative expense
increased by $86.3 million due to additional operating costs associated with
current and prior-year acquisitions, net of reductions related to the operation
that was sold in September 1995.
Excluding the effects of the restructuring charge, operating income decreased
$21.8 million, or 10.6%. Current and prior-year acquisitions, net of the
divestiture, provided $19.6 million of operating income. Operating income from
base operations declined $41.4 million as a result of price and volume declines
during fiscal 1996 partially offset by improvement in gross profit percentages,
restructuring benefits and operating efficiencies. Operating margins, excluding
the restructuring charge, were 2.6% in fiscal 1996, compared to 3.0% in fiscal
1995. The overall decrease in operating income of 34.8% is primarily
47
<PAGE>
attributable to the $50 million of restructuring costs recorded in the third
quarter of fiscal 1996 and operating income decreases described above.
Foreign Operations
Revenues from foreign operations increased $44 million, from $877 million in
fiscal 1995 to $921 million in fiscal 1996. Revenues from Canadian operations
decreased $30 million, net of $13 million contributed by a fourth quarter 1995
acquisition, to $774 million. Revenues from Mexican operations increased $61
million to $73 million as a result of acquisitions, and revenues from foreign
sales offices increased $13 million. Operating income from foreign operations,
excluding $12 million of the restructuring charge that relates to Canadian
operations, decreased $4.6 million to $33.6 million in fiscal 1996 compared to
$38.2 million in fiscal 1995. Canadian operating income decreased $9 million to
$27.3 million, while Mexican operating income increased $3.7 million to $4.8
million and the foreign sales offices contributed an increase of $.7 million, to
$1.5 million. The decrease in the Canadian operating income reflects paper price
decreases while the increase in the Mexican operating income is the result of
acquisitions. There was no material effect of foreign currency exchange rate
fluctuations on the results of operations in fiscal 1996 or fiscal 1995.
Restructuring
The Company recorded a restructuring charge of $50 million during the third
quarter of fiscal 1996, which includes the cost of facility closures ($33
million) and severance costs ($17 million) associated with the regional
realignment from ten to five regions in the United States and facilities mergers
in the U.S. and Canada.
Acquisitions
In fiscal 1996, Unisource completed 41 acquisitions with annualized revenues of
$854 million. Almost all of the U.S.-based acquisitions are supply systems
companies, reflecting Unisource's goal of moving toward a balanced revenue
contribution between its printing and imaging and supply systems businesses.
Fifteen of the acquisitions are located in Mexico, further expanding the
Company's presence in the Mexican market. The 41 acquisitions were financed with
cash ($185 million), IKON common shares ($104 million) and promissory notes ($45
million).
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities in fiscal 1997 was $161.1 million.
During the same period, the Company used $274.6 million in cash for investing
activities, which included acquisition activity (at a cash cost of $223.2
million, including cash earn-out payments relating to pre-fiscal 1997
acquisitions and net of cash acquired associated with fiscal 1997 acquisitions),
deferred cost expenditures of $58.7 million, principally associated with the
NADS system and capital expenditures of $25.3 million. Cash provided by
financing activities of $144.3 million included net proceeds received from
borrowings of $735.6 million offset by a $553.7 million debt repayment to IKON,
and dividend payments of $40.3 million.
On September 30, 1997, total debt of $806.9 million was outstanding. The Company
had a total of $1 billion in bank credit commitments as of September 30, 1997,
of which $374 million was unused and available.
On November 7, 1997, the Company declared a dividend on its common stock of $.20
per share payable on December 10, 1997 to shareholders of record on November 24,
1997.
48
<PAGE>
Total cash expenditures in connection with the Unisource restructuring plans
amounted to $12.3 million in fiscal 1997. Remaining cash expenditures are
estimated at $16.5 million. Unisource is a party to a long-term information
technology outsourcing agreement, which is scheduled to continue through
September 30, 2005. The remaining commitment under this agreement was $147
million at September 30, 1997. During fiscal 1997, the Company spent $31.5
million under this agreement, and cash outlays of approximately $28.2 million
are projected under this outsourcing arrangement during fiscal 1998. These
restructuring and outsourcing expenditures are anticipated to be funded from
Unisource's operating cash flow.
The Company periodically sells Canadian accounts receivable pursuant to a
limited recourse, bank-sponsored program that provides a cost-effective source
of liquidity for Canadian operations (see Note 4).
Effective October 1, 1997, the Company began selling certain U.S. accounts
receivable pursuant to a $150 million agreement. The proceeds from the sale were
primarily utilized to repay certain notes payable (see Note 8).
At the end of fiscal 1997, the Company's commitments for capital expenditures
were approximately $12 million, all of which are expected to be expended during
fiscal 1998.
The Company believes that its operating cash flow, together with financing
arrangements, will be sufficient to finance current operating requirements
including capital expenditures, acquisitions, cash requirements under its
restructuring and Year 2000 ready programs and future dividends.
The statements set forth herein with respect to operations, acquisition plans
and the implementation and technology outsourcing costs and plans associated
with NADS and Year 2000 readiness are forward-looking statements based upon
management's current plans and expectations and are subject to a number of
uncertainties and risks that could cause actual results to differ materially.
Such uncertainties and risks include changes in pulp and paper prices and market
conditions within the Company's businesses; delays, difficulties and costs
associated with systems implementation or Year 2000 readiness programs; debt
service requirements and liquidity; and the availability of, and ability to
close, acquisition opportunities on terms acceptable to the Company.
49
<PAGE>
Quarterly Financial Summary (Unaudited)
Unisource Worldwide, Inc.
Following is a summary of the unaudited interim results of operations for each
quarter in the years ended September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1997
Revenues $ 1,729 $ 1,716 $ 1,764 $ 1,899 $ 7,108
Gross profit 300 292 294 311 1,197
Net income 20 10 13 16 59
Earnings per share /(1)/ .30 .16 .19 .23 .87
Dividends per share -- .20 .20 .20 .60
Common Stock Price
High/ 22 1/8 - 22 5/8 - 17 3/4 - 19 3/4 - 22 5/8 -
Low /(2)/ 18 5/8 15 3/8 13 3/4 16 7/16 13 3/4
Year ended September 30, 1996
Revenues 1,716 1,747 1,749 1,811 7,023
Gross profit 269 290 292 276 1,127
Net income (loss) 26 29 (6)(3) 11 60(3)
Pro forma earnings per share /(1)/ .35 .41 (.11) .15 .81
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) See Note 2 to the consolidated financial statements for method of
calculating earnings per share.
(2) On December 9, 1996, the Company commenced "when-issued" trading that
continued through December 31, 1996 at which time the Spin-off from IKON
became effective and the stock began "regular way" trading.
(3) Includes $50,000,000 restructuring charge; $32,500,000 net of tax ($.48 loss
per share).
50
<PAGE>
Exhibit 21
----------
<TABLE>
<CAPTION>
Subsidiaries of the Registrant
Subsidiary State of Incorporation
- ----------------------------------------------------------------------
<S> <C>
Paper Corporation of North America Delaware
Unisource Canada, Inc. Canada
Unisource Distribuidora, S.A. de C.V. Mexico
Unisource Capital Corporation Delaware
National Sanitary Supply Company Delaware
</TABLE>
51
<PAGE>
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Unisource Worldwide, Inc. of our report dated October 21, 1997, included in
the 1997 Annual Report to the Shareholders of Unisource Worldwide, Inc.
Our audits also included the financial statement schedule of Unisource
Worldwide, Inc. listed in item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the following registration
statements on Form S-4 and Form S-8 of Unisource Worldwide, Inc. and in the
related Prospectuses of our report dated October 21, 1997, with respect to the
consolidated financial statements of Unisource Worldwide, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the year ended September 30,
1997, filed with Securities and Exchange Commission.
<TABLE>
<CAPTION>
REGISTRATION
NUMBER FILING DATE DESCRIPTION
- -------------------------------------------------------------------
<S> <C> <C>
333-17141 December 2, 1996 Unisource Worldwide, Inc.
Stock Option Plan
333-17949 December 16, 1996 Unisource Worldwide, Inc.
Directors' Stock Option Plan
333-17947 December 16, 1996 Unisource Worldwide, Inc.
Partners' Stock Purchase Plan
333-17951 December 16, 1996 Unisource Worldwide, Inc.
Retirement Savings Plan
333-17953 December 16, 1996 Unisource Worldwide, Inc.
Stock Award Plan
333-25897 April 25, 1997 Unisource Worldwide, Inc.
5,000,000 Shares of Common Stock
</TABLE>
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 15, 1997
52
<PAGE>
Exhibit 24.1(a)
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of Unisource Worldwide,
Inc. ("Unisource").
The undersigned hereby appoints each of Hugh G. Moulton and Thomas A.
Decker as his attorneys-in-fact, each with the power of substitution, to
execute, on his behalf the foregoing Report on Form 10-K, and any and all
amendments thereto, for filing with the Securities and Exchange Commission
("SEC"), and to do all such other acts and execute all such other documents
which said attorney may deem neessary or desirable.
Dated this 17th day of December, 1997
/s/ Paul J. Darling, III
----------------------------
Director
53
<PAGE>
Exhibit 24.1(b)
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of Unisource Worldwide,
Inc. ("Unisource").
The undersigned hereby appoints each of Hugh G. Moulton and Thomas A.
Decker as his attorneys-in-fact, each with the power of substitution, to
execute, on his behalf the foregoing Report on Form 10-K, and any and all
amendments thereto, for filing with the Securities and Exchange Commission
("SEC"), and to do all such other acts and execute all such other documents
which said attorney may deem necessary or desirable.
Dated this 17th day of December, 1997
/s/ James J. Forese
---------------------------
James J. Forese
54
<PAGE>
Exhibit 24.1(c)
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of Unisource Worldwide,
Inc. ("Unisource").
The undersigned hereby appoints each of Hugh G. Moulton and Thomas A.
Decker as his attorneys-in-fact, each with the power of substitution, to
execute, on his behalf the foregoing Report on Form 10-K, and any and all
amendments thereto, for filing with the Securities and Exchange Commission
("SEC"), and to do all such other acts and execute all such other documents
which said attorney may deem necessary or desirable.
Dated this 17th day of December, 1997
/s/ Dana G. Mead
---------------------------
Dana G. Mead
55
<PAGE>
Exhibit 24.1(d)
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of Unisource Worldwide,
Inc. ("Unisource").
The undersigned hereby appoints each of Hugh G. Moulton and Thomas A.
Decker as his attorneys-in-fact, each with the power of substitution, to
execute, on his behalf the foregoing Report on Form 10-K, and any and all
amendments thereto, for filing with the Securities and Exchange Commission
("SEC"), and to do all such other acts and execute all such other documents
which said attorney may deem necessary or desirable.
Dated this 17th day of December, 1997
/s/ Rogelio G. Sada
---------------------------
Rogelio G. Sada
56
<PAGE>
Exhibit 24.1(e)
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of Unisource Worldwide,
Inc. ("Unisource").
The undersigned hereby appoints each of Hugh G. Moulton and Thomas A.
Decker as his attorneys-in-fact, each with the power of substitution, to
execute, on his behalf the foregoing Report on Form 10-K, and any and all
amendments thereto, for filing with the Securities and Exchange Commission
("SEC"), and to do all such other acts and execute all such other documents
which said attorney may deem necessary or desirable.
Dated this 17th day of December, 1997
/s/ James W. Stratton
---------------------------
James W. Stratton
57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
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> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 45,384,000
<SECURITIES> 0
<RECEIVABLES> 906,943,000
<ALLOWANCES> 24,583,000
<INVENTORY> 495,330,000
<CURRENT-ASSETS> 1,472,949,000
<PP&E> 434,762,000
<DEPRECIATION> 188,336,000
<TOTAL-ASSETS> 2,558,832,000
<CURRENT-LIABILITIES> 805,532,000
<BONDS> 661,350,000
0
0
<COMMON> 69,000
<OTHER-SE> 984,316,000
<TOTAL-LIABILITY-AND-EQUITY> 2,558,832,000
<SALES> 7,108,355,000
<TOTAL-REVENUES> 7,108,355,000
<CGS> 5,911,713,000
<TOTAL-COSTS> 5,911,713,000
<OTHER-EXPENSES> 1,036,715,000<F1>
<LOSS-PROVISION> 15,232,000
<INTEREST-EXPENSE> 41,637,000
<INCOME-PRETAX> 103,058,000
<INCOME-TAX> 44,372,000
<INCOME-CONTINUING> 58,686,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,686,000
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
<FN>
<F1>Represents selling, general, and administrative expenses, excluding provision
for losses on accounts receivable.
</FN>
</TABLE>
