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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 1, 1998
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UNISOURCE WORLDWIDE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE File No. 1-14482 13-5369500
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
1100 Cassatt Road, Berwyn, Pennsylvania 19312
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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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Not Applicable
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(Former name, former address, and former fiscal year, if changed since last
report)
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Item 5. Other Events.
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On October 1, 1998, the Registrant issued the attached press release.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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(99) Press Release dated October 1, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNISOURCE WORLDWIDE, INC.
(Registrant)
By: /s/ Thomas A. Decker
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Thomas A. Decker
Senior Vice President,
General Counsel and Secretary
Dated: October 1, 1998
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Exhibit Index
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(99) Press Release dated October 1, 1998.
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EXHIBIT 99
NEWS RELEASE
Contact
Martha A. Buckley JoAnn P. Huston
Director, Corporate Communications Director, Investor Relations
610-722-3511 610-722-3513
[email protected] [email protected]
UNISOURCE ANNOUNCES RESTRUCTURING UPDATE
Plans to Divest Mexican Operations
Berwyn, Pennsylvania -- October 1, 1998 - Unisource Worldwide, Inc.
(NYSE:UWW) provided today an update of its restructuring plan and the related
charge to earnings. The company also announced its intent to divest its
operations in Mexico and record an additional special charge for the write-down
of its investment in Mexico.
"We have made significant progress on key elements of our restructuring
program," commented Ray B. Mundt, Chairman of Unisource. He stated that, during
the quarter, the company has:
. Closed 14 facilities with a total of 136,000 square feet of space
. Reduced headcount by more than 300 employees
. Completed the amendment of its bank credit facility
. Initiated programs to improve small order profitability
Restructuring Charge
The company confirmed that its restructuring charge will be in the
previously-announced range of $130 to $150 million ($84 to $97 million after
tax). The charge is being recorded in two consecutive quarters of fiscal 1998.
An initial charge of $28 million ($18 million after tax) was recorded in
the company's third fiscal quarter, ended June 30, 1998, and reflected facility
sales and closures initiated during that quarter.
The fourth quarter charge of $102 to $122 million ($66 to $79 million after
tax) is comprised of $77 to $92 million for severance and facility closures; and
$25 to $30 million for inventory write-down as a result of planned inventory
disposals related to the restructuring.
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As originally announced in July, Unisource also expects to incur one-time
implementation expenses of approximately $50 to $60 million related to the
restructuring. The implementation costs, most of which will be incurred and
expensed in fiscal 1999, will cover relocation, recruitment, training, duplicate
manning costs during the transition, and IT consolidation expenses.
Financial Benefits
The restructuring plan is designed to improve service to customers,
decrease costs, increase financial flexibility and facilitate expansion of the
company's profitable market segments. When fully implemented, the plan is
expected to result in annual operating income improvement of $150 to $170
million, which would approximately double reported operating income for fiscal
1997. Additionally, the company now expects a permanent cash flow improvement,
compared to June 30 levels, of $50 to $80 million from reduced inventory
investment, versus the originally stated improvement of $30 to $50 million.
Through a combination of increased gross trading margins and reduced
expenses, the company expects to achieve its goal of an 80% expense-to-gross
profit ratio by the fourth quarter of fiscal 1999.
Facility Closures
During the quarter, Unisource closed 14 facilities with 136,000 square feet
of space. To date, the company has closed or sold a total of 28 facilities,
including 18 warehouses, 4 sales offices and 6 Paper Plus stores, a reduction of
more than 660,000 square feet of space. These actions represent approximately
15% of the 171 facilities and 20% of the 3 million square feet of space targeted
for reduction. The schedule calls for the closure of an additional 215,000
square feet of facilities by the end of October.
Workforce Reduction
During the quarter, Unisource reduced its total work force by more than 300
employees. This represents 20% of the 1,500 planned workforce reductions. In
addition, more than 150 underperforming sales employees will be terminated
within the next two weeks.
Customer Profitability
Unisource has initiated several programs to better match service and
expense levels to order and customer profitability. Minimum order policies have
been implemented, along with alternative service programs such as direct
marketing, minimum service fees and greater utilization of its Paper Plus retail
stores. Profitability models have also been completed with respect to 15,000
customers and plans are in progress to address those with lower returns. The
company's goal is to work with customers to structure order patterns that serve
the customer's needs while improving profitability for those accounts.
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Mexico
The company also announced that it has now completed a review of its entire
investment portfolio, including its strategic options for its investment in
Mexico. As a result of that review, the company has concluded that its Mexican
operations will not contribute to its strategic goals and objectives in the
future. That decision reflects several factors. Chief among them is the
company's belief that its long-term returns will be enhanced by reinvesting the
divestiture proceeds in its U.S. and Canadian operations and reducing debt,
rather than maintaining its current position in Mexico. In addition, the
significant emerging market disruptions occurring throughout the world and the
continuing uncertainty in the Mexican economy make managing and planning for the
future extremely difficult. Unisource also cited current exchange losses
negatively impacting income as well as expected further declines in the peso,
and noted its unwillingness to make further investment in Mexico.
Accordingly, the Board of Directors has approved management's
recommendation to divest its Mexican operations and focus solely on its U.S. and
Canadian businesses. As a result, Unisource has retained the services of
Donaldson, Lufkin & Jenrette to assist in the valuation and sale of the Mexican
operations and will record an additional charge related to the write-down in the
range of $65 to $70 million in the current quarter.
The combined charges for the restructuring and the write-down of the
Mexican investment will total $167 to $192 million in the fourth quarter.
Capital Structure
On September 25, 1998, Unisource completed the previously announced
amendment to the Bank Credit Facility. The revised agreement, in the amount of
$900 million, provides increased financial flexibility. The terms of the new
covenants provide for initial levels of a maximum leverage ratio of 65%, a
minimum net worth of $575 million and a minimum EBITDA to interest ratio of
2.25. After the restructuring charge and the write-down for Mexico, the company
will be comfortably within the range of the revised covenants. Borrowings
outstanding under the facility totaled $504 million as of August 31,1998,
leaving $396 million of available capacity.
The company also confirmed its intent to issue $300 million of 10-year
notes to institutional investors. Under the amended Bank Credit Facility, the
company must use its best effort to complete this issuance by March 31, 1999.
Plan on Schedule
"This completes the company's strategic and operational review of its North
American operations," Mundt said. The focus for the next year is the successful
and timely implementation of the restructuring program. That program is
proceeding on schedule, and I am confident that we will begin to realize the
financial benefits of our efforts by the second half of fiscal 1999," Mundt
said.
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Mundt also confirmed that earnings for the fourth quarter and fiscal year
ending September 30, 1998 will be released on October 29, 1998 and are expected
to be within the consensus range of security analysts covering the company.
Unisource Worldwide, Inc. (http://www.unisourcelink.com), headquartered in
Berwyn, Pennsylvania, is one of the largest distributors of paper products and
supply systems in North America, with annual revenues in excess of $7 billion.
The notes that Unisource anticipates offering to institutional investors by
March 31, 1999 have not been and will not be registered under the Securities Act
of 1933 at the time of issuance and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements.
All statements, other than statements of historical fact, made in this report,
including, without limitation, (i) statements relating to the implementation of
the restructuring plan and the timing thereof (including the planned reduction
of employees, facilities closures, and reduction of warehouse space), the
projected costs and expenses associated with the restructuring plan and the
implementation thereof (including the amount and timing of the charges to be
taken in connection therewith and the amount of cash to be used in connection
therewith) and the financial results and benefits to be realized from such
restructuring (including projected increased operating income, reduced inventory
investment, and improved financial performance), (ii) the issuance of notes by
March 31, 1999, and other proposed future actions, (iii) the divestiture of its
Mexican operations and the benefits to be derived therefrom, and (iv) statements
qualified by the words "believes," "anticipates," "expects," "intends," "may,"
"estimates," "will," and other words similar thereto, are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Although the Company
believes these statements are based upon reasonable assumptions with respect to
future events and circumstances, such statements are subject to risks and
uncertainties which could cause actual results or circumstances to differ
materially. Such risks and uncertainties include, without limitation, delays,
difficulties, or increased costs associated with the implementation of the
restructuring plan, the issuance of notes upon favorable terms, the ability to
find a buyer for its Mexican operations and to sell such operations upon terms
favorable to the Company, leverage and debt service requirements (including
sensitivity to interest rate fluctuations), operating in a competitive
environment, general economic conditions, the ability to attract and retain
qualified personnel, changes or volatility in pulp and paper prices, and delays
or difficulties with consolidation of its information technology systems and the
upgrading of such systems to be year 2000 compliant. For further detail and
information concerning such risks and uncertainties, please consult Part I, Item
1, of the company's annual report on Form 10-K for the fiscal year ended
September 30, 1997, which is on file with the Securities and Exchange
Commission.
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