EXHIBIT 99.4
NEWS RELEASE
Contact
Martha A. Buckley JoAnn P. Huston
Director, Corporate Communications Manager, Investor Relations
610-722-3511 610-722-3513
mbuckley@unisourcelink.com jhuston@unisourcelink.com
UNISOURCE ANNOUNCES RESTRUCTURING DETAILS
Plan Includes Dividend Reduction and New Capital Structure
BERWYN, PENNSYLVANIA - JULY 29, 1998 - Unisource Worldwide, Inc. (NYSE:UWW)
announced today details of an extensive restructuring plan designed to improve
service to customers, decrease costs, increase financial flexibility and grow
profitable market segments. "The changes we are making to improve the company's
operating and financial performance are substantial and, as the plan is
implemented, will dramatically enhance the value of Unisource," commented Ray B.
Mundt, chairman and chief executive officer.
The restructuring plan includes a reduction of more than 1,500 employees
across all business functions, or approximately 15% of the company's U.S.
workforce, and approximately 20% of its U.S. warehouse space. As a result of
the restructuring, the company will take a pre-tax charge of $130-$150 million
in fiscal 1998 and will incur one-time implementation expenses of $50-$60
million over the following two years. When fully implemented in 2001, the plan
is expected to result in annual operating income improvement of $150-$170
million, which would approximately double the total operating income reported
for fiscal 1997.
The company forecasts that cumulative operating income benefits over the
next two years will exceed the combined restructuring and implementation costs
of $180-$210 million. The plan also projects permanent cash flow improvement of
$30-$50 million from reduced inventory investment.
The restructuring charge will be taken over two consecutive quarters:
* $28 million ($18 million after tax) in the third quarter, reflecting closures
or sales of facilities initiated during that quarter
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* $102-$122 million ($66-$79 million after tax) in the fourth quarter,
reflecting severance; facility closures; inventory write-down due to closure of
facilities, discontinuation of certain product lines and rationalization of
vendors and SKUs; and anticipated restructuring of the company's Canadian and
Mexican operations
Implementation costs of $50-$60 million will cover relocation, recruitment,
training, duplicate manning during the transition, and IT consolidation expenses
related to the restructuring.
A final determination of the amounts of the charge and implementation costs
depend on work presently in process to refine the requirements for Canada and
Mexico and to complete an analysis of the inventory impact. This work will be
completed in the current quarter and announced prior to fiscal year-end.
Major Restructuring Elements
The plan announced today is comprised of six major initiatives:
* Organizing into fourteen strategic market areas in the U.S.
This new structure will replace the company's current regional/divisional
structure, consisting of 150+ autonomous operating units, with fourteen market
areas, while integrating acquired companies into its core operations.
* Functionally aligning the sales and distribution responsibilities within
market areas.
Each of the new market areas will be managed by two vice presidents- one
responsible for all sales functions, and one to oversee all warehousing and
distribution activities within that same market area. Each will report to a
senior vice president at the corporate level, but will share common goals and
incentives to promote common objectives. The Sales and Distribution structure
will be supported at the corporate level by newly-created Procurement and
Marketing organizations.
* Creation of an efficient "hub and spoke" distribution network that reduces
the total number of locations by 40% and reduces warehouse space by nearly 20%.
Facility consolidations will reduce the total number of Unisource locations
from 424 to 253, and will eliminate three million square feet of warehouse
space. The new structure will significantly improve warehouse productivity,
while allowing Unisource to continue to offer next-day delivery to customers
throughout the United States.
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* Establishment of a new corporate marketing function to drive focused
marketing initiatives throughout the organization.
This new corporate department will utilize economic data, industry research
and market analysis to develop strategy and detailed marketing plans for each
product category and customer segment. Corporate Marketing will also manage
brand strategy and provide advertising and promotional support to the sales
effort in each market area.
* Creation of a corporate procurement department to direct company-wide
purchasing and national contracts.
The new procurement function will take full advantage of the company's size
and national presence to reduce its total cost of procurement. Procurement
will also develop strategic positioning with suppliers to combine their
product development resources with Unisource's marketing power for the benefit
of all the members of the supply chain.
* Expansion of the company's successful Customer Service Center concept.
Unisource will integrate all of its customer service activities into 21
strategically-located customer service centers, building on the success of the
customer service centers created several years ago. The 21 centers will
consist of 11 existing centers, which will continue to serve customers within
their market areas, along with 10 new centers, which will consolidate
currently-dispersed customer service activities, primarily within recently-
acquired operations. This strategy will enhance overall customer service
capabilities and facilitate communications between the company's sales and
customer service organizations.
In conjunction with its new organizational structure, Unisource today
announced two appointments to its senior management team. Kenneth F. Vuylsteke,
who joined Unisource as a result of the National Sanitary Supply acquisition,
was named senior vice president of sales. George Timchal, currently vice
president of sourcing and procurement for Sunbeam Corp., was named senior vice
president of procurement.
The company is also instituting an extensive customer analysis designed to
assess customer profitability and develop appropriate pricing, service and
delivery levels. The goal of this process is to work with customers to ensure a
fair return for the value offered. However, the analysis is likely to result in
some lost sales.
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FINANCIAL IMPACT
The business impact of the anticipated changes, combined with the elimination of
unprofitable business, could result in a net revenue decline of $500-$700
million in 1999. Depending on the amount of the revenue decline, additional
positions could be impacted. However, upon full implementation, the plan will
have a significant positive effect on the company's financial performance,
resulting in an estimated annualized increase in operating income of $150-$170
million, with a return on shareholders equity approaching 14% and a return on
capital of nearly 10% by the end of the year 2000.
The major components of that increase are shown below.
Forecasted Impact of Restructuring on Operating Income
------------------------------------------------------
(Millions) Comments
---------- --------------------------------------------
Manning Reductions $ 80 - $ 85 1,500+ people
Facility Costs 25 - 25 3 million square feet
Other Expenses 30 - 40 T&E, supplies, freight, telephone
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Total SG&A $135 - $150
Strategic Purchasing 30 - 40 1.5% savings on US warehouse purch.
Business Impact (15) - (20)
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Operating Income Impact $150 - $170
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The plan will enable the company to reduce its inventory investment by $30-
$50 million from June 30, 1998 levels. Unisource has already made significant
progress in reducing inventory, achieving an $87 million reduction since
December 31, 1997.
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TIMING
Mundt reported that the company will begin implementing the restructuring
plan immediately and plans to complete the majority of the closures and manning
reductions within the next twelve months. "We should begin to realize the
financial benefits of our restructuring efforts by the second half of fiscal
1999," Mundt said.
"Through a combination of increased gross trading margins and reduced
expenses, we expect to achieve our goal run rate of 80% expense-to-gross profit
ratio by the end of our fourth fiscal quarter of 1999," Mundt continued.
DIVIDEND
Separately, the Unisource board of directors declared its regular quarterly
dividend of $.20 a share for the fourth quarter of fiscal 1998. The $.20
dividend will be paid on September 10 to holders of record as of August 24,
1998.
Additionally, the board announced its intention to reduce future quarterly
dividends to $.05 per share, beginning with the dividend payable in December
1998. "Our Board determined that the funds currently being allocated to
dividends would serve shareholders better if reinvested in the future growth of
our company," Mundt said.
CAPITAL STRUCTURE
The Board of Directors approved an amendment to the company's bank credit
facility, as well as the issuance of $300 million of senior subordinated 10-year
notes anticipated to be sold to institutional investors in September. The
amendment will reduce the amount of the credit facility from $1 billion to $900
million and will permit more flexible financial covenants. The immediate
reduction of $100 million is due to the strength of the company's cash flow and
the expectation that this additional borrowing capacity will not be needed.
The amount of the facility will be further reduced to $600 million when the note
proceeds are received. The company's lenders have approved a covenant waiver
through September 30, 1998 and the final amendment is expected to be completed
in early September.
Interest costs are forecast to increase in fiscal 1999 by $8 to $10
million, due to higher rates associated with the long-term financing and an
expected increase in the pricing of the company's credit facility.
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SUMMARY
"Our restructuring plan will reduce our costs, increase our profitability,
and put us back on the path of consistent growth," Mundt said. "Our operations
will be leaner and stronger and our revised capital structure will provide us
with the strength and flexibility to make appropriate investments for profitable
growth."
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. Fiscal 1997 revenues exceeded $7 billion.
The senior subordinated notes that Unisource anticipates selling to
institutional investors in September 1998 have not been and will not be
registered under the Securities Act of 1933 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 press
release, including, without limitation, (i) statements relating to the
implementation of the restructuring plan and the timing thereof (such as the
planned increase of customer service centers and planned reduction of employees,
number of locations, warehouse space, and inventory investment), the projected
costs and expenses associated with the restructuring plan and the implementation
thereof, the projected impact of, and financial results and benefits to be
realized from, such restructuring (such as projected decreased procurement and
operating costs, increased warehouse productivity, increased operating income,
increased cash flow, increased gross trading margins, reduced expense-to-gross
profit ratio, increased profitability, and improved return on shareholders
equity and return on capital), and the other projected ramifications of the
restructuring plan (such as the anticipated loss of customers and decrease in
revenues), (ii) statements relating to the payment of future dividends not yet
declared, the consummation of the amendment to the company's credit facility,
the issuance of senior subordinated notes, and other proposed future actions,
and (iii) 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 consummation of the proposed
amendment of its credit facility, the issuance of the senior subordinated notes,
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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