<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C.   20549

                                   Form 10-Q

(Mark One)

[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1998 or
                                           -------------   
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________ to _____________

Commission file number       1-14482
                          ------------

                           UNISOURCE WORLDWIDE, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

 DELAWARE                                                         13-5369500
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)


                     1100 Cassatt Road, Berwyn, PA  19312
--------------------------------------------------------------------------------
                   (Address of principal executive offices)
                                  (Zip Code)

                                (610) 296-4470
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changed since last
  report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X        No ______
    ------      




As of July 31, 1998, there were outstanding 70,039,982 shares of the
registrant's common stock, par value $0.001.
<PAGE>
 
                                     INDEX

                           UNISOURCE WORLDWIDE, INC.


PART I.  FINANCIAL INFORMATION                                          Page No.
------------------------------                                          --------

  Item 1.  Financial Statements (Unaudited)
 
           Condensed Consolidated Balance Sheets June 30, 1998             3-4
           and September 30, 1997
 
           Condensed Consolidated Statements of Operations Three and        5
           Nine Month Periods Ended June 30, 1998 and June 30, 1997
 
           Condensed Consolidated Statements of Cash Flows Nine Month       6
           Periods Ended June 30, 1998 and June 30, 1997
 
           Notes to Condensed Consolidated Financial Statements            7-10
           June 30, 1998


  Item 2.  Management's Discussion and Analysis of Results                11-17
           of Operations and Financial Condition and Liquidity



PART II.  OTHER INFORMATION
---------------------------

  Item 5.  Other Information                                               18


  Item 6.  Exhibits and Reports on Form 8-K                                18



SIGNATURE                                                                  19
---------    



INDEX TO EXHIBITS                                                          20
-----------------    

                                       2
<PAGE>
 
                         PART I. FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------

                           UNISOURCE WORLDWIDE, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                 (In thousands, except par values and shares)


<TABLE> 
<CAPTION> 
                                                                                   JUNE 30,             SEPTEMBER 30,
ASSETS                                                                               1998                   1997
------                                                                         ------------------    --------------------         
<S>                                                                            <C>                   <C>                           
CURRENT ASSETS
   Cash                                                                           $       47,884         $        45,384
   Accounts receivable, net                                                              620,607                 882,360
   Inventories                                                                           430,313                 495,330
   Prepaid expenses and deferred taxes                                                    58,726                  49,875
                                                                               ------------------    --------------------
      Total current assets                                                             1,157,530               1,472,949
                                                                               ------------------    --------------------

LONG-TERM RECEIVABLES                                                                      5,531                   7,790

PROPERTY AND EQUIPMENT, AT COST                                                          436,946                 434,762
   Less accumulated depreciation                                                         205,016                 188,336
                                                                               ------------------    --------------------
                                                                                         231,930                 246,426
                                                                               ------------------    --------------------

GOODWILL                                                                                 641,463                 668,575

DEFERRED COSTS AND OTHER ASSETS                                                           17,688                 163,092
                                                                               ------------------    --------------------

                                                                                     $ 2,054,142             $ 2,558,832
                                                                               ==================    ====================
</TABLE> 

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                           UNISOURCE WORLDWIDE, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                 (In thousands, except par values and shares)

<TABLE> 
<CAPTION> 
                                                                                   JUNE 30,             SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY                                                 1998                    1997
------------------------------------                                           ------------------    ---------------------         
<S>                                                                            <C>                   <C>     
CURRENT LIABILITIES
   Current portion of long-term debt                                              $       1,165       $             638
   Notes payable                                                                         11,344                 144,882
   Trade accounts payable                                                               426,393                 498,503
   Accrued salaries, wages and commissions                                               32,559                  33,906
   Restructuring costs                                                                   12,847                   8,172

   Other accrued expenses                                                                85,891                 119,431
                                                                               ------------------    --------------------
      Total current liabilities                                                         570,199                 805,532
                                                                               ------------------    --------------------

LONG-TERM DEBT                                                                          586,482                 661,350

OTHER LIABILITIES
   Deferred taxes                                                                        19,578                  61,082
   Restructuring costs                                                                    7,210                   8,383
   Other long-term liabilities                                                           37,872                  38,100
                                                                               ------------------    --------------------
                                                                                         64,660                 107,565
                                                                               ------------------    --------------------

STOCKHOLDERS' EQUITY
   Common stock, par value $0.001, authorized - 250,000,000
      shares, issued and outstanding:  6/30/98 - 69,732,048
      shares; 9/30/97 - 68,792,842 shares                                                    70                      69
   Additional paid in capital                                                           831,757                 820,213
   Unearned compensation                                                                 (8,927)                 (5,845)
   Retained earnings                                                                     53,979                 199,828
   Foreign currency translation adjustments                                             (43,975)                (29,320)
   Cost of common shares in treasury; 6/30/98 - 7,493
      shares; 9/30/97 - 32,027 shares                                                      (103)                   (560)
                                                                               ------------------    --------------------
                                                                                        832,801                 984,385
                                                                               ------------------    --------------------

                                                                                    $ 2,054,142             $ 2,558,832
                                                                               ==================    ====================
</TABLE> 

See notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                           UNISOURCE WORLDWIDE, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)

<TABLE> 
<CAPTION> 
                                                           Three Months Ended                    Nine Months Ended
                                                                June 30,                              June 30,
                                                    ----------------------------------    ---------------------------------
                                                         1998               1997*              1998               1997*
                                                    ---------------    ---------------    ---------------    --------------
<S>                                                 <C>                <C>                <C>                <C>   
Revenues
   Printing and Imaging                                $1,152,073          $1,132,829        $3,544,985         $3,357,566
   Supply Systems                                         669,343             631,212         2,013,486          1,850,916
                                                    ---------------    ---------------    ---------------    --------------
                                                        1,821,416           1,764,041         5,558,471          5,208,482
                                                    ---------------    ---------------    ---------------    --------------

Costs and Expenses
   Cost of goods sold - Printing and Imaging            1,000,156             973,029         3,082,782          2,874,762
   Cost of goods sold - Supply Systems                    506,375             496,601         1,524,748          1,447,226
   Selling and administrative                             290,304             261,686           865,442            779,726
   Restructuring charge                                    27,600                   -            27,600                  -
   Special charge                                               -                   -           168,000                  -
                                                    ---------------    ---------------    ---------------    --------------
                                                        1,824,435           1,731,316         5,668,572          5,101,714
                                                    ---------------    ---------------    ---------------    --------------

(Loss) Income from operations                              (3,019)             32,725          (110,101)           106,768
Interest expense                                           11,155              10,541            35,898             30,932
                                                    ---------------    ---------------    ---------------    --------------
(Loss) Income before taxes                                (14,174)             22,184          (145,999)            75,836
(Benefit) Provision for income taxes                       (3,759)              9,650           (41,658)            32,603
                                                    ---------------    ---------------    ---------------    --------------

Net (Loss) Income                                    $    (10,415)        $    12,534        $ (104,341)       $    43,233
                                                    ===============    ===============    ===============    ==============

Basic (Loss) Earnings Per Share                      $                    $      0.19        $    (1.52)       $      0.64
                                                            (0.15)
                                                    ===============    ===============    ===============    ==============

Diluted (Loss) Earnings Per Share                    $      (0.15)        $      0.19        $    (1.52)       $      0.64
                                                    ===============    ===============    ===============    ==============

Dividends Per Share                                  $       0.20         $      0.20        $     0.60        $      0.40
                                                    ===============    ===============    ===============    ==============
</TABLE> 

* Reclassified to conform with current year presentation.

See notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                           UNISOURCE WORLDWIDE, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

<TABLE> 
<CAPTION> 
                                                                                       Nine Months Ended June 30,
                                                                                -----------------------------------------
                                                                                      1998                  1997*
                                                                                ------------------    -------------------
<S>                                                                             <C>                   <C> 
Operating Activities
  Net (loss) income                                                               $     (104,341)     $          43,233
  Additions (deductions) to reconcile net (loss) income to net
    cash provided by operating activities:
      Depreciation                                                                        27,058                 22,582
      Amortization                                                                        15,906                 12,474
      Provision for losses on accounts receivable                                         10,439                 13,657
      Special charges                                                                    195,600                      -
      Deferred tax benefit                                                               (48,650)                     -
      Loss on divestiture                                                                  5,700                      -
      Payments relating to restructuring and special charges                             (22,946)               (11,498)
      Changes in operating assets and liabilities, net of effects from
        acquisitions and divestitures:
          Sale of accounts receivable                                                    150,000                      -
          Other changes in accounts receivable                                            83,945                 27,323
          Decrease in inventories                                                         32,742                  4,269
          (Increase) decrease in prepaid expenses                                        (12,341)                10,961
          (Decrease) increase in accrued and deferred income taxes                       (16,019)                18,702
          Decrease in accounts payable and accrued expenses                              (65,962)               (21,443)
      Miscellaneous                                                                           40                    (64)
                                                                                ------------------    -------------------
Net cash provided by operating activities                                                251,171                120,196
                                                                                ------------------    -------------------

Investing Activities
   Cost of companies acquired, net of cash acquired                                     (49,017)                (51,017)
   Proceeds from divestitures                                                            57,929                       -
   Proceeds from the sale of property and equipment                                      15,378                   7,823
   Collection of notes receivable                                                              -                 21,577
   Expenditures for property and equipment                                               (24,019)               (21,070)
   Deferred cost expenditures                                                            (13,976)               (37,462)
                                                                                ------------------    -------------------
Net cash used in investing activities                                                    (13,705)               (80,149)
                                                                                ------------------    -------------------

Financing Activities
   (Repayments) proceeds from borrowing under credit facility, net                       (54,051)               624,600
   Debt repayments                                                                      (148,319)               (38,154)
   Repayments to IKON Office Solutions, Inc.                                                   -               (553,700)
   Payment of dividends                                                                  (41,515)               (26,873)
   Proceeds from stock issuances, net                                                      8,919                 (1,198)
                                                                                ------------------    -------------------
Net cash (used in) provided by financing activities                                     (234,966)                 4,675
                                                                                ------------------    -------------------

Net increase in cash                                                                       2,500                 44,722
Cash at beginning of year                                                                 45,384                 14,596
                                                                                ==================    ===================
Cash at end of period                                                             $       47,884          $      59,318
                                                                                ==================    ===================
</TABLE> 

* Reclassified to conform with current year presentation.
See notes to condensed consolidated financial statements.

                                       6
<PAGE>
 
                           UNISOURCE WORLDWIDE, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1998

Note 1:   Basis of Presentation
          ---------------------

The accompanying unaudited condensed consolidated financial statements for
Unisource Worldwide, Inc. (the "Company" or "Unisource") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, all adjustments (consisting of the special and
restructuring charges and normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the three
and nine month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 1998.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the fiscal year ended September 30, 1997 ("1997 Annual
Report").

Note 2:   Debt
          ----

On November 22, 1996, the Company entered into a $1,000,000,000 five-year
unsecured credit agreement (the "credit facility"). The amount outstanding under
the credit facility at June 30, 1998 was $571,806,000. The credit facility
includes financial covenants requiring a ratio of consolidated total debt plus
the $150 million of accounts receivable sold (see Note 4) to capitalization (the
"leverage ratio") of less than 55% and a minimum consolidated net worth of
$745,000,000 plus 50% of consolidated net income (without deduction for losses)
after the date of the credit facility.

On July 29, 1998, the Company announced a restructuring charge (see Note 6) of
$130-$150 million. The Company has obtained an interim waiver for the financial
covenants in the credit facility through September 30, 1998, provided the
leverage ratio does not exceed 70%, and the Company's consolidated net worth is
not less than $550,000,000, at any time during the waiver period. The Company is
currently renegotiating the financial covenants in the credit facility with the
intent of amending the credit facility . To effect the amendment, a 51% approval
of the committed amount must be obtained from the group of lenders in the credit
facility. If such facility is not amended by October 1, 1998, the Company would
most likely be in violation of the minimum net worth covenant in the credit
facility ($764 million at June 30, 1998) and, if so, the creditors thereunder
would have the right to declare the loan due and payable. At such time, unless
alternative long-term financing is obtained, borrowings under the credit
facility would be classified as a current liability on the balance sheet. The
Company is confident that appropriate new terms will be put in place prior to
October 1, 1998.

                                       7
<PAGE>
 
Note 3:   Earnings Per Share
          ------------------

Basic (loss) earnings per share for the three month periods ended June 30, 1998
and 1997, and the nine month period ended June 30, 1998, was calculated based
upon the weighted average number of Company shares outstanding for the
respective period, exclusive of non-vested restricted stock. Basic earnings per
share for the nine-month period ended June 30, 1997 was calculated based upon
the weighted average number of Company shares issued and outstanding for the
period December 31, 1996 (date in which Unisource became a separate publicly
owned company) through June 30, 1997, exclusive of non-vested restricted stock.

The following table sets forth the computation of basic and diluted (loss)
earnings per share:

<TABLE> 
<CAPTION> 
                                                                 Three Months Ended              Nine Months Ended
                                                                       June 30,                       June 30,
(in thousands  except per share data)                            1998          1997              1998            1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>             <C>               <C> 
Net (loss) income                                            $ (10,415)       $ 12,534        $(104,341)        $43,233
                                                             =========        ========        =========         =======
Denominator for basic (loss) earnings per share                 68,878          67,131           68,662          67,074
Effect of dilutive securities:
         Stock options                                               -             402                    (a)       661
                                                             ---------        --------        ---------         -------
Denominator for diluted (loss) earnings per share               68,878          67,533           68,662          67,735
                                                             =========        ========        =========         =======
Basic (loss) earnings per share                              $   (0.15)       $   0.19        $   (1.52)        $  0.64
                                                             =========        ========        =========         =======
Diluted (loss) earnings per share                            $   (0.15)       $   0.19        $   (1.52)  (a)   $  0.64
                                                             =========        ========        =========         =======
</TABLE> 

     (a) No incremental shares related to options are included due to the
antidilutive effect on the loss per share.

Note 4:   Sale of Accounts Receivable
          ---------------------------

Effective October 1, 1997, the Company entered into an agreement to sell up to
$150,000,000 of certain qualifying accounts receivable. 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 may be sold up to $150,000,000. The proceeds from the sale were
primarily utilized to repay certain notes payable. The amount of receivables
sold under the agreement was $150,000,000 at June 30, 1998.

The Company has a similar agreement to sell up to CN$95,000,000 of Canadian
accounts receivable, as described in the Company's 1997 Annual Report. The
amount of receivables sold under this agreement amounted to CN$95,000,000
(US$64,679,000) and CN$90,000,000 (US$65,142,000) at June 30, 1998 and September
30, 1997, respectively.

The total cost associated with these agreements was $3,053,000 and $551,000 for
the three-month periods and $9,425,000 and $1,736,000 for the nine month periods
ended June 30, 1998 and 1997, respectively. Such costs are classified within
"selling and administrative" expense in the Condensed Consolidated Statements of
Operations.

                                       8
<PAGE>
 
Note 5:   Special Charge
          --------------

In January 1998, the Company announced it had completed an in-depth study and
evaluation of the cost/benefit relationship of NADS, its North American
Distribution System, under development since 1994, and concluded that this
information technology system would not cost-effectively meet the Company's
future information technology needs. In the first quarter of fiscal 1998, the
Company recorded a $168 million ($109 million after-tax) or $1.60 per share
special charge to write-off capitalized development and related costs associated
with NADS. The charge, which is primarily non-cash, consisted of $155 million
related to the write-off of deferred costs, along with $13 million for
terminating the existing outsourcing contracts and other related costs.

Note 6:   Restructuring Charge
          -------------------

In January 1998, the Company announced that it would take a number of
significant steps to streamline its organization, accelerate profitable growth
and improve its return to stockholders. The steps outlined included moving from
a regional to a functionally-aligned organizational structure, closing or
consolidating underperforming and overlapping locations, and implementing more
consistent business practices across the Company. The Company had estimated that
as many as 50 locations and approximately 800 employees were to be impacted by
these moves and the Company had expected to take a pre-tax charge in the range
of $55 to $70 million in the second quarter of fiscal 1998 to reflect the costs
of this program.

In March 1998, the Company announced it had substantially completed the initial
phase of the streamlining analysis and, based on its findings, it had
significantly expanded the scope of the project. The Company engaged Coopers &
Lybrand Consulting to assist in designing its new organizational structure. The
Company also announced that the restructuring plan would be developed by the end
of July, and that the charge would be larger than announced in January 1998 and
would be taken in the second half of the fiscal year.

On July 29, 1998, the Board of Directors approved and the Company announced
details of an extensive restructuring plan designed to improve service to
customers, decrease costs, increase financial flexibility and grow profitable
market segments. The expanded scope of the restructuring plan includes a net
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 estimates it
will take a total pre-tax charge of $130-$150 million in fiscal 1998 and
estimates it will incur one-time implementation expenses of $50-$60 million over
the following two years. Such estimated charges reflect 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. Such
implementation costs are expected to cover relocation, recruitment, training,
duplicate manning during the transition, and IT consolidation expenses related
to the restructuring. Future cash expenditures related to the total $180 to $210
million pre-tax charge and one-time implementation expenses will range from $120
to $150 million with the majority being expended in fiscal 1999.

                                       9
<PAGE>
 
The Company recorded $27.6 million ($17.9 million after-tax) of the charge in
the third quarter reflecting closures or sales of facilities initiated during
that quarter. Proceeds of approximately $10 million were received from the sale
of two divisions as part of the restructuring plan. In addition, an $11.5
million non-cash write-off of intangible assets associated with the sale of one
of these divisions is included as part of the third quarter charge. The balance
of the third quarter charge relates to severance ($5.9 million) and facility
closure and other related costs ($10.2 million). The Company estimates it will
record a $102-$122 million ($66-$79 million after-tax) charge in the fourth
quarter of fiscal 1998.

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. The Company
anticipates that this work will be completed in the current quarter and
announced prior to fiscal year-end September 30, 1998.

Note 7:   Divestiture
          -----------

Effective October 20, 1997, the Company sold a significant portion of its United
States-based Grocery Supply Systems business for approximately $48 million in
cash. This is $3 million less than the estimated proceeds disclosed in the 1997
Annual Report due to a reduction in the quantity of inventories ultimately sold.
The pre-tax effect of the sale was not material; however, the Company recorded a
tax charge of $5.7 million ($0.08 per share) in the first quarter of fiscal
1998. The tax charge relates mainly to non-deductible intangible assets related
to the business sold.

Note 8:   Income Tax (Benefit) Provision
          ------------------------------

The income tax (benefit) provisions were ($41,658,000) and $32,603,000 based
upon overall effective tax rates of 28.5% and 43.0%, for the nine month periods
ended June 30, 1998 and 1997, respectively. The components of the effective tax
rate for the nine month period ended June 30, 1998 were as follows:

<TABLE> 
<CAPTION> 
                                                                                          Tax
                                                                    Income (Loss)       Provision       Effective
     ($'s in thousands)                                             Before Taxes        (Benefit)          Rate
                                                                    ------------        ---------          ----
     <S>                                                            <C>                 <C>             <C> 
     Income before taxes - excluding restructuring and              $     49,601        $   21,102         42.5%
         special charges
     Restructuring charge                                                (27,600)           (9,660)        35.0%
     Special charge                                                     (168,000)          (58,800)        35.0%
     Grocery divestiture - tax charge                                          -             5,700            -
                                                                    ------------        ----------
                                                                    $   (145,999)       $  (41,658)        28.5%
                                                                    ============        ==========
</TABLE> 

                                       10
<PAGE>
 
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-------------------------------------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------

                             RESULTS OF OPERATIONS
                             ---------------------
 
Revenues and income (loss) before taxes for the three and nine-month periods
ended June 30, 1998 compared to the three and nine-month periods ended June 30,
1997 were as follows:

<TABLE> 
<CAPTION> 
($'s in millions)                             Three Months Ended June 30                 Nine Months Ended June 30
                                              --------------------------                 -------------------------
                                         1998          1997*        % Change         1998          1997*        % Change
                                         ----          ----         --------         ----          ----         --------
<S>                                    <C>           <C>            <C>            <C>           <C>            <C>   
Revenues:
    Printing and Imaging               $1,152.1      $1,132.8          1.7 %       $3,545.0      $3,357.6          5.6 %
    Supply Systems                        669.3         631.2          6.0 %        2,013.5       1,850.9          8.8 %
                                     ----------     ---------                     ---------     ---------
                                       $1,821.4      $1,764.0          3.3 %       $5,558.5      $5,208.5          6.7 %
                                     ==========     =========                     =========     =========
Gross Profit:
    Printing and Imaging               $  151.9      $  159.8         (4.9)%       $  462.2      $  482.8         (4.3)%
    Supply Systems                        162.9         134.6         21.1 %          488.7         403.7         21.1 %
                                     ----------     ---------                     ---------     ---------
                                          314.8         294.4          7.0 %          950.9         886.5          7.3 %
Selling and
    Administrative Expense                290.2         261.7         10.9 %          865.4         779.7         11.0 %
Restructuring Charge                       27.6             -                          27.6             -
Special Charge                                -             -                         168.0             -
                                     ----------     ---------                     ---------
                                              -             -                                           -
                                              -             -                                           -
Operating (Loss) Income                    (3.0)         32.7           nm           (110.1)        106.8           nm
Interest Expense                           11.2          10.5          5.8 %           35.9          31.0         16.1 %
                                     ----------     ---------                     ---------     ---------
Income (Loss) Before Taxes             $  (14.2)    $    22.2           nm         $ (146.0)     $   75.8           nm
                                     ===========    =========                     ==========    =========
</TABLE> 

*Reclassified to conform with current year presentation.
nm = not meaningful

THREE-MONTH PERIOD ENDED JUNE 30, 1998

Revenues increased $57.4 million, or 3.3%, to $1.82 billion in the third quarter
of fiscal 1998 as compared to the same period in fiscal 1997. Current and prior
year acquisitions ($111.3 million) net of the divestiture of a significant
portion of the United States-based Grocery Supply Systems business ($89.0
million) contributed $22.3 million of the increase. This net increase is
primarily associated with Supply Systems. Revenues from base operations
increased $35.1 million due to an estimated increase in volume of .2% ($2.1
million) in Printing and Imaging and 2.9% ($18.1 million) in Supply Systems and
an estimated average increase in pricing of .4% ($4.3 million) in Printing and
Imaging and 1.7% ($10.6 million) in Supply Systems.

Gross profit increased by $20.4 million or 7.0%, to $314.8 million in the third
quarter of fiscal 1998, compared to the prior year's quarter. This increase is
associated with current and prior year acquisitions ($34.8 million), net of the
divestiture ($13.9 million). Gross profit from base operations declined by $.5
million, primarily due to a decrease in gross profit percentages in Printing and
Imaging which declined from 14.1% to 13.2%. Total gross profit as a percentage
of revenues increased from 16.7% to 17.3%, with the decline in Printing and
Imaging being more than offset by higher gross profit percentages from acquired
companies and the Supply Systems 

                                       11
<PAGE>
 
base business. Selling and administrative expense increased by $28.5 million, or
10.9%, in the third quarter of fiscal 1998, compared to the third quarter of
fiscal 1997. The increase is primarily attributable to costs associated with
current and prior year acquisitions (net of divestiture), along with costs
related to the Company's agreements to sell accounts receivable (see Note 4).
Excluding these costs, selling and administrative expenses increased by
approximately 3% primarily due to planned expenditures associated with IT and
Year 2000 compliance costs.

On July 29, 1998, the Board of Directors approved and the Company announced the
details of an extensive restructuring plan designed to improve customer service,
decrease costs, increase financial flexibility and grow profitable market
segments. As a result of the restructuring, the Company recorded a $27.6 million
($17.9 million after-tax) charge in the third quarter and estimates it will
record a $102-$122 million ($66-$79 million after-tax) charge in the fourth
quarter of fiscal 1998. The Company also estimates it will incur one-time
implementation expenses of $50-$60 million over the following two years with the
majority of such costs being incurred in fiscal 1999 (see Note 6.)

Operating income decreased $35.7 million for the quarter compared to the prior
year's quarter. Excluding the $27.6 million restructuring charge, operating
income for the quarter decreased $8.1 million or 24.9%, as compared to the same
period of fiscal 1997. The decrease in operating income is primarily due to
gross profit percentage declines in the Printing and Imaging business and costs
associated with the $150 million agreement to sell accounts receivable which
became effective on October 1, 1997. Such decreases were partially offset by the
incremental contributions from acquisitions and by volume and pricing increases
in the Company's base business. Operating margin (excluding restructuring
charge) was 1.3% for the quarter, compared to 1.9% for the corresponding period
of fiscal 1997.

Interest expense increased by $.7 million to $11.2 million during the quarter
compared to the same period of the prior year. The increase was attributable
primarily to higher average outstanding borrowings associated with acquisitions.

Foreign Operations

Revenues from foreign operations increased $1.9 million to $228.5 million for
the three month period ended June 30, 1998, as compared to the same period of
the prior year. Revenues from Canadian operations increased $5.1 million to
$194.7 million, while revenues from Mexican operations increased $1.2 million to
$32.0 million. The increase in Canadian and Mexican revenues was primarily the
result of acquisitions and an increase in average paper pricing which was
partially offset by a decrease in revenues of other foreign sales offices of
$4.4 million to $1.8 million for the quarter ended June 30, 1998.

Operating income from foreign operations decreased $2.2 million to $7.7 million
for the three month period ended June 30, 1998, as compared to the same period
of the prior year. Canadian operating income decreased $1.7 million due
primarily to a decline in the gross profit percentages in the Printing and
Imaging business. Mexico and other foreign sales offices' operating income
decreased $.5 million for the three month period ended June 30, 1998.

                                       12
<PAGE>
 
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 June 30, 1998 were US $43
million. As a result of the devaluation of the Mexican Peso of 5.2% for the
period April 1, 1998 to June 30, 1998, the Company recorded a $424,000 charge in
the third quarter of fiscal 1998.

Except as noted above, there was no material effect of foreign currency exchange
rate changes on the results of operations during the period as compared to the
same period of the prior fiscal year.

NINE-MONTH PERIOD ENDED JUNE 30, 1998

Revenues for this period increased $350.0 million, or 6.7%, to $5.56 billion, as
compared to the same period in fiscal 1997. Current and prior year acquisitions
($368.7 million) net of divestiture of a significant portion of the United
States-based Grocery Supply Systems business ($257.3 million) contributed $111.4
million of the increase. Revenues from base operations increased $238.6 million,
primarily due to an estimated increase in average paper prices in the Printing
and Imaging business of 3.4%, as compared to the same period last year, along
with volume gains of 1.3% for Printing and Imaging and 3.7% for Supply Systems
base operations.

Gross profits for this period increased by $64.4 million, or 7.3%, as compared
to the same period in fiscal 1997. This increase is associated with current and
prior year acquisitions ($116.6 million), net of the divestiture ($39.7
million), offset by declines of $12.5 million in base operations for the
nine-month period ended June 30, 1998. The decline in base operations is due
principally to a decrease in gross profit percentages in Printing and Imaging
from 14.4% to 13.0%. Total gross profit as a percentage of revenues increased
from 17.0% to 17.1% for the nine month period, with the decline in Printing and
Imaging being offset by higher gross profit percentages from acquired companies
and the Supply Systems base business.

Selling and administrative expense increased by $85.7 million, or 11.0%, for the
nine-month period ended June 30, 1998, when compared with the corresponding
period of fiscal 1997. The increase is primarily attributable to costs
associated with current and prior year acquisitions, net of divestiture, along
with costs associated with the Company's agreement to sell accounts receivable
(see Note 4). Excluding these costs, selling and administrative expenses
increased by approximately 1%.

In connection with the restructuring plan (see Note 6), the Company estimates
that it will take a pre-tax restructuring charge of $130-$150 million in fiscal
1998 and estimates it will incur one-time implementation expenses of $50-$60
million over the following two years with the majority of such costs being
incurred in fiscal 1999. During the nine month period ended June 30, 1998, the
Company recorded $27.6 million ($17.9 million after tax) relating to this
charge.

                                       13
<PAGE>
 
At the end of the first quarter of fiscal 1998, the Company recorded a $168
million ($109 million after tax) or $1.60 per share special charge for the
write-off of its information technology system ("NADS") (See Note 5). In October
1997, the Company announced an in-depth study to evaluate the cost/benefit
relationship of NADS, which was under development. Management concluded that
NADS would not cost-effectively meet the Company's future information technology
needs.

Operating income decreased $216.9 million for the nine month period, as compared
to the same period of fiscal 1997. Excluding the $195.6 million special and
restructuring charges, operating income for the nine-month period decreased
$21.3 million, or 19.9%, as compared to the same period of fiscal 1997. Current
and prior year acquisitions ($10.8 million), net of divestiture ($1.2 million),
contributed an incremental $9.6 million of operating income. Operating income
from base operations declined $30.9 million for the nine-month period, primarily
due to gross profit percentage declines in the Printing and Imaging business and
$7.7 million of incremental costs associated with agreements to sell accounts
receivable. Such decline was partially offset by pricing improvement and volume
increases. Operating margins (excluding restructuring and special charges) were
1.5%, compared to 2.0% for the corresponding nine-month period of fiscal 1997.

Interest expense increased by $4.9 million as compared to the first nine months
of fiscal 1997. The increase was attributable to higher average outstanding
borrowings primarily due to acquisitions, and to a lesser extent, increased
working capital requirements.

Foreign Operations

Revenues from foreign operations increased $20.2 million to $681.8 million for
the nine-month period ended June 30, 1998, as compared to the same period of
fiscal 1997. Revenues from Canadian operations increased $28.6 million to $580.9
million, while revenues from Mexican operations increased $11.5 million to $95.8
million. The increase in Canadian and Mexican revenues was attributable to an
increase in average paper prices and the results of acquisitions. Revenues from
other foreign sales offices decreased $19.9 million to $5.1 million for the
nine-month period ended June 30, 1998.

Operating income from foreign operations decreased $2.6 million to $22.3 million
for the nine-month period, as compared to the same period of fiscal 1997.
Canadian operating income decreased $2.2 million to $18.9 million, primarily due
to the decline in gross profit percentages. Mexican operating income was flat,
with the increase from acquisitions being substantially offset by the
devaluation of the Mexican Peso. The other foreign sales offices' operating loss
increased by $.4 million for the nine-month period ended June 30, 1998.

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. As a result of the devaluation of the Mexican Peso of
13.6%, the Company recorded an $869,000 charge for the nine-month period ended
June 30, 1998.

Except as noted above, there was no material effect of foreign currency on the
results of operations during the period as compared to the same period of the
prior fiscal year.

                                       14
<PAGE>
 
Year 2000

The Company has created a Corporate Year 2000 Project Office which is
coordinating the efforts to evaluate, identify, correct or reprogram, and test
the Company's existing systems for Year 2000 compliance. The Company is taking
the required steps to make its existing systems Year 2000 ready at a total
estimated cost of $12 million over the two fiscal years of 1998 and 1999. For
the nine-month period ended June 30, 1998, the Company has incurred $3.1 million
of Year 2000 costs. The Company estimates it will spend approximately $2.5
million in the fourth quarter and is on schedule to complete its remediation
efforts by May 1999. If such efforts are not completed timely, the Year 2000
issue could have a material impact on the operations of the Company.

In addition to making its own systems Year 2000 ready, the Company has and will
continue to contact its key suppliers and customers to determine the extent to
which the systems of such suppliers and customers are Year 2000 compliant and
the extent to which the Company could be affected by the failure of such third
parties to be Year 2000 compliant. The Company cannot presently estimate the
impact of the failure of such third parties to be Year 2000 compliant.

FINANCIAL CONDITION AND LIQUIDITY
---------------------------------

Net cash provided by operating activities (excluding proceeds of $150 million
from the sale of accounts receivable) for the nine-month period ended June 30,
1998 was $101.2 million. Included in operating activities was $22.9 million of
cash expenditures in connection with the Company's fiscal 1998 special and
restructuring charges and the fiscal 1996 $50 million restructuring program.
Remaining restructuring and special charge cash expenditures relating to
accruals as of June 30, 1998 are estimated at $26 million. Cash used for
investing activities included deferred cost expenditures of $14.0 million
principally related to costs associated with the information technology system
referred to as NADS through December 31, 1997, capital expenditures of $24.0
million, and expenditures for acquisitions of $49.0 million. Investing activity
expenditures were offset by proceeds of $73.3 million primarily associated with
the sale of a significant portion of its U.S.-based Grocery Supply Systems
business and proceeds received from the sale of property, resulting in a net
$13.7 million used in investing activities. Cash used in financing activities
included dividend payments net of proceeds from stock issued of $32.6 million
and net debt reduction of $202.4 million.

On June 30, 1998, total debt of $599.0 million was outstanding. The Company had
a total of $1 billion in bank credit commitments as of June 30, 1998, of which
$428.2 million was unused and available.

                                       15
<PAGE>
 
On July 29, 1998, the Company announced that the Board of Directors approved an
amendment to its credit facility (see Note 2), as well as the issuance of $300
million of senior subordinated 10-year notes anticipated to be offered 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 expectation that this additional borrowing capacity will not be needed. The
amount of the credit 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. Additionally, the Company
announced its intention to reduce future quarterly dividends from $.20 to $.05
per share, beginning with the dividend payable in December 1998. This reduction
in dividend payments is expected to reduce quarterly cash outflows by
approximately $11 million.

Also, on July 29, 1998, the Company announced that it anticipates recording
$102-$122 million of the $130-$150 million restructuring charge (see Note 6) in
the fourth quarter of fiscal 1998. The portion of the fourth quarter charge
which is expected to result in future cash expenditures is estimated to range
between $70-$90 million. The non-cash charges primarily relate to the disposal
of assets. In addition, the Company will incur one-time implementation expenses
of $50-$60 million. The majority of the restructuring charge cash expenditures
and the one-time implementation expense will be incurred in fiscal 1999.

The business impact of the anticipated changes, combined with the elimination of
unprofitable business, could result in an estimated net revenue decline of
$500-$700 million in 1999. Depending on the amount of the revenue decline,
additional positions could be eliminated . However, upon full implementation,
the plan is expected to 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.

Unisource's long-term acquisition strategy includes a commitment to achieve 
greater revenue balance between Printing and Imaging and Supply Systems, reduce 
the Company's exposure to the cyclical paper market, provide a broader range of 
products and services to customers, and leverage its distribution infrastructure
to increase sales and profitability. However, over the next eighteen months, the
Company intends to focus significant resources on the implementation of its 
Restructuring Plan. Accordingly, while the Company will continue to consider 
strategic acquisition candidates, the pace of its acquisition activity is likely
to significantly decrease compared with prior years.

The majority of the Company's revenues are denominated in U.S. dollars, although
the Company owns properties and conducts operations in non-U.S. facilities
including Canada and Mexico. Accordingly, fluctuations in the exchange rate
between the U.S. dollar and the respective currencies of the aforementioned
countries could have an adverse effect on the Company.

The Company believes that operating cash flow, the financial benefits to be
realized from the restructuring efforts, and its financing arrangements will be
sufficient to finance current operating requirements, including capital
expenditures, acquisitions, Year 2000 compliance costs, the restructuring
program and related implementation costs, other cash requirements, and future
dividends.

                                       16
<PAGE>
 
The senior subordinated notes that Unisource anticipates offering 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 report,
including, without limitation, (i) statements relating to the implementation of
the restructuring plan and the timing thereof (including the planned reduction
of employees and warehouse space, and the anticipated restructuring of its
Canadian and Mexican operations), 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, increased cash flow, improved financial performance, and improved return
on shareholders equity and return on capital), and the other projected
ramifications of the restructuring plan (including any 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, (iii)
implementation of the Company's Year 2000 initiative, (iv) statements concerning
the Company's ability to finance current operating requirements, and (v)
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 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, delays, difficulties, or
increased costs with the implementation of its Year 2000 initiative, 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.

                                       17
<PAGE>
 
                         PART II. - OTHER INFORMATION

ITEM 5.  OTHER INFORMATION
--------------------------

     TIMELY SUBMISSION OF CERTAIN STOCKHOLDER PROPOSALS
     ------------------------------------------

          The Securities and Exchange Commission ("SEC") recently amended 
     certain rules, including its rules governing the exercise of discretionary
     proxy voting authority with respect to stockholder proposals submitted
     outside of the Rule 14a-8 procedures under the Securities Exchange Act of
     1934. The amended rules provide, among other things, that a Company may
     exercise discretionary voting authority conferred upon it if the proponent
     of a stockholder proposal outside of the Rule 14a-8 procedures fails to
     give timely notice of the proposal.
 
          The amended rules provide that to be deemed timely the required notice
     must be received within certain time parameters established by these rules,
     as applied to the Company's annual meeting date and relevant provisions of
     the Company's charter and by-laws. The Company's Board of Directors has not
     yet fixed the date of the Company's 1999 Annual Meeting of Stockholders.
     Assuming that such meeting is held on, or within 30 days before or after,
     the anniversary of last year's annual meeting, notice of a stockholder
     proposal to be submitted outside of the procedures of Rule 14a-8, to be
     timely, must be received, on or after October 30, 1998 but on or before
     November 29, 1998.
     
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

     (a)  The following Exhibits are furnished pursuant to Item 601 of
Regulation S-K:

          Exhibit No.       Description
          -----------       -----------
            10.14           Unisource Worldwide, Inc. Stock Option Plan for
                            employees, as amended and restated as of January 28,
                            1998.

            27              Financial Data Schedule for the Nine Month Period
                            Ended June 30, 1998.

     (b)  Reports on Form 8-K

<TABLE> 
<CAPTION> 
                                                 Financial                                                        
                                                 Statement                                                        
                       Item Reported               Filed         Date of Report         File Date                 
                       -------------               -----         --------------         ---------                 
     <S>                                         <C>             <C>                  <C> 
     Press release disclosing second                No           April 28, 1998       April 28, 1998                 
      quarter fiscal 1998 financial results
</TABLE> 

                                       18
<PAGE>
 
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, thereunto duly authorized. This report has also been signed by the
undersigned in his capacity as the principal financial officer of the
Registrant.


                               UNISOURCE WORLDWIDE, INC.                       
                                                                              
                                                                              
                                                                              
Date:    August 14, 1998       /s/ Richard H. Bogan                            
                               -------------------------                       
                               Richard H. Bogan                                
                               Senior Vice President and Chief Financial Officer

                                       19
<PAGE>
 
                               INDEX TO EXHIBITS
                               -----------------

     Exhibit
     Number          Description
     ------          -----------
      10.14          Unisource Worldwide, Inc. Stock Option Plan for employees,
                     as amended and restated as of January 28, 1998.

      27             Financial Data Schedule for the Nine Month Period Ended
                     June 30, 1998

                                       20