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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 COMMISSION FILE NUMBER 1-8014
MOORE CORPORATION LIMITED
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 98-0154502
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization
6100 Vipond Drive L5T 2X1
MISSISSAUGA, ONTARIO, CANADA (Zip code)
(Address of principal executive offices)
905-362-3100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 [ ]
At August 9, 2002, 111,385,858 shares of the registrant's common shares, without
par value were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOORE CORPORATION LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
JUNE 30, DECEMBER 31,
2002 2001
---------- -----------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 82,196 $ 84,855
Accounts receivable, less allowance for 328,000 336,153
doubtful accounts of $22,094 (2001 - $22,057)
Inventories (Note 2) 130,720 128,421
Prepaid expenses 17,887 13,544
Deferred income taxes (Note 6) 14,041 13,566
---------- ----------
Total current assets 572,844 576,539
Property, plant and equipment, net 281,924 307,640
Investments 33,726 32,204
Prepaid pension costs 216,669 215,752
Goodwill and other intangibles (Note 3) 113,413 42,294
Deferred income taxes (Note 6) 68,834 47,651
Other assets 100,452 114,906
---------- ----------
TOTAL ASSETS $1,387,862 $1,336,986
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank indebtedness $ 35,194 $ 56,181
Accounts payable and accrued liabilities 477,928 486,626
Short-term debt (Note 4) 48,017 18,034
Income taxes 58,910 27,677
Deferred income taxes (Note 6) - 324
---------- ----------
Total current liabilities 620,049 588,842
Long-term debt 109,473 111,062
Postretirement benefits 242,779 239,664
Deferred income taxes (Note 6) 14,327 13,705
Other liabilities 54,531 51,263
Minority interest 9,935 11,200
---------- ----------
Total liabilities 1,051,094 1,015,736
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital 399,753 397,761
Authorized:
Unlimited number of preference (none outstanding
for 2002 and 2001) and common shares without
par value
Issued: 111,369,107 common shares - 2002
111,803,651 common shares - 2001
Retained earnings 69,082 51,666
Cumulative translation adjustments (132,067) (128,177)
---------- ----------
Total shareholders' equity 336,768 321,250
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,387,862 $1,336,986
========== ==========
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- ---------- ----------
Net sales $499,791 $532,526 $1,029,292 $1,106,722
Cost of sales 341,764 368,757 702,772 829,689
Selling, general and administrative expenses 112,869 134,806 237,347 321,748
Restructuring provision (Note 5) - 36,723 - 103,374
Depreciation and amortization (includes impairment
charge of $14,795 and $75,151 for 2001) 22,507 43,761 44,662 132,746
-------- -------- ---------- ----------
Total operating expenses 477,140 584,047 984,781 1,387,557
-------- -------- ---------- ----------
Income (loss) from operations 22,651 (51,521) 44,511 (280,835)
Investment and other income (expense) 850 (712) (645) (4,442)
Interest expense, net 2,742 6,170 5,353 12,261
-------- -------- ---------- ----------
Earnings (loss) before income taxes
and minority interest 20,759 (58,403) 38,513 (297,538)
Income tax expense (recovery) 5,486 1,472 10,280 (36,625)
Minority interest 27 491 494 913
-------- -------- ---------- ----------
Net earnings (loss) $ 15,246 $(60,366) $ 27,739 $ (261,826)
======== ======== ========== ==========
Net earnings (loss) per common share:
Basic $ 0.14 $ (0.68) $ 0.25 $ (2.96)
-------- -------- ---------- ----------
Diluted $ 0.13 $ (0.68) $ 0.24 $ (2.96)
-------- -------- ---------- ----------
Average number of common shares
outstanding (in thousands):
Basic 111,481 88,457 111,664 88,457
-------- -------- ---------- ----------
Diluted 114,169 88,457 114,217 88,457
-------- -------- ---------- ----------
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
2002 2001
-------- ---------
Balance, beginning of period $ 51,666 $ 431,821
Net earnings (loss) 27,739 (261,826)
Repurchase of common shares (1,069,700 shares in 2002) (10,323) -
Subordinated convertible debentures - (404)
Dividends (5(cent)per share in 2001) - (4,423)
-------- ---------
Balance, end of period $ 69,082 $ 165,168
======== =========
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------- -------- --------- ---------
OPERATING ACTIVITIES
Net earnings (loss) $ 15,246 $(60,366) $ 27,739 $(261,826)
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 22,507 43,761 44,662 132,746
Net loss on sale of other assets - - - 4,225
Restructuring provision, net of cash paid - 25,737 - 81,277
Pension settlement - - - 102,015
Deferred income taxes (25,483) 1,238 (21,360) (36,220)
Other (2,136) 1,128 (927) 2,214
Changes in operating assets and liabilities:
Accounts receivable, net 35,918 32,540 17,031 55,291
Inventories 5,166 6,464 3,389 3,523
Accounts payable and accrued liabilities (3,499) (7,135) (19,874) (25,372)
Income taxes 30,156 (1,389) 31,233 (4,599)
Other (3,693) 2,608 (6,044) (5,125)
--------- -------- --------- ---------
Net cash provided by operating activities 74,182 44,586 75,849 48,149
INVESTING ACTIVITIES
Property, plant and equipment, net (4,275) (4,802) (6,890) (11,902)
Increase in long-term receivables (1,249) (3,018) (2,724) (4,752)
Acquisition of businesses, net of cash received (6,764) - (63,966) -
Proceeds from sale of other assets and investments - - - 12,526
Software expenditures (4,359) - (4,880) -
Other (43) (2,875) 53 (2,874)
--------- -------- --------- ---------
Net cash used in investing activities (16,690) (10,695) (78,407) (7,002)
FINANCING ACTIVITIES
Dividends - (4,423) - (8,846)
Net change in short-term debt (29,877) 936 29,983 132
Proceeds from issuance of long-term debt - 6,703 - 51,703
Payments on long-term debt (728) (41,304) (1,336) (46,832)
Repurchase of common shares, net (7,895) - (8,331) -
Other (468) (838) (785) (1,261)
--------- -------- --------- ---------
Net cash (used in) provided by financing activities (38,968) (38,926) 19,531 (5,104)
Effect of exchange rate on cash 136 620 1,355 857
--------- -------- --------- ---------
Net increase (decrease) in cash 18,660 (4,415) 18,328 36,900
Cash and cash equivalents at beginning of period(a) 28,342 48,425 28,674 7,110
--------- -------- --------- ---------
Cash and cash equivalents at end of period (a) $ 47,002 $ 44,010 $ 47,002 $ 44,010
========= ======== ========= =========
Supplemental disclosure of cash flows information:
Interest paid $ 691 $ 1,081 $ 5,036 $ 11,705
Income taxes paid 790 1,472 2,439 2,924
(a) Cash and cash equivalents are defined as cash and short-term securities less
bank indebtedness.
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements have been prepared by
Moore Corporation Limited in accordance with the recommendations of the Canadian
Institute of Chartered Accountants' (CICA) Handbook Section 1751 - Interim
Financial Statements. As permitted by these standards, these interim financial
statements do not include all information required by Canadian generally
accepted accounting principles to be included in annual financial statements.
However, the Corporation considers that the disclosures made are adequate for a
fair presentation. Comparative figures have been reclassified where appropriate
to conform to the current presentation. Net sales and net earnings for any
interim period are not necessarily indicative of results that may be expected
for the entire year.
These consolidated interim financial statements are prepared in accordance with
the accounting policies described in the Corporation's latest Annual Report on
Form 10-K and should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Corporation's latest Annual
Report on Form 10-K. All references herein to the Corporation's Annual Report on
Form 10-K shall mean the Annual Report on Form 10-K/A filed June 20, 2002.
The consolidated financial statements have been prepared in conformity with
Canadian generally accepted accounting principles, and include estimates and
assumptions of management that affect the amounts reported in the consolidated
financial statements. Actual results could differ from these estimates.
Effective January 1, 2002, the Corporation adopted the recommendations of the
CICA Handbook Section 1650 - Foreign Currency Translation. The amendment to this
standard eliminates the deferral and amortization of unrealized gains and losses
on non-current monetary assets and liabilities and requires that exchange gains
or losses arising on translation of a foreign currency denominated non-monetary
item carried at market be included in income in the current reporting period.
The adoption of this section did not have any material impact on the
Corporation's financial position or results of operations.
Effective January 1, 2002, the Corporation adopted the recommendations of the
CICA Handbook Section 3062 - Goodwill and Other Intangible Assets. In accordance
with this accounting standard, goodwill and other intangible assets with
indefinite lives are no longer amortized but will be assessed for impairment on
an annual basis or as events or circumstances change that indicate goodwill or
other intangibles of a reporting unit may be impaired. The adoption of this
section did not have a material impact on the Corporation's financial position
or results of operations. The pro forma impact on the results of operations for
2001 has been disclosed in Note 3.
Effective January 1, 2002 the Corporation adopted the recommendations of the
CICA Handbook Section 3870 - Stock-Based Compensation and Other Stock-Based
Payments. This standard, which establishes a fair value-based method of
accounting for stock-based compensation plans, also permits an election to
continue to use an intrinsic value-based method with disclosures on a pro forma
basis of net income and earnings per share under the new method. The Corporation
continues to measure compensation cost for its employee stock compensation plans
using the intrinsic value-based method of accounting, which generally does not
result in compensation costs as the options have an exercise price equal to the
fair market value on the date of grant.
2. INVENTORIES
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
Raw materials $ 38,834 $ 39,452
Work-in-process 11,164 10,048
Finished goods 77,108 75,149
Other 3,614 3,772
-------- --------
Total $130,720 $128,421
======== ========
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying value of goodwill by business segment for the six
months ended June 30, 2002 are as follows:
Balance at Additions from Foreign Balance at
Goodwill January 1, 2002 Acquisitions Exchange June 30, 2002
- -------------------------- --------------- -------------- -------- -------------
Forms and Labels $41,857 $ 4,688 $203 $ 46,748
Outsourcing - 11,786 536 12,322
Commercial - 48,858 - 48,858
------- ------- ---- --------
$41,857 $65,332 $739 $107,928
======= ======= ==== ========
Amortizable intangibles at June 30, 2002 include:
Gross
Carrying Amount Accumulated Balance at Amortizable
January 1, 2002 Additions Amortization June 30, 2002 Life
--------------- --------- ------------ ------------- -----------
Trademarks & license $437 $2,953 $(137) $3,253 4-10 Years
agreements
Customer Intangibles - 2,729 (497) 2,232 3 Years
---- ------ ----- ------
$437 $5,682 $(634) $5,485
==== ====== ===== ======
The total intangible asset amortization expense for the three months and six
months ended June 30, 2002 were $0.4 million and $0.6 million, respectively.
Amortization expense for the next five years is estimated to be:
2003 $1,303 million
2004 $1,303 million
2005 $ 692 million
2006 $ 240 million
2007 $ 228 million
The table below provides a reconciliation of the reported net loss for the three
and six month period ended June 30, 2001 to the pro forma net loss, which
excludes previously recorded goodwill amortization:
Loss Per Share
------------------
Three Months Ended June 30, 2001 Loss Basic Diluted
- -------------------------------- --------- ------ -------
Net loss, as reported $(60,366) $(0.68) $(0.68)
Add back: Goodwill amortization 554 0.01 0.01
-------- ------ ------
Pro forma net loss $(59,812) $(0.67) $(0.67)
======== ====== ======
Loss Per Share
------------------
Six Months Ended June 30, 2001 Loss Basic Diluted
- -------------------------------- --------- ------ -------
Net loss, as reported $(261,826) $(2.96) $(2.96)
Add back: Goodwill amortization 1,109 0.02 0.02
--------- ------ ------
Pro forma net loss $(260,717) $(2.94) $(2.94)
========= ====== ======
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
4. DEBT
The Corporation had a $168.0 million committed revolving term facility that
matured on August 5, 2002 and was subject to a number of financial covenants
that were calculated on a quarterly basis including, but not limited to, tests
of net worth, leverage and interest coverage. At June 30, 2002 $45.0 million was
drawn down under the facility versus $15.0 million at December 31, 2001.
In August 2002, the Corporation entered into a $400 million secured credit
facility. The facility is comprised of a five-year $125 million Revolving Credit
Facility, a five-year $75 million Delayed Draw Term Loan A Facility, and a
six-year $200 million Term Loan B Facility, all of which are subject to a number
of financial covenants. The Delayed Draw Term Loan A is to be used for
acquisitions and related initial working capital requirements. The facility must
be drawn within 18 months of the closing in a maximum of two drawings. Proceeds
from the Term Loan B were used in part to refinance the existing $168 million
revolving credit facility that expired on August 5, 2002 and fund working
capital requirements as necessary. The facility agreements contain various
restrictive covenants that among other things, limit additional indebtedness and
limit the ability of the Corporation to engage in certain transactions with
affiliates, create liens on assets, engage in mergers and consolidations, or
dispose of assets. Within 35 days after the closing date, the Corporation is
required to obtain an interest rate protection agreement covering a notional
amount of 50% of the Loans under the Term B Facility.
On August 2, 2002, the Corporation issued a notice of redemption to the holders
of the $100 million aggregate principal amount of senior guaranteed notes. These
notes will be redeemed on September 4, 2002, at a redemption price that includes
a prepayment charge of approximately $16.5 million, which is expected to be paid
with proceeds from the Term B Facility.
5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
For the three and six month period ended June 30, 2001, the Corporation recorded
a pretax restructuring provision as follows:
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------------ ----------------
Forms and Labels $ 9,847 $ 22,332
Outsourcing 689 4,558
Commercial 3,029 20,111
Corporate 23,158 56,373
------- --------
Total $36,723 $103,374
======= ========
The 2001 restructuring plan was directed at streamlining the Corporation's
processes and significantly reducing the cost structure. The restructuring
provision for the three and six months ended June 30, 2001 includes provisions
of $13.4 million and $48.0 million, respectively, (706 and 1,852 positions) for
workforce reductions; $22.5 million and $51.8 million, respectively, for lease
terminations and facility closings; and $0.8 million and $3.6 million,
respectively for unprofitable contracts and incremental exit costs.
Substantially all of the 3,366 employees included in the full year 2001
restructuring program have been terminated as of June 30, 2002. The Corporation
anticipates that substantially all remaining severance payments will be
completed by the end of the current year.
The reconciliation of the restructuring liability as of June 30, 2002 is as
follows:
December 31, Cash June 30,
2001 Paid 2002
-------- -------- --------
Employee terminations $ 41,955 $(17,189) $ 24,766
Other 84,718 (5,802) 78,916
-------- -------- --------
$126,673 $(22,991) $103,682
======== ======== ========
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES (Continued)
Certain of the Corporation's facility lease obligations included in the
restructuring liability may continue until 2010; and future cash payments could
vary based upon market conditions and the Corporation's ability to sublease
these properties. Such changes in future cash requirements may affect amounts
reported in the consolidated financial statements of future periods.
For the six months ended June 30, 2001, the Corporation also recorded other
non-recurring charges consisting of a loss of $102.0 million from the partial
settlement of the U.S. pension plan, curtailed as of December 31, 2000 (included
in cost of sales and selling, general and administrative expense); $0.9 million
relating to the replacement of senior executive officers and legal settlement of
$3.9 million, both included in selling, general and administrative expense; and
non-cash charges of $11.6 million for plant closures and $15.3 million for
abandoned information technology projects, each related to asset impairments
(included in depreciation and amortization expense). For the three months ended
June 30, 2001, the Corporation also recorded non-cash charges related to asset
impairments of $14.8 million included in depreciation and amortization expense
and other non-recurring charges of $3.9 million included in selling, general and
administrative expenses.
6. INCOME TAXES
The decrease in the deferred tax valuation allowance for the three and six
months ended June 30, 2002 was $36.1 million. For the same three and six month
periods in 2001, the deferred tax valuation allowance increased $28.9 million
and $67.4 million, respectively.
The Corporation's effective income tax rate for the six months ended June 30,
2002 was 26.7%. The difference between the statutory rate and the effective rate
relates to lower tax rates in non-U.S. jurisdictions offset by the inability to
recognize foreign operating losses, combined with a partial reduction in the
deferred tax valuation allowance (which is based on estimates of future taxable
income), and offset by required tax reserves. For the same period ended June 30,
2001 the effective income tax benefit was 12.3% and resulted principally from
the partial recognition of operating losses.
7. DISPOSITION AND ASSETS HELD FOR DISPOSITION
In the fourth quarter of 2001, the Corporation classified a non-core business as
an asset held for disposition and the carrying value was adjusted to its net
recoverable amount. Included in the results of the Commercial segment for the
three and six months ended June 30, 2002 are net sales of $49.5 million and
$99.6 million, respectively, relating to this business. Income from operations
relating to this business was $3.4 million and $6.2 million, respectively. For
the three months ended June 30, 2001 net sales and income from operations
relating to this business were $49.9 million and $0.9 million, respectively. Net
sales relating to this business for the six months ended June 30, 2001 were
$101.9 million and income from operations relating to this business was $1.9
million.
During 2001, the Corporation divested certain non-core assets in Europe and an
investment in common shares and secured convertible notes receivable. As a
result of these transactions, the Corporation received total consideration of
$12.5 million and recorded a loss on disposition of $7.1 million, net of tax of
$3.9 million. Included in the Corporation's results of operations for the three
months ended June 30, 2001 were sales of $3.1 million and income from operations
of $0.4 million, and for the six months ended June 30, 2001 were sales of $10.6
million and income from operations of $0.3 million from these divested assets.
During the first quarter of 2001, the Corporation formalized plans to dispose of
other non-core assets within the Commercial segment, and recorded a non-cash
charge, included in depreciation and amortization expense, of $45.7 million (net
of $2.6 million in taxes), based upon anticipated proceeds from disposition. Net
sales and operating income contributed by these assets were $20.1 million and
$1.0 million, respectively for the three months ended June 30, 2001, and net
sales of $38.9 million and operating loss of $48.8 million for the six months
ended June 30, 2001. The Corporation disposed of these assets in the fourth
quarter of 2001.
8. RECONCILIATION TO U.S. GAAP
The following summarizes the significant accounting differences between Canadian
GAAP and U.S. GAAP that give rise to the differences disclosed in the U.S. GAAP
reconciliation:
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
8. RECONCILIATION TO U.S. GAAP (Continued)
PENSIONS AND POSTRETIREMENT BENEFITS
The adoption of CICA 3461, Employee Future Benefits, effective January 1, 2000,
eliminated all significant differences in the method of accounting for these
costs under Canadian GAAP and U.S. GAAP. The transitional rules for implementing
CICA 3461 continue to result in U.S. GAAP reporting differences. Under CICA
3461, all past net gains (losses), net assets and prior service costs were
recognized as of January 1, 2000. Under U.S. GAAP, net gains (losses), net
assets and prior service costs which occurred before January 1, 2000 are
recognized over the appropriate amortization period.
STATEMENT OF CASH FLOWS
For Canadian GAAP, the Statements of Cash Flows disclose the net change in cash
resources, which is defined as cash less bank indebtedness. U.S. GAAP requires
the disclosure of cash and cash equivalents. Under U.S. GAAP, net cash used by
financing activities for the six months ended June 30, 2002 would be $1.5
million. Net cash provided by financing activities for the six months ended June
30, 2001 would be $11.2 million. Cash and cash equivalents would be $82.2
million and $66.4 million at June 30, 2002 and 2001, respectively.
ACCOUNTING FOR CERTAIN INVESTMENT IN DEBT AND EQUITY SECURITIES
U.S. GAAP requires unrealized gains (losses) on available-for-sale securities to
be reported as a net amount in a separate component of shareholders' equity
until realized, whereas under Canadian GAAP such investments are recorded at
cost with no effect on net income or shareholders' equity. Under both Canadian
and U.S. GAAP, impairments deemed to be other than temporary would be charged to
earnings.
STOCK COMPENSATION
The adoption of CICA 3870, Stock-Based Compensation and Other Stock-Based
Payments, reduced most prospective differences in accounting for these costs
between Canadian GAAP and U.S. GAAP. Prior to CICA 3870, recognition of
compensation expense was not required for the Corporation's Series 1 Preference
Share options, whereas under U.S. GAAP, the expense is recognized and measured
at the fair value of the Preference Share options, less the amount the employee
is required to pay accrued over the vesting period.
In April 2002, the shareholders of the Corporation approved the amendment of the
options to purchase Series 1 Preference Shares to eliminate the cash-out
provision and to make them exercisable for one common share per each Series 1
Preference Share option. The exercise price and the number of Series 1
Preference Share options remained unchanged. This amendment effectively made
these options common share equivalents for diluted earnings per share
computations. The transition rules for CICA 3870 required that these common
share equivalents be considered outstanding as of the beginning of the year,
whereas for U.S. GAAP purposes, these Series 1 Preference Share options were not
considered common share equivalents until amended. The difference in the
weighted average common shares between Canadian and U.S. GAAP relates solely to
the amendment of the Series 1 Preference Share options.
Additionally, no compensation expense is required to be recognized in the
current and future periods under Canadian GAAP pursuant to CICA 3870, whereas
under U.S. GAAP, unearned compensation cost will be recognized over the
remaining vesting period (through December 11, 2004) based on the intrinsic
value of the option on the date of approval.
COMPREHENSIVE INCOME
U.S. GAAP requires disclosure of comprehensive income and its components.
Comprehensive income is the change in equity of the Corporation from
transactions and other events other than those resulting from transactions with
owners, and is comprised of net income and other comprehensive income. The only
components of other comprehensive income for the Corporation are unrealized
foreign currency translation adjustments and unrealized gains (losses) on
available-for-sale securities. Under Canadian GAAP, there is no standard for
reporting comprehensive income.
BUSINESS PROCESS REENGINEERING
Under U.S. GAAP, business process reengineering activities are expensed as
incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be
capitalized or expensed. Subsequent to October 28, 1998, Canadian GAAP requires
the cost of business process reengineering activities to be expensed as
incurred. Prior to October 28, 1998, the Corporation capitalized business
process reengineering costs and classified them as computer software.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
8. RECONCILIATION TO U.S. GAAP (Continued)
CONVERTIBLE DEBENTURES
Canadian GAAP requires that a portion of the subordinated convertible debentures
be classified as equity. The difference between the carrying amount of the
debenture and contractual liability is amortized to earnings. U.S. GAAP would
classify the subordinated convertible debentures as a liability. Under U.S.
GAAP, when convertible debt is converted to equity securities pursuant to an
inducement offer, the debtor is required to recognize in earnings, the fair
value of all securities and other consideration transferred in excess of the
fair value of the securities issuable in accordance with the original conversion
terms. Under Canadian GAAP, the fair value of the securities issued is charged
to retained earnings. Also under Canadian GAAP, certain other contingent
consideration is not recognized until paid; whereas under U.S. GAAP such
contingent consideration is recorded at fair value each reporting period. Under
U.S. GAAP, when convertible debt is converted to equity securities, any
unamortized deferred debt issuance costs are charged to share capital. Under
Canadian GAAP, these costs are charged to earnings.
The debt conversion costs relate to the December 28, 2001 induced conversion of
the Corporation's subordinated convertible debentures and more specifically
represents the right granted with the inducement shares for the holder to
potentially receive additional consideration in the future based on the 20-day
weighted average share price of the Corporation's stock at December 31, 2002 and
2003. For Canadian GAAP purposes, to the extent that any stock or cash is paid,
it will be recorded as a charge to retained earnings. For U.S. GAAP purposes,
the fair value of this contingent consideration is recognized in earnings and
recorded at fair market value in subsequent reporting periods. The fair value of
the consideration is based upon an independent third party valuation using an
option pricing valuation model that includes, but is not limited to the
following factors: the Corporation's stock price volatility; cost of borrowings;
and certain equity valuation multiples.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
8. RECONCILIATION TO U.S. GAAP (Continued)
The following tables provides information required under U.S. GAAP:
Three Months ended Six Months ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- ---------
Net earnings (loss) as reported $ 15,246 $(60,366) $ 27,739 $(261,826)
U.S. GAAP Adjustments:
Pension expense 20 (3,031) 38 170,517
Postretirement benefits 4,325 4,416 8,647 8,798
Capitalized software 1,691 9,938 3,382 13,830
Debt conversion costs (114) - 1,151 -
Stock-based compensation expense (1,547) - (4,143) -
Interest expense - 307 - 126
Income taxes (1,187) (4,475) (3,539) (76,293)
-------- -------- -------- ---------
Net earnings (loss) as determined under U.S. GAAP $ 18,434 $(53,211) $ 33,275 $(144,848)
-------- -------- -------- ---------
Earnings (loss) per share:
Basic $ 0.17 $ (0.60) $ 0.30 $ (1.64)
Diluted $ 0.16 $ (0.60) $ 0.29 $ (1.64)
Average shares (in thousands):
Basic 111,481 88,457 111,664 88,457
Diluted 113,926 88,457 113,468 88,457
Comprehensive income (loss):
Net earnings (loss) U.S. GAAP $ 18,434 $(53,211) $ 33,275 $(144,848)
Other comprehensive income (loss):
Cumulative translation adjustments (1,685) (1,903) (3,890) (4,545)
Reclassification of losses included in income - - - (798)
-------- -------- -------- ---------
Total comprehensive income (loss) $ 16,749 $(55,114) $ 29,385 $(150,191)
======== ======== ======== =========
Balance Sheet Items: June 30, 2002 December 31, 2001
As reported U.S. GAAP As reported U.S. GAAP
----------- --------- ----------- ---------
Net pension asset $(189,347) $(121,029) $(188,024) $(119,668)
Other assets - computer software (90,003) (61,085) (89,763) (57,463)
Postretirement benefits 242,779 376,155 239,664 381,687
Deferred taxes, net (68,548) (152,803) (47,188) (134,982)
Accounts payable and accrued liabilities 477,928 472,776 486,626 485,325
Cumulative translation adjustments (132,067) (96,883) (128,177) (92,993)
Share capital 399,753 393,594 397,761 384,759
Retained earnings (deficit) 69,082 (101,148) 51,666 (124,100)
Interest expense is net of investment income of $0.8 million and $2.0 million
for the six months ended June 30, 2002 and 2001, respectively.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146 will be
effective for the Corporation for disposal activities initiated after December
31, 2002. The Corporation is evaluating the effect SFAS 146 will have on its
financial statements.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
9. SEGMENT INFORMATION
In December 2000, the Corporation changed its executive management and the Board
of Directors and established a new strategic initiative that resulted in the
establishment of a new operating platform during the third quarter of 2001. This
realignment was made in order to segregate non-print related businesses and
align core businesses to take advantage of synergies and capitalize on core
competencies. The new segmentation reflects management's current structure with
regard to management's process for making decisions as it relates to resource
allocation and performance evaluation. The previously reported 2001 segments
were as follows: Moore North America, Integrated Business Solutions, and
International and Other. Prior period segment information has been reclassified
to conform to the current period presentation.
The Corporation operates in the printing industry with three distinct operating
segments based on the way management assesses information on a regular basis for
decision-making purposes. The three segments are Forms and Labels, Outsourcing
and Commercial. These segments market print and print related products and
services to a geographically diverse customer base.
Three Months ended Forms and
June 30, 2002 Labels Outsourcing Commercial Consolidated
- ----------------------------------------- ---------- ----------- ---------- ------------
Total revenue $285,418 $73,182 $145,957 $504,557
Intersegment revenue (1,360) (596) (2,810) (4,766)
-------- -------- -------- --------
Sales to customers outside the enterprise 284,058 72,586 143,147 499,791
--------
Segment operating profit 31,685 9,021 10,785 51,491
Non-operating expenses (28,840)
--------
Income from operations 22,651
Depreciation and amortization 14,511 3,932 4,064 22,507
Capital expenditures 2,251 1,002 2,223 5,476
Six Months ended Forms and
June 30, 2002 Labels Outsourcing Commercial Consolidated
- ----------------------------------------- ---------- ----------- ---------- ------------
Total revenue $572,856 $171,330 $293,764 $1,037,950
Intersegment revenue (2,811) (1,045) (4,802) (8,658)
-------- -------- -------- ----------
Sales to customers outside the enterprise 570,045 170,285 288,962 1,029,292
----------
Segment operating profit 61,824 29,989 22,746 114,559
Non-operating expenses (70,048)
----------
Income from operations 44,511
Segment assets 605,840 109,298 333,943 1,049,081
Corporate assets including investments 338,781
----------
Total assets 1,387,862
Depreciation and amortization 28,881 7,989 7,792 44,662
Capital expenditures 3,373 1,901 3,059 8,333
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
Three Months ended Forms and
June 30, 2001 (Reclassified) Labels Outsourcing Commercial Consolidated
- ------------------------------------------ ---------- ----------- ---------- ------------
Total revenue $299,514 $80,739 $157,011 $537,264
Intersegment revenue (1,026) (588) (3,124) (4,738)
-------- ------- -------- --------
Sales to customers outside the enterprise 298,488 80,151 153,887 532,526
Segment operating profit 11,551 7,246 6,642 25,439
Non-operating expenses (76,960)
--------
Loss from operations (51,521)
Depreciation and amortization 33,297 4,636 5,828 43,761
Capital expenditures 3,059 6,635 2,152 11,846
Six Months ended Forms and
June 30, 2001 (Reclassified) Labels Outsourcing Commercial Consolidated
- ------------------------------------------ ----------- ----------- ---------- ------------
Total revenue $612,250 $178,915 $327,120 $1,118,285
Intersegment revenue (1,211) (877) (9,475) (11,563)
-------- -------- -------- ----------
Sales to customers outside the enterprise 611,039 178,038 317,645 1,106,722
Segment operating profit (loss) 12,208 22,488 (57,733) (23,037)
Non-operating expenses (257,798)
---------
Loss from operations (280,835)
Segment assets 680,467 102,941 352,686 1,136,094
Corporate assets, including investments 340,410
---------
Total assets 1,476,504
Depreciation and amortization 59,438 9,056 64,252 132,746
Capital expenditures 5,679 11,750 2,152 19,581
10. PENDING LITIGATION
At June 30, 2002, certain lawsuits and other claims were pending against the
Corporation. While the outcome of these matters is subject to future resolution,
management's evaluation and analysis of such matters indicates that,
individually and in the aggregate, the probable ultimate resolution of such
matters will not have a material effect on the Corporation's consolidated
financial statements.
In connection with the Corporation's business acquisitions and divestitures, the
Corporation and other parties have made certain representations and the related
agreements contain customary indemnities. In addition, the price paid in those
transactions may be subject to adjustment following the closing. There can be no
assurance that the parties with whom the Corporation has entered into
transactions will not make claims for purchase price adjustments or
indemnification. The Corporation is not currently aware of any claims that would
have a material adverse effect on its financial condition.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
11. EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------- --------- -------- ---------
Net earnings (loss) $ 15,246 $(60,366) $ 27,739 $(261,826)
-------- -------- -------- ---------
Weighted average number of common
shares outstanding:
Basic 111,481 88,457 111,664 88,457
Dilutive options 2,688 - (a) 2,553 - (a)
-------- -------- -------- ---------
Diluted 114,169 88,457 114,217 88,457
-------- -------- -------- ---------
Earnings (loss) per share
Basic $ 0.14 $ (0.68) $ 0.25 $ (2.96)
Diluted $ 0.13 $ (0.68) $ 0.24 $ (2.96)
(a) For 2001, the diluted common shares outstanding excludes potentially
dilutive items as their effect would be anti-dilutive.
12. ENVIRONMENTAL
The Corporation is subject to laws and regulations relating to the protection of
the environment. The Corporation provides for expenses associated with
environmental remediation obligations when such amounts are probable and can be
reasonably estimated. Such accruals are adjusted as new information develops or
circumstances change and are not discounted. While it is not possible to
quantify with certainty the potential impact of actions regarding environmental
matters, particularly remediation and other compliance efforts that the
Corporation's subsidiaries may undertake in the future, in the opinion of
management, compliance with the present environmental protection laws, before
taking into account estimated recoveries from third parties, will not have a
material adverse effect upon the results of operations, cash flows or financial
condition of the Corporation.
13. ACQUISITIONS
On December 31, 2001 and January 31, 2002, the Corporation acquired certain
assets relating to the Document Management Services business of IBM Canada
Limited and The Nielsen Company, a commercial printer for total consideration of
$14.6 million and $57.2 million, respectively, net of cash acquired. The
allocation of the purchase prices to the assets acquired and liabilities assumed
based on fair values at the dates of acquisition were as follows:
Working capital, other than cash $ 10.9
Property, plant and equipment 9.5
Other liabilities (14.3)
Goodwill and other intangibles 65.7
------
Purchase price, net of cash received $ 71.8
======
In May 2002, the Corporation purchased the remaining minority interest in its
consolidated subsidiary, Quality Color Press, Inc., for total consideration of
approximately $7.0 million. The cost of this acquisition exceeds the net assets
acquired by approximately $4.7 million. Management has reclassified this
business from the Commercial segment to the Forms and Labels segment in order to
reflect the business synergies and integration plans. The Corporation will
finalize valuations for certain assets and contingent liabilities during the
third quarter of 2002 and adjust the carrying values of goodwill and other
intangibles accordingly.
Pro forma disclosures for the aforementioned acquisitions have been excluded
because they are not material to the Corporation's consolidated statements of
operations and financial position.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Moore Corporation Limited, established in 1882, is a diversified printing
company. According to Printing Impressions, a leading industry publication,
Moore is the third largest diversified printing company in North America based
on revenues. The Corporation offers its products and services principally in the
United States and Canada, but it also has operations in Latin America, primarily
in Mexico and Brazil, and in Europe.
The Forms and Labels segment provides a wide array of products and services,
including the design and production of business forms, labels and related
products, as well as electronic print management solutions. The Outsourcing
segment provides fully integrated business-to-business and business-to-consumer
solutions involving high quality, variably imaged print and mail, electronic
statement and database management services. The Commercial segment provides high
quality multi-color personalized business communications and direct marketing
services, including project, database and list management services.
OVERVIEW
The Corporation derives substantially all of its net sales from printing
services, including warehousing and related services. In 2001, approximately
54.1%, 15.8% and 30.1% of net sales were attributable to the businesses that
comprise the Forms and Labels, Outsourcing and Commercial segments,
respectively, and 55.4%, 16.5% and 28.1%, respectively, for the six months ended
June 30, 2002. A significant amount of all net sales are made in North America.
Although there is some seasonality in each of the segments, the overall net
sales are not materially affected by seasonal factors. Given the composition of
the Corporation's product and service offering, the Corporation believes its
overall operations are not significantly affected by trends in advertising. Like
many other companies, however, net sales in 2001 and the first half of 2002 have
been affected by the economic downturn in the United States.
The Corporation's financial results during the period discussed below have also
been affected by changes in business strategy and restructuring actions. In
early 2001, the new executive management team began implementing a business
strategy to increase net sales and margins and capitalize on the Corporation's
core competencies. Consistent with its strategy, the new executive management
team initiated a major realignment of the Corporation's business units during
2001 and the Corporation now operates in three complementary segments: Forms and
Labels, Outsourcing and Commercial. Certain unallocated overhead expenses,
mainly corporate information technology expenses and headquarters employees'
salaries and benefits, are recorded in a non-operating segment, which is
referred to as Corporate.
The Corporation's business strategy encompasses several initiatives that
affected its performance in 2001 and can be expected to continue to affect the
Corporation's results. Of these, cost reductions, restructuring actions and
divestitures had the greatest impact in 2001. The continuing impact of these
initiatives, together with acquisitions, have been significant contributors to
the Corporation's improved performance in the first six months of 2002, relative
to the comparable period last year. Beginning in 2001 and continuing in the
first six months of 2002, the Corporation decided to exit some customer
contracts and product lines that did not offer acceptable margins. However, the
Corporation has maintained and expanded its print-related product and service
offering throughout the period discussed below.
The Corporation's cost reductions have been primarily in the area of employee
headcount, which has been reduced by more than 3,000 positions since the
beginning of 2001. The reductions have primarily been made in administrative
staff, with the principal recurring impact on selling, general and
administrative expenses. The Corporation anticipates a further reduction of
1,000 positions in 2002. The Corporation has also consolidated its vendors to a
limited number of key suppliers to improve pricing and payment terms, as well as
inventory management. While the Corporation does not anticipate additional
significant reductions in the number of its suppliers, the Corporation plans to
pursue additional opportunities to achieve cost savings with these suppliers.
The Corporation also rationalized its capital expenditure and research and
development plans. In addition, the Corporation made cost reductions in the area
of information technology, principally attributable to reductions in headcount
and in utilization of consultants. The Corporation anticipates additional cost
savings in 2002 attributable to implementation of a company-wide system for
processing customer orders and payments. The principal benefits from this system
are expected to be improved control, reduction in cycle time and the elimination
of the costs associated with maintaining redundant systems. In 2001, the
Corporation has also reduced waste (i.e., flawed or excess production) and
improved printing throughput (i.e., increased the speed at which equipment
runs). For the remainder of 2002, the Corporation anticipates further cost
savings in these areas.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW (CONTINUED)
The Corporation's results during the periods covered below also reflect
restructuring actions that affected its performance in 2001. During 2001 the
Corporation undertook restructuring actions, mainly related to workforce
reductions and the exiting of facilities. In 2001, the Corporation also recorded
charges for the impairment of assets and goodwill associated with non-core
businesses that the Corporation planned to sell. The Corporation's business
strategy calls for continued rationalization of its manufacturing platform.
Consistent with the strategy to focus on core printing operations through both
dispositions and acquisitions, the Corporation sold Colleagues, its U.K.-based
advertising agency, and its investment in an on-line real estate listing company
during the first quarter of 2001. In the fourth quarter of 2001, the Corporation
disposed of Phoenix, its Detroit-based telemarketing business. In 2001 and the
first quarter of 2002, the Corporation also disposed of several of its interests
in non-U.S. joint ventures that were no longer strategic or where the
Corporation lacked sufficient control to achieve its objectives. The Corporation
is planning further divestitures that may have a material effect on its results,
mainly in its Commercial segment. By contrast, the Corporation has been
continuously reviewing acquisition opportunities that would be accretive to
earnings, present opportunities to expand its product and service offering or
increase utilization of its print assets. In December 2001 and January 2002, the
Corporation completed two acquisitions: Document Management Services, the print
and mail business of IBM Canada Limited, and The Nielsen Company, a commercial
printer.
The following discussion includes information on a consolidated basis presented
in accordance with Generally Accepted Accounting Principles (GAAP) in Canada.
This discussion is supplemented by a discussion of segment operating income
before deductions for 2001 restructuring and non-recurring charges, including
the impairment of long-lived assets and a pension settlement. This supplemental
discussion of operating results before certain charges in 2001 should be read in
conjunction with the Corporation's reported consolidated financial statements.
Consolidated results of operations for the three and six months ended June 30,
2002 and 2001 are shown in the accompanying consolidated statements of
operations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AS
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2001
CONSOLIDATED
Net sales for the three months ended June 30, 2002 were $499.8 million,
representing a $32.7 million or 6.1% decrease from the same period last year.
The decrease primarily results from sales declines from divestitures of the
Phoenix business ($20.1 million)and a European joint venture ($3.1 million); a
decline in the U.S. and Canadian Forms and Labels business ($12.9 million)
primarily related to the decision to exit certain non-core product lines; the
decline in prepaid telephone cards in the Outsourcing business ($12.8 million)
and the devaluation of certain foreign currencies ($4.7 million), primarily the
Brazilian real and the Venezuelan bolivar. The decrease was partially offset by
sales from new acquisitions ($25.3 million).
Cost of sales decreased $27.0 million to $341.8 million or 68.4% of consolidated
net sales for the second quarter of 2002 compared to 69.2% in 2001 due to waste
reduction and higher throughput. The Corporation anticipates further cost
reductions resulting from increasing production efficiencies and partnering with
suppliers.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative costs decreased $21.9 million to $112.9
million or 22.6% of consolidated net sales for the three months ended June 30,
2002 compared to $134.8 million or 25.3% in 2001. The year over year improvement
reflects the absence of $3.9 million of other non-recurring charges that were
included in selling, general and administrative costs for the second quarter of
2001. Excluding this charge in 2001, selling, general and administrative costs
would have been 24.6% of consolidated net sales. The remaining $18.0 million of
selling, general and administrative improvements in 2002 compared to 2001 were
attributable to the benefits achieved from the Corporation's 2001 restructuring
activities and an overall focus on efficiencies.
Depreciation and amortization expense was $22.5 million and $43.8 million for
the three months ended June 30, 2002 and 2001, respectively. The decrease of
$21.3 million is primarily due to a $14.8 million charge in 2001 for asset
impairments, including plant closures and abandoned information technology
projects.
Income from operations was $22.7 million for the second quarter of 2002 compared
to $51.5 million loss for the same prior year period. This improvement results
from the benefits achieved from restructuring and other non-recurring charges
that were included in the second quarter 2001 results. Excluding the impact of
these charges, income from operations increased $18.8 million for 2002 due to
improved operating results across all business segments, as described under
"Restructuring and Other Non-Recurring Charges" below.
Included in investment and other income for the three months ended June 30, 2002
is a gain on disposition of land of $1.6 million, partially offset by an
unfavorable foreign currency translation adjustment of $0.7 million associated
with the Corporation's operation in Venezuela.
Net interest expense decreased by $3.4 million to $2.7 million for the three
months ended June 30, 2002 compared to 2001. This decrease is attributable to
the redemption of $100 million of senior guaranteed notes and the conversion of
the Corporation's $70.5 million subordinated convertible debentures, both of
which occurred in December 2001.
Net earnings for the three months ended June 30, 2002 increased $75.6 million
over the prior year to $15.2 million, or $0.13 per diluted share as a result of
cost savings generated by the 2001 restructuring activities. This increase
primarily relates to the restructuring and other non-recurring charges that were
included in the three months ended June 30, 2001.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
There were no restructuring or other non-recurring charges recorded for the
three months ended June 30, 2002.
During the second quarter of 2001, the Corporation recorded restructuring and
other non-recurring charges totaling $55.4 million, net of taxes, or $0.62 per
diluted share. These charges include restructuring provisions of $36.7 million
for workforce reductions (706 positions), lease terminations and other costs;
non-cash charges related to asset impairment of $14.8 million that were included
in depreciation and amortization expense; and other non-recurring charges of
$3.9 million.
The following table and management discussion summarizes the operating results
of the Corporation's business segments, excluding for 2001 the impact of the
restructuring and other non-recurring charges previously discussed.
Three Months ended June 30, Income (loss) from
(In millions of U.S. dollars) Sales operations (1)
----------------------------- ----------------- -----------------
2002 2001 2002 2001
------ ------ ------ ------
Forms and Labels $284.0 $298.5 $ 31.7 $ 25.5
Outsourcing 72.6 80.1 9.0 7.9
Commercial 143.2 153.9 10.8 10.0
Corporate - - (28.8) (39.5)
------ ------ ------ ------
Total $499.8 $532.5 $ 22.7 $ 3.9
====== ====== ====== ======
(1) 2001 results presented net of above noted restructuring and other
non-recurring charges.
Net income for the three months ended June 30, 2002 was $15.2 million or $0.13
per diluted share. For the same period in 2001, net of the restructuring and
non-recurring charges, the Corporation reported a net loss of $5.0 million or
($0.06) per diluted share.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORMS AND LABELS
Net sales for the three months ended June 30, 2002 decreased $14.5 million or
4.9%, primarily resulted from declines in the North American Forms and Labels
business due to the Corporation's decision in 2001 to exit non-core product
lines and unprofitable customer contracts($10.6 million and $3.5 million,
respectively), and 2002 volume declines resulting from lower transaction levels
among major print management customers ($9.9 million) offset in part by sales to
new customers ($9.5 million). In Latin America, sales declined by $4.6 million
primarily due to the devaluation of various foreign currencies (largely, the
Brazilian real and Venezuelan bolivar).
Operating income for the three month period ended June 30, 2002 increased by
$6.2 million to $31.7 million, primarily due to the Corporation's decision to
streamline its Forms and Labels operations. Major factors for the operating
income improvement included the elimination of non-customer critical positions,
the realignment of incentive plans, productivity improvements (waste reductions
and higher throughput), and the aforementioned exiting of non-core product
lines.
OUTSOURCING
Net sales decreased $7.5 million to $72.6 million for the three months ended
June 30, 2002 from the same prior year period. Growth achieved from new and
existing customers in the financial, insurance and telecommunications markets,
combined with the acquisition of the Document Management Services business of
IBM Canada Limited, was offset by volume declines in the prepaid telephone card
market. Net sales were unfavorably affected by the Corporation's decision to
exit the manufacturing of packaging for certain non-secured stored value cards.
Operating income for the three months ended June 30, 2002 increased $1.1
million, or 13.9%, due to cost savings achieved through workforce reductions and
cost containment partially offset by an expected decline in gross profit related
to product mix.
COMMERCIAL
Net sales declined by $10.7 million or 6.9% primarily due to the divestiture of
the Phoenix business unit ($20.1 million); a divestiture of a European joint
venture ($3.1 million); volume declines in the Corporation's technical
publications business unit; and exiting non-core product lines (together $8.7
million); offset by sales from the acquisition of The Nielsen Company on January
31, 2002.
Operating income for the second quarter 2002 increased $0.8 million or 8.0% to
$10.8 million over the same prior year period. The incremental contribution from
The Nielsen Company acquisition was offset by the aforementioned divestitures.
CORPORATE
The decrease in operating expenses from $39.5 million in 2001 to $28.8 million
in 2002 is due to overall cost controls and focus on discretionary spending.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AS
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001
CONSOLIDATED
Net sales for the six months ended June 30, 2002 were $1,029.3 million,
representing a $77.4 million or 7.0% decrease from the same period last year.
The decrease primarily results from sales declines in the U.S. and Canadian
Forms and Labels business ($29.1 million) primarily related to the decision to
exit certain non-core product lines; divestitures of the Phoenix business ($38.9
million) and Colleagues and a European joint venture ($10.6 million); and the
devaluation of certain foreign currencies ($12.0 million). The decrease was
partially offset by sales from new acquisitions ($44.5 million).
Cost of sales for the six months ended June 30, 2002 decreased $126.9 million to
$702.8 million or 68.3% of consolidated net sales compared to 75.0% for the same
period in 2001. The decrease was primarily due to the non-recurring charge of
$61.2 million for the partial settlement of the U.S. pension plan included in
cost of sales for 2001 and lower sales volumes. Excluding this charge, cost of
sales would have been 69.4% of consolidated net sales for the six months ended
June 30, 2001. The Corporation anticipates further cost reductions resulting
from increasing production efficiencies and partnering with suppliers.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative costs decreased $84.4 million to $237.3
million or 23.1% of consolidated net sales for the six months ended June 30,
2002 compared to $321.7 million or 29.1% in 2001. Included in selling, general
and administrative costs for 2001 was $40.8 million related to the U.S. pension
plan settlement and $4.8 million in other non-recurring costs. Excluding these
charges in 2001, selling, general and administrative costs would have been 24.9%
of consolidated net sales. The remaining $38.7 million incremental selling,
general and administrative reduction in 2002 compared to 2001 is attributable to
the benefits achieved from the Corporation's 2001 restructuring activities and
an overall focus on efficiencies.
Depreciation and amortization expense was $44.7 million and $132.7 million for
the six months ended June 30, 2002 and 2001, respectively. The decrease of $88.0
million is primarily due to 2001 non-cash charges of $48.3 million related to
goodwill written down to its net recoverable amount for assets held for
disposition and $26.9 million for asset impairments, including plant closures
and abandoned information technology projects.
Income from operations was $44.5 million for the six months ended June 30, 2002
compared to a loss from operations of $280.8 million for the same prior year
period. This improvement resulted from the benefits achieved from restructuring
and other non-recurring charges that were included in the second quarter 2001.
Excluding the impact of these charges, income from operations increased $40.0
million for 2002 due to improved operating results across all business segments,
as described below.
Net interest expense decreased by $6.9 million to $5.4 million for the six
months ended June 30, 2002. This decrease is attributable to the redemption of
$100 million of senior guaranteed notes and the conversion of the Corporation's
$70.5 million subordinated convertible debentures, both of which occurred in
December 2001.
For the six months ended June 30, 2002 and 2001 effective income tax rate was
26.7% and (12.3%), respectively. The difference between the statutory rate and
the effective rate relates to lower tax rates in non-U.S. jurisdictions offset
by the inability to recognize certain foreign operating losses, combined with a
partial reduction in the deferred tax valuation allowance (which is based on
estimates of future taxable income), and offset by required tax reserves. In
2001, the effective income tax benefit resulted from the reversal of deferred
taxes on the U.S. pension plan losses.
Net earnings for the six months ended June 30, 2002 increased $289.6 million
over the prior year to $27.7 million, or $0.24 per diluted share as a result of
cost savings generated by the 2001 restructuring activities. This increase
primarily relates to the restructuring and other non-recurring charges that were
included in the six months ended June 30, 2001 as described under "Restructuring
and Other Non-Recurring Charges" below.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
There was no restructuring or other non-recurring charges recorded for the six
months ended June 30, 2002.
During the six months ended 2001, the Corporation recorded restructuring and
other non-recurring charges totaling $249.6 million, net of taxes, or $2.82 per
diluted share. These charges are categorized as follows:
- - Restructuring provisions of $103.4 million for workforce reductions (1,852
positions), lease terminations and other costs; non-cash charges related to
asset impairment of $26.9 million, included in depreciation and amortization
expense; severance of $0.9 million related to the replacement of senior
executive officers; other non-recurring charges of $3.9 million;
- - Loss on disposal of non-core assets of $7.1 million (net of $3.9 million in
taxes), included in investment and other income; write-down of non-core
business held for sale of $45.7 million (net of $2.6 million in taxes); and
- - Loss of $102.0 million from the partial settlement of the U.S. pension plan.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table and management discussion summarize the operating results of
the Corporation's business segments, excluding for 2001 the impact of the
aforementioned restructuring and other non-recurring charges.
Six Months ended June 30, Income (loss) from
(In millions of U.S. dollars) Sales operations (1)
----------------------------- ------------------ -------------------
2002 2001 2002 2001
-------- -------- ------ -----
Forms and Labels $ 570.0 $ 611.1 $ 61.8 $ 39.3
Outsourcing 170.3 178.0 30.0 27.4
Commercial 289.0 317.6 22.7 15.5
Corporate - - (70.0) (77.7)
-------- -------- ------ ------
Total $1,029.3 $1,106.7 $ 44.5 $ 4.5
========= ======== ====== ======
(1) 2001 results presented net of above noted restructuring and other
non-recurring charges.
Net income for the six months ended June 30, 2002 was $27.7 million or $0.24 per
diluted share. For the same period in 2001, net of the above noted items, the
Corporation reported a net loss of $12.2 million or $0.14 per diluted share.
FORMS AND LABELS
Net sales for the six months ended June 30, 2002 decreased $41.1 million or 6.7%
to $570.0 million, primarily due to declines in the North American Forms and
Labels business ($56.3 million), as a result of the Corporation's decision in
2001 to exit non-core product lines and unprofitable customer contracts ($19.2
million and $4.8 million, respectively) and volume declines due to lower
transaction levels among major print management customers ($30.6 million)
partially offset by sales to new customers ($13.5 million). In Latin America,
sales declined by $12.0 million primarily as a result of the devaluation of
various foreign currencies (largely, the Brazilian real and Venezuelan bolivar).
Operating income for the six month period ended June 30, 2002 increased by $22.5
million to $61.8 million, primarily due to the Corporation's decision to
streamline its Forms and Labels operations. Major factors contributing to the
operating income improvement included the elimination of non-customer critical
positions, the consolidation of the Canadian and U.S. management teams and
administrative infrastructures, the realignment of incentive plans, productivity
improvements (waste reductions and higher throughput), and the aforementioned
exiting of non-core product lines.
OUTSOURCING
Net sales decreased $7.7 million from $178.0 million to $170.3 million for the
six months ended June 30, 2002 from the same prior year period. Growth achieved
from new and existing customers in the financial, insurance, and
telecommunications markets, combined with the acquisition of the Document
Management Services business of IBM Canada Limited ($10.3 million), was more
than offset by volume declines in the prepaid telephone card market. Net sales
growth was also offset by the impact of the decision to exit the manufacturing
of packaging for certain non-secured stored value cards the Corporation
produces.
Operating income for the six months ended June 30, 2002 increased $2.6 million,
or 9.5%, due to cost savings achieved through workforce reductions, cost
containment and the aforementioned acquisition.
COMMERCIAL
Net sales declined by $28.6 million or 9.0% due to the divestiture of the
Phoenix business unit ($38.9 million), Colleagues and a European joint venture
($10.6 million), offset by the acquisition of The Nielsen Company on January 31,
2002 ($34.2 million). Excluding these divestitures and the acquisition, net
sales decreased $13.3 million.
Operating income for the six months ended June 30, 2002 increased $7.2 million
to $22.7 million over the same prior year period. The increase was driven by
strong volume growth in the direct mail business ($4.2 million), cost reductions
resulting from the 2001 restructuring activities, and the acquisition of The
Nielsen Company.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CORPORATE
The decrease in operating expenses is due to overall cost controls and a focus
on discretionary spending.
LIQUIDITY AND CAPITAL RESOURCES
In addition to its cash generated from operations, the Corporation had a $168.0
million committed revolving term facility that matured on August 5, 2002 and was
subject to a number of financial covenants that were calculated on a quarterly
basis including, but not limited to, tests of net worth, leverage and interest
coverage. At June 30, 2002, $45.0 million was drawn down under the facility
versus $15.0 million at December 31, 2001. The Corporation also maintains
uncommitted bank operating lines in the majority of the domestic markets in
which it operates. These lines of credit are maintained to cover temporary cash
shortfalls. Available borrowings under these uncommitted facilities amounted to
$42.0 million at June 30, 2002, and may be terminated at any time at the
Corporation's option. Total availability under these facilities at June 30, 2002
was approximately $166.0 million. In addition, within the next six to twelve
months the Corporation expects to receive approximately $150 million, before
taxes, fees and transfers to other employee benefit plans, from the termination
of the U.S. pension plan. The Corporation has $17.3 million in outstanding
letters of credit at June 30, 2002.
An additional source of liquidity at June 30, 2002 was the Corporation's
short-term investments in the amount of $66.1 million, which primarily consist
of certificate and term deposits, treasury bills and bank notes. These
investments are with financial institutions of sound credit rating and are
highly liquid as the majority mature within one to seven days and are classified
as "cash and cash equivalents."
At June 30, 2002 the Corporation had $100.0 million of senior guaranteed notes
outstanding. These notes are divided in two series, $42.8 million and $57.2
million, that mature on March 25, 2006 and 2009 respectively, and bear interest
of 7.84% and 8.05% respectively.
In August 2002, the Corporation entered into a $400 million secured credit
facility. The facility is comprised of a five-year $125 million Revolving Credit
Facility, a five-year $75 million Delayed Draw Term Loan A Facility, and a
six-year $200 million Term Loan B Facility, all of which are subject to a number
of financial covenants. The Delayed Draw Term Loan A Facility is to be used for
acquisitions and related initial working capital requirements. The facility must
be drawn within 18 months of the closing in a maximum of two drawings. Proceeds
from the Term Loan B Facility was used in part to refinance the existing $168.0
million revolving credit facility that expired on August 5, 2002 and fund
working capital requirements as necessary. The facility agreements contain
various restrictive covenants that among other things, limit additional
indebtedness and limit the ability of the Corporation to engage in certain
transactions with affiliates, create liens on assets, engage in mergers and
consolidations, or dispose of assets. Within 35 days after the closing date, the
Corporation is required to obtain an interest rate protection agreement covering
a notional amount of 50% of the Loans under the Term B Facility.
On August 2, 2002, the Corporation issued a notice of redemption to the holders
of the $100 million aggregate principal amount of senior guaranteed notes. These
notes will be redeemed on September 4, 2002, at a redemption price that includes
a prepayment charge of approximately $16.5 million which is expected to be paid
with proceeds from the Term B Facility.
As of June 30, 2002, the Corporation met its financial covenants and believes it
has sufficient liquidity to complete the restructuring activities initiated in
2001 and effectively manage the financial needs of the businesses.
On February 7, 2002, the Corporation announced a program to repurchase up to $50
million of its shares. The program allows for shares to be purchased on the New
York Stock Exchange from time to time depending upon market conditions, market
price of the common shares and the assessment of the cash flow needs by the
Corporation's management. As of June 30, 2002, the Corporation had repurchased
1,069,700 shares.
Net cash provided from operating activities was $75.8 million for the six months
ended June 30, 2002 compared to $48.1 million for the same period last year. The
change was primarily due to changes in working capital, including a decrease in
days sales outstanding and better operating results in the Corporation's core
businesses.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash used by investing activities for the six months ended June 30, 2002 was
$78.4 million versus $7.0 million in the same period of 2001. The increased
expenditures relate to the acquisitions of The Nielsen Company and the remaining
interest in Quality Color Press, Inc, for $64.0 million, net of cash received.
Net cash provided from financing activities for the six months ended June 30,
2002 was $19.5 million compared to net cash used by financing activities of $5.1
million in 2001. The increase relates to short-term borrowings used to finance
the aforementioned Nielsen acquisition.
As of June 30, 2002 the aggregate amount of outstanding forward contracts was
$11.7 million. Unrealized gains and losses from these foreign currency contracts
were not significant at June 30, 2002. The Corporation does not use derivative
financial instruments for trading purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 2002, the Corporation adopted various accounting standards
as described in Note 1, none of which had a material affect on the financial
statements.
FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q relating to the future results
of the Corporation (including certain "anticipated", "believed", "expected", and
"estimated results") and Moore's outlook (including statements as to continued
improvement in the Corporation's cost structure) that are "forward-looking
statements" as defined in the U.S. Private Securities Litigation Reform Act of
1995. Readers are cautioned not to place undue reliance on these forward-looking
statements and any such forward-looking statements are qualified in their
entirety by reference to the following cautionary statements. All
forward-looking statements speak only as of the date hereof, are based on
current expectations and involve a number of assumptions, risks and
uncertainties that could cause the actual results to differ materially from such
forward-looking statements. Factors that could cause such material differences
include, without limitation, the following:
- - dependence on key management personnel,
- - the effect of competition,
- - the effects of paper and other raw material price fluctuations and
shortages of supply,
- - successful execution of cross-selling, cost containment and other key
strategies,
- - successful negotiation, execution and integration of acquisitions,
- - the ability to renegotiate or terminate unprofitable contracts,
- - the ability to divest non-core businesses,
- - the rate of migration from paper-based forms to digital forms,
- - future growth rates in the Corporation's core businesses,
- - the impact of currency fluctuations in the countries in which the
Corporation operates,
- - general economic and other factors beyond the Corporation's control and
- - other risks and uncertainties detailed from time to time in the
Corporation's filings with United States and Canadian securities
authorities.
MOORE CORPORATION LIMITED
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 12, 2002, Minacs Worldwide Inc. filed a Statement of Claim in the
Ontario Superior Court of Justice seeking indemnification and restitution and
breach of contract damages in connection with an asset purchase agreement, dated
August 14, 2001, relating to the sale of The Phoenix Group, a division of Moore
North America, Inc., the Corporation's U.S. operating subsidiary. The
Corporation does not believe that the ultimate resolution of this matter will
have a material adverse effect on its financial position or results of
operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted on at the Corporation's Annual Shareholders
Meeting held on April 18, 2002:
1. The election of directors of the Corporation:
Shares For Shares Withheld
---------- ---------------
M.A. Angelson 88,364,998 512,613
R.G. Burton 88,376,978 500,633
S.A. Dawe 88,359,831 517,780
R.J. Daniels 88,494,670 382,941
A.C. Eckert, III 88,471,898 405,713
J.D. Manley 88,482,072 395,539
D.R. McCamus 88,484,716 452,895
L.H. Schipper 88,389,335 488,276
J.W. Stevens 88,495,663 381,948
2. A special resolution authorizing the amendment to the Articles of
Amalgamation to decrease the minimum number of directors on the board from
nine to seven, and to re-authorize the board to fix the number of
directors on the board within the range provided for in the articles.
Shares For Shares Against
---------- --------------
88,489,617 346,931
3. The appointment of Deloitte & Touche, LLP as the Corporation's independent
auditor for a term expiring at the annual meeting of shareholders in 2003
and to authorize the directors to fix the remuneration to be paid to the
independent auditor.
Shares For Shares Withheld
---------- ---------------
88,369,211 208,127
4. The amendment of options to acquire Series 1 Preference Shares to
eliminate the cash-out provision and to make them exercisable for one
common share per option instead of one Series 1 Preference Share.
Shares For Shares Against
---------- --------------
68,155,071 978,906
5. A special resolution authorizing the relocation of the Corporation's
registered office from the Municipality of Toronto to the Municipality of
Mississauga.
Shares For Shares Against
---------- --------------
88,706,710 128,468
6. A special resolution authorizing the continuation of the Corporation from
the Business Corporations Act (Ontario) ("OBCA"), which currently governs
its affairs to the Canada Business Corporations Act ("CBCA").
Shares For Shares Against
---------- --------------
76,580,416 577,482
MOORE CORPORATION LIMITED
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On April 2, 2002, the Corporation filed a Current Report on Form 8-K with a
press release announcing that Robert G. Burton, the Corporation's President and
Chief Executive Officer had been elected to the additional role of Chairman of
Moore Corporation Limited by the Corporation's Board of Directors effective at
the Annual Shareholders Meeting on April 18, 2002. This Form 8-K was amended by
a Form 8-K/A that was filed on April 15, 2002 to amend the members of the
Nominating and Governance Committee.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOORE CORPORATION LIMITED
Date: August 13, 2002 by: /s/ Mark S. Hiltwein
-------------------------------------------------
Mark S. Hiltwein
Executive Vice President, Chief Financial Officer
by: /s/ Richard T. Sansone
-------------------------------------------------
Richard T. Sansone
Vice President and Controller
(Chief Accounting Officer)