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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 SEPTEMBER 30, 2002
COMMISSION FILE NUMBER 1-8014
MOORE CORPORATION LIMITED
(Exact name of registrant as specified in its charter)
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 October 29, 2002, 111,408,867 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)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 114,052 $ 84,855
Accounts receivable, less allowance for 334,137 336,153
doubtful accounts of $21,989 (2001 - $22,057)
Inventories (Note 2) 131,644 128,421
Prepaid expenses 16,076 13,544
Deferred income taxes (Note 6) 14,403 13,566
---------- ----------
Total current assets 610,312 576,539
Property, plant and equipment, net 264,596 307,640
Investments 33,473 32,204
Prepaid pension costs 218,368 215,752
Goodwill (Note 3) 106,091 41,857
Other intangibles (Note 3) 6,782 437
Deferred income taxes (Note 6) 73,013 47,651
Other assets 104,827 114,906
---------- ----------
TOTAL ASSETS $1,417,462 $1,336,986
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank indebtedness $ 27,085 $ 56,181
Accounts payable and accrued liabilities 459,467 486,626
Short-term debt (Note 4) 3,206 18,034
Income taxes 57,277 27,677
Deferred income taxes (Note 6) 113 324
---------- ----------
Total current liabilities 547,148 588,842
Long-term debt (Note 4) 208,192 111,062
Postretirement benefits 243,864 239,664
Deferred income taxes (Note 6) 14,360 13,705
Other liabilities 48,604 51,263
Minority interest 6,701 11,200
---------- ----------
Total liabilities 1,068,869 1,015,736
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital 399,917 397,761
Authorized:
Unlimited number of preference (none outstanding
for 2002 and 2001) and common shares without
par value
Issued: 111,401,020 common shares - 2002
111,803,651 common shares - 2001
Retained earnings 86,580 51,666
Cumulative translation adjustments (137,904) (128,177)
---------- ----------
Total shareholders' equity 348,593 321,250
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,417,462 $1,336,986
========== ==========
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- ---------- ----------
Net sales $486,767 $510,603 $1,516,059 $1,617,325
Cost of sales 333,900 349,864 1,036,672 1,179,553
Selling, general and administrative expenses 103,370 122,785 340,717 444,533
Restructuring provision (Note 5) - 6,540 - 109,914
Depreciation and amortization (includes impairment
charges of $7,688 and $82,839 for 2001) 20,916 33,187 65,578 165,933
-------- -------- ---------- ----------
Total operating expenses 458,186 512,376 1,442,967 1,899,933
-------- -------- ---------- ----------
Income (loss) from operations 28,581 (1,773) 73,092 (282,608)
Investment and other income (expense) 5,581 (3,035) 4,936 (7,477)
Interest expense, net 3,612 6,019 8,965 18,280
Debt settlement expense, net (Note 4) 16,746 - 16,746 -
-------- -------- ---------- ----------
Earnings (loss) before income taxes
and minority interest 13,804 (10,827) 52,317 (308,365)
Income tax expense (recovery) (3,777) 884 6,503 (35,741)
Minority interest 83 460 577 1,373
-------- -------- ---------- ----------
Net earnings (loss) $ 17,498 $(12,171) $ 45,237 $ (273,997)
======== ======== ========== ==========
Net earnings (loss) per common share:
Basic $ 0.16 $ (0.14) $ 0.41 $ (3.10)
-------- -------- ---------- ----------
Diluted $ 0.15 $ (0.14) $ 0.40 $ (3.10)
-------- -------- ---------- ----------
Average number of common shares
outstanding (in thousands):
Basic 111,392 88,457 111,568 88,457
-------- -------- ---------- ----------
Diluted 113,403 88,457 113,885 88,457
-------- -------- ---------- ----------
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
2002 2001
-------- ---------
Balance, beginning of period $ 51,666 $ 431,821
Net earnings (loss) 45,237 (273,997)
Repurchase of common shares (1,069,700 shares in 2002) (10,323) -
Subordinated convertible debentures - (564)
Dividends (5 cents per share in 2001) - (4,423)
-------- ---------
Balance, end of period $ 86,580 $ 152,837
======== =========
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- -------- --------- ---------
OPERATING ACTIVITIES
Net earnings (loss) $ 17,498 $(12,171) $ 45,237 $(273,997)
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 20,916 33,187 65,578 165,933
(Gain)loss on sale of assets (5,759) - (8,138) 4,225
Restructuring provision, net of cash paid - (14,360) - 66,917
Pension settlement - - - 102,015
Debt settlement 16,746 - 16,746 -
Deferred income taxes (4,395) (284) (25,755) (36,504)
Other (1,338) 2,267 (2,265) 4,481
Decrease (increase) in working capital other than
cash resources:
Accounts receivable, net (6,140) 7,079 10,891 62,370
Inventories 537 (3,387) 3,926 136
Accounts payable and accrued liabilities (18,488) 46,872 (38,362) 21,500
Accrued income taxes (1,633) (370) 29,600 (4,969)
Other (1,254) (11,826) (7,298) (16,951)
--------- -------- --------- ---------
Net cash provided by (used in) operating activities 16,690 47,007 90,160 95,156
INVESTING ACTIVITIES
Property, plant and equipment, net 1,088 (2,679) (3,423) (14,581)
Decrease (increase) in long-term receivables 802 1,478 (1,922) (3,274)
Acquisition of businesses, net of cash received (2,000) - (65,966) -
Software expenditures (3,329) (2,958) (8,209) (5,110)
Other (3,998) (2,947) (3,945) 8,857
--------- -------- --------- ---------
Net cash used in investing activities (7,437) (7,106) (83,465) (14,108)
FINANCING ACTIVITIES
Dividends - - - (8,846)
Net change in short-term debt (44,811) (136) (14,828) (4)
Proceeds from issuance of long-term debt 200,000 1,041 200,000 52,744
Payments on long-term debt, including redemption premium (117,765) (1,644) (119,101) (48,476)
Issuance (repurchase) of common shares 164 - (8,167) -
Other (7,897) 221 (8,682) (1,040)
--------- -------- --------- ---------
Net cash provided by (used in) financing activities 29,691 (518) 49,222 (5,622)
Effect of exchange rate on cash 1,021 18 2,376 875
--------- -------- --------- ---------
Net increase in cash 39,965 39,401 58,293 76,301
Cash and cash equivalents at beginning of period(a) 47,002 44,010 28,674 7,110
--------- -------- --------- ---------
Cash and cash equivalents at end of period (a) $ 86,967 $ 83,411 $ 86,967 $ 83,411
========= ======== ========= =========
Supplemental disclosure of cash flows information:
Interest paid $ 5,138 $ 9,842 $ 10,174 $ 21,547
Income taxes paid 634 225 3,073 3,149
(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.
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.
These consolidated interim financial statements 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.
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 fair value 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
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
Raw materials $ 39,766 $ 39,452
Work-in-process 11,604 10,048
Finished goods 76,735 75,149
Other 3,539 3,772
-------- --------
Total $131,644 $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 INTANGIBLES
The changes in the carrying value of goodwill by business segment for the nine
months ended September 30, 2002, are as follows:
Balance at Foreign Balance at
Goodwill January 1, 2002 Additions Exchange September 30, 2002
- ------------------ --------------- --------- -------- ------------------
Forms and Labels $41,857 $ 3,773 $(110) $ 45,520
Outsourcing - 11,786 (73) 11,713
Commercial - 48,858 -- 48,858
------- ------- ----- --------
$41,857 $64,417 $(183) $106,091
======= ======= ===== ========
Other intangibles at September 30, 2002, include:
Gross
Carrying Amount Accumulated Balance at Amortizable
January 1, 2002 Additions Amortization September 30, 2002 Life
--------------- --------- ------------ ------------------ -----------
Trademarks & license
agreements $437 $2,953 $ (423) $2,967 4-10 Years
Customer intangibles - 2,729 (578) 2,151 3 Years
Indefinite-lived
trademarks - 1,664 - 1,664
---- ------ ------- ------
$437 $7,346 $(1,001) $6,782
==== ====== ======= ======
The total intangible asset amortization expense for the three months and nine
months ended September 30, 2002, were $0.4 million and $1.0 million,
respectively. Amortization expense for the next five years is estimated to be:
2003 $1,303
2004 $1,303
2005 $ 692
2006 $ 240
2007 $ 228
The table below provides a reconciliation of the reported net loss for the three
and nine-month periods ended September 30, 2001, to the pro forma net loss,
which excludes previously recorded goodwill amortization:
Loss Per Share
------------------
Three Months Ended September 30, 2001 Loss Basic Diluted
- ------------------------------------- --------- ------ -------
Net loss, as reported $ (12,171) $(0.14) $(0.14)
Add back: Goodwill amortization 526 0.01 0.01
--------- ------ ------
Pro forma net loss $ (11,645) $(0.13) $(0.13)
========= ====== ======
Loss Per Share
------------------
Nine months ended September 30, 2001 Loss Basic Diluted
- ------------------------------------ --------- ------ -------
Net loss, as reported $(273,997) $(3.10) $(3.10)
Add back: Goodwill amortization 1,635 0.03 0.03
--------- ------ ------
Pro forma net loss $(272,362) $(3.07) $(3.07)
========= ====== ======
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
4. DEBT
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 and restrictive covenants that, among other things, limit
additional indebtedness and 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. The financial covenants calculated on a
quarterly basis include, but are not limited to, tests of leverage and interest
coverage. 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 were used in part to refinance the existing $168 million
revolving credit facility that expired on August 5, 2002, and to fund working
capital requirements as necessary. At September 30, 2002, $199.5 million was
outstanding under the Term Loan B Facility, bearing interest at LIBOR (London
Interbank Offer Rate) plus a 300 basis point spread.
During the quarter, the Corporation entered into interest rate swap agreements
to manage exposure to fluctuations in interest rates on the Term B Loan
Facility. These swap agreements exchange the variable interest rates (LIBOR) on
this facility for fixed interest rates over the terms of the agreements. The
resulting fixed interest rates will be the contracted swap rate plus the LIBOR
basis spread on the Term B Loan Facility. At September 30, 2002, the notional
amount of the swap agreements was $150 million comprised as follows: a $100
million, 3.78% fixed rate agreement that expires in August 2006; and a $50
million, 2.56% fixed rate agreement that expires in September 2004. The interest
rate differential received or paid on these agreements is recognized as an
adjustment to interest expense. At September 30, 2002, the fair value of these
swap agreements was $(4.2) million.
On September 4, 2002, the Corporation redeemed $100 million of senior guaranteed
notes at a redemption price that includes a net prepayment charge of $16.7
million with proceeds from the Term Loan B Facility.
5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
For the three and nine-month periods ended September 30, 2001, the Corporation
recorded a pretax restructuring provision as follows:
Three Months Ended Nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
Forms and Labels $ 2,522 $ 24,854
Outsourcing 31 4,589
Commercial 3,667 23,778
Corporate 320 56,693
------- --------
Total $ 6,540 $109,914
======= ========
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 nine months ended September 30, 2001, included
provisions of $4.5 million and $52.5 million, respectively, for workforce
reductions (167 and 2,019 positions, respectively); and $2.0 million and $57.4
million, respectively, for lease terminations, facility closings and other
costs.
As of September 30, 2002, substantially all of the 3,366 employees included in
the 2001 restructuring plan have been terminated. The Corporation anticipates
that substantially all remaining severance payments relating to these employees
will be completed by the end of the current year.
The reconciliation of the restructuring liability as of September 30, 2002, is
as follows:
December 31, Cash September 30,
2001 Paid 2002
-------- -------- --------
Employee terminations $ 41,955 $(24,084) $17,871
Other 84,718 (10,534) 74,184
-------- -------- -------
$126,673 $(34,618) $92,055
======== ======== =======
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.
Total other related charges for the nine months ended September 30, 2001,
consisted of: a $102.0 million charge for the partial settlement of the U.S.
pension plan (included in cost of sales and selling, general and administrative
expenses), non-cash charges of $34.6 million for asset impairments (included in
depreciation and amortization), and other non-recurring charges of $4.8 million
(included in selling, general and administrative expenses).
6. INCOME TAXES
The Corporation's effective income tax rate for the nine months ended September
30, 2002, was 12.4%. 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 the tax benefit of 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 September 30, 2001, the effective income tax benefit was
11.6 % and resulted principally from the partial recognition of operating
losses.
The deferred tax valuation allowance for the three and nine months ended
September 30, 2002, decreased $6.7 million and $42.8 million, respectively. For
the same three and nine-month periods in 2001, the deferred tax valuation
allowance increased $8.8 million and $76.2 million, respectively.
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 nine months ended September 30, 2002, are net sales of $49.0 million
and $148.6 million, respectively, relating to this business. Income from
operations for the three and nine months ended September 30, 2002, relating to
this business was $2.9 million, and $9.0 million, respectively. For the three
months ended September 30, 2001, net sales and income from operations relating
to this business were $50.5 million and $2.8 million, respectively. For the nine
months ended September 30, 2001, net sales and income from operations relating
to this business were $152.4 million and $4.7 million, respectively.
During 2001, the Corporation divested certain non-core assets in Europe and an
investment in common shares and a 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. Included in
the Corporation's results of operations for the three months ended September 30,
2001, were sales of $2.7 million and loss from operations of $0.2 million, and
for the nine months ended September 30, 2001, were sales of $13.3 million and
income from operations of $0.1 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 $48.3 million,
based upon anticipated proceeds from disposition. Net sales and operating income
contributed by these assets were $19.0 million and $1.5 million, respectively,
for the three months ended September 30, 2001, and net sales of $57.9 million
and operating loss of $47.3 million for the nine months ended September 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 Handbook, Section 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 that 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 provided
by financing activities for the nine months ended September 30, 2002, would be
$20.1 million. Net cash used by financing activities for the nine months ended
September 30, 2001, would be $22.1 million. Cash and cash equivalents were
$114.1 million and $96.4 million at September 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. 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 Handbook, Section 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 measured at
the fair value of the Preference Share options, less the amount the employee is
required to pay, and is 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, change in fair value of derivatives,
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 requires
classifying 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.
DERIVATIVE FINANCIAL INSTRUMENTS
For U.S. GAAP purposes, the Corporation's interest rate swaps, are recorded at
fair value. Changes in the fair value of these swaps are recognized through
comprehensive income as they are designated as cash flow hedges. Under Canadian
GAAP the fair value of these derivatives is not recognized.
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 provide information required under U.S. GAAP:
Three Months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- --------- ---------
Net earnings (loss) as reported $ 17,498 $(12,171) $ 45,237 $(273,997)
U.S. GAAP Adjustments:
Pension expense 3,115 (1,578) 3,153 168,940
Postretirement benefits 4,324 6,048 12,971 14,846
Capitalized software 1,691 1,766 5,073 15,596
Debt conversion costs (366) - 785 -
Stock-based compensation expense (978) - (5,121) -
Interest expense - 63 - 189
Income taxes (3,037) (2,463) (6,576) (78,757)
-------- -------- -------- ---------
Net earnings (loss) as determined under U.S. GAAP $ 22,247 $ (8,335) $ 55,522 $(153,183)
-------- -------- -------- ---------
Earnings (loss) per share:
Basic $ 0.20 $ (0.09) $ 0.50 $ (1.73)
Diluted $ 0.20 $ (0.09) $ 0.49 $ (1.73)
Average shares (in thousands):
Basic 111,392 88,457 111,568 88,457
Diluted 113,403 88,457 113,386 88,457
Comprehensive income (loss), net of tax:
Net earnings (loss) U.S. GAAP $ 22,247 $ (8,335) $ 55,522 $(153,183)
Other comprehensive income (loss):
Cumulative translation adjustments (5,837) (1,874) (9,727) (6,419)
Change in fair value of derivatives (2,588) - (2,588)
Reclassification of losses included in income - - - (798)
-------- -------- -------- ---------
Total comprehensive income (loss) $ 13,822 $(10,209) $ 43,207 $(160,400)
======== ======== ======== =========
Balance Sheet Items: September 30, 2002 December 31, 2001
As reported U.S. GAAP As reported U.S. GAAP
----------- --------- ----------- ---------
Net pension asset $(191,097) $(125,894) $(188,024) $(119,668)
Other assets - computer software (91,444) (64,217) (89,763) (57,463)
Fair value of derivatives - 4,243 - -
Postretirement benefits 243,864 372,916 239,664 381,687
Deferred taxes, net (72,943) (155,816) (47,188) (134,982)
Accounts payable and accrued liabilities 459,467 454,681 486,626 485,325
Cumulative comprehensive income (loss) (137,904) (105,308) (128,177) (92,993)
Share capital 399,917 394,736 397,761 384,759
Retained earnings (deficit) 86,580 (78,901) 51,666 (124,100)
For U.S. GAAP purposes, the costs related to the early extinguishment of debt
are classified as an extraordinary item. On September 4, 2002, the Corporation
redeemed $100 million of the senior guaranteed notes at a redemption price that
includes a net prepayment charge of $16.7 million or $10.2 million net of taxes.
Net earnings before extraordinary items for the three and nine months ended
September 30, 2002, were $32.4 million and $65.7 million, respectively. Both
basic and diluted earnings per share before extraordinary items for three months
ended September 30, 2002, were $0.29. Basic and diluted earnings per share
before extraordinary items for the nine months ended September 30, 2002, were
$0.59 and $0.58, respectively.
Interest expense is net of investment income of $1.2 million and $2.6 million
for the nine months ended September 30, 2002 and 2001, respectively.
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)
In June 2002, the FASB approved the issuance of SFAS No. 146, "Exit or Disposal
Activities." SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
(EITF) has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 will be effective for
exit or disposal activities that are initiated after December 31, 2002.
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
September 30, 2002 Labels Outsourcing Commercial Consolidated
- ----------------------------------------- ---------- ----------- ---------- ------------
Total revenue $267,609 $ 69,266 $152,946 $489,821
Intersegment revenue - (210) (2,844) (3,054)
-------- -------- -------- --------
Sales to customers outside the enterprise 267,609 69,056 150,102 486,767
--------
Segment operating profit 35,567 11,142 10,941 57,650
Non-operating expenses (29,069)
--------
Income from operations 28,581
Depreciation and amortization 13,958 3,483 3,475 20,916
Capital expenditures 2,671 - 1,842 4,513
Nine months ended Forms and
September 30, 2002 Labels Outsourcing Commercial Consolidated
- ----------------------------------------- ---------- ----------- ---------- ------------
Total revenue $840,336 $240,596 $446,710 $1,527,642
Intersegment revenue (2,682) (1,255) (7,646) (11,583)
-------- -------- -------- ----------
Sales to customers outside the enterprise 837,654 239,341 439,064 1,516,059
----------
Segment operating profit 97,391 41,131 33,687 172,209
Non-operating expenses (99,117)
----------
Income from operations 73,092
Segment assets 587,603 108,364 338,089 1,034,056
Corporate assets including investments 383,406
----------
Total assets 1,417,462
Depreciation and amortization 42,839 11,472 11,267 65,578
Capital expenditures 6,464 1,481 4,901 12,846
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
September 30, 2001 (Reclassified) Labels Outsourcing Commercial Consolidated
- ------------------------------------------ ---------- ----------- ---------- ------------
Total revenue $285,955 $ 71,801 $155,679 $513,435
Intersegment revenue (216) (60) (2,556) (2,832)
-------- ------- -------- --------
Sales to customers outside the enterprise 285,739 71,741 153,123 510,603
Segment operating profit 28,190 9,588 8,066 45,844
Non-operating expenses (47,617)
--------
Loss from operations (1,773)
Depreciation and amortization 25,227 4,198 3,762 33,187
Capital expenditures 2,191 1,122 - 3,313
Nine months ended Forms and
September 30, 2001 (Reclassified) Labels Outsourcing Commercial Consolidated
- ------------------------------------------ ----------- ----------- ---------- ------------
Total revenue $898,205 $250,716 $482,799 $1,631,720
Intersegment revenue (1,427) (937) (12,031) (14,395)
-------- -------- -------- ----------
Sales to customers outside the enterprise 896,778 249,779 470,768 1,617,325
Segment operating profit (loss) 40,398 32,076 (49,667) 22,807
Non-operating expenses (305,415)
----------
Loss from operations (282,608)
Segment assets 651,151 94,609 358,841 1,104,601
Corporate assets, including investments 388,830
----------
Total assets 1,493,431
Depreciation and amortization 84,665 13,254 68,014 165,933
Capital expenditures 8,677 12,872 1,345 22,894
10. CONTINGENCIES
At September 30, 2002, certain lawsuits and other claims and assessments 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.
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.
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 Nine months ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- -------- ---------
Net earnings (loss) $ 17,498 $(12,171) $ 45,237 $(273,997)
-------- -------- -------- ---------
Weighted average number of common
shares outstanding:
Basic 111,392 88,457 111,568 88,457
Dilutive options 2,011 - (a) 2,317 - (a)
-------- -------- -------- ---------
Diluted 113,403 88,457 113,885 88,457
-------- -------- -------- ---------
Earnings (loss) per share
Basic $ 0.16 $ (0.14) $ 0.41 $ (3.10)
Diluted $ 0.15 $ (0.14) $ 0.40 $ (3.10)
(a) For 2001, the diluted options are excluded as their effect would be
anti-dilutive.
12. 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 $6.8 million. The cost of this acquisition exceeded the fair value
of the net assets acquired by approximately $5.4 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. During
August 2002, the Corporation purchased the remaining minority interest of its
consolidated subsidiaries located in Central America for consideration of $2.7
million ($2.0 million in cash and $0.7 million payable within the next twelve
months). The carrying value of the minority interests approximates the purchase
price.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
13. SUBSEQUENT EVENT
On October 17, 2002, the Board of Directors of the Corporation approved the
award of 385,000 restricted shares under the Corporation's 2001 Long-Term
Incentive Plan. The effective grant date of the restricted shares was October
17, 2002. The restricted shares vest at 25% per year and have a fair value of
$3.7 million. The fair value will be shown as a separate component of
shareholders' equity as deferred compensation, which will be recognized as
compensation expense over the vesting period. The restricted shares are subject
to repurchase by the Corporation at no cost in the event employment is
terminated other than as a result of death, retirement or disability. These
repurchase rights expire with respect to 25% of the initial restricted share
grant each year beginning on the first anniversary of the restricted share
award.
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
Moore Corporation Limited, established in 1882, is a diversified printing
company that operates in three distinct operating segments. The three segments
are Forms and Labels, Outsourcing and Commercial. 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 Europe and in Latin America, primarily in Mexico
and Brazil.
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 variable image 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. For the nine
months ended September 30, 2002, approximately 55%, 16% and 29% of net sales
were attributable to the Forms and Labels, Outsourcing and Commercial segments,
respectively.
Like many other companies, net sales in 2001 and year-to-date 2002 have been
affected by the economic downturn in the United States. Historically, net sales
have not been materially affected by seasonal factors.
The Corporation's financial results for the periods discussed herein have been
affected by changes in business strategy and restructuring actions. In early
2001, the new executive management team initiated a business strategy to
maximize margins and capitalize on the Corporation's core competencies.
Accordingly, the new executive management team realigned the business segments,
restructured the operations, disposed of non-core businesses, exited
unprofitable accounts and acquired complementary businesses. These initiatives
have resulted in improved performance for the first nine months of 2002,
relative to the comparable period last year.
Consistent with the strategy to focus on core printing operations, the
Corporation disposed of various non-core businesses. In the first quarter of
2001, the Corporation sold Colleagues, its U.K.-based advertising agency and its
investment in an on-line real estate listing company. 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 has completed various acquisitions complementary to
the core operations. In December 2001, the Corporation acquired Document
Management Services, the print and mail business of IBM Canada Limited. In
January 2002, the Corporation acquired The Nielsen Company, a commercial
printer. The Corporation also purchased the remaining minority interests in its
consolidated subsidiaries, Quality Color Press, Inc. in May 2002 and certain of
its subsidiaries in Central America in August 2002.
During 2001, the Corporation undertook restructuring actions, mainly related to
workforce reductions and the exiting of facilities. The Corporation's results
for the periods discussed hereafter are affected by such restructuring actions.
In 2001, the Corporation reduced headcount by more than 3,000 employees. 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 has also consolidated its vendors to improve pricing, payment
terms and inventory management. While the Corporation does not anticipate
additional significant reductions in the number of its suppliers, it will pursue
additional opportunities to achieve cost savings with these suppliers. The
Corporation has evaluated its capital expenditure and research and development
requirements and has significantly reduced spending in these areas. In addition,
cost reductions were achieved in the area of information technology, principally
attributable to reductions in headcount and in utilization of consultants.
Additional cost savings are expected to result from the 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. 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 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. This
supplemental discussion should be read in conjunction with the Corporation's
reported consolidated financial statements.
Consolidated results of operations for the three and nine months ended September
30, 2002 and 2001, are shown in the accompanying consolidated statements of
operations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AS
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001
CONSOLIDATED
Net sales for the three months ended September 30, 2002, were $486.8 million,
representing a $23.8 million or 4.7% decrease from the same period last year.
The decrease primarily results from sales declines from divestitures of the
Phoenix business ($19.0 million) and a European joint venture ($2.7 million); a
decline in the U.S. and Canadian Forms and Labels business ($15.1 million)
primarily related to the decision to exit certain non-core product lines; the
decline in prepaid telephone cards in the Outsourcing business ($9.2 million)
and the devaluation of certain foreign currencies ($8.8 million), principally
the Brazilian real and the Venezuelan bolivar. The decrease was partially offset
by sales from new acquisitions ($27.9 million).
Cost of sales decreased $16.0 million to $333.9 million or 4.6 % from the same
period last year, primarily due to the decline in sales. Year over year, gross
margins for the quarter are flat.
Selling, general and administrative costs decreased $19.4 million to $103.4
million or 21.2% of consolidated net sales for the three months ended September
30, 2002, compared to $122.8 million or 24.0% in 2001. The improvements in 2002
compared to 2001 are attributable to the benefits achieved from the
Corporation's 2001 restructuring activities and an overall focus on
efficiencies.
Depreciation and amortization expense was $20.9 million and $33.2 million for
the three months ended September 30, 2002 and 2001, respectively. The decrease
of $12.3 million is primarily due to a $7.7 million charge in 2001 for asset
impairments, for plant closures and abandoned information technology projects.
Income from operations was $28.6 million for the third quarter of 2002 compared
to a loss of $1.8 million 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 third quarter 2001 results. Excluding the
impact of these charges, income from operations increased $16.1 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 September 30,
2002, are net gains on disposition of certain properties of $5.8 million,
partially offset by an unfavorable foreign currency translation adjustment of
$0.2 million associated with the Corporation's operation in Venezuela.
Net interest expense decreased by $2.4 million to $3.6 million for the three
months ended September 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.
During the three months ended September 30, 2002, the Corporation redeemed the
remaining $100 million of senior guaranteed notes outstanding at a redemption
price that includes a net prepayment charge of $16.7 million, recorded as debt
settlement expense.
Net earnings for the three months ended September 30, 2002, increased $29.7
million over the prior year to $17.5 million. This increase primarily relates to
restructuring and other non-recurring charges that were included in the three
months ended September 30, 2001, and the 2002 cost savings resulting from 2001
restructuring activities.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
There were no restructuring charges recorded for the three months ended
September 30, 2002. The Corporation recorded a non-recurring charge of $16.7
million associated with the redemption of $100 million of its senior guaranteed
notes.
During the third quarter of 2001, the Corporation recorded restructuring and
other non-recurring charges totaling $14.2 million, or $0.16 per diluted share.
These charges include restructuring provisions of $6.5 million for workforce
reductions (167 positions), lease terminations and other costs and non-cash
charges related to asset impairment of $7.7 million that were included in
depreciation and amortization expense.
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 September 30, Income (loss) from
(In millions of U.S. dollars) Sales operations (1)
- ----------------------------- ---------------- ------------------
2002 2001 2002 2001
------ ------ ------ ------
Forms and Labels $267.7 $285.7 $ 35.6 $ 34.4
Outsourcing 69.0 71.8 11.1 9.6
Commercial 150.1 153.1 11.0 11.2
Corporate - - (29.1) (42.7)
------ ------ ------ ------
Total $486.8 $510.6 $ 28.6 $ 12.5
====== ====== ====== ======
(1) 2001 results presented net of above noted restructuring and other
non-recurring charges.
Net income for the three months ended September 30, 2002, was $17.5 million or
$0.15 per diluted share. For the same period in 2001, net of the restructuring
and non-recurring charges, the Corporation reported a net income of $2.0 million
or $0.02 per diluted share.
FORMS AND LABELS
Net sales for the three months ended September 30, 2002, decreased $18.0 million
or 6.3%, primarily due to declines in the North American Forms and Labels
business as a result of the Corporation's decision in 2001 to exit non-core
product lines, and volume declines in 2002 from major print management customers
($15.1 million), offset, in part, by sales to new customers ($5.4 million). In
Latin America, sales declined by $8.1 million primarily due to the devaluation
of various foreign currencies (principally, the Brazilian real and Venezuelan
bolivar).
Operating income for the three-month period ended September 30, 2002, increased
by $1.2 million to $35.6 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), as well as exiting of non-core product lines and
unprofitable customer contracts as discussed above.
OUTSOURCING
Net sales decreased $2.8 million to $69.0 million for the three months ended
September 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 cease manufacturing the packaging for certain non-secured stored
value cards.
Operating income for the three months ended September 30, 2002, increased $1.5
million, or 15.6%, due to cost savings achieved through workforce reductions and
cost containment, partially offset by an expected decline in gross profit
related to product mix.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUTSOURCING (Continued)
The Outsourcing business was adversely affected in the third quarter by the
sharp downturn in demand for prepaid cards, particularly in the
telecommunications sector. Management expects that this trend will continue for
the foreseeable future.
COMMERCIAL
Net sales declined by $3.0 million or 2.0% primarily due to the divestiture of
the Phoenix business unit ($19.0 million); a divestiture of a European joint
venture ($2.7 million); volume declines in the Corporation's technical
publications business unit; offset by sales of $23.7 million from the
acquisition of The Nielsen Company on January 31, 2002.
Operating income for the third quarter 2002 decreased $0.2 million or 1.8% to
$11.0 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 $42.7 million in 2001 to $29.1 million
in 2002 is due to overall cost controls and focus on discretionary spending.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AS
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001
CONSOLIDATED
Net sales for the nine months ended September 30, 2002, were $1,516.1 million,
representing a $101.2 million or 6.3 % decrease from the same period last year.
The decrease primarily results from sales declines in the U.S. and Canadian
Forms and Labels business primarily related to the decision to exit certain
non-core product lines and unprofitable customer contracts ($61.2 million); the
divestiture of the Phoenix business ($57.9 million), Colleagues and a European
joint venture ($13.3 million); and the devaluation of certain foreign currencies
($20.8 million). The decrease was partially offset by sales from new
acquisitions ($72.4 million).
Cost of sales for the nine months ended September 30, 2002, decreased $142.9
million to $1,036.7 million or 68.4% of consolidated net sales compared to 72.9%
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 69.1% of consolidated net sales for the
nine months ended September 30, 2001. The Corporation anticipates further cost
reductions resulting from increasing production efficiencies and reduction of
vendor costs as a result of partnering with suppliers.
Selling, general and administrative costs decreased $103.8 million to $340.7
million or 22.5 % of consolidated net sales for the nine months ended September
30, 2002, compared to $444.5 million or 27.5% 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
24.7% of consolidated net sales. The remaining $58.2 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 $65.6 million and $165.9 million for
the nine months ended September 30, 2002 and 2001, respectively. The decrease of
$100.3 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 $34.6 million for asset impairments, including plant
closures and abandoned information technology projects.
Income from operations was $73.1 million for the nine months ended September 30,
2002, compared to a loss from operations of $282.6 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 third
quarter 2001. Excluding the impact of these charges, income from operations
increased $56.1 million for 2002 due to improved operating results across all
business segments, as described below.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED (Continued)
Net interest expense decreased by $9.3 million to $9.0 million for the nine
months ended September 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. The remaining $100 million of senior guaranteed notes
were redeemed in September 2002.
For the nine months ended September 30, 2002 and 2001, the effective income tax
rate was 12.4 % and (11.6%), respectively. The 2002 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 the tax benefit from 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 partial recognition of operating losses.
Net earnings for the nine months ended September 30, 2002, increased $319.3
million over the prior year to $45.2 million, 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
nine months ended September 30, 2001, as described under "Restructuring and
Other Non-Recurring Charges" below.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
There were no restructuring charges recorded for the nine months ended September
30, 2002. The Corporation recorded a non-recurring charge of $16.7 million
associated with the redemption of $100 million of its senior guaranteed notes.
During the nine months ended September 30, 2001, the Corporation recorded
restructuring and other non-recurring charges totaling $263.8 million, net of
taxes, or $2.98 per diluted share. These charges are categorized as follows:
- - Restructuring provisions of $109.9 million for workforce reductions (2,019
positions), lease terminations and other costs; non-cash charges related to
asset impairment of $34.6 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;
- - Net loss on disposal of non-core assets of $3.2 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.
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.
Nine months ended September 30, Income (loss) from
(In millions of U.S. dollars) Sales operations (1)
- ----------------------------- ------------------ ------------------
2002 2001 2002 2001
-------- -------- ------- -------
Forms and Labels $ 837.7 $ 896.8 $ 97.4 $ 73.7
Outsourcing 239.3 249.8 41.1 37.0
Commercial 439.1 470.7 33.7 26.7
Corporate - - (99.1) (120.4)
-------- -------- ------- -------
Total $1,516.1 $1,617.3 $ 73.1 $ 17.0
======== ======== ======= =======
(1) 2001 results presented net of above noted restructuring and other
non-recurring charges.
Net income for the nine months ended September 30, 2002, was $45.2 million or
$0.40 per diluted share. For the same period in 2001, net of the above noted
items, the Corporation reported a net loss of $10.2 million or $(0.12) 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 nine months ended September 30, 2002, decreased $59.1 million
or 6.6 % to $837.7 million, primarily due to declines in the North American
Forms and Labels business, as a result of the Corporation's decision in 2001 to
exit non-core product lines and unprofitable customer contracts and volume
declines due to lower transaction levels among major print management customers
($61.2 million) partially offset by sales to new customers ($18.9 million). In
Latin America, sales declined by $20.1 million primarily as a result of the
devaluation of various foreign currencies (principally, the Brazilian real and
Venezuelan bolivar).
Operating income for the nine-month period ended September 30, 2002, increased
by $23.7 million to $97.4 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 exiting of
non-core product lines and unprofitable contracts discussed above.
OUTSOURCING
Net sales decreased $10.5 million from $249.8 million to $239.3 million for the
nine months ended September 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 ($14.5 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 cease manufacturing the
packaging for certain non-secured stored value cards.
Operating income for the nine months ended September 30, 2002, increased $4.1
million, or 11.1%, due to cost savings achieved through workforce reductions,
cost containment and the acquisition discussed above.
COMMERCIAL
Net sales declined by $31.6 million or 6.7% due to the divestiture of the
Phoenix business unit ($57.9 million), Colleagues and a European joint venture
($13.3 million), offset by the acquisition of The Nielsen Company on January 31,
2002, ($57.9 million). Excluding these divestitures and the acquisition, net
sales decreased $18.3 million.
Operating income for the nine months ended September 30, 2002, increased $7.0
million to $33.7 million over the same prior year period. The increase was
driven by strong volume growth in the domestic direct mail business ($6.1
million), cost reductions resulting from the 2001 restructuring activities, and
the acquisition of The Nielsen Company.
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, 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 and 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. 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 were used in part to refinance the existing $168 million revolving credit
facility that expired on August 5, 2002, and to fund working capital
requirements as necessary. At September 30, 2002, there was $199.5 million
outstanding under the Term Loan B Facility bearing interest at LIBOR (London
Interbank Offer Rate) plus a 300 basis point spread.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 $41.9 million at September 30, 2002, and may
be terminated at any time at the Corporation's option. Total availability under
these facilities at September 30, 2002, was approximately $41.0 million. In
addition, the Corporation expects to receive proceeds from the termination of
the U.S. pension plan, which timing is dependent upon anticipated regulatory
approval. The Corporation has $17.3 million in outstanding letters of credit at
September 30, 2002.
During the quarter, the Corporation entered into interest rate swap agreements
to manage exposure to fluctuations in interest rates on the Term B Loan
Facility. These swap agreements exchange the variable interest rates (LIBOR) on
this facility for fixed interest rates over the terms of the agreements. The
resulting fixed interest rates will be the contracted swap rate plus the LIBOR
basis spread on the Term B Loan Facility. At September 30, 2002, the notional
amount of the swap agreements was $150 million comprised as follows: a $100
million 3.78% fixed rate agreement that expires in August 2006; and a $50
million 2.56% fixed rate agreement that expires in September 2004. The interest
rate differential received or paid on these agreements is recognized as an
adjustment to interest expense. These swap agreements are designated as cash
flow hedges. At September 30, 2002, the fair value of these swap agreements was
$(4.2) million.
On September 4, 2002, the Corporation redeemed $100.0 million of senior
guaranteed notes at a redemption price that includes a net prepayment charge of
$16.7 million with proceeds from the Term B Facility.
An additional source of liquidity at September 30, 2002, was the Corporation's
short-term investments in the amount of $96.2 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."
As of September 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 September 30, 2002, the Corporation had
repurchased 1,069,700 shares.
Net cash provided from operating activities was $90.2 million for the nine
months ended September 30, 2002, compared to $95.2 million for the same period
last year. The change was primarily due to net changes in working capital,
including an increase in accrued income taxes and better operating results in
the Corporation's core businesses.
Net cash used by investing activities for the nine months ended September 30,
2002, was $83.5 million versus $14.1 million in the same period of 2001. The
increased expenditures relate to the aforementioned acquisitions of businesses
of $66.0 million.
Net cash provided from financing activities for the nine months ended September
30, 2002, was $49.2 million compared to net cash used by financing activities of
$5.6 million in 2001. The increase relates to long-term borrowings offset by the
redemption of $100.0 million of senior guaranteed notes.
As of September 30, 2002, the aggregate amount of outstanding forward contracts
was $12.7 million. Unrealized gains and losses from these foreign currency
contracts were not significant at September 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.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 ability to defend existing patents,
- - 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 assumptions, risks and uncertainties described from time to time in the
Corporation's filings with United States and Canadian securities authorities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Liquidity and Capital Resources.
ITEM 4. CONTROLS AND PROCEDURES
The Corporation's Chief Executive Officer and Chief Financial Officer have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as
amended, as of a date within 90 days of the filing of this quarterly report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this quarterly
report has been made known to them in a timely fashion. There have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation.
MOORE CORPORATION LIMITED
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 By-laws
10.1 Credit Agreement, dated as of August 2, 2002, among Moore North America,
Inc., the Guarantors named therein, the several lenders from time to time
party thereto and Citicorp USA, Inc., as administrative agent for the
Lenders.
(b) Reports on Form 8-K
On August 13, 2002, the Corporation furnished a Current Report on Form 8-K
containing the 18 U.S.C. Section 1350 certifications of Robert G. Burton, the
Corporation's Chairman, President and Chief Executive Officer, and Mark S.
Hiltwein, the Corporation's Executive Vice President, Chief Financial Officer,
relating to the Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.
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: November 1, 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)
CERTIFICATIONS
I, Robert G. Burton, Chairman, President and Chief Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Moore Corporation
Limited;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 1, 2002
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Signature: /s/ Robert G. Burton
-----------------------------------------------------------------
Robert G. Burton, Chairman, President and Chief Executive Officer
CERTIFICATIONS
I, Mark S. Hiltwein, Executive Vice President, Chief Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Moore Corporation
Limited;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 1, 2002
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Signature: /s/ Mark S. Hiltwein
-------------------------------------------------------------------
Mark S. Hiltwein, Executive Vice President, Chief Financial Officer