SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For THE SECOND QUARTER 2001 REPORT TO SHAREHOLDERS
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QUEBECOR WORLD INC. (FORMERLY KNOWN AS QUEBECOR PRINTING INC.)
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(Translation of Registrant's Name into English)
612 Saint-Jacques Street, Montreal, Quebec, H3C 4M8
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(Address of Principal Executive Office)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F)
Form 20-F Form 40-F X
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(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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QUEBECOR WORLD INC.
(Formerly known as Quebecor Printing Inc.)
Filed in this Form 6-K
Documents index
1. The Second Quarter 2001 Report To Shareholders
A Dawn of a New Era
IN PRINT MEDIA
Report to Shareholders
SECOND
QUARTER
2 0 0 1
[LOGO]
[LOGO] THE GLOBAL LEADER IN SERVICING
A GROWING DEMAND FOR PRINT
QUEBECOR WORLD INC.
FINANCIAL HIGHLIGHTS
Periods ended June 30
(In millions of US dollars, except per share amounts)
(Unaudited)
Three months Six months
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2001 2000 Change 2001 2000 Change
CONSOLIDATED RESULTS
Revenues $ 1,502.3 $ 1,549.1 (3)% $ 3,079.0 $ 3,179.5 (3)%
Operating income before amortization 243.0 255.9 (5)% 462.2 487.6 (5)%
Operating income 159.0 167.7 (5)% 295.4 305.9 (3)%
Net income 63.2 62.8 1 % 105.7 100.4 5 %
Cash provided from operating activities 277.2 216.9 123.7 289.5
Free cash flow from operations* 178.9 163.0 (39.7) 205.9
Operating margin before amortization 16.2 % 16.5 % 15.0 % 15.3 %
Operating margin 10.6 % 10.8 % 9.6 % 9.6 %
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SEGMENTED INFORMATION
REVENUES
North America $ 1,252.5 $ 1,304.8 (4)% $ 2,568.1 $ 2,682.5 (4)%
Europe 213.3 217.9 (2)% 440.4 445.2 (1)%
Latin America 36.6 26.2 40 % 70.8 51.7 37 %
OPERATING INCOME
North America $ 139.0 $ 145.4 (4)% $ 264.0 $ 265.0 - %
Europe 16.3 14.9 9 % 29.1 28.3 3 %
Latin America 2.4 1.2 100 % 4.3 2.9 48 %
OPERATING MARGINS
North America 11.1 % 11.1 % 10.3 % 9.9 %
Europe 7.6 % 6.8 % 6.6 % 6.4 %
Latin America 6.6 % 4.7 % 6.1 % 5.7 %
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FINANCIAL POSITION
Working capital $ 53.8 $ 157.8
Total assets 6,300.9 6,529.8
Long-term debt (including convertible notes) 2,245.4 2,643.7
Shareholders'equity 2,521.7 2,359.4
Debt-to-capitalization 47:53 53:47
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PER SHARE DATA
Earnings
Basic $ 0.41 $ 0.41 - % $ 0.68 $ 0.65 5 %
Diluted 0.41 0.40 3 % 0.68 0.64 6 %
Earnings before goodwill amortization
Basic $ 0.52 $ 0.52 - % $ 0.90 $ 0.86 5 %
Diluted 0.51 0.51 - % 0.89 0.85 5 %
Dividends on equity shares $ 0.12 $ 0.08 50 % $ 0.22 $ 0.15 47 %
Book value $ 15.35 $ 14.58 5 %
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* Cash provided from operating activities, less capital expenditures net of
proceeds from disposals, and preferred share dividends.
2
MESSAGE TO SHAREHOLDERS
GOOD RESULTS IN A CHALLENGING MARKET
Quebecor World continues to match its record results of last year despite
adverse economic conditions in its core U.S. market. Earnings per share (on a
diluted basis) were $0.41 for the quarter ended June 30, 2001, compared with
$0.40 a year ago.Year to date, earnings per share increased 6 % to $0.68 and net
income increased 5% to $105.7 million.
In North America, even though revenues declined by 4%, operating margins matched
record levels of 11.1 % for the second quarter last year. Following several
years of strong growth, the U.S. printing industry is currently experiencing the
most dramatic year-over-year decline in demand in over 25 years. The impact on
Quebecor World's revenues has been most pronounced in the specialty printing and
the direct mail market segments, books, and to a lesser extent, magazines. The
book segment has been negatively impacted as publishers continue to work down
their existing inventories. However, earlier announced cost containment
initiatives and continuing synergies from the World Color merger significantly
muted the impact. In addition, management estimates that, year-to-date, the
Company has achieved a net market share gain of $100 million in value-added
sales. We are confident that we have the best customer solution in the
marketplace based on the strength and value of our industry leading platform as
well as the breadth of our product offering and geographic coverage. While not
recession proof we are demonstrating that we can continue to perform in
difficult market conditions. Although we are swimming against the current we are
still creating shareholder value.
EXPANSION OF U.S. RETAIL PLATFORM
Subsequent to the end of the second quarter, the Company continued its role as
the leading industry consolidator by purchasing Retail Printing Corporation of
Taunton, Massachusetts. Retail Printing Corporation operates state-of-the-art
printing plants in Taunton and Nashville, Tennessee. This transaction enhance's
Quebecor World's strength as the only printer providing both long-run and
multi-versioning printing services to retail and newspaper insert customers
across the entire continent.
Concurrently, Quebecor World announced it was expanding its printing platform on
the U.S. west coast to enhance its ability to service retail customers in that
area. The first part of this expansion is the purchase of a new web offset press
to be installed in the Company's existing facility in Merced, California.
The acquisition on the east coast and the capital expansion on the west coast
give Quebecor World the most flexible coast-to-coast retail platform. This
transaction is also in line with our objective of concluding acquisitions that
are accretive to earnings.
START-UP OF NEW DIRECTORY PRESS
During the quarter, production began on the Company's new $23 million web
offset, heatset, Directory Press project in its Merced, California plant.
Producing 144 pages per impression, this is the world's largest web offset
heatset press. Merced is one of seven facilities in Quebecor World's extensive
coast-to-coast North American directory network. The press will be used to
produce directories for Pacific Bell customers in 120 cities in California and
Nevada under the terms of a five year multi-million dollar agreement. To date,
heatset directories are the industry standard in Europe, Latin America and
Canada. With this purchase, Quebecor World is once again setting the standard
throughout North America by expanding heatset into the U.S. market.
EUROPEAN REVENUES INCREASE
Our European group reported positive results with revenues increasing 4% and
operating income increasing 18%. This is before the unfavourable effects of
currency translation. We are continuing to develop our pan-European platform
providing unique service and solutions for our European customers and our North
American customers who are expanding into that market.
LATIN AMERICAN PLATFORM FLOURISHES
In Latin America, revenues increased 40% and operating income increased 100%.
3
[GRAPHIC OF
Quebecor World President and CEO, Charles Cavell and President and Editor of
Editora Abril S.A., Roberto Civita raise their hands in triumph at the opening
of Quebecor World's new facility in Recife, Brazil.]
During the quarter, Quebecor World finalized a long-term agreement to print
directories for ADSA, a subsidiary of Telmex, Mexico's largest
telecommunications company. Now the leading printer in Latin America, Quebecor
World is ideally positioned to participate in this rapidly expanding market with
a population almost twice that of the United States.
Subsequent to the end of the second quarter Quebecor World signed an agreement
to acquire the manufacturing assets of Grupo Serla in Mexico City and
annnounced the expansion of its existing facility, Quebecor World Monte Alban,
Queretaro. As a result of these initiatives Quebecor World will increase its
sales in Mexico by sixfold. Directory capacity at the Serla facility will be
increased 300% and book capacity increased 100%.
Under the terms of the ADSA contract Quebecor World will print 20 billion pages
a year which is more than all the pages the Company prints in Canada. Quebecor
World now has the leading market share of the growing directory market in
Mexico. Telephone directory demand closely mirrors land line telephone
installations which, according to the World Bank, grew at 6.1% per annum in
Mexico during the period from 1995-2000.
Mexican Books - Driven by Education Spending
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Government Education Expenditures as % of GDP
1998: 3.7%
1999: 5.1%
% Of Total Population under 20 years of age 47%
Source: QWI management; Cepal; Wilkofsky Gruen Associates
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The requirements under this contract will be produced with the existing
Serla assets and three full directory press lines being redeployed from Quebecor
World's North American platform. The Company is currently retooling its North
American directory platform to improve productivity, competitiveness and
customer service.
The skilled Serla employees will reduce startup costs allowing Quebecor World to
begin local manufacturing in the 4th quarter of 2001.
The other benefit of the Serla acquisition is that it increases Quebecor World's
position as a major book printer in Mexico. With 98 million people, Mexico is
the 11th largest country in the world. It is also a very young country with 34%
of the population under 15 and a government committed to education spending.
Grupo Serla is an important player in this market. Its primary customers are the
Mexican government agencies responsible for purchasing primary and secondary
school textbooks. Currently, the government purchases approximately
200 million books per year. The overall book market in Mexico is forecast to
grow 9% per annum during 2000-2005.
DIGITALLY LINKED NETWORK
The markets, management and employees in this region are among the best
performing in the Company. To improve on that performance new satellite and
fiber optic links are being installed to digitally connect all our Latin
American plants. This will allow for faster and easier communication and data
transfer from one Quebecor World location to another across the Latin American
network. The Company will be able to shift work between plants depending on
existing capacity, reduce distribution costs and save time for our customers. It
also opens up our Latin American platform to the world. Already we produce books
in Latin America for customers in the United States, Canada, the United Kingdom,
Spain and Africa.
RECIFE OFFICIALLY OPENS
Quebecor World's greenfield plant in Recife, the largest web offset facility in
Brazil, was officially opened in the second quarter. The facility prints
magazines for Editora Abril, Latin America's largest publisher, and directories
for Listel, a subsidiary of BellSouth Corporation and one of the region's
largest directory publishers.
Before the Recife plant was built Abril's magazines were printed in the south
and shipped to the northeast market. Veja, the World's fourth largest news
magazine, can be now distributed sooner throughout northeast Brazil, saving
Abril significant time and distribution costs.
4
[GRAPHIC OF MAP OF LATIN AMERICA]
[GRAPHIC OF
Quebecor World's new Mexico City facility will help the Company increase sales
in Mexico by sixfold.]
STOCK BUYBACK CONTINUES
Management continues to believe that the Company's stock is significantly
undervalued. As disclosed in the previous quarter, the Company repurchased for
cancellation close to 5 million Subordinate Voting Shares over the 12 month
period ended April 5, 2001, under its normal cause issuer bid. Since then, under
its new normal course issuer bid, the Company has repurchased for cancellation
another 1.3 million Subordinate Voting Shares as of June 30, 2001 at an average
cost per share of CDN$38.58. The Company has also committed to repurchase for
cancellation an additional 1.3 million shares at an average price per share of
CDN$39.07 for settlement prior to April 6, 2002.
In addition to the Company's stock buyback program, management and employees are
also aligning themselves with shareholders. Through our recently introduced
employee stock purchase plan, every bonus eligible manager in the U.S. is now
buying stock through payroll at the maximum allowable level. Furthermore, after
just two enrollment periods for the program, some 25% of all of our U.S.
employees are buying common stock.
REINFORCING OUR CAPITAL BASE
Quebecor World continues to pay down debt. During the quarter, the Company
cancelled the remaining balance of $250 million of the $1.25 billion Credit
Facility established for the World Color merger. The Company's
debt-to-capitalization ratio improved to 47:53 from 53:47 a year earlier.
To further reinforce our capital base for future growth, subsequent to the
quarter, Quebecor World entered into an underwriting agreement to issue CDN$175
million in preferred shares. The issue successfully closed August 16, 2001.
APPOINTMENTS
Jeffrey L. Peterson has joined Quebecor World North America as Senior Vice
President, eBusiness. Mr. Peterson was formerly Vice President of Global
eBusiness for Dupont E I De Nemours & Co., a $28 billion Fortune 500 company. He
will define and develop for Quebecor World a comprehensive eBusiness strategy,
which will drive the use of eBusiness applications throughout the Company.
David Blair has been appointed Quebecor World's Vice President of Manufacturing,
Environment and Technology. He has more than 30 years of experience in the
printing industry, the last twelve of which have been with Quebecor World. Mr.
Blair replaces Gilbert Martinet who, after 26 years with Quebecor World, has
chosen to retire from full-time responsibilities with the Company. Mr. Martinet
will continue to serve Quebecor World as a consultant.
DIVIDENDS
The Board of Directors declared a dividend of $0.12 per share on Multiple Voting
Shares and Subordinate Voting Shares. The Board also declared a dividend of
CDN$0.3125 per share on Series 2 Preferred Shares and CDN$0.4219 per share on
Series 4 Preferred Shares. The dividends are payable September 1, 2001 to
shareholders of record on August 17, 2001.
OUTLOOK
Visibility for print demand in the second half of 2001 is very limited. Industry
participants generally do not anticipate a strong turnaround before 2002.
Declining interest rates, reduced paper prices and the impact of a progressively
improving U.S. economy are expected to contribute to a gradual return to growth
in 2002.
A number of factors are expected to help mitigate the impact of current market
conditions on the Company's earnings. Chief among these are the ongoing
initiatives to improve efficiency and take advantage of the considerable
marketing and operational synergies available to the Company as the global
leader in the industry. In 2000, Quebecor World had sales of more than $500
million from customers that buy from it on more than one continent. The Company
is committed to increasing those sales to $700 million in 2001. It will also
consider further niche acquisitions which are accretive to earnings and, to this
end, is actively assessing investment opportunities on all three continents in
which it operates.
[PHOTO OF JEAN NEVEU, [PHOTO OF CHARLES G. CAVELL,
Chairman of the Board] President and Chief
Executive Officer]
Montreal, Canada, August 2001
BREAKDOWN OF REVENUES
SIX MONTHS
<Table>
Latin America 2%
Europe 14%
North America 84%
</Table>
BY GEOGRAPHIC SEGMENT
<Table>
Directories 6%
Pre-media & Logistics 6%
Books 12%
Specialty & Direct 13%
Catalogs 16%
Retail Inserts 19%
Magazines 28%
</Table>
BY PRODUCT
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Quebecor World is the largest commercial printer in the world. We are a market
leader in most of our product categories, which include magazines, retail
inserts, catalogs, specialty printing and direct mail, books, pre-media,
logistics and other value-added services, and directories. We have facilities in
the United States, Canada, France, the United Kingdom, Spain, Switzerland,
Sweden, Finland, Austria, Brazil, Chile, Argentina, Peru, Colombia, Mexico and
India.
During the second quarter of 2001, Quebecor World's greenfield plant in Recife
was officially opened producing telephone directories and magazines.
Subsequent to the end of the second quarter, the Company purchased Retail
Printing Corporation of Taunton, Massachusetts, with its two plants in Taunton
and Nashville, Tennessee. The Company also announced the expansion of its
facility in Merced, California to strenghthen its west coast retail platform.
RESULTS OF OPERATIONS
(SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000)
REVENUES
Consolidated revenues were $3,079 million compared with $3,179 million
in 2000, a decrease of 3%. The shortfall compared with 2000 is primarily due to
the economic slowdown in the United States. European revenue improved compared
with last year, excluding the unfavourable effect of currency translation. Latin
American revenues increased 37% over the previous year, explained by business
acquisitions in the first quarter as well as organic growth.
OPERATING EXPENSES
Cost of sales decreased $70 million or 3% to $2,381 million in 2001 from $2,451
million in 2000. Gross profit margins slightly decreased to 22.7% in 2001 from
22.9% in 2000, mainly due to lower revenues in the United States and a
significant increase in energy costs.
Selling, general and administrative expenses decreased by $5 million to $236
million in 2001 from $241 million in 2000. The first quarter of 2001 includes $2
million in non-operating expenses related to plant shutdown, equipment
relocation and installation. Excluding these non-operating expenses, selling,
general and administrative expenses, as a percentage of revenues, were at 7.6%,
same as the comparative six month period in 2000.
Net income for the six month period ended June 30, 2001 rose to $106 million or
$0.68 per share (on a diluted basis) from $100 million or $0.64 per share in
2000. On a cash basis, before goodwill amortization, earnings per share was
$0.89, a 5% increase compared to $0.85 last year.
Depreciation and amortization was $167 million in 2001 compared with $182
million in the previous year. The decrease primarily reflects equipment shutdown
as part of the restructuring activities in North America, as well as the
write-down of assets in 2000. We expect to spend approximately $250 million in
2001 on capital expenditures.
Operating income was unfavourably impacted by foreign exchange translation in
Europe, Canada and Latin America.
Financial expenses decreased by $10 million to $106 million in 2001 from $116
million in 2000. The reduced interest was a result of lower volume and rates on
long-term debt, lower rates on the securitization program and the issuance of
preferred shares in the first quarter of 2001. This has been partly offset by
the interest on capital spending and the normal course issuer bid programs. As
at June 30, 2001, the EBITDA coverage ratio was 4.7 times compared with 4.6
times as at December 31, 2000 and with 4.8 at the end of the second quarter of
2000.
The effective tax rate was 26.7% for the first six months of 2001 compared with
27.8% for the full year 2000 and 29.7% for the six month period ended June 30,
2000. The lower tax rate is due to a reduction in income from the United States
and increased income generated in countries with lower tax rates.
RESTRUCTURING AND OTHER CHARGES
During 2000, the Company implemented restructuring initiatives for $18 million
resulting in the termination of employees and, in addition, the write-down of
assets for $10 million. These initiatives covered further integration of
European facilities, as well as consolidation of administrative and production
functions, and increased focus on conversion to digital pre-media. Non-cash
items mainly covered further assets rendered idle as a result of the
restructuring undertaken in 1999. The Company used $9 million of the
restructuring reserve, initiated in 1999, during the period ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations amounted to $124 million for the first six months of
2001 compared with $289 million for the same period of 2000. Working capital was
$54 million at June 30, 2001 compared with a deficiency of $67 million at
December 31, 2000 and a working capital of $158 million at June 30, 2000. The
decrease of $104 million when compared with June 30, 2000 was mainly due to
improved billing and a higher level of utilization of securitization programs.
The increase from December is explained by lower trade payables at the end of
the second quarter, partly offset by lower accounts receivables due to
seasonality of our business.
During the six month period ended June 30, 2001, we repurchased for cancellation
under the Normal Course Issuer Bid announced on April 4, 2000, a total of
3,188,492 Subordinate Voting Shares for a total cost, net of premium on puts
sold, of approximately Cdn$115 million ($79 million), at an average cost per
share of Cdn$35.99 ($24.82). Share repurchases under the 2000 Program were
funded largely through the sale of non-core businesses
6
and other assets. The 2000 Program expired on April 5, 2001.
On April 2, 2001, the Company announced a new Normal Course Issuer Bid program
which will expire on April 5, 2002. Under the 2001 program, the Company has
repurchased for cancellation a total of 1,339,100 Subordinate Voting Shares for
a total cost of approximately Cdn$52 million ($36 million), at an average cost
per share of Cdn$38.58 ($26.60). The Company also committed to repurchase for
cancellation 1,272,600 shares at an average price per share of approximately
Cdn$39.07 ($25.80) for settlement in July 2001, March and April 2002.
Capital expenditures, net of proceeds from disposals, totaled $94 million and
$51 million in the second quarter of 2001 and 2000, respectively. These capital
expenditures reflect the purchase of additional pre-media, press and bindery
equipment which are part of an ongoing program to grow our business through
incremental manufacturing capacity, support customer requirements, maintain
modern, efficient plants, and continually increase productivity. Under this
program, we currently anticipate to invest approximately $250 million in 2001,
including $150 million on new equipment and $75 million on replacement of
existing equipment and environmental compliance. The balance of $25 million will
be focused on redeployment of equipment from facilities being shut down to those
where increased productivity and cost efficiencies can be achieved.
We believe that our liquidity, capital resources and cash flow from operations
are sufficient to fund planned capital expenditures, working capital
requirements, interest and principal payments for the foreseeable future.
FINANCIAL POSITION
At June 30, 2001 and 2000, our total debt was $2,247 million and $2,647 million
respectively. Our debt to capitalization ratio was 47:53, the same as at
December 31, 2000 and was 53:47 at June 30, 2000. The decrease in our debt,
compared to the prior year, was explained by the Company's focus on paying down
bank borrowings. Our securitization of accounts receivable programs amounted to
$602 million as of June 30, 2001, compared with $462 million as at June 30, 2000
and $572 million as of December 31, 2000.
At the end of February 2001, the Company issued in the Canadian capital markets
a total of 8 million 6.75% Cumulative Redeemable First Preferred Shares, Series
4, at Cdn$25.00 ($16.28) per share, for aggregate proceeds of Cdn$200 million
($130 million).
At the end of March 2001, the Company issued $250 million Senior Notes to a
group of private U.S. investors. The Notes mature on March 28, 2006 and bear
interest at 7.2% annually. This issue follows two earlier placements in July and
September of 2000, in the amounts of $250 million and $121 million respectively,
bringing the total amount raised to date in the U.S. private debt market to $621
million for maturities ranging between 5 and 20 years. Proceeds from this third
series of Notes were used to repay the remaining bank indebtedness under the
1999 World Color acquisition bank credit facility. This refinancing has also
served to extend the Company's debt maturity profile and further diversify its
sources of capital.
During the six month period of 2001, the Company cancelled the remaining balance
of its $1.25 billion bank facility established at the time of the World Color
merger.
On June 29, 2001, Moody's confirmed Quebecor World Inc. Baa2 senior unsecured
and Baa3 subordinated ratings, and revised its outlook to stable from negative.
RISKS AND UNCERTAINTIES
In the normal course of business, we are exposed to changes in interest rates.
However, we manage this exposure by having a balanced schedule of debt
maturities as well as a combination of fixed and variable rate obligations. In
addition, we have entered into interest rate swap agreements and cross-currency
interest rate swap agreements to manage both our interest rate and foreign
exchange exposure. These agreements did not have a material impact on the
financial statements for the periods presented.
We have also entered into foreign exchange forward contracts and cross-currency
interest rate swaps to hedge the settlement of raw materials and equipment
purchases, to set the exchange rate for cross-border sales and to manage our
foreign exchange exposure on certain liabilities.
While the counterparties of these agreements expose us to credit loss in the
event of non-performance, we believe that the possibility of incurring such a
loss is remote due to the creditworthiness of the counterparties. We do not hold
or issue any derivative financial instruments for trading purposes.
Concentrations of credit risk with respect to trade receivables are limited due
to our diverse operations and large customer base. As at June 30, 2001, we had
no significant concentrations of credit risk.
ACCOUNTING POLICIES
In the first quarter of 2001, the Company adopted the new accounting standard
issued by the Canadian Institute of Chartered Accountants on earnings per share.
The new section harmonizes Canadian Standards with the United States Standards
for the calculation of diluted earnings per share. All earnings per share
numbers have been retroactively restated. The impact of that change is presented
in Note 7 of the quarterly financial statements.
SEASONALITY
The operations of our business are seasonal, with approximately two-thirds of
historical operating income recognized in the second half of the fiscal year,
primarily due to the higher number of magazine pages, new product launches and
back-to-school, retail and holiday catalog promotions.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
document are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties, which may cause our actual
results in future periods to differ materially from forecasted results. Those
risks include, among others, changes in customer demand for our products,
changes in raw material and equipment costs and availability, seasonal changes
in customer orders, pricing actions by our competitors and general changes in
economic conditions.
7
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Periods ended June 30
(In thousands of US dollars, except for earnings per share amounts)
(Unaudited)
Three months Six months
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2001 2000 2001 2000
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REVENUES $ 1,502,269 $ 1,549,052 $ 3,079,012 $ 3,179,491
Operating expenses:
Cost of sales 1,146,580 1,178,193 2,381,243 2,451,074
Selling, general and administrative 112,703 114,889 235,594 240,792
Depreciation and amortization 83,997 88,278 166,790 181,687
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1,343,280 1,381,360 2,783,627 2,873,553
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OPERATING INCOME 158,989 167,692 295,385 305,938
Financial expenses 51,866 54,466 106,231 115,560
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Income before income taxes 107,123 113,226 189,154 190,378
Income taxes 27,794 33,661 50,599 56,543
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Income before minority interest 79,329 79,565 138,555 133,835
Minority interest 749 672 1,642 1,114
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NET INCOME BEFORE GOODWILL AMORTIZATION 78,580 78,893 136,913 132,721
Goodwill amortization, net of taxes 15,379 16,120 31,256 32,339
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 63,201 $ 62,773 $ 105,657 $ 100,382
Net income available to holders of preferred shares 4,624 2,533 7,840 5,115
- --------------------------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 58,577 $ 60,240 $ 97,817 $ 95,267
================================================================================================================================
EARNINGS PER SHARE (NOTE 7)
Basic $ 0.41 $ 0.41 $ 0.68 $ 0.65
Diluted $ 0.41 $ 0.40 $ 0.68 $ 0.64
EARNINGS PER SHARE BEFORE GOODWILL AMORTIZATION
Basic $ 0.52 $ 0.52 $ 0.90 $ 0.86
Diluted $ 0.51 $ 0.51 $ 0.89 $ 0.85
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Average number of equity shares outstanding (in thousands)
Basic 142,719 147,434 143,888 147,571
Diluted 147,331 152,177 148,171 152,301
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RETAINED EARNINGS:
Balance, beginning of period $ 875,881 $ 674,927 $ 870,272 $ 650,155
Net income 63,201 62,773 105,657 100,382
Shares and convertible notes repurchased (32,315) (4,360) (49,405) (4,269)
Share issue expenses (note 6(a)) - - (2,990) -
Dividends:
Equity shares (17,162) (11,759) (31,473) (22,098)
Preferred shares (4,663) (2,485) (7,119) (5,074)
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BALANCE, END OF PERIOD $ 884,942 $ 719,096 $ 884,942 $ 719,096
================================================================================================================================
See Notes to Consolidated Financial Statements.
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods ended June 30
(In thousands of US dollars)
(Unaudited)
Three months Six months
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2001 2000 2001 2000
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OPERATING ACTIVITIES:
Net income $ 63,201 $ 62,773 $ 105,657 $ 100,382
Non-cash items in net income:
Depreciation of property, plant and equipment 78,473 82,363 155,518 168,978
Amortization of goodwill and deferred charges 20,904 22,035 42,528 45,048
Amortization of deferred financing costs 447 1,292 1,723 4,180
Deferred income taxes 24,830 23,136 39,703 35,620
Other 1,644 (1,253) 3,092 (137)
Changes in non-cash balances related to operations:
Trade receivables 121,506 59,608 65,045 140,205
Inventories 33,067 8,970 27,075 8,930
Trade payables and accrued liabilities (29,209) (23,675) (244,424) (180,381)
Other current assets and liabilities (12,099) (19,879) (16,384) (18,872)
Other non-current assets and liabilities (25,513) 1,530 (55,808) (14,474)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided from operating activities 277,251 216,900 123,725 289,479
FINANCING ACTIVITIES:
Net change in bank indebtedness (653) (2,645) (1,876) (2,541)
Net proceeds from issuance of equity shares 2,567 1,021 5,178 2,051
Repurchases of shares for cancellation (74,237) (12,842) (114,639) (12,842)
Net proceeds from issuance of preferred shares - - 127,211 -
Issuance (repayments) of long-term debt and
convertible notes (106,636) (144,221) 16,437 (184,543)
Dividends on equity shares (17,162) (11,759) (31,473) (22,098)
Dividends on preferred shares (4,663) (2,485) (7,119) (5,074)
Dividends to minority shareholders (1,470) - (1,470) -
- -----------------------------------------------------------------------------------------------------------------------------------
Cash used by financing activities (202,254) (172,931) (7,751) (225,047)
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash and
cash equivalents (note 2) 825 (545) (36,861) (545)
Additions to property, plant and equipment (94,501) (59,652) (158,001) (102,446)
Net proceeds from disposal of other assets 794 8,237 1,704 23,919
- -----------------------------------------------------------------------------------------------------------------------------------
Cash used by investing activities (92,882) (51,960) (193,158) (79,072)
Effect of exchange rate changes on cash and
cash equivalents 16,263 8,529 24,813 14,903
- -----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,622) 538 (52,371) 263
Cash and cash equivalents, beginning of period 1,983 3,338 52,732 3,613
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 361 $ 3,876 $ 361 $ 3,876
===================================================================================================================================
Supplemental cash flow information:
Interest paid $ 33,494 $ 53,869 $ 99,226 $ 119,352
Income taxes paid 26,977 32,816 48,921 37,125
===================================================================================================================================
See Notes to Consolidated Financial Statements.
9
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars)
<Table>
<Caption>
JUNE 30 December 31 June 30
(UNAUDITED) (Audited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 361 $ 52,732 $ 3,876
Trade receivables, net of allowances for
doubtful accounts of $19,242, $17,823 and $19,060
respectively (note 3) 514,286 584,047 582,819
Receivables from related parties 4,414 3,048 3,561
Inventories 433,720 461,340 470,882
Deferred income taxes 57,932 58,083 32,185
Prepaid expenses 38,989 26,024 29,945
- -----------------------------------------------------------------------------------------------------------------------------------
1,049,702 1,185,274 1,123,268
Property, plant and equipment, net of accumulated
depreciation of $1,376,475, $1,262,281 and $1,285,889
respectively 2,684,120 2,682,983 2,795,690
Goodwill, net of accumulated amortization
of $173,859, $144,114 and $128,094 respectively 2,406,553 2,459,510 2,474,426
Other assets 160,518 156,893 136,381
- -----------------------------------------------------------------------------------------------------------------------------------
$ 6,300,893 $ 6,484,660 $ 6,529,765
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Bank indebtedness $ 1,071 $ 3,129 $ 3,094
Trade payables 486,515 632,550 479,864
Accrued liabilities 423,229 522,907 423,372
Income and other taxes 3,285 6,011 17,762
Current portion of long-term debt and convertible notes 81,811 87,212 41,371
- -----------------------------------------------------------------------------------------------------------------------------------
995,911 1,251,809 965,463
Long-term debt (note 5) 2,051,188 2,015,554 2,435,337
Other liabilities 272,777 290,788 294,837
Deferred income taxes 334,176 326,137 285,497
Convertible notes 112,440 105,936 166,982
Minority interest 12,677 20,556 22,238
Shareholders'equity:
Capital stock (note 6) 1,701,393 1,631,241 1,647,323
Additional paid-in capital 104,586 104,586 106,713
Retained earnings 884,942 870,272 719,096
Translation adjustment (169,197) (132,219) (113,721)
- -----------------------------------------------------------------------------------------------------------------------------------
2,521,724 2,473,880 2,359,411
- -----------------------------------------------------------------------------------------------------------------------------------
$ 6,300,893 $ 6,484,660 $ 6,529,765
===================================================================================================================================
See Notes to Consolidated Financial Statements.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Periods ended June 30, 2001 and 2000
(Tabular amounts are expressed in thousands of US dollars)
(Unaudited)
1. BASIS OF PRESENTATION
The Consolidated Financial Statements included in this report are unaudited
and reflect normal and recurring adjustments which are, in the opinion of
the Company, considered necessary for a fair presentation. These
Consolidated Financial Statements have been prepared in conformity with
generally accepted accounting principles in Canada and should be read in
connection with the Consolidated Financial Statements and the notes thereto
included in the Company's latest Annual Report. The results of operations
for the interim periods should not be considered indicative of full year
results due to the seasonality of our business.
The Consolidated Financial Statements have been prepared using the same
accounting policies as described in the latest Annual Report with exception
of the new standard described below. In the first quarter of 2001, the
Company adopted the new accounting standard issued by the Canadian
Institute of Chartered Accountants on earnings per share. The new section
harmonizes Canadian Standards with the United States Standards for the
calculation of diluted earnings per share. All earnings per share numbers
have been retroactively restated and the changes are not significant.
2. BUSINESS ACQUISITIONS
The Company made several business acquisitions in the first quarter of
2001, which were accounted for using the purchase method. In Spain, the
Company purchased a controlling interest in Espacio y Punto. The Company
completed several business acquisitions complementary to its Latin American
operations, including the redemption of minority interests and the
acquisition of 75% of Grafica Melhoramentos in Brazil.
3. ASSET SECURITIZATION
During the second quarter ended June 30, 2001, the Company sold a portion
of its European trade receivables on a revolving basis under the terms of a
European securitization agreement dated June 2001 (the "European Program").
The European Program limit is 150 million Euro ($127 million). As at June
30, 2001, the amount outstanding under the European Program was 135 million
Euro ($114 million).
4. RESTRUCTURING AND OTHER CHARGES
As of January 1, 2001, the balance of the restructuring reserve was $18
million; this related to the termination of employees in Europe in response
to difficult market conditions, as well as to changes in the Company's
digital strategy. The Company used $9 million of restructuring reserve
during the six month period ended June 30, 2001.
5. LONG-TERM DEBT
In March 2001, the Company issued Senior Notes for a principal amount of
$250 million. The Senior Notes mature on March 28, 2006 and bear interest
at a rate of 7.2%. These Notes contain certain restrictions that are
generally less restrictive than those on the revolving bank facility.
In the first six months ended June 30, 2001, at the request of the Company,
the remaining balance of its acquisition bank facility was cancelled.
6. CAPITAL STOCK
(a) Issued and outstanding First Preferred Shares Series 4
In the first quarter of 2001, the Company issued 8 million First
Preferred Shares Series 4 for a cash consideration of Cdn$200 million
($130 million) before share issue expenses of Cdn$5 million
($3 million) recorded as a reduction in retained earnings. The First
Preferred Shares Series 4 are entitled to fixed cumulative preferential
cash dividends of Cdn$1.6875 per share per annum, payable quarterly.
(b) Share repurchase program
During the six month period ended June 30, 2001, the Company
repurchased for cancellation under the Normal Course Issuer Bid program
initiated in 2000, a total of 3,188,492 Subordinate Voting Shares for
a net cash consideration of Cdn$115 million ($79 million).
In addition, the Company repurchased for cancellation under the Normal
Course Issuer Bid program announced on April 2, 2001, a total of
1,339,100 Subordinate Voting Shares for a net cash consideration of
Cdn$52 million ($36 million). This program is effective over the period
from April 6, 2001 to April 5, 2002.
7. EARNINGS PER SHARE
The following table provides a reconciliation between basic and diluted
earnings per share:
Three months Six months
- ----------------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 58,577 $ 60,240 $ 97,817 $ 95,267
Income impact on assumed conversion
of convertible notes 1,117 674 2,233 1,701
- ----------------------------------------------------------------------------------------------------------------------------------
$ 59,694 $ 60,914 $ 100,050 $ 96,968
==================================================================================================================================
(In thousands)
Weighted average shares outstanding 142,719 147,434 143,888 147,571
Effect of dilutive securities and stock options 4,612 4,743 4,283 4,730
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average diluted shares outstanding 147,331 152,177 148,171 152,301
==================================================================================================================================
Basic earnings per share $ 0.41 $ 0.41 $ 0.68 $ 0.65
Diluted earnings per share $ 0.41 $ 0.40 $ 0.68 $ 0.64
==================================================================================================================================
11
8. SEGMENT DISCLOSURE
The Company operates in the printing industry. Its business units are
located in three major segments: North America, Europe and Latin America.
The Company assesses the performance of each segment based on operating
income. These segments are managed separately since they all require
specific market strategies. Summarization of the segmented information is
as follows:
==================================================================================================================================
North Latin Inter-
America Europe America Other Segment Total
- ----------------------------------------------------------------------------------------------------------------------------------
Second quarter ended
June 30,
2001
REVENUES $ 1,252,425 $ 213,345 $ 36,700 $ - $ (201) $ 1,502,269
OPERATING INCOME 138,972 16,288 2,412 1,317 - 158,989
2000
Revenues 1,304,787 217,831 26,277 - 157 1,549,052
Operating income 145,413 14,861 1,242 6,176 - 167,692
==================================================================================================================================
Six months ended
June 30,
2001
REVENUES $ 2,568,060 $ 440,422 $ 70,849 $ - $ (319) $ 3,079,012
OPERATING INCOME 263,994 29,115 4,323 (2,047) - 295,385
2000
Revenues 2,682,461 445,175 51,736 - 119 3,179,491
Operating income 265,019 28,286 2,943 9,690 - 305,938
==================================================================================================================================
OPERATING MARGIN
---------------------
( S I X M O N T H S )
<Table>
1998 7.0%
1999 7.7%
2000 9.6%
2001 9.6%
</Table>
NET INCOME ($ MILLIONS) - EPS AND CASH EPS (DILUTED, $)
-------------------------------------------------------
(S I X M O N T H S )
<Table>
1998 $ 59,547 $0.47 $0.52
1999 $ 68,449 $0.54 $0.61
2000 $100,382 $0.64 $0.85
2001 $105,657 $0.68 $0.89
</Table>
Net Income Diluted EPS Diluted Cash EPS
[LOGO]
QUEBECOR WORLD HEAD OFFICE
612 St. Jacques Street, Montreal, Quebec, Canada H3C 4M8
Tel.: (514) 954-0101 (800) 567-7070 Fax: (514) 954-9624
www.quebecorworld.com
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUEBECOR WORLD INC.
By: /s/ Marie D. Hlavaty
-----------------------------------------------
Name: Marie D. Hlavaty
Title: Vice President, General Counsel & Secretary
Date: August 23, 2001