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 THIRD QUARTER 2001 FINANCIAL RESULTS
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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. Press Release dated October 29, 2001 (#31/01); Financial Highlights
2. Supplemental Disclosure for the third quarter and nine months ended
September 30, 2001
3. Management's Discussion and Analysis of Financial condition and
Results of Operations
4. Consolidated Financial Statements for the three and nine month periods
ended September 30, 2001
[QUEBECOR WORLD LOGO OMITTED]
October 29, 2001 31/01
For immediate release Page 1 of 3
QUEBECOR WORLD REPORTS THIRD QUARTER 2001 RESULTS
MONTREAL, CANADA -- Quebecor World Inc. announced diluted earnings per share of
$0.46 for the quarter ending September 30, 2001 compared to $0.58 during the
same period in 2000. This is in keeping with recent guidance for the third
quarter and full year 2001. Year to date diluted EPS was $1.13 compared to $1.21
for the year 2000.
"Traditionally we earn almost one-half of our third quarter net income in
September. The shock experienced by the U.S. economy dramatically affected our
September results," said Charles G. Cavell, President and CEO of Quebecor World
Inc. "These events weakened consumer confidence and had a direct impact on many
of our publishing and retail customers. Business and airline magazines were
specifically impacted and catalogers canceled orders, reduced circulation and
delayed mailings. In addition, recent events are causing direct mail customers
to rethink some of their products."
Still some of Quebecor World's North American product groups maintained or even
improved results quarter to quarter. Revenues for the third quarter declined
just 2% compared to the same period last year but by effectively managing costs
and finding new efficiencies, domestic operating margins were an impressive
11.9%. Quebecor World partners with the biggest and the best publishers and
retailers in the industry. The Company produced 30 book titles on the Publishers
Weekly Bestseller List, and we produce 46% of the top 125 magazines in the U.S.
Our customers are not immune to the current environment but will fair better
than most and will be in a position to improve their market share when the
economy improves.
The restructuring initiatives announced on October 9, 2001 will increase
operational efficiency in 2002 to offset the slow market by reducing costs and
improving returns. The restructuring plan will be implemented during the next
six months and will result in annualized pre-tax earnings improvement of
approximately $45 million.
Quebecor World is advantaged as the only truly global printer with more than 30%
of its revenues generated outside of the U.S. While indirectly impacted by the
events in North America, our European and Latin American platforms are expanding
and developing new customer relationships. In the Nordic countries revenues
increased and we have increased exports to Russia from our facility in Finland.
Quebecor World continues to develop its global mix. In August, the Company
signed a binding agreement, subject to regulatory approval, that will solidify
its French platform. Quebecor World is purchasing the printing assets of
Hachette Filipacchi Medias, Europe's largest magazine publisher. Those assets
include printing, bindery and logistics facilities in France and 50% ownership
of Helio Charleroi in Belgium. As part of this transaction, Quebecor World has
been awarded a five-year contract with a five-year renewal option valued at $400
million to print many of Hachette's magazines in France.
For immediate release Page 2 of 3
In Latin America revenues increased 52%. Quebecor World expanded its directory
and book platform by purchasing the assets of Grupo Serla in Mexico City,
Mexico. The facility will produce directories for ADSA, a subsidiary of Telmex,
Mexico's largest telecommunications company. Already a major supplier of
educational textbooks the Serla acquisition will improve Quebecor World's book
platform, increasing capacity in Mexico by 100%.
"Our Latin America platform continues to expand and to produce better results,"
said Mr. Cavell. "As we move forward we will replicate our successful strategy
of being the region's leading consolidator and partnering with
publisher/printers as they turn more attention towards their core businesses."
"In the U.S. the advertising outlook for the balance of the year remains
uncertain but our management is disciplined and focussed on implementing
measures that will allow us to provide improved efficiencies and service that
will benefit customers and shareholders when the economy recovers," said Mr.
Cavell.
In August, the Company successfully completed the placement of 7,000,000
Cumulative Redeemable First Preferred Shares, Series 5 at a price of CDN$25.00
per share, for an aggregate amount of CDN$175,000,000. Net proceeds will be used
for capital expenditures and to fund general corporate purposes.
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, CDN$0.4219 per share on
Series 4 Preferred Shares and CDN$0.50687 on Series 5 Preferred Shares. The
dividends are payable December 1, 2001 to shareholders of record on November 16,
2001.
QUEBECOR WORLD TO WEBCAST INVESTOR CONFERENCE CALL ON OCTOBER 30, 2001
Quebecor World Inc. will broadcast its 2001 Third Quarter conference call live
over the Internet on Tuesday, October 30 at 8:30 AM (EDT).
The conference call, which will last approximately one hour, will be webcast
live and can be accessed on the Quebecor World web site:
or at:
www.ir-live.com/en/shows.php/quebecor_world/events/2001.10.30/?webcast_id=258
Prior to the call please ensure that you have the appropriate software. The
Quebecor World web address listed above has instructions and a direct link to
download the necessary software, free of charge.
Anyone unable to attend this conference call may listen to the replay tape by
phoning (416) 695-5800 or (800) 408-3053 passcode 927883, available from October
30 to November 13, 2001.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS
RELEASE 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 THAT MAY CAUSE THE COMPANY'S
ACTUAL RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY FROM FORECASTED RESULTS.
For release: October 29, 2001 Page 3 of 3
THOSE RISKS INCLUDE, AMONG OTHERS, CHANGES IN CUSTOMERS' DEMAND FOR THE
COMPANY'S PRODUCTS, CHANGES IN RAW MATERIAL AND EQUIPMENT COSTS AND
AVAILABILITY, SEASONAL CHANGES IN CUSTOMER ORDERS, PRICING ACTIONS BY THE
COMPANY'S COMPETITORS, AND GENERAL CHANGES IN ECONOMIC CONDITIONS.
Quebecor World Inc. (NYSE; TSE: IQW) is the largest commercial printer in the
world. It is a market leader in most of its major product categories which
include magazines, inserts and circulars, books, catalogs, specialty printing
and direct mail, directories, digital pre-media, logistics, mail list
technologies and other value added services. Quebecor World Inc. has
approximately 40,000 employees working in more than 160 printing and related
facilities in the United States, Canada, Brazil, France, the United Kingdom,
Belgium, Spain, Austria, Sweden, Switzerland, Finland, Chile, Argentina, Peru,
Colombia, Mexico and India.
- 30 -
FOR FURTHER INFORMATION, PLEASE CONTACT:
Jeremy Roberts
Director, Corporate Finance and
Investor Relations
Quebecor World Inc.
(514) 877-5118
(800) 567-7070
Tony Ross
Director, Communications
Quebecor Word Inc.
(514) 877-5317
(800) 567-7070
QUEBECOR WORLD INC.
FINANCIAL HIGHLIGHTS
Periods ended September 30
(In millions of US dollars, except per share amounts)
(Unaudited)
Three months Nine months
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2001 2000 Change 2001 2000 Change
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CONSOLIDATED RESULTS
Revenues $1,625.2 $1,633.8 (1)% $4,704.2 $4,813.3 (2)%
Operating income before amortization 258.5 286.7 (10)% 720.7 774.3 (7)%
Operating income 172.7 202.4 (15)% 468.1 508.3 (8)%
Net income 70.8 88.7 (20)% 176.5 189.1 (7)%
Cash provided from operating activities 12.1 17.5 135.8 307.0
Free cash flow from operations* (58.2) 0.1 (97.9) 206.0
Operating margin before amortization 15.9 % 17.5 % 15.3 % 16.1 %
Operating margin 10.6 % 12.4 % 10.0 % 10.6 %
=================================================================================================================================
SEGMENTED INFORMATION
REVENUES
North America $1,373.4 $1,398.4 (2)% $3,941.5 $4,080.9 (3)%
Europe 211.5 208.9 1 % 651.9 654.1 - %
Latin America 40.5 26.7 52 % 111.3 78.4 42 %
OPERATING INCOME
North America $ 163.0 $ 175.9 (7)% $ 427.0 $ 440.9 (3)%
Europe 9.7 13.9 (30)% 38.8 42.2 (8)%
Latin America 1.2 0.7 71 % 5.5 3.6 53 %
OPERATING MARGINS
North America 11.9 % 12.6 % 10.8 % 10.8 %
Europe 4.6 % 6.7 % 6.0 % 6.5 %
Latin America 2.9 % 2.5 % 4.9 % 4.6 %
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FINANCIAL POSITION
Working capital $ 198.5 $ 306.7
Total assets 6,603.6 6,628.0
Long-term debt (including convertible notes) 2,409.1 2,670.0
Shareholders' equity 2,651.3 2,370.3
Debt-to-capitalization 47:53 53:47
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PER SHARE DATA
Earnings
Basic $ 0.46 $ 0.59 (22)% $ 1.14 $ 1.23 (7)%
Diluted 0.46 0.58 (21)% 1.13 1.21 (7)%
Earnings before goodwill amortization
Basic $ 0.58 $ 0.69 (16)% $ 1.47 $ 1.56 (6)%
Diluted 0.57 0.68 (16)% 1.45 1.53 (5)%
Dividends on equity shares $ 0.12 $ 0.08 50 % $ 0.34 $ 0.23 48 %
Book value $ 15.66 $ 14.73 6 %
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* Cash provided from operating activities, less capital expenditures net of
proceeds from disposals, and preferred share dividends.
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[QUEBECOR WORLD INC. LOGO]
QUEBECOR WORLD INC.
SUPPLEMENTAL DISCLOSURE
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 2001
FOR THE THIRD QUARTER
AND NINE MONTHS
ENDED SEPTEMBER 30, 2001
FOR PUBLIC RELEASE ON OCTOBER 29, 2001
http://www.quebecorworld.com/htmen/20_0/pdf/01Q3-Supp_Disclosure.pdf
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QUEBECOR WORLD
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THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001
<Caption>
PAGE
1. HIGHLIGHTS 1
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2. RECENT DEVELOPMENTS 4
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3. MANAGEMENT APPOINTMENTS 7
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4. CORPORATE FINANCE 8
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5. SEGMENTED RESULTS OF OPERATIONS 10
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6. BREAKDOWN OF REVENUES 13
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7. FINANCIAL CONDITION 14
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8. DISCUSSION OF CONSENSUS EARNINGS 15
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</Table>
CERTAIN INFORMATION INCLUDED IN THIS DOCUMENT IS FORWARD-LOOKING AND IS SUBJECT
TO IMPORTANT RISK AND UNCERTAINTIES. THE RESULTS OR EVENTS PREDICTED IN THESE
STATEMENTS MAY DIFFER MATERIALLY FROM ACTUAL RESULTS OR EVENTS. FACTORS WHICH
COULD CAUSE RESULTS OR EVENTS TO DIFFER FROM CURRENT EXPECTATIONS INCLUDE, AMONG
OTHER THINGS: THE IMPACT OF PRICE AND PRODUCT COMPETITION; THE IMPACT OF
TECHNOLOGICAL AND MARKET CHANGE; THE ABILITY OF QUEBECOR WORLD INC. TO INTEGRATE
THE OPERATIONS OF ACQUIRED BUSINESSES IN AN EFFECTIVE MANNER; GENERAL INDUSTRY
AND MARKET CONDITIONS AND GROWTH RATES, INCLUDING INTEREST RATE AND CURRENCY
EXCHANGE FLUCTUATIONS; AND THE IMPACT OF CONSOLIDATION IN THE PRINTING INDUSTRY.
ALL DOLLAR AMOUNTS IN US DOLLARS UNLESS OTHERWISE NOTED.
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1. HIGHLIGHTS
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CONSOLIDATED RESULTS
THREE MONTHS ENDED SEPTEMBER 30, 2001
RESULTS REFLECT WEAK POST-SEPTEMBER 11TH MARKET CONDITIONS:
REVENUES: For the third quarter ended September 30, 2001, revenues were $1,625
million, down 1% from 2000.
OPERATING INCOME: Operating income decreased 15% to $173 million compared to
$202 million for the corresponding period last year. Excluding non-operating
items, operating income for the quarter decreased 9% to $176 million compared to
$194 million last year. The operating income margin for the quarter decreased
from 12.4% (11.9% before non-operating items) in 2000 to 10.6% (10.8% before
non-operating items) in 2001.
EARNINGS PER SHARE: Earnings per share for the third quarter ending September
30, 2001 was $0.46 on a fully diluted basis, down 21% from $0.58 for the same
period in 2000. Excluding non-operating items, earnings per share for Q3 2001
were $0.47, down 15% from $0.55 in the previous year.
CASH EARNINGS PER SHARE: Cash Earnings per share for the third quarter ending
September 30, 2001 were $0.57 on a fully diluted basis, down 16% from $0.68 in
2000. Excluding non-operating items, cash earnings per share for Q3 2001 were
$0.58, down 11% from $0.65 in the previous year.
NINE MONTHS ENDED SEPTEMBER 30, 2001
RESULTS REFLECT WEAK POST-SEPTEMBER 11TH MARKET CONDITIONS:
REVENUES: For the nine months ended September 30, 2001, revenues were $4,704
million, down 2% from 2000.
OPERATING INCOME: Operating income decreased 8% to $468 million compared to $508
million for 2000. Excluding non-operating items, operating income decreased 6%
to $474 million, compared to $504 million last year. The operating income margin
for 2001 was 10.0% (10.1% before non-operating items) compared to 10.6% (10.5%
before non-operating items) in 2000.
EARNINGS PER SHARE: Earnings per share for the nine months ended September
30, 2001 were $1.13 on a fully diluted basis, a decrease of 7% from $1.21 in
2000. Excluding non-operating items, earnings per share for nine months ended
September 30th, 2001 were $1.16, down 3% from $1.20 in the previous year.
CASH EARNINGS PER SHARE: Cash Earnings per share for the nine months ended
September 30, 2001 were $1.45, an decrease of 5% from $1.53 in 2000. Excluding
non-operating items, cash earnings per share for nine months ended September
30th, 2001 were $1.48, down 3% from $1.52 in the previous year.
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QUEBECOR WORLD PAGE 1
1. HIGHLIGHTS (CONTINUED)
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CONSOLIDATED RESULTS
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(IN $ MILLIONS EXCEPT MARGINS AND PER SHARE DATA) FOR THE 3 MONTHS ENDED SEPT 30 FOR THE 9 MONTHS ENDED SEPT 30
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2001 Change 2000 2001 Change 2000
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Revenues(1) $ 1,625 -1% $ 1,634 $ 4,704 -2% $ 4,813
EBITDA(1,2) 259 -10% 287 721 -7% 774
Operating income(1,2) 173 -15% 202 468 -8% 508
Net income - cash basis 87 -17% 104 224 -6% 237
Net income 71 -20% 89 176 -7% 189
Diluted Earnings per share $ 0.46 -21% $ 0.58 $ 1.13 -7% $ 1.21
Diluted Earnings per share - cash basis $ 0.57 -16% $ 0.68 $ 1.45 -5% $ 1.53
EBITDA margin 15.9% 17.5% 15.3% 16.1%
Operating margin 10.6% 12.4% 10.0% 10.6%
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(1) CD-ROM REPLICATION BUSINESS HAD REVENUES OF $37M, EBITDA OF $5M AND EBIT OF
$3M FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(2) INCLUDES NON-OPERATING EXPENSES OF $3.1M FOR Q3 2001 AND $2.8M FOR Q3 2000,
AND $11.2M GAIN RELATED TO THE SALE OF CD-ROM BUSINESS IN Q3 2000
INCLUDES NON-OPERATING EXPENSES OF $5.8M FOR 2001 YTD AND $6.9M FOR 2000
YTD, AND $11.2M GAIN RELATED TO THE SALE OF CD-ROM BUSINESS IN Q3 2000
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QUEBECOR WORLD PAGE 2
1. HIGHLIGHTS (CONTINUED)
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IMPACTS OF CURRENCY TRANSLATION AND OTHER FACTORS
(IN $ MILLIONS, EXCEPT PER SHARE DATA)
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IMPACT ON: 1ST QUARTER 2ND QUARTER 3RD QUARTER YEAR TO DATE
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REVENUES Weaker foreign currencies (31) (28) (16) (75)
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Sale of CD-ROM and fulfilment (20) (18) 0 (37)
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Business Acquisitions 8 10 34 52
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TOTAL $(43) $(35) $18 $(60)
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OPERATING INCOME Weaker foreign currencies (1.8) (1.9) (0.4) (4.1)
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Sale of CD-ROM and fulfilment (1.8) (1.5) (11.2) (14.5)
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Business Acquisitions 0.9 1.1 4.6 6.6
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Non-operating expenses (2.3) (0.4) (3.1) (5.8)
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TOTAL $(5.0) $(2.7) $(10.1) $(17.8)
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EARNINGS PER SHARE
(PRE-TAX) Weaker foreign currencies (0.01) (0.01) 0.00 (0.02)
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Sale of CD-ROM and fulfilment (0.01) (0.01) (0.08) (0.10)
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Business Acquisitions 0.01 0.00 0.03 0.04
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Non-operating expenses (0.02) (0.00) (0.02) (0.04)
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TOTAL $(0.03) $(0.02) $(0.07) $(0.12)
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QUEBECOR WORLD PAGE 3
2. RECENT DEVELOPMENTS
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CONTINUED EXPANSION IN EUROPE AND LATIN AMERICA
ACQUISITION OF PRINTING ASSETS AND SIGNING OF LONG TERM CONTRACT WITH HACHETTE
FILIPACCHI IN EUROPE
On September 27, 2001, Quebecor World announced that, subject to regulatory
approval in France, it would acquire all of the European printing assets of
Hachette Filipacchi Medias. These assets include printing, bindery and
logistics facilities in France, and 50% ownership (and management control) of
a modern gravure printing facility in Charleroi, Belgium. Hachette
Filipacchi is the leading publisher of magazines in Europe, and one of
Quebecor World's largest customers in North America and Europe. The
consideration paid for the printing assets was $65 million including
assumption of debt. As part of this transaction, Quebecor World entered a
10-year printing contract valued at $400 million.
ACQUISITION OF GRUPO SERLA IN MEXICO
In August, 2001 Quebecor World purchased the manufacturing assets of Grupo
Serla, one of Mexico's leading commercial printers. This acquisition provides
Quebecor World with additional capacity required to produce telephone
directories for Telmex, under its 5-year printing contract with this
telecommunications giant. The transaction will close during the fourth
quarter of 2001, and will enable Quebecor World to increase its sales in this
key NAFTA market by sixfold.
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QUEBECOR WORLD PAGE 4
2. RECENT DEVELOPMENTS
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1999 AND 2001 RESTRUCTURING PLANS
2001 RESTRUCTURING PLAN
On October 9th, 2001 Quebecor World announced that it would take further cost
cutting measures to address the current weak market conditions in domestic and
international economies. The 2001 Restructuring Plan envisages the elimination
of approximately 2,500 employee positions (6% of the workforce globally).
Initial estimates of the total costs expected to be incurred under the Plan are
approximately $225 million, of which approximately $100 million is expected to
be cash. This charge will be recognized during the Fourth Quarter, 2001.
Management expects that its overall production capacity will decline by less
than 1% after implementation of the Restructuring Plan, while it will generate
approximately $45 million of annualized cost savings ($0.25 per share). The 2001
Restructuring Plan reflects the Company's ongoing strategy to create larger,
more specialized production facilities.
1999 RESTRUCTURING PLAN
Execution of the World Color Merger Restructuring Plan was completed earlier in
the year. Approximately 3,400 employee positions were eliminated under the Plan,
and the Company has incurred a total of $128 million cash costs.
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QUEBECOR WORLD PAGE 5
2. RECENT DEVELOPMENTS (CONTINUED)
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OTHER DEVELOPMENTS
INSTALLATION OF THE WORLD'S LARGEST WEB OFFSET HEATSET PRESS
In July, 2001 Quebecor World held a ribbon-cutting ceremony for its 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, and will be used primarily to enhance the
quality of telephone directories produced for SBC Communications, Inc. This
investment was the cornerstone of a multi-year, $500 million contract
extension with one of Quebecor World's major, long-standing customers, SBC.
The press will be used to produce directories for Pacific Bell customers in
120 cities in California and Nevada.
SEARS "PARTNERS IN PROGRESS" AWARD
In July, 2001 for the sixth time in seven years, Quebecor World has received the
prestigious Sears Canada Inc. "Partners in Progress Award." The partners in
Progress Award signifies the importance of a supplier's contribution to Sears'
success. From its thousands of vendors, Sears selects the top companies which,
over the past year, have consistently provided high-quality products and
responded to Sears' needs in terms of product innovation, development,
exclusivity, service of supply and operational efficiency.
GOLD INK AWARDS
Quebecor World was honored at The Gold Ink Awards and Hall of Fame Banquet on
September 10, 2001, during Print Expo 2001 at Chicago's McCormick Place. The
company received 78 awards, more than twice the number of awards won by any
other printer. This demonstrates once again Quebecor World's position as the
industry leader.
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QUEBECOR WORLD PAGE 6
3. MANAGEMENT APPOINTMENTS
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VINCENT BASTIEN, presently Chief Operating Officer of Quebecor World Europe
replaces John Bertuccini and will assume increased responsibilities as the
new President of Quebecor World Europe. On an interim basis, Vincent will
also continue as President of Quebecor World France, while John Dickin will
continue providing leadership in all European countries except France.
JOHN BERTUCCINI, who recently completed his mandate as President of Quebecor
World Europe, has been appointed as Executive Vice President, International
Sales reporting to Marc Reisch. The appointment of a seasoned industry leader to
this position reflects Quebecor World's ever-growing emphasis upon global
partnering and global relationships.
BRUCE W. HANNAH has joined Quebecor World as Vice President, Human Resources.
Bruce brings more than 10 years of experience as a human resource executive to
Quebecor World, and was most recently Senior Vice President, Human Resources at
GEAC Computer Corporation. Prior to that, Bruce was Vice President, Human
Resources for EDS Canada.
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QUEBECOR WORLD PAGE 7
4. CORPORATE FINANCE
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NORMAL COURSE ISSUER BID
As at September 30, 2001 the Corporation had purchased a total of 3.5 million
Subordinate Voting Shares under its 2001 normal course issuer bid program, which
commenced April 6, 2001. It had purchased 3.2 million shares under its 2000
program, which expired April 5, 2001. Total repurchases made during the nine
month period ending September 30, 2001 were 6.7 million shares for a cash
consideration of US$173 million. As at September 30, 2001, the Company also had
outstanding forward contracts to purchase an additional 0.9 million shares for
settlement prior to April 5, 2002.
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NORMAL COURSE SHARE REPURCHASES 2000 PROGRAM 2001 PROGRAM TOTAL
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Number of Shares Purchased 3,188,492 3,474,400 6,662,892
Average Price per Share (Cdn $) $35.99 $39.48 $37.84
Average Price per Share (US $) $24.82 $27.03 $25.97
Shares Committed under Forward Contracts 859,900 859,900
Average Price per Share (Cdn $) $39.17 $39.17
Average Price per Share (US $) $24.82 $24.82
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QUEBECOR WORLD PAGE 8
4. CORPORATE FINANCE (CONTINUED)
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ISSUANCE OF 6.90% REDEEMABLE PREFERRED SHARES, SERIES 5
On August 16, 2001 Quebecor World issued in the Canadian equity market 7 million
6.90% Cumulative Redeemable First Preferred Shares, Series 5, at Cdn$25.00 per
share, for aggregate proceeds of $175,000,000. The shares were purchased by a
syndicate of underwriters, who exercised their option to purchase an additional
1 million shares beyond their commitment of 6 million shares. The Series 5
Shares represent approximately 2% of Quebecor World's capital structure, and
will be used to invest in capital expenditures in the United States and for
general corporate purposes. The shares serve to further strengthen Quebecor
World's capital structure for future growth.
CONSENT SOLICITATION FOR QUEBECOR WORLD (USA) INC. SENIOR SUBORDINATED NOTES
On August 1, 2001, Quebecor World successfully completed the consent
solicitation issued to holders of the Senior Subordinated Notes of Quebecor
World (USA), formerly World Color Press, Inc. Holders of the World Color Notes
received a cash payment in consideration for certain amendments to the Notes
such that they are no longer be subordinated to, and effectively rank parri
passu with other senior unsecured obligations of Quebecor World Inc. In
addition, certain restrictive covenants contained in the World Color Notes have
been modified to conform to analogous covenants contained in Quebecor World's
other senior obligations.
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QUEBECOR WORLD PAGE 9
5. SEGMENTED RESULTS OF OPERATIONS
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NORTH AMERICA
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(IN $ MILLIONS EXCEPT MARGINS) FOR THE 3 MONTHS ENDED SEPT 30 FOR THE 9 MONTHS ENDED SEPT 30
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2001 Change 2000 2001 Change 2000
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Revenues $ 1,373.4 -2% $ 1,398.4 $ 3,941.5 -3% $ 4,080.9
EBITDA(1) 233.8 -5% 246.5 634.9 -4% 663.9
Operating income(1) 163.0 -7% 175.9 427.0 -3% 440.9
EBITDA margin 17.0% 17.6% 16.1% 16.3%
Operating margin 11.9% 12.6% 10.8% 10.8%
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(1) INCLUDES NON OPERATING INCOME OF $0.1M FOR Q3 2000 AND NON-OPERATING
EXPENSES OF $0.5M FOR Q3 2001
INCLUDES NON OPERATING INCOME OF $2.3M FOR Q3 2000 YTD AND NON-OPERATING
EXPENSES OF $2.7M FOR Q3 2001 YTD
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QUEBECOR WORLD PAGE 10
5. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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EUROPE (EURO)
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(IN EURO MILLIONS EXCEPT MARGINS) FOR THE 3 MONTHS ENDED SEPT 30 FOR THE 9 MONTHS ENDED SEPT 30
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2001 Change 2000 2001 Change 2000
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Revenues EURO 236.8 +2% EURO 231.2 EURO 726.7 +5% EURO 695.1
EBITDA(1) 25.4 -12% 28.7 86.3 +2% 84.6
Operating income(1) 10.8 -31% 15.5 43.4 -4% 45.1
EBITDA margin 10.7% 12.4% 11.9% 12.1%
Operating margin 4.6% 6.7% 6.0% 6.5%
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(1) INCLUDES NON OPERATING EXPENSES OF E 3.3M FOR Q3 2000 AND E $1.0M FOR
Q3 2001
INCLUDES NON OPERATING EXPENSES OF E 4.8M FOR Q3 2000 YTD AND E 1.7M FOR
Q3 2001 YTD
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QUEBECOR WORLD PAGE 11
5. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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LATIN AMERICA
-------------------------------------------------------------------------------------------------------------------------------
(IN US$ MILLIONS EXCEPT MARGINS) FOR THE 3 MONTHS ENDED SEPT 30 FOR THE 9 MONTHS ENDED SEPT 30
-------------------------------------------------------------------------------------------------------------------------------
2001 Change 2000 2001 Change 2000
--------------------------------------------------------------------------------------------
Revenues $40.5 +52% $26.7 $111.3 +42% $78.4
EBITDA(1) 3.0 +43% 2.1 10.9 +32% 8.2
Operating income(1) 1.2 +71% 0.7 5.5 +53% 3.6
EBITDA margin 7.4% 7.8% 9.8% 10.5%
Operating margin 2.9% 2.5% 4.9% 4.6%
-------------------------------------------------------------------------------------------------------------------------------
(1) INCLUDES NON OPERATING EXPENSES OF $1.6M FOR Q3 2001
INCLUDES NON OPERATING EXPENSES OF $0.1M FOR Q3 2000 YTD AND $1.6M FOR
Q3 2001 YTD
--------------------------------------------------------------------------------
QUEBECOR WORLD PAGE 12
6. BREAKDOWN OF REVENUES
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
(IN US$ MILLIONS EXCEPT MARGINS) FOR THE 3 MONTHS ENDED SEPT 30 FOR THE 9 MONTHS ENDED SEPT 30
-------------------------------------------------------------------------------------------------------------------------------
2001 Change 2000 2001 Change 2000
--------------------------------------------------------------------------------------------
Magazines, Catalogs & Retail $ 1,042 +1% $ 1,028 $ 2,968 +0% $ 2,967
Specialty printing and
Direct Mail 192 -13% 220 606 -13% 698
Books 189 -4% 196 542 -9% 597
Directories 110 +29% 85 301 +16% 260
Pre-media, logistics and other
value added services 92 -12% 102 287 -1% 291
-------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,625 -1% $ 1,634 $ 4,704 -2% $ 4,813
-------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
QUEBECOR WORLD PAGE 13
7. FINANCIAL CONDITION
--------------------------------------------------------------------------------
SUMMARIZED CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------
(IN $ MILLIONS EXCEPT FINANCIAL RATIOS) 30-SEPT-01 % 30-SEPT-00
-----------------------------------------------------------------------------------------------------
Non-cash working capital(1) $ 314 -26% $ 427
Net fixed assets 2,726 +2% 2,672
Total assets 6,604 -0% 6,628
Shareholders' equity 2,651 +12% 2,370
Long-term debt 2,202 -11% 2,481
Convertible debentures 113 -25% 151
Debt:Equity 47 : 53 53 : 47
EBITDA Coverage Ratio(2) 4.7 4.6
EBIT Coverage Ratio(2) 3.2 3.0
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
(1) Before restructuring liabilities
(2) Trailing 12-month, before restructuring and other charges
--------------------------------------------------------------------------------
QUEBECOR WORLD PAGE 14
8. DISCUSSION OF CONSENSUS EARNINGS
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE(1,2)
-----------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
-----------------------------------------------------------------------------------------------------------------------------------
EPS % EPS % EPS % EPS % EPS %
-----------------------------------------------------------------------------------------------------------------------------------
1998 $ 0.16 +7% $ 0.31 +15% $ 0.38 +27% $ 0.44 +10% $ 1.29 +15%
1999 $ 0.18 +13% $ 0.36 +16% $ 0.43 +13% $ 0.58 +32% $ 1.55 +20%
2000 $ 0.24 +33% $ 0.40 +11% $ 0.58 +35% $ 0.69 +19% $ 1.90 +23%
2001 $ 0.27 +13% $ 0.41 +3% $ 0.46 -21% $ 0.44(3) -36% $ 1.58(3) -17%
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS ESTIMATES
-----------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
-----------------------------------------------------------------------------------------------------------------------------------
Average(3) $0.44 $1.58
High(3) $0.49 $1.60
Low(3) $0.37 $1.51
Number of
Analysts 9 14
-----------------------------------------------------------------------------------------------------------------------------------
IQW Guidance -
October 9th $0.42 - $0.52(4) $1.55 - $1.65
-----------------------------------------------------------------------------------------------------------------------------------
(1) BEFORE RESTRUCTURING AND OTHER CHARGES
(2) DILUTED EARNINGS PER SHARE
(3) EARNINGS ESTIMATES BASED ON MANAGEMENT'S SURVEY OF SELL-SIDE ANALYSTS AS AT
OCTOBER 25, 2001
(4) INTERPOLATION FROM GUIDANCE RANGES PROVIDED FOR Q3 AND FULL YEAR 2001
--------------------------------------------------------------------------------
QUEBECOR WORLD PAGE 15
8. DISCUSSION OF CONSENSUS EARNINGS
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
CASH EARNINGS PER SHARE(1,2,3)
-----------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
-----------------------------------------------------------------------------------------------------------------------------------
EPS % EPS % EPS % EPS % EPS %
-----------------------------------------------------------------------------------------------------------------------------------
1998 $ 0.19 +7% $ 0.33 +15% $ 0.43 +27% $ 0.49 +10% $ 1.44 +15%
1999 $ 0.21 +11% $ 0.41 +24% $ 0.49 +14% $ 0.69 +41% $ 1.80 +25%
2000 $ 0.35 +67% $ 0.51 +24% $ 0.68 +39% $ 0.77 +12% $ 2.30 +28%
2001 $ 0.38 +9% $ 0.51 +0% $ 0.57 -16% $ 0.55(4) -29% $ 2.01(4) -13%
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS ESTIMATES
-----------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
-----------------------------------------------------------------------------------------------------------------------------------
Average(4) $0.55 $2.01
High(4) $0.60 $2.03
Low(4) $0.48 $1.94
Number of
Analysts 9 14
-----------------------------------------------------------------------------------------------------------------------------------
IQW Guidance -
October 9th $0.53 - $0.63(5) $1.97 - $2.07
-----------------------------------------------------------------------------------------------------------------------------------
(1) BEFORE RESTRUCTURING AND OTHER CHARGES
(2) DILUTED EARNINGS PER SHARE
(3) BEFORE AMORTIZATION OF GOODWILL
(4) EARNINGS ESTIMATES BASED ON MANAGEMENT'S SURVEY OF SELL-SIDE ANALYSTS AS AT
OCTOBER 25, 2001, ADJUSTED FOR AMORTIZATION OF GOODWILL ESTIMATE
(5) INTERPOLATION FROM GUIDANCE RANGES PROVIDED FOR Q3 AND FULL YEAR 2001
--------------------------------------------------------------------------------
QUEBECOR WORLD PAGE 16
[QUEBECOR WORLD INC. LOGO]
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 third quarter, the Company acquired Retail Printing Corporation of
Taunton, Massachusetts, with two plants in Taunton and Nashville, Tennessee.
These additions to the retail platform have enhanced the Company's ability to
provide printing services to retail and newspaper insert customers from
coast-to-coast in the United States.
At the end of the third quarter, the Company entered into a binding
agreement, pending regulatory approval, to purchase the printing, finishing
and logistics assets of Hachette Filipacchi Medias in Europe. The assets
include printing and bindery facilities in France and 50% ownership of Helio
Charleroi in Belgium. The Company also secured a long-term contract to print
Hachette's publications in France.
RESULTS OF OPERATIONS
---------------------
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE
CORRESPONDING PERIODS OF 2000.
REVENUES
--------
Consolidated revenues were $1,625 million in the third quarter ended
September 30, 2001 compared with $1,634 million for the same period of the
previous year, a decrease of 1%. The shortfall compared with 2000 is
primarily due to the economic slowdown in the United States further
emphasized by the terrorist attacks of September 11th in a month that
traditionally represents more than 40% of the third quarter net income.
European revenue improved in the third quarter compared with last year. For
the same period, Latin American revenues increased more than 50% over the
previous year, explained by business acquisitions as well as organic growth.
For the nine-month period ended September 30, 2001, consolidated revenues have
slightly decreased from $4,813 million in 2000 to $4,704 million in 2001. Again,
the shortfall is primarily due to the economic slowdown in the United States,
partly offset by revenues increases in Europe and Latin America.
OPERATING EXPENSES
------------------
Cost of sales for the third quarter was essentially unchanged at $1,248
million from $1,246 million in 2000. Gross profit margins decreased to 23.2%
in 2001 from 23.7%. On a year to date basis, cost of sales decreased $68
million or 2% to $3,629 million in 2001 from $3,697 million in 2000. Gross
profit margins decreased to 22.9% in 2001 from 23.2% in 2000, mainly due to
lower operating leverage from the difficult economic environment.
Selling, general and administrative expenses increased by $18 million to $119
million in the third quarter of 2001 from $101 million in 2000. The third
quarter of 2001 included $3 million of non-operating expenses. For the same
quarter last year, the gain of $11 million from the sale of the Company's
CD-ROM replication business was applied in reduction of selling, general and
administrative expenses. Excluding these non-operating items, selling,
general and administrative expenses as a percentage of revenues were at 7.1%,
slightly higher than 6.9% for the comparative three-month period in 2000. On
a year to date basis, selling, general and administrative expenses were $354
million in 2001 compared with $342 million in 2000. Before non-operating
items, selling, general and administrative expenses as a percentage of
revenues were at 7.4% in 2001 compared with 7.3% in 2000.
Depreciation and amortization was $86 million in the third quarter of 2001,
compared with $84 million in the same quarter last year. On a year to date
basis, depreciation and amortization was $253 million in 2001 compared with
$266 million in 2000. The decrease primarily reflects equipment shutdown as
part of the restructuring activities in North America, as well as the
write-down of assets in the context of the World Color Merger restructuring
plan. We expect to spend approximately $250 million in 2001 on capital
expenditures.
Net income for the third quarter of 2001 was $71 million or $0.46 per share (on
a diluted basis) from $89 million or $0.58 per share in 2000. On a cash basis,
before goodwill amortization, earnings per share was $0.57 compared with $0.68
last year. Net income for the nine months ended September 30, 2001 was $176
million or $1.13 per share, compared with $189 million or $1.21 per share for
the same period last year.
For the third quarter of 2001, operating income was unfavourably impacted by
foreign exchange translation in Canada and Latin America. On a year to date
basis, the movement in European, Canadian and Latin American currencies
unfavourably impacted operating income.
Financial expenses decreased by $7 million to $53 million in the third
quarter of 2001, compared with $60 million for the same period last year. On
a year to date basis, financial expenses decreased by $16 million to $159
million in 2001 from $175 million in 2000. The reduced interest expenses in
both periods was a result of lower volume and interest rates on long-term
debt, lower rates on the securitization program and the issuance of preferred
shares in the first and third quarters of 2001. This has been partly offset
by the interest on capital spending, the normal course issuer bid programs
and business acquisitions. As at September 30, 2001, the EBITDA coverage of
fixed charges ratio was 4.7 times compared with 4.6 times as at December 31,
2000 and with 4.6 at the end of the third quarter of 2000.
The effective tax rate for the quarter and the year to date ended September 30,
2001 was 26.7%, compared with 27.8% for the full year 2000. In 2000, the
effective tax rate was 26.6% for the third quarter and 28.4% for the nine-month
period ended September 30. The lower tax rate, compared with full year 2000, is
due to a reduction in income from the United States and an increase in income
generated in countries with lower tax rates.
RESTRUCTURING AND OTHER CHARGES
-------------------------------
During 2000, the Company implemented restructuring initiatives resulting in
the termination of employees for a cost of $18 million and 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 related mostly to assets rendered idle as a result of the restructuring
undertaken in 1999. The Company used $4 million and $13 million of the
restructuring reserve established in 1999 as a result of the Merger with
World Color, during the three-month and nine-month periods ended September
30, 2001 respectively.
Subsequent to the end of the third quarter, the Company revised its earning
outlook for the year 2001 based on weak market conditions that have been
further disrupted by the September 11th terrorist attacks in the United
States. Given adverse market conditions and management's assessment of
negative short-term prospects with no apparent economic recovery, the Company
also announced that it intends to take restructuring and other special
charges in the fourth quarter of 2001. It is anticipated that the Company
will record special charges currently estimated at $225 million before taxes
with a cash component of approximately $100 million. Most of the cash costs
relate to plant closures, severance from workforce reduction and other
charges. It is anticipated that the restructuring plans to be implemented
will result in the elimination of 6% of our workforce globally.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash flow from operations amounted to $12 million for the third quarter of
2001 compared with $18 million for the same quarter last year. For the
nine-month period ended September 30, cash flow from operations amounted to
$136 million in 2001 compared with $307 million in 2000. Working capital was
$199 million at September 30, 2001 compared with a deficiency of $67 million
at December 31, 2000 and a working capital of $307 million at September 30,
2000. The decrease of $108 million when compared with September 30, 2000 was
mainly due to a higher level of utilization of securitization programs,
partly offset by an increase in the number of receivables days due to the
slowdown in the US economy. The increase from December is mostly explained by
lower trade payables and accrued liabilities at the end of the third quarter.
During the period from January to April 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 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 3,474,400 Subordinate Voting Shares for
a total cost of approximately Cdn$137 million ($94 million), at an average cost
per share of Cdn$39.48 ($27.03). The Company also committed to repurchase for
cancellation 859,900 shares at an average price per share of approximately
Cdn$39.17 ($24.82) for settlement in October 2001, March and April 2002.
Capital expenditures, net of proceeds from disposals, totaled $66 million and
$15 million in the third quarters of 2001 and 2000, respectively. For the
nine-month period ended September 30, capital expenditures, net of proceeds from
disposals, totaled $222 million and $93 million in 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 September 30, 2001 and 2000, our total debt was $2,410 million and $2,674
million respectively. Our debt to capitalization ratio was 47:53, the same as at
December 31, 2000 and was 53:47 at September 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
$608 million as of September 30, 2001, compared with $478 million as at
September 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 8,000,000, 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.
In August 2001, the Company issued in the Canadian capital markets a total of
7,000,000, 6.90%, Cumulative Redeemable First Preferred Shares, Series 5, at
Cdn$25.00 ($16.27) per share, for aggregate proceeds of Cdn$175 million ($114
million).
During the nine-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.
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 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 September 30, 2001, we
had no significant concentrations of credit risk.
ACCOUNTING POLICIES
-------------------
In the first quarter of 2001, the Company has adopted the new recommendations of
the Canadian Institute of Chartered Accountants ("CICA") dealing with earnings
per share. The standard requires the disclosure of the calculation of basic and
diluted earnings per share and the use of the treasury stock method for
calculating the dilutive impact of stock options. All earnings per share amounts
disclosed for comparison have been restated. The impact of that change is
presented in Note 8 of the quarterly financial statements.
In March 2001, the CICA issued the Accounting Guideline ("AcG") No. 12 Transfer
of Receivable. The new recommendations apply to transfers after June 30, 2001,
although application is permitted for transfers after March 31, 2001. The
Company adopted the new recommendation prospectively. The effect of adopting the
new recommendations did not have a
significant impact on the consolidated balance sheets and the consolidated
statements of income and retained earnings and cash flows as at September 30,
2001.
In the second quarter of 2001, the CICA issued Section 1581, Business
Combinations, and Section 3062, Goodwill and Other Intangible Assets, of the
CICA handbook. Under Section 1581 of the CICA handbook, business combinations
initiated after June 30, 2001 are accounted for as a purchase. For purchase
business combinations that were consummated after June 30, 2001, goodwill and
intangibles were recorded in accordance with Section 1581 of the handbook. In
accordance with Section 3062, goodwill and intangible assets with indefinite
useful lives are not amortized but continue to be evaluated for impairment based
on actual accounting standards, other identified intangibles with estimated
useful lives are amortized.
For purchase business combinations consummated on or before June 30, 2001,
the accounting under Section 1580, Business Combinations, and under Section
3060, Capital Assets, have been applied. Such goodwill and separately
identifiable intangibles are recorded and amortized until the Company adopts
Section 3062 of the handbook, which must be applied by the Company for the
fiscal year beginning on January 1, 2002.
The Company is currently evaluating the impacts of adopting the provisions
of Section 3062 of the CICA handbook, including potential impairment of
existing goodwill or intangible assets with indefinite useful life balances,
but has not yet quantified the impact on its consolidated financial position.
Those new recommendations harmonize the Canadian standards with the United
States standards.
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.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Periods ended September 30
(In thousands of US dollars, except for earnings per share amounts)
(Unaudited)
Three months Nine months
-----------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
REVENUES $1,625,185 $1,633,767 $4,704,197 $4,813,258
Operating expenses:
Cost of sales 1,247,828 1,246,014 3,629,071 3,697,088
Selling, general and administrative 118,785 101,082 354,379 341,874
Depreciation and amortization 85,847 84,327 252,637 266,014
-----------------------------------------------------------------------------------------------------------------------------
1,452,460 1,431,423 4,236,087 4,304,976
-----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 172,725 202,344 468,110 508,282
Financial expenses 52,936 59,506 159,167 175,066
-----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 119,789 142,838 308,943 333,216
Income taxes 32,043 37,938 82,642 94,481
-----------------------------------------------------------------------------------------------------------------------------
Income before minority interest 87,746 104,900 226,301 238,735
Minority interest 893 502 2,535 1,616
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE GOODWILL AMORTIZATION 86,853 104,398 223,766 237,119
Goodwill amortization, net of income taxes 16,020 15,700 47,276 48,039
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 70,833 $ 88,698 $ 176,490 $ 189,080
Net income available to holders of preferred shares 5,572 2,531 13,412 7,646
-----------------------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 65,261 $ 86,167 $ 163,078 $ 181,434
=============================================================================================================================
EARNINGS PER SHARE (NOTE 8)
Basic $ 0.46 $ 0.59 $ 1.14 $ 1.23
Diluted $ 0.46 $ 0.58 $ 1.13 $ 1.21
EARNINGS PER SHARE BEFORE GOODWILL AMORTIZATION
Basic $ 0.58 $ 0.69 $ 1.47 $ 1.56
Diluted $ 0.57 $ 0.68 $ 1.45 $ 1.53
-----------------------------------------------------------------------------------------------------------------------------
Average number of equity shares outstanding (in thousands)
Basic 140,790 146,591 142,855 147,321
Diluted 145,658 151,472 147,495 152,028
-----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance, beginning of period $ 884,942 $ 719,096 $ 870,272 $ 650,155
Net income 70,833 88,698 176,490 189,080
Shares and convertible notes repurchased (27,907) (9,549) (77,312) (13,818)
Share issue expenses, net of income taxes (note 7) (1,540) - (4,530) -
Dividends:
Equity shares (16,899) (11,783) (48,372) (33,881)
Preferred shares (4,622) (2,541) (11,741) (7,615)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 904,807 $ 783,921 $ 904,807 $ 783,921
=============================================================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods ended September 30
(In thousands of US dollars)
(Unaudited)
Three months Nine months
-----------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 70,833 $ 88,698 $ 176,490 $ 189,080
Non-cash items in net income:
Depreciation of property, plant and equipment 80,041 80,250 235,559 249,228
Amortization of goodwill and deferred charges 21,826 19,777 64,354 64,825
Deferred income taxes 19,717 18,256 59,420 53,876
Other 3,463 (4,986) 8,278 (943)
Changes in non-cash balances related to operations:
Trade receivables (111,515) (149,488) (46,470) (9,283)
Inventories (52,505) (93,124) (25,430) (84,194)
Trade payables and accrued liabilities 1,508 28,066 (242,916) (152,315)
Other current assets and liabilities 2,654 19,711 (13,730) 839
Other non-current assets and liabilities (23,963) 10,363 (79,771) (4,111)
-----------------------------------------------------------------------------------------------------------------------------
Cash provided from operating activities 12,059 17,523 135,784 307,002
FINANCING ACTIVITIES:
Net change in bank indebtedness (54) 925 (1,930) (1,616)
Net proceeds from issuance of equity shares 6,060 (59) 11,238 1,992
Repurchases of shares for cancellation (58,428) (20,386) (173,067) (33,228)
Net proceeds from issuance of preferred shares 112,313 - 239,524 -
Issuance (repayments) of long-term debt and
convertible notes 128,733 43,522 145,170 (141,021)
Dividends on equity shares (16,899) (11,783) (48,372) (33,881)
Dividends on preferred shares (4,622) (2,541) (11,741) (7,615)
Dividends to minority shareholders (27) (36) (1,497) (36)
-----------------------------------------------------------------------------------------------------------------------------
Cash provided from (used by) financing activities 167,076 9,642 159,325 (215,405)
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash and cash
equivalents (note 3) (99,364) (4,799) (129,049) (5,344)
Additions to property, plant and equipment (69,006) (58,539) (227,007) (160,985)
Net proceeds from disposal of other assets 3,384 43,633 5,088 67,552
Investment in an affiliated company - (16,901) - (16,901)
Other (8,098) - (15,274) -
-----------------------------------------------------------------------------------------------------------------------------
Cash used by investing activities (173,084) (36,606) (366,242) (115,678)
Effect of exchange rate changes on cash and cash
equivalents (4,504) 8,797 20,309 23,700
-----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 1,547 (644) (50,824) (381)
Cash and cash equivalents, beginning of period 361 3,876 52,732 3,613
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,908 $ 3,232 $ 1,908 $ 3,232
=============================================================================================================================
Supplemental cash flow information:
Interest paid $ 67,649 $ 64,629 $ 166,875 $ 183,981
Income taxes paid 9,343 5,047 58,264 42,172
=============================================================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars)
September 30 December 31 September 30
(Unaudited) (Audited) (Unaudited)
--------------------------------------------------------------------------------------------------------------------
2001 2000 2000
--------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,908 $ 52,732 $ 3,232
Trade receivables, net of allowances for
doubtful accounts of $21,915, $17,823 and
$17,004 respectively (note 4) 632,111 584,047 709,398
Receivables from related parties 3,208 3,048 2,884
Inventories 489,525 461,340 550,186
Deferred income taxes 58,061 58,083 41,130
Prepaid expenses 37,030 26,024 28,580
--------------------------------------------------------------------------------------------------------------------
1,221,843 1,185,274 1,335,410
Property, plant and equipment, net of accumulated
depreciation of $1,457,469, $1,262,281 and
$1,302,678 respectively 2,725,855 2,682,983 2,671,640
Goodwill, net of accumulated amortization
of $191,445, $144,114 and $137,660 respectively 2,489,515 2,459,510 2,464,778
Other assets 166,432 156,893 156,175
--------------------------------------------------------------------------------------------------------------------
$6,603,645 $6,484,660 $6,628,003
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 826 $ 3,129 $ 3,723
Trade payables 532,756 632,550 482,697
Accrued liabilities 394,471 522,907 463,161
Income and other taxes 1,131 6,011 40,977
Current portion of long-term debt and convertible notes 94,144 87,212 38,115
--------------------------------------------------------------------------------------------------------------------
1,023,328 1,251,809 1,028,673
Long-term debt (note 6) 2,202,167 2,015,554 2,480,708
Other liabilities 249,097 290,788 331,033
Deferred income taxes 351,453 326,137 246,160
Convertible notes 112,817 105,936 151,178
Minority interest 13,463 20,556 19,915
Shareholders' equity:
Capital stock (note 7) 1,790,788 1,631,241 1,635,727
Additional paid-in capital 104,586 104,586 103,262
Retained earnings 904,807 870,272 783,921
Translation adjustment (148,861) (132,219) (152,574)
--------------------------------------------------------------------------------------------------------------------
2,651,320 2,473,880 2,370,336
--------------------------------------------------------------------------------------------------------------------
$6,603,645 $6,484,660 $6,628,003
====================================================================================================================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Periods ended September 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
Canadian generally accepted accounting principles 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.
2. ACCOUNTING CHANGES
The Consolidated Financial Statements have been prepared using the same
accounting policies as described in the latest Annual Report with exception
of the new standards described below.
A) EARNINGS PER SHARE
In the first quarter of 2001, the Company has adopted the new
recommendations of the Canadian Institute of Chartered Accountants
("CICA") dealing with earnings per share. These new recommendations of
CICA handbook Section 3500 harmonizes the Canadian standard with the
United States standards. The standard requires the disclosure of the
calculation of basic and diluted earnings per share and the use of the
treasury stock method for calculating the dilutive impact of stock
options. All earnings per share amounts disclosed for comparison have
been restated. This restatement did not have a significant impact on
the diluted earnings per share, both before and after goodwill
amortization, for each period presented.
B) TRANSFER OF RECEIVABLES
In March 2001, the CICA issued the Accounting Guideline ("AcG") No. 12
Transfer of Receivables. The new recommendations apply to transfers
after June 30, 2001, although application is permitted for transfers
after March 31, 2001. The Company adopted the new recommendations
prospectively. The new recommendations of CICA handbook AcG-12
harmonize the Canadian standards with the United States standards. The
effect of adopting the new recommendations did not have a significant
impact on the consolidated balance sheets and the consolidated
statements of income and retained earnings and cash flows as at
September 30, 2001.
2. ACCOUNTING CHANGES (CONTINUED)
C) BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
In the second quarter of 2001, the CICA issued Section 1581, Business
Combinations, and Section 3062, Goodwill and Other Intangible Assets,
of the CICA handbook. Under Section 1581 of the CICA handbook, business
combinations initiated after June 30, 2001 are accounted for as a
purchase. For purchase business combinations that were consummated
after June 30, 2001, goodwill and intangibles were recorded in
accordance with Section 1581 of the CICA handbook. In accordance with
Section 3062, goodwill and intangible assets with indefinite useful
lives are not amortized but continue to be evaluated for impairment
based on actual accounting standards, other identified intangibles with
estimated useful lives are amortized.
For purchase business combinations consummated on or before June 30,
2001, the accounting under Section 1580, Business Combinations, and
under Section 3060, Capital assets, have been applied. Such goodwill
and separately identifiable intangibles are recorded and amortized
until the Company adopts Section 3062 of the handbook, which must be
applied by the Company for fiscal year beginning on January 1, 2002.
3. BUSINESS ACQUISITIONS
The Company made several business acquisitions in the first nine months of
2001, which have been accounted for using the purchase method and earnings
are included in the consolidated statements of income and retained earnings
since the date of acquisition.
In February 2001, the Company acquired a 70% controlling interest in
Espacio Y Punto, in Spain, for a cash consideration of $8 million.
In March 2001, the Company acquired a 75% controlling interest in Grafica
Melhoramentos, in Brazil, for a cash consideration of $5 million.
In March 2001, the Company also acquired minority interests in its Latin
American operations for a cash consideration of $16 million, a convertible
subordinated debenture of $6 million and a promissory note of $2 million.
In July 2001, the Company acquired Retail Printing Corporation, in
Massachusetts, United States, to expand its North American retail network
for a cash consideration of $98 million.
During the first nine months, the Company also completed other business
acquisitions for a cash consideration of $2 million.
3. BUSINESS ACQUISITIONS (CONTINUED)
Net assets acquired at fair value:
-------------------------------------------------------------------------
Assets acquired:
Non-cash operating working capital $ 2,381
Property, plant and equipment 61,251
Goodwill 99,215
Other assets 889
Minority interest 7,229
Liabilities assumed:
Long-term debt 31,237
Other liabilities 407
Deferred income taxes 2,272
-------------------------------------------------------------------------
Net assets acquired $137,049
=========================================================================
Consideration:
Cash $129,049
Purchase price balance 8,000
-------------------------------------------------------------------------
$137,049
=========================================================================
4. 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 153 million Euro ($130 million). As at
September 30, 2001, the amount outstanding under the European Program was
118 million Euro ($108 million).
5. 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 $13 million of restructuring reserve
during the nine-month period ended September 30, 2001.
6. 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 nine months ended September 30, 2001, at the request of the
Company, the remaining balance of its acquisition bank facility was
cancelled.
7. CAPITAL STOCK
(a) Issued and outstanding First Preferred Shares Series 5
In the third quarter of 2001, the Company issued 7,000,000 First
Preferred Shares Series 5 for a cash consideration of Cdn$175 million
($114 million) before share issue expenses of Cdn$6 million ($4
million) recorded as a reduction in retained earnings. The First
Preferred Shares Series 5 are entitled to fixed cumulative
preferential cash dividend of Cdn$1.7250 per share per annum, payable
quarterly.
(b) Issued and outstanding First Preferred Shares Series 4
In the first quarter of 2001, the Company issued 8,000,000 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.
(c) Share repurchase program
During the nine-month period ended September 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
3,474,400 Subordinate Voting Shares for a net cash consideration of
Cdn$137 million ($94 million). This program is effective over the
period from April 6, 2001 to April 5, 2002.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three months Nine months
-------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 65,261 $ 86,167 $163,078 $181,434
Income impact on assumed conversion of
convertible notes, net of applicable income taxes 1,377 1,331 3,470 3,136
-------------------------------------------------------------------------------------------------------------------
Net income adjusted for dilution effect $ 66,638 $ 87,498 $166,548 $184,570
===================================================================================================================
(In thousands)
Weighted average shares outstanding 140,790 146,591 142,855 147,321
Effect of dilutive convertible notes and stock options 4,868 4,881 4,640 4,707
-------------------------------------------------------------------------------------------------------------------
Weighted average of diluted equity shares outstanding 145,658 151,472 147,495 152,028
===================================================================================================================
Basic earnings per share $ 0.46 $ 0.59 $ 1.14 $ 1.23
Diluted earnings per share $ 0.46 $ 0.58 $ 1.13 $ 1.21
===================================================================================================================
9. COMMITMENT
On September 27, 2001, the Company signed a binding agreement pending
regulatory approval to purchase the European printing assets of Hachette
Filipacchi Medias.
10. SUBSEQUENT EVENTS
On October 9, 2001, the Company announced it is currently analyzing the
extent of special restructuring and other charges. In the fourth quarter of
fiscal 2001, the Company will record a charge initially estimated at $225
million before taxes, with a cash component of approximately $100 million.
Most of the cash costs relate to plant closures, severance from workforce
reduction and other charges. It is anticipated that the restructuring plans
to be implemented will result in the closing of approximately 7 facilities
and the elimination of 6% of the Company's workforce.
11. 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
-------------------------------------------------------------------------------------------------------------
Three months ended September 30,
2001
REVENUES $1,373,406 $211,520 $ 40,462 $ - $(203) $1,625,185
OPERATING INCOME 162,986 9,728 1,169 (1,158) - 172,725
2000
Revenues 1,398,397 208,940 26,684 - (254) 1,633,767
Operating income 175,923 13,935 665 11,821 - 202,344
=============================================================================================================
Nine months ended September 30,
2001
REVENUES $3,941,466 $651,943 $111,311 $ - $(523) $4,704,197
OPERATING INCOME 426,980 38,843 5,492 (3,205) - 468,110
2000
Revenues 4,080,857 654,115 78,420 - (134) 4,813,258
Operating income 440,943 42,221 3,608 21,510 - 508,282
=============================================================================================================
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/ Michael Young
------------------------------------------------------
Name: Michael Young
Title: Vice President and Corporate Controller
Date: October 29, 2001