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 FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 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
----- -----
(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 February 4, 2002 (#01/02)
2. Supplemental Disclosure for the fourth quarter and year ended
December 31, 2001
3. Consolidated Financial Statements of Quebecor World Inc. and its
Subsidiaries for the years ended December 31, 2001, 2000
and 1999/Management's Discussion and Analysis of Financial Condition
and Results of Operation
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
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Name: Michael Young
Title: Vice President and Corporate Controller
Date: February 4, 2002
[QUEBECOR WORLD LOGO]
FEBRUARY 4, 2002 01/02
FOR IMMEDIATE RELEASE Page 1 of 3
QUEBECOR WORLD ANNOUNCES
FOURTH-QUARTER AND YEAR END RESULTS
IQW MEETS REVISED EPS TARGET
GENERATES $287 MILLION of FREE CASH FLOW
MONTREAL, CANADA -- Quebecor World Inc. today announced full-year 2001 diluted
earnings per share before special restructuring and other special charges of
$1.58 compared to $1.90 a year ago. This is in line with the Company's post
September 11th guidance. For the fourth quarter, EPS was $0.45 compared to $0.69
last year. Revenues for the year were $6.3 billion compared to $6.5 billion in
2000 and operations generated $287 million of free cash flow in 2001.
Quebecor World achieved these results despite a significant drop in
advertising spending, the economic shock of 9-11 and its aftermath. Even
though ad spending was off almost every month from a record 2000, the Company
aggressively managed costs and through August was on track to match its
record performance. But this was not sustainable as a result of the economic
drop-off in the fourth quarter.
"A precipitous drop like the one we saw in the last four months of this year
had an extremely negative effect during a time when we traditionally earn 40
per cent of our operating income," said Charles G. Cavell, President and CEO
of Quebecor World. "In 2001, magazine ad pages in the United States took
their worst drop in 10 years. We reduce costs on an ongoing basis but we
can't restructure our business overnight when hit with a catastrophic event."
Quebecor World's view is that the reduced volumes experienced in the fourth
quarter of 2001 will continue in early 2002. As a result the Company
announced a restructuring plan in October to take advantage of this period to
reduce costs and improve operational efficiencies. The restructuring plan is
based on putting the best equipment into larger and more specialized
facilities. As a direct result Quebecor World expects to realize a pre-tax
annualized earnings improvement of $45 million. Total cost of the
restructuring is $270 million pre-tax, with a cash component of approximately
$130 million.
"This is the first substantial non-acquisition related restructuring charge
we have taken in our history," said Mr. Cavell. "At the same time we have
reduced receivables in a challenging environment and lowered inventory
levels. Once the plan is completed our lower cost base will allow us to
better leverage our global manufacturing platform for our customers and
shareholders."
FOR IMMEDIATE RELEASE Page 2 of 3
For 2001, even though the drop in volume came at the busiest time of the
year, Quebecor World was still able to maintain its industry leading
operating margin of 9.8 per cent. Following the implementation of the 2001
restructuring plan, Quebecor World will be well-positioned to benefit from a
recovery in advertising spending in its core North American market.
In 2001 Quebecor World produced significant free cash flow, $385 million in
the fourth quarter and $287 million for the year. During the last three years
the Company generated $1.6 billion of free cash. At the end of 2001 Quebecor
World's debt-to-capitalization was 46:54.
Our European operations have been affected by the global slowdown
particularly in France where there has also been a drop-off in advertising
and volumes. However our Latin American business continues to grow. For the
full year operating income increased 60%.
"We believe 2002, especially the first half, will be a challenge. In the
short-term we will focus on reducing costs in all aspects of the Company and
successfully implementing the relocation of assets that will pay big dividends
in the future. We will use free cash flow to continue to pay down debt," said
Mr. Cavell. "Quebecor World made several niche acquisitions in 2001 that
enhanced existing platforms or were transactions with publishers/printers that
came with enabling contracts. In this unstable economic environment it is
difficult to assess value. We will continue to survey the landscape in all our
geographies but will likely only make smaller niche acquisitions or those with
publishers/printers that include guaranteed long-term contracts. However we are
certain this economic downturn will eventually create acquisition opportunities
because other companies do not benefit from the same geographic and product
diversity that is allowing us to significantly weather the storm."
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$0.43125 on Series 5 Preferred
Shares. The dividends are payable March 1st, 2002 to shareholders of record
on February 13, 2002.
FOR IMMEDIATE RELEASE Page 3 of 3
QUEBECOR WORLD TO WEBCAST INVESTOR CONFERENCE CALL ON FEBRUARY 5, 2002
Quebecor World Inc. will broadcast its Fourth Quarter conference call live over
the Internet on Tuesday, February 5 at 8:30 AM (EDT).
Earnings Guidance
Taking into account our conservative outlook with regard to acquisitions and
the fact that management does not believe business in its North American
market will pick up before the second half of 2002 management is reconfirming
guidance in the range of $1.85-to-$2.00 earnings per share for 2002.
The conference call, which will last approximately one hour, will be webcast
live and can be accessed on the Quebecor World web site:
http://www.quebecorworld.com/htmen/conference_call
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 1049837, available from
February 5 to February 19, 2002.
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. 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,
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 December 31
(In millions of US dollars, except per share amounts)
(Unaudited)
Three months Twelve months
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2001 2000 Change 2001 2000 Change
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CONSOLIDATED RESULTS
Revenues $ 1,615.9 $ 1,707.8 (5)% $ 6,320.1 $ 6,521.1 (3)%
Operating income before amortization* 234.9 295.6 (21)% 955.6 1,069.9 (11)%
Operating income* 149.7 216.5 (31)% 617.8 724.8 (15)%
Net income (154.1) 106.3 (245)% 22.4 295.4 (92)%
Cash provided from operating activities 440.7 610.8 (28)% 576.5 917.8 (37)%
Free cash flow from operations** 385.1 541.3 (29)% 287.2 747.3 (62)%
Operating margin before amortization* 14.5% 17.3% 15.1% 16.4%
Operating margin* 9.3% 12.7% 9.8% 11.1%
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SEGMENTED INFORMATION
REVENUES
North America $ 1,326.6 $ 1,438.0 (8)% $ 5,268.1 $ 5,518.9 (5)%
Europe 239.4 236.3 1 % 891.3 890.4 - %
Latin America 50.1 33.6 49 % 161.4 112.0 44 %
OPERATING INCOME
North America $ 137.3 $ 187.1 (27)% $ 564.3 $ 628.0 (10)%
Europe 15.1 18.9 (20)% 53.9 61.1 (12)%
Latin America 4.9 2.9 69 % 10.4 6.5 60 %
OPERATING MARGINS
North America 10.3% 13.0% 10.7% 11.4%
Europe 6.3% 8.0% 6.1% 6.9%
Latin America 9.9% 8.6% 6.5% 5.8%
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FINANCIAL POSITION
Working capital $ (194.5) $ (66.5)
Total assets 6,149.9 6,484.7
Long-term debt (including convertible notes) 2,132.2 2,208.7
Shareholders' equity 2,473.2 2,473.9
Debt-to-capitalization 46:54 47:53
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PER SHARE DATA
Earnings*
Basic $ 0.45 $ 0.70 (36)% $ 1.60 $ 1.93 (17)%
Diluted 0.45 0.69 (35)% 1.58 1.90 (17)%
Earnings before goodwill amortization*
Basic $ 0.56 $ 0.78 (28)% $ 2.03 $ 2.34 (13)%
Diluted 0.55 0.77 (29)% 1.99 2.30 (13)%
Dividends on equity shares $ 0.12 $ 0.10 20 % $ 0.46 $ 0.33 39 %
Book value $ 14.39 $ 15.47 (7)%
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* Before restructuring and other special charges
** Cash provided from operating activities, less capital expenditures net of
proceeds from disposals, and preferred share dividends.
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[LOGO: Quebecor World Inc.]
SUPPLEMENTAL DISCLOSURE
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4TH, 2002
FOR THE FOURTH QUARTER
AND YEAR
ENDED DECEMBER 31, 2001
FOR PUBLIC RELEASE ON FEBRUARY 4TH, 2002
http://www.quebecorworld.com/htmen/20_0/pdf/01Q4-Supp_Disclosure.pdf
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QUEBECOR WORLD
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FOURTH QUARTER AND YEAR ENDED DECEMBER 31ST, 2001
PAGE
1. HIGHLIGHTS 1
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2. RECENT DEVELOPMENTS 4
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3. CORPORATE FINANCE 6
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4. SEGMENTED RESULTS OF OPERATIONS 7
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5. BREAKDOWN OF REVENUES 11
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6. FINANCIAL CONDITION 12
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7. DISCUSSION OF CONSENSUS EARNINGS 13
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CERTAIN INFORMATION INCLUDED IN THIS DOCUMENT IS FORWARD-LOOKING AND IS
SUBJECT TO IMPORTANT RISKS AND UNCERTAINTIES. THESE STATEMENTS ARE MADE
PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. 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
DESPITE A CHALLENGING ENVIRONMENT, RESULTS FOR 2001 WERE THE SECOND HIGHEST IN
THE COMPANY'S HISTORY. THE REVENUES, OPERATING INCOME (BEFORE RESTRUCTURING AND
OTHER CHARGES) AND THE CONSOLIDATED OPERATING MARGIN ARE ABOVE LEVELS ACHIEVED
AT ANY TIME PRIOR TO THE MERGER WITH WORLD COLOR IN 1999.
THREE MONTHS ENDED DECEMBER 31, 2001
EARNINGS PER SHARE: Earnings per share before restructuring and other special
charges for the fourth quarter ended December 31st, 2001 were $0.45 versus
$0.69 for the same period last year. This is $0.05 higher than the consensus
of earnings estimates.
REVENUES: For the fourth quarter ended December 31, 2001, revenues were $1,616
million, down 5% from 2000.
OPERATING INCOME: Operating income before restructuring and other charges
decreased 31% to $150 million, compared with $217 million for the corresponding
period last year. The operating income margin before restructuring and other
charges for the quarter was 9.3% compared to 12.7% in 2000, 11.0% in 1999 and
9.5% in 1998.
CASH EARNINGS PER SHARE: For the fourth quarter ended December 31, 2001,
earnings per share before goodwill amortization, restructuring and other
special charges amounted to $0.55 compared to $0.77 in 2000.
FREE CASH FLOW: For the fourth quarter ended December 31, 2001, free cash flow
amounted to $385 million.
YEAR ENDED DECEMBER 31, 2001
EARNINGS PER SHARE: For the twelve months ended December 31, 2001, earnings
per share before restructuring and other special charges amounted to $1.58, a
decrease of 17% from $1.90 in 2000. This is $0.04 higher than the consensus
of earnings estimates.
REVENUES: For the twelve months ended December 31, 2001, revenues were $6,320
million compared to $6,521 million in 2000.
OPERATING INCOME: Operating income before restructuring and other charges
decreased 15% to $618 million, compared with $725 million for the corresponding
period last year. The operating income margin before restructuring and other
charges for 2001 was 9.8% compared to 11.1% in 2000, 9.5% in 1999 and 8.3% in
1998.
CASH EARNINGS PER SHARE: For the twleve months ended December 31, 2001,
earnings per share before goodwill amortization, restructuring and other
special charges amounted to $1.99, a decrease of 13% from $2.30 in 2000.
FREE CASH FLOW: For the year ended December 31, 2001, free cash flow amounted to
$287 million.
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QUEBECOR WORLD PAGE 1
1. HIGHLIGHTS (CONTINUED)
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CONSOLIDATED RESULTS
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(BEFORE RESTRUCTURING AND OTHER SPECIAL CHARGES)
(IN $ MILLIONS
EXCEPT MARGINS FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
AND PER SHARE DATA) DECEMBER 31 DECEMBER 31
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2001 Change 2000 2001 Change 2000
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Revenues(1) $1,616 -5% $1,708 $6,320 -3% $6,521
EBITDA(1,2) 235 -21% 296 956 -11% 1,070
Operating income(1,2) 150 -31% 217 618 -15% 725
Net income - cash basis 86 -26% 117 310 -12% 354
Net income 72 -31% 104 249 -15% 293
Diluted Earnings per share $ 0.45 -35% $ 0.69 $ 1.58 -17% $ 1.90
Diluted Earnings per share - cash basis $ 0.55 -29% $ 0.77 $ 1.99 -13% $ 2.30
EBITDA margin 14.5% 17.3% 15.1% 16.4%
Operating margin 9.3% 12.7% 9.8% 11.1%
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(1) CD-ROM REPLICATION BUSINESS HAD REVENUES OF $43M, EBITDA OF $7M AND EBIT OF
$4M FOR THE FULL YEAR 2000.
(2) INCLUDING NON-OPERATING EXPENSES OF $0.5 MILLION FOR Q4 2001 AND $2.9
MILLION FOR Q4 2000
INCLUDING NON-OPERATING EXPENSES OF $ 6.3 MILLION FOR 2001 YTD AND $ 9.8
MILLION FOR 2000 YTD AND THE GAIN RELATED TO THE SALE OF QUEBECOR
INTEGRATED MEDIA IN 2000 OF $ 13.4 MILLION.
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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)
IMPACT ON: YEAR 2001
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REVENUES Weaker foreign currencies (83)
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Sale of CD-ROM and fulfillment (43)
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Business Acquisitions 94
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TOTAL ($32)
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OPERATING INCOME Weaker foreign currencies (4.6)
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Sale of CD-ROM and fulfillment (17.7)(1)
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Business Acquisitions 14.3
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Non-operating expenses (6.3)
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TOTAL ($14.3)
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EARNINGS PER SHARE (PRE-TAX) Weaker foreign currencies (0.03)
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Sale of CD-ROM and fulfillment (0.12)
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Business Acquisitions 0.10
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Non-operating expenses (0.04)
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TOTAL ($0.09)
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(1) INCLUDES $13.4 MILLION GAIN ON SALE OF CD-ROM BUSINESS.
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QUEBECOR WORLD PAGE 3
2. RECENT DEVELOPMENTS
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LONG TERM CONTRACTS
TIME INC.
On December 6, 2001, Quebecor World announced that it had extended its contract
with Time Inc. for printing over 20 of its Time Inc., Southern Progress and
Oxmoor House titles. During the contract period, sales are estimated to exceed
$210 million. As part of the relationship, Quebecor World plans to invest in
another 48-page press which will be installed its Dallas, TX facility.
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QUEBECOR WORLD PAGE 4
2. RECENT DEVELOPMENTS (CONTINUED)
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2001 RESTRUCTURING PLAN
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 now envisages the
elimination of more than 3,000 employee positions (8% of the workforce
globally). Final estimates of the total costs expected to be incurred under the
Plan are $270 million (net of $3 million release of previous year's
restructuring charges), of which approximately $130 million will be cash. A
charge for this amount was 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.
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QUEBECOR WORLD PAGE 5
3. CORPORATE FINANCE
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NORMAL COURSE ISSUER BID
As at December 31, 2001 Quebecor World 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 twelve
month period ending December 31, 2001 were 6.7 million shares for a cash
consideration of US$177 million. Purchases of additional shares representing a
consideration of US $3.6 million were settled in early January, 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 3,543,700 6,732,192
Average Price per Share (Cdn $) $36.05 $40.57 $38.43
Average Price per Share (US $) $24.84 $27.70 $26.35
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QUEBECOR WORLD PAGE 6
4. SEGMENTED RESULTS OF OPERATIONS
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NORTH AMERICA
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(BEFORE RESTRUCTURING
AND OTHER CHARGES)
(IN $ MILLIONS FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
EXCEPT MARGINS) DECEMBER 31 DECEMBER 31
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2001 Change 2000 2001 Change 2000
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Revenues $1,327 -8% $1,438 $5,268 -5% $5,519
EBITDA(1) 207 -18% 253 842 -8% 917
Operating income(1) 137 -27% 187 564 -10% 628
EBITDA margin 15.6% 17.6% 16.0% 16.6%
Operating margin 10.3% 13.0% 10.7% 11.4%
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(1) INCLUDING NON-OPERATING EXPENSES OF $ 0.2 MILLION FOR Q4 2001 AND OF $ 0.8
FOR Q4 2000.
INCLUDING NON-OPERATING EXPENSES OF $2.9 MILLION FOR 2001 YTD AND $ 3.1
MILLION FOR 2000 YTD.
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QUEBECOR WORLD PAGE 7
4. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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EUROPE
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(BEFORE RESTRUCTURING
AND OTHER CHARGES)
(IN $ MILLIONS FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
EXCEPT MARGINS) DECEMBER 31 DECEMBER 31
- ---------------------------------------------------- ----------------------------
2001 Change 2000 2001 Change 2000
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Revenues $239 +1% $236 $891 - $890
EBITDA(1) 27 -10% 30 105 -5% 110
Operating income(1) 15 -29% 19 54 -12% 61
EBITDA margin 11.4% 12.9% 11.7% 12.3%
Operating margin 6.3% 8.0% 6.1% 6.9%
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(1) INCLUDING NON-OPERATING INCOME OF $ 0.1 MILLION FOR Q4 2001 AND
NON-OPERATING EXPENSES OF $ 2.0 MILLION FOR Q4 2000.
INCLUDING NON-OPERATING EXPENSES OF $ 1.4 MILLION FOR 2001 YTD AND
$ 6.5 MILLION FOR 2000 YTD.
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QUEBECOR WORLD PAGE 8
4. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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EUROPE (EURO)
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(BEFORE RESTRUCTURING
AND OTHER CHARGES)
(IN EURO MILLIONS FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
EXCEPT MARGINS) DECEMBER 31 DECEMBER 31
- ---------------------------------------------------- ----------------------------
2001 Change 2000 2001 Change 2000
------------------------- ----------------------------
Revenues euro267 -2% euro272 euro994 +3% euro967
EBITDA(1) 31 -13% 35 117 -2% 120
Operating income(1) 17 -23% 22 60 -10% 67
EBITDA margin 11.4% 12.9% 11.7% 12.3%
Operating margin 6.3% 8.0% 6.1% 6.9%
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(1) INCLUDING NON-OPERATING INCOME OF EURO 0.1 MILLION FOR Q4 2001 AND
NON-OPERATING EXPENSES OF EURO 2.3 MILLION FOR Q4 2000.
INCLUDING NON-OPERATING EXPENSES OF EURO 1.6 MILLION FOR 2001 YTD AND
EURO 7.0 MILLION FOR 2000 YTD.
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QUEBECOR WORLD PAGE 9
4. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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LATIN AMERICA
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(BEFORE RESTRUCTURING
AND OTHER CHARGES)
(IN $ MILLIONS FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
EXCEPT MARGINS) DECEMBER 31 DECEMBER 31
- ---------------------------------------------------- ----------------------------
2001 Change 2000 2001 Change 2000
------------------------- ----------------------------
Revenues $50 +49% $34 $161 +44% $112
EBITDA(1) 8 +102% 4 19 +54% 12
Operating income(1) 5 +69% 3 10 +58% 7
EBITDA margin 15.4% 11.4% 11.5% 10.7%
Operating margin 9.9% 8.6% 6.5% 5.8%
==================================================================================
(1) INCLUDING NON-OPERATING EXPENSES OF $ 0.4 MILLION FOR Q4 2001 AND $0.1
MILLION FOR Q4 2000
INCLUDING NON-OPERATING EXPENSES OF $2.0 MILLION FOR 2001 YTD AND $ 0.2
MILLION FOR 2000 YTD
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QUEBECOR WORLD PAGE 10
5. BREAKDOWN OF REVENUES
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(IN $ MILLIONS) FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
DECEMBER 31 DECEMBER 31
- ------------------------------------------------------------ ----------------------------
2001 Change 2000 2001 Change 2000
------------------------- ----------------------------
Magazines $405 -13% $466 $1,660 -9% $1,817
Retail Inserts $397 +17% $338 $1,307 +12% $1,168
Catalogs $252 -10% $280 $1,055 -1% $1,066
Specialty printing and Direct Mail 184 -17% 223 790 -14% 921
Books 176 -11% 199 718 -9% 791
Directories 103 +11% 92 404 +14% 353
Pre-media, logistics and other
value added services 99 -10% 110 386 -5% 406
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TOTAL $1,616 -5% $1,708 $6,320 -3% $6,521
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QUEBECOR WORLD PAGE 11
6. FINANCIAL CONDITION
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SUMMARIZED CONSOLIDATED BALANCE SHEETS
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(IN $ MILLIONS
EXCEPT FINANCIAL RATIOS) DECEMBER 31, 2001 CHANGE DECEMBER 31, 2000
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Non-cash working capital(1) ($111) (367%) $42
(IN % OF REVENUES) -1.8% 0.6%
Net fixed assets 2,634 (2%) 2,683
Total assets 6,150 (5%) 6,485
Shareholders' equity 2,473 - 2,474
Long-term debt and
Convertible Debentures 2,132 (3%) 2,209
Debt:Equity 46:54 47:53
EBITDA Coverage Ratio(2) 4.6 4.6
EBIT Coverage Ratio(2) 3.0 3.1
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(1) BEFORE RESTRUCTURING LIABILITIES
(2) BEFORE RESTRUCTURING AND OTHER CHARGES
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QUEBECOR WORLD PAGE 12
7. DISCUSSION OF CONSENSUS EARNINGS
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EARNINGS PER SHARE(1,2)
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FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
EPS % EPS % EPS % EPS % EPS %
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 +2% $0.46 -21% $0.45 -35% $1.58* -17%
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IQW 2002 GUIDANCE-FEBRUARY 4, 2002 $1.85-2.00
- ----------------------------------------------------------------------------------------------------------------------------------
2002 CONSENSUS(3) $0.28 +4% $0.39 -5% $0.57 +24% $0.63 +40% $1.87 +18%
==============================================================================================================================
* EPS OF $1.58 FOR 2001 WAS $0.04 HIGHER THAN THE CONSENSUS OF $1.54.
=====================================================================================================================
SUMMARY OF EARNINGS ESTIMATES 2002
=====================================================================================================================
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
- ---------------------------------------------------------------------------------------------------------------------
Average(3) $0.28 $0.39 $0.57 $0.63 $1.87
High(3) $0.34 $0.45 $0.73 $0.82 $2.00
Low(3) $0.21 $0.32 $0.50 $0.56 $1.75
Number of Analysts 7 7 7 7 15
=====================================================================================================================
IQW 2002 Guidance-February 4,2002 $1.85 - $2.00
=====================================================================================================================
(1) BEFORE RESTRUCTURING AND OTHER SPECIAL CHARGES.
(2) DILUTED EARNINGS PER SHARE.
(3) BASED ON MANAGEMENT'S SURVEY OF 15 SELL-SIDE ANALYSTS AS AT JANUARY 29,
2002.
================================================================================
QUEBECOR WORLD PAGE 13
[LOGO: QUEBECOR WORLD INC.]
Consolidated Financial Statements of
QUEBECOR WORLD INC.
AND ITS SUBSIDIARIES
Years ended December 31, 2001, 2000 and 1999
TABLE OF CONTENTS
Page
Management's discussion and analysis of financial condition and results of operations.... 2
Management's Responsibility for Financial Statements..................................... 14
Auditors' Report to the Shareholders..................................................... 15
Consolidated Statements of Income........................................................ 16
Consolidated Balance Sheets.............................................................. 17
Consolidated Statements of Shareholders' Equity.......................................... 19
Consolidated Statements of Cash Flows.................................................... 22
Notes to Consolidated Financial Statements............................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
We are the largest commercial print media services company in the world. We are
market leaders in most of our product categories and geographies. This
market-leading position has been built through a combination of successfully
integrated acquisitions, investment in key strategic technologies and a
commitment to building long-term partnerships with the world's leading print
media customers.
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.
MARKET REVIEW
- -------------
FIRST ADVERTISING RECESSION IN A DECADE
The year 2001 has been difficult for the print media industry. The U.S. economy
started slowing rapidly at the end of 2000, and this continued as the year 2001
progressed. During the summer, the European markets, which had until then been
performing well, slowed sharply, with the French market, in particular,
recording declines in advertising spending and printing volumes. This was the
backdrop to the tragic events of September 11th.
Following September 11th, the very weak print media markets of the U.S. and
Europe suffered a sudden and unexpected drop in volumes, resulting in lower net
income in 2001 compared to that in 2000. Traditionally, more than 40% of our
operating income is generated in the last 4 months of the year.
Our business is structured along geographic lines in North America, Europe and
Latin America. Within North America, which represents over 80% of our total
revenue, we are organized around a number of business groups. The diversity of
these business groups have helped to mitigate the twin effects of a slow world
economy and September 11th, with some areas of the business performing better
than others.
MAGAZINE & CATALOG
The Magazine & Catalog Group's revenues fell by 12% to $1,772 million in 2001,
from $2,005 million in 2000. Consumer magazines have seen a significant decline
in advertising pages during the year (figure 1). This decline accelerated
sharply in the 3rd quarter, culminating in a dramatic drop in overall page
counts post-September 11th (figure 2). An example of the effect on our business
following September 11th, relates to our enviable position as the major supplier
of print media services to the hotel and travel industry within North America:
we suffered an immediate and very substantial fall in volume, the speed of which
prevented our normal aggressive approach to cost control.
Figure 1
[GRAPHS]
MAGAZINES ADVERTISING PAGES-PERCENTAGE CHANGE YEAR-ON-YEAR
- -8.76% 4.38% 8.23% 2.04% 15.39% 2.59% 8.23% 4.76% 5.36% 10.1% -11.7%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Figure 2
[GRAPHS]
MAGAZINE ADVERTISING PAGES-PERCENTAGE CHANGE MONTHLY 2001 VS 2000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- -0.9% -9.8% -7.9% -9.3% -16.8% -18.4% -17.2% -12.3% -9.9% -16.7% -17.5% -19.3%
We still enjoy a tremendous market-leading platform, and volumes will recover
strongly when the general economic climate improves.
Quebecor World Inc. and its subsidiaries Page 2
COMMERCIAL & DIRECT
The Commercial & Direct Group's revenues fell by 13% to $865 million in 2001,
from $999 million in 2000.
Direct mail performed well during the first half of the year. However, following
September 11th and the anthrax scares, this business saw very substantial and
immediate declines in volumes, largely recovered since, due to the short lead
times between order and production.
The Commercial business tracks the general economic performance and, therefore,
has suffered all year from weak demand, with significant falls in volume in the
4th quarter of 2001.
RETAIL
The Retail Group's revenues increased by 17% to $1,118 million in 2001, from
$959 million in 2000.
In July 2001, we acquired Retail Printing Corporation of Taunton, Massachusetts.
This acquisition accounts for $47 million of the $159 million revenue growth.
Our retail business is driven by retail promotional campaigns. These campaigns
have a direct effect on store traffic, and therefore retail volumes. Due to this
connection between advertising and store trafic, the retailers, typically,
continue to produce promotional campaigns, regardless of the general economic
environment, in order to maintain volumes.
BOOK SERVICES
The Book Group's revenues fell by 14% to $513 million in 2001, from $597 million
in 2000. Book printing suffered in the first half of the year as publishers
worked inventory levels down following a very good 2000 holiday season. There
was also a general absence of new best-seller launches. Those titles that were
released suffered from below normal initial-run lengths and delays before
publishers felt confident enough to order reprints. This lack of volume in the
first half forced utilization levels down substantially. The 3rd quarter of the
year showed signs of a recovery compared to the first half, but volumes slumped
again after September 11th.
DIRECTORY
The Directory Group's revenues increased by 9% to $466 million in 2001, from
$427 million in 2000. This business performed very strongly all year, with
record revenues and earnings. The volume in this sector is based around local
advertising, as opposed to national campaigns, and therefore tends to lag the
general economy by approximately 6 months, but currently volumes remain high.
OTHER REVENUES
Other sources of revenues in our domestic North American business, include
mainly Que-Net Media TM (pre-media services) and the Eastern Canada Group
which services eastern Canada and exports from Canadian facilities into the
U.S.
The Que-Net Media TM Group's revenues fell by 9% to $112 million in 2001,
from $123 million in 2000. This business offers services to our main print
media businesses, such as the Magazine & Catalog Group, and, therefore, has
suffered from the fall in volumes experienced elsewhere in the platform.
Quebecor World Inc. and its subsidiaries Page 3
The Eastern Canada Group's revenues fell by 4% to $240 million in 2001, from
$249 million in 2000. The Eastern Canada Group services the French-speaking
markets and follows the general economic climate. Editorial and advertising page
counts have been depressed all year, with the reduction in volume increasing in
the 4th quarter. This weakness in demand is significantly less than that in
equivalent markets in the U.S.
EUROPE
The European Group's revenues were $891 million in 2001 compared to $890 million
in 2000. The European market lagged behind the North American market, with
volumes and prices showing significant declines from the end of June 2001. The
French market was particularly hard hit, but all markets showed weakness from
the middle of the year.
LATIN AMERICA
The Latin American Group's revenues increased by 44% to $161 million in 2001,
from $112 million in 2000. The Latin American market showed none of the weakness
portrayed in other parts of the world, and revenue continued to grow strongly.
Major new contracts should ensure significant growth in 2002.
Figure 3
[GRAPHS]
REVENUE BY PRODUCT GROUP ($ millions)
Book $550 2000
$508 2001
Magazine & Catalog $1,876 2000
$1,738 2001
Retail $959 2000
$1,118 2001
Directory $427 2000
$466 2001
Commercial & Direct $995 2000
$865 2001
Europe $890 2000
$891 2001
Latin America $112 2000
$161 2001
Other Revenues $712 2000
$573 2001
YEAR 2001 COMPARED TO YEAR 2000
- -------------------------------
Due to a soft world economy and the unprecedented economic fallout following
September 11th, operating income before restructuring and other charges fell
from $725 million in 2000 to $618 million in 2001, a 15% decrease. This fall in
operating income was predominantly due to reduced volumes, particularly in the
last 4 months of the year, when traditionally we generate approximately 40% of
our operating income.
Revenue decreased from $6,521 million in 2000 to $6,320 million in 2001, a
decrease of 3%. This decrease in revenue does not accurately reflect the overall
volume decrease suffered in the year due to an increase in the proportion of
paper purchased by us.
Paper is the principal raw material consumed in printing. While we often
purchase paper to supply to our customers, many customers have traditionally
chosen to supply their own paper. The percentage of paper purchased by us,
therefore, is a key driver in determining the absolute level of revenue.
Operating margins declined to 9.8% in 2001 from a record level of 11.1% in
2000, which still represents industry-leading margins. Higher paper sales,
increased ink prices, higher energy costs and lower recovery from recycled
materials combined with reduced capacity utilization, were largely
responsible for lower margins.
Quebecor World Inc. and its subsidiaries Page 4
In addition to increases in our raw materials and energy costs, the sudden fall
in demand experienced immediately after September 11th reduced volume
significantly, this at a time when capacity utilization levels were expected to
be at a maximum. In some market segments, the speed at which volumes dropped
prevented a corresponding and equivalent reduction in manufacturing costs. This
mismatch between volume and capacity utilization in the last 4 months of the
year damaged the short-term profitability of the business.
During the 4th quarter, in response to the sudden shift in demand,
post-September 11th, we announced that we would implement a restructuring plan
to shut down underperforming business units, redeploy assets and reduce our
workforce. These restructuring initiatives were undertaken to ensure that our
cost base is realigned to a reduced level of recurring revenues and to better
position ourselves for future economic recovery.
Depreciation and amortization was $338 million in 2001, compared to $345 million
in 2000. This decrease was primarily due to the closure of facilities and the
disposal of equipment following the successful integration of World Color. This
integration process, which commenced after the acquisition, progressed through
2000 and was completed during the first half of 2001.
Selling, general and administrative expenses were $486 million compared to $459
million in 2000. In 2000, we sold our CD-ROM replication business and generated
a gain of $13 million which was recorded as a reduction in selling, general and
administrative expense. If this one-time item is excluded from the comparison,
then the year-on-year increase in selling, general and administrative expenses
was $14 million, mainly due to increased selling costs incurred in the year to
help maintain volumes in a rapidly weakening economic climate.
Our domestic business performed well for the first 6 months of the year, in soft
market conditions. This challenging market continued into the 3rd quarter of the
year. Markets began to improve as the quarter progressed, which was demonstrated
by an upturn in magazine advertising pages published (figure 2). This fragile
recovery collapsed following the tragic events of September 11th, at a time when
capacity utilization levels were expected to be at a maximum and costs were in
place to effectively handle the expected seasonal volume.
Our European business, excluding France, performed well in difficult market
conditions. In France, significant losses were incurred during the year in two
manufacturing facilities. These manufacturing facilities suffered from low
volume, inefficiency, quality problems and labor disruption. A detailed plan of
improvement was implemented during the year, and the benefits of this plan are
expected to be progressively realized during 2002.
In 2001, our European results, when translated into U.S. currency, have been
adversely affected by the low value of the Euro relative to 2000.
Latin America performed well, with our new Recife facility becoming operational
during the year. Operating income in the year, however, was affected by the
normal and expected start-up costs being expensed to earnings as incurred. The
benefits of the new facility should be realized during 2002 and beyond.
In 2001, our Latin American results, when translated into U.S. currency, have
been adversely affected by the low value of local currencies relative to 2000.
Quebecor World Inc. and its subsidiaries Page 5
Financial expenses were $209 million in 2001, compared to $231 million in 2000.
The decrease was due to lower levels of debt, together with reduced interest
rates.
Income taxes were $52 million in 2001. Before restructuring and other special
charges, income taxes were $96 million or 23.4% compared to $138 million in
2000, with an effective rate of 27.8%. The decrease in income taxes is due to
lower profitability, and an increase in profits generated in countries with a
lower overall tax rate.
$1.6 BILLION OF FREE CASH FLOW GENERATED OVER THE LAST 3 FISCAL YEARS
YEAR 2000 COMPARED TO YEAR 1999
- -------------------------------
In 2000, the world economy and, in particular, the North American economy,
performed very strongly. We achieved record net income of $293 million, compared
with $205 million in 1999, before restructuring and other charges. This increase
represents 43% year-on-year growth.
Revenue increased by $1,568 million, or 32%, in 2000, from $4,953 million in
1999 to $6,521 million. This increase was mainly due to the acquisition of World
Color Press in August 1999. Cost of sales grew by 30% to $4,992 million, which
was broadly in line with the growth in revenue, and reflects the World Color
acquisition.
Gross margins improved from 22.3% in 1999 to 23.5% in 2000. This improvement was
due to efficiencies being realized from the integration of World Color and the
ongoing capital investment programs.
Depreciation and amortization costs increased from $286 million to $345 million
due to the acquisition of World Color. Selling, general and administrative
expenses likewise increased due to the acquisition of World Color. The 2000
expense of $459 million benefited from a $13 million gain from the sale of our
CD-ROM replication business.
Financial expenses increased from $122 million in 1999 to $231 million in 2000
due to the increased debt levels incurred as a result of the World Color
acquisition. The effective rate of income taxes fell from 28.4% to 27.8% in 2000
due to a different mix of international tax rates when compared to that in 1999.
Quebecor World Inc. and its subsidiaries Page 6
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Despite a difficult year, our market-leading position in most of our diversified
markets ensures that we enjoy strong and stable cash flows. In 2001, free cash
flow from operations was $287 million, resulting in a total of $1.6 billion over
the last 3 fiscal years. This cash flow was used to make selective business
acquisitions, pay down debt, and increase returns to shareholders through
increased common share dividends and repurchase of shares for cancellation.
Figure 4
[GRAPHS]
FREE CASH FLOW ($ millions)
$277 $677 $1,425 $1,587
1998(1) 1999(1) 2000(1) 2001(1)
(1) 3 Year Cumulative
CASH FLOW FROM OPERATING ACTIVITIES
- -----------------------------------
Cash flow from operating activities was $577 million in 2001, compared to $918
million in 2000. This reduction in the amount of funds generated from operations
is attributable to the timing of income tax payments, cash costs of
restructuring and lower overall profitability.
Working capital in 2001 was ($194) million, compared to ($67 ) million in 2000.
Accounts receivable days outstanding have fallen in the year, despite the
difficult economic conditions in 2001, when compared to 2000. We invested in
trade payables and accrued liabilities for most of the year in order to maximize
benefits from supply chain initiatives, resulting in a decrease from the 2000
level of $1,155 million to $1,024 million. During the year, $80 million of cash
costs were incurred in implementing the various integration and restructuring
initiatives.
During the year a new European securitization program for accounts receivable
was initiated for $124 million.
Figure 5
NORMAL COURSE ISSUER BIDS
2000 and 2001
Shares Repurchased 2000 Program 2001 Program Combined
- ------------------ ------------ ------------ -------------
Number of shares 3,188,492 3,543,700 6,732,192
Cdn$ 36.05 40.57 38.43
Average Price per Share
U.S.$ 24.84 27.70 26.35
Total US$ 79,218,024 98,146,976 177,365,000
FINANCING ACTIVITIES
- --------------------
During 2000 and 2001, we repurchased subordinate voting shares under our Normal
Course Issuer Bid announced in April 2000 and April 2001. The chart above
(figure 5) gives details of purchases made under both programs.
In February 2001, we 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 ($16.27) per share, for aggregate proceeds of Cdn$200 million ($130
million). This financing initiative reinforced the capital structure for future
growth.
In March 2001, in order to diversify funding sources, we issued Senior Notes for
a principal amount of $250 million to a group of private U.S. investors. These
mature on March 28, 2006 and bear interest at 7.2% annually.
In August 2001, we 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 2001, we canceled the remaining balance of the $1.25 billion bank
facility established at the time of the World Color merger.
Quebecor World Inc. and its subsidiaries Page 7
In July 2000, we issued Senior Notes for a principal amount of $250 million
comprised of two tranches. The first tranche of $175 million, bearing an
interest rate of 8.42%, matures on July 15, 2010, while the second tranche of
$75 million, bearing an interest rate of 8.52%, matures on July 15, 2012.
In September 2000, we issued Senior Notes for a principal amount of $121 million
comprised of two tranches. The first tranche of $91 million bears interest at
8.54% and matures on September 15, 2015, while the second tranche of $30 million
bears interest at 8.69% and matures on September 15, 2020.
Dividends paid to shareholders of Multiple Voting Shares and Subordinate Voting
Shares totaled $0.46 per share, compared to $0.33 per share in 2000 and $0.28
per share in 1999, an increase of 39% over 2000 and 64% from 1999. We paid
dividends of Cdn$1.25 per share on our First Preferred Shares, Series 2, in
2001, 2000 and 1999.
We paid dividends of Cdn$1.27 per share on our First Preferred Shares, Series 4,
and Cdn$0.51 per share on our First Preferred Shares, Series 5.
CASH USED IN INVESTING ACTIVITIES
We invest in our business to improve efficiency, expand capacity, increase our
geographic footprint and extend our product lines. During 2001, we invested $278
million on capital expenditure projects, compared to $242 million in 2000. Key
expenditures included the following items:
o North America
The installation of the world's largest web offset directory
press, together with an expansion of our West Coast retail
platform;
o Europe
The expansion of our Spanish business in Barcelona, allowing us to
enter the European directory market, and the establishment of a
direct mail facility in the United Kingdom;
o Latin America
The building and commissioning of our Recife facility in Brazil
and the expansion of our newly acquired directory business in
Mexico.
In February 2001, we acquired a controlling interest in the Spanish pre-media
company Espacio y Punto. This acquisition gives us a European pre-media platform
to develop along the lines of those employed in North America under Que-Net
Media(TM).
In March 2001, we acquired the minority interests of our subsidiaries in
Argentina, Peru, and increased our shareholding in our Colombian Subsidiary.
In March 2001, we acquired a controlling interest in the Brazilian printer
Graphica Melhoramentos. The Sao Paulo-based company prints trade and text books,
magazines, directories and catalogs.
Quebecor World Inc. and its subsidiaries Page 8
In July 2001, we acquired Retail Printing Corporation. The Massachussets-based
printer, with its two plants in Taunton and Nashville (Tennessee), enhances our
retail platform and allows us to provide printing services to retail and
newspaper insert customers from coast to coast in the United States.
In August 2001, we acquired the manufacturing assets of Grupo Serla. This
Mexican business is a primary printer of educational textbooks and a secondary
printer of directories.
In September 2001, we 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. We also secured a
long-term contract to print Hachette publications in France.
In 2000, $44 million of net cash was generated from the proceeds of the sale of
the operating assets of our North American CD-ROM replication business, $13
million from the disposal of our investment in MDC Communication Corporation and
$24 million from disposal of buildings and other assets. In 2000, $13.5 million
was invested in Nurun Inc., an affiliated company, in order to secure technology
and achieve efficiencies in supply chain management.
A STRONG BALANCE SHEET, DEBT-TO-CAPITALIZATION CONTINUES TO IMPROVE.
- --------------------------------------------------------------------
FINANCIAL POSITION
- ------------------
We have succeeded in reducing debt levels during the year, and our
debt-to-capitalization ratio currently stands at 46:54, from 47:53 in 2000
(figure 6). During 2000, our focus was on paying down debt. In 2001, this focus
has been combined with repurchasing shares in order to increase shareholder's
returns.
We believe that our liquidity, capital resources and cash flows from operations
are sufficient to fund planned capital expenditures, working capital
requirements, interest and principal payments for the foreseeable future. Our
total principal payments on long-term debt and convertible notes are $57 million
in 2002 and $23 million in 2003.
Figure 6
[GRAPHS]
TOTAL DEBT-TO-CAPITALIZATION
2001 Ratio Debt-to-Capitalization 46:54
Debt 2,132
2000 Ratio Debt-to-Capitalization 47:53
Debt 2,212
1999 Ratio Debt-to-Capitalization 55:45
Debt 2,846
RESTRUCTURING
- -------------
THE RESTRUCTURING INITIATIVES POSITION THE COMPANY FOR STRONG GROWTH WHEN
WORLD MARKETS RECOVER.
In 2001, due to the unprecedented economic fallout following September 11th, we
announced that we would restructure our business with the aim of removing the
least efficient equipment, without materially affecting the overall capacity of
our platform. The restructuring and other charges required to achieve this goal
total $273 million. The restructuring plan involves the closure of facilities,
together with the rationalization of numerous other plants. We currently expect
that this restructuring will generate $45 million annualized earnings
improvement. The restructuring and other charges comprise the following three
basic components:
o Cash costs relating to the severance of employees, real estate and
other costs associated with exiting facilities;
Quebecor World Inc. and its subsidiaries Page 9
o Non-cash costs of $114 million associated with the impairment of
assets that will no longer be used in the business on an ongoing
basis;
o Non-cash costs of $29 million associated with exiting investments
and non-core businesses, together with cash costs of $15 million
required in order to complete the World Color integration.
In 2000, we launched a restructured initiative of our European business and
recorded a restructuring charge of $28 million; $3 million of this charge was
not required and was reversed on the income statement in 2001. On the income
statement in 2000, we also reversed $31 million of restructuring charges that
were originally taken as part of the integration costs related to the World
Color acquisition in 1999.
RISK MANAGEMENT
- ---------------
In the normal course of business, we are exposed to changes in interest rates
and foreign exchange rates. We manage our interest rate exposure by having a
balanced variety of debt maturities as well as a combination of fixed and
floating rate obligations. In addition, we have entered into interest rate swap
agreements to manage this exposure. Contracts outstanding at year end have a
notional value of $993 million, of which $107 million is denominated in Cdn$ and
$3 million is denominated in Euro. These contracts expire between March 2002 and
January 2007.
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. Foreign-exchange forward
contracts and cross-currency interest rate swap contracts outstanding at year
end have a notional value of $336 million and $162 million respectively, and
expire between January 2002 and December 2004.
While the counterpart of these agreements exposes 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 parties with whom we deal. We do not
hold or issue any derivative financial instruments for speculative purposes.
Concentrations of credit risk with respect to trade receivables are limited due
to our diverse operations and large customer base. As of December 31, 2001, we
had no significant concentrations of credit risk. We believe that the product
and geographic diversity of our customer base is instrumental in reducing our
credit risk, as well as having a positive impact on our local market or
product-line demand. We have long-term contracts with most of our largest
customers. These contracts generally include price-adjustment clauses based on
the cost of paper, ink and labor. We do not believe that we are exposed to an
unusual level of customer credit risk.
The primary raw materials used in our manufacturing process are paper and ink.
We use our purchasing power as one of the major buyers in the printing industry
to obtain among the best prices, terms, quality control and service. To maximize
our purchasing power, we negotiate with a limited number of suppliers.
Quebecor World Inc. and its subsidiaries Page 10
In 2001, we had 79 collective bargaining agreements in North America. Of this
total, 26 agreements expired in 2001 and 8 are still under negotiation. In
addition, 9 collective bargaining agreements, covering 2,130 employees, will
expire in 2002. We have approximately 9,600 unionized employees in North
America. Moreover, 60 of our plants in North America are non-unionized.
SEASONALITY
- -----------
The operations of our business are seasonal, with approximately two-thirds of
operating income historically 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.
EURO CONVERSION
- ---------------
During 2001, our European operations, affected by the new Euro currency, have
systematically upgraded or replaced their information systems to ensure a smooth
transition to the single European currency. The transition process was
satisfactorily completed in January 2002, without major problems arising.
ENVIRONMENTAL MATTERS
- ---------------------
During 2001, we have continued to strengthen our approach to environmental
management. Six facilities have been awarded ISO 14001 certification, an
internationally recognized environmental award. With the knowledge gained from
these pilot facilities, we have introduced a new environmental Intranet site in
three languages. This approach has underlined our leadership on environmental
issues within the print media industry.
Energy and pollution control is at the heart of our commitment to the
environment, and this has been particularly important in a year where energy
costs have risen significantly. We have accelerated our program of replacing
existing recuperative thermal oxidizer equipment with newer, more efficient
regenerative thermal oxidizer equipment. This equipment not only reduces
emissions, but also significantly reduces energy consumption.
In Latin America, we are committed to ensuring that our facilities reach the
same level of environmental performance as our North American and European
sites. This commitment involves, among other things the installation of
state-of-the-art technology to control air emissions.
Quebecor World Inc. and its subsidiaries Page 11
RECENT ACCOUNTING PRONOUNCEMENTS AND CHANGES IN ACCOUNTING POLICIES
- --------------------------------------------------------------------
Significant differences between generally accepted accounting principles (GAAP)
in Canada and the United States are presented in Note 21 to the Consolidated
Financial Statements.
We generate more than 65% of our revenues and operating income from the United
States. In our efforts to expand our investor base in the United States, we have
made significant efforts in the last 2 years to follow new disclosure guidelines
and to harmonize accounting pronouncements in both Canada and the United States.
In the 1st quarter of 2001, we adopted the new recommendations of the CICA
regarding earnings per share. These new recommendations of CICA section 3500
harmonize the Canadian standards with the United States standards, Statement of
Financial Accounting Standards (SFAS) No. 128. 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 2 to the Consolidated
Financial Statements.
In March 2001, the CICA issued the Accounting Guideline (AcG) No. 12, Transfer
of Receivable. The new recommendation applies to transfers after June 30, 2001,
although application is permitted for transfers after March 31, 2001. We adopted
the new recommendation prospectively. The new recommendation harmonizes the
Canadian standards with the United States standards, SFAS No. 140. 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
shareholders' equity and cash flows as at December 31, 2001.
In the 3rd quarter of 2001, the CICA issued Section 1581, Business Combinations,
and Section 3062, Goodwill and Other Intangible Assets, of the CICA handbook.
These new recommendations harmonize the Canadian standards with the United
States standards, SFAS No. 141 and No. 142 respectively. Under Section 1581,
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. 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, has been applied. Such goodwill and separately identifiable
intangibles are recorded and amortized until we adopt Section 3062, which must
be applied by us for the fiscal year beginning on January 1, 2002. We are
currently evaluating the impacts of adopting this pronouncement on the financial
statements. Management currently believes there is no indication of impairment.
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.
Quebecor World Inc. and its subsidiaries Page 12
On behalf of Management,
(Signed) Michael Young
Michael Young
Vice President, Corporate Controller
Quebecor World Inc. and its subsidiaries Page 13
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Quebecor World Inc. and
its subsidiaries are the responsibility of management and are approved by the
Board of Directors of Quebecor World Inc.
These financial statements have been prepared by management in conformity with
Canadian generally accepted accounting principles and include amounts that are
based on best estimates and judgments.
Management of the Company and of its subsidiaries, in furtherance of the
integrity and objectivity of data in the financial statements, have developed
and maintain systems of internal accounting controls and support a program of
internal audit. Management believes that the systems of internal accounting
controls provide reasonable assurance that financial records are reliable and
form a proper basis for the preparation of the financial statements and that
assets are properly accounted for and safeguarded.
The Board of Directors carries out its responsibility for the financial
statements principally through its Audit Committee, consisting solely of
outside directors. The Audit Committee reviews the Company's annual
consolidated financial statements and formulates the appropriate
recommendations to the Board of Directors. The auditors appointed by the
shareholders have full access to the Audit Committee, with and without
management being present.
These financial statements have been examined by the auditors appointed by the
shareholders, KPMG LLP, chartered accountants, and their report is presented
hereafter.
(Signed) Jean Neveu (Signed) Christian M. Paupe (Signed) Michael Young
- --------------------- ---------------------------- ----------------------
Jean Neveu Christian M. Paupe Michael Young
Chairman of the Board Executive Vice President, Vice President,
Chief Financial Officer and Corporate Controller
Chief Administrative Officer
Montreal, Canada
January 25, 2002
Quebecor World Inc. and its subsidiaries Page 14
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Quebecor World Inc. and its
subsidiaries as at December 31, 2001 and 2000 and the consolidated statements of
income, shareholders' equity and cash flows for the years ended December 31,
2001, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2001
and 2000, and the results of its operations and its cash flows for the years
ended December 31, 2001, 2000 and 1999 in accordance with Canadian generally
accepted accounting principles.
KPMG LLP
Chartered Accountants
Montreal, Canada
January 25, 2002
Quebecor World Inc. and its subsidiaries Page 15
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
(in millions of US dollars, except per share amounts)
=============================================================================================================
Notes 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
REVENUES $6,320.1 $6,521.1 $4,952.5
Operating expenses:
Cost of sales 4,878.9 4,991.7 3,846.1
Selling, general and administrative 7 (b) 485.6 459.5 347.9
Depreciation and amortization 337.8 345.1 286.0
- -------------------------------------------------------------------------------------------------------------
5,702.3 5,796.3 4,480.0
- -------------------------------------------------------------------------------------------------------------
OPERATING INCOME BEFORE RESTRUCTURING
AND OTHER CHARGES 617.8 724.8 472.5
- -------------------------------------------------------------------------------------------------------------
Restructuring and other charges 3 270.0 (2.7) 180.0
- -------------------------------------------------------------------------------------------------------------
Operating income after restructuring
and other charges 347.8 727.5 292.5
Financial expenses 4 208.8 231.5 122.2
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 139.0 496.0 170.3
Income taxes 5 52.0 137.7 48.4
- -------------------------------------------------------------------------------------------------------------
Income before minority interest 87.0 358.3 121.9
Minority interest 3.2 2.4 12.7
- -------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE GOODWILL AMORTIZATION 83.8 355.9 109.2
Goodwill amortization, net of income taxes 61.4 60.5 31.7
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 22.4 $ 295.4 $ 77.5
Net income available to holders of preferred shares 21.9 10.1 10.1
- -------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 0.5 $ 285.3 $ 67.4
=============================================================================================================
EARNINGS PER SHARE: 6
Basic $ - $ 1.94 $ 0.54
Diluted $ - $ 1.91 $ 0.54
EARNINGS PER SHARE BEFORE GOODWILL AMORTIZATION:
Basic $ 0.44 $ 2.35 $ 0.79
Diluted $ 0.43 $ 2.31 $ 0.79
=============================================================================================================
Average number of equity shares outstanding 6
(in millions):
Basic 142.2 147.0 125.4
Diluted 143.0 151.7 127.2
=============================================================================================================
See Notes to Consolidated Financial Statements.
Quebecor World Inc. and its subsidiaries Page 16
CONSOLIDATED BALANCE SHEETS
December 31
(in millions of US dollars)
===========================================================================================
Notes 2001 2000
- -------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 85.5 $ 52.7
Trade receivables 8 366.6 584.1
Receivables from related parties 19 1.9 3.0
Inventories 9 377.1 461.4
Deferred income taxes 5 58.0 58.1
Prepaid expenses 24.1 26.0
- -------------------------------------------------------------------------------------------
Total current assets 913.2 1,185.3
Property, plant and equipment, net 10 2,634.0 2,683.0
Goodwill, net of accumulated amortization
of $210.4 and $144.1 respectively 2,470.7 2,459.5
Other assets 132.0 156.9
- -------------------------------------------------------------------------------------------
Total assets $6,149.9 $6,484.7
===========================================================================================
Quebecor World Inc. and its subsidiaries Page 17
===========================================================================================
Notes 2001 2000
- -------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 0.1 $ 3.1
Trade payables 462.9 632.6
Accrued liabilities 561.2 522.9
Income and other taxes payable 26.5 6.0
Current portion of long-term debt
and convertible notes 11 & 13 57.0 87.2
- -------------------------------------------------------------------------------------------
Total current liabilities 1,107.7 1,251.8
Long-term debt 11 1,961.9 2,015.6
Other liabilities 12 245.6 290.8
Deferred income taxes 5 234.0 326.1
Convertible notes 13 113.3 105.9
Minority interest 14.2 20.6
Shareholders' equity:
Capital stock 14 1,793.3 1,631.2
Additional paid-in capital 104.6 104.6
Retained earnings 721.8 870.3
Translation adjustment 16 (146.5) (132.2)
- -------------------------------------------------------------------------------------------
2,473.2 2,473.9
- -------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,149.9 $6,484.7
===========================================================================================
See Notes to Consolidated Financial Statements.
On behalf of the Board:
(Signed) Jean Neveu Director
- ----------------------------
(Signed) Charles G. Cavell Director
- ----------------------------
Quebecor World Inc. and its subsidiaries Page 18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31
(in millions of US dollars and thousands of shares)
===================================================================================================================================
Equity Multiple Equity Subordinate First Preferred
Voting Shares Voting Shares Shares Series 2, 4 and 5
- -----------------------------------------------------------------------------------------------------------------------------------
Issued and Issued and Issued and Total Additional Total
outstanding outstanding outstanding capital paid-in Retained Translation Shareholders'
Notes shares Amount shares Amount shares Amount stock capital earnings adjustment equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31,
1998 63,985 $158.2 51,805 $527.4 12,000 $212.5 $898.1 $88.7 $628.6 $(51.9) $1,563.5
Net income - - - - - - - - 77.5 - 77.5
Translation
adjustment 16 - - - - - - - - - (43.2) (43.2)
Conversion
of Equity
Multiple
Voting
Shares into
Equity
Subordinate
Voting
Shares (1,000) (6.0) 1,000 6.0 - - - - - - -
Issuance of
treasury
shares
for cash 14 - - 6,500 159.2 - - 159.2 - - - 159.2
Shares issued
in connection
with the
acquisition of
World Color
Press, Inc. 14 - - 25,045 591.3 - - 591.3 - - - 591.3
Shares issued
from stock
plans - - 340 5.2 - - 5.2 - - - 5.2
Share issue
expenses
(net of
income taxes
of $5.6) 14 - - - - - - - - (10.5) - (10.5)
Convertible
senior
subordinated
notes 13 - - - - - - - 20.8 - - 20.8
Dividends on
equity
shares
($0.28 per
share) - - - - - - - - (35.2) - (35.2)
Dividends on
preferred
shares
($0.85
(Cdn$1.25)
per share) - - - - - - - - (10.2) - (10.2)
===================================================================================================================================
Balance,
December 31,
1999 62,985 $152.2 84,690 $1,289.1 12,000 $212.5 $1,653.8 $109.5 $650.2 $(95.1) $2,318.4
Quebecor World Inc. and its subsidiaries Page 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
===================================================================================================================================
Equity Multiple Equity Subordinate First Preferred
Voting Shares Voting Shares Shares Series 2, 4 and 5
- -----------------------------------------------------------------------------------------------------------------------------------
Issued and Issued and Issued and Total Additional Total
outstanding outstanding outstanding capital paid-in Retained Translation Shareholders'
Notes shares Amount shares Amount shares Amount stock capital earnings adjustment equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31,
1999 62,985 $152.2 84,690 $1,289.1 12,000 $212.5 $1,653.8 $109.5 $650.2 $(95.1) $2,318.4
Net income - - - - - - - - 295.4 - 295.4
Translation
adjustment 16 - - - - - - - - - (37.1) (37.1)
Conversion
of Equity
Multiple
Voting
Shares
into Equity
Subordinate
Voting
Shares (5,599) (33.6) 5,599 33.6 - - - - - - -
Shares
repurchased 14 - - (1,752) (26.1) - - (26.1) - (16.0) - (42.1)
Shares issued
in connection
with the
acquisition
of World Color
Press, Inc. 14 - - 11 0.2 - - 0.2 - - - 0.2
Shares issued
from stock
plans 15 - - 205 3.3 - - 3.3 - - - 3.3
Convertible
notes
repurchased 13 - - - - - - - (4.9) (0.8) - (5.7)
Dividends on
equity shares
($0.33 per
share) - - - - - - - - (48.5) - (48.5)
Dividends on
preferred
shares
($0.84
(Cdn$1.25)
per share) - - - - - - - - (10.0) - (10.0)
===================================================================================================================================
Balance,
December 31,
2000 57,386 $118.6 88,753 $1,300.1 12,000 $212.5 $1,631.2 $104.6 $870.3 $(132.2) $2,473.9
Quebecor World Inc. and its subsidiaries Page 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
Years ended December 31
(in millions of US dollars and thousands of shares)
===================================================================================================================================
Equity Multiple Equity Subordinate First Preferred
Voting Shares Voting Shares Shares Series 2, 4 and 5
- -----------------------------------------------------------------------------------------------------------------------------------
Issued and Issued and Issued and Total Additional Total
outstanding outstanding outstanding capital paid-in Retained Translation Shareholders'
Notes shares Amount shares Amount shares Amount stock capital earnings adjustment equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
carried
forward 57,386 $118.6 88,753 $1,300.1 12,000 $212.5 $1,631.2 $ 104.6 $870.3 $(132.2) $2,473.9
Net income - - - - - - - - 22.4 - 22.4
Translation
adjustment 16 - - - - - - - - - (14.3) (14.3)
Conversion
of Equity
Multiple
Voting
Shares
into Equity
Subordinate
Voting Shares (2,650) (5.9) 2,650 5.9 - - - - - - -
Shares
repurchased 14 - - (6,732) (96.7) - - (96.7) - (80.7) - (177.4)
Shares issued
from stock plans 15 - - 777 14.7 - - 14.7 - - - 14.7
Issuance of First
Preferred Shares
Series 4 14 - - - - 8,000 130.2 130.2 - - - 130.2
Issuance of First
Preferred Shares
Series 5 14 - - - - 7,000 113.9 113.9 - - - 113.9
Share issue
expenses
(net of income
taxes of $2.3) 14 - - - - - - - - (4.5) - (4.5)
Dividends on
equity shares
($0.46 per share) - - - - - - - - (65.2) - (65.2)
Dividends on
preferred shares
($1.87
(Cdn$3.03)
per share) - - - - - - - - (20.5) - (20.5)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31,
2001 54,736 $112.7 85,448 $1,224.0 27,000 $456.6 $1,793.3 $104.6 $721.8 $(146.5) $2,473.2
===================================================================================================================================
See Notes to Consolidated Financial Statements.
Quebecor World Inc. and its subsidiaries Page 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
(in millions of US dollars)
===================================================================================================================
Notes 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 22.4 $ 295.4 $ 77.5
Non-cash items in net income:
Depreciation of property, plant and equipment 314.9 325.3 269.7
Amortization of goodwill and deferred charges 84.3 80.3 48.0
Non-cash portion of restructuring and other
charges 3 142.6 (7.0) 111.3
Deferred income taxes 5 (42.8) 91.8 (8.7)
Loss (gain) on sale of businesses and investments - (12.6) 1.9
Other 10.5 12.5 8.2
Changes in non-cash balances related to operations:
Trade receivables 190.0 128.6 175.8
Inventories 77.2 8.8 34.2
Trade payables and accrued liabilities (138.9) 18.6 (44.9)
Other current assets and liabilities 20.3 (48.6) 33.0
Other non-current assets and liabilities (104.0) 24.7 4.1
- ---------------------------------------------------------------------------------------------------------------------
Cash provided from operating activities 576.5 917.8 710.1
FINANCING ACTIVITIES:
Net change in bank indebtedness (2.3) (2.2) (13.7)
Net proceeds from issuance of equity shares 14 & 15 14.7 2.9 153.9
Repurchases of shares for cancellation 14 (177.4) (41.6) -
Net proceeds from issuance of preferred shares 14 239.6 - -
Issuance of long-term debt 248.8 387.3 1,082.7
Repayments of long-term debt and convertible notes (379.8) (995.1) (841.9)
Dividends on equity shares (65.2) (48.5) (35.2)
Dividends on preferred shares (20.5) (10.0) (10.2)
Dividends to minority shareholders (1.5) - (0.8)
- ---------------------------------------------------------------------------------------------------------------------
Cash (used) provided from financing activities (143.6) (707.2) 334.8
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash and
cash equivalents 7 (138.9) (5.3) (923.2)
Proceeds from disposal of non-core
businesses and investments - 57.3 21.9
Additions to property, plant and equipment (278.3) (242.2) (194.7)
Investment in an affiliated company - (13.5) -
Net proceeds from disposal of other assets 9.5 24.4 25.5
Other (15.8) - -
- ---------------------------------------------------------------------------------------------------------------------
Cash used by investing activities (423.5) (179.3) (1,070.5)
Effect of exchange rate changes on cash and cash equivalents 23.4 17.8 28.9
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 32.8 49.1 3.3
Cash and cash equivalents, beginning of year 52.7 3.6 0.3
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 85.5 $ 52.7 $ 3.6
=====================================================================================================================
See Notes to Consolidated Financial Statements.
Quebecor World Inc. and its subsidiaries Page 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
(Tabular amounts are expressed in millions of US dollars, except for earnings
per share and options amounts)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements include the accounts of Quebecor
World Inc. and all its subsidiaries (the "Company") and are prepared in
conformity with Canadian generally accepted accounting principles.
Significant differences between Canadian and the United States
generally accepted accounting principles are described in Note 21.
(b) Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments
purchased three months or less from maturity and are stated at cost,
which approximates market value.
(c) Foreign currency translation
Financial statements of self-sustaining foreign operations are
translated using the rate in effect at the balance sheet date for
assets and liabilities and the average exchange rates during the year
for revenues and expenses. Adjustments arising from this translation
are deferred and recorded in translation adjustment and are included in
income only when a reduction in the investment in these foreign
operations is realized.
Foreign currency transactions are translated using the temporal method.
Translation gains and losses are included in income, except for
unrealized gains and losses arising from the translation of long-term
monetary liabilities which are deferred and amortized over the
remaining life of the related item.
(d) Use of estimates
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Financial results as
determined by actual events could differ from those estimates.
(e) Derivative financial instruments
The Company uses various derivative financial instruments to reduce its
exposure to fluctuations in foreign currency exchange rates, interest
rates and commodity pricing. The Company does not hold or issue any
derivative financial instruments for speculative trading purposes.
These derivative financial instruments are accounted for on an accrual
basis. Realized and unrealized gains and losses are deferred and
recognized in income in the same period and in the same financial
statement category as the income or expense arising from the
corresponding hedged positions.
(f) Inventories
Raw materials and supplies are valued at the lower of cost, as
determined, using the first in, first out method, or market being
replacement cost. Work in process is valued at the lower of cost and
net realizable value.
Quebecor World Inc. and its subsidiaries Page 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Cost represents
acquisition or construction costs including preparation, installation
and testing charges and interest incurred with respect to the property,
plant and equipment until they are ready for commercial production.
Depreciation is provided using the straight-line basis over the
estimated useful lives as follows:
================================================================================
Estimated
Assets useful lives
- --------------------------------------------------------------------------------
Buildings and leasehold improvements 15 to 40 years
Machinery and equipment 3 to 18 years
================================================================================
(h) Goodwill
Goodwill represents the excess of the purchase price over the fair
value of net assets of acquired businesses. Goodwill acquired on or
before June 30, 2001 is amortized using the straight-line method over
the expected period to be benefited which is 40 years. Goodwill,
resulting from the purchase of business combinations that were
consummated after June 30, 2001, is not amortized.
The Company monitors its goodwill balances to determine whether any
impairment of these assets has occurred. Where circumstances or events
indicate a possible inability to recover the carrying amount of
goodwill related to a business acquisition, the Company evaluates, on
an undiscounted basis, the current and estimated cash flows of the
underlying businesses which gave rise to the goodwill.
(i) Income taxes
The Company follows the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income tax
assets and liabilities are recognized for the estimated deferred tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are
measured using enacted or substantively enacted tax rates in effect for
the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment or substantively enactment date.
Deferred income tax assets are recognized and if realization is not
considered "more likely than not," a valuation allowance is provided.
(j) Employee future benefits
i) PENSIONS
Pension costs are determined using actuarial methods and are
funded through contributions determined in accordance with the
projected benefit method pro rated on service. Pension expense is
charged to operations and includes:
o The cost of pension benefits provided in exchange for
employees' services rendered during the year;
Quebecor World Inc. and its subsidiaries Page 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Employee future benefits (continued)
i) PENSIONS (CONTINUED)
o The amortization of the initial net transition asset on a
straight-line basis over the expected average remaining
service life of the employee group covered by the plans;
o The amortization of prior service costs and amendments over
the expected average remaining service life of the employee
group covered by the plans; and
o The interest cost of pension obligations, the return on
pension fund assets, and the amortization of cumulative
unrecognized net actuarial gains and losses in excess of 10%
of the greater of the benefit obligation or fair value of
plan assets over the expected average remaining service life
of the employee group covered by the plans.
ii) OTHER POSTRETIREMENT BENEFITS
The Company accrues the cost of postretirement benefits other
than pensions. These benefits, which are funded by the Company as
they become due, include life insurance programs and medical
benefits. The Company amortizes the cumulative unrecognized net
actuarial gains and losses in excess of 10% of the projected
benefit obligation over the expected average remaining service
life of the employee group covered by the plans.
(k) Stock option plans
The Company has compensation plans which are described in note 15 (b).
No compensation expense is recognized for these plans when stock or
stock options are issued to employees. Any consideration paid by
employees on exercise of stock options or purchase of stock is credited
to capital stock.
(l) Trade receivables
Any gains or losses on the sale of trade receivables are calculated by
comparing the carrying amount of the trade receivables sold to the
total of the cash proceeds on sale and the fair value of the retained
interest in such receivables on the date of transfer. Fair values are
determined on a discounted cash flow basis. Costs including loss on
sale related to the sale of accounts receivable are recognized in
earnings in the period incurred and included in financial expenses.
(m) Revenue recognition
The Company provides a wide variety of print and print-related services
and products to its customers, which usually require that the specifics
be agreed upon prior to process. Sales are recognized by the Company
either when the production process is completed or services are
performed, or on the basis of production and service activity at the
pro rata billing value of work completed.
Quebecor World Inc. and its subsidiaries Page 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Environmental expenditures
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations and which are not expected
to contribute to current or future operations are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are
likely, and when the costs, based on a specific plan of action in terms
of the technology to be used and the extent of the corrective action
required, can be reasonably estimated.
(o) Reclassifications
Certain reclassifications have been made to prior years' amounts to
conform with the basis of presentation adopted in the current year.
2. ACCOUNTING CHANGES
The Company has made the following changes in accounting policies.
EARNINGS PER SHARE
In 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.
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 cash flows as
at December 31, 2001.
CHANGE IN MEASUREMENT DATE FOR PENSION AND OTHER POSTRETIREMENT BENEFITS
In 2001, the Company elected to change the measurement date for pension
plan and other postretirement benefits assets and liabilities from December
31st to September 30th, as permitted by Section 3461, Employee Future
Benefits. This change had no significant effect on 2001 and prior years'
pension expense.
Quebecor World Inc. and its subsidiaries Page 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING CHANGES (CONTINUED)
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
In August 2001, the CICA issued Section 1581, Business Combinations, and
Section 3062, Goodwill and Other Intangible Assets, of the CICA Handbook.
Under Section 1581, business combinations initiated after June 30, 2001 are
accounted for as a purchase. Also, the Section specifies criteria
intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill. For purchase
business combinations that were consummated after June 30, 2001, goodwill
and intangibles were recorded in accordance with Section 1581. 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, which must be applied by the Company for fiscal year
beginning on January 1, 2002. The Company has not completed the
determination of the impact of the new standards.
3. RESTRUCTURING AND OTHER CHARGES
2001 RESTRUCTURING INITIATIVES:
In response to difficult market conditions, the Company has committed
itself to new restructuring initiatives aimed at eliminating
non-competitive assets and consolidating the platform into fewer
facilities. These initiatives focus the Company's efforts on reducing
operating expenses and maximizing capacity utilization in larger and more
specialized facilities.
Therefore, the Company has recorded restructuring and other charges of
$273.2 million. The restructuring plan consists of $114.0 million relating
primarily to property, plant and equipment impaired as a result of planned
facilities closures, together with other associated closure costs, $115.5
million in workforce reduction costs resulting from planned closures and
other headcount reductions and other restructuring charges, and $43.7
million of other related restructuring and exit costs.
The other special charges of $43.7 million, include an additional charge of
$13.1 million relating to an increase in costs associated with implementing
the 1999 restructuring plan, to the costs of exiting unfavorable contracts,
and the write down of investments to their expected realizable value.
In 2001, the Company utilized $179.7 million of the restructuring and other
charges which consisted of severance payments of $31.0 million for
employees terminated during the year and other restructuring charges,
$114.0 million for facility closings and $34.7 million for other special
charges.
The Company foresees the 2001 restructuring plan to be substantially
completed by September 2002.
Quebecor World Inc. and its subsidiaries Page 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RESTRUCTURING AND OTHER CHARGES (CONTINUED)
1999 AND 2000 RESTRUCTURING INITIATIVES:
In 1999, following the acquisition of World Color Press Inc. ("WCP"), the
Company initiated a program to realign its worldwide manufacturing
capacity, consolidate its administrative offices, and streamline the
Company's overhead structure in order to reduce operating expenses. The
restructuring plan, consisted of $99.8 million of property, plant and
equipment impaired as a result of the decision to close several facilities;
$63.3 million in workforce reduction costs arising from the facility
closures and the consolidation of duplicated sales and administrative
functions, and $16.9 million of other special charges.
In 2000, as a result of changing market conditions, and particularly strong
growth in North American volumes, the Company decided not to implement some
planned facility closures, but concluded that other restructuring
initiatives relating to Europe, and its digital strategy should be
recorded. These initiatives consisted of $10.1 million of asset
write-downs, utilized in 2000, and $17.9 million of severance costs, of
which $3.4 million was utilized in 2000.
Property, plant and equipment impaired in 1999 was $11.6 million, with
$81.9 million impaired in 2000 and $16.4 million reversed. $9.3 million of
other special charges were incurred in 1999, with the balance being
utilized in 2000. Workforce reduction and other restructuring cash costs of
$9.1 million were incurred in 1999, $41.5 million in 2000 with $12.3
million reversed and the balance being incurred in 2001.
In 2001, the Company utilized $12.7 million of restructuring and other
charges which consisted of severance payments of $10.4 million for
employees terminated during the year, and $2.3 million for facility
closings.
These restructuring plans initiated in 1999 and 2000 have been
substantially completed.
The following table sets forth the Company's 2001 restructuring reserve and
activity against the reserves carried forward from 2000, and the 2001
reserve:
========================================================================================================================
WRITE-DOWN RESTRUCTURING OTHER SPECIAL
OF ASSETS CHARGES CHARGES TOTAL
- ------------------------------------------------------------------------------------------------------------------------
Balance as at December 31, 2000 $ - $ 17.6 $ - $ 17.6
New 114.0 115.5 43.7 273.2
Utilized in 2001 Cash - (31.0) (6.1) (37.1)
Non-Cash (114.0) - (28.6) (142.6)
Reversal Cash - (3.2) - (3.2)
Foreign currency changes - (0.4) - (0.4)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE AS AT DECEMBER 31, 2001 $ - $ 98.5 $ 9.0 $ 107.5
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCIAL EXPENSES
========================================================================================================================
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Interest on long-term debt and convertible notes $ 173.2 $ 189.5 $ 122.8
Interest on short-term debt 7.2 6.2 3.9
Securitization fees 28.9 33.2 3.6
Amortization of deferred financing costs 4.5 8.3 1.6
Exchange gains (2.2) (2.2) (3.6)
- ------------------------------------------------------------------------------------------------------------------------
211.6 235.0 128.3
Interest capitalized to the cost of equipment (2.8) (3.5) (6.1)
- ------------------------------------------------------------------------------------------------------------------------
$ 208.8 $ 231.5 $ 122.2
========================================================================================================================
Cash interest payments $ 199.7 $ 228.1 $ 110.4
========================================================================================================================
5. INCOME TAXES
The domestic and foreign components of income before income taxes are
as follows:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Domestic $ 10.4 $ 39.2 $ 33.3
Foreign 128.6 456.8 137.0
- ------------------------------------------------------------------------------------------------------------------------
$ 139.0 $ 496.0 $ 170.3
========================================================================================================================
Total income tax expense was allocated as follows:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Income taxes $ 52.0 $ 137.7 $ 48.4
Goodwill amortization (5.2) (3.7) (0.8)
Goodwill, for initial recognition of acquired
tax benefits that previously were included
in the valuation allowance - - (0.3)
Shareholders' equity:
Share issue expenses (2.3) - (5.6)
Dividends on preferred shares 2.1 - -
- ------------------------------------------------------------------------------------------------------------------------
$ 46.6 $ 134.0 $ 41.7
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
Income tax expense (recovery) attributable to income consists of:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Current:
Domestic $ 50.8 $ 10.8 $ 11.4
Foreign 44.0 35.1 45.7
- ------------------------------------------------------------------------------------------------------------------------
94.8 45.9 57.1
Deferred:
Domestic (7.1) 4.4 5.8
Foreign (35.7) 87.4 (14.5)
- ------------------------------------------------------------------------------------------------------------------------
(42.8) 91.8 (8.7)
- ------------------------------------------------------------------------------------------------------------------------
$ 52.0 $ 137.7 $ 48.4
========================================================================================================================
The following table reconciles the difference between the domestic
statutory tax rate and the effective tax rate used by the Company in the
determination of net income:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Domestic statutory tax rate 40.4% 41.5% 42.2%
Effect of foreign tax rate differences (6.0) (13.5) (14.4)
- ------------------------------------------------------------------------------------------------------------------------
International rates 34.4 28.0 27.8
Increase (reduction) resulting from:
Change in valuation allowance 10.1 (0.5) (0.5)
Permanent differences (15.6) (2.8) (1.9)
Large corporation and American state taxes 5.7 2.2 3.9
Other 2.8 0.9 (0.9)
- ------------------------------------------------------------------------------------------------------------------------
Effective tax rate 37.4% 27.8% 28.4%
- ------------------------------------------------------------------------------------------------------------------------
Cash payments for income taxes $ 114.7 $ 51.7 $ 46.4
========================================================================================================================
The tax effects of significant items comprising the Company's net deferred
tax liability are as follows:
========================================================================================================================
2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Operating loss carryforwards $ 60.7 $ 54.2
Tax credit carryforwards 42.4 46.9
Acquisition and restructuring reserves 53.9 49.4
Pension and postretirement benefits 68.8 60.5
Accrued compensation 19.9 35.6
Intangible assets 1.0 9.5
Other 67.8 68.1
- ------------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 314.5 324.2
Deferred tax liabilities:
Property, plant and equipment (328.1) (461.2)
Capital leases (28.9) (15.7)
Other (86.2) (80.4)
- ------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (443.2) (557.3)
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax asset valuation allowance (47.3) (34.9)
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability (176.0) (268.0)
Less current portion deferred tax asset 58.0 58.1
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax liability $ (234.0) $ (326.1)
========================================================================================================================
The 2001 and 2000 amounts above include a valuation allowance of $47.3
million and $34.9 million respectively, relating to loss carryforwards and
other tax benefits available. The valuation allowance for deferred tax
assets as of January 1, 2000 was $39.4 million. The net change in the total
valuation allowance for the years ended December 31, 2001 and 2000 was
explained by $14.1 million and $2.6 million respectively, allocated to
income from operations.
Quebecor World Inc. and its subsidiaries Page 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
Subsequent recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 2001 will be allocated as follows:
========================================================================================================================
Income tax benefit that would be reported
in the consolidated statement of income $ 26.1
Goodwill 21.2
- ------------------------------------------------------------------------------------------------------------------------
$ 47.3
========================================================================================================================
At December 31, 2001, the Company had net operating loss carryforwards for
income tax purposes available to reduce future taxable income of $82.1
million, expiring from 2003 to 2011 and $97.4 million which can be carried
forward indefinitely. The Company also has state net operating losses and
tax credits of $140.0 million in the United States, which expire from 2002
to 2020, and federal alternative minimum tax credits of $43.3 million in
the United States which can be carried forward indefinitely.
The Company has not recognized a deferred tax liability for the
undistributed earnings of its subsidiaries in the current and prior years
because the Company currently does not expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A
deferred tax liability will be recognized when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investments. Such liability is
not reasonably determinable at the present time.
6. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net income available to
holders of equity shares by the weighted daily average number of equity
shares outstanding during the year. Net income available to holders of
equity shares is computed by subtracting dividends on the preferred shares
from net income.
Diluted earnings per share are calculated by using the weighted average
number of equity shares outstanding adjusted to include the potentially
dilutive effect of convertible notes and stock options.
The following table sets forth the computation of basic and diluted
earnings per share:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 0.5 $ 285.3 $ 67.4
Income impact on assumed conversion
of convertible notes, net of applicable income taxes - 4.5 1.0
- ------------------------------------------------------------------------------------------------------------------------
Net income adjusted for dilution effect $ 0.5 $ 289.8 $ 68.4
========================================================================================================================
(In millions)
Weighted average of equity shares outstanding 142.2 147.0 125.4
Effect of dilutive convertible notes and stock options 0.8 4.7 1.8
- ------------------------------------------------------------------------------------------------------------------------
Weighted average of diluted equity shares outstanding 143.0 151.7 127.2
========================================================================================================================
Basic earnings per share $ - $ 1.94 $ 0.54
Diluted earnings per share $ - $ 1.91 $ 0.54
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EARNINGS PER SHARE (CONTINUED)
In 2001, diluted net income available to holders of equity shares does not
include the effects of the convertible notes as the effect of their
inclusion is anti-dilutive.
7. BUSINESS ACQUISITIONS AND DISPOSALS
(a) ACQUISITIONS
During the years ended December 31, 2001, 2000 and 1999, the Company
acquired the following businesses, which have been accounted for by
the purchase method, and earnings are included in the consolidated
statements of income since the date of acquisition.
2001
In February 2001, the Company acquired a 70% controlling interest in
Espacio Y Punto, in Spain, for a cash consideration of $8.2 million.
In March 2001, the Company acquired a 75% controlling interest in
Grafica Melhoramentos, in Brazil, for a cash consideration of $3.3
million.
In March 2001, the Company also acquired minority interests in its
Latin American operations for a cash consideration of $15.0 million, a
convertible subordinated debenture of $6.0 million and a promissory
note of $2.0 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 $97.6 million. The allocation
purchase price process was not completed as at December 31, 2001 and
the amounts assigned to the assets and liabilities may be adjusted
subsequently.
In August 2001, the Company purchased manufacturing assets of Grupo
Serla, in Mexico, for a cash consideration of $13.0 million.
During the year, the Company also completed other business
acquisitions complementary to its operations for a cash consideration
of $1.8 million.
Goodwill recognized in those transactions amounted to $98.7 million
and was assigned to the North America, Europe and Latin America
segments in the amounts of $85.7 million, $8.4 million and $4.6
million, respectively.
2000
During 2000, the Company completed the purchase price allocation and
adjusted the assets and liabilities acquired of WCP by $78.6 million.
The adjustment related to the impairment of assets resulted in a
write-off of $52.1 million. Other costs included $21.3 million for
plant shutdowns, $7.3 million related to workers' compensation which
was based on underestimated claims, $21.2 million for contract
termination and write-down of related assets and $23.3 million for
other reserves recorded at acquisition. The tax impact on these
adjustments was $46.6 million.
During 2000, the Company paid an amount of $1.0 million for the
adjustment in the purchase price of prior years' business acquisitions
in the United States and in Peru. This amount was accounted for as an
increase of goodwill. In addition, the Company acquired the remaining
minority interest in Inter-Routage in France for an amount of $4.3
million.
Quebecor World Inc. and its subsidiaries Page 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. BUSINESS ACQUISITIONS AND DISPOSALS (CONTINUED)
(a) ACQUISITIONS (CONTINUED)
1999
In 1999, the Company acquired WCP for a purchase price of $1.5 billion
and the transaction took place as follows:
On July 12, 1999, the Company, through an indirect wholly-owned
subsidiary, Printing Acquisition Inc. ("Acquisition Inc.") entered
into a merger agreement with WCP. On July 16, 1999, the Company,
through Acquisition Inc., commenced a cash tender offer to acquire up
to 23.5 million shares of WCP's common shares at a price of $35.69 per
share. On August 20, 1999, the Company acquired, pursuant to the cash
tender offer, 19.2 million or 50.4% of WCP's outstanding common shares
for a consideration of $684.5 million.
On October 8, 1999, Acquisition Inc. and WCP merged after approval
thereof at a special meeting of WCP's shareholders. The remaining
49.6% of the outstanding common shares of WCP were converted into
1.2685 Subordinate Voting Shares of the Company and $8.18 in cash per
WCP share. In addition, each 6% convertible senior subordinated note
due 2007 became convertible into the number of the Company's
Subordinate Voting Shares and cash that would have been received if
such note had been converted prior to October 8, 1999.
The cash portion of the shares purchased totalling $853.4 million was
financed through a drawdown on the $1.25 billion acquisition bank
facility combined with drawdowns on the Company's existing revolving
bank facility.
In March 1999, the Company acquired Cayfo S.A., a company located in
Spain, for a cash consideration of $43.3 million and a purchase price
balance of $27.0 million.
During the third quarter of 1999, the Company completed the
acquisition of Oberndorfer Druckerei, in Austria, for a cash
consideration of $13.1 million and a purchase price balance amounting
to $33.5 million.
In 1999, the Company completed several business acquisitions
complementary to its operations in North America and Latin America,
including the payment of contingent considerations totalling $13.4
million.
Quebecor World Inc. and its subsidiaries Page 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. BUSINESS ACQUISITIONS AND DISPOSALS (CONTINUED)
(a) ACQUISITIONS (CONTINUED)
Net assets acquired at fair value:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Assets acquired:
Non-cash operating
working capital $ 3.4 $ - $ 562.9
Property, plant and equipment 73.8 (56.5) 929.4
Goodwill 98.7 71.2 1,943.6
Other assets 0.8 (8.3) 62.2
Deferred income taxes - 57.7 21.3
Minority interest 7.2 2.3 10.1
Liabilities assumed:
Bank indebtedness 2.3 - 8.4
Non-cash operating working
capital deficiency - 32.0 527.7
Long-term debt 31.2 - 1,134.4
Other liabilities 0.4 33.4 119.6
Deferred income taxes 3.1 - 1.7
Convertible notes - (4.3) 136.8
Minority interest - - 5.0
- ------------------------------------------------------------------------------------------------------------------------
Net assets acquired $ 146.9 $ 5.3 $ 1,595.9
========================================================================================================================
Consideration:
Cash $ 138.9 $ 5.3 $ 923.2
Issuance of convertible subordinated
debenture and promissory note 8.0 - -
Purchase price balance - - 60.6
Equity portion of convertible note - - 20.8
Subordinate Voting
Shares issued - - 591.3
- ------------------------------------------------------------------------------------------------------------------------
$ 146.9 $ 5.3 $ 1,595.9
========================================================================================================================
(b) DISPOSALS
2000
In August 2000, the Company sold the operating assets of its North
American CD-Rom replication business for a total consideration of
$68.0 million. The sale price was comprised of $47.0 million of cash
and $21.0 million in special warrants and promissory notes convertible
into the buyer's, Q-Media Services Corporation, shares. The Company
realized a gain amounting to $13.4 million which was recorded as a
reduction of selling, general and administrative expenses.
1999
In October 1999, the Company sold the operating assets of its BA
Banknote Division for a total cash consideration of $18.0 million. The
Company realized a loss amounting to $1.9 million which is included in
restructuring and other charges.
In 1999, the Company sold its investment in Communications Quebecor
inc. for a cash consideration of Cdn $5.1 million ($3.4 million).
Quebecor World Inc. and its subsidiaries Page 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. TRADE RECEIVABLES
ASSET SECURITIZATION
During 2001, the Company sold a portion of its Canadian trade receivables
on a revolving basis under the terms of a Canadian securitization agreement
dated March 1998 (the "Canadian Program"). The Canadian Program limit is
Cdn $125.0 million ($78.6 million). As at December 31, 2001, the amount
outstanding under the Canadian Program was Cdn $116.0 million ($72.9
million) (Cdn $108.0 million ($72.0 million) as at December 31, 2000).
During 2001, the Company also sold a portion of its US trade receivables on
a revolving basis under the terms of a US securitization agreement dated
December 1999 (the "US Program"). The US Program limit is $510.0 million.
As at December 31, 2001, the amount outstanding under the US Program was
$500.0 million ($500.0 million as at December 31, 2000).
In June 2001, the Company entered into an agreement to sell, on a revolving
basis, a portion of its French and Spanish trade receivables (the "European
Program"). The European Program limit is 153.0 million Euro ($135.1
million). As at December 31, 2001, the amount outstanding under the
European Program was 140.4 million Euro ($124.1 million).
The Company has retained the responsibility for servicing, administering
and collecting trade receivables sold. No servicing asset or liability has
been recorded, since the fees the Company receives for servicing the
receivables approximate the related costs.
Securitization fees vary based on commercial paper rates in Canada, the
United States and Europe and, generally, provide a lower effective funding
cost than available under the Company's bank facilities.
Cash flows received from securitization amounted to $125.0 million in 2001
and $102.7 million in 2000.
9. INVENTORIES
========================================================================================================================
2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Raw materials and supplies $ 203.1 $ 244.7
Work in process 174.0 216.7
- ------------------------------------------------------------------------------------------------------------------------
$ 377.1 $ 461.4
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
- ------------------------------------------------------------------------------------------------------------------------
December 31, 2001
Land $ 81.3 $ - $ 81.3
Buildings and leasehold improvements 729.4 147.8 581.6
Machinery and equipment 3,181.7 1,355.9 1,825.8
Projects under development 145.3 - 145.3
- ------------------------------------------------------------------------------------------------------------------------
$ 4,137.7 $ 1,503.7 $ 2,634.0
========================================================================================================================
December 31, 2000
Land $ 85.6 $ - $ 85.6
Buildings and leasehold improvements 746.5 123.0 623.5
Machinery and equipment 2,976.6 1,139.3 1,837.3
Projects under development 136.6 - 136.6
- ------------------------------------------------------------------------------------------------------------------------
$ 3,945.3 $ 1,262.3 $ 2,683.0
========================================================================================================================
As at December 31, 2001, the cost of property, plant and equipment and the
corresponding accumulated depreciation balance included amounts of $292.5
million ($269.5 million as at December 31, 2000) and $148.8 million ($130.5
million as at December 31, 2000) respectively, for the assets held under
capital leases. Depreciation expenses of property, plant and equipment held
under capital leases amounted to $17.5 million in 2001 ($16.0 million in
2000 and $18.4 million in 1999).
11. LONG-TERM DEBT
========================================================================================================================
Maturity 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Revolving bank facility $1.0 B (a) 2005-2007 $ 267.9 $ 374.6
Commercial paper (b) 2005-2007 147.0 215.0
Acquisition bank facility (c) 2002 - 125.0
Senior debentures 7.25% (d) 2007 150.0 150.0
Senior debentures 6.50% (e) 2027 150.0 150.0
Senior Notes 8.375% (f) 2008 258.6 258.8
Senior Notes 7.75% (g) 2009 291.7 290.5
Senior Notes 8.42% and 8.52% (h) 2010, 2012 250.0 250.0
Senior Notes 8.54% and 8.69% (i) 2015, 2020 121.0 121.0
Senior Notes 7.20% (j) 2006 250.0 -
Other debts and capital leases (k) 2002-2011 132.7 119.9
- ------------------------------------------------------------------------------------------------------------------------
2,018.9 2,054.8
Less current portion 57.0 39.2
- ------------------------------------------------------------------------------------------------------------------------
$ 1,961.9 $ 2,015.6
========================================================================================================================
(a) In April 2001, the Company extended for an additional year its
existing revolving bank facility composed of three tranches. The first
tranche of $250.0 million matures in 2005, the second tranche of
$250.0 million matures in 2006, while the third tranche of $500.0
million matures in 2007. The Company paid fees for the unused portion
of $0.9 million in 2001 ($1.0 million in 2000). The credit agreement
contains certain restrictions, including the obligation to maintain
certain financial ratios. The facility can be used for general
corporate purposes and as liquidity back-up for the Company's
commercial paper program.
Quebecor World Inc. and its subsidiaries Page 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. LONG-TERM DEBT (CONTINUED)
The revolving bank facility bears interest at variable rates based on LIBOR
or Bankers' Acceptances rates. At December 31, 2001, the drawings under
this facility are denominated in US dollars only and bear interest at rates
ranging from 2.76% to 3.04%.
(b) At December 31, 2001, Cdn $226.3 million ($142.3 million) (Cdn $307.3
million ($204.9 million) as at December 31, 2000) and $4.7 million
($10.1 million as at December 31, 2000) of notes are outstanding under
the Commercial paper program bearing interest at rates ranging from
2.3% to 4.0% in Canadian dollars and 3.4% to 3.75% in dollars. In June
2001, the program limit was increased from $250.0 million to $350.0
million. At the same time, the Company obtained a new $100.0 million
bank facility maturing in June 2002 to provide liquidity back-up for
the additional amount. At December 31, 2001, the Commercial paper
program was classified as long-term, since the Company has the ability
and the intent to maintain such debt on a long-term basis and has
long-term bank facilities available (see (a) above) to replace such
debt, if necessary.
(c) In 1999, the Company had negotiated and obtained two additional credit
facilities for a total initial limit of $1,250.0 million to finance
the acquisition of WCP. Those facilities consisted of a revolving
credit facility of $450.0 million maturing in August 2002, also
available for general corporate purposes, and a term loan of $800.0
million. At the request of the Company, a portion of $150.0 million of
the term loan was cancelled in December 1999, while the remaining was
reimbursed and cancelled during 2000. The revolving credit facility
was cancelled in 2001. The Company paid fees for the unused portion of
$0.2 million ($0.4 million in 2000).
(d) The senior debentures mature on January 15, 2007.
(e) The senior debentures mature on August 1, 2027 and are redeemable at
the option of the holder at their par value on August 1, 2004.
(f) The Senior Notes mature on November 15, 2008 and are redeemable at the
option of the Company at a decreasing premium between November 2003
and November 2006, and thereafter at par value until their final
maturity. The notes were issued by WCP for an original aggregate
principal of $300.0 million. They were subsequently revalued in order
to reflect their fair value at the time WCP was acquired, based on the
Company's borrowing rate for similar financial instruments. During
2000, the Company repurchased in the open market $42.4 million face
value thereof. The aggregate principal amount of the notes, as at
December 31, 2001, is $257.6 million ($257.6 million as at December
31, 2000). In August 2001, the Company obtained the consent from the
noteholders to generally conform the restrictions on the Notes with
the Company's other Senior Public Debentures. At the same time, the
Notes which were Senior Subordinated Notes became Senior Notes.
(g) The Senior Notes mature on February 15, 2009. The aggregate principal
amount of the notes is $300.0 million and the notes are redeemable at
the option of the Company at a decreasing premium between February
2004 and February 2007, and thereafter at par value until their final
maturity. The notes were issued by WCP and revalued in order to
reflect their fair value at the time WCP was acquired based on the
Company's borrowing rate for similar financial instruments. In August
2001, the Company obtained the consent from the noteholders to
generally conform the restrictions on the Notes with the Company's
other Senior Public Debentures. At the same time, the Notes which were
Senior Subordinated Notes became Senior Notes.
Quebecor World Inc. and its subsidiaries Page 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. LONG-TERM DEBT (CONTINUED)
(h) In July 2000, the Company issued Senior Notes for a principal amount
of $250.0 million comprised of two tranches. The first tranche of
$175.0 million matures on July 15, 2010 while the second tranche of
$75.0 million matures on July 15, 2012. These notes contain certain
restrictions which are generally less restrictive than those on the
revolving bank facility.
(i) In September 2000, the Company issued Senior Notes for a principal
amount of $121.0 million comprised of two tranches. The first tranche
of $91.0 million matures on September 15, 2015 and the second tranche
of $30.0 million matures on September 15, 2020. These notes contain
certain restrictions which are generally less restrictive than those
of the revolving bank facility.
(j) In March 2001, the Company issued Senior Notes for a principal amount
of $250.0 million maturing in March 2006. A portion of $33.0 million
of the Notes bears a floating interest rate, but has been swapped to
fixed at the same rate as the coupon on the fixed rate portion. These
Notes contain certain restrictions which are generally less
restrictive than those on the revolving bank facility.
(k) Other debts and capital leases are partially secured by assets. An
amount of $38.6 million ($63.9 million as at December 31, 2000) is
denominated in Euro currency, an amount of $18.8 million (nil as at
December 31, 2000) is denominated in British pounds and an amount of
$5.1 million ($7.0 million as at December 31, 2000) in Swedish krona.
At December 31, 2001, these debts and capital leases bear interest at
rates ranging from 0% to 10.5%.
The Company was in compliance with all significant debt covenants at
December 31, 2001.
Principal repayments on long-term debt are as follows:
========================================================================================================================
2002 $ 57.0
2003 22.5
2004 17.3
2005 10.5
2006 257.1
2007 and thereafter 1,654.5
========================================================================================================================
12. OTHER LIABILITIES
========================================================================================================================
2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Pension liability $ 72.7 $ 78.5
Postretirement benefits 65.6 67.4
Reserve for unfavourable leases acquired 42.3 52.8
Workers' compensation accrual 24.0 27.6
Reserve for environmental matters 16.8 17.7
- ------------------------------------------------------------------------------------------------------------------------
221.4 244.0
Other 24.2 46.8
- ------------------------------------------------------------------------------------------------------------------------
$ 245.6 $ 290.8
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. CONVERTIBLE NOTES
========================================================================================================================
Maturity 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Convertible senior subordinated notes 6.00% (a) 2007 $ 107.3 $ 105.9
Convertible subordinated debentures 7.00% (b) 2004 6.0 -
Convertible debentures of a subsidiary (c) 2001 - 48.0
- ------------------------------------------------------------------------------------------------------------------------
113.3 153.9
Less current portion - 48.0
- ------------------------------------------------------------------------------------------------------------------------
$ 113.3 $ 105.9
========================================================================================================================
(a) The convertible senior subordinated notes mature on October 1, 2007.
The notes were issued by WCP and revalued in order to reflect their
fair value at the time WCP was acquired based on the Company's
borrowing rate for similar financial instruments. The equity component
of the notes, which corresponds to the option of the holder to convert
the notes into equity shares of the Company, was valued at the date of
acquisition and classified as additional paid-in capital. Since the
acquisition of WCP by the Company, each $1,000 tranche is convertible
into 30.5884 Subordinate Voting Shares of the Company which
corresponds to a price of $26.24 per share and $197.25 in cash. The
notes are convertible at the option of the holder at any time, and
redeemable at the option of the Company at a decreasing premium from
October 2000 to the final maturity. Certain conditions apply to a
redemption between October 2000 and October 2002. Pursuant to the
terms of the convertible notes, the Company repurchased $7.6 million
of the notes in 1999 following a tender offer at par for 100% of the
face value of $151.8 million. The Company subsequently repurchased
notes in the open market in 2000 for the principal amount of $24.7
million thereof. The aggregate principal amount of the notes, as at
December 31, 2001, is $119.5 million ($119.5 million as at December
31, 2000). The number of equity shares to be issued upon conversion of
the convertible notes would be 3,656,201.
(b) In March 2001, a subsidiary of the Company issued convertible
subordinated debentures maturing in May 2004. These debentures are
convertible in subordinate voting shares of the Company at a
conversion price of $25.00 per share. The debentures are not
redeemable prior to maturity. The aggregate principal of the
debentures, as at December 31, 2001, is $6.0 million. The number of
equity shares to be issued upon conversion of the debentures would be
240,000.
(c) A French subsidiary of the Company reimbursed in December 2001 the
convertible debentures which had been issued, at the time of its
acquisition in 1995. The total amount of convertible debentures
outstanding as at December 31, 2000 was FF 344.0 million ($48.0
million).
Quebecor World Inc. and its subsidiaries Page 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CAPITAL STOCK
(a) AUTHORIZED CAPITAL STOCK
Equity shares:
Multiple Voting Shares, authorized in an unlimited number,
without par value, carrying ten votes per share, convertible at
any time into Subordinate Voting Shares on a one-to-one basis.
Subordinate Voting Shares, authorized in an unlimited number,
without par value, carrying one vote per share.
Preferred shares, authorized in an unlimited number, without par
value, issuable in series; the number of preferred shares in each
series and the related characteristics, rights and privileges are to
be determined by the Board of Directors prior to each issue.
The First Preferred Shares Series 2 are entitled to a fixed cumulative
preferential cash dividend of Cdn $1.25 per share per annum, payable
quarterly from March 1, 1998 to November 30, 2002, if declared.
Thereafter, the annual dividend will be a floating adjustable
cumulative preferential cash dividend based on prime rate and payable
on a monthly basis, if declared.
These preferred shares are redeemable in whole but not in part, at the
Company's option, on December 1, 2002 at Cdn $25.00 per share and,
subsequent to December 1, 2002, at Cdn $25.50. After December 1, 2002,
these preferred shares may be converted into Series 3 cumulative
redeemable First Preferred Shares under certain conditions.
The Series 3 cumulative redeemable First Preferred Shares will be
entitled to a cumulative fixed dividend set by the Company for a
five-year period determined before the first initial quarterly
dividend which would begin on December 1, 2002. These shares also will
have redemption and conversion characteristics similar to the First
Preferred Shares Series 2.
The First Preferred shares Series 4 are entitled to a fixed cumulative
preferential cash dividend of Cdn $1.6875 per share per annum, payable
quarterly, if declared. On and after March 15, 2006, these preferred
shares are redeemable at the option of the Company at Cdn $25.00, or
with regulatory approval, the preferred shares may be converted into
equity shares by the Company. On and after June 15, 2006, these
preferred shares may be convertible at the option of the holder into
equity shares, subject to the right of the Company prior to the
conversion date to redeem for cash or find substitute purchasers for
such preferred shares.
The First Preferred shares Series 5 are entitled to a fixed cumulative
preferential cash dividend of Cdn $1.7250 per share per annum, payable
quarterly, if declared. On and after December 1, 2007, these preferred
shares are redeemable at the option of the Company at Cdn $25.00, or
with regulatory approval, the preferred shares may be converted into
equity shares by the Company. On and after March 1, 2008, these
preferred shares may be convertible at the option of the holder into
equity shares, subject to the right of the Company prior to the
conversion date to redeem for cash or find substitute purchasers for
such preferred shares.
Each series of Preferred Shares ranks on a parity with every other
series of Preferred Shares.
(b) ISSUED AND OUTSTANDING SUBORDINATE VOTING SHARES
In 1999, the Company issued 6,500,000 Subordinate Voting Shares for a
cash consideration of Cdn $234.0 million ($159.2 million) before share
issue expenses of Cdn $9.9 million ($6.7 million) recorded as a
reduction of retained earnings.
Quebecor World Inc. and its subsidiaries Page 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. CAPITAL STOCK (CONTINUED)
(b) ISSUED AND OUTSTANDING SUBORDINATE VOTING SHARES (CONTINUED)
Pursuant to the acquisition of WCP (note 7), the Company issued 10,927
Subordinate Voting Shares in 2000 in addition to the 25,045,200 issued
in 1999 for a value determined at $23.61 per share based on an average
market price before and after the date of the transaction. There were
no share issue expenses in 2000 ($9.4 million in 1999) recorded as a
reduction of retained earnings.
(c) ISSUED AND OUTSTANDING FIRST PREFERRED SHARES
In February 2001, the Company issued 8,000,000 First Preferred Shares
Series 4 for a cash consideration of Cdn $200.0 million ($130.2
million) before share issue expenses of Cdn $4.8 million ($3.1
million) recorded as a reduction of retained earnings.
In August 2001, the Company issued 7,000,000 First Preferred Shares
Series 5 for a cash consideration of Cdn $175.0 million ($113.9
million) before share issue expenses of Cdn $5.7 million ($3.7
million) recorded as a reduction of retained earnings.
(d) SHARE REPURCHASE PROGRAM
In 2000, the Company initiated a normal course issuer bid for a
maximum of 8,000,000 Subordinate Voting Shares over the period from
April 6, 2000 to April 5, 2001. During 2001, under this normal course
issuer bid program, the Company had repurchased for cancellation
3,188,492 Subordinate Voting Shares for a net cash consideration of
Cdn $114.9 million ($79.2 million). As at December 31, 2000, the
Company had repurchased for cancellation 1,751,508 Subordinate Voting
Shares for a net cash consideration of Cdn $59.2 million ($41.6
million).
In 2001, the Company initiated another normal course issuer bid for a
maximum of 8,800,000 Subordinate Voting Shares over the period from
April 6, 2001 to April 5, 2002. As at December 31, 2001, the Company
had repurchased for cancellation 3,543,700 Subordinate Voting Shares
for a net cash consideration of Cdn $143.8 million ($98.2 million). As
at December 31, 2001, the Company had committed to repurchase a total
of 148,500 shares in January 2002 at settlement prices averaging Cdn
$35.25 ($23.94) per share.
15. STOCK PLANS
(a) EMPLOYEE SHARE PLANS
In 2000, the Company adopted an Employee Stock Purchase Plan ("Plan")
in the United States effective January 1, 2001. The number of shares
that may be issued and sold under the Plan is limited to 2,000,000
Subordinate Voting Shares, subject to adjustments in the event of
stock dividends, stock splits and similar events. The purpose of the
Plan is to give eligible employees in the United States the
opportunity to acquire shares of the Company's capital stock for up to
4% of their gross salaries and to have the Company contribute, on the
employees' behalf, a further amount equal to 17.5% of the total amount
invested by the employee. At December 31, 2001, 6,372 employees were
participating in the plan. The total number of plan shares issued on
behalf of employees, including the Company's contribution, was 270,843
in 2001, which represents compensation expenses amounting to $1.0
million in 2001.
Quebecor World Inc. and its subsidiaries Page 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCK PLANS (CONTINUED)
(a) EMPLOYEE SHARE PLANS (CONTINUED)
Effective September 1, 1998, an Employee Share Investment Plan
("ESIP") was implemented giving eligible employees in Canada the
opportunity to subscribe for up to 4% of their gross salaries to
purchase shares of the Company's capital stock and to have the Company
invest, on the employee's behalf, a further 20% of the amount invested
by the employee. At December 31, 2001, 2,072 employees (2,038 at
December 31, 2000) were participating in the plan. The total number of
ESIP shares issued on behalf of employees, including the Company's
contribution, was 120,494 in 2001, 121,975 in 2000 and 87,270 in 1999,
which represents compensation expenses amounting to $0.4 million in
2001 and $0.3 million in 2000 and $0.1 million in 1999.
(b) STOCK OPTION PLANS
Under stock option plans, a total of 8,125,992 Subordinate Voting
Shares have been reserved for plan participants. As of December 31,
2001, the number of Subordinate Voting Shares related to the stock
options outstanding is 4,563,330. The subscription price is equal to
the share market price at the date the options were granted. The
options may be exercised during a period not exceeding ten years from
the date they have been granted.
The number of stock options outstanding fluctuated as follows:
========================================================================================================================
2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
- ------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year 4,297,478 $ 19.73 4,127,254 $ 19.82
Issued 651,276 22.01 252,495 20.68
Exercised (385,424) 12.91 (82,271) 7.77
- ------------------------------------------------------------------------------------------------------------------------
Balance, end of year 4,563,330 $ 20.07 4,297,478 $ 19.73
- ------------------------------------------------------------------------------------------------------------------------
Options exercisable, end of year 2,444,969 $ 19.05 1,897,680 $ 17.83
========================================================================================================================
The following table summarizes information about stock options
outstanding at December 31, 2001:
========================================================================================================================
Options outstanding Options exercisable
- ------------------------------------------------------------------------------------------------------------------------
Weighted
average
remaining Weighted Weighted
Number contractual average Number average
Range of exercise prices outstanding life (in years) exercise price exercisable exercise price
- ------------------------------------------------------------------------------------------------------------------------
$ 9 - $ 12 170,084 2.6 $ 10.44 170,084 $ 10.44
$ 12 - $ 15 247,509 5.3 14.13 177,184 14.04
$ 15 - $ 18 784,784 6.0 16.77 637,095 16.74
$ 18 - $ 21 739,922 7.2 20.19 421,645 20.29
$ 21 - $ 24 2,621,031 8.0 22.21 1,038,961 22.23
- ------------------------------------------------------------------------------------------------------------------------
4,563,330 7.2 $ 20.07 2,444,969 $ 19.05
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. TRANSLATION ADJUSTMENT
The change in the translation adjustment included in shareholders' equity
is the result of the fluctuation of the exchange rates on translation of
net assets of self-sustaining foreign operations not denominated in US
dollars.
17. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
(a) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, trade receivables,
bank indebtedness, trade payables and accrued liabilities approximate
their fair values because of the short-term nature of these items.
The following table summarizes the book value and fair value at
December 31, 2001 and 2000 of those financial instruments having a
fair value different from their book value as at December 31. The fair
values of the financial liabilities are estimated based on discounted
cash flows using year-end market yields of similar instruments having
the same maturity. The fair values of the derivative financial
instruments are estimated using year-end market rates, and reflect the
amount that the Company would receive or pay if the instruments were
closed out at these dates.
========================================================================================================================
2001 2000
BOOK VALUE FAIR VALUE Book Value Fair Value
- ------------------------------------------------------------------------------------------------------------------------
Financial liabilities
Long-term debt(1) $ (2,018.9) $ (2,073.9) $ (2,054.8) $ (2,056.4)
Convertible notes(1) (113.3) (119.5) (153.9) (159.1)
Derivative financial instruments
Interest rate swap agreements - (11.7) - (0.1)
Foreign exchange forward contracts - (17.5) - (10.7)
Cross currency interest rate swaps - 3.0 - 1.3
Commodity swaps - (1.7) - -
Equity forwards - - - 1.3
========================================================================================================================
(1) Including current portion
(b) FOREIGN EXCHANGE RISK MANAGEMENT
The Company enters 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 its foreign exchange exposure on
certain liabilities. The amounts of outstanding contracts at year-end,
presented by currency, are included in the tables below:
Quebecor World Inc. and its subsidiaries Page 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
(b) FOREIGN EXCHANGE RISK MANAGEMENT (CONTINUED)
Foreign exchange forward contracts
========================================================================================================================
2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Currencies Notional Average Notional Average
(sold / bought) amounts(1) rate amounts(1) rate
- ------------------------------------------------------------------------------------------------------------------------
$ / Cdn $
Less than 1 year $ 124.1 0.6981 $ 122.6 0.6898
Between 1 and 3 years 115.6 0.6526 161.3 0.7008
Euro / $
Less than 1 year 23.3 0.9155 14.0 1.0633
Between 1 and 3 years - - 2.1 0.9033
SEK / $
Less than 1 year 19.6 10.5615 16.2 9.6400
GBP / Euro
Less than 1 year 13.3 0.6238 40.8 0.6074
Between 1 and 3 years - - 2.2 0.6222
Other
Less than 1 year 39.8 - 27.0 -
Between 1 and 3 years - - 0.4 -
- ------------------------------------------------------------------------------------------------------------------------
$ 335.7 $ 386.6
========================================================================================================================
(1) Transactions in foreign currencies translated into dollars using the
closing exchange rate as at December 31, 2001 and 2000.
Cross-currency interest rate swaps
========================================================================================================================
2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Currencies Notional Average Notional Average
(sold / bought) amounts(2) rate amounts(2) rate
- ------------------------------------------------------------------------------------------------------------------------
Euro / $
Less than 1 year $ 51.1 1.1151 $ 88.6 1.0551
Between 1 and 3 years 81.7 1.1144 25.5 1.1355
SEK / $
Less than 1 year 15.2 9.8450 18.4 8.1650
Between 1 and 2 years 14.2 10.5600 15.2 9.8450
- ------------------------------------------------------------------------------------------------------------------------
$ 162.2 $ 147.7
========================================================================================================================
(2) Transactions in foreign currencies translated into dollars using the
closing exchange rate as at December 31, 2001 and 2000.
Quebecor World Inc. and its subsidiaries Page 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
(c) INTEREST RATE RISK MANAGEMENT
The Company has entered into interest rate swaps to manage its
interest rate exposure. The Company is committed to exchange, at
specific intervals, the difference between the fixed and floating
interest rate calculated by reference to the notional amounts.
The amounts of outstanding contracts at year-end, presented by
currency, are included in the tables below:
========================================================================================================================
MATURITY NOTIONAL FIXED FLOATING
AMOUNT PAY/RECEIVE RATE RATE
- ------------------------------------------------------------------------------------------------------------------------
$
Less than 1 year $350.0 Company pay fixed/ 1.96 - 3.03% Libor 1 month
receive floating
Between 1 and 5 years $283.0 Company pay fixed/ 5.20 - 7.20% Libor 3 months
receive floating plus 0% - 1.36%
Between 4 and 6 years $250.0 Company pay floating/ 7.20 - 7.25% Libor 3 months
receive fixed plus 2.15% - 2.18%
CDN $
Less than 1 year Cdn$170.0 Company pay fixed/ 4.33 - 4.48% Banker's acceptance
receive floating 1 month
Euro
Between 1 and 2 years Euro 3.4 Company pay fixed/ 5.75% Euribor 3 months
receive floating
========================================================================================================================
(d) COMMODITY RISK
The Company has entered into a commodity swap to manage a portion of
its Canadian natural gas exposure. The Company is committed to
exchange, on a monthly basis, the difference between a fixed price and
a floating Canadian natural gas price index on a notional quantity of
1,293,000 gigajoules in total for 2002 and 2003.
(e) CREDIT RISK
The Company is exposed to credit losses resulting from defaults by
counterparties when using financial instruments.
When the Company enters into derivative financial instruments, the
counterparties are international and Canadian banks having a minimum
credit rating of A- by Standard & Poor's or of A3 by Moody's and are
subject to concentration limits. The Company does not foresee any
failure by the counterparties in meeting their obligations.
The Company, in the normal course of business, continuously monitors
the financial condition of its customers and reviews the credit
history of each new customer. At December 31, 2001, no customer
balance represents a significant portion of the Company's consolidated
trade receivables. The Company establishes an allowance for doubtful
accounts that corresponds to the specific credit risk of its
customers, historical trends and other information on the state of the
economy.
Quebecor World Inc. and its subsidiaries Page 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
(e) CREDIT RISK (CONTINUED)
The Company believes that the product and geographic diversity of its
customer base is instrumental in reducing its credit risk, as well as
the impact on the Company of fluctuations in local market or
product-line demand. The Company has long-term contracts with most of
its largest customers. These contracts usually include price
adjustment clauses based on the cost of paper, ink and labor. The
Company does not believe that it is exposed to an unusual level of
customer credit risk.
18. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company rents premises and equipment under operating leases which
expire at various dates up to 2014 and for which minimum lease
payments total $432.2 million.
Annual minimum payments under these leases are as follows:
============================================================================
2002 $ 83.6
2003 76.7
2004 61.6
2005 64.5
2006 46.2
2007 and thereafter 99.6
============================================================================
Rental expenses for operating leases were $83.0 million, $ 102.8
million and $ 64.0 million for the years 2001, 2000 and 1999.
(b) EQUIPMENT
As at December 31, 2001, the Company had commitments to purchase
equipment for a total value of approximately $17.7 million.
(c) ENVIRONMENT
The Company is subject to various laws, regulations and government
policies principally in North America and Europe, relating to health
and safety, to the generation, storage, transportation, disposal and
environmental emissions of various substances, and to environment
protection in general. The Company believes it is in compliance with
such laws, regulations and government policies, in all material
respects. Furthermore, the Company does not anticipate that
maintaining compliance with such environmental statutes will have a
material adverse effect upon the Company's competitive or consolidated
financial position.
(d) BUSINESS ACQUISITIONS
On September 27, 2001, the Company signed a binding agreement pending
regulatory approval to purchase the European printing assets of
Hachette Filipacchi Medias. The transaction should amount to
approximately $60 million in cash and assumption of debt.
Quebecor World Inc. and its subsidiaries Page 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. RELATED PARTY TRANSACTIONS
The Company entered into the following transactions, at prices and
conditions prevailing on the market, with related parties and were
accounted for the amount of cash consideration:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Revenues $ 32.0 $ 19.0 $ 17.3
Purchases 15.7 13.5 24.4
Interest income - - (0.1)
Management fees charged by Quebecor Inc. 3.8 3.6 8.5
========================================================================================================================
For the year ended December 31, 1999, fees charged by Quebecor Inc.
included an amount of $6.5 million in connection with the acquisition of
WCP and the related issuance of equity as well as management fees charged
in the normal course of business.
20. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company maintains defined benefit pension plans for its employees. The
Company's policy is to maintain its contribution at a level sufficient to
cover benefits. Actuarial valuations of the Company's various pension plans
were performed during the last three years.
The Company provides postretirement benefits to eligible employees. The
costs of these benefits, which are principally health care, are accounted
for during employees' active service period.
The following table is based on a September 30th measurement date in 2001
and a December 31st measurement date in 2000. The table provides a
reconciliation of the changes in the plans' benefit obligations and fair
value of plan assets for the fiscal years ended December 31, 2001 and
December 31, 2000 and a statement of the funded status as at December 31,
2001 and December 31, 2000:
Quebecor World Inc. and its subsidiaries Page 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
========================================================================================================================
Pension Postretirement
Benefits Benefits
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year $ 624.4 $ 573.1 $ 70.5 $ 66.3
Change in measurement date (26.4) - 1.1 -
Service cost 25.0 21.2 0.8 0.7
Interest cost 48.5 45.3 5.4 5.3
Plan participants' contributions 4.0 3.3 2.0 0.5
Plan amendments 5.3 0.5 (1.1) -
Curtailment loss (gain) 0.9 0.3 (2.4) (0.7)
Settlement loss - 0.3 - -
Actuarial loss 77.7 25.5 8.5 3.7
Change in assumptions 3.9 8.6 0.2 0.8
Benefits paid (40.8) (50.4) (7.8) (6.0)
Settlement paid - (0.4) - -
Foreign currency changes 9.0 (2.9) (0.2) (0.1)
- ------------------------------------------------------------------------------------------------------------------------
Benefit obligation, end of year $ 731.5 $ 624.4 $ 77.0 $ 70.5
========================================================================================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year $ 566.0 $ 553.1 $ - $ -
Change in measurement date 47.7 - - -
Actual return on plan assets (123.6) 44.7 - -
Employer contributions 17.3 18.6 5.8 5.5
Plan participants' contributions 4.0 3.3 2.0 0.5
Settlement loss - - - -
Settlement paid - (0.4) - -
Benefits paid (40.8) (50.4) (7.8) (6.0)
Foreign currency changes 11.3 (2.9) - -
- ------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets, end of year $ 481.9 $ 566.0 $ - $ -
========================================================================================================================
RECONCILIATION OF FUNDED STATUS
Funded status $ (249.6) $ (58.4) $ (77.0) $ (70.5)
Unrecognized net transition asset (5.4) (4.2) - -
Unrecognized prior service cost 7.0 2.6 (0.6) -
Unrecognized actuarial loss 194.0 4.7 7.7 1.3
Adjustment for fourth quarter contributions 4.2 - 1.4 -
Valuation allowance (0.1) (1.1) - -
- ------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (49.9) $ (56.4) $ (68.5) $ (69.2)
========================================================================================================================
Included in the above benefit obligation and fair value of plan assets at
year-end are the following amounts in respect of plans that are not fully
funded:
========================================================================================================================
Pension Postretirement
Benefits Benefits
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Benefit obligation $ (719.1) $ (446.9) $ (77.0) $ (70.5)
Fair value of plan assets 467.6 342.3 - -
- ------------------------------------------------------------------------------------------------------------------------
Funded status - plan deficit $ (251.5) $ (104.6) $ (77.0) $ (70.5)
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table provides the amounts recognized in the consolidated
balance sheets:
========================================================================================================================
Pension Postretirement
Benefits Benefits
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Accrued benefit liability $ (74.2) $ (86.3) $ (68.5) $ (69.2)
Prepaid benefit costs 24.3 29.9 - -
- ------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (49.9) $ (56.4) $ (68.5) $ (69.2)
========================================================================================================================
The following table provides the components of net periodic benefit cost:
========================================================================================================================
Pension Postretirement
Benefits Benefits
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Service cost $ 25.0 $ 21.2 $ 19.9 $ 0.8 $ 0.7 $ 0.7
Interest cost 48.5 45.3 32.6 5.4 5.3 3.3
Expected return on plan assets (58.1) (53.8) (34.7) - - -
Amortization of transitional assets (0.6) (0.5) (0.3) - - -
Amortization of prior service cost 0.3 0.3 0.2 (0.4) - -
Amortization of actuarial (gain) loss (0.9) (1.8) 0.4 - - 0.1
Curtailment loss (gain) 0.9 - 1.6 (0.4) (0.5) -
Valuation allowance (0.9) (3.0) 4.1 - - -
- ------------------------------------------------------------------------------------------------------------------------
Net periodic cost $ 14.2 $ 7.7 $ 23.8 $ 5.4 $ 5.5 $ 4.1
========================================================================================================================
The weighted average assumptions used in the measurement of the Company's
benefit obligation are as follows:
========================================================================================================================
Pension Postretirement
Benefits Benefits
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Discount rate 7.0% 7.7% 7.9% 7.2% 7.7% 7.9%
Expected return on plan assets 9.7% 9.7% 9.2% - - -
Rate of compensation increase 3.4% 3.7% 4.4% - - -
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.8% at the end of 2001 and the same
as 2000 and is expected to decrease gradually to 5.0% in 2008 and remain
at that level thereafter. A one percentage point change in assumed health
care cost trend would have the following effects:
========================================================================================================================
POSTRETIREMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------
Sensitivity analysis 1% increase 1% decrease
- ------------------------------------------------------------------------------------------------------------------------
Effect on service and interest costs $ 0.6 $ (0.5)
Effect on benefit obligation 5.8 (5.2)
========================================================================================================================
21. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND THE UNITED STATES
The Company's consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP"),
which differ in some respects from those applicable in the United States.
The following are the significant differences in accounting principles as
they pertain to the consolidated statements.
(a) RECONCILIATION OF NET INCOME AND EARNINGS PER SHARE
The application of GAAP in the United States would have the following
effects on net income as reported:
========================================================================================================================
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME, AS REPORTED IN THE CONSOLIDATED
STATEMENTS OF INCOME PER GAAP IN CANADA $ 22.4 $ 295.4 $ 77.5
Adjustments, net of applicable income taxes
Employee stock purchase plan in the
United States (a) (i) 0.6 - -
Stock option plans (a) (i) (0.9) - -
Repurchase of convertible senior
subordinated notes (a) (ii) - (0.8) -
Business process reegineering costs (a) (iii) - - 1.0
- -----------------------------------------------------------------------------------------------------------------------
(0.3) (0.8) 1.0
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME, AS ADJUSTED PER GAAP IN THE UNITED STATES 22.1 $ 294.6 $ 78.5
Net income available to holders of preferred shares (21.9) (10.1) (10.1)
- -----------------------------------------------------------------------------------------------------------------------
Net income per GAAP in the United States available
to holders of equity shares 0.2 284.5 68.4
Income impact on assumed conversion of convertible
notes, net of applicable income taxes - 4.5 1.0
- -----------------------------------------------------------------------------------------------------------------------
Net income per GAAP in the United States adjusted for
dilution effect $ 0.2 $ 289.0 $ 69.4
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND THE UNITED STATES (CONTINUED)
(a) RECONCILIATION OF NET INCOME AND EARNINGS PER SHARE (CONTINUED)
========================================================================================================================
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Average number of equity shares outstanding (in millions):
Basic 142.2 147.0 125.4
Diluted 143.0 151.7 127.2
========================================================================================================================
Earnings per shares as adjusted per GAAP in the
United States
Basic $ - $ 1.93 $ 0.55
Diluted $ - $ 1.90 $ 0.55
========================================================================================================================
(i) STOCK-BASED COMPENSATION
Under GAAP in the United States, in accordance with the
provisions of SFAS No. 123, "Accounting for stock-based
compensation", the Company applies Accounting Principles Board
Opinion No. 25, "Accounting for stock issued to employees" (APB
25) and related interpretations in accounting for its employee
share plans and stock options plans.
EMPLOYEE STOCK PURCHASE PLAN IN THE UNITED STATES:
Under the provisions of APB 25, the Employee Share Plans are
accounted for as non-compensatory. There are no similar
requirements under GAAP in Canada and the Company's
contribution is accounted for as compensation expenses.
STOCK OPTION PLANS:
The Company awarded a special performance grant to certain
executives. Under the provisions of APB 25, those grants are
accounted for as compensatory. There are no similar
requirements under GAAP in Canada.
(ii) REPURCHASE OF CONVERTIBLE SENIOR SUBORDINATED NOTES
Under GAAP in Canada, the equity component of the convertible
notes is recorded under shareholders' equity as additional
paid-in capital. Regarding the repurchase of convertible notes,
the Company is required to allocate the consideration paid on
extinguishment to the liability and equity components of the
convertible notes based on their fair values at the date of the
transaction. The amount of gain (loss) relating to the liability
element is recorded to income and the difference between the
carrying amount and the amount considered to be settled relating
to the conversion option element is treated as an equity
transaction. Under GAAP in the United States, the allocation to
equity is not required and the gain (loss) is recorded through
income in the period of extinguishment.
Quebecor World Inc. and its subsidiaries Page 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND THE UNITED STATES (CONTINUED)
(a) RECONCILIATION OF NET INCOME AND EARNINGS PER SHARE (CONTINUED)
(iii) BUSINESS PROCESS REENGINEERING COSTS
Under GAAP in Canada, certain costs incurred in connection with a
consulting contract or an internal project that combines business
process reengineering and information technology transformation
have been deferred in the consolidated balance sheets under the
items "Other assets" or " Property, plant and equipment" and
amortized over periods varying from three to five years. Under
GAAP in the United States effective in 1997, these costs should
be expensed as incurred.
(iv) PRESENTATION OF RESTRUCTURING AND OTHER CHARGES
United States GAAP requires that restructuring and other charges
be included in the determination of operating income and does not
permit the disclosure of a subtotal of the amount of operating
income before these restructuring and other charges. Canadian
GAAP permits the disclosure of a subtotal of the amount of
operating income before restructuring and other charges referred
to above.
(v) PRESENTATION OF GOODWILL AMORTIZATION
Under GAAP in Canada, goodwill amortization is presented, net of
related income taxes, and is excluded from the calculation of
operating income. Under GAAP in the United States, goodwill
amortization is included in the computation of operating income
and is presented as an operating expense.
(b) EFFECT ON CONSOLIDATED BALANCE SHEETS
The application of GAAP in the United States would have the following
effects on the consolidated balance sheets, as reported:
========================================================================================================================
2001 2000
- -----------------------------------------------------------------------------------------------------------------------
CANADA UNITED STATES Canada United States
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Deferred income taxes (b) (i) $ 58.0 $ 68.6 $ 58.1 $ 58.1
Prepaid expenses (b) (i) 24.1 27.1 26.0 26.0
Other assets (b) (ii) 132.0 134.0 156.9 156.9
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities (b) (i) 561.2 592.1 522.9 522.9
Deferred income taxes (b) (i) (ii) 234.0 207.4 326.1 326.1
Other liabilities (b) (ii) 245.6 319.2 290.8 290.8
Convertible notes (a) (ii) 113.3 129.1 105.9 121.8
Additional paid-in capital (a) (i) (ii) 104.6 89.3 104.6 88.8
Translation adjustment (c) (146.5) - (132.2) -
Accumulated other comprehensive
income (loss) (b) (i) (ii) - (209.0) - (132.2)
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND THE UNITED STATES (CONTINUED)
(b) EFFECT ON CONSOLIDATED BALANCE SHEETS (CONTINUED)
(i) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended (SFAS
133). SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities and requires that
all derivatives be recorded as either assets or liabilities in
the balance sheet at fair value. The Company recorded the
cumulative effect of change in other comprehensive income (loss)
upon the adoption of SFAS 133.
The Company utilizes forward exchange currency contracts,
interest rate and commodity SWAP to enhance its ability to manage
risk relating to cash flow exposure. The Company does not enter
into contracts for speculative purposes. On the earlier of the
date into which the derivative contract is entered or the date of
transition, the Company designates the derivative as a hedge.
Changes in the derivative fair values of contracts that are
designated effective and qualify as cash flow hedges are deferred
and recorded as a component of accumulated other comprehensive
income (loss) until the underlying transaction is recorded in
earnings. When the hedged item affects earnings, gains or losses
are reclassified from accumulated other comprehensive income
(loss) to the consolidated statement of income on the same line
as the underlying transaction. The ineffective portion of a
hedging derivative's change in fair value is recognized
immediately in earnings.
Under GAAP in Canada, derivative financial instruments are
accounted for on an accrual basis. Realized and unrealized gains
and losses are deferred and recognized in income in the same
period and in the same financial statement category as the income
or expense arising from the corresponding hedged positions.
(ii) PENSION AND POSTRETIREMENT PLANS
GAAP in the United States requires recognition of an additional
minimum liability when the accumulated benefit obligation exceeds
the fair value of plan assets. If an additional minimum liability
is recognized, a portion is recognized as an intangible asset up
to the amount of unrecognized prior service cost and the excess
is recognized in a separate component in the other comprehensive
income, net of tax benefits. Under GAAP in Canada, such
adjustment is not required.
(c) COMPREHENSIVE INCOME (LOSS)
Moreover, the application of GAAP in the United States requires the
disclosure of comprehensive income (loss) in a separate financial
statement, which includes the net income as well as revenues, charges,
gains and losses recorded directly to equity.
Quebecor World Inc. and its subsidiaries Page 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND THE UNITED STATES (CONTINUED)
(c) COMPREHENSIVE INCOME (LOSS) (CONTINUED)
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net income, as adjusted per GAAP
in the United States $ 22.1 $ 294.6 $ 78.5
Cumulative effect of change in accounting principles,
net of income taxes of $3.3 (b) (i) (6.3) - -
Loss on hedging activities,
net of income taxes of $6.3 (b) (i) (12.0) - -
Additional minimum liability, net of income
taxes of $27.4 (b) (ii) (44.2) - -
Currency translation adjustment (14.3) (37.1) (43.2)
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (76.8) (37.1) (43.2)
Comprehensive income (loss) as per
GAAP in the United States $ (54.7) $ 257.5 $ 35.3
========================================================================================================================
22. SEGMENT DISCLOSURE
The Company operates in the printing industry. Its business groups are
located in three main segments: North America, Europe and Latin America. In
prior years, Canada and the United States were considered as separate
reportable segments. Segment information for these periods has been
restated to conform with the current year's presentation.
These segments are managed separately, since they all require specific
market strategies. The Company assesses the performance of each segment
based on operating income before restructuring and other charges.
Accounting policies relating to each segment are identical to those used
for the purposes of the consolidated financial statements. Intersegment
sales are made at fair market value, which approximate those prevailing on
the markets serviced. Management of financial expenses and income tax
expense is centralized and, consequently, these expenses are not allocated
among these segments.
Quebecor World Inc. and its subsidiaries Page 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. SEGMENT DISCLOSURE (CONTINUED)
========================================================================================================================
North Latin Inter-
America (1) Europe America Other segment Total
- ------------------------------------------------------------------------------------------------------------------------
REVENUES
2001 $ 5,268.1 $ 891.3 $ 161.4 $ - $ (0.7) $ 6,320.1
2000 5,518.9 890.4 112.0 - (0.2) 6,521.1
1999 3,910.1 944.9 95.8 - 1.7 4,952.5
DEPRECIATION AND AMORTIZATION
2001 277.9 50.7 8.2 1.0 - 337.8
2000 289.0 48.8 5.6 1.7 - 345.1
1999 225.6 53.0 5.9 1.5 - 286.0
OPERATING INCOME BEFORE RESTRUCTURING AND OTHER CHARGES
2001 564.3 53.9 10.4 (10.8) - 617.8
2000 628.0 61.1 6.5 29.2 - 724.8
1999 384.8 68.1 7.6 12.0 - 472.5
GOODWILL AMORTIZATION, NET OF INCOME TAXES
2001 55.7 5.4 0.5 (0.2) - 61.4
2000 51.0 9.1 0.4 - - 60.5
1999 25.3 5.9 0.3 0.2 - 31.7
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
2001 180.6 43.3 40.8 13.6 - 278.3
2000 198.7 27.5 12.0 4.0 - 242.2
1999 143.4 46.3 4.4 0.6 - 194.7
PROPERTY, PLANT AND EQUIPMENT
2001 2,138.7 389.1 110.5 (4.3) - 2,634.0
2000 2,238.2 399.1 51.0 (5.3) - 2,683.0
GOODWILL
2001 2,191.4 270.8 18.4 (9.9) - 2,470.7
2000 2,162.0 294.4 14.0 (10.9) - 2,459.5
TOTAL ASSETS
2001 5,009.3 803.9 248.9 87.8 - 6,149.9
2000 5,268.6 985.4 144.6 86.1 - 6,484.7
========================================================================================================================
(1) Includes Revenues amounting to $1,096.9 million ($1,049.8 million in
2000 and $972.4 million in 1999), Property, plant and equipment
amounting to $324.7 million ($340.4 million in 2000) and Goodwill
amounting to $32.0 million ($35.0 million in 2000) for Canada.
Quebecor World Inc. and its subsidiaries Page 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. SEGMENT DISCLOSURE (CONTINUED)
The Company carries out international commercial printing operations, and
offers to its customers a broad range of printed products and related
communication services, such as magazines, retail inserts, catalogs,
specialty printing and direct mail, books, directories, pre-media,
logistics, and other value-added services.
Revenues per product are as follows:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Magazines $ 1,660.2 26.2% $ 1,817.1 27.9% $ 1,463.9 29.6%
Retail inserts 1,306.8 20.7 1,168.1 17.9 1,041.5 21.0
Catalogs 1,054.9 16.7 1,065.8 16.3 770.5 15.6
Specialty printing and
direct mail 790.4 12.5 920.5 14.1 530.7 10.7
Books 718.0 11.4 790.9 12.1 634.4 12.8
Directories 404.0 6.4 352.9 5.4 234.4 4.7
Pre-media, logistics, and
other value-added services 385.8 6.1 405.8 6.3 277.1 5.6
- ------------------------------------------------------------------------------------------------------------------------
$ 6,320.1 100.0% $ 6,521.1 100.0% $ 4,952.5 100.0%
========================================================================================================================
The Company's operations are managed by eight distinct business groups.
Each business group is accountable primarily for one product, group of
products or geographic region.
Revenues per business groups are as follows:
========================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Magazines & Catalog $ 1,771.9 28.0% $ 2,004.9 30.7% $ 1,348.5 27.2%
Retail 1,117.7 17.7 959.3 14.7 826.4 16.7
Commercial & Direct 864.8 13.7 999.1 15.3 543.0 11.0
Book 513.4 8.1 596.5 9.1 455.6 9.2
Directory 465.5 7.4 427.0 6.5 257.4 5.2
Other revenues 534.1 8.5 531.9 8.3 480.9 9.7
Europe 891.3 14.1 890.4 13.7 944.9 19.1
Latin America 161.4 2.5 112.0 1.7 95.8 1.9
- ------------------------------------------------------------------------------------------------------------------------
$ 6,320.1 100.0% $ 6,521.1 100.0% $ 4,952.5 100.0%
========================================================================================================================
Quebecor World Inc. and its subsidiaries Page 56