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 REPORT TO SHAREHOLDERS, FIRST QUARTER 2002
---------------------------------------------------------------------------
QUEBECOR WORLD INC. (FORMERLY KNOWN AS QUEBECOR PRINTING INC.)
--------------------------------------------------------------
(Translation of Registrant's Name into English)
612 Saint-Jacques Street, Montreal, Quebec, H3C 4M8
---------------------------------------------------
(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
QUEBECOR WORLD INC.
(Formerly known as Quebecor Printing Inc.)
Filed in this Form 6-K
Documents index
1. Report to Shareholders, First Quarter 2002
REPORT TO SHAREHOLDERS
FIRST QUARTER
2 0 0 2
[GRAPHIC HERE]
PRINT
PART OF YOUR LIFE
[QUEBECOR WORLD LOGO]
QUEBECOR WORLD INC.
FINANCIAL HIGHLIGHTS
Periods ended March 31
(In millions of US dollars, except per share amounts)
(Unaudited)
Three months
- -------------------------------------------------------------------------------
2002 2001 Change
- -------------------------------------------------------------------------------
CONSOLIDATED RESULTS
Revenues $ 1,459.2 $ 1,576.7 (7)%
Operating income before amortization 189.7 219.2 (13)%
Operating income 106.8 136.4 (22)%
Net income* 46.0 42.5 8 %
Cash used by operating activities (27.0) (153.5)
Free cash flow from operations** (80.1) (218.6)
Operating margin before amortization 13.0% 13.9%
Operating margin 7.3% 8.7%
- -------------------------------------------------------------------------------
SEGMENTED INFORMATION
REVENUES
North America $ 1,201.0 $ 1,315.6 (9)%
Europe 211.8 227.1 (7)%
Latin America 46.7 34.2 37 %
OPERATING INCOME
North America $ 107.5 $ 125.0 (14)%
Europe 5.3 12.8 (59)%
Latin America 2.3 1.9 21 %
OPERATING MARGINS
North America 9.0% 9.5%
Europe 2.5% 5.6%
Latin America 4.9% 5.6%
- -------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ (127.1) $ 189.9
Total assets 6,238.8 6,438.3
Long-term debt (including convertible notes) 2,210.8 2,333.7
Shareholders' equity 2,456.1 2,560.2
Debt-to-capitalization 47:53 48:52
- -------------------------------------------------------------------------------
PER SHARE DATA
Earnings*
Basic $ 0.28 $ 0.27 4 %
Diluted $ 0.28 $ 0.27 4 %
Dividends on equity shares $ 0.12 $ 0.10 20 %
Book value $ 14.25 $ 15.32 (7)%
- -------------------------------------------------------------------------------
* Effective January 1, 2002, net income and earnings per share reflect the new
accounting policy adopted by the Company under which goodwill is no longer
amortized.
**Cash provided from operating activities, less capital expenditures net of
proceeds from disposals, and preferred share dividends.
2
MESSAGE TO SHAREHOLDERS
As we began 2002, our main objective was to position Quebecor World to take full
advantage of an eventual turnaround in the economy by reducing costs and adding
to our operating leverage. The centerpiece of this strategy is our restructuring
initiative announced in October. Although not scheduled to be completed until
the end of the third quarter, we are pleased to report the plan is already
beginning to be reflected in the Company's financial results. Net income for the
quarter increased by 8% to $46 million compared to $43 million last year, even
though revenues were down 7% due to continued weakness in the global advertising
market. Although our revenues were lower compared to the same period in 2001, we
continue to deliver leading margins from the highest-quality manufacturing
platform in the industry.
The restructuring is focused primarily in North America, which accounts for some
80% of our revenues. The plan which reduces capacity by approximately 1%, will
achieve new levels of efficiency by redeploying assets into larger more
specialized facilities allowing us to expand the margin gap between ourselves
and the competition. To-date, 10 facility closures have been either announced or
completed. The North American Product Groups that have largely completed their
planned plant closures and staff reductions are showing improved margins versus
last year.
CUSTOMER GAINS
O BRYLANE CATALOG, PREMEDIA, LOGISTICS
O CIRCUIT CITY CATALOG, RETAIL
O COMPUSA CATALOG, RETAIL
O VICTORIA'S SECRET CATALOG, PREMEDIA, LOGISTICS
O SAM'S CLUB COMMERCIAL
O COLUMBIA HOUSE COMMERCIAL
O CHRYSLER COMMERCIAL, MAGAZINE
O FIRST USA COMMERCIAL, LOGISTICS
O KOHL'S RETAIL
O SIMON & SCHUSTER BOOK
O MICROSOFT PRESS BOOK
O TIME INC. MAGAZINE
O FORBES MAGAZINE, PRE-MEDIA
As the world's leading full-service commercial print media company, Quebecor
World is also benefiting from new customer wins and renewals. Of the top four
transactions in the U.S. print market in 2001, Quebecor World was the recipient
of all four. This included contracts with such important customers as Brylane,
Circuit City, CompUSA, and Victoria's Secret. New contracts combined with
renewed agreements will continue to provide benefits to all of our product
groups, including our logistics and our pre-media businesses.
The Retail Group performed particularly well in the first quarter, with revenues
increasing 14%. This was due to added revenues from last year's acquisition of
Retail Printing Corp and organic growth resulting from customer gains in 2001.
This is one more indication that even in an uncertain economic environment,
retailers are using insert promotions to drive traffic into their stores. Our
Book business held up quite well, with a solid improvement in the trade business
and continuing strength in the educational market. As well, our Catalog business
had a reasonable quarter considering the current market conditions, supported by
new customer business sold last year. For Magazines, the advertising market
continues to be very challenging. Even the strongest publishers, which account
for a high proportion of our magazine business, had first-quarter volume
decreases. However, our ability to serve this market efficiently has been
greatly supported by the cost reductions of our restructuring plan.
While magazine advertising pages in North America continued to be down year over
year for the first quarter, recent figures for March show an improving trend and
we are hopeful this will lead to an upturn in the third or fourth quarter of
2002.
EUROPEAN OPERATIONS UNDERGOING COST REDUCTIONS
Quebecor World's European revenues declined 7% compared to the same period in
2001 with the majority of the decrease attributed to France. The Company is
implementing a cost reduction program. But there were also contract wins in our
European platform most notably in Spain where Quebecor World signed its first
European directory contract with Telefonica de Espana to provide approximately
one-third of the telephone directories in Spain.
"Increasingly, customers are finding value in the IQW offering as they work to
improve their own businesses."
3
LATIN AMERICAN BUSINESS IS BOOMING
Quebecor World Latin American continues to grow with revenues increasing 37% in
the first quarter. Our business continues to grow particularly in our leading
directory and book platforms. The Company recently signed a directory contract
with Telefonica, owned by Telefonica de Espana, to serve customers in Peru,
Argentina and Brazil. QW Latin America now prints 58 billion directory pages a
year for eight Latin American countries. These are approximately twice as many
pages as Quebecor World prints in all of Canada.
LATIN AMERICA: BOOKS
CONTRACTS COUNTRY
- --------- -------
EDITORIAL ESTRADA ARGENTINA
ZAMORA COLOMBIA
AZ EDITORA ARGENTINA
REZZA MEXICO
EDITORA MELHORAMENTOS BRAZIL
Quebecor World has also signed book contracts with several leading Latin
American publishers including Editorial Estrada and AZ Editora in Argentina,
Zamora Ediciones S.A. in Colombia, Rezza Editores S.A. de C.V. in Mexico and
Editora Melhoramentos in Brazil. The combined value of the contracts is
approximately $100 million over the life of the contracts. All are long-term
contracts of more than three years, a significant accomplishment for Quebecor
World given that book publishers have historically chosen to award short-term
contracts.
[GRAPHIC HERE]
CHANGE IN ACCOUNTING POLICY
On January 1, 2002, Quebecor World adopted the new accounting recommendations
relating to goodwill. Goodwill is no longer amortized to the earnings statement
and is tested for impairment annually. After an extensive review of Quebecor
World's goodwill, as of the date of adoption, it has been determined there is no
impairment and therefore no financial adjustment required.
Quebecor World is a company that has been built through acquisition, more than
85 during the last ten years. While we are looking at opportunities in all our
geographies, it is difficult to fully assess value in this market. Unlike many
other companies, our goodwill has been determined to be fairly valued. This
demonstrates that we buy when the price is right. This will continue to be our
strategy going forward.
COMPLETION OF HACHETTE DEAL
On March 12, 2002, Quebecor World completed the acquisition of the European
printing assets of Hachette Filipacchi Medias for a total consideration of $71
million. These assets consist of printing, binding and logistics facilities in
France and a gravure plant in Belgium.
Hachette Filipacchi Medias is one of the world's top publishers and as part of
the transaction, has entered into a long-term agreement with Quebecor World to
print most of their long run publications in France. The value is estimated to
be $400 million over the term of the contract. The contract also provides
Quebecor World the right of first refusal on Hachette publications it doesn't
already print and the right of first refusal on new publications in Europe.
BOARD OF DIRECTORS
At its meeting on April 25th, the Board of Directors of the Corporation
appointed a new director, Michel Desbiens. Mr. Desbiens has had a distinguished
career in the pulp and paper industry. From 1985 to 1992, he served as Vice
President, General Manager of the Fine Paper Division of Domtar. Afterwards, he
moved to Donohue Inc., ultimately assuming the role of President and CEO until
2000 when he became Chairman of Abitibi Consolidated. Since leaving Abitibi, Mr.
Desbiens has acted as a consultant to the pulp and paper industry. Mr. Desbiens
"IQW can take the place of what used to be many vendor relationship, and can
work with the customers to integrate their processes worldwide."
4
has served on the board of Abitibi Consolidated and Quebecor Inc. He is also a
director of two private companies, Barrette Chapais, a plastics concern and U.S.
Fence, a lumber company.
DIVIDENDS
The Board of Directors declared a dividend of $0.12 per share on Multiple Voting
Shares and Subordinate Voting Shares. The Board also declared a dividend of
CDN$0.3125 per share on Series 2 Preferred Shares, CDN$0.4219 per share on
Series 4 Preferred Shares and CDN$0.43125 on Series 5 Preferred Shares. The
dividends are payable on June 1, 2002 to shareholders of record at the close of
business May 16, 2002.
OUTLOOK
The current focus of management is to complete the restructuring plan to improve
efficiency and to improve the Company's financial condition through the
reduction of bank borrowings. Through these initiatives, Quebecor World will be
poised to grow both in terms of revenues and margins, once market conditions
return to normal levels.
While there are definite signs that the global economy is recovering, management
is taking a conservative view and emphasizes that print markets are weak.
However, we believe that we've seen the low point in terms of volume decreases.
Clearly, we were on target last October when we decided to take advantage of the
slower market conditions to implement our restructuring plan. This plan, which
we expect to be substantially completed by the end of the third quarter, is
expected to deliver $45 million in cost savings for 2002. These efficiencies are
particularly important in helping us grow in today's competitive environment and
will add significantly to our operating leverage when market demand and
advertising spending improve.
[SIGNATURE] [SIGNATURE]
THE RIGHT HONOURABLE CHARLES G. CAVELL
BRIAN MULRONEY President and Chief
Chairman of the Board Executive Officer
Montreal, Canada, May 2002
[GRAPHICs HERE]
BREAKDOWN OF REVENUES
FIRST QUARTER 2002
Latin America 3% Latin America 3%
Europe 15% Europe 15%
North America 82% Retail 17%
Book 9%
BY GEOGRAPHIC SEGMENT Commercial & Direct 13%
Magazines & Catalog 28%
Directory 7%
Other revenues 8%
BY BUSINESS GROUPS
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Quebecor World is the largest commercial print media services company in the
world. We are the market-leader 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, Belgium, Brazil, Chile, Argentina,
Peru, Colombia, Mexico and India.
On January 1, 2002, we adopted the new Handbook Section 3062 of the Canadian
Institute of Chartered Accountants, GOODWILL AND OTHER INTANGIBLE ASSETS. Under
this Section, goodwill is no longer amortized to the earnings statements and is
tested for impairment annually. We conducted the transitional goodwill
impairment test as of the date of adoption and, based on this test, determined
that there is no impairment.
QUARTER IN REVIEW
The print media industry ended a difficult 2001 facing dramatic declines in
magazine advertising pages, when compared to a record year 2000. The first
quarter 2002 has seen continued erosion in our revenue base as advertising
spending has continued to fall. (See Figure 1).
FIGURE 1
MAGAZINE ADVERTISING PAGES - PERCENTAGE CHANGE MONTHLY VS 2000
Jan 01 -0.9%
Feb -9.8%
Mar -7.9%
Apr -9.3%
May -16.8%
Jun -18.4%
Jul -17.2%
Aug -12.3%
Sep -9.9%
Oct -16.7%
Nov -17.5%
Dec -19.3%
Jan 02 -18.4%
Feb -22.9%
Mar -14.6%
Souce: Publishers Information Bureau (PIB)
Revenue was $1,459 million, $118 million lower than 2001. The Company is taking
advantage of this reduced capacity utilization to execute its restructuring
initiatives and should realize cost reductions earlier than planned. The
benefits of these cost reductions will become increasingly apparent in future
quarters.
Operating margins have continued to decline as overall capacity utilization
decreases. It is not expected to recover substantially until advertising markets
recover. This recovery is expected to occur in the third quarter of the year.
Our North American business has performed in line with expectations, in a
difficult market place. Demand continued to show weakness throughout the
quarter, but proactive cost containment initiatives ensured operating income was
above guidance targets established in the Fall 2001.
Our European business excluding France performed well, in markets showing
significant declines in advertising revenue. Our French business suffered from
an 8% fall in revenue, as German printers aggressively priced surplus capacity,
drawing volumes from the rest of Europe.
Our Latin American business continued to show strong growth, as new contracts
increased revenues as well as operating income. Our facility in Recife, Brazil
is experiencing some startup problems, but our new Mexican facility performed
strongly in the quarter.
Financial expenses decreased by $9 million to $46 million in 2002, a 16%
improvement. This reduction in interest is a result of lower interest rates on
long-term debt and the securitization program as well as management's commitment
to reduce debt and strengthen the Company's balance sheet.
The effective tax rate was 24.0%, compared to 27.8% in 2001. The effective tax
rate, before restructuring and other special charges, was 23.4% for the full
year 2001.
Net income was $46 million, $3.5 million or 8% higher than 2001. Earnings per
share for the first quarter was $0.28, a 4% increase compared to $0.27 last
year.
RESTRUCTURING INITIATIVES
The restructuring initiatives announced in 2001 have progressed ahead of
schedule.
FIGURE 2
2001 RESTRUCTURING INITIATIVES - PROGRESS REPORT
Key Projects Status Completion Date
- ----------------------------------------------------------------
Metairie closed 2nd Quarter
Oklahoma City closed 2nd Quarter
Eagle closed 2nd Quarter
Chicago Wessel closed 2nd Quarter
Sayers announced 3rd Quarter
Oakwood announced 3rd Quarter
Orlando Litho closed completed
Arlington Heights closed 2nd Quarter
Hawkins closed 3rd Quarter
Buenos Aires closed 3rd Quarter
Other Projects -- 3rd Quarter
- ----------------------------------------------------------------
6
More than 2,000 employee positions have been eliminated as a result of
restructuring initiatives implemented to date. As shown in figure 2, 10
facilities have been closed or their closure announced, and more than 20 pieces
of equipment have been successfully relocated. The cash costs incurred as at
March 31, 2002 are as follows:
FIGURE 3
RESTRUCTURING INITIATIVES - CASH COSTS ($ MILLIONS)
Restructuring Other Special Total
Charges Charges
---------------------------------------------------------
Balances as
at Dec. 31, 2001 $ 98.5 $ 9.0 $107.5
Utilized in the
first Quarter 2002 (15.2) (3.3) (18.5)
Balance as at
March 31, 2002 $ 83.3 $ 5.7 $ 89.0
The above cash costs do not reflect the progress of the restructuring due to
trailing severance payments, future lease payments and other delayed exit costs.
Management expects that the planned restructuring will be substantially
completed by September 2002.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
Free Cash Flow for the first quarter showed an outflow of $80 million, a $139
million improvement compared to the same period for 2001. This significantly
improved cash flow was net of cash used in implementing the restructuring
initiatives announced last year of $18.5 million. This improvement in a
difficult economic environment underlines management's commitment to reducing
debt levels, and strengthening the balance sheet in preparation for future
growth opportunities.
In March 2002, we acquired European Graphic Group S.A. ("E2G"), a subsidiary of
Hachette Filipacchi Medias in Europe. E2G owns printing and bindery facilities
in France and Belgium and a 50% ownership of Bayard Hachette Routage in France.
This investment complements our European Gravure platform, and comes with a $400
million (exclusive of paper) long-term printing contract for Hachette's
magazines in Europe. The purchase price, including assumption of long-term debt
net of cash and cash equivalents, increased our long-term debt by $70.7 million.
FIGURE 4
E2G - NET ASSETS ACQUIRED AT FAIR VALUE
Assets acquired
Cash and cash equivalents $ 7.5
Non-cash operating working capital 1.7
Property, plant and equipment 82.1
Liabilities assumed:
Long-term debt 55.5
Other liabilities 5.7
Deferred income taxes 7.4
------
Net assets acquired $ 22.7
======
Consideration:
Cash $ 3.3
Purchase price balance 19.4
------
$ 22.7
======
As at December 31, 2001, we had committed to repurchase, under the Normal Course
Issuer Bid announced on April 6, 2001, a total of 148,500 Subordinate Voting
Shares. The settlement of this commitment took place in January 2002, for a net
cash consideration of Cdn$5.2 million ($3.5 million), at an average cost per
share of Cdn$35.28 ($23.89). A total of 3,692,200 Subordinate Voting Shares, at
an average cost per share of Cdn$40.36 ($27.54), were repurchased under the
program which expired on April 5, 2002.
Debt levels continue to fall, with outstanding debt as at March 31, 2002,
showing a $125 million improvement over the same date of March 2001. The debt to
capitalization ratio also improved to 47:53 compared to 48:52 in 2001.
Following recent announcements by the Securities and Exchange Commission, we
decided to provide details of contractual cash obligations for the remainder of
2002 and future years. As shown in figure 5, average annual cash obligations
over the next three years represent approximately 10% of the 2001 EBITDA before
restructuring and other charges.
FIGURE 5
CONTRACTUAL CASH OBLIGATIONS ($ MILLIONS)
Remaining of 2007 and
2002 2003 2004 2005 2006 thereafter
- ---------------------------------------------------------------------------------
Long-term Debt and
convertible notes 1 4 26 -- 250 1,798
Capital Leases 43 23 21 12 9 23
Operating Leases 59 73 60 64 46 95
- ---------------------------------------------------------------------------------
Total Contractual
Cash Obligations 103 100 107 76 305 1,916
- ---------------------------------------------------------------------------------
We invested $47 million in capital projects during the first quarter of 2002.
These capital expenditures were focused on implementing the various
restructuring initiatives together with customer driven projects as well as
projects initiated under the Quebecor World Employee Suggestion Team program
designed to reduce costs and improve efficiency.
We believe that our liquidity, capital resources and cash flow from operations
are sufficient to fund planned capital expenditures, working capital
requirements, interest and principal payments for the foreseeable future.
RISKS AND UNCERTAINTIES
In the normal course of business, we are exposed to changes in interest rates
and foreign exchange rates. However, we manage the interest rate exposure by
having a balanced schedule of debt maturities as well as a combination of fixed
and variable rate obligations. In addition, we have entered into interest rate
swap agreements to manage this exposure.
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.
7
RISKS AND UNCERTAINTIES (cont'd)
While the counter parties of these agreements expose us to credit loss in the
event of non-performance, we believe that the possibility of incurring such a
loss is remote due to the creditworthiness of the counter parties. We do not
hold or issue any derivative financial instruments for trading purposes.
Concentrations of credit risk with respect to trade receivables are limited due
to our diverse operations and large customer base. As at March 31, 2002, we had
no significant concentrations of credit risk.
ACCOUNTING POLICIES
The Consolidated Financial Statements have been prepared using the same
accounting policies described in the Company's latest Annual Report with the
exception of the following items.
In August 2001, the Canadian Institute of Chartered Accountants ("CICA") issued
Handbook Section 3062, GOODWILL AND OTHER INTANGIBLE ASSETS. Under Section 3062,
goodwill is not amortized and is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the asset might
be impaired. The impairment test is carried out in two steps as explained in
note 2 of the quarterly consolidated financial statements.
We have adopted Section 3062 effective January 1, 2002. As of the date of
adoption, we had unamortized goodwill of approximately $2.5 billion. In
accordance with the requirements of Section 3062, this change in accounting
policy is not applied retroactively and the amounts presented for prior periods
have not been restated for this change. The Company conducted the first step of
the transitional goodwill impairment test as of the date of adoption and, based
on this test, determined that there is no impairment. The impact of that change
is presented in note 2 of the quarterly consolidated financial statements.
In November 2001, the CICA approved the modification of Section 1650 of the CICA
handbook, FOREIGN CURRENCY TRANSLATION, to eliminate the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items. In the first quarter of 2002, we adopted the new recommendations
retroactively. The effect of adopting the new recommendations did not have a
significant impact on the consolidated balance sheet and consolidated statements
of income and retained earnings and cash flows as at March 31, 2002.
Effective January 1, 2002 we adopted the new recommendations of CICA Handbook
Section 3870, STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS. This
Section establishes standards for the recognition, measurement and disclosure of
stock-based compensation and other stock-based payments made in exchange for
goods and services. These new recommendations require that compensation for all
awards made to non-employees and certain awards made to employees, including
stock appreciation rights, direct awards of stock and awards that call for
settlement in cash or other assets, be measured and recorded in the financial
statements at fair value.
As permitted by Section 3870, we have chosen to continue our existing policy of
recording no compensation cost on the grant of stock options to employees. Any
consideration paid by employees on exercise of stock options is credited to
capital stock.
SEASONALITY
The operations of our business are seasonal, with approximately two-thirds of
historical operating income recognized in the second half of the fiscal year,
primarily due to the higher number of magazine pages, new product launches and
back-to-school, retail and holiday catalog promotions.
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
document are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties, which may cause our actual
results in future periods to differ materially from forecasted results. Those
risks include, among others, changes in customer demand for our products,
changes in raw material and equipment costs and availability, seasonal changes
in customer orders, pricing actions by our competitors and general changes in
economic conditions.
[SIGNATURE HERE]
MICHAEL YOUNG
Senior Vice President,
Financial Operations and Control
8
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Periods ended March 31
(In millions of US dollars, except for earnings per share amounts)
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
Notes 2002 2001
- -----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
REVENUES $ 1,459.2 $ 1,576.7
Operating expenses:
Cost of sales 1,140.1 1,234.6
Selling, general and administrative 129.4 122.9
Depreciation and amortization 82.9 82.8
- -----------------------------------------------------------------------------------------------------------
1,352.4 1,440.3
- -----------------------------------------------------------------------------------------------------------
OPERATION INCOME 106.8 136.4
Financial expenses 45.5 54.3
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 61.3 82.1
Income taxes 14.7 22.8
- -----------------------------------------------------------------------------------------------------------
Income before minority interest 46.6 59.3
Minority interest 0.6 0.9
- -----------------------------------------------------------------------------------------------------------
NET INCOME BEFORE GODDWILL AMORTIZATION 46.0 58.4
Goodwill amortization, net of income taxes 2(a) - 15.9
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 46.0 $ 42.5
Net income available to holders of preferred shares 7.1 3.2
- -----------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 38.9 $ 39.3
===========================================================================================================
EARNINGS PER SHARE 7
Basic $ 0.28 $ 0.27
Diluted $ 0.28 $ 0.27
===========================================================================================================
Average number of equity shares outstanding (in millions) 7
Basic 140.2 145.1
Diluted 140.8 145.8
===========================================================================================================
RETAINED EARNINGS:
Balance, beginning of period $ 721.8 $ 870.3
Net income 46.0 42.5
Shares repurchased 6 (1.4) (17.1)
Share issue expenses - (3.0)
Dividends:
Equity shares (16.8) (14.3)
Preferred shares (7.1) (2.5)
- -----------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 742.5 $ 875.9
===========================================================================================================
See Notes to Consolidated Financial Statements.
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods ended March 31
(In millions of US dollars)
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
Notes 2002 2001
- -----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 46.0 $ 42.5
Non-cash items in net income:
Depreciation of property, plant and equipment 77.3 77.1
Deferred income taxes 12.3 14.9
Amortization of goodwill and deferred charges 5.6 21.6
Other 2.1 2.7
Changes in non-cash balances related to operations:
Trade receivables (138.4) (56.5)
Inventories (10.5) (6.0)
Trade payables and accrued liabilities - (215.2)
Other current assets and liabilities (10.5) (4.3)
Other non-current assets and liabilities (10.9) (30.3)
---------------------------------------------------------------------------------------------------------
Cash used by operating activities (27.0) (153.5)
FINANCING ACTIVITIES:
Net change in bank indebtedness - (1.2)
Net proceeds from issuance of equity shares 6.0 2.6
Repurchases of shares for cancellation 6 (3.5) (40.4)
Net proceeds from issuance of preferred shares - 127.2
Net issuance of long-term debt 13.7 123.1
Dividends on equity shares (16.8) (14.3)
Dividends on preferred shares (7.1) (2.5)
---------------------------------------------------------------------------------------------------------
Cash (used) provided from financing activities (7.7) 194.5
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash and cash equivalents 3 3.9 (37.7)
Additions to property, plant and equipment (46.5) (63.5)
Net proceeds from disposal of other assets 0.5 0.9
---------------------------------------------------------------------------------------------------------
Cash used by investing activities (42.1) (100.3)
Effect of exchange rate changes on cash and cash equivalents (4.8) 8.6
- -----------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (81.6) (50.7)
Cash and cash equivalents, beginning of period 85.5 52.7
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3.9 $ 2.0
===========================================================================================================
Supplemental cash flow information:
Interest paid $ 60.7 $ 65.7
Income taxes paid 11.8 21.9
===========================================================================================================
See Notes to Consolidated Financial Statements.
10
CONSOLIDATED BALANCE SHEETS
(In millions of US dollars)
MARCH 31 December 31 March 31
(UNAUDITED) (Audited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
Notes 2002 2001 2001
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3.9 $ 85.5 $ 2.0
Trade receivables 509.1 366.6 639.9
Receivables from related parties 0.5 1.9 3.9
Inventories 387.8 377.1 466.7
Deferred income taxes 58.0 58.0 58.1
Prepaid expenses 23.1 24.1 34.3
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 982.4 913.2 1,204.9
Property, plant and equipment, net 2,662.8 2,634.0 2,649.3
Goodwill 2(a), 5 2,462.9 2,470.7 2,432.3
Other assets 130.7 132.0 151.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 6,238.8 $ 6,149.9 $ 6,438.3
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 0.1 $ 0.1 $ 1.8
Trade payables 520.4 462.9 442.6
Accrued liabilities 516.8 561.2 475.2
Income and other taxes payable 22.0 26.5 10.7
Current portion of long-term debt and convertible notes 50.2 57.0 84.7
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,109.5 1,107.7 1,015.0
Long-term debt 2,046.9 1,961.9 2,142.9
Other liabilities 243.5 245.6 274.1
Deferred income taxes 254.7 234.0 326.5
Convertible notes 113.7 113.3 106.1
Minority interest 14.4 14.2 13.5
Shareholders' equity:
Capital stock 6 1,797.2 1,793.3 1,740.7
Additional paid-in capital 104.6 104.6 104.6
Retained earnings 742.5 721.8 875.9
Translation adjustment (188.2) (146.5) (161.0)
-----------------------------------------------------------------------------------------------------------------------------
2,456.1 2,473.2 2,560.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,238.8 $ 6,149.9 $ 6,438.3
=================================================================================================================================
See Notes to Consolidated Financial Statements.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Periods ended March 31, 2002 and 2001
(Tabular amounts are expressed in millions of US dollars,
except for earnings per share amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The Consolidated Financial Statements included in this report are unaudited
and reflect normal and recurring adjustments which are, in the opinion of the
Company, considered necessary for a fair presentation. These Consolidated
Financial Statements have been prepared in conformity with Canadian generally
accepted accounting principles. The same accounting policies as described in the
Company's latest Annual Report have been used, with the exception of the new
accounting changes described in note 2. However, these Consolidated Financial
Statements do not include all disclosures required under generally accepted
accounting principles and accordingly should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included in the
Company's latest Annual Report. The results of operations for the interim
periods should not be considered indicative of full year results due to the
seasonality of our business.
2. ACCOUNTING CHANGES
The Company has changed certain accounting policies to comply with new
standards.
A) GOODWILL AND OTHER INTANGIBLE ASSETS
In August 2001, the Canadian institute of Chartered Accountants ("CICA")
issued Handbook Section 3062, GOODWILL AND OTHER INTANGIBLE ASSETS.
Under Section 3062, goodwill is not amortized and is tested for
impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment
test is carried out in two steps. In the first step, the carrying
amount of the reporting unit is compared with its fair value. When
the fair value of a reporting unit exceeds its carrying amount, goodwill
of the reporting unit is considered not to be impaired and the second
step of the impairment test is unnessary. The second step is carried out
when the carrying amount of a reporting unit exceeds its fair value, in
which case the implied fair value of the reporting unit's goodwill is
compared with its carrying amount to measure the amount of the
impairment loss, if any. When the carrying amount of a reporting
unit's goodwill exceeds the implied fair value of the goodwill, an
impairment loss is recognized in an amount equal to the excess and is
presented as a separate line item in the income statement before
extraordinary items and discontinued operations.
Intangible assets acquired in business combinations and intangible
assets acquired individually or with a group of other assets, which have
indefinite lives, are not amortized, and are tested for impairment
annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The impairment test compares
the carrying amount of the intangible asset with its fair value, and an
impairment loss is recognized in income for the excess, if any.
Intangible assets with definite useful lives are amortized over their
useful life.
The Company has adopted Section 3062 effective January 1, 2002. As of
the date of adoption, the Company had unamortized goodwill of $2,470.7
million. In accordance with the requirements of Section 3062, this
change in accounting policy is not applied retroactively and the amounts
presented for prior periods have not been restated for this change. This
change in accounting policy resulted in a reduction in amortization
expense related to goodwill of $15.2 million (net of taxes of $1.3
million) for the three-month period ended March 31, 2002. The following
summarizes the effect of the accounting change if it were applied
retroactively:
- ---------------------------------------------------------------------------------------------------
THREE MONTHS ENDED Three months ended
MARCH 31, 2002 March 31, 2001
- ---------------------------------------------------------------------------------------------------
Net income, as reported in the consolidated
statements of income $ 46.0 $ 42.5
Goodwill amortization, net of taxes - 15.9
- ---------------------------------------------------------------------------------------------------
Net income, adjusted: $ 46.0 $ 58.4
Earnings per share, adjusted:
Basic $ 0.28 $ 0.38
Diluted $ 0.28 $ 0.38
- ---------------------------------------------------------------------------------------------------
The Company conducted the first step of the transitional goodwill
impairment test as of the date of adoption and, based on this test,
determined that there is no impairment.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING CHANGES (CONT'D)
B) FOREIGN CURRENCY TRANSLATION
In November 2001, the CICA approved the modification of Section 1650 of the
CICA Handbook, FOREIGN CURRENCY TRANSLATION, to eliminate the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items. In the first quarter of 2002, the Company adopted the new
recommendations retroactively. The effect of adopting the new
recommendations did not have a significant impact on the consolidated
balance sheet and consolidated statements of income and retained earnings
and cash flows as at March 31, 2002.
C) STOCK-BASED COMPENSATION
Effective January 1, 2002 the Company adopted the new recommendations of
CICA Handbook Section 3870, STOCK-BASED COMPENSATION AND OTHER STOCK-BASED
PAYMENTS. This Section establishes standards for the recognition,
measurement and disclosure of stock-based compensation and other
stock-based payments made in exchange for goods and services. These new
recommendations require that compensation for all awards made to
non-employees and certain awards made to employees, including stock
appreciation rights, direct awards of stock and awards that call for
settlement in cash or other assets, be measured and recorded in the
financial statements at fair value. This Section also sets out a fair value
based method of accounting for stock options issued to employees and
applies to awards granted on or after January 1, 2002.
The Company, as permitted by Section 3870, has chosen to continue its
existing policy of recording no compensation cost on the grant of stock
options to employees. Any consideration paid by employees on exercise of
stock options is credited to capital stock.
The Company has not issued any stock options to participants in the first
quarter of 2002. As a result, compensation cost and net income for the
three-month period ended March 31, 2002 would not have been different had
the Company applied the fair value based method of accounting for stock
options.
3. BUSINESS ACQUISITIONS
In March 2002, the Company purchased all of the issued and outstanding
shares of European Graphic Group S.A. ("E2G"), a subsidiary of Hachette
Filipacchi Medias in France, for a cash consideration of $3.3 million and a
purchase price balance amounting to $19.4 million. The purchase price will
be adjusted by contingent consideration based on achieving a specific
performance level over the next three years. E2G owns printing and bindery
facilities in France and Belgium and a 50% ownership of Bayard Hachette
Routage in France. This acquisition was accounted for using the purchase
method and no goodwill resulted from the acquisition. Earnings are included
in the consolidated statements of income since the date of acquisition. The
allocation purchase price process was not completed as at March 31, 2002
and the amounts assigned to the assets and liabilities may be subsequently
adjusted.
During the quarter, the Company also acquired minority interests in North
America for a cash consideration of $0.3 million.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING AND OTHER CHARGES
As at January 1, 2002, the balance of the restructuring reserve was $107.5
million; this related to workforce costs resulting from planned closures
and other headcount reductions in addition to other restructuring and exit
costs. The Company utilized $18.5 million of the restructuring and other
charges reserve during the period ended March 31, 2002.
5. GOODWILL
The changes in the carrying amount of goodwill for the three-month period
ended March 31, 2002 are as follows:
- ------------------------------------------------------------------------------------------------------------------------------
North Latin
America Europe America Total
- ------------------------------------------------------------------------------------------------------------------------------
Balance as at January 1, 2002 $2,181.5 $270.8 $18.4 $2,470.7
Goodwill acquired during the period 0.3 - - 0.3
Foreign currency changes - 1.8 (9.9) (8.1)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AS AT MARCH 31, 2002 $2,181.8 $272.6 $ 8.5 $2,462.9
==============================================================================================================================
6. CAPITAL STOCK
During the period ended March 31, 2002, the Company repurchased for
cancellation under the Normal Course Issuer Bid program initiated in 2001,
a total of 148,500 Subordinate Voting Shares for a net cash consideration
of Cdn$5.2 million ($3.5 million).
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three months
- ------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 38.9 $ 39.3
- ------------------------------------------------------------------------------------------------------------------------------
(In millions)
Weighted average number of equity shares outstanding 140.2 145.1
Effect of dilutive stock options 0.6 0.7
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of diluted equity shares outstanding 140.8 145.8
==============================================================================================================================
Basic earnings per share $ 0.28 $ 0.27
Diluted earnings per share $ 0.28 $ 0.27
==============================================================================================================================
Diluted earnings per share does not include the effects of the convertible
notes as the effect of their inclusion is anti-dilutive.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. SEGMENT DISCLOSURE
The Company operates in the printing industry. Its business groups are
located in three main segments: North America, Europe and Latin America.
The Company assesses the performance of each segment based on operating
income. These segments are managed separately since they all require
specific market strategies. Summarization of the segmented information is
as follows:
- --------------------------------------------------------------------------------------------------------------------------
North Latin Inter-
America Europe America Other Segment Total
- --------------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
2002
REVENUES $1,201.0 $211.8 $46.7 $ - $(0.3) $1,459.2
OPERATING INCOME 107.5 5.3 2.3 (8.3) - 106.8
2001
Revenues $1,315.6 $227.1 $34.2 $ - $(0.2) $1,576.7
Operating income 125.0 12.8 1.9 (3.3) - 136.4
- --------------------------------------------------------------------------------------------------------------------------
[GRAPHIC HERE]
Operating Margins
-----------------
(Three Months)
1999 6.2% 2000 8.5%
2001 8.7% 2002 7.3%
[GRAPHIC HERE]
Net Income ($ Millions) - Diluted EPS ($)
-----------------------------------------
(Three Months)
Net Income Diluted EPS
1999 $23.2 $0.18
2000 $37.6 $0.24
2001 $42.5 $0.27
2002 $46.0 $0.28
15
[Quebecor World logo]
QUEBECOR WORLD HEAD OFFICE
612 St. Jacques Street, Montreal, Quebec, Canada H3C 4M8
Tel.: (514) 954-0101 (800) 567-7070 Fax: (514) 954-9624
www.quebecorworld.com
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUEBECOR WORLD INC.
By: /s/ Michael Young
------------------------
Name: Michael Young
Title: Senior Vice President,
Financial Operations and Control
Date: May 22, 2002