SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For THE SECOND QUARTER 2002 FINANCIAL RESULTS
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QUEBECOR WORLD INC. (FORMERLY KNOWN AS QUEBECOR PRINTING INC.)
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(Translation of Registrant's Name into English)
612 Saint-Jacques Street, Montreal, Quebec, H3C 4M8
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(Address of Principal Executive Office)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F)
Form 20-F Form 40-F X
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(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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QUEBECOR WORLD INC.
(Formerly known as Quebecor Printing Inc.)
Filed in this Form 6-K
Documents index
1. Press Release dated July 29, 2002 (#13/02); Financial Highlights
2. Supplemental Disclosure for the Second Quarter and Six Months Ended
June 30, 2002
3. Management's Discussion and Analysis of Financial Condition and Results
of Operations
4. Consolidated Financial Statements for the three and six month periods
ended June 30, 2002
[GRAPHIC OMITTED]
JULY 29, 2002 13/02
FOR IMMEDIATE RELEASE Page 1 of 4
QUEBECOR WORLD ANNOUNCES SECOND QUARTER RESULTS
MONTREAL, CANADA -- Quebecor World Inc. today announced that net income for the
first 6 months of 2002 increased 4% to $110 million compared to the same period
in 2001. For the second quarter 2002 diluted earnings per share were $0.40
compared to $0.41 in the same quarter last year. Despite the continued weakness
of the global advertising market, diluted earnings for the first six months of
2002 is $0.68, equal to the corresponding period in 2001. This year's results
incorporate the new accounting rules relating to the non-amortization of
goodwill.
Consolidated revenues for the second quarter were down slightly at $1.47 billion
compared to $1.50 billion during the same period in 2001. Six months year to
date revenues were $2.9 billion compared to $3.1 billion for the corresponding
period in 2001. Consolidated revenues are down 2% for the 2nd quarter and 5%
for the 6-month period compared to the previous year. The slightly lower revenue
line is the net effect of continuing lower demand for print advertising and
promotion and price pressures due to excess capacity, offset by significant new
account gains and the acquisition of the Retail Printing Company in the US and
the printing and binding assets of Hachette in Europe. However, the company's
decision to restructure its operations during this slow period has resulted in
fewer but larger and more specialized plants that are now delivering
efficiencies. This coupled with strict cost containment and lower financial
expense have allowed the company to improve net income in spite of the difficult
market conditions.
"Our second quarter and year to date initiatives appear to be the right recipe
for our business at this time. The steps we have taken to strengthen our
business are permanent improvements and this will enhance our ability to capture
the upside benefits when the market improves" said Charles G. Cavell, President
and CEO of Quebecor World Inc.
FOR IMMEDIATE RELEASE Page 2 of 4
Quebecor World as the world's largest commercial printer is able to achieve
efficiencies from its economies of scale. During the quarter, the company has
entered into a long-term agreement with Sears, Roebuck and Co. to integrate
their paper requirements into the Quebecor World global procurement system. Marc
Reisch, President and CEO of Quebecor World North America stated "We are very
pleased that a company as large as Sears has recognized that our size,
geographic scope and inventory management systems position us to enhance their
entire supply chain".
Our European operations, excluding France, performed well and margins
year-to-date were broadly comparable to our leading margins in North America.
Europe, excluding France, also increased revenues and achieved operating income
similar to last year. Complex social legislation in France including the 35-hour
work week that resulted in increased labour costs, is inhibiting our ability to
redress this situation as quickly as we did in the North and Latin American
platforms in the context of difficult market conditions. Our French operations
have historically been profitable and as such French law precludes
restructuring. However with some facilities now reporting negative earnings, the
Company is developing an action plan that is expected to result in further cost
containment measures in France, including the regrouping of certain production
facilities and discontinuing the operation of certain non-competitive
technologies.
In Latin America revenues increased 18% and are up 27% for the six months ending
June 30, 2002 over the corresponding prior year periods. Quebecor World
continues to build its position as the leading printer in the region and is the
only one offering an extensive multi-country manufacturing platform. This
strategy is attracting local and international customers who are looking for an
established, dependable supplier to help them expand their business in the
region.
Free cash flow from operations was $40 million for the second quarter of 2002
and $287 million for the trailing 12 months ended June 30, 2002. On a
year-to-date basis, financial expenses were $87.7 million, a 17% improvement
compared with the same period last year due to reduced bank borrowings and lower
rates of interest on long-term debt and securitization. This improvement
reflects management's efforts to strengthen the Company's financial condition
through tight management of working capital and capital spending requirements.
This strategy has resulted in lower financial expense which has contributed to
earnings per share. The company intends to continue this strategy in the
short-term.
FOR IMMEDIATE RELEASE Page 3 of 4
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 September 1, 2002 to shareholders of record at the
close of business August 16, 2002.
QUEBECOR WORLD TO WEBCAST INVESTOR CONFERENCE CALL ON JULY 30, 2002
Quebecor World Inc. will broadcast its Second Quarter conference call live over
the Internet on July 30, 2002 at 8:30 AM (EDT).
The conference call, which will last approximately one hour, will be webcast
live and can be accessed on the Quebecor World web site:
http://www.quebecorworld.com/htmen/webcasts/Q202
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 1207070, available from July
30 to August 13, 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.
FOR IMMEDIATE RELEASE Page 4 of 4
Quebecor World Inc. (NYSE; TSX: IQW) is the largest commercial printer in the
world. It is a market leader in most of its major product categories which
include magazines, inserts and circulars, books, catalogs, specialty printing
and direct mail, directories, digital pre-media, logistics, mail list
technologies and other value added services. Quebecor World Inc. has
approximately 40,000 employees working in more than 160 printing and related
facilities in the United States, Canada, Brazil, France, the United Kingdom,
Belgium, Spain, Austria, Sweden, Switzerland, Finland, Chile, Argentina, Peru,
Colombia, Mexico and India.
- 30 -
FOR FURTHER INFORMATION, PLEASE CONTACT:
Jeremy Roberts
Director, Corporate Finance and
Investor Relations
Quebecor World Inc.
(514) 877-5118
(800) 567-7070
Tony Ross
Director, Communications
Quebecor Word Inc.
(514) 877-5317
(800) 567-7070
QUEBECOR WORLD INC.
FINANCIAL HIGHLIGHTS
Periods ended June 30
(In millions of US dollars, except per share amounts)
(Unaudited)
Three Months Six Months
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2002 2001 Change 2002 2001 Change
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CONSOLIDATED RESULTS
Revenues $ 1,471.5 $ 1,502.3 (2)% $ 2,930.7 $ 3,079.0 (5)%
Operating income before amortization 211.2 243.0 (13)% 400.9 462.2 (13)%
Operating income 127.8 159.0 (20)% 234.6 295.4 (21)%
Net income* 64.2 63.2 2 % 110.2 105.7 4 %
Cash provided from operating activities 109.4 277.2 82.4 123.7
Free cash flow from operations** 40.1 178.9 (40.0) (39.7)
Operating margin before amortization 14.4% 16.2% 13.7% 15.0%
Operating margin 8.7% 10.6% 8.0% 9.6%
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SEGMENTED INFORMATION
REVENUES
North America $ 1,189.6 $ 1,252.5 (5)% $ 2,390.6 $ 2,568.1 (7)%
Europe 239.0 213.3 12 % 450.8 440.4 2 %
Latin America 43.3 36.6 18 % 90.0 70.8 27 %
OPERATING INCOME
North America $ 123.8 $ 139.0 (11)% $ 231.3 $ 264.0 (12)%
Europe 8.4 16.3 (48)% 13.7 29.1 (53)%
Latin America 2.7 2.4 13 % 5.0 4.3 16 %
OPERATING MARGINS
North America 10.4% 11.1% 9.7% 10.3%
Europe 3.5% 7.6% 3.0% 6.6%
Latin America 6.1% 6.6% 5.5% 6.1%
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FINANCIAL POSITION
Working capital $ (93.9) $ 53.8
Total assets 6,262.8 6,300.9
Long-term debt (including convertible notes) 2,201.2 2,245.4
Shareholders' equity 2,552.5 2,521.7
Debt-to-capitalization 46:54 47:53
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PER SHARE DATA
Earnings*
Basic $ 0.40 $ 0.41 (2)% $ 0.68 $ 0.68 - %
Diluted $ 0.40 $ 0.41 (2)% $ 0.68 $ 0.68 - %
Dividends on equity shares $ 0.12 $ 0.12 - % $ 0.24 $ 0.22 9 %
Book value $ 14.90 $ 15.35 (3)%
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* 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.
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[LOGO]
[QUEBECOR WORLD INC.]
SUPPLEMENTAL DISCLOSURE
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29TH, 2002
FOR THE SECOND QUARTER
ENDED JUNE 30TH, 2002
FOR PUBLIC RELEASE ON JULY 29TH, 2002
http://www.quebecorworld.com/htmen/20_0/Pdf/Q202-Supp_Disclosure.pdf
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QUEBECOR WORLD
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SECOND QUARTER ENDED JUNE 30, 2002
PAGE
1. HIGHLIGHTS 1
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2. RECENT DEVELOPMENTS 6
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3. 2001 RESTRUCTURING 8
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4. MANAGEMENT APPOINTMENTS 9
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5. SEGMENTED RESULTS OF OPERATIONS 10
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6. BREAKDOWN OF REVENUES BY PRODUCT GROUP 13
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7. FINANCIAL CONDITION 14
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8. DISCUSSION OF CONSENSUS EARNINGS 16
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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.
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1. HIGHLIGHTS
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CONSOLIDATED RESULTS (1)
THREE MONTHS ENDED JUNE 30, 2002
REVENUES: For the second quarter ended June 30, 2002, revenues were $1,471
million, down 2% from 2001.
EARNINGS PER SHARE: Diluted earnings per share for the second quarter ended June
30, 2002 were $0.40 versus $0.41 for the same period last year. This is $0.03
higher than the consensus of earnings estimates of $0.37.
NET INCOME: Net income for the second quarter ended June 30, 2002 amounted to
$64 million, versus $63 million last year.
OPERATING INCOME: Operating income decreased 20% to $128 million, compared with
$159 million for the corresponding period last year. The operating income margin
for the quarter was 8.7% compared to 10.6% in 2001.
FREE CASH FLOW: For the second quarter ended June 30, 2002, free cash flow was
$40 million, compared to $179 million for the second quarter of 2001.
SIX MONTHS ENDED JUNE 30, 2002
REVENUES: For the six months ended June 30, 2002, revenues were $2,931 million,
down 5% from 2001.
EARNINGS PER SHARE: For the six months ended June 30, 2002, diluted earnings per
share were $0.68 versus $0.68 for the same period last year.
NET INCOME: For the six months ended June 30, 2002, net income amounted to $110
million, versus $106 million last year.
OPERATING INCOME: Operating income decreased 21% to reach $235 million, compared
with $295 million for the corresponding period last year. The operating income
margin decreased from 9.6% in 2001 to 8.0% in 2002.
FREE CASH FLOW: For the six months ended June 30, 2002, free cash flow was ($40)
million, the same level as 2001.
(1) ADOPTION OF CICA SECTION 3062: GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, Quebecor World adopted the accounting standards
prescribed by Section 3062 of the CICA Handbook. Under Section 3062,
goodwill is no longer amortized to the income statement.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 1
1. HIGHLIGHTS (CONTINUED)
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MANAGEMENT INITIATIVES
REDUCING COST STRUCTURE
Quebecor World continued to focus during the second quarter 2002 on reducing
its cost structure, repaying debt and winning customers. The 2001
Restructuring Plan is progressing ahead of schedule and is expected to be
substantially complete by September 2002. The benefits of restructuring are
already starting to be reflected in higher operating income in some of the
North American product groups, despite a challenging revenue environment.
Continuing to win new customers is helping to offset the revenue and pricing
pressures, and helping to keep operating margins at industry-leading levels.
SOLID EUROPEAN OPERATIONS
In Europe, outside of France, year-to-date operating margins of 8.2% are
comparable to the Company's consolidated margin of 8.0%, or 8.7% for the second
quarter. In France, complex social legislation inhibits management's
ability to redress the situation as quickly as it is able to do in North America
and Latin America.
STRENGTHENING BALANCE SHEET
Excluding acquisitions, total debt has been reduced by 11% since June 30th,
2001, as working capital decreased by approximately $150 million over the
same period. Financial expenses decreased by 17% largely as a result of
management focus on strengthening the Company's financial condition, as well
as the benefits of reduced bank borrowings and lower rates of interest on
long-term debt and securitization.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 2
1. HIGHLIGHTS (CONTINUED)
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CONSOLIDATED RESULTS
(IN $ MILLIONS EXCEPT MARGINS AND FOR THE THREE MONTHS FOR THE SIX MONTHS
PER SHARE DATA) ENDED JUNE 30 ENDED JUNE 30
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2002 Change 2001 2002 Change 2001
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Revenues $ 1,471 -2% $ 1,502 $ 2,931 -5% $ 3,079
EBITDA (1) 211 -13% 243 401 -13% 462
Operating income (1) 128 -20% 159 235 -21% 295
Net income (1,2) 64 +2% 63 110 +4% 106
Diluted Earnings per share (1,2) $ 0.40 -2% $ 0.41 $ 0.68 - $ 0.68
EBITDA margin 14.4% 16.2% 13.7% 15.0%
Operating margin 8.7% 10.6% 8.0% 9.6%
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1 NON-OPERATING EXPENSES FOR THE THREE MONTHS ENDED JUNE 30, 2001 WERE $0.4
MILLION COMPARED WITH NON-OPERATING REVENUES OF $0.1 MILLION FOR THE SAME
PERIOD IN 2002.
NON-OPERATING EXPENSES WERE $2.8 MILLION FOR THE SIX MONTHS ENDED
JUNE 30, 2001 COMPARED WITH $0.2 MILLION FOR THE SAME PERIOD IN 2002.
2 EFFECTIVE JANUARY 1, 2002, AS PER ADOPTION OF FAS 142 AND CICA 3062,
GOODWILL IS NO LONGER AMORTIZED TO THE INCOME STATEMENT.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 3
1. HIGHLIGHTS (CONTINUED)
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RECONCILIATION OF REPORTED AND CASH EARNINGS
(IN $ MILLIONS EXCEPT PER SHARE DATA) FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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2002 2001 2002 2001
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Reported net income $ 64 $ 63 $ 110 $ 106
Goodwill amortization, net of income taxes - 15 - 31
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Adjusted net income $ 64 $ 79 $ 110 $ 137
Adjusted earnings per share
Basic $0.40 $0.52 $0.68 $0.90
Diluted $0.40 $0.51 $0.68 $0.89
In August 2001, the Accounting Standards Board of the Canadian Institute of
Chartered Accountants ("CICA") issued Handbook Section 3062, Goodwill and Other
Intangible Assets. Under Section 3062, goodwill is tested for impairment
annually or, more frequently, if events or changes in circumstances indicate
that the asset might be impaired. Quebecor World tested for impairment as at
January 1, 2002 and determined that there was no impairment to goodwill.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 4
1. HIGHLIGHTS (CONTINUED)
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IMPACT OF CURRENCY TRANSLATION AND OTHER FACTORS
(IN $ MILLIONS, EXCEPT PER SHARE DATA)
IMPACT ON: Q2 2002 YTD 2002
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REVENUES Weaker foreign currencies 0.3 (21.6)
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Business Acquisitions 63.3 99.6
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TOTAL $63.5 $78.0
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OPERATING INCOME (1) Weaker foreign currencies (0.8) (1.0)
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Business Acquisitions 5.9 11.7
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TOTAL $ 5.1 $10.7
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EARNINGS PER SHARE (PRE-TAX) Weaker foreign currencies (0.01) (0.01)
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Business Acquisitions 0.04 0.08
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TOTAL $0.03 $0.07
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1 NON-OPERATING EXPENSES FOR THE THREE MONTHS ENDED JUNE 30, 2001 WERE $0.4
MILLION COMPARED WITH NON-OPERATING REVENUES OF $0.1 MILLION FOR THE SAME
PERIOD IN 2002.
NON-OPERATING EXPENSES WERE $2.8 MILLION FOR THE SIX MONTHS ENDED JUNE 30,
2001 COMPARED WITH $0.2 MILLION FOR THE SAME PERIOD IN 2002.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 5
2. RECENT DEVELOPMENTS
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CONTINUED EXPANSION OF NORTH AMERICAN RETAIL PLATFORM
On May 9, 2002 Quebecor World announced that it is enhancing its Quebecor World
Atlantic platform by installing two additional web presses in Saint John, New
Brunswick. The presses, which have been redeployed from other facilities, will
produce retail inserts for customers in Canada and the U.S. Also, on May 13,
2002 Quebecor World announced plans to open a new retail offset production
facility in Riverside, California. This new facility is part of the Company's
strategic growth initiative to provide the industry's most flexible and
competitive North American manufacturing platform for the mass-production of
retailers' inserts and mailers.
QUEBECOR WORLD AND AGFA-GEVAERT NV. ANNOUNCED SIGNING OF LARGE SCALE AGREEMENT
ON DELANO
On April 15, 2002 at IPEX, Agfa-Gevaert NV. and Quebecor World announced that
they had reached an agreement on the deployment of the jointly developed AGFA
DELANO software in several Quebecor World printing and pre-press operations
worldwide.
QUEBECOR WORLD IN AGREEMENT WITH SEARS TO PROVIDE EXPANDED SERVICES
On July 23, 2002 Quebecor World announced that it had entered into a
long-term agreement with Sears, Roebuck and Co. to furnish all of the roll
stock paper used by Sears in its national retail insert program. Quebecor
World currently prints Sears' entire national newspaper insert program (which
supplies inserts to more than 865 newspapers nationwide), as well as some of
its other print programs. The expanding relationship will result in supply
chain benefits for all parties.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 6
2. RECENT DEVELOPMENTS (CONTINUED)
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QUEBECOR WORLD WINS AWARDS IN QUALITY AND INDUSTRY LEADERSHIP
In recognition of excellence in product quality among U.S. gravure printers, The
Gravure Association of America presented Quebecor World three Golden Cylinder
Awards. In addition, two of Quebecor World's facilities were chosen as Gold
Award Winners in the annual "Printer of the Year" competition conducted by one
of the world's leading producers of fine paper. This competition recognizes
excellence in printing craftsmanship.
At the Association of Graphic Communications' (AGC) 50th Anniversary, Marc
Reisch, President, Chairman and CEO of Quebecor World North America received the
2002 "Power of Communications" Award. This award was given in recognition of his
positive influence, creative excellence, and outstanding achievements within the
world of graphic communications.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 7
3. 2001 RESTRUCTURING
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PROGESS REPORT AND CASH RESTRUCTURING COSTS
Implementation of the restructuring plan announced on October 9, 2001 is
currently ahead of schedule. Ten facilities have been closed or announced to
be closed, and more than 20 pieces of manufacturing equipment have been
redeployed. Management expects that the planned restructuring will be
substantially completed by September 2002. The cash costs of $65 million
incurred to date do not reflect the progress of the restructuring due to
trailing severance payments, future lease payments and other delayed exit
costs.
PROGRESS REPORT CASH RESTRUCTURING COSTS
- --------------------------------------------------------- -------------------------------------------------------
Total cash costs incurred for restructuring
Key Projects Status Completion Date and other special charges are as follows:
- --------------------------------------------------------- -------------------------------------------------------
Metairie closed completed
Oklahoma City closed completed Q4 2001 $24 million
Eagle closed completed
Chicago Wessel closed completed Q1 2002 $19 million
Sayers underway 3rd quarter
Oakwood underway 3rd quarter Q2 2002 $22 million
Orlando Litho closed completed
Arlington Heights closed completed Total cash costs to date $65 million
Hawkins closed 3rd quarter
Buenos Aires closed completed Total expected cash costs $130 million
Other Projects 3rd quarter
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 8
4. MANAGEMENT APPOINTMENTS
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QUEBECOR WORLD INC.
In an effort to reinforce our worldwide management structure, increase
organizational effectiveness and improve internal communications, the following
appointments were made:
MIKE YOUNG was appointed Senior Vice President, Financial Operations and
Control. As Chief Accounting Officer, Mike is responsible for all financial
information, and will focus on further aligning and integrating our financial
information and internal control activities worldwide.
DENIS AUBIN was appointed Senior Vice President, Corporate Finance and Treasury.
As part of Denis' responsibilities for corporate finance and treasury, he
assumes leadership for corporate taxation, real estate and risk management.
DAVID BLAIR was appointed Senior Vice President of Manufacturing, Environment
and Technology.
CARL GAUVREAU was appointed Senior Vice President - Advisor to the Office of the
Chairman of the Board.
RICK LANE, Executive Vice President, Quebecor World North America has assumed
responsibility for investor relations and corporate communication activities in
the United States.
QUEBECOR WORLD - EUROPE
To strengthen our management structure in Europe, the following appointments
were made:
JOHN DICKIN, previously Executive Vice President Europe was appointed Chief
Operating Officer - Europe. John is responsible for European Operations outside
of France.
YVES BERTRAND, previously Vice President Finance, Quebecor World Latin America,
was appointed Chief Financial Officer, Quebecor World Europe.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 9
5. SEGMENTED RESULTS OF OPERATIONS
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NORTH AMERICA
(IN $ MILLIONS EXCEPT MARGINS) FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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2002 Change 2001 2002 Change 2001
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Revenues $1,190 -5% $1,252 $2,391 -7% $2,568
EBITDA (1) 190 -9% 208 364 -9% 401
Operating income (1) 124 -11% 139 231 -12% 264
EBITDA margin 16.0% 16.6% 15.2% 15.6%
Operating margin 10.4% 11.1% 9.7% 10.3%
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1 NON-OPERATING EXPENSES FOR THE THREE MONTHS ENDED JUNE 30, 2001 WERE $0.2
MILLION COMPARED WITH NON-OPERATING REVENUES OF $0.2 MILLION FOR THE SAME
PERIOD IN 2002.
NON-OPERATING EXPENSES WERE $2.2 MILLION FOR THE SIX MONTHS ENDED JUNE 30,
2001 COMPARED WITH $0.3 MILLION FOR THE SAME PERIOD IN 2002.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 10
5. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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EUROPE
(IN $ MILLIONS EXCEPT MARGINS) FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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2002 Change 2001 2002 Change 2001
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Revenues $239 +12% $213 $451 +2% $440
EBITDA (1) 23 -22% 29 41 -25% 55
Operating income (1) 8 -48% 16 14 -53% 29
EBITDA margin 9.6% 13.7% 9.1% 12.4%
Operating margin 3.5% 7.6% 3.0% 6.6%
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1 NON-OPERATING EXPENSES FOR THE THREE MONTHS ENDED JUNE 30, 2001 WERE $0.2
MILLION COMPARED WITH NON-OPERATING REVENUES OF $0.4 MILLION FOR THE SAME
PERIOD IN 2002.
NON-OPERATING EXPENSES WERE $0.5 MILLION FOR THE SIX MONTHS ENDED JUNE 30,
2001 COMPARED WITH $0.3 MILLION FOR THE SAME PERIOD IN 2002.
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QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 11
5. SEGMENTED RESULTS OF OPERATIONS (CONTINUED)
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LATIN AMERICA
(IN $ MILLIONS EXCEPT MARGINS) FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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2002 Change 2001 2002 Change 2001
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Revenues $ 43 +18% $ 37 $ 90 +27% $ 71
EBITDA (1) 5.2 +22% 4.3 10.4 +32% 7.9
Operating income (1) 2.7 +13% 2.4 5.0 +16% 4.3
EBITDA margin 12.1% 11.6% 11.6% 11.1%
Operating margin 6.1% 6.6% 5.5% 6.1%
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1 NON-OPERATING EXPENSES FOR THE THREE MONTHS ENDED JUNE 30, 2002 WERE $0.4
MILLION.
NON-OPERATING EXPENSES WERE $0.5 MILLION FOR THE SIX MONTHS ENDED
JUNE 30, 2002.
================================================================================
QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 12
6. BREAKDOWN OF REVENUES BY PRODUCT GROUP
================================================================================
(IN $ MILLIONS) FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
- ------------------------------------------------------------------------------------------------------------------
2002 Change 2001 2002 Change 2001
---------------------------------------------------------------------------------
North America
Retail $ 275 +11% $ 248 $ 531 +12% $ 474
Magazines & Catalog $ 381 -8% $ 416 $ 787 -11% $ 886
Book $ 119 -1% $ 119 $ 243 -4% $ 252
Directory $ 122 -3% $ 126 $ 231 -6% $ 245
Commercial & Direct $ 162 -22% $ 207 $ 344 -22% $ 439
Other Domestic Revenues $ 131 -3% $ 135 $ 255 -6% $ 272
---------------------------------------------------------------------------------
North America $1,190 -5% $1,252 $2,391 -7% $2,568
Europe 239 +12% 213 451 +2% 440
Latin America 43 +18% 37 90 +27% 71
- ------------------------------------------------------------------------------------------------------------------
Quebecor World Inc. $1,471 -2% $1,502 $2,931 -5% $3,079
- ------------------------------------------------------------------------------------------------------------------
================================================================================
QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 13
7. FINANCIAL CONDITION
================================================================================
SUMMARIZED CONSOLIDATED BALANCE SHEETS
(IN $ MILLIONS EXCEPT FINANCIAL RATIOS) JUNE 30, 2002 CHANGE JUNE 30, 2001
- ---------------------------------------------------------------------------------------------------------------
Non-cash working capital (1) $ 26 (84%) $ 167
(IN % OF 12-MONTH TRAILING REVENUES) 0.4% 2.6%
Net fixed assets 2,703 +1% 2,684
Total assets 6,263 (1%) 6,301
Shareholders' equity 2,553 +1% 2,522
Long Term Debt (including the current portion) 2,087 - 2,089
Convertible Debentures (including the current portion) 114 (27%) 156
Debt:Equity 46:54 47:53
EBITDA Coverage Ratio (2) 4.7 4.7
EBIT Coverage Ratio (2) 2.9 3.2
- ---------------------------------------------------------------------------------------------------------------
1 BEFORE RESTRUCTURING LIABILITIES.
2 12-MONTH TRAILING AVERAGE BEFORE RESTRUCTURING AND OTHER CHARGES.
================================================================================
QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 14
7. FINANCIAL CONDITION (CONTINUED)
================================================================================
(IN $ MILLIONS OF US DOLLARS) JUNE 30, 2002 CHANGE JUNE 30, 2001
- ---------------------------------------------------------------------------------------------------------------
Bank Indebteness $ 0 $ 1
Current Portion of Long-Term Debt and Convertible Notes 49 -40% 82
Long-Term Debt 2,038 -1% 2,051
Convertible Notes 114 2% 112
-----------------------------------------------------
Total Debt 2,201 -2% 2,247
less: Retail Printing Corp. 128 - -
less: Hachette Filipacchi 71 - -
-----------------------------------------------------
Total Debt Excluding Acquisitions $2,003 -11% $2,247
- ---------------------------------------------------------------------------------------------------------------
Free Cash Flow - 2002 Year to Date (40)
Free Cash Flow - 12 Months Trailing 287
================================================================================
QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 15
8. DISCUSSION OF CONSENSUS EARNINGS
================================================================================
DILUTED EARNINGS PER SHARE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------------------------------------------
IQW 2002 GUIDANCE - OCTOBER 29, 2001 $ 1.85-2.00
- -----------------------------------------------------------------------------------------------------------------------------------
2002 $ 0.28 +4% $ 0.40 -2% $ 0.64(2) +39% $ 0.67(2) +49% $ 1.95(2) +23%
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS ESTIMATES 2002
- ----------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
Average $0.37 $0.64 $0.67 $1.95
High $0.39 $0.73 $0.72 $2.06
Low $0.30 $0.57 $0.62 $1.88
Number of Analysts 11 10 10 13
- ----------------------------------------------------------------------------------------------------------------------------------
IQW 2002 Guidance - April 29, 2002 $0.35-$0.37 $1.85 - $2.00
- ----------------------------------------------------------------------------------------------------------------------------------
1 BEFORE RESTRUCTURING & OTHER SPECIAL CHARGES.
2 BASED ON MANAGEMENT'S SURVEY OF 11 SELL-SIDE ANALYSTS AS AT JULY 18, 2002.
================================================================================
QUEBECOR WORLD : Q2 2002 SUPPLEMENTAL DISCLOSURE PAGE 16
[LOGO QUEBECOR WORLD INC.]
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, investments 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.
REVIEW OF SECOND QUARTER AND YEAR-TO-DATE
- -----------------------------------------
There are indications the advertising recession may be easing in the United
States. Radio and the Internet are currently seeing an increase in advertising
spending, and broadcast television networks are showing strong demand for the
coming season. Historically, a rebound in advertising spending occurs first in
television and other electronic media with print campains following later. As
shown in figure 1, magazine advertising pages, in the second quarter, continued
to be down compared to the record year 2000.
FIGURE 1
Clustered bar
Title: Magazine Advertising Pages - Percentage Change Monthly vs 2000
X-axis Jan 01 to Jun 02
Y-axis 0%, -5%, -10%, -15%, -20%
Column: Value:
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%
Apr -17.7%
May -21.0%
Jun -16.9%
Source: Publishers Information Bureau (PIB)
Revenues were $1,471 million for the second quarter ended June 30, 2002, $31
million lower than 2001. On a year-to-date basis, consolidated revenues slightly
decreased from $3,079 million in 2001 to $2,931 million in 2002.
Operating margin for the second quarter was 8.7% compared to 10.6% for the same
period in 2001. However, despite difficult market conditions, operating income
and margins improved in several of our North American product groups compared to
the same period last year, including in the Magazine and Catalog, Retail, and
Book groups. This is largely explained by the impact of cost reductions and the
early benefits of the restructuring initiatives. In these groups, facility
closures were successfully completed in the first six months of 2002.
Our European operations, excluding France, performed well and margins
year-to-date were broadly comparable to our industry-leading North American
platform. Europe, excluding France, increased revenues and achieved similar
operating income compared to the second quarter of
Page 1
2001. However, our European results were negatively impacted by the
underperformance of our French operations which represent approximately half of
our European platform. France is being affected by serious price competition by
neighbouring countries, especially Germany. This is exacerbated by increased
labour costs as a result of the 35 hour work week. France's complex social
legislation inhibits our ability to redress this situation as quickly as we
would in North and Latin America.
FIGURE 2
Table
Title: European Financial Highlights ($ millions)
Six Months
2002 2001 2000
- -----------------------------------------------------------------------
Europe excluding France
Revenues $244.4 $230.6 $228.5
Operating income $ 20.0 $ 20.5 $ 20.5
Operating margin 8.2% 8.9% 9.0%
France
Revenues $206.4 $209.8 $216.7
Operating income $ (6.3) $ 8.6 $ 7.8
Operating margin (3.1)% 4.1% 3.6%
- -----------------------------------------------------------------------
Europe
Revenues $450.8 $440.4 $445.2
Operating income $ 13.7 $ 29.1 $ 28.3
Operating margin 3.0% 6.6% 6.4%
- -----------------------------------------------------------------------
In Latin America, revenues and operating income increased in both the second
quarter and the first six months of 2002 compared to the same period in 2001.
Our greenfield facility in Recife, Brazil, which experienced initial
difficulties, showed improvement in the second quarter.
Selling, general and administrative expenses increased by $7.6 million to $120.3
million in the second quarter of 2002 from $112.7 million in 2001. Almost half
of the increase resulted from the recent acquisition of the printing and other
selected assets of Hachette Filipacchi Medias as well as the acquisitions of
Retail Printing Corporation and Grupo Serla in the second half of 2001. On a
year-to-date basis, selling, general and administrative expenses were $249.7
million in 2002 compared with $235.6 million in 2001.
Financial expenses decreased by $9.7 million to $42.2 million in the second
quarter of 2002, a 19% improvement. On a year-to-date basis, financial expenses
were $87.7 million, a 17% improvement when compared to $106.2 million for the
same period in 2001. This reduction was 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 for the quarter and the year-to-date ended June 30, 2002
was 24%, compared with 26% and 27% for the three-month and the six-month periods
of 2001, respectively. The effective tax rate, before restructuring and other
special charges, was 23.4% for the full year 2001.
Net income for the second quarter was $64.2 million, $1.0 million or 2% higher
than 2001. Earnings per share for the second quarter was $0.40, compared to
$0.41 last year. For the six-month period, net income was $110.2 million, an
increase of $4.5 million or 4% on 2001. Earnings per share was $0.68, unchanged
compared to the same period last year.
RESTRUCTURING INITIATIVES
- -------------------------
The restructuring initiatives announced in 2001 have progressed ahead of
schedule.
FIGURE 3
Table
Title: 2001 Restructuring Initiatives - Progress Report
Column Title: Key Projects Status Completion Date
------------------------------------------------------
Rows: Metairie closed completed
Oklahoma City closed completed
Eagle closed completed
Chicago Wessel closed completed
Sayers underway 3rd Quarter
Oakwood underway 3rd Quarter
Orlando Litho closed completed
Arlington Heights closed completed
Hawkins closed 3rd Quarter
Buenos Aires closed completed
Other Projects - 3rd Quarter
------------------------------------------------------
Page 2
Nearly 3,000 employee positions have been eliminated as a result of
restructuring initiatives implemented to date. As shown in figure 3, 10
facilities have been closed or their closure is underway, and more than 20
pieces of equipment have been successfully relocated. The cash costs incurred as
at June 30, 2002 were as follows:
FIGURE 4
Table
Title: Restructuring Initiatives - Cash Costs ($ millions)
Restructuring Other Special Total
Charges Charges
- ---------------------------------------------------------------------------
Balances as at
Dec. 31, 2001 $98.5 $9.0 $107.5
Utilized in the first
six months of 2002 (37.2) (3.3) (40.5)
- ---------------------------------------------------------------------------
Balance as at
June 30, 2002 $61.3 $5.7 $67.0
- ---------------------------------------------------------------------------
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 second quarter of 2002 amounted to $40 million compared
to $179 million for the same quarter last year. On a year-to-date basis, free
cash flow showed an outflow of $40 million, the same as the six-month period
ended June 30, 2001. Working Capital was ($94) million at June 30, 2002,
compared to $54 million at June 30, 2001. This decrease of $148 million was
primarily due to the Company's disciplined focus on collecting accounts
receivable and to accrued liabilities for restructuring initiatives announced
last year.
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.
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.
As at June 30, 2002 our debt level was at $2,201 million, a $45 million decrease
compared to the end of June 2001, including accounts receivable securitization,
total debt would be $2,785 million, $63 million lower than last year (see figure
5). The debt to capitalization ratio also improved to 46:54 compared to 47:53 in
2001.
FIGURE 5
Table
Title: Total Debt and Accounts Receivable Securitization ($ millions)
June 30, 2002 June 30, 2001
- ---------------------------------------------------------------------------
Bank indebtedness $0.1 $1.1
Current portion of long-term
debt and convertible notes 49.3 81.8
Long-term debt 2,037.8 2,051.2
Convertible notes 114.1 112.4
- ---------------------------------------------------------------------------
Total debt $2,201.3 $2,246.5
Accounts receivable securitization 583.5 601.5
- ---------------------------------------------------------------------------
Total debt and accounts receivable
securitization $2,784.8 $2,848.0
- ---------------------------------------------------------------------------
The average annual cash obligations over the next three years represent
approximately 10% of the 2001 EBITDA before restructuring and other charges (see
figure 6).
Page 3
FIGURE 6
Table
Title: Contractual Cash Obligations ($ millions)
Remaining of 2007 and
2002 2003 2004 2005 2006 thereafter
- --------------------------------------------------------------------------------------
Long-term debt and
convertible notes 1 4 29 10 250 1,781
Capital leases 32 24 23 13 10 24
Operating leases 40 75 61 65 48 112
- --------------------------------------------------------------------------------------
Total contractual
cash obligations 73 103 113 88 308 1,917
- --------------------------------------------------------------------------------------
We invested $66 million in ongoing capital projects during the second quarter of
2002 compared to $95 million for the same period last year. On a year-to-date
basis, $112 million has been invested in capital projects in 2002 compared to
$158 million in 2001. These capital expenditures were focused on implementing
the various restructuring initiatives together with customer-driven projects
that will improve service and costs. Two new initiatives were announced in the
second quarter to bolster the Company's North American Retail Platform. We will
be moving our Ontario, California facility to a new plant in nearby Riverside.
The new 196,000 square foot facility will allow the Company to increase its
production in the key Southern California Retail Market. The new facility is
expected to be fully operational in the first quarter 2003. Quebecor World is
also enhancing its Retail platform in Eastern Canada with the addition of two
presses in our St-John, New Brunswick facility. This will allow us to better
serve our North American retail customers.
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.
While the counterparties of these agreements expose us to credit loss in the
event of non-performance, we believe that the possibility of incurring such a
loss is remote due to the creditworthiness of the counterparties. We do not hold
or issue any derivative financial instruments for trading purposes.
Concentrations of credit risk with respect to trade receivables are limited due
to our diverse operations and large customer base. As at June 30, 2002, we had
no significant concentrations of credit risk.
Page 4
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(a) 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(a) 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 June 30, 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.
Page 5
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.
Michael Young
Senior Vice President,
Financial Operations and Control
Page 6
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Periods ended June 30
(In millions of US dollars, except for earnings per share amounts)
(Unaudited)
Three months Six months
===========================================================================================================
Notes 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
REVENUES $1,471.5 $1,502.3 $2,930.7 $3,079.0
Operating expenses:
Cost of sales 1,140.0 1,146.6 2,280.1 2,381.2
Selling, general and administrative 120.3 112.7 249.7 235.6
Depreciation and amortization 83.4 84.0 166.3 166.8
- -----------------------------------------------------------------------------------------------------------
1,343.7 1,343.3 2,696.1 2,783.6
- -----------------------------------------------------------------------------------------------------------
OPERATING INCOME 127.8 159.0 234.6 295.4
Financial expenses 42.2 51.9 87.7 106.2
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 85.6 107.1 146.9 189.2
Income taxes 20.8 27.8 35.5 50.6
- -----------------------------------------------------------------------------------------------------------
Income before minority interest 64.8 79.3 111.4 138.6
Minority interest 0.6 0.7 1.2 1.6
- -----------------------------------------------------------------------------------------------------------
NET INCOME BEFORE GOODWILL AMORTIZATION 64.2 78.6 110.2 137.0
Goodwill amortization, net of income taxes 2 (a) - 15.4 - 31.3
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 64.2 $ 63.2 $ 110.2 $ 105.7
Net income available to holders of preferred shares 7.3 4.6 14.4 7.8
- -----------------------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 56.9 $ 58.6 $ 95.8 $ 97.9
===========================================================================================================
EARNINGS PER SHARE: 7
Basic $ 0.40 $ 0.41 $ 0.68 $ 0.68
Diluted $ 0.40 $ 0.41 $ 0.68 $ 0.68
===========================================================================================================
Average number of equity shares outstanding
(in millions) 7
Basic 140.6 142.7 140.4 143.9
Diluted 145.7 147.3 145.3 148.2
===========================================================================================================
RETAINED EARNINGS:
Balance, beginning of period $ 742.5 $ 875.9 $ 721.8 $ 870.3
Net income 64.2 63.2 110.2 105.7
Shares repurchased 6 - (32.4) (1.4) (49.5)
Share issue expenses - - - (3.0)
Dividends:
Equity shares (16.9) (17.2) (33.7) (31.5)
Preferred shares (7.2) (4.6) (14.3) (7.1)
- -----------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 782.6 $ 884.9 $ 782.6 $ 884.9
===========================================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods ended June 30
(In millions of US dollars)
(Unaudited)
Three months Six months
===========================================================================================================
Notes 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 64.2 $ 63.2 $ 110.2 $ 105.7
Non-cash items in net income:
Depreciation of property, plant and equipment 78.2 78.5 155.5 155.6
Deferred income taxes 10.0 24.8 22.3 39.7
Amortization of goodwill and deferred charges 5.2 20.9 10.8 42.5
Other 2.0 2.0 4.1 4.7
Changes in non-cash balances related to operations:
Trade receivables 89.1 121.5 (49.3) 65.0
Inventories (22.8) 33.1 (33.3) 27.1
Trade payables and accrued liabilities (106.5) (29.2) (106.5) (244.4)
Other current assets and liabilities (8.9) (12.1) (19.4) (16.4)
Other non-current assets and liabilities (1.1) (25.5) (12.0) (55.8)
- -----------------------------------------------------------------------------------------------------------
Cash provided from operating activities 109.4 277.2 82.4 123.7
FINANCING ACTIVITIES:
Net change in bank indebtedness - (0.7) - (1.9)
Net proceeds from issuance of equity shares 7.4 2.6 13.4 5.2
Repurchases of shares for cancellation 6 - (74.2) (3.5) (114.6)
Net proceeds from issuance of preferred shares - - - 127.2
Issuance (repayments) of long-term debt (42.3) (106.6) (28.6) 16.5
Dividends on equity shares (16.9) (17.2) (33.7) (31.5)
Dividends on preferred shares (7.2) (4.6) (14.3) (7.1)
Dividends to minority shareholders (1.9) (1.5) (1.9) (1.5)
- -----------------------------------------------------------------------------------------------------------
Cash used by financing activities (60.9) (202.2) (68.6) (7.7)
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash and cash
equivalents 3 (1.2) 0.8 2.7 (36.9)
Additions to property, plant and equipment (65.9) (94.5) (112.4) (158.0)
Net proceeds from disposal of other assets 3.8 0.8 4.3 1.7
Other 1.6 - 1.6 -
- -----------------------------------------------------------------------------------------------------------
Cash used by investing activities (61.7) (92.9) (103.8) (193.2)
Effect of exchange rate changes on cash and cash
equivalents 10.6 16.3 5.8 24.9
- -----------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2.6) (1.6) (84.2) (52.3)
Cash and cash equivalents, beginning of period 3.9 2.0 85.5 52.7
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1.3 $ 0.4 $ 1.3 $ 0.4
===========================================================================================================
Supplemental cash flow information:
Interest paid $ 28.5 $ 33.5 $ 89.2 $ 99.2
Income taxes paid 20.6 27.0 32.4 48.9
===========================================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In millions of US dollars)
JUNE 30 December 31 June 30
(UNAUDITED) (Audited) (Unaudited)
==========================================================================================================
Notes 2002 2001 2001
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1.3 $ 85.5 $ 0.4
Trade receivables 423.7 366.6 514.3
Receivables from related parties 5.3 1.9 4.4
Inventories 417.8 377.1 433.7
Deferred income taxes 58.2 58.0 57.9
Prepaid expenses 30.0 24.1 39.0
- ----------------------------------------------------------------------------------------------------------
Total current assets 936.3 913.2 1,049.7
Property, plant and equipment, net 2,703.0 2,634.0 2,684.1
Goodwill 2(a), 5 2,500.0 2,470.7 2,406.6
Other assets 123.5 132.0 160.5
- ----------------------------------------------------------------------------------------------------------
Total assets $6,262.8 $6,149.9 $6,300.9
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 0.1 $ 0.1 $ 1.1
Trade payables 475.1 462.9 486.5
Accrued liabilities 485.6 561.2 423.2
Income and other taxes payable 20.1 26.5 3.3
Current portion of long-term debt and convertible notes 49.3 57.0 81.8
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 1,030.2 1,107.7 995.9
Long-term debt 2,037.8 1,961.9 2,051.2
Other liabilities 247.1 245.6 272.8
Deferred income taxes 267.9 234.0 334.2
Convertible notes 114.1 113.3 112.4
Minority interest 13.2 14.2 12.7
Shareholders' equity:
Capital stock 6 1,804.6 1,793.3 1,701.4
Additional paid-in capital 104.6 104.6 104.6
Retained earnings 782.6 721.8 884.9
Translation adjustment (139.3) (146.5) (169.2)
- ----------------------------------------------------------------------------------------------------------
2,552.5 2,473.2 2,521.7
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,262.8 $6,149.9 $6,300.9
==========================================================================================================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Periods ended June 30, 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 Canadian 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 unnecessary. 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.
2. ACCOUNTING CHANGES (CONT'D)
a) GOODWILL AND OTHER INTANGIBLE ASSETS (CONT'D)
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 $15.8 million and $31.0
million respectively (net of income taxes of $1.3 million and $2.6
million respectively) for the three-month and six-month periods ended
June 30, 2002. The following summarizes the effect of the accounting
change if it were applied retroactively:
=========================================================================================================
Three months Six months
2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------
Net income, as reported in the consolidated
statements of income $ 64.2 $ 63.2 $ 110.2 $ 105.7
Goodwill amortization, net of income taxes - 15.4 - 31.3
---------------------------------------------------------------------------------------------------------
Net income, adjusted: $ 64.2 $ 78.6 $ 110.2 $ 137.0
Earnings per share, adjusted:
Basic $ 0.40 $ 0.52 $ 0.68 $ 0.90
Diluted $ 0.40 $ 0.51 $ 0.68 $ 0.89
=========================================================================================================
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.
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 June 30, 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.
2. ACCOUNTING CHANGES (CONT'D)
c) STOCK-BASED COMPENSATION (CONT'D)
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.
Had compensation cost been determined using the fair value based
method at the date of grant for awards granted in 2002 under all
plans, the Company's pro forma net income, earnings per share and
diluted earnings per share would have been:
======================================================================
Three months Six months
2002 2002
----------------------------------------------------------------------
Pro forma net income $ 64.0 $ 110.0
Pro forma earnings per share:
Basic $ 0.40 $ 0.68
Diluted $ 0.40 $ 0.68
======================================================================
These pro forma amounts include a compensation cost based on a
weighted-average grant date fair value of $4.38 per stock option for
the 174,321 stock options granted during 2002, as calculated using the
Black-Scholes option pricing model assuming a risk-free rate of 5.07%,
a dividend yield of 2%, an expected volatility of 25% and expected
lives of the stock options of 7 years. The pro forma disclosure omits
the effect of awards granted before January 1, 2002.
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 June 30, 2002 and
the amounts assigned to the assets and liabilities may be subsequently
adjusted.
During the six-month period ended June 30, 2002, the Company also acquired
minority interests in North America and Europe for a cash consideration of
$1.5 million.
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 $40.5 million of the restructuring and other
charges reserve during the six-month period ended June 30, 2002.
5. GOODWILL
The changes in the carrying amount of goodwill for the six-month period
ended June 30, 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 0.9 - 1.2
Foreign currency changes 1.7 37.8 (11.4) 28.1
-------------------------------------------------------------------------------------------
BALANCE AS AT JUNE 30, 2002 $2,183.5 $309.5 $ 7.0 $2,500.0
===========================================================================================
6. CAPITAL STOCK
During the first quarter of 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 Six months
2002 2001 2002 2001
-----------------------------------------------------------------------------------------------
Net income available to holders of equity shares $ 56.9 $ 58.6 $ 95.8 $ 97.9
Income impact on assumed conversion of
convertible notes, net of income taxes 1.2 1.1 2.4 2.2
-----------------------------------------------------------------------------------------------
Net income adjusted for dilution effect $ 58.1 $ 59.7 $ 98.2 $100.1
===============================================================================================
(In millions)
Weighted average number of equity shares outstanding 140.6 142.7 140.4 143.9
Effect of dilutive convertible notes and stock options 5.1 4.6 4.9 4.3
-----------------------------------------------------------------------------------------------
Weighted average number of diluted equity
shares outstanding 145.7 147.3 145.3 148.2
===============================================================================================
Earnings per share:
Basic $ 0.40 $ 0.41 $ 0.68 $ 0.68
Diluted $ 0.40 $ 0.41 $ 0.68 $ 0.68
===============================================================================================
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 June 30,
2002
REVENUES $1,189.6 $239.0 $43.3 $ - $(0.4) $1,471.5
OPERATING INCOME 123.8 8.4 2.7 (7.1) - 127.8
2001
Revenues $1,252.5 $213.3 $36.6 $ - $(0.1) $1,502.3
Operating income 139.0 16.3 2.4 1.3 - 159.0
=============================================================================================
Six months ended June 30,
2002
REVENUES $2,390.6 $450.8 $90.0 $ - $(0.7) $2,930.7
OPERATING INCOME 231.3 13.7 5.0 (15.4) - 234.6
2001
Revenues $2,568.1 $440.4 $70.8 $ - $(0.3) $3,079.0
Operating income 264.0 29.1 4.3 (2.0) - 295.4
=============================================================================================
Graph: Stacked column with 3-D visual effect
Title: Operating Margin
-----------------
(Six Months)
X axis only: 1999, 2000, 2001, 2002
Column: Value:
1999 7.7%
2000 9.6%
2001 9.6%
2002 8.0%
Graph: Stacked column with 3-D visual effect with stacked line marking
values from 1999 to 2002
Title: Net Income ($ Millions) - Diluted EPS ($)
-----------------------------------------
(Six Months)
Note: The columns specify for Net Income
X axis only: 1999, 2000, 2001, 2002
Column: Value:
1999 $68.4
2000 $100.4
2001 $105.7
2002 $110.2
Note: The line specifies for Diluted EPS
Line with marking value: value:
1999 $0.54
2000 $0.64
2001 $0.68
2002 $0.68
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: July 29, 2002