FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
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Commission file number 1 - 8014
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MOORE CORPORATION LIMITED
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ontario, Canada 98-0154502
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 First Canadian Place, Toronto, Ontario, Canada M5X 1G5
- - --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
416 - 364-2600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
--- ---
The number of common shares without par value outstanding as of October 15, 1999
was 88,456,940.
1
PART I - FINANCIAL INFORMATION
Note: Unless otherwise indicated by the designation "Canadian" or "Cdn.", all
dollar amounts in this Form are expressed in United States currency.
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Moore Corporation Limited for the
nine months ended September 30, 1999 and 1998 appear in the Interim Report
to Shareholders for the nine months ended September 30, 1999 and are
incorporated herein by reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations appears in the Interim Report to Shareholders for the nine
months ended September 30, 1999 and is incorporated herein by reference.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation knows of no material legal proceedings to which Moore is
party or to which Moore's property is subject.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in the registered securities of the Corporation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Corporation is not in default with respect to any senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders.
ITEM 5. OTHER INFORMATION
The Corporation has no other information to report.
2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit # Description Location
- - --------- ----------- --------
2 Plan of acquisition, reorganization,
arrangement, liquidation and succession Not applicable
4 Instruments defining the rights of
security holders, including indentures Not applicable
10 Material contracts Not applicable
11 Statement re: computation of per share
earnings Page 6
15 Letter re: unaudited interim financial
information Not applicable
18 Letter re: change in accounting principles Not applicable
19 Report furnished to security holders Page 7
22 Published report regarding matters
submitted to vote of security holders Not applicable
23 Consents of experts and counsel Not applicable
24 Power of attorney Not applicable
27 Financial data schedule Not applicable
99 Additional exhibits Not applicable
(b) Reports of Form 8-K: None.
3
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.
MOORE CORPORATION LIMITED
-------------------------------------------
(Registrant)
October 22, 1999 s/b M.S.Rousseau
- - ---------------- -------------------------------------------
(Date) M.S. Rousseau, Senior Vice President
and Chief Financial Officer
October 22, 1999 s/b J.M. Wilson
- - ---------------- -------------------------------------------
(Date) J.M. Wilson, Vice President and Secretary
4
EXHIBIT 11
MOORE CORPORATION LIMITED
CALCULATION OF EARNINGS PER SHARE
UNDER UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Three months ended Nine months ended
September 30 September 30
------------------------------------- --------------------------------------
1999 1998 1999 1998
----------------- ---------------- ----------------- -----------------
Net earnings (loss) as determined
under United States generally
accepted accounting principles (1) $ 4,488 $ (429,370) $ 9,215 $ (453,795)
================= ================ ================= =================
Weighted average number of
shares outstanding
- Basic 88,456,940 88,456,940 88,456,940 88,455,030
- Diluted 89,107,143 88,850,975 89,106,434 88,857,065
Earnings (loss) per share
- Basic $ (0.05) $ (4.85) $ (0.10) $ (5.13)
================= ================ ================= =================
- Diluted $ (0.05) $ (4.83) $ (0.10) $ (5.10)
================= ================ ================= =================
(1) Refer to Note 1 to the Consolidated Financial Statements included in the
Interim Report to the Shareholders.
5
MOORE CORPORATION LIMITED
[GRAPHIC]
Interim Report
TO SHAREHOLDERS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
3
MOORE-Registered Trademark-
CORPORATE
PROFILE
Moore Corporation Limited provides data capture, information design,
marketing services, digital communications and print solutions, that enable
clients to improve their business processes and to increase revenues by
acquiring, retaining and cross-selling to maximize customer lifetime value.
FINANCIAL
HIGHLIGHTS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
1999 1998
Sales $ 1,778 $ 2,019
Income (loss) 41 (657)
from operations
Net earnings (loss) 20 (563)
Per common share
Net earnings (loss) $ 0.23 $ (6.36)
Dividends $ 0.15 $ 0.335
Average shares 88,457 88,455
outstanding (thousands)
EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT PER SHARE AMOUNTS, IN
MILLIONS OF DOLLARS.
2
LETTER TO
SHAREHOLDERS
MESSAGE FROM THE CEO
We are starting to see the effects of our restructuring actions
as positive operating trends continue year over year. We are now focusing
on growing both our Forms and Customer Communication Services businesses.
In September, we announced the largest healthcare success ever for Moore.
We were selected as part of a dual-source contract by Novation, the
largest supply management company in the U.S. healthcare industry, as a
preferred provider of document management solutions to Novation's more
than 2,000 member organization.
In addition, we are implementing our global Customer
Communication Services strategy. We are in the process of establishing
Moore Chile to serve the Chilean billing statement market; we reconfirmed,
through a 10-year agreement, our relationship with Sigma Moore in Italy;
and we extended and expanded our licensing agreement in Japan with Toppan
Printing.
THIRD QUARTER RESULTS
Third quarter results include Year 2000 remediation costs (pre-tax)
totalling $5 million and $9 million in 1999 and 1998, respectively. In
addition, results for the third quarter of 1998 included a $630 million
(pre-tax) restructuring charge and $10 million (pre-tax) net costs of
other one-time items. The following highlights exclude the impact of these
items.
- Sales in the third quarter of 1999 of $596 million decreased by $55
million or 8% from $651 million in the third quarter of 1998. After
adjusting for foreign currency fluctuations, paper cost changes and sales
of units divested in 1998, sales increased by $1 million.
- Sales in the traditional Forms business worldwide for the third quarter
of 1999 of $418 million decreased by $63 million or 13% over 1998 third
quarter sales of $481 million. Excluding the sales of units divested in
1998 and adjustments for foreign currency fluctuations and paper cost
changes, sales in the Forms business decreased by 3% compared to 1998. The
decrease reflects poor price performance in the U.S. Forms operations,
offset in part by an increase in volume.
- Sales of Customer Communication Services in the third quarter of 1999 of
$179 million increased by 5%
3
from $170 million in the third quarter of 1998. Strong volume growth in
the Business Communication Services and Phoenix Group business units
were offset partly by reduced volume in the direct marketing services
business. Continued uncertainty regarding possible legislative changes
to the "sweepstakes" industry has negatively impacted both sales and
operating income.
- In the third quarter of 1999, income from operations of $23 million was
realized compared to $9 million in 1998. The restructuring program
implemented in mid-1998 resulted in improved profits in Moore North
America as the business has taken actions to reduce overhead costs and to
consolidate manufacturing in North America. In the third quarter of 1999,
the international businesses realized income from operations of $2 million
compared to a loss from operations of $2 million in 1998. The absence of
operating losses from units divested in 1998 contributed $3 million to the
improvement.
- Net earnings in the third quarter of 1999 was $12 million or $0.13 per
share compared to net income in the third quarter of 1998 of $3 million or
$0.03 per share.
YEAR-TO-DATE RESULTS
Year-to-date results include Year 2000 remediation costs (pre-tax)
totalling $15 million and $19 million in 1999 and 1998, respectively. In
addition, results for the nine months ended September 30, 1998 included a
$630 million (pre-tax) restructuring charge and $8 million (pre-tax) net
costs of other one-time items. The following highlights exclude the impact
of these items.
- Sales for the nine months ended September 30, 1999 of $1,778 million
were $241 million or 12% below sales of $2,019 million in the same period
of 1998. After adjusting for foreign currency fluctuations, paper cost
changes and sales of units divested in 1998, sales increased by $42
million or 2%.
- Sales in the traditional Forms business worldwide of $1,228 million for
the first nine months of 1999 were down 18% from sales of $1,492 million
for the same period of 1998. Excluding the sales of units divested in 1998
and adjustments for foreign currency fluctuations and paper cost changes,
sales in the Forms business increased by $4 million compared to 1998.
Improved price performance for the period was offset to a large degree by
continued volume erosion.
4
- Sales of Customer Communication Services for the first nine months of
1999 were $550 million, an increase of $23 million or 4% from $526 million
in sales for the same period in 1998.
- Income from operations of $56 million for the first nine months of 1999
increased by $43 million over 1998 income from operations of $13 million
for the same period. In the first nine months of 1999, the international
businesses realized income from operations of $3 million compared to a
loss from operations of $11 million for the same period of 1998. The
absence of operating losses from units divested in 1998 contributed $13
million to the improvement.
- Net earnings for the first nine months of 1999 was $29 million or $0.33
per share compared to a net loss for the same period in 1998 of $4 million
or $0.04 per share.
Cash from operations for the nine months ended September 30, 1999
was $74 million compared to a cash outflow of $19 million in 1998.
Included in 1999 were $29 million of restructuring expenditures. The cash
improvement from 1998 reflected mainly increased profits.
Cash resources decreased to $86 million at September 30, 1999 from
$131 million at December 31, 1998. The $45 million cash decrease reflected
software expenditures of $41 million, $67 million of capital expenditures
and $13 million of dividends, offset partly by cash from operations of $74
million. At September 30, 1999, the Corporation's net debt increased to
$194 million.
On August 5, 1999, the Corporation's existing credit facility
expired and was replaced by a $420 million syndicated credit facility with
nine banks. Of the $420 million credit facility, $252 million is for a
term of one year while $168 million has a three-year term.
For the first nine months of 1999, the Corporation is on target to
meet its Economic Value Added-Registered Trademark- improvement objective
for the year. Although the Corporation is achieving its restructuring
program targets according to a pre-defined timetable, we must grow
revenues in order to capitalize on the lower cost base. Through our
strategic initiatives, we will continue our efforts to create value for
our shareholders.
5
ESTIMATED OUTLOOK
Moore anticipates normalized income from operations to improve in
the fourth quarter of 1999 over fourth quarter 1998, but not at the same
level as the third quarter 1999 improvement.
The Corporation's base line outlook for 2000 is for continued growth
in income from operations, reflecting positive effects from the
Corporation's restructuring initiatives. The Corporation estimates sales
in 2000 will be approximately at the same level as 1999, as declines in
the Forms and Labels business and the sale of the Data Management Services
division will likely be offset by low double-digit growth for the Customer
Communications Services business.
The Corporation expects gross margins to continue to improve in
2000, as restructuring benefits positively impact cost of goods sold as a
percentage of sales. Selling, general and administrative expenses as a
percentage of sales are expected to remain around current levels due to
the delayed benefits from our SAP implementation and several strategic
investments in Internet and digital technology.
The base line outlook does not include the impact of potential
acquisitions or divestments by the Corporation.
6
MANAGEMENT CHANGES
On September 13, 1999, Peter F. Murphy joined Moore as Vice
President and Controller.
DIVIDEND
On October 22, 1999, the Board of Directors declared a quarterly
dividend of 5 cents per common share payable in United States funds on
January 7, 2000 to shareholders of record on December 3, 1999.
/s/ Thomas E. Kierans
THOMAS E. KIERANS
Chairman of the Board
/s/ W. Ed Tyler
W. ED TYLER
President and Chief Executive Officer
October 22, 1999
7
CUSTOMER
SOLUTIONS
Moore provides data capture, information design, marketing services, digital
communications and print solutions that enable customers to improve their
business processes and increase revenue.
MOORE WINS LARGEST HEALTHCARE CONTRACT EVER
Two years of focused efforts to increase market awareness and customer
satisfaction in the healthcare arena added up to a major win in September
when Novation, the foremost supply management company in the U.S.
healthcare industry, selected Moore North America to provide document
management solutions to more than 2,000 member organizations. The dual-
source agreement could potentially generate more than $1 billion in sales
between Moore and another supplier.
Under the terms of the agreement, Moore will provide custom business
and clinical forms, printing, stock forms and labels, forms handling
equipment and document management solutions such as electronic forms and
applications, one-to-one marketing applications, print solutions and
patient-billing services to members of VHA Inc. and University Health
Systems Consortium, which purchase these supplies through Novation
contracts. The agreement also extends to 4,400 organizations that purchase
supplies through HealthCare Purchasing Partners International LLC.
The win means more than 75 percent of non-profit acute care facilities in
the country now have the opportunity to purchase products and services
through contracts with Moore.
A TOTAL SOLUTION FOR ALEGENT HEALTH
Earlier this year, Alegent Health, a regional healthcare network in Iowa
and Nebraska affiliated with MidAmerica HealthNet, a Premier Purchasing
Partners network, was looking for a new document management provider to
manage its ever-changing forms and labels. With seven hospitals and more
than 50 clinics, Alegent Health wanted a provider that could standardize
its forms and labels across the network and be a single point of access for
its staff. It turned to Moore, which showed it could meet Alegent Health's
needs at a low cost. With the assistance of Moore's United Ad Label
business, Moore developed a program of data collection, custom forms and
labels, high volume single sheets, roll product and stock label and paper
products. In addition, Moore co-manages the hospital forms inventories and
has become integrated into the network's e-mail and voice mail systems,
allowing all members instant access to orders. The five-year contract,
expected to generate about $1 million per year, was implemented this
summer. The success has opened doors to additional business in the coming
months.
8
COSTS SAVED AND ORDERS STREAMLINED FOR UNITED WAY
Each year as it prepares for its fall fund-raising campaign, the United Way
of Dallas - like all United Ways - orders resource guides that tell donors
where they can send donations. The non-profit organization, which supports
more than 150 health and human services agencies and programs, wasn't
looking for a new publications provider. But Moore demonstrated it could
produce the brochure as well as other materials more efficiently. Adding
even more value, Moore showed that by forming a buying consortium with the
United Ways of Fort Worth, Austin and Houston, Texas, and Oklahoma City,
Oklahoma, each chapter would benefit from group purchasing discounts.
Furthermore, banding together under one United Way contact and one supplier
would streamline the ordering process and speed delivery. Moore won the
business in the summer and delivered the brochures, as well as campaign
posters, in September.
MOORE BRAZIL DELIVERS THE GOODS
Baruel Sanix makes body care products in Brazil. In celebration of the
country's 500th birthday, the company created a puppet collection to
represent a group of people in Brazil's history. The company still needed
a logistics and distribution system that could efficiently deliver the
puppets to customers. It turned to Moore, which had provided Baruel with
business forms for more than a year. Moore developed a special envelope
that could be printed in UV ink with variable data and high-quality
graphics, including barcodes for tracking the packages. The solution met
Baruel's demands perfectly, from point of sale to post office. The month-
long contract was signed in September, with the probability of renewal each
month through April 2000.
MOORE SIGNS THREE-YEAR CONTRACT WITH UNIVERSITY OF MICHIGAN HEALTH SYSTEM
The University of Michigan Health System needed a better way to completely
manage its document universe, and it needed help migrating to an electronic
forms environment. With a reputation for superior customer service, strong
healthcare background and technological strengths, Moore's comprehensive
approach to account management was exactly what Health System was looking
for. Through the agreement, which was signed in September, Moore will
provide custom forms for all administrative and clinical applications,
stock health care claim forms and digital services, and it will manage the
system's inventory. In addition, it will implement Document Pathways-
Registered Trademark- to ensure consistency in record reporting; improve
the accuracy of information; lower costs by consolidating and eliminating
unnecessary forms; and reduce the need for additional in-service training
as employees transfer between departments. The success further solidifies
Moore's leadership position in the healthcare industry.
9
CONSOLIDATED BALANCE SHEET
EXPRESSED IN UNITED STATES CURRENCY
IN THOUSANDS OF DOLLARS
SEPTEMBER 30 December 31
1999 1998
------------ -----------
ASSETS
Current assets:
Cash and short-term securities $ 107,231 $ 138,575
Accounts receivable 407,267 479,086
Inventories:
Raw materials 40,897 42,175
Work in process 19,813 17,620
Finished goods 114,236 116,855
Prepaid expenses 31,534 23,591
Deferred income taxes 68,776 76,441
------------ -----------
Total current assets 789,754 894,343
Property, plant and equipment:
Cost 1,264,077 1,270,198
Less: Accumulated depreciation 817,619 804,000
------------ -----------
446,458 466,198
------------ -----------
Goodwill 165,836 173,736
Other assets 238,532 191,858
Total assets $ 1,640,580 $ 1,726,135
------------ -----------
------------ -----------
LIABILITIES
Current liabilities:
Bank loans $ 21,363 $ 7,604
Accounts payable and accruals 488,542 641,649
Short-term debt 75,476 256,397
Dividends payable 4,423 4,423
Income taxes 21,621 30,961
------------ -----------
Total current liabilities 611,425 941,034
Long-term debt 203,922 4,841
Deferred income taxes and liabilities 206,218 154,269
Minority interests 14,761 15,846
------------ -----------
Total liabilities 1,036,326 1,115,990
------------ -----------
SHAREHOLDERS' EQUITY
Common shares 310,881 310,881
Unrealized foreign currency translation adjustments (118,757) (105,878)
Retained earnings 412,130 405,142
------------ -----------
604,254 610,145
------------ -----------
Total liabilities and shareholders' equity $ 1,640,580 $ 1,726,135
------------ -----------
------------ -----------
10 11
CONSOLIDATED STATEMENT OF EARNINGS
EXPRESSED IN UNITED STATES CURRENCY AND,
EXCEPT EARNINGS (LOSS) PER SHARE, IN THOUSANDS OF DOLLARS
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
------------------------------------------------
Sales $ 596,363 $ 651,325 $1,777,929 $2,018,827
------------------------------------------------
Cost of sales 404,768 455,611 1,206,410 1,406,972
Selling, general and administrative expenses 141,968 174,655 434,056 525,469
Provision for restructuring costs - 630,000 - 630,000
Capital asset amortization 25,743 29,543 79,556 94,812
Research and development expense 5,194 5,972 17,371 18,278
------------------------------------------------
577,673 1,295,781 1,737,393 2,675,531
Income (loss) from operations 18,690 (644,456) 40,536 (656,704)
Investment and other income 688 5,824 3,897 8,821
Interest expense 6,887 5,177 17,569 13,927
Unrealized exchange adjustments 55 130 174 344
12,436 (643,939) 26,690 (662,154)
Income tax expense (recovery) 3,668 (96,660) 5,944 (98,392)
Minority interests 81 (415) 489 (662)
------------------------------------------------
Net earnings (loss) $ 8,687 $(546,864) $ 20,257 $ (563,100)
Earnings (loss) per share $ 0.10 $(6.18) $ 0.23 $ (6.36)
------------------------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
SALES NET EARNINGS (LOSS)
MILLIONS OF DOLLARS MILLIONS OF DOLLARS
YEAR TO DATE YEAR TO DATE
SEP-99 SEP-98 SEP-97 SEP-99 SEP-98 SEP-97
Net
Gross earnings
Sales 1777.929 2018.827 1884.043 (loss) 20.257 -563.1 54.06
12 13
CONSOLIDATED STATEMENT OF CASH FLOWS
EXPRESSED IN UNITED STATES CURRENCY
IN THOUSANDS OF DOLLARS
Nine months ended September 30
1999 1998
---------- ---------
OPERATING ACTIVITIES
Net earnings (loss) $ 20,257 $(563,100)
Items not affecting cash resources 79,204 684,502
Increase in working capital other
than cash resources (25,342) (140,698)
---------- ---------
Total $ 74,119 $ (19,296)
---------- ---------
INVESTING ACTIVITIES
Expenditure for property, plant and equipment $ (67,124) $ (54,733)
Sale of property, plant and equipment 9,613 21,916
Proceeds from sale of investments -- 21,629
Taxes on sale of an investment -- (16,519)
Proceeds from sale of businesses -- 11,547
Acquisition of businesses (6,773) (24,095)
Software expenditures (41,393) (44,190)
Other (11,301) (587)
---------- ---------
Total $(116,978) $ (85,032)
---------- ---------
FINANCING ACTIVITIES
Dividends $ (13,269) $ (45,997)
Addition to debt 222,590 140,307
Reduction in debt (204,394) (38,231)
Other (4,894) (496)
---------- ---------
Total $ 33 $ 55,583
---------- ---------
Decrease in cash resources before
unrealized exchange adjustments $ (42,826) $ (48,745)
Unrealized exchange adjustments (2,277) (342)
---------- ---------
Decrease in cash resources (45,103) (49,087)
Cash resources at beginning of year (1) 130,971 195,979
---------- ---------
Cash resources at end of period (1) $ 85,868 $ 146,892
---------- ---------
---------- ---------
(1) Cash resources is defined as cash and short-term securities less bank
loans.
14 15
NOTES
EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT PER SHARE AMOUNTS, IN
THOUSANDS OF DOLLARS
1. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
The consolidated financial statements are prepared in accordance
with Canadian GAAP, which are consistent in all material respects with
United States GAAP, with the exception of the items reviewed below.
PENSIONS (SFAS NO. 87)
Under Canadian GAAP, the discount rate is a long-term based
interest rate, whereas under United States GAAP, the discount rate
reflects an interest rate at which the pension obligation could
effectively be settled at the previous year-end date.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS NO. 106)
SFAS No. 106 requires that the expected costs of the employees'
postretirement benefits be expensed during the years employees render
services, whereas under Canadian GAAP, the Corporation recognizes the cost
of these benefits as an expense as incurred.
INCOME TAXES (SFAS NO. 109)
SFAS No. 109 requires a liability method under which temporary
differences are tax effected at current tax rates, whereas under Canadian
GAAP, timing differences are tax effected at the rates in effect when they
arise.
COMPREHENSIVE INCOME (SFAS NO. 130)
SFAS No. 130 requires disclosure of comprehensive income and its
components. Comprehensive income is the change in equity of the
Corporation from transactions and other events other than those resulting
from transactions with owners, and is comprised of net income and other
comprehensive income. The only component of other comprehensive income for
the Corporation is unrealized foreign currency translation adjustments.
Under Canadian GAAP, there is no standard for reporting comprehensive
income.
DERIVATIVES (SFAS NO. 133)
SFAS No.133 Accounting for Derivatives and Hedging Activities
is effective for all fiscal years beginning after June 15, 2000.
The Corporation has not yet determined the impact the adoption of
SFAS No. 133 will have on its earnings or statement of financial
position. However, the Corporation does not use derivative financial
instruments for trading purposes and only enters into normal commercial
hedges.
16
CAPITALIZED SOFTWARE
The Corporation has a policy of capitalizing costs directly
attributable to the development or acquisition of computer software for
internal use. Under United States GAAP, costs associated with the
development or acquisition of computer software for internal use are
charged to operations during the preliminary project and
postimplementation stages.
In addition, under United States GAAP, business process
reengineering activities involved with information technology
transformation projects are expensed as incurred. Prior to October 28,
1998, the Corporation capitalized certain business process reengineering
costs. Subsequent to October 28, 1998, Canadian GAAP requires the cost of
business process reengineering activities to be expensed as incurred.
TERMINATION LIABILITIES
Under United States GAAP, a liability for termination benefits is
recognized provided that certain conditions are met. Prior to the period
end, the details of the benefit arrangement under the approved plan must
be communicated to employees. Under Canadian GAAP, the communication of
the benefit arrangements to the employees before the financial statement
date is not required.
SETTLEMENTS OF PENSION PLANS (SFAS NO. 88)
Under United States GAAP, a gain or loss arising upon the
settlement of a pension plan is only recognized once responsibility for
the pension obligation has been relieved. Under Canadian GAAP, an
intention to settle or curtail a pension plan that is expected to result
in a loss requires recognition once the amount is likely and can be
reasonably estimated.
INCOME FROM OPERATIONS
The provision of $8 million charged to 1998 first quarter
earnings for the decoupling of the European forms business from the
customer communication services business is recorded in investment and
other income. Under United States GAAP, the provision is charged to income
from operations. The classification difference has no impact on net
earnings.
EARNINGS PER SHARE (SFAS NO. 128)
Under Canadian GAAP, diluted earnings per share is calculated
using the imputed interest method whereas, the treasury stock method is
required for United States GAAP.
17
1. UNITED STATES GAAP (CONT'D)
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
---------------------------------------------------
Net earnings (loss) as reported $ 8,687 $ (546,864) $ 20,257 $ (563,100)
Decreased (increased) pension expense (1,578) 2,958 (4,785) (1,666)
Increased pension asset - 31,000 - 31,000
Decreased (increased) postretirement benefits 1,842 (1,215) 4,990 (579)
Capitalized software (2,882) 886 (5,331) (6,733)
Increased (decreased) termination liabilities (5,146) 120,275 (16,010) 119,975
Reduced (increased) income taxes (1) 3,565 (36,410) 10,094 (32,692)
---------------------------------------------------
Net earnings (loss) as determined under U.S. GAAP $ 4,488 $ (429,370) $ 9,215 $ (453,795)
Earnings (loss) per share:
Basic earnings (loss) per share $ 0.05 $ (4.85) $ 0.10 $ (5.13)
Diluted earnings (loss) per share $ 0.05 $ (4.83) $ 0.10 $ (5.10)
Average shares outstanding (in thousands) 88,457 88,457 88,457 88,455
---------------------------------------------------
Comprehensive income:
Net earnings (loss) as determined under U.S. GAAP $ 4,488 $ (429,370) $ 9,215 $ (453,795)
Other comprehensive income (loss):
Foreign currency translation adjustment 2,257 (1,648) (12,879) (6,429)
Total comprehensive income (loss) $ 6,745 $ (431,018) $ (3,664) $ (460,224)
---------------------------------------------------
(1) SFAS No. 109 income tax adjustments $ 502 $ 12,162 $ 1,755 $ 8,796
SFAS No. 95 cash flow disclosures:
Interest paid $ 17,485 $ 14,239
Income taxes paid (2) 1,774 14,912
---------------------------------------------------
(2) In 1998, $16,519 was included in investing activities
that would have been included in operating activities per
SFAS No. 95.
September 30, 1999 December 31, 1998
As reported U.S. GAAP As reported U.S. GAAP
------------------------------------------------------
Balance sheet items:
Net pension liability (asset) $ (4,418) $ (11,341) $ 897 $ (14,930)
Other assets - computer software (124,509) (79,412) (93,664) (53,898)
Postretirement benefit cost liability - 429,128 - 433,675
Deferred income taxes asset (68,776) (260,463) (76,441) (254,283)
Deferred income taxes liability 43,309 93,028 42,305 92,835
Accounts payable and accruals 488,542 386,215 641,649 523,312
Unrealized foreign currency translation adjustments (118,757) (83,573) (105,878) (70,694)
Retained earnings 412,130 153,939 405,142 157,993
------------------------------------------------------
18 19
NOTES (CONT'D)
2. SEGMENTED INFORMATION
For the nine months Moore CCS, Latin Asia
ended September 30 North America United States America Europe Pacific Consolidated
- - ----------------------------------------------------------------------------------------------------------------
1999
Total revenue $1,171,225 $ 383,317 $118,737 $ 119,131 $ - $1,792,410
Intersegment revenue (13,824) (657) - - - (14,481)
- - ----------------------------------------------------------------------------------------------------------------
Sales to customers
outside the enterprise $1,157,401 $ 382,660 $118,737 $ 119,131 $ - $1,777,929
- - ----------------------------------------------------------------------------------------------------------------
Segment operating
profit $ 12,812 $ 26,639 $ 326 $ 2,414 $ - $ 42,191
--------------------------------------------------------------------
General corporate
expenses (1,655)
--------------
Income from operations $ 40,536
--------------
Segment assets $ 876,728 $ 205,901 $ 90,300 $ 133,685 $ - $1,306,614
--------------------------------------------------------------------
Corporate assets
including investments 333,966
--------------
Total assets $1,640,580
--------------
Capital asset
amortization $ 42,606 $ 25,480 $ 4,581 $ 6,889 $ - $ 79,556
- - ----------------------------------------------------------------------------------------------------------------
Capital expenditures $ 37,970 $ 17,476 $ 6,465 $ 5,213 $ - $ 67,124
- - ----------------------------------------------------------------------------------------------------------------
1998
Total revenue $1,226,517 $ 368,697 $144,907 $ 225,345 $ 87,944 $2,053,410
Intersegment revenue (33,528) (774) - (281) - (34,583)
- - ----------------------------------------------------------------------------------------------------------------
Sales to customers
outside the enterprise $1,192,989 $ 367,923 $144,907 $ 225,064 $ 87,944 $2,018,827
- - ----------------------------------------------------------------------------------------------------------------
Segment operating
loss $ (447,184) $ (9,256) $(19,052) $(113,076) $ (65,528) $ (654,096)
--------------------------------------------------------------------
General corporate
expenses (2,608)
--------------
Loss from operations $ (656,704)
--------------
Segment assets $ 923,826 $ 210,873 $109,393 $ 152,288 $ 64,455 $1,460,835
--------------------------------------------------------------------
Corporate assets
including investments 359,994
--------------
Total assets $1,820,829
--------------
Provision for
restructuring cost $ 418,500 $ 27,050 $ 20,680 $ 106,070 $ 57,700 $ 630,000
---------------------------------------------------------------------------------------
Capital asset
amortization $ 49,127 $ 23,957 $ 5,758 $ 11,418 $ 4,552 $ 94,812
- - ----------------------------------------------------------------------------------------------------------------
Capital expenditures $ 20,781 $ 16,441 $ 5,203 $ 11,366 $ 942 $ 54,733
- - ----------------------------------------------------------------------------------------------------------------
20 21
3. YEAR 2000
The Year 2000 issue arises from the fact that many computerized
systems use two digits rather than four to identify a year. Date sensitive
systems may recognize the year 2000 as 1900 or some other date, resulting
in errors when information using Year 2000 dates is processed. In
addition, similar problems may arise in some systems which use certain
dates in 1999 to represent something other than a date. The effects of the
Year 2000 issue may be experienced before, on, or after January 1, 2000,
and if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failures which could affect
an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting
the Corporation, including those related to the efforts of customers,
suppliers or other third parties, will be fully resolved by December 31,
1999.
The Corporation established a plan to address the impact of Year
2000 on its information technology systems and processes, including those
involved in providing services to its customers, and is treating the Year
2000 issue as a business priority. The Corporation is addressing the Year
2000 issue in four ways which are described in detail in the Corporation's
1998 annual report to shareholders. Complete inventories for
infrastructure, software applications, and suppliers have been completed,
as have assessments of those identified as critical. Full assessments have
been completed for all major business unit system components. Year 2000
changes have been completed for all mission-critical systems with 19xx and
20xx acceptance testing completed. Non-mission-critical system testing and
implementation are on target for completion by October, 1999.
During the third quarter, the Corporation carried out further
on-site Year 2000 readiness assessments of certain critical suppliers.
Interviews were held to confirm or reconfirm the status of established
Year 2000 programs. Reports generated on the individual assessments showed
positive results.
The Corporation has made significant progress in preparing the
Corporation's information technology systems and applications for the Year
2000 according to its project plan. Management believes it can achieve the
deadlines set out in the project plan and the Board of Directors is
monitoring progress closely. The Corporation's Year 2000 master business
continuity plan was completed in the first quarter of 1999.The business
continuity plan is intended to provide actions, procedures and
responsibilities to be taken or performed by each operating site to
recover from a potential Year 2000 disruption and continue to deliver the
products and services to customers.
The business continuity plan has been rolled out to over 85% of
the Corporation's facilities with completion of the roll out scheduled by
the end of
22
October 1999. Preparations to manage all Year 2000 related events and
communications from a central location during the millennium turn-over
period are underway with the planned implementation of the Corporate
Command Centre, Business Unit Command Centres and Site Command.
The cost for the entire Year 2000 program is forecasted at
approximately $42 million, which is funded through normal operations.
Expenditures to date totalled $39 million with $15 million charged to
the 1999 nine month's earnings ($19 million in 1998). The majority of
the expenditures represent payments to external information technology
specialists to assist in the renovation and testing work on current
systems and to replace or change software applications and hardware
components. Management believes that the cost of the Year 2000 program
will not have a material adverse impact on the Corporation's business
results of operations or financial condition.
The foregoing estimates of costs and the date that the
Corporation expects to complete the Year 2000 program are based on
management's best estimates. Actual results may differ from those
anticipated as a result of certain risks and uncertainties, including but
not limited to, the availability and cost of personnel trained in the
area, the ability to identify and correct all relevant codes, and other
similar factors. Management believes it can achieve its project plan;
however, there is no assurance that the Corporation's or its suppliers' or
customers' remediation efforts will be sufficiently comprehensive to
address all aspects of the Year 2000 issue, or that any such efforts will
be completed on time.
4. PROVISION FOR RESTRUCTURING COSTS
In 1998, the Corporation incurred a pre-tax charge of
$615 million, $531 million after tax, related to a restructuring
plan directed at reducing costs and restoring profitability
to the Forms business, and increasing profitability of the Customer
Communication Services businesses. The key restructuring actions include
the integration of North American operations, the disposal of
non-strategic assets, and exiting of certain unprofitable products. The
restructuring program resulted in impairment losses and provisions with an
estimated after-tax cash cost of $149 million.
Included in the balance sheet at September 30, 1999 are accounts
payable and accruals of $102 million and deferred income taxes and
liabilities of $125 million related to the restructuring program. The
carrying value of remaining assets held for disposal as at September 30,
1999 is $106 million. Included in the Corporation's results of operations
for the nine months ended September 30 are sales of $245 million (1998 --
$245 million) and losses from
23
operations of nil (1998 -- $5 million) from businesses to be exited under
the restructuring program.
Approximately 3,793 employees have left the Corporation as a
result of restructuring actions implemented to date, representing 2,600
due to divestitures and 1,193 from other restructuring activity.
Provisions for restructuring costs include management's best
estimates of the amounts expected to be realized on the sale of businesses
and amounts to be incurred on the closure of manufacturing plants and
integration of the North American operations. These amounts could differ
in the near term from the amounts assumed in determining the provision.
5. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Comparative figures have been restated where appropriate to
conform to the current presentation.
FORWARD-LOOKING STATEMENTS
This Interim Report to Shareholders contains statements relating
to future results of the Corporation (including certain anticipated and
estimated results and the Corporation's outlook concerning future results)
that are "forward-looking statements" as defined in the U.S. Private
Securities Litigation Reform Act of 1995. Readers are cautioned not to
place undue reliance on these forward-looking statements and any such
forward-looking statements are qualified in their entirety by reference to
the following cautionary statements. All forward-looking statements speak
only as of the date hereof and are based on current expectations and
involve a number of assumptions, risks and uncertainties that could cause
the actual results to differ materially from such forward-looking
statements. Factors that could cause such material differences include,
without limitation, the following: the successful completion of the
restructuring program, including SAP implementation, announced in 1998
within the timeframe anticipated to execute the respective restructuring
actions; the timely resolution of Year 2000 issues according to the
Corporation's master project plan and by the Corporation's customers and
suppliers; the effect of paper price fluctuations on the Corporation's
Forms operations; successful execution of key strategies; maintenance of
growth in Customer Communication Services businesses; the impact of
foreign currency fluctuations in the Latin American countries in which the
Corporation operates; general economic and other factors beyond the
Corporation's control; and other assumptions, risks and uncertainties
described from time to time in the Corporation's periodic filings with
Securities Regulators.
24
CORPORATE INFORMATION
SHAREHOLDER ACCOUNT INQUIRIES
CIBC Mellon Trust Company operates a telephone inquiry line that
can be reached by dialing toll-free 1-800-387-0825 or (416) 643-5500.
Correspondence should be addressed to: Moore Corporation Limited, c/o CIBC
Mellon Trust Company, Corporate Trust Services, P.O. Box 7010, Adelaide
Street Postal Station, Toronto, Ontario M5C 2W9.
DIVIDENDS
Shareholders are reminded of the flexibility available on payment
of the Corporation's dividends. While the Corporation's dividends are
declared payable in United States funds, registered shareholders have the
option of receiving dividends in equivalent Canadian funds, or
participating in the Dividend Reinvestment and Share
Purchase Plan. The Dividend Reinvestment Option allows shareholders to
reinvest dividends automatically in additional shares of the Corporation.
The Share Purchase Option provides shareholders a means to purchase shares
by making cash payments. Further information regarding these options is
available from CIBC Mellon Trust Company, or the Corporation.
INVESTOR RELATIONS
Institutional and individual investors seeking financial
information about the company are invited to contact Shoba Khetrapal, Vice
President and Treasurer at the Corporate Office.
MANAGEMENT'S STATEMENT
The financial information included in this report is unaudited,
but in the opinion of management it reflects all adjustments that are
necessary for a fair presentation of the financial position, results of
operations and changes in cash flows for the interim periods.
25
[LOGO]
Moore Corporation Limited
1 First Canadian Place
P.O. Box 78
Toronto, Ontario
M5X 1G5
Internet: http://www.moore.com
Tel: (416) 364-2600
Fax: (416) 364-1667
[LOGO]
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