Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF MOORE CORPORATION LIMITED:
We have audited the consolidated balance sheets of Moore Corporation
Limited (the "Corporation") as at December 31, 2002 and 2001 and the
consolidated statements of operations, retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards and auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation as at December
31, 2002 and 2001 and the results of its operations and its cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.
The financial statements for the year ended December 31, 2000, prior to the
change in accounting policy for earnings per share as described in Note 2, the
reclassification of segmented information in Note 20 to conform with
management's process for making decisions with regard to resource allocation and
performance evaluation and reclassification of various amounts to conform to the
current year's presentation and disclosure of net loss and net loss per share
adjusted to exclude amortization expense related to goodwill as described in
Note 7, were audited by other auditors who expressed an opinion without
reservation on those statements in their report dated February 22, 2001. We have
audited the adjustments and reclassifications to the 2000 financial statements
and, in our opinion, such adjustments and reclassifications, in all material
respects, are appropriate and have been properly applied.
(Signed)
DELOITTE & TOUCHE LLP
Toronto, Canada
February 12, 2003 except as to Notes 27 and 28, which are as of September 25,
2003
F-1
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA --
UNITED STATES OF AMERICA REPORTING DIFFERENCE
In the United States of America, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
there are changes in accounting principles that have a material effect on the
comparability of the Corporation's financial statements, such as the changes
described in Note 2 to the financial statements. Our report to the shareholders
dated February 12, 2003 is expressed in accordance with Canadian reporting
standards which do not require a reference to such changes in accounting
principles in the auditors' report when the change is properly accounted for and
adequately disclosed in the financial statements.
(Signed)
DELOITTE & TOUCHE LLP
Toronto, Canada
February 12, 2003
F-2
AUDITORS' REPORT
TO THE SHAREHOLDERS OF MOORE CORPORATION LIMITED:
We have audited the consolidated statements of operations, retained
earnings and cash flows of Moore Corporation Limited for the year ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Canada and the United States of America. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the results of the Corporation's operations, and cash
flows for the year ended December 31, 2000 in accordance with generally
accepted accounting principles in Canada.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
February 22, 2001
F-3
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA --
U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Corporation's financial statements, such as the changes for employee
future benefits and accounting for income taxes described in Note 2 to the
financial statements. Our report to the shareholders dated February 22, 2001
is expressed in accordance with Canadian reporting standards which do not
require a reference to such changes in accounting principles in the auditors'
report when the change is properly accounted for and adequately disclosed in
the financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
February 22, 2001
F-4
MOORE CORPORATION LIMITED
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA
<Table>
<Caption>
2002 2001
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents................................. $ 139,630 $ 84,855
Accounts receivable, less allowance for doubtful accounts
of $19,538 (2001 -- $22,057)........................... 341,383 336,153
Inventories (Note 4)...................................... 129,889 128,421
Prepaid expenses.......................................... 17,317 13,544
Deferred income taxes (Note 18)........................... 31,912 13,566
---------- ----------
Total Current Assets........................................ 660,131 576,539
---------- ----------
Property, plant and equipment -- net (Note 5)............... 255,722 307,640
Investments (Note 6)........................................ 32,256 32,204
Prepaid pension cost (Note 14).............................. 221,520 215,752
Goodwill -- net (Note 7).................................... 106,254 41,857
Other intangibles -- net (Note 7).......................... 6,434 437
Deferred income taxes (Note 18)............................. 53,938 47,651
Other assets (Note 8)....................................... 103,504 114,906
---------- ----------
Total Assets................................................ $1,439,759 $1,336,986
========== ==========
LIABILITIES
Current Liabilities
Bank indebtedness......................................... $ 18,158 $ 56,181
Accounts payable and accrued liabilities (Note 9)......... 486,507 486,626
Short-term debt (Note 10)................................. 2,135 18,034
Income taxes.............................................. 58,562 27,677
Deferred income taxes (Note 18)........................... 3,184 324
---------- ----------
Total Current Liabilities................................. 568,546 588,842
---------- ----------
Long-term debt (Note 10).................................... 187,463 111,062
Postretirement benefits (Note 15)........................... 241,344 239,664
Deferred income taxes (Note 18)............................. 9,482 13,705
Other liabilities (Note 11)................................. 43,776 51,263
Minority interest........................................... 6,652 11,200
---------- ----------
Total Liabilities........................................... 1,057,263 1,015,736
========== ==========
SHAREHOLDERS' EQUITY
Share Capital (Note 12)
Authorized:
Unlimited number of preference (none outstanding for
2002 and 2001) and common shares without par value
Issued:
111,842,348 common shares in 2002
111,803,651 common shares in 2001.................... 403,800 397,761
Unearned restricted shares (Note 12)...................... (2,572) --
Retained earnings......................................... 114,601 51,666
Cumulative translation adjustments (Note 13).............. (133,333) (128,177)
---------- ----------
Total Shareholders' Equity.................................. 382,496 321,250
---------- ----------
Total Liabilities and Shareholders' Equity.................. $1,439,759 $1,336,986
========== ==========
</Table>
See Notes to Consolidated Financial Statements
F-5
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE DATA
<Table>
<Caption>
2002 2001 2000
---------- ---------- ----------
Net sales................................................ $2,038,039 $2,154,574 $2,258,418
---------- ---------- ----------
Cost of sales............................................ 1,390,007 1,552,561 1,598,525
Selling, general and administrative expenses............. 459,613 575,586 578,642
Provision for (recovery of) restructuring costs -- net... (850) 129,679 (24,033)
Depreciation and amortization (includes impairment
charges of $131,393 for 2001 and $36,621 for 2000)..... 86,746 239,072 151,518
---------- ---------- ----------
1,935,516 2,496,898 2,304,652
---------- ---------- ----------
Income (loss) from operations............................ 102,523 (342,324) (46,234)
Investment and other income (expense).................... 3,720 (10,721) (14,342)
Interest expense -- net.................................. 12,145 23,758 21,016
Debt settlement and issue costs.......................... 16,746 11,617 --
---------- ---------- ----------
Earnings (loss) before income taxes and minority
interest............................................... 77,352 (388,420) (81,592)
Income tax expense (recovery)............................ 2,472 (32,192) (17,377)
Minority interest........................................ 1,622 1,810 2,157
---------- ---------- ----------
Net earnings (loss)...................................... $ 73,258 $ (358,038) $ (66,372)
Distribution to certain convertible debenture holders
(Note 10).............................................. -- 15,345 --
---------- ---------- ----------
Net earnings (loss) available to common shareholders..... $ 73,258 $ (373,383) $ (66,372)
========== ========== ==========
Net earnings (loss) per common share:
Basic.................................................. $ 0.66 $ (4.21) $ (0.75)
Diluted................................................ 0.64 (4.21) (0.75)
Average shares outstanding (in thousands):
Basic.................................................. 111,556 88,648 88,457
Diluted................................................ 114,022 88,648 88,457
</Table>
F-6
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE DATA
<Table>
<Caption>
2002 2001 2000
-------- --------- --------
Balance at beginning of the year, as previously reported.... $ 51,666 $ 431,821 $480,049
Change in accounting policy:
Income taxes (Note 2)..................................... -- -- 2,443
Employee future benefits (Note 2)......................... -- -- 33,295
-------- --------- --------
Balance at beginning of the year, as restated............... 51,666 431,821 515,787
Net earnings (loss)......................................... 73,258 (358,038) (66,372)
-------- --------- --------
124,924 73,783 449,415
Repurchase of common shares (1,069,700 in 2002)............. 10,323 -- --
Subordinated convertible debentures......................... -- 17,694 --
Dividends (5c per share in 2001 and 20c per share in
2000)..................................................... -- 4,423 17,594
-------- --------- --------
Balance at end of year...................................... $114,601 $ 51,666 $431,821
======== ========= ========
</Table>
See Notes to Consolidated Financial Statements
F-7
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<Table>
<Caption>
2002 2001 2000
--------- --------- ---------
OPERATING ACTIVITIES
Net earnings (loss)......................................... $ 73,258 $(358,038) $ (66,372)
Items not affecting cash resources:
Depreciation and amortization(a).......................... 86,746 239,072 152,546
Net (gain) loss on sale of assets......................... (8,730) 5,824 2,630
Net loss on write-off and sale of investments............. 2,801 -- 11,974
Deferred income taxes..................................... (25,996) (35,103) (13,027)
Pension settlement -- net................................. -- 96,605 --
Provision for (recovery of) restructuring costs -- net.... (850) 129,679 (24,033)
Debt settlement and issue cost............................ 16,746 11,617 --
Restricted share compensation............................. 1,093 -- --
Other..................................................... (10,804) 3,048 12,367
Changes in working capital other than cash resources:
Accounts receivable -- net................................ (638) 44,684 69,780
Inventories............................................... 6,026 21,037 24,181
Accounts payable and accrued liabilities.................. (9,741) (19,378) (134,989)
Income taxes.............................................. 32,133 (4,417) (639)
Other..................................................... (3,649) 2,491 2,902
--------- --------- ---------
Net cash provided by operating activities................... 158,395 137,121 37,320
--------- --------- ---------
INVESTING ACTIVITIES
Property, plant and equipment -- net........................ (8,941) (37,072) (39,543)
Long-term receivables and other investments................. (5,028) (3,489) 527
Acquisition of businesses................................... (65,966) (14,565) (3,351)
Proceeds from sale of investment and other assets........... -- 38,495 13,178
Software expenditures....................................... (10,958) (6,517) (28,795)
Other....................................................... (1,615) 1,210 (842)
--------- --------- ---------
Net cash used by investing activities....................... (92,508) (21,938) (58,826)
--------- --------- ---------
FINANCING ACTIVITIES
Dividends paid.............................................. -- (8,846) (17,594)
Net change in short-term debt............................... (15,899) 15,325 (37,431)
Proceeds from issuance of long-term debt.................... 200,000 7,963 6,003
Payments on long-term debt.................................. (140,264) (104,166) (1,776)
Issuance (conversion) of convertible debentures............. -- (1,600) 58,660
Issuance (repurchase) of common shares -- net............... (7,949) -- --
Other....................................................... (8,827) (1,744) (5,753)
--------- --------- ---------
Net cash provided (used) by financing activities............ 27,061 (93,068) 2,109
--------- --------- ---------
Effect of exchange rate on cash............................. (150) (551) 1,414
Increase (decrease) in cash resources....................... 92,798 21,564 (17,983)
Cash resources at beginning of year(b)...................... 28,674 7,110 25,093
--------- --------- ---------
Cash resources at end of year(b)............................ $ 121,472 $ 28,674 $ 7,110
--------- --------- ---------
Supplemental disclosure of cash flow information:
--------- --------- ---------
Interest paid............................................... $ 13,324 $ 26,594 $ 25,288
--------- --------- ---------
Income taxes paid (refunded) -- net......................... (1,041) 3,425 5,314
--------- --------- ---------
</Table>
- ---------------
(a) Includes depreciation of $1,028 that has been classified in cost of sales in
2000.
(b) Cash resources are defined as cash and cash equivalents less bank
indebtedness.
See Notes to Consolidated Financial Statements
F-8
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE INDICATED)
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Moore Corporation Limited is a corporation continued under the Canada
Business Corporation Act. The consolidated financial statements, which are
prepared in accordance with Canadian generally accepted accounting principles
(GAAP), include the accounts of Moore Corporation Limited and its subsidiaries.
Entities that are not controlled and over which the Corporation has significant
influence are accounted for under the equity method. All other investments are
accounted for on the cost basis. The Corporation does not have any transactions
with unconsolidated special purpose entities or variable interest entities. All
intercompany transactions have been eliminated. Comparative figures have been
reclassified where appropriate to conform to the current presentation.
Significant differences between Canadian and U.S. GAAP are discussed in Note 25.
REVENUE RECOGNITION
The Corporation typically recognizes revenue for the majority of its
products upon shipment to the customer and the transfer of title. Under
agreements with certain customers, custom forms may be stored by the Corporation
for future delivery. In these situations, the Corporation receives a logistics
and warehouse management fee for the services provided. In these cases, delivery
and billing schedules are outlined with the customer and product revenue is
recognized when manufacturing is complete, title transfers to the customer, the
order is invoiced and there is reasonable assurance of collectability. Since the
majority of products are customized, product returns are not significant,
however, the Corporation accrues for the estimated amount of customer credits at
the time of sale.
Revenue from services is recognized as services are performed. Long-term
product contract revenue is recognized based on the completed contract method or
percentage of completion method. The percentage of completion method is used
only for contracts that will take longer than three months to complete, and
project stages are clearly defined and can be invoiced. The contract must also
contain enforceable rights by both parties. Revenue related to short-term
service contracts and contracts that do not meet the percentage of completion
criteria is recognized when the contract is completed.
TRANSLATION OF FOREIGN CURRENCIES
The consolidated financial statements are expressed in United States
dollars because a significant part of the Corporation's net assets and earnings
are located or originate in the United States. Except for the foreign currency
financial statements of subsidiaries in countries with highly inflationary
economies, Canadian and other foreign currency financial statements are
translated into United States dollars on the following bases: all assets and
liabilities at the year-end exchange rates; income and expenses at average
exchange rates during the year. Net unrealized exchange adjustments arising on
translation of foreign currency financial statements are charged or credited
directly to shareholders' equity and shown as cumulative translation
adjustments.
The foreign currency financial statements of subsidiaries in countries with
highly inflationary economies are translated into United States dollars using
the temporal method whereby monetary items are translated at current exchange
rates, and non-monetary items are translated at historical exchange rates. In
2001, Venezuela was the only highly inflationary economy in which the
Corporation operated. In 2002, Venezuela's economy was no longer considered
highly inflationary, and the impact of this change in method of translation was
not material to the consolidated financial statements.
Exchange losses or gains are included in earnings. In 2001, a loss of
$2,936 is included in investment and other income. Amounts included in
investment and other income for 2002 and 2000 were not material. In 2002, the
Corporation adopted the recommendations of the Canadian Institute of Chartered
Accountants'
F-9
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(CICA) amended Handbook Section 1650, Foreign Currency Translation. The impact
of the adoption of the standard was not material.
FINANCIAL INSTRUMENTS
The Corporation enters into forward exchange contracts to hedge exposures
resulting from foreign exchange fluctuations in the ordinary course of business.
The contracts are normally for terms of less than one year and are used as
hedges of foreign denominated revenue streams, costs and loans. The unrealized
gains and losses on outstanding contracts are offset against the gains and
losses of the hedged item. In 2002, the Corporation entered into interest rate
swap agreements to hedge its exposure to fluctuations in interest rates on its
Term Loan B Facility. The interest rate differential received or paid on these
agreements is recognized as an adjustment to interest expense.
Short-term securities are highly liquid and consist of investment grade
instruments in governments, financial institutions and corporations.
Unless disclosed otherwise in the notes to the consolidated financial
statements, the estimated fair value of financial assets and liabilities
approximates carrying value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with a
purchased maturity of three months or less.
INVENTORIES
Inventories of raw materials and work-in-process are valued at the lower of
cost or replacement cost and inventories of finished goods at the lower of cost
or net realizable value. In the United States, the cost of the principal raw
material inventories and the raw material content of work-in-process and
finished goods inventories is determined on the last-in, first-out basis. The
cost of all other inventories is determined on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at historical cost and are
depreciated over their estimated useful lives using the straight-line method.
The estimated useful lives of buildings range from 20 to 50 years and from 3 to
17 years for machinery and equipment. All costs for repairs and maintenance are
expensed as incurred. Gains or losses on the disposal of property, plant and
equipment are included in investment and other income, and the cost and
accumulated depreciation related to these assets are removed from the accounts.
The Corporation reviews property, plant and equipment for impairment
whenever events or changes in circumstances indicate the carrying value may not
be recoverable. The Corporation then compares expected future undiscounted cash
flows to be generated by the asset to its carrying value. If the carrying value
exceeds the sum of the future undiscounted cash flows, the asset would be
adjusted to its net recoverable amount and an impairment loss would be charged
to operations in the period identified.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess cost of an acquired entity over the fair
value assigned to the identifiable net assets acquired. Goodwill from
acquisitions that occurred prior to July 1, 2001 was amortized over its useful
life on a straight-line basis, not to exceed 40 years. Goodwill from
acquisitions subsequent to July 1, 2001 was not amortized. Effective January 1,
2002, all goodwill ceased to be amortized.
F-10
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Identifiable intangible assets are recognized apart from goodwill and are
amortized over their estimated useful lives.
Goodwill and identifiable intangible assets are reviewed annually for
impairment, unless events or changes in circumstances indicate that the carrying
value may not be recoverable. In the absence of comparable market valuations,
the Corporation compares expected future discounted cash flows to be generated
by the asset or related business to its carrying value. If the carrying value
exceeds the sum of the future discounted cash flows, the asset would be adjusted
to its fair value and an impairment loss would be charged to operations in the
period identified (see Note 7).
AMORTIZATION OF DEFERRED CHARGES
Deferred charges include certain costs to acquire and develop internal-use
computer software, which is amortized over its estimated useful life using the
straight-line method, up to a maximum of seven years.
Deferred debt issue costs are amortized over the term of the related debt.
PENSION AND POSTRETIREMENT PLANS
The Corporation records annual amounts relating to its pension and
postretirement plans based on calculations specified by GAAP, which include
various actuarial assumptions, including discount rates, assumed rates of
return, compensation increases, turnover rates and health care cost trend rates.
The Corporation reviews its actuarial assumptions on an annual basis and makes
modifications to the assumptions based on current rates and trends when it is
deemed appropriate to do so. The effect of modifications is generally recorded
or amortized over future periods. The Corporation believes that the assumptions
utilized in recording its obligations under its plans are reasonable based on
its experience, market conditions and input from its actuaries.
INCOME TAXES
The Corporation applies the liability method of tax allocation for
accounting for income taxes. Under the liability method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using the substantively
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The effect of a change in income tax rates on deferred
income tax liabilities and assets is recognized in income in the period that the
change occurs. No provision has been made for taxes on undistributed earnings of
subsidiaries not currently available for paying dividends as such earnings have
been reinvested in the business.
STOCK-BASED COMPENSATION
The Corporation has stock-based compensation plans as described in Note 12.
The Corporation accounts for stock options using the intrinsic value method. No
compensation expense was recognized in 2002, 2001 or 2000 as the options have an
exercise price equal to the fair market value at dates of grant. See Notes 12
and 25 for the pro forma effect of accounting for stock options under the fair
value method for both Canadian and U.S. GAAP, respectively.
In October 2002, the Corporation awarded 385,000 restricted common shares
under its 2001 Long-Term Incentive Plan. Compensation expense is measured based
upon the fair value on the date of issue and is recognized as the shares vest
(see Note 12).
F-11
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
Canadian GAAP requires management to make estimates and assumptions that affect
the reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from these estimates. Estimates are used when accounting for items and matters
including but not limited to allowance for uncollectible accounts receivable,
inventory obsolescence, amortization, asset valuations, employee benefits,
taxes, restructuring and other provisions and contingencies.
2. CHANGES IN ACCOUNTING POLICIES
CICA SECTION 3062 GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Corporation adopted the recommendations of
the CICA Handbook Section 3062, Goodwill and Other Intangible Assets (see Note
7).
The transitional impairment testing required by this standard had no impact
on the Corporation's consolidated financial position and result of operations
since the carrying amounts of goodwill and other intangible assets did not
exceed their fair values.
CICA SECTION 1581 BUSINESS COMBINATIONS
In 2002, the Corporation adopted the recommendations of the CICA Handbook
Section 1581, Business Combinations. The standard requires that all business
combinations be accounted for using the purchase method of accounting. This
standard had no material impact on its consolidated financial condition or
results of operations.
CICA SECTION 1650 FOREIGN CURRENCY TRANSLATION
Effective January 1, 2002, the Corporation adopted the recommendations of
the CICA to amended Handbook Section 1650, Foreign Currency Translation. The
amendment eliminates the deferral and amortization of unrealized translation
gains and losses on non-current monetary assets and liabilities and requires
that exchange gain or loss arising on translation of a foreign currency
denominated non-monetary item carried at market be included in income in the
current reporting period. The adoption of this standard did not have a material
impact on the Corporation's consolidated financial position or results of
operations.
CICA SECTION 3870 STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
Effective January 1, 2002, the Corporation adopted the recommendations of
the CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based
Payments. The recommendations establish standards for the recognition,
measurement and disclosure of stock-based compensation and other stock-based
payments made in exchange for goods and services. It applies to transactions,
including non-reciprocal transactions, in which an enterprise grants shares of
common stock, stock options, or other equity instruments, or incurs liabilities
based on the price of common stock or other equity instruments. The standard
encourages, but does not require, fair value measurement and recognition of
equity instruments awarded to employees and cost of services received as
consideration. A pro forma disclosure of net income and earnings per share using
the fair value based method of accounting has been presented for the required
period.
CICA SECTION 3500 EARNINGS PER SHARE
Effective January 1, 2001, the Corporation adopted the recommendations of
the CICA Handbook Section 3500, Earnings Per Share. The standard requires the
disclosure of the calculation of basic and diluted
F-12
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnings per share and the use of the treasury stock method for calculating the
dilutive impact of stock options. The impact on prior reported amounts was not
material.
CICA SECTION 3461 EMPLOYEE FUTURE BENEFITS
Effective January 1, 2000, the Corporation adopted the recommendations of
the CICA Handbook Section 3461, Employee Future Benefits. Under past Canadian
standards, the Corporation recognized the cost of postretirement benefits other
than pensions as an expense when paid. This standard requires that the expected
costs of the employees' postretirement benefits be expensed during the years
that the employees render services to the Corporation. In addition, the new
standard changes the accounting for recognition of involuntary termination
benefits.
The standard was applied retroactively without restatement of prior year
financial statements. The cumulative effect of this change, as of January 1,
2000, resulted in a $33,295 increase to opening retained earnings.
CICA SECTION 3465 ACCOUNTING FOR INCOME TAXES
Effective January 1, 2000, the Corporation adopted the recommendations of
the CICA Handbook Section 3465, Accounting for Income Taxes. This represented a
change from the deferral method of tax allocation to the liability method of tax
allocation.
The new standard was applied retroactively without restatement of prior
year financial statements. The cumulative effect of the change as of January 1,
2000 resulted in a $2,443 increase to opening retained earnings.
3. ACQUISITIONS AND PENDING ACQUISITIONS
On December 31, 2001, and January 31, 2002, the Corporation acquired
certain assets relating to the Document Management Services business of IBM
Canada Limited and The Nielsen Company, a commercial printer, for total
consideration of $14,592 and $57,202, respectively, net of cash acquired. The
allocation of the purchase prices to the assets acquired and liabilities assumed
based on fair values at the dates of acquisition were as follows:
<Table>
Working capital, other than cash............................ $ 10,933
Property, plant and equipment............................... 9,475
Other liabilities........................................... (15,020)
Goodwill and other intangibles.............................. 66,406
--------
Purchase price, net of cash received........................ $ 71,794
========
</Table>
In May 2002, the Corporation purchased the remaining minority interest in
its consolidated subsidiary, Quality Color Press, Inc., for total consideration
of $6,680. The cost of this acquisition exceeded the fair value of the net
assets acquired by $5,437 allocated to goodwill and other intangible assets.
Management has reclassified this business from the Commercial segment to the
Forms and Labels segment in order to reflect the business synergies and
integration plans. During August 2002, the Corporation purchased the remaining
minority interest of its consolidated subsidiaries located in Central America
for consideration of $2,750 ($2,000 in cash and $750 payable within the next
twelve months). The carrying value of the minority interests approximated the
purchase price.
Pro forma disclosures for the aforementioned acquisitions have been
excluded because they are not material to the Corporation's consolidated
financial position or results of operations.
F-13
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 16, 2003, the Corporation signed a definitive merger agreement
with Wallace, a leading provider of printed products and print management
services, to acquire all of the outstanding shares of Wallace in exchange for
average consideration of $14.40 in cash and 1.05 shares of the Corporation for
each outstanding share of Wallace. The purchase price is approximately $1.3
billion based on approximately 42 million Wallace shares outstanding, which
includes the assumption of approximately $210 million in debt, but does not
include any direct transaction costs. The estimated purchase price was derived
using the closing trading price of the Corporation's common shares on the New
York Stock Exchange ("NYSE") at January 16, 2003, which approximates the average
closing price of Moore shares two trading days before and after January 17,
2003, the announcement date. Completion of the Wallace merger is subject to
customary closing conditions that include, among others, receipt of required
approval from Wallace shareholders, required regulatory approvals and closing of
the required financing. The transaction, while expected to close in the first
half of 2003, may not be completed if any of the closing conditions are not
satisfied. Under certain terms specified in the merger agreement, the
Corporation or Wallace may terminate the agreement, and as a result, either
party may be required to pay a termination fee of up to $27.5 million to the
other party. Upon consummation, the transaction will be recorded by allocating
the cost of the assets acquired, including intangible assets and liabilities
assumed based on their estimated fair values at the date of acquisition. The
excess of the cost of the acquisition over the net of amounts assigned to the
fair value of the assets acquired and the liabilities assumed will be recorded
as goodwill. Unless otherwise indicated, the consolidated financial statements
and related notes pertain to the Corporation as a stand-alone entity and do not
reflect the impact of the pending business combination transaction with Wallace.
4. INVENTORIES
<Table>
<Caption>
2002 2001
-------- --------
Raw materials............................................... $ 31,883 $ 39,452
Work-in-process............................................. 10,303 10,048
Finished goods.............................................. 84,190 75,149
Other....................................................... 3,513 3,772
-------- --------
$129,889 $128,421
======== ========
</Table>
The current cost of these inventories exceeds the last-in, first-out cost
by approximately $16,239 at December 31, 2002 (2001 -- $17,152).
5. PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
2002 2001
-------- ----------
Land........................................................ $ 9,952 $ 9,973
Building.................................................... 155,454 162,660
Machinery and equipment..................................... 800,448 857,452
-------- ----------
965,854 1,030,085
Less: Accumulated depreciation.............................. 710,132 722,445
-------- ----------
$255,722 $ 307,640
======== ==========
</Table>
Depreciation expense for the year was $64,832 (2001 -- $108,436;
2000 -- $84,355).
In 2001 and 2000, the Corporation wrote off assets that were permanently
impaired amounting to $28,549 and $1,904, respectively, which were included in
depreciation and amortization (see Note 16).
F-14
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS
<Table>
<Caption>
2002 2001
------- -------
Equity basis................................................ $ -- $ 1,201
Cost basis.................................................. 1,700 4,200
Long-term bonds............................................. 30,556 26,803
------- -------
$32,256 $32,204
======= =======
</Table>
In the fourth quarter of 2002, the Corporation recorded a $2,500 impairment
charge against its cost basis investment for a permanent decline in market
value.
The fair market value of the long-term bonds at December 31, 2002, is
approximately $28,200 (2001 -- $27,200).
7. GOODWILL AND OTHER INTANGIBLES
On January 1, 2002, the Corporation adopted the recommendations of CICA
Handbook Section 3062, Goodwill and Other Intangible Assets. Under this standard
goodwill from acquisitions, subsequent to July 1, 2001 is not amortized but is
subject to an annual impairment test. Effective January 1, 2002, all goodwill
ceased to be amortized and is subject to an annual impairment test. Previously,
goodwill from acquisitions prior to July 1, 2001 was amortized on a
straight-line basis over its useful life, not to exceed 40 years, or was written
down when a permanent impairment in value occurred.
This standard requires reclassification of identifiable intangibles
separately from previously reported goodwill. This standard also requires
goodwill and identifiable intangible assets to be reviewed annually for
impairment, unless events or changes in circumstances indicate their carrying
values may not be recoverable.
The changes in the carrying value of goodwill by operating segment for the
year ended December 31, 2002, are as follows:
<Table>
<Caption>
BALANCE AT BALANCE AT
JANUARY 1, FOREIGN DECEMBER 31,
GOODWILL 2002 ADDITIONS EXCHANGE 2002
- -------- ---------- --------- -------- ------------
Forms and Labels........................... $41,857 $ 3,773 $ (80) $ 45,550
Outsourcing................................ -- 11,866 (20) 11,846
Commercial................................. -- 48,858 -- 48,858
------- ------- ----- --------
$41,857 $64,497 $(100) $106,254
======= ======= ===== ========
</Table>
The changes in other intangibles for the year ended December 31, 2002, are
as follows:
<Table>
<Caption>
BALANCE AT BALANCE AT
JANUARY 1, ACCUMULATED DECEMBER 31, AMORTIZABLE
OTHER INTANGIBLES 2002 ADDITIONS AMORTIZATION 2002 LIFE
- ----------------- ---------- --------- ------------ ------------ -----------
Trademarks, license and
agreements................ $437 $2,953 $ (463) $2,927 4-10 Years
Customer intangibles........ -- 2,729 (886) 1,843 3 Years
Indefinite-lived
trademarks................ -- 1,664 -- 1,664 Indefinite
---- ------ ------- ------
$437 $7,346 $(1,349) $6,434
==== ====== ======= ======
</Table>
F-15
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total intangible asset amortization expense for the year ended December
31, 2002, was $1,349, included in the depreciation and amortization expense.
Amortization expense for the next five years is estimated to be:
<Table>
2003........................................................ $1,303
2004........................................................ $1,303
2005........................................................ $ 692
2006........................................................ $ 240
2007........................................................ $ 228
</Table>
The table below provides a reconciliation of the reported net loss for 2001
and 2000, to the pro forma net loss, which excludes previously recorded goodwill
amortization, on goodwill outstanding at December 31, 2001 and 2000:
<Table>
<Caption>
2001 2000
---------------------------- ---------------------------
LOSS PER SHARE LOSS PER SHARE
---------------- ----------------
LOSS BASIC DILUTED LOSS BASIC DILUTED
--------- ------ ------- -------- ------ -------
Net loss available to common
shareholders (as
reported).................. $(373,383) $(4.21) $(4.21) $(66,372) $(0.75) $(0.75)
Add back: Goodwill
amortization -- net of
tax........................ 2,265 0.03 0.03 6,628 0.07 0.07
--------- ------ ------ -------- ------ ------
Pro forma net loss........... $(371,118) $(4.18) $(4.18) $(59,744) $(0.68) $(0.68)
========= ====== ====== ======== ====== ======
</Table>
In 2001 and 2000, the Corporation recorded charges of $76,808 and $20,965,
respectively, included in depreciation and amortization, for permanent
impairment of goodwill related to dispositions and assets held for disposition
(see Note 16). The impairment resulted from a significant sales decline,
customer turnover and the decision to hold certain assets for sale.
8. OTHER ASSETS
<Table>
<Caption>
2002 2001
-------- --------
Computer software -- net of accumulated amortization........ $ 89,208 $ 89,763
Deposit and other receivables............................... 3,218 2,361
Deferred debt issue costs................................... 7,955 --
Purchase of assets.......................................... -- 14,565
Other....................................................... 3,123 8,217
-------- --------
$103,504 $114,906
======== ========
</Table>
Amortization expense related to computer software for 2002, 2001, and 2000
was $20,553, $22,936, and $26,846, respectively.
In 2001 and 2000, the Corporation recorded a charge of $26,036 and $13,752,
respectively, included in depreciation and amortization, for the write-off of
certain computer software costs, primarily related to a component of its ERP
system, which would not be deployed.
F-16
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<Table>
<Caption>
2002 2001
-------- --------
Trade accounts payable...................................... $117,770 $ 89,840
Deferred revenue............................................ 26,718 22,652
Other payables.............................................. 40,986 36,711
-------- --------
185,474 149,203
Payroll costs............................................... 85,439 63,896
Employee benefit costs...................................... 27,787 19,037
Restructuring reserve (Note 17)............................. 81,440 126,673
Other....................................................... 106,367 127,817
-------- --------
$486,507 $486,626
======== ========
</Table>
10. DEBT
<Table>
<Caption>
2002 2001
-------- --------
Senior guaranteed notes:
Series A, 7.84%, maturing March 25, 2006.................. $ -- $ 42,750
Series B, 8.05%, maturing March 25, 2009.................. -- 57,250
Term Loan B Facility, maturing 2004 and 2006................ 179,500 --
Revolving term credit facility.............................. -- 15,000
Other debt, including capitalized leases.................... 10,098 14,096
-------- --------
Total....................................................... 189,598 129,096
Less current portion........................................ 2,135 18,034
-------- --------
Long-term debt.............................................. $187,463 $111,062
======== ========
</Table>
In August 2002, the Corporation entered into a $400.0 million secured
credit facility. The facility is comprised of a five-year $125.0 million
Revolving Credit Facility, a five-year $75.0 million Delayed Draw Term Loan A
Facility, and a six-year $200.0 million Term Loan B Facility, all of which are
subject to a number of financial and restrictive covenants that, among other
things, limit additional indebtedness and the ability of the Corporation to
engage in certain transactions with affiliates, create liens on assets, engage
in mergers and consolidations, or dispose of assets. The financial covenants
calculated on a quarterly basis include, but are not limited to, tests of
leverage and fixed charges coverage. The Delayed Draw Term Loan A Facility is to
be used for acquisitions and related initial working capital requirements. The
facility must be drawn within 18 months of the closing in a maximum of two
drawings. Proceeds from the Term Loan B Facility were used in part to refinance
the existing $168.0 million revolving credit facility that expired on August 5,
2002, and to fund working capital requirements as necessary. The Term Loan B
Facility bears interest at LIBOR (London Interbank Offer Rate) plus a 300 basis
point spread. Three-month LIBOR at December 31, 2002, was 1.38%.
For the years ended December 31, 2002 and 2001, the Corporation was in
compliance with all debt covenants.
During 2002, the Corporation entered into interest rate swap agreements to
hedge exposure to fluctuations in interest rates on the Term Loan B Facility.
These swap agreements exchange the variable interest rates (LIBOR) on this
facility for fixed interest rates over the terms of the agreements. The
resulting fixed interest rates will be the contracted swap rate plus the LIBOR
basis spread on the Term Loan B Facility.
F-17
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2002, the notional amount of the swap agreements was $150.0
million comprised as follows: a $100.0 million, 3.78% fixed rate agreement that
expires in August 2006; and a $50.0 million, 2.56% fixed rate agreement that
expires in September 2004. The interest rate differential received or paid on
these agreements is recognized as an adjustment to interest expense. At December
31, 2002, the fair value of these swap agreements was a $5,089 liability.
On December 27, 2001, the Corporation redeemed $100.0 million of its senior
guaranteed notes. On September 4, 2002, the Corporation redeemed the remaining
$100.0 million of these senior guaranteed notes and incurred a net prepayment
charge of $16,746.
On December 28, 2001, the $70.5 million subordinated convertible debentures
held by Chancery Lane/GSC Investors L.P. (the "Partnership") were converted into
21,692,311 common shares. The Corporation issued 1,650,000 additional common
shares ("additional shares") as an inducement to the Partnership's Class A
limited partners to convert prior to December 22, 2005, the date the Corporation
could have redeemed the debentures. The right to receive the additional shares
was assigned by the Partnership to its Class A limited partners. Under the terms
of the partnership agreement, the Class A limited partners were entitled to all
the interest paid on the subordinated convertible debentures. As part of the
inducement agreement, the Corporation has agreed that if at December 31, 2003,
the 20 day weighted average trading price of the common shares on the NYSE is
less than $10.83, the Corporation must make a payment equal to the lesser of
$9.0 million or the value of 6,000,000 of its common shares at such date. The
$9.0 million payment may be reduced under certain circumstances. At the option
of the Corporation, these payments may be made in common shares, subject to
regulatory approval. To the extent that shares or cash is paid, it will be
recorded as a charge to retained earnings. At December 31, 2002, the
Corporation's 20-day weighted average trading price was less than the $10.83
measurement price. The Corporation has no indication that the 20-day weighted
average share price will continue to trade below the measurement price. Certain
officers of the Corporation, including the Chairman and the Chief Executive
Officer, and the former Chairman, President and Chief Executive Officer, were
investors in the Partnership.
For financial reporting purposes, the subordinated convertible debentures
had a liability component and an equity component. The liability component was
classified as long-term debt, representing the present value of interest and
principal payments discounted at a rate of interest applicable to a debt only
instrument of comparable term and risk. The equity component at December 28,
2001, was $8,343 representing the value of the conversion option, calculated as
the difference between the proceeds and liability component.
Upon conversion, the Corporation allocated the consideration given to
extinguish subordinated convertible debentures to the liability and equity
components based on fair values on the date of conversion, which approximated
their carrying values. As such, no gain or loss was recorded. The inducement
payment of the additional shares issued was allocated to the equity component
and, accordingly, charged to retained earnings. Professional fees of $1,600
incurred for the conversion were also charged to retained earnings.
Deferred issue costs of $10,396 in 2001 relating to the subordinated
convertible debentures were charged to earnings upon extinguishment.
Other long-term debt, including capital leases, bears interest rates
ranging from 3.4% to 14.2% and matures on various dates through 2012. Loans
(excluding leases) amounting to $329 (2001 -- $4,000) are payable in currencies
other than United States dollars.
The net book value of assets subject to liens in 2002 is $26,563
(2001 -- $27,485). The liens are primarily mortgages against property, plant and
equipment and other current assets.
Payments required on long-term debt (excluding capital lease obligations)
are as follows: 2003 -- $219; 2004 -- $110; no repayments required for 2005 and
2006; 2007-- $84,500; and thereafter -- $95,000.
F-18
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation also maintains uncommitted bank operating lines in the
majority of the domestic markets in which it operates. These lines of credit are
maintained to cover temporary cash shortfalls. Maximum allowable borrowings
under these uncommitted facilities amounted to $40,221 at December 31, 2002
($1,397 outstanding), and may be terminated at any time at the Corporation's
option. Total availability under these facilities at December 31, 2002, was
$38,824.
11. OTHER LIABILITIES
<Table>
<Caption>
2002 2001
------- -------
Unfunded pension obligations................................ $28,170 $27,728
Long-term supply agreement.................................. 10,820 16,934
Other....................................................... 4,786 6,601
------- -------
$43,776 $51,263
======= =======
</Table>
During 2000, the Corporation entered into a supply agreement to sell
certain paper production assets and simultaneously entered into a long-term
supply agreement with the purchaser of the assets. Proceeds received were
allocated to the asset sale and supply agreement based on an independent
appraisal. Since the Corporation anticipates making purchases ratably over the
term of the supply agreement, the proceeds related to the agreement have been
deferred and are being amortized on a straight-line basis over the term of the
agreement as a reduction in cost of goods sold. The price terms of the supply
agreement were no more favorable than those available from other parties.
Included in accounts payable and accrued liabilities at December 31, 2002,
is $6,138 (2001 -- $6,918) representing the current portion of the supply
agreement.
12. SHARE CAPITAL
The Corporation's articles of continuance provide that its authorized share
capital be divided into an unlimited number of common shares and an unlimited
number of preference shares, issuable in one or more series. On February 7,
2002, the Corporation announced a program to repurchase up to $50.0 million of
its shares. The program calls for shares to be purchased on the NYSE from time
to time depending upon market conditions, market price of the common shares and
the assessment of the cash flow needs by the Corporation's management.
<Table>
<Caption>
CHANGES IN THE ISSUED COMMON SHARE CAPITAL SHARES ISSUED AMOUNT
- ------------------------------------------ ------------- --------
Balance, December 31, 1999 and 2000......................... 88,456,940 $310,881
Conversion of subordinated convertible debentures........... 21,692,311 71,506
Inducement for convertible debentures....................... 1,650,000 15,345
Exercise of stock options................................... 4,400 29
----------- --------
Balance, December 31, 2001.................................. 111,803,651 397,761
Exercise of stock options and other......................... 723,397 6,195
Restricted shares issued.................................... 385,000 3,665
Repurchase of common shares................................. (1,069,700) (3,821)
----------- --------
Balance, December 31, 2002.................................. 111,842,348 $403,800
=========== ========
</Table>
The Corporation has a long-term incentive program under which stock options
and restricted stock awards may be granted to certain key employees. At December
31, 2002, there were 583,000 common shares available for grants
(2001 -- 877,500; 2000 -- 171,700). Stock options have an exercise price equal
to the fair
F-19
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market value at date of grant. Options granted generally vest at 20% or 25% per
year from the date of grant. Upon retirement, all options become vested. Options
granted prior to 1999 are eligible for exercise for five years after the date of
retirement. Options granted after 1998 are eligible for exercise for one year
after the date of retirement. The options expire not more than 10 years from the
date granted.
On October 17, 2002, the Board of Directors of the Corporation approved the
award of 385,000 restricted shares under the Corporation's 2001 Long-Term
Incentive Plan. The effective grant date of the restricted shares was October
17, 2002. The restricted shares are subject to repurchase by the Corporation at
no cost in the event employment is terminated other than as a result of death,
retirement or disability. These repurchase rights expire with respect to 25% of
the initial restricted share grant each year beginning on the first anniversary
of the restricted share award. Upon issuance of the restricted shares, unearned
compensation expense equal to the market value was charged to share capital. The
unearned compensation of the restricted shares is disclosed as a separate
component of shareholders' equity that will be recognized as compensation
expense over the vesting period. Compensation expense for 2002 was $1,093.
On December 11, 2000, the Board of Directors approved the creation of
Series 1 Preference Shares, which are non-voting and entitle the holder to a
non-cumulative preferential annual dividend of CDN $0.001 and to receive any
dividend paid on a common share. In the event of liquidation, dissolution or
winding-up of the Corporation, a holder of a Series 1 Preference Share is
entitled to receive a preferential amount of CDN $0.001, together with all
dividends declared and unpaid thereon. Thereafter, the Series 1 Preference
Shares and common shares rank equally with each other on a share-for-share
basis. Stock options to acquire 1,580,000 Series 1 Preference Shares were issued
on December 11, 2000, and vest at 25% per annum. In April 2002, the shareholders
of the Corporation approved the amendment of the options to purchase Series 1
Preference Shares to eliminate the cash-out provision and to make them
exercisable for one common share per each Series 1 Preference Share option. The
exercise price and the number of Series 1 Preference Share options remained
unchanged.
F-20
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Corporation's stock option activity for the three years
ended December 31, 2002, is presented below:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
2002 2001 2000
(EXPRESSED IN CANADIAN CURRENCY) --------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- --------- --------
COMMON SHARES
Options outstanding at beginning
of year..................... 6,362,169 $15.63 6,509,686 $16.46 6,352,486 $18.73
Options granted............... 860,000 15.10 1,790,833 13.43 1,068,000 4.10
Options exercised............. (714,069) 13.24 (4,400) 7.54 -- --
Options forfeited and expired... (2,109,182) 12.47 (1,933,950) 16.40 (910,800) 17.81
---------- ------ ---------- ------ --------- ------
Options outstanding at
year-end.................... 4,398,918 $17.43 6,362,169 $15.63 6,509,686 $16.46
---------- ------ ---------- ------ --------- ------
Options exercisable at
year-end.................... 2,778,912 $20.26 2,832,715 $18.86 3,383,646 $19.84
---------- ------ ---------- ------ --------- ------
SERIES 1 PREFERENCE SHARES
Options outstanding at beginning
of year..................... 1,580,000 $ 3.65 1,580,000 $ 3.65 -- $ --
Options granted............... -- -- -- -- 1,580,000 3.65
Options forfeited............. (200,000) 3.65 -- -- -- --
---------- ------ ---------- ------ --------- ------
Options outstanding at
year-end.................... 1,380,000 $ 3.65 1,580,000 $ 3.65 1,580,000 $ 3.65
---------- ------ ---------- ------ --------- ------
Options exercisable at
year-end.................... 1,290,000 $ 3.65 395,000 $ 3.65 -- --
---------- ------ ---------- ------ --------- ------
</Table>
The following tables summarize information about stock options outstanding
at December 31, 2002 (in Canadian currency):
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ------------------------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 2002 LIFE (YEARS) EXERCISE PRICE 2002 EXERCISE PRICE
--------------- -------------- ------------ -------------- -------------- --------------
COMMON SHARES
$ 3 to 8 556,383 7.9 $ 4.40 258,608 $ 4.33
$ 9 to 15 1,766,975 8.9 14.01 444,744 12.90
$16 to 23 851,900 5.5 19.32 851,900 19.32
$24 to 30 1,223,660 3.2 26.96 1,223,660 26.96
--------- --- ------ --------- ------
4,398,918 6.5 $17.43 2,778,912 $20.26
--------- --- ------ --------- ------
Series 1 Preference Shares
--------- --- ------ --------- ------
$3.65 1,380,000 8.0 $ 3.65 1,290,000 $ 3.65
--------- --- ------ --------- ------
</Table>
F-21
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average fair value per option granted in 2002 was $4.70. The
estimated fair values were calculated using the Black-Scholes option pricing
model and the following assumptions.
<Table>
<Caption>
2002
----
Risk-free interest rates.................................... 3.2%
Expected lives (in years)................................... 5
Dividend yield.............................................. --
Volatility.................................................. 49%
</Table>
The Corporation's 2002 net income and earnings per share on a pro forma
basis using the fair value method are as follows:
<Table>
Net income, as reported..................................... $73,258
Fair value compensation expense, net of taxes............... 200
-------
Pro forma net income........................................ $73,058
=======
Pro forma earnings per share:
Basic..................................................... $ 0.66
Diluted................................................... $ 0.64
</Table>
In accordance with the transition rules of CICA Handbook Section 3870,
Stock-Based Compensation and Other Stock-Based Payments, the pro forma results
include the effect of options granted during 2002. This standard does not
require previous year pro forma presentation.
During 2002, the Corporation issued 219,069 (2001 -- 14,636) share units as
stock-based compensation for members of the Board of Directors. Share units are
exercisable for either cash or common shares at the discretion of the holder. At
December 31, 2002, 233,705 share units were outstanding and exercisable. For the
years ended December 31, 2002 and 2001, the Corporation recorded compensation
expense of $1,994 and $139 related to the issuance of these share units,
respectively.
13. CUMULATIVE TRANSLATION ADJUSTMENTS
<Table>
<Caption>
2002 2001 2000
--------- --------- ---------
Balance at beginning of year...................... $(128,177) $(126,360) $(118,256)
Currency translation.............................. (5,156) (2,461) (8,104)
Amounts recognized on dispositions................ -- 644 --
--------- --------- ---------
Balance at end of year............................ $(133,333) $(128,177) $(126,360)
========= ========= =========
</Table>
14. RETIREMENT PROGRAMS
DEFINED BENEFIT PENSION PLANS
During 2000, the Corporation amended its United States pension plan to
cease all benefit accruals effective December 31, 2000, and announced the
Corporation's intention to terminate and wind-up the plan. The 2000 net pension
expense includes a curtailment gain of $6,630 for this amendment. In March 2001,
the Corporation partially settled this plan by purchasing approximately $600.0
million in annuities. This settlement reduced the projected benefit obligation
and fair value of plan assets by $608,323 and $611,057, respectively, and
resulted in a settlement loss of $109,115. Pension expense for 2002 and 2001 on
the unsettled portion of the plan was calculated using a discount rate and rate
of return on plan assets, which were based upon estimated market rates to settle
the remaining portion of the plan. The Corporation anticipates settling the
remainder of the plan upon receiving anticipated regulatory approval and expects
to incur an additional
F-22
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
settlement loss. Since the Corporation has no control over the timing of the
regulatory approval, the amount of settlement loss cannot be determined.
During 2001, the Corporation purchased annuities to settle substantially
all of the obligation under the United Kingdom pension plan. This settlement
reduced the projected benefit obligation and fair value of plan assets by
$99,144.
In some subsidiaries, where either state or funded retirement plans exist,
there are certain small supplementary unfunded plans. Pensionable service prior
to establishing funded contributory retirement plans in other subsidiaries,
covered by former discretionary non-contributory retirement plans, was assumed
as a prior service obligation. In addition, the Corporation has supplemental
retirement programs for certain senior executives. These unfunded pension
obligations are included in other liabilities and include the unfunded portion
of this prior service obligation and the supplementary unfunded plans.
All of the retirement plans are non-contributory. Retirement benefits are
generally based on years of service and employees' compensation during the last
years of employment. At December 31, 2002, none of the United States or
International plans' assets and about 62% of the Canadian plan's assets were
held in equity securities with the remaining portion of the assets being mainly
fixed income securities.
The components of net pension expense are as follows:
<Table>
<Caption>
UNITED STATES CANADA INTERNATIONAL
------------------------------ --------------------------- ----------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
-------- -------- -------- ------- ------- ------- ------- ------- --------
PENSION EXPENSE
Service cost......... $ 28 $ 20 $ 13,287 $ 2,871 $ 3,169 $ 3,076 $ -- $ 76 $ 133
Interest cost........ 14,962 23,107 52,658 5,232 5,523 5,761 358 4,382 9,277
Expected return on
assets............. (22,020) (37,863) (82,523) (7,188) (7,497) (7,691) (1,204) (5,931) (10,780)
Settlement loss...... -- 109,115 -- -- -- -- -- -- --
Curtailment gain..... -- 2,154 (6,630) -- -- -- -- -- --
Amortization of net
loss (gain)........ 2,560 -- (128) 429 172 -- 335 (209) (208)
Amortization of prior
service cost....... -- -- 832 -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- --------
Net pension expense
(credit)........... $ (4,470) $ 96,533 $(22,504) $ 1,344 $ 1,367 $ 1,146 $ (511) $(1,682) $ (1,578)
-------- -------- -------- ------- ------- ------- ------- ------- --------
</Table>
F-23
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following provides a reconciliation of the benefit obligation, plan
assets and the funded status of the pension plans as of December 31, 2002 and
2001:
<Table>
<Caption>
UNITED STATES CANADA INTERNATIONAL
-------------------- ----------------- ------------------
2002 2001 2002 2001 2002 2001
-------- --------- ------- ------- ------- --------
FUNDED STATUS
Projected benefit obligation,
beginning of year............. $227,730 $ 657,678 $82,347 $82,202 $ 6,576 $100,406
Service cost.................... 28 20 2,871 3,169 -- 76
Interest cost................... 14,962 23,107 5,232 5,523 358 4,382
Actuarial loss (gain)........... 15,668 181,673 (2,764) 699 86 (511)
Effect of settlement............ -- (608,323) -- -- -- (99,144)
Foreign currency adjustments.... -- -- 677 (3,030) 710 1,367
Benefits paid................... (11,126) (26,425) (5,252) (6,216) (84) --
-------- --------- ------- ------- ------- --------
Projected benefit obligation,
end of year................... $247,262 $ 227,730 $83,111 $82,347 $ 7,646 $ 6,576
-------- --------- ------- ------- ------- --------
Fair value of plan assets,
beginning of year............. $401,882 $ 935,729 $85,283 $96,690 $22,048 $118,932
Actual return on assets......... (8,144) 103,635 (2,363) (1,959) 962 503
Foreign currency adjustments.... -- -- 750 (3,232) 2,377 1,757
Effect of settlement............ -- (611,057) -- -- -- (99,144)
Benefits paid................... (11,126) (26,425) (5,252) (6,216) (84) --
-------- --------- ------- ------- ------- --------
Fair value of plan assets, end
of year....................... $382,612 $ 401,882 $78,418 $85,283 $25,303 $ 22,048
-------- --------- ------- ------- ------- --------
Excess (shortfall) of plan
assets over projected benefit
obligation.................... $135,350 $ 174,152 $(4,693) $ 2,936 $17,657 $ 15,472
Unrecognized net loss........... 50,756 7,486 19,056 12,634 3,394 3,072
-------- --------- ------- ------- ------- --------
Prepaid pension cost............ $186,106 $ 181,638 $14,363 $15,570 $21,051 $ 18,544
-------- --------- ------- ------- ------- --------
Assumptions:
Discount rates................ 6.0% 6.8% 6.5% 7.0% 5.0% 5.0%
Expected return on plan
assets..................... 6.0% 6.8% 8.0% 8.0% 5.0% 8.3%
Rate of compensation
increase................... -- -- 4.0% 4.0% -- 5.0%
</Table>
DEFINED CONTRIBUTION SAVINGS PLANS
Savings plans are maintained in Canada, the United States and the United
Kingdom. Only the savings plan in the United Kingdom requires Corporation
contributions for all employees who are eligible to participate in the
retirement plans. These annual contributions consist of a retirement savings
benefit contributions ranging from 1% to 3% of annual eligible compensation
depending upon age. For all savings plans, if an employee contribution is made,
a portion of such contribution may be eligible for a contribution match by the
Corporation. For 2002, the defined contribution savings plan expense was $8,745
(2001 -- $6,913; 2000 -- $4,667).
F-24
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Corporation provides postretirement health care and life insurance
benefits to certain grandfathered United States employees and to all eligible
Canadian employees.
The components of net postretirement benefit cost are as follows:
<Table>
<Caption>
2002 2001 2000
------- ------- -------
POSTRETIREMENT BENEFIT COST
Service cost............................................ $ 2,087 $ 1,638 $ 1,450
Interest cost........................................... 17,373 13,939 13,430
Amortization of net loss................................ 1,846 51 --
Amortization of prior service credit.................... (6,282) (6,282) (6,282)
------- ------- -------
Net postretirement benefit cost......................... $15,024 $ 9,346 $ 8,598
======= ======= =======
</Table>
The following provides a reconciliation of the benefit obligation and the
accrued postretirement benefit cost at December 31, 2002 and 2001:
<Table>
<Caption>
2002 2001
-------- --------
ACCRUED POSTRETIREMENT BENEFIT COST
Projected postretirement benefit obligation, beginning of
year...................................................... $247,464 $181,085
Service cost................................................ 2,087 1,638
Interest cost............................................... 17,373 13,939
Actuarial loss.............................................. 3,169 64,485
Foreign currency adjustment................................. 127 (468)
Benefits paid............................................... (12,982) (13,215)
-------- --------
Projected postretirement benefit obligation, end of year.... $257,238 $247,464
Contributions paid in December.............................. (1,012) (587)
Unrecognized net (loss)..................................... (49,913) (48,526)
Unrecognized prior service credit........................... 35,031 41,313
-------- --------
Accrued postretirement benefit cost......................... $241,344 $239,664
-------- --------
ASSUMPTIONS
Weighted average discount rate.............................. 6.7% 7.2%
Weighted average health care cost trend rate:
Before age 65............................................. 11.4% 11.8%
After age 65.............................................. 13.3% 13.7%
The healthcare cost trend rate will gradually decline to
the ultimate trend rate then remain level thereafter
Weighted average ultimate health care cost trend rate....... 6.0% 6.0%
Year in which ultimate health care cost trend rate will be
achieved
Canada.................................................... 2008 2008
United States:
Before age 65.......................................... 2011 2011
After age 65........................................... 2013 2013
</Table>
F-25
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2002 2001
-------- --------
The following is the effect of a 1% increase in the assumed
health care cost trend rates for each future year on:
Accumulated postretirement benefit obligation............. $ 12,099 $ 13,905
Aggregate of the service and interest cost components of
net postretirement benefit cost........................ 910 1,182
The following is the effect of a 1% decrease in the assumed
health care cost trend rates for each future year on:
Accumulated postretirement benefit obligation............. $ 10,850 $ 12,244
Aggregate of the service and interest cost components of
net postretirement benefit cost........................ 842 1,055
</Table>
16. DISPOSITIONS AND ASSETS HELD FOR DISPOSITION
<Table>
<Caption>
COMPANY NATURE OF BUSINESS DISPOSITION DATE
- ------- ------------------ ----------------
DISPOSITIONS
Colleagues Group plc Provider of direct marketing services in the March 2001
United Kingdom
Phoenix Group, Inc. Provider of telemarketing customer relationship October 2001
management in the United States
</Table>
In 2001, net sales of $68,251(2000 -- $132,728) and losses from operations
of $47,465 (2000 -- $25,998) relating to the divested businesses, are included
in the Corporation's Commercial segment results. The Phoenix Group was sold for
cash proceeds of $26,009 and $2,526 was received for the Colleagues Group. The
net loss of $7,540 on these dispositions was recorded in investment and other
income.
In the fourth quarter of 2001, based on a current valuation of a non-core
business held for disposition, the Corporation wrote-off the remaining goodwill
amounting to $28,528 recorded in the Commercial business segment. The valuation
criteria includes in part, earnings potential, revenue and operating multiples,
and other industry standards. Included in the results of the Commercial segment
are net sales of $201,497 (2001 -- $191,350; 2000 -- $213,889) and operating
income of $12,947 (operating losses of $21,491 in 2001, and income of $358 in
2000) for this business.
17. RESTRUCTURING AND OTHER CHARGES
For the years ended December 31, 2002 and 2001, the Corporation recorded
restructuring provisions as follows:
<Table>
<Caption>
2002 2001
------------------------------- ---------------------------------
EMPLOYEE OTHER EMPLOYEE OTHER
TERMINATIONS CHARGES TOTAL TERMINATIONS CHARGES TOTAL
------------ ------- ------ ------------ ------- --------
Forms and Labels........ $4,395 $ -- $4,395 $33,597 $ 9,422 $ 43,019
Outsourcing............. -- -- -- 4,138 -- 4,138
Commercial.............. -- -- -- 28,365 7,639 36,004
Corporate............... -- -- -- 10,894 48,480 59,374
------ ----- ------ ------- ------- --------
$4,395 $ -- $4,395 $76,994 $65,541 $142,535
====== ===== ====== ======= ======= ========
</Table>
In the fourth quarter of 2002, the Corporation recorded a restructuring
provision of $4,395 for workforce reduction of 154 employees, primarily related
to the closure of a plant.
F-26
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 2001 restructuring plan was directed at streamlining the Corporation's
processes and significantly reducing its cost structure. The restructuring
provision included $76,994 for severance and other termination benefits for
3,366 employees (substantially all employees were terminated by December 31,
2002), $52,041 for lease terminations, $9,200 for facility closings, $3,600 for
onerous contracts and $700 for other incremental exit costs.
In the fourth quarter of 2002 and 2001, the Corporation reversed $5,245 and
$12,856, respectively, of the restructuring reserve due to the favorable
settlement of liabilities for obligations and future payments related to the
disposition of the European and Asian forms business. The Corporation recorded a
net reversal of $24,033 of restructuring charges under the 1998 restructuring
plan during the fourth quarter of 2000. In 2000, the reversals resulted from
facility closing costs that were lower than originally estimated and subleasing
these facilities on more favorable terms than originally estimated.
The reconciliation of the restructuring reserve at December 31, 2002, is as
follows:
<Table>
<Caption>
BALANCE AT BALANCE AT
DECEMBER 31, PROVISION, DECEMBER 31,
2001 NET CASH PAID 2002
------------ ---------- --------- ------------
Employee terminations................... $ 41,955 $ 4,395 $(32,031) $14,319
Other................................... 84,718 (5,245) (12,352) 67,121
-------- ------- -------- -------
$126,673 $ (850) $(44,383) $81,440
======== ======= ======== =======
</Table>
The restructuring reserves classified as "other" of $67,121 at December 31,
2002, primarily consist of the estimated remaining payments related to lease
terminations and facility closing costs. Payments on these lease obligations
continue until 2010. Market conditions and the Corporation's ability to sublease
these properties may affect the ultimate charge related to its lease
obligations. Any potential recovery or additional charge may affect amounts
reported in the consolidated financial statements of future periods. The
Corporation anticipates that payments associated with employee terminations will
be substantially completed by the end of 2003.
At December 31, 2002, the restructuring reserve includes approximately
$63,769 and $13,286 related to the 2001 and 1998 restructuring plans,
respectively, primarily related to lease payments.
During 2002, the Corporation recorded other charges of $16,746 associated
with the redemption of $100 million of senior guaranteed notes and an executive
separation of $9,202, included in selling, general and administrative expenses.
For the year ended December 31, 2001, the Corporation recorded other
charges as follows:
<Table>
<Caption>
SELLING, INTEREST, DEBT
GENERAL AND DEPRECIATION INVESTMENT SETTLEMENT,
COST OF ADMINISTRATIVE AND AND OTHER AND ISSUE
SALES EXPENSE AMORTIZATION INCOME COST TOTAL
------- -------------- ------------ ---------- -------------- --------
Forms and Labels...... $ 861 $ 4,287 $ 21,873 $ -- $ -- $ 27,021
Outsourcing........... -- -- 342 -- -- 342
Commercial............ 5,685 332 89,551 4,014 -- 99,582
Corporate............. 61,209 41,212 19,627 928 11,617 134,593
------- ------- -------- ------ ------- --------
$67,755 $45,831 $131,393 $4,942 $11,617 $261,538
======= ======= ======== ====== ======= ========
</Table>
Included in cost of sales and selling, general and administrative expenses
is a charge of $11,165 for the write-off of inventory and accounts receivable
relating to exiting certain non-core businesses. The Corporation also recorded a
net loss of $96,605 (of which $61,209 was included in cost of sales and $35,396
in selling, general and administrative expenses) associated with the partial
settlement of the U.S. pension plan, which was curtailed as of December 31,
2000, and other cash charges of $4,816 included in selling, general and
F-27
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
administrative expense. A charge of $11,617 related to the partial redemption of
the $100.0 million of senior guaranteed notes and the conversion of the
subordinated convertible debentures is included in debt settlement cost and
$1,000 for legal and other professional fees is in selling, general and
administrative expense. Non-cash charges of $131,393 related to the write-down
of goodwill of non-core businesses to be disposed of and asset impairments are
included in depreciation and amortization. Asset impairments relate to
write-offs of property, plant and equipment (see Note 5) and capitalized
software (see Note 8). For the write-down of goodwill for non-core businesses to
be disposed of, one non-core business was subsequently sold in 2001 and the
other non-core business is being held for sale (see Note 16). A loss on
disposition of non-core businesses of $4,014 and $928 for the write-down of
investments were charged to investment and other income (see Note 7 and Note
16).
During 2000, the Corporation recorded net other charges of $20,913, related
to non-cash charges of $34,717 for write-down of a non-core asset held for
disposal and the impairment of a component of the ERP asset, both included in
depreciation and amortization; loss on disposal of investment in JetForm
Corporation of $8,474; the write-down of a permanently impaired investment of
$3,500; and $4,885 of other charges. These charges were offset by the reversal
of a restructuring reserve of $24,033 and a gain on the curtailment of the
Corporation's U.S. pension plan of $6,630.
18. INCOME TAXES
The components of earnings (loss) before income taxes and minority interest
for the three years ended December 31, 2002, 2001 and 2000, are as follows:
<Table>
<Caption>
2002 2001 2000
------- --------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST
Canada............................................... $(1,182) $ (68,232) $(40,787)
United States........................................ 32,242 (331,585) (78,991)
Other countries...................................... 46,292 11,397 38,186
------- --------- --------
$77,352 $(388,420) $(81,592)
======= ========= ========
</Table>
<Table>
<Caption>
2002 2001 2000
------------------ ------------------ ------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- ------- --------
PROVISION (RECOVERY) FOR
INCOME TAXES
Canada..................... $ 66 $ (160) $ 469 $ 54 $ 73 $ 364
United States.............. 25,931 (27,879) 189 (36,826) (158) (21,706)
Other countries............ 3,585 266 2,933 379 5,631 (2,352)
Withholding taxes.......... 663 -- 610 -- 771 --
------- -------- ------ -------- ------ --------
$30,245 $(27,773) $4,201 $(36,393) $6,317 $(23,694)
======= ======== ====== ======== ====== ========
</Table>
F-28
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from a number of temporary differences in the
jurisdictions in which the Corporation and its subsidiaries operate. These
differences and the tax effects of each are as follows:
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
DEFERRED INCOME TAXES
Depreciation......................................... $ (1,940) $ (459) $ 319
Pensions............................................. 1,615 (36,493) 6,151
Unearned revenue..................................... 2,421 -- (10,847)
Postretirement benefits.............................. 374 -- 1,869
Restructuring........................................ 18,566 -- 16,548
Tax benefit of loss carryforward..................... (42,350) -- (38,244)
Other................................................ (6,459) 559 510
-------- -------- --------
$(27,773) $(36,393) $(23,694)
======== ======== ========
</Table>
Temporary differences and tax loss carryforwards, which give rise to
deferred income tax assets and liabilities are as follows:
<Table>
<Caption>
2002 2001
--------- ---------
DEFERRED INCOME TAX ASSETS
Postretirement benefits..................................... $ 93,647 $ 94,092
Tax benefit of loss carryforwards........................... 142,739 154,605
Pensions.................................................... 9,235 672
Restructuring............................................... 20,062 45,736
Other....................................................... 62,162 57,648
--------- ---------
327,845 352,753
Valuation allowance......................................... (113,917) (166,695)
--------- ---------
$ 213,928 $ 186,058
========= =========
DEFERRED INCOME TAX LIABILITIES
Depreciation................................................ $ 36,127 $ 50,561
Pensions.................................................... 79,135 77,968
Other....................................................... 25,482 10,341
--------- ---------
$ 140,744 $ 138,870
--------- ---------
Net deferred income tax asset............................... $ 73,184 $ 47,188
========= =========
Distributed as follows:
Current deferred income tax asset......................... 31,912 13,566
Current deferred income tax liability..................... 3,184 324
Long-term deferred income tax asset....................... 53,938 47,651
Long-term deferred income tax liability................... 9,482 13,705
========= =========
</Table>
F-29
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective rates of tax for each year compared with the statutory
Canadian rates were as follows:
<Table>
<Caption>
2002 2001 2000
----- ----- -----
EFFECTIVE TAX EXPENSE (RECOVERY) RATE
Canada:
Combined federal and provincial statutory rate............ 38.4% (41.6)% (43.2)%
Corporate surtax.......................................... 1.1 (1.1) (1.1)
Manufacturing and processing rate reduction............... (4.0) 5.4 6.0
----- ----- -----
Expected income tax expense (recovery) rate................. 35.5 (37.3) (38.3)
Tax rate differences in other jurisdictions................. (8.0) (2.2) (18.1)
Losses for which a benefit (has) has not been
provided -- net........................................... (27.2) 4.7 17.8
Restructuring costs......................................... (0.4) 12.2 (1.6)
Impaired assets............................................. -- 6.4 --
International divestiture................................... (0.1) 5.4 --
Non-deductible goodwill amortization and write-downs........ 1.0 3.0 17.1
Other....................................................... 2.4 (0.5) 1.8
----- ----- -----
Total consolidated effective tax expense (recovery) rate.... 3.2% (8.3)% (21.3)%
===== ===== =====
</Table>
At December 31, 2002, the Corporation has tax loss carryforwards totaling
$353.0 million. Of this amount, a valuation allowance has been recorded against
$239.0 million. Of the $239.0 million, approximately $106.0 million expires
between 2003 and 2012 and $133.0 million has no expiration. In addition, the
Corporation has recorded a valuation allowance against approximately $55.0
million of temporary differences that are available for utilization in future
years.
The 2002 difference between the statutory rate and the effective rate
relates to lower tax rates in non-U.S. jurisdictions offset by the inability to
recognize the tax benefit from certain foreign operating losses, combined with a
partial reduction in the deferred tax valuation allowance (which is based on
estimates of future taxable income), the resolution of an income tax refund,
partially offset by required tax reserves. In 2001, the effective income tax
benefit resulted from the partial recognition of operating losses.
The valuation allowance at December 31, 2002, relates to net operating
losses generated in the United States, Canada, Latin America and Europe (which
have limited carry-forward periods), and future deductible expense. The decrease
(increase) in the valuation allowance of approximately $53.0 million and
$(103.0) million for 2002 and 2001, respectively, primarily relates to amounts
recorded against deferred tax assets in the United States.
The Corporation has reduced the valuation allowance for a portion of its
deferred tax assets to the extent that it believes based on the weight of
available evidence, it is more likely than not that those assets will be
realized.
F-30
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. EARNINGS PER SHARE
<Table>
<Caption>
2002 2001 2000
-------- --------- --------
Net earnings (loss) available to common
shareholders...................................... $ 73,258 $(373,383) $(66,372)
Weighted average number of common shares
outstanding:
Basic............................................. 111,556 88,648 88,457
Dilutive options(a)............................... 2,219 -- --
Contingent shares (see Note 10)................... 247 -- --
-------- --------- --------
Diluted........................................... 114,022 88,648 88,457
-------- --------- --------
Earnings (loss) per share Basic..................... $ 0.66 $ (4.21) $ (0.75)
Diluted........................................... $ 0.64 $ (4.21) $ (0.75)
</Table>
- ---------------
(a) For 2001 and 2000, the diluted options are excluded as their effect would be
anti-dilutive.
20. SEGMENTED INFORMATION
The Corporation operates in the printing industry with three distinct
operating segments based on the way management assesses information on a regular
basis for decision-making purposes. The three segments are Forms and Labels,
Outsourcing and Commercial. These segments market print and print related
products and services to a geographically diverse customer base.
As a result of acquiring the remaining interest in Quality Color Press,
Inc. (see Note 3), management has reclassified this business from the Commercial
segment to the Forms and Labels segment in order to reflect the business
synergies and integration plans.
FORMS AND LABELS
In this segment, the Corporation derives its revenues from operations in
the United States, Canada and Latin America. This segment designs and
manufactures business forms, labels and related products, systems and services
which include:
- Custom continuous forms, cut sheets and multipart forms
- Print services
- Self mailers
- Electronic forms and services
- Integrated form-label application
- Proprietary label products
- Pressure sensitive labels
- Security documents
- Logistics, warehouse and inventory management
OUTSOURCING
In this segment, the Corporation derives revenues from its Business
Communications Services ("BCS") operations in the United States and Canada by
offering outsourcing services for electronic printing, imaging, processing and
distribution. BCS also manages custom, high-volume mailing applications.
Products include:
- Bill and service notifications
- Insurance policies
F-31
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Special notices
- Telecommunication cards
- Investment, banking, credit card, tax and year-end financial statements
- Licenses
COMMERCIAL
In this segment, the Corporation derives its revenues from operations in
the United States and Europe mainly by producing highly personalized
communications and database driven publications including:
- Creation and production of personalized mail
- Database management and segmentation services
- Direct marketing program development
- Response analysis services
- Digital color printing
- Annual reports
- Corporate image and product brochures
- Catalogs
- Market inserts
- Promotional materials
Other products within the Commercial segment include:
- Variable-imaged bar codes
- Printers, applicators and software products and solutions
- Post processing equipment
F-32
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS
YEARS ENDED DECEMBER 31,
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<Table>
<Caption>
FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED
---------------- ----------- ---------- ------------
2002
Total revenue.............................. $1,129,483 $317,848 $606,917 $2,054,248
Intersegment revenue....................... (3,636) (1,749) (10,824) (16,209)
---------- -------- -------- ----------
Sale to customers outside the enterprise... 1,125,847 316,099 596,093 2,038,039
---------- -------- -------- ----------
Segment operating income................... 132,736 61,374 50,562 244,672
---------- -------- -------- ----------
Non-operating expenses..................... (142,149)
----------
Income from operations..................... 102,523
----------
Segment assets............................. 581,660 114,514 324,533 1,020,707
Corporate assets including investments..... 419,052
----------
Total assets............................... 1,439,759
----------
Capital asset depreciation and
amortization............................. 56,811 14,969 14,966 86,746
---------- -------- -------- ----------
Capital expenditures....................... 20,256 4,416 7,273 31,945
---------- -------- -------- ----------
2001 (RECLASSIFIED)
Total revenue.............................. $1,198,173 $341,485 $636,343 $2,176,001
Intersegment revenue....................... (3,704) (2,006) (15,717) (21,427)
---------- -------- -------- ----------
Sale to customers outside the enterprise... 1,194,469 339,479 620,626 2,154,574
---------- -------- -------- ----------
Segment operating income (loss)............ 43,445 49,508 (90,904) 2,049
---------- -------- -------- ----------
Non-operating expenses..................... (344,373)
----------
Loss from operations....................... (342,324)
----------
Segment assets............................. 645,178 117,243 261,486 1,023,907
Corporate assets including investments..... 313,079
----------
Total assets............................... 1,336,986
----------
Capital asset depreciation and
amortization............................. 111,875 19,383 107,814 239,072
---------- -------- -------- ----------
Capital expenditures....................... 18,902 16,124 10,376 45,402
---------- -------- -------- ----------
2000 (RECLASSIFIED)
Total revenue.............................. $1,246,800 $297,851 $730,896 $2,275,547
Intersegment revenue....................... (690) (1,082) (15,357) (17,129)
---------- -------- -------- ----------
Sale to customers outside the enterprise... 1,246,110 296,769 715,539 2,258,418
---------- -------- -------- ----------
Segment operating income (loss)............ 72,105 43,126 (10,706) 104,525
---------- -------- -------- ----------
Non-operating expenses..................... (150,759)
----------
Loss from operations....................... (46,234)
----------
</Table>
F-33
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED
---------------- ----------- ---------- ------------
Segment assets............................. 856,457 109,847 428,692 1,394,996
Corporate assets including investments..... 348,591
----------
Total assets............................... 1,743,587
----------
Capital asset depreciation and
amortization............................. 84,264 19,276 47,978 151,518
---------- -------- -------- ----------
Capital expenditures....................... 61,677 10,651 32,253 104,581
---------- -------- -------- ----------
</Table>
GEOGRAPHIC INFORMATION
YEARS ENDED DECEMBER 31,
EXPRESSED IN THOUSANDS OF U.S. DOLLARS
<Table>
<Caption>
UNITED
CANADA STATES INTERNATIONAL CONSOLIDATED
-------- ---------- ------------- ------------
2002
Sale to customers outside the enterprise...... $208,192 $1,607,418 $222,429 $2,038,039
Capital assets, goodwill and intangibles...... 51,491 369,544 36,583 457,618
2001
Sale to customers outside the enterprise...... $199,628 $1,689,954 $264,992 $2,154,574
Capital assets, goodwill and intangibles...... 39,091 356,675 43,931 439,697
2000
Sale to customers outside the enterprise...... $222,311 $1,685,680 $350,427 $2,258,418
Capital assets, goodwill and intangibles...... 49,736 540,649 77,243 667,628
</Table>
21. LEASE COMMITMENTS
At December 31, 2002, lease commitments require future payments as follows:
<Table>
2003........................................................ $35,069
2004........................................................ $28,073
2005........................................................ $21,238
2006........................................................ $16,185
2007........................................................ $12,564
2008 and thereafter......................................... $36,669
</Table>
Rent expense amounted to $52,137 in 2002 (2001 -- $56,499;
2000 -- $69,897).
22. CONTINGENCIES
At December 31, 2002, certain lawsuits and other claims were pending
against the Corporation. While the outcome of these matters is subject to future
resolution, management's evaluation and analysis of such matters indicates that,
individually and in the aggregate, the probable ultimate resolution of such
matters will not have a material effect on the Corporation's consolidated
financial statements.
The Corporation is subject to laws and regulations relating to the
protection of the environment. The Corporation provides for expenses associated
with environmental remediation obligations when such amounts are probable and
can be reasonably estimated. Such accruals are adjusted as new information
develops or circumstances change and are not discounted. While it is not
possible to quantify with certainty the potential
F-34
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impact of actions regarding environmental matters, particularly remediation and
other compliance efforts that the Corporation's subsidiaries may undertake in
the future, in the opinion of management, compliance with the present
environmental protection laws, before taking into account estimated recoveries
from third parties, will not have a material adverse effect upon the results of
operations or consolidated financial condition of the Corporation.
The Corporation has been identified as a Potentially Responsible Party
("PRP") at the Dover, New Hampshire Municipal Landfill, a United States
Environmental Protection Agency Superfund Site. The Corporation has been
participating with a group of approximately 26 other PRP's to fund the study of
and implement remedial activities at the site. Remediation at the site has been
on-going and is anticipated to continue for at least several years. The total
cost of the remedial activity was estimated to be approximately $26,000. The
Corporation's share is not expected to exceed $1,500. The Corporation believes
that the reserves are sufficient based on the present facts and recent tests
performed at this site.
As described in Note 3, the Corporation may be required to pay a
termination fee of up to $27.5 million if the Corporation terminates its merger
agreement with Wallace.
23. FINANCIAL INSTRUMENTS
At December 31, 2002, the aggregate amount of forward exchange contracts
used as hedges was approximately $13,600 (2001 -- $13,700). Gains and losses
from these contracts, for all years presented, were not significant.
The notional amount of interest rate swaps at December 31, 2002, use to
hedge exposure to fluctuations in interest rates on the Term Loan B Facility was
$150.0 million (see Note 10).
The Corporation may be exposed to losses if the counterparties to the above
contracts fail to perform. The Corporation manages this risk by dealing only
with financially sound counterparties and by establishing dollar and term limits
for each counterparty. The Corporation does not use derivative financial
instruments for trading or speculative purposes.
24. CASH FLOW DISCLOSURE
For the year ended December 31, 2001, the following non-cash transactions
are required to be disclosed for both Canadian and U.S. GAAP as follows:
<Table>
Subordinated convertible debentures......................... $71,506
Inducement to certain debenture holders..................... 15,345
</Table>
25. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The continued registration of the common shares of the Corporation with the
Securities and Exchange Commission ("SEC") and listing of the shares on the NYSE
require compliance with the integrated disclosure rules of the SEC.
The accounting policies in Note 1 and accounting principles generally
accepted in Canada are consistent in all material aspects with United States
generally accepted accounting principles (U.S. GAAP) with the following
exceptions.
PENSIONS AND POSTRETIREMENT BENEFITS
With the adoption of CICA Handbook Section 3461, Employee Future Benefits,
effective January 1, 2000, there is no longer any difference in the method of
accounting for these costs. However, the transitional rules for implementing the
new Canadian standard continue to result in U.S. GAAP reporting differences.
F-35
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under CICA Handbook Section 3461, all past net gains (losses), net assets and
prior service costs were recognized as of the date of adoption. Under U.S. GAAP,
net gains (losses), net assets and prior service costs which occurred before
January 1, 2000 are recognized over the appropriate amortization period.
STATEMENT OF CASH FLOWS
For Canadian GAAP the Statements of Cash Flows discloses the net change in
cash resources, which is defined as cash and cash equivalents less bank
indebtedness. U.S. GAAP requires the disclosure of cash and cash equivalents.
Under U.S. GAAP, net cash provided by (used in) financing activities for 2002,
2001, and 2000 would be $(10,962), $(66,315), and $18,451, respectively. Cash
and cash equivalents are the same for both Canadian and U.S. GAAP.
INCOME TAXES
The liability method of accounting for income taxes is used for both
Canadian and U.S. GAAP. However, under U.S. GAAP, temporary differences are tax
effected at enacted rates, whereas under Canadian GAAP, temporary differences
are tax effected using substantively enacted rates and laws that will be in
effect when the differences are expected to reverse (see Note 18).
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
U.S. GAAP requires net unrealized gains (losses) on available-for-sale
securities to be reported as a separate component of shareholders' equity until
realized, whereas under Canadian GAAP such investments are carried at cost with
no effect on net income or shareholders' equity. Under both Canadian and U.S.
GAAP, impairments deemed to be other than temporary would be charged to
earnings.
STOCK COMPENSATION
The adoption of CICA Handbook, Section 3870, Stock-Based Compensation and
Other Stock-Based Payments, reduced most prospective differences in accounting
for these costs between Canadian GAAP and U.S. GAAP. The pro forma disclosures
of net income and earnings per share under the fair value method of accounting
for stock options will continue to differ as CICA Handbook Section 3870 is
applicable for awards granted on or after January 1, 2002. For both Canadian and
U.S. GAAP the Corporation uses the intrinsic value method of accounting for
stock options. Prior to CICA Handbook Section 3870, recognition of compensation
expense was not required for the Corporation's Series 1 Preference Share
options, whereas under U.S. GAAP, the expense is measured at the fair value of
the Preference Share options, less the amount the employee is required to pay,
and is accrued over the vesting period.
In April 2002, the shareholders of the Corporation approved the amendment
of the options to purchase Series 1 Preference Shares (the "Preference Shares")
to eliminate the cash-out provision and to make them exercisable for one common
share per each Preference Share option. The exercise price and the number of
Preference Share options remained unchanged. This amendment effectively made
these options common share equivalents for diluted earnings per share
computations. The transition rules for CICA Handbook Section 3870 required that
these common share equivalents be considered outstanding as of the beginning of
the year, whereas for U.S. GAAP purposes, these Preference Share options were
not considered common share equivalents until amended. The difference in the
weighted average common shares between Canadian and U.S. GAAP relates solely to
the amendment of the Preference Share options.
Additionally, no compensation expense or pro forma compensation expense is
required to be recognized in the current and future periods under Canadian GAAP
pursuant to CICA Handbook Section 3870, whereas under U.S. GAAP, unearned
compensation cost will be recognized over the remaining vesting period (through
December 11, 2004) based on the intrinsic value of the option on the date of
approval. Pro forma fair value
F-36
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation expense will also be recorded under U.S. GAAP for the Preference
Shares commencing on the amendment date. Compensation expense under U.S. GAAP
for 2002 and 2001, was $11,839 and $2,700, respectively. In accordance with the
transition rules for CICA Handbook Section 3870, no compensation expense was
recorded for the Preference Shares for Canadian GAAP.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("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 components of other comprehensive
income for the Corporation are unrealized foreign currency translation
adjustments, change in fair value of derivatives and unrealized gains (losses)
on available-for-sale securities. Under Canadian GAAP, there is no standard for
reporting comprehensive income.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
For U.S. GAAP purposes the Corporation's interest rate swaps are designated
as cash flow hedges and changes in their fair value are recorded in other
comprehensive income. Under Canadian GAAP, there is no standard requiring the
recognition of the fair value of derivatives through comprehensive income.
FOREIGN CURRENCY TRANSLATION
Under U.S. GAAP, foreign currency translation gains or losses are only
recognized on the sale or substantial liquidation of a foreign subsidiary. Under
Canadian GAAP, a foreign currency gain or loss due to a partial liquidation is
recognized in income.
BUSINESS PROCESS REENGINEERING
Under U.S. GAAP, business process reengineering activities are expensed as
incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be
capitalized or expensed. Subsequent to October 28, 1998, Canadian GAAP requires
expensing these costs. Prior to October 28, 1998, the Corporation capitalized
business process reengineering costs and classified them as computer software.
In 2000, certain deployment and training costs related to the
implementation of the Corporation's ERP system were expensed for U.S. GAAP
purposes and capitalized for Canadian GAAP purposes. In those years, such
expenses exceeded the amortization differential since the ERP system was not
placed in service until 2000. In 2002 and 2001, the U.S. GAAP reconciling item
for computer software relates solely to the amortization differential of the
capitalized amounts.
CONVERTIBLE DEBENTURES
Canadian GAAP requires that a portion of the subordinated convertible
debentures be classified as equity. The difference between the carrying amount
of the debenture and contractual liability is amortized to earnings. U.S. GAAP
requires classification of subordinated convertible debentures as a liability.
Under U.S. GAAP, when convertible debt is converted to equity securities
pursuant to an inducement offer, the debtor is required to recognize in
earnings, the fair value of all securities and other consideration transferred
in excess of the fair value of the securities issuable in accordance with the
original conversion terms. Under Canadian GAAP, the fair value of the securities
issued is charged to retained earnings. Also under Canadian GAAP, certain other
contingent consideration is not recognized until paid.
F-37
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP, when convertible debt is converted to equity securities,
unamortized deferred debt issuance costs are charged to share capital. Under
Canadian GAAP, these costs are charged to earnings.
The components of "Debt conversion costs" included in the U.S. GAAP
reconciliation for 2001 are as follows:
<Table>
Inducement shares issued.................................... $(15,345)
Deferred debt issuance costs................................ 10,396
Contingent consideration.................................... (2,000)
--------
Debt conversion costs....................................... $ (6,949)
========
</Table>
The value of the inducement shares represents the fair market value of
1,650,000 of the Corporation's common shares and is based upon the closing price
of these shares on the NYSE on December 28, 2001, the date the shares were
issued. For Canadian GAAP purposes, the fair value of the inducement shares was
charged to equity and additionally shown on the statement of operations as a
reduction to the amount available to common shareholders in the calculation of
earnings per share. For U.S. GAAP purposes, the fair value of the inducement
shares was recognized as an increase to share capital and recognized as a charge
to earnings for the period. The deferred debt issuance costs represent the
unamortized balance of the deferred issuance costs related to the convertible
debentures at conversion. For Canadian GAAP purposes, these costs were
recognized in earnings for the period, whereas for U.S. GAAP purposes, these
costs were recorded as a component of share capital. The contingent
consideration represents the right granted with the inducement shares for the
holder to potentially receive additional consideration in the future based on
the 20-day weighted average share price of the Corporation's stock at December
31, 2002 and 2003 (see Note 10). For Canadian GAAP purposes, to the extent that
any stock or cash is paid, it will be recorded as a charge to retained earnings.
For U.S. GAAP purposes, the fair value of this contingent consideration is
recognized in earnings and recorded at fair market value in subsequent reporting
periods. The fair value of the consideration was based upon an independent third
party valuation using an option pricing valuation model that includes, but is
not limited to the following factors: the Corporation's stock price volatility;
cost of borrowings; and certain equity valuation multiples.
SETTLEMENTS OF PENSION PLANS
Under U.S. 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, prior to January 1, 2000, an intention to settle
or curtail a pension plan that was expected to result in a loss, required
recognition once the amount was likely and could be reasonably estimated.
F-38
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation of net earnings (loss) as
reported under Canadian GAAP to net earnings (loss) under U.S. GAAP.
<Table>
<Caption>
2002 2001 2000
-------- --------- --------
Net earnings (loss) as reported..................... $ 73,258 $(358,038) $(66,372)
U.S. GAAP ADJUSTMENTS:
Pension expense................................... 4,199 144,917 18,263
Postretirement benefits........................... 17,290 17,275 18,833
Computer software................................. 6,764 17,287 (2,300)
Interest expense.................................. -- 258 --
Debt conversion costs............................. 832 (6,949) --
Stock-based compensation.......................... (11,839) (2,700) --
Income taxes...................................... (6,726) (82,014) (13,728)
-------- --------- --------
Net earnings (loss) under U.S. GAAP................. $ 83,778 $(269,964) $(45,304)
Earnings (loss) per share:
Basic............................................. $ 0.75 $ (3.05) $ (0.51)
Diluted........................................... $ 0.74 $ (3.05) $ (0.51)
Average shares (in thousands):
Basic............................................. 111,556 88,648 88,457
Diluted........................................... 113,298 88,648 88,457
-------- --------- --------
</Table>
<Table>
<Caption>
COMPREHENSIVE INCOME (LOSS) 2002 2001 2000
- --------------------------- ------- --------- --------
Net earnings (loss).................................. $83,778 $(269,964) $(45,304)
------- --------- --------
Other comprehensive income (loss), net of tax:
Currency translation adjustments................... (5,156) (1,817) (8,104)
Change in fair value of derivatives................ (3,104) -- --
Reclassification adjustment for losses included in
income.......................................... -- (798) 11,092
Unrealized losses on available-for-sale
securities...................................... -- -- (6,041)
------- --------- --------
Total comprehensive income (loss).................... $75,518 $(272,579) $(48,357)
======= ========= ========
</Table>
For U.S. GAAP purposes, the costs related to the early extinguishment of
debt are classified as an extraordinary item. On September 4, 2002, the
Corporation redeemed $100.0 million of the senior guaranteed notes at a
redemption price that includes a net prepayment charge of $16,746 or $10,215 net
of taxes. Net earnings before extraordinary items for 2002 is $93,993. Basic and
diluted earnings per share before extraordinary items for 2002 are $0.84 and
$0.83, respectively.
Gains and (losses) on the disposal of property, plant and equipment for
2002, 2001 and 2000 were $8,730, $(792) and $(2,630), respectively. For U.S.
GAAP purposes these amounts are recorded in income from operations.
Interest expense is net of investment income of $1,843, $2,895 and $4,545
for 2002, 2001 and 2000, respectively.
F-39
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET ITEMS
<Table>
<Caption>
2002 2001
----------------------- -----------------------
AS AT DECEMBER 31, AS REPORTED U.S. GAAP AS REPORTED U.S. GAAP
- ------------------ ----------- --------- ----------- ---------
Net pension asset...................... $(193,350) $(129,193) $(188,024) $(119,668)
Computer software -- net............... (89,208) (63,672) (89,763) (57,463)
Fair value of derivatives-liability.... -- 5,089 -- --
Postretirement benefits................ 241,344 366,077 239,664 381,687
Deferred income taxes-net.............. (73,184) (156,239) (47,188) (134,982)
Accounts payable and accrued
liabilities.......................... 486,507 481,676 486,626 485,325
Accumulated other comprehensive
income............................... (133,333) (101,253) (128,177) (92,993)
Share capital.......................... 403,800 405,337 397,761 384,759
Retained earnings (deficit)............ 114,601 (50,645) 51,666 (124,100)
</Table>
The weighted average fair value per option granted in 2002, 2001 and 2000
was $9.26, $3.91 and $0.67, respectively. The estimated fair values were
calculated using the Black-Scholes option pricing model and the following
assumptions.
<Table>
<Caption>
2002 2001 2000
---- ---- ----
Risk-free interest rates.................................... 4.1% 4.5% 5.5%
Expected lives (in years)................................... 5 5 6
Dividend yield.............................................. -- -- 7.6%
Volatility.................................................. 48.1% 46.0% 39.0%
</Table>
The Corporation's U.S. GAAP net income and earnings per share on a pro
forma basis using the fair value method are as follows:
<Table>
<Caption>
2002 2001 2000
-------- --------- --------
Net income (loss)................................... $ 83,778 $(269,964) $(45,304)
Pro forma adjustments, net of tax:
Stock compensation recorded....................... 7,222 -- --
Fair value compensation expense................... (11,305) (1,949) (1,746)
-------- --------- --------
Pro forma net income (loss)......................... $ 79,695 $(271,913) $(47,050)
======== ========= ========
Income (loss) per share
Basic............................................. $ 0.71 $ (3.07) $ (0.53)
Diluted........................................... $ 0.70 $ (3.07) $ (0.53)
======== ========= ========
</Table>
26. PENDING ACCOUNTING STANDARDS
In May 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). Among other things,
under the provision of SFAS 145, gains and losses from the early extinguishment
of debt are no longer classified as an extraordinary item, net of income taxes,
but are included in the determination of pretax earnings. The effective date for
SFAS 145 is for fiscal years beginning after May 15, 2002, with early
application encouraged. Upon adoption, all gains and losses from the
extinguishment of debt previously reported as an extraordinary item shall be
reclassified to pretax earnings. It is anticipated that the adoption of SFAS 145
will have no impact on the financial position or results of operations of the
Corporation.
F-40
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). This statement
addresses significant issues regarding the recognition, measurement, and
reporting of costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted for pursuant to
the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The principal difference between SFAS 146 and EITF 94-3 is that
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred versus the EITF
94-3 where a liability was recognized on the date an entity committed to an exit
plan. SFAS 146 is effective for exit and disposal activities that are initiated
after December 31, 2002.
In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure" ("SFAS 148"). The Statement provides
alternative methods of transitioning to the fair value based method of
accounting for stock-based employee compensation. Also, this Statement amends
the previous disclosure requirements to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." This interpretation expands the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. In
general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying that is related to an asset, liability, or
equity security of the guaranteed party. Certain guarantee contracts are
excluded from both the disclosure and recognition requirements of this
interpretation. Other guarantees are subject to the disclosure requirements of
FIN 45 but not to the recognition provisions and include, among others, a
guarantee accounted for as a derivative instrument under SFAS 133. The
disclosure requirements of FIN 45 are effective for the Corporation as of
December 31, 2002, and require disclosure of the nature of the guarantee, the
maximum potential amount of future payments that the guarantor could be required
to make under the guarantee, and the current amount of the liability, if any,
for the guarantor's obligations under the guarantee. The recognition
requirements of FIN 45 are to be applied prospectively to guarantees issued or
modified after December 31, 2002. Significant guarantees that have been entered
into by the Corporation are disclosed in Note 10. The Corporation does not
expect the requirements of FIN 45 to have a material impact on results of
operations, financial position or liquidity.
In 2002, the CICA Handbook Sections 3063, Impairment of Long Lived Assets,
and 3475, Disposal of Long Lived Assets and Discontinued Operations, were issued
to harmonize with SFAS No. 144. The standards will require an impairment loss to
be recognized when the carrying amount of an asset held for use exceeds the sum
of undiscounted cash flows. The impairment loss would be measured as the amount
by which the carrying amount exceeds the fair value of the asset. An asset held
for sale is to be measured at the lower of carrying cost or fair value less cost
to sell. In addition, this guidance broadens the concept of a discontinued
operations and eliminates the ability to accrue operating losses expected
between the measurement date and the disposal date. CICA Section 3063 is
effective for fiscal years beginning on or after April 1, 2003, and CICA Section
3475 applies to disposal activities initiated by an enterprise's commitment to a
plan on or after May 1, 2003. The sections will be applied prospectively with
early adoption encouraged.
In 2002, the Accounting Standards Board of the CICA issued Accounting
Guidelines No. 13 that increases the documentation, designation and
effectiveness criteria to achieve hedge accounting. The guideline requires the
discontinuance of hedge accounting for hedging relationships established that do
not meet the conditions at the date it is first applied. It does not change the
method of accounting for derivatives in hedging
F-41
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
relationships, but requires fair value accounting for derivatives that do not
qualify for hedge accounting. The new guideline is applicable for fiscal years
commencing July 1, 2003. The Corporation is evaluating the impact this standard
might have on its results of operations and financial position.
27. SUBSEQUENT EVENT
On May 15, 2003, the Corporation acquired all the outstanding shares of
Wallace in exchange for consideration of $14.40 in cash and 1.05 shares of the
Corporation for each outstanding share of Wallace. The aggregate consideration
to the Wallace shareholders was $1.1 billion and was comprised of a cash payment
of $609.7 million and 44,458,825 common shares of the Corporation with a fair
value of $471.7 million. The fair value of the Corporation's shares was based
upon the actual number of shares issued to the Wallace shareholders using the
average closing trading price of the Corporation's common shares on the New York
Stock Exchange ("NYSE") during a five-day trading period beginning two days
prior to the announcement of the merger agreement on January 17, 2003. The total
purchase price of $1.3 billion also included $218.2 million for the settlement
of Wallace debt and other liabilities, and direct acquisition costs to date of
$19 million.
The transaction was recorded by allocating the cost of the assets acquired,
including intangible assets and liabilities assumed based on their estimated
fair values at the date of acquisition. The excess of the cost of the
Acquisition over the net of amounts assigned to the fair value of the assets
acquired and the liabilities assumed was recorded as goodwill. Based on the
Corporation's preliminary independent valuation, which is subject to further
refinement, the purchase price was allocated as follows:
<Table>
Accounts receivable......................................... $ 238,321
Inventory................................................... 137,562
Customer backlog............................................ 3,790
Other current assets........................................ 13,350
Property, plant and equipment -- net........................ 390,536
Long-term and other assets.................................. 38,583
Capitalized software........................................ 45,400
Amortizable intangible assets............................... 60,824
Intangible assets with indefinite lives..................... 92,310
Goodwill.................................................... 675,163
Accounts payable and accrued liabilities.................... (158,178)
Short-term and long-term debt............................... (16,189)
Postretirement benefits and pension......................... (52,484)
Deferred taxes -- net....................................... (131,306)
Other long-term liabilities................................. (19,031)
----------
Total purchase price -- net of cash acquired.............. $1,318,651
==========
</Table>
In March 2003, the Corporation entered into an $850.0 million senior
secured credit facility (the "New Facility") in connection with the Acquisition.
The New Facility consists of a seven-year $500.0 million B Term Loan, which was
funded into escrow until the consummation of the Acquisition on May 15, 2003,
and a five-year $350.0 million Revolving Credit Facility. The loans under the
New Facility bear interest based on a variable index (LIBOR), plus an applicable
margin. The New Facility replaced the Corporation's $400.0 million senior
secured credit facility. The Corporation subsequently entered into an agreement
with the lender of its New Facility in August 2003 to amend the New Facility to
reduce the applicable margin.
F-42
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concurrently, in March 2003, the Corporation issued $403.0 million of 7 7/8
% senior unsecured notes (the "Senior Notes") due 2011 at a $2.8 million
discount to the principal amount. Interest on the Senior Notes is payable
semiannually on January 15 and July 15 of each year, commencing on July 15,
2003. The Corporation, at its option, may redeem up to 40% of the Senior Notes
prior to January 15, 2006, at a predetermined redemption price with the proceeds
of certain equity offerings. In addition, subsequent to January 15, 2007, the
Senior Notes may be redeemed at predetermined redemption prices. On or prior to
January 15, 2007, the Corporation may also redeem the Senior Notes upon a change
of control, at a price equal to 100% of the principal plus an applicable
premium.
28. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
Moore North America Finance Inc ("Finance Inc.") a wholly-owned subsidiary
of the Corporation (the "Parent") is the issuer of the Senior Notes. The Parent
and certain of the Corporation's wholly owned subsidiaries ("Guarantor
Subsidiaries") have guaranteed Finance Inc.'s obligation under the Senior Notes.
The Guarantees are joint and several, full, complete and unconditional. Other
wholly owned subsidiaries of the Corporation ("Non-guarantor Subsidiaries") have
not guaranteed the obligation under the Senior Notes.
The following supplemental condensed consolidating financial data
illustrates, in separate columns, the composition of the Parent, Finance Inc.,
Guarantor Subsidiaries, Non-guarantor Subsidiaries, eliminations, and the
consolidated total.
Investments in subsidiaries are accounted for by the equity method for
purposes of the supplemental condensed consolidating financial data. The
principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions. The financial data may not necessarily
be indicative of the results of operations or financial position had the
subsidiaries been operated as independent entities.
F-43
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2002:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------- ------------ ------------ ------------ ------------
ASSETS
Current Assets
Cash and cash equivalents........... $ 29,127 $ 101 $ 100,338 $ 10,064 $ -- $ 139,630
Accounts receivable -- net.......... 33,131 -- 271,219 37,033 -- 341,383
Intercompany receivables............ -- 2,222 60,496 4,571 (67,289) --
Inventories......................... 21,121 -- 99,384 9,384 -- 129,889
Prepaid expenses.................... 949 -- 15,604 764 -- 17,317
Deferred income taxes............... 549 -- 29,066 2,297 -- 31,912
--------- -------- ---------- -------- ----------- ----------
Total Current Assets.................. 84,877 2,323 576,107 64,113 (67,289) 660,131
--------- -------- ---------- -------- ----------- ----------
Property, plant and equipment --net... 28,503 -- 199,457 27,762 -- 255,722
Investments........................... -- -- 1,784 30,472 -- 32,256
Investment in subsidiaries............ 374,237 -- 47,917 230 (422,384) --
Prepaid pension cost.................. 14,363 -- 188,605 18,552 -- 221,520
Goodwill.............................. 17,956 -- 88,298 -- -- 106,254
Other intangibles -- net.............. 3,354 -- 3,080 -- -- 6,434
Intercompany loan receivable.......... 1,188 5,082 5,223 32,264 (43,757) --
Deferred income taxes................. (202) -- 54,129 11 -- 53,938
Other assets.......................... 1,756 -- 98,456 3,292 -- 103,504
--------- -------- ---------- -------- ----------- ----------
Total Assets.......................... $ 526,032 $ 7,405 $1,263,056 $176,696 $ (533,430) $1,439,759
========= ======== ========== ======== =========== ==========
LIABILITIES
Current Liabilities
Bank indebtedness................... $ 12 $ -- $ 17,673 $ 473 $ -- $ 18,158
Accounts payable and accrued
liabilities....................... 42,959 1,002 380,567 61,979 -- 486,507
Intercompany payables............... 54,939 3,817 -- 8,533 (67,289) --
Short-term debt..................... 401 -- 1,414 320 -- 2,135
Income taxes........................ 14,469 (31) 43,073 1,051 -- 58,562
Deferred income taxes............... 1,219 -- -- 1,965 -- 3,184
--------- -------- ---------- -------- ----------- ----------
Total Current Liabilities............. 113,999 4,788 442,727 74,321 (67,289) 568,546
--------- -------- ---------- -------- ----------- ----------
Intercompany loans payable............ 6,479 -- 30,976 6,302 (43,757) --
Long-term debt........................ 1,090 -- 183,146 3,227 -- 187,463
Postretirement benefits............... 10,869 -- 230,475 -- -- 241,344
Deferred income taxes................. 3,378 -- 5,834 270 -- 9,482
Other liabilities..................... 7,721 -- 32,619 3,436 -- 43,776
Minority interest..................... -- -- -- 6,652 -- 6,652
--------- -------- ---------- -------- ----------- ----------
Total Liabilities..................... 143,536 4,788 925,777 94,208 (111,046) 1,057,263
--------- -------- ---------- -------- ----------- ----------
SHAREHOLDERS' EQUITY
Share Capital....................... 403,800 20,000 1,607,533 204,042 (1,831,575) 403,800
Unearned restricted shares.......... (2,572) -- -- -- -- (2,572)
Retained earnings................... 114,601 (17,383) (1,292,916) (77,715) 1,388,014 114,601
Cumulative translation
adjustments....................... (133,333) -- 22,662 (43,839) 21,177 (133,333)
--------- -------- ---------- -------- ----------- ----------
Total Shareholders' Equity............ 382,496 2,617 337,279 82,488 (422,384) 382,496
--------- -------- ---------- -------- ----------- ----------
Total Liabilities and Shareholders'
Equity.............................. $ 526,032 $ 7,405 $1,263,056 $176,696 $ (533,430) $1,439,759
========= ======== ========== ======== =========== ==========
Shareholders' Equity as reported...... $ 382,496 $ 2,617 $ 337,279 $ 82,488 $ (422,384) $ 382,496
--------- -------- ---------- -------- ----------- ----------
U.S. GAAP Adjustments:
Net pension asset................... (5,536) -- (58,621) -- -- (64,157)
Computer software -- net............ -- -- (25,536) -- -- (25,536)
Fair value of derivatives........... -- -- (5,089) -- -- (5,089)
Postretirement benefits............. (2,575) -- (122,158) -- -- (124,733)
Deferred income taxes -- net........ 3,590 -- 81,647 (2,182) -- 83,055
Accounts payable and accrued
liabilities....................... (1,169) -- -- 6,000 -- 4,831
Equity investments.................. (125,939) -- 3,818 -- 122,121 --
--------- -------- ---------- -------- ----------- ----------
(131,629) -- (125,939) 3,818 122,121 (131,629)
--------- -------- ---------- -------- ----------- ----------
Shareholders' Equity under U.S.
GAAP................................ $ 250,867 $ 2,617 $ 211,340 $ 86,306 $ (300,263) $ 250,867
========= ======== ========== ======== =========== ==========
</Table>
F-44
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------- ------------ ------------ ------------ ------------
ASSETS
Current Assets
Cash and cash equivalents.......... $ 15,257 $ 100 $ 59,058 $ 10,440 $ -- $ 84,855
Accounts receivable -- net......... 32,930 -- 265,073 38,150 -- 336,153
Intercompany receivables........... 47,414 5,769 151,343 5,500 (210,026) --
Inventories........................ 22,664 -- 96,296 9,461 -- 128,421
Prepaid expenses................... 884 -- 11,760 900 -- 13,544
Deferred income taxes.............. 248 -- 12,885 433 -- 13,566
--------- -------- ----------- -------- ----------- ----------
Total Current Assets................. 119,397 5,869 596,415 64,884 (210,026) 576,539
--------- -------- ----------- -------- ----------- ----------
Property, plant and
equipment -- net................... 34,067 -- 241,756 31,817 -- 307,640
Investments.......................... 2,129 -- 3,400 26,675 -- 32,204
Investment in subsidiaries........... 292,016 -- 58,868 230 (351,114) --
Prepaid pension cost................. 15,571 -- 184,858 15,323 -- 215,752
Goodwill............................. 2,417 -- 39,440 -- -- 41,857
Other intangibles -- net............. -- -- 437 -- -- 437
Intercompany loan receivable......... 9,509 219,246 54,054 32,384 (315,193) --
Deferred income taxes................ 6,592 -- 40,916 143 -- 47,651
Other assets......................... 17,669 363 93,403 3,471 -- 114,906
--------- -------- ----------- -------- ----------- ----------
Total Assets......................... $ 499,367 $225,478 $ 1,313,547 $174,927 $ (876,333) $1,336,986
========= ======== =========== ======== =========== ==========
LIABILITIES
Current Liabilities
Bank indebtedness.................. $ 2,337 $ -- $ 53,281 $ 563 $ -- $ 56,181
Accounts payable and accrued
liabilities...................... 46,578 3,151 369,518 67,379 -- 486,626
Intercompany payables.............. 37,455 103,817 54,391 14,363 (210,026) --
Short-term debt.................... 1,125 -- 16,316 593 -- 18,034
Income taxes....................... 14,043 (31) 12,292 1,373 -- 27,677
Deferred income taxes.............. -- -- -- 324 -- 324
--------- -------- ----------- -------- ----------- ----------
Total Current Liabilities............ 101,538 106,937 505,798 84,595 (210,026) 588,842
--------- -------- ----------- -------- ----------- ----------
Intercompany loans payable........... 56,476 -- 253,718 4,999 (315,193) --
Long-term debt....................... 2,012 100,000 5,180 3,870 -- 111,062
Postretirement benefits.............. 8,968 -- 230,696 -- -- 239,664
Deferred income taxes................ -- -- 13,438 267 -- 13,705
Other liabilities.................... 9,123 -- 37,445 4,695 -- 51,263
Minority interest.................... -- -- -- 11,200 -- 11,200
--------- -------- ----------- -------- ----------- ----------
Total Liabilities.................... 178,117 206,937 1,046,275 109,626 (525,219) 1,015,736
SHAREHOLDERS' EQUITY
Share Capital...................... 397,761 20,000 1,524,222 206,682 (1,750,904) 397,761
Retained earnings.................. 51,666 (1,459) (1,326,240) (98,098) 1,425,797 51,666
Cumulative translation
adjustments...................... (128,177) -- 69,290 (43,283) (26,007) (128,177)
--------- -------- ----------- -------- ----------- ----------
Total Shareholders' Equity........... 321,250 18,541 267,272 65,301 (351,114) 321,250
--------- -------- ----------- -------- ----------- ----------
Total Liabilities and Shareholders'
Equity............................. $ 499,367 $225,478 $ 1,313,547 $174,927 $ (876,333) $1,336,986
========= ======== =========== ======== =========== ==========
Shareholders' Equity as reported..... $ 321,250 $ 18,541 $ 267,272 $ 65,301 $ (351,114) $ 321,250
--------- -------- ----------- -------- ----------- ----------
U.S. GAAP Adjustments:
Net pension asset.................. (5,705) -- (62,651) -- -- (68,356)
Computer software -- net........... -- -- (32,300) -- -- (32,300)
Postretirement benefits............ (2,817) -- (139,206) -- -- (142,023)
Deferred income taxes -- net....... 4,809 -- 85,167 (2,182) -- 87,794
Accounts payable and accrued
liabilities...................... (4,699) -- -- 6,000 -- 1,301
Equity investments................. (145,172) -- 3,818 -- 141,354 --
--------- -------- ----------- -------- ----------- ----------
(153,584) -- (145,172) 3,818 141,354 (153,584)
--------- -------- ----------- -------- ----------- ----------
Shareholders' Equity under U.S.
GAAP............................... $ 167,666 $ 18,541 $ 122,100 $ 69,119 $ (209,760) $ 167,666
========= ======== =========== ======== =========== ==========
</Table>
F-45
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------ ------------ ------------
Net sales................ $211,949 $ -- $1,704,551 $131,108 $ (9,569) $2,038,039
-------- -------- ---------- -------- -------- ----------
Cost of sales............ 154,921 -- 1,164,101 80,554 (9,569) 1,390,007
Selling, general and
administrative
expenses............... 45,360 -- 382,414 31,839 -- 459,613
Restructuring
provision -- net....... (2,029) -- 4,881 (3,702) -- (850)
Depreciation and
amortization........... 10,082 -- 72,409 4,255 -- 86,746
-------- -------- ---------- -------- -------- ----------
Total operating
expenses............... 208,334 -- 1,623,805 112,946 (9,569) 1,935,516
-------- -------- ---------- -------- -------- ----------
Income from operations... 3,615 -- 80,746 18,162 -- 102,523
-------- -------- ---------- -------- -------- ----------
Equity earnings (loss) of
subsidiaries........... 48,734 -- (10,951) -- (37,783) --
Investment and other
income (expense)....... 20,570 -- (21,409) 4,559 -- 3,720
Interest
expense -- net......... (342) (822) 14,262 (953) -- 12,145
Debt settlement and issue
costs.................. -- 16,746 -- -- -- 16,746
-------- -------- ---------- -------- -------- ----------
Earnings (loss) before
income taxes and
minority interest...... 73,261 (15,924) 34,124 23,674 (37,783) 77,352
Income tax expense....... 3 -- 800 1,669 -- 2,472
Minority interest........ -- -- -- 1,622 -- 1,622
-------- -------- ---------- -------- -------- ----------
Net earnings (loss)...... $ 73,258 $(15,924) $ 33,324 $ 20,383 $(37,783) $ 73,258
-------- -------- ---------- -------- -------- ----------
U.S. GAAP Adjustments:
Pension expense........ 169 -- 4,030 -- -- 4,199
Postretirement
benefits............ 190 -- 17,100 -- -- 17,290
Computer software...... -- -- 6,764 -- -- 6,764
Debt conversion
costs............... 832 -- -- -- -- 832
Stock-based
compensation........ (11,839) -- -- -- -- (11,839)
Income taxes........... 4,153 -- (10,879) -- -- (6,726)
Equity earnings........ 17,015 -- -- -- (17,015) --
-------- -------- ---------- -------- -------- ----------
10,520 -- 17,015 -- (17,015) 10,520
-------- -------- ---------- -------- -------- ----------
Net earnings (loss) under
U.S. GAAP.............. $ 83,778 $(15,924) $ 50,339 $ 20,383 $(54,798) $ 83,778
======== ======== ========== ======== ======== ==========
</Table>
F-46
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2001:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------- ------------ ------------ ------------ ------------
Net sales................ $ 204,116 $ -- $1,768,550 $214,908 $(33,000) $2,154,574
--------- ------- ---------- -------- -------- ----------
Cost of sales............ 148,659 -- 1,295,470 141,432 (33,000) 1,552,561
Selling, general and
administrative
expenses............... 76,247 957 444,031 54,351 -- 575,586
Restructuring
provision -- net....... 10,680 -- 107,676 11,323 -- 129,679
Depreciation and
amortization........... 11,389 -- 163,750 63,933 -- 239,072
--------- ------- ---------- -------- -------- ----------
Total operating
expenses............... 246,975 957 2,010,927 271,039 (33,000) 2,496,898
--------- ------- ---------- -------- -------- ----------
Loss from operations..... (42,859) (957) (242,377) (56,131) -- (342,324)
--------- ------- ---------- -------- -------- ----------
Equity earnings (loss) of
subsidiaries........... (295,364) -- (2,915) -- 298,279 --
Investment and other
income (expense)....... (2,165) -- (8,693) 137 -- (10,721)
Interest
expense -- net......... 6,720 (1,591) 21,498 (2,869) -- 23,758
Debt settlement and issue
costs.................. 10,396 1,000 221 -- -- 11,617
--------- ------- ---------- -------- -------- ----------
Earnings (loss) before
income taxes and
minority interest...... (357,504) (366) (275,704) (53,125) 298,279 (388,420)
Income tax expense
(benefit).............. 534 -- (34,887) 2,161 -- (32,192)
Minority interest........ -- -- -- 1,810 -- 1,810
--------- ------- ---------- -------- -------- ----------
Net loss................. $(358,038) $ (366) $ (240,817) $(57,096) $298,279 $ (358,038)
--------- ------- ---------- -------- -------- ----------
U.S. GAAP Adjustments:
Pension expense........ (239) -- 173,408 (28,252) -- 144,917
Postretirement
benefits............ 208 -- 17,067 -- -- 17,275
Computer software...... -- -- 17,287 -- -- 17,287
Interest expense....... 258 -- -- -- -- 258
Debt conversion
costs............... (6,949) -- -- -- -- (6,949)
Stock-based
compensation........ (2,700) -- -- -- -- (2,700)
Income taxes........... 3,901 -- (85,915) -- -- (82,014)
Equity earnings........ 93,595 -- (28,252) -- (65,343) --
--------- ------- ---------- -------- -------- ----------
88,074 -- 93,595 (28,252) (65,343) 88,074
--------- ------- ---------- -------- -------- ----------
Net loss under U.S.
GAAP................... $(269,964) $ (366) $ (147,222) $(85,348) $232,936 $ (269,964)
========= ======= ========== ======== ======== ==========
</Table>
F-47
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------ ------------ ------------
Net sales.................. $226,919 $ -- $1,802,629 $285,958 $(57,088) $2,258,418
-------- ----- ---------- -------- -------- ----------
Cost of sales.............. 179,520 -- 1,279,672 196,421 (57,088) 1,598,525
Selling, general and
administrative
expenses................. 67,991 -- 429,874 80,777 -- 578,642
Restructuring provision -
net...................... (728) -- (9,635) (13,670) -- (24,033)
Depreciation and
amortization............. 13,371 -- 105,531 32,616 -- 151,518
-------- ----- ---------- -------- -------- ----------
Total operating expenses... 260,154 -- 1,805,442 296,144 (57,088) 2,304,652
-------- ----- ---------- -------- -------- ----------
Loss from operations....... (33,235) -- (2,813) (10,186) -- (46,234)
-------- ----- ---------- -------- -------- ----------
Equity earnings (loss) of
subsidiaries............. (25,189) -- (19,458) -- 44,647 --
Investment and other income
(expense)................ (9,875) -- (4,825) 358 -- (14,342)
Interest expense -- net.... (2,672) 678 34,576 (11,566) -- 21,016
-------- ----- ---------- -------- -------- ----------
Earnings (loss) before
income taxes and minority
interest................. (65,627) (678) (61,672) 1,738 44,647 (81,592)
Income tax expense
(benefit)................ 745 -- (18,336) 214 -- (17,377)
Minority interest.......... -- -- -- 2,157 -- 2,157
-------- ----- ---------- -------- -------- ----------
Net loss................... $(66,372) $(678) $ (43,336) $ (633) $ 44,647 $ (66,372)
-------- ----- ---------- -------- -------- ----------
U.S. GAAP Adjustments:
Pension expense.......... 3,956 -- 14,307 -- -- 18,263
Postretirement
benefits.............. 230 -- 18,603 -- -- 18,833
Computer software........ -- -- (2,300) -- -- (2,300)
Income taxes............. (1,651) -- (12,077) -- -- (13,728)
Equity earnings.......... 18,533 -- -- -- (18,533) --
-------- ----- ---------- -------- -------- ----------
21,068 -- 18,533 -- (18,533) 21,068
-------- ----- ---------- -------- -------- ----------
Net loss under U.S. GAAP... $(45,304) $(678) $ (24,803) $ (633) $ 26,114 $ (45,304)
======== ===== ========== ======== ======== ==========
</Table>
F-48
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net earnings (loss)................. $ 73,258 $ (15,924) $ 33,324 $ 20,383 $(37,783) $ 73,258
Adjustments to reconcile net
earnings (loss)to cash provided
(used) by operating activities:
Equity (earnings) loss of
subsidiaries.................... (48,734) -- 10,951 -- 37,783 --
Depreciation and amortization..... 10,082 -- 72,409 4,255 -- 86,746
Net (gain) loss on sale of
investment and other assets..... 60 -- (7,293) (1,497) -- (8,730)
Deferred income taxes............. 11,090 -- (36,998) (88) -- (25,996)
Debt settlement costs............. -- 16,746 -- -- -- 16,746
Other............................. (1,907) 364 (5,140) (1,077) -- (7,760)
Changes in operating assets and
liabilities:
Accounts receivable -- net........ 71 -- (2,235) 1,526 -- (638)
Inventories....................... 1,752 -- 3,895 379 -- 6,026
Accounts payable and accrued
liabilities..................... (3,917) (2,150) 2,869 (6,543) -- (9,741)
Income taxes...................... 314 -- 32,137 (318) -- 32,133
Other............................. 189 -- (3,965) 127 -- (3,649)
-------- --------- -------- -------- -------- ---------
Net cash provided (used) by
operating activities.............. 42,258 (964) 99,954 17,147 -- 158,395
-------- --------- -------- -------- -------- ---------
INVESTING ACTIVITIES
Property, plant and
equipment -- net.................. (893) -- (7,802) (246) -- (8,941)
Long-term receivables and other
investments....................... 429 -- (1,402) (4,055) -- (5,028)
Acquisition of businesses........... (8,764) -- (57,202) -- -- (65,966)
Software expenditures............... -- -- (10,958) -- -- (10,958)
Other............................... -- -- (1,615) -- -- (1,615)
-------- --------- -------- -------- -------- ---------
Net cash used by investing
activities........................ (9,228) -- (78,979) (4,301) -- (92,508)
-------- --------- -------- -------- -------- ---------
FINANCING ACTIVITIES
Net change in short-term debt....... (724) -- (14,902) (273) -- (15,899)
Issuance of long-term debt.......... -- -- 200,000 -- -- 200,000
Payments on long-term debt.......... (1,641) (116,746) (21,877) -- -- (140,264)
Issuance (repurchase) of common
shares -- net..................... (7,949) -- -- -- -- (7,949)
Intercompany activity............... (6,279) 117,711 (99,432) (12,000) -- --
Other............................... -- -- (8,108) (719) -- (8,827)
-------- --------- -------- -------- -------- ---------
Net cash provided (used) by
financing activities.............. (16,593) 965 55,681 (12,992) -- 27,061
-------- --------- -------- -------- -------- ---------
Effect of exchange rate on cash
resources......................... (242) -- 232 (140) -- (150)
-------- --------- -------- -------- -------- ---------
Increase (decrease) in cash
resources......................... 16,195 1 76,888 (286) -- 92,798
Cash resources at beginning of
year.............................. 12,920 100 5,777 9,877 -- 28,674
-------- --------- -------- -------- -------- ---------
Cash resources at end of year....... $ 29,115 $ 101 $ 82,665 $ 9,591 $ -- $ 121,472
======== ========= ======== ======== ======== =========
</Table>
F-49
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2001:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net earnings (loss)................ $(358,038) $ (366) $(240,817) $(57,096) $ 298,279 $(358,038)
Adjustments to reconcile net
earnings (loss) to cash provided
(used) by operating activities:
Equity (earnings) loss of
subsidiaries................... 295,364 -- 2,915 -- (298,279) --
Depreciation and amortization.... 11,389 -- 163,750 63,933 -- 239,072
Net (gain) loss on sale of
investment and other assets.... (79) -- (1,533) 7,436 -- 5,824
Deferred income taxes............ (13,729) -- (21,511) 137 -- (35,103)
Pension settlement -- net........ -- -- 96,605 -- -- 96,605
Provision for restructuring
costs.......................... 10,680 -- 107,676 11,323 -- 129,679
Debt settlement and issue
costs.......................... 10,396 1,000 221 -- -- 11,617
Other............................ 7,903 373 (8,131) 2,903 -- 3,048
Changes in operating assets and
liabilities:
Accounts receivable -- net....... 3,554 -- 49,804 (8,674) -- 44,684
Inventories...................... 7,014 -- 14,203 (180) -- 21,037
Accounts payable and accrued
liabilities.................... (6,614) (1,122) (5,297) (6,345) -- (19,378)
Income taxes..................... 885 -- (4,129) (1,173) -- (4,417)
Other............................ 6,850 (155) (1,902) (2,302) -- 2,491
--------- --------- --------- -------- --------- ---------
Net cash provided (used) by
operating activities............. (24,425) (270) 151,854 9,962 -- 137,121
--------- --------- --------- -------- --------- ---------
INVESTING ACTIVITIES
Property, plant and
equipment -- net................. (3,320) -- (20,451) (13,301) -- (37,072)
Long-term receivables and other
investments...................... 484 -- 138 (4,111) -- (3,489)
Acquisition of businesses.......... (14,565) -- -- -- -- (14,565)
Proceeds from sale of investments
and other assets................. -- -- 38,495 -- -- 38,495
Software expenditures.............. -- -- (6,151) (366) -- (6,517)
Other.............................. 5,095 -- (22,249) 18,364 -- 1,210
--------- --------- --------- -------- --------- ---------
Net cash provided (used) by
investing activities............. (12,306) -- (10,218) 586 -- (21,938)
--------- --------- --------- -------- --------- ---------
FINANCING ACTIVITIES
Dividends.......................... (8,846) -- -- -- -- (8,846)
Net change in short-term debt...... (437) -- 16,272 (510) -- 15,325
Issuance of long-term debt......... 364 -- 7,476 123 -- 7,963
Payments on long-term debt......... (1,082) (100,000) (3,084) -- -- (104,166)
Intercompany activity.............. 60,158 100,667 (153,981) (6,844) -- --
Other.............................. (2,320) -- 669 (1,693) -- (3,344)
--------- --------- --------- -------- --------- ---------
Net cash provided (used) by
financing activities............. 47,837 667 (132,648) (8,924) -- (93,068)
--------- --------- --------- -------- --------- ---------
Effect of exchange rate on cash
resources........................ (439) -- (65) (47) -- (551)
--------- --------- --------- -------- --------- ---------
Increase (decrease) in cash
resources........................ 10,667 397 8,923 1,577 -- 21,564
Cash resources at beginning of
year............................. 2,253 (297) (3,146) 8,300 -- 7,110
--------- --------- --------- -------- --------- ---------
Cash resources at end of year...... $ 12,920 $ 100 $ 5,777 $ 9,877 $ -- $ 28,674
========= ========= ========= ======== ========= =========
</Table>
F-50
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000:
<Table>
<Caption>
NON-
FINANCE GUARANTOR GUARANTOR
PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net loss.............................. $(66,372) $ (678) $ (43,336) $ (633) $ 44,647 $ (66,372)
Adjustments to reconcile net loss to
cash provided (used) by operating
activities:
Equity (earnings) loss of
subsidiaries...................... 25,189 -- 19,458 -- (44,647) --
Depreciation and amortization....... 13,371 -- 106,959 32,216 -- 152,546
Net (gain) loss on sale of assets... 1,553 -- 1,176 (99) -- 2,630
Net loss on write-off and sale of
investments....................... 8,474 -- 3,500 -- -- 11,974
Deferred income taxes............... (3,615) -- (10,228) 816 -- (13,027)
Recovery of restructuring costs..... (728) -- (9,635) (13,670) -- (24,033)
Other............................... 8,719 373 3,063 212 -- 12,367
Changes in operating assets and
liabilities:
Accounts receivable -- net.......... 207 -- 66,389 3,184 -- 69,780
Inventories......................... 12,090 -- 13,299 (1,208) -- 24,181
Accounts payable and accrued
liabilities....................... (21,366) 165 (100,678) (13,110) -- (134,989)
Income taxes........................ (567) 240 814 (1,126) -- (639)
Other............................... (39,610) (426) 84,988 (42,050) -- 2,902
-------- ------- --------- -------- -------- ---------
Net cash provided (used) by operating
activities.......................... (62,655) (326) 135,769 (35,468) -- 37,320
-------- ------- --------- -------- -------- ---------
INVESTING ACTIVITIES
Property, plant and
equipment -- net.................... (6,083) -- (19,544) (13,916) -- (39,543)
Long-term receivables and other
investments......................... (818) -- 1,269 76 -- 527
Acquisition of businesses............. (3,008) -- (343) -- -- (3,351)
Proceeds from sale of investments and
other assets........................ -- -- -- 13,178 -- 13,178
Software expenditures................. -- -- (28,689) (106) -- (28,795)
Other................................. 135 -- 3,155 (4,132) -- (842)
-------- ------- --------- -------- -------- ---------
Net cash used by investing
activities.......................... (9,774) -- (44,152) (4,900) -- (58,826)
-------- ------- --------- -------- -------- ---------
FINANCING ACTIVITIES
Dividends............................. (17,594) -- -- -- -- (17,594)
Net change in short-term debt......... 132 -- (37,022) (541) -- (37,431)
Issuance of long-term debt............ 58,678 -- 2,599 3,386 -- 64,663
Payments on long-term debt............ (1,755) -- (20) (1) -- (1,776)
Intercompany activity................. 30,257 -- (76,681) 46,424 -- --
Other................................. (7,140) -- 8,578 (7,191) -- (5,753)
-------- ------- --------- -------- -------- ---------
Net cash provided (used) by financing
activities.......................... 62,578 -- (102,546) 42,077 -- 2,109
-------- ------- --------- -------- -------- ---------
Effect of exchange rate on cash
resources........................... 666 -- 728 20 -- 1,414
-------- ------- --------- -------- -------- ---------
Increase (decrease) in cash
resources........................... (9,185) (326) (10,201) 1,729 (17,983)
Cash resources at beginning of year... 11,438 29 7,055 6,571 -- 25,093
-------- ------- --------- -------- -------- ---------
Cash resources at end of year......... $ 2,253 $ (297) $ (3,146) $ 8,300 $ -- $ 7,110
======== ======= ========= ======== ======== =========
</Table>
F-51