- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 COMMISSION FILE NUMBER 1-8014
MOORE CORPORATION LIMITED
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 98-0154502
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization
40 KING ST. W., SUITE 3501 M5H 3Y2
TORONTO, ONTARIO, CANADA (Zip code)
(Address of principal executive offices)
416-364-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
At May 10, 2002, 111,437,401 shares of the registrant's common shares, without
par value were outstanding.
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOORE CORPORATION LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
MARCH 31, DECEMBER 31,
2002 2001
----------- ------------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 59,343 $ 84,855
Accounts receivable, less allowance for 364,285 336,153
doubtful accounts of $22,736 (2001 - $22,057)
Inventories (Note 2) 135,887 128,421
Prepaid expenses 19,148 13,544
Deferred income taxes 18,194 13,566
---------- ----------
Total current assets 596,857 576,539
Property, plant and equipment, net 299,882 307,640
Investments 32,789 32,204
Prepaid pension costs 215,047 215,752
Goodwill and other intangibles (Note 3) 100,967 42,294
Deferred income taxes 40,109 47,651
Other assets 101,014 114,906
---------- ----------
TOTAL ASSETS $1,386,665 $1,336,986
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank indebtedness $ 31,001 $ 56,181
Accounts payable and accrued liabilities 480,726 486,626
Short-term debt (Note 4) 77,894 18,034
Income taxes 28,754 27,677
Deferred income taxes 229 324
---------- ----------
Total current liabilities 618,604 588,842
Long-term debt 109,720 111,062
Postretirement benefits 240,822 239,664
Deferred income taxes 15,009 13,705
Other liabilities 60,241 51,263
Minority interest 11,167 11,200
---------- ----------
Total liabilities 1,055,563 1,015,736
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital 398,195 397,761
Authorized:
Unlimited number of preference (none outstanding
for 2002 and 2001) and common shares without
par value
Issued: 111,828,901 common shares - 2002
111,803,651 common shares - 2001
Retained earnings 63,289 51,666
Cumulative translation adjustments (130,382) (128,177)
---------- ----------
Total shareholders' equity 331,102 321,250
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,386,665 $1,336,986
========== ==========
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2002 2001
----------- ----------
Net sales $ 529,501 $ 574,196
Cost of sales 361,008 460,932
Selling, general and administrative expenses 124,478 186,942
Restructuring provision (Note 5) - 66,651
Depreciation and amortization (includes impairment
charge of $0 for 2002 and $60,356 for 2001) 22,155 88,985
--------- ---------
Total operating expenses 507,641 803,510
--------- ---------
Income (loss) from operations 21,860 (229,314)
Investment and other income (expense) (1,495) (3,725)
Interest expense, net 2,611 6,091
--------- ---------
Earnings (loss) before income taxes 17,754 (239,130)
and minority interest
Income tax expense (recovery) 4,794 (38,097)
Minority interest 467 427
--------- ---------
Net earnings (loss) $ 12,493 $(201,460)
========= =========
Net earnings (loss) per common share:
Basic $ 0.11 $ (2.28)
--------- ---------
Diluted $ 0.11 $ (2.28)
--------- ---------
Average number of common shares outstanding
(in thousands):
Basic 111,848 88,457
--------- ---------
Diluted 114,269 88,457
--------- ---------
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
2002 2001
--------- ---------
Balance, beginning of period $ 51,666 $ 431,821
Net earnings (loss) 12,493 (201,460)
Repurchase of common shares (870) -
Subordinated convertible debentures - (181)
Dividends (5(cent)per share in 2001) - (4,423)
--------- ---------
Balance, end of period $ 63,289 $ 225,757
========= =========
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net earnings (loss) $ 12,493 $(201,460)
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 22,155 88,985
Net loss on sale of other assets - 4,225
Restructuring provision, net of cash paid - 55,540
Pension settlement - 102,015
Deferred income taxes 4,268 (38,841)
Other 1,209 1,086
Changes in operating assets and liabilities:
Accounts receivable, net (18,887) 22,751
Inventories (1,777) (2,941)
Accounts payable and accrued liabilities (16,375) (18,237)
Income taxes 933 (1,827)
Other (2,352) (7,733)
--------- ---------
Net cash provided by operating activities 1,667 3,563
INVESTING ACTIVITIES
Property, plant and equipment, net (2,615) (7,100)
Increase in long-term receivables (1,475) (1,734)
Acquisition of business (57,202) -
Proceeds from sale of other assets and investments - 12,526
Software expenditures (521) (1,808)
Deferred charges 425 719
Other (329) 1,090
--------- ---------
Net cash (used in) provided by investing activities (61,717) 3,693
FINANCING ACTIVITIES
Dividends - (4,423)
Net change in short-term debt 59,860 (804)
Proceeds from issuance of long-term debt - 45,000
Payments on long-term debt (608) (5,528)
Issuance (repurchase) of common shares, net (436) -
Other (317) (423)
--------- ---------
Net cash provided by financing activities 58,499 33,822
Effect of exchange rate on cash 1,219 237
--------- ---------
Net (decrease) increase in cash (332) 41,315
Cash and cash equivalents at beginning of period (a) 28,674 7,110
--------- ---------
Cash and cash equivalents at end of period (a) $ 28,342 $ 48,425
========= =========
Supplemental disclosure of cash flows information:
Interest paid $ 4,345 $ 10,624
Income taxes paid 1,649 1,452
(a) Cash and cash equivalents are defined as cash and short-term securities
less bank indebtedness.
(See notes to the consolidated financial statements)
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements have been prepared by
Moore Corporation Limited in accordance with the recommendations of the Canadian
Institute of Chartered Accountants' (CICA) Handbook Section 1751 Interim
Financial Statements. As permitted by these standards, these interim financial
statements do not include all information required by Canadian generally
accepted accounting principles to be included in annual financial statements.
However, the Corporation considers that the disclosures made are adequate for a
fair presentation. Comparative figures have been reclassified where appropriate
to conform to the current presentation. Net sales and net earnings for any
interim period are not necessarily indicative of results that may be expected
for the entire year.
These consolidated interim financial statements are prepared in accordance with
the accounting policies described in the Corporation's latest Annual Report on
Form 10-K and should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Corporation's latest Annual
Report on Form 10-K.
The consolidated financial statements have been prepared in conformity with
Canadian generally accepted accounting principles, and, as such include
estimates and assumptions of management that affect the amounts reported in the
consolidated financial statements. Actual results could differ from these
estimates.
Effective January 1, 2002, the Corporation adopted the recommendations of the
CICA Handbook Section 1650 - Foreign Currency Translation. The amendment to this
standard eliminated the deferral and amortization of unrealized gains and losses
on non-current monetary assets and liabilities and requires that exchange gains
or losses 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 section did not have any material impact on the
Corporation's financial position or results of operations.
Effective January 1, 2002, the Corporation adopted the recommendations of the
CICA Handbook Section 3062 - Goodwill and Other Intangible Assets. In accordance
with this accounting standard, goodwill and other intangible assets with
indefinite lives are no longer amortized but will be assessed for impairment on
an annual basis or as events or circumstances change that indicate goodwill or
other intangibles of a reporting unit may be impaired. The adoption of this
section did not have a material impact on the Corporation's financial position
or results of operations. The pro forma impact on the results of operations for
2001 has been disclosed in Note 3.
Effective January 1, 2002 the Corporation adopted the recommendations of the
CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based
Payments. This standard, which establishes a fair value-based method of
accounting for stock-based compensation plans, also permits an election to
continue to use an intrinsic value-based method with disclosures on a pro forma
basis of net income and earnings per share under the new method. The Corporation
continues to measure compensation cost for its employee stock compensation plans
using the intrinsic value-based method of accounting, which generally does not
result in compensation costs. There were no such stock-based awards issued
during the three months ended March 31, 2002.
2. INVENTORIES
March 31, December 31,
2002 2001
---------- -----------
Raw materials $ 42,182 $ 39,452
Work-in-process 10,546 10,048
Finished goods 79,478 75,149
Other 3,681 3,772
---------- -----------
Total $135,887 $128,421
========== ===========
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying value of goodwill and other intangible assets by
business segment for the quarter ended March 31, 2002 are as follows:
Forms
and Labels Outsourcing Commercial Total
---------- ----------- ---------- --------
Balance at January 1, 2002 $39,440 $ 437 $ 2,417 $ 42,294
Goodwill and intangibles
from acquisitions - 11,585 47,334 58,919
Amortization expense - (219) (27) (246)
------- ------- ------- --------
Balance at March 31, 2002 $39,440 $11,803 $49,724 $100,967
======= ======= ======= ========
The total intangible asset amortization expense for the quarter ended March 31,
2001 was $1.4 million.
Other intangible assets consist primarily of customer lists which are amortized
over their estimated useful lives.
The Corporation has made recent acquisitions and is in the process of valuing
the net assets acquired as described in Note 12 and anticipates these valuations
will be completed by the second quarter of 2002. The Corporation believes that
the purchase price adjustments will not have a material impact on earnings for
the quarter.
In accordance with CICA 3062, the table below provides a reconciliation of the
reported net loss for the three months ended March 31, 2001 to the pro forma net
loss, which excludes previously recorded goodwill amortization:
Loss Per Share
--------------------
For the Three Months Ended March 31, 2001 Loss Basic Diluted
- ----------------------------------------- ----------- --------- -------
Net loss, as reported $(201,460) $(2.28) $(2.28)
Add back: Goodwill amortization 555 0.01 0.01
----------- --------- -------
Pro forma net loss $(200,905) $(2.27) $(2.27)
=========== ========= =======
4. DEBT
The Corporation has a $168.0 million committed revolving term facility that
matures on August 5, 2002 and is subject to a number of financial covenants that
are calculated on a quarterly basis including, but not limited to, tests of net
worth, leverage and interest coverage. At March 31, 2002 $70.0 million was drawn
down under the facility versus $15.0 million at December 31, 2001. The
Corporation is currently negotiating a new credit facility and expects to enter
into a new credit facility by the end of the second quarter of 2002, however,
the Corporation cannot give any assurance that it will be able to obtain a new
credit facility.
5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
For the three months ended March 31, 2001, the Corporation recorded a pretax
restructuring provision of $66.7 million as follows:
Forms and Labels $ 12,485
Outsourcing 3,869
Commercial 17,082
Corporate 33,215
--------
Total $ 66,651
========
The restructuring charge of $66.7 million recorded during the first quarter of
2001 was directed at streamlining the Corporation's process and significantly
reducing the cost structure. Included in the charge is $34.6 million for
severance and termination benefits for 1,146 employees (substantially all were
terminated as of March 31, 2002), $29.3 million for lease terminations and
facility closings, $1.3 million for onerous contracts and $1.5 million for other
incremental exit costs. The Corporation expects that substantially all remaining
severance payments will occur by the end of the second quarter of 2002.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES (Continued)
Certain of the Corporation's facility lease obligations may continue until 2010;
however, actual results could vary based upon market conditions and the
Corporation's ability to sublease these properties. Any potential recovery or
additional charge may affect amounts reported in the consolidated financial
statements of future periods.
The reconciliation of the restructuring liability as of March 31, 2002 is as
follows:
December 31, Cash March 31,
2001 Paid 2002
-------- -------- --------
Employee terminations $ 41,955 $ (9,963) $ 31,992
Other 84,718 (3,313) 81,405
-------- -------- --------
$126,673 $(13,276) $113,397
======== ======== ========
For the three months ended March 31, 2001, the Corporation also recorded other
non-recurring charges consisting of a loss of $102.0 million from the partial
settlement of the U.S. pension plan, curtailed as of December 31, 2000 (included
in cost of sales and selling, general and administrative expense); $0.9 million
relating to the replacement of senior executive officers included in selling,
general and administrative expense; and non-cash charges of $8.3 million for
plant closures and $3.8 million for abandoned information technology projects,
each related to asset impairments (included in depreciation and amortization
expense).
6. DISPOSITION AND ASSETS HELD FOR DISPOSITION
In the fourth quarter of 2001, the Corporation classified a non-core business as
an asset held for disposition and the carrying value was adjusted to its net
recoverable amount. Included in the results of the Commercial segment for the
three months ended March 31, 2002 and 2001 are sales of $50.1 million and $52.0
million, respectively, and operating income and loss of $2.8 million and $1.0
million, respectively, related to this business.
During 2001, the Corporation divested certain non-core assets in Europe and an
investment in common shares and secured convertible notes receivable. As a
result of these transactions, the Corporation received total consideration of
$12.5 million and recorded a loss on disposition of $7.1 million, net of tax of
$3.9 million. Included in the Corporation's results of operations for the three
months ended March 31, 2001 are sales of $7.5 million and loss from operations
of $0.1 million from divested assets.
During the first quarter of 2001, the Corporation formalized plans to dispose of
other non-core assets within the Commercial segment, and recorded a non-cash
charge, included in depreciation and amortization expense, of $45.7 million (net
of $2.6 million in taxes), based upon anticipated proceeds from disposition. Net
sales and operating loss contributed by these assets were $18.7 million and
$49.8 million, respectively, for the three months ended March 31, 2001. The
Corporation disposed of these assets in the fourth quarter of 2001.
7. RECONCILIATION TO U.S. GAAP
The following summarizes the significant accounting differences between Canadian
GAAP and U.S. GAAP that give rise to the differences disclosed in the U.S. GAAP
reconciliation.
PENSIONS AND POSTRETIREMENT BENEFITS
The adoption of CICA 3461, Employee Future Benefits, effective January 1, 2000,
eliminated all significant differences in the method of accounting for these
costs under Canadian GAAP and U.S. GAAP. The transitional rules for implementing
CICA 3461 continue to result in United States GAAP reporting differences. Under
CICA 3461, all past net gains (losses), net assets and prior service costs were
recognized as of January 1, 2000. Under U.S. GAAP, net gains (losses), net
assets and prior service costs which occurred before January 1, 2000 were
recognized over the appropriate amortization period.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
7. RECONCILIATION TO U.S. GAAP (Continued)
STATEMENT OF CASH FLOWS
For Canadian GAAP, the Statements of Cash Flows disclose the net change in cash
resources, which is defined as cash less bank indebtedness. U.S. GAAP requires
the disclosure of cash and cash equivalents. Under U.S. GAAP, net cash provided
by financing activities for the three months ended March 31, 2002 and 2001 would
be $33.3 million and $43.0 million, respectively. Cash and cash equivalents were
$59.3 million and $87.1 million at March 31, 2002 and 2001, respectively.
ACCOUNTING FOOR CERTAIN INVESTMENT IN DEBT AND EQUITY SECURITIES
U.S. GAAP requires unrealized gains (losses) on available-for-sale securities to
be reported as a net amount in a separate component of shareholders' equity
until realized, whereas under Canadian GAAP such investments are recorded at
cost with no effect on net income or shareholders' equity.
STOCK COMPENSATION
The adoption of CICA 3870, Stock-Based Compensation and Other Stock-Based
Compensation, effectively eliminated any prospective differences in accounting
for these costs between Canadian GAAP and U.S. GAAP. Prior to CICA 3870,
recognition of compensation expense was not required for the Corporation's
Series I Preferences Shares, whereas under U.S. GAAP the benefits were accrued
based on the terms of the plan. The transition rules for CICA 3870 will continue
to generate differences in the compensation expense recognized for the Series I
Preference Shares.
COMPREHENSIVE INCOME
U.S. GAAP requires disclosure of comprehensive income and its components.
Comprehensive income is the change in equity of the Corporation from
transactions and other events other than those resulting from transactions with
owners, and is comprised of net income and other comprehensive income. The only
components of other comprehensive income for the Corporation are unrealized
foreign currency translation adjustments and unrealized gains (losses) on
available-for-sale securities. Under Canadian GAAP, there is no standard for
reporting comprehensive 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 the cost of business process reengineering activities to be expensed as
incurred. Prior to October 28, 1998, the Corporation capitalized business
process reengineering costs and classified them as computer software.
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 would
classify the 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; whereas under U.S. GAAP such
contingent consideration is recorded fair value each reporting period. Under
U.S. GAAP, when convertible debt is converted to equity securities, any
unamortized deferred debt issuance costs are charged to share capital. Under
Canadian GAAP, these costs are charged to earnings.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
The following tables provides information required under United States GAAP:
Three months ended
March 31,
2002 2001
--------- ---------
Net earnings (loss) as reported $ 12,493 $(201,460)
U.S. GAAP Adjustments:
Pension expense 18 173,548
Postretirement benefits 4,322 4,382
Capitalized software 1,691 3,892
Debt conversion costs 1,265 -
Stock-based compensation expense (2,596) -
Interest expense - (181)
Income taxes (2,352) (71,818)
--------- ---------
Net earnings (loss) as determined under U.S. GAAP $ 14,841 $ (91,637)
--------- ---------
Earnings (loss) per share:
Basic $ 0.13 $ (1.04)
Diluted $ 0.13 $ (1.04)
Average shares (in thousands):
Basic 111,848 88,457
Diluted 113,014 88,457
Comprehensive income (loss):
Net earnings (loss) U.S. GAAP $ 14,841 $ (91,637)
Other comprehensive income (loss):
Cumulative translation adjustments (2,205) (2,642)
Reclassification of losses included in income - (798)
--------- ---------
Total comprehensive income (loss) $ 12,636 $ (95,077)
========= =========
Balance Sheet Items: March 31, 2002 December 31, 2001
As reported U.S. GAAP As reported U.S. GAAP
----------- --------- ----------- ---------
Net pension asset $(187,026) $(118,688) $(188,024) $(119,668)
Other assets - computer software (90,360) (59,751) (89,763) (57,463)
Postretirement benefits 240,822 378,523 239,664 381,687
Deferred taxes, net (43,065) (128,507) (47,188) (134,982)
Accounts payable and accrued liabilities 480,726 480,756 486,626 485,325
Cumulative translation adjustments (130,382) (95,198) (128,177) (92,993)
Share capital 398,195 385,193 397,761 384,759
Retained earnings (deficit) 63,289 (110,129) 51,666 (124,100)
Interest expense is net of investment income of $0.4 million and $1.1 million
for the three months ended March 31, 2002 and 2001, respectively.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
8. SEGMENT INFORMATION
In December 2000, the Corporation changed its executive management and the Board
of Directors and established a new strategic initiative that resulted in the
establishment of a new operating platform during the third quarter of 2001. This
realignment was made in order to segregate non-print related businesses and
align core businesses to take advantage of synergies and capitalize on core
competencies. The new segmentation reflects management's current structure with
regard to management's process for making decisions as it relates to resource
allocation and performance evaluation. During the first quarter of 2001, the
Corporation operated in three reportable segments as follows: Moore North
America, Integrated Business Solutions, and International and Other. Prior year
segment information has been reclassified to conform to the current year
presentation.
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.
Three months ended Forms and
March 31, 2002 Labels Outsourcing Commercial Consolidated
- ------------------------------------------- ----------- ----------- ---------- ------------
Total revenue $281,062 $ 98,148 $154,183 $ 533,393
Intersegment revenue (945) (449) (2,498) (3,892)
----------- ----------- ---------- ------------
Sales to customers outside the enterprise 280,117 97,699 151,685 529,501
Segment operating profit 30,040 20,968 12,060 63,068
Non-operating expenses - - - (41,208)
------------
Income from operations 21,860
Segment assets 585,584 127,571 355,898 1,069,053
Corporate assets, including investments
317,612
------------
Total assets 1,386,665
Depreciation and amortization 14,080 4,057 4,018 22,155
Capital expenditures 1,077 899 881 2,857
Three months ended Forms and
March 31, 2001 (Reclassified) Labels Outsourcing Commercial Consolidated
- ------------------------------------------- ----------- ----------- ---------- ------------
Total revenue $305,672 $98,176 $177,173 $ 581,021
Intersegment revenue - (289) (6,536) (6,825)
----------- ----------- ---------- ------------
Sales to customers outside the enterprise 305,672 97,887 170,637 574,196
Segment operating profit (loss) 608 15,242 (64,326) (48,476)
Non-operating expenses - - - (180,838)
------------
Loss from operations (229,314)
Segment assets 672,009 110,236 395,350 1,177,595
Corporate assets, including investments
389,520
------------
Total assets 1,567,115
Depreciation and amortization 25,674 4,420 58,891 88,985
Capital expenditures 2,620 5,115 - 7,735
9. PENDING LITIGATION
At March 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.
MOORE CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
10. EARNINGS PER SHARE
For the Three Months Ended
March 31,
2002 2001
--------- ---------
Net earnings (loss) $ 12,493 $(201,460)
--------- ---------
Weighted average number of common shares
outstanding:
Basic 111,848 88,457
Dilutive options 2,421 -(a)
--------- ---------
Diluted 114,269 88,457
--------- ---------
Earnings (loss) per share
Basic $ 0.11 $ (2.28)
Diluted $ 0.11 $ (2.28)
(a) For 2001, the diluted common shares outstanding excludes potentially
dilutive items as their effect would be anti-dilutive.
11. ENVIRONMENTAL
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 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, cash flows or financial
condition of the Corporation.
12. ACQUISITIONS
During the three months ended March 31, 2002 the Corporation acquired The
Nielsen Company, a commercial printer. The Corporation has made preliminary
estimates that the cost exceeds the estimated fair value of the net assets
acquired by approximately $47.3 million. The Corporation will finalize
valuations for certain assets and contingent liabilities during the second
quarter of 2002 and adjust the carrying value of goodwill and other intangibles
accordingly. The pro forma disclosures of the Nielsen acquisition have been
excluded due to immateriality.
On December 31, 2001 the Corporation completed its acquisition of certain assets
of the relating to the Document Management Services business of IBM Canada Ltd.
The aggregate cost of the assets acquired was $14.6 million, including fees and
expenses. During the first quarter of 2002, the Corporation estimates the cost
exceeds the estimated fair value of net assets acquired by approximately $11.6
million. The Corporation will finalize valuations for certain assets and
contingent liabilities during the second quarter of 2002 and adjust the carrying
value of goodwill and other intangibles accordingly.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Corporation operates in the printing industry with three distinct operating
segments in which 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.
The following discussion includes information on a consolidated basis presented
in accordance with Generally Accepted Accounting Principles (GAAP) in Canada.
This discussion is supplemented by a discussion of segment operating income
before deductions for 2001 restructuring and non-recurring charges, including
the impairment of long-lived assets and a pension settlement. This supplemental
discussion of operating results before certain charges in 2001 should be read in
conjunction with the Corporation's reported consolidated financial statements.
Consolidated results of operations for the three months ended March 31, 2002 and
2001 are shown in the accompanying consolidated statements of operations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AS
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2001
CONSOLIDATED
Net sales for the three months ended March 31, 2002 were $529.5 million,
representing a $44.7 million or 7.8% decrease from the same period last year.
The decrease primarily results from sales declines in the U.S. and Canadian
Forms and Labels business ($18.9 million) primarily related to the decision to
exit certain non-core products; the divestiture of the Phoenix business
($18.7 million); various other divestitures in Europe ($7.5 million); and the
devaluation of certain foreign currencies ($7.2 million). The decrease was
partially offset by sales from new acquisitions ($19.1 million).
Cost of sales decreased $99.9 million to $361.0 million or 68.2% of consolidated
net sales for the first quarter of 2002 compared to 80.3% in 2001. The
percentage decrease was primarily due to the non-recurring charge of $61.2
million for the partial settlement of the U.S. pension plan included in cost of
sales for the first quarter of 2001 and lower sales volumes. Excluding this
charge, cost of sales would have been 69.6% of consolidated net sales for the
first quarter of 2001. The Corporation anticipates further cost reductions
resulting from increasing production efficiencies and partnering with suppliers.
Selling, general and administrative costs decreased $62.5 million to $124.4
million or 23.5% of consolidated net sales for the three months ended March 31,
2002 compared to $186.9 million or 32.6% in 2001. Included in selling, general
and administrative costs for the first quarter of 2001 was $40.8 million related
to the U.S. pension settlement. Excluding this charge in 2001, selling, general
and administrative costs would have been 25.3% of consolidated net sales. The
remaining $21.7 million incremental selling, general and administrative
reduction in 2002 compared to 2001 was attributable to the benefits achieved
from the Corporation's 2001 restructuring activities and an overall focus on
efficiencies.
Depreciation and amortization expense was $22.2 million and $89.0 million for
the three months ended March 31, 2002 and 2001, respectively. The decrease of
$66.8 million is primarily due to 2001 non-cash charges of $48.3 million related
to goodwill written down to its net recoverable amount for assets held for
disposition and $12.1 million for asset impairments, including plant closures
and abandoned information technology projects.
Income from operations was $21.9 million for the first quarter of 2002 compared
to a loss from operations of $229.3 million for the same prior year period. This
improvement results from the benefits achieved from restructuring and other
non-recurring charges that were included in the first quarter 2001. Excluding
the impact of these charges, income from operations increased $21.2 million for
2002 due to improved operating results across all business segments, as
described below.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest expense decreased by $3.5 million to $2.6 million for the three
months ended March 31, 2002. This decrease is attributable to the redemption of
$100 million of senior guaranteed notes and the conversion of the Corporation's
$70.5 million subordinated convertible debentures, both in December 2001.
The 2002 effective income tax rate was 27.0% versus a 15.9% benefit in 2001. The
2002 effective rate was affected by the Corporation's lower tax rates in other
non-U.S. jurisdictions.
Net earnings for the three months ended March 31, 2002 increased $214.0 million
over the prior year to $12.5 million, or $0.11 per diluted share as a result of
cost savings generated by the 2001 restructuring activities. This increase
primarily relates to the restructuring and other non-recurring charges that were
included in the three months ended March 31, 2001.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
There were no restructuring or other non-recurring charges recorded for the
three months ended March 31, 2002.
During the first quarter of 2001, the Corporation recorded restructuring and
other non-recurring charges totaling $194.2 million, net of taxes, or $2.20 per
diluted share. These charges can be categorized as follows:
- Restructuring provisions of $66.7 million, primarily related to
workforce reductions, lease terminations and other costs;
- Non-cash charges related to asset impairment of $12.1 million,
included in depreciation and amortization expense;
- Severance of $0.9 million related to the replacement of senior
executive officers;
- Loss on disposal of non-core assets of $7.1 million (net of $3.9
million in taxes), included in investment and other income;
- Write-down of non-core business held for sale of $45.7 million (net of
$2.6 million in taxes); and
- Loss of $61.7 million (net of $40.3 million in taxes), from the
partial settlement of the U.S. pension plan.
The following table and management discussion summarizes the operating results
of the Corporation's business segments, excluding for 2001 the impact of the
restructuring and other non-recurring charges previously discussed.
For the three
Months ended March 31, Income (loss) from
(In millions of U.S. dollars) Sales operations (1)
- ----------------------------- --------------------------- -----------------------------
2002 2001 2002 2001
--------- ---------- --------- ---------
Forms and Labels $ 280.1 $ 305.7 $ 30.0 $ 13.8
Outsourcing 97.7 97.9 21.0 19.5
Commercial 151.7 170.6 12.1 5.6
Corporate - - (41.2) (38.2)
--------- ---------- --------- ---------
Total $ 529.5 $ 574.2 $ 21.9 $ 0.7
========= ========== ========= =========
(1) 2001 results presented net of above noted items.
Net income for the three months ended March 31, 2002 was $12.5 million or $0.11
per diluted share. For the same period in 2001, net of the above noted items,
the Corporation reported a net loss of $7.3 million or $0.08 per diluted share.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORMS AND LABELS
Net sales for the three months ended March 31, 2002 decreased $25.6 million or
8.4%, primarily due to declines in the North American Forms and Labels business,
due to the Corporation's decision in 2001 to exit non-core products ($14.1
million) and volume declines due to the economy offset by new customers. In
Latin America, sales declined by $6.7 million primarily due to the devaluation
of various foreign currencies.
Operating income for the three month period ended March 31, 2002 increased by
$16.2 million to $30.0 million, primarily due to the Corporation's decision to
streamline its Forms and Labels operations, including the elimination of
non-customer critical positions, productivity improvements (waste reductions and
higher throughput), and the aforementioned exiting of non-core products.
OUTSOURCING
Net sales were relatively consistent, $97.7 million and $97.9 million for the
three months ended March 31, 2002 and 2001, respectively. Growth achieved from
new and existing customers in the financial, insurance, and telecommunications
markets, combined with the acquisition of the Document Management Services
business of IBM Canada Ltd., was offset by declines in the prepaid telephone
card market resulting from a delay in the timing of orders, as well as the
impact of the decision to exit the manufacture of certain non-secured stored
value cards.
Operating income for the three months ended March 31, 2002 increased $1.5
million, or 7.7%, due to cost savings achieved through workforce reductions and
cost containment.
COMMERCIAL
Net sales declined by $18.9 million or 11.1% due to the divesture of the Phoenix
business unit ($18.7 million) and divestitures in Europe ($7.5 million).
Excluding these divestitures, net sales increased $7.3 million primarily as a
result of the acquisition of The Nielsen Company on January 31, 2002 and
increased volumes in the direct mail business.
Operating income for the first quarter 2002 increased $6.5 million to $12.1
million over the same prior year period. The increase was driven by a $3.4
million increase in the direct mail business due to strong volume growth and
cost reductions resulting from the 2001 restructuring activities.
CORPORATE
Increases in operating expenses are due to employee benefit related costs and
professional fees.
LIQUIDITY AND CAPITAL RESOURCES
In addition to its cash generated from operations, the Corporation has a $168.0
million committed revolving term facility that matures on August 5, 2002 and is
subject to a number of financial covenants that are calculated on a quarterly
basis including, but not limited to, tests of net worth, leverage and interest
coverage. At March 31, 2002 $70.0 million was drawn down under the facility
versus $15.0 million at December 31, 2001. The Corporation is currently
negotiating a new credit facility, and expects to enter into a new facility by
the end of the second quarter of 2002, however, the Corporation cannot give any
assurance that it will be able to obtain a new credit facility. 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. Available borrowings under these uncommitted
facilities amounted to $39.0 million at March 31, 2002, and may be terminated at
any time at the Corporation's option. Total availability under these facilities
at March 31, 2002 was approximately $137.0 million. In addition, within the next
six to twelve months the Corporation expects to receive approximately $150
million, before taxes, fees and transfers to other employee benefit plans, from
the termination of the U.S. pension plan. The Corporation has $17.3 million in
outstanding letters of credit at March 31, 2002.
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
An additional source of liquidity at March 31, 2002 was the Corporation's
short-term investments in the amount of $43.5 million, which primarily consist
of certificate and term deposits, treasury bills and bank notes. These
investments are with financial institutions of sound credit rating and are
highly liquid as the majority mature within one to seven days and are classified
as "cash and cash equivalents."
At March 31, 2002 the Corporation had $100.0 million of senior guaranteed notes
outstanding. These notes are divided in two series, $42.8 million and $57.2
million, that mature on March 25, 2006 and 2009 respectively, and bear interest
of 7.84% and 8.05% respectively.
As of March 31, 2002, the Corporation met its financial covenants and believes
it has sufficient liquidity to complete the restructuring activities initiated
in 2001 and effectively manage the financial needs of the businesses.
On February 7, 2002, the Corporation announced a program to repurchase up to $50
million of its shares. The program calls for shares to be purchased on the New
York Stock Exchange 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. As of March 31, 2002 the Corporation had repurchased
96,300 shares.
Net cash provided from operating activities was $1.7 million for the three
months ended March 31, 2002 compared to $3.6 million for the same period last
year. The change was primarily due to changes in working capital, including an
increase in days' sales outstanding offset by better operating results in the
Corporation's core businesses.
Net cash used by investing activities for the three months ended March 31, 2002
was $61.7 million versus net cash provided of $3.7 million in the same period of
2001. The increased expenditures relate to the acquisition of The Nielsen
Company for $57.2 million, net of cash received.
Net cash provided from financing activities for the three months ended March 31,
2002 and 2001 was $58.5 million and $33.8 million, respectively. The increase
relates to short-term borrowings used to finance the aforementioned Nielsen
acquisition.
As of March 31, 2002 the aggregate amount of outstanding forward contracts was
$12.1 million. Unrealized gains and losses from these foreign currency contracts
were not significant at March 31, 2002. The Corporation does not use derivative
financial instruments for trading purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED
Effective January 1, 2002, the Corporation adopted various accounting standards
as described in Note 1, none of which had a material affect on the financial
statements.
FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q relating to the future results
of the Corporation (including certain "anticipated", "believed", "expected", and
"estimated results") and Moore's outlook (including statements as to continued
improvement in the Corporation's cost structure and the replacement of the
Corporation's credit facility) that are "forward-looking statements" as defined
in the U.S. Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on these forward-looking statements and
any such forward-looking statements are qualified in their entirety by reference
to the following cautionary statements. All forward-looking statements speak
only as of the date hereof, are based on current expectations and involve a
number of assumptions, risks and uncertainties that could cause the actual
results to differ materially from such forward-looking statements. Factors that
could cause such material differences include, without limitation, the
following:
o dependence on key management personnel,
o the effect of competition,
o the effects of paper and other raw material price fluctuations and
shortages of supply,
o successful execution of cross-selling, cost containment and other key
strategies,
o successful negotiation, execution and integration of acquisitions,
o the ability to renegotiate or terminate unprofitable contracts,
o the ability to divest non-core businesses,
MOORE CORPORATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
o the rate of migration from paper-based forms to digital forms,
o future growth rates in the Corporation's core businesses,
o the impact of currency fluctuations in the countries in which the
Corporation operates,
o general economic and other factors beyond the Corporation's control and
o other risks and uncertainties detailed from time to time in the
Corporation's filings with United States and Canadian securities
authorities.
MOORE CORPORATION LIMITED
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
See note to the consolidated financial statements on page 10 of this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
o None
(b) Reports on Form 8-K
On January 9, 2002, the Corporation submitted a Current Report on Form 8-K,
dated January 9, 2002, disclosing guidance given at a conference for investors
held by CJS Securities on January 9, 2002. At this conference, the Corporation
reaffirmed its guidance for fourth quarter 2001 results (earnings per share at
least $0.05) and full year 2001 results (approximately $2 billion in revenues
and $140 million in EBITDA). Both the earnings per share and EBITDA numbers
reflect expected actual results less restructuring and other non-recurring
charges.
On January 15, 2002, the Corporation filed a Current Report on Form 8-K, dated
January 14, 2002, announcing the agreement to acquire The Nielsen Company.
MOORE CORPORATION LIMITED
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOORE CORPORATION LIMITED
Date: May 14, 2002 by: /s/ Mark S. Hiltwein
-------------------------------------------------
Mark S. Hiltwein
Executive Vice President, Chief Financial Officer
by: /s/ Richard T. Sansone
-------------------------------------------------
Richard T. Sansone
Vice President and Controller
(Chief Accounting Officer)