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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2001.
Commission file number 1-8014.
MOORE CORPORATION LIMITED
(Exact name of registrant as specified in its charter)
CANADA 98-0154502
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE CANTERBURY GREEN, STAMFORD, CT 06901
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 406-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
Common Shares
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
New York Stock Exchange
The Toronto Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference, in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting common shares without par value
held by non-affiliates of the registrant as computed by reference to the closing
price on the New York Stock Exchange on March 26, 2002 was $192,456,630.
The number of common shares outstanding as of March 26, 2002 was
111,920,573.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Management Information Circular and Proxy Statement, dated
March 13, 2002, filed with the Commission pursuant to Regulation 14A, are
incorporated by reference into Part III.
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MOORE CORPORATION LIMITED
ANNUAL REPORT OF FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
PAGE
-----
PART I
Item 1: Business ................................................................. 1
Item 2: Properties ............................................................... 7
Item 3: Legal Proceedings ........................................................ 8
Item 4: Submission of Matters to a Vote of Security Holders ...................... 8
Executive Officers of the Registrant ..................................... 9
PART II
Item 5: Market for Registrant's Common Shares and Related Shareholder
Matters .................................................................. 11
Item 6: Selected Financial Data .................................................. 12
Item 7: Management's Discussion and Analysis of Results of Operations and
Financial Condition ...................................................... 13
Item 7A: Quantitative and Qualitative Disclosures About Market Risk ............... 21
Item 8: Financial Statements and Supplementary Data .............................. 23
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ..................................................... 55
PART III
Item 10: Directors and Executive Officers of the Registrant ....................... 56
Item 11: Executive Compensation ................................................... 56
Item 12: Security Ownership of Management ......................................... 56
Item 13: Certain Relationships and Related Transactions ........................... 56
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K .......... 57
Signatures ......................................................................... 58
Unless otherwise indicated, all dollar amounts in this Annual Report on Form
10-K are expressed in United States currency and all references to "Moore" or
the "Corporation" in this Annual Report on Form 10-K refer to Moore Corporation
Limited and its subsidiaries. All references herein to the Annual Report on
Form 10-K shall mean the Annual Report on Form 10-K for the year ended on
December 31, 2001, as amended by this amendment to such Annual Report on Form
10-K.
PART I
ITEM 1. BUSINESS
a) GENERAL DEVELOPMENT OF BUSINESS
Moore Corporation Limited, a corporation incorporated under the Canada
Business Corporations Act, was established in 1882. Moore is an international
leader in the management and distribution of print and digital information.
Moore operates in three complementary business segments: Forms and Labels,
Outsourcing and Commercial. The Forms and Labels business designs, manufactures
and sells paper based and electronic business forms and labels and provides
electronic print management solutions. The Outsourcing business provides
high-quality, high-volume variably imaged print and mail, electronic statement
and database management services. The Commercial business produces
high-quality, multi-color personalized business communications and provides
direct marketing services, including project, database and list management
services.
In 2001, Moore had net sales of $2,154 million and had approximately
11,500 employees worldwide. Moore has its registered office at 6100 Vipond
Drive, Mississauga, Ontario, Canada, L5T 2X1 and its executive offices are
located at One Canterbury Green, Stamford, Connecticut 06901. The Moore
internet address is www.moore.com.
In late 2000, a new management team was hired by Moore. This new
management team developed a six point action plan for 2001. This plan consisted
of:
(i) hiring the best managers and employees available in the market
and holding them accountable for business performance in their
area of responsibility;
(ii) developing a detailed action plan to eliminate at least $100
million from the cost structure;
(iii) selling non-core operations to allow Moore to focus on growing
its print-related assets;
(iv) leveraging corporate purchasing and partnering with suppliers to
further reduce costs and improve efficiencies;
(v) developing a cross-selling program to drive sales growth in the
three core print related businesses; and
(vi) acquiring complementary print-related assets to expand the print
offerings Moore is able to provide its customers.
As part of this six point plan, in 2001 Moore reduced costs by
streamlining operations, controlling budgets and expenses, consolidating
facilities, negotiating more competitive pricing and terms with suppliers and
launching productivity initiatives. In addition, in 2001 Moore sold non-core
assets or assets that were not aligned with its business strategy, including:
o Colleagues, the United Kingdom-based advertising agency as well as an
investment in an on-line real estate listing company (both in the first
quarter);
o various joint venture interests in Europe and Latin America (in the
second and third quarters); and
o Phoenix, a Detroit-based telemarketing customer relationship management
business (in the third quarter).
The last component of the plan began in December with the acquisition of
Document Management Services, the print and mail operation of IBM Canada Ltd.,
to supplement the Canadian Outsourcing
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business and create synergy opportunities within our Canadian Outsourcing
operations. In addition, in January 2002, Moore acquired The Nielsen Company.
Nielsen is a commercial printer with operations in Kentucky and North Carolina.
Nielsen specializes in high-quality multicolor printing of collateral marketing
material, consumer product and financial services marketing pieces, and various
products, such as annual reports.
As a result of these and many related activities, including terminating
unprofitable customer contracts, streamlining operations, consolidating
facilities and reducing headcount, the Corporation incurred $391 million of
pre-tax restructuring and other non-recurring charges during 2001 across all of
its principal operating segments.
The Corporation is anticipating that further improvements will be made to
its cost structure in 2002 and beyond. These improvements will come from a
variety of initiatives most of which are already underway, including, global
purchasing initiatives, "right-sizing" of the manufacturing facilities, waste
reduction, manufacturing productivity improvements, decreasing sales and
manufacturing errors, energy management, decreased spending on information
technology and the elimination of an additional 1,000 positions as a result of
systems improvements and the centralization of functions.
b) FINANCIAL INFORMATION ABOUT SEGMENTS
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 allocation and performance evaluation. During 2000,
the Corporation operated in four reportable segments as follows: Moore North
America, Customer Communication Services (United States), Latin America and
Europe. Prior year information has been reclassified to conform to the current
year presentation (see Note 19).
OPERATING SEGMENTS
FORMS AND
IN THOUSANDS OF U.S. DOLLARS LABELS OUTSOURCING COMMERCIAL CONSOLIDATED
- ---------------------------- ------------- ------------- ------------ -------------
2001
Total revenue ........................... $1,167,721 $341,485 $ 666,795 $2,176,001
Intersegment revenue .................... (2,422) (2,006) (16,999) (21,427)
Sales to customer outside the
enterprise ............................. 1,165,299 339,479 649,796 2,154,574
Segment operating income (loss) ......... 42,743 49,508 (90,202) 2,049
Nonoperating expenses ................... (344,373)
----------
Loss from operations .................... (342,324)
Segment assets .......................... 624,532 117,243 282,132 1,023,907
Corporate assets including
investments ............................ 313,079
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Total assets ............................ 1,336,986
Capital asset depreciation and
amortization ........................... 110,037 19,383 109,652 239,072
Capital expenditures .................... 12,942 16,124 9,819 38,885
2000 (RESTATED)
Total revenue ........................... $1,225,622 $297,851 $ 752,764 $2,276,237
Intersegment revenue .................... -- (1,082) (16,737) (17,819)
Sales to customer outside the
enterprise ............................. 1,225,622 296,769 736,027 2,258,418
Segmentoperating income (loss) .......... 71,917 43,126 (10,518) 104,525
2
FORMS AND
IN THOUSANDS OF U.S. DOLLARS LABELS OUTSOURCING COMMERCIAL CONSOLIDATED
- ---------------------------- ------------- ------------- ------------ -------------
Nonoperating expenses ................... (150,759)
--------
Loss from operations .................... (46,234)
Segment assets .......................... 840,653 109,847 444,496 1,394,996
Corporate assets including
investments ............................ 348,591
---------
Total assets ............................ 1,743,587
Capital asset depreciation and
amortization ........................... 83,407 19,276 48,835 151,518
Capital expenditures .................... 37,143 10,651 27,992 75,786
1999 (RESTATED)
Total revenue ........................... $1,404,739 $281,152 $ 755,081 $2,440,972
Intersegment revenue .................... -- (735) (15,121) (15,856)
Sales to customer outside the
enterprise ............................. 1,404,739 280,417 739,960 2,425,116
Segment operating income (loss) ......... 195,691 47,732 52,836 296,259
Nonoperating expenses ................... (154,578)
----------
Income from operations .................. 141,681
Segment assets .......................... 937,907 109,717 481,822 1,529,446
Corporate assets including
investments ............................ 100,847
----------
Total assets ............................ 1,630,293
Capital asset depreciation and
amortization ........................... 50,522 19,789 31,024 101,335
Capital expenditures .................... 62,898 18,449 19,490 100,837
c) NARRATIVE DESCRIPTION OF BUSINESS
Moore operates in three complementary business segments: Forms and Labels,
Outsourcing and Commercial.
FORMS AND LABELS
The Forms and Labels segment sells, composes, manufactures, warehouses and
delivers a wide range of printed and electronic communication products.
Examples of the Forms and Labels product line are:
o express "overnight" package labels;
o tax forms;
o "pressure seal" payroll checks;
o linerless labels;
o security documents, such as vehicle titles, certificates, and checks;
o airport luggage labels; and
o digital documents printed "on-demand."
The Forms and Labels segment also provides value-added services to its
customers. These customers range from "Fortune 500" companies to small and
mid-sized companies and operate in very different industries and businesses.
The Forms and Labels segment offers these diverse customers a wide range of
services. Examples of these services include:
o extensive warehousing and distribution capabilities;
3
o print-on-demand (just-in-time printing);
o print management services; and
o print fulfillment and packaging services (kitting).
Forms and Labels is a single-source supplier of a customized, "one-stop
shopping" solution to meet customer's print and digital communication needs
through a multi-site, state-of-the-art print, distribution, and warehousing
network specifically designed to provide customized products and services.
OUTSOURCING
Moore Business Communication Services ("BCS"), the Corporation's
Outsourcing business, is a leader in the document outsourcing industry,
providing high-quality customized transaction-based communications solutions
for financial services, telecommunications and insurance companies in North
America. BCS provides fully-integrated solutions that allow customers to reach
their customers using multiple communication methods, including print, mail,
email, fax, CD-ROM, Internet and wireless solutions. BCS delivers critical
high-value communication documents, including daily confirmations, periodic
account statements, checks, invoices, insurance policies, prepaid telephone
cards, enrollment kits, privacy mailings, and year-end tax reporting statements
to over 700 customers throughout North America.
In December 2001, Moore acquired Document Management Services, the print
and mail operation of IBM Canada Ltd. This acquisition expanded the Outsourcing
production platform and added several major corporations to the existing base
of customers under contract.
The suite of outsourcing products and services is supported by
industry-focused project managers, programmers, designers and marketing
specialists who manage customer projects from conception through execution.
This total project management approach is designed to enable customers to
change direction as quickly as their customer and marketplace demands dictate.
COMMERCIAL
The Commercial segment provides commercial print services (glossy annual
reports and brochures), targeted direct mail services, prints highly
specialized technical publications and delivers single source supply chain
execution solutions. This segment serves the printing, delivery and warehouse
management needs of a highly diversified customer base.
RMS. Moore Response Marketing Services (RMS) is a leading international
provider of integrated direct marketing programs. RMS helps its customers grow
their businesses through highly customized, data-driven direct mail
communications. Proprietary equipment allows the Corporation to produce over a
billion pieces of secure, highly personalized mail every year.
COMMERCIAL PRINT. In January 2002, the Corporation announced the
acquisition of The Nielsen Company ("Nielsen"), a commercial printer. Nielsen's
product line includes annual reports, brochures, catalogs, pharmaceutical
inserts, as well as marketing and promotional material.
PEAK TECHNOLOGIES, INC. Peak Technologies, Inc. ("Peak") is an
international systems integrator of automatic identification and data
collection (AIDC) equipment and systems. Peak's systems integration specialists
and technicians provide wireless network solutions, enterprise resource
planning integration, enterprise printing, bar code scanning, and terminal and
software technologies. Peak delivers a complete turnkey solution including
software, hardware, consulting, project management, training, installation,
testing, service and support.
TECHNICAL PUBLICATIONS. The Publications and Directory Group provides
print products and digital services for customers who produce data-intensive
publications such as business-to-business catalogs, parts/price lists, phone
directories, and professional/reference/trade books.
COMPETITION
Moore competes on the basis of product quality, service and price,
leveraging its strong customer relationships and its ability to provide
customers with low cost "one-stop shopping" for all their print communications
needs.
4
Moore views cross-selling as a key component of its competitive strategy.
In the fourth quarter of 2001, Moore launched a strategic corporate accounts
and cross-selling initiative to drive incremental revenue and profit growth
within the current customer base. This "one-stop shopping" strategy offers the
array of products, services and solutions that exists within Moore to the top
corporate accounts. In connection with this strategy, Moore has implemented a
cross-sell infrastructure, which provides the sales organization with the
resources to leverage a "one voice, multiple solutions" sales philosophy across
the entire organization.
The "one-stop shopping" offering includes an extensive array of products
and services, including:
o forms and labels management,
o commercial print,
o publications,
o warehousing and distribution services,
o systems integration,
o business communications outsource management,
o response marketing services,
o corporate identity programs and
o e-commerce solutions.
The environment in each business segment in which Moore operates is highly
competitive. Customers are focused on cost reduction, vendor reduction and
improved total cost of ownership for print communications programs. Moore
encounters competition from both larger and smaller companies that offer the
same or similar products and services. While Moore has a large number of
competitors in each business segment, the markets in which each of its business
segments operates are highly fragmented and the majority of its competitors
compete with Moore in only one business segment. There are approximately 35,000
companies that provide printing services in North America. According to
"Printing Impressions", an industry trade publication, in 2001 11 of these
companies had revenues over $1 billion, 66 had revenues of between $100 million
and $1 billion, 287 had revenues of between $15 million and $100 million and
34,636 had revenues under $15 million.
RAW MATERIAL
The primary raw materials required in the Corporation's operations are
paper and ink. The price of paper and ink represents a significant portion of
its cost of sales. Increases in price or a lack of availability of these raw
materials could have a material adverse effect on Moore's financial condition
and results of operations. While Moore generally passes on increases and
decreases in the cost of paper and ink to its customers, these adjustments take
place only at certain times during the year. Moore has reduced the number of
paper and ink vendors to two in order to leverage its purchasing power and has
negotiated long-term supply contracts that provide favorable price, terms,
quality and service. The Corporation has not experienced any difficulties in
obtaining supplies of any raw material in any recent period and it believes
that the long term supply contracts it has entered into for paper will enable
it to receive adequate supplies in the event of a tight paper market, however,
there can be no assurance that it will not be adversely affected by a tight
paper market.
INTELLECTUAL PROPERTY
Moore holds a significant number of patents in the United States and
throughout the world, and has a large number of patent applications in process
for its four key technologies. In the Forms and Labels segment, the Corporation
believes that its pressure seal-related patents, linerless label-related
patents and its radio frequency identification-related patents are material to
the segment. The Corporation believes that its Midax variable imaging-related
patents are material to its Outsourcing segment as well as to the
5
direct mail business of the Commercial segment. The duration of the
Corporation's patents ranges from between 17 and 20 years. No material patents
will expire within the next five years.
Moore also holds a large number of trademarks in the United States and
throughout the world. The Moore (Registered Trademark) and Moore Logo
(Registered Trademark) trademarks are material to each of the business
segments. There are not any other trademarks that are material to any of the
business segments.
BACKLOG
At December 31, 2001, the backlog of firm customer orders to be handled in
the next 120 days was approximately $103 million. The backlog was $129 million
at December 31, 2000.
EMPLOYEES
At December 31, 2001, the Corporation employed approximately 11,500
employees compared to approximately 16,000 at December 31, 2000. Of these,
approximately 1,200 are covered by collective bargaining agreements with eight
unions (four in Canada, one in Mexico, one in Venezuela and two in Brazil).
These agreements expire in 2002, 2003 and 2005. There have been no significant
interruptions or curtailments of the Corporation's operations in recent years
due to labor disputes.
ENVIRONMENTAL REGULATIONS
The Corporation is subject to laws and regulations relating to the
protection of the environment. The Corporation maintains reserves for expenses
associated with the 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 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. See also, Item 3 "Legal Proceedings"
below.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K and portions of the documents incorporated
herein by reference contain statements relating to the future results of Moore
(including certain "anticipated", "believed", "expected", and "estimated"
results) and Moore's outlook (including statements as to acquisitions being
accretive, continued improvement in Moore's cost structure and achievement of
revenue growth from the cross-selling initiative) 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 the successful negotiation, execution and integration of acquisitions,
o the ability to renegotiate or terminate unprofitable contracts,
o the ability to divest non-core businesses,
6
o the rate of migration from paper-based forms to digital formats,
o future growth rates in Moore's core businesses,
o the impact of currency fluctuations in the countries in which Moore
operates,
o general economic and other factors beyond Moore'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.
d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS.
GEOGRAPHIC INFORMATION
IN THOUSANDS OF U.S. DOLLARS CANADA UNITED STATES INTERNATIONAL CONSOLIDATED
- ---------------------------- ----------- --------------- --------------- -------------
2001
Sales to customers outside the
enterprise ......................... $199,628 $1,689,954 $264,992 $2,154,574
Capital assets and goodwill ......... 36,484 270,475 42,975 349,934
2000
Sales to customers outside the
enterprise ......................... $222,311 $1,685,680 $350,427 $2,258,418
Capital assets and goodwill ......... 47,110 415,763 76,756 539,629
1999
Sales to customers outside the
enterprise ......................... $218,870 $1,831,503 374,743 $2,425,116
Capital assets and goodwill ......... 42,321 473,886 99,471 615,678
ITEM 2. PROPERTIES
As of December 31, 2001, Moore owned or leased facilities for
manufacturing, distribution and sales offices in 46 states and 19 foreign
countries. Moore believes that its facilities are suitable and adequate for its
business. Moore continually evaluates its facilities to ensure they are
consistent with its needs and business strategy.
A summary of material locations (over 35,000 square feet) that are owned
by Moore and its subsidiaries is set forth below. Moore does not have any
mortgages on the facilities that it owns.
FORMS AND LABELS
Angola, Indiana; Brea, California; Carol Stream, Illinois; Elkridge,
Maryland; Grand Island, New York; Greenwood, South Carolina; Iowa City, Iowa;
Jerome, Indiana; Lewisburg, Pennsylvania; Manchester, New Hampshire; Monroe,
Wisconsin; Nacogdoches, Texas; Portland, Oregon; Quakertown, Pennsylvania;
Temecula, California; Visalia, California; Fergus, Ontario; Mississauga,
Ontario, Oshawa, Ontario; Trenton, Ontario; Cowansville, Quebec; Winnipeg,
Manitoba; Recife (Abreu Lima), Brazil; Blumenau, Brazil; Santa Rita, Brazil;
Gravatai, Brazil; Osasco, Brazil; Tlalnepantia, Mexico; Mexico City, Mexico;
Maracay, Venezuela; Guayana, Venezuela; San Salvador, El Salvador; and Heredia,
Costa Rica.
OUTSOURCING
Logan, Utah; Mundelein, Illinois; Thurmont, Maryland; and Mississauga,
Ontario;
COMMERCIAL
Albany, New York; DePere, Wisconsin; Green Bay, Wisconsin; and
Erembodegem, Belgium.
7
A summary of material locations (over 35,000 square feet) that are leased
by Moore and its subsidiaries are set forth below:
FORMS AND LABELS
Austell, Georgia; Bridgewater, Massachusetts; Cranbury, New Jersey; Earth
City, Missouri; Lenexa, Kansas; Lewisville, Texas; Manchester, New Hampshire;
Orlando, Florida; Perrysburg, Ohio; St. Laurent, Quebec; and San Salvador, El
Salvador.
OUTSOURCING
Windsor, Connecticut; and Mississauga, Ontario.
COMMERCIAL
Columbia, Maryland; Lincolnshire, Illinois; San Diego, California; and
Cosne, France
In addition, the Corporation has three leased corporate office facilities
in Stamford, Connecticut and Bannockburn and Libertyville, Illinois that are
material facilities.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, Moore is involved in various lawsuits,
claims and administrative proceedings. 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 Moore's
financial condition and results of operations.
Moore has been identified as a Potentially Responsible Party ("PRP") at
the Dover, New Hampshire Municipal Landfill, a United States Environmental
Protection Agency Superfund Site. Moore 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 is estimated to be approximately $26.0 million. Moore's share
is not expected to exceed $1.5 million. The Corporation believes its reserves
are sufficient based on the present facts and recent tests performed at this
site and will continue to monitor this exposure.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of the
Corporation during the fourth quarter of 2001.
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EXECUTIVE OFFICERS OF THE REGISTRANT
AS OF MARCH 31, 2002
NAME AGE POSITIONS HELD DURING LAST FIVE YEARS
- ------------------ ----- -----------------------------------------------------------------------
Robert G. Burton 63 Chairman, President and Chief Executive Officer since April 2002;
President and Chief Executive Officer of the Corporation from
December 2000 to April 2002; from May 1991 to November l999,
Mr. Burton was Chairman, President and Chief Executive Officer
of World Color Press, Inc.; following World Color Press, Inc. and
preceding Moore, Mr. Burton was Chairman, President and Chief
Executive Officer of Walter Industries, Inc.
Dean E. Cherry 41 President, Commercial and Subsidiary Operations since
October 2001 and Executive Vice President, International and
Subsidiary operations from January 2001 to October 2001; from
August 1998 to January 2001, Mr. Cherry served as an industry
consultant, private investor and director for several industry related
companies; from June 1997 to August 1998, Mr. Cherry was the
Executive Vice President, Investor Relations and Corporate
Communications of World Color Press, Inc.; and from
January 1995 to June 1997, Mr. Cherry was the Executive Vice
President Operations of World Color Press, Inc.
Mark S. Hiltwein 38 Executive Vice President and Chief Financial Officer since
February 2002 and Senior Vice President and Controller from
December 2000 to February 2002; from July 2000 to
November 2000, Mr. Hiltwein was Senior Vice President,
Controller of Walter Industries, Inc.; from November 1997 to
July 2000, Mr. Hiltwein was the Chief Financial Officer of L.P.
Thebault; and prior November 1997, Mr. Hiltwien was the
Director, Finance of L.P. Thebault.
Robert B. Lewis 38 President, Business Communications Services since February 2002
and Executive Vice President and Chief Financial Officer from
December 2000 to February 2002; from April 2000 to
November 2000, Mr. Lewis was Executive Vice President, Chief
Financial Officer of Walter Industries, Inc.; from November 1997 to
November l999, Mr. Lewis was the Executive Vice President, Chief
Financial Officer of World Color Press, Inc.; and from
November 1996 to November 1997, Mr. Lewis was the Senior Vice
President Controller of World Color Press, Inc.
James E. Lillie 40 Executive Vice President, Operations since December 2000; from
April 2000 to October 2000, Mr. Lillie was Executive Vice
President, Operations of Walter Industries, Inc.; from July 1998
until November 1999, Mr. Lillie was the Executive Vice President,
Operations and Investor Relations of World Color Press, Inc.; from
January 1998 to July 1998, Mr. Lillie was the Executive Vice
President Operations of World Color Press, Inc.; and from
May 1996 to April 1998, Mr. Lillie was the Senior Vice President
Human Resources of World Color Press, Inc.
9
NAME AGE POSITIONS HELD DURING LAST FIVE YEARS
- ------------------------ ----- -------------------------------------------------------------------
Thomas W. Oliva 44 President, Forms and Labels since January 2001; from 1999 to
December 2000, Mr. Oliva was the President of Gravure Catalog
and Magazine Group of Quebecor World Color; from 1998 to 1999,
Mr. Oliva served as the President of the Catalog and Magazine
Group at World Color Press and was President of World Color's
National Sales Group from 1997 to 1998.
Thomas J. Quinlan, III 39 Executive Vice President and Treasurer since December 2000; from
April 2000 to September 2000, Mr. Quinlan was Executive Vice
President, Treasurer of Walter Industries, Inc.; from July 1998 to
November l999, Mr. Quinlan was the Senior Vice President,
Treasurer of World Color Press, Inc.; from July 1997 to July 1998,
Mr. Quinlan was the Vice President, Treasurer of World Color
Press, Inc.; and from February 1994 to July 1997, he was the
Assistant Treasurer of World Color Press, Inc.
Paul C. Dilworth 39 Senior Vice President, Purchasing and Logistics since March 2001;
from January 1999 to March 2001, Mr. Dilworth was the Vice
President, Group Controller for the Direct Mail Group at
Quebecor World Color; and from January 1997 to November 1999,
Mr. Dilworth was the Group Controller for the Direct Mail Group
at Quebecor World Color.
Jennifer O. Estabrook 41 Senior Vice President, General Counsel and Assistant Secretary
since November 2001 and Associate General Counsel and
Assistant Secretary from June 2001 to November 2001; from
October 2000 to May 2001, Ms. Estabrook was the Vice President,
General Counsel and Secretary of CTI Technology, Inc.; from
July 2000 to October 2000, Ms. Estabrook was the Acting Vice
President, General Counsel and Secretary of The Stanley Works;
and from December 1995 to June 2000 she was the Assistant
General Counsel and Assistant Secretary of The Stanley Works.
Richard T. Sansone 35 Vice President and Controller since February 2002 and Assistant
Controller from May 2001 to February 2002; prior to joining
Moore, Mr. Sansone spent 8 years at PricewaterhouseCoopers LLP
most recently as Senior Audit Manager.
Robert Sell 51 Senior Vice President and Chief Information Officer from
February 2001; from 1998 through 2000 Mr. Sell was the Vice
President, CIO of Brunswick Corporation; and from 1996 to 1997
Mr. Sell was the Vice President, Information Technology of Coors
Brewing Company.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS
There were 10,186 shareholders of record at December 31, 2001.
The following table sets forth the high and low prices of the common
shares of the Corporation on the Toronto and New York stock exchanges.
THE TORONTO STOCK NEW YORK STOCK
EXCHANGE (C$) EXCHANGE (US$)
--------------------- -------------------
HIGH LOW HIGH LOW
- -------------------------------------------------------
2001
4th quarter 15.30 10.88 9.50 6.90
3rd quarter 12.95 8.00 8.30 5.25
2nd quarter 9.25 5.67 5.95 3.67
1st quarter 7.70 4.55 5.19 3.06
2000
4th quarter 5.10 3.50 3.31 2.31
3rd quarter 5.15 3.35 3.43 2.31
2nd quarter 6.85 3.25 4.81 2.19
1st quarter 9.90 4.56 6.75 3.12
- ------------------------------------------------------
RECENT SALES OF UNREGISTERED SECURITIES
On December 21, 2000, the Corporation issued $70.5 million aggregate
principal amount of 8.70% subordinated convertible debentures due June 30, 2009
to Chancery Lane/GSC Investors L.P. In December 2001, the Corporation reached
an agreement with Chancery Lane/GSC Investors L.P. for the conversion of the
subordinated convertible debenture. Under the terms of the debenture, the
debenture was convertible by Chancery Lane/GSC Investors L.P. at any time, but
the Corporation did not have the right to redeem the debenture prior to
December 22, 2005. On December 28, 2001, the debenture was converted into
21,692,311 common shares at the conversion price per share of $3.25 in
accordance with its terms.
As an inducement to obtain the conversion, the Corporation issued an
additional 1,650,000 common shares (the "additional shares") to Greenwich
Street Capital Partners II, L.P. and certain of its affiliates (collectively,
"GSC Partners"), which under the terms of the agreement governing Chancery
Lane/GSC Investors L.P., were entitled to all of the interest paid on the
debenture and any redemption premium.
Neither the debenture, the shares underlying the debenture nor the
additional shares were registered under the Securities Act of 1933 when issued
in reliance on the private placement exemption set forth in Section 4(2) of the
Securities Act of 1933. The Corporation has filed a registration statement on
Form S-3 under the Securities Act of 1933 relating to certain of the shares
issued on conversion of the debenture and the additional shares in connection
with a demand registration right exercised by GSC Partners.
11
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
Years ended December 31,
Expressed in thousands of U.S. dollars,
except share and per share date
2001 2000
- ----------------------------------------------------------------------------------
INCOME STATISTICS
Net sales $2,154,574 $2,258,418
- -------------------------------------------------------------------------------
Income (loss) from operations (342,324) (46,234)
Per dollar of sales (15.9)(cents) (2.0)(cents)
- -------------------------------------------------------------------------------
Income tax expense (recovery) (32,192) (17,377)
Percentage of pre-tax earnings 8.3% 21.3%
- -------------------------------------------------------------------------------
Net earnings (loss) (358,038) (66,372)
Per dollar of sales (16.6)(cents) (2.9)(cents)
Per common share $ (4.21) $ (0.75)
- -------------------------------------------------------------------------------
Dividends 4,423 17,594
Per common share 5.0(cents) 20.0 (cents)
Earnings retained in (losses and
dividends funded by) the business (380,155) (83,966)
- -------------------------------------------------------------------------------
BALANCE SHEET AND OTHER STATISTICS
Current assets $ 576,539 $ 690,888
Current liabilities 588,842 468,247
- -------------------------------------------------------------------------------
Working capital (12,303) 222,641
Ratio of current assets to current liabilities 1:1 1.5:1
- -------------------------------------------------------------------------------
Property, plant and equipment (net) 307,640 409,099
- -------------------------------------------------------------------------------
Long-term debt 111,062 272,465
Ratio of long-term debt to equity 0.3:1 0.4:1
- -------------------------------------------------------------------------------
Shareholders' equity 321,250 624,685
Per common share $ 2.87 $ 7.06
- -------------------------------------------------------------------------------
Total assets 1,336,986 1,743,587
===============================================================================
Average shares outstanding (in thousands) 88,648 88,457
Number of shareholders of record at year-end 4,194 4,455
Number of employees 12,340 16,166
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------
INCOME STATISTICS
Net sales $ 2,425,116 $2,717,702 $ 2,631,014
- -----------------------------------------------------------------------------------------------
Income (loss) from operations 141,681 (630,500) 49,411
Per dollar of sales 5.8(cents) (23.2)(cents) 1.9(cents)
- -----------------------------------------------------------------------------------------------
Income tax expense (recovery) 35,286 (94,330) 49,171
Percentage of pre-tax earnings 27.4% 14.7% 47.2%
- -----------------------------------------------------------------------------------------------
Net earnings (loss) 92,599 (547,866) 55,099
Per dollar of sales 3.8(cents) (20.2)(cents) 2.1(cents)
Per common share $ 1.05 $ (6.19) $ 0.59
- -----------------------------------------------------------------------------------------------
Dividends 17,692 34,057 85,830
Per common share 20.0(cents) 38.5(cents) 94.0(cents)
Earnings retained in (losses and
dividends funded by) the business 74,907 (581,923) (30,731)
- -----------------------------------------------------------------------------------------------
BALANCE SHEET AND OTHER STATISTICS
Current assets $ 750,860 $ 894,343 $ 965,078
Current liabilities 622,464 941,034 790,454
- -----------------------------------------------------------------------------------------------
Working capital 128,396 (46,691) 174,624
Ratio of current assets to current liabilities 1.2:1 1:1 1.2:1
- ------------------------------------------------------------------------------------------------
Property, plant and equipment (net) 458,808 466,198 635,770
- ------------------------------------------------------------------------------------------------
Long-term debt 201,686 4,841 49,109
Ratio of long-term debt to equity 0.3:1 0:1 0:1
- ------------------------------------------------------------------------------------------------
Shareholders' equity 672,674 610,145 1,185,612
Per common share $ 7.60 $ 6.90 $ 13.40
- ------------------------------------------------------------------------------------------------
Total assets 1,630,293 1,726,135 2,174,572
================================================================================================
Average shares outstanding (in thousands) 88,457 88,456 93,200
Number of shareholders of record at year-end 5,074 5,506 6,482
Number of employees 15,812 17,135 20,084
- ------------------------------------------------------------------------------------------------
12
SELECTED FINANCIAL DATA REQUIRED AND ADJUSTED FOR U.S. GAAP
YEARS ENDED DECEMBER 31,
Expressed in thousands of U.S. dollars,
except share and per share data
2001 2000 1999
- ------------------------------------------------------------------------------------------------
INCOME STATISTICS
Income (loss) from operations $ (162,845) $ (11,438) $ 91,578
Net earnings (loss) $ (269,964) $ (45,304) $ 72,884
Income tax expenses (recovery) $ 49,822 $ (3,649) $ 4,898
Percentage of pre-tax earnings 22.8 % 7.8 % 6.2%
Per common share, basic and diluted $ (3.05) $ (0.51) $ 0.82
- ----------------------------------------------------------------------------------------------
BALANCE SHEET AND OTHER STATISTICS
Current assets $ 576,539 $ 690,888
Current liabilities $ 587,541 $ 462,247
- -------------------------------------------------------------------------------
Working capital $ (11,002) $ 228,641
Ratio of current assets to current liabilities 1:1 1.5:1
- -------------------------------------------------------------------------------
Long-term debt $ 111,062 $ 280,808
Ratio of long-term debt to equity 0.7:1 0.8:1
- -------------------------------------------------------------------------------
Shareholders' equity $ 167,666 $ 369,992
Per common share $ 1.50 $ 4.18
- -------------------------------------------------------------------------------
Total assets $1,291,719 $1,542,888
================================================================================
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Expressed in thousands of U.S. dollars,
except share and per share data
2001 2000
- ------------------------------------------------------------------------------- -------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 537,249 $ 510,603 $ 532,526 $ 574,196 $ 580,655 $550,493 $ 550,406 $576,864
Cost of sales 373,008 349,864 368,757 460,932 410,828 384,817 393,362 409,518
Income (loss)
from operations (59,716) (1,773) (51,521) (229,314) (30,117) 8,390 (15,293) (9,214)
Net earnings (loss) (84,041) (12,171) (60,366) (201,460) (35,483) (7,910) (14,094) (8,885)
Per common share $ (1.11) $ (0.14) $ (0.68) $ (2.28) $ (0.40) $ (0.09) $ (0.16) $ (0.10)
- ------------------------ ---------- --------- --------- ---------- --------- -------- --------- --------
Net earnings (loss)
based on United States
generally accepted
accounting principle
(Note 24) $ (116,781) $ (8,335) $ (53,211) $ (91,637) $ (29,919) $ (1,681) $ (7,606) $ (6,098)
Per common
share - basic $ (1.32) $ (0.09) $ (0.60) $ (1.04) $ (0.34) $ (0.02) $ (0.08) $ (0.07)
Per common
share - diluted $ (1.32) $ (0.09) $ (0.60) $ (1.04) $ (0.34) $ (0.02) $ (0.08) $ (0.07)
- ------------------------ ---------- --------- --------- ---------- --------- -------- --------- --------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This section provides a review of the financial performance of Moore
Corporation Limited during the three years ended December 31, 2001. The
analysis is based on the consolidated financial statements that are presented
in Item 8 below, prepared in accordance with generally accepted accounting
principles (GAAP) in Canada. Differences from GAAP in the United States are
disclosed in Note 24. Where appropriate, comparative figures have been
reclassified to conform to the current presentation in the corporation's
consolidated financial statements.
13
RESULTS OF OPERATIONS
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.
The following discussion includes the results of operations on a
consolidated and operating segment basis. The financial statements are
presented in accordance with accounting principles generally accepted in
Canada. The following discussion is also supplemented by a discussion of
operating income of each of the business segments before deductions for
restructuring and other non-recurring charges, including the impairment of
long-lived assets and pension settlement. This supplemental discussion of
operating results before these charges should be read in conjunction with the
Corporation's audited consolidated financial statements included herein.
CONSOLIDATED
2001 COMPARED TO 2000
Net sales decreased by $103.8 million, a decrease of 4.6%, primarily
resulting from the divestitures of the Colleagues (the Corporation's European
advertising agency) and Phoenix business units, the decision to exit certain
unprofitable accounts, the devaluation of certain foreign currencies and weak
demand in non-core businesses due to the challenging economic environment.
Cost of goods sold increased as a percent of sales for 2001 to 72.1%
versus 70.8% in 2000. The increase is primarily attributable to competitive
pricing pressures, $6.6 million of non-cash write-offs of obsolete inventory
related to abandoned product lines and a $61.2 million cost of sales charge
related to the partial settlement of the U.S. pension plan associated with
plant production employees.
Selling, general and administrative costs as a percent of sales for 2001
were 26.7% versus 25.6% in 2000. Several one-time items have significantly
affected this category, primarily charges related to the partial settlement of
the U.S. pension plan related to non-plant production employees of $35.4
million, accounts receivable write-offs of $4.6 million and professional fees
associated with the partial redemption of the senior guaranteed notes of $1.0
million. The Corporation anticipates improvement in these costs as each segment
continues to address cost structure and improve business processes.
Depreciation and amortization increased by $87.6 million, or 57.8%, due to
the write-down of goodwill of non-core businesses of $76.8 million, as well as
impairment of certain assets no longer in use. The Corporation recorded a
charge of $76.8 million for permanent impairment of goodwill related to the
divestiture of the Phoenix business and a non-core business held for
disposition. These impairment charges were recorded based on management's
decisions during 2001 to sell the businesses based on significant sales
declines, customer turnover and the Corporation's decision to dispose of
non-print related business. The charges were based on independent third party
valuations.
Loss from operations increased $296.1 million to a loss of $342.3 million
as a result of the $391.2 million in restructuring and other non-recurring
charges. The Corporation projects a pre-tax savings from these restructuring
actions to be approximately $100 million annually. These charges were partially
offset by improved operating results in the Forms and Labels and Outsourcing
businesses, of $71.2 million.
Interest expense for the year ended December 31, 2001, increased $1.1
million or 4.3% over the same prior year period, primarily due to an increase
in debt resulting from the issuance of $70.5 million subordinated convertible
debentures in December 2000, partially offset by lower borrowings under the
Corporation's bank credit facility.
Included in the loss before taxes and minority interest, is a non-cash
charge of $10.4 million, which represents accelerated amortization of the
deferred issuance costs on the $70.5 million subordinated convertible
debentures which were converted during the fourth quarter of 2001.
14
The decrease in the 2001 effective tax recovery rate from 2000 was
primarily attributable to the inability to currently recognize future income
tax benefits on certain current operating losses and the write-down of goodwill
relating to non-core businesses.
Net loss available to common shareholders for the year ended December 31,
2001, increased by $306.9 million to $373.3 million or $(4.21) per diluted
share, primarily due to the Corporation's restructuring actions. Included in
the loss available to common shareholders was approximately $15.5 million,
which primarily represents the fair value at December 28, 2001 of the 1,650,000
shares given to the Class A limited partners of the partnership that owned the
$70.5 million subordinated convertible debentures as inducement for early
conversion.
2000 COMPARED TO 1999
Net sales in 2000 of $2,258.4 million decreased by $166.7 million, or 6.9%
compared to 1999 net sales of $2,425.1 million. The sales decline was primarily
due to divestitures, net volume decreases, and the impact of currency
devaluation partly offset by the full consolidation of the operations of
Quality Color Press. The volume decrease was the result of an increasingly
competitive, technologically evolving environment, in a flat market.
Cost of sales was 70.8% of consolidated net sales in 2000 compared to
68.7% in 1999. Included in cost of sales was $21.2 million and $23.2 million of
research and development costs for 2000 and 1999, respectively.
Selling, general and administrative costs in 2000 decreased to $578.6
million from $585.3 million in 1999. The ratio of selling, general and
administrative costs to sales in 2000 increased to 25.6% compared to 24.1% in
1999.
A net restructuring reversal of $24.0 million was recorded in 2000
compared to a reversal of $68.4 million in 1999, due to provisions no longer
required. The Corporation reversed $24.0 and $68.4 million of restructuring
charges under the 1998 restructuring plan during the fourth quarters of 2000
and 1999, respectively. In 2000, the reversals resulted from facility closing
costs that were lower than originally estimated ($24.0 million). In 1999, the
restructuring reversals primarily resulted from facility closing costs that
were lower than originally estimated ($18.0 million); favorable settlement of
liabilities and obligations for future payments related to the dispositions of
the European and Australasia businesses ($13.2 million); negotiated lower than
expected costs to exit customer contracts ($19.0 million); and the decision to
sell rather than restructure the Data Management Services business ($7.2
million). Additionally in the fourth quarter of 1999, changes in senior
management of the Corporation and the related changes in their corporate
strategy resulted in the new management's decision to not fully implement
certain restructuring actions under the original plan ($18.2 million).
Depreciation and amortization of $151.5 million in 2000 increased by $50.2
million versus 1999. This increase was primarily due to the partial write-down
of $20.9 million of goodwill relating to a European subsidiary, the
commencement in 2000 of amortization of the ERP asset amounting to $26.8
million, and the write-off of a component of the ERP asset of $13.8 million.
The partial goodwill write-down of the European subsidiary occurred when
management made the decision and committed to dispose of the business in the
fourth quarter of 2000 as a result of certain key clients ending their
relationship with the subsidiary. As a result, the goodwill impairment charge
was recorded by the amount the net assets of the business exceeded its net
recoverable amount. Additionally, during the fourth quarter of 2000, management
decided not to deploy certain components of the ERP project and as a result
$13.8 million of ERP asset development costs for these components were written
off.
Loss from operations in 2000 was $46.2 million compared to operating
income in 1999 of $141.7 million. The decline was primarily attributed to Forms
and Labels operating income in 2000 of $71.9 million compared to operating
income in 1999 of $195.7 million.
The 2000 effective tax rate of 21.3% represents a recovery of income taxes
compared to the 1999 provision for income taxes of 27.4%.
15
The net loss for 2000 was $66.4 million, a loss per share of $0.75
compared with 1999 net income of $92.6 million and $1.05 earnings per share for
the reasons discussed above.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
The following table summarizes restructuring and other non-recurring
charges recorded by the Corporation for the year ended December 31, 2001.
IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------
Workforce reduction $ 77.0
Lease terminations and other facility costs 65.5
Reserve reversal ( 12.8)
Assets and goodwill impairment 131.4
Pension settlement, net 96.6
Debt conversion and extinguishment 12.6
Inventory write-off 6.6
Asset dispositions and investments, net 4.9
Accounts receivable write-off 4.6
Other, primarily legal costs 4.8
- --------------------------------------------------------
$ 391.2
========================================================
For the year ended December 31, 2001, the Corporation recorded pre-tax
restructuring and other non-recurring charges of $391.2 million (see Note 16 to
Consolidated Financial Statements). These charges include a net restructuring
provision of $129.7 million primarily related to workforce reductions and lease
terminations; non-cash charges of $131.4 million that are included in
depreciation and amortization related to the write-down of goodwill of non-core
businesses and asset impairments; non-cash charges for inventory and accounts
receivable, relating to exiting certain non-core businesses, of $11.2 million
included in cost of sales and selling, general and administrative costs; loss
on disposal of non-core assets that were included in investment and other
income of $4.9 million; other non-recurring charges of $12.6 million related to
the early redemption of $100 million of private placement notes and the
conversion of the $70.5 million subordinated convertible debentures; and other
non-recurring cash charges of $4.8 million, included in selling, general and
administrative costs; partially offset by a $12.8 million reversal of
restructuring reserves related to the 1998 restructuring program that are no
longer required due to favorable settlements.
The Corporation also recorded a net charge of $96.6 million in 2001
associated with the partial settlement of the U.S. pension plan, which was
curtailed as of December 31, 2000. In March 2001, the Corporation purchased
approximately $600 million of annuity contracts settling approximately 70% of
the outstanding obligation. The balances of the annuity contracts are expected
to be purchased during the first six months of 2002, resulting in an
anticipated pre-tax loss of approximately $15 million.
Also, included in the 2001 restructuring charge is $48.0 million related
to lease termination costs associated with the Corporation's obligation for its
office facility in Bannockburn, Illinois. This charge is based upon
management's estimates and assumptions at the time the charge was recorded.
Actual results could vary based upon market conditions and the Corporation's
ability to sublease the aforementioned property. Any potential recovery or
additional charge may affect amounts reported in the consolidated financial
statements of future periods.
For the year ended December 31, 2000, the Corporation recorded a pre-tax
non-recurring charge of $20.9 million related to the reversal of restructuring
and other provisions no longer needed of $31.0 million, a gain on the
curtailment of its U.S. pension plan of $6.6 million, and other non-recurring
costs of $11.8 million. These benefits were partially offset by non-cash
charges of $34.7 million that are included in depreciation and amortization
related to the write-down of a non-core asset held for disposal, the impairment
of a component of the Enterprise Resource Planning Software System ("ERP") and
a loss on disposal of the investment in JetForm Corporation of $8.5 million and
the write-down of a permanently impaired investment of $3.5 million.
16
The following table and management discussion summarizes the operating
results of the Corporation's business segments and corporate overhead expenses
excluding the impact of restructuring and other non-recurring charges
previously discussed.
FOR THE YEARS ENDED DECEMBER 31, NET SALES OPERATING INCOME
IN MILLIONS OF U.S. DOLLARS 2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Forms and Labels $ 1,165.3 $ 1,225.7 $ 1,404.7 $ 109.5 $ 50.2 $ 145.3
Outsourcing 339.5 296.8 280.4 54.3 40.0 41.6
Commercial 649.8 735.9 740.0 31.4 6.6 48.3
Corporate -- -- -- ( 162.9) (134.1) (144.5)
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 2,154.6 $ 2,258.4 $ 2,425.1 $ 32.3 $ (37.3) $ 90.7
============================================================================================================================
FORMS AND LABELS
2001 COMPARED TO 2000
Net sales decreased $60.4 million, or 4.9%, due to foreign currency
devaluation of $28.5 million and lower volumes at the Canadian Forms and Labels
business as a result of the Corporation's decision to exit certain unprofitable
customer accounts.
Net sales declined in North America by $37.6 million, or 3.6%, due to the
decision to exit certain unprofitable accounts and lower volumes. In Latin
America, sales declined by $22.8 million, or 12.6%, primarily due to the
devaluation of the Brazilian real.
Operating income increased $59.3 million, or 118.1%, primarily due to the
Corporation's decision to streamline its Forms and Labels operations including
the elimination of non-customer critical positions in support of the goal to
significantly reduce costs. Cost of goods sold as a percent of sales improved
during 2001 to 67.3% from 69.2% in 2000, due to waste reduction programs,
reduced headcount, the initial impact of purchasing synergies and exiting of
certain lower margin customer contracts. Selling, general and administrative
expenses decreased $40.0 million or 14.9%, also as an immediate result of the
cost containment efforts initiated during 2001.
2000 COMPARED TO 1999
Net sales decreased $179.0 million, or 12.7%, due to the decision to exit
low margin customer accounts, and the drop in volume from financial sector
customers, as well as the impact of increased Year 2000 purchases by customers
in 1999. In 2000, net sales for Latin America increased by $20.3 million, or
12.6%. The increase in net sales was derived primarily from higher volumes in
Brazil.
Operating income decreased by $95.1 million, or 65.5%, compared to 1999.
The fixed cost element of the businesses in the United States remained
relatively consistent despite significantly reduced volumes. In Canada, a shift
in product mix to outsourced product contributed to lower margins. Earnings
were also affected by the investments required to launch various digital and
Internet strategies for the forms business, and the continued incremental costs
related to maintaining redundant computer systems as the Corporation
implemented an ERP system. Latin America contributed about $9.5 million to
operating income in 2000, a $6.4 million or 209% increase from 1999. The
increase is the result of higher sales volume and cost containment on selling,
general and administrative expenses.
OUTSOURCING
2001 COMPARED TO 2000
Net sales increased $42.7 million, or 14.4%, due to strong volume growth
of 11.3% resulting from increased service offerings and the benefits achieved
from a sharper focus on leveraging core capabilities with existing customers.
17
Operating income increased by $14.3 million, or 35.8%, due to increased
revenues, improved gross margins and cost savings achieved through workforce
reductions. Selling, general and administrative costs remained almost flat
despite incremental costs associated with increased sales volume due to cost
reduction initiatives implemented throughout the year.
2000 COMPARED TO 1999
Net sales increased by $16.4 million, or 5.8%, compared to 1999, primarily
due to new product and service offerings. Despite the revenue increase in 2000,
operating income was slightly affected by the investments required to create
new product line ventures and to reposition existing product and service
offerings. During 2000, operating income decreased by $1.6 million or 3.8%, to
$40.0 million.
COMMERCIAL
2001 COMPARED TO 2000
Net sales declined by $86.1 million, or 11.7%, primarily due to a $55.6
million decline in revenues as a result of the divestiture of Colleagues, a
$21.7 million revenue decline in non-core businesses and $8.8 million decline
in revenues related to the disposition of Phoenix.
Commercial contributed $31.4 million to consolidated operating income in
2001, a 375.8% increase due to aggressive cost containment, which included a
$33.4 million or 20.6% decrease in selling, general and administrative
expenses.
2000 COMPARED TO 1999
Net sales decreased by $4.1 million, due to the loss of sweepstakes
mailing volumes in Response Marketing Services ("RMS") following the enactment
of the Deceptive Mail Prevention and Enforcement Act in effect since April
2000. The RMS unit was able to obtain other monthly mail programs, which
partially offset the loss of the sweepstakes business. The Phoenix group
achieved volume growth by obtaining new customer business and expanding
services and solutions to existing customer base. Also, during 2000, the
operating results of Quality Color Press were fully consolidated, adding $20.5
million of net sales. These increases were offset by a $41.1 million decrease
in European subsidiaries due to the loss of some major accounts.
Operating income decreased $41.7 million, or 86.3%, to $6.6 million in
2000. This is due to incremental costs associated with maintaining redundant
information systems, pricing pressures in the RMS business and in Europe, and
severance and termination costs incurred to downsize the infrastructure.
CORPORATE
2001 COMPARED TO 2000
The increase in corporate expense is primarily due to the reduction of
pension income resulting from the pension settlement and additional retirement
savings plan contributions, offset by a reduction in corporate overhead.
2000 COMPARED TO 1999
The decrease in corporate expense is due to reversal of provisions for
incentive plans that were no longer needed and reduction of overhead.
LIQUIDITY AND CAPITAL RESOURCES
In addition to its cash generated from operations, the Corporation has a
$168 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
18
interest coverage. At December 31, 2001, $15 million was drawn down under the
facility versus nil at December 31, 2000. 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. These uncommitted facilities amount to available
credit of $43.2 million at December 31, 2001, which may be terminated at any
time at the Corporation's option. The Corporation has $17.3 million in
outstanding letters of credit at December 31, 2001. Total availability at
December 31, 2001 was approximately $196 million. In addition, the Corporation
expects to receive within the next six to twelve months approximately $150
million before taxes, fees and transfers to other employee benefit plans from
the termination of the U.S. pension plan.
An additional source of liquidity at December 31, 2001 was the
Corporation's short-term investments in the amount of $64 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".
The following table represents contractual obligations of the Corporation
at December 31, 2001:
PAYMENTS DUE BY PERIOD
2--3 4--5 5 YEARS
IN THOUSANDS OF U.S. DOLLARS TOTAL 1 YEAR YEARS YEARS THEREAFTER
- -------------------------------------------------------------------------------------------------------------------
Long-term debt $102,694 $ 1,325 $ 996 $43,123 $57,250
Short-term debt 16,307 16,307 -- -- --
Capital lease obligations 10,095 1,727 3,667 4,701 --
Operating leases 129,590 31,108 40,768 22,946 34,768
Workforce reductions 41,955 38,439 3,516 -- --
Facility closing and other restructuring related
costs 9,330 4,319 3,500 1,511 --
- -----------------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations $309,971 $93,225 $52,447 $72,281 $92,018
=================================================================================================================
Note: Above amounts exclude bank indebtedness of $56,181.
The senior guaranteed notes and revolving credit facility agreements
contain various restrictive covenants that among other things, limit additional
indebtedness and limit 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 senior guaranteed notes and revolving term credit facility agreements
include certain debt covenants calculated on a quarterly basis including, but
not limited to, tests of net worth, leverage and interest coverage. For the
years ended December 31, 2001 and 2000, the Corporation was in compliance with
all debt covenants. The Corporation believes it has sufficient liquidity to
complete the planned restructuring activities and effectively manage the
financial needs of its businesses into the foreseeable future.
At December 31, 2001, the Corporation had $100.0 million of senior
guaranteed notes outstanding after it redeemed $100.0 million of the notes on
December 27, 2001. The remaining outstanding senior 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, payable
semi-annually.
Net cash resources (cash and short-term securities less bank indebtedness)
of $28.7 million at December 31, 2001 represents a $21.6 million increase, or
303.3%, as compared to $7.1 million at December 31, 2000.
Net cash provided from operating activities was $136.3 million for 2001
compared to $34.7 million in 2000. The change was primarily due to significant
improvements in working capital resulting from improved cash collections,
overall inventory and accounts payable management and better operating results
in the Corporation's core businesses.
19
Net cash usage by investing activities for 2001 was $21.1 million, a
decline of $35.1 million, primarily due to proceeds from the sale of
investments and other assets, the reduction of capital spending, partially
offset by the acquisition of a business in the Outsourcing segment of $14.6
million.
Net cash used in financing activities was $93.1 million, an increase of
$95.2 million, primarily due to the $100 million redemption of the
Corporation's senior guaranteed notes in December of 2001. Dividends paid
decreased by $8.8 million as the Board of Directors approved the suspension of
future dividends on its outstanding common shares during the second quarter of
2001.
The Corporation recorded non-cash transactions associated with the
conversion of its $70.5 million subordinated convertible debentures held by
Chancery Lane/GSC Investors, L.P., and the related inducement. See Note 23 of
the accompanying notes to the consolidated financial statements. Certain
officers of the Corporation and members of the Board of Directors were
investors in Chancery Lane/GSC Investors, L.P.
COST INITIATIVE
The Corporation continuously evaluates ways to reduce its cost structure,
and improve the productivity of its operations. Future cost reduction
initiatives may include the reorganization of operations or the consolidation
of manufacturing facilities. Implementing such initiatives may result in future
charges, which may be substantial.
CONVERSION TO THE EUROPEAN MONETARY UNION ("EURO")
Certain of the Corporation's subsidiaries conduct business in some of the
countries that have adopted the Euro as their currency. The conversion to the
Euro is not expected to have a material effect on the Corporation's results of
operations, cash flows or financial condition.
YEAR 2000
The Corporation established a plan to address the impact of Year 2000 on
its information technology systems and processes, including those involved in
providing services to its customers, and treated the Year 2000 issue as a
business priority. The cost for the entire Year 2000 program was forecasted at
$42 million, which was funded through normal operations. Expenditures totaled
$42.7 million with $17.4 million charged to 1999 earnings and $25.3 million
charged to 1998 earnings.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED
Management's discussion and analysis of the impact of Canadian and United
States accounting standards issued, but not yet implemented, is contained in
Note 25 to the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
The Corporation's significant accounting policies are more fully described
in Note 1 to the consolidated financial statements. Certain accounting policies
require the application of significant judgment by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty. These
judgements are based on historical experience, terms of existing contracts,
observance of trends in the industry, information provided by customers and
information available from other outside sources, as appropriate. The
Corporation's significant accounting policies include:
REVENUE RECOGNITION
The Corporation typically recognizes revenue for the majority of its
products upon shipment to the customer and the transfer of title. Services
revenue is recognized as the services are provided. Under contracts 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 it
20
provides. In these cases, delivery and billing schedules are outlined in the
contracts and product revenue is recognized when manufacturing is complete,
title transfers to the customer, the order is invoiced and there is reasonable
assurance as to 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.
ACCOUNTS RECEIVABLE
The Corporation maintains an allowance for doubtful accounts, which is
reviewed at least quarterly for estimated losses resulting from the inability
of its customers to make required payments for its product and services.
Additional allowances may be necessary in the future if the ability of its
customers to pay deteriorates.
PENSION
Pension assets and liabilities are determined on an actuarial basis and
are affected by the estimated market value of plan assets; estimates of the
expected return on plan assets and discount rates. Actual changes in the fair
market value of plan assets and differences between the actual return on plan
assets and the expected return on plan assets will affect the amount of pension
expense ultimately recognized. Postretirement benefits other than pension
liability are also determined on an actuarial basis and are affected by
assumptions including the discount rate and expected trends in health care
costs. Changes in the discount rate and differences between actual and expected
health care cost will affect the recorded amount of postretirement benefits
expense.
TAXES
The Corporation has recorded a valuation allowance to reduce its deferred
tax assets based on an evaluation of the amount of deferred tax assets that
management believes are more likely than not to be ultimately realized in the
foreseeable future. An adjustment to income could be required in the future if
the Corporation determines it would be able to realize additional deferred tax
assets in excess of the net recorded amount or it would not be able to realize
all or part of its net deferred tax assets.
The valuation allowance at December 31, 2001 relates to net operating
losses generated in the United States, Canada, Latin America, and Europe, which
have limited carryforward periods. The increase in 2001 primarily relates to
amounts recorded against operating losses generated in the United States. The
realization of the losses is not likely due to the uncertainty of future
taxable income sufficient to utilize these losses based upon the recent loss
history of these operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURE
The risks inherent in the Corporation's market risk sensitive instruments
and positions is summarized as: the potential loss arising from adverse changes
in interest rates, credit worthiness, foreign currency exchange rates and
certain commodity prices.
INTEREST RATES
The Corporation is exposed to interest rate risk arising from fluctuations
in interest rates on its borrowings under its credit facilities. This exposure
at year-end was nominal, as floating rate debt was less than 15% of total debt
outstanding. The Corporation is also exposed to price risk in respect of its
fixed rate debt instruments. See Note 9 of the accompanying notes to the
consolidated financial statements.
CREDIT RISK
The Corporation is exposed to credit risk on accounts receivable balances.
This risk is limited due to the Corporation's large, diverse customer base,
dispersed over various geographic regions and industrial sectors. The
Corporation maintains provisions for potential credit losses, and any such
losses to date have been within the Corporation's expectations.
21
FOREIGN CURRENCY
The Corporation is exposed to the impact of foreign currency fluctuations
in certain countries in which it operates. The exposure to foreign currency
movements is limited because the operating revenues and expenses of its various
subsidiaries and business units are substantially in the local currency of the
country in which they operate. To the extent revenues and expenses are not in
the local currency of the operating unit, the Corporation enters into foreign
currency forward contracts to hedge the currency risk. As of December 31, 2001,
the aggregate amount of outstanding forward contracts was $13.7 million.
Notional gains and losses from these foreign currency contracts were not
significant at December 31, 2001. The Corporation does not use derivative
financial instruments for trading or speculative purposes.
The Corporation assessed market risk based on changes in interest rates
and foreign currency rates utilizing a sensitivity analysis that measures the
potential loss in earnings, fair values and cash flows based on a 10%
hypothetical change in prevailing interest and foreign currency rates. Using
this sensitivity analysis, the Corporation is determined such changes would not
have a material effect on earnings, fair values and cash flows.
COMMODITIES
The primary raw materials used by the Corporation are paper and ink. The
cost of paper and ink represents a significant portion of costs of sales.
Increases in price or a lack of availability of supply of these raw materials
could have a material adverse effect on the financial condition and results of
operations. The Corporation uses its significant purchasing volume to negotiate
long-term supply contracts that give favorable prices, terms, quality and
service. While the Corporation believes that these long-term contracts will
enable the Corporation to receive adequate supplies of paper in the event of a
tight paper supply, there can be no assurance in this regard.
To reduce price risk caused by market fluctuations, the Corporation has
incorporated price adjustment clauses in certain sales contracts. The
Corporation does not think it is practicable to measure the impact of a
hypothetical 10% change in the price of paper and other raw materials on its
earnings and cash flows. Such a change would not have a significant effect on
the Corporation since these costs are generally passed through to its
customers.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
IN THOUSANDS OF U.S. DOLLARS 2001 2000
- --------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 84,855 $ 36,538
Accounts receivable, less allowance for doubtful accounts of
$22,057 (2000 -- $15,274) 336,153 407,304
Inventories (Note 3) 128,421 154,484
Prepaid expenses 13,544 22,683
Deferred income taxes (Note 17) 13,566 69,879
- ------------------------------------------------------------------------------------------------
Total Current Assets 576,539 690,888
================================================================================================
Property, plant and equipment -- net (Note 4) 307,640 409,099
Investments (Note 5) 32,204 33,650
Prepaid pension cost (Note 13) 215,752 312,180
Goodwill -- net (Note 6) 42,294 130,530
Deferred income taxes (Note 17) 47,651 8,949
Other assets (Note 7) 114,906 158,291
- ------------------------------------------------------------------------------------------------
Total Assets $1,336,986 $1,743,587
================================================================================================
LIABILITIES
Current Liabilities
Bank indebtedness $ 56,181 $ 29,428
Accounts payable and accrued liabilities (Note 8) 486,626 400,057
Short-term debt (Note 9) 18,034 2,709
Dividends payable -- 4,423
Income taxes 27,677 31,168
Deferred income taxes (Note 17) 324 462
- ------------------------------------------------------------------------------------------------
Total Current Liabilities 588,842 468,247
================================================================================================
Long-term debt (Note 9) 111,062 272,465
Postretirement benefits (Note 14) 239,664 243,374
Deferred income taxes (Note 17) 13,705 66,282
Other liabilities (Note 10) 51,263 57,289
Minority interest 11,200 11,245
- ------------------------------------------------------------------------------------------------
Total Liabilities 1,015,736 1,118,902
- ------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 11) 397,761 310,881
Authorized:
Unlimited number of preference (none outstanding for 2001 and
2000) and common shares without par value
Issued:
111,803,651 common shares -- 2001
88,456,940 common shares -- 2000
Equity portion of subordinated convertible debentures -- 8,343
Retained earnings 51,666 431,821
Cumulative translation adjustments (Note 12) (128,177) (126,360)
- ------------------------------------------------------------------------------------------------
Total Shareholders' Equity 321,250 624,685
================================================================================================
Total Liabilities and Shareholders' Equity $1,336,986 $1,743,587
================================================================================================
See Notes to Consolidated Financial Statements
23
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Net sales $2,154,574 $2,258,418 $2,425,116
- -------------------------------------------------------------------------------------------------------------
Cost of sales 1,552,561 1,598,525 1,665,194
Selling, general and administrative expenses 575,586 578,642 585,316
Provision for (recovery of) restructuring costs -- net 129,679 (24,033) (68,410)
Depreciation and amortization, includes impairment
charges of $131,393 (2000 -- $36,621 and 1999 -- $676) 239,072 151,518 101,335
- -------------------------------------------------------------------------------------------------------------
2,496,898 2,304,652 2,283,435
- -------------------------------------------------------------------------------------------------------------
Income (loss) from operations (342,324) (46,234) 141,681
Investment and other income (expense) (9,047) (9,797) 11,113
Interest expense 26,653 25,561 24,184
Debt settlement expense 10,396 -- --
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes and minority interests (388,420) (81,592) 128,610
Income tax expense (recovery) (32,192) (17,377) 35,286
Minority interest 1,810 2,157 725
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (358,038) $ (66,372) $ 92,599
Distribution to certain convertible debenture holders
(Note 9) 15,345 -- --
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) available to common shareholders $ (373,383) $ (66,372) $ 92,599
Net earnings (loss) per common share:
Basic $ (4.21) $ (0.75) $ 1.05
Diluted (4.21) (0.75) 1.04
Average shares outstanding (in thousands):
Basic 88,648 88,457 88,457
Diluted 88,648 88,457 88,763
=============================================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
IN THOUSANDS OF U.S. DOLLARS 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Balance at beginning of the year, as reported $ 431,821 $ 480,049 $405,142
Change in accounting policy:
Income taxes -- 2,443 --
Employee future benefits -- 33,295 --
- -------------------------------------------------------------------------------------------
Balance at beginning of the year, as restated 431,821 515,787 405,142
Net earnings (loss) (358,038) (66,372) 92,599
- -------------------------------------------------------------------------------------------
73,783 449,415 497,741
Subordinated convertible debentures 17,694 -- --
Dividends 5(cents) per share (20 (cents)
in 2000 and 1999) 4,423 17,594 17,692
- -------------------------------------------------------------------------------------------
Balance at end of year $ 51,666 $ 431,821 $480,049
===========================================================================================
See Notes to Consolidated Financial Statements
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
IN THOUSANDS OF U.S. DOLLARS 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings (loss) $ (358,038) $ (66,372) $ 92,599
Items not affecting cash resources:
Depreciation and amortization (a) 239,072 152,546 102,943
Net loss on sale of other assets 5,032 -- --
Net loss on write-off and sale of investments -- 11,974 --
Gain on sale of business -- -- (7,269)
Deferred income taxes (36,487) (22,267) 16,552
Pension settlement -- net 96,605 -- --
Restructuring provision, net of cash paid 81,756 (29,028) (68,410)
Convertible debt issue costs 10,396 -- --
Other 4,269 12,367 (12,987)
Changes in working capital other than cash
resources:
Accounts receivable -- net 44,684 69,780 2,003
Inventories 21,037 24,181 (2,016)
Accounts payable and accrued liabilities 28,545 (129,994) (45,549)
Income taxes (3,033) 8,601 9,772
Other 2,491 2,902 (2,521)
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 136,329 34,690 85,117
- ----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment -- net (36,280) (36,913) (84,436)
Long-term receivables (3,489) 527 (1,538)
Acquisition of businesses (14,565) (3,351) (8,077)
Proceeds from sale of investment and other assets 38,495 13,178 18,143
Software expenditures (6,517) (28,795) (57,035)
Deferred charges 751 (2,891) (2,134)
Other 459 2,049 (11,494)
- ----------------------------------------------------------------------------------------------------
Net cash used by investing activities (21,146) (56,196) (146,571)
- ----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid (8,846) (17,594) (17,692)
Net change in short-term debt 15,325 (37,431) (216,257)
Proceeds from issuance of long-term debt 7,963 6,003 200,985
Payments on long-term debt (104,166) (1,776) (4,100)
Issuance (conversion) of subordinated convertible
debentures (1,600) 58,660 --
Other (1,744) (5,753) (5,313)
- ----------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (93,068) 2,109 (42,377)
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate on cash (551) 1,414 (2,047)
Increase (decrease) in cash resources 21,564 (17,983) (105,878)
Cash and cash equivalents at beginning of year (b) 7,110 25,093 130,971
Cash and cash equivalents at end of year (b) $ 28,674 $ 7,110 $ 25,093
- ----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flows information
Interest paid $ 26,594 $ 25,288 $ 20,169
- ----------------------------------------------------------------------------------------------------
Income taxes paid (refunded) 3,425 5,314 (29,426)
- ----------------------------------------------------------------------------------------------------
(a) Includes depreciation that has been classified in cost of sales.
(b) Cash and cash equivalents are defined as cash and short-term
securities less bank indebtedness.
See Notes to Consolidated Financial Statements
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
In thousands of U.S. dollars, except share and per share data
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Moore Corporation Limited is incorporated under the laws of the Province
of Ontario. The consolidated financial statements, which are prepared in
accordance with Canadian generally accepted accounting principles, include the
accounts of Moore Corporation Limited and its subsidiaries. Entities that are
not controlled and which the Corporation has significant influence over are
accounted for under the equity method. All other investments are accounted for
on the cost basis. All intercompany transactions have been eliminated.
Comparative figures have been reclassified where appropriate to conform to the
current presentation. Significant differences between United States and
Canadian GAAP are discussed in Note 24.
REVENUE RECOGNITION
The Corporation typically recognizes revenue for the majority of its
products upon shipment to the customer and the transfer of title. Services
revenue is recognized as the services are provided. Under contracts 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 they provide. In these cases,
delivery and billing schedules are outlined in the contracts and product
revenue is recognized when manufacturing is complete, title transfers to the
customer, the order is invoiced and there is reasonable assurance as to
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.
TRANSLATION OF FOREIGN CURRENCIES
The consolidated financial statements are expressed in United States
dollars because a significant part of the 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 have been 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. Realized 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 2000 and 1999 were not material.
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
rates of exchange, and non-monetary items are translated at historical rates of
exchange. The only highly inflationary economy in which the Corporation
operates is Venezuela.
FINANCIAL INSTRUMENTS
The Corporation enters into forward exchange contracts to manage 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.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Short-term securities consist of investment grade, highly liquid
instruments of highly rated 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 and replacement cost and inventories of finished goods at the lower of
cost and 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. Depreciation
is provided on a basis that will amortize the cost of depreciable assets over
their estimated useful lives using the straight-line method. All costs for
repairs and maintenance are expensed as incurred.
The estimated useful lives of buildings range from 20 to 50 years and of
machinery and equipment from 3 to 17 years.
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.
GOODWILL AND LONG-LIVED ASSETS
The estimated useful life of goodwill arising from acquisitions is
determined based on the particular circumstances of each investment. Goodwill,
existing prior to July 1, 2001, is amortized on a straight-line basis over its
estimated useful life, not to exceed 40 years. On a regular basis, the
Corporation reviews the valuation and amortization of goodwill and long-lived
assets. Whenever events or changes in circumstances indicate the carrying value
of goodwill and long-lived assets may not be recoverable, the Corporation
compares expected future undiscounted cash flows to be generated by the asset
or related business to the 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. (See Note 25, "Pending Accounting Standards").
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
using the effective interest rate method.
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
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
11. The Corporation accounts for stock options using the intrinsic value
method. No compensation expense in 2001 or 2000 is recognized as the options
have an exercise price equal to the fair market value at dates of grant.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
Canadian generally accepted accounting principles 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 3500 EARNINGS PER SHARE
Effective January 1, 2001, the Corporation adopted the recommendations of
the Canadian Institute of Chartered Accountants' (CICA) Handbook Section 3500,
Earnings Per Share. The standard requires the disclosure of the calculation of
basic and diluted 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 Canadian Institute of Chartered Accountants' (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. The new 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. For
accrual purposes, the new standard requires that benefit arrangements be
communicated to employees in sufficient detail to enable them to determine the
type and the amount of benefits they will receive when their employment is
terminated.
The new standard was applied retroactively without restatement of prior
year financial statements. Opening retained earnings at January 1, 2000 has
been increased by $64,000 for the portion of this new standard that relates to
the recognition of involuntary termination benefits. The cumulative effect of
this change, as of January 1, 2000, resulted in the following increases:
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------
Assets $231,946
Liabilities 198,651
- ---------------------------------------
Opening retained earnings $ 33,295
=======================================
CICA SECTION 3465 ACCOUNTING FOR INCOME TAXES
Effective January 1, 2000, the Corporation adopted the new recommendations
of the CICA with respect to 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 the following increases:
- -----------------------------------------------
Current deferred tax assets $ 7,704
Long-term deferred tax assets 62,138
Current deferred tax liabilities 672
Long-term deferred tax liabilities 66,727
- -----------------------------------------------
Opening retained earnings $ 2,443
===============================================
3. INVENTORIES
- -------------------------------------------
2001 2000
- -------------------------------------------
Raw materials $ 39,452 $ 43,010
Work-in-process 10,048 14,612
Finished goods 75,149 93,441
Other 3,772 3,421
- ------------------------------------------
$128,421 $154,484
==========================================
The current cost of these inventories exceeds the last-in, first-out cost
by approximately $17,152 at December 31, 2001 (2000 -- $16,593).
4. PROPERTY, PLANT AND EQUIPMENT
2001 2000
- --------------------------------------------------------------
Land $ 9,973 $ 13,521
Building 162,660 185,518
Machinery and equipment 857,452 932,879
- -----------------------------------------------------------
1,030,085 1,131,918
Less: Accumulated depreciation 722,445 722,819
- -----------------------------------------------------------
$ 307,640 $ 409,099
===========================================================
Depreciation expense for the year was $108,436 (2000 -- $84,355; 1999 --
$88,154).
During 2001, the Corporation wrote off assets that were permanently
impaired amounting to $28,549, compared to $1,904 in 2000, which were included
in depreciation and amortization (see Note 16).
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS
2001 2000
- -------------------------------------------
Investments:
Equity basis $ 1,201 $ 2,412
Cost basis 4,200 --
Long-term bonds 26,803 22,256
Other investments -- 8,982
- -------------------------------------------
$32,204 $33,650
===========================================
During 2000, the Corporation increased its investment in Quality Color
Press, Inc. resulting in a 50.1% ownership interest. As a result of its new
majority ownership, the Corporation accordingly changed its accounting for this
investment to full consolidation.
In 2000, the Corporation made a decision to sell its investment in JetForm
Corporation Inc. ("JetForm"), and concurrently took an impairment charge on its
investment in JetForm and subsequently divested its entire holdings of 2.4
million shares, resulting in a loss of $8,474. The Corporation also made the
decision to sell its Vista Information Systems, Inc. ("Vista") investment, and
concurrently recorded a $3,500 charge for impairment against its investment in
common shares and secured convertible notes receivable of Vista based on a
decline in the fair value of the underlying securities.
6. GOODWILL
2001 2000
- ------------------------------------------------------------
Goodwill $412,281 $411,821
Less: Accumulated amortization 369,987 281,291
- ----------------------------------------------------------
$ 42,294 $130,530
==========================================================
During 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 15). The impairment resulted from a significant sales decline,
customer turnover and the decision to hold certain assets for sale.
7. OTHER ASSETS
2001 2000
- ----------------------------------------------------------
Computer software -- net $ 89,763 $127,999
Deposit and other receivables 2,361 3,801
Deferred debt issue costs -- 11,848
Purchase of assets 14,565 --
Other 8,217 14,643
- --------------------------------------------------------
$114,906 $158,291
========================================================
In 2001 and 2000, the Corporation recorded charges 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 will not be deployed. Further decisions may be made in the future
to change other deployment plans or processes, which could result in additional
impairments in the carrying value of the ERP asset.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2001 2000
- ------------------------------------------------------
Trade accounts payable $ 89,840 $115,030
Other payables 59,363 73,073
- ----------------------------------------------------
149,203 188,103
- ----------------------------------------------------
Payroll costs 63,896 38,323
Employee benefit costs 19,037 20,863
Restructuring liabilities 126,673 45,961
Other 127,817 106,807
- ----------------------------------------------------
$486,626 $400,057
====================================================
9. DEBT
2001 2000
- ---------------------------------------------------------------------------------------------
Senior guaranteed notes:
Series A, 7.84%, maturing March 25, 2006 $ 42,750 $ 85,500
Series B, 8.05%, maturing March 25, 2009 57,250 114,500
Subordinated convertible debentures, 8.7%, maturing June 30, 2009 -- 62,157
Revolving term credit facility 15,000 --
Other debt, including capitalized leases 14,096 13,017
- --------------------------------------------------------------------------------------------
129,096 275,174
Current portion of debt 18,034 2,709
- --------------------------------------------------------------------------------------------
Long-term debt $111,062 $272,465
============================================================================================
On December 27, 2001, the Corporation redeemed $100,000 of the senior
guaranteed notes. The remaining senior notes bear interest payable
semi-annually, and have an estimated fair value of $87,600.
On August 5, 1999, the Corporation entered into a $168,000 committed
revolving term facility with a group of nine banks. The facility matures on
August 5, 2002 and bears interest at a variable rate based on the utilization
and the leverage ratio of the Corporation. The weighted average interest rate
during 2001 was 6.7% (2000 -- 7.9%). The Corporation is negotiating to replace
this credit facility and believes it has the ability to successfully
renegotiate a credit facility by the end of the second quarter of 2002. The
Corporation believes that it has the necessary liquidity available to fund all
of the Corporation's current financial operations.
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 also agreed to make a payment in cash if the 20 day weighted average
trading price of the common shares on the New York Stock Exchange ("NYSE") at
December 31, 2002 is less than $8.00. The amount payable, if any, would be the
difference between $14,000 and the market value at December 31, 2002 of the
additional shares issued, provided the maximum amount payable by the
Corporation shall not exceed the value of 3,000,000 of its common shares at
such date. In addition, 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 $9,000 and the value of
6,000,000 of its common shares at such date. The $9,000 payment may
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 stock or cash is paid, it will be recorded as a charge to retained
earnings. Certain officers of the Corporation, including the President and
Chief Executive Officer and members of the Board of Directors 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 the debentures to the liability and equity
components based on fair values on the date of conversion, which approximated
their carrying value. 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 (previously included in other assets)
relating to the subordinated convertible debentures were charged to earnings
upon extinguishment.
Other long-term debt, including capital leases of $12,789 (2000 --
$2,549), bears interest at rates ranging from 3.1% to 14.2% and matures on
various dates through 2011. The weighted average interest rate on other
long-term debt is 9.5% (2000 -- 7.0%). Loans to subsidiaries amounting to
$4,000 (2000 -- $8,580), are payable in currencies other than United States
dollars.
The senior guaranteed notes and revolving term credit facility agreements
include certain debt covenants calculated on a quarterly basis including, but
not limited to, tests of net worth, leverage and interest coverage. For the
years ended December 31, 2001 and 2000, the Corporation was in compliance with
all debt covenants. The Corporation had $17,300 in outstanding letters of
credit at December 31, 2001.
The net book value of assets subject to liens approximates $27,485 (2000
- -- $23,200). 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: 2002 -- $1,325; 2003 -- $850; 2004 -- $146; 2005 -- $373, and
2006 -- $42,750, and thereafter -- $57,250.
10. OTHER LIABILITIES
2001 2000
- ---------------------------------------------------------
Unfunded pension obligations $ 27,728 $25,820
Long-term supply agreement 16,934 24,028
Other 6,601 7,441
- -------------------------------------------------------
$ 51,263 $57,289
=======================================================
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 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.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Included in accounts payable and accrued liabilities at December 31, 2001
is $6,918 (2000 -- $7,200) representing the current portion of the supply
agreement.
11. SHARE CAPITAL
The Corporation's articles of incorporation 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.
CHANGES IN THE ISSUED COMMON SHARE CAPITAL SHARES ISSUED AMOUNT
- -----------------------------------------------------------------------------------
Balance, December 31, 1998, 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
=================================================================================
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, 2001, there were 877,500 common shares available for grants (2000
- -- 171,700; 1999 -- 880,400). Stock options have an exercise price equal to the
fair market value at dates 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. There are no restricted stock awards
outstanding.
In 1999 the Corporation incurred a charge of $3,056 related to certain
senior executive long-term incentive plans. For 2001 and 2000, no expense was
required under these plans. In 1999, the Corporation also recorded a charge of
$3,095 related to certain stock based compensation awards. For 2001 and 2000,
no expense was required under these plans.
On December 11, 2000, the Board of Directors approved the creation of
Series 1 Preference Shares. Each Series 1 Preference Share will be non-voting
and will 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 will be 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.
A summary of the Corporation's stock option activity for the three years
ended December 31, 2001 is presented below (in Canadian currency):
AT DECEMBER 31, 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- -----------------------------------------------------------------------------------------------------------------
COMMON SHARES
Options outstanding at
beginning of year 6,509,686 $ 16.46 6,352,486 $ 18.73 5,281,686 $ 27.88
Options granted 1,790,833 13.43 1,068,000 4.10 1,789,500 11.47
Options forfeited (1,933,950) 16.40 (910,800) 17.81 (364,700) 22.53
Options exercised (4,400) 7.54 -- -- -- --
Options cancelled -- -- -- -- (241,800) 25.41
Options expired -- -- -- -- (112,200) 34.88
- ---------------------------------------------------------------------------------------------------------------
Options outstanding at
year-end 6,362,169 $ 15.63 6,509,686 $ 16.46 6,352,486 $ 18.73
- ---------------------------------------------------------------------------------------------------------------
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------------------------------------------------------------------------------------------
Options exercisable at
year-end 2,832,715 $ 18.86 3,383,646 $ 19.84 1,600,093 $ 23.82
- -----------------------------------------------------------------------------------------------------------
SERIES 1 PREFERENCE SHARES
Options outstanding at
beginning of year 1,580,000 $ 3.65 -- $ -- -- $ --
- -----------------------------------------------------------------------------------------------------------
Options granted -- -- 1,580,000 3.65 -- $ --
- -----------------------------------------------------------------------------------------------------------
Options outstanding at
year-end 1,580,000 $ 3.65 1,580,000 $ 3.65 -- $ --
- -----------------------------------------------------------------------------------------------------------
Options exercisable at
year-end 395,000 $ 3.65 -- $ -- -- $ --
- -----------------------------------------------------------------------------------------------------------
The following tables summarize information about stock options outstanding
at December 31, 2001 (in Canadian currency):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RNAGE OF OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE NUMBER EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31, 2001 LIFE (YEARS) EXERCISE PRICE DECEMBER 31, 2001 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES
$3 to 8 913,233 8.9 $ 4.26 186,225 $ 3.90
$9 to 15 2,668,856 9.0 13.40 605,555 12.53
$16 to 23 1,779,700 6.3 18.63 1,148,675 18.68
$24 to 30 1,000,380 4.5 26.65 892,260 26.50
- ---------------------------------------------------------------------------------------------------------------------------
6,362,169 7.5 $ 15.63 2,832,715 $ 18.86
- ----------------------------------------------------------------------------------------------------------------------------
SERIES 1 PREFERENCE
SHARES
$3.65 1,580,000 9.0 $ 3.65 395,000 $ 3.65
===========================================================================================================================
12. CUMULATIVE TRANSLATION ADJUSTMENTS
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------
Balance at beginning of year $ (126,360) $ (118,256) $ (105,878)
Currency translation (2,461) (8,104) (12,378)
Amounts recognized on sale or liquidation of foreign
operations 644 -- --
- -------------------------------------------------------------------------------------------------------
Balance at end of year $ (128,177) $ (126,360) $ (118,256)
=======================================================================================================
13. RETIREMENT PROGRAMS
DEFINED BENEFIT PENSION PLANS
In 2000, the Corporation changed its measurement date from December 31 to
November 30. The effect of this change was not significant. The following data
is based upon reports from independent consulting actuaries as at November 30
for 2001 and 2000, and December 31 for 1999:
UNITED STATES CANADA
- ----------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------------------------
FUNDED STATUS
Actuarial present value of:
Projected benefit obligation at
beginning of year $657,678 $685,753 636,409 $ 82,202 $79,889 $68,085
Service cost 20 13,287 11,965 3,169 3,076 2,331
INTERNATIONAL
- ---------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------
FUNDED STATUS
Actuarial present value of:
Projected benefit obligation at
beginning of year $ 100,406 $124,175 $121,380
Service cost 76 133 220
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNITED STATES CANADA
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Interest cost 23,107 52,658 50,343 5,523 5,761 5,644
Amendments -- 16,000 1,765 -- -- --
Actuarial loss (gain) 181,673 (35,740) 1,169 699 2,467 780
Effect of curtailment -- (30,011) -- -- -- --
Effect of settlement (608,323) -- -- -- -- --
Foreign currency adjustments -- -- -- (3,030) (3,474) 4,215
Benefits paid (26,425) (44,269) (39,915) (6,216) (5,517) (5,270)
- ----------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of $
year $ 227,730 $ 657,678 $ 661,736 82,347 $ 82,202 $ 75,785
- ----------------------------------------------------------------------------------------------------------------------
Plan assets at fair value at beginning $
of year $ 935,729 $ 936,450 $ 845,898 96,690 $ 99,316 $ 95,325
Actual return on assets 103,635 43,548 127,142 (1,959) 7,006 5,085
Foreign currency adjustments -- -- -- (3,232) (4,115) 5,755
Effect of settlement (611,057) -- -- -- -- --
Benefits paid (26,425) (44,269) (39,915) (6,216) (5,517) (5,270)
- ----------------------------------------------------------------------------------------------------------------------
$
Plan assets at fair value at end of year $ 401,882 $ 935,729 $ 933,125 85,283 $ 96,690 $ 100,895
- ----------------------------------------------------------------------------------------------------------------------
Excess of plan assets over projected
benefit obligation $ 174,152 $ 278,051 $ 271,389 $2,936 $ 14,488 $ 25,110
Unrecognized net (gain) loss 7,486 119 (252,692) 12,634 3,053 (10,292)
Unrecognized net asset -- -- (3,058) -- -- (935)
Unrecognized prior service cost
(credit) -- -- (8,247) -- -- 485
- ----------------------------------------------------------------------------------------------------------------------
$
Prepaid pension cost $ 181,638 $ 278,170 $ 7,392 15,570 $ 17,541 $ 14,368
======================================================================================================================
INTERNATIONAL
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Interest cost 4,382 9,277 9,484
Amendments -- -- --
Actuarial loss (gain) (511) (7,162) 4,567
Effect of curtailment -- -- --
Effect of settlement (99,144) -- --
Foreign currency adjustments 1,367 (12,783) (3,474)
Benefits paid -- (13,234) (6,472)
- ------------------------------------------------------------------------------
Projected benefit obligation at end of
year $ 6,576 $ 100,406 $125,705
- ------------------------------------------------------------------------------
Plan assets at fair value at beginning
of year $ 118,932 $ 143,186 $140,685
Actual return on assets 503 3,959 14,762
Foreign currency adjustments 1,757 (14,979) (4,025)
Effect of settlement (99,144) -- --
Benefits paid -- (13,234) (6,472)
- ------------------------------------------------------------------------------
Plan assets at fair value at end of year $ 22,048 $ 118,932 $144,950
- ------------------------------------------------------------------------------
Excess of plan assets over projected
benefit obligation $ 15,472 $ 18,526 $ 19,245
Unrecognized net (gain) loss 3,072 (2,057) (2,197)
Unrecognized net asset -- -- --
Unrecognized prior service cost
(credit) -- -- --
- ------------------------------------------------------------------------------
Prepaid pension cost $ 18,544 $ 16,469 $ 17,048
==============================================================================
UNITED STATES CANADA
- ---------------------------------------------------------------------------------------
2001 2000 1999 2001
- ---------------------------------------------------------------------------------------
PENSION EXPENSE
Service cost $ 20 $ 13,287 $ 11,965 $ 3,169
Interest cost 23,107 52,658 50,343 5,523
Expected return on assets (37,863) (82,523) (70,626) (7,497)
Settlement loss 109,115 -- -- --
Curtailment gain -- (6,630) -- --
Amortization of net loss (gain) 2,154 (128) (12,746) 172
Amortization of net asset -- -- (3,048) --
Amortization of prior service cost -- 832 2,997 --
Amendments -- -- 1,765 --
- ---------------------------------------------------------------------------------------
Net pension expense (credit) $ 96,533 $ (22,504) $ (19,350) $ 1,367
- ---------------------------------------------------------------------------------------
OTHER INFORMATION
Assumptions:
Discount rates
January 1 7.8% 7.8% 8.0% 7.0%
December 31 6.8% 7.8% 8.0% 6.5%
Rate of return on plan assets 6.8% 9.0% 9.0% 8.0%
Rate of compensation increase -- 5.0% 5.0% 4.0%
Amortization period 14 years 13 years 13 years 15 years
- ----------------------------------------------------------------------------------------
CANADA INTERNATIONAL
- -------------------------------------------------------------------------------------------------
2000 1999 2001 2000 1999
- -------------------------------------------------------------------------------------------------
PENSION EXPENSE
Service cost $ 3,076 $ 2,331 $ 76 $ 133 $ 220
Interest cost 5,761 5,644 4,382 9,277 9,484
Expected return on assets (7,691) (7,742) (5,931) (10,780) (11,034)
Settlement loss -- -- -- -- --
Curtailment gain -- -- -- -- --
Amortization of net loss (gain) -- (876) (209) (208) (338)
Amortization of net asset -- (908) -- -- --
Amortization of prior service cost -- 170 -- -- 230
Amendments -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Net pension expense (credit) $ 1,146 $ (1,381) $ (1,682) $ (1,578) $ (1,438)
- -------------------------------------------------------------------------------------------------
OTHER INFORMATION
Assumptions:
Discount rates
January 1 7.5% 8.0% 8.3% 8.3% 8.3%
December 31 7.0% 8.0% 5.0% 8.3% 8.3%
Rate of return on plan assets 8.0% 8.0% 8.3% 8.3% 8.3%
Rate of compensation increase 5.0% 5.0% 5.0% 5.0% 5.0%
Amortization period 15 years 15 years 10 years 10 years 10 years
- -------------------------------------------------------------------------------------------------
During 2000, the Corporation amended the 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 in 2001. 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 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. In June 2001, this
plan was terminated. Prior to the settlement, pension expense was based upon
assumptions established as of January 1, 2001. Pension expense for the
remainder of the year on the unsettled portion of the plan was calculated using
a discount rate and rate of return on plan assets of approximately 6.25%, which
were based upon estimated market rates to settle the remaining portion of the
plan. The Corporation anticipates settling the remainder of the plan during
2002 and expects to incur an additional settlement
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
loss. Additionally, the Corporation expects to receive approximately $150,000
before taxes, fees and transfers to other employee benefit plans resulting from
the termination of this plan.
During 2001, the Corporation purchased annuities to settle substantially
all of the obligation under the United Kingdom 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, 2001, 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 asset being mainly
fixed income securities.
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 contribution ranging from 1% to 3% of each year's 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 2001, the defined contribution savings plan expenses were
$6,913 (2000 -- $4,667; 1999 -- $4,868).
14. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Corporation provides employees with postretirement health care and
life insurance benefits. The following data is based upon reports from
independent consulting actuaries as at November 30, 2001 and 2000:
2001 2000
- -----------------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST
Projected postretirement benefit obligation at beginning of year $ 181,085 $ 179,046
Service cost 1,638 1,450
Interest cost 13,939 13,430
Actuarial loss 64,485 266
Foreign currency adjustments (468) (387)
Benefits paid (13,215) (12,720)
- ----------------------------------------------------------------------------------------------
Projected postretirement benefit obligation at end of year $ 247,464 $ 181,085
Contributions paid in December (587) (1,072)
Unrecognized net gain (loss) (48,526) 15,765
Unrecognized prior service credit 41,313 47,596
- ----------------------------------------------------------------------------------------------
Accrued postretirement benefit cost liability $ 239,664 $ 243,374
- ----------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFIT EXPENSE
Service cost $ 1,638 $ 1,450
Interest cost 13,939 13,430
Amortization of unrecognized prior service credit (6,282) (6,282)
Amortization of net loss 51 --
- ----------------------------------------------------------------------------------------------
Net postretirement benefit expense $ 9,346 $ 8,598
- ----------------------------------------------------------------------------------------------
ASSUMPTIONS AND OTHER INFORMATION
Weighted average discount rate 7.2% 7.7%
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2001 2000
- ------------------------------------------------------------------------------------------------
Weighted average health care cost trend rate:
Before age 65 11.8% 6.8%
After age 65 13.7% 5.4%
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% 5.2%
Year in which ultimate health care cost trend rate will be achieved
Canada 2008 2004
United States:
Before age 65 2011 2002
After age 65 2013 2002
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 $13,905 $10,914
Aggregate of the service and interest cost components of net
postretirement benefit cost 1,182 1,023
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 $12,244 $10,793
Aggregate of the service and interest cost components of net
postretirement benefit cost 1,055 1,008
15. DISPOSITIONS AND ASSETS HELD FOR DISPOSITION
COMPANY NATURE OF BUSINESS DISPOSITION DATE
- ---------------------------------------------------------------------------------------
DISPOSITIONS
Property information products and
Data Management Services services provider. December 1999
Provider of direct marketing services
Colleagues Group plc in the United Kingdom. March 2001
Provider of direct marketing services
Phoenix Group, Inc. in the United States. October 2001
Included in the Corporation's results of operations for 1999 are net sales
of $61,997 and losses from operations of $3,736 from the divested business. The
Data Management Services business unit was sold to Vista Information Solutions
Inc. for proceeds valued at $39,982. The sale price included cash of $20,000, a
working capital note from Vista, secured convertible notes from Vista and
non-registered common shares of Vista. The gain before taxes of $7,269 is
recorded in investment and other income.
In 2001, net sales of $68,251 (2000 -- $132,728, 1999 -- $154,763) and
losses from operations of $47,465 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 is 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 $191,350 (2000 -- $213,889, 1999 -- $232,761) and operating
losses of $21,491 (income of $358 in 2000 and $8,382 in 1999) for this
business. The Corporation expects to dispose of this non-core business by the
end of 2002.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
EMPLOYEE OTHER
TERMINATIONS CHARGES TOTAL
- ------------------------------------------------------------
Forms and Labels $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
- -----------------------------------------------------------
$76,994 $65,541 $142,535
===========================================================
During 2001, the Corporation recorded a charge of $142,535 related to the
restructuring program directed at streamlining its processes and significantly
reducing the cost structure. Included in the charge is $76,994 for severance
and other termination benefits for 3,366 employees (of which approximately 300
employees were remaining at December 31, 2001), $52,042 for lease terminations,
$9,200 for facility closings, $3,600 for onerous contracts, and $700 for other
incremental exit costs. The Corporation expects that substantially all
remaining severance payments will occur within the next twelve months.
BALANCE AT BALANCE AT
DECEMBER 31, NON-CASH DECEMBER 31,
2000 PROVISION, NET CASH PAID WRITE-OFFS 2001
- ----------------------------------------------------------------------------------------------------------
Employee terminations $ 6,626 $ 76,994 $ (41,665) $ -- $ 41,955
Other 39,335 52,685 (6,258) (1,044) 84,718
- --------------------------------------------------------------------------------------------------------
$45,961 $129,679 $ (47,923) $ (1,044) $126,673
========================================================================================================
The restructuring reserves classified as "other costs" of $84,718 at
December 31, 2001 consist of the estimated remaining payments related to
onerous lease terminations and facility closing costs of $77,288 and tax
payments for the U.K. pension plan. Certain of the Corporation's facility 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 or future periods.
In the fourth quarter of 2001, the Corporation reversed $12,856 of the
provision relating to the 1998 restructuring program. This is due to proceeds
received from the final disposal of various properties, and the favorable
settlement of liabilities for obligations and future payments related to the
disposition of the European forms business. Approximately $27,000 of the
restructuring balance at December 31, 2001 relates to the 1998 restructuring
program. Pursuant to the 1998 restructuring program, a charge for severance and
other termination benefits included 4,318 employees. Approximately 200 and nil
employees were remaining at December 31, 1999 and 2000, respectively.
The Corporation recorded net reversals of $24,033 and $68,410 of
restructuring charges under the 1998 restructuring plan during the fourth
quarters of 2000 and 1999, respectively. 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 ($24,033).
In 1999, the restructuring reversals primarily resulted from facility closing
costs that were lower than originally estimated ($18,430); favorable settlement
of liabilities and obligations for future payments related to the dispositions
of the European and Australasia businesses ($13,180); negotiated lower than
expected costs to exit customer contracts ($11,400); and the decision to sell
rather than restructure the Data Management Services business ($7,180).
Additionally in the fourth quarter of 1999, changes in senior management of the
Corporation and the related changes in their corporate strategy resulted in the
new management's decision to not fully implement certain restructuring actions
under the original plan ($18,220).
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended December 31, 2001 the Corporation recorded
non-recurring pretax charges as follows:
SELLING,
GENERAL AND DEPRECIATION INVESTMENT
ADMINISTRATIVE AND AND OTHER
COST OF SALES EXPENSE AMORTIZATION INCOME 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 12,545 134,593
- --------------------------------------------------------------------------------------------------
$67,755 $45,831 $131,393 $16,559 $261,538
==================================================================================================
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 associated with the partial settlement of the U.S.
pension plan, which was curtailed as of December 31, 2000 and other
non-recurring cash charges of $4,816 included in selling, general and
administrative expense. A charge of $1,221 and $10,396 related to the partial
redemption of the private placement notes and the conversion of the
subordinated convertible debentures is included in investment and other income,
and $1,000 for legal and other professional fees 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 4 "Property, Plant and
Equipment") and capitalized software (See Note 7 "Other Assets"). 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 15 "Dispositions and Assets Held for Disposition"). 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
6 "Goodwill" and 15 "Dispositions And Assets Held For Disposition").
During 2000, the Corporation recorded non-recurring costs of $44,946
related to non-cash write-downs of $34,717, included in depreciation and
amortization, related to a non-core business held for disposal and the
impairment of a component of the ERP asset, a loss on disposal of investment in
JetForm Corporation of $8,474 and the write-down of a permanently impaired
investment of $3,500; partially offset by the reversal of provisions no longer
required of $7,003 and a gain on the curtailment of its U.S. pension plan of
$6,630.
17. INCOME TAXES
The components of earnings (loss) before income taxes and minority
interest for the three years ended December 31 were as follows:
2001 2000 1999
- -------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST
Canada $ (68,232) $ (40,787) $ 2,485
United States (331,585) (78,991) 67,329
Other countries 11,397 38,186 58,796
- -----------------------------------------------------------------------------------------------
$ (388,420) $ (81,592) $128,610
===============================================================================================
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIABILITY METHOD LIABILITY METHOD DEFERRAL METHOD
- -----------------------------------------------------------------------------------------------------
2001 2000 1999
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
- -----------------------------------------------------------------------------------------------------
PROVISION (RECOVERY)
FOR INCOME TAXES
Canada $ 469 $ 54 $ 73 $ 364 $ 561 $ 815
United States 189 (36,826) (158) (21,706) 2,011 25,940
Other countries 2,933 379 5,631 (2,352) 8,074 (2,251)
Withholding taxes 610 -- 771 -- 136 --
- ---------------------------------------------------------------------------------------------------
$4,201 $ (36,393) $6,317 $ (23,694) $10,782 $ 24,504
=====================================================================================================
Deferred income taxes result from a number of temporary and timing
differences in the jurisdictions in which the Corporation and its subsidiaries
operate. These differences and the tax effect of each were as follows:
LIABILITY LIABILITY DEFERRAL
METHOD METHOD METHOD
- ---------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------
DEFERRED INCOME TAXES
Depreciation $ (459) $ 319 $ 2,968
Pensions (36,493) 6,151 7,436
Unearned revenue -- (10,847) --
Postretirement benefits -- 1,869 --
Restructuring -- 16,548 30,917
Tax benefit of loss carryforward -- (38,244) (16,746)
Other 559 510 (71)
- -------------------------------------------------------------------------------
$ (36,393) $ (23,694) $ 24,504
===============================================================================
Temporary differences and tax loss carryforwards, which give rise to
deferred income tax assets and liabilities, are as follows:
2001 2000
- ------------------------------------------------------------------
DEFERRED INCOME TAX ASSETS
Postretirement benefits $ 94,092 $ 96,499
Tax benefit of loss carryforwards 154,605 118,593
Pensions 672 1,387
Restructuring 45,736 10,377
Other 57,648 52,533
- ----------------------------------------------------------------
352,753 279,389
Valuation allowance (166,695) (63,942)
- ----------------------------------------------------------------
$ 186,058 $ 215,447
- ----------------------------------------------------------------
DEFERRED INCOME TAX LIABILITIES
Depreciation $ 50,561 $ 71,929
Pensions 77,968 118,234
Other 10,341 13,200
- ----------------------------------------------------------------
138,870 203,363
- ----------------------------------------------------------------
Net deferred income tax asset $ 47,188 $ 12,084
- ----------------------------------------------------------------
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2001 2000
- ---------------------------------------------------------------------
Distributed as follows:
Current deferred income tax asset $ 13,566 $69,879
Current deferred income tax liability 324 462
Long-term deferred income tax asset 47,651 8,949
Long-term deferred income tax liability 13,705 66,282
===================================================================
The effective rates of tax for each year compared with the statutory
Canadian rates were as follows:
2001 2000 1999
- -------------------------------------------------------------------------------------------------
EFFECTIVE TAX EXPENSE (RECOVERY) RATE
Canada:
Combined federal & provincial statutory rate (41.6)% (43.2)% 43.8%
Corporate surtax (1.1) (1.1) 1.1
Manufacturing & processing rate reduction 5.4 6.0 (6.3)
- -----------------------------------------------------------------------------------------------
Expected income tax expense (recovery) rate (37.3) (38.3) 38.6
Tax rate differences in other jurisdictions (2.2) (18.1) (10.6)
Losses for which a benefit has not been provided 4.7 17.8 1.8
Restructuring costs 12.2 (1.6) (5.0)
Impaired assets 6.4 -- --
International divestiture 5.4 -- --
Non-deductible goodwill amortization and write
downs 3.0 17.1 1.4
Other (0.5) 1.8 1.2
- -----------------------------------------------------------------------------------------------
Total consolidated effective tax expense (recovery)
rate (8.3)% (21.3)% 27.4%
===============================================================================================
At December 31, 2001, the Corporation has tax loss carryforwards totaling
$365,000. Of this amount, a valuation allowance has been recorded against
$160,000. Of the $160,000, approximately $112,000 expires between 2002 and 2011
and $48,000 has no expiration date. In addition, the Corporation has recorded a
valuation allowance against approximately $252,000 of temporary differences
that are available for utilization in future years.
The valuation allowance at December 31, 2001 relates to net operating
losses generated in the United States, Canada, Latin America, and Europe, which
have limited carryforward periods. The increase in the valuation allowance in
2001 primarily relates to amounts recorded against operating losses generated
in the United States. The realization of the losses is not likely due to the
uncertainty of future taxable income sufficient to utilize those losses based
upon the recent loss history of these operations.
The Corporation has reduced deferred tax assets by a 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 not be realized.
18. EARNINGS AND FULLY DILUTED EARNINGS PER COMMON SHARE
The earnings per share calculations are based on the weighted average
number of common shares outstanding during the year. For 2001 and 2000, the
fully diluted earnings per share calculation excludes potentially dilutive
items as their effect would be antidilutive. In 1999, the diluted common shares
outstanding include 306,000 shares related to employee stock options.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SEGMENTED 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 2000, the Corporation operated in
four reportable segments as follows: Moore North America, Customer
Communication Services (United States), Latin America and Europe. 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.
The Corporation's reportable segments are:
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:
o Custom continuous forms, cut sheets and
multipart forms
o Print services
o Self mailers
o Electronic forms and services
o Integrated form-label application
o Proprietary label products
o Pressure sensitive labels
o Security documents
o 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:
o Bill and service notifications
o Insurance policies
o Special notices
o Telecommunication cards
o Investment, banking, credit card, tax and year-end financial statements
o Licenses
COMMERCIAL
In this segment, the Corporation derives its revenues from operations in
the United States, Canada and Europe mainly by producing highly personalized
communications and database driven publications including:
o Creation and production of personalized mail
o Database management and segmentation services
o Direct marketing program development
o Response analysis services
o Digital color printing.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other products within the Commercial segment include:
o Variable-imaged bar codes
o Printers, applicators and software products and solutions
o Post processing equipment
OPERATING SEGMENTS
(IN THOUSANDS OF U.S. DOLLARS)
FORMS AND
-------------
LABELS OUTSOURCING COMMERCIAL CONSOLIDATED
------------- ------------- ------------ -------------
2001
Total revenue ................. $1,167,721 $341,485 $ 666,795 $2,176,001
Intersegment revenue .......... (2,422) (2,006) (16,999) (21,427)
Sales to customer outside the
enterprise ................... 1,165,299 339,479 649,796 2,154,574
Segment operating income
(loss) ....................... 42,743 49,508 (90,202) 2,049
Nonoperating expenses ......... (344,373)
----------
Loss from operations .......... (342,324)
Segment assets ................ 624,532 117,243 282,132 1,023,907
Corporate assets including
investments .................. 313,079
----------
Total assets .................. 1,336,986
Capital asset depreciation and
amortization ................. 110,037 19,383 109,652 239,072
Capital expenditures .......... 12,942 16,124 9,819 38,885
2000 (RESTATED)
Total revenue ................. $1,225,622 $297,851 $ 752,764 $2,276,237
Intersegment revenue .......... -- (1,082) (16,737) (17,819)
Sales to customer outside the
enterprise ................... 1,225,622 296,769 736,027 2,258,418
Segment operating income
(loss) ....................... 71,917 43,126 (10,518) 104,525
Nonoperating expenses ......... (150,759)
----------
Loss from operations .......... (46,234)
Segment assets ................ 840,653 109,847 444,496 1,394,996
Corporate assets including
investments .................. 348,591
----------
Total assets .................. 1,743,587
----------
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPERATING SEGMENTS
(IN THOUSANDS OF U.S. DOLLARS)
FORMS AND
-------------
LABELS OUTSOURCING COMMERCIAL CONSOLIDATED
------------- ------------- ------------ -------------
Capital asset depreciation and
amortization .................. 83,407 19,276 48,835 151,518
Capital expenditures ........... 37,143 10,651 27,992 75,786
1999 (RESTATED) ................
Total revenue .................. $1,404,739 $281,152 $ 755,081 $2,440,972
Intersegment revenue ........... -- (735) (15,121) (15,856)
Sales to customer outside the
enterprise .................... 1,404,739 280,417 739,960 2,425,116
Segment operating income
(loss) ........................ 195,691 47,732 52,836 296,259
Nonoperating expenses .......... (154,578)
----------
Income from operations ......... 141,681
Segment assets ................. 937,907 109,717 481,822 1,529,446
Corporate assets including
investments ................... 100,847
----------
Total assets ................... 1,630,293
Capital asset depreciation and
amortization .................. 50,522 19,789 31,024 101,335
Capital expenditures ........... 62,898 18,449 19,490 100,837
GEOGRAPHIC INFORMATION
CANADA UNITED STATES INTERNATIONAL CONSOLIDATED
----------- --------------- --------------- -------------
2001
Sales to customers outside the
enterprise ......................... $199,628 $1,689,954 $264,992 $2,154,574
Capital assets and goodwill ......... 36,484 270,475 42,975 349,934
2000
Sales to customers outside the
enterprise ......................... $222,311 $1,685,680 $350,427 $2,258,418
Capital assets and goodwill ......... 47,110 415,763 76,756 539,629
1999
Sales to customers outside the
enterprise ......................... $218,870 $1,831,503 374,743 $2,425,116
Capital assets and goodwill ......... 42,321 473,886 99,471 615,678
20. LEASE COMMITMENTS
At December 31, 2001, long-term lease commitments require approximate
future rental payments as follows:
2002 $32,835 2005 $15,432
- ------------------------------------------------------
2003 $24,443 2006 $12,215
- ------------------------------------------------------
2004 $19,992 2007 and thereafter $34,768
======================================================
Rent expense amounted to $56,499 in 2001 (2000 -- $69,897; 1999 --
$63,344).
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. CONTINGENCIES
At December 31, 2001, 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 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.
22. FINANCIAL INSTRUMENTS
At December 31, 2001, the aggregate amount of forward exchange contracts
used as hedges was approximately $13,700 (2000 -- $18,300). Notional gains and
losses from these contracts, for all years shown, were not significant.
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 purposes.
23. CASH FLOW DISCLOSURE
For the year ended December 31, 2001, the following non-cash transactions
are required to be disclosed for both Canadian and United States GAAP as
follows:
- ----------------------------------------------------
Subordinated convertible debentures $71,506
Inducement to certain debenture holders 15,345
- ----------------------------------------------------
24. 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
New York Stock Exchange 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 (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 United States GAAP reporting
differences. Under CICA 3461, all past net gains (losses), net assets and prior
service costs were recognized as of the date of adoption. Whereas, under United
States GAAP, net gains (losses), net assets and prior service costs which
occurred before January 1, 2000 are recognized over the appropriate
amortization period.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to 2000, under Canadian GAAP, the discount rate for pensions was a
long-term interest rate, whereas under United States GAAP, the discount rate
reflects a rate at which the pension obligation could effectively be settled.
For United States GAAP, the discount rates used in 1999 for Canada and the
United States were 6.25% and 6.75%, respectively. Prior to 2000, postretirement
benefits were expensed as incurred under Canadian GAAP whereas under United
States GAAP the expected costs of these benefits were expensed during the years
employees render services.
STATEMENT OF CASH FLOWS
For Canadian GAAP the Statements of Cash Flows discloses the net change in
cash resources, which is defined as cash less bank indebtedness. United States
GAAP requires the disclosure of cash and cash equivalents. Under United States
GAAP, net cash provided (used) by financing activities for 2001, 2000, and 1999
would be $(66,315), $18,451, and $(36,895), respectively. Cash and cash
equivalents were $84,855, $36,538, and $38,179 for the years ended December 31,
2001, 2000 and 1999 respectively.
INCOME TAXES
SFAS No. 109 requires a liability method under which 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 17).
ACCOUNTING FOR CERTAIN INVESTMENTS 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 carried at cost with no effect on net income or shareholder's
equity. Under both Canadian and U.S. GAAP, impairments deemed to be other than
temporary would be charged to earnings.
STOCK COMPENSATION
SFAS No. 123 requires pro forma disclosures of net income and earnings per
share, as if the fair value-based method of accounting for employee stock
options had been applied. The Corporation uses the intrinsic value method for
accounting for stock options. The disclosures in the table show the
Corporation's net income and earnings per share on a proforma basis using the
fair value method and Black-Scholes option pricing model. For Canadian GAAP
purposes, prior to the 2002 issuance of CICA Handbook Section 3870 --
Stock-Based Compensation and Other Stock-Based Payments (see Note 25), the
recognition of compensation expense was not required for the Series 1
Preference Shares, whereas under U.S. GAAP the expense is recognized and
measured at fair value of the preference shares, at each reporting date, less
the amount the employee is required to pay accrued over the vesting period.
COMPREHENSIVE INCOME
SFAS No. 130 requires disclosure of comprehensive income and its
components. Comprehensive income is the change in equity of the Corporation
from transactions and other events other than those resulting from transactions
with owners, and is comprised of net income and other comprehensive income. The
only 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.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the United States Financial Accounting Standards Board
issued SFAS No. 133, which standardized the accounting for all derivatives.
This standard required implementation for all fiscal quarters for fiscal years
beginning after June 15, 2000. The adoption of this standard did not have a
significant impact on earnings or the statement of cash flows. There is no such
standard under Canadian GAAP.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Under United States 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 United States 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. United
States GAAP would classify the subordinated convertible debentures as a
liability.
Under United States 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.
Under United States 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.
TERMINATION LIABILITIES
Under United States GAAP, a liability for termination benefits is
recognized provided that certain conditions are met and the details of the
approved benefit arrangement are communicated to the employees. Prior to 2000,
Canadian GAAP did not require that the benefit arrangement be communicated to
the employees prior to recognition.
SETTLEMENTS OF PENSION PLANS
Under United States GAAP, a gain or loss arising upon the settlement of a
pension plan is only recognized once responsibility for the pension obligation
has been relieved. Under Canadian GAAP, 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. The provision for restructuring costs recorded in 1998 included a
contingent loss on settlement that has now been recognized under United States
GAAP.
The following tables provides information required under United States
GAAP:
2001 2000 1999
- ----------------------------------------------------------------------------------
Net earnings (loss) as reported $ (358,038) $ (66,372) $ 92,599
U.S. GAAP ADJUSTMENTS
Pension expense 144,917 18,263 (6,775)
Postretirement benefits 17,275 18,833 8,565
Capitalized software 17,287 (2,300) (7,521)
Interest expense 258 -- --
Termination liabilities -- -- (44,372)
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Debt conversion costs (6,949) -- --
Stock-based compensation (2,700) -- --
Income taxes (82,014) (13,728) 30,388
- -----------------------------------------------------------------------------------------------------
Net earnings (loss) determined under United States $
GAAP (269,964) $(45,304) $ 72,884
- -----------------------------------------------------------------------------------------------------
Earnings Per Share 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
$
Net earnings (loss) (269,964) $(45,304) $ 72,884
- -----------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (3.05) $ (0.51) $ 0.82
- -----------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (3.05) $ (0.51) $ 0.82
- -----------------------------------------------------------------------------------------------------
Comprehensive Income 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
$
Net earnings (loss) (269,964) $(45,304) $ 72,884
- -----------------------------------------------------------------------------------------------------
Other comprehensive income (loss):
Currency translation adjustments (1,817) (8,104) (12,378)
Reclassification adjustment for losses included in
income (798) 11,092 --
Unrealized losses on available-for-sale securities -- (6,041) (4,253)
- -----------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) (2,615) (3,053) (16,631)
=====================================================================================================
Total comprehensive income (loss) $(272,579) $(48,357) $ 56,253
=====================================================================================================
Proforma Stock Compensation Disclosures 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
$
Net income (loss) (271,913) $(47,050) $ 70,981
- -----------------------------------------------------------------------------------------------------
Income (loss) per share
Basic $ (3.07) $ (0.53) $ 0.80
Diluted $ (3.07) $ (0.53) $ 0.80
Assumptions:
Risk-free interest rates 4.5% 5.5% 6.1%
Expected lives (in years) 5 6 6
Dividend yield -- 7.6% 2.7%
Volatility 46% 39% 26%
=====================================================================================================
In 1999 and to a lesser extent 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 2001, the U.S. GAAP reconciling item for
capitalized software relates solely to the amortization differential of the
capitalized amounts.
The components of "Debt conversion costs" for 2001 were as follows:
Inducement shares issued ............. $ (15,345)
Deferred debt issuance costs ......... 10,396
Contingent consideration ............. (2,000)
---------
DEBT CONVERSION COSTS ................ $ (6,949)
The value of the inducement shares represent the fair market value of
1,650,000 of the Corporation's common shares and is based upon the closing
price of the Corporation's common 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 United States GAAP purposes, the
fair value of the inducement shares was recognized as an increase to
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 United States 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
9). 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 United States 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.
The weighted average grant date fair values of options granted during
2001, 2000, and 1999 were $3.91, $0.67 and $2.07, respectively.
BALANCE SHEET ITEMS AT DECEMBER 31, 2001 2000
- --------------------------------------------------------------------------------------------------------------
AS REPORTED US GAAP AS REPORTED US GAAP
- --------------------------------------------------------------------------------------------------------------
Net pension asset $ (188,024) $ (119,668) $ (286,360) $ (73,087)
Other assets -- computer software (89,763) (57,463) (127,999) (78,412)
Postretirement benefits 239,664 381,687 243,374 402,672
Deferred taxes, net (47,188) (134,982) (12,084) (181,892)
Accounts payable and accrued liabilities 486,626 485,325 400,057 394,057
Long-term debt 111,062 111,062 272,465 280,808
Equity portion of subordinated convertible
debentures -- -- 8,343 --
Cumulative translation adjustments (128,177) (92,993) (126,360) (91,176)
Share capital 397,761 384,759 310,881 310,881
Retained earnings (deficit) 51,666 (124,100) 431,821 150,287
============================================================================================================
25. PENDING ACCOUNTING STANDARDS
(a) In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). The guidance of these standards is
consistent with CICA Section 1581 and Section 3061. In August 2001, the CICA
issued Handbook Section 1581, Business Combinations and Handbook Section 3062,
Goodwill and other Intangible Assets. Section 1581 requires all business
combinations to be accounted for using the purchase method of accounting and is
effective for all business combinations consummated after June 30, 2001. Section
3062, which is effective for fiscal years beginning January 1, 2002 requires
that the carrying value of goodwill be evaluated annually for impairment and
disallows the amortization of goodwill. The standard also requires
reclassification of identifiable intangibles out of previously reported
goodwill. Identifiable intangibles are amortized over their estimated useful
lives and will be reviewed annually for impairment. The Corporation will
complete its transitional goodwill impairment testing by June 30, 2002. The
Corporation does not believe that either of these accounting standards will have
a material impact upon its financial condition or results of operations.
The following table reconciles the United States GAAP reported net
earnings (loss) for the years ended December 31, 2001, 2000 and 1999 to the pro
forma net earnings (loss), which excludes previously recorded goodwill
amortization, excluding impairment charges.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS (LOSS) PER SHARE
-------------------------
NET EARNINGS
(LOSS) BASIC DILUTED
------------- ----------- -----------
2001
Net loss, as reported ................... $ (269,964) $ (3.05) $ (3.05)
Add back: goodwill amortization ......... 4,856 0.06 0.06
---------- ------- -------
Pro forma net loss ...................... $ (265,108) $ (2.99) $ (2.99)
---------- ------- -------
2000
Net loss, as reported ................... $ (45,304) $ (0.51) $ (0.51)
Add back: goodwill amortization ......... 6,628 0.07 0.07
---------- ------- -------
Pro forma net loss ...................... $ (38,676) $ (0.44) $ (0.44)
---------- ------- -------
1999
Net earnings, as reported ............... $ 72,884 $ 0.82 $ 0.82
Add back: goodwill amortization ......... 6,931 0.08 0.08
---------- ------- -------
Pro forma net earnings .................. $ 79,815 $ 0.90 $ 0.90
---------- ------- -------
(b) In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 supersedes previous guidelines for financial accounting and reporting
for the impairment or disposal of long-lived assets and for segments of a
business to be disposed of. The adoption of SFAS No. 144 on January 1, 2002 is
not expected to have a material impact on the Corporation's financial position
or results of operations.
(c) In 2001, the Accounting Standards Board has amended CICA 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. These
amendments will be effective for fiscal years commencing on or after January 1,
2002 and should be applied retroactively, with restatement to prior period
financial statements. The adoption of this section is not expected to have a
material impact on the Corporation's financial position or results of
operations.
(d) In 2001, the CICA issued Handbook Section 3870 that establishes
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 fair value measurement and
recognition of equity instruments awarded to employees and cost of services
received as consideration. The Standard must be implemented by all public
enterprises in fiscal years commencing January 1, 2002. An enterprise that has
not applied the fair value based method of accounting should disclose for each
period the pro forma net income and earnings per share, as if the fair value
based accounting method had been used. The pro forma disclosure should be
provided for awards granted in fiscal years beginning on or after January 1,
2002, but need not be provided for awards granted before that date. The
Corporation will disclose the required pro forma effects.
(e) In 2001, 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
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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,
2002. The Corporation is evaluating the impact this standard might have on its
results of operations and financial position.
26. SUBSEQUENT EVENTS
On January 31, 2002, the Corporation completed the acquisition of
privately held The Nielsen Company ("Nielsen"). Nielsen specializes in
producing high quality commercial print, which includes annual reports,
brochures, catalogs, pharmaceutical inserts, and marketing promotional
material.
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 NYSE from time to time depending upon market conditions, market price of
the common shares an the assessment of the cash flow needs by Corporation
management.
51
MANAGEMENT REPORT
All of the information in this annual report is the responsibility of
management and has been approved by the Board of Directors. The financial
information contained herein conforms to the accompanying consolidated
financial statements, which have been prepared and.presented in accordance with
accounting principles generally accepted in Canada and necessarily include
amounts that are based on judgements and estimates applied consistently and
considered appropriate in the circumstances.
The consolidated financial statements as of and for the year ended
December 31, 2001 have been audited by the Corporation's independent auditors,
Deloitte & Touche LLP, and their report is included herein. The consolidated
financial statements as of December 31, 2000 and for the two year period ended
December 31, 2000 have been audited by PricewaterhouseCoopers LLP.
The Corporation maintains a system of internal control which is designed
to provide reasonable assurance that assets are safeguarded, that accurate
accounting records are maintained, and that reliable financial information is
prepared on a timely basis.
To monitor compliance with the system of internal controls and to evaluate
its effectiveness, management employs individuals in an ongoing program of
internal auditing and had contracted with and directed PricewaterhouseCoopers
LLP.
The audit Committee of the Board of Directors is composed entirely of
independent directors and meets quarterly with management and Deloitte & Touche
LLP to review management's evaluation of internal controls, approve the scope
of the program of internal auditing, and discuss the scope and results of audit
examinations. Deloitte & Touche LLP has unrestricted access to the Audit
Committee including the ability to meet without management representatives
present.
/s/ Robert G. Burton /s/ Mark A. Angelson
- ------------------------------------- ------------------------------------
Robert G. Burton Mark A. Angelson
President and Chief Executive Officer Non-Executive Chairman of the Board
February 13, 2002
52
AUDITORS' REPORT
To the Shareholders of Moore Corporation Limited:
We have audited the consolidated balance sheet of Moore Corporation
Limited as at December 31, 2000 and the consolidated statements of operations,
retained earnings and cash flows for each of the two years in the period 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
audits.
We conducted our audits 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 also 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 financial position of the Corporation as at December
31, 2000 and the results of its operations and the changes in its cash flows
for each of the two years in the period ended December 31, 2000 in accordance
with Canadian generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
February 22, 2001
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
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
53
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Moore Corporation Limited:
We have audited the consolidated balance sheet of Moore Corporation
Limited as at December 31, 2001 and the consolidated statements of operations,
retained earnings and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company'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 also 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
audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2001 and the results of its operations and its cash flows for the year ended
December 31, 2001 in accordance with Canadian generally accepted accounting
principles.
The financial statements as at December 31, 2000 and 1999 and for the
years then ended, prior to the change in accounting policy for earnings per
share as described in Note 2, the restatement of segmented information in Note
19 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
earnings (loss) and earnings (loss) per share adjusted to exclude amortization
expense related to goodwill as described in Note 25(a) 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 and 1999 financial statements and in our opinion,
such adjustments and reclassifications, in all material respects, are
appropriate and have been properly applied.
/s/ Deloitte & Touche LLP
- ----------------------------------------
Deloitte & Touche LLP
Chartered Accountants
Toronto, Canada
February 13, 2002,
except as to Note 25 (a),
which is as of June 18, 2002
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with the independent auditors on accounting
and financial disclosure.
55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Corporation's Executive Officers appears in
the "Executive Officers" section at the end of Part I of this report. In
addition, the information regarding the directors of the Corporation appearing
on page 7 of the Management Information Circular and Proxy Statement for the
Annual and Special Meeting of Shareholders held on April 18, 2002 is
incorporated herein by reference. Each director will hold office until the next
annual meeting of shareholders or until a successor is elected or appointed.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding the Directors' and Executive Officers'
compensation appears on pages 11 to 14 of the Management Information Circular
and Proxy Statement for the Annual and Special Meeting of Shareholders held on
April 18, 2002 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information captioned "Security Ownership of Certain Beneficial Owners
and Management" appearing on pages 10 and 11 of the Management Information
Circular and Proxy Statements for the Annual and Special Meeting of
Shareholders held on April 18, 2002 is incorporated herein by reference.
Certain officers of the Corporation, including the Chairman, President and
Chief Executive Officer, and members of the Board of Directors were investors
in Chancery Lane/GSC Investors L.P., the partnership that owned the $70.5
million aggregate principal amount of 8.70% subordinated convertible debentures
due June 30, 2009. The debentures were converted into 21,692,311 common shares
on December 28, 2001.
In 2000, Moore paid a dividend of $0.05 per common share each quarter. In
the first quarter of 2001, Moore paid a dividend of $0.05 per common share. On
April 25, 2001, the Board of Directors decided to suspend future dividends.
Moore does not anticipate declaring and paying cash dividends on the common
shares at any time in the foreseeable future.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information captioned "Certain Relationships and Related Transactions"
appearing on page 18 of the Management Information Circular and Proxy Statement
for the Annual and Special Meeting of Shareholders held on April 18, 2002 is
incorporated herein by reference.
56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a) INDEX TO DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial Statements:
The following consolidated financial statements and reports of the
independent auditors of the Corporation are set forth in Item 8:
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Operations for years ended December 31, 2001,
2000 and 1999
Consolidated Statements of Retained Earnings for the years ended December
31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
Reports of Independent Auditors
2. FINANCIAL STATEMENT SCHEDULES:
Reports of Independent Auditors on Financial Statement Schedule on pages
F-1 and F-2.
SCHEDULE II -- ALLOWANCE FOR DOUBTFUL ACCOUNTS on page F-3.
3. EXHIBITS
See Exhibit Index beginning on page E-1.
14(b) THE FOLLOWING FORMS ON FORM 8-K WERE FILED DURING THE LAST QUARTER OF THE
PERIOD COVERED BY THIS REPORT:
DATE OF REPORT ITEMS REPORTED
- -------------- --------------
October 23, 2001 The death of R. Theodore Ammon, the
Corporation's Non-Executive Chairman
October 24, 2001 Third quarter 2001 earnings press release
December 19, 2001 Increased fourth quarter 2001 earnings
guidance
December 28, 2001 Conversion of the $70.5 million
subordinated convertible debenture
14(c) SEE EXHIBIT INDEX BEGINNING ON PAGE E-1
14(d) THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS A SEPARATE
SECTION OF THIS REPORT (SEE PAGE F-3).
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MOORE CORPORATION LIMITED
By: M.S. Hiltwein
-------------------------------
M.S. Hiltwein, Executive Vice President,
Chief Financial Officer
By: R.T. Sansone
-------------------------------
R.T. Sansone, Vice President, Controller
(Chief Accounting Officer)
Dated: June 19, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mark A. Angelson Director June 19, 2002
-----------------------------
Mark A. Angelson
/s/ Robert G. Burton Chairman of the Board, June 19, 2002
----------------------------- President, Chief Executive
Robert G. Burton Officer and Director
Director June 19, 2002
-----------------------------
Ronald J. Daniels
/s/ Alfred C. Eckert, III Director June 19, 2002
-----------------------------
Alfred C. Eckert, III
/s/ Joan D. Manley Director June 19, 2002
-----------------------------
Joan D. Manley
/s/ Lionel H. Schipper Director June 19, 2002
-----------------------------
Lionel H. Schipper
/s/ John W. Stevens Director June 19, 2002
-----------------------------
John W. Stevens
58
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders of Moore Corporation Limited:
Our audits of the consolidated financial statements referred to in our report
dated February 22, 2001 appearing on page 53 of this Form 10-K also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, the financial statement schedule presents fairly in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 22, 2001
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Moore Corporation Limited:
We have audited the consolidated financial statements of Moore Corporation
Limited as of and for the year ended December 31, 2001, and have issued our
report thereon dated February 13, 2002; such report is included on page 54 of
this Form 10-K. Our audit also included the financial statement schedule of
Moore Corporation Limited, listed in Item 14. This financial statement schedule
is the responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 13, 2002
F-2
MOORE CORPORATION LIMITED
SCHEDULE II -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
ADDITIONS
BALANCE AT CHARGED TO COSTS BALANCE AT
YEAR BEGINNING OF YEAR AND EXPENSE DEDUCTIONS (1) END OF YEAR
- -------------- ------------------- ------------------ ---------------- ------------
1999 ......... $14,212 $ 2,129 $ (2,417) $13,924
2000 ......... 13,924 7,149 (5,799) 15,274
2001 ......... 15,274 11,102 (4,319) 22,057
- ----------
(1) Primarily write-offs, net recoveries and foreign currency translation
adjustments.
F-3
MOORE CORPORATION LIMITED
ANNUAL REPORT ON FORM 10-K
EXHIBIT LIST
3.1(a) Articles of Amalgamation (incorporated by reference from Exhibit 3(a) to
the Annual Report on Form 10-K for the year ended December 31, 1992)
3.1(b) Amendment of Articles of Amalgamation (incorporated by reference from
Exhibit 3.1(b) to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001)
3.2 By-Laws (incorporated by reference from Exhibit 3(g) to Annual Report on
Form 10-K for the year ended December 31, 1989)
4.1 Note Purchase Agreement, dated as of March 25, 1999 among Moore
Corporation Limited, Moore North America Finance, Inc. and the Purchasers
named therein related to U.S. $85,500,000 principal amount of 7.84%
Senior Guaranteed Notes, Series A Due March 25, 2006 and U.S.
$114,500,000 principal amount of 8.05% Senior Guaranteed Notes, Series B
Due March 25, 2009 (incorporated by reference from Exhibit 4.1 to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
4.2 Debenture Purchase Agreement, dated as of December 12, 2000 between Moore
Corporation Limited and Chancery Lane/GSC Investors L.P. (incorporated by
reference from Exhibit 4.2 to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001)
4.3 8.70% Subordinated Convertible Debenture due June 30, 2009 issued to
Chancery Lane/GSC Investors L.P. (incorporated by reference from Exhibit
4.3 to the Quarterly Report on Form 10-Q for the quarter ended September
30, 2001)
4.4 Standstill Agreement, dated December 21, 2000 among Moore Corporation
Limited, Chancery Lane/GSC Investors L.P. and CLGI, Inc. (incorporated by
reference from Exhibit 4.4 to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001)
4.5 Registration Rights Agreement, dated as of December 21, 2000 between
Moore Corporation Limited and Chancery Lane/GSC Investors L.P.
(incorporated by reference from Exhibit 4.5 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001)
10.1 Supplemental Executive Retirement Plan for Designated Executives -- B
(incorporated by reference from Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001)*
10.2 2001 Long Term Incentive Plan (incorporated by reference from Exhibit
10.2 to the Annual Report on Form 10-K for the year ended December 31,
2001 filed on March 29, 2002)*
10.3 Employment Agreement, dated December 11, 2000, between Moore Corporation
Limited and Robert G. Burton (incorporated by reference from Exhibit 10.2
to the Quarterly Report on Form 10-Q for the quarter ended September 30,
2001)*
10.4 Employment Agreement, dated as of December 11, 2000, between Moore
Corporation Limited and Robert B. Lewis (incorporated by reference from
Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001)*
10.5 Employment Agreement, dated as of December 11, 2000, between Moore
Corporation Limited and James E. Lillie (incorporated by reference from
Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001)*
10.6 Employment Agreement, dated as of December 11, 2000, between Moore
Corporation Limited and Mark S. Hiltwein (incorporated by reference from
Exhibit 10.6 to the Annual Report on Form 10-K for the year ended
December 31, 2001 filed on March 29, 2002)*
10.7 Employment Agreement, dated as of December 11, 2000, between Moore
Corporation Limited and Thomas J. Quinlan, III (incorporated by reference
from Exhibit 10.7 to the Annual Report on Form 10-K for the year ended
December 31, 2001 filed on March 29, 2002)*
E-1
10.8 Offer letter, dated January 2, 2001, between Moore Corporation Limited
and Thomas W. Oliva (incorporated by reference from Exhibit 10.8 to the
Annual Report on Form 10-K for the year ended December 31, 2001 filed on
March 29, 2002)*
10.9 Offer letter, dated January 10, 2001, between Moore Corporation Limited
and Dean E. Cherry (incorporated by reference from Exhibit 10.9 to the
Annual Report on Form 10-K for the year ended December 31, 2001 filed on
March 29, 2002)*
10.10 Amended Restated Credit Agreement, dated as of August 15, 1999, among
FRDK, Inc., as the Borrower, Moore Corporation Limited, as Parent and a
Guarantor, Certain Subsidiaries of the Parent, named therein, as
Subsidiary Guarantors, Certain Financial Institutions named therein, as
the Lenders and the Bank of Nova Scotia, as Agent for the Lenders
(incorporated by reference from Exhibit 10.5 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001)
11 Calculation of Earnings and Earnings Per Share (incorporated by reference
from Exhibit 11 to the Annual Report on Form 10-K for the year ended
December 31, 2001 filed on March 29, 2002)
21 Subsidiaries of the Registrant (incorporated by reference from Exhibit 21
to the Annual Report on Form 10-K for the year ended December 31, 2001
filed on March 29, 2002)
23.1 Consent of PricewaterhouseCoopers LLP Chartered Accountants
23.2 Consent of Deloitte & Touche LLP Chartered Accountants
- ----------
* Management contract or compensation plan or arrangement
E-2